PreMid Notes

1 | A N G G E S a l e s N o t e s

CHAPTER 1

NATURE AND FORM OF THE CONTRACT

ARTICLE 1458

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership 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. (1445a)

I. Nature and Characteristics

A. Definition

SALES - A nominate contract whereby 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.

CONTRACT OF SALE – an agreement whereby a party called the SELLER of VENDOR obligates himself to deliver and transfer the ownership of a determinate thing to another party called the BUYER OR VENDEER who in turn obligates himself to pay therefore, a price certain in money or its equivalent to the former.

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance of contracts." Since there was, between the parties, a meeting of minds upon the object and the price, there was already a perfected contract of sale. What was, however, left to be done was for either party to demand from the other their respective undertakings under the contract. It may be demanded at any time either by the private respondents, who may compel the petitioners to pay for the property or the petitioners, who may compel the private respondents to deliver the property. (Villamor Case)

1. Effect of execution of waiver of rights

Acap v. CA, GR No. 118114, Dec. 7, 1995 – Angge

Facts: The title to a lot in Negros Occidental was issued and is registered in the name of spouses Santiago Vasquez and Lorenza Oruma. After both spouses died, their only son Felixberto inherited the lot. In 1975, Felixberto sold the lot to Cosme Pido. Since 1960, Teodoro Acap was tenant of a portion of the land. When ownership was transferred in 1975, Acap continued to be the registered tenant and religiously paid his rentals to Pido, and after his death, to his widow Laurencia. Pido died intestate and his surviving heirs (wife and four children) executed a document (Declaration of heirship with waiver of rights), adjudicating the land equally amongst themselves, and waiving all their rights in favor of Edy de los Santos. The title continued to be registered in the name of the Vasquez spouses. Upon obtaining the Declaration of Heirship with waiver of rights, Edy filed it with the Registry of Deeds as part of a notice of adverse claim against the original certificate of title. Edy told Acap personally he was the new owner of the land and that the lease rentals (10 cavans of palay per annum) were to be paid to him. Allegedly, Acap agreed and complied. In 1983 however, Acap refused to pay any further lease rentals, prompting private respondent to get the assistant of the Ministry of Agrarian Reform. A MAR officer informed Acap’s wife about Edy’s ownership, but she said she and her husband did not recognize the ownership over the land. After four years, Edy filed a complaint for recovery of possession and damages against Acap, as he refused to pay agreed rentals. The trial court decided in favor of Edy & stated that the evidence had established that the subject land was "sold" by the heirs of Cosme Pido to Edy. It forfeited Acap’s preferred right underPD 27 and ordered Acap to deliver the farm to Edy which was affirmed by the CA.

Issue: W/N the Declaration of Heirship and Waiver of Rights can be considered a deed of sale in favour of Edy de los Santos of the lot in question.

Held: The Declaration of Heirship was not the same as a contract/deed of sale. In a contract of sale, one party obligates himself to transfer ownership and to deliver a determinate thing, and the other party to pay a certain price. A declaration of heirship and waiver of rights operates as a private instrument when filed with the Registry of Deeds. It is in effect an extrajudicial settlement. There is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes a deed of sale. The second is a mode of extinction of ownership. Edy, being a stranger to the succession of Cosme Pido cannot conclusively claim ownership on the sole basis of the waiver document which neither recites the elements of a sale, donation or any other derivative mode of acquiring ownership. The fact that the adverse claim was duly proven does not prove ownership. It is nothing but a notice of adverse claim. In itself is not sufficient to transfer title to Edy de los Reyes.

CONTRACT OF SALE AND DECLARATION OF HEIRSHIP WITH WAIVER OF RIGHTS, DISTINGUISHED. — In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to


pay a price certain in money or its equivalent. Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court.

HEREDITARY RIGHTS; SALE AND WAIVER THEREOF, DISTINGUISHED. — There is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. Private respondent, being then a stranger to the succession of Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document which neither recites the elements of either a sale, or a donation, or any other derivative mode of acquiring ownership.

Caoibes v. Pantoja, GR No. 162873, July 21, 2006 - Lex

Facts: Petitioners Jose, Melencio and Loida Caoibes, and respondent Corazon Caoibes-Pantoja, forged an agreement entitled "Renunciation and Transfer of Claims, Rights, and Interests" of a land. For and in consideration of the payment by the SECOND PARTY[-herein respondent Corazon Caoibes-Pantoja] of the loan secured by a real estate mortgage constituted on the property described and delineated in TCT No. P-189 of the Registry of Deeds of Batangas, said loan in the principal amount of NINETEEN THOUSAND PESOS (P19,000.00) exclusive of accrued interest being presently outstanding in the name of GUILLERMO C. JAVIER, petitioners renounced, relinquished, abandoned and transferred, ceded and conveyed whatever rights "they may have" over the subject lot in favor of respondent and on account of the renunciation and transfer, petitioners transferred "whatever rights they” may have in the prosecution of the land registration proceeding."

14 years after the execution of the parties’ agreement, respondent filed a motion to intervene and be substituted as applicant. The motion was opposed by petitioners who denied the authenticity and due execution of the agreement, they claiming that the same was without the consent and conformity of their mother, the "usufructuary owner" of the land. The land registration court, finding for petitioners, denied respondent’s motion. Respondent filed a Complaint for Specific Performance and Damages against petitioners before the RTC for the enforcement of petitioners’ obligation under the agreement.

Issue: W/N there was a contract of sale.

Ruling: Petitioners renounced and transferred whatever rights, interests, or claims they have over the lot favor of respondent for and in consideration of her payment of the therein mentioned loan in the principal amount of P19,000 which was outstanding in the name of one Guillermo C. Javier.

o Articles 1458, 1498 and 1307 of the Civil Code which are pertinent to the resolution of the petition provide:

o 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.

o Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

o Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Title I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place.

o The agreement of the parties is analogous to a deed of sale in favor of respondent, it having transferred ownership for and in consideration of her payment of the loan in the principal amount of P19,000 outstanding in the name of one Guillermo C. Javier. The agreement having been made through a public instrument, the execution was equivalent to the delivery of the property to respondent. Petition dismissed.

2. Effect of document denominated “Agreement Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.”

Toyota Shaw, Inc. v. CA, L-116650, May 23, 1995

Facts: Sosa wanted to purchase a Toyota Lite Ace. Upon contacting Toyota Shaw, Inc., he was told that there was an available unit. There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989. Bernardo assured Sosa that a unit would be ready for pick up. Bernardo then signed the "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this


Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00, but Bernardo told them that the car could not be delivered.

Toyota contends that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, the receipt of which was shown by a check voucher of Toyota, which Sosa signed with the reservation, "without prejudice to our future claims for damages."

Issue: whether or not there was a perfected contract of sale

Rule: There is no perfected contract of sale.

Article 1458 of the Civil Code defines a contract of sale as follows: (par1.) 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. (par2.) A contract of sale may be absolute or conditional.

Article 1475 specifically provides when it is deemed perfected: (par1.) The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. (par2.) From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

The document denominated “Agreement Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.

A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property.

There was no meeting of minds between Toyota and Sosa. Sosa did not even sign it. Also, Sosa was well aware from its title that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.

At the most it may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price.

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. Petition is GRANTED.

3. Effect of offer and counter-offer


Manila Metal Container Corporation v. PNB, GR No. 166862, Dec. 20, 2006 - Hanna

Facts: To secure a loan it had obtained from PNB, petitioner executed a real estate mortgage over the lot. Petitioner executed an Amendment of Real Estate Mortgage over its property. Petitioner secured another loan from PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction and was declared the winning. The Certificate of Sale issued in its favor was registered and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984. Petitioner repeatedly requested for a one year extension to redeem/repurchase the property on installment basis. He was informed by PNB personnel that as a matter of policy, the bank does not accept 'partial redemption.’ Since petitioner failed to redeem the property, the Register of Deeds cancelled TCT No. 32098 on June 1, 1984, and issued a new title in favor of respondent PNB. , the SAMD recommended to the PNB management that petitioner be allowed to repurchase the property for P1,574,560.00. The PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. It was suggested that petitioner purchase the property for P2,660,000.00, its minimum market value. Petitioner, however, did not agree to respondent PNB's proposal and requested for reconsideration, but the Respondent PNB merely reiterated its previous proposal and informed petitioner that it would return the deposit should petitioner desire to withdraw its offer to purchase the property. (Gracie’s Note: In a nutshell, there was a series of offers and counter-offers.) Petitioner filed a complaint against PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." PNB averred that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired.

Issue: whether or not the offer and counter-offer resulted to a perfected contract of sale

Ruling: There was no perfected contract of sale between the parties.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established.

Contracts are perfected by mere consent. Once perfected, they bind other contracting parties and the obligations arising have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay a price certain in money or its equivalent. The absence of any of the essential elements will negate the existence of a perfected contract of sale. In Boston Bank of the Phils. v. Manalo: “A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.”

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract. When the contract of sale is not perfected, it cannot serve as a binding juridical relation between the parties. The stages of a contract of sale are as follows: (1) negotiation; (2) perfection; and (3) consummation.

A negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal.

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer. The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.

B. Characteristics: CBONPC

a. Consensual – perfected by mere consent

b. Bilateral –Both parties are obliged to fulfill reciprocal obligations to one another. The seller will deliver and transfer a determinate thing to the buyer and the latter will pay an ascertained price (or equivalent) therefore.

c. Onerous –The thing sold is conveyed in consideration of the purchase price and the purchase price is paid in consideration of the conveyance of the thing delivered.


d. Nominate –It has a specific name given by law. – “sale”

e. Principal – Its existence does not depend upon the existence and validity of another contract.

f. Commutative –The thing sold is considered the equivalent of the price paid and the price paid is the equivalent of the thing sold. Its opposite is aleatory contract where the consideration is not equivalent of what has been received. Ex: purchase of a lotto ticket. If the ticket wins, the prize to be received is very much more than the price for the ticket.

C. Elements (COC)

(1) CONSENT – The vendor obligates himself to transfer the ownership of and to deliver a determinate thing, and the vendee obligates himself to pay therefore a price certain in money or its equivalent.

(2) OBJECT CERTAIN which is the subject matter of the contract. The object must be licit and at the same time determinate or, at least, capable of being made determinate without the necessity of a new or further agreement between the parties.

(3) CAUSE OF THE OBLIGATION which is established. The cause as far as the vendor is concerned is the acquisition of the price certain in money or its equivalent, while the cause as far as the vendee is concerned is the acquisition of the thing which is the object of the contract.

D. Distinguished from Other Contracts)

a. Vs. Agency to Sell

Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered.

This is tested by the criterion that if such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is that of a sale. But if the delivery is to another, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made, the transaction is that of an agency to sell. Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency. (Commissioner of Internatl Revenue v. Engineering)

Differences

Contract of Sale Agency to Sell

Buyer Pays the Price of object Agent not obliged to pay price, merely obliged to deliver price received from buyer

Buyer becomes owner of thing after delivery Principal remains owner even if property has been delivered to agent

The seller warrants The agent who sells assumes no personal liability as long as he acts within his authority and in the name of the principal

1. Effect of agreement for exclusive sale of beds where the other party is entitled to commission, among others

Quiroga v. Parsons Hardware Co.

Facts: A contract was executed between Quiroga and J. Parsons for the exclusive right to sell as an “agent” Quiroga beds in the Visayan Islands. Defendant was obliged under the contract to pay for the beds, at a discount of 25% as commission on the sales. They payment had to be made whether or not Quiroga was able to sell the beds. Quiroga contends that Parsons violated the following obligations: not to sell beds at higher prices than those of the invoices, to have an open establishment in Iloilo; to conduct the agency, to keep the beds on public exhibition, and to pay for the advertisement expenses for the same, and to order the beds by the dozen and in no other manner. He further alleged that Parsons was his agent for the sale in Iloilo, and said obligations are implied in a contract of commercial agency. Issue: Is there a contract of sale or an agency to sell?


Held: The agreements contained in the contract constitute, according to law, covenants of purchase and sale, and not of commercial agency. It must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. For the classification of contracts, due regard must be paid to their essential clauses. In the contract in the instant case, what was essential, constituting its cause and subject matter, was that the plaintiff was to furnish the defendant with the beds which the latter might order, at the stipulated price, and that the defendant was to pay this price in the manner agreed upon. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on that of the defendant, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatary or agent receives the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it.

Only the acts of the contracting parties, subsequent to and in connection with, the performance of the contract must be considered in the interpretation of the contract when such interpretation is necessary, but not when, as in the instant case its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another.

In fact, not a single one of the clauses in the contact necessarily conveys the idea of an agency. The words commission on sales used mean nothing else than a mere discount on the invoice price. The word agency, also used, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands.

Adviento: If it were a contract of agency, then Parsons would be liable.

2. Relationship between the parties in a “Dealer and Sales Service Agreement”

Commission of Internal Review v. Constantino - Jasper

Facts: Petitioner Commissioner of Internal Revenue (CIR) assessed against and demanded from respondent Constantino the commercial broker’s percentage tax of 6% on his gross compensation for 1956, as dealer or distributor of the products of International Harvester, Macleod, Inc. (IHM).Respondent is designated as the exclusive dealer of the products IHM within a prescribed territory. Constantino protested the assessment on the ground that he is not a commercial broker. In classifying himself as an independent merchant instead of a commercial broker, respondent Constantino cites that he may buy IHM products for Resale to his customers; that he is granted trade discounts and a cash discount under certain conditions; that he may purchase service parts on open credit account or on a 30-day term; and that he sold service parts to his customers on cash basis. Constantino also cited the fact that his purchases are covered by IHM’s sales invoices, and when he re-sells he issues his own sales invoice.

Issue: Whether or not the relationship between the respondent and IHM is that of a vendor and a vendee.

Held: . A casual examination of respondent’s evidence may give the impression that this relationship with the company is that of vendor and vendee, but a closer look into the actual legal effect of the terms and conditions embodied, rather than the names of the contracts used or the terminologies employed, in the chain of documents shows that the relation between the company and the respondent is one of principal and agent. Respondent failed to state or notice, however, the condition in his agreement with IHM, which is in small print, that the title of the goods delivered under this order shall remain in IHM until the full purchase price shall have been paid in cash or acceptable security. That the dealer should issue his own sales invoice to the customer is neither a means of acquiring ownership nor is it proof of ownership. Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company’s control, the relationship between the company and the dealer is one of agency.

CONTRACT OF AGENCY TO SELL. This is tested by the criterion that if such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is that of a sale. But if the delivery is to another, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made, the transaction is that of an agency to sell. Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency.

DISCOUNT OF 16% IS NOT TRADE DISCOUNT BUT COMPENSATION. It is contended that the respondent is not an agent of IHM because their "Dealer Sales and Service Agreement" expressly provide that he "is not the Company's agent in any respect . . .", But as respondent is not an independent merchant, but an agent, the discount of 16% that he receives is not a "trade discount" but a compensation or profit for selling or bringing about sales or purchases of merchandise for the company.

b. Vs. Lease of service or piece of work (1467)


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

Contract of Sale v. Contract of Services; Test. — The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed but has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at purchaser's request, it is a contract of sale even though it may be entirely made after, and in consequence of the purchaser's order for it. (Commissioner of Internal Revenue v. Engineering)

If contract for delivery of an article which the vendor in the ordinary course of business manufactures or procures for the general market (whether on hand or not) – SALE

If goods are to be manufactured specially for a customer and upon special order and not for the general market – CONTRACT FOR PIECE OF WORK

1. Nature of transactions of company engaged in the design, supply, and installation of certain type of air conditioning system

Commissioner of Internal Revenue v. Engineering Equipment and Supply Co. - Toryo

Facts: Engineering Equipment and Supply Co., a domestic corporation, is engaged in the design and installation of central type air conditioning system, pumping plants and steel fabrications. CIR now denounced Engineering for tax evasion by misdeclaring its imports and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax.

Issue: WON the installation of a centralized air-conditioning system a contact of sale or a contract for piece of work?

Held: Contract for Piece of work Engineering did not manufacture air conditioning units for sale to the general public, but imported some items (as

refrigeration compressors in complete set, heat exchangers or coils) which were used in executing contracts entered into by it. Supply of air conditioning units to Engineer's various customers, whether the said machineries were in hand or not, was especially made for each customer and installed in his building upon his special order. The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineering's customer, the said air conditioning units were not intended for sale to the general public. Moreover, it advertises itself as a contractor and pays the contractor's tax for design and construction of central type air conditioning systems, and does not have ready-made air-conditioning units for sale, but must design and construct each unit to meet the particular requirements of its customers, said taxpayer is considered a contractor rather than a manufacturer for purposes of the Tax Code. Thus, such taxpayer is not a manufacturer subject to the 30% advance sales tax prescribed in Section 185 (m) in relation to Section 194 of the Tax Code, but is a contractor subject to the 3% tax imposed by Section 191 of the same Code.

Contract of Sale v. Contract of Services; Test. — The distinction between a contract of sale and one for work, labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed but has been the subject of sale to some other persons even if the order had not been given. If the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at purchaser's request, it is a contract of sale even though it may be entirely made after, and in consequence of the purchaser's order for it.

Main factor in decision of SC: essence why parties entered into contracta. essence is object – contract of saleb. essence is service – contract for piece of work

2. Interpretation of “Supply Agreement”

Del Monte Philippines Inc. v. Aragones

Facts: Del Monte entered into an Agreement MEGA-WAFF whereby MEGA undertook "the supply and installation of modular pavement" at DMPI's condiments warehouse within 60 days. To source its supply of blocks, MEGA entered into a Supply Agreement with Dynablocks / Aragones. Aragones thereupon started assembling the machines for the fabrication/casting of the concrete blocks which MEGA specified to be hexagonal shaped. MEGA later directed Aragones to instead fabricate machines for S shaped blocks. Dynablocks was not able to finish the blocks on the specified date. Aragones demanded payment for his services. But MEGA refused to pay because of the delay. Aragones sent DMPI a letter obligating and requesting it to be paid directly to him. DMPI refused saying


he should get a court order. DMPI released full payment to Mega. DMPI says it was a contract of sales and, thus, not a privy to the contract between Mega and Aragones. SC said it was a privy since it was a piece of work, thus it is liable.

The “Supply Agreement" is replete with specifications, terms or conditions showing that it was one for a piece of work. The machines Aragones was obliged to fabricate were those for casting the concrete blocks specified by Garcia. Aragones did not have those kind of machines in his usual business, hence, the special order. That, while initially Garcia specified that the machines to be fabricated should be for hexagon shaped blocks, he later asked Aragones to instead fabricate machines for casting S shaped blocks. For Aragones to fabricate machines for casting S shaped, instead of hexagon shaped blocks, show that the concrete blocks were "manufactured specifically for, and upon the special order" of Garcia and devoted only "for the exclusive use" of MEGA-WAFF.

Aragones having specially fabricated three casting machines and furnished some materials for the production of the concrete blocks specially ordered and specified by MEGA-WAFF which were to be and indeed they were for the exclusive use of MEGA-WAFF, he has a cause of action upon DMPI up to the amount it owed MEGA-WAFF at the time Aragones made his claim to petitioner.

c. vs. Barter (1468)

Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a)

Rules to Determine Whether Contract is one of Sale or Barter

a) First Rule – Intent: In order to judge intention, consider the contemporaneous and consequent acts of the parties. Name given by parties is presumptive, but may be rebutted.

b) If intention not clear:

1. If thing is more valuable than money – BARTER

2. If 50-50 – SALE

3. If thing is less valuable than the money – SALE

Ex: If I give my car worth 900K to Joe in consideration of him giving to me 300K cash and a diamond ring worth 600k, what is the transaction? It depends on mutual intent. But if intent not clear, it is a BARTER because the ring (600K) is more valuable than the money (300K)

d. vs. Dation in Payment

Sale Dation in Payment

No pre-existing credit There is a pre existing credit

Gives rise to obligations Extinguishes obligations

The cause or consideration is the price from the viewpoint of the seller; obtaining the object from the viewpoint of the buyer

From the debtor: Extinguishment of debt

From the creditor: acquisition of object in lieu of debt

e. vs. Lease of Things

Sale Lease

Obligation to absolutely transfer ownership of thing Use of thing is for a specified period w/ obligation to return

Consideration is price Consideration is rent

Seller needs to be owner of thing to transfer ownership Lessor need not be owner

f. vs. Donation

Donation – gratuitous; sale – onerous


Donation – formal contract; sale - consensual

E. PROMISE TO SELL: WHEN BINDING (Art. 1479)

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 ting for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price.

a. Bilateral –The first paragraph refers to a bilateral reciprocal contract there being a promise to buy on the part of the buyer, and a promise to sell on the part of the seller. This juridical relationship is reciprocally demandable. The object is a determinate thing and the price is certain. There is no need for a condition for this bilateral promise to buy and sell.

The bilateral promise gives to the contracting parties personal rights to demand fulfillment of the obligation from each other. (Borromeo v. Franco, 5 Phil 49)

b. Unilateral –The second paragraph refers to an accepted unilateral promise of the –

(1) Buyer to buy a determinate property for a price certain; or(2) Seller to sell a determinate property for a price certain.o binding on the promissory only if the promise is supported by a consideration distinct from the price

Option Contract – An optional contract is a privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, for example, certain merchandise or certain specified property from another person at any time within the agreed period at a fixed price. The contract of option is a separate and distinct contract from the contract where the parties may enter into upon the consummation of the option. A consideration for an optional contract is just as important as the consideration for any other kind of contract.

An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former’s property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. (Eulogio v. Apeles)

Test to Determine Whether a Contract is a Contract of Sale or an Option –Whether or not the agreement could be specifically enforced.

Effect of Breach of Promise to Buy or Sell –The injured party can only seek damages. The obligation arising from the option contract are not obligations “to give” but “to do.”

Acceptance of an Offer –The acceptance of the offer must be plain, clear and unconditional. It must be unqualified and absolute in order to be binding.

Policitacion – a unilateral promise to buy or sell which is not accepted by the other party. It produces no legal effect. It is a mere offer, and has not been converted into any contract.

(1) Option Defined

Eulogio v. Apeles, GR No. 167884, Jan. 20, 2009 - Joefil

Facts: Spouses Apeles and Enrico allegedly entered into a Contract of Lease6 with Option to Purchase involving the subject property. According to the said lease contract, Luz Apeles was authorized to enter into the same as the attorney-in-fact of her husband, Clemente, pursuant to a Special Power of Attorney executed by the latter in favor of the former on 24 January 1979. The contract purportedly afforded Enrico, before the expiration of the three-year lease period, the option to purchase the subject property for a price not exceedingP1.5 Million. Before the expiration of the three-year lease period provided in the lease contract, Enrico exercised his option to purchase the subject property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles supposedly ignored Enrico’s manifestation. This prompted Enrico to seek recourse from the barangay for the enforcement of his right to purchase the subject property, but despite several notices, the spouses Apeles failed to appear before the barangay for settlement proceedings.

Issue: W/N the option contract is enforceable.

Held: The provision on the option to purchase in the Contract is unenforceable. There is no question that under Article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In other words, "an accepted unilateral promise" can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted,

http://www.lawphil.net/judjuris/juri2009/jan2009/gr_167884_2009.html#fnt6


if the same is not supported by any consideration. Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the acceptance made of it by appellee. Without consideration that is separate and distinct from the purchase price, an option contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price for the subject property in the amount not exceeding P1.5 Million, which could not be deemed to be the same consideration for the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a consideration separate and distinct from the price. No consideration was given by Enrico to the Spouses for the option contract. The absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract.

Option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer.

The consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." To support an option contract, there need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary.

(2) Consideration in an Option Contract

Villamor v. CA, GR 97332, Oct. 10, 1991 - Nina

Facts: Macaria Labingisa Reyes sold a portion of 300 square meters of the lot to the Spouses Julio and Marina and Villamor for the total amount of P21,000.00. On November 11, 1971, Macaria executed a "Deed of Option" in favor of Villamor in which the remaining 300 square meter portion of the lot would be sold to Villamor under certain conditions, one of which: That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the said one-half portion at the above-stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed to sell and convey to them the remaining one-half portion still owned by me xxx , whenever the need of such sale arises, either on our part or on the part of the spouses (Julio) Villamor and Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever improvement may be found the thereon. According to Macaria, when her husband, Roberto Reyes, retired in 1984, they offered to repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and reminded them instead that the Deed of Option in fact gave them the option to purchase the remaining portion of the lot. The Villamors, on the other hand, claimed that they had expressed their desire to purchase the remaining 300 square meter portion of the lot but the Reyeses had been ignoring them. Thus, on July 13, 1987, after conciliation proceedings in the barangay level failed, they filed a complaint for specific performance against the Reyeses.

Issue: W/N there was a VALID Deed of Option whereby the private respondents agreed to sell their lot to petitioners "whenever the need of such sale arises, either on private respondents part or on the part of Julio Villamor and Marina Villamor.

Held: The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a privilege existing in one person, for which he had paid a consideration and which gives him the right to buy, for example, certain merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed by the parties, We will notice that the first part covered the statement on the sale of the 300 square meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the actual reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to buy the said lot at a much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the Villamors the option to buy the remaining 300 square meter-half portion of the lot in consideration for their having agreed to buy the other half of the land for a much higher price. But, the "deed of option" went on and stated that the sale of the other half would be made "whenever the need of such sale arises, either on our (Reyeses) part or on the part of the Spouses Julio Villamor and Marina V. Villamor. It appears that while the option to buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. It was not only the Villamors who were granted an option to buy for which they paid a consideration; the Reyeses as well were granted an option to sell should the need for such sale on their part arise. The option offered by private respondents had been accepted by the petitioner, the promise, in the same document. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and upon acceptance, the offer, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of the deed.


But while the Deed of Option was valid, it already lapsed. The Deed of Option did not provide for the period within which the parties may demand the performance of their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the property and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure of either parties to demand performance of the obligation of the other for an unreasonable length of time renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The Deed of Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted in the same instrument. The complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years from the time of the execution of the contract. Hence, the right of action had prescribed.

Bible Baptist Church v. CA, G.R. 126454, Nov. 26, 2004 – Anafe

Facts:Petitioner Baptist Church entered into a lease contract with the spouses Villanueva on the latter’s property in Malate, Manila on June 7, 1985. Stipulations in the contract include an option to buy said premises and the payment of a lump sum of P84,000 (upon signing of the lease agreement) to the Rural Bank, Valenzuela, Bulacan for the purpose of redeeming the property which is mortgaged by the lessor. Baptist Church seeks to buy the leased premises from the respondents arguing that the amount of P 84,000 is deemed to be the consideration to support the option contract. However, said amount was rather apportioned as rentals for a year @ 7,000 per month from June 1985 to May 1986.

Held: The Court cannot find that petitioner Baptist Church parted with anything of value, aside from the amount of P84,000 which was in fact eventually utilized as rental payments. Second, there is no document that contains an agreement between the parties that petitioner Baptist Church's supposed rescue of the mortgaged property was the consideration which the parties contemplated in support of the option clause in the contract. As previously stated, the amount advanced had been fully utilized as rental payments over a period of one year. While the Villanuevas may have them to thank for extending the payment at a time of need, this is not the separate consideration contemplated by law.

Under Art. 1479 of the Civil Code , an option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.

Hence, the option to buy the leased premises was not binding upon the Villanuevas for non-compliance with Article 1479. It was not supported by a separate consideration or there was no money exchanged for and in consideration of the option.

With separate consideration: option contract valid, offeror cannot withdraw offer until expiry period; subject to recission, damages but not to specific performance because this is not an obligation to give

W/O separate consideration: offer is still valid but option contract is void; not subject to recission, damages

F. The Contract of Sale may be –

A perfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any condition of the passing of title of the thing to be conveyed or on the obligation of a party thereto.

a. Absolute

When no condition is imposed and ownership passes to the vendee upon delivery of the thing subject of the sale. A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is

reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

Although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code) (Heirs of Mascunana v. CA)

Ramos v. Heruela. GR. No. 145330, Oct. 14, 2005


Facts: Spouses Ramos own a parcel of land, consisting of 1,883 square meters. They made an agreement with “spouses Heruela” covering 306 square meters of the land. According to the spouses Ramos, the agreement is a contract of conditional sale. The spouses Heruela alleged that the contract is a sale on installment basis.

The spouses Ramos filed a complaint for Recovery of Ownership with Damages against the spouses Heruela. The spouses Ramos allege that out of the P15,300 consideration for the sale of the land, the spouses Heruela paid only P4,000. The spouses Ramos assert that the spouses Heruela’s unjust refusal to pay the balance of the purchase price caused the cancellation of the Deed of Conditional Sale. The Ramoses discovered that the spouses Heruela were already occupying a portion of the land. Spouses Pallori, daughter and son-in-law of the spouses Heruela, erected another house on the land. The spouses Heruela and the spouses Pallori refused to vacate the land despite demand by the spouses Ramos.

The trial court ruled that the contract is a sale by installment. The trial court ruled that the spouses Ramos failed to comply with Section 4 of Republic Act No. 6552 ("RA 6552"), 6 as follows: SEC. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Ruling: The Agreement is a Contract to Sell

In this case, the agreement of the parties is embodied in a one-page, handwritten document. The document does not contain the usual terms and conditions of a formal deed of sale. The original document, elevated to this Court as part of the Records, is torn in part. Only the words "LMENT BASIS" is legible on the title. The names and addresses of the parties and the identity of the property cannot be ascertained.

In Manuel v. Rodriguez, et al., the Court ruled that to be a written contract, all the terms must be in writing, so that a contract partly in writing and partly oral is in legal effect an oral contract. The Court reiterated the Manuel ruling in Alfonso v. Court of Appeals: “. . . In Manuel, "only the price and the terms of payment were in writing," but the most important matter in the controversy, the alleged transfer of title was never "reduced to any written document.” It was held that the contract should not be considered as a written but an oral one; not a sale but a promise to sell; and that "the absence of a formal deed of conveyance" was a strong indication "that the parties did not intend immediate transfer of title, but only a transfer after full payment of the price." Under these circumstances, the Court ruled Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to the contract in controversy — a contract to sell or promise to sell — "where title remains with the vendor until fulfillment of a positive suspensive condition, such as full payment of the price.

Spouses Heruela did not immediately take actual, physical possession of the land. According to the spouses Ramos, in March 1981, they allowed the niece of the spouses Heruela to occupy a portion of the land. Indeed, the spouses Ramos alleged that they only discovered in June 1982 that the spouses Heruela were already occupying the land. In their answer to the complaint, the spouses Heruela and the spouses Pallori alleged that their occupation of the land is lawful because having made partial payments of the purchase price, "they already considered themselves owners" of the land. 18 Clearly, there was no transfer of title to the spouses Heruela. The spouses Ramos retained their ownership of the land. This only shows that the parties did not intend the transfer of ownership until full payment of the purchase price.

RA 6552 is the Applicable Law. The trial court did not err in applying RA 6552 to the present case. Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals, the Court declared: “the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments . .”

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the


contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of RA 6552 applies. However, there was neither a notice of cancellation nor demand for rescission by notarial act to the spouses Heruela. In Olympia Housing, Inc. v. Panasiatic Travel Corp., the Court ruled that the vendor could go to court to demand judicial rescission in lieu of a notarial act of rescission. However, an action for reconveyance is not an action for rescission. The Court explained in Olympia: “The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any time prior to the institution of the action for reconveyance. . . .xxx xxx xxx

In the present case, there being no valid rescission of the contract to sell, the action for reconveyance is premature. Hence, the spouses Heruela have not lost the statutory grace period within which to pay. The trial court should have fixed the grace period to sixty days conformably with Section 4 of RA 6552.The spouses Heruela are not entirely fault-free. They have been remiss in performing their obligation. The trial court found that the spouses Heruela offered once to pay the balance of the purchase price. However, the spouses Heruela did not consign the payment during the pendency of the case. In the meanwhile, the spouses Heruela enjoyed the use of the land. WHEREFORE, we AFFIRM the RTC, dismissing the complaint for Recovery of Ownership with Damages, with MODIFICATION.

Heirs of Mascunana v. CA, GR No. 158646, June 23, 2005 - Angge

Facts: Gertrudis Wuthrich and her six other siblings were the co-owners of a parcel of land identified as Lot No. 124 of the San Carlos City, Negros Occidental. Over time, Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares, or a total area of 741 square meters, to Jesus Mascuñana. The latter then sold an undivided 469 square meter portion of the property to Diosdado Sumilhig. He executed a Deed of Absolute Sale selling the property for P4,690 with P3,690.00 as down payment, and that the balance of P1,000 shall be paid as soon as the above-portions of Lot 124 shall have been surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared. In the meantime, a survey was conducted for the co-owners of Lot No. 124 and the portion of the property deeded to Sumilhig was identified as Lot No. 124-B. Sumilhig then executed a Deed of Sale of Real Property on a portion of Lot No. 124-B in favor of spouses Layumas who took possession of the property, allowed a chapel to be constructed on a portion of the property and allowed Aquilino Barte to stay on a portion of the property to ward off squatters. On November 17, 1986, the heirs of Mascuñana filed a Complai nt for recovery of possession of Lot No. 124-B and damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of successional rights from their deceased father. The petitioners contended that the Deed of Absolute Sale between their father and Sumilhig was a contract to sell, not a contract of sale, because the payment of the P1,000.00 balance of the purchase price was subject to a suspensive condition. The petitioners assert that Sumilhig never paid the aforesaid amount to the vendor; hence, the obligation of the latter and his predecessors-in-interest to execute a final deed of sale never arose. As such, title to the property remained reserved in the vendor and his heirs even after his death.

Issue: WAS THE SALE OF LOT NO. 124-B MADE BY JESUS M. MASCUÑANA IN FAVOR OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?

Held: A contract of sale may be absolute or conditional. A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period. The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect.

It is settled that a perfected contract of sale cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article 1458 of the NCC, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the property merely bind third parties to the sale. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument covering the real property. Long before the petitioners


secured a Torrens title over the property, the respondents had been in actual possession of the property and had designated Barte as their overseer.

Further, Article 1169 of the New Civil Code provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this case, the vendor (Jesus Mascuñana) failed to comply with his obligation of segregating Lot No. 124-B and the issuance of a Torrens title over the property in favor of the vendee, or the latter’s successors-in-interest.

- A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

b.Conditional, - where the sale contemplates a contingency and in general where the contract is subject to conditions, usually the full payment of the purchase price. Delivery of the thing sold does not transfer ownership until the condition is fulfilled.

C. Distinctions - which may in turn be –

(1) An executed contract, or

(2) An executory contract

Executed Contract Executory Contract

Property (ownership) is conveyed. No property is conveyed.

If buyer defaults, seller may sue for the price. If buyer defaults, seller only entitled to damages.

Risk of loss is generally borne by the buyer. Risk of loss is generally borne by the seller.

d. Contract to sell vs. contract of sale

In determining the real character of contract, the substance and not the title given by the party is more significant.

Contract of sale – absolute; Contract to sell - conditional

- In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price (suspensive condition). The failure of which is not a breach of contract but simply an event that prevented the obligation from acquiring binding force. In a contract of sale, the non-payment of the price extinguishes the transaction that, for a time, existed and discharges the obligation created under the transaction (resolutory condition). A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the vendor may file an action for specific performance or judicial rescission. Art 1169 of the NCC provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this case, the vendor (Jesus Mascuñana) failed to comply with his obligation of segregating the lot and the issuance of a Torrens title over the property in favor of the vendee, or the latter's successors-in-interest, the respondents. Petitioner Jose Mascuñana was able to secure title over the property under the name of his deceased father. (Heirs of Mascuna v. CA)

In a contract of sale, title passes to the buyer upon delivery of the thing sold . In a contract to sell, where by agreement the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. In other words, in a contract to sell, ownership is retained by the seller and is not to pass


to the buyer until full payment of the price. In the case at bar, “Receipt for partial payment” show that parties’ agreement was a contract to sell. (Serrano v. Caguit)

1. Interpretation of document denominated “Agreement of purchase and sale”

Ong v CA G.R. No. 97347

Facts: Ong and spouses Robles executed an “Agreement of Purchase and Sale” of 2 parcels of land for P2M initial payment of P600,000 and balance of 1.4M to be paid in 4 installments binding themselves that upon the payment of the total purchase price the seller delivers a good and sufficient deed of sale and conveyance for the parcels of land. Ong took possession of the land, building improvements thereon. Ong’s checks were dishonored due to insufficient funds. The spouses asked for the return of the properties and filed a complaint for rescission of contract and recovery of properties.

SC: “Agreement of Purchase and Sale” is in the nature of contract to sell. A careful reading of the parties’ “Agreement of Purchase and Sale” shows that it is in the nature of a contract to sell. The spouses bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2M. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the Ong. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed 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. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor’s obligation to convey title from acquiring binding force. Hence, the agreement of the parties the present case may be set aside, but not because of a breach on the part of Ong for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of the spouses to convey title from acquiring an obligatory force.

Coronel v. CA G.R. No. 103577 - Tubal

Facts: Coronel executed a document entitled “Receipt of Downpayment” in favor of Alcaraz for (1) P50,000 downpayment of the amount of P1.24M as purchase price for an inherited house and lot, (2) the Coronels will cause the transfer in their names of the title of their property registered in the name of their deceased father, Constancio P. Coronel, upon receipt thereof; (3) upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of P1,190,000. On the same date, Concepcion Alcaraz, mother of Ramona, paid the downpayment of P50,000. Upon the registration of the property to name of the heirs, the Coronels sold the same property to Catalina B. Mabanag for P1.58M. The Coronels rescinded the contract with Alcaraz by depositing the downpayment amount in a bank account in favor of Alcaraz. Alcaraz filed a complaint for specific performance, which the trial and the appellate court ruled in her favor.

Issue: WON petitioners and private respondents entered into a conditional contract of sale

Held: What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by the Coronels, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners’ father, Constancio P. Coronel, to their names. The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6,1985. Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally commit themselves to do as evidenced by the “Receipt of Down Payment.” The rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on Feb. 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose. When the sellers declared in the “Receipt of Down Payment” that they received an amount as purchase price for their house and lot without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property. When the “Receipt of Down Payment” is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioners’ father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price.The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.

Arts. 1459-1465


I. OBJECT

A. Licit

Art. 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.

Licit – lawful, not contrary to law, morals, good customs, public order or public policy, within the commerce of man; if illicit, contract is void

Seller must be Owner – only at the time of consummation since tradition transfers ownership. Nobody can dispose of that which does not belong to him. But he need not be owner of thing at the time of the perfection of contract.

1. Effect of sale of homestead within the 5-year prohibitive period

Agustino v. CA G.R. No. L-46955

Facts: Loren executed a deed of sale over a parcel of land (homestead) in favor of Luarca, which was barely one year old at the time so there is no question that the sale was within the 5-year prohibition against alienation of homesteads. Luarca sold this land to Moldogo and Mercene, private respondents herein. The deed of sale, between Loren and Luarca and between Luarca and the private respondents were both unregistered. Loren’s daughter (heir) executed an affidavit of adjudication over the parcel of land and sold the portion occupied by Agustino to Villavicencio and Sotto. The new owners succeeded in ousting the private respondents from the land. Hence, the private respondents instituted an action for recovery of possession with damages. Trial court favored agustino, herein petitioner. On appeal, it was reversed by CA and adjudicated subject land to respondents.

On appeal to SC, petitioners question the defense of laches against them. Petitioners contend that they acquired ownership by virtue of succession and that the sale by Ambrocio to Luarca was void ab initio, having been perfected within the prohibitory period of 5 yrs

SC: It is an established rule that equity cannot be set up against clear provisions of law based on public policy. A sale of a homestead within the 5-year prohibitive period is void ab initio and the same cannot be ratified nor can it acquire validity through the passage of time.

A contract which purports to alienate, transfer, convey or encumber any homestead within the prohibitory period of five years from the date of the issuance of the patent is void from its execution. A void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived.

Neither can the doctrine of pari delicto which could have effectively barred Loren's heirs from recovering the property, be set up against them by the mere fact that Loren, himself, was guilty of violating the 5-year prohibition.

Ordinarily, the principle of pari delicto would apply to her because her predecessor-in-interest has carried out the sale with the presumed knowledge of its illegality, but because the subject of the transaction is a piece of public land, public policy requires that she, as heir, be not prevented from re-acquiring it because it was given by law to her family for her home and cultivation. This is the policy on which our homestead law is predicated

Manlapat v. CA

Facts: In 1976, a free patent was issued in Manlapat’s name. In 1954, before the subject lot was titled, he sold a portion to Ricardo evidenced by a deed of sale. He conveyed another portion to Ricardo in 1981. Leon Banaag (son-in-law of Manlapat) executed a mortgage with the subject lot as the collateral. Heirs of Ricardo sought to obtain the title from petitioners which was in the custody of RBSP, earlier surrendered as a consequence of the mortgage.

SC: Five-year prohibition against alienation or encumbrances under the Public Land Act. Eduardo was issued a title in 1976 on the basis of his free patent application. Such application implies the recognition of the public dominion character of the land and, hence, the 5-year prohibition imposed by the PLA against alienation or encumbrance of the land covered by a free patent or homestead should have been considered.

The deed of sale which was executed in 1981 is obviously covered by the proscription, the free patent having been issued in 1976. However, petitioners may recover the portion sold since the prohibition was imposed in favor of the free patent holder.

The sale executed 1954 was before the issuance of the patent in 1976. Apparently, Eduardo disposed of the portion even before he thought of applying for a free patent. Where the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the prohibition should not be applied. In such a situation, neither the prohibition nor the rationale therefore which is to keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him from the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before the government could give the title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged in December 1981 a few months past the period of prohibition.


B. Determinate or Determinable

Art. 1460. A thing is determinate when it is particularly designated or physical segregated from all other of the same class.

The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. Art. 1349 states that the object of every contract must be determinate, as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties.

Determinate – specific, but is not essential really that at the time of perfection, the object be already specific.

Kinds of Subject Matter:

Specific – determinate: particularly designated or segregated from all others of the same class

Generic – determinable

Art. 1463. The sole owner of a thing may sell an undivided interest therein. (n)

Art. 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. (n)

- Undivided interest – buyer becomes co owner

- Undivided share in mass of fungible goods – buyer becomes owner

1. Sale by a Co-heir of undivded portion of estate

Vagilidad v. Vagilidad

Facts: 4,280 sqm of lot was owned by Zoilo. In 1931, ZOILO died. Subsequently son of Zolio, Loreto sold to Gabino Vagilidad a portion of said lot as evidenced by the Deed of Absolute Sale executed by Loreto on 1986. After, Zoilo’s children executed an Extrajudicial Settlement of Estate adjudicating the entire lot to Loreto in 1987. Gabino filed petition of surrender of lot against Loreto, claiming that he is owner pursuant to deed of Sale issued before the extra judicial settlement.

However, there seemed to be an amicable settlement between them, and the case was sent to archives.

Gabino paid real estate taxes on the land he bought from Loreto which he later sold to Wilfredo Vagilidad. Likewise, a Deed of Absolute Sale was also made by Loreto in favor of Wilfredo for the same portion of lot. Wlfredo mortgaged this property to obtain a loan. Gabino and his wife filed petition for reconveyance.

The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. Art. 1349 states that the object of every contract must be determinate, as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. Art. 1460 defines that a thing is determinate when it is particularly designated or physically segregated from all others of the same class. The property sold by Loreto to Gabino was determinable.

A co-owner has full ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute another person for its enjoyment. The subject parcel, being an inherited property, is subject to the rules of co-ownership under the Civil Code. Co-ownership is the right of common dominion which two or more persons have in a spiritual part of a thing, not materially or physically divided. Before the partition of the property held in common, no individual or co-owner can claim title to any definite portion thereof. All that the co-owner has is an ideal or abstract quota or proportionate share in the entire property. LORETO sold the subject property to GABINO as a co-owner. LORETO had a right, even before the partition to transfer in whole or in part his undivided interest in the lot even without the consent of his co-heirs. This right is absolute. Thus, what GABINO obtained by virtue of the sale on were the same rights as the vendor LORETO had as co-owner, in an ideal share equivalent to the consideration given under their transaction. Consequently, when LORETO purportedly sold to WILFREDO the same portion of the lot, he was no longer the owner said lot. Based on the principle that "no one can give what he does not have," LORETO could not have validly sold to WILFREDO what he no longer had.

2. Effect of Agreement where the exact number of palay to be sold was not fixed.


National Grains Authority v. IAC - Horace

Facts: On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to NFA through William Cabal, the provincial manager in Tuguegarao. The documents submitted were processed, and he was given a quota of 2,640 cavans, which is the maximum number of cavans he may sell to NFA. On the same day and on the following day, Soriano delivered 630 cavans, which were no rebagged, classified and weighed. When he demanded payment, he was told that payment will be held in abeyance since Mr. Cabal was still investigating on an information received that Soriano was not a bona fide farmer. Instead of withdrawing the palay, Soriano insisted that the palay grains be delivered and paid. He filed a complaint for specific performance. Petitioners contend that the delivery was merely made for the purpose of offering it for sale because until the grains were rebagged, classified and weighed, they are not considered sold.Issue: Whether there was a perfected saleHeld: Present case involves a perfected contract of sale. Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same depending upon its quality. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . .. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties." In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans. From the moment the contract of sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or "the parties may reciprocally demand performance" thereof.

Quantity being indeterminate does not affect perfection of contract; No need to create new contract. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. In the present case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans. (It did not need a new contract to make 630 cavans a determinate thing).

Sale a consensual contract; Acceptance is on the offer and not the goods delivered. Sale is a consensual contract, “there is perfection when there is consent upon the subject matter and price, even if neither is delivered.” (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560). The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered.

C. Existing, or Future or Contingent

Art. 1461. Things having a potential existence may be the object of the contract of sale.The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence.The sale of a vain hope or expectancy is void. (n)

Art. 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods."

There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen.

1. Refers to subject matter that are existing & not existing but capable of existence (Emptio Rei Sperati)

If expected thing does not materialize, sale is not effective ( resolutory – extinguishes contract)

2. Sale of hope – does not matter whether thing materialized or not, what is important is that the hope itself validly existed (Emptio Spei)

Aleatory contract – there is element of chance

Ex: Sale of valid sweepstakes ticket. Whether ticket wins or not, sale itself is valid.

3. Vain hope or expectancy – completely no chance

Sale of Future Inheritance

TANEDO vs CA, Sps Ricardo Taredo G.R. No. 104482. January 22, 1996- Joefil


FACTS:On October 20, 1962, Lazardo Tañedo executed a notarized deed of absolute sale in favor of his eldest brother and the latter’s wife, private respondents herein, whereby he conveyed to the latter in consideration of P1,500.00, “one hectare of whatever share I shall have over Lot No. 191 of the cadastral survey of Gerona, Province of Tarlac and covered by Title T-l3829 of the Register of Deeds of Tarlac,” the said property being his “future inheritance” from his parents. Upon the death of his father Matias, Lazaro executed an “Affidavit of Conformity” dated February 28, 1980 to “re-affirm, respect. acknowledge and validate the sale I made in 1962.” On January 13, 1981, Lazaro executed another notarized deed of sale in favor of private respondents covering his “undivided ONE TWELVE (1/12) of a parcel of land known as Lot 191 x x. He acknowledged therein his receipt of P 10,000.00 as consideration therefor. In February 1981, Ricardo learned that Lazaro sold the same property to his children, petitioners herein, through a deed of sale dated December 29, 1980.

On June 7, 1982, private respondents recorded the Deed of Sale in their favor in the Registry of Deeds and the corresponding entry was made in Transfer Certificate of Title No. 166451.

ISSUE WON the sale of future inheritance valid?

HELD Pursuant to Article 1347 of the Civil Code, “(n)o contract may be entered into upon a future inheritance except in cases expressly authorized by law.”

D. Transferability of Ownership

The seller must have the right to transfer the ownership of the thing or right sold to the buyer at the time of delivery and not at the time of the making of the contract.

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what does not have.

1. Sale by mortgagee of land not proper subject of mortgage

Cavite Development Bank v. Lim, 324 scra 346

Facts: Rodolfo Guansing obtained a fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. Consequently he acquired title and used this to acquire a loan. CDB foreclosed the mortgage and granted him the period of redemption, which he did not exercise. Respondent Lolita Chan Lim, assisted by a broker named Remedios Gatpandan, offered to purchase the property from CDB. Lim paid CDB P30,000 as Option Money. After some time following up the sale, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, father of mortgagor Rodolfo. Lim and her husband filed an action for specific performance and damages against CDB and its mother-company, Far East Bank and Trust Co.Issue: W/N there was a VALID contract of sale between the parties.Held:

It is not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time. Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is the consummation stage where the principle of nemo dat quod non habet applies. In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolgo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property . To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which the property had awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.

CDB cannot be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagor's title, CDB cannot be excused from the duty of exercising the due diligence required of banking institutions in ascertaining the validity of the title.

That after the payment of the 10% “option money”, the Offer to Purchase provides for the payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price.

2. Conveyance of privilege to purchase land before it is awarded to the tenant or occupant.

Hermosilla v. Remoquillo


Facts: Apolinario Hermosilla was occupying a lot in San Pedro Tunasan Homesite, a land of the Republic. He divided the lot into 2. The 1st portion was given to his son Salvador and the other(questioned lot) to his grandson Jaime Remoquillo through a Deed of Assignment. A law was passed prohibiting the transfer of ownership of the said lot. Salvador and Jaime after made a Kasunduan ng Paglipat Ng Karapatan sa Isang Lagay na Lupang Solar (Kasunduan) whereby Jaime transferred ownership of the 65 square meters (the questioned property) in favor of Salvador. NHA awarded Jaime title. Salvador and his heirs questioned the title stating they have their house and in actual possession of the questioned lot.

When the Kasunduan was executed in 1972 by Jaime in favor of Salvador — petitioners' predecessor-in-interest — Lot 19, of which the questioned property forms part, was still owned by the Republic. Nemo dat quod non habet. Nobody can give what he does not possess. Jaime could not thus have transferred anything to Salvador via the Kasunduan.

The transfer became one in violation of law and therefore void ab initio. Hence, petitioners acquired no right over the lot from a Void Kasunduan, for no rights are created. It is generally considered that as between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy.

Since the property was previously a public land, petitioners have no personality to impute violation of the law. If the title was in fact fraudulently obtained, it is the State which should file the suit to recover the property through the Office of the Solicitor General. Consequently, Jaime’s ownership was valid not being contrary to any law and since there was no pending other application yet. That at the time he applied for title, he was recogned as the actual applicant / occupant.

Heirs of Arturo Reyes v. Beltran G.R. No. 176474

Facts: A big parcel of lot was originally owned by Spouses Laquian. When the Spouses died, the property was left with the wife’s siblings. Through an "Extrajudicial Settlement of the Estate of the Deceased Constancia R. Socco (wife)," the parcel of land was partitioned into 3 lots. Before the partition, Miguel Socco, 1 of the heirs sold his share to Arturo Reyes as evidenced by the Contract to Sell stating that he is to inherit a particular portion. But upon partition, the said portion sold was adjudicated to respondent, Elena Socco – Beltran, and not to Miguel Socco.

ISSUE: whether or not petitioners have a better right to the subject property over the respondent. Petitioner’s claim over the subject property is anchored on the Contract to Sell executed between Miguel Socco and Arturo Reyes on 5 September 1954.

HELD: The Court is unconvinced. Petitioners cannot derive title to the subject property by virtue of the Contract to Sell. It was unmistakably stated in the Contract and made clear to both parties thereto that the vendor, Miguel R. Socco, was not yet the owner of the subject property and was merely expecting to inherit the same as his share as a co-heir of Constancia’s estate. It was also declared in the Contract itself that Miguel R. Socco’s conveyance of the subject to the buyer, Arturo Reyes, was a conditional sale. It is, therefore, apparent that the sale of the subject property in favor of Arturo Reyes was conditioned upon the event that Miguel Socco would actually inherit and become the owner of the said property. Absent such occurrence, Miguel R. Socco never acquired ownership of the subject property which he could validly transfer to Arturo Reyes.

Under Article 1459 of the Civil Code on contracts of sale, "The thing must be licit and the vendor must have a right to transfer ownership thereof at the time it is delivered." The law specifically requires that the vendor must have ownership of the property at the time it is delivered. Petitioners claim that the property was constructively delivered to them in 1954 by virtue of the Contract to Sell. However, as already pointed out by this Court, it was explicit in the Contract itself that, at the time it was executed, Miguel R. Socco was not yet the owner of the property and was only expecting to inherit it. Hence, there was no valid sale from which ownership of the subject property could have transferred from Miguel Socco to Arturo Reyes. Without acquiring ownership of the subject property, Arturo Reyes also could not have conveyed the same to his heirs, herein petitioners.

Arts. 1469-1474

I. Price

Art. 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons.Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price.If the third person or persons acted in bad faith or by mistake, the courts may fix the price.Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be.

General Principles:

PRICE – signifies the sum stipulated as equivalent of the thing sold


CHARACTERISTICS OF VALID PRICE1. Must be real.2. Must be in money or its equivalent.3. Must be certain or ascertainable at the time of the perfection of the contract4. Manner of payment provided for

A. Requisites:

1. REAL When price stated is one intended by parties• If fictitious: no intention with respect to price - VOID• If False/simulated: what appears in contract is not the true price a. VALID if there is true considerationc. VOID but if none (because it is fictitious)

1. Effect if price is simulated

Cruzado vs Bustos

FACTS: Plaintiff, Santiago Cruzado was the owner of a certain rural property in Dolores, Bacolor, Pampanga containing an area of 65 balitas. Estefania Bustos,the administr ator of her estate during her lifetime, together w/ Manuel Escaler had been detaining said land since 1906 up unitl 1916(present) and had refused to deliver the possession thereof to plaintiff a n d t o r e c o g n i z e h i s o w n e r s h i p o f t h e s a m e notwithstanding the repeat demands made upon them; by detention, the plaintiff had suffered losses and damages to the amount of P3,500. He therefore a s k e d f o r j u d g m e n t d e c l a r i n g p l a i n t i f f t o b e t h e o w n e r o f t h e s a i d p a r c e l o f l a n d a n d o r d e r i n g defendants to return it to plaintiff and to pay the latter for losses, damages and costs.

ISSUE:WON the fictitious contract of sale is valid?

HELD: A Contract of Sale was simulated for the sole p u r p o s e o f m a k i n g i t a p p e a r t h a t t h e v e n d e e acquired for the sum of P 2, 200 and became the owner of a piece of real property, w/c was to serve him as security to enable him to hold the office of procurator of a CFI, pursuant to the statutes in force. Such contract was perfect and binding upon both c o n t r a c t i n g p a r t i e s , i t a p p e a r i n g i n t h e p u b l i c instrument executed for the purpose that the vendor and the vendee agreed upon the property sold and on the price stipulated but such contract cannot be considered to have been consummated unless it is proved that the purchaser paid the price and took possession of property. The vendee of a piece of real property acquired by means of a simulated purchase, who has neither paid the price of the said property n o t t a k e n p o s s e s s i o n o f i t , c a n n o t c o n v e y t o h i s s u c c e s s o r s i n i n t e r e s t a n y p r o p e r t y r i g h t r t i t l e therein, but only the right to demand in a personal action the fulfillment of the perfected contract of sale and he cannot be permitted to assert any right of ownership nor to bring an action for recovery of possession because said contract of sale was not c o n s u m m a t e d . T h e v e n d e e i s a l s o e n t i t l e d t o demand them from the moment the obligation arises to deliver him the thing which produces such fruits.

- simulated contracts do not give rise to a valid sale

Effect if there is no consideration

Doles vs Angeles??

2. Valuable – In Money or its equivalent• When not valuable – VOID• When contract is onerous, presumed to have valuable consideration• Gross inadequacy of price in ordinary sale does not render contract void unless it is shocking to conscience of man.Except:a. Judicial sale • Shocking to conscience of man • Higher price can be obtained at re-saleb. Rescissible contracts due to lesionc. Sales with right to repurchase (raises presumption of equitable mortgage) – Remedy is reformation

NOTE: Gross inadequacy may be presumed as a donation in certain case. At any rate, for contracts where the parties’ intent as to price cannot be ascertained, they may be transposed as donations.


TORRES V. CA - the price must in money or its equivalent) - Hanna

Facts:

1. Petitioners entered into a "joint venture agreement" with respondent for the development of a parcel of land into a subdivision. Under the agreement, petitioners would contribute property in the form of land which was to be developed into a subdivision; while respondent would give, in addition to his industry, the amount needed for general expenses and other costs. The income from the said project would be divided according to the stipulated percentage.

2. Pursuant to the contract, they executed a Deed of Sale covering the said parcel of land in favor of respondent, who then had it registered in his name. By mortgaging the property, respondent obtained from Equitable Bank a loan of P40, 000 which, under the Joint Venture Agreement, was to be used for the development of the subdivision. All three of them also agreed to share the proceeds from the sale of the subdivided lots. The project did not push through, and the land was subsequently foreclosed by the bank.

3. According to petitioners, the project failed because of respondent’s lack of funds or means and skills. On the other hand, respondent alleged that he used the loan to implement the Agreement. Respondent claimed that the subdivision project failed because petitioners and their relatives had separately caused the annotations of adverse claims on the title to the land, which eventually scared away prospective buyers.

4. Petitioners filed a criminal case for estafa against respondent and his wife, who were however acquitted. Thereafter, they filed the present civil case which was dismissed by the trial court. On appeal, however, the CA affirmed the RTC’s decision. The CA held that petitioners and respondent had formed a partnership for the development of the subdivision. Thus, they must bear the loss suffered by the partnership in the same proportion as their share in the profits stipulated in the contract.

5. Petitioners deny having formed a partnership with respondent. They contend that the Joint Venture Agreement and the earlier Deed of Sale, both of which were the bases of the appellate courts finding of a partnership, were void. In the same breath, however, they assert that under those very same contracts, respondent is liable for his failure to implement the project. Because the agreement entitled them to receive 60 percent of the proceeds from the sale of the subdivision lots, they pray that respondent pay them damages equivalent to 60 percent of the value of the property.

Issue: 1. W/N a partnership existed between the petitioners and the respondent.

Held:

1. A reading of the terms embodied in the Agreement indubitably shows the existence of a partnership pursuant to Article 1767 of the Civil Code, which provides:

ART. 1767. By the contract of partnership two or more persons bind themselves to contribute money, property, or industry to a common fund, with the intention of dividing the profits among themselves.

It should be stressed that the parties implemented the contract. Thus, petitioners transferred the title to the land to facilitate its use in the name of the respondent. On the other hand, respondent caused the subject land to be mortgaged, the proceeds of which were used for the survey and the subdivision of the land. As noted earlier, he developed the roads, the curbs and the gutters of the subdivision and entered into a contract to construct low-cost housing units on the property. Respondent’s actions clearly belie petitioners contention that he made no contribution to the partnership.

2. On the alleged nullity of the partnership agreement—Petitioners themselves invoke the allegedly void contract as basis for their claim that respondent should pay them 60 percent of the value of the property. They cannot in one breath deny the contract and in another recognize it, depending on what momentarily suits their purpose.

3. Petitioners also contend that the Joint Venture Agreement is void under Article 1422 of the Civil Code, because it is the direct result of an earlier illegal contract, which was for the sale of the land without valid consideration.


This argument is puerile. The Joint Venture Agreement clearly states that the consideration for the sale was the expectation of profits from the subdivision project. Its first stipulation states that petitioners did not actually receive payment for the parcel of land sold to respondent. Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another.

In this case, the cause of the contract of sale consisted not in the stated peso value of the land, but in the expectation of profits from the subdivision project, for which the land was intended to be used. As explained by the trial court, the land was in effect given to the partnership as [petitioners] participation therein. x x x There was therefore a consideration for the sale, the [petitioners] acting in the expectation that, should the venture come into fruition, they [would] get sixty percent of the net profits.

3.CERTAIN OR ASCERTAINABLERules on the Certainty of Price 1. Price is certain if there is an agreement by BOTH parties.2. Price is certain if there is reference to another thing certain.3. Price is certain if it is left to the determination of 3rd persons. • If 3rd persons can’t fix or have acted in bad faith, courts may determine4. Remedy: Action for Damages/Rescission.

CERTAIN – price must be certain, otherwise, there is no true consent between the parties. ASCERTAINABLE - When no specific amount is stipulated but can be ascertained:

with reference to another thing certain if determination is left to the judgment of a specified person or persons: if 3rd party fixes price in bad faith or

mistake, court remedy can be made; if 3rd party unable or unwilling to fix price, parties have no cause of action, contract of sale inefficacious

by the courts with reference to a definite day reference to invoices

Price Determined by 3 rd person

ANTONIO M. BARRETTO, plaintiff-appellee, vs. JOSE SANTA MARINA, defendant-appellant.December 2, 1913

FACTS:The La Insular cigar and cigarette factory is a joint account association with a nominalcapital of P865,000, the plaintiff's share is P20,000, or 4/173 of the whole. The plaintiff's attorneys wrote the defendant's local representative a letter offering to sell plaintiff's share in the factory. The result of the correspondence between the parties and their representatives was that Exhibit G was duly executed on May 3, 1910. In accordance with the terms of this exhibit, appraisers was appointed to ascertain and fix the actual value of La Insular. The committee rendered its report on November 14, 1910, fixing the net value at P4,428,194.44. Subsequently, demand was made by the plaintiff upon the defendant for his share of the profits from June 30, 1909, to November 22, 1910. This demand was refused and thereupon this action was instituted to recover said profits. The plaintiff argued that if the agreement of May 3, 1910, was a perfected sale he cannot recover any profits after that date; while on the other hand the defendant concedes that if said agreement was only a promise to sell in the future it, standing alone, would not prevent recovery in this action.

ISSUE: Whether the agreement made by the parties on May 3, 1910 was a perfected contract of sale.HELD:YES, it was a perfected contract of sale.Article 1450 of the Civil Code reads:"The sale shall be perfected between vendor and vendee and shall be binding on both of them, if they have agreed upon the thing which is the object of the contract and upon the price, even when neither has been delivered."This is supplemented byArticle 1447 of the Code which reads as follows: "In order that the price may be considered fixed, it shall be sufficient that it be fixed with regard to another determine thing also specific, or that the determination of the same be left to the judgment of a specified person."The contract of May 3, 1910, provides that:"Whereas the respective contracting parties have agreed, the one to sell and the other to buy the whole of the right, title and interest of the said Antonio Maria Barretto in and to the said joint account association, including not only the individual participation of the said party of the second part standing on the books of the association in the name of Antonio M. Barretto, but also one-half of the share in the businesswhich stands on the books in the name of Barretto & Company constituting a total nominal shareof P54,700 Philippine currency in the total nominal capital of P865,000 Philippine currency”Under article 1450, supra there are two indispensable requisites in a perfected sale:(1) There must be an agreement upon the things which is the object of the contract; and (2)the contracting parties must agree upon the price. The object of the contract in the case at bar was the whole of the plaintiff's right, title, and interest in La Insular.This whole was 4/173 of the entire net value of the business. The parties agreed that the price should be 4/173 of the total net value. The fixing of such net value was unreservedly left to the judgment of the appraisers. As to the thing and the price, the minds of the contracting parties met, and all questions relating thereto were settled. Nothing was left unfinished in so far as the contracting parties were concerned. Neither party could withdraw


from the contract without the consent of the other. The result is that the two essential requisites necessary to constitute a perfected sale were present.We find that the parties did not only agree "the one to sell and the other to buy" and that"one will immediately sell and the other will immediately buy" the whole of the plaintiff'sinterest but that they were unable to agree "as to the true present value of the said interest;" they did agree, however, upon the method of fixing and determining such value by appointing appraisers for this purpose. It was the duty of the appraisers to hear the respective claims of the parties relative to the value and assets of the business, "and in accordance with the proof adduced relative to said values to fix and determine the same for the purposes of the purchase and sale above mentioned." They did not say for the purpose of a sale to be made in the future. Is the language, "for the purposes of the purchase and sale above mentioned" any the less Price determined with Reference to invoices

McCullough vs. Aenille and Co. 3 Phil 285Facts: Furniture and tobacco were sold, the furniture at 90% of the price shown in a subsequent inventory, and the tobacco at the invoice price.Issue: Is the price here already considered certain?Held: Yes, in view of the reference to certain amounts.

Effect of Indeterminability: Sale of Improvements introduced in an haciendaROBLES v. HERMANOS G.R. No. L-26173 July 13, 1927Doctrine:• The lessee may prove an independent verbal agreement on the part of the landlord to put the leased premises in a safe condition.• The appraised value of the property may be used to determine the price.

Facts: A parcel of land was originally owned by the parents of the present plaintiff, Zacarias Robles. Upon the death of his father, plaintiff leased the parcel of land from the administrator with the stipulation that any permanent improvements necessary to the cultivation and exploitation of the hacienda should be made at the expense of the lessee without right to indemnity at the end of the term. As the place was in a run-down state, and it was foreseen that the lessee would be put to much expense in bringing the property to its productive capacity, the annual rent was fixed at the moderate amount of P2,000 per annum.The plaintiff made various improvements and additions to the plant. The firm of Lizarraga Hermanos was well aware of the nature and extent of these improvements. When the plaintiff’s mother died, defendant came forward with a proposal to buy the heirs’ portion of the property. In consideration that the plaintiff should shorten the term of his lease to the extent stated, the defendant agreed to pay him the value of all betterments that he had made on the land and furthermore to purchase from him all that belonged to him personally on the land. The plaintiff agreed to this.

On the ensuing instrument made, no reference was made to the surrender of the plaintiff’s rights as lessee, except in fixing the date when the lease should end; nor is anything said concerning the improvements which the plaintiff had placed. At the same time the promise of the defendant to compensate for him for the improvements was wanting. Accordingly, the representative of the defendant explained that this was unnecessary in view of the confidence existing between the parties.

On the part of the defendant it was claimed that the agreement with respect to compensating the plaintiff for improvements and other things was never in fact made.

Issue: Whether or not the appreciation value can be used to determine the price

Held: Yes. The stipulation with respect to the appraisal of the property did not create a suspensive condition. The true sense of the contract evidently was that the defendant would take over the movables and the improvements at an appraised valuation, and the defendant obligated itself to promote the appraisal in good faith. As the defendant partially frustrated the appraisal, it violated a term of the contract and made itself liable for the true value of the things contracted about, as such value may be established in the usual course of proof. Furthermore, an unjust enrichment of the defendant would result from allowing it to appropriate the movables without compensating the plaintiff thereof.

- If the buyer and seller agreed on a sale and on determining the price by a joint appraisal, the sale is still valid even if the buyer later on refuses to join the appraisal. The bad faith of the buyer holds him liable for the true value of the object. The true value can be established by competent evidence

Inadequacy of price does not affect the contract, but may show vice of consent (1470).

Art 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract.


- In ordinary sale, the sale remains valid even if the price is very low. But if there is vitiated consent, the contract may be annulled but only due to such vitiated consent

- In execution of judicial sales, while mere inadequacy of price will not set aside a judicial sale of real property, still if the price is so inadequate as to shock the conscience of the court, it will be set aside.

Askay v. Cosolan

Facts:

Askay obtained a title to the Mineral Claim which he allegedly sold to Cosalan. It was alleged that there is inadequacy of the consideration for transfer which, according to the deed of conveyance, and to the oral testimony, consisted of P107.00 in cash, a bill fold, one sheet, one cow and two carabaos. Issue & Ratio:

WON the sale is valid. YES

Askay, despite the ridiculously low sum, admits the fact of sale and does nothing about it for a number of years, he should not be allowed now to claim that the contract was invalid. The fact that the bargain is a hard one, coupled with mere inadequacy of price when both parties are in a position to form an independent judgment concerning the transaction, is not sufficient ground for the cancellation of a contract.

Aguilar v. Rubiato

Facts:

Rubiato was the owner of 8 parcels of land worth 26K and was desirous of obtaining a loan. He thereafter signed a power of attorney in favor of a certain Vila to secure a loan and to execute any writing for the mortgage of land. Vila pursuant to the power of attorney then sold the land to Aguilar for P800, with the right of repurchase within one year and Rubiato was to remain in possession of the land as lessee. One year expired and Aguilar filed a case to consolidate ownership over the lands.

Issue & Ratio:

Whether the contract was of sale or loan. - LOAN

In addition to the evidence, there is one very cogent reason which impels us to the conclusion that Rubiato is only responsible to the plaintiff for a loan. It is — that the inadequacy of the price which Vila obtained for the eight parcels of land belonging to Rubiato is so great that the minds revolts at it.

Xxx The members of this court after most particular and cautious consideration, having in view all the facts and all the naturals tendencies of mankind, consider that Rubiato is only responsible to the plaintiff for the loan of P800.

Sps. Buenaventura v. CA

Facts: Sps Leonardo Joaquin & Feliciano Landrito are the parents of petitioners. Petitioners assail the sale of several lands by their parents to their other siblings (see p. 265 for complete list of sales made) for being void ab initio based on the ff grounds:

1. no actual valid consideration

2. properties are more than 3x more valuable than the measly purchase price (purchase price was grossly inadequate)

3. deeds of sale do not reflect & express the true intent of the parties

4. deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs of their legitime.

Defense of the respondents:

1. no cause of action, requisite standing & interest

2. sales were w/sufficient considerations & made by their parents voluntarily in good faith & w/full knowledge of the consequences

3. certificates of title were issued w/factual & legal basis.

Trial court dismissed the case WRT Gavino Joaquin & Lea Asis. Ruled in favor of the respondents & dismissed the complaint.

1. The rt of the compulsory heirs to a legitime is contingent & it only commences from the moment of the death of the decedent (CC Art. 777). The value of the property left at the death of the testator is the basis for determining the legitime (Art. 908). Plaintiffs cannot claim an impairment of their legitime since their parents are still alive.

2. Deeds of Sale were executed for valuable consideration.


CA affirmed Trial Court decision. In addition to the grounds stated by the trial court, CA also mentioned that:

1. While still alive, parents are free to dispose of their properties provided such is not done in fraud of creditors.

2. Petitioners are not parties in interest since they’re not parties to the deeds of sale nor are they creditors of their parents.

Issues & Ratio:

WON petitioners have a legal interest over the properties subject of the Deeds of Sale. – NO.

The complaint betrays their motive for filing the case. They are interested in obtaining the properties by hereditary succession but they have failed to show any legal right to these properties.

Real party-in-interest is one who is either benefited or injured by the judgment of the party entitled to the avails of the suit. This includes parties to the agreement or are bound either principally/subsidiarily. Parties must have a present substantial interest & not merely expectancy/future contingent subordinate or consequential interest. In this case, the petitioners only have an inchoate rt w/c vests only upon the death of their parents. Besides, sale of the lots to their siblings does not affect the value of their parents’ estate since the lots are replaced with cash of equivalent value.

WON the deeds of sale are void for lack of consideration. – NO.

A contract of sale is not a real contract but a consensual contract. It’s binding & valid upon the meeting of the minds as to the price regardless of the manner of payment or breach of such. It’s still valid even if the real price is not stated in the contract, making it subject to reformation. But if the price is simulated, there is no meeting of the minds, thus the contract is void (CC Art. 1471).

Act of payment of the price does not determine the validity of a contract of sale. Failure to pay the consideration is different from lack of consideration. The former results in a rt to demand fulfillment or cancellation of the contract while the latter prevents the existence of a valid contract.

Petitioners failed to show that the prices in the deeds of sale were simulated. They don’t even know the financial capacity of their siblings to buy these lots. Respondents’ minds met as to the purchase price w/c was stated in the deeds of sale & the buyer siblings have paid the price to their parents.

WON the Deeds of Sale are void for gross inadequacy of the price. – NO.

CC Art. 1355: Except in cases specified by law, lesion/ INADEQUACY OF CAUSE shall not invalidate a contract, unless there has been fraud, mistake or undue influence.

CC Art. 1470: Gross inadequacy of price doesn’t affect a contract of sale, except as may indicate a defect in the consent or that the parties really intended a donation or some other act or contract.

Petitioners failed to prove any instance in the aforementioned provisions that would invalidate the deeds of sale. There is no requirement that the price be equal to the exact value of the property on sale. It only matters that all respondents believed that they received the commutative value of what they gave.

Vales vs. Villa: Courts cannot be guardians of people who are not legally incompetent. Courts operate not because a person has been defeated/overcome by another, but because he has been defeated or overcome ILEGALLY. There should be a violation of the law, commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation & remedy it.

4.MANNER OF PAYMENT MUST BE AGREED UPON• Deemed to be an essential requisite because it is part of the presentation of the contract• Integral part of concept of price• If there is failure to meet minds as regards term of payment: CASH BASIS• Must be certain or at least ascertainable• Effect is absent: NO CONTRACT SITUATION

Boston Bank of the Philippines vs Manalo G. R. No. 158149 February 9, 2006 - Angge

Facts: Sometime in 1972, president Emerito Ramos Jr. of Xavierville Estate, Inc (XEI), owner of Xavierville Estate Subdivision, contracted the services of Engr. Carlos Manalo, Jr. who for P34,887.66, installed a water pump at Ramos’ residence then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision, and offered as part of the downpayment the P34,887.66 Ramos owed him. Ramos confirmed the reservation of the lots. He also pegged the price of the lots atP200.00 per square meter, or a total of P348,060.00, with a 20% down payment of the purchase price amounting to P69,612.00 less theP34,887.66 owing from Ramos, payable on or before December 31, 1972; the corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the selling operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the spouses would sign the aforesaid contract within five (5) days from receipt of the notice of resumption of such selling operations. It was also stated in the letter that, in the meantime, the spouses may introduce improvements thereon subject to the


rules and regulations imposed by XEI in the subdivision. The spouses Manalo took possession of the property, constructed a house thereon. The spouses Manalo were notified of the resumption of the selling operations of XEI. However, they did not pay the balance of the downpayment on the lots because Ramos failed to prepare a contract of conditional sale and transmit the same to Manalo for their signature. Spouses Manalo also constructed a sign near the sidewalk. XEI turned over its selling operations to Overseas Bank of Manila (CBM), including the receivables for lots already contracted and those yet to be sold. Subsequently, the Commercial Bank of Manila (CBM) acquired the Xavierville Estate from OBM and requested Manalo to stop any on-going construction on the property since it (CBM) was the owner of the lot and she had no permission for such construction. CBM was later renamed the Boston Bank of the Philippines, and alleged that there was no perfected contract, as there was no agreement between XEI and the respondents on the manner of payment as well as the other terms and conditions of the sale. It further averred that its claim for recovery of possession of the aforesaid lots.

Issue: W/N there was a perfected contract of sale given that the vendor and the vendee had agreed upon the P348,060.00 price for the lots and the 20% downpayment.

Held:A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale

It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of payment of the price of the property to give rise to a binding and enforceable contract of sale or contract to sell. This is so because the agreement as to the manner of payment goes into the price, such that a disagreement on the manner of payment is tantamount to a failure to agree on the price.

In a contract to sell property by installments, it is not enough that the parties agree on the price as well as the amount of downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and on the other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such payment cannot be considered as sufficient proof of the perfection of any purchase and sale between the parties.

B. Effect of earnest money (1482)

Art. 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract.

- something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain

- if merchandise cannot be delivered, EM must be returned.

a. It is considered part of the price, unless the contract is otherwise

b. It is proof of perfection of the contract

Earnest Money Option Money

Applies to a perfected sale Applies to a sale not yet perfected

Part of the purchase price & buyer is required to pay balance Not part of purchase price and the would-be buyer is not required to buy

Manila Metal Container Corporation v. PNB

Petitioner was the owner of a parcel of land and to be able to secure a loan from PNB, petitioner executed a real party mortgage over the land. For its failure to pay, PNB foreclose the mortgaged and sold at public auction for which PNB was the winning bidder, with a one year period of redemption by the petitioner. Petitioner requested that there be an extension of time to redeem the property and it allowed to repurchase the property on installment. Meanwhile,the Special Assets Management Department had prepared a statement of accountof the petitioner’s obligation to which amounted to 1.5M. petitioner thereafter remitted thte amount of 800,000 as deposit to repurchase the property. When SAMD recommended to the management of the PNB that petitioner be allowed to repurchase the property at 1.5M, the management rejected and suggested that the property be purchased at 2.7M which was later reduced to 1.9M. But petitioner refused.


Petitioner now filed a case for delivery of title, annulment of mortgage and specific performance with damages. It was its contention that it already accepted the offer of SAMD to sell the property at 1.5M, hence, PNB could no longer unilaterally withdraw its offer to sell the property. Its acceptance of the offer resulted in a perfected contract of sale.

Respondent contended that the parties never graduated for the negotiation stage – all that transpires was an exchange of proposal and counter-proposals and nothing more. There was still no agreement as to the amount and the manner of payment. The account made by SAMD cannot be classified as counter-offer because it was merely recital of facts of the obligations of petitioners.

WON the P800,000 deposited is an earnest money. -NO

The P800,000 could not be considered as an earnest money because an earnest money forms part of the purchase price. In this case, it did not. The P800,000 was merely a deposit that was accepted by PNB on the condition that the purchase price is subject to the approval of the PNB Board.

Oesmer v. Paraiso Devt Corp

Facts: Petitioners in this case are brothers and sisters and the co-owners of undivided shared is parcels of land originally owned by their parents. One of the petitioners, Ernesto, met with the President of Paraiso for purpose of brokering the sale of petitioners’ properties to respondent corp. A contract to sell was the executed, signed by the siblings except Adolfo and Jesus. An amount of P100,000 was also given as option money. Later however, petitioners informed PAraiso of their intention to rescind the Contract to sell and to return the amount of P100,000 paid by the corporation. Their contention was that the contract to sell was void because the signatures made by the siblings were not for consent to sell the property, assuming the signatures indicate consent, the contract was subject to a suspensive condition which is the approval of the sale by all the co-owners which did not occur because two of the siblings did not approve of the sale; lastly, that it is void for it is a unilateral promise to sell without consideration distinct from price.

Held: As to the last contention, the court ruled that the contract to sell is not a unilateral promise to sell:

In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as "option money." However, a careful examination of the words used in the contract indicates that the money is not option money but earnest money. "Earnest money" and "option money" are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.20

The sum of P100,000.00 was part of the purchase price. Although the same was denominated as "option money," it is actually in the nature of earnest money or down payment when considered with the other terms of the contract. Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the appellate court declared in their Decisions.

1. Interpretation of document denominated “agreement of purchase”

Serrano v Caguiat G.R. No. 139173

Facts: Caguiat offered to buy the lot owned by spouses Serrano. Respondent gave P100K as partial payment, in turn, petitioners gave a receipt with a statement that respondent promised to pay the balance of the purchase price. Respondents were leaving for abroad and sought to cancel the transaction. Petitioners contend that there is no perfected contract as there was no clear agreement between the parties as to the amount of consideration.

SC: In holding that there is a perfected contract of sale, both courts mainly relied on the earnest money given by respondent to petitioners (Art. 1482). We are not convinced. It was a contract to sell. The Document “receipt of Partial Payment” shows that the true agreement between the parties was 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. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent fails to pay within the fixed period.18

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.19

http://www.lawphil.net/judjuris/juri2007/feb2007/gr_139173_2007.html#fnt19


http://lawphil.net/judjuris/juri2007/feb2007/gr_157493_2007.html#fnt20


Third, petitioners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to respondent, either by actual or constructive delivery, ownership of the property.

It is true that Article 1482 of the Civil Code 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.21 Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply.Issue and ratio:

It is true that Article 1482 of the Civil Code 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. Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply.

As previously discussed, the suspensive condition (payment of the balance by respondent) did not take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to him.

ARTICLES 1475-1488

I. RULES IN ORDINARY SALES

A. Form

Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties.

- form not important in the validity of sale

- sale being consensual, may be oral or written, perfected by mere consent as to price & subject matter ( even if involving real property); public document only for convenience

- Statute of frauds applied – to prevent fraud, and not to encourage the same, certain agreements are required to be in writing so that they may be enforced; applies only to executory contracts; applies only to actions for damages because of violation of an agreement or the specific performance of said agreement; contracts infringing statute of frauds are not void, merely unenforceable

Sale to be performed 1 year after; agreement to sell things with value of P500 and up, sale of real property or interest therein

Exception: when there is a note or memorandum in writing & subscribed by party or his agent; when there has been partial performance; when there has been failure to object to presentation of parol evidence

- When form is essential: power to sell a piece of land granted to an agent; sale of large cattle & must be registered with Municipal treasurer; sale of land by non Christian unless approved by Governor

1. Verbal agreement of sale

SPOUSES RODOLFO CAOILI and IMELDA CAOILI, vs. COURT OF APPEALS and ROSITA VDA. DE SANTIAGO G.R.No.128325- Angge

Facts: Rodolfo and Imelda Caoili were lessees of a parcel of land including a one door apartment unit belonging to private respondent Rosita Vda. de Santiago. On March 30, 1987, private respondent secured a loan from petitioners in the amount of P30,000.00 with the understanding that the latter shall not pay their monthly rentals as long as the loan is not paid. On or about July 10, 1990, an agreement was made between the parties herein for the sale of the property being occupied by petitioners, although it was not “formal or written”.

On December 14, 1990, a “Receipt” denominated as an “Addendum to Agreement dated August 8, 1990” was signed by private respondent in the presence of 2 witnessed and acknowledged before a notary public for the sale of the subject property to petitioners in the amount ofP250,000.00. It was stated therein that private respondent received from petitioners the sum of P140,000.00, in addition to the partial payment of P60,000.00, the “balance payable when the good title in the name of herein vendor is delivered to the spouses.” Petitioners sent two (2) letters to private respondent demanding delivery of the title or corresponding transfer certificate of title over the subject property within 15 days or make a refund “double (the) amount you have received as agreed or the total amount of Four Hundred Thirty Thousand (P430,000.00) pesos”. Private respondent refused to comply.



Private respondent alleged that while petitioners insist that the receipt dated December 9, 1990 is an addendum to an alleged agreement made on August 8, 1990, petitioners nonetheless failed to present the alleged Agreement of August 8, 1990 or any evidence that would prove the sale of the subject property to them. Private respondent submits that there was really no sale as the transaction between the parties was a simple loan. The lower court ruled in favour of petitioners and ordered private respondent to pay the amount of P489,520.00 (P244,760.00 x 2) with legal interest until the full amount is fully paid. CA set aside the judgment and ordered respondent to pay only P33,600.00, with legal interest until fully paid. Thus the petition for review on certiorari.

Issue: Whether the agreement was a contract of sale or merely a loan.

Held: In resolving the issue of whether or not the Court of Appeals erred in reducing the amount awarded to petitioners, we should first determine whether there was a contract for the sale of the subject property, as petitioners claim, or merely a loan, as asserted by private respondent.

Private respondent admitted that there was an agreement for the purchase of the subject premises but the same was not made in writing. The absence of a formal deed of sale does not render the agreement null and void or without any effect. The provision of Article 1358 of the Civil Code on the necessity of a public document is only for convenience, not for validity or enforceability. It does not mean that no contract has been perfectedso long as the essential requisites of consent of the contracting parties, object, and cause of the obligation concur. Exhibit “B”, which was signed by private respondent herself[29] indubitably shows that the agreement was to convey the subject premises to petitioners for the sum of P250,000.00. It confirms that there was a meeting of the minds upon the subject property, which is the object of the contract and upon the price, which isP250,000.00.[30] The agreement is subject to the condition that the balance is “payable when the good title in the name of herein vendor is delivered to the spouses” and a “reasonable time, after delivery of title, is to be allowed for examination thereof.” The obligation to deliver title is likewise subject to a penal clause that “if the title to said premises is not good and cannot be made good within a reasonable time then this agreement shall be null and void” and a sum double the “above amount” shall be refunded and paid to the vendee.” The said document clearly acknowledges that petitioners have paid the amount of P140,000.00 “in addition to the partial payment of P60,000.00” and the balance is payable “when the good title in the name of the vendor is delivered to the spouses.” Verily, under the agreement, private respondent was obligated to deliver a good title to petitioners and this condition is the operative act which would give rise to the corresponding obligation of petitioners to pay the balance of the purchase price.[31] Since it is not disputed that private respondent has not delivered a good title, petitioners have by law the right to either refuse to proceed with the agreement or to waive that condition pursuant to Article 1545 of the Civil Code.

2. Effect of lack of technical description in the contract

Naranja v. CA

Facts:

Roque Naranja was the registered owner of a parcel of land, denominated as Lot No. 4 in Consolidation-Subdivision Plan (LRC) Pcs-886, Bacolod Cadastre, with an area of 136 square meters and covered by Transfer Certificate of Title (TCT) No. T-18764. Roque was also a co-owner of an adjacent lot, Lot No. 2, of the same subdivision plan, which he co-owned with his brothers, Gabino and Placido Naranja.In 1976, Roque, who was single and had no children, lived with his half sister, Lucilia P. Belardo (Belardo), in Pontevedra, Negros Occidental. At that time, a catheter was attached to Roque's body to help him urinate. But the catheter was subsequently removed when Roque was already able to urinate normally. Other than this and the influenza prior to his death, Roque had been physically sound.5Roque had no other source of income except for the P200.00 monthly rental of his two properties. To show his gratitude to Belardo, Roque sold Lot No. 4 and his one-third share in Lot No. 2 to Belardo on August 21, 1981, through a Deed of Sale of Real Property which was duly notarized by Atty. Eugenio Sanicas.Roque's copies of TCT No. T-18764 and TCT No. T-18762 were entrusted to Atty. Sanicas for registration of the deed of sale and transfer of the titles to Belardo. But the deed of sale could not be registered because Belardo did not have the money to pay for the registration fees.7Belardo's only source of income was her store and coffee shop. Sometimes, her children would give her money to help with the household expenses, including the expenses incurred for Roque's support. At times, she would also borrow money from Margarita Dema-ala, a neighbor.8 When the amount of her loan reached P15,000.00, Dema-ala required a security. On November 19, 1983, Roque executed a deed of sale in favor of Dema-ala, covering his two properties in consideration of the P15,000.00 outstanding loan and an additional P15,000.00, for a total ofP30,000.00. Dema-ala explained that she wanted Roque to execute the deed of sale himself since the properties were still in his name. Belardo merely acted as a witness. The titles to the properties were given to Dema-ala for safekeeping. Petitioners seek to invalidate sale since there was vitiation of Roque’s consent to the sale and that the sale was simulated for there was no consideration. They also aver that there was no technal descriotion of the subject property thus rendering sale invalid.

Held: To be valid, a contract of sale need not contain a technical description of the subject property. Contracts of sale of real property have no prescribed form for their validity; they follow the general rule on contracts that they may be entered into in whatever form, provided all the essential requisites for their validity are present. The failure of the parties to specify with absolute

http://www.chanrobles.com/scdecisions/jurisprudence2009/april2009/160132.php#fnt8



http://sc.judiciary.gov.ph/jurisprudence/1999/sept99/128325.htm#_edn31




clarity the object of a contract by including its technical description is of no moment. What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. The deed of sale clearly identifies the subject properties by indicating their respective lot numbers, lot areas, and the certificate of title covering them.

On the alleged nullity of the deed of sale, we hold that petitioners failed to submit sufficient proof to show that Roque executed the deed of sale under the undue influence of Belardo or that the deed of sale was simulated or without consideration.There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice.24 One who alleges any defect, or the lack of consent to a contract by reason of fraud or undue influence, must establish by full, clear and convincing evidence, such specific acts that vitiated the party's consent; otherwise, the latter's presumed consent to the contract prevails.25 For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own.26Petitioners adduced no proof that Roque had lost control of his mental faculties at the time of the sale. Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains.27 The evidence presented pertained more to Roque's physical condition rather than his mental condition. On the contrary, Atty. Sanicas, the notary public, attested that Roque was very healthy and mentally sound and sharp at the time of the execution of the deed of sale. Atty. Sanicas said that Roque also told him that he was a Law graduate.28

Neither was the contract simulated. The late registration of the Deed of Sale and Roque's execution of the second deed of sale in favor of Dema-ala did not mean that the contract was simulated. We are convinced with the explanation given by respondent's witnesses that the deed of sale was not immediately registered because Belardo did not have the money to pay for the fees. This explanation is, in fact, plausible considering that Belardo could barely support herself and her brother, Roque. As for the second deed of sale, Dema-ala, herself, attested before the trial court that she let Roque sign the second deed of sale because the title to the properties were still in his name.

B. Perfection of a contract of sale (Art. 1475)

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

a) General Rule: Perfection at the moment there is a meeting of the minds (consensual)

- Sale is a consensual contract, therefore, delivery or payment is not essential for perfection

- The parties may reciprocally demand performance, subject to the provisions of law governing the form of contracts

Requirements for perfection:

a. When parties are face to face – when an offer is accepted without conditions nor qualifications

b. Thru correspondence or telegram – when the offeror has knowledge of the acceptance

c. When sale is subject to a suspensive condition – from the moment the condition is fulfilled

Mere perfection of the contract does not necessarily transfer ownership.

Romulo Coronel, et al vs. CA and Alcaraz G.R. No. 103577, October 7, 1996

The Coronels sold their inherited house and lot to Ramona Patricia Alcaraz, with the conditions that they will effect the transfer of the title from their deceased father to their names upon receipt of the down payment, and after the transfer they will execute a Deed of Sale in favor of Alcaraz. The conditions were embodied in a document labeled “Receipt of Down Payment.” Alcaraz paid, and the title was transferred in the Coronels’ name on February 6, 1985. However, the Coronels sold the property to Catalina Mabanag, rescinded the contract with Alcaraz, and eventually executed a Deed of Sale in favor of Mabanag. In the complaint for specific performance filed against them, the Coronels contended that theirs was merely an executory contract to sell, hence there was no perfected contract of sale.

HELD: The parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of the petitioner’s father to their names.

Since the suspensive condition contemplated by the parties which is the issuance of a certificate of title in petitioner’s names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable.






Manila Mining Corporation (MMC) vs. Miguel Tan G.R. No. 171702, February 12, 2009

Payment under a perfected contract of sale

Miguel Tan, doing business under the name and style of Manila Mandarin Marketing, was engaged in the business of selling electrical materials. From August 19 to November 26, 1997, Manila Mining Corporation (MMC) ordered and received various electrical materials from Tan valued at P2,347,880. MMC agreed to pay the purchase price within 30 days from delivery, or be charged interest of 18% per annum, and in case of suit to collect the same, to pay attorney’s fees equal to 25% of the claim. MMC made partial payments in the amount of P464,636. Despite repeated demands, it failed to give the remaining balance of P1,883,244, which was covered by nine invoices. On September 3, 2001, Tan filed a collection suit against MMC at the Manila RTC.

MMC contends that Tan’s claim for payment was premature inasmuch as the original invoices and purchase orders were not sent to its accounting department. Consequently, Tan’s claims were not verified and processed. MMC believes that mere delivery of the goods did not automatically give rise to its obligation to pay. It relied on Article 1545 of the Civil Code to justify its refusal to pay:

“ART. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition.…”

The Supreme Court ruled that Article 1475 of the Civil Code provides the manner by which a contract of sale is perfected . The provision reads:“ART. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.”

The Court held that the purchase orders constituted accepted offers when Tan supplied the electrical materials to MMC. The invoices furnished the details of the transactions. Hence, MMC cannot evade its obligation to pay by claiming lack of consent to the perfected contracts of sale.

- Perfection of contract of sale happens not by submission of documents but in the meeting of minds

1. Right of Examination

2. Sale by Description or Sample

Case: Whether deliver of tobacco perfected the sale

Phil. Virginia Tobacco Administration (PVTA) vs. de los Angeles, et al G.R. No. L-33079, December 11, 1978

PVTA was vested with the power and duty to direct, supervise and control all functions and operations with respect to the trading of Virginia tobacco and in line with this duty, it entered into a management contract with Central Cooperative Exchange, Inc. (CCE), to procure, redry, store and service Virginia tobacco for the PVTA and advance payment to the trading entities within 48 hours from its acceptance. On or about July 24, 1963, a fire broke out and razed down the plant, demands were made for the collection of the value of the tobacco, no payments were given, hence, the suit. PVTA maintained that since the tobacco was still to be inspected, graded and weighed when the plant was destroyed the contract of sale was not perfected.

HELD: The decisive factor is the delivery of the thing sold. So that it is placed under the control and possession of the vendee. A principal cannot avoid liability for payment of tobacco delivered even when they were lost due to fire

b) Place of Perfection

- Place where the meeting of minds happened; when acceptance is sent by mail, perfection is deemed where the offer is made

C. Expenses

a) Of execution and registration of the sale – if no agreement, seller

b) Of putting goods in a deliverable state – seller

II. RULES IN SPECIAL SALES

A.Sale by auction (Art. 1476)


a. Rules:

a. Sales of separate lots are separate contracts of saleb. When perfected – when the auctioneer announces its perfection by the fall of the hammer, or in other customary mannerc. Before the fall of the hammer

The bidder may retract his bid The auctioneer may withdraw the goods from the sale

EXCEPTION: If the auction has been announced to be without reserved. Limitations of the seller:

1. The seller himself cannot bid2. He cannot employ or induce any person to bid on his behalf

EXCEPTION: If right to bid has been expressly reserved and notice was given that the sale by auction is subject to a right to bid on behalf of the seller (By-bidders or puffers – people who bid for seller, but are not themselves bound; w/o notice, any sale contravening the rule may be treated by the buyer as fraudulent)

e. Limitations of the auctioneer (if he is not the seller);1. The auctioneer cannot bid2. He cannot employ or induce to bid on behalf of the seller3. He cannot knowingly take any bid from the seller or any person employed by him

Validity of Supplemental Minutes on Sheriff’s SaleDizon vs DizonFacts: The Trial Court rescinded a sale of Elpidio’s house to his uncle Domingo upon the petition of the latter because the former failed to deliver the said house since his brother/co-owner did not give his written authority to sell his ½ share. During the auction sale of the house, Domingo was the highest bidder at Php180,000. Proceedings were recorded in Minutes of Sheriff’s Sale, duly-signed by parties and their counsels. In the afternoon of the same date, the sheriff went to the house of respondent and showed him the "Supplemental Minutes on Sheriff’s Sale" specifying that petitioner’s counsel arrived at 10:45 a.m. (after the auction sale at 10:25 a.m.) and offered a new bid of P1,690,074.41 covering the same properties in lieu of the earlier bid of P180,000.00. Respondent refused to sign the supplemental sale contending that it will be difficult for him to redeem the property. Besides, the auction sale had already been perfected and, therefore, the subsequent sale is "a new or second sale." Consequently, he filed a motion to quash the "Supplemental Minutes on Sheriff’s Sale" alleging inter alia that the supplemental sale is void because it was prepared at 10:25 a.m. after the auction sale at 10:00 a.m. Trial Court ruled in favour of Domingo. Upon appeal to CA by Elpidio, CA ruled that the amended bid by Domingo’s camp at 10:45 AM of even date could not be considered as valid as the same was made after the perfection of the auction sale. Domingo filed motion for recon, but was denied. Hence, the present petition.

IssueWhether or not the highest bidder in a perfected sale by auction may still validly amend his bid.

HeldDuring the public auction conducted on April 3, 1997 which ended at 10:25 a.m., the sheriff declared petitioner the highest bidder. Considering that the auction sale had already been perfected, a supplemental sale with higher consideration at the instance of only one party (herein petitioner) could no longer be validly executed.

SC ruled that in denying respondent’s motion to quash the "Supplemental Minutes on Sheriff’s Sale," and declaring the supplemental sale valid, the trial court gravely abused its discretion.

Article 1476. (2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve.Auction Sale where the seller reserved the right to reject any and all bidsLeoquinco vs. Postal Savings BankFacts: The BOD of the Postal Savings Bank authorized the sale by public auction of a parcel of land it owned in Navotas, Rizal. The Board expressly reserved “the right to reject any and all bids.”The auction notice also contained such reservation. Leoquinco offered the highest bud (P27,000) but this was rejected by the Board. Leoquinco then sued to compel the Bank to execute and deliver the deed of sale, with damages. Issue: Whether or not the petitioner has right to claim damages from the defendants for refusing to execute a deeds of sale in his favor, him being the highest bidder in the public auction.HELD: There is absolutely no merit in this appeal.

Appellant set forth and admitted in his pleadings that in the resolution adopted by the board of directors authorizing the sale at public auction of the land, as well as in the notice announcing the auction, the appellees had expressly reserved to themselves the right to reject any and all bids.


By taking part in the auction and offering his bid, the appellant voluntarily submitted to the terms and conditions of the auction sale, announced in the notice, and clearly acknowledged the right so reserved to the appellees.

The appellees, making use of that right, rejected his offer. Clearly, the appellant has no ground of action to compel them to execute a deed of sale of the land in his favor, nor to compel them to accept his bid or offer. "The owner of property offered for sale at auction has the right to prescribe the manner, conditions and terms of sale, and where these are reasonable and are made known to the buyer, they are binding upon him, and he cannot acquire a title in opposition to them, and against the consent of the owner. ..." (Farr vs. John, 23 Iowa, 286; Batemann, on Auctions, p. 2; 6 Corpus Juris, p. 827.)chanrobles virtual law library

The owner of property offered for sale either at public or private auction has the right to prescribe the manner, conditions and terms of such sale. He may provide that all of the purchase price shall be paid at the time of the sale or any portion thereof, or that time will be given for the payment. (Blossom vs. Milwaukee and Chicago Railroad Co., 3 Wallace [U.S.], 196.)chanrobles virtual law library

The conditions of a public sale announced by an auctioneer or the owner of the property at the time and place of the sale, are binding upon a purchaser, whether he knew them or not. (Kennell vs. Boyer, 144 Iowa, 303; Vanleer vs. Fain, 6 Humphrey [Tenn.], 104.)chanrobles virtual law library

Therefore, the sentence appealed from should be and is hereby affirmed, with costs against the appellant. So ordered.

B.Sale by Sample and/or Description (1481)

Art. 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample.

Sale by description – where the buyer relies on the seller’s representations or descriptions Sale by sample – where the seller warrants that the bulk of the goods shall correspond with the sample in kind, quality and

character Sale by description and sample – must satisfy the requirements in both, and not in only one

- Mere exhibition of sample does not necessarily make it a sale by sample. This exhibition must have been the sole basis or inducement of the sample

Pacific Commercial Co. vs Ermita Market & Cold StoresFacts: A refrigerator was sold by description, but although the description was completely correct, the machine would not work properly in the cold store for which it had been purchased. The buyer refused to pay the balance of the purchase price, hence this action.Issue: WON the machine delivered and installed the one described in the contract?Held: The machine was strictly in accordance with the written contract between the parties, and the defendant can hardly honestly say that there was any deception by the plaintiff.

The fact that the defendant could not use it satisfactorily in the three cold stores division cannot be attributed to plaintiff's fault .It is clear that the defendant company did not fully understand the use of the motor. It complains that the machine would not properly refrigerate the refrigerating rooms, but it is evident that the machine could not operate automatically when the defendant had three refrigerating rooms which it expected to maintain at three different temperatures.

The defendant's complaint that the machine did not contain an oil separator is not true; the oil separator is combined with the receiver and condenser in a single combined piece in the machine.

The buyer must pay since the sale was by description, and the description is correct. The buyer cannot honestly say that there was any deception by the seller.

C. Sale of Personalty payable by Installments (RECTO LAW)


The Recto Law, which forms part of the Civil Code, covers installment sales of personal property.

Article 1484 incorporates Act No. 4122 better known as "Recto law" or installment sales law, in which the vendor can exercise the following remedies.

1. Exact fulfillment, should the buyer fail to pay any installments - does not require default in2 or more installments. How much can be demanded? Generally, only the installment defaulted unless there is an acceleration clause2. Cancel the sale, should the buyer's failure to cover two or more installments – rescission may be availed of if there is default in 2 or more installments to recover any unpaid balance of the price

*The remedies are recognized as alternatives and not cumulative, should the buyer chose to foreclose the chattel mortgage he/she cannot exercise the other two remedies. But for this doctrine to apply, the remedy must already have been fully exercised. If after retaking possession of the chattel, the seller desists form foreclosure, he can still avail himself of another remedy.

*The rationale of the law is to prevent the abuses in terms of chattel mortgages where the buyer can buy the property at a lower price in the foreclosure sale. It also aims to correct the evil created by desire for luxury by means of buying personal property without sufficient means

*The provision is also applicable to financing transactions derived or arising from sale of movables on installments.Requisites: There must be a contract of sale; what is sold is personal property; sale must be on the installment plan

* Applicable also to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing (Art. 1485)Return or non-return of installments paid

General rule: Rescission or cancellation of sale requires mutual restitutionException: By stipulation of the parties (Art. 1486)Exception to the exception: Should the same be unconscionable under the circumstances (Art. 1486)

Promissory Note with chattel mortgageMACONDRAY & CO., INC. vs. De Santos April 9, 1935 (61 Phil. 370) - Horace

FACTS: It is alleged that on January 11, 1934, the defendant executed and delivered a promissory note for the sum of P1,000, with interest thereon at the rate of 12 per cent per annum, payable in installments, and in case of default an additional sum equal to 20 per cent of the total amount due was to be paid as attorneys fees. To guarantee payment of this note, a duly registered chattel mortgage was executed on a Willis 77, Sedan, automobile; that one of the conditions of said mortgage is that if the mortgaged property be lost, destroyed or damages, for any cause whatsoever, the mortgagee would immediately have the right to foreclose and declare the whole amount of the principal and interest due and payable.The automobile met an accident, on January 21, 1934, resulting to its total wreck and loss. The plaintiff foreclosed its mortgage and what remained of the wrecked automobile was sold at a public auction for the sum of P50. The plaintiff prayed to be paid the remaining balance amounting to P980.39 plus interests at the rate of 12 per cent and 20% attorney’s fees.The defendant filed a demurrer to evidence. She alleges that under the provisions of Act No. 4122, article 1454-A of the Civil Code, there is no cause of action against her.ART. 1454-A: In a contract for the sale of personal property payable in installments, failure to pay two or more installments shall confer upon the vendor the right to cancel the sale or foreclose the mortgage if one has been given on the property, without reimbursement to the purchaser of the installments already paid, if there be an agreement to this effect.However, if the vendor has chosen to foreclose the mortgage he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same, and any agreement to the contrary shall be null and void.

ISSUE:Whether or not the trial court erred in dismissing the cause of action of the plaintiff.

Held: Granting that there was a contract between the parties for the sale of personal property payable in installments, which does not clearly appear in the record before this court, the complaint does not allege nor does it appear in the record that there was a failure to pay two or more installments. In order to apply the provisions of article 1454-A of the Civil Code it must appear that: 1)there was a contract for the sale of personal property payable in installments; and 2)that there has been a failure to pay two or more installments.

Sale of Car on Straight Term


Levy Hermanos vs GervacioFacts: Levy Hermanos sold to Lazaro Blas Gervacio a Packard car. After initial payment, Gervacio he executed a promissory note for a balance of 4,200 with interest of 12% per annum, and as a security, he mortgaged the car to the plaintiff. When the defendant failed to pay, the balance upon maturity, Levy foreclosed the mortgage and sold the car in public auction at which plaintiff was the highest bidder for Php 1,800. Levy then filed an action for the collection of the remaining balance of 1,600 plus interest. Issue Whether or not Levy may demand payment to Gervacio despite of the selling of the Packard carHeldThe Supreme Court ruled that Art. 1454-A of the Civil Code will not apply in this case because such is not by payment of installments, as described in the said provision. The principle behind this law is that for those who pay their debts in installments, or in relatively small amounts, there is a great temptation for improvident purchasers to buy beyond their means which is not applicable if such is to be paid in cash, or in partial payments like in this case, partial payments are not so small that it may place purchasers off their guard and delude them to a miscalculation of their ability to pay. Thus, since such provision shall not apply, Gervacio is still obliged to pay a sum of 1,600 with interest of 12% per annum. Sale of truck on installment where foreclosure was not pursuedDela Cruz vs Asian Consumer & Ind’l Finance CorpFacts: The records show that on Sep.14, 1984, Asian initiated a petition for extra-judicial foreclosure of the chattel mortgage. But the sheriff failed to recover the motor vehicle from petitioners due to the refusal of the son of petitioners. It was not until oct. 10, 1984, that petitioners delivered unit to Asian. The action to recover the balance of the purchase price was instituted.

Issue: May a chattle mortgagee, after opting to foreclose the mortgage but failing afterwards to sell the property at a public auction, still sue to recover the unpaid balance of the purchase price?

Held: ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever conducted. Thus, the delivery of possession of the mortgaged property of possession of the mortgaged property the mortgagee, the appellee, can only extinguish appellants liability if the mortgaged property when it recovered possession. It is the fact of foreclosure and actual sale of the mortgaged chattel that bar recovery by the vendor of an balance of the purchaser’s outstanding obligation not satisfied by the sale. ( article 1484 of Civil Code). If the vendordesisted, on his own initiative, from consummating the auction sale, such desistance was a timely disavowal of the remedy for foreclosure, and the vendor can still sue for specific performance. Consequently, in the case at bar, there being no actual foreclosure of the mortgaged property, ASIAN is correct in resorting to an ordinary action for collection of unpaid balance of the purchase price.

Magna Financial Services Group, Inc. vs Colarina

Facts: Elias Colarina bought on installment from Magna Financial Services Group, Inc., one (1) unit of Suzuki Multicab. After making a down payment, Colarina executed a promissory note for the balance of P229,284.00 payable in thirty-six (36) equal monthly installments at P6,369.00 monthly, beginning 18 July 1997. To secure payment thereof, Colarina executed an integrated promissory note and deed of chattel mortgage over the motor vehicle.Colarina failed to pay the monthly amortization beginning January 1999, accumulating an unpaid balance of P131,607.00. Despite repeated demands, he failed to make the necessary payment. On 31 October 2000 Magna Financial Services Group, Inc. filed a Complaint for Foreclosure of Chattel Mortgage with Replevin.

Issue: WHAT IS THE TRUE NATURE OF A FORECLOSURE OF CHATTEL MORTGAGE, EXTRAJUDICIAL OR JUDICIAL, AS AN EXERCISE OF THE 3RD OPTION UNDER ARTICLE 1484, PARAGRAPH 3 OF THE CIVIL CODE.

Held: Undoubtedly the principal object of the above amendment (referring to Act 4122 amending Art. 1454, Civil Code of 1889) was to remedy the abuses committed in connection with the foreclosure of chattel mortgages. This amendment prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing the suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness.” The petitioner, under its prayer number 1, sought for the payment of the unpaid amortizations which is a remedy that is provided under Article 1484(1) of the Civil Code, allowing an unpaid vendee to exact fulfillment of the obligation. At the same time, petitioner prayed that Colarina be ordered to surrender possession of the vehicle so that it may ultimately be sold at public auction, which remedy is contained under Article 1484(3). Such a scheme is not only irregular but is a flagrant circumvention of the prohibition of the law. By praying for the foreclosure of the chattel, Magna Financial Services Group, Inc. renounced whatever claim it may have under the promissory note. Article 1484, paragraph 3, provides that if the vendor has availed himself of the right to foreclose the chattel mortgage, “he shall have no further action against the purchaser to recover any unpaid balance of the purchase price. Any agreement to the contrary shall be void.” In other words, in all proceedings for the foreclosure of chattel mortgages executed on chattels which have been sold on the installment plan, the mortgagee is limited to the property included in the mortgage.


D. Leases of Personalty with Option to Buy

Elisco Tool and Manufacturing Corp. vs. CA

Facts: 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, called lease with option to buy car within 5 years. That ownership shall retain with the company until full payment and all necessary expenses for maintenance shall be borne by the employee. Subsequently the company has ceased operation and the employee was laid off. It took the company 2 years to institute proceedings. . 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.

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 so-called monthly rentals are in truth form monthly amortization on the price of the car. The contract being one of sale on installment, the Court of Appeals correctly applied to it the following provisions of the Civil Code:

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

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

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

The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the exercise of the others. 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

The employee having found to have paid more than the value of the thing P60,000 should be considered as payment of the full purchase price. It further petitioner to pay private respondents the amount of P431.94 as excess payment, as well as rentals at the rate of P1,000 a month for depriving private respondents of the use of their car.

PCI Leasing and finance vs. Giraffe X

Giraffe entered into an agreement with PCI leasing over 2 machines worth P8,000,000. Giraffe agreed to pay P116,878.21 monthly and P181,362 for the other machine. It has also remitted the amount of P3,120,000 as goodwill. A year into the life of the lease agreement, respondent defaulted in paying the monthly rentals. PCI Sued Giraffe for possession of the machineries and for payment of the remaining term.

Issue: Whether the underlying lease agreement are covered between 1484 and 1485 of the New Civil Code?

SC: Yes they are. Evidently the contract above is in reality an option to purchase the equipment.

The Recto Law

Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following

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

Art. 1485. The preceding article shall be applied to contract purporting to be leases of personal property with the option to buy, when the leasor deprived the lesee of the possession or enjoyment of the thing.


Therefore Giraffe is not liable to pay for the remaining term since the machineries has been foreclosed.

PCI LEASING- GIRAFFE lease agreement is in reality a lease with an option to purchase the equipment. This has been made manifest by the actions of the petitioner itself, foremost of which is the declarations made in its demand letter to the respondent. There could be no other explanation than that if the respondent paid the balance, then it could keep the equipment for its own; if not, then it should return them. This is clearly an option to purchase given to the respondent. Being so, Article 1485 of the Civil Code should apply.

E. Sale of Real Property on Installments ( Maceda Law, RA 6552) Reality Installment Buyer Protection Act.

a. Applicability- Real estate bought on installment basis.

b. Rules when the buyer has paid atleast 2 years of installments.

1.) Rights of Buyers –

I. In case of default in payment Section 3 of R.A. No. 6552 provided for the rights of the buyer in case of default in the payment of succeeding installments, where he has already paid at least two (2) years of installments, thus:

"(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made; x x x

- grace period can be availed of only once every 5 years

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made; provided, that the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer."

- after 5 years of installments, an additional 5% every year but not to exceed 90% of the total payments made

Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.

II. limitation of such right

-If he has paid at least 2 years of installment then the grace period before rescission of contact is proper is one month for every year or installment.

- Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

b. In case of cancellation of sale

- When cancellation takes effect, refer to case below.

Pagtalunan vs. De Manzano

(Patricio), petitioner’s stepfather and predecessor-in-interest, entered into a Contract to Sell with respondent, wife of Patricio’s former mechanic, Teodoro Manzano, whereby the former agreed to sell, and the latter to buy, a house and lot which formed half of a parcel of land. The consideration of P17,800 was agreed to be paid in the following manner: P1,500 as downpayment upon execution of the Contract to Sell, and the balance to be paid in equal monthly installments of P150 on or before the last day of each month until fully paid.

It was also stipulated in the contract that respondent could immediately occupy the house and lot; that in case of default in the payment of any of the installments for 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration, and that all payments made and all improvements done on the premises by respondent would be considered as rentals for the use and occupation of the property or payment for damages suffered, and respondent was obliged to peacefully vacate the premises and deliver the possession thereof to the vendor.


Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying after December 1979 due to personal problems with the petitioner. Petitioner asserted that when respondent ceased paying her installments, her status of buyer was automatically transformed to that of a lessee. Therefore, she continued to possess the property by mere tolerance of Patricio.

Issue: Whether the respondent has the right to occupy the premises?

SC: Yes, According to Republic Act No. 6552 -- "The Realty Installment Buyer Protection Act," or more popularly known as the Maceda Law

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.9

The Court agrees with petitioner that the cancellation of the Contract to Sell may be done outside the court particularly when the buyer agrees to such cancellation.

However, the cancellation of the contract by the seller must be in accordance with Sec. 3.

Firstly the demand letter made by the petitioner to vacate the premises does not constitute notice of cancellation. Second petitioner cannot insist on compliance with the requirement by assuming that the cash surrender value payable to the buyer had been applied to rentals of the property after respondent failed to pay the installments due.

Therefore a deed of absolute sale shall be made after payment of purchase price.

c. Rules when the buyer has paid less than 2 years of installments

Ramos v. Heruela. GR. No. 145330, Oct. 14, 2005

Facts: Spouses Ramos own a parcel of land, consisting of 1,883 square meters. They made an agreement with “spouses Heruela” covering 306 square meters of the land. According to the spouses Ramos, the agreement is a contract of conditional sale. The spouses Heruela alleged that the contract is a sale on installment basis.

The spouses Ramos filed a complaint for Recovery of Ownership with Damages against the spouses Heruela. The spouses Ramos allege that out of the P15,300 consideration for the sale of the land, the spouses Heruela paid only P4,000. The spouses Ramos assert that the spouses Heruela’s unjust refusal to pay the balance of the purchase price caused the cancellation of the Deed of Conditional Sale. The Ramoses discovered that the spouses Heruela were already occupying a portion of the land. Spouses Pallori, daughter and son-in-law of the spouses Heruela, erected another house on the land. The spouses Heruela and the spouses Pallori refused to vacate the land despite demand by the spouses Ramos.

The trial court ruled that the contract is a sale by installment. The trial court ruled that the spouses Ramos failed to comply with Section 4 of Republic Act No. 6552 ("RA 6552"), 6 as follows: SEC. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Issue: W/N RA 6552 is applicable in this case.

Held:RA 6552 is the Applicable Law. The trial court did not err in applying RA 6552 to the present case. Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals, the Court declared: “the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments . .”

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided,

http://www.lawphil.net/judjuris/juri2007/sep2007/gr_147695_2007.html#fnt9


That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of RA 6552 applies. However, there was neither a notice of cancellation nor demand for rescission by notarial act to the spouses Heruela. In Olympia Housing, Inc. v. Panasiatic Travel Corp., the Court ruled that the vendor could go to court to demand judicial rescission in lieu of a notarial act of rescission. However, an action for reconveyance is not an action for rescission. The Court explained in Olympia: “The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any time prior to the institution of the action for reconveyance. . . .xxx xxx xxx

In the present case, there being no valid rescission of the contract to sell, the action for reconveyance is premature. Hence, the spouses Heruela have not lost the statutory grace period within which to pay. The trial court should have fixed the grace period to sixty days conformably with Section 4 of RA 6552.The spouses Heruela are not entirely fault-free. They have been remiss in performing their obligation. The trial court found that the spouses Heruela offered once to pay the balance of the purchase price. However, the spouses Heruela did not consign the payment during the pendency of the case. In the meanwhile, the spouses Heruela enjoyed the use of the land. WHEREFORE, we AFFIRM the RTC, dismissing the complaint for Recovery of Ownership with Damages, with MODIFICATION.

Active Realty Corporation vs. Daroya

ACTIVE REALTY & DEVELOPMENT CORPORATION entered into a Contract to Sell1 with respondent NECITA DAROYA whereby the latter agreed to buy a 515 sq. m. lot for P224,025.00 in petitioner’s subdivision to be paid in amortization within 5 years, valued at P346,367.00, a figure higher than that stated as the contract price. The buyer defaulted in three (3) monthly amortizations. Petitioner sent respondent a notice of cancellation2 of their contract to sell. When respondent offered to pay for the balance of the contract price, petitioner refused as it has allegedly sold the lot to another buyer. The respondent has already paid 4 years. already more than the contract price.

Issue: Whether or not the petitioner can be compelled to refund to the respondent the value of the lot or to deliver a substitute lot at respondent’s option?

SC: Yes, According to Republic Act No. 6552 -- "The Realty Installment Buyer Protection Act," or more popularly known as the Maceda Law

More specifically, Section 3 of R.A. No. 6552 provided for the rights of the buyer in case of default in the payment of succeeding installments, where he has already paid at least two (2) years of installments, thus:

"(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made; x x x

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made; provided, that the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer."

We hold that the contract to sell between the parties remains valid and subsisting. Following Section 3(a) of R.A. No. 6552, respondent has the right to offer to pay for the balance of the purchase price, without interest, which she did in this case. However since the lot has been sold to another party it is only just and equitable that the petitioner be ordered to refund to respondent the actual value of the lot resold, i.e., P875,000.00, with 12% interest per annum.


F. PD No. 957

a. Important provisions

Sec. 4, 5, 7,18,23 ,24 ,25

Section 4. Registration of Projects The registered owner of a parcel of land who wishes to convert the same into a subdivision project shall submit his subdivision plan to the Authority which shall act upon and approve the same, upon a finding that the plan complies with the Subdivision Standards' and Regulations enforceable at the time the plan is submitted. The same procedure shall be followed in the case of a plan for a condominium project except that, in addition, said Authority shall act upon and approve the plan with respect to the building or buildings included in the condominium project in accordance with the National Building Code (R.A. No. 6541).

The subdivision plan, as so approved, shall then be submitted to the Director of Lands for approval in accordance with the procedure prescribed in Section 44 of the Land Registration Act (Act No. 496, as amended by R.A. No. 440): Provided, that it case of complex subdivision plans, court approval shall no longer be required. The condominium plan as likewise so approved, shall be submitted to the Register of Deeds of the province or city in which the property lies and the same shall be acted upon subject to the conditions and in accordance with the procedure prescribed in Section 4 of the Condominium Act (R.A. No. 4726).

The owner or the real estate dealer interested in the sale of lots or units, respectively, in such subdivision project or condominium project shall register the project with the Authority by filing therewith a sworn registration statement containing the following information:

(a) Name of the owner;

(b) The location of the owner's principal business office, and if the owner is a non-resident Filipino, the name and address of his agent or representative in the Philippines is authorized to receive notice;

(c) The names and addresses of all the directors and officers of the business firm, if the owner be a corporation, association, trust, or other entity, and of all the partners, if it be a partnership;

(d) The general character of the business actually transacted or to be transacted by the owner; and

(e) A statement of the capitalization of the owner, including the authorized and outstanding amounts of its capital stock and the proportion thereof which is paid-up.

The following documents shall be attached to the registration statement:

(a) A copy of the subdivision plan or condominium plan as approved in accordance with the first and second paragraphs of this section.

(b) A copy of any circular, prospectus, brochure, advertisement, letter, or communication to be used for the public offering of the subdivision lots or condominium units;

(c) In case of a business firm, a balance sheet showing the amount and general character of its assets and liabilities and a copy of its articles of incorporation or articles of partnership or association, as the case may be, with all the amendments thereof and existing by-laws or instruments corresponding thereto.

(d) A title to the property which is free from all liens and encumbrances: Provided, however, that in case any subdivision lot or condominium unit is mortgaged, it is sufficient if the instrument of mortgage contains a stipulation that the mortgagee shall release the mortgage on any subdivision lot or condominium unit as soon as the full purchase price for the same is paid by the buyer.

The person filing the registration statement shall pay the registration fees prescribed therefor by the Authority.

Thereupon, the Authority shall immediately cause to be published a notice of the filing of the registration statement at the expense of the applicant-owner or dealer, in two newspapers general circulation, one published in English and another in Pilipino, once a week for two consecutive weeks, reciting that a registration statement for the sale of subdivision lots or condominium units has been filed in the National Housing Authority; that the aforesaid registration statement, as well as the papers attached thereto, are open to inspection during business hours by interested parties, under such regulations as the Authority may impose; and that copies thereof shall be furnished to any party upon payment of the proper fees.

The subdivision project of the condominium project shall be deemed registered upon completion of the above publication requirement. The fact of such registration shall be evidenced by a registration certificate to be issued to the applicant-owner or dealer.


Section 5. License to sell. Such owner or dealer to whom has been issued a registration certificate shall not, however, be authorized to sell any subdivision lot or condominium unit in the registered project unless he shall have first obtained a license to sell the project within two weeks from the registration of such project.

The Authority, upon proper application therefor, shall issue to such owner or dealer of a registered project a license to sell the project if, after an examination of the registration statement filed by said owner or dealer and all the pertinent documents attached thereto, he is convinced that the owner or dealer is of good repute, that his business is financially stable, and that the proposed sale of the subdivision lots or condominium units to the public would not be fraudulent.

Section 7. Exempt transactions. A license to sell and performance bond shall not be required in any of the following transactions:

(a) Sale of a subdivision lot resulting from the partition of land among co-owners and co-heirs.

(b) Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent sale of the same lot.

(c) Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in the ordinary course of business when necessary to liquidate a bona fide debt.

Section 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereto;

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.

Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the installments due for reasons other than the failure of the owner or developer to develop the project shall be governed by Republic Act No. 6552.

Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund based on the installments paid after the effectivity of the law in the absence of any provision in the contract to the contrary.

Section 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith

Far East Bank & Trust Co vs. Marquez

Marquez entered into a contract to sell with TSE involving a 52.5 sqm lot and a three storey townhouse for P800,000. Later respondent was able to pay a total of P600,000. TSE then mortgaged the whole property to Far East Bank. TSE was unable to pay and the property was foreclosed and sold in favor of Far East Bank.

Issue: 1.)Whether or not the mortgage contract violated Section 18 of PD.957, hence void insofar as third persons are concerned.

2.)Who has a higher right the new buyer or the respondent?

SC: Yes violated Sec. 18. as provides as follows.

Sec. 18. Mortgages- No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtness secured by the particular lot or unit being paid for , with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereof.


Since TSE did not obtain prior approval from the HLURB the mortgage is void as regarding to the property to the respondent as he has no standing to question the validity of the other property.

2.) Respondent has a higher right over the property. Petitioner cannot be considered as a buyer in good faith. He should have considered that it was a town house that was already in progress. The conversion of status from mortgagee to buyer will not lessen the importance of such knowledge.

Tamayo vs. Huang

Respondents Huang registered owners of four parcels of land located in Barangay Matina, Davao City executed a contract of "Indenture" with EAP Development Corporation (EAP) under which EAP undertook to manage and develop said parcels of land into a first class subdivision and sell the lots therein in, Doña Luisa Village (the subdivision).

Carlos R. Tamayo (petitioner) entered into a contract to sell with respondents through EAP for a certain lot. Under the contract, petitioner was to pay upon execution P35,749.60 and the balance, including interest at the rate of 14% per annum, in 60 monthly installments of P4,791.40, without necessity of demand; and if petitioner failed to pay the installments, respondents were given the right to demand interest thereon at the rate of 14% per annum, to be computed on the same day of the month the installments became due. Later on the development of the subdivision was put to stop by EAP, in effect petitioner stopped paying the monthly amortization. The respondents sent the petitioner a demand letter, but after the reply of the petitioner with an explanation of stop payment the respondent was unheard of.. After 5 years the development was soon in progress and petitioner offered to pay the full purchase price which was already rejected by the respondent. Later on the property was sold by the respondent to another person.

Issue: Who is entitled to the lot in question—the first buyer (petitioner) who stopped paying instalments due to discontinuance in the development of the subdivision or the subsequent buyer who was an innocent purchaser of value?

Held In case the developer of a subdivision or condominium fails in its obligation under PD957 Section 20, Section 23 gives the buyer the option to demand reimbursement of the total amount paid, or to wait for further development of the subdivision, and when the buyer opts for the latter alternative, he may suspend payment of instalments until such time that the owner or developer had fulfilled its obligation to him.

In the case at bar, petitioner was clear in his intention not to seek reimbursement of the total amount he had already paid but to comply with his obligation to pay the balance in full upon completion of the development of the subdivision. Due notice to developer is enough. The petitioner did not have to ask clearance from HLURB to stop his payments pending the completion of the subdivision project.

The contract between the petitioner and the respondents remained valid because cancellation was not done in accordance with the Sec 4 of RA 6552. It was, therefore, within petitioner’s right to maintain his option to await the completion of the development of and introduction of improvements in the subdivision and thereafter, upon full payment of the purchase price, without interest, compel respondents to execute a deed of absolute sale.

The decision of the OP that the land should be given to third party Abijar does not lie because the subsequent 1997 sale to Abejar was only brought to light during appeal was pending and Abijar was not even party to the case. Decision of the OP that the payments made by petitioner be refunded also does not lie because under the law, petitioner is entitled to the lot he contracted to purchase upon full payment.

If the sale of the lot to Abijar is eventually declared valid, respondents should refund petitioner its actual value as resold to Abijar, to bear 12% interest per annum computed from the date of such sale until fully paid or deliver a substitute lot at the option of petitioner.

CANTEMPRATE vs CRS REAL DEVELOPMENT CORP.FACTS:Herein petitioners were among those who filed before the HLURB (Housing Land Use and Regulatory Board) a complaint for the delivery of certificates of title against respondents CRS Realty Development Corporation (CRS Realty), Crisanta Salvador and Cesar Casal. The complaint alleged that respondent Casal was the owner of a parcel of land situated in General Mariano Alvarez, Cavite known as the CRS Farm Estate while respondent Salvador was the president of respondent CRS Realty, the developer of CRS Farm Estate. Petitioners averred that they had bought on an installment basis subdivision lots from respondent CRS Realty and had paid in full the agreed purchase prices; but notwithstanding the full payment and despite demands, respondents failed and refused to deliver the corresponding certificates of title to petitioners. The complaint prayed that respondents be ordered to deliver the certificates of title corresponding to the lots petitioners had purchased and paid in full and to pay petitioners damages. An amended complaint was subsequently filed impleading respondents Bennie Cuason and Caleb Ang, to whom respondent Casal purportedly transferred the subdivision lots and one Leticia Ligon. The amended complaint alleged that by virtue of the deed of absolute sale executed between respondent Casal and respondents Ang and Cuason, a TCT covering the subdivided property was issued in the names of respondents


Ang and Cuason as registered owners thereof. Petitioners prayed that they be declared the lawful owners of the subdivision lots and that the deed of absolute sale executed between respondent Casal and respondents Cuason and Ang be nullified, and that respondents Cuason and Ang be ordered to reconvey the subdivision lots to petitioners.

In his answer, respondent Casal averred that despite his willingness to deliver them, petitioners refused to accept the

certificates of title with notice of lis pendens covering the subdivision lots. He further averred that the obligation to deliver the certificate of titles without encumbrance fell on respondent CRS Realty on the following grounds: (1) as stipulated in the subdivision development agreement between respondents Casal and CRS Realty executed on 06 September 1988, the certificates of title of the subdivision lots would be transferred to the developer or buyers thereof only upon full payment of the purchase price of each lot; (2) the contracts to sell were executed between petitioners and respondent CRS Realty; and (3) the monthly amortizations were paid to respondent CRS Realty and not to respondent Casal. Respondent Casal also alleged that he subsequently entered into a purchase agreement over the unsold portions of the subdivision with respondents Ang, Cuason and one Florinda Estrada who assumed the obligation to reimburse the amortizations already paid by petitioners.On his part, Salvador averred that the prior agreements dated 6 September 1988 and 08 August 1989 between respondents Casal and CRS Realty were superseded by an agreement dated 30 August 1996 between respondents Casal and Salvador. In the subsequent agreement, respondent Casal purportedly assumed full responsibility for the claims of the subdivision lot buyers while respondent Salvador sold her share in CRS Realty and relinquished her participation in the business.Respondents Ang and Cuason claimed in their answer with counterclaim[16] that respondent Casal remained the registered owner of the subdivided lots when they were transferred to them and that the failure by petitioners to annotate their claims on the title indicated that they were unfounded. Respondent CRS Realty and the Heirs of Laudiza were declared in default for failure to file their respective answers.[17]

ISSUES:(1) Whether or not the absence of a license to sell has rendered the sales void; (2) Whether or not the subsequent sale to respondent Cuason and Ang constitutes double sale

HELD:

(1) In the instant case, the failure by respondent CRS Realty to obtain a license to sell the subdivision lots does not render the sales void on that ground alone especially that the parties have impliedly admitted that there was already a meeting of the minds as to the subject of the sale and price of the contract. The absence of the license to sell only subjects respondent CRS Realty and its officers civilly and criminally liable for the said violation under Presidential Decree (P.D.) No. 957 and related rules and regulations. The absence of the license to sell does not affect the validity of the already perfected contract of sale between petitioners and respondent CRS Realty.

(2) The subsequent agreement which purportedly rescinded the subdivision development agreement between respondents Casal and Salvador could not affect third persons like herein petitioners because of the basic civil law principle of relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or prejudice a third person, even if he is aware of such contract and has acted with knowledge thereof. The fact remains that the contracts to sell involving the subdivision lots were entered into by and between petitioners, as vendees, and respondent Salvador, on behalf of respondent CRS Realty as vendor. As one of the responsible officers of respondent CRS Realty, respondent Salvador is also liable to petitioners for the failure of CRS Realty to perform its obligations under the said contracts and P.D. No. 957, notwithstanding that respondent Salvador had subsequently divested herself of her interest in the CRS Realty. One of the purposes of P.D. No. 957 is to discourage and prevent unscrupulous owners, developers, agents and sellers from reneging on their obligations and representations to the detriment of innocent purchasers. The Court cannot countenance a patent violation on the part of the said respondents that will cause great prejudice to petitioners. The Court must be vigilant and should punish, to the fullest extent of the law, those who prey upon the desperate with empty promises of better lives, only to feed on their aspirations.

Chapter 2

Capacity to Buy or Sell

Arts. 1489 – 1492

I. Parties and their ConsentA. Capacity in general (1489)

Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles.

http://sc.judiciary.gov.ph/jurisprudence/2009/may2009/171399.htm#_ftn19

http://sc.judiciary.gov.ph/jurisprudence/2009/may2009/171399.htm#_ftn18


Where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in article 290.

Note: A person who has both juridical capacity and capacity to act is said to have full civil capacity. It is understood that he is of legal age and suffers no restriction on his capacity to act, such person may enter into any contract including sale.

B. Special Disqualifications to Buya. Husband and wife

Case:1) Effect of sale of land to one’s own spouse

Art. 1490. The husband and the wife cannot sell property to each other, except:(1) When a separation of property was agreed upon in the marriage settlements; or(2) When there has been a judicial separation or property under Article 191. (1458a)

Uy Siu Pin vs. Cantollas, G.R. No. 46850, June 20, 1940

Facts: There was a contract entered into between Uy Siu Pin and Casimira and Blas, which the latter agreed to deliver the mortgaged land and to enjoy the same with its improvements to the during the period of 15 years on condition that Uy Siu Pin would pay El Hogar Filipino the unpaid balance of the indebtedness of casimira and Blas, together with all other expenses including realty taxes.

When the mortgage debtors, Casimira and Blas, failed to redeem the land within the statutory period, a final deed of sale was issued in favor of the mortgagee, El Hogar Filipino. The latter sold the land to Uy Siu Pin and in turn sold the land to his wife Chua Hue.

Issues: Is the sale valid between Uy Siu Pin and Chua Hue?

Held: SC said No. The sale from Uy Siu Pin to his wife Chua Hue is null and void not only because the former had no right to dispose of the land in controversy but because the sale comes within the prohibition of Article 1458 of the Civil Code.

Rationale behind the prohibiton: (a) to prevent the stronger spouse from exploiting the weaker spouse; (b) prevent donations disguised as sales; (c) protect third persons, specially creditors, against fraud through the transfer of the properties of one spouse to the other to evade payment of obligations.

2) Transfer in common law relationship

Ching vs. Goyanko, G.R. No. 165879, November 10, 2006

FACTS: Respondents are the seven children out of the legal union of Joseph Goyanko Sr. and Epifania dela Cruz. Respondents claim that in 1961, their parents acquired a real property in Cebu which was first registered in the name of their aunt, Sulpicia Ventura, as their parents were still Chinese citizens that time. Sulpicia executed a deed of sale over the property in favor of respondent’s father, who in turn, on October 1993, executed a Deed of Absolute Sale in favor of the petitioner, Maria Ching, his common-law wife. Goyanko that in turn executed a deed of sale over the same property in favor of his common-law-wife-herein petitioner Maria B. Ching. It was only after Goyanko’s death that they discovered the transfer of the said property to Ching. Respondents thus filed with the RTC of Cebu City a complaint for recovery of the property and the nullification of the deed of sale.

ISSUE: Whether or not the sale of the property by Goyanko to Ching is valid.

HELD:Supreme Court held that 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 his concubine.

• According to Article 1409: 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, NCC, 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.

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. The sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects.

Moreover, the sale of the property in favor of herein petitioner also fell under the prohibition of sale of property between the spouses provided for by Art. 1490, NCC. This provision also applies to common law relationship.o To rule otherwise would mean that “the condition of those who incurred guilt would be better than those in legal

union”o This is so because if transfers and conveyances are allowed between spouses during marriage would destroy the

system of conjugal partnership.o This is also designed to prevent the exercise of undue influence of one spouse over the other and to protect the

institution of marriage, which is the cornerstone of familylaw.


Therefore, sale of the property made by Joseph Goyanko, Sr. in favor of his common-law wife is null and void.

C. Persons in Trust Relations

Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another:

(1) The guardian, the property of the person or persons who may be under his guardianship;(2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;(3) Executors and administrators, the property of the estate under administration;(4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;(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.(6) Any others specially disqualified by law. (1459a)

Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. (n)

2. Sale by agent: Exception to prohibition against sale by principal in favor of his agent.

Pelayo vs. Perez, G.R. No. 141323, June 8, 2005

FACTS: David Pelayo, by a Deed of Absolute Sale, conveyed to Melki Perez two parcels of agricultural land. Loreza, wife of David Pelayo, and another one whose signature is illegible witnessed the execution of the deed. Loreza, however, signed only the third page. Perez asked Loreza to sign on the first and second pages of the deed but refused, hence, he instituted the instant complaint for specific performance against the spouses. Petitioners, in adopting the trial court’s narration of antecedent facts in their petition, admitted that they authorized respondent to represent them in negotiations with the “squatters” occupying the disputed property and, in consideration of respondent’s services, they executed the subject deed of sale. Defendant Pelayo claimed that the deed was without his wife’s consent, hence, it is null and void.

ISSUE: Whether or not the deed of sale was null and void.

HELD: Petitioner Lorenza, by affixing her signature to the Deed of Sale on the space provided for witnesses, is deemed to have given her implied consent to the contract of sale. Sale is a consensual contract that is perfected by mere consent, which may either be express or implied. A wife’s consent to the husband’s disposition of conjugal property does not always have to be explicit or set forth in any particular document, so long as it is shown by acts of the wife that such consent or approval was indeed given. In the present case, although it appears on the face of the deed of sale that Lorenza signed only as an instrumental witness, circumstances leading to the execution of said document point to the fact that Lorenza was fully aware of the sale of their conjugal property and consented to the sale.

Under Article 173, in relation to Article 166, both of the New Civil Code, when the deed in question was executed, the lack of marital consent to the disposition of conjugal property does not make the contract void ab initio but merely voidable. It has been held that the contract is valid until the court annuls the same and only upon an action brought by the wife whose consent was not obtained. In the present case, despite respondent’s repeated demands for Lorenza to affix her signature on all the pages of the deed of sale, showing respondent’s insistence on enforcing said contract, Lorenza still did not fle a case for annulment of the deed of sale. Thus, if the transaction was indeed entered into without Lorenza’s consent, we find it quite puzzling why for more than three and a half years, Lorenza did nothing to seek the nullification of the assailed contract.

With regards to petitioner’s asservation that the deed of sale is invalid under Article 1491 (2) of the New Civil Code, we find such argument unmeritorious. Petitioners, by signing the Deed of Sale in favor of respondent, are also deemed to have given their consent to the sale of the subject property in favor of respondent, thereby making the transaction an exception to the general rule that agents are prohibited from purchasing the property of their principals.

3. Sale to GuardiansPhilippine Trust Co. v. Roldan


Facts: Mariano Bernardo, a minor, inherited 17 parcels of land from his deceased father. Respondent, Mariano’s step-mother, was appointed his guardian. As guardian, she sold the 17 parcels to Dr. Ramos, her brother-in-law, for P14,700. After a week, Dr. Ramos sold the lands to her for P15,000. Subsequently, she sold 4 out of 17 parcels to Emilio Cruz. Petitioner replaced Roldan as guardian, and two months thereafter, this litigation sought to declare as null and void the sale to Dr. Ramos, and the sale to Emilio Cruz.Issue:Whether the sale of the land by the guardian is null and void for being violative of the prohibition for a guardian to purchase either in person or through the mediation of another the property of her wardHeld:Remembering the general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward’s interest, and in line with the court’s suspicion whenever the guardian acquires 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.This case is not similar to that cited by defendant (Rodriguez v. Mactal) wherein it was not established that there was an agreed scheme between the first buyer and the guardian and that the subsequent sale occurred after a period of two years. In this case, the 2 sales were only a week apart, raising the doubts as to the motive of the guardian in selling the properties to Dr.Ramos. Therefore, 1st and 2nd sale are null and void for violation of Article 1459 of the NCC. 3rd is null and void because no title could pass from Roldan to Cruz.So 3 sales annulled. Minor is the owner of 17 parcels of land. But ordered to return 14,700 pesos with interest to Roldan. Roldan to pay minor the fruits of the land.

4. Sale to public officers / Sale of land to public official’s wife

Maharlika Broadcasting Corp. vs. Tagle

FACTS: The GSIS was the registered owner of a parcel of land that was sold to petitioner Maharlika Publishing Corporation together with the building thereon as well as the printing machinery and equipment therein. Among the conditions of the sale are that petitioner shall pay to the GSIS monthly installments until the total purchase price shall be fully paid and that failure to pay any monthly installment within 90 days from due date, the contract shall be deemed automatically cancelled. Maharlika failed to pay the installments for several months. This resulted to a public bidding of this particular property. Petitioner submitted a letter-proposal that reads: “I bid to match the highest bidder.” The bidding committee rejected petitioner’s bid and accepted the private respondent Luz Tagle’s bid. After approval and confirmation of the sale, the GSIS executed a Deed of Conditional Sale in favor of Tagles. Luz Tagle is the wife of Edilberto Tagle. Edilberto Tagle was the Chief, Retirment Division, GSIS, from 1970 to 1978. He worked for the GSIS since 1952.

ISSUE: WON there was a repurchase of the property in question from the GSIS by Maharlika prior to the public bidding.WON the auction sale in favor of the Tagles is valid

HELD:Issue (1):

The SC notes that the petitioners are not complete strangers entering into a contract with GSIS for the first time. There was an earlier contract to sell the same properties to the petitioners. That contract was perfected and there had been partial compliance with its terms. The transaction now under question in this case merely referred to the curing of certain defects which led to the cancellation of the earlier contract by GSIS. Under the peculiar circumstances of this case, therefore, the acceptance of the petitioners' letter-proposal by Mr. Roman Cruz, Jr., the person with authority to do so, and his order to his subordinates to stop the bidding so that they could first discuss the matter with him, created an agreement of binding nature with the petitioners.

Issue (2):

The SC declare it to be a policy of the law that public officers who hold positions of trust may not bid directly or indirectly to acquire properties foreclosed by their offices and sold at public auction.

Undeniably, Mr. Tagle is a public officer and his wife acts for and in behalf of his name in its transaction with the GSIS. If he is allowed to participate in the public bidding of properties foreclosed or confiscated by the GSIS, there will always be the suspicion among other bidders and the general public that the insider official had access to information and connections with his fellow GSIS officials as to allow him to eventually acquire the property. It is precisely the need to forestall such suspicions and to restore confidence in the public service that the Civil Code now declares such transactions to be void from the beginning and not merely voidable (Rubias vs. Batiller, 51 SCRA 120). The reasons are grounded on public order and public policy. It thus falls under the prohibited transactions of Article 1491 of the Civil Code and, therefore, void under Article 1409. Hence the conditional sale entered into between GSIS and private respondents Luz and Edilberto Tagle is declared NULL and VOID for being contrary to public policy. The prayer of petitioners for the repurchase of the subject property in an amount equal to the amount offered by private respondents and to retain ownership and possession of the disputed property is GRANTED.


3.Sale/transfer to attorney

Gurrea vs. Suplico, G.R. No. 144320, April 26, 2006

FACTS: Adelina Gurrea continued to be the owner of the lot (TCT No. 58253) until her death. Thereafter, a special proceeding was instituted to settle her estate. Under her will, the San Juan lot was bequeathed to Pilar and Luis Gurrea, while 700,000 pesetas, ¼ of the lot in Baguio and 1-hectare piece of land in Negros Occidental were given to Ricardo Gurrea. Ricardo Gurrea, represented by and through his counsel Atty. Enrique Suplico filed an Opposition in Special Proceeding No. 7185. In consideration of said representation, Ricardo Gurrea agreed to pay Atty. Suplico “a contigent fee of twenty (20%) of whatever is due me, either real or personal property.” Later on, Ricardo withdrew his Opposition. The properties adjudicated to Ricardo based on the project of partition were the Baguio lot, San Juan lot, and a parcel of land in Negros Occidental. As payment of his attorney’s fees, Ricarod Gurrea offered the San Juan lot to Atty. Suplico who was hesitant to accept as the property was occupied by squatters. However, in order not to antagonize his client, Atty. Suplico agreed to Ricardo’s proposal with the further understanding that he will receive an additional commission of 5% if he sells the Baguio property. Thereafter, Atty. Suplico registered the deed of Transfer of Rights and Interest and obtained the title to the San Juan property under his name.

ISSUE: Whether or not the subject property is still the object of litigation; If affirmative, whether or not the sale is void for being violative of the provisions of Article 1491 (5) of the Civil Code.

HELD: The sale to Atty. Suplico is null and void.

A thing is said to be in litigation only if there is some contest or litigation over it in court, but also from the moment that it becomes subject to the judicial action of the judge. In the present case, there is no proof to show that at the time the deed of Transfer of Rights and Interest was executed, the probate court issued an order granting the Motion for Termination of Proceeding and Discharge of the Executor and Bond. Since the judge has yet to act on the above-mentioned motion, if follows that the subject property which is the subject matter of the deed of Transfer of Rights and Interest, is still the object of litigation.

Having been established that the subject property was still the object of litigation at the time the subject deed of Transfer of Rights and Interest was executed, the assignment of rights and interest over the subject property in favor of respondent is null and void for being violative of the provisions of Article 1491 of the Civil Code which expressly prohibits lawyers from acquiring property or rights which may be the object of any litigation in which they may take party by virtie of their profession.

C.Incapacity to Sella. Homesteaders

Sale of portions of a parcel of land (1) prior to issuance and (2) within 5 years from issuance of free patent

Manlapat vs. CA, G.R. No. 125585, June 8, 2005

FACTS: The controversy involves Lot No. 2204 that had been originally in the possession of Jose Alvarez, Eduardo’s grandfather, until his demise in 1916. It remained unregistered until October 8, 1976 when OCT No. P-153 was issued in the name of Eduardo pursuant to a free patent issued in Eduardo’s name that was entered in the Registry of Deed. Before the subject lot was titled, Eduardo sold 533 sq.m. of the land to Ricardo on December 19, 1954. The sale is evidence by a deed of sale entitled “Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo” which was signed by Eduardo himself as vendor and his wife Engracia Ancieto with a certain Santiago Enriquez signing as witness. The Kasulatan was registered with the Register of Deeds. On March 18, 1981, another Deed of Sale conveyed another portion of the subject lot as right of way was executed by Eduardo in favor of Ricardo. The deed was notarized. Leon Banaag, as attorney-in-fact of his father-in-law (Eduardo) mortgage with the Rural Bank for P100,000.00 with the subject lot as collateral. Banaag deposited the owner’s duplicate certificate of OCT No. P-153 with the bank. Ricardo and Eduardo died.

The Cruzes, upon learning their right to the subject lot immediately tried to confront petitioners mortgage and obtain the surrender of the OCT. Having failed to physically obtain the title from petitioners, the Cruzes went to RBSP which had custody of the owner’s duplicate certificate of the OCT. They were able to secure a clearance to borrow the title and was able to have the Register of Deeds cancel the OCT and issue two separate titles in the name of Ricardo andEduardo.

ISSUE: Whether or not the sale of the land is prohibited or not.

HELD: Free patent application implies the recognition of the public dominion character of the land and, hence, the five year prohibition imposed by the Public land Act against alienation or encumbrance of the land covered by a free patent or homestead should have been considered.

The deed of sale covering the 50 sq.m. right of way executed on March 18, 1981 is obviously covered by proscription, the free patent having been issued on October 8, 1979. However, petitioners may recover the portion sold since the prohibition was imposed in favor of the free patent holder. Under the Public Land Act, the prohibition to alienate is predicated on the fundamental policy of the State to preserve and keep in the family of the homesteader that portion of public land which the State has gratuitously given to him, and recovery is allowed even where the land acquired under the Public Land Act was sold and not merely encumbered, within the prohibited period.


The sale of the 533 sq.m. was executed 22 years before the issuance of the patent in 1976. Where the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the prohibition should not be applied. In such situation, neither the prohibition not the rationale therefor which is to keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him from the temptation to dispose of his landholdings, could be relevant. Precisely, he had disposed of his rights to the lot even before the government could give the title to him.

Effect of verbal sale within 5-year prohibitory period

Manzano vs. Ocampo, L-46850, June 20, 1940

Victoriano Manzano, now deceased, was granted a homestead patent on June 25, 1934, and the land was registered in his name on July 25, 1934 under Original Certificate of Title No. 4590. On January 4, 1938, he and respondent Rufino Ocampo agreed on the sale of said homestead for the amount of P1,900.00, P1,100.00 of which was paid by Ocampo to Manzano on the same day, and for the balance, he executed a promissory note. Knowing, however, that any sale of the homestead at that time was prohibited and void, the parties likewise agreed that the deed of sale was to be made only after the lapse of five years from the date of Manzano's patent. And to protect the buyer Ocampo's rights in the agreed sale, Manzano executed in his favor a "Mortgage of Improvements" over the homestead to secure the amount of P1,100.00 already received as down payment on the price.

It is clear that a perfected contract of sale had already been entered into by the parties within the period of prohibition. There was nothing "futuristic" in this agreement, except that, being fully aware of the prohibition, Manzano's title has not ripened into absolute ownership.

This execution of the formal deed after the expiration of the prohibitory period did not and could not legalize a contract that was void from its inception. Nor was this formal deed of sale "a totally distinct transaction from the promissory note and the deed of mortgagee for it was executed only in compliance and fulfillment of the vendor's previous promise, under the perfected sale to execute in favor of his vendee the formal act of conveyance after the lapse of the period of inhibition of five years from the date of the homestead patent.

Sale in question is illegal and void for having been made within five years from the date of Manzano's patent, in violation of section 118 of the Public Land Law. Being void from its inception, the approval thereof by the Undersecretary of Agriculture and Natural Resources after the lapse of five years from Manzano's patent did not legalize the sale. The result is that the homestead in question must be returned to Manzano's heirs, who are, in turn, bound to restore to Ocampo the, sum of P3,000.00 received by Manzano as the price thereof.

Effect of Forbidden Sales

ART. 1491. Persons Relatively Incapacitated to Buy. (PAGEJO)

1. Public Officers and employees—Property Of State.

2. Agents—Property of Principal unless with consent.

3. Guardian—Property of Ward.

4. Executors and administrators—Estate

5. Justices, Judges, Prosecuting Attorneys, Clerks and employees of court—Property/Rights under litigation.

6. Others disqualified by law. (Ex. *aliens who are disqualified to purchase private agricultural lands; *an unpaid seller having a right of lien or having stopped the goods in transitu, who is prohibited from buying the goods either directly or indirectly in the resale of the same at a public or private sale w/c he may make. Art. 1533, par.5)

Rationale: Fiduciary relationship is based on trust

Status of Sale: Void: guardian/executor/PO/officers of the court

Voidable: agent; and if with consent, Valid

- Minors – voidable only; ratifiable

Documents

PreMid Notes