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PERFECTO DY, JR. vs. COURT OF APPEALS, GELAC TRADING INC., and ANTONIO V. GONZALES
.R. No. 92989. July 8, 1991.
FACTS:
The petitioner, Perfecto Dy and Wilfredo Dy are brothers.
Sometime in 1979, Wilfredo Dy purchased a truck and a farm tractor through financing extended by Libra Finance
and Investment Corporation (Libra). Both truck and tractor were mortgaged to Libra as security for the loan.
The petitioner wanted to buy the tractor from his brother so, he wrote a letter to Libra requesting that he be allowed
to purchase from Wilfredo Dy the said tractor and assume the mortgage debt of the latter.
Libra thru its manager, Cipriano Ares approved the petitioners request.
Wilfredo Dy executed a deed of absolute sale in favor of the petitioner over the tractor in question. At this time, the
subject tractor was in the possession of Libra Finance due to Wilfredo Dys failure to pay the amortizations.
Despite the offer of full payment by the petitioner to Libra for the tractor, the immediate release could not be
effected because Wilfredo Dy had obtained financing not only for said tractor but also for a truck and Libra insisted
on full payment for both.
Petitioner was able to convince his sister to purchase the truck so that full payment can be made for both
A PNB check was issued in the amount of P22,000.00 in favor of Libra, thus settling in full the indebtedness of
Wilfredo Dy with the financing firm. Libra insisted that it be cleared first before releasing the chattels
Meanwhile, Civil Case entitled Gelac Trading, Inc. v. Wilfredo Dy, a collection case to recover the sum of
P12,269.80 was pending in another court
On the strength of an alias writ of execution issued, the provincial sheriff was able to seize and levy on the tractor
which was in the premises of Libra in Carmen, Cebu. The tractor was subsequently sold at public auction where
Gelac Trading was the alone bidder. Later, Gelac sold the tractor to one of its stockholders, Antonio Gonzales.
It was only when the check was that the petitioner learned about GELAC having already taken custody of the
subject tractor
petitioner filed an action to recover the subject tractor against GELAC Trading
the RTC rendered judgment in favor of the petitioner
Court of Appeals reversed the decision of the RTC (held that the tractor in question still belonged to Wilfredo Dy
when it was seized and levied by the sheriff)
ISSUE: WHETHER OR NOT OWNERSHIP OF THE FARM TRACTOR HAD ALREADY PASSED TO HEREIN
PETITIONER WHEN SAID TRACTOR WAS LEVIED ON BY THE SHERIFF PURSUANT TO AN ALIAS
WRIT OF EXECUTION ISSUED IN ANOTHER CASE IN FAVOR OF RESPONDENT GELAC TRADING INC.
HELD: YES
SPECIAL CONTRACTS; CHATTEL MORTGAGE; RIGHT OF MORTGAGOR TO SELL THE PROPERTY
MORTGAGED; RULE. The mortgagor who gave the property as security under a chattel mortgage did not part
with the ownership over the same. He had the right to sell it although he was under the obligation to secure the
written consent of the mortgagee or he lays himself open to criminal prosecution under the provision of Article 319
par. 2 of the Revised Penal Code. And even if no consent was obtained from the mortgagee, the validity of the sale
would still not be affected.
APPLICABLE IN CASE AT BAR. We see no reason why Wifredo Dy, as the chattel mortgagor can not sell the
subject tractor. There is no dispute that the consent of Libra Finance was obtained in the instant case. Libra allowed
the petitioner to purchase the tractor and assume the mortgage debt of his brother. The sale between the brothers was
therefore valid and binding as between them and to the mortgagee, as well.
REMEDY OF MORTGAGEE IN CASE MORTGAGOR FAILED TO PAY THE DEBT. It was Libra Finance
which was in possession of the subject tractor due to Wilfredos failure to pay the amortization as a preliminary step
to foreclosure. As mortgagee, he has the right of foreclosure upon default by the mortgagor in the performance of the

conditions mentioned in the contract of mortgage. The law implies that the mortgagee is entitled to possess the
mortgaged property because possession is necessary in order to enable him to have the property sold. While it is true
that Wilfredo Dy was not in actual possession and control of the subject tractor, his right of ownership was not
divested from him upon his default. Neither could it be said that Libra was the owner of the subject tractor because
the mortgagee can not become the owner of or convert and appropriate to himself the property mortgaged (Article
2088, Civil Code). Said property continues to belong to the mortgagor. The only remedy given to the mortgagee is to
have said property sold at public auction and the proceeds of the sale applied to the payment of the obligation
secured by the mortgagee (See Martinez vs. PNB, 93 Phil. 765, 767 [1953]). There is no showing that Libra Finance
has already foreclosed the mortgage and that it was the new owner of the subject tractor. Undeniably, Libra gave its
consent to the sale of the subject tractor to the petitioner. It was aware of the transfer of rights to the petitioner.
PURCHASER OF MORTGAGED PROPERTY STEPS INTO THE SHOES OF THE MORTGAGOR. Where a
third person purchases the mortgaged property, he automatically steps into the shoes of the original mortgagor. His
right of ownership shall be subject to the mortgage of the thing sold to him. In the case at bar, the petitioner was
fully aware of the existing mortgage of the subject tractor to Libra. In fact, when he was obtaining Libras consent to
the sale, he volunteered to assume the remaining balance of the mortgage debt of Wilfredo Dy which Libra
undeniably agreed to.
SALE; DELIVERY OF PROPERTY VESTS OWNERSHIP TO THE VENDEE. Article 1496 of the Civil Code
states that the ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of
the ways specified in Articles 1497 to 1501 or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee. We agree with the petitioner that Articles 1498 and 1499 are applicable in
the case at bar.
RULE ON CONSTRUCTIVE DELIVERY. In the instant case, actual delivery of the subject tractor could not be
made. However, there was constructive delivery already upon the execution of the public instrument pursuant to
Article 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred
to the possession of the vendee (Article 1499).
CONSUMMATION OF SALE; NOT DEPENDENT ON THE ENCASHMENT OF CHECK. The payment of the
check was actually intended to extinguish the mortgage obligation so that the tractor could be released to the
petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship
between Libra and the petitioner is not one of sale but still a mortgage. The clearing or encashment of the check
which produced the effect of payment determined the full payment of the money obligation and the release of the
chattel mortgage. It was not determinative of the consummation of the sale. The transaction between the brothers is
distinct and apart from the transaction between Libra and the petitioner. The contention, therefore, that the
consummation of the sale depended upon the encashment of the check is untenable.
EVIDENCE; FRAUD; MUST BE ESTABLISHED BY CLEAR CONVINCING EVIDENCE. There is no
sufficient evidence to show that the sale of the tractor was in fraud of Wilfredo and creditors. While it is true that
Wilfredo and Perfecto are brothers, this fact alone does not give rise to the presumption that the sale was fraudulent.
Relationship is not a badge of fraud (Goquiolay vs. Sycip, 9 SCRA 663 [1963]). Moreover, fraud can not be
presumed; it must be established by clear convincing evidence.
EUTIQUIANO CUYUGAN vs. ISIDORO SANTOS

[G.R. No. 10265. March 3, 1916.]

FACTS:
The plaintiff is the sole heir of his mother, Guillerma Cuyugan y Canda, deceased;
that in the year 1895 she borrowed the sum of P3,500 from the defendant and executed, at the same time, the
document, Exhibit C, attached to the complaint, which purports on its face to be a deed of sale of the land described
therein, with a reservation in favor of the vendor of the right to repurchase for the sum of P3,500;
that although the instrument purports on its face to be a deed of sale, it was intended by the parties merely to
evidence the loan of the nominal purchase price and to serve as a security for the repayment of the amount of the
loan;
ISSUE: WON the parol evidence should be admitted in support of allegations versus that of an instrument in writing

HELD: YES.
PAROL EVIDENCE AFFECTING WRITINGS; ALLEGED PACTO DE RETRO. Parol evidence is competent
and admissible in support of allegations that an instrument in writing, purporting on its face to transfer the absolute
title to property, or to transfer the title with a mere right to repurchase under specified conditions reserved to the
vendor, was in truth and in fact given merely as a security for the repayment of a loan; and upon proof of the truth of
such allegations, the courts in this jurisdiction have power to enforce the agreement or understanding in this regard,
in accord with the true intent of the parties at the time when it was executed.
UNITED STATES DOCTRINE. The doctrine which must be applied in such cases in this jurisdiction does not
differ materially from the equitable doctrine frequently announced and applied by the Supreme Court of the United
States in the numerous cases in which similar questions have come to it from the various States and Territories
within its jurisdiction
MORTGAGE CLAIMED TO BE A SALE. That court has held that: To insist on what was really a mortgage, as
a sale, is in equity a fraud, which cannot be successfully practiced, under the shelter of any written papers, however
precise and complete they may appear to be.
CONTRACT OF LOAN ON SECURITY; LOAN ALLEGED TO BE PURCHASE MONEY. Also that: When it
is alleged and proved that a loan on security was really intended, and the defendant sets up the loan as a payment of
purchase money, and the conveyance as a sale, both fraud and a vice in the consideration are sufficiently averred to
require a court of equity to hold the transaction to be a mortgage.
PACTO DE RETRO; AGREEMENT TO CONSIDER IT AS SECURITY FOR LOAN. If the parties actually
enter into such an agreement, the lender of the money is legally and morally bound to fulfill it. Of course, such an
oral contract does not give the borrower a real right in the lands unless it is executed in compliance with the
formalities prescribed by law. If entered into orally, it creates a mere personal obligation which in no wise affects the
lands, and if the lender conveys the lands to innocent third persons, the borrower must content himself with a mere
right of action for damages against the lender, for failure to comply with his agreement. But so long as the land
remains in the hands of the lender, the borrower may demand the fulfillment of the agreement, and a mere lack of
any of the formalities prescribed under the Spanish Code for the execution of contracts affecting real estate will not
defeat his right to have the contract fulfilled, as the lender may be compelled in appropriate proceedings to execute
the contract with the necessary prescribed formalities.
ORAL CONTRACTS AFFECTING LANDS; REQUISITES UNDER SPANISH CODES. Under the Spanish
Codes an oral contract affecting lands, even an oral contract for the sale of lands, was valid and enforceable,
provided none of the essential requisites of all valid contracts are lacking, that is to say, (1) consent, (2) definite
object, and (3) cause or consideration. The lack of the formal requisites prescribed by the Code in order that such
contracts may become effective to bind or convey the property, such as their execution in public instruments and the
like, does not invalidate them as personal obligations, as either party may compel the other to comply with such
formalities from the moment the valid personal obligation has been entered into.
PACTO DE RETRO; ACCEPTANCE OF PARTIAL PAYMENTS; EFFECT. Where a sale of lands has been
made reserving to the vendor a right to repurchase under stipulated conditions, and one or more partial payments
have been made by the vendor and accepted by the purchaser, the acceptance of such partial payments is absolutely
incompatible with the idea of irrevocability of the title of ownership of the purchaser at the expiration of the term
stipulated in the original contract for the exercise of the right of repurchase.
In the light of these elementary and basic principles of the Code there can be no question, in the absence of express
statutory prohibition, as to the validity of an agreement or understanding whereby the lender of money, who as
security for the repayment of the loan has taken a deed to land, absolute on its face or in the form of a deed reserving
a mere right of repurchase to the vendor, obligates himself to hold such deed, not as evidence of a contract of sale
but by way of security for the repayment of the debt; and that unless the rights of innocent third persons have
intervened the lender of the money may be compelled to comply specifically with the terms of such an agreement,

whether it be oral or written; and further, that he will not be permitted, in violation of its terms, to set up title in
himself or to assert a claim of absolute ownership
SPS. SEGUNDO DALION AND EPIFANIA SABESAJE-DALION vs. THE HONORABLE COURT OF
APPEALS AND RUPERTO SABESAJE, JR.
[G.R. No. 78903. February 28, 1990.]
FACTS: Petitioner seeks to annul the decision of the CA upholding the validity of the sale of a parcel of land by
petitioner Segundo Dalion (hereafter, Dalion) in favor of private respondent Ruperto Sabesaje, Jr.
Sabesaje sued to recover ownership of a parcel of land, based on a private document of absolute sale, dated July 1,
1965 (Exhibit A), allegedly executed by Dalion, who, however denied the fact of sale, contending that the
document sued upon is fictitious, his signature thereon, a forgery, and that subject land is conjugal property
he and his wife acquired the said property in 1960 from Saturnina Sabesaje as evidenced by the Escritura de Venta
Absoluta
The spouses denied claims of Sabesaje that after executing a deed of sale over the parcel of land, they had pleaded
with Sabesaje, their relative, to be allowed to administer the land because Dalion did not have any means of
livelihood.
They admitted, however, administering since 1958, five (5) parcels of land in Sogod, Southern Leyte, which
belonged to Leonardo Sabesaje, grandfather of Sabesaje, who died in 1956
They never received their agreed 10% and 15% commission on the sales of copra and abaca, respectively.
Sabesajes suit, they countered, was intended merely to harass, preempt and forestall Dalions threat to sue for
these unpaid commissions.
Dalions argument: Assuming authenticity of his signature and the genuineness of the document, Dalion nonetheless
still impugns the validity of the sale on the ground that the same is embodied in a private document, and did not thus
convey title or right to the lot in question since acts and contracts which have for their object the creation,
transmission, modification or extinction of real rights over immovable property must appear in a public instrument
(Art. 1358, par 1, NCC)
ISSUE: a)WON the contract of sale of a parcel of land is valid and b) WON there is necessity of a public document
for transfer of ownership thereto.
HELD:
This argument is misplaced.
OBLIGATIONS AND CONTRACT; PUBLIC DOCUMENT IS NECESSARY ONLY FOR CONVENIENCE AND
NOT FOR VALIDITY OR ENFORCEABILITY. The provision of Art. 1358 on the necessity of a public document
is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale
of a parcel of land that this be embodied in a public instrument.
PERFECTION OF CONTRACT; SALE IS PERFECTED BY MERE CONSENT; VENDEE MAY COMPEL
TRANSFER OF OWNERSHIP OF THE OBJECT OF SALE. A contract of sale is a consensual contract, which
means that the sale is perfected by mere consent. No particular form is required for its validity. Upon perfection of
the contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee may compel
transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold (Art.
1458, NCC).
The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to execute
corresponding formal deed of conveyance in a public document. Under Art. 1498, NCC, when the sale is made
through a public instrument, the execution thereof is equivalent to the delivery of the thing. Delivery may either be
actual (real) or constructive. Thus delivery of a parcel of land may be done by placing the vendee in control and
possession of the land (real) or by embodying the sale in a public instrument (constructive).
ACTION FOR RECOVERY OF OWNERSHIP IS PROPER AS IT SEEKS CONSUMMATION OF CONTRACT
OF SALE. As regards petitioners contention that the proper action should have been one for specific
performance, We believe that the suit for recovery of ownership is proper. As earlier stated, Art. 1475 of the Civil

Code gives the parties to a perfected contract of sale the right to reciprocally demand performance, and to observe a
particular form, if warranted, (Art. 1357). The trial court, aptly observed that Sabesajes complaint sufficiently
alleged a cause of action to compel Dalion to execute a formal deed of sale, and the suit for recovery of ownership,
which is premised on the binding effect and validity inter partes of the contract of sale, merely seeks consummation
of said contract.
Moreover, people who witnessed the execution of subject deed positively testified on the authenticity thereof. They
categorically stated that it had been executed and signed by the signatories thereto. On the other hand, defendant has
affirmatively alleged forgery, but he never presented any witness or evidence to prove his claim of forgery.
B.H. BERKENKOTTER vs. CU UNJIENG E HIJOS

G.R. No. L-41643 July 31, 1935

FACTS: This is an appeal taken by the plaintiff, B. H. Berkenkotter, from the judgment of the Court of First Instance
of Manila, dismissing said plaintiffs complaint against Cu Unjieng e Hijos et al
Mabalacat Sugar Co., Inc., owner of the sugar central situated in Mabalacat, Pampanga, obtained from the
defendants, Cu Unjieng e Hijos, a loan secured by a first mortgage constituted on two parcels and land with all its
buildings, improvements, sugar-cane mill, steel railway, telephone line, apparatus, utensils and whatever forms part
or is necessary complement of said sugar-cane mill, steel railway, telephone line, now existing or that may in the
future exist is said lots.
Shortly after said mortgage had been constituted, the Mabalacat Sugar Co., Inc., decided to increase the capacity of
its sugar central by buying additional machinery and equipment, so that instead of milling 150 tons daily, it could
produce 250. The estimated cost of said additional machinery and equipment was approximately P100,000. B.A.
Green, president of said corporation, proposed to the plaintiff, B.H. Berkenkotter, to advance the necessary amount
for the purchase of said machinery and equipment, promising to reimburse him as soon as he could obtain an
additional loan from the mortgagees, the herein defendants Cu Unjieng e Hijos. Berkenkotter agreed to the said
proposition and delivered to him a total sum of P25,750. Berkenkotter had a credit of P22,000 against said
corporation for unpaid salary. With the loan of P25,750 and said credit of P22,000, the Mabalacat Sugar Co., Inc.,
purchased the additional machinery and equipment now in litigation.
B.A. Green, president of the Mabalacat Sugar Co., Inc., applied to Cu Unjieng e Hijos for an additional loan of
P75,000 offering as security the additional machinery and equipment acquired by said B.A. Green and installed in
the sugar central after the execution of the original mortgage deed, together with whatever additional equipment
acquired with said loan. B.A. Green failed to obtain said loan.
Appellants contention: the installation of the machinery and equipment claimed by him in the sugar central of the
Mabalacat Sugar Company, Inc., was not permanent in character inasmuch as B. A. Green, in proposing to him to
advance the money for the purchase thereof, that in case B. A. Green should fail to obtain an additional loan from
the defendants Cu Unjieng e Hijos, said machinery and equipment would become security therefor.
ISSUE: Whether or not the lower court erred in declaring that the additional machinery and equipment, as
improvement incorporated with the central are subject to the mortgage deed executed in favor of the defendants Cu
Unjieng e Hijos.
HELD: No error was committed by trial court. The additional machinery and equipment are included in the first
mortgage.
Article 334, paragraph 5, of the Civil Code gives the character of real property to machinery, liquid containers,
instruments or implements intended by the owner of any building or land for use in connection with any industry or
trade being carried on therein and which are expressly adapted to meet the requirements of such trade or industry.
If the installation of the machinery and equipment in question in the central of the Mabalacat Sugar Co., Inc.,
in lieu of the other of less capacity existing therein, for its sugar industry, converted them into real property
by reason of their purpose, it cannot be said that their incorporation therewith was not permanent in
character because, as essential and principal elements of a sugar central, without them the sugar central
would be unable to function or carry on the industrial purpose for which it was established. Inasmuch as the
central is permanent in character, the necessary machinery and equipment installed for carrying on the sugar
industry for which it has been established must necessary be permanent.
Furthermore, the fact that B. A. Green bound himself to the plaintiff B. H. Berkenkotter to hold said machinery and
equipment as security, as nothing could prevent B. A. Green from giving them as security at least under a second

mortgage.
As to the alleged sale of said machinery and equipment to the plaintiff and appellant after they had been
permanently incorporated with the sugar central of the Mabalacat Sugar Co., Inc., and while the mortgage
constituted on said sugar central to Cu Unjieng e Hijos remained in force, only the right of redemption of the vendor
Mabalacat Sugar Co., Inc., in he sugar central with which said machinery and equipment had been incorporated, was
transferred thereby, subject to the right of the defendants Cu Unjieng e Hijos under the first mortgage.
For the foregoing considerations, we are of the opinion and so hold: (1) That the installation of a machinery and
equipment in a mortgaged sugar central, in lieu of another of less capacity, for the purpose of carrying out the
industrial functions of the latter and increasing production, constitutes a permanent improvement on said sugar
central and subjects said machinery and equipment to the mortgage constituted thereon (article 1877, Civil Code);
(2) that the fact that the purchaser of the new machinery and equipment has bound himself to the person supplying
him the purchase money to hold them as security for the payment of the latters credit, and to refrain from
mortgaging or otherwise encumbering them does not alter the permanent character of the incorporation of said
machinery and equipment with the central; and (3) that the sale of the machinery and equipment in question by the
purchaser who was supplied the money, after the incorporation thereof with the mortgaged sugar central, does not
vest the creditor with ownership of said machinery and equipment but simply with the right of redemption.
LEUNG YEE vs. FRANK L. STRONG MACHINERY COMPANY G.R. No. L-11658 February 15, 1918
FACTS: The Compaia Agricola Filipina bought a considerable quantity of rice-cleaning machinery company
from the defendant machinery company, and executed a chattel mortgage thereon to secure payment of the purchase
price. It included in the mortgage deed the building of strong materials in which the machinery was installed,
without any reference to the land on which it stood. The indebtedness secured by this instrument not having been
paid when it fell due, the mortgaged property was sold by the sheriff, in pursuance of the terms of the mortgage
instrument, and was bought in by the machinery company. The mortgage was registered in the chattel mortgage
registry, and the sale of the property to the machinery company in satisfaction of the mortgage was annotated in the
same registry.
Compaia Agricola Filipina executed a deed of sale of the land upon which the building stood to the machinery
company, but this deed of sale, although executed in a public document, was not registered. This deed makes no
reference to the building erected on the land and would appear to have been executed for the purpose of curing any
defects which might be found to exist in the machinery companys title to the building under the sheriffs certificate
of sale. The machinery company went into possession of the building at or about the time when this sale (of land)
took place and it has continued in possession ever since.
At or about the time when the chattel mortgage was executed in favor of the machinery company, the mortgagor, the
Compaia Agricola Filipina executed another mortgage to the plaintiff upon the building, separate and apart from
the land on which it stood, to secure payment of the balance of its indebtedness to the plaintiff under a contract for
the construction of the building. Upon the failure of the mortgagor to pay the amount of the indebtedness secured by
the mortgage, the plaintiff secured judgment for that amount, levied execution upon the building, bought it in at the
sheriffs sale and had the sheriffs certificate of the sale duly registered in the land registry of the Province of Cavite.
At the time when the execution was levied upon the building, the defendant machinery company, which was in
possession, filed with the sheriff a sworn statement setting up its claim of title and demanding the release of the
property from the levy. Thereafter, upon demand of the sheriff, the plaintiff executed an indemnity bond in favor of
the sheriff in the sum of P12,000, in reliance upon which the sheriff sold the property at public auction to the
plaintiff, who was the highest bidder at the sheriffs sale.
This action was instituted by the plaintiff to recover possession of the building from the machinery company.
ISSUE: W/N plaintiff has a better right over the building
HELD: NO.
The registry here referred to is of course the registry of real property, and it must be apparent that the annotation or
inscription of a deed of sale of real property in a chattel mortgage registry cannot be given the legal effect of an
inscription in the registry of real property. By its express terms, the Chattel Mortgage Law contemplates and makes
provision for mortgages of personal property; and the sole purpose and object of the chattel mortgage registry is
to provide for the registry of Chattel mortgages, that is to say, mortgages of personal property executed in
the manner and form prescribed in the statute. The building of strong materials in which the rice-cleaning

machinery was installed by the Compaia Agricola Filipina was real property, and the mere fact that the
parties seem to have dealt with it separate and apart from the land on which it stood in no wise changed its
character as real property. It follows that neither the original registry in the chattel mortgage of the building
and the machinery installed therein, not the annotation in that registry of the sale of the mortgaged property,
had any effect whatever so far as the building was concerned.
Statement of facts in the court below discloses that neither the purchase of the building by the plaintiff nor his
inscription of the sheriffs certificate of sale in his favor was made in good faith, and that the machinery
company must be held to be the owner of the property under the third paragraph of article 1473 of the Civil
Code, it appearing that the company first took possession of the property; and further, that the building and the land
were sold to the machinery company long prior to the date of the sheriffs sale to the plaintiff.
It has been suggested that since the provisions of article 1473 of the Civil Code require good faith, in express
terms, in relation to possession and title, but contain no express requirement as to good faith in relation to the
inscription of the property on the registry, it must be presumed that good faith is not an essential requisite of
registration in order that it may have the effect contemplated in this article. We cannot agree with this contention. It
could not have been the intention of the legislator to base the preferential right secured under this article of the code
upon an inscription of title in bad faith. Such an interpretation placed upon the language of this section would open
wide the door to fraud and collusion. The public records cannot be converted into instruments of fraud and
oppression by one who secures an inscription therein in bad faith. The force and effect given by law to an inscription
in a public record presupposes the good faith of him who enters such inscription; and rights created by statute, which
are predicated upon an inscription in a public registry, do not and cannot accrue under an inscription in bad faith,
to the benefit of the person who thus makes the inscription.
The agreed statement of facts clearly discloses that the plaintiff, when he bought the building at the sheriffs sale and
inscribed his title in the land registry, was duly notified that the machinery company had bought the building from
plaintiffs judgment debtor; that it had gone into possession long prior to the sheriffs sale; and that it was in
possession at the time when the sheriff executed his levy. The execution of an indemnity bond by the plaintiff in
favor of the sheriff, after the machinery company had filed its sworn claim of ownership, leaves no room for doubt
in this regard. Having bought in the building at the sheriffs sale with full knowledge that at the time of the levy and
sale the building had already been sold to the machinery company by the judgment debtor, the plaintiff cannot be
said to have been a purchaser in good faith; and of course, the subsequent inscription of the sheriffs certificate of
title must be held to have been tainted with the same defect.
One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he has
acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule
must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation
as might be necessary to acquaint him with the defects in the title of his vendor.
A purchaser cannot close his eyes to facts which should put a reasonable man upon his guard and then claim that he
acted in good faith under the belief that there was no defect in the title of the vendor. Good faith, or the lack of it, is
in its last analysis a question of intention; but in ascertaining the intention by which one is actuated on a given
occasion, we are necessarily controlled by the evidence as to the conduct and outward acts by which alone the
inward motive may, with safety, be determined. Good faith, or the want of it, is not a visible, tangible fact that
can be seen or touched but rather a state or condition of mind which can only be judged of by actual or
fancied tokens or signs.
ENGINEERING & MACHINERY CORPORATION vs. COURT OF APPEALS and PONCIANO
L. ALMEDA
G.R. No. 52267 January 24, 1996
Facts: Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former
undertook to fabricate, furnish and install the air-conditioning system in the latters building along Buendia Avenue,
Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required
in order to so fabricate and install said system. The system was completed in 1963 and accepted by private
respondent, who paid in full the contract price.
After selling the building to NIDC in 1965, petitioner subsequently re-acquired it in 1971, some NIDC employees
made mentioned defects of the air-conditioning system of the building.

Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical
evaluation of the system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the
system and concluded that it was not capable of maintaining the desired room temperature of 76F 2F.
private respondent filed an action for damages against petitioner with the then CFI. The complaint alleged that the
air-conditioning system installed by petitioner did not comply with the agreed plans and specifications.
Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to
Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any
hidden faults or defects in the thing sold.
Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract
for a piece of work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same
Code, the complaint was timely brought within the ten-year prescriptive period.
In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is
applicable to a contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be
governed by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a
contract of sale.
trial court ruled that the complaint was filed within the ten-year court prescriptive period although the contract was
one for a piece of work, because it involved the installation of an air-conditioning system which the defendant itself
manufactured, fabricated, designed and installed. CA affirmed in toto.
Issue: Is a contract for the fabrication and installation of a central air-conditioning system in a building, one of
sale or for a piece of work? What is the prescriptive period for filing actions for breach of the terms of such
contract?
Held: Contract for piece of work.
A contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to
whether the thing transferred is one not in existence and which would never have existed but for the order, of the
person desiring it10 . In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing
subject of the contract would have existed and been the subject of a sale to some other person even if the order had
not been given, then the contract is one of sale
A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same is on hand at the time or not is a contract of sale,
but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general
market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere fact alone that certain articles are made
upon previous orders of customers will not argue against the imposition of the sales tax if such articles are ordinarily
manufactured by the taxpayer for sale to the public.
To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties
intended that at some future date an object has to be delivered, without considering the work or labor of the party
bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some
plan, taking into account the work he will employ personally or through another, there is a contract for a piece of
work
Clearly, the contract in question is one for a piece of work. It is not petitioners line of business to
manufacture air-conditioning systems to be sold off-the-shelf. Its business and particular field of expertise
is the fabrication and installation of such systems as ordered by customers and in accordance with the
particular plans and specifications provided by the customers. Naturally, the price or compensation for the
system manufactured and installed will depend greatly on the particular plans and specifications agreed upon
with the customers.
The remedy against violations of the warranty against hidden defects is either to withdraw from the contract
(redhibitory action) or to demand a proportionate reduction of the price (accion quanti manoris), with damages in
either case.
A close scrutiny of the complaint filed in the trial court reveals that the original action is not really for enforcement
of the warranties against hidden defects, but one for breach of the contract itself. It alleged that the petitioner, in the
installation of the air conditioning system did not comply with the specifications provided in the written agreement
between the parties

What about petitioners contention that acceptance of the work by the employer relieves the contractor of liability
for any defect in the work?
Verily, the mere fact that the private respondent accepted the work does not, ipso facto, relieve the petitioner from
liability for deviations from and violations of the written contract, as the law gives him ten (10) years within which
to file an action based on breach thereof.
TEODORO ACAP vs. COURT OF APPEALS and EDY DE LOS REYES G.R. No. 118114 December 7, 1995
Facts:. The title of lot No 1330 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 executed a duly
notarized document entitled Declaration of Heirship and Deed of Absolute Sale in favor of Cosme Pido.
The evidence before the court a quo established that since 1960, petitioner Teodoro Acap had been the tenant of a
portion of the said land (9500 m). When ownership was transferred in 1975 by Felixberto to Cosme Pido, Acap
continued to be the registered tenant thereof and religiously paid his leasehold rentals to Pido and thereafter, upon
Pidos death, to his widow Laurenciana.
The controversy began when Pido died intestate. his surviving heirs executed a notarized document denominated as
Declaration of Heirship and Waiver of Rights of Lot No. 1130.
Now, therefore, We LAURENCIANA 3, ELY, ELMER, ERVIN and ELECHOR all surnamed PIDO, do hereby
waive, quitclaim all our rights, interests and participation over the said parcel of land in favor of EDY DE LOS
REYES, of legal age, (f)ilipino, married to VIRGINIA DE LOS REYES, and resident of Hinigaran, Negros
Occidental, Philippines. .
The document was signed by all of Pidos heirs. Private respondent Edy de los Reyes did not.
It will be noted that at the time of Cosme Pidos death, title to the property continued to be registered in the name of
the Vasquez spouses. Upon obtaining the Declaration of Heirship with Waiver of Rights in his favor, private
respondent Edy de los Reyes filed the same with the Registry of Deeds as part of a notice of an adverse claim
against the original certificate of title.
Thereafter, private respondent sought for petitioner (Acap) to personally inform him that he (Edy) had become the
new owner of the land and that the lease rentals thereon should be paid to him. Petitioner complied with the
agreement of lease and paid 10 cavans to Edy for one year rental. The next year, petitioner refuses to pay. When
asked by the MInstry of Agrarian reform to comply, petitioner stated he does not recognize the ownership of the
respondent over the land. After the lapse of 4 years, Provate respondent filed a complaint against Acap for recovery
of possession alleging his refusal to pay the annual rentals demanded.
Petitioner further claimed before the trial court that he had no knowledge about any transfer or sale of the lot to
private respondent and even the following year after Laurencianas departure for abroad.
The trial court stated that the evidence had established that the subject land was sold by the heirs of Cosme Pido to
private respondent. Aggrieved, petitioner appealed to the CA, court, respondent court was also convinced that the
said document stands as prima facie proof of appellees (private respondents) ownership of the land in dispute.
Issue: WHETHER OR NOT THE SUBJECT DECLARATION OF HEIRSHIP AND WAIVER OF RIGHTS IS A
RECOGNIZED MODE OF ACQUIRING OWNERSHIP BY PRIVATE RESPONDENT OVER THE LOT IN
QUESTION.
Held: NO. In the first place, an asserted right or claim to ownership or a real right over a thing arising from a
juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must
be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only
pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition
or transfer of ownership over a thing in question.
Under Article 712 of the Civil Code, the modes of acquiring ownership are generally classified into two (2) classes,
namely, the original mode (i.e., through occupation, acquisitive prescription, law or intellectual creation) and the
derivative mode (i.e., through succession mortis causa or tradition as a result of certain contracts, such as sale,
barter, donation, assignment or mutuum).
In the case at bench, the trial court was obviously confused as to the nature and effect of the Declaration of Heirship
and Waiver of Rights, equating the same with a contract (deed) of sale. They are not the same.
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.
Hence, 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 Cosme 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
Quite surprisingly, both the trial court and public respondent Court of Appeals concluded that a sale transpired
between Cosme Pidos heirs and private respondent A notice of adverse claim is nothing but a notice of a claim
adverse to the registered owner, the validity of which is yet to be established in court at some future date, and is no
better than a notice of lis pendens which is a notice of a case already pending in court.
It is to be noted that while the existence of said adverse claim was duly proven, there is no evidence whatsoever that
a deed of sale was executed between Cosme Pidos heirs and private respondent transferring the rights of Pidos
heirs to the land in favor of private respondent. Private respondents right or interest therefore in the tenanted lot
remains an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title the same in
private respondents name.