HEIRS OF JUAN SAN ANDRES (VICTOR S.

ZIGA) and SALVACION S. TRIA, petitioners,

vs. VICENTE RODRIGUEZ, respondent.
G.R. No. 135634

May 31, 2000

Facts:
Juan andres was the owner of the lot
situated in liboton, naga city. The sale was
evidenced by a deed of sale. Upon the death of
juan andres, ramon san andres was appointed
as administrator of the estate, and hired
geodetic engineer. Jose panero prepared a
consolidated plan of the estate and also
prepared a sketch plan of the lot sold to
respondent. It was found out that respondent
had enlarged the area which he purchased from
juan. The administrator sent a letter to the
respoindent to vacate the said portion in which
the latter refused to do.
Respondent alleged that apart from the original
lot, which had been sold to him, the latter
likewise sold to him the following day the
remaining portion of the lot. He alleged that the
payment for such would be affected in 5 years
from the eecution of the formal deed of sale after
a survey is conducted. He also alleged that
under the consent of juan, he took possession of
the same and introduced improvements thereon.
Respondent deposited in court the balance of
the purchase price amounting to P7,035.00 for
the aforesaid 509-square meter lot.
On September 20, 1994, the trial court rendered
judgment in favor of petitioner. It ruled that there
was no contract of sale to speak of for lack of a
valid object because there was no sufficient
indication to identify the property subject of the
sale, hence, the need to execute a new contract.
Respondent appealed to the Court of Appeals,
which on April 21, 1998 rendered a decision
reversing the decision of the trial court. The
appellate court held that the object of the
contract was determinable, and that there was a
conditional sale with the balance of the purchase
price payable within five years from the
execution of the deed of sale.
Issue: whether or not there was a valid sale.
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Held:
Civil Code provides that By the contract of sale
one of the contracting parties obligates himself
to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract
conditional.

of

sale

may

be

absolute

or

As thus defined, the essential elements of sale

are the following:
a) Consent or meeting of the minds, that is,
consent to transfer ownership in exchange for
the price;
b) Determinate subject matter; and,
c) Price certain in money or its equivalent.

12

As shown in the receipt, dated September 29,

1964, the late Juan San Andres received
P500.00 from respondent as "advance payment
for the residential lot adjoining his previously
paid lot on three sides excepting on the
frontage; the agreed purchase price was P15.00
per square meter; and the full amount of the
purchase price was to be based on the results of
a survey and would be due and payable in five
(5) years from the execution of a deed of sale.
Petitioner's contention is without merit. There is
no dispute that respondent purchased a portion
of Lot 1914-B-2 consisting of 345 square
meters. This portion is located in the middle of
Lot 1914-B-2, which has a total area of 854
square meters, and is clearly what was referred
to in the receipt as the "previously paid lot."
Since the lot subsequently sold to respondent is
said to adjoin the "previously paid lot" on three
sides thereof, the subject lot is capable of being
determined without the need of any new
contract. The fact that the exact area of these
adjoining residential lots is subject to the result
of a survey does not detract from the fact that
they are determinate or determinable. As the
Court of Appeals explained: 15
Concomitantly, the object of the sale is certain
and determinate. Under Article 1460 of the New
Civil Code, a thing sold is determinate if at the
time the contract is entered into, the thing is
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capable of being determinate without necessity

of a new or further agreement between the
parties. Here, this definition finds realization.
Thus, all of the essential elements of a contract
of sale are present, i.e., that there was a
meeting of the minds between the parties, by
virtue of which the late Juan San Andres
undertook to transfer ownership of and to deliver
a determinate thing for a price certain in money.
As Art. 1475 of the Civil Code provides:
The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which
is the object of the contract and upon the price. .
. .That the contract of sale is perfected was
confirmed by the former administrator of the
estates, Ramon San Andres, who wrote a letter
to respondent on March 30, 1966 asking for
P300.00 as partial payment for the subject lot.
As the Court of Appeals observed:
Without any doubt, the receipt profoundly
speaks of a meeting of the mind between San
Andres and Rodriguez for the sale. Evidently,
this is a perfected contract of sale on a deferred
payment of the purchase price. All the prerequisite elements for a valid purchase
transaction are present.
There is a need, however, to clarify what the
Court of Appeals said is a conditional contract of
sale. Apparently, the appellate court considered
as a "condition" the stipulation of the parties that
the full consideration, based on a survey of the
lot, would be due and payable within five (5)
years from the execution of a formal deed of
sale. It is evident from the stipulations in the
receipt that the vendor Juan San Andres sold
the residential lot in question to respondent and
undertook to transfer the ownership thereof to
respondent without any qualification, reservation
or condition.

reservation of ownership nor a stipulation

providing for a unilateral rescission by either
party. In fact, the sale was consummated upon
the delivery of the lot to respondent. 20 Thus, Art.
1477 provides that the ownership of the thing
sold shall be transferred to the vendee upon the
actual or constructive delivery thereof.
The stipulation that the "payment of the full
consideration based on a survey shall be due
and payable in five (5) years from the execution
of a formal deed of sale" is not a condition which
affects the efficacy of the contract of sale. It
merely provides the manner by which the full
consideration is to be computed and the time
within which the same is to be paid. But it does
not affect in any manner the effectivity of the
contract. Consequently, the contention that the
absence of a formal deed of sale stipulated in
the receipt prevents the happening of a sale has
no merit.
The claim of petitioners that the price of
P7,035.00 is iniquitous is untenable. The amount
is based on the agreement of the parties as
evidenced by the receipt (Exh. 2). Time and
again, we have stressed the rule that a contract
is the law between the parties, and courts have
no choice but to enforce such contract so long
as they are not contrary to law, morals, good
customs or public policy. Otherwise, court would
be interfering with the freedom of contract of the
parties. Simply put, courts cannot stipulate for
the parties nor amend the latter's agreement, for
to do so would be to alter the real intentions of
the contracting parties when the contrary
function of courts is to give force and effect to
the intentions of the parties.
The decision of the Court of Appeals is
AFFIRMED
with
the
modification
that
respondent is ORDERED to reimburse
petitioners for the expenses of the survey.

A deed of sale is considered absolute in nature

where there is neither a stipulation in the deed
that title to the property sold is reserved in the
seller until full payment of the price, nor one
giving the vendor the right to unilaterally resolve
the contract the moment the buyer fails to pay
within a fixed period.
Applying these principles to this case, it cannot
be gainsaid that the contract of sale between the
parties is absolute, not conditional. There is no
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Hernando R. Penalosa vs. Severino Santos

G.R. No. 133749

August 23, 2001

Facts:
Severino sold his property to henry. Henry
applied for a loan with philam life. As It was
already approved pending the submission of
certain documents such as the owners duplicate
of transfer certificate of title which is in
possession of severino.
Henry already took possession of the property in
question after ejectment of the lessees. He also
paid an ernest money of 300,000 under the
premise that it shall be forfeited in favor of
severino in case of nonpayment.
Severino now claims ownership over the
property claiming that henry did not pay for the
property, therefore there was no sale to speak
of.
Issue: whether or not there is a contract of sale
perfected in this case.
Held: there was a perfected contract of sale due
to the second deed of sale.
The basic characteristic of an absolutely
simulated or fictitious contract is that the
apparent contract is not really desired or
intended to produce legal effects or alter the
juridical situation of the parties in any way.30
However, in this case, the parties already
undertook certain acts which were directed
towards fulfillment of their respective covenants
under the second deed, indicating that they
intended to give effect to their agreement.
Further, the fact that Severino executed the two
deeds in question, primarily so that petitioner
could eject the tenant and enter into a
loan/mortgage contract with Philam Life, is to
our mind, a strong indication that he intended to
transfer ownership of the property to petitioner.
For why else would he authorize the latter to sue
the tenant for ejectment under a claim of
ownership, if he truly did not intend to sell the
property to petitioner in the first place? Needless
to state, it does not make sense for Severino to
allow petitioner to pursue the ejectment case, in
petitioner's own name, with petitioner arguing
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that he had bought the property from Severino

and thus entitled to possession thereof, if
petitioner did not have any right to the property.
Also worth noting is the fact that in the case filed
by Severino's tenant against Severino and
petitioner in 1989, assailing the validity of the
sale made to petitioner, Severino explicitly
asserted in his sworn answer to the complaint
that the sale was a legitimate transaction. He
further alleged that the ejectment case filed by
petitioner against the tenant was a legitimate
action by an owner against one who refuses to
turn over possession of his property.
It should be emphasized that the nonappearance of the parties before the notary
public who notarized the deed does not
necessarily nullify nor render the parties'
transaction void ab initio. We have held
previously that the provision of Article 1358 of
the New Civil Code on the necessity of a public
document is only for convenience, not for validity
or enforceability. Failure to follow the proper
form does not invalidate a contract. Where a
contract is not in the form prescribed by law, the
parties can merely compel each other to
observe that form, once the contract has been
perfected.35 This is consistent with the basic
principle that contracts are obligatory in
whatever form they may have been entered into,
provided all essential requisites are present.3
The elements of a valid contract of sale under
Art. 1458 of the Civil Code are: (1) consent or
meeting of the minds; (2) determinate subject
matter; and (3) price certain in money or its
equivalent.37 In the instant case, the second
deed reflects the presence of all these elements
and as such, there is already a perfected
contract of sale.
The non-payment of the contract price merely
results in a breach of contract for nonperformance and warrants an action for
rescission or specific performance under Article
1191 of the Civil Code.
Be that as it may, we agree with petitioner that
although the law allows rescission as a remedy
for breach of contract, the same may not be
availed of by respondents in this case. To begin
with, it was Severino who prevented full
payment of the stipulated price when he refused
to deliver the owner's original duplicate title to
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Philam Life. His refusal to cooperate was

unjustified, because as Severino himself
admitted, he signed the deed precisely to enable
petitioner to acquire the loan. He also knew that
the property was to be given as security therefor.
Thus, it cannot be said that petitioner breached
his obligation towards Severino since the former
has always been willing to and could comply
with what was incumbent upon him.
In sum, the only conclusion which can be
deduced from the aforesaid circumstances is
that ownership of the property has been
transferred to petitioner.
WHEREFORE, the petition is GRANTED.

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Issue:

DAVIDE, JR., J.:

Whether the trial court erred in finding

that the prosecution has fully met the test of
moral certainty as to the guilt of the accused on
both charges of violation of section 15, Article III
of the Dangerous Drugs Act of 1972 and of
illegal possession of firearms.

Facts:

Decision:

Major Juvenile Sulapas, Officer-incharge, Dangerous Drugs Enforcement Section,

Pasay City Police Station, received a
confidential report from an informant about the
rampant trafficking of drugs by Elizabeth
Ganguso y Decena a.k.a. "Beth Tomboy".

The instant appeal is partly granted, and

the challenged decision of the Regional Trial
Court of Pasay City is modified. As modified,
accused-appellant Beth is acquitted for the
charge of illegal possession of firearms on
ground of reasonable doubt.
The penalty
imposed on her for the violation of section 15,
Article III of the Dangerous Drugs Act of 1972 is
reduced to an indeterminate sentence of three
months of arresto mayor, as minimum, to three
years of prision correccional, as maximum.

PEOPLE OF THE PHILIPPINES v. ELIZABETH

GANGUSO
G.R. No. 115430

November 23, 1995

A buy-bust operation was planned with

Dennis Vermug acting as poseur-buyer, backedup by SPO1 Lumapat, SPO1 Gabutin, PO3s
Mendoza and Garcia with SPO3 Fucanan as
team leader.
The operation was carried out and they
were successful in arresting Beth for the
violation of Dangerous Drugs Act of 1972. At the
same time, they were able to recover a .38
caliber Paltik revolver from the suspect.
Several documentary exhibits were
presented as evidence to the crime. Beth made
statements in her testimony different to that of
the polices: policemen barged into her house,
searched the premises and her person without a
warrant and; denied the revolver recovered from
her.
At the trial, defense presented two
witnesses who also claimed that no buy bust
operation took place and no revolver was in the
possession of the suspect.
Nevertheless, the Regional Trial Court
of Pasay convicted her of both charges. She
was sentenced to suffer the penalty of life
imprisonment and to pay a fine plus costs for the
crime involving drugs. She was also sentenced
to an indeterminate penalty of ten years and one
day of prision mayor, as minimum, to twelve
years and one day, as maximum, with fine and
costs for the crime of illegal possession of
firearms.
Hence, Beth appealed.
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Ratio Decidendi:
Supreme Court held that the
elements of a contract of sale were present.
Beth is presumed to have given her consent
by not inquiring as to the meaning of S
when the officer posed to buy Php 500
worth of S. Therefore, there was a meeting
of minds upon a definite object and upon the
price.
Though she was not in possession of
the object of sale, Article 1459 merely
requires that the vendor must have the right
to transfer ownership of the object sold at
the time of delivery. In the case at bar,
though Beth is not the owner, she had the
right to dispose of the prohibited drug.
Ownership was thereafter acquired upon her
delivery to the men in the alley after her
payment of the price.
Supreme Court also held that failure to
conduct prior surveillance and absence of
marked money does not affect the evidence of
the prosecution. It is sufficient that the members
of the operation were accompanied by the
informant to the scene; the sale was adequately
proven and; the drug subject was presented
before the court.
As regards the penalty imposed, since
the shabu only weighs 0.1954 grams, penalty
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should be prision correccional to reclusion

temporal depending upon the quantity. Applying
R.A. No. 7659, ISLAW, and the decision in the
case of People v. Simon, proper penalty should
be within the range of arresto mayor to prision
correccional.

R.A. No. 7659, amending R.A. No.

6425, took effect on 31 December 1993.
Being patently favorable to the
appellant, that amendatory law should
be applied retroactively.

ISLAW: If an offense under the RPC is

also punishable by another law, the
court shall sentence the accused to an
indeterminate sentence, the maximum
term of which shall not exceed the
maximum fixed by said law and the
minimum shall not be less than the
minimum term prescribed by the same.

Finally, there was no proof that Beth is

guilty beyond reasonable doubt for the
possession of firearms. Hence, presumption of
innocence stands for failure of the prosecution to
establish such guilt.

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HEIRS OF AMPARO
AURORA SANTOS
G.R. No. L-46892

DEL

ROSARIO

v.

September 30, 1981

GUERRERO, J.:
Facts:
Amparo Del Rosario entered into a
contract with Attorney Andres Santos and his
wife Aurora Santos whereby the latter sold to the
former a 20,000 sq. m. of land which is to be
segregated from Lot 1. Said lot forms part of the
several lots belonging to a certain Teofilo
Custodio, of which lots, Attorney Santos, by
agreement with the latter, as his attorneys fees,
owns interest thereof.
Parties agreed that spouses Andres
shall thereafter execute a Deed of Confirmation
of Sale in favor of Del Rosario as soon as the
title has been released and the subdivision plan
of said Lot 1 has been approved by the Land
Registration Commissioner.
Due to the failure of spouses Andres to
execute the deed after the fulfillment of the
condition, Del Rosario claims malicious breach
of a Deed of Sale.
Defendant thereafter filed a motion to
dismiss setting up the defenses of lack of
jurisdiction of the court over the subject of the
action and lack of cause of action as well as the
defense of prescription.

After actions by respective parties, the

lower court ordered the defendants to execute
and convey to plaintiff the 20,000 sq. m. of land
to be taken either from Lot 4 or from Lot 5-A of
Custodios lots, which defendants own interest
thereof.
Aggrieved by the aforesaid decision, the
defendants filed an appeal with the Court of
Appeals which certified the records of the case
to the Supreme Court for final determination.
Issue:
(As far as it concerns Sales)
Whether the sale is valid as to the cause
or object of the contract.
Decision:
The judgment appealed from is hereby
affirmed in toto, with costs against the
appellants.
Ratio Decidendi:
Supreme Court held that the execution
of the deed of sale is valid notwithstanding the
lack of any title to the lot by appellants at the
time of execution f the deed of sale in favor of
appellee as there can be a sale of an expected
thing in accordance with Article 1461 of the New
Civil Code:
Art. 1461. Things having a potential
existence may be the object of the
contract of sale.

They further alleged that the deed of

sale was only an accommodation graciously
extended, out of close friendship between the
defendants and the plaintiff, hence, tantamount
to
waiver,
abandonment
or
otherwise
extinguishment of the demand set forth in the
complaint.

The efficacy of the sale of a mere

hope or expectancy is deemed
subject to the condition that the thing
will come into existence.

Finally, defendants alleged that the

claim on which the action or suit is founded is
unenforceable under the statute of frauds and
that the cause or object of the contract did
not exist at the time of the transaction.

The case at bar is not a case of a vain

hope or expectancy which is void under the law.
The expectant right came into existence or
materialized for the appellants actually derived
titles from Lot I which subsequently became the
object of subdivision.

The sale of a vain

expectancy is void.

hope

or

The lower court resolved to deny the

motion to dismiss.
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JOSE M. JAVIER and ESTRELLA F. JAVIER

vs. COURT OF APPEALS and LEONARDO
TIRO
GR No. 48194 March 15, 1990
Regalado, J.:
FACTS:
Leonardo Tiro executed a Deed of
assignment concerning his shares of stock in
Timberwealth Corporation on Feb. 15, 1966 in
favor of spouses Jose and Estrella Javier and
for the amount of P 120,000. Spouses paid P
20,000 as initial payment and the balance to be
paid in instalments as agreed. The parties
entered into another deed on Feb. 28, 1966 for
the addtl forest concession, subject of a
pending application, adjoining the area covered
in the first deed. As agreed, the payment
therefor of P 30,000 shall be paid as soon as the
application is approved.
On Nov. 18, 1966, the Dir. of Forestry
directed a consolidation for the renewal of the
concession. By virtue of the deed, spouses
Javier consolidated with the other adjoining
concessionaires.On July 16, 1968, Tiro filed a
complaint for failure of the spouses to pay the
remaining balance.Spouses filed their answer
arguing therein the nullity of the deeds and the
return of the payments made by them. It
appeared in record that the Timberwealth
Corporation was a non-existent organization.The
trial court dismissed the complaint hence, Tiro
appealed to CA. CA reversed the judgment.
Petition to review filed with SC.
ISSUE:
W/N THE TWO DEEDS ARE NULL AND VOID,
THE FORMER FOR TOTAL ABSENCE OF
CONSIDERATION AND THE LATTER FOR
NON-FULFILLMENT OF CONDITIONS.

Petitioners contend that the deed of assignment

conveyed to them the shares of stocks of private
respondent in Timberwealth Corporation, as
stated in the deed itself. Since said corporation
never came into existence, no share of stocks
was ever transferred to them, hence the said
deed is null and void for lack of cause or
consideration.
The true cause or consideration of said deed
was the transfer of the forest concession of
private
respondent
to
petitioners
for
P120,000.00. This finding is supported by the
contemporaneous and subsequent acts of
petitioners and private respondent. It is settled
that the previous and simultaneous and
subsequent acts of the parties are properly
cognizable indicia of their true intention. Their
acts reveal that the cause stated in the
questioned deed of assignment is false.
The deed of assignment of February 15, 1966 is
a relatively simulated contract which states a
false cause or consideration, or one where the
parties conceal their true agreement. A contract
with a false consideration is not null and void per
se. Under Article 1346 of the Civil Code, a
relatively simulated contract, when it does not
prejudice a third person and is not intended for
any purpose contrary to law, morals, good
customs, public order or public policy binds the
parties to their real agreement.
As to the nullity for the non-fulfilment of the
conditions, SC agrees. The efficacy of said deed
of assignment is subject to the condition that the
application of private respondent for an
additional area for forest concession be
approved by the Bureau of Forestry. Since
private respondent did not obtain that approval,
said deed produces no effect. When a contract
is subject to a suspensive condition, its birth or
effectivity can take place only if and when the
event which constitutes the condition happens or
is fulfilled.

RULING:
Decision Modified.

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Moreover, under the second paragraph of Article

1461 of the Civil Code, the efficacy of the sale of
a mere hope or expectancy is deemed subject to
the condition that the thing will come into
existence. In this case, since private respondent
never acquired any right over the additional area
for failure to secure the approval of the Bureau
of Forestry, the agreement executed therefor,
which had for its object the transfer of said right
to petitioners, never became effective or
enforceable.

ONAPAL PHILS. COMMODITIES, INC. vs. THE

COURT OF APPEALS and SUSAN CHUA
February 1, 1993

GR No. 90707

Campos, Jr., J.:

FACTS:
ONAPAL Phils. Commodities, Inc. is a
commission merchant/broker licensed by SEC,
engaged in commodity futures trading.
Futures Commission Merchant/Broker refers to
a corporation or partnership, which must be
registered and licensed as a Futures
Commission Merchant/Broker and is engaged in
soliciting or in accepting orders for the purchase
or sale of any commodity for future delivery on
or subject to the rules of the contract market and
that, in connection with such solicitation or
acceptance of orders, accepts any money,
securities or property (or extends credit in lieu
thereof) to margin, guarantee or secure any
trade or contract that results or may result
therefrom. Its Account Executive Elizabeth Diaz
invited Susan Chua to invest in commodity
futures trading and they subsequently entered
into a commodity futures contract without
explanation to Susan as to the risks involved.
A commodity futures contract refers to an
agreement to buy or sell a specified quantity and
grade of a commodity at a future date at a price
established at the floor of the exchange.
As stipulated in the trading contract, Susan may
withdraw anytime and she did. From P 800,000
Susan invested, she was able to get only P
470,000. Hence, complaint was filed with the
trial court. The trial court found and rendered the
trading contract a specie of gambling and
therefore null and void. CA upheld the judgment.
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2A SY 2009-2010

Hence, petition for certiorari with SC.

ISSUE: W/N THE TRADING CONTRACT IS

NULL AND VOID AS IT APPEARS TO BE A
SPECIE OF GAMBLING

RULING:
Petition Dismissed. The trading contract signed
by the parties, is a contract for the sale of
products for future delivery, in which either seller
or buyer may elect to make or demand delivery
of goods agreed to be bought and sold, but
where no such delivery is actually made. By
delivery is meant the act by which the res or
subject is placed in the actual or constructive
possession or control of another. ONAPAL
received the customer's orders and private
respondent's money. As per terms of the trading
contract, customer's orders shall be directly
transmitted by the petitioner as broker to its
principal, Frankwell Enterprises Ltd. of
Hongkong , which in turn must place the
customer's orders with the Tokyo Exchange.
There is no evidence that the orders and money
were transmitted to its principal Frankwell
Enterprises Ltd. in Hongkong nor were the
orders forwarded to the Tokyo Exchange. We
draw the conclusion that no actual delivery of
goods and commodity was intended and ever
made by the parties. In the realities of the
transaction, the parties merely speculated on the
rise and fall in the price of the goods/commodity
subject matter of the transaction. If private
respondent's speculation was correct, she would
be the winner and the petitioner, the loser, so
petitioner would have to pay private respondent
the "margin". But if private respondent was
wrong in her speculation then she would emerge
as the loser and the petitioner, the winner. The
petitioner would keep the money or collect the
difference from the private respondent. This is
clearly a form of gambling provided for with
unmistakeable certainty under Article 2018
If a contract which purports to be for the delivery
of goods, securities or shares of stock is entered
into with the intention that the difference
between the price stipulated and the exchange
or market price at the time of the pretended
delivery shall be paid by the loser to the winner,
the transaction is null and void. The loser may
recover what he has paid.
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(1) Whether there the deeds of sale are

void for lack of consideration
(2) Whether the deeds of sale are void for
gross inadequacy of price
Held: The petition is without merit.
(1) A contract of sale is not a real contract, but a
consensual contract. As a consensual contract,
a contract of sale becomes a binding and valid
contract upon the meeting of the minds as to
Sps. Bernardo Buenaventura and
Consolacion Joaquin vs. Court of Appeals
November 20, 2003
First Division
Ponente: Carpio, J.

GR No. 126376

Facts: Defendant spouses Leonardo Joaquin

and Feliciana Landrito are the parents of
plaintiffs Consolacion, Nora, Emma and
Natividad as well as of defendants Fidel, Tomas,
Artemio, Clarita, Felicitas, Fe, and Gavino, all
surnamed Joaquin. Leonardo and Feliciana
executed several deeds of sale in favour of their
co-defendant children.
Petitioners then filed an action the Regional Trial
Court (RTC) of Makati seeking to declare as null
and void ab initio the deeds of sale executed by
Leonardo and Feliciana claiming that: (1) here
was no actual valid consideration for the deeds
of sale, (2) assuming that there was
consideration in the sums reflected in the
questioned deeds, the properties are more than
three-fold times more valuable than the measly
sums appearing therein, and (3) the deeds of
sale do not reflect and express the true intent of
the parties
Defendants, on the other hand aver (1) that the
sales were with sufficient considerations and
made by defendants parents voluntarily, in good
faith, and with full knowledge of the
consequences of their deeds of sale; and (2)
that the certificates of title were issued with
sufficient factual and legal basis.
The RTC dismissed the case, declaring that the
deeds of sale were all executed for valuable
consideration.
On appeal, the Court of Appeals affirmed the
decision of the RTC.

price. If there is a meeting of the minds of the

parties as to the price, the contract of sale is
valid, despite the manner of payment, or even
the breach of that manner of payment. If the real
price is not stated in the contract, then the
contract of sale is valid but subject to
reformation. If there is no meeting of the minds
of the parties as to the price, because the price
stipulated in the contract is simulated, then the
contract is void. Article 1471 of the Civil Code
states that if the price in a contract of sale is
simulated,
the
sale
is
void.
It is not the act of payment of price that
determines the validity of a contract of sale.
Payment of the price has nothing to do with the
perfection of the contract. Payment of the price
goes into the performance of the contract.
Failure to pay the consideration is different from
lack of consideration. The former results in a
right to demand the fulfillment or cancellation of
the obligation under an existing valid contract
while the latter prevents the existence of a valid
contract.
Petitioners failed to show that the prices in the
Deeds of Sale were absolutely simulated. To
prove simulation, petitioners presented Emma
Joaquin Valdozs testimony stating that their
father, respondent Leonardo Joaquin, told her
that he would transfer a lot to her through a
deed of sale without need for her payment of the
purchase price. The trial court did not find the
allegation of absolute simulation of price
credible. Petitioners failure to prove absolute
simulation of price is magnified by their lack of
knowledge of their respondent siblings financial
capacity to buy the questioned lots. On the other
hand, the Deeds of Sale which petitioners
presented as evidence plainly showed the cost
of each lot sold. Not only did respondents minds
meet as to the purchase price, but the real price
was also stated in the Deeds of Sale. As of the
filing of the complaint, respondent siblings have

Issues:
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 10

also fully paid the price to their respondent

father.
(2) Articles 1355 of the Civil Code states:
Art. 1355. Except in cases specified by law,
lesion or inadequacy of cause shall not
invalidate a contract, unless there has been
fraud, mistake or undue influence.
Article 1470 of the Civil Code further provides:
Art. 1470. Gross inadequacy of price does
not affect a contract of sale, except as may
indicate a defect in the consent, or that the
parties really intended a donation or some other
act or contract.
Petitioners failed to prove any of the instances
mentioned in Articles 1355 and 1470 of the Civil
Code which would invalidate, or even affect, the
Deeds of Sale. Indeed, there is no requirement
that the price be equal to the exact value of the
subject matter of sale. All the respondents
believed that they received the commutative
value of what they gave.

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2A SY 2009-2010

Page 11

Labagala vs. Santiago

December 4, 2001
Second Division
Ponente: Quisumbing, J.

GR No. 132305

Facts: Jose T. Santiago owned a parcel of land.

Alleging that Jose had fraudulently registered it
in his name alone, his sisters Nicolasa and
Amanda Santiago (respondents), sued Jose for
recovery of 2/3 share of the property. On April
20, 1981, the trial court in that case decided in
favor of the sisters, recognizing their right of
ownership over portions of the property. Jose
died intestate. Thereafter, the respondents filed
an action before the Regional Trial Court of
Manila seeking to recover Joses 1/3 share over
the property.

Clearly, there is no valid sale in this case. Jose

did not have the right to transfer ownership of
the entire property to petitioner since 2/3 thereof
belonged to his sisters. Petitioner could not have
given her consent to the contract, being a minor
at the time. Consent of the contracting parties is
among the essential requisites of a contract,
including one of sale, absent which there can be
no valid contract. Moreover, petitioner admittedly
did not pay any centavo for the property, which
makes the sale void. Article 1471 of the Civil
Code provides:

If the price is simulated, the sale is void, but the

act may be shown to have been in reality a
donation, or some other act or contract.

Respondents claim that Joses share in the

property ipso jure belongs to them because they
are the only legal heirs of their brother, who died
intestate and without issue. They allege that it is
highly improbable for petitioner to have paid the
supposed consideration of P150,000 for the sale
of the subject property because petitioner was
unemployed and without any visible means of
livelihood at the time of the alleged sale.
Petitioner Labagala, on the other hand, claims
that she is the daughter of Jose and argued that
the purported sale of the property was in fact a
donation to her.
The RTC held that while there was indeed no
consideration for the deed of sale executed by
Jose in favor of petitioner, but said deed
constitutes a valid donation.
On appeal, the Court of Appeals reversed the
decision of the RTC
Issue: Whether the purported deed of sale was
valid
Held: There is no valid sale.
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Page 12

Whether the money given constitutes partial

consideration to the option to purchase the
land?
Whether or not there is a perfected contract of
sale?

Dizon vs. Court of Appeals

G.R. No. 122544
302 SCRA 288
FIRST DIVISION
Ponente: Martinez, J
Facts:
On 1974, Private respondent Overland Express
Lines, Inc (lessee) entered into a Contract of
Lease with Option to Buy with petitioners
(lessors) involving a land situated at Quezon
City for one (1) year. During that period the
respondent was granted an option to purchase
the land. 1976, for failure of lessee to pay the
rentals the petitioners filed an action for
ejectment. The City Court rendered judgment
ordering lessee to vacate the leased premises
and to pay the rentals in arrears and damages
with interests. Lessee filed a petition enjoining
the enforcement of said judgment and dismissal
of the case for lack of jurisdiction. Such petition
was denied. Thereafter, lessee filed for an action
for specific performance to compel the execution
of a deed of sale pursuant to the option to
purchase and the receipt of the partial
consideration given to Alice Dizon and for the
fixing of period to pay the balance. Respondent
Court of Appeals rendered a decision upholding
the jurisdiction of City Court and concluding that
there was a perfected contract of sale between
the parties due to the said partial payment.
Petitioners motion for reconsideration was
denied by the respondent Court.
HTP.
Issues:
Whether the Quezon City court has jurisdiction
over the ejectment case?

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Ruling:
1. The petitioneres had a cause of action to
institute an ejectment suit against the lessee
with the City Court thus the city court (now
MTC) has jurisdiction over it. The filing of
lessor of a suit with the RTC did not divest
the City Court of its jurisdiction to take
cognizance over the ejectment case.
2. The term stipulated in the contract of lease
with option to buy is just one (1) year.
Having failed to exercise the option within
that period, the lessee cannot enforce its
option to purchase anymore. Even assuming
that such option still subsists, when the
lessee tendered the amount on 1975, the
suit for specific performance to enforce the
option to purchase was filed only on 1985
ore more than ten (10) years after accrual of
the cause of action.
Since the lessee did not purchase within the
stipulated one (1) year and afterwhich still
kept possession thereof, there was an
implicit renewal of the contract reviving all
the terms in the original contract which are
only germane to the lessees rights of
continued enjoyment of the property leased.
The option to purchase is not deemed
incorporated.
3. There was no perfected contract of sale
between the parties. In herein case, the
lessee gave the money to Alice Dizon in an
attempt to resurrect the lapsed option.The
basis for agency is representation and a
person dealing with an agent is put upon
inquiry and must discover upon his peril the
authority of the agent. Here, there was no
showing that petitioners consented to the act
of Alice Dizon nor authorized her to act on
their behalf with regard to her transaction
with the lessee. Therefore, one of the
essential elements for a contract of sale to
be perfected is lacking: consent.

Page 13

Whether the
untenable?

amount

of

consignation

is

Whether the respondent is barred by

prescription and laches from enforcing the
contract?

Heirs of San Juan Andres vs. Rodriguez

G.R. 135634
332 SCRA 769
SECOND DIVISION
Ponente: Mendoza, J
Facts:
Juan San Andres sold a portion of his land to
respondent Vicente Rodriguez evidenced by a
Deed of Sale. Upon the death of Juan, Ramon
San Andres was appointed judicial administrator
of his estate. Ramon engaged the serviced of
geodetic engineers to survey the lot. From such
survey, thtey discovered that the respondent had
enlarged the area which he purchased from the
late Juan. Ramon then send a letter demanding
the respondent to vacate the portion allegedly
encroached by him. However, respondent
refused to do so claiming that he purchased the
same from the late Juan with both parties
treating the two lots as one who parcel of land.
Respondent further alleged that the full payment
of the additional lot would be effected within five
(5) years from the execution of the deed of sale
after a survey is conducted over said property.
Respondent attached to his answer a receipt
signed by the late Juan as proof of the
purchase. Respondent thereafter deposited in
the court the balance of the purchase price.
While the case is pending, Ramon died and was
replaced by son Ricardo. Vicente also died and
was substituted by his heirs. The trial court
rendered judgement in faovr of the petitioner
and ruled that there was no contract of sale
because there is no valid object because there
is no sufficient indication. Respondent Court of
Appeals reversed the decision rendered by the
Trial Court.

Rulings:
1. There is a valid Contract of Sale
because all the essential elements are
present. In herein case, petitioners
contention that there is no determinate
object is without merit. The receipt
described the lot as previously paid lot.
Since the lot subsequently sold to
respondent is said to adjoin the
previously paid lot on three sides
thereof, the subject lot is capable of
being determined without the need of
any new contract. The contract of Sale
can be gainsaid to be absolute because
there is no reservation of ownership.
The stipulation payment of full
consideration based on a survey shall
be due and payable in five (5) years
from the execution of deed of sale is
not a condition which affects the efficacy
of the contract. It merely provides for the
manner of computation of payment..
2. Consignation is proper only in cases
where an existing obligation is due. In
herein case since there is no deed of
sale yet thus the period when the
purchase price should be paid has not
commenced yet which makes it not yet
due and demandable. The court is not
erroneous because it thereafter ordered
the execution of deed and the
acceptance of the deposit.
3. The amount is based on the agreement
which is the law between the parties.
Thus, it is binding and the court can only
give force and effect to the intentions of
the parties.
4. Since there was no Deed of Sale yet
and the respondent wants to pay the
purchase price, he deemed it proper to
deposit it in the Court. Thus,
Prescription does not apply.

Issues:
Whether the Court erred in holding that there is
a valid contract of sale?
Whether the Court erred in holding that the
consignation is valid?
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 14

September 1984 to May 1988) had been paid;

that the balance of P8,500 would be paid on the
last week of August 1988; and that possession
of the property would be transferred to the
spouses Ramos only upon full payment of the
purchase price.
Issue:
WHETHER OR NOT THE COURT OF
APPELS GRAVELY ERRED AND
ABUSED ITS DISCRETION IN NOT
INTERPRETING
THAT
THE
"KASUNDUAN" EXECUTED BY AND
BETWEEN
PETITIONER
(DEFENDANT)
AND
PRIVATE
RESPONDENT
(PLAINTIFF)
SUPERSEDES THE DEED OF SALE
WHICH
HAS
NOT
BEEN
CONSUMMATED. NO.

LAGRIMAS
A.
BOY,
petitioner,
vs.
COURT OF APPEALS, ISAGANI P. RAMOS
and
ERLINDA
GASINGAN
RAMOS,
respondents.
April 14, 2004 G.R. No. 125088
FIRST DIVISION
AZCUNA, J.:

Ruling:

Facts:

The Court of Appeals did not give

credence to the statement in the Kasunduan that
private respondents paid only P22,500 to
petitioner since her indebtedness already
reached P26,200. CA gave weight to the
argument of private respondents that Erlinda
Ramos was merely tricked into signing the
Kasunduan.

On September 24, 1993, spouses

Isagani P. Ramos and Erlinda Gasingan Ramos,
filed an action for ejectment against Lagrimas A.
Boy (Lagrimas), with the Metropolitan Trial Court
of Manila. In their Complaint, the spouses
alleged that they are the owners of a parcel of
land and the house existing thereon at 1151
Florentino Torres St., Singalong, Manila. They
acquired the said properties from Lagrimas who
sold the same to them by virtue of a Deed of
Absolute Sale, which was executed on June 4,
1986. However, Lagrimas requested for time to
vacate the premises, and they agreed thereto,
because they were not in immediate need of the
premises. Time came when they needed the
said house as they were only renting their own
residence. They then demanded that Lagrimas
vacate the subject premises, but she refused to
do so. Hence, they initiated this action for
ejectment against Lagrimas.
Sometime in May 1988, Erlinda Ramos
and Lagrimas executed an agreement
(Kasunduan) acknowledging that the subject
parcel of land, together with the upper portion of
the house thereon, had been sold by Lagrimas
to the spouses Ramos for P31,000; that of the
said price, the sum of P22,500 (representing
P15,000 cash loan plus P7,500 as interest from
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

It has been established that petitioner

sold the subject property to private respondents
for the price of P31,000, as evidenced by the
Deed of Absolute Sale, the due execution of
which was not controverted by petitioner. The
contract is absolute in nature, without any
provision that title to the property is reserved in
the vendor until full payment of the purchase
price.
By the contract of sale, petitioner (as
vendor), obligated herself to transfer the
ownership of, and to deliver, the subject property
to private respondents (as vendees) after they
paid the price of P31,000. Under Article 1477 of
the Civil Code, the ownership of the thing sold
shall be transferred to the vendee upon the
actual or constructive delivery thereof.
In addition, Article 1498 of the Civil
Code provides that when the sale is made
through a public instrument, as in this case, the

Page 15

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. In this
case, the Deed of Absolute Sale does not
contain any stipulation against the constructive
delivery of the property to private respondents.
In the absence of stipulation to the contrary, the
ownership of the property sold passes to the
vendee upon the actual or constructive delivery
thereof. The Deed of Absolute Sale, therefore,
supports private respondents right of material
possession over the subject property.

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Page 16

the property subject of this case and offered to

sell her another property.
Issue:
Whether or not the Court of Appeals erred in
ordering the spouses Co (COS) to return the
$30,000.00 paid by CUSTODIO pursuant to the
"option" granted to her over the Beata property?
NO.
SPS. HENRY CO AND ELIZABETH CO AND
MELODY
CO,
petitioners,
vs.
COURT
OF
APPEALS
AND
MRS.
ADORACION CUSTODIO, represented by her
Attorney-in-fact, TRINIDAD KALAGAYAN,
respondents.
August 17, 1999
G.R. No. 112330
THIRD DIVISION
GONZAGA-REYES, J.:
Facts:
. . . sometime on October 9, 1984, plaintiff
entered into a verbal contract with defendant for
her purchase of the latter's house and lot located
at 316 Beata St., New Alabang Village,
Muntinlupa, Metro Manila, for and in
consideration of the sum of $100,000.00. One
week thereafter, plaintiff paid to the defendants
the amounts of $1,000.00 and P40,000.00 as
earnest money, in order that the same may be
reserved for her purchase, said earnest money
to be deducted from the total purchase price.
The purchase price of $100,000.00 is payable in
two payments $40,000.00 on December 4, 1984
and the balance of $60,000.00 on January 5,
1985. On January 25, 1985, although the period
of payment had already expired, plaintiff paid to
the defendant Melody Co in the United States,
the sum of $30,000.00, as partial payment of the
purchase price. Defendant's counsel, Atty.
Leopoldo Cotaco, wrote a letter to the plaintiff
dated March 15, 1985, demanding that she pay
the balance of $70,000.00 and not receiving any
response thereto, said lawyer wrote another
letter to plaintiff dated August 8, 1986, informing
her that she has lost her "option to purchase"
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Ruling:
The March 15, 1985 letter sent by the
COS through their lawyer to the CUSTODIO
reveals that the parties entered into a perfected
contract of sale and not an option contract.
A contract of sale is a consensual
contract and is perfected at the moment there is
a meeting of the minds upon the thing which is
the object of the contract and upon the price.
From that moment the parties may reciprocally
demand performance subject to the provisions
of the law governing the form of contracts.
The elements of a valid contract of sale
under Article 1458 of the Civil Code are (1)
consent or meeting of the minds; (2) determinate
subject matter; and (3) price certain in money or
its equivalent. As evidenced by the March 15,
1985 letter, all three elements of a contract of
sale are present in the transaction between the
petitioners and respondent. Custodio's offer to
purchase the Beata property, subject of the sale
at a price of $100,000.00 was accepted by the
COS. Even the manner of payment of the price
was set forth in the letter. Earnest money in the
amounts of US$1,000.00 and P40,000.00 was
already received by the COS. Under Article 1482
of the Civil Code, earnest money given in a sale
transaction is considered part of the purchase
price and proof of the perfection of the sale.
.
The COS were of the mistaken belief
that CUSTODIO had lost her "option" over the
Beata property when she failed to pay the
remaining balance of $70,000.00 pursuant to
their August 8, 1986 letter. Accordingly,
CUSTODIO acted well within her rights when
she attempted to pay the remaining balance of
$70,000.00 to complete the sum owed of
Page 17

$100,000.00 as the contract was still subsisting

at that time. When the COS refused to accept
said payment and to deliver the Beata property,
CUSTODIO immediately sued for the rescission
of the contract of sale and prayed for the return
of the $30,000.00 she had initially paid.
Under Article 138518 of the Civil Code,
rescission creates the obligation to return the
things which were the object of the contract but
such rescission can only be carried out when the
one who demands rescission can return
whatever he may be obliged to restore.
The property involved has not been
delivered to the appellee. She has therefore
nothing to return to the appellants. The price
received by the appellants has to be returned to
the appellee as aptly ruled by the lower court, for
such is a consequence of rescission, which is to
restore the parties in their former situations.

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Page 18

documentation if there is mutual agreement

between us;
3. In the event that we do not come to an
agreement on this transaction, the said amount
of 1,000,000 shall be refundable to us in full
upon demand.

SAN MIGUEL PROPERTIES PHILIPPINES,

INC., PETITIONER, VS. SPOUSES ALFREDO
HUANG
AND
GRACE
HUANG,
RESPONDENTS.
[GRN 137290 July 31, 2000]
First Division
Facts:
Petitioner San Miguel Properties Philippines,
Inc. is a domestic corporation engaged in the
purchase and sale of real properties. Parts of its
inventory are two parcels of land totaling to 1,
738 square meters at the corner of Meralco
Avenue and Gen. Capinpin St., Barrio Oranbo,
Pasig City.
On February 21, 1994, the properties
were offered for sale for 52,140,000 in cash.
The offer was made to Atty. Helena Dauz who
was acting for respondent spouses as
undisclosed principals. In a letter dated March
24, 1994, Atty. Dauz signified her clients interest
in purchasing the properties for the amount for
which they were offered by petitioner, under the
following terms: the sum of 500,000 would be
given as earnest money and the balance would
be paid in 8 equal monthly installments from
May to December 1994. However, petitioner
refused the counter-offer.
Atty. Dauz thus wrote San Miguel
expressing the interest of respondent spouses,
subject to the following conditions:
1. We will be given the exclusive option to
purchase the property within 30 days from date
of your acceptance of this offer;
2. During said period, we will negotiate on the
terms and conditions of the purchase; SMPPI
will secure the necessary management and
board approvals; and we initiate the
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

On July 7, 1994, San Miguel, through its

president, Federico Gonzales, wrote Atty. Dauz
informing her that because the parties failed to
agree on the terms and conditions of the sale
despite the extension granted by San Miguel, it
is already returning the amount of 1 Million
given as earnest-deposit.
Respondent spouses, through their
counsel, demanded the execution of the Deed of
Sale and attempted to return the earnest-deposit
but SMPPI refused to accept it on the ground
that the option to purchase had already expired.
Thus on August 16, 1994, respondent
spouses filed a complaint for specific
performance against SMPPI but the latter
moved to dismiss said complaint alleging that: 1.
the alleged exclusive option of respondent
spouses lacked a consideration separate and
distinct from the purchase price and was thus
unenforceable; and 2. the complaint did not
allege a cause of action because there was no
meeting of the minds between the parties and
therefore, no perfected contract of sale. This
motion was opposed by respondent spouses.
RTC granted the motion to dismiss but
the CA reversed it on appeal and held that all
the requisites of a perfected contract of sale had
been complied with as the offer made in
connection with which the earnest money in the
amount of 1 Million was tendered by
respondent spouses had already been accepted
by SMPPI. The court cited Art. 1482 of the Civil
Code which 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.

Issue: Whether or not the contract of sale was

perfected.

Ruling:

Page 19

The contract of sale was not perfected. In

holding that there is perfected contract of sale,
the CA relied on the following findings: (1)
earnest money was allegedly given by
respondents and accepted by SMPPI through its
vice-president and operations manager, Isidro
Sobrecarey; and (2) the documentary evidence
in the records show that there was perfected
contract of sale.
With regard to the alleged payment and
acceptance of the earnest money, the SC holds
that respondents did not give the 1 Million as
earnest money as contemplated in Art. 1482.
Respondents presented the amount merely as
deposit of what would eventually become
earnest money or down payment should a
contract of sale be made by them. The amount
was thus given not as part of the purchase price
and proof of the perfection of the contract of sale
but only as guarantee that respondents would
not back out of the sale. They even described it
as earnest-deposit.
All that respondents had
option to buy the properties which
not exercised by them because
failure to agree on the terms of
contract of sale may thus be
respondents.

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UST Faculty of Civil Law
2A SY 2009-2010

was just an
privilege was
there was a
payment. No
enforced by

Page 20

When petitioners declared in

Receipt for Partial Payment that they

SPOUSES ONNIE SERRANO AND AMPARO

HERRERA, PETITIONERS, VS. GODOFREDO
CAGUIAT, RESPONDENT.
[GRN 139173 February 28, 2007]First Division
Facts:
Petitioners are registered owners of a lot
located in Las Pias. On March 23, 1900,
respondent offered to buy the lot and petitioners
agreed to sell it at 1,500 per square meter.
Respondent then gave 100,000 as partial
payment.
A few days after, respondent, through
his counsel, wrote petitioners informing them of
his readiness to pay the balance of the contract
price and requesting them to prepare the Deed
of Sale.
Petitioners, through counsel, informed
respondent in a letter that Amparo Herrera
would be leaving for abroad on or before April
15, 1990 and they are canceling the transaction
and that respondent may recover the earnest
money (100,000) anytime. Petitioners also
wrote him stating that they already delivered a
managers check to his counsel in said amount.
Respondent thus filed a complaint for
specific performance and damages with the RTC
of Makati.
The trial court ruled that there was
already a perfected contract of sale between the
parties and ordered the petitioners to execute a
final deed of sale in favor of respondent.

the

RECEIVED FROM MR. GODOFREDO

CAGUIAT THE AMOUNT OF ONE HUNDRED
THOUSAND PESOS AS PARTIAL PAYMENT
OF OUR LOT SITUATED IN LAS PIAS
MR. CAGUIAT PROMISED TO PAY
THE BALANCE OF THE PURCHASE PRICE
ON OR BEFORE MARCH 23, 1990, AND THAT
WE WILL EXECUTE AND SIGN THE FINAL
DEED OF SALE ON THIS DATE. there can be
no other interpretation than that they agreed to a
conditional contract of sale, consummation of
which is subject only to the full payment of the
purchase price.
A contract to sell is akin to a conditional
sale where the efficacy or obligatory force of the
vendors obligation to transfer title is
subordinated to the happening of a future and
uncertain event, so that if the suspensive
condition does not take place, the parties would
stand as if the conditional obligation had never
existed. The suspensive condition is commonly
full payment of the purchase price.
In this case, the Receipt for Partial
Payment shows that the true agreement
between the parties is a contract to sell.
First, ownership over the property was
retained by petitioners and was not to pass to
respondent until full payment of the purchase
price. Second, the agreement between the
parties was not embodied in a deed of sale. The
absence of a formal deed of conveyance is a
strong indication that the parties did not intend
immediate transfer of ownership, but only a
transfer after full payment of the purchase price.
Third, petitioners retained possession of the
certificate of title of the lot.

The Court of appeals affirmed said

decision.
Issue: Whether or not there was a contract of
sale.
Ruling:
The transaction was a contract to sell.
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Page 21

It is true that Article 1482 provides that

whenever earnest money is given in a contract
of sale, it shall be considered as part of the price
and proof of the perfection of the contract.
However, this article speaks of earnest money
given in a contract of sale. In this case, the
earnest money was given in a contract to sell.
The earnest money forms part of the
consideration only if the sale is consummated
upon full payment of the purchase price.
Clearly, respondent cannot compel
petitioners to transfer ownership of the property
to him.
PCI Leasing and Finance Inc. Vs. Giraffe- X
Creative Imaging, Inc.
July 12, 2007
GR 142618
First Division
Garcia, J
Facts:
-On December 4, 1996, petitioner PCI
LEASING and respondent GIRAFFE entered
into a Lease Agreement, whereby the former
leased out to the latter one (1) set of Silicon
High Impact Graphics and accessories worth
P3,900,00.00 and one (1) unit of Oxberry
Cinescan 6400-10 worth P6,500,000.00.
- A year into the life of the Lease Agreement,
GIRAFFE defaulted in its monthly rentalpayment obligations. And following a threemonth default, PCI LEASING addressed a
formal pay-or-surrender-equipment type of
demand letter dated February 24, 1998 to
GIRAFFE.
- The demand went unheeded.
- PCI Leasing instituted a case against
GIRAFFE. PCI prayed for the issuance of a writ
of replevin for the recovery of the leased
property
- Upon PCI LEASINGs posting of a replevin
bond, the trial court issued a writ of replevin,
paving the way for PCI LEASING to secure the
seizure and delivery of the equipment covered
by the basic lease agreement.
- Instead of an answer, GIRAFFE filed a Motion
to Dismiss,arguing that the seizure of the two (2)
leased equipment stripped PCI LEASING of its
cause of action.
-GIRAFFE argues that, pursuant to Article 1484
of the Civil Code on installment sales of
personal property, PCI LEASING is barred from
further pursuing any claim arising from the lease
agreement and the companion contract
documents, adding that the agreement between
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2A SY 2009-2010

the parties is in reality a lease of movables with

option to buy.
-GIRAFFE asserts in its Motion to Dismiss that
the civil complaint filed by PCI LEASING is
proscribed by the application to the case of
Articles 1484 and 1485, supra, of the Civil Code.
- PCI Leasing on the other hand maintains that
its contract with GIRAFFE is a straight lease
without an option to buy.
- petitioner contends that the financial leasing
arrangement it concluded with the respondent
represents a straight lease covered by R.A. No.
5980, the Financing Company Act, as last
amended by R.A. No. 8556, otherwise known as
Financing Company Act of 1998, and is outside
the application and coverage of the Recto Law.
To the petitioner, R.A. No. 5980 defines and
authorizes its existence and business.
-the trial court granted GIRAFFEs motion to
dismiss
- motion for reconsideration was denied, hence
this petition for review.
Issue:
Whether the agreement between PCI Leasing
and GIRAFFE is governed by Articles 1484 and
1485 of the Civil Code?
Held:
Petition denied. Trial Courts decision affirmed
Ratio:
-The PCI LEASING- GIRAFFE lease agreement
is in reality a lease with an option to purchase
the equipment. This has been made manifest
by the actions of the petitioner itself, foremost of
which is the declarations made in its demand
letter to the respondent. There could be no other
explanation than that if the respondent paid the
balance, then it could keep the equipment for its
own; if not, then it should return them. This is
clearly an option to purchase given to the
respondent. Being so, Article 1485 of the Civil
Code should apply.
- The present case reflects a situation where the
financing company can withhold and conceal up to the last moment - its intention to sell the
property subject of the finance lease, in order
that the provisions of the Recto Law may be
circumvented. It may be, as petitioner pointed
out, that the basic lease agreement does not
contain a purchase option clause. The
absence, however, does not necessarily argue
against the idea that what the parties are into is
Page 22

not a straight lease, but a lease with option to

purchase. This Court has, to be sure, long been
aware of the practice of vendors of personal
property of denominating a contract of sale on
installment as one of lease to prevent the
ownership of the object of the sale from passing
to the vendee until and unless the price is fully
paid.
-Being leases of personal property with option to
purchase as contemplated in the above article,
the contracts in question are subject to the
provision that when the lessor in such case has
chosen to deprive the lessee of the enjoyment of
such personal property, he shall have no
further action against the lessee for the
recovery of any unpaid balance owing by the
latter, agreement to the contrary being null and
void.
-In choosing, through replevin, to deprive the
respondent of possession of the leased
equipment, the petitioner waived its right to bring
an action to recover unpaid rentals on the said
leased items. Paragraph (3), Article 1484 in
relation to Article 1485 of the Civil Code, which
we are hereunder re-reproducing, cannot be any
clearer.
ART. 1484. In a contract of sale of personal
property the price of which is payable in
installments, the vendor may exercise any of the
following remedies:
xxx

xxx

xxx

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

the same Article 1485. The condition that the

lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of
applying Article 1485 was fulfilled in this case by
the filing by petitioner of the complaint for a sum
of money with prayer for replevin to recover
possession of the office equipment. By virtue of
the writ of seizure issued by the trial court, the
petitioner has effectively deprived respondent of
their use, a situation which, by force of the
Recto Law, in turn precludes the former from
maintaining an action for recovery of accrued
rentals or the recovery of the balance of the
purchase price plus interest.
The imperatives of honest dealings given
prominence in the Civil Code under the heading:
Human Relations, provide another reason why
we must hold the petitioner to its word as
embodied in its demand letter. Else, we would
witness a situation where even if the
respondent
surrendered
the
equipment
voluntarily, the petitioner can still sue upon its
claim. This would be most unfair for the
respondent. We cannot allow the petitioner to
renege on its word. Yet more than that, the very
word or as used in the letter conveys distinctly
its intention not to claim both the unpaid balance
and the equipment. It is not difficult to discern
why: if we add up the amounts paid by the
respondent, the residual value of the property
recovered, and the amount claimed by the
petitioner as sued upon herein (for a total of
P21,779,029.47), then it would end up making
an instant killing out of the transaction at the
expense of its client, the respondent. The Recto
Law was precisely enacted to prevent this kind
of aberration. Moreover, due to considerations
of equity, public policy and justice, we cannot
allow this to happen. Not only to the respondent,
but those similarly situated who may fall prey to
a similar scheme.

ART. 1485. The preceding article shall be

applied to contracts purporting to be leases of
personal property with option to buy, when the
lessor has deprived the lessee of the possession
or enjoyment of the thing.
-As we articulated in Elisco Tool Manufacturing
Corp. v. Court of Appeals, the remedies provided
for in Article 1484 of the Civil Code are
alternative, not cumulative. The exercise of one
bars the exercise of the others. This limitation
applies to contracts purporting to be leases of
personal property with option to buy by virtue of
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2A SY 2009-2010

Page 23

Elisco Tool Manufacturing Corp. Vs. Court of

Appeals et. al.
May 31, 1999
GR 109966
Second Division
Mendoza J.
Facts:
-Private respondent Rolando Lantan was
employed at the Elisco Tool Manufacturing
Corporation as head of its cash department. On
January 9, 1980, he entered into an agreement
with the company which provided as follows:
- that, Elisco Tool Manufacturing Corp is the
owner of a car which for and in consideration of
a monthly rental of P 1010.65 will be leased to
Rolando Lantan for 5 years
- That, Rolando Lantan shall pay the lease thru
salary deduction from his monthly remuneration
in the amount as above specified for a period of
FIVE (5) years;
- That, he shall for the duration of the lease
contract, shoulder all expenses and costs of
registration, insurance, repair and maintenance,
gasoline, oil, part replacement inclusive of all
expenses necessary to maintain the vehicle in
top condition
-That, at the end of FIVE (5) year period or upon
payment of the 60th monthly rental, Lantan may
exercise the option to purchase the motor
vehicle from Elisco and all monthly rentals shall
be applied to the payment of the full purchase
price of the car and further, should Lantan desire
to exercise this option before the 5-year period
lapse, he may do so upon payment of the
remaining balance on the five year rental unto
Elisco, it being understood however that the
option is limited to the EMPLOYEE;
-That, in case of default in payment THREE (3)
accumulated monthly rentals, Elisco shall have
the full right to lease the vehicle to another
EMPLOYEE;
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2A SY 2009-2010

-That, in the event of resignation and or

dismissal from the service, Lantan shall return
the subject motor vehicle to the EMPLOYER in
good working and body condition.
-On the same day, January 9, 1980, private
respondent executed a promissory note which
states his promise to pay P 1,010.65 without the
necessity of notice or demand in accordance
with the schedule of payment
- After taking possession of the car, Lantan
installed accessories worth P15,000.00
-In 1981, Elisco Tool ceased operations, as a
result of which private respondent Rolando
Lantan was laid off. Nonetheless, as of
December 4, 1984, private respondent was able
to make payments for the car in the total amount
of P61,070.94.
-On June 6, 1986, petitioner filed a complaint,
entitled replevin plus sum of money, against
private respondent Rolando Lantan, his wife
Rina, and two other persons, identified only as
John and Susan Doe, before the Regional Trial
Court of Pasig, Metro Manila.
-Petitioner alleged that private respondents
failed to pay the monthly rentals that despite
demands, private respondents failed to settle
their obligation thereby entitling petitioner to the
possession of the car; that petitioner was ready
to post a bond in an amount double the value of
the car, which was P60,000; and that in case
private respondents could not return the car,
they should be held liable for the amount of
P60,000 plus the accrued monthly rentals
thereof, with interest at the rate of 14% per
annum, until fully paid.
- Upon the posting of the bond, the sheriff took
possession of the car and after 5 days turned it
over to the petitioner
- private respondents claim that their agreement
was to buy and sell and not lease with option to
buy the car
- in its reply, petitioner maintained that the
contract was one of lease with option to
purchase and that the promissory note was
merely a nominal security for the agreement.
- trial court rendered its decision in favor of the
private respondent
- petitioner appealed to CA, petitioner filed
motion for execution pending appeal
- CA affirmed in toto the decision of the trial
court, hence the petition for review on certiorari
Issue/s:
Whether the Court of Appeals erred

Page 24

(a) in disregarding the admission in the

pleadings as to what documents contain the
terms of the parties agreement.
(b) in holding that the interest stipulation in
respondents Promissory Note was not valid and
binding.
(c) in holding that respondents had fully paid
their obligations.
Held:
The decision of the Court of Appeals is
AFFIRMED with costs against petitioner.
Ratio:
First. Petitioner does not deny that private
respondent Rolando Lantan acquired the vehicle
in question under a car plan for executives of the
Elizalde group of companies. Under a typical car
plan, the company advances the purchase price
of a car to be paid back by the employee
through monthly deductions from his salary. The
company retains ownership of the motor vehicle
until it shall have been fully paid for. However,
retention of registration of the car in the
companys name is only a form of a lien on the
vehicle in the event that the employee would
abscond before he has fully paid for it. There
are also stipulations in car plan agreements to
the effect that should the employment of the
employee concerned be terminated before all
installments are fully paid, the vehicle will be
taken by the employer and all installments paid
shall be considered rentals per agreement.
This Court has long been aware of the practice
of vendors of personal property of denominating
a contract of sale on installment as one of lease
to prevent the ownership of the object of the sale
from passing to the vendee until and unless the
price is fully paid. As this Court noted in Vda. de
Jose v. Barrueco:
Sellers desirous of making conditional sales of
their goods, but who do not wish openly to make
a bargain in that form, for one reason or another,
have frequently resorted to the device of making
contracts in the form of leases either with
options to the buyer to purchase for a small
consideration at the end of term, provided the
so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is
paid, title shall thereupon vest in the lessee. It is
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2A SY 2009-2010

obvious that such transactions are leases only in

name. The so-called rent must necessarily be
regarded as payment of the price in installments
since the due payment of the agreed amount
results, by the terms of the bargain, in the
transfer of title to the lessee.
Second. The contract being one of sale on
installment, the Court of Appeals correctly
applied to it the following provisions of the Civil
Code:

The remedies provided for in Art. 1484 are

alternative, not cumulative. The exercise of one
bars the exercise of the others. This limitation
applies to contracts purporting to be leases of
personal property with option to buy by virtue of
Art. 1485. The condition that the lessor has
deprived the lessee of possession or enjoyment
of the thing for the purpose of applying Art. 1485
was fulfilled in this case by the filing by petitioner
of the complaint for replevin to recover
possession of movable property. By virtue of
the writ of seizure issued by the trial court, the
deputy sheriff seized the vehicle on August 6,
1986 and thereby deprived private respondents
of its use. The car was not returned to private
respondent until April 16, 1989, after two (2)
years and eight (8) months, upon issuance by
the Court of Appeals of a writ of execution.
Petitioner prayed that private respondents be
made to pay the sum of P39,054.86, the amount
that they were supposed to pay as of May 1986,
plus interest at the legal rate. At the same time,
it prayed for the issuance of a writ of replevin or
the delivery to it of the motor vehicle complete
with accessories and equipment. In the event
the car could not be delivered to petitioner, it
was prayed that private respondent Rolando
Lantan be made to pay petitioner the amount of
P60,000.00, the estimated actual value of the
car, plus accrued monthly rentals thereof with
interests at the rate of fourteen percent (14%)
per annum until fully paid. This prayer of
course cannot be granted, even assuming that
private respondents have defaulted in the
payment of their obligation. This led the trial
court to say that petitioner wanted to eat its cake
and have it too.
Both the trial court and the Court of Appeals
correctly ruled that private respondents could no
longer be held liable for the amounts of
Page 25

P39,054.86 or P60,000.00 because private

respondents had fulfilled their part of the
obligation. The agreement does not provide for
the payment of interest on unpaid monthly
rentals or installments because it was entered
into in pursuance of a car plan adopted by the
company for the benefit of its deserving
employees. As the trial court correctly noted,
the car plan was intended to give additional
benefits to executives of the Elizalde group of
companies.
Third. Private respondents presented evidence
that they felt bad, were worried, embarrassed
and mentally tortured by the repossession of
the car. This has not been rebutted by
petitioner. There is thus a factual basis for the
award of moral damages. In addition, petitioner
acted in a wanton, fraudulent, reckless and
oppressive manner in filing the instant case,
hence, the award of exemplary damages is
justified. The award of attorneys fees is likewise
proper considering that private respondents
were compelled to incur expenses to protect
their rights

PEOPLE'S INDUSTRIAL AND COMMERCIAL

CORPORATION, petitioner, vs. COURT OF
APPEALS and MAR-ICK INVESTMENT
CORPORATION, respondents.
G.R. No. 112733

October 24, 1997

281 SCRA 206

Ponente: ROMERO, J. (THIRD DIVISION)
Facts:
Private respondent Mar-ick Investment
Corporation is the exclusive and registered
owner of Mar-ick Subdivision in Barrio Buli,
Cainta, Rizal. On May 29, 1961, private
respondent entered into 6 agreements with
petitioner People's Industrial and Commercial
Corporation whereby it agreed to sell to
petitioner 6 subdivision lots.
Five of the agreements stipulate that the
petitioner agreed to pay private respondent for
each lot, the amount of P7,333.20 with a down
payment of P480.00. The balance of P6,853.20
shall be payable in 120 equal monthly
installments of P57.11 every 30th of the month,
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UST Faculty of Civil Law
2A SY 2009-2010

for a period of ten years. With respect to another

lot, the parties agreed to the purchase price of
P7,730.00 with a down payment of P506.00 and
equal monthly installments of P60.20. After
the lapse of ten years, petitioner still had not
fully paid for the six lots. It had paid only the
down payment and 8 installments.
After a series of negotiations between
the parties, they agreed to enter into a new
contract to sell on October 11, 1983. The
contract stipulates that the previous contracts
have been cancelled due to the failure of the
purchaser to pay the stipulated installments.
Neither of the parties signed the new
contract. Siatianum issued checks in the total
amount of P37,642.72 to private respondent.
Private respondent received but did not
encash the checks. Instead, it filed in the
Regional Trial Court of Antipolo, Rizal, a
complaint for accion publiciana de posesion
against petitioner and Tomas Siatianum, as
president and majority stockholder of petitioner.
It prayed that petitioner surrender possession of
the lots of Mar-ick Subdivision, and that
petitioner and Tomas Siatianum be ordered to
pay reasonable rentals for the use of the lots. In
the alternative, the complaint prayed that should
the agreements be deemed not automatically
cancelled, the same agreements should be
declared
null
and
void.
Lower court rendered a decision finding
that the original agreements of the parties were
validly cancelled. The parties did not enter into a
new contract in accordance with Art. 1403 (2) of
the Civil Code as the parties did not sign the
draft contract. Receipt by private respondent of
the five checks could not amount to perfection of
the contract because private respondent never
encashed and benefited from those checks.
There was no meeting of the minds between the
parties because Art. 475 of the Civil Code
should be read with the Statute of Frauds that
requires the embodiment of the contract in a
note or memorandum. What was clearly proven
was that both parties negotiated a new contract
after the termination of the first. Thus, the fact
that the parties tried to negotiate a new contract
indicated that they considered the first contract
as already cancelled.
Petitioner elevated the case to the Court
of Appeals which affirmed in toto the lower
court's decision.

Page 26

Issue:
Whether or not there was a perfected
and enforceable contract of sale on October 11,
1983 which modified the earlier contracts to sell
which had not been validly rescinded.
Ruling:
The contracts to sell of 1961 were
cancelled to which the parties voluntarily bound
themselves. When petitioner failed to abide by
its obligation to pay the installments provision
No. 9 of the contract automatically took effect
which states that should the purchaser fail to
make the payment of any of the monthly
installments as agreed herein, this contract
shall, by the mere fact of nonpayment, expire by
itself and become null and void.
The 1961 agreements are contracts to
sell and not contracts of sale. The distinction
between these contracts is depicted in Adelfa
Properties, Inc. v. Court of Appeals which states
that the distinction between the two is important
for in a contract of sale, the title passes to the
vendee upon the delivery of the thing sold;
whereas in a contract to sell, by agreement the
ownership is reserved in the vendor and is not to
pass until the full payment of the price. In a
contract of sale, the vendor has lost and cannot
recover ownership until and unless the contract
is resolved or rescinded; whereas, in a contract
to sell, title is retained by the vendor until the full
payment of the price, such payment being a
positive suspensive condition and failure of
which is not a breach but an event that prevents
the obligation of the vendor to convey title from
becoming effective. Thus, a deed of sale is
considered absolute in nature where there is
neither a stipulation in the deed that title to the
property sold is reserved in the seller until the
full payment of the price, nor one giving the
vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within
a fixed period. Being contracts to sell, Article
1592 of the Civil Code which requires rescission
either by judicial action or notarial act is not
applicable.
Petitioner alleges that there was a new
perfected and enforceable contract of sale
between the parties in October 1983. Private
respondent's company lawyer volunteered that
after the cancellation of the 1961 agreements,
the parties should negotiate and enter into a
new agreement. However, after he had drafted
the contract and sent it to petitioner, the latter
deposited a check for downpayment but its
representative refused to sign the prepared
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contract. In the absence of proof to the contrary,

this draft contract may be deemed to embody
the agreement of the parties. Private respondent
did not and has not denied the existence of that
contract. Under these facts, therefore, the
parties may ideally be considered as having
perfected the contract of October 1983.
Justice and equity, however, will not be
served by a positive ruling on the perfection and
performance of the contract to sell. There are
facts on record proving that the parties had not
arrived at a definite agreement. By Atty.
Villamayor's admission, the checks were not
encashed because Tomas Siatianun did not sign
the draft contract that he had prepared. On his
part, Tomas Siatianun explained that he did not
sign the contract because it covered 7 lots while
their agreement was only for 6 lots.
The number of lots to be sold is a material
component of the contract to sell. Without an
agreement on the matter, the parties may not in
any way be considered as having arrived at a
contract under the law. Moreover, installments
paid by the petitioner on the land should be
deemed rentals. Article 1486 of the Civil Code
provides that a stipulation that the installments
or rents paid shall not be returned to the vendee
or lessee shall be valid insofar as the same may
not be unconscionable under the circumstances.
WHEREFORE, the instant petition for
review on certiorari is hereby denied and the
questioned Decision of the Court of Appeals is
AFFIRMED.

Page 27

deed of absolute sale transferring the parcel of

land to Jose Gangay and that in a fictitious deed
of absolute sale it was made to appear that
Gangay in turn conveyed the land to Nena
Abecia, wife of respondent Abecia. Daroy
alleged that he entrusted the title to the land to
Abecia as his counsel and allowed him to take
possession of the land upon the latters request.
By means of the forged deed of sale, Abecia
was able to obtain new transfer certificates of
title, first in the name of Gangay and then in that
of Mrs. Abecia, from the Registry of Deeds of
Misamis Oriental. Daroy claimed he discovered
the fraud only in 1984.
On
July
15,
1993,
Commissioner Plaridel Jose ruled that
respondent Abecia is guilty of malpractice and
recommended his disbarment. The Integrated
Bar of the Philippines approved the report but
reduced the penalty to indefinite suspension.
Respondent Abecia filed a Motion for
Reconsideration and/or Appeal.
Issues:

REGALADO DAROY, complainant, vs. ATTY.

ESTEBAN ABECIA, respondent.

Whether or not the Commission on Bar

Discipline erred when it held that complainant
had no knowledge of the execution of the Deed
of Absolute Sale.
Whether or not respondent Atty. Esteban
Abecia is prohibited from acquiring the parcel of
land.

A.C. No. 3046

Ruling:

October 26, 1998

Ponente: MENDOZA, J. (SECOND DIVISION)

Facts:
This refers to the complaint for
malpractice filed by Regalado Daroy against
Esteban Abecia, a member of the Bar.
Respondent Abecia was counsel of
complainant Daroy in a case for forcible entry
before the Municipal Trial Court of Opol,
Misamis Oriental. Judgment was rendered in
favor of complainant. To satisfy the judgment,
the sheriff sold at public auction a parcel of land
belonging to one of the defendants to
complainant Daroy as highest bidder. Upon
failure of the defendants to redeem the land, its
ownership was consolidated in complainant
Daroy.
Complainant
Daroy
claimed
that
respondent Abecia forged his signature in a
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Respondents motion is well taken.

As already stated, the land in question
was purchased by complainant at the sheriffs
sale. Deputy Sheriff stated that when he finally
transferred the land to the buyer, he placed in
possession of the land not only the buyer,
Regalado Daroy, but also the latters assignee,
Nena Abecia, in whose name the title to the land
had in fact been transferred. It would appear,
therefore, that Daroy already knew that title to
the land had already been transferred in the
name
of
the
respondents
wife.
Indeed, what appears to have happened
in this case is that the parties thought that
because the land had been acquired by
complainant at a public sale held in order to
satisfy a judgment in his favor in a case in which
respondent was complainants counsel, the latter
could not acquire the land. The parties
apparently had in mind Art. 1491 of the Civil
Code which provides:

Page 28

ART. 1491. The following persons

cannot acquire by purchase, even at a
public or judicial auction, either in
person or through the mediation of
another:
5)
Justices,
judges,
prosecuting
attorneys, clerks of superior and inferior
courts,
and
other
officers
and
employees
connected
with
the
administration of justice, the property
and rights in litigation or levied upon an
execution before the court within whose
jurisdiction or territory they exercise their
respective functions; this prohibition
includes the act of acquiring by
assignment and shall apply to lawyers,
with respect to the property and rights
which may be the object of any litigation
in which they may take part by virtue of
their profession.
In Guevara v. Calalang, we held that the
prohibition in Art. 1491 does not apply to the
sale of a parcel of land, acquired by a client to
satisfy a judgment in his favor, to his attorney as
long as the property was not the subject of the
litigation. While judges, prosecuting attorneys,
and others connected with the administration of
justice are prohibited from acquiring property or
rights in litigation or levied upon in execution, the
prohibition with respect to attorneys in the case
extends only to property and rights which may
be the object of any litigation in which they may
take part by virtue of their profession.
WHEREFORE, the resolution of the IBP
Board of Governors is RECONSIDERED and
the complaint against respondent Esteban
Abecia is DISMISSED.

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Page 29

and he was able to obtain the property. He then

sold it to C.S Chang and C.C. Chang which
gave him a huge profit.
Thw suspension of Maquere was
referred here in the Philippines through the
Integrated Bar of the Philippines. However, it
concluded that theres no evidence to establish
that he also committed a breach of ethics in the
Philippines.

ISSUE: Whether Atty. Maqueras acts constitute

grounds for his suspension or disbarment in the
Philippine Jurisdiction.

RULING: Atty. Maquera is suspended for one

year for the meantime or until he shall have paid
his membership dues, whichever came later.
Paragraph 5 of Article 1491 of the New
Civil Code prohibits lawyers acquisition by
assignment of the clients property which is the
subject of the litigation handled by the lawyer.
In Re: Suspension from the Practice of Law
in the territory of Guam of Atty. Leon G.
Maquera,
435 SCRA 417,

July 30, 2004.

Tinga, B.M. 793

FACTS:
Atty. Leon G. MAquera, in a decision
rendered by the Superior Court of Guam, was
suspended from the practice of law in Guam for
two years. The decision was based on
Maqueras misconduct, as he acquired his
clients property as payment for his legal
services, then sold it and as a consequence
obtained an unreasonable high fee for handling
his clients case.

Under Article 1492, the prohibition

extends to sales in legal redemption.
Maqueras acts in Guam which resulted
in his two-year suspension from the practice of
law in that jurisdiction are also valid grounds for
his suspension from the practice of law in the
Philippines. Such acts are violative of lawyers
sworn duty to act with fidelity toward his clients.
It is also violative of Canon 17 which
states, a lawyer owes fidelity to the cause of his
client and shall be mindful of the trust and
confidence reposed in him.

Castro, his client, and his creditor was in

a civil case where Castros property, a parcel of
land, was a subject. The decision was rendered
in against Castro and ordered the auction sale of
the land. It was purchased by the creditor but
Castro retained his right of redemption which
was later on assigned to Maquera as payment
for his services. Maquera exercised this right
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Page 30

Chua filed a complaint for a specific

performance against her which the trial court
held in favor of Chua. However, the Court of
Appeals reversed the said decision.

ISSUE: Whether there is a perfected contract of

sale of immovable property.

RULING: Petition is dismissed. There is no

perfected contract of sale.
The agreement that the parties entered
into is a contract to sell and not a contract of
sale.

Chua v. Court of Appeals and Valdes-Choy,

401 SCRA 54, April 9, 2003
Carpio, G.R. No. 119255

FACTS:
Encarnacion Valdes-Choy advertised for
sale her paraphernal house and lot in Makati
City which Chua responded to. They both
agreed on a purchased price of P100,000.00
payable in cash.

In a contract of sale, the title of the

property passes to the vendee upon the delivery
of the thing sold and the vendor loses ownership
over the property and cannot recover it until and
unless the contract is resolved or rescinded. In a
contract to sell, ownership is, by agreement,
reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price
and the title is retained by the vendor until full
payment of the price. Also in the contract to sell,
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 receipt made by both of them
shows that the true agreement between the
parties was a contract to sell. Ownership over
the property was retained by Valdes-Choy and
was not to pass to Chua until full payment of the
purchase price.

Chua gave P100,000.00 to Valdes-Choy

as an earnest money and another P485,000.00
for the payment of capital gains tax since
Valdes-Choy was not able to pay the said tax.
However, Chua did not pay the
remaining balance of P10,215,000.00 but
demanded that the property be first registered
under his name. On the other hand, ValdesChoy wanted that the remaining purchase
balance be deposited in her account before she
could transfer the title of her property to him.
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2A SY 2009-2010

Page 31

Alberto Pursuelo. This, however, is denied by

VISAYAN SAWMILL who allege that on May 23,
1983, they sent a telegram to Hibionada
cancelling the contract of sale because of failure
of the latter to comply with the conditions
thereof.
On May 26, 1983, VISAYAN SAWMILL received
a letter advice from the Dumaguete City Branch
of the Bank of the Philippine Islands dated May
26, 1983.
Hibionada sent a series of telegrams stating that
the case filed against him by Pursuelo had been
dismissed and demanding that VISAYAN
SAWMILL comply with the deed of sale,
otherwise a case will be filed against them.
In reply, VISAYAN SAWMILL is unwilling to
continue with the sale due to Hibionada's failure
to comply with essential preconditions of the
contract.
Hibionada filed the complaint below with a
petition for preliminary attachment and prayed
for judgment ordering the VISAYAN SAWMILL to
comply with the contract by delivering to him the
scrap iron subject thereof
VISAYAN SAWMILL COMPANY, INC., and
ANG TAY, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and
RJH TRADING, represented by RAMON J.
HIBIONADA, proprietor, respondents.
G.R. No. 83851

March 3, 1993

DAVIDE, JR.
Facts:
Ramon J. Hibionada and Visayan Sawmill
Company (VISAYAN SAWMILL) entered into a
sale involving scrap iron subject to the condition
that plaintiff-appellee will open a letter of credit in
the amount of P250,000.00 in favor of
defendant-appellant corporation on or before
May 15, 1983.
Ramon J. Hibionada through his man, started to
dig and gather and scrap iron at the VISAYAN
SAWMILL's premises, proceeding with such
endeavor until May 30 when VISAYAN
SAWMILL allegedly directed Hibionadas men to
desist from pursuing the work in view of an
alleged case filed against Hibionada by a certain
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

In their Answer with Counterclaim, VISAYAN

SAWMILL insisted that the cancellation of the
contract was justified because of Hibionadas
non-compliance with essential preconditions,
among which is the opening of an irrevocable
and unconditional letter of credit not later than
15 May 1983.
Issue:
Is there a contract of sale?
Is the object of sale delivered?
Held:
The nature of the transaction between the
petitioner corporation and the private respondent
is a mere contract to sell or promise to sell, and
not a contract of sale.
The seller bound and promised itself to sell the
scrap iron upon the fulfillment by the private
respondent of his obligation to make or indorse
an irrevocable and unconditional letter of credit
in payment of the purchase price.
The VISAYAN SAWMILL's obligation to sell is
unequivocally subject to a positive suspensive
condition, i.e., the private respondent's opening,
Page 32

making or indorsing of an irrevocable and

unconditional letter of credit. The former agreed
to deliver the scrap iron only upon payment of
the purchase price by means of an irrevocable
and unconditional letter of credit. Otherwise
stated, the contract is not one of sale where the
buyer acquired ownership over the property
subject to the resolutory condition that the
purchase price would be paid after delivery.
Thus, there was to be no actual sale until the
opening, making or indorsing of the irrevocable
and unconditional letter of credit. Since what
obtains in the case at bar is a mere promise to
sell, the failure of the private respondent to
comply with the positive suspensive condition
cannot even be considered a breach casual
or serious but simply an event that prevented
the obligation of petitioner corporation to convey
title from acquiring binding force.

not thereby placed in possession of and control

over the scrap iron. Thirdly, the conversion of the
initial contract or promise to sell into a contract
of sale by the petitioner corporation's alleged
implied delivery of the scrap iron because its
action and conduct in the premises do not
support this conclusion. Indeed, petitioners
demanded the fulfillment of the suspensive
condition and eventually cancelled the contract.

Consequently, the obligation of the petitioner

corporation to sell did not arise; it therefore
cannot be compelled by specific performance to
comply with its prestation. In short, Article 1191
of the Civil Code does not apply; on the contrary,
pursuant to Article 1597 of the Civil Code, the
petitioner corporation may totally rescind.
The trial court ruled, however, and the public
respondent was in agreement, that there had
been an implied delivery in this case of the
subject scrap iron because on 17 May 1983,
private respondent's men started digging up and
gathering scrap iron within the petitioner's
premises. The entry of these men was upon the
private respondent's request.
This permission or consent can, by no stretch of
the imagination, be construed as delivery of the
scrap iron in the sense that, as held by the
public respondent, citing Article 1497 of the Civil
Code, petitioners placed the private respondent
in control and possession thereof. In the first
place, said Article 1491 falls under the Chapter 15
Obligations of the Vendor, which is found in Title
VI (Sales), Book IV of the Civil Code. As such,
therefore, the obligation imposed therein is
premised on an existing obligation to deliver the
subject of the contract. In the instant case, in
view of the private respondent's failure to comply
within the positive suspensive condition earlier
discussed, such an obligation had not yet arisen.
In the second place, it was a mere
accommodation to expedite the weighing and
hauling of the iron in the event that the sale
would materialize. The private respondent was
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2A SY 2009-2010

Page 33

allegedly illegally occupied by Municipality of

Victorias. When the Mayor replied that Petitioner
bought the land she asked to be shown the
papers concerning the sale but was referred by
the Mayor to the municipal treasurer who
refused to show the same.
Norma Leuenberger filed a complaint for
recovery of possession of the parcel of land
occupied by the municipal cemetery. In its
answer, petitioner Municipality, by way of special
defense, alleged ownership of the lot, subject of
the complaint, having bought it from Simeona
Jingco Vda. de Ditching sometime in 1934. The
lower court decided in favor of the Municipality.
On appeal Respondent appellate Court set
aside the decision of the lower court hence, this
petition for review on certiorari.

MUNICIPALITY OF VICTORIAS, petitioner,

vs.
THE COURT OF APPEALS, NORMA
LEUENBERGER and FRANCISCO SOLIVA,
respondents.
G.R. No. L-31189

March 31, 1987

PARAS, J.:
Facts:
Norma Leuenberger inherited the whole of Lot
No. 140 from her grandmother, Simeona J. Vda.
de Ditching. In 1952, she donated a portion of
Lot No. 140, about 3 ha., to the municipality for
the ground of a certain high school and had 4
ha. converted into a subdivision. In 1963, she
had the remaining 21 ha. or 208.157 sq. m.
relocated by a surveyor upon request of lessee
Ramon Jover who complained of being
prohibited by municipal officials from cultivating
the land. It was then that she discovered that the
parcel of land, more or less 4 ha. or 33,747
sq.m. used by Petitioner Municipality of
Victorias, as a cemetery from 1934, is within her
property.
Norma Leuenberger wrote the Mayor of Victorias
regarding her discovery, demanding payment of
past rentals and requesting delivery of the area
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Held:
It is expressly provided by law that the thing sold
shall be understood as delivered, when it is
placed in the control and possession of the
vendee. Where there is no express provision
that title shall not pass until payment of the
price, and the thing gold has been delivered, title
passes from the moment the thing sold is placed
in the possession and control of the buyer.
Delivery produces its natural effects in law, the
principal and most important of which being the
conveyance of ownership, without prejudice to
the right of the vendor to payment of the price.
When the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the thing which is
the object of the contract, if from the deed, the
contrary does not appear or cannot be clearly
inferred. The execution of the public instrument
operates as a formal or symbolic delivery of the
property sold and authorizes the buyer to use
the document as proof of ownership.
Respondent Norma Leuenberger admitted that
she inherited the land covered by Transfer
Certificate of Title No. T-34036 from her
grandmother, who had already sold the land to
the petitioner in 1934; hence, she merely
stepped into the shoes of her grandmother and
she cannot claim a better right than her
predecessor-in-interest.

Page 34

rights to the subject property by virtue of a deed

of assignment executed between them.
Sometime thereafter, the Sabios and
Interbank settled their opposing claims by
entering into a Memorandum of Agreement (or
MOA) whereby the Sabios assigned, conveyed
and transferred all their rights over the parcel
assigned to them to Interbank, with the express
exception of of 58,000 square meter contiguous
portion of said lot. Thereafter, a dispute arose
concerning the 58,000 square meter contiguous
portion subject of the MOA, petitioners claiming
that respondent Interbank was obligated to
complete and perfect its ownership and title to
the parcels of land so that Interbank could
transfer to petitioners the absolute ownership
and title over the contiguous portion.
Issue:

SPOUSES CAMILO L. SABIO, and MA.

MARLENE A. LEDONIO-SABIO, petitioners,
vs. THE INTERNATIONAL CORPORATE
BANK, INC. (now UNION BANK OF THE
PHILIPPINES), GOLDENROD, INC., PAL
EMPLOYEES
SAVINGS
AND
LOAN
ASSOCIATION, INC., AYALA CORPORATION,
LAS PINAS VENTURES, INC., FILIPINAS LIFE
ASSURANCE COMPANY(now AYALA LIFE
ASSURANCE, INC.), AYALA PROPERTY
VENTURES CORPORATION, and AYALA
LAND, INC., respondents.
G.R. No. 132709.

September 4, 2001.

YNARES-SANTIAGO, J.:
Facts:
The object of the controversy is a
portion of a vast tract of land located at Tindig na
Manga, Almanza, Las Pinas City. The spouses
Gerardo and Emma Ledonio, assigned to the
spouses Camilo and Ma. Marlene Sabio (herein
petitioners) all their rights, interests, title and
participation over a contiguous portion of the
subject property measuring 119,429 square
meters. Similarly, while the subject property was
still the object of several pending cases, the
International Corporate Bank, Inc. (or Interbank)
acquired from the Trans-Resource Management
and Development Corporation all of the latters
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Whether or not respondents failed to

complete and perfect ownership and title to the
subject property since it was never in actual
occupation, possession, control and enjoyment
of said property.
Whether or not symbolic delivery by
mere execution of the deed of conveyance is
sufficient since actual possession, control and
enjoyment is a main attribute to ownership.
Held:
Under Article 1498 of the Civil Code,
when the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the object of the
contract , if from the deed the contrary does not
appear or cannot be inferred. Possession is
also transferred, along with ownership thereof,
to the petitioners by virtue of the deed of
conveyance.
Petitioners
contention
that
respondents never acquired ownership over the
subject property since the latter was never in
possession of the subject property nor was the
property ever delivered is totally without merit.
The mere execution of the deed of conveyance
in a public document is equivalent to the delivery
of the property. Since the execution of the deed
of conveyance is deemed equivalent to delivery,
prior physical delivery or possession is not
legally required. The deed operates as a formal
or symbolic delivery of the property sold and
authorizes the buyer or transferee to use the
document as proof of ownership. Nothing more
is required.
Page 35

they have been in open and peaceful

possession of the said property and that it was
only in 1993 when they came to know of the
alleged claim of petitioners over the same
property.

LEOPOLDO C. LEONARDO, represented by

his daughter EMERCIANA LEONARDO,
petitioner,
vs.
VIRGINIA
TORRES
MARAVILLA and LEONOR C. NADAL, as
Administratrices of the Estate of MARIANO
TORRES, as substituted by FE NADAL,
respondents.
G.R. No. 143369.

November 27, 2002.

YNARES-SANTIAGO, J.:
Facts:
The instant controversy stemmed from a
dispute over a lot located in Pasay City and
registered in the name of Mariano Torres y
Chavarria,
the
predecessor-in-interest
of
respondents. Petitioner claims that he is the
lawful owner of the disputed lot, having
purchased it from a certain Eusebio Leonardo
Roxas who in turn acquired the same lot by
purchase from Mariano Torres. Petitioner filed a
complaint for Delivery of Possession of
Property, Owners Duplicate Certificate of Title,
Rentals and Damages.
Respondents, in their answer, countered
that since 1938 up to the present, the lot in
question has been registered in the name of the
late Mariano Torres y Chavarria, their
predecessors-in-interest and that they have
been in material possession thereof in the
concept of owners. Respondents maintain that
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

The trial court issued an order

dismissing petitioners complaint on the ground
of prescription and laches. The Court of Appeals
likewise ruled that since petitioners cause of
action is founded on the the deed of sale dated
September 29, 1972, being an action based on
written contracts, petitioners complaint falls
under Art. 1144 of the Civil Code which provides
that an action upon a written contract shall
prescribe in 10 years from the time the right of
action accrued. Since petitioner brought the
instant case only on September 6, 1993 or 21
years from the time his supposed right of action
accrued on September 29, 1972, i.e., the date of
execution of the contract conveying him the
questioned lot, his action was clearly barred by
statute of limitations. Petitioner, on the other
hand, contends that the applicable provision is
Art. 1141 and not Art.1144 of the Civil Code
because his action is one for recovery of
possession of real property which prescribes in
30 years.
Issue:
Whether or not petitioners action is
barred by prescription and laches
Held:
The action by petitioner is already
barred by prescription and laches.
Petitioners contention is without merit,
for petitioners action is actually an action for
specific performance, i.e., to enforce the deed of
absolute sale allegedly executed in his favor and
not an action for recovery of possession. It is a
fundamental principle that ownership does not
pass by mere stipulation but by delivery. The
delivery of the thing constitutes a necessary and
indispensable requisite for the purpose of
acquiring the ownership of the same by virtue of
a contract. Under Art. 1498 of the Civil Code,
when the sale is made through a public
instrument, execution thereof shall be equivalent
to the delivery of the thing which is the object of
the contract, if from the deed the contrary does
not appear or cannot be clearly inferred. Thus,
the execution of the contract is only a
presumptive, not conclusive delivery which can
Page 36

be rebutted by evidence to the contrary, as when

there is failure on the part of the vendee to take
material possession of the land subject of the
sale in the concept of a purchaser-owner.
In the case at bar, it is not disputed that
the lot in question was never delivered to
petitioner notwithstanding the alleged execution
of a deed of absolute sale. Petitioner neither
had, nor demanded, material possession of the
disputed lot. It was the respondents who have
been in control and possession thereof in the
concept of owners since 1983 up to the present.
It follows that ownership of the lot was never
transferred to petitioner. Hence, he cannot claim
that the instant case is an action to recover
ownership and full possession of the property
which, in the first place, never came into his
possession for lack of requisite delivery. Clearly,
the case filed by petitioner was an action for
specific performance of a written contract of sale
which, pursuant to Art. 1144 of the Civil Code,
prescribes in 10 years from the accrual of the
right of action. In the same vein, said action is
barred by laches having allowed 21 years to
lapse before enforcing his alleged right.

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2A SY 2009-2010

Page 37

which was in the premises of Libra in Carmen,

Cebu. The tractor was subsequently sold at
public auction. The property was sold to Antonio
Gonzales. It was only when the check was
cleared that Perfecto learned about Gelac
having already taken custody of the subject
tractor.
Perfecto Dy filed and action to recover the
subject tractor against Gelac Trading with the
RTC in Cebu City. RTC rendered judgment in
favor of Perfecto, pronouncing that Perfecto is
the owner of the tractor and directing Gelac
Trading Corporation and Antonio Gonzales to
return the same to Perfecto.
On appeal, the Court of Appeals reversed the
decision of the RTC and dismissed the
complaint. It held that the tractor in question still
belonged to Wilfredo Dy when it was seized and
levied by the sheriff by virtue of the alias writ of
execution.
Perfecto Dy , Jr. vs. Court of Appeals
July 8, 1991
Third Division
Justice Gutierrez, Jr.
Facts:
Perfecto Dy and Wilfredo Dy are brothers.
Wilfredo Dy purchased a truck and a farm tractor
through financing extended by Libra Finance
and Investment Corporation. Both truck and
tractor were mortgaged to Libra as a security for
the loan.
The petitioner, Perfecto Dy, wanted to buy the
tractor from his brother, therefore he wrote a
letter to Libra requesting that he be allowed to
purchase from Wilfredo Dy the said tractor and
assume the mortgage debt from the latter. Libra,
thru its manager, approved the petitioners
request. Wilfredo executed a deed of absolute
sale in favor of Perfecto.
A PNB check was issued in favor of Libra, thus
the indebtedness of Wilfredo with the financing
firm has bee settled. Libra insisted, however that
it be cleared first before Libra could release the
tractor in question.
Meanwhile a civil case entitled Gelac Trading,
Inc v. Wilfredo Dy was pending in another court
in Cebu regarding a collection case to recover a
sum. Through an alias writ of execution, the
sheriff was able to seize and levy on the tractor
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Issue:
Whether or not the property(tractor) in question
belongs to the mortgagor upon the execution of
the chattel mortgage.
Ruling:
Petition granted. The decision of the Court of
Appeals was set aside. The decision of the trial
court was reinstated.
Ratio: (Dy, Jr. vs. Court of Appeals)
The mortgagor who gave the property as
security under a chattel mortgage did not part
with the ownership over the same. He had the
right to sell it although he was under obligation
to secure the written contract of the mortgagee.
And even if no consent was obtained from the
mortgagee, the validity of the sale would still not
be affected.
Article 1496 of the civil code states that the
ownership of the thing sold is acquired by the
vendee from the moment it is delivered to him in
any of the ways specified in Articles 1497 to
1501 or in any manner signifying an agreement
that the possession is transferred from the
vendor to the vendee.
The sale of the object tractor was consummated
upon the execution of the public instrument. At
this time constructive delivery was already
effected. Hence, the subject tractor was no

Page 38

longer owned by Wilfredo Dy when it was levied

upon by the sheriff(Dy, Jr. vs. Court of Appeals).

On the trial, the respondent admitted its liability

covered by the first purchase. With respect to
the second, third, fourth purchase orders,
respondent, however, denied full responsibility.
Respondent said that it will pay for, only the
plastic bags actually used in packing cement.
The trial court rendered a decision sentencing
the defendant to pay the sum of P84, 123 with
corresponding interest.
The respondent corporations appeal was upheld
by the appellate court when it reversed the trial
courts decision and dismissed the case with
costs against petitioner.
Issue:
Whether or not respondent may be held liable
for the plastic bags which were not actually
used for packaging cement as originally
intended.

Industrial Textile Manufacturing Company of

the Philippines, Inc. v. LPJ Enterprises, Inc.

Ruling:
The decision appealed from is SET ASIDE and
the decision of the trial court REINSTATED.

January 21, 1993

Third Division
Justice Melo

Ratio: (Industrial Textile Manufacturing

Company of the Phils. v. LPJ Enterprises, Inc,
pp 326-327)

Facts:
The respondent LPJ Enterprises, Inc. had a
contract to supply 300,000 bags of cement per
year to Atlas Consolidated Mining Development
Corporation. Cesar Campos, a Vice-President of
petitioner Industrial Textile Manufacturing
Company of the Philippines(or Itemcop), asked
Lauro Panganiban, Jr., president of respondent
corporation, if he would like to cooperate in an
experiment to develop a plastic cement bags.
The petitioner agreed to the offer. The
experiment,however, was unsuccessful. Cement
dust oozed out under pressure through the small
holes of the woven plastic bags and the loading
and the loading platform was filled with dust. The
second batch o plastic bags subjected to trial
was likewise a failure. Although the weaving of
the plastic bags was already tightened, cement
dust still spilled through the gaps.

The provision in the Uniform Sales Act and the

Uniform Commercial Code from which Article
1502 was taken, clearly requires an express
written agreement to make a sales contract
either a sale of return or a sale on approval.
Parol or extrinsic testimony could not be
admitted for the purpose of showing that an
invoice or bill of sale that was complete in every
aspect and purporting to embody a sale without
condition or restriction constituted a contract of
sale or return. If the purchase desired to
incorporate a stipulation securing to him the right
of return , he should have done so at the time
the contract was made. On the other hand, the
buyer cannoy accept part and reject the rest of
the goods since this falls outside the normal
intent of the parties in the on approval
situation.

Petitoner delivered the orders consecutively but

the respondent only remitted a part of the total
amount leaving a balance of P84, 123.80 Thus,
the legal department of the petitioner sent
demand letters to respondent corporation

Therefore, we hold that the transaction between

the respondent and petitioner constituted an
absolute sale. Accordingly, respondent is liable
for the plastic bags delivered to it by
petitioner(Industrial Textile Manufacturing
Company of the Phils. v. LPJ Enterprises, Inc,
pp 326-327).

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2A SY 2009-2010

Page 39

Aerospace Chemical Industries, Inc vs. Court

of Appeal, Philippine Phosphate Fertilizer
Corporation.
G.R. No. 108129. September 23, 1999.
QUISUMBING, J.:
FACTS:
Petitioner
Aerospace
Industries
purchased five hundred (500) metric tons of
sulfuric acid from private respondent Philippine
Phosphate Fertilizer Corporation (Philphos).The
agreement provided that the buyer shall pay its
purchases in Philippine Currency five days
before the shipment date. Petitioner as buyer
committed to secure the means of transport to
pick-up the purchases from private respondents
load ports. Per agreement, 100 metric tons of
sulfuric acid should be taken from Basay Negros
Oriental storage tank, while the remaining 400
metric tons should be retrieve from Sangi, Cebu.
On August 6, 1986, private respondent Philphos
sent an advisory letter to petitioner to withdraw
the sulfuric acid purchased at Basay because
private respondent has been incurring
incremental expenses of 2,000 for each delay in
shipment.On October 3, 1986, petitioner paid
Php 553,280 for 500 metric tons of sulfuric acid.
Petitioner charted the M/T Sultan Kayumanggi to
carry out the agreed volumes of freight form
designated loading areas. The chartered vessel
only withdrew 70 metric tons of sulfuric acid from
Basay because said vessel heavily tilted on its
port side. Because of this, the vessel underwent
repairs.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Private respondents asked petitioners to retrieve

the remaining sulphur in Basay tanks so that
said tanks are emptied before December 15,
1986.Private respondent said that if petitioner
will not comply petitioner will be charge storage
and consequential costs. Petitioner chartered
another vessel after several demand of the
private respondent. Hernandez, acting for the
petitioner, addressed a letter to private
respondent, commencing additional orders to
replace its sunken purchases. Petitioner
Counsel, Atty Santos, sent a demand letter to
private respondent for the delivery of the 272.49
MT of sulfuric acid or return the purchase price
of Php 307, 530.In reply, private respondent
instructed petitioner to lift remaining 30 MT of
sulfuric acid from Basay or pay maintenance
and storage expenses. Despite several
demands to deliver remaining sulfuric acids and
other counter demands also of private
respondents, petitioner filed a complaint for
specific performance and/or damages before the
RTC. Private respondent contends that it was
the petitioner who was remiss in the
performance of its obligation.
The RTC ruled in favor of the petitioner. Upon
appeal, Court of Appeals reversed the decision
of RTC, ruling in favor of the private respondent.
Hence, this petition
ISSUES: Whether or not respondent Court of
Appeals erred in holding that the petitioner
committed breach of contract due to the delay in
the performance of its obligation? Did private
respondent err in awarding damages to private
respondent?
RULING: Supreme Court ruled in sustaining the
decision of the Court of Appeals finding in favor
of private respondent. SC held that petitioner
violated the subject contract of sale supported
by preponderant evidence. The contention that
petitioners delay was caused by a storm or
force majeure is untenable. The report revealed
that the vessel chartered by petitioner is
unstable and incapable of carrying full load.
Despite of several repairs of the vessel, the
vessel still failed to carry the whole metric tons
of sulfuric acid. Its unfortunate sinking was not
due to force majeure. Hence, the proximate
cause of the delay of the petitioner cannot be
attributed due to force majeure but because of
the chartered vessel contracted by petitioner to
carry out the sulfuric acid. Despite demands to

Page 40

immediate replace M/T Sultan Kayumanggi,

petitioner did not comply.
Moreover, because of petitioner delay in
complying with its obligation to replace
immediately the defective chartered vessel
despite several demand letters sent by private
respondent to it, the awarding of damages
against the petitioner is justified .Petitioner in
this case is guilty of delay. Since petitioner failed
to comply with its obligation under the contract it
became liable for its shortcomings.

land for 100,000, 30,000 of which price is paid to

Conchita and upon payment of 14, 000
petitioners were to regain possession of the two
parcel of land. which defendants failed to pay.
Because of this another agreement was entered
into by the parties, whereby respondents agreed
to return the parcels of land at anytime when the
petitioners have the necessary amount, When
petritioners asked to return the parcels of land,
respondents refused to return the same. Hence,
petitioners filed this complaint to seek recovery
of the disputed land.
Lower court ruled in favor of the respondents.
Court of Appeals affirmed Lower Court Decision.
Hence this petition

Conchita Nool and Gaudencio Almojera vs.

Court of Appeals, Anacleto Nool and Emilia
Nebre.
G.R. No.116635. July 24, 1997
PANGANIBAN, J.:
FACTS: Two parcels of land are the subject of
dispute in this case. The first area was formerly
owned by Victorino Nool and the other parcel of
land previously owned by Francisco Nool. Both
parcels of land located in San Manuel, Isabela.
Petitioner spouses Conchita and Gaudencio
seek recovery of the parcel of land from
defendant, Anacleto Nool, younger brother of
Conchita and Emilia, respondents in this case
Petitioners contend that they are the owners of
subject of land and that it bought the same from
Conchitas brothers, Francisco and Victorino.
Because they are in need of money, they applied
and were granted of a loan by DBP, secured by
real estate mortgage on the said parcels of land.
The title of the lands then was still in the names
of the previous owners. Since the petitioners
defaulted in paying the loan the mortgaged
lands were foreclosed. The ownership of the
lands was conveyed with DBP for being the
highest bidder in the auction sale. As requested
by Conchita, Anacleto, brother of Conchita
redeemed the foreclosed property with DBP; as
a result, the titles of two parcels of were
transferred to Anacleto. That as part of their
agreement (Conchita and Anacleto), Anacleto
agreed to buy from the petitioners the parcels of
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

ISSUES: Whether or not the agreement entered

into by the parties (Petitioners and respondents)
with respect to the sale and period of
redemption of the parcels of land valid and
enforceable? Whether or not the Respondent is
estopped in impugning the validity of the
agreement with the petitioner?
RULING: Supreme Court ruled affirming the
decision of the Court of Appeals and the Lower
Court. The SC held that the sellers (petitioners)
no longer had any title to the parcels of land at
the time of sale. And since delivery is not
possible in this case without transferring
ownership of such parcels of land, the contract
of sale between petitioners and respondent is
void. Further since the right to redeem the
property is dependent upon the validity of the
sale of the parcels of land, such right to redeem
is also void. The petitioners in this case cannot
assert the right to repurchase the property with
the respondents, since respondent Anacleto
redeemed the property after the period of
redemption given to the petitioners. Thus, the
ownership of the parcels of land was transferred
already to DBP and then conveyed to
Respondent upon buying the said property to
DBP.
Moreover, respondent cannot be estopped from
raising the defense of nullity of contract, since
they acted in good faith, believing that
petitioners are still the owners of the parcels of
land. Article 1410 of the Civil Code provides that
the action or defense for the declaration of the
inexistence of a contract does not prescribe.
Thus, respondent Anacleto can impugn the
nullity of the agreement at anytime.

Page 41

Issue: Is the sale of Lot 4221 includes the whole

1, 377 square meters or the estimated 822.5
square meters?

Ruling: Reversed and set aside. Reinstating the

decision of MCTC dated May 4, 1983.

Semira vs. Court of Appeals

March 2, 1994

Where land is sold for a lump sum and not so

much per unit of measure or number, the
boundaries of the land stated in the contract
determine the effects and scope of the sale, not
the area thereof. The vendors are obligated to
deliver all the land included within the
boundaries, regardless of whether the real area
should be greater or smaller than that recited in
the deed. This is particularly true where the area
is described as "humigit kumulang," that is, more
or less. This is particularly true where the area is
described as "humigit kumulang," that is, more
or less.

G.R. No. 76031

First Division
Bellosillo, J.
Facts:

Abrigo vs. De Vera

June 21, 2004
154409First Division

G.R. No.

Panganiban ,J.
Facts:

Juana Guitierrez sold a parcel of land, lot 4221,

to Buenaventura An by a deed of sale. Th are
stated in the deed was an estimated area of
822.5 square meters and the boundaries of the
lot. Subsequently, Buenaventura An sold the
said lot to his nephew who in turn sold the lot to
petitioner with the very same boundaries
mentioned in the deed of sale executed in his
favor by his uncle Buenaventura An.

Petitioner claims that he owns the entire 2,200

square meters since it is the size of Lot 4221
following its established boundaries. On the
other hand, private respondent insists that he
only sold 822.5 square meters, hence, his
nephew could not have transferred a bigger area
to petitioner.

Gloria Villafania sold a house and lot to Rosenda

Tigno-Salazar and Rosita Cave-Go which
thereafter became a subject of a suit for
annulment of documents. The RTC rendered
judgment approving the Compromise Agreement
submitted by the parties. Gloria Villafania was
given one year to buy back the house and lot
which she failed to do so. However, unknown to
Rosenda and Rosita, Gloria has a crtificate title
of the lot. 4 years after the 1st sale, Gloria again
sold the said lot to Romanda de Vera and a TCT
was issued to her. Rosita and Rosenda then
filed for the annulment of the documents and
damages.
Issue: Who between the petitioner and
respondent has a better right to the property?
Ruling: Denied.
The law provides that a double sale of
immovables transfers ownership to (1) the first
registrant in good faith; (2) then, the first

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2A SY 2009-2010

Page 42

possessor in good faith; and (3) finally, the buyer

who in good faith presents the oldest title.
Section 51 of PD 1529 provides that no deed,
mortgage, lease or other voluntary instrument -except a will -- purporting to convey or affect
registered land shall take effect as a conveyance
or bind the land until its registration.

Knowledge gained by the first buyer of the

second sale cannot defeat the first buyers rights
except where the second buyer registers in good
faith the second sale ahead of the first, as
provided by the Civil Code. A person dealing
with registered land is not required to go behind
the registry to determine the condition of the
property, since such condition is noted on the
face of the register or certificate of title.[36]
Following this principle, this Court has
consistently held as regards registered land that
a purchaser in good faith acquires a good title as
against all the transferees thereof whose rights
are not recorded in the Registry of Deeds at the
time of the sale.
SPOUSES TOMAS OCCEA and SILVINA
OCCEA vs. LYDIA MORALES OBSIANA
ESPONILLA
June 4, 2004
Second Division

G.R. No. 156973

PUNO, J.:
Facts:
Spouses Nicolas and Irene Tordesillas owned a
piece of land which their children Harod, Angela
and Rosario, and grandchildren Arnold and Lilia
de la Flor inherited. The heirs sold a part of the
land to Alberta Morales. Morales possessed the
lot as owner, constructed a house on it and
appointed a caretaker to oversee her property.
Arnold borrowed the Original Certificate of Title
(OCT) from Alberta covering the lot. Then, he
executed an Affidavit acknowledging receipt of
the OCT in trust and undertook to return said
title free from changes, modifications or
cancellations. However, Arnold used the OCT he
borrowed from the vendee Alberta Morales,
subdivided the entire lot into three sublots, and
registered them all under his name. Arnold did
not return the OCT belonging to Alberta despite
repeated requests. Arnold subsequently sold the
land to spouses Tomas and Sylvina Occea.
When the respondent heirs of Alberta learned of
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

the sale, they filed a case for annulment of sale

and cancellation of titles, with damages, against
the Occea spouses, alleging bad faith since the
Occeas conducted ocular inspection of the
area before the purchase and their caretaker
warned them that Arnold is no longer the owner
of the lot being sold. On the other hand, the
Occea spouses alleged that they were buyers
in good faith as the titles to the subject lots were
free from liens or encumbrances when they
purchased them, that they verified with the
Antique Registry of Deeds that Arnolds TCTs
were clean and unencumbered. Lower court
declared the Occea spouses as buyers in good
faith and ruled that the action of the heirs was
time-barred. Court of Appeals reversed the
decision of the trial court. Hence the petition.

Issue: Whether or not a purchaser of a

registered land is obliged to make inquiries of
any possible defect or adverse claim which does
not appear on the Certificate of Title

Ruling: Petition dismissed.

The petition at bar presents a case of
double sale of an immovable property. Article
1544 of the New Civil Code provides that in case
an immovable property is sold to different
vendees, the ownership shall belong: (1) to the
person acquiring it who in good faith first
recorded it in the Registry of Property; (2) should
there be no inscription, the ownership shall
pertain to the person who in good faith was first
in possession; and, (3) in the absence thereof,
to the person who presents the oldest title,
provided there is good faith.
In all cases, good faith is essential. It is
the basic premise of the preferential rights
granted to the one claiming ownership over an
immovable. What is material is whether the
second buyer first registers the second sale in
good faith, i.e., without knowledge of any defect
in the title of the property sold. The defense of
indefeasibility of a Torrens title does not extend
to a transferee who takes the certificate of title in
bad faith, with notice of a flaw.
Indeed, the general rule is that one who
deals with property registered under the Torrens
system need not go beyond the same, but only
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has to rely on the title. He is charged with notice

only of such burdens and claims as are
annotated on the title. However, this principle
does not apply when the party has actual
knowledge of facts and circumstances that
would impel a reasonably cautious man to make
such inquiry or when the purchaser has
knowledge of a defect or the lack of title in his
vendor or of sufficient facts to induce a
reasonably prudent man to inquire into the
status of the title of the property in litigation. One
who falls within the exception can neither be
denominated an innocent purchaser for value
nor a purchaser in good faith.

spouses Clemente and Rosalia Salvador.

Spouses Salvador had the lot registered in their
name after ocular inspection and verification
from the Register of Deeds. Getting wind of the
sale of the property to respondents,
Payongayong filed for annulment sale with
damages against Mendoza and spouses
Salvador. Trial Court ruled in favor of Mendoza
and Salvador. CA affirmed. Hence the petition.

Issue: Whether or not spouses Salvador are

innocent purchasers for value

Held: Petition denied.

SPOUSES ISABELO and ERLINDA

PAYONGAYONG, vs.
HON. COURT OF APPEALS,

May 28, 2004

Third Division

G.R. No. 144576

CARPIO MORALES, J.:

Facts: Eduardo Mendoz is the registered owner

of a parcel of land in Caloocan. He mortgaged
the land to the Meralco Employees Savings and
Loan Association (MESALA) to secure a loan.
The mortgage was duly annotated on the title.
After 2 years, Mendoza executed a Deed of Sale
with Assumption of Mortgage over the parcel of
land in favor of spouses Payongayong. It is
stated in the deed that petitioners bound
themselves to assume payment of the balance
of the mortgage indebtedness of Mendoza to
MESALA. Mendoza, without the knowledge of
petitioners, mortgaged the same property to
MESALA, again to secure another loan. Second
mortgage was annotated in Mendozas title.
Mendoza executed a Deed of Absolute Sale over
still the same property in favor of respondent
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Where innocent third persons rely upon

the correctness of a certificate of title and
acquire rights over the property, the court cannot
just disregard such rights. Otherwise, public
confidence in the certificate of title, and
ultimately, the Torrens system, would be
impaired, for everyone dealing with registered
property would still have to inquire at every
instance whether the title has been regularly or
irregularly issued.28
In respondents case, they did not only
rely upon Mendozas title. Rosalia personally
inspected the property and verified with the
Registry of Deeds of Quezon City if Mendoza
was indeed the registered owner. Given this
factual backdrop, respondents did indeed
purchase the property in good faith and
accordingly acquired valid and indefeasible title
thereto.
The law is thus in respondents favor. Article
1544 of the Civil Code so provides:
Art. 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.
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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.

In January 1988, certain people entered the

property of Isabela Colleges, prompting the
latter to bring an action for forcible entry. The
Municipal Trial Court of Cauayan, Isablela
rendered a decision ordering the intruders to
vacate the land in question.

There being double sale of an

immovable property, as the above-quoted
provision instructs, ownership shall be
transferred (1) to the person acquiring it who in
good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person
who in good faith was first in possession; and (3)
in default thereof, to the person who presents
the oldest title, provided there is good faith.

In 1991, Nieves brought the present suit against

the Isabela Colleges for Nullity of Titles, Deeds
of Sale, Recovery of Ownership and
Possession, Cancellation of Titles, Damages
with Preliminary Injunction. In its Answer, the
Isabela Colleges asserted that the property in
question had been sold to it with the knowledge
and consent of Nieves who in fact signed the
deed of sale. Moreover, herein petitioner
contends that the complaint was barred by
prescription and/or laches.

Isabela Colleges, Inc. vs. Heirs of Nieves

TolentinoRivera
October 20, 2000
Second Division
Ponente: Justice Mendoza

G.R. No.132677

Facts: The late Nieves Tolentino-Rivera and her

husband, Pablo Rivera, were married in 1921.
Nieves, still using her maiden name, filed an
application for a sales patent over a 13.5267hectare land in Cauayan, Isabela. Her
application was approved and a sales patent
was issued in the name of Nieves Tolentino,
married to Pablo Rivera.
The above said spouses sold to petitioner
Isabela four hectares of their land, which was
thereafter immediately occupied by the petitioner
and used the same as its new campus. Since
1950, the Isabela Colleges declared the land for
tax purposes, but it did not immediately secure a
separate title to the property. It was only on
January 13, 1970 when it secured a title to the
land.
In December 1976, the Office of the Register of
Deeds of Isabela was burned. Among the titles
destroyed was that of the Isabela Colleges
which
was
however
administratively
reconstituted in 1978.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Two complaints-in-intervention were allowed by

the trial court. The intervenors, who were the
parties in the ejectment suit, claimed to be
buyers in good faith or lessees of Nieves as to
certain portions of the subject land.
During the pendency of this case Nieves died
and her heirs substituted her. On September 30,
1994, the trial court rendered its decision, ruling
in favor of Isabela Colleges. On Appeal, its
decision was reversed. Hence, this petition.
Issue: Whether the Court of Appeals erred in
ruling that:
1.) the subject property is paraphernal despite
Nieves admission that it was purchased from
the government during her marriage with Pablo
Rivera
out
of
conjugal
funds;
2.) Nieves signature in the questioned deed of
sale is forged;
3.) laches cannot defeat that claim of a
registered property owner despite the long delay
of 41 years.
Ruling: Wherefore the decision of the Court of
Appeals is REVERSED.
Issue 1: Both the acquisition of the 13-hectare
land and the sale of a portion thereof to
petitioner in 1949 took place when the Spanish
Civil Code was still in effect. Under Article 1407
of that code, the property of the spouses are
deemed conjugal partnership property in the
absence of proof that it belongs exclusively to
one or the other spouse. This presumption
arises with respect to property acquired during
the marriage. It is not necessary to prove that
the property was acquired with conjugal funds.
Page 45

Indeed, other than its finding that Nieves was

already in possession of the land and applied for
a sales patent before she married Pablo Rivera,
the Court of Appeals cited no other evidence to
prove that the land was her paraphernal
property. On the contrary, the evidence clearly
shows that the land was acquires during her
marriage with Pablo Rivera.
Issue 2: The fact that Nieves Tolentinos
signature in the deed of sales is a forgery does
not, however, render the deed of sale void. The
land was conjugal property and under the
Spanish Civil Code, the wifes consent to the
sale is not required. Therefore, that her
signature is a forgery is determinative only of
Nieves lack of consent but not of the validity of
the sale.
As the husband may validly sell or dispose of
conjugal property even without the wifes
consent, the absence of the wifes consent alone
does not make the sale in fraud of her.
Issue 3: Nonetheless while it is true that a
Torrens title is indefeasible and imprescriptible,
the registered owner may lose his right to
recover possession of his registered property by
reason of laches.
Laches means the failure or neglect for an
unreasonable and unexplained length of time to
do that which, by observance of due diligence,
could or should have been done earlier. It is
negligence or omission to assert a right within a
reasonable time, warranting the presumption
that the party entitled to assert his right either
has abandoned or declined to assert it.
So it is in the present case where the complaint
questioning the validity of the sale to petitioner
Isabela Colleges was filed only after 42 years
had lapsed. Respondents could not feign
ignorance of the sale because petitioner had
been in open, public, and continuous possession
of the land, which it had used as its school
campus since 1949.

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Page 46

of said property by Preciosa Canino were null

and void. The trial court further declared further
that petitioners were purchasers in bad faith.
On appeal, the court of Appeals affirmed the
RTC ruling. Hence this petition.
Issue: Who has the superior right to the parcel
of land sold to different buyers at different times
by its former owners?
Ruling: Petition is hereby DENIED and the
assailed DECISION of the Court of Appeals is
AFFIRMED.

Bayoca vs. Nogales

September 12, 2000
G.R.No.138201
Third Division
Ponente: Justice Gonzaga-Reyes
Facts: Gaudioso Nogales acquired ownership
over the subject property on the basis of the
Compromise Agreement and the Deed of
Absolute Sale executed by Julia Deocareza who
had acquired of said property from the Canino
brothers and sisters. However, Preciosa Canino
subsequently sold at different times portions of
the subject property to herein petiitoners,
Francisco Bayoca, Nonito Dichoso, Erwin
Bayoca, and spouses Pio and Dolores Dichoso.
The Appellee, filed complaint against the
Appellants for Accion Reinvindicatoria with
Damages. He alleged in his complaint, that he
purchased the said property from Julia Decareza
and thus acquired ownership thereof and that
the Appellants respectively purchased portions
of said property in bad faith and through fraud.
The Appellants, in their Answer to the complaint,
alleged that Preciosa Canino and her siblings
acquired just title over the property when they
executed their Deed of Partition of Real
Property and conveyed titles to the vendees,
the Appellants in the present recourse, as
buyers in goof faith.
The Regional Trial Court ruled in favor of
Nogales and declared that the sales of portions
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

There is no question from the records that

respondent Nogales was the first to buy the
subject property from Julia, who in turn bought
the same from the Canino brothers and sisters.
Petitioners, however, rely on the fact that they
were the first to register the sales of the different
portions of the property resulting in the issuance
of new titles in their names.
Article 1544 of the Civil Code governs the
preferential rights of vendees in cases of
multiple sales, as follows:
Art. 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 possession; and in the
absence thereof, to the person who presents the
oldest title, provided there is good faith.
Based on the foregoing, to merit the protection
under Article 1544, second paragraph, the
second buyer must act in good faith in
registering the deed. Thus, It has been held that
in cases of double sale of immovables, what
finds relevance and materiality is not whether or
not the second buyer was a buyer in good faith
but whether or not said second buyer registers
such second sale in good faith, that is, without
knowledge of any defect in the title of the
property.

Page 47

On account of the undisputed fact of registration

by respondent Nogales as the first buyer,
necessarily, there is absent good faith in the
registration of the sale by the petitioners Erwin
Bayoca and the spouses Pio and Lourdes
Dichoso for which they had been issued
certificates of title in their names. As for the
petitioners Francisco Bayoca and Nonito
Dichoso, they failed to register the portions of
the property sold to them, and merely rely on the
fact that they declared the same in their name
for taxation purposes. Suffice it to state, that
such fact, does not, by itself, constitute evidence
of ownership and cannot likewise prevail over
the title of respondent Nograles.

SPOUSES FLORENDO DAUZ and HELEN

DAUZ, et al. v. SPOUSES ELIGIO and
LORENZA ECHAVEZ and the COURT OF
APPEALS
G.R. No. 152407, 21 September 2007,
SANDOVAL-GUTIERREZ, J.

Spouses Albert Oguis, Sr. and Florencia

Refuerzo Oguis sold a portion of the land to
respondents spouses Eligio and Lorenza
Echavez. On April 1, 1982, they had the sale
registered in the Registry of Deeds of Benguet.
Spouses Oguis later on sold the remaining
portion of the land to the same respondents, but
the land was not registered.

Petition for the Issuance of a New Duplicate

Copy of TCT No. T-13728.

Respondents had the sale to them of

the remaining 7,616 square meters portion of
the land registered in the same Registry of
Deeds. Consequently, the title in the names of
spouses Oguis was cancelled and in lieu
thereof, a new title was issued in respondents
names. The new title covers the entire property
previously owned by spouses Oguis.

Meanwhile, petitioners sold to spouses

Ignacio and Francisca Reambonanza, also
petitioners, a portion sold to them by Albert
Oguis, Sr. and his two children. Petitioners, then
filed with the RTC, a complaint for declaration of
ownership.
The trial court dismissed the
petition. The Court of Appeals affirmed RTCs
decision.

ISSUE:
WHETHER THERE WAS BAD FAITH
ON THE REGISTRATION OF THE LAND BY
THE RESPONDENTS

HELD:
Petition DENIED.
RATIO:
Article 1544 of the Civil Code is
relevant, thus:

Albert Oguis, Sr. and his two children

Albert Oguis, Jr. and Helen Oguis Valerio,
executed a Deed of Extrajudicial Settlement of
Estate. On the same date, they sold to spouses
Florendo and Helen Dauz, petitioners, a portion
of the land as shown by a Deed of Absolute
Sale. Albert Oguis, Sr. informed petitioners that
he had sold only a portion to respondents.

Petitioners then filed with the Regional

Trial Court (RTC) of Baguio and Benguet a
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UST Faculty of Civil Law
2A SY 2009-2010

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
Page 48

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
possession; and, in the absence
thereof, to the person who presents
the oldest title, provided there is good
faith.

In April 1982, respondents caused the

registration of the sale of the 1,295-square
meter portion of the land; and on January 25,
1989, the sale of the remaining 7,616 square
meters in the Registry of the Deeds. Petitioners
(spouses Dauz), on the other hand, failed to
cause the registration of the sale to them in the
Registry of Deeds. Where both parties claim to
have purchased the same property, as in this
case, Article 1544 cited above provides that as
between two purchasers, the one who registered
the sale in his favor has a preferred right over
the other who has not registered his title, even if
the latter is in actual possession of the
immovable property

Nonetheless, we still perused the

records and found that there is no evidence
showing that respondents acted in bad faith. In
China Airlines, Ltd. v. Court of Appeals, we held
that bad faith does not simply connote bad
judgment or negligence. It imports a dishonest
purpose or some moral obliquity and conscious
doing of a wrong. It means breach of a known
duty through some motive, interest or ill will that
partakes of the nature of fraud. These incidents
or circumstances are not present here.
Respondents did not immediately register the
sale because they waited for spouses Oguis to
repurchase the property. In fact, it was Albert
Oguis, Sr. himself who requested them not to
cause the registration of the sale.

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Page 49

reservations of private respondents. Morelia

cancelled
the
reservations
of
private
respondents.
On the day of the flight, the private
respondents were not able to board the plane
since their names were not on the passengers
list.
CAL cancelled the reservations when
Morelia revoked the booking it had made for the
private respondents. Hence this petition.
ISSUE:
Whether the petitioner is liable despite
the fact that such acts complained of were acts
done by its employees

HELD:
CHINA AIRLINES, LTD. v. COURT OF
APPEALS, ANTONIO S. SALVADOR and
ROLANDO C. LAO

Petition DENIED.

G.R. No. 129988, 14 July 2003, CARPIO, J.

RATIO:

Private respondents planned to travel to

Los Angeles, California. They initially engaged
the services of Morelia Travel Agency (Morelia),
which booked them with petitioner China Airlines
Ltd (CAL).
However, private respondents
decided to drop the services of Morelia, as the
American Express Travel Service Philippines
(Amexco) offers cheaper rates, and engage the
services of the latter.
Lao then called Amexco and gave the
tire record locator number if booking reference
that CAL had previously issued to Morelia when
Morelia booked the reservations of the private
respondents. In the afternoon of the same day,
Amexco called up CAL to finalize private
respondents' reservation for CAL's 13 June
1990 flight. Amexco used the record locator
number given by Lao in confirming the
reservations of private respondents. CAL
confirmed the booking. Amexco then issued to
private respondents the confirmed tickets for the
13 June 1990 flight of CAL. On the same day,
CAL called up Morelia to reconfirm the
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

The nature of an airline's contract of

carriage partakes of two types, namely: (1) a
contract to deliver a cargo or merchandise to its
destination, and (2) a contract to transport
passengers to their destination. In this case,
when CAL confirmed the reservations, it bound
itself to transport private respondents on its flight
on 13 June 1990.
The airline business is intended to serve
the traveling public primarily and is thus imbued
with public interest. The law governing common
carriers consequently imposes an exacting
standard. Thus, in an action based on a breach
of contract of carriage, the aggrieved party does
not have to prove that the common carrier was
at fault or was negligent. All that he has to prove
is the existence of the contract and the fact of its
non-performance by the carrier.
CAL does not deny its confirmation of
the reservations made by Amexco. The
confirmed tickets issued by Amexco to private
respondents upon CAL's confirmation of the
reservations are undeniable proof of the contract
Page 50

of carriage between CAL and private

respondents. In Alitalia Airways v. CA, et al., we
held that when an airline issues a ticket to a
passenger confirmed for a particular flight on a
certain date, a contract of carriage arises. The
passenger then has every right to expect that he
would fly on that flight and on that date. If he
does not, then the carrier opens itself to a suit
for breach of contract of carriage.
CAL did not allow private respondents,
who were then in possession of the confirmed
tickets, from boarding its airplane because their
names were not in the passengers' manifest.
Clearly, CAL breached its contract of carriage
with private respondents. We, however, rule out
bad faith by CAL.

P4,000 when the sale was executed. They

allege that they been in exercising their right of
ownership over the property and the building
constructed
thereon
peacefully,
publicly,
adversely and continuously. Apart from being
the first registrants, they are buyers in good
faith.
RTC of Calubian, Leyte declared Spouses
Salera as the rightful and legal owners while
declaring null and void the Deed of Absolute
Sale between Catalino and herein respondents
and ordering the cancellation of Tax Declaration
No. 2408 issued. The court cited that the real
owners of the land, by operation of the law on
succession would be the heirs of Brigido and not
his father. Catalino had no legal personality to
sell the parcel of land.
The Court of Appeals reversed and set aside the
decision of the RTC. It based its decision on the
Civil Code provision on double sale.

SPOUSES SALERA vs SPOUSES RODAJE

G.R. No. 135900

17 August 2007

Ponente: Justice Sandoval Gutierrez, First

Division
Facts: Spouses Salera filed an action for
quieting of title regarding a parcel of land in
Brgy. Basud, San Isidro, Leyte. The land was
bought from the heirs of Brigido Tonacio as
evidenced by the Deed of Absolute Sale
executed on June 23, 1986. They allege that
they have been in possession of the property
and the house they built thereon because they
had paid the purchase price even before the
execution of the deed of sale. When they asked
the Provincial Assessor to declare the property
under their names for taxation purposes, they
found that Tax Declaration No. 2994 (R-5) in the
name of Brigido was already cancelled and
another one, Tax Declaration No. 2408, was
issued in the names of Spouses Rodaje.
Spouses Rodaje claimed that they bought the
land from Catalino Tonacio, father of Brigido on
June 6, 1986 and that the sale was registered
with the Register of Deeds and the Tax
Declaration No. 2408 was issued in their name.
They also claimed that they had a verbal
contract with Catalino even before the execution
of the sale since January 1984. They paid a
downpayment of P1,000 and paid the balance of
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Issue: Which of the two contracts of sale is

valid?
Held: Sale made by the heirs of Brigido Tonacao
to the spouses Salera is valid. Sale made by
Catalino to spouses Rodaje is invalid.
The Court of Appeals is wrong. Article 1544 of
the Civil Code contemplates a case of double
sale or multiple sales by a single vendor.
More specifically, it covers a situation where a
single vendor sold one and the same immovable
property to two or more buyers. Art. 1544 does
not apply in this case since the sale was made
by Catalino and the heirs of Brigido.
Bad faith was established in the RTC. The
evidence submitted to the court, established that
Spouses Rodaje knew beforehand that the
property was declared in the name of Brigido
Tonacao for taxation purposes. Any lot buyer is
expected to be vigilant, exercising utmost care in
determining whether the seller is the true owner
of the property and whether there are other
claimants. There is no indication from the
record that Rodaje first determined the status of
the lot.

While tax declarations are not conclusive proofs

of ownership, however, they are good indicia of
possession in the concept of owner, for no one

Page 51

in his right mind would be paying taxes for a

property that is not in his actual or at least
constructive possession. Hence, Catalino, not
being the owner or possessor, could not validly
sell the lot to respondents.

The certification presented by respondents

clearly shows that the house is owned by Aida
Salera and that respondents started paying the
electric bills (in the name of Aida Salera) only in
1986. The respondents proof of payment of
realty tax from the period of 1974 to 1984 was
paid in lump sum.
(Petition is GRANTED. The assailed Decision
of the Court of Appeals is REVERSED and the
Decision of the trial court is REINSTATED.)

URACA, et al. vs CA and VELEZ, JR., et al.

G.R. No. 115158

September 5,

been P1.4M, Uraca agreed to the new price to

be payable in installments with a down payment
of P1M and the balance of P400,000 to be paid
in 30 days. Carmen Velez Ting did not accept
the said counter-offer of Emilia Uraca although
this fact is disputed by Uraca.

No payment was made by to the Velezes on July

12 and 13, 1985. On July 13, 1985, the Velezes
sold property to Avenue Merchandising Inc. for
P1,050,000.00. The certificate of title of the said
property was clean and free of any annotation of
adverse claims or lis pendens.

On July 31, 1985, petitioners filed the instant

complaint against the Velezes. On August 1,
1985, they also registered a notice of lis
pendens over the property in question with the
Office of the Register of Deeds.

On October 30, 1985, the Avenue Group filed an

ejectment case against petitioners ordering the
latter to vacate the commercial building standing
on the lot in question.

1997

Ponente: Justice Panganiban, Third Division

Facts: The Velezes were the owners of the lot

and commercial building in question located at
Progreso and M.C. Briones Streets in Cebu City.
The petitioners were its lessees.

On July 8, 1985, the Velezes through Carmen

Velez Ting wrote a letter to petitioners offering to
sell the subject property for P1,050,000.00 and
to reply within three days. Petitioners, through
counsel, accepted the offer.

When Uraca went to Ting, Ting told her that

there was a mistake in the price. It should have
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Petitoners filed an amended complaint

impleading the Avenue Group as new
defendants after about 4 years after the filing of
the original complaint.

RTC found two perfected contracts of sale

between the Velezes and the petitioners
involving the real property in question. The first
sale was for P1,050,000.00 and the second was
for P1,400,000.00. In respect to the first sale,
the trial court held that "[d]ue to the unqualified
acceptance by the plaintiffs within the period set
by the Velezes, there consequently came about
a meeting of the minds of the parties not only as
to the object certain but also as to the definite
consideration or cause of the contract. The
second sale merely constituted a mere
modificatory novation which did not extinguish

Page 52

the first sale. It also held that the Avenue Group

were buyers in bad faith.
The Court of Appeals held that there was a
perfected contract of sale of the property for
P1,050,000.00 between the Velezes and herein
petitioners. It added, however, that such
perfected contract of sale was subsequently
novated. However, it was mutually withdrawn,
cancelled and rescinded by novation, and was
therefore abandoned by the parties when
Carmen Velez Ting raised the consideration of
the contract by P350,000.00, thus making the
price P1.4M instead of the original price of
P1,050,000.00. Since there was no agreement
as to the 'second' price offered, there was no
meeting of minds between the parties, hence, no
contract of sale was perfected.
CA added that, even if there was agreement as
to the price and a second contract was
perfected, the later contract would be
unenforceable under the Statute of Frauds. It
further held that such second agreement, if there
was one, constituted a mere promise to sell
which was not binding for lack of acceptance or
a separate consideration.
Issues:
1.) Was there novation of the first contract?
2.) Was there a double sale of the real
property involved?

Held:

On Novation

Novation is never presumed; it must be

sufficiently established that a valid new
agreement or obligation has extinguished or
changed an existing one. The registration of a
later sale must be done in good faith to entitle
the registrant to priority in ownership over the
vendee in an earlier sale.

Article 1600 of the Civil Code provides that

"(s)ales are extinguished by the same causes as
all other obligations, . . . ." Article 1231 of the
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UST Faculty of Civil Law
2A SY 2009-2010

same Code states that novation is one of the

ways to wipe out an obligation. Extinctive
novation requires: (1) the existence of a
previous valid obligation; (2) the agreement of all
the parties to the new contract; (3) the
extinguishment of the old obligation or contract;
and (4) the validity of the new one.

Novation is effected only when a new contract

has extinguished an earlier contract between the
same parties. It must be proven as a fact either
by express stipulation of the parties or by
implication derived from an irreconcilable
incompatibility between old and new obligations
or contracts.

The petitioners and the Velezes clearly did not

perfect a new contract because the essential
requisite of consent was absent, the parties
having failed to agree on the terms of the
payment. Since the parties failed to enter into a
new contract that could have extinguished their
previously perfected contract of sale, there can
be no novation of the latter. Consequently, the
first sale of the property in controversy, by the
Velezes to petitioners for P1,050,000.00,
remained valid and existing.

On Double Sale
Prior registration of the disputed property by the
second buyer does not by itself confer
ownership or a better right over the property.
Article 1544 requires that such registration must
be coupled with good faith.
Knowledge gained by the first buyer of the
second sale cannot defeat the first buyer's rights
except where the second buyer registers in
good faith the second sale ahead of the first, as
provided by the Civil Code.
Knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to
register the second sale, since such knowledge
taints his prior registration with bad faith (Art.
1544).
The Avenue Group was a buyer and registrants
in bad faith. They had actual knowledge of the
Page 53

Velezes' prior sale of the same property to the

petitioners.

Hence, the third and not the second paragraph

of Article 1544 should be applied to this case.
Under this provision, petitioners are entitled to
the ownership of the property because they
were first in actual possession, having been the
property's lessees and possessors for decades
prior to the sale.

BINALBAGAN TECH., INC. vs. COURT OF

APPEALS
G.R.
No.
100594
(219SCRA777)

(The petition is GRANTED. The assailed

Decision of the Court of Appeals is hereby SET
ASIDE and the dispositive portion of the trial
court's decision dated October 19, 1990 is
REVIVED with the following MODIFICATION
the consideration to be paid under par. 2 of the
disposition
is
P1,050,000.00
and
not
P1,400,000.00.)

March

10,

1993

Third Division
MELO, J.:

Facts: On May 11, 1967, private respondents,

through Angelina P. Echaus, in her capacity as
Judicial Administrator of the intestate estate of
Luis B. Puentevella, executed a Contract to Sell
and a Deed of Sale of 42 subdivision lots within
the Phib-Khik Subdivision of the Puentevella
family, conveying and transferring said lots to
petitioner Binalbagan Tech., Inc. In turn
Binalbagan, through its president, petitioner
Hermilo J. Nava, executed an Acknowledgment
of Debt with Mortgage Agreement, mortgaging
said lots in favor of the estate of Puentevella.
Upon the transfer to Binalbagan of titles
to the 42 subdivision lots, said petitioner took
possession of the lots and the building and
improvements thereon. Binalbagan started
operating a school on the property from 1967
when the titles and possession of the lots were
transferred to it.
There was a pending case involving the said
property. The intestate estate of the late Luis
B. Puentevella sold said lots to Raul
Javellana with the condition that the vendeepromisee would not transfer his rights to
said lots without the express consent of
Puentevella and that in case of the
cancellation of the contract by reason of the
violation of any of the terms thereof, all
payments
therefore
made
and
all
improvements introduced on the property
shall pertain to the promissor and shall be
considered as rentals for the use and
occupation thereof. Javellana having failed
to pay the installments for a period of five

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2A SY 2009-2010

Page 54

years, the case was filed by defendant

Puentevella against him. Judgment was
rendered in favor of Puentevella. Plaintiffs in
the instant case on appeal filed their ThirdParty Claim based on an alleged Deed of
Sale executed in their favor by spouses
Jose and Lolita Lopez, thus Puentevella was
constrained to assert physical possession of
the premises to counteract the fictitious and
unenforceable claim of herein plaintiffs.
CA issued a writ of preliminary injunction, thus,
defendant Puentevella was restored to the
possession of the lots and buildings subject of
this case. Plaintiffs filed a petition for review with
the Supreme Court which issued a restraining
order against the sale of the properties claimed
by the spouses-plaintiffs [in Abierra vs. Court of
Appeals, 45 SCRA 314].
When the Supreme Court dissolved the
aforesaid injunction issued by the Court of
Appeals, possession of the building and other
property was taken from petitioner Binalbagan
and given to the third-party claimants, the de la
Cruz spouses. Petitioner Binalbagan transferred
its school to another location.
After petitioner Binalbagan was again
placed in possession of the subdivision lots,
private respondent Angelina Echaus demanded
payment from petitioner Binalbagan for the
subdivision lots, enclosing in the letter of
demand a statement of account as of
September 1982 showing a total amount due of
P367,509.93, representing the price of the land
and accrued interest as of that date.
As petitioner Binalbagan failed to effect
payment, Echaus filed on October 8, 1982 Civil
Case No. 1354 with the RTC in Himamaylan,
Negros Occidental against petitioners for
recovery of title and damages. Echaus filed an
amended complaint by including her mother,
brothers, and sisters as co-plaintiffs.
The trial court rendered a decision in
favor of the defendants.
Private respondents appealed to the CA
which reversed and set aside the appealed
decision.

Issue: Whether private respondents' cause of

action in Civil Case No. 1354 is barred by
prescription.

Ruling: Petition is DENIED and the decision of

the Court of Appeals in CA-G.R. CV No. 24635
is AFFIRMED.
A party to a contract cannot demand
performance of the other party's obligations
unless he is in a position to comply with his own
obligations. Similarly, the right to rescind a
contract can be demanded only if a party thereto
is ready, willing and able to comply with his own
obligations thereunder (Art. 1191, Civil Code;
Seva vs. Berwin, 48 Phil. 581 [1926]; Paras,
Civil Code of the Philippines, 12th ed. Vol. IV, p.
200). In a contract of sale, the vendor is bound
to transfer the ownership of and deliver, as well
as warrant, the thing which is the object of the
sale (Art. 1495, Civil Code); he warrants that the
buyer shall, from the time ownership is passed,
have and enjoy the legal and peaceful
possession of the thing Art. 1547. In a contract of sale, unless a
contrary intention appears, there is:
(1) An implied warranty on the part of the seller
that he has a right to sell the thing at the time
when the ownership is to pass, and that the
buyer shall from that time have and enjoy the
legal and peaceful possession of the thing.
The period of prescription was
interrupted, because from 1974 up to 1982, the
appellants themselves could not have restored
unto the appellees the possession of the 42
subdivision lots precisely because of the
preliminary injunction mentioned elsewhere.
Consequently, the appellants could not have
prospered in any suit to compel performance or
payment from the appellees-buyers, because
the appellants themselves were in no position to
perform their own corresponding obligation to
deliver to and maintain said buyers in
possession of the lots subject matter of the sale.

Thus, this petition for review on

certiorari wherein petitioners assign the following
alleged errors of the Court of Appeals:
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Page 55

ROBERTO Z.
MACHUCA

LAFORTEZA vs.

ALONZO

G.R. No. 137552. June 16, 2000 (333SCRA643)

Third Division
GONZAGA_REYES, J.

Facts: On August 2, 1988, defendants Lea

Zulueta-Laforteza and Michael Z. Laforteza both
executed a Special Power of Attorney (SPA) in
favor of defendants Roberto and Gonzalo Z.
Laforteza, Jr., appointing both as her Attorneyin-fact authorizing them jointly to sell the subject
property and sign any document for the
settlement of the estate of the late Francisco Q.
Laforteza.
Both agency instruments contained a provision
that in any document or paper to exercise
authority granted, the signature of both
attorneys-in-fact must be affixed.
On October 27, 1988, defendant Dennis Z.
Laforteza executed an SPA in favor of defendant
Roberto Z. Laforteza for the purpose of selling
the subject property. A year later, Dennis Z.
Laforteza executed another SPA in favor of
defendants Roberto and Gonzalo Laforteza, Jr.
naming both attorneys-in-fact for the purpose of
selling the subject property and signing any
document for the settlement of the estate of the
late Francisco Q. Laforteza.
On January 20, 1989, the heirs of the late
Francisco Q. Laforteza represented by Roberto
Z. Laforteza and Gonzalo Z. Laforteza, Jr.
entered into a Memorandum of Agreement
(MOA[Contract to Sell]) with the plaintiff over the
subject property for the sum of P630,000.00.
On January 20, 1989, plaintiff paid the earnest
money of P30,000.00, plus rentals for the
subject property.
On September 18, 1998 , defendant heirs,
through their counsel wrote a letter to the plaintiff
furnishing the latter a copy of the reconstituted
title to the subject property, advising him that he
had 30 days to produce the balance of
P600,000.00 under the Memorandum of
Agreement which plaintiff received on the same
date.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

On October 18, 1989, plaintiff sent the defendant

heirs a letter requesting for an extension of the
30 DAYS.
On November 15, 1989, plaintiff informed the
defendant heirs, through defendant Roberto Z.
Laforteza, that he already had the balance
P600,000.00 covered by United Coconut
Planters Bank Managers Check. However, the
defendants, refused to accept the balance
Defendant Roberto Z. Laforteza had told him
that the subject property was no longer for sale.
On November 20, 1998, defendants informed
the plaintiff that they were canceling the MOA in
view of the plaintiffs failure to comply with his
contractual obligations.
Thereafter, plaintiff reiterated his request to
tender payment of the balance. Defendants,
however, insisted on the rescission of the MOA.
Plaintiff filed the instant action for specific
performance. The lower court rendered
judgment in favor of the plaintiff.
Petitioners appealed to the Court of Appeals,
which affirmed with modification the decision of
the lower court.
Motion for Reconsideration was denied but the
Decision was modified so as to absolve Gonzalo
Z. Laforteza, Jr. from liability for the payment of
moral damages. Hence this petition.

Issues:
W the Memorandum of Agreement is a mere
contract to sell, as indicated in its title.

Ruling: CA decision is AFFIRMED and the

instant petition is hereby DENIED.

A perusal of the MOA shows that the transaction

between the petitioners and the respondent was
one of sale and lease.
A contract of sale is a consensual contract and
is perfected at the moment there is a meeting of
the minds upon the thing which is the object of
the contract and upon the price. From that
moment the parties may reciprocally demand
performance subject to the provisions of the law
Page 56

governing the form of contracts. The elements of

a valid contract of sale under Article 1458 of the
Civil Code are (1) consent or meeting of the
minds; (2) determinate subject matter and (3)
price certain in money or its equivalent.
In the case at bench, there was a perfected
agreement between the petitioners and the
respondent whereby the petitioners obligated
themselves to transfer the ownership of and
deliver the house and lot and the respondent to
pay the price amounting to P600,000.00. All the
elements of a contract of sale were thus present.
However, the balance of the purchase price was
to be paid only upon the issuance of the new
certificate of title in lieu of the one in the name of
the late Francisco Laforteza and upon the
execution of an extrajudicial settlement of his
estate. Prior to the issuance of the
"reconstituted" title, the respondent was already
placed in possession of the house and lot as
lessee thereof for six months at a monthly rate
of P3,500.00.
The six-month period during which the
respondent would be in possession of the
property as lessee, was clearly not a period
within which to exercise an option. An option is a
contract granting a privilege to buy or sell within
an agreed time and at a determined price. An
option contract is a separate and distinct
contract from that which the parties may enter
into upon the consummation of the option. An
option must be supported by consideration. An
option contract is governed by the second
paragraph of Article 1479 of the Civil Code.
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 the present case, the six-month period merely
delayed the demandability of the contract of sale
and did not determine its perfection for after the
expiration of the six-month period, there was an
absolute obligation on the part of the petitioners
and the respondent to comply with the terms of
the sale.

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Page 57

Jon and Marissa De Ysasi vs. Arturo and

Estela Arceo
G.R. No. 136586 November 22, 2001
Mendoza, J. Second Division

Facts: On October 1, 1988, spouses Jon and

Marissa de Ysasi leased from spouses Arturo
and Estela Arceo, the latter's premises in order
to carry on their business of hand painting and
finishing services. Petitioners paid P5,000.00 as
goodwill money and P15,000.00 as deposit for
three months.
It appears that due to heavy rains, the roof of the
building leaked and the premises were flooded,
as a result of which the schedule of the delivery
of hand painted moldings to petitioners'
customers was disrupted. Although petitioners
asked respondents to make the necessary
repairs, the latter repaired only a portion of the
leased premises. Consequently, petitioners
stopped paying rent as well as their share of the
electric, water, and telephone bills from
December 1988 up to the time they vacated the
leased premises in June 1989.
Respondents in turn filed an ejectment suit
against petitioners in the Metropolitan Trial
Court. In its decision, the MeTC, while ruling that
petitioners were justified in suspending the
payment of rent, ordered the deposits made by
them to be applied to the payment of rentals up
to June 1989 and directed them to pay them
electric and water bills. On appeal to the
Regional Trial Court, the decision was modified
inasmuch as petitioners were ordered to pay
P20,000.00 as balance of their rentals up to the
time they vacated the premises.
Petitioners then filed a complaint in the Regional
Trial Court, for specific performance or
rescission of contract with damages, which they
subsequently changed to a claim for damages in
view of the expiration of the lease contract. The
trial court, however, dismissed the complaint and
ordered petitioners to pay respondents the sums
of P5,000.00 as attorney's fees and P20,000.00
as back rentals, with interest at the legal rate.
On appeal to the Court of Appeals, the decision
was
affirmed.
Petitioners'
motion
for
reconsideration was subsequently denied.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Issue: WON there was an implied waiver of

repairs including repairs for hidden and unknown
defects by the lessee.

Ruling: Decision of Court of Appeals affirmed

with modification that the order for payment of
unpaid rentals with interest to respondents is
deleted.

Ratio: Petitioners anchor their complaint for

damages on respondents' failure, as lessors, to
make the necessary repairs on the leased
premises as provided in Art. 1654(2) of the Civil
Code. The Court of Appeals held that under the
contract of lease of the parties, there was an
implied waiver of right to demand repairs to be
made by the lessee.
The records show that respondent Mrs. Arceo
caused certain repairs to be done on the leased
premises at the request of petitioners, although
the latter alleged that the repairs made were
inadequate. This fact indicates that there was no
implied waiver of repairs on the part of the
lessee. For Art. 1371 of the Civil Code provides
that In order to judge the intention of the
contracting parties, their contemporaneous and
subsequent
acts
should
be
principally
considered.

Under Arts. 1561 and 1653 of the Civil Code, the

lessor is responsible for warranty against hidden
defects, but he is not answerable for patent
defects or those, which are visible. Petitioner
Jon de Ysasi admitted on cross-examination that
he inspected the premises three or four times
before signing the lease contract. During his
inspection, he noticed the rotten plywood on the
ceiling, which in his opinion was caused by
leaking water or termites. Yet, he decided to go
through with the lease agreement. Hence,
respondents cannot be held liable for the alleged
warranty against hidden defects.

Page 58

Coca-Cola Bottlers Philippines, Inc. vs. The

Honorable Court of Appeals and Ms. Lydia
Geronimo
G.R. No. 110295 October 18, 1993
Davide, Jr., J, First Division

Facts: Lydia L. Geronimo was the proprietress of

Kindergarten Wonderland Canteen in Dagupan
City, an enterprise engaged in the sale of soft
drinks (including Coke and Sprite) and other
goods to the students of Kindergarten
Wonderland and to the public. On or about
August 12 1989, some parents of the students
complained to her that the Coke and Sprite soft
drinks sold by her contained fiber-like matter and
other foreign substances or particles. She then
went over her stock of softdrinks and discovered
the presence of some fiber-like substances in
the contents of some unopened Coke bottles
and a plastic matter in the contents of an
unopened Sprite bottle. She brought the said
bottles to the Regional Health Office of the
Department of Health at San Fernando, La
Union, for examination. She received a letter
from the Department of Health informing her that
the samples she submitted "are adulterated;" as
a consequence of the discovery of the foreign
substances in the beverages, her sales of soft
drinks severely plummeted from the usual 10
cases per day to as low as 2 to 3 cases per day
resulting in losses of from P200.00 to P300.00
per day, and not long after that she had to lose
shop on December 12 1989, she became
jobless and destitute. She demanded from the
petitioner the payment of damages but was
rebuffed by it.

defects of or encumbrances upon the thing sold

are not limited to those prescribed in Article
1567 of the Civil Code which provides:
Art. 1567. In the case of Articles 1561, 1562,
1564, 1565 and 1566, the vendee may elect
between withdrawing from the contract and
demanding a proportionate reduction of the
price, with damages eithercase.
The vendee may also ask for the annulment of
the contract upon proof of error or fraud, in
which case the ordinary rule on obligations shall
be applicable. Under the law on obligations,
responsibility arising from fraud is demandable
in all obligations and any waiver of an action for
future fraud is void. Responsibility arising from
negligence is also demandable in any obligation,
but such liability may be regulated by the courts,
according to the circumstances. Those guilty of
fraud, negligence, or delay in the performance of
their obligations and those who in any manner
contravene the tenor thereof are liable for
damages.
The vendor could likewise be liable for quasidelict under Article 2176 of the Civil Code, and
an action based thereon may be brought by the
vendee. While it may be true that the preexisting contract between the parties may, as a
general rule, bar the applicability of the law on
quasi-delict, the liability may itself be deemed to
arise from quasi-delict, i.e., the acts which
breaks the contract may also be a quasi-delict.

Issue: WON the subsequent action for damages

by the proprietress against the soft drinks
manufacturer should be treated as one for
breach of implied warranty against hidden
defects or merchantability.

Ruling: Petiton denied.

Ratio: The vendee's remedies against a vendor

with respect to the warranties against hidden
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Page 59

Inocencio Yu Dino vs. Court of Appeals

June 20, 2001

G.R. No. 113564

ISSUE:

359 SCRA 91

First Division

Whether the contract between the contracting

parties is a contract of sale or a contract for a
piece of work

Puno, J.:
FACTS:
Petitioners spouses Dinoare engaged in the
business of manufacturing and selling shirts.1
Respondent Sio is part owner and general
manager of a manufacturing corporation doing
business under the trade name "Universal Toy
Master Manufacturing."
Petitioners and respondent Sio entered into a
contract whereby the latter would manufacture
for the petitioners 20,000 pieces of vinyl frogs
and 20,000 pieces of vinyl mooseheads at P7.00
per piece in accordance with the sample
approved by the petitioners. These frogs and
mooseheads were to be attached to the shirts
petitioners would manufacture and sell.
Respondent Sio delivered in several installments
the 40,000 pieces of frogs and mooseheads.
Petitioner fully paid the agreed price.
Subsequently, petitioners returned to respondent
29,772 pieces of frogs and mooseheads for
failing to comply with the approved sample.
Petitioners then demanded from the respondent
a refund of the purchase price of the returned
goods in the amount of P208,404.00. As
respondent Sio refused to pay. Petitioners filed
action for collection of a sum of money.

Whether the respondent is responsible for the

warranty against hidden defects
RULING:
Petition is DENIED.
The contract between the petitioners and
respondent stipulated that respondent would
manufacture upon order of the petitioners
20,000 pieces of vinyl frogs and 20,000 pieces
of vinyl mooseheads according to the samples
specified and approved by the petitioners.
Respondent Sio did not ordinarily manufacture
these products, but only upon order of the
petitioners and at the price agreed upon. Clearly,
the contract executed by and between the
petitioners and the respondent was a contract
for a piece of work. At any rate, whether the
agreement between the parties was one of a
contract of sale or a piece of work, the
provisions on warranty of title against hidden
defects in a contract of sale apply to the case at
bar.
A hidden defect is one which is unknown or
could not have been known to the vendee.

RTC ruled in favor of the petioners. Respondent

Sio sought recourse in the Court of Appeals. The
appellate court affirmed the trial court decision.
Respondent
then
filed
a
Motion
for
Reconsideration and a Supplemental Motion for
Reconsideration alleging therein that the
petitioners' action for collection of sum of money
based on a breach of warranty had already
prescribed. On January 24, 1994, the
respondent court reversed its decision and
dismissed petitioners' Complaint for having been
filed beyond the prescriptive period.
Hence, this petition.

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2A SY 2009-2010

Page 60

D.M Wenceslao and Associates, Inc. Vs.

Ready Contrading and Construction Corp.
June 29, 2004
G.R. No. 154106
Second Division
QUISUMBING, J.:

FACTS:
WENCESLAO had a contract with the Public
Estates Authority (PEA) for the improvement of
the main expressway in the R-1 Toll Project
along the Coastal Road in Paraaque City. To
fulfill its obligations to the PEA, WENCESLAO
entered into a contract with READYCON.
READYCON agreed to sell to WENCESLAO
asphalt materials valued at P1,178,308.75.
Under the contract, WENCESLAO was bound to
pay respondent a twenty percent (20%)
downpayment, or P235,661.75, upon delivery of
the materials contracted for. The balance of the
contract price, amounting to P942,647, was to
be paid within fifteen (15) days thereof. It was
further stipulated by the parties that respondent
was to furnish, deliver, lay, roll the asphalt, and if
necessary, make the needed corrections on a
prepared base at the jobsite.
Fifteen (15) days after performance of said work,
READYCON demanded that WENCESLAO pay
the balance of the contract price. WENCESLAO,
however, ignored said demand.On May 30,
1991, the counsel for READYCON wrote a
demand letter to WENCESLAO asking that it
make good on the balance it owed. Again,
WENCESLAO failed to heed the demand. It did
not even bother to reply to the demand letter.
READYCON filed a complaint with the RTC of
Pasig City for collection of a sum of money and
damages, with prayer for writ of preliminary
attachment against D.M. Wenceslao and/or
Dominador Dayrit.
In the proceedings below, WENCESLAO
admitted
that
it
owed
READYCON
P1,014,110.45 indeed. However, it alleged that
their contract was not merely one of sale but
also of service, namely, that respondent shall lay
the asphalt in accordance with the specifications
and standards imposed by and acceptable to the
government. WENCESLAO also alleged that
since the contract did not indicate this condition
with respect to the period within which the
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

balance must be paid, the contract failed to

reflect the true intention of the parties.12 It
alleged READYCON agreed that the balance in
the payments would be settled only after the
government had accepted READYCONs work
as to its quality in laying the asphalt. By way of
counterclaim, WENCESLAO prayed for the
payment of damages caused by the filing of
READYCONs complaint and the issuance of the
writ of attachment despite lack of cause.
RTC ruled in favor of the petitioner. CA affirmed.
Hence this petition.

ISSUE:
Was the obligation of WENCESLAO to pay
READYCON already due and demandable as of
May 30, 1991.

RULING:
Petition Denied.
Under Article 1582 of the Civil Code, the buyer is
obliged to pay the price of the thing sold at the
time stipulated in the contract. Both the RTC and
the appellate court found that the parties
contract stated that the buyer shall pay the
manufacturer the amount of P1,178,308.75.
Following the rule on interpretation of contracts,
no other evidence shall be admissible other than
the original document itself,26 except when a
party puts in issue in his pleading the failure of
the written agreement to express the true intent
of the parties.
However, to rule on whether the written
agreement failed to express the true intent of the
parties would entail having this Court reexamine
the facts. The findings of the trial court as
affirmed by the appellate court on this issue,
however, bind us now. For in a petition for
certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, this Court may not review the
findings of fact all over again. Suffice it to say,
however, that the findings by the RTC, then
affirmed by the CA, that the extra condition
being insisted upon by the petitioners is not
found in the sales contract between the parties.
Hence it cannot be used to qualify the reckoning
of the period for payment. Besides, telling
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against petitioner WENCESLAO is its failure still

to pay the unpaid account, despite the fact of the
works acceptance by the government already

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2A SY 2009-2010

Page 62

.INTEGRATED
vs.

PACKAGING

COURT OF APPEALS
PAPER CO., INC.,

CORP.,

and FIL-ANCHOR

[G.R. No. 115117; June 8, 2000; Second

Division]

QUISUMBING, J.:

reducing petitioner's indebtedness to

P763,101.70.
RTC ruled that petitioner should pay
P763,101.70 representing the value of printing
paper delivered by respondent from June 5,
1980 to July 23, 1981. However it also found
petitioner's counterclaim meritorious because if
not for the failure or delay of respondent to
deliver printing paper, petitioner could have sold
books to Philacor and realized profit of
P790,324.30 from the sale. SInce that petitioner
suffered a dislocation of business on account of
loss of contracts and goodwill as a result of
respondent's violation of its obligation, the
former is entitled to moral damages.

FACTS

Integrated Packaging Corp (petitioner) and FilAnchor Paper Co. Inc. (respondent) executed on
May 5, 1978, an order agreement whereby
respondent bound itself to deliver to petitioner
3,450 reams of printing paper. The materials
were to be paid within a minimum of thirty days
and maximum of ninety days from delivery.
Respondent filed with the Regional Trial Court
(RTC) a collection suit against petitioner for the
sum of P766,101.70, representing the unpaid
purchase price of printing paper bought by
petitioner on credit.
In its counterclaim, the petitioner denied the
material allegations of the complaint. It alleged
that respondent delivered only 1,097 reams of
printing paper which was short of 2,875 reams,
in total disregard of their agreement and also
failed to deliver the balance of the printing paper
despite demand therefor, hence, petitioner
suffered actual damages and failed to realize
expected profits.

In its reply respondent alleged that subsequent

to the enumerated purchase invoices in the
original complaint, petitioner made additional
purchases of printing paper on credit amounting
to P94,200.00 and that petitioner refused to pay
its outstanding obligation although it made
partial payments amounting to P97,200.00
which was applied to back accounts, thus,

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

The Court of Appeals (CA) reverse and set aside

the jugdgment. It deleted the award of
P790,324.30 as compensatory damages as well
as the award of moral damages and attorney's
fees, for lack of factual and legal basis.
Hence this petition.

ISSUE
Whether or not the respondent violated the order
agreement
RULING
PETITION DENIED. The respondent did not
violate the order agreement when the latter
failed to deliver the balance of the printing paper
on the dates agreed upon.
The transaction between the parties is a contract
of sale whereby respondent (seller) obligates
itself to deliver printing paper to petitioner
(buyer) which, in turn, binds itself to pay therefor
a sum of money or its equivalent (price). Both
parties concede that the order agreement gives
rise to a reciprocal obligations such that the
obligation of one is dependent upon the
obligation of the other. Reciprocal obligations
are to be performed simultaneously, so that the
performance of one is conditioned upon the
simultaneous fulfillment of the other. Thus,
respondent undertakes to deliver printing paper
of various quantities subject to petitioner's
corresponding obligation to pay, on a maximum
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90-day credit, for these materials. In the

contract, petitioner is not even required to make
any deposit, down payment or advance
payment, hence, the undertaking of respondent
to deliver the materials is conditional upon
payment by petitioner within the prescribed
period. Clearly, petitioner did not fulfill its side of
the contract as its last payment in August 1981
could cover only materials covered by delivery
invoices dated September and October 1980.
The agreement provides for the delivery of
printing paper on different dates and a separate
price has been agreed upon for each delivery. It
is also admitted that it is the standard practice of
the parties that the materials be paid within a
minimum period of thirty (30) days and a
maximum of ninety (90) days from each delivery.
Accordingly, the respondent's suspension of its
deliveries to petitioner whenever the latter failed
to pay on time, as in this case, is legally justified
under the second paragraph of Article 1583 of
the Civil Code which provides that:
When there is a contract of sale of goods
to be delivered by stated installments,
which are to be separately paid for, and
the seller makes defective deliveries in
respect of one or more installments, or the
buyer neglects or refuses without just
cause to take delivery of or pay for one or
more installments, it depends in each case
on the terms of the contract and the
circumstances of the case, whether the
breach of contract is so material as to
justify the injured party in refusing to
proceed further and suing for damages for
breach of the entire contract, or whether
the breach is severable, giving rise to a
claim for compensation but not to a right to
treat the whole contract as broken.
Here, petitioner's evidence failed to establish
that it had paid for the printing paper covered by
the delivery invoices on time. Consequently,
respondent has the right to cease making further
delivery, hence the respondent did not violate
the order agreement. On the contrary, it was
petitioner which breached the agreement as it
failed to pay on time the materials delivered by
respondent.
Respondent
appellate
court
correctly ruled that respondent did not violate
the order agreement.

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2A SY 2009-2010

Page 64

GREGORIO FULE,
vs
COURT OF APPEALS, NINEVETCH CRUZ
and JUAN BELARMINO
[G.R. No. 112212 March 2, 1998; Third
Division]

ROMERO, J.:

FACTS
Sales Case Digests
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2A SY 2009-2010

Page 65

Gregorio Fule (petitioner), a banker by

profession and a jeweler at the same time,
acquired a 10-hectare property in Tanay, Rizal
(Tanay property).

Petitioner, as corporate secretary of the bank,

asked Remelia Dichoso and Oliva Mendoza to
look for a buyer who might be interested in the
Tanay property. The two found Dr. Ninevetch
Cruz (private respondent).

It so happens that at that time petitioner had

shown interest in buying a pair of emerald-cut
diamond earrings owned by Dr. Cruz which he
had seen when his mother examined and
appraised them as genuine. Petitioner then
made a bid to buy them but Dr. Cruz declined
the offer. At that point former inspected said
jewelry at the lobby of the Prudential Bank
branch in San Pablo City and then made a
sketch thereof. Having sketched the jewelry then
gave them back to Dr. Cruz.
Subsequently, negotiations for the barter of the
jewelry and the Tanay property ensued. When
Dr. Cruz had later agreed to the proposal,
petitioner went to Prudential Bank once again to
take a look at the jewelry.
In the afternoon of October 23, 1984, petitioner
met Atty. Belarmino (Dr. Cruzs lawyer) at the
latter's residence to prepare the documents of
sale. The Attorney accordingly caused the
preparation of a deed of absolute sale while
petitioner and Dr. Cruz attended to the
safekeeping of the jewelry.
The following day, petitioner, together with
Dichoso and Mendoza, arrived at the residence
of Atty. Belarmino to finally execute a deed of
absolute sale.
Petitioner signed the deed. Since the jewelry
was appraised only at P160,000.00, the parties
agreed that the balance of P40,000.00 would
just be paid later in cash.

Thereafter the petitioner headed for the bank,

arriving there at past 5:00 p.m. Dr. Cruz (who
arrived later) and the cashier then opened the
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

safety deposit box, the former retrieving a

cellophane bag with the jewelry inside and
handing over the same to petitioner. The latter
took the jewelry from the bag, went near the
electric light at the bank's lobby, held the jewelry
against the light and examined it for ten to fifteen
minutes. After a while, Dr. Cruz asked, "Okay na
ba iyan?" Petitioner expressed his satisfaction
by nodding his head.

Later, at about 8:00 o'clock in the evening of the

same day, petitioner arrived at the residence of
Atty. Belarmino complaining that the jewelry
given to him was fake. He then used a tester to
prove the alleged fakery.

On October 26, 1984, petitioner filed a complaint

before the Regional Trial Court (RTC) against
private respondents praying, among other
things, that the contract of sale over the Tanay
property be declared null and void on the ground
of fraud and deceit.
RTC, as affirmed by the Court of Appeals, held
the earrings uses as consideration for the sale
was delivered by Dr. Cruz to the petitioner as
genuine.
Hence this petition.
ISSUE
Whether or not the deed of sale of the Tanay
property is null and void.
RULING

PETITION DENIED. The contract of barter or

sale is valid.
The Civil Code provides that contracts are
perfected by mere consent. From this moment,
the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to
all the consequences which, according to their
nature, may be in keeping with good faith, usage
and law. A contract of sale is perfected at the
moment there is a meeting of the minds upon
the thing which is the object of the contract and
upon the price. Being consensual, a contract of
Page 66

sale has the force of law between the

contracting parties and they are expected to
abide in good faith by their respective
contractual commitments. Article 1358 of the
Civil Code which requires the embodiment of
certain contracts in a public instrument, is only
for convenience, and registration of the
instrument only adversely affects third parties.
Formal requirements are, therefore, for the
benefit of third parties. Non-compliance
therewith does not adversely affect the validity of
the contract nor the contractual rights and
obligations of the parties thereunder.
It is evident from the facts of the case that there
was a meeting of the minds between petitioner
and Dr. Cruz. As such, they are bound by the
contract unless there are reasons or
circumstances that warrant its nullification.
Hence, the problem that should be addressed in
this case is whether or not under the facts duly
established herein, the contract can be voided in
accordance with law so as to compel the parties
to restore to each other the things that have
been the subject of the contract with their fruits,
and the price with interest.
Contracts that are voidable or annullable, even
though there may have been no damage to the
contracting parties are: (1) those where one of
the parties is incapable of giving consent to a
contract; and (2) those where the consent is
vitiated by mistake, violence, intimidation, undue
influence or fraud. Accordingly, petitioner now
stresses before this Court that he entered into
the contract in the belief that the pair of emeraldcut diamond earrings was genuine. On the
pretext that those pieces of jewelry turned out to
be counterfeit, however, petitioner subsequently
sought the nullification of said contract on the
ground that it was, in fact, "tainted with fraud"
such that his consent was vitiated.
There is fraud when, through the insidious words
or machinations of one of the contracting
parties, the other is induced to enter into a
contract which, without them, he would not have
agreed to. The records, however, are bare of
any
evidence
manifesting
that
private
respondents employed such insidious words or
machinations to entice petitioner into entering
the contract of barter. Neither is there any
evidence showing that Dr. Cruz induced
petitioner to sell his Tanay property or that she
cajoled him to take the earrings in exchange for
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

said property. On the contrary, Dr. Cruz did not

initially accede to petitioner's proposal to buy the
said jewelry. Rather, it appears that it was
petitioner, through his agents, who led Dr. Cruz
to believe that the Tanay property was worth
exchanging for her jewelry as he represented
that its value was P400,000.00 or more than
double that of the jewelry which was valued only
at P160,000.00. If indeed petitioner's property
was truly worth that much, it was certainly
contrary to the nature of a businessman-banker
like him to have parted with his real estate for
half its price. In short, it was in fact petitioner
who resorted to machinations to convince Dr.
Cruz to exchange her jewelry for the Tanay
property.
Moreover, petitioner did not clearly allege
mistake as a ground for nullification of the
contract of sale. Even assuming that he did,
petitioner cannot successfully invoke the same.
To invalidate a contract, mistake must "refer to
the substance of the thing that is the object of
the contract, or to those conditions which have
principally moved one or both parties to enter
into the contract." An example of mistake as to
the object of the contract is the substitution of a
specific thing contemplated by the parties with
another. In his allegations in the complaint,
petitioner insinuated that an inferior one or one
that had only Russian diamonds was substituted
for the jewelry he wanted to exchange with his
10-hectare land. He, however, failed to prove the
fact that prior to the delivery of the jewelry to
him, private respondents endeavored to make
such substitution.
Likewise, the facts as proven do not support the
allegation that petitioner himself could be
excused for the "mistake." On account of his
work as a banker-jeweler, it can be rightfully
assumed that he was an expert on matters
regarding gems. He had the intellectual capacity
and the business acumen as a banker to take
precautionary measures to avert such a mistake,
considering the value of both the jewelry and his
land. The fact that he had seen the jewelry
before October 24, 1984 should not have
precluded him from having its genuineness
tested in the presence of Dr. Cruz. Had he done
so, he could have avoided the present situation
that he himself brought about. Indeed, the finger
of suspicion of switching the genuine jewelry for
a fake inevitably points to him. Such a mistake
caused by manifest negligence cannot invalidate

Page 67

a juridical act. As the Civil Code provides,

"(t)here is no mistake if the party alleging it knew
the doubt, contingency or risk affecting the
object of the contract."
Furthermore, petitioner was afforded the
reasonable opportunity required in Article 1584
of the Civil Code within which to examine the
jewelry as he in fact accepted them when asked
by Dr. Cruz if he was satisfied with the same. 29
By taking the jewelry outside the bank, petitioner
executed an act which was more consistent with
his exercise of ownership over it. This gains
credence when it is borne in mind that he
himself had earlier delivered the Tanay property
to Dr. Cruz by affixing his signature to the
contract of sale. That after two hours he later
claimed that the jewelry was not the one he
intended in exchange for his Tanay property,
could not sever the juridical tie that now bound
him and Dr. Cruz. The nature and value of the
thing he had taken preclude its return after that
supervening period within which anything could
have happened, not excluding the alteration of
the jewelry or its being switched with an inferior
kind.

Neither may such failure to pay the balance of

the purchase price result in the payment of
interest thereon. Article 1589 of the Civil Code
prescribes the payment of interest by the
vendee "for the period between the delivery of
the thing and the payment of the price" in the
following cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered
produce fruits or income;
(3) Should he be in default, from the
time of judicial or extrajudicial demand
for the payment of the price.
Not one of these cases obtains here. There is no
stipulation for the payment of interest in the
contract of sale nor proof that the Tanay property
produced fruits or income. Neither did petitioner
demand payment of the price as in fact he filed
an action to nullify the contract of sale.

Both the trial and appellate courts, therefore,

correctly ruled that there were no legal bases for
the nullification of the contract of sale.
Ownership over the parcel of land and the pair
of emerald-cut diamond earrings had been
transferred to Dr. Cruz and petitioner,
respectively, upon the actual and constructive
delivery thereof. Said contract of sale being
absolute in nature, title passed to the vendee
upon delivery of the thing sold since there was
no stipulation in the contract that title to the
property sold has been reserved in the seller
until full payment of the price or that the vendor
has the right to unilaterally resolve the contract
the moment the buyer fails to pay within a fixed
period. Such stipulations are not manifest in the
contract of sale.
While it is true that the amount of P40,000.00
forming part of the consideration was still
payable to petitioner, its nonpayment by Dr. Cruz
is not a sufficient cause to invalidate the contract
or bar the transfer of ownership and possession
of the things exchanged considering the fact that
their contract is silent as to when it becomes due
and demandable.

CENTRAL BANK OF THE PHILIPPINES vs.

SPOUSES
ALFONSO
and
ANACLETA
BICHARA
G.R. No. 131074 March 27, 2000
Second Division
DE LEON, JR., J.:

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2A SY 2009-2010

Page 68

Facts: Respondent sold a parcel of land located

in Legaspi City to Petitioner at the amount of
500 pesos per square meter or a total amount of
405 thousand pesos. The deed of sale contained
that the payment is to be effected only after the
Deed of Sale shall have been duly registered
and a clean title issued in the name of VENDEE.
Also, the VENDORS will undertake at their
expense to fill the parcels of land with an
escombro free from waste materials compacted
to the street level upon signing of the Deed of
Sale to suit the ground for the construction of the
regional office of the Central Bank of the
Philippines thereat.
Despite the issuance of the title, petitioner failed
to pay respondent. On its part, respondents did
not fill up the lot with escombro despite several
demands made by petitioner. Petitioner was thus
constrained to undertake the filling up of the said
lots, by contracting the services of BGV
Construction. The filling up of the lots cost
petitioner P45,000.00. Petitioner deducted the
said amount from the purchase price payable to
respondents.
Petitioner, however, still did not pay the
respondents.
Consequently,
respondents
commenced an action for rescission or specific
performance with damages, against petitioner
before the Regional Trial Court of Legazpi City.
Respondents alleged that petitioner failed to pay
the purchase price despite demand. They
prayed for the rescission of the contract of sale
and the return of the properties, or in the
alternative that petitioner be compelled to pay
the purchase price plus interest at the rate of
12% per annum from July 19, 1983, until fully
paid, and to pay the capital gains and
documentary stamp taxes with the Bureau of
Internal Revenue and registration fees with the
Register of Deeds.
Petitioner tendered payment to respondents in
the amount of P360,500.00. Respondents
refused the tender, however, in view of their
complaint for rescission. After receipt of
summons, petitioner filed its answer averring
that it was justified in delaying payment of the
purchase price in view of respondents' breach of
several conditions in the contract. First,
petitioner alleged that respondents failed to
deliver to the former free and legal possession
of the two properties, in view of the
encumbrances noted in the title, in addition to
the presence of squatters who were not evicted
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

by respondents. Second, it claimed that

respondents did not fill up the lots with
escombro free from waste materials, as agreed
Trial court ordered specific performance of
Central Bank to pay for the property plus
interest. Court of Appeals on the other hand
ordered the rescission of the contract of sale
hence this petition.

Issues:
Issue 1: Whether respondents are entitled to the
remedy of rescission despite of their noncompliance to their obligations to Central Bank.
Issue 2: Whether Central Bank is justified in
withholding the payment of the purchase price.
Held:
Issue 1: Respondents should not be allowed to
rescind the contract where they themselves did
not perform their essential obligation thereunder
which is to fill up the parcels of land with
escombro. It should be emphasized that a
contract of sale involves reciprocity between the
parties. Since respondents were in bad faith,
they may not seek the rescission of the
agreement they themselves breached.
Issue 2: Aside from the instances mentioned
under Article 1590 of the civil code, the vendee
is likewise entitled to withhold payment of the
purchase price if the vendor fails to perform any
essential obligation of the contract. Such right is
premised not on the aforequoted article, but on
general principles of reciprocal obligations.
Since respondents failed to comply with their
obligation, Central Bank is justified in
withholding its payment of the purchase price.

ALBERT
R.
PADILLA vs.
SPOUSES
FLORESCO
PAREDES
and
ADELINA
PAREDES, and THE HONORABLE COURT OF
APPEALS
G.R. No. 124874

March 17, 2000

Second Division
QUISUMBING, J.:

Page 69

Facts: Albert R. Padilla and Floresco and

Adelina Paredes entered into a contract to sell
involving a parcel of land in San Juan, La Union.
At that time, the land was untitled although
private respondents were paying taxes thereon.
Under the contract, petitioner undertook to
secure title to the property in private
respondents' names. Of the P312,840.00
purchase price, petitioner was to pay a
downpayment of P50,000.00 upon signing of the
contract, and the balance was to be paid within
ten days from the issuance of a court order
directing issuance of a decree of registration for
the property. But petitioner made several
payments to private respondents, some even
before the court issued an order for the issuance
of a decree of registration.
After the court ordered the issuance of a decree
of land registration for the subject property,
respondents then demanded payment of the
balance of the purchase price. But the petitioner
was not able to pay the balance in full. In a
letter, private respondents, through counsel,
demanded payment of the remaining balance,
with interest and attorney's fees, within five days
from receipt of the letter. Otherwise, private
respondents stated they would consider the
contract rescinded. Petitioner did not accept
private respondents' proposal. Instead, he
offered to pay the balance in full for the entire
property, plus interest and attorney's fees.
Private respondents refused the offer.
Petitioner instituted an action for specific
performance against private respondents,
alleging that he had already substantially
complied with his obligation under the contract
to sell. He claimed that the several partial
payments he had earlier made, upon private
respondents' request, had impliedly modified the
contract. He also averred that he had already
spent P190,000.00 in obtaining title to the
property, subdividing it, and improving its rightof-way.
Private respondents on the other hand claimed
before the lower court that petitioner maliciously
delayed payment of the balance of the purchase
price, despite repeated demand. According to
private respondents, their acceptance of partial
payments did not at all modify the terms of their
agreement, such that the failure of petitioner to
fully pay at the time stipulated was a violation of
the contract. Also, they aver that this violation

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UST Faculty of Civil Law
2A SY 2009-2010

led to the rescission of the contract, of which

petitioner was formally informed.
The lower court ruled in favor of petitioner,
saying that even if petitioner indeed breached
the contract to sell, it was only a casual and
slight breach that did not warrant rescission of
the contract. The trial court pointed out that
private respondents themselves breached the
contract when they requested and accepted
installment payments from petitioner, even
before the land registration court ordered
issuance of a decree of registration for the
property. According to the trial court, this
constituted modification of the contract, though
not reduced into writing as required by the
contract itself. The payments, however, were
evidenced by receipts duly signed by private
respondents. Acceptance of delayed payments
estopped private respondents from exercising
their right of rescission, if any existed.
The Court of Appeals, however, reversed the
ruling of the trial court and confirmed private
respondents' rescission of the contract to sell.
According to the Court of Appeals, the issue of
whether or not the breach of contract committed
is slight or casual is irrelevant in the case of a
contract to sell, where title remains in the vendor
if the vendee fails to "comply with the condition
precedent of making payment at the time
specified in the contract." Moreover Court of
Appeals rejected petitioner's claim that there had
been a novation of the contract when he
tendered partial payments for the property even
before payment was due. The contract itself
provides that no terms and conditions therein
shall be modified unless such modification is in
writing and duly signed by the parties. The
modification alleged by petitioner is not in
writing, much less signed by the parties.
Moreover, private respondents made a timely
objection to petitioner's partial payments when
they offered to sell to petitioner only one-half of
the property for such partial payments. Private
respondents therefore are entitled to rescission
under Article 1191 of the Civil Code, but with the
obligation to return to petitioner the payments
the latter had made, including expenses incurred
in securing title to the property and in
subdividing and improving it right of way, hence
this petition.
Issues:

Page 70

Whether the appellants are entitled to rescission

under Article 1191 of the Civil Code.
Held: Pertinent provisions of the contract signify
that title to the property remains in the vendors
until the vendee should have fully paid the
purchase price, the contract entered into by the
parties thus is a contract to sell. Since petitioner
failed to comply with his obligation to pay the full
purchase price within the stipulated period, the
contract therefore may be rescinded but the
reason for this is not that private respondents
have the power to rescind such contract, but
because their obligation thereunder did not
arise.
Art. 1191 cannot be applied. It speaks of
obligations already existing, which may be
rescinded in case one of the obligors fails to
comply with what is incumbent upon him.
However, in the present case, there is still no
obligation to convey title of the land on the part
of private respondents. There can be no
rescission of an obligation that is non-existent,
considering that the suspensive condition has
not yet happened.

Alfonso Iringan vs. Court of Appeals

G.R. No. 129107
September 26, 2001
Quisumbing
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 71

Facts:
Private respondent Palao sold to petitioner
Iringan an undivided portion of land to be paid in
installments.
Due to petitioners failure to pay the full amount
on the second installment, private respondent
considered the contract rescinded. The
petitioner on the other hand, on its reply, did not
oppose the revocation of the contract but only
asked for the reimbursement of the initial
payment made.
Private respondent said that they are not
amenable regarding to the reimbursements
claimed. Simply put, no agreement between the
parties was made.

The letter written by the private

respondent declaring hi intention to
rescind did not operate validly,
The filing by Palao of Judicial
Confirmation of Rescission of Contract
and Damages satisfies the requirement
of the law.
2. The petitioner knew respondents
reason for selling. Petitioner refused to
formally execute an instrument showing
their mutual agreement to rescind the
contract of sale. He also did not
substantiate proof that he was ready
and willing to pay. Hence, the awarding
for damages is proper.
Petition denied.

Palao filed a complaint for Judicial Confirmation

of Rescission of Contract and Damages against
Iringan and his wife.
On his answer, he argued that the contract is
already consummated; hence, the remedy
should be for the collection of the balance of the
purchase price and not rescission.
RTC affirmed the rescission and ordered for the
payment for damages to Palao.
This was brought to the Court of Appeals but the
latter also affirmed the decision. Hence, this
petition.

Issues:
1. Whether or not the contract of sale is
validly rescinded.
2. Whether or not the award of moral and
exemplary damages is proper.
Held:
1. Article 1592 requires the rescinding
party to serve judicial or notarial notice
of his intent to resolve the contract. The
party entitled to rescind should apply to
the court for a decree of rescission. The
operative act which produces the
resolution of contract is decree of court
not the mere act of vendor.

Perla Gil vs. CA

G.R. No. 127206

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Page 72

September 12, 2003

Whether or not the property was validly

sold to Iluminada and Agapito Pacetes.

Callejo Sr.

Held:
The Court ruled that the sale between
Concepcion and Iluminada is a
consummated contract of sale. The
contract specifies payment provision
wherein a deposit will be made at a time
of the execution of the instrument. The
vendor within 120 days shall be
delivered the certificate of title to the
vendee. Then, vendee will pay the
remaining amount.

Facts:
Concepcion Gil and sister Nieves Gil are
co-owners of a parcel of land. Nieves
and husband constructed a two storey
building on the said land. Concepcion
then filed a complaint against her sister.
The Court rendered judgment in favor of
Concepcion. Nieves appealed to the
Court of Appeals but the latter also
affirmed the assailed decision.

The certificate of title was not delivered.

As a consequence of the death of
Concepcion, it is the heirs who have the
duty to deliver such. Apparently, they
were not able to deliver the certificate
also. Iluminadas act of paying the
remaining amount only after so many
years is still valid because after all she
has no duty to pay until tile has been
delivered to her.

The Court issued a writ of execution but

Nieves refused to execute the required
deed.
The Sheriff was then ordered to execute
but instead, he divided the property into
4 lots and gave two to Concepcion. Lot
59 C1, one of the two lots given to
Concepcion was then sold by the latter
to Agapito and Iluminada Pacetes. This
contract was however subject to the
condition that a deposit shall be given at
the time of the execution of the contract
and the remaining amount shall be paid
upon the delivery of the certificate of title
to the vendee. The property was then
sold to one Constancio Maglana and
was again sold to the present possessor
Emilio Magtulac who is constructing a
building on said lot. Subsequently,
Concepcion died and now represented
by her successors as the petitioners in
this instant case.
Petitioners
are
contending
that
Concepcions sale of the disputed
property to Iluminada and Agapito
Pacetes is merely a contract to sell
because the full price was not paid by
the latter to the former. They also argue
that the consignation made by Iluminada
did not produce legal effect. Therefore,
subsequent buyers are not purchasers
in good faith.

Petition denied for lack of merit.

Severino Baricuatro, Jr.,

vs.

Issue:
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 73

Court of Appeals, Tenth Division, Mariano B.

Nemenio and Felisa V. Nemenio, Constantino
M. Galeos and Eugenio V. Amores

1. Whether the sale made to Amores by

Galeos is valid?
2. Whether the Nemenio spouses are
purchasers in good faith?

February 9, 2000

G.R. No. 105902

Buena, J.:

RULING:

FACTS:

Issue 1

Baricuatro bought two lots, part of the Victoria

Village, on installments basis from Galeos on
October 16, 1968.

Amores was in good faith when he bought the

subdivision, however, when he registered his
title he already had knowledge of the previous
sale. Such knowledge tainted his registration
with bad faith. In addition, the agreement to
collect the balance of the purchase price of the
disputed lots from Baricuatro which presupposes
knowledge of the previous sale by Amores.

Two months from the date of the previous sale,

Galeos sold the entire subdivision, including the
two lots, to Amores. Baricuatro was informed by
Galeos about the sale and was advised to pay
the balance of the purchase price of the two lots
directly to Amores.

Amores took possession of the subdivision and

developed the same for residential purposes. He
secured the transfer of the title to the same in
his name. Afterwards, he sold the two lots of the
spouses Mariano and Felisa Nemenio. Prior to
the sale, Baricuatro was informed through a
letter by Amores about the impending sale of the
two lots but the former failed to respond.
Nemenio spouses demanded from Baricuatro to
vacate the said lots but the latter refused to do
so.

Trial court rendered a decision, declaring

Nemenio spouses as the owners of the disputed
lot. Court of Appeals affirmed in toto the
judgment of the trial court.

ISSUE:

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Under Art. 1544, the ownership of an immovable

property shall belong to the purchaser who in
good faith registers it first in the registry of
property.

(Uraca vs Ca) The second buyer must show

continuing good faith and innocence or lack of
knowledge of the first sale until his contract
ripens into full ownership through prior
registration as provided by law. This means that
the good faith of the purchaser should be from
the time of the perfection of the sale until up to
the time that he be declared the sole and true
owner of the property.

Issue 2

Nemenio spouses only visited the lots ten

months after the sale which was evidenced
during the trial of the case. And so, they cannot
claim to be purchasers in good faith when they
registered the title. The registration made by the

Page 74

spouses were done in bad faith, hence, it

amounted to no inscription at all.

Decision of CA is REVERSED.

Cecilia Amodia Vda. De Melencion,

Veneranda Amodia, Felipe Amodia, Eutiquio
Amodia and Go Kim Chuan
vs.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 75

Honorable Court of Appeals and Aznar

Brothers Realty Company.

June 23, 2001

G.R. No. 148846

Nachura, J.:

FACTS:

1. Who between Go Kim Chuan and Aznar

has the better right over the subject
property?

RULING:

Art. 1544 provides:

A property in the name of Go Kim Chuan was

originally owned by the Amodias and was
brought under the operation of the Torrens
System. However, the title was lost during the
Second World War.

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.

In 1964, the Amodias allegedly conveyed the

property to Aznar and was registered under Act
344 as there was no title.

If the land is registered under Torrens Title, and

it is sold and the sale is registered no under the
Land Registration Act but under Act 3344, such
sale is not considered registered.

In 1989, the Amodias conveying the property in

favor of Go Kim Chuan and was reconstituted
pursuant to RA No. 26. Thereafter, Go Kim
Chuan exercised control and dominion over the
subject property in an adverse and continuous
manner in the concept of an owner.

Aznar registered its title under Act 3344 while

Go Kim Chuan registered it under Act No. 496,
and so the latter is deemed to be the owner of
the property.

RTCs decision: Go Kim Chuan as the real

owner of the property. The signatures of the
Amodias were forged, thus, the said deed did
not convey anything in favor of Aznar. And
Aznar, failed to show that Go Kim Chuan
acquired the property in bad faith.

Petition for review is GRANTED.

CAs decision: Aznar registered ahead in favor of

Go Kim Chuan, thus, pursuant to Art 1544, the
former deed should be given preference over
the latter.
Soliva vs. The Intestate Estate of Marcelo M.
Villalba
ISSUE:
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 76

Date: December 8, 2003

G.R. No.154017

Division: First Division

Ponente: Justice Panganiban

FACTS: Petitioner, Soliva, filed a complaint for

recovery of ownership against respondent,
Villalba, over a parcel of land situated in Misamis
Oriental. She contended that the respondent
failed to give full consideration for the house and
lot purchased by the latter.

For the rescission of immovables, Art

1592 provides that even though it may have
been stipulated that upon failure to pay the price
at the time agreed upon, the recission of the
contract shall of right take place, the vendee
may pay, even after the expiration of the period
as long as no demand for rescission has been
made upon him. After the demand, the court
may not grant him a new term.

The petitioner, herein, did not exercise

her right to demand for rescission or specific
performance. Hence, she was already barred
from recovering the property due to laches and
prescription.

On the other hand, respondent argued

that the house and lot were sold to him on
installment basis; and that partial payment
thereof was given. He also argued that no
demands were made on him to vacate the
property for a long a period of time. Prescription,
therefore, barred petitioners claim of ownership.

Trial Court ruled in favor of the

respondent on the ground of laches. Court of
Appeals affirmed this ruling.

Hence, this petition.

ISSUE: Whether or not the respondents

nonpayment of the full consideration would
invalidate the contract of sale.

RULING: SC affirmed CA s and ruled in favor of

respondent,
stressing
that
contrary
to
petitioners submission, the nonpayment of the
full consideration did not invalidate the contract
of sale. Under the settled doctrine, nonpayment
is a resolutory condition that extinguishes the
transaction existing for a time and discharges
the obligations created thereunder. The remedy
of the unpaid seller is to sue for collection or
rescind the contract.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Visayan Sawmill Company, Inc. vs. Court of

Appeals

Page 77

Date: March 3, 1993

G.R. No. 83851

Division: En banc
Ponente: Justice Davide

FACTS: Petitioner-corporation entered into a

sale involving scrap iron with private respondent,
subject to the condition that the latter should
open a letter of credit in favor of the former on or
before May 15, 1983. Private respondent then
started to dig and gather scrap iron.
Subsequently, however, petitioner-corporation
sent a letter to the private respondent conveying
its intention to discontinue with the sale due to
the latters failure to comply with the essential
preconditions of their con tract.

Private respondent prayed for judgment

ordering the petitioner-corporation to comply
with the contract by delivering to him the scrap
iron subject thereof.

ISSUE: Whether or not lower court erred in

ruling that automatic rescission could not be
applied in the instant case.

RULING: SC found merit on the petition

stressing that the lower court erred in the
appreciation of the nature of the transaction
between petitioner-corporation and private
respondent. Accordingly, what transpired
between the parties was a contract or promise to
sell and not a contract of sale. Petitionercorporations obligation to sell is subject to a
suspensive condition, which was private
respondents opening of an irrevocable and
unconditional letter of credit. However, this
condition was not fulfilled.

In line with the foregoing, the nonfulfillment could not even be considered a
breach, but simply an event that prevented the
obligation of the petitioner corporation to convey
title from acquiring binding force.

On
the
other
hand,
petitionercorporation insisted that the cancellation of the
contract was justified because of private
respondents non-compliance with essential preconditions, among which was the opening of an
irrevocable and unconditional letter of credit not
later than May 15, 1983.

Trial Court ruled in favor of the private

respondent finding that Art 1593 of the Civil
Code, which provides for automatic rescission
upon failure to deliver or failure to pay movable
properties, could not be applied because implied
delivery was already made in the case at bar.
This implied delivery was manifested by the fact
that the petitioner-corporation allowed the
private respondent to dig and gather scrap iron
from its premises.

Court of Appeals affirmed the ruling.

Hence, the petition.

Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Conchita Nool, et al. vs. Court of Appeals, et

al.
G.R. No. 116635, July 24, 1997

Page 78

Third Division

None.

PANGANIBAN, J:

A contract of repurchase arising out of a sale

where the seller did not have any title to the
property sold is not valid. Since nothing was
sold, then there is also nothing to repurchase. It
is clear that Conchita no longer had any title to
the parcels of land at the time of sale because
when the mortgaged parcels of land were
foreclosed due to their non-payment of said
loan, ownership of the mortgaged lands was
consolidated to DBP. DBP gave the mortgagors
one year redemption period but this was not
exercised by them. Thereafter Anacleto
succeeded in buying the same, so that DBPs
titles were cancelled and new certificates of title
were issued to him. Since, the alleged contract
of repurchase was dependent on the validity of
the contract of sale, it is itself void. A void
contract cannot give rise to a valid one. It is
likewise clear that Conchita can no longer
deliver the object of the sale to the Anacleto
because he has already acquired title and
delivery thereof from the rightful owner, the DBP.
Thus, the contract may be deemed to be
inoperative.
The
right
to
repurchase
presupposes a valid contract of sale between
the same parties. Undisputedly, Anacleto
acquired title to the property from DBP and not
from the petitioners. Petition denied.

FACTS:

Two parcels of land are in dispute and litigated

which was formerly owned by Victorino Nool and
Francisco Nool. Plaintiff spouses Conchita Nool
seek recovery of the aforementioned parcels of
land from defendants Anacleto Nool, younger
brother of Conchita. Plaintiffs alleged that they
are the owners of subject parcels of land and
they bought the same from Conchitas other
brother, Victorino and Francisco. When they
were in dire of money, they obtained a loan from
Development Bank of the Philippines (DBP)
secured by a real estate mortgage on said land
which was still registered in the names of
Victorino and Francisco. For their failure to pay
said loan, the mortgage was foreclosed. That
within the period of redemption, plaintiff
contacted defendant Anacleto to redeem it from
DBP which the latter did. Because of this, titles
of two parcels were transferred to Anacleto.
Anacleto agreed to buy the land for
P100,000.00, P30,000.00 of which was paid to
Conchita and upon payment of the balance
P14,000.00, plaintiffs were to regain possession
which amounts defendant failed to pay. Another
agreement was entered where by defendants
agreed to return to plaintiffs the land at anytime
the latter have the necessary amount. Plaintiffs
asked the defendants to return the same but
defendant refused, impelling them to come to
court for relief.

ISSUE:

Whether or not plaintiffs spouses has the right to

repurchase the parcels of land to Anacleto.

RULING:

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Sps. Carlos and Eulalia Raymundo, et al. vs.

Sps. Dominador and Rosalia Bandung

Page 79

G.R. No. 171250, July 04, 2007

ISSUE:

Third Division

CHICO-NAZARIO, J.:

1. Whether or not the transaction entered

into by the parties was a contract of
sale.
2. Whether or not Jocelyn is a buyer in
Good Faith.

FACTS:
RULING:
Eulalia was engaged in the business of buying
and selling large cattle. For this purpose, she
employed biyaheros whose primary task
involved the procuring of large cattle with the
financial capital provided by Eulalia and
delivering the procured cattle to her for further
diposal. To secure the financial capital she
advanced for the biyaheros Eulalia required
them to surrender the Transfer Certificates of
Title of their properties and to execute the
corresponding Deeds of Sale in her favour.
Dominador had been working for Eulalia as one
of her biyaheros for three decades so she no
longer required him to post any security in the
performance of his duties. However, Eulalia
found that he incurred shortage in his cattle
procurement operation so Dominador and his
wife Rosalia Bandong executed a Deed of Sale
in favour of Eulalia. The subject property was
thereafter sold by Eulalia and her spouse Carlos
Raymundo to Eulalias grandniece Jocelyn
which was later registered in the name of
Jocelyn and her husband Angelito Buenaobra.
Spouses Buenaobra instituted before the MeTC
an action for ejectment against Souses Bandong
which they opposed on the ground that they are
the rightful owners. Spouses Bandong instituted
an action for annulment of sale before RTC
against Eulalia and Jocelyn on the ground that
their consent to the sale of the subject property
was vitiated by Eulalia after they were served by
Jocelyns counsel to vacate. They alleged that
there was no sale intended but only equitable
mortgage for the purpose of securing the
shortage incurred by Dominador while employed
as biyahero. Jocelyn maintained that she was
a buyer in good faith and for value. The court of
appeals reversed the RTC Decision and found
that the transaction entered into by Dominador
and Eulalia was not one of sale but an equitable
mortgage. Hence this petition.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

1. No.
In executing the said Deed of
Sale, Dominador and Eulalia never
intended the transfer of ownership of the
subject property but to burden the same
with an encumbrance to secure the
indebtedness incurred by Dominador on
the occasion of his employment with
Eulalia. By Eulalias own admission it
was her customary business practice to
require her biyaheros to deliver to her
the titles to their real properties and to
execute in her favour the corresponding
deeds of sale over the said properties
as security for the money she provided.
Hence, said transaction is an equitable
mortgage, so that Eulalia has no right to
subsequently transfer ownership of the
subject property, in consonance that
nobody can dispose of what he does not
have. Their relationship is merely
mortgagor and mortgagee rather than
seller and buyer. The contention of
petitioner that Dominador ceded his
property to Eulalia as payment for his
obligation for it is contrary to human
experience because he would first look
for means to settle his obligation and the
selling of a property on which his house
that shelters them stand would be his
last resort.

2. No.
Jocelyn is a grandniece of
Eulalia which resides in the same
locality where the latter lives and
conducts
her
principal
business.
Therefore it is impossible for her not to
acquire knowledge of her grand aunts
business practice of requiring her
Page 80

biyaheros to surrender the titles to

their properties as security. This should
put her on guard for any possible
abuses that Eulalia may commit with the
titles. Likewise she admitted that she
was aware that Dominador and Lourdes
were in possession of the property. A
buyer of real property that is in
possession of a person other than the
seller must be wary. A buyer who does
not investigate the rights of one in
possession can hardly be regarded as a
buyer in good faith.
Petition is denied.

ERLINDA SAN PEDRO vs. RUBEN LEE and

LILIAN SISON
G.R. No. 156522

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

May 28, 2004

Page 81

FIRST DIVISION

in favor of respondents, the dispositive portion of

which reads:

YNARES-SANTIAGO, J.:
Issue:
Facts:

The parties in this case executed the

"Kasulatan ng Ganap na Bilihan ng Lupa", which
states that the petitioner is the true owner of a
parcel of land located in Bulacan, which is
selling to the respondents for the amount of
P150,000.

The document bears two signatures above the

typewritten words "ERLINDA SAN PEDRO,
Nagbibili". It contains the signatures of two
witnesses.

Petitioner claims that she approached one Philip

dela Torre, who introduced her to respondent.
From Lee and his wife Lilian Sison, Petitioner
was able to secure a loan in the amount of
P105,000.00, with interest of P45,000.00, or a
total indebtedness of P150,000.00.6 As security
for this loan, she agreed to mortgage a parcel of
agricultural land located in Bulacan,

Petitioner claims that Atty. Roxas and Lee

coerced her to sign the "Kasulatan" and that the
document was executed merely as written
evidence of the loan and mortgage.
Respondents, on the other hand claim
that the sale of the property in question was
brokered by their mutual acquaintance and
broker, Philip dela Torre. They thus negotiated
for the purchase of the property, which had an
initial asking price of P200,000.00,21 and
offered to pay P150,000.00 therefor. San Pedro
accepted their offer and agreed to sell the land.

The trial court rendered a decision in favor of

petitioner. On appeal, the Court of Appeals
reversed the trial court, and rendered a decision
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Whether the contract in question is an equitable

mortgage or a deed of absolute sale.

Ruling:

The document appears on its face to be a

contract of sale, and contains the following
clause:

Na dahil at alang-alang sa halagang ISANG

DAAN AT LIMAMPUNG LIBONG PISO
(P150,000.00), Salaping Pilipino, na ngayong
araw na ito ay ibinayad sa akin at tinanggap ko
naman ng buong kasiyahang-loob bilang husto
at ganap na kabayaran ni RUBIN T. LEE, may
sapat na gulang, Pilipino, kasal kay Lilian Sison
at naninirahan sa 230 MacArthur Highway,
Karuhatan, Valenzuela, Metro Manila, aking
IPINAGBIBILI, ISINASALIN at INILILIPAT ng
ganap at patuluyan at walang anumang
pasusubali o pananagutan, ang lahat at boo [sic]
kong
karapatan
at
pagmamay-ari
at
pamumusesyon sa nabanggit na lagay ng lupa
at mga kaunlaran o mejoras na dito ay makikita
o nakatirik o matatagpuan sa nasabing RUBIN T.
LEE at sa kanyang mga tagapamana o kahalili.

It is well-settled that the presence of even one of

the foregoing circumstances is sufficient to
declare a contract as an equitable mortgage, in
consonance with the rule that the law favors the
least transmission of property rights.For the
presumption of an equitable mortgage to arise
under Article 1602, two requisites must concur:
(1) that the parties entered into a contract
denominated as a sale; and (2) that their
intention was to secure an existing debt by way
of a mortgage.

Page 82

WHEREFORE, premises considered, the

decision of the Court of Appeals dated
November 20, 2002, which dismissed the
complaint filed by petitioner for lack of merit, is
AFFIRMED

Spouses Austria and Leonisa Hilario vs.

Spouses Gonzalez
G.R. No. 147321
January 21, 2004
Second Division
QUISUMBING, J.,
FACTS: Spouses Hilario filed an action for
Declaration of Nulity against Spouses Gonzales
involving 3 parcels of lands which were the
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 83

subject of 2 Deeds of Sale executed Leonisa

Hilario in favor of the latter spouses. One lot was
priced at P50, 000 and the other at P240,000.
Spouses Hilario claimed that the contract
between them and Spouses Gonzalez were not
of sale but loans for P260,000. However, it
turned out that Spouses Gonzalez registered the
disputed lots in their names through the use of
fraud, misrepresentation and falsification, using
the fictitious contracts of sale.

gains tax and registration fees, which can only

find relevance and necessity in a contract of sale
and not in a contract of mortgage. Petitioners
cannot feign ignorance and illiteracy as to its
contents. Said letter is written not in English but
in Filipino in which petitioners are conversant.
Thus, the true intent of the parties involves a
contract of sale. It is not merely a loan, much
less an equitable mortgage

Spouses on the other hand contend that they

bought the said lots from Spouses Hilario merely
out of pity for them and that the Deed of
Absolute Sale was notarized.
RTC: ruled in favor of Spouses Hilario.
CA: REVERSED.
ISSUE: Whether the transaction is an absolute
sale or equitable mortgage of real property.
HELD: AFFIRMED.
The transaction is an absolute sale.
The presumption of equitable mortgage when
there is inadequacy of the selling price;
possession in the premises; and payment of
realty taxes is not conclusive. It may be rebutted
by competent and satisfactory proof to the
contrary. Here, Spouses Hilario failed to present
any proof whatsoever that the fair market values
of the real property in the area at the time of the
transaction were much higher than the selling
price of the parcels in question. As to the
allegation that petitioners were in possession of
the properties even after the sale, it is obviated
by the fact that they executed an undertaking
promising to vacate the premises.
Moreover, they failed to rebut the testimony of
the Notary Public who testified in court that the
petitioners as vendors of the properties
personally appeared and acknowledged the sale
documents before him.
Lastly, Leonisa Hilario sent a note to Mrs.
Gonzales requesting them to execute another
antedated deed of sale, providing for a
decreased selling price, so as to reduce
petitioners' taxes, e.g. capital gains tax. The
existence and genuineness of the letter was
never rebutted. Note that in said letter Leonisa
used the term "Kasulatan ng Bilihan" (Deed of
Sale). She likewise made mention about capital
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Oscar Fernandez vs. Spouses Carlos and

Narcisa Tarun
G.R. No. 143868
November 14, 2002

Third Division

PANGANIBAN, J.:
FACTS: A fishpond located in Arellano-Bani
Dagupan City is co-owned by brothers Antonio,
Page 84

Santiago, Demetria and Angel Fernandez,

together with their uncle Armando. Antonio and
Demetria sold their respective shares to
Spouses Tarun. These sales were registered
and annotated in the OCT. Later, the said coowners executed a Deed of Extrajudicial
Partition of two parcels of registered land with
exchange of shares. This involved the fishpond
(1st) that was co-owned and another fishpond
(2nd). It was also stipulated in the deed that the
parties recognize and respect the sale earlier
made. Angel B. Fernandez exchanged his share
in the 2nd fishpond to the shares of his co-owners
on the remaining portion of the 1st fishpond.
From that time on, they had been paying the
realty taxes thereon. However, it was Angel B.
Fernandez and later on his heirs, [petitioners],
who remained in possession of the entire
fishpond. The Spouses Tarun sought the
partition of the property but Angel Fernandez
refused. When he died, Spouses Tarun again
sought the partition of the property but Angel
Fernandezs heirs [petitioner] again refused.
Hence, this action for partition.

Furthermore, mere alleged inadequacy of the

price does not necessarily void a contract of
sale, although the inadequacy may indicate that
there was a defect in the consent, or that the
parties really intended a donation, mortgage, or
some other act or contract. Finally, unless the
price is grossly inadequate or shocking to the
conscience, a sale is not set aside. In this case,
petitioners failed to establish the fair market
value of the property when it was sold in 1967.
Hence, there is no basis to conclude that the
price was grossly inadequate or shocking to the
conscience.

RTC: in favor of petitioners. They are entitled to

redeem the property.
CA: REVERSED.
ISSUE: Whether or not the transaction is one of
absolute sale or equitable mortgage.
HELD: AFFIRMED.
The transaction is an absolute sale.
On its face, a document is considered a contract
of equitable mortgage when the circumstances
enumerated in Article 1602 of the Civil Code are
manifest, as follows: (a) when the price of the
sale with the right to repurchase is unusually
inadequate, and (b) when the vendor remains in
possession as lessee or otherwise. Although it is
undisputed that Angel Fernandez was in actual
possession of the property, it is important to note
that he did not sell it to respondents. The sellers
were his co-owners -- Antonio and Demetria
Fernandez -- who, however, are not claiming
that the sale between them was an equitable
mortgage. For the presumption of an equitable
mortgage to arise, one must first satisfy the
requirement that the parties entered into a
contract denominated as a contract of sale, and
that their intention was to secure an existing
debt by way of mortgage.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Tolentino and Roo vs. CA, De Guzman,

Pongco and Baduria

G.R. No. 128759

August 1, 2002

Page 85

Second Division

2.) Whether the action for declaration of

nullity of the Deed of Absolute Sale
is the proper remedy or cause of
action.

Quisumbing, J:

Facts:

Ruling:

Sps. Pedro and Josefina De Guzman

were the registered owners of a parcel of land
covered by TCT No. 20248 T-105 of the Register
of Deeds of Quezon City (RD of QC). They
obtained a loan from the Rehabilitation Finance
Corporation (RFC), now Development Bank of
the Philippines (DBP), and executed a mortgage
security therefor.
They failed to pay the
obligation; hence, the mortgage was foreclosed.

1.) Petitioners argue that Art. 1602 of

the Civil Code applies only when there is no
express agreement or stipulation between the
parties. But in the instant case, there was an
express agreement, therefore inapplicable.

But before the expiry of the redemption

period, Sps. De Guzman obtained another loan
of P18,000 from Raymundo Tolentino and
Lorenza Roo (petitioners). The loan to RFC
was paid and the mortgage was cancelled.
Petitioners then requested Sps. De Guzman to
sign a Deed of Promise to Sell as security for
the loan. Afterwards, they asked again Sps. De
Guzman to sign a Deed of Absolute Sale.
Armed with the Deed of Absolute Sale,
petitioners secured the cancellation of TCT No.
20248 T-105 and TCT No. 69164 was issued in
their name.

Upon the death of Pedro de Guzman in

1971, respondents tried to settle the remaining
balance of the loan. Petitioners agreed to
reconvey the property on the condition that
respondents pay the actual market value
obtaining in 1971. Upon verification with the RD
of QC, the De Guzmans found that the title was
already in the name of the petitioners.
Consequently, respondents filed a complaint for
declaration of sale as equitable mortgage and
reconveyance of property with damages. Both
the trial court and CA ruled in favor of
respondents. Hence, this instant petition.

SC said wrong. There is nothing in Art.

1602 that indicates it applies only in the absence
of express agreement between the parties. The
trial court in rendering the decision considered
foremost the real parties intent in entering into
the transactions.
It observed that the
transactions indicated that petitioners did not
intend to hold the property as owner, but as
security for the loan extended to the
respondents.
Furthermore, the respondents
remained in possession of the property and
continued to pay real estate taxes even after the
execution of the Deed of Absolute Sale. These
are badges of equitable mortgage. The trial
court, invoking Art. 1602 and Art. 1604 of the
Civil Code, ruled that these were sufficient to
raise the presumption that the contract was an
equitable mortgage.

2.) SC held that well entrenched is the

rule that litigants cannot raise an issue for the
first time on appeal as this contravenes the
basic rules of fair play and justice. Moreover,
there is nothing in Art. 1605 that prohibits the
institution of an action different from the one
provided therein. It uses the word may and
denotes discretion and cannot be construed as
mandatory.
Thus, it is not obligatory for
respondent to file an action for reformation of
instruments.

Petition DENIED.

Issues:
1.) Whether Art. 1602 (presumption of
equitable mortgage) is inapplicable
to the instant case.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

_______________________________________

Page 86

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 a 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.
Art. 1604. The provisions of article 1602 shall
also apply to a contract purporting to be an
absolute sale.

Georgina Hilado vs. Heirs of Rafael Medalla

G.R. No. 144227

February 15, 2002
Second Division
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 87

Mendoza, J:

Facts:
Gorgonio Macainan was the owner of
several properties in Bacolod City. Upon his
death in 1966, his estate was divided among his
heirs, including Berbonia who had predeceased
him. In turn, her children Rafael, Lourdes and
Teresita, surnamed Medalla succeeded to her
inheritance. Rafael Medallas share consisted of
five hectares in Lot No. 1031 and 1,197 sq.m. in
the Lopez Jaena property.

In 1979 and 1981, Rafael executed a

Deed of Absolute Sale, purporting to sell his
share to Georgina Hilado (petitioner). The first
deed was for Lot No. 1031 for P50,000 while the
second was for the Lopez Jaena property for
P25,000.

Over the next two years, Hilado and

Medalla executed three more contracts
concerning Lot No. 1031 and the Lopez Jaena
property.

In 1984, Berbonias sister, Anita

Macainan brought a suit against Hilado and
Medalla for legal redemption. Medalla filed a
cross-claim against Hilado, alleging that the
Deed of Sale in 1979 was an equitable
mortgage to secure a loan for P50,000 which he
had received from Hilado. Nevertheless, Hilado
claims it was a deed of sale and not a loan
agreement.

The trial court dismissed Anitas

complaint and ruled in favor of petitioner, stating
that Medalla as a third year law proper when the
deed was executed had full knowledge of the
consequences when he affixed his signature.
Hence, the court was convinced that the
intention was really to sell because all the
formalities required for a valid and enforceable
contract have been fully satisfied.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

However, the CA reversed the trial

courts decision for the reason that the assessed
value of Lot No. 1031 is P145,460 and the
consideration was only for P50,000. As such, it
can only conclude that it was grossly
inadequate.

Petitioner now seeks a reversal of the

said decision.

Issues:
1.) Whether Art. 1602 of the Civil Code
is present in the instant case.
2.) Whether the contract of deed of
absolute sale executed is the law
between the parties.
Ruling:
1.) Under Art. 1602 in relation to Art.
1604 of the Civil Code, a contract purporting to
be an absolute sale is presumed to be an
equitable mortgage

(1) when the price of a sale . . . is unusually

inadequate;
(2)
when the vendor remains in
possession as lessee or otherwise;
(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

The presence of these circumstances is

sufficient for a contract to be presumed as an
equitable mortgage.

In the instant case, there was evidence

showing that the price paid by petitioner was
unusually inadequate as compared to the
market value of the lands in the neighborhood.

Page 88

Also, Medalla remained in possession of

the lot as corroborated by his tenant Ramon
Nessia and also by Anita Macainan.

Moreover, the series of transactions

executed after the 1979 Deed of Absolute Sale
indicated quite clearly that the real intention of
the parties was to secure the loans of Medalla.
In fact the CA held that It is very unlikely for one
person who had acquired a property for a
certain price to sell the same property to the
same person five years after for the same price
rate, considering that they are unrelated, unless,
there has been an understanding between them
that the same property will be resold to Medalla
after the fulfillment of a resolutory condition.

2.) The SC held that in view of the

conclusions reached, it will suffice to say that
even if a document appears on its face to be a
sale, the owner of the property may prove that
the contract is really a loan with mortgage and
that the document does not express the true
intent and agreement of the parties.

Petition DENIED.

SPOUSES JAYME C. UY and EVELYN UY,

petitioners,
vs.
THE HONORABLE COURT OF APPEALS and
SPS. NICANOR G. DE GUZMAN and ESTER
DE GUZMAN, respondents.
G.R. No. 109197

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

June 21, 2001

Page 89

MELO, J.:
Private
respondents
Nicanor
de
Guzman, Jr. and Ester de Guzman were the
owners of three lots located in Greenhills
Subdivision, San Juan, Metro Manila. In 1971,
they constructed, at a cost of P3 million, a 1,200
square meter residential house on two of the
lots. In 1987, the market value of the lots already
ranged from P4,000 to P5,000 per square meter
while the house was worth about P10 million.
Sometime in 1987, Nicanor de Guzman,
Jr. decided to run for the position of
Representative of the Fourth District of Nueva
Ecija. Sometime in April 1987, however, de
Guzmans campaign fund began to run dry and
he was compelled to borrow P2.5 Million from
Mario Siochi. The de Guzman spouses were
required to sign, as a sort of collateral, a deed of
sale dated April 10, 1987 whereby they
purportedly sold 2 of the 3 lots along with the
improvements thereon, to Siochi. De Guzman
was able to obtain two more loans of
P500,000.00 each from Siochi. No additional
collateral was required, the "deed of sale" being
more than sufficient to cover the original P2.5
million loan and the additional P1 million loan.
Despite the "deed of sale," however, the de
Guzmans remained in possession of the
property. Aside from these loans, de Guzman
also owed Siochi several debts, to repay these
other loans, the de Guzmans agreed with Siochi
to have their 1,411 square meter vacant lot,
which had already been "sold" to Siochi under
the April 10, 1987 deed of sale, sold. The sale of
the same amounted to P4.8 Million, the
proceeds of which were all retained by Siochi. In
the meantime and without the knowledge of the
de Guzman spouses, Siochi had the spouses
TCT cancelled on the basis of the deed of sale
executed by the spouses on April 10, 1987, and
had new Torrens titles issued in his name.
On June 20, 1987, Siochi sold the two
lots and the improvements thereon for P2.75
Million to herein petitioners Jayme and Evelyn
Uy. Thereafter, petitioners had Siochis titles
over the lots cancelled and had new titles issued
over the property. On July 1, 1988, petitioners
entered into a contract of lease with option to
buy with Roberto Salapantan. Salapantan was,
however, unable to obtain possession of the lots
since the premises were occupied by the de
Guzman spouses. Consequently, Salapantan
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

filed a complaint for ejectment on August 1,

1988 against the de Guzman spouses with the
Metropolitan Trial Court of San Juan, Metro
Manila. On September 16, 1988, the de
Guzmans filed a complaint with the Regional
Trial Court of Pasig against Siochi, Salapantan,
and herein petitioners, seeking the reformation
of the April 10, 1987 Deed of Absolute Sale to
the end that the true intention of the parties
therein be expressed. On December 28, 1990,
the trial court rendered its decision in favor of
the de Guzmans. Aggrieved, petitioners
interposed an appeal with the Court of Appeals,
the latter affirmed the decision of the trial court
holding that the sale disputed by the de
Guzmans to Siochi was an equitable mortgage.
ISSUE : Whether or not the sale made by herein
private respondents was indeed an equitable
mortgage as held by both the trial court and the
appellate court

HELD: YES, the sale is an equitable mortgage.

Art. 1602 of the New Civil Code provides:
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 fairly be 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 court was convinced and found that the
questioned deed of sale is in reality a mere
equitable mortgage and not an absolute sale in
view of the following circumstances:
First, the consideration of the sale of P2.5 Million
is grossly and unusually inadequate.Second,
despite the alleged deed of sale, plaintiffs have

Page 90

remained in actual and physical possession of

the litigated property up to the present
time.Third, the uncontradicted evidence is that
plaintiffs were driven to obtain the emergency
loan due to urgent necessity of obtaining funds
and they signed the deed of sale knowing that it
did not express their real intention. In fact,
additional loans in the total sum of P1 million
were extended to plaintiffs by Siochi even after
the execution of said sale without Siochi
demanding for any additional security.Lastly,
Siochi had retained for themselves the entire
proceeds of P4.8 million derived from the sale of
plaintiffs vacant lot. In the following
circumstances, it indubitably shows that the
alleged sale was indeed an equitable mortgage.
As found by both the trial court and appellate
court, the April 10, 1987 deed of sale executed
by the de Guzmans and Siochi was an equitable
mortgage, hence, the titles to the house and lots
which were sold by Siochi to petitioners actually
remained with the mortgagors, the de Guzmans.
The circumstance that the original transaction
was subsequently declared to be an equitable
mortgage must mean that the title to the subject
land which had been transferred to private
respondents actually remained or is transferred
back to petitioners herein as ownersmortgagors, conformably with the wellestablished doctrine that the mortgagee does
not become the owner of the mortgaged
property because the ownership remains with
the mortgagor. The issuance of a certificate of
title in Siochis favor did not vest upon him
ownership of the property. Neither did it validate
the sale made by Siochi to petitioners, which is
null and void. Article 2088 of the Civil Code
provides that the "the creditor cannot
appropriate the things given by way of pledge or
mortgage, or dispose of them." Being null and
void, the sale by Siochi of the questioned
property to petitioners, who are not innocent
purchasers,
produced
no
legal
effects
whatsoever.
SPOUSES OCTAVIO and EPIFANIA LORBES,
petitioners,
vs.
COURT OF APPEALS, RICARDO DELOS
REYES and JOSEFINA CRUZ, respondents.
G.R. No. 139884
February 15, 2001

GONZAGA-REYES, J.:
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 91

Petitioners were the registered owners

of a 225-square meter parcel of land located in
Antipolo, Rizal covered by Transfer Certificate of
Title No. 165009. Sometime in August 1991,
petitioners mortgaged this property to Florencio
and Nestor Carlos in the amount of
P150,000.00.
About a year later, the mortgage
obligation had increased to P500,000.00 and
fearing foreclosure of the property, petitioners
asked their son-in-law, herein private respondent
Ricardo delos Reyes, for help in redeeming their
property. Private respondent delos Reyes
agreed to redeem the property but because he
allegedly had no money then for the purpose he
solicited the assistance of private respondent
Josefina Cruz, a family friend of the delos
Reyeses and an employee of the Land Bank of
the Philippines.
It was agreed that petitioners will sign a
deed of sale conveying the mortgaged property
in favor of private respondent Cruz and
thereafter, Cruz will apply for a housing loan with
Land Bank, using the subject property as
collateral. It was further agreed that out of the
proceeds of the loan, P500,000.00 will be paid
to the Carloses as mortgagees, and an such
balance will be applied by petitioners for capital
gains tax, expenses for the cancellation of the
mortgage to the Carloses, transfer of title to
Josefina Cruz, and registration of a mortgage in
favor of Land Bank. Moreover, the monthly
amortization on the housing loan which was
supposed to be deducted from the salary of
private respondent Cruz will be reimbursed by
private respondent delos Reyes.
On September 29, 1992, the Land Bank
issued a letter of guarantee in favor of the
Carloses, informing them that Cruzs loan had
been approved. On October 22, 1992, Transfer
Certificate of Title No. 165009 was cancelled
and Transfer Certificate of Title No. 229891 in
the name of Josefina Cruz was issued in lieu
thereof.2 On November 25, 1992, the mortgage
was discharged.
Sometime in 1993, petitioners notified
private respondent delos Reyes that they were
ready to redeem the property but the offer was
refused. Aggrieved, petitioners filed on July 22,
1994 a complaint for reformation of instrument
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

and damages with the RTC of Antipolo, Rizal,

docketed as Civil Case No. 94-3296.
In the complaint, petitioners claimed that
the deed was merely a formality to meet the
requirements of the bank for the housing loan,
and that the real intention of the parties in
securing the loan was to apply the proceeds
thereof for the payment of the mortgage
obligation. They alleged that the deed of sale did
not reflect the true intention of the parties, and
that the transaction was not an absolute sale but
an equitable mortgage, considering that the
price of the sale was inadequate considering the
market value of the subject property and
because they continued paying the real estate
taxes thereto even after the execution of the
said deed of sale.
On June 20, 1995, the trial court
rendered judgment in favor of petitioners, upon
finding that: (1) the Deed of Absolute Sale dated
October 21, 1992 did not reflect the true
intention of the parties, and (2) the transaction
entered into between petitioners and Cruz was
not an absolute sale but an equitable mortgage,
considering that the price stated in the Deed of
Absolute Sale was insufficient compared to the
value of the property, petitioners are still in
possession of the property, and petitioners had
continued to pay the real estate taxes thereon
after the execution of the said deed of sale. The
Court of Appeals reversed the above decision,
finding that the transaction between petitioners
and Cruz was one of absolute sale, not of
equitable mortgage. To the Court of Appeals, the
transaction was unmistakably a contract of sale,
as evidenced by the numerous supporting
documents thereto, such as the Contract to Sell
dated June 1992, Affidavit of Waiver/Assignment
dated August 14, 1992, Receipt of Partial
Advance Payment dated September 9, 1992,
and Transfer Certificate of Title No. 229891
issued in the name of private respondent Cruz.
ISSUE: Whether or not the alleged sale was an
equitable mortgage
HELD: YES, the sale was indeed an equitable
mortgage. The Supreme Court held that the
conditions which give way to a presumption of
equitable mortgage, as set out in Article 1602 of
the Civil Code, apply with equal force to a
contract purporting to be one of absolute sale.
Moreover, the presence of even one of the
Page 92

circumstances laid out in Article 1602, and not a

concurrence of the circumstances therein
enumerated, suffices to construe a contract of
sale to be one of equitable mortgage. This is
simply in consonance with the rule that the law
favors the least transmission of property rights.
Thus, under Article 1602 of the Civil Code, a
contract shall be presumed to be an equitable
mortgage when --- (a) the price of a sale with
right to repurchase is unusually inadequate; (b)
the vendor remains in possession as lessee or
otherwise; (c) upon or after the expiration of the
right of repurchase another instrument extending
the period of redemption or granting a new
period is executed; (d) the purchaser retains for
himself a part of the purchase price; (e) 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.

petitioners remained in possession of the

property only because they refused to vacate on
Cruzs demand is not accurate because the
records reflect that no such demand was made
until more than a year since the purported sale
of the property.
From the above, the Court is satisfied that
enough of the circumstances set out in Article
1602 of the Civil Code are attendant in the
instant case, as to show that the true
arrangement between petitioners and private
respondent Cruz was an equitable mortgage.

Applying the foregoing considerations to

the instant case, the Court found that the true
intention between the parties for executing the
Deed of Absolute Sale was not to convey
ownership of the property in question but merely
to secure the housing loan of Cruz, in which
petitioners had a direct interest since the
proceeds thereof were to be immediately applied
to their outstanding mortgage obligation to the
Carloses.
Understandably, the Deed of Absolute
Sale and its supporting documents do not reflect
the true arrangement between the parties as to
how the loan proceeds are to be actually applied
because it was not the intention of the parties for
these documents to do so. The sole purpose for
preparing these documents was to satisfy Land
Bank that the requirement of collateral relative to
Cruzs application for a housing loan was met.
The facts further bear out that
petitioners remained in possession of the
disputed property after the execution of the
Deed of Absolute Sale and the transfer of
registered title to Cruz in October 1992. Cruz
made no demand on petitioners to vacate the
subject premises until March 19, 1994;
interestingly, this was two days after petitioners
signified their intention to redeem the property
by paying the full amount of P600,000.00. On
this basis, the finding of respondent court that
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

TOMAS SEE TUAZON vs. COURT

APPEALS and JOHN SIY LIM
G.R. No. 119794
October 3, 2000
Third Division
Ponente: PURISIMA, J.:

OF

FACTS: The case originated from a contract of

mortgage constituted on the subject lot. Tomas
See Tuazon, who was then the President and
General Manager of Universal Rubber Products,

Page 93

Inc., together with the spouses, See Tiong

Cheng and Eng Tang Go See, mortgaged,
together with other properties, subject lot to the
Philippine Bank of Commerce (PBCom), to
secure a loan of 4,830,265.90 Pesos. When the
mortgagors failed to pay the mortgage debt, the
mortgaged property was foreclosed and sold at
public auction, with PBCom itself as the highest
bidder.
On July 15, 1987, spouses Tomas S.
Tuazon and Natividad S. Tuazon sold to John
Siy Lim (Lim) a 650 square meter conjugal lot
along A. del Mundo Street, 7th Avenue, Kaloocan
City, with a two-storey building and Apartment
Units Nos. 161 and 163 existing thereon.
Atty. Crisostomo, lawyer of the Tuazons,
drafted the Absolute Deed of Sale, which was
duly registered. By virtue of the said deed, TCT
in the name of the Tuazons was cancelled and
in lieu thereof, a TCT was issued in the name of
John Siy F. Lim.
The Tuazons brought a Complaint for
Reformation of Contract, Quieting of Title with
Damages against John Siy F. Lim theorizing
that the real intention of the parties was to enter
into a loan accommodation that their daughter
Bernice told that her fianc, the respondent was
willing to help them redeem the subject property
by accommodating them with 1Million Pesos.
Appellee proposed that: 60% of the P1 Million,
or P600,000 would be a URPI loan where
machineries worth P3 Million, by way of chattel
mortgage, would secure it, and 40% of the P1
Million would be appellants personal loan. The
bank agreed to reduce the redemption price to
One Million (P1,000,000.00) Pesos subject to
the condition that petitioner surrendered in favor
of PBCom his (petitioner) Producer's Bank stock
certificates by way of dacion en pago. To keep
the creditors, suppliers and laborers of URPI
from levying on subject property, petitioner
decided to transfer the title thereof to Lim. The
new title was to serve as security for the loan.
Lim filed hi
s answer, theorizing that the
Deed of Absolute Sale expressed the true
intention of the parties. Petitioner Tuazon and
his daughter persuaded him to redeem for
himself the extrajudicially foreclosed property
from PBCom because Tuazon was financially
incapable.
Trial court decided for the respondent.
Both parties filed an MR.
Trial court rendered a decision declaring that the
deed of absolute sale was an equitable
mortgage.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

CA decided in favour of respondent. The Tuazon

family remained in the premises sold to Lim. But
not in the concept of owner. The first year of
Tuazons continued occupancy of Apt. No. 163
was
at
Lims
graciousness
with
the
understanding that after one year, the Tuazons
will pay the appropriate rentals for the continued
use and occupation of the property. In the
exercise of his right as owner of the property,
Lim leased Apartment No. 161 to a William Sze
where Lim signed the contract of lease as the
lessor
ISSUE: Whether or not the deed of absolute
sale is in fact an equitable mortgage
RULING: Petition is denied. Ruling of CA is
affirmed.
Article 1602 of the Civil Code provides
that a contact shall be presumed to be an
equitable mortgage by the presence of any of
the following:
(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.
Under Article 1604 of the New Civil
Code, the provisions of Article 1602 shall also
apply to a contract purporting to be an absolute
sale. And for these provisions of law to apply,
two requisites must concur: that the parties
entered into a contract denominated as a
contract of sale and that their intention was to
secure an existing debt by way of mortgage.
For an action for reformation of an instrument as
provided for in Article 1359 to prosper, the
following requisites must concur, to wit: (1) there
must have been a meeting of the minds of the
parties to the contract; (2) the instrument does
not express the true intention of the parties; and
(3) the failure of the instrument to express the
true intention of the parties is due to mistake,
fraud, inequitable conduct or accident. Here,
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petitioner has not shown or established the

presence of the aforestated requirements for the
reformation of the deed in question.
Prepared by the lawyer of the herein
petitioner, Tomas See Tuazon, subject Deed of
Absolute Sale executed on July 15, 1987 is
couched in clear terms and conditions. John Siy
Lim had no hand in its preparation. Besides, the
voluntary, written and unconditional acceptance
of contractual commitments negate the theory of
equitable mortgage.

SPOUSES MARIO REYES VS. COURT OF

APPEALS
G.R. No. 134166
August 25, 2000
Second Division
Ponente: Bellosillo,J.:
FACTS: Two separate actions for specific
performance was filed by Spouses Ramos
agains Spouses Reyes and Spouses Victa to
compel them to segregate a total of 3000 square
meters of lot from each of their respective
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2A SY 2009-2010

Page 95

shares in the estate of the FLorentino

Dominguez, their father.
The
Ramoses
contended
that
Conception Reyes and Araceli Vita sold 1,700
and 1,300 square meters of lot to them.
Early 1991 Lot No. 4705 was finally
subdivided into several smaller lots and
partitioned extrajudicially among the five (5)
heirs of Florentino Dominguez although the
records only disclosed three (3) names,
Concepcion
Dominguez-Reyes,
Araceli
Dominguez-Victa and Fortunata Dominguez.
Concepcion acquired a 2,440-square meter lot
while Araceli took possession of two (2) lots with
a combined area of 2,340 square meters.
Upon learning of the partition, the
Ramoses demanded that the petitioners make
good their undertakings under the deed of sale
executed beforehand but the latter refused,
insisting that the deeds did not reflect the true
intention of the parties as their real intention was
simple loans of money the payment of which
was to be secured by mortgages.
Concepcion D. Reyes and Araceli D.
Victa averred that between 1980 to 1985 they
obtained individually various loans from Nilda
Ramos which were covered by handwritten
receipts prepared either by her or by her
daughter Dinah Ramos and signed by
Concepcion and Araceli. Sometimes they were
furnished by Nilda Ramos with duplicate copies
of the corresponding receipts although in most
instances only one (1) copy was prepared which
Nilda retained.
The loans were released by Nilda to
Concepcion and Araceli on a piecemeal basis,
and every time the loans reached an aggregate
amount of P10,000.00 to P20,000.00 Nilda
would prepare a Deed of Absolute Sale and
Transfer which purported to convey in her favor
a portion of the undivided shares of Concepcion
and Araceli in Lot No. 4705. To entice them to
sign the deeds, Nilda represented to them that
the instruments were merely for purposes of
complying with the formalities required by ARVI
Finance Corporation, which she owned, and
where the amounts loaned to them presumably
came from. Nilda Ramos further assured
Concepcion and Araceli that the deeds would
not be notarized nor would they be enforced
against them. That however out of a total of
eighteen (18) deeds of sale signed by
Concepcion and Araceli, it appeared that three
(3) were actually notarized. Finally, Concepcion
and Araceli offered to settle their indebtedness
but Nilda refused to accept payment.
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2A SY 2009-2010

Trial court rendered a decision in favor

of the Reyes and Victa spouses holding that "the
alleged sales were not really sales but receipts
of sums of money by way of loans."
The Court of Appeals however
disagreed and reversed the ruling of the trial
court on appeal. CA: We have examined the
instruments evidencing the transactions under
consideration and found the language of each
clearly and without ambiguity to be setting forth
a contract of sale and purchase. And the
authenticity and due execution of these deeds, it
must be emphasized, are not disputed. They
are in fact admitted x x x x In the mind of this
court, appellants have convincingly proven the
reality of the sale of the parcels of land subject
hereof x x x these pieces of evidence are not
mere drafts of contracts since everything for the
existence of a perfect contract of purchase and
sale are present. Neither can they possibly be
mistaken for receipts inasmuch as even their
title typewritten in capital letters and
underlined proclaims what each of the
documents is all about x x x x When contracting
minds have reduced their agreement into
writing, the contents of the writing constitute the
sole repository of the terms of the contract
between the parties x x x x
ISSUE: The pivotal issue then is whether the
parties intended the contested Deed(s) of
Absolute Sale and Transfer to be bona fide
absolute conveyances of parcels of land, or
merely equitable mortgages
RULING: CA decision is inconsistent with law
and equity. Trial court decision is reinstated and
affirmed.
Art. 1602 of the Civil Code enumerates
the instances when a contract, regardless of its
nomenclature, may be presumed to be an
equitable mortgage: (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.
Page 96

For the presumption of an equitable

mortgage to arise under Art. 1602, two (2)
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. The existence of any one of the
circumstances defined in the foregoing
provision, not the concurrence nor an
overwhelming number of such circumstances, is
sufficient for a contract of sale to be presumed
an equitable mortgage. The provision also
applies even to a contract purporting to be an
absolute sale, as in this case, if indeed 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 facts and evidence decidedly show
that the true intention of the parties was to
secure the payment of the loans and not to
convey ownership over the property in question.
The transactions were replete with veritable
badges of equitable mortgage.

Aguirre vs. CA and Tupas

G.R. No. 131520
January 28, 2000

Facts:

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

In April 30, 1972, petitioner Estelita

Aguirre and private respondent Teofista
S. Tupas entered into a Deed of
Absolute Sale covering a 3,230 square
meter parcel of land located in Balabag,
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Malay, Aklan, in what is more popularly

known as Boracay Island.

Immediately thereafter, petitioner took

possession and occupied the said
parcel of land. On August 15, 1984,
however, claiming to have been
disturbed in the possession of the
subject land, petitioner filed a Complaint
for Quieting of Title and/or Recovery of
Possession with Damages being coowners with their sister, Teofista S.
Tupas, of the subject land.
On August 21, 1991, the Regional Trial
Court of Kalibo, Aklan rendered
judgment dismissing the Complaint for
lack of merit. It found that the contract
between the parties was one of
equitable mortgage and not of sale.

Issue:
Whether or not the transaction between the
parties was not a sale but an equitable
mortgage?
Ruling:
Petition Denied

In determining the nature of a contract,

courts are not bound by the title or name
given by the parties. The decisive factor
in evaluating such agreement is the
intention of the parties, as shown not
necessarily by the terminology used in
the contract but by their conduct, words,
actions and deeds prior to, during and
immediately
after
executing
the
agreement.
As
such
therefore,
documentary and parol evidence may
be submitted and admitted to prove
such intentio.against the spouses
Privado Tupas and Teofista S. Tupas.
The other private respondents then
came in as intervenors,
Art. 1602 of the Civil Code enumerates
the instances when a contract,
regardless of its nomenclature, may be

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

presumed to be an equitable mortgage,

as follows:
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. Lexj uris
By the terms of Art. 1604, the
foregoing provisions shall also
apply to a contract purporting to
be an absolute sale. x x x."

Page 98

As already stated above, Article 1604 of

the Civil Code provides that the
provisions of Article 1602 shall also
apply to a contract purporting to be an
absolute sale. The presence of even
one of the circumstances in Article 1602
is sufficient basis to declare a contract
as one of equitable mortgage.

The explicit provision of Article 1602 that

any of those circumstances would
suffice to construe a contract of sale to
be one of equitable mortgage is in
consonance with the rule that the law
favors the least transmission of property
rights. To stress, the existence of any
one of the conditions under Article 1602,
not a concurrence, or an overwhelming
number of such circumstances, suffices
to give rise to the presumption that the
contract is an equitable mortgage
Article 1602(6), in relation to Article
1604 provides that a contract of sale is
presumed to be an equitable mortgage
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.
After a careful review of the records of
the case, we are convinced that it
qualifies as an equitable mortgage
under Article 1602(6). This may be
gleaned
from
the
following
circumstances
surrounding
the
transaction
First, it is not disputed that private
respondents spouses Tupas built two
cottages on the subject land as well as
operated a sari-sari store and grew
banana plants on the same, such that,
per petitioners own account, almost
half of the area had been occupied by
them.Despite this bold possession,
petitioner admits that no demand to
vacate the land was ever made upon
the spouses Tupas. Their possession
remained undisturbed for years, until the
action below was filed in 1984.

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2A SY 2009-2010

Neither was rent ever collected from

them for their occupancy of the land.

Coming
now to
the temporary
possession of the subject land by
petitioner, the court find credibility in
private respondents claim that the
spouses Tupas gave petitioner a ten
(10) year period to occupy the subject
land as part of their mortgage
agreement. That period of time may well
be deemed as the time allotted to the
spouses Tupas, as mortgagors, to pay
their indebtedness to petitioner. That
petitioner vacated the subject land after
having occupied the same only
underscores the fact that no sale took
place between the parties. Otherwise,
why would she, as rightful owner,
abandon the property she already was
in possession of, only to leave
possession of the same to her vendor?

It is also of record that private

respondents had continued paying tax
on the subject land even after the same
had been supposedly "sold" to
petitioner. On the other hand, while
petitioner presented tax declarations in
her favor, the same would show that the
taxes for the years 1974-1980 were only
made by petitioner on June 4,
1985,almost a year after she had
already filed the suit below.

In arguing that the transaction was one

of sale, petitioner points out that private
respondent Teofista Tupas was not a
debtor at any time prior to the sale;
hence, it cannot be held that the subject
land was being used as security for a
debt. However, it may be that the debt
was given at the very moment of the
mortgage transaction.

Lumayag v. Court of Appeals

G.R. No. 162112
July 3, 2007
Facts:

During their lifetime, the spouses

Jacinto
Nemeo
and
Dalmacia
Dayangco-Nemeo,
predecessors-ininterest of the herein respondent heirs,
owned two (2) parcels of coconut land
Page 99

located in Manaca, Ozamiz City. The

parcels are: Lot No. 4049, with an area
of five (5) hectares and covered by
Original Certificate of Title (OCT) No. 01743 and Lot No. 4035 C-4, consisting
of 4,420 square meters and covered by
Tax Declaration No. 13750

In 1979, Dalmacia died survived by her

husband, Jacinto, and their six (6)
children, to wit: Meliton, Eleuteria,
Timoteo,
Justo,
Saturnino
(now
deceased) and Felipa.

On February 25, 1985, Jacinto, joined

by his five (5) children, namely, Meliton,
Eleuteria, Timoteo, Justo and Saturnino,
conveyed to his daughter Felipa and the
latters husband Domingo Lumayag the
aforementioned Lot. The instrument of
conveyance is denominated as Deed of
Sale with Pacto De Retro

Thereunder, it was stipulated that the

consideration for the alleged sale of the
two (2) aforementioned lots was Twenty
Thousand Pesos (P20,000.00) and that
the vendors a retro have the right to
repurchase the same lots within five (5)
years from the date of the execution of
the instrument on February 25, 1985. It
was likewise agreed thereunder that in
the event no purchase is effected within
the said stipulated period of five (5)
years conveyance shall become
absolute and irrevocable without the
necessity of drawing up a new absolute
deed of sale, subject to the
requirements
of
law
regarding
consolidation of ownership of real
property.

More than a decade later, or on August

28, 1996, the spouses Domingo
Lumayag and Felipa Nemeo-Lumayag
filed with the RTC of Ozamiz City a
petition for the reconstitution of the
owners duplicate copy of one of the two
lots subject of the earlier Deed of Sale
with Pacto De Retro.

In that petition, the Lumayags alleged

that said owners duplicate copy of was
in Domingos possession but the same

Sales Case Digests

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was lost when a typhoon hit and

destroyed the couples house in Talisay,
Cebu. The petition was opposed by the
other heirs of Jacinto and Dalmacia who
claimed that the owners duplicate copy
of the same OCT was actually in the
possession and custody of their brother
Meliton Nemeo, the administrator of
the property, when it was burned in a fire
on May 22, 1992. In an order dated
December 20, 1996, the RTC resolved
said petition by ordering the issuance of
a new owners duplicate copy and its
delivery to the heirs of Jacinto and
Dalmacia.

The heirs of Jacinto and Dalmacia,

namely, their children Meliton, Eleuteria,
Timoteo and Justo and grandchildren
Ricky and Daisy who are the heirs of
Saturnino, (hereinafter collectively
referred to as the respondent heirs) filed
against the spouses Domingo Lumayag
and Felipa N. Lumayag a complaint for
Declaration of Contract as Equitable
Mortgage, Accounting and Redemption
with Damages.

Essentially, the complaint alleged that

the subject Deed of Sale with Pacto De
Retro was executed only for the purpose
of securing the payment of a loan of
P20,000.00 obtained from the defendant
spouses in connection with the
medication and hospitalization of the
then ailing Jacinto Nemeo.

To support their claim that the contract

in question was an equitable mortgage,
the plaintiff heirs materially pointed out
the following: (1) the grossly inadequate
price of the subject lots considering that
Lot No. 4049 with an area of 5 hectares
has a market value of P40,760.00 and
an assessed value of P15,230.00, as
shown by Tax Declaration No. 9407335-A, while Lot No. 4035 C-4 with an
area of 4,420 square meters has a
market value of P4,120.00 and an
assessed value of P1,460.00, per Tax
Declaration No. 94-07355-A; (2) their
(plaintiffs) continued payment of realty
taxes; (3) the land title and tax
declaration remained in the names of
Jacinto Nemeo and Dalmacia
Page 100

Dayangco-Nemeo; (4) their

possession, particularly Justo
Nemeos, of the subject lots with the
petitioner spouses only given two-thirds
share of the harvest therefrom; and (5)
the pactum commissorium stipulation in
the subject contract.

Eventually, in a decision dated

February 3, 1999, the trial court
adjudged the subject Deed of Sale with
Pacto De Retro as an equitable
mortgage and ordered the defendant
spouses to reconvey the lot to the
plaintiff heirs for P20,000.00

Dissatisfied, both parties appealed to

the CA. Unfortunately, for failure of the
plaintiff heirs to submit their appeal brief,
their appeal was dismissed, leaving that
of the defendant spouses

As stated at the threshold hereof, the

appellate court, affirmed that of the trial
court but with the modification that the
mortgaged properties are subject to
foreclosure should the respondents fail
to redeem the same within thirty (30)
days from finality of the decision.

by operation of law the absolute title and

ownership over the property sold.

Here, there is no issue as regards the

fact that the subject Deed of Sale with
Pacto De Retro provided for a 5-year
redemption period which expired on
February 25, 1990. Evidently, then, the
failure of the respondent heirs to
redeem the properties within the
stipulated period indubitably vested the
absolute title to and ownership thereof
to the petitioners. But such
consequence would only be true if
the contract that was executed
between the parties was indeed a
pacto de retro sale and not an
equitable mortgage.

The two (2) courts below unanimously

found that the subject Deed of Sale with
Pacto De Retro, while purporting to be a
sale, is in truth and in fact an equitable
mortgage. Such factual finding, more so
when supported by the evidence, as
here commands is binding upon the
court.

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, and contains nothing
impossible or contrary to law.

Article 1604 of the Civil Code provides

that the provisions of Article 1602 shall
also apply to a contract purporting to be
an absolute sale, and, in case of doubt,
a contract purporting to be a sale with
right to repurchase shall be construed
as an equitable mortgage.

The law requires the presence of any

one and not the concurrence of all of the
circumstances enumerated under Article
1602, to conclude that the transaction is
one of equitable mortgage.

Here, the CA correctly found the

presence of not merely one but four (4)
circumstances indicative of the true

Hence this appeal...

Issue:
Whether or not the transaction between the
parties was not a sale but an equitable
mortgage?

Ruling:

Petition denied.

Under a pacto de retro sale, title to and

ownership of property are immediately
vested in the vendee a retro, subject
only to the resolutory condition that the
vendor repurchases it within the
stipulated period. The failure of the
vendor a retro to repurchase the
property vests upon the vendee a retro

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2A SY 2009-2010

Page 101

nature of the subject transaction as an

equitable mortgage, to wit: (a) gross
inadequacy of the contract price of
P20,000.00 for two (2) parcels of land,
the total area of which is almost 5.5
hectares; (b) respondent heirs
remained in possession of the subject
property even after the execution of the
supposedly Deed of Sale with Pacto de
Retro; (c) said respondents payment of
realty taxes; and (d) the provision on
pactum commissorium

While the Supreme Court are not in full

accord with the CA in its observation
that the consideration of the sale with
right to repurchase is grossly
inadequate since the market value and
assessed value of the two lots were not
made on or before the date the subject
contract was executed on February 25,
1985 but only on June 8, 1994, still,
there are other circumstances
convincing enough to support a
conclusion that the transaction in
question is really an equitable mortgage.

Evidence is extant on record that the

respondent heirs, as vendors a retro,
remained in possession of the subject
lots after the execution of the deed of
sale with right to repurchase. In stark
contrast, evidence is wanting that
petitioners ever enjoyed possession
thereof. If the transaction was really a
sale with right to repurchase, as claimed
by the petitioners, then the latter should
have asserted their rights for the
immediate delivery of the lots to them
instead of allowing some of the
respondents to freely stay in the
premises. Well-settled to the point of
being elementary is the doctrine that
where the vendor remains in physical
possession of the land as lessee or
otherwise, the contract should be
treated as an equitable mortgage

taxes subsequent to the alleged sale.

Payment of those taxes is a usual
burden attached to ownership and
when, as here, such payment is coupled
with continuous possession of the
property, it constitutes evidence of great
weight that a person under whose name
the realty taxes were declared has a
valid and rightful claim over the land.

Lastly, the stipulation in the subject

deed reading: if we fail to exercise our
rights to repurchase as herein granted
within the period stipulated, then this
conveyance shall become absolute and
irrevocable without the necessity of
drawing a new absolute Deed of Sale,
subject to the requirements of law
regarding consolidation of ownership of
real property, - is considered a pactum
commissorium. This stipulation is
contrary to the nature of a true pacto de
retro sale since in such sale, ownership
of the property sold is immediately
transferred to the vendee a retro upon
execution of the sale, subject only to the
repurchase of a vendor a retro within the
stipulated period.

Undoubtedly, the aforementioned

stipulation is a pactum commissorium
because it enables the mortgagee to
acquire ownership of the mortgaged
properties without need of any
foreclosure proceedings which is a
nullity being contrary to the provisions of
Article 2088 of the Civil Code. Indeed,
the inclusion of such stipulation in the
deed shows the intention to mortgage
rather than to sell.

As well, that the parties intended to

enter into an equitable mortgage is
further accentuated by respondents
continued payment of the real property

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AMELIA S. ROBERTS, petitioner,

Page 102

vs.
MARTIN B. PAPIO, respondent.

February 9, 2007 G.R.No.166714

THIRD DIVISION

Ponente: CALLEJO, SR.

FACTS: Spouses Martin and Lucina Papio

mortgage their residential lot in Makati in order
to secure P59,000.00 loan from Amparo
Investments Corporation. Upon Papios failure to
pay, the Corp. filed a petition for extrajudicial
foreclosure of the mortgage. To prevent
foreclosure, they executed a Deed of Absolute
Sale over the property in favor of Amelia Roberts
(his cousin) for P85,000.00 purchase price.
Transfer Certificate of Title is now in the name of
Amelia Roberts.

Roberts and Papio executed a 2-yr. contract of

lease subject to renewal at the option of the
lessor. After 2yrs Papio failed to pay the monthly
rentals but he and his family remained in the
possession of the property for almost 13yrs.
Roberts demanded Papio to vacate the property
in case he failed to settle his back rentals
amounting to P410,000.00. Papio refused to pay
and leave the premises.

Roberts now filed a complaint for unlawful

detainer and damages against Papio before
Metropolitan Trial Court.

In his Answer, Papio alleged that when the Corp.

filed a petition for extrajudicial foreclosure, his
cousin Roberts offered to redeem the property.
Believing that she had made the offer for the
purpose of retaining his ownership over the
property, he accepted. However, he was
alarmed when Roberts had a Deed of Absolute
Sale over the property prepared. He then
Sales Case Digests
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2A SY 2009-2010

believed that if he signed the deed, Roberts

would acquire ownership over the property. He
asked her to allow him to redeem the property
anytime for a reasonable amount. Roberts
agreed so he signed the Deed of Absolute Sale.
Pursuant to the right to redeem given him, Papio
purchased the property for P250,000.00. Since
Roberts was already in USA, he remitted to her
authorized representative Perlita Ventura the
amount of P150,000.00 as partial payment and
another P100,000.00 and were evidenced by
receipts signed by Ventura. However, Ventura
misappropriated P39,000.00 out of P250,000.00
which is the reason why Roberts refused to
execute the Deed of Absolute Sale in favor of
Papio if Ventura would not pay the amount she
misappropriated.

Metropolitan Trial Court ruled in favor of

Roberts. Papio appealed to RTC, and in its
decision it affirmed the findings of MeTC. Papio
file a petiton for review in CA. CA ruled in favor
of Papio stating that what transpired is not a
contract of absolute sale but an equitable
mortgage and that Papio is entitled to
possession of the property. Roberts filed a
petition for review assigning as error that
petitioner did not alleged in his Answer the
defense of equitable mortgage; hence the Ca
should not have discussed the same.

ISSUE: whether the transaction entered into by

the parties under the Deed of Absolute Sale and
Contract of Lease is an equitable mortgage.

RULING: CA erred in finding that the transaction

is an equitable mortgage. An EQUITABLE
MORTGAGE is one that although lacking in
some formality, form or words, or other
requisites demanded by a statute, nevertheless
reveals the intention of the parties to change a
real property as security for a debt and contain
nothing impossible or contrary to law. The
decisive factor is the intention of the parties.

In Papios Answer he stated that he was given

the right of redemption at any time; that he had
repurchased the property and consequently he
obliged Roberts to execute a deed of absolute
Page 103

sale in his favor. With this claims, it is antithetical

to an equitable mortgage.

In PACTO DE RETRO SALE, ownership of the

property sold is immediately transferred to the
vendee a retro subject only to the right of the
vendor a retro to repurchase the property upon
compliance with legal requirements for
repurchase. Failure of the vendor a retro to
exercise the right to repurchase within the
agreed time vests upon the vendee a retro, by
operation of law, absolute title over the property.

One who repurchase a property means that the

property was previously sold. The right of
repurchase presupposes a valid contract of sale
between the parties. Papio insisted that he
repurchased the property thereby admitting that
a deed of absolute sale was executed by him
and petitioner and not an equitable mortgage.
Papio is barred from claiming otherwise.

The right of repurchase is not a right granted the

vendor by the vendee, but a right reserved by
the vendor in the same instrument of the sale as
one of the stipulations of the contract. When the
sale is made without such agreement, the
purchaser acquires the thing sold absolutely.

When the language of the contract is explicit,

leaving no doubt as to the intention of the
drafters, the courts may not read into it any other
intention that would contradict its plain import.

DIONISIA DORADO VDA. DE DELFIN,

petitioner
vs.
SALVADOR
DELLOTA,
respondent.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 104

January 28, 2008 G.R. No.143697

There is gross inadequacy in price if a

reasonable man will not agree to dispose of his
property. The court finds no cogent reason to
conclude that the 1949 price of P5,300.00 as
agreed upon by the parties was unreasonable.

FIRST DIVISION

Ponente: SANDOVAL-GUTIERREZ

FACTS: Dionisia Dorado Delfin is the registered

owner of Lot in Capiz with an area of 143,935
square meters. Dionisia executed an Escritura
De Venta Con Pacto de Retro over 50,000
square meters in favor of Ildefonso Dellota and
Patricia Delfin.

There is no evidence herein whatsoever to show

that Dionisia did not understand the
ramifications of her signing the Deed of Sale
with Right of Redemption. Nor is there any
showing that she was threatened, forced or
defrauded into affixing her signature on the said
contract.
If the terms of the pacto de retro sale were
unfavorable to Dionisia, this Court has no
business extricating her from that bad bargain.
Courts are not guardians of persons who are not
legally incompetent.

Dionisia sold another portion to Gumersinda

Delea as evidenced by a notarized Deed of
Sale with Right of Redemption thus, leaving an
unsold area of more than 43,000 square meters.
Dionisia never redeemed this 50,000 square
meter portion from Gumersindo.

Dionesias heirs now contend that the Deed of

Sale with Right of redemption entered into by
Dionisia and Gumersindo is an equitable
mortgage. They insist that the price of
P5,3000.00 for 5 hectare portion is grossly
inadequate.

ISSUE: whether the transaction entered into by

Dionisia is an equitable mortgage.

RULING: An EQUITABLE MORTGAGE is one

that although lacking in some formality, form or
words, or other requisites demanded by a
statute, nevertheless reveals the intention of the
parties to change a real property as security for
a debt and contain nothing impossible or
contrary to law. The decisive factor is the
intention of the parties.

Bautista vs. Unangst

G.R. No. 173002; July 04, 2008

Third Division
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2A SY 2009-2010

Page 105

Reyes, R.T., J.:

HELD:
FACTS:
Hamilton Salak and Shirley G. Unangst
were arrested on February 02, 1997 for estafa
and carnapping for the formers failure to return
a car he rented from Benjamin Bautista.
Bautista demanded from Salak the sum of Php
232, 372.00 as payment for car rental fees,
other fees and incidental expenses in the
retrieval of the car.
Salak and the respondent proposed to
sell to the petitioner a house & lot under the
Unangsts name to amicably settle the cases
filed against them and their accounts with the
same,
which
the
petitioner
welcomed.
Furthermore, petitioner agrees to pay the
mortgage loan over the subject property to a
certain Jojo Lee (as the property was then set to
be publicly auctioned).
They executed a deed of sale with right
to repurchase within 30 days, and that the
respondents shall pay the taxes and utility bills
related to the subject property.
Upon the failure of the respondent to
repurchase, petitioner filed a complaint for
specific performance or recovery of possession,
for sum of money, for consolidation of
ownership,
and
damages
against
the
respondent.
After the RTC deciding in favor of the
petitioner, respondent now argues before the CA
to annul the deed, arguing that respondent
Unangsts consent to the deed was procured
under duress and assuming arguendo that the
same was freely given the same partakes the
nature of an equitable mortgage and not of sale.
The CA ruled in favor of the respondent; hence
this petition for review on certiorari.
The petitioner argues that the deed was
clear and unequivocal, ergo; such must be
construed in its literal sense.

ISSUE:
Whether the subject contract is that of
sale or an equitable mortgage?
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

The Deed of Sale with right to

repurchase is that of an equitable mortgage.
The petition is denied for lack of merit.

RATIO DECIDENDI:
The Deed of Sale with right to
repurchase qualifies as an equitable mortgage
under Article 1602, for respondent merely
secured the payment of the unpaid car rentals
and the amount advanced by petioner to Jojo
Lee.
Provided for are the cases to presume a
contract to be an equitable mortgage under
Article 1602 (NCC):
(1.)
(2.)
(3.)

(4.)
(5.)
(6.)

When the price of the sale with right to

repurchase is unusually inadequate;
When the vendor remains in possession
as lease or otherwise;
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;
When the purchaser retains for himself a
part of the purchase price;
When the vendor binds himself to pay the
taxes on the thing sold;
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 of the performance
of any other obligation

In the case at bar, first, the consent was

taken in duress since it was signed by the
respondent to be freed from police custody.
Following the principle, Nel consensui tam
contrarium est quam vis ataqui mtus
(Necessitous men are not, truly speaking, free
men; but to answer a present emergency will
submit to any terms that the crafty may impose
upon them).
Second, petitioner allowed respondent
Salak to retain the possession of the property
despite the execution of the deed since the latter
is not even bound to deliver the possession of
the property to the former if they would pay him
Page 106

the amount he demanded. In this case it shall

be presumed that it is an equitable mortgage, for
if otherwise, the legal title to the property must
be immediately transferred to the vendee,
subject to the vendors right to redeem. Ergo,
retention by the vendor of the possession is
inconsistent with the vendees acquisition of the
right 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 a retro.
Third, the deed was executed by reason
of: (01.) the alleged indebtedness of Salak to
petitioner, that is, car rental payments; and (02.)
respondents own obligation to petitioner, that is,
reimbursement of what petitioner paid to the
mortgagee, Jojo Lee. Fact is, the purchase
price stated in the deed was the amount of the
indebtedness of both respondent and Salak to
petitioner.
Apparently, the deed purports to be a
sale a retro, on the other hand, since the same
was executed in consideration of the aforesaid
loans and/or indebtedness, said contract is
firmly settled that whenever it is clearly shown
that a deed of sale with pacto de retro, regular
on its face, is given as security for a loan, it must
be regarded as an equitable mortgage.
Moreover, it is provided for in Article
1603 (NCC) that: in case of doubt, a contract
purporting to be a sale with right to repurchase
shall be construed as an equitable mortgage.

Lorbes vs. Court of Appeals

G.R. No. 139884; February 15, 2001

Octavio
and
Lorbes
(petitioners)
mortgaged their parcel of land in Antipolo, Rizal
to Florencio and Nestor Carlos for Php 150,
000.00 that subsequently increased to Php 500,
000.00 in a year.
In fear of foreclosure,
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 107

petitioner asked their son-in-law, delos Reyes

(herein respondent), for help in redeeming the
subject property. Since the latter has no money
for that purpose, he solicited the help of his
friend Josefina Cruz, a Land Bank of the
Philippines (LBP) employee.

the price of the sale was inadequate

considering the market value of the
subject property and because they
continued paying the real estate taxes
thereto even after the execution of the
said deed of sale

It was agreed upon by the parties that:

(1.)
(2.)
(3.)

(4.)
(5.)
(6.)

they would sign a deed of sale conveying

the mortgaged property in favor of private
respondent Cruz; and thereafter
Cruz will apply for a housing loan with
Land Bank, using the subject property as
collateral;
it was further agreed that out of the
proceeds of the loan, P500,000.00 will be
paid to the Carloses as mortgagees, and
any such balance will be applied by
petitioners for capital gains tax, expenses
for the cancellation of the mortgage to the
Carloses;
transfer of title to Josefina Cruz;
and registration of a mortgage in favor of
Land Bank; and
the monthly amortization on the housing
loan which was supposed to be deducted
from the salary of private respondent Cruz
will be reimbursed by private respondent
delos Reyes.

After which, LBP issued a letter of

guarantee in favor of the Carloses, informing
them that Cruz loan has been approved, and
subsequently a new title in the name of Cruz
was issued in lieu thereof; thus, the mortgage
was discharged.
In 1993, the petitioners notified delos
Reyes that they are now capable of redeeming
the subject property, but the latter refused. This
led the former to file an action for reformation of
instrument plus damages.
The petitioners argue that:
(1.)

(2.)

the deed was merely a formality to meet

the requirements of the bank for the
housing loan, and that the real intention of
the parties in securing the loan was to
apply the proceeds thereof for the
payment of the mortgage obligation;
that the deed of sale did not reflect the
true intention of the parties, and that the
transaction was not an absolute sale but
an equitable mortgage, considering that

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

The private respondent (delos Reyes) was

declared in default and the case proceeded in ex
parte. The lower court ruled in favor of the
petitioners, since the sale was executed in order
to secure a loan from LBP to save the property
from the danger of foreclosure and to use it as
collateral thereof for bank loan purposes and
that the same does not reflect the real intention
of the parties in executing the said Deed of Sale.
Furthermore, the petitioners are still in
possession of the subject property and had been
paying the realty taxes thereon even after the
execution of the deed, and that the petitioners
were merely forced to enter into the said
transaction out of the grave necessity of
redeeming the subject property at that time.
The CA reversed the decision of the lower
court; hence this petition for review on certiorari.

ISSUES:
Whether the Deed of Absolute Sale
entered into by the parties was an equitable
mortgage?

HELD:
The Deed of Absolute Sale is an
equitable mortgage.
The CA decision is
reversed and the RTC decision is reinstated.

RATIO DECIDENDI:
There is no conclusive test to determine
whether a deed of absolute sale on its face is
really a simple loan accommodation secured by
a mortgage, ergo; the decisive decisive factor in
Page 108

evaluating such agreement is the intention of the

parties, as shown not necessarily by the
terminology used in the contract but by all the
surrounding circumstances, such as the relative
situation of the parties at that time, the attitude,
acts, conduct, declarations of the parties, the
negotiations between them leading to the deed,
and generally, all pertinent facts having a
tendency to fix and determine the real nature of
their design and understanding. As such,
documentary and parol evidence may be
submitted and admitted to prove the intention of
the parties.
Provided for are the cases to presume a
contract to be an equitable mortgage under
Article 1602 (NCC):

sole purpose of these documents was to satisfy

LBP.
Second, the consent given by the
petitioners where in duress following the
principle, Necessitous men are not, truly
speaking, free men; but to answer a present
emergency, will submit to any terms that the
crafty may impose upon them, since the
transaction was borne out of the impending
foreclosure of the subject property.
Lastly, the petitioners remained in
possession of the subject property after the
execution of the deed; and Cruz made no
demand to the former to vacate the premises.

(1.) When the price of the sale with right to

repurchase is unusually inadequate;
(2.) When the vendor remains in possession
as lease 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 of the
performance of any other obligation.
And that the conditions herein set forth
by the law which give way for the presumption of
equitable mortgage apply with equal force to a
contract purporting to be one of absolute sale.
The presence of even one of these
circumstances, and not the concurrence of these
circumstances, suffices to construe a contract of
sale to be one of equitable mortgage.
The SC finds that the true intention
between the parties for executing the Deed of
Sale was not to convey ownership of the subject
property but merely to secure the housing loan
of Cruz, in the petitioners had direct interest
since the proceeds thereof was to be
immediately applied to their outstanding
mortgage obligation to the Carloses. Although
this is not shown in the supporting documents of
the principal transaction between the parties, the
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2A SY 2009-2010

Page 109

Nicolas Parangan for a term of ten (10) years

and an annual rent of One Thousand
(P1,000.00) Pesos. During the period of lease,
Parangan was regularly extending loans in small
amounts to petitioner to defray her daily
expenses and to finance her daughter's
education.
On July 29, 1970, petitioner
executed a Special Power of Attorney in favor of
Parangan to secure an agricultural loan from
private respondent Philippine National Bank
(PNB) with the aforesaid lot as collateral. On
February 18, 1972, a second Special Power of
Attorney was executed by petitioner, by virtue of
which, Parangan was able to secure four (4)
additional loans. The last three loans were
without the knowledge of herein petitioner and
all the proceeds therefrom were used by
Parangan for his own benefit. These
encumbrances were duly annotated on the
certificate of title. On April 16, 1973, petitioner
signed a Deed of Pacto de Retro Sale in favor of
Parangan which was superseded by the Deed of
Definite Sale dated May 4, 1979 which petitioner
signed upon Parangan's representation that the
same merely evidences the loans extended by
him unto the former.

ADORACION LUSTAN, petitioner, vs. COURT

OF APPEALS, NICOLAS PARANGAN and
SOLEDAD
PARANGAN,
PHILIPPINE
NATIONAL BANK, respondents.

[G.R. No. 111924. January 27, 1997]

For fear that her property might be prejudiced by

the continued borrowing of Parangan, petitioner
demanded the return of her certificate of title.
Instead of complying with the request, Parangan
asserted his rights over the property which
allegedly had become his by virtue of the
aforementioned Deed of Definite Sale. Under
said document, petitioner conveyed the subject
property and all the improvements thereon unto
Parangan absolutely for and in consideration of
the sum of Seventy Five Thousand Pesos.

THIRD DIVISION

FRANCISCO, J.:

FACTS

Petitioner Adoracion Lustan is the registered

owner of a parcel of land. On February 25, 1969,
petitioner leased the land to private respondent
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Aggrieved, petitioner filed an action for

cancellation of liens, quieting of title, recovery of
possession and damages against Parangan and
PNB in the Regional Trial Court of Iloilo City. The
RTC ordered the cancellation by the Register of
Deeds of the Province of lloilo, of the
unauthorized loans, the liens and encumbrances
appearing in the Transfer Certificate of the land.
Declaring the Deed of Pacto de Retro Sale

Page 110

dated April 25, 1978 and the Deed of Definite

Sale dated May 6, 1979, both documents
executed by Adoracion Lustan in favor of
Nicolas Parangan over Lot 8069 in TCT No. T561 of the Register of Deeds of lloilo, as null and
void, declaring the same to be Deeds of
Equitable Mortgage. It also ordered defendant
Nicolas Parangan to pay all the loans he
secured from defendant PNB using thereto as
security TCT No. T-561 of plaintiff and defendant
PNB to return TCT No. T-561 to plaintiff. Also,
Ordering defendant Nicolas Parangan to return
possession of the land in question to the plaintiff
upon payment of the sum of P75,000.00 by
plaintiff to defendant Parangan which payment
by plaintiff must be made within ninety (90) days
from receipt of this decision; otherwise, sale of
the land will be ordered by the court to satisfy
payment of the amount;

Upon appeal to the Court of Appeals (CA),

respondent court reversed the trial court's
decision.

ISSUE

Whether or not the Deed of Definite Sale is in

reality an equitable mortgage.

RULING

The Deed of Definite Sale is in reality an

equitable mortgage as it was shown beyond
doubt that the intention of the parties was one of
a loan secured by petitioner's land.
A contract is perfected by mere consent. More
particularly, 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. This meeting of the minds
speaks of the intent of the parties in entering into
the contract respecting the subject matter and
the consideration thereof. If the words of the
contract appear to be contrary to the evident
intention of the parties, the latter shall prevail
over the former. In the case at bench, the
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

evidence is sufficient to warrant a finding that

petitioner and Parangan merely intended to
consolidate the former's indebtedness to the
latter in a single instrument and to secure the
same with the subject property. Even when a
document appears on its face to be a sale, the
owner of the property may prove that the
contract is really a loan with mortgage by raising
as an issue the fact that the document does not
express the true intent of the parties. In this
case, parol evidence then becomes competent
and admissible to prove that the instrument was
in truth and in fact given merely as a security for
the repayment of a loan. And upon proof of the
truth of such allegations, the court will enforce
the agreement or understanding in consonance
with the true intent of the parties at the time of
the execution of the contract.

"Art. 1604. The provisions of Article 1602 shall

also apply to a contract purporting to be an
absolute sale."

For a presumption of an equitable mortgage to

arise, we must first satisfy two requisites
namely: that the parties entered into a contract
denominated as a contract of sale and that their
intention was to secure an existing debt by way
of mortgage. Under Art. 1604 of the Civil Code,
a contract purporting to be an absolute sale shall
be presumed to be an equitable mortgage
should any of the conditions in Art. 1602 be
present.
The existence of any of the
circumstances therein, not a concurrence nor an
overwhelming number of such circumstances,
suffices to give rise to the presumption that the
contract is an equitable mortgage.

Art. 1602, (6), in relation to Art 1604 provides

that a contract of sale is presumed to be an
equitable mortgage 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.

That the case clearly falls under this category

can be inferred from the circumstances
surrounding the transaction as herein set forth:
Page 111

Petitioner had no knowledge that the contract

she signed is a deed of sale. The contents of
the same were not read nor explained to her so
that she may intelligibly formulate in her mind
the consequences of her conduct and the nature
of the rights she was ceding in favor of
Parangan.
Petitioner is illiterate and her
condition constrained her to merely rely on
Parangan's assurance that the contract only
evidences her indebtedness to the latter. When
one of the contracting parties is unable to read,
or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the
person enforcing the contract must show that
the terms thereof have been fully explained to
the former. Settled is the rule that where a party
to a contract is illiterate or cannot read or cannot
understand the language in which the contract is
written, the burden is on the party interested in
enforcing the contract to prove that the terms
thereof are fully explained to the former in a
language understood by him. To our mind, this
burden has not been satisfactorily discharged.

We do not find the testimony of Parangan and

Delia Cabial that the contract was duly read and
explained to petitioner worthy of credit. The
assessment by the trial court of the credibility of
witnesses is entitled to great respect and weight
for having had the opportunity of observing the
conduct and demeanor of the witnesses while
testifying.

The presumption of equitable mortgage prevails.

The contract of definite sale, where petitioner
purportedly ceded all her rights to the subject lot
in favor of Parangan, did not embody the true
intention of the parties. The evidence speaks
clearly of the nature of the agreement it was
one executed to secure some loans.
SPOUSES CRISPIN AUSTRIA and LEONISA
HILARIO, petitioners, vs. SPOUSES DANILO
GONZALES,
JR.,
and
VERONICA
GONZALES, respondents.

[G.R. No. 147321. January 21, 2004 ]

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UST Faculty of Civil Law
2A SY 2009-2010

Page 112

SECOND DIVISION

QUISUMBING, J.:

FACTS

On September 4, 1991 , petitioners Crispin

Austria and Leonisa Hilario filed a civil action for
Declaration of Nullity of Document and
Reconveyance before the RTC of Malolos,
Bulacan, against herein respondents Danilo
Gonzales, Jr., and Veronica Gonzales. In their
Complaint, petitioners alleged that they are the
owners and possessors of three (3) parcels of
land, all in the name of petitioner Leonisa
Hilario.
Said parcels became the subject of two (2)
Deeds of Absolute Sale, one dated July 21,
1979 , priced at P50,000 and the other dated
October 23, 1981 priced at P240,000. Both
deeds were executed by petitioner Leonisa
Hilario in favor of respondents. But petitioners
claimed that the transactions entered between
petitioners and respondents were not actually
sales, but merely loans in the amount of
P260,000. According to petitioners, they used
this amount to redeem some mortgaged
properties from the Rural Bank of Pandi,
Bulacan. To secure the loan, however,
respondents required petitioners to furnish them
with ten (10) TCTs. Three of these certificates
covered the petitioners' properties subject of the
present case, while .the other seven belonged to
their relatives. Petitioners admitted that their
debts to respondent spouses remained unpaid
due to business reverses.

According to petitioners, respondents thereafter

registered the disputed properties in their own
names
through
the
use
of
fraud,
misrepresentation and falsification, using the
fictitious contracts of sale. Petitioners alleged
that they came to know of said acts of
respondents only when they were served with a
notice dated May 22, 1991 , from respondents'
counsel to vacate said lots. Thus, petitioners
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

sought the reconveyance of the three parcels

from respondents, with moral damages and
attorney's fees.

For their part, respondents insisted in their

Answer that on October 1981, petitioner Leonisa
Hilario sold to them the three lots in question.
Respondent Veronica Gonzales agreed to buy
the same out of pity for petitioners, whose
several properties had earlier been foreclosed
by the bank. The transaction was embodied in a
Deed of Absolute Sale and notarized before
Notary Public Protacio Cortez, Jr. The original
amount in the Deed of Absolute Sale was
P240,000. However, before the properties were
registered, petitioner Leonisa Hilario in a letter
dated July 20, 1983 , requested for the
execution of another Deed of Absolute Sale
indicating a price of P50,000, purportedly to
lessen the taxes and fees that they will be
paying as the vendors.

According to respondents, a new Deed of

Absolute Sale indicating a selling price of
P50,000 for the 3 lots was executed and
notarized before Notary Public Jose Ramos.
Shortly afterwards, according to respondents,
the titles of said lots were transferred to them.

After respondents wrote petitioners on June 20,

1983, asking them to vacate the disputed
properties, petitioners sent respondents on July
28, 1983, an UNDERTAKING5 promising to
vacate and surrender possession of the
properties on or about December 15, 1983,
without further extension. But then petitioners
failed to vacate as promised on said date. Their
failure to vacate and turn over the purchased
lots prompted respondents to send a final
demand letter asking petitioners to vacate the
premises but petitioners still refused. As a result,
said respondents were forced to file an
ejectment suit before the Municipal Trial Court of
Pandi, Bulacan,6 against petitioners. That suit
was decided by the municipal court in
respondents' favor.

Hence the petitioners elevated their case to the

Regional Trial Court of Malolos.
Page 113

On August 11, 1995 , after trial on the merits, the

RTC of Malolos decided Civil Case No. 552-M91 against respondents and in favor of herein
petitioners.

Applying Article 1604 of the Civil Code in relation

to Article 1602,the RTC observed that: (a)
petitioners as the vendor remained in physical
possession of the lots even after the execution
of the deed of sale; (b) petitioners paid the realty
taxes for the years 1982 and 1983; and (c) the
purchase price of P50,000.00 was unusually
inadequate by any standard for realties.

Respondents seasonably appealed the decision

to the Court of Appeals. It reversed the trial
court's decision.

ISSUE

WHETHER OR NOT THE COURT OF

APPEALS IS CORRECT IN HOLDING THAT
THE CONTRACT BETWEEN PETITIONERS
AND RESPONDENTS WAS A SALE AND NOT
AN EQUITABLE MORTGAGE OF REAL
PROPERTY

RULING
Decisive for the proper determination of the true
nature of the transaction between the parties is
the intent of the parties. There is no conclusive
test to determine whether a deed absolute on its
face is really a simple loan accommodation
secured by a mortgage.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Petitioners point out that the requirements of an

equitable mortgage have been satisfied by the
following circumstances, to wit: (1) inadequacy
of the selling price; (2) possession in the
premises, and (3) payment of realty taxes.
However, such presumption of equitable
mortgage is not conclusive. It may be rebutted
by competent and satisfactory proof to the
contrary. In the instant case, petitioners' claim
that the selling price of the lots in question was
inadequate needs closer scrutiny. Petitioners'
allegation that the insufficiency of the selling
price creates the presumption that the
transaction is an equitable mortgage is
unsupported by the evidence on record.
Petitioners failed to present any proof
whatsoever that the fair market values of the
real property in the area at the time of the
transaction were much higher than the selling
price of the parcels in question. Mere allegation
that the price paid by respondents was
inadequate, without more, does not make a case
favorable to petitioners.

As to the allegation that petitioners were in

possession of the properties even after the sale,
it is obviated by the fact that they executed an
undertaking promising to vacate the premises.
But they repeatedly delayed honoring it. The
records also show that they did not object when
improvements were made on the premises by
respondents. The latter introduced permanent
improvements thereon and had in fact converted
the pigpens, which used to belong to plaintiff
Austria , into a fishpond. When all these
improvements were being undertaken, plaintiffs
were aware thereof but did not object to any of
the work done on the subject premises. Such
inaction is contrary to their claim of ownership
over the subject properties, considering that the
owner of a thing has the right to exclude any
person from the enjoyment and disposal thereof
and may, for this purpose, use such force as
may be reasonably necessary to repel or
prevent an actual or threatened unlawful
physical invasion or usurpation of his property.
(Article 429, Civil Code).

Page 114

Petitioners insist that they entered into a

contract only to obtain a loan with respondents
and nothing more. Petitioners failed, however, to
present a copy of said contract in the
proceedings before the RTC, nor could they
testify as to its details. Petitioners surely cannot
now pretend to be ignorant of the real nature of
their transaction with respondents. For this was
not the first time they dealt with each other.
MOREOVER, he failed to rebut the testimony of
the Notary Public who testified in court that the
petitioners as vendors of the properties
personally appeared and acknowledged the sale
documents before him.

Thus, we are constrained to find that indeed the

true intent of the parties involves a contract of
sale. It is not merely a loan, much less an
equitable mortgage. WHEREFORE, the petition
is DENIED, and the decision of the Court of
Appeals dated February 23, 1999 as well as its
resolution dated February 28, 2001 , is
AFFIRMED.

RONALDO P. ABILLA vs. CARLOS ANG

GOBONSENG, JR.
August 6, 2002 G.R. No. 146651
Respondent (Gobonseng) contracted a
loan from petitioner in the sum of P550k,
secured by a real estate mortgage over two
parcels of land, covered by TCT Nos. 13607 and
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2A SY 2009-2010

Page 115

13535. Respondent defaulted in the payment of

the loan, which had reached the amount of
P700k. He sought a renewal of the loan and
issued 2 postdated checks, one for P10k and
the other for P690k, representing the full amount
of his obligation.
The second check was dishonoured xxx.
Respondent promised to pay petitioner the sum
of P690k upon approval of his pending loan
application with the State Investment House,
Inc. However, the said lending institution
required a collateral for which reason
respondent borrowed from petitioner the two
titles so he can mortgage the same. Thus,
petitioner cancelled the mortgage in his favor
and delivered the two titles to respondent.
Despite
approval
of
the
loan,
respondent failed to make good on his promise
to pay his outstanding obligation to petitioner.
Hence, the latter threatened to sue him for
Estafa. Respondent thus executed a deed of
absolute sale over his17 lots in Dumaguete in
favor of petitioner. On the same day, the parties
executed an Option to Buy whereby respondent
was allowed to repurchase the lots within a
period of 6 months.
Respondent failed to repurchase the lots
within the stipulated period. Consequently,
petitioners instituted an action for specific
performance xxx pursuant to the deed of
absolute sale. In his answer, respondent
interposed the defense that the transaction was
in reality an equitable mortgage.
RTC of Dumaguete rendered judgment
in favor of petitioner and ruled that the Option to
Buy was rendered null and void by respondent's
failure to exercise the option within the period of
six months. On appeal, the Court of Appeals
affirmed the decision of the trial court, but further
declared that "the deed of sale and option to buy
actually constitute a pacto de retro sale."
Gabonsengs MR was denied. His
petition filed with SC was also. Hence, the
decision became final on February 8, 1999..
On February 27, 1999, respondent filed
with the court of origin a motion to repurchase
the lots with tender of payment, which was
denied. Subsequently, the trial court issued an
Order granting respondent's motion for
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2A SY 2009-2010

reconsideration and allowing him to repurchase

the lots within thirty days from finality thereof.
Thus, petitioner Abilla
instant petition for review.

brought

the

ISSUE:
Whether or not the contract between the
parties was an absolute sale with pacto de retro.
HELD: NO.(it was
equitable mortgage)

held

as

mere

On January 17, 2002, we rendered the

assailed Decision reversing the Order of the
RTC, in effect denying respondent the right to
repurchase the subject lots.
Respondent's claim of the right to
repurchase the lots is anchored on the third
paragraph of Article 1606 of the Civil Code,
which states:
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.
In our Decision, we ruled that Article
1606 of the Civil Code does not apply to the
case at bar because the transaction between the
parties was a pacto de retro sale, citing the case
of Vda. de Macoy v. CA. However, upon a
careful review and analysis of the antecedent
facts, we are convinced that the right granted
under the third paragraph of Article 1606 may be
invoked by respondent.
In Vda. de Macoy, citing the earlier ruling in
Felicen, Sr. v. Orias, we held:
The application of the third paragraph of
Article 1606 is predicated upon the bona
fides of the vendor a retro. It must
appear that there was a belief on his
part, founded on facts attendant upon
the execution of the sale with pacto de
retro,
honestly
and
sincerely
entertained, that the agreement was in
reality a mortgage, one not intended to
affect the title to the property ostensibly
Page 116

sold, but merely to give it as security for

a loan or other obligation. In that event,
if the matter of the real nature of the
contract is submitted for judicial
resolution, the application of the rule is
meet and proper; that the vendor a retro
be allowed to repurchase the property
sold within 30 days from rendition of
final judgment declaring the contract to
be a true sale with right to repurchase.
Conversely, if it should appear that the
parties' agreement was really one of
sale transferring ownership to the
vendee, but accompanied by a
reservation to the vendor of the right to
repurchase the property and there
are no circumstances that may
reasonably be accepted as generating
some honest doubt as to the parties'
intention, the proviso is inapplicable.
The reason is quite obvious. If the rule
were otherwise, it would be within the
power of every vendor a retro to set at
naught a pacto de retro, or resurrect an
expired right of repurchase, by simply
instituting an action to reform the
contract known to him to be in truth a
sale with pacto de retro into an
equitable mortgage. xxx xxx xxx.

These circumstances, peculiar to the

case at bar, make this case fall squarely within
the situation contemplated in the above-quoted
doctrine that there was a belief on the part of
the vendor a retro, founded on facts attendant
upon the execution of the sale with pacto de
retro, honestly and sincerely entertained, that
the agreement was in reality a mortgage, one
not intended to affect the title to the property
ostensibly sold, but merely to give it as security
for a loan or other obligation. Consistently
therewith,
respondent
has
maintained
throughout the proceedings that transaction
between him and petitioner was really an
equitable mortgage. As such, respondent may
avail of the third paragraph of Article 1606 of the
Civil Code and repurchase the lots affected by
the deed of absolute sale and option to buy.

Therefore, the applicability of Article

1606 rests on the bona fide intent of the vendor
a retro, i.e., Gabonseng in this case. If he
honestly believed that the transaction was an
equitable mortgage, the said article applies and
he can still repurchase the property within thirty
days from finality of the judgment declaring the
transaction as a sale with pacto de retro.
Parenthetically, it matters not what the vendee
intended the transaction to be.
When petitioner lent the two titles to
respondent, the loan he extended to respondent
became unsecured. Naturally, there was a need
to secure respondent's obligation after he
reneged on his promise to pay the same out of
the loan proceeds from State Investment House.
Thus, it may well be that the deed of sale,
together with the option to buy executed on the
same day, was meant to serve as security for
the indebtedness of respondent which had
become long overdue. Said obligation would
have been satisfied had respondent exercised
the option to buy within the stipulated period.

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UST Faculty of Civil Law
2A SY 2009-2010

PHILADELPHIA AGAN vs. HEIRS OF SPS.

ANDRES NUEVA and DIOSDADO NUEVA

December 11, 2003 G.R. No. 155018

FACTS:

Page 117

On April 13, 1988, Diosdada Nueva, with marital

consent, sold under a pacto de retro, a parcel of
land (2,033 sq.m.) situated in Cagayan de Oro
City to Agan for P21k.The property is covered by
TCT No. 25370 and registered in the name of
Spouses Andres and Diosdada Nueva.
The agreement is evidenced by a public
instrument entitled Deed of Sale under a Pacto
de Retro executed and duly signed by the late
Diosdada and Philadelphia. The parties agreed
that the Nuevas are granted the right to
repurchase the property sold, within six (6)
months for the same consideration.
Petitioners failed to repurchase the property
within the stipulated period.
On July 5, 1991, upon the death of Diosdada
Nueva, the property was extrajudicially
partitioned where Andres sold his interest in the
land in question to his daughter Ann and son
Lou. Since the title to the property was allegedly
lost during the fire that razed the property on
March 19, 1990 where Diosdada died, title was
reconstituted and subsequently transferred and
registered in the name of Ann and Lou Nueva.
On June 19, 1992, Philadelphia filed a petition
for consolidation of ownership against Spouses
Nuevas with RTC of Cagayan de Oro City xxx In
their answer filed on the Nuevas alleged that the
pacto de retro sale was actually an equitable
mortgage, the consideration for the sale being
only P21k as against its Fair Market Value of
P81k pursuant to Tax Declaration.
On August 3, 2000, the judgment consolidating
ownership over the disputed property in favor of
Philadelphia was rendered by RTC. However,
the second paragraph of the dispositive portion
gave the vendors a period of 30 days from
receipt of the decision within which to redeem
the property. The dispositive portion of the
decision reads:
WHEREFORE, based on the evidence
presented, the ownership in the vendee is
hereby consolidated by virtue of the failure of the
vendors to redeem the property described in the
Deed of Sale under Pacto de Retro xxx
consisting of an area of 2,033 square meters,
more or less.
However, the vendors can still exercise the right
to repurchase said property within thirty (30)
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2A SY 2009-2010

days from receipt of this decision pursuant to

Article 1606 and 1607 of the New Civil Code.
[]SO ORDERED.
Because of the refusal of Agan to accept the
amount of P52,080.00 as redemption price, the
Nuevas were constrained to consign the amount
with the court.
On September 12, 2000, Philadelphia filed a
petition for relief from the August 3, 2000
decision. She argued that she did not find it
necessary to file an appeal from the said
decision considering that the grant of the thirdday period to redeem the property is a mere
surplusage and hence, unenforceable and illegal
in view of the courts order consolidating
ownership of the property in her favor.
Respondent Agan prayed for the court to delete
the said portion of the decision.
On October 9, 2000, the trial court rendered its
questioned Order, thus:
WHEREFORE, the decision of August 4, 2000
is hereby amended by deleting the second
paragraph of the disposition thereof.
[]SO ORDERED.
Nuevas MR was denied by the court.
Respondent heirs filed a petition for certiorari
before the CA, contending that the RTC gravely
abused its discretion in granting the petition for
relief. In its Decision, the CA reversed the Order
of the RTC and rendered judgment in favor of
respondent heirs.
The CA held that:
Further, We do not agree with the contention of
the private respondent that Article 1606 of the
Civil Code does not apply in the instant case. In
their answer to the petition for consolidation filed
on October 22, 1998, petitioners raised the
defense that the transaction between the parties
was actually an equitable mortgage, considering
that they remained in possession of the subject
property and continued to pay the real taxes
thereon. The lower court, in its August 3, 2000
decision, ruled that the transaction is one of sale
under a pacto de retro, hence it acted within its
authority under Article 1606 of the Civil Code in
giving the petitioners thirty days as redemption
period.
Page 118

Hence, petitioner filed this presentaction with the

SC.

ISSUE: Whether the transaction between the

parties in the case at bar was an equitable
mortgage.

HELD: YES.
There is no ambiguity at all in the
decision that would warrant clarification. If at all,
the ambiguity is merely ostensible. At first blush,
the dispositive portion of the RTC Decision
declaring the consolidation of ownership of the
property in petitioner, on one hand, and granting
respondents thirty (30) days to repurchase the
property, on the other, appears inconsistent.
The dispositive portion, however, also makes
reference to the third paragraph of Article 1606
of the New Civil Code. Taken together, it
becomes obvious that the consolidation of the
property in petitioner is subject to the
suspensive condition of respondents failure to
repurchase within the thirty-day period.
At any rate, the grant of the right to repurchase
to respondents is in accordance with the third
paragraph of Article 1606, a provision not found
in the old Civil Code. The legislative intent
behind this Article, along with Articles 1602-1605
and 1607 of the same Code, is to accord the
vendor a retro the maximum safeguards for the
protection of his legal rights under the true
agreement of the parties.
Experience has
demonstrated too often that many sales with
right to repurchase have been devised only to
circumvent or ignore our usury laws and for this
reason, the law looks upon then with disfavor.
Article 1606 is intended to cover suits where the
seller claims that the real intention was a loan
with equitable mortgage but decides otherwise.
The seller, however, must entertain a good faith
belief that the contract is an equitable mortgage.
The RTC in this case made no finding in its
Decision that respondents defense that the
pacto de retro sale was an equitable mortgage
was not made in good faith. Indeed, it does not
appear that petitioner even attempted to prove
bad faith on the part of respondents during the
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UST Faculty of Civil Law
2A SY 2009-2010

trial, which accounts for the RTC Decisions utter

silence on the matter.
Moreover, respondents alleged in their answer
that the consideration for the alleged sale, which
was P21k was inadequate, considering that the
fair market value of the property was P81k.
Respondents also averred that they remained in
possession of the subject property and paid the
real taxes thereon, and that their predecessor
continued to pay the loan under which the
mortgage was constituted. Respondents even
reconstituted their title over the property, and
partitioned the property with the other heirs, after
which respondents purchased the latters share
and caused the issuance of a TCT in their name.
Such title, however, was subsequently annulled.
The law presumes good faith and, in the
absence of a contrary finding by the RTC in its
Decision, respondents are entitled to the right to
redeem the property pursuant to the third
paragraph of Article 1606 of the New Civil Code.
The Court also notes that the RTC erred in
allowing petitioners the right to repurchase said
property within thirty (30) days from receipt of
the RTC Decision. By express provision, Article
1606 grants the vendor a retro thirty (30) days
from the time final judgment was rendered, not
from the defendants receipt of the judgment.
The Court has construed final judgment to
mean one that has become final and executory.

Spouses ALEXANDER CRUZ and ADELAIDA

CRUZ, petitioners, vs. ELEUTERIO LEIS,
RAYMUNDO LEIS, ANASTACIO L. LAGDANO,
LORETA L. CAYONDA and the HONORABLE
COURT OF APPEALS, respondents.
G.R. No. 125233 March 9, 2000
Facts: Adriano and Gertrudes were married.
Gertrudes acquired from the then Department of
Page 119

Agriculture and Natural Resources (DANR) a

parcel of land. The Deed of Sale described
Gertrudes as a widow. TCT No. 43100 was
issued in the name of "Gertrudes Isidro," who
was also referred to therein as a "widow."
When Adriano died It did not appear that he
executed a will before his death.
Gertrudes then obtained a loan from petitioners,
the spouses Alexander and Adelaida Cruz, in the
amount of P15,000.00 at 5% interest, payable
on or before 5 February 1986. The loan was
secured by a mortgage over the property
covered by TCT No. 43100. Gertrudes, however,
failed to pay the loan on the due date.
Unable to pay her outstanding obligation,
Gertrudes executed two contracts in favor of
petitioner Alexander Cruz. The first is
denominated as "Kasunduan" which the parties
concede is a pacto de retro sale, granting
Gertrudes one year within which to repurchase
the property. The second is a "Kasunduan ng
Tuwirang Bilihan," a Deed of Absolute Sale
covering the same property for the price of
P39,083.00, the same amount stipulated in the
"Kasunduan." For failure of Gertrudes to
repurchase the property, ownership thereof was
consolidated in the name of Alexander Cruz.
When Gertrudes Isidro died, her heirs, herein
private respondents, received demands to
vacate the premises from petitioners, the new
owners of the property. Private respondents
responded by filing a complaint.
On the basis of the foregoing facts, the RTC
rendered a decision in favor of private
respondents.
The RTC held that the land was conjugal
property since the evidence presented by private
respondents disclosed that the same was
acquired during the marriage of the spouses and
that Adriano contributed money for the purchase
of the property. Thus, the court concluded,
Gertrudes could only sell to petitioner spouses
her one-half share in the property.
Petitioners appealed to the Court of Appeals in
vain. The Court of Appeals affirmed the decision
of the Regional Trial Court, holding that since
the property was acquired during the marriage of
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2A SY 2009-2010

Gertrudes to Adriano, the same was presumed

to be conjugal property under Article 160 of the
Civil Code. The appellate court, like the trial
court, also noted that petitioner did not comply
with the provisions of Article 1607 of the Civil
Code.
Petitioners are now before this Court seeking
the reversal of the decision of the Court of
Appeals.
Issue: whether or not a co-owner may acquire
exclusive ownership over the property held in
common?
Held: Essentially, it is the petitioner's contention
that the property subject of dispute devolved
upon him upon the failure of his co-heirs to join
him in its redemption within the period required
by law. He relies on the provisions of Article
1515 of the old Civil Code, Article 1613 of the
present Code, giving the vendee a retro the right
to demand redemption of the entire property.
There is no merit in this petition.
The right of repurchase may be exercised by a
co-owner with respect to his share alone (CIVL
CODE, art. 1612; CIVIL CODE (1889), art.
1514.). While the records show that petitioner
redeemed the property in its entirety,
shouldering the expenses therefor, that did not
make him the owner of all of it. In other words, it
did not put to end the existing state of coownership (Supra, Art. 489). There is no doubt
that redemption of property entails a necessary
expense.
The result is that the property remains to be in a
condition of co-ownership. While a vendee a
retro, under Article 1613 of the Code, "may not
be compelled to consent to a partial
redemption," the redemption by one co-heir or
co-owner of the property in its totality does not
vest in him ownership over it. Failure on the part
of all the co-owners to redeem it entitles the
vendee a retro to retain the property and
consolidate title thereto in his name (Supra, art.
1607). But the provision does not give to the
redeeming co-owner the right to the entire
property. It does not provide for a mode of
terminating a co-ownership.
It is conceded that, as a rule, a co-owner such

Page 120

as Gertrudes could only dispose of her share in

the property owned in common.
Unfortunately for private respondents, however,
the property was registered in TCT No. 43100
solely in the name of "Gertrudes Isidro, widow."
Where a parcel of land, forming past of the
undistributed properties of the dissolved
conjugal partnership of gains, is sold by a widow
to a purchaser who merely relied on the face of
the certificate of title thereto, issued solely in the
name of the widow, the purchaser acquires a
valid title to the land even as against the heirs of
the deceased spouse. The rationale for this rule
is that "a person dealing with registered land is
not required to go behind the register to
determine the condition of the property. He is
only charged with notice of the burdens on the
property which are noted on the face of the
register or the certificate of title. To require him
to do more is to defeat one of the primary
objects of the Torrens system." 9

repurchase the same within the period

stipulated. However, Transfer Certificate of Title
No. 130584, in the name of Alexander M. Cruz,
which was issued without judicial order, is
hereby ordered CANCELLED, and Transfer
Certificate of Title No. 43100 in the name of
Gertrudes Isidro is ordered REINSTATED,
without prejudice to compliance by petitioners
with the provisions of Article 1607 of the Civil
Code

As gleaned from the foregoing discussion,

despite the Court of Appeals' finding and
conclusion that Gertrudes as well as private
respondents failed to repurchase the property
within the period stipulated and has lost all their
rights to it, it still ruled against petitioners by
affirming the Regional Trial Court's decision on
the premise that there was no compliance with
Article 1607 of the Civil Code requiring a judicial
hearing before registration of the property in the
name of petitioners. This provision states:
Art. 1607. In case of real property, the
consolidation of ownership in the vendee by
virtue of the failure of the vendor to comply with
the provisions of article 1616 shall not be
recorded in the Registry of Property without a
judicial order, after the vendor has been duly
heard.
The aforequoted article is intended to minimize
the evils which the pacto de retro sale has
caused in the hands of usurers. A judicial order
is necessary in order to determine the true
nature of the transaction and to prevent the
interposition of buyers in good faith while the
determination is being made. 10
WHEREFORE, the decision of the Court of
Appeals is MODIFIED in that the petitioners are
deemed owners of the property by reason of the
failure of the vendor, Gertrudes Isidro, to
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2A SY 2009-2010

BPI FAMILY SAVINGS BANK, INC. v.

SPS. JANUARIO ANTONIO VELOSO AND
NATIVIDAD VELOSO
G.R. No. 141974

August 9, 2004

CORONA, J.:
Facts:
Respondent spouses Januario Antonio
Veloso and Natividad Veloso obtained a loan of
Page 121

P1,300,000 from Family Bank and Trust

Company. The loan was secured by a deed of
mortgage over three parcels of lands owned by
the spouses.

When the respondents defaulted in the

monthly installments due on their loan, Family
Bank instituted an extra-judicial foreclosure
proceeding on the respondents mortgaged
properties and was sold at public auction with
Family Bank as the highest bidder for
P2,782,554.66.

Subsequently, Family Bank assigned all

its rights and interests in the foreclosed
properties to BPI Family Bank, Inc, herein
petitioner.

Respondents, wrote to petitioners

offering to redeem the foreclosed properties for
P1,872,935 but were however rejected by the
latter.

Being so, they filed with the RTC of

Quezon City, a complaint for annulment of
foreclosure and thereafter were ordered by the
latter to deposit with the clerk of court the sum of
P1,500,000 representing the redemption price.

Despite the opposition of petitioner, the

trial court ordered the release to the
respondents of P1,400,000 of the consigned
amount. The balance of P100,000 is to take the
place of the injunction bond to answer for
whatever damages petitioner might suffer
because of the issuance of the preliminary
injunction previously issued by a different branch
of RTC and then later lifted.

The trial court rendered a decision

declaring the validity of the extra-judicial
foreclosure of the mortgaged properties of
respondents but allowed the redemption of the
same at a redemption price of P2,140,000.

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UST Faculty of Civil Law
2A SY 2009-2010

Upon appeal by the petitioner, the Court

of Appeals affirmed the trial courts decision
subject
to
the
modification
declaring
P2,678,639.80 as the redemption price.

Hence, the instant petition.

Issue:

1. Whether the extra-judicial foreclosure

confirmed by both the trial court and the
court of appeals is valid.
2. Whether the respondent spouses
complied with all the requirements for
the redemption of the subject properties.
Decision:

The appealed decision of the Court of

Appeals is hereby REVERSED and SET ASIDE.
The complaint filed by respondent spouses is
hereby dismissed.

Ratio Decidendi:

The Supreme Court found no reason to

question the validity of the extra-judicial
foreclosure. In a real estate mortgage, when the
principal obligation is not paid when due, the
mortgagee has the right to foreclose on the
mortgage and have the property seized and sold
to apply the proceeds to the obligation.
Therefore, due to the default of the respondents
to pay their obligation, foreclosure was proper.

As regards the second issue, the

general rule on redemption is that the statement
of intention to exercise the right to repurchase
must be accompanied by an actual and
simultaneous tender of payment, otherwise, the
offer to redeem is ineffectual. A bona fide
Page 122

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.

fixing of a definite term within which the property

should be redeemed is meant to avoid
prolonged economic uncertainty over the
ownership of the thing sold.

The Supreme Court held in the case of

Bodiongan vs. Court of Appeals that in order to
effect a redemption, the judgment debtor must
pay the purchaser the redemption price
composed of the following: (1) the price which
the purchaser paid for the property; (2) interest
of 1% per month on the purchase price; (3) the
amount of any assessments or taxes which the
purchaser may have paid on the property after
the purchase; and (4) interest of 1% per month
on such assessments and taxes.

In the instant case, the offer was not a

legal and effective exercise of the right of
redemption contemplated under the law, hence,
refusal of the offer by petitioner was completely
justified. The law on equity as defense, applies
only in the absence of, and never against,
statutory law or judicial rules of procedure.

Furthermore, Article 1616 of the Civil

Code provides that the vendor cannot avail
himself of the right to repurchase without
returning to the vendee the price of the sale.

In the case at bar, the offer by

respondents to redeem the foreclosed
properties
for
P1,872,935
and
the
subsequent consignation in court of
P1,500,000 while made within the redemption
period was ineffective because the amount
offered and actually consigned not only
excluded the interest but was lower than the
P2,782,554.66
paid
by
the
highest
bidder/purchaser of the properties during the
auction sale.

Moreover, the P1,400,000 consigned by

respondents and then subsequently withdrawn
by them, leaving only P100,000 as injunction
bond, would have been equivalent to requiring
petitioner to accept payment by installments
making it necessary to indefinitely extend the
redemption period which is contrary to the policy
of the law.

The law grants the right of redemption.

But in so granting, the law intended that the offer
to redeem be valid and effective, accompanied
by an actual tender of the redemption price. The
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2A SY 2009-2010

LEE CHUY REALTY CORPORATION vs.

COURT OF APPEALS and MARC REALTY
AND DEVELOPMENT CORPORATION
Page 123

December 4, 1995

GR No. 104114

Bellosillo, J.:

FACTS:

In respondents appeal to CA, CA reversed trial

courts judgment and decreed in contrary that a
prior tender or offer of redemption is a
prerequisite or precondition to the filing of an
action for legal redemption. Hence, the petition.
ISSUE: W/N THE FILING OF THE ACTION
ITSELF IS EQUIVALENT TO A FORMAL
OFFER TO REDEEM
RULING:
Petition Granted.

A piece of land is disputed by Lee Chuy Corp.

and Marc Realty. Originally the property was coowned by Ruben Jacinto to the extent of onesixth and the Bascaras and Ernesto Jacinto who
collectively owned the remaining five-sixths.

On April 30, 1981, sale bet. Ruben Jacinto, of

his one-sixth pro-indiviso share, and Lee Chuy
was duly registered. The Bascaras and E.
Jacinto sold theirs to Marc Realty. The same
was registered on Oct. 16, 1989.

Lee Chuy claims it was never informed of the

other sale. Marc Realty claims it was verbally
informed and was given a copy of the deed of
sale.
On 13 November 1989 LEE CHUY REALTY filed
a complaint for legal redemption against MARC
REALTY and consigned in court a manager's
check for 614,400. In its Amended Answer with
Counterclaim with Motion to Dismiss, MARC
REALTY insisted that the complaint be
dismissed for failure to state a cause of action
there being no allegation of prior valid tender of
payment nor a prior valid notice of consignation.
The trial court ruled in favour of Lee Chuy and
decreed that neither a separate offer to redeem
nor a formal notice of consignation are
necessary for the reason that the filing of the
action itself, within the period of redemption, is
equivalent to a formal offer to redeem.

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UST Faculty of Civil Law
2A SY 2009-2010

SC sustains LEE CHUY REALTY. Arts. 1620 and

1623 of the Civil Code on legal redemption
provide:
Art. 1620. A co-owner of a thing may
exercise the right of redemption in
case the shares of all the other coowners or of any of them are sold to a
third person. If the price of the
alienation is grossly excessive, the
redemptioner shall pay only a
reasonable one.
Art. 1623. The right of legal preemption or redemption shall not be
exercised except within thirty days
from the notice in writing by the
prospective vendor, or by the vendor,
as the case may be. The deed of sale
shall not be recorded in the Registry of
Property unless accompanied by an
affidavit of the vendor that he has
given written notice thereof to all
possible redemptioners.
There is actually no prescribed form for an
offer to redeem to be properly effected.
Hence, it can either be through a formal
tender with consignation, or by filing a
complaint
in
court
coupled
with
consignation of the redemption price within
the prescribed period.
A co-owner desirous of exercising his right
of legal redemption is given a period of
thirty (30) days from notice of the sale
within which to avail of the right to redeem.
Under the free patent or homestead
provisions of the Public Land Act a period
of five (5) years from the date of
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conveyance is provided, the five-year

period to be reckoned from the date of the
sale and not from the date of registration in
the office of the Register of Deeds.The
redemption of extrajudicially foreclosed
properties, on the other hand, is
exercisable within one (1) year from the
date of the auction sale as provided for in
Act No. 3135.

After trial, the Regional Trial Court of Cebu

dismissed
petitioners
complaint
and
respondents'
counterclaim;
both
parties
appealed the decision of the trial court to the
Court of Appeals. The appellate court affirmed
the assailed decision.

Issue: Interpretation of Articles 1621 and 1623 of

the Civil Code
Primary Structures Corp. vs. Sps. Anthony
and Susan T. Valencia

August 19, 2003

GR No.150060

First Division

Held: Petition Granted

Article 1621 and Article 1623 of the Civil Code,

which read:

Ponente: Vitug, J.

Facts: Petitioner is a private corporation based

in Cebu City and the registered owner of Lot
4523 situated in Liloan, Cebu, with an area of
22,214 square meters. Adjacent to the lot of
petitioner are parcels of land, identified to be Lot
4527, Lot 4528, and Lot 4529 with a total
combined area of 3,751 square meters. The
three lots, aforenumbered, have been sold by
Hermogenes Mendoza to respondent spouses
sometime in December 1994. Petitioner learned
of the sale of the lots only in January, 1996,
when Hermogenes Mendoza sold to petitioner
Lot No. 4820, a parcel also adjacent to Lot 4523
belonging to the latter. Forthwith, it sent a letter
to respondents, on 30 January 1996, signifying
its intention to redeem the three lots. On 30 May
1996, petitioner sent another letter to
respondents tendering payment of the price paid
to Mendoza by respondents for the lots.
Respondents, in response, informed petitioner
that they had no intention of selling the parcels.
Thereupon, invoking the provisions of Articles
1621 and 1623, petitioner filed an action against
respondents to compel the latter to allow the
legal redemption. Petitioner claimed that neither
Mendoza, the previous owner, nor respondents
gave formal or even just a verbal notice of the
sale of the lots as so required by Article 1623 of
the Civil Code.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

ART. 1621. The owners of adjoining lands shall

also have the right of redemption when a piece
of rural land, the area of which does not exceed

one hectare, is alienated unless the grantee

does not own any rural land.

This right is not applicable to adjacent lands

which are separated by brooks, drains, ravines,
roads and other apparent servitudes for the
benefit of other estates.

If two or more adjoining owners desire to

exercise the right of redemption at the same
time, the owner of the adjoining land of smaller
area shall be preferred; and should both lands
have the same area, the one who first requested
the redemption.

ART. 1623. The right of legal pre-emption or

redemption shall not be exercised except within
thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the
case may be. The deed of sale shall not be
recorded in the Registry of Property, unless
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accompanied by an affidavit of the vendor that

he has given written notice thereof to all possible
redemptioners.

The right of redemption of co-owners excludes

that of adjoining owners.

Article 1621 of the Civil Code expresses that the

right of redemption it grants to an adjoining
owner of the property conveyed may be
defeated if it can be shown that the buyer or
grantee does not own any other rural land.

Article 1623 of the Civil Code provides that the

right of legal pre-emption or redemption shall not
be exercised except within thirty days from
notice in writing by the prospective vendor, or by
the vendor, as the case may be. In stressing the
mandatory character of the requirement, the law
states that the deed of sale shall not be
recorded in the Registry of Property unless the
same is accompanied by an affidavit of the
vendor that he has given notice thereof to all
possible redemptioners.

The Court of Appeals has equated the statement

in the deed of sale to the effect that the vendors
have complied with the provisions of Article 1623
of the Civil Code, as being the written affirmation
under oath, as well as the evidence, that the
required written notice to petitioner under Article
1623 has been met. Respondents, like the
appellate court, overlook the fact that petitioner
is not a party to the deed of sale between
respondents and Mendoza and has had no hand
in the preparation and execution of the deed of
sale. It could not thus be considered a binding
equivalent of the obligatory written notice
prescribed by the Code.

The written notice of sale is mandatory. This

Court has long established the rule that
notwithstanding actual knowledge of a co-owner,
the latter is still entitled to a written notice from
the selling co-owner in order to remove all
uncertainties about the sale, its terms and
conditions, as well as its efficacy and status.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 126

Whether the CA erred in declaring the sale

between Sofia and Teodora valid?

Sen Po Ek Marketing Corp. vs. Martinez

G.R. No. 134117
325 SCRA 210
SECOND DIVISION
Ponente: De Leon, Jr.
Facts:
Sofia P. Martinez was the registered owner of
two (2) parcels of land in Tacloban City. On
1961, she leased the lots to Yu Siong, father of
petitioner for a period of ten (10) years. The
contract required the lessee to construct a
commercial building on the property which shall
become the property of Sofia upoon expiration
of the lease. On 1973, the contract was renewed
with explicit stipulation that the new owner of the
building is Sofia. Sofia then sold the lot and
building to her daughter, private respondent
Teodora P. Martinez. After the new lease
contract expired, it was no longer renewed by
the party. Petitioner continued posession and
regulary paid monthly rentals to Sofia until her
death. After her death the rentals were paid to
Teodora. On 1989, private respondent sent a
letter to petitioner informing him of her intention
to sell the premises to one Mrs. Petilla which the
petitioner only received a month after. The
petitioner sought to purchase the property.
Petitioner filed a verified complaint against
Teodora for the annulment of the Deed of Sale
by her mother in her favor stating that they have
preferential right over the land. However,
Teodora sold the property to respondent Tiu
Uyping. Petitioner prays for the nullity of the
second sale. Trial court rendered decision in
favor of the petitioner. Court of Appeals rendered
a decision reversing the trial court.

Whether Petitioner has the right of first refusal to

assert against the private respondent?
Rulings:
1. Teodora Martinez had the right, as
lawful owner of the leased premises, to
sell the same to private respondent Tiu
Uypin brothers. However, the sale
between her and her mother was void
for being fictitious. This was established
by several badges of simulation proving
that the sale was not intended to have
any legal effect between them. Some
evidence of simulation is the late
notarization and Teodoras signature not
as an owner but merely as an
instrumental witness. Also,
Sofia
continued to receive the rentals until her
death. Futhermore, Teodora never
asserted her alleged right of ownership
over the leased premises.
Nonetheless, the sale between Teodora
and the Tiu Uyping is valid. Since
Teodora is one of the co-heirs she can
only her undivided portion since her coheirs did not give her authority.
However, the sale can be subject to
ratification. In this case, the other heirs
of Sofia executed a Confirmation of
Sale of Land and Improvements. Thus,
the sale is considered valid and binding.
2. The Petitioner does not have a right of
first refusal to assert against the private
respondents. Neither any law nor any
contract grants it preference in the
purchase of leased premises.
Such grant of right of first refusal must
be clearly embodied in a written
contract, but there is none in the present
case.

HTP.
Issues:

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Page 127

(P2,286.00) corresponding and

belonging to the Heirs of Alberto
Cabales and to Rito Cabales who
are still minors upon the execution
of this instrument are held in trust
by the VENDEE and to be paid
and delivered only to them upon
reaching the age of 21.
- On December 17, 1985, the Register of Deeds
of Southern Leyte issued Original Certificate of
Title No. 17035 over the purchased land in the
names of respondents-spouses.
Nelson Cabales and Rito Cabales v. Court of
Appeals, Jesus Feliano and Anunciano
Feliano
August 31, 2007
GR No. 162421
First Division
Puno C.J.
Facts:
- Rufino Cabales died on July 4, 1966 and left a
5, 714 square meter parcel of land to his wife
and children
- On July 26, 1971, brothers and co owners sold
the property to Dr. Corrompido for P 2,000 with
right to repurchase within eight years. The
siblings divided the proceeds of the sale among
them.
--The following month or on August 18, 1971,
Alberto secured a note (vale) from Dr.
Corrompido in the amount of P300.00.
In 1972, Alberto died leaving his wife and son,
petitioner Nelson.
On December 18, 1975, within the eight-year
redemption period, Bonifacio and Albino
tendered their payment of P666.66 each to Dr.
Corrompido. But Dr. Corrompido only released
the document of sale with pacto de retro after
Saturnina paid for the share of her deceased
son, Alberto, including his vale of P300.00.
On even date, Saturnina and her four (4)
children Bonifacio, Albino, Francisco and
Leonora sold the subject parcel of land to
respondents-spouses Jesus and Anunciacion
Feliano for P8,000.00. The Deed of Sale
provided in its last paragraph, thus:
It is hereby declared and
understood that the amount of
TWO
THOUSAND
TWO
HUNDRED EIGHTY SIX PESOS
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

-On December 30, 1985, Saturnina and her four

(4) children executed an affidavit to the effect
that petitioner Nelson would only receive the
amount of P176.34 from respondents-spouses
when he reaches the age of 21 considering that
Saturnina paid Dr. Corrompido P966.66 for the
obligation of petitioner Nelsons late father
Alberto, i.e., P666.66 for his share in the
redemption of the sale with pacto de retro as
well as his vale of P300.00.
- On July 24, 1986, 24-year old petitioner Rito
Cabales acknowledged receipt of the sum of
P1,143.00 from respondent Jesus Feliano,
representing the formers share in the proceeds
of the sale of subject property.
-In 1988, Saturnina died. Petitioner Nelson,
then residing in Manila, went back to his fathers
hometown in Southern Leyte. That same year,
he learned from his uncle, petitioner Rito, of the
sale of subject property. In 1993, he signified his
intention to redeem the subject land during a
barangay conciliation process that he initiated.
-On January 12, 1995, contending that they
could not have sold their respective shares in
subject property when they were minors,
petitioners filed before the Regional Trial Court
of Maasin, Southern Leyte, a complaint for
redemption of the subject land plus damages.
-in
their
answer,
respondents-spouses
maintained that petitioners were estopped from
claiming any right over subject property
considering that (1) petitioner Rito had already
received the amount corresponding to his share
of the proceeds of the sale of subject property,
and (2) that petitioner Nelson failed to consign to
the court the total amount of the redemption
price necessary for legal redemption. They
prayed for the dismissal of the case on the
grounds of laches and prescription.
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No amicable settlement was reached at pretrial. Trial ensued and on August 11, 2000, the
trial court ruled against petitioners
On appeal, CA modified tha decision of the trial
court
Issue:
Whether CA erred in
(1) recognizing petitioner Nelson Cabales
as co-owner of subject land but denied
him the right of legal redemption, and
(2) not recognizing petitioner Rito Cabales
as co-owner of subject land with similar
right of legal redemption.
Held:
Petition denied, CA decision affirmed with
modification.
Ratio:
-When Rufino Cabales died intestate, his wife
Saturnina and his six (6) children survived and
succeeded him. Article 996 of the New Civil
Code provides that [i]f a widow or widower and
legitimate children or descendants are left, the
surviving spouse has in the succession the
same share as that of each of the children.
-Verily, the seven (7) heirs inherited equally on
subject property. Petitioner Rito and Alberto,
petitioner Nelsons father, inherited in their own
rights and with equal shares as the others.
-But before partition of subject land was
effected, Alberto died. By operation of law, his
rights and obligations to one-seventh of subject
land were transferred to his legal heirs his wife
and his son petitioner Nelson.
-The first sale with pacto de retro to Dr.
Corrompido by the brothers and co-owners
Bonifacio, Albino and Alberto was valid but only
as to their pro-indiviso shares to the land. When
Alberto died prior to repurchasing his share, his
rights and obligations were transferred to and
assumed by his heirs, namely his wife and his
son, petitioner Nelson. But the records show
that it was Saturnina, Albertos mother, and not
his heirs, who repurchased for him. As correctly
ruled by the Court of Appeals, Saturnina was not
subrogated to Albertos or his heirs rights to the
property when she repurchased the share.
-Upon redemption from Dr. Corrompido, the
subject property was resold to respondentsspouses by the co-owners. Petitioners Rito and
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Nelson were then minors and as indicated in the

Deed of Sale, their shares in the proceeds were
held in trust by respondents-spouses to be paid
and delivered to them upon reaching the age of
majority.
-the father, or, in his absence, the mother, is
considered legal administrator of the property
pertaining to the child under his or her parental
authority without need of giving a bond in case
the amount of the property of the child does not
exceed two thousand pesos. Corollary to this,
Rule 93, Section 7 of the Revised Rules of Court
of 1964, applicable to this case, automatically
designates the parent as legal guardian of the
child without need of any judicial appointment in
case the latters property does not exceed two
thousand pesos
Saturnina was clearly petitioner Ritos legal
guardian without necessity of court appointment
considering that the amount of his property or
one-seventh of subject property was P1,143.00,
which is less than two thousand pesos.
However, Rule 96, Sec. 1 provides that:
Section 1. To what
guardianship shall extend. A
guardian appointed shall have
the care and custody of the
person of his ward, and the
management of his estate, or
the management of the estate
only, as the case may be. The
guardian of the estate of a
nonresident shall have the
management of all the estate of
the ward within the Philippines,
and no court other than that in
which such guardian was
appointed shall have jurisdiction
over the guardianship
Indeed, the legal guardian only has the plenary
power of administration of the minors property.
It does not include the power of alienation which
needs judicial authority. Thus, when Saturnina,
as legal guardian of petitioner Rito, sold the
latters pro-indiviso share in subject land, she did
not have the legal authority to do so.
Accordingly, the contract of sale as to the proindiviso share of petitioner Rito was
unenforceable.
However,
when
he
acknowledged receipt of the proceeds of the
sale on July 24, 1986, petitioner Rito effectively
ratified it. This act of ratification rendered the
sale valid and binding as to him.
Page 129

With respect to petitioner Nelson, on the other

hand, the contract of sale was void. He was a
minor at the time of the sale. Saturnina or any
and all the other co-owners were not his legal
guardians with judicial authority to alienate or
encumber his property. It was his mother who
was his legal guardian and, if duly authorized by
the courts, could validly sell his undivided share
to the property. She did not. Necessarily, when
Saturnina and the others sold the subject
property in its entirety to respondents-spouses,
they only sold and transferred title to their proindiviso shares and not that part which pertained
to petitioner Nelson and his mother.
Consequently, petitioner Nelson and his mother
retained ownership over their undivided share of
subject property.
-As to whether the petitioners can redeem the
land from respondent spouses, it is clear that
legal redemption may only be exercised by the
co-owner or co-owners who did not part with his
or their pro-indiviso share in the property held in
common. As demonstrated, the sale as to the
undivided share of petitioner Rito became valid
and binding upon his ratification on July 24,
1986. As a result, he lost his right to redeem
subject property.
-In the face of the established facts, petitioner
Nelson cannot feign ignorance of the sale of
subject property in 1978. To require strict proof
of written notice of the sale would be to
countenance an obvious false claim of lack of
knowledge thereof, thus commending the letter
of the law over its purpose, i.e., the notification
of redemptioners.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Page 130

Issue:
Whether or not petitioner Primary
Structures Corporation has the right of
redemption over the three parcels of land.
Ruling:

G.R. No. 150060

August 19, 2003

PRIMARY STRUCTURES CORP. represented

herein by its President ENGR. WILLIAM C.
LIU, petitioner, vs. SPS. ANTHONY S.
VALENCIA and SUSAN T. VALENCIA,
respondents.
409 SCRA 371
Ponente: VITUG, J. (FIRST DIVISION)

Facts:
Petitioner is a private corporation in
Cebu City and the registered owner of Lot
situated in Liloan, Cebu. Adjacent to the lot of
petitioner are 3 parcels of land. The 3 lots have
been sold by Hermogenes Mendoza to
respondent spouses.
Petitioner learned of the sale of the lots
then it sent a letter to respondents signifying its
intention to redeem the three lots. Petitioner sent
another letter to respondents tendering payment
of the price paid to Mendoza by respondents for
the lots. Respondents, in response, informed
petitioner that they had no intention of selling the
parcels.
Invoking the provisions of
Articles 1621 and 1623, petitioner filed an action
against respondents to compel the latter to allow
the legal redemption. Petitioner claimed that
neither Mendoza, the previous owner, nor
respondents gave formal or even just a verbal
notice of the sale of the lots as so required by
Article 1623 of the Civil Code.
Regional Trial Court of Cebu
dismissed
petitioners
complaint
and
respondents'
counterclaim.
Both
parties
appealed the decision of the trial court to the
Court of Appeals. The appellate court affirmed
the assailed decision.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Article 1621 of the Civil Code expresses

that the right of redemption it grants to an
adjoining owner of the property conveyed may
be defeated if it can be shown that the buyer
does not own any other rural land. The appellate
court, sustaining the trial court, has said that
there has been no evidence to show that
respondents are not themselves owners of rural
lands for the exclusionary clause of the law to
apply.
Article 1623 of the Civil Code provides
that the right of legal pre-emption or redemption
shall not be exercised except within thirty days
from notice in writing by the prospective vendor,
or by the vendor, as the case may be. In
stressing the mandatory character of the
requirement, the law states that the deed of sale
shall not be recorded in the Registry of Property
unless it is accompanied by an affidavit of the
vendor that he has given notice to all possible
redemptioners.
The Court of Appeals has equated the
statement in the deed of sale to the effect that
the vendors have complied with the provisions of
Article 1623 of the Civil Code, as being the
written affirmation under oath, as well as the
evidence that the required written notice to
petitioner under Article 1623 has been met.
Respondents overlook the fact that petitioner is
not a party to the deed of sale between
respondents and Mendoza and has had no hand
in the preparation and execution of the deed of
sale. It could not thus be considered a binding
equivalent of the obligatory written notice
prescribed by the Code.
The written notice of sale is mandatory.
This Court has long established the rule that
notwithstanding actual knowledge of a co-owner,
the latter is still entitled to a written notice from
the selling co-owner in order to remove all
uncertainties about the sale, its terms and
conditions, as well as its efficacy and status.
WHEREFORE, the instant petition is
GRANTED, and the assailed decision of the
Court of Appeals is REVERSED and SET
ASIDE. Petitioner is hereby given a period of
thirty days from finality of this decision within
which to exercise its right of legal redemption.

Page 131

ISSUE: whether the assignment of debt by

Picache, the creditor, to another party such as
the CDC, requires his consent being the debtor.

RULING: Petition is denied for lack of merit.

Ledonio v. Capitol Development Corporation

Chico-Nazario,
G.R. No. 149040

July 4, 2007

Facts:
Edgar Ledonio obtained from Patrocinio
S. Picache two loans with the amount of
P60,000.00, and covered by promissory notes
duly signed by him.
Later on, Picache transferred his due
from
Ledonio
to
Capitol
Development
Corporation .
However, Ledonio failed to pay any of
the loans covered by the promissory notes when
they became due. The corporation demanded
payment from him but refused to do so. He
denied that he made such promissory notes in
favor of Picache and he further alleged that he
only signed the promissory notes as a result of
intimidation and fraud. He alleged that when he
made the promissory notes, they were only used
by Picache by taking advantage of his signature.

The transaction between Picache and

CDC was an assignment of credit and does not
require petitioners consent as debtor for its
validity and enforceability.
An assignment of credit has been
defined as 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 or
exchange or donation and without need of the
debtors consent, transfers that credit and its
accessory rights to another who is the assignee,
who acquires the power to enforce it, to the
same extent as the assignor could have
enforced it against the debtor.
The law does not require any formal
notice to bind the debtor to the assignee, all that
the law requires is knowledge of the assignment.
Even if the debtor had not been notified, but
came to know of the assignment by whatever
means, the debtor is bound by it.

Prior to the case, Ledonio was engaged

in a garment business where he leased a real
property from Mission Realty and Management
Corporation. An incident happened where a
group of Meralco employees cut-off the power
supply of the plant of Ledonio due to nonpayment of electric bills. This made foreign
investors to desist transacting with him. He
blamed the MRMC for not notifying him with the
unpaid bills but he failed to obtain any of his
claims.
The RTC ruled in favor of the
respondent corporation finding its version of the
facts more credible. The Court of Appeals
affirmed the same.
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2A SY 2009-2010

Page 132

Issue:
whether or not Caltex Philippines has a better
right over the Certificate of time deposits?

G.R. No. 97753 August 10, 1992

CALTEX (PHILIPPINES), INC., petitioner,
vs.
COURT OF APPEALS and SECURITY BANK
AND TRUST COMPANY, respondents.
REGALADO, J.:
Facts:
On various dates, defendant Security Bank and
Trust Company issued 280 certificates of time
deposit in favor of Angel dela Cruz who
deposited of time deposit therein the aggregate
amount of P1,120,000.00. Angel dela Cruz
delivered said certificate of time deposit to
plaintiff-petitioner Caltex in connection with his
purchase of fuel products from the latter.
Thereafter, dela Cruz informed defendant Bank
that he lost all the certificates of deposit and ask
for the replacement of said last CTP where it
was granted by the bank. Soon after said grants,
dela Cruz negotiated and obtained a loan from
defendant bank in the amount of Eight Hundred
Seventy-Five Thousand Pesos (P875,000.00).
On the same date, said depositor executed a
notarized Deed of Assignment of Time Deposit
which stated, among others, that he surrendered
to defendant bank full control of the indicated
time deposits from and after date of the
assignment and further authorizes said bank to
preterminate, set-off and apply the said time
deposit to the payment of whatever amounts
may be due on the loan upon it maturity. the
loan of Angel dela Cruz with the defendant bank
matured and fell due and on August 5, 1983, the
latter set-off and applied the time deposits in
question to the payment of the matured loan.
Plaintiff filed the instant complaint, praying that
defendant bank be ordered to pay it the
aggregate value of the certificates of time
deposit of P1,120,000.00 plus accrued interest
and compounded interest therein at 16% per
annum
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Held:
Security Bank has a better right because the
assignment of the CTDs made by Angel de la
Cruz in favor of respondent bank was embodied
in a public instrument. Art. 1625. An assignment
of credit, right or action shall produce no effect
as against third persons, unless it appears in a
public instrument, or the instrument is recorded
in the Registry of Property in case the
assignment involves real property.
Respondent bank duly complied with this
statutory requirement. Contrarily, petitioner,
whether as purchaser, assignee or lien holder of
the CTDs, neither proved the amount of its credit
or the extent of its lien nor the execution of any
public instrument which could affect or bind
private respondent. Necessarily, therefore, as
between petitioner and respondent bank, the
latter has definitely the better right over the
CTDs in question.

Page 133

Whether or not the Deed of Assignment that was

executed extinguished the obligation of the
petitioner.
Ruling:
The decision of the Court of Appeals ordering
petitioner to pay the respondent the sum of
P335,
462.14
is
AFFIRMED
with
MODIFICATION.
Lo vs. KJS Eco-Formwork System Phil., Inc.
October 8, 2003
First Division
Justice Ynares-Santiago
Facts:
Respondent KJS ECO_FORMWORK System
Phil., Inc. is a corporation engaged in the sale of
steel scaffoldings. Sonny Lo, on the other hand
is a building contractor.
The petitioner ordered scaffolding equipments
worth P540, 425.80 from respondent and paid a
downpayment of P150,000. The balance was
made payable in ten monthly installments.
The respondent delivered the equipments to
petitioner but Sonny Lo was only able to pay the
first two monthly installments because his
business encountered financial difficulties.
Despite the situation, the petitioner and
respondent executed a Deed of Assignment
whereby the petitioner assigned to respondent
his receivables in the amount of P335, 462.80
from Jomero Realty Corporation.
When the respondent tried to collect the said
credit from the corporation. Jomero Realty
Corporation refused to honor the Deed of
Assignment because it claimed that petitioner
was also indebted to it.
The respondent filed an action for recovery of a
sum of money before the RTC of Makati.The trial
court dismissed the complaint on the ground that
the assignment of credit extinguished the
obligation when they executed the Deed of
Assignment.
The respondent appealed the decision to the
Court of Appeals and the said court reverses the
appealed decision.
Issue:
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Ratio: (Lo vs. KJS Eco-Formwork System Phil.,

Inc., pp 186-188)
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,
dacion en pago, 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.
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.
Hence, it may be well settled that the
assignment of credit, which is in the nature of a
sale of personal property, produced the effects
of a dation in payment which may extinguish the
obligation. However, as in any other contract of
sale, the vendor is bound by certain
warranties.
From the provision of the civil code(Article
1628), petitioner, as vendor or assignor, is
bound to warrant the existence and legality of
the credit at the time of the sale or assignment.
When Jomero claimed that it was no longer
indebted to petitioner since the latter also had
an unpaid obligation to it, it essentially meant
that its obligation to petitioner has been
extinguished by compensation. In other words,
respondent alleged the non-existence of the
credit and asserted its claim to petitioners
warranty under assignment. Therefore, it
behooved on petitioner to make good its
warranty and paid the obligation.
Indeed by warranting the existence of the credit,
petitioner should be deemed to have ensured
the performance thereof in case the same is
later found to be inexistent. He should be held
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liable to pay to respondent the amount of his

indebtedness(Lo vs. KJS Eco-Formwork System
Phil., Inc., pp 186-188).

ATOK
FINANCE
CORPORATION,
petitioner vs. COURT OF APPEALS, SANYU
CHEMICAL CORPORATION, DANILO E.
ARRIETA, NENITA B. ARRIETA, PABLITO
BERMUNDO
and
LEOPOLDO
HALILI,
respondents.
G.R. No. 80078 May 18, 1993
FELICIANO, J.:
FACTS: Private respondents Sanyu Chemical
corporation ("Sanyu Chemical") as principal and
Sanyu Trading Corporation ("Sanyu Trading")
along with individual private stockholders of
Sanyu Chemical, namely, private respondent
spouses Danilo E. Halili and Pablico Bermundo
as sureties, executed in the continuing
Suretyship Agreement in favor of Atok Finance
as creditor. Under this Agreement, Sanyu
Trading and the individual private respondents
who were officers and stockholders of Sanyu
Chemical
did
jointly
and
severally
unconditionally guarantee to ATOK FINANCE
CORPORATION the full, faithful and prompt
payment and discharge of any and all
indebtedness of private respondent to the
Creditor Atok. The word "indebtedness" is used
herein in its most comprehensive sense and
includes any and all advances, debts,
obligations and liabilities of Principal or any one
or more of them.
On 27 November 1981, Sanyu Chemical
assigned its trade receivables outstanding as of
27 November 1981 with a total face value of
P125, 871.00, to Atok Finance in consideration
of receipt from Atok Finance of the amount of
P105, 000.00. The assigned receivables carried
a standard term of thirty (30) days; it appeared,
however, that the standard commercial practice
was to grant an extension up to one hundred
twenty (120) days without penalties. Later,
additional trade receivables were assigned by

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Sanyu Chemical to Atok Finance with a total

face value of P100, 378.45.
On 13 January 1984, Atok Finance commenced
action against Sanyu Chemical, the Arrieta
spouses, Pablito Bermundo and Leopoldo Halili
before the Regional Trial Court of Manila to
collect the sum of P120, 240.00 plus penalty
charges amounting to P0.03 for every peso due
and payable for each month starting from 1
September 1983. Atok Finance alleged that
Sanyu Chemical had failed to collect and remit
the amount due under the trade receivables.
The private respondents on the other hand seek
for the dismissal of the complaint for lack of
cause of action and contended that the
Continuing Suretyship Agreement, being an
accessory contract, was null and void since, at
the time of its execution, Sanyu Chemical had
no pre-existing obligation due to Atok Finance.
The trial court rendered a decision in favor of
Atok Finance.Upon appeal; Court of Appeals
reversed the decision of the trial court, ruling in
favor of the private respondents.Hence, this
petition.
ISSUES: Whether the individual private
respondents may be held solidarily liable with
Sanyu Chemical under the provisions of the
Continuing Suretyship Agreement? Whether or
not the continuing suretyship agreement must
be held null and void as having been executed
without consideration and without a pre-existing
principal obligation to sustain it.
RULING: The Supreme Court granted the
petition of Petitioner Atok Finance and sustains
the decision of trial court finding in favor of
petitioner Atok Finance.
The contention of private appellants that the
suretyship agreement is null and void because it
is not in consonance with the laws on guaranty
and security on the ground that the agreement
was entered into by the parties two years before
the Deed of Assignment was executed.
Thus, contesting that it ran counter to the
provision
that
guaranty
cannot
exist
independently because by nature it is merely an
accessory contract. The SC held that Court of
Appeals here was in serious error. It is true that
a serious guaranty or a suretyship agreement is
an accessory contract in the sense that it is
entered into for the purpose of securing the
performance of another obligation which is
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denominated as the principal obligation. It is also

true that Article 2052 of the Civil Code states
that "a guarantee cannot exist without a valid
obligation." However, the SC ruled that such
legal proposition is not, like most legal
principles, to be read in an absolute and literal
manner and carried to the limit of its logic. This
is clear from Article 2052 of the Civil Code itself.
A surety is not bound under any particular
principal obligation until that principal obligation
is born. But there is no theoretical or doctrinal
difficulty inherent in saying that the suretyship
agreement itself is valid and binding even before
the principal obligation intended to be secured
thereby is born, any more that there would be in
saying that obligations which are subject to a
condition precedent are valid and binding before
the occurrence of the condition precedent. By
executing such an agreement, the principal
places itself in a position to enter into the
projected series of transactions with its creditor;
with such surety agreement, there would be no
need to execute a separate surety contract or
bond
for
each
financing
or
credit
accommodation extended to the principal debtor.
With respect to the second issue, that is,
whether private respondents are liable under the
Deed of Assignment which they, along with the
principal debtor Sanyu Chemical, executed in
favor of petitioner, on the receivables thereby
assigned, SC held that private respondents are
liable with respect to the deed they executed in
favor of creditor Atok Finance. The Deed of
Assignment was valid and binding upon Sanyu
Chemical. It is an activity or operation that
permits the assignee to monetize or realize the
value of the receivables before the maturity
thereof. In other words, Sanyu Chemical
received from Atok Finance the value of its trade
receivables it had assigned; Sanyu Chemical
obviously benefitted from the assignment. The
liability of Sanyu Chemical to Atok Finance rest
on the breach of ex contractu (contractual
obligation). Under the Deed of Assignment, the
effect of non-payment by the original trade
debtors was breach of warranty of solvency by
Sanyu Chemical, resulting in turn in the
assumption of solidary liability by the assignor
under the receivables assigned. In other words,
the assignor Sanyu Chemical becomes a
solidary debtor under the terms of the
receivables covered and transferred by virtue of
the Deed of Assignment. And because assignor
Sanyu Chemical became, under the terms of the
Deed of Assignment, solidary obligor under each
of the assigned receivables, the other private
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

respondents (the Arrieta spouses, Pablito

Bermundo and Leopoldo Halili), became
solidarily liable for that obligation of Sanyu
Chemical, by virtue of the operation of the
Continuing Suretyship Agreement.

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2A SY 2009-2010

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