SALES CASE DIGEST 1ST PART
Clearly, when the property was mortgaged to
1. Flancia vs. CA
FACTS: This is an action to declare null and void the
mortgage executed by defendant Oakland Development
Resources Corp. xxx in favor of defendant William Ong
Genato over the house and lot plaintiffs spouses
Godofredo and Dominica Flancia purchased from
defendant corporation.
The plaintiffs allege that they purchased from
defendant corporation a parcel of land known as Lot 12,
Blk3, Phase III-A containing an area of 128.75 square
meters situated in Prater Village Subd.; that by virtue of
the contract of sale, defendant corporation authorized
plaintiffs to transport all their personal belongings to
their house at the aforesaid lot; that on 24 December
1992, plaintiffs received a copy of the execution
foreclosing the mortgage several lots formerly owned
by defendant corporation including subject lot of
plaintiffs; that the alleged mortgage of subject lot is null
and void as it is not authorized by plaintiffs pursuant to
Article 2085 of the Civil Code which requires that the
mortgagor must be the absolute owner of the
mortgaged property; that as a consequence of the
nullity of said mortgage, the execution foreclosing the
mortgage is likewise null and void; that plaintiffs
advised defendants to exclude subject lot from the
auction sale but the latter refused.
Defendant Genato, on the other hand, averred that co-
defendant Oakland Development Resources
Corporation mortgaged to Genato two parcels of land
covered as security and guaranty for the payment of a
loan in the sum of P2M; that said real estate mortgage
has been duly annotated at the back of its Transfer
Certificate of Title; that for nonpayment of the loan of
2M defebdabt Genato filed an action for foreclosure of
real estate mortgage against co-defendant corporation;
that after trial, decision was granted to foreclose the
said mortgage; that the alleged plaintiffs’ Contract to
Sell does not appear to have been registered with the
Register of Deeds to affect defendant Genato and the
latter is thus not bound by the plaintiffs’ Contract to
Sell.
ISSUE: (1) whether or not the registered mortgage
constituted over the property was valid;
(2) whether or not the registered mortgage was
superior to the contract to sell; and
3) can the mortgagee rely on what appears in the
title
RULING: 1) Yes. In the contract between petitioners
and Oakland, aside from the fact that it was
denominated as a contract to sell, the intention of
Oakland not to transfer ownership to petitioners until
full payment of the purchase price was very clear. Acts
of ownership over the property were expressly withheld
by Oakland from petitioner. All that was granted to
them by the “occupancy permit” was the right to
possess it.
Genato in May 1989, what was in effect between
Oakland and petitioners was a contract to sell, not a
contract of sale. Oakland retained absolute ownership
over the property. Hence, it was entitled to mortgage
the same to Genato.
2) Was the registered mortgage superior to the contract
to sell?
Yes. Since, Oakland retained absolute
ownership over the property under the contract to sell
and had every right to mortgage it. Genato’s registered
mortgage was superior to petitioner’s contract to sell,
subject to any liabilities Oakland may have incurred in
favor of petitioners by irresponsibly mortgaging the
property to Genato despite its commitments to
petitioners under their contract to sell.
3) Can the mortgagee rely solely on what
appears in the title?
Yes, a mortgagee has the right to rely on what
appears in the title presented to him. In the absence of
anything to arouse suspicion, he is under no obligation
to look beyond the certificate and investigate the title
of the mortgagor appearing on the face of the said
certificate.
2. Velarde vs. Court of Appeals (361 SCRA 57)
FACTS: The private respondent executed a Deed of Sale
with Assumption of Mortgage, with a balance of P1.8
million, in favor of the petitioners. Pursuant to said
agreements, plaintiffs paid the bank (BPI) for three (3)
months until they were advised that the Application for
Assumption of Mortgage was denied. This prompted
the plaintiffs not to make any further payment. Private
respondent wrote the petitioners informing the non-
fulfillment of the obligations. Petitioners, thru counsel
responded that they are willing to pay in cash the
balance subject to several conditions. Private
respondents sent a notarial notice of
cancellation/rescission of the Deed of Sale. Petitioners
filed a complaint which was consequently dismissed by
an outgoing judge but was reversed by the assuming
judge in their Motion for Reconsideration. The Court of
Appeals reinstated the decision to dismiss.
ISSUE: Whether or not there is a substantial breach of
contract that would entitle its rescission.
RULING: YES. Article 1191 of the New Civil Code
applies. The breach committed did not merely consist of
a slight delay in payment or an irregularity; such breach
would not normally defeat the intention of the parties
to the contract. Here, petitioners not only failed to pay
the P1.8 million balance, but they also imposed upon
private respondents new obligations as preconditions to
the performance of their own obligation. In effect, the
qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable
under the contract of sale. Hence, private respondents
were left with the legal option of seeking rescission to
protect their own interest.
3. Coronel v. CA, 263 SCRA 15
Facts: The case arose from a complaint for specific
performance filed by private respondent Alcaraz against
petitioners to consummate the sale of a parcel of land
in Quezon City.
On January 19, 1985, petitioners executed a “Receipt of
Down Payment” of P50,000 in favor of plaintiff Ramona
Alcaraz, binding themselves to transfer the ownership
of the land in their name from their deceased father,
afterwhich the balance of P1,190,000 shall be paid in
full by Alcaraz. On February 6, 1985, the property was
transferred to petitioners. On February 18, 1985,
petitioners sold the property to Mabanag. For this
reason, Concepcion, Ramona’s mother, filed an action
for specific performance.
Issue: Whether the contract between petitioners and
private respondent was that of a conditional sale or a
mere contract to sell
Held: Sale, by its very nature, is a consensual contract
because it is perfected by mere consent. The essential
elements of a contract 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.
Under this definition, a Contract to Sell may not be
considered as a Contract of Sale because the first
essential element is lacking. In a contract to sell, the
prospective seller explicity reserves the transfer of title
to the prospective buyer, meaning, the prospective
seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell
until the happening of an event, which for present
purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges
himself to do is to fulfill his promise to sell the subject
property when the entire amount of the purchase price
is delivered to him. In other words the full payment of
the purchase price partakes of a suspensive condition,
the non-fulfillment of which prevents the obligation to
sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the
prospective buyer. A contract to sell may thus be
defined as a bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon
fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
A contract to sell may not even be considered as a
conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale
until the fulfillment of a suspensive condition, because
in a conditional contract of sale, the first element of
consent is present, although it is conditioned upon the
happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated.
However, if the suspensive condition is fulfilled, the
contract of sale is thereby perfected, such that if there
had already been previous delivery of the property
subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law
without any further act having to be performed by the
seller. In a contract to sell, upon the fulfillment of the
suspensive condition which is the full payment of the
purchase price, ownership will not automatically
transfer to the buyer although the property may have
been previously delivered to him. The prospective seller
still has to convey title to the prospective buyer by
entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell
and a conditional contract of sale specially in cases
where the subject property is sold by the owner not to
the party the seller contracted with, but to a third
person, as in the case at bench. In a contract to sell,
there being no previous sale of the property, a third
person buying such property despite the fulfillment of
the suspensive condition such as the full payment of the
purchase price, for instance, cannot be deemed a buyer
in bad faith and the prospective buyer cannot seek the
relief of reconveyance of the property. There is no
double sale in such case. Title to the property will
transfer to the buyer after registration because there is
no defect in the owner-seller's title per se, but the
latter, of course, may be used for damages by the
intending buyer.
In a conditional contract of sale, however, upon the
fulfillment of the suspensive condition, the sale
becomes absolute and this will definitely affect the
seller's title thereto. In fact, if there had been previous
delivery of the subject property, the seller's ownership
or title to the property is automatically transferred to
the buyer such that, the seller will no longer have any
title to transfer to any third person. Such second buyer
of the property who may have had actual or
constructive knowledge of such defect in the seller's
title, or at least was charged with the obligation to
discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property
subject of the sale.
The agreement could not have been a contract to sell
because the sellers herein made no express reservation
of ownership or title to the subject parcel of land.
Furthermore, the circumstance which prevented the
parties from entering into an absolute contract of sale
pertained to the sellers themselves (the certificate of
title was not in their names) and not the full payment of
the purchase price. Under the established facts and
circumstances of the case, the Court may safely
presume that, had the certificate of title been in the
names of petitioners-sellers at that time, there would
have been no reason why an absolute contract of sale
could not have been executed and consummated right
there and then.
What is clearly established by the plain language of the
subject document is that when the said "Receipt of
Down Payment" was prepared and signed by petitioners
Romeo A. Coronel, et al., the parties had agreed to a
conditional contract of sale, consummation of which is
subject only to the successful transfer of the certificate
of title from the name of petitioners' father, Constancio
P. Coronel, to their names.
The provision on double sale presumes title or
ownership to pass to the first buyer, the exceptions
being: (a) when the second buyer, in good faith,
registers the sale ahead of the first buyer, and (b)
should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these requirements,
title or ownership will not transfer to him to the
prejudice of the first buyer. In a case of double sale,
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 sold. If a vendee in a
double sale registers that sale after he has acquired
knowledge that there was a previous sale of the same
property to a third party or that another person claims
said property in a pervious sale, the registration will
constitute a registration in bad faith and will not confer
upon him any right.
4. Republic vs Florendo 549 SCRA 527
Facts: Petitioner Republic of the Philippines is
represented in this case by the Philippine Economic
Zone Authority (PEZA), a government corporation
created under RA 7916, as amended.
On April 14, 1991, the Export Processing Zone
Authority, (PEZA), predecessor of PEZA, filed a
complaint for the expropriation of seven parcels of land
located at Barrio Ibo, Lapu-Lapu City, Cebu, owned by
respondents. The purpose of the expropriation was to
establish and develop an export processing zone or a
part thereof on those real properties. After trial on the
merits, the RTC rendered a decision ordering the
expropriation of the seven parcels of land and payment
of just compensation of P1,500 per sq. m. with 12%
interest per annum from the time petitioner took
possession. During the pendency of petitioner’s appeal
for the correctness of valuation, both parties reached
an amicable settlement and agreed for the payment as
fixed by RTC; as well as presentation by respondents of
clean titles of all the subject properties before payment
by petitioner.
Accordingly, the parties executed a deed of absolute
sale dated June 25, 2001 which set out the terms and
conditions of their settlement, the transfer of
ownership from respondents to petitioner and the
execution by the parties of the corresponding deed of
absolute sale for the remaining six lots as soon as
respondents could settle or clear the encumbrances or
other problems affecting them. Petitioner prepared a
joint motion to dismiss the expropriation case but
respondent Antonio Florendo refused to sign because
there were still three lots which had not yet been paid.
Respondents could not clear these properties of their
encumbrances and liens as there were pending cases
filed by third party claimants over them. Instead, they
proposed that a partial compromise agreement be
executed to cover the four lots that had already been
sold and transferred to PEZA. Petitioner, however,
found the proposal unacceptable and contrary to their
compromise agreement.
Issue: Whether or not there was a perfected
compromise agreement between the parties.
Ruling: The compromise agreement the parties
executed was in the form of a contract of sale. The
elements of a valid contract of sale are: (a) consent or
meeting of the minds; (b) determinate subject matter
and (c) price certain in money or its equivalent. All the
elements are present here. The parties agreed on the
sale of a determinate object and the price certain. The
contention of the respondent that there was no
meeting of mind because the condition relating to the
delivery of clean titles was not fulfilled is wrong. The
delivery of clean titles was not a condition imposed on
the perfection of the contract of sale but a condition
imposed on petitioner's obligation to pay the purchase
price of these lots. As ruled in the case of Jardine Davies
Inc. vs CA, the court distinguished between a condition
imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation.
While failure to comply with the first condition results
in the failure of a contract, non-compliance with the
second merely gives the other party options and/or
remedies to protect its interest.
5. San Miguel Properties Phils Inc. v Huang 336 SCRA
737
Facts: San Miguel Properties offered two parcels of
land for sale and the offer was made to an agent of the
respondents. An “earnest-deposit” of P1 million was
offered by the respondents and was accepted by the
petitioner’s authorized officer subject to certain terms.
Petitioner, through its executive officer, wrote the
respondent’s lawyer that because ethe parties failed to
agree on the terms and conditions of the sale despite
the extension granted by the petitioner, the latter was
returning the “earnest-deposit”.
The respondents demanded execution of a deed of sale
covering the properties and attempted to return the
“earnest-deposit” but petitioner refused on the ground
that the option to purchase had already expired.
A complaint for specific performance was filed against
the petitioner and the latter filed a motion to dismiss
the complaint because the alleged “exclusive option” of
the respondents lacked a consideration separate and
distinct from the purchase price and was thus
unenforceable; the complaint did not allege a cause of
action because there was no “meeting of the mind”
between the parties and therefore the contact of sale
was not perfected.
The trial court granted the petitioner’s motion and
dismissed the action. The respondents filed a motion for
reconsideration but were denied by the trial court. The
respondents elevated the matter to the Court of
Appeals and the latter reversed the decision of the trial
court and held that a valid contract of sale had been
complied with.
Petitioner filed a motion for reconsideration but was
denied.
Issue: WON there was a perfected contract of sale
between the parties
Ruling: The decision of the appellate court was
reversed and the respondents’ complaint was
dismissed.
Ratio Decidendi: It is not the giving of earnest money ,
but the proof of the concurrence of all the essential
elements of the contract of sale which establishes the
existence of a perfected sale.
The P1 million “earnest-deposit” could not have been
given as earnest money because at the time when
petitioner accepted the terms of respondents’ offer,
their contract had not yet been perfected. This is
evident from the following conditions attached by
respondents to their letter.
The first condition for an option period of 30 days
sufficiently shows that a sale was never perfected. As
petitioner correctly points out, acceptance of this
condition did not give rise to a perfected sale but
merely to an option or an accepted unilateral promise
on the part of respondents to buy the subject
properties within 30 days from the date of acceptance
of the offer. Such option giving respondents the
exclusive right to buy the properties within the period
agreed upon is separate and distinct from the contract
of sale which the parties may enter. All that
respondents had was just the option to buy the
properties which privilege was not, however, exercised
by them because there was a failure to agree on the
terms of payment. No contract of sale may thus be
enforced by respondents.
Even the option secured by respondents from petitioner
was fatally defective. Under the second paragraph of
Art. 1479, an accepted unilateral promise to buy or sell
a determinate thing for a price certain is binding upon
the promisor only if the promise is supported by a
distinct consideration. Consideration in an option
contract may be anything of value, unlike in sale where
it must be the price certain in money or its equivalent.
There is no showing here of any consideration for the
option. Lacking any proof of such consideration, the
option is unenforceable.
Equally compelling as proof of the absence of a
perfected sale is the second condition that, during the
option period, the parties would negotiate the terms
and conditions of the purchase. The stages of a contract
of sale are as follows: (1) negotiation, covering the
period from the time the prospective contracting
parties indicate interest in the contract to the time the
contract is perfected; (2) perfection, which takes place
upon the concurrence of the essential elements of the
sale which are the meeting of the minds of the parties
as to the object of the contract and upon the price; and
(3) consummation, which begins when the parties
perform their respective undertakings under the
contract of sale, culminating in the extinguishment
thereof.
In the present case, the parties never got past the
negotiation stage. The alleged “indubitable evidence” of
a perfected sale cited by the appellate court was
nothing more than offers and counter-offers which did
not amount to any final arrangement containing the
essential elements of a contract of sale. While the
parties already agreed on the real properties which
were the objects of the sale and on the purchase price,
the fact remains that they failed to arrive at mutually
acceptable terms of payment, despite the 45-day
extension given by petitioner
6. Acap vs CA 251SCRA 30,38
FACTS: Felixberto, an only son, inherited from his
parents a lot. He executed a duly notarized document
entitled "Declaration of Heirship and Deed of Absolute
Sale" in favor of Pido.
When ownership was transferred, Acap continued to be
the tenant of a portion of the said land and religiously
paid his leasehold rentals to Pido.
When Pido died intestate his surviving heirs executed a
notarized Declaration of Heirship and Waiver of Rights
of the said lot to de los Reyes.
De los Reyes informed Acap that, as the new owner,
the lease rentals should be paid to him. When
petitioner refused and failed to pay any further lease
rentals after repeated demands, he filed a complaint for
recovery of possession and damages.
The lower court rendered a decision in favor of private
respondent which was eventually affirmed by the Court
of Appeals (CA).
Hence, this present petition.
ISSUES:
1. WON the subject Declaration of Heirship and
Waiver of Rights is a recognized mode of acquiring
ownership by private respondent over the lot in
question.
2. WON the said document can be considered as
Deed of Sale in favor of private respondent of the lot in
question.
HELD: The Court GRANTS the petition and SET ASIDE
the decision of the CA.
On Issue No. 1: No. Private respondent cannot
conclusively claim ownership over the subject lot on the
sole basis of the waiver document.
Under Article 712 of the Civil Code, the modes of
acquiring ownership are generally classified into 2
classes: (1) original mode (i.e., through occupation,
acquisitive prescription, law or intellectual creation) and
(2) the derivative mode (i.e., through succession mortis
causa or tradition as a result of certain contracts, such
as sale, barter, donation, assignment or mutuum).
In a contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to
deliver a determinate thing, and the other party to pay
a price certain in money or its equivalent. Whereas, a
declaration of heirship and waiver of rights operates as
a public instrument when filed with the Registry of
Deeds whereby the intestate heirs adjudicate and divide
the estate left by the decedent among themselves as
they see fit.
Hence, private respondent, being then a stranger to the
succession of Pido, cannot conclusively claim ownership
over the subject lot on the sole basis of the waiver
which neither recites the elements of either a sale, or a
donation, or any other derivative mode of acquiring
ownership.
On Issue No. 2: No. A notice of adverse claim was filed
with the Registry of Deeds which contained the
Declaration of Heirship with Waiver of rights and was
annotated at the back of the Original Certificate of Title
(OCT) to the land in question.
This said notice, by its nature, does not however prove
private respondent's ownership over the tenanted lot.
The Court emphasized that while the existence of said
adverse claim was duly proven, there was no evidence
whatsoever that a deed of sale was executed between
the parties transferring the rights in favor of private
respondent. An adverse claim cannot by itself be
sufficient to cancel the OCT to the land and title the
same in private respondent's name.
7. Masongsong vs Estimo 404 SCRA 683
FACTS: Allegedly, AgatonaGuevarra (“Guevarra”)
inherited a property from Justina Navarro, which is now
under possession of the heirs of Guevarra. Guevarra
had six children, one of them is Vicente Lopez, the
father of petitioner Milagros Lopez Manongsong
(“Manongsong”). The respondents, the Jumaquio sisters
and Leoncia Lopez claimed that the property was
actually sold to them by Justina Navarro prior to her
death. The respondents presented deed of sale dated
October 11, 1957. Milagros and CarlitoManongsong
(“petitioners”) filed a Complaint on June 19, 1992
praying for the partition and award to them of an area
equivalent to one-fifth (1/5), by right of representation.
The RTC ruled that the conveyance made by Justina
Navarro is subject to nullity because the property
conveyed had a conjugal character and that
AgatonaGuevarra as her compulsory heir should have
the legal right to participate with the distribution of the
estate under question to the exclusion of others. The
Deed of Sale did not at all provide for the reserved
legitime or the heirs, and, therefore it has no force and
effect against AgatonaGuevarra and should be declared
a nullity ab initio.
ISSUE: Whether or not the rights of the compulsory
heirs were impaired by the alleged sale of the property
by Justina.
RULING: No. The Kasulatan, being a document
acknowledged before a notary public, is a public
document and prima facie evidence of its authenticity
and due execution. There is no basis for the trial court’s
declaration that the sale embodied in the Kasulatan
deprived the compulsory heirs of Guevarra of their
legitimes. As opposed to a disposition inter vivos by
lucrative or gratuitous title, a valid sale for valuable
consideration does not diminish the estate of the seller.
When the disposition is for valuable consideration,
there is no diminution of the estate but merely a
substitution of values, that is, the property sold is
replaced by the equivalent monetary consideration. The
Property was sold in 1957 for P250.00.
The trial court’s conclusion that the Property was
conjugal, hence the sale is void ab initio was not based
on evidence, but rather on a misapprehension of Article
160 of the Civil Code, which provides: “All property of
the marriage is presumed to belong to the conjugal
partnership; unless it be proved that it pertains
exclusively to the husband or to the wife.” The
presumption under Article 160 of the Civil Code applies
only when there is proof that the property was acquired
during the marriage. Proof of acquisition during the
marriage is an essential condition for the operation of
the presumption in favor of the conjugal partnership.
There was no evidence presented to establish that
Navarro acquired the Property during her marriage.
8. Hemedes vs CA 316 SCRA 347
FACTS: Jose Hemedes executed a document entitled
“Donation Inter Vivos With Resolutory Conditions”
conveying ownership a parcel of land, together with all
its improvements, in favor of his third wife, Justa
Kauapin, subject to the resolutory condition that upon
the latter’s death or remarriage, the title to the
property donated shall revert to any of the children, or
heirs, of the DONOR expressly designated by the
DONEE.
Pursuant to said condition, Justa Kausapin executed a
“Deed of Conveyance of Unregistered Real Property by
Reversion” conveying to Maxima Hemedes the subject
property.
Maxima Hemedes and her husband Raul Rodriguez
constituted a real estate mortgage over the subject
property in favor of R & B Insurance to serve as security
for a loan which they obtained.
R & B Insurance extrajudicially foreclosed the mortgage
since Maxima Hemedes failed to pay the loan even. The
land was sold at a public auction with R & B Insurance
as the highest bidder. A new title was subsequently
issued in favor the R&B. The annotation of usufruct in
favor of Justa Kausapin was maintained in the new title.
Despite the earlier conveyance of the subject land in
favor of Maxima Hemedes, Justa Kausapin executed a
“Kasunduan” whereby she transferred the same land to
her stepson Enrique D. Hemedes, pursuant to the
resolutory condition in the deed of donation executed
in her favor by her late husband Jose Hemedes. Enrique
D. Hemedes obtained two declarations of real property,
when the assessed value of the property was raised.
Also, he has been paying the realty taxes on the
property from the time Justa Kausapin conveyed the
property to him. In the cadastral survey, the property
was assigned in the name of Enrique Hemedes. Enrique
Hemedes is also the named owner of the property in
the records of the Ministry of Agrarian Reform office at
Calamba, Laguna.
Enriques D. Hemedes sold the property to Dominium
Realty and Construction Corporation (Dominium).
Dominium leased the property to its sister corporation
Asia Brewery, Inc. (Asia Brewery) who made
constructions therein. Upon learning of Asia Brewery’s
constructions, R & B Insurance sent it a letter informing
the former of its ownership of the property. A
conference was held between R & B Insurance and Asia
Brewery but they failed to arrive at an amicable
settlement.
Maxima Hemedes also wrote a letter addressed to Asia
Brewery asserting that she is the rightful owner of the
subject property and denying the execution of any real
estate mortgage in favor of R&B.
Dominium and Enrique D. Hemedes filed a complaint
with the CFI for the annulment of TCT issued in favor of
R & B Insurance and/or the reconveyance to Dominium
of the subject property alleging that Dominion was the
absolute owner of the land.
The trial court ruled in favor of Dominium and Enrique
Hemedes.
ISSUE: W/N the donation in favor of Enrique Hemedes
was valid?
HELD: NO. Enrique D. Hemedes and his transferee,
Dominium, did not acquire any rights over the subject
property. Justa Kausapin sought to transfer to her
stepson exactly what she had earlier transferred to
Maxima Hemedes – the ownership of the subject
property pursuant to the first condition stipulated in the
deed of donation executed by her husband. Thus, the
donation in favor of Enrique D. Hemedes is null and void
for the purported object thereof did not exist at the
time of the transfer, having already been transferred to
his sister. Similarly, the sale of the subject property by
Enrique D. Hemedes to Dominium is also a nullity for
the latter cannot acquire more rights than its
predecessor-in-interest and is definitely not an innocent
purchaser for value since Enrique D. Hemedes did not
present any certificate of title upon which it relied.
The declarations of real property by Enrique D.
Hemedes, his payment of realty taxes, and his being
designated as owner of the subject property in the
cadastral survey of Cabuyao, Laguna and in the records
of the Ministry of Agrarian Reform office in Calamba,
Laguna cannot defeat a certificate of title, which is an
absolute and indefeasible evidence of ownership of the
property in favor of the person whose name appears
therein. Particularly, with regard to tax declarations and
tax receipts, this Court has held on several occasions
that the same do not by themselves conclusively prove
title to land.
9. Commissioner of Internal Revenue vs CA and
Ateneo de Manila University
271 SCRA 605
Facts: Ateneo de Manila University, is a non-stock, non-
profit educational institution with auxiliary units and
branches all over the Philippines. One auxiliary unit is
the Institute of Philippine Culture (IPC), which has no
legal personality separate and distinct from that of
private respondent. The IPC is a Philippine unit engaged
in social science studies of Philippine society and
culture. Occasionally, it accepts sponsorships for its
research activities from international organizations,
private foundations and government agencies. On 8 July
1983, private respondent received from Commissioner
of Internal Revenue (CIR) a demand letter dated 3 June
1983, assessing private respondent the sum of
P174,043.97 for alleged deficiency contractor’s tax, and
an assessment dated 27 June 1983 in the sum of
P1,141,837 for alleged deficiency income tax, both for
the fiscal year ended 31 March 1978. Denying said tax
liabilities, private respondent sent petitioner a letter-
protest and subsequently filed with the latter a
memorandum contesting the validity of the
assessments. On 17 March 1988, petitioner rendered a
letter-decision cancelling the assessment for deficiency
income tax but modifying the assessment for deficiency
contractor’s tax by increasing the amount due to
P193,475.55. Unsatisfied, private respondent requested
for a reconsideration or reinvestigation of the modified
assessment.
At the same time, it filed in the respondent court a
petition for review of the said letter-decision of the
petitioner. While the petition was pending before the
respondent court, petitioner issued a final decision
dated 3 August 1988 reducing the assessment for
deficiency contractor’s tax from P193,475.55 to
P46,516.41, exclusive of surcharge and interest. On 12
July 1993, the respondent court set aside respondent’s
decision, and cancelling the deficiency contractor’s tax
assessment in the amount of P46,516.41 exclusive of
surcharge and interest for the fiscal year ended 31
March 1978. No pronouncement as to cost. On 27 April
1994, Court of Appeals, in CA-GR SP 31790, affirmed the
decision of the Court of Tax Appeals. Not in accord with
said decision, petitioner came to Supreme Court via a
petition for review.
Issue: Whether the private respondent is taxable as an
independent contractor.
Held: The Commissioner erred in applying the principles
of tax exemption without first applying the well-settled
doctrine of strict interpretation in the imposition of
taxes. It is obviously both illogical and impractical to
determine who are exempted without first determining
who are covered by the aforesaid provision. The
Commissioner should have determined first if private
respondent was covered by Section 205, applying the
rule of strict interpretation of laws imposing taxes and
other burdens on the populace, before asking Ateneo to
prove its exemption therefrom, following the rule of
construction where “the tax exemptions are to be
strictly construed against the taxpayer”.
The doctrine in the interpretation of tax laws is that a
statute will not be construed as imposing a tax unless it
does so clearly, expressly, and unambiguously. Tax
cannot be imposed without clear and express words for
that purpose. Accordingly, the general rule of requiring
adherence to the letter in construing statutes applies
with peculiar strictness to tax laws and the provisions of
a taxing act are not to be extended by implication.” In
case of doubt, such statutes are to be construed most
strongly against the government and in favor of the
subjects or citizens because burdens are not to be
imposed nor presumed to be imposed beyond what
statutes expressly and clearly import. In the present
case, Ateneo’s Institute of Philippine Culture never sold
its services for a fee to anyone or was ever engaged in a
business apart from and independently of the academic
purposes of the university. Funds received by the
Ateneo de Manila University are technically not a fee.
They may however fall as gifts or donations which are
“tax-exempt” as shown by private respondent’s
compliance with the requirement of Section 123 of the
National Internal Revenue Code providing for the
exemption of such gifts to an educational institution.
The Supreme Court denied the petition and affirmed
the assailed Decision of the Court of Appeals. The Court
ruled that the private respondent is not a contractor
selling its services for a fee but an academic institution
conducting these researches pursuant to its
commitments to education and, ultimately, to public
service. For the institute to have tenaciously continued
operating for so long despite its accumulation of
significant losses, we can only agree with both the Court
of Tax Appeals and the Court of Appeals that “education
and not profit is motive for undertaking the research
projects.
10. Engineering and Machinery Corp vs CA 252 SCRA
156
Engineering and Machinery Corporation v. CA
Facts: Pursuant to a contract, petitioner undertook to
install air conditioning system in private respondent’s
building. The building was later sold to the National
Investment and Development Corporation which took
possession of it. Upon NIDC’s failure to comply with
certain conditions, the sale was rescinded. NIDC
reported to respondent that there were certain defects
in the air conditioning system. Respondent filed a
complaint against petitioner for non-compliance with
the agreed plans and specifications. Petitioner moved to
dismiss the complaint on the ground of the 6-month
prescription of warranty against hidden defects. Private
respondent averred that the contract was not of sale
but for a piece of work, the action for damages of which
prescribes after 10 years.
Issue: Is a contract for the fabrication and installation
of a central air-conditioning system in a building, one of
"sale" or "for a piece of work"?
Held: A contract for a piece of work, labor and
materials may be distinguished from a contract of sale
by the inquiry as to whether the thing transferred is one
not in existence and which would never have existed
but for the order, of the person desiring it. In such case,
the contract is one for a piece of work, not a sale. On
the other hand, if the thing subject of the contract
would have existed and been the subject of a sale to
some other person even if the order had not been
given, then the contract is one of sale. The distinction
between the two contracts depends on the intention of
the parties. Thus, if the parties intended that at some
future date an object has to be delivered, without
considering the work or labor of the party bound to
deliver, the contract is one of sale. But if one of the
parties accepts the undertaking on the basis of some
plan, taking into account the work he will employ
personally or through another, there is a contract for a
piece of work.
Clearly, the contract in question is one for a piece of
work. It is not petitioner's line of business to
manufacture air-conditioning systems to be sold "off-
the-shelf." Its business and particular field of expertise
is the fabrication and installation of such systems as
ordered by customers and in accordance with the
particular plans and specifications provided by the
customers. Naturally, the price or compensation for the
system manufactured and installed will depend greatly
on the particular plans and specifications agreed upon
with the customers. The remedy against violations of
the warranty against hidden defects is either to
withdraw from the contract (redhibitory action) or to
demand a proportionate reduction of the price (accion
quanti manoris), with damages in either case.
While it is true that Article 1571 of the Civil Code
provides for a prescriptive period of six months for a
redhibitory action, a cursory reading of the ten
preceding articles to which it refers will reveal that said
rule may be applied only in case of implied warranties;
and where there is an express warranty in the contract,
as in the case at bench, the prescriptive period is the
one specified in the express warranty, and in the
absence of such period, "the general rule on rescission
of contract, which is four years (Article 1389, Civil Code)
shall apply". It would appear that this suit is barred by
prescription because the complaint was filed more than
four years after the execution of the contract and the
completion of the air-conditioning system. However, a
close scrutiny of the complaint filed in the trial court
reveals that the original action is not really for
enforcement of the warranties against hidden defects,
but one for breach of the contract itself. The governing
law is Article 1715. However, inasmuch as this provision
does not contain a specific prescriptive period, the
general law on prescription, which is Article 1144 of the
Civil Code, will apply. Said provision states, inter alia,
that actions "upon a written contract" prescribe in ten
(10) years. Since the governing contract was executed
on September 10, 1962 and the complaint was filed on
May 8, 1971, it is clear that the action has not
prescribed. The mere fact that the private respondent
accepted the work does not, ipso facto, relieve the
petitioner from liability for deviations from and
violations of the written contract, as the law gives him
ten (10) years within which to file an action based on
breach thereof.
11. Ker & Co , Ltd.vs Lingad 38 SCRA 524
FACTS: Melecio R. Domingo, then Commissioner of
Internal Revenue assessed Ker & Co. and found the sum
of P20,272.33 as the commercial broker’s percentage
tax, surcharge, and compromise penalty for the period
from July 1, 1949 to December 31, 1953. Ker & Co
petitioned that the request be cancelled, but the
petitioned was turned down. Kr & Co. then filed a
petition for review with the Court of Tax Appeals.
Commissioner Domingo maintained his stand that the
petitioner should be taxed in such amount as a
commercial broker. The liability arose from a contract
that Ker & Co. had with the United States Rubber
International, where Ker & Co. was designated as the
distributor and United States Rubber International as
the company. Ker & Co., as Distributor, is required to
exert every effort to have the shipment of the products
in the maximum quantity and to promote in every way
the sale thereof. The prices, discounts, terms of
payment, terms of delivery and other conditions of sale
were subject to change in the discretion of United
States Rubber International. All specifications for the
goods ordered were subject to acceptance of United
States Rubber International and required to accept such
goods shipped as well as to clear the same through
customs and to arrange for delivery in its warehouse in
Cebu City.
ISSUE: Whether or not the relationship created
between Ker & Co. and United States Rubber
International is one of vendor and vendee or broker and
principal.
RULING: The relationship between Ker & Co. is one of
brokerage or agency. According to the National Internal
Revenue Code, a commercial broker “includes all
persons, other than importers, manufacturers,
producers, or bona fide employees, who, for
compensation or profit, sell or bring about sales or
purchases of merchandise for other persons or bring
proposed buyers and sellers together, or negotiate
freights or other business for owners of vessels or other
means of transportation, or for the shippers, or
consignors or consignees of freight carried by vessels or
other means of transportation. The term includes
commission merchants.” In the language of Justice J. B.
L. Reyes, who penned the opinion: “Since the company
retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the
price and terms of which were subject to the company’s
control, the relationship between the company and the
dealer is one of agency.” The relationship between Ker
& Co. and United States Rubber International was not
one of seller and purchaser, if that was the intention,
then it would not have included covenants which in
their totality would negate the concept of a firm
acquiring as vendee goods from another. Instead, the
stipulations were so worded as to lead to no other
conclusion than that the control by the United States
Rubber International over the goods in question is, in
the language of the Constantino opinion, “pervasive”.
12. Yuson vs Vitan 496 SCRA 540
FACTS: In October 2002, Mar Yuson who was a taxi
driver and had 8 children, received a sum of money by
way of inheritance. He and his wife intended to use the
money for several purposes.
When they were able to purchase a secondhand taxi,
and Atty. Vitan helped him with legal matters regarding
the purchase. Unfortunately, Yuson’s other plans were
put on hold when Atty. Vitan borrowed P100, 000 from
them in December 2002. To guarantee payment, Atty.
Vitan executed in favor of Yuson several postdated
checks to over the loaned amount, but however, these
turned out to be worthless.
Yuson maintained that he had repeatedly tried to
recover the debt, but was unsuccessful every time.
When no payment was still made pursuant to the
administrative case against Atty. Vitan, Yuson
demanded a collateral to secure the loan. Thus, in his
favor, Atty. Vitan executed a document denominated as
a Deed of Absolute Sale, covering Atty. Vitan’s parcel of
land located in Sta. Maria, Bulacan. According to Yuson,
their intention was to transfer the title of the property
to him temporarily, so that he could either sell or
mortgage the said land. Further, if it was mortgaged,
Atty. Vitan would redeem it as partial or full payment of
the loan. Allegedly, the parties executed another Deed
of Absolute Sale in favor of Atty. Vitan wherein Yuson
was vendor. The purpose for this was not explained by
either party.
Yuson was able to mortgage the property for P30,000
but contrary to their earlier agreement, Atty. Vita did
not redeem it from the mortgage, sent a letter instead,
promising Yuson to pay on or before July 12, 2004.
In the IBP-NCLA, Atty. Vitan averred that he had settled
his obligation through a Deed of Absolute Sale over his
residential property. The purpose of such was for Yuson
to use, mortgage, or sell the property and return to him
the excess of the proceeds after obtaining his money.
Additionally, he called the second document as a
Counter Deed of Sale, executed to be sort of a
collateral/security for the account of his liaison officer
Estur, whom he alleged that she was the one who
incurred said debts.
ISSUE: W/N Atty. Vitan’s obligation was extinguished by
virtue of the first Deed of Absolute Sale
HELD: NO. Atty. Vitan contends that his obligation was
already extinguished, because he had allegedly sold his
Bulacan property to complainant. Basically, he is
asserting that what had transpired was a dation in
payment. Governed by the law on sales, it is a
transaction that takes place when a piece of property is
alienated to the creditor in satisfaction of a debt in
money. It involves delivery and transmission of
ownership of a thing -- by the debtor to the creditor --
as an accepted equivalent of the performance of the
obligation.
However, the records reveal that he did not really
intend to sell and relinquish ownership over his
property in Sta. Maria, Bulacan, notwithstanding the
execution of a Deed of Absolute Sale in favor of Yuson.
The second Deed of Absolute Sale, which reconveyed
the property to respondent, is proof that he had no
such intention. This second Deed, which he referred to
as his "safety net," betrays his intention to counteract
the effects of the first one.Ergo, Atty. Vitan was taking
back with his right hand what he had given with his left.
The second Deed of Absolute Sale returned the parties
right back where they started, as if there were no sale in
favor of complainant to begin with. In effect, on the
basis of the second Deed of Sale, respondent took back
and asserted his ownership over the property despite
having allegedly sold it. Thus, he fails to convince us
that there was a bona fide dation in payment or sale
that took place between the parties; that is, that there
was an extinguishment of obligation.
It appears that the true intention of the parties was to
use the Bulacan property to facilitate payment. They
only made it appear that the title had been transferred
to complainant to authorize him to sell or mortgage the
property.Atty. Vitan himself admitted in his letter dated
July 30, 2004, that their intention was to convert the
property into cash, so that payment could be obtained
by complainant and the excess returned to respondent.
The records, however, do not show that the proceeds
derived were sufficient to discharge the obligation of
the lawyer fully; thus, he is still liable to the extent of
the deficiency.
13. Filinvest Credit Corp vs CA 176 SCRA vs 188
Facts: Spouses Sy Bang were engaged in the sale of
gravel produced from crushed rocks and used for
construction purposes. In order to increase their
production, they looked for a rock crusher which Rizal
Consolidated Corporation then had for sale. A brother
of Sy Bang, went to inspect the machine at the Rizal
Consolidated’s plant site. Apparently satisfied with the
machine, the private respondents signified their intent
to purchase the same.
Since he does not have the financing capability, Sy Bang
applied for financial assistance from Filinvest Credit
Corporation. Filinvest agreed to extend financial aid on
the following conditions: (1) that the machinery be
purchased in the petitioner’s name; (2) that it be leased
with option to purchase upon the termination of the
lease period; and (3) that Sy Bang execute a real estate
mortgage as security for the amount advanced by
Filinvest. A contract of lease of machinery (with option
to purchase) was entered into by the parties whereby
they to lease from the petitioner the rock crusher for
two years. The contract likewise stipulated that at the
end of the two-year period, the machine would be
owned by Sy Bang.
3 months from the date of delivery, Sy Bang claiming
that they had only tested the machine that month, sent
a letter-complaint to the petitioner, alleging that
contrary to the 20 to 40 tons per hour capacity of the
machine as stated in the lease contract, the machine
could only process 5 tons of rocks and stones per hour.
They then demanded that the petitioner make good the
stipulation in the lease contract. Sy Bang stopped
payment on the remaining checks they had issued to
the petitioner.
As a consequence of the non-payment, Filinvest
extrajudicially foreclosed the real estate mortgage.
Issue: WON the real transaction was lease or sale?
SALE ON INSTALLMENTS.
Held: The real intention of the parties should prevail.
The nomenclature of the agreement cannot change its
true essence, i.e., a sale on installments. It is basic that a
contract is what the law defines it and the parties
intend it to be, not what it is called by the parties. It is
apparent here that the intent of the parties to the
subject contract is for the so-called rentals to be the
installment payments. Upon the completion of the
payments, then the rock crusher, subject matter of the
contract, would become the property of the private
respondents. This form of agreement has been criticized
as a lease only in name.

Sellers desirous of making conditional sales of their

goods, but who do not wish openly to make a bargain in
that form, for one reason or another, have frequently
resorted to the device of making contracts in the form
of leases either with options to the buyer to purchase
for a small consideration at the end of term, provided
the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid,
title shall thereupon vest in the lessee. It is obvious that
such transactions are leases only in name. The so-called
rent must necessarily be regarded as payment of the
price in installments since the due payment of the
agreed amount results, by the terms of bargain, in the
transfer of title to the lessee.

Indubitably, the device contract of lease with option to

buy is at times resorted to as a means to circumvent
Article 1484, particularly paragraph (3) thereof.Through
the set-up, the vendor, by retaining ownership over the
property in the guise of being the lessor, retains,
likewise, the right to repossess the same, without going
through the process of foreclosure, in the event the
vendee-lessee defaults in the payment of the
installments. There arises therefore no need to
constitute a chattel mortgage over the movable sold.
More important, the vendor, after repossessing the
property and, in effect, canceling the contract of sale,
gets to keep all the installments-cum-rentals already
paid.

Even if there was a contract of sale, Filinvest is still not

liable because Sy Bang is presumed to be more
knowledgeable, if not experts, on the machinery subject
of the contract, they should not therefore be heard now
to complain of any alleged deficiency of the said
machinery. It was Sy Bang who was negligent, not
Filinvest. Further, Sy Bang is precluded to complain
because he signed a Waiver of Warranty.