sales round2

8/3/2019 Sales Round2

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SALES! - A2010 - Prof. Jardeleza Page 33

Chapter 5: PERFECTION OF THE CONTRACT:

DE LA CAVADA V DIAZ37 PHIL 982

JOHNSON; April 1, 1918

NATUREAppeal from a judgment of a lower court (no mention of

particular court in electronic copy)

FACTS- On the 15th day of November, 1912, Antonio Diaz(defendant/petitioner) granted an option to Antonio Enriquez(plaintiff/respondent), to purchase his hacienda at Pitogoconsisting of 100 and odd hectares, within the period necessaryfor the approval and issuance of a Torrens title thereto by theGovernment, for which he may pay either the sum of thirtythousand pesos (P30,000), Philippine currency, in cash, or withinthe period of six (6) years, beginning with the date of thepurchase, the sum of forty thousand pesos (P40,000), Philippinecurrency, at six per cent interest per annum, with due securityfor the payment of the said P40,000 in consideration of the sale.- Antonio Enriquez accepted the grant of option, with a conditionthat a surveyor will be sent to survey the said property, and to

apply to the Government for a Torrens title, and that he shallpay the purchase price in conformity with the letter of optionafter the Torrens title shall have been officially approved.- Soon after the execution of said contract, and in partialcompliance with the terms thereof, the defendant presented twopetitions in the Court of Land Registration, each for the purposeof obtaining the registration of a part of the "Hacienda dePitogo."- Said petitions were granted; the parcels were registered, andcertificates of title under the Torrens system were issued to thedefendant.- The defendant offered to transfer to the plaintiff one of saidparcels only, which was a part of said "hacienda."- The plaintiff refused to accept said certificate for a part only ofsaid "hacienda" upon the ground (a) that it was only a part ofthe "Hacienda de Pitogo," and (b) under the contract, he wasentitled to all said "hacienda.

Petitioners ClaimThe contract of sale of said "Hacienda de Pitogo" included only100 hectares, more or less, of said "hacienda," and that byoffering to convey to the plaintiff a portion of said "hacienda"composed of "100 hectares, more or less," he thereby compliedwith the terms of the contractRespondents CommentHe had purchased all of said "hacienda," and that the samecontained, at least, 100 hectares, more or less.- Lower court sustained the contention of the plaintiff, to wit,that the sale was a sale of the "Hacienda de Pitogo" and not asale of a part of it, and rendered a judgment requiring thedefendant to comply with the terms of the contract bytransferring to the plaintiff, by proper deeds of conveyance, allsaid "hacienda," or to pay in lieu thereof the sum of P20,000damages, together with 6 per cent interest from the date upon

which said conveyance should have been made.- From that judgment the defendant appealed

ISSUEWON the defendant was obliged to convey to the plaintiff all ofsaid "hacienda"

HELDYES- Appellant assigns a number of errors to the lower court, towit:1. (a) that the lower court committed an error in declaringthe contract a valid obligation, for the reason that the same wasnull for a failure of consideration; 2. in not declaring that theaction was premature, for the reason that the plaintiff had notpaid nor offered to pay the price agreed upon, under theconditions named, for the land in question; 3. in not declaring

that the defendant was not obligated to sell the "Hacienda Pitogo" to the plaintiff for nonfulfillment, renunciatioabandonment and negligence of plaintiff himself, etc.; 4. in ndeclaring that the contract of sale was not in effect a contract sale (he alleges that the contract was, in fact, a contract by virtuof which the plaintiff promised to find a buyer for the parcel land in question).- To all these, the Court just said that it was not raised in the lowcourt and it is improperly presented for the first time.

recognized that the only dispute between the parties in the lowcourt was whether or not the defendant was obliged to convey the plaintiffall of said "hacienda."***Unfortunately, the SC did not interpret the contract to find owhether the plaintiff was right in insisting that the contraentitled him to a conveyance of all of said "hacienda," or if tdefendant, as contended, complied with the terms of his contraby offering to convey to the plaintiff a part of the said "haciendonly. But because it affirmed the decision of the lower court,agreed with the plaintiff that it included all.***Obiter in discussion as regards the first assignment of err(because it disposed of it by saying that it wasnt raised in tlower court)- A promise made by one party, if made in accordance with tforms required by the law, may be a good consideration (causfor a promise made by another party. (Art. 1274, Civil Code.) other words, the consideration (causa) need not pass from one the other at the time the contract is entered into. For example,promises to sell a certain parcel of land to B for the sum P70,000. A, by virtue of the promise of B to pay P70,000, promisto sell said parcel of land to B for said sum, then the contract complete, provided they have complied with the forms requirby the law. The consideration need not be paid at the time of tpromise. The one promise is a consideration for the other.- In the present case, the defendant promised to convey the lain question to the plaintiff as soon as the same could registered. The plaintiff promised to pay to the defendant P70,00therefor in accordance with the terms of their contract. Tplaintiff stood ready to comply with his part of the contract. Thdefendant, even though he had obtained a registered title to saparcel of land, refused to comply with his promise. All of thconditions of the contract on the part of the defendant had beeconcluded, except delivering the deeds of transfer.

- The said contract (Exhibits A and B) was not, in fact, a"optional contract" as that phrase is generally useReading the said contract from its four corners it is clearan absolute promise to sell a definite parcel of land forfixed price upon definite conditions. The defendant promisto convey to the plaintiff the land in question as soon as the samwas registered under the Torrens system, and the plainpromised to pay to the defendant the sum of P70,000, under tconditions named, upon the happening of that event. The contrawas not, in fact, what is generally known as a "contract of optionIt differs very essentially from a contract of option.- An optional contract is a privilege existing in one person, fwhich he had paid a consideration, which gives him the right buy, for example, certain merchandise of certain specifiproperty, from another person, if he chooses, at any time withthe agreed period, at a fixed price. A contract of option is

contract by virtue of the terms of which the parties therepromise and obligate themselves to enter into contract at a fututime, upon the happening of certain events, or the fulfillment certain conditions.

SANCHEZ V RIGOS45 SCRA 368

CONCEPCION; June 14, 1972

NATUREAppeal from a decision of the Court of First Instance of NueEcija to the Court of Appeals

FACTS


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SALES! - A2010 - Prof. Jardeleza Page 34- April 3, 1961 Sanchez and Rigos executed an instrumentcalled Option to Purchase- Rigos committed to sell to Sanchez a parcel of land in NuevaEcija for the sum of P1,510.00.- Within two years from the said date, if Sanchez shall notexercise his right to buy the property, the option shall beterminated- Within the said period, Sanchez made several attempts to payP1,510.00 to Rigos but Rigos rejected these payments

- March 12, 1963 Sanchez deposited the amount in the Courtof First Instance in Nueva Ecija- Feb. 28, 1964 Rigos ordered by the lower court to accept thepayments of Sanchez and to execute in Sanchezs favor thedeed of conveyance for the property.Petitioners Claim- By virtue of the document executed, Rigos had agreed andcommitted to sell the property and he, in turn, agreed andcommitted to buy.- Thus the promise contained in the contract is reciprocallydemandable.Respondents Comments- The contract is a unilateral promise to sell.- The contract was unsupported by any valuable considerationand is thus null and void when viewed in the light of the CivilCode.

ISSUEWON a promise to buy and sell existed between the partiesinvolved

HELDYESRatio An accepted unilateral promise' can only have a bindingeffect if supported by a consideration, which means that theoption can still be withdrawn, even if accepted, if the same isnot supported by any consideration. Since there may be novalid contract without a cause or consideration, the promisor isnot bound by his promise and may, accordingly, withdraw it.Pending notice of its withdrawal, his accepted promise partakes,however, of the nature of an offer to sell which, if accepted,results in a perfected contract of sale.Reasoning

-The case is dependent on A1479 of the Civil Code which statesthat: An accepted unilateral promise to buy or to sell adeterminate thing for a price certain is binding upon thepromisor if the promise is supported by a consideration distinctfrom the price.- The document drawn between Rigos and Sanchez does notrequire Sanchez to purchase the property. It is not a contract tobuy and sell.- Rigos committed to sell the property to Sanchez but thedocument does not state that the promise or undertaking issupported by consideration distinct from the price stipulated.- The lower court relied on A1354. The Supreme Court howevermakes the following notes with regard to the use of thatprovision vis--vis A1479:- A1354 applies to contracts in general whereas A1479 refers tosales in particular (specifically to a unilateral promise to buy and

sell), making A1479 the controlling provision.- For the unilateral promise to be binding, there must be aconcurrence of a condition, that it be supported by aconsideration distinct from price. The promise cannot compelthe promisor to comply with the promise unless there is theexistence of that distinct consideration. In this case, this wasnot alleged by Sanchez.- Rigos stated that there was indeed the absence of thatconsideration which Sanchez did not oppose- Despite this differences, later jurisprudence states that A1354and A1479 have no differences and can actually be harmonized.

LIMSON V CA (DE VERA)375 SCRA 209

BELLOSILLO; April 20, 2001

NATUREPetition for Review on Certiorari of CA decision

FACTS- Lourdes LIMSON alleged that spouses DE VERA, through theagent, offered to sell to her a parcel of land situated in Barrio SaDionisio, Paraaque. She agreed to buy it at the price of P34/sq.and she gave the sum of P20T as "earnest money."

- The couple signed a receipt and gave her a 10-day optioperiod to purchase it. They informed her that it was mortgaged Emilio and Isidro RAMOS. Mr. de Vera then asked her to pay tbalance of the purchase price to enable him and his wife to settheir obligation.- They were supposed to meet at the Office of the Registry Deeds of Makati to consummate the transaction but the coupdid not appear. In the next scheduled mtg, she claimed that swas willing and ready to pay the balance but the transactiagain did not materialize as the spouses failed to pay the bataxes of the property.- A month later, she was surprised to learn from the spouseagent that the same property was the subject of negotiation for sale to Sunvar Realty DevelopmeCorporation (SUNVAR). She discovered that althourespondent spouses purchased the property from the Ramosabout 8 years ago, it was only now that a TCT was issued to tspouses.- She filed an Affidavit of Adverse Claim with the Office of tRegistry of Deeds of Makati. On this same date, the Deed of Sabetween spouses and SUNVAR was also executed with LimsonAdverse Claim annotated thereon.- She claimed that this Deed of Sale should be annulled athat a new one be executed between her and the spouses upoher payment of the balance. When spouses sold the property SUNVAR, her valid and legal right to purchase it was ignored if nviolated. Also, SUNVAR was in bad faith as it knew of h"contract" to purchase the property. The spouses agent informa member of the BOD of SUNVAR that property was already soto her.- DE VERAS claimed that the option to buy the property had loexpired and that there was no perfected contract to sbetween them.

- RTC ruled in favor of petitioner. Deed of Sale was ordered to executed in her favor. CA completely reversed RTC decision.

ISSUE1. WON it was only a contract of option (not a contract to sell)2. WON petitioner accepted the offer within the 10-day optiperiod3. WON SUNVAR was aware of the perfected sale between Limsand the De Veras, thus making respondent SUNVAR a buyer bad faith

HELD1. YESRatio An option is a continuing offer or contract by which towner stipulates with another that the latter shall have the rigto buy the property at a fixed price within a time certain, or unde

or in compliance with, certain terms and conditions, or whigives to the owner of the property the right to sell or demandsale.- Until acceptance, it is not, properly speaking, a contract, adoes not vest, transfer, or agree to transfer, any title to, or ainterest or right in the subject matter.Reasoning-The Receipt that contains the contract between petitioner arespondent spouses shows that they only entered into a contraof option. The agreement imposed no binding obligation petitioner, aside from the consideration for the offer. Proof: (1) P20T was referred to as "earnest money" but aftercareful examination of the words used, this actually meant optimoney since there was nothing in the Receipt which indicatthat this was part of the purchase price. (2) It was stated in tcontract that should the transaction of the property n


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SALES! - A2010 - Prof. Jardeleza Page 35materialize without fault of petitioner as buyer, respondent deVera obligates himself to return the full amount of P20T "earnestmoney" with option to buy or forfeit the same on the fault ofpetitioner. (3) There was a guarantee that petitioner or herrepresentative would be notified in case the property was soldor encumbered to a third person. (4) The Receiptprovided for aperiod within which the option to buy was to be exercised.ObiterDifference between Earnest money and Option money

(a) Earnest money is part of the purchase price, while optionmoney is the money given as a distinct consideration for anoption 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 thebalance, while when the would-be buyer gives option money, heis not required to buy, but may even forfeit it depending on theterms of the option.2. NORatio Except where a formal acceptance is not required,although acceptance must be affirmatively and clearly madeand evidenced by some acts or conduct communicated to theofferor, it may be made either in a formal or an informalmanner, and may be shown by acts, conduct or words by theaccepting party that clearly manifest a present intention ordetermination to accept the offer to buy or sell.Reasoning-There is nothing that clearly manifested a present intention onLimsons part to accept the offer to buy the property. The onlyoccasion within the option period when she could havedemonstrated her acceptance was when she allegedly agreed tomeet the spouses at the Register of Deeds. But this is notconclusive of acceptance.- After expiration of the period, the subsequent meetings andnegotiations between the parties only showed the desire ofrespondent spouses to sell their property to her. Also, whenspouses sent her a telegram demanding full payment of thepurchase price, this simply demonstrated an inclination to giveher preference to buy. Collectively, these did not indicate thatpetitioner still had the exclusive right to purchase subjectproperty. Extension must not be implied but categorical andmust show the clear intention of the parties.

3. NO- The option period having expired and acceptance was noteffectively made by petitioner, the purchase of subject propertyby respondent SUNVAR was perfectly valid and entered into ingood faith. There is no evidence of bad faith.Disposition Petition DENIED. CA decision ordering Register ofDeeds of Makati City to lift the adverse claim and such otherencumbrances petitioner Limson may have filed or caused to beannotated on TCT is AFFIRMED, with the MODIFICATION that theaward of nominal and exemplary damages as well as attys feesis DELETED.

BAUTISTA V SORIANO6 SCRA 946

MAKALINTAL; December 29, 1962

NATUREAPPEAL from a judgment of the Court of First Instance of Rizal(Pasig)

FACTS- Sps. BAUTISTA are the absolute and registered owners of aparcel of land in Teresa Rizal. The said spouses signed theKASUNDUAN NG SANGLAAN on May 1956 in favor of RUPERTOSORIANO and OLIMPIA DE JESUS, where one of the paragraphs(paragraph5) provided, as translated: "That it has likewise beenagreed that if the financial condition of the mortgagees willpermit, they may purchase said land absolutely on any datewithin the two-year term of this mortgage at the agreed price ofP3,900.00." With the signing of the deed, the SPS. transferredthe possession of the land to SORIANO and DE JESUS, and the

latter have been in possession and enjoyment of the produce the said land.- Sometimes after the signing of the deed, SORIANO and DE JESUgave the sum of P450 pursuant to the conditions agreed upon the deed (portion of the amount loaned?) to the SPS, which thSPS returned after 2 years. However, before paying the P45SORIANO and DE JESUS, through their lawyer, sent the SPSletter informing them that they have decided to buy the lapursuant to paragraph5.

- SPS refused to comply with the demand so SORIANO and DJESUS filed civil case praying that they be allowed to consign deposit the sum of P1650 as the balance of the purchase price the parcel of land in question (P1650 =P3000 purchase priceP1800 initial amount loaned P450 paid sometime after texecution of the deed), that judgment be rendered ordering tSPS to execute an absolute deed of sale, plus damages.- SPS filed a complaint against SORIANO and DE JESUS, which winitially dismissed for lack of jurisdiction, then filed again, prayithat the appellants would accept the payment of the principobligation and they be released from the mortgage.CFI: SPS to execute deed of sale + pay attys fees

ISSUEWON SORIANO and DE JESUS are entitled to specific performanconsisting of the execution by the SPS of the deed of sale, haviseasonably advised the SPS that they had decided to buy the lain question

HELDYES- The mortgagors' promise to sell is supported by the samconsideration as that of the mortgage itself, which is distinct frothat which would support the sale, an additional amount havinbeen agreed upon, to make up the entire price of P3,900.0should the option be exer. cised. The mortgagors' promise was the nature of a continuing offer, non-withdrawable during a periof two years, which upon acceptance by the mortgagees, garise to a perfected contract of purchase and sale.- ON RIGHT TO REDEEM: While the transaction is undoubtedlymortgage and contains the customary stipulation concerniredemption, it carries the added special provision aforequotewhich renders the mortgagors' right to redeem defeasible at t

election of the mortgagees. It is simply an option to busanctioned by Article 14791of the Civil Code.DispositionThe judgment appealed from is affirmed, with costs

EQUATORIAL REALTY DEVT INC V MAYFAIRTHEATER INC264 SCRA 483

HERMOSISIMA JR; November 21, 1996

NATUREPetition for review of the decision of the Court of Appeals.

FACTS- Carmelo owned a parcel of land, together with two 2-storbuildings constructed thereon located at Claro M. Recto Avenu

Manila.- On June 1, 1967 Carmelo entered into a contract of lease wiMayfair for the latters lease of a portion of the second floor anmezzanine of the two-storey building, for use by Mayfair asmotion picture theater and for a term of twenty (20) yeaMayfair thereafter constructed on the leased property a movhouse known as Maxim Theatre.- On March 31, 1969, Mayfair entered into a second contract lease with Carmelo for the lease of another portion of Carmeloproperty, to wit: a portion of the second floor of the two-storbuilding, the 2 store spaces at the ground floor and mezzaninfor similar use as a movie theater and for a similar term of twen

1 Art. 1479, NCC - A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy

to sell a determinate thing for a price certain is binding upon the promisor if the promise is supported by a consideration distinct from the price.


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SALES! - A2010 - Prof. Jardeleza Page 36(20) years. Mayfair put up another movie house known asMiramar Theatre on this leased property.- Both contracts of lease provides (sic) identically wordedparagraph 8, which reads:That if the LESSOR should desire to sell the leased premises,the LESSEE shall be given 30-days exclusive option to purchasethe same.In the event, however, that the leased premises is sold tosomeone other than the LESSEE, the LESSOR is bound and

obligated, as it hereby binds and obligates itself, to stipulate inthe Deed of Sale thereof that the purchaser shall recognize thislease and be bound by all the terms and conditions thereof.- In August 1974, Mr. Henry Pascal of Carmelo informed Mr.Henry Yang, President of Mayfair, that Carmelo was desirous ofselling the entire Claro M. Recto property. Mr. Pascal told Mr.

Yang that a certain Jose Araneta was offering to buy the wholeproperty for $1,200,000, and Mr. Pascal asked Mr. Yang if thelatter was willing to buy the property for P6-7 M.- On August 23, 1974, Mayfair replied through a letter remindingthem the 30-days exclusive option to purchase granted toMayfair under the contract of lease. Carmelo did not reply to thisletter.- On September 18, 1974, Mayfair sent another letter toCarmelo purporting to express interest in acquiring not only theleased premises but the entire building and otherimprovements if the price is reasonable. However, both Carmeloand Equatorial questioned the authenticity of the second letter.- On July 30, 1978, Carmelo sold its entire C.M. Recto Avenueland and building, which included the leased premises housingthe Maxim and Miramar theatres, to Equatorial by virtue of aDeed of Absolute Sale, for the total sum of P11,300,000.00.- In September 1978, Mayfair instituted the action for specificperformance and annulment of the sale of the leased premisesto Equatorial. In its Answer, Carmelo alleged as special andaffirmative defense (a) that it had informed Mayfair of its desireto sell the entire C.M. Recto Avenue property and offered thesame to Mayfair, but the latter answered that it was interestedonly in buying the areas under lease, which was impossiblesince the property was not a condominium; and (b) that theoption to purchase invoked by Mayfair is null and void for lack ofconsideration.- Equatorial pleaded as special and affirmative defense that the

option is void for lack of consideration and is unenforceable byreason of its impossibility of performance because the leasedpremises could not be sold separately from the other portions ofthe land and building. It counterclaimed for cancellation of thecontracts of lease, and for increase of rentals in view of allegedsupervening extraordinary devaluation of the currency.- The trial court adjudged the identically worded paragraph 8found in both aforecited lease contracts to be an option clausewhich however cannot be deemed to be binding on Carmelobecause of lack of distinct consideration therefor.Upon appeal, the CA reversed the court a quo.

ISSUEWON the option clause in the contracts of lease is actually aright of first refusal provision

HELDYES- Contractual stipulation provides for a right of first refusal infavor of Mayfair. It is not an option clause or an option contract.- An option contract is one necessarily involving the choicegranted to another for a distinct and separate consideration asto whether or not to purchase a determinate thing at apredetermined fixed price.- Bouvier: OPTION CONTRACT- A contract by virtue of which A,in consideration of the payment of a certain sum to B, acquiresthe privilege of buying from, or selling to B, certain securities orproperties within a limited time at a specified price.- An agreement in writing to give a person the option topurchase lands within a given time at a named price is neither asale nor an agreement to sell. It is simply a contract by whichthe owner of property agrees with another person that he shall

have the right to buy his property at a fixed price within a certatime. He does not sell his land; he does not then agree to sell but he does sell something; that is, the right or privilege to buy the election or option of the other party. The second party getspraesenti, not lands, nor an agreement that he shall have landbut he does get something of value; that is, the right to call fand receive lands if he elects. The owner parts with his right sell his lands, except to the second party, for a limited period. Tsecond party receives this right, or, rather, from his point of vie

he receives the right to elect to buy.- The two definitions above cited refer to the contract of optioor, what amounts to the same thing, to the case where there wcause or consideration for the obligation, the subject of tagreement made by the parties; while in the case at bar thewas no such cause or consideration.- The rule so early established in this jurisdiction is that the deof option or the option clause in a contract, in order to be vaand enforceable, must indicate the definite price at which tperson granting the option, is willing to sell.- Article 1458 of the Civil Code provides:Art. 1458. By the contract of sale one of the contracting partobligates himself to transfer the ownership of and to deliverdeterminate thing, and the other to pay therefor a price certain money or its equivalent.A contract of sale may be absolute or conditional.- When the sale is not absolute but conditional, such as inContract to Sell where invariably the ownership of the thing sois retained until the fulfillment of a positive suspensive conditi(normally, the full payment of the purchase price), the breachthe condition will prevent the obligation to convey title froacquiring an obligatory force.- An unconditional mutual promise to buy and sell, as long as tobject is made determinate and the price is fixed, can obligatory on the parties, and compliance therewith maccordingly be exacted.- An accepted unilateral promise which specifies the thing to bsold and the price to be paid, when coupled with a valuabconsideration distinct and separate from the price, is what mproperly be termed a perfected contract of option. This contractlegally binding, and in sales, it conforms with the secoparagraph of Article 1479 of the Civil Code:An accepted unilateral promise to buy or to sell a determina

thing for a price certain is binding upon the promissor if tpromise is supported by a consideration distinct from the price.- However, the option is not the contract of sale itself. Toptionee has the right, but not the obligation, to buy. Once toption is exercised timely, i.e., the offer is accepted beforebreach of the option, a bilateral promise to sell and to buy ensuand both parties are then reciprocally bound to comply with therespective undertakings.- To elucidate: A negotiation is formally initiated by an offer. Aimperfect promise (policitacion) is merely an offer. Pubadvertisements or solicitations and the like are ordinarconstrued as mere invitations to make offers or only as proposa

These relations, until a contract is perfected, are not considerbinding commitments. Thus, at any time prior to the perfection the contract, either negotiating party may stop the negotiatio

The offer, at this stage, may be withdrawn; the withdrawal

effective immediately after its manifestation, such as by mailing and not necessarily when the offeree learns of twithdrawal. Where a period is given to the offeree within which accept the offer, the following rules generally govern:(1) If the period is not itself founded upon or supported byconsideration, the offeror is still free and has the right to withdrathe offer before its acceptance, or, if an acceptance has bemade, before the offerors coming to know of such fact, communicating that withdrawal to the offeree. The right withdraw, however, must not be exercised whimsically arbitrarily; otherwise, it could give rise to a damage claim undArticle 19 of the Civil Code which ordains that every person muin the exercise of his rights and in the performance of his dutieact with justice, give everyone his due, and observe honesty agood faith.


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SALES! - A2010 - Prof. Jardeleza Page 37(2) If the period has a separate consideration, a contract ofoption is deemed perfected, and it would be a breach of thatcontract to withdraw the offer during the agreed period. Theoption, however, is an independent contract by itself, and it is tobe distinguished from the projected main agreement (subjectmatter of the option) which is obviously yet to be concluded. If,in fact, the optioner-offeror withdraws the offer before itsacceptance (exercise of the option) by the optionee-offeree, thelatter may not sue for specific performance on the proposed

contract (object of the option) since it has failed to reach itsown stage of perfection. The optioner-offeror, however, rendershimself liable for damages for breach of the option. x x x.- In the light of the foregoing disquisition and in view of thewording of the questioned provision in the two lease contractsinvolved in the instant case, it is held that no option to purchasein contemplation of the second paragraph of Article 1479 of theCivil Code, has been granted to Mayfair under the said leasecontracts.- An option is a contract granting a privilege to buy or sellwithin an agreed time and at a determined price. It is a separateand distinct contract from that which the parties may enter intoupon the consummation of the option. It must be supported byconsideration.i[22] In the instant case, the right of first refusal isan integral part of the contracts of lease. The consideration isbuilt into the reciprocal obligations of the parties.- To rule that a contractual stipulation such as that found inparagraph 8 of the contracts is governed by Article 1324 onwithdrawal of the offer or Article 1479 on promise to buy andsell would render ineffectual or inutile the provisions on rightof first refusal so commonly inserted in leases of real estatenowadays. Paragraph 8 was incorporated into the contracts oflease for the benefit of Mayfair which wanted to be assured thatit shall be given the first crack or the first option to buy theproperty at the price which Carmelo is willing to accept. It is notalso correct to say that there is no consideration in anagreement of right of first refusal. The stipulation is part andparcel of the entire contract of lease. The consideration for thelease includes the consideration for the right of first refusal.

Thus, Mayfair is in effect stating that it consents to lease thepremises and to pay the price agreed upon provided the lessoralso consents that, should it sell the leased property, then,Mayfair shall be given the right to match the offered purchase

price and to buy the property at that price. In reciprocalcontract, the obligation or promise of each party is theconsideration for that of the other.- Both Carmelo and Equatorial acted in bad faith. Carmeloknowingly and deliberately broke a contract entered into withMayfair. It sold the property to Equatorial with purpose andintend to withhold any notice or knowledge of the sale comingto the attention of Mayfair. All the circumstances point to acalculated and contrived plan of non-compliance with theagreement of first refusal. On the part of Equatorial, it cannot bea buyer in good faith because it bought the property with noticeand full knowledge that Mayfair had a right to or interest in theproperty superior to its own. Carmelo and Equatorial tookunconscientious advantage of Mayfair.Disposition PETITION is DENIED. The Deed of Absolute Salebetween petitioners Equatorial Realty Development, Inc. and

Carmelo & Bauermann, Inc. is deemed rescinded; petitionerCarmelo & Bauermann is ordered to return to petitionerEquatorial Realty Development the purchase price. The latter isdirected to execute the deeds and documents necessary toreturn ownership to Carmelo & Bauermann of the disputed lots.Carmelo & Bauermann is ordered to allow Mayfair Theater, Inc.to buy the aforesaid lots for P11,300,000.

PARA AQUE KINGS ENTERPRISES INC V CA(SANTOS, PROTACIO and RAYMUNDO)

268 SCRA 722PANGANIBAN; Feb. 26, 1997

FACTS

- Defendant Catalina Santos is the owner of 8 parcels of land Paranaque. On Nov. 28, 1977, Frederick Chua leased the saproperty from Santos; the lease was registered in the Register Deeds. On Feb. 12, 1979, Chua assigned all his rights, intereand participation in the leased property to Lee Ching Bing, virtue of a deed of assignment. In turn, Lee Ching Bing assignall his rights to Paranaque Kings Enterprises, Inc. again by virtof a duly registered deed of assignment.- Par. 9 of the contract provides among other things that in ca

the properties are sold or encumbered, the buyer or mortagshall be bound to the terms of the lease agreement as if they athe lessors and in case of sale, the lessee shall have first option buy the properties.- Santos later sold the properties to defendant Raymundo for P5

The said sale was in contravention of the contract of lease as tplaintiff was not offered first option to buy. Santos wrote a lettinforming the plaintiff of the sale. Upon reading it, plaintifrepresentative wrote to Santos, requesting her to rectify this anshe later had it reconveyed for P5M. Santos then offered tproperty for sale to plaintiff by the defendant for P15M and make good on their offer within 10 days. The offer expired anew offer with the same tenor was sent. Before it expireplaintiffs counsel wrote to Santos counsel offering to buy at toriginal P5M price. Before they replied, another deed of sale wexecuted in favor of Raymundo for P9M, again violating tcontract. Santos claimed that the period had lapsed and thplaintiff was no longer privy to the contract.- Plaintiff alleges that the fact that defendants had the samcounsel who represented both of them in their exchanges wiplaintiffs counsel and the same rent collector (Santos brother-law) lead to the conclusion that a collusion existed betwerespondents; that the coalition was meant to mislead plaintiff inthinking the propertys price was higher than it was and thplaintiff suffered P3M in losses in the form of improvements on tproperty as well as moral damages of P5M. Plaintiff prayed frelief but instead of filing answers, respondents filed motions dismiss on the grounds of lack of cause of action, claiming tissue raised was purely factual. They also stated estoppel anlaches as grounds for dismissal, claiming that petitionepayment of rentals to Raymundo from 1988-89 was acknowledgment of Raymundo as the new owner-lessor.- The TC dismissed the complaint for lack of cause of actio

arguing that Santos had complied with Par. 9 of the contract bthat plaintiff had refused the 2 offers. An appeal with the Cyielded the same results, the Court adding that plaintiff could nforce its desired price on Santos. Petitioner moved freconsideration but was denied, hence this petition.

ISSUESProcedural1. WON the petition should be dismissed for failure to file copiof briefSubstantive2. WON the alleged breach of the contractual right of first optiowas a valid cause of action3. WON there was full compliance with the contractual riggranting petitioner the first option to purchase

HELDProcedural1. NO- If non-compliance with the Rules of Court (in this case, thfurnishing of 12 copies of plaintiffs brief) is not intended for delor doesnt result in prejudice to the adverse party, dismissal of tappeal on mere technicalities may be stayed.Substantive2. YES- The question of the validity of a cause of action assumes tfacts alleged in the complaint are true, thus the determinationone of law and not purely factual as defendants alleged. determining whether allegations of a complaint are sufficient support a cause of action, the complaint need not allege facproving existence of a cause outright. To prove otherwise requirone to show that the claim for relief does not exist, rather tha


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SALES! - A2010 - Prof. Jardeleza Page 38that a claim is ambiguous or indefinite. Also, a defendantmoving to dismiss a complaint on the ground of lack of cause ofaction is regarded as having hypothetically admitted all theaverments thereof.- A cause of action exists if the following elements are present:(1) a right in favor of the plaintiff by whatever means and underwhatever law it arises or is created; (2) an obligation on the partof the named defendant to respect or not to violate such right,and (3) an act or omission on the part of such defendant

violative of the right of plaintiff or constituting a breach of theobligation of defendant to the plaintiff for which the latter maymaintain an action for recovery of damages.- An examination of the complaint shows that theserequirements are present in the instant case.3. NO- The TC and CA argue that Santos had made an offer topetitioner before the final sale to Raymundo and that with this,Santos had complied with her obligation to grant the right offirst refusal to petitioner. However, this Court holds that thereshould be identity of terms and conditions offered to allprospective buyers in so that right of first refusal (or first option)is not rendered illusory. Only after the optionee fails to exerciseits right under the same terms within the given time, can theowner validly offer to sell to a 3rd person under the same terms.- Having come to the conclusion that the complaint states avalid cause of action, further matters require thepresentation/determination of facts and must be remanded tothe trial court to allow respondents to have their day in court.Disposition Petition is GRANTED. The assailed decisions of the

TC and CA are REVERSED and SET ASIDE. The case isREMANDED to the RTC of Makati.

ANG YU V CA238 SCRA 602

VITUG; December 2, 1994

FACTS- Ann Yu filed a Complaint for Specific Performance against CuUnjieng alleging, among others, that plaintiffs are tenants orlessees of residential and commercial spaces owned bydefendants in Binondo, Manila; that they have occupied said

spaces since 1935 and have been religiously paying the rentaland complying with all the conditions of the lease contract; thaton several occasions before October 9, 1986, defendantsinformed plaintiffs that they are offering to sell the premises andare giving them priority to acquire the same; that during thenegotiations, Bobby Cu Unjieng offered a price of P6-millionwhile plaintiffs made a counter offer of P5-million; that plaintiffsthereafter asked the defendants to put their offer in writing towhich request defendants acceded; that in reply to defendant'sletter, plaintiffs wrote them on October 24, 1986 asking thatthey specify the terms and conditions of the offer to sell; thatwhen plaintiffs did not receive any reply, they sent anotherletter dated January 28, 1987 with the same request; that sincedefendants failed to specify the terms and conditions of theoffer to sell and because of information received thatdefendants were about to sell the property, plaintiffs werecompelled to file the complaint to compel defendants to sell theproperty to them.- While the case was pending, the Cu Unjieng spouses executeda Deed of Sale transferring the property in question to hereinpetitioner Buen Realty and Development Corporation.

ISSUEWON all previous transactions involving the propertynotwithstanding the issuance of another title to Buen RealtyCorporation should be set aside because plaintiffs right of firstrefusal has been breached

HELDNORatio In fine, petitioners are aggrieved by the failure of privaterespondents to honor the right of first refusal. However, breach

of right of first refusal cannot justify correspondingly an issuanof a writ of execution under a judgment that merely recognizes existence, nor would it sanction an action for specific performanwithout thereby negating the indispensable element consensuality in the perfection of contracts. The remedy is notwrit of execution on the judgment, since there is none to executbut an action for damages in a proper forum for the purpose.Reasoning- Justice Vitug pointed out some fundamental precepts that m

find some relevance to the discussion of the case. Here is toutline:1 Definition of obligation

- juridical necessity to give, to do, or not to (Art 1165)

2 Contract one source of obligationa. Definition meeting of the minds between twpersons whereby one binds himself, with respect to tother, to give something or to render some service (A1305, Civil Code).b. Stages

(1) Negotiation - covers the period from the time tprospective contracting parties indicate interest in tcontract to the time the

contract is concluded (perfected).(2) Perfection of the contract - takes place upon t

concurrence of the essential elements thereof.(3) Consummation - begins when the part

perform their respective undertakings under the contraculminating in the

extinguishment thereof.- Until the contract is perfected, it cannot, as an independesource of obligation, serve as a binding juridical relation. In salethe contract is perfected when a person, called the sellobligates himself, for a price certain, to deliver and to transfownership of a thing or right to another, called the buyer, ovwhich the latter agrees.

3 contract of salea. absolute- where the contract is devoid of any proviso that title

reserved or the right to unilaterally rescind is stipulatee.g., until or unless the price is paid. Ownership will thbe transferred to the buyer upon actual or constructiv

delivery (e.g., by the execution of a public document) the property sold. Where the condition is imposed upthe perfection of the contract itself, the failure of tcondition would prevent such perfection. 3 If tcondition is imposed on the obligation of a party whichnot fulfilled, the other party may either waive tcondition or refuse to proceed with the sale (Art. 154Civil Code).

b.conditional.- the ownership of the thing sold is retained until t

fulfillment of a positive suspensive condition (normalthe full payment of the purchase price)

- the breach of the condition will prevent the obligationconvey title from acquiring an obligatory force.

- a sale is still absolute

4 An unconditional mutual promise to buy and seas long as the object is made determinate and the priis fixed, can be obligatory on the parties, and compliantherewith may accordingly be exacted.

5 contract of option- an accepted unilateral promise which specifies t

thing to be sold and the price to be paid, when couplwith a valuable consideration distinct and separafrom the price. This contract is legally binding.

- But the option is not the contract of sale itself. Toptionee has the right, but not the obligation, to buOnce the option is exercised timely, i.e., the offeraccepted before a breach of the option, a bilatepromise to sell and to buy ensues and both parties athen reciprocally bound to comply with their respectiundertakings.

- If with period, the following rules will apply:


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SALES! - A2010 - Prof. Jardeleza Page 39(1) If the period is not itself founded upon or supported

by a consideration, the offeror is still free and has theright to withdrawal the offer before its acceptance,or, if an acceptance has been made, before theofferor's coming to know of such fact, bycommunicating that withdrawal to the offeree.

(2) If the period has a separate consideration, acontract of "option" is deemed perfected, and itwould be a breach of that contract to withdraw the

offer during the agreed period. The option, however,is an independent contract by itself, and it is to bedistinguished from the projected main agreement(subject matter of the option) which is obviously yetto be concluded. If, in fact, the optioner-offerorwithdraws the offer before its acceptance (exerciseof the option) by the optionee-offeree, the latter maynot sue for specific performance on the proposedcontract ("object" of the option) since it has failed toreach its own stage of perfection. The optioner-offeror, however, renders himself liable for damagesfor breach of the option. In these cases, care shouldbe taken of the real nature of the considerationgiven, for if, in fact, it has been intended to be part ofthe consideration for the main contract with a right ofwithdrawal on the part of the optionee, the maincontract could be deemed perfected; a similarinstance would be an "earnest money" in a contractof sale that can evidence its perfection (Art. 1482,Civil Code).

6 Right of first refusal- it cannot be deemed a perfected contract of sale under

Article 1458 of the Civil Code. Neither can the right offirst refusal, understood in its normal concept, per se bebrought within the purview of an option under the secondparagraph of Article 1479, aforequoted, or possibly of anoffer under Article 1319 9 of the same Code. An option oran offer would require, among other things, a clearcertainty on both the object and the cause orconsideration of the envisioned contract. In a right of firstrefusal, while the object might be made determinate, theexercise of the right, however, would be dependent notonly on the grantor's eventual intention to enter into a

binding juridical relation with another but also on terms,including the price, that obviously are yet to be laterfirmed up. Prior thereto, it can at best be so described asmerely belonging to a class of preparatory juridicalrelations governed not by contracts (since the essentialelements to establish the vinculum juris would still beindefinite and inconclusive) but by, among other laws ofgeneral application, the pertinent scattered provisions ofthe Civil Code on human conduct.

TANAY RECREATION CENTER AND DEVT CORPV FAUSTO

455 SCRA 436AUSTRIA-MARTINEZ; April 12, 2005

NATUREAn appeal from a judgment of the Court of First Instancedisallowing the claim of the plaintiff for P1,000 against theestate of the deceased James P. McElroy.

FACTS- TRCDCV is a lessee of a property owned by Catalina MatienzoFuasto under a contract of lease of 20 years. On the propertystands the Tanay Coleseum Cockpit operated by the petitioner.

The contract is subject to renewal within 60 days prior itsexpiration. The contract also provided for petitioners priorityright to purchase should Fuasto decide to sell the property- When the petitioner was about to renew the contract,Anunciacion Pacunayen, daughter of Fausto, asked thepetitioner to remove the improvements on the said property. Itappears that Fausto sold to Pacunayen the said property

Respondents Claim:The petitioner is estopped from assailing the validity of the deof sale as the respondent already recognized her as owner of tproperty when it merely asked for the renewal of the lease aneven a grace period to vacate the premises when the petitiondid not agree in the renewal.- RTC extended the lease for another 7 years- CA affirmed RTCs judgment with modifications ordering TRCDto vacate the leased premises immediately. CA acknowledg

the right of TRCDC to purchase the property, however to onapplied to strangers and not to Faustos relatives.

ISSUEWON the CA committed serious error in holding that tcontractual stipulation giving the petitioner the priority right purchase the leased premises shall only apply to strangers

HELDYESRatio A sale made in violation of a right of first refusal is valHowever, it may be rescinded or may be a subject of an action fspecific performance.Reasoning- When a lease contract contains a right to first refusal, the lessis under a legal duty to the lessee not to sell to anybody at aprice until after he has made an offer to sell to the latter atcertain price and the lessee has failed to accept it. It is an integrand indivisible part of the contract of lease and is inseparabform the whole contract. Since it is part of the consideration fthe lease, it is built into the reciprocal obligation of the parties.- When terms of an agreement have been reduced to writing, itconsidered as containing all the terms agreed upon. Tstipulation does not qualification that such right may be exercisonly when the sale is made to strangers or persons other thaFuastos kin.- CA also made an error when it ruled that it would be uselessannul the sale between Fausto and the respondent because tproperty would still remain with the respondent after the death her mother by virtue of succession, as in fact, Fausto died M1996, and the property now belongs to the respondent, beiFausto;s heir.- With the death of Fausto, the rights and obligations over th

property, including those in the lease contract were transmittedthe heirs by way of succession. The lease contract is nessentially personal in character; therefore the rights aobligations are transmissible to the heirs. The heirs are bound bcontracts entered into by predecessors-in-interest except whthe rights and obligations arising therefrom are not transmissibby (1) their nature, (2) stipulation or (3) by provision of law. 2

this case, the nature of the rights and obligations are, by naturtransmissible.- The contract of lease continues even after Faustos death. Trespondent, as heir, is bound to fulfill all its terms and conditions- Essential elements of estoppel are: (1) conduct of a paramounting to false representation or concealment of materfacts or at least calculated to convey the impression that the facare otherwise than, and inconsistent with, those which the pasubsequently attempts to assert; (2) intent, or at lea

expectation, that this conduct shall be acted upon by, or at leainfluence, the other party; and (3) knowledge, actual constructive, of the real facts. There was nothing in the recorthat the petitioner waived his right of first refusal. When tpetitioner asked for the renewal of the terms of lease, he wworking on the assumption that the title of the property sbelonged to Fausto. In a meeting of the stockholders of tpetitioner, the possibility of sale was considered, but trespondent refused to sell the land. After the respondent refus

2Art 1311 CC Contracts take effect only between the parties, their

assigns and heirs, except in case where the rights and obligations arisingfrom the contract are not transmissible by their nature, or by stipulation orby provision of law. The heir is not liable beyond the value of the propertyhe received from the decedent.


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SALES! - A2010 - Prof. Jardeleza Page 40to sell the land, it was then that petitioner filed for the complaintfor the annulment of sale, specific performance and damages.- The Contract of sale of the said property between Fausto andthe petitioner must be rescinded. However, due to Faustosdeath, her heirs now substitute her as respondent. The Courtcannot declare Pacunayen as the sole heir. The right ofpetitioner may only be enforced against the heirs of thedeceased Fausto, represented by respondent Pacunayen.Disposition Petition for Review is PARTIALLY GRANTED. CA is

MODIFIED as follows:(1) the Kasulatan ng Bilihan Patuluyan ng Lupadated August8, 1990 between Catalina Matienzo Fausto and respondentAnunciacion Fausto Pacunayen is hereby deemed rescinded;(2) The Heirs of the deceased Catalina Matienzo Fausto who arehereby deemed substituted as respondents, represented byrespondent Anunciacion Fausto Pacunayen, are ORDERED torecognize the obligation of Catalina Matienzo Fausto under theContract of Lease with respect to the priority right of petitioner

Tanay Recreation Center and Development Corp. to purchasethe subject property under reasonable terms and conditions;(3) Transfer Certificate of Title No. M-35468 shall remain in thename of respondent Anunciacion Fausto Pacunayen, which shallbe cancelled in the event petitioner successfully purchases thesubject property;(4) Respondent is ORDERED to pay petitioner Tanay

Recreation Center and Development Corporation the amount ofTwenty Thousand Pesos (P20,000.00) as actual damages, plusinterest thereon at the legal rate of six percent (6%) per annumfrom the filing of the Complaint until the finality of this Decision.After this Decision becomes final and executory, the applicablerate shall be twelve percent (12%) per annum until itssatisfaction; and,(5) Respondent is ORDERED to pay petitioner the amount of

Ten Thousand Pesos (P10,000.00) as attorneys fees, and to paythe costs of suit.(6) Let the case be remanded to the Regional Trial Court,Morong, Rizal (Branch 78) for further proceedings on thedetermination of the reasonable terms and conditions of theoffer to sell by respondents to petitioner, without prejudice topossible mediation between the parties.

The rest of the unaffected dispositive portion of the CA Decisionis AFFIRMED.

Chapter 6: TRANSFER OF OWNERSHIP

KUENZLE V MACKE14 PHIL 610

MORELAND; December 16, 1909

FACTS- On or about January, 1907, Stanley & Krippendorf (SK) was theowner of the Oregon Saloon in Cavite consisting of bar,furniture, furnishings, and fixtures, of the value of 1,000 pesos.

Jose Desiderio, as sheriff, levied upon such property by virtue ofan execution issued upon a judgment secured by the defendantMacke & Chandler (MC), against (SK). (SK) notified the sheriff,in the manner provided by law, that it was the owner of said

goods and forbade the sale thereof under said execution.However, the sheriff still sold the goods. It was purchased by(MC) and Bachrach, Elser, and Gale (BEG), were the sureties.BEG allege that the property was not the property of MC but wasthe property of SK who was in possession of the same at thetime of such levy. And during this same month of January, SKbeing deeply indebted to MC attempted to sell to it by aninstrument in writing the property in question. The writteninstrument was not recorded and was a private document. Theproperty was also not delivered under this said sale butremained in the possession of SK.

ISSUEWON the said instrument of sale had any effect in transferringthe property in question from SK to MC

HELDNO- The case of the Fidelity and Deposit Company against Wilsolays down a doctrine which is decisive of this case. In that casewas held that the ownership of personal property can not transferred to the prejudice of third persons except by delivery the property itself; and that a sale without delivery gives twould-be purchaser no rights in said property except those ofcreditor. The bill of sale in the case at bar, under t

circumstances of this case, could have no effect against a persdealing with the property upon the faith of appearances.- The defendant Macke & Chandlre, having purchased tproperty at an execution sale, property conducted, obtainedgood title to the property in question as against the plaintiff in thcase.Disposition The judgment of the court below is, therefoaffirmed, with costs against the appellant.

LUZON BROKERAGE CO INC V MARITIMEBUILDING CO INC

43 SCRA 93REYES; August 18, 1972

FACTS- On 24 March 1961, Maritime had requested a "suspension" "moratorium" in its monthly payments until the close of 196allegedly because "we are encountering some unusual expenswith the warehouses, but this request was turned down on 2March 1961 by the Myers Corporation advising George Schedlethe son of Edmund Schedler, main stockholder of Maritime, thhis request "can not be granted as I have specific instructiofrom the Board (of Myers Co.) not to agree to any suspension payments under any condition".- Schedler, on behalf of Maritime, insisted on suspending payments alleging for the first time that the late F. H. Myers h"agreed to indemnify and hold me harmless from the Luzon LabUnion claims which are in litigation" and giving notice that "mwife and I intend to withhold any further payments to the MyeBuilding Co. or Estate ...". This intention was reiterated in a lettwherein it was added that "if the Myers people will deposit in truwith Mr. C. Parsons 25,000 pesos to cover my costs to date, I w

then deposit with Mr. Parsons in trust 15,000 pesos for MarcApril and May ...".

ISSUES1. WON Maritimes obligation had been substantially performedgood faith2. WON Art1191 can be applied to the case3. WON the stipulated forfeiture of the monthly payments alreamade is a penalty, and the same should be equitably reduced4. WON rescission of the contract of sale is proper

HELD1. NO- Maritime was obligated to make monthly payments to MyeBuilding Co. under its contract, until the price of the building wpaid in full and yet it repeatedly refused to do so, on the prete

that the late F. H. Myers had obligated himself to indemnEdmund Schedler from the labor claims against the LuzStevedoring Co., that Myers had sold to Schedler in a totaseparate contract.- F. H. Myers was not the vendor Myers Building corporatiomoreover, he had already died and his estate had been closewithout Schedler or Maritime having filed any contingent clabefore closure of the estate proceedings, as required by RevisRule 88, The claims of Schedler or Maritime were, therefoalready barred, even assuming that there was any truth to talleged promise of the late Myers, which is not supported by areliable evidence. And even then, the claim was at the mopayable by the heirs of F. H. Myers, but not by the Myecorporation, which had no duty to assume the guarantee.- The non-payment for March, April and May, 1961, due to tcorporation, was intentional and deliberate non-performanc


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SALES! - A2010 - Prof. Jardeleza Page 41designed to extrajudicially force Myers corporation to grant themoratorium originally solicited and rejected, thus constituting,as held in the main decision, dolo (in the performance, insolvendo) and not mere culpa or negligence.- Nor is it admissible that there had been substantialperformance by it or that the offer to deposit in trust the missingamounts were equivalent to payment. When Maritimesuspended its payments for March-May, 1961, there was abalance of P319,300.65 on the principal of its obligation, plus

interest, i.e., nearly 1/3 of the original indebtedness. And as tothe offer to deposit the payments due in trust or in escrow, itcan not be considered payment since it was a conditionaltender, and would have left the creditor (Myers corporation)unable to make use of the money rightfully due to it.- A tender to be valid must be unconditional; and even then, atender alone is not a mode of extinguishing obligations, unlessfollowed by consignation.- For Myers to accept the proposed deposit of the monthlypayments in trust or escrow would be equivalent to anadmission on its part of the validity or truthfulness of Maritime'sclaim and of Myers Corporation's liability for an obligation of anindividual stockholder. Nor is there any justification on record towarrant the disregard of the corporate personality of MyersBuilding Corporation in the present case.2. NO- Myers obligation to convey the property was expressly madesubject to a suspensive (precedent) condition of the punctualand full payment of the balance of the purchase price. This isapparent from clauses (d) and (i) of the contract of sale whichmake it crystal clear that the full payment of the price (throughthe punctual performance of the monthly payments) was acondition precedentto the execution of the final sale and to thetransfer of the property from Myers to Maritime; so that therewas to be no actual sale until and unless full payment wasmade.

- The upshot of all these stipulations is that in seeking the ousterof Maritime for failure to pay the price as agreed upon, Myerswas not rescinding (or more properly, resolving) the contract,but precisely enforcing it according to its express terms. In itssuit Myers was not seeking restitution to it of the ownership ofthe thing sold (since it was never disposed of), such restorationbeing the logical consequence of the fulfillment of a resolutory

condition, express or implied (article 1190); neither was itseeking a declaration that its obligation to sell was extinguished.What it sought was a judicial declaration that because thesuspensive condition (full and punctual payment) had notbeenfulfilled, its obligation to sell to Maritime never arose or neverbecame effective and, therefore, it (Myers) was entitled torepossess the property object of the contract, possession beinga mere incident to its right of ownership.3. NO- Maritime intentionally risked the penalty by deliberatelyrefusing to make the monthly payments for March to May 1961,and trying to inject into its contract with Myers corporation thetotally unconnected personal promise of F. H. Myers toindemnify it for eventual liability to the Luzon Labor Union,allegedly made on the occasion of the sale of the LuzonBrokerage to E. Schedler by F. H. Myers, and trying to

extrajudicially force Myers corporation to assume responsibilityfor such liability;- Under Article 1234 of the present Civil Code, an obligationmust be substantially performed in good faith, for suchperformance to stand in lieu of payment; Maritime, on thecontrary, acted with dolo or bad faith, and is not in a position toinvoke the benefits of the article.- Maritime's loss of the forfeited payments was more thanbalanced by the rentals it received from the Luzon Brokerage aslessee of the building for the corresponding periods, at a ratedouble the monthly payments required of Maritime under itscontract with Myers.4. YES- Even granting that the contract is a plain sale of real propertywith deferred payment of the price, as contended by Maritime,its position will not be imposed. By Article 1592 of the Civil Code

of the Philippines, though it may have been stipulated that upothe failure to pay the price at the time agreed upon, the rescissiof the contract shall of right take place, the vendee may paeven after the expiration of the period, as long as no demand frescission of the contract has been made upon him eith

judicially or by a notarial act. After the demand, the Court may ngrant him a new term.- The answer filed by Myers in the court below to the LuzBrokerage's complaint for interpleader constituted in effect

judicial demand for rescission of the contract of sale, and frepossession of the real estate sold. Hence, Maritime can ndemand further time to pay, and must conform to the rescissiof the contract and the surrender of the premises, with all thconsequences stipulated in the original contract.Being an article specifically applicable to sales of real propertthis Article 1592 controls the general principles expressed Article 1198 on reciprocal obligations.

SEPARATE OPINIONBARREDO [ dissent]- Maritime's failure to pay the March, April and May, 19installments did not constitute default in the absence of a demain accordance with Article 1100 of the Old Civil Code. (found modified form in Art. 1169 of the New Civil Code)

- The sole and only demand made upon Maritime by Myers for thpayment of the March, April and May, 1961 installments wcontained in the latter's letter of May 16, 1961, Myers, aimportantly, for reasons which Myers evidently considerirrelevant because it has not shown in the record any that maadversely affect Maritime's position, this communication was nreceived by Maritime or returned unclaimed. The subsequeletter of Myers to Maritime of June 5, 1961, Myers, was no longedemand; it was already a notification that Myers had unilateracancelled the Deed in controversy.- Assuming there was no need for demand, Maritime's failure actually pay the installments in question cannot be considerasa breach in bad faith (dolo).- From the point of view of Myers, Schedler's and Senator Padillaletters to Parsons were not addressed to Myers, since it does nappear that Parsons was not authorized to act for and on

behalf. Worse, they referred to matters with which Myeprofessed not to have anything to do. Consequently, on the othhand, whatever Parsons said in them for Myers should also nhave any color of authority. In this sense, it would appear thMyers had no knowledge whatsoever why Maritime did not paHow could it charge Maritime with bad faith?- There has been substantial compliance and Article 1234 may bapplied.- There is no clear basis in the evidence for comparing how muMaritime had paid as rentals with how much it had paid installments as of June, 1961. In any event, for purposes of equiI do not believe We should disregard the property itself in thcomparison, hence We should not overlook that Maritime stanto lose not only the P973,000 it had paid, but the property itseand the future rentals it is supposed to earn therefrom, whicafter all, constituted part of its consideration in entering into tcontract and acquiring the property in question.- Assuming otherwise than as above discussed, Article 1504 of tOld Civil Code is applicable to this case.- When Myers filed its cross-claim against Maritime in its answto Luzon's interpleader complaint, that in a sense Myers made

judicial demand, Maritime's offers of payment thru Schedler mato Parsons should be considered as a substantial compliance wits obligation to pay the installments for March, April and Maunder Article 1504 of the Old Civil Code; hence it cannot be heto have lost its right to pay subsequent installments which reasothe cancellation of the contract by Myers on June 8, 1961 wuncalled for, unjustified and without legal basis.- The "Deed" in question is not a promise to sell it is a sale.- According to Justice Laurel, in as much as the parties in susale on installment of real proper or immovable had provided their agreement for an option in favor of the vendor that in ca


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SALES! - A2010 - Prof. Jardeleza Page 42the vendee should fail to pay any installment, the former mayeither recover in action at law the whole balance unpaid whichshall be considered immediately due and demandable orrecover possession of the subject property and considering allinstallments already paid as rentals, these stipulations maylegally be enforced according to their terms, considering thatsuch stipulations are not contrary to law, morals or public policy.Stated differently the Court held that such stipulations arecomprehended within the freedom of contract.

-Justice Laurel's opinion is at variance with Spanish authoritieswho appear to be more logical.- We all know that automatic cancellation of a contract of saleresulting in the forfeiture of all moneys already paid justbecause of one default in the payment of the balance is a harshand oppressive condition, precisely because it is tantamount tothe obnoxious pactum commissorium. For this reason, the lawexplicitly gives the buyer in Article 1504 an opportunity to payeven after default so long as the seller has not made a formaldemand for cancellation thru a notary public or in court. Thevery wording of the provision negates the freedom of the partiesto stipulate otherwise, since it already clearly says, "eventhough it may have been stipulated that default of the paymentof the price within the time agreed upon etc." It is to me absurdto contend that not withstanding this express mandate of thelaw, the partes are still free to stipulate otherwise. Indeed, fromthis point of view, and independent of my discussion above ofthe applicability to the case of the Bayla ruling by JusticeOzaeta, it is my position that the intended waiver of formaldemand, if any such intention can be inferred, in the provision ofParagraph (d) of the "Deed" in question that "this deed ... shallautomatically and without any further formality, become nulland void," is contrary to the letter and intent of Article 1504 aswell as public policy. It being obvious as already shown abovethat no demand of whatever kind for resolution had been madeupon Maritime before the letter of cancellation of June 5, 1961,it follows necessarily that said cancellation was unwarrantedand contrary to rather than an implementation of the terms ofthe "Deed" in controversy.- The stipulation providing for transfer of title only after fullpayment did not stamp the transaction with the character of amere promise to sell full payment was a suspensive conditionfor the execution of the final deed as the form of tradition of title

it while non-payment was a resolutory condition withconfiscation as topenalty clause.- What renders the idea of a promise to sell with reservationmore perplexing to me is that in the Spanish law on sales, ascontradistinguished from the concept of sales American law, acontract of sale is purely consensual and does not necessarilyinvolve the transfer of title except when it is so stipulated orwhen the sale is made in a public instrument, since the latter isin itself a form of delivery or tradition of title over immovableproperty.- It was only in Manuel v Rodriguez, 109 Phil. 1, that this Court"created" the concept of a "a contract to sell or promise to sell",where title remains with the vendor until fulfillment to a positivesuspensive condition, such as full payment of the price.- I insist that the so-called suspensive condition affecting the

transfer of title only after full payment of the price, anadmittedly licit one, does not detract from the character of thecontract here in question as a perfected contract of sale indeed,partially consummated by the delivery of possession of "thething" (per Manresa). For that matter, neither does the conditionthat upon failure of Maritime to pay any installment, thecontract would be cancelled, all past payments forfeited andMyers would be entitled to recover possession vary a bit thereal nature of the contract.- I would, therefore, separate the so-called suspensive conditionregarding the delivery of title as affecting solely the obligationto deliver title which is not of immediate juridical essence in aperfected contract of sale from the breach, allegedly committedby Maritime, of the terms of payment which is the one thatwould justify the cancellation made by Myers, if such breach didoccur in legal contemplation.

- The promise to sell has a distinct connotation in Spanish, lawhich I feel cannot squarewith the contract here in controversy.- At the risk of stating the obvious, the concept of a sale purchase and sale in Spanish law is defined in Article 1445 anthe moment of the perfection of such a contract is fixed in Artic1450. On the other hand, precisely to avoid confusion of concepsince commercial usages resort to varied forms of transactiorevolving around the juridical idea of exchanging things f

money, and it is not unusual for merchants to enter inpreparatory agreements for business and other reasons befofinalizing their deals, Article 1451 lays down specific ruregarding promises in regard to sales.- For the purposes of Article 1504, and under the circumstancesthis case, may the cross-claim interposed by Myers in its answto the interpleader complaint of Luzon be deemed as the judicdemand that should foreclose any right on the part of Maritime continue paying under the "Deed in question?" My answer is no.- I reiterate that the proviso of Article 1504 (1592) allowipayment by the vendee even after he has undisputably defaultin his obligation stipulated in the terms of the agreement islegislative remedy intended to temper a la Portia the harshnessthe enforcement of the condition of the parties amount topactum commissorium which is generally frowned upoAccordingly, it is my understanding that in the application of thproviso, We should not be restricted to a literal interpretatithereof.

OCEJO, PEREZ CO V INTL BANKING CORP37 PHIL 631

FISHER; 1918

NATUREAppeal from a decision of the Manila CFI

FACTS- Chua Teng Chong on March 7, 1914 executed and delivered the defendant a promissory note payable one month from the sadate. As security Chong deposited with the bank 5,000 piculs sugar which were held in a warehouse located at 1008 Ca

Toneleros, Binondo, Manila. It would appear that the bank did n

take possession of the sugar and that Chong continued to retathe sugar in his possession and control until the 16 th April. It walso noted that the alleged pledge was not recorded in a pubdocument. The money represented by the promissory does nappear to have been delivered.- Plaintiffs, on the other hand, entered into a contract with Chofor the sale of a lot of sugar on March 24, 1914. The agreemecalls for delivery during the month of April with the sugar to weighed at the buyers warehouse. In compliance with tagreement, 5,000 piculs of sugar was delivered to Chongwarehouse at 119 Muelle dela Industria on April 16, 1914. Tfollowing day, the plaintiff presented for collection its account bthe buyer at this point refused to make payment.- On the day the sugar was delivered by Ocejo, a representativethe bank went to the other warehouse at 1008 Calle Tonelerand discovered that the sugar therein did not exceed 1,800 picu

The representative, together with a lawyer from the bank, went Chong to inquire as to the shortfall. Chong pointed them to twarehouse at 119 Muelle dela Industria. The bank representativwent to the said warehouse and found the sugar. He thereaftclosed the warehouse with the banks padlock effectively takipossession of the sugar as per the agreement earlier mentioned- The sale contract between plaintiff and Chong apparently did ninclude the time and the place when payment for the sugar was be effected. The trial court however found that the payment wto be made upon the completion of the delivery. The plaintproved to the Court that in sales of this kind it is customary for tseller to deliver the merchandise to buyers warehouse finspection and verification of weights. The payment is due demand thereafter.- Ocejo tried to recover possession of the sugar but the Bawhich then had possession refused to deliver the same to Oce


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SALES! - A2010 - Prof. Jardeleza Page 43On the same day that Ocejo made the demand to the bank,Chong was judicially declared insolvent. Francisco Chua Secowas appointed as assignee of the insolvency (receiver orliquidator in todays parlance).- Also on April 24, 1914, Ocejo filed a replevin case against thebank alleging that the bank was unlawfully holding the sugarwhich was delivered to chong and which has not been paid. Thesugar was sold by agreement of the parties with the proceeddeposited in the bank, subject to the order of the court upon

finally disposition. Interestingly enough, Seco filed a complaintin intervention asserting preferential rights over the sugarcontending that the sugar is the property of Chong by virtue ofthe delivery of the same by Ocejo. Intervenor claims that sugaris the property of Chong and therefore of the insolvent estatenow represented by him. The lower court rendered judgment infavor of the plaintiff. Hence the Appeal.

ISSUES1. WON the title to the sugar passed to the buyer upon delivery2. WON the failure to pay by Chong authorize the seller torescind the sale3. WON the commencement of the replevin suit was equivalentto the rescission of the sale4. WON the pledge to the bank can be sustained

HELD1. YES- Article 1450 (now Art 1496 and 1497) provides that the buyeracquires ownership of the thing once the same has beendelivered to him or placed under his control and possession. Thecontention of Ocejo that title to the sugar did not pass to thebuyer due Chongs non payment cannot hold. Ruling otherwisewill cause havoc to the entire business community In theabsence of any stipulation in the contract that title will only passupon payment, then it was held that the title, in the case at bar,had it fact passed to the buyer2. NO- Chapter 7 of title V1 of the Civil Code (particularly Article 1600)provides that contracts of sale may be rescinded for the samecauses as all other obligations. However, the right to rescind thesale for non performance on the part of the buyer is notabsolute. The law subordinates it to the rights of third parties to

whom bad faith is not imputable.3. NO- The action for rescission is a judicial matter. Hence, until afterthe ownership issue has been determined, the action forreplevin cannot be maintained.4. NO- It was shown by evidence that the sugar subject of theagreement between the bank and Chong was at the warehouseat 1088 Calle Tneleros and not at the Muelle dela Industriawarehouse.DispositionThe lower court decision is reversed. The Assigneeof the bankruptcy of Chong is entitled to the product of the saleof the sugar. The right of the seller to file his claim in theinsolvency proceedings is reversed.

BEAN V CADWALLADER

10 PHIL 606JOHNSON; March 26, 1908

FACTS- June 4, 1906 > Bean, administrator of the estate of GeorgeCase, brought an action in CFI Manila to recover fromCadwallader Company the following sums:(a) P7,356.80, with 6% per annum interest, from the December6, 1905, as balance for timber sold and delivered by the CASE(BEAN) to CADWALLADER(b) P2,782.75, balance for timber sold and delivered by CASE to

CADWALLADER(c) P810 as actual damage suffered by CASE by reason of the

violation of said agreements (a) and (b)- September 6, 1905 by CADWALLADER TO CASE (A)

> to confirm our acceptance of your verbal offer to furnish uscargo of ipil and molave (the molave to consist of 10 logs, moor less), said cargo to comprise from eight thousand to tethousand cubic feet, English measurement, and the same to delivered alongside our vessel at Basilan, for the sum of sixcents (60 cents), Philippine currency, per English cubic foot.> to pay the forestry dues at Manila to be charged against you> delivery is to be made within three months from date of tletter

> notify by telegraph when delivery can be made.-January 3, 1906 CASE TO CADWALLADER (B)> propose to furnish native timber at the prices and under tconditions herein expressed+ Calantas, at twenty-five (25) cents per English cubic foot, forestry charges to be paid by me.+ Calantas, short and crooked, at ten (10) cents per Englicubic foot, all forestry charges to be paid by you.+ Ipil, at sixty (60) cents per English cubic foot, all forestcharges to be paid by me.+ Ipil, short pieces, at fifteen (15) cents per English cubic foall forestry charges to be paid by you.+ Mangachupay, No. 1, at twenty-five (25) cents per Englicubic foot, all forestry charges to be paid by me.> These prices include delivery alongside ship or barge Basilan,> I will furnish the necessary men to load same, and you furnish steam gear to assist in loading> the cargo to be mixed and consisting of approximately fiftethousand cubic feet> Delivery to be made within three months from this date.

Plaintiff Claims> within three months from September 6, 1905 (A), deliver at tport of Basilan, a cargo of native logs, consisting of 16,428 Englcubic feet of ipil, and duly notified the defendant by telegram such delivery; that the value of said logs so delivered at the pristipulated was P9,856.50; that on the December 29, 1905, tdefendant paid to the plaintiff the sum of P2,500 to apply on tsaid account, and that there was still due from the defendant the plaintiff, upon said contract as represented by Exhibit A, tsum of P7,356.80, with interest at the rate of 6% from tDecember 6, 1905.> within three months from January 3, 1906 (B), deliver at t

port of Basilan, 15,131 English cubic feet of mangachupay acalantas, and did notify the defendant of such delivery; that tvalue of said timber so delivered at the price agreed upon wP3,782.75; that on the February 6, 1906, the defendant paid the plaintiff, to apply on said account, the sum of P1,000, and ththere is still due and owing to the plaintiff by the defendant tsum of P2,782.75, with interest at the rate of 6 per cent from th3d day of April, 1906.> by reason of the violation on the part of the defendant of sacontracts as represented by A and B, he was obliged to borromoney from third persons and incur expenses in travelinamounting to the sum of P810, and that, by reason of tviolation of the said contracts on the part of the defendant, thsum was due and payable as damages by the defendant to tplaintiff.Defendant Claims

> the plaintiff had made certain misrepresentations concernithe character of the costs of the Island of Basilan; that the plainthad represented that the harbor of said Island of Basilan, whesaid logs were to be delivered, was a safe harbor, and that it weasily practicable for a vessel to come alongside the lanwhereas, in fact, said harbor was unsafe, and that it wimpossible for the defendant to enter said harbor with the boaand to load said logs (anchor chain broke two times and watewere unsettled)> the plaintiff had not, as a matter of fact, delivered to it the logor timber, nor any part of the same, as represented by sacontracts, and asked for a judgment against the plaintiff for thsum of P3,500, the money paid by the defendant to the plaintand interest on the sum of P2,500 from the 29th of Decembe1905, and interest on P1,000 from the 6th of February, 1906, the rate of 10 per cent.


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SALES! - A2010 - Prof. Jardeleza Page 44- CFI: in favor of the plaintiff and against the defendant for thesum of P10,033.39, with interest at 6 per cent from the 3rd dayof April, 1906, and costs.- clearly established by the testimony:(a) That the plaintiff cut the logs required by the contract.(b) That plaintiff transported said logs to the beach.(c) That plaintiff had said logs measured by the representativeof the Forestry Bureau of Government of the Philippine Islands.(d) That plaintiff placed said logs in rafts to be floated alongside

a vessel to be sent to the point of delivery by the defendant.(e) That plaintiff did actually place the said logs along-side thevessel known as theJuanita in the month of April, 1906.(f) That the crew of the Juanita did in fact actually proceed toplace said logs on board said vessel, but failed because theanchor chain was not strong enough to sustain a 1 ton skid,which the crew were trying to pull in place.

ISSUEWON there is real delivery

HELDYESReasoning- The evidence shows beyond peradventure of doubt that at thetime the said Juanita, the vessel of the defendant, was atBasilan, some of the logs were placed alongside of the vessel, inaccordance with the terms of the contract. It is denied that all ofthe logs to be furnished by the plaintiff under the terms of thecontract were placed in rafts in the water at or near the point ofdelivery. Certainty the plaintiff can not be required to show thathe placed each log alongside the vessel, after he has shown thathe had all the logs rafted in the water at the point of deliveryand had placed some of them alongside the vessel inaccordance with the terms of the contract. He could not berequired to place others alongside the vessel until after the firsthad been loaded. (Whitcomb vs. Whitney) The fact is notdisputed that the plaintiff duly notified the defendant, within theperiod prescribed in the contract, that the said logs were readyfor delivery.- Actual manual delivery of an article sold is not essential to thepassing of the title thereto (A1450, Civil Code) unless made soby the terms of the contract or by an understanding of the

parties. The parties to the contract may agree when and onwhat conditions the property in the subject of the contract waspassed to the prospective owner. (Andrews vs. Durant) In thepresent case the parties agreed that the delivery of the logsshould be made alongside a vessel of the defendant. That wasdone by the plaintiff. The vessel of the defendant was sent tothe point of delivery and the said defendant attempted to loadon said vessel the logs delivered along its side by the plaintiff. Itis a rule well established that a mere contract for the sale ofgoods, where nothing remains to be done by the seller beforemaking delivery, transfers the right of property, although theprice has not been paid, nor the thing sold actually delivered tothe purchaser. (Olyphant vs. Baker; A1450, Civil Code.)- The evidence shows that, when the Juanita arrived at the pointof delivery, the parties in charge of said boat placed orattempted to place skids on said boat for the purpose of loading

the logs. Certainly they believed that the logs had beendelivered, or else why would they have actually madepreparation for the loading of the same? The logs were fully atthe disposal of the defendant, and the latter thereby becameliable for the price of the same under the contract. (A339, Codeof Commerce; Noyes vs. Marlott)- Nicholas vs . Morse> in an action for goods sold and delivered, if the plaintiffproves delivery at the place agreed and that there remainednothing further for him to do, he need not show actualacceptance by the defendant. The mere fact that the defendant,by reason of the improper equipment of the vessel, was unableto take said logs aboard such vessel, can not relieve the latterfrom responsibility under the contract. No burden rested uponthe plaintiff to furnish proper equipment for the vessel of thedefendant with which to put on board said logs. That was the

responsibility of the defendant. The responsibility of the plaintceased when he placed the logs alongside the vessel of tdefendant.- Condition of the Port of Basilan:> it was perfectly feasible of the defendant, with propapparatus, to take on board the logs in question at the point delivery. We presume that at almost every point upon the coastthe Philippine Archipelago there are days when conditions asuch as to prevent the loading of cargo upon vessels. This is tr

even in the Bay of Manila. However, it would not be just conclude that, because on certain days it is impossible to load aunload ships might be loaded and unloaded in said bay had mamisrepresentations, because of the fact that on a particular dships could not be loaded or unloaded by reason of the conditioof the sea resulting from wind or storm.Obiter- Suppose, for example, that after the vessel of the defendant harrived at the point where the logs were delivered along its sidand the logs had actually been delivered at the side, as is claimeby the plaintiff in the present case, the plaintiff had thereaftsold the said logs to third persons. Could the defendant hamaintained replevin for the same? If the title had not passed, could not. If it had, he could. If the title had not passed at thmoment the plaintiff might have sold said logs to a third person the very presence of the defendant, even after defendant's vesshad arrived to take the logs away. If the title had not passed, tplaintiff would thus have subjected himself to an action fdamages upon his contract upon a failure to perform it. We are the opinion, however, that, if the plaintiff had sold said logs tothird person after the arrival of the vessel of the defendant, tdefendant might have claimed and recovered said logs upon ttheory that have properly said to another purchaser of said log"These logs are mine; they have been delivered to me undercontract; everything has been done under said contract which tcircumstances will permit of for the passing of the title of tsame to me, and whoever buys said logs buys something whihas not only been previously bought by me but which has beset apart for me ands placed at my disposal by the mounequivocal acts, and I am, therefore, vested with the title to tsame which I have a right to maintain and enforce." And wbelieve that the law would have sustained the defendant in thcontention. (Whitcomb vs. Whitney; Hatch vs. Oil Company; A33

Code of Commerce; Noyes vs. Marlott,)Disposition plaintiff is entitled to a confirmation of the judgmeof the lower court. It is therefore, hereby ordered that a judgmebe entered in favor of the plaintiff and against the defendant fthe sum of P10,033.39, with interest at the rate of 6 per cent pannum from the 3rd day of April, 1906, a

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