TEODORICA R. VIUDA DE JOSE vs. JULIO VELOSO BARRUECO

Facts:Mary Ando leased from respondent a cabinet and it is stipulated in their contract that she will pay

P14 upon signing it and P5 monthly thereafter for a period not specified but can be extended by the owner. It is further provided that upon her default, the contract would be rescinded and she would not remove the said cabinet from the house where she lived and upon her failure to comply with the said terms, the owner could immediately take possession of the property leased. She also leased a narra wardrobe under the same terms and conditions.

Unable to pay the rent of the house, She attempted to vacate it taking with her the leased cabinet and wardrobe. However, she was prevented by the petitioner, the owner of the house, from doing it as the latter claims that she was entitled to the personal properties in lieu of rents due.

The respondent filed a complaint to recover the properties from the petitioner and the CFI of Manila ruled that the contract of lease were fictitious and the real contract between respondent and Mary Ando is that of a contract of sale on the installment basis. It is declared that the petitioner was entitled to the properties. The case was appealed to the Court of Appeals, and the ruling of the lower court was reversed and it was held that the contract was that of a lease.

Issue:Whether or not the contract entered into is that of sale or of a lease.

Ruling:It is a contract of sale. The Supreme Court held that the nature of the contract is not to be found

in any of the denomination which the parties may have given to the instruments and not in any particular provision it contains, but in the ruling intention of the parties, gathered from the language they have used. The form of the Instrument is of little account. Upon review of the facts, the Court found that the parties have intended to have the ownership of the furniture transferred to Mary Ando upon her compliance with the conditions of the contract.

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.

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG vs THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION

Facts:Petitioners were tenants or lessees of residential and commercial spaces owned by Bobby Cu

Unjieng, et al. The former were informed by the latter that they are offering to sell the premises and the petitioners were given the priority to acquire the premises. The Cu Unjiengs asked for 6 Million while the petitioners made a counter offer of 5 Million. Thereafter, they asked the Cu Unjiengs to put into writing the terms and conditions of the offer to sell. However, they did not receive any reply from them and since they received information that defendants were about to sell the property, they filed a complaint to compel the Cu Unjiengs to sell the property to them. The Cu Unjiengs denied the material allegations of the complaint and interposed a special defense of lack of cause of action.

The trial court found that there was no contract of sale. The Cu Unjiengs’ offer to sell was not accepted by the petitioners for the reason that there was no agreement between them as to the terms and conditions of the proposed sale. Nevertheless, the trial court ruled that should the Cu Unjiengs subsequently offer to sell the property at P11 million or below, the petitioners will have the right of first refusal. The decision was affirmed by the Court of Appeals. The petitioners filed for petition for review on certiorari to the Supreme Court which denied it for insufficiency in form and substances.

While the decision of the Supreme Court to the case above was pending, the Cu Unjiengs executed a Deed of Sale transferring the property to the private respondents for P15 Million. The private respondents, as the new owners, then wrote a letter to the petitioners demanding that they vacate the premises. The petitioners replied that the respondent corporation bought the property subject to the notice of lis pendens regarding the case annotated on the title of the Cu Unjiengs. Thereafter, they filed a Motion for Execution of the decision of the court as modified by the Court of Appeals.

The trial court ordered the Cu Unjiengs to execute the necessary Deed of Sale of the property in favor of the petitioners for the consideration of P15 Million in recognition of their right of first refusal and a new Transfer Certificate of Title be issued in favor of the petitioners. The court set aside the title issued to the Buen Realty for having been executed in bad faith. The appellate court, on appeal to it by the private respondent, set aside and declared without force and effect the above questioned orders of the court.

Issue:Whether or not Buen Realty is bound by the writ of execution by virtue of the notice of lis

pendens, carried over on the certificate of title issued in the name of Buen Realty, at the time of its purchase of the property from the Cu Unjiengs.

Ruling:No. The Supreme Court affirmed the decision of the appellate court. It held that until the contract

is perfected, it cannot serve as a binding juridical relation. In sales, the contract is perfected when a seller obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to the buyer, which the latter agrees.

In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct.

Even on the premise that such right of first refusal has been decreed under a final judgment, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. The remedy of the petitioners is an action for damages in a proper forum for the purpose.

CAVITE DEVELOPMENT BANK and FAR EAST BANK AND TRUST COMPANY vsSPOUSES CYRUS LIM and LOLITA CHAN LIM and COURT OF APPEALS

Facts:Rodolfo Guansing obtained a loan for P90,000 from Cavite Development Bank (CDB) and he

mortgaged a parcel of land located in Quezon City registered in his name as security. As he failed to pay his loan, CDB foreclosed the mortgage and it was subjected to a foreclosure sale in which CDB was the highest bidder. The TCT in the name of Guansing was cancelled and a TCT was issued in the name of CDB.

Thereafter, private respondent Lim offered to purchase the property from CDB. Pursuant to the terms and conditions of the written Offer to Purchase, Lim paid CDB P30,000 as option money and a receipt was issued by CDB. However, Lim discovered that the subject property was originally registered in the name of Perfecto Guansing, the father of the mortgagor Rodolfo Guansing. In a separate case, it was declared that Rodolfo fraudulently secured the title to the mortgaged property and the title to it was restored to his father, Perfecto. The decision has since become final and executory.

Aggrieved by what she considered a serious misrepresentation by CDB and its mother-company FEBTC on their ability to sell the property, Lim filed an action for specific performance and damages against petitioners. The trial court decided in favor of Lim, where it ruled that there was a perfected contract of sale between Lim and CDB, contrary to the latter’s contention that the written offer to purchase and the payment of P30,000 were merely pre-conditions to the sale. The Court of Appeals thereafter affirmed the decision of the trial court.

Issue:Whether or not the bank obtained ownership of the property and therefore has the duty to deliver

it to Lim.

Ruling:

No. The Supreme Court held that under Art. 1459 of the Civil Code, during the time of the delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, e will not be able to comply with his obligation to transfer ownership to the buyer. In the present case, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which, the property was awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.

In a foreclosure sale, the mortgagor, the forced seller, becomes obliged to transfer the ownership of te thing sold to the highest bidder who, in turn, is obliged to pay the bid price or its equivalent. Being a sale, the rule is that the seller must be the owner of the thing sold also applies in a foreclosure sale. This is the reason that Art 2085 of the Civil Code requires that the mortgagor must be the absolute owner of the thing mortgaged, in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan.

However, the doctrine of “the mortgagee in good faith” does not apply to CDB. This doctrine rules that all persons dealing with property dealing with a Torrens title, as buyers or mortgagors, are not required to go beyond what appears on the face on the title. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagor’s title, they cannot be excused from the duty of exercising the due diligence required of banking institutions. It is standard practice for banks to send representatives to the premises of the land offered as collateral and investigate who are the real owners thereof. In the case at hand, there is no evidence that CDB observed such diligence in ascertaining the validity of Rodolfo Guansing’s title. Therefore the bank is liable for damages.