INCHAUSTI vs Cromwell, GR L-6584

Facts:

1. Inchausti is engaged in buying and selling of wholesale hemp.

2. The price quoted to buyers is per picul but the hemp is delivered in bales. On
average, there are 2 piculs in 1 bale.

3. The charge for the baling/prensaje (separate and distinct from the price quoted for
the hemp) is made against the buyer.

4. The buyers are charged P1.75 per bale and the average total cost of bailing hemp is
P1 (P0.15 for the rattan and matting).

5. The insurable value of the hemp includes the charge for the prensaje.

6. The commission on sales of hemp also includes the charge for prensaje.

7. However, the company computes and pays its taxes based on the price of the hemp,
exclusive of the charge for prensaje.

8. The Collector of Internal Revenue assessed sales taxes upon the charges for
prensaje.

9. Inchausti paid the assessment under protest and appealed the assessment to the
Supreme Court.

10. Inchausti’s contentions:

a. The prensaje is not part of the sale, therefore, not subject to the sales tax.

11. CIR’s defense:

a. The charge for prensaje is part of the gross value of the hemp sold.

b. The charge for prensaje is part of the actual selling price of the hemp.

ISSUE:

WON baling/prensaje is included in the contract of sale (i.e. should be taxed) or is a

separate contract for a piece of work (i.e. should not be taxed as sale)?

HELD:

The contract was single and consisted solely in the sale and purchase of hemp. The buyer
did not ask for the company to perform services (i.e. prensaje) for him, nor did Inchausti
agreed to do so but it has always been expected that they will be delivered in bales for
there is no other practicable way to market the hemp. Thus, the price would necessarily
include the cost and expense of bailing. The purchaser contracted for nothing less and the
vendor agreed to deliver nothing else.

The distinction between a contract of sale and one for work, labor and materials is tested by
the inquiry whether the thing transferred is one not in existence and which never would
have existed but for the order of the party desiring to acquire it, or a thing which would
have existed and been the subject of sale to some other person even if the order had not
been given.

It is clear in this case that the hemp was inexistence in baled form before the agreements of
sale were made, or at least, would have been in existence even if none of the individual
sales here in question had been consummated. It would have been baled, nevertheless, for
sale to someone else, since, according to the agreed statement of facts, it is customary to
sell hemps in bales.
Celestino vs. Collector of Internal Revenue, G.R. L-8506

Facts:

1. Celestino Company is a factory of sash, doors and windows.

2. From 1946 to 1951, it paid taxes imposed on sale of manufactured articles (i.e. 7%).

3. However, in 1952, it started paying contractor’s tax of 3% instead of the 7% sales

tax.

4. The Bureau of Internal Revenue assessed it for deficiency sales tax and the Court of
Tax Appeals held in favor of the BIR.

5. Hence, it appealed to the Supreme Court.

6. Celestino’s arguments:

a. The company makes specially-ordered doors and windows.

b. It does not manufacture ready-made doors, sash and windows for the public but
only upon special order of select customers.

c. Hence, the door and windows are not in existence and never would have existed
but for the order of the party desiring it. (Ruling in Inchausti vs Cromwell)

7. BIR’s defense:

a. It’s unbelievable that they only cater to a special and limited customers because:

i. It went to trouble of registering a special trade name.

ii. It offered itself to the public as a “factory”

iii. Generally, sash factories derive the bulk of their sales from ready-made
doors and windows of standard sizes.

b. Its business does not fall in the list of contractor’s subject to 3% tax in the NIRC.

ISSUE:

WON Celestino is a contractor for a piece of work (i.e. seller of services hence to be taxed at
3%)?

HELD:
No. The fact that the windows and doors are made by it only when customers place their
orders does not alter the nature of the establishment, for it is obvious that it only accept
such orders as called for the employment of such material as it ordinarily manufactured or
was in a position to habitually manufacture.

The contention that the doors and windows would never have come to existence were it not
for the special order is erroneous because, provided that the price is paid, the factory can
easily duplicate and even mass-produce the same doors and windows as it is mechanically
equipped to do so.

Although the Factory does not, in the ordinary course of business, manufacture and keep a
stock of doors or windows , it could stock and probably had in stock the sash, mouldings,
and panels it used therefor.

If the Factory accepts a job that requires the use of extraordinary or additional equipment,
or involves services not generally performed by it, it thereby contracts for a piece of work.
However the orders exhibited were not shown to be special. They were merely orders for
work – nothing is shown to call them special requiring extraordinary service of the factory.
CIR vs Engineering Equipment & Supply Company, 64 SCRA 590

FACTS:

1. Engineering Equipment and Supply Co. is an engineering and machinery firm. As

operator of an integrated engineering shop, it is engaged, among others, in the
design and installation of central type air conditioning system, pumping plants and
steel fabrications.

2. On September 30, 1957, BIR assessed it for deficiency sales tax (30%).

3. On July 30, 1959, Engineering appealed the assessment to the Court of Tax Appeals.

4. On November 29, 1966, the Court of Tax Appeals rendered its decision:

a. That the company is a contractor and exempt from the deficiency sales tax.
(However, petitioner is ordered to pay respondent, or his duly authorized
collection agent, the sum of P174,141.62 as compensating tax and 25%
surcharge for the period from 1953 to September 1956. With costs against
petitioner.)

5. The Company appealed the compensating tax and surcharge to the SC.

6. The Commissioner on the other hand claims that the Court of Tax Appeals erred:

a. In holding that the respondent company is a contractor and not a manufacturer.

b. In holding respondent company liable to the 3% contractor's tax imposed by
instead of the 30% sales tax

ISSUE:

Whether or not the Company is a manufacturer of AC units subject to 30% sales tax or a
contractor subject to 3% contractor’s tax?

HELD:

The Company is not a manufacturer and seller of air-conditioning units and spare parts or
accessories but a contractor engaged in the design, supply and installation of the central
type of air-conditioning system subject to the 3% tax imposed by Section 191 of the same
Code, which is essentially a tax on the sale of services or labor of a contractor rather than
on the sale of articles.

The distinction between a contract of sale and one for work, labor and materials is tested by
the inquiry whether the thing transferred is one not in existence and which never would
have existed but for the order of the party desiring to acquire it, or a thing which would
have existed and has been the subject of sale to some other persons even if the order had
not been given. If the article ordered by the purchaser is exactly such as the plaintiff makes
and keeps on hand for sale to anyone, and no change or modification of it is made at
defendant's request, it is a contract of sale, even though it may be entirely made after, and
in consequence of, the defendants order for it. 3

Art. 1467. A contract for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market, whether
the same is on hand at the time or not, is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his special order and not for the general
market, it is a contract for a piece of work.

The Company did not manufacture air conditioning units for sale to the general public, but
imported some items (as refrigeration compressors in complete set, heat exchangers or
coils) which were used in executing contracts entered into by it. Engineering, therefore,
undertook negotiations and execution of individual contracts for the design, supply and
installation of air conditioning units of the central type taking into consideration in the
process such factors as the area of the space to be air conditioned; the number of persons
occupying or would be occupying the premises; the purpose for which the various air
conditioning areas are to be used; and the sources of heat gain or cooling load on the plant
such as sun load, lighting, and other electrical appliances which are or may be in the plan.
Hence, the company designed and engineered complete each particular plant and that no
two plants were identical but each had to be engineered separately.

The Commissioner in his Brief argues that "it is more in accord with reason and sound
business management to say that anyone who desires to have air conditioning units
installed in his premises and who is in a position and willing to pay the price can order the
same from the company (Engineering) and, therefore, Engineering could have mass
produced and stockpiled air conditioning units for sale to the public or to any customer with
enough money to buy the same." This is untenable in the light of the fact that air
conditioning units, packaged, or what we know as self-contained air conditioning units, are
distinct from the central system which Engineering dealt in.

The point, therefore, is this — Engineering definitely did not and was not engaged in the
manufacture of air conditioning units but had its services contracted for the installation of a
central system.
Rayos vs CA, 434 SCRA 365

[Contract to Sell]

Facts:

1. Dec 24, 1985: Spouses Rayos mortgaged a pice of land to PSB. The loan is payable
within 1 year in 4 quarterly installments of P29,190.28.

2. Dec 25, 1985: Spouses Rayos executed a “Deed of Sale with Assumption of
Mortgage” over the same property for P214,000 in favor of Spouses Miranda as
vendees.

3. Jan 29, 1986: Spouses Rayos executed a “Contract to Sell” wherein the Spouses
Rayos obliged themselves to execute a Deed of Absolute Sale in favor of Spouses
Miranda upon full payment of the purchase price of P250,000

4. Rogelio Miranda filed an application with the PSB to secure the approval of his
assumption of the loan. PSB denied its application because of his bad credit
standing.

5. Nevertheless, Miranda paid the 3 quarterly installments to PSB for the account of
Rayos.

6. However, the Miranda and Rayos had a falling apart when Miranda hired the Rayos, a
lawyer, to represent him in a case. There had a dispute over the attorney’s fees
(P5k) of Rayos. Anyway….

7. Nov 30, 1986: Rayos wrote to Miranda reminding him of the last quarterly payment
due to PSB on Dec 24. But Miranda did not respond. PSB sent a letter to Rayos
reminding him of the Dec 24 due date.

8. Dec 12, 1986: Fearing that Miranda would not be able to pay the amount due
(remember: he even refused to pay P5k atty’s fees) because the latter is still waiting
to sell his car, Rayos paid PSB P27,981.41 and told the bank not to give Miranda the
duplicate of his title.

9. Dec 24, 1986: Miranda went to PSB to pay the last installment and get the owner’s
duplicate of the title but he was refused by the bank so he wrote the bank and
tendered a check payable to the bank.

10. Dec 29, 1986: Rayos paid the balance P1,081.39. Title was released from mortgage.

11. Miranda filed a complaint asking for the return of the purchase price (P267,197.33)
and damages.

12. However, Rayos manifested (thru letters) his intention to execute that deed of sale
in favor of Miranda upon payment of P29,+++ (the last installment). Hence, he also
filed a complaint for “Specific Performance with Damages and Collection of P29,++
+”.
 13. Jan 30, 1989: Rayos sold the property to Spouses Ercia (not impleaded)

14. May 18, 1989: Rayos amended the complaint (presumably to withdraw the petition
for Specific Performance because he cannot now comply due to the sale of the land
to Spouses Ercia and petition for the rescission of the contract with Miranda) and
submitted the Contract to Sell.

15. RTC ruled:

a. Miranda to refund Rayos P29,+++

b. Rayos to transfer the land to Miranda.

16. CA affirmed RTC.

17. Rayos appeal to the SC. His contentions:

a. Miranda breached the contract, hence, he is not entitled to Specific Performance.

b. Rayos is entitled to rescission and damages.

ISSUE:

Whether or not the contract between Miranda and Rayos can be rescinded because of
Miranda’s breach.

HELD:

No. There can be no rescission of an obligation that is still non-existing, the suspensive
condition not having happened. (In other words, we cannot rescind the obligation of Rayos
to sell because he does not have that obligation until Miranda pays the price).

The contract executed is a contract to sell and not a contract of sale. Rayos retained
ownership without further remedies by Miranda until the payment of the purchase price in
full. Such payment is a positive suspensive condition, failure of which is not a breach but an
event that prevents the obligation of Rayos to sell and deliver the title to the property. The
non-fulfillment of Miranda of his obligation to pay rendered the contract to sell without force
and effect.

However, the parties may reinstate the contract by paying and accepting the last
installment provided that the property has not been sold to a third-party who acted in good
faith.
Quiroga vs Parsons, GR L-11491, 38 Phil 501

[Agency to Buy or Sell]

Facts:

1. Quiroga granted Parsons the right to sell the formers bed in Visayas under the ff
conditions:

a. Items will be invoiced based on sale prices in Manila with an allowance for 25%
discount as commission on the sale.

b. Parsons will order by the dozen.

c. Parsons is to pay within 60 days from date of shipment.

d. Transportation and shipment to be paid by Quiroga. Freight, insurance, cost of

unloading to be paid by Parsons.

e. If Parson pays before 60 days or in cash, he gets additional 2% discount.

f. Parsons binds himself not to sell any other beds except Quiroga.

2. Quiroga filed a complaint against Parsons, for violating the following obligations:

a. Not to sell the beds at prices higher than those of the invoice.

b. To have an open establishment in Iloilo

c. For himself to conduct the agency

d. To keep the beds at public exhibition

e. To pay for the advertisement of the beds

f. To order the beds by the dozen and in no other manner.

3. Parson’s defense:

a. Except for (2f), he is not obliged to perform any of the above mentioned
obligations in pursuance of their agreement.

b. The beds were sold to him by Quiroga and as such he may exercise dominion
over them and not be subject to Quiroga’s instructions.

4. Quiroga’s contention:

a. Parsons is his agent for the sale of his beds in Iloilo and said obligations (i.e. to
follow principal’s instructions) are implied in a contract of commercial agency.
 b. As a matter of fact, Parsons returns beds that he cannot sell (evidence of an
agency)

c. Former VP of Parsons testified that he (VP) was the one who drafted the contract
and Parsons is an agent for the beds and collects commission on sales.

ISSUE:

WON the agreement is a contract of agency.

HELD:

No. It was a contract of purchase and sale. There was an obligation on the part of Quiroga
to supply the beds and an obligation on Parsons’ part to pay the price. These features
exclude the legal conception of an agency or order to sell whereby the agent received the
thing to sell it, and does not pay its price, but delivers to the principal the price he obtains
from the sale to the thing to a third person, and if he does not succeed in selling it, he
returns it.

On (4c), evidence for the defense shows it was Mariano Lopez who drafted it and even if
Vidal drafted it, it only means that he was mistaken in the classification of the contract.
Because a contract is what the law defines it to be and not what it is called by the
contracting parties.

On (4b), this is not evidence of agency but of mutual tolerance in the performance of the
contract in disregard of its terms; and it gives no right to have the have the contract
considered not as they stipulated it, but as they performed it. Such performance may only
be considered for the purpose of interpreting the contract, when such interpretation is
necessary, but not when, as in this case, its essential elements are clearly set forth and
plainly show that the contract belongs to a certain kind and not to another.
Puyat vs Arco, 72 Phil 402

[Agency to Buy and Sell]

Facts:

1. Arco is in the business of operating cinematographs.

2. Gonzalo Puyat and Sons is the exclusive agent in the Philippine of Starr Piano Co.

3. Arco ordered, through Puyat and Sons, a sound-reproducing equipment from Starr
Piano.

4. In addition to the purchase price, Arco agreed to pay Puyat a 10% commission plus
all other incidental expenses (freight, insurance, etc).

5. Arco ordered and paid for a total of two equipments under the same terms.

6. About 3 years later (due to a Vigan civil case filed against Puyat by one Fidel Reyes),
Arco found out that the purchase price it paid Puyat is the list price and not the net
price (i.e. list price less discount given by Starr) of the equipment and that upon
reading some related literature, Arco was convinced that Puyat charged them too
high (even for the out-of-pocket expenses)

7. Arco filed a complaint for the reimbursement of the overpaid amount and contends
that the 10% commission granted to Puyat is evidence of the existence of an agency.

8. CFI ruled that the contract between the parties is one of outright purchase and sale
and absolved Puyat of the complaint.

9. CA reversed RTC and held that the relationship between the two is that of an agent
and a principal. Hence, it ordered Puyat to reimburse Arco the overpayment made.

ISSUE:

WON the contract is for purchase and sale.

HELD:

Yes. Arco, in its complaint filed with the CFI admitted that Puyat agreed to “sell” to it the
sound reproducing equipment. The 10% commission is not incompatible with a contract for
purchase and sale. Since, Puyat is already the agent of Starr, it is out of the ordinary for
one to be the agent of both the vendor and vendee.

Puyat is not bound to reimburse Arco the difference between the cost price and the sale
price which is its profit. In any case, even if Arco ordered directly from Starr it’s highly
unlikely that it will get the 25% discount the latter gave Puyat as its agent. There’s also no
reason why Puyat should waive its 25% discount from Starr in favor of a 10% commission
from Arco. Also, it is not bound to reveal to Arco its private agreements with Starr.
Filinvest Credit Corporation vs CA, 178 SCRA 188, GR 82508

Facts:

1. Jose is engaged in the sale of gravel produced from crushed rocks.

2. He found a rock crusher (from Rizal Consolidated) that it wanted to buy but cannot
afford the price: P550,000.

3. Hence, it entered into an agreement with Filinvest, a financing company:

a. Machinery will be purchased in Filinvest’s name

b. It will be leased (with an option to buy)

c. Jose will execute a real estate mortgage to secure the amount advance by
Filinvest

4. The lease with option to buy provides:

a. Term of lease is for 2 years

b. After 2 years, the machine will be owned by Jose

5. 3 months after delivery, Jose sent a letter-complaint to Filinvest alleging that the
machines can only process 5 tons of rocks per hour and not 20 to 40 tons (type-
written) as stated in the contract of lease.

6. Filinvest did not act on Jose’s complaint.

7. Jose stopped paying the rent.

8. Filinvest foreclosed the mortgage.

9. Jose petitioned for the rescission of the contract of lease and annulment of the
mortgage and for injunction.

10. RTC ruled in favor of Jose: (ruled that contract is one of sale)

a. Contract of lease is rescinded.

b. Jose ordered to return machinery.

c. Filinvest to return to Jose the deposit and rental it received with interests.

d. Mortgage Annulled.

11. CA affimed RTC.

12. Filinvest appealed to the SC: (contentions)

 a. There is an express waiver of warranty

b. Jose’s party is supposed to be the expert.

c. Jose was the one who chose the machine. His brother inspected the machine.

d. This is a lease, therefore, the order of the RTC to return the rentals is not valid.

e. The cause of action of Jose is against Rizal Commercial.

13. RTC/Jose’s defense:

a. This is a contract of sale, therefore, the remedies of the vendor in case the buyer
failed to pay are:

A1. Exact fulfillment

A2. Cancel

A3. Foreclose the mortgage

b. In case of cancellation of the sale, the payments of the buyer should be returned.

ISSUE:

WON the contract is one of lease.

HELD:

No. The nomenclature of the agreement (i.e. contract of lease) cannot change its true
essence (i.e. a sale on installment). It is basic that a contract is what the law defines it and
not what it is called by the parties. Generally, a lease with an option to buy is executed
instead of a sale on installment to circumvent Art 1484 of the Civil Code which enumerates
the remedy of the unpaid seller (see: 13.A1-A3 above). In this arrangement, the seller can
repossess the property without going thought foreclosure, therefore cancelling the sale, and
it gets to keep the installments-cum-rentals paid.

HOWEVER, Filinvest cannot be held liable for the machine’s failure to produce in accordance
with the described capacity because in the contract, Jose expressly exempted FIlinvest from
any warranty whatsoever. To declare the waiver as non-effective, as the lower courts did,
would be to impair the obligations of contracts.

Also, it must be noted that Jose is more knowledgeable on the machinery than Filinvest.
His negligence or failure to exercise caution and prudence in the selection, testing and
inspection of the machine gave rise to this conflict. A well-established principle in law is
that between two parties, he, who by his negligence caused the loss shall bear the same.
CA is reversed. Jose’s petition dismissed.
Medina vs CIR, 1 SCRA 302, GR L-15113

FACTS:

1. Antonio Medina is married to Antonia Rodriguez.

2. Antonio has a timber concession.

3. He sold his logs to Antonia, who is a lumber dealer.

4. The CIR assessed Antonio for deficiency sales tax based on the sales made by her
wife (to Manila thru agent Osorio) and not on his sale to his wife.

5. Antonio contends:

a. He and his wife have a separation of property in the marriage settlements.

b. And even if the sale is void, the CIR, being a third party cannot assail the validity
of the sales.

ISSUE:

WON the sales made by Antonio to his wife could be considered his taxable sales. (Antonio
wants the sale to his wife to be his taxable sale because logs are cheaper. Tax based on the
wife’s lumber will be higher)

HELD:

No. Sale between a husband and a wife is void.

On 5a. There is no pre-marital agreement of absolute separation when they don’t even have
properties before marriage and it was the husband who exercises ownership, usufruct and
administration of properties.

On 5b. The government is always an interested party in all matters involving taxable
transactions.
Modina vs CA, 317 SCRA 696, GR 109355

Facts:

1. Ramon Chiang claimed to be the owner of 3 parcels of land by virtue of a Deed of

Sale executed by his wife, Merlina, in his favor on Dec. 1975. In fact, he has Torrens
Title issued in his name. (But deed of sale was executed without any consideration)

2. Ramon sold the lots to Modina.

3. Modina brought a complaint for recovery and possession against occupant-lessees.

4. Upon learning the institution of the said case, Merlina flied a Complain-in-
intervention seeking the declaration of the nullity of the Deed of Sale between
Ramon and Modina.

5. RTC ruled in favor of Merlina for want of consideration, however, made an obiter
dictum re the prohibition against selling between spouses Art 1490.

a. The Deed of Sale between Modina and Ramon to be void and had them reinstated
in the name of Nelson Plana, the dead husband of Merlina.

b. Ramon to restitute and pay Modina the purchase price.

c. Modina to vacate and restore possession of lots to Merlinda.

6. CA also ruled that the sale is void pursuant to Art 1490 and there is sufficient
evidence establishing fault on the aprt of Merlinda.

7. Modina appealed to SC. His contentions:

a. The sale between spouses may be void but the spouses are in pari delicto, hence,
they should be left where they are and keep undisturbed the rights of third
persons.

b. Only the heirs and creditors can question the nullity and not the spouses
themselves who executed the contract with full knowledge of the prohibition.

ISSUE:

WON the sale between Ramon and Merlinda is void. On what ground?

HELD:
Yes, the sale is void. For lack of consideration.
Uy Siu Pin vs Cantollas, 70 Phil 55, L-46850

Facts:

1. Spouses Pedro and Casimira were indebted to El Hogar Filipino for P2000 secured by
a mortgage on a certain land.

2. When Pedro died, Casimira and her son Blas entered into a contract with Uy Siu Pin.

a. Uy Siu Pin shall possess the land for 15 years.

b. Uy Siu Pin shall pay Casimira’s unpaid balance of P1,000 in favor of El HOgar
Filipino.

c. After 15 years, the land will be returned to Blas and Casimira without any
obligation on their part to pay Uy Siu Pin anything.

3. Uy SIu Pin took possession of the land and made payment to El Hogar up to P600.

4. Uy Siu Pin ceased to make anymore payment and the mortgage was thus foreclosed.

5. El Hogar bought the property in the foreclosure sale.

6. Casimira failed to redeem.

7. Dec 24: Final Deed of Sale issued in favor of El Hogar

8. Dec 26: El Hogar sold the land to Uy Siu Pin for P1,198.17.

9. Dec 28: Uy Siu Pin sold it to his wife, Chua, for P4,000.

10. Casimira filed a petition for:

a. Cancellation of title in favor of Chua.

b. That the agreement between Casimira and Uy SIu Pin be attached in the TCT of
Uy Siu Pin.

ISSUE:

WON Uy SIu Pin validly sold the land to Chua.

HELD:

No. 1490
Valencia vs Cabanting, 296 SCRA 302

Facts:

1. Spouses Valencia allegedly bought a parcel of land from Serapia, heir of Pedro
(original owner) but failed to register the sale or secure TCT in their names.

2. A conference was held in the house of Atty. Jovellanos (distant kin of both) to settle
the land dispute. Serapia was willing to relinquish ownership if Valencias could show
evidence of ownership. Valencia exhibited a deed of sale in Ilocano, however,
Serapia claimed that the deed covered a different property.

3. On Dec 1969, Serapia, assisted by Atty. Cabanting, filed a complaint against Valencia
for recovery of possession and damages.

4. Valencia acquired the services of Atty. Atiniw who advised him to:

a. Present a notarized deed of sal in lieu of the deed written in Ilocano.

b. Valencia gave Atty. Atiniw P200 to pay the person who would allegedly falsify the
signature of the alleged vendor.

5. CFI ruled in favor of Serapia and expressed the belief that the said document is not
authentic.

6. Valencia filed a petition for certiorari before the CA.

7. On March 9, 1973, while the petition was pending, the CFI issued an order of
execution stating that the decision has become final and executory.

8. On March 20, 1973, Serapia sold 40sqm to Atty. Jovellanos and the rest to Atty.
Cabanting

9. On March 21, 1974, CA dismissed the petition of Valencia.

10. Constancia Valencia filed a disbarment proceeding against the 3 lawyers:

a. Atiniw: for his participation in the forgery

b. Cabanting: for the purchase of the property under litigation

c. JOvellano: (other)

ISSUE:
WON CAbanting purchased a property in litigation.

HELD:

Yes. The prohibition applies only while the litigation is pending and although Cabanting
purchased the property only after finality of judgment, there was still a pending certiorari
proceeding.

Atiniw: disbarred

Cabanting: suspended 6 mos

CCharges against Jovellanos: dismissed (no evidence of rigging civil case of Valencia)
Valencia vs Cabanting, 296 SCRA 302

Facts:

1. Spouses Valencia allegedly bought a parcel of land from Serapia, heir of Pedro
(original owner) but failed to register the sale or secure TCT in their names.

2. A conference was held in the house of Atty. Jovellanos (distant kin of both) to
settle the land dispute. Serapia was willing to relinquish ownership if Valencias
could show evidence of ownership. Valencia exhibited a deed of sale in Ilocano,
however, Serapia claimed that the deed covered a different property.

3. On Dec 1969, Serapia, assisted by Atty. Cabanting, filed a complaint against

Valencia for recovery of possession and damages.

4. Valencia acquired the services of Atty. Atiniw who advised him to:

c. Present a notarized deed of sal in lieu of the deed written in Ilocano.

d. Valencia gave Atty. Atiniw P200 to pay the person who would allegedly falsify the
signature of the alleged vendor.

5. CFI ruled in favor of Serapia and expressed the belief that the said document is
not authentic.

6. Valencia filed a petition for certiorari before the CA.

7. On March 9, 1973, while the petition was pending, the CFI issued an order of
execution stating that the decision has become final and executory.

8. On March 20, 1973, Serapia sold 40sqm to Atty. Jovellanos and the rest to Atty.
Cabanting

9. On March 21, 1974, CA dismissed the petition of Valencia.

10. Constancia Valencia filed a disbarment proceeding against the 3 lawyers:

d. Atiniw: for his participation in the forgery

e. Cabanting: for the purchase of the property under litigation

f. JOvellano: (other)

ISSUE:

WON CAbanting purchased a property in litigation.

HELD:

Yes. The prohibition applies only while the litigation is pending and although Cabanting
purchased the property only after finality of judgment, there was still a pending certiorari
proceeding.

Atiniw: disbarred

Cabanting: suspended 6 mos

CCharges against Jovellanos: dismissed (no evidence of rigging civil case of Valencia)
Fabilo vs IAC

Facts:

1. Florencio hired the services of Atty. Murillo in recovering a San Salvador property.

2. They agreed on a 40% contingent fee based on the money value of the house and lot
(letter). They executed a contract:

a. If house and lot is sold, Murillo gets 40% of the purchase price of the house and
lot

b. If it was just mortgaged, Murillo gets 40% of the proceeds of the mortgage.

c. If it was leased, Murillo gets 40% of the rentals

d. If the house is just occupied by Florencio or heirs, Murillo shall have the option of
occupying or leasing to any interested party 40% of the house and lot.

e. Also, Murillo gets 40% of the damages awarded.

f. Expensed for the property to be borne by both proportionately.

3. 1964: The case was terminated and by virtue of a Compromise Agreement, Florencio
was declared owner not onlu of the San Salvador property but also of the Pugahanay
parcel of land.

4. Murillo implemented the contract and started exercising rights of ownership over
40% of the properties. He even installed tenants to the Pugahanay property.

5. 1966: Florencio claimed exclusive ownership and refused to give Murillo his share of
the produce.

6. 1970: Murillo filed a complaint before the CFI.

a. That he be declared lawful owner of 40% of the properties.

b. Damages

c. Appointment of Receiver

7. Florencio’s defense:

a. Consent vitiated by old age and ailment

b. The 40% contingent fee was excessive, unfair, unconcsionale

c. Prayed that the contract for services be declared null and void.
 d. Fee be fixed at 10% of the assessed value of P7,780 of the San Salvador
property

e. That Murillo be ordered to vacate the portion of San Salvador property.

f. That Pugahanay be declared exclusive to Florencio.

8. CFI ruled in favor of Murillo:

a. No evidence to show that consent was vitiated as the contract was witnessed by
two children of Florencio.

b. Murillo owner of 40% of the San Salvador and Pugahanay

c. Murillo granted P1,200 for the produce from 1967 to 1973

9. Florencio appealed 8b. Murillo appealed 8c.

10. CA affirmed CFI.

ISSUE:

WON Murillo may acquire 40% of the properties he handled for litigation.

HELD:

Yes, because the contingent fee is not covered by the prohibition in Art. 1491(5) as the
payment of the fee is not made during the pendency of the litigation but only after
judgment has been rendered in the case handled by the lawyer.

NEVERTHELESS, Murillo cannot claim ownership over 40% of the properties.

A careful scrutiny of the contract shows that the parties intended 40% of the value of the
properties as Murillo’s contingent fees and not the properties themselves. Had they
intended for the properties to be owned by Murillo, they would have stated it clearly and
unequivocally.

The contract is vague as to the arrangements in case the property is not sold, mortgaged or
leased. And the ambiguity should be construed against Murillo himself who drafted the
contract.
MACARIOLA VS. ASUNCION
114 SCRA 77

FACTS:
1. Judge Elias Asuncion was the presiding Judge in Civil Case No. 3010 for partition.
2. Among the parties thereto was Bernardita R. Macariola.
3. On June 8, 1863 respondent Judge rendered a decision, which became final for lack of an
appeal.
4. On October 16, 1963 a project of partition was submitted to Judge Asuncion which he
approved in an Order dated October 23, 1963, later amended on November 11, 1963.
5. On March 6, 1965, a portion of lot 1184-E, one of the properties subject to partition
under Civil Case No. 3010, was acquired by purchase by respondent Macariola and his wife,
who were major stockholders of Traders Manufacturing and Fishing Industries Inc.,
6. Bernardita Macariola thus charged Judge Asuncion of the CFI of Leyte, now Associate
Justice of the Court of Appeals “with acts unbecoming of a judge.”
7. Macariola alleged that Asuncion violated , among others, Art. 1491, par. 5 of the New
Civil Code and Article 14 of the Code of Commerce.

ISSUE:
Is the actuation of Judge Asuncion in acquiring by purchase a portion of property in a Civil
Case previously handled by him an act unbecoming of a Judge?

HELD:
Article 1491 , par. 5 of the New Civil Code applies only to the sale or assignment of the
property which is the subject of litigation to the persons disqualified therein. The Supreme
Court held that for the prohibition to operate, the sale or assignment must take place during
the pendency of the litigation involving the property.

In the case at bar, when respondent Judge purchased on March 6, 1965 a portion of lot
1184-E, the decision in Civil Case No. 3010 which he rendered on June 8, 1963 was already
final because none of the parties filed an appeal within the reglementary period hence, the
lot in question was no longer subject of litigation. Moreover at the time of the sale on March
6, 1965, respondent’s order date October 23, 1963 and the amended order dated November
11, 1963 approving the October 16, 1963 project of partition made pursuant to the June 8,
1963 decision, had long been final for there was no appeal from said orders.

Furthermore, respondent Judge did not buy the lot in question on March 6, 1965 directly
from the plaintiffs in Civil Case No. 3010 but from Dr. Arcadio Galapon who earlier
purchased on July 31, 1964 Lot 1184-E from three of the plaintiffs after the finality of the
decision in Civil Case No. 3010.

Consequently, the sale of a portion of Lot 1184-E to respondent Judge having taken place
over one year after the finality of the decision in Civil Case No. 3010 as well as the two
orders approving the project of partition, and not during the pendency of the litigation,
there was no violation of paragraph 5, Article 1491 of the New Civil Code.
Upon the transfer of sovereignty from Spain to the United States and later on from the
United States to the Republic of the Philippines, Art. 14 of the Code of Commerce must be
deemed to have been abrogated because where there is a change of sovereignty , the
political laws of the former sovereign , whether compatible or not with those of the new
sovereign, are automatically abrogated, unless they are expressly re-enacted by affirmative
act of the new sovereign.
Martinez vs CA

FACTS:

1. Petitioner are the registered owner of the disputed parcel of land.

2. Respondent in his official capacity has ordered the removal of the dikes built therein
by the petitioners contending that the land used to be a stream, therefore public
domain.

3. Petitioner relies on the indefeasibility of a Torens title of certificate.

ISSUE:

Whether or not a Torrens certificate of title gives the petitioner ownership over a public
domain.

HELD:

No. The Land Registration Court has no jurisdiction over non-registerable properties, such
as the disputed property which forms part of the public domain, thus it cannot validly
adjudge the registration of title in favor of a private party. It is useless for the appellant
now to allege that she has obtained certificate of title their favor because the said certificate
does not confer upon them any right to the stream in question, inasmuch as the said
stream, being of the public domain is outside the commerce of men and, therefore not
subject to appropriation.
Atilano v Atilano

Facts:

1. Gregorio Villanueva soled Lot 535 to Atilano I.

2. Atillano I, subdivided the lots into 535-A to 535-E.

3. He occupied 535-A and sold 535-E to Atilano II.

4. Upon the death on Atilano I, his title passed to Ladislao.

5. Desiring to put an end to the co-ownership (between the children of the dead
Atilanos) the land were surveyed and it was found that:

a. Atilano I, whose title is 535-A is actually occupying 535-E (2,612sqm).

b. Atilano II, whose title is 535-E is actually occupying 535-A (1,808sqm).

6. The trial court rendered judgment for the plaintiffs on the sole ground that since the
property was registered under the Land Registration Act the defendants could not
acquire it through prescription. There can be, of course, no dispute as to the
correctness of this legal proposition; but the defendants, aside from alleging adverse
possession in their answer and counterclaim, also alleged error in the deed of sale of
May 18, 1920, thus: "Eulogio Atilano 1.o, por equivocacion o error involuntario, cedio
y traspaso a su hermano Eulogio Atilano 2.do el lote No. 535-E en vez del Lote No.
535-A.

ISSUE:

(subject matter must be determinate or determinable)

Manansala vs CA, 286 SCRA 722

FACTS:

1. Since 1955, Fidela Manasala is in actual possession of the disputed land.

2. In 1960, Philippine Homesite and Housing Corporation awarded the land to the
Mercado spouses.

3. Petitioner contested the award in court. CFI and IAC ruled in her favor.

4. PHCC cancelled the award made to Mercado.

5. In 1984, Fidela paid in full the price of the land under the conditional sale. NHA
executed the deed of absolute sale and in Jan 15 1985, TCT was issued in favor of
Fidela.

6. On January 31, 1985, Corazon Aranez brought an action for specific performance of
a deed of sale between her and Fidela alleging that:

a. On March 22, 1960, they entered into a deed of sale whereby the land shall be
transferred to Corazon within 30 days after full payment of the purchase price to
PHHC.

7. Fidela’s defense:

a. Deed of Sale was a forgery. That is was secured by fraud by Atty. Pio Lopez who
notarized the deed and was her counsel in the 1960 case.

b. Sale is void because it violates the prohibition in the rules and regulations of the
PHHC against subsequent disposition of a land within one year from the issuance
of the title. (This formed part of her answer BUT was never argued. RTC relied
on lack of meeting of the minds. In CA, she relied on the defense of forgery.)

8. Trial Court ruled in favor of Fidela:

a. Although the petitioner’s signature is genuine, there was no perfected contract of

sale because Fidela never intended to sell the land.

b. At the time of the sale, petitioner was not yet the owner of the land.

9. CA reversed and ruled for Corazon:

a. There was a perfect contract because there was a meeting of the minds as
evidenced by the signatures which the NBI found to be genuine.

b. The notarization of the deed gave the presumption of regularity.

c. Fidela can validly sell the land even before the actual award to her pursuant to
Art. 1461 of the Civil Code which provides that things having a potential
existence may be the object of a contract of sale.
 10. Fidela appealed to the SC arguing:

a. 7b (above)

b. 9b (above)

ISSUE:

WON there could be a sale of future property

HELD:

Yes.

a. 7b (above) – This issue was not passed upon in the lower courts and was never
urged anymore except in the SC. The trial court ruled on the ground that there was
no meeting of minds and on appeal, Fidela merely relied on that decision and did not
reiterate her original defense . The CA in reversing merely considered the ff issues:

i. Whether there is a meeting of minds

ii. Whether Fidela’s signature is genuine

iii. Whether there could be a sale of future properties.

Yu Tek vs. Basilio Gonzales

Facts:

1. For P3,000 Basilio Gonzales obligated himself to deliver to YU Tek 600 piculs of sugar
of the first and second grade within three months, otherwise, he shall return to Yu
Tek the P3,000 and P1,200 by way of indemnity for loss and damages.

2. No sugar was delivered so Yu Tek filed a complaint but judgment was rendered for
P3,000 only.

3. Both parties applealed.

4. Basilio:

a. Agreement was for the sale of a determinate thing (i.e. obtained exclusively from
the crops of Basilio), hence, loss without the fault of the seller (there was failure
of crop) should be borne by the buyer.

b. Tried to present parol evidence to show that the sugar is to be raised by Basilio,
hence, determinate but RTC refused to admit parol evidence (evidence is said to
be parol when it contradicts or add to the written terms of a contract which
appears to be whole)

ISSUE:

WON there was a sale.

HELD:

No. The agreement is a promise of sale and not a sale. Subject is not determinate. Nothing
in the contract suggests that the sugar should come from the crops of Basilio.

P1,200 granted.
Noel vs CA 240 SCRA 75 (1995)

Facts:

1. Spouses Gregorio and HIlaria are childless but raised Virgilio, son of Gregorio by
another woman, and even sent him up to 3rd year of law school.

2. They acquired a 34.7 hectare property in Iligan City. (conjugal)

3. Gregorio died intestate in 1945 (before the effectivity of the New Civil Code in 1950.

4. From then on, HIlaria and Virgilio administered the property, enjoying the fruits of
the land to the exclusion of Juan (Gregorio’s brother) and Gregorio’s daughter by yet
another woman – Esperanza and Caridad.

5. In 1953, Virgilio declared the property in his own name for tax purposes.

6. In 1952, HIlaria and Virgilio, mortgaged the property to respondent, Jose Deleste
(doctor of Gregorio) for P4,800.

7. In February 1954, HIlaria and Virgilio executed a deed of sale over the same land in
favor of Jose Deleste for P16,000. Sale was registered and new tax declaration was
issued in favor of Jose. He also paid tax arrears for 1952, 1953 and 1954.

8. In May 1954, Hilaria died.

9. Intestate proceedings were instituted:

a. Gregorio’s heirs

- Juan (Gregorio’s brother) – ALSO special administrator of the spouses’ estate

- Esperanza (illegitimate daughter)

- Caridad (illegitimate daughter)

- Virgilio (illegitimate daughter)

b. Hilaria’s heir

- Alejo (Hilaria’s brother)

- Julio (Hilaria’s nephew, son of Jose who is Hilaria’s brother)

10. Juan reported that Virgilio took P350 from the produce of the estate and that 5
tenants delivered sugar and palay to Jose Deleste without prior permission, hence,
they were asked to show cause why they should not be cited for contempt.
11. In 1956, Noel took over as regular administrator but was not able to take possession
of the land because it was in the possession of Jose Deleste and some heirs of
Hilaria.

12. In 1957, the heirs and Jose Deleste, executed an amicable settlement whereby Jose
relinquished ½ of his rights over the entire land but it was declared null and void
because not all the heirs of Gregorio signed and was questioned by some of the
heirs.

13. In 1963, Noel filed an action for the reversion of the land to the Couple’s estate.

14. Trial Court ruled in favor of Jose Deleste:

a. The action for the annulment of the deed of sale has prescribed in 1958 inasmuch
as the sale was registered in 1954. (PRESCRIPTION PERIOD FOR ANNULMENT
WAS USED – i.e. 4 years in the absence of fraud, etc.)

b. The heirs are barred by laches for sleeping on their rights and allowing HIlaria to
exercise ownership after Gregorio’s death in 1945.

c. On the issue of HIlaria’s lack of authority to dispose ½ of the land:

i. Hilaria is the administrator

ii. The sale was to pay off the debt of the conjugal partnership

iii. Of the P16k purchase price, P4k was used to pay-off Jose Deleste for his
medical services to Gregorio and P800 is for the payment of tax arrears.

15. Noel appealed to the CA contending that

a. considering the inadequacy of the consideration, the contract was that of

mortgage and not sale.

b. Hilaria cannot dispose ½ of the land.

16. Court of Appeals ruled:

a. HIlaria cannot dispose ½ of the land, hence, said ½ should revert back to the
estate of Gregorio and Jose Deleste was ordered to pay rentals fo P2,500 per
annum from 1957 until it is reverted to the estate of Gregorio.

b. Mere inadequacy of the consideration does not make it a mortgage, hence, sale
was held valid as to the ½ share of HIlaria.

17. Both Jose Deleste and Noel appealed to the SC.

a. Noel wants the entire property reverted to the estate of the couple.

b. Jose Deleste wants the ruling of the Trial Court reinstated.

ISSUE:

WON there was a valid sale of the property?

HELD:

As to Hilaria’s share, YES. Because mere inadequacy of consideration does not invalidate
the sale absent any showing of gross inadequacy or of fraud, mistake, etc. or any vice of
the consent.

As to Gregorio’s share, NO. Because in Sales, it is essential that the seller is the owner of
the property he is selling (at least upon delivery) because the principal obligation is to
transfer ownership.

As to PRESCRIPTION: Actions based on obligations created by law can be brought within

ten years from the time the right of action accrues. In this case, it accrued from the time of
registration, i.e. 1954, and not from the time of Gregorio’s death in 1945. Hence, when the
action was filed in 1963, it was not yet barred by prescription.

HILARIA’s rights: Under Spanish Civil Code

a. Usufruct in the undivided share of Gregorio’s heirs (1/2)

b. Ownership of the other undivided ½.

VIRGILIO’s rights: Under Spanish Civil Code

a. None. Illegitimate children who are not natural are disqualified to inherit. The New
Civil Code which gives him rights cannot be made to retroact to him because the
rights of ownership of Gregorio’s heirs have already vested to them.

JOSE DELESTE’s obligation:

a. As a TRUSTEE. If a property is acquired through mistake or fraud, the person

obtaining it is considered a trustee of an implied trust for the benefit of the person
from whom the property comes.
Quijada vs. Court of Appeals, 299 SCRA 695, GR 126444, December 4, 1998

FACTS:

1. Trinidad Quijada executed a conditional deed of donation of the two-hectare parcel of

land which she inherited from her father in favor of the Municipality of the Talacogon.
The condition is that the land is to be used as the site for the proposed provincial
high school, otherwise, it would revert back to Trinidad (also in the future event that
the school will be closed)

2. However, Trinidad remained in the possession of the property and the school was
never built.

3. In 1962, Trinidad sold 1 hectare to Regalado Mondejar and subsequently, the other
hectare too. Although this time, it was verbally and was only evidenced by receipts
of payment.

4. In 1980, when Trinidad was already dead, her heirs filed a complaint for forcible
entry against Mondejar but was dismissed for failure to prosecute.

5. In 1987, the Sangguniang Bayan of the Municipality of Talacogocn passed a

resolution reverting the property back to the donor.

6. In the meantime, Mondejar sold portions of the land to Fernando Bautista, Rodolfo
Goloran, Efren Guden and Ernesto Goloran.

7. Heirs of Trinidad filed a complaint for quieting of title.

8. Heir’s contentions:

a. Sale to Mondejar is not valid because at the time of the sale, the property having
been donated to the Municipality is no longer owned by Trinidad, and therefore,
here disposition is void.

b. And since the lots were owned by the Municipality at the time of the sale, they
were outside the commerce of man (i.e. cannot be made the subject of a
contract), thus the sale were null and void.

9. Mondejar’s defense:

a. Action is barred by prescription or laches

b. 1 hectare was sold to him in 1962 and the other on installment basis until fully
paid.

c. He was not privy to the donation, hence, he is a buyer in good faith.

10. The Trial Court sustained the heirs but the CA reversed it and ruled:
 a. The sale made by Trinidad was valid as she retained an inchoate interest
(future/uncompleted interest in a piece of land) in the lots by virtue of the
automatic reversion clause in the deed of donation.

11. The heirs appealed.

ISSUE:

WON the sale of Trinidad to Mondejar is valid.

HELD:
Yes (but not for the reason stated by the CA because what Trinidad sold is the land itself
and not her inchoate interest to it). Because the seller does not have to be the owner of
thing sold at the time of the perfection of the sale. It is enough that she is the owner at the
time of the delivery of it to the buyer.

Sale being consensual is perfected by mere consent which is manifested the moment there
is a meeting of minds as to the OFFER and ACCEPTANCE thereof of on 3 ELEMENTS:

a. Subject matter

b. Price

c. Terms of Payment

“Ownership by the seller on the thing sold at the time of the perfection” is not one of the
elements.

Perfection, per se, does not transfer ownership which occurs upon the actual or constructive
delivery of the thing sold.

Consummation of the perfected sale, however, is another matter. In this case, the title
passes to Mondejar by operation of law.

As to the contention that the properties are outside the commerce of man, only those of
public dominion are inalienable (i.e. open sea, etc.). THIS DOES NOT SEEM CORRECT.