Civ II Case Doctrines 2

184
Sanchez v Mapalad Realty, 541 SCRA 397

A contract is defined as a juridical convention manifested in legal forms, by virtue of which one or more persons
bind themselves in favour of another, to give, to do or not to do. The essential requisites of a valid contract of sale are
(a) consent of the contracting parties, (b) object certain, and (c) cause of obligation. Consent may be given only by a
person with legal capacity to give consent. In the case of juridical person such as corporation like Mapalad, consent
may only be granted through its officers who have been duly authorized by its board of directors.

In the present case, consent was purportedly given by Miguel Magsaysay, the person who signed for and in behalf of
Mapalad in the deed of absolute sale. However, during the trial, he admitted to be no longer connected with Mapalad
because he already divested all his interests in said corporation as early as 1982. Even assuming, for the sake of
argument, the signatures were genuine, it would still be voidable for lack of authority resulting in his capacity to give
consent on the part of Mapalad.

185 Hernandez-Nievera v Hernandez, 643 SCRA 646 (2011)

It becomes clear that Demetrios special power of attorney to sell is sufficient to enable him to make a binding
commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to
extinguish PMRDCs obligation under the MOA to deliver option money and agree to a more flexible term by agreeing
instead to receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of the
properties to the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to accommodate
not only the terms of the MOA but also those of the subsequent agreement in the DAC which, in this case, necessarily
and consequently has resulted in a novation of PMRDCs integral obligations.

186 Heirs of Lopez vs. DBP, G.R. No. 193551, November 19, 2014

A seller can only sell what he or she owns, or that which he or she does not own but has authority to transfer, and a
buyer can only acquire what the seller can legally transfer.
Since Enriques right to the property was limited to his one-fourth share, he had no right to sell the undivided
portions that belonged to his siblings or their respective heirs. Any sale by one heir of the rest of the property will
not affect the rights of the other heirs who did not consent to the sale. Such sale is void with respect to the shares of
the other heirs.

Regardless of their agreement, Enrique could only convey to Marietta his undivided one-fourth share of the
property, and Marietta could only acquire that share. This is because Marietta obtained her rights from Enrique who,
in the first place, had no title or interest over the rest of the property that he could convey.

This is despite Enriques execution of the affidavit of self-adjudication wherein he declared himself to be the only
surviving heir of Gregoria Lopez. The affidavit of self-adjudication is invalid for the simple reason that it was false. At
the time of its execution, Enriques siblings were still alive and entitled to the three-fourth undivided share of the
property. The affidavit of self-adjudication did not have the effect of vesting upon Enrique ownership or rights to the
property.

The issuance of the original certificate of title in favor of Marietta does not cure Enriques lack of title or authority to
convey his co-owners portions of the property. Issuance of a certificate of title is not a grant of title over petitioners
undivided portions of the property.69 The physical certificate of title does not vest in a person ownership or right
over a property. It is merely an evidence of such ownership or right.

Marietta could acquire valid title over the whole property if she were an innocent purchaser for value. An innocent
purchaser for value purchases a property without any notice of defect or irregularity as to the right or interest of the
seller. He or she is without notice that another person holds claim to the property being purchased.

As a rule, an ordinary buyer may rely on the certificate of title issued in the name of the seller. He or she need not
look "beyond what appears on the face [of the certificate of title]." However, the ordinary buyer will not be
considered an innocent purchaser for value if there is anything on the certificate of title that arouses suspicion, and
the buyer failed to inquire or take steps to ensure that there is no cloud on the title, right, or ownership of the
property being sold.

MCD OBLIGATIONS AND CONTRACTS

Marietta cannot claim the protection accorded by law to innocent purchasers for value because the circumstances do
not make this available to her.

In this case, there was no certificate of title to rely on when she purchased the property from Enrique. At the time of
the sale, the property was still unregistered. What was available was only a tax declaration issued under the name of
"Heirs of Lopez."

"The defense of having purchased the property in good faith may be availed of only where registered land is
involved and the buyer had relied in good faith on the clear title of the registered owner."76 It does not apply when
the land is not yet registered with the Registry of Deeds.

At the very least, the unregistered status of the property should have prompted Marietta to inquire further as to
Enriques right over the property. She did not. Hence, she was not an innocent purchaser for value. She acquired no
title over petitioners portions of the property.

187 Cabrera vs. Ysaac, G.R. No. 166790, November 19, 2014
As defined by the Civil Code, "[a] contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service." For there to be a valid contract, there must
be consent of the contracting parties, an object certain which is the subject matter of the contract, and cause of the
obligation which is established. Sale is a special contract. The seller obligates himself to deliver a determinate thing
and to transfer its ownership to the buyer. In turn, the buyer pays for a price certain in money or its equivalent. A
"contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price." The seller and buyer must agree as to the certain thing that will be subject of the sale
as well as the price in which the thing will be sold. The thing to be sold is the object of the contract, while the price is
the cause or consideration.

The object of a valid sales contract must be owned by the seller. If the seller is not the owner, the seller must be
authorized by the owner to sell the object.

Specific rules attach when the seller co-owns the object of the contract. Sale of a portion of the property is
considered an alteration of the thing owned in common. Under the Civil Code, such disposition requires the
unanimous consent of the other co-owners. However, the rules also allow a co-owner to alienate his or her part in
the co-ownership. These two rules are reconciled through jurisprudence.

If the alienation precedes the partition, the co-owner cannot sell a definite portion of the land without consent from
his or her co-owners. He or she could only sell the undivided interest of the co-owned property. As summarized in
Lopez v. Ilustre, "[i]f he is the owner of an undivided half of a tract of land, he has a right to sell and convey an
undivided half, but he has no right to divide the lot into two parts, and convey the whole of one part by metes and
bounds."

The undivided interestof a co-owner is also referred to as the "ideal or abstract quota" or "proportionate share." On
the other hand, the definite portion of the land refers to specific metes and bounds of a co-owned property.

To illustrate, if a ten-hectare property is owned equally by ten coowners, the undivided interest of a co-owner is one
hectare. The definite portion of that interest is usually determined during judicial or extrajudicial partition. After
partition, a definite portion of the property held in common is allocated to a specific co-owner. The co-ownership is
dissolved and, in effect, each of the former co-owners is free to exercise autonomously the rights attached to his or
her ownership over the definite portion of the land. It is crucial that the co-owners agree to which portion of the land
goes to whom.

Hence, prior to partition, a sale of a definite portion of common property requires the consent of all co-owners
because it operates to partition the land with respect to the co-owner selling his or her share. The co-owner or seller
is already marking which portion should redound to his or her autonomous ownership upon future partition.

The object of the sales contract between petitioner and respondent was a definite portion of a co-owned parcel of
land. At the time of the alleged sale between petitioner and respondent, the entire property was still held in
common. This is evidenced by the original certificate of title, which was under the names of the Ysaacs.

The rules allow respondent to sell his undivided interestin the coownership. However, this was not the object of the
sale between him and petitioner. The object of the sale was a definite portion. Even if it was respondent who was
benefiting from the fruits of the lease contract to petitioner, respondent has "no right to sell or alienate a concrete,
specific or determinate part of the thing owned in common, because his right over the thing is represented by quota
or ideal portion without any physical adjudication."

There was no showing that respondent was authorized by his coowners to sell the portion of land occupied by Juan
Cabrera, the Espiritu family, or the Borbe family. Without the consent of his co-owners, respondent could not sell a
definite portion of the co-owned property.

Respondent had no right to define a 95-square-meter parcel of land, a 439-square-meter parcel of land, or a 321square-meter parcel of land for purposes of selling to petitioner. The determination of those metes and bounds are
not binding to the co-ownership and, hence, cannot be subject to sale, unless consented to by all the co-owners.

There was also no evidence of consent to sell from the co-owners. When petitioner approached respondent in 1995
to enforce the contract of sale, respondent referred him to Franklin Ysaac, the administrator over the entire
property. Respondents act suggests the absence of consent from the co-owners. Petitioner did not show that he
sought Franklin Ysaacs consent as administrator and the consent of the other co-owners. Without the consent of the
co-owners, no partial partition operated in favor of the sale to petitioner.

At best, the agreement between petitioner and respondent is a contract to sell, not a contract of sale. A contract to
sell is a promise to sell an object, subject to suspensive conditions. Without the fulfillment of these suspensive
conditions, the sale does not operate to determine the obligation of the seller to deliver the object.

A co-owner could enter into a contract to sell a definite portion of the property. However, such contract is still
subject to the suspensive condition of the partition of the property, and that the other co-owners agree that the part
subject of the contract to sell vests in favor of the co-owners buyer. Hence, the co-owners consent is an important
factor for the sale to ripen.

188 De Leon v Ong, 611 SCRA 381 (February 2, 2010)

In a contract of sale, the seller conveys ownership of the property to the buyer upon the perfection of the contract.
Should the buyer default in the payment of the purchase price, the seller may either sue for the collection thereof or
have the contract judicially resolved and set aside. The non-payment of the price is therefore a negative resolutory
condition.

On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer does not acquire
ownership of the property until he fully pays the purchase price. For this reason, if the buyer defaults in the payment
thereof, the seller can only sue for damages.

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties to respondent "in
a manner absolute and irrevocable" for a sum of P1.1 million. With regard to the manner of payment, it required
respondent to pay P415,500 in cash to petitioner upon the execution of the deed, with the balance15payable directly
to RSLAI (on behalf of petitioner) within a reasonable time. Nothing in said instrument implied that petitioner
reserved ownership of the properties until the full payment of the purchase price. On the contrary, the terms and
conditions of the deed only affected the manner of payment, not the immediate transfer of ownership (upon the
execution of the notarized contract) from petitioner as seller to respondent as buyer. Otherwise stated, the said
terms and conditions pertained to the performance of the contract, not the perfection thereof nor the transfer of
ownership.

Settled is the rule that the seller is obliged to transfer title over the properties and deliver the same to the buyer.18In
this regard, Article 1498 of the Civil Code provides that, as a rule, the execution of a notarized deed of sale is
equivalent to the delivery of a thing sold.

In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent. Moreover, not only did
petitioner turn over the keys to the properties to respondent, he also authorized RSLAI to receive payment from
respondent and release his certificates of title to her. The totality of petitioners acts clearly indicates that he had

unqualifiedly delivered and transferred ownership of the properties to respondent. Clearly, it was a contract of sale
the parties entered into.

Furthermore, even assuming arguendo that the agreement of the parties was subject to the condition that RSLAI had
to approve the assumption of mortgage, the said condition was considered fulfilled as petitioner prevented its
fulfillment by paying his outstanding obligation and taking back the certificates of title without even notifying
respondent. In this connection, Article 1186 of the Civil Code provides:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

(2) Void Sale Or Double Sale?

Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two separate occasions.
However, the second sale was not void for the sole reason that petitioner had previously sold the same properties to
respondent. On this account, the CA erred.

This case involves a double sale as the disputed properties were sold validly on two separate occasions by the same
seller to the two different buyers in good faith.

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

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

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

This provision clearly states that the rules on double or multiple sales apply only to purchasers in good faith.
Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other person has a right
to, or an interest in, such property and pays a full and fair price for the same at the time of such purchase, or before
he has notice of some other persons claim or interest in the property.21 The law requires, on the part of the buyer,
lack of notice of a defect in the title of the seller and payment in full of the fair price at the time of the sale or prior to
having notice of any defect in the sellers title.

Was respondent a purchaser in good faith? Yes.

Respondent purchased the properties, knowing they were encumbered only by the mortgage to RSLAI. According to
her agreement with petitioner, respondent had the obligation to assume the balance of petitioners outstanding
obligation to RSLAI. Consequently, respondent informed RSLAI of the sale and of her assumption of petitioners
obligation. However, because petitioner surreptitiously paid his outstanding obligation and took back her
certificates of title, petitioner himself rendered respondents obligation to assume petitioners indebtedness to
RSLAI impossible to perform.

Article 1266. The debtor in obligations to do shall be released when the prestation become legally or physically
impossible without the fault of the obligor.

Since respondents obligation to assume petitioners outstanding balance with RSLAI became impossible without her
fault, she was released from the said obligation. Moreover, because petitioner himself willfully prevented the
condition vis--vis the payment of the remainder of the purchase price, the said condition is considered fulfilled
pursuant to Article 1186 of the Civil Code. For purposes, therefore, of determining whether respondent was a
purchaser in good faith, she is deemed to have fully complied with the condition of the payment of the remainder of
the purchase price.

Respondent was not aware of any interest in or a claim on the properties other than the mortgage to RSLAI which
she undertook to assume. Moreover, Viloria bought the properties from petitioner after the latter sold them to
respondent. Respondent was therefore a purchaser in good faith. Hence, the rules on double sale are applicable.

Article 1544 of the Civil Code provides that when neither buyer registered the sale of the properties with the
registrar of deeds, the one who took prior possession of the properties shall be the lawful owner thereof.

In this instance, petitioner delivered the properties to respondent when he executed the notarized deed22 and
handed over to respondent the keys to the properties. For this reason, respondent took actual possession and
exercised control thereof by making repairs and improvements thereon. Clearly, the sale was perfected and
consummated on March 10, 1993. Thus, respondent became the lawful owner of the properties.

Nonetheless, while the condition as to the payment of the balance of the purchase price was deemed fulfilled,
respondents obligation to pay it subsisted. Otherwise, she would be unjustly enriched at the expense of petitioner.

Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is because the provisions,
terms and conditions of the contract constitute the law between the parties. Moreover, the deed itself provided that
the assumption of mortgage "was without any further cost whatsoever." Petitioner, on the other hand, must deliver
the certificates of title to respondent. We likewise affirm the award of damages.

189 Roman Catholic Church v Pante, supra
The sale of the lot to Pante and later to the spouses Rubi resulted in a double sale that called for the application of
the rules in Article 1544 of the Civil Code:

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



As neither Pante nor the spouses Rubi registered the sale in their favor, the question now is who, between the two,
was first in possession of the property in good faith.

Jurisprudence has interpreted possession in Article 1544 of the Civil Code to mean both actual physical delivery and
constructive delivery. Under either mode of delivery, the facts show that Pante was the first to acquire possession of
the lot.

Actual delivery of a thing sold occurs when it is placed under the control and possession of the vendee. Pante
claimed that he had been using the lot as a passageway, with the Churchs permission, since 1963. After purchasing
the lot in 1992, he continued using it as a passageway until he was prevented by the spouses Rubis concrete fence
over the lot in 1994. Pantes use of the lot as a passageway after the 1992 sale in his favor was a clear assertion of his
right of ownership that preceded the spouses Rubis claim of ownership.

Pante also stated that he had placed electric connections and water pipes on the lot, even before he purchased it in
1992, and the existence of these connections and pipes was known to the spouses Rubi. Thus, any assertion of
possession over the lot by the spouses Rubi (e.g., the construction of a concrete fence) would be considered as made
in bad faith because works had already existed on the lot indicating possession by another. [A] buyer of real
property in the possession of persons other than the seller must be wary and should investigate the rights of those
in possession. Without such inquiry, the buyer can hardly be regarded as a buyer in good faith and cannot have any
right over the property.

Delivery of a thing sold may also be made constructively. Article 1498 of the Civil Code states that:


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

Under this provision, the sale in favor of Pante would have to be upheld since the contract executed between the
Church and Pante was duly notarized, converting the deed into a public instrument. In Navera v. Court of Appeals,
the Court ruled that:

After the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not transmit
anything to the second vendee, and if the latter, by virtue of this second sale, takes material possession of the thing,
he does it as mere detainer, and it would be unjust to protect this detention against the rights of the thing lawfully
acquired by the first vendee.

Thus, under either mode of delivery, Pante acquired prior possession of the lot.

190 Sabitsana v Muertegui, G.R. No. 181359, August 5, 2013

Act No. 3344 applies to sale of unregistered lands. Civil code does not apply to unregistered lands. What applies in
this case is Act No. 3344 as amended, which provides for the system of recording of transactions over unregistered
real estate. Act No. 3344 expressly declares that any registration made shall be without prejudice to a third party
with a better right.

The sale to respondent Juanito was executed on September 2, 1981 via an unnotarized deed of sale, while the sale to
petitioners was made via a notarized document only on October 17, 1991, or ten years thereafter. Thus, Juanito who
was the first buyer has a better right to the lot, while the subsequent sale to petitioners is null and void, because
when it was made, the seller Garcia was no longer the owner of the lot. Nemo dat quod non habet.

The fact that the sale to Juanito was not notarized does not alter anything, since the sale between him and Garcia
remains valid nonetheless. Notarization, or the requirement of a public document under the Civil Code,33 is only for
convenience, and not for validity or enforceability.34 And because it remained valid as between Juanito and Garcia,
the latter no longer had the right to sell the lot to petitioners, for his ownership thereof had ceased.

Nor can petitioners registration of their purchase have any effect on Juanitos rights. The mere registration of a sale
in ones favor does not give him any right over the land if the vendor was no longer the owner of the land, having
previously sold the same to another even if the earlier sale was unrecorded. Neither could it validate the purchase
thereof by petitioners, which is null and void. Registration does not vest title; it is merely the evidence of such title.
Our land registration laws do not give the holder any better title than what he actually has.

Specifically, we held in Radiowealth Finance Co. v. Palileo37 that:

Under Act No. 3344, registration of instruments affecting unregistered lands is without prejudice to a third party
with a better right. The aforequoted phrase has been held by this Court to mean that the mere registration of a sale
in ones favor does not give him any right over the land if the vendor was not anymore the owner of the land having
previously sold the same to somebody else even if the earlier sale was unrecorded.

Petitioners defense of prescription, laches and estoppel are unavailing since their claim is based on a null and void
deed of sale. The fact that the Muerteguis failed to interpose any objection to the sale in petitioners favor does not
change anything, nor could it give rise to a right in their favor; their purchase remains void and ineffective as far as
the Muerteguis are concerned.

Atty. Sabistana entered in the subsequent sale in bad faith. He knew that Juanito had an unnotarized title. And he
used it in his advantage. Atty. Sabitsana has exhibited a lack of loyalty toward his clients, the Muerteguis, and by his
acts, jeopardized their interests instead of protecting them.

191 Alfaro et al v Spouses Dumalagan, et al, G.R. No. 186622, January 22, 2014

By the very fact that the title of Bagano was not clean on its face, the [petitioners] were more than obliged to look
beyond the formers title and make further inquiries about the extent of the latters right and authority over the
subject lot. In other words, [petitioners] should have inquired deeper into the title and right of Bagano over Lot No.
1710. Obviously, the they failed to take this precaution and instead proceeded with the purchase in haste. Had they
done so as a reasonably prudent man buying real property should, they would have discovered that some portions
of Lot 1710 had already been sold by Bagano to third persons who are already in possession of the same


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


[Emphasis supplied]

The aforesaid provision clearly states that the rule on double or multiple sales applies only when all the purchasers
are in good faith. In detail, Art. 1544 requires that before the second buyer can obtain priority over the first, he must
show that he acted in good faith throughout, i.e., in ignorance of the first sale and of the first buyers rights, from the
time of acquisition until the title is transferred to him by registration or failing registration, by delivery of
possession.31

A purchaser in good faith is one who buys the property of another without notice that some other person has a right
to, or an interest in such property, and pays a full and fair price for the same at the time of such purchase, or before
he has notice of some other persons claim or interest in the property.32 The petitioners are not such purchaser.

Petitioners had prior knowledge of the previous sales by installment of portions of the property to several
purchasers. Moreover, petitioners had prior knowledge of respondents possession over the subject property. Hence,
the rule on double sale is inapplicable in the case at bar. As correctly held by the appellate court, petitioners prior
registration of the subject property, with prior knowledge of respondents claim of ownership and possession,
cannot confer ownership or better right over the subject property.33

The ruling in Crisostomo v. Court of Appeals, citing repeated pronouncements, is apropos:

It is a wellsettled rule that a purchaser or mortgagee 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 or mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the
possibility of the existence of a defect in the vendors or mortgagors title, will not make him an innocent purchaser
or mortgagee for value, if it afterwards develops that the title was in fact defective, and it appears that he had such
notice of the defects as would have led to its discovery had he acted with the measure of precaution which may be
required of a prudent man in a like situation.

192 Sps. Suntay vs. Keyser Mercantile, Inc., G.R. No. 208462, December 10, 2014

A levy on execution duly registered takes preference over a prior unregistered sale. Even if the prior sale was
subsequently registered before the sale in execution but after the levy was duly made, the validity of the execution
sale should be maintained because it retroacts to the date of the levy. Otherwise, the preference created by the levy
would be meaningless and illusory.

In this case, the contract to sell between Keyser and Bayfront was executed on October 20, 1989, but the deed of
absolute sale was only made on November 9, 1995 and registered on March 12, 1996. The Notice of Levy in favor of
Spouses Suntay was registered on January 18, 1995, while the Certificate of Sale on April 7, 1995, both dates clearly
ahead of Keysers registration of its Deed of Absolute Sale. Evidently, applying the doctrine of primus tempore,
potior jure (first in time, stronger in right), Spouses Suntay have a better right than Keyser.

The settled rule is that levy on attachment, duly registered, takes preference over a prior unregistered sale. This
result is a necessary consequence of the fact that the property involved was duly covered by the Torrens system

which works under the fundamental principle that registration is the operative act which gives validity to the
transfer or creates a lien upon the land.

The preference created by the levy on attachment is not diminished even by the subsequent registration of the prior
sale. This is so because an attachment is a proceeding in rem. It is against the particular property, enforceable
against the whole world.

193 Sps. Magdalino vs. Bragat, G.R. No. 187013, April 22, 2015

The Civil Code states that ownership of the thing sold is transferred to the vendee upon the actual or constructive
delivery of the same. And the thing is understood as delivered when it is placed in the control and possession of the
vendee. Payment of the purchase price is not essential to the transfer of ownership as long as the property sold has
been delivered; and such delivery (traditio) operated to divest the vendor of title to the property which may not be
regained or recovered until and unless the contract is resolved or rescinded in accordance with law.

The same is true even if the sale is a verbal one, because it is held that when a verbal contract has been completed,
executed or partially consummated, its enforceability will not be barred by the Statute of Frauds, which applies only
to an executory agreement. Thus, where a party has performed his obligation, oral evidence will be admitted to
prove the agreement. And, where it was proven that one party had delivered the thing sold to another, then the
contract was partially executed and the Statute of Frauds does not apply.

This ruling is compelled by the involvement in this case of not just one instance of double sales but a series of such
sales made by two different vendors: It is admitted that Pastrano sold the property to Ledesma in 1968; then,
Pastrano sold it again to Bragat in 1984 and 1987. But Ledesma, too, sold part of the property to the Spouses Badilla
in 1970 and then the entire lot to the Spouses; Bragat in 1978. In such a situation of multiple sales, Article 1544 of
the Civil Code relates that ownership shall belong to the person acquiring the property who, in good faith, first
recorded such acquisition. Presently, however, it cannot be said that Bragat's recording of her 1987 purchase was in
good faith because that sale was simulated and Bragat was aware of other persons who have an interest on the
property. That the 1987 sale is void is further revealed by evidence to show that one of its signatories, Profitiza
Pastrano was already dead when it was executed. Bragat herself also admitted that she knew of the Spouses Badillas'
occupation prior to her purchase. In that case, the same Art. 1544 of the Civil Code provides that when neither buyer
registered, in good faith, the sale of the properties with the register of deeds, the one who took prior possession of
the properties shall be the lawful owner thereof. Such prior possessors, at least with respect to the 152-sq.-m.
portion, are indisputably the Spouses Badilla.

194 Mendoza vs. Sps. Armando, G.R. No. 179751, August 5, 2015

The better right of the registrant of the notice of attachment despite its non-annotation on the title, since in
involuntary instruments, entry in the primary entry book or day book is deemed registration The first person to
register his instrument has a superior right over the others. Thus, if entry in the primary entry book or day book of
the Register Deeds precedes the registration of the sale, such involuntary registration will prevail over the
subsequent sale of the land.

The facts of this case are not new. In the past, the Court has already addressed the issue of the recognition of an
encumbrance not annotated on the certificate of title but recorded in the Register of Deeds' primary entry book or
day book. Our rulings trace their roots from the 1951 case of Villasor v. Camon, which was subsequently reiterated
in the 1952 case of Levin v. Bass. In Villasor, the Court analyzed the provisions of Act No. 496 (or the early Land
Registration Act) and had occasion to distinguish the registration requirements of a voluntary instrument from an
involuntary instrument. The Court noted that in the registration of a voluntary instrument such as a sale, a mortgage,
or a lease, the owner's production of his duplicate certificate of title is necessary before registration. Since the
instrument sought to be registered is the wilful act of the owner, he is expected to produce all the necessary
documents that will facilitate its registration. On the other hand, an involuntary instrument such as an attachment, a
lien, a notice of lis pendens, and the like, are adverse to the claims of the registered owner. Thus, he cannot be
expected to provide all the necessary documents such as his owner's duplicate copy of the title.

For this reason, the law does not require the presentation as well as the annotation of the involuntary instrument on
the owner's duplicate title, or even on the original title. The mere recording of the involuntary instrument in the
primary entry book or day book is sufficient to bind the registered land and affect third persons dealing with
it. Following these pronouncements, the Court subsequently reiterated in Levin, that in involuntary registration, the
entry of the instrument in the primary entry book or day book already serves as adequate notice to all persons of
another person's or entity's adverse claim over a registered land. Notably, Villasor and Levin were decided under
Act No. 496, which contained the following relevant provisions:
Section 51. Every conveyance, mortgage, lease, lien, attachment, order, decree, instrument, or entry affecting
registered land which would under existing laws, or recorded, filed, or entered in the office of the register of
deeds, affect the real estate to which it relates shall, if registered, filed, or entered in the office of the register
of deeds in the province or city where the real estate to which such instrument relates lies, be notice to all
persons from the time of such registering, filing, or entering.
Section 55. No new certificate of title shall be entered, no memorandum shall be made upon any certificate
of title by the clerk, or by any register of deeds, in pursuance of any deed or other voluntary instrument,
unless the owner's duplicate certificate is presented for such indorsement, except in cases expressly
provided for in this Act, or upon the order of the court, for cause shown; and whenever such order is made,
a memorandum thereof shall be entered upon the new certificate of title and upon the owner's duplicate. . . .
Section 56. Each register of deeds shall keep an entry book in which he shall enter in the order of their
reception all deeds and other voluntary instruments, and all copies of writs and other process filed with him
relating to registered land. He shall note in such book the year month, day, hour, and minute of reception of
all instruments, in the order in which they are received. They shall be regarded as registered from the time
so noted, and the memorandum of each instrument when made on the certificate of title to which it refers
shall bear the same date. [Emphases supplied.]

From these provisions, one can conclude that an instrument, once noted or entered in the primary entry book or day
book of the Register of Deeds, is already deemed registered from the date of such entry. Such registration, entry or
filing already amounts to notice to all persons dealing with the registered land from the time of registration, entry or
filing. However, Section 55 of this law provides for an additional requirement in the registration of voluntary
instruments. In voluntary registration, mere entry in the primary book or day book is not enough. The registered
owner must present not only the instrument sought to be registered, but also his owner's duplicate copy for a
complete registration to take place. Sections 51, 55, and 56 of Act No. 496 were carried over into PD No. 1529 or
the Property Registration Decree. These provisions now correspond to Sections 52, 53, and 56 of PD No. 1529, the
current law governing land registration.

In Caviles, the Court acknowledged that bad faith could not be imputed on the buyers of a land whose certificate of
title did not contain an annotation of someone else's notice of attachment. In the same manner, the persons who
caused the registration of the notice of attachment should not be held negligent for not checking if the Register of
Deeds actually performed its obligation to annotate the instrument on the title. The duty to annotate rests with the
Register of Deeds and not with the registrant. As the Court explained: Petitioners paid the corresponding fees for the
annotation of the notice of attachment and they had every right to presume that the register of deeds would inscribe
said notice on the original title covering the subject property. The register of deeds had the duty to inscribe the
notice on the original title. This was not a duty of petitioners. This Court has held that a party which delivers its
notice of attachment to the register of deeds and pays the corresponding fees therefor has a right to presume that
the official would perform his duty properly.

Given this parity of good faith, the Court held in Caviles that the person who first registered his instrument had a
superior right over the other. The Court thus upheld in this case the better right of the registrant of the notice of
attachment despite its non-annotation on the title, since in involuntary instruments, entry in the primary entry book
or day book is deemed registration. In the more recent case of Saberon, the Court reapplied its ruling in Caviles and
held that neither the registrant of the involuntary instrument nor the buyer of the property affected with the
encumbrance not annotated on the title, may be considered to be in bad faith. But in the order of things, the first
person to register his instrument has a superior right over the others. Thus, if entry in the primary entry book or day
book of the Register Deeds precedes the registration of the sale, such involuntary registration will prevail over the
subsequent sale of the land.

In all these cases, the Court consistently ruled that entry or notation of an involuntary instrument in the primary
entry book or day book amounts to a valid registration. In accordance with Section 56 in relation to Section 52 of
PD No. 1529, such registration constitutes notice to all persons dealing with the registered land from the date of
entry or notation. The Court notes however, that unlike the vendees in the cases of Caviles and Saberon, the Spouses
Garana did not entirely act in good faith when they bought the land from Jalbuena. A thorough examination of
TCT No. T-72029 reveals that even before the heirs of Manuel Uy sought the registration of their notice of lis
pendens on October 6, 1993, they already annotated on August 16, 1993, an adverse claim over the same title

through their representative, Belen Uy. However, this inscription was later (on October 4, 1994) cancelled through
an affidavit executed by one Bienaflor C. Umali.

In Casimiro Development Corporation v. Mateo, the Court held that the presence of anything that excites or arouses
suspicion should prompt the vendee to look beyond the certificate and to investigate the title of the vendor
appearing on the face of said certificate. To our mind, the mere fact that a different person (Bienaflor C. Umali)
sought the cancellation of Belen Uy's adverse claim on Jalbuena's property should have triggered the Spouses
Garana's suspicion regarding the real condition of the land covered by TCT No. T-72029. More importantly, before
buying the property, the Spouses Garana already knew of Belen Uy's annotation of an adverse claim on TCT No. T72029 on August 16, 1993. The Spouses Garana did not rebut the petitioner's allegation that upon knowing that this
first annotation was cancelled by Bienaflor C. Umali on October 4, 1994, they immediately proceeded with their
purchase of the subject land from Jalbuena a month after, or on November 7, 1994. They did not even bother to
check further with Jalbuena, or inquire from Belen Uy, knowing well that it was not she who caused the cancellation
of her adverse claim.

These circumstances dispute the Spouses Garana's assertion that they were totally unaware of any claim that the
heirs of Manuel Uy had over the subject land. The existing circumstances before their purchase should have
compelled them to check beyond the four corners of TCT No. T-72029. Their failure to do so negated their claim that
they were innocent purchasers for value. The same is true with BPI which should have exercised a higher degree of
diligence when it dealt with TCT No. T-77739 and its antecedent title, TCT No. T-72029. If BPI had conducted proper
due diligence, it would have discovered that Belen Uy's adverse claim was cancelled by a different person. This is an
irregularity that it should have easily noticed since under Section 70 of PD No. 1529, an adverse claim may only be
cancelled at the instance of the trial court or the claimant. As a banking institution, BPI is expected to exert a higher
degree of diligence, care, and prudence than ordinary individuals in handling its real estate transactions.

In these lights, the Court rules that the notice of lis pendens of the heirs of Manuel Uy should be annotated on
TCT No. T-77739 to uphold their registered right to subject the disputed land to the result of their pending litigation,
and to make the entry in RD Lucena's primary entry book consistent with the inscription on TCT No. T-77739 (which
was only derived from TCT No. T-72029). The recording of the notice of lis pendens in RD Lucena's primary entry
book amounted to a valid registration; thus notice was thereby served to all persons, including the Spouses Garana
and BPI. In addition, the Court notes that the Spouses Garana and BPI should not be allowed to raise the defense of
the doctrine of indefeasibility of title as they did not act in good faith. They disregarded glaring facts and
circumstances that should have prompted them to inquire beyond the four corners of TCT No. T-72029.

As a final note, the Court reminds the various Registers of Deeds, as well as their officers and employees, to strictly
and faithfully observe prudence and conscientiousness in the conduct of their duties. The integrity of the Torrens
System is partly dependent on the men and women whose primary function is to ensure the strict application of our
various registration laws. A dependable and reliable registration system that protects land property ownerships can
only be achieved if those involved in the registration process would faithfully and diligently perform their respective
roles.

195 Tajanglangit v Southern Motors, 54 O.G. No. 8, p. 2582

"Our law" provides,
ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void. (New Civil Code.)

Appellants would invoke the last paragraph. But there has been no foreclosure of the chattel mortgage nor a
foreclosure sale. Therefore the prohibition against further collection does not apply.

At any rate it is the actual sale of the mortgaged chattel in accordance with section 14 Act No. 1508 that would bar
the creditor (who chooses to foreclose) from recovering any unpaid balance. (Pacific Com. Co.vs. De la Rama, 72 Phil.
380.) (Manila Motor Co. vs. Fernandez, 99 Phil., 782.).

10
It is true that there was a chattel mortgage on the goods sold. But the Southern Motors elected to sue on the note
exclusively, i.e. to exact fulfillment of the obligation to pay. It had a right to select among the three remedies
established in Article 1484. In choosing to sue on the note, it was not thereby limited to the proceeds of the sale, on
execution, of the mortgaged good.2

In Southern Motors Inc. vs. Magbanua, (100 Phil., 155) a similar situation arose in connection with the purchase on
installment of a Chevrolet truck by Magbanua. Upon the latter's default, suit on the note was filed, and the truck
levied on together with other properties of the debtor. Contending that the seller was limited to the truck, the debtor
obtained a discharge of the other properties. This court said:

By praying that the defendant be ordered to pay the sum of P4,690 together with the stipulated interest at 12% per
annum from 17 March 1954 until fully paid, plus 10 per cent of the total amount due as attorney's fees and cost of
collection, the plaintiff acted to exact the fulfillment of the obligation and not to foreclosethe mortgage on the truck. .
. .

As the plaintiff has chosen to exact the fulfillment of the defendant's obligation, the former may enforce execution of
the judgement rendered in its favor on the personal and real properties of the latter not exempt from execution
sufficient to satisfy the judgment. That part of the judgement depriving the plaintiff of its right to enforce judgment
against the properties of the defendant except the mortgaged truck and discharging the writ of attachment on his
other properties is erroneous.

196 Filinvest v Phil. Acetylene, 111 SCRA 421 (1982)

The mere return of the mortgaged motor vehicle by the mortgagor, the herein appellant (PACI), to the mortgagee,
the herein appellee (Filinvest), does not constitute dation in payment or dacion en pago in the absence, express or
implied of the true intention of the parties. Dacion en pago, according to Manresa, is the transmission of the
ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of obligation. In
dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as
equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale,
that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against
the debtor's debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or innovation to have the effect of totally extinguishing the
debt or obligation.

The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or at least intended,
that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual payment,
more specifically dation in payment or dacion en pago. The fact that the mortgaged motor vehicle was delivered to
him does not necessarily mean that ownership thereof, as juridically contemplated by dacion en pago, was
transferred from appellant to appellee. In the absence of clear consent of appellee to the proferred special mode of
payment, there can be no transfer of ownership of the mortgaged motor vehicle from appellant to appellee. If at all,
only transfer of possession of the mortgaged motor vehicle took place, for it is quite possible that appellee, as
mortgagee, merely wanted to secure possession to forestall the loss, destruction, fraudulent transfer of the vehicle to
third persons, or its being rendered valueless if left in the hands of the appellant.

A more solid basis of the true intention of the parties is furnished by the document executed by appellant captioned
"Voluntary Surrender with Special Power of Attorney To Sell." An examination of the language of the document
reveals that the possession of the mortgaged motor vehicle was voluntarily surrendered by the appellant to the
appellee authorizing the latter to look for a buyer and sell the vehicle in behalf of the appellant who retains
ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness, with the undertaking of the
appellant to pay the difference, if any, between the selling price and the mortgage obligation. With the stipulated
conditions as stated, the appellee, in essence was constituted as a mere agent to sell the motor vehicle which was
delivered to the appellee, not as its property, for if it were, he would have full power of disposition of the property,
not only to sell it as is the limited authority given him in the special power of attorney. Had appellee intended to
completely release appellant of its mortgage obligation, there would be no necessity of executing the document
captioned "Voluntary Surrender with Special Power of Attorney To Sell." Nowhere in the said document can We find

11
that the mere surrender of the mortgaged motor vehicle to the appellee extinguished appellant's obligation for the
unpaid price.

Under the law, the delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only
operate to extinguish appellant's liability if the appellee had actually caused the foreclosure sale of the mortgaged
property when it recovered possession thereof. It is worth noting that it is the fact of foreclosure and actual sale of
the mortgaged chattel that bar the recovery by the vendor of any balance of the purchaser's outstanding obligation
not satisfied by the sale. As held by this Court, if the vendor desisted, on his own initiative, from consummating the
auction sale, such desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still sue for
specific performance. This is exactly what happened in the instant case.

2. The Deed of Sale between Alexander Lim and appellant and the Deed of Assignment between Alexander Lim and
appellee are very clear on this point. There is a specific provision in the Deed of Sale that the seller Alexander Lim
warrants the sale of the motor vehicle to the buyer, the herein appellant, to be free from liens and encumbrances.
When appellee accepted the assignment of credit from the seller Alexander Lim, there is a specific agreement that
Lim continued to be bound by the warranties he had given to the buyer, the herein appellant, and that if it appears
subsequently that "there are such counterclaims, offsets or defenses that may be interposed by the debtor at the
time of the assignment, such counterclaims, offsets or defenses shall not prejudice the FILINVEST FINANCE
CORPORATION and I (Alexander Lim) further warrant and hold the said corporation free and harmless from any
such claims, offsets, or defenses that may be availed of."

It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since as earlier shown, the
ownership of the mortgaged property never left the mortgagor, the herein appellant, the burden of the unpaid taxes
should be borne by him, who, in any case, may not be said to be without remedy under the law, but definitely not
against appellee to whom were transferred only rights, title and interest, as such is the essence of assignment of
credit.

197 De La Cruz v Asian Consumer 214 SCRA 103

It is not disputed that the instant case is covered by the so-called "Recto Law", now Art. 1484 of the New Civil Code,
which provides:

"In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any
of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale,
should the vendees failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the vendees failure to pay cover two or more installments. In this case, he
shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void."

In this jurisdiction, the three (3) remedies provided for in the "Recto Law" are alternative and not cumulative; the
exercise of one would preclude the other remedies. Consequently, should the vendee-mortgagor default in the
payment of two or more of the agreed installments, the vendor-mortgagee has the option to avail of any of these
three (3) remedies: either to exact fulfillment of the obligation, to cancel the sale, or to foreclose the mortgage on the
purchased chattel, if one was constituted.

The records show that on 14 September 1984 ASIAN initiated a petition for extrajudicial foreclosure of the chattel
mortgage. But the sheriff failed to recover the motor vehicle from petitioners due to the refusal of the son of
petitioners Romulo and Delia de la Cruz to surrender it. It was not until 10 October 1984, or almost a month later
that petitioners delivered the unit to ASIAN.

It is thus clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not
pursue the foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever conducted.

"Under the law, the delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only
operate to extinguish appellants liability if the appellee had actually caused the foreclosure sale of the mortgaged
property when it recovered possession thereof (Northern Motors, Inc. v. Sapinoso, 33 SCRA 356 [1970]; Universal
Motors Corp. v. Dy Hian Tat, 28 SCRA 161 [1969]; Manila Motors Co., Inc. v. Fernandez, 99 Phil. 782 [1956]). It is
worth noting that it is the fact of foreclosure and actual sale of the mortgaged chattel that bar recovery by the vendor
12
of any balance of the purchasers outstanding obligation not satisfied by the sale (New Civil Code, par. 3, Article
1484). As held by this Court, if the vendor desisted, on his own initiative, from consummating the auction sale, such
desistance was a timely disavowal of the remedy of foreclosure, and the vendor can still sue for specific
performance"

Consequently, in the case before Us, there being no actual foreclosure of the mortgaged property, ASIAN is correct in
resorting to an ordinary action for collection of the unpaid balance of the purchase price.

198 Sanchez v Rigos, supra

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is not a "contract
to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so understood it, as indicated by the
caption, "Option to Purchase," given by them to said instrument. Under the provisions thereof, the defendant
"agreed, promised and committed" herself to sell the land therein described to the plaintiff for P1,510.00, but there
is nothing in the contract to indicate that her aforementioned agreement, promise and undertaking is supported by a
consideration "distinct from the price" stipulated for the sale of the land.

Relying upon Article 1354 of our Civil Code, the lower court presumed the existence of said consideration, and this
would seem to be the main factor that influenced its decision in plaintiff's favor. It should be noted, however, that:
(1) Article 1354 applies to contracts in general, whereas the second paragraph of Article 1479 refers to
"sales" in particular, and, more specifically, to "an accepted unilateral promise to buy or to sell." In other
words, Article 1479 is controlling in the case at bar.
(2) In order that said unilateral promise may be "binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be "supported by a consideration distinct from the
price." Accordingly, the promisee cannot compel the promisor to comply with the promise, unless the
former establishes the existence of said distinct consideration. In other words, the promisee has the burden
of proving such consideration. Plaintiff herein has not even alleged the existence thereof in his complaint.
(3) Upon the other hand, defendant explicitly averred in her answer, and pleaded as a special defense, the
absence of said consideration for her promise to sell and, by joining in the petition for a judgment on the
pleadings, plaintiff has impliedly admitted the truth of said averment in defendant's answer. Indeed as early
as March 14, 1908, it had been held, in Bauermann v. Casas, that:
One who prays for judgment on the pleadings without offering proof as to the truth of his own allegations,
and without giving the opposing party an opportunity to introduce evidence, must be understood to admit
the truth of all the material and relevant allegations of the opposing party, and to rest his motion for
judgment on those allegations taken together with such of his own as are admitted in the pleadings. (La
Yebana Company vs. Sevilla, 9 Phil. 210). (Emphasis supplied.)

On the other hand, Appellee contends that, even granting that the "offer of option" is not supported by any
consideration, that option became binding on appellant when the appellee gave notice to it of its acceptance, and
that having accepted it within the period of option, the offer can no longer be withdrawn and in any event such
withdrawal is ineffective. In support this contention, appellee invokes article 1324 of the Civil Code which provides:
"ART. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn
any time before acceptance by communicating such withdrawal, except when the option is founded upon
consideration as something paid or promised."

There is no question that under article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell,"
as used in said article, to be valid must be "supported by a consideration distinct from the price." This is clearly
inferred from the context of said article that a unilateral promise to buy or to sell, even if accepted, is only binding if
supported by consideration. In other words, "an accepted unilateral promise can only have a binding effect if
supported by a consideration which means that the option can still be withdrawn, even if accepted, if the same is not
supported by any consideration. It is not disputed that the option is without consideration. It can therefore be
withdrawn notwithstanding the acceptance of it by appellee.

It is true that under article 1324 of the new Civil Code, the general rule regarding offer and acceptance is that, when
the offerer gives to the offeree a certain period to accept, "the offer may be withdrawn at any time before
acceptance" except when the option is founded upon consideration, but this general rule must be interpreted as
modified by the provision of article 1479 above referred to, which applies to "a promise to buy and sell" specifically.

13
As already stated, this rule requires that a promise to sell to be valid must be supported by a consideration distinct
from the price.

In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by
his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of sale.

199 Eulogio v Apeles, 576 SCRA 561

An option is a contract by which the owner of the property agrees with another person that the latter shall have the
right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which
the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a
certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the
property the right to sell or demand a sale.22 An option is not of itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the
property agrees with another person that he shall have the right to buy his property at a fixed price within a certain
time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege
to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the consideration for the offer.

It is also sometimes called an "unaccepted offer" and is sanctioned by Article 1479 of the Civil Code: A promise to
buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to
buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an
option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate
and distinct consideration that supports it.

In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and Pacific Co., we declared that
for an option contract to bind the promissor, it must be supported by consideration: There is no question that under
Article 1479 of the new Civil Code "an option to sell," or "a promise to buy or to sell," as used in said article, to be
valid must be "supported by a consideration distinct from the price." This is clearly inferred from the context of said
article that a unilateral promise to buy or to sell, even if accepted, is only binding if supported by a consideration. In
other words, "an accepted unilateral promise" can only have a binding effect if supported by a consideration, which
means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration.
Here it is not disputed that the option is without consideration. It can therefore be withdrawn notwithstanding the
acceptance made of it by appellee.

The doctrine requiring the payment of consideration in an option contract enunciated in Southwestern Sugar is
resonated in subsequent cases and remains controlling to this day. Without consideration that is separate and
distinct from the purchase price, an option contract cannot be enforced; that holds true even if the unilateral
promise is already accepted by the optionee.

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

We have painstakingly examined the Contract of Lease with Option to Purchase, as well as the pleadings submitted
by the parties, and their testimonies in open court, for any direct evidence or evidence aliunde to prove the existence
of consideration for the option contract, but we have found none. The only consideration agreed upon by the parties
in the said Contract is the supposed purchase price for the subject property in the amount not exceeding P1.5
Million, which could not be deemed to be the same consideration for the option contract since the law and
jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a consideration
separate and distinct from the price.

14
In Bible Baptist Church v. Court of Appeals, we stressed that an option contract needs to be supported by a separate
consideration. The consideration need not be monetary but could consist of other things or undertakings. However,
if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of
the option contract. Furthermore, when a consideration for an option contract is not monetary, said consideration
must be clearly specified as such in the option contract or clause. In the present case, it is indubitable that no
consideration was given by Enrico to the spouses Apeles for the option contract. The absence of monetary or any
material consideration keeps this Court from enforcing the rights of the parties under said option contract.

200 Tuazon v del-Rosario-Suarez, G.R. 168325, December 3, 2010

In a situation where the lessor makes an offer to sell to the lessee a certain property at a fixed price within a certain
period, and the lessee fails to accept the offer or to purchase on time, then the lessee loses his right to buy the
property and the owner can validly offer it to another

A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is
accepted. Acceptance is the act that gives life to a juridical obligation, because, before the promise is accepted, the
promissor may withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy is created,
and the offeree ipso facto assumes the obligations of a purchaser; the offeror, on the other hand, would be liable for
damages if he fails to deliver the thing he had offered for sale. Even if the promise was accepted, absent of a distinct
consideration, the offeror is not bound to the offeree.

This case involves an option contract and not a contract of a right of first refusal. 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. 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.

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.

An option contract is entirely different and distinct from a right of first refusal in that in the former, the option
granted to the offeree is for a fixed period and at a determined price. Lacking these two essential requisites, what is
involved is only a right of first refusal.

It is clear from the provision of Article 1324 that there is a great difference between the effect of an option which is
without a consideration from one which is founded upon a consideration. If the option is without any consideration,
the offeror may withdraw his offer by communicating such withdrawal to the offeree at anytime before acceptance;
if it is founded upon a consideration, the offeror cannot withdraw his offer before the lapse of the period agreed
upon. The second paragraph of Article 1479 declares that an accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price.

In this case, it is undisputed that Roberto did not accept the terms stated in the letter of Lourdesas he negotiated for
a much lower price. Robertos act of negotiating for a much lower price was a counter-offer and is therefore not an
acceptance of the offer ofLourdes. Article 1319 of the Civil Code provides: Consentis manifested by the meeting of
the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be
certain and the acceptance absolute. A Qualified Acceptance Constitutes A counter-offer.

15

The counter-offer of Roberto for a much lower price was not accepted by Lourdes. There is therefore no contract
that was perfected between them with regard to the sale of subject property. Roberto, thus, does not have any right
to demand that the property be sold to him at the price for which it was sold to the De Leons neither does he have
the right to demand that said sale to the De Leons be annulled.

Moreover, even if Roberto accepted the offer of Lourdes, still the former is not bound thereby because of the absence
of a consideration distinct and separate from the price. The argument of Roberto that the separate consideration
was the liberality on the part of Lourdes Cannot Stand. A perusal of the letter-offer of Lourdes would show that what
drove her to offer the property to Roberto was her immediate need for funds as she was already very old. Offering
the property to Roberto was not an act of liberality on the part of Lourdes but was a simple matter of convenience
and practicality as he was the one most likely to buy the property at that time as he was then leasing the same.

201 PUP v Golden Horizon, 615 SCRA 478 (2010)

right to buy the formers property at a fixed price within a certain time. It is a condition offered or contract by which
property the right to sell or demand a sale. It binds the party, who has given the option, not to enter into the
principal contract with any other person during the period designated, and, within that period, to enter into such
contract with the one to whom the option was granted, if the latter should decide to use the option.

Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property, but of the first priority
to buy the property in the event the owner sells the same. As distinguished from an option contract, in a right of first
refusal, while the object might be made determinate, the exercise of the right of first refusal would be dependent not
only on the owners eventual intention to enter into a binding juridical relation with another but also on terms,
including the price, that are yet to be firmed up.

As the option to purchase clause in the second lease contract has no definite period within which the leased
premises will be offered for sale to respondent lessee and the price is made subject to negotiation and determined
only at the time the option to buy is exercised, it is obviously a mere right of refusal, usually inserted in lease
contracts to give the lessee the first crack to buy the property in case the lessor decides to sell the same.

When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not to sell the leased
property to anyone at any price until after the lessor has made an offer to sell the property to the lessee and the
lessee has failed to accept it. Only after the lessee has failed to exercise his right of first priority could the lessor sell
the property to other buyers under the same terms and conditions offered to the lessee, or under terms and
conditions more favorable to the lessor.

We have categorically ruled that it is not correct to say that there is no consideration for the grant of the right of first
refusal if such grant is embodied in the same contract of lease. Since the stipulation forms part of the entire lease
contract, the consideration for the lease includes the consideration for the grant of the right of first refusal. In
entering into the contract, the lessee 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, the lessee shall be given
the right to match the offered purchase price and to buy the property at that price.

202 Archbishop Capalla v COMELEC, 2011

right to buy the former's property at a fixed price within a certain time. It is a condition offered or contract by which
property the right to sell or demand a sale. An option is not of itself a purchase, but merely secures the privilege to
buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of the
property agrees with another person that he shall have the right to buy his property at a fixed price within a certain
time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege
to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding
obligation on the person holding the option, aside from the consideration for the offer.
16

An option is only a preparatory contract and a continuing offer to enter into a principal contract. Under the set-up,
the owner of the property, which is Smartmatic-TIM, gives the optionee, which is the Comelec, the right to accept the
formers offer to purchase the goods listed in the contract for a specified amount, and within a specified period. Thus,
the Comelec is given the right to decide whether or not it wants to purchase the subject goods. It is, therefore,
uncertain whether or not the principal contract would be entered into. The owner of the property would then have
to wait for the optionee to make a decision. A longer option period would mean that more time would be given to the
optionee to consider circumstances affecting its decision whether to purchase the goods or not. On the part of
Smartmatic-TIM, it would have to wait for a longer period to determine whether the subject goods will be sold to the
Comelec or not, instead of freely selling or leasing them to other persons or governments possibly at a higher price.
This is especially true in this case as the terms and conditions for the exercise of the option including the purchase
price, had been included in the AES contract previously bidded upon. The parties are bound to observe the
limitations embodied therein, otherwise, a new public bidding would be needed.

We agree with respondents that the exercise of the option is more advantageous to the Comelec, because the
P7,191,484,739.48 rentals paid for the lease of goods and purchase of services under the AES contract was
considered part of the purchase price. For the Comelec to own the subject goods, it was required to pay only
P2,130,635,048.15. If the Comelec did not exercise the option, the rentals already paid would just be one of the
government expenses for the past election and would be of no use to future elections. Assuming that the exercise of
the option is nullified, the Comelec would again conduct another public bidding for the AES for the 2013 elections
with its available budget of P7 billion. Considering that the said amount is the available fund for the whole election
process, the amount for the purchase or lease of new AES will definitely be less than P7 billion. Moreover, it is
possible that Smartmatic-TIM would participate in the public bidding and could win at a possibly higher price. The
Comelec might end up acquiring the same PCOS machines but now at a higher price.

203 Litonjua vs CA

Violation of right of first refusal renders the contract of sale rescissible.

Re: Validity and enforceability of stipulation granting the mortgagee the right of first refusal
Par. 9 grants upon L & R Corporation the right of first refusal over the mortgaged property in the event the
mortgagor decides to sell the same. The right of first refusal has long been recognized as valid in our jurisdiction.
The consideration for the loan-mortgage includes the consideration for the right of first refusal. L & R Corporation is
in effect stating that it consents to lend out money to the spouses Litonjua provided that in case they decide to sell
the property mortgaged to it, then L & R Corporation shall be given the right to match the offered purchase price and
to buy the property at that price. Thus, while the spouses Litonjua had every right to sell their mortgaged property
to PWHAS without securing the prior written consent of L & R Corporation, they had the obligation under paragraph
9, which is a perfectly valid provision, to notify the latter of their intention to sell the property and give it priority
over other buyers. It is only upon failure of L & R Corporation to exercise its right of first refusal could the spouses
Litonjua validly sell the subject properties to others, under the same terms and conditions offered to L & R
Corporation.

Re: Status of the sale made to PWHAS in violation of L & R Corporation's contractual right of first refusal
The sale made to PWHAS is rescissible.
Guzman, Bocaling & Co. v. Bonnevie: The respondent court correctly held that the Contract of Sale was not voidable
but rescissible. Under Article 1380 to 1381(3) of the Civil Code, a contract otherwise valid may nonetheless be
subsequently rescinded by reason of injury to third persons, like creditors. The status of creditors could be validly
accorded by the Bonnevies for they had substantial interest that were prejudiced by the sale of the subject property
to the Contract of Lease.
Tolentino: Rescission is a remedy granted by law to the contracting parties and even to third persons, to secure
reparation for damages caused to them by a contract, even if this should be valid, by means of the restoration of
things to their condition at the moment prior to the celebration of said contract. It is a relief allowed for one of the
contracting parties and even third persons from all injury and damage the contract may cause, or to protect some
incompatible and preferential right created by the contract. Rescission implies a contract which, even if initially
valid, produces a lesion or pecuniary damage to someone that justifies its invalidation for reasons of equity.
It was then held that the Contract of Sale there, which violated the right of first refusal, was rescissible.


17
In the case at bar, PWHAS cannot claim ignorance of the right of first refusal granted to L & R Corporation over the
subject properties since the Deed of Real Estate Mortgage containing such a provision was duly registered with the
Register of Deeds. As such, PWHAS is presumed to have been notified thereof by registration, which equates to
notice to the whole world.

204 Ang Yu vs CA

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. Where a period is given to the offeree within which to
accept the offer, the following rules generally govern:

If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to
withdraw 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 which
ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice,
give everyone his due, and observe honesty and good faith."

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 optionee-offeree, 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 evidence its perfection (Art. 1482, Civil Code).

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.

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... The final judgment in Civil Case No. 87-41058, it must be
stressed, has merely accorded a "right of first refusal" in favor of petitioners... 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

205 Equatorial v Mayfair, 264 SCRA 483 (1996)

Note: This case modified Ang Yu vs CA case. In Ang Yu, right of first refusal daw can be withdrawn anytime and does
not affect the subsequent contract of sale since there is no consideration separate and distinct from contract of sale.
However, in this case, yung right of first refusal embedded in the contract of lease e may consideration daw which is
the payment of contract of lease itself na, so violation of such renders the subsequent contract of sale rescissible.

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.
18

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 in effectual 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 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.

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. As to the remedy to enforce
Mayfair's right, the Court disagrees to a certain extent with the concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion vs.Court of Appeals should be modified, if not amplified under
the peculiar facts of this case.

Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set aside or
rescinded. All of these matters are now before us and so there should be no piecemeal determination of this case and
leave festering sores to deteriorate into endless litigation. 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.

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. The
latter remedy encourages multiplicity of suits. 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. This juridical relation is not amorphous nor is it merely preparatory. Paragraphs 8 of the two leases can be
executed according to their terms.

206 Paranaque King v CA, 268 SCRA 727 (1997)

In right of first refusal, only after the grantee fails to exercise its right of first priority under the same terms and
within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the
same terms as offered to the grantee.

This principle was reiterated in the very recent case of Equatorial Realty vs. Mayfair Theater, Inc. which was decided
en banc. This Court upheld the right of first refusal of the lessee Mayfair, and rescinded the sale of the property by
the lessor Carmelo to Equatorial Realty considering that Mayfair, which had substantial interest over the subject
property, was prejudiced by its sale to Equatorial without Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period.

Note: One of such rights included in the contract of lease and, therefore, in the assignments of rights was the lessees
right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned
lease contract. The deed of assignment need not be very specific as to which rights and obligations were passed on

19
to the assignee. It is understood in the general provision aforequoted that all specific rights and obligations
contained in the contract of lease are those referred to as being assigned. Needless to state, respondent Santos gave
her unqualified conformity to both assignments of rights.

207 Cifra v CA, 198 SCRA 91

Earnest money in conditional sale.

Under the addendum to the agreement, both parties are given the freedom to back out of the transaction provided
that, in tie case of the seller, he must return the earnest money in addition to being liable to the buyer for
P20,000.00, plus attorney's fees and other costs in case of litigation; and in case of the buyer, the earnest money is
forfeited, and he is liable to pay the seller P20,000.00 in damages plus attorneys fees and other costs in case of
litigation to the seller. This right which is afforded to both parties may be availed of by them, irrespective of whether
or not the occupant of the premises had vacated the same. This stipulation is the law between the parties.

Consequently, the action for specific performance must fail. For the rescission of the contract, petitioners must
return the P5,000.00 earnest money and pay P20,000.00 to the private respondent. However, they are not liable for
attorneys fees, for it was private respondent who brought the case to court as a result of which petitioners
unnecessarily incurred expenses of litigation.

208 Serrano v Caguiat, 517 SCRA 57

Earnest money in contract to sell.

It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a contract of sale, it
shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of
earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest
money forms part of the consideration only if the sale is consummated upon full payment of the purchase price.
Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does
not apply.

In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties is a contract to sell,
ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the
purchase price. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of
the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally
the contract the moment respondent fails to pay within the fixed period.

209 First Optima Realty Corporation vs. Securitron Security Services, Inc., G.R. No. 199648, January 28, 2015

There was a perfected contract of sale between the parties.

First. The letter of the plaintiff-appellee dated February 4, 2005 reiterating their agreement as to the sale of the
realty for the consideration of Php 1,536,000.00 was not disputed nor replied to by the defendant-appellant, the said
letter also provides for the payment of the earnest money of Php 100,000.00 and the full payment upon the clearing
of the property of unwanted tenants, if the defendant-appellant did not really agree on the sale of the property it
could have easily replied to the said letter informing the plaintiff-appellee that it is not selling the property or that
the matter will be decided first by the board of directors, defendant-appellants silence or inaction on said letter
shows its conformity or consent thereto;

Second. In addition to the aforementioned letter, defendant-appellants acceptance of the earnest money and the
issuance of a provisional receipt clearly shows that there was indeed an agreement between the parties and we do
not subscribe to the argument of the defendant-appellant that the check was merely forced upon its employee and
the contents of the receipt was just dictated by the plaintiff-appellees employee because common sense dictates that
a person would not issue a receipt for a check with a huge amount if she does not know what that is for and similarly
would not issue [a] receipt which would bind her employer if she does not have prior instructions to do [so] from
her superiors;

Third. The said check for earnest money was deposited in the bank by defendant-appellant and not until after one
year did it offer to return the same. Defendant-appellant cannot claim lack of knowledge of the payment of the check
20
since there was a letter for it, and it is just incredible that a big amount of money was deposited in [its] account
[without knowing] about it [or] investigat[ing] what [it was] for. We are more inclined to believe that their inaction
for more than one year on the earnest money paid was due to the fact that after the payment of earnest money the
place should be cleared of unwanted tenants before the full amount of the purchase price will be paid as agreed
upon as shown in the letter sent by the plaintiff-appellee.

As stated above the presence of defendant-appellants consent and, corollarily, the existence of a perfected contract
between the parties are evidenced by the payment and receipt of Php 100,000.00 as earnest money by the
contracting parties x x x. Under the law on sales, specifically Article 1482 of the Civil Code, it provides that whenever
earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of
the contract. Although the presumption is not conclusive, as the parties may treat the earnest money differently,
there is nothing alleged in the present case that would give rise to a contrary presumption.

210 Arches v Diaz, April 30, 1973

In the case of Correa vs. Mateo and Icasiano, wherein an unrecorded pacto de retro sale was construed as an
equitable mortgage, it was ruled that the plaintiff had the right "within sixty days after final judgment, for a failure to
pay the amount due and owing him, to foreclose his mortgage in a proper proceeding and sell all or any part of the
ten parcels of land to satisfy his debt." In effect, this Court recognized the right of the plaintiff to enforce his lien in a
separate proceeding notwithstanding the fact that he had failed to obtain judgment declaring him the sole and
absolute owner of the parcels of land in question.

The law abhors injustice. It would be unjust in this case to allow the defendant to escape payment of his debt and,
worse still, to rationalize such a result by his very claim that he is a debtor and not, as the plaintiff says, a vendor of
property in favor of the latter. Strictly speaking, where the petition of the vendee in a pacto de retro sale is for a
judicial order pursuant to Article 1607 of the Civil Code, so that consolidation of ownership by virtue of the failure of
the vendor to redeem may be recorded in the Registry of Property, the right of action to foreclose the mortgage or to
collect the indebtedness arises from the judgment of the court declaring the contract as equitable mortgage.

211 Rockville v Miranda, Oct. 2, 2009

An equitable mortgage has been defined as one which although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as
security for a debt, there being no impossibility nor anything contrary to law in this intent.
4. A contract of sale is presumed to be an equitable mortgage when any of the following circumstances is present:
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise
shall be considered as interest which shall be subject to the usury laws.

For the presumption of an equitable mortgage to arise under Article 1602, two requisites must concur: (a) that the
parties entered into a contract denominated as a contract of sale; and, (b) that their intention was to secure an
existing debt by way of a mortgage.

Any of the circumstances laid out in Article 1602, not the concurrence nor an overwhelming number of the
enumerated circumstances, is sufficient to support the conclusion that a contract of sale is in fact an equitable
mortgage. In several cases, we have not hesitated to declare a purported contract of sale to be an equitable mortgage
based solely on one of the enumerated circumstances under Article 1602. This approach follows the rule that when
doubt exists on the nature of the parties transaction, the law favors the least transmission of property rights.


21
That a contract where the vendor remains in physical possession of the land, as lessee or otherwise, is an equitable
mortgage is well-settled. The reason for this rule lies in the legal reality that in a contract of sale, the legal title to the
property is immediately transferred to the vendee; retention by the vendor of the possession of the property is
inconsistent with the vendees acquisition of ownership under a true sale. It discloses, in the alleged vendee, a lack of
interest in the property that belies the truthfulness of the sale.

212 Macaslang v Zamora, May 30, 2011

Submissions of the MACASLANG further supported the findings of the RTC on the equitable mortgage. Firstly, there
was the earlier dated instrument (deed of pacto de retro) involving the same property, albeit the consideration was
only P480,000.00, executed between the petitioner as vendor a retro and the respondent Renato Zamora as vendee a
retro. Secondly, there were two receipts for the payments the petitioner had made to the respondents totaling
P300,000.00. And, thirdly, the former secretary of respondent Melba Zamora executed an affidavit acknowledging
that the petitioner had already paid a total of P500,000.00 to the respondents. All these confirmed the petitioner's
claim that she remained the owner of the property and was still entitled to its possession.

Article 1602 of the Civil Code enumerates the instances when a contract, regardless of its nomenclature, may be
presumed to be an equitable mortgage, namely: (a) When the price of a sale with right to repurchase is unusually
inadequate; (b) When the vendor remains in possession as lessee or otherwise; (c) When upon or after the
expiration of the right to repurchase another instrument extending the period of redemption or granting a new
period is executed; (d) When the purchaser retains for himself a part of the purchase price; (e) When the vendor
binds himself to pay the taxes on the thing sold; and, (f) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other
obligation.

The circumstances earlier mentioned were, indeed, badges of an equitable mortgage within the context of Article
1602 of the Civil Code. Nonetheless, the findings favorable to the petitioner's ownership are neither finally
determinative of the title in the property, nor conclusive in any other proceeding where ownership of the property
involved herein may be more fittingly adjudicated.

213 Aludos v Suerte, June 18, 2012

The Nature of the Agreement between the Parties. Lomises questions the nature of the agreement between him and
Johnny, insisting that it was a contract of loan, not an assignment of leasehold rights and sale of improvements. In
other words, what existed was an equitable mortgage, as contemplated in Article 1602, in relation with Article 1604,
of the Civil Code. "An equitable mortgage has been defined as one which although lacking in some formality, or form
or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real
property as security for a debt, there being no impossibility nor anything contrary to law in this intent."

214 Garcia v Villar, G.R. No. 158891, June 27, 2012

The mere fact that the purchaser of an immovable has notice that the acquired realty is encumbered with a mortgage
does not render him liable for the payment of the debt guaranteed by the mortgage, in the absence of stipulation or
condition that he is to assume payment of the mortgage debt. The reason is plain: the mortgage is merely an
encumbrance on the property, entitling the mortgagee to have the property foreclosed, i.e., sold, in case the principal
obligor does not pay the mortgage debt, and apply the proceeds of the sale to the satisfaction of his credit. Mortgage
is merely an accessory undertaking for the convenience and security of the mortgage creditor, and exists
independently of the obligation to pay the debt secured by it. The mortgagee, if he is so minded, can waive the
mortgage security and proceed to collect the principal debt by personal action against the original mortgagor.

215 Sps. Torda vs. Sps. Jaque, G.R. No. 199852, November 12, 2014

it is a rule that when doubt exists as to the true nature of the parties transaction, courts must construe such
transaction purporting to be a sale as an equitable mortgage, as the latter involves a lesser transmission of rights
and interests over the property in controversy. In view thereof, the transfer of ownership of Lot 4098 to the Jacques
was invalidated. To do so would amount to condoning the prohibited practice of pactum comissorium. Article 2088
of the Civil Code clearly provides that a creditor cannot appropriate or consolidate ownership over a mortgaged
property merely upon failure of the mortgagor to pay a debt obligation.

22
216 Heirs of Soliva vs. Soliva, G.R. No. 159611, April 22, 2015

For the presumption of an equitable mortgage to arise under any of the circumstances enumerated in Article 1602,
however, two requisites must concur: (a) that the parties entered into a contract denominated as a contract of sale;
and (b) that their intention was to secure an existing debt by way of mortgage.

217 Dir. v Ababa, February 27, 1979

Petitioners contend that a contract for a contingent fee violates Article 1491 because it involves an assignment of a
property subject of litigation. That article provides: Article 1491. The following persons cannot acquire by purchase
even at a public or judicial auction, either in person or through the petition of another. Justices, judges, prosecuting
attorneys, clerks of superior and inferior and other o and employees connected with the administration of justice,
the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and
shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they
may take part by virtue of their profession.

This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his
client, of property which is the subject of litigation. As WE have already stated. "The prohibition in said article a only
to applies stated: " The prohibition in said article applies only to a sale or assignment to the lawyer by his client of
the property which is the subject of litigation. In other words, for the prohibition to operate, the sale or t of the
property must take place during the pendency of the litigation involving the property"

Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the
lawyer accepts on account of his fee, an interest the assets realized by the litigation". "There is a clear distraction
between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed".

A contract for a contingent fee is not covered by Article 1491 because the tranfer or assignment of the property in
litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty.
Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in
question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer
or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers. Therefore, the
tranfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the
pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not
covered by Article 1491.

218 Laig v CA, November 21, 1978

Attorneys are only prohibited from buying their clients' property which is the subject of litigation.

Article 1491. The following persons cannot acquire by purchase, even at a public or judicial action, either in person
or through the mediation of another:
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts and other officers and
employees connected with the administration of justice, the property and rights in litigation or levied upon
an execution before the court within whose jurisdiction or territory they exercise their respective functions;
this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the
property and right which may be the object of any litigation in which they may take part by virtue of their
profession.

219 Sarili v. Lagrosa, G.R. No. 193517, January 15, 2014

The strength of the buyers inquiry on the sellers capacity or legal authority to sell depends on the proof of capacity
of the seller. If the proof of capacity consists of a special power of attorney duly notarized, mere inspection of the
face of such public document already constitutes sufficient inquiry. If no such special power of attorney is provided
or there is one but there appears to be flaws in its notarial acknowledgment, mere inspection of the document will
not do; the buyer must show that his investigation went beyond the document and into the circumstances of its
execution.


23
In the present case, it is undisputed that Sps. Sarili purchased the subject property from Ramos on the strength of
the latters ostensible authority to sell under the subject SPA. The said document, however, readily indicates flaws in
its notarial acknowledgment since the respondents community tax certificate (CTC) number was not indicated
thereon. Under the governing rule on notarial acknowledgments at that time, i.e., Section 163(a) of Republic Act No.
7160, otherwise known as the "Local Government Code of 1991," when an individual subject to the community tax
acknowledges any document before a notary public, it shall be the duty of the administering officer to require such
individual to exhibit the community tax certificate. Despite this irregularity, however, Sps. Sarili failed to show that
they conducted an investigation beyond the subject SPA and into the circumstances of its execution as required by
prevailing jurisprudence. Hence, Sps. Sarili cannot be considered as innocent purchasers for value.

3. The defective notarization of the subject SPA also means that the said document should be treated as a private
document and thus examined under the parameters of Section 20, Rule 132 of the Rules of Court which provides that
"before any private document offered as authentic is received in evidence, its due execution and authenticity must
be proved either: (a) by anyone who saw the document executed or written; or (b) by evidence of the genuineness of
the signature or handwriting of the maker x x x." Settled is the rule that a defective notarization will strip the
document of its public character and reduce it to a private instrument, and the evidentiary standard of its validity
shall be based on preponderance of evidence.

220 Butte v Uy, February 28, 1962

A co-owner of an undivided share is necessarily a co-owner of the whole. Wherefore, any one of the Ramirez heirs,
as such co-owner, became entitled to exercise the right of legal redemption (retracto de comuneros) as soon as
another co-owner (Maria Garnier Vda. de Ramirez) had sold her undivided share to a stranger, Manuel Uy & Sons,
Inc. This right of redemption vested exclusively in consideration of the redemptioner's share which the law nowhere
takes into account.

The situation is in no wise altered by the existence of a judicial administrator of the estate of Jose V. Ramirez while
under the Rules of Court the administrator has the right to the possession of the real and personal estate of the
deceased, so far as needed for the payment of the decedent's debts and the expenses of administration (sec. 3, Rule
85), and the administrator may bring or defend actions for the recovery or protection of the property or rights of the
deceased (sec. 2, Rule 88), such rights of possession and administration do not include the right of legal redemption
of the undivided share sold to Uy & Company by Mrs. Garnier Ramirez.

The reason is obvious: this right of legal redemption only came into existence when the sale to Uy & Sons, Inc. was
perfected, eight (8) years after the death of Jose V. Ramirez, and formed no part of his estate. The redemption right
vested in the heirs originally, in their individual capacity, they did not derivatively acquire it from their decedent, for
when Jose V. Ramirez died, none of the other co-owners of the Sta. Cruz property had as yet sold his undivided share
to a stranger. Hence, there was nothing to redeem and no right of redemption; and if the late Ramirez had no such
right at his death, he could not transmit it to his own heirs.

It is argued that the actual share of appellant Mrs. Butte in the estate of Jose V. Ramirez has not been specifically
determined as yet, that it is still contingent; and that the liquidation of estate of Jose V. Ramirez may require the
alienation of the decedent's undivided portion in the Sta. Cruz property, in which event Mrs. Butte would have no
interest in said undivided portion. Even if it were true, the fact would remain that so long as that undivided share
remains in the estate, the heirs of Jose V. Ramirez own it, as the deceased did own it before his demise, so that his
heirs are now as much co-owners of the Sta. Cruz property as Jose V. Ramirez was himself a co-owner thereof during
his lifetime.

As co-owners of the property, the heirs of Jose V. Ramirez, or any one of them, became personally vested with right
of legal redemption as soon as Mrs. Garnier sold her own pro-indiviso interest to Uy & Sons. Even if subsequently,
the undivided share of Ramirez (and of his heirs) should eventually be sold to satisfy the creditors of the estate, it
would not destroy their ownership of it before the sale, but would only convey or transfer it as in turn sold (of it
actually is sold) to pay his creditors. Hence, the right of any of the Ramirez heirs to redeem the Garnier share will not
be retroactively affected.

All that the law requires is that the legal redemptioner should be a co-owner at the time the undivided share of
another co-owner is sold to a stranger. Whether or not the redemptioner will continue being a co-owner after
exercising the legal redemptioner is irrelevant for the purposes of law.

24
221 Conejero v CA, April 29, 1966

Bona fide redemption necessarily imports a seasonable and valid tender of the entire repurchase price, and this was
not done. There is no cogent reason for requiring the vendee to accept payment by installments from a
redemptioner, as it would ultimately result in an indefinite extension of the 30-day redemption period, when the
purpose of the law in fixing a short and definite term is clearly to avoid prolonged and anti-economic uncertainty as
to ownership of the thing sold.

It is, likewise, argued that tender of the price is excused because Article 1620 of the new Civil Code allows the
redemptioner to pay only a reasonable price if the price of alienation is grossly excessive, and that the
reasonableness of the price to be paid can only be determined by the courts. We think that the right of a
redemptioner to pay a reasonable price under Article 1620 does not excuse him from the duty to make proper
tender of the price that can be honestly deemed reasonable under the circumstances, without prejudice to final
arbitration by the courts; nor does it authorize said redemptioner to demand that the vendee accept payment by
installments, as petitioners have sought to do. At any rate, the petitioners, in making their offer to redeem, never
contested the reasonableness of the price recited in the deed of sale. In fact, they even offered more, and were
willing to pay as much as P34,000.

It is not difficult to discern why the redemption price should either be fully offered in legal tender or else validly
consigned in court. Only by such means can the buyer become certain that the offer to redeem is one made seriously
and in good faith. A buyer can not be expected to entertain an offer of redemption without attendant evidence that
the redemptioner can, and is willing to accomplish the repurchase immediately. A different rule would leave the
buyer open to harassment by speculators or crackpots, as well as to unnecessary prolongation of the redemption
period, contrary to the policy of the law. While consignation of the tendered price is not always necessary because
legal redemption is not made to discharge a pre-existing debt (Asturias Sugar Central vs. Cane Molasses Co., 60 Phil.
253), a valid tender is indispensable, for the reasons already stated. Of course, consignation of the price would
remove all controversy as to the redemptioner's ability to pay at the proper time.1

222 Alonzo v CA, May 29, 1987 (supra, Family Relations)

In arriving at our conclusion today, we are deviating from the strict letter of the law, which the respondent court
understandably applied pursuant to existing jurisprudence. The said court acted properly as it had no competence to
reverse the doctrines laid down by this Court in the above-cited cases. In fact, and this should be clearly stressed, we
ourselves are not abandoning the De Conejero and Buttle doctrines. What we are doing simply is adopting an
exception to the general rule, in view of the peculiar circumstances of this case. The co-heirs in this case were
undeniably informed of the sales although no notice in writing was given them. And there is no doubt either that the
30-day period began and ended during the 14 years between the sales in question and the filing of the complaint for
redemption in 1977, without the co-heirs exercising their right of redemption. These are the justifications for this
exception.

223 Hojas v Amanah, G.R. No. 193453, June 5, 2013

The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do
so. The statement of intention must be accompanied by an actual and simultaneous tender of payment. This
constitutes the exercise of the right to repurchase.

In several cases decided by the Court where the right to repurchase was held to have been properly exercised, there
was an unequivocal tender of payment for the full amount of the repurchase price. Otherwise, the offer to redeem is
ineffectual. Bona fide redemption necessarily implies a reasonable and valid tender of the entire repurchase price,
otherwise the rule on the redemption period fixed by law can easily be circumvented.

Moreover, jurisprudence also characterizes a valid tender of payment as one where the full redemption price is
tendered. Consequently, in this case, the offer by respondents on July 24, 1986 to redeem the foreclosed properties
for 1,872,935 and the subsequent consignation in court of P1,500,000 on August 27, 1986, while made within the
period of redemption, was ineffective since the amount offered and actually consigned not only did not include the
interest but was in fact also way below the P2,782,554.66 paid by the highest bidder/purchaser of the properties
during the auction sale.

25

224 Tolosa v UCPB, G.R. No. 183058, April 3, 2013

Here, the period to redeem has already expired or when the ownership over the property had already been
consolidated in favor of the mortgagee-purchaser.47 Having consolidated its ownership over the subject properties
after the Spouses Tolosa failed to exercise their right of redemption, UCPB was correctly found by the CA entitled to
a writ of possession. Since any question regarding the validity of the mortgage or its foreclosure cannot be a legal
ground for refusing a writ of possession,48 the RTC's ministerial duty to issue the same writ was by no means
rendered discretionary by the pendency of Civil Case No. 6180.

225 Goldenway v PCIBank, March 13, 2013

The law governing cases of extrajudicial foreclosure of mortgage is Act No. 3135, as amended by Act No. 4118.
Section 6 thereof provides:
SEC. 6. In all cases in which an extrajudicial sale is made under the special power hereinbefore referred to, the
debtor, his successors-in-interest or any judicial creditor or judgment creditor of said debtor, or any person having a
lien on the property subsequent to the mortgage or deed of trust under which the property is sold, may redeem the
same at any time within the term of one year from and after the date of the sale; and such redemption shall be
governed by the provisions of sections four hundred and sixty-four to four hundred and sixty-six, inclusive, of the
Code of Civil Procedure, in so far as these are not inconsistent with the provisions of this Act.

The one-year period of redemption is counted from the date of the registration of the certificate of sale. In this case,
the parties provided in their real estate mortgage contract that upon petitioners default and the latters entire loan
obligation becoming due, respondent may immediately foreclose the mortgage judicially in accordance with the
Rules of Court, or extrajudicially in accordance with Act No. 3135, as amended.

However, Section 47 of R.A. No. 8791 otherwise known as "The General Banking Law of 2000" which took effect on
June 13, 2000, amended Act No. 3135. Said provision reads:
SECTION 47. Foreclosure of Real Estate Mortgage. In the event of foreclosure, whether judicially or
extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation
granted, the mortgagor or debtor whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real estate, to redeem the property by
paying the amount due under the mortgage deed, with interest thereon at the rate specified in the mortgage,
and all the costs and expenses incurred by the bank or institution from the sale and custody of said property
less the income derived therefrom. However, the purchaser at the auction sale concerned whether in a
judicial or extrajudicial foreclosure shall have the right to enter upon and take possession of such property
immediately after the date of the confirmation of the auction sale and administer the same in accordance
with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an
amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.

Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3)
months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to
the effectivity of this Act shall retain their redemption rights until their expiration. (Emphasis supplied.)
Under the new law, an exception is thus made in the case of juridical persons which are allowed to exercise the right
of redemption only "until, but not after, the registration of the certificate of foreclosure sale" and in no case more
than three (3) months after foreclosure, whichever comes first.

PETITIONER THUS CONTENDS, that Section 47 of R.A. No. 8791 is inapplicable considering that the contracting
parties expressly and categorically agreed that the foreclosure of the real estate mortgage shall be in accordance
with Act No. 3135, and applying Section 47 of R.A. No. 8791 to the present case would be a substantial impairment of
its vested right of redemption under the real estate mortgage contract. Such impairment would be violative of the
constitutional proscription against impairment of obligations of contract, a patent derogation of petitioners vested
right and clearly changes the intention of the contracting parties.

26
Petitioners contention that Section 47 of R.A. 8791 violates the constitutional proscription against impairment of
the obligation of contract has no basis.

The difference in the treatment of juridical persons and natural persons was based on the nature of the properties
foreclosed whether these are used as residence, for which the more liberal one-year redemption period is retained,
or used for industrial or commercial purposes, in which case a shorter term is deemed necessary to reduce the
period of uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of these acquired
assets. It must be underscored that the General Banking Law of 2000, crafted in the aftermath of the 1997 Southeast
Asian financial crisis, sought to reform the General Banking Act of 1949 by fashioning a legal framework for
maintaining a safe and sound banking system.28 In this context, the amendment introduced by Section 47 embodied
one of such safe and sound practices aimed at ensuring the solvency and liquidity of our banks.1wphi1 It cannot
therefore be disputed that the said provision amending the redemption period in Act 3135 was based on a
reasonable classification and germane to the purpose of the law.

This legitimate public interest pursued by the legislature further enfeebles petitioners impairment of contract
theory.

The right of redemption being statutory, it must be exercised in the manner prescribed by the statute, and within the
prescribed time limit, to make it effective. Furthermore, as with other individual rights to contract and to property, it
has to give way to police power exercised for public welfare. The concept of police power is well-established in this
jurisdiction. It has been defined as the "state authority to enact legislation that may interfere with personal liberty or
property in order to promote the general welfare." Its scope, ever-expanding to meet the exigencies of the times,
even to anticipate the future where it could be done, provides enough room for an efficient and flexible response to
conditions and circumstances thus assuming the greatest benefits.

226 David v David, G.R. No. 162365, January 15, 2014

A sale with right to repurchase is governed by Article 1601 of the Civil Code, which provides that: "Conventional
redemption shall take place when the vendor reserves the right to repurchase the thing sold, with the obligation to
comply with the provisions of Article 1616 and other stipulations which may have been agreed upon." Conformably
with Article 1616, the seller given the right to repurchase may exercise his right of redemption by paying the buyer:
(a) the price of the sale, (b) the expenses of the contract, (c) legitimate payments made by reason of the sale, and (d)
the necessary and useful expenses made on the thing sold.
A redemption within the period allowed by law is not a matter of intent but of payment or valid tender of the full
redemption price within the period. Verily, the tender of payment is the sellers manifestation of his desire to
repurchase the property with the offer of immediate performance [A] sincere tender of payment is sufficient to
show the exercise of the right to repurchase. Here, Eduardo paid the repurchase price to Roberto by depositing the
proceeds of the sale of the Baguio City lot in the latters account. Such payment was an effective exercise of the right
to repurchase.

In sales with the right to repurchase, the title and ownership of the property sold are immediately vested in the
vendee, subject to the resolutory condition of repurchase by the vendor within the stipulated period. Accordingly,
the ownership of the affected properties reverted to Eduardo once he complied with the condition for the
repurchase, thereby entitling him to the possession of the other motor vehicle with trailer.

227 CSCST vs. Misterio, G.R. No. 179025, June 17, 2015

In cases of conventional redemption when the vendor a retro reserves the right to repurchase the property sold, the
parties to the sale must observe the parameters set forth by Article 1606 of the New Civil Code, which states:
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four years
from the date of the contract. Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was
rendered in a civil action on the basis that the contract was a true sale with right to repurchase.

Thus, depending on whether the parties have agreed upon a specific period within which the vendor a retro may
exercise his right to repurchase, the property subject of the sale may be redeemed only within the limits prescribed
by the provision.

27

To repeat, Article 1606 expressly provides that in the absence of an agreement as to the period within which the
vendor a retro may exercise his right to repurchase, the same must be done within four (4) years from the execution
of the contract. In the event the contract specifies a period, the same cannot exceed ten (10) years.

The freedom to contract is not absolute. The contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.

228 De los Santos v CA, 2006

DE LOS SANTOS only paid 15 out of 60 amortization payments. Where less than two years of installments have been
made, Sec. 4 of RA 6552 grants the vendee a grace period of not less than 60 days from the date the installment
became due to pay the amortizations. If the vendee fails to pay at the end of the grace period, the vendor may cancel
the contract 30 days after the receipt by the vendee of the notice of cancellation. Contract also allows rescission
should vendee fail to pay within 60 days from due date.

229 Manuel Uy & Sons, Inc. vs. Valbueco, G.R. No. 179594, September 11, 2013

R.A. No. 6552 applies to contracts to sell. Under R.A. No. 6552, the right of the buyer to refund accrues only when he
has paid at least two years of installments.

As found by the Court of Appeals, the two conditional deeds of sale entered into by the parties are contracts to sell,
as they both contained a stipulation that ownership of the properties shall not pass to the vendee until after full
payment of the purchase price. In a conditional sale, as in a contract to sell, ownership remains with the vendor and
does not pass to the vendee until full payment of the purchase price. The full payment of the purchase price partakes
of a suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from arising. To
differentiate, a deed of sale is absolute when there is no stipulation in the contract that title to the property remains
with the seller until full payment of the purchase price.

Ramos v. Heruela held that Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale, while R.A. No.
6552 applies to contracts to sell.

The Court of Appeals correctly held that R.A. No. 6552, otherwise known as the Realty Installment Buyer Act, applies
to the subject contracts to sell. R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding
force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding
installments as follows:

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

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

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

28
Down payments, deposits or options on the contract shall be included in the computation of the total number of
installment payments made.

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

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

In this case, respondent has paid less than two years of installments; therefore, Section 4 of R.A. No. 6552 applies.

The Court of Appeals held that even if respondent defaulted in its full payment of the purchase price of the subject
lots, the conditional deeds of sale remain valid and subsisting, because there was no valid notice of notarial
rescission to respondent, as the notice was sent to the wrong address, that is, to Mahogany Products Corporation,
and it was received by a person employed by Mahogany Products Corporation and not the respondent. The Court of
Appeals stated that the allegation that Mahogany Products Corporation and respondent have the same President,
one Valeriano Bueno, is irrelevant and has not been actually proven or borne by evidence. The appellate court held
that there was insufficient proof that respondent actually received the notice of notarial rescission of the conditional
deeds of sale; hence, the unilateral rescission of the conditional deeds of sale cannot be given credence. However,
upon review of the records of this case, the Court finds that respondent had been served a notice of the notarial
rescission of the conditional deeds of sale when it was furnished with the petitioner's Answer to its first Complaint
filed with the RTC that was later dismissed without prejudice.

Under R.A. No. 6552, the right of the buyer to refund accrues only when he has paid at least two years of
installments. In this case, respondent has paid less than two years of installments; hence, it is not entitled to a
refund.

230 Sebastian vs. BPI Family Bank, G.R. No. 160107, October 22, 2014

The protection of Republic Act No. 6552 (Realty Installment Buyer Protection Act) does not cover a loan extended by
the employer to enable its employee to finance the purchase of a house and lot. The law protects only a buyer
acquiring the property by installment, not a borrower whose rights are governed by the terms of the loan from the
employer.

231 Tagaytay Realty v. Gacutan, G.R. No. 160033, July 01, 2015

The buyer is still liable to pay the installment price (which includes interest) even when the developer has failed to
complete the project on time. Such failure on the part of the developer does not relieve the buyer of his or her
obligation to pay interest. Although the developer is at fault for failing to complete the project as required by
Presidential Decree No. 957, such fault does not erase the the right of the developer especially when it had a valid
ground for non-continuance of the project.

Considering that the petitioner's unilateral suspension of the construction of the amenities was intended to save
itself from costs, its plea for relief from its contractual obligations was properly rejected because it would thereby
gain a position of advantage at the expense of the lot owners like the respondent. Its invocation of Article 1267 of the
Civil Code, which provides that "(w)hen the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom in whole or in part," was factually
unfounded. For Article 1267 to apply, the following conditions should concur, namely: (a) the event or change in
circumstances could not have been foreseen at the time of the execution of the contract; (b) it makes the
performance of the contract extremely difficult but not impossible; (c) it must not be due to the act of any of the
parties; and (d) the contract is for a future prestation. The requisites did not concur herein because the difficulty of
performance under Article 1267 of the Civil Code should be such that one party would be placed at a disadvantage
by the unforeseen event. Mere inconvenience, or unexepected impediments, or increased expenses did not suffice to
relieve the debtor from a bad bargain.

232 Bignay v Union Bank, G.R. No. 171590, February 12, 2014


29
Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the
vendor, the vendee is deprived of the whole or of a part of the thing purchased.40 In case eviction occurs, the vendee
shall have the right to demand of the vendor, among others, the return of the value which the thing sold had at the
time of the eviction, be it greater or less than the price of the sale; the expenses of the contract, if the vendee has paid
them; and the damages and interests, and ornamental expenses, if the sale was made in bad faith.

233 Laforteza v Machuca, 333 SCRA 643 (2000)

Although the memorandum agreement was also denominated as a "Contract to Sell", we hold that the parties
contemplated a contract of sale. A deed of sale is absolute in nature although denominated a conditional sale in the
absence of a stipulation reserving title in the petitioners until full payment of the purchase price. In such cases,
ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. The mere fact that the
obligation of the respondent to pay the balance of the purchase price was made subject to the condition that the
petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for
such condition is not inconsistent with a contract of sale.

234 Sps. Valenzuela v Kalayaan, G.R. No. 163244, June 22, 2009

Under a contract to sell, the seller retains title to the thing to be sold until the purchaser fully pays the agreed
purchase price. The full payment is a positive suspensive condition, the non-fulfillment of which is not a breach of
contract, but merely an event that prevents the seller from conveying title to the purchaser. The non-payment of the
purchase price renders the contract to sell ineffective and without force and effect. Unlike a contract of sale, where
the title to the property passes to the vendee upon the delivery of the thing sold, in a contract to sell, ownership is,
by agreement, reserved to the vendor and is not to pass to the vendee until full payment of the purchase price.
Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full
payment of the purchase price. In the latter contract, payment of the price is a positive suspensive condition, failure
of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming
effective.

The non-fulfillment by the respondent of his obligation to pay, which is a suspensive condition to the obligation of
the petitioners to sell and deliver the title to the property, rendered the contract to sell ineffective and without force
and effect. The parties stand as if the conditional obligation had never existed. Article 1191 of the New Civil Code will
not apply because it presupposes an obligation already extant. There can be no rescission of an obligation that is still
non-existing, the suspensive condition not having happened.

235 Montecalvo v Heirs of Eugenia Primero, 624 SCRA 575 (July 9, 2010)

The absence of a provision in the Agreement transferring title from the owner to the buyer is taken as a strong
indication that the Agreement is a contract to sell.

In a contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to the buyer until full
payment of the purchase price. Otherwise stated, in a contract of sale, the seller loses ownership over the property
and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is
retained by the seller until full payment of the price. In the latter contract, payment of the price is a positive
suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective. What the seller agrees or obliges himself to do is to fulfill his promise to sell the
subject property when the entire amount of the purchase price is delivered to him.

236 David v Misamis Occidental, July 11, 2012

The rule is that it is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties. First, there was meeting of minds as to the transfer of ownership of the subject
matter. The letter, though appearing to be a mere price quotation/proposal, was not what it seemed. It contained
terms and conditions, so that, by the fact that Jimenez, Chairman of the Committee on Management, and Engr. Rada,
General Manager of MOELCI, had signed their names under the word "CONFORME," they, in effect, agreed with the
terms and conditions with respect to the purchase of the subject 10 MVA Power Transformer. As correctly argued by
David, if their purpose was merely to acknowledge the receipt of the proposal, they would not have signed their
name under the word "CONFORME."
30

237 Diego v Diego, G.R. No. 179965, February 20, 2013

It is settled jurisprudence, to the point of being elementary, that an agreement which stipulates that the seller shall
execute a deed of sale only upon or after tlll payment of the purchase price is a contract to sell, not a contract of sale.
In Reyes v. Tuparan, this Court declared in categorical terms that "[w]here the vendor promises to execute a deed of
absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell.
The aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the
purchase price."

238 SP. Tumibay vs Sp. Lopez , G.R. No.171692, June 3, 2013

We are, thus, inclined to rule that there was, indeed, a contractual agreement between the parties for the purchase of
the subject land and that this agreement partook of an oral contract to sell for the sum of P800,000.00. A contract to
sell has been defined as "a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of
the purchase price." In a contract to sell, "ownership is retained by the seller and is not to pass until the full payment
of the price x x x." It is "commonly entered into so as to protect the seller against a buyer who intends to buy the
property in installments by withholding ownership over the property until the buyer effects full payment therefor."

239 Ventura v Heirs of Endaya, G.R. No. 190016, October 2, 2013

To note, while the quality of contingency inheres in a contract to sell, the same should not be confused with a
conditional contract of sale. In a contract to sell, the fulfillment of the suspensive condition will not automatically
transfer ownership to the buyer although the property may have been previously delivered to him. The prospective
seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.54 On the other
hand, in a conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute and the
previous delivery of the property has the effect of automatically transferring the sellers ownership or title to the
property to the buyer.

Note: Even after the full payment in contract to sell, there is no automatic transfer of ownership. Thus, if the seller
sold it to another, the seller is liable for damages but not for double sale. In effect, you cannot compel the seller to
execute absolute deed of sale despite full payment of the greed purchase price if the buyer failed to comply the other
terms of the contract such as payment of taxes, etc. Consequently, there lies no error on the part of the CA in
reversing the RTC Decision and dismissing petitioners complaint for specific performance seeking to compel
respondents to execute a deed of sale over the subject properties

240 ACE Foods, Inc. v. Micro Pacific, G.R. No. 200602, December 11, 2013

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract to
sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been perfected at the
precise moment ACE Foods, as evidenced by its act of sending MTCL the Purchase Order, accepted the latters
proposal to sell the subject products in consideration of the purchase price of P646,464.00. From that point in time,
the reciprocal obligations of the parties i.e., on the one hand, of MTCL to deliver the said products to ACE Foods,
and, on the other hand, of ACE Foods to pay the purchase price therefor within thirty (30) days from delivery
already arose and consequently may be demanded. Article 1475 of the Civil Code makes this clear.

At this juncture, the Court must dispel the notion that the stipulation anent MTCLs reservation of ownership of the
subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of
the transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said
stipulation novated the contract of sale between the parties which, to repeat, already existed at the precise moment
ACE Foods accepted MTCLs proposal.

241 Optimum Development Bank v. Spouses Jovellanos, G.R. No. 189145, December 4, 2013

Verily, in a contract to sell, the prospective seller binds himself to sell the property subject of the agreement
exclusively to the prospective buyer upon fulfillment of the condition agreed upon which is the full payment of the

31
purchase price but reserving to himself the ownership of the subject property despite delivery thereof to the
prospective buyer. The full payment of the purchase price in a contract to sell is a suspensive condition, the nonfulfillment of which prevents the prospective sellers obligation to convey title from becoming effective, as in this
case.

242 Roque v Aguado, G.R. No. 193787, April 7, 2014

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the
subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case
at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property
despite the fulfilment of the suspensive condition such as the full payment of the purchase price, for instance, cannot
be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property.
There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is
no defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by the intending buyer.

243 Sps. Viloria v Continental, January 2012

The primordial differentiating consideration between the two (2) contracts (SALE and AGENCY) is the transfer of
ownership or title over the property subject of the contract. In an agency, the principal retains ownership and
control over the property and the agent merely acts on the principal's behalf and under his instructions in
furtherance of the objectives for which the agency was established. On the other hand, the contract is clearly a sale if
the parties intended that the delivery of the property will effect a relinquishment of title, control and ownership in
such a way that the recipient may do with the property as he pleases.

244 First United v. Bayanihan, G.R. No. 164985, January 15, 2014

Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which one is sued by means of
a legal or equitable right resulting from a counterclaim arising out of the same transaction. It is the setting up of a
demand arising from the same transaction as the plaintiffs claim, to abate or reduce that claim.

The legal basis for recoupment by the buyer is the first paragraph of Article 1599 of the Civil Code, viz:
Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in
diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for damages for the breach of
warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of
warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received,
return them or offer to return them to the seller and recover the price or any part thereof which has been
paid.

It was improper for petitioners to set up their claim for repair expenses and other spare parts of the dump truck
against their remaining balance on the price of the prime mover and the transit mixer they owed to respondent.
Recoupment must arise out of the contract or transaction upon which the plaintiffs claim is founded. To be entitled
to recoupment, therefore, the claim must arise from the same transaction, i.e., the purchase of the prime mover and
the transit mixer and not to a previous contract involving the purchase of the dump truck. That there was a series of
purchases made by petitioners could not be considered as a single transaction, for the records show that the earlier
purchase of the six dump trucks was a separate and distinct transaction from the subsequent purchase of the Hino
Prime Mover and the Isuzu Transit Mixer. Consequently, the breakdown of one of the dump trucks did not grant to
petitioners the right to stop and withhold payment of their remaining balance on the last two purchases.

245 Serfino v FEBTC, G.R. No. 171845, October 10, 2012

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal
cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his
credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could enforce it against the debtor. It may be in the form of sale, but at times it may constitute
a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit
32
he has against a third person." As a dation in payment, the assignment of credit operates as a mode of extinguishing
the obligation; the delivery and transmission of ownership of a thing (in this case, the credit due from a third
person) by the debtor to the creditor is accepted as the equivalent of the performance of the obligation.

An assignment of credit not only entitles the assignee to the credit itself, but also gives him the power to enforce it as
against the debtor of the assignor. Since no valid assignment of credit took place, the spouses Serfino cannot validly
claim ownership of the retirement benefits that were deposited with FEBTC. Without ownership rights over the
amount, they suffered no pecuniary loss that has to be compensated by actual damages. The grant of actual damages
presupposes that the claimant suffered a duly proven pecuniary loss.

In the present case, the judgment debt was not extinguished by the mere designation in the compromise judgment of
Magdalenas retirement benefits as the fund from which payment shall be sourced. That the compromise agreement
authorizes recourse in case of default on other executable properties of the spouses Cortez, to satisfy the judgment
debt, further supports our conclusion that there was no assignment of Magdalenas credit with the GSIS that would
have extinguished the obligation.

33

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Sanchez v Mapalad Realty, 541 SCRA 397

MCD OBLIGATIONS AND CONTRACTS

221 Conejero v CA, April 29, 1966

MCD OBLIGATIONS AND CONTRACTS

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