sales reviewer

SALES PRE-MIDTERM REVIEWER – ATTY. ADVIENTO

ROOM 405TITLE VI. - SALES

CHAPTER 1

NATURE AND FORM OF THE CONTRACT

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

A contract of sale may be absolute or conditional. (1445a)

I. Nature and Characteristics

A. Definition

SALES - A nominate contract whereby 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.

CONTRACT OF SALE – an agreement whereby a party called the SELLER of VENDOR obligates himself to deliver and transfer the ownership of a determinate thing to another party called the BUYER OR VENDEER who in turn obligates himself to pay therefore, a price certain in money or its equivalent to the former.

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand perform of contracts." Since there was, between the parties, a meeting of minds upon the object and the price, there was already a perfected contract of sale. What was, however, left to be done was for either party to demand from the other their respective undertakings under the contract. It may be demanded at any time either by the private respondents, who may compel the petitioners to pay for the property or the petitioners, who may compel the private respondents to deliver the property. (Villamor Case)

1. Effect of execution of waiver of rights

Acap v. CA, GR No. 118114, Dec. 7, 1995

Facts: The case is about a contested lot inherited by Felixberto from his parents. He executed a duly notarized document entitled “Declaration of Heirship and Deed of Absolute Sale” in favor of Cosme Pido.

Petitioner Teodoro Acap had been the tenant. When the ownership was transferred by Felixberto to Pido, Acap continued to be the registered tenant and paid his leasehold rentals to Pido. At the time of Pido’s death, the property continued to be registered in the name of the Vasquez spouses. Respondent Edy delos Reyes obtained the “Declaration of Heirship with Waiver of Rights” in his favor and filed the same with the Registry of Deeds as part of a notice of an adverse claim against the original certificate of title.

Respondent informed the petitioner that he had become the new owner of the land and that the lease rentals should be paid to him. After the lapse of 4 years, private respondent filed a complaint for recovery of possession and damages against petitioner.

Issues: 1. Whether or not the subject declaration of heirship and waiver of rights is a recognized mode of acquiring ownership by respondent over the lot in question

2. WON the said document can be considered a deed of sale in favor of respondent of the lot in question

Ruling: We find the petition with merit.

CONTRACT OF SALE AND DECLARATION OF HEIRSHIP WITH WAIVER OF RIGHTS, DISTINGUISHED. — In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court.

HEREDITARY RIGHTS; SALE AND WAIVER THEREOF, DISTINGUISHED. — There is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. Private respondent, being then a stranger to the succession of Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document which neither recites the elements of either a sale, or a donation, or any other derivative mode of acquiring ownership.

Caoibes v. Pantoja, GR No. 162873, July 21, 2006

Facts: Petitioners Jose, Melencio and Loida Caoibes, and respondent Corazon Caoibes-Pantoja, forged an agreement entitled "Renunciation and Transfer of Claims, Rights, and Interests" of a land. Petitioners renounced, relinquished, abandoned and transferred, ceded and conveyed whatever rights "they may have" over the subject lot in favor of respondent and on account of the renunciation and transfer, petitioners transferred "whatever rights they” may have in the prosecution of the land registration proceeding."

14 years after the execution of the parties’ agreement, respondent filed a motion to intervene and be substituted as applicant. The motion was opposed by petitioners who denied the authenticity and due execution of the agreement, they claiming that the same was without the consent and conformity of their mother, the "usufructuary owner" of the land. The land registration court, finding for petitioners, denied respondent’s motion. Respondent filed a Complaint for Specific Performance and Damages against petitioners before the RTC for the enforcement of petitioners’ obligation under the agreement.

Ruling: Petitioners renounced and transferred whatever rights, interests, or claims they the lot favor of respondent for and in consideration of her payment of the therein mentioned loan in the principal amount of P19,000 which was outstanding in the name of one Guillermo C. Javier.

o Articles 1458, 1498 and 1307 of the Civil Code which are pertinent to the resolution of the petition provide:

o Art. 1458. 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.

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ROOM 405o Art. 1498. 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 clearly be inferred.

o Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions of Title I and II of this Book, by the rules governing the most analogous nominate contracts, and by the customs of the place.

o The agreement of the parties is analogous to a deed of sale in favor of respondent, it having transferred ownership for and in consideration of her payment of the loan in the principal amount of P19,000 outstanding in the name of one Guillermo C. Javier. The agreement having been made through a public instrument, the execution was equivalent to the delivery of the property to respondent. Petition dismissed.

2. Effect of document denominated “Agreement Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.”

Toyota Shaw, Inc. v. CA, L-116650, May 23, 1995

Facts: Sosa wanted to purchase a Toyota Lite Ace. Upon contacting Toyota Shaw, Inc., he was told that there was an available unit. There they met Popong Bernardo, a sales representative of Toyota.

Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989. Bernardo assured Sosa that a unit would be ready for pick up. Bernardo then signed the "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00, but Bernardo told them that the car could not be delivered.

Toyota contends that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. It further alleged that a particular unit had already been reserved and earmarked for Sosa but could not be released due to the uncertainty of payment of the balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying the full purchase price in cash but Sosa refused.

After it became clear that the Lite Ace would not be delivered to him, Sosa asked that his downpayment be refunded. Toyota did so on the very same day by issuing a Far East Bank check for the full amount of P100,000.00, the receipt of which was shown by a check voucher of Toyota, which Sosa signed with the reservation, "without prejudice to our future claims for damages."

Issue: whether or not there was a perfected contract of sale

Rule: There is no perfected contract of sale.

Article 1458 of the Civil Code defines a contract of sale as follows: (par1.) 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. (par2.) A contract of sale may be absolute or conditional.

Article 1475 specifically provides when it is deemed perfected: (par1.) 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. (par2.) From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

The document denominated “Agreement Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.” is not a contract of sale. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein. The provision on the downpayment of P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract of sale, it could only refer to a sale on installment basis, as the VSP executed the following day confirmed. But nothing was mentioned about the full purchase price and the manner the installments were to be paid.

A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property.

There was no meeting of minds between Toyota and Sosa. Sosa did not even sign it. Also, Sosa was well aware from its title that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent in respect of contracts to sell Toyota's vehicles. A person dealing with an agent is put upon inquiry and must discover upon his peril the authority of the agent.

At the most it may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. There are three stages in the contract of sale, namely: (a) preparation, conception, or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract.

The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the downpayment of the purchase price was P53,148.00 while the balance to be paid on installment should be financed by B.A. Finance Corporation. It is, of course, to be assumed that B.A. Finance Corp. was acceptable to Toyota, otherwise it should not have mentioned B.A. Finance in the VSP.

Accordingly, in a sale on installment basis which is financed by a financing company, three parties are thus involved: the buyer who executes a note or notes for the unpaid balance of the price of the thing purchased on installment, the seller who assigns the notes or discounts them with a financing company, and the financing company which is subrogated in the place of the seller, as the creditor of the installment buyer. Since B.A. Finance did not approve Sosa's application, there was then no meeting of minds on the sale on installment basis. We are inclined to believe Toyota's version that B.A. Finance disapproved Sosa's application for which reason it suggested to Sosa that he pay the full purchase price.

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury. Petition is GRANTED.

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ROOM 405

3. Effect of offer and counter-offer

Manila Metal Container Corporation v. PNB, GR No. 166862, Dec. 20, 2006

Facts: To secure a loan it had obtained from PNB, petitioner executed a real estate mortgage over the lot. Petitioner executed an Amendment of Real Estate Mortgage over its property. Petitioner secured another loan from PNB, payable in quarterly installments of P32,650.00, plus interests and other charges.

PNB filed a petition for extrajudicial foreclosure of the real estate mortgage and sought to have the property sold at public auction and was declared the winning. The Certificate of Sale issued in its favor was registered and was annotated at the dorsal portion of the title on February 17, 1983. Thus, the period to redeem the property was to expire on February 17, 1984. Petitioner reiterated its request for a one year extension from February 17, 1984 within which to redeem/repurchase the property on installment basis. It reiterated its request to repurchase the property on installment. Meanwhile, some PNB personnel informed petitioner that as a matter of policy, the bank does not accept "partial redemption." Since petitioner failed to redeem the property, the Register of Deeds issued a new title in favor of respondent PNB. Petitioner's offers had not yet been acted upon by respondent PNB. SAMD recommended to the management of respondent PNB that petitioner be allowed to repurchase the property for P1,574,560.00. PNB management informed petitioner that it was rejecting the offer and the recommendation of the SAMD. (Gracie’s Note: In a nutshell, there was a series of offers and counter-offers.)

Petitioner filed a complaint against PNB for "Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages." PNB averred that it had acquired ownership over the property after the period to redeem had elapsed. It claimed that no contract of sale was perfected between it and petitioner after the period to redeem the property had expired.

Issue: whether or not the offer and counter-offer resulted to a perfected contract of sale

Ruling: There was no perfected contract of sale between the parties.

A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.41 Under Article 1318 of the New Civil Code, there is no contract unless the following requisites concur: (1) Consent of the contracting parties; (2) Object certain which is the subject matter of the contract; (3) Cause of the obligation which is established.

Contracts are perfected by mere consent. Once perfected, they bind other contracting parties and the obligations arising have the form of law between the parties and should be complied with in good faith. The parties are bound not only to the fulfillment of what has been expressly stipulated but also to the consequences which, according to their nature, may be in keeping with good faith, usage and law. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and deliver a determinate thing, and the other to pay a price certain in money or its equivalent. The absence of any of the essential elements will negate the existence of a perfected contract of sale. In Boston Bank of the Phils. v. Manalo: “A definite agreement as to the price is an essential element of a binding agreement to sell personal or real property because it seriously affects the rights and obligations of the parties. Price is an essential element in the formation of a binding and enforceable contract of sale. The fixing of the price can never be left to the decision of one of the contracting parties. But a price fixed by one of the contracting parties, if accepted by the other, gives rise to a perfected sale.”

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely an offer by one party without acceptance of the other, there is no contract. When the contract of sale is not perfected, it cannot serve as a binding juridical relation between the parties. The stages of a contract of sale are as follows: (1) negotiation; (2) perfection; and (3) consummation.

A negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional and without variance of any sort from the proposal.

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a rejection of the original offer. A counter-offer is considered in law, a rejection of the original offer and an attempt to end the negotiation between the parties on a different basis. Consequently, when something is desired which is not exactly what is proposed in the offer, such acceptance is not sufficient to guarantee consent because any modification or variation from the terms of the offer annuls the offer. The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.

B. Characteristics

a. Consensual – perfected by mere consent

b. Bilateral –Both parties are obliged to fulfill reciprocal obligations to one another. The seller will deliver and transfer a determinate thing to the buyer and the latter will pay an ascertained price (or equivalent) therefore.

c. Onerous –The thing sold is conveyed in consideration of the purchase price and the purchase price is paid in consideration of the conveyance of the thing delivered.

d. Nominate –It has a specific name given by law. – “sale”

e. Principal – Its existence does not depend upon the existence and validity of another contract.

f. Commutative –The thing sold is considered the equivalent of the price paid and the price paid is the equivalent of the thing sold. Its opposite is aleatory contract where the consideration is not equivalent of what has been received. Ex: purchase of a lotto ticket. If the ticket wins, the prize to be received is very much more than the price for the ticket.

C. Elements (COC)

(1) CONSENT – The vendor obligates himself to transfer the ownership of and to deliver a determinate thing, and the vendee obligates himself to pay therefore a price certain in money or its equivalent.

(2) OBJECT CERTAIN which is the subject matter of the contract. The object must be licit and at the same time determinate or, at least, capable of being made determinate without the necessity of a new or further agreement between the parties.

(3) CAUSE OF THE OBLIGATION which is established. The cause as far as the vendor is concerned is the acquisition of the price certain in money or its equivalent, while the cause as far as the vendee is concerned is the acquisition of the thing which is the object of the contract.

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ROOM 405D. PROMISE TO SELL: WHEN BINDING (Art. 1479)

Art. 1479: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate ting for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price.

a. Bilateral –The first paragraph refers to a bilateral reciprocal contract there being a promise to buy on the part of the buyer, and a promise to sell on the part of the seller. This juridical relationship is reciprocally demandable. The object is a determinate thing and the price is certain. There is no need for a condition for this bilateral promise to buy and sell.

The bilateral promise gives to the contracting parties personal rights to demand fulfillment of the obligation from each other. (Borromeo v. Franco, 5 Phil 49)

b. Unilateral –The second paragraph refers to an accepted unilateral promise of the –

(1) Buyer to buy a determinate property for a price certain; or

(2) Seller to sell a determinate property for a price certain.

Option Contract – An optional contract is a privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, for example, certain merchandise or certain specified property from another person at any time within the agreed period at a fixed price. The contract of option is a separate and distinct contract from the contract where the parties may enter into upon the consummation of the option. A consideration for an optional contract is just as important as the consideration for any other kind of contract.

An option is a contract by which the owner of the property agrees with another person that the latter shall have the right to buy the former’s property at a fixed price within a certain time. It is a condition offered or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions; or which gives to the owner of the property the right to sell or demand a sale. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. (Eulogio v. Apeles)

Test to Determine Whether a Contract is a Contract of Sale or an Option –Whether or not the agreement could be specifically enforced.

Effect of Breach of Promise to Buy or Sell –The injured party can only seek damages. The obligation arising from the option contract are not obligations “to give” but “to do.”

Acceptance of an Offer –The acceptance of the offer must be unqualified and absolute in order to be binding.

Policitacion – a unilateral promise to buy or sell which is not accepted by the other party. It produces no legal effect. It is a mere offer, and has not been converted into any contract.

(1) Option Defined

Eulogio v. Apeles, GR No. 167884, Jan. 20, 2009

Facts: Spouses Apeles leased the subject property to Arturo Eulogio, Enrico’s father. Upon Arturo’s death, his son Enrico succeeded as lessor of the subject property. Enrico used the subject property as his residence and place of business. Spouses Apeles and Enrico allegedly entered into a Contract of Lease with Option to Purchase involving the subject property. The contract purportedly afforded Enrico, before the expiration of the three-year lease period, the option to purchase the subject property. Before the expiration of the contract, Enrico exercised his option to purchase the subject property by communicating verbally and in writing to Luz his willingness to pay the agreed purchase price, but the spouses Apeles supposedly ignored Enrico’s manifestation.

In a letter to Enrico, the spouses Apeles demanded that he pay his rental and that he vacates the subject property since it would be needed by the spouses Apeles themselves. Without heeding the demand of the spouses Apeles, Enrico instituted a Complaint for Specific Performance with Damages against the spouses.

Rule: The provision on the option to purchase in the Contract is unenforceable.

Option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer.

It is also sometimes called an "unaccepted offer." The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it. In the landmark case of Southwestern Sugar and Molasses Company v. Atlantic Gulf and Pacific Co., declared that for an option contract to bind the promissor, it must be supported by consideration. "An accepted unilateral promise" can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if the same is not supported by any consideration. Without consideration that is separate and distinct from the purchase price, an option contract cannot be enforced; that holds true even if the unilateral promise is already accepted by the optionee.

The consideration is "the why of the contracts, the essential reason which moves the contracting parties to enter into the contract." To support an option contract, there need not be monetary. Actual cash need not be exchanged for the option. However, by the very nature of an option contract, as defined in Article 1479, the same is an onerous contract for which the consideration must be something of value, although its kind may vary.

In Contract of Lease with Option to Purchase, there was no direct evidence to prove the existence of consideration for the option contract. The only consideration agreed upon by the parties in the said Contract is the supposed purchase price for the subject property in the amount not exceeding P1.5 Million, which could not be deemed to be the same consideration for the option contract since the law and jurisprudence explicitly dictate that for the option contract to be valid, it must be supported by a consideration separate and distinct from the price.

There no consideration was given by Enrico to the Spouses for the option contract. The absence of monetary or any material consideration keeps this Court from enforcing the rights of the parties under said option contract.

(2) Consideration in an Option Contract

Villamor v. CA, GR 97332, Oct. 10, 1991

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ROOM 405Facts: Macaria Reyes sold a portion of 300 square meters lot to the Spouses Villamor. Macaria executed a "Deed of Option" in favor of Villamor in which the remaining portion of the lot would be sold to Villamor under the conditions stated. The document states that the Reyes sold one-half to the spouses Villamor, which was greatly higher than the actual reasonable prevailing value of lands in that place at the time and that the only reason why the Spouses-vendees agreed to buy the said one-half portion because the Reyeses have agreed to sell and convey to them the remaining one-half portion still owned.

According to the Reyeses, they offered to repurchase the lot sold by them to the Villamor spouses but Marina Villamor refused and reminded them instead that the Deed of Option in fact gave them the option to purchase the remaining portion of the lot. Villamors claimed that they had expressed their desire to purchase the remaining portion of the lot but the Reyeses had been ignoring them. Villamor filed a complaint for specific performance against the Reyes.

Issue: whether or not the Deed of Option is void for lack of consideration.

Ruling:

The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a privilege existing in one person, for which he had paid a consideration and which gives him the right to buy, for example, certain merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed by the parties, We will notice that the first part covered the statement on the sale of the 300 square meter portion of the lot to Spouses Villamor at the price of P70.00 per square meter "which was higher than the actual reasonable prevailing value of the lands in that place at that time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to buy the said lot at a much higher price is because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of the land. Had the deed stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the Villamors the option to buy the remaining 300 square meter-half portion of the lot in consideration for their having agreed to buy the other half of the land for a much higher price. But, the "deed of option" went on and stated that the sale of the other half would be made "whenever the need of such sale arises, either on our (Reyeses) part or on the part of the Spouses Julio Villamor and Marina V. Villamor.

It appears that while the option to buy was granted to the Villamors, the Reyeses were likewise granted an option to sell. It was not only the Villamors who were granted an option to buy for which they paid a consideration; the Reyeses as well were granted an option to sell should the need for such sale on their part arise.

The option offered by private respondents had been accepted by the petitioner, the promise, in the same document. The acceptance of an offer to sell for a price certain created a bilateral contract to sell and buy and upon acceptance, the offer, ipso facto assumes obligations of a vendee (See Atkins, Kroll & Co. v. Cua Mian Tek, 102 Phil. 948). Demandabilitiy may be exercised at any time after the execution of the deed.

However, the Deed of Option did not provide for the period within which the parties may demand the performance of their respective undertakings in the instrument. The parties could not have contemplated that the delivery of the property and the payment thereof could be made indefinitely and render uncertain the status of the land. The failure of either parties to demand performance of the obligation of the other for an unreasonable length of time renders the contract ineffective.

Bible Baptist Church v. CA, G.R. 126454, Nov. 26, 2004

Facts: Petitioner Baptist entered into a contract of lease with respondent spouses Villanueva, who are the registered owners of a property. The stipulation in the lease contract gives the lessee an option to buy the leased premises at any time within the duration of the lease found in the lease contract. Petitioner seeks to buy the leased premises from the spouses under the option given to them. argue that the consideration supporting the option was their agreement to pay off the Villanueva's P84,000 loan with the bank, thereby freeing the subject property from the mortgage encumbrance. Baptist state further that the Baptist Church would not have agreed to advance such a large amount as it did to rescue the property from bank foreclosure had it not been given an enforceable option to buy that went with the lease agreement.

Ruling: The option contract is not enforceable for being without consideration

The second paragraph of Article 1479 provides for the definition and consequent rights and obligations under an option contract. For an option contract to be valid and enforceable against the promissor, there must be a separate and distinct consideration that supports it.

Petitioners cannot insist that the P84,000 they paid in order to release the Villanuevas' property from the mortgage should be deemed the separate consideration to support the contract of option. It must be pointed out that said amount was in fact apportioned into monthly rentals spread over a period of one year, at P7,000 per month.

This Court agrees with respondents that the amount of P84,000 has been utilized by their occupation of the premises and there is no separate consideration to speak of which could support the option. A consideration that is separate and distinct from the purchase price is required to support an option contract.

Villamor is distinct from this case because: First, this Court cannot find that petitioner Baptist Church parted with anything of value, aside from the amount of P84,000 which was in fact eventually utilized as rental payments. Second, there is no document that contains an agreement between the parties that petitioner Baptist Church's supposed rescue of the mortgaged property was the consideration which the parties contemplated in support of the option clause in the contract. As previously stated, the amount advanced had been fully utilized as rental payments over a period of one year. While the Villanuevas may have them to thank for extending the payment at a time of need, this is not the separate consideration contemplated by law.

An option contract needs to be supported by a separate consideration. The consideration need not be monetary but could consist of other things or undertakings. However, if the consideration is not monetary, these must be things or undertakings of value, in view of the onerous nature of the contract of option. Furthermore, when a consideration for an option contract is not monetary, said consideration must be clearly specified as such in the option contract or clause.

E. The Contract of Sale may be –

A perfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any condition of the passing of title of the thing to be conveyed or on the obligation of a party thereto.

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ROOM 405a. Absolute

When no condition is imposed and ownership passes to the vendee upon delivery of the thing subject of the sale. 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.

A sale is absolute; although denominated as conditional sale absent such stipulation that title to the property sold is reserved in the vendor until the full payment of the price, nor is there a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

Although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g. by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale. (Art. 1545, Civil Code) (Heirs of Mascunana v. CA)

Ramos v. Heruela. GR. No. 145330, Oct. 14, 2005

Facts: Spouses Ramos own a parcel of land, consisting of 1,883 square meters. They made an agreement with “spouses Heruela” covering 306 square meters of the land. According to the spouses Ramos, the agreement is a contract of conditional sale. The spouses Heruela allege that the contract is a sale on installment basis.

The spouses Ramos filed a complaint for Recovery of Ownership with Damages against the spouses Heruela. The spouses Ramos allege that out of the P15,300 consideration for the sale of the land, the spouses Heruela paid only P4,000. The spouses Ramos assert that the spouses Heruela’s unjust refusal to pay the balance of the purchase price caused the cancellation of the Deed of Conditional Sale. The Ramoses discovered that the spouses Heruela were already occupying a portion of the land. Spouses Pallori, daughter and son-in-law of the spouses Heruela, erected another house on the land. The spouses Heruela and the spouses Pallori refused to vacate the land despite demand by the spouses Ramos.

The trial court ruled that the contract is a sale by installment. The trial court ruled that the spouses Ramos failed to comply with Section 4 of Republic Act No. 6552 ("RA 6552"), 6 as follows: SEC. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

Ruling: The Agreement is a Contract to Sell

In this case, the agreement of the parties is embodied in a one-page, handwritten document. The document does not contain the usual terms and conditions of a formal deed of sale. The original document, elevated to this Court as part of the Records, is torn in part. Only the words "LMENT BASIS" is legible on the title. The names and addresses of the parties and the identity of the property cannot be ascertained.

In Manuel v. Rodriguez, et al., the Court ruled that to be a written contract, all the terms must be in writing, so that a contract partly in writing and partly oral is in legal effect an oral contract. The Court reiterated the Manuel ruling in Alfonso v. Court of Appeals: “. . . In Manuel, "only the price and the terms of payment were in writing," but the most important matter in the controversy, the alleged transfer of title was never "reduced to any written document.” It was held that the contract should not be considered as a written but an oral one; not a sale but a promise to sell; and that "the absence of a formal deed of conveyance" was a strong indication "that the parties did not intend immediate transfer of title, but only a transfer after full payment of the price." Under these circumstances, the Court ruled Article 1504 of the Civil Code of 1889 (Art. 1592 of the present Code) to be inapplicable to the contract in controversy — a contract to sell or promise to sell — "where title remains with the vendor until fulfillment of a positive suspensive condition, such as full payment of the price.

Spouses Heruela did not immediately take actual, physical possession of the land. According to the spouses Ramos, in March 1981, they allowed the niece of the spouses Heruela to occupy a portion of the land. Indeed, the spouses Ramos alleged that they only discovered in June 1982 that the spouses Heruela were already occupying the land. In their answer to the complaint, the spouses Heruela and the spouses Pallori alleged that their occupation of the land is lawful because having made partial payments of the purchase price, "they already considered themselves owners" of the land. 18 Clearly, there was no transfer of title to the spouses Heruela. The spouses Ramos retained their ownership of the land. This only shows that the parties did not intend the transfer of ownership until full payment of the purchase price.

RA 6552 is the Applicable Law. The trial court did not err in applying RA 6552 to the present case. Articles 1191 and 1592 of the Civil Code are applicable to contracts of sale. In contracts to sell, RA 6552 applies. In Rillo v. Court of Appeals, the Court declared: “the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments . .”

Sec. 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments:

(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any.

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.

Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made.

Sec. 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace

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ROOM 405period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

In this case, the spouses Heruela paid less than two years of installments. Thus, Section 4 of RA 6552 applies. However, there was neither a notice of cancellation nor demand for rescission by notarial act to the spouses Heruela. In Olympia Housing, Inc. v. Panasiatic Travel Corp., the Court ruled that the vendor could go to court to demand judicial rescission in lieu of a notarial act of rescission. However, an action for reconveyance is not an action for rescission. The Court explained in Olympia: “The action for reconveyance filed by petitioner was predicated on an assumption that its contract to sell executed in favor of respondent buyer had been validly cancelled or rescinded. The records would show that, indeed, no such cancellation took place at any time prior to the institution of the action for reconveyance. . . .xxx xxx xxx

In the present case, there being no valid rescission of the contract to sell, the action for reconveyance is premature. Hence, the spouses Heruela have not lost the statutory grace period within which to pay. The trial court should have fixed the grace period to sixty days conformably with Section 4 of RA 6552.The spouses Heruela are not entirely fault-free. They have been remiss in performing their obligation. The trial court found that the spouses Heruela offered once to pay the balance of the purchase price. However, the spouses Heruela did not consign the payment during the pendency of the case. In the meanwhile, the spouses Heruela enjoyed the use of the land. WHEREFORE, we AFFIRM the RTC, dismissing the complaint for Recovery of Ownership with Damages, with MODIFICATION.

Prudential Bank v. Kim Hyeun Soon

Heirs of Mascunana v. CA, GR No. 158646, June 23, 2005

Facts: Gertrudis Wuthrich and her 6 siblings were the co-owners of a parcel of land. Gertrudis and two other co-owners sold each of their one-seventh (1/7) shares to Jesus Mascuñana. The latter then sold a portion of his 140-square-meter undivided share of the property to Diosdado Sumilhig. Mascuñana later sold an additional 160-square-meter portion to Sumilhig. However, the parties agreed to revoke the said deed of sale and, in lieu, executed a Deed of Absolute Sale. In the said deed, Mascuñana sold an undivided 469-square-meter portion of the property for P4,690.00, with P3,690.00 as downpayment. That the balance P1,000.00 shall be paid as soon as they are surveyed in the name of the VENDEE and all papers pertinent and necessary to the issuance of a separate Certificate of Title in the name of the VENDEE shall have been prepared

Mascuñana and Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate. Sumilhig executed a Deed of Sale of Real Property in favor of Corazon Layumas. The spouses Layumas then had the property subdivided into two and took possession of the property and allowed a chapel to be constructed. Spouses Layumas allowed Aquilino Barte to stay on a portion of the property to ward off squatters. Unknown to the spouses Layumas, a title was issued in the name of Jesus Mascuñana. The heirs of Mascuñana filed a Complaint for recovery of possession B and damages with a writ of preliminary injunction, alleging that they owned the subject lot by virtue of successional rights from their deceased father.

Barte raised the following special defenses: (a) the petitioners were estopped from asserting ownership over the lot in question because they did not object when he occupied the said portion of the lot; (b) neither did the petitioners protest when a church was built on the property, or when residential houses were constructed thereon; (c) the petitioners still asked Barte and the other occupants whether they had notified Rodolfo Layumas of the constructions on the property; and (d) the heirs of Mascuñana, through the lawyer of Mrs. Renee M. Tedrew, even wrote a letter expressing her willingness to buy the subject property. The trial court and the CA rendered judgment in favor of Barte and the spouses Layumas. Petitioners filed the instant petition for review on certiorari with this Court.

ISSUE: WAS THE SALE MADE BY JESUS M. MASCUÑANA IN FAVOR OF DIOSDADO SUMILHIG A CONTRACT TO SELL OR CONTRACT OF SALE?

Held: The petitioners' contention has no factual and legal bases.

The deed of absolute sale executed by Jesus Mascuñana and Sumilhig, provides that during the lifetime of vendor Jesus Mascuñana, and even after his death, his heirs, declared that Diosdado Sumilhig was the owner of the property, and that the respondents acquired title over the property, having purchased the same via a deed of absolute sale from Diosdado Sumilhig. Thus Mascuñana and Estabillo executed a Deed of Exchange and Absolute Sale of Real Estate, in which both parties declared that they were co-owners abutted by the property owned by Sumilhig.

While it is true that Jesus Mascuñana executed the deed of absolute sale over the property on August 12, 1961 in favor of Diosdado Sumilhig for P4,690.00, and that it was only on July 6, 1962 that TCT No. 967 was issued in his name as one of the co-owners of Lot No. 124, Diosdado Sumilhig and the respondents nevertheless acquired ownership over the property. The deed of sale executed by Jesus Mascuñana in favor of Diosdado Sumilhig on August 12, 1961 was a perfected contract of sale over the property. A perfected contract of sale cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract, since it is consummated upon delivery of the property to the vendee. It is through tradition or delivery that the buyer acquires ownership of the property sold. As provided in Article 1458 of the New Civil Code, when the sale is made through a public instrument, the execution thereof is equivalent to the delivery of the thing which is the object of the contract, unless the contrary appears or can be inferred. The record of the sale with the Register of Deeds and the issuance of the certificate of title in the name of the buyer over the property merely bind third parties to the sale. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument covering the real property. 31 Long before the petitioners secured a Torrens title over the property, the respondents had been in actual possession of the property and had designated Barte as their overseer.

Art. 1458 of the NCC provides: 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 a price certain in money or its equivalent. In this case, there was a meeting of the minds between the vendor and the vendee, when the vendor undertook to deliver and transfer ownership over the property covered by the deed of absolute sale to the vendee for the price of P4,690.00 of which P3,690.00 was paid by the vendee to the vendor as down payment. The vendor undertook to have the property sold, surveyed and segregated and a separate title issued in the name of the vendee, upon which the latter would be obliged to pay the balance of P1,000.00. There was no stipulation in the deed that the title to the property remained with the vendor, or that the right to unilaterally resolve the contract upon the buyer's failure to pay within a fixed period was given to such vendor. Patently, the contract executed by the parties is a deed of sale and not a contract to sell.

Applying these principles to this case, 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. 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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ROOM 405 The condition in the deed that the balance of P1,000.00 shall be paid to the vendor by the vendee as soon as the property sold shall have

been surveyed in the name of the vendee and all papers pertinent and necessary to the issuance of a separate certificate of title in the name of the vendee shall have been prepared is not a condition which prevented the efficacy of the contract of sale. It merely provides the manner by which the total purchase price of the property is to be paid. The condition did not prevent the contract from being in full force and effect.

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.

b. Conditional, which may in turn be –

(1) An executed contract, or

(2) An executory contract

c. Distinctions

Executed Contract Executory Contract

Property (ownership) is conveyed. No property is conveyed.

If buyer defaults, seller may sue for the price. If buyer defaults, seller only entitled to damages.

Risk of loss is generally borne by the buyer. Risk of loss is generally borne by the seller.

D. Cases - Contract to sell vs. contract of sale

In determining the real character of contract, the substance and not the title given by the party is more significant.

2 kinds of contract of sale (as to presence or absence of conditions):

Absolute – where the sale is not subject to any condition whatsoever and where title to ownership passes the buyer upon delivery of the thing sold.

Conditional – where the sale contemplates a contingency and in general where the contract is subject to conditions, usually the full payment of the purchase price. Delivery of the thing sold does not transfer ownership until the condition is fulfilled.

In a contract to sell, ownership is retained by a seller and is not to be transferred to the vendee until full payment of the price. Such payment is a positive suspensive condition, the failure of which is not a breach of contract but simply an event that prevented the obligation from acquiring binding force. In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligation created under the transaction. A seller cannot unilaterally and extrajudicially rescind a contract of sale unless there is an express stipulation authorizing it. In such case, the vendor may file an action for specific performance or judicial rescission. Art 1169 of the NCC provides that in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; from the moment one of the parties fulfills his obligation, delay by the other begins. In this case, the vendor (Jesus Mascuñana) failed to comply with his obligation of segregating the lot and the issuance of a Torrens title over the property in favor of the vendee, or the latter's successors-in-interest, the respondents. Petitioner Jose Mascuñana was able to secure title over the property under the name of his deceased father. (Heirs of Mascuna v. CA)

Distinctions: Contract to sell and contract of sale distinctions: distinction must be made between a contract of sale in which title passes to the buyer upon delivery of the thing sold and a contract to sell where by agreement the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is made. In the first case, non-payment of the price is a negative resolutory condition; in the second case, full payment is a positive suspensive condition. Being contraries, their effect in law cannot be identical. In the first case, the vendor has lost and cannot recover the ownership of the land sold until and unless the contract of sale is itself resolved and set aside. In the second case, however, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. In other words, in a contract to sell, ownership is retained by the seller and is not to pass to the buyer until full payment of the price. In the case at bar, “Receipt for partial payment” show that parties’ agreement was a contract to sell. (Serrano v. Caguit)

Essential characteristics of contract of sale

Consensual – contact is perfected by mere consent

Bilateral reciprocal – both parties are bound by obligations dependent upon each other

Onerous – because to acquire the rights, valuable consideration must be given

Commutative – the values exchanged are almost equivalent each other

Principal – no necessity for it to depend upon the existence of another contract

Nominate – contract of sale

1. Interpretation of document denominated “Agreement of purchase and sale”

Ong v CA G.R. No. 97347

Facts: Ong and spouses Robles executed an “Agreement of Purchase and Sale” of 2 parcels of land for P2M initial payment of P600,000 and balance of 1.4M to be paid in 4 installments binding themselves that upon the payment of the total purchase price the seller delivers a good and sufficient deed of sale and conveyance for the parcels of land. Ong took possession of the land, building improvements thereon. Ong’s checks were dishonored due to insufficient funds. The spouses asked for the return of the properties and filed a complaint for rescission of contract and recovery of properties.

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ROOM 405 SC: “Agreement of Purchase and Sale” is in the nature of contract to sell. A careful reading of the parties’ “Agreement of Purchase

and Sale” shows that it is in the nature of a contract to sell. The spouses bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2M. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the Ong. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor’s obligation to convey title from acquiring binding force. Hence, the agreement of the parties the present case may be set aside, but not because of a breach on the part of Ong for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of the spouses to convey title from acquiring an obligatory force.

2. Interpretation of document denominated “agreement of purchase”

Serrano v Caguiat G.R. No. 139173

Facts: Caguiat offered to buy the lot owned by spouses Serrano. Respondent gave P100K as partial payment, in turn, petitioners gave a receipt with a statement that respondent promised to pay the balance of the purchase price. Respondents were leaving for abroad and sought to cancel the transaction. Petitioners contend that there is no perfected contract as there was no clear agreement between the parties as to the amount of consideration.

SC: In holding that there is a perfected contract of sale, both courts mainly relied on the earnest money given by respondent to petitioners (Art. 1482). We are not convinced.

SC: It was a contract to sell. The Document “receipt of Partial Payment” shows that the true agreement between the parties was 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. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have the right to rescind unilaterally the contract the moment respondent fails to pay within the fixed period.18

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.19

Third, petitioners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to respondent, either by actual or constructive delivery, ownership of the property.

It is true that Article 1482 of the Civil Code provides that "Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price.21 Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply.

Coronel v. CA G.R. No. 103577

Facts: Coronel executed a document entitled “Receipt of Downpayment” in favor of Alcaraz for P50,000 downpayment of the amount of P1.24M as purchase price for an inherited house and lot, without reservation to withhold the transfer of such property until full payment. The purpose of such downpayment was for the heirs to transfer the title to their name. Upon the registration of the property to name of the heirs, the Coronels sold the same property to Catalina B. Mabanag for P1.58M. The Coronels rescinded the contract with Alcaraz by depositing the downpayment amount in a bank account in favor of Alcaraz. Alcaraz filed a complaint for specific performance, which the trial and the appellate court ruled in her favor.

SC: The agreement is a contract of sale as there was no express reservation of ownership or title to the subject parcel of land.

Contract of sale Article 1458, as “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.” Sale, thus, by its very nature a consensual contract because it is perfected by mere consent.

Conditional contract of sale: if suspensive condition not fulfilled, pefection abated; if fulfilled, contract of sale perfected such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In conditional contract of sale, sale becomes absolute upon fulfillment of condition; if property sold to another, first buyer may seek reconveyance

Document entitled “Receipt of Down Payment” indicates Conditional Contract of Sale and not contract to sell . The agreement could not have been a contract to sell because the sellers made no express reservation of ownership or title to the subject parcel of land . What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by petitioners, the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners’ father to their names. The suspensive condition was fulfilled thus, the conditional contract of sale between the parties became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the “Receipt of Down Payment.”

It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they —

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.

9

http://www.lawphil.net/judjuris/juri2007/feb2007/gr_139173_2007.html#fnt21




ROOM 405Without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property.

When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner's father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order. It just happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise

Condition deemed fulfilled when obligor voluntary prevents its fulfillment: Article 1186 provides that “the condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.”

The only requisite for a contract of sale or contract to sell to exist in law is the meeting of minds upon the thing which is the object of the contract and the price, including the manner the price is to be paid by the vendee. Under Article 1458 of the New Civil Code, in a contract of sale, whether absolute or conditional, one of the contracting parties obliges himself to transfer the ownership of and deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. (Cantemprate v CRS Realty Development Corporation G.R. 171399)

Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. Rescission abrogates the contract from its inception and requires a mutual restitution of the benefits received. Thus, respondents Casal, Salvador and CRS Realty must return the benefits received from the contract to sell if they cannot comply with their obligation to deliver the corresponding certificates of title to petitioners. (Cantemprate v CRS Realty Development Corporation G.R. 171399)

SC: The deed of sale, even if denominated as a deed of conditional sale, may be treated as absolute in nature, especially if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment of the prescribed condition. (Romero v CA G.R. 107207)

Perfected contract of sale: may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of party thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence. (Romero v CA G.R. 107207)

Real character of a contract, substance more significant than title given to it by parties : For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. (Romero v CA G.R. 107207)

Condition in the context of a perfected contract of saleThe term “condition” in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certain express warranties (which, in the present case is the timely e viction of the squatters on the property). (Romero v CA G.R. 107207)

Arts. 1459-1465

I. OBJECT

Licit – not contrary to law, morals, good customs, public order or public policy, within the commerce of man; if illicit, contract is void

All rights which are not intransmissible or personal may also be the object of sale (i.e. right of usufruct)

Services cannot be the object of a contract of sale

A. Qualities – The object must be:

a. Existing, or Future or Contingent

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ROOM 405

Heirs of Arturo Reyes v. Beltran G.R. No. 176474

Facts: A big parcel of lot was originally owned by Spouses Laquian. When the Spouses died, the property was left with the wife’s siblings. Through an "Extrajudicial Settlement of the Estate of the Deceased Constancia R. Socco (wife)," the parcel of land was partitioned into 3 lots. Before the partition, Miguel Socco, 1 of the heirs sold his share to Arturo Reyes as evidenced by the Contract to Sell stating that he is to inherit a particular portion. But upon partition, the said portion sold was adjudicated to respondent, Elena Socco – Beltran, and not to Miguel Socco.

SC: Article 1459 of the Civil Code on contracts of sale, “The thing must be licit and the vendor must have a right to transfer ownership thereof at the time it is delivered.” The law specifically requires that the vendor must have ownership of the property at the time it is delivered. Petitioners claim that the property was constructively delivered to them in 1954 by virtue of the Contract to Sell. However, as already pointed out by this Court, it was explicit in the Contract itself that, at the time it was executed, Miguel R. Socco was not yet the owner of the property and was only expecting to inherit it. Hence, there was no valid sale from which ownership of the subject property could have transferred from Miguel Socco to Arturo Reyes. Without acquiring ownership of the subject property, Arturo Reyes also could not have conveyed the same to his heirs, herein petitioners.

B. Lawful

Object must be licit

Vendor must have the right to transfer ownership at the time the object is delivered

1. Effect of sale of homestead within the 5-year prohibitive period

Agustino v. CA G.R. No. L-46955

Facts: Loren executed a deed of sale over a parcel of land (homestead) in favor of Luarca, which was barely one year old at the time so there is no question that the sale was within the 5-year prohibition against alienation of homesteads. Luarca sold this land to Moldogo and Mercene, private respondents herein. The deed of sale, between Loren and Luarca and between Luarca and the private respondents were both unregistered. Loren’s daughter (heir) executed an affidavit of adjudication over the parcel of land and sold the portion occupied by Agustino to Villavicencio and Sotto. The new owners succeeded in ousting the private respondents from the land. Hence, the private respondents instituted an action for recovery of possession with damages. Trial court favored agustino, herein petitioner. On appeal, it was reversed by CA and adjudicated subject land to respondents.

On appeal to SC, petitioners question the defense of laches against them. Petitioners contend that they acquired ownership by virtue of succession and that the sale by Ambrocio to Luarca was void ab initio, having been perfected within the prohibitory period of 5 yrs

SC: It is an established rule that equity cannot be set up against clear provisions of law based on public policy. A sale of a homestead within the 5-year prohibitive period is void ab initio and the same cannot be ratified nor can it acquire validity through the passage of time.

A contract which purports to alienate, transfer, convey or encumber any homestead within the prohibitory period of five years from the date of the issuance of the patent is void from its execution. A void contract is inexistent from the beginning. It cannot be ratified neither can the right to set up the defense of its illegality be waived.

Neither can the doctrine of pari delicto which could have effectively barred Loren's heirs from recovering the property, be set up against them by the mere fact that Loren, himself, was guilty of violating the 5-year prohibition.

Ordinarily, the principle of pari delicto would apply to her because her predecessor-in-interest has carried out the sale with the presumed knowledge of its illegality, but because the subject of the transaction is a piece of public land, public policy requires that she, as heir, be not prevented from re-acquiring it because it was given by law to her family for her home and cultivation. This is the policy on which our homestead law is predicated

Manalapat v. CA

Facts: In 1976, a free patent was issued in Manlapat’s name. In 1954, before the subject lot was titled, he sold a portion to Ricardo evidenced by a deed of sale. He conveyed another portion to Ricardo in 1981. Leon Banaag (son-in-law of Manlapat) executed a mortgaged with the subject lot as the collateral. Heirs of Ricardo sought to obtain the title from petitioners which was in the custody of RBSP, earlier surrendered as a consequence of the mortgage.

SC: Five-year prohibition against alienation or encumbrances under the Public Land Act. Eduardo was issued a title in 1976 on the basis of his free patent application. Such application implies the recognition of the public dominion character of the land and, hence, the 5-year prohibition imposed by the PLA against alienation or encumbrance of the land covered by a free patent or homestead should have been considered.

The deed of sale which was executed in 1981 is obviously covered by the proscription, the free patent having been issued in 1976. However, petitioners may recover the portion sold since the prohibition was imposed in favor of the free patent holder.

The sale executed 1954 was before the issuance of the patent in 1976. Apparently, Eduardo disposed of the portion even before he thought of applying for a free patent. Where the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the prohibition should not be applied. In such a situation, neither the prohibition nor the rationale therefore which is to keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him from the temptation to dispose of his landholding, could be relevant. Precisely, he had disposed of his rights to the lot even before the government could give the title to him.

The mortgage executed in favor of RBSP is also beyond the pale of the prohibition, as it was forged in December 1981 a few months past the period of prohibition.

C. Transferability of Ownership

The seller must have the right to transfer the ownership of the thing or right sold to the buyer at the time of delivery and not at the time of the making of the contract.

Nemo dat quod non habet, as an ancient Latin maxim says. One cannot give what does not have.

1. Sale by mortgagee of land not proper subject of mortgage

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ROOM 405

Cavite Development Bank v. Lim, 324 scra 346

Facts: Rodolfo Guansing obtained a fraudulent title by executing an Extra-Judicial Settlement of the Estate With Waiver where he made it appear that he and Perfecto Guansing were the only surviving heirs entitled to the property, and that Perfecto had waived all his rights thereto. Consequently he acquired title and used this to acquire a loan. CDB foreclosed the mortgage and granted him the period of redemption, which he did not exercise.

It is not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time. Thus, under Art. 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of "future goods" under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to the buyer. It is the consummation stage where the principle of nemo dat quod non habet applies. In this case, the sale by CDB to Lim of the property mortgaged in 1983 by Rodolgo Guansing must, therefore, be deemed a nullity for CDB did not have a valid title to the said property. To be sure, CDB never acquired a valid title to the property because the foreclosure sale, by virtue of which the property had awarded to CDB as highest bidder, is likewise void since the mortgagor was not the owner of the property foreclosed.

CDB cannot be considered a mortgagee in good faith. While petitioners are not expected to conduct an exhaustive investigation on the history of the mortgagor's title, CDB cannot be excused from the duty of exercising the due diligence required of banking institutions in ascertaining the validity of the title.

That after the payment of the 10% “option money”, the Offer to Purchase provides for the payment only of the balance of the purchase price, implying that the "option money" forms part of the purchase price. This is precisely the result of paying earnest money under Art. 1482 of the Civil Code. It is clear then that the parties in this case actually entered into a contract of sale, partially consummated as to the payment of the price.

2. Conveyance of privilege to purchase land before it is awarded to the tenant or occupant.

Hermosilla v. Remoquillo

Facts: Apolinario Hermosilla was occupying a lot in San Pedro Tunasan Homesite, a land of the Republic. He divided the lot into 2. The 1 st

portion was given to his son Salvador and the other(questioned lot) to his grandson Jaime Remoquillo through a Deed of Assignment. A law was passed prohibiting the transfer of ownership of the said lot. Salvador and Jaime after made a Kasunduan ng Paglipat Ng Karapatan sa Isang Lagay na Lupang Solar (Kasunduan) whereby Jaime transferred ownership of the 65 square meters (the questioned property) in favor of Salvador. NHA awarded Jaime title. Salvador and his heirs questioned the title stating they have their house and in actual possession of the questioned lot.

When the Kasunduan was executed in 1972 by Jaime in favor of Salvador — petitioners' predecessor-in-interest — Lot 19, of which the questioned property forms part, was still owned by the Republic. Nemo dat quod non habet. Nobody can give what he does not possess. Jaime could not thus have transferred anything to Salvador via the Kasunduan.

The transfer became one in violation of law and therefore void ab initio. Hence, petitioners acquired no right over the lot from a Void Kasunduan, for no rights are created. It is generally considered that as between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy.

Since the property was previously a public land, petitioners have no personality to impute violation of the law. If the title was in fact fraudulently obtained, it is the State which should file the suit to recover the property through the Office of the Solicitor General. Consequently, Jaime’s ownership was valid not being contrary to any law and since there was no pending other application yet. That at the time he applied for title, he was recogned as the actual applicant / occupant.

Heirs of Arturo Reyes v. Beltran

Heirs of Arturo Reyes v. Beltran G.R. No. 176474

Facts: A big parcel of lot was originally owned by Spouses Laquian. When the Spouses died, the property was left with the wife’s siblings. Through an "Extrajudicial Settlement of the Estate of the Deceased Constancia R. Socco (wife)," the parcel of land was partitioned into 3 lots. Before the partition, Miguel Socco, 1 of the heirs sold his share to Arturo Reyes as evidenced by the Contract to Sell stating that he is to inherit a particular portion. But upon partition, the said portion sold was adjudicated to respondent, Elena Socco – Beltran, and not to Miguel Socco.

SC: Article 1459 of the Civil Code on contracts of sale, “The thing must be licit and the vendor must have a right to transfer ownership thereof at the time it is delivered.” The law specifically requires that the vendor must have ownership of the property at the time it is delivered. Petitioners claim that the property was constructively delivered to them in 1954 by virtue of the Contract to Sell. However, as already pointed out by this Court, it was explicit in the Contract itself that, at the time it was executed, Miguel R. Socco was not yet the owner of the property and was only expecting to inherit it. Hence, there was no valid sale from which ownership of the subject property could have transferred from Miguel Socco to Arturo Reyes. Without acquiring ownership of the subject property, Arturo Reyes also could not have conveyed the same to his heirs, herein petitioners.

.The law specifically requires that the vendor must have ownership of the property at the time it is delivered. Petitioners cannot derive title to the subject property by virtue of the Contract to Sell. It was stated in the Contract that the vendor was not yet the owner of the subject property and was merely expecting to inherit the same. It was also declared that conveyance of the subject to the buyer was a conditional sale. It is, therefore, apparent that the sale of the subject property in favor of Arturo Reyes was conditioned upon the event that Miguel Socco would actually inherit and become the owner of the said property. Absent such occurrence, Miguel R. Socco never acquired ownership of the subject property which he could validly transfer to Arturo Reyes. Without acquiring ownership of the subject property, Arturo Reyes also could not have conveyed the same to his heirs, herein petitioners.

D. Determinate or Indeterminate

The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. Art. 1349 states that the object of every contract must be determinate, as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties.

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ROOM 405 Art. 1460 defines that a thing is determinate when it is particularly designated or physically segregated from all others of the same

class. The property sold by Loreto to Gabino was determinable. (Vagilidad v Vagilidad)

1. Sale by a Co-heir of undivded portion of estate

Vagilidad v. Vagilidad

Facts:

4,280 sqm of lot was owned by Zoilo. In 1931, ZOILO died. Subsequently son of Zolio, Loreto sold to Gabino Vagilidad a portion of said lot as evidenced by the Deed of Absolute Sale executed by Loreto on 1986. After, Zoilo’s children executed an Extrajudicial Settlement of Estate adjudicating the entire lot to Loreto in 1987. Gabino filed petition of surrender of lot against Loreto, claiming that he is owner pursuant to deed of Sale issued before the extra judicial settlement.

However, there seemed to be an amicable settlement between them, and the case was sent to archives.

Gabino paid real estate taxes on the land he bought from Loreto which he later sold to Wilfredo Vagilidad. Likewise, a Deed of Absolute Sale was also made by Loreto in favor of Wilfredo for the same portion of lot. Wlfredo mortgaged this property to obtain a loan. Gabino and his wife filed petition for reconveyance.

The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. Art. 1349 states that the object of every contract must be determinate, as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. Art. 1460 defines that a thing is determinate when it is particularly designated or physically segregated from all others of the same class. The property sold by Loreto to Gabino was determinable.

A co-owner has full ownership of his pro-indiviso share and has the right to alienate, assign or mortgage it, and substitute another person for its enjoyment. The subject parcel, being an inherited property, is subject to the rules of co-ownership under the Civil Code. Co-ownership is the right of common dominion which two or more persons have in a spiritual part of a thing, not materially or physically divided. Before the partition of the property held in common, no individual or co-owner can claim title to any definite portion thereof. All that the co-owner has is an ideal or abstract quota or proportionate share in the entire property. LORETO sold the subject property to GABINO as a co-owner. LORETO had a right, even before the partition to transfer in whole or in part his undivided interest in the lot even without the consent of his co-heirs. This right is absolute. Thus, what GABINO obtained by virtue of the sale on were the same rights as the vendor LORETO had as co-owner, in an ideal share equivalent to the consideration given under their transaction. Consequently, when LORETO purportedly sold to WILFREDO the same portion of the lot, he was no longer the owner said lot. Based on the principle that "no one can give what he does not have," LORETO could not have validly sold to WILFREDO what he no longer had.

2. Effect of Agreement where the exact number of palay to be sold was not fixed.

National Grains Authority v. IAC

Facts: Leon Soriano submitted the documents required by the NFA for pre-qualifying as a seller. These were processed and he was given a quota of 2,640 cavans of palay. On August 1979, Soriano delivered 630 cavans of palay. The palay delivered were not rebagged, classified and weighed. When Soriano demanded payment, he was informed that it was held in abeyance since Mr. Cabal was still investigating on an information that Soriano was not a bona fide farmer and the palay delivered was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. Petitioner wrote Soriano advising him to withdraw the 630 cavans. Instead of withdrawing, Soriano insisted that the palay grains delivered be paid. NFA was ordered to pay Soriano.

Present case involves a perfected contract of sale. Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano’s Farmer’s Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano’s farmland and the NFA was to pay the same depending upon its quality. The contention that – since the delivery were not rebagged, classified and weighed in accordance with the palay procurement program of NFA, there was no acceptance of the offer thus – this is a clear case of an unaccepted offer to sell, is untenable.

Quantity being indeterminate does not affect perfection of contract; No need to create new contract. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. In the present case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans. (It did not need a new contract to make 630 cavans a determinate thing).

Sale a consensual contract; Acceptance is on the offer and not the goods delivered. Sale is a consensual contract, “there is perfection when there is consent upon the subject matter and price, even if neither is delivered.” (Obana vs. C.A., L-36249, March 29, 1985, 135 SCRA 557, 560). The acceptance referred to which determines consent is the acceptance of the offer of one party by the other and not of the goods delivered.

Compliance of mutual obligations once a contract of sale is perfected. From the moment the contract of sale is perfected, it is incumbent upon the parties to comply with their mutual obligations or “the parties may reciprocally demand performance” thereof. (Article 1475, Civil Code, 2nd par.)

Art. 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered.

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. (n)

I. Criteria

1. To differentiate sale from (Agency to Sell, Piece of Work, Barter)

a. Agency to Sell

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ROOM 405This is tested by the criterion that if such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is that of a sale. But if the delivery is to another, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made, the transaction is that of an agency to sell. Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency. (Commissioner of Internatl Revenue v. Engineering)

1. Effect of agreement for exclusive sale of beds where the other party is entitled to commission, among others

Quiroga v. Parsons Hardware Co.

Facts: A contract was executed between Quiroga and J. Parsons for the exclusive right to sell Quiroga beds in the Visayan Islands. Quiroga, says that Parsons caused a breach in the contract on through: to sell the beds at invoice price or lower; to have an establishment in Iloilo; pay the advertisement expenses; and to order the beds by the dozen. SC holds that since it was a contract of purchase and sale, and thus J. Parsons is not held liable for the breach of the contract.

For the classification of contracts, due regard must be paid to their essential clauses. In the contract in the instant case, what was essential, constituting its cause and subject matter, was that the plaintiff was to furnish the defendant with the beds which the latter might order, at the stipulated price, and that the defendant was to pay this price in the manner agreed upon. These are precisely the essential features of a contract of purchase and sale. There was the obligation on the part of the plaintiff to supply the beds, and, on that of the defendant, to pay their price. These features exclude the legal conception of an agency or older to sell whereby the mandatary or agent receives the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it, Held: That this contract is one of purchase and sale, and not of commercial agency.

The agreements contained in the contract constitute, according to law, covenants of purchase and sale, and not of commercial agency. It must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties.

Only the acts of the contracting parties, subsequent to and in connection with, the performance of the contract must be considered in the interpretation of the contract when such interpretation is necessary, but not when, as in the instant case its essential agreements are clearly set forth and plainly show that the contract belongs to a certain kind and not to another.

In fact, not a single one of the clauses in the contact necessarily conveys the idea of an agency. The words commission on sales used mean nothing else than a mere discount on the invoice price. The word agency, also used, only expresses that the defendant was the only one that could sell the plaintiff's beds in the Visayan Islands.

Adviento: If it were a contract of agency, then Parsons would be liable.

2. Relationship between the parties in a “Dealer and Sales Service Agreement”

Commission of Internal Review v. Constantino

Facts: CIR assessed and demanded from Constantino the commercial broker's percentage tax of 6% on his gross compensation for 1956, as dealer or distributor of the products of IHM. Constantino stores, displays and sells trucks, machineries, equipment, spare parts and accessories shipped by IHM. If Constantino wishes to "buy" from IHM, either on "cash basis" or on credit, he files a "Dealer Order for Goods" subject to the condition that the title to goods sold by the Dealer to his "customer" passes directly to the customer from IHM, and that the price of such goods, even if previously shipped to the dealer upon his order, belongs to IHM, not to the dealer, who merely collects and holds the proceeds in trust. Constantino likewise requires his customer to execute a chattel mortgage in his favor but then he must assign this to IHM. SC said Constantino must pay the 6% tax being an agent.

For taxation purposes, he is not an independent merchant but an agent of IHM or a commercial broker, as defined by the tax code, selling or bringing about sales and purchases of IHM's merchandise. A casual examination of respondent's evidence may give the impression that this relationship with the company is that of vendor and vendee, but a closer look into the actual legal effect of the terms and conditions embodied, rather than the names of the contracts used or the terminologies employed, in the chain of documents 1 shows that the relation between the company and the respondent is one of principal and agent.

CONTRACT OF AGENCY TO SELL. This is tested by the criterion that if such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is that of a sale. But if the delivery is to another, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made, the transaction is that of an agency to sell. Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency.

DISCOUNT OF 16% IS NOT TRADE DISCOUNT BUT COMPENSATION. It is contended that the respondent is not an agent of IHM because their "Dealer Sales and Service Agreement" expressly provide that he "is not the Company's agent in any respect . . .", But as respondent is not an independent merchant, but an agent, the discount of 16% that he receives is not a "trade discount" but a compensation or profit for selling or bringing about sales or purchases of merchandise for the company.

Lim v. People

On January 10, 1966, Valerio Lim went to the house of Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to receive the overprice for which she could sell the tobacco. After numerous demands and excuses from Lim, Lim failed to remit the sales. Valerio Lim was found guilty of the crime of estafa. SC said since it was a Contract of Agency, Lim is liable for Estafa.

Period of Obligation may not be fixed by the court where the agreement clearly fixes a period. — It is clear in the agreement, that the proceeds of the sale of the tobacco should be turned over to the complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the tobacco was disposed of Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the duration of the obligation if it does not fix a period, does not apply.

Agreement is a Contract of Agency and not a Contract of Sale — The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The agreement constituted her as an agent with the obligation to return the tobacco if the same was not sold.

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ROOM 405 Adviento: If it was a Contract to Sell, she would have no criminal liability on Estafa.

b. Lease of service or piece of work (1467)

Contract of Sale v. Contract of Services; Test. — 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 but 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 seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at purchaser's request, it is a contract of sale even though it may be entirely made after, and in consequence of the purchaser's order for it. (Commissioner of Internal Revenue v. Engineering)

1. Nature of transactions of company engaged in the design, supply, and installation of certain type of air conditioning system

Commissioner of Internal Revenue v. Engineering Equipment and Supply Co.

Facts: Engineering Equipment and Supply Co., a domestic corporation, is engaged in the design and installation of central type air conditioning system, pumping plants and steel fabrications. CIR now denounced Engineering for tax evasion by misdeclaring its imports and failing to pay the correct percentage taxes due thereon in connivance with its foreign suppliers. The Commissioner contends that Engineering is a manufacturer and seller of air conditioning units and parts or accessories thereof and, therefore, it is subject to the 30% advance sales tax. Engineering is a contractor this subject only to the 3% tax imposed on contractors.

Contract of Sale v. Contract of Services; Test. — 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 but 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 seller makes and keeps on hand for sale to anyone, and no change or modification of it is made at purchaser's request, it is a contract of sale even though it may be entirely made after, and in consequence of the purchaser's order for it.

Engineering is a contractor rather than a manufacturer. Supply of air conditioning units to Engineer's various customers, whether the said machineries were in hand or not, was especially made for each customer and installed in his building upon his special order. The air conditioning units installed in a central type of air conditioning system would not have existed but for the order of the party desiring to acquire it and if it existed without the special order of Engineering's customer, the said air conditioning units were not intended for sale to the general public. Moreover, it advertises itself as a contractor and pays the contractor's tax for design and construction of central type air conditioning systems, and does not have ready-made air-conditioning units for sale, but must design and construct each unit to meet the particular requirements of its customers , said taxpayer is considered a contractor rather than a manufacturer for purposes of the Tax Code. Thus, such taxpayer is not a manufacturer subject to the 30% advance sales tax prescribed in Section 185 (m) in relation to Section 194 of the Tax Code, but is a contractor subject to the 3% tax imposed by Section 191 of the same Code.

A taxpayer is required by law to truly declare his importation in the import entries and internal revenue declarations before it is released. Thus, by requiring its foreign supplier to change the nomenclature of air conditioning parts and accessories, and misdeclaring its importation so as to make them subject to the lower rate of 7% percentage tax under Section 186 of the Tax Code, thereby evading the payment of the 30% tax under Section 185(m) thereof, said taxpayer is subject to the payment of the 50% fraud surcharge prescribed by Section 183(a).

2. Interpretation of “Supply Agreement”

Del Monte Philippines Inc. v. Aragones

Facts: Del Monte entered into an Agreement MEGA-WAFF whereby MEGA undertook "the supply and installation of modular pavement" at DMPI's condiments warehouse within 60 days. To source its supply of blocks, MEGA entered into a Supply Agreement with Dynablocks / Aragones. Aragones thereupon started assembling the machines for the fabrication/casting of the concrete blocks which MEGA specified to be hexagonal shaped. MEGA later directed Aragones to instead fabricate machines for S shaped blocks. Dynablocks was not able to finish the blocks on the specified date. Aragones demanded payment for his services. But MEGA refused to pay because of the delay. Aragones sent DMPI a letter obligating and requesting it to be paid directly to him. DMPI refused saying he should get a court order. DMPI released full payment to Mega. DMPI says it was a contract of sales and, thus, not a privy to the contract between Mega and Aragones. SC said it was a privy since it was a piece of work, thus it is liable.

The “Supply Agreement" is replete with specifications, terms or conditions showing that it was one for a piece of work. The machines Aragones was obliged to fabricate were those for casting the concrete blocks specified by Garcia. Aragones did not have those kind of machines in his usual business, hence, the special order. That, while initially Garcia specified that the machines to be fabricated should be for hexagon shaped blocks, he later asked Aragones to instead fabricate machines for casting S shaped blocks. For Aragones to fabricate machines for casting S shaped, instead of hexagon shaped blocks, show that the concrete blocks were "manufactured specifically for, and upon the special order" of Garcia and devoted only "for the exclusive use" of MEGA-WAFF.

Aragones having specially fabricated three casting machines and furnished some materials for the production of the concrete blocks specially ordered and specified by MEGA-WAFF which were to be and indeed they were for the exclusive use of MEGA-WAFF, he has a cause of action upon DMPI up to the amount it owed MEGA-WAFF at the time Aragones made his claim to petitioner.

c. Barter (1468)

Art. 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. (1446a)

SEE OTHER PRINTOUT FOR MISSING PORTION OF THE OUTLINE (ARTICLE 1469 )

3) Inadequacy of price does not affect the contract, but may show vice of consent (1470).

Art 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract.

Askay v. Cosolan

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ROOM 405Facts:

Askay obtained a title to the Mineral Claim which he allegedly sold to Cosalan. It was alleged that there is inadequacy of the consideration for transfer which, according to the deed of conveyance, and to the oral testimony, consisted of P107.00 in cash, a bill fold, one sheet, one cow and two carabaos.

Issue & Ratio:

WON the sale is valid. YES

The fact that the bargain is a hard one, coupled with mere inadequacy of price when both parties are in a position to form an independent judgment concerning the transaction, is not sufficient ground for the cancellation of a contract.

Aguilar v. Rubiato

Facts:

Rubiato was the owner of parcels of land and was desirous of obtaining a loan. He thereafter signed a power of attorney in favor of a certain Vila to secure a loan and to execute any writing for the mortgage of land. Vila pursuant to the power of attorney then sold the land to Aguilar, with the right of repurchase within one year and Rubiato was to remain in possession of the land as lessee. One year expired and Aguilar filed a case to consolidate ownership over the lands.

Issue & Ratio:

Whether the contract was of sale or loan. - LOAN

In addition to the evidence, there is one very cogent reason which impels us to the conclusion that Rubiato is only responsible to the plaintiff for a loan. It is — that the inadequacy of the price which Vila obtained for the eight parcels of land belonging to Rubiato is so great that the minds revolts at it.

Xxx The members of this court after most particular and cautious consideration, having in view all the facts and all the naturals tendencies of mankind, consider that Rubiato is only responsible to the plaintiff for the loan of P800.

Sps. Buenaventura v. CA

Facts:

Sps Leonardo Joaquin & Feliciano Landrito are the parents of petitioners. Petitioners assail the sale of several lands by their parents to their other siblings (see p. 265 for complete list of sales made) for being void ab initio based on the ff grounds:

1. no actual valid consideration

2. properties are more than 3x more valuable than the measly purchase price (purchase price was grossly inadequate)

3. deeds of sale do not reflect & express the true intent of the parties

4. deliberate conspiracy designed to unjustly deprive the rest of the compulsory heirs of their legitime.

Defense of the respondents:

1. no cause of action, requisite standing & interest

2. sales were w/sufficient considerations & made by their parents voluntarily in good faith & w/full knowledge of the consequences

3. certificates of title were issued w/factual & legal basis.

Trial court dismissed the case WRT Gavino Joaquin & Lea Asis. Ruled in favor of the respondents & dismissed the complaint.

1. The rt of the compulsory heirs to a legitime is contingent & it only commences from the moment of the death of the decedent (CC Art. 777). The value of the property left at the death of the testator is the basis for determining the legitime (Art. 908). Plaintiffs cannot claim an impairment of their legitime since their parents are still alive.

2. Deeds of Sale were executed for valuable consideration.

CA affirmed Trial Court decision. In addition to the grounds stated by the trial court, CA also mentioned that:

1. While still alive, parents are free to dispose of their properties provided such is not done in fraud of creditors.

2. Petitioners are not parties in interest since they’re not parties to the deeds of sale nor are they creditors of their parents.

Issues & Ratio:

1. WON petitioners have a legal interest over the properties subject of the Deeds of Sale. – NO.

The complaint betrays their motive for filing the case. They are interested in obtaining the properties by hereditary succession but they have failed to show any legal right to these properties.

Real party-in-interest is one who is either benefited or injured by the judgment of the party entitled to the avails of the suit. This includes parties to the agreement or are bound either principally/subsidiarily. Parties must have a present substantial interest & not merely expectancy/future contingent subordinate or consequential interest.

In this case, the petitioners only have an inchoate rt w/c vests only upon the death of their parents. Besides, sale of the lots to their siblings does not affect the value of their parents’ estate since the lots are replaced with cash of equivalent value.

2. WON the deeds of sale are void for lack of consideration. – NO.

A contract of sale is not a real contract but a consensual contract. It’s binding & valid upon the meeting of the minds as to the price regardless of the manner of payment or breach of such. It’s still valid even if the real price is not stated in the contract, making it subject to reformation. But if the price is simulated, there is no meeting of the minds, thus the contract is void (CC Art. 1471).

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ROOM 405Act of payment of the price does not determine the validity of a contract of sale. Failure to pay the consideration is different from lack of consideration. The former results in a rt to demand fulfillment or cancellation of the contract while the latter prevents the existence of a valid contract.

Petitioners failed to show that the prices in the deeds of sale were simulated. They don’t even know the financial capacity of their siblings to buy these lots. Respondents’ minds met as to the purchase price w/c was stated in the deeds of sale & the buyer siblings have paid the price to their parents.

3. WON the Deeds of Sale are void for gross inadequacy of the price. – NO.

CC Art. 1355: Except in cases specified by law, lesion/ INADEQUACY OF CAUSE shall not invalidate a contract, unless there has been fraud, mistake or undue influence.

CC Art. 1470: Gross inadequacy of price doesn’t affect a contract of sale, except as may indicate a defect in the consent or that the parties really intended a donation or some other act or contract.

Petitioners failed to prove any instance in the aforementioned provisions that would invalidate the deeds of sale. There is no requirement that the price be equal to the exact value of the property on sale. It only matters that all respondents believed that they received the commutative value of what they gave.

Vales vs. Villa: Courts cannot be guardians of people who are not legally incompetent. Courts operate not because a person has been defeated/overcome by another, but because he has been defeated or overcome ILEGALLY. There should be a violation of the law, commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation & remedy it.

B. Effect of earnest money (1482)

a. It is considered part of the price, unless the contract is otherwise

b. It is proof of perfection of the contract

Adelfa Properties v. CA

Facts:

Private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 square meters. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan sa Bilihan ng Lupa." 3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was allocated to herein private respondents.

Thereafter, herein petitioner expressed interest in buying the western portion of the property from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between petitioner and private respondents, under the following terms and conditions:

1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00)

2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC. as an option money shall be credited as partial payment upon the consummation of the sale and the balance in the sum of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to be paid on or before November 30, 1989;

Private respondents sent Francisca Jimenez to see Atty. Bernardo, in his capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price. This was rejected by private respondents.

On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus, on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive option to purchase as Entry No. 4442-4.

On the same day, private respondents executed a Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel of land for P3,029,250, of which P1,500,000.00 was paid to private respondents on said date, with the balance to be paid upon the transfer of title to the specified one-half portion.

Issues & Ratio:

Whether the P50,000 paid by the petitioner is an option money or earnest money. – EARNEST MONEY

In other words, the alleged option money of P50,000.00 was actually earnest money which was intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule that whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. 38 It constitutes an advance payment and must, therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to bind the bargain.

There are clear distinctions between earnest money and option money, viz.: (a) earnest money is part of the purchase price, while option money ids the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy. 39

The aforequoted characteristics of earnest money are apparent in the so-called option contract under review, even though it was called "option money" by the parties. In addition, private respondents failed to show that the payment of the balance of the purchase price was only a condition precedent to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been sufficiently established that such payment was but an element of the performance of petitioner's obligation under the contract to sell. 40

Manila Metal Container Corporation v. PNB

Petitioner was the owner of a parcel of land and to be able to secure a loan from PNB, petitioner executed a real party mortgage over the land. For its failure to pay, PNB foreclose the mortgaged and sold at public auction for which PNB was the winning bidder, with a one year period of redemption by the petitioner. Petitioner requested that there be an extension of time to redeem the property and it allowed to repurchase the property on installment. Meanwhile,the Special Assets Management Department had prepared a statement of accountof the

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ROOM 405petitioner’s obligation to which amounted to 1.5M. petitioner thereafter remitted thte amount of 800,000 as deposit to repurchase the property. When SAMD recommended to the management of the PNB that petitioner be allowed to repurchase the property at 1.5M, the management rejected and suggested that the property be purchased at 2.7M which was later reduced to 1.9M. But petitioner refused.

Petitioner now filed a case for delivery of title, annulment of mortgage and specific performance with damages. It was its contention that it already accepted the offer of SAMD to sell the property at 1.5M, hence, PNB could no longer unilaterally withdraw its offer to sell the property. Its acceptance of the offer resulted in a perfected contract of sale.

Respondent contended that the parties never graduated for the negotiation stage – all that transpires was an exchange of proposal and counter-proposals and nothing more. There was still no agreement as to the amount and the manner of payment. The account made by SAMD cannot be classified as counter-offer because it was merely recital of facts of the obligations of petitioners.

WON the P800,000 deposited is an earnest money. -NO

The P800,000 could not be considered as an earnest money because an earnest money forms part of the purchase price. In this case, it did not. The P800,000 was merely a deposit that was accepted by PNB on the condition that the purchase price is subject to the approval of the PNB Board.

Oesmer v. Paraiso Devt Corp

Facts: Petitioners in this case are brothers and sisters and the co-owners of undivided shared is parcels of land originally owned by their parents. One the petitioners, Ernesto, met with the President of Paraiso for purpose of brokering the sale of petitioners’ properties to respondent corp. A contract to sell was the executed, signed by the siblings except Adolfo and Jesus. An amount of P100,000 was also given as option money. Later however, petitioners informed PAraiso of their intention to rescind the Contract to sell and to return the amount of P100,000 paid by the corporation. Their contention was that the contract to sell was void because the signatures made by the siblings were not for consent to sell the property, assuming the signatures indicate consent, the contract was subject to a suspensive condition which is the approval of the sale by all the co-owners which did not occur because two of the siblings did not approve of the sale; lastly, that it is void for it is a unilateral promise to sell without consideration distinct from price.

Held: As to the last contention, the court ruled that the contract to sell is not a unilateral promise to sell:

In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as "option money." However, a careful examination of the words used in the contract indicates that the money is not option money but earnest money. "Earnest money" and "option money" are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and, (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option.20

The sum of P100,000.00 was part of the purchase price. Although the same was denominated as "option money," it is actually in the nature of earnest money or down payment when considered with the other terms of the contract. Doubtless, the agreement is not a mere unilateral promise to sell, but, indeed, it is a Contract to Sell as both the trial court and the appellate court declared in their Decisions.

Serrano v. Caquiat

Facts: Please refer Chapter1

Issue and ratio:

It is true that Article 1482 of the Civil Code provides that “Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract.” However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. Now, since the earnest money was given in a contract to sell, Article 1482, which speaks of a contract of sale, does not apply.

As previously discussed, the suspensive condition (payment of the balance by respondent) did not take place. Clearly, respondent cannot compel petitioners to transfer ownership of the property to him.

ARTICLES 1475-1488

I. RULES IN ORDINARY SALES

A. Form

a. General Rule (1483)

Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. (n)

1. Verbal agreement of sale

Caoili v. CA

Caoili was a lessee in the property of respondent. Respondent borrowed money from Caoili in the amount of Php 30,000 which they stipulated would form part of their rentals. When rentals was paid off, they entered into a “not formal or written contract” on the sale of the property. They executed a "Receipt" denominated as an "Addendum to Agreement dated August 8, 1990". It was stated they received from petitioners the sum of P140,000.00, in addition to the partial payment of P60,000.00, the "balance payable when the good title in the name of herein vendor is delivered to the spouses." Yet respondent refused to execute document. Respondent says that the Php 140,000 was for improvements and the Php 60,000 served as rental on the period they haven’t paying their rentals. Amounts were claimed as partial payments by Caoili. RTC and CA both decided in favor of Caoili yet CA reduced the amount awarded.

1. (Not made in writing) The absence of a formal deed of sale does not render the agreement null and void or without any effect. The provision of Article 1358 of the Civil Code on the necessity of a public document is only for convenience, not for validity or enforceability. It does not mean that no contract has been perfected so long as the essential requisites of consent of the contracting parties, object, and cause of the obligation concur. Under the agreement, private respondent was obligated to deliver a good title to

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ROOM 405petitioners and this condition is the operative act which would give rise to the corresponding obligation of petitioners to pay the balance of the purchase price. Since it is not disputed that private respondent has not delivered a good title, petitioners have by law the right to either refuse to proceed with the agreement or to waive that condition pursuant to Article 1545 of the Civil Code.

2. The Addendum being notarized is a prima facie evidence of the facts stated therein.

2. Effect of lack of technical description in the contract

Naranja v. CA

To be valid, a contract of sale need not contain a technical description of the subject property. Contracts of sale of real property have no prescribed form for their validity; they follow the general rule on contracts that they may be entered into in whatever form, provided all the essential requisites for their validity are present. The failure of the parties to specify with absolute clarity the object of a contract by including its technical description is of no moment. What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. The deed of sale clearly identifies the subject properties by indicating their respective lot numbers, lot areas, and the certificate of title covering them.

One who alleges any defect, or the lack of consent to a contract by reason of fraud or undue influence, must establish by full, clear and convincing evidence, such specific acts that vitiated the party’s consent. Petitioners adduced no proof that Roque had lost control of his mental faculties at the time of the sale. Undue influence is not to be inferred from age, sickness, or debility of body, if sufficient intelligence remains.

The Deed of Sale which states “receipt of which in full I hereby acknowledge to my entire satisfaction” is an acknowledgment receipt in itself. Moreover, the presumption that a contract has sufficient consideration cannot be overthrown by a mere assertion that it has no consideration.

Heirs are bound by contracts entered into by their predecessors-in-interest. Having been sold already to Belardo, the two properties no longer formed part of Roque’s estate which petitioners could have inherited.

B. Perfection of a contract of sale (Art. 1475)

- At the moment there is a meeting of the minds (consensual)

- The parties may reciprocally demand performance, subject to the provisions of law governing the form of contracts

Requirements for perfection:

a. When parties are face to face – when an offer is accepted without conditions nor qualifications

b. Thru correspondence or telegram – when the offeror has knowledge of the acceptance

c. When sale is subject to a suspensive condition – from the moment the condition is fulfilled

Mere perfection of the contract does not necessarily transfer ownership.

Romulo Coronel, et al vs. CA and Alcaraz G.R. No. 103577, October 7, 1996

The Coronels sold their inherited house and lot to Ramona Patricia Alcaraz, with the conditions that they will effect the transfer of the title from their deceased father to their names upon receipt of the down payment, and after the transfer they will execute a Deed of Sale in favor of Alcaraz. The conditions were embodied in a document labeled “Receipt of Down Payment.” Alcaraz paid, and the title was transferred in the Coronels’ name. However, the Coronels sold the property to Catalina Mabanag, rescinded the contract with Alcaraz, and eventually executed a Deed of Sale in favor of Mabanag. In the complaint for specific performance filed against them, the Coronels contended that theirs was merely an executory contract to sell, hence there was no perfected contract of sale.

HELD: The parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of the petitioner’s father to their names.

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioner’s names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable.

Manila Mining Corporation (MMC) vs. Miguel Tan G.R. No. 171702, February 12, 2009

MMC ordered and received various electrical materials from Miguel Tan, and upon failure to pay the full amount despite several demands, Tan filed a collection suit. MMC contended that the absence of stamp marks on the original invoices and purchase orders negated the receipt of said documents by MMC’s representatives, a requisite for payment. Having not received them thereby having no consent, their contract could not have been perfected.

HELD: The purchase orders constituted accepted offers when Tan supplied the electrical materials to MMC. Hence, petitioner cannot evade its obligation to pay by claiming lack of consent to the perfected contracts of sale. The invoices furnished the details of the transactions.

1. Right of Examination

2. Sale by Description or Sample

a. Case: Whether deliver of tobacco perfected the sale

Phil. Virginia Tobacco Administration (PVTA) vs. de los Angeles, et al G.R. No. L-33079, December 11, 1978

PVTA was vested with the power and duty to direct, supervise and control all functions and operations with respect to the trading of Virginia tobacco and in line with this duty, it entered into a management contract with Central Cooperative Exchange, Inc. (CCE), to procure, redry, store and service Virginia tobacco for the PVTA and advance payment to the trading entities within 48 hours from its acceptance. On or about July 24, 1963, a fire broke out and razed down the plant, demands were made for the collection of the value of the tobacco, no

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ROOM 405payments were given, hence, the suit. PVTA maintained that since the tobacco was still to be inspected, graded and weighed when the plant was destroyed the contract of sale was not perfected.

HELD: The decisive factor is the delivery of the thing sold. So that it is placed under the control and possession of the vendee.

Sale by auction (Art. 1476)

a. Sales of separate lots are separate contracts of sale

b. When perfected – when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner

c. Before the fall of the hammer

The bidder may retract his bid

The auctioneer may withdraw the goods from the sale

EXCEPTION: If the auction has been announced to be without reserve

d. Limitations of the seller:

1. The seller himself cannot bid

2. He cannot employ or induce any person to bid on his behalf

EXCEPTION: If right to bid has been expressly reserved

e. Limitations of the auctioneer (if he is not the seller);

1. The auctioneer cannot bid

2. He cannot employ or induce to bid on behalf of the seller

3. He cannot knowingly take any bid from the seller or any person employed by him

By-bidders or puffers – people who bid for seller, but are not themselves bound

Ownership of the thing sold

General rule: Ownership shall be transferred upon delivery (Art. 1477)

Exception: Upon stipulation by the parties that the ownership shall not pass until full payment of the price (Art. 1478), without prejudice to third persons

Usually when such stipulation is present, the contract is a contract to sell

Kinds of Delivery:

1. Actual delivery – Article 1497

2. Constructive delivery – Articles 1498 - 1601

Promise to buy or sell (Art. 1479)

a. Mutual promise to buy and sell – reciprocally demandable

b. Unilateral promise to buy or sell

General rule: Does not bind the parties as there is no perfected contract

Exception: When such promise is founded upon a consideration distinct from the price

Policitation – a unilateral promise to buy or sell which is not accepted

Option contract – a contract granting a person the privilege to buy or not to buy certain objects at any time within the agreed period at a fixed price

Risk of Loss

a. Before perfection

i. Rule of res perit domino

ii. Owner is seller so seller bears risk of loss

b. At perfection

i. Res perit domino

ii. Contract is merely inefficacious because loss of the subject matter does not affect the validity of the sale

iii. Seller cannot anymore comply with the obligation so buyer cannot anymore be compelled

c. After perfection but before delivery

Tolentino: Seller bears the loss

Paras: Buyer bears the loss (exception to the rule of res perit domino) (Art. 1480)

Exceptions:

i. In sale of fungibles, when sold for a price fixed according to weight, number or measure – the risk shall not be imputed to the vendee until they have been weighed, counted or measured, and delivered (Art. 1480)

ii. If seller is guilty of fraud, negligence, default, or violation of contractual term

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ROOM 405iii. When object is a generic thing – genus nunquam perit

d. After delivery

i. Res perit domino

Fungibles – personal property which may be replaced with equivalent things

Gaisano Cagayan, Inc. (GCI) vs. Insurance Company of North America G.R. No. 147839, June 8, 2006

The Gaisano Superstore Complex in Cagayan de Oro City was consumed by fire, including stocks of ready-made clothing materials sold and delivered by Intercapitol Marketing Corp. (IMC) and Levi Strauss (Phils), Inc. (LSPI). IMC and LSPI filed claims under their respective fire insurance policies, and made several demands for payment upon GCI. GCI contends that it cannot be held liable because the property covered by the insurance policies were destroyed due to fortuitous event, and despite delivery, IMC and LSPI assumed the risk of loss when they secured fire insurance policies over the goods.

HELD: What were insured against were the accounts of IMC and LSPI with GCI which remained unpaid 45 days after the loss through the fire, and not the loss or destruction of the goods delivered.

The present case clearly falls under paragraph (1), Article 1504 of the Civil Code. Thus, when the seller retains ownership only to insure that the buyer will pay its debt, the risk of the loss is borne by the buyer. Accordingly, GCI bears the risk of loss of the goods delivered.

Sale by description or sample (Art. 1481)

a. Sale by description – goods must correspond with the description

b. Sale by sample – goods must correspond with the sample shown

c. Sale by description and sample – the bulk should correspond with both the sample and description

d. Effect if no compliance – rescission

- Buyer shall have a reasonable opportunity to compare the bulk with the description or sample

Sale by description – where the buyer relies on the seller’s representations or descriptions

Sale by sample – where the seller warrants that the bulk of the goods shall correspond with the sample in kind, quality and character

Earnest money

- Something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain

- Shall be considered as: (Art. 1482)

e. Part of the price

f. Proof of the perfection of the contract

Form of contract of sale

General rule: May be made orally, or in writing, or partly orally and partly in writing, or may be inferred from the conduct of the parties (Art. 1483)

Exceptions: Those enumerated under the Statute of Frauds

Sps. Rodolfo and Imelda Caoili vs. CA and Rosita Vda. De Santiago G.R. No. 128325, September 14, 1999

Sps. Rodolfo and Imelda Caoili were lessees of a parcel of land including a one-door apartment belonging to Rosita Vda. De Santiago. An agreement was made between the parties for the sale of the property being occupied by the spouses, but it was not “formal or written.” Was there a valid agreement?

HELD: The absence of a formal deed of sale does not render the agreement null and void or without any effect. The provision of Article 1358 of the Civil Code on the necessity of a public document is only for convenience, not for validity or enforceability. It does not mean that no contract has been perfected so long as the essential requisites of consent of the contracting parties, object, and cause of the obligation occur.

Naranja vs. CA G.R. No. 160132, April 17, 2009

As a sign of gratitude, Roque Naranja sold his two parcels of land to his half-sister Lucilia Belardo. The Deed of Sale, however, referred only to the parcels of land by their lot numbers, lot areas, the certificate of title covering them, and the city in which they were located. The trial court held that the Deed of Sale was defective since it did not contain a technical description of the properties, hence it did not vest title in Belardo. Was the trial court correct?

HELD: To be valid, a contract of sale need not contain a technical description of the subject property. Contracts of sale of real property have no prescribed form for their validity; they follow the general rule on contracts that they may be entered into in whatever form, provided all the essential requisites for their validity are present.

What is important is that there is, in fact, an object that is determinate or at least determinable, as subject of the contract of sale. In the instant case, the deed of sale clearly identifies the subject properties.

Remedies of vendor for installment sales of personal property (Art. 1484)

a. Exact fulfillment of obligation, should vendee fail to pay

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ROOM 405b. Cancellation of sale, should vendee’s failure to pay cover 2 or more installments

c. Foreclosure of chattel mortgage, if any, should vendee’s failure to pay cover 2 or more installments

These remedies are alternative, not cumulative

Applicable also 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 (Art. 1485)

Return or non-return of installments paid

General rule: Rescission or cancellation of sale requires mutual restitution

Exception: By stipulation of the parties (Art. 1486)

Exception to the exception: Should the same be unconscionable under the circumstances (Art. 1486)

Expenses for the execution and registration of the sale (Art. 1487)

General rule: Shall be borne by the vendor

Exception: By stipulation of the parties

Art. 1488 – The expropriation of property for public use is governed by special laws.

D. Leases of Personalty with Option to Buy

Elisco Tool and Manufacturing Corp. vs. CA

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, called lease with option to buy car within 5 years. That owner ship shall retain with the company until full payment and all necessary expenses for maintenance shall be borne by the employee. Subsequently the company has ceased operation and the employee was laid off. It took the company 2 years to institute proceedings.

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.

The so-called monthly rentals are in truth form monthly amortization on the price of the car. The contract being one of sale on installment, the Court of Appeals correctly applied to it the following provisions of the Civil Code:

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:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(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 remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the exercise of the others. 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.

The employee having found to have paid more than the value of the thing P60,000 should be considered as payment of the full purchase price. It further petitioner to pay private respondents the amount of P431.94 as excess payment, as well as rentals at the rate of P1,000 a month for depriving private respondents of the use of their car.

PCI Leasing and finance vs. Giraffe X

Giraffe entered into an agreement with PCI leasing over 2 machines worth P8,000,000. Giraffe agreed to pay P116,878.21 monthly and P181,362 for the other machine. It has also remitted the amount of P3,120,000 as goodwill. A year into the life of the lease agreement, respondent defaulted in paying the monthly rentals. PCI Sued Giraffe for possession of the machineries and for payment of the remaining term.

Issue: Whether the underlying lease agreement are covered between 1484 and 1485 of the New Civil Code?

SC: Yes they are. Evidently the contract above is in reality an option to purchase the equipment.

The Recto Law

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

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 contrary shall be void.

Art. 1485. The preceding article shall be applied to contract purporting to be leases of personal property with the option to buy, when the leasor deprived the lesee of the possession or enjoyment of the thing.

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ROOM 405 Therefore Giraffe is not liable to pay for the remaining term since the machineries has been foreclosed.

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.

E. Sale of Real Property on Installments ( Maceda Law, RA 6552) Reality Installment Buyer Protection Act.

a. Applicability- Real estate bought on installment basis.

b. Rules when the buyer has paid atleast 2 years of installments.

1.) Rights of Buyers –

I. In case of default in payment Section 3 of R.A. No. 6552 provided for the rights of the buyer in case of default in the payment of succeeding installments, where he has already paid at least two (2) years of installments, thus:

"(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made; x x x

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made; provided, that the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer."

Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act.

Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.

II. limitation of such right

-If has paid atleast 2 years of installment then the grace period before rescission of contact is proper is one month for every year or installment.

- Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.

b. In case of cancellation of sale

- When cancellation takes effect, refer to case below.

Pagtalunan vs. De Manzano

(Patricio), petitioner’s stepfather and predecessor-in-interest, entered into a Contract to Sell with respondent, wife of Patricio’s former mechanic, Teodoro Manzano, whereby the former agreed to sell, and the latter to buy, a house and lot which formed half of a parcel of land. The consideration of P17,800 was agreed to be paid in the following manner: P1,500 as downpayment upon execution of the Contract to Sell, and the balance to be paid in equal monthly installments of P150 on or before the last day of each month until fully paid.

It was also stipulated in the contract that respondent could immediately occupy the house and lot; that in case of default in the payment of any of the installments for 90 days after its due date, the contract would be automatically rescinded without need of judicial declaration, and that all payments made and all improvements done on the premises by respondent would be considered as rentals for the use and occupation of the property or payment for damages suffered, and respondent was obliged to peacefully vacate the premises and deliver the possession thereof to the vendor.

Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying after December 1979 due to personal problems with the petitioner. Petitioner asserted that when respondent ceased paying her installments, her status of buyer was automatically transformed to that of a lessee. Therefore, she continued to possess the property by mere tolerance of Patricio.

Issue: Whether the respondent has the right to occupy the premises?

SC: Yes, According to Republic Act No. 6552 -- "The Realty Installment Buyer Protection Act," or more popularly known as the Maceda Law

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty percent of the total payments made and, after five years of installments, an additional five percent every year but not to exceed ninety percent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer.9

The Court agrees with petitioner that the cancellation of the Contract to Sell may be done outside the court particularly when the buyer agrees to such cancellation.

However, the cancellation of the contract by the seller must be in accordance with Sec. 3.

Firstly the demand letter made by the petitioner to vacate the premises does not constitute notice of cancellation. Second petitioner cannot insist on compliance with the requirement by assuming that the cash surrender value payable to the buyer had been applied to rentals of the property after respondent failed to pay the installments due.

Therefore a deed of absolute sale shall be made after payment of purchase price.

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c. Rules when the buyer has paid less than 2 years of installments( Refer to case below)

Active Realty Corporation vs. Daroya

ACTIVE REALTY & DEVELOPMENT CORPORATION entered into a Contract to Sell1 with respondent NECITA DAROYA whereby the latter agreed to buy a 515 sq. m. lot for P224,025.00 in petitioner’s subdivision to be paid in amortization within 5 years, valued at P346,367.00, a figure higher than that stated as the contract price. The buyer defaulted in three (3) monthly amortizations. Petitioner sent respondent a notice of cancellation2 of their contract to sell. When respondent offered to pay for the balance of the contract price, petitioner refused as it has allegedly sold the lot to another buyer. The respondent has already paid 4 years. already more than the contract price.

Issue: Whether or not the petitioner can be compelled to refund to the respondent the value of the lot or to deliver a substitute lot at respondent’s option?

SC: Yes, According to Republic Act No. 6552 -- "The Realty Installment Buyer Protection Act," or more popularly known as the Maceda Law

More specifically, Section 3 of R.A. No. 6552 provided for the rights of the buyer in case of default in the payment of succeeding installments, where he has already paid at least two (2) years of installments, thus:

"(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made; x x x

(b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made; provided, that the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer."

We hold that the contract to sell between the parties remains valid and subsisting. Following Section 3(a) of R.A. No. 6552, respondent has the right to offer to pay for the balance of the purchase price, without interest, which she did in this case. However since the lot has been sold to another party it is only just and equitable that the petitioner be ordered to refund to respondent the actual value of the lot resold, i.e., P875,000.00, with 12% interest per annum.

F. PD No. 957

a. Important provisions

Sec. 4, 5, 7,18,23 ,24 ,25

Section 4. Registration of Projects The registered owner of a parcel of land who wishes to convert the same into a subdivision project shall submit his subdivision plan to the Authority which shall act upon and approve the same, upon a finding that the plan complies with the Subdivision Standards' and Regulations enforceable at the time the plan is submitted. The same procedure shall be followed in the case of a plan for a condominium project except that, in addition, said Authority shall act upon and approve the plan with respect to the building or buildings included in the condominium project in accordance with the National Building Code (R.A. No. 6541).

The subdivision plan, as so approved, shall then be submitted to the Director of Lands for approval in accordance with the procedure prescribed in Section 44 of the Land Registration Act (Act No. 496, as amended by R.A. No. 440): Provided, that it case of complex subdivision plans, court approval shall no longer be required. The condominium plan as likewise so approved, shall be submitted to the Register of Deeds of the province or city in which the property lies and the same shall be acted upon subject to the conditions and in accordance with the procedure prescribed in Section 4 of the Condominium Act (R.A. No. 4726).

The owner or the real estate dealer interested in the sale of lots or units, respectively, in such subdivision project or condominium project shall register the project with the Authority by filing therewith a sworn registration statement containing the following information:

(a) Name of the owner;

(b) The location of the owner's principal business office, and if the owner is a non-resident Filipino, the name and address of his agent or representative in the Philippines is authorized to receive notice;

(c) The names and addresses of all the directors and officers of the business firm, if the owner be a corporation, association, trust, or other entity, and of all the partners, if it be a partnership;

(d) The general character of the business actually transacted or to be transacted by the owner; and

(e) A statement of the capitalization of the owner, including the authorized and outstanding amounts of its capital stock and the proportion thereof which is paid-up.

The following documents shall be attached to the registration statement:

(a) A copy of the subdivision plan or condominium plan as approved in accordance with the first and second paragraphs of this section.

(b) A copy of any circular, prospectus, brochure, advertisement, letter, or communication to be used for the public offering of the subdivision lots or condominium units;

(c) In case of a business firm, a balance sheet showing the amount and general character of its assets and liabilities and a copy of its articles of incorporation or articles of partnership or association, as the case may be, with all the amendments thereof and existing by-laws or instruments corresponding thereto.

(d) A title to the property which is free from all liens and encumbrances: Provided, however, that in case any subdivision lot or condominium unit is mortgaged, it is sufficient if the instrument of mortgage contains a stipulation that the mortgagee shall release the mortgage on any subdivision lot or condominium unit as soon as the full purchase price for the same is paid by the buyer.

The person filing the registration statement shall pay the registration fees prescribed therefor by the Authority.

Thereupon, the Authority shall immediately cause to be published a notice of the filing of the registration statement at the expense of the applicant-owner or dealer, in two newspapers general circulation, one published in English and another in Pilipino, once a week for two consecutive weeks, reciting that a registration statement for the sale of subdivision lots or condominium units has been filed in the National Housing Authority; that the aforesaid registration statement, as well as the papers attached thereto, are open to inspection during business

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ROOM 405hours by interested parties, under such regulations as the Authority may impose; and that copies thereof shall be furnished to any party upon payment of the proper fees.

The subdivision project of the condominium project shall be deemed registered upon completion of the above publication requirement. The fact of such registration shall be evidenced by a registration certificate to be issued to the applicant-owner or dealer.

Section 5. License to sell. Such owner or dealer to whom has been issued a registration certificate shall not, however, be authorized to sell any subdivision lot or condominium unit in the registered project unless he shall have first obtained a license to sell the project within two weeks from the registration of such project.

The Authority, upon proper application therefor, shall issue to such owner or dealer of a registered project a license to sell the project if, after an examination of the registration statement filed by said owner or dealer and all the pertinent documents attached thereto, he is convinced that the owner or dealer is of good repute, that his business is financially stable, and that the proposed sale of the subdivision lots or condominium units to the public would not be fraudulent.

Section 7. Exempt transactions. A license to sell and performance bond shall not be required in any of the following transactions:

(a) Sale of a subdivision lot resulting from the partition of land among co-owners and co-heirs.

(b) Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent sale of the same lot.

(c) Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in the ordinary course of business when necessary to liquidate a bona fide debt.

Section 18. Mortgages. No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the Authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtedness secured by the particular lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereto;

Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate.

Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the installments due for reasons other than the failure of the owner or developer to develop the project shall be governed by Republic Act No. 6552.

Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund based on the installments paid after the effectivity of the law in the absence of any provision in the contract to the contrary.

Section 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith

Far East Bank & Trust Co vs. Marquez

Marquez entered into a contract to sell with TSE involving a 52.5 sqm lot and a three storey townhouse for P800,000. Later respondent was able to pay a total of P600,000. TSE then mortgaged the whole property to Far East Bank. TSE was unable to pay and the property was foreclosed and sold in favor of Far East Bank.

Issue: 1.)Whether or not the mortgage contract violated Section 18 of PD.957, hence void insofar as third persons are concerned.

2.)Who has a higher right the new buyer or the respondent?

SC: Yes violated Sec. 18. as provides as follows.

Sec. 18. Mortgages- No mortgage on any unit or lot shall be made by the owner or developer without prior written approval of the authority. Such approval shall not be granted unless it is shown that the proceeds of the mortgage loan shall be used for the development of the condominium or subdivision project and effective measures have been provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage shall be determined and the buyer thereof, if any, shall be notified before the release of the loan. The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who shall apply the payments to the corresponding mortgage indebtness secured by the particular lot or unit being paid for , with a view to enabling said buyer to obtain title over the lot or unit promptly after full payment thereof.

Since TSE did not obtain prior approval from the NHA the mortgage is void as regarding to the property to the respondent as he has no standing to question the validity of the other property.

2.) Respondent has a higher right over the property. Petitioner cannot be considered as a buyer in good faith. He should have considered that it was a town house that was already in progress. The conversion of status from mortgagee to buyer will not lessen the importance of such knowledge.

Tamayo vs. Huang

Respondents Huang registered owners of four parcels of land located in Barangay Matina, Davao City executed a contract of "Indenture" with EAP Development Corporation (EAP) under which EAP undertook to manage and develop said parcels of land into a first class subdivision and sell the lots therein in, Doña Luisa Village (the subdivision).

Carlos R. Tamayo (petitioner) entered into a contract to sell with respondents through EAP for a certain lot. Under the contract, petitioner was to pay upon execution P35,749.60 and the balance, including interest at the rate of 14% per annum, in 60 monthly installments of

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ROOM 405P4,791.40, without necessity of demand; and if petitioner failed to pay the installments, respondents were given the right to demand interest thereon at the rate of 14% per annum, to be computed on the same day of the month the installments became due. Later on the development of the subdivision was put to stop by EAP, in effect petitioner stopped paying the monthly amortization. The respondents sent the petitioner a demand letter, but after the reply of the petitioner with an explanation of stop payment the respondent was unheard of.. After 5 years the development was soon in progress and petitioner offered to pay the full purchase price which was already rejected by the respondent. Later on the property was sold by the respondent to another person.

Issue: 1.)Did the petitioner have any legal basis for stop payment? 2.)Is the contract to sell between the parties rescinded?

SC: 1.) Yes.According Section 23 of PD 957

requires only due notice to the owner or developer for stopping further payments by reason of the latter’s failure to develop the subdivision according to the approved plans and within the time limit.

Therefore the buyer had the right to stop payment due to the failure of the developer to comply with the contract. He only needed to give due notice to the owner(Huangs) or Developer to give it effect.

2.) Yes. Respondents sent no notarized notice or any notice of cancellation at all. In fact, it was only after petitioner filed on July 24, 1997 the complaint before the HLURB that respondents offered to reimburse petitioner of the total amount he had already paid.

The contract not having been cancelled in accordance with law, it has remained valid and subsisting. It was, therefore, within petitioner’s right to maintain his option to await the completion of the development of and introduction of improvements in the subdivision and thereafter, upon full payment of the purchase price, without interest, compel respondents to execute a deed of absolute sale, but since the property was sold to a buyer in good faith. The respondents should refund the petitioner for the value of the property when it was sold.

Chapter 2

Capacity to Buy or Sell

Arts. 1489 – 1492

I. Parties and their ConsentA. Capacity in general (1489)

Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles.

Where necessaries are sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in article 290.

Note: A person who has both juridical capacity and capacity to act is said to have full civil capacity. It is understood that he is of legal age and suffers no restriction on his capacity to act, such person may enter into any contract including sale.

B. Special Disqualifications to Buya. Husband and wife

Case:1) Effect of sale of land to one’s own spouse

Uy Siu Pin vs. Cantollas, G.R. No. 46850, June 20, 1940

Facts: There was a contract entered into between Uy Siu Pin and Casimira and Blas, which the latter agreed to deliver the mortgaged land and to enjoy the same with its improvements to the during the period of 15 years on condition that Uy Siu Pin would pay El Hogar Filipino the unpaid balance of the indebtedness of casimira and Blas, together with all other expenses including realty taxes.

When the mortgage debtors, Casimira and Blas, failed to redeem the land within the statutory period, a final deed of sale was issued in favor of the mortgagee, El Hogar Filipino. The latter sold the land to Uy Siu Pin and in turn sold the land to his wife Chua Hue.

Issues: Is the sale valid between Uy Siu Pin and Chua Hue?

Held: SC said No. The sale from Uy Siu Pin to his wife Chua Hue is null and void not only because theformer had no right to dispose of the land in contorversy but because the sale comes within the prohibition of Article 1458 of the Civil Code.

Note: The case did not extensively explicate the reason why the sale between spouses are prohibited. However, Art 1490 provides that “the husband and wife cannot sell property to each other, except: (1) when a separation of property was agreed upon in the marriage settlements; or (2) when there has been a judicial separation of property under articel 191.

Rationale behind the prohibiton: (a) to prevent the stronger spouse from exploiting the weaker spouse; (b) prevent donations disguised as sales; (c) protect third persons, specially creditors, against fraud through the transfer of the properties of one spouse to the other to evade payment of obligations.

2) Transfer in common law relationship

Ching vs. Goyanko, G.R. No. 165879, November 10, 2006

FACTS: Respondents claim that their parents (Goyanko and Epifania) acquired a 661 square meter property but they (the parents) were Chinese citizens at the time, the property was registered in the name of their aunt, Sulpicia Ventura. Sulpicia executed a deed of sale over the property in favor of reespondent’s father Goyanko that in turn executed a deed of sale over the same property in favor of his common-law-wife-herein petitioner Maria B. Ching. It was only after Goyanko’s death that they discovered the transfer of the said property to Ching. Respondents thus filed with the RTC of Cebu City a complaint for recovery of the property and the nullification of the deed of sale.

ISSUE: Whether or not the sale of the property by Goyanko to Ching is valid.

HELD:

The conveyance of Goyanko in favor of his common-law-wife-herein petitioner, was null and void. Article 1409 of the Civil Code states inter alia that contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are void and

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ROOM 405inexistent from the very beginning. Article 1352 also provides that: “Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs. Public order, or public policy.” Additionally, the law emphatically prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law. It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage, which is the cornerstone of family law. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, “the condition of those who incurred guild would turn out to be better that those in legal union.”

B. Persons in Trust Relations

2. Sale by agent: Exception to prohibition against sale by principal in favor of his agent.

Pelayo vs. Perez, G.R. No. 141323, June 8, 2005

FACTS: David Pelayo, by a Deed of Absolute Sale, conveyed to Melki Perez two parcels of agricultural land. Loreza, wife of David Pelayo,k and another one whose signature is illegible witnessed the execution of the deed. Loreza, however, signed only the third page. Perez asked Loreza to sign on the first and second pages of the deed but refused, hence, he instituted the instant complaint for specific performance against the spouses. Petitioners, in adopting the trial court’s narration of antecedent facts in their petition, admitted that they authorized respondent to represent them in negotiations with the “squatters” occupying the disputed property and, in consideration of respondent’s services, they executed the subject deed of sale. Defendant Pelayo claimed that the deed was without his wife’s consent, hence, it is null and void.

ISSUE: Whether or not the deed of sale was null and void.

HELD: Petitioner Lorenza, by affixing her signature to the Deed of Sale on the space provided for witnesses, is deemed to have given her implied consent to the contract of sale. Sale is a consensual contract that is perfected by mere consent, which may either be express or implied. A wife’s consent to the husband’s disposition of conjugal property does not always have to be explicit or set forth in any particular document, so long as it is shown by acts of the wife that such consent or approval was indeed given. In the present case, although it appears on the face of the deed of sale that Lorenza signed only as an instrumental witness, circumstances leading to the execution of said document point to the fact that Lorenza was fully aware of the sale of their conjugal property and consented to the sale.

Under Article 173, in relation to Article 166, both of the New Civil Code, when the deed in question was executed, the lack of marital consent to the disposition of conjugal property does not make the contract void ab initio but merely voidable. It has been held that the contract is valid until the court annuls the same and only upon an action brought by the wife whose consent was not obtained. In the present case, despite respondent’s repeated demands for Lorenza to affix her signature on all the pages of the deed of sale, showing respondent’s insistence on enforcing said contract, Lorenza still did not fle a case for annulment of the deed of sale. Thus, if the transaction was indeed entered into without Lorenza’s consent, we find it quite puzzling why for more than three and a half years, Lorenza did nothing to seek the nullification of the assailed contract.

With regards to petitioner’s asservation that the deed of sale is invalid under Article 1491 (2) of the New Civil Code, we find such argument unmeritorious. Petitioners, by signing the Deed of Sale in favor of respondent, are also deemed to have given their consent to the sale of the subject property in favor of respondent, thereby making the transaction an exception to the general rule that agents are prohibited from purchasing the property of their principals.

3. Sale to public officers / Sale of land to public official’s wife

Maharlika Broadcasting Corp. vs. Tagle

FACTS: The GSIS was the registered owner of a parcel of land that was sold to petitioner Maharlika Publishing Corporation together with the building thereon as well as the printing machinery and equipment therein. Among the conditions of the sale are that petitioner shall pay to the GSIS monthly installments until the total purchase price shall be fully paid and that failure to pay any monthly installment within 90 days from due date, the contract shall be deemed automatically cancelled. Maharlika failed to pay the installments for several months. This resulted to a public bidding of this particular property. Petitioner submitted a letter-proposal that reads: “I bid to match the highest bidder.” The bidding committee rejected petitioner’s bid and accepted the private respondent Luz Tagle’s bid. After approval and confirmation of the sale, the GSIS executed a Deed of Conditional Sale in favor of Tagles. Luz Tagle is the wife of Edilberto Tagle. Edilberto Tagle was the Chief, Retirment Division, GSIS, from 1970 to 1978. He worked for the GSIS since 1952.

ISSUE: Whether or not the sale is valid.

HELD: In providing the prohibitions under Article 1491, the Code tends to prevent fraud, or more precisely, tends not give occasion for fraud, which is what can and must be done.

The point is that he is a public officer and his wife acts for and in his name in any transaction with the GSIS. If he is allowed to participate in the public bidding of properties foreclosed or confiscated by the GSIS, there will always be the suspicion among other bidders and the general public that the insider official had access to information and connection with his fellow GSIS official as to allow him to eventually acquire the property. It is precisely the need to forestall such suspicions and to restore confidence in the public service that the Civil Code now declares such transactions to be void from the beginning and not merely voidable.

3.Sale/transfer to attorney

Gurrea vs. Suplico, G.R. No. 144320, April 26, 2006

FACTS: Adelina Gurrea continued to be the owner of the lot (TCT No. 58253) until her death. Thereafter, a special proceeding was instituted to settle her estate. Under her will, the San Juan lot was bequeathed to Pilar and Luis Gurrea, while 700,000 pesetas, ¼ of the lot in Baguio and 1-hectare piece of land in Negros Occidental were given to Ricardo Gurrea. Ricardo Gurrea, represented by and through his counsel Atty. Enrique Suplico filed an Opposition in Special Proceeding No. 7185. In consideration of said representation, Ricardo Gurrea agreed to pay Atty. Suplico “a contigent fee of twenty (20%) of whatever is due me, either real or personal property.” Later on, Ricardo withdrew his Opposition. The properties adjudicated to Ricardo based on the project of partition were the Baguio lot, San Juan lot, and a parcel of land in Negros Occidental. As payment of his attorney’s fees, Ricarod Gurrea offered the San Juan lot to Atty. Suplico who was hesitant to accept as the property was occupied by squatters. However, in order not to antagonize his client, Atty. Suplico agreed to Ricardo’s proposal with the

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ROOM 405further understanding that he will receive an additional commission of 5% if he sells the Baguio property. Thereafter, Atty. Suplico registered the deed of Transfer of Rights and Interest and obtained the title to the San Juan property under his name.

ISSUE: Whether or not the subject property is still the object of litigation; If affirmative, whether or not the sale is void for being violative of the provisions of Article 1491 (5) of the Civil Code.

HELD: The sale to Atty. Suplico is null and void.

A thing is said to be in litigation only if there is some contest or litigation over it in court, but also from the moment that it becomes subject to the judicial action of the judge. In the present case, there is no proof to show that at the time the deed of Transfer of Rights and Interest was executed, the probate court issued an order granting the Motion for Termination of Proceeding and Discharge of the Executor and Bond. Since the judge has yet to act on the above-mentioned motion, if follows that the subject property which is the subject matter of the deed of Transfer of Rights and Interest, is still the object of litigation.

Having been established that the subject property was still the object of litigation at the time the subject deed of Transfer of Rights and Interest was executed, the assignment of rights and interest over the subject property in favor of respondent is null and void for being violative of the provisions of Article 1491 of the Civil Code which expressly prohibits lawyers from acquiring property or rights which may be the object of any litigation in which they may take party by virtie of their profession.

Ramos vs. Ngaseo, AC 6210, December 9, 2004

FACTS: On September 16, 1999, complainant Federico Ramos engaged the services of Atty. Patricio Ngaseo as his cousel in a case involving a 2-hectare parcel of land which the complainant’s family lost 7 years earlier. Respondent agreed to handle the case for an acceptance fee of P20,000.00, appearance fee of P1,000.00 per hearing and the cost of meals, transportation and other incidental expenses. On July 18, 2002, the Court of Appeals rendered a favorable decision ordering the return of the land to the complainant and his siblings.

On January 29, 2003, complainant received a demand-letter from the respondent for the delivery of the 1,000 sq.m. piece of land which he allegedly promised as payment for respondent’s appearance fee. On the other hand, complainant alleges that he did not promise to pay the respondent 1,000 sq.m. of land as appearance fees. A complaint was then filed charging Atty. Ngaseo for violation of the Code of Professional Responsibility for demanding the delivery of 1,000 sq.m. parcel of land which was the subject of litigation.

Respondent argues that he did not violate Article 1491 of the Civil Code because when he demanded the delivery of the 1,000 sq.m. of land which was offered and promised to him in lieu of the appearance fees, the case has been terminated, when the appellate court ordered the return of the 2-hectar parcel of land to the family of the complainant.

ISSUE: Whether or not Atty. Suplico violated Article 1491 (5) of the Civil Code.

HELD: There was no actual acquisition of the property in litigation since the respondent only made a written demand for its delivery which the complainant refused to comply. Mere demand for delivery of the litigated property does not cause the transfer of ownership, hence, not a prohibited transaction within the contemplation of Article 1491. Even assuming arguendo that such demand for delivery is unethical, respondent’s act does not fall within the purview of Article 1491. The letter of demand dated January 29, 2003 was made long after the judgment of became final and executor on January 18, 2002.

Fornilda vs. RTC 4 th Judicial Region, Pasig, G.R. No. 72306, October 6, 1988

FACTS: The Controvereted Parcels were part of the estate of the late Julio Catolos subject of intestate estate proceedings, wherein Respodent Amonoy acted as ocusel for some of the heirs from 1859 until 1968 by his own admission; that these properties were adjudicated to Alfonso Fornildsa and Asuncion Pasamba in the Project of Partition approved by the court on January 12, 1965. Eight days thereafter, and while he was still intervening in the case as counsel, these properties were mortgaged by petitoners’ predecessor-in-interest to Respondent Amonoy to secure payment of the latter’s attorney’s fees in the amount of P27,600.00. Since the mortgage indebtedness was not paid, Respondent Amonoy instituted an action for judicial foreclosure of mortgage on January 21, 1970. The mortgage was subsequently ordered foreclosed and auction sale followed where respondent Amonoy was the sole bidder.

For, while the Project of Partition was approved on January 12, 1965, it was not until August 6, 1969 that the estate was declared closed and terminated.

ISSUE: Whether or not the mortgage constituted on the Controverted Parcels in favor of Respondent Amonoy comes within the scope of the prohibition in Article 1491 of the Civil Code.

HELD: The transaction falls squarely within the prohibition against any acquisition by a lawyer of properties belonging to parties they represent which are still in suit. At the time the mortgage was executed, therefore, the relationship of lawyer and client still existed, the very relation of trust and confidence sought to be protected by the prohibition, when a lawyer occupies a vantage position to press upon or dictatge terms to an harassed client. From the time of the execution of the mortgage in his favor, Respondent Amonoy had already asserted a title adverse to his clients’ interest at a time when the relationship of lawyer and client had not yet been severed.

The fact that the properties were first mortgaged and only subsequently acquired in an auction sale long after the termination of the intestate proceedings will not remove it from the scope of the prohibition.

4. Sale of portions of a parcel of land (1) prior to issuance and (2) within 5 years from issuance of free patent

Manlapat vs. CA, G.R. No. 125585, June 8, 2005

FACTS: The controversy involves Lot No. 2204 that had been originally in the possession of Jose Alvarez, Eduardo’s grandfather, until his demise in 1916. It remained unregistered until October 8, 1976 when OCT No. P-153 was issued in the name of Eduardo pursuant to a free patent issued in Eduardo’s name that was entered in the Registry of Deed. Before the subject lot was titled, Eduardo sold 533 sq.m. of the land to Ricardo on December 19, 1954. The sale is evidence by a deed of sale entitled “Kasulatan ng Bilihang Tuluyan ng Lupang Walang Titulo” which was signed by Eduardo himself as vendor and his wife Engracia Ancieto with a certain Santiago Enriquez signing as witness. The Kasulatan was registered with the Register of Deeds. On March 18, 1981, another Deed of Sale conveyed another portion of the subject lot as right of way was executed by Eduardo in favor of Ricardo. The deed was notarized. Leon Banaag, as attorney-in-fact of his father-in-law (Eduardo) mortgage with the Rural Bank for P100,000.00 with the subject lot as collateral. Banaag deposited the owner’s duplicate certificate of OCT No. P-153 with the bank. Ricardo and Eduardo died.

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ROOM 405The Cruzes, upon learning their right to the subject lot immediately tried to confront petitioners mortgage and obtain the surrender of the OCT. Having failed to physically obtain the title from petitioners, the Cruzes went to RBSP which had custody of the owner’s duplicate certificate of the OCT. They were able to secure a clearance to borrow the title and was able to have the Register of Deeds cancel the OCT and issue two separate titles in the name of Ricardo andEduardo.

ISSUE: Whether or not the sale of the land is prohibited or not.

HELD: Free patent application implies the recognition of the public dominion character of the land and, hence, the five year prohibition imposed by the Public land Act against alienation or encumbrance of the land covered by a free patent or homestead should have been considered.

The deed of sale covering the 50 sq.m. right of way executed on March 18, 1981 is obviously covered by proscription, the free patent having been issued on October 8, 1979. However, petitioners may recover the portion sold since the prohibition was imposed in favor of the free patent holder. Under the Public Land Act, the prohibition to alienate is predicated on the fundamental policy of the State to preserve and keep in the family of the homesteader that portion of public land which the State has gratuitously given to him, and recovery is allowed even where the land acquired under the Public Land Act was sold and not merely encumbered, within the prohibited period.

The sale of the 533 sq.m. was executed 22 years before the issuance of the patent in 1976. Where the sale or transfer took place before the filing of the free patent application, whether by the vendor or the vendee, the prohibition should not be applied. In such situation, neither the prohibition not the rationale therefor which is to keep in the family of the patentee that portion of the public land which the government has gratuitously given him, by shielding him from the temptation to dispose of his landholdings, could be relevant. Precisely, he had disposed of his rights to the lot even before the government could give the title to him.

5. Effect of verbal sale within 5-year prohibitory period

Manzano vs. Ocampo, L-46850, June 20, 1940

Victoriano Manzano, now deceased, was granted a homestead patent on June 25, 1934, and the land was registered in his name on July 25, 1934 under Original Certificate of Title No. 4590. On January 4, 1938, he and respondent Rufino Ocampo agreed on the sale of said homestead for the amount of P1,900.00, P1,100.00 of which was paid by Ocampo to Manzano on the same day, and for the balance, he executed a promissory note. Knowing, however, that any sale of the homestead at that time was prohibited and void, the parties likewise agreed that the deed of sale was to be made only after the lapse of five years from the date of Manzano's patent. And to protect the buyer Ocampo's rights in the agreed sale, Manzano executed in his favor a "Mortgage of Improvements" over the homestead to secure the amount of P1,100.00 already received as down payment on the price.

It is clear that a perfected contract of sale had already been entered into by the parties within the period of prohibition. There was nothing "futuristic" in this agreement, except that, being fully aware of the prohibition, Manzano's title has not ripened into absolute ownership.

This execution of the formal deed after the expiration of the prohibitory period did not and could not legalize a contract that was void from its inception. Nor was this formal deed of sale "a totally distinct transaction from the promissory note and the deed of mortgagee for it was executed only in compliance and fulfillment of the vendor's previous promise, under the perfected sale to execute in favor of his vendee the formal act of conveyance after the lapse of the period of inhibition of five years from the date of the homestead patent.

Sale in question is illegal and void for having been made within five years from the date of Manzano's patent, in violation of section 118 of the Public Land Law. Being void from its inception, the approval thereof by the Undersecretary of Agriculture and Natural Resources after the lapse of five years from Manzano's patent did not legalize the sale. The result is that the homestead in question must be returned to Manzano's heirs, who are, in turn, bound to restore to Ocampo the, sum of P3,000.00 received by Manzano as the price thereof.

6. Sale from alien to Filipino

Halili vs. CA, G.R. 133539, March 12, 1998

FACTS: Simeon de Guzman, an American citizen, dies leaving real properties in the Philippines. His forced heirs were his widow, Helen Meyers Guzman, and his son, defendant appellee DDavid Rey Guzman, both of wom are also American citizens. Helen executed a deed of quitclaim in favor to David Rey with regards to her interest over the parcels of land that she inherited from Simeon. David Rey sold said parcel of land to defendant-appellee Emiliano Cataniag. Petitioners, who are owners of the adjoining lot, filed a complaint with regards to the constitutionally and validity of the two conveyances.

ISSUE: Whether or not the sale to Cataniag is valid.

HELD: The sale to Cataniag is a valid sale. The objective of the constitutional provision – to keep our land in Filipino hands – has been served.

In fine, non-Filipinos cannot acquire or hold title to private lands or to lands of the public domain, except only by way of legal succession. Jurisprudence is consistent that “if land is invalidly transferred to an alien who subsequently becomes a citizen or transfers it to a citizen, the flaw in the original transaction is considered cured and the title of the transferee is rendered valid.”

CHAPTER 3

Effect of the Contract When the Thing Sold Has Been Lost

Art.1493-1494

1. Thing entirely lost – Where the thing is entirely lost at the time of perfection, the contract is inexistent and void because there is no object.

2. Thing partially lost – If the subject matter is only partially lost, the vendee may elect between (1) withdrawing from the contract and (2) demanding the remaining part, paying its proportionate price.

When a thing is considered LOST

-A thing is lost when it perishes or goes out of commerce or disappears in such a way that its existence is unknown or it cannot be recovered. (Art.1189)

I. Distinction

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ROOM 405A. Between 1493 and 1494

-Article 1493 applies to a sale of specific thing.

-Article 1494, on the other hand, applies only to sales of goods, that is, the object of the sale consists of a mass of “specific goods” which means “goods identified and agreed upon at the time a contract of sale is made.”(Art. 1636)

-Both articles have actually the same essence providing two alternative remedies to the buyer in case of deterioration or partial loss of the object prior to the sale.

-The second option or alternative to Art.1494 is applicable only if the objects of the sale are divisible. If they are indivisible like cars, the only available option is avoidance of the sale.

B. Between 1480 and 1504

-The loss or injury referred to in Articles 1493 and 1494 is one which has taken place before or at the time the contract of sale is perfected.

-The loss or injury mentioned in Articles 1480 and 1504 occurs after the contract is perfected but prior to the time of delivery.

CHAPTER 4

Obligations of the Vendor

Arts. 1495-1506

I. General Obligations

Principal obligations of the vendor are:

1. To transfer ownership of the determinate thing sold;

2. To deliver the thing;

3. To warrant against eviction and hidden defects (Arts. 1495, 1547);

4. To take care of the thing, pending delivery, with proper diligence (Art. 1163); and

5. To pay for the expenses for the execution and registration of the deed of sale, unless there is a stipulation to the contrary.(Art. 1487)

A. To preserve the thing (pending delivery with proper diligence)

Art. 1163. Every person obliged to give something is also obliged to TAKE CARE OF IT with the PROPER DILIGENCE of a good father of a family, unless the law or stipulation of the parties requires another standard of care.

a. Deterioration, loss or improvement (im not sure if this applies)

Art. 1189. If the obligation is subject to suspensive condition, the object is determinate, there is loss, deterioration or improvement, and the obligation is real

1. If the thing is lost without the fault of the debtor, the obligation shall be extinguished

2. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages

3. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor

4. If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case

5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor

6. If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary

Principle of Res Perit Domino; Risk of Loss – The general rule in case of loss of the thing is that the risk is borne by the owner of the thing at the time of the loss. The goods remain at the seller’s risk until the ownership is transferred to the buyer.

B. To deliver the thing sold (Art. 1537)

The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract.

All the fruits shall pertain to the vendee from the day on which the contract was perfected.

I. Form (Manner) of Delivery

a. Physical or Real or Actual (Art. 1497) –

The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. This involves the physical delivery of the thing and is usually done by the passing of a movable thing from hand to hand

Note: Delivery without the intention to transfer ownership on the part of the seller will not transfer ownership. i.e. The parties may stipulate that ownership in the thing shall not pass to the purchase until he has fully paid the price (Art. 1478)

b. Constructive or Legal Delivery –

a. By traditio symbolica (Art. 1498)

- Symbolic delivery by the execution of a public instrument is equivalent to actual delivery only when the thing is subject to the control of the vendor. Hence, the vendor who executes said public instrument fails in his

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ROOM 405obligation to deliver it if the vendee cannot enjoy its possession because of the opposition or resistance of a third person (eg, squatter) who is in actual possession (Addison vs Felix Tioco 38 Phil 404)

- the parties make use of a token symbol to represent the thing delivered, i.e. with regard to movable property the delivery of the key where the thing sold is stored or kept is equivalent to the delivery of the thing.

b. By traditio longa manu or traditio brevi manu (Art. 1499)

- traditio longa manu takes place by the mere consent or agreement of the contracting parties as when the vendor merely points to the thing sold which shall thereafter be at the control and disposal of the vendee. It should be noted that delivery “by mere consent or agreement of the contracting parties” is qualified by the phrase “if the thing sold cannot be transferred to the possession of the vendee at the time of the sale.”

- traditio brevi manu happens when the vendor has already the possession of the thing sold by virtue of another title (which is not ownership) and continues to hold the possession thereof under a title of ownership, i.e. as when the lessor sells the thing leased to the lessee. Instead of the vendee turning over the thing to the vendor so that the latter may, in turn, deliver it back to him, all these are considered done by fiction of law.

c. By quasi-traditio or quasi-delivery (Art. 1501) (delivery of incorporeal things or rights)

- tradition/delivery can only be made with respect to corporeal things. In the case of incorporeal things, delivery is effected:

1. by the execution of a public instrument

2. when that mode of delivery is not applicable, by placing of the titles of ownership in the possession of the vendee

3. by allowing the vendee to use his rights as new owner with the consent of the vendor

d. De constituto (constitutum possessorium) (Art. 1500)

- This mode of delivery is the opposite of traditio brevi manu. It takes place when the vendor continues in possession of the property sold not as owner but in some other capacity, as for example, when the vendor stays as a tenant on the vendee. In this case, instead of the vendor delivering the thing to the vendee so that the latter may, in turn, deliver it back to the vendor, the law considers that all these have taken place through the constitutum possessorium agreement.

II. Cases

1. Kinds of Delivery –

San Lorenzo Development Corp vs CA, January 21, 2005, GR 140228

Facts: Spouses Lu had purportedly sold two parcels of land in 1986 to Babasanta totaling to P460k. After down payment of P50k evidenced by a memorandum receipt, and several other payments totaling P200k, Babasanta demanded an execution of a deed of sale so that he could effect full payment of the purchase price. But Spouses Lu did not execute a deed of sale because they would only do so, after payment of the balance of P260k. Meanwhile, the land was purchased by SLDC on 1989 as evidenced by a deed of absolute sale with mortgage. RTC ruled in favor of SLDC, applying Art. 1544 of Civil Code, equating the execution of public instrument in favor of SLDC as sufficient delivery of the property. CA set aside the judgment of RTC, and deemed the sale between spouses Lu and Babasanta valid and subsisting, because the deed of absolute sale was null and void on the ground that SLDC was a purchaser in bad faith.

Issue: Who between SLDC and Babasanta has a better right over the two parcels of land.

Ruling:

The contract between Spouses Lu and Babasanta was deemed by the Supreme Court as a contract to sell and not a contract of sale. The receipt signed by Pacita Lu merely states that she accepted the sum of P50k from Babasanta as partial payment of the two parcels of land. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price. 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.

The claim of ownership by Babasanta to the land will still fail even if the contract is assumed to be a contract of sale. A sale is not a mode of acquiring ownership, but only a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership. Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.

The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or constructive delivery. Actual delivery consists in placing the thing sold in the control and possession of the vendee. Legal or constructive delivery, on the other hand, may be had through any of the following ways: the execution of a public instrument evidencing the sale; symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept; traditio longa manu or by mere consent or agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale; traditio brevi manu if the buyer already had possession of the object even before the sale; and traditio constitutum possessorium, where the seller remains in possession of the property in a different capacity.

Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.

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ROOM 405We would not hesitate to rule in favor of SLDC on the basis of its prior possession of the property in good faith. Be it noted that delivery of the property to SLDC was immediately effected after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the prior transaction by the Spouses Lu in favor of Babasanta. The notice of lis pendens was only entered into after the consummation of the sale between SLDC and spouses Lu, therefore it has no effect on the same. Since SLDC acquired possession of the property in good faith in contrast to Babasanta, who neither registered nor possessed the property at any time, SLDC’s right is definitely superior to that of Babasanta’s.

2. Possession vs Ownership –

Medina vs Greenfield Development Corporation, November 19, 2004, GR 124242

Facts: Medina sold two parcels of land to Greenfield Development Corporation in 1962 & 1964. Both were entered into with a notarized Deed of Sale, which was basis why the respondent was able to register in its name the title to the two parcels of land. These properties were consolidated with other lots and were eventually registered on 1995 in the name of respondent. On 1998 heirs of petitioners instituted an action for annulment of titles and deeds, reconveyance, damages with preliminary injunction and restraining order against respondent and register of deeds of Makati. They claim that the deeds of sale were simulated and fictitious and the signatures of the vendors were fake. Despite the transfer of title to respondents’ name, they remained in possession thereof and in fact, their caretaker Arevalo and his family still reside on a portion of the property. On 1998 petitioners caused an adverse claim to be annotated on the titles. After discovery of the annotation, GDC constructed a fence on the property and posted security personnel. Thus petitioners sought for the issuance of a temporary restraining order and a writ of preliminary injunction enjoining respondent and its agents from preventing petitioners to exercise their rights over the properties. In January 1999, RTC granted petitioners’ prayer for relief because there was doubt as to the title of Greenfield and there would be irreparable injury to the rights of the Medinas. In July 1999 CA nullified trial court’s resolution stating among others that the trial court relied mainly on petitioners’ allegations in the complaint which were not supported by substantial evidence, and respondent is in constructive possession of the properties in dispute considering that it is already the registered owner thereof.

Issue: Whether or not the trial court erred in granting petitioners’ prayer for injunctive relief.

Ruling: The trial court committed grave abuse of discretion in issuing the writ or preliminary injunction and the CA was correct in nullifying the same. Petitioners’ entitlement to the injunctive writ hinges on their prima facie legal right to the properties subject of the present dispute. The petitioners’ allegations are based merely on bare assertions and claims, while the respondent’s claim of ownership is based on notarized deeds of conveyances and torrens titles in their favor, which have a strong presumption of regularity. The petitioner has the burden to establish his right to be entitled to a preliminary injunction. It is clear that petitioners failed to discharge the burden of clearly showing a clear and unmistakable right to be protected.

Where the complainant's right or title is doubtful or disputed, injunction is not proper. The possibility of irreparable damage without proof of actual existing right is not a ground for an injunction

On the issue of possession, petitioners claim that they are in actual possession and Arevalo is their caretaker and they still reside on the property, while respondent belies their claim, and declares that Arevalo is employed by them as caretaker and his stay on the property was a mere privilege granted.

Possession and ownership are two different legal concepts. Just as possession is not a definite proof of ownership, neither is non-possession inconsistent with ownership. Even assuming that petitioners' allegations are true, it bears no legal consequence in the case at hand because the execution of the deeds of conveyances is already deemed equivalent to delivery of the property to respondent, and prior physical delivery or possession is not legally required. 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 respondent by virtue of the notarized deeds of conveyances.

When execution of public document not equivalent to delivery –

Vive Eagle Land Inc. vs CA & Genuine Ice Co., Inc., November 26, 2004, GR 140228

Facts: Spouses Flores owned two parcels of land and they executed a deed of absolute sale in favor of TATIC company with an agreement to pay taxes and remove squatters from the same. TATIC then executed a deed of absolute sale in favor of VELI with the agreement to remove squatters or else VELI withholds payment for both parcels of land. VELI then executes a third deed of absolute sale in favor of Genuine Ice Company for one of the parcels of land it acquired from TATIC. VELI had an agreement with Genuine Ice Co. that the latter will withhold P300k of the purchase price until after the former cleared the property of the squatters. There was a demand by Genuine Ice to VELI to pay the capital gains tax, documentary stamp tax and other registration fees, but VELI rejected the demand, hence the filing of and action by Genuine Ice with the RTC for specific performance and damages. Genuine Ice alleged, among others, that VELI failed to transfer title to and in the name of the respondent over the property, it failed to cause the eviction of the squatters, and it failed to pay the capital gains tax and other assessments due to effectuate the transfer of the titles of the property to and in its name.. The trial court rendered a decision favoring Genuine Ice, and it was affirmed by the CA, with modification.

Issue: Whether or not there was already delivery by the execution of the deed of sale.

Ruling: Under Article 1495 of the New Civil Code, petitioner VELI, as the vendor, is obliged to transfer title over the property and deliver the same to the vendee. While Article 1498 of the New Civil Code provides that the execution of a notarized deed of absolute sale shall be equivalent to the delivery of the property subject of the contract, the same shall not apply if, from the deed, the contrary does not appear or cannot clearly be inferred. In the present case, the respondent and petitioner VELI agreed that the latter would cause the eviction of the tenants/occupants and deliver possession of the property. It is clear that at the time the petitioner executed the deed of sale in favor of the respondent, there were tenants/occupants in the property. It cannot, thus, be concluded that, through the execution of the third deed of sale, the property was thereby delivered to the respondent.

Petitioner VELI is obliged to cause the eviction of the tenants/occupants unless there is a contrary agreement of the parties. Indeed, under the addendum executed by petitioner VELI and the respondent, the latter was given the right to withhold P300k of the purchase price until after petitioner VELI cleared the property of squatters.

Asset Privatization Trust vs TJ Enterprises, May 8, 2009, GR 167195

Facts: Asset Privatization Trust acquired from Development Bank of the Philippines certain machinery and equipment. These machinery and equipment were stored at a compound which was in the physical possession of Creative Lines Inc. APT then sold to TJ Enterprises these machinery and equipments. They entered into a Deed of Absolute Sale, and there was full payment for the items. After acquiring most of the

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ROOM 405items from the compound, they failed to haul 7 items of machinery and equipment because they were prevented to by the employees of Creative Lines. TJE then filed a complaint for specific performance against CLI and APT. During the pendency of the case, TJE was able to pull out the remaining items, but upon inspection, it was discovered that these were damaged and had missing parts.

Issue: Whether or not there was constructive delivery on the part of Asset Privatization Trust.

Ruling: The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee.

As a general rule, 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 clearly be inferred. And with regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold.

However, the execution of a public instrument only gives rise to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment. It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made. Thus, a person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.

In this case, there was no constructive delivery of the machinery and equipment upon the execution of the deed of absolute sale or upon the issuance of the gate pass since it was not petitioner but Creative Lines which had actual possession of the property. The presumption of constructive delivery is not applicable as it has to yield to the reality that the purchaser was not placed in possession and control of the property.

Transfer of ownership by placing titles of ownership in the possession of the vendee –

Tablante vs Aquino, September 18, 1914, GR 8675

Facts: Mendiola owned a piece of land and on it a warehouse which he subsequently sold to Bautista. This was recorded in the property registry. Notwithstanding the sale made to Bautista, Mendiola continued in possession of the lot and warehouse pursuant to a contract of lease executed between them. Because of Mendiola’s failure to pay, Bautista sold the same lot and warehouse to Tablante and the title deed was delivered to him. Meanwhile, a judgment was rendered against Mendiola by the CFI, which was basis for the sheriff to sell the lot and warehouse at an auction sale because it was deemed to be property of Mendiola. Vergara was the highest bidder, but it was eventually sold to Jose Aquino, the present possessor. CFI ordered Aquino to deliver property to Tablante and also to pay damages. Aquino appealed the decision

Issue: Whether or not there was transfer of ownership to Tablante.

Ruling: The ownership of things is not transferred from one person to another by mere consent in the contract, but through the delivery of the thing that is the subject of the contract. In the present case, it is admitted by the appellee that there was no material delivery of the lot and warehouse by Ciriaco Bautista to Bartolome Tablante, as up to now no proof has been presented of a contract of sale made between Bautista and Tablante.

Nevertheless, the law prescribes that the "the placing of the titles of ownership in the possession of the vendee or the use which he may make of his right with the consent of the vendor shall be considered as a delivery." (Civil Code, art. 1464.) The title deeds given to Tablante and the use of his right by the the same who in his complaint lays claim to the lot and the warehouse, appear to have been consented to by the vendor Bautista, by means of the aforementioned evidence. It is the same as though Ciriaco Bautista were the intervener, and if he had been, there would have been no cause for discussion.

Therefore, after first declaring the sale made by the sheriff, together with the subsequent ones, to be null and void, we declare Bartolome Tablante to be the owner of the lot and warehouse described in the complaint, and the defendant, Jose Aquino, is sentenced to restore them to the Tablante, but no payment for damages.

Rule in sale of registered land –

Valdevieso vs Damalerio, February 17, 2005, GR 133303

Facts: On December 1995, Valdevieso bought from spouses Uy a parcel of land, but the Deed of Sale was not registered, nor was the title of land transferred. On April 1996, Damalerio filed a complaint for sum of money with application for the issuance of a Writ of Preliminary Attachment against spouses Uy. On the same month, the trial court issued the writ, by virtue of which the property was levied, even though the property was still in the name of Uy but which had been already sold to Valdevieso. The levy was duly recorded in the Register of Deeds and annotated upon the TCT of spouses Uy. On June 1996 the TCT in the name of Uy was cancelled and in lieu thereof a new TCT was issued in the name of Valdevieso but it carried with it the attachment in favor of Damalerio. Because of that Valdevieso filed a third party claim to discharge or annul the attachment on the ground that said property belongs to him and no longer to spouses Uy, which was subsequently granted by the RTC. The CA reversed the decision on the ground that the writ of attachment takes precedence over the sale because it was recorded ahead of the sale.

Issue: Whether or not a registered writ of attachment on the land is a superior lien over that of an unregistered deed of sale.

Ruling: The Supreme Court affirms the decision of the Court of Appeals. The law applicable to the facts of this case is Section 51 of P.D. No. 1529. Said Section provides:

Sec. 51. Conveyance and other dealings by registered owner. - An owner of registered land may convey, mortgage, lease, charge, or otherwise deal with the same in accordance with existing laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will purporting to convey or affect registered land, shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration.

The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies.

It is to be noted that though the subject land was deeded to petitioner as early as 05 December 1995, it was not until 06 June 1996 that the conveyance was registered, and, during that interregnum, the land was subjected to a levy on attachment. It should also be observed that, at the time of the attachment of the property on 23 April 1996, the spouses Uy were still the registered owners of said property. Under the cited law, the execution of the deed of sale in favor of petitioner was not enough as a succeeding step had to be taken, which was the registration of the sale from the spouses Uy to him. Insofar as third persons are concerned, what validly transfers or conveys a person’s

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ROOM 405interest in real property is the registration of the deed. Thus, when petitioner bought the property on 05 December 1995, it was, at that point, no more than a private transaction between him and the spouses Uy. It needed to be registered before it could bind third parties, including respondents. When the registration finally took place on 06 June 1996, it was already too late because, by then, the levy in favor of respondents, pursuant to the preliminary attachment ordered by the General Santos City RTC, had already been annotated on the title.

The settled rule is that levy on attachment, duly registered, takes preference over a prior unregistered sale. This result is a necessary consequence of the fact that the property involved was duly covered by the Torrens system which works under the fundamental principle that registration is the operative act which gives validity to the transfer or creates a lien upon the land.

The preference created by the levy on attachment is not diminished even by the subsequent registration of the prior sale. This is so because an attachment is a proceeding in rem. It is against the particular property, enforceable against the whole world. The attaching creditor acquires a specific lien on the attached property which nothing can subsequently destroy except the very dissolution of the attachment or levy itself. Such a proceeding, in effect, means that the property attached is an indebted thing and a virtual condemnation of it to pay the owner’s debt. The lien continues until the debt is paid, or sale is had under execution issued on the judgment, or until the judgment is satisfied, or the attachment discharged or vacated in some manner provided by law.

Thus, in the registry, the attachment in favor of respondents appeared in the nature of a real lien when petitioner had his purchase recorded. The effect of the notation of said lien was to subject and subordinate the right of petitioner, as purchaser, to the lien. Petitioner acquired ownership of the land only from the date of the recording of his title in the register, and the right of ownership which he inscribed was not absolute but a limited right, subject to a prior registered lien of respondents, a right which is preferred and superior to that of petitioner.

3. Effect of affidavit of adverse claim in lieu of registration –

Navotas Industrial vs Cruz, September 12, 2005, GR 159212

Facts: Carmen Cruz entered into a lease agreement with Navotas Industrial Corporation in 1966, wherein the latter would lease her property from October 1966 to October 1990. Carmen then sold the property to her children on December of 1974, executing a Deed of Absolute Sale of Realty with Assumption of Mortgage. This deed was not registered. On June 1977 Carmen’s children paid the loan, and then the bank subsequently executed a cancellation of Real Estate Mortgage, but this was not presented to the Register of Deeds for Registration. Carmen’s children then executed an Affidavit of Adverse Claim, stating that they were the vendees of the property as evidenced by a Deed of Sale with Assumption of Mortgage appended thereto, and that to protect their rights and interests, the said affidavit of adverse claim was being executed as a cautionary notice to third persons and the world that the property had been sold to them. The affidavit of adverse claim was inscripted at the dorsal portion of the title on June 1977. On July 1977 Carmen entered into an agreement with NIC for a supplementary lease agreement with an option to buy the property. However this was not presented for registration to the Register of Deeds. It was only on September 1977 that NIC presented the supplementary lease agreement to the Register of Deeds for annotation at the dorsal portion of the title. In 1991 Carmen’s children demanded that NIC vacate the property because they no longer had the intention to renew the contract, but NIC refused to do so, and it posited that it would exercise it’s option to buy the property. In 1995 the Cruz heirs filed for nullification of the supplementary lease agreement, but the RTC upheld the validity of the agreement in its judgment on March 2000. Cruz heirs appealed the decision of the RTC and the CA on July 2003 reversed the decision of RTC, stating among others that NIC had constructive notice of the adverse claim, and that the supplementary lease agreement had no effect because it was no longer owned by Carmen Cruz, and the option to buy was not effected because there was no consideration therefore.

Issue: Whether or not the supplementary lease agreement is valid and binding.

Ruling: The Supreme Court held that it was not because NIC had constructive notice of the adverse claim, and that at the time the supplementary lease agreement was entered into the land was no longer owned by Carmen Cruz, and the option to buy was not effective because there was no separate consideration for it.

Basic is the rule that the annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real property and serves as a notice and warning to third parties dealing with said property that someone is claiming an interest on the same or a better right than the registered owner thereof. A subsequent transaction involving the property cannot prevail over the adverse claim which was previously annotated in the certificate of title of the property.

The general rule is that a person dealing with registered land is not required to go behind the register to determine the condition of the property. However, such person is charged with notice of the burden on the property which is noted on the face of the register or certificate of title. A person who deals with registered land is bound by the liens and encumbrances including adverse claim annotated therein.

In the present action, the petitioner caused the annotation of the July 30, 1977 Supplementary Lease Agreement and Contract of Sale only on September 14, 1977, long after the annotation of the respondents’ adverse claim at the dorsal portion of TCT No. 81574 on June 30, 1977. Thus, as of that date, the petitioner had constructive knowledge of the Deed of Sale with Assumption of Mortgage Carmen Cruz executed on December 31, 1974 in favor of her children. Even before July 30, 1977, the petitioner had knowledge that Carmen Cruz was no longer the owner of the property, and had no more right to execute the July 30, 1977 Supplementary Lease Agreement and Contract of Lease. The registration of the said lease contracts was of no moment, since it is understood to be without prejudice to the better rights of third parties.

C. Transfer of Ownership to the Buyer

a. General Rule

Generally, the ownership in the goods passes to the buyer upon their delivery to the carrier. Delivery may be actual/real, constructive/legal, or in any manner signifying an agreement that the possession is transferred to the buyer.

Case: Determination of place of consummation of contract for purposes of imposing sales tax

Butuan Sawmill vs CTA, February 28, 1966, GR L-20601

Facts: Butuan Sawmill sells logs to Japanese firms at prices FOB vessel. Freight is paid by Japanese buyers, and the payments were effected by means of irrevocable letters of credit in favor of Butuan Sawmill. Upon investigation by the BIR it was ascertained that no sales tax return was filed by Butuan Sawmill and neither did t pay the corresponding tax on the sales. Thereafter, BIR assessed against Butuan Sawmill sales tax and surcharges. Butuan challenged the assessment on the ground that the disputed sales were consummated in Japan and therefore not subject to the taxing jurisdiction of the Philippines.

Issue: The main issue is the place of consummation of sale to determine whether or not petitioner is liable to pay the sales tax

Ruling: In a decided case with practically identical set of facts obtaining in the case at bar, this Court declared:

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ROOM 405. . . it is admitted that the agreed price was "F.O.B. Agusan", thus indicating, although prima facie, that the parties intended the title to pass to the buyer upon delivery of the logs in Agusan; on board the vessels that took the goods to Japan. Moreover, said prima facie proof was bolstered up by the following circumstances, namely:

1. Irrevocable letters of credit were opened by the Japanese buyers in favor of the petitioners.

2. Payment of freight charges of every shipment by the Japanese buyers.

3. The Japanese buyers chartered the ships that carried the logs they purchased from the Philippines to Japan.

4. The Japanese buyers insured the shipment of logs and collected the insurance coverage in case of loss in transit.

5. The petitioner collected the purchase price of every shipment of logs by surrendering the covering letter of credit, bill of lading, which was indorsed in blank, tally sheet, invoice and export entry, to the corresponding bank in Manila of the Japanese agent bank with whom the Japanese buyers opened letters of credit.

6. In case of natural defects in logs shipped to the buyers discovered in Japan, instead of returning such defective logs, accepted them, but were granted a corresponding credit based on the contract price.

7. The logs purchased by the Japanese buyers were measured by a representative of the Director of Forestry and such measurement was final, thereby making the Government of the Philippines a sort of agent of the Japanese buyers.

It is clear that said export sales had been consummated in the Philippines and were, accordingly, subject to sales tax therein.

b. When delivery does not transfer title

1. In “delivery on approval, trial, or satisfaction”

Paragraph 2 of Article 1502 provides:

When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein passes to the buyer:

i. When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;

ii. If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact.

2. In case of express reservation of title in the seller

Paragraph 1 of Article 1503 provides:

Where there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.

Case:

Reyes vs Salvador, September 11, 2008, GR 139047

Facts: Domingo owns a parcel of unregistered land. On June 1965 his son Nicomedes executed a deed of conditional sale in favor of Emma. On June 1968 Nicomedes entered into an Agreement of purchase and sale with Rosario. On August 1969 Nicomedes sold part of the land to Maria and executed a Deed of Absolute Sale of Unregistered Land. On July 1980, the heirs of Nicomedes sold the remaining land in favor of Dulos Corp and also executed a Deed of Absolute Sale of Unregistered Land.

Issue: Which party acquired valid and registrable title to the land.

Ruling: After a conscientious review of the arguments and evidence presented by the parties, the Court finds that the Deed of Conditional Sale between Nicomedes and Emma and the Agreement of Purchase and Sale between Nicomedes and Rosario were both mere contracts to sell and did not transfer ownership or title to either of the buyers in light of their failure to fully pay for the purchase price of the subject property.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A simple reading of the terms of the June 1965 Deed of Conditional Sale readily discloses that it contains stipulations characteristic of a contract to sell. It provides for the automatic cancellation of the contract should Emma fail to pay the purchase price as required therein; and, in such an event, it grants Nicomedes the exclusive right to thereafter sell the subject property to a third person. As in Adelfa Properties, the contract between Nicomedes and Emma does not provide for reversion or reconveyance of the subject property to Nicomedes in the event of nonpayment by Emma of the purchase price. More importantly, the Deed in question clearly states that Nicomedes will issue a final deed of absolute sale only upon the full payment of the purchase price for the subject property. Taken together, the terms of the Deeds reveal the evident intention of the parties to reserve ownership over the subject property to Nicomedes pending payment by Emma of the full purchase price for the same.

While the Deed of Conditional Sale dated June 1965 was indeed contained in a public instrument, it did not constitute constructive delivery of the subject property to Emma in view of the contrary inference in the Deed itself that the ownership over the subject property was reserved by NicomedesMoreover, other than her claim that she paid the realty taxes on the subject property, Emma did not present any evidence that she took actual and physical possession of the subject property at any given time.

This Court also finds that, contrary to the ruling of the Court of Appeals, the Agreement of Purchase and Sale executed by Nicomedes in favor of Rosario on June 1968 is likewise a mere contract to sell. The Agreement itself categorically states that Nicomedes only undertakes to sell the subject property to Rosario upon the payment of the stipulated purchase price and that an absolute deed of sale is yet to be executed between the parties.

Thus, the Deeds of Absolute Sale in favor of Maria and Dulos Realty were the only conveyances of the subject property in this case that can be the source of a valid and registrable title. Both contracts were designated as absolute sales and the provisions thereof leave no doubt that the

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ROOM 405same were true contracts of sale. The total considerations for the respective portions of the subject property were fully paid by the buyers and no conditions whatsoever were stipulated upon by the parties as regards the transmission of the ownership of the said property to the said buyers.

3. Implied reservation of title

The full text is found in Article 1503.

i. If under the bill of lading the goods are deliverable to the seller or agent or their order. (Reason, the buyer cannot get the goods.)

ii. If bill of lading, although stating that the goods are to be delivered to buyer or his agent, is KEPT by the seller or his agent. (the buyer also cannot get the goods)

iii. When the buyer, although the goods are deliverable to order of buyer, and although the bill of lading is given to him, does not honor the bill of exchange sent along with it. But of course innocent third parties (innocent holders and purchasers for value) should not be adversely affected.

Example: S sold B a laptop. The laptop was shipped on board a carrier. The bill of lading stated that the laptop is deliverable to the order of B. The bill of lading was sent to B, accompanied by a bill of exchange which B was supposed to honor. If B does not honor the bill of exchange, but wrongfully retains the bill of lading, ownership remains with the seller. If B sells the bill of lading to X, X can obtain ownership of the goods if he is an innocent purchaser.

Note: Bill of lading – A document evidencing a contract for the carriage and delivery of the listed goods.

Bill of exchange – A written instrument providing proof of an obligation to pay money.

4. Sale to two different persons by the same seller (Art. 1544)

i. Personal/movable property – possessor in good faith

ii. Real/immovable property –

1. Registrant if good faith

2. Possessor in good faith

3. Person with the oldest title in good faith

5. When the seller is not the owner (Art. 1505)

The general principle as regards personal property that a seller without title cannot transfer a better title than what he actually has. He cannot give what he does not have, nemo dat quod non habet. Even a buyer in good faith succeeds only to the rights of the vendor, sale ex vi termini. He cannot acquire anything more. A stream cannot rise higher than its source.

Exception:

i. When the true owner of the goods by his conduct is precluded from denying the authority of the seller.

ii. When the sale by the non-owner is effected by, factors’ acts, recording laws, or any other provisions of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof.

iii. When the sale is sanctioned by statutory or judicial authority

iv. Purchases made in a merchant’s store, or in fair, or markets, in accordance with the Code of Commerce and special laws.

c. Revesting of title that has passed to the buyer

1. Stoppage in transitu (Article 1534)

This article refers to the right to rescind the transfer of title and to resume the ownership in the goods. Before an unpaid seller may be allowed to rescind the sale, it must be shown that (a) he has the right of lien over the goods or (b) he has stopped the goods in transitu. In addition, the parties have reserved for the seller the right to rescind in case of default on the part of the buyer, or in the absence of such reservation, the buyer has been in default in his payment for an unreasonable length of time.

However, rescission when it is not reserved, shall not be effective unless the seller has notified the buyer of the former’s intention to rescind or has manifested by an overt act or acts his intention to so rescind.

2. Delivery to the buyer “on sale or return”

Sale or return – it is a contract by which property is sold but the buyer, who becomes the owner of the property on delivery, has the option to revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract or if no time has been fixed, within a reasonable time. (Article 1502) Under this contract, the option to purchase or return the goods rests entirely on the buyer without reference to the quality of the goods.

3. In case of danger of loss of thing and the price

The risk of loss or deterioration is on the buyer prior to the exercise of his option to revest the ownership of the goods in the seller. The reason for this is that the seller is the owner of the goods from the time of their delivery until the revestment of the ownership thereof into the seller.

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