HEIRS OF JUAN SAN ANDRES (VICTOR S.

ZIGA)
and SALVACION S. TRIA, petitioners, vs.
VICENTE RODRIGUEZ, respondent.
G.R. No. 135634

May 31, 2000

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.

Facts:

A contract of sale may be absolute or conditional.

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.

As thus defined, the essential elements of sale are

the following:

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.

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

Issue: whether or not there was a valid sale.

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 capable of being
determinate without necessity of a new or further
agreement between the parties. Here, this definition
finds realization.

Held:

Thus, all of the essential elements of a contract of

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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 pre-requisite 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.

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
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.
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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

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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 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.
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It should be emphasized that the non-appearance 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 non-performance 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 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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PEOPLE OF THE PHILIPPINES v. ELIZABETH

GANGUSO
G.R. No. 115430

November 23, 1995

DAVIDE, JR., J.:

Facts:
Major Juvenile Sulapas, Officer-in-charge,
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".
A buy-bust operation was planned with
Dennis Vermug acting as poseur-buyer, backed-up
by SPO1 Lumapat, SPO1 Gabutin, PO3s Mendoza
and Garcia with SPO3 Fucanan as team leader.

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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.

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.

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.

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.

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.
Issue:

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 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.

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.

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.

Decision:

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.

The instant appeal is partly granted, and the

challenged decision of the Regional Trial Court of
Pasay City is modified. As modified, accusedappellant 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.

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.

Ratio Decidendi:
Supreme Court held that the elements of
a contract of sale were present.
Beth is
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HEIRS OF AMPARO DEL ROSARIO v. AURORA

SANTOS
G.R. No. L-46892

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.

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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.
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.
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 efficacy of the sale of a mere hope or

expectancy is deemed subject to the
condition that the thing will come into
existence.
The sale of a vain hope or expectancy is
void.
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 lower court resolved to deny the motion

to dismiss.
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.

JOSE M. JAVIER and ESTRELLA F. JAVIER vs.

COURT OF APPEALS and LEONARDO TIRO

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.

FACTS:

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.
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GR No. 48194 March 15, 1990

Regalado, J.:

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

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reversed the judgment. Petition to review filed with

SC.

and when the event which constitutes the condition

happens or is fulfilled.

ISSUE:

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.

W/N THE TWO DEEDS ARE NULL AND VOID, THE

FORMER
FOR
TOTAL
ABSENCE
OF
CONSIDERATION AND THE LATTER FOR NONFULFILLMENT OF CONDITIONS.

RULING:
Decision Modified.

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
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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

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specie of gambling and therefore null and void. CA

upheld the judgment.
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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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.
Issues:
(1) Whether there the deeds of sale are void for
lack of consideration

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(2) Whether the deeds of sale are void for gross

inadequacy of price

contract, unless there has been fraud, mistake or

undue influence.

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

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.

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.

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.

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 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
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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.
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.
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
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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.

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?
Whether the money given constitutes partial
consideration to the option to purchase the land?
Whether or not there is a perfected contract of sale?
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.

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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.

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.
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?
Whether the amount of consignation is untenable?
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
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2A SY 2009-2010

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
Page 13

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.

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 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
Ruling:
FIRST DIVISION
AZCUNA, J.:
Facts:

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2A SY 2009-2010

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

Page 14

that Erlinda Ramos was merely tricked into signing

the Kasunduan.
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 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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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" 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

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.

GONZAGA-REYES, J.:
Facts:
. . . sometime on October 9, 1984, plaintiff entered
into a verbal contract with defendant for her
Sales Case Digests
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2A SY 2009-2010

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

Page 16

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 $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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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 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.
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.
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
Sales Case Digests
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2A SY 2009-2010

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
Page 18

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:
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 was just an option
to buy the properties which privilege was not
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.

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Page 19

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.

When petitioners declared in the Receipt

for Partial Payment that they

RECEIVED FROM MR. GODOFREDO

CAGUIAT THE AMOUNT OF ONE HUNDRED
THOUSAND PESOS AS PARTIAL PAYMENT OF
OUR LOT SITUATED IN LAS PIAS

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.
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2A SY 2009-2010

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.
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

Page 20

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 rental-payment
obligations. And following a three-month default, PCI
LEASING addressed a formal pay-or-surrenderequipment 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 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.
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2A SY 2009-2010

- 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 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
Page 21

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 rereproducing, 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 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 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.
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2A SY 2009-2010

Elisco Tool Manufacturing Corp. Vs. Court of

Appeals et. al.
Page 22

May 31, 1999

Second Division
Mendoza J.

GR 109966

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;
-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
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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
(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
Page 23

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 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
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2A SY 2009-2010

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 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
Page 24

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, 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
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UST Faculty of Civil Law
2A SY 2009-2010

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.

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
Page 25

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 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.

REGALADO DAROY, complainant, vs. ATTY.

ESTEBAN ABECIA, respondent.
A.C. No. 3046

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
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Page 26

Abecia forged his signature in a 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:
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.

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.

Ruling:
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:
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:
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Page 27

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.
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 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.

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Page 28

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.
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.

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.
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, Valdes-Choy wanted that the remaining
purchase balance be deposited in her account
before she could transfer the title of her property to
him.
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.

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Page 29

RULING: Petition is dismissed.

perfected contract of sale.

There is no

The agreement that the parties entered into

is a contract to sell and not a contract of sale.
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.

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 plaintiffappellee 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 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.

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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
In their Answer with Counterclaim, VISAYAN
SAWMILL insisted that the cancellation of the
contract was justified because of Hibionadas noncompliance 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,
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.
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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
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.

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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 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.
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
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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.

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 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:
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.

SPOUSES CAMILO L. SABIO, and MA. MARLENE

A. LEDONIO-SABIO, petitioners, vs. THE
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Whether or not symbolic delivery by mere

execution of the deed of conveyance is sufficient

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since actual possession, control and enjoyment is a

main attribute to ownership.

G.R. No. 143369.

November 27, 2002.

YNARES-SANTIAGO, J.:
Held:
Facts:
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.

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 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.
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.

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.
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Issue:
Whether or not petitioners action is barred
by prescription and laches
Held:

Page 34

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 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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Page 35

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 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
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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

Page 36

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 longer owned by
Wilfredo Dy when it was levied upon by the
sheriff(Dy, Jr. vs. Court of Appeals).

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.
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
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.
January 21, 1993
Third Division
Justice Melo
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
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Ruling:
The decision appealed from is SET ASIDE and the
decision of the trial court REINSTATED.
Ratio: (Industrial Textile Manufacturing Company of
the Phils. v. LPJ Enterprises, Inc, pp 326-327)
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
Page 37

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.
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).

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
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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.
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

Page 38

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 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.

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 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
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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

Page 39

prescribe. Thus, respondent Anacleto can impugn

the nullity of the agreement at anytime.

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.

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.
Abrigo vs. De Vera
Semira vs. Court of Appeals
March 2, 1994

June 21, 2004

Division

G.R. No. 154409First

G.R. No. 76031

Panganiban ,J.

First Division
Facts:
Bellosillo, 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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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
st
has a crtificate title of the lot. 4 years after the 1
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 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

Page 40

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

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 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
Page 41

reasonably prudent man

the title of the property
within the exception can
innocent purchaser for
good faith.

to inquire into the status of

in litigation. One who falls
neither be denominated an
value nor a purchaser in

Held: Petition denied.

SPOUSES ISABELO and ERLINDA

PAYONGAYONG, vs.
HON. COURT OF APPEALS,

May 28, 2004

Third Division

Issue: Whether or not spouses Salvador are

innocent purchasers for value

G.R. No. 144576

CARPIO MORALES, J.:

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:

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
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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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 the possession; and,
in the absence thereof, to the person who
presents the oldest title, provided there is
good faith.
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
Page 42

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.

Isabela Colleges, Inc. vs. Heirs of Nieves

TolentinoRivera
October 20, 2000
Second Division
Justice Mendoza

G.R. No.132677
Ponente:

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 13.5267-hectare
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.
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.
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.

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.
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,

Page 43

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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Page 44

Bayoca vs. Nogales

September 12, 2000
Third Division
Justice Gonzaga-Reyes

G.R.No.138201
Ponente:

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 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?

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.
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.

Ruling: Petition is hereby DENIED and the assailed

DECISION of the Court of Appeals is AFFIRMED.
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.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

SPOUSES FLORENDO DAUZ and HELEN DAUZ,

et al. v. SPOUSES ELIGIO and LORENZA
ECHAVEZ and the COURT OF APPEALS

Page 45

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.

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.

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.

Petitioners then filed with the Regional Trial

Court (RTC) of Baguio and Benguet a Petition for
the Issuance of a New Duplicate Copy of TCT No. T13728.

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.

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.

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.

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:

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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

Page 46

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.

CHINA AIRLINES, LTD. v. COURT OF APPEALS,

ANTONIO S. SALVADOR and ROLANDO C. LAO
G.R. No. 129988, 14 July 2003, CARPIO, J.

Private respondents planned to travel to Los

Angeles, California. They initially engaged the
services of Morelia Travel Agency (Morelia), which
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 47

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 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

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 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.

HELD:

Petition DENIED.

SPOUSES SALERA vs SPOUSES RODAJE

G.R. No. 135900

RATIO:

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

Ponente: Justice Sandoval

Division

17 August 2007
Gutierrez, First

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
Page 48

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 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.

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 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, 1997

Issue: Which of the two contracts of sale is valid?

Ponente: Justice Panganiban, Third Division
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
Sales Case Digests
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2A SY 2009-2010

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 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
Page 49

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.

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

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.
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
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.

Sales Case Digests

UST Faculty of Civil Law
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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 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

Page 50

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 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
APPEALS

TECH.,

INC.

vs.

COURT

OF

G.R. No. 100594 March 10, 1993 (219SCRA777)

Third Division

(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.)

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 PhibKhik 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.

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2A SY 2009-2010

Page 51

Puentevella sold said lots to Raul Javellana with

the condition that the vendee-promisee 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 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 Third-Party
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 coplaintiffs.

Sales Case Digests

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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.
Thus, this petition for review on certiorari
wherein petitioners assign the following alleged
errors of the Court of Appeals:

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

Page 52

obligation to deliver to and maintain said buyers in

possession of the lots subject matter of the sale.

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Page 53

ROBERTO
MACHUCA

Z.

LAFORTEZA

vs.

ALONZO

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

Third Division
GONZAGA_REYES, J.

Facts: On August 2, 1988, defendants Lea ZuluetaLaforteza 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 Attorney-in-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.
On October 18, 1989, plaintiff sent the defendant
heirs a letter requesting for an extension of the 30
DAYS.
Sales Case Digests
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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 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

Page 54

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.

Jon and Marissa De Ysasi vs. Arturo and Estela

Arceo
G.R. No. 136586 November 22, 2001
Mendoza, J. Second Division
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2A SY 2009-2010

Page 55

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.

Issue: WON there was an implied waiver of repairs

including repairs for hidden and unknown defects by
the lessee.

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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.

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

Page 56

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.

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 quasi-delict
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 pre-existing 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 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
either case.
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
Sales Case Digests
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2A SY 2009-2010

Inocencio Yu Dino vs. Court of Appeals

June 20, 2001

G.R. No. 113564

359 SCRA 91

First Division
Puno, J.:
FACTS:
Petitioners spouses Dinoare engaged in the
business of manufacturing and selling shirts.1
Page 57

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.

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.

ISSUE:

D.M Wenceslao and Associates, Inc. Vs. Ready

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

Whether the contract between the contracting

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

Whether the respondent is responsible for the

warranty against hidden defects
RULING:
Petition is DENIED.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

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
Page 58

(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
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.

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 against petitioner
WENCESLAO is its failure still to pay the unpaid
account, despite the fact of the works acceptance
by the government already

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.

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2A SY 2009-2010

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.INTEGRATED
vs.

PACKAGING

CORP.,

COURT OF APPEALS and FIL-ANCHOR PAPER

CO., INC.,
[G.R. No. 115117; June 8, 2000; Second Division]
QUISUMBING, J.:
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.
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2A SY 2009-2010

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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, 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.
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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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 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.

Page 61

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.

GREGORIO FULE,
vs
COURT OF APPEALS, NINEVETCH CRUZ and
JUAN BELARMINO
[G.R. No. 112212 March 2, 1998; Third Division]
ROMERO, J.:
FACTS
Gregorio Fule (petitioner), a banker by profession
and a jeweler at the same time, acquired a 10hectare 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.

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2A SY 2009-2010

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

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 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
Page 63

this Court that he entered into the contract in the

belief that the pair of emerald-cut 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 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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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 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
29
satisfied with the same.
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.
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

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buyer fails to pay within a fixed period. Such

stipulations are not manifest in the contract of sale.

CENTRAL BANK OF THE PHILIPPINES vs.

SPOUSES ALFONSO and ANACLETA BICHARA

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.

G.R. No. 131074 March 27, 2000

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.

Second Division
DE LEON, JR., J.:
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

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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 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 non-compliance
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

QUISUMBING, J.:
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 right-ofway.
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 led to the
rescission of the contract, of which petitioner was
formally informed.

Second Division
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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.

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.

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:
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
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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.
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:

Alfonso Iringan vs. Court of Appeals

G.R. No. 129107
September 26, 2001

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.
The letter written by the private respondent
declaring hi intention to rescind did not
operate validly,

Quisumbing
The filing by Palao of Judicial Confirmation
of Rescission of Contract and Damages
satisfies the requirement of the law.
Facts:
Private respondent Palao sold to petitioner Iringan
an undivided portion of land to be paid in
installments.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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

Page 68

was ready and willing to pay. Hence, the

awarding for damages is proper.
Petition denied.

Nieves appealed to the Court of Appeals but

the latter also affirmed the assailed decision.
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.

Issue:
Perla Gil vs. CA
G.R. No. 127206

Whether or not the property was validly sold

to Iluminada and Agapito Pacetes.

September 12, 2003

Held:

Callejo Sr.

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

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
Page 69

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.

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.

Petition denied for lack of merit.

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:
Severino Baricuatro, Jr.,
vs.
Court of Appeals, Tenth Division, Mariano B.
Nemenio and Felisa V. Nemenio, Constantino M.
Galeos and Eugenio V. Amores

February 9, 2000

1. Whether the sale made to Amores by

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

G.R. No. 105902

RULING:

Buena, J.:
Issue 1
FACTS:

Baricuatro bought two lots, part of the Victoria

Village, on installments basis from Galeos on
October 16, 1968.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

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
Page 70

purchase price of the disputed lots from Baricuatro

which presupposes knowledge of the previous sale
by Amores.

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 spouses were
done in bad faith, hence, it amounted to no
inscription at all.

Decision of CA is REVERSED.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Page 71

In 1964, the Amodias allegedly conveyed the

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

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.

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.

Cecilia Amodia Vda. De Melencion, Veneranda

Amodia, Felipe Amodia, Eutiquio Amodia and Go
Kim Chuan

ISSUE:

vs.
Honorable Court of Appeals and Aznar Brothers
Realty Company.

June 23, 2001

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.

1. Who between Go Kim Chuan and Aznar has

the better right over the subject property?

G.R. No. 148846

Nachura, J.:

FACTS:

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.

RULING:

Art. 1544 provides:

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.

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

Page 72

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.

Hence, this petition.

ISSUE: Whether or not the respondents

nonpayment of the full consideration would
invalidate the contract of sale.
Petition for review is GRANTED.
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.
Soliva vs. The Intestate Estate of Marcelo M.
Villalba

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

Page 73

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.

Visayan Sawmill Company, Inc. vs. Court of
Appeals
Hence, the petition.
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 petitionercorporation and private respondent. Accordingly,
what transpired between the parties was a contract
or promise to sell and not a contract of sale.
Petitioner-corporations 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 non-fulfillment

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, petitioner-corporation

insisted that the cancellation of the contract was
justified because of private respondents noncompliance with essential pre-conditions, among
which was the opening of an irrevocable and
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Page 74

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:
Conchita Nool, et al. vs. Court of Appeals, et al.
G.R. No. 116635, July 24, 1997

None.

Third Division

PANGANIBAN, J:

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

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.

Page 75

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.

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

Dominador and Rosalia Bandung

ISSUE:

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

Third Division

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.

CHICO-NAZARIO, J.:
RULING:
FACTS:
1. No.
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
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

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.

Page 76

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
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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

Page 77

therefor. San Pedro accepted their offer and agreed

to sell the land.
ERLINDA SAN PEDRO vs. RUBEN LEE and
LILIAN SISON
G.R. No. 156522

May 28, 2004

FIRST DIVISION

YNARES-SANTIAGO, J.:

The trial court rendered a decision in favor of

petitioner. On appeal, the Court of Appeals reversed
the trial court, and rendered a decision in favor of
respondents, the dispositive portion of which reads:

Issue:
Whether the contract in question is an equitable
mortgage or a deed of absolute sale.

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

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

Page 78

(2) that their intention was to secure an existing debt

by way of a mortgage.

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.,
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UST Faculty of Civil Law
2A SY 2009-2010

Page 79

FACTS:
Spouses Hilario filed an action for
Declaration of Nulity against Spouses Gonzales
involving 3 parcels of lands which were the 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.

likewise made mention about capital 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
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

Oscar Fernandez
Narcisa Tarun
November 14, 2002

vs. Spouses Carlos

G.R. No. 143868

and

Third Division

PANGANIBAN, J.:
FACTS: A fishpond located in Arellano-Bani
Dagupan City is co-owned by brothers Antonio,
Page 80

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 co-owners executed a Deed of
Extrajudicial Partition of two parcels of registered
land with exchange of shares. This involved the
st
fishpond (1 ) that was co-owned and another
nd
fishpond (2 ). 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.

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.
Furthermore, mere alleged inadequacy of the price
does not necessarily void a contract of sale,
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
Second Division
Quisumbing, J:
Page 81

Facts:
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.

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.

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.

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.
_______________________________________
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:

Issues:
1.) Whether Art. 1602 (presumption
equitable mortgage) is inapplicable
the instant case.
2.) Whether the action for declaration
nullity of the Deed of Absolute Sale
the proper remedy or cause of action.

of
to

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

repurchase is unusually inadequate;

of
is

(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

Ruling:
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Page 82

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
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
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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.

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

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.

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

Page 84

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

June 21, 2001

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
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Page 85

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 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

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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 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
Page 86

to petitioners herein as owners-mortgagors,

conformably with the well-established 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.:
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
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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 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
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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 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.
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
Page 88

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 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.

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TOMAS SEE TUAZON vs. COURT OF APPEALS

and JOHN SIY LIM
G.R. No. 119794
October 3, 2000
Third Division
Ponente: PURISIMA, J.:
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, 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
Page 89

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.
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

accident. Here, 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.

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
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SPOUSES MARIO REYES VS. COURT

APPEALS
G.R. No. 134166
August 25, 2000
Second Division
Ponente: Bellosillo,J.:

OF

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
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2A SY 2009-2010

from each of their respective 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.
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."

Page 91

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

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.

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.
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
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Page 92

Recovery of Possession with Damages

being co-owners 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 presumed to be an
equitable mortgage, as follows:

Aguirre vs. CA and Tupas

G.R. No. 131520
January 28, 2000

Facts:

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, Malay, Aklan, in
what is more popularly known as Boracay
Island.

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;

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

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(2).......When the vendor remains in

possession as lessee or otherwise;
(3).......When upon or after the
expiration of the right to repurchase
Page 93

another instrument extending the

period of redemption or granting a
new period is executed;

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.

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

(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.
By the terms of Art. 1604, the
foregoing provisions shall also
apply to a contract purporting to be
an absolute sale. x x x."

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

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Page 94

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-in-interest of the herein
respondent heirs, owned two (2) parcels of
coconut land 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. 0-1743
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

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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 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.
Page 95

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. 94-07335-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 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.

Hence this appeal...

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 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

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

Ruling:
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2A SY 2009-2010

Page 96

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 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
As well, that the parties intended to enter
into an equitable mortgage is further
accentuated by respondents continued
payment of the real property taxes
subsequent to the alleged sale. Payment of
those taxes is a usual burden attached to

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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.

AMELIA S. ROBERTS, petitioner,

vs.
MARTIN B. PAPIO, respondent.

February 9, 2007 G.R.No.166714

Page 97

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 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
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2A SY 2009-2010

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 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
Page 98

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.

January 28, 2008 G.R. No.143697

FIRST DIVISION

Ponente: SANDOVAL-GUTIERREZ

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Page 99

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.

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
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.

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.

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2A SY 2009-2010

Reyes, R.T., J.:

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.

Page 100

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?

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

Provided for are the cases to presume a

contract to be an equitable mortgage under Article
1602 (NCC):
(01.) When the price of the sale with right to
repurchase is unusually inadequate;
(02.) When the vendor remains in possession as
lease or otherwise;
(03.) 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;
(04.) When the purchaser retains for himself a part
of the purchase price;
(05.) When the vendor binds himself to pay the
taxes on the thing sold;
(06.) 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 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.

Page 101

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, 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.
It was agreed upon by the parties that:
(01.) they would sign a deed of sale conveying the
mortgaged property in favor of private
respondent Cruz; and thereafter
(02.) Cruz will apply for a housing loan with Land
Bank, using the subject property as collateral;
(03.) 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;
(04.) transfer of title to Josefina Cruz;
(05.) and registration of a mortgage in favor of Land
Bank; and
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(06.) 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.

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

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:
(01.) 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;
(02.) 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
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.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

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
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):
(01.)
(02.)
(03.)

(04.)
(05.)

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;

Page 103

(06.)

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 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.

ADORACION LUSTAN, petitioner, vs. COURT OF

APPEALS, NICOLAS PARANGAN and SOLEDAD
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Page 104

PARANGAN, PHILIPPINE
respondents.

NATIONAL

BANK,

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.

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

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 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.

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,
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 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. T-561
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. T561 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

Page 105

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
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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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:

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.

Page 106

SPOUSES CRISPIN AUSTRIA and LEONISA

HILARIO, petitioners, vs. SPOUSES DANILO
GONZALES, JR., and VERONICA GONZALES,
respondents.

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

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.
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Page 107

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 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.

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

RTC of Malolos decided Civil Case No. 552-M-91
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.

Hence the petitioners elevated their case to the

Regional Trial Court of Malolos.
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Page 108

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.

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.

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).

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
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Page 109

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."

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 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
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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 reconsideration and
allowing him to repurchase the lots within thirty days
from finality thereof.
Thus, petitioner Abilla brought the instant
petition for review.
ISSUE:
Whether or not the contract between the
parties was an absolute sale with pacto de retro.
Page 110

HELD: NO.(it was held as a mere

mortgage)

equitable

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
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
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2A SY 2009-2010

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.
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.
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.

Page 111

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:

PHILADELPHIA AGAN vs. HEIRS OF

ANDRES NUEVA and DIOSDADO NUEVA

SPS.

December 11, 2003 G.R. No. 155018

FACTS:
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
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2A SY 2009-2010

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) 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 third-day 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:

Page 112

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.

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

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 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
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receipt of the judgment. The Court has construed

final judgment to mean one that has become final
and executory.

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.

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
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.
Sales Case Digests
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2A SY 2009-2010

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 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 coowner 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
Page 114

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 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

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 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
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Page 115

BPI FAMILY SAVINGS BANK,

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

August 9, 2004

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.

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

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.

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.

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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.

Page 116

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 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.

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.

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 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.

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.

LEE CHUY REALTY CORPORATION vs. COURT

OF APPEALS and MARC REALTY AND
DEVELOPMENT CORPORATION
December 4, 1995

GR No. 104114

Bellosillo, J.:
FACTS:

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Page 117

A piece of land is disputed by Lee Chuy Corp. and

Marc Realty. Originally the property was co-owned
by Ruben Jacinto to the extent of one-sixth 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.
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.

excessive, the redemptioner shall pay only

a reasonable one.
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 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 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.

Primary Structures Corp. vs. Sps. Anthony and

Susan T. Valencia

August 19, 2003

GR No.150060

First Division
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 co-owners or of
any of them are sold to a third person. If
the price of the alienation is grossly
Sales Case Digests
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2A SY 2009-2010

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
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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.

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

Held: Petition Granted

Article 1621 and Article 1623 of the Civil Code,

which read:

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.

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UST Faculty of Civil Law
2A SY 2009-2010

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 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

Page 119

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.

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
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Page 120

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.
HTP.
Issues:
Whether the CA erred in declaring the sale between
Sofia and Teodora valid?
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 co-heirs 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.
Sales Case Digests
UST Faculty of Civil Law
2A SY 2009-2010

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.

Page 121

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

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.
No amicable settlement was reached at pre-trial.
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,
modification.

CA

decision

affirmed

with

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.
Page 122

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 respondents-spouses by the
co-owners. Petitioners Rito and 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

effectively ratified it. This act of ratification rendered

the sale valid and binding as to him.
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 respondentsspouses, they only sold and transferred title to their
pro-indiviso 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 proindiviso 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.

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 proindiviso 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

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

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.
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 non-payment 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.

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.

The transaction between Picache and CDC
was an assignment of credit and does not require
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Page 125

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.

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

G.R. No. 97753 August 10, 1992

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Page 126

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.

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:
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.

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

Inc., pp 186-188)
Lo vs. KJS Eco-Formwork System Phil., Inc.
October 8, 2003
First Division
Justice Ynares-Santiago
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UST Faculty of Civil Law
2A SY 2009-2010

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
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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 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.:

Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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 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

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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
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.
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UST Faculty of Civil Law
2A SY 2009-2010

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 nonpayment 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 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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Sales Case Digests

UST Faculty of Civil Law
2A SY 2009-2010

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