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LAW ON SALES | Atty.

Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

PRICE

spouses had always been in continued


possession over the western half of the
land up to the time this case was
submitted to the SC.

Meeting of the Minds as to Price

G.R. No. L-21489 and L-21628; May 19, 1966


MIGUEL MAPALO,
MAPALO, ET AL.

ET

AL.

vs.

MAXIMO

The spouses Miguel Mapalo and Candida


Quiba, simple illiterate farmers, were
registered owners of a 1,635-squaremeter residential land in Manaoag,
Pangasinan (O.C.T. 46503).

The spouses-owners, out of love and


affection for Maximo Mapalo a
brother of Miguel who was about to get
married decided to donate the
eastern half of the land to him.

Records show that 13years later,


Maximo sold for P2,500.00 said
property in favor of one Evaristo
Petronila Pacifico and Miguel all
surnamed Narciso; TCT was
issued for the whole land in the
names of the buyers.

In 1952, the Narcisos who took


possession only of the eastern portion of
the land, filed suit in the CFI of
Pangasinan and prayed that they be
declared owners of the entire land, for
possession of its western portion; for
damages; and for rentals.

The suit was brought against the Mapalo


spouses as well as against Floro Guieb
and Rosalia Mapalo Guieb who had a
house on the western part of the land
with the consent of the spouses Mapalo
and Quiba.

The Mapalo spouses filed their answer


with a counterclaim (1965) seeking
cancellation of the TCT of the Narcisos
as to the western half of the land, on the
grounds that their (Mapalo spouses)
signatures to the deed of sale of 1936
was procured by fraud and that the
Narcisos were buyers in bad faith. They
asked for reconveyance to them of the
western portion of the land and
issuance of a TCT in their names as to
said portion.

Also, the spouses filed their own


complaint in the CFI of Pangasinan
against the Narcisos and Maximo

O.C.T. No. 46503 was delivered. As a


result, however, they were deceived
into signing (15 October 1936) a deed of
absolute sale over the entire land in his
favor.
Their signatures thereto were
procured by fraud as they were
made to believe by Maximo
Mapalo and the attorney who
acted as notary public who
"translated" the document, that
the same was a deed of donation
in Maximo's favor covering onehalf (the eastern half) of their
land.

Although the document of sale stated a


consideration
of
P500,
no
such
consideration was paid to the spouses.

Following
the
execution
of
the
document, the spouses (Mapalo and
Quiba) immediately built a fence of
permanent structure in the middle of
their land segregating the eastern
portion from its western portion. The

Meanwhile (and not known to the


spouses), Maximo Mapalo registered the
deed of sale in his favor and obtained a
transfer certificate of title over the
ENTIRE land.

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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

Mapalo asking that the deeds of sale of


1936 and of 1951 over the land in
question be declared null and void as to
the western half of said land.

The CFI ruled in favor of the spouses.


The Narcisos appealed to the CA
whereby the latter reversed the
judgment of the lower court, solely on
the ground that the consent of the
Mapalo spouses to the deed of sale of
1936 having been obtained by fraud,
the same was voidable, not void ab
initio, and, therefore, the action to annul
the same, within four years from notice
of the fraud, had long prescribed.
It reckoned said notice of the
fraud
from
the
date
of
registration of the sale on March
15, 1938.

The CFI and the CA, however, are


therefore unanimous that the spouses
Mapalo and Quiba were definitely the
victims of fraud.
It was only on prescription that
they lost in the Court of Appeals.
Hence, this petition.

The Mapalo case, concerning the deed of sale


of 1936, as regards the western portion of the
land in question, had no consideration; the
same is void and inexistent. The SC [first]
differentiated between a contract that
had no consideration from one which
merely contained a false consideration. It
shall be noted that the deed of sale of 1936
(October 115, 1936) was governed by the Old
Civil Code.
ISSUE (1): How is the former distinguished
from the latter?
HELD (1): Under the Old Civil Code, if the case
is one wherein there is no consideration, the
contract is void and inexistent; if it is one with
a statement of a false consideration, the
contract is only voidable.
The rule under the Civil Code (again be it the
old or the new) is that contracts without a

cause or consideration produce no effect


whatsoever. Nonetheless, the statement of a
false consideration renders the contract
voidable, unless it is proven that it is supported
by another real and licit consideration. And it is
further provided by the Old Civil Code that the
action for annulment of a contract on the
ground of falsity of consideration shall last four
years, the term to run from the date of the
consummation of the contract.
ISSUE (2): Whether a deed which states a
consideration that in fact did not exist, is a
contract without consideration, and therefore
void ab initio and not merely voidable.
HELD (2): YES. The subject deed shall be
considered a contract that is void. As
provided for in the set of facts, although the
deed of sale stated that it had for its
consideration of P500, the spouses were never
paid for the value of the land in question. In
other words, said consideration was totally
absent. According to Manresa, what is meant
by a contract that states a false consideration
is one that has in fact a real consideration but
the same is not the one stated in the
document. (The difference between simulation
and the contract with fraudulent intention
(purpose). This although illicit is real; but the
first is false in fact, although it appears to be
real.)
The ruling of the Court in Ocejo, Perez & Co. vs.
Flores, 40 Phil. 921, is squarely applicable
herein. In that case, it was ruled that a contract
of purchase and sale is null and void and
produces no effect whatsoever where the same
is without cause or consideration in that the
purchase price which appears thereon as paid
has in fact never been paid by the purchaser to
the vendor. Needless to add, the inexistence of
a contract is permanent and incurable and
cannot be the subject of prescription.
DONATION is effected as regards the
eastern portion of the land in question;
the finding of the lower court as to its
donation is not assailed and thus is final.
As regards the eastern portion of the land, the
Mapalo spouses are not claiming the same, it
being their stand that they have donated and
freely given said half of their land to Maximo
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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

Mapalo. And since they did not appeal from the


decision of the trial court finding that there was
a valid and effective donation of the eastern
portion of their land in favor of Maximo Mapalo,
the same pronouncement has become final as
to them, rendering it no longer proper herein to
examine the existence, validity efficacy of said
donation
as
to
said
eastern
portion.1wph1.t

Clearly, there was NO donation


respect to the western portion

with

Issue: Whether the Quitclaim Deed in the case


at bar is a donation or a contract of sale?

The fact that no donation by the Mapalo


spouses was obtained as to said portion is not
disputed. Accordingly, the fact that liberality as
a cause or consideration does not exist as
regards the western portion of the land in
relation to the deed of 1936, there was no
donation with respect to the same.

Held: It is a sale. A careful perusal of the


subject deed reveals that the conveyance of
the one- half () undivided portion of a
property was for and in consideration of the
One (P 1.00) Peso and the other valuable
considerations. Stated differently, the cause or
consideration is not the One (P1.00) Peso alone
but also the other valuable considerations.

The Decision of the Court of Appeals is


reversed and set aside; judgment of the CFI is
affirmed.
G.R. No. L-67888

October 8, 1985

IMELDA ONG, ET AL., petitioners, vs.


ALFREDO ONG, ET AL., respondents.
Facts:

In 1976 Imelda Ong executed in favor of


Sandra Maruzzo, then a minor, a Quitclaim
Deed whereby she transferred, released,
assigned and forever quit-claimed to
Sandra Maruzzo in consideration of One
(P1.00) Peso and other valuable
considerations, all her rights, title, interest
and participation in the ONE-HALF ()
undivided portion of a particular parcel of
land located in Makati.
She revoked this Quitclaim in 1980 and
donated the same to his son Rex OngJimenez. Sandra Maruzzo filed with the RTC
of Makati an action against petitioners through her guardian (ad litem) Alfredo Ong
- for the recovery of ownership/possession
and nullification of the Deed of Donation
over the portion belonging to her and for
Accounting.

In their responsive pleading, petitioners


claimed that the Quitclaim Deed is null and
void because it is equivalent to a Deed of
Donation and acceptance of which by the
Sandra is necessary for its validity. They
also contended that the One (P1.00) Peso
consideration is not a consideration at all to
sustain the ruling that the Deed of
Quitclaim is equivalent to a sale.

One of the disputable presumptions is that


there is a sufficient cause of the contract
(Section 5, (r), Rule 131, Rules of Court). It is a
legal presumption of sufficient cause or
consideration supporting a contract even if
such cause is not stated therein (Article 1354,
New Civil Code of the Philippines.) This
presumption cannot be overcome by a simple
assertion of lack of consideration especially
when the contract itself states that
consideration was given, and the same has
been reduced into a public instrument with all
due formalities and solemnities. To overcome
the presumption of consideration the alleged
lack of consideration must be shown by
preponderance of evidence in a proper action.
(Samanilla vs, Cajucom, et al., 107 Phil. 432).
The execution of a deed purporting to convey
ownership of a realty is in itself prima facie
evidence of the existence of a valuable
consideration, the party alleging lack of
consideration has the burden of proving such
allegation. (Caballero, et al. vs. Caballero, et
al., (CA), 45 O.G. 2536).
[G.R. No. 38498. August 10, 1989.]
ISAAC BAGNAS, ENCARNACION BAGNAS,
SILVESTRE BAGNAS, MAXIMINA BAGNAS,
SIXTO BAGNAS, and AGATONA
ENCARNACION, petitioners
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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

vs. HON. COURT OF APPEALS, ROSA L.


RETONIL, TEOFILO ENCARNACION, and
JOSE B. NAMBAYAN, respondents.
FACTS:
Hilario Mateum of Kawit, Cavite, died on
March 11, 196, single, without ascendants
or descendants, and survived only by
collateral relatives, of whom petitioners
herein, his first cousins, were the nearest.
Mateum left no will, no debts, and an estate
consisting of twenty-nine parcels of land in
Kawit and Imus, Cavite, ten of which are
involved in this appeal.
the private respondents, themselves
collateral relatives of Mateum though more
remote in degree than the petitioners
Private respondents registered with the
Registry of Deeds for the Province of Cavite
two deeds of sale purportedly executed by
Mateum in their (respondents') flavor
covering ten parcels of land
Both deeds were in Tagalog
o " . . . halagang ISANG PISO (P1.00), salaping
Filipino, at mga naipaglingkod,
ipinaglilingkod sa aking kapakanan . . ."
("the sum of ONE PESO(P1.00), Philippine
Currency, and services rendered, being
rendered and to be rendered for my
benefit").
One deed was dated February 6, 1963 and
covered five parcels of land,
the other was dated March 4, 1963,
covering five other parcels, both, therefore,
antedating Mateum's death by more than a
year
on the strength of the deeds of sale, the
respondents were able to secure title in
their favor over three of the ten parcels of
land conveyed thereby
Petitioners commenced suit against the
respondents in the CFI of Cavite, seeking
annulment of the deeds of sale as fictitious,
fraudulent or falsified, or, alternatively, as
donations void for want of acceptance
embodied in a public instrument
o Claiming ownership pro indiviso of the lands
subject of the deeds by virtue of being
intestate heirs of Hilario Mateum
o at the pre-trial the parties agreed that the
controversy be limited to the ten parcels
subject of the questioned sales
defendants (respondents here) denied the
alleged fictitious or fraudulent character of
the sales in their favor, asserting that said

sales were made for good and valuable


consideration; that while '. . . they may
have the effect of donations, yet the
formalities and solemnities of donation are
not required for their validity and
effectivity, . . ." that defendants were
collateral relatives of Hilario Mateum and
had done many good things for him,
nursing him in his last illness, which
services constituted the bulk of the
consideration of the sales; and (by way of
affirmative defense) that the plain-tiffs
could not question or seek annulment of the
sales because they were mere collateral
relatives of the deceased vendor and ware
not bound, principally or subsidiarily,
thereby

Trial Court granted the motion to dismiss,


holding
that the plaintiffs, as mere collateral
relatives, not forced heirs, of Hilario
Mateum, could not legally question the
disposition made by said deceased during
his life time, regardless of whether, as a
matter of objective reality, said dispositions
were valid or not; and
that the plaintiff's evidence of alleged fraud
was insufficient, the fact that the deeds of
sale each stated a consideration of only
P1.00 not being in itself evidence of fraud
or simulation

ISSUE: WON there was actual consideration


HELD: NONE.
The petitioners here argue on a broad front
that the very recitals of the questioned deeds
of sale reveal such want or spuriousness of
consideration and therefore the void character
of said sales.
OBLIGATIONS AND CONTRACTS; SALE;
CONSIDERATION; ONE PESO (P1.00)
CONSIDERATION FOR REAL PROPERTY WORTH
AT LEAST P10,500. A FALSE AND FICTITIOUS
CONSIDERATION, SALE VOID AB INITIO.
Without necessarily according all these
assertions its hill concurrence, but upon the
consideration alone that the apparent gross,
not to say enormous, disproportion between
the stipulated price (in each deed) of P1.00
plus unspecified and unquantilled services and
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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

the undisputably valuable real estate allegedly


sold worth at least P10,500.00 going only by
assessments for tax purposes which, it is wallknown, are notoriously low indicators of actual
value plainly and unquestionably
demonstrates that they state a false and
fictitious consideration, and no other true and
lawful cause having been shown, the Court
finds both said deeds, insofar as they purport
to be sales, not merely voidable, but void ab
initio.
Citing Manresa: advert to a decision of
the Court of Appeals in Montinola vs.
Herbosa (59 O.G. No. 47, pp. 8101,
8118) holding that a price of P1.00 for
the sale of things worth at least
P20,000.00 is so insignificant as to
amount to no price at all, and does not
satisfy the law which, while not
requiring for the validity of a sale that
the price be adequate, prescribes that it
must be real, not fictitious, stressing the
obvious parallel between that case and
the present one in stated price and
actual value of the property sold;
cite Manresa to the same effect: that
true price, which is essential to the
validity of a sale, means existent, real
and effective price, that which does not
consist in an insignificant amount as,
say, P.20 for a house; that it is not the
same as the concept of a just price
which entails weighing and measuring,
for economic equivalence, the amount
of price against all the factors that
determine the value of the thing sold;
but that there is no need of such a close
examination when the immense
disproportion between such economic
values is patent a case of
insignificant or ridiculous price, the
unbelievable amount of which at once
points out its inexistence
DONATION; TO BE VALID MUST BE MADE AND
ACCEPTED IN A PUBLIC INSTRUMENT. Neither
can the validity of said conveyances be
defended on the theory that their true causa is
the liberality of the transferor and they may be
considered in reality donations, because the
law also prescribes that donations of
immovable property, to be valid, must be made
and accepted in a public instrument, and it is

not denied by the respondents that there has


been no such acceptance which they claim is
not required.
FERNANDO T. MATE
vs. COURT OF APPEALS AND INOCENTIO
TAN
(GR No. 120274-25;May 21, 1998)
FACTS:
On Oct. 6, 1986 Josefina R. Rey (Josie),
cousin of herein petitioners wife, sought
the help of petitioner Mate and asked
him to cede his property in favor of
private respondent Tan, for Josies failure
to make good the rubber checks she, her
mother, sister and brother issued to
private respondent Tan amounting to
P4,432,067.00
On
hearing
Josies
proposal,
he
immediately rejected it as he owed
private respondent nothing and he was
under no obligation to convey to him his
properties. Furthermore, his lots were not
for sale.
Josie explained to him that he was in no
danger of losing his properties as he will
merely execute a simulated document
transferring them to private respondent
but they will be redeemed by her with
her own funds.
After a long discussion, he agreed to
execute a fictitious deed of sale with
right to repurchase covering his three (3)
lots mentioned above subject to the
following conditions:
1. The amount to be stated in
the
document
is
P1,400,000.00 with interest
thereon at 5% a month;
2. The
properties
will
be
repurchased within six (6)
months or on or before April 4,
1987;
3. Although it would appear in
the document that petitioner
is the vendor, it is Josie who
will provide the money for the
redemption of the properties
with her own funds;
4. Titles to the properties will be
delivered
to
private
respondent but the sale will
not be registered in the
Register
of
Deeds
and
annotated on the titles.
To assure petitioner that Josie will redeem
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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

the aforesaid properties, she issued to


him two (2) BPI checks both postdated
December 15, 1986. One check was for
P1,400,000.00 supposedly for the selling
price and the other was for P420,000.00
corresponding to the interests for 6
months.
Immediately
thereafter
petitioner prepared the Deed of Sale with
Right to Repurchase (Exh. A) and after it
has been signed and notarized, it was
given to private respondent together with
the titles of the properties and the latter
did not register the transaction in the
Register of Deeds as agreed upon.
On January 14, 1987, petitioner deposited
the check for P1,400,000.00 in his
account at the UCPB
and the other
check for P420,000.00 in his account at
METROBANK
preparatory
to
the
redemption of his properties. However,
both of them were dishonored by the
drawee bank for having been drawn
against a closed account.
Realizing that he was swindled, he sent
Josie a telegram about her checks and
when she failed to respond, he went to
Manila to look for her but she could not
be found. So he returned to Tacloban City
and filed criminal cases against her for
violation of BP 22 but the cases were
later archived as the accused (Josie)
could not be found as she went into
hiding.
To protect his interest, he filed the present
case at the RTC of Leyte, Branch VII, for
Annulment of Contract with Damages.
But during the trial the RTC court asked
private respondent to file an action for
consolidation of ownership of the
properties subject of the sale and
pursuant thereto he filed a civil case that
was consolidated with the case he filed
earlier which were later decided jointly
by the trial court in favor of private
respondent.
On appeal, the CA affirmed the decision
with modification, and likewise denied
reconsideration.
ISSUE: WON the Deed of Sale with Right to
Repurchase is valid?
HELD: Yes. There was a consideration. The
respondent court aptly observed that In preparing and executing the
deed of sale with right of repurchase
and in delivering to Tan the land titles,
appellant
actually
accommodated
Josefina so she would not be charged
criminally by Tan. To ensure that he
could repurchase his lots, appellant
got a check of P1,400,000.00 from

her. Also, by allowing his titles to


be in possession of Tan for a
period of six months, appellant
secured from her another check
for
P420,000.00.
With
this
arrangement, appellant was convinced
he had a good bargain. Unfortunately
his expectation crumbled. For this
tragic incident, not only Josefina, but
also Tan, according to appellant must
be answerable.
xxx
xxx

It is plain that consideration


existed at the time of the execution of
the deed of sale with right of
repurchase. It is not only appellants
kindness to Josefina, being his cousin,
but also his receipt of P420,000.00
from her which impelled him to
execute such contract.
Furthermore, while petitioner did not receive
the P1.4 Million purchase price from respondent
Tan, he had in his possession a postdated
check of Josie Rey in an equivalent amount
precisely to repurchase the two lots on or
before the sixth month.
As admitted by petitioner, by virtue of the sale
with pacto de retro, Josie Rey gave him, as
vendor-a-retro, a postdated check in the
amount of P1.4 Million, which represented the
repurchase price of the two (2) lots. Aside from
the P1.4 Million check, Josie gave another
postdated check to petitioner in the amount of
P420,000.00, ostensibly as interest for six (6)
months but which apparently was his fee for
having executed the pacto de retro document.
Josie thus assumed the responsibility of paying
the repurchase price on behalf of petitioner to
private respondent.
Unfortunately, the two checks issued by Josie
Rey were worthless. Both were dishonored
upon presentment by petitioner with the
drawee banks. However, there is absolutely
no basis for petitioner to file a complaint
against private respondent Tan and Josie
Rey to annul the pacto de retro sale on
the ground of lack of consideration,
invoking his failure to encash the two
checks. Petitioners cause of action was to file
criminal actions against Josie Rey under B.P. 22,
which he did. The filing of the criminal
cases was a tacit admission by petitioner
that there was a consideration of the
pacto de retro sale.
ISSUE2: Petitioner further claims that the
pacto de retro sale was subject to the condition
that in the event the checks given by Josie
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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

Reyes to him for the repurchase of the property


were dishonored, then the document shall be
declared null and void for lack of consideration.

FACTS:

Clemencia, a spinster1 who retired as


division superintendent of public schools
at 65 in 1961, had a nephew named
Bernardo S. Aseneta, the child of her
sister Gloria, and a niece named
Salvacion, the daughter of her sister
Flora. She legally adopted Bernardo in
1961.

In 1974 (when Clemencia was about 78


years old), she signed nine (9) deeds of
sale in favor of Salvacion for various real
properties. One deed of sale concerned
the Paco property (166 sq. m lot located
at 1238 Sison Street Paco Manila and
administered by the Ladanga spouses,
Agustin
and
Salvacion)
which
purportedly was sold to Salvacion for
P26,000). The total price involved in the
9 deeds of sale and in the 10th sale
executed in November 1974 was
P92,200. The deed of sale for the Paco
property was signed in the office of the
Quezon City registry of deeds.

In May, 1975, Bernardo as guardian of


Clemencia,
filed
an
action
for
reconveyance of the Paco property,
accounting of the rentals and damages.
Clemencia
was
not
mentally
incompetent but she was placed under
guardianship because she was an easy
prey for exploitation and deceit.

In the course of the hearing, Clemencia


testified and denied having "received
even one centavo" of the price of
P26,000 much less the P92,000. This
testimony was corroborated by Soledad
L. Maninang, 69, a dentist with whom
Clemencia had lived for more than thirty
years in Kamuning, Quezon City. The
notary public, also testifying, stated that
he did not see Salvacion giving any
money to Clemencia when the deed was
signed in the Registry of Deeds. The trial

HELD: We are not persuaded.


Private respondent Tan was already poised to
file criminal cases against Josie Rey and her
family. It would not be logical for respondent
Tan to agree to the conditions allegedly
imposed by petitioner. Petitioner knew that he
was bound by the deed of sale with right to
repurchase, as evidenced by his filing criminal
cases against Josie Rey when the two checks
bounced.
The respondent court further made the
candid but true observation that:
If there is anybody to blame for
his predicament, it is appellant himself.
He is a lawyer. He was the one who
prepared the contract. He knew what
he was entering into. Surely, he must
have been aware of the risk involved.
When Josefinas checks bounced, he
should have repurchased his lots with
his own money. Instead, he sued not
only Josefina but also Tan for
annulment of contract on the ground
of lack of consideration and false
pretenses on their part.
Petitioner then postulates that it is not
only illegal but immoral to require him to
repurchase his own properties with his own
money when he did not derive any benefit
from the transaction. Thus, he invokes the
case of Singson vs. Isabela Sawmill, 88 SCRA
633, 643, where the Court said that where
one or two innocent persons must suffer, that
person who gave occasion for the damages to
be
caused
must
bear
consequences.
Petitioners reliance on this doctrine is
misplaced. He is not an innocent person.
As a matter of fact, he gave occasion for
the damage caused by virtue of the deed
of sale with right to repurchase which he
prepared and signed. Thus, there is the
equitable maxim that between two
innocent parties, the one who made it
possible for the wrong to be done should
be the one to bear the resulting loss.
G.R. No. L-55999; August 24, 1984
SPOUSES SALVACION SERRANO LADANGA
and AGUSTIN S. LADANGA vs. COURT OF
APPEALS and BERNARDO S. ASENETA, as
Guardian of the Incompetent CLEMENCIA A.
ASENETA

A "spinster" is not simply a "single" woman, but a woman who has


not formed a human pair bond by the time she is approaching or has
reached menopause and the end of her reproductive lifespan (age being
critical) "If someone is a spinster, by implication she is not eligible [to
marry]; she has had her chance, and been passed by,"

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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

court declared void the sale of the Paco


Property

Clemencia died in 1977 at the age of


80. She allegedly bequeathed her
properties in a holographic will2
dated November 23, 1973 to Doctor
Maninang. In that will she disinherited
Bernardo. The will was presented for
probate.
The testate case was consolidated with
the intestate
proceeding filed
by
Bernardo in the sala of Judge Ricardo L.
Pronove at Pasig, Rizal. He dismissed
the
testate
case
and
appointed
Bernardo as administrator in the
intestate case.
On appeal, the CA affirmed the decision
of the CFI, ordering the register of deeds
to issue a new title to Clemencia and
the spouses to pay Clemencias estate
the amount of P21,00 for damages and
attorneys fees; and to render to
Bernardo an accounting of rentals of the
property from 6 April 1947.

Hence, the instant petition. .


ISSUE: What is the status of the contract of
sale in the absence of price being paid.
HELD: A contract of sale is void and
produces no effect whatsoever where the
price, which appears therein as paid, has
in fact never been paid by the purchaser
to the vendor (Meneses Vda. de Catindig vs.
Heirs of Catalina Roque, L-25777, November
26, 1976, 74 SCRA 83, 88; Mapalo vs. Mapalo,
123 Phil. 979, 987; Syllabus, Ocejo, Perez & Co.
vs. Flores and Bas, 40 Phil. 921). Such a sale
is inexistent and cannot be considered
consummated.

A holographic will is a will and testament that has been entirely


handwritten and signed by the testator but one which has not been
attested to by witnesses evidence of testator actually creating the will,
testator having had the intellectual capacity to write the will and
testators expression of a wish to direct the distribution of his estate to
beneficiaries are the minimal requisites to meet.

In the instant case, the Ladanga spouses


contend that the CA disregarded the rule on
burden of proof. This contention, according to
the Court, is devoid of merit because
Clemencia herself testified that the price of
P26,000 was not paid to her. The burden of the
evidence shifted to the Ladanga spouses. They
(Ladangas) were not able to prove the payment
of that amount. The sale was fictitious.
Also, it shall be noted that the Ladanga
spouses argued that the CA erred in not
considering that inadequacy of price may
indicate a donation or some other contract and
in disregarding the presumption that the sale
was fair and regular and for a sufficient
consideration.
It was not shown that Clemencia intended to
donate the Paco property to the Ladangas. Her
testimony
and
the
notary's
testimony
destroyed any presumption that the sale was
fair and regular and for a true consideration.
As to Bernardos capacity to sue
The contention that Bernardo had no right to
institute the instant action because he was not
a compulsory heir of Clemencia cannot be
sustained. Bernardo was Clemencia's adopted
son. Moreover, Clemencia, by testifying in this
case, tacitly approved the action brought in her
behalf.
G.R. No. 109410 August 28, 1996
CLARA M. BALATBAT, petitioner,
vs.
COURT OF APPEALS and Spouses JOSE
REPUYAN and AURORA
REPUYAN, respondents.
FACTS:
When her wife Maria Mesina died and left the
house and lot as the only conjugal property,
husband Aurelio A. Roque filed Civil Case No.
109032 in CFI for partition as one of the pro
indiviso owners of the said property against his
children Corazon, Alberto, Feliciano, Severa
and Osmundo.
The defendants were declared in default and
as a consequence, plaintiff Aurelio was allowed
to present evidence ex parte. The trial court
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awarded one-half share of the aforementioned


conjugal property to Aurelio while the other half
formed the estate of the deceased wife Maria.
The estate was then divided to the
abovementioned heirs plus Aurelio being the
husband. On June 2, 1979, the decision became
final and executory and the corresponding
entry of judgment was made.
Consequently, Aurelio sold his share to
respondent-spouses Aurora Tuazon-Repuyan
and Jose Repuyan. The spouses thereafter
caused the title to be annotated in lieu of the
sale. Much later, however, the seller Aurelio
filed Civil Case No. 134131 for the rescission of
the said sale on the ground of the Repuyans
failure to pay the balance of the purchase
price. The Repuyans in turn filed their answer
with counterclaim.
Meanwhile, the CFI - in the partition case [Civil
Case No. 109032] ordered: considering the
opportunities given defendants (children) to
sign the deed of absolute sale voluntarily, the
Court has no alternative but to order, as it
hereby orders, the Deputy Clerk of Court to
sign the deed of absolute sale for and in behalf
of defendants pursuant to Sec. 10, Rule 39 of
the Rules of Court, in order to effect the
partition of the property involved in favor of
the buyer Clara Balatbat, herein petitioner.
On May 20, 1982, petitioner Balatbat filed a
motion to intervene in the rescission case Civil
Case No. 134131 (vs. the Repuyans) but never
filed her complaint-in-intervention. Be that as it
may, the trial court rendered a decision
dismissing the complaint of Aurelio for
rescission in favor of the Spouses Repuyan.
On December 9, 1988, petitioner Clara Balatbat
filed a complaint for delivery of the owners
duplicate copy of the transfer certificate of title
vs. the Sps. Repuyan. The trial court in that
case dismissed the complaint of Balatbat to
which the Court of Appeals agreed.
Hence, this Petition for Review.
Issues:
1. WHETHER OR NOT THE ALLEGED SALE
TO THE REPUYANS WAS MERELY
EXECUTORY AND NOT A CONSUMMATED
TRANSACTION BECAUSE OF NONDELIVERY & NON-COMPLETION OF
PAYMENT?
2. WHETHER OR NOT THERE WAS A
DOUBLE SALE AS CONTEMPLATED
UNDER ART. 1544?

3. WHETHER OR NOT BALATBAT WAS A


BUYER IN GOOD FAITH AND FOR VALUE?
HELD:
1. It is consummated sale, valid and
enforceable. In the terms and conditions of
the "Deed of Sale" between Aurelio and the
Spouses Repuyan, the balance is payable
only "after the property has been partitioned
and subdivided, and title issued in the name
of the BUYER" hence, vendor Aurelio cannot
demand payment of the balance unless and
until the property has been subdivided and
titled in the name of private respondents.
There was no mention of any stipulation that
"ownership in the thing shall not pass to the
purchaser until he has fully paid the price".
Ownership in the thing shall pass from the
vendor to the vendee upon actual or
constructive delivery of the thing sold even if
the purchase price has not yet been fully
paid. The failure of the buyer has not yet
been fully paid. The failure of the buyer to
make good the price does not, in law, cause
the ownership to revest to the seller unless
the bilateral contract of sale is first rescinded
or resolved pursuant to Article 1191 of the
New Civil Code. Non-payment only creates a
right to demand the fulfillment of the
obligation or to rescind the contract.
Article 1498 of the Civil Code provides that
when the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the thing which
is the object of the contract, if from the deed
the contrary does not appear or cannot be
inferred. The execution of the public
instrument, without actual delivery of the
thing, transfers the ownership from the
vendor to the vendee, who may thereafter
exercise the rights of an owner over the
same. In the instant case, vendor Aurelio
delivered the owner's certificate of title to
herein private respondent. It is not necessary
that vendee be physically present at every
square inch of the land bought by him,
possession of the public instrument of the
land is sufficient to accord him the rights of
ownership.
2. Yes, this is an instance of a double sale of an
immovable property hence, the ownership
shall vests in the person acquiring it who in
good faith first recorded it in the
Registry of Property. Evidently, private
respondents Repuyan's caused the
annotation of an adverse claim on the title of
the subject property denominated as Entry
No. 5627/T-135671 on July 21, 1980. The
annotation of the adverse claim on TCT No.
135671 in the Registry of Property is
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sufficient compliance as mandated by law


and serves notice to the whole world.
Article 1544 of the Civil Code provides that in
case of double sale of an immovable
property, ownership shall be transferred (1)
to the person acquiring it who in good faith
first recorded it in the Registry of Property;
(2) in default thereof, to the person who in
good faith was first in possession; and (3) in
default thereof, to the person who presents
the oldest title, provided there is good faith.
3. Petitioner Balatbat cannot be considered as a
buyer in good faith. If petitioner did
investigate before buying the land, she
should have known that there was a pending
case and an annotation of adverse claim was
made in the title of the property before the
Register of Deeds and she could have
discovered that the subject property was
already sold to the private respondents. It is
incumbent upon the buyer of the property to
ask for the delivery of the owner's duplicate
copy of the title from the vendor. A purchaser
of a valued piece of property cannot just
close his eyes to facts which should put a
reasonable man upon his guard and then
claim that he acted in good faith and under
the belief that there were no defect in the
title of the vendor.
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.

culpa lata dolo aequiparatur gross


negligence is equivalent to intentional wrong.
[G.R. No. L-10141. January 31, 1958.]
REPUBLIC OF THE PHILIPPINES, petitioner
vs. PHILIPPINE RESOURCES DEVELOPMENT
CORPORATION and the COURT OF
APPEALS, respondents.
FACTS:
Republic of the Philippines in representation of
the Bureau of Prisons instituted against
Macario Apostol and the Empire Insurance Co.
a complaint in the CFI
The complaint alleges as the first cause of
action, that defendant Apostol submitted the

highest bid in the amount of P450.00 per ton


for the purchase of 100 tons of Palawan
Almaciga from the Bureau of Prisons;
that a contract therefor was drawn and by
virtue of which, Apostol obtained goods from
the Bureau of Prisons valued P15,878.59;
that of said account, Apostol paid only P691.10
leaving a balance obligation of P15, 187.49.
The complaint further avers, as second cause
of action, that Apostol submitted the best bid
with the Bureau of Prisons for the purchase of
three million board feet of logs at P88.00 per
1,000 board feet;
that a contract was executed between the
Director of Prisons and Apostol pursuant to
which contract Apostol obtained deliveries of
logs valued at P65,830.00; and that Apostol
failed to pay a balance account of
P18,827.57.
All told, the total demand set forth in complaint
against Apostol is for P34,015.06 with legal
interests thereon from January 8, 1952.
The Empire Insurance Company was included
in the complaint having executed a
performance bond of P10,000.00 in favor of
Apostol.
Apostol interposed payment as a defense and
sought the dismissal of the complaint.
On July 19, 1955, the Philippine Resources
Development Corporation moved to
intervene. The complaint recites that for
sometime prior to Apostol's transactions the
corporate had some goods deposited in a
warehouse at 1201 Herran, Manila; that
Apostol, then the president of the corporation
but without the knowledge or consent of the
stockholders thereof, disposed of said goods
by delivering the same to the Bureau of
Prisons in an attempt to settle his personal
debts with the latter entity; that upon
discovery of Apostol's act, the corporation
took steps to recover said goods by
demanding from the Bureau of Prisons the
return thereof; and that upon the refusal of
the Bureau to return said goods, the
corporation sought leave to intervene
His Honor denied the motion for intervention
because the action brought in the CFI against
Macario Apostol and the Empire Insurance
Company is just for the collection from the
defendant Apostol of a sum of money (unpaid
balance) whereas the intervenor seeks to
recover ownership and possession of G.I.
sheets, black sheets, M.S. plates, round bars
and G.I. pipes intervention which would
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change a personal action into one ad rem and


would unduly delay the disposition of the
case
ISSUE: WON the RP can recover the alleged
unpaid balance of Apostol
HELD: NO.
OBLIGATION AND CONTRACT; PAYMENT; KINDS
OF PAYMENT; IN TERMS OF MONEY OR ITS
EQUIVALENT. Although Article 1458 of the
new Civil Code provides that price . . . is always
paid in terms of money and the supposed
payment being in kind it is no payment at all,"
yet the same article provides that the
purchaser may pay "a price certain in money or
its equivalent" which means that payment of
the price need not be money.
Whether the G.I. sheets, black sheets, M.S.
plates, round bars and G.I. pipes claimed by
the respondent corporation to belong to it and
delivered to the Bureau of Prisons by Macario
Apostol in payment of his account is sufficient
payment therefor, is for the Court to pass upon
and decide after hearing all the parties in the
case. Should the trial court hold that it is as to
credit Apostol with the value or price of the
materials delivered by him, certainly the herein
respondent corporation would be affected
adversely if its claim of ownership of such
sheets, plates, bars and pipes is true.
As to the intervention: It becomes enormously
plain in the event the respondent judge decides
to credit Macario Apostol with the value of the
goods delivered by the latter to the Bureau of
Prisons, the petitioner corporation stands to be
adversely affected by such judgment. Petitioner
therefore, possesses a legal interest in the
matter in litigation and that such interest is of
an actual, material, direct and immediate
nature as to entitle petitioner to intervene.
ANTONIA TORRES assisted by her
husband, ANGELO TORRES; and EMETERIA
BARING, petitioners, vs. COURT OF
APPEALS and MANUEL
TORRES, respondents.
G.R. No. 134559 December 9, 1999
FACTS:
Sisters Antonia Torres and Emeteria Baring,

herein petitioners, entered into a "joint


venture agreement" with Respondent Manuel
Torres for the development of a parcel of land
into a subdivision.
They executed a Deed of Sale covering the said
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.
PETITIONERS: Respondent lacked the funds or
means and skills and that respondent used
the loan not for the development of the
subdivision, but in furtherance of his own
company, Universal Umbrella Company.
RESPONDENT: The subdivision project failed,
however, 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. Despite his requests,
petitioners refused to cause the clearing of
the claims, thereby forcing him to give up on
the project.
Subsequently, petitioners filed a criminal case
for estafa against respondent and his wife,
who were however acquitted. Thereafter,
they filed the present civil case which, upon
respondent's motion, was later dismissed by
the trial court.
On appeal, the appellate court remanded the
case for further proceedings. Thereafter, the
RTC issued its assailed Decision, which was
affirmed by the CA declaring the parties to
have entered into a partnership and must
bear the losses proportionate to their
contributions, except the industrial partner
who shall not be liable for the losses.
ISSUE: WON the parties did enter into a
contract of partnership?
HELD: Yes. A reading of the terms embodied in
the Agreement indubitably shows the existence
of a partnership pursuant to Article 1767 of the
Civil Code.
Under the Agreement, petitioners would
contribute property to the partnership 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.
Furthermore, the income from the said project
would be divided according to the stipulated
percentage. Clearly, the contract manifested
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the intention
partnership.

of

the

parties

to

form

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.
Respondents actions clearly belie petitioners
contention that he made no contribution to the
partnership. Under Article 1767 of the Civil
Code, a partner may contribute not only money
or property, but also industry.

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.
Definitive price as an essential element in the
formation of a binding contract of sale
G.R. No. L-116650 May 23, 1995
TOYOTA SHAW, INC. vs. COURT OF
APPEALS and LUNA L. SOSA
FACTS

Private respondent Luna L. Sosa wanted to


purchase a Toyota Lite Ace. With his his son,
Gilbert, he went to the Toyota office at Shaw
Boulevard, Pasig and met Popong Bernardo,
a sales representative of Toyota.

Sosa emphasized to Bernardo that he


needed the Lite Ace not later than 17 June
1989 because he, his family, and a
balikbayan guest would use it on 18 June
1989 to go to Marinduque, his home
province, where he would celebrate his
birthday the following day.

Bernardo assured him that a unit would be


ready for pick up at 10:00 a.m. on that date.
They
contracted
an
agreement
("Agreements Between Mr. Sosa & Popong
Bernardo of Toyota Shaw, Inc.") on the
delivery of the unit and that the balance of
the purchase price would be paid by credit
financing through B.A. Finance.

The next day, Sosa and Gilbert delivered the


downpayment and met Bernardo who then
accomplished a printed Vehicle Sales
Proposal (VSP) in which the amount of the
initial cash outlay (P100,000) was indicated
with breakdown (downpayment Php53,148)
and that the that the "BALANCE TO BE
FINANCED" is "P274,137.00." The spaces
provided for Delivery Terms were not filledup though. The VSP was checked and
approved by Bernardos immediate Sales
Supervisor (Rodrigo Quirante).

ISSUE2: WON the parties are bound by the


contract?
HELD: Yes. Under Article 1315 of the Civil
Code, contracts bind the parties not only to
what has been expressly stipulated, but also to
all necessary consequences thereof.
It is undisputed that petitioners are educated
and are thus presumed to have understood the
terms of the contract they voluntarily signed. If
it was not in consonance with their
expectations, they should have objected to it
and insisted on the provisions they wanted.
Courts are not authorized to extricate
parties from the necessary consequences
of their acts, and the fact that the
contractual stipulations may turn out to
be financially disadvantageous will not
relieve
parties
thereto
of
their
obligations. They cannot now disavow the
relationship formed from such agreement due
to their supposed misunderstanding of its
terms.
ISSUE3: WON the deed of sale is valid for
being without consideration?
HELD: Yes. 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

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However, on 17 June 1989, at 9:30 am,


Bernardo called Gilbert to inform him that
the car could not be delivered because
nasulot ang unit ng ibang malakas (or was
acquired by a more influential person).
Toyota contends, on the other hand, that the
Lite Ace was not delivered to Sosa because
of the disapproval by B.A. Finance of the
credit financing application of Sosa and 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.
Sosa asked that his down payment be
refunded which Toyota did so on the very
same day by issuing a Far East Bank check
for the full amount (Php100,000), which
Sosa signed with the reservation, without
prejudice to our future claims for damages.

Thereafter, Sosa sent two letters to Toyota:


(1) he demanded the refund of the down
payment plus interest from the time he paid
it; (2) he demanded P1M representing
interest and damages, both with a warning
that legal action would be taken if payment
not paid.

Toyota refused to accede to the demands of


Sosa resulting in the event where Sosa filed
with RTC a complaint against Toyota for
damages under Articles 19 and 21 of the
Civil Code in the total amount of
Php1,230,000.

In its answer to the complaint, Toyota


alleged that no sale was entered into
between it and Sosa and that the VSP did
not state the date of delivery, among others.

The trial court rendered a decision in favor of


Sosa. It ruled the "AGREEMENTS BETWEEN
MR. SOSA AND POPONG BERNARDO," was a
valid perfected contract of sale between
Sosa and Toyota which bound the latter to
deliver the vehicle to Sosa, and further
agreed with Sosa that Toyota acted in bad
faith in selling to another the unit already
reserved for him. On appeal to the CA, the

appellate court affirmed in toto the appealed


decision.
Hence, the instant petition.
ISSUE (1): Whether or not there is a perfected
contract of sale vis--vis the "AGREEMENTS
BETWEEN MR. SOSA AND POPONG BERNARDO

HELD (1): NO. There was no perfected


contract of sale. In deciding the instant
case, the Court started with the definition
and kinds of a contract of sale under
Article 1458 and effect of the contract of
sale when perfected under Article 1475 of
the NCC.

The abovementioned agreement signed by


Sosa and Gilbert 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 therefore a price certain appears
therein. The provision on the down payment of
P1OO,OOO.OO 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 con finned. 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.
Moreover, said agreement shows the absence
of a meeting of minds between Toyota and
Sosa. For one thing, Sosa did not even sign it.
For another, Sosa was well aware from its title,
written in bold letters, knew 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. He
knew that Bernardo was only a sales
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representative of Toyota and hence a mere


agent of the latter. 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, the "AGREEMENTS BETWEEN MR.
SOSA AND POPONG BERNARDO may be
considered as part of the initial phase of the
generation or negotiation stage of a contract of
sale.
ISSUE (2): Whether the VSP may be
considered as the true and documented
understanding of the parties which would have
led to the ultimate contract of sale.
HELD (2): NO. The second phase (perfection
or birth of the contract, which is the moment
when the parties come to agree on the terms of
the contract) of the generation or negotiation
stage in this case was the execution of the VSP.
It must be emphasized that thereunder, only
the amount of downpayment of the
purchase price was provided and that 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.
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.

facilities to consumers and to industrial,


commercial, or agricultural enterprises, either
by discounting or factoring commercial papers
or accounts receivables, or by buying and
selling contracts, leases, chattel mortgages, or
other evidence of indebtedness, or by leasing
of motor vehicles, heavy equipment and
industrial machinery, business and office
machines and equipment, appliances and other
movable property."
Petition granted.
G.R. No. 118509 December 1, 1995
LIMKETKAI SONS MILLING, INC., petitioner,
vs. COURT OF APPEALS, BANK OF THE
PHILIPPINE ISLANDS and NATIONAL BOOK
STORE, respondents.
FACTS:

Philippine Remnants Co., Inc. constituted


respondent BPI as its trustee to manage,
administer, and sell its real estate property
located in Barrio Bagong Ilog, Pasig, Metro
Manila.

When Alfonso Lim with Albino Limketkai of


petitioner Limketkai learned of this
announcement, he contacted the authorized
broker of BPI, Pedro Revilla, Jr., manifested
his intention to buy it.

So, with the permission given by Rolando V.


Aromin, BPI Assistant Vice-President, the
broker and Limketkai entered and viewed
the property the latter is buying.

Wanting to confirm the terms and purchase


price of the sale, Alfonso Lim with Albino
Limketkai went to BPI office and were
entertained by Vice-President Merlin Albano
and Asst. Vice-President Aromin.

The parties finally agreed that the lot would


be sold at P1,000.00 per square meter to be
paid in cash. Since the authority to sell was
on a first come, first served and nonexclusive basis, it may be mentioned at this
juncture that there is no dispute over
Limketkai's being the first comer and the
buyer to be first served. They also agreed,

FINANCING COMPANIES, DEFINED


Financing companies are defined in Section
3(a) of R.A. No. 5980, as amended by P.D. No.
1454 and P.D. No. 1793, as "corporations or
partnerships, except those regulated by the
Central Bank of the Philippines, the Insurance
Commission
and
the
Cooperatives
Administration Office, which are primarily
organized for the purpose of extending credit

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upon inquiry of petitioner, that should the


term payment be disapproved, then the
price shall be paid in cash.

It was VP Albano who dictated the terms


under which the installment payment may
be approved, and acting thereon, Alfonso
Lim, wrote BPI through VP Albano
embodying the payment initially of 10% and
the remaining 90% within a period of 90
days.
Two or three days later, Alfonso Lim with
Albino Limketkai learned that its offer to pay
on terms had been frozen. Petitioner went to
BPI on and tendered the full payment of
P33,056,000.00 to VP Albano. The payment
was refused because VP Albano stated that
the authority to sell that particular piece of
property in Pasig had been withdrawn from
his unit. The same check was tendered to
BPI Vice-President Nelson Bona who also
refused to receive payment.
An action for specific performance with
damages was filed on court. The RTC _ Pasig
ruled in favor of petioner but on appeal, the
Court of Appeals reverse. Hence, this
Petition.

Issue: Whether or not there was a perfected


contract between petitioner Limketkai Sons
Milling, Inc. and respondent Bank of the
Philippine Islands (BPI) covering the sale of a
parcel of land?
Held: Yes. The negotiation or preparation
stage started with the authority given by
Philippine Remnants to BPI to sell the lot,
followed by (a) the authority given by BPI and
confirmed by Philippine Remnants to broker
Revilla to sell the property, (b) the offer to sell
to Limketkai, (c) the inspection of the property
and finally (d) the negotiations with Aromin and
Albano at the BPI offices.
The perfection of the contract took place when
Aromin and Albano, acting for BPI, agreed to
sell and Alfonso Lim with Albino Limketkai,
acting for petitioner Limketkai, agreed to buy
the disputed lot at P1,000.00 per square meter.
Aside from this there was the earlier agreement
between petitioner and the authorized broker.
There was a concurrence of offer and

acceptance, on the object, and on the cause


thereof.
The phases that a contract goes through may
be summarized as follows:
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 (Toyota Shaw,
Inc. vs. Court of Appeals, G.R. No. 116650,
May 23, 1995).
The fact that the deed of sale still had to be
signed and notarized does not mean that no
contract had already been perfected. A sale of
land is valid regardless of the form it may have
been entered into (Claudel vs. Court of
Appeals, 199 SCRA 113, 119 [1991]). The
requisite form under Article 1458 of the Civil
Code is merely for greater efficacy or
convenience and the failure to comply
therewith does not affect the validity and
binding effect of the act between the parties
(Vitug, Compendium of Civil Law and
Jurisprudence, 1993 Revised Edition, p. 552). If
the law requires a document or other special
form, as in the sale of real property, the
contracting parties may compel each other to
observe that form, once the contract has been
perfected. Their right may be exercised
simultaneously with action upon the contract
(Article 1359, Civil Code).
[G.R. No. 109125. December 2, 1994.]
ANG YU ASUNCION, ARTHUR GO AND KEH
TIONG, petitioners
vs. THE HON. COURT OF APPEALS and
BUEN REALTY DEVELOPMENT
CORPORATION, respondents.
FACTS:
A Second Amended Complaint for Specific
Performance was filed by Ann Yu Asuncion
and Keh Tiong, et al., against Bobby Cu
Page 15 of 23

LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

Unjieng, Rose Cu Unjieng and Jose Tan


before the RTC,
alleging, among others, that plaintiffs are
tenants or lessees of residential and
commercial spaces owned by defendants
described as Nos. 630-638 Ongpin Street,
Binondo, Manila;
that they have occupied said spaces since
1935 and have been religiously paying the
rental and complying with all the conditions
of the lease contract;
that on several occasions, defendants
informed plaintiffs that they are offering to
sell the premises and are giving them
priority to acquire the same;
that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while
plaintiffs made a counter offer of P5-million;
that plaintiffs thereafter asked the
defendants to put their offer in writing to
which request defendants acceded;
that in reply to defendant's letter, plaintiffs
wrote them, asking that they specify the
terms and conditions of the offer to sell;
that when plaintiffs did not receive any
reply, they sent another letter with the
same request;
that since defendants failed to specify the
terms and conditions of the offer to sell and
because of information received that
defendants were about to sell the property,
plaintiffs were compelled to file the
complaint to compel defendants to sell the
property to them.
After the issues were joined, defendants
filed a motion for summary judgment
Granted by the RTC
found that defendants' offer to sell was
never accepted by the plaintiffs for the
reason that the parties did not agree upon
the terms and conditions of the proposed
sale, hence, there was no contract of sale at
all.
Nonetheless, the lower court ruled that
should the defendants subsequently offer
their property for sale at a price of P11million or below, plaintiffs will have the right
of first refusal.
SC (1st appeal) affirmed with modification
(there was no meeting of the minds
between the parties concerning the sale of
the property, We find no reason not to grant
the same right of first refusal to herein
appellants in the event that the subject

property is sold for a price in excess of 11M


pesos)
Pending reconsideration by SC, the Cu
Unjieng spouses executed a Deed of Sale
transferring the property in question to
Buen Realty and Development Corporation
for 15M
respondent as the new owner of the subject
property wrote a letter to the petitioners
demanding that the latter vacate the
premises.
Ang Yu in return refused and instead filed
for a Writ of Execution of the order
recognizing its Right of First Refusal, which
the RTC granted.
The CA, on appeal to it by private
respondent, set aside and declared
without force and effect the above
questioned orders of the RTC
Hence this petition for review on certiorari

ISSUE: WON petitioners can demand specific


performance to the respondents to sell to them
the property
WON the writ of execution (to cancel and set
aside the title of Buen Realty Corp and to
register the new title to the plaintiffs) was valid
(Mahaba lang ang held because I felt the
importance of the below theories in sales.
Important lang for recit are the ones in bold)
HELD: NO and NO.
We affirm the decision of the appellate court.
A not too recent development in real estate
transactions is the adoption of such
arrangements as the right of first refusal, a
purchase option and a contract to sell. For
ready reference, we might point out some
fundamental precepts that may find some
relevance to this discussion.
An obligation is a juridical necessity to
give, to do or not to do (Art. 1156, Civil
Code). The obligation is constituted
upon the concurrence of the essential
elements thereof, viz:
The vinculum juris or juridical tie which
is the efficient cause established by the
various sources of obligations (law,
contracts, quasi-contracts, delicts and
quasi-delicts);
Page 16 of 23

LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

(b) the object which is the prestation or


conduct; required to be observed (to
give, to do or not to do); and
(c) the subject-persons who, viewed
from the demandability of the
obligation, are the active (obligee) and
the passive (obligor) subjects.
Among the sources of an obligation is a
contract (Art. 1157, Civil Code), which 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 (Art. 1305, Civil Code).
A contract undergoes various stages that
include its
negotiation or preparation
its perfection and, finally,
its consummation.
Negotiation covers the period from the time
the prospective contracting parties indicate
interest in the contract to the time the
contract is concluded (perfected).
The perfection of the contract takes place
upon the concurrence of the essential
elements thereof. A contract which is
consensual as to perfection is so
established upon a mere meeting of minds,
i.e., the concurrence of offer and
acceptance, on the object and on the cause
thereof. A contract which requires, in
addition to the above, the delivery of the
object of the agreement, as in a pledge or
commodatum, is commonly referred to as a
real contract. In a solemn contract,
compliance with certain formalities
prescribed by law, such as in a donation of
real property, is essential in order to make
the act valid, the prescribed form being
thereby an essential element thereof.
The stage of consummation begins when
the parties perform their respective
undertakings under the contract
culminating in the extinguishment thereof.

Until the contract is perfected, it cannot, as


an independent source of obligation, serve
as a binding juridical relation. In sales,
particularly, to which the topic for
discussion about the case at bench belongs,
the contract is perfected when a person,

called the seller, obligates himself, for a


price certain, to deliver and to transfer
ownership of a thing or right to another,
called the buyer, over which the latter
agrees. Article 1458 of the Civil Code
provides:

"Art. 1458.By the contract of sale one of


the contracting parties obligates himself
to transfer the ownership of and to
deliver a determinate thing, and the
other to pay therefor a price certain in
money or its equivalent.
"A contract of sale may be absolute or
conditional.
When the sale is not absolute but
conditional, such as in a "Contract to Sell"
where invariably the ownership of the thing
sold is retained until the fulfillment of a
positive suspensive condition (normally, the
full payment of the purchase price), the
breach of the condition will prevent the
obligation to convey title from acquiring an
obligatory force. 2 In Dignos vs. Court of
Appeals (158 SCRA 375), we have said that,
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).
An unconditional mutual promise to buy
and sell, as long as the object is made
determinate and the price is fixed, can be
obligatory on the parties, and compliance
therewith may accordingly be exacted.
PERFECTED CONTRACT OF OPTION - An
accepted unilateral promise which specifies
the thing to be sold and the price to be
paid, when coupled with a valuable
consideration distinct and separate from
the price, is what may properly be termed a
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LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

perfected contract of option. This


contract is legally binding, and in
sales, it conforms with the second
paragraph of Article 1479 of the Civil
Code, viz:

"ART. 1479. . . . . "An accepted


unilateral promise to buy or to sell a
determinate thing for a price certain is
binding upon the promissor if the
promise is supported by a consideration
distinct from the price. (1451a)
OPTION NOT THE CONTRACT OF SALE
ITSELF - Observe, however, that the option
is not the contract of sale itself. The
optionee has the right, but not the
obligation, to buy. Once the option is
exercised timely, i.e., the offer is
accepted before a breach of the option, a
bilateral promise to sell and to buy
ensues and both parties are then
reciprocally bound to comply with their
respective undertakings.

Let us elucidate a little.


A negotiation is formally initiated by an
offer. An imperfect promise
(policitacion) is merely an offer.
Public advertisements or solicitations
and the like are ordinarily construed as
mere invitations to make offers or only
as proposals. These relations, until a
contract is perfected, are not considered
binding commitments.
Thus, at any time prior to the perfection
of the contract, either negotiating party
may stop the negotiation.
The offer, at this stage, may be
withdrawn; the withdrawal is effective
immediately after its manifestation,
such as by its mailing and not
necessarily when the offeree learns of
the withdrawal (Laudico vs. Arias, 43
Phil. 270).
OFFER WITH A PERIOD; EFFECTS OF
WITHDRAWAL - Where a period is given
to the offeree within which to accept the
offer, the following rules generally
govern:
1) If the period is not itself
founded upon or supported
by a consideration, the offeror

is still free and has the right to


withdrawal the offer before its
acceptance, or, if an acceptance
has been made, before the
offeror's coming to know of such
fact, by communicating that
withdrawal to the offeree
The right to withdraw,
however, must not be
exercised whimsically or
arbitrarily; otherwise, it could
give rise to a damage claim
under Article 19 of the Civil
Code
2) If the period has a separate
consideration, a contract of
"option" is deemed
perfected, and it would be a
breach of that contract to
withdraw the offer during the
agreed period. The option,
however, is an independent
contract by itself, and it is to be
distinguished from the projected
main agreement (subject matter
of the option) which is obviously
yet to be concluded.

If, in fact, the optioner-offeror


withdraws the offer before its
acceptance (exercise of the
option) by the optioneeofferee, the latter may not sue
for specific performance on
the proposed contract
("object" of the option) since it
has failed to reach its own
stage of perfection.
The optioner-offeror, however,
renders himself liable for
damages for breach of the
option. In these cases, care
should be taken of the real
nature of the consideration
given, for if, in fact, it has
been intended to be part of
the consideration for the main
contract with a right of
withdrawal on the part of the
optionee, the main contract
could be deemed perfected; a
similar instance would be
an "earnest money" in a
contract of sale that can
Page 18 of 23

LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

evidence its perfection (Art.


1482, Civil Code).
RIGHT OF FIRST REFUSAL INNOVATIVE;
NEITHER AN OPTION NOR AN OFFER - In
the law on sales, the so-called "right of
first refusal" is an innovative juridical
relation. Needless to point out, it
cannot be deemed a perfected contract
of sale under Article 1458 of the Civil
Code. Neither can the right of first
refusal, understood in its normal
concept, per se be brought within the
purview of an option under the second
paragraph of Article 1479, aforequoted,
or possibly of an offer under Article
1319 of the same Code.
DISTINCTION OF RIGHT OF FIRST
REFUSAL TO AN OPTION OR TO AN
OFFER - An option or an offer would
require, among other things, a clear
certainty on both the object and the
cause or consideration of the envisioned
contract. In a right of first refusal, while
the object might be made determinate,
the exercise of the right, however,
would be dependent not only on the
grantor's eventual intention to enter
into a binding juridical relation with
another but also on terms, including the
price, that obviously are yet to be later
firmed up.
Prior thereto, it can at best be so
described as merely belonging to a class
of preparatory juridical relations
governed not by contracts (since the
essential elements to establish the
vinculum juris would still be indefinite
and inconclusive) but by, among other
laws of general application, the
pertinent scattered provisions of the
Civil Code on human conduct.
BREACH OF RIGHT OF FIRST REFUSAL
DOES NOT WARRANT ISSUANCE OF A
WRIT OF EXECUTION NOR SANCTION AN
ACTION FOR SPECIFIC PERFORMANCE;
MAY ONLY WARRANT RECOVERY FOR
DAMAGES UNDER ARTICLE 19 OF THE
CIVIL
CODE - Even on the premise that such
right of first refusal has been decreed
under a final judgment, like here, its
breach cannot justify correspondingly an

issuance of a writ of execution under a


judgment that merely recognizes its
existence, nor would it sanction an
action for specific performance without
thereby negating the indispensable
element of consensuality in the
perfection of contracts. It is not to say,
however, that the right of first refusal
would be inconsequential for, such as
already intimated above, an unjustified
disregard thereof, given, for instance,
the circumstances expressed in Article
19 of the Civil Code, can warrant a
recovery for damages.
The final judgment in Civil Case No. 8741058, it must be stressed, has merely
accorded a "right of first refusal" in
favor of petitioners. The consequence of
such a declaration entails no more than
what has heretofore been said. In fine,
if, as it is here so conveyed to us,
petitioners are aggrieved by the failure
of private respondents to honor the
right of first refusal, the remedy is not a
writ of execution on the judgment, since
there is none to execute, but an action
for damages in a proper forum for the
purpose.
EQUATORIAL REALTY DEVELOPMENT, INC.
& CARMELO & BAUERMANN, INC., petitioners,
vs. MAYFAIR THEATER, INC., respondent
(GR No. 106063; Nov. 21, 1996)
FACTS:

Carmelo owned a parcel of land, together


with two 2-storey buildings constructed
thereon located at Claro M. Recto
Avenue, Manila.
On June 1, 1967 Carmelo entered into a
contract of lease with herein respondent
Mayfair for the latters lease of a portion
of Carmelos property for use by Mayfair
as a motion picture theater and for a
term of twenty (20) years. Mayfair
thereafter constructed on the leased
property a movie house known as Maxim
Theatre.
Two years later, on March 31, 1969,
Mayfair entered into a second contract of
lease with Carmelo for the lease of
another portion of Carmelos property for
similar use as a movie theater and for a
similar term of twenty (20) years. Mayfair
put up another movie house known as
Miramar Theatre
on this leased
property.
Page 19 of 23

LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

Both contracts of lease provides (sic)


identically worded paragraph 8, which
reads:
That if the LESSOR should
desire to sell the leased premises,
the LESSEE shall be given 30-days
exclusive option to purchase the
same.
In the event, however, that the
leased premises is sold to someone
other than the LESSEE, the LESSOR
is bound and obligated, as it
hereby binds and obligates itself,
to stipulate in the Deed of Sale
thereof that the purchaser shall
recognize this lease and be bound
by all the terms and conditions
thereof.
Sometime in August 1974, Mr. Henry
Pascal of Carmelo informed Mr. Henry
Yang, President of Mayfair, through a
telephone conversation that Carmelo was
desirous of selling the entire Claro M.
Recto property. Mr. Pascal told Mr. Yang
that a certain Jose Araneta was offering
to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang
if the latter was willing to buy the
property for Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr.
Pascal know of his decision. On August
23, 1974, Mayfair replied through a letter
stating
the
earlier
mentioned
conversation and reminding Carmelo of
par. 8 of the contract of lease. Carmelo
did not reply to this letter.
On September 18, 1974, Mayfair sent
another letter to Carmelo purporting to
express interest in acquiring not only the
leased premises but the entire building
and other improvements if the price is
reasonable. However, both Carmelo and
Equatorial questioned the authenticity of
the second letter.
Four years later, on July 30, 1978, Carmelo
sold its entire C.M. Recto Avenue land
and building, which included the leased
premises housing the Maxim and
Miramar theatres, to Equatorial by
virtue of a Deed of Absolute Sale, for the
total sum of P11,300,000.00.
In September 1978, Mayfair instituted the
action for specific performance and
annulment of the sale of the leased
premises to Equatorial, which was
dismissed by the trial court who
adjudged
the
identically
worded
paragraph 8 found in both aforecited
lease contracts to be an option clause
which however cannot be deemed to be

binding on Carmelo because of lack of


distinct consideration therefor.
On appeal the CA reversed the trial court,
considering par. 8 as a right of first
refusal and not an option contract.
ISSUE: What is the nature of par. 8 of the
lease contract?
HELD: RIGHT OF FIRST REFUSAL. As early as
1916, in the case of Beaumont vs. Prieto,
unequivocal was our characterization of an
option
contract
as
one
necessarily
involving the choice granted to another
for a distinct and separate consideration
as to whether or not to purchase a
determinate thing at a predetermined
fixed price.
It is unquestionable that, by
means of the document Exhibit E, to
wit, the letter of December 4, 1911,
quoted at the beginning of this
decision,
the
defendant
Valdes
granted to the plaintiff Borck the right
to purchase the Nagtajan Hacienda
belonging to Benito Legarda, during
the period of three months and for its
assessed valuation, a grant which
necessarily implied the offer or
obligation on the part of the defendant
Valdes to sell to Borck the said
hacienda during the period and for the
price mentioned, x x x. There was,
therefore, a meeting of minds on the
part of the one and the other, with
regard to the stipulations made in the
said document. But it is not shown
that there was any cause or
consideration for that agreement, and
this omission is a bar which precludes
our holding that the stipulations
contained in Exhibit E is a contract of
option, for, x x x there can be no
contract without the requisite, among
others, of the cause for the obligation
to be established.
In his Law Dictionary, edition of
1897, Bouvier defines an option as a
contract, in the following language:
A contract by virtue of
which A, in consideration of
the payment of a certain sum
to B, acquires the privilege of
buying from, or selling to B,
certain
securities
or
properties within a limited
time at a specified price.
(Story vs. Salamon, 71 N.Y.,
420.)
From vol. 6, page 5001, of the
Page 20 of 23

LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

work Words and Phrases, citing the


case of Ide vs. Leiser (24 Pac., 695; 10
Mont., 5; 24 Am. St. Rep., 17) the
following quotation has been taken:
An agreement in writing
to give a person the option to
purchase lands within a given
time at a named price is
neither
a
sale
nor
an
agreement to sell. It is simply
a contract by which the owner
of
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; that is,
the right or privilege to buy at
the election or option of the
other party. The second party
gets in praesenti, not lands,
nor an agreement that he
shall have lands, but he does
get something of value; that
is, the right to call for and
receive lands if he elects. The
owner parts with his right to
sell his lands, except to the
second party, for a limited
period. The second party
receives this right, or, rather,
from his point of view, he
receives the right to elect to
buy.
But the two definitions above
cited refer to the contract of option, or,
what amounts to the same thing, to
the case where there was cause or
consideration for the obligation, the
subject of the agreement made by the
parties; while in the case at bar there
was no such cause or consideration.
The rule so early established in this jurisdiction
is that the deed of option or the option clause
in a contract, in order to be valid and
enforceable, must, among other things,
indicate the definite price at which the person
granting the option, is willing to sell.
Notably, in one case we held that the lessee
loses his right to buy the leased property for a
named price per square meter upon failure to
make the purchase within the time specified; in
one other case we freed the landowner from
her promise to sell her land if the prospective
buyer could raise P4,500.00 in three weeks
because such option was not supported by a
distinct consideration; in the same vein in yet
one other case, we also invalidated an

instrument entitled, Option to Purchase a


parcel of land for the sum of P1,510.00
because of lack of consideration; and as an
exception to the doctrine enumerated in the
two preceding cases, in another case, we ruled
that the option to buy the leased premises for
P12,000.00 as stipulated in the lease contract,
is not without consideration for in reciprocal
contracts, like lease, the obligation or promise
of each party is the consideration for that of
the other. In all these cases, the selling
price of the object thereof is always
predetermined and specified in the option
clause in the contract or in the separate
deed of option.
In view of the wording of the questioned
provision in the two lease contracts involved in
the instant case, we so hold that no option to
purchase in contemplation of the second
paragraph of Article 1479 of the Civil Code, has
been granted to Mayfair under the said lease
contracts.
Respondent Court of Appeals correctly ruled
that the said paragraph 8 grants the right of
first refusal to Mayfair and is not an option
contract. It also correctly reasoned that as
such,
the
requirement
of
a
separate
consideration
for
the
option,
has
no
applicability in the instant case.
There is nothing in the identical Paragraphs 8
of the June 1, 1967 and March 31, 1969
contracts which would bring them into the
ambit of the usual offer or option requiring an
independent consideration.
An option is a contract granting a privilege to
buy or sell within an agreed time and at a
determined price. It is a separate and distinct
contract from that which the parties may enter
into upon the consummation of the option. It
must be supported by consideration. In the
instant case, the right of first refusal is an
integral part of the contracts of lease. The
consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as
that found in paragraph 8 of the contracts is
governed by Article 1324 on withdrawal of the
offer or Article 1479 on promise to buy and sell
would render ineffectual or inutile the
provisions on right of first refusal so commonly
inserted in leases of real estate nowadays. The
Court of Appeals is correct in stating that
Paragraph 8 was incorporated into the
contracts of lease for the benefit of Mayfair
which wanted to be assured that it shall be
given the first crack or the first option to buy
the property at the price which Carmelo is
willing to accept. It is not also correct to say
that there is no consideration in an agreement
Page 21 of 23

LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

of right of first refusal. The stipulation is part


and parcel of the entire contract of lease.
The consideration for the lease includes
the consideration for the right of first
refusal. Thus, Mayfair is in effect stating that it
consents to lease the premises and to pay the
price agreed upon provided the lessor also
consents that, should it sell the leased
property, then, Mayfair shall be given the right
to match the offered purchase price and to buy
the property at that price. As stated in Vda. De
Quirino vs. Palarca, in reciprocal contract, the
obligation or promise of each party is the
consideration for that of the other.
The respondent Court of Appeals was correct in
ascertaining the true nature of the aforecited
paragraph 8 to be that of a contractual grant of
the right of first refusal to Mayfair.
ISSUE2: WON the petitioners acted in bad faith
to render Paragraph 8 inutile.
HELD: Yes. What Carmelo and Mayfair agreed
to, by executing the two lease contracts, was
that Mayfair will have the right of first refusal in
the event Carmelo sells the leased premises. It
is undisputed that Carmelo did recognize this
right of Mayfair, for it informed the latter of its
intention to sell the said property in 1974.
There was an exchange of letters evidencing
the offer and counter-offers made by both
parties. Carmelo, however, did not pursue the
exercise to its logical end. While it initially
recognized Mayfairs right of first refusal,
Carmelo violated such right when without
affording its negotiations with Mayfair the full
process to ripen to at least an interface of a
definite offer and a possible corresponding
acceptance within the 30-day exclusive
option
time
granted
Mayfair,
Carmelo
abandoned negotiations, kept a low profile for
some time, and then sold, without prior notice
to Mayfair, the entire Claro M. Recto property to
Equatorial.
Since Equatorial is a buyer in bad faith, this
finding renders the sale to it of the property in
question rescissible. We agree with respondent
Appellate Court that the records bear out the
fact that Equatorial was aware of the lease
contracts because its lawyers had, prior to the
sale, studied the said contracts. As such,
Equatorial cannot tenably claim to be a
purchaser in good faith, and, therefore,
rescission lies.

ISSUE3: Assuming that par. 8 was a right


of first refusal, WON it would amount to
impossibility of performance, considering
that it only covers the lot subject to the
lease and not the whole property which is

indivisible?
HELD: No. It was petitioner Carmelo which
fixed the limits of the property it was
leasing out. Common sense and fairness
dictate that instead of nullifying the
agreement on that basis, the stipulation
should be given effect by including the
indivisible appurtenances in the sale of the
dominant portion under the right of first
refusal. A valid and legal contract where
the ascendant or the more important of the
two parties is the landowner should be
given effect, if possible, instead of being
nullified on a selfish pretext posited by the
owner. Following the arguments of
petitioners and the participation of the
owner in the attempt to strip Mayfair of its
rights, the right of first refusal should
include
not
only
the
property
specified in the contracts of lease but
also the appurtenant portions sold to
Equatorial which are claimed by
petitioners to be indivisible. Carmelo
acted in bad faith when it sold the entire
property to Equatorial without informing
Mayfair, a clear violation of Mayfairs
rights. While there was a series of
exchanges of letters evidencing the offer
and counter-offers between the parties,
Carmelo abandoned the negotiations
without giving Mayfair full opportunity to
negotiate within the 30-day period.
Accordingly, even as it recognizes the right of
first refusal, this Court should also order that
Mayfair be authorized to exercise its right of
first refusal under the contract to include the
entirety of the indivisible property. The
boundaries of the property sold should be the
boundaries of the offer under the right of first
refusal.
ISSUE4: WON the sale between petitioners
should be rescinded?
HELD: Yes. Since Mayfair has a right of first
refusal, it can exercise the right only if the
fraudulent sale is first set aside or rescinded.
The facts of the case and considerations of
justice and equity require that we order
rescission here and now. Rescission is a relief
allowed for the protection of one of the
contracting parties and even third persons from
all injury and damage the contract may cause
or to protect some incompatible and preferred
right by the contract. The sale of the subject
real property by Carmelo to Equatorial should
now be rescinded considering that Mayfair,
which had substantial interest over the subject
property, was prejudiced by the sale of the
subject property to Equatorial without Carmelo
conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period.
Page 22 of 23

LAW ON SALES | Atty. Dimayuga | Tullo Ibangga Jamoner Soriano | Arellano University School of Law | 2013-2014

Under the Ang Yu Asuncion vs. Court of Appeals


decision, the Court stated that there was
nothing to execute because a contract over the
right of first refusal belongs to a class of
preparatory juridical relations governed not by
the law on contracts but by the codal
provisions on human relations. This may apply
here if the contract is limited to the buying and
selling of the real property. However, the
obligation of Carmelo to first offer the property
to Mayfair is embodied in a contract. It is
Paragraph 8 on the right of first refusal which

created the obligation. It should be enforced


according to the law on contracts instead of the
panoramic and indefinite rule on human
relations. There is something to execute and
that is for Carmelo to comply with its obligation
to the property under the right of the first
refusal according to the terms at which they
should have been offered then to Mayfair, at
the price when that offer should have been
made. Also, Mayfair has to accept the offer.

Page 23 of 23