Sales - 2nd Exam

“Again, Do take Note” (2nd Exam) Sales – Atty. SARONA 1

SECOND EXAM COVERAGE:

So now we move on to PRICE. This element is discussed in Art 1458 and Art 1471 of the Civil Code. So why is there a necessity for a price in

a contract of sale? Aside from the fact that it is mentioned in Art 1458, remember the characteristic of a contract of sale being

onerous. So there is an exchange of a different valuable consideration. In the case of Inchausti vs Cromwell, recall that it was discussed that the

“PRICE” signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of

the price, put to the debit of the vendee and agreed by him.

Now recall again Art 1458…

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)

So it says “price or its equivalent”, so this means

na hindi lang money. “Or its equivalent”, this means that there is certainty as to the price, but it is possible that the payment may be as object

as equivalent to money. The elements of a valid price are:

1. The price must be real, not simulated 2. The price must be in money or its

equivalent

3. It must be certain or ascertainable at the time of perfection, and

4. Jurisprudence likewise states that

manner of payment must be agreed upon. With regard to manner of payment, you will see when this is

required. Take note again as we have discussed in your

contracts and in some of the cases that we have discussed, mere inadequacy of price will not affect an ordinary conrtract of sale. But of course

if there is no price at all, then there is no valid contract of sale for lack of consideration.

So price must be REAL.

Article 1471. If the price is simulated, the sale

is void, but the act may be shown to have been in reality a donation or some other act or contract.

So when we say that the requirement is that the price must be real, there must be a legal

intention on the part of the buyer to pay the price and there must be legal expectation to receive such price as he obligates himself to deliver the

subject matter. Again, distinguish it from

contracts that are not onerous, like a gratuitous contracts. There is no payment for a price

certain, like for example a donation. So when do you consider a price as simulated?

Diba ang sabi if it is simulated, the same is void. It is simulated when neither party to the deed of sale had any intention whatsoever that the

amount will be paid, and therefore the sale is void. However Art 1471 provides that it may be shown to be in reality a donation, or some other

act or contract. So again, you look at the intention of the parties.

Now how about ung Art 1353?

Art. 1353. The statement of a false cause in

contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful.

(1276)

So the “false cause” referred to here is similar to

a simulated price mentioned in Art 1471, which renders the contract void. Take note that if it is simulated, wherein the parties represented that

the sale has been made but was not in fact paid. Because there was no intention to pay at all nor was there any legal expectation on the part of

the seller. DO NOT confuse this with failure to pay. Because in failure to pay, you agreed upon on a consideration. Di lang bumayad si buyer.

Again if the price is simulated, the contract is void because the third essential element of price is lacking.

So what happened in the case of MAPALO?

MAPALO VS. MAPALO FACTS: The spouses Miguel Mapalo and

Candida Quiba were the registered owners of a residential land located in Pangasinan. (1,635 sq. m.) The spouses donated the eastern half of

the land to Miguel’s brother – Maximo Mapalo who was about to get married.

However, they were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire land in Maximo’s favor. Their

signatures were procured by fraud because they were made to believe by Maximo and the lawyer who acted as notary public who "translated" the

document, that the same was a deed of donation in Maximo's favor covering one-half of their land. (It must be noted that the spouses are illiterate

farmers). Although the document of sale stated a consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything

of value for the land. In 1938, Maximo Mapalo, without the consent of

the spouse, registered the sale in his favor. After thirteen years (1951), he sold the land to the Narcisos. (Evaristo, Petronila Pacifico and

Miguel) who thereafter registered the sale and obtained a title in their favor.


In 1952, the Narcisos filed a complaint with the CFI to be declared owners of the entire land, for

possession of its western portion; for damages; and for rentals. The Mapalo spouses filed a counterclaim seeking cancellation of the

Narcisos’ titles as to the western half of the land. They said that their signatures to the deed of sale of 1936 was procured by fraud and that the

Narcisos were buyers in bad faith. They also filed another complaint wherein they

asked the court to declare deeds of sale of 1936 and of 1951 over the land in question be declared null and void as to the western half of

said land. CFI ruled in favor of the Mapalo spouses. Upon

appeal filed by Narcisos, CA reversed the lower court’s ruling solely on the ground that the consent of the Mapalo spouses to the deed of

sale of 1936 having been obtained by fraud, the same was voidable, not void ab initio, and, therefore, the action to annul the same, within

four years from notice of the fraud, had long prescribed. (From March 15, 1938). Hence, this appeal.

ISSUES: 1. Whether or not the deed of sale executed in

1936 was null and void. YES 2. Whether or not the Narcisos were purchasers in good faith. NO

HELD: 1.) YES, the sale was void. The Civil Code

governs the transaction because it was executed in 1936. Accordingly, since the deed of sale of 1936 is governed by the Old Civil Code, it should

be asked whether its case is one wherein there is no consideration, or one with a statement of a false consideration. If the former, it is void and

inexistent; if the latter, only voidable, under the Old Civil Code.

There is lack of consideration As observed earlier, the deed of sale of 1936 stated that it had for its consideration Five

Hundred (P500.00) Pesos. In fact, however, said consideration was totally absent. The problem, therefore, is whether a deed which states a

consideration that in fact did not exist, is a contract without consideration, and therefore void ab initio, or a contract with a false

consideration, and therefore, at least under the Old Civil Code, voidable.

When there is no consideration, the contract is null and void According to Manresa, what is meant by a

contract that states a false consideration is one that has in fact a real consideration but the same is not the one stated in the document.

In our view, therefore, the ruling of this Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921, is

squarely applicable herein. In that case we ruled that a contract of purchase and sale is null and void and produces no effect whatsoever where

the same is without cause or consideration in that the purchase price which appears thereon

as paid has in fact never been paid by the purchaser to the vendor.

2.) No, they were no purchasers in good faith. Aside from the fact that all the parties in these cases are neighbors, except Maximo Mapalo the

foregoing facts are explicit enough and sufficiently reveal that the Narcisos were aware of the nature and extent of the interest of

Maximo Mapalo their vendor, over the above-described land before and at the time the deed of sale in their favor was executed.

The Narcisos were purchaser-in-value but not purchasers in good faith

What was the necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and asked them to permit their brother

Maximo to dispose of the above-described land? To this question it is safe to state that this act of Pacifico Narciso is a conclusive manifestation

that they (the Narcisos) did not only have prior knowledge of the ownership of said spouses over the western half portion in question but that

they also have recognized said ownership. It also conclusively shows their prior knowledge of the want of dominion on the part of their vendor

Maximo Mapalo over the whole land and also of the flaw of his title thereto. Under this situation, the Narcisos may be considered purchasers in

value but certainly not as purchasers in good faith.

Q: How about the term “false consideration”, is that the same as simulated under Art 1471? A: No. In this case, when you say “false

consideration”, it is one that has a real consideration, but the same was not stated in the document. In cases of false consideration,

there is an intention to pay the purchase price, although there is only a discrepancy with regards to what is stipulated in the contract.

However in a simulated consideration, there is no consideration at all.

So here the sale as to the western portion, the sale was considered void. Why is it void and not voidable? It was considered void because there

was no consideration at all. Again it was discussed that a contract that is voidable by virtue of fraud, said consent, although defective,

may exist. Again contracts without a cause or consideration

produce no effect whatsoever. Here there was no consideration at all as to be distinguished in the old Civil Code in the use of the term “no

consideration”. If there is no consideration, or in other words simulated under Art 1471, the contract is void and inexistent. But if there is a

“false consideration” under the old Civil Code, it is only voidable.

Again take note because the use of the term “false cause” in Art 1533 of the NCC, it is the same as “simulated” in Art 1471. So do


remember that you have to be very careful in understanding and using the term “false

consideration”. You take into consideration, like in this case in the Old Civil Code, or if it is a “false cause” as defined in Art 1353.

What is meant by a contract that has a “false consideration” in the OLD CIVIL CODE is one

that has a real consideration, but the same is not stated in the contract. A contract of purchase and sale is null and void and produces no effect

whatsoever where the same is without cause and consideration. So in this case, there was no consideration and therefore there is no valid

contract of sale. When two aged individuals, who are not well

versed in English, signed a deed of sale in representation (??? )that it was merely to evidence the lending of money, it constitutes

more than just fraud and vitiation of consent to give rise to a voidable contract. Since there was no intention at all to enter into a sale, there was

no consent and more importantly, there was no consideration agreed upon, which makes the contract void ab initio.

MODINA VS. CA

FACTS: This case involves parcels of land registered under the name of Ramon Chiang. Chiang theorized that the subject properties

were sold to him by his wife, Merlinda Plana Chiang as evidenced by a Deed of Sale and were subsequently sold by Chiang to the

petitioner Serafin Modina. (Dates of sale: August 3, 1979 and August 24, 1979, respectively.)

Modina brought a Complaint for Recovery of Possession with Damages against the private respondents before the RTC. Upon learning the

institution of the said case, Merlinda presented a Complaint-in-intervention, seeking the declaration of nullity of the Deed of Sale

between her husband and MODINA on the ground that the titles of the parcels of land in dispute were never legally transferred to her

husband. She contended that fraudulent acts were allegedly employed by her husband to obtain a Torrens Title in his favor. However, she

confirmed the validity of the lease contracts with the other private respondents.

MERLINDA also admitted that the said parcels of land were those ordered sold by the CFI of Iloilo in “Intestate Estate of Nelson Plana” where

she was appointed as the administratix, being the widow of the deceased, her first husband. An Authority to Sell was issued by the said

Probate Court for the sale of the same properties.

RTC ruled in favor of the wife Merlinda declaring the two sales in August 1979 as void and inexistent. Upon appeal, the CA affirmed in toto

the RTC ruling. ISSUES:

1. Whether or not the sale of subject lots should be nulli fied. YES

2. Whether or not petitioner Modina was a purchaser in good faith. NO

HELD: 1.)The sale of the subject lots should be nulli fied.

Prohibition of sale between spouses Art. 1490. The husband and the 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 Art. 191. The sale between Chiang spouses was null and

void. The ownership of the lot did not transfer to Ramon Chiang. Hence, the sale to Modina was null and void. The exception to the rule laid

down in Art. 1490 of the New Civil Code not having existed with respect to the property relations of Ramon Chiang and Merlinda Plana

Chiang, the sale by the latter in favor of the former of the properties in question is invalid for being prohibited by law. Not being the owner of

subject properties, Ramon Chiang could not have validly sold the same to plaintiff Serafin Modina. The sale by Ramon Chiang in favor of

Serafin Modina is, likewise, void and inexistent. Serafin Modina is, likewise, void and inexistent.

A contract of sale without consideration is a void contract Under Article 1409 of the New Civil Code,

enumerating void contracts, a contract without consideration is one such void contract. One of the characteristics of a void or inexistent contract

is that it produces no effect. So also, inexistent contracts can be invoked by any person whenever juridical effects founded thereon are

asserted against him. A transferor can recover the object of such contract by accion reivindicatoria and any possessor may refuse to

deliver it to the transferee, who cannot enforce the transfer.

Thus, Modina’s insistence that Merlinda cannot attack subject contract of sale as she was a guilty party thereto is equally unavailing.

Merlinda can recover the property Since one of the characteristics of a void or

inexistent contract is that it does not produce any effect, MERLINDA can recover the property from petitioner who never acquired title

thereover. Records show that in the complaint-in-

intervention of MERLINDA, she did not aver the same as a ground to nullify subject Deed of Sale. In fact, she denied the existence of the

Deed of Sale in favor of her husband. In the said Complaint, her allegations referred to the want of consideration of such Deed of Sale. She

did not put up the defense under Article 1490, to nullify her sale to her husband CHIANG because


such a defense would be inconsistent with her claim that the same sale was inexistent.

2.) Modina was not a purchaser in good faith

There are circumstances which are indicia of bad faith on Mondina’s part:

(1) He asked his nephew, Placido Matta, to investigate the origin of the property and the latter learned that the same formed part of the

properties of MERLINDA’s first husband; (2) that the said sale was between the spouses; (3) that when the property was inspected,

MODINA met all the lessees who informed that subject lands belong to MERLINDA and they had no knowledge that the same lots were sold

to the husband. It is a well-settled rule that a purchaser cannot

close his eyes to facts which would put a reasonable man upon his guard to make the necessary inquiries, and then claim that he

acted in good faith. His mere refusal to believe that such defect exists, or his wilful closing of his eyes to the possibility of the existence of a

defect in his vendor’s title, will not make him an innocent purchaser for value, if it afterwards develops that the title was in fact defective, and

it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may

reasonably be required of a prudent man in a like situation.

In this case, when it comes to pari delicto, it applies only where the nullity arises from the illegality of the consideration. In this case, there

was no allegation on the illegality of the consideration. What was alleged here was there was no consideration at all and therefore there

could have been no valid sale.

VDA. DE CATINDIG VS. HEIRS OF ROQUE

FACTS: The subject property in this case is a fishpond which was part of the Malolos Cadastre

and has an area of more than thirteen hectares. As shown in Original Certificate of Title, it is co-owned or registered in the names of the different

persons. (note: there are 16/16 shares) The co-owners of the fishpond leased it to Mrs.

Catindig for a term of ten years counted from October 1, 1941 for a total rental of six thousand pesos. After the termination of the lease on

September 30, 1951, Mrs. Catindig remained in possession of the fishpond because she was negotiating with the co-owners for the purchase

thereof. She wanted to buy it for P52,000. On October 18, 1960 German Ramirez, one of

the co-owners, executed a deed wherein he sold his 2/16 share to Mrs. Catindig for P6,500 The sale was annotated on the title on October 19,

1960. Two weeks later, Pedro Villanueva, one of the co-owners, learned of the sale executed by German Ramirez. That sale retroacted to April

13, 1950. In 1960 the respondents filed this action against Mrs. Catindig to compel her to

allow them to redeem the portion sold by German Ramirez. The respondents amended their complaint by including a prayer for the

recovery of the possession of the fishpond. The RTC declared void certain documents of

sale regarding portions of the fishpond in litigation. It ordered Mrs. Catindig to deliver to the respondents (except German Ramirez) the

possession of the said fishpond and to allow the respondents to redeem from Mrs. Catindig the 2/16 portion of the fishpond which German

Ramirez had sold to her. CA affirmed in toto the RTC ruling. CA said that Mrs. Catindig did not pay P52,000 (the projected sale) and that it the

contract was simulated. Hence, this appeal. ISSUE: Whether or not the sale by German

Ramizer to Mrs. Catindig was null and void. HELD: YES. The alleged sales were null and

void. The conclusive factual finding of the Appellate Court that the alleged sales on April 13 or 14, 1950 of respondents' shares are

simulated and void ab initio renders untenable appellant Catindig's contentions that the remedies available to the respondents, such as

an action for annulment, rescission or reformation, are barred by prescription or laches.

The alleged sales were absolutely simulated, fictitious or inexistent contracts (Arts. 1346 and 1409(2)). "The action or defense for the

declaration of the inexistence of a contract does not prescribe" (Art. 1410). Mere lapse of time cannot give efficacy to a void contract.

The CA’s finding that the price was not paid or that the statement in the supposed contracts of

sale as to the payment of the price was simulated fortifies the view that the alleged sales were void. "If the price is simulated, the sale is

void..." (Art. 1471, Civil Code). A contract of sale with no consideration is void

A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by

the purchaser to the vendor. Such a sale is non-existent or cannot be considered consummated.

Mrs. Catindig cannot demand Mrs. Catindig is not entitled to demand the execution of a notarized deed of sale for the

14/16 pro indiviso portion of the fishpond. She is not entitled because, as already held, the alleged sales in her favor are void.

Reasonable value of the use and occupation of the fishpond should be limited

We hold that, as a matter of fairness and equity or to avoid unjust enrichment, the liability of Mrs. Catindig for the reasonable value of the use and

occupation of the fishpond should be limited to the period from October 1, 1951 up to the time in January, 1964 when she turned over the


fishpond to the receiver, namely, the deputy clerk of court of the Court of First Instance of

Bulacan, Malolos Branch I. From the compensation of P6,000 per annum

which Mrs. Catindig is obligated to pay to the respondents, should be deducted the 2/16 portion of said compensation, corresponding to

the share of German Ramirez, from October 1, 1951 to January, 1964. Thereafter, Mrs. Catindig is entitled to demand the 2/16 share in the net

fruits or earnings of the fishpond from the receiver until the said share is redeemed by the respondents.

Ruling by the Supreme Court: - The receiver (not Asuncion Meneses Vda. de

Catindig) should deliver the possession of the fishpond to the respondents or their duly authorized representative, together with 14/16 of

the net earnings of the fishpond from January 15, 1964 up to the time the possession is delivered to the respondents.

The receiver should deliver to Mrs. Catindig a 2/16 share of the net earnings of the fishpond,

corresponding to the share of German Ramirez, from January 15, 1964 up to the time the said share is redeemed from her.

Q: How about the lapse of time, will prescription apply here?

A: No. Art 1410 provides “Actions to assail the validity of the contract on the ground that it is void is imprescriptible.”

The alleged contracts of sale here were absolutely simulated, fictitious or inexistent.

Therefore the action for the declaration of inexistence of a contract does not prescribe. Mere lapse of time cannot give efficacy to a voi d

contract. The finding that the price was not paid or that the statement in the supposed contracts of sale as to the payment of the price was

simulated fortifies the view that the alleged sales are void. If the price is simulated, the sale is void.

We have here a contract and allegedly the price was received by the seller, but actually walang

nareceive ang seller. But again do not stop there, so as not to confuse that with failure to pay the consideration. In failure to pay, it will not

invalidate a contract. In this case, they showed that there was consideration received, but look at the intention of the parties. Was there an

agreement to the consideration? Was there intent to enter into a contract and to transfer ownership of the property in exchange for a

price? There was none. So the sale is void and produces no effect

whatsoever. Where the price appears fake and was never paid by the purchaser to the vendor. This shows the intention that the parties did not

agree or there was no meeting of the minds as to the consideration. Such a sale is non-existent and cannot be considered as consummated.

SPOUSES LEQUIN VS. SPS. VIZCONDE

SUNDAY, AUGUST 24, 2014

FACTS: In 1995, spouses Ramon and Virginia

Lequin, residents bought the subject lot consisting of 10,115 sq. m. from one Carlito de Leon. The sale was negotiated by respondent

Raymundo Vizconde. In 1997, spouses Vizconde represented to

spouses Lequin that they had also bought from Carlito de Leon a 1,012 sq. m. lot adjacent to the Lequins and built a house thereon.

As later confirmed by de Leon, however, the 1,012 sq. m. lot claimed by the Vizcondes is part

of the 10,115 sq. m. lot Lequin bought from him. With the consent of the Vizcondes, spouses

Lequin then constructed their house on the 500-square meter half-portion of the lot claimed by respondents, as this was near the road.

Given this situation where the house of Lequins stood on a portion of the lot allegedly owned by

Vizcondes, the former consulted a lawyer, who advised them that the 1,012 sq. m. lot be segregated from the subject lot whose title they

own and to make it appear that they are selling to respondents 512 square meters thereof.

This sale was embodied in the February 12, 2000 Kasulatan where it was made to appear that the Vizcondes paid PhP 15,000 for the

purchase of the 512-square meter portion of the subject lot.

In July 2000, petitioners tried to develop the dried up canal located between their 500-square meter lot and the public road. However, the

respondents objected, claiming ownership of said dried up canal or sapang patay.

This prompted the Liquins to look into the ownership of the dried up canal and the lot claimed by the respondents Carlito de Leon told

petitioners that what he had sold to respondents was the dried up canal or sapang patay and that the 1,012-square meter lot claimed by

respondents really belongs to petitioners. In 2001, petitioners filed a complaint praying for the Kasulatan to be declared as null and void ab

initio. The RTC found the Kasulatan allegedly

conveying 512 square meters to respondents to be null and void due to: (1) the vitiated consent of petitioners in the execution of the simulated

contract of sale; and (2) lack of consideration, since it was shown that while petitioners were ostensibly conveying to respondents 512 square

meters of their property, yet the consideration of PhP 15,000 was not paid to them and, in fact,they were the ones who paid respondents

PhP 50,000.


Upon appeal by the respondent-spouses, CA reversed the ruling.

ISSUE: WON the Kasulatan was null and void. But take note, on the issue of consent, the SC

said that the Kasulatan was merely voidable. But on the issue of consideration, it was void. Final ruling - void.

HELD: YES

Re: Lack of Consideration The contract of sale or Kasulatan states that respondents paid petitioners PhP 15,000 for the

512-square meter portion. On its face, the above contract of sale appears to be supported by a valuable consideration. We, however, agree with

the trial court’s finding that this is a simulated sale and unsupported by any consideration, for respondents never paid the PhP 15,000

purported purchase price. The kasulatan did not express the true intent of

the parties Lack of consideration was proved by petitioners’ evidence aliunde showing that the Kasulatan did

not express the true intent and agreement of the parties. As explained above, said sale contract was fraudulently entered into through the

misrepresentations of respondents causing petitioners’ vitiated consent.

There can be no doubt that the contract of sale or Kasulatan lacked the essential element of consideration.

It is a well-entrenched rule that where the deed of sale states that the purchase price has been

paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. Moreover, Art. 1471 of the Civil

Code, which provides that “i f the price is simulated, the sale is void,” also applies to the instant case, since the price purportedly paid as

indicated in the contract of sale was simulated for no payment was actually made.

The contract is void ab intio Consideration and consent are essential elements in a contract of sale. Where a party’s

consent to a contract of sale is vitiated or where there is lack of consideration due to a simulated price, the contract is null and void ab initio.

The PhP 50,000 paid by petitioners to respondents as consideration for the transfer of

the 500-square meter lot to petitioners must be restored to the latter.

Otherwise, an unjust enrichment situation ensues. The facts clearly show that the 500-square meter lot is legally owned by petitioners

as shown by the testimony of de Leon; therefore, they have no legal obligation to pay PhP 50,000 therefor.

Considering that the 512 square-meter lot on which respondents’ house is located is clearly

owned by petitioners, then the Court declares petitioners’ legal ownership over said 512

square-meter lot. The amount of PhP 50,000 should only earn interest at the legal rate of 6% per annum from the date of filing of complaint up

to finality of judgment and not 12% since such payment is neither a loan nor a forbearance of credit. After finality of decision, the amount of

PhP 50,000 shall earn interest of 12% per annum until fully paid.

There was vitiated consent on the part of Spouses Lequin. There was fraud in the execution of the contract

used on petitioners which affected their consent. Petitioners’ reliance and belief on the wrongful claim by respondents operated as a

concealment of a material fact in their agreeing to and in readily executing the contract of sale, as advised and proposed by a notary public.

Believing that Carlito de Leon indeed sold a 1,012-square meter portion of the subject

property to respondents, petitioners signed the contract of sale based on respondents’ representations. Had petitioners known, as they

eventually would sometime in late 2000 or early 2001 when they made the necessary inquiry from Carlito de Leon, they would not have

entered or signed the contract of sale, much less pay PhP 50,000 for a portion of the subject lot which they fully own. Thus, petitioners’ consent

was vitiated by fraud or fraudulent machinations of Raymundo. In the eyes of the law, petitioners are the right ful and legal owners of the subject

512 square-meter lot anchored on their purchase thereof from de Leon. This right must be upheld and protected.

Again Art 1471 states that when the price is simulated, the sale is void. In the instant case,

the price was purported or shown to be paid as indicated in the contract however it was considered as simulated for no payment was

actually paid. Respondents never paid the 15k, even if it was stated that it was received. Where the deed of sale states that the purchase price

has been paid but in fact has never been paid, the deed of sale is void ab initio for lack of consideration.

Again, this shows the intent that there was no intention or meeting of the minds to enter into a

contract of sale. While it is true that the consent was vitiated by fraud, it was the lack of consideration which made the contract of sale

void. Where an individual’s consent to a contract of sale is vitiated or where there is lack consideration due to a simulated price, the

contract is null and void ab initio.

HEIRS OF INTAC VS. CA TUESDAY, AUGUST 19, 2014

FACTS: Ireneo Mendoza, married to Salvacion Fermin, was the owner of the subject property located in Quezon city which he purchased in


1954. (TCT No. 242655). Ireneo had two children: respondents Josefina and Martina

(respondents), Salvacion being their stepmother. When he was still alive, Ireneo, also took care of his niece, Angelina, since she was three years

old until she got married. On October 25, 1977, Ireneo, with the consent of

Salvacion, executed a deed of absolute sale of the property in favor of Angelina and her husband, Mario (Spouses Intac). Despite the

sale, Ireneo and his family, including the respondents, continued staying in the premises and paying the realty taxes. After Ireneo died

intestate in 1982, his widow and the respondents remained in the premises. After Salvacion died, respondents still maintained their residence

there. Up to the present, they are in the premises, paying the real estate taxes thereon, leasing out portions of the property, and

collecting the rentals. The controversy arose when respondents

sought the cancellation of TCT No. 242655, claiming that the sale was only simulated and, therefore, void. The heirs of Ireneo, the

respondents in this case, alleged that: 1. When Ireneo was still alive, Spouses Intac

borrowed the title of the property (TCT No. 106530) from him to be used as collateral for a loan from a financing institution;

2. They objected because the title would be placed in the names of said spouses and it would then appear that the couple owned the

property; that Ireneo, however, tried to appease them, telling them not to worry because Angelina would not take advantage of the situation

considering that he took care of her for a very long time; that during his lifetime, he informed them that the subject property would be equally

divided among them after his death; and 3. That respondents were the ones paying the real estate taxes over said property.

Spouses Intac countered, among others, that the subject property had been transferred to them

based on a valid deed of absolute sale and for a valuable consideration; that the action to annul the deed of absolute sale had already

prescribed; that the stay of respondents in the subject premises was only by tolerance during Ireneo’s lifetime because they were not yet in

need of it at that time; and that despite respondents’ knowledge about the sale that took place on October 25, 1977, respondents still

filed an action against them. RTC ruled in favor of the respondents saying

that the sale to the spouses Intac was null and void. The CA also ruled that there was no consideration in the sale to the spouses Intac

and that the contract was one for equitable mortgage.

ISSUES:

WON the Deed of Absolute Sale was a simulated contract or a valid agreement.

WON the Deed of Absolute Sale, dated October 25, 1977, involving the subject real property in Pagasa, Quezon City, was a simulated contract

or a valid agreement. HELD: The deed of sale executed by Ireneo and

Salvacion was absolutely simulated for lack of consideration and cause and, therefore, void.

Articles 1345 and 1346 of the Civil Code provide: Art. 1345. Simulation of a contract may be

absolute or relative. The former takes place when the parties do not intend to be bound at all; the latter, when the parties conceal their true

agreement. Art. 1346. An absolutely simulated or fictitious

contract is void. A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law,

morals, good customs, public order or public policy binds the parties to their real agreement.

Relatively simulated agreement vs. Absolute simulation If the parties state a false cause in the contract

to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where

the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is

absolutely binding and enforceable between the parties and their successors in interest

In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. "The main

characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way

alter the juridical situation of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the parties may recover

from each other what they may have given under the contract."

No valid sale took place between Ireneo and Spouses Intac In the case at bench, the Court is one with the

courts below that no valid sale of the subject property actually took place between the alleged vendors, Ireneo and Salvacion; and the alleged

vendees, Spouses Intac. There was simply no consideration and no intent to sell it. Evidences to prove that there was no absolute

deed of sale between the parties Critical is the testimony of Marietto, a witness to the execution of the subject absolute deed of

sale. He testified that Ireneo personally told him that he was going to execute a document of sale because Spouses Intac needed to borrow the

title to the property and use it as collateral for their loan application. Ireneo and Salvacion never intended to sell or permanently transfer


the full ownership of the subject property to Spouses Intac. Marietto was characterized by

the RTC as a credible witness. Aside from their plain denial, the heirs of Intac

failed to present any concrete evidence to disprove Marietto’s testimony. They claimed that they actually paid P150,000.00 for the subject

property. They, however, failed to adduce proof, even by circumstantial evidence, that they did, in fact, pay it. Even for the consideration of

P60,000.00 as stated in the contract, petitioners could not show any tangible evidence of any payment therefor. Their failure to prove their

payment only strengthened Marietto’s story that there was no payment made because Ireneo had no intention to sell the subject property.

Angelina’s story, except on the consideration, was consistent with that of Marietto. Angelina

testified that she and her husband mortgaged the subject property sometime in July 1978 to finance the construction of a small hospital in

Sta. Cruz, Laguna. Angelina claimed that Ireneo offered the property as he was in deep financial need.

The contract of sale was only for the purpose of lending the title of the property to Spouses Intac

to enable them to secure a loan. Their arrangement was only temporary and could not give rise to a valid sale. Where there is

no consideration, the sale is null and void ab initio. The case of Lequin vs. VIzconde was cited in this case.

The fact that Ireneo was still in physical possession of the subject property after the sale

is a strong evidence to prove that there was no valid sale between the parties. More importantly, Ireneo and his family

continued to be in physical possession of the subject property after the sale in 1977 and up to the present. They even went as far as leasing

the same and collecting rentals. If Spouses Intac really purchased the subject property and claimed to be its true owners, why did they not

assert their ownership immediately after the alleged sale took place? Why did they have to assert their ownership of it only after the death of

Ireneo and Salvacion? One of the most striking badges of absolute simulation is the complete absence of any attempt on the part of a vendee

to assert his right of dominion over the property. As heretofore shown, the contemporaneous and

subsequent acts of both parties in this case, point to the fact that the intention of Ireneo was just to lend the title to the Spouses Intac to

enable them to borrow money and put up a hospital in Sta. Cruz, Laguna. Clearly, the subject contract was absolutely simulated and,

therefore, void. The Spouses Intac never became the owners of

the property despite its registration in their names.

It is also of no moment that TCT No. 106530 covering the subject property was cancelled and

a new TCT (TCT No. 242655)21 was issued in their names. After all, registration does not vest title. As a logical consequence, petitioners did

not become the owners of the subject property even after a TCT had been issued in their names.

On Absolute Simulation: If the parties state a false cause in the contract

to conceal their real agreement, the contract is only relatively simulated and the parties are still bound by their real agreement. Hence, where

the essential requisites of a contract are present and the simulation refers only to the content or terms of the contract, the agreement is

absolutely binding and enforceable between the parties and their successors in interest.

In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be bound by it. "The main

characteristic of an absolute simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way

alter the juridical situation of the parties." "As a result, an absolutely simulated or fictitious contract is void, and the parties may recover

from each other what they may have given under the contract."

BUENAVENTURA VS. CA TUESDAY, JULY 1, 2014

FACTS: Defendant spouses Leonardo Joaquin and Feliciana Landrito are the parents of plaintiffs Consolacion, Nora, Emma and

Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino, all surnamed JOAQUIN. (Note: So there are two

sets of children here.) Sought to be declared null and void ab initio are

certain deeds of sale of real property executed by Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the

corresponding certificates of title issued in their names. The plaintiffs in this case sought for the declaration of nullity of the six deeds of sale and

certificates of title in favor of the defendants. They alleged that certain deed of sale were null and void ab initio because they are simulated.

They said that:

a. Firstly, there was no actual valid consideration for the deeds of sale xxx over the properties in litis;

b. Secondly, assuming that there was consideration in the sums reflected in the questioned deeds, the properties are more than

three-fold times more valuable than the measly sums appearing therein; c. Thirdly, the deeds of sale do not reflect and

express the true intent of the parties (vendors and vendees); and


d. Fourthly, the purported sale of the properties in litis was the result of a deliberate conspiracy

designed to unjustly deprive the rest of the compulsory heirs (plaintiffs herein) of their legitime.

Defendants, on the other hand aver:

(1) That plaintiffs do not have a cause of action against them as well as the requisite standing and interest to assail their titles over the

properties in litis; (2) That the sales were with sufficient considerations and made by defendants parents

voluntarily, in good faith, and with full knowledge of the consequences of their deeds of sale; and (3) That the certi ficates of title were issued with

sufficient factual and legal basis. RTC ruled in favor of the defendants

(respondents in this case) and dismissed the complaint. Upon appeal, the CA upheld RTC’s ruling.

ISSUES: 1. Whether the Deeds of Sale are void for lack of

consideration. NO 2. Whether the Deeds of Sale are void for gross inadequacy of price. NO

HELD: 1st issue: There was a consideration.

If there is a meeting of the minds of the parties as to the price, the contract of sale is valid, despite the manner of payment, or even the

breach of that manner of payment. If the real price is not stated in the contract, then the contract of sale is valid but subject to

reformation. If there is no meeting of the minds of the parties as to the price, because the price stipulated in the contract is simulated, then the

contract is void. Article 1471 of the Civil Code states that if the price in a contract of sale is simulated, the sale is void.

It is not the act of payment of price that determines the validity of a contract of sale.

Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the

contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or

cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract.

Petitioners failed to show that the prices in the Deeds of Sale were absolutely simulated.

To prove simulation, petitioners presented Emma Joaquin Valdoz’s testimony stating that their father, respondent Leonardo Joaquin, told

her that he would transfer a lot to her through a deed of sale without need for her payment of the purchase price. The trial court did not find the

allegation of absolute simulation of price credible.

Petitioners’ failure to prove absolute simulation of price is magnified by their lack of knowledge

of their respondent siblings’ financial capacity to buy the questioned lots. On the other hand, the Deeds of Sale which petitioners presented as

evidence plainly showed the cost of each lot sold. Not only did respondents’ minds meet as to the purchase price, but the real price was also

stated in the Deeds of Sale. As of the filing of the complaint, respondent siblings have also fully paid the price to their respondent father.

2nd issue: The general rule is that inadequacy of consideration shall not

invalidate a contract. Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been

fraud, mistake or undue influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides: Art. 1470. Gross inadequacy of price does not affect a contract of sale, except as may indicate

a defect in the consent, or that the parties really intended a donation or some other act or contract. (Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of the Civil

Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no requirement that the price be equal to the exact value of the

subject matter of sale. All the respondents believed that they received the commutative value of what they gave.

Ruling: In the instant case, the trial court found that the lots were sold for a valid consideration,

and that the defendant children actually paid the purchase price stipulated in their respective Deeds of Sale. Actual payment of the purchase

price by the buyer to the seller is a factual finding that is now conclusive upon us. WHEREFORE, we AFFIRM the decision of the

Court of Appeals in toto.

Was there a valid consideration? Yes.

Is simulated consideration the same with failure to pay the price? It is not the act of payment of price that determines the validity of a contract of

sale. Payment of the price has nothing to do with the perfection of the contract. Payment of the price goes into the performance of the

contract. Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or

cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract.

If absolutely simulated, void. If nonperformance, still valid.

Price must be real.


a. Price is “False”

What do you mean by “false”

Price is “false” when there is a real price upon which the minds of the parties had met, but not declared, and what is stated in the covering

deed is not the one intended to be paid. If the price indicated in the covering instrument is false, the contract of sale is valid, but the

underlying deed is subject to reformation to indicate the real price upon which the minds of the parties have met.

In one case, when the parties intended to be bound by the contract except that it did not

reflect the actual purchase price of the property, the Court ruled that there was only a relative simulation of the contract which remained valid

and enforceable, but subject to reformation. In another case, the Court held that “i f the

parties state a false cause in the contract to conceal their real agreement, such a contract is relatively simulated ... the parties’ real

agreement binds them.” Nevertheless, the parties may be held bound by

the false price indicated in the instrument under estoppel principle, especially when the interest of the Government or third parties would be

adversely affected by the reformation of the instrument.

MACAPAGAL vs. CATALINA O. REMORIN, CORAZON CALUZA BAMRUNGCHEEP, and

LAURELIA CALUZA-VALENCIANO

FACTS: Lots 24 and 25 were registered in the name of Candido Caluza under Transfer

Certificate of Title (TCT) No. 160544. Purificacion Arce-Caluza (Purificacion) is his second wife. Corazon Caluza-Bamrungcheep

(Corazon) is his legally adopted daughter during his first marriage. After Candido died in 1981, Corazon and Purificacion executed a Deed of

Extrajudicial Settlement adjudicating between themselves the properties of Candido, as the latter's surviving heirs.

Lots 24 and 25, together with Lot 23, which was registered in Candido's name, were adjudicated to Corazon. Purificacion got Candido's land in

Bulacan. However, administration of Lots 23, 24 and 25 were entrusted to Purificacion by Corazon as she had to leave for Thailand after

her marriage to a Thai. Unknown to Corazon, Purificacion executed an

Affidavit of Loss alleging that the TCTs of Lots No 23, 24 and 25 were lost and could no longer be found. She filed a petition for the issuance of

new owner's duplicates of title alleging that she was her deceased husband's sole heir. The petition was granted and new TCTs were issued

in Purificacion's name. Purificacion then sold the lots to Catalina Remorin (Catalina) and Catalina

mortgaged Lots 24 and 25 to L & R Lending Corp.

Corazon filed a complaint for reconveyance and damages against Purificacion and Catalina upon

discovery of sale. Plaintiff alleged that the two defendants connived with each other in transferring the three lots in their names through

simulated sales. Corazon likewise filed a criminal complaint for falsification and perjury against the two.

Catalina executed a Deed of Transfer, signed by Purificacion as witness, admitting the wrong they

did in illegally transferring the lots in their names and acknowledging Corazon to be the rightful owner under the Deed of Extrajudicial

Settlement. Corazon presented the Deed of Transfer before the Register of Deeds of Quezon City and Catalina's TCT over Lots 24

and 25 was cancelled and a TCT was issued in Corazon's name.

Prior thereto, however, Catalina mortgaged Lots 24 and 25 to respondent Laurelia Caluza-Valenciano (Laurelia) to pay off her mortgage

indebtedness to L & R Lending Corporation. The inscription of the mortgage in favor of Laurelia was carried over to Corazon's TCT.

-Corazon, Purificacion, Catalina, and Laurelia executed a Memorandum of Agreement to settle

Civil Case. It stipulated that Corazon cedes and grants unto and in favor of Purificacion full ownership and other real rights over the

southernmost apartment as well as the portion of the lot occupied thereby subject to the condition that Purificacion shall assume satisfaction of the

mortgage debt contracted by Catalina in favor of Laurelia and shall cause transfer of said annotation to the title to be issued in her

(Purificacion's) name; and furthermore that any and all expenses for segregation survey, re -titling and annotation of said mortgage shall be

shouldered by said Purificacion Arce-Caluza; Before the agreement could be implemented,

Purificacion died. Consequently, another compromise agreement was executed stating that Corazon and Catalina agreed that title to the

southernmost apartment as well as the portion of the lot occupied thereby shall be transferred direct to its interested buyer with defendant

Catalina assuming and paying (from the proceeds of the sale) her mortgage obligation with Laurelia; any and all expenses for

segregation survey, re-titling, capital gains taxes and those connected with the annotation and/or release of said mortgage should now be

shouldered by defendant Catalina O. Remorin. Corazon then sold the subject Lot to Laurelia by virtue of a deed entitled "Sale of Unsegregated

Portion of Land." However, Catalina also sol d the same lot to Macapagal claiming to be authorized under the Compromise Agreement.

Macapagal sought to nullify the sale executed by Corazon in favor of Laurelia and to declare valid the one executed by Catalina in her favor.


RTC rendered judgment in favor of

petitioner. Corazon and Laurelia appealed to the Court of Appeals, which reversed the decision of the trial court.

Macapagal’s contention: the sale executed by Catalina in her favor should prevail over the one

executed by Corazon in favor of Laurelia, as Catalina was the one authorized to sell the disputed property under the Compromise

Agreement Respondent’s contention: Corazon, the

registered owner of the disputed property, did not give Catalina authority to sell the lot. It was provided in the Agreement that Catalina shall

pay off her mortgage obligation and incidental expenses from the proceeds of the sale only to reassure Catalina that her obligation would be

paid in the event that Corazon sells the property. ISSUE: WON Catalina was authorized to sell the

land as provided by their Compromise Agreement.

RULING: The Compromise Agreement dated September 9, 1988 cannot be taken as a waiver of Corazon's authority to sell and grant thereof to

Catalina considering that the Agreement merely provided that Catalina pay off her mortgage obligation and incidental expenses from the

proceeds of the sale. Although it was imperative, as part of the compromise, that the money come from the proceeds of the sale, it was not

expressly stated, nor did it necessarily mean, that Catalina herself be the one to directly sell the property. Authority to sell must be couched

in clear and unmistakable language. Moreover, intent to give Catalina authority to sell

may not be easily attributed to Corazon considering that the latter had to file the reconveyance case as a result of Purificacion's

and Catalina's acts of transferring the disputed lot in their names.

In contract interpretation, analysis is not to be limited to the words used in the contract, as they may not accurately reflect the parties' true intent.

If the words of the contract appear to be contrary to the evident intention as revealed by the circumstances, the latter shall prevail over the

former. The fact that the deed of sale between

respondents Corazon and Laurelia did not accurately reflect the true consideration thereof is not cause for declaration of its nullity. When

the parties intended to be bound by the contract except that it did not reflect the actual purchase price of the property, there is only a relative

simulation of the contract which remains valid and enforceable. It cannot be declared null and void since it does not fall under the category of

an absolutely simulated or fictitious contract. The contract of sale is valid but subject to reformation. Petition denied.

b. Non-Payment of Price

Effect of non-payment? Give rise to action by the parties – Specific Performance and Rescission

CLARA M. BALATBAT vs CA, SPS. REPUYAN

G.R. No. 109410, August 28, 1996 FACTS: A parcel of land was acquired by

plaintiff Aurelio Roque and Maria Mesina during their conjugal union. Maria died on August 28, 1966.

On June 15, 1977, Aurelio filed a case for partition. The trial court in that case for partition,

held that Aurelio is entitled to the ½ portion of his share in the conjugal property, and the other half which formed part of the estate of Maria Mesina,

will be divided equally among him and their 4 children receiving 1/5 each. The decision having become final and executory, the Register of

Deeds of Manila issued a transfer certi ficate of title on October 5, 1979 according to the ruling of the court.

On April 1, 1980, Aurelio sold his 6/10 share to spouses Aurora Tuazon-Repuyan and Jose

Repuyan, as evidenced by a deed of absolute sale. On June 21, 1980, Aurora caused the annotation of her affidavit of adverse claim.

However, on August 20, 1980, Aurelio filed a complaint for rescission of contract grounded on the buyers’ failure to pay the balance of the

purchase price. Subsequently, on February 4, 1982, another

deed of absolute sale was executed between Aurelio and his children, and herein petitioner Clara Balatbat, involving the entire lot. Balatbat

filed a motion for the issuance of writ of possession, which was granted by the court on September 20, 1982, subject to valid rights and

interests of third persons. Balatbat filed a motion to intervene in the rescission case, but did not file her complaint in intervention. The court ruled

that the sale between Aurelio and Aurora is valid. On March 3, 1987 however, Balatbat filed a notice of lis pendens before the Register of

Deeds regarding the subject property. ISSUE: W/N the alleged sale to Spouses Repuyan was merely executor

HELD: No. The sale was consummated, hence, valid and enforceable.

Contrary to petitioner's contention that the sale dated April 1, 1980 in favor of Spouses Repuyan

was merely executory for the reason that there was no delivery of the subject property and that consideration/price was not fully paid, the Court

finds the sale as consummated, hence, valid and enforceable. The Court dismissed vendor's Aurelio Roque complaint for rescission of the

deed of sale and declared that the Sale dated April 1, 1980, as valid and enforceable. No


appeal having been made, the decision became final and executory.

Examining the terms and conditions of the "Deed of Sale" dated April 1, 1980, the

P45,000.00 balance is payable only "after the property covered by T.C.T. No. 135671 has been partitioned and subdivided, and title issued

in the name of the BUYER" hence, vendor Roque cannot demand payment of the balance unless and until the property has been

subdivided and titled in the name of private respondents. Devoid of any stipulation that “ownership in the thing shall not pass to the

purchaser until he has fully paid the price,” ownership of the thing shall pass from the vendor to the vendee upon actual or constructive

delivery of the thing sold even if the purchase price has not yet been fully paid. The failure of the buyer to make good the price does not, in

law, cause ownership to evert to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of

the New Civil Code. Non-payment only creates a right to demand the

fulfillment of the obligation or to rescind the contract.

With respect to the non-delivery of the possession of the subject property to the private respondent, suffice it to say that ownership of

the thing sold is acquired only from the time of delivery thereof, actual or constructive. A contract of sale being consensual, it is

perfected by the mere consent of the parties. Delivery of the thing bought or payment of the price is not necessary for the perfection of the

contract; and failure of the vendee to pay to price after the execution of the contract does not make the sale null and void for lack of

consideration but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.

The Court reiterated the rule that the non-payment of the price does not render void nor

reverse the effects of the perfection of the contract of sale, thus —

. . . Devoid of any stipulation that “ownership in the thing shall not pass to the purchaser until he has fully paid the price” [citing Art. 1478, New

Civil Code], ownership in the thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the

purchase price has not yet been fully paid. The failure of the buyer to make good the price does not, in law, cause the ownership to revest to the

seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. Non-payment only creates a

right to demand the fulfillment of the obligation or to rescind the contract.

A contract of sale being consensual, it is perfected by the mere consent of the parties. Delivery of the thing brought or payment of the

price is not necessary for the perfection of the contract; and failure of the vendee to pay the

price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on

the part of the vendee, for which the vendor may exercise his legal remedies.

Basis of rescission under the Civil Code? Power to rescind is implied in reciprocal contract. Art 1191

3. Must be in Money or its Equivalent

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.

ISAAC BAGNAS ET AL. vs. CA G.R. No. L-38498, August 10, 1989

FACTS: Hilario Mateum died without a will and was survived only by collateral relatives. Bagnas

et al., the petitioners, were his nearest kin. The respondents Retonil et al. on the other hand were relatives to a farther extent.

Retonil et al. claims ownership of 10 parcels of land from the estate of Hilarion which they

contend were sold by Hilario through two deeds of sale where the consideration for the lands was one (1.00) Peso and services rendered,

being rendered and to be rendered. Bagnas et al. filed a case against respondents

seeking annulment of the deeds of sale as fictitious, fraudulent or falsified, or alternatively, as donations void for want of acceptance

embodied in a public instrument. In answer to the complaint, the respondents denied the alleged fictitious or fraudulent character of the

sales in their favor, asserting that the said sales were made for good and valuable consideration.

ISSUE: W/N the said consideration is valid. HELD: The Court ruled that the deeds of sale are void and are of no force and effect.

Upon the consideration alone that the apparent gross, not to say enormous, disproportion

between the stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the undisputably valuable real estate

allegedly sold worth at least P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of

actual value plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and

lawful cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio.


The transfers in question being void, it follows as

a necessary consequence that the properties purportedly conveyed remained part of the estate of Hilario Mateum, said transfers

notwithstanding, recoverable by his intestate heirs, the petitioners herein, whose status as such is not challenged.

Even if the “contract of sale” would be shown as a donation (apparently, this was the intent of the

donor), failure to conform to the requirements would not make it a valid donation.

There is no Contract of Sale for lack of consideration. Likewise, there is also no valid deed of donation for failure to conform to the

requirements of donation.

Consideration: Php 1.00 and services.

Status of sale: Void for GROSS inadequacy Without necessarily according all these

assertions its full concurrence, but upon the consideration alone that the apparent gross, not to say enormous, disproportion between the

stipulated price (in each deed) of P l.00 plus unspecified and unquantified services and the undisputably valuable real estate allegedly sold

worth at least P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of actual

value plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful

cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab initio.

Neither can the validity of said conveyances be defended on the theory that their true causa is

the liberality of the transferor and they may be considered in reality donations because the law also prescribes that donations of immovable

property, to be valid, must be made and accepted in a public instrument, and it is not denied by the respondents that there has been

no such acceptance which they claim is not required.

Services are not the equivalent of money insofar as said requirement is concerned and that a contract is not a true sale where the price

consists of services or prestations.

IMELDA ONG, ET AL. vs ALFREDO ON ET

AL. G.R. No. L-67888, October 8, 1985

FACTS: On February 25, 1976, Imelda Ong for and in consideration of One (1.00) Peso and other valuable considerations, executed in favor

of Sandra Maruzzo, then a minor, a Quitclaim Deed whereby she transferred, released, and assigned all her rights and title over a parcel of

land in Makati.

However, on November 19, 1980, Imelda Ong revoked the aforesaid Quitclaim and donated the

property to her son Rex. Subsequently, Sandra Maruzzo on June 20,

1983, through here guardian ad litem Alfredo Ong, filed with the RTC an action for the recovery of ownership/possession and

nullification of the Deed of Donation in favor of Rex.

Petitioners claimed that the Quitclaim Deed is null and void inasmuch as it is equivalent to a Deed of Donation, acceptance of which by the

donee is necessary to give it validity. Further, it is averred that the donee, Sandra Maruzzo, being a minor, had no legal personality and

therefore incapable of accepting the donation. The trial court ruled in favor of Maruzzo and held

that the Quitclaim Deed is equivalent to a Deed of Sale and, hence, there was a valid conveyance in favor of the latter.

Appealing to the IAC, petitioners additionally contends that the One (1.00) Peso consideration

is not a consideration at all to sustain the ruling that the Quitclaim Deed is equivalent to a sale. The IAC however affirmed the TC.

ISSUE: W/N the quitclaim is equivalent to a deed of sale or to a deed of donation

HELD: The Quitclaim Deed is equivalent to a deed of sale. A careful perusal of the subject

deed reveals that the conveyance of the one- half (½) undivided portion of the above-described property was for and in consideration

of the One (P 1.00) Peso and the other valuable considerations (emphasis supplied) paid by private respondent Sandra Maruzzo through her

representative, Alfredo Ong, to petitioner Imelda Ong. Stated differently, the cause or consideration is not the One (P1.00) Peso alone

but also the other valuable considerations. Although the cause is not stated in the contract it

is presumed that it is existing unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is

that there is a sufficient cause of the contract. It is a legal presumption of sufficient cause or consideration supporting a contract even if such

cause is not stated therein (Article 1354, New Civil Code of the Philippines.) This presumption cannot be overcome by a simple assertion of

lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into a

public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration

must be shown by preponderance of evidence in a proper action.

The execution of a deed purporting to convey ownership of a realty is in itself prima facie evidence of the existence of a valuable


consideration, the party alleging lack of consideration has the burden of proving such

allegation. Even granting that the Quitclaim deed in

question is a donation, Article 741 of the Civil Code provides that the requirement of the acceptance of the donation in favor of minor by

parents of legal representatives applies only to onerous and conditional donations where the donation may have to assume certain charges or

burdens. Donation to an incapacitated donee does not need the acceptance by the lawful representative if said donation does not contain

any condition. In simple and pure donation, the formal acceptance is not important for the donor requires no right to be protected and the donee

neither undertakes to do anything nor assumes any obligation. The Quitclaim now in question does not impose any condition.

Consideration: Php1.00 and other valuable considerations

Status of sale: Valid. The cause or consideration is not the One

(P1.00) Peso alone but also the other valuable considerations. Although the cause is not stated in the contract it is presumed that it is existing

unless the debtor proves the contrary (Article 1354 of the Civil Code). One of the disputable presumptions is that there is a sufficient cause of

the contract (Section 5, (r), Rule 131, Rules of Court). It is a legal presumption of sufficient cause or consideration supporting a contract

even if such cause is not stated therein (Article 1354, New Civil Code of the Philippines.) This presumption cannot be overcome by a simple

assertion of lack of consideration especially when the contract itself states that consideration was given, and the same has been reduced into

a public instrument with all due formalities and solemnities. To overcome the presumption of consideration the alleged lack of consideration

must be shown by preponderance of evidence in a proper action.

Indeed, bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent, for the assignor's

liberality may be sufficient cause for a valid contract (Article 1350, Civil Code), whereas fraud or bad faith may render either rescissible

or voidable, although valid until annulled, a contract concerning an object certain entered into with a cause and with the consent of the

contracting parties, as in the case at bar.

REPUBLIC vs PRDC and CA

G.R. No. L-10141, January 31, 1958 FACTS: The Republic brought an action against

Apostol for the collection of sums owing to it for his purchase of Palawan Almaciga and other logs. His total debt amounted to some P34,000.

PRDC intervened claiming that Apostol, as President of the company, without prior authority, took goods (steel sheets, pipes, bars,

etc) from PRDC warehouse and appropriated them to settle his personal debts in favor of the

government. The Republic opposed the intervention of PRDC, arguing that price is always paid in money and that payment in kind

is no payment at all; hence, money and not the goods of PRDC are under dispute.

ISSUE: W/N payment in kind is equivalent to price paid in money.

HELD: Yes. The Government argues that "Price . . . is always paid in terms of money and the supposed payment being in kind, it is no

payment at all, "citing Article 1458 of the new Civil Code. However, the same Article provides that the purchaser may pay "a price certain in

money or its equivalent," which means that they meant of the price need not be in money. Whether the G.I. sheets, black sheets, M. S.

Plates, round bars and G. I. pipes claimed by the respondent corporation to belong to it and delivered to the Bureau of Prison by Macario

Apostol in payment of his account is sufficient payment therefore, is for the court to pass upon and decide after hearing all the parties in the

case. Should the trial court hold that it is as to credit Apostol with the value or price of the materials delivered by him, certainly the herein

respondent corporation would be affected adversely if its claim of ownership of such sheets, plates, bars and pipes were true.

Consideration: Goods consisting of construction materials.

Argument of Government: Price must always be in terms of money hence the goods constitute no

payment at all. Article 1458 provides that the purchaser may

pay "a price certain in money or its equivalent," which means that they meant of the price need not be in money. Whether the G.I. sheets, black

sheets, M. S. Plates, round bars and G. I. pipes claimed by the respondent corporation to belong to it and delivered to the Bureau of Prison by

Macario Apostol in payment of his account is sufficient payment therefore, is for the court to pass upon and decide after hearing all the

parties in the case. Should the trial court hold that it is as to credit Apostol with the value or price of the materials delivered by him, certainly

the herein respondent corporation would be affected adversely if its claim of ownership of such sheets, plates, bars and pipes is true.

SALES 08-11-15 (DI KO NA SINALI YUNG QUESTIONS SINCE

GINA YAWYAW MAN DIN NYA LAHAT NG ANSWERS SA KANYANG DISCUSSION. )

In the case of BAGNAS, the gross disproportion between the consideration stipulated and the value of the property would show that the price

has a false and fictitious consideration and no other true and lawful cause having been shown. Even though a consideration is real in the sense


that it was agreed upon and there is every intention of the parties to pay and receive such

price, it would still be considered fictitious and render the sale void if it is a mere nominal price, wherein such nominal price would show that

there was really no intention to pay any indicated valuable consideration.

Although, as we have mentioned, i n this case,

that non-performance of service will not affect the validity, nevertheless, it would not have a valid contract of sale. Evidence was adduced to

indicate that there was no real intention to pay any indicated valuable consideration.

Differentiate this with ONG VS ONG, the

consideration was P1 and other valuable considerations. This time the SC held that that was a valid consideration. No evidence was

adduced to show that the consideration stated in the deed was not paid or simulated. So therefore it is presumed to exist applying Art 1354 of the

NCC. It is not an unusual practice of stating of a nominal consideration although consideration may have been much more, provided, there was

indeed a valuable consideration agreed upon by the parties.

Art. 1354. Although the cause is not stated in

the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. (1277)

So again consideration - money or its equivalent, it may comprise additional consideration as in the case of Ong.

Now how about in the case of REPUBLIC vs PRDC and CA? The consideration there is with

regard to those construction materials. And the SC held that that can be a valid consideration in a contract of sale. So you could apply this

scenario, if X sells a car to Y for 250k and Y would pay 100k cash plus parcel of land or house, land here can be considered as a valid

price together with the 100k and that can still be a valid consideration in a contract of sale.

Will it not be considered as a barter? Recall our discussion sa barter, you only have 4

provisions in barter. The 1st

one talks about definition sa barter, rules specific sa barter and it is the law on sales that will be applied to

contracts of barter. If for example, can it not be considered that those supplies were delivered as payment of the obligation and therefore dation

en pago in Art 1245? Yes it may be considered as dation en pago, but still you apply the law on sales.

So in REPUBLIC vs PRDC and CA, in lieu of the balance, what was caused to be delivered

were goods of the corporation as payment. So again this can be considered as a valid consideration. Now recall the case as well yung

POLYTECHNIC wherein there was a cancellation of the obligation in exchange for a

property. Again that was considered as a sale, which was a violation of the right of first refusal.

Nevertheless, it is clear that the cancellation of the debt is considered as a consideration. And again even if it was dation en pago, we would

still apply the law on Sales. However, in the case of Bagnas, if one is to be paid his services, then it is clear that it is not a valid price. It MAY be a

valid contract but it cannot be considered as a valid contract of sale. At the most, it can be considered as an innominate contract, I give that

you may do, -- do ut facias. So in that case siguro ganun but again it could not be considered as a contract of sale. So, so far, what

we have discussed, of course, if there is no price, then there is no valid contract; void contract for lack of cause or consideration. If the

price is simulated, wherein there is no intention that the amount will be paid, again the sale is void. However it may be a donation or other act

valid as such. In other words if sa donation, there must be acceptance and compliance with other requirements provided by law.

If it is a false price – “FALSE” price, bakit.. may quotation? So false price distinguished from a

simulated price. False price - in the sense that the real price was

not declared by the parties. What was stated or declared was not their intention. Nevertheless the contract of sale is valid, the remedy is

reformation to indicate the real price. Of course if there is no meeting of minds as to the price, there is no valid price, contract is void. You

already have cases wherein the price is grossly disproportionate to the value of the subject matter; there must be proof that there was really

a valuable consideration, otherwise it would show that the parties never intended to enter into a contract of sale and therefore there was

no valid sale at all. However in the case of CLARA M. BALATBAT

vs CA, SPS. REPUYAN, failure to pay the price will not affect the validity of a contract of sale, as it goes in the consummation stage and not the

perfection stage. Now the 3

rd element for a valid price. Price must

be certain or ascertainable at perfection. When we say certain here, the price must be expressed or agreed in terms of specific pesos

or in centavos. We have here Art 1469 as our guide.

Art. 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing

certain, or that the determination thereof be left to the judgment of a special person or persons.

Should such person or persons be unable or unwilling to fix it, the contract shall be

inefficacious, unless the parties subsequently agree upon the price.


If the third person or persons acted in bad faith or by mistake, the courts may fix the

price. Where such third person or persons are

prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the

party in fault as are allowed the seller or the buyer, as the case may be. (1447a)

So 1469, price considered certain, it can be with reference to another thing certain, and in fact the price can be determined by a 3

rd person as

agreed between the parties. Now take note here that the price is still certain or ascertainable even if it set by a 3

rd person who is appointed at the

time of perfection by both parties. So there is still meeting of the minds; that Juan will fix the price, and they are bound by the price fixed by Juan or

a 3rd

person. You distinguish it from the subject matter,

because as to the subject matter, it can never be left to the discretion of a 3

rd person, even if the

seller and buyer would agree.

“Okay I will give 10k and we will have X who will determine the subject matter.” Di yun pwede.

PERO SA PRICE PWEDE. We have the subject matter and the price, …

determined by a judgment of a specified 3rd

person. Now also under Art 1469, the price is nevertheless ascertainable when it is set by the

courts. However take note of the instances when can the court fix the price –

3rd

person appointed by the parties acts in BF or

when there is a mistake

Now how about the instance when such 3rd

person is prevented from fixing the price or terms by fault of the buyer or seller? The party

not in fault will have such remedies as allowed by the buyer or seller as the case may be. Now in relation to this, when the 3

rd party appointed

by the seller and buyer was prevented to fix the price by one party, you can apply here the PRINCIPLE OF CONSTRUCTIVE

FULFILLMENT in 1186.

Art. 1186. The condition shall be deemed

fulfilled when the obligor voluntarily prevents its fulfillment. (1119)

Remember there is a suspensive condition, the happening of which was prevented by the debtor through his act and his act was voluntary. So

pwede yun sya ma apply dito. Now take note as well that we also have Art. 1472 wherein you could still have a price by reference to a definite

thing, particular exchange, or market.

Art. 1472. The price of securities, grain,

liquids, and other things shall also be

considered certain, when the price fixed is that which the thing sold would have on a

definite day, or in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such

exchange or market, provided said amount be certain. (1448)

So you could have like for example, I will sell to you my shares of stocks, the price is 5 pesos then the price of the current stock market closing

today (??). So pwede yun, because there is reference to something that is also certain -- on a definite day, particular exchange or market or

when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. We

could say here that price is definite if it is in reference as provided in 1472. And in fact it could also be considered as certain or

ascertainable if it be so with reference to another thing that is certain.

VILLANUEVA VS. CA

267 SCRA 89; G.R. NO. 107624 JANUARY 28, 1997

FACTS: Petitioner Gamaliel Villanueva has been a tenant-occupant of a unit in an apartment building erected on a parcel of land owned by

private respondents dela Cruz. In 1986, Jose dela Cruz offered said land with the apartment building for sale and petitioners (Gamaliel and

Irene) showed interest in the property. As initial step, Jose gave Irene a letter of

authority for her to inspect the property. Since the property was in arrears for payment of realty taxes, Jose approached Irene and asked for a

certain amount to pay for the taxes so that the property would be cleared of any encumbrance. Irene gave 10k (5k on 2 occasions). It was

agreed by them that the 10k would form part of the sale price of 550k.

Thereafter, Jose went to Irene, bringing with him Mr. Sabio, requesting her to allow Sabio to purchase ½ of the property, to which they

consented, so they would just purchase the other half (265k, having paid the 10k). Dela Cruz executed in favor of their co-defendants (Guido

and Felicitas Pile) a Deed of Assignment of the other ½ portion of the land, wherein Gamaliel’s apartment unit is situated. This was purportedly

as full payment and satisfaction of an indebtedness obtained from the Piles. TCT was later issued in the name of the Piles.

Soon, Gamaliel learned about the assignment and issuance of new TCT. Petitioners elevated

their complaint to the Court (specific performance). They contend that a contract of sale has been perfected and that the 10k formed

part of the purchase price (necessarily then, there must have been an agreement as to the price). They cite Art 1482: Whenever earnest

money is given in a contract of sale, it shall be considered as part of the price and proof of


perfection of the contract. On the other hand, private respondents claim that what was agreed

upon was that the 10k be primarily intended as payment for realty tax, and was going to for part of the consideration of the sale if the transaction

would finally be consummated. They insist that there was no clear agreement as to the true amount of consideration.

ISSUE: Was there a perfected contract of sale? NO

HELD: After a review of the evidence, SC found that there was no agreement as to the price

(based on the testimonies). To settle the conflicting claims, petitioners could have presented the contract of sale. However, it was

not presented in evidence. Petitioners aver that even if the (unsigned) deed was not produced, Jose “admitted preparing said deed in

accordance with their agreement”. We do not agree with petitioners. Assuming arguendo that such draft deed existed, it

does not necessarily follow that there was already a definite agreement as to the price. If there was, why then did private respondent Jose

de la Cruz not sign it? If indeed the draft deed of sale was that important to petitioners' cause, they should have shown some effort to procure

it. They could have secured it through a subpoena ducestecum or thru the use of one of the modes of discovery. But petitioners made no

such effort. And even if produced, it would not have commanded any probative value as it was not signed.

The price of the leased land not having been fixed, the essential elements which give life to

the contract were lacking. It follows that the lessee cannot compel the lessor to sell the leased land to him.

The price must be certain; it must be real, not fictitious. It is not necessary that the certainty of

the price be actual or determined at the time of executing the contract. The fact that the exact amount to be paid therefor is not precisely fixed,

is no bar to an action to recover such compensation, provided the contract, by its terms, furnishes a basis or measure for

ascertaining the amount agreed upon. The price could be made certain by the application of known factors. A contract of sale is not void for

uncertainty when the price, though not directly stated in terms of pesos and centavos, can be made certain by reference to existing invoices

identified in the agreement. In the instant case, however, what is

dramatically clear from the evidence is that there was no meeting of mind as to the price, expressly or impliedly, directly or indirectly.

QUESTIONS NI MAAM:

What element is at issue here? Element of COS? – Consideration

Do we have a valid consideration? SC held no

Isn’t that you mentioned that there was the sale price of 550k?

Now for a price to be considered certain or

ascertainable, is it necessary that the parties agree as to the price? Indicate how much the purchase price?

What other instances wherein you still have a valid price even if the parties did not agree to a definite price expressed in pesos or

centavos? DISCUSSION:

There was a 10k given. Take note this was not an earnest money because there was no perfected contract of sale, considering that there

was no valid consideration between the parties. His testimony during the cross-examination negated any price agreement because he

quoted 575k and did not agree to reduce it to 550k. The price of the leased land not having been fixed, essential elements, which give rise

to a contract, are lacking. Remember the price must be certain; it must be real and not fictitious. It is not necessary that the certainty of the price

be actual or determined at the time of executing the contract. That is why the requisite here is that it must be certain or ascertainable. The fact

that the exact amount to be paid therefor is not precisely fixed, is no bar to an action to recover such compensation, provided the contract, by its

terms, furnishes a basis or measure for ascertaining the amount agreed upon. Like for example we have in article 1472, reference to a

definite thing, particular exchange or market, or essential reference to another thing. Yun nga, reference to existing invoices in an agreement.

The price could be made certain by the application of known factors; where, in a sale of

coal, a basic price was fixed, but subject to modification "in proportion to variations in calories and ash content, and not otherwise," the

price was held certain. A contract of sale is not void for uncertainty when the price, though not directly stated in terms of pesos and centavos,

can be made certain by reference to existing invoices identified in the agreement. In this respect, the contract of sale is perfected. The

price must be certain; otherwise there is no true consent between the parties. A contract of sale is not void for uncertainty when the price, though

not directly stated in terms of pesos and centavos, can be made certain by reference to existing invoices identified in the agreement. In

that case contract of sale is perfected. However, in the present case, there was no meeting of the minds as to the price, expressly or impliedly,

directly or indirectly.

MORENO, JR. VS. PRIVATE MANAGEMENT

OFFICE 507 SCRA 63; G.R. NO. 159373

NOVEMBER 16, 2006

FACTS: The subject-matter in the civil case is the J. Moreno Building (formerly known as the

North Davao Mining Building) – or more


specifically, the 2nd, 3rd, 4th, 5th and 6th floors of the building.

Moreno is the owner of the Ground Floor, the 7th Floor and the penthouse of the J. Moreno

Building and the lot on which it stands. Private Management Office (formerly, Asset

Privatization Trust or APT) on the other hand, is the owner of the 2nd, 3rd, 4th, 5th and 6th floors of the building, the subject-matter of this suit.

On February 13, 1993, APT called for a conference for the purpose of discussing

Moreno’s right of first refusal over the floors of the building owned by APT. At said meeting, APT informed Moreno that the proposed

purchase price for said floors was P21 Million. In a letter dated February 22, 1993, APT,

informed Moreno that the Board of Trustees (BOT) of APT "is in agreement that Mr. Jose Moreno, Jr. has the right of first refusal" and

requested Moreno to deposit 10% of the "suggested indicative price" of P21 million on or before February 26, 1993.

Moreno paid the P21 million on February 26, 1993. APT issued an OR for the said payment.

But later, APT wrote Moreno that its Legal Department has questioned the basis for the

computation of the indicative price for the said floors. Thus, on April 2, 1993, APT wrote Moreno that the APT BOT has "tentatively

agreed on a settlement price of P42,274,702.17" for the said floors.

RTC ruled in favor of Moreno, declared that there was a perfected contract of sale and ordered APT to sell the subject floors at P21M.

CA reversed, hence the petition.

ISSUE: WON there was a perfected contract of sale over the subject floors at the price of 21 Million. NO

HELD: A contract of sale is perfected at the moment there is a meeting of minds upon the

thing which is the object of the contract and upon the price. Consent is manifested by the meeting of the offer and the acceptance upon

the thing and the cause, which are to constitute the contract. The offer must be certain and the acceptance absolute.

To reach that moment of perfection, the parties must agree on the same thing in the same

sense, so that their minds meet as to all the terms. They must have a distinct intention common to both and without doubt or difference;

until all understand alike, there can be no assent, and therefore no contract. The minds of parties must meet at every point; nothing can be

left open for further arrangement

So long as there is any uncertainty or indefiniteness, or future negotiations or

considerations to be had between the parties, there is not a completed contract, and in fact, there is no contract at all.

Once there is concurrence of the offer and acceptance of the object and cause, the stage of

negotiation is finished. This situation does not obtain in the case at bar. The letter of February 22, 1993 and the surrounding circumstances

clearly show that the parties are not past the stage of negotiation, hence there could not have been a perfected contract of sale.

The letter is clear evidence that APT did not intend to sell the subject floors at the price

certain of P21M, viz.: (This letter was addressed to Moreno’s Atty.)

xxx We are pleased to inform you that the Board is in agreement that Mr. Jose Moreno, Jr. has the right of first refusal. This will be

confirmed by our Board during the next board meeting on February 26, 1993. In the meantime, please advise Mr. Moreno that the suggested

indicative price for APT’s five (5) floors of the building in question is P21 Million.

If Mr. Moreno is in agreement, he should deposit with APT the amount of P2.1 Million equivalent to 10% of the price on or before February 26,

1993. The balance will be due within fifteen (15) days after Mr. Moreno receives the formal notice of approval of the indicative price. xxx

The letter clearly states that P21M is merely a "suggested indicative price" of the subject floors

as it was yet to be approved by the BOT. Before the Board could confirm the suggested

indicative price, the Committee on Privatization must first approve the terms of the sale or disposition. The imposition of this suspensive

condition finds basis under Proclamation No. 5022 which vests in the Committee the power to approve the sale of government assets,

including the price of the asset to be sold (apparently government pala itong APT, and may procedure na sinusunod sa law).

Other discussions that may be relevant: On Moreno’s argument that the "suggested

indicative price" of P21M is not a proposed price, but the selling price indicative of the value at which APT was willing to sell.

The trial court relied upon the definition of the word "indicative" under the Webster

Comprehensive Dictionary, International Edition. According to Webster, "to indicate" is to point out; direct attention; to indicate the correct page.

"Indicative" is merely the adjective of the verb to indicate. xxx

Under the Rules of Court, the terms are presumed to have been used in their primary and general acceptation, but evidence is


admissible to show that they have a local, technical, or otherwise peculiar signification, and

were so used and understood in the particular instance, in which case the agreement must be construed accordingly.

The reliance of the trial court in the Webster definition of the term "indicative," as also

adopted by Moreno, is misplaced. The transaction at bar involves the sale of an asset under a privatization scheme which attaches a

peculiar meaning or signification to the term "indicative price." Under No. 6.1 of the General Bidding Procedures and Rules of respondent,

"an indicative price is a ballpark figure and [respondent] supplies such a figure purely to define the ball -park." The plain contention of

Moreno that the transaction involves an "ordinary arms-length sale of property" is unsubstantiated and leaves much to be desired.

This case sprung from a case of specific performance initiated by Moreno who has the burden to prove that the case should be spared

from the application of the technical terms in the sale and disposition of assets under privatization.

He failed to discharge the burden.

It appears in the case at bar that Moreno’s construction of the letter of February 22, 1993 – that his assent to the "suggested indicative

price" of P21M converted it as the price certain, thus giving rise to a perfected contract of sale– is his own subjective understanding. As such, it

is not shared by APT. Under American jurisprudence, mutual assent is judged by an objective standard, looking to the express words

the parties used in the contract. Under the objective theory of contract, understandings and beliefs are effective only if shared. Based on the

objective manifestations of the parties in the case at bar, there was no meeting of the minds.

So here you have the term “suggested indicative price” which is indicated in the letter, and that 21M suggested indicative price must still be

approved by the Board of Trustees and therefore there was still no meeting of the minds between the parties here as to the consideration. The

terms of a writing are presumed to have been used in their primary and general acceptation, so statutory construction, but evidence is

admissible to show that they have a local, technical, or otherwise peculiar signification. Here the transaction at bar involves the sale of

an asset under a privatization scheme which attaches a peculiar meaning or signification to the term "indicative price." Under No. 6.1 of the

General Bidding Procedures and Rules of respondent, "an indicative price is a ball -park figure, so it is just a mere estimate. So therefore

it is not certain, and therefore the price is not a valid consideration and supplies such a figure purely to define the ball-park.” So here it was

merely an estimate. It was indicated in the letter that it was a suggested indicative price, from that very term it would show that there was yet no

approval from the Board, there was yet no meeting of the minds. Again a contract of sale is

perfected at the moment there is meeting of the minds upon the thing which is the object of the contract and upon the price. There must be first

an offer, which must be certain and of course the acceptance must be absolute. But in this case what happened, the parties are not yet past the

stage of negotiation. There was an offer but there was no absolute acceptance and therefore there could not have been a perfected COS.

Now also take note, as to sale, there must be meeting of the minds, so therefore the price can never be set by one or both parties.

Take a look at article 1473.

Art. 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of

the parties is accepted by the other, the sale is perfected. (1449a)

So what do you mean by that? If the seller and buyer agreed that this parcel of land be sold, and then they say “O sige ikaw buyer ang mag

fix sa price.” “O sige mag estimate ako.” Then after a few days the buyer comes out with a price of “1M” then the seller would say “Ah

mababa yan masyado.” Can the buyer say “hindi ka na pwede mag change ng mind kasi you agreed that I will fix the price.” Can he do so?

NO. According to 1473, it can never be left to the discretion of one of the contracting parties. However if the seller would say “okay 1M” then

there is already the meeting of the minds as to the consideration. And all other elements present, then you have a valid contract of sale.

Now what is the effect if the price is unascertainable? Look at 1469, you have the term there inefficacious. What does that mean?

“The inability to produce the effect wanted; inability to get things done.” So what is the effect in a contract of sale? Obligation on the part of

the seller to transfer ownership and deliver the possession, and on the part of the buyer to pay the purchase price. But in this case, if the price

is indeed uncertain as provided under 1469, for example, the 3

rd person refuses to fix the price,

or rather unable or unwilling to fix the price, then

the contract is deemed inefficacious. If you look at that paragraph in 1469, it does not state that the same is void; again, appointing a 3

rd party to

fix the price is valid. But what if that 3

rd party is unable or unwilling,

and in this instance take note, WITHOUT the fault of any of the parties. So di nyo maapply yung regress before the courts, then the contract

is inefficacious. It is not void because there is an implied acknowledgment that the existence of the formula allowed by law at the point of

perfection has actually rendered the contract albeit conditional. (The use of the word “inefficacious” does not exclude void sale

contracts when the price is neither certain or ascertainable. In other words, the use of the term “inefficacious” was not meant to exclude


void sales, but more to be able to include valid conditional contracts of sale (which have

become inefficacious) in the same group as void contracts, from the focal point of price. – book)

So if you take a look at that part in 1469, the parties are really at stand still. At the very least what they could do is:

#1, sila nalang magsabot. “O sige meeting of the minds, lets change our contract since Mr. X is

not willing or unable to fix the price then we will set the price between ourselves.” Okay lang yun.

Pero what if they are not willing to do that, and there has already been delivery of the thing to the buyer wherein the buyer appropriates the

object? So we have article 1474. (#2)

Art. 1474. Where the price cannot be

determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any

part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a

reasonable price is a question of fact dependent on the circumstances of each particular case. (n)

If it falls within the “preceding articles” stated in Art 1474, again the contract is inefficacious. But of course if the part of subject matter has

already been delivered or appropriated by the buyer, it is just fair that he must pay a reasonable price. Again when you say

reasonable it always depends on the circumstances of each case.

So when it comes to price being certain we have articles 1469 until 1474. Price is certain of course if it is expressed in terms of specific

amounts of money but under article 1469, price is fixed in reference to another thing certain or left to a third-party’s determination) and in

addition, article 1472, (price of securities, grain, liquids based on a trading price).

Now we also have here manner of payment of price essential. Please take note that that is not an additional essential element, because the

manner of payment goes into the essence of what makes a price certain or ascertainable. In other words, it is in relation to the element that

the price must be certain or ascertainable for you to have a valid price and valid contract of sale.

NAVARRA VS. PLANTERS 527 SCRA 561; G.R. NO. 172674

JULY 12, 2007 FACTS: The Navarras obtained a loan of

P1,200,000.00 from Planters Bank and, by way of security therefor, executed a deed of mortgage over their five (5) parcels of land.

Unfortunately, the couple failed to pay their loan obligation. Hence, Planters Bank foreclosed on

the mortgage. The one year redemption period expired without the Navarras having redeemed

the foreclosed properties. On the other hand, co-petitioner RRRC Development Corporation (RRRC) is a real

estate company owned by the parents of Carmelita Bernardo Navarra. RRRC itself obtained a loan from Planters Bank secured by a

mortgage over another set of properties owned by RRRC. The loan having been likewise unpaid, Planters Bank similarly foreclosed the

mortgaged assets of RRRC. Unlike the Navarras, however, RRRC was able

to negotiate with the Bank for the redemption of its foreclosed properties by way of a concession whereby the Bank allowed RRRC to

refer to it would-be buyers of the foreclosed RRRC properties who would remit their payments directly to the Bank, which payments

would then be considered as redemption price for RRRC. Eventually, the foreclosed properties of RRRC were sold to third persons whose

payments therefor, directly made to the Bank, were in excess by P300,000.00 for the redemption price.

In the meantime, Jorge Navarra sent a letter {*contents of the letters are found in the

ruling*} to Planters Bank, proposing to repurchase the five (5) lots earlier auctioned to the Bank, with a request that he be given until

August 31, 1985 to pay the down payment of P300,000.00. In response, Planters Bank, thru its Vice-President Ma. Flordeliza Aguenza, wrote

back Navarra via a letter dated August 16, 1985. Then, on January 21, 1987, Planters Bank sent a letter to Jorge Navarra informing him that it

could not proceed with the documentation of the proposed repurchase of the foreclosed properties on account of his non-compliance

with the Bank’s request for the submission of the needed board resolution of RRRC, thus, demanding that they surrender and vacate the

properties in question for their failure to exercise their right of redemption.

The Navarras filed their complaint for Specific Performance with Injunction against Planters Bank, alleging that a perfected contract of sale

was made between them and Planters Bank whereby they would repurchase the subject properties for P1,800,000.00 with a down

payment of P300,000.00. In its Answer, Planters Bank asserted that there was no perfected contract of sale because the terms and

conditions for the repurchase have not yet been agreed upon.

The RTC ruled that there was a perfected contract of sale between the Navarras and Planters Bank. The CA reversed the decision

citing Article 1319 as basis, declaring that the acceptance of the offer was not absolute.

ISSUES: WON there was a perfected contract to repurchase the foreclosed properties between


the petitioners and the private respondent Planters Development Bank. NO

WON the parties never got past the negotiation stage. YES

HELD: In general, contracts undergo three distinct stages: negotiation, perfection or birth, and consummation. Negotiation begins from

the time the prospective contracting parties manifest their interest in the contract and ends at the moment of their agreement. Perfection or

birth of the contract takes place when the parties agree upon the essential elements of the contract, i.e., consent, object and price.

Consummation occurs when the parties fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment

thereof. A negotiation is formally initiated by an offer

which should be certain with respect to both the object and the cause or consideration of the envisioned contract. In order to produce a

contract, here must be acceptance, which may be express or implied, but it must not qualify the terms of the offer. In other words, it must be

identical in all respects with that of the offer so as to produce consent or meeting of the minds.

Here, the Navarras assert that the following exchange of correspondence between them and Planters Bank constitutes the offer and

acceptance, thus: Letter dated July 18, 1985 of Jorge Navarra:

This will formalize my request for your k ind consideration in allowing my brother and me to buy back my house and lot and my restaurant

building and lot together with the adjacent road lot. Since my brother, who is work ing in Saudi Arabia, has accepted this arrangement only

recently as a result of my urgent offer to him, perhaps it will be safe for us to set August 31, 1985 as the last day for the payment of a

P300,000.00 down payment. I hope you will grant us the opportunity to raise the funds within this period, which includes an allowance for

delays. The purchase price, I understand, will be

based on the redemption value plus accrued interest at the prevailing rate up to the dat e of our sales contract.

Maybe you can give us a long term payment scheme on the basis of my brother’s annual

savings of roughly US$30,000.00 everytime he comes home for his home leave. I realize that this is not a regular transaction but I am

seek ing your favor to give me a chance to reserve whatever values I can still recover from the properties and to avoid any legal

complications that may arise as a consequence of the total loss of the Balangay lot. I hope that you will extend to me your favorable action

on this grave matter. Letter dated August 16, 1985 of Planters Bank:

Regarding your letter dated July 18, 1985, requesting that we give up to August 31, 1985 to

buy back your house and lot and restaurant and building subject to a P300,000.00 downpayment on the purchase price, please be advised that

the Collection Committee has agreed to your request. Please see Mr. Rene Castillo, Head, Acquired Assets Unit, as soon as possible for

the details of the transaction so that they may work on the necessary documentation.

Given the above, the basic question that comes to mind is: Was the offer certain and the acceptance absolute enough so as to

engender a meeting of the minds between the parties? Definitely not.

While the foregoing letters indicate the amount of P300,000.00 as down payment, they are, however, completely silent as to how the

succeeding instalment payments shall be made. At most, the letters merely acknowledge that the

down payment of P300,000.00 was agreed upon by the parties. However, this fact cannot lead to the conclusion that a contract of sale had

been perfected. Quite recently, this Court held that before a valid and binding contract of sale can exist, the manner of payment of the

purchase price must first be established since the agreement on 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.

The Navarras’ letter/offer failed to specify a definite amount of the purchase price for the sale/repurchase of the subject properties. It

merely stated that the "purchase price will be based on the redemption value plus accrued interest at the prevailing rate up to the date of

the sales contract." The ambiguity of this statement only bolsters

the uncertainty of the Navarras’ so-called "offer" for it leaves much rooms for such questions, as: what is the redemption value? What

prevailing rate of interest shall be followed: is it the rate stipulated in the loan agreement or the legal rate? When will the date of the contract of

sale be based, shall it be upon the time of the execution of the deed of sale or upon the time when the last installment payment shall have

been made? To our mind, these questions need first to be addressed, discussed and negotiated upon by the parties before a definite purchase

price can be arrived at. Significantly, the Navarras wrote in the same letter the following:

Maybe you can give us a long-term payment scheme on the basis of my brother’s annual savings of roughly US$30,000.00 every time he

comes home for his home leave. Again, the offer was not clear insofar as

concerned the exact number of years that will comprise the long-term payment scheme. As we see it, the absence of a stipulated period within


which the repurchase price shall be paid all the more adds to the indefiniteness of the Navarras’

offer. Clearly, then, the lack of a definite offer on the part of the spouses could not possibly serve as the basis of their claim that the

sale/repurchase of their foreclosed properties was perfected. The reason is obvious: one essential element of a contract of sale is

wanting: the price certain. Here, what is dramatically clear is that there was no meeting of minds vis-a-vis the price, expressly or

impliedly, directly or indirectly. Further, the tenor of Planters Bank’s letter reply

negates the contention of the Navarras that the Bank fully accepted their offer. The letter specifically stated that there is a need to

negotiate on the other details of the transaction before the sale may be formalized.

Such statement in the Bank’s letter clearly manifests lack of agreement between the parties as to the terms of the purported contract of

sale/repurchase, particularly the mode of payment of the purchase price and the period for its payment. The law requires acceptance to be

absolute and unqualified. As it is, the Bank’s letter is not the kind which

would constitute acceptance as contemplated by law for it does not evince any categorical and unequivocal undertaking on the part of the Bank

to sell the subject properties to the Navarras. The Navarras’ attempt to prove the existence of

a perfected contract of sale all the more becomes futile in the light of the evidence that there was in the first place no acceptance of

their offer. It should be noted that aside from their first letter dated July 18, 1985, the Navarras wrote another letter dated August 20, 1985, this

time requesting the Bank that the down payment of P300,000.00 be instead taken from the excess payment made by the RRRC in

redeeming its own foreclosed properties. The very circumstance that the Navarras had to

make this new request is a clear indication that no definite agreement has yet been reached at that point. As we see it, this request constitutes

a new offer on the part of the Navarras, which offer was again conditionally accepted by the Bank as in fact it even required the Navarras to

submit a board resolution of RRRC before it could proceed with the proposed sale/repurchase.

The eventual failure of the spouses to submit the required board resolution precludes the

perfection of a contract of sale/repurchase between the parties.

Evidently, what transpired between the parties was only a prolonged negotiation to buy and to sell, and, at the most, an offer and a counter

offer with no definite agreement having been reached by them. With the hard reality that no perfected contract of sale/repurchase exists in

this case, any independent transaction between the Planters Bank and a third-party,

like the one involving the Gatchalian Realty, cannot be affected.

So there was no perfected contract of sale. While the foregoing letters indicate the amount of P300,000.00 as down payment, they are,

however, completely silent as to how the succeeding installment payments shall be made. At most, the letters merely acknowledge that the

down payment of P300,000.00 was agreed upon by the parties. However, this fact cannot lead to the conclusion that a contract of sale had been

perfected. Quite recently, this Court held that before a valid and binding contract of sale can exist, the manner of payment of the purchase

price must first be established since the agreement on 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. Here too, the Navarras letter/offer failed to specify a definite amount of

the purchase price for the sale/repurchase of the subject properties. It merely stated that the purchase price will be based on the redemption

value plus accrued interest at the prevailing rate up to the date of the sales contract.

If you look at that statement, it is already not certain. The ambiguity of this statement only bolsters the uncertainty of the Navarras so-

called offer for it leaves much rooms for such questions, as: what is the redemption value? What prevailing rate of interest shall be followed:

is it the rate stipulated in the loan agreement or the legal rate? When will the date of the contract of sale be based, shall it be upon the time of the

execution of the deed of sale or upon the time when the last installment payment shall have been made?

So these were indications that would point out that there was no meeting of the minds as to the

price. So in other words the price was not certain. Again, the offer was not clear insofar as concerned the exact number of years that will

comprise the long-term payment scheme. There is a need to negotiate on the other details

of the transaction

before the sale may be formalized and this is clear in the letter given. So remember for a perfected contract there must be

an offer and the acceptance must be absolute and unqualified. In this case what transpired between the parties was only a prolonged

negotiation to buy and to sell, and, at the most, an offer and a counter-offer with no definite agreement having been reached by them.

AMADO VS. SALVADOR G.R. NO. 171401 DECEMBER 13, 2007

FACTS: Judge Amado is the owner of a lot, a portion of which is the subject of the present

litigation. It was alleged that sometime in 1979, Judge Amado and Salvador agreed that the latter would sell the lot in favor of Salvador


at P60/sqm. The payment was to be made in cash or construction material, whichever the

Judge preferred and to whomever the latter wished during his lifetime. The terms of payment, though, were not stipulated.

Thereafter, Salvador undertook and the location of the squatters in said land and eventually built

several structures thereon for his business. Salvador claims that by October 1980, he had already given Judge Amado total cash advances

of P30,310.93 and delivered construction materials amounting to P36,904.45, the total of which exceeded the agreed price for the subject

property. Petitioner heirs averred that Judge Amado and

Salvador were co-borrowers from a bank. A loan agreement was executed by them with Capitol City Dev’t bank as lender and the Lot of Judge

Amado was used as collateral. The loaned amount was released to Salvador and Judge Amado’s share was paid to him in several

instalments. Salvador failed to pay his share in the amortization of the lot so that Judge Amado had to pay the loan to avoid foreclosure.

Thereafter, Judge Amado demanded Salvador to leave the premises and an ejectment case

was filed to that effect. Salvador filed a case for specific performance contending that a balance of P4,040.62 was not paid to Judge

Amado because of the latter’s failure to execute the deed of sale. Salvador presented several documentary evidence.

RTC dismissed the complaint because Salvador’s evidence does not show that the

money and construction materials were intended as payment for the subject property. CA reversed the decision on the finding that the

construction materials delivered were not paid for.

ISSUE: WON there was a perfected contract of sale. NO

HELD: No Convincing Proof as to Manner of Payment In the present case, Salvador fails to allege

the manner of payment of the purchase price on which the parties should have agreed. No period was set within which the payment must

be made. Of the purchase price of P66,360.00, which the parties purportedly agreed upon, the amount which should be paid in cash and the

amount for construction materials was not determined. This means that the parties had no exact notion of the consideration for the contract

to which they supposedly gave their consent. Thus, such failure is fatal to Salvador’s claim that a sale had been agreed upon by the parties.

Furthermore, after carefully examining the records, serious doubts became apparent as to

whether cash advances and deliveries of construction materials evidenced by numerous

statements of accounts and delivery receipts were actually intended as payment for the land.

First of all, the statements of accounts and the delivery receipts do not indicate that the

construction materials or the cash advances were made in connection with the sale of the subject property. Any doubt as to the real

meaning of the contract must be resolved against the person who drafted the instrument and is responsible for the ambiguity thereof.

Since Salvador prepared these statements of accounts and therefore caused the ambiguity, he cannot benefit from the resulting ambiguity.

Salvador is hardly an ignorant and illiterate person; rather, he is a businessman engaged in manufacturing and distributing construction

materials and operates no less than two branches. It should have been noted in the statement of accounts, or even in another

document, that the cash advances and deliveries of construction materials were made in connection with a transaction as important as a

sale of land. As they are, the statements of accounts and especially the straight forward delivery receipts are insufficient proof that Judge

Amado sold his property to Salvador. Secondly, one of the delivery receipts presented

by Salvador was partially paid. If Judge Amado had already agreed that the construction materials were payment for the subject property,

the act of partially paying for construction materials would be incongruous to such intention.

Thirdly, Salvador himself gave conflicting statements on whether he has completed

payment. Other proofs presented gave no weight to respondent’s allegations. The testimony of the witness presented by Salvador

was not given credence. Finally, the act of Salvador in relocating the squatters is not substantial proof of ownership.

Now actually before you go to the issue as to the manner of payment here, you try to consider all

facts to show that there was really no meeting of the minds. So dun pa lang wala nang meeting of the minds between the party. No positive proof

was adduced that Judge Amado had fully accepted Salvador’s sketchy proposal. In fact, Amado even sent a demand letter for Salvador

to vacate the premises. While he …(??).. There was already an intention or there was a contract of sale. At the very least, he could have

demanded the balance of the purchase price if indeed there was really a perfected contract of sale. Now assuming there was consent, how

about consideration? Supposedly there was a sum of 66,360 pesos

payable in cash or construction materials. If you take a look at that, it would seem that is a valid consideration relating to our discussion, price

certain or ascertainable. But what is the defect here? The manner of payment.


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. 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 or consideration. Here, Salvador fails to allege the

manner of payment of the purchase price on which the parties should have agreed. No period was set within which the payment must be

made. Of the purchase price of P66,360.00, which the parties purportedly agreed upon, the amount which should be paid in cash and the

amount for construction materials was not determined. This means that the parties had no exact notion of the consideration for the contract

to which they supposedly gave their consent. Moreover, doubts in this case were present, there was an allegation in the answer n the

counter claim that there was payment of 62k, balance of 4k nalang, but in the proceedings before the court it was claimed that there was

already full payment in cash and construction materials. There were receipts of construction materials that were presented as evidence. Why

would it be indicated as paid or partially paid if those construction materials would be used as the consideration for the sale? (In truth, the

inconsistent statements made by Salvador regarding the amount paid to Judge Amado, the date when he was supposed to have completed

the payment, and the dissimilarity between the price allegedly agreed upon and the amount supposedly paid show the absence of a uniform

intention to apply these cash advances and construction materials as payment for the purchase of the subject property. – Sa case, di

ko gets si Ma’am eh.) And then you also have here the handwritten

note wherein in the same note, Judge Amado informed Salvador that he had not yet signed an unidentified document, which he promised to

sign after his plan to divide a certain parcel of land was completed. This note is not conclusive proof of the existence of a perfected sale. What

this note proves is that Judge Amado was hesitant to sign the unidentified document and was still waiting for the completion of his plan to

divide the land referred to in the note. In the present case, the terms of payment have not even been alleged. No positive proof was

adduced that Judge Amado had fully accepted Salvador’s sketchy proposal.

BANK OF COMMERCE VS MANALO FACTS: The Xavierville Estate, Inc. was the

owner of parcels of land in Quezon City, known as the Xavierville Estate Subdivision, with an area of 42 hectares. XEI caused the subdivision

of the property into residential lots, which was then offered for sale to individual lot buyers.

Sometime in 1972, then XEI president Emerito Ramos, Jr. contracted the services of Engr. Carlos Manalo, Jr. who was in business of

drilling deep water wells and installing pumps under the business name Hurricane

Commercial, Inc. For P34,887.66, Manalo, Jr. installed a water pump at Ramos residence at the corner of Aurora Boulevard and Katipunan

Avenue, Quezon City. Manalo, Jr. then proposed to XEI, through Ramos, to purchase a lot in the Xavierville subdivision, and offered as part of the

downpayment the P34,887.66 Ramos owed him. XEI, through Ramos, agreed. In a letter dated February 8, 1972, Ramos requested Manalo, Jr.

to choose which lots he wanted to buy so that the price of the lots and the terms of payment could be fixed and incorporated in the

conditional sale. Manalo, Jr. met with Ramos and informed him that he and his wife Perla had chosen Lots 1 and 2 of Block 2 with a total area

of 1,740.3 square meters. In a letter dated August 22, 1972 to Perla

Manalo, Ramos confirmed the reservation of the lots. He also pegged the price of the lots at P200.00 per square meter, or a total of

P348,060.00, with a 20% down payment of the purchase price amounting to P69,612.00 less the P34,887.66 owing from Ramos, payable on

or before December 31, 1972; the corresponding Contract of Conditional Sale would then be signed on or before the same date, but if the

selling operations of XEI resumed after December 31, 1972, the balance of the downpayment would fall due then, and the

spouses would sign the aforesaid contract within 5 days from receipt of the notice of resumption of such selling operations. It was also stated in

the letter that, in the meantime, the spouses may introduce improvements thereon subject to the rules and regulations imposed by XEI in the

subdivision. Perla Manalo conformed to the letter agreement.

The spouses Manalo took possession of the property on September 2, 1972, constructed a house thereon, and installed a fence around the

perimeter of the lots. The spouses Manalo were notified of the

resumption of the selling operations of XEI. However, they did not pay the balance of the downpayment on the lots because Ramos failed

to prepare a contract of conditional sale and transmit the same to Manalo for their signature. On August 14, 1973, Perla Manalo went to the

XEI office and requested that the payment of the amount representing the balance of the downpayment be deferred, which, however, XEI

rejected. On August 10, 1973, XEI furnished her with a statement of their account as of July 31, 1973, showing that they had a balance of

P34,724.34 on the downpayment of the two lots after deducting the account of Ramos, plus P3,819.68 interest thereon from September 1,

1972 to July 31, 1973, and that the interests on the unpaid balance of the purchase price of P278,448.00 from September 1, 1972 to July 31,

1973 amounted to P30,629.28. The spouses were informed that they were being billed for said unpaid interests.


Subsequently, XEI turned over its selling

operations to OBM, including the receivables for lots already contracted and those yet to be sold. Subsequently, the Commercial Bank of Manila

(CBM) acquired the Xavierville Estate from OBM.

In a letter dated August 5, 1986, the CBM requested Perla Manalo to stop any on-going construction on the property since it (CBM) was

the owner of the lot and she had no permission for such construction. She agreed to have a conference meeting with CBM officers where

she informed them that her husband had a contract with OBM, through XEI, to purchase the property. When asked to prove her claim, she

promised to send the documents to CBM. However, she failed to do so. On September 5, 1986, CBM reiterated its demand that it be

furnished with the documents promised, but Perla Manalo did not respond.

On July 27, 1987, CBM filed a complaint for unlawful detainer against the spouses with the MTC Court of Quezon City.

In the meantime, the CBM was renamed the Boston Bank of the Philippines. After CBM filed

its complaint against the spouses Manalo, the latter filed a complaint for specific performance and damages against the bank before the RTC

of Quezon City. Boston Bank, now petitioner, maintains that, as

held by the CA, the records do not reflect any schedule of payment of the 80% balance of the purchase price, or P278,448.00. Petitioner

insists that unless the parties had agreed on the manner of payment of the principal amount, including the other terms and conditions of the

contract, there would be no existing contract of sale or contract to sell.

ISSUE: WON the manner of payment has been agreed upon and WON it is essential for there to be an existing contract of sale or contract to sell

RULING: No, it was not agreed upon thus, there was no contract to sell. The Court agrees with

petitioners contention that, for a perfected contract of sale or contract to sell to exist in law, there must be an agreement of the parties, not

only on the price of the property sold, but also on 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. A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is

the object of the contract and the price. From the averment of perfection, the parties are bound, not only to the fulfillment of what has been

expressly stipulated, but also to all the consequences which, according to their nature,

may be in keeping with good faith, usage and law. On the other hand, when the contract of sale or to sell is not perfected, it cannot, as an

independent source of obligation, serve as a binding juridical relation between the parties.

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.

It is not enough for the parties to agree on the price of the property. The parties must also agree on the manner of payment of the price of

the property to give rise to a binding and enforceable contract of sale or contract to sell. 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.

In a contract to sell property by installments, it is not enough that the parties agree on the price as

well as the amount of downpayment. The parties must, likewise, agree on the manner of payment of the balance of the purchase price and on the

other terms and conditions relative to the sale. Even if the buyer makes a downpayment or portion thereof, such payment cannot be

considered as sufficient proof of the perfection of any purchase and sale between the parties.

There is no showing, in the records, of the schedule of payment of the balance of the purchase price on the property amounting to

P278,448.00. The said parties confined themselves to agreeing on the price of the property (P348,060.00), the 20% downpayment

of the purchase price (P69,612.00), and credited respondents for the P34,887.00 owing from Ramos as part of the 20% downpayment. The

determination of the terms of payment of the P278,448.00 had yet to be agreed upon on or before December 31, 1972, or even afterwards,

when the parties sign the corresponding contract of conditional sale.

Jurisprudence is that if a material element of a contemplated contract is left for future negotiations, the same is too indefinite to be

enforceable. And when an essential element of a contract is reserved for future agreement of the parties, no legal obligation arises until such

future agreement is concluded. Indeed, the parties are in agreement that there had been no contract of conditional sale ever

executed by XEI, OBM or petitioner, as vendor, and the respondents, as vendees.


Respondents failed to allege and prove, in the trial court, that, as a matter of business usage,

habit or pattern of conduct, XEI granted all lot buyers the right to pay the balance of the purchase price in installments of 120 months of

fixed amounts with pre-computed interests, and that XEI and the respondents had intended to adopt such terms of payment relative to the sale

of the two lots in question. Habit, custom, usage or pattern of conduct must be proved like any other facts.

As a consequence, respondents and XEI (or OBM for that matter) failed to forge a perfected

contract to sell the two lots; hence, respondents have no cause of action for specific performance against petitioner.

There is no showing, in the records, of the schedule of payment of the balance of the

purchase price on the property amounting to P278,448.00. Based on these two letters, the determination of the terms of payment of the

P278,448.00 had yet to be agreed upon on or before December 31, 1972, or even afterwards, when the parties sign the corresponding contract

of conditional sale. There is no evidence on record to prove that XEI or OBM and the respondents had agreed, after December 31,

1972, on the terms of payment of the balance of the purchase price of the property and the other substantial terms and conditions relative to the

sale. Indeed, the parties are in agreement that there had been no contract of conditional sale ever executed. The bare fact that other lot

buyers were allowed to pay the balance of the purchase price of lots purchased by them in 120 or 180 monthly installments does not constitute

evidence that XEI also agreed to give the respondents the same mode and timeline of payment of the P278,448.00.

August 17, 2015

So we discussed the cases in relation to the requirement of manner of payment of price. We emphasized that it is essential. As it goes into

the essence that price is certain or ascertainable. Not really another element of a CoS. Not really an additional requirement for

valid price. We emphasized last time, to have valid price, the elements are it must be real, in money or its equivalent, certain or ascertainable.

The requirement that the manner of payment be included in the perfection of CoS goes into makes what price certain or ascertainable. Why

would this be important? Try value of money, usually in the cases, usually there was installment paid, but there was no agreement as

to the balance, its period or for how long. How much is the installment price and how is it going to be paid, monthly or yearly. So that is what is

really taken into consideration. Notice the cases we have discussed in relation

to the manner of payment. In the case of Bank of Commerce, 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.

That is the same thing that was emphasized in Amado vs Salvador wherein they agreed on cash and construction materials. Again,

agreement as to the manner of payment goes into price such as a disagreement into the manner of payment is tantamount to a failure to

agree on the price or consideration. Again, also the same discussion in the case of Navarra vs Planters.

Again, what do I like to point out? Remember that a CoS is a contract involving reciprocal

obligations. Does it necessarily mean that for example we enter into a CoS, I will buy your car for PhP200,000, agree? Since we did not

stipulate as to the manner of payment, does it necessarily mean that there is no perfected contract of sale? Remember a Sale is a contract

with reciprocal obligations. Go back to basics in Obligations and Contracts. When do you demand delivery of the subject matter? As a

General Rule, upon the perfection of the contract. Immediately demandable at once. Of course, you cannot demand the performance of

the other party if you yourself is not ready to perform your obligations. Kung ikaw yung buyer, you pay the price, you expect that the seller

deliver the subject matter. If the seller refuses or fails to deliver, then there is already delay. Can you say that there is no perfected contract

because there was no manner of payment? Not necessarily. Notice the cases we discussed, you will see this also in the other cases. Usually what

happens? Merong downpayment na binigay. Even if there was an agreement as to the payment of the full purchase price, there was no

agreement as to the manner, how, when as to the payment of the remaining balance. And the manner of payment therefore becomes

essential. Now how about in the case of Amado, the

agreement was cash and construction materials. However, ano man yung allegation dun? Tingi -tingi yung pagbayad. So allegedly, if the

construction materials form part of the consideration, hanggang kelan magdeliver? And how about with regard to the fact that cash and

construction materials? Just because that was the agreement, does it necessarily mean that it was not valid? Compare it to our case before,

Ong, 1 peso and other valuable consideration. That is valid. Now, by itself, yung cash and other construction materials is not necessarily invalid

but because of the circumstances of each case, what was the ruling of each of the case that I emphasized? The agreement as to the manner

goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. The issue is on how they

will be able to pay the remaining balance. Like cash and construction materials. Ilan ang cash? Walang meeting of the minds as to the manner

of payment. There’s no problem, sometimes in sale, or most often than not, ang sale kaliwaan man yan diba? You deliver the goods and the


buyer to pay the price. That’s why in a Deed of Sale, naka-acknowledge na dun yung receipt of

payment and the execution of that deed of sale, most often than not is considered as constructive delivery. So, they already

performed their respective obligations. In the instances in the cases where manner of payment becomes essential, because we have

there an agreement other than immediate payment. Ok? Other than immediate payment, wherein there is a disagreement as to how the

remaining balance of purchase price will be paid. Otherwise, you apply the general rule that the obligation of the respective parties are

demandable at once. Now let’s go to INADEQUACY OF PRICE.

Recall we have Article 1355.

Art. 1355. Except in cases specified by law,

lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. (n)

The corresponding article which is specifically applicable to a CoS, we have Article 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. (n)

Ok, so i t’s very clear. Not just mere inadequacy even gross inadequacy on the

price need not affect the perfection of a CoS. Exception, defective consent, so vitiated consent as what is also provided in 1355. Or

the intention of the parties if it was intended to be a donation or some other act or contract.

Now, in relation to price, recall the characteristics of a CoS. It is onerous and

commutative. There’s no requirement that the price be exactly the value of the subject matter delivered. Being onerous in nature,

what is required is that there is a valuable consideration and when you say commutative, honest belief that the parties

received good value for what they have given up in exchange. Q: Now, what is the difference between

simulation of contract and gross inadequacy? A: In simulation of contract Ma’am, there is

really no agreement between the parties. But when we say gross inadequacy of price, there is mutual consent between the parties

Ma’am. Q: So if a Contract is simulated, do you have a valid sale.

A: No. Q: How about you have a gross inadequate price?

A: There is still a sale. What happened in the case of Bravo -Guerrero v. Guerrero?

BRAVO-GUERRERO vs. EDWARD P. BRAVO

FACTS: Spouses Mauricio and Simona Bravo owned 2 parcels of land measuring 287 and 291

square meters and located in Makati City, Metro Manila. The Properties are registered under TCT Nos. 58999 and 59000 issued by the Register of

Deeds of Rizal on 23 May 1958. The Properties contain a large residential dwelling, a smaller house and other improvements.

Mauricio and Simona had three children - Roland, Cesar and Lily, all surnamed Bravo.

Cesar died without issue. Lily Bravo married David Diaz, and had a son, David B. Diaz, Jr. ("David Jr."). Roland had six children, namely,

Elizabeth Bravo-Guerrero, Edward, Roland, Senia, Benjamin, and their half-sister, Ofelia.

Simona executed a General Power of Attorney ("GPA") on 17 June 1966 appointing Mauricio as her attorney-in-fact. In the GPA, Simona

authorized Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any and all of my property, real, personal or mixed, of

any kind whatsoever and wheresoever situated, or any interest therein." Mauricio subsequently mortgaged the Properties to the PNB and DBP

for P10,000 and P5,000, respectively. On 25 October 1970, Mauricio executed a Deed

of Sale with Assumption of Real Estate Mortgage conveying the Properties to vendees Roland A. Bravo, Ofelia A. Bravo and Elizabeth

Bravo-Guerrero.” The sale was conditioned on the payment of P1,000 and on the assumption by the vendees of the PNB and DBP mortgages

over the Properties. As certified by the Clerk of Court of the Regional

Trial Court of Manila, the Deed of Sale was notarized by Atty. Victorio Q. Guzman on 28 October 1970 and entered in his Notarial

Register. However, the Deed of Sale was not annotated on TCT Nos. 58999 and 59000. Neither was it presented to PNB and DBP. The

mortage loans and the receipts for loan payments issued by PNB and DBP continued to be in Mauricio’s name even after his death on 20

November 1973. Simona died in 1977. On 23 June 1997, Edward, represented by his

wife, Fatima Bravo, filed an action for the judicial partition of the Properties. Edward claimed that he and the other grandchildren of Mauricio and

Simona are co-owners of the Properties by succession. Despite this, petitioners refused to share with him the possession and rental income

of the Properties. Edward later amended his complaint to include a prayer to annul the Deed of Sale, which he claimed was merely simulated

to prejudice the other heirs. The trial court upheld Mauricio’s sale of the

Properties to the vendees. The trial court ruled that the sale did not prejudice the compulsory


heirs, as the Properties were conveyed for valuable consideration.

Citing Article 166 of the Civil Code, the Court of Appeals reversed trial court’s decision and

declared the Deed of Sale void for lack of Simona’s consent. It also found that there was insufficient proof that the vendees made the

mortgage payments on the Properties, since the PNB and DBP receipts were issued in Mauricio’s name. The appellate court opined that the rental

income of the Properties, which the vendees never shared with respondents, was sufficient to cover the mortgage payments to PNB and DBP.

ISSUE: WON the sale of the properties was simulated or void for gross inadequacy of price

RULING: No, the sale of the properties is not void either for being simulated or for inadequacy

of price. Respondents, however, contend that the sale of the Properties was merely simulated. As proof,

respondents point to the consideration of P1,000 in the Deed of Sale, which respondents claim is grossly inadequate compared to the actual value

of the Properties. Simulation of contract and gross inadequacy of

price are distinct legal concepts, with different effects. When the parties to an alleged contract do not really intend to be bound by it, the

contract is simulated and void. A simulated or fictitious contract has no legal effect whatsoever because there is no real agreement between the

parties. In contrast, a contract with inadequate

consideration may nevertheless embody a true agreement between the parties. A contract of sale is a consensual contract, which becomes

valid and binding upon the meeting of minds of the parties on the price and the object of the sale. The concept of a simulated sale is thus

incompatible with inadequacy of price. When the parties agree on a price as the actual consideration, the sale is not simulated despite

the inadequacy of the price. Gross inadequacy of price by itself will not result

in a void contract. Gross inadequacy of price does not even affect the validity of a contract of sale, unless it signifies a defect in the consent or

that the parties actually intended a donation or some other contract. Inadequacy of cause will not invalidate a contract unless there has been

fraud, mistake or undue influence. In this case, respondents have not proved any of the instances that would invalidate the Deed of Sale.

Respondents even failed to establish that the consideration paid by the vendees for the

Properties was grossly inadequate. As the trial court pointed out, the Deed of Sale stipulates that, in addition to the payment of P1,000, the

vendees should assume the mortgage loans from PNB and DBP. The consideration for the

sale of the Properties was thus P1,000 in cash and the assumption of the P15,000 mortgage.

Respondents argue that P16,000 is still far below the actual value of the Properties The tax

declarations placed the assessed value of both Properties at P16,160. Compared to this, the price of P16,000 cannot be considered grossly

inadequate, much less so shocking to the conscience as to justify the setting aside of the Deed of Sale.

Q: And how about the value of the property? A: The value of the property was PhP16,000.00.

Q: Was there really gross inadequacy there? A: Yes. Q: What is the effect thereof?

A: Even if there is a gross inadequacy, there is still a valid sale. As it was stated, sale is a consensual contract and gross inadequacy of

price by itself will not result to a void contract. Gross inadequacy of price does not even affect a valid contract of sale unless it signifies a defect

in the consent of the parties. Inadequacy of cause will not invalidate a contract unless there has been fraud, mistake or undue influence. And

in this case, there has already been meeting of minds. Q: Aside from the PhP1,000, what was the

other possible consideration noted by the Supreme Court that should support the contention that there was really a valid sale?

A: With the assumption of mortgage, it was also considered by the Court as consideration in the sale.

BRAVO-GUERRERO vs GUERRERO: So again, distinguish simulation of contract from

gross inadequacy of price. In a simulated contract, parties do not really intend to be bound by the contract, therefore there is no valid CoS.

A simulated contract has no legal effect whatsoever because again, there was no real agreement between the parties. But in a contract

with inadequate consideration, even if it is grossly inadequate, may nevertheless embody the true agreement between the parties and

therefore you have a perfected CoS. The concept of a simulated sale is incompatible with inadequacy of price. As in a simulated sale, no

valid contract. Inadequacy of price, even if grossly inadequate will not result into a void contract. Gross inadequacy of price does not

even affect the validity of a contract of sale, unless i t signifies a defect in the consent or that the parties actually intended a donation

or some other contract. In this case there was no proof of that defect or some other intention. Inadequacy of cause will not invalidate a

contract unless there is fraud, mistake, or undue influence. In this case, the respondents failed to establish that the consideration paid by the

vendees for the properties was grossly inadequate. The Deed of Sale stipulates that in addition to the PhP1,000, the vendees also

assumed the mortgage from PNB and DBP and therefore that is considered as a consideration.


Q: Now, what is the effect of a grossly inadequate price in a judicial sale?

A: In a judicial sale, if there is a gross inadequacy of price which shocks the conscience of the Court, the sale can be

declared void. Q: When do we consider a judicial sale void? A: If it shocks the conscience of the Court.

What happened in the case of Director of Lands vs Abarca?

THE DIRECTOR OF LANDS, vs. ABARCA, ET AL

FACTS: About fourteen years, the lot now in question was the subject of litigation between

Datu Bualan and his co-claimants, on the one hand, and Ciriaco Lizada, on the other. Juan A. Sarenas and Domingo Braganza were the

attorneys for Datu Bualan and his co-claimants in that suit, wherein a judgment was rendered declaring Datu Bualan and his co-claimants the

owners of the land involved in the litigation. Subsequently, a controversy arose between the

Bagobos and their attorneys as to the amount of fees due the latter, whereupon the attorneys took possession of the property now in question.

Action was brought by the Bagobos against their former attorneys for the recovery of the land. In this action judgment was rendered ordering the

attorneys to return the property seized by them, and requiring the Bagobos to pay their former attorneys the sum of P6,000 as fees. As a result

of this judgment Datu Bualan and his co-claimants paid Sarenas and Braganza the sum of P5,126.13. They also paid to the municipal

treasurer of Davao in the name of Sarenas and Braganza, for taxes and penalties due on the property in the year 1926, while the same was in

the possession of the latter, the sum of P1,035.87. The Bagobos assumed that, by these payments which amounted in all to

P6,162, the judgment rendered against them for P6,000 together with interests due thereon, was fully satisfied.

Claiming that the sum paid to the municipal treasurer of Davao should not be credited on the

amount of the judgment obtained by them, Sarenas and Braganza caused the clerk of the court to issue a writ of execution on the said

judgment. By reason of the writ of execution so issued, the sheriff levied on the property here in question and sold it to Sarenas and Braganza

for the sum of P877.25. Upon the failure of the Bagobos to redeem the property, they filed their claim in the present cadastral case, alleging that

they were the absolute owners of the lot in question.

In view of the evidence presented by the parties, the lower court dismissed the claim of Sarenas and Braganza, and ordered the registration of

the lot now in question in the names of Datu Bualan and his co-claimants, subject, however, to a lien in favor of Sarenas and Braganza for

the sum of P877.25, with interest at the rate of 12 per cent per annum from April 27, 1927.

In dismissing the claim of Sarenas and Braganza, the lower court held that the sale by

the sheriff of the property in question in favor of said claimants was null and void, because the amount of P877.25 paid by Sarenas and

Braganza was absolutely inadequate. ISSUE: WON a judicial sale of real property will

be set aside when price is adequate RULING: Yes if the price is so inadequate as to

shock the conscience of the court. The lower court was right in declaring the

sheriff's sale null and void on the ground of the inadequacy of the price paid. It appears that in 1927 the assessed value of the contested

property was more than P60,000. A judicial sale of real property will be set aside when the price is so inadequate as to shock the conscience of

the court. (National Bank vs. Gonzalez, 45 Phil., 693.)

In the instant case there is another important consideration. In fairness and equity, which after all are the true aims of the law, the amount paid

by Datu Bualan and his co-claimants for taxes and penalties due on the contested property should be credited on the judgment obtained by

Sarenas and Braganza. Such taxes and penalties accrued while the property was in that possession under a claim of ownership. It

follows that the error assigned by Datu Bualan and his co-claimants against the judgment below, to the effect that the lower court erred in

subjecting the property sought to be registered to a lien in favor of Sarenas and Braganza for P877.25 with interests, must be sustained.

Q: How much was the price? A: PhP877.25. Q: How much was the alleged value of the

property? A: It was in the year 1927 and so the alleged value was PhP60,000.

Q: So were you shocked (O_O) with the price? What is the effect of that gross inadequacy of price?

A: The Court declared that the transaction was void.

DIRECTOR OF LANDS vs ABARCA: Now, please take note of this one. Gross inadequacy of a price may avoid a judicial sale, a sale that is

ordered by the Court as what happened in this case. Now, the purchase price in the execution sale or judicial sale was PhP877 but the value of

the property was PhP60,000, shocking to the conscience of men. And therefore, the sale is considered void. Because here, it can readily be

shown that in the event of a resale, it is very obvious that e better price can be obtained.

Now, compare this with a voluntary contract of sale. Gross inadequacy of price, in the earlier case the purchase price was PhP1,000 even if


there is no assumption of mortgage, mere gross inadequacy of the price is very clear in 1470, will

not affect a CoS. But the same does not apply to a judicial sale and therefore, the Courts as what happened in Abarca can set aside that sale

where there is gross inadequacy. Again, it is shocking to the conscience of men. So that is the exception, judicial sale.

However, there is an exception to that exception. What? If there is a right of redemption. When

there is a right of redemption, even if the price is grossly inadequate, even if it was a judicial sale, the Courts would more often than not still uphold

the validity of the sale. Why? Because the gross inadequacy of price is in favor of the redemptioner, the original owner. So again,

general rule, 1470. Exception, judicial sale, when the price not mere inadequacy, but where the price is shocking to the conscience of men

and there is a showing that in the event of a resale, a better price may be obtained. Exception to the exception, there is a right of

redemption in which case, the proper remedy is not to question the validity of the sale but rather to redeem the property kasi in favor man sa iyo

as redemptioner yung lower na price. However, there is one case, the case of Cometa vs CA a 2001 case, by way of extraordinary

circumstances perceived, we have under the facts of that case a judicial sale where there is a right of redemption. But the right of redemption

has been lost and that the inadequacy of the price was found purely shocking to the conscience such that the mind revolts at it and

such that a reasonable man would neither directly or indirectly be likely to consent to it, the same will be set aside. Very peculiar ang

circumstances of the case, again it was emphasized that extraordinary circumstances: judicial sale, inadequacy of price purely shocking

to the conscience, there is a right of redemption which has been lost, nevertheless, the Supreme Court set aside the sale. So we have a general

rule, exception and an exception to that exception and an exceptional case as well. Well, that’s the law diba?

So again, when you have the circumstances, again take note whether or not the price affects

the validity take into consideration the circumstances of each case.

Now, lesion, recall under Art. 1381 of ObliCon, lesion as to wards and guardians of not more than ¼ yung na suffer. Lesion of more than ¼ of

the value of the thing makes rescissible unless approved by the court. This is also in relation to Art. 1386. This is also another instance where

you can question the validity of the sale because of the inadequacy of the price. Pero very specific siya. So if you see that the price was

PhP750,000 and the value of the property was deemed to be PhP1M, is the sale valid or not? Valid. It’s not more than ¼ , it’s just equivalent to

¼ yung lesion diba? For lesion to take place for the contract to be rescissible, it must be more than ¼.

Art. 1381. The following contracts are

rescissible: (1) Those which are entered into by guardians whenever the wards whom they

represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; XXX

Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to contracts approved by the courts.

Other provisions in relation to gross inadequacy of the price, when we go to redemption, extinguishment of a CoS, we have Art. 1602, the

concept of equitable mortgage. Gross inadequacy of the price may raise the presumption of an equitable mortgage wherein

it’s a mortgage, however it lacks the formalities required under the law. You have a Deed of Sale or ang gi-represent is a collateral, security or

prenda. And anong nakalagay dun na price? Yung amount na pera na hiniram which is less than the value of the property. So in that case,

there is gross inadequacy. A presumption of an equitable mortgage may arise so walang valid sale. Now, sale with right to repurchase, or

absolute sale, the gross inadequacy will give rise to equitable mortgage wherein the contract will be reformed to a mortgage contract.

Now also take note with regard to a CoS, differentiate cause from motive. The same thing

in ObliCon. Cause, proximate cause. Motive, again. It does not affect the validity of the CoS unless it predetermines the cause.

So, we’re already done with the three essential elements. Consent, Subject Matter and Price.

Now, let’s go to formation of a Contract of Sale. PART III: FORMATION OF A CONTRACT OF

SALE

Recall our discussions on the stages of a sale.

1. Negotiation stage- covers the period from the time the prospective contracting parties indicate interest in

the contract until the contract is perfected wherein now we go into the second stage;

2. Perfection stage- wherein there is the concurrence of the essential elements and is actually the shortest stage among

the three; 3. Consummation stage- fulfillment of the

contract.

I. POLICITACION

Now, you have policitacion. Ito yung nasa

negotiation stage. It covers the doctrine of freedom of contract which signifies or implies the right to choose with whome to contract. A

property owner is free to offer his property for sale to any interested person and actually, in the absence of any agreement, is not bound to sell

the property in favor of the lessee or the occupant thereof. Remember sa policitacion stage, it is initiated by an offer which is certain,


prior to perfection either party may stop the negotiation. In other words, i-withdraw ang offer.

The withdrawal is effective immediately after its manifestation. Of course it can be withdrawn as long as there is no acceptance yet. To convert it

into a contract or to give rise to a perfected contract of sale, there must be an acceptance which must be absolute and unqualified. It must

be free, unequivocal, unconditional and without variance of any sort from the proposal. An unaccepted unilateral promise prior to

acceptance does not give rise to any obligations or a right and where an offer is given with a stated time for its acceptance, the offer is

terminated at the expiration of that time. So now we have here the concept of an option

contract. Q: What is an option contract?

A: An option contract is one where an owner of a property gives the other party the exclusive right to buy the property within a fixed time in a

certain period. What happened in the case of Tayag vs

Lacson?

TAYAG vs. LACSON

FACTS: Respondents Angelica Tiotuyco Vda. de Lacson, and her children were the registered

owners of three parcels of land located in Mabalacat, Pampanga. The properties were tenanted agricultural lands.

On March 17, 1996, a group of original farmers/tillers, Tiamson, et al., individually

executed in favor of the petitioner separate Deeds of Assignment in which the assignees assigned to the petitioner their respective rights

as tenants/tillers of the landholdings possessed and tilled by them for and in consideration of P50.00 per square meter. The said amount was

made payable "when the legal impediments to the sale of the property to the petitioner no longer existed." The petitioner was also granted

the exclusive right to buy the property if and when the respondents, with the concurrence of the defendants-tenants, agreed to sell the

property. In the interim, the petitioner gave varied sums of money to the tenants as partial payments, and the latter issued receipts for the

said amounts. On July 24, 1996, the petitioner called a meeting

of the defendants-tenants to work out the implementation of the terms of their separate agreements.

However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the

petitioner stating that they were not attending the meeting and instead gave notice of their collective decision to sell all their rights and

interests, as tenants/lessees, over the landholding to the respondents Lacson.

On August 19, 1996, the petitioner filed a complaint against the defendants-tenants, as

well as the respondents, for the court to fix a period within which to pay the agreed purchase price of P50.00 per square meter to the

defendants, as provided for in the Deeds of Assignment.

Respondents as defendants asserted that they never induced the defendants Tiamson to violate their contracts with the petitioner; and, being

merely tenants-tillers, the defendants-tenants had no right to enter into any transactions involving their properties without their knowledge

and consent. They also averred that the transfers or assignments of leasehold rights made by the defendants-tenants to the petitioner

is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive Agrarian Reform Program (CARP).

The defendants-tenants Tiamson, et al., alleged in their answer with counterclaim for damages,

that the money each of them received from the petitioner were in the form of loans, and that they were deceived into signing the deeds of

assignment. What they knew was that they were made to sign a document that will serve as a receipt for the loan granted to them by the

plaintiff. ISSUE: WON the Deeds of Assignment are

perfected option contracts RULING: No, there is no perfected option

contract. The Court does not agree with the contention of

the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts. An 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. 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. It imposes no binding obligation on the person holding the option, aside from the consideration

for the offer. Until accepted, it is not, properly speaking, treated as a contract. The second party gets not lands, not an agreement that he

shall have the lands, but the right to call for and receive lands if he elects. An option contract is a separate and distinct contract from which the

parties may enter into upon the conjunction of the option.

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the petitioner not only an option but the exclusive

right to buy the landholding. But the grantors were merely the defendants-tenants, and not the respondents, the registered owners of the


property. Not being the registered owners of the property, the defendants-tenants could not

legally grant to the petitioner the option, much less the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON

HABET."

Q: So do we have a valid option contract or

valid option contracts here? A: The Supreme Court said no, there was no valid option contract.

Q: What is the missing element? Isn’t it that you mentioned that Tayag was given the exclusive right to buy the property and in

fact they have agreed as to the purchase price of PhP50.00 per sq/m. A: The SC said that the tenants here were not

the real owners of the land, they did not have the right to give the petitioner the option to buy since they are not the registered owners of the

property. Q: So again, what element is missing? In the definition you cited, what was missing for the

Supreme Court to rule that there was no perfected option contract? Who were the ones who gave the option?

A: The tenants. They don’t have the right to give the option to the buyer.

TAYAG vs LACSON: No perfected option contract. An 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. 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. So in this case, the tenants

granted to the petitioner the exclusive right to buy the land but they were merely defendant’s tenants and not the respondents. Not being the

registered owners of the property, they do not legally grant to petitioner the option much less the exclusive right to buy the property.

Remember what was the prayer here of Tayag, that a period be fixed for said option to be exercised. But the Court cannot fix the period

because in the first place, the defendant-tenants who gave the exclusive right to buy, in the first place, they do not have the right to sell the

property. So take note in this case, while it is true that ownership is not required for the perfection of a sale, when we talk of an option

contract, giving another person the right to buy the property, there could be no perfected option contract if the person who gave that right has no

right in the first place to sell or grant said option. Now, also take note here it was emphasized that

for a valid option contract you have the definition, and likewise an option contract imposes no binding obligation to the person

holding the option aside from the consideration for the offer, until accepted it is not treated as a sale. As in this case, tenants not being the

registered owners cannot grant an option to the land much less to grant an exclusive right to buy

the property with the saying Nemo dat quod non habet.

Q: What is the difference between an option contract and a contract of sale?

A: In an option contract, the seller gives the right to the would-be buyer to purchase his property. But in a CoS, there is already an agreement or

meeting of the minds between the two. Q: So, there’s meeting of the minds as to the option contract? What’s the difference?

What happened in the case of Adelfa Properties vs CA?

ADELFA PROPERTIES VS. CA [G.R. NO. 111238. JANUARY 25, 1995.]

PARTIES: Roasrio and Salud Jimenez – Seller

Adelfa Properties – Buyer Subject:: western portion of a parcel of land 8855 sq. ms. Covered by TCT 309773 situated

in Barrio Culasi, Las Pinas, Metro Manila

FACTS: Rosario Jimenez-Castaneda, Salud Jimenez and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a

parcel of land consisting of 17,710 sq. ms (TCT 309773) situated in Barrio Culasi, Las Piñas, Metro Manila. On 28 July 1988, Jose and

Dominador Jimenez sold their share consisting of 1/2 of said parcel of land, specifically the eastern portion thereof, to Adelfa Properties

pursuant to a “Kasulatan sa Bilihan ng Lupa.” Subsequently, a “Confirmatory Extrajudicial Partition Agreement” was executed by the

Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 sq. ms. was ADJUDICATED TO JOSE AND DOMINADOR

JIMENEZ, WHILE THE WESTERN PORTION WAS ALLOCATED TO ROSARIO AND SALUD Jimenez.

Thereafter, Adelfa Properties expressed interest in buying the western portion of the property

from Rosario and Salud. Accordingly, on 25 November 1989, an “Exclusive Option to Purchase” was executed between the parties,

with the condition that the selling price shall be P2,856,150, that the option money of P50,000 shall be credited as partial payment upon the

consummation of sale, that the balance is to be paid on or before 30 November 1989, and that in case of default by Adelfa Properties to pay the

balance, the option is cancelled and 50% of the option money shall be forfeited and the other 50% refunded upon the sale of the property to a

third party. Before Adelfa Properties could make payment, it

received summons on 29 November 1989, together with a copy of a complaint filed by the nephews and nieces of Rosario and Salud

against the latter, Jose and Dominador Jimenez, and Adelfa Properties in the RTC Makati (Civil Case 89-5541), for annulment of the deed of


sale in favor of Household Corporation and recovery of ownership of the property covered

by TCT 309773. As a consequence, in a letter dated 29

November 1989, Adelfa Properties informed Rosario and Salud that it would hold payment of the full purchase price and suggested that the

latter settle the case with their nephews and nieces. . Salud Jimenez refused to heed the suggestion of Adelfa Properties and attributed

the suspension of payment of the purchase price to “lack of word of honor.”

On 14 December 1989, Rosario and Salud sent Francisca Jimenez to see Atty. Bernardo, in his capacity as Adelfa Properties’ counsel, and to

inform the latter that they were cancelling the transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be

deducted therefrom for the settlement of the civil case. This was rejected by Rosario and Salud. On 22 December 1989, Atty. Bernardo wrote

Rosario and Salud on the same matter but this time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the

latter. On 23 February 1990, the RTC dismissed Civil Case 89-5541.

On 16 April 1990, Atty. Bernardo wrote Rosario and Salud informing the latter that in view of the dismissal of the case against them, Adelfa

Properties was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. This was ignored by

Rosario and Salud. On 27 July 1990, Jimenez’ counsel sent a letter to Adelfa Properties enclosing therein a check for P25,000.00

representing the refund of 50% of the option money paid under the exclusive option to purchase. Rosario and Salud then requested

Adelfa Properties to return the owner’s duplicate copy of the certificate of title of Salud Jimenez. Adelfa Properties failed to surrender the

certificate of title. Rosario and Salud Jimenez filed Civil Case 7532

in the RTC Pasay City (Branch 113) for annulment of contract with damages, praying, among others, that the exclusive option to

purchase be declared null and void; that Adelfa Properties be ordered to return the owner’s duplicate certi ficate of title; and that the

annotation of the option contract on TCT 309773 be cancelled.

RTC: On 5 September 1991, the t rial court rendered judgment holding that the agreement entered into by the parties was merely an option

contract, and declaring that the suspension of payment by Adelfa Properties constituted a counter-offer which, therefore, was tantamount

to a rejection of the option. It likewise ruled that Adelfa Properties could not validly suspend payment in favor of Rosario and Salud on the

ground that the vindicatory action filed by the latter’s kin did not involve the western portion of the land covered by the contract between the

parties, but the eastern portion thereof which was the subject of the sale between Adelfa

Properties and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the exclusive option to purchase.

On appeal, RTC: the Court of appeals affirmed in toto the

decision of the court a quo. That Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale or a contract to

sell, but not to an option contract which it opined was the nature of the document subject of the case at bar.

Hence, the petition for review on certiorari.

Adelfa properties posits that the contract is a Contract of Sale and not an Option Contract or Contract to Sell, making the suspension of

payment applicable in the case. ISSUE: Whether or not the contract is a Contract

of Sale , Option Contract or Contract to Sell. SC: The Supreme Court affirmed the assailed

judgment of the Court of Appeals in CA-GR CV 34767, with modificatory premises.

Agreement between parties a contract to sell and not an option contract or a contract of sale

The alleged option contract is a contract to sell, rather than a contract of sale. The distinction between the two is important for in contract of

sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved

in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership

until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of

the price Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property

sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the

moment the buyer fails to pay within a fixed period.

That the parties really intended to execute a contract to sell is bolstered by the fact that the deed of absolute sale would have been issued

only upon the payment of the balance of the purchase price, as may be gleaned from Adelfa Properties’ letter dated 16 April 1990 wherein it

informed the vendors that it “is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute

sale.” Contract interpreted to ascertain intent of

parties; Title not controlling if text show s otherwise. The important task in contract interpretation is always the ascertainment of the


intention of the contracting parties and that task is to be discharged by looking to the words they

used to project that intention in their contract, all the words not just a particular word or two, and words in context not words standing alone.

Moreover, judging from the subsequent acts of the parties which will hereinafter be discussed, it is undeniable that the intention of the parties

was to enter into a contract to sell. In addition, the title of a contract does not necessarily determine its true nature. Hence, the fact that

the document under discussion is entitled “Exclusive Option to Purchase” is not controlling where the text thereof shows that it is a contract

to sell. Test to determine contract as a “contract of

sale or purchase” or mere “option” . The test in determining whether a contract is a “contract of sale or purchase” or a mere “option” is

whether or not the agreement could be specifically enforced. There is no doubt that Adelfa’s obligation to pay the purchase price is

specific, definite and certain, and consequently binding and enforceable. Had the Jimenezes chosen to enforce the contract, they could have

specifically compelled Adelfa to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral

stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence.

Adelfa Properties justi fied in suspending payment of balance by reason of vindicatory

action filed against it. In Civil Case 89-5541, it is easily discernible that, although the complaint prayed for the annulment only of the contract of

sale executed between Adelfa Properties and the Jimenez brothers, the same likewise prayed for the recovery of therein Jimenez’ share in that

parcel of land specifically covered by TCT 309773. In other words, the Jimenezes were claiming to be co-owners of the entire parcel of

land described in TCT 309773, and not only of a portion thereof nor did their claim pertain exclusively to the eastern half adjudicated to the

Jimenez brothers. Therefore, Adelfa Properties was justified in suspending payment of the balance of the purchase price by reason of the

aforesaid vindicatory action filed against it. The assurance made by the Jimenezes that Adelfa Properties did not have to worry about the case

because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the

vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price.

Jimenezes may no longer be compelled to sell and deliver subject property. Be that as it

may, and the validity of the suspension of payment notwithstanding, the Jimenezes may no longer be compelled to sell and deliver the

subject property to Adelfa Properties for two reasons, that is, Adelfa’s failure to duly effect the consignation of the purchase price after the

disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly

rescinded by the Jimenezes. Rescission in a contract to sell. Article 1592 of

the Civil Code which requires rescission either by judicial action or notarial act is not applicable to a contract to sell. Furthermore, judicial action

for rescission of a contract is not necessary where the contract provides for automatic rescission in case of breach, as in the contract

involved in the present controversy. By Adelfa’s failure to comply with its obligation, the Jimenezes elected to resort to and did announce

the rescission of the contract through its letter to Adelfa dated 27 July 1990. That written notice of rescission is deemed sufficient under the

circumstances. WHEREFORE, on the foregoing modificatory

premises, and considering that the same result has been reached by respondent Court of Appeals with respect to the relief awarded to

private respondents by the court a quo which we find to be correct, its assailed judgment in CA -G.R. CV No. 34767 is hereby AFFIRMED.

Q: First, going back to my earlier question, what is the distinction between an option

contract and a contract of sale? A: An option is a continuing offer or a contract where the owner stipulates that the latter shall

have the right to buy the property at a fixed price within a certain time. It is considered as an unaccepted offer.

Q: How is that different from sale? What do you have here? A: No option contract. It was a contract to sell.

Q: Why was it considered a Contract to Sell? What is in a Contract to Sell? A: In a contract of sale, ownership passes to the

vendee upon delivery of the property. Q: In a contract to sell? How is it different?

A: In a contract to sell, ownership to the property is reserved to the vendor until payment of the purchase price.

Q: How about the money denominated as option money? A: It was ruled by the court as earnest money. It

was stipulated that it shall be credited as partial payment of the sale.

But remember it was an earnest money in a contract to sell. Not earnest money in a CoS.

ADELFA PROPERTIES vs CA: So here you have a CtS, again the Supreme Court distinguished a CoS from a CtS. You should

already know the distinctions by heart. Here, the exclusive option to purchase, although it provided for automatic rescission and partial

forfeiture, it does not mention that petitioner is obliged to return possession or ownership. In other words, there was no intention to transfer

ownership. So it is not a CoS. It may be legally inferred that the parties never intended to transfer ownership to the petitioner, completion


of the payment of the purchase price. The Deed of Absolute Sale would have been issued only

upon the payment of the balance of the purchase price which is the nature of a CtS. The exclusive option to purchase is not contained in

a public instrument. The execution of which would have been delivery.

Title of a contract again does not determine the nature, even if it is denominated an exclusive option to purchase, it’s not also considered as

an option contract. An option is a continuing offer 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

owners of the property the right to sell or demand a sale. It is also sometimes called an “unaccepted offer.” But there was already

meeting of the minds in the sense that you give the right to the possible buyer time to think over. Wherein during that time, you will not offer the

property to other persons. But of course, there must be a consideration. It secures the privilege to buy. It is not a sale of property, but a sale of

the right to purchase. It is simply a contract by which the owner of 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 agree to sell it; but he does sell something, that it is, 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. Until acceptance, it is not, properly speaking, a contract, and does not

vest, transfer, or agree to t ransfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of property

gives the optionee the right or privilege of accepting the offer and buying the property on certain terms.

The distinction between an "option" and a contract of sale is that an option is an

unaccepted offer. It states the terms and conditions on which the owner is willing to sell the land, if the holder elects to accept them

within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereupon becomes a valid

and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is at an

end. A contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties at the time of its execution. The

offer and the acceptance are concurrent, since the minds of the contracting parties meet in the terms of the agreement.

The test here is whether or not the agreement can be specifically enforced. In an option

contract, you cannot demand the other party, the one who holds the option to pay the price, because he has not yet accepted the proposal.

You are only giving him time to think it over. On the part of the seller, you cannot enforce the

seller to deliver the property unless you have already notified that you have exercised the option in that contract of sale. An agreement is

only an "option" when no obligation rests on the party to make any payment except such as may be agreed on between the parties as

consideration to support the option until he has made up his mind within the time specified. That is what we refer to as option money which

should be distinguished from option money. In this case, the PhP50,000 was not option

money but rather an earnest money in a CtS. Not a CoS since it was already established that you do not have a sale here but a CtS.

There are clear distinctions between earnest money and option money, viz.: (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.

However in this case, it is an earnest money in a CtS. Now why the distinctions here? Why is it

relevant? Here, tender of payment would be sufficient to preserve the right or privilege. This is because the provisions on consignation are

not applicable when there is no obligation to pay. A contract to sell, as in the case before us, involves the performance of an obligation, not

merely the exercise of a privilege of a right. Consequently, performance or payment may be effected not by tender of payment alone but by

both tender and consignation. With that we could say that an option contract

has the following characteristics:

1. It is onerous. There must be separate

consideration referred to as option money and therefore valuable;

2. It is also consensual as there must be

meeting of the minds as to the subject matter, the price even if not paid;

3. Unilateral since the optioner is obliged

under the option contract; 4. The subject matter is not the thing itself

but the option to purchase the subject

matter. So what do you have here is an intangible subject matter or right.

5. An option contract is not covered by the

Statue of Frauds; 6. An option contract we could say is a

principal contract and a preparatory

contract. If you have an option contract, what are the obligations of the offeror?

1. The offeror has the personal obligation

not to offer to any third party the sale of


the object of the option contract during the option period;

2. Also the personal obligation not to withdraw the offer during the option period; and

3. The obligation to hold the subject matter of sale to the offeree in the event the offeree exercises his option during the

option period.

So we now go to inadequacy of price. You very well know from obligations and contracts, Art. 1355:

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not

invalidate a contract, unless there has been fraud, mistake or undue influence.

The same principle or concept is emphasized in a contract of sale, and we have Art. 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.

All right, so defect in consent is the same as that emphasized in 1355. So again take note, gross inadequacy of the price does not affect a

contract of sale. What is important is that it still conforms to the requirements of a contract of sale – deemed onerous and commutative at the

same time. There is no requirement that the price given should be exactly the value of the subject matter delivered.

Because when we say that the contract of sale is onerous, what is required is that there is a

valuable consideration. And when we say that it is commutative in nature, as long as the parties honestly believe that they receive good value for

what they have given up in exchange, then you have a valid contract of sale, even if the price is grossly inadequate.

However, differentiate gross inadequacy from simulated price. What is difference?

BRAVO-GUERRERO vs. EDWARD P. BRAVO

FACTS: Spouses Mauricio and Simona Bravo owned 2 parcels of land measuring 287 and 291 square meters and located in Makati City, Metro

Manila. The Properties are registered under TCT Nos. 58999 and 59000 issued by the Register of Deeds of Rizal on 23 May 1958. The Properties

contain a large residential dwelling, a smaller house and other improvements.

Mauricio and Simona had three children -Roland, Cesar and Lily, all surnamed Bravo. Cesar died without issue. Lily Bravo married

David Diaz, and had a son, David B. Diaz, Jr. ("David Jr."). Roland had six children, namely,

Elizabeth Bravo-Guerrero, Edward, Roland, Senia, Benjamin, and their half-sister, Ofelia.

Simona executed a General Power of Attorney ("GPA") on 17 June 1966 appointing Mauricio as

her attorney-in-fact. In the GPA, Simona authorized Mauricio to "mortgage or otherwise hypothecate, sell, assign and dispose of any and

all of my property, real, personal or mixed, of any kind whatsoever and wheresoever situated, or any interest therein." Mauricio subsequently

mortgaged the Properties to the PNB and DBP for P10,000 and P5,000, respectively.

On 25 October 1970, Mauricio executed a Deed of Sale with Assumption of Real Estate Mortgage conveying the Properties to vendees

Roland A. Bravo, Ofelia A. Bravo and Elizabeth Bravo-Guerrero.” The sale was conditioned on the payment of P1,000 and on the assumption

by the vendees of the PNB and DBP mortgages over the Properties.

As certified by the Clerk of Court of the Regional Trial Court of Manila, the Deed of Sale was notarized by Atty. Victorio Q. Guzman on 28

October 1970 and entered in his Notarial Register. However, the Deed of Sale was not annotated on TCT Nos. 58999 and 59000.

Neither was it presented to PNB and DBP. The mortage loans and the receipts for loan payments issued by PNB and DBP continued to

be in Mauricio’s name even after his death on 20 November 1973. Simona died in 1977.

On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed an action for the judicial partition of the Properties. Edward claimed that

he and the other grandchildren of Mauricio and Simona are co-owners of the Properties by succession. Despite this, petitioners refused to

share with him the possession and rental income of the Properties. Edward later amended his complaint to include a prayer to annul the Deed

of Sale, which he claimed was merely simulated to prejudice the other heirs.

The trial court upheld Mauricio’s sale of the Properties to the vendees. The trial court ruled that the sale did not prejudice the compulsory

heirs, as the Properties were conveyed for valuable consideration.

Citing Article 166 of the Civil Code, the Court of Appeals reversed trial court’s decision and declared the Deed of Sale void for lack of

Simona’s consent. It also found that there was insufficient proof that the vendees made the mortgage payments on the Properties, since the

PNB and DBP receipts were issued in Mauricio’s name. The appellate court opined that the rental income of the Properties, which the vendees

never shared with respondents, was sufficient to cover the mortgage payments to PNB and DBP.

ISSUE: WON the sale of the properties was simulated or void for gross inadequacy of price


RULING: No, the sale of the properties is not void either for being simulated or for inadequacy

of price. Respondents, however, contend that the sale of

the Properties was merely simulated. As proof, respondents point to the consideration of P 1,000 in the Deed of Sale, which respondents claim is

grossly inadequate compared to the actual value of the Properties.

Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects. When the parties to an alleged contract

do not really intend to be bound by it, the contract is simulated and void. A simulated or fictitious contract has no legal effect whatsoever

because there is no real agreement between the parties.

In contrast, a contract with inadequate consideration may nevertheless embody a true agreement between the parties. A contract of

sale is a consensual contract, which becomes valid and binding upon the meeting of minds of the parties on the price and the object of the

sale. The concept of a simulated sale is thus incompatible with inadequacy of price. When the parties agree on a price as the actual

consideration, the sale is not simulated despite the inadequacy of the price.

Gross inadequacy of price by itself will not result in a void contract. Gross inadequacy of price does not even affect the validity of a contract of

sale, unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract. Inadequacy of cause will

not invalidate a contract unless there has been fraud, mistake or undue influence. In this case, respondents have not proved any of the

instances that would invalidate the Deed of Sale. Respondents even failed to establish that the consideration paid by the vendees for the

Properties was grossly inadequate. As the trial court pointed out, the Deed of Sale stipulates that, in addition to the payment of P1,000, the

vendees should assume the mortgage loans from PNB and DBP. The consideration for the sale of the Properties was thus P1,000 in cash

and the assumption of the P15,000 mortgage. Respondents argue that P16,000 is still far

below the actual value of the Properties The tax declarations placed the assessed value of both Properties at P16,160. Compared to this, the

price of P16,000 cannot be considered grossly inadequate, much less so shocking to the conscience as to justify the setting aside of the

Deed of Sale.

So here, the SC emphasized the distinction

between simulation of contract and gross inadequacy. They are distinct legal concepts with have different effects.

When the parties enter into a contract with no intention to be bound, the contract is simulated

and therefore void. Simulated or fictitious contract has no legal effect whatsoever because

again there was no legal (??) between the parties.

However, a contract with inadequate consideration will nevertheless --- into agreement between the parties.

The concept of simulated sale is incompatible with inadequacy of price. Gross inadequacy of

price in itself will not result to a void contract, and does not even affect the validity of a contract of sale unless it signifies a defect in the

consent --in this case there was no proof of the defect -- or that the parties actually intended a donation or some other contract.

There was no allegation that there was other intention.

Inadequacy of cause will not invalidate a contract unless there is fraud, mistake, or undue

influence. Here, the consideration provided in the deed of sale was P1,000.00 but in addition to that, the vendees would also assume the

mortgage loans. Even assuming that there was no assumption of

mortgage, the consideration of mere 1,000, even if it would be found as grossly inadequate, will not invalidate the sale in the absence of any

evidence that the consent was vitiated, or the parties intended to enter into some other contract.

So that’s the general rule: gross inadequacy of price will not affect the contract of sale. How

about judicial sale? What the effect of a gross inadequacy of price?

It is shocking to the morals of man. So what? What is the effect?

THE DIRECTOR OF LANDS, vs. ABARCA, ET AL

FACTS: About fourteen years, the lot now in question was the subject of litigation between Datu Bualan and his co-claimants, on the one

hand, and Ciriaco Lizada, on the other. Juan A. Sarenas and Domingo Braganza were the attorneys for Datu Bualan and his co-claimants

in that suit, wherein a judgment was rendered declaring Datu Bualan and his co-claimants the owners of the land involved in the litigation.

Subsequently, a controversy arose between the Bagobos and their attorneys as to the amount of

fees due the latter, whereupon the attorneys took possession of the property now in question. Action was brought by the Bagobos against their

former attorneys for the recovery of the land. In this action judgment was rendered ordering the attorneys to return the property seized by them,

and requiring the Bagobos to pay their former attorneys the sum of P6,000 as fees. As a result of this judgment Datu Bualan and his co-


claimants paid Sarenas and Braganza the sum of P5,126.13. They also paid to the municipal

treasurer of Davao in the name of Sarenas and Braganza, for taxes and penalties due on the property in the year 1926, while the same was in

the possession of the latter, the sum of P1,035.87. The Bagobos assumed that, by these payments which amounted in all to

P6,162, the judgment rendered against them for P6,000 together with interests due thereon, was fully satisfied.

Claiming that the sum paid to the municipal treasurer of Davao should not be credited on the

amount of the judgment obtained by them, Sarenas and Braganza caused the clerk of the court to issue a writ of execution on the said

judgment. By reason of the writ of execution so issued, the sheriff levied on the property here in question and sold it to Sarenas and Braganza

for the sum of P877.25. Upon the failure of the Bagobos to redeem the property, they filed their claim in the present cadastral case, alleging that

they were the absolute owners of the lot in question.

In view of the evidence presented by the parties, the lower court dismissed the claim of Sarenas and Braganza, and ordered the registration of

the lot now in question in the names of Datu Bualan and his co-claimants, subject, however, to a lien in favor of Sarenas and Braganza for

the sum of P877.25, with interest at the rate of 12 per cent per annum from April 27, 1927.

In dismissing the claim of Sarenas and Braganza, the lower court held that the sale by the sheriff of the property in question in favor of

said claimants was null and void, because the amount of P877.25 paid by Sarenas and Braganza was absolutely inadequate.

ISSUE: WON a judicial sale of real property will be set aside when price is adequate

RULING: Yes if the price is so inadequate as to shock the conscience of the court.

The lower court was right in declaring the sheriff's sale null and void on the ground of the

inadequacy of the price paid. It appears that in 1927 the assessed value of the contested property was more than P60,000. A judicial sale

of real property will be set aside when the price is so inadequate as to shock the conscience of the court. (National Bank vs. Gonzalez, 45 Phil.,

693.) In the instant case there is another important

consideration. In fairness and equity, which after all are the true aims of the law, the amount paid by Datu Bualan and his co-claimants for taxes

and penalties due on the contested property should be credited on the judgment obtained by Sarenas and Braganza. Such taxes and

penalties accrued while the property was in that possession under a claim of ownership. It follows that the error assigned by Datu Bualan

and his co-claimants against the judgment below, to the effect that the lower court erred in

subjecting the property sought to be registered to a lien in favor of Sarenas and Braganza for P877.25 with interests, must be sustained

So again, while it is the general rule that gross inadequacy of the price will not invalidate the

sale, take note: if it is a Judicial sale, if the price is so inadequate as to shock the conscience of the court, then the judicial sale of real property

will be set aside. So in other words, what can we deduce from this

one? Gross inadequacy of price does not affect a contract of sale – that would generally apply to all kinds of contracts EXCEPT when the sale

involved is a judicial sale or sale by the order of the court wherein the price is NOT JUST grossly inadequate, but if its inadequacy is shocking to

the conscience of man and there is a showing that in the event of a sale, a better price can be obtained, that judicial sale can be set aside.

In other words, it can be considered as null and void. However take not, there is an

EXCEPTION TO THE EXCEPTION: When there is a judicial sale, but there is a right

of redemption given to the owner. In that instance, lower purchase price would be

favorable to the redemptioner. The proper remedy in that instance is not to question the sale, but to REDEEM it. Diba? Because it is

favorable to you as the owner or redemptioner. If there a right to redeem in a foreclosure sale,

inadequacy of the price is not material, because the lesser the price, the easier it would be for the owner to effect the redemption.

So, we have the general rule, then we have the exception, then the exception to the exception.

But, we also have this case of Cuneta v. CA, it’s a 2001 case. In that case, there is a right of

redemption. So it is a judicial sale, but what was the ruling of the court? By way of extraordinary circumstances perceived, when in a judicial sale,

the right of redemption has been lost, where the inadequacy of the price is purely shocking to the conscience such that a reasonable man would

neither directly or indirectly be likely to consent it, the same will be set aside.

Here, it is an example of a case na may extraordinary circumstance in the sense that, even if it was a judicial sale with right of

redemption, the SC held that the sale should be set aside because of the extraordinary circumstances in that case. But then again, that

is the exception to the exception to the exception. So that is normal in our jurisprudence.

But again just take note of the rules involving gross inadequacy of price. Take into


consideration the nature of the sale, as well as the other circumstances therein.

Now, we can also relate it to what you have discussed in obligations and contracts – lesion

or inadequacy. We have Art. 1381

Art. 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-

fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of

absentees, if the latter suffer the lesion stated in the preceding number; (3) Those undertaken in fraud of creditors

when the latter cannot in any other manner collect the claims due them; (4) Those which refer to things under

litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent

judicial authority; (5) All other contracts specially declared by law to be subject to rescission.

What is the status of that contract? It makes it rescissible – valid but can be rescinded, unless

the sale was approved by the court under Art. 1386.

Take note: lesion must be MORE THAN ¼ of the value of the property.

Also in addition to gross inadequacy of the price, we have Art. 1602 – the concept of equitable mortgage, wherein it is a mortgage however it

lacks the formalities required under the law. But the intention of the parties is to have that property as a security or a collateral for a

principal obligation. Now one of the instances wherein the

presumption of equitable mortgage will arise is gross inadequacy of the price. Whether it’s an absolute sale or sale with right to repurchase,

gross inadequacy will give rise to equitable mortgage and the parties may seek for the reformation of the contract. From sale to a

mortgage contract, to show the true intention of the parties.

Also take note that when it comes to cause or consideration, differentiate it from MOTIVE. Consideration must be the one required for the

validity of the contract of sale, REGARDLESS of the motive, UNLESS the motive is in relation to the cause or consideration.

So we’re done with price.

Now we’ll go to the CONSUMMATION of the contract of sale.

Remember the stages of a contract of sale. The NEGOTIATION, PERFECTION, and

CONSUMMATION. What happens in Policitacion? There is an offer.

Remember it is a preparatory stage, there is a unilateral promise to buy or sell, but there is still no obligation imposed upon the parties for the

offer given may be withdrawn. Or it may be accepted. When it is accepted and the acceptance is absolute, there is a meeting of the

minds which would give rise now to a perfected contract of sale.

Another scenario: there is an offer, but the offer was rejected. Or there could be a counter-offer or re-negotiation until there could be a meeting

of the minds. Also in an offer, there may be a period given in

that offer. When the period expires, wala na yung offer. Or the offer may be subjected to the fulfillment of a resolutory condition; or the non-

happening of a suspensive condition; or the offer may be withdrawn by the offeror, but of course, this must be before acceptance.

In relation to this Policitacion, we also have to consider that in this stage, it covers the doctrine

of freedom of contract. It signifies the right to choose to enter into a contract, a property owner is free to offer his property for sale to an

interested person, and he is not bound to sell the same to the occupant thereof absent any prior agreement vesting the occupant the right of first

priority. In policitacion, negotiation is formally initiated by an offer which we all know must be CERTAIN. At any time prior to perfection, either

negotiating party may stop the negotiation. At this stage, the offer may be withdrawn, and the withdrawal is effective immediately after its

manifestation. To convert the offer into a contract, remember there must be acceptance, which must be ABSOLUTE and must not qualify

the terms of the offer. It must be clear, unequivocal, unconditional, and without variance of any sort from the proposal.

During the policitacion stage, we also have this OPTION CONTRACT. What is an option

contract? What happened in the case of Tayag?

TAYAG vs. LACSON

FACTS: Respondents Angelica Tiotuyco Vda. de Lacson, and her children were the registered

owners of three parcels of land located in Mabalacat, Pampanga. The properties were tenanted agricultural lands.

On March 17, 1996, a group of original farmers/tillers, Tiamson, et al., individually

executed in favor of the petitioner separate Deeds of Assignment in which the assignees assigned to the petitioner their respective rights


as tenants/tillers of the landholdings possessed and tilled by them for and in consideration of

P50.00 per square meter. The said amount was made payable "when the legal impediments to the sale of the property to the petitioner no

longer existed." The petitioner was also granted the exclusive right to buy the property if and when the respondents, with the concurrence of

the defendants-tenants, agreed to sell the property. In the interim, the petitioner gave varied sums of money to the tenants as partial

payments, and the latter issued receipts for the said amounts. On July 24, 1996, the petitioner called a meeting

of the defendants-tenants to work out the implementation of the terms of their separate agreements.

However, on August 8, 1996, the defendants-tenants, through Joven Mariano, wrote the

petitioner stating that they were not attending the meeting and instead gave notice of their collective decision to sell all their rights and

interests, as tenants/lessees, over the landholding to the respondents Lacson. On August 19, 1996, the petitioner filed a

complaint against the defendants-tenants, as well as the respondents, for the court to fix a period within which to pay the agreed purchase

price of P50.00 per square meter to the defendants, as provided for in the Deeds of Assignment.

Respondents as defendants asserted that they never induced the defendants Tiamson to violate

their contracts with the petitioner; and, being merely tenants-tillers, the defendants-tenants had no right to enter into any transactions

involving their properties without their knowledge and consent. They also averred that the transfers or assignments of leasehold rights

made by the defendants-tenants to the petitioner is contrary to Presidential Decree (P.D.) No. 27 and Republic Act No. 6657, the Comprehensive

Agrarian Reform Program (CARP). The defendants-tenants Tiamson, et al., alleged

in their answer with counterclaim for damages, that the money each of them received from the petitioner were in the form of loans, and that

they were deceived into signing the deeds of assignment. What they knew was that they were made to sign a document that will serve as a

receipt for the loan granted to them by the plaintiff.

ISSUE: WON the Deeds of Assignment are perfected option contracts

RULING: No, there is no perfected option contract. The Court does not agree with the contention of

the petitioner that the deeds of assignment executed by the defendants-tenants are perfected option contracts. An 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. 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. It imposes no binding obligation on the person

holding the option, aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract. The second

party gets not lands, not an agreement that he shall have the lands, but the right to call for and receive lands if he elects. An option contract is a

separate and distinct contract from which the parties may enter into upon the conjunction of the option.

In this case, the defendants-tenants-subtenants, under the deeds of assignment, granted to the

petitioner not only an option but the exclusive right to buy the landholding. But the grantors were merely the defendants-tenants, and not the

respondents, the registered owners of the property. Not being the registered owners of the property, the defendants-tenants could not

legally grant to the petitioner the option, much less the "exclusive right" to buy the property. As the Latin saying goes, "NEMO DAT QUOD NON

HABET."

All right, in this case, the SC defined: an

OPTION is a contract in which the owner of the property agrees with another person that he shall have the right to buy his (owner) property

at a fixed price and at a certain time. It is a condition offered or contract in which the owner stipulates with another person where the latter

shall have the right to buy the property under certain terms and conditions, or which gives the owner of the property a right to sell or demand a

sale. It imposes no binding obligation on the person holding the option aside from the consideration for the offer. Until accepted, it is

not, properly speaking, treated as a contract of sale. But that option contract is already a contract in itself, even if it imposes no binding

obligation. Now in this case, the tenants, not being the

registered owners, cannot grant an option on the land, much less any exclusive right to buy the property.

Take note of the characteristics of an option contract:

1. ONEROUS – there must be a separate consideration which must also be valuable. But how do we distinguish this

from a contract of sale?

ADELFA PROPERTIES VS. CA

[G.R. NO. 111238. JANUARY 25, 1995.]

PARTIES: Roasrio and Salud Jimenez –

Seller Adelfa Properties – Buyer


Subject: western portion of a parcel of land 8855 sq. ms. Covered by TCT 309773 situated

in Barrio Culasi, Las Pinas, Metro Manila FACTS: Rosario Jimenez-Castaneda, Salud Jimenez and their brothers, Jose and Dominador

Jimenez, were the registered co-owners of a parcel of land consisting of 17,710 sq. ms (TCT 309773) situated in Barrio Culasi, Las Piñas,

Metro Manila. On 28 July 1988, Jose and Dominador Jimenez sold their share consisting of 1/2 of said parcel of land, specifically the

eastern portion thereof, to Adelfa Properties pursuant to a “Kasulatan sa Bilihan ng Lupa.” Subsequently, a “Confirmatory Extrajudicial

Partition Agreement” was executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 sq. ms. was

ADJUDICATED TO JOSE AND DOMINADOR JIMENEZ, WHILE THE WESTERN PORTION WAS ALLOCATED TO ROSARIO AND SALUD

Jimenez. Thereafter, Adelfa Properties expressed interest

in buying the western portion of the property from Rosario and Salud. Accordingly, on 25 November 1989, an “Exclusive Option to

Purchase” was executed between the parties, with the condition that the selling price shall be P2,856,150, that the option money of P50,000

shall be credited as partial payment upon the consummation of sale, that the balance is to be paid on or before 30 November 1989, and that in

case of default by Adelfa Properties to pay the balance, the option is cancelled and 50% of the option money shall be forfeited and the other

50% refunded upon the sale of the property to a third party. Before Adelfa Properties could make payment, it

received summons on 29 November 1989, together with a copy of a complaint filed by the nephews and nieces of Rosario and Salud

against the latter, Jose and Dominador Jimenez, and Adelfa Properties in the RTC Makati (Civil Case 89-5541), for annulment of the deed of

sale in favor of Household Corporation and recovery of ownership of the property covered by TCT 309773.

As a consequence, in a letter dated 29 November 1989, Adelfa Properties informed

Rosario and Salud that it would hold payment of the full purchase price and suggested that the latter settle the case with their nephews and

nieces. . Salud Jimenez refused to heed the suggestion of Adelfa Properties and attributed the suspension of payment of the purchase price

to “lack of word of honor.” On 14 December 1989, Rosario and Salud sent

Francisca Jimenez to see Atty. Bernardo, in his capacity as Adelfa Properties’ counsel, and to inform the latter that they were cancelling the

transaction. In turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted therefrom for the settlement of the civil

case. This was rejected by Rosario and Salud. On 22 December 1989, Atty. Bernardo wrote Rosario and Salud on the same matter but this

time reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the

latter. On 23 February 1990, the RTC dismissed Civil Case 89-5541.

On 16 April 1990, Atty. Bernardo wrote Rosario and Salud informing the latter that in view of the dismissal of the case against them, Adelfa

Properties was willing to pay the purchase price, and he requested that the corresponding deed of absolute sale be executed. This was ignored by

Rosario and Salud. On 27 July 1990, Jimenez’ counsel sent a letter to Adelfa Properties enclosing therein a check for P25,000.00

representing the refund of 50% of the option money paid under the exclusive option to purchase. Rosario and Salud then requested

Adelfa Properties to return the owner’s duplicate copy of the certificate of title of Salud Jimenez. Adelfa Properties failed to surrender the

certificate of title. Rosario and Salud Jimenez filed Civil Case 7532 in the RTC Pasay City (Branch 113) for

annulment of contract with damages, praying, among others, that the exclusive option to purchase be declared null and void; that Adelfa

Properties be ordered to return the owner’s duplicate certi ficate of title; and that the annotation of the option contract on TCT 309773

be cancelled. RTC: On 5 September 1991, the t rial court

rendered judgment holding that the agreement entered into by the parties was merely an option contract, and declaring that the suspension of

payment by Adelfa Properties constituted a counter-offer which, therefore, was tantamount to a rejection of the option. It likewise ruled that

Adelfa Properties could not validly suspend payment in favor of Rosario and Salud on the ground that the vindicatory action filed by the

latter’s kin did not involve the western portion of the land covered by the contract between the parties, but the eastern portion thereof which

was the subject of the sale between Adelfa Properties and the brothers Jose and Dominador Jimenez. The trial court then directed the

cancellation of the exclusive option to purchase. On appeal,

RTC: the Court of appeals affirmed in toto the decision of the court a quo. That Article 1590 of

the Civil Code on suspension of payments applies only to a contract of sale or a contract to sell, but not to an option contract which it opined

was the nature of the document subject of the case at bar.

Hence, the petition for review on certiorari. Adelfa properties posits that the contract is a

Contract of Sale and not an Option Contract or Contract to Sell, making the suspension of payment applicable in the case.

ISSUE: Whether or not the contract is a Contract of Sale, Option Contract or Contract to Sell.


SC: The Supreme Court affirmed the assailed

judgment of the Court of Appeals in CA-GR CV 34767, with modificatory premises.

Agreement between parties a contract to sell and not an option contract or a contract of sale

The alleged option contract is a contract to sell, rather than a contract of sale. The distinction between the two is important for in contract of

sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to sell, by agreement the ownership is reserved

in the vendor and is not to pass until the full payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership

until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until the full payment of

the price. Thus, a deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the property

sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right to unilaterally resolve the contract the

moment the buyer fails to pay within a fixed period.

That the parties really intended to execute a contract to sell is bolstered by the fact that the deed of absolute sale would have been issued

only upon the payment of the balance of the purchase price, as may be gleaned from Adelfa Properties’ letter dated 16 April 1990 wherein it

informed the vendors that it “is now ready and willing to pay you simultaneously with the execution of the corresponding deed of absolute

sale.” Contract interpreted to ascertain intent of

parties; Title not controlling if text show s otherwise. The important task in contract interpretation is always the ascertainment of the

intention of the contracting parties and that task is to be discharged by looking to the words they used to project that intention in their contract, all

the words not just a particular word or two, and words in context not words standing alone. Moreover, judging from the subsequent acts of

the parties which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into a contract to sell. In addition,

the title of a contract does not necessarily determine its true nature. Hence, the fact that the document under discussion is entitled

“Exclusive Option to Purchase” is not controlling where the text thereof shows that it is a contract to sell.

Test to determine contract as a “contract of sale or purchase” or mere “option” . The test

in determining whether a contract is a “contract of sale or purchase” or a mere “option” is whether or not the agreement could be

specifically enforced. There is no doubt that Adelfa’s obligation to pay the purchase price is specific, definite and certain, and consequently

binding and enforceable. Had the Jimenezes chosen to enforce the contract, they could have

specifically compelled Adelfa to pay the balance of P2,806,150.00. This is distinctly made manifest in the contract itself as an integral

stipulation, compliance with which could legally and definitely be demanded from petitioner as a consequence.

Adelfa Properties justi fied in suspending payment of balance by reason of vindicatory

action filed against it. In Civil Case 89-5541, it is easily discernible that, although the complaint prayed for the annulment only of the contract of

sale executed between Adelfa Properties and the Jimenez brothers, the same likewise prayed for the recovery of therein Jimenez’ share in that

parcel of land specifically covered by TCT 309773. In other words, the Jimenezes were claiming to be co-owners of the entire parcel of

land described in TCT 309773, and not only of a portion thereof nor did their claim pertain exclusively to the eastern half adjudicated to the

Jimenez brothers. Therefore, Adelfa Properties was justified in suspending payment of the balance of the purchase price by reason of the

aforesaid vindicatory action filed against it. The assurance made by the Jimenezes that Adelfa Properties did not have to worry about the case

because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the

vendor is bound to make payment even with the existence of a vindicatory action if the vendee should give a security for the return of the price.

Jimenezes may no longer be compelled to sell and deliver subject property. Be that as it

may, and the validity of the suspension of payment notwithstanding, the Jimenezes may no longer be compelled to sell and deliver the

subject property to Adelfa Properties for two reasons, that is, Adelfa’s failure to duly effect the consignation of the purchase price after the

disturbance had ceased; and, secondarily, the fact that the contract to sell had been validly rescinded by the Jimenezes.

Rescission in a contract to sell. Article 1592 of the Civil Code which requires rescission either

by judicial action or notarial act is not applicable to a contract to sell. Furthermore, judicial action for rescission of a contract is not necessary

where the contract provides for automatic rescission in case of breach, as in the contract involved in the present controversy. By Adelfa’s

failure to comply with its obligation, the Jimenezes elected to resort to and did announce the rescission of the contract through its letter to

Adelfa dated 27 July 1990. That written notice of rescission is deemed sufficient under the circumstances.

WHEREFORE, on the foregoing modificatory premises, and considering that the same result

has been reached by respondent Court of Appeals with respect to the relief awarded to private respondents by the court a quo which we


find to be correct, its assailed judgment in CA -G.R. CV No. 34767 is hereby AFFIRMED.

So here, it was not an option contract, not a contract of sale, but rather a Contract to Sell.

Again the SC pointed out the distinctions between a contract of sale and a contract to sell.

Here the exclusive option to purchase does not mention that petitioner is obliged to return possession or ownership. It may therefore be

inferred that the parties never intended to transfer ownership to the petitioner until completion of the purchase price. The Deed of

Sale would have been issued only upon payment of the balance of the purchase price. So that shows their intent that there is no

transfer of ownership until there is full payment of the price.

It has not been shown that there has been delivery whether actual or constructive. The exclusive option to purchase was not contained

in a public instrument to be considered as constructive delivery. Even if the contract was denominated or entitled as “Exclusive Option to

Purchase”, such is not controlling where the text shows that it is a contract to sell.

Again the SC discussed an option contract being a continuing offer wherein the owner stipulated with another that the latter has the right to buy

the property at a fixed price and at a certain time, or under or upon compliance with certain conditions, or which gives to the owner of the

property the right to sell or demand a sale. It is sometimes called an unaccepted offer and

secures the privilege to buy. It is not a sale of property, but a sale of a right to repurchase. The distinguishing characteristic of an option is that it

imposes no binding obligation on the person holding the option. Until acceptance, it is not properly speaking a contract, and does not vest

transfer or agree to transfer a title to or any interest or right to the subject matter.

An option is an Unaccepted offer, it states the terms and conditions in which the owner is willing to sell the land, if the holder elects to

accept them within the time limited. If the holder does so elect, he must give notice to the other party, and the accepted offer thereby becomes a

valid and binding contract. If an acceptance is not made within the time fixed, the owner is no longer bound by his offer, and the option is

ended. The test in determining whether a contract is a

sale or option is whether or not the agreement would be specifically enforced. An agreement is only an option when no obligation rests on the

party to make any payment, except as such may be agreed between the parties as consideration to support the option until he has made up his

mind within the time specified.

The alleged 50,000 is actually an Earnest money, but it is an earnest money in a contract

to sell, not a contract of sale. Also take note here of the discussion of the

court. The rule is different in an option contract, or in legal redemption, or in a sale with right to repurchase, wherein consignation is NOT

necessary because these cases involve the exercise of a right or privilege. Tender of payment would be sufficient to serve the right or

privilege. A contract to sell involves the performance of an

obligation, not merely the exercise of a right or privilege. Consequently, performance or payment may be effected NOT by tender of

payment alone, but also of consignation. So that’s the reason why it is important to

determine the nature of the contract here. So since here it was a contract to sell, there must be tender of payment plus consignation. If it was

an option contract, consignation would not have been required.

Take note of the distinctions of Contract of Sale and Option Contract:

Both contracts are ONEROUS, however in an option contract, there must be a separate consideration, separate from the purchase price.

Both contracts are perfected by mere consent, they are CONSENSUAL. However

a contract of sale is covered by the Statute of Frauds, but an option contract is not.

A contract of sale is BILATERAL and RECIPROCAL, however an option contract is UNILATERAL, as it is only the optioner

who is obliged under it.

A contract of sale is a PRINCIPAL contract, the same with option contract, as it is not

dependent upon the existence of another contract. However, an option contracts is ALSO a PREPARATORY contract at the

same time because it is really in preparation of a contract of sale.

The subject matter in a contract of sale is determinate or determinable thing, but in an option contract, the subject matter is the

OPTION to purchase the subject matter. The subject matter in an option contract is a RIGHT, a PRIVILEGE, it is an intangible.

In a contract of sale, price certain in money or its equivalent; in an option contract, the

consideration must be separate and distinct.

Take note also of the obligations of the offeror.

He has the obligation not to offer to any 3

rd party

the sale of the object of the option, DURING the

option period.


He has also the obligation not to withdraw the

offer during the option period, and to hold the subject matter for sale to the offeree in the event that the offeree exercises his option during the

option period.

August 25, 2015 So we have already discussed what we mean by

separate consideration in an option contract – what do we mean by this option money. We have emphasized that this is not the same; the

consideration in an option contract is not the same sa consideration in a contract of sale. The separate consideration in an option contract is

not necessarily cash or its equivalent as long as it is anything of value as emphasized in the case of Villamor vs. Ca.

So again, take note of our discussion on the effect of separate consideration or the absence

thereof. The case of sanchez vs. Rigos is very clear that without consideration for the option there can be no valid option contract. Without

consideration, it is a void option contract but it can still constitute a valid offer. If the option is exercised prior to its withdrawal, even in the

absence of a consideration, it will be equivalent to an offer being accepted prior to the withdrawal, and therefore if could give rise to a

perfected contract of sale, provided that all the essential elements of a contract of sale are present.

So again, recall the case of Sanchez vs. Rigos, wherein the Supreme Court affirmed the lower

court’s decision although the promise to sell is not supported by a consideration distinct from the price. Sanchez, the promisee accepted the

option to buy before Rigos, the promisor, withdrew the same. Under such circumstances the option to purchase was converted into a

bilateral contract of sale, which bound both parties. As we have emphasized last time, the case of Sanchez vs. Rigos was very clear in

modifying or abandoning the discussion in southwestern molasses, wherein it made a distinction between 1354 and 1479. Wherein the

case sanchez vs. Rigos, the SC emphasized that there is no difference there is not distinction. Both of these provisions intend to enforce or

implement the same principle. Likewise, in the absence of consideration, even

if it was accepted, can still be withdrawn, again that was also whatever was inconsistent with southwestern Molasses as to that with Sanchez

vs. Rigos abandoned. So be very careful with cases citing southwestern molasses because eof this case of sanchez vs. Rigos. Remember

this case referred to the case of Atk ins which was a 1958 case, where it has the same ruling with Sanchez vs. Rigos. Compared to

Southwestern Molasses case, which was a 1955 case. Take note of the discussion of sanchez vs. Rigos and how they were able to relate it with

other case as in the case of Diamante and Bible Baptist.

Now in the case of Navotas, recall, he was not the owner, so the same as in the case of Tayag

vs. Lacson. Now, we have here the case of Vazquez vs. CA.

VAZQUEZ VS. CA FACTS: A certain property in Himamaylan,

Negros Occidental was registered in the name of Spouse Vallejera. On October 1959, they leased the property to the Spouses Vasquez. After the

execution of the lease, the Vasquez’ took possession of the lot and devoted the same to the cultivation of sugar.

On September 21, 1964, the spouses Vallejera sold the lot the spouses Vasquez for the amount

of 9 T. On the same day and along with the execution of the Deed of Sale, a separate instrument, denominated as “Right to

Repurchase” was executed by the parties granting the Vallejeras the right to repurchase the lot for 12 T.

By virtue of the Deed of Sale the spouses Vasquez secured a title in their name. However,

on January 2, 1969, the Vallejeras sold the lot to Benito Derrama after securing the spouse Vasquez’ title for 12 T. Upon the protestation of

the spouses Vasquez the sale was cancelled after payment of 12 T to Derrama.

The spouses Vasquez resisted the action for redemption on the premise that the deed of “Right to Repurchase” is just an option to buy

since it is not embodied in the same document of sale but in a separate document and since such option is not supported by a consideration

distinct from the price, said deed is not binding upon them.

The spouses Vazquez insist that they can not be compelled to resell the subject property for the nature of the sale over the said lot between them

and the Vallejeras can only be either an option to buy or a mere promise on their part to resell the property. Spouses Vasquez opined that

since the “Right to Repurchase” was not supported by any consideration distinct from the purchase price it is not valid and binding upon

the spouses Vasquez pursuant to Article 1479. ISSUE: Whether or not the spouse Vallejera has

a right to repurchase under the contract. HELD: No. The Court made reference to the

earlier case of Sanchez vs. Rigos (Sanchez doctrine), stating that an option contract without a separate consideration from the purchase

price is void, as a contract, but would still constitute as a valid offer; so that if the option is exercised prior to its withdrawal, that is

equivalent to an offer being accepted prior to withdrawal and would give rise to a valid and


binding sale. The Sanchez doctrine also dictates that the

burden of proof to show that the option contract was supported by a separate consideration is with the party seeking to show it. No reliance

can be placed upon the provisions of Article 1354 which presumes the existence of a consideration in every contract, since in the case

of an option contract, Article 1479 being the specific provision, requires such separate consideration for an option to be valid.

In an option contract, the offeree has the burden of proving that the option is supported by a

separate consideration, it also held that the Sanchez doctrine (That upon the option contract not supported by a separate consideration; is

void as contract, but valid as an offer), can only apply if the option has been accepted and such acceptance is communicated to the offeror. It

held that not even the annotation of the option contract on the title of the property can be considered a proper acceptance of the option.

Neither can the signature of the spouses Vasquez in the document called "right to

repurchase" signify acceptance of the right to repurchase. The Vallejeras did not sign the offer. Acceptance should be made by the promisee, in

this case, the Vallejeras and not the promises, spouses Vasquez herein. It would be absurd to require the promisor of an option to buy to

accept his own offer instead of the promisee to whom the option to buy is given.

What case was cited here?

Was there really a right of repurchase? Was it correctly termed as Right of repurchase? What was their intention?

Was there a valid option? Was there a separate consideration?

No redemption. No conventional redemption. No right of repurchase. No valid option contract. It could not have resulted in a valid contract of sale

because there was no acceptance. Now, how do you exercise this option contract?

Remember the nature of an option contract, it is with a separate consideration wherein the promisee is given a certain period to accept the

contract. In the exercise of an option, it must be timely and affirmative, in a clear acceptance of an offer. Second, the optionee must clearly

advise the optioner of his acceptance and his readiness to pay the price. However, advice need not be coupled with the actual payment of

the price, so long as payment is actually made when the sale was eventually consummated. As long as he has shown acceptance and ready to

make payment upon consummation stage of the sale.

What is the effect of this option when this option is exercised? The option will then ripen into a contract of sale. Generally, the option money or

the consideration in an option contract is a

separate consideration from the purchase price. Wherein if the promise does not decide of does

not accept the said offer, then the option money cannot be returned back to the promisee. In other words it is like forfeited. Now there are

several instances, however, that if there is acceptance from the promisee, the option money can be deducted. But it is not always the

case. It depends upon the agreement between the parties. Because again, the nature of option money is separate from the purchase price in a

contract of sale. Another effect, once the seller/optioner delivers

the property or executes the required deed evidencing the sale, reciprocal obligation, the buyer/ optionee is now required to pay the price.

Again take note of the distinctions between a contract of sale and an option contract.

An accepted unilateral promise to buy and sell a determinate thing which is supported by a consideration distinct from the price is the

essence of an option contract. If there is an option contract with a separate consideration, and the promisor sold the said property to a third

person, a buyer in good faith, the action is not for specific performance because there was yet no perfected contract of sale. There was no

acceptance yet on the art of the promisee. However, it may give rise to damages.

Option contract must have consideration separate and distinct from the price. Otherwise, the option contract is void. We are not saying

that the sale is void because if there is no consideration, while the option contract may be void, the offer can still be accepted until it is

withdrawn and once it is accepted it could give rise to a perfected contract of sale.

RIGHT OF FIRST REFUSAL

PUP VS. GOLDEN

(This is case related to the case of PUP vs. CA and Firestone Ceramics)

FACTS: National Development Corp. (NDC) had in its disposal a 10-hectare property located at Sta. Mesa, Manila. The estate was popularly

known as NDC Compound. On September 7, 1977 NDC entered into a

Contract of Lease with Golden Horizon Realty Corp. (GHRC) over a portion of the property with an area of 2,407 sq. m. for a period of 10 years,

renewable for another 10 years with mutual consent of the parties.

On May 4, 1978, a second Contract of Lease was executed by NDC and GHRC covering 3,222 sq. m., also renewable upon the mutual

consent after the expiration of the 10-year lease period. In addition, GHRC was granted the “option to purchase the area leased, the price to

be negotiated and determined at the time the option to purchase is exercised.


On June 13, 1988, before the expiration of the 10-year period under the second contract,

GHRC wrote a letter to NDC indicating its exercise of the option to renew the lease for another 10 years. NDC gave no response to the

said letter. In September of the same year, GHRC

discovered that NDC had decided to secretly dispose the property to a third party, PUP. This led to the filing of cases before the trial court.

In the meantime President Aquino issued Memo. Order No. 214 dated January 6, 1989 ordering

the transfer of the whole NDC Compound to the National Government, which in turn would convey the said property in favor of PUP at

acquisition cost. PUP then contended that GHRC’s right to

exercise the option to purchase had expired with the termination of the original contract of lease and was not carried over to the subsequent

implied new lease between GHRC and NDC. Moreover, the contracts clearly state that GHRC is granted the option to “renew for another 10

years with mutual consent of both parties.” As regards the continued receipt of rentals by NDC and possession by GHRC of the leased

premises, the impliedly renewed lease was only month-to-month and not 10 years since the rentals are being paid on monthly basis.

ISSUE: Whether or not GHRC’s right of first refusal was violated.

HELD: Yes. The pertinent portion of the second contract of lease provides that: Lessee shall also

have the option to purchase the area leased, the price to be negotiated and determined at the time the option to purchase is exercised.

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. It binds the party, who has given

the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into

such contract with the one to whom the option was granted, if the latter should decide to use the option.

Upon the other hand, a right of first refusal is a contractual grant, not of the sale of a property,

but of the first priority to buy the property in the event the owner sells the same. As distinguished from an option contract, in a right of first refusal,

while the object might be made determinate, the exercise of the right of first refusal would be

dependent not only on the owner’s eventual intention to enter into a binding juridical relation with another but also on terms, including the

price, that are yet to be firmed up. When a lease contract contains a right of first

refusal, the lessor has the legal duty to the lessee not to sell the leased property to anyone at any price until after the lessor has made an

offer to sell the property to the lessee and the lessee had failed to accept it. Only after the lessee has failed to exercise his right of first

priority could the lessor sell the property to other buyers under the same terms and conditions offered to the lessee, or under terms and

conditions more favorable to the lessor. NDC contended that the ruling of the Court in

PUP vs CA and Firestone cannot be applied in this case because the lease contract of firestone had not yet expired while in this case GHRC’s

lease contract have already expired. This is untenable. The reckoning point of the offer of sale to a third party was not the issuance of

Memorandum Order No. 214 on January 6, 1989 but the commencement of such negotiations as early as July 1988 when GHRC’s right of first

refusal was still subsisting and the lease contracts still in force. NDC did not bother to respond to GHRC’s letter of June 13, 1988

informing it of GHRC’s exercise of the option to renew and requesting to discuss further the matter with NDC, nor to the subsequent letter of

August 12, 1988 reiterating the request for renewing the lease for another ten (10) years and also the exercise of the option to purchase

under the lease contract. NDC had dismissed these letters as "mere informative in nature, and a request at its best."

GHRC is similarly situated with Firestone such that it was also prejudiced by NDC’s sale to

PUP. Therefore, GHRC is entitled to exercise its option to purchase until October 1988 in as much as the May 4, 1978 contract embodied the

option to renew the lease contract for another 10 years upon mutual consent and giving GHRC the option to purchase the leased premises for a

price to be negotiated and determined at the time such option was exercised by GHRC. It to be noted that MO 214 itself declared that the

transfer is “subject to such liens/leases existing on the subject property.”

What is a Right of First Refusal?

How is different from an option contract? What do we have here? Is there a violation of this right?

When is the violation of the right considered? In this case, the SC defined an option contract

and distinguished it from a right of first refusal. In the case of Polytechnic, it was defined as a contractual grant, not of the sale (so it is not a

perfected contract of sale) but of the first priority to buy in the event the owner sells the same. In right of first refusal, the object might be made

determinate, which is similar to an option


contract. But in the right of first refusal depends upon the owner’s eventual intention to enter into

a binding juridical relation. In other words, intent to sell the property, as well as dependent upon the terms, including the prices that are yet to

be firmed up. In option contract, the promisor already has a definite subject matter and price as to the prospective contract of sale. The

promisee now, has just to decide whether to accept such offer. The offer must again be certain. He has just to accept within the time

stipulated by the parties. If the promisee refuses to accept or does not say anything to the seller and the option period has already expired, the

promisor can already sell the property or offer to sell the property to other third person. In the right of first refusal, one who has been granted such

right has to wait for the seller’s decision to sell the property and if the seller decides to sell the property, they still have to consider the price.

There is still negotiation. I am offering this property for 1 million, then there is counter offer. But in the option contract, acceptance nalang

yung hintayin on the part of the promisee. Now in this case, there was a violation of the

right of first refusal, which was contained in the lease contract. Respondent timely exercised its option on August 12, 1988. However, NDC had

already been negotiating the sale of the property in favor of PUP without first offering it to the respondent. This is the essence of the right of

first refusal, if you decide to sell the property, offer it first to the one who is granted such right. NDC violated the respondent’s right of first

refusal. The reckoning point of the offer of sale to a third party was not the issuance of the memorandum order, but the commencement of

such negotiation, as early as July 28, 1988, wherein respondent’s right of first refusal was still subsisting and the lease contract still in

force. Here, NDC did not bother to respond to respondent’s letter informing it of its exercise to renew the lease and request to discuss further

matter with NDC. NDC just dismissed this letters as "mere informative in nature, and a request at its best.

ANG YU VS. CA FACTS: Ang Yu Asuncion and Keh

Tiong, et al., are tenants or lessees of residential and commercial spaces owned by Cu Unjieng, Rose Cu Unjieng and Jose Tan. They have

occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract. On

several occasions before October 9, 1986, the owners informed Ang Yu’s party that they are offering to sell the premises and are giving them

priority to acquire the same. During the negotiations, Bobby Cu Unjieng offered a price of P6-million while Asuncion and Keh Tiong

made a counter offer of P5-million. They thereafter asked the owners to put their offer in writing to which request they acceded; that in

reply to defendant 's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the

terms and conditions of the offer to sell; that when Asuncion did not receive any reply, they sent another letter dated January 28, 1987 with

the same request. Since the owners failed to specify the terms and conditions of the offer to sell and because of information received that the

owners were about to sell the property, Ang Yu Asuncion and Keh Tiong were compelled to file the complaint to compel defendants to sell the

property to them. The trial court found that Cu Unjieng, Rose Cu

Unjieng and Jose Tan offer to sell was never accepted by the Ang Yu Asuncion and Keh Tiong, et al., for the reason that the parties did

not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled

that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal.

Aggrieved by the decision that there was no contract of sale at all, the lessees brought a

petition for review on certiorari to the Supreme Court. The Supreme Court denied the appeal on May 6, 1991.

On November 15, 1990, while the case filed by the lessees was pending consideration, the Cu

Unjieng spouses executed a Deed of Sale, transferring the property in question to Buen Realty and Development Corporation for 15M.

As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng

spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990.

On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees

demanding that the latter vacate the premises. The decision that should the the owners decide

to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy

today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven

Million pesos or more had become final to the effect.

The owners were ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion,

Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs ' right of first refusal and that a new Transfer Certificate

of Title be issued in favor of the buyer. All previous transactions involving the same property notwithstanding the issuance of another

title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith.

A writ of execution was subsequently issued.


ISSUE: Whether or not a Writ of Execution may be decreed on a judgment recognizing the right of first refusal.

HELD: NO. Writ of Execution is not a remedy.

In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a

perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per

se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article

1319 9

of the same Code. An option or an offer would require, among other things,

10 a clear

certainty on both the object and the cause or

consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right,

however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on

terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class

of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be

indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human

conduct. Even on the premise that such right of first

refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of

execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without

thereby negating the indispensable element of consensuality in the perfection of contracts.

11 It

is not to say, however, that the right of first

refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances

expressed in Article 19 12

of the Civil Code, can warrant a recovery for damages.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The

consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us,

petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the

judgment, since there is none to execute, but an action for damages in a proper forum for the purpose.

Furthermore, whether private respondent Buen Realty Development Corporation, the alleged

purchaser of the property, has acted in good faith or bad faith and whether or not it should, in

any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be

independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot

be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property,

without first being duly afforded its day in court.

Do you have a Right of First Refusal? Was it in writing?

What is the issue of the right of first refusal to the issue of Writ of execution in this case? What was the basis of the Writ of Execution?

Was the issuance of the writ of execution proper? What is the remedy of the person who was

granted this right of first refusal but whose right was not honored?

In this case, the SC distinguished the right of first refusal from an option contract as well as from a contract to sell. A contract to sell being

conditional, the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment

of the purchase price); an option contract not the contract of sale itself, he optionee has the right, but not the obligation, to buy; and then you have

the right of first refusal. It cannot be deemed a perfected contract of sale. Neither can the right of first refusal, be brought within the purview of

an option under the second paragraph of Article 1479. An option or an offer would require, among other things, a clear certainty on both the

object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the

exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation

(in other words, intention to sell) with another but also on terms, including the price, that obviously are yet to be later firmed up.

The breach of a right of first refusal cannot justify the issuance of a writ of execution. The Lower

Court here recognizes its existence of the right of first refusal. But it should not sanction an action for specific performance because there is

no perfected contract of sale to demand the obligation arising from the said contract. An unjustified disregard of such right can warrant a

recovery for damages. The remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages.

PARAÑAQUE KINGS vs. COURT OF APPEALS

FACTS: Catalina L. Santos is the owner of eight (8) parcels of land located at Parañaque, Metro Manila. On November 28, 1977, a certain

Frederick Chua leased the property from defendant Catalina L. Santos. Subsequently, Chua assigned all his rights and interest and


participation in the leased property to Lee Ching Bing, by virtue of a deed of assignment and with the conformity of defendant Santos, the said

assignment was also registered. Ching Bing also assigned all his rights and

interest in the leased property to Parañaque Kings Enterprises, Incorporated by virtue of a deed of assignment and with the conformity of

defendant Santos. Paragraph 9 of the assigned leased contract

provides among others that: "9. That in case the properties subject of the

lease agreement are sold or encumbered, Lessors shall impose as a condition that the buyer or mortgagee thereof shall recognize and

be bound by all the terms and conditions of this lease agreement and shall respect this Contract of Lease as if they are the LESSORS thereof

and in case of sale, LESSEE shall have the first option or priority to buy the properties subject of the lease;"

On September 21, 1988, defendant Santos sold the eight parcels of land subject of the lease to

defendant David Raymundo for a consideration of FIVE MILLION PESOS. The said sale was in contravention of the contract of lease, for the

first option or priority to buy was not offered by defendant Santos to Parañaque Kings Enterprises, Incorporated (plaintiff).

Upon learning of this fact plaintiff's representative wrote a letter to defendant

Santos, requesting her to rectify the error and consequently realizing the error, she had it reconveyed to her for the same consideration of

FIVE MILLION (P5,000,000.00) PESOS. Subsequently the property was offered for sale

to plaintiff by the defendant for the sum of FIFTEEN MILLION (P15,000,000.00) PESOS. Plaintiff was given ten (10) days to make good of

the offer. On May 8, 1989, before the period given in the

letter offering the properties for sale expired, plaintiff's counsel wrote counsel of defendant Santos offering to buy the properties for FIVE

MILLION PESOS. On May 15, 1989, before they replied to the offer

to purchase, another deed of sale was executed by defendant Santos (in favor of) defendant Raymundo for a consideration of NINE MILLION

PESOS. Defendant Santos violated again paragraph 9 of

the contract of lease by executing a second deed of sale to defendant Raymundo.

ISSUE: Whether or not there is a violation on the right of first refusal.

HELD. Yes. In order to have full compliance with the contractual right granting petitioner the first

option to purchase, the sale of the properties for the amount of P9 million, the price for which they were finally sold to respondent Raymundo,

should have likewise been first offered to petitioner.

The basis of the right of first refusal* must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after

the optionee fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly

offer to sell the property to a third person, again, under the same terms as offered to the optionee.

Deed of Assignment include the option to purchase

On the contention of respondent Santos that the assignment of the lease contract to petitioner did not include the option to purchase. The

provisions of the deeds of assignment with regard to matters assigned were very clear. Under the first assignment between Frederick

Chua as assignor and Lee Ching Bing as assignee, it was expressly stated that:

. . . . the ASSIGNOR hereby CEDES, TRANSFERS and ASSIGNS to herein ASSIGNEE, all his rights, interest and

participation over said premises afore-described, . . . .

And under the subsequent assignment executed between Lee Ching Bing as assignor and the petitioner, represented by its Vice President

Vicenta Lo Chiong, as assignee, it was likewise expressly stipulated that;

. . . . the ASSIGNOR hereby sells, transfers and assigns all his rights, interest and participation over said leased premises, . . . .

One of such rights included in the contract of lease and, therefore, in the assignments of rights

was the lessee's right of first option or priority to buy the properties subject of the lease, as provided in paragraph 9 of the assigned lease

contract. The deed of assignment need not be very specific as to which rights and obligations were passed on to the assignee. It is understood

in the general provision aforequoted that all specific rights and obligations contained in the contract of lease are those referred to as being

assigned. Needless to state, respondent Santos gave her unqualified conformity to both assignments of rights.

Why was there a violation given the fact that there was already an offer but it was rejected?

If you look at this case, there was an issue here whether the breach of right of first refusal states a valid cause of action. The SC held here that

there was a right of first refusal and there was a violation of that right of first refusal. In fact, it was sold to Raymundo without first making an offer

to Paranaque Kings. Upon realizing the error,


they repurchased the property. It was them offered to Paranaque Kings for 15million, but

Paranaque Kings made a counter offer of 5 million stating that 15 million was ridiculous. That is the time when the property was sold to

Raymundo but it was only for 9 million. This case emphasizes the requisites for a valid

right of first refusal. The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective

buyer. In other words, hindi lang basta i-offer mo duon sa may right of first refusal. That offer must be the same offer that you would do to 3

rd

persons who would be interested to purchase the same property. This means that if it is offered for 15million to Paranaque Kings, then it

must be of the same price or consideration to 3rd

persons in case Paranaque Kings refuses to purchase the property. 15 million, counter offer,

5 million and the seller did not agree with the 5 million, so there was no perfected sale. When it was subsequently offered to Raymundo, it must

still be 15 million. The fact that it entered into a contract of sale with a 9 million-purchase price shows that there is a violation of this right.

Again, the same price. Not only the same price, it must also be the same mode of payment.

What do we mean by that? Because it is possible that, here, the purchase price is 15 million with a counter offer of 5 million which was

rejected. The seller offered the property to 3rd

person, still, for 15 million but on installment. It must still be considered. The offer here is

different. It is not just for the same price but also for the manner of payment.

So there was a valid action for breach of right of first refusal in this case of Paranaque Kings and therefore, the complaint should not have been

dismissed.

ROSENCOR VS. INQUING

FACTS: This is a petition for review on certiorari under Rule 45 of the Rules of Court seeking reversal of the Decision

1 of the Court of Appeals

dated June 25, 1999 in CA-G.R. CV No. 53963. The Court of Appeals decision reversed and set aside the Decision

2 dated May 13, 1996 of

Branch 217 of the Regional Trial Court of Quezon City in Civil Case No. Q-93-18582. The case was originally filed on December 10,

1993 by Paterno Inquing, Irene Guillermo and Federico Bantugan, herein respondents, against Rosencor Development Corporation (hereinafter

"Rosencor"), Rene Joaquin, and Eufrocina de Leon. Originally, the complaint was one for annulment of absolute deed of sale but was later

amended to one for rescission of absolute deed of sale. A complaint-for intervention was thereafter filed by respondents Fernando

Magbanua and Danna Lizza Tiangco. The complaint -in-intervention was admitted by the trial court in an Order dated May 4, 1994.

The facts of the case, as stated by the trial court

and adopted by the appellate court, are as follows: "This action was originally for the annulment of

the Deed of Absolute Sale dated September 4, 1990 between defendants Rosencor and Eufrocina de Leon but later amended (sic)

praying for the rescission of the deed of sale. Paterno Inquing, Irene Guillermo and Federico

Bantugan averred that they are the lessees since 1971 of a two-story residential apartment owned by spouses Faustino and Cresencia

Tiangco. The lease was not covered by any contract. The lessees were renting the premises then for P150.00 a month and were allegedly

verbally granted by the lessors the pre-emptive right to purchase the property if ever they decide to sell the same.

Upon the death of the spouses Tiangcos in 1975, the management of the property was

adjudicated to their heirs who were represented by Eufrocina de Leon. The lessees were allegedly promised the same pre-emptive right

by the heirs of Tiangcos since the latter had knowledge that this right was extended to the former by the late spouses Tiangcos.

In June 1990, the lessees received a letter from Atty. Erlinda Aguila demanding that they vacate

the premises so that the demolition of the building be undertaken. They refused to leave the premises. In that same month, de Leon

refused to accept the lessees’ rental payment claiming that they have run out of receipts and that a new collector has been assigned to

receive the payments. Thereafter, they received a letter from Eufrocina de Leon offering to sell to them the property they were leasing for

P2,000,000.00. xxx. The lessees offered to buy the property from de

Leon for the amount of P1,000,000.00. De Leon told them that she will be submitting the offer to the other heirs. Since then, no answer was given

by de Leon as to their offer to buy the property. However, in November 1990, Rene Joaquin came to the leased premises introducing himself

as its new owner. In January 1991, the lessees again received

another letter from Atty. Aguila demanding that they vacate the premises. A month thereafter, the lessees received a letter from de Leon

advising them that the heirs of the late spouses Tiangcos have already sold the property to Rosencor. The following month Atty. Aguila

wrote them another letter demanding the rental payment and introducing herself as counsel for Rosencor/Rene Joaquin, the new owners of the

premises. The lessees requested from de Leon why she

had disregarded the pre-emptive right she and the late Tiangcos have promised them. They also asked for a copy of the deed of sale

between her and the new owners thereof but she refused to heed their request. In the same


manner, when they asked Rene Joaquin a copy of the deed of sale, the latter turned down their request and instead Atty. Aguila wrote them

several letters demanding that they vacate the premises. The lessees offered to tender their rental payment to de Leon but she refused to

accept the same. In April 1992 before the demolition can be

undertaken by the Building Official. It was at this instance that the lessees were furnished with a copy of the Deed of Sale and discovered that

they were deceived by de Leon since the sal e between her and Rene Joaquin/Rosencor took place in September 4, 1990 while de Leon made

the offer to them only in October 1990 or after the sale with Rosencor had been consummated. The lessees also noted that the property was

sold only for P726,000.00. The lessees offered to reimburse de Leon the

selling price of P726,000.00 plus an additional P274,000.00 to complete their P1,000.000.00 earlier offer. When their offer was refused, they

filed the present action praying for the following: a) rescission of the Deed of Absolute Sale between de Leon and Rosencor dated

September 4, 1990; b) the defendants Rosencor/Rene Joaquin be ordered to reconvey the property to de Leon; and c) de Leon be

ordered to reimburse the plaintiffs for the repairs of the property, or apply the said amount as part of the price for the purchase of the property in

the sum of P100,000.00.” The trial court held that the right of redemption

on which the complaint was based was merely an oral one and as such, is unenforceable under the law.

ISSUE: Whether or not a right of first refusal is indeed covered by the provisions of the New

Civil Code on the statute of frauds. RULING: NO. It is not covered by the statute of

frauds. A right of first refusal is not among those listed

as unenforceable under the statute of frauds. Furthermore, the application of Article 1403, par. 2(e) of the New Civil Code presupposes the

existence of a perfected, albeit unwritten, contract of sale.

A right of first refusal, such as

the one involved in the instant case, is not by

any means a perfected contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the

right of first refusal over the property sought to be sold.

It is thus evident that the statute of frauds does not contemplate cases involving a right of first refusal. As such, a right of first refusal need not

be written to be enforceable and may be proven by oral evidence.

The next question to be ascertained is whether or not respondents have satisfactorily proven

their right of first refusal over the property subject of the Deed of Absolute Sale dated September 4, 1990 between petitioner Rosencor

and Eufrocina de Leon. Respondents have adequately proven the

existence of their right of first refusal. Federico Bantugan, Irene Guillermo, and Paterno Inquing uniformly testified that they were promised by

the late spouses Faustino and Crescencia Tiangco and, later on, by their heirs a right of first refusal over the property they were currently

leasing should they decide to sell the same. Moreover, respondents presented a letter20 dated October 9, 1990 where Eufrocina de Leon,

the representative of the heirs of the spouses Tiangco, informed them that they had received an offer to buy the disputed property for

P2,000,000.00 and offered to sell the same to the respondents at the same price if they were interested. Verily, if Eufrocina de Leon did not

recognize respondents’ right of first refusal over the property they were leasing, then she would not have bothered to offer the property for sale

to the respondents. It must be noted that petitioners did not present evidence before the trial court contradicting the existence of the right

of first refusal of respondents over the disputed property.

The final question to be resolved is May a contract of sale entered into in violation of a third party’s right of first refusal be rescinded in order

that such third party can exercise said right? The prevailing doctrine, as enunciated in some

cited cases, is that a contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible.

There is, however, a circumstance which prevents the application of this doctrine in the

case at bench. In some cases, the Court ordered the rescission of sales made in violation of a right of first refusal precisely because the

vendees therein did not act in good faith as they were aware or should have been aware of the right of first refusal granted to another person by

the vendors therein. In the instant case was an oral one given to

respondents by the deceased spouses Tiangco and subsequently recognized by their heirs. As such, in order to hold that petitioners were in bad

faith, there must be clear and convincing proof that petitioners were made aware of the said right of first refusal either by the respondents or

by the heirs of the spouses Tiangco. It is axiomatic that good faith is always presumed unless contrary evidence is adduced.

On this point, we hold that the evidence on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the

disputed property with the heirs of the spouses Tiangco. Respondents failed to present any evidence that prior to the sale of the property on

September 4, 1990, petitioners were aware or had notice of the oral right of first refusal.


Was there a violation of the right of first refusal?

What was the remedy being sought here? What is being sought to be rescinded here? Can it be availed of here?

How about specific performance? What’s the remaining remedy for the heirs?

One of the distinctions between a right of first refusal and a contract of sale is that contracts of sale shall require in order for it to be

enforceable. In right of first refusal it is perfected by consent and there is no requirement that it must be in writing for it to be enforceable. It is

not among those listed as unenforceable under the Statutes of Frauds. The Statute of Frauds presupposes the existence of a perfected, albeit

unwritten, contract of sale. In the right of first refusal, there is no contract of sale yet. It is not by any means a perfected contract of sale of real

property. At best, it is a contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to

be sold. It need not be written to be enforceable and may be proven by oral evidence, which, in this case was actually proven. There were

testimonies here of several persons as well as the letter which would show that indeed the heirs respected the right of first refusal.

Now, here, the SC held that a contract of sale in violation of a right of first refusal may be

rescissible. However, the rescission cannot be the case here because it shall only take place if the person who has bought the property did not

act in bad faith. Here, Rosencor could not be considered in bad faith because they had no knowledge of the right of first refusal because it

was not in writing, it was not annotated in the title. Rescission shall not take place "when the things which are the object of the contract are

legally in the possession of third persons who did not act in bad faith." (1385). The rule on constructive notice would be inapplicable as it is

undisputed that the right of fi rst refusal was an oral one and that the same was never reduced to writing, much less registered with the Registry

of Deeds. In fact, even the lease contract by which respondents derive their right to possess the property involved was an oral one. Evidence

on record fails to show that petitioners acted in bad faith in entering into the deed of sale over the disputed property.

There is no specific performance in the deed of sale. Rescission, not available. Damages here,

are available, but of course the ones who are liable, not Rosencor, because it is in good faith, but rather the owners and the heirs Tiancos.

VAZQUEZ vs. AYALA CORPORATION FACTS: On April 23, 1981, spouses Daniel

Vasquez and Ma. Luisa M. Vasquez (hereafter, Vasquez spouses) entered into a Memorandum of Agreement (MOA) with Ayala Corporation

(hereafter, AYALA) with AYALA buying from the Vazquez spouses, all of the latter's shares of

stock in Conduit Development, Inc. (hereafter, Conduit). The main asset of Conduit was a 49.9 hectare property in Ayala Alabang, Muntinlupa,

which was then being developed by Conduit under a development plan where the land was divided into Villages 1, 2 and 3 of the "Don

Vicente Village." The development was then being undertaken for Conduit by G.P. Construction and Development Corp.

Under the MOA, Ayala was to develop the entire property, less what was defined as the

"Retained Area" consisting of 18,736 square meters. This "Retained Area" was to be retained by the Vazquez spouses. The area to be

developed by Ayala was called the "Remaining Area". In this "Remaining Area" were 4 lots adjacent to the "Retained Area" and Ayala

agreed to offer these lots for sale to the Vazquez spouses at the prevailing price at the time of purchase. Among the relevant provisions of the

MOA on this point is: 5.15. The BUYER agrees to give the SELLERS

a first option to purchase four developed lots next to the "Retained Area" at the prevailing market price at the time of the purchase."

Taking the position that Ayala was obligated to sell the 4 lots adjacent to the "Retained Area"

within 3 years from the date of the MOA, the Vasquez spouses sent several "reminder" letters of the approaching so-called deadline. However,

no demand after April 23, 1984, was ever made by the Vasquez spouses for Ayala to sell the 4 lots. On the contrary, one of the letters signed by

their authorized agent, Engr. Eduardo Turla, categorically stated that they expected "development of Phase 1 to be completed by

February 19, 1990, three years from the settlement of the legal problems with the previous contractor."

By early 1990 Ayala finished the development of the vicinity of the 4 lots to be offered for sale.

The four lots were then offered to be sold to the Vasquez spouses at the prevailing price in 1990. This was rejected by the Vasquez spouses who

wanted to pay at 1984 prices, thereby leading to a suit. The court ordered Ayala to sell to the Vazquez

the relevant lots described in the Complaint in the Ayala Alabang Village at the price of P460.00 per square meter amounting to

P1,349,540.00. In its decision, the court a quo concluded that

the option to purchase the 4 lots is valid because it was supported by consideration as the option is incorporated in the MOA where the parties

had prestations to each other. ISSUE: Whether or not paragraph 5.15 of the

MOA can properly be construed as an option contract or a right of first refusal.

HELD: Paragraph 5.15 of the MOA is a mere right of first refusal.


The Court has clearly distinguished between an option contract and a right of first refusal. An

option is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or

to decide whether or not to enter into a principal contract. It binds the party who has given the option not to enter into the principal contract with

any other person during the period designated, and within that period, to enter into such contract with the one to whom the option was granted, i f

the latter should decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon the

consummation of the option. It must be supported by consideration.

In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not

only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to

be firmed up. Applied to the instant case, paragraph 5.15 is

obviously a mere right of first refusal and not an option contract. Although the paragraph has a definite object, i.e., the sale of subject lots, the

period within which they will be offered for sale to petitioners and, necessarily, the price for which the subject lots will be sold are not

specified. The phrase "at the prevailing market price at the time of the purchase" connotes that there is no definite period within which Ayala

Corporation is bound to reserve the subject lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or

determinable price at which the subject lots will be offered for sale. The price is considered certain if it may be determined with reference to

another thing certain or if the determination thereof is left to the judgment of a specified person or persons.

Further, paragraph 5.15 was inserted into the MOA to give petitioners the first crack to buy the

subject lots at the price which Ayala Corporation would be willing to accept when it offers the subject lots for sale. It is not supported by an

independent consideration. As such it is not governed by Articles 1324 and 1479 of the Civil Code, viz:

Art. 1324. When the offeror has allowed the offeree a certain period to accept, the offer may

be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as

something paid or promised. 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 thing for a price certain is binding upon the promissor i f the promise is supported

by a consideration distinct from the price. Consequently, the "offer" may be withdrawn

anytime by communicating the withdrawal to the other party.

In this case, Ayala Corporation offered the subject lots for sale to petitioners at the price of P6,500.00/square meter, the prevailing market

price for the property when the offer was made on June 18, 1990. Insisting on paying for the lots at the prevailing market price in 1984 of

P460.00/square meter, petitioners rejected the offer. Ayala Corporation reduced the price to P5,000.00/square meter but again, petitioners

rejected the offer and instead made a counter-offer in the amount of P2,000.00/square meter. Ayala Corporation rejected petitioners '

counter-offer. With this rejection, petitioners lost their right to purchase the subject lots.

It cannot, therefore, be said that Ayala Corporation breached petitioners ' right of first refusal and should be compelled by an action for

specific performance to sell the subject lots to petitioners at the prevailing market price in 1984.

Provision 5.15, is it an option contract or a right

of first refusal? Why? The paragraph 5.15, although it has a definite

object the period within which they are offered for sale to the petitioners the price however period within which they will be offered for sale

and necessarily the price are not specified. Again in an option contract, the who was given, or the promisee/optionee in an option contract

originally knows the purchase price. All he has to do is whether to accept that offer. But in the right of first refusal, there is no price yet. The phrase

at the prevailing market price at the time of the purchase connotes that there is no definite period within which Ayala Corporation is bound

to reserve the subject lots for petitioners to exercise their privilege to purchase. Neither is there a fixed or determinable price at which the

subject lots will be offered for sale. The price is considered certain if it may be determined with reference to another thing certain or i f the

determination thereof is left to the judgment of a specified person or persons, but the same was not applicable to what they have agreed upon.

Also, here, the right that was given herein was not supported by an independent consideration so there could be no valid option contract.

Now whether or not there was a violation of this right of first refusal. There was no violation.

There was an offer for P6,500.00/square meter, however they insisted on the previous prevailing market price of of P460.00/square meter;

counter offer, P5,000.00/square meter but again, petitioners rejected the offer and instead made a counter-offer in the amount

of P2,000.00/square meter. Ayala Corporation rejected petitioners counter-offer. With this rejection, petitioners lost their right to purchase


the subject lots but without violation to the right of first refusal.

Take note that in an option contract: In a consideration, the burden of proof is upon the

optionee to show that there is a separate consideration for an option contract. This is an exception to the general rule that you have

under contracts. Kasi nga diba “contrac ts are presumed to have a consideration.” It is not even required that it has to be stated in the contract.

But here, when it comes to an option contract, you have to show proof that indeed there was a separate consideration.

TANAY RECREATION CENTER AND DEVELOPMENT CORP. vs. CATALINA

MATIENZO FAUSTO G.R. No. 140182. April 12, 2005

FACTS: Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter property located in Sitio

Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease. On this property stands the Tanay Coliseum Cockpit

operated by petitioner. The lease contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The

contract also provided that should Fausto decide to sell the property, petitioner shall have the “priority right” to purchase the same.

On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease. However, it was Fausto’s daughter, respondent

Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built thereon, as she is now the absolute owner of the

property. It appears that Fausto had earlier sold the property to Pacunayen and title has already been transferred in her name. Petitioner filed an

Amended Complaint for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction.

In her Answer, respondent claimed that petitioner is estopped from assailing the validity

of the deed of sale as the latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent,

when they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and it even asked for

grace period to vacate the premises. ISSUE: The contention in this case refers to

petitioner’s priority right to purchase, also referred to as the right of first refusal.

HELD: When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to anybody at any price

until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the

lessor's first offer shall be in his favor. Petitioner’s right of first refusal is an integral and indivisible part of the contract of lease and is

inseparable from the whole contract. The consideration for the lease includes the

consideration for the right of first refusal and is built into the reciprocal obligations of the parties.

It was erroneous for the CA to rule that the right of first refusal does not apply when the property

is sold to Fausto’s relative. When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed

upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms other than the contents

of the written agreement, except when it fails to express the true intent and agreement of the parties. In this case, the wording of the

stipulation giving petitioner the right of first refusal is plain and unambiguous, and leaves no room for interpretation. It simply means that

should Fausto decide to sell the leased property during the term of the lease, such sale should first be offered to petitioner. The stipulation does

not provide for the qualification that such right may be exercised only when the sale is made to strangers or persons other than Fausto’s kin.

Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to sell the property to anybody, even her

relatives, at any price until after she has made an offer to sell to petitioner at a certain price and said offer was rejected by petitioner.

Q: Was it established that there was really a right of first refusal in favor of Tanay?

A: Yes. Even if Fausto died pending litigation, this does not end the right of first refusal to Tanay. In fact, the death of Fausto transmitted

the rights and obligations with regard to the contract of sale, and that includes the right of first refusal.

Q: What was the remedy here? A: The SC held in case the contract of sale is executed in violation of a right of first refusal, it is

actually valid but it is RESCISSIBLE and it may also be subject to specific performance. Q: But in order for the subsequent sale to be

rescinded, it is required that the subsequent buyer must be in bad faith? Was there bad faith here?

A: No. But the contract of sale may still be rescinded based on (??? Kindly read the case. Reporter was unable to answer)

Q: Can Tanay here be not considered in estoppel in recognizing the sale made in favor of the daughter?

A: The estoppel must be intentional and unequivocal and the facts of this case show Tanay here still made assertions and recognized

that the property was still owned by Fausto. Q: Can there be specific performance for the heirs to sell the same property in favor of

Tanay? A: Yes, but the SC ruled that the offer should be different than that which is given to the daughter.

Q: Why? A: As a general rule, in ordinary cases the basis for the amount of the offer should be the same


as to what is offered to prospective buyers. However in this case, the Court took into

consideration that this is not an ordinary case because this involves a sale between a mother and daughter and thus the price of the sale was

only for a measly sum of 10,000. So the court held that this is highly unequitable and therefore this should not be the same offer given to Tanay.

So in this case, there was as right of first refusal and the sale in favor of the daughter was

deemed to be in violation. Because in the right of first refusal agreement, there was no exception that it will not cover any sale in favor of a

relative. So it did not provide for a qualification that such right may be exercised only when the sale is made to strangers. So therefore there

was a violation of the right of first refusal. Take note that the subsequent sale made in

violation of a right of first refusal is VALID however it may be RESCINDED or as in this case, it may be the subject of an action for

specific performance for the execution of a deed of sale in favor of the one who is given a right of first refusal. In this case, the daughter is deemed

to be covered by the contract because the lease contract with the right first of refusal was not personal in character. It involves right and

obligations transmissible to the heirs and in fact respondent was also aware right to the priority of the sale.

However take note an offer under identical terms and conditions, while that is the rule in a right of

first refusal, in this case it would be highly inequitable. The property was sold in 1990 and for 10,000. Obviously it is a small amount

because the sale made between a mother and a daughter. So here, the offer to be made to petitioner should be under reasonable terms and

conditions, taking into account the fair market value of the property at the time it was sold to the respondents.

ESTATE OF LLENADO VS EDUARDO LLENADO ET AL

MARCH 4, 2009 G.R. No. 145736

FACTS: The subject of this controversy is a parcel of land denominated as Lot 249-D-1 (subject lot) registered in the names of Eduardo

and Jorge Llenado. The subject lot once formed part of Lot 249-D owned by and registered in the name of their father, Cornelio Llenado.

Cornelio leased Lot 249-D-1 to his nephew, Romeo. On March 31, 1978, Cornelio, Romeo

and the latter’s cousin Orlando executed an Agreement whereby Romeo assigned all his rights to Orlando. The parties further agreed

that Orlando shall have the option to renew the lease contract and that during the period that the agreement is enforced, the property cannot be

sold, transferred, alienated or conveyed in whatever manner to any third party. Orlando died and his wife, Wenifreda, took over the

operation of the gasoline station. Cornelio sold Lot 249-D to his children through a deed of sale,

denominated as “Kasulatan sa Ganap Na Bilihan,” for the sum of P160k. Lot 249 -D-1 was sold to Eduardo and Jorge.

Eduardo informed Wenifreda of his desire to take over the subject lot, but the latter refused to

vacate the premises despite repeated demands. Thus, Eduardo filed a complaint for unlawful detainer against Wenifreda. After Eduardo

instituted the unlawful detainer case, Wenifreda instituted a complaint for annulment of deed of conveyance, title and damages against Eduardo

and Jorge. Petitioner alleged that the transfer and

conveyance of the subject lot was fraudulent and in bad faith considering that the subject lot was transferred and conveyed to his sons when the

lease was in full force and effect making the sale null and void; that Cornelio verbally promised Orlando that Orlando or his heirs shall have first

priority or option to buy the subject lot. Respondents claimed that they bought the subject lot from their father for value and in good

faith. ISSUE: Whether or not the sale of the subject lot

by Cornelio to his sons is invalid for (1) violating the prohibitory clause in the lease agreement between Cornelio, as lessor-owner, and

Orlando, as lessee; and (2) contravening the right of first refusal of Orlando over the subject lot.

HELD: No. Sale was valid. Under Article 1311 of the Civil Code, the heirs are bound by the

contracts entered into by their predecessors-in-interest except when the rights and obligations therein are not transmissible by their nature, by

stipulation or by provision of law. A contract of lease is generally transmissible to the heirs of the lessor or lessee. It involves a property right

and the death of a party does not excuse non-performance of the contract. The rights and obligations pass to the heirs of the deceased

and the heir is bound to respect the period of the lease.

The parties expressly stipulated in the March 31, 1978 Agreement that Romeo, as lessee, shall transfer all his rights and interests under the

lease contract with option to renew “in favor of the party of Orlando, the latter’s heirs, successors and assigns” indicating the clear

intent to allow the t ransmissibility of all the rights and interests of Orlando under the lease contract unto his heirs, successors or assigns.

The rights and obligations under the lease contract with option to renew were transmitted from Orlando to his heirs upon his death. It does

not follow, however, that the lease subsisted at the time of the sale of the subject.

The election of the option to renew the lease in this case cannot be inferred from petitioner Wenifreda’s continued possession of the subject


lot. It was incumbent upon Wenifreda with the burden of proof during the trial below to establish

by some positive act that Orlando or his heirs exercised the option to renew the lease. SC held that there was no evidence presented

before the trial court to prove that Orlando or his heirs exercised the option to renew prior to or at the time of the expiration of the lease. As a

result, there was no obstacle to the sale of the subject lot by Cornelio to respondents Eduardo and Jorge as the prohibitory clause under the

lease contract was no longer in force. On the issue on the right of first refusal of

Orlando and his heirs, SC held that no testimonial evidence was presented to prove the existence of said right. The claims based on this

alleged right of first refusal cannot be sustained for its existence has not been duly established.

Q: Was it established that there was a right of first refusal? A: No. Winifreda was unable to establish by

evidence that there was a verbal grant by Cornelio. Q: But didn’t we already discuss that an oral

grant of a right of first refusal is valid? A: Yes. In this case, the SC pointed out the ruling in Rosencor that while an oral agreement

as to a right of first refusal is not covered by the Statute of Frauds. However in this case, the SC was unable to find any evidence showing proof

of the existence of the said oral agreement. In this case, just take note that there was a

mention here of a special law with regard to expropriation of property wherein the tenants therein are given the right of first refusal or the

preferential right to buy the leased premises. But that is a special law wherein there must be approval of the court, which is absent in this

case. And in fact this issue was raised when the case already reached the SC.

Nevertheless, the SC still held that there was no right of first refusal under the facts of this case. While it is true that a right of first refusal may be

entered into orally (in other words, for it to be enforceable, it need not be in writing), the SC ruled here that there was no evidence to prove

the existence of said right, as compared to the case of Rosencor wherein there were several witnesses who established the existence of such

right and the fact that there was the letter of one of the heirs offering the property for sale to the tenants before it was sold to other third persons,

again establishing the existence of the right of first refusal.

In this case, there was no evidence and neither was it established that respondents were aware of such promise prior to or at the time of the

sale. On the contrary, respondents denied the existence of said promise for lack of knowledge therefore. Petitioner’s claim based on the

alleged right of first refusal cannot be sustained for its existence was not established.

So that’s the right of first refusal. It’s an innovative juridical relation. It cannot be deemed

a contract of sale neither can it be brought in option contracts nor can it be deemed an offer because there is no clear certainty of the object,

cause or consideration. It can be considered a clash of preparatory juridical relations governed by scattered provisions under the law, among

other laws of general application. An integral part usually of contracts of lease of

real estate, it has no separate consideration as the consideration therefor is built into the reciprocal obligations of the parties. So the basis

of this is the current offer by the lessor and the offer purchase by any prospective buyer. No separation consideration is needed unlike in

option contracts since such stipulation is part and parcel of a contract of lease.

Now we go on to the next topic…

PERFECTION STAGE

Article 1475. 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. From that moment, the parties may

reciprocally demand performance, subject to the provisions of the law governing the form of contracts. (1450a)

Article 1305. 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.

Article 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.

Notice that this is the same, more or less, with the general law with regard to contracts under Article 1305. However Article 1475 and Article

1458 are more specific when it comes to contracts of sale.

We know that a sale is perfected from the moment there is a meeting of the minds upon the thing which is the object of the contract and

upon the price. From that moment, the parties may reciprocally demand performance subject to the law governing obligations and contracts.

Consent is a state of mind. Its existence may only be inferred upon the congruence of two acts

of the parties. An offer must be certain as to the object and the consideration and the acceptance of the offer must be absolute. It must refer to the

exact object and consideration mentioned in the said offer. Consent must be given intelligently and spontaneously. There must be consent as to


the subject matter as well from the contracting parties who are legally capacitated to enter into

a contract.

Take note of the elements of a valid offer:

It must be complete

Definite as to the certainty of price and identity of the object

It must be intentional

A qualified acceptance or one that involves a new proposal constitutes a counter-offer and

does not result to a perfected contract of sale but rather, it is a rejection of the original offer. The acceptance must be identical in all respect

with that of the offer in order to produce consent or meeting of the minds.

So we have here the case of…

HEIRS OF IGNACIO VS. HOME BANKERS

SAVINGS AND TRUST CO. G.R. NO. 177783 , JANUARY 23, 2013

FACTS: The case sprang from a real estate mortgage of two parcels of land in August 1981. Fausto C. Ignacio mortgaged the properties to

Home Bankers Savings and Trust Company (Bank) as security for a loan extended by the Bank. After Ignacio defaulted in the payment of

the loan, the property was foreclosed and subsequently sold to the Bank in a public auction.Ignacio offered to repurchase the

property. Universal Properties Inc. (UPI), the bank’s collecting agent sent Ignacio a letter on March 22, 1984 which contained the terms of the

repurchase. However, Ignacio annotated in the letter new terms and conditions. He claimed that these were verbal agreements bet ween himself

and the Bank’s collection agent, UPI.No repurchase agreement was finalized between Ignacio and the Bank. Thereafter the Bank sold

the property to third parties. Ignacio then filed an action for specific performance against the Bank for the reconveyance of the properties after

payment of the balance of the purchase price. He argued that there was implied acceptance of the counter-offer of the sale through the receipt

of the terms by representatives of UPI. The Bank denied that it gave its consent to the counter-offer of Ignacio. It countered that it did not

approve the unilateral amendments placed by Ignacio.

ISSUE: Whether or not the negotiations between Ignacio and UPI is binding on the Bank.

HELD: 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, as an independent source

of obligation, serve as a binding juridical relation between the parties.

A contract of sale is perfected only when there is consent validly given. There is no consent when

a party merely negotiates a qualified acceptance or a counter-offer. An acceptance must reflect all

aspects of the offer to amount to a meeting of the minds between the parties. In this case, while it is apparent that Ignacio proposed new

terms and conditions to the repurchase agreement, there was no showing that the Bank approved the modified offer.

In the absence of conformity or acceptance by properly authorized bank officers of petitioner's

counter-proposal, no perfected repurchase contract was born out of the talks or negotiations between petitioner and Mr. Lazaro and Mr.

Fajardo. Petitioner therefore had no l egal right to compel respondent bank to accept the P600,000 being tendered by him as payment for the

supposed balance of repurchase price. The negotiations between Ignacio and UPI, the

collection agent, were merely preparatory to the repurchase agreement and, therefore, was not binding on the Bank. Ignacio could not compel

the Bank to accede to the repurchase of the property.

A corporation may only give valid acceptance of an offer of sale through its authorized officers or agents. Specifically, a counter-offer to

repurchase a property will not bind a corporation by mere acceptance of an agent in the absence of evidence of authority from the corporation’s

board of directors.

Q: Was there a definite offer?

A: There was an offer made by UPI however this offer was annotated on by Ignacio. These annotations made by Ignacio constituted a

counter offer to the initial proposal of UPI. Q: When you say annotation, why would it mean that there was a rejection of the offer on the part

of the bank? A: Because he changed the agreed upon purchase price and presented a new purchase

price. Because of this change in the purchase price, there was a counter offer and this counter offer had to be accepted by the bank’s

representatives in order for it to constitute a perfected contract of repurchase. In this case, even if the annotations were made in the

presence of the representatives, these representatives were not the ones who were authorized to accept the counter proposal.

Again, the offer must be definite and the acceptance must be absolute to give rise to a

perfected contract of sale. While it is true that there is a proposal to repurchase and this proposal was deemed to be a definite offer on

the part of the bank, it appears that Ignacio did not absolutely accept the said offer as he made an annotation on the said letter wherein he

changed the purchase price to 900k plus the down payment and in fact, there was a condition that such will depend on his financial position.

Clearly, there was no absolute acceptance on the part of Ignacio.


With that counter-offer, there must have been an acceptance on the part of the bank to give rise to

a perfected contract of sale. In this case there was none. The qualified acceptance by the petitioner as his counterproposal was not

accepted by the bank. There is no evidence showing the bank officers conformity with the bank’s officers with the said counter-proposal.

Again, take note, parties who enter into a contract of sale must be legally capacitated.

When it comes to corporations, the persons entering into a contract of sale must be legally capacitated. When it comes corporations

entering into a contract of sale, it must be entered into by a person duly authorized by the corporation. In this case, no evidence was

shown that the persons who were present when Ignacio made the notations were authorized by the bank or the Board of Directors to accept the

counter-proposal to repurchase the foreclosed property.

No perfected repurchase contract was born out of the talks or negotiations between the petitioner and Fajardo. There were no evidence

that he was authorized by the bank. Therefore he had no legal right to compel the bank to accept the 600k for the balance of the purchase

price. Again a contract of sale is consensual in nature

but when there is only offer by one party without acceptance of the other, there is no contract and if the contract is not perfected, it cannot be an

independent source of obligation.

VILLONCO REALTY COMPANY vs

BORMAHECO, INC., FRANCISCO N. CERVANTES and ROSARIO N. CERVANTES

G.R. No. L-26872 July 25, 1975

FACTS: Cervantes and his wife owned 3 parcels of land along Buendia where he buildings of Bormaheco Inc were situated. Beside their

property were lots owned by Villonco Realty. Cervantes entered into several negotiations with Villonco for sale of the Buendia property.

Cervantes made a written offer of P400/sqm with a downpayment of P100,000 to serve as earnest money. The offer also made the consummation

of the sale dependent upon the acquisition by Bormaheco of a Sta. Ana property. Villonco made a counter-offer stating that the earnest

money was to earn 10% interest p.a. The check was enclosed with the reply letter. Cervantes accepted and cashed the check. The Sta. Ana

Property was awarded to Bormaheco; the transfer was also duly approved. However, Cervantes sent the check back to Villonco with

the interest thereon—stating that he was no longer interested in selling the property. He also claims that no contract was perfected; Villonco

sues for specific performance. ISSUE: W/N there was a perfected contract of

sale

HELD: YES. There was a perfected contract of sale. 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. From that moment, the parties

may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.” (Art. 1475 Ibid).

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the

cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a

counter-offer” (Art. 1319, Civil Code). “An acceptance may be express or implied” (Art. 1320, Civil Code).

A contract is formed if offer is accepted, whether request for changes in terms is granted or not;

Change does not amount to rejection of offer or a counter-offer. An acceptance may contain a request for certain changes in the terms of the

offer and yet be a binding acceptance. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the

offer, whether such request is granted or not, a contract is formed.

The vendor’s change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount

to a rejection of the offer and the tender or a counter-offer.” (The alleged changes made in the counter-offer are immaterial and are mere

clarifications. The changes of the words “Sta. Ana property” to another property as well as the insertion of the number “12” in the date, and the

words “per annum” in the interest are trivial. There is no incompatibility in the offer and counter-offer. Cervantes assented to the interest

and he, in fact, paid the same. Also, earnest money constitutes prood of the perfection of the contract of sale and forms part of the

consideration. The condition regarding the acquisition of the Sta. Ana property was likewise fulfilled; there is thus no ground for the refusal of

Cervantes to consummate the sale.

Q: But isn’t it that there were qualifications and

conditions that were imposed that would change the previous offer that was given? A: Yes. However the corrections or modifications

were not substantial enough. Q: What were these corrections? A: The 10% interest per annum basis.

Q: How about the earnest money? A: The earnest money was considered as earnest money since it was already accepted by

Bormaheco. It was also cashed without opposition.

The mere fact of the acceptance of the earnest money was not the reason of the perfection of the contract of sale. It just supported the fact that

there was a meeting of the minds. There was an acceptance of the offer to purchase the property and therefore, there was a meeting of the minds.


The vendor’s acceptance of the partial payment shows that the sale was conditionally

consummated. They were able to show that there was already meeting of the minds and the acceptance of the earnest money showed or

supported such finding. Changes or qualifications here were not material

but were merely clarifications of what the parties agreed upon and such changes would not prevent the perfection of the contract. As to the

interest, nilagyan lang nila ng per annum “payee” after the word “interest”, therefore there is no substantial change. The vendor’s change

in the phrase of the offer to purchase does not essentially change the terms of the offer and did not amount to the rejection of the offer or be

considered as a counter-offer. The 45-day term was not part of the condition

that the other property should be acquired. The statement cannot and should not be that the vendor should acquire the other property within

the 45-day period. This simply means that after 45 days, it would be known whether the vendor would be able to acquire the other property and

whether it would be able to sell the property subject of the sale. In this case, you have a perfected contract of sale.

Now we go to SALE BY AUCTION, we go to Art 1476 of the Civil Code

Art. 1476. In the case of a sale by auction: (1) Where goods are put up for sale by

auction in lots, each lot is the subject of a separate contract of sale. (2) A sale by auction is perfected when the

auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made,

any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced

to be without reserve. (3) A right to bid may be reserved expressly by or on behalf of the seller, unless

otherwise provided by law or by stipulation. (4) Where notice has not been given that a sale by auction is subject to a right to bid on

behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his

behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any

bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. (n)

So you have the guidelines with regard to sale by auction. It is perfected when the auctioneer

announces the auction by the fall of the hammer or in any other customary manner.

In relation to 1476, you have 1403, paragraph 2(d).

Article 1403. The following contracts are unenforceable, unless they are ratified:

xxxxx (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the

following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or

memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement

cannot be received without the writing, or a secondary evidence of its contents: xxxxx

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the

buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the

time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at

the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose

account the sale is made, it is a sufficient memorandum;

We also have Art 1326

Article 1326. Advertisements for bidders are

simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary

appears.

In Art 1476, the bidder may ret ract his bid and

the auctioneer may withdraw the goods unless the auction has been announced to be “without reserve.” What do you mean by the term

“without reserve?” The goods cannot be withdrawn from the sale after a bid is made. The seller as a general rule is not allowed to

participate in the bidding to avoid popping of the price. Pag auction ka di ba you offer 100, then may magsabi 150.

If you have a seller therein, this would be just to pop up the price. The reason for this prohibition

is that secret employment of poppers, whether the seller himself or some other person, as a conduit for the purpose of enhancing the price

renders the sale fraudulent. However the seller may be allowed to participate upon notice of such fact because here the other bidders will not

be prejudiced. They are aware that somebody acts for and in behalf of the seller, probably to count the price. Another exception is when

provided by law or stipulation. 4. EARNEST MONEY

Art. 1482. 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. (1454a)


In Serrano v. Caguiat, it was held that the presumption under Article 1482 does not apply

when earnest money is given in a contract to sell.

Villonco v. Bormaheco, held that even when the sale is subject to a condition, the acceptance of the earnest money would prove that the sale is

conditionally consummated or partly executed subject to the fulfillment of the condition, the nonfulfillment of which would be a negative

resolutory condition. 5. DIFFERENCE BETWEEN EARNEST

MONEY AND OPTION MONEY Adelfa Properties, Inc. v. Court of Appeals,

enumerates the distinctions between earnest money and option money, viz.: (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.

OESMER VS. PARAISO

FACTS: Petitioners Rizalino, Ernesto, Leonora, Bibiano, Jr., Librado, Enriqueta, Adolfo, and

Jesus, all surnamed Oesmer together with Adolfo Oesmer (Adolfo) and Jesus Oesmer (Jesus), are brothers and sisters, and the co-

owners of undivided shares of two parcels of agricultural and tenanted land. Both lots are unregistered and originally owned by their

parents, Bibiano Oesmer and Encarnacion Durumpili. When the spouses Oesmer died, petitioners, together with Adolfo and Jesus,

acquired the lots as heirs of the former by right of succession.

Respondent Paraiso Development Corporation is engaged in the real estate business. In March 1989, one Rogelio Paular, brought along

petitioner Ernesto to meet with a certain Sotero Lee, President of respondent Paraiso Development Corporation. The said meeting

was for the purpose of brokering the sale of petitioners’ properties to Respondent Corporation.

Pursuant to the said meeting, a Contract to Sell was drafted by the Executive Assistant of Lee.

On 1 April 1989, petitioners Ernesto and Enriqueta signed the aforesaid Contract to Sell. A check in the amount of P100,000.00, payable

to Ernesto, was given as option money. Sometime thereafter, Rizalino, Leonora, Bibiano,

Jr., and Librado also signed the said Contract to Sell. However, two of the brothers, Adolfo and Jesus, did not sign the document.

Petitioners, through a letter, informed the

respondent company of their intention to rescind the Contract to Sell and to return the amount of P100,000.00 given by respondent as option

money. Respondent did not respond to the aforesaid letter. Subsequently, the petitioners, together with Adolfo and Jesus, filed a

Complaint for Declaration of Nullity or for Annulment of Option Agreement or Contract to Sell with Damages.

ISSUE: (1) WON the supposed Contract to Sell is really

a unilateral promise to sell without consideration distinct from the price, and hence, void. (NO, it is indeed a Contract to Sell.)

(2) WON the consideration of P100K paid is an option money. (It is an earnest money.)

HELD: 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. 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.

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.

Sale Deemed Perfected Where Offer Was

Made

FORMAL REQUIREMENTS OF SALE

1. Form not Important for Validity of Sale

DALION VS. CA

FACTS: This is a petition to annul and set aside the decision of the Court of Appeals rendered on

May 26, 1987, upholding the validity of the sale of a parcel of land by petitioner Segundo Dalion (hereafter, "Dalion") in favor of private


respondent Ruperto Sabesaje, Jr. (hereafter, "Sabesaje").

On May 28, 1973, Sabesaje sued to recover ownership of a parcel of land, based on a private

document of absolute sale, dated July 1, 1965, allegedly executed by Dalion, who, however denied the fact of sale, contending that the

document sued upon is fictitious, his signature thereon, a forgery, and that subject land is conjugal property, which he and his wife

acquired in 1960 from Saturnina Sabesaje as evidenced by the "Escritura de Venta Absoluta".

The spouses denied claims of Sabesaje that after executing a deed of sale over the parcel of land, they had pleaded with Sabesaje, their

relative, to be allowed to administer the land because Dalion did not have any means of livelihood. They admitted, however,

administering since 1958, five (5) parcels of land in Sogod, Southern Leyte, which belonged to Leonardo Sabesaje, grandfather of Sabesaje,

who died in 1956. They never received their agreed 10% and 15%

commission on the sales of copra and abaca, respectively. Sabesaje's suit, they countered, was intended merely to harass, preempt and

forestall Dalion's threat to sue for these unpaid commissions. Dalion nonetheless still impugns the validity of the sale on the ground that the

same is embodied in a private document, and did not thus convey title or right to the lot in question since "acts and contracts which have

for their object the creation, transmission, modification or extinction of real rights over immovable property must appear in a public

instrument." ISSUE: Whether or not the sale is valid?

HELD: Yes. The provision of Art. 1358 on the necessity of a public document is only for

convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied

in a public instrument. A contract of sale is a consensual contract, which means that the sale is perfected by mere consent. No particular form

is required for its validity. Upon perfection of the contract, the parties may reciprocally demand performance (Art. 1475, NCC), i.e., the vendee

may compel transfer of ownership of the object of the sale, and the vendor may require the vendee to pay the thing sold (Art. 1458, NCC).

The trial court thus rightly and legally ordered Dalion to deliver to Sabesaje the parcel of land and to execute corresponding formal deed of

conveyance in a public document. Under Art. 1498, NCC, when the sale is made through a public instrument, the execution thereof is

equivalent to the delivery of the thing. Delivery may either be actual (real) or constructive. Thus delivery of a parcel of land may be done by

placing the vendee in control and possession of the land (real) or by embodying the sale in a public instrument (constructive).

What is the difference between private and

public instrument? Private – agreement made by the parties and not notarized

Public – notarized agreement Is it required that sale of real property be in

public document? NO. Indeed Article 1358 of the Civil Code provides

that “acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable

property” must appear in a public document; however, it specifically provides that “sales of real property or an interest therein are governed

by Articles 1403, No. 2, and 1405.” The same article also provides that all other contracts not enumerated therein where the amount involved

exceeds 5,000.00 must appear in writing, even a private one, “but sales of goods, chattels or things in action are governed by Articles 1403,

No. 2 and 1405.” Despite the seemingly mandatory provisions of

Article 1358, Dalion v. Court of Appeals held that the provisions thereof on the necessity of public document are for purposes of convenience,

not for validity or enforceability. Thus, even documents enumerated under Article 1358 which are not found in a public instrument are

still valid and enforceable, and that the article merely grants a cause of action to the party to the contract in a suit to sue to

compel the other party to have the document covering the contract, acknowledged before a notary public. Both Articles 1357 and 1406 of

the Civil Code refer to Article 1358, and provide that when a contract is enforceable under the Statute of Frauds, and a public document is

necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right and remedy to compel the other party to

observe such form, and such remedy may be exercised simultaneously with the action upon the contract.

Why Art. 1358 requires public instrument? To affect 3

rd persons.

Take note Art 1358 is not for validity but merely for convenience. TAKE NOTE HA.

Art. 1357. If the law requires a document or other special form, as in the acts and

contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract

has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a)

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights


over immovable property; sales of real property or of an interest therein a governed

by Articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the

conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act

appearing or which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But

sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. (1280a)

NARANJA VS. CA

FACTS: Roque Naranja was the registered owner of a parcel of land, Bacolod. Roque was also a co-owner of an adjacent lot (Lot No. 2)

which he co-owned with his brothers, Gabino and Placido Naranja.

When Placido died, his one-third share was inherited by his children, Nenita, Nazareto, Nilda, Naida and Neolanda, all surnamed

Naranja, herein petitioners. The adjacent lot is covered by TCT No. T-18762 in the names of Roque, Gabino and the said children of Placido.

TCT No. T-18762 remained even after Gabino died. The other petitioners — Serafin Naranja, Raul Naranja, and Amelia Naranja-Rubinos —

are the children of Gabino. The two lots were being leased by Esso

Standard Eastern, Inc. for 30 years from 1962-1992. For his properties, Roque was being paid P200.00 per month by the company.

Roque had no other source of income except for the P200.00 monthly rental of his two properties.

To show his gratitude to Belardo, Roque sold Lot No. 4 and his one-third share in Lot No. 2 to Belardo on August 21, 1981, through a Deed of

Sale of Real Property which was duly notarized by Atty. Eugenio Sanicas.

Roque’s copies of TCT No. T-18764 and TCT No. T-18762 were entrusted to Atty. Sanicas for registration of the deed of sale and transfer of

the titles to Belardo. But the deed of sale could not be registered because Belardo did not have the money to pay for the registration fees.

Belardo’s only source of income was her store and coffee shop. Sometimes, her children would

give her money to help with the household expenses, including the expenses incurred for Roque’s support. At times, she would also

borrow money from Margarita Dema-ala, a neighbor.

When the amount of her loan

reached P15,000.00, Dema-ala required a security.

Roque executed a deed of sale in favor of Dema-ala, covering his two properties in

consideration of the P15,000.00 outstanding loan and an additional P15,000.00, for a total ofP30,000.00. Dema-ala explained that she

wanted Roque to execute the deed of sale himself since the properties were still in his name. Belardo merely acted as a witness. The

titles to the properties were given to Dema-ala for safekeeping.

Three days later, Roque died of influenza. The

proceeds of the loan were used for his treatment while the rest was spent for his burial.

In 1985, Belardo fully paid the loan secured by the second deed of sale. Dema-ala returned the certificates of title to Belardo, who, in turn, gave

them back to Atty. Sanicas.

Unknown to Belardo, petitioners, the children of

Placido and Gabino Naranja, executed an Extrajudicial Settlement Among Heirs

on

October 11, 1985, adjudicating among

themselves Lot No. 4. On February 19, 1986, petitioner Amelia Naranja-Rubinos, accompanied by Belardo, borrowed the two

TCTs, together with the lease agreement with Esso Standard Eastern, Inc., from Atty. Sanicas on account of the loan being proposed by

Belardo to her. Thereafter, petitioners had the Extrajudicial Settlement Among Heirs notarized on February 25, 1986. With Roque’s copy of

TCT No. T-18764 in their possession, they succeeded in having it cancelled and a new certificate of title, TCT No. T-140184, issued in

their names.

In 1987, Belardo decided to register the Deed of

Sale dated August 21, 1981. With no title in hand, she was compelled to file a petition with the RTC to direct the Register of Deeds to

annotate the deed of sale even without a copy of the TCTs. In an Order dated June 18, 1987, the RTC granted the petition. But she only

succeeded in registering the deed of sale in TCT No. T-18762 because TCT No. T-18764 had already been cancelled.

On December 11, 1989, Atty. Sanicas prepared a certificate of authorization, giving Belardo’s

daughter, Jennelyn P. Vargas, the authority to collect the payments from Esso Standard Eastern, Inc. But it appeared from the

company’s Advice of Fixed Payment that payment of the lease rental had already been transferred from Belardo to Amelia Naranja-

Rubinos because of the Extrajudicial Settlement Among Heirs.

On June 23, 1992, Belardo, through her daughter and attorney-in-fact, Rebecca Cordero, instituted a suit for reconveyance with damages.

The complaint prayed that judgment be rendered declaring Belardo as the sole legal owner of Lot No. 4, declaring null and void the Extrajudicial


Settlement Among Heirs, and TCT No. T-140184, and ordering petitioners to reconvey to

her the subject property and to pay damages. Subsequently, petitioners also filed a case

against respondent for annulment of sale and quieting of title with damages, praying, among others, that judgment be rendered nullifying the

Deed of Sale, and ordering the Register of Deeds of Bacolod City to cancel the annotation of the Deed of Sale on TCT No. T-18762.

The RTC rendered a Decision in the consolidated cases in favor of petitioners. The

trial court noted that the Deed of Sale was defective in form since it did not contain a technical description of the subject properties

but merely indicated that they were Lot No. 4, covered by TCT No. T-18764 consisting of 136 square meters, and one-third portion of Lot No. 2

covered by TCT No. T-18762. The trial court held that, being defective in form,

the Deed of Sale did not vest title in private respondent. Full and absolute ownership did not pass to private respondent because she failed to

register the Deed of Sale. She was not a purchaser in good faith since she acted as a witness to the second sale of the property

knowing that she had already purchased the property from Roque. Whatever rights private respondent had over the properties could not be

superior to the rights of petitioners, who are now the registered owners of the parcels of land

The CA reversed the RTC Decision. The CA held that the unregisterability of a deed of sale will not undermine its validity and efficacy in

transferring ownership of the properties to private respondent. The CA noted that the records were devoid of any proof evidencing the

alleged vitiation of Roque’s consent to the sale; hence, there is no reason to invalidate the sale. Registration is only necessary to bind third

parties, which petitioners, being the heirs of Roque Naranja, are not. The trial court erred in applying Article 1544 of the Civil Code to the

case at bar since petitioners are not purchasers of the said properties. Hence, it is not significant that private respondent failed to register the

deed of sale before the extrajudicial settlement among the heir.

ISSUE: Whether or not the deed of sale must contain a technical description of the subject property in order to be valid

HELD: The Court does not agree with petitioners’ contention that a deed of sale must

contain a technical description of the subject property in order to be valid. Petitioners anchor their theory on Section 127 of Act No.

496, which provides a sample form of a deed of sale that includes, in particular, a technical description of the subject property.

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 requisites of a valid contract of sale under Article 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate

subject matter; and (3) price certain in money or its equivalent.

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 form of a deed of

sale provided in Section 127 of Act No. 496 is only a suggested form. It is not a mandatory form that must be strictly followed by the parties

to a contract. In the instant case, the deed of sale clearly

identifies the subject properties by indicating their respective lot numbers, lot areas, and the certificate of title covering them. Resort can

always be made to the technical description as stated in the certificates of title covering the two properties.

What is Act 496? (Long Pause, probably natulog na ta ani. :P) Subject nyo yan ngayon.

In the absence of technical description is i t proof that there is no sale at all because the

subject is not determinate or determinable? The Court does not agree with petitioners contention that a deed of sale must contain a

technical description of the subject property in order to be valid. Petitioners anchor their theory on Section 127 of Act No. 496, which provides a

sample form of a deed of sale that includes, in particular, a technical description of the subject property.

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 requisites of a valid contract of sale under

Article 1458 of the Civil Code are: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its

equivalent. 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 form of a deed of sale provided in Section 127 of Act No. 496 is

only a suggested form. It is not a mandatory form that must be strictly followed by the parties to a contract.


What is the effect of notarization of the Deed

of Sale? Such deed became public document. Take note ha.

And what is the effect if it is a public document?

“Deed of Absolute Sale” that is a public document has in its favor the presumption of regularity, and to contradict the same, there

must be evidence that is clear, convincing and more than merely preponderant; otherwise, the document should be upheld. In addition, a

notarized Deed of Absolute Sale carries the evidentiary weight conferred upon it with respect to its execution. Likewise, between bare

allegations and the notarized deed of absolute sale, the latter, which is a public documents, prevails for being prima facie evidence.

On the other hand, when a deed of sale is merely subscribed and sworn to by way o f jurat

(as contrasted from a notarial acknowledgment), it would not be a public document because it was invalidly notarized; it remains a private

document, subject to the requirements of proof under Section 20, Rule 132 of the Rules of Court, as to its due execution and authenticity.

As to Roque’s capacity to enter into a contract?

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, i f sufficient intelligence remains. The evidence presented pertained more to Roques physical

condition rather than his mental condition. On the contrary, Atty. Sanicas, the notary public, attested that Roque was very healthy and

mentally sound and sharp at the time of the execution of the deed of sale. Atty. Sanicas said that Roque also told him that he was a Law

graduate. Again take note of the effect of notarization.

Okay.

HEIRS OF BIONA VS. CA

FACTS: On October 23, 1953, the late Ernesto Biona, married to plaintiff-appellee Soledad

Biona, was awarded Homestead Patent over the property subject of this suit, a parcel of agricultural land, located in Bo. 3, Banga,

Cotabato, On June 3, 1954, Ernesto and Soledad Biona

obtained a loan from the then Rehabilitation Finance Corporation (now the Development Bank of the Philippines) and put up as collateral

the subject property. On June 12, 1956, Ernesto Biona died leaving as his heirs herein plaintiffs -appellees, namely, his wife, Soledad Estrobillo

Vda. De Biona, and five daughters, Editha B. Blancaflor, Marianita B. de Jesus, Vilma B.

Blancaflor, Elsie B. Ramos and Perlita B. Carmen.

On March 1, 1960, plaintiff-appellee Soledad Biona obtained a loan from defendant-appellant

in the amount of P1,000 and as security therefore, the subject property was mortgaged. It was further agreed upon by the contracting

parties that for a period of two years until the debt is paid, defendant-appellant shall occupy the land in dispute and enjoy the usufruct

thereof. The two-year period elapsed but Soledad Biona

was not able to pay her indebtedness. Defendant-appellant continued occupying and cultivating the subject property

without protest from plaintiffs-appellees. On July 3, 1962, defendant-appellant paid the

sum of P1,400.00 to the Development Bank of the Philippines to cancel the mortgage previously constituted by the Biona spouses on

June 3, 1953. Thereafter, and for a period of not less than

twenty-five years, defendant-appellant continued his peaceful and public occupation of the property, declaring it in his name for taxation

purposes, paying real estate property taxes thereon, and causing the same to be tenanted.

On June 19, 1985, plaintiffs-appellees, filed a complaint for recovery of ownership, possession, accounting and damages, with a prayer for a writ

of preliminary mandatory injunction and/ or restraining order against defendant-appellant alleging, among others, that the latter had

unlawfully been depriving them of the use, possession and enjoyment of the subject property; that the entire parcel of land, which

was devoted and highly suited to palay and corn, was yielding three harvests annually, with an average of one hundred twenty (120) sacks of

corn and eighty cavans of rice per hectare; that plaintiffs-appellees were deprived of its total produce amounting to P150,000.00.

One of the claims of defendant-appellant was that by virtue of his continuous and peaceful

occupation of the property from the time of its sale and for more than twenty- five years thereafter, defendant possesses a better right

thereto subject only to the rights of the tenants whom he had allowed to cultivate the land under the Land Reform Program of the government;

and that plaintiffs alleged right, if any, is barred by the statutes of fraud. ISSUE: Whether or not the deed of sale was

valid and if it effectively conveyed to the private respondents the subject property

HELD: YES but with regard only to Soledad’s share (7/12). But since the daughters of Biona failed to assert their rights and allowed

defendant Hilajos to occupy the land in peace for more than 30 years, they are now stopped due to laches.


All the requisites for a valid contract of sale are

present in the instant case. For a valuable consideration of P4,500.00, Soledad Biona agreed to sell and actually conveyed the subject

property to private respondent. The fact that the deed of sale was not notarized does not render the agreement null and void and without any

effect. The provision of Article 1358 of the Civil Code9 on the necessity of a public document is only for convenience, and not for validity or

enforceability.10 The observance of which is only necessary to insure its efficacy, so that after the existence of said contract had been

admitted, the party bound may be compelled to execute the proper document.11 Undeniably, a contract has been entered into by Soledad Biona

and the private respondent. Regardless of its form, it was valid, binding and enforceable between the parties.

Under Art. 1356 of the Civil Code, contracts shall be obligatory in whatever form they may have

been entered into provided all the essential requisites for their necessary elements for a valid contract of sale were met when Soledad

Biona agreed to sell and actually conveyed Lot 177 to defendant-appellant who paid the amount of P4,500.00 therefore. The deed of sale (Exh.

2) is not made ineffective merely because it is not notarized or does not appear in a public document.

Remedy: The fact that the deed of sale was not notarized

does not render the agreement null and void and without any effect. The provision of Article 1358 of the Civil Code on the necessity of a public

document is only for convenience, and not for validity or enforceability. The observance of which is only necessary to insure its efficacy, so

that after the existence of said contract had been admitted, the party bound may be compelled to execute the proper document.

Pursuant to Art. 1357, plaintiffs-appellees may be compelled by defendant-appellant to execute

a public document to embody their valid and enforceable contract and for the purpose of registering the property in the latter's name.

Regardless of its form, it was valid, binding and enforceable between the parties.

As to Laches: The principle of laches was properly applied

against petitioner. Laches has been defined as the failure or neglect, for an unreasonable and unexplained length of time, to do that which by

exercising due diligence could or should have been done earlier, it is negligence or omission to assert a right within a reasonable time,

warranting a presumption that the party entitled to assert it has either abandoned it or declined to assert it. Even when the five daughters of the

deceased Ernesto Biona were way past the age of majority, when they could have already asserted their right to their share, no sale in

defendant-appellant's favor was ever brought or any other action was taken by them to recover

their share. Instead, they allowed defendant -appellant to peacefully occupy the property without protest.

Take note that even if the deed is notarized, it does not mean that the sale is valid.

Salonga v. Concepcion, summarized the principles involved when it held that notarization

of the document does not guarantee its validity nor those of its contents, because it is not the function of the notary public to validate an

instrument that was never intended by the parties to have any binding legal effect, and neither is the notarization of a document

conclusive of the nature of the transaction conferred by the said document, nor is it conclusive of the true agreement of the parties

thereto. 2. Instances where form is important in sale

But not for its validity but for some other

purpose. Recall again in 1358, for convenience.

Art. 1403 …

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter

made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and

subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a

secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making

thereof; (b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;





account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer

period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third

person.

Purpose of the Statute of Frauds?

The term “Statute of Frauds” is descriptive of the statutes which require certain classes of


contracts, such as agreements for the sale of real property, to be in writing, the purpose being

to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring

certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. The written note or

memorandum, as contemplated by Article 1403 of the Civil Code, should embody the essentials of the contract.

The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations

depending for their evidence upon the unassisted memory of witnesses. Statute of Frauds was precisely devised to protect the

parties in a contract of sale of real property so that no such contract is enforceable unless certain requisites, for purposes of proof, are met.

CLAUDEL VS CA and HEIRS OF MACARIO (GR No 85240 July 12, 1991)

FACTS: As early as December 28, 1922, Basilio also known as "Cecilio" Claudel, acquired from

the Bureau of Lands, Lot No. 1230 of the Muntinlupa Estate Subdivision; he secured Transfer Certificate of Title (TCT) No. 7471

issued by the Registry of Deeds for the Province of Rizal in 1923; he also declared the lot in his name. He dutifully paid the real estate taxes

thereon until his death in 1937. Thereafter, his widow "Basilia" and later, her son Jose, one of the herein petitioners, paid the taxes.The same

piece of land purchased by Cecilio would, however, become the subject of protracted litigation thirty-nine years after his death.

Two branches of Cecilio's family contested the ownership over the land-on one hand the

children of Cecilio, namely, Modesto, Loreta, Jose, et al. and on the other, the brother and sisters of Cecilio, namely, Macario, Esperidiona,

Raymunda, and Celestina et. al. In 1972, the HEIRS OF CECILIO partitioned this lot among themselves.

Four years later, on December 7, 1976, private respondents SIBLINGS OF CECILIO, filed Civil

Case No. 5276-P as already adverted to at the outset, with the then Court of First Instance of Rizal, a "Complaint for Cancellation of Titles and

Reconveyance with Damages," alleging that 46 years earlier, or sometime in 1930, their parents had purchased from the late Cecilio Claudel

several portions of Lot No. 1230 for the sum of P30.00. They admitted that the transaction was verbal. However, as proof of the sale, the

SIBLINGS OF CECILIO presented a subdivision plan of the said land, dated March 25, 1930, indicating the portions allegedly sold to the

SIBLINGS OF CECILIO. The Lower Court dismissed the case. The Court of Appeals reversed the decision of the trial court 7.

Hence, this petition

ISSUE: Whether or not a contract of sale of land may be proven orally. (NO)

HELD: The rule of thumb is that a sale of land, once consummated, is valid regardless of the

form it may have been entered into. For nowhere does law or jurisprudence prescribe that the contract of sale be put in writing before such

contract can validly cede or transmit rights over a certain real property between the parties themselves.

However, in the event that a third party, as in this case, disputes the ownership of the

property, the person against whom that claim is brought cannot present any proof of such sale and hence has no means to enforce the

contract. Thus the Statute of Frauds was precisely devised to protect the parties in a contract of sale of real property so that no such

contract is enforceable unless certain requisites, for purposes of proof, are met. The provisions of the Statute of Frauds pertinent to the present

controversy, state: Art. 1403 (Civil Code). The following contracts

are unenforceable, unless they are ratified: xxx xxx xxx

2) Those that do not comply with the Statute of Frauds as set forth in this number. In the

following cases, an agreement hereafter made shall be unenforceable by action unless the same, or some note or memorandum thereof, be

in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the

writing, or a secondary evidence of its contents: xxx xxx xxx e) An agreement for the leasing for a longer

period than one year, or for the sale of real property or of an interest therein; xxx xxx xxx

(Emphasis supplied.) The purpose of the Statute of Frauds is to

prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses by requiring

certain enumerated contracts and transactions to be evidenced in Writing.

The provisions of the Statute of Frauds originally appeared under the old Rules of Evidence. However when the Civil Code was re-written in

1949 (to take effect in 1950), the provisions of the Statute of Frauds were taken out of the Rules of Evidence in order to be included under

the title on Unenforceable Contracts in the Civil Code. The transfer was not only a matter of style but to show that the Statute of Frauds is also a

substantive law. Therefore, except under the conditions provided

by the Statute of Frauds, the existence of the contract of sale made by Cecilio with his siblings 13 cannot be proved.


YUVIENGCO VS HON. DACUYCUY AND

DELY RODRIGUEZ, FELIPE CRUZ, CONSTANCIA NOGAR, ET AL. (GR NO. L-

55048 MAY 27, 1981)

FACTS: Petitioners own a property in Tacloban City which they intend to sell for 6.5M. They

gave the private respondents the right to purchase the property only until July 31, 1978. Private respondents replied that they agree to

buy the property and they will negotiate for details. Petitioner sent another telegram informing respondents that their proposal is

accepted and a contract will be prepared. Lawyer of the petitioners, Mr.Gamboa, arrived

bringing a contact with an altered mode of payment which says that the balance payment should be paid within 30 days instead of the

former 90 days. The original terms of the parties was: respondents will pay 2M upon execution, and the remaining 4.5m after 90 days.

In essence, the theory of petitioners is that while it is true that they did express willingness to sell to private respondents the subject property (land

and building) for P6,500,000.00 provided the latter made known their own decision to buy it not later than July 31, 1978, the respondents'

reply that they were agreeable was not absolute, so much so that when ultimately petitioners ' representative went to Cebu City with a

prepared and duly signed contract for the purpose of perfecting and consummating the transaction, respondents and said representative

found variance between the terms of payment stipulated in the prepared document and what respondents had in mind, hence the bank draft

which respondents were delivering to the representative was returned and the document remained unsigned by respondents.

Hence, the action for specific performance filed by the private respondents. However, the

respondents, in their complaint, contended ―That on August 1, 1978 Pedro Gamboa arrived Tacloban City bringing with him the

prepared contract to purchase and to sell referred to in his telegram dated July 27, 1978 for the purpose of closing the transactions

referred to in paragraphs 8 and 9 hereof, however, to the complete surprise of private respondents, the petitioner without giving notice

to plaintiffs, changed the mode of payment with respect to the balance of P4,500,000.00 by imposing upon the private respondents to pay

same amount within thirty (30) days from execution of the contract instead of the former term of ninety (90) days.

Ruling of the lower court and the respondent judge: The statute does not require a formal

contract drawn up with technical exactness for the language of Par. 2 of Art. 1403 of the Philippine Civil Code is '... an agreement...or

some note or memorandum thereof,' thus recognizing a difference between the contract itself and the written evidence which the statute

require. ... The contract of sale sued upon in this case is supported by letters and telegrams

annexed to the complaint. The private respondents having alleged that the contract is backed up by letters and telegrams, and the

same being sufficient memorandum, the complaint states a cause of action and they should be given their day in court and allowed to

substantiate their allegations. ISSUES: Whether or not there is a perfected

contract of sale between the parties. (NO) and Whether or not the claim for specific performance of respondents is enforceable

under the Statute of Frauds. (NO) HELD: 1st issue: There was no perfected

contract of sale yet because both parties are still under negotiation and hence, no meeting of the minds. Mr. Gamboa even went to the private

respondents to negotiate for the sale. Even though there was an agreement on the terms of payment, there was no absolute acceptance

because respondents still insisted on further details.

2nd

issue: The conclusion is inescapable that the claim of private respondents that petitioners have unjustifiably refused to proceed with the

sale to them of the property in question is unenforceable under the Statute of Frauds.

It is nowhere alleged in said paragraphs 8 to 12 of the complaint that there is any writing or memorandum, much less a duly signed

agreement to the effect that the price of P6,500,000 fixed by petitioners for the real property herein involved was agreed to be paid

not in cash but in installments as alleged by respondents.

The only documented indication of the non-wholly -cash payment extant in the record is that stipulated, the deeds already signed by the

petitioners and taken to Tacloban by Atty. Gamboa for the signatures of the respondents.

In other words, the 90-day term for the balance of P4.5 M insisted upon by respondents choices not appear in any note, writing or memorandum

signed by either the petitioners or any of them, not even by Atty. Gamboa. Hence, looking at the pose of private respondents that there was a

perfected agreement of purchase and sale between them and petitioners under which they would pay in installments of P2 M down and

P4.5 M within 90 days afterwards, it is evident that such oral contract involving the "sale of real property" comes squarely under the Statute of

Frauds. Respondent judge assumed that the

requirement of perfection of such kind of contract under Article 1475 of the Civil Code which provides that "the contract of sale is

perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price", the Statute


would no longer apply as long as the total price or consideration is mentioned in some note or

memorandum and there is no need of any indication of the manner in which such total price is to be paid.

Thus, the SC held that in any sale of real property on installments, the Statute of Frauds

read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the

idea of payment on installments must be in the requisite of a note or memorandum therein contemplated. Stated otherwise, the inessential

elements" relied upon by respondent judge must be deemed to include the requirement just discussed when it comes to installment sales.

For the essence and thrust of the said monograph refers only to the form of the note or

memorandum which would comply with the Statute, and no doubt, while such note or memorandum need not be in one single

document or writing and it can be in just sufficiently implicit tenor, imperatively the separate notes must, when put together', contain

all the requisites of a perfected contract of sale. To put it the other way, under the Statute of

Frauds, the contents of the note or memorandum, whether in one writing or in separate ones merely indicative for an adequate

understanding of all the essential elements of the entire agreement, may be said to be the contract itself, except as to the form.

Was there a valid contract of sale? No They did not pass the negotiation stage.

Statute of Frauds: It is not enough that “the total price or

consideration is mentioned in some note or memorandum and there is no need of any indication of the manner in which such total price

is to be paid;” that the manner by whic h the price is to be paid has to be found in the or memorandum, thus —

... In the reality of the economic world and the exacting demands of business interest monetary in character, payment or installments

or staggered payment of the total price is entirely a different matter from cash payment, considering the unpredictable trends in the

sudden fluctuation of the rate of interest. In other words, it is indisputable that the value of money varies from day to day, hence the

indispensability of providing in any sale of the terms of payment when not expressly or impliedly intended to be in cash.

Yuvienco thus held that “in any sale of real property on installment, the Statute of Frauds

read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the

idea of payment on installments must be in the requisite of a note or memorandum therein contemplated.”

In spite of the Yuvienco ruling, the Court held in

David v. Tiongson, that the sale of real property on installments even when the receipt or memorandum evidencing the same does not

provide for the stated installments, when there has already been partial payment, the Statute of Frauds is not applicable because it only applies

to executory and not to completed, executed, or partially executed contracts.

SEPT 8 SALES We are now with the instances when form is

important in a contract of sale. Again we have emphasized that there is no form required for the validity of a contract of sale. However we have

instances as provided under the law, that form is important not for the validity but for

1. to bind 3rd parties. We had that in the case

of Dalion vs CA.

Art 1358. Take note, requires embodiment of certain contracts in a public instrument but only for convenience. Not for validity. And the

registration thereof only affects 3rd

parties.

Art. 1358. The following must appear in a

public document: (1) Acts and contracts which have for their object the creation, transmission,

modification or extinguishment of real rights over immovable property; sales of real property or of an interest therein a governed

by Articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the

conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act

appearing or which should appear in a public document, or should prejudice a third person;

(4) The cession of actions or rights proceeding from an act appearing in a public document

Formal requirements are for the benefit of 3

rd

parties and non-compliance must not adversely

affect the validity of the contract nor the contractual rights and obligations of the parties thereunder.

2. Also under the Statute of Frauds, Art 1403

par 2.

Art. 1403. The following contracts are unenforceable, unless they are ratified:

2) Those that do not comply with the Statute of Frauds as set forth in this number. In the

following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or

memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement


cannot be received without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making

thereof; (b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;





account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer

period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third

person.

You have the following contracts of sale, which

must be in writing otherwise, it would be unenforceable. Sale agreement which must not be performed within 1 year from the making of

agreement, agreement for sale of goods, chattels, or movables value of 500 or more, and sale of real property or any interest therein.

Again take note of the purpose of the Statute of Frauds, recall again, this is already discussed in your Oblicon. Statute of Frauds will also again

be discussed when you have your evidence. So the purpose is to prevent fraud and perjury in

the enforcement of obligations, depending for their evidence on the unassisted memory of witnesses, by requiring certain enumerated

contracts and transactions to be evidenced by the writing signed by the party in charge.

However take note that the application of the Statute of Frauds presupposes the existence of a perfected contract. Because when we say that

it is covered by the Statute of Frauds, it is valid but unenforceable. When records show that there was no perfected contract of sale, then

there would be no basis for the application of the Statute of Frauds.

SPOUSES ALFREDO vs SPOUSES BORRAS (GR No 144225 June 17, 2003)

FACTS: The Alfredo Spouses mortgaged the subject land situated in Brgy. Culis, Mabiga, Hermosa, Bataan, to the DBP for P7,000.00,

and in order to pay their debt, the Alfredo Spouses sold the subject land to the Borras Spouses for P15,000.00. The Borras paid the

loan and its interest and the balance is to be paid by the Alfredos, and they (Alfredos)

delivered the Owner's Duplicate Copy of OCT No. 284 to them (Borras).

Later, Borras discovered that the Alfredos had re-sold portiions of the land to several persons. Borras filed an adverse claim with the Register

of Deeds of Bataan, and later they found out that the Alfredos had secured a duplicate copy of OCT No. 284, the tax declaration and the

receipts of the realty. The Alfredos filed a complaint for Specific Performance, they claimed that the sale, not being in writing, is

unenforceable under the Statute of Frauds. ISSUE: W/N the contract of sale is

unenforceable under the Statute of Frauds. (NO) HELD: NO. The Statute of Frauds provides that

a contract for the sale of real property shall be unenforceable unless the contract or some note or memorandum of the sale is in writing and

subscribed by the party charged or his agent. The existence of the receipt dated 11 March 1970, which is a memorandum of the sale,

removes the transaction from the provisions of the Statute of Frauds.

The Statute of Frauds applies only to executory contracts and not to contracts either partially or totally performed. Thus, where one party has

performed one‘s obligation, oral evidence will be admitted to prove the agreement. In the instant case, the parties have consummated the sale of

the Subject Land, with both sellers and buyers performing their respective obligations under the contract of sale. In addition, a contract that

violates the Statute of Frauds is ratified by the acceptance of benefits under the contract.

Alfredo spouses benefited from the contract because they paid their DBP loan and secured the cancellation of their mortgage using the

money given by Borras. Alfredo also accepted payment of the balance of the purchase price.

Alfredo spouses cannot invoke the Statute of Frauds to deny the existence of the verbal contract of sale because they have performed

their obligations, and have accepted benefits, under the verbal contract. The Borras spouses have also performed their obligations under the

verbal contract. Clearly, both the sellers and the buyers have consummated the verbal contract of sale of the Subject Land. The Statute of Frauds

was enacted to prevent fraud. This law cannot be used to advance the very evil the law seeks to prevent.

So again, recall that you already discussed under your obligations and contracts under first

year, the Statute of Frauds; the contracts covered therein are not enforceable unless they are in writing. The intention is of course in

resurrecting the execution of the obligation arising from the contract, whether partial or full performance.


Statute of Frauds applies only to executory

contracts and not to contracts either partially or totally performed.

In the instant case, the parties have consummated the sale of the Subject Land, with both sellers and buyers performing their

respective obligations under the contract of sale. . There was delivery and there was already payment of the purchase price. In addition, a

contract that violates the Statute of Frauds is ratified by the acceptance of benefits under the contract. Godofredo and Carmen benefited from

the contract because they paid their DBP loan and secured the cancellation of their mortgage using the money given by Armando and Adelia.

Godofredo and Carmen also accepted payment of the balance of the purchase price.

Also take note here the discussion as to the absence of consent of the husband; the sale took effect before the effectivity of the FC so it is

voidable and therefore susceptible of ratification. Godofredo ratified the sale when he introduced Armando and Adelia to his tenants as the new

owners of the Subject Land. The trial court noted that Godofredo failed to deny categorically on the witness stand the claim of the complainants

witnesses that Godofredo int roduced Armando and Adelia as the new landlords of the tenants.

Of course, we have also get to discussed double sales; this was also discussed in the case of Borras. So do take not of that as well.

In our discussion sa right of first refusal, recall that while a contract of sale under 1403 par 2

are covered by the Statue of Frauds, as to right of first refusal, it is not covered by the Statute of Frauds and therefore the absence of the right of

first refusal in writing will not mean that there was no grant of such right. You already discussed that in the case of ROSENCOR.

Also take note that, this is in relation to your evidence later on, you also have RA 8792 –

Electronic Documents under the E-commerce Act:

Section 6. Legal Recognition of Electronic Data Messages - Information shall not be denied legal effect, validity or enforceability

solely on the grounds that it is in the data message purporting to give rise to such legal effect, or that it is merely referred to in that

electronic data message.

So in other words, as long as it is an electronic

data message, it is sufficient compliance with the requirement under the Statute of Frauds for the contract to be in writing. So it is functional and is

equivalent to what is required under Statute of Frauds.

3. For validity, we already have mentioned this, Art. 1874.

Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the

authority of the latter shall be in writing; otherwise, the sale shall be void. (n)

So just take note of that as well, we already emphasized that when we discussed consent.

CONSUMMATION STAGE Now we go to the last stage, the

CONSUMMATION STAGE IN A CONTRACT OF SALE. So under the consummation stage, the performance of the respective obligations of

the seller and the buyer take place. Consummation stage we have Arts. 1493-1506

as well as Art. 1536-1544 and then 1582-1590 of the NCC.

Art. 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract

shall be without any effect. But if the thing should have been lost in part only, the vendee may choose between

withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed

upon. (1460a)

Art. 1494. Where the parties purport a sale of

specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so

deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale:

(1) As avoided; or (2) As valid in all of the existing goods or in so much thereof as have not deteriorated,

and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divi sible. (n)

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant

the thing which is the object of the sale. (1461a)

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified

in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to

the vendee. (n)

Art. 1497. The thing sold shall be understood

as delivered, when it is placed in the control and possession of the vendee. (1462a)

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. 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. (1463a)

Art. 1499. The delivery of movable property may likewise be made by the mere consent

or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the

sale, or if the latter already had it in his possession for any other reason. (1463a)

Art. 1500. There may also be tradition constitutum possessorium. (n)

Art. 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In any

other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the vendee

or the use by the vendee of his rights, with the vendor's consent, shall be understood as a delivery. (1464)

Art. 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an

option to return the goods instead of paying the price, the ownership passes to the buyer of delivery, but he may 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. (n) 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: (1) When he signifies his approval or

acceptance to the seller or does any other act adopting the transaction; (2) I f 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. (n)

Art. 1503. When 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.

Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of

his agent, the seller thereby reserves the ownership in the goods. But, if except for the

form of the bill of lading, the ownership would have passed to the buyer on shipment

of the goods, the seller's property in the goods shall be deemed to be only for the purpose of securing performance by the

buyer of his obligations under the contract. Where goods are shipped, and by the bill of lading the goods are deliverable to order of

the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right

to the possession of the goods as against the buyer. Where the seller of goods draws on the

buyer for the price and transmits the bill of exchange and bill of lading together to the buyer to secure acceptance or payment of

the bill of exchange, the buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully

retains the bill of lading he acquires no added right thereby. If, however, the bill of lading provides that the goods are

deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein, one who

purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill

of exchange has not been honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee

named therein, or of the goods, without notice of the facts making the transfer wrongful. (n)

Art. 1504. Unless otherwise agreed, the goods remain at the seller's risk until the

ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the

buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been

made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by

the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk

from the time of such delivery; (2) Where actual delivery has been delayed through the fault of either the buyer or seller

the goods are at the risk of the party in fault. (n)

Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not

sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless

the owner of the goods is by his conduct precluded from denying the seller's authority to sell.

Nothing in this Title, however, shall affect: (1) The provisions of any factors' act, recording laws, or any other provision of law


enabling the apparent owner of goods to dispose of them as if he were the true owner

thereof; (2) The validity of any contract of sale under statutory power of sale or under the order of

a court of competent jurisdiction; (3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the

Code of Commerce and special laws. (n)

Art. 1506. Where the seller of goods has a

voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good ti tle to the goods,

provided he buys them in good faith, for value, and without notice of the seller's defect of title. (n)

Art. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose

the right to make use of the terms as provided in Article 1198. (1467a)

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.

(1468a)

Art. 1538. In case of loss, deterioration or

improvement of the thing before its delivery, the rules in Article 1189 shall be observed, the vendor being considered the debtor. (n)

Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of

the vendee all that is mentioned in the contract, in conformity with the following rules:

If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the

vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but,

should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract,

provided that, in the latter case, the lack in the area be not less than one-tenth of that stated.

The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract.

The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one-

tenth of the price agreed upon. Nevertheless, if the vendee would not have bought the immovable had he known of its

smaller area of inferior quality, he may rescind the sale. (1469a)

Art. 1540. If, in the case of the preceding article, there is a greater area or number in

the immovable than that stated in the contract, the vendee may accept the area

included in the contract and reject the rest. I f he accepts the whole area, he must pay for the same at the contract rate. (1470a)

Art. 1541. The provisions of the two preceding articles shall apply to judicial

sales. (n)

Art. 1542. In the sale of real estate, made for

a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price,

although there be a greater or less area or number than that stated in the contract. The same rule shall be applied when two or

more immovables as sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance

of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within

said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall

suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the

vendee does not accede to the failure to deliver what has been stipulated. (1471)

Art. 1543. The actions arising from Articles 1539 and 1542 shall prescribe in six months, counted from the day of delivery. (1472a)

Art. 1544. If the same thing should have been sold to different vendees, the ownership

shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it

in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in

good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest ti tle, provided there is

good faith. (1473)

Art. 1582. The vendee is bound to accept

delivery and to pay the price of the thing sold at the time and place stipulated in the contract.

If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing

sold. (1500a)

Art. 1583. Unless otherwise agreed, the buyer

of goods is not bound to accept delivery thereof by installments. Where there is a contract of sale of goods to

be delivered by stated installments, which are to be separately paid for, and the seller


makes defective deliveries in respect of one or more installments, or the buyer neglects

or refuses without just cause to take delivery of or pay for one more installments, it depends in each case on the terms of the

contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to

proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for

compensation but not to a right to treat the whole contract as broken. (n)

Art. 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have

accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they

are in conformity with the contract if there is no stipulation to the contrary. Unless otherwise agreed, when the seller

tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the

goods for the purpose of ascertaining whether they are in conformity with the contract.

Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer, upon the terms

that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether such terms are indicated by

marking the goods with the words "collect on delivery," or otherwise, the buyer is not entitled to examine the goods before the

payment of the price, in the absence of agreement or usage of trade permitting such examination. (n)

Art. 1585. The buyer is deemed to have accepted the goods when he intimates to the

seller that he has accepted them, or when the goods have been delivered to him, and he does any act in relation to them which is

inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to

the seller that he has rejected them. (n)

Art. 1586. In the absence of express or

implied agreement of the parties, acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other

legal remedy for breach of any promise or warranty in the contract of sale. But, if, after acceptance of the goods, the buyer fails to

give notice to the seller of the breach in any promise of warranty within a reasonable time after the buyer know s, or ought to know of

such breach, the seller shall not be liable therefor. (n)

Art. 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he

refuses to accept them, having the right so to do, he is not bound to return them to the

seller, but it is sufficient if he notifies the seller that he refuses to accept them. If he voluntarily constitutes himself a depositary

thereof, he shall be liable as such. (n)

Art. 1588. If there is no stipulation as

specified in the first paragraph of article 1523, when the buyer's refusal to accept the goods is without just cause, the title thereto

passes to him from the moment they are placed at his disposal. (n)

Art. 1589. The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the following

three cases: (1) Should it have been so stipulated; (2) Should the thing sold and delivered

produce fruits or income; (3) Should he be in default, from the time of judicial or extrajudicial demand for the

payment of the price. (1501a)

Art. 1590. Should the vendee be disturbed in

the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a

vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the

disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated

that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not

authorize the suspension of the payment of the price. (1502a)

Now what are the GENERAL OBLIGATIONS OF THE SELLER? Of course he has the obligation to preserve the subject matter. Recall Art 1163.

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 the stipulation of the parties requires another standard of care.

(1094a)

Again, DETERMINATE THING otherwise you

have to suffer the consequences if there is loss. Now when we talk about preserving the subject matter here, this takes place before the delivery.

So before delivery, before ownership is transferred. And therefore, if there is loss of the thing due of the subject matter before there is

delivery, take note it is the seller who bears the loss as a general rule, based on the principle Res Perit Domino.

Another obligation on the part of the seller is the obligation to deliver the subject matter together with the fruits and accessories. Again recall Art.

1164, you have fruits and 1166, accessions and accessories.


Art. 1164. The creditor has a right to the

fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the

same has been delivered to him. (1095)

Art. 1166. The obligation to give a

determinate thing includes that of delivering all its accessions and accessories, even though they may not have been mentioned.

(1097a)

And then the obligation to deliver the subject

matter, which of course, with the delivery of the subject matter, there is transfer of ownership. This is in relation to our discussion – the

characteristic of a sale being a title and not a mode. Sale itself does not transfer ownership, it creates the obligation on the part of the seller to

deliver the subject matter and transfer the ownership to the buyer.

And then another obligation of the seller - to warrant the subject matter.

And then you also have the obligation of seller as a general rule, to bear expenses of the execution and registration in the contract of sale.

Now if you take a look at Art 1458, the main obligation really of the seller is to transfer

ownership and deliver the subject matter of the said contract of sale. So very clear ito sa definition ng sale.

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

Under Art 1477, ownership is transferred to the buyer upon actual or constructive delivery.

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the

actual or constructive delivery thereof. (n)

Art 1496, ownership of subject matter is

acquired by the vendee from the moment it is delivered to him in any of the ways specified in the articles 1497-1501.

Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is

delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the

possession is transferred from the vendor to the vendee. (n)

Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control

and possession of the vendee. (1462a)

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.

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. (1463a)

Art. 1499. The delivery of movable property

may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the

possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. (1463a)

Art. 1500. There may also be tradition constitutum possessorium. (n)




Now there are 3 types of delivery:

Actual or physical delivery

Execution of legal forms and solemnities -1498

Traditio Symbolica – 1498

Traditio longa manu – 1499

Traditio brevii manu – 1499

Traditio constitutum possesorium – 1500

Constructive or implied

Quasi-tradition – 1501, which sometimes is also considered as a constructive delivery.

If there is no perfected contract of sale, when a sale is void or fictitious, even if there is delivery,

no valid title over the subject matter can be transferred to the buyer. Also, if there was delivery and the seller was not the owner of the

subject matter at the time of delivery, then no title can pass in favor of the buyer. We have several cases discussing the principle of Nemo

Dat Quod Non Habet. Now, general doctrines on tradition:

Under 1478, recall:

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (n)


It may be stipulated that ownership of the thing shall not pass to the buyer until he has fully paid

the price. We already discussed this in a contract to sell. However in the absence of such stipulation, tradition or delivery produces its

natural effects in law. Most important is which being the conveyance of ownership, of course without prejudice to the right of the seller to

claim payment of the price. Delivery contemplates the absolute giving out of

the control and custody of the property on the part of the vendor and the assumption of the same by the vendee. There is said to be delivery

if and when the thing sold is placed in the control and possession of the vendee.

Again, take note, failure of the buyer to pay the price does not cause the ownership to regress back to the seller, unless the contract of sale is

first rescinded or resolved pursuant to Art. 1191. We have Art 1497 with regard to physical

delivery. In fact, delivery, control and possession were discussed in the case of BORRAS.

It is not necessary that the seller himself deliver the title of the property to the buyer because the thing sold is understood as delivered when it is

placed in the control and possession of the vendee. To repeat, Godofredo and Carmen themselves introduced the Natanawans, their

tenants, to Armando and Adelia as the new owners of the Subject Land. From then on, Armando and Adelia acted as the landlords of

the Natanawans. Obviously, Godofredo and Carmen themselves placed control and possession of the Subject Land in the hands of

Armando and Adelia. Thus there was delivery that transferred title to the buyer.

Now we also have Art 1498.

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. 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. (1463a)

Execution of a public instrument, a deed of sale that is notarized = equivalent to delivery of the property being a constructive delivery.

SANTOS VS SANTOS (GR No 133895 October 2, 2001)

FACTS: Petitioner Zenaida M. Santos is the widow of Salvador Santos. Salvador Santos is a brother of private respondents Calixto, Alberto,

Antonio, and Rosa Santos-Carreon. The spouses Jesus and Rosalia Santos are the parents of the 5 siblings.

They owned a parcel of land registered under TCT No. 27571 with an area of 154 square

meters, located at Sta. Cruz Manila. On it was a four-door apartment administered by Rosalia

who rented them out. The spouses had five children, Salvador, Calixto, Alberto, Antonio and Rosa.

On January 19, 1959 Jesus and Rosalia executed a deed of sale of the properties in

favor of their children Salvador and Rosa. TCT No. 27571 became TCT No. 60819.

On November 20, 1973 Rosa in turn sold her share to Salvador which resulted in the issuance of a new TCT No. 113221. Despite the transfer

of the property to Salvador, Rosalia, their mother, continued to lease and receive rentals from the apartment units.

November 1, 1979, Jesus died. January 9, 1985, Salvador died. After a month (Feb 1985),

Rosalia died. Shortly after, petitioner Zenaida, claiming to be

Salvador's heir (specifically, as Salvador’s widow), demanded the rent from Antonio Hombrebueno, a tenant of Rosalia. When the

latter refused to pay, Zenaida filed and ejectment suit against him with the Metropolitan Trial Court of Manila, Branch 24, which

eventually decided in Zenaida's favor. On January 5, 1989 - private respondents

instituted an action for reconveyance of property with preliminary injunction against petitioner in RTC of Manila, where they alleged that the two

deeds of sale executed on January 19, 1959 and November 20, 1973 were simulated for lack of consideration. They were executed to

accommodate Salvador in generation funds for his business and providing him with greater business flexibility.

Zenaida argued that Salvador was the registered owner of the property, which could only be

subjected to encumbrances or liens annotated on the title; that the respondents' right to reconveyance was already barred by

prescription and laches; and that the complaint state no cause of action.

Ruling of the lower court: RTC decided in favour of private respondents: a) Declaring the deed of sale executed by

Rosalia Santos and Jesus Santos on January 19, 1959, as entirely null and void for being fictitious or stimulated and inexistent

b) Declaringthe deed of sale executed by Rosa Santos in favor of Salvador Santos on November 20, 1973, also as entirely null and

void for being likewise fictitious or stimulated and inexistent c) Directing ROD of Manila to cancel

TCT#113221 registered in the name of Salvador Santos, as well as, TCT# 60819 in the names of Salvador Santos, Rosa Santos and the Transfer

Certificate of Title No. T-27571 registered in the name of Rosalia A. Santos, married to Jesus Santos, the same to be partitioned by the heirs


of the said registered owners in accordance with law.

The trial court reasoned that notwithstanding the deeds of sale transferring the property to

Salvador, the spouses Rosalia and Jesus continued to possess the property and to exercise rights of ownership not only by

receiving the monthly rentals, but also by paying the realty taxes. Also, Rosalia kept the owner's duplicate copy of the title even after it was

already in the name of Salvador. Further, the spouses had no compelling reason in 1959 to sell the property and Salvador was not

financially capable to purchase it. The deeds of sale were therefore fictitious. Hence, the action to assail the same does not prescribe.

The CA affirmed the decision of the RTC. It held that in order for the execution of a public

instrument to effect tradition, as provided in Article 1498 of the Civil Code, the vendor shall have had control over the thing sold, at the

moment of sale. It was not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in

his control. The subject deeds of sale did not confer upon Salvador the ownership over the subject property, because even after the sale,

the original vendors remained in dominion, control, and possession thereof.

ISSUE: WON there was DELIVERY by the Seller

HELD: There’s CONSTRUCTIVE DELIVERY but it was NOT EFFECTED.

Petitioner in her memorandum invokes Article 1477 of the Civil Code which provides that ownership of the thing sold is transferred to the

vendee upon its actual or constructive delivery. Article 1498, in turn, provides that when the sale is made through a public instrument, its

execution is equivalent to the delivery of the thing subject of the contract. Petitioner avers that applying said provisions to the case,

Salvador became the owner of the subject property by virtue of the two deeds of sale executed in his favor.

Nowhere in the Civil Code, however, does it provide that execution of a deed of sale is a

conclusive presumption of delivery of possession. The Code merely said that the execution shall be equivalent to delivery. The

presumption can be rebutted by clear and convincing evidence. Presumptive delivery can be negated by the failure of the vendee to take

actual possession of the land sold. In Danguilan vs. IAC, 168 SCRA 22, 32 (1988),

we held that for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold. When

there is no impediment to prevent the thing sold from converting to tenancy of the purchaser by the sole will of the vendor, symbolic delivery

through the execution of a public instrument is sufficient. But if, notwithstanding the execution of

the instrument, the purchaser cannot have the enjoyment and material tenancy nor make use of it himself or through another in his name, then

delivery has not been effected. Salvador was never placed in control of the

property. The original sellers retained their control and possession. Therefore, there was no real transfer of ownership.

In Norkis Distributors, Inc. vs. CA, the SC held that the critical factor in the different modes of

effecting delivery, which gives legal effect to the act is the actual intention of the vendor to deliver, and its acceptance by the vendee.

Without that intention, there is no tradition. In the instant case, although the spouses Jesus and Rosalia executed a deed of sale, they did not

deliver the possession and ownership of the property to Salvador and Rosa. They agreed to execute a deed of sale merely to accommodate

Salvador to enable him to generate funds for his business venture.

While we have art 1498, take note it is not a conclusive presumption. The execution of a deed of sale is not a conclusive presumption of

the delivery of possession. It is merely provided that the execution shall be equivalent to delivery. The presumption can be rebutted by clear and

convincing evidence; presumptive delivery can be negated by the failure of the vendee to take actual possession of the land sold.

Here, vendor’s continued possession of the property makes dubious the contract of sale

between the parties. Salvador was never placed in control of the property. The original sellers retained their control and possession. Therefore,

there was no real transfer of ownership. The deeds of sale were in fact simulated and fictitious and Rosa and Salvador did not exercise

any ownership over the subject property. So again, Art. 1498 with regard to the execution

of a public instrument is not a conclusive presumption. It can be negated by the failure of the vendee to take actual possession of the

land, as it would show that they had no intention to enter into a contract of sale.

DY, JR. V. CA, GELAC TRADING INC., AND ANTONIO V. GONZALES

FACTS: Wilfredo Dy purchased a truck and a farm tractor through LIBRA which was also mortgaged with the latter, as a security to the

loan. Petitioner, expresses his desire to purchase his brother’s tractor in a letter to LIBRA which also

includes his intention to shoulder its mortgaged. LIBRA approved the request. At the time that Wilfredo Dy executed a deed of absolute sale in

favor of petitioner, the tractor and truck were in the possession of LIBRA for his failure to pay the amortization.


When petitioner finally fulfilled its obligation to

pay the tractor, LIBRA would only release the same only if he would also pay for the truck. In order to fulfill LIBRA’s condition, petitioner

convinced his sister to pay for the remaining truck, to which she released a check amounting to P22, 000. LIBRA however, insisted that the

check must be first cleared before it delivers the truck and tractor.

Meanwhile, another case penned “Gelac Trading Inc vs. Wilfredo Dy” was pending in Cebu as a case to recover for a sum of money (P12,

269.80). By a writ of execution the court in Cebu ordered to seize and levy the tractor which was in the premise of LIBRA, it was sold in a public

auction to which it was purchased by GELAC. The latter then sold the tractor to Antonio Gonzales.

RTC rendered in favor of petitioner. CA dismissed the case, alleging that it still belongs

to Wilfredo Dy. ISSUE: Whether or not there was a

consummated sale between Petitioner and LIBRA?

HELD: NO. The payment of the check was actually intended to extinguish the mortgage obligation so that the tractor could be released to

the petitioner. It was never intended nor could it be considered as payment of the purchase price because the relationship between Libra and the

petitioner is not one of sale but still a mortgage. The clearing or encashment of the check which produced the effect of payment determined the

full payment of the money obligation and the release of the chattel mortgage. It was not determinative of the consummation of the sale.

The transaction between the brothers is distinct and apart from the transaction between Libra and the petitioner. The contention, therefore,

that the consummation of the sale depended upon the encashment of the check is untenable.

Take note, here the subject matter is a tractor and at the time of the sale between the brothers, the tractor was still subject to a mortgage

wherein Wilfredo was the mortgagor, and Libra was the mortgagee. Now take note in a mortgage, there is no transfer of ownership. The

mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. So the sale between

the brothers was valid and binding. Was there delivery to transfer ownership in favor

of Perfecto? In the instant case, actual delivery of the subject tractor could not be made, coz it was still in the possession of Libra. However,

there was constructive delivery already upon the execution of the public instrument pursuant to Article 1498 and upon the consent or agreement

of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. (Art. 1498, 1499)

While it is true that for this presumption,

execution equivalent to delivery, the vendor must first have control and possession of the thing. While it is true that Wilfredo Dy was not in

actual possession and control of the subject tractor, his right of ownership was not divested from him upon his default. Again, there was no

transfer of ownership in favor of the mortgagee. Neither could it be said that Libra was the owner of the subject tractor because the mortgagee

can not become the owner of or convert and appropriate to himself the property mortgaged. (Article 2088, Civil Code) Said property

continues to belong to the mortgagor. Undeniably, Libra gave its consent to the sale of the subject tractor to the petitioner. It was aware

of the transfer of rights to the petitioner. Now, how about as to the issue of the checks?

The payment of the check was actually intended to extinguish the mortgage obligation. However the contention, therefore, that the consummation

of the sale depended upon the encashment of the check is untenable. The sale of the subject tractor was consummated upon the execution of

the public instrument on September 4, 1979. At this time constructive delivery was already effected. Hence, the subject tractor was no

longer owned by Wilfredo Dy when it was levied upon by the sheriff in December, 1979. Now do take note in 1498 and 1499, you have

therein, constructive delivery. In 1498, delivery of the keys or depository where it is stored or kept. Example, you sell sacks of rice or some

other subject matter, which are kept in a warehouse. But instead of delivery of the subject matter physically to the buyer, you instead give

him the keys. Or ang car, ibigay mo ang susi sa buyer. So that is what you call TRADITIO SYMBOLICA.

Again, traditio, Latin term for delivery. Also, under Art. 1499, delivery by consent of the

parties if the subject cannot be transferred to buyer at the time of the sale or the buyer already had possession before the sale. Here, by

consent or agreement; so you could have here TRADITIO LONGA MANU. Para bang you are pointing to the subject matter because you

cannot yet deliver it to the buyer. But there is constructive delivery, which is equivalent to the transfer of ownership.

Now also take note, may nakalagay dyan sa 1499, when the buyer already had possession

before the sale. Here you have TRADITIO BREVI MANU. This is NOT the opposite of LONGA MANU. Kasi sa LONGA MANU, by

consent or agreement, pointing noh or extending your arm, pointing the subject matter to the buyer.

But in LONGA MANU, the buyer is already in possession of the property. For example, he was

previously in possession of a parcel of land by being a lessee, then subsequently, he entered into a contract of sale, so ano kelangan pa niya


ibalik tapos mag alis sya tapos mag pasok nanaman ulit, so hindi na. There is already

possession by the buyer before the sale and then continuous possession after the sale but the possession after the sale, this time he is

already considered as the owner. Now, the OPPOSITE of TRADITIO BREVI

MANU, is TRADITIO CONSTITUTUM POSSESSORIUM. Wherein the owner or the vendor was initially in possession of the property

before the sale, subsequent to the sale, there is continuous possession of the property but not in the concept of owner anymore. In possession

before the sale, sells the property to the buyer, then subsequently they enter into a contract of lease, wherein the buyer now is the lessor and

the original owner, previously the seller becomes the lessee; retains possession but not in the concept of owner anymore.

Now also when we go to documents of title, we will get to discuss, as to persons to whom

negotiable documents of title must be negotiated, acquires the right of the person to whom delivery shall be made by the terms of the

documents. That would be Art. 1513.

Art. 1513. A person to whom a negotiable

document of title has been duly negotiated acquires thereby: (1) Such ti tle to the goods as the person

negotiating the document to him had or had ability to convey to a purchaser in good faith for value and also such title to the goods as

the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in

good faith for value; and (2) The direct obligation of the bailee issuing

the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had

contracted directly with him. (n)

ADDISON V. FELIX

FACTS: The defendants-appellees spouses Maciana Felix and Balbino Tioco purchased

from plaintiff-appellant A.A. Addison four parcels of land to which Felix paid, at the time of the execution of the deed, the sum of P3,000 on

account of the purchase price. She likewise bound herself to the remainder in installments, the first of P,2000 on July 15, 1914, the second

of P5,000 thirty days after the issuance to her of a certificate of title under the Land Registration Act, and further, within ten years from the date of

such title, P10 for each cocoanut tree in bearing and P5 for each such tree not in bearing that might be growing on said parcels of land on the

date of the issuance of title to her, with the condition that the total price should not exceed P85,000. It was further stipulated that Felix was

to deliver to the Addison 25% of the value of the products that she might obtain from the four parcels "from the moment she takes possession

of them until the Torrens certificate of title be issued in her favor," and that within 1 year from

the date of the certi ficate of title in her favor, Marciana Felix may rescind the contract of purchase and sale.

In January 1915, Addison, filed suit in the CFI of Manila to compel Felix to pay the first installment

of P2,000, demandable, in accordance with the terms of the contract of sale. The defendants Felix and her husband Tioco contended that

Addison had absolutely failed to deliver the lands that were the subject matter of the sale, notwithstanding the demands they made upon

him for this purpose. The evidence adduced shows Addison was able to designate only two of the four parcels, and more than two-thirds of

these two were found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts he so occupied. The trial

court held the contract of sale to be rescinded and ordered Addison to return to Felix the P3,000 paid on account of the price, together

with interest thereon at the rate of 10% per annum.

ISSUE: Was there a delivery made and, therefore, a transfer of ownership of the thing sold?

HELD: The Supreme Court affirmed the decision of the lower court, with modification that the

interest thereon will be at the rate of 6% (instead of 10%) per annum from the date of the filing of the complaint until payment.

The thing is considered to be delivered when it is placed "in the hands and possession of the

vendee." It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is

the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall

have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. Symbolic delivery

through the execution of a public instrument is sufficient when there is no impediment whatever to prevent the thing sold passing into the

tenancy of the purchaser by the sole will of the vendor. But if, notwithstanding the execution of the instrument, the purchaser cannot have the

enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such are opposed by a third

person’s will, then the delivery has not been effected. In the case at bar, therefore, it is evident, that the mere execution of the

instrument was not a fulfillment of the vendor's obligation to deliver the thing sold, and that from such non-fulfillment arises the purchaser's right

to demand, as she has demanded, the rescission of the sale and the return of the price.

Here, there was no valid delivery to transfer possession. The civil code imposes upon the vendor the obligation to deliver the thing sold.


The thing is considered to be delivered when it is placed "in the hands and possession of the

vendee." It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is

the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall

have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made.

There was also the emphasizing of the case of Dy. However the difference in Dy, is that in the

case of Dy, there was no impediment to prevent the thing sold passing the title to the vendee by the sole will of the vendor. Therefore in the case

of Dy, even if the tractor was in the possession of the mortgagee Libra, it was not an impediment because there was no transfer of

ownership. Libra was not asserting ownership over the t ractor. It acknowledges that it was in possession thereof as a mere security and in

fact gave its consent to the sale. But here you have persons in possession of the

property. There is an impediment and therefore the execution of the public instrument is not sufficient to transfer ownership. The purchaser

here cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such

are opposed by a third person’s will, then the delivery has not been effected. In the case at bar, therefore, it is evident, that the mere

execution of the instrument was not a fulfillment of the vendor's obligation to deliver the thing sold, and that from such non-fulfillment arises

the purchaser's right to demand, as she has demanded, the rescission of the sale and the return of the price.

SPOUSES SANTOS V. CA FACTS: Spouses Santos owned the house and

lot in Better Living Subdivision, Paranaque, Metro Manila. The land together with the house, was mortgaged with the Rural Bank of Salinas,

Inc., to secure a loan of P150K. The bank sent Rosalinda Santos a letter demanding payment of P16K in unpaid interest and other charges.

Since the Santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen Caseda. After inspecting the real

property, Carmen and her husband agreed. Carmen and Rosalinda signed a document,

involving the sale of the house – P350K as full amount, P54K as downpayment. Among other condition set is that Caseda will pay the balance

of the mortgage in the bank, real estate taxes and the electric and water bills.

The Casedas complied with the bank mortgage and the bills. The Santoses, seeing that the Casedas lacked the means to pay the remaining

installments and/or amortization of the loan, repossessed the property. The Santoses then collected the rentals from the tenants. Carmen

approached petitioners and offered to pay the balance of the purchase price for the house and

lot. The parties, however, could not agree, and the deal could not push through because the Santoses wanted a higher price.

Carmen is now praying that the Santoses execute the final deed of conveyance over the

property. ISSUE: WON there was a perfected contract of

sale? NO HELD: A contract is what the law defines it to

be, taking into consideration its essential elements, and not what the contracting parties call it. Article 1458 expressly obliges the vendor

to transfer ownership of the thing sold as an essential element of a contract of sale. This is because the transfer of ownership in exchange

for a price paid or promised is the very essence of a contract of sale.

There was no transfer of ownership simultaneously with the delivery of the property purportedly sold. The records clearly show that,

notwithstanding the fact that the Casedas first took then lost possession of the disputed house and lot, the title to the property has remained

always in the name of Rosalinda Santos. Although the parties had agreed that the Casedas would assume the mortgage, all

amortization payments made by Carmen Caseda to the bank were in the name of Rosalinda Santos. The foregoing circumstances

categorically and clearly show that no valid transfer of ownership was made by the Santoses to the Casedas. Absent this essential element,

their agreement cannot be deemed a contract of sale.

It was a contract to sell. Ownership is reserved by the vendor and is not to pass until full payment of the purchase price. This we find fully

applicable and understandable in this case, given that the property involved is a titled realty under mortgage to a bank and would require

notarial and other formalities of law before transfer thereof could be validly effected.

The CA cannot order rescission. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract

and not rescinding it. When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay

the purchase price in full, they were merely enforcing the contract and not rescinding it.

So here, notwithstanding the fact that the Casedas first took then lost possession of the disputed house and lot, the title to the property

has remained always in the name of Rosalinda Santos. No valid transfer of ownership was made by the Santoses to the Casedas. Absent

this essential element, their agreement cannot be deemed a contract of sale. Remember sa contract to sell, there may be delivery but as


long as it was stiuplated or intended by the parties as evidenced by their conduct, to show

that there was no intention to transfer ownership despite the delivery until full payment of the price, then what you have is a contract to sell

and not a contract of sale. The agreement here was a contract to sell. Ownership is reserved by the vendor and is not to pass until full payment

of the purchase price. No transfer of ownership to the Casedas, the title remained in the name of Santos; payments were made in the name of

Santos. So therefore since it was a contract to sell, rescission is not a remedy since there is nothing to rescind. No recission to speak of in

the first place. In a contract to sell, title remains in the vendor and does not pass to the vendee until the payment of the purchase price in full.

Also it was emphasized here, i f the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract

and not rescinding it. When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay

the purchase price in full, they were merely enforcing the contract and not rescinding it. Again, 1191, the power to rescind is only

applicable to a contract of sale. September 8, 2015 (Part 2)

So how about in the case of Spouses Villamor?

SPOUSES SANTIAGO V. VILLAMOR

FACTS: Spouses Domingo Villamor, Sr. and

Trinidad Villamor (spouses Villamor, Sr. ) executed a deed of sale covering a parcel of land in favor of petitioners Spouses Erosto and

Nelsie Santiago (spouses Santiago). The land in dispute was occupied by spouses Villamor, Sr.s children, herein respondents Mancer Villamor,

Carlos Villamor, and Domingo Villamor, Jr. (Villamor children)

Spouses Santiago demanded the Villamor children to vacate the property but the latter refused to do so. Villamor children argued that

they are the lawful owners of the land since they acquired the same from San Jacinto Bank. Thus, spouses Santiago filed an action for quieting of

title before the RTC. The RTC ruled in favor of spouses Santiago. On appeal, the CA reversed the RTCs decision on the ground that spouses

Santiago failed to prove their legal or equitable title to the land.

ISSUE: Whether or not the action to quiet title filed by Spouses Santiago should prosper?

HELD: The petition lacks merit. CIVIL LAW: quieting of title; constructive delivery; buyer in good faith

Quieting of title is a common law remedy for the removal of any cloud, doubt or uncertainty affecting title to real property. The plaintiffs must

show not only that there is a cloud or contrary interest over the subject real property, but that they have a valid title to it.

Article 1477 of the Civil Code recognizes that the

"ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof." Related to this article is Article

1497 which provides that "the thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee."

With respect to incorporeal property, Article 1498 of the Civil Code lays down the general

rule: the execution of a public instrument "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." However, the execution of a public instrument gives rise only to a prima facie

presumption of delivery, which is negated by the failure of the vendee to take actual possession of the land sold. 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, no constructive delivery of the land transpired upon the execution of the deed of

sale since it was not the spouses Villamor, Sr. but the respondents who had actual possession of the land. The presumption of constructive

delivery is inapplicable and must yield to the reality that the petitioners were not placed in possession and control of the land.

A purchaser in good faith is one who buys property without notice that some other person

has a right to or interest in such property and pays its fair price before he has notice of the adverse claims and interest of another person in

the same property. However, where the land sold is in the possession of a person other than the vendor, the purchaser must be wary and

must investigate the rights of the actual possessor; without such inquiry, the buyer cannot be said to be in good faith and c annot

have any right over the property.

Q: Who executed the deed of sale in favor of

Spouses Santiago? A: The bank. Despite the fact that the payment is made by the children.

Q: But isn’t i t that it was also alleged by the bank that there was repurchase by the parents of the children, the heirs of Villamor?

A: Such contention was refuted by the CA, wherein it said that there was really no repurchase because the purchase of the

children was separate and distinct of that of the parents. At the time of the purchase, the time to repurchase has already expired.

Q: So at any point, could we say that the bank own the subject property? A: Yes ma’am.

Q: How was the ownership transferred in favor of the children? A: By virtue of the decision of the CA, it was

never appealed, wherein it attained finality.


SPOUSES SANTIAGO vs VILLAMOR: Now here, again, while it is true that the execution of

a public instrument is equivalent to the delivery of the thing as the object of the contract, there could be no delivery if again, i f it failed to

conform with the three requisites mentioned in this case. At the time of the execution of the public instrument:

1.) Seller must have control over the thing; 2.) By virtue of the execution of the sale,

buyer must be put in control over the

subject matter; 3.) That the intention of such delivery is for

the purpose of transferring ownership

Now, when the deed of sale was executed in favor of Spouses Santiago, not all of these

elements were present because in truth and in fact the children of Villamor continued to be in possession of subject property. In other words

the seller, the bank, did not have control over the subject matter. The execution of a public instrument only gives rise of a prima facie

presumption of delivery which is negated by the failure of the vendee to take actual possession of the land sold. 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, no constructive delivery of the land transpired upon the execution of the deed of sale since it was not the Spouses Villamor Sr.

but the respondents had actual possession of the land. The presumption of constructive delivery is inapplicable and must yield to the

reality that the purchasers were not placed in the control and possession of the land. Also take note, the burden of proving of the status of a

purchaser in good faith lies upon the party asserting that status and cannot be discharged by reliance on the legal presumption of good

faith. So here, petitioners failed to discharge this burden.

And then we have the case of La Fuerza.

LA FUERZA, INC., vs. THE HON. COURT OF

APPEALS FACTS: The plaintiff (Associated Engineering,

Co., Inc.) is a corporation engaged in the manufacture and installation of flat belt conveyors. The defendant (La Fuerza, Inc.) is

also a corporation engaged in the manufacture of wines.

Sometime in the month of January, 1960, Antonio Co, the manager of the plaintiff corporation called the office of the defendant

and offered his services to manufacture and install a conveyor system which, according to him, would increase production and efficiency of

his business. The president of the defendant corporation then

expressed his conformity to the offer made in Exhibit A by writing at the foot thereof under the word "confirmation" his signature. He caused,

however, to be added to this offer at the foot a note which reads: "All specifications shall be in

strict accordance with the approved plan made part of this agreement hereof."

A few days later, Antonio Co made the demand for the down payment of P5,000.00 which was readily delivered by the defendant in the form of

a check for the said amount. After that agreement, the plaintiff started to prepare the premises for the installations of the conveyor

system . It seems that the work was completed during the month of May, 1960. Trial runs were made in the presence of the president and

general manager of the defendant corporation, Antonio Co, the technical manager of the plaintiff, and some other people.

As a result of this trial or experimental runs, it was discovered, according to the defendant's

general manager, that the conveyor system did not function to their satisfaction as represented by the technical manager of the plaintiff Antonio

Co for the reason that, when operated several bottles collided with each other, some jumping off the conveyor belt and were broken, causing

considerable damage. After the last trial run made in the month of July

and defects indicated by the said president and general manager of the defendant had not been remedied with the result that when the plaintiff

billed the defendant for the balance of the contract price, the latter refused to pay for the reason that according to the defendant the

conveyor system installed by the plaintiff did not serve the purpose for which the same was manufactured and installed at such a heavy

expense. On March 22, 1961, the contractor commenced

the present action to recover the sums of P8,250, balance of the stipulated price of the aforementioned conveyors, and P2,000, as

attorney's fees, in addition to the costs. La Fuerza maintains that plaintiff is deemed not

to have delivered the conveyors, within the purview of Art. 1571, until it shall have complied with the conditions or requirements of the

contract between them — that is to say, until the conveyors shall meet La Fuerza's "need of a conveyor system that would mechanically

transport empty bottles from the storage room to the bottle workers in the production room thus increasing the production and efficiency" of its

business-and La Fuerza had accepted said conveyors.

ISSUE: WON there was delivery. YES RULING: Upon the completion of the installation

of the conveyors, in May, 1960, particularly after the last trial run, in July 1960, La Fuerza was in a position to decide whether or not it was

satisfied with said conveyors, and, hence, to state whether the same were a accepted or rejected. The failure of La Fuerza to express


categorically whether they accepted or rejected the conveyors does not detract from the fact that

the same were actually in its possession and control; that, accordingly, the conveyors had already been delivered by the plaintiff; and that,

the period prescribed in said Art. 1571 had begun to run.

With respect to the second point raised by La Fuerza, Art. 1571 of the Civil Code provides:

Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold.

Xx

Among the "ten articles" referred to in this provision, are Articles 1566 and 1567, reading:

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware

thereof. ."This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in

the thing sold. Art. 1567. In the cases of articles 1561, 1562,

1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the

price, with damages in either case. x x x x x x x x x

Pursuant to these two (2) articles, if the thing sold has hidden faults or defects — as the

conveyors are claimed to have — the vendor — in the case at bar, the plaintiff — shall be responsible therefor and the vendee — or La

Fuerza, in the present case — "may elect between withdrawing from the contract and demanding a proportional reduction of the price,

with damages in either case." In the exercise of this right of election, La Fuerza had chosen to withdraw from the contract, by

praying for its rescission; but the action therefor — in the language of Art. 1571 — "shall be barred after six months, from the delivery of the

thing sold." The period of four (4) years, provided in Art. 1389 of said Code, for "the action to claim rescission," applies to contracts,

in general , and must yields, in the instant case, to said Art. 1571, which refers to sales in particular.

Indeed, in contracts of the latter type, especially when goods, merchandise, machinery or parts

or equipment thereof are involved, it is obviously wise to require the parties to define their position, in relation thereto, within the shortest

possible time. Public interest demands that the status of the

relations between the vendor and the vendee be not left in a condition of uncertainty for an unreasonable length of time, which would be the

case, if the lifetime of the vendee's right of rescission were four (4) years.

Q: But was it determined here that possession and control was actually

transferred? A: Upon the completion of the installation of the conveyors in May 1960, La Fuerza already had

the decision whether to accept or reject the conveyor belts. However, it categorically failed to express whether it accepted or rejected the

conveyor belts. This fact does not actually _____ that it was in possession of the conveyor belts. The period cited by _____ already begun upon

the time of the installation. Q: As to the issue on prescription, has the action prescribed?

A: Yes. The action has already prescribed because the Supreme Court said that the 6 month period in 1571 refers to sales specifically.

However in 1389, it applies to contracts in general so therefore this must yield to the specific provision in 1571.

Q: When do you start counting the 6 month prescriptive period? A: The 6 month period starts to run from the time

that the thing sold has been delivered which in this case was in 1960. So it was over 10 months that La Fuerza answered the complaint.

LA FUERZA vs CA: So here, the issue was actually the breach of warranty against hidden

defects wherein the law provides that the action must be filed within 6 months from the time of delivery. So we have to determine whether or

not there was delivery for the 6 month period to begin to run. So here, the failure of La Fuerza to express categorically whether to accept or reject

the conveyors does not detract from the fact that it was actually in its possession. So t here was delivery and accordingly, the period had already

begun to run. So with that, 6 months had already lapsed by the time they filed an action and what is to be applied is the specific provision in

contracts of sale and not the 4 year period applicable to contracts in general.

So, just take note of the concept of when do you start counting the prescriptive period when it comes to breach of warranty against hidden

defects. You have to take note when is there delivery. Delivery is different from acceptance. It does not mean that if you refused to accept,

then there is no delivery on the part of the seller. Or just because you have accepted the delivery that you do not have any cause of action for any

breach or liability against the seller. So again those are the obligations of the seller.

Again the main thing that you have to consider here is whether or not there was delivery to transfer ownership of the subject matter. Again

take not, actual or constructive in a contract of sale, sale is a title and not a mode. Registration of a title is separate from the execution of a

public instrument. The recording of the sale with the registry of deeds and the transfer of the certificate of title in the name of the buyer are


necessary only to bind third parties. What do we mean by that? As long as you have already

executed the deed of sale duly notarized, we could say that there is already a disputable presumption of transfer of ownership. Even with

the absence of the registration of the sale with the ROD or that the title of the owner vendor is cancelled and a new one is issued or registered

to the buyer that is only to bind third parties. As with the seller and the buyer, the transfer of ownership takes effect upon the execution of the

public instrument or delivery of the same. Again take note of the three requisites abovementioned.

Now, movable or immovable properties, very easy to determine if you have actual delivery

and constructive delivery. But what about incorporeal properties? We have Articles 1498 and 1501 as well.

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. 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. (1463a)




What do you mean by incorporeal? We are talking of rights or privileges which do not have a

physical existence. So example, your right as a stockholder? What do you see? Stock certificate. But that is only an evidence of your right. If you

will lose that, it doesn’t mean you already lost your right as a stockholder. So how do you sell such incorporeal right or property? Again, you

could have the execution of a public instrument or transfer physical possession of documents evidencing your right. However take note, mere

delivery is not sufficient. What is also required is that there must also be an intention to transfer ownership thereof. A provision in the deed of

sale granting the seller a right to lease the subject matter is valid and by virtue of that you could have a valid constitutum possesorium or

valid transfer of ownership as well. Then we also have traditio brevi manu.

B. DELIVERY/SPECIAL RULES

Madali lang sabihin yung delivery to buyer or

vendor, transfer of ownership, actual or constructive. But what if you delivered goods to a carrier? What is the rule? When is there

transfer of ownership? As a general rule: delivery to the carrier is delivery to the buyer.

However, there are instances depending upon the intention as evidenced by the stipulation between the parties that delivery to the buyer

does not necessarily mean delivery to the carrier. Now why would that be important? Why do we need to consider when delivery transfers

ownership? Because who bears the loss? Owner. If there has been delivery to the carrier, and we apply the general rule that ownership is

transferred to the buyer, then any loss during travel or voyage, then who bears the loss? It’s already the buyer because of the principle, res

perit domino. But again that is only the general rule subject to

stipulation by the parties. Some of which wherein you have rules on delivery to carrier such as the agreement for FAS (Free Along

Side) sales wherein the seller pays all charges and the seller will be the one subject to risk until the goods are placed alongside the vessel.

And we also have FOB (Free On Board) sales. Seller shall bear all the expenses until the goods

are delivered in accordance as to where the goods are to be delivered, FOB at the point of shipment or at the point of destination,

determines when ownership passes. Like for example, you will order goods in Manila

to be transferred to Davao and it could be through a carrier. Agreement: FOB. So let us say this is the ship (*Ma’am draws a ship on the

board.) But for example, as a general rule, delivery to the carrier is delivery to the buyer in Davao. So if anything happens during the

voyage, loss due to fortuitous event, it’s already the buyer who bears the loss. But again, it can be modified by the agreement of the parties.

What if you have here FOB in shipping point? So the shipping point is in Manila. So what would

happen here? Freight will be paid by the seller however since it is shipping point, ownership will already be transferred from Manila. So there is

already transfer of the goods at the time the goods were delivered at shipping point. But if it is an FOB at destination, so pagdating pa ng

goods sa Davao, dun pa may transfer of ownership. Wherein it could mean that i f it is FOB Destination, during voyage then there is no

transfer of ownership, any loss due to fortuitous event will be borne by the seller. Applying the principle of res perit domino.

Now we have here the case of Behn Meyer.

BEHN MEYER VS. YANGCO

FACTS: A sale of 80 drums of caustic soda was

agreed between Behn, Meyer & Co. and Teodoro Yanco. The merchandise was shipped from New York to Manila.

However, the ship carrying the cargo was detained at Penang and the 71 of the 80 drums


were removed. Respondent Yangco also refused to accept the 9 remaining and also refused to

accept the offer of Behn Meyer to have the products substituted with other merchandise, which however were different from what was

ordered. It must be noted that the contract provided for

"c.i.f. Manila, pagadero against delivery of documents."

Yanco filed an action seeking for damages for alleged breach of contract.

ISSUE: WON Behn, Meyer & Co. should bear the burden of the loss of the merchandise? YES

RULING: Rule as to delivery of goods by a vendor via a common carrier (If contract is silent – delivery of seller to common carrier

transfer ownership to buyer). Determination of the place of delivery always resolves itself into a question of act. If the

contract be silent as to the person or mode by which the goods are to be sent, delivery by the vendor to a common carrier, in the usual and

ordinary course of business, transfers the property to the vendee.

Payment of freight by the buyer = acquires ownership at the point of shipment. A specification in a contact relative to the

payment of freight can be taken to indicate the intention of the parties in regard to the place of delivery. If the buyer is to pay the freight, it is

reasonable to suppose that he does so because the goods become his at the point of shipment.

Payment of freight by the seller = title of property does not pass until the goods have reached their destination.

On the other hand, if the seller is to pay the freight, the inference is equally so strong that the duty of the seller is to have the goods

transported to their ultimate destination and that title to property does not pass until the goods have reached their destination.

c.i.f. means Cost, Insurance and Freight = CIF is paid by the seller.

The letters "c.i.f." found in British contracts stand for cost, insurance, and freight. They signify that the price fixed covers not only the cost of the

goods, but the expense of freight and insurance to be paid by the seller.

F.O.B. stands for Free on Board = seller bear all expenses until goods are delivered. In this case, in addition to the letters "c.i.f.," has

the word following, "Manila." In mercantile contracts of American origin the letters "F.O.B." standing for the words "Free on Board," are

frequently used. The meaning is that the seller shall bear all expenses until the goods are delivered where they are to be "F.O.B."

According as to whether the goods are to be delivered "F.O.B." at the point of shipment or at

the point of destination determines the time when property passes. However, both the terms

"c.i.f." and "F.O.B." merely make rules of presumption which yield to proof of contrary intention.

Delivery was to be made at Manila. Hence, we believe that the word Manila in

conjunction with the letters "c.i.f." must mean that the contract price, covering costs, insurance, and freight, signifies that delivery was

to made at Manila. If petitioner Behn Meyer has seriously thought that the place of delivery was New York and Not Manila, it would not have

gone to the trouble of making fruitless attempts to substitute goods for the merchandise named in the contract, but would have permitted the

entire loss of the shipment to fall upon the defendant.

Behn Meyer failed to prove that it performed its part in the contract. In this case, the place of delivery was Manila

and plaintiff (Behn Meyer) has not legally excused default in delivery of the specified merchandise at that place. In resume, we find

that the plaintiff has not proved the performance on its part of the conditions precedent in the contract.

For breach of warranty, the buyer (Yanco) may demand rescission of the contract of

sale. The warranty — the material promise — of the seller to the buyer has not been complied with.

The buyer may therefore rescind the contract of sale because of a breach in substantial particulars going to the essence of the contract.

As contemplated by article 1451 of the Civil Code, the vendee can demand fulfillment of the contract, and this being shown to be impossible,

is relieved of his obligation. There thus being sufficient ground for rescission, the defendant is not liable.

Q: What do you mean by that? CIF? A: Cost, Insurance and Freight.

Q: So what now if it is CIF? A: The price of the goods is not only the price itself but also for the insurance of the freight

which is to be paid by the seller. And it will be charged on the purchase price by the buyer. Q: Why do we need to address the issue of

transfer of ownership here? A: It would determine if Behn Meyer was already in default of its obligation because when

ownership has already transferred to Yangco, then he shall bear the loss. Q: So in this case, who shall bear the loss?

A: In this case it would be Behn Meyer due to the stipulation in the contract that it would be CIF Manila.

BEHN MEYER vs YANGCO: So another agreement that may be agreed upon by the

parties is this arrangement of CIF. In this case, the contract provided for CIF Manila which means that the contract price covers its cost,


insurance and freight and that delivery was to be made in Manila. The inference is that the duty of

the seller is that the goods be transported to their ultimate destination which in this case is Manila. And that title to the property does not

pass unless the goods have reached its destination. Since the goods were confiscated before reaching the destination, Manila, then it is

obvious that Behn Meyer should suffer any loss. Therefore, Yangco should not be held liable. If the plaintiff company had seriously thought that

the place of delivery was New York and not Manila, it could not have gone through the trouble of making fruitless attempts of substitute

goods for the merchandise but it could not have permitted the loss of the shipment to fall upon the defendants. So here, the buyer may rescind

the sale because of a breach which is substantial or particular, going into the essence of the contract.

Now, another arrangement that you could also take note of is Sale of approval, trial or

satisfaction. We have Article 1502.

Art. 1502. When goods are delivered to the

buyer “on sale or return” to give the buyer an option to return the goods instead of paying the price, the ownership passes to the buyer

of delivery, but he may revest 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. (n) 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:

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

(2.) 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.

Alright, sale or return on one hand and sale or approval on the other hand also known as Sale on Approval, Sale on Acceptance, Sale on Trial

and Sale on Satisfaction. Please take note the distinctions between these contracts. In sale or return, ownership passes to the buyer upon

delivery pursuant to a perfected CoS. The subsequent return of the goods reverts ownership back to the seller. So here, delivery,

as a mode of acquiring ownership, it must be in consequence of a contract. In other words, let us say you want to purchase goods, the goods

were delivered to you and the agreement is sale or return. Upon delivery, ownership is transferred to you and therefore you will bear the

loss. However, you are given the right to return the goods if it is not upon your satisfaction within a fixed time as agreed upon by the parties like

you can return it to me after 1 week from the time of delivery. After 1 week if you did not

return the goods then you cannot return it thereafter. Or within a reasonable time, like for example the agreement was sale or return but

you did not stipulate as to when the buyer can deliver the goods back to you if he finds it unsatisfactory. Nevertheless, take into

consideration if the goods has been used already or did he exercise rights and ownership over the goods. Then that would mean that there

is already absolute ownership on the part of the buyer. What happens in sale or return is that upon return, ownership is revested back to the

seller. How about in sale on approval? On sale on

approval, there is delivery but since the parties agreed that there is sale on approval, such delivery did not transfer ownership to the buyer

because the delivery was not for the purpose of transferring ownership since the prestation to effect a meeting of the minds was to give rise to

a valid contract is incumbent on the buyer. Now, here what would happen? The seller would wait for the buyer’s approval as to the goods if it is to

his liking or satisfaction. If he says that this is satisfactory then he retains it then that is the time when ownership is transferred to said

buyer, upon his approval, upon his acceptance. However, there would be instances that this is the agreement: sale on approval, sale on trial

but within a period of time, the buyer did not give any notice that he rejects the goods or that he did not give any notice if he has accepted the

goods. Now take into the consideration that the absence of notice of rejection would mean that he has already accepted the goods and that

there is transfer of ownership. Again, we will also take into consideration whether the parties have agreed if fixed time. If in 1 week you try the

goods and you find the goods unsatis factory, you can return it. Return in the sense that ibalik lang yung goods but there was no transfer of

ownership upon the first delivery. However for example within a reasonable time nag-lapse na or wala pa binalik or i f for example the buyer has

already exercised rights of ownership, then we could already say that there has been approval of the sale.

Now take note that in order for sale on return or sale on approval, there must be a clear

agreement to either of such effect. The parties clearly agreed na sale on return or sale on approval yun. Otherwise, we would not apply

1502. I missed this case DAVID vs MISAMIS

OCCIDENTAL.

DAVID VS MISAMIS OCCIDENTAL

FACTS: Petitioner Virgilio S. David (David) was the owner or proprietor of VSD Electric Sales, a

company engaged in the business of supplying electrical hardware including transformers for rural electric cooperatives like respondent


Misamis Occidental II Electric Cooperative, Inc. (MOELCI), with principal office located in

Ozamis City. To solve its problem of power shortage affecting

some areas within its coverage, MOELCI expressed its intention to purchase a 10 MVA power transformer from David. For this reason,

its General Manager, Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latter’s office in Quezon City. David agreed to supply the

power transformer provided that MOELCI would secure a board resolution because the item would still have to be imported.

The board resolution was thereafter attached to the proposal. As stated in the proposal, the

subject transformer, together with the basic accessories, was valued at P5,200,000.00. It was also stipulated therein that 50% of the

purchase price should be paid as downpayment and the remaining balance to be paid upon delivery. Freight handling, insurance, customs

duties, and incidental expenses were for the account of the buyer.

The Board Resolution, on the other hand, stated that the purchase of the said transformer was to be financed through a loan from the National

Electrification Administration (NEA). As there was no immediate action on the loan application, Engr. Rada returned to Manila in early

December 1992 and requested David to deliver the transformer to them even without the required downpayment. David granted the

request provided that MOELCI would pay interest at 24% per annum. Engr. Rada acquiesced to the condition. On December 17,

1992, the goods were shipped to Ozamiz City via William Lines. In the Bill of Lading, a sales invoice was included which stated the agreed

interest rate of 24% per annum. When no payment was made after several

months, Medina was constrained to send a demand letter, dated September 15, 1993, which MOELCI duly received. Engr. Rada replied in

writing that the goods were still in the warehouse of William Lines again reiterating that the loan had not been approved by NEA. This prompted

Medina to head back to Ozamiz City where he found out that the goods had already been released to MOELCI evidenced by the shipping

company’s copy of the Bill of Lading which was stamped "Released," and with the notation that the arrastre charges in the amount of P5,095.60

had been paid. This was supported by a receipt of payment with the corresponding cargo delivery receipt issued by the Integrated Port

Services of Ozamiz, Inc. On February 17, 1994, David filed a complaint

for specific performance with damages with the RTC. In response, MOECLI moved for its dismissal on the ground that there was lack of

cause of action as there was no contract of sale, to begin with, or in the alternative, the said contract was unenforceable under the Statute of

Frauds. MOELCI argued that the quotation letter could not be considered a binding contract

because there was nothing in the said document from which consent, on its part, to the terms and conditions proposed by David could be inferred.

David knew that MOELCI’s assent could only be obtained upon the issuance of a purchase order in favor of the bidder chosen by the Canvass

and Awards Committee. ISSUE:

Whether or not there was a perfected contract of sale. Whether or not there was a delivery that

consummated the contract. RULING: The Court finds merit in the petition.

First issue: The elements of a contract of sale are, to wit: a) Consent or meeting of the minds,

that is, consent to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price certain in money or its

equivalent.9 It is the absence of the first element which distinguishes a contract of sale from that of a contract to sell.

An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form,

would show that said document, with all the stipulations therein and with the attendant circumstances surrounding it, was actually a

Contract of Sale. The rule is that it is not the title of the contract, but its express terms or stipulations that determine the kind of contract

entered into by the parties.12 First, there was meeting of minds as to the transfer of ownership of the subject matter. The letter (Exhibit A),

though appearing to be a mere price quotation/proposal, was not what it seemed. It contained terms and conditions, so that, by the

fact that Jimenez, Chairman of the Committee on Management, and Engr. Rada, General Manager of MOELCI, had signed their names

under the word "CONFORME," they, in effect, agreed with the terms and conditions with respect to the purchase of the subject 10 MVA

Power Transformer. As correctly argued by David, if their purpose was merely to acknowledge the receipt of the proposal, they

would not have signed their name under the word "CONFORME."

Besides, the uncontroverted attending circumstances bolster the fact that there was consent or meeting of minds in the transfer of

ownership. To begin with, a board resolution was issued authorizing the purchase of the subject power transformer. Next, armed with the said

resolution, top officials of MOELCI visited David’s office in Quezon City three times to discuss the terms of the purchase. Then, when

the loan that MOELCI was relying upon to finance the purchase was not forthcoming, MOELCI, through Engr. Rada, convinced David

to do away with the 50% downpayment and deliver the unit so that it could already address its acute power shortage predicament, to which


David acceded when it made the delivery, through the carrier William Lines, as evidenced

by a bill of lading. Second, the document specified a determinate

subject matter which was one (1) Unit of 10 MVA Power Transformer with corresponding KV Line Accessories. And third, the document stated

categorically the price certain in money which was P5,200,000.00 for one (1) unit of 10 MVA Power Transformer and P2,169,500.00 for the

KV Line Accessories. In sum, since there was a meeting of the minds,

there was consent on the part of David to transfer ownership of the power transformer to MOELCI in exchange for the price, thereby

complying with the first element. Thus, the said document cannot just be considered a contract to sell but rather a perfected contract of sale.

Second issue: MOELCI, in denying that the power transformer was delivered to it, argued

that the Bill of Lading which David was relying upon was not conclusive. It argued that although the bill of lading was stamped "Released," there

was nothing in it that indicated that said power transformer was indeed released to it or delivered to its possession. For this reason, it is

its position that it is not liable to pay the purchase price of the 10 MVA power transformer.

To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:

2. Delivery – Ninety (90) working days upon receipt of your purchase order and

downpayment. C&F Manila, freight, handling, insurance, custom

duties and incidental expenses shall be for the account of MOELCI II. 13 (Emphasis supplied)

On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that the freight, handling, insurance, custom

duties, and incidental expenses shall be shouldered by it.

On the basis of this express agreement, Article 1523 of the Civil Code becomes applicable.1âwphi1 It provides:

Where, in pursuance of a contract of sale, the seller is authorized or required to send the

goods to the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is

deemed to be a delivery of the goods to the buyer, except in the cases provided for in Article 1503, first, second and third paragraphs, or

unless a contrary intent appears. (Emphasis supplied)

Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed to be a delivery to MOELCI. David

was authorized to send the power transformer to the buyer pursuant to their agreement. When

David sent the item through the carrier, it amounted to a delivery to MOELCI.

Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,14 it was pointed out that a specification in a contract relative to the payment

of freight can be taken to indicate the intention of the parties with regard to the place of delivery. So that, if the buyer is to pay the freight, as in

this case, it is reasonable to suppose that the subject of the sale is transferred to the buyer at the point of shipment. In other words, the tit le to

the goods transfers to the buyer upon shipment or delivery to the carrier.

Of course, Article 1523 provides a mere presumption and in order to overcome said presumption, MOELCI should have presented

evidence to the contrary. The burden of proof was shifted to MOELCI, who had to show that the rule under Article 1523 was not applicable. In

this regard, however, MOELCI failed. There being delivery and release, said fact

constitutes partial performance which takes the case out of the protection of the Statute of Frauds. It is elementary that the partial execution

of a contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the essential requisites of consent of the

contracting parties, object and cause of the obligation concur and are clearly established to be present.

Q: Why was there an issue with regard to the perfection of the sale?

A: Misamis contends that proposal did not contain all the elements of the sale. However, the SC said that it did because it manifested all

the elements which are consent (signing of conforme), subject matter (electrical hardware requested) and consideration (P5.2M). And it

also provided for the terms of payment. DAVID vs MISAMIC OCCIDENTAL: Take note

that this also as to agreements between the parties, apply the general rule that delivery to carrier is delivery to the buyer. Also, the

arrangement between the parties as to who will shoulder the expenses. Again, the special rules as to delivery was taken into consideration.

Now, we have already discussed sale on approval, trial or satisfaction under 1502. We will

also have sale by description and or sample under 1481.

Art. 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods

delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not

sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description.


The buyer shall have a reasonable opportunity of comparing the bulk with the

description or the sample. (n)

Alright, 3 kinds of sale are discussed under

1481. Sale by description, sale by sample, and sale by description and sample. 1481 is very to understand. Sale was by description, description

made by the seller, you rely on that. If what was delivered is different from what has been described then the seller could be held liable. If

the sale was made through a sample and the sample was different from what has been delivered, again that would constitute breach. If

the sale was by description and sample, then it must conform to the description made by the seller as well as to the sample that was

presented to the buyer. Otherwise the seller would be held liable. There is a sale by sample when a small quantity is exhibited as a fair

specimen of the bulk which is not present and there is no opportunity on the part of the buyer to inspect or examine the whole. The parties

treated the sample as the standard for quality and they contracted with reference to the sample with the understanding that the product that

would be delivered would be correspondent to the sample that was presented.

We also have here with regard to delivery of movables, Article 1522.

Art. 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them,

but if the buyer accepts or retains the goods so delivered, knowing that the seller is not going to perform the contract in full, he must

pay for them at the contract rate. If, however, the buyer has used or disposed of the goods delivered before he knows that the seller is

not going to perform his contract in full, the buyer shall not be liable for more than the fair value to him of the goods so received.

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods

included in the contract and reject the rest. I f the buyer accepts the whole of the goods so delivered he must pay for them at the

contract rate. Where the seller delivers to the buyer the goods he contracted to sell mixed with

goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the

contract and reject the rest. In the preceding two paragraphs, if the subject matter is indivisible, the buyer may

reject the whole of the goods. The provisions of this article are subject to any usage of trade, special agreement, or

course of dealing between the parties. (n)

So again, subject matter is movables. If what has been delivered is less than what has been

agreed upon, the buyer can reject the whole or accept what has been delivered even if it is less than of what has been agreed upon, at a

contract rate knowing that what has been delivered was not in full.

However, if what has been delivered is less than what agreed upon but was used by the buyer

before knowledge that there was no full delivery or performance, the buyer would be liable for the fair value of the goods received.

If what has been delivered is larger than what was agreed upon, the buyer can accept what

was agreed upon and reject the rest or he can accept all what has been delivered but he has to pay the corresponding price especially with

regard to the excess. However, if the subject matter is indivisible, the buyer has the right to reject even if what has

been larger or more than what was agreed upon. Now, if what has been delivered is different from

what has been agreed upon, again accept those which conform to their agreement and/or reject the rest. Or if he decides to accept them, he

would be liable for the corresponding price. Now again if it is indivisible, he has the right to reject what has been delivered for failure to conform

with what was agreed upon. Now buyer’s right to inspect before acceptance,

this is also mentioned in 1481 and 1484.

Art. 1481. In the contract of sale of goods by

description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the

description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond

with the sample if they do not also correspond with the description. The buyer shall have a reasonable

opportunity of comparing the bulk with the description or the sample. (n)

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.

(1454-A-a)

The buyer has the right to inspect the goods

before accepting it but such acceptance is not an absolute right. In other words, it must be raised or ascertained by the buyer. And if the

buyer asserts such right to inspect the goods before acceptance then the seller as well as the carrier has the obligation to allow the buyer to


inspect the goods. However, if the goods have been delivered and the buyer did not raise his

right to inspect the goods before he accepts it, then he is deemed to have waived such right.

However there is an exception, when the carrier delivers COD. Cash on delivery. When the agreement is cash on delivery, that is under

1584, the buyer has no absolute right to inspect the goods. In other words, the only condition here is that delivery will be made upon payment

of the price as agreed upon. But it does not mean that the buyer has accepted the goods without inspecting it because it was COD or

without inspecting it because he failed to raise his right, it does not mean that you cannot go after the seller for any breach. For delivery of

goods which turn out to be defective or different from what was agreed upon. Again, such acceptance does not negate the right for the

buyer to go against the seller for any breach. But of course, the demand for liability for reason of breach for failing to deliver goods which are

different from that agreed upon must be made within a reasonable time so as not to prejudice the seller.

Now in case of immovable for sale of goods we have 1539 and 1540.

Art. 1539. The obligation to deliver the thing sold includes that of placing in the control of

the vendee all that is mentioned in the contract, in conformity with the following rules:

If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the

vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but,

should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract,

provided that, in the latter case, the lack in the area be not less than one-tenth of that stated.

The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract.

The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one-

tenth of the price agreed upon. Nevertheless, if the vendee would not have bought the immovable had he known of its

smaller area of inferior quality, he may rescind the sale. (1469a) Art. 1540. If, in the case of the preceding

article, there is a greater area or number in the immovable than that stated in the contract, the vendee may accept the area

included in the contract and reject the rest. I f he accepts the whole area, he must pay for the same at the contract rate. (1470a)

Do take note of that. Because when it comes to an immovable, you have to distinguish whether

the sale was made per unit or number. Like for example, 1000/sq.m. I will sell to you this parcel

of land for 1000/sq.m. And there are also instances when the immovable will be sold for a lump sum regardless of the square meters of a

property, I sell to you this property covered by TCT No. 12345 for PhP500,000.

So for sale of real property per unit or per number, you have 1538 and 1540. In a unit price sale, the statement of the area of the immovable

is not conclusive and the price may be reduced or increased depending on the area actually delivered. If the representation for example 100

sq.m. at 1000/sq.m., upon delivery hindi naman pala 100 sq.m. It was only 90, magkano obligation ni seller? 90 at 1000 per square

meter. If the vendor delivers less than agreed upon, the vendee may obliged the vendor to deliver all that has been stated in the contract or

demand for the proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more than what is stated in the

contract, the vendee has the option to accept only the amount agreed upon or to accept the whole area provided he pays for the additional

area at the contract rate. However in this instance also take note the

remedy of rescission is not applicable if the difference is not more than 1/10 of what has been agreed upon.

Also, you have there sale for a lump sum under 1542.

Art. 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain

sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less area or

number than that stated in the contract. The same rule shall be applied when two or more immovables as sold for a single price;

but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be

designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the

area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion

to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to

deliver what has been stipulated. (1471)

In a lump sum sale, when the land delivered to

the buyer is exactly as that described in the deed and covered within the boundaries designated, the difference in the actual area as a

general rule, will not authorize the buyer to rescind the contract because the seller has complied with delivery of the subject as agreed

upon. Usually you would see this, I sell this parcel of land covered by this title, 200 square meters more or less. More or less, it’s just


describing the property. If it turns out that it is a little less than or more than 200 square meters,

you have to take note whether the sale was for a lump sum. This property covered by this title for PhP500,000 containing an area of 200 sq.m.

more or less, if what was delivered is only 190 sq.m., you cannot just ask for a reduction of the price because what was sold to you was the

property itself covered by this title. The intention here was for the whole property. Unlike in sale per unit or number, if what was delivered is less

than or more than, the buyer has remedies available under the law.

So again 1542. This is applicable when evidence shows that the parties never gave importance to the area of the land in fixing the price. However

take note of an exception. A buyer of land when sold in gross or with description more or less or similar words in designating quantity covers only

a reasonable excess of deficiency. Again what is reasonable or excess or deficiency depends upon the circumstances of each case. If you say

200 sq.m. more or less, siguro sabihin natin kulang ng 10, pwede pa yan. Pero kung 100 sq.m. na lang ang nadeliver sayo, it would not

be unreasonable to ask for the reduction of the price.

And then you also have the rules with place of delivery under 1521.

Art. 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a question

depending in each case on the contract, express or implied, between the parties. Apart from any such contract, express or

implied, or usage of trade to the contrary, the place of delivery is the seller's place of business i f he has one, and if not his

residence; but in case of a contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale was

made were in some other place, then that place is the place of delivery. Where by a contract of sale the seller is

bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable

time. Where the goods at the time of sale are in the possession of a third person, the seller has

not fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the

goods on the buyer's behalf. Demand or tender of delivery may be treated as ineffectual unless made at a reasonable

hour. What is a reasonable hour is a question of fact. Unless otherwise agreed, the expenses of

and incidental to putting the goods into a deliverable state must be borne by the seller. (n)

Alright, under 1521 you have there who bears the expenses with regard to delivery. Also

delivery must be made within a reasonable hour depending upon the circumstances of the case.

Also 1521, the place of delivery. Looking at this provision, it would be already familiar to you with what you have there under obligations and

contracts. I think it’s article 1251.

Art. 1251. Payment shall be made in the place

designated in the obligation. There being no express stipulation and if the undertaking is to deliver a determinate thing,

the payment shall be made wherever the thing might be at the moment the obligation was consti tuted.

In any other case the place of payment shall be the domicile of the debtor. If the debtor changes his domicile in bad

faith or after he has incurred in delay, the additional expenses shall be borne by him. These provisions are without prejudice to

venue under the Rules of Court. (1171a)

Place of delivery, first is stipulation of the parties.

In the absence of stipulation, you have here seller’s place of business. If there is no place of business, his residence. However, in the

absence of stipulation and the subject matter be specific goods, then the place at the time of its perfection. So just take note of the rules

provided in 1521. So take note of the different types of

constructive delivery. 1. Traditio Symbolica 2. Traditio Longa Manu

3. Traditio Brevi Manu 4. Constitutum Possessorium 5. Quasi-traditio

You have Quasi-traditio with regard to incorporeal property; for example, rights of

stockholders. When is there delivery thru quasi -traditio? Execution of a public instrument.

Now we go to Double Sale. Essentially what happens in a double sale? We

have a subject matter which is sold by one vendor to two or more vendees who do not represent the same interest.

So we very well know by now that ownership is not required at the time of the perfection of the

contract of sale. So you still have a valid sale even if you were not the owner thereof, even if you do not yet deliver it at the time of perfection.

But what is the effect if we have one seller of the same subject property to the 2 different

persons? Who has the better right? So the rule on double sale will give us the

answer.

Art. 1544. If the same thing should have been

sold to different vendees, the ownership shall be transferred to the person who may


have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person

acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and,

in the absence thereof, to the person who presents the oldest ti tle, provided there is good faith.

But before we apply Art. 1544, we have to know WHEN is there a double sale?

SPOUSES ROQUE vs. AGUADO, et.al. G.R. No. 193787 April 7, 2014

PONENTE: Perlas-Bernabe, J. TOPIC: Contract of conditional sale, contract to

sell, double sale FACTS: On July 21, 1977, petitioners-spouses

Roque and the original owners of the then unregistered Lot 18089 – namely, Rivero, et al. executed the 1977 Deed of Conditional Sale

over a 1,231-sq. m. portion of Lot 18089 for a consideration of P30,775.00. The parties agreed that Sps. Roque shall make an initial payment of

P15,387.50 upon signing, while the remaining balance of the purchase price shall be payable upon the registration of Lot 18089, as well as the

segregation and the concomitant issuance of a separate title over the subject portion in their names. After the deed’s execution, Sps. Roque

took possession and introduced improvements on the subject portion which they utilized as a balut factory.

Pertinent provision of the 1977 Deed of Conditional Sale:

DEED OF CONDITIONAL SALE OF REAL PROPERTY

KNOW ALL MEN BY THESE PRESENTS: x x x That for and in consideration of the sum of

THIRTY THOUSAND SEVEN HUNDRED SEVENTY FIVE PESOS (P30,775.00), Philippine Currency, payable in the manner

hereinbelow specified, the VENDORS do hereby sell, transfer and convey unto the VENDEE, or their heirs, executors, administrators, or

assignors, that unsegregated portion of the above lot, x x x. That the aforesaid amount shall be paid in two

installments, the first installment which is in the amount of __________ (P15,387.50) and the balance in the amount of __________

(P15,387.50), shall be paid as soon as the described portion of the property shall have been registered under the Land Registration Act

and a Certificate of Title issued accordingly; That as soon as the total amount of the property has been paid and the Certificate of Title has

been issued, an absolute deed of sale shall be executed accordingly;

x x x On August 12, 1991, Sabug, Jr, applied for a

free patent over the entire Lot 18089 and was eventually issued OCT No. M-59558 in his name on October 21, 1991. On June 24, 1993, Sabug,

Jr. and Rivero, in her personal capacity and in representation of Rivero, et al., executed the 1993 Joint Affidavit, acknowledging that the

subject portion belongs to Sps. Roque and expressed their willingness to segregate the same from the entire area of Lot 18089.

On December 8, 1999, however, Sabug, Jr., through the 1999 Deed of Absolute Sale, sold

Lot 18089 to Aguado for P2,500,000.00, who, in turn, caused the cancellation of OCT No. M-5955 and the issuance of TCT No. M-96692

dated December 17, 199911 in her name. Thereafter, Aguado obtained an P8,000,000.00

loan from the Land Bank secured by a mortgage over Lot 18089. When she failed to pay her loan obligation, Land Bank commenced extra-judicial

foreclosure proceedings and eventually tendered the highest bid in the auction sale. Upon Aguado’s failure to redeem the subject property,

Land Bank consolidated its ownership, and TCT No. M-11589513 was issued in its name on July 21, 2003.

On June 16, 2003, Sps. Roque filed a complaint for reconveyance, annulment of sale, deed of

real estate mortgage, foreclosure, and certificate of sale, and damages before the RTC.

Aguado: innocent purchaser for value Landbank: no knowledge of Sps. Claim. At the

time when the loan was taken out, Lot 18089 was registered in Aguado’s name and no lien was annotated on COT.

RTC: dismissed complaint of spouses roque and NCCP.

CA: affirmed RTC ruling.

ISSUE: Whether or not the 1977 Deed of Conditional Sale is a conditional contract of sale or a contract to sell.

HELD: It is a CONTRACT TO SELL. The Court held that where the seller promises to execute a

deed of absolute sale upon the completion by the buyer of the payment of the purchase price, the contract is only a contract to sell even if their

agreement is denominated as a Deed of Conditional Sale, as in this case. This treatment stems from the legal characterization of a

contract to sell, that is, 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 subject property exclusively to the prospective buyer upon


fulfillment of the condition agreed upon, such as, the full payment of the purchase price. Elsewise

stated, in a contract to sell, ownership is retained by the vendor and is not to pass to the vendee until full payment of the purchase price.

In contracts to sell the obligation of the seller to sell becomes demandable only upon the

happening of the suspensive condition, that is, the full payment of the purchase price by the buyer. It is only upon the existence of the

contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Prior to the existence of the

contract of sale, the seller is not obligated to transfer the ownership to the buyer, even if there is a contract to sell between them.

Final installment not paid thus no perfected contract of sale

Here, it is undisputed that Sps. Roque have not paid the final installment of the purchase price. As such, the condition which would have

triggered the parties’ obligation to enter into and thereby perfect a contract of sale in order to effectively transfer the ownership of the subject

portion from the sellers (i.e., Rivero et al.) to the buyers (Sps. Roque) cannot be deemed to have been fulfilled. Consequently, the latter cannot

validly claim ownership over the subject portion even if they had made an initial payment and even took possession of the same.

Conditional contract of sale and contract to sell in relation to double sale

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by

the owner not to the party the seller contracted with, but to a third person, as in the case at bench.

In a contract to sell, there being no previous sale of the property, a third person buying

such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance,

cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property.

There is no double sale in such case. Title to the property will transfer to the buyer after

registration because there is no defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by the

intending buyer. On the matter of double sales, suffice it to state

that Sps. Roque’s reliance64

on Article 154465

of the Civil Code has been misplaced since the contract they base their claim of ownership on is,

as earlier stated, a contract to sell, and not one of sale. In Cheng v. Genato,

66 the Court stated

the circumstances which must concur in order to

determine the applicability of Article 1544, none of which are obtaining in this case, viz.:

(a) The two (or more) sales transactions in issue must pertain to exactly the same subject matter,

and must be valid sales transactions; (b) The two (or more) buyers at odds over the right ful ownership of the subject matter must

each represent conflicting interests; and (c) The two (or more) buyers at odds over the right ful ownership of the subject matter must

each have bought from the same seller. The action for reconveyance shall fail.

How was it determined that the contract here was actually a Contract to Sell and not a

Conditional Sale despite the nomenclature given by the parties?

We have the provision that “as soon as the total amount of the property has been paid, and the certificate of title has been issued, an absolute

deed of sale shall be executed accordingly.” So here the deed of conditional sale is actually

in the nature of a contract to sell, and not of sale. Again, where the seller promises to execute a deed of sale upon completion of the buyer of the

payment of the purchase price, the contract is only a contract to sell, even if denominated as a conditional sale.

Here, the spouses Roque have not paid the final installment of the purchase price, so the

condition that would have triggered the parties’ obligation to enter into and thereby perfect a contract of sale in order to effectively transfer

ownership, cannot be deemed to have been fulfilled. So the latter cannot claim valid ownership over the subject portion even if they

have made initial payments and even thru possession thereof.

Take note of the requisites mentioned by the SC in order to apply 1544. If you look at it, there are only 3 requisites enumerated. But try to dissect

the first requisite: The two (or more) sales transactions in issue must pertain to exactly the same subject matter,

AND must be valid sales transactions. So the requisites actually are:

(a) The two (or more) sales transactions in issue must pertain to exactly the same subject matter;

(b) Must be valid sales transactions; (c) The two (or more) buyers at odds over

the rightful ownership of the subject

matter must each represent conflicting interests; and

(d) The buyers must each have bought from

the same seller. In (c), why would that be relevant? Because you

may have 2 different buyers, but the other buyer may only have acted as a representative of the other; principal and agent. So if principal and

agent yung dalawang buyers, no need to apply the rule on Double Sale.


In (d), it may be that the sellers are different persons but the other seller might only be an

agent of the other. So in that instance, you can apply the rule on Double Sale.

Again, two different buyers with conflicting interests, SAME seller. If you have 2 sellers but one is a principal and the other is an agent, you

can apply 1544. But if you have 2 different personalities acting a seller, then 1544 is not applicable.

So once all these requisites are present, then you apply the rule on Double Sale.

IF you try to look at Art. 1544, it would seem easy to determine the rules when there is a

double sale. So when it comes to movable or personal

property, the buyer who has a better right is one who has taken possession, take note, IN GOOD FAITH. In other words, when we say good faith,

he had no knowledge of any defect in the title of the seller, had no knowledge of any prior buyer with regard to the same property.

For example, you have your laptop; you will sell it to Juan. The sale is perfected by mere

consent, even if you have not yet delivered the subject property. So you told your friend, “I will just give it to you the next day.” But the next day,

you sell it to another person, and this time you delivered the exact same subject matter, the laptop. So as to those 2 persons, the second

buyer has the better right over the subject matter because he first took possession, as long as in good faith.

Again take note; these two contracts of sale are VALID contracts because a sale is a consensual

contract perfected by mere consent. Art. 1544 is applicable because all the requisites

mentioned earlier are present. Then what is the nature of the subject matter? Since the subject matter is a movable property, then better right

belong to the person who first took possession of the subject matter in good faith.

Now, how about i f it’s a real or immovable property? If you look at 1544, better right belongs to the buyer who first registers the sale

in good faith. Registration here means actual recording or

subjecting the property under the Torrens System; you have the Deed of Sale duly annotated before the Register of Deeds. A deed

of sale is considered registered at the moment it is entered or recorded in the entry or ___ book of the Register of Deeds.

What if none of the buyers registered the sale? In the absence of registration, take into

consideration who first took possession of the subject property, again, IN GOOD FAITH.

Possession here will only apply in the absence of registration.

In the absence of registration AND possession, then we take into consideration the person who

presents the oldest title, provided again there is good faith. So title here is one as a result of a sale, and not any other title or mode of acquiring

property. Take note, we are talking about a sale here, so you have to have a buyer who is a purchaser in good faith to fall within the

requirements under 1544. A purchaser in good faith is one who buys the

property of another without notice that some other person has a right to or interest in such property, and pays a full and fair price for the

same at the time of such purchase or before he has notice of the claim or interest of some other person in the property.

However when you have businesses who are involved in real estate development, banks or

financial institutions, the diligence required for them to be considered in good faith are higher because of the nature of their transactions.

With regard to sale, take note of the principle of CAVEAT EMPTOR – buyer beware. Caveat

emptor requires the buyer to be aware of the supposed title of the seller, and he who buys without checking the seller’s title takes all the

risks and losses consequent to such failure.

CORONEL vs CA

FACTS: The petition involves a complaint for specific performance to compel petitioners to

consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties

sometime in January 1985 for the price of P1,240,000.00.

On January 19, 1985, defendants-appellants Romulo Coronel, et al. (Coronels) executed a document entitled "Receipt of Down Payment" in

favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona)

Clearly, the conditions appurtenant to the sale are the following: 1. Ramona will make a down payment P50,000.00 upon execution of the

document aforestated; 2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their

deceased father upon receipt of the P50,000.00 down payment; 3. Upon the transfer in their names of the subject property, the Coronels will

execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of P1,190,000.00.

On the same date (January 15, 1985), Concepcion D. Alcaraz (Concepcion), mother of Ramona, paid the down payment of P50,000.00.

On February 6, 1985, the property originally registered in the name of the Coronels' father


was transferred in their names under TCT No. 327043.

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to

intervenor-appellant Catalina B. Mabanag (Catalina) for P1,580,000.00 after the latter has paid P300,000.00. For this reason, Coronels

canceled and rescinded the contract with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona

Patricia Alcaraz . On February 22, 1985, Concepcion, et al., filed a

complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403.

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same

property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina to which a new title over the

subject property was issued in her name. ISSUE: WON the "Receipt of Down Payment"

embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific performance or signified only

a mere executory contract to sell, subject to certain suspensive conditions/ WON double sale applies.

RULING: The parties (Coronel and Alcaraz) 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, Constancio P.

Coronel, to their names. It is essential to distinguish between a contract

to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted

with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person

buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance,

cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no

double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller's

title per se, but the latter, of course, may be used for damages by the intending buyer. In a conditional contract of sale, however, upon

the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had

been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that,

the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the

Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or

at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the

first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

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.

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 i f 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.

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 Romeo A. Coronel, et al., 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, Constancio

P. Coronel, to their names. The Court significantly notes this suspensive

condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between


petitioners and private respondent Ramona P. Alcaraz 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."

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise

to a case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first

taken possession thereof in good faith, if it should be movable property. Should if be immovable property, the ownership shall belong

to the person acquiring it who in good faith first recorded it in Registry of Property. Should there be no inscription, the ownershipshall pertain to

the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest tit le, provided

there is good faith. The above-cited provision on double sale

presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale

ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires

possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer

to him to the prejudice of the first buyer. Petitioner point out that the notice of lis pendens

in the case at bar was annoted on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners

Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at

the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale,

for which reason she is buyer in good faith. We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second

buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of

any defect in the title of the property sold. As clearly borne out by the evidence in this

case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February

22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner

Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore,

petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with

knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in

petitioners' title to the property at the time of the registration of the property.

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that

between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below.

So you really have to master the concept of a Contract to Sell, and how it is different from a

sale and a conditional sale. This was again emphasized here. In a

Conditional Contract of Sale, the first element of consent is present although it is conditioned upon the happening of a contingent event which

may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated.

Here, even if the parties stipulated that the Coronels will execute the Deed of Sale upon the

transfer in their names of the subject property, this does not necessarily mean that what they entered into was a Contract to Sell. The

agreement could not have been a contract to sell, because the sellers here made no express made no reservation of ownership or title to the

subject parcel of land. In fact, the condition here was the transfer of the

title, not the full payment of the purchase price, which is the condition that exists in a contract to sell.

So what is involved here is a Conditional Contract to Sell; then we could apply Art. 1544.

Remember, in the last paragraph of Art. 1458: a sale may be absolute or conditional. So valid sale pa rin even if it is conditional.

Here, what is involved? Immovable property. So, we take into consideration the second

paragraph. Was there registration? Petitioner Mabanag registered the same.

Was she in good faith so that she would have a better right? Mabanag could not have, in good faith, registered the sale entered into on

February 18, 1985 because a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners.

Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property

had already been previously sold to private respondents, or, at least, she was charged with


knowledge that a previous buyer is claiming title to the same property.

Take note, even if Mabanag would not have personally seen the annotation on the sale, such

registration or inscription or annotation is deemed constructive knowledge.

So Mabanag cannot close her eyes to the defect in petitioners' title to the property at the time of the registration of the property.

If a vendee in a double sale registers the property AFTER he has acquired knowledge that

there was a previous sale to a third person, or that another person claim said property in a previous sale, the registration may constitute

bad faith and do not confer upon him any right. So in the absence of registration, what’s the next

rule? Possession in good faith. In this case, Mabanag could not have been considered as a buyer in good faith.

Take note here that the sale was perfected, even if what he only had was a receipt of

downpayment with conditions indicated therein. Now we already know that even if you are not the owner of the property, you could sell.

Ownership is not yet required in perfection. So walang problema dito. The property was also not a future inheritance because their father was

already deceased. The only condition here is that hindi nila matransfer yung title because the title was still in the name of their deceased

father. They still have to process it so that the title will be transferred upon the heirs.

Does it mean that hindi na talaga tayo makabenta ng property na naka register na sa ibang tao? Not necessarily. Because title is only

an evidence, but not a conclusive evidence that the person is the owner thereof.

If that person dies, we know that succession opens the rights of the heirs to the property. So hindi na yan future inheritance, pwede na nila

ibenta ang kanilang interests and rights over the said property.

So the transaction here is actually valid, but for practical purposes in the future, what could be possible done? You can execute an

extrajudicial settlement of the deceased WITH deed of sale. Intention of the parties, para isa nalang. Kaya siguro ditto, naniguro lang din

yung parties na ‘hintayin natin ma -transfer sa inyo‘, and then saka nila i-process yung Deed of Absolute Sale.

What would happen here is that hindi na nila hintayin na ma-transfer ang title sa heirs. So

pagpunta sila sa BIR, sa Register of Deeds, they just have to present the Extrajudicial Settlement with Sale. Actually makabawas siya ng gasto

with regard sa processing fees sa ROD.

We also have this case:

SAN LORENZO DEVELOPMENT CORPORATION VS. CA

G.R. NO. 124242, January 21, 2005

FACTS: On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to

respondent Pablo Babasanta for the price of P15 per square meter. The latter made a downpayment of P50,000.00 as evidenced by a

memorandum receipt issued by Pacita Lu of the same date. Several other payments totaling P200,000.00 were made by Babasanta.

Babasanta demanded the execution of a Final Deed of Sale in his favor so he may effect full

payment of the purchase price and notified the spouses about having received information that the spouses sold the same property to another

without his knowledge and consent. He demanded that the second sale be cancelled and that a final deed of sale be issued in his

favor. In response, Pacita Lu wrote a letter to

Babasanta wherein she acknowledged having agreed to sell the property, but reminded Babasanta that when the balance of the

purchase price became due, he requested for a reduction of the price and when she refused, Babasanta backed out of the sale. Pacita added

that she returned P50,000.00 to Babasanta through Eugenio Oya. Thus, Babasanta filed a case for Specific Performance and Damages.

On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed

a Motion for Intervention and alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the two

parcels of land involved had been sold to it in a Deed of Absolute Sale with Mortgage. It alleged that it was a buyer in good faith and for value

and therefore it had a better right over the property in litigation.

Respondent Babasanta argued that the latter had no legal interest in the case because the two parcels of land involved had already been

conveyed to him by the Spouses Lu and hence, the vendors were without legal capacity to transfer or dispose of the two parcels of land to

the intervenor. ISSUES:

1. Who between SLDC and Babasanta has a better right over the two parcels of land subject of the instant case in view of the

successive t ransactions executed by the Spouses Lu. - SLDC

2. Whether or not the agreement between

Babasanta and Spouses Lu was a contract to sell or a contract of sale. - Contract to Sell

3. Whether or not there was a double sale. - No double sale


HELD: An analysis of the facts obtaining in this case, as well as the evidence presented by the

parties, irresistibly leads to the conclusion that the agreement between Babasanta and the Spouses Lu is a contract to sell and not a

contract of sale. The receipt signed by Pacita Lu merely states

that she accepted the sum of fi fty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot. 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 t ransfer ownership to Babasanta

except upon full payment of the purchase price. Babasanta’s letter dated 22 May 1989 was quite

telling. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect

full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would

not be transferred to him until such time as he shall have effected full payment of the price. Doubtlessly, the receipt signed by Pacita Lu

should legally be considered as a perfected contract to sell. The perfected contract to sell imposed upon

Babasanta the obligation to pay the balance of the purchase price. There being an obligation to pay the price, Babasanta should have made the

proper tender of payment and consignation of the price in court as required by law. Glaringly absent from the records is any indication that

Babasanta even attempted to make the proper consignation of the amounts due, thus, the obligation on the part of the sellers to convey

title never acquired obligatory force. There was no double sale in this case because

the contract in favor of Babasanta was a mere contract to sell; hence, Art. 1544 is not applicable. There was neither actual nor

constructive delivery as his title is based on a mere receipt. Based on this alone, the right of SLDC must be preferred.

The SC held that the contract in favor of Babasanta was only a Contract to Sell, as the

parties never intended to transfer ownership to Babasanta except upon full payment of the purchase price.

On the assumption that it was a contract of sale, nevertheless Babasanta’s claim should fall.

Remember what is under Art. 1544? Ownership shall belong to the person who has in good faith first recorded, first in possession, or oldest title.

So you still have there the concept of ownership. So for there to be transfer of ownership, there must be delivery. Under the facts of this case,

assuming there was a contract of sale, there was no delivery in favor of Babasanta. Babasanta did not acquire ownership by mere

execution of the acknowledgement receipt of partial payment for the property. No actual or

constructive delivery, so ownership could not have passed to Babasanta in the absence of such.

As to San Lorenzo, please take note of this. Here the SC noted that SLDC registered the

sale after it had acquired knowledge of Babasanta’s claim. Despite thereof, SLDC was considered to be a buyer in good faith of the SC

since there’s no evidence in the records that he had knowledge of the prior transaction in favor of Babasanta.

At the time the deeds were executed, SLDC had no knowledge of the transaction of the spouses

with Babasanta. Compare this with the facts in the case of

Coronel, as well as that of the Spouses Roque. Isn’t it that if at the time of registration there was a notice of lis pendens, the buyer who registered

it would not be considered in good faith anymore? So be very careful with this one. Because in all other cases, the SC has been

consistent. The good faith must be from the time of purchase until the registration of the sale.

Assuming that the registration here of San Lorenzo is considered in bad faith, nevertheless, San Lorenzo would still have a better right over

the property, even if we assume that the contract between Babasanta and spouses Lu is a contract of sale. Why? In the absence of

registration, possession in good faith. Under the facts of this case, San Lorenzo came into possession of the subject property in good faith.

Here, at the time of sale, vendors were still the registered owners, and were in fact in possession of the lands. Then when SLDC was

in possession thereof, it had no knowledge of the contract in favor of Babasanta. So in the end, SLDC would still have a better right over

the subject property. Now we also have the case of:

PAGADUAN VS. SPOUSES OCUMA G.R. 176308, May 8, 2009

FACTS: The subject lot used to be part of a big parcel of land that originally belonged to Nicolas

Cleto. The big parcel of land was the subject of two separate lines of dispositions. The first line of disposition: Cleto sold land to Antonio Cereso

on May 11, 1925. Cereso in turn sold the land to the siblings with the surname Antipolo on September 23, 1943. The Antipolos sold the

property to Agaton Pagaduan, father of petitioners, on March 24, 1961. All the dispositions in this line were not registered and

did not result in the issuance of new certi ficates of title in the name of the purchasers.

The second line of disposition: started on January 30, 1954, after Cleto’s death, when his widow Ruperta Asuncion as his sole heir and


new owner of the entire tract, sold the same to Eugenia Reyes. This resulted in the issuance

Transfer Certificate of Title (TCT) No. T-1221 in the name of Eugenia Reyes in lieu of TCT No. T-1220 in the name of Ruperta Asuncion.

On November 26, 1961, Eugenia Reyes executed a unilateral deed of sale where she

sold the northern portion with an area of 32,325 square meters to respondents for P1,500.00 and the southern portion consisting of 8,754 square

meters to Agaton Pagaduan for P500.00. (FIRST SALE)

Later, on June 5, 1962, Eugenia executed another deed of sale, this time conveying the entire parcel of land, including the southern

portion, in respondent’s favor (SECOND SALE). Thus, TCT No. T-1221 was cancelled and in lieu thereof TCT No. T-5425 was issued in the name

of respondents. On June 27, 1989, respondents subdivided the land into two lots.

On July 26, 1989, petitioners instituted a complaint for reconveyance of the southern portion with an area of 8,754 square meters,

with damages, against respondents before the RTC of Olongapo City.

RTC decided in petitioners ’ favor; a constructive trust over the property was created in petitioners’ favor.

CA reversed decision; while the registration of the southern portion in the name of respondents

had created an implied trust in favor of Agaton Pagaduan, petitioners, however, failed to show that they had taken possession of the said

portion. ISSUE: Whether or not there was a double sale.

HELD: In this case, there was a double sale. Article 1544 should apply.

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be

transferred to the person who may have first possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in

good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in possession; and, in the absence thereof;

to the person who presents the oldest title, provided there is good faith.

Where it is an immovable property that is the subject of a double sale, ownership shall be transferred: (1) to the person acquiring it who in

good faith first recorded it in the Registry of Property; (2) in default thereof, to the person who in good faith was first in possession; and (3)

in default thereof, to the person who presents the oldest title, provided there is good faith. The

requirement of the law then is two-fold: acquisition in good faith and registration in good faith.

DOUBLE SALE: first sale by Eugenia Reyes to Agaton Pagaduan and a second sale by

Eugenia Reyes to the respondents. For a second buyer like the respondents to

successfully invoke the second paragraph, Article 1544 of the Civil Code, it must possess goodvfaith from the time of the sale in its favor

until the registration of the same. Respondents sorely failed to meet this requirement of good faith since they had actual knowledge of

Eugenia’s prior sale of the southern portion property to the petitioners, a fact antithetical to good faith. This cannot be denied by

respondents since in the same deed of sale that Eugenia sold them the northern portion to the respondents for P1,500.00, Eugenia also sold

the southern portion of the land to Agaton Pagaduan for P500.00.

It is to be emphasized that the Agaton Pagaduan never parted with the ownership and possession of that portion of Lot No. 785 which he had

purchased from Eugenia Santos. Hence, the registration of the deed of sale by respondents was ineffectual and vested upon them no

preferential rights to the property in derogation of the rights of the petitioners.

Knowledge gained by respondents of the first sale defeats their rights even if they were first to register the second sale. Knowledge of the first

sale blackens this prior registration with bad faith. Good faith must concur with the registration. Therefore, because the registration

by the respondents was in bad faith, it amounted to no registration at all. As the respondents gained no rights over the land, it is petitioners

who are the rightful owners, having established that their successor-in-interest. Agaton Pagaduan had purchased the property from

Eugenia Reyes on November 26, 1961 and in fact took possession of the said property.

So here you have 2 valid contracts of sale, and therefore Art. 1544 is applicable. Again, the requirement of the law is two-fold: (1) Acquisition

in good faith; and (2) registration in good faith. For the second buyer to successfully invoke the

second paragraph – registration in good faith in 1544 – it must possess good faith from the time of the sale in its favor until the registration of the

same. However, here respondents have actual

knowledge of the prior sale of the southern portion of the property to the petitioners, as this cannot be denied by the respondents because

the same deed of sale that Eugenia sold to them, the northern portion, Eugenia also sold the southern portion to Pagaduan.


Pagaduan never parted with ownership and

possession, so the registration of the sale by respondents was ineffectual, vested upon them no preferential right, in derogation of the rights of

the petitioners. So it was as if there was no registration at all

that took place. So in the absence of registration in good faith, then you apply the next paragraph: who first took possession in good faith. In this

case, it was Pagaduan. And then we have the case of:

CARBONELL VS. CA TUESDAY, SEPTEMBER 9, 2014

FACTS: Respondent Jose Poncio was the owner of the parcel of land located in Rizal.

(Area – more or less 195 sq. m.) The said lot was subject to mortgage in favor of the Republic Savings Bank for the sum of P1,500.00.

Carbonell and respondent Emma Infante offered to buy the said lot from Poncio. Poncio offered to

sell his lot to Carbonell excluding the house on which he and his family stayed. Carbonell accepted the offer and proposed the price of

P9.50/sq. m.. Poncio accepted the price on the condition that from the purchase pric would come the money to be paid to the bank.

January 27, 1995: The parties executed a document in the Batanes dialect which is

translated as: CONTRACT FOR ONE HALF LOT WHICH I (Poncio) BOUGHT FROM.

Carbonell asked a lawyer to prepare the deed of sale and delivered the document, together with the balance of P400, to Jose Poncio. (Note:

Carbonell already paid P200 for the mortgage debt of Poncio + obligated herself to pay the remaining installments.) However, when she

went to Poncio, the latter informed her that he could no longer proceed with the sale as the lot was already sold to Emma Infante and that he

could not withdraw with the sale. Poncio admitted that on January 30, 1995, Mrs. Infante improved her offer and he agreed to sell the land

and its improvements to her for P3,535.00. In a private memorandum agreement, Poncio

bound to sell to Infante the lot for the sum of P2,357.52, with Infante still assuming the mortgage debt of P1,177.48. (Note: The full

amount of mortgage debt was already paid by the Infantes)

February 2, 1995: A deed of sale was executed between Poncio and Infante.

February 8, 1995: Knowing that the sale to Infante has not been registered, Carbonell filed an adverse claim.

February 12, 1995: The deed of sale was registered but it has an annotation of the

adverse claim of Carbonell. Thereafter, Emma Infante took possession of the

lot, built a house and introduced some improvements.

In June 1995, Carbonell filed a complaint praying that she be declared the lawful owner of the land, that the subsequent sale to spouses

Infante be declared null and void, and that Jose Poncio be ordered to execute the corresponding deed of conveyance of said land in her favor.

RTC ruled that the sale to spouses Infante was null and void. After re-t rial, it reversed its ruling.

CA ruled in favor of Carbonell but after an MfR, it reversed its ruling and ruled in favor of the Infantes.

ISSUE: WON Carbonell has a superior right over Emma Infante. YES

HELD: Article 1544 provides that for double sale of an immovable property, the ownership shall

belong to the person who first acquired it in good faith and recorded it in the Registry of Property Article 1544, New Civil Code, which is decisive

of this case, recites: If the same thing should have been sold to

different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it

should movable property. Should it be immovable property, the ownership

shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was

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

The buyer must act in good faith in registering the deed of sale

It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of said

Article 1544. Unlike the first and third paragraphs of said

Article 1544, which accord preference to the one who first takes possession in good faith of personal or real property, the second paragraph

directs that ownership of immovable property should be recognized in favor of one "who in good faith first recorded" his right. Under the first

and third paragraph, good faith must characterize the act of anterior registration.

Rule when there is inscription or not If there is no inscription, what is decisive is prior possession in good faith. If there is inscription,


as in the case at bar, prior registration in good faith is a pre-condition to superior title.

Carbonell was in good faith when she bought the lot

When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof and the title of Poncio was still in his

name solely encumbered by bank mortgage duly annotated thereon. Carbonell was not aware — and she could not have been aware — of any

sale of Infante as there was no such sale to Infante then.

Hence, Carbonell's prior purchase of the land was made in good faith. Her good faith subsisted and continued to exist when she recorded her

adverse claim four (4) days prior to the registration of Infantes 's deed of sale.

Carbonell’s good faith did not cease when she was informed by Poncio about the sale to Emma Infante

After learning about the second sale, Carbonell tried to talk to the Infantes but the latter refused.

(Exact words of the SC: With an aristocratic disdain unworthy of the good breeding of a good Christian and good neighbor, Infante snubbed

Carbonell like a leper and refused to see her.) So Carbonell did the next best thing to protect

her right — she registered her adversed claim on February 8, 1955. Under the circumstances, this recording of her adverse claim should be

deemed to have been done in good faith and should emphasize Infante's bad faith when she registered her deed of sale four (4) days later on

February 12, 1955. The Infantes were in bad faith (5 indications of bad faith listed below)

Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the following facts:

1. Mrs. Infante refused to see Carbonell. Her refusal to talk to Carbonell could only mean

that she did not want to listen to Carbonell 's story that she (Carbonell) had previously bought the lot from Poncio.

2. Carbonell was already in possession of mortgage passbook and copy of the mortgage contract. (Not Poncio’s saving deposit

passbook.) Infante naturally must have demanded from

Poncio the delivery to her of his mortgage passbook and mortgage contract so that the fact of full payment of his bank mortgage will be

entered therein; and Poncio, as well as the bank, must have inevitably informed her that said mortgage passbook could not be given to her

because it was already delivered to Carbonell. 3. Emma Infante did not inquire why Poncio was

no longer in possession of the mortgage passbook and why it was in Carbonell’s possession.

The fact that Poncio was no longer in

possession of his mortgage passbook and that the said mortgage passbook was already in possession of Carbonell, should have compelled

Infante to inquire from Poncio why he was no longer in possession of the mortgage passbook and from Carbonell why she was in possession

of the same. 4. Emma Infante registered the sale under her

name after Carbonell filed an adverse claim 4 days earlier.

Here she was again on notice of the prior sale to Carbonell. Such registration of adverse claim is valid and effective.

5. Infante failed to inquire to Poncio WON he had already sold the property to Carbonell

especially that it can be shown that he was aware of the offer made by Carbonell.

Poncio alleged in his answer that Mrs. Infante and Mrs. Carbonell offered to buy the lot at P15/sq. m. which offers he rejected as he

believed that his lot is worth at least P20.00/sq. m. It is therefore logical to presume that Infante was told by Poncio and consequently knew of

the offer of Carbonell which fact likewise should have put her on her guard and should have compelled her to inquire from Poncio whether or

not he had already sold the property to Carbonell

The existence of prior sale to Carbonell was duly established From the terms of the memorandum, it tends to

show that the sale of the property in favor of Carbonell is already an accomplished act. As found by the trial court, to repeat the said

memorandum states "that Poncio is allowed to stay in the property which he had sold to the plaintiff ..., it tends to show that the sale of the

property in favor of the plaintiff is already an accomplished act..."

There was an adequate consideration or price for the sale in favor of Carbonell Poncio agreed to sell the same to Carbonell at

P9.50 per square meter, on condition that Carbonell:

1. Should pay (a) the amount of P400.00 to Poncio and the arrears in the amount of P247.26 to the bank

2. Should assume his mortgage indebtedness. The bank president agreed to the said sale with assumption of mortgage in favor of Carbonell an

Carbonell accordingly paid the arrears of P247.26.

It is evident therefore that there was ample consideration, and not merely the sum of P200.00, for the sale of Poncio to Carbonell of

the lot in question.


The subject property was identified and described

The court has arrived at the conclusion that there is sufficient description of the lot referred to in Exh. As none other than the parcel of lot

occupied by the defendant Poncio and where he has his improvements erected. The Identity of the parcel of land involved herein is sufficiently

established by the contents of the note Exh. 'A '.

So here, Carbonell was the only buyer on

January 27, 1995, and the title of POnsio was still in his name solely encumbered by a bank mortgage. Carbonell was not and could not have

been aware of the sale to Infante as there was no sale to Infante then. Carbonell’s prior purchase of the land was made in good faith,

which good faith subsisted and continued to exist when she recorded her adverse claim based on the sale, 4 days prior to the

registration of Infante’s deed of sale. Carbonell’s good faith did not cease after Poncio

told her in January 31, 1995 of the second sale, as Carbonell did the next best thing to protect her right: register her adverse claim.

So with that, just to summarize: Let us say A sold the property to B, entered into

a contract of sale, deed of absolute sale was duly notarized let us say on August 1, 2015. Now subsequent thereto, A sold the same

subject property on August 31, 2015 to C. Let us that C registered the sale on Sept. 5, 2015. Between B and C, who will have a better right

over the property? C, provided that he is in good faith. In the

absence of good faith in the registration of C, we take into consideration who first possessed the property in good faith.

Now what if C registered the sale on Sept. 5, but he had already knowledge of the sale in favor of

B. Would C still have a better right over the property? NO. Unless he first took possession in good faith. Because again, the registration in

bad faith would mean that there is no registration at all, so we take into consideration the 2

nd rule.

What if A sold to B on Aug.1, then sold to C on Aug. 31. Then B discovered of the subsequent sale to C. So what did B do? He then registered

the sale on Sept. 5. Would B be considered in bad faith? NO. Take note, in this case, B was considered the first purchaser. Applying the case

of Carbonell, knowledge of the first buyer of the second sale does not amount to registration in favor of the 2

nd buyer. Because as we have

pointed out in that case, the first buyer merely protected her right being the first purchaser of the subject property.

It’s a different thing if the one who registered is the subsequent purchaser. Whether 2

nd, 3

rd or

4th

. Kasi, with that registration of the subsequent purchasers, we will consider whether the registration was made in good faith. Registration

made in good faith by subsequent buyer will always preempt possession in good faith.

However, if the registration was made by the first buyer having knowledge of the subsequent sale, the law would still favor the first purchaser. At

the time of the registration, that would merely be and act protecting her right as the first purchaser.

September 15

Last night we have discussed the rule as to double sale. Again, take note of the requisites before you apply Article 1544. The following

must be present: you must have two or more valid contracts of sale; these two or more contracts of sale must pertain to exactly the

same subject matter; the buyers must each represent conflicting interests; and the buyers must have bought from the same seller. If all of

those requisites are present, you can take into consideration what is provided under 1544 - when the subject matter is a personal property

better right belongs to the buyer who first takes possession in good faith. If you have an immovable property, better right as to the buyer

who first registers the same in good faith. In the absence of registration, first possession in good faith. If in the absence of registration and

possession, then, oldest title in good faith. Again, as a general rule, registration in good

faith will preempt possession in good faith. However, when it comes to the first buyer, knowledge of the first buyer of the second sale

does not amount to registration in bad faith. Obligations of the buyer (Arts. 1582-1593)

What are the main obligations of the buyer? He has the obligation to accept delivery. This applies to the thing sold, as well as the

expenses of the delivery. Mere sending of a letter by the buyer expressing intention to pay without accompanying payment is not

considered valid tender of payment. As a general rule, to extinguish and obligation, tender of payment must be with consignation of the

amount due in order to extinguish the obligation.

Article 1582. The vendee is bound to accept delivery and to pay the price of the thing sold

at the time and place stipulated in the contract.

If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing

sold.

This refers to the obligation referred to in 1458, to pay the price certain in money or its

equivalent. As to the delivery, the vendor is not required to deliver the subject matter until the price is paid, nor the vendee to pay the price

before the subject matter is delivered to him in the absence of a contrary agreement. This is based on the characteristic of sale being a

reciprocal in nature. Take into consideration


Article 1524 - The vendor shall not be bound to deliver the thing sold, if the vendee has not paid

him the price, or i f no period for the payment has been fixed in the contract.

What if there is a stipulation for the place of delivery and the time for payment? With such stipulation, the vendee is bound to accept

delivery and it applies to the time and place designated. If there is no stipulation for the time and place of payment, the vendee is bound to

pay at the time and place of delivery. In the absence of stipulation as to the place of delivery, in 1251, first, take into consideration the express

stipulation of the parties. In the absence of stipulation, if the subject matter is a determinate thing, the payment shall be made wherever the

thing might be at the time the contract is perfected. In any other case, it shall be the domicile of the vendor.

If only the time of delivery has been fixed, the vendee is required to pay even before the thing

is delivered to him. For example, you have a contract to sell, so even before delivery, you have already stipulated the period for the

payment of the price, then that should be complied by the parties even in the absence of delivery. If only the time for the payment of the

price has been fixed, the vendee in entitled to delivery even before the price was paid by him, for example, if the sale is on credit.

Article 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.

Where there is a contract of sale of goods to be delivered by stated instalments, which are

to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or

refuses without just cause to take delivery of or pay for one or more instalments, it depends in each case on the terms of the

contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to

proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for

compensation but not to a right to treat the whole contract as broken.

So the general rule under Obligations and

Contracts, you cannot compel the creditor to accept partial payments, and on the part of the creditor he cannot compel partial performance

on the part of the debtor. More or less, it is the same thing here. It is both an obligation and a right of the vendee receive delivery of the

subject matter in full. In the same manner, the buyer has no right to pay the price in installment, nor can he be required to give partial payments.

As an exception, if they have agreed as to delivery or payment in installment.

What if there is a defective delivery and the obligation to deliver is in installment? If the

breach of the contract only affects one defective delivery out of all the other installment deliveries, then it will not affect the contract. If breach will

affect the whole contract, the remedy available is to rescind the whole contract plus damages.

What if the buyer neglects or refuses, without just cause to pay for one or more installments? Compensation for the installment which was not

paid, but no right to treat the whole contract as broken, unless the parties have stipulated. Remember acceleration clause– failure to pay

one installment will consider the whole due.

Article 1584. Where goods are delivered to the buyer, which he has not previously

examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them

for the purpose of ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary.

Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is

bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining

whether they are in conformity with the contract.

Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer, upon the terms

that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether such terms are indicated by

marking the goods with the words "collect on delivery," or otherwise, the buyer is not entitled to examine the goods before the

payment of the price, in the absence of agreement or usage of trade permitting such examination.

You have here acceptance. The obligation on the part of the vendee to accept delivery of the subject matter. Acceptance, to become owner of

the specific goods when delivery is offered to the buyer. It is different from delivery because delivery, obligation on the part of the seller, while

acceptance is an obligation on the part of the buyer.

If the subject matter was previously examined by the buyer and duly accepts it, then there is transfer of ownership. If the subject matter was

not previously examined by the buyer, the buyer must be given the reasonable opportunity to examine them to determine what has been

delivered is in conformity with the contract. Rather examination or inspection is a condition precedent to the transfer of ownership. If the

buyer is denied such right, the ownership shall not pass to the buyer and can refuse to accept. The refusal here must be based on a valid


reason. Without transfer of ownership, the seller bears the loss.

However, when we are talking about the right to examine, the right to examine on the part of the

buyer is not an absolute right in the sense that it can be waived by the buyer. In other words, delivery was made and the buyer acknowledges

receipt of the said goods without inspecting them, then that is waiver on his part -waiver in the sense that there is a valid delivery and

acceptance which results into transfer of ownership. It does not mean that just because the buyer has already accepted the goods

delivered, cannot go after the seller for any breach of the contract because acceptance does not mean that he also waives his right to go after

the seller for any breach of their agreement. Seller is authorized or required to send the

goods to the buyer, again, the general rule, the delivery of the goods to the carrier is equivalent to the delivery of the goods to the buyer.

However, take note of the terms agreed upon by the parties, because this may still be borne by the seller i f there is already delivery to the carrier

depending on the agreement. Collect on delivery – buyer is not entitled to

examine the goods before payment of price because of the terms – COD- in the absence of an agreement. In COD the buyer is denied the

right to examine. Ownership passes to the buyer. Buyer bears the loss. If what was delivered was different from what was agreed

upon, the buyer can go after the seller for breach of contract.

Right to examine is not an absolute right. What is important is the seller should afford to the buyer the reasonable opportunity to examine the

goods on request. If the buyer accepts without examination, then it means he has waived his right to examine the goods but then he can still

go after the seller for any breach. Reasonable opportunity to examine goods must be availed of with a reasonable time. What is reasonable will

depend upon the circumstances of each case.

Article 1585. The buyer is deemed to have accepted the goods when he intimates to the

seller that he has accepted them, or when the goods have been delivered to him, and he does any act in relation to them which is

inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to

the seller that he has rejected them.

Acceptance may be expressed or implied. Expressed, verbal or implied through the

conduct of the buyer consistent with the ownership of the seller. For example, if he tries to sell it to another person, he now uses it in the

concept of an owner, then there is an implied acceptance.

Article 1586. In the absence of express or

implied agreement of the parties, acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other

legal remedy for breach of any promise or warranty in the contract of sale. But, if, after acceptance of the goods, the buyer fails to

give notice to the seller of the breach in any promise of warranty within a reasonable time after the buyer know s, or ought to know of

such breach, the seller shall not be liable therefor.

Despite acceptance, that acceptance by the

buyer will not discharge the seller from liability in case of breach. However, it is important to know that the buyer must give notice to the seller of

any breach of the contract. For example, if what has been delivered is different from what was agreed upon. The general rule, acceptance by

the buyer does not discharge the seller from liability in damages or other legal remedy for breach of promise. Exception, there is inaction

on the part of the buyer for a considerable length of time, also taking into consideration the prescriptive period provided by law. Recall the

case of La Fuerza.

Article 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he

refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he notifies the

seller that he refuses to accept them. If he voluntarily constitutes himself a depositary thereof, he shall be liable as such.

Here, the buyer refuses to accept the goods but there is a valid ground. The vendee here is not bound to return the goods to the seller. He has

only to notify the seller that he refuses to accept them. It is the seller who should take the steps, whether to he himself will get the goods from the

buyer, or look for another to get the goods from the buyer, or he will request the buyer to ship the goods back to him at his expanse. However the

buyer can also constitute himself as a depositary of goods delivered for the purpose of safekeeping. As a depositary, then it is the law

on contracts of deposit, which will be applied.

Article 1588. If there is no stipulation as specified in the first paragraph of article

1523, when the buyer's refusal to accept the goods is without just cause, the title thereto passes to him from the moment they are

placed at his disposal.

So article 1523 – provision on delivery to carrier is equivalent to delivery to the buyer. Refusal

without just cause would mean that delivery to the buyer would also mean that ownership has been transferred to the buyer.

Article 1589. The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the

following three cases: (1) Should it have been so stipulated;


(2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the

time of judicial or extrajudicial demand for the payment of the price.

When is the vendee liable for interest? This is

from the time of delivery until the full payment of the price. In the absence of any contrary agreement, the vendee shall be liable for interest

stipulated should the thing sold produce goods or income. In items 1 and 2, demand is not necessary. In 3, since it talks about default, then

demand, whether judicial or extrajudicial is required for the vendee to be liable for interest.

Article 1590. Should the vendee be disturbed

in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a

vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the

disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated

that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not

authorize the suspension of the payment of the price.

The general rule with regard to the right of the

vendee to suspend the payment of the price, he is not excused from paying the price, but his obligation to pay is merely suspended based on

the reason that if he is disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear

such disturbance, by a vindicatory action or a foreclosure of mortgage. For example, hindi pa sya fully paid kay vendor but he has already

taken possession of the property. There is a 3rd

person who asserts his right as the alleged owner of the property. Pending such action by

this 3rd

person, the vendee can suspend the payment of the price to the vendor. However, the exception, unless the vendor gives security for

the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make

the payment. Mere act of trespass is not a ground for the vendee to suspend the payment of the price.

1590 is suspension on the part of the vendee. In 1591, it is on the part of the vendor.

Article 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he

may immediately sue for the rescission of the sale.

Should such ground not exist, the provisions of article 1191 shall be observed.

The property now is in the possession of the vendee, for example, agricultural land sya.

Sinunog nya yung lupa, nadamage yung lupa pero hindi pa fully paid si vendee. The vendor here can sue for the rescission of the contract. If

such ground does not exist, yung fear of the loss of an immovable property, then 1191 shall be observed that would be the action for rescission.

Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price

at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the

period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the

demand, the court may not grant him a new term.

Apply this provision on sale of immovable

property. It is a contract of sale. It will not apply in a contract to sell. We also have here the sale of an immovable property; therefore it will not

apply to personal or movable properties. This provision does not also apply on sale of immovable property on installment, because a

different law is applicable for that – the Recto Law. This provision is for absolute sale of immovable properties – contract of sale of

immovable properties, not on installment. It states here no automatic rescission. It means

(example) “vendee and vendor agrees for the sale of an immovable property wherein the vendee must pay the purchase price of 500k not

later than September 15, 1015”. This is an example where 1592 is applicable. If the parties stipulate “if vendee fail to pay on September 30,

2015, the contract is deemed rescinded”. That stipulation is not binding. Even if stipulated at the time agreed upon, the vendee can still pay. The

deadline was September 30, even with that stipulation of automatic rescission, that stipulation is void, if let us say, the vendee pays

to the vendor on October 10, the vendor can be compelled to accept the payment as long a no demand for rescission of the contract has been

made either judicially or demand for rescission that is duly notarized. After the demand was made, whether judicial or through a notarial act,

the court may not grant the vendee a new term.

Article 1593. With respect to movable property, the rescission of the sale shall of

right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing,

should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a

longer period has been stipulated for its payment.

1592 is sale of immovable property. 1593 is sale

of movable property. In 1593, rescission can be automatic. No need for a demand whether


judicial or a notarial act. The reason for the rescission is, if the vendee, upon the expiration

of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered

the price at the same time, unless a longer period has been stipulated for its payment. So again in a movable property, no need for a

demand to have the contract rescinded. There is a difference between the two because a

movable property, and prices nya most probably magfluctuate. In other words, kung hintayin pa nila na may demand baka mag change the yung

price unlike sa immovable property, mas fixed sya. If ever magchange sya, masmatagal.

DOCUMENTS OF TITLE What are these documents of title? We have

article 1636 - "Document of title to goods" includes any bill of lading, dock warrant, "quedan," or warehouse receipt or order for the

delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or

control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by endorsement or by

delivery, goods represented by such document. "Goods" includes all chattels personal but not things in action or money of legal tender in the

Philippines. The term includes growing fruits or crops.

"Order" relating to documents of title means an order by endorsement on the documents.

"Quality of goods" includes their state or condition.

"Specific goods" means goods identified and agreed upon at the time a contract of sale is made.

An antecedent or pre-existing claim, whether for money or not, constitutes "value" where goods or documents of title are taken either in

satisfaction thereof or as security therefor. A person is insolvent within the meaning of this

Title who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether

insolvency proceedings have been commenced or not.

What is the purpose of documents of title? Evidence of control and possession or control of goods described in the said document of title. It

is a medium of transferring possession and control of goods described without having to undertake actual delivery.

It is a medium of transferring possession and control of goods described without having to

undertake actual delivery. The goods are stored in a warehouse. The warehouse man issued a warehouse receipt indicating the goods you

have kept therein. We have documents of title considered as either negotiable of non-

negotiable. These documents of title are different from your instruments. Like negotiable instruments. Negotiable instruments are different

because what you have there are bills of exchange and promissory notes. Sa Documents of Titles, what you have are bill of lading, dock

warrant, "quedan," or warehouse receipt. Ang subject is goods which are kept in these warehouse, docks or sugar warehouse.

Nevertheless, the same with instruments, meron ding negotiable and non-negotiable.

Negotiable Document of title states that the goods will be delivered to the bearer. Yung may hawak ng document of title. If the document is

negotiated by mere delivery or to the order of one person, a negotiable document by endorsement plus delivery.

When we talk about document of title, it is very different from negotiable instruments because it

is probable that document is stamped “non -negotiable” pero as long meron doon yung terms of negotiability, either bearer or order,

then it would still be considered as a negotiable document of title.

What do you mean be negotiable? Example, we have goods kept in a warehouse, warehouse receipt was issued in your name. If it is a Bearer

of the negotiable document of title, you can negotiate that warehouse receipt. So kunwari, binenta mo yung sugar na nandon sa

warehouse, instead na i-pull-out mo yung sugar, and the ideliver dun sa dinentahan mo, what you would do is you negotiate the document of title

through delivery. And being a bearer document of title, yung nakabili ng sugar, all he has to do is present the warehouse receipt to the warehouse

man and then the warehouse man is obligated to release the sugar in favor of that person who is in possession of the bearer negotiable document

of title. Another type is an order document of title .

Here, what is required is not only the delivery of the document of title but there must be endorsement. Example, to be delivered to juan

or order, so juan can negotiate that with perdro after affixing his signature in the same document of title and then deliver it to pedro. Hindi lang

delivery – endorsement plus delivery. Then perdro will now try to claim the goods from the warehouse, ang tingnan dyan ng warehouse

man, yung endorsement ni juan. And of course, there is already delivery because the document is already in the possession of his person.

He can also have non-negotiable document of title. Hindi sya bearer hindi sya order. What was

stated there? Goods to be delivered to juan only. No other person. No negotiable terms – terms of negotiability. Walang bearer or holder. So if non-

negotiable, it does not state that the goods referred to therein will be delivered to the bearer or to the order of any person.


Validity of the negotiability of a negotiable

document is not impaired by the fact that the negotiation was done in breach of duty, or that the owner of the document was deprived of the

same by loss, theft, accident, fraud, or mistake if the person to whom the document is delivered is in good faith and without notice of the said

irregularities.

Importance: Negotiation of document gives a

better right to a transferee than an assignment where the assignee merely steps into the shoes of an assignor. So kung ano yung rights na

meron ang assignor, yan lang ang meron ang assignee. But when you talk about negotiation, whether what you have here is a document of

title or a negotiable instrument, the subsequent transferee can have better right than the transferor. Meaning, going back to our example

on warehouse receipt na bearer negotiable document of title, can be negotiated by delivery.

What if nawala to ni Juan. Nakita ni Pedro. Pedro, knowing that what he has in his possession is a negotiable document of title,

negotiated the instrument to maria. Binding ang delivery, because it is a bearer document of title. Maria, in good faith accepts the negotiation of

the said document of title, goes to the warehouseman. The warehouseman in good faith is obligated, kay gipresent man Maria yung

warehouse receipt, he is obligated to release the goods in favor of the person in possession of that negotiable document of title. Maria here,

has the right to such goods because she is in possession of the documents of title in good faith even if she took it from a person who actually

had no right over the said document.

It will be a different scenario if si Juan nawala

niya ang warehouse receipt, and he informed the warehouseman that he lost the warehouse receipt. So even if it is in the possession of

Maria, then maria tries claim the goods, the warehouseman has no obligation to release it to her because of the information that he has

received.

Negotiation is better than assignment for in the

assignment, the assignee merely takes the document with defects of the assignor as assignee mere steps into the shoes of the

assignor.

Warranties on negotiation. When you go to

negotiable instruments law, merong warranties doon, which is different when it comes to documents of title. One of these, sa negotiation,

if a document of title is negotiated to you, the one who negotiated it warranties that the document is genuine; that he has the legal right

to negotiate of transfer it; that he has knowledge of no fact that would impair the validity or worth of the document; and that he has the a right to

transfer title to goods and the goods are merchantable or fit.

Also take note that with regard to documents of title, also taken in consideration under article

1523 which provides that delivery of goods to the carrier is deemed a delivery of goods to the buyer unless otherwise stipulated by the parties.

James 1:12 “Blessed is the man who perseveres under trial, because when he

has stood the test, he will receive the crown of life that God has promised to those who love him.”

Sales - 2nd Exam

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