Sales SR TSN 1st Exam 2016 2017

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA LAW ON SALES Atty. Jazzie Sarona-Lozare, CPA Ateneo de Davao University– College of Law st 1 Semester (School Year 2016-2017) (Sources: “Law on Sales” Book by Villanueva, 2016 Lectures of Atty. Jazzie Sarona-Lozare, Civil Code of the Philippines, www.lawphil.net, www.sc.judiciary.gov.ph)

PART I : CONCEPT OF SALE

I) BASIC CONCEPTS 1) CONTRACT OF SALE Sources of Obligation Art. 1157.Obligations arise from: (1) Law; (2) Contracts; (3) Quasi-contracts; (4) Acts or omissions punished by law; and (5) Quasi-delicts.

Note: With sale, the source of the obligation is obviously contracts. Definition of Contract Art. 1305.A contract is a meeting of minds between two persons whereby one binds himself, with respect to the

Ateneo de Davao University – College of Law |st 1Sem (2016-2017)

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Subject Matter of Sale  Although Article 1458, in defining sale, uses the word “determinate” to describe the subjec t matter of the sale, the present Law on Sales has expanded the coverage to include generic objects which are at least “determinable.”  Article 1460 states that the “requisite that the thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties,” which includes “determinable” albeit generic objects as valid subject matters of sale.  Even if the subject matter of the sale was generic (determinable), the performance of the seller's obligation would require necessarily its physical segregation or particular designation, making the subject matter determinate at the point of performance. es the fact  The use of the word “determinate” emphasiz that the obligation to de from validly becoming the proper subject matter of sale at the point of perfection.

other, to give something or to render some service.

Acap vs. CA (GR NO. 118114, Dec. 7, 1995)

Definition of 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.

Nature of Obligations Created in a Sale A) Two Obligations of the Seller to transfer the ownership and   to deliver the possession, of the subject matter B) An Obligation of the Buyer  to pay the price Notes:  Both sets of Obligations are REAL obligations, meaning   

they are obligations to give. Distinguished from PERSONAL obligations, which are obligations to do or not to do. Why distinguish the kind of obligations? To know the remedies

Personal Obligations cannot be subject of Specific Performance because it would be violation of public policy against Involuntary Servitude Personal Obligations can be executed by another at the cost of the obligor and refusal to comply can bring action for damages. Real Obligations are subject to specific performance

FACTS Felixberto Oruma sold his inherited land to Cosme Pido, which land is rented by petitioner Teodoro Acap. When Cosme died intestate, his heirs executed a “Declaration of Heirship and Waiver of Rights” in favor of private respondent Edy delos Reyes. Respondent informed petitioner of his claim over the land, and petitioner paid the rental to him in 1982. However in subsequent years, petitioner refused to pay the rental, which prompted respondent to file a complaint for the recovery of possession and damages. Petitioner averred that he continues to recognize Pido as the owner of the land, and that he will pay the accumulated rentals to Pido’s widow upon her return from abroad. The lower court ruled in favor of private respondent. ISSUES (1) Whether the “Declaration of Heirship and Waiver of Rights” is a recognized mode of acquiring ownership by private respondent (2) Whether the said document can be considered a deed of

2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito

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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA sale in favor of private respondent RULING An asserted right or claim to ownership or a real right over a thing arising from a juridical act, however justified, is not per se sufficient to give rise to ownership over the res. That right or title must be completed by fulfilling certain conditions imposed by law. Hence, ownership and real rights are acquired only pursuant to a legal mode or process. While title is the juridical justification, mode is the actual process of acquisition or transfer of ownership over a thing in question. In a Contract of Sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay a price certain in money or its equivalent. Upon the other hand, a declaration of heirship and waiver of rights operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the heirs under Rule 74 of the Rules of Court. Hence, there is a marked difference between a sale of hereditary rights and a waiver of hereditary rights. The first presumes the existence of a contract or deed of sale between the parties. The second is, technically speaking, a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of other persons who are co-heirs in the succession. Private respondent, being then a stranger to the succession of Cosme Pido, cannot conclusively claim ownership over the subject lot on the sole basis of the waiver document which neither recites the elements of either a sale, or a donation, or any other derivative mode of acquiring ownership. A notice of adverse claim is nothing but a notice of a claim adverse to the registered owner, the validity of which is yet to be established in court at some future date, and is no better than a notice of lis pendens which is a notice of a case already pending in court. It is to be noted that while the existence of said adverse claim was duly proven, there is no evidence whatsoever that a deed of sale was executed between Cosme Pido's heirs and private respondent transferring the rights of Pido's heirs to the land in favor of private respondent. Private respondent's right or interest therefore in the tenanted lot remains an adverse claim which cannot by itself be sufficient to cancel the OCT to the land and title the same in private respondent's name. Consequently, while the transaction between Pido's heirs and private respondent may be binding on both parties, the right of petitioner as a registered tenant to the land cannot be perfunctorily forfeited on a mere allegation of private respondent's ownership without the corresponding proof thereof. No valid contract of sale. Both are actually declarations of heirship but the thing


with the one in Pido is there was a clear absolute sale, while the one in delos reyes is a declaration of heirship and waiver of rights. Here, the contract executed in favour of delos reyes was not really the sale that is contemplated under 1458. Take note that the sale of hereditary rights presumes the existence of a contract of a deed of sale between the parties. now when the heirs of Pido executed the Declaration of Heirship and waiver of rights, it operates as a public instrument when filed with the Registry of Deeds whereby the intestate heirs adjudicate and divide the estate left by the decedent among themselves as they see fit. It is in effect an extrajudicial settlement between the decedent and the heirs. It is a mode of extinction of ownership among the heirs. Considering that delos Reyes is not an heir, but a stranger to the succession of Cosme Pido, he cannot conclusively claim ownership over the subject lot on the sole basis of the Declaration of Heirship and Waiver of Rights which neither recites the elements of either a sale, or a donation, or any other derivative mode of acquiring ownership. 1458 Tells us that in a contract of sale there are two parties. On the one hand we have the seller, or the vendor, who has the obligation to transfer the ownership and deliver the possession of the subject matter. On the other hand, we have the buyer, or the vendee, who has the obligation to pay the price certain in money or its equivalent. one of those obligations is mentioned in the Declaration of heirship and Waiver of Rights. There was no intention between the parties to be bound by the obligations provided under 1458. Again, a contract of sale is an agreement when the party, or the seller or the vendor, obligates himself to deliver and transfer the ownership of a determinate thing to another party called the buyer or vendee who in turn obligates himself to pay a price certain ir money or its equivalent. Recall 1156 of the Obligations and Contracts: Obligation is a juridical necessity to give, to do or not to do. What is involved in a contract of sale? Obligation to give. What kind of obligation would that be? Real obligation (as compared to obligation to do or not to do, which are considered personal obligations). In a contract of sale the parties have real obligation, and therefore it can be the subject of an action for specific performance. Also, take note that once a contract of sale is perfected the parties are bound by the fulfilment of their stipulations as well as all its consequences. Discussion: The law on obligations and contacts is applied in contracts of sales suppletorily. Take note that contracts of sale involve positive obligation, subject to injunction. We also discussed that the subject matter in a contract of sale must be determinate, or at least determinable. Elements of Contract of Sale (a) Consent or meeting of the minds to transfer ownership in exchange for the price (b) Subject Matter


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA (c) Price certain in money or its equivalent 

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When all 3 elements are present, there being a meeting of the minds, then a perfected contract of sale arises and its validity is not affected by the fact that previously a fictitious deed of sale was executed y the parties or by the fact of nonperformance of the obligations thereafter. The sale is VOID when some of the essential requisites are not present. (Supreme Court). The more appropriate term to use when an essential element is not present at meeting of the minds is to declare a “NO CONTRACT” situation. (Villanueva) When all 3 elements are present, but there is defect or illegality constituting any of such elements, the resulting contract is either VOIDABLE when the defect constitutes a vitiation of consent, or VOID as mandated under Article 1409 of the Civil Code. Toyota Shaw vs. CA (GR NO. 116650, May 23, 1995)

FACTS Sometime in June of 1989, Luna L. Sosa wanted to purchase a Toyota Lite Ace. It was then a seller's market and Sosa had difficulty finding a dealer with an available unit for sale. But upon contacting Toyota Shaw, Inc., he was told that there was an available unit. So on 14 June 1989, Sosa and his son, Gilbert, went to the Toyota office at Shaw Boulevard, Pasig, Metro Manila. There they met Popong Bernardo, a sales representative of Toyota. Sosa emphasized to Bernardo that he needed the Lite Ace not later than 17 June 1989 because he, his family, and a balikbayan guest would use it on 18 June 1989 for his birthday. He added that if he does not arrive in his hometown with the new car, he would become a "laughing stock." Bernardo assured Sosa that a unit would be ready for pick up at 10:00 a.m. on 17 June 1989. Bernardo then signed a document entitled "Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc." It was also agreed upon by the parties that the balance of the purchase price would be paid by credit financing through B.A. Finance, and for this Gilbert, on behalf of his father, signed the documents of Toyota and B.A. Finance pertaining to the application for financing. The next day, Sosa and Gilbert went to Toyota to deliver the downpayment of P100,000.00. They met Bernardo who then accomplished a printed Vehicle Sales Proposal (VSP) No. 928, on which Gilbert signed under the subheading CONFORME. Rodrigo Quirante, the Sales Supervisor of Bernardo, checked and approved the VSP. On 17 June 1989, at around 9:30 a.m., Bernardo called Gilbert to inform him that the vehicle would not be ready for pick up at 10:00 a.m. as previously agreed upon but at 2:00


p.m. that same day. At 2:00 p.m., Sosa and Gilbert met Bernardo at the latter's office. After waiting for about an hour, Sosa alleged that Bernardo told them that the car could not be delivered because "nasulot ang unit ng ibang malakas." Toyota contends, however, that the Lite Ace was not delivered to Sosa because of the disapproval by B.A. Finance of the credit financing application of Sosa. On 20 November 1989, Sosa filed a complaint against Toyota for damages. ISSUE Was the document, executed and signed by the petitioner's sales representative, a perfected contract of sale, binding upon Toyota Shaw? RULING NO. This Court had already ruled that a definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property. Moreover, the document shows the absence of a meeting of minds between Toyota and Sosa. For one thing, Sosa did not even sign it. For another, Sosa was well aware from its title that he was not dealing with Toyota but with Popong Bernardo and that the latter did not misrepresent that he had the authority to sell any Toyota vehicle. It was incumbent upon Sosa to act with ordinary prudence and reasonable diligence to know the extent of Bernardo's authority as an agent in respect of contracts to sell Toyota's vehicles. At the most, the document may be considered as part of the initial phase of the generation or negotiation stage of a contract of sale. The second phase of the generation or negotiation stage in this case was the execution of the VSP. It must be emphasized that thereunder, the balance to be paid on installment should be financed by B.A. There was no contract of sale. There was that VSP, but no obligation on the part of Toyota to transfer ownership of the determinate thing and there’s no correlative obligation on the part of Sosa to pay a price certain. Nothing appears in the said agreement or proposal as to the price. The provision on the payment had no specific reference to the sale, it could refer to the sale in installment, but nothing was mentioned as to the price, as well as to the manner of receiving payment. In fact, while it is true that there was this document, there is no meeting of the minds. Remember that Sosa did not even sign the said VSP. In the absence of consent,in the absence of a


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA price certain or its equivalent, in the absence of these essential elements there can be no valid contract of sale .

Polytechnic University vs. C A (GR NO. 143513, Nov. 14, 2001) FACTS Petitioner NDC (National Development Corp.) a GOCC owned & had in its disposal a 10 hectar property which is the NDC Compound. A portion of which was leased to private respondent FIRESTONE CORPORATION for ceramic manufacturing business.


All three (3) essential elements of a valid sale, without which there can be no sale, were attendant in the "disposition" and "transfer" of the property from NDC to PUP - consent of the parties, determinate subject matter, and consideration therefor. Consent to the sale is obvious from the prefatory clauses of Memorandum Order No. 214 which explicitly states the acquiescence of the parties to the sale of the property “PUP has expressed its willingness to acquire said NDC properties and NDC has expressed its willingness to sell the properties to PUP” Furthermore, the cancellation of NDC's liabilities in favor of the National Government in the amount of P57,193,201.64 constituted the "consideration" for the sale. In the instant case, the right of first refusal is an integral and indivisible part of the contract of lease and is inseparable from the whole contract. Thus, it is not correct for PUP and NDC to insist that there was no consideration paid by FIRESTONE to entitle it to the exercise of the right, inasmuch as the stipulation is part and parcel of the contract of lease. It is a settled principle in civil law that 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.

Both parties entered into a contract of lease for a term of 10 years renewable for another 10 years. Firestone built several warehouses and facilities therein. Prior to the expiration of the said lease contract, Firestone wrote NDC requesting for an extension of their lease agreement. Since business between NDC and FIRESTONE went smooth, the lease was twice renewed, this time conferring upon Firestone an express grant the first option to purchase the leased premise in the event that NDC decided to dispose and sell the properties including the lot. So Firestone now has the right of first refusal. Eventually though, a Memorandum Order No. 214 was issued by then President Corazon Aquino ordering the transfer of the whole NDC compound to the National Government. The Discussion: order of conveyance would automatically result in the There was a valid contract of sale. cancellation of NDC's total obligation in favor of the National Why do we need to determine if there was a sale in favor of Government. The memorandum order was in consideration of PUP? NDC’s P57M debt. And so, pursuant thereto, NDC had no choice but to transfer the property to Polytechnic University of the Philippines, another GOCC, and in need of expansion. Firestone therefore instituted an action for specific performance to compel NDC to sell the leased property in its favor. ISSUE Did the transfer of the leased property from NDC to PUP amount to a sale wherein, consequently, FIRESTONE can rightfully invoke its right of first refusal? RULING YES. Contrary to what PUP and NDC propose, there is not just one party involved in the questioned transaction. The inherent weakness of NDC’s proposition that there was no sale as it was only the government which was involved in the transaction reveals itself. Beyond cavil, a government owned and controlled corporation has government. a personality of its own, distinct and separate from that of the Moreover, the preponderance of evidence shows that NDC sold to PUP the whole NDC compound, including the leased premises, without the knowledge much less consent of FIRESTONE which had a valid and existing right of first refusal.

 If there is a of sale, then there is a violation of the right of first refusal firestone. Was there a valid sale? What are the essential elements here? What is the defense of NDC?  Here it’s important to know if there’s a valid contract of sale so as to determine whether there was a violation of the right of first refusal which was granted to firestone. The trial court ruled that there was a valid contract of sale. NDC, on the other hand, contended that thjere was no sale in favor of PUP. What was its defense? That the ownership of the property remained in the government. However, while it is true that these are government entities, nevertheless, they have separate charters. So, they are different entities. So, that defense was not upheld by the court.  The Court said here that there was a valid contarct of sale. Again, the obligations imposed under 1458 are present. It is therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory. NDC and PUP have separate individual personality.  The SC also held that all the essential elements of a valid sale are present. There was consent. This was clearly shown in the memorandum order, which


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA

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explicitly states that “PUP has expressed its willingness to acquire said NDC properties and NDC has expressed its willingness to sell the properties to PUP.” Now, the consideration was the cancellation of NDC’s liabilities. Here, it was clearly a valid contract of sale. Transfer of title or an agreement to transfer title for a price paid, or promised to be paid, is the very essence of sale.

Essential Elements of a Contract of Sale  Consent  Object or Subject Matter  Consideration or Price Again, the essential elements of a contract of sale are the consent, object or subject matter, and price or consideration. Since these are essential elements, they are therefore necessary for the validity of a contract of sale. If one of these essential elements is absent, then there can be no perfected contract of sale. f there is a defect in the consent, then what we have is a voidable contract. If there is a subject matter but it is illegal or illicit, then it is a void contract. Natural Elements of a Contract of Sale We also have natural elements of a contract. These are elements of a contract which exist even in the absence of an agreement of the parties, because the law provides that these elements exist, nevertheless. In a contract of sale, we have implied warranties against division and implied warranties against hidden defects. Even if the parties did not agree to such, the law deems it existent in every contract of sale. Accidental Elements of a Contract of Sale We have accidental elements. These are elements which are stipulated by the parties, such as the existence of conditions, as well as the stipulation on the payment of price. nd Also take note that on the 2 paragraph of Article 1458, a contract of sale may be absolute or conditional. When we say conditional, it may be subject to a suspensive or resolutory condition. The condition that is referred to in 1458(2) refers to the perfection of the contract. Conditions may refer to the perfection of the contract or to the performance of the obligations arising from the contract. In 1458(2), the happening of the condition would give rise to the perfection of the contract of sale. Manila Container vs. PNB (GR NO. 166862, Dec. 20, 2006) FACTS Manila Metal Corp. executed a real estate mortgage (TCT. 32098) as a security for its loan from PNB amounting to 900,000 php, later on 1,000,000 php and 653,000 php


Aug. 5, 1982: PNB filed a petition for extrajudicial foreclosure for the property to be sold at a public auction 911,532.21 php (outstanding as of June 30) + interest + attorney's fees Sept. 2, 1982: PNB won the public auction at 1,000,000 php Feb. 17, 1983: Certificate of Sale was issued and registered at the Registry of Deeds and was annotated at the dorsal portion of the title (Redeemable until Feb 17,1983) Petitioner requested 1 year extension until Feb 17,1984 but was rejected by PNB saying it is their policy not to accept partial redemption Jun. 1,1984: Since petitioner failed to redeem, TCT. 32098 was cancelled and a new title was issued in favor of PNB Meanwhile, Special Assets Management Department (SAMD) had prepared a statement of account as of Jun 25,1984 amounting to 1,574,560.47 php (bid price + interest + advances of insurance premiums + advances on relaty taxes + reg. exp. +misc. exp + piblication cost) Petitioner deposited 725,000 php as deposit to repurchase and was issued an O.R. PNB management rejected the recommendation of SAMD and demanded that petitioner pay the markt value of 2,660,000 php. Jun 24, 1984: PNB informed petitioner that its B.O.D had agreed to accept its offer to purchase but at 1,931,389.53 less the 725,000 php. PNB President did not conform to the letter but merely indicated that he has received it. Petitioner rejected this since PNB has already accepted its downpayment so it can no longer increase the price. PNB also rejected petitioners payment for the balance. Petitioner filed a complaint against PNB for Annulment of Mortgage and Mortgage Foreclosure, Delivery of Title, or Specific Performance with Damages CA affirmed RTC: Favored PNB and demanded that it refund the 725,000 php (no sale because no meeting of the minds in terms of price) Lot was later transferred to its PNB President Bayani Gabriel Petitioner filed a petition for certiorari ISSUES 1. WON the statement of account by SAMD is only a recommendation subject to the approval of the BOD YES 2. WON there was a contract of sale - NO 3. WON earnest money establishes a contract of sale NO RULING (1)YES. Art. 1318 of NCC: no contract unless the following requisites concur:  Consent of the contracting parties;


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Object certain which is the subject matter of the contract;  Cause of the obligation which is established. 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. When there is merely an offer by one party without acceptance of the other, there is no contract. 

(2) NO. Section 23 of the Corporation Code: Corporate powers of all corporations shall be exercised byauthorize the board of directors. Just as a natural person may another to do certain acts in his behalf, so may the board of directors of a corporation validly delegate some of its functions to individual officers or agents appointed by it. Thus, contracts or acts of a corporation must be made either by the board of directors or by a corporate agent duly authorized by the board. Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the affairs of the corporation, but not in the course of, or connected with the performance of authorized duties of such director, are held not binding on the corporation. A corporation can only execute its powers and transact its business through its: Board of Directors, officers and agents when authorized by: (a) a board resolution; or (b) its by-laws. (3) NO. 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. The deposit of P725,000 was accepted by PNB on the condition that the purchase price is still subject to the approval of the PNB Board. Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale. No perfected contract of sale.


considered as an unqualified acceptance to petitioner’s offer to purchase the property because it was only a computation of the amount which petitioner was obliged to pay in case PNB would later agree to sell the property. Acceptance of the offer here was in fact qualified. In other words, there was merely a counteroffer, there was no absolute acceptance that would give rise to a valid contract of sale.

Velarde vs. CA (GR NO. 108346, Jul. 11, 2001) FACTS The private respondent executed a Deed of Sale with Assumption of Mortgage, with a balance of P1.8 million, in favor of the petitioners. Pursuant to said agreements, plaintiffs paid the bank (BPI) for three (3) months until they were advised that the Application for Assumption of Mortgage was denied. This prompted the plaintiffs not to make any further payment. Private respondent wrote the petitioners informing the non-fulfillment of the obligations. Petitioners, thru counsel responded that they are willing to pay in cash the balance subject to several conditions. Private respondents sent a notarial notice of cancellation/rescission of the Deed of Sale. Petitioners filed a complaint which was consequently dismissed by an outgoing judge but was reversed by the assuming judge in their Motion for Reconsideration. The Court of Appeals reinstated the decision to dismiss. ISSUES (1) WON the sale is valid. (2)WON rescission is valid. RULING (1) YES. There was actually a perfected contract of sale wherein they have agreed that the mortgage will be assumed; that if, however, the assumption of the mortgage will not be approved by the bank, the buyer in this case will be obligated to pay the balance.

(2)YES. Article 1191 of the New Civil Code applies. The breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not normally defeat the Discussion: intention of the parties to the contract. Here, petitioners not Price is an essential element for a valid contract of sale. only failed to pay the P1.8 million balance, but they also A contract of sale is consensual in nature and is perfected upon imposed upon private respondents new obligations as mere meeting of the minds. When there is merely an offer by preconditions to the performance of their own obligation. In one party without acceptance of the other, there is no contract. Again, there must be consent as to the price. When there’s effect, the qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable merely an offer by one party and without acceptance by the under the contract of sale. Hence, private respondents were other party, there can be no valid contract. left with the legal option of seeking rescission to protect their Here Manila Container was told that PNB did not allow partial redemption. It sent a letter to the president reiterating its own interest. offer to purchase the property. There was no response to Discussion: petitioner's letters. As to the Statement of Account, the amount What was the condition given by plaintiff for them to pay the indicated therein was clearly not the purchase price. It cannot be 2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito

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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA balance?  For respondent to (a) deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) cause the release of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January 21, 1987 What did the Court say regarding these conditions?  The conditions were not allowed since they imposed additional obligations that were not previously agreed upon. What is the basis of the court in granting the action for rescission?  Art. 1191. The power to rescind is implied in reciprocal obligations. There was actually a perfected contract of sale wherein they have agreed that the mortgage will be assumed; that if, however, the assumption of the mortgage will not be approved by the bank, the buyer in this case will be obligated to pay the balance. When petitioners’ received notice of the bank’s disapproval of their application to assume the mortgage, they should have paid the P1.8M balance. However, they added conditions that they will only pay when the property will be delivered, title on the property will be released, and a deed of sale will be executed. Such conditional offer to pay cannot take the place of actual payment as would discharge the obligation of a buyer under a contract of sale. These conditions were not in existence at the time the contract was perfected. Remember, when they entered into a contract of sale, they obligated themselves to transfer the ownership and delivery of the determinate thing. And the buyer could then therefore apply certain value or its equivalent. However, it is evident that the buyer in this case failed to perform his obligation, which now gives the seller the right to rescind the contract, finding its basis in Article 1191 of the Civil Code. Again, the power to rescind is implied in reciprocal obligations. In this case, the buyer was in breach of his obligation to pay and therefore, he would now be considered in delay and the seller has the right to ask for rescission of the contract.

2) STAGES IN THE LIFE OF A CONTRACT OF SALE a) Policitacion or negotation – the period from the time the prospective contracting parties indicate their interests in the contract to the time the contract is perfected b) Perfection – takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price c) Consummation – begins when the parties perform their respective undertaking under the contract of sale, culminating in


the extinguishment thereof San Miguel Properties vs. Spouses Huang (GR NO. 137290, Jul. 31, 2000) FACTS San Miguel Properties offered two parcels of land for sale and the offer was made to an agent of the respondents. An “earnest-deposit” of P1 million was offered by the respondents and was accepted by the petitioner’s authorized officer subject to certain terms. Petitioner, through its executive officer, wrote the respondent’s lawyer that because if the parties failed to agree on the terms and conditions of the sale despite the extension granted by the petitioner, the latter was returning the “earnest deposit”. The respondents demanded execution of a deed of sale covering the properties and attempted to return the “earnest-deposit” but petitioner refused on the ground that the option to purchase had already expired. A complaint for specific performance was filed against the petitioner and the latter filed a motion to dismiss the complaint because the alleged “exclusive option” of the respondents lacked a consideration separate and distinct from the purchase price and was thus unenforceable; the complaint did not allege a cause of action because there was no “meeting of the mind” between the parti es and therefore the contact of sale was not perfected. ISSUE: WON there was a perfected contract of sale between the parties RULING NO. It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale. The P1 million “earnest-deposit” could not have been given as earnest money because at the time when petitioner accepted the terms of respondents’ offer, their contract had not yet been perfected. This is evident from the following conditions attached by respondents to their letter. The first condition for an option period of 30 days sufficiently shows that a sale was never perfected. As petitioner correctly points out, acceptance of this condition did not give rise to a perfected sale but merely to an option or an accepted unilateral promise on the part of respondents to buy the subject properties within 30 days from the date of acceptance of the offer. Such option giving respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter. All that respondents had was just the option to buy the properties which privilege was not, however, exercised by them because there was a failure to agree on the terms of payment.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA No contract of sale may thus be enforced by respondents. Even the option secured by respondents from petitioner was fatally defective. Under the second paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for a price certain is binding upon the promisor only if the promise is supported by a distinct consideration. Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. There is no showing here of any consideration for the option. Lacking any proof of such consideration, the option is unenforceable. Equally compelling as proof of the absence of a perfected sale is the second condition that, during the option period, the parties would negotiate the terms and conditions of the purchase. The stages of a contract of sale are as follows: (1) negotiation, covering the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection, which takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and (3) consummation, which begins when the parties perform their respective undertakings under the contract of sale, culminating in the extinguishment thereof. In the present case, the parties never got past the negotiation stage. The alleged “indubitable evidence” of a perfected sale cited by the appellate court was nothing more than offers and counter-offers which did not amount to any final arrangement containing the essential elements of a contract of sale. While the parties already agreed on the real properties which were the objects of the sale and on the purchase price, the fact remains that they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given by petitioner.




meeting of the minds and ends thereafter. It takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties, as to the object of the contract, and upon the price. And the last stage is the consummation stage , which begins when the parties perform their respective undertaking under the contract of sale, culminating in the extinguishment or death of the said contract of sale.

II) ESSENTIAL CHARACTERISTICS OF A CONTRACT OF SALE

  

Now recall, how are contracts perfected? So the general rule is that contracts are perfected by mere consent. These are consensual contracts. We also have contracts perfected by delivery which are called real contracts. And contracts perfected by conforming to the forms or requirements provided by law, which are solemn and formal contracts.

Classifications of Contracts of Sale  As to Equivalence ◦

Onerous

Gratuitous or Remuneratory As to nature ◦



◦

Principal

◦

Accessory

Preparatory As to the obligations of the parties ◦



◦

Unilateral or

Bilateral As to nomenclature ◦

Discussion: Here, the contention is that allegedly there was a contract of sale because of the earnest money (P1M). Again, SC held that it was merely a deposit, it is merely a guaranty that the respondents would not back out from the sale. However, there was never a perfected contract of sale. The earnest deposit could not be taken as an earnest money because there was no meeting of the minds yet. At the time the petitioner accepted the terms of respondent’s offer, their contract had not yet been perfected. What they have here was an offer, then a counter-offer, then the extension period to accept the counter offer. At the end, there was no acceptance, so there was never a perfected contract of sale. They never passed the negotiation stage.  The negotiation stage covers the period from the time the prospective contracting parties indicate their interests in the contract to the time the contract is perfected.  Perfection is the shortest stage. It happens upon the



◦

Nominate or

Innominate the risk of fulfillment ◦



◦

Commutative or

◦

Aleatory

1) NOMINATE AND PRINCIPAL Sale is a nominate contract since it has been given a particular name by law, more importantly, its nature and consequences are governed by a set of rules in the Civil Code, which euphemistically we refer to as the “Law on Sales.” is a principal contract, as itcontrasted from accessorySale or preparatory contracts, because can stand on its own, and does not depend on another contract for its validity or existence. Article 1458. By the contract of sale one of the


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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.

Nominate and Principal Characteristics of Sale  In determining the real character of the contract, the title given to it by the parties is not as significant as its substance.  In determining the nature of a contract, the courts look at the intent of the parties and not at the nomenclature used to describe it. Contracts are not defined by the parties thereto but  by the principles of law.  All other contracts which have for their objective the transfer of ownership and delivery of possession of a determinate subject matter for a valuable consideration, are governed necessarily by the Law on Sales. 2) CONSENSUAL Sale is a consensual contract (as contrasted from solemn and real contracts) since it is perfected by mere consent, at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.  Sale is valid – once there is a meeting of the minds as to the price despite the manner of its actual payment, or even when there has been breach thereof.  Sale is valid but subject to reformation – if the real price is not stated in the contract.  Sale is void – if there is no meeting of the minds as to the price because the price stipulated is simulated. Under Article 1475 of the Civil Code  From the moment of perfection of the sale, the parties may reciprocally demand performance, even when the parties have not affixed their signatures to the written form of such sale, but subject to the provisions of the law governing the form of contracts.  The actual delivery of the subject matter or payment of the price agreed upon are not necessary components to establish the existence of a valid sale, and their non-performance do not also invalidate or render void a sale that has began to exist as a valid contract at perfection.  Non-performance merely becomes the legal basis for the remedies of either specific performance or rescission, with damages in either case. Doctrines pertaining to sale being a consensual contract (Fule vs. CA):







 

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 has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties (Article 1358) formal requirements are for the benefit of third parties non-compliance of formal requirements does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties

Burden of Proof  The party who alleges it must show its existence by competent proof, as well as of the essential elements thereof.  However, when all 3 elements of a sale are present, there being a meeting of the minds, then a perfected contract of sale arises, and its validity is not affected by the fact that previously a fictitious deed of sale was executed by the parties. At that point, the burden is on the other party to prove the contrary.  When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former. (Article 1332 of the Civil Code) Quijada vs. CA (December 4, 1998) FACTS Petitioners are the children of the late Trinidad Quijada who was one of the heirs of the late Pedro Corvera and inherited from the latter the two-hectare parcel of land subject of the case. On April 5, 1956, Trinidad Quijada and her sisters executed a deed of conditional donation in favor of the Municipality of Talacogon, the condition being that the land shall be used exclusively for the construction of a provincial high school. However, Trinidad remained in possession of the land. On July 29, 1962, Trinidad sold the land to respondent Regalado Mondejar. In 1980, the heirs of Trinidad, herein petitioners, filed a complaint for forcible entry against the respondent. In 1987, the proposed campus did not materialize, and the Sangguniang Bayan enacted a resolution donating back the land to the donor. In the meantime, respondent Mondejar conveyed portions of the land to the other respondents. On July 5, 1988, petitioners filed a complaint for quieting of title,


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA recovery of possession and ownership of the land. ISSUE: WON there was a perfected contract of sale RULING YES. The donation was subject to the condition that the donated property shall be "used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon." The donation further provides that should "the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed" the donated property shall automatically revert to the donor. Such condition, not being contrary to law, morals, good customs, public order or public policy was validly imposed in the donation. When the Municipality's acceptance of the donation was made known to the donor, the former became the new owner of the donated property — donation being a mode of acquiring and transmitting ownership — notwithstanding the condition imposed by the donee. The donation is perfected once the acceptance by the donee is made known to the donor. Accordingly, ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled. In this case, that resolutory condition is the construction of the school. It has been ruled that when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed is not a condition precedent or a suspensive condition but a resolutory one. Thus, at the time of the sales made in 1962 towards 1968, the alleged seller (Trinidad) could not have sold the lots since she had earlier transferred ownership thereof by virtue of the deed of donation. So long as the resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his successors-ininterest under the deed of donation. Since no period was imposed by the donor on when must the donee comply with the condition, the latter remains the owner so long as he has tried to comply with the condition within a reasonable period. Such period, however, became irrelevant herein when the donee-Municipality manifested through a resolution that it cannot comply with the condition of building a school and the same was made known to the donor. Only then— when the non-fulfillment of the resolutory condition was brought to the donor's knowledge — that ownership of the donated property reverted to the donor as provided in the automatic reversion clause of the deed of donation. The donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract of sale. In this case, however, what the donor sold was the land itself which she no longer owns. It would have been different if the donor-seller


sold her interests over the property under the deed of donation which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the resolutory condition. Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price. Ownership by the seller on the thing sold at the time of the perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid. Discussion: What is the difference between a suspensive condition and a resolutory condition?  A suspensive condition gives rise to the obligations contract while in a resolutory condition, the happening thereof extinguishes the obligations of contract. So initially, the sale was not valid. Now however here, there was subsequent transfer of ownership, and petitioners became the owners of the subject property upon the reversion of the ownership of the land to them. Consequently, ownership is transferred to respondent Mondejar and those who claim their righttitle frompasses him. When we will discuss Article 1434 also take note that by operation of law to the buyer. Villanueva vs. PNB (December 6, 2006) FACTS Villanueva offered to purchase the lots for P3,677,000.00. He also manifested that he was depositing P400,000.00 to show his good faith but with the understanding that said amount may be treated as part of the payment of the purchase price only when his offer is accepted by PNB. At the bottom of said letter there appears an unsigned marginal note stating that P400,000.00 was deposited into Villanueva's account with PNB-General Santos Branch. PNB forwarded the letter of Villanueva to Ramon Guevara, Vice President, SAMD. Guevara informed Villanueva that only Lot No. 19 is available and that the asking price therefor is P2,883,300.00. Instead at ofthe submitting revised offer, merely inserted bottom ofa Guevara's letter aVillanueva marginal note, which reads: CONFORME: PRICE OF P2,883,300.00 (downpayment of P600,000.00 and the balance payable in two (2)


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years at quarterly amortizations.) under the operative facts of each contract, are not only Villanueva paid P200,000.00 to PNB which the latter material but motivating as well. Anything short of that level of issued a receipt to acknowledge receipt of the "partial payment mutuality produces not a contract but a mere counter-offer deposit on offer to purchase." On the dorsal portion of Official awaiting acceptance. More particularly on the matter of the Receipt No. 16997, Villanueva signed a typewritten note, consideration of the contract, the offer and its acceptance must stating: be unanimous both on the rate of the payment and on its term. This is a deposit made to show the sincerity of my An acceptance of an offer which agrees to the rate but varies purchase offer with the understanding that it shall be returned the term is ineffective. without interest if my offer is not favorably considered or be Tracing the transactions and letters between forfeited if my offer is approved but I fail/refuse to push Villanueva and PNB, it can be said that there was no perfected through the purchase. contract of sale between the parties. The first letter of PNB Thereafter, however, Guevara wrote Villanueva that stating that only Lot 19 was available was certainly not an SAMD is deferring negotiations with him over said property and acceptance but a mere counter-offer. Further, such counterreturning his deposit of P580,000.00. offer imposed two more conditions that Villanueva submit a Undaunted, V illanueva attempted to deliver postdated revised offer to purchase based on the new price and that such checks covering the balance of the purchase price but PNB sae of property be approved by the Board of Directors. refused the same. However, Villanueva’s reply Thus Villanueva filed a Complaint for specific to said counter-offer was not an acceptance but a further performance which the RTC granted anchoring its judgment on counter-offer since he qualified his acceptance proposing a the finding that there existed a perfected contract of sae two-year payment. between PNB and Villanueva. Moreover, Villanueva’s contention that the PNB appealed to the CA which reversed and set aside repudiation was belated since PNB already agreed to his the decision, stating that in the case at bench, consent, in counter-offer when it accepted his downpayment, the Court respect to the price and manner of its payment, is lacking. The ruled that acceptance of Villanueva’s payments did not amount record shows that appellant, thru Guevara's July 6, 1990 letter, to an implied acceptance of his last counter-offer. PNB-GenSan made a qualified acceptance of appellee's letter-offer dated Branch had no authority to bind PNB to a contract of Sale with June 28, 1990 by imposing an asking price of P2,883,300.00 in Villanueva. Neither did SAMD have authority to bind PNB. Both cash for Lot 19. The letter dated July 6, 1990 constituted a clearly stated that whatever is offered will be subject to approval of PNB’s higher authorities. counter-offer (Art. 1319, Civil Code), to which appellee made a new proposal, i.e., to pay the amount of P2,883,300.00 in In sum, the amounts paid by petitioner were not in the staggered amounts, that is, P600,000.00 as downpayment and nature of downpayment or earnest money but were mere the balance within two years in quarterly amortizations. deposits or proof of his interest in the purchase of Lot No. 19. CA held that a qualified acceptance, or one that Acceptance of said amounts by respondent does not involves a new proposal, constitutes a counter-offer and a presuppose perfection of any contract. rejection of the srcinal offer (Art. 1319). Consequently, when something is desired which is not exactly what is proposed in Discussion: the offer, such acceptance is not sufficient to generate consent So there was no contract of sale here. because any modification or variation from the terms of the Again, contracts of sale are perfected by mutual offer annuls the offer. consent whereby the seller obligates himself, for a price certain, to deliver and transfer ownership of a specified thing or right to ISSUE: WON there was a perfected contract of sale the buyer over which the latter agrees. Mutual consent being a state of mind, its existence may only be inferred from the RULING confluence of two acts of the parties: an offer certain as to the NO. Contracts of sale are perfected by mutual consent object of the contract and its consideration, and an acceptance whereby the seller obligates himself, for a price certain, to of the offer which is absolute in that it refers to the exact object deliver and transfer ownership of a specified thing or right to and consideration embodied in said offer. the buyer over which the latter agrees. Mutual consent being a While it is impossible to expect the acceptance to echo state of mind, its existence may only be inferred from the every nuance of the offer, it is imperative that it assents to those confluence of two acts of the parties: an offer certain as to the points in the offer which, under the operative facts of each object of the contract and its consideration, and an acceptance contract, are not only material but motivating as well. Anything of the offer which is absolute in that it refers to the exact object short of that level of mutuality produces not a contract but a and consideration embodied in said offer. While it is impossible mere counter-offer awaiting acceptance. More particularly on to expect the acceptance to echo every nuance of the offer, it is the matter of the consideration of the contract, the offer and its imperative that it assents to those points in the offer which, acceptance must be unanimous both on the rate of the payment


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA and on its term. An acceptance of an offer which agrees to the rate but varies the term is ineffective. As what happened here in Villanueva. The letter of Villanueva was an offer to buy independent of the invitation to bid. It was a definite offer as it identified with certainty the properties sought to be purchased and fixed the contract price. Respondent replied that only Lot No. 19 is available and that the price is now P2, 883,300.00. So therefore, the reply here by the bank, was not an acceptance but a mere counter-offer. To which Villanueva made a counter-offer, he inserted the term "downpayment of P600,000.00 and the balance payable in two years at quarterly amortization." So in essence, the acceptance here was not absolute. Therefore, it did not give rise to the perfection of a contract of sale. Acceptance of said partial amounts by respondent does not presuppose perfection of any contract. Once again, there was no meeting of the minds as to the price and the manner of payment thereof. So again, the consensual nature of a contract of sale is perfected by mere consent, validly binding upon the meeting of the minds as to the object and the price. As we have discussed, actual delivery of subject matter based or the giving of the price are not necessary to the perfection of a contract of sale. Nonperformance or the failure to give the subject matter or failure to pay the price merely becomes the legal basis for remedies for specific performance or rescission. Obligations arising therefrom, from an intended contract of sale may now have the force of law between the parties. Now, what are the modalities that may affect consent? One of which is the subject of the contract, suspensive term or the suspensive condition.

Meeting of the minds in a contract of sale, take note, must be complete. Even if there was partial delivery, if there is no agreement as to the price and the price is not certain, there will be no valid contract of sale. So even if the thing was delivered to the buyer but there was no meeting of minds as to the price, the contract of sale cannot be considered as valid. However, do take not that there may be instances wherein you could still say that there is a valid sale even if the sale itself does not have full consent of the owner. One of which is provided in our Constitution, the State’s inherent power of eminent domain. So you have a private property, the Government will expropriate it, take it for public use, and will give you just compensation. You cannot refuse even if it is the land of your great-grandmother because the State exercises its power of eminent domain. So the effect there is you actually sell your property to the Government. Other instances we have for example are execution sale. You owe a person a sum of money and a case was filed in court, the court finds you liable yet you still refuse to pay. The sheriff and the plaintiff will find properties in your name, those owned by you, and they will be sold to the highest bidder in a public auction. So that’s the sale. And the proceeds or sale thereof will be applied to the obligation.


Same thing with the foreclosure of mortgage. You borrow money, you mortgage your property, and you failed to pay your obligation. Your mortgage will now be foreclosed, your property will now be sold in a public auction to the highest bidder. And then the proceeds will be applied to the obligation. The public auction there will be considered as a valid contract of sale even if you can say that it does not have the full consent of the owner. Do take note here that there must be consent. What is the kind of consent that is required by law for it to give rise to a perfected contract of sale? For consent to be valid, it must meet the following requisites: (a) it should be intelligent, or with an exact notion of the matter to which it refers;  Intelligence in consent is vitiated by error; (b) it should be free and  freedom is vitiated by violence, intimidation or undue influence; (c) it should be spontaneous.  spontaneity is vitiated by fraud. Vda. De Ape vs. CA (April 15, 2005) FACTS Cleopas Ape died in 1950 and left a parcel of land (Lot 2319) to his 11 children. The children never formally divided the property amongst themselves except through hantalhantal whereby each just occupied a certain portion and developed each. On the other hand, the spouses Lumayno were interested in the land so they started buying the portion of land that each of the heirs occupied. On 11 Apr 1973, one of the children, Fortunato, entered into a contract of sale with Lumayno. In exchange of his lot, Lumayno agreed to pay P5,000.00. She paid in advance P30.00. Fortunato was given a receipt prepared by Lumayno’s son in law (Andres Flores). Flores also acted as witness. Lumayno also executed sales transactions with Fortunato’s siblings separately. In 1973, Lumayno compelled Fortunato to make the the delivery to her of the registrable deed of sale over Fortunato’s portion of the Lot No. 2319. Fortunato assai led the validity of the contract of sale. He also invoked his right to redeem (as a co-owner) the portions of land sold by his siblings to Lumayno. Fortunato died during the pendency of the case. ISSUE: Whether or not there was a valid contract of sale? RULING No. Fortunato was a “no read no write” person. It was incumbent for the the other party to prove that details of the contract was fully explained to Fortunato before Fortunato signed the receipt.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA A contract of sale is a consensual contract, thus, it is perfected by mere consent of the parties. It is born from the moment there is a meeting of minds upon the thing which is the object of the sale and upon the price. Upon its perfection, the parties may reciprocally demand performance, that is, the vendee may compel the transfer of the ownership and to deliver the object of the sale while the vendor may demand the vendee to pay the thing sold. For there to be a perfected contract of sale, however, the following elements must be present: consent, object, and price in money or its equivalent. For consent to be valid, it must meet the following requisites: (a) it should be intelligent, or with an exact notion of the matter to which it refers; (b) it should be free and (c) it should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; spontaneity by fraud. Lumayno claimed that she explained fully the receipt to Fortunato, but Flores’ testimony belies it. Flores said there was another witness but the other was a maid who also lacked education. Further, Flores himself was not aware that the receipt was “to transfer the ownership of Fortunato’s land to her mom-in-law”. It merelyoccurred to him to explain the details of the receipt but he never did. Discussion: So here there was no valid contract of sale. While it is true that it is a consensual contract perfected by mere consent, take note of the requisites of a valid consent. To be valid, consent first should intelligent, or with an notion of the matter to which it be refers. For example, theexact seller understands that he is selling a specific property for a certain price. Second, it should be free and third, it should be spontaneous. Intelligence in consent is vitiated by error; freedom by violence, intimidation or undue influence; spontaneity by fraud. In this case, the general rule is that he who alleges fraud or mistake in a transaction must substantiate his allegation. However, the exception to this rule is provided for under Article 1332 of the Civil Code which provides that "When one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract, in this case the buyer, must show that the terms thereof have been fully explained to the former (in this case Fortunato)." In this case, as private respondent is the one seeking to enforce the claimed contract of sale, she bears the burden of proving that the terms of the agreement were fully explained to Fortunato Ape who was an illiterate. This she failed to do. While she claimed in her testimony that the contents of the receipt were made clear to Fortunato, such allegation was debunked by Andres Flores himself when the latter took the witness stand. Mere allegation is not sufficient. There was no proof that it was clearly explained by the buyer to Fortunato.


Again, according to Article 1315, contracts are perfected by mere consent, and from that moment 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. Laforteza vs. Machuca (June 16, 2000) FACTS Roberto Laforteza and Gonzalo Laforteza, Jr., in their capacities as attorneys-in-fact of Dennis Laforteza, entrered into a MOA (Contract to Sell) with Alonzo Machuca over a house and lot registered in the name of the late Francisco Laforteza. Machuca was able to pay the earnest money but however failed to pay the balance on time. Upon a request of an extension of time, Machuca informed petitioner heirs that the balance was already covered, but petitioners refused to accept the balance and told Machuca that the subject property is no longer for sale. The petitioners contend that the Memorandum of Agreement is merely a lease agreement with “option to purchase”; hence, it only gave the respondent a right to purchase the subject property within a limited period without imposing upon them any obligation to purchase it. And since the respondent’s tender of payment was made after the lapse of the option agreement, his tender did not give rise to the perfection of a contract of sale. ISSUES: (1) WON the tender of payment after the lapse of the option agreement gave rise to the perfection of a contract of sale (2) WON the six-moth period during which the respondent would be in possession of the property as lessee was a period within which to exercise an option. RULING (1) YES. A perusal of the Memorandum Agreement shows that the transaction between the petitioners and the respondent was one of sale and lease. A contract of sale is a consensual contract and 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. From that moment the parties may reciprocally demand performance subject to the provisions of the law governing the form of contracts. In the case at bench, all the elements of a contract of sale were thus present. (2) NO. The six-month period during which the respondent would be in possession of the property as lessee, was clearly not a period within which to exercise an option. An option is a contract granting a privilege to buy or sell within an agreed


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA time and at a determined price. An option contract is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. An option must be supported by consideration. An option contract is governed by the second paragraph of Article 1479 of the Civil Code, which reads: Art. 1479. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. In the present case, the six-month period merely delayed the demandability of the contract of sale and did not determine its perfection for after the expiration of the sixmonth period, there was an absolute obligation on the part of the petitioners and the respondent to comply with the terms of the sale. Discussion: So here there is a valid contract of sale. In this case, the issuance of the new certificate of title in the name of the late Francisco Laforteza and the execution of an extrajudicial settlement of his estate was not a condition which determined the perfection of the contract of sale. Petitioners' contention that since the condition was not met, they no longer had an obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to distinguish between a condition imposed upon the perfection of the contract and a condition imposed on the performance of an obligation. Failure to comply with the first condition results in the failure of a contract, while the failure to comply with the second condition theor other partythe thecondition. option either to refuse to proceed only withgives the sale to waive In this case, there was already a perfected contract. The condition was imposed only on the performance of the obligations contained therein. Considering however that the title was eventually "reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their father's estate, the respondent had a right to demand fulfillment of the petitioners' obligation to deliver and transfer ownership of the house and lot. Also take note the nomenclature of the contract, although it was denominated as a "Contract to Sell", the Supreme Court held that the parties contemplated a contract of sale. We will discuss further the distinctions between a contract to sell and a contract of sale. The mere fact that the obligation of the respondent to pay the balance of the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale.

3) BILATERAL AND RECIPROCAL Sale is a bilateral contract embodying reciprocal


obligations, as distinguished from a unilateral contract, because it imposes obligations on both parties to the relationship (Art. 1458), and whereby the obligation or promise of each party is the cause or consideration for the obligation or promise of the other (Art. 1191). Reciprocal obligations are “those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Legal effects and consequences of sale being a bilateral contract composed of reciprocal obligations: (a) The power to rescind is implied, and such power need not be stipulated in the contract in order for the innocent party to invoke the remedy (Art. 1191) (b) Neither party incurs delay if the other party does not comply, or is not ready to comply in a proper manner, with what is incumbent upon him (Art. 1168, last par.) (c) From the moment one of the parties fulfills his obligation, the default by the other begins (Art. 1168), without the need of prior demand (Art. 1191) Reciprocal and Nominate Nature of Sale  It is therefore a genera requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e, there should be a concurrence of the promise of the vendor to sell a determinate thing +and the promise of the vendee to receive and pay for the property so delivered and



transferred. (Polytechnic University of the Philippines vs. CA) The right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them. (Carrascoso, Jr. vs. CA) Cortes vs. CA (July 12, 2006)

FACTS For the purchase price of 3.7M, Villa Esperanza Development Corporation and Antonio Cortes entered into a contract of sale over the lots located at Baclaran, Parañaque, Metro Manila. The Corporation advanced to Cortes the total sum of P1,213,000.00. Later, in September 1983, the parties executed a deed of absolute sale on the following terms: The Corporation shall advance 2.2 M as downpayment, and Cortes shall likewise deliver the TCT for the 3 lots. The balance of 1.5M shall be payable within a year from the date of the execution. The Corporation filed the instant case for specific performance seeking to compel Cortes to deliver the TCTs and the srcinal copy of the Deed of Absolute Sale. According to the


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Here, reciprocal obligations are those which arise from the same cause, and which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other. Cortes' admitted that he agreed that the Corporation's full payment of the sum of P2,200,000.00 would depend upon his delivery of the titles of the three lots. Hence, the phrase "execution of this instrument" as appearing in the Deed of Absolute Sale, and which event would give rise to the Corporation's obligation to pay in full the amount of P2,200,000.00, cannot be construed as referring solely to the signing of the deed. The meaning of "execution" in the instant case is not limited to the signing of a contract but includes as ISSUE: WON there is delay in the performance of the parties’ well the performance or implementation or accomplishment of obligations that would justify the rescission of the contract of the parties' agreement. With the transfer of titles as the sale corresponding reciprocal obligation of payment, Cortes' obligation is not only to affix his signature in the Deed, but to set RULING into motion the process that would facilitate the transfer of title NO. There is no doubt that the contract of sale in of the lots, i.e., to have the Deed notarized and to surrender the question gave rise to a reciprocal obligation of the parties. srcinal copy thereof to the Corporation together with the TCTs. Reciprocal obligations are those which arise from the same Cortes never surrendered said documents to the cause, and which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the Corporation. Since Cortes did not perform his obligation to have obligation of the other. They are to be performed the Deed notarized and to surrender the same together with the TCTs, the trial court erred in concluding that he performed his simultaneously, so that the performance of one is conditioned part in the contract of sale and that it is the Corporation alone upon the simultaneous fulfillment of the other. that was remiss in the performance of its obligation. Actually, In the present case, the Deed of Sale contained a both parties were in delay. Considering that their obligation was stipulation that the Corporation shall pay in full the downpayment upon execution of the contract. However, based reciprocal, performance thereof must be simultaneous. The mutual inaction of Cortes and the Corporation therefore gave on Cortes’ admission, he agreed that the Corporation’s full rise to a compensation morae or default on the part of both payment of the downpayment would depend upon the delivery parties because neither has completed their part in their of the TCTs of the three subject lots. As such, the corresponding reciprocal obligation. Cortes is yet to deliver the srcinal copy of reciprocal obligation of the Corporation’s payment was the the notarized Deed and the TCTs, while the Corporation is yet to transfer of titles by Cortes. His obligation is not only to affix the pay in full the agreed down payment of P2,200,000.00. This signature in the Deed, but to set into motion the process that mutual delay of the parties cancels out the effects of default, would facilitate transfer of title of the lots. such that it is as if no one is guilty of delay. Considering that their obligation was reciprocal, In the absence of delay, the contract cannot be performance thereof must be simultaneous. The mutual rescinded. Under Article 1169 of the Civil Code, from the inaction of Cortes and the Corporation therefore gave rise to a moment one of the parties fulfills his obligation, delay by the compensation morae or default on the part of both parties other begins. Since Cortes did not perform his part, Cortes because neither has completed their part in their reciprocal cannot ask the court for rescission. The provision of the contract obligation. Cortes is yet to deliver the srcinal copy of the requiring the Corporation to pay in full the down payment never notarized Deed and the TCTs, while the Corporation is yet to acquired obligatory force. So there was a perfected contract of pay in full the agreed down payment of P2,200,000.00. This sale but there was delay on both parties, cancelling each other mutual delay of the parties cancels out the effects of default, out. So therefore they cannot also resort to rescission. such that it is as if no one is guilty of delay. Corporation, despite its readiness and ability to pay the purchase price, Cortes refused delivery of the sought documents. Cortes claimed that the owner’s duplicate copy of the three TCTs were surrendered to the Corporation and it is the latter which refused to pay in full the agreed down payment. RTC rendered a decision rescinding the sale and directed Cortes to return to the Corporation the amount of P1,213,000.00, plus interest. CA reversed the decision and directed Cortes to execute a Deed of Absolute Sale conveying the properties and to deliver the same to the Corporation together with the TCTs, simultaneous with the Corporation’s payment of the balance of the purchase price of P2,487,000.00.

Additionally, under Article 1169 of the Civil Code, from the moment one of the parties fulfills his obligation, delay by the other begins. Since Cortes did not perform his part, the provision of the contract requiring the Corporation to pay in full the down payment never acquired obligatory force. Discussion:

4) ONEROUS

Art. 1458. Sale is an ONEROUS contract, as distinguished from a gratuitous contract, because it imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Onerous vs. Gratuitous  Onerous – burdensome because it imposes a valubable consideration as a prestation which is a price certain in money or its equivalent.  Gratuitous – an act of pure liberality Objective Test of the Onerous Nature of a Sale: Whether or not there is a valuable consideration. Gaite vs. Fonacier (July 31, 1961) DOCTRINE The stipulation in a contract of sale on the payment of the balance of the purchase price must be deemed to cover a suspensive period rather than a condition since “there can be no question that greater reciprocity obtains if the buyer's obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existing or not binding until the ore was sold.” The Court held that the rules of interpretation would incline the scales in favor of the “greater reciprocity of interests,” since sale is essentially an onerous contract. FACTS By a "Deed of Assignment" dated September 29, 1952, Isabelo Fonacier constituted and appointed Fernando A. Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and development of the mining claims in the municipality of Jose Panganiban, province of Camarines Norte on a royalty basis of not less than P0.50 per ton of ore that might be extracted therefrom. On March 19, 1954, Gaite in turn executed a general assignment conveying the development and exploitation of said mining claims into the Larap Iron Mines. Thereafter, Gaite extracted therefrom what he claim and estimated to be approximately 24,000 metric tons of iron ore. For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a document entitled "Revocation of Power of Attorney and Contract" was executed on December 8, 1954, wherein Gaite transferred to Fonacier, for the consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests on all the roads, improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mines" and its goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all his rights and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted from the mineral claims, in consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the


signing of the agreement. To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pursuant to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap Mines and Smelting Co. and its stockholders as sureties. Gaite testified, however, that when this bond was presented to him by Fonacier together with the "Revocation of Power of Attorney and Contract", on December 8, 1954, he refused to sign said document unless another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 ,was executed by the same parties to the first bond, with the Far Eastern Surety and Insurance Co. as additional surety, but it provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines & Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", and made integral parts thereof. On the same day that Fonacier revoked the power of attorney he entered into a "Contract of Mining Operation", ceding, transferring, and conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question, together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in consideration of certain royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron ore which he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the surety bonds delivered by Fonacier to Gaite. Up to December 8, 1955, when the bond expired with respect to the Far Eastern Surety and Insurance Company, no sale of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance of the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to make use of the period given them when their bond. And when Fonacier and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of Manila for the payment of the P65,000.00 balance of the price of the ore, consequential damages, and attorney's fees. All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the complaint, no sale


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron ore sold to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages. ISSUE: Whether or not the obligation of Fonacier to pay Gaite the P65,000.00 (balance of the price of the iron ore in question)is one with a period or term and not one with a suspensive condition, and that the term expired on December 8, 1955 RULING The shipment or local sale of the iron ore is not a condition precedent (or suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos (P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expectations, emptio spei ), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear. Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the definite existence of their obligation to pay the balance of P65,000.00. Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a suspensive period ( dies ad quem ) for the payment of the P65,000.00, the rules of interpretation would incline the scales in favor of "the greater reciprocity of


interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, paragraph 1, in fine, provides: If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold. The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory contract where the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment.

5) COMMUTATIVE Sale is a COMMUTATIVE contract, as distinguished from an aleatory contract, because a thing of value is exchange for equal value, i.e., ideally the value of the subject matter is equivalent to the price paid. Nevertheless, there is no requirement that the price to be equal to the exact value of the subject matter; all that is required is for the seller to believe that what was received was of the commutative value of what he gave. (Buenaventura vs. Court of Appeals) Commutative vs. Aleatory  Commutative – a thing of value is exchanged for equal



value as a consequence of equal a relative value between what bargaining. is given andIt involves what is received. Aleatory – chance determines the value received.

The Subjective Test of the Commutative Nature of Sale Whether or not the party believes in all honesty that he is receiving good value for what he transferred.  the inadequacy of price does not affect ordinary sale  inadequacy of price may be a ground for setting aside an execution sale but is not a sufficient ground for the cancellation of a voluntary contract of sale otherwise free from invalidating effects  inadequacy of price may show vice in consent, in which case the sale may be annulled, but such annulment is not for adequacy of price, but rather for vitiation in consent

Buenaventura vs. CA (November 20, 2003) DOCTRINE There is no requirement that the price be equal to the exact value of the subject matter of sale; all that sellers


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA believed was that they received the commutative value of what they gave. 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. Sought to be declared null and void ab initio are certain deeds of sale of real property executed by defendant parents Leonardo Joaquin and Feliciana Landrito in favor of their co-defendant children and the corresponding certificates of title issued in their names In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title, plaintiffs, in their complaint, aver that the deeds of sale are simulated as they are, are NULL AND VOIDAB INITIO because – 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  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;  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  that the certificates of title were issued with sufficient factual and legal basis ISSUES 1. Whether the Deeds of Sale are void for lack of consideration 2. Whether the Deeds of Sale are void for gross inadequacy of price RULING 1. Whether the Deeds of Sale are void for lack of consideration Petitioners assert that their respondent siblings did not actually pay the prices stated in the Deeds of Sale to their respondent father. Thus, petitioners ask the court to declare the Deeds of Sale void. A contract of sale is not a real contract, but a


consensual contract. As a consensual contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds as to price. 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 p rice 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. 2. Whether the Deeds of Sale are void for gross inadequacy of price Petitioners ask that assuming that there is consideration, the same is grossly inadequate as to invalidate the Deeds of Sale. 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


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA 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. 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.

6) SALE IS A TITLE AND NOT A MODE Sale is merely a TITLE that creates the obligation on the part of the seller to transfer ownership and deliver possession, but on its own, sale is not a mode that transfers ownership. (Equatorial Realty vs. Mayfair Theater) Mode

Title

Mode is the legal means by Title only constitutes the legal which dominion or ownership basis by which to affect is created, transferred or dominion or ownership. destroyed Therefore, sale by itself does not transfer or affect ownership. The most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. San Lorenzo Dev't Corp vs. CA FACTS


Babasanta, without the knowledge and consent of Miguel Lu, had verbally agreed to transform the transaction into a contract to sell the two parcels of land to Babasanta with the fifty thousand pesos (P50,000.00) to be considered as the downpayment for the property and the balance to be paid on or before 31 December 1987. Respondents Lu added that as of November 1987, total payments made by Babasanta amounted to only two hundred thousand pesos (P200,000.00) and the latter allegedly failed to pay the balance of two hundred sixty thousand pesos (P260,000.00) despite repeated demands. Babasanta had purportedly asked Pacita for a reduction of the price from fifteen pesos (P15.00) to twelve pesos (P12.00) per square meter and when the Spouses Lu refused to grant Babasanta’s request, the latter rescinded the contract to sell and declared that the srcinal loan transaction just be carried out in that the spouses would be indebted to him in the amount of two hundred thousand pesos (P200,000.00). Accordingly, on 6 July 1989, they purchased Interbank Manager’s Check No. 05020269 in the amount of two hundred thousand pesos (P200,000.00) in the name of Babasanta to show that she was able and willing to pay the balance of her loan obligation. On 19 January 1990, herein petitioner San Lorenzo Development Corporation (SLDC) filed a Motion for Intervention before the trial court. SLDC alleged that it had legal interest in the subject matter under litigation because on 3 May 1989, the two parcels of land involved, namely Lot 1764A and 1764-B, 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.

(January 21, 2005)

It appears that respondent Spouses Lu owned two (2) parcels of land situated in Sta. Rosa, Laguna covered by TCT No. T-39022 and TCT No. T-39023 both measuring 15,808 square meters or a total of 3.1616 hectares. On 20 August 1986, the Spouses Lu purportedly sold the two parcels of land to respondent Pablo Babasanta, for the price of P15.00 per square meter. Babasanta 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. On 2 June 1989, respondent Babasanta, as plaintiff, filed before the Regional Trial Court (RTC), Branch 31, of San Pedro, Laguna, a Complaint for Specific Performance and Damages against his co-respondents herein, the Spouses Lu. Babasanta alleged that the lands covered by TCT No. T- 39022 and T-39023 had been sold to him by the spouses at fifteen pesos (P15.00) square Despite repeated demands for the per execution of ameter. final deed of salehisin his favor, respondents allegedly refused. In their Answer, the Spouses Lu alleged that Pacita Lu obtained loans from Babasanta and when the total advances of Pacita reached fifty thousand pesos (P50,000.00), the latter and

ISSUE: Who between SLDC and Babasanta has a better right over the two parcels of land in view of the successive transactions executed by the Spouses Lu. RULING 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 fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price. 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


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA consignation of the price in court as required by law. Mere sending of a letter by the vendee expressing the intention to pay without the accompanying payment is not considered a valid tender of payment. Consignation of the amounts due in court is essential in order to extinguish Babasanta’s obliga tion to pay the balance of the purchase price. 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. On the assumption that the transaction between the parties is a contract of sale and not a contract to sell, Babasanta’s claim of ownership should nevertheless fail. The perfection of a contract of sale should not, however, be confused with its consummation. In relation to the acquisition and transfer of ownership, it should be noted that sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or ownership. Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition." Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. Therefore, sale by itself does not transfer or affect ownership; the most that sale does is to create the obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership. Following the above disquisition, respondent Babasanta did not acquire ownership by the mere execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property. For one, the agreement between Babasanta and the Spouses Lu, though valid, was not embodied in a public instrument. Hence, no constructive delivery of the lands could have been effected. For another, Babasanta had not taken possession of the property at any time after the perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta, whether actual or constructive, which is essential to transfer ownership of the property. Thus, even on the assumption that the perfected contract between the parties was a sale, ownership could not have passed to Babasanta in the absence of delivery, since in a contract of sale ownership is transferred to the vendee only upon the delivery of the thing sold.

Norkis(February Distributors, Inc. vs. CA 7, 1991) FACTS Petitioner Norkis Distributors, Inc. is the distributor of Yamaha motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager.


On September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle then displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 showing that the contract of sale of the motorcycle had been perfected. Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis' possession. On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales. On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales but the latter denies it. The record shows that Alberto and Julian Nepales presented the unit to DBP's AppraiserInvestigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch. The motorcycle met an accident on February 3, 1980 at Binalbagan, Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident. The unit was a total wreck, was returned, and stored inside Norkis' warehouse. On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 and demanded the delivery of the motorcycle. When Norkis could not deliver, he filed an action for specific performance with damages against Norkis in the RTC. He alleged that Norkis failed to deliver the motorcycle which he purchased, thereby causing him damages. Norkis answered that the motorcycle had already been delivered to private respondent before the accident, hence, the risk of loss or damage had to be borne by him as owner of the unit. ISSUES  Whether or not there had already been a transfer of ownership of the motorcycle to private respondent at the time it was destroyed.  Who should bear the loss of the motorcycle RULING The issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA sale. In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of delivering the thing. The act, without the intention, is insufficient. When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of Guarantee issued by the DBP, reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP would not approve private respondent's loan application and, consequently, there would be no sale. In other words, 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 (Abuan vs. Garcia, 14 SCRA 759). In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), this Court held: The thing is considered to be delivered when it is "placed in the hands and possession of the vendee." (Civil Code, Art. 1462). The thing sold must be placed in his control . 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, 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 of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality-the delivery has riot been effects .(Emphasis

supplied.) The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 and the registration of the vehicle in the name of plaintiffappellee (private respondent) with the Land Registration Commission was not to transfer to Nepales the ownership and dominion over the motorcycle, but only to comply with the requirements of the Development Bank of the Philippines for processing private respondent's motorcycle loan. Norkis' claim that Julian Nepales was acting as Alberto's agent when he allegedly took delivery of the motorcycle, is controverted by the latter. Alberto denied having authorized Julian Nepales to get the motorcycle from Norkis Distributors or to enter into any transaction with Norkis relative to said motorcycle. This circumstances more than amply rebut the disputable presumption of delivery upon which Norkis anchors its defense to Nepales' action.


Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of res perit domino . Personal Right vs. Real Right  Personal Right – enforceable against a specific person 

Real Right – enforceable against the whole world Aznar vs. Yapdiangco (March 31, 1965)

FACTS Sometime in May, 1959, Teodoro Santos advertised in two metropolitan papers the sale of his FORD FAIRLANE 500. In the afternoon of May 28, 1959, a certain L. De Dios, claiming to be a nephew of Vicente Marella, went to the Santos residence to answer the ad. However, Teodoro Santos was out during this call and only the latter's son, Irineo Santos, received and talked with De Dios. The latter told the young Santos that he had come in behalf of his uncle, Vicente Marella, who was interested to buy the advertised car. On being informed of the above, Teodoro Santos instructed his son to see the said Vicente Marella the following day at his given address: 1642 Crisostomo Street, Sampaloc, Manila. And so, in the morning of May 29, 1959, Irineo Santos went to the above address. At this meeting, Marella agreed to buy the car for P14,700.00 on the understanding that the price would be paid only after the car had been registered in his name. Irineo Santos then fetched his father who, together with L. De Dios, went to the office of a certain Atty. Jose Padolina where the deed of the sale for the car was executed in Marella's favor. The parties to the contract thereafter proceeded to the Motor Vehicles Office in Quezon City where the registration of the car in Marella's name was effected. Up to this stage of the transaction, the purchased price had not been paid. From the Motor Vehicles Office, Teodoro Santos returned to his house. He gave the registration papers and a copy of the deed of sale to his son, Irineo, and instructed him not to part with them until Marella shall have given the full payment for the car. Irineo Santos and L. De Dios then proceeded to 1642 Crisostomo Street, Sampaloc, Manila where the former demanded the payment from Vicente Marella. Marella said that the amount he had on hand then was short by some P2,000.00 and begged off to be allowed to secure the shortage from a sister supposedly living somewhere on Azcarraga Street, also in Manila. Thereafter, he ordered L. De


21

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Dios to go to the said sister and suggested that Irineo Santos go with him. At the same time, he requested the registration papers and the deed of sale from Irineo Santos on the pretext that he would like to show them to his lawyer. Trusting the good faith of Marella, Irineo handed over the same to the latter and thereupon, in the company of L. De Dios and another unidentified person, proceeded to the alleged house of Marella's sister. At a place on Azcarraga, Irineo Santos and L. De Dios alighted from the car and entered a house while their unidentified companion remained in the car. Once inside, L. De Dios asked Irineo Santos to wait at the sala while he went inside a room. That was the last that Irineo saw of him. For, after a considerable length of time waiting in vain for De Dios to return, Irineo went down to discover that neither the car nor their unidentified companion was there anymore. Going back to the house, he inquired from a woman he saw for L. De Dios and he was told that no such name lived or was even known therein. Whereupon, Irineo Santos rushed to 1642 Crisostomo to see Marella. He found the house closed and Marella gone. Finally, he reported the matter to his father who promptly advised the police authorities. That very same day, or on the afternoon of May 29, 1959 Vicente Marella was able to sell the car in question to the plaintiff-appellant herein, Jose B. Aznar, for P15,000.00. While the car in question was thus in the possession of Jose B. Aznar and while he was attending to its registration in his name, agents of the Philippine Constabulary seized and confiscated the same in consequence of the report to them by Teodoro Santos that the said car was unlawfully taken from him. In due time, Jose B. Aznar filed a complaint for replevin against Captain Rafael Yapdiangco, the head of the Philippine Constabulary unit which seized the car in question Claiming ownership of the vehicle, he prayed for its delivery to him. In the course of the litigation, however, Teodoro Santos moved and was allowed to intervene by the lower court. The plaintiff-appellant accepts that the car in question srcinally belonged to and was owned by the intervenorappellee, Teodoro Santos, and that the latter was unlawfully deprived of the same by Vicente Marella. However, the appellant contends that upon the facts of this case, the applicable provision of the Civil Code is Article 1506 and not Article 559 as was held by the decision under review. Article 1506 provides: ART. 1506. Where the seller of goods has a voidable title thereto, but his, title has not been voided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title. ISSUE: Between Teodoro Santos and the plaintiff-appellant, Jose B. Aznar, who has a better right to the possession of the disputed automobile?


RULING Teodoro Santos. Under Art. 1506, it is essential that the seller should have a voidable title at least. It is very clearly inapplicable where, as in this case, the seller had no title at all. Vicente Marella did not have any title to the property under litigation because the same was never delivered to him. He sought ownership or acquisition of it by virtue of the contract. Vicente Marella could have acquired ownership or title to the subject matter thereof only by the delivery or tradition of the car to him. Under Article 712 of the Civil Code, "ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition." As interpreted by this Court in a host of cases, by this provision, ownership is not transferred by contract merely but by tradition or delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of accomplishing the same. In the case on hand, the car in question was never delivered to the vendee by the vendor as to complete or consummate the transfer of ownership by virtue of the contract. It should be recalled that while there was indeed a contract of sale between Vicente Marella and Teodoro Santos, the former, as vendee, took possession of the subject matter thereof by stealing the same while it was in the custody of the latter's son. There is no adequate evidence on record as to whether Irineo Santos voluntarily delivered the key to the car to the unidentified person who went with him and L. De Dios to the place on Azcarraga where a sister of Marella allegedly lived. But even if Irineo Santos did, it was not the delivery contemplated by Article 712 of the Civil Code. For then, it would be indisputable that he turned it over to the unidentified companion only so that he may drive Irineo Santos and De Dios to the said place on Azcarraga and not to vest the title to the said vehicle to him as agent of Vicente Marella. Article 712 above contemplates that the act be coupled with the intent of delivering the thing. (10 Manresa 132) The lower court was correct in applying Article 559 of the Civil Code to the case at bar, for under it, the rule is to the effect that if the owner has lost a thing, or if he has been unlawfully deprived of it, he has a right to recover it, not only from the finder, thief or robber, but also from third persons who may have acquired it in good faith from such finder, thief or robber. The said article establishes two exceptions to the general rule of irrevindicability, to wit, when the owner (1) has lost the thing, or (2) has been unlawfully deprived thereof. In these cases, the possessor cannot retain the thing as against the owner, who may recover it without paying any indemnity, except when the possessor acquired it in a


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA public sale. Article 712.Ownership is acquired by occupation and by intellectual creation. Ownership and other real rights over property are acquired and transmitted by law, by donation, by testate and intestate succession, and in consequence of certain contracts, by TRADITION. They may also be acquired by means of prescription.


option contract, Mayfair appealed to the CA which interpreted said paragraph as a right of first refusal and not an option contract. ISSUES: 1) Whether or not possession was acquired Equatorial. 2) Whether Equatorial is entitled to back rentals.

by

RULING By Tradition  Tradition means delivery.    

Sale does not transfer ownership. It is tradition or delivery which, as a consequence of sale, actually transfers ownership. Actual Delivery – consists in placing the thing sold in the control and possession of the vendee. Legal or Constructive Delivery – may be had through any of the following ways: ◦

◦

◦

the execution of a public instrument evidencing the sale; symbolical tradition such as the delivery of the keys of the place where the movable sold is being kept; traditio longa manuor by mere consent or

agreement if the movable sold cannot yet be transferred to the possession of the buyer at the time of the sale; ◦

traditio brevi manuif the buyer already had

possession of the object even before the sale; ◦

and traditio constitutum possessorium , where the seller remains in possession of the property in a different capacity. Equatorial Realty vs. Mayfair T heater, Inc. (November 21, 1996)

FACTS Petitioners are Carmelo & Bauermann, Inc. (owner/seller/lessor). Equiatorial Realty Development is the buyer. Mayfair Theather isthe lessee. Carmelo owned a parcel of land with a 2-sotrey building. In 1967, 2 portions of the property were leased to Mayfair for a period of 20 years. In 1978, Carmelo sold the entire property to Equatorial for P11,300. Mayfair petitioned for annulment of the sale on the ground that it was violative of Paragraph 8 of the Contract of Lease between it and Carmelo: “That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given a 30-day exclusive option to purchase the same.” When the Trial Court interpreted Paragraph 8 as an

The SC ruled in favor of Mayfair ordering rescission of the deed of sale and granting him the right of first refusal to buy the property at P11,300. 1) No. There was no right of ownership transferred from Carmelo to Equatorial in view of a patent failure to deliver the property to the buyer. By a contract of sale, “one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing and the ther to pay therefor a price certain in money or its equivalent.” Ownership of the thing sold is a real right which the buyer acquires only upon delivery of the thing 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.” This right is transferred, not by contract alone, but by trandition or delivery. And there is said to be delivery if and when the thing sold is “placed in the control and possession of the vendee.” Thus, it has been held that while the execution of a public instrument of sale is recognized by law as equivalent to the delivery of the thing sold, such constructive or symbolic delivery, being merely presumptive, is deemed negated by the failure of the vendee to take actual possession of the land sold. Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and the ossession of the property, and the other acquirees the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title; it means transfer or possesson. From the peculiar facts of this case, it is clear that petitioner never took actual control and possession of the property sold, in view of the respondent's timely objection to the sale and the continued actual possession of the property. The objection took form of a court action impugning the sale which, as we know, was rescinded by a judgment rendered by this Court in the mother case. It has been held that the execution of a contact of sale as a form of constructive delivery is a legal fiction, it holds true only when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. When there is such impediment, fiction yield to reality – the delivery has not been effected.”


23



Rules to Determine Whether a Contract is a Sale or a Barter (Art. 1468) (a) Manifest intention of the parties  even if the acquisition of a thing is paid for by another object of greater value than the money component, it may still be a sale and not a barter, when such was the 2) No. Furthermore, assuming for the sake of the argument intention of the parties. that there was a valid delivery, petitioner is not entitled to any (b) when intention does not appear and consideration consists benfits from the rescinded Deed of Absolute Sale because of its partly in money and partly in another thing bad faith. This being the law of the mother case decided in  it is a BARTER where the value of the THING given as 1996, it may no longer be changed because it has long become part of the consideration exceeds the amount of money final and executory. given or its equivalent.  It is a SALE, where the value of the THING given as part of the consideration equals OR is less than the amount III) DISTINGUISHED FROM OTHER of money given. TRANSACTIONS/CONTRACTS Hence, respondent's opposition to the transfer of the property by way of sale to Equatorial was a legally sufficient impediment that effectivly prevented the passing of the property into the hands of the latter.

Example to Demonstrate the Rule:  





The title given to a sale by the parties is not as much significant as its substance. Courts look at the intent of the parties and the elements of the contractual relationship and not at the nomenclature used to describe it. Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the terminology used in the covenant, as well as “by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement.” A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. The transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale.

1) DISTINGUISHED FROM BARTER Barter Article 1638.By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of the other's promise to give another thing.

Contract

Total

Thing (T)

Money (M)

BARTER (T>M)

P 60,000 = worth P 50,000

+ P 10,000

SALE (T
P 60,000 = worth P 10,000

+ P 50,000

SALE (T=M)

P 60,000 = worth P 30,000

+ P 30,000

2 Rules Specifically Provided for Barter Contracts (a) If one of the contracting parties, having received the thing promised in barter, should prove that it did not belong to the person who gave it, he cannot be compelled to deliver that which he offered in exchange, but he shall be entitled to damages (Art. 1639); and (b) One who loses by eviction the thing received in barter may recover that which he gave in exchange with a right to damages, or he can only make use of the right to recover the thing which he has delivered while the same remains in the possession of the other party, but without prejudice to the rights acquired in good faith by a third person (Art. 1640). Note: As to all matters not specifically provided for in this Title, barter shall be governed by the provisions of the preceding Title relating to sales. (Article 1641)

Sale 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.

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

Instances when the Difference between Barter and Sale is Critical (a) The rules on the Statue of Frauds (Article 1403), which apply to the sale of a real property, and personal property bought at P500 or more, do not apply to barter. (b) The right of legal redemption granted by law to an adjoining owner of an urban land (Art. 1622), covers only “resale” and does not cover exchanges of properties.

2) DISTINGUISHED FROM DONATION Donation Art. 725. DONATION is an act of liberality whereby a


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA person disposes gratuitously of a thing or right in favor of another person, who accepts it.

Sale An onerous (Consideratiion purchase price)

Donation contract. A gratuitous contract. is the (Consideration is the liberality of the owner)

A consensual contract A solemn contract which must (Perfected by mere consent.) comply with the formalities mandated by law for its validity although consent is also required. Takes effect either inter vivos Takes effect only inter vivos (during the lifetime of the (during the lifetime of the donor) or mortis causa (after owner/seller) death of the donor) Notes:  When the price of a sale is simulated, the sale itself may be void, “but the act may be shown to have been in reality a donation or some other act or contract. (Art. 1471)  Even when the donor imposes upon the donee a burden, but which is less than the value of the thing given, there is still a donation. (Art. 726)

3) DISTINGUISHED FROM A CONTRACT FOR A PIECE OF WORK Contract for a Piece of Work

Art. 1713. By the CONTRACT FOR A PIECE-OF-WORK, the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material.

Contract of Sale or Contract for a Piece of Work Article 1467.A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of SALE, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a CONTRACT FOR A PIECE OF WORK.

Tests for Distinguishing Sale from Contract for a Piece-of-Work (Art. 1467) (a) Manufacturing in the ordinary course of business to cover sales contracts; and (b) Manufacturing upon special order of customers, to cover contracts for piece-of-work.


Sale

Contract for Piece of Work

Thing transferred is one which Thing transferred is NOT in would have existed and would existence and would never have been the subject of sale have existed but for the order to some other person, even if of the party desiring to acquire the order had not been given. it. Subject matter is object.

Essence

is

the

Subject matter is service, knowledge or reputation of the person who executes or manufactures the object.

object, Essence is the sale of service

irrespective of the party giving or labor. or executing it. Involves a real obligation. (to Involves a personal obligation. give) (to do) Governed by the Statute of Not covered by the Statute of Frauds. Frauds. Staturoy Rules in Determining a Contract for a Piece of Work: 1) TEST OF SPECIAL ORDERS  If the goods are to be manufactured specifically for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. (Art. 1467)  2 Tests for Distinction: a) Manufacturing in the ordinary course of business to cover SALES contracts; and b) Manufacturing upon special order of customers, to 

cover CONTRACTS FOR PIECE OF WORK. If the manufacture of goods is made always upon or after the orders of customers and on the basis of their specifications, the underlying relationship would be that of a contract for a piece of work. (Celestino Co. vs. CIR)

2) TEST OF EXISTENCE  The distinction between a sale a contract for work, labor, and materials is tested by the inquiry of whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and been the subject of sale to some other person, even if the order had not been given. (Inchausti vs. Cromwell)  CIR vs. Arnoldus Carpentry Shop, Inc. 3) TIMING or HABITUALITY TEST  When the manufacturer engages in the same activity in the ordinary course of business, and does not need to employ extraordinary skills and equipment, that would classify the underlying transaction as a SALE. (Celestino


25



Co. vs. CIR) 4) NATURE OF THE OBJECT or the TEST OF NECESSITY  Engineering Machinery Corp. vs. CA  The large quantity of the products to be delivered do not indicate that the underlying contract is one of sale. (Dino vs. CA) 5) CONSENSUALITY TEST / TEST OF INTENTION  To Tolentino, the distinction between the 2 contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work. (Engineering Machinery Corp. vs. CA)



Inchausti vs. Cromwell (October 16, 1911) DOCTRINE The distinction between a sale and a contract for work, labor, and materials is tested by the inquiry of whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and been the subject of a sale to some other person, even if the order had not been given. The hemp was in existence in baled form before the agreements of sale were made, or, at least, would have been in existence if none of the individual sales in question had been consummated; and that it would have been baled, nevertheless, for sale to someone else, since it was proven customary to sell hemp in bales. FACTS 





That the plaintiff firm for many years past has been and now is engaged in the business of buying and selling at wholesale hemp, both for its own account and on commission. That it is customary to sell hemp in bales which are made by compressing the loose fiber by means of presses, covering two sides of the bale with matting, and fastening it by means of strips of rattan; that the operation of bailing hemp is designated among merchants by the word "prensaje." That in all sales of hemp by the plaintiff firm, whether for its own account or on commission for others, the price is quoted to the buyer at so much per picul, no mention being made of bailing; but with the tacit understanding, unless otherwise expressly agreed, that the hemp will be delivered in bales and that,







according to the custom prevailing among hemp merchants and dealers in the Philippine Islands, a charge, the amount of which depends upon the then prevailing rate, is to be made against the buyer under the denomination of "prensaje." That this charge is made in the same manner in all cases, even when the operation of bailing was performed by the plaintiff or by its principal long before the contract of sale was made. Two specimens of the ordinary form of account used in these operations are hereunto appended, marked Exhibits A and B, respectively, and made a part hereof. That the plaintiff has always paid to the defendant or to his predecessor in the office of the Collector of Internal Revenue the tax collectible under the provisions of section 139 of Act No. 1189 upon the selling price expressly agreed upon for all hemp sold by the plaintiff firm both for its own account and on commission, but has not, until compelled to do so as hereinafter stated, paid the said tax upon sums received from the purchaser of such hemp under the denomination of "prensaje." That on the 4th day of May, 1910, the plaintiff firm paid to the defendant under protest the said sum of P1,370.69, and on the same date appealed to the defendant as Collector of Internal Revenue, against the ruling by which the plaintiff firm was required to make said payment, but defendant overruled said protest and adversely decided said appeal, and refused and still refuses to return to plaintiff the said sum of P1,370.68 or any part thereof.1awphil.net Upon the facts above set forth, it is contended by the plaintiff that the tax of P1,370.68 assessed by the defendant upon the aggregate sum of said charges made against said purchasers of hemp by the plaintiff during the period in question, under the denomination of "prensaje" as aforesaid, namely, P411,204.35, is illegal upon the ground that the said charge does not constitute a part of the selling price of the hemp, but is a charge made for the service of baling the hemp, and that the plaintiff firm is therefore entitled to recover of the defendant the said sum of P1,370.68 paid to him under protest, together with all interest thereon at the legal rate since payment, and the costs of this action. Upon the facts above stated it is the contention of the defendant that the said charge made under the denomination of "prensaje" is in truth and in fact a part of the gross value of the hemp sold and of its actual selling price, and that therefore the tax imposed by section 139 of Act No. 1189 lawfully accrued on said sums, that the collection thereof was lawfully and properly made and that therefore the plaintiff is not entitled to recover back said sum or any


26



part thereof; and that the defendant should have judgment against plaintiff for his costs.

Celestino Co vs. Collector (August 16, 1911)

ISSUE: Whether or not the baled hemp constitutes a contract of sale or a contra t for a piece of work.

FACTS

precisely the same contract that was made by every other seller of hemp, engaged as was the plaintiff, and resulted simply in the transfer of title to goods already prepared for the general market. The method of bookkeeping and form of the account rendered is not controlling as to the nature of the contract made. It is conceded in the case that a separate entry and charge would have been made for the baling even if the plaintiff had not been the one who baled the hemp but, instead, had received it already baled from his vendor. This indicates of necessity that the mere fact of entering a separate item for the baling of the hemp is formal rather than essential and in no sense indicates in this case the real transaction between the parties. It is undisputable that, if the plaintiff had brought the hemp in question already baled, and that was the hemp the sale which formed the subject of this controversy, then the plaintiff would have performed no service for his vendee and could not, therefore, lawfully charge for the rendition of such service. It is, nevertheless, admitted that in

nature of the establishment, for it is obvious that it only accepted such orders as called for the employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a position habitually to manufacture. It is at once apparent that the Oriental Sash Factory did not merely sell its services to Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of the matter is that it sold materials ordinarily manufactured by it — sash, panels, mouldings — to Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither does it take the transaction out of the category of sales under Article 1467 above quoted, because although the Factory does not, in the ordinary course of its business, manufacture and keep on stockdoors of the kind sold to Teodoro, it could stock and/or probably had in stock the sash, mouldings and panels it used therefor (some of them at least). In our opinion when this Factory accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it-it thereby contracts for a piece of work — filing special orders within the meaning of Article 1467. The orders herein exhibited were not

Celestino Co & Company is a duly registered general copartnership doing business under the trade name of RULING "Oriental Sash Factory". From 1946 to 1951 it paid percentage Contract of Sale. taxes of 7 per cent on the gross receipts of its sash, door and The distinction between a contract of sale and one for window factory, in accordance with section one hundred work, labor, and materials is tested by the inquiry whether the eighty-six of the National Revenue Code imposing taxes on sale thing transferred is one no in existence and which never would of manufactured articles. However in 1952 it began to claim have existed but for the order of the party desiring to acquire liability only to the contractor's 3 per cent tax (instead of 7 per it, or a thing which would have existed and been the subject of cent) under section 191 of the same Code; and having failed to sale to some other person, even if the order had not been convince the Bureau of Internal Revenue, it brought the matter given. It is clear that in the case at bar the hemp was in to the Court of Tax Appeals, where it also failed. existence in baled form before the agreements of sale were Appellant invokes Article 1467 of the New Civil Code made, or, at least, would have been in existence even if none of to bolster its contention that in filing orders for windows and the individual sales here in question had been consummated. It doors according to specifications, it did not sell, but merely would have been baled, nevertheless, for sale to someone else, contracted for particular pieces of work or "merely sold its since, according to the agreed statement of facts, it is services". customary to sell hemp in bales. It is clear to our minds that in the case at bar the baling was ISSUE: Whether or not petitioner could be taxed as a seller or performed for the general market and was not something done as a contractor. SELLER. by plaintiff which was a result of any peculiar wording of the particular contract between him and his vendee. It is RULING undoubted that the plaintiff prepared his hemp for the general The important thing to remember is that Celestino Co market. This would be necessary. One whose exposes goods for & Company habitually makes sash, windows and doors, as it sale in the market must have them in marketable form. The has represented in its stationery and advertisements to the hemp in question would not have been in that condition if it public. That it "manufactures" the same is practically admitted had not been baled. the baling, therefore, was nothing peculiar by appellant itself. The fact that windows and doors are made to the contract between the plaintiff and his vendee. It was by it only when customers place their orders, does not alter the

spite of that fact he would still have made the double entry in his invoice of sale to such vendee. This demonstrates the nature of the transaction and discloses, as we have already said, that the entry of a separate charge for baling does not accurately describe the transaction between the parties.


27

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA shown to be special. They were merely orders for work — nothing is shown to call them special requiring extraordinary service of the factory. The thought occurs to us that if, as alleged-all the work of appellant is only to fill orders previously made, such orders should not be called special work, but regular work. Would a factory do business performing only special, extraordinary or peculiar merchandise? Anyway, supposing for the moment that the transactions were not sales, they were neither lease of services nor contract jobs by a contractor. But as the doors and windows had been admittedly "manufactured" by the Oriental Sash Factory, such transactions could be, and should be taxed as "transfers" thereof under section 186 of the National Revenue Code. CIR vs. Arnoldus Carpentry Shop, Inc. (March 25, 1988) FACTS Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation which has been in existence since 1960. It has for its secondary purpose the "preparing, processing, buying, selling, exporting, importing, manufacturing, trading and dealing in cabinet shop products, wood and metal home and office furniture, cabinets, doors, windows, etc., including their component parts and materials, of any and all nature and description" (Rollo, pp. 160-161). These furniture, cabinets and other woodwork were sold locally and exported abroad. For this business venture, private respondent kept samples or models of its woodwork ontheir display from where its customers may refer to when placing orders. Sometime in March 1979, the examiners of the petitioner Commissioner of Internal Revenue conducted an investigation of the business tax liabilities of private respondent pursuant to Letter of Authority No. 08307 NA dated November 23, 1978. Based on such an examination, BIR examiners Honesto A. Vergel de Dios and Voltaire Trinidad made a report to the Commissioner classifying private respondent as an "other independent contractor" under Sec. 205 (16) [now Sec. 169 (q)] of the Tax Code. As a result thereof, the examiners assessed private respondent for deficiency tax in the amount of P88,972.23. Later, on January 31, 1981, private respondent received a letter/notice of tax deficiency assessment inclusive of charges and interest for the year 1977 in the amount of P 108,720.92. This tax deficiency was a consequence of the 3% tax imposed on private respondent's gross export sales which, in turn, resulted from the examiners' finding that categorized private respondent as a contractor. Against this assessment, private respondent filed on February 19, 1981 a protest with the petitioner Commissioner of Internal Revenue. In the protest letter, private respondent's manager maintained that the carpentry


shop is a manufacturer and therefor entitled to tax exemption on its gross export sales under Section 202 (e) of the National Internal Revenue Code. He explained that it was the 7% tax exemption on export sales which prompted private respondent to exploit the foreign market which resulted in the increase of its foreign sales to at least 52% of its total gross sales in 1977 . ISSUE: Whether or not private respondent is a manufacturer and not a contractor and therefore not liable for the amount of P108,720.92, as deficiency contractor's tax, inclusive of surcharge and interest, for the year 1977. RULING Private respondent is a "manufacturer" as defined in the Tax Code and not a "contractor" under Section 205(e) of the Tax Code as petitioner would have this Court decide. Section 205 (16) [now Sec. 170 (q)] of the Tax Code defines "independent contractors" as: ... persons (juridical and natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the Local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees. (Emphasis supplied.) Private respondent's business does not fall under this definition. Petitioner is ignoring the fact that private respondent sells goods which it keeps in stock and not services. Neither can Article 1467 of the New Civil Code help petitioner's cause. Petitioner wants to impress upon this Court that under Article 1467, the true test of whether or not the contract is a piece of work (and thus classifying private respondent as a contractor) or a contract of sale (which would classify private respondent as a manufacturer) is the mere existence of the product at the time of the perfection of the contract such that if the thing already exists, the contract is of sale, if not, it is work.

This is not the test followed in this jurisdiction. As can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and upon his special order." Thus, if the thing is

specially done at the order of another, this is a contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the general market in the ordinary course of one's business, it is a contract of sale. The fact that [private respondent] kept models of its products... indicate that these products were for sale to the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA general public and not for special orders,' citing Celestino Co and Co. v. Collector of Internal Revenue.

Engineering Machinery Corp. vs. CA (January 24, 1996)


the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale ISSUE: 1)

Is a contract for the fabrication and installation of a

FACTS

central air-conditioning system in a building, one of

Pursuant to the contract dated September 10, 1962 between petitioner and private respondent, the former undertook to fabricate, furnish and install the air-conditioning system in the latter's building along Buendia Avenue, Makati in consideration of P210,000.00. Petitioner was to furnish the materials, labor, tools and all services required in order to so

"sale" or "for a piece of work"?

fabricate installbysaid system. The system completed 1963 and and accepted private respondent, whowas paid in full thein contract price. On September 2, 1965, private respondent sold the building to the National Investment and Development Corporation (NIDC). The latter took possession of the building but on account of NIDC's noncompliance with the terms and conditions of the deed of sale, private respondent was able to secure judicial rescission thereof. The ownership of the building having been decreed back to private respondent, he reacquired possession sometime in 1971. It was then that he learned from some NIDC, employees of the defects of the airconditioning system of the building. Acting on this information, private respondent commissioned Engineer David R. Sapico to render a technical evaluation of the system in relation to the contract with petitioner. In his report, Sapico enumerated the defects of the system and concluded that it was "not capable of maintaining the desired room temperature of 76ºF - 2ºF (Exhibit C)". On the basis of this report, private respondent filed on May 8, 1971 an action for damages against petitioner with the then Court of First Instance of Rizal (Civil Case No. 14712). The complaint alleged that the air-conditioning system installed by petitioner did not comply with the agreed plans and specifications. Hence, private respondent prayed for the amount of P210,000.00 representing the rectification cost, P100,000.00 as damages and P15,000.00 as attorney's fees. Petitioner moved to dismiss the complaint, alleging that the prescriptive period of six months had set in pursuant to Articles 1566 and 1567, in relation to Article 1571 of the Civil Code, regarding the responsibility of a vendor for any hidden faults or defects in the thing sold. Private respondent countered that the contract dated September 10, 1962 was not a contract for sale but a contract for a piece of work under Article 1713 of the Civil Code. Thus, in accordance with Article 1144 (1) of the same Code, the complaint was timely brought within the ten-year prescriptive period. In its reply, petitioner argued that Article 1571 of the Civil Code providing for a six-month prescriptive period is applicable to a contract for a piece of work by virtue of Article 1714, which provides that such a contract shall be governed by

2)

What is the prescriptive period for filing actions for breach of the terms of such contract?

RULING 1) To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, if the parties intended that at some future date an object has to be delivered, without considering the work or labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work. Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business to manufacture airconditioning systems to be sold "off-the-shelf." Its business and particular field of expertise is the fabrication and installation of such systems as ordered by customers and in accordance with the particular plans and specifications provided by the customers. Naturally, the price or compensation for the system manufactured and installed will depend greatly on the particular plans and specifications agreed upon with the customers. 2) Having concluded that the srcinal complaint is one for damages arising from breach of a written contract - and not a suit to enforce warranties against hidden defects - we here with declare that the governing law is Article 1715 (supra). However, inasmuch as this provision does not contain a specific prescriptive period, the general law on prescription, which is Article 1144 of the Civil Code, will apply. Said provision states, inter alia, that actions "upon a written contract" prescribe in ten (10) years. Since the governing contract was executed on September 10, 1962 and the complaint was filed on May 8, 1971, it is clear that the action has not prescribed. Warranties Article 1714.If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Article 1715.The contract shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contract fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost.

Prescriptive Periods  If the cause of action is breach of warranty in a contract of sale, apply the law on sale.  If the contract is for a piece of work: ◦

10 years if upon written contract. (Art. 1144)

◦

6 years if upon an oral contract. (Art. 1145)

◦

4 years if based on fraud. (Art. 1146)

Dino vs. CA (June 20, 2001) FACTS Petitioners spouses Dino, doing business under the trade name "Candy Claire Fashion Garment" are engaged in the business of manufacturing and selling shirts.1 Respondent Sio is part owner and general manager of a manufacturing corporation doing business under the trade name "Universal Toy Master Manufacturing." Petitioners and respondent Sio entered into a contract whereby the latter would manufacture for the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads at P7.00 per piece in accordance with the sample approved by the petitioners. These frogs and mooseheads were to be attached to the shirts petitioners would manufacture and sell Respondent Sio delivered in several installments the 40,000 pieces of frogs and mooseheads. The last delivery was made on September 28, 1988. Petitioner fully paid the agreed price. Subsequently, petitioners returned to respondent 29,772 pieces of frogs and mooseheads for failing to comply with the approved sample. The return was made on different dates: the initial one on December 12, 1988 consisting of 1,720 pieces, the second on January 11, 1989, and the last on January 17, 1989. Petitioners then demanded from the respondent a refund of the purchase price of the returned goods in the amount of P208,404.00. As respondent Sio refused to pay, petitioners filed on July 24, 1989 an action for collection of a sum of money in the Regional Trial Court of Manila, Branch 38. ISSUE: 1) Whether or not the contract is one of sale or one for


1) As this Court ruled in Engineering & Machinery Corporation v. Court of Appeals, et al., "a contract for a piece of work, labor and materials may be distinguished from a contract of sale by the inquiry as to whether the thing transferred is one not in existence and which would never have existed but for the order of the person desiring it. In such case, the contract is one for a piece of work, not a sale. On the other hand, if the thing subject of the contract would have existed and been th e subject of a sale to some other person even if the order had not been given then the contract is one of sale." The contract between the petitioners and respondent stipulated that respondent would manufacture upon order of the petitioners 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according to the samples specified and approved by the petitioners. Respondent Sio did not ordinarily manufacture these products, but only upon order of the petitioners and at the price agreed upon. Clearly, the contract executed by and between the petitioners and the respondent was a contract for a piece of work. At any rate, whether the agreement between the parties was one of a contract of sale or a piece of work, the provisions on warranty of title against hidden defects in a contract of sale apply to the case at bar. 2) Article 1567 provides for the remedies available to the vendee in case of hidden defects, viz: "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." By returning the 29,772 pieces of vinyl products to respondent and asking for a return of their purchase price, petitioners were in effect "withdrawing from the contract" as provided in Art. 1567. The prescriptive period for this kind of action is provided in Art. 1571 of the New Civil Code, viz: "Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months from the delivery of the thing sold." (Emphasis supplied) There is no dispute that respondent made the last delivery of the vinyl products to petitioners on September 28, 1988. It is also settled that the action to recover the purchase price of the goods petitioners returned to the respondent was filed on July 24, 1989, more than nine months from the date of last delivery. Petitioners having filed the action three months after the sixmonth period for filing actions for breach of warranty against hidden defects stated in Art. 1571, the appellate court dismissed the action

piece of work. 2) RULING

Whether or not prescription has set it.

CIR vs. CA and Ateneo (April 18, 1997) FACTS Private respondent is a non-stock, non-profit educational institution with auxiliary units and branches all


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA over the Philippines. One such auxiliary unit is the Institute of Philippine Culture (IPC), which has no legal personality separate and distinct from that of private respondent. The IPC is a Philippine unit engaged in social science studies of Philippine society and culture. Occasionally, it accepts sponsorships for its research activities from international organizations, private foundations and government agencies. On July 8, 1983, private respondent received from petitioner Commissioner of Internal Revenue a demand letter dated June 3, 1983, assessing private respondent the sum of P174,043.97 for alleged deficiency contractor's tax, and an assessment dated June 27, 1983 in the sum of P1,141,837 for alleged deficiency income tax, both for the fiscal year ended March 31, 1978. Denying said tax liabilities, private respondent sent petitioner a letter-protest and subsequently filed with the latter a memorandum contesting the validity of the assessments. On March 17, 1988, petitioner rendered a letterdecision canceling the assessment for deficiency income tax but modifying the assessment for deficiency contractor's tax by increasing the amount due to P193,475.55. Unsatisfied, private respondent requested for a reconsideration or reinvestigation of the modified assessment. At the same time, it filed in the respondent court a petition for review of the said letterdecision of the petitioner. While the petition was pending before the respondent court, petitioner issued a final decision dated August 3, 1988 reducing the assessment for deficiency contractor's tax from P193,475.55 to P46,516.41, exclusive of surcharge and interest. ISSUE: Is Ateneo de Manila University, through its auxiliary unit or branch — the Institute of Philippine Culture — performing the work of an independent contractor and, thus, subject to the three percent contractor's tax levied by then Section 205 of the National Internal Revenue Code? RULING After reviewing the records of this case, we find no evidence that Ateneo's Institute of Philippine Culture ever sold its services for a fee to anyone or was ever engaged in a business apart from and independently of the academic purposes of the university. In the first place, the petitioner has presented no evidence to prove its bare contention that, indeed, contracts for sale of services were ever entered into by the private respondent. Moreover, the Court of Tax Appeals accurately and correctly declared that the " funds received by the Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations which are tax-exempt" as shown by private respondent's compliance with the requirement of Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to an educational institution.


Therefore, it is clear that the funds received by Ateneo's Institute of Philippine Culture are not given in the concept of a fee or price in exchange for the performance of a service or delivery of an object. Rather, the amounts are in the nature of an endowment or donation given by IPC's benefactors solely for the purpose of sponsoring or funding the research with no strings attached. As found by the two courts below, such sponsorships are subject to IPC's terms and conditions. No proprietary or commercial research is done, and IPC retains the ownership of the results of the research, including the absolute right to publish the same. The copyrights over the results of the research are owned by Ateneo and, consequently, no portion thereof may be reproduced without its permission. The amounts given to IPC, therefore, may not be deemed, it bears stressing as fees or gross receipts that can be subjected to the three percent contractor's tax. It is also well to stress that the questioned transactions of Ateneo's Institute of Philippine Culture cannot be deemed either as a contract of sale or a contract of a piece of work. "By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent." By its very nature, a contract of sale requires a transfer of ownership. Thus, Article 1458 of the Civil Code "expressly makes the obligation to transfer ownership as an essential element of the contract of sale, following modern codes, such as the German and the Swiss. Even in the absence of this express requirement, however, most writers, including Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin and Capitant, have considered such transfer of ownership as the primary purpose of sale. Perez and Alguer follow the same view, stating that the delivery of the thing does not mean a mere physical transfer, but is a means of transmitting ownership. Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale." In the case of a contract for a piece of work, "the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. . . . If the contractor agrees to produce the work from materials furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing, . . ." Ineludably, whether the contract be one of sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks away with an object. In the case at bench, it is clear from the evidence on record that there was no sale either of objects or services because, as adverted to earlier, there was no transfer of ownership over the research data obtained or the results of research projects undertaken by the Institute of Philippine Culture. Furthermore, it is clear that the research activity of the Institute of Philippine Culture is done in pursuance of maintaining Ateneo's university status and not in the course of an independent business of selling such research with profit in mind.


31


4) DISTINGUISHED FROM AGENCY TO SELL Art. 1868. By the contract of agency, a person binds himself to render some service or to do something in representation or on behalf of the principal, with the consent or authority of the latter.



A contract of agency is one that essentially establishes a representative capacity in the person of the agent on behalf of the principal, and one characterized as highly fiduciary. Sale

Contract of Agency to Sell/Buy

Not unilaterally A contract of agency to sell is revocable. essentially revocable even in the presence of an irrevocability clause because it covers an underlying fiduciary relationship. The buyer himself pays for the price of the object, which constitutes his main obligation.

In an agency to sell, he agent is not obliged to pay the price, and is merely obliged to deliver the price which he may receive from the buyer.

The buyer, after delivery, becomes the owner of the subject matter.

In an agency to buy, the agent does not become the owner of the thing subject of the agency, even if the object is delivered to him.

The seller warrants.

The agent who effects sale assumes no personal liability as long as he acts within his authority and in the name of the principal. However, it is legally possible for an agent or a broker to voluntarily bind himself to the warranties of the seller. The agent is disqualified from receiving any personal profit from the transaction covered by the agency, and any profit received should pertain to the principal.

Statutory Rule In construing a contract containing provisions characteristic of both the sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. (Art. 1466) Quiroga vs. Parsons Hardware Co. (August 23, 1918) FACTS


Quiroga and Parsons Hardware and Co. entered into a contract under the following conditions among others: ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell his beds in the Visayan Islands to J. Parsons under the following conditions:  Mr. Quiroga shall furnish beds of his manufacture to Mr. Parsons for the latter's establishment in Iloilo, and shall invoice them at the same price he has fixed for sales, in Manila, and, in the invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission on the sale; and Mr. Parsons shall order the beds by the dozen, whether of the same or of different styles.  Mr. Parsons binds himself to pay Mr. Quiroga for the beds received, within a period of sixty days from the date of their shipment.  The expenses for transportation and shipment shall be borne by M. Quiroga, and the freight, insurance, and cost of unloading from the vessel at the point where the beds are received, shall be paid by Mr. Parsons.  If, before an invoice falls due, Mr. Quiroga should request its payment, said payment when made shall be considered as a prompt payment, and as such a deduction of 2 per cent shall be made from the amount of the invoice. The same discount shall be made on the amount of any invoice which Mr. Parsons may deem convenient to pay in cash.  Mr. Quiroga binds himself to give notice at least fifteen days before hand of any alteration in price which he may plan to make in respect to his beds, and agrees that if on the date when such alteration takes effect he should have any order pending to be served to Mr. Parsons, such order shall enjoy the advantage of the alteration if the price thereby be lowered, but shall not be affected by said alteration if the price thereby be increased, for, in this latter case, Mr. Quiroga assumed the obligation to invoice the beds at the price at which the order was given.  Mr. Parsons binds himself not to sell any other kind except the "Quiroga" beds. ART. 2. In compensation for the expenses of advertisement which, for the benefit of both contracting parties, Mr. Parsons may find himself obliged to make, Mr. Quiroga assumes the obligation to offer and give the preference to Mr. Parsons in case anyone should apply for the exclusive agency for any island not comprised with the Visayan group. ART. 3. Mr. Parsons may sell, or establish


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA branches of his agency for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents, and shall immediately report such action to Mr. Quiroga for his approval. ART. 4. Xxx Quiroga alleged that Parsons violated the following conditions: 1. not to sell the beds at higher prices than those of the invoices 2. to have an open establishment in Iloilo 3. itself to conduct the agency 4. to keep the beds on public exhibition 5. to pay for the advertisement expenses for the same 6. to order the beds by the dozen and in no other manner. Except for (6), none of the obligations imputed by Quiroga are expressed in the contract. He alleged that Parsons was his agent for th sale of his beds in Iloilo, and that the said obligations are implied in a contract of commercial sale. ISSUE: Whether Parsons, by reason of the contract, was a purchaser or an agent of the Quiroga for the sale of his beds. RULING Parson was a purchaser and not an agent. The terms and conditions of the parties have the essential features of a contract of purchase and sale . There was the obligation on the part of Quiroga to supply the beds, and, on the part of Parsons, to pay their price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it. In the case at bar, Parsons, on receiving the beds, was necessarily obliged to pay their price within the term fixed (60 days), without any other consideration and regardless as to whether he had or had not sold the beds. Not a single one of the clauses in the contract necessarily conveys the idea of an agency .  The words commission on sales used in clause (A) of article 1 mean nothing else than a mere discount on the invoice price.  The word agency, also used in articles 2 and 3, only expresses that the Parsons was the only one that could sell the Quiroga beds in the Visayan Islands.  As to the remaining clauses, the least that can be said is that they are not incompatible with the contract of purchase and sale. Parsons offered Vidal’s (former VP of Parsons) that the latter drafted the contract and testified that Parsons was to be an agent for Quiroga’s beds and to collect commission on sale s. However, per evidence, it was found out that Lopez was the one who drafted the contract. Assuming arguendo that it was


indeed Vidal who drafted, he was clearly mistaken as to the classification of the contract. But it must be understood that a contract is what the law defines it to be, and not what it is called by the contracting parties. Discussion: So you have here a Contract of Sale. The parties clearly obliged themselves with the obligations as we have discussed in Art. 1458. The plaintiff was to furnish the defendant with the beds which the latter might order, at the price stipulated, and that the defendant was to pay the price in the manner stipulated. This show the essential features of a Contract of Purchase and Sale; obligation on the part of Quiroga to supply the beds and on the part of the defendant to pay the price. These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he can return the things unsold to Quiroga. The words commission on sales here doesn’t mean that Parsons is an agent. It’s nothing else but a mere discount on the invoice price. The word agency that were used by the parties, only expresses that Parsons was the only one that could sell the plaintiff's beds in the Visayan Islands. With regard to the return of the beds, this was based on mutual tolerance in the performance of the contract. Here, if Parsons were to return the beds, he still has to get the consent and notify Quiroga. The return was made of certain brass beds was not effected in exchange for the price paid for them, but was for other beds of another kind; requested the plaintiff's prior with respect to said beds, which shows that it was notconsent considered that the defendant had a right, by virtue of the contract, to make this return. One of the features that was emphasized in the case was that in a Contract of Agency, the principal can remove the power given to the agent. A sale, on the other hand, is a contractual relationship that is not inherently removable. As to agency, however, the principal can remove it especially when there is a breach of trust on the part of the agent. A Contract of Agency is based on trust and confidence. If you do not trust the agent, then you can remove the powers that you gave to him. Puyat & Sons, Inc. vs. Arco Amusement Co. (June 20, 1941) FACTS PUYAT & SONS was acting as an exclusive agent in the Philippines of STAR PIANO CO. which deals in cinematograph equipment and machinery. ARCO AMUSEMENT wanted to purchase sound reproducing devices for its cinematograph and thus approached PUYAT & SONS. It was agreed that PUYAT & SONS would order, in behalf of ARCO, sound reproducing equipment from STAR PIANO and it would pay the price of the equipment


33

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA plus 10% commission and all other expenses. PUYAT & SONS allegedly inquired for the price quotation of the orders excluding the discount from STAR PIANO. However, STAR PIANO gave PUYAT & SONS the list price. ARCO was able to transact twice from PUYAT & SONS for $1,700 and $1,600 plus the additional commission and expenses. Three years later, ARCO discovered the price quoted to them by the PUYAT & SONS was not the net price but rather the list price, and that the PUYAT & SONS had obtained a discount from the Starr Piano Company. ARCO now sought to obtain a reimbursement. This was left unheeded and thus ARCO brought the action to the court. TC: Contract of Purchase and Sale. CA: Contract of Agency. PUYAT & SONS was ordered to pay ARCO the overpayment it made. ISSUE: WON the contract which was entered into by PUYAT & SONS and ARCO is one of contract of agency. RULING NO. The contract was one of purchase and sale, and not one of agency. The contract is the law between the parties and should include all the things they are supposed to have been agreed upon. What does not appear on the face of the contract should be regarded merely as "dealer's" or "trader's talk", which cannot bind either party. The letters of ARCO accepting the prices of $1,700 and $1,600, respectively, for the equipment subject of its contract with PUYAT & SONS, are clear in their terms and admit no other interpretation that the ARCO agreed to purchase from PUYAT & SONS the equipment at the prices indicated which are fixed and determinate. SC agree with the TC that “whatever unforeseen events might have taken place unfavorable to the PUYAT & SONS (such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or failure of the STARR PIANO to properly fill the orders as per specifications), ARCO might still legally hold PUYAT & SONS to the prices fixed of $1,700 and $1,600." This is incompatible with the pretended relation of agency between the parties, because in agency, the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal, and the principal must indemnify the agent for all damages which the latter may incur in carrying out the agency without fault or imprudence on his part. Also: 1.

The 10% commission does not necessarily make PUYAT & SONS an agent of ARCO, as this provision is


only an additional price which ARCO bound itself to pay, and which stipulation is not incompatible with the contract of purchase and sale. 2. It is incompatible to hold that PUYAT & SONS is an agent of both ARCO and STARR PIANO. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. It follows that PUYAT & SONS (vendor) is not bound to reimburse ARCO (vendee) for any difference between the cost price and the sales price which represents the profit realized by the vendor out of the transaction. This is the very essence of commerce without which merchants or middleman would not exist. The fact that PUYAT & SONS obtained more or less profit ARCO calculated before entering into the contract or reducing the price agreed between them. Not every concealment is fraud; and short of fraud, it were better that, within certain limits, business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world.

Discussion: We have here a contract of sale. The letters by which the respondent accepted the prices for the sound equipment subject of its contract with the petitioner, are clear in their terms and admit no other interpretation. In a Contract of Agency, the agent is exempted from all liabilities as long as he acts in accordance with the instructions given or received from his principal. While the letters state that the petitioner will receive 10% commission, again, the mere use of the words doesn’t that there is a Contract of Agency. The commission 10% commission doesn’t necessarily make the petitioner is an agent of the respondent. This is only an additional price which respondent bound himself to pay which stipulation is not incompatible with the contract of purchase and sale. There is no Contract of Agency as between ARCO and Gonzalo Co. However, do take note that Gonzalo here is deemed to be the exclusive agent of the Starr Piano.To hold the Gonzalo as an agent of ARCO will then be incompatible with the admitted fact that Gonzalo is the exclusive agent of the same company in the Philippines. It is out of the ordinary for one to be the agent of both the vendor and the purchaser. Considering that there is sale and no agency, petitioner as vendor is not bound to reimburse ARCO for any difference between the cost price and the sales price because the difference is actually a profit on the part of Gonzalo. It is not duty bound to reveal the private arrangement it had with the Starr Piano Company relative to such discount to its prospective customers. What is emphasized here? A person purported as an agent as in this case is not really an agent but rather a seller. Therefore, he doesn’t not have to acco unt the profit-margin that he has earned from acquiring the property for the alleged


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principal, ARCO.

agreement all goods held on consignment shall be held by the Distributor for the account of the Company, without expense to the Company, until such time as provision can be made by the Company for disposition."

Ker & Co. Ltd. vs. Lingad (April 30, 1971) FACTS KER & CO. was assessed by the CIR a commercial broker's percentage tax, surcharge, and compromise penalty for P20,272.33. KER & CO. requested for the tax’s cancellation but the CIR refused. This arose from the contract between KER & CO. and UNITED STATES RUBBER INTERNATIONAL. It was stipulated that: 1. All specifications for the goods ordered were subject to acceptance by the Company with KER & CO required to accept such goods shipped as well as to clear the same through customs and to arrange for delivery in its warehouse in Cebu City. 2. Orders are to be filled in whole or in part from the stocks carried by the Company's neighboring branches, subsidiaries or other sources of Company's brands. 3. Shipments were to be invoiced at prices to be agreed upon, with the customs duties being paid by KER & CO for account of the Company. 4. All resale prices, lists, discounts and general terms and conditions of local resale were to be subject to the approval of the Company and to change from time to time in its discretion. 5. KER & CO is allowed a discount of 10% on the net amount of sales of merchandise made under such agreement. 6. On a date to be determined by the Company, KER & CO was required to report to it data showing in detail all sales during the month immediately preceding, specifying therein the quantities, sizes and types together with such information as may be required for accounting purposes, with the Company rendering an invoice on sales as described to be dated as of the date of inventory and sales report. 7. KER & CO had to make payment on such invoice or invoices on due date with the Company being privileged at its option to terminate and cancel the agreement forthwith upon the failure to comply with this obligation. 8. The Company was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire, the policy of such insurance to be payable to it in the event of loss. 9. KER & CO assumed full responsibility with reference to the stock and its safety at all times 10. Upon request of the Company at any time, KER & CO was to render inventory of the existing stock which could be subject to change. 11. "Upon the termination or any cancellation of this

ISSUE: Whether the relationship created is one of vendor and vendee or of broker and principal. HELD The relationship is one of broker and principal and thus CIR may tax KER & CO. There is no doubt that the contract is one of agency except that it was provided in the contract that KER & CO. was not constituted as "the agent or legal representative of the Company for any purpose whatsoever." It would be, however, to impart to such an express disclaimer a meaning it should not possess to ignore what is manifestly the role assigned to KER & CO. considering the instrument as a whole. That would be to lose sight altogether of what has been agreed upon. The circumstances (refer to the agreements ) are irreconcilably antagonistic to the idea of an independent merchant." Thus, upon analysis of the contract, as a whole, together with the actual conduct of the parties, it is concluded that the relationship between them is one of brokerage or agency. In the language of Justice J. B. L. Reyes: "Since the company retained ownership of the goods, even as it delivered possession unto the dealer for resale to customers, the price and terms of which were subject to the company's control, the relationship between the company and the dealer is one of agency.”

If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who remains the owner and has the right to control sales, fix the price, and terms, demand and receive the proceeds less the agent's commission upon sales made. The mere disclaimer in a contract that an entity like KER & CO. is not "the agent or legal representative for any purpose whatsoever" does not suffice to yield the conclusion that it is an independent merchant if the control over the goods for resale of the goods consigned is pervasive in character. Discussion: Even if the agreement between Ker Co. and Rubber International provided that the agreement doesn’t constitute distributor the agent or legal representative of Rubber International for any purpose whatsoever, the nature of a contract is determined not by the nomenclature as used by the


35

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA parties but as to what the law defines it to be; as to whether the elements of the contract as provided for by law are present. Despite the stipulation, the SC held that there was really a Contract of Agency here. Ker Co. is an agent of Rubber International. Petitioner here can dispose of the products of the Company only to certain persons and entities and within stipulated limits, unless excepted by the contract or by the Rubber Company. Ker Co. was subject to the control ofRubber International. The rubber company agrees to keep the consigned goods fully insured under insurance policies payable to it in case of loss. And it is also clearly provided in their stipulation or in their agreement, that all “All goods on consignment shall remain the property of the Company until sold by theDistributor.” So what do we have here? Rubber International retained ownership of the goods even as it delivered possession unto the dealer for purposes of resale to customers. So this is clearly a Contract of Agency. There was a delivery but the delivery was not transferred, or not intention to transfer ownership but rather for Ker Co. to sell the goods to the customers. The decisions say the transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. *inaudible* The delivery to an agent was made not as his property, but as the property of the principal, who remains the owner. So in this case of Ker vs Lingad, this time we have a Contract of Agency. An assumption of the agent of the risk pertaining to the cost or the price of the subject matter will make the relation that of a buyer and seller. But, in this instance, Ker & Co. did not assume the risk with respect to the price of the property subject to the relationship. Rubber International is the one who acquired the insurance with regard to the tools. If there is no transfer despite the delivery, it shows that we have a Contract of Agency. Retention of the ownership of the goods delivered to the possession of the dealer shows that there is a Contract of Agency. The insurable interest remains with Rubber International. This clearly shows that the ownership of the goods, again, was never transferred to Ker & Co. Schmid and Obery vs. RJL Martinez (October 18, 1988) FACTS RJL MARTINEZ is engaged in the business of deep-sea fishing. As RJL MARTINEZ needed electric generators for some of its boats and SCHMIID sold electric generators of different brands. The parties had two separate transactions over "Nagata"-brand generators.  The first transaction was the sale of three (3) generators. SCHMID was te vendor of the generators. The company supplied the generators from its stockroom; it was also SCHMID which invoiced the sale.  The second transaction, which gave rise to the present


controversy, involves twelve (12) "Nagata"-brand generators. As RJL MARTINEZ was canvassing for generators, SC gave RJL MARTINEZ its Quotation for twelve (12) "Nagata'brand generators with the following specifications: "NAGATA" Single phase AC Alternators, 110/220 V, 60 cycles, 1800 rpm, unity power factor, rectifier type and radio suppressor,, 5KVA (5KW) $546.75 It was stipulated that payment would be made by confirming an irrevocable letter of credit in favor of NAGATA CO. Furthermore, among the General Conditions of Sale appearing on the dorsal side of the Quotation is the following: Buyer will, upon request, promptly open irrevocable Letter of Credit in favor of seller, in the amount stated on the face of this memorandum, specifying shipment from any Foreign port to Manila or any safe Philippine port, permitting partial shipments and providing that in the event the shippers are unable to ship within the specified period due to strikes, lack of shipping space or other circumstances beyond their reasonable control, Buyer agrees to extend the said Letter of Credit for later shipment. The Letter of Credit shall otherwise be subject to the conditions stated in this memorandum of contract.

RJL MARTINEZ opened a letter of credit in favor of NAGATA CO. Accordingly, SCHMID transmitted to NAGATA CO. an order for the twelve (12) generators to be shipped directly to RJL MARTINEZ. NAGATA CO. thereafter sent RJL MARTINEZ the bill of lading and its own invoice. The invoice states that "one (1) case of 'NAGATA' AC Generators" consisting of twelve sets was—bought by order and for account risk of Messrs. RJL Martinez Fishing Corporation. For its efforts, SCHMID received from NAGATA CO. a commission. All fifteen (15) generators subject of the two transactions burned out after continuous use. RJL MARTINEZ informed SCHMID about this development. In turn, SCHMID brought the matter to the attention of NAGATA CO.  NAGATA CO. sent two technical representatives who made an ocular inspection and conducted tests on some of the burned out generators, which by then had been delivered to the premises of SCHMID.  It was found that the generators were overrated. The capacity of a generator was supposed to be 5 KVA (kilovolt amperes). However, it turned out that the actual capacity was only 4 KVA. SCHMID replaced the three (3) generators subject of the first sale with generators of a different brand. As for the twelve (12) generators subject of the second transaction, the Japanese technicians advised RJL MARTINEZ to ship three (3) generators to Japan, which the company did. These three (3) generators were repaired by NAGATA CO. itself and thereafter returned to RJL MARTINEZ; the remaining nine (9) were neither repaired nor replaced.


36

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA 

NAGATA CO., however, wrote SCHMID suggesting that the latter check the generators, request for spare parts for replacement free of charge, and send to NAGATA CO. SCHMID's warranty claim including the labor cost for repairs. SCHMID indicated that it was not agreeable to these terms. As not all of the generators were replaced or repaired, RJL MARTINEZ formally demanded that it be refunded the cost of the generators and paid damages.  SCHMID maintained that it was not the seller of the twelve (12) generators and thus refused to refund the purchase price.  RJL MARTINEZ brought suit against SCHMID on the theory that the latter was the vendor of the twelve (12) generators and, as such vendor, was liable under its warranty against hidden defects. SCHMID seeks reversal on the following grounds: Schmid was merely the indentor in the sale [of the  twelve (12) generators] between Nagata Co., the exporter and RJL Martinez, the importer;  as mere indentor, Schmid is not liable for the seller's implied warranty against hidden defects, Schmid not having personally assumed any such warranty. in any event, conformably with Article 1563 of the Civil  Code, there was no implied warranty against hidden defects in the sale of these twelve (12) generators because these were sold under their trade name "Nagata"; and  Schmid, accordingly, is not liable for the reimbursement claimed by RJL Martinez nor for the latter's unsubstantiated claim of PI 10.33 operational losses a day nor for exemplary damages, attorney's fees and costs. ISSUE: Whether the second transaction between the parties was a sale or an indent transaction. SCHMID maintains that it was the latter; RJL MARTINEZ claims that it was a sale. RULING A contract is what the law defines it to be, considering its essential elements, and not what it is caged by the contracting parties. The Civil Code defines a contract of sale, thus: ART. 458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

It has been said that the essence of the contract of sale is transfer of title or agreement to transfer it for a price paid or promised."If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as


an agent who must account for the proceeds of a resale, the transaction is, a sale." On the other hand, there is no statutory definition of "indent" in this jurisdiction. However, the Rules and Regulations to Implement Presidential Decree No. 1789 (the Omnibus Investments Code) lumps "indentors" together with "commercial brokers" and "commission merchants" in this manner: ... A foreign firm which does business through the middlemen acting in their own names, such asindentors, commercial brokers or commission merchants, shall not be deemed doing business in the Philippines. But such indentors, commercial brokers or commission merchants shall be the ones deemed to be doing business in the Philippines.

Therefore, an indentor is a middlemen in the same class as commercial brokers and commission merchants. A broker is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator between other parties, never acting in his own name but in the name of those who employed him; he is strictly a middleman and for some purpose the agent of both parties. A broker is one whose occupation it is to bring parties together to bargain, or to bargain for them, in matters of trade, commerce or navigation. Judge Storey, in his work on Agency, defines a broker as an agent employed to make bargains and contracts between other persons, in matters of trade, commerce or navigation, for compensation commonly called brokerage. A commission merchant is one engaged in the purchase or sale for another of personal property which, for this purpose, is placed in his possession and at his disposal. He maintains a relation not only with his principal and the purchasers or vendors, but also with the property which is subject matter of the transaction.

Thus, the chief feature of a commercial broker and a commercial merchant is that in effecting a sale, they are merely intermediaries or middle-men, and act in a certain sense as the agent of both parties to the transaction. Webster defines an indent as "a purchase order for goods especially when sent from a foreign country." It would appear that there are three parties to an indent transaction, namely, the buyer, the indentor, and the supplier who is usually a non-resident manufacturer residing in the country where the goods are to be bought An indentor may therefore be best described as one who, for compensation, acts as a middleman in bringing about a purchase and sale of goods between a foreign supplier and a local purchaser. The admissions of the parties and the facts appearing on record more than suffice to warrant the conclusion that SCHMID was not a vendor, but was merely an indentor, in the second transaction.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA RJL MARTINEZ admitted that the generators were purchased "through indent order". In the same vein, it admitted in its demand letter previously sent to SCHMID that twelve (12) of en (15) Nagata-brand generators "were purchased through your company (SCHMID), by indent order and three (3) by direct purchase." The evidence also show that RJL MARTINEZ paid directly NAGATA CO, for the generators, and that the latter company itself invoiced the sale, and shipped the generators directly to the former. The only participation of SCHMID was to act as an intermediary or middleman between NAGATA CO. and RJL MARTINEZ, by procuring an order from RJL MARTINEZ and forwarding the same to NAGATA CO. for which the company received a commission from NAGATA CO. The above transaction is significantly different from the first transaction wherein SCHMID delivered the goods from its own stock (which it had itself imported from NAGATA CO.), issued its own invoice, and collected payment directly from the purchaser. These facts notwithstanding, RJL MARTINEZ insists that SCHMID was the vendor of the twelve generators on the following grounds: First, it is contended that the Quotation and the General Conditions of Sale on the dorsal side thereof do not necessarily lead to the conclusion that NAGATA CO., and not SCHMID, was the real seller in the case of the twelve (12) generators in that: i. the signing of the quotation, which was under SCHMID's letter-head, perfected the contract of sale —i.e., (impliedly, as between the signatories thereto RJL MARTINEZ and SCHMID); ii. the qualification that the letter of credit shall be in favor of NAGATA CO. constituted simply the manner of payment requested by SCHMID (implying that SCHMID, as seller, merely chose to waive direct payment, stipulating delivery of payment instead to NAGATA CO. as supplier); Second, it is asserted that the acts of SCHMID after it was informed of the defect in the generators were indicative of its awareness that it was the vendor and acknowledgment of its liability as such vendor. Attention is called to these facts: When RJL MARTINEZ complained to SCHMID that the generators were defective, SCHMID immediately asked RJL MARTINEZ to send the defective generators to its shop to determine what was wrong. SCHMID likewise informed NAGATA CO. about the complaint of RJL MARTINEZ. When the Japanese technicians arrived, SCHMID made available its technicians, its shop and its testing equipment. After the generators were found to have factory defects, SCHMID facilitated the shipment of three (3) generators to Japan and, after their repair, back to the Philippines. Third, it is argued that the contents of the letter from NAGATA CO. to SCHMID regarding the repair of the generators indicated that the latter was "within the purview of a seller." Fourth, it is argued that if SCHMID is considered as a


mere agent of NAGATA CO., a foreign corporation not licensed to do business in the Philippines, then the officers and employees of the former may be penalized for violation of the old Corporation Law. The facts do not bear out these contentions. The first contention disregards the circumstances surrounding the second transaction as distinguished from those surrounding the first transaction, as noted above. Neither does the solicitous manner by which SCHMID responded to RJL MARTINEZ's complaint prove that the former was the seller of the generators. As aptly stated by counsel, no indentor will just fold its hands when a client complains about the goods it has bought upon the indentor's mediation. In its desire to promote the product of the seller and to retain the goodwill of the buyer, a prudent indentor desirous of maintaining his business would have to act considerably. towards his clients. Note that in contrast to its act of replacing the three (3) generators subject of the first transaction, SCHMID did not replace any of the twelve (12) generators, but merely rendered assistance to both RJL TINES and NAGATA CO. so that the latter could repair the defective generators. The proposal of NAGATA CO. rejected by SCHMID that the latter undertake the repair of the nine (9) other defective generators, with the former supplying the replacement parts free of charge and subsequently reimbursing the latter for labor costs [Exhibit "I"], cannot support the conclusion that SCHMID is vendor of the generators of the second transaction or was acting "within the purview of a seller." Finally, the afore-quoted penal provision in the Corporation Law finds no application to SCHMID and its officers and employees relative to the transactions in the instant case. What the law seeks to prevent, through said provision, is the circumvention by foreign corporations of licensing requirements through the device of employing local representatives. An indentor, acting in his own name, is not, however, covered by the above-quoted provision. In fact, the provision of the Rules and Regulations implementing the Omnibus Investments Code quoted above, which was copied from the Rules implementing Republic Act No. 5455, recognizes the distinct role of an indentor, such that when a foreign corporation does business through such indentor, the foreign corporation is not deemed doing business in the Philippines. In view of the above considerations, this Court rules that SCHMID was merely acting as an indentor in the purchase and sale of the twelve (12) generators subject of the second transaction. Not being the vendor, SCHMID cannot be held liable for the implied warranty for hidden defects under the Civil Code. 2. However, even as SCHMID was merely an indentor, there was nothing to prevent it from voluntarily warranting that twelve (12) generators subject of the second transaction are free from any hidden defects. In other words, SCHMID may be held


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA answerable for some other contractual obligation, if indeed it had so bound itself. As stated above, an indentor is to some extent an agent of both the vendor and the vendee. As such agent, therefore, he may expressly obligate himself to undertake the obligations of his principal (See Art. 1897, Civil Code.) Discussion: The term “indentor” was emphasized in this case. An indentor is a middlemen in the same class as commercial brokers and commission merchants. A broker is generally defined as one who is engaged, for others, on a commission,


Although a commercial broker, commission merchant, or indentor is neither the seller nor the buyer of the contract effected, he may voluntary assume warranties of seller if there is a stipulation. In the absence of a stipulation as in the case of Schmidt, the indentor couldn’t be held liable for the breach of hidden defects. Under our law, the one who will be liable isthe seller. Again, in this case,that would be Nagata. Victorias Miling Co. vs. CA (June 19, 2000) FACTS

St. Therese Merchandising regularly bought sugar from petitioner Victorias Milling Co., Inc. In the course of their negotiating contracts relative to property with the custody of dealings, petitioner issued several Shipping List/Delivery which he has no concern; the negotiator between other parties, Receipts to STM as proof of purchases. Among these was SLDR never acting in his own name but in the name of those who No. 1214M, which gave rise to the instant case. Dated October employed him; he is strictly a middleman and for some purpose 16, 1989, SLDR No. 1214M covers 25,000 bags of sugar. Each the agent of both parties. Notice the phrase used by the SC, “for bag contained 50 kilograms and priced at P638.00 per bag as some purpose the agent of both parties.” "per sales order VMC Marketing No. 042 dated October 16, Likewise, it is also mentioned that the chief feature of a 1989." The transaction it covered was a "direct sale." The SLDR commercial broker and a commercial merchant is that in also contains an additional note which reads: "subject for effecting a sale, they are merely intermediaries or middle-men, availability of a stock at NAWACO." and act in a certain sense as the agent of both parties to the STM sold to private respondent Consolidated Sugar transaction. Corporation its rights in SLDR No. 1214M for P 14,750,000.00. Notice these phrases. The SC, although it did not CSC issued one check dated October 25, 1989 and three checks clearly gave a distinction but you can see that the SC did not postdated November 13, 1989 in payment. outright say that an indentor is similar to that of an agent as CSC wrote petitioner that it had been authorized by  defined in Art 1868 of the Civil Code. STM to withdraw the sugar covered by SLDR No. As what was pointed out earlier, pertaining to the case 1214M. Enclosed in the letter were a copy of SLDR No. of Gonzalo vs ARCO and Ker & Co. vs Lingad, we mentioned 1214M and a letter of authority from STM authorizing there that two agents cannot be an agent of both the vendor CSC "to withdraw for and in our behalf the refined and a purchaser. Because we agent have toofprotect the interest sugar covered by Shipping List/Delivery Receiptof your principal.Why? If you are the a principal, your Refined Sugar (SDR) No. 1214 dated October 16, 1989 interest is to protect the principal. What is your intention? It is in the total quantity of 25,000 bags." to sell the subject matter at the best price. But if you are the STM issued 16 checks in the total amount of agent also of the buyer, you buy at the lowest price possible. P31,900,000.00 with petitioner as payee. The latter, in turn, That’s why the SC here somehow made a slight distinction of the issued Official Receipt No. 33743 acknowledging receipt of the term indentor as to agent in the general sense. said checks in payment of 50,000 bags. Aside from SLDR No. Indentor is one who, for compensation, acts as a 1214M, said checks also covered SLDR No. 1213. middleman in bringing about a purchase and sale of goods Private respondent CSC surrendered SLDR No. 1214M between a foreign supplier and a local purchaser. So it doesn’t to the petitioner's NAWACO warehouse and was allowed to act as a direct representative of either of the parties. It is withdraw sugar. emphasized an indentor is a middleman.  after 2,000 bags had been released, petitioner refused As in this case, RJL purchased through an indent order. to allow further withdrawals of sugar against SLDR No. RJL paid directly to Nagata. The only participation of Schmidt 1214M. was to act as an intermediary or middleman between Nagata  CSC inquired when it would be allowed to withdraw and RJL. The sale was between RJL and Nagata and therefore the remaining 23,000 bags. Nagata should be the one who’s liable for the alleged breach of Petitioner replied that it could not allow any further warranty against hidden defects. withdrawals of sugar against SLDR No. 1214M because STM As to the contention that Schmidt responded to the complaint of RJL with regard to the generators, the SC had already dwithdrawn all the sugar covered by the cleared checks. emphasized here that a prudent indentor desirous of CSC sent petitioner a letter demanding the release of  maintaining his business would have to act considerably towards the balance of 23,000 bags. his clients. It doesn’t mean that Schmidt was actually the one  Petitioner reiterated that all the sugar corresponding who sold or entered into a contract of sale.


39



to the amount of STM's cleared checks had been fully withdrawn. Petitioner also noted that CSC had represented itself to be STM's agent as it had withdrawn the 2,000 bags against SLDR No. 1214M "for and in behalf" of STM. CSC filed a complaint for specific performance. alleged that STM had fully paid petitioner for the sugar  covered by SLDR No. 1214M. Therefore, the latter had no justification for refusing delivery of the sugar.  prayed that petitioner be ordered to deliver the 23,000 bags covered by SLDR No. 1214M (plus unrealized profits and damages) Petitioner's primary defense a quo was that it was an unpaid seller for the 23,000 bags. Since STM had already drawn in full all the sugar corresponding to the amount of its cleared checks, it could no longer authorize further delivery of sugar to CSC. Petitioner also contended that it had no privity of contract with CSC.  the SLDRs, which it had issued, were not documents of title, but mere delivery receipts issued pursuant to a series of transactions entered into between it and STM. The SLDRs prescribed delivery of the sugar to the party specified therein and did not authorize the transfer of said party's rights and interests.  CSC did not pay for the SLDR and was actually STM's co-conspirator to defraud it through a misrepresentation that CSC was an innocent purchaser for value and in good faith.

actual intention to appoint or an intention naturally inferable from his words or actions; and on the part of the agent, there must be an intention to accept the appointment and act on it, and in the absence of such intent, there is generally no agency. One factor which most clearly distinguishes agency from other legal concepts is control; one person - the agent - agrees to act under the control or direction of another - the principal. Indeed, the very word "agency" has come to connote control by the principal. The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category. In the instant case, it appears plain to us that private respondent CSC was a buyer of the SLDFR form, and not an agent of STM. Private respondent CSC was not subject to STM's control. The question of whether a contract is one of sale or agency depends on the intention of the parties as gathered from the whole scope and effect of the language employed. That the authorization given to CSC contained the phrase "for and in our (STM's) behalf" did not establish an agency. Ultimately, what is decisive is the intention of the parties. That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to petitioner that SLDR No. 1214M had been "sold and endorsed" to it.The use of the words "sold and endorsed" means that STM and CSC intended a contract of sale, and not an agency. Hence, on this score, no error was committed by the respondent appellate court when it held that CSC was not STM's agent and could independently sue petitioner.

ISSUES:

(2) Petitioner contends that the sale of sugar under SLDR No. 1214M is a conditional sale or a contract to sell, with title to the sugar still remaining with the vendor. Noteworthy, SLDR No. 1214M contains the following terms and conditions: "It is understood and agreed that by payment by buyer/trader of refined sugar and/or receipt of this document by the buyer/trader personally or through a representative, title to refined sugar is transferred to buyer/trader and delivery to him/it is deemed effected and completed (stress supplied) and buyer/trader assumes full responsibility therefore" The aforequoted terms and conditions clearly show that petitioner transferred title to the sugar to the buyer or his assignee upon payment of the purchase price. Said terms clearly establish a contract of sale, not a contract to sell. Petitioner is now estopped from alleging the contrary. The contract is the law between the contracting parties. And where the terms and conditions so stipulated are not contrary to law, morals, good customs, public policy or public order, the contract is valid and must be upheld. Having transferred title to the sugar in question, petitioner is now obliged to deliver it to the purchaser or its assignee.



Whether or not CSC was an agent of STM and hence, estopped to sue upon SLDR No. 1214M as an assignee. Whether or not the sale of sugar under SLDR No. 1214M was a conditional sale or a contract to sell and hence freed petitioner from further obligations.

RULING (1) Petitioner heavily relies upon STM's letter of authority allowing CSC to withdraw sugar against SLDR No. 1214M to show that the latter was STM's agent. The pertinent portion of said letter reads: "This is to authorize Consolidated Sugar Corporation or its representative to withdraw for and in our behalf (stress supplied) the refined sugar covered by Shipping List/Delivery Receipt = Refined Sugar (SDR) No. 1214 dated October 16, 1989 in the total quantity of 25, 000 bags.” The Civil Code defines a contract of agency as follows: "Art. 1868. By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter." It is clear from Article 1868 that the basis of agency is representation. On the part of the principal, there must be an

Discussion: The basis of agency is representation. The agent acts


40



for or in behalf as a representative of the principal wherein there must be an actual intention to appoint or an intention naturally inferable from his words or action on the part of the principal. On the part of the agent, there must be an intention to accept the appointment and act on it. One factor which most clearly distinguishes agency from other legal concepts is control. A principal controls the acts of his agent. Here, CSC has shown that the 25,000 bags of sugar covered by the SLDR were sold and transferred by STM. So there is valid sale and transfer to CSC. CSC was a buyer of the SLDR form, and not an agent of STM. It was not subject to STM’s control. So, again, even if you have that phrase “only acted for and in behalf of STM” the SC said to look at the intention of the parties. Whether a contract is one of agency or sale depends on the intention of the parties as gathered from the whole scope and effect of the language employed. The authorization given containing the phrase “for or in our behalf” did not establish an agency. No agency was meant to establish. That no agency was meant to be established by the CSC and STM is clearly shown by CSC's communication to VMC that SLDR No. 1214M had been "sold and endorsed" to it. So there was an intention to enter into a contract of sale. This is important since it was CSC who filed for a complaint for specific performance and VMC here alleged that is should be STM if ever which should file and not CSC being allegedly as an agent. Again, there is no agency in a valid contract of sale. Take note of the distinction of the two contracts. Again, sale is defined under Art. 1458 while agency is defined under Art. 1868. As mentioned earlier, an agency is essentially

it is presumed to be onerous unless otherwise stipulated by the parties. Contracts of sale are unenforceable when not in writing. It is covered under the Statute of Frauds. In agency on the other hand are valid and enforceable in any form.

removable by the principal if there is no more trust because of the fiduciary nature of a contract of agency. Sale on the other hand is not unilaterally revocable because it is not based on trust and confidence. In sale, the buyer pays the price for the object purchased. If there is a contract of agency, the agent is not obliged to pay the price. His obligation is to deliver, to remit the price that he receives from the customers. In sale, the buyer becomes the owner after delivery while in agency, the agent doesn’t become the owner despite delivery. In case of sale, the seller is liable for breach of warranty as provided for under the law. If there is a contract of agency, the agent doesn’t assume any personal liability as long as he acts within the authority given by the principal. And in fact, and agent doesn’t receive profit. A sale is a principal contract, on the other hand an agency is a principal contract with essentially three parties; the principal, the agent, and subsequently the third party to whom or with whom the agent entered into a contract for or in behalf

In 1963, the Arroyos obtained a loan of 580k from PNB to purchase 60% of the subscribed capital stock and acquire controlling interest of private respondent Tayabas Cement Company (TCC). The spouses executed a real estate mortgage over a parcel of land (La Vista property) as security for the loan. Thereafter, TCC filed with PNB an application and agreement for the establishment of an 8 year deferred letter of credit for 7M dollars in favor of Toyo Menka Kaisha to cover the importation of a cement plant machinery and equipment. Upon approval of the said application and opening of letter of credit by PNB in favor of Toyo Menka for the account of TCC, the Arroyo spouses executed a surety agreement. The imported cement equipment arrived from Japan and were released to TCC under a trust receipt agreement. Toyo Menka made the corresponding drawings against the letter of credit as scheduled. TCC failed to remit and pay the corresponding amount covered by the drawings. As per trust receipt agreement, PNB notified TCC of its intention to repossess the machinery and equipment for failure to settle its obligations under the letter of credit. PNB also foreclosed the REM executed by the spouses Arroyo in favor of TCC. PNB contends that the sale of the La Vista property was made to satisfy not only the amount owed

of the principal. In a sale, we only have two parties and one contract of sale. In agency, we have one contract of agency as a preparatory contract and then subsequently a principal contract with the agent acts for or in behalf of the principal. The characteristics of sale are onerous while in agency

Other Practical Value of Being Able to Distinguish  The Statue of Frauds is only applicable in a contract of sale and not in an agency.  General Rule: A contract of agency to sell is valid and enforceable in whatever form it may be entered into.  Exception: When the 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. (Art. 1874)

5) DISTINGUISHED FROM DACION EN PAGO Dation in payment  one whereby property is alienated to the creditor in full satisfaction of a debt in money constitutes the delivery and transmission of a thing by  the debtor to the creditor as an accepted equivalent of the performance of the obligation  governed by the Law on Sales, since it essentially involves the transfer of ownership of a subject matter PNB vs. Pineda (May 13, 1991) FACTS


41



to the Trust Receipt Agreement, this did not result to dation en pago. The repossession was only for the purpose of securing payment. Payment only happened after the PNB foreclosed the said equipment and applied the proceeds thereof to the loan owed to them. Mere possession does not amount to foreclosure because foreclosure yet has to follow a procedure to be adopted by the mortgagee. In dation en pago, it is the delivery and transmission of ISSUE: WON the repossession of the machinery amounts to a ownership by the debtor to the creditor as an accepted dacion en pago. NO equivalebnt of the performance of the obligation. The same is governd by the Law on Sales. RULING Article 1245 says, Dation in payment, whereby property The repossession does not amount to dacion en pago. is alienated to the creditor in satisfaction of a debt in money, Dation in payment takes place when property is alienated to shall be governed by the law of sales. Do remember, however, the creditor in satisfaction of a debt in money and the same is that dation en pago is different from pactum commisorium. governed by sales. Dation in payment is the delivery and Pactum commisorium of s automatic appropriation in case of transmission of ownership of a thing by the debtor to the default or failure of payment on the debtor. Pactum creditor as an accepted equivalent of the performance of the commissorium is VOID. And it is different from dation en pago obligation. As aforesaid, the repossession of the machinery and where there in no automatic appropriation. In dation en pago, equipment in question was merely to secure the payment of TCC's loan obligation and not for the purpose of transferring the debtor has to offer the property in lieu of the monetary obligation and the creditor has to give his consent. The creditor ownership thereof to PNB in satisfaction of said loan. Thus, no can refuse dation en pago. dacion en pago was ever accomplished. by the spouses on their personal loan but also the amount of expenses owed by the spouses as sureties of TCC. The Arroyos object to the said foreclosure, contending that repossession of the imported machinery and equipment by PNB amounted to dacion en pago, which extinguished their obligation as surety to TCC.

PNB has the right to foreclose the mortgages executed by the spouses Arroyo as sureties of TCC. A surety is considered in law as being the same party as the debtor in relation to whatever is adjudged touching the obligation of the latter, and their liabilities are interwoven as to be inseparable. As sureties, the Arroyo spouses are primarily liable as srcinal promisors and are bound immediately to pay the creditor the amount outstanding. PNB took possession of the imported cement plant machinery and equipment pursuant to the trust receipt agreement executed by and between PNB and TCC giving the former the unqualified right to the possession and disposal of all property shipped under the Letter of Credit until such time as all the liabilities and obligations under said letter had been discharged. PNB’s possession of the subject machinery and equipment being precisely as a form of security for the advances given to TCC under the Letter of Credit, said possession by itself cannot be considered payment of the loan secured thereby. Payment would legally result only after PNB had foreclosed on said securities, sold the same and applied the proceeds thereof to TCC’s loan obligation. Mere possession does not amount to foreclosure for foreclosure denotes the procedure adopted by the mortgagee to terminate the rights of the mortgagor on the property and includes the sale itself. The transfer of ownership to extinguish a pre-existing obligation is the essence in dation in payment, therefore it is not a consensual contract, but a real contract and novates the srcinal debt relationship into a consummated sale. Discussion: So in this case there NO dation en pago. While it is true that the PNB took possession of the said equipment in pursuant

Requisites for a valid dation in payment: (a) Animo Solvendi – Performance of the prestation in lieu of payment which may consist in the delivery of a corporeal thing or a real right or a credit against the third person. (b) Aliud Pro Alio – Some difference between the prestation due and that which is given in substitution (c) An agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. Lo. vs. KJS (October 8, 2003) FACTS Petitioner ordered scaffolding equipments from respondent for its construction business. Petitioner made a downpayment and was able to pay 2 monthly installments, but failed thereafter. Respondent on the other hand, fully complied with its deliveries. Unable to settle his obligation, petitioner executed a deed of assignment over his receivables with Jomero Realty Corporation. However, respondent was not able to collect the receivable since Jomero alleges that the petitioner also has a liability with him and therefore, such receivable has already been extinguished through prescription. Respondent now filed an action for recovery of sum of money. ISSUE: WON the obligation was extinguished with the execution of the Deed of Assignment of credit.? NO. RULING An assignment of credit is an agreement by virtue


42

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. Corollary thereto, in dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. In order that there be a valid dation in payment, the following are the requisites: (1) There must be the performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) There must be some difference between the prestation due and that which is given in substitution (aliud pro alio); (3) There must be an agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a prestation different from that due. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the vendor in good faith shall be responsible, for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor, in specified circumstances. Hence, the petitioner is still liable. Aquintey vs. T ibong FACTS

(December 20, 2006)

Felicidad secured loan amounting to 773k from Agrafina. Felicidad failed to pay such loan which prompted Agrafina to file a complaint for sum of money and damages against Felicidad before RTC. Felicidad executed deeds of assignment of credits (obligations) duly notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00 due from her debtors. In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia Morada and Corazon Dalisay. She was furnished copies of the deeds as well as the promissory notes. The spouses Tibong argues that this resulted in a novation of the srcinal obligation to Agrifina. They insisted that by virtue of these documents, Agrifina became collector their debtors; and the obligation to the pay new the balance of of their loans had been extinguished. RTC ruled 472k plus interest for the actual amount of obligation and 25k for atty fees. CA affirmed the decision of RTC with modification


holding that the balance of the total indebtedness amounts to P51,341.00 plus the stipulated interest of 6% per month from May 11, 1999 until the finality of this decision. ISSUE: WON the deeds of assignment executed by spouses tibong in favor of Aquintey resulted in the novation of the srcinal obligation? YES. RULING An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. It may be in the form of sale, but at times it may constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his creditor a credit he has against a third person. In Vda. de Jayme v. Court of Appeals, the Court held that dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation. **in sum, the difference between a contract of sale and dacion en pago is that in the contract of sale, the consideration is the price (money) while the consideration in dacion en pago is the extinguishment of a preexisting debt. *** requisites of Dacion en pago (1) there must be a performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2) there must be some difference between the prestation due and that which is given in substitution (aliud pro alio); and (3) there must be an agreement between the creditor and debtor that the obligation is


43

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA immediately extinguished by reason of the performance of a prestation different from that due. Discussion: What is now the basis why it has a different ruling to the case of KJS? Why is it that there is no breach of warranty in Aquintey?  Insolvency of Debtors. The reason why Agrifina was not able to collect was the insolvency of the debtors, the subjects of the assignment. Otherwise, there will be breach of warranty because at the time of the assignment, the obligations must exist. In 1620, the vendor in good faith is responsible for the existence and legality of credit at the time of sale unless it shall have been sold as doubtful but not the insolvency of the debtor. Consent of the debtors are not essential for the perfection of dation en pago. So in this case, the failure to pay was due to the inability to pay by the debtors of spouses Tibong. There was no breach of warranty because the obligation existed at the time of the assignment. Also in this case, the Supreme Court also held that in the modern concept of dation en pago, what actually takes place is an objective novation. SSS vs. AGP (April 30, 2008) FACTS Sometime in 2000, AG&P’ premiums and loan amortization delinquencies from SSS amounted to P7.3 M. AG&P proposed to SSS to pay its said arrears by end of

2000, but requested for the condonation of all penalties; In turn, SSS suggested two (2) options to AG&P, either to pay by installment or through "dacion en pago"; AG&P chose to settle its obligation with the SSS through dacion en pago initially on its 5,999sqm property situated in Baguio City (appraised value is about P80M). However, AG&P was not amenable to SSS’s proposal to subdivide its Baguio property in order to carve out an area sufficient to cover AG&P’s delinquencies; So, AG&P made another proposal, offering as payment a portion of its 58,153 sqm-lot in Batangas. SSS also included SEMIRARA, one of the other companies under DMCI group that had outstanding delinquencies with the SSS in the proposed settlement through dacion en pago; AG&P was, thereafter directed by SSS to submit certain documents, such as TCT, Tax Declaration covering the subject lot, and the proposed subdivision plan, which requirements AG&P immediately complied; In 2001, SSS, finally approved AG&P’s proposal to settle its and SEMIRARA’s delinquencies through dacion en pago, which as of March 2001 amounted to around P29M. From the time of the approval of AG&P’s proposal up to the present, AG&P is religiously remitting the premium


contributions and loan amortization of its memberemployees to the defendant; To effect the property transfer, a Deed of Assignment has to be executed between the AG&P and SEMIRARA and SSS. Because of SSS’s failure to come up with the required Deed of Assignment to effect said transfer, AG&P prepared the draft and submitted it to the Office of the Vice-President – NCR in July 2001. When SSS failed to take any action on said Deed of Assignment the draft was again resubmitted in December 2001. From its srcinal submission of the Deed of Assignment in July 2001 to its re-submission in December 2001, and SSS returning of the revised draft in February 28, 2003 AG&P was consistent in its regular follow ups with SSS as to the status of its submitted Deed of Assignment; On February 28, 2003, or more than a year after the approval of AG&P’s proposal, SSS sent the revised copy of the Deed of Assignment to AG&P. However, the amount of the AG&P and SEMIRARA’s obligation appearing in the approved Deed of Assignment has ballooned from around P29M to P40M allegedly because of the additional interests and penalty charges assessed on AG&P and SEMIRARA’s outstanding obligation from April 2001, the date of approval of the proposal, up to January 2003; AG&P demanded for the waiver and deletion of the additional interests on the ground that delay in the approval of the deed and the subsequent delay in conveyance of the property in defendant’s name was solely attributable to the defendant; hence, to charge them with additional interests and penalties amounting to more than P10M would be unreasonable. AG&P maintained that they only owe P29M from SSS. SSS, however, refused to accept the payment through dacion en pago, unless AG&P and SEMIRARA also pay the additional interests and penalties being charged. AG&P and SEMIRARA filed a complaint for specific performance and damages against SSS before the RTC. RTC dismissed AG&P and SEMIRARA’s complaint, stating that it is not a suit for specific performance. CA reversed RTC decision, and said otherwise. RTC Ruling: The alleged dacion en pago is crystal clear manifestation of offering a special form of payment which to the mind of the court will produce effect only upon acceptance by the offeree and the observance and compliance of the required formalities by the parties. No matter in what form it may be, still the court believes that the subject matter is the payment of contributions and the corresponding penalties, not specific performance to enforce dacion en pago. CA Ruling: The subject of the complaint is no longer the payment of the premium and loan amortization delinquencies, as well as the penalties appurtenant thereto, but the enforcement of the dacion en pago pursuant to the SSS Resolution. The action therefore is correctly one for specific performance.


44

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA (Note: the reason for the dismissal of the RTC and consequently the basis for the reversal of CA are actually more on the issue on jurisdiction. Parang na side mention lang ang dacion en pago) ISSUE: WON the action for specific performance was proper in order to enforce the agreed dacion en pago. – YES RULING SSS stated its resolution that "the dacion en pago proposal of AG&P Co. of Manila and Semirara Coals Corporation to pay their liabilities in the total amount of P30,652,710.71 as of 31 March 2001 by offering their 5.8 ha. property located in San Pascual, Batangas, be, as it is hereby, approved .." This statement unequivocally evinces its CONSENT to the dacion en pago. Dacion en pago is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is the creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor’s debt. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be present . In its modern concept, what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the debt or obligation. The controversy lies in the non-implementation of the approved and agreed dacion en pago on the part of the SSS. As such, the SC agreed with CA that the proper suit is doubtless, a suit for specific performance. (-> Recall that in a Contract of Sale (obligation to give, which is really what dacion en pago partakes of), an action for specific performance is proper) Yuson vs. Vitan (July 27, 2006) FACTS Complainant Mar Yuson was a taxi driver. He received a sum money way of to inheritance. According to him, he andofhis wife by intended use the money to purchase a taxi. They were able to purchase a secondhand taxi, and Atty. Vitan helped him with all the legal matters concerning this purchase. The lawyer borrowed P100,000 from them and agreed that the loan would be repaid.


To guarantee payment, respondent executed in favor of complainant several postdated checks to cover the loaned amount which turned out to be worthless as it were drawn against the lawyer's closed account in the Bank of Commerce in Escolta, Manila. The six dishonored checks were presented during the hearing before the IBP commissioner. Complainant seek the aid of the IBP National Committee on Legal Aid (NCLA) in obtaining payment. An administrative case was filed against Atty. Vitan. When the date passed without any payment, complainant demanded a collateral to secure the loan. Thus, in his favor, Atty. Vitan executed a document denominated as a Deed of Absolute Sale, covering the latter's parcel of land located in Sta. Maria, Bulacan. According to complainant, their intention was to transfer the title of the property to him temporarily, so that he could either sell or mortgage it. It was further agreed that, if it was mortgaged, respondent would redeem it as partial or full payment of the loan. Curiously, however, the parties executed a second Deed of Absolute Sale, this time in favor of Atty. Vitan, with complainant as vendor. The purpose of this particular document was not explained by either party. Atty. Vitan explained that he had already settled his obligation. He maintained that he had in fact executed, in complainant's favor, a Deed of Absolute Sale over his 203-square-meter residential property in Sta. Maria, Bulacan. He clarified that "[their] understanding was that [complainant] ha[d] the option to use, mortgage or sell [the property] and return to me the excess of the proceeds after obtaining his money represented by my six (6) dishonored checks." The respondent attached the second Deed of Absolute Sale. Only after the IBP investigating commissioner had rendered her Report and Recommendation did Atty. Vitan submit his Answer to the Letter-Complaint. He called the second document a "Counter Deed of Sale," executed as a "sort of collateral/security for the account of [his] liaison officer [Evelyn Estur]." He admitted having given several postdated checks amounting to P100,000, supposedly to guarantee the indebtedness of Estur to complainant. Atty. Vitan argued for the first time that it was she who had incurred the debts, and that he had acted only as a "character reference and/or guarantor." He maintained that he had given in to the onesided transactions, because he was "completely spellbound by complainant's seeming sincerity and kindness." To corroborate his statements, he attached Estur's Affidavit. ISSUE: WON the contention of Atty. Vitan that his obligation was already extinguished by virtue of dation in payment is tenable. NO HELD: Atty.

Vitan


contends

that

his

obligation

was

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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA already extinguished, because he had allegedly sold his Bulacan property to complainant. Basically, respondent is asserting that what had transpired was a dation in payment. Governed by the law on sales, it is a transaction that takes place when a piece of property is alienated to the creditor in satisfaction of a debt in money. It involves delivery and transmission of ownership of a thing -- by the debtor to the creditor -- as an accepted equivalent of the performance of the obligation. Going over the records of this case, we find the contention of Atty. Vitan undeserving of credence. The records reveal that he did not really intend to sell and relinquish ownership over his property in Sta. Maria, Bulacan, notwithstanding the execution of a Deed of Absolute Sale in favor of complainant. The second Deed of Absolute Sale, which reconveyed the property to respondent, is proof that he had no such intention. This second Deed, which he referred to as his "safety net," betrays his intention to counteract the effects of the first one . In a manner of speaking, Atty. Vitan was taking back with his right hand what he had given with his left. The second Deed of Absolute Sale returned the parties right back where they started, as if there were no sale in favor of complainant to begin with. In effect, on the basis of the second Deed of Sale, respondent took back and asserted his ownership over the property despite having allegedly sold it. Thus, he fails to convince us that there was a bona fide dation in payment or sale that took place between the parties; that is, that there was an extinguishment of obligation. It appears that the true intention of the parties was to use the Bulacan property to facilitate payment. They only made it appear that the title had been transferred to complainant to authorize him to sell or mortgage the property. Atty. Vitan himself admitted in his letter dated July 30, 2004, that their intention was to convert the property into cash, so that payment could be obtained by complainant and the excess returned to respondent. The records, however, do not show that the proceeds derived were sufficient to discharge the obligation of the lawyer fully; thus, he is still liable to the extent of the deficiency. Discussion: So take note of the distinctions laid out in this case, in sale, there is no basis in credit. In dation en pago, there is. In sale, the cost is the price. In dation, the price is the extinguishment of the obligation.

6) DISTINGUISHED FROM PAYMENT BY CESSION This is one of the special forms of payment. Four special forms of payment


1. 2. 3. 4.

Payment by cession Dacion en pago Tender of payment and consignation Application of payment

Art. 1255.The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws.

Requisites of payment by cession: 1. There must be at least two creditors 2. Debtor must be partially insolvent in a sense that he still has properties but his properties are not sufficient to pay his creditors 3. The payment by cession must be accepted by the creditors. Note: There is no transfer of ownership to the creditors. The rights over the property are transferred to the creditors so that the creditors can sell it and the proceeds to be applied to the obligations of the debtor prorate to the creditors. What is the difference?  There is no transfer of ownership unlike in a contract of sale, there is an intention to transfer ownership.

7) DISTINGUISHED FROM LEASE In a contract of lease, the lessor binds himself to give to another (the lessee) the enjoyment of use of a thing for a price certain, and for a period which may be definite or indefinite. (Article 1643) A conditional sale may be made in the form of a “ease with option to buy” as a device to circumvent the provisions of the Recto Law governing the sale of personal property on installments. It may be stipulated in such contract that the lessee has the option to buy the leased property for a small consideration at the end of the term of the lease, provided that the rent has been duly paid; or if the rent throughout the term had been paid, title shall vest in the lessee. Such contract are really conditional sales and are deemed leases in name only. Discussion:; However, no lease for more than ninety-nine years shall be valid. Filinvest vs. CA (September 29, 1989) DOCTRINE When a lease clearly shows that the rentals are meant to be installment payments to a sale contract, despite the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA nomenclature given by the parties ,it is a sale by installments.


they are estopped from claiming any breach of warranty. Finally.

FACTS: The spouses Sy Bang wanted to expand their gravel production business, and decided to look for a rock crusher with the help of Gemini Motor Sales. They found a rock crusher they wanted to buy (as they were ‘apprantly satisfied’ after inspecting it), b ut the 550k price presented a problem. The spouses Sy then applied for financial assistance from Filinvest. F ilinvest agreed, but on the following conditions: 1. that the machinery be purchased in the petitioner's name; 2. that it be leased (with option to purchase upon the termination of the lease period) to the private respondents; and 3. that the private respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the latter. And so in 1981, a contract lease of machinery (with option to purchase) was entered into by both parties. This contract also stipulated that ownership of the machine would pass to the spouses at the end of the 2yr period. The spouses Bang then executed a real estate mortgage over 2 parcels of land in favor of Filinvest, and the rock crusher was delivered to the spouses. Three months after the delivary, however, the spouses complained to Filinvest, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour. They then demanded that the petitioner make good the stipulation in the lease contract. They followed that up with similar written complaints to the petitioner, but the latter did not, however, act on them. Subsequently, the private respondents stopped payment on the remaining checks they had issued to the petitioner. As a consequence of the non-payment by the private respondents of the rentals on the rock crusher as they fell due despite the repeated written demands, the petitioner extrajudicially foreclosed the real estate mortgage. The spouses protested, and the RTC and CA ruled in favor of the spouses. Both courts ordered the spouses to return the deective machine to Filinvest and for Filinvest to return the 470k as guaranty deposit and rentals to the spouses. Filinvest appealed, stating that it was not the seller of the machine (but only a financer), and further absolving itself of any liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made by the latter. The petitioner likewise maintains that the private respondents being presumed to be knowledgeable about machineries, should be held responsible for the detection of defects in the machine they had acquired, and on account of that,

ISSUE: What is the real nature of the contract between Filinvest and the spouses Bang? CONTRACT OF SALE. RULING Filinvest was the owner of the machine even if it was not the seller. They are, however, not liable. While it is accepted that the petitioner is a financing institution, it is not, however, immune from any recourse by the private respondents. Notwithstanding the testimony of private respondent Jose Sy Bang that he did not purchase the rock crusher from the petitioner, the fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the petitioner proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment" with the private respondents. It was the private respondents who chose, inspected, and tested the subject machinery. It was only after they had inspected and tested the machine, and found it to their satisfaction, that the private respondents sought financial aid from the petitioner. One of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought. ‘Sale as lease’ contracts aim to circumvent Article 1484 par 3. Article 1484 states: Article 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 or 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. Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the payment of the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA installments. There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid. It is thus for these reasons that Article 1485 of the new Civil Code provides that: Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing. POLICY : The nomenclature of the agreement cannot change its true essence, as the intent of the parties should prevail.

8) DISTINGUISHED FROM CONTRACT TO SELL A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price. In a contract to sell, the ownership is reserved in the seller and is not to pass until full payment of the purchase price is made. Full payment is a positive suspensive condition. However, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. Almira vs. CA (March 20, 2003) FACTS Juana Almira et.al. (petitioners) are the wife & children of late Julio Garcia who inherited fromo his mother, Maria Alibudbud, Lot 1642. Lot 1642 was co-owned & registered in names of 3 persons – Vicente de Guzman (½), Enrique Hemedes (¼) & Francisco Alibudbud (¼). No separate title was issued in the name of Julio Garcia but there were tax declarations in his name to the extent of his grandfather’s share. 5 Jul ’84: Heirs of Julio Garcia & Federico Briones entered into Kasunduan ng Pagbibilihan over 21,460sqm portion of Lot 1642 for P150k. Briones paid P65k upon execution while balance of P85k was made payable within 6mos from date of execution. Heirs of Garcia allegedly informed Briones that TCT No RT-1076 of Lot 1642Briones was stillin possession of cousinConchalinaAlibudbud. willingly entered into the Kasunduan provided that full payment of purchase price will be made upon delivery to him of the title. Briones took possession of the property & made various payments to Heirs. However, upon failure of Heirs to


deliver the separate title to the property, he refused to make further payments. Heirs filed complaint for rescission of Kasunduan, among others, against Briones. ISSUE: WON the contract entered into by the parties was a contract to sell which entitles the Heirs to rescission RULING Negative, contract of sale. The rights of the parties are governed by the terms and the nature of the contract they enter into. In a contract to sell, ownership is, by agreement, reserved to the vendor and is not to pass until full payment of the purchase price; whereas, in contract of sale, title to the property passes to the vendee upon delivery of the thing sold. Non-payment by the vendee in a contract of sale entitles the vendor to demand specific performance or rescission of the contract, with damages, under Article 1191. Careful reading of the provisions of the Kasunduan reveals that it is a contract of sale. A deed of sale is absolute in nature in the absence of any stipulation reserving title to the vendor until full payment of the purchase price. In such cases ownership of the thing sold passes to the vendee upon actual or constructive delivery thereof. There is nothing in the Kasunduan which expressly provides that Heirs retain title or ownership of the property, until full payment of the purchase price. The absence of such stipulation in the Kasunduan coupled with the fact that Briones took possession of the property upon the execution of the Kasunduan indicate that the parties have contemplated a contract of absolute sale. There was a perfected contract of sale. The parties agreed on the sale of a determinate object and the price certain therefor, without any reservation of title on the part of Heirs. Ownership was effectively conveyed by Heirs to Briones, who was given possession of the property. The delivery of a separate title in name of Julio Garcia was a condition imposed on Briones’ obligation to pay the balance of the purchase price. It was not a condition imposed on the perfection of the contract of sale. Hence, cannot avail of rescission. The power to rescind is only given to the injured party. In the case at bar, Heirs were not ready, willing and able to comply with their obligation to deliver a separate title in the name of Julio Garcia to Briones. Therefore, they are not in a position to ask for rescission of the Kasunduan. It is Briones who has the option either to refuse to proceed with the sale or to waive the performance of the condition imposed on his obligation to pay balance of the purchase price. Discussion: Is rescission available in Contract to Sell/Contract of Sale?  Rescission is only available in a Contract of Sale. Why was rescission not available here despite having a perfected Contract of Sale?  The power to rescind is only given to the injured party.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA In the case at bar, Heirs were not ready, willing and able to comply with their obligation to deliver a separate title in the name of Julio Garcia to Briones. Therefore, they are not in a position to ask for rescission of the Kasunduan. It is Briones who has the option either to refuse to proceed with the sale or to waive the performance of the condition imposed on his obligation to pay balance of the purchase price. What was the condition in the delivery of title? Title in the name of whom?  Title in the name of Julio Garcia. What are the distinctions between a Contract to Sell and a Contract of Sale? CONTRACT TO SELL

CONTRACT OF SALE

The ownership is reserved in Title passes to the buyer upon the seller and is not to pass delivery of the thing sold. until full payment of the purchase price is made Full payment is a positive Non-payment of the price is a suspensive condition. negative resolutory condition Title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract.

The vendor has lost and cannot recover the ownership of the land sold until & unless the contract of sale itself is resolved and set aside.

Reyes vs. Tuparan (June 1, 2011) FACTS Mila Reyes owned a lot, where she put up a 3-storey commercial building known as RBJ Building & residential apartment building. Since ’90, she had been operating a drugstore & cosmetics store on the ground flr where she also had been residing while other areas were leased by tenants & street vendors. Dec ’89: Vi ctoria Tuparan leased a space on the ground flr of RBJ Building for her pawnshop business for P4k/mo. Tuparan invested thousands of pesos in Reyes’ financing/lending business. 20 Jun ’88: Reyes mortgaged the properties to Farmers Savings Bank to secure loan of P2M. She decided to sell her real properties for P6.5M so she could liquidate her bank loan & finance her businesses. Tuparan verbally offered to conditionally buy the properties for P4.2M & to assumed the bank loan of P2.278M: • Conditional sale will be canceled if Reyes finds another buyer of said properties within next 3mos • Reyes would continue to use the space occupied by her drugstore & cosmetics store without rentals for duration of installments


• Lease for 15yrs in favor of Reyes over said space for P8k • Tuparan will undertake renewal & payment of fire insurance FSL approved the proposal on the condition that Reyes would sign as co-maker for the mortgage obligation assumed by Tuparan. 26 Nov ’90: the parties & FSL executed Deed of Conditional Sale of Real Properties with Assumption of Mortgage. Tuparan however defaulted in the payment of her obligations. Instead of paying in lump sum, she paid Reyes in small amounts from time to time. 19 Mar ’92: residential building was gutted by fire. Tuparan neglected to renew the fire insurance policy on the buildings. Since Dec ’90: Tuparan had taken possession of the real properties & had been continuously collecting &receving monthly rental income from the tenants & vendors without sharing it with Reyes. 10 Sep ’92: Reyes filed complaint for Rescission of contract with damages against Tuparan.

ISSUE: WON the Deed entered into by the parties & FSL is a contract to sell or contract of sale RULING Contract to sell. Stipulation in the contract: title and ownership of the subject real properties shall remain with Reyes until the full payment of Tuparan of the balance of the purchase price and liquidation of the mortgage obligation of ₱2M; upon full payment by Tuparan of the full balance of the purchase price and the assumed mortgage obligation, FSL shall issue the corresponding Deed of Cancellation of Mortgage and Reyes shall execute the corresponding Deed of Absolute Sale in favor of Tuparan. Reyes’ obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is Tuparan’s full payment of the purchase price. Without full payment, there can be no breach of contract to speak of because Reyes has no obligation yet to turn over the title. Tuparan’s failure to pay in full the purchase price is not the breach of contract contemplated under Article 1191 but rather just an event that prevents Reyes from being bound to convey title. Considering, however, that the Deed of Conditional Sale was not cancelled by Reyes and that out of the total purchase price of the subject property in the amount of ₱4.2M, the remaining unpaid balance of Tuparan is only ₱805k, a substantial amount of the purchase price has already been paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that,


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation. Rescission is allowed only when the breach is substantial & fundamental to the fulfillment of the obligation. Cannot be denied that Tuparan paid to FSL Bank Reyes’ mortgage obligation in the amount of ₱2,278,078.13, which formed part of the purchase price of the subject property. Likewise, it is not disputed that Tuparan paid directly to Reyes the amount of ₱721,921.87 representing the additional payment for the purchase of the subject property. Clearly, out of the total price of ₱4,200,000.00, Tuparan was able to pay the total amount of ₱3M, leaving a balance of ₱1.2M. Discussion: Assuming that this was a Contract of Sale, is rescission available?  Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the circumstances, there was only a slight or casual breach in the fulfillment of the obligation. Rescission is allowed only when the breach is substantial & fundamental to the fulfillment of the obligation. Spouses Serrano vs. Caguiat (February 28, 2007) FACTS Mar ’90: GodofredoCaguiat offered to buy the lot of Sps. Herrera. Sps. agreed to sell it at P1,500/sqm. Caguiat gave them P100k as partial payment. Sps. gave respondent “Re ceipt for Partial Payment of Lot 23”, stating that Caguiat promised to pay the balance on/before 23 Mar ’90. 28 Mar: Caguiat wrote Sps. informing them of readiness to pay the balance & requesting them to prepare the final DOS. 4 Apr: Sps. sent letter to Caguiat stating that Amparo Herrera is leaving for abroad & that they are cancelling the transaction. Also informed Caguiat that he can recover the earnest money anytime. In another letter, informed Caguiat that they delivered PNB check in amount of P100k to Caguiat’s counsel. In view of cancellation, Caguiat filed complaint for specific performance. TC ruled there was perfected contract of sale. CA affirmed.

ISSUE: WON the document “Receipt for Partial Payment” is a contract to sell or contract of sale RULING Contract sell.they Interpreting Receipt, no other interpretation thantothat agreed tothe a conditional contract of sale, consummation of which is subject only to the full payment of the purchase price – “MR. CAGUIAT PROMISED TO PAY THE BALANCE OF THE PURCHASE PRICE ON OR BEFORE


MARCH 23, 1990, AND THAT WE WILL EXECUTE AND SIGN THE FINAL DEED OF SALE ON THIS DATE.” A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the suspensive condition does not take place, the parties would stand as if the conditional obligation had never existed. The suspensive condition is commonly full payment of the purchase price. In a contract of sale, title passes to the buyer upon delivery of the thing sold. Non-payment of the price is a negative resolutory condition and the vendor has lost and cannot recover the ownership of the land sold until & unless the contract of sale itself is resolved and set aside. In a contract to sell, the ownership is reserved in the seller and is not to pass until full payment of the purchase price is made. Full payment is a positive suspensive condition. However, the title remains in the vendor if the vendee does not comply with the condition precedent of making payment at the time specified in the contract. "Receipt for Partial Payment" shows that the true agreement between the parties is a contract to sell. First, ownership over the property was retained by Sps and was not to pass to Caguiat until full payment of the purchase price. In effect, Sps have the right to rescind unilaterally the contract the moment Caguiat fails to pay within the fixed period. Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment. Third, Sps retained possession of the TCT of the lot. This is an additional indication that the agreement did not transfer to Caguiat, either by actual or constructive delivery, ownership of property. Art 1482 speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. Now, since the earnest money was given in a contract to sell, Art 1482, which speaks of a contract of sale, does not apply. Discussion: What contracts is it if it is not a Contract of Sale? Contract to Sell. What are the factors considered?  The Receipt for Partial Payment shows that the true agreement between the parties is a contract to sell.  First, ownership over the property was retained by petitioners and was not to pass to respondent until full payment of the purchase price. Thus, petitioners need not push through with the sale should respondent fail to remit the balance of the purchase price before the deadline on March 23, 1990. In effect, petitioners have


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



the right to rescind unilaterally the contract the moment respondent fails to pay within the fixed period. Second, the agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price. Third, petitioners retained possession of the certificate of title of the lot. This is an additional indication that the agreement did not transfer to respondent, either by actual or constructive delivery, ownership of the property.

Notice that the SC ruled that “A contract to sell is akin to a conditional sale.”

Conditional Sale vs. Contract to Sell Conditional Sale

Contract to Sell

Ownership is automatically Ownership is not automatically transferred to the buyer upon vested. A Deed of Conditional full payment of the purchase Sale is first executed. price Consent is present.

Consent is lacking. Nabus vs. Pacson (November 25, 2009)

FACTS Sps. Nabus were owners of parcels of land, which were mortgaged to PNB to scure a loan in amount of P30k. 19 Feb ’77: Sps. Nabus executed a DOCS covering 1000sqm of land in favor of Sps. Pacson for P170k, provided that P13k be paid directly to PNB, mortgage balance of P17,500 shall be paid by Pacsons, & as soon as mortgage obligation is fully paid, Pacsons pay amount of P2k/mo until full amount of P170k is fully paid. Pursuant to Deed, Pacsons paid PNB. Thereafter, Pacsons took possession of the property & constructed a building and fence. 24 Dec: before payment of balance mortgage with PNB, Bate Nabus died. Julie Nabus (wife) & minor daughter Michelle Nabus executed Deed of Extrajudicial Settlement. TCT was issued in names of Julie & Michelle. Jan ’84: Julie approached Pacson to ask for full payment of lot but Pacson told her to return after 4 days. When Julie returned, Pacson sent her & daughter Catalina to Atty. Rillera for execution of DOAS. Atty. Rillera required Julie to return in Julie 4 days DOES, TCT, & guardianship papers of Michelle. did with not return. Getting suspicious, Pacson went to ROD & asked for copy of title of land. Found that it was still in the name of Julie & Michelle. After a week, Pacson heard rumor that lot was sold to Betty Tolero. Went back to ROD & found that DOAS was


executed in favor of Tolero. So Pacsons filed complaint for annulment of deeds. ISSUE: WON the DOCS was a contract of sale or contract to sell RULING Contract to sell. Art. 1458. By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. A contract of sale is absolute when title to the property passes to the vendee upon delivery of the thing sold. A deed of sale is absolute when there is no stipulation in the contract that title to the property remains with the seller until full payment of the purchase price. The sale is also absolute if there is no stipulation giving the vendor the right to cancel unilaterally the contract the moment the vendee fails to pay within a fixed period. In a conditional sale, as in a contract to sell, ownership remains with the vendor and does not pass to the vendee until full payment of the purchase price. The full payment of the purchase price partakes of a suspensive condition, and non-fulfillment of the condition prevents the obligation to sell from arising. A Contract to Sell may not be considered as a Contract of Sale because the first essential element (consent or meeting of the minds) is lacking. In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event. What the seller obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the purchase price is delivered to him. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. Case at bar: DOCS stipulated that "as soon as the full consideration of the sale has been paid by the vendee, the corresponding transfer documents shall be executed by the vendor to the vendee for the portion sold." Where the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell. If Pacsons paid the SpsNabus in accordance with the stipulations in DOCS, the consideration would have been fully paid in June 1983. As vendees given possession of the subject property, the ownership of which was still with the vendors, the Pacsons should have protected their interest and inquired from Julie Nabus why she did not return and then followed


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that is still non-existent, the suspensive condition not through with full payment of the purchase price and the having occurred as yet. Emphasis should be made that execution of the deed of absolute sale. The SpsPacson had the the breach contemplated in Article 1191 of the New legal remedy of consigning their payment to the court; Civil Code is the obligors failure to comply with an however, they did not do so. obligation already extant, not a failure of a condition to Since the Deed of Conditional Sale executed in their render binding that obligation. favor was merely a contract to sell, the obligation of the seller What will happen to the previous payments? to sell becomes demandable only upon the happening of the  The Spouses Pacson, however, have the right to the suspensive condition. The full payment of the purchase price is reimbursement of their payments to the Nabuses, and the positive suspensive condition, the failure of which is not a are entitled to the award of nominal damages. breach of contract, but simply an event that prevented the  Under the Deed of Conditional Sale, respondents had obligation of the vendor to convey title from acquiring binding the right to demand from petitioners Julie and Michelle force. Nabus that the latter execute in their favor a deed of Since the contract to sell was without force and effect, absolute sale when they were ready to pay the Julie Nabus validly conveyed the subject property to another remaining balance of the purchase price. The Nabuses buyer, Betty Tolero, through a contract of absolute sale. Sps. had the corresponding duty to respect the respondents Pacson, however, have the right to reimbursement & damages. right, but they violated such right, for they could no longer execute the document since they had sold the Discussion: property to Betty Tolero.] Hence, nominal damages in What is the nature of the Contract? Contract to Sell Why is it the amount of P10,000.00 are awarded to respondents. important to determine the nature of the contract? 

First, to also determine when the obligation of the seller to sell does becomes demandable. In this case, obligation of the seller to sell does becomes demandable only upon the happening of the suspensive condition. The full payment of the purchase price is the positive suspensive condition, the failure of which is not a breach of contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. Second, to also determine whether there was a valid conveyance to

In relation to Spouses Serrano, the Court ruled there that a Contract to Sell is akin to a Conditional Sale. They are similar but not entirely the same. In Nabus, the Court ruled that, “A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because 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 Tolero. fulfilled, the perfection of the contract of sale is completely What are the stipulations/factors that would lead to the abated. However, if the suspensive condition is fulfilled, the conclusion that they entered into a Contract to Sell? contract of sale is thereby perfected, such that if there had  DOCS stipulated that "as soon as the full consideration already been previous delivery of the property subject of the of the sale has been paid by the vendee, the sale to the buyer, ownership thereto automatically transfers to corresponding transfer documents shall be executed by the buyer by operation of law without any further act having to the vendor to the vendee for the portion sold." Where be performed by the seller.” the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of Ace Foods Inc. vs. Micro Pacific the price, the contract is only a contract to sell. (December 11, 2013) There was no full payment. What is now the effect? FACTS  Since the Deed of Conditional Sale executed in their ACE Foods is a domestic corporation engaged in the favor was merely a contract to sell, the obligation of the trading and distribution of consumer goods in wholesale and seller to sell becomes demandable only upon the retail bases, while MTCL is one engaged in the supply of happening of the suspensive condition. The full computer hardware and equipment. payment of the purchase price is the positive MTCL sent a letter-proposal for the delivery and sale suspensive condition, the failure of which is not a of the subject products to be installed at various offices of ACE breach of contract, but simply an event that prevented Foods. Aside from the itemization of the products offered for the obligation of the vendor to convey title from sale, the said proposal further provides for the following acquiring binding force. Thus, for its non-fulfilment, terms, viz.: there is no contract to speak of, the obligor having



failed to perform the suspensive condition which enforces a juridical relation. There can be no rescission or fulfilment of an obligation

TERMS : Thirty (30) days upon delivery VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of [Purchase Order] WARRANTY : One (1) year on parts and services. Accessories not included in warranty. ACE Foods accepted MTCL’s proposal and accordingly

issued Purchase Order No. 100023 (Purchase Order) for the subject products amounting to P646,464.00 (purchase price).  MTCL delivered the said products to ACE Foods as reflected in Invoice Receipt. The fine print of the invoice states,inter alia , that "[t]itle to sold property is reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and payment of the price" (title reservation stipulation). After delivery, the subject products were then installed and configured in ACE Foods’s premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained unheeded.  Instead of paying the purchase price, ACE Foods sent MTCL a Letter stating that it "ha[s] been returning the [subject products] to [MTCL] thru [its] sales representative Mr. Mark Anteola who has agreed to pull out the said [products] but had failed to do so up to now." ACE Foods lodged a Complaint against MTCL, praying that the latter pull out from its premises the subject products since MTCL breached its "after delivery services" obligations to it, particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the purchase of the subject products; and (c) train ACE Foods’s technicians on how to use and maintain the subject products. ACE Foods likewise claimed that the subject products MTCL delivered are defective and not working. MTCL maintained that it had duly complied with its obligations to ACE Foods and that the subject products were in good working condition when they were delivered, installed and configured in ACE Foods’s premises. MTCL even conducted a training course for ACE Foods’s representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported "after delivery services." Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the subject products despite the latter’s use of the same for a period of nine (9) months. MTCL prayed that ACE Foods be compelled to pay the purchase price, as well as damages related to the transaction. ISSUE: Whether ACE Foods should pay MTCL the purchase price for the subject products. 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. The real nature of a contract may be determined from the express terms of the written agreement and from the contemporaneous and subsequent acts of the


contracting parties. However, in the construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued . The denomination or title given by the parties in their contract is not conclusive of the nature of its contents. The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or promised . This may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows: 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. (Emphasis supplied)

Corollary thereto, a contract of sale is classified as 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, 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. CONTRACT TO SELL V CONDITIONAL CONTRACT OF SALE. In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of the purchase price. A contract to sell may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because 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. In this case, the parties have agreed to a contract of sale and not to a contract to sell. Bearing in mind its consensual nature, a contract of sale had been perfected at the precise moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s proposal to sell the subject products in consideration of the purchase price of P646,464.00. From that point in time, the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to ACE Foods, and, on the other hand, of ACE Foods to pay the purchase price therefor within thirty (30) days from delivery – already arose and consequently may be demanded. Article 1475 of the Civil Code makes this clear: Art. 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.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

The Court must dispel the notion that the stipulation anent MTCL’s reservation of ownership of the subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of the transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said stipulation novated the contract of sale between the parties which, to repeat, already existed at the precise moment ACE Foods accepted MTCL’s proposal. To be sure, novation, in its broad concept, may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi , whether totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken. In the present case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had been included or had subsequently modified or superseded the srcinal agreement of the parties. The fact that the Invoice Receipt was signed by a representative of ACE Foods does not, by and of itself, proveanimus novandi since: (a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the transaction) to novate the srcinal agreement; (b) the signature only proves that the Invoice Receipt was received by a representative of ACE Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are generally issued at the consummation stage of the contract and not its perfection, and have been even treated as documents which are not actionable per se , although they may prove sufficient delivery. Thus, absent any clear indication that the title reservation stipulation was actually agreed upon, the Court must deem the same to be a mere unilateral imposition on the part of MTCL which has no effect on the nature of the parties’ srcinal agreement as a contract of sale. Perforce, the obligations arising thereto, among others, ACE Foods’s obligationto pay the purchase price as well as to accept the delivery of the goods, remain enforceable and subsisting. The return of the subject products pursuant to a rescissory action is neither warranted by ACE Foods’s claims of breach – either with respect to MTCL’s breach of its purported "after delivery services" obligations or the defective condition of the products - since such claims were not adequately proven in this case. The rule is clear: each party must prove his own affirmative allegation; one who asserts the affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a favorable judgment, which in civil cases, is by preponderance of evidence. This, however, ACE Foods failed to observe as regards its allegations of breach. Hence, the same cannot be sustained.


Discussion: Can we say that the Contract of Sale here was a Conditional one?  NO. When was the title reservation made?  After the Contract was perfected. Olivarez vs. Castillo (July 9, 2014) FACTS Olivarez Realty Corporation and Benjamin executed a deed of conditional sale over a parcel owned by Bejamin, covered by TCT No. T-19972, whichofislot also claimed by the Philippine Tourism Authority under TCT No. T-18493. Under the terms of the contract, the corporation shalll buy the land for P19,080,490, with an agreed downpayment of P5,000,000.00 payable in several instalments. The balance of the purchase price shall be paid by the corporation in 30 equal monthly installments, commencing on the day the title of the Philippine Tourism Authority had been cancelled. The corporation shall file the case against PTA, with the full assistance of Benjamin. Also, the corporation agreed to pay disturbance compensation up to P1,500,000.00 only, to the tenants therein, and Benjamin shall be responsible for clearing the tenants. The parties agreed that corporation shall immediately occupy the lot, and in case the contract is cancelled, the improvements put up by the company shall inure to Benjamin. Thereafter, Benjamin filed an action to rescind the contract under Article 1191 of the Civil Code. According to him, the company only paid him the amount of P2,500,000.00. out of the P5,000,000.00 instalment price. Contrary to the company’s representation, the company did not file any action against the Philippine Tourism Authority, nor paid disturbance compensation to the tenants. Despite demand, the company refused to pay the full purchase price of the property. He also argued that the contract was a contract of adhesion, and even so, the company committed substantial breach of the obligation warranting rescission under Art. 1191 of the Civil Code. The company, on the other hand, countered that Benjamin did not fully assist in the case to be filed against PTA; he also did not clear the property of tenants, thus the company had all the legal right to withhold instalment payment. When his request for admission to Dr. Pablo Olivarez was objected to by the company, Benjamin filed a motion for judgment on the pleadings and/or summary judgment, attaching thereto his affidavit and the affidavit of a witness attesting to the material allegations of his complaint. According to him, the company had already admitted the material allegations of his complaint, that is, that the company have not yet commenced an action against PTA, nor paid the disturbance compensation. Should judgment on the pleadings be denied, a summary judgment is still porper, since there are no genuine issues tendered by the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA company. The company opposed the motion, since there were genuine issues which need to be resolved and a full blown trial is necessary to fresh out the issues. The trial court granted Benjamin’s motion and rendered summary judgment, ruling that the company substantially admitted the material allegations in Benjamin’s complaint, and there were no genuine issues tendered by it. It rescinded the contract of conditional sale between Benjamin and Olivarez Realty Corporation and forfeited the P2,500.000.00 as damages under Art. 1191 of the Civil Code. On appeal to the Court of Appeals, the appellate court affirmed the findings of the trial court. The company thus filed a petition for certiorari under Rule 45 of the Rules of Court to try to reverse the judgments of the lower courts. Among the issues it presented for consideration was the propriety of the summary judgment. According to the company, it cannot be faulted for withholding instalment payments. ISSUE: What then is the nature of the contract between the company and Benjamin? RULING Since Olivarez Realty Corporation illegally withheld payments of the purchase price, Castillo is entitled to cancel his contract with petitioner corporation. However, we properly characterize the parties’ contract as a contract to sell, not a contract of conditional sale. In both contracts to sell and contracts of conditional sale, title to the property remains with the seller until the buyer fully pays the purchase price. Both contracts are subject to the positive suspensive condition of the buyer’s full payment of the purchase price. In a contract of conditional sale , the buyer automatically acquires title to the property upon full payment of the purchase price. This transfer of title is “by operation of law without any further act having to be performed by the seller.” In a contract to sell, transfer of title to the prospect ive buyer is not automatic. “The prospective seller [must] convey title to the property [through] a deed of conditional sale.” The distinction is important to determine the applicable laws and remedies in case a party does not fulfill his or her obligations under the contract. In contracts of conditional sale, our laws on sales under the Civil Code of the Philippines apply. On the other hand, contracts to sell are not governed by our law on sales but by the Civil Code provisions on conditional obligations. Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal obligations does not apply to contracts to sell. As this court explained in Ong v. Court of Appeals, failure to fully pay the purchase price in contracts to sell is not the breach of contract under Article 1191. Failure to fully pay the purchase price is “merely an event which prevents the [seller’s] obligation to convey title from acquiring binding force.” This is


because “there can be no rescission of an obligation that is s till non-existent, the suspensive condition not having [happened].” In this case, Castillo reserved his title to the property and undertook to execute a deed of absolute sale upon Olivarez Realty Corporation’s full payment of the purchase price. Since Castillo still has to execute a deed of absolute sale to Olivarez Realty Corporation upon full payment of the purchase price, the transfer of title is not automatic. The contract in this case is a contract to sell. As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines does not apply. The contract to sell is instead cancelled, and the parties shall stand as if the obligation to sell never existed. Olivarez Realty Corporation shall return the possession of the property to Castillo. Any improvement that Olivarez Realty Corporation may have introduced on the property shall be forfeited in favor of Castillo per paragraph I of the deed of conditional sale: Immediately upon signing this Contract, [Olivarez Realty Corporation] shall be entitled to occupy, possess and develop the subject property. In case this Contract is cancelled, any improvement introduced by [Olivarez Realty Corporation] on the property shall be forfeited in favor of [Castillo. As for prospective sellers, this court generally orders the reimbursement of the installments paid for the property when setting aside contracts to sell. This is true especially if the property’s possession has not been delivered to the prospective buyer prior to the transfer of title. In this case, however, Castillo delivered the possession of the property to Olivarez Realty Corporation prior to the transfer of title. We cannot order the reimbursement of the installments paid. In Gomez v. Court of Appeals, the City of Manila and Luisa Gomez entered into a contract to sell over a parcel of land. The city delivered the property’s possession to Gomez. She fully paid the purchase price for the property but violated the terms of the contract to sell by renting out the property to other persons. This court set aside the contract to sell for her violation of the terms of the contract to sell. It ordered the installments paid forfeited in favor of the City of Manila “as reasonable compensation for [Gomez’s] use of the [property]” for eight years. In this case, Olivarez Realty Corporation failed to fully pay the purchase price for the property. It only paid P2,500,000.00 out of the P19,080,490.00 agreed purchase price. Worse, petitioner corporation has been in possession of Castillo’s property for 14 years since May 5, 2000 and has not paid for its use of the property. Similar to the ruling in Gomez, we order the

P2,500,000.00 forfeited in favor of Castillo as reasonable compensation for Olivarez Realty Corporation’s use of the property.”


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA PART II: ELEMENTS OF A CONTRACT OF SALE Elements of a Contract of Sale 1) Consent 2) Subject Matter or Object 3) Consideration or Price


Article 1327. The following cannot give consent to a contract: (1) Unemancipated minors; (lahat ng minors ngayon, unemancipated) (2) Insane or demented persons, and deaf-mutes who do not know how to write Minors

I) CONSENT CONSENT 

is the first essential element in a contract of sale. Every person having legal capacity to obligate himself may validly enter into a contract of sale whether as seller or buyer. When we say capacity to act, obviously, we refer to the person who has the power to do acts with legal effect or the power to obligate himself.

Article 1489.All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. x x x .  So all those who are authorized by the civil code may



enter into a contract of sale. So not just natural persons, but even juridical persons. Even juridical persons may enter into a contract of sale. It can be a buyer, it can be a seller, it can own even the estate properties. ◦

Article 44. The following are juridical persons: (1) The State and its political subdivisions; (2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as soon as they have been constituted according to law; (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member.

◦

Article 46. Juridical persons may acquire and possess property of all kinds, as well as incurobligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization.

Incapacity in relation to a contract of sale There are 2 kinds of capacity: 1) Absolutely incapacitated persons and 2)

Art. 234. Emancipation takes place by the attainment of majority. Unless otherwise provided, majority commences at the age of twenty-one (now 18) years. Emancipation also takes place: (1) By the marriage of the minor; or (2) By the recording in the Civil Register of an agreement in a public instrument executed by the parent exercising parental authority and the minor at least eighteen years of age. Such emancipation shall be irrevocable Article 1489.x x x Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in article 290 (now Article 194 of Family code). Art. 194. Support comprises everything indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation, in keeping with the financial capacity of the family.  So the necessaries here are those indispensable for





support is in accordance with the social position of the family. Of course, when a food is purchased by a minor or insane person, hindi naman pwede na bawiin niya kasi voidable, especially pag nakain na niya. So to raise this one, there should be a perfected sale and a delivery of a subject necessaries However recall in your obligations and contract, that there is another exception when the minor is in estoppel. For example, when the minor is asked ―are you of legal age‖, then he says ―yes‖, then subsequently he alleges that the status of the contract is because he is a minor, hindi yan pwede. Kasi he is already in estoppel.

Insane or Demented Article 1328.Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable.

Effects if one of the parties is incapacitated The contract is voidable.

relatively incapacitated persons

1) MINORS, INSANE OR DEMENTED PERSONS, DEAF-MUTE

Article 1390.The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification

Ratification of a Voidable Contract . Ratification may be effected expressly or Article 1393 tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right.

Effect if both parties are incapacitated The contract is unenforceable. Labagala vs. Santiago (December 4, 2001) FACTS Jose Santiago owned a parcel of land covered by TCT 64729. Alleging that Jose had fraudulently registered it in his name alone, his sisters (Nicolasa and Amanda, herein respondents) sued Jose for the recovery of 2/3 share of the property. RTC ruled in favor of the sisters and their names were included in the certificate of title. Jose died intestate. Respondents filed a complaint for the recovery of title, ownership and possession against petitioner Labagala to recover from her the 1/3 portion of the said property pertaining to Jose, but which came into petitioner‘s sole posses sion upon his death. Respondents alleged that Jose‘s share in the property belongs to them by operation of law since they are the only legal heirs of their brother. Respondents‘ contentions : The deed of sale was a forgery. The deed showed that Jose affixed his thumb mark, but respondents averred that, having been able to graduate from college, Jose never put his thumb mark on documents and always signed his name in full. Respondents also pointed out that it is highly improbable for petitioner to have paid the supposed consideration of P150,000 for the sale of the property because petitioner was unemployed and without any visible means of livelihood at the time of the alleged sale. It was quite unusual and questionable that petitioner registered the deed of sale almost 8 years after the execution of the sale. Petitioner claimed to be the daughter of Jose, and thus entitled to his share in the property. She argued that the sale was in fact a donation to her, and that nothing could have precluded Jose from putting his thumb mark on the deed of sale instead of his signature. ISSUE: WON there was a valid sale. NO HELD:


The Court agreed with CA that: This deed is shot through and through with so many intrinsic defects that a reasonable mind is inevitably led to the conclusion that it is fake. Why hide the nature of the contract in the façade of a sale? Why did Santiago (fully aware that he owned only 1/3) sell or donate the whole property to Ida? Why did Santiago affix only his thumb mark to a deed that falsely stated that… xxx Ida was of legal age when she was then only 15 years old? Etc… Clearly, there is no valid sale in this case. Jose did not have the right to transfer ownership of the entire property to petitioner since 2/3 belonged to his sisters. Petitioner could not have given her consent to the contract, being a minor at the time. Consent of the contracting parties is among the essential requisites of a contract, including one of sale, absent which there can be no valid contract. Moreover, petitioner admittedly did not pay any centavo for the property, which makes the sale void. Art 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. Even assuming that the deed is genuine, it cannot be a valid donation. It lacks the acceptance of the donee required by Art 725 of the Civil Code. Being a minor, the acceptance of the donation should have been made by her father (Leon Labagala) or mother, or legal representative. No one of those mentioned in the law accepted the ―donation‖ for Ida. The Court also ruled that petitioner is not the child of Jose Santiago, and cannot inherit from him through succession. No birth certificate was shown, only a baptismal certificate, which is not conclusive proof of filiation. Discussion Isn‘t it that minority was one of the basis not to consider the contract of sale as valid?  Yes. Even granting that there was a deed of sale made in favor of Ida on 1979, Ida was still a minor at that time. Hence, she cannot enter into a valid contract of sale. Isn‘t it that when one of the parties is incapacitated, the contract is merely voidable? In this case, did the court held that the contract is merely voidable? Or void per se?  It is void. It was not based on the minority of Ida Labagala but based on the lack of price. It was found out that Ida did not pay even a single centavo for the parcel of land. This is because she was still a minor

So with that, there was no perfected contract of sale. But if you look at the intention allege here by Ida that it was intended to be a donation, why did the supreme court did not uphold the status of the contract being a donation? If it is not a sale, why would it not be a donation as well? What is the requirement in donation?  Acceptance. Take note that a donation is a formal or solemn contract. And there must be a compliance with the requisites provided by law for its validity.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA There is no valid sale here. Take note that the Supreme Court mentioned that Jose did not have the right to transfer ownership. However, remember that ownership at the time of the perfection of the sale is not required. Consent is sufficient together with price and subject matter. Further, the petitioner could not have given their consent to the contract being a MINOR. We know that when one of the parties being incapacitated the contract is merely voidable. And in fact, under your obligation and contract, who can allege the status of the contract? Only the incapacitated party when he attains capacity of any person acting as his legal representative of guardian. But what really made the court decide that there was no contract of sale is also the fact that there was no consideration. Petitioner admitted that she did not pay any centavo for property, which makes the sale void. So in the absence of price, there could be no valid sale. Now, going back to the intention that there was really no sale, because what was allege is a donation, the SC held that there could be no valid donation for it lacks the acceptance of Ida. Being a minor, acceptance should have been made by her parent or her legal representative. Again,donation is a solemn contract. Francisco vs. Herrera (November 21, 2002) FACTS Eligio Herrera, Sr., the father of respondent, was the owner of two parcels of land, one consisting of 500 sq. m. and another consisting of 451 sq. m. On January 3, 1991, petitioner bought from said landowner the first parcel, for the price of P1,000,000, paid in installments from November 30, 1990 to August 10, 1991.On March 12, 1991, petitioner bought the second parcel, for P750,000. Contending that the contract price for the two parcels of land was grossly inadequate, the children of Eligio, Sr., namely, Josefina Cavestany, Eligio Herrera, Jr., and respondent Pastor Herrera, tried to negotiate with petitioner to increase the purchase price When petitioner refused, herein respondent then filed a complaint for annulment of sale. In his complaint, respondent claimed ownership over the second parcel, allegedly by virtue of a sale in his favor since 1973. He likewise claimed that the first parcel was subject to the coownership of the surviving heirs of Francisca A. Herrera, the wife of Eligio, Sr., considering that she died intestate on April 2, 1990, before the alleged sale to petitioner. Finally, respondent also alleged that the sale of the two lots was null and void on the ground that at the time of sale, Eligio, Sr. was already incapacitated to give consent to a contract because he was already afflicted with senile dementia, characterized by deteriorating mental and physical condition including loss of memory. The Regional Trial Court declared the deed of sale null and void. CA affirmed trial court‘s decision. ISSUE: WON the assailed contracts of sale void or merely voidable and hence capable of being ratified


HELD: It was established that the vendor Eligio, Sr. entered into an agreement with petitioner, but that the formers capacity to consent was vitiated by senile dementia. Hence, the Court must rule that the assailed contracts are not void or inexistent per se; rather, these are contracts that are valid and binding unless annulled through a proper action filed in court seasonably. A void or inexistent contract is one which has no force and effect from the very beginning. Hence, it is as if it has never been entered into and cannot be validated either by the passage of time or by ratification. There are two types of void contracts: I. Those where one of the essential requisites of a valid contract as provided for by Art 1318(10) of the NCC is totally wanting; and II. Those declared to be so under Art 14092 (11) of the NCC. By contrast, a voidable or annullable contract is one in which the essential requisites for validity under Art 1318 are present, but vitiated by want of capacity, error, violence, intimidation, undue influence or deceit. Article 1318 of the Civil Code states that no contract exists unless there is a concurrence of consent of the parties, object certain as subject matter, and cause of the obligation established. Article 1327 provides that insane or demented persons cannot give consent to a contract. But, if an insane or demented person does enter into a contract, the legal effect is that the contract is voidable or annullable as specifically provided in Article 1390. An annullable contract may be rendered perfectly valid by ratification, which can be express or implied. Implied ratification may take the form of accepting and retaining the benefits of a contract. This is what happened in this case. Respondents contention that he merely received payments on behalf of his father merely to avoid their misuse and that he did not intend to concur with the contracts is unconvincing. If he was not agreeable with the contracts, he could have prevented petitioner from delivering the payments, or if this was impossible, he could have immediately instituted the action for reconveyance and have the payments consigned with the court. None of these happened. As found by the trial court and the Court of Appeals, upon learning of the sale, respondent negotiated for the increase of the purchase price while receiving the installment payments. It was only when respondent failed to convince petitioner to increase the price that the former instituted the complaint for reconveyance of the properties. Clearly, respondent was agreeable to the contracts, only he wanted to get more. Further, there is no showing that respondent returned the payments or made an offer to do so. This bolsters the view that indeed there was ratification. One cannot negotiate for an increase in the price in one breath and in the same breath contend that the contract of sale is void. Discussion


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Why is it needed here to point out whether the contract is void or voidable?  Here you have Eligio Sr, who was already suffering from senile dementia. The Supreme Court held that his consent was vitiated due to his senile dementia and therefore the contract is VOIDABLE, not void or inexistent per se. Why is this relevant?  Because if it was a void contract, there is no consent at all, then there could be no ratification. But since there was only an incapacity, a consent only vitiated by senile dementia, then you only have a voidable or annullable contract, of which may be a subject of ratification.  In this case, ratification on the part of the heirs of Eligio Sr was here. Respondent‘s contention that they merely received payments on the act of his father merely to avoid their misuse and that they did not intent to enter into a contract is UNCONVINCING. If they were not agreeable with the contract, they could have prevented petitioner from bringing the payments, or if this is impossible they could have immediately instituted an action for reconveyance and have the payment consigned with the court, none of these happened. It is only when the respondents fail to convince the petitioner to increase the price that the former instituted the complaint for reconveyance of the property. This bolster the view that indeed there was an ratification. One cannot negotiate an increase with the price in one hand, and in the same hand, contend that the contract of sale is void. So, voidable contract is subject to RATIFICATION. Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. When the defect of the contract consists in Article 1399. the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him.  this would be in relation to necessaries)

If you are already 100 years old, can you still enter into a contract of sale? Paragas vs. Heirs of Dominador Balacano (August 31, 2005) FACTS Gregorio Balacano, married to Lorenza Sumigcay, was the registered owner of Lot 1175-E and Lot 1175-F of the Subd. Plan Psd-38042. Gregorio and Lorenza had three children,


namely: Domingo, Catalino and Alfredo, all surnamed Balacano. Lorenza died on December 11, 1991. Gregorio, on the other hand, died on July 28, 1996. Prior to his death, Gregorio was admitted on June 28, 1996, transferred hospital in the afternoon of July 19, 1996 until his death. Gregorio purportedly sold on July 22, 1996, or barely a week prior to his death, a portion of Lot 1175-E (15,925 square meters out of total area of 22,341 square meters) and the whole Lot 1175-F to Spouses Paragas for the total consideration of P500,000.00. This sale appeared in a deed of absolute sale and was notarized by Atty. De Guzman. Gregorios certificates of title were consequently cancelled and new certificates of title were issued in favor of the Spouses Paragas. The Spouses Paragas then sold on October 17, 1996 a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for the total consideration of P60,000.00. Domingo‘s children filed on October 22, 1996 a complaint for annulment of sale and partition against Catalino and the Spouses Paragas. They essentially alleged in asking for the nullification of the deed of sale that: (1) their grandfather Gregorio could not have appeared before the notary public on July 22, 1996 at Santiago City because he was then confined at the Veterans Memorial Hospital in Quezon City; (2) at the time of the alleged execution of the deed of sale, Gregorio was seriously ill, in fact dying at that time, which vitiated his consent to the disposal of the property; and (3) Catalino manipulated the execution of the deed and prevailed upon the dying Gregorio to sign his name on a paper the contents of which he never understood because of his serious condition. Alternatively, they alleged that assuming Gregorio was of sound and disposing mind, he could only transfer a half portion of Lots 1175-E and 1175-F as the other half belongs to their grandmother Lorenza who predeceased Gregorio they claimed that Lots 1175-E and 1175F form part of the conjugal partnership properties of Gregorio and Lorenza. Finally, they alleged that the sale to the Spouses Paragas covers only a 5-hectare portion of Lots 1175-E and 1175-F leaving a portion of 6,416 square meters that Catalino is threatening to dispose. They asked for the nullification of the deed of sale executed by Gregorio and the partition of Lots 1175-E and 1175-F. They likewise asked for damages. Plaintiffappellant Nanette Balacano testified to prove the material allegations of their complaint. On Gregorios medical condition, she declared that: (1) Gregorio, who was then 81 years old, weak and sick, was brought to the hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and stayed there until the afternoon on July 19, 1996; (2) thereafter, Gregorio, who by then was weak and could no longer talk and whose condition had worsened, was transferred in the afternoon of July 19, 1996 to the Veterans Memorial Hospital in Quezon City where Gregorio died. She claimed that Gregorio could not have signed a deed of sale on July 19, 1996 because she stayed at the hospital the whole of that day and saw no visitors. She likewise testified on their agreement for attorneys fees with their counsel and


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA the litigation expenses they incurred. Defendants posit that Gregorio‘s consent to the sale should be determined, not at the time Gregorio signed the deed of sale on July 18, 1996, but at the time when he agreed to sell the property in June 1996 or a month prior to the deeds signing; and in June 1996, Gregorio was of sound and disposing mind and his consent to the sale was in no wise vitiated at that time. They presented as witnesses Notary Public de Guzman and instrumental witness Antonio to prove Gregorios execution of the sale and the circumstances under the deed was executed. They uniformly declared that: (1) on July 18, 1996, they went to the hospital in Bayombong, Nueva Vizcaya where Gregorio was confined with Rudy; (2) Atty. De Guzman read and explained the contents of the deed to Gregorio; (3) Gregorio signed the deed after receiving the money from Rudy; (4) Julia and Antonio signed the deed as witnesses. Additionally, Atty. De Guzman explained that the execution of the deed was merely a confirmation of a previous agreement between the Spouses Paragas and Gregorio that was concluded at least a month prior to Gregorios death; that, in fact, Gregorio had previously asked him to prepare a deed that Gregorio eventually signed on July 18, 1996. He also explained that the deed, which appeared to have been executed on July 22, 1996, was actually executed on July 18, 1996; he notarized the deed and entered it in his register only on July 22, 1996. He claimed that he did not find it necessary to state the precise date and place of execution (Bayombong, Nueva Vizcaya, instead of Santiago City) of the deed of sale because the deed is merely aconfirmation of a previously agreed contract between Gregorio and the Spouses Paragas. He likewise stated that of the stated P500,000.00 consideration in the deed, Rudy paid Gregorio P450,000.00 in the hospital because Rudy had previously paid Gregorio P50,000.00. For his part, Antonio added that he was asked by Rudy to take pictures of Gregorio signing the deed. He also claimed that there was no entry on the date when he signed; nor did he remember reading Santiago City as the place of execution of the deed. He described Gregorio as still strong but sickly, who got up from the bed with Julias help. The lower court, after trial, rendered the decision declaring null and void the deed of sale purportedly executed by Gregorio Balacano in favor of the spouses Paragas, noting that at the time Gregorio executed the deed, Gregorio was ill. Because of the seriousness of his illness, it is not expected that Gregorio Balacano would be negotiating a contract of sale. The lower court also ruled that Lots 1175-E and 1175-F were Gregorios and Lorenzas conjugal partnership properties. The Court of Appeals affirmed the Decision of the trial court, with the modification that Lots 1175-E and 1175-F were adjudged as belonging to the estate of Gregorio Balacano. ISSUE: * WON Gregorio give an intelligent consent to the sale of Lots 1175-E and 1175-F when he signed the deed of sale? *


WON Deed of Sale purportedly executed between petitioners and the late Gregorio Balacano was null and void RULING: It is not disputed that when Gregorio signed the deed of sale, Gregorio was seriously ill, as he in fact died a week after the deeds signing. Gregorio died of complications caused by cirrhosis of the liver. Gregorios death was neither sudden nor immediate; he fought at least a month-long battle against the disease until he succumbed to death on July 22, 1996. Given that Gregorio purportedly executed a deed during the last stages of his battle against his disease, the Court seriously doubt whether Gregorio could have read, or fully understood, the contents of the documents he signed or of the consequences of his act. There was no conclusive evidence that the contents of the deed were sufficiently explained to Gregorio before he affixed his signature. The evidence the defendants-appellants offered to prove Gregorios consent to the sale consists of the testimonies of Atty. de Guzman and Antonio which the Court did not find credible. Additionally, the irregular and invalid notarization of the deed is a falsity that raises doubts on the regularity of the transaction itself. While the deed was indeed signed on July 18, 1996 at Bayombong, Nueva Vizcaya, the deed states otherwise, as it shows that the deed was executed on July 22, 1996 at Santiago City. Article 24 of the Civil Code tells us that in all contractual, property or other relations, when one of the parties is at a disadvantage on account of his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant for his protection. Gregorio‘s consent to the sale of the lots was absent, making the contract null and void. Consequently, the spouses Paragas could not have made a subsequent transfer of the property to Catalino Balacano. In the case at bar, the Deed of Sale was allegedly signed by Gregorio on his death bed in the hospital. Gregorio was an octogenarian at the time of the alleged execution of the contract and suffering from liver cirrhosis at that circumstances which raise grave doubts on his physical and mental capacity to freely consent to the contract. Adding to the dubiety of the purported sale and further bolstering respondents claim that their uncle Catalino, one of the children of the decedent, had a hand in the execution of the deed is the fact that on 17 October 1996, petitioners sold a portion of Lot 1175-E consisting of 6,416 square meters to Catalino for P60,000.00. One need not stretch his imagination to surmise that Catalino was in cahoots with petitioners in maneuvering the alleged sale. Discussion So the general rule is that, as we mentioned earlier, just because you are in your advance years, doesn‘t mean you cant give a valid consent. And the exception is  if it be shown that there is a sickness or a circumstance by which the mental capacity or the person of the person to give his consent can no longer be considered


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA the same consent that a person with old age or physically incapacitated to give consent Consent must be intelligent free and spontaneous so that it could be considered as the valid consent that would give rise to a perfected contract of sale. So the mere fact that the person is already in his advance yearsdoes not necessarily mean that he could not give a valid consent. While the general rule is that a person is not incompetent to contact merely because of advance years or by reason of physical infirmities, when such years or imfirmities have impaired the mental faculties, so as to would prevent the person from properly, intelligently or freely protecting his property rights, then he is undeniably incapacitated. In this case the seller was already suffering from liver cirrhosis and that gave great doubts on his physical and mental capacity to freely give consent to the contract. When one of the parties is unable to read, or if the contract is in a language not understood by him or a mistake or fraud is alleged, the person executing the contract must show that the terms threof have been fully explained to him.

2) SALE BY AND BETWEEN SPOUSES A review (from the Family Code) of the rules in governing spouses in entering contracts of sale: Art. 73. Either spouse may exercise any legitimate profession, occupation, business or activity without the consent of the other. The latter may object only on valid, serious, and moral grounds. In case of disagreement, the court shall decide whether or not: (1) The objection is proper, and (2) Benefit has accrued to the family prior to the objection or thereafter. If the benefit accrued prior to the objection, the resulting obligation shall be enforced against the community property. If the benefit accrued thereafter, such obligation shall be enforced against the separate property of the spouse who has not obtained consent. The foregoing provisions shall not prejudice the rights of creditors who acted in good faith.

Heirs of Reyes vs. Mijares (August 28, 2003) FACTS In 1960, Vicente Reyes married Ignacia Aguilar but they had been separated de facto in 1974. The disputed lot was registered in the name of Spouses Reyes. Vicente Reyes filed a petition for administration and appointment of guardian with the MTC. In the said petition, he misrepresented that his wife, Ignacia, died on March 12, 1982 and that he and their minor children were her only heirs. On March 1983, respondent


Spouses Mijares bought the Lot. As a consequence of which, the certificate of title in the name of Vicente and Ignacia AgilarReyes was cancelled and a new title was issued in the name of respondent-spoues. These circumstances were discovered by Ignacia sometime in 1984. Ignacia then sent a letter to respondent-spouses demanding the return of her ½ share inthe lot. Failing to settle the matter amicably, Ignacia instituted a complaint for annulment of sale against respondent-spouses and Vicente was included as one of the defendants. In their answer, respondents claimed that they are purchasers in good faith and that the sale was valid because the same was duly approved by the court. RTC rendered a decision declaring the sale of the lot void with respect to the share of Ignacia. During appeal, Ignacia died and was substituted by her heirs. The appellate court reversed the decision, ruling that, notwithstanding the absence of Iganacia’s consent to the sale, the same must be held valid in favor of respondent-spouses because they were innocent purchasers for value. ISSUE: 1.) What is the status of the sale of lot to respondent spouses. And if so, should it be annulled in its entirety or only with respect to the share of Ignacia? 2.) Were the respondents innocent purchasers for value? RULING (1) Voidable, annulled in its entirety (2) not buyers in good faith The governing laws at the time of the sale are Art. 166 and 173 of the New Civil Code which provides: Article 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband cannot alienate or encumber any real property of the conjugal partnership without the wife's consent. If she refuses unreasonably to give her consent, the court may compel her to grant the same. Article 173. The wife may, during the marriage, and within ten years from the transaction questioned, ask the courts for the annulment of any contract of the husband entered into without her consent, when such consent is required, or any act or contract of the husband which tends to defraud her or impair her interest in the conjugal partnership property. Should the wife fail to exercise this right, she or her heirs, after the dissolution of the marriage, may demand the value of property fraudulently alienated by the husband.

Pursuant to the foregoing provisions, the husband could not alienate or encumber any conjugal real property without the consent, express or implied, of the wife otherwise, the contract is voidable. Indeed, in several cases[30] the Court had ruled that such alienation or encumbrance by the husband is void. The better view, however, is to consider the transaction as merely voidable and not void.[31] This is consistent with Article 173 of the Civil Code pursuant to which the wife could, during the marriage and within 10 years from the questioned transaction, seek its annulment. There is no dispute that the lot, is a conjugal property


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA having been purchased using the conjugal funds of the spouses during the subsistence of their marriage. It is beyond cavil therefore that the sale of said lot to respondent spouses without the knowledge and consent of Ignacia is voidable. Her action to annul the March 1, 1983 sale which was filed on June 4, 1986, before her demise is perfectly within the 10 year prescriptive period under Article 173 of the Civil Code. Even if we reckon the period from November 25, 1978 which was the date when Vicente and the respondent spouses entered into a contract concerning Lot No. 4349-B-2, Ignacia’s action would still be within the prescribed period. The necessity to strike down the contract of July 5, 1963 as a whole, not merely as to the share of the wife, is not without its basis in the common-sense rule. To be underscored here is that upon the provisions of Articles 161, 162 and 163 of the Civil Code, the conjugal partnership is liable for many obligations while the conjugal partnership exists. Not only that. The conjugal property is even subject to the payment of debts contracted by either spouse before the marriage, as those for the payment of fines and indemnities imposed upon them after the responsibilities in Article 161 have been covered (Article 163, par. 3), if it turns out that the spouse who is bound thereby, should have no exclusive property or if it should be insufficient. These are considerations that go beyond the mere equitable share of the wife in the property. These are reasons enough for the husband to be stopped from disposing of the conjugal property without the consent of the wife. Even more fundamental is the fact that the nullity is decreed by the Code not on the basis of prejudice but lack of consent of an indispensable party to the contract under Article 166. They are not buyers in good faith because there were circumstances that should have placed respondent spouses on guard. The death certificate of Ignacia, shows that she died on March 22, 1982. The same death certificate, however, reveals that (1) it was issued by the Office of the Civil Registrar of Lubao Pampanga on March 10, 1982; (2) the alleged death of Ignacia was reported to the Office of the Civil Registrar on March 4, 1982; and (3) her burial or cremation would be on March 8, 1982. These obvious flaws in the death certificate should have prompted respondents to investigate further, especially so that respondent Florentina Mijares admitted on cross examination that she asked for the death certificate of Ignacia because she was suspicious that Ignacia was still alive. Discussion: Sale is annulled in its entirety. The governing provisions are Art. 166 and 173 of the NCC because the sale was perfected before the effectivity of the Family Code. The requirement under the Civil Code is that the sale must have the consent of the other spouse. The husband can’t alienate or encumber any conjugal real property without the consent, expressed or implied, otherwise it is voidable. Under 173, it is required that the complaint must be made during the marriage and within 10 years of the questioned transaction. All the requisites are


present in this case. So, the Supreme Court ruled that the sale entered into by Vicente was VOIDABLE.

Guiang vs. CA (June 26, 1998) FACTS Plaintiff Gilda Corpuz and defendant Judie Corpuz are legally married spouses. Over the objection of private respondent and while she was in Manila seeking employment, her husband sold to the petitioners-spouses one half of their conjugal property, consisting of their residence and the lot on which it stood. Subsequently, the couple Gilda and Judie Corpuz, with plaintiff-wife Gilda Corpuz as vendee, bought a 421 sq. meter lot from Manuel Callejo who signed as vendor through a conditional deed of sale. The consideration was payable in installment, with right of cancellation in favor of vendor should vendee fail to pay three successive installments. Sometime on April 22, 1988, the couple Gilda and Judie Corpuz sold one-half portion of their Lot No. 9, Block 8, to the defendants spouses Guiang. The latter have since then occupied the one-half portion and built their house thereon. They are thus adjoining neighbors of the Corpuzes. Plaintiff Gilda Corpuz left for Manila sometime in June 1989. She was trying to look for work in the Middle East. Unfortunately, she became a victim of an unscrupulous illegal recruiter. She stayed for sometime in Manila. After his wife’s departure for Manila, defendant Judie Corpuz seldom went home to the conjugal dwelling. Sometime in January 1990, Harriet Corpuz learned that her father intended to sell the remaining ½ portion to defendants Guiangs. She wrote a letter to her mother informing her. Gilda replied that she was objecting to the sale. Harriet, however, did not inform her father about this; but instead gave the letter to Mrs. Luzviminda Guiang so that she Guiang would advise her father. However, in the absence of his wife Gilda Corpuz, defendant Judie Corpuz pushed through the sale. On March 1, 1990, he sold to defendant Luzviminda Guiang thru a document known as Deed of Transfer of Rights the remaining ½ portion of their lot and the house standing thereon for a total consideration of P30,000.00 of which P5,000.00 was to be paid in June , 1990. Plaintiff returned home. She found her children staying with other households. Only Junie was staying in their house. Harriet and Joji were with Mr. Panes. Gilda gathered her children together and stayed at their house. Her husband was nowhere to be found. She was informed by her children that their father had a wife already. For staying in their house sold by her husband, plaintiff was complained against by Guiang spouses before the Barangay authorities for trespassing. On March 16, 1990, the parties thereat signed a document known as amicable settlement. Believing that she had received the shorter end of


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA the bargain, plaintiff went to the Barangay Captain for the annulment of the settlement. Defendant-spouses Guiang followed thru the amicable settlement with a motion for the execution of the amicable settlement, filing the same with the MTC. ISSUE: (1) What is the status of the Deed of the transfer of sale and if the amicable settlement ratified it. RULING Void and cannot be ratified. Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. The error in petitioner’s contention is evident. Article

1390, par. 2, refers to contracts visited by vices of consent, i.e., contracts which were entered into by a person whose consent was obtained and vitiated through mistake, violence, intimidation, undue influence or fraud. In this instance, private respondents consent to the contract of sale of their conjugal property was totally inexistent or absent. The sale was done on March 1990 , said contract properly falls within the ambit of Article 124 of the Family Code, which was correctly applied by the two lower courts: ART. 124. The administration and enjoyment of the conjugal partnership property shall belong to both spouses jointly. In case of disagreement, the husbands decision shall prevail, subject to recourse to the court by the wife for proper remedy, which must be availed of within five years from the date of the contract implementing such decision. In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal properties, the other spouse may assume sole powers of administration. These powers do not include the powers of disposition or encumbrance which must have the authority of the court or the written consent of the other spouse. In the absence of such authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.

Neither can the amicable settlement be considered a continuing offer that was accepted and perfected by the parties, following the last sentence of Article 124. The order of the pertinent events is clear: after the sale, petitioners filed a complaint for trespassing against private respondent, after which the barangay authorities secured an amicable settlement and petitioners filed before the MTC a motion for its execution. The settlement, however, does not mention a continuing offer


to sell the property or an acceptance of such a continuing offer. Its tenor was to the effect that private respondent would vacate the property. By no stretch of the imagination, can the Court interpret this document as the acceptance mentioned in Article 124.

Discussion: Article 124 covers the conjugal partnership property which states, among others that in the absence of such authority or consent, the disposition or encumbrance shall be void. In this case, the sale was void without the written consent of the wife. Take note that in the amicable settlement executed before the barangay, it cannot ratify the transfer of rights because you cannot ratify a void contract. Next, it cannot be considered as a continuing offer as provided in Art. 124 because there was no stipulation that Gilda accepted the offer to buy the subject lot. Article 96 and 124 governs the sale of properties concerning the community and conjugal property, respectively. In applying Article 124 in this case, sale by the hu sband without the wife’s written consent is void and not merely voidable since one of the essential elements (consent) was absent.

Ainza vs. Spouses Padua (June 30, 2005) FACTS In April 1987, Ainza and her daughter Eugenia orally agreed that Ainza pay P100k in exchange for half of the portion of Eugenia’s undivided conjugal property. No Deed of Absolute Sale was executed. There was physical delivery of the land through Concepcion’s other daughter (Natividad) acting as attyin-fact. Concepcion thereafter allowed Natividad and her husband occupy the purchased portion of the land. In 1994, Antonio caused the division of the lot into three (two were occupied by the spouses), necessarily displacing Natividad. He also had each subdivision titled. Antonio requested Natividad to vacate the premises. Antonio averred that his wife only admitted of selling 1/3 of the property to Concepcion for which a receipt was issued signed by Concepcion. The RTC ruled in favor of Concepcion. The CA reversed the RTC ruling. CA explained that the property is conjugal hence the sale should have been with Antonio’s consent. ISSUE: W/N what was the status of the sale, the right of the husband to annul the sale, and if the sale was within the Statute of Frauds RULING: Voidable but prescribed. A contract sale is byand merethe consent, upon a meeting of the of minds onperfected the offer acceptance thereof based on subject matter, price and terms of payment. (1) The consent of both Eugenia and Antonio is necessary for the sale of the conjugal property to be valid. Antonios consent cannot be presumed. Except for the self-serving testimony of


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA petitioner Natividad, there is no evidence that Antonio participated or consented to the sale of the conjugal property. Eugenia alone is incapable of giving consent to the contract. Therefore, in the absence of Antonios consent, the disposition made by Eugenia is voidable. (2) The contract of sale between Eugenia and Concepcion being an oral contract, the action to annul the same must be commenced within six years from the time the right of action accrued. Eugenia sold the property in April 1987 hence Antonio should have asked the courts to annul the sale on or before April 1993. No action was commenced by Antonio to annul the sale, hence his right to seek its annulment was extinguished by prescription. Even assuming that the ten (10)-year prescriptive period under Art. 173 should apply, Antonio is still barred from instituting an action to annul the sale because since April 1987, more than ten (10) years had already lapsed without any such action being filed. In this case, there was a perfected contract of sale between Eugenia and Concepcion. The records show that Eugenia offered to sell a portion of the property to Concepcion, who accepted the offer and agreed to pay P100,000.00 as consideration. The contract of sale was consummated when both parties fully complied with their respective obligations. Eugenia delivered the property to Concepcion, who in turn, paid Eugenia the price of 100T. (3) The verbal contract of sale between Eugenia and Concepcion did not violate the provisions of the Statute of Frauds 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. When a verbal contract has been completed, executed or partially consummated, as in this case, its enforceability will not be barred by the Statute of Frauds, which applies only to an executory agreement. Thus, where one party has performed his obligation, oral evidence will be admitted to prove the agreement. In the instant case, the oral contract of sale between Eugenia and Concepcion was evidenced by a receipt signed by Eugenia. Antonio also stated that his wife admitted to him that she sold the property to Concepcion.

Discussion: The verbal contract did not violate the Statute of Frauds as found in Art. 1403. Whenever a contract has been consummated, or even partially complied with, it will not be barred by its enforceability in the statute of frauds. There was no dispute that the property was conjugal, sold by the wife in 1987, prior to the effectivity of the Family Code. The consent of both Eugenia and Antonio is necessary for the sale of a conjugal property to be valid. No evidence was shown that Antonio participated in the sale and therefore the sale shall be considered voidable in accordance with the provisions of the


Civil Code, meaning valid until annulled. The Supreme Court took note that since it was an oral contract, if we apply the general rules of prescription, which prescribes in 6 years. Even if we apply the 10 year prescriptive period, Antonio is still barred from instituting an action because since April 1987, 12 years has lapsed without any action being filed.

Spouses Fuentes vs. Roca (April 21, 2010) FACTS Sabina Tarroza sold to her son, Tarciano Roca a lot. Tarciano then offered to sell the lot to Petitioner Spouses Fuentes. They agreed that the petitioner will only pay the down payment of P60, 000 and the remaining balance of P140, 000 only if Tarciano could obtain the consent of his estranged wife, Rosario Roca. The parties left their agreement with Atty. Plagata who then worked on the requirements of the sale. According to Atty. Plagata, he went to Manila and see Rosario and had her sign an affidavit of consent. So thereafter, Tarciano executed a deed of absolute sale and the Spouses Fuentes then paid the balance of P140, 000. When Tarciano and Rosario passed away, the children of Tarciano, herein respondent Rocas, filed for an action for annulment of sale and reconveyance of the land against the Sps Fuentes alleging the sale was void due to the lack of consent from Rosario. They alleged that the affidavit was a forgery. RTC: Dismissed the case. CA: Reversed. ISSUE: What is the status of the sale, whether the CC or the FC would govern, did the action prescribe. RULING The sale was void, the Family Code will govern and the action did not prescribe The Court agrees with the CA’s observation that Rosario’s signature strokes on the affidavit appears heavy, deliberate, and forced. Her specimen signatures, on the other hand, are consistently of a lighter stroke and more fluid. The way the letters "R" and "s" were written is also remarkably different. The variance is obvious even to the untrained eye. Significantly, Rosario’s specimen signatures were made at about the time that she signed the supposed affidavit of consent. They were, therefore, reliable standards for comparison. The Fuentes spouses presented no evidence that Rosario suffered from any illness or disease that accounted for the variance in her signature when she signed the affidavit of consent. Notably, Rosario had been living separately from Tarciano for 30 years since 1958. And she resided so far away in Manila. It would have been quite tempting for Tarciano to just forge her signature and avoid the risk that she would not give her consent to the sale or demand a stiff price for it. What is more, Atty. Plagata admittedly falsified the jurat of the affidavit of consent. That jurat declared that


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Rosario swore to the document and signed it in Zamboanga City on January 11, 1989 when, as Atty. Plagata testified, she supposedly signed it about four months earlier at her residence in Paco, Manila on September 15, 1988. While a defective notarization will merely strip the document of its public character and reduce it to a private instrument, that falsified jurat, taken together with the marks of forgery in the signature, dooms such document as pro of of Rosario’s consent to the sale of the land. That the Fuentes spouses honestly relied on the notarized affidavit as proof of Rosario’s consent does not matter. The sale is stillvoid without an authentic consent. Contrary to the ruling of the Court of Appeals, the law that applies to this case is the Family Code, not the Civil Code. Although Tarciano and Rosario got married in 1950, Tarciano sold the conjugal property to the Fuentes spouses on January 11, 1989. When Tarciano married Rosario, the Civil Code put in place the system of conjugal partnership of gains on their property relations. While its Article 165 made Tarciano the sole administrator of the conjugal partnership, Article 166 prohibited him from selling commonly owned real property without his wife’s consent. Still, if he sold the same without his wife’s consent, the sale is not void but merely voidable. Article 173 gave Rosario the right to have the sale annulled during the marriage within ten years from the date of the sale. Failing in that, she or her heirs may demand, after dissolution of the marriage, only the value of the property that Tarciano fraudulently sold. Under the provisions of the Civil Code governing contracts, a void or inexistent contract has no force and effect from the very beginning. And this rule applies to contracts that are declared void by positive provision of law, as in the case of a sale of conjugal property without the other spouse’s written consent. A void contract is equivalent to nothing and is absolutely wanting in civil effects. It cannot be validated either by ratification or prescription. But, although a void contract has no legal effects even if no action is taken to set it aside, when any of its terms have been performed, an action to declare its inexistence is necessary to allow restitution of what has been given under it. This action, according to Article 1410 of the Civil Code does not prescribe.

Discussion: The law that applies here is the Family Code applies in this case because even though they were married before the effectivity of the Family Code, the sale was on January 11, 1989. The status of a sale, which was done without the written consent or court authority, is void. The action to question a void contract does not prescribe. The sale was considered void not because of the forgery but due to the fact that there was no written consent.


Spouses Aggabao vs. Spouses Parulan (September 1, 2010) FACTS In January 1991, real estate broker Marta K.Atanacio offered 2 lots to the petitioners. On February 2, 1991, the petitioners met up with Elena Parulan and showed them some documents such as TCT, tax declarations, a copy of the special power of attorney executed by Dionisio authorizing Elena to sell the property. The petitioners paid P200T as earnest money for which Elena executed a handwritten Receipt of Earnest Money which stipulated that the petitioners would pay an additional payment once Elena turned over the property. On February 4, 1991, the petitioners, accompanied by the broker, went to the Office of the Register of Deeds to verify the TCTs shown by Elena. There they discovered that one of the lots had been encumbered to Banco Filipino, but that the encumbrance had been cancelled due to the full payment of the obligation. They noticed that the loan was effected through and SPA executed by Dionisio in favor of Elena. The other lot on the other hand had an annotation of an existing mortgage in favor of Los Baños Rural Bank, with the same SPA with a court order authorizing Elena to mortgage the lot to secure the loan. The petitioners and the broker next inquired about the mortgage and the court order at the Los Baños Rural Bank. There, they met with Atty. Zarate, related that the bank had asked for the court order because the lot involved was conjugal property. Following their verification, the petitioners delivered P130, 000.00 as additional down payment on February 4, 1991; and P650, 000.00 to the Los Baños Rural Bank on February 12, 1991, which then released the owner’s duplicate copy of TCT to them. On March 18, 1991, the petitioners delivered the final amount to Elena, who executed a deed of absolute sale in their favor. However, Elena did not turn over the owner’s duplicate copy of the TCT claiming that said copy was in the possession of a relative who was then in Hongkong. TCT was cancelled and a new one was issued in the name of the petitioners. Elena did not turn over the duplicate owner’s copy of TCT as promised. In due time, the petitioners learned that the duplicate owner’s copy of TCT had been all along in the custody of Atty. Jeremy Z. Parulan, who appeared to hold an SPA executed by his brother Dionisio authorizing him to sell both lots. The petitioners met on March 25, 1991 with Atty. Parulan wherein the latter “smugly demanded P800, 000.00” in exchange for the duplicate owner’s copy of TCT. As a counter -offer, however, they tendered P250, 000.00, which Atty. Parulan declined, giving them only until April 5, 1991 to decide. Hearing nothing more from the petitioners, Atty. Parulan decided to call them on April 5, 1991, but they informed him that they had already fully paid to Elena. Thus, Dionisio, through Atty. Parulan, commenced an action, praying for the declaration of the nullity of the deed of


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA absolute sale executed by Ma. Elena and the cancellation of the title issued to the petitioners by virtue thereof. In turn, the petitioners filed on July 12, 1991 their own action for specific performance with damages against the respondents RTC annulled the deed of absolute sale in favor of the petitioners. The CA affirmed the RTC decision. ISSUE: W/N the FC will govern, was there a continuing offer, petitioner was a purchaser in good faith RULING FC will govern, continuing offer, not purchasers in good faith The void sale was a continuing offer from the petitioners and Ma. Elena that Dionisio had the option of accepting or rejecting before the offer was withdrawn by either or both Ma. Elena and the petitioners. The last sentence of the second paragraph of Article 124 of the Family Code makes this clear, stating that in the absence of the other spouses consent, the transaction should be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or upon authorization by the court before the offer is withdrawn by either or both offerors. Firstly, the petitioners knew fully well that the law demanded the written consent of Dionisio to the sale, but yet they did not present evidence to show that they had made inquiries into the circumstances behind the execution of the SPA purportedly executed by Dionisio in favor of Ma. Elena. Had they made the appropriate inquiries, and not simply accepted the SPA for what it represented on its face, they would have uncovered soon enough that the respondents had been estranged from each other and were under de facto separation, and that they probably held conflicting interests that would negate the existence of an agency between them. To lift this doubt, they must, of necessity, further inquire into the SPA of Ma. Elena. Secondly, the final payment of P700,000.00 even without the owners duplicate copy of the TCT No. 63376 being handed to them by Ma. Elena indicated a revealing lack of precaution on the part of the petitioners. It is true that she promised to produce and deliver the owners copy within a week because her relative having custody of it had gone to Hongkong, but their passivity in such an essential matter was puzzling light of their earlier alacrity in immediately and diligently validating the TCTs to the extent of inquiring at the Los Baos Rural Bank about the annotated mortgage. Yet, they could have rightly withheld the final payment of the balance. That they did not do so reflected their lack of due care in dealing with Ma. Elena. Lastly, another reason rendered the petitioners good faith incredible. They did not take immediate action against Ma. Elena upon discovering that the owners srcinal copy of TCT No. 63376 was in the possession of Atty. Parulan, contrary to Elenas representation. Human experience would have impelled them to exert every effort to proceed against Ma. Elena, including demanding the return of the substantial


amounts paid to her. But they seemed not to mind her inability to produce the TCT, and, instead, they contented themselves with meeting with Atty. Parulan to negotiate for the possible turnover of the TCT to them.

Discussion: The sale was made after the effectivity of the Family Code, hence, Art. 124 applies. The substantiate their contention that Dionisio, while holding the administration over the property, had delegated to his brother, Atty. Parulan, the administration of the property, considering that they did not present in court the SPA granting to Atty. Parulan the authority for the administration. Also, the petitioners insistence that Atty. Parulan’s making of a counter-offer during the March 25, 1991 meeting ratified the sale merits no consideration. The meeting indeed was a counter offer but the counter-offer of Atty. Farulan merits no consideration because the requirement of Article 124 needs the written consent.

Pelayo vs. Perez (June 8, 2005) FACTS David Pelayo (by Deed of Absolute Sale) conveyed to Perez 2 parcels of land situated in Panabo Loreza (wife of David), and another one whose signature is illegible, witnessed the execution of the deed. Loreza, however, signed only on the third page in the space provided for witnesses. Because of this, Perez’ application for registration of the deed with the Office of the Register of Deeds was denied. Perez asked Loreza to sign on the first and second pages, but she refused. Hence, Perez instituted the instant complaint for specific performance against her and her husband David. Contention of Pelayos: lots were occupied illegally by some persons. They just made it appear that the lots were sold to their friend Perez, since he was a known activist/leftist, thereby feared by many. The omission of Loreza’s signature was intentional so that the deed could not be registered. The deed, being simulated and bereft of consideration, is void/inexistent. Contention of Perez: lots were given to him by Pelayo in consideration of his services as his atty-in-fact to make the necessary representation with the illegal occupants in his land. Perez claimed that in any event, the deed was without his wife’s consent and invoked Art 166 of the Civil code: “Article 166. Unless the wife has been declared a non compos mentis or a spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband of cannot alienate partnership or encumber any real property the conjugal without the wife’s consent…. it is null and void.” ISSUE: W/N the deed of sale was null and void. NO RULING: As to the issue of lack of marital consent: Petitioner


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Lorenza, by affixing her signature on the Deed of Sale on the space provided for witnesses, is deemed to have given her implied consent to the contract of sale. Sale is a consensual contract that is perfected by mere consent, which may either be express or implied. A wife’s consent to the husband’s disposition of conjugal property does not always have to be explicit or set forth in any particular document, so long as it is shown by acts of the wife that such consent or approval was indeed given. In the present case, although it appears on the face of the deed of sale that Lorenza signed only as an instrumental witness, circumstances leading to the execution of said document point to the fact that Lorenza was fully aware of the sale of their conjugal property and consented to the sale. In their Pre-Trial Brief, petitioners admitted that they have been having serious problems, including threats to the life of David Pelayo, due to the conflicts with the illegal occupants of the property. Respondent just offered his help in driving out the said illegal occupants. Human experience tells us that a wife would surely be aware of serious problems, such as threats to her husband’s life. It is highly improbably for Lorenza not to be aware of what her husband was doing to remedy such problems. Petitioners do not deny that Lorenza was present during the execution of the deed since her signature appears. Neither do they claim that Lorenza had no knowledge about the contents of the document. Thus, it is quite certain that she knew of the sale of their conjugal property between her husband and respondent. Moreover, under Art 173, in relation to Art 166, both of the New Civil Code (in effect at the time the deed was executed), the lack of marital consent to the disposition of the conjugal property does not make the contract void ab initio, but merely VOIDABLE. In the present case, Lorenza did not file a case for the annulment of the deed of sale. It was only when respondent filed a complaint for specific performance when petitioners brought up Lorenza’s alleged lack of consent as defense. Therefore, if the transaction was indeed entered into without the wife’s consent, it is puzzling why for more than 3 years, Lorenza did absolutely nothing to seek the nullification of the contract. As to the issue in relation to violation of Art 1491: With regard to petitioners’ contention that the deed of sale is invalid under Art 1491 par 2 of the New Civil Code, we find such argument unmeritorious. “Art. 1491. The following persons canno t acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given;” Under paragraph 2 of the Art 1491, the prohibition against agents purchasing property in their hands for sale or management is not absolute. It does not apply if the principal


consents to the sale of the property in the hands of the agent or administrator. Petitioners, by signing the Deed of Sale in favor of Perez, are deemed to have given their consent to the sale of the subject property in favor of respondent, thereby making the transaction an exception to the general rule that agents are prohibited from purchasing the property of their principals.

Discussion: Lorenza, by fixing her signature in the deed of sale as witness, is said to have given her implied consent on the sale. Implied consent can only applied if the Civil Code governs the case and written consent is required if it is in the Family Code. It was shown in the case that it was not the wife that brought the action but the other party for specific performance. If the transaction was indeed entered into without Lorenza’s consent, we find it quite puzzling why for more than three and a half years, Lorenza did absolutely nothing to seek the nullification of the assailed contract.

Abalos vs. Macatangay, Jr. (September 30, 2004) FACTS In 1988, Arturo Abalos executed a Receipt and Memorandum of Agreement (RMOA) binding himself to sell a parcel of land (part of the conjugal property) to Macatangay and to not offer the same to any other party in 30 days. Note this RMOA did not contain Arturo’s wife’s signature, not did it contain Macatangay’s. Arturo received from Macatangay a check for 5k which supposedly represented earnest money, to be deducted from the purchase price of 1.3m. Subsequently in 1989, Esther Abalos executed a SPOA appointing her sister Bernadette to act in her behalf, as she also signified her intent to sell the property to Macatangay. Later that year, Macatangay II. sent a letter to the spouses informing them of his readiness to pay the full purchase price. Accordingly, Esther executed a Contract to Sell her share of the conjugal property, and stipulated that she will deliver a deed of absolute sale upon payment of the full purchase price. Macatangay again informed the spouses that he had ‘set aside’ a check for the remaining balance of 1.29m, and demanded that the spouses turn over the possession of the property. The spouses failed to do so. The RTC dismissed Macatangay’s complaint for specific performance as the RMOA was allegedly falsified, but upon appeal, the CA ruled in favor of Macatangay. According to the

CA, even if the RMOA was void, the subsequent issued by Esther effectuated the valid sale of the property toSPA Macatangay. This SPA where Esther expressed her intent to sell to Macatangay, allegedly cured her lack of assent in the RMOA. Thus the CA ordered the spouses to execute in favor of Macatangay the deed of sale. Arturo appealed.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA ISSUE: WON there was a valid sale. NO RULING a.)RMOA was only an option contract. Also, there was no valid tender/acceptance of the offer by Macatangay. Recall definition of option contract. Perusing the RMOA, it signifies a unilateral offer of Arturo to sell the property to respondent for a price certain within a period of thirty days. The RMOA does not impose upon respondent an obligation to buy petitioner’s property, as in fact it does not even bear his signature thereon. It is quite clear that after the lapse of the thirty-day period, without respondent having exercised his option, Arturo is free to sell the property to another. This shows that the intent of Arturo is merely to grant respondent the privilege to buy the property within the period therein stated. There is nothing in the RMOA which indicates that Arturo agreed therein to transfer ownership of the land which is an essential element in a contract of sale. Unfortunately, the option is not binding upon the promissory since it is not supported by a consideration distinct from the price. Further, Macatangay would have to pay or at least make a valid tender of payment of the price for only then could he exact compliance with the undertaking of the other party. This respondent failed to do. By his own admission, he merely informed respondent spouses of his readiness and willingness to pay. The fact that he had set aside a check in the amount of representing the balance of the purchase price could not help his cause. A check is not legal tender, and therefore cannot constitute a valid tender of payment. Not having made a valid tender of payment, respondent’s action for specific performance must fail. b.) RMOA was void. Esther’s SPA did not cur e the defect of her lack of consent. Granting for the sake of argument that the RMOA is a contract of sale, the same would still be void not only for want of consideration and absence of respondent’s signature thereon, but also for lack of Esther’s conform ity thereto. Quite glaring is the absence of the signature of Esther in the RMOA, which proves that she did not give her consent to the transaction initiated by Arturo. The husband cannot alienate any real property of the conjugal partnership without the wife’s consent (Article 166, NCC). The congruence of the wills of the spouses is essential for the valid disposition of conjugal property. Where the conveyance is contained in the same document which bears the conformity of both husband and wife, there could be no question on the validity of the transaction. But when there are two (2) documents on which the signatures of the spouses separately appear, textual concordance of the documents is indispensable. Hence, in this case where the wife’s putative consent to the sale of conjugal property appears in a separate document which does not, however, contain the same terms and conditions as in the first document signed by the husband,


a valid transaction could not have arisen. c.) Even if Esther sold only her share of the conjugal property, the same is still void as it was done prior to the liquidation of the conjugal partnership. It has been held that prior to the liquidation of the conjugal partnership, the interest of each spouse in the conjugal assets is inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until it appears that there are assets in the community as a result of the liquidation and settlement. Thus, the right of the husband or wife to one-half of the conjugal assets does not vest until the dissolution and liquidation of the conjugal partnership, or after dissolution of the marriage, when it is finally determined that, after settlement of conjugal obligations, there are net assets left which can be divided between the spouses or their respective heirs.

Discussion: The Supreme Court held that the RMOA is not a contract of sale but merely to grant the privilege to buy the property. For the sake of argument that it was a Deed of Sale, it can be void, not only for one with consideration and absence of the respondent’s signature, but also for lack of Ester’s conformity. Absence of Ester’s conformity would turn it void. The right of the husband of to one-half of the conjugal assets does not vest until the dissolution and liquidation of the conjugal partnership, or after dissolution of the marriage, when it is finally determined that, after settlement of conjugal obligations, are left heirs. which can be divided between the there spouses or net theirassets respective Calimlim-Canullas vs. Fortun (June 22, 1984) FACTS Petitioner MERCEDES and FERNANDO Canullas were married in 1962. They begot 5 children. They lived in a small house on the 891 sqm residential land in question. After FERNANDO's father died in 1965, FERNANDO inherited the land. In 1978, FERNANDO abandoned his family and was living with private respondent Corazon DAGUINES. During the pendency of this appeal, they were convicted of concubinage in 1981. In 1980, FERNANDO sold the subject property with the house thereon to DAGUINES for the sum of P2K. In the document of sale, FERNANDO described the house as "also inheritedUnable by me from my deceased parents." to take possession of the lot and house, DAGUINES initiated a complaint for quieting of title and damages against MERCEDES. MERCEDES resisted and claimed that the house in dispute where she and her children were residing, including the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA coconut trees on the land, were built and planted with conjugal funds and through her industry; that the sale of the land together with the house and improvements to DAGUINES was null and void because they are conjugal properties and she had not given her consent to the sale. ISSUES: (1) WON the construction of a conjugal house on the exclusive property of the husband ipso facto gave the land the character of conjugal property – YES (2) WON the sale of the lot together with the house and improvements thereon was valid under the circumstances surrounding the transaction. – NO!!! RULING (1) The Court interpreted par2 of Article 158 of CC which reads: xxx xxx Buildings constructed at the expense of the partnership during the marriage on land belonging to one of the spouses also pertain to the partnership, but the value of the land shall be reimbursed to the spouse who owns the same.

So given the above provision, both the land and the building therefore belong to the conjugal partnership BUT the conjugal partnership is indebted to the husband for the value of the land. The spouse owning the lot becomes a creditor of the conjugal partnership for the value of the lot, which value would be reimbursed at the liquidation of the conjugal partnership. Further, SC referred to the ruling in Padilla vs Paterno to rebut CFI’s contention that the land becomes conjugal only when the conjugal partnership is liquidated and indemnity paid to the owner of the land. In Padilla SC said that the conversion from paraphernal to conjugal assets of the subject properties should be deemed to retroact to the time the conjugal buildings were first constructed thereon or at the very latest, to the time immediately before the death of the husband that ended the conjugal partnership. They cannot be considered to have become conjugal property only as of the time their values were paid to the estate of the widow because by that time the conjugal partnership no longer existed and it could not acquire the ownership of said properties. The acquisition by the partnership of these properties was, subject to the suspensive condition that their values would be reimbursed to the widow at the liquidation of the conjugal partnership; once paid, the effects of the fulfillment of the condition should be deemed to retroact to the date the obligation was constituted (Art. 1187, NCC) (2) The contract of sale was null and void for being contrary to morals and public policy. The sale was made by a husband in favor of a concubine after he had abandoned his family and left the conjugal home where his wife and children lived and from where they derived their support. That sale was subversive of the stability of the family, a basic social institution which public policy cherishes and protects.


Art. 1409 of the CC states among others that: contracts whose cause, object, or purpose is contrary to law, morals, good customs, public order, or public policy are VOID and inexistent from the very beginning. Art. 1352 also provides that: "Contracts without cause, or with unlawful cause, produce no effect whatsoever. The cause is unlawful if it is contrary to law, morals, good customs, public order, or public policy." Additionally, the law definitely prohibits the spouses from selling property to each other subject to certain exceptions. Similarly, donations between spouses during marriage are prohibited. And this is so because if transfers or conveyances between spouses were allowed during marriage, that would destroy the system of conjugal partnership, a basic policy in civil law.

It was also designed to prevent the exercise of undue influence by one spouse over the other, as well as to protect the institution of marriage. The prohibitions apply to a couple living as husband and wife without benefit of marriage, otherwise, "the condition of those who incurred guilt would turn out to be better than those in legal union.” Those provisions are dictated by public interest.

Discussion: A conjugal property cannot be alienated because his wife had not given consent to the sale. We do not apply 166 and 177 of the Civil Code and declare it as voidable but void because, not the lack public of consent, beingpolicy. contrary law, goodofcustoms, order of or it public The to sale wasmorals, made by the husband to a concubine after he had abandoned his family and left the conjugal home. The sale was subversive of the stability of the family and therefore we apply 1409. Article 1490 prohibits a sale to spouses and which would include donations, unless the donation is moderate. Obviously, it would be unfair to the wife. The reason of Article 1490 is to prevent commission of fraud or prejudice to 3rd persons. The provision of 1490 is also applicable to parties living as husband and wife without the benefit of marriage. Take note of Article 1492 when talking about 1491 and 1490. Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. Who can validly questions sales between husband and wife? 1.) The heirs 2.) Creditors that are prejudiced– they must be creditors before the sale 3.) Government – when the sale is done to avoid the payment of taxes


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3) OTHERS RELATIVELY DISQUALIFIED Article 1491.The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: 1. The guardian, the property of the person or persons who may be under his guardianship; 2. Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given; 3. Executors and administrators, the property of the estate under administration; 4. Public officers and employees, the property of the State or of any subdivision thereof, or of any governmentowned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; 5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession;

6.

Any others specially disqualified by law.

a) Guardians, Agents and Administrators Article 1491.The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The GUARDIAN, the property of the person or persons who may be under his guardianship; (2) AGENTS, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given; (3) EXECUTORS AND ADMINISTRATORS, the property of the estate under administration; xxx

Philippine Trust Co. vs. Roldan (May 31, 1956) FACTS These 17 parcels located in Guiguinto, Bulacan, were part of the properties inherited by Mariano L. Bernardo from his father, Marcelo Bernardo, deceased. In view of his minority, guardianship proceedings were instituted, wherein Socorro Roldan was appointed his guardian.


Socorro Roldan filed in said guardianship proceedings a motion asking for authority to sell as guardian the 17 parcels for the sum of P14,700 to Dr. Fidel C. Ramos, the purpose of the sale being allegedly to invest the money in a residential house, which the minor desired to have on Tindalo Street, Manila. The motion was granted. As guardian, Roldan executed the proper deed of sale in favor of her brother-in-law Dr. Fidel C. Ramos, and on August 12, 1947 she asked for, and obtained, judicial confirmation of the sale. On August 13, 1947, Dr. Fidel C. Ramos executed in favor of Socorro Roldan, personally, a deed of conveyance covering the same seventeen parcels, for the sum of P15,000. And on October 21, 1947 Socorro Roldan sold four parcels out of the seventeen to another party, reserving to herself the right to repurchase. The Philippine Trust Company replaced Socorro Roldan as guardian and seeks to undo what the previous guardian had done. The step-mother in effect, sold to herself, the properties of her ward, contends the Plaintiff, and the sale should be annulled because it violates Article 1459 of the Civil Code prohibiting the guardian from purchasing “either in person or through the mediation of another” the property of her ward. ISSUE: Whether or not the sale should be annulled. RULING At first glance the resolutions of both courts accomplished substantial justice the minor recovers his properties. But if the conveyances are annulled as prayed for, the minor will obtain a better deal he receives all the fruits of the lands from the year 1947 (Article 1303 Civil Code) and will return P14,700, not P15,000. To our minds the first two transactions herein described couldn’t be in a better juridical situation than if this guardian had purchased the seventeen parcels on the day following the sale to Dr. Ramos. Now, if she was willing to pay P15,000 why did she sell the parcels for less? In one day (or actually one week) the price could not have risen so suddenly. Obviously when, seeking approval of the sale she represented the price to be the best obtainable in the market, she was not entirely truthful. This is one phase to consider. Again, supposing she knew the parcels were actually worth P17,000 then she agreed to sell them to Dr. Ramos at P14,700 and knowing the realty’s value she offered him the next day P15,000 or P15,500, and got it. Will there be any doubt that she was recreant to her guardianship, and that her acquisition should be nullified? Even without proof that she had connived with Dr. Ramos. Remembering the general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward’s interest and in line with the court’s suspicion whenever the guardian acquires the ward’s property we hav e no hesitation to declare that in this case, in the eyes of the law, Socorro Roldan took by purchase her ward’s parcels thru Dr. Ramos, and that Article 1459 of the Civil Code applies. She acted it may be true without malice there may


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA have been no previous agreement between her and Dr. Ramos to the effect that the latter would buy the lands for her. But the stubborn fact remains that she acquired her protege’s properties, through her brother-in-law. That she planned to get them for herself at the time of selling them to Dr. Ramos, may be deduced from the very short time between the two sales (one week). The temptation which naturally besets a guardian so circumstanced, necessitates the annulment of the transaction, even if no actual collusion is proved (so hard to prove) between such guardian and the intermediate purchaser. This would uphold a sound principle of equity and justice. Hence, from both the legal and equitable standpoints these three sales should not be sustained the first two for violation of article 1459 of the Civil Code and the third because Socorro Roldan could pass no title to the third buyer.

Discussion: There was a sale of the property of the ward by the guardian. The reason of the prohibition under 1491 is that these persons occupy fiduciary relationship with the seller. The prohibition under this article prevents them from being tempted and take advantage of their position. In this case, the general doctrine that guardianship is a trust of the highest order, and the trustee cannot be allowed to have any inducement to neglect his ward’s interest and in line with the court’s suspicion whenever the guardian acquires the ward’s property we have no hesitation to declare that in this case, in the eyes of the law, Socorro Roldan took by purch ase her ward’s parcels thru Dr. Ramos. Take note the short period of time between the sales. Even if it the ward be benefitted the sale, it would still be void so that cannot abused orfrom taken advantage.

Distajo vs. CA (August 25, 2000) FACTS During the lifetime of Iluminada Abiertas, she designated one of her sons, Rufo Distajo, to be the administrator of her parcels of land denominated as Lot Nos. 1018, 1046, 1047, and 1057. Iluminada Abiertas certified to the sale of Lot Nos. 1018, 1046 and 1047 in favor of Rufo Distajo and other parcels of land to her other kins. After purchasing the above-mentioned parcels of land, Rufo Distajo, together with his wife, Lagrimas, took possession of the property and paid the corresponding real estate taxes thereon. on JuneAbiertas, 5, 1986, filed Ricardo Distajo, with the otherConsequently, heirs of Iluminada a complaint for recovery of possession and ownership of those lands sold alleging that Rufo Distajo cannot acquire the subject parcels of land owned by Iluminada Abiertas because the Civil Code prohibits the administrator from acquiring properties under his


administration. Rufo Distajo merely employed fraudulent machinations in order to obtain the consent of his mother to the sale, and may have even forged her signature on the deeds of sale of the parcels of land. ISSUE: Whether or not the sale transactions are void for having been entered into by the administrator of the properties. RULING The sale is valid. The pertinent Civil Code provision provides: "Art. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: xxx (2) Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the principal has been given; (3) Executors and administrators, the property of the estate under administration; x x x

Under the above article, the prohibition against agents purchasing property in their hands for sale or management is not absolute. It does not apply if the principal consents to the sale of the property in the hands of the agent or administrator. In this case, the deeds of sale signed by Iluminada Abiertas shows that she gave consent to the sale of the properties in favor of her son, Rufo, who was the administrator of the properties. Thus, the consent of the principal Iluminada Abiertas removes the transaction out of the prohibition contained in Article 1491(2). Petitioner also alleges that Rufo Distajo employed fraudulent machinations to obtain the consent of Iluminada Abiertas to the sale of the parcels of land. However, petitioner failed to adduce convincing evidence to substantiate his allegations.

Discussion: So here, the ability of the agent to sell property is not absolute. It requires that the principal must give his consent. Thus, the prohibition does not apply when consent was given by the principal to a sale made in the hands of the administrator. The document signed by Illuminada showed she gave consent and there was no sign of forgery. If you allege fraud or machination, you must also prove it. Absent any proof, you must uphold the contract.

Cui vs. Cui (February 21, 1957) FACTS

Jesus and Antonio are children of Don Mariano Cui and Doña Antonia Perales who died intestate. Jesus alleged that during the marriage of their parents, they have acquired certain properties (Lots Nos. 2312, 2313 and 2319). Upon the death of their mother, the properties were placed under the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA administration of their father.(84 years old) However, Antonio, by means of deceit, secured the transfer of the said lots to them without any pecuniary consideration; that in the deed of sale,, Rosario Cui appeared as one of the vendees. Upon learning of this fact she subsequently renounced her rights under the sale and returned her portion to Don Mariano Cui by executing a deed of resale in his favor. that defendants, fraudulently and with the desire of enriching themselves unjustly at the expense of their father, Don Mariano Cui, and of their brothers and co-heirs, secured a loan of P130,000 from the Rehabilitation properties, and with the loan thus obtained, defendants constructed thereon an apartment building of strong materials consisting of 14 doors, valued at approximately P130,000 and another building on the same parcels of land, which buildings were leased to some Chinese commercial firms a monthly rental of P7,600, which defendants have collected and will continue to collect to the prejudice of the plaintiffs; Jesus alleged that the sale should be invalidated so far as the portion of the property sold to Antonio Cui is concerned, for the reason that when that sale was effected, Antonio was then acting as the agent or administrator of the properties of Don Mariano Cui. Jesus lays stress on the power of attorney Exhibit L which was executed by Don Mariano in favor of Antonio Cui on March 2,1946, wherein the former has constituted the latter as his "true and lawful attorney" to perform in his name and that of the intestate heirs of Doña Antonia Perales. ISSUE: WON the sale of the property to Antonio was valid. RULING YES. While under article 1459 of the old Civil Code an agent or administrator is disqualified from purchasing property in his hands for sale or management, and, in this case, the property in question was sold to Antonio Cui while he was already the agent or administrator of the properties of Don Mariano Cui, we however believe that this question cannot now be raised or invoked. The prohibition of the law is contained in article 1459 of the old Civil Code, but this prohibition has already been removed. Under the provisions of article 1491, section 2, of the new Civil Code, an agent may now buy property placed in his hands for sale or administration, provided that the principal gives his consent thereto. While the new Code came into effect only on August 30, 1950, however, since this is a right that is declared for the first time, the same may be given retroactive effect if no vested or acquired right is impaired (Article 2253, new Civil Code). During the lifetime Don Mariano, and particularly on March 8, 1946, the herein appellants could not claim any vested or acquired right in these properties, for, as heirs, the most they had was a mere expentancy. We may, therefore, invoke now this practical and liberal provision of our new Civil Code even if the sale had taken place before its effectivity. Discussion:


The old civil code was still applicable when the sale took place(March 8, 1946). The exception under Art 1491 referring to “unless the principal consents” only apply to the NEW CIVIL CODE applies retroactively as long as no vested rights are impaired. Sale to guardians, agents, executors and administrators involve private interest. Thus, a sale entered into is really void. However, it can be ratified by a new contract. For instance, if the ward has reached the age of majority or the present legal guardian will sale the property to a previous guardian. In allegedly that he did not enjoy his full mental faculties, the SC noted that, although at the time of the sale, he was already 83 years old but weakness of mind alone is not a ground to declare the contract void or voidable.

b) Attorneys Article 1491.The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: xxx (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to LAWYERS, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession; xxx

Director of Lands vs. Ababa (February 27, 1979) FACTS The adverse claimant, Atty. Alberto B. Fernandez was retained as counsel by petitioner, Maximo Abarquez, in Civil Case No. R-6573 of the Court of First Instance of Cebu, entitled "Maximo Abarquez vs. Agripina Abarquez", for the annulment of a contract of sale with right of repurchase and for the recovery of the land which was the subject matter thereof. The Court of First Instance of Cebu rendered a decision on May 29, 1961 adverse to the petitioner and so he appealed to the Court of Appeals. Litigating as a pauper in the lower court and engaging the services of his lawyer on a contingent basis, petitioner, liable to compensate his lawyer whom he also retained for his appeal executed a document on June 10, 1961 in the CebuanoVisayan dialect whereby he obliged himself to give to his lawyer one-half (1/2) of whatever he might recover from Lots 5600 and 5602 should the appeal prosper. The real Property sought to be recovered in Civil Case No. R6573 was actually the share of the petitioner in Lots 5600 and 5602, which were part of the estate of his deceased


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA parents and which were partitioned the heirs which included petitioner Maximo Abarquez and his elder sister Agripina Abarquez, the defendant in said civil case. The case having been resolved and title having been issued to petitioner, adverse claimant waited for petitioner to comply with ha obligation under the document executed by him on June 10, 1961 by delivering the one-half (½) portion of the said parcels of land. Petitioner refused to comply with his obligation and instead offered to sell the whole parcels of land covered by TCT No. 31841 to petitioner-spouses Juan Larrazabal and Marta C. de Larrazabal. Upon being informed of the intention of the petitioner, adverse t claimant immediately took stops to protect his interest by filing with the trial court a motion to annotate Ins attorney's lien on TCT No. 31841 on June 10, 1965 and by notifying the prospective buyers of his claim over the one-half portion of the parcels of land. The motion was granted. The annotation of adverse claim appeared on the new TCT. This adverse claim became the subject of a cancellation proceedings filed by petitionerspouses. The trial court resolved the case in favor of the adverse claimant. On appeal, petitioners contended that a contract for a contingent fee violates Article 1491 because it involves an assignment of a property subject of litigation. ISSUE: Whether or not the contract for a contingent fee as basis for the interest of Atty. Fernandez is prohibited by Article 1491 of the Civil Code. RULING: This contention is without merit. Article 1491 prohibits only the sale or assignment between the lawyer and his client, of property which is the subject of litigation. As WE have already stated. "The prohibition in said article applies only to a sale or assignment to the lawyer by his client of the property which is the subject of litigation. In other words, for the prohibition to operate, the sale of the property must take place during the pendency of the litigation involving the property." Likewise, under American Law, the prohibition does not apply to "cases where after completion of litigation the lawyer accepts on account of his fee, an interest the assets realized by the litigation". "There is a clear distraction between such cases and one in which the lawyer speculates on the outcome of the matter in which he is employed." A contract for a contingent fee is not covered by Article 1491 because the transfer or assignment of the property in litigation takes effect only after the finality of a favorable judgment. In the instant case, the attorney's fees of Atty. Fernandez, consisting of one-half (1/2) of whatever Maximo Abarquez might recover from his share in the lots in question, is contingent upon the success of the appeal. Hence, the payment of the attorney's fees, that is, the transfer or assignment of one-half (1/2) of the property in litigation will


take place only if the appeal prospers. Therefore, the transfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. Consequently, the contract for a contingent fee is not covered by Article 1491.

Valencia vs. Cabanting (April 26, 1991) FACTS In 1933, complainant Paulino Valencia (Paulino in short) and his wife Romana allegedly bought a parcel of land, where they built their residential house, from a certain Serapia Raymundo, an heir of Pedro Raymundo the srcinal owner. However, they failed to register the sale or secure a transfer certificate of title in their names. Sometime in December, 1968, a conference was held in the house of Atty. Eduardo Jovellanos to settle the land dispute between Serapia Raymundo another heir of Pedro Raymundo, and the Valencia spouses since both were relatives and distant kin of Atty. Jovellanos. Serapia was willing to relinquish ownership if the Valencias could show documents evidencing ownership. Paulino exhibited a deed of sale written in the Ilocano dialect. However, Serapia claimed that the deed covered a different property. Paulino and Serapia were not able to settle their differences. On December 15, 1969 Serapia, assisted by Atty. Arsenio Fer. Cabanting, filed a complaint against Paulino for the recovery of possession with damages. The Valencias engaged the services of Atty. Dionisio Antiniw. Atty. Antiniw advised them to present a notarized deed of sale in lieu of the private document written in Ilocano. For this purpose, Paulino gave Atty. Antiniw an amount of P200.00 to pay the person who would falsify the signature of the alleged vendor. A "Compraventa Definitiva" was executed purporting to be a sale of the questioned lot. On January 22, 1973, the Court of First Instance of Pangasinan, Branch V, rendered a decision in favor of plaintiff, Serapia Raymundo. The lower court expressed the belief that the said document is not authentic. Paulino, thereafter, filed a Petition for Certiorari before the Court of Appeals alleging that the trial court failed to provide a workable solution concerning his house. While the petition was pending, the trial court, on March 9, 1973, issued an order of execution stating that "the decision in this case has already become final and executory". On March 14, 1973, a writ of execution was issued. On March 20, 1973, Serapia sold 40 square meters of the litigated lot counsel, to Atty. Atty. Jovellanos andFer. theCabanting, remaining on portion she sold to her Arsenio April 25, 1973. On March 4, 1974, Paulino filed a disbarment proceeding against Atty. Cabanting on the ground that said counsel allegedly violated Article 1491 of the New Civil Code as


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA well as Article II of the Canons of Professional Ethics, prohibiting the purchase of property under litigation by a counsel. On March 21, 1974 the appellate court dismissed the petition of Paulino. On October 14, 1974, Constancia Valencia, daughter of Paulino, filed a disbarment proceeding (docketed as Administrative Case No. 1391) against Atty. Dionisio Antiniw for his participation in the forgery of "Compraventa Definitiva" and its subsequent introduction as evidence for his client; and also, against Attys. Eduardo Jovellanos and Arsenio Cabanting for purchasing a litigated property allegedly in violation of Article 1491 of the New Civil Code; and against the three lawyers, for allegedly rigging Civil Case No. V-2170 against her parents. ISSUES: Whether or not Atty. Cabanting purchased the subject property in violation of Art. 1491 of the New Civil Code. RULING Under Article 1491 of the New Civil Code: The following persons cannot acquire by purchase, even at a public of judicial auction, either in person or through the mediation of another: xxx xxx xxx (5) . . . this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they make take part by virtue of their profession. Public policy prohibits the transactions in view of the fiduciary relationship involved. It is intended to curtail any undue influence of the lawyer upon his client. Greed may get the better of the sentiments of loyalty and disinterestedness. Any violation of this prohibition would constitute malpractice (In re: Attorney Melchor Ruste, 40 O.G. p. 78) and is a ground for suspension. (Beltran vs. Fernandez, 70 Phil. 248). Art. 1491, prohibiting the sale to the counsel concerned, applies only while the litigation is pending. (Director of Lands vs. Adaba, 88 SCRA 513; Hernandez vs. Villanueva, 40 Phil. 775). In the case at bar, while it is true that Atty. Arsenio Fer. Cabanting purchased the lot after finality of judgment, there was still a pending certiorari proceeding. A thing is said to be in litigation not only if there is some contest or litigation over it in court, but also from the moment that it becomes subject to the judicial action of the judge. (Gan Tingco vs. Pabinguit, 35 Phil. 81). Logic indicates, in certiorari proceedings, that the appellate court may either grant or dismiss the petition. Hence, it is not safe to conclude, for purposes under Art. 1491 that the litigation has terminated when the judgment of the trial court become final while a certiorari connected therewith is still in progress. Thus, purchase of the property by Atty. Cabanting in this case constitutes malpractice in violation of Art. 1491 and the Canons of Professional Ethics. Clearly, this malpractice is a


ground for suspension. The sale in favor of Atty. Jovellanos does not constitute malpractice. There was no attorney-client relationship between Serapia and Atty. Jovellanos, considering that the latter did not take part as counsel in Civil Case No. V2170. The transaction is not covered by Art. 1491 nor by the Canons adverted to. Daroy vs. Abecia (October 26, 1998) FACTS Respondent Abecia was counsel of complainant Daroy in a case for forcible entry. Judgment was rendered in favor of complainant as plaintiff in the ejectment case. To satisfy the judgment, the sheriff sold at public auction a parcel of land belonging to one of the defendants to complainant Daroy as highest bidder for P1,250.00. Upon failure of the defendants to redeem the land, its ownership was consolidated in complainant Daroy. Complainant Daroy claimed that respondent Abecia forged his signature in a deed of absolute sale, dated March 31, 1971, transferring the subject parcel of land to Jose Gangay purportedly for the sum ofP1,250.00 and that in a fictitious deed of absolute sale, dated April 17, 1971, it was made to appear that Gangay in turn conveyed the land to Nena Abecia, wife of respondent Abecia, for the sum ofP1,350.00. By means of the forged deed of sale, Abecia was able to obtain new transfer certificates of title, first in the name of Gangay and then in that of Mrs. Abecia, from the Registry of Deeds of Misamis Oriental Daroy claimed he discovered the fraud only in 1984. ISSUE: Whether or not Atty. Abecia violated Article 1491 of the Civil Code. RULING NO. Indeed, what appears to have happened in this case is that the parties thought that because the land had been acquired by complainant at a public sale held in order to satisfy a judgment in his favor in a case in which respondent was complainants counsel, the latter could not acquire the land. The parties apparently had in mind Art. 1491 of the Civil Code which provides, in pertinent parts, as follows: ART. 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: .... (5) Justices, clerksand of superior andjudges, inferiorprosecuting courts, andattorneys, other officers employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession. Of course, the parties were mistaken in thinking that respondent could not validly acquire the land. In Guevara v. Calalang, on facts similar to those in this case, we held that the prohibition in Art. 1491 does not apply to the sale of a parcel of land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. For indeed, while judges, prosecuting attorneys, and others connected with the administration of justice are prohibited from acquiring property or rights in litigation or levied upon in execution, the prohibition with respect to attorneys in the case extends only to property and rights which may be the object of any litigation in which they may take part by virtue of their profession. The point is, the parties in this case thought the transfer of the land to respondent Abecia was prohibited and so they contrived a way whereby the land would be sold to Jose Gangay, whose wife Anita is the sister of Mrs. Nena Abecia, and then Gangay would sell the land to Mrs. Abecia. The sale of the land to Gangay may be fictitious and, therefore, void, but that complainant Regalado Daroy intended to convey the land ultimately to respondent Esteban Abecia appears to be the case.

Ramos vs. Ngaseo (December 9, 2004) FACTS Sometime in 1998, complainant Federico Ramos went to respondent Atty. Patricio Ngaseo's Makati office to engage his services as counsel in a case1 involving a piece of land in San Carlos, Pangasinan. Respondent agreed to handle the case for an acceptance fee of P20,000.00, appearance fee of P1,000.00 per hearing and the cost of meals, transportation and other incidental expenses. Complainant alleges that he did not promise to pay the respondent 1,000 sq. m. of land as appearance fees. On July 18, 2001, the Court of Appeals rendered a favorable decision ordering the return of the disputed 2hectare land to the complainant and his siblings. The said decision became final and executory on January 18, 2002. Since then complainant allegedly failed to contact respondent, which compelled him to send a demand letter on January 29, 2003. On IBP February 14, his 2003, complainant a complaint before the charging former counsel,filed respondent Atty. Ngaseo, of violation of the Code of Professional Responsibility for demanding the delivery of 1,000 sq. m. parcel of land which was the subject of litigation. Respondent argues that he did not violate Article 1491


of the Civil Code because when he demanded the delivery of the 1,000 sq. m. of land which was offered and promised to him in lieu of the appearance fees, the case has been terminated, when the appellate court ordered the return of the 2-hectare parcel of land to the family of the complainant. Respondent further contends that he can collect the unpaid appearance fee even without a written contract on the basis of the principle of quantum meruit. He claims that his acceptance and appearance fees are reasonable because a Makati based legal practitioner, would not handle a case for an acceptance fee of only P20,000.00 and P1,000.00 per court appearance. ISSUE: Whether or not Atty. Ngaseo violated Article 1491 of the Civil Code. RULING No. Under Article 1491(5) of the Civil Code, lawyers are prohibited from acquiring either by purchase or assignment the property or rights involved which are the object of the litigation in which they intervene by virtue of their profession. The prohibition on purchase is all embracing to include not only sales to private individuals but also public or judicial sales. The rationale advanced for the prohibition is that public policy disallows the transactions in view of the fiduciary relationship involved, i.e., the relation of trust and confidence and the peculiar control exercised by these persons. It is founded on public policy because, by virtue of his office, an attorney may easily take advantage of the credulity and ignorance of his client and unduly enrich himself at the expense of his client. However, the said prohibition applies only if the sale or assignment of the property takes place during the pendency of the litigation involving the client's property. Consequently, where the property is acquired after the termination of the case, no violation of paragraph 5, Article 1491 of the Civil Code attaches. Invariably, in all cases where Article 1491 was violated, the illegal transaction was consummated with the actual transfer of the litigated property either by purchase or assignment in favor of the prohibited individual. In Biascan v. Lopez, respondent was found guilty of serious misconduct and suspended for 6 months from the practice of law when he registered a deed of assignment in his favor and caused the transfer of title over the part of the estate despite pendency of Special Proceedings No. 98037 involving the subject property. In the consolidated administrative cases of Valencia v. Cabanting, the Court suspended respondent Atty. Arsenio Fer Cabanting for six (6) months from the practice of law when he purchased his client's property which was still the subject of a pending certiorari proceeding. In the instant case, there was no actual acquisition of the property in litigation since the respondent only made a written demand for its delivery which the complainant refused


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA to comply. Mere demand for delivery of the litigated property does not cause the transfer of ownership, hence, not a prohibited transaction within the contemplation of Article 1491. Even assuming arguendo that such demand for delivery is unethical, respondent's act does not fall within the purview of Article 1491. The letter of demand dated January 29, 2003 was made long after the judgment in Civil Case No. SCC-2128 became final and executory on January 18, 2002. We note that the report of the IBP Commissioner, as adopted by the IBP Board of Governors in its Resolution No. XVI-2003-47, does not clearly specify which acts of the respondent constitute gross misconduct or what provisions of the Code of Professional Responsibility have been violated. We find the recommended penalty of suspension for 6 months too harsh and not proportionate to the offense committed by the respondent. The power to disbar or suspend must be exercised with great caution. Only in a clear case of misconduct that seriously affects the standing and character of the lawyer as an officer of the Court and member of the bar will disbarment or suspension be imposed as a penalty. All considered, a reprimand is deemed sufficient and reasonable.

Conjugal Partnership of the Spouses Cadavedo vs. L acaya (January 15, 2014) FACTS The Spouses Vicente Cadavedo and Benita ArcoyCadavedo acquired a homestead grant over a 230,765-square meter parcel of land known as Lot 5415 located in Gumay, Piñan, Zamboanga del Norte. On April30, 1955, the spouses Cadavedo sold the subject lot to the spouses V icente Ames and Martha Fernandez (the spouses Ames) Transfer Certificate of Title (TCT) No. T-4792 was subsequently issued in the name of the spouses Ames. The present controversy arose when the spouses Cadavedo filed an action before the RTC(then Court of First Instance) of Zamboanga City against the spouses Ames for sum of money and/or voiding of contract of sale of homestead after the latter failed to pay the balance of the purchase price. The spouses Cadavedo initially engaged the services of Atty. Rosendo Bandal who, for health reasons, later withdrew from the case; he was substituted by Atty. Lacaya. On February 24, 1969, Atty. Lacaya amended the complaint to assert the nullity of the sale and the issuance of TCT No. T-4792 in the names of the spouses Ames as gross violation of the public land law. The amended complaint stated that the spouses Cadavedo hired Atty. Lacaya on a contingency fee basis.In a decision dated February 1, 1972, the RTC upheld the sale of the subject lot to the spouses Ames. The spouses Cadavedo, thru Atty. Lacaya, appealed the case to the C A. On September 18, 1975, and while the appeal before the CA in Civil Case No. 1721 was pending, the spouses Ames


sold the subject lot to their children. The spouses Ames’ TCT No. T-4792 was subsequently cancelled and TCT No. T25984was issued in their children’s names. On October 11, 1976, the spouses Ames mortgaged the subject lot with the Development Bank of the Philippines (DBP) in the names of their children. On August 13, 1980, the CA issued its decision in Civil Case No. 1721,reversing the decision of the RTC and declaring the deed of sale, transfer of rights, claims and interest to the spouses Ames null and void ab initio. It directed the spouses Cadavedo to return the initial payment and ordered the Register of Deeds to cancel the spouses Ames’ TCT No. T -4792 and to reissue another title in the name of the spouses Cadavedo. The case eventually reached this Court via the spouses Ames’ petition for review on cert iorari which this Court dismissed for lack of merit. With the finality of the judgment in Civil Case No. 1721,Atty. Lacaya filed on September 21, 1981 a motion for the issuance of a writ of execution. On September 23, 1981, the spouses Ames filed Civil Case No. 3352 against the spouses Cadavedo. On October 16, 1981, the RTC granted the motion filed for the issuance of a writ of execution in Civil Case No. 1721 and the spouses Cadavedo took possession of the subject lot on October 24, 1981. Soon after, the subject lot was surveyed and subdivided into two equal portions, and Atty. Lacaya took possession of one of the subdivided portions; and (5) on May 13, 1982, Vicente and Atty. Lacaya executed the compromise agreement. ISSUE: Whether the attorney’s fee consisting of one-half of the subject lot is valid and reasonable, and binds the petitioners. RULING NO. Article 1491 (5) of the Civil Code forbids lawyers from acquiring, by purchase or assignment, the property that has been the subject of litigation in which they have taken part by virtue of their profession. The same proscription is provided under Rule 10 of the Canons of Professional Ethics. A thing is in litigation if there is a contest or litigation over it in court or when it is subject of the judicial action. Following this definition, we find that the subject lot was still in litigation when Atty. Lacaya acquired the disputed one-half portion. Whether by virtue of the alleged oral contingent fee agreement or an agreement subsequently entered into, Atty. Lacaya acquired the disputed one-half portion (which was after October 24, 1981) while Civil Case No. 3352 and the motion for the issuance of a writ of execution in Civil Case No. 1721were already pending before the lower courts. Similarly, the compromise agreement, including the subsequent judicial approval, was effected during the pendency of Civil Case No. 3352. In all of these, the relationship of a lawyer and a client still existed between Atty. Lacaya and the spouses Cadavedo.


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Thus, whether we consider these transactions –the transfer of the disputed one-half portion and the compromise agreement –independently of each other or resulting from one another, we find them to be prohibited and void by reason of public policy. Under Article 1409 of the Civil Code, contracts which are contrary to public policy and those expressly prohibited or declared void by law are considered in existent and void from the beginning. What did not escape this Court’s attention is the CA’s failure to note that the transfer violated the provisions of Article 1491(5) of the Civil Code, although it recognized the concurrence of the transfer and the execution of the compromise agreement with the pendency of the two civil cases subsequent to Civil Case No. 1721. In reversing the RTC ruling, the CA gave weight to the compromise agreement and in so doing, found justification in the unproved oral contingent fee agreement. While contingent fee agreements are indeed recognized in this jurisdiction as a valid exception to the prohibitions under Article 1491(5) of the Civil Code, contrary to the CA’s position, however, this recognition does not apply to the present case. A contingent fee contract is an agreement in writing where the fee, often a fixed percentage of what may be recovered in the action, is made to depend upon the success of the litigation. The payment of the contingent fee is not made during the pendency of the litigation involving the client’s property but only after the judgment has been rendered in the case handled by the lawyer. In the present case, we reiterate that the transfer or assignment of the disputed one-half portion to Atty. Lacaya took place while the subject lot was still under litigation and the lawyer-client relationship still existed between him and the spouses Cadavedo. Thus, the general prohibition provided under Article 1491 of the Civil Code, rather than the exception provided in jurisprudence, applies. The CA seriously erred in upholding the compromise agreement on the basis of the unproved oral contingent fee agreement. Notably, Atty. Lacaya, in undertaking the spouses Cadavedo’s cause pursuant to the terms of the alleged oral contingent fee agreement, in effect, became a co-proprietor having an equal, if not more, stake as the spouses Cadavedo. Again, this is void by reason of public policy; it undermines the fiduciary relationship between him and his clients.

c) Judges Article 1491.The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: xxx (5) Justices, JUDGES, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected


with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the o bject of any litigation in which they may take part by virtue of their profession; xxx

Applicability  Article 1491 should cover not only lawyers, but judges as well.  With regard to judges, the prohibition applies only to properties or rights in litigation within their territorial jurisdiction. ◦

◦

◦

RTC – within their region MTC – within their municipality SC – the whole Philippines.

Reason for Prohibition  to avoid improper interefence by a judge to a thing levied upon or sold by his order.

Macariola vs. Asuncion (May 31, 1982) FACTS Civil Case No. 3010 of the Court of First Instance of Leyte was a complaint for partition filed by Sinforosa R. Bales, Luz R. Bakunawa, Anacorita Reyes, Ruperto Reyes, Adela Reyes, and Priscilla Reyes, plaintiffs, against Bernardita R. Macariola, defendant, concerning the properties left by the deceased Francisco Reyes, the common father of the plaintiff and defendant. On June 8, 1963, a decision was rendered by respondent Judge Asuncion in Civil Case 3010 which became final for lack of an appeal, and on October 16, 1963, a project of partition was submitted to Judge Asuncion which is marked Exh. A. Notwithstanding the fact that the project of partition was not signed by the parties themselves but only by the respective counsel of plaintiffs and defendant, Judge Asuncion approved it in his Order dated October 23, 196 One of the properties mentioned in the project of partition was Lot 1184 or rather one-half thereof with an area of 15,162.5 sq. meters. This lot, which according to the decision was the exclusive property of the deceased Francisco Reyes, was adjudicated in said project of partition to the plaintiffs Luz, Anacorita Ruperto, Adela, and Priscilla all surnamed Reyes in equal shares, and when the project of partition was approved by the trial court the adjudicatees caused Lot 1184 to be subdivided into five lots denominated as Lot 1184-A to 1184-E inclusive. Lot 1184-D was conveyed to Enriqueta D. Anota, a


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA stenographer in Judge Asuncion's court, while Lot 1184 -E which had an area of 2,172.5556 sq. meters was sold on July 31, 1964 to Dr. Arcadio Galapon . who was issued transfer certificate of title No. 2338 of the Register of Deeds of the city of Tacloban. On March 6, 1965, Dr. Arcadio Galapon and his wife Sold a portion of Lot 1184-E with an area of around 1,306 sq. meters to Judge Asuncion and his wife, Victoria S. Asuncion, which particular portion was declared by the latter for taxation purposes. On August 31, 1966, spouses Asuncion and spouses Galapon conveyed their respective shares and interest in Lot 1184-E to "The Traders Manufacturing and Fishing Industries Inc." At the time of said sale the stockholders of the corporation were Dominador Arigpa Tan, Humilia Jalandoni Tan, Jaime Arigpa Tan, Judge Asuncion, and the latter's wife, Victoria S. Asuncion, with Judge Asuncion as the President and Mrs. Asuncion as the secretary (Exhs. E-4 to E-7). The Articles of Incorporation of "The Traders Manufacturing and Fishing Industries, Inc." which we shall henceforth refer to as "TRADERS" were registered with the Securities and Exchange Commission only on January 9, 1967. Complainant Bernardita R. Macariola filed on August 9, 1968 the instant complaint dated August 6, 1968 alleging four causes of action, to wit: [1] that respondent Judge Asuncion violated Article 1491, paragraph 5, of the New Civil Code in acquiring by purchase a portion of Lot No. 1184-E which was one of those properties involved in Civil Case No. 3010 decided by him; [2] that he likewise violated Article 14, paragraphs I and 5 of the Code of Commerce, Section 3, paragraph H, of R.A. 3019, otherwise known as the Anti-Graft and Corrupt Practices Act, Section 12, Rule XVIII of the Civil Service Rules, and Canon 25 of the Canons of Judicial Ethics, by associating himself with the Traders Manufacturing and Fishing Industries, Inc., as a stockholder and a ranking officer while he was a judge of the Court of First Instance of Leyte; [3] that respondent was guilty of coddling an impostor and acted in disregard of judicial decorum by closely fraternizing with a certain Dominador Arigpa Tan who openly and publicly advertised himself as a practising attorney when in truth and in fact his name does not appear in the Rolls of Attorneys and is not a member of the Philippine Bar; and [4] that there was a culpable defiance of the law and utter disregard for ethics by respondent Judge ISSUE: Whether or not Judge Elias B. Asuncion violated Article 1491, paragraph 5, of the New Civil Code in acquiring by purchase a portion of Lot No. 1184-E which was one of those properties involved in Civil Case No. 3010 RULING No. Article 1491. The following persons cannot acquire by purchase, even at a public or judicial action, either in person or through the mediation of another:


xxx xxx xxx (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession [emphasis supplied]. The prohibition in the aforesaid Article applies only to the sale or assignment of the property which is the subject of litigation to the persons disqualified therein. WE have already ruled that "... for the prohibition to operate, the sale or assignment of the property must take place during the pendency of the litigation involving the property" (The Director of Lands vs. Ababa et al., 88 SCRA 513, 519 [1979], Rosario vda. de Laig vs. Court of Appeals, 86 SCRA 641, 646 [1978]). In the case at bar, when the respondent Judge purchased on March 6, 1965 a portion of Lot 1184-E, the decision in Civil Case No. 3010 which he rendered on June 8, 1963 was already final because none of the parties therein filed an appeal within the reglementary period; hence, the lot in question was no longer subject of the litigation. Moreover, at the time of the sale on March 6, 1965, respondent's order dated October 23, 1963 and the amended order dated November 11, 1963 approving the October 16, 1963 project of partition made pursuant to the June 8, 1963 decision, had long become final for there was no appeal from said orders. Furthermore, respondent Judge did not buy the lot in question on March 6, 1965 directly from the plaintiffs in Civil Case No. 3010 but from Dr. Arcadio Galapon who earlier purchased on July 31, 1964 Lot 1184-E from three of the plaintiffs, namely, Priscilla Reyes, Adela Reyes, and Luz R. Bakunawa after the finality of the decision in Civil Case No. 3010. It may be recalled that Lot 1184 or more specifically onehalf thereof was adjudicated in equal shares to Priscilla Reyes, Adela Reyes, Luz Bakunawa, Ruperto Reyes and Anacorita Reyes in the project of partition, and the same was subdivided into five lots denominated as Lot 1184-A to 1184-E. As aforestated, Lot 1184-E was sold on July 31, 1964 to Dr. Galapon for which he was issued TCT No. 2338 by the Register of Deeds of Tacloban City, and on March 6, 1965 he sold a portion of said lot to respondent Judge and his wife who declared the same for taxation purposes only. The subsequent sale on August 31, 1966 by spouses Asuncion and spouses Galapon of their respective shares and interest in said Lot 1184-E to the Traders Manufacturing and Fishing Industries, Inc., in which respondent was the president and his wife was the secretary, took place long after the finality of the decision in Civil Case No. 3010 and of the subsequent two aforesaid


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA orders therein approving the project of partition. While it appears that complainant herein filed on or about November 9 or 11, 1968 an action before the Court of First Instance of Leyte docketed as Civil Case No. 4234, seeking to annul the project of partition and the two orders approving the same, as well as the partition of the estate and the subsequent conveyances, the same, however, is of no moment. The fact remains that respondent Judge purchased on March 6, 1965 a portion of Lot 1184-E from Dr. Arcadio Galapon; hence, after the finality of the decision which he rendered on June 8, 1963 in Civil Case No. 3010 and his two questioned orders dated October 23, 1963 and November 11, 1963. Therefore, the property was no longer subject of litigation. The subsequent filing on November 9, or 11, 1968 of Civil Case No. 4234 can no longer alter, change or affect the aforesaid facts — that the questioned sale to respondent Judge, now Court of Appeals Justice, was effected and consummated long after the finality of the aforesaid decision or orders. Consequently, the sale of a portion of Lot 1184-E to respondent Judge having taken place over one year after the finality of the decision in Civil Case No. 3010 as well as the two orders approving the project of partition, and not during the pendency of the litigation, there was no violation of paragraph 5, Article 1491 of the New Civil Code.

Gan Tingco vs. Pabinguit FACTS

(October 17, 1916)

Candida Acabo was the owner of six parcels of land, all situated in the municipality of Jimalalud, Oriental Negros. These lands were sold on June 12, 1911, by their owner Candida Acabo, to one Gan Tingco, for P500. But the purchaser Gan Tingco was unable to take possession of the six parcels of land sold him by Acabo, for they were in the possession of Silvino Pabinguit, who alleges certain rights therein. He claims to have purchased them for P375 from Faustino Abad; that Abad had become their owner through purchase from Justice of the Peace Henry Gardner; that the latter, in turn, had owned them by reason of having purchased them for P555 at a public auction. At the said auction sale ordered by Garner being the Justice of Peace, he appeared to be the higherst bidder. As Gardner subsequently learned that he was forbidden to purchase the subject property, he sold what he had purchased to Faustino Abad, Candida Acabo ’s son. ISSUE: This raises, therefore, a question as to the true meaning of paragraph 5 of article 1459 of the Civil Code. lawphil.net


The Ley de Bases, in accordance with which the Civil Code was enacted, provides as follows, in Base No. 26: The forms, requirements and conditions of each particular contract shall be determined and defined subject to the general list of obligations and their effects, with the understanding that the legislation in force and the legal principles evolved therefrom by judicial decisions, etc., etc., shall serve as basis. One of the bodies of law which conastitute the legislation now in force in the Novisima Recopilacion. In Law 4, Title 14, Book 5 of the same is found the following provision: "We order that in public auctions held by direction of our alcaldes, neither the latter nor any person whomsoever in their name shall bid in anything sold at such public auctions." The word alcaldes means judges. The caption of Title 14 is "Alcaldes or Provincial Judges," and the entire title deals with the exercise of judicial jurisdiction. Prior to the enactment of the Civil Code, the Penal Code was also in force. Article 400 of the latter prohinits, under penalty, any judge from taking part, either directly, or indirectly, in any operation of exchange, trade or porfit with respect to things not the product of his own property, within the territory over which he exercises jurisdiction. Judging from the legal oprecedents on which the Civil Code is based, it would not seem too much to conclude that the said article of the Civil Code does not make any distinction between property in litigation. In effect, it appears to be as delicate a matter for a judge to take part in the sale of property that had been the subject of ligitgation in his court, as to intervene in auction of property which, though not directly litigated in his court, is nevertheless levied upon and sold as the result of a writ of execution issued by him. What the law intends to avoid is the improper interference with an interest of a judge in a thing levied upon and sold by his order. If under the law Gardner was prohibited from acquiring the ownership of Acabo's lands, then he could not have transmitted to Faustino Abad the right of ownership that he did not possess; nor could Abad, to whom this alleged ownership had not been transmitte, have conveyed the same to Pabinguit. What Gardner should have done in view of the fact that the sale, as he finally acknowledged, was void, was to claim the price that had been deposited in court, and the justice of the peace of Guijulngan should have declared the auction void and have ordered a new sale to be held, besides correcting the errors that had been committed in the proceedings. To the reasons already stated, there is to be added the additional one, with respect to the sale made by Faustino Abad to Silvino Pabinguit, that Abad was a minor at the time — a circumstance that deprived him of capacity to sell (Civil Code, art. 1263). Abad had no ownership to transmit to anyone and, besides, he had no personality to enable him to contract by himself, on account of his lack of legal age.

RULING 2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito

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

II) SUBJECT MATTER Requisites of a Valid Subject Matter:  It must be existing (having a potential existence), a future thing, or een contingent (subject to a resolutory condition).  It must be licit. It must be determinate or at least determinable.

Existing  Things having a potential existence may be the object of the contract of sale. (Art. 1461 par. 1) Emptio Spei

The efficacy of the sale of a The sale of a vain hope or mere hope or expectancy is expectancy is void. (Art. 1461 deemed subject to the par. 3) condition that the thing will come into existence. (Art. 1461 par. 2) Uncertainty as to the quality Uncertainty and quantity. existence. Involves a present object.

Sibal vs. Valdez (August 4, 1927) FACTS Plaintiff alleged that the defendant Vitaliano Mamawal, deputy sheriff of the Province of Tarlac, by virtue of

1) EXISTING, FUTURE AND CONTINGENT

Emptio Rei Speratae



There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. (Art. 1462 par. 2). Things subject to a resolutory condition may be the object of the contract of sale. (Art. 1465)

as

to

the

Involves a future object.

ExampleAn of an EmptioofSei: example emptio spei is the sale of a sweepstakes ticket, for say 5100.00, where the buyer purchases the ticket with the hope that upon the draw the ticket would win him, say a million pesos. The object of the sale is not the prize, but rather the ticket, or the chance to win; if the ticket does not win, the sale is still valid, and the buyer has no right to recover the amount paid for the ticket. Future  The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods." (Art. 1462 par. 1)  All things which are not outside the commerce of men, including future things, may be the object of a contract. (Art. 1437 par. 1)  No contract may be entered into upon future inheritance except in cases expressly authorized by law. (Art. 1437 par. 2)

a writ of execution by the Court of First Instance Pampanga, attached issued and sold to the defendant Emiliano of J. Valdez the sugar cane planted by the plaintiff and his tenants on seven parcels of land. Plaintiff offered to redeem said sugar cane and tendered to the defendant Valdez the amount sufficient to cover the price paid by the latter, the interest thereon and any assessments or taxes which he may have paid thereon after the purchase, and the interest corresponding thereto. However, Valdez refused to accept the money and to return the sugar cane to the plaintiff. Meanwhile, defendant argued that the sugar cane was personal property hence not subject to redemption. ISSUES 1. Whether or not the sugar cane is to be classified as personal property 2. Whether or not future crops to be harvested can be considered a valid object of sale RULING 1. No. A crop raised on leased premises in no sense forms part of the immovable. It belongs to the lessee, and may be sold by him, whether it be gathered or not, and it may be sold by his judgment creditors. “Ungathered products” have the nature of personal property. In other words, the phrase “personal property” should be understood to include “ungathered products.” Crops, whether growing or standing in the field ready to be harvested, are, when produced by annual cultivation, no part of the realty. 2. Yes. A valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and then title will vest in the buyer the moment the thing comes into existence (Emerson vs. European Railway Co., 67 Me., 387; Cutting vs. Packers Exchange, 21 Am. St. Rep., 63.). A man may sell property of which he is potentially and not actually possessed.

Contingent 2-Sanchez Roman | Balgoa, Chiu, Estillore, Masanguid, Publico, Sabrido, Singanon, Tito

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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Pichel vs. Alonzo (January 30, 1982) FACTS Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot 21 of Subdivision Plan Psd32465 of Balactasan, Lamitan, Basilan City in accordance with RA 477. The award was cancelled by the Board of Liquidators on 27January 1965 on the ground that, previous thereto, Alonzo was proved to have alienated the land to another, in violation of law. In 1972, Alonzo’s rights to the land were reinstated. On 14 August 1968, Alonzo and his wife sold to Pichel through a “deed ofsale” all the fruits of the coconut trees which may be harvested in the land for the period, from 15 September 1968 to 1 January 1976, in consideration of P4,200.00. It was further stipulated that the vendor’s right, title, interest and participation herein conveyed is of his own exclusive and absolute property, free from any liens andencumbrances and he warrants to the Vendee good title thereto and to defend the same against any and all claims of all persons whomsoever. Even as of the date of sale, however, the land was still under lease to one Ramon Sua, and it was the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be paid by Pichel directly to Ramon Sua so as to release the land from the clutches of the latter. Pending said payment Alonzo refused to allow the Pichel to make any harvest. In July1972, Pichel for the first time since the execution of the deed of sale in his favor, caused the harvest of the fruit of the coconut trees in the land. Alonzo filed an action for the annulment of a “Deed of Sale” before the CFI Basilan City. On 5 January 1973, the lower court rendered its decision holding that although theagreement in question is denominated by the parties as a deed of sale of fruits of the coconut trees found in the vendor’s land, it actually is, for all legal intents and purposes, a contract of lease of the land itself; an encumbrance prohibited under RA 477. The court thus held that the deed of sale is null and void, and ordered Alonzo to pay back Pichel the consideration of the sale in the sum of P4,200 with interests from the date of the filing of the complaint until paid, and Pichel to pay the sum of P500.00 as attorney’s fees; with costs against Pichel. Hence, the petition to review on certiorari was raised before the Supreme Court. The Supreme Court set aside the judgment of the lower court and entered another dismissing the complaint; without costs.


defined under Article 1458 of the New Civil Code. Article1458 provides that “by the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent,” and that “a c ontract of sale maybe absolute or conditional.” The subject matter of the contract of sale are the fruits of the coconut trees on the land during the years from 15 September 1968 up to 1 January1976, which subject matter is a determinate thing. Things having potential existence may be the object of the contract of sale Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. A valid sale may be made of a thing, which though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence. A man may sell property of which he is potentially and not actually possessed.

2) LICIT Article 1459.The thing must be LICIT and the vendor must have a right to transfer the ownership thereof at the time it is delivered. Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract.

Void Contracts Article 1409.The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; xxx Article 1575. The sale of animals suffering from contagious diseases shall be void. A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor.

ISSUE: Is the contract of sale valid? RULING Contract of sale valid, essential elements valid The document in question expresses a valid contract of sale as it has the essential elements of a contract of sale as

Article 1347, par. 2. No contract may be entered into upon future inheritance except in cases expressly authorized by law.


Tanedo vs. CA 81

LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA (January 22, 1996) FACTS On October 20, 1962, Lazardo Tañedo executed a notarized deed of absolute sale in favor of his eldest brother, Ricardo Tañedo, and the latter's wife, Teresita Barera, private respondents herein, whereby he conveyed to the latter in consideration of P1,500.00, "one hectare of whatever share I shall have over Lot No. 191 of the cadastral survey of Gerona, Province of Tarlac and covered by Title T-13829 of the Register of Deeds of Tarlac", the said property being his "future inheritance" from his parents. Upon the death of his father Matias, Lazaro executed an "Affidavit of Conformity" dated February 28, 1980 to "re-affirm, respect, acknowledge and validate the sale I made in 1962." On January 13, 1981, Lazaro executed another notarized deed of sale in favor of private respondents covering his "undivided ONE TWELVE (1/12) of a parcel of land known as Lot 191." He acknowledged therein his receipt of P10,000.00 as consideration therefor. In February 1981, Ricardo learned that Lazaro sold the same property to his children, petitioners herein, through a deed of sale dated December 29, 1980. On June 7, 1982, private respondents recorded the Deed of Sale in their favor in the Registry of Deeds and the corresponding entry was made in Transfer Certificate of Title No. 166451. Petitioners on July 16, 1982 filed a complaint for rescission (plus damages) of the deeds of sale executed by Lazaro in favor of private respondents covering the property inherited by Lazaro from his father. Petitioners claimed that their father, Lazaro, executed an "Absolute Deed of Sale" dated December 29, 1980. Conveying to his ten children his allotted portion tinder the extrajudicial partition executed by the heirs of Matias, which deed included the land in litigation (Lot 191). Private respondents, however presented in evidence a "Deed of Revocation of a Deed of Sale" dated March 12, 1981, wherein Lazaro revoked the sale in favor of petitioners for the reason that it was "simulated or fictitious without any consideration whatsoever". ISSUES 1. Is the sale of a future inheritance valid? 2. Was the subsequent execution on January 13, 1981 (and registration with the Registry of Property) of a deed of sale covering the same property to the same buyers valid? RULING 1. No. Pursuant to Article 1347 of the Civil Code, "(n)o contract may be entered into upon a future inheritance except in cases expressly authorized by law." Consequently, said contract made in 1962 is not valid and cannot be the source of any right nor the creator of any obligation between the parties.


2. Hence, the "affidavit of conformity" dated February 28, 1980, insofar as it sought to validate or ratify the 1962 sale, is also useless and, in the words of the respondent Court, "suffers from the same infirmity." Even private respondents in their memorandum concede this. Martinez vs. CA (April 29, 1974) FACTS The spouses Romeo Martinez and Leonor Suarez, now petitioners-appellees, are the registered owners of two (2) parcels of land located in Lubao, Pampanga, covered by transfer certificate of title No. 15856 of the Register of Deeds of the said province. Both parcels of land are fishponds. The property involved in the instant case is the second parcel mentioned in the above-named transfer certificate of title. The disputed property was srcinally owned by one Paulino Montemayor, who secured a "titulo real" over it way back in 1883. After the death of Paulino Montemayor the said property passed to his successors-in-interest, Maria Montemayor and Donata Montemayor, who in turn, sold it, as well as the first parcel, to a certain Potenciano Garcia. Because Potenciano Garcia was prevented by the then municipal president of Lubao, Pedro Beltran, from restoring the dikes constructed on the contested property, the former, on June 22, 1914, filed Civil Case No. 1407 with the Court of First Instance against the said Pedro Beltran to restrain the latter in his official capacity from molesting him in the possession of said second parcel, and on even date, applied for a writ of preliminary injunction, which was issued against said municipal president. The Court, by decision promulgated June 12, 1916, declared permanent the preliminary injunction, which, decision, on appeal, was affirmed by the Supreme Court on August 21, 1918. From June 22, 1914, the dikes around the property in question remained closed until a portion thereof was again opened just before the outbreak of the Pacific War. On April 17, 1925. Potenciano Garcia applied for the registration of both parcels of land in his name, and the Court of First Instance of Pampanga, sitting as land registration court, granted the registration over and against the opposition of the Attorney-General and the Director of Forestry. Pursuant to the Court's decision, srcinal certificate of title No. 14318, covering said parcels 1 and 2 was issued to the spouses Potenciano Garcia and Lorenza Sioson. These parcels of land were subsequently bought by Emilio Cruz de Dios in whose name transfer certificate of title No. 1421 was first issued on November 9, 1925. Thereafter, the ownership of these properties changed hands until eventually by of thetransfer herein appellee spouses who they hold were themacquired by virtue certificate of title No. 15856. To avoid any untoward incident, the disputants agreed to refer the matter to the Committee on Rivers and Streams, by then composed of the Honorable Pedro Tuason, at that time


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Secretary of Justice, as chairman, and the Honorable Salvador Araneta and Vicente Orosa, Secretary of Agriculture and National Resources and Secretary of Public Works and Communications, respectively, as members. This committee thereafter appointed a Sub-Committee to investigate the case and to conduct an ocular inspection of the contested property, and on March 11, 1954, said Sub-Committee submitted its report to the Committee on Rivers and Streams to the effect that Parcel No. 2 of transfer certificate of title No. 15856 was not a public river but a private fishpond owned by the herein spouses. ISSUE Whether or not Lot No. 2 may be appropriated. No. RULING At the time of the enactment of Section 496, one right recognized or existing under the law is that provided for in Article 339 of the old Civil Code which reads as follows: Property of public ownership is: 1. That destined to the public use, such as roads, canals, rivers, torrents, ports, and bridges constructed by the State, and banks shores, roadsteads, and that of a similar character. (Par. 1) The above-mentioned properties are parts of the public domain intended for public use, are outside the commerce of men and, therefore, not subject to private appropriation. When it comes to registered properties, the jurisdiction of the Secretary of Public Works & Communications under Republic Act 2056 to order the removal or obstruction to navigation along a public and navigable creek or river included therein, has been definitely settled and is no longer open to question (Lovina v. Moreno, G.R. No L-17821, November 29, 1963, 9 SCRA 557; Taleon v. Secretary of Public Works & Communications G.R. No. L-24281, May 16, 1961, 20 SCRA 69, 74). The evidence submitted before the trial court which was passed upon by the respondent Court of Appeals shows that Lot No. 2 (Plan Psu 992) of Transfer Certificate of Title No. 15856, is a river of the public domain. The technical description of both Lots Nos. 1 and 2 appearing in Original Certificate of Title No. 14318 of the Register of Deeds of Pampanga, from which the present Transfer Certificate of Title No. 15856 was derived, confirms the fact that Lot No. 2 embraced in said title is bounded practically on all sides by rivers. As held by the Court of First Instance of Pampanga in Civil Case No. 1247 for injunction filed by the petitioners' predecessors-in-interest against the Municipal Mayor of Lubao and decided in 1916 (Exh. "L"), Lot No. 2 is a branch of the main river that has been covered with water since time immemorial and, therefore, part of the public domain. This finding having been affirmed by the Supreme Court, there is no longer any doubt that Lot No. 2 of Transfer Certificate of Title No. 15856 of petitioners is a river


which is not capable of private appropriation or acquisition by prescription. (Palanca v. Com. of the Philippines, 69 Phil. 449; Meneses v. Com. of the Philippines, 69 Phil. 647). Consequently, appellants' title does not include said river. Heirs of Arturo Reyes vs. Socco-Beltran (November 27, 2008) FACTS On 25 June 1998, respondent Elena Socco-Beltran filed an application for the purchase of Lot No. 6-B before the Department of Agrarian Reform (DAR), alleging that it was adjudicated in her favor in the extra-judicial settlement of Constancia Socco’s estate. Petitioners herein, the heirs of the late Arturo Reyes, filed their protest to respondent’s petition before the DAR on the ground that the subject property was sold by respondent’s brother, Miguel R. Socco, in favor of their father, Arturo Reyes, as evidenced by the Contract to Sell. Petitioners averred that they took physical possession of the subject property in 1954 and had been uninterrupted in their possession of the said property since then. Legal Officer Brigida Pinlac of the DAR Bataan Provincial Agrarian Reform Office conducted an investigation and thereafter recommended the approval of respondent’s petition for issuance of title over the subject property, ruling that respondent was qualified to own the subject property pursuant to Article 1091 of the New Civil Code. In an Order dated 15 September 1999, DAR Regional Director Nestor R. Acosta, however, dismissed respondent’s petition for issuance of title over the subject property on the

ground that respondent was not an actual tiller and had abandoned the said property for 40 years; hence, she had already renounced her right to recover the same. Respondent filed a Motion for Reconsideration of the foregoing Order, which was denied by DAR Regional Director Acosta in another Order dated 15 September 1999. Respondent then appealed to the Office of the DAR Secretary. In an Order, dated 9 November 2001, the DAR Secretary reversed the Decision of DAR Regional Director Acosta after finding that neither petitioners’ predecessor -ininterest, Arturo Reyes, nor respondent was an actual occupant of the subject property. However, since it was respondent who applied to purchase the subject property, she was better qualified to own said property as opposed to petitioners, who did not at all apply to purchase the same. ISSUE: Whether or not the title to the property was transferred to petitioners by virtue of the Contract to Sell executed by Miguel Socco. RULING No. Petitioners cannot derive title to the subject property by virtue of the Contract to Sell. It was unmistakably stated in the Contract and made clear to both parties thereto


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA that the vendor, Miguel R. Socco, was not yet the owner of the subject property and was merely expecting to inherit the same as his share as a co-heir of Constancia’s estate. It was also declared in the Contract itself that Miguel R. Socco’s conveyance of the subject to the buyer, Arturo Reyes, was a conditional sale. It is, therefore, apparent that the sale of the subject property in favor of Arturo Reyes was conditioned upon the event that Miguel Socco would actually inherit and become the owner of the said property. Absent such occurrence, Miguel R. Socco never acquired ownership of the subject property which he could validly transfer to Arturo Reyes. Under Article 1459 of the Civil Code on contracts of sale, "The thing must be licit and the vendor must have a right to transfer ownership thereof at the time it is delivered." The law specifically requires that the vendor must have ownership of the property at the time it is delivered. Petitioners claim that the property was constructively delivered to them in 1954 by virtue of the Contract to Sell. However, as already pointed out by this Court, it was explicit in the Contract itself that, at the time it was executed, Miguel R. Socco was not yet the owner of the property and was only expecting to inherit it. Hence, there was no valid sale from which ownership of the subject property could have transferred from Miguel Socco to Arturo Reyes. Without acquiring ownership of the subject property, Arturo Reyes also could not have conveyed the same to his heirs, herein petitioners. Frenzel vs. Catito (July 11, 2003) FACTS Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He arrived in the Philippines in 1974 and two years thereafter, and married Teresita Santos, a Filipino citizen. In 1981, Alfred and Teresita separated from bed and board without obtaining a divorce. Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He went to King's Cross, a night spot in Sydney, for a massage where he met Ederlina Catito, a Filipina and a native of Bajada, Davao City. Unknown to Alfred, she resided for a time in Germany and was married to Klaus Muller, a German national. Alfred was so enamored with Ederlina that he persuaded her to stop working at King's Cross, return to the Philippines, and engage in a wholesome business of her own. He also proposed that they meet in Manila, to which she assented. Alfred gave her money for her plane fare to the Philippines. Within two weeks of Ederlina's arrival in Manila, Alfred joined her. Alfred reiterated his proposal for Ederlina to stay in the and engage in business, even offering to finance herPhilippines business venture. Ederlina was delighted at the idea and proposed to put up a beauty parlor. Alfred happily agreed. In the meantime, Ederlina's petition for divorce was denied because Klaus opposed the same. A second petition


filed by her met the same fate. Klaus wanted half of all the properties owned by Ederlina in the Philippines before he would agree to a divorce. Worse, Klaus threatened to file a bigamy case against Ederlina. Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the establishment of a corporation, with Ederlina owning 30% of the equity thereof. She initially agreed to put up a corporation and contacted Atty. Armando Dominguez to prepare the necessary documents. Ederlina changed her mind at the last minute when she was advised to insist on claiming ownership over the properties acquired by them during their coverture. On October 15, 1985, Alfred wrote to Ederlina's father, complaining that Ederlina had taken all his life savings and because of this, he was virtually penniless. He further accused the Catito family of acquiring for themselves the properties he had purchased with his own money. He demanded the return of all the amounts that Ederlina and her family had "stolen" and turn over all the properties acquired by him and Ederlina during their coverture. Shortly thereafter, Alfred filed a Complaint dated October 28, 1985, against Ederlina, with the Regional Trial Court of Quezon City, for recovery of real and personal properties located in Quezon City and Manila. In his complaint, Alfred alleged, inter alia, that Ederlina, without his knowledge and consent, managed to transfer funds from their joint account in HSBC Hong Kong, to her own account with the same bank. Using the said funds, Ederlina was able to purchase the properties subject of the complaints. He also alleged that the beauty parlor in Ermita was established with his own funds, and that the Quezon City property was likewise acquired by him with his personal funds. ISSUE 1) 2)

Whether or not the rule of in pari delicto applies Whether or not the intention of petitioner is not to own real properties in the Philippines but to sell them at a public auction to be able to recover his money used in purchasing them.

RULING 1) Section 14, Article XIV of the 1973 Constitution provides, as follows: Save in cases of hereditary succession, no private land shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands in the public domain. as claimed petitioner, the the salessaid in question Even were if, entered into byby himthe as the real vendee, transactions are in violation of the Constitution; hence, are null and void ab initio. A contract that violates the Constitution and the law, is null and void and vests no rights and creates no obligations. It produces no legal effect at all.53 The petitioner,


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Determinable Subject Matter being a party to an illegal contract, cannot come into a court of  2 Requisites: law and ask to have his illegal objective carried out. One who  Capacity to Segregate Test– If at the perfection of loses his money or property by knowingly engaging in a the sale, the thing is capable of being made contract or transaction which involves his own moral turpitude determinate ; and may not maintain an action for his losses. To him who moves in No Further Agreement Test– Without the necessity deliberation and premeditation, the law is unyielding.54 The of a new or further agreement between the law will not aid either party to an illegal contract or agreement; parties. it leaves the parties where it finds them. The petitioner cannot feign ignorance of the constitutional proscription, nor claim that he acted in good faith, let alone assert that he is less guilty than the respondent. Heirs of Juan San Andres vs. Rodriguez The petitioner is charged with knowledge of the constitutional (May 31, 2000) prohibition.60 As can be gleaned from the decision of the trial FACTS court, the petitioner was fully aware that he was disqualified Juan San Andres was the registered owner of Lot No. from acquiring and owning lands under Philippine law even 1914-B-2 situated in Liboton, Naga City. On September 28, before he purchased the properties in question; and, to skirt 1964, he sold a portion thereof, consisting of 345 square the constitutional prohibition, the petitioner had the deed of meters, to respondent Vicente S. Rodriguez for P2,415.00. The sale placed under the respondent's name as the sole vendee sale is evidenced by a Deed of Sale. thereof. Upon the death of Juan San Andres on May 5, 1965, It is evident that the plaintiff was fully aware that as a Ramon San Andres was appointed judicial administrator of the non-citizen of the Philippines, he was disqualified from validly decedent's estate. Ramon San Andres engaged the services of a purchasing any land within the country. geodetic engineer, Jose Peñero, to prepare a consolidated plan 2) The petitioner cannot find solace in Article 1416 of the New of the estate. From the result of the survey, it was found that Civil Code which reads: respondent had enlarged the area which he purchased from Art. 1416. When the agreement is not illegal per se the late Juan San Andres by 509 square meters. but is merely prohibited, and the prohibition by the Accordingly, the judicial administrator sent a letter, law is designed for the protection of the plaintiff, he dated July 27, 1987, to respondent demanding that the latter may, if public policy is thereby enhanced, recover vacate the portion allegedly encroached by him. However, what he has paid or delivered. respondent refused to do so, claiming he had purchased the The provision applies only to those contracts which same from the late Juan San Andres. Thereafter, on November are merely prohibited, in order to benefit private interests. It 24, 1987, the judicial administrator brought an action, in behalf does not apply to contracts void ab initio. The sales of three of the estate of Juan San Andres, for recovery of possession of parcels of land in favor of the petitioner who is a foreigner is the 509-square meter lot. illegal per se. The transactions are void ab initio because they Respondent alleged that apart from the 345-square were entered into in violation of the Constitution. Thus, to meter lot which had been sold to him by Juan San Andres on allow the petitioner to recover the properties or the money September 28, 1964, the latter likewise sold to him the used in the purchase of the parcels of land would be subversive following day the remaining portion of the lot consisting of 509 of public policy. square meters, with both parties treating the two lots as one whole parcel with a total area of 854 square meters. Respondent alleged that the full payment of the 509-square meter lot would be effected within five (5) years from the 3) DETERMINATE OR AT LEAST DETERMINABLE execution of a formal deed of sale after a survey is conducted Article 1460. A thing is DETERMINATE when it is over said property. He further alleged that with the consent of particularly designated or physical segregated from all others of the former owner, Juan San Andres, he took possession of the the same class. same and introduced improvements thereon as early as 1964. The requisite that a thing be determinate is satisfied if As proof of the sale to him of 509 square meters, respondent at the time the contract is entered into, the thing is capable of attached to his answer a receipt (Exh. 2) signed by the late Juan being made determinate without the necessity of a new or San Andres. Respondent also attached to his answer a letter of further agreement between the parties. judicial administrator Ramon San Andres, asking payment of the balance of the purchase price. Determinate Subject Matter Petitioner contends, however, that the "property subject of the  A thing is DETERMINATE when it is particularly sale was not described with sufficient certainty such that there designated or physical segregated from all others of the is a necessity of another agreement between the parties to same class. finally ascertain the identity; size and purchase price of the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA property which is the object of the alleged sale." He argues that the "quantity of the object is not determinate as in fact a survey is needed to determine its exact size and the full purchase price therefor.” ISSUE: Whether or not the document is a Contract to Sell despite its lacking one of the essential elements of a contract, namely, object certain and sufficiently described. RULING Petitioner's contention is without merit. There is no dispute that respondent purchased a portion of Lot 1914-B-2 consisting of 345 square meters. This portion is located in the middle of Lot 1914-B-2, which has a total area of 854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since the lot subsequently sold to respondent is said to adjoin the "previously paid lot" on three sides thereof, the subject lot is capable of being determined without the need of any new contract. The fact that the exact area of these adjoining residential lots is subject to the result of a survey does not detract from the fact that they are determinate or determinable. As the Court of Appeals explained: Concomitantly, the object of the sale is certain and determinate. Under Article 1460 of the New Civil Code, a thing sold is determinate if at the time the contract is entered into, the thing is capable of being determinate without necessity of a new or further agreement between the parties. Here, this definition finds realization. Appellee's Exhibit "A" affirmingly shows that the srcinal 345 sq. m. portion earlier sold lies at the middle of Lot 1914-B-2 surrounded by the remaining portion of the said Lot 1914-B-2 on three (3) sides, in the east, in the west and in the north. The northern boundary is a 12 meter road. Conclusively, therefore, this is the only remaining 509 sq. m. portion of Lot 1914-B-2 surrounding the 345 sq. m. lot initially purchased by Rodriguez. It is quite defined, determinate and certain. Withal, this is the same portion adjunctively occupied and possessed by Rodriguez since September 29, 1964, unperturbed by anyone for over twenty (20) years until appellee instituted this suit. Thus, all of the essential elements of a contract of sale are present, i.e., that there was a meeting of the minds between the parties, by virtue of which the late Juan San Andres undertook to transfer ownership of and to deliver a determinate thing for a price certain in money. As Art. 1475 of the Civil Code provides: 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. That the contract of sale is perfected was confirmed


by the former administrator of the estates, Ramon San Andres, who wrote a letter to respondent on March 30, 1966 asking for P300.00 as partial payment for the subject lot.

Atilano vs. Atilano (May 21, 1969) FACTS In 1916 Eulogio Atilano I acquired, by purchase from one Gerardo Villanueva, lot No. 535 of the then municipality of Zamboanga cadastre. The vendee thereafter obtained transfer certificate of title No. 1134 in his name. In 1920 he had the land subdivided into five parts, identified as lots Nos. 535-A, 535-B, 535-C, 535-D and 535-E, respectively. On May 18 of the same year, after the subdivision had been effected, Eulogio Atilano I, for the sum of P150.00, executed a deed of sale covering lot No. 535-E in favor of his brother Eulogio Atilano II, who thereupon obtained transfer certificate of title No. 3129 in his name. Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were likewise sold to other persons, the srcinal owner, Eulogio Atilano I, retaining for himself only the remaining portion of the land, presumably covered by the title to lot No. 535-A. Upon his death the title to this lot passed to Ladislao Atilano, defendant in this case, in whose name the corresponding certificate (No. T-5056) was issued. On December 6, 1952, Eulogio Atilano II having become a widower upon the death of his wife Luisa Bautista, he and his children obtained transfer certificate of title No. 4889 over lot No. 535-E in their names as co-owners. Then, on July 16, 1959, desiring to put an end to the co-ownership, they had the land resurveyed so that it could properly be subdivided; and it was then discovered that the land they were actually occupying on the strength of the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E, as referred to in the deed, while the land which remained in the possession of the vendor, Eulogio Atilano I, and which passed to his successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No. 535-A. On January 25, 1960, the heirs of Eulogio Atilano II, who was by then also deceased, filed the present action in the Court of First Instance of Zamboanga, alleging, inter alia, that they had offered to surrender to the defendants the possession of lot No. 535-A and demanded in return the possession of lot No. 535-E, but that the defendants had refused to accept the exchange. The plaintiffs' insistence is quite understandable, since lot No. 535-E has an area of 2,612 square meters, as compared to the 1,808 square-meter area of lot No. 535-A. In their answer to the complaint the defendants alleged that1920 the was reference to lot No.error; 535-Ethat in the of sale of May 18, an involuntary thedeed intention of the parties to that sale was to convey the lot correctly identified as lot No. 535-A; that since 1916, when he acquired the entirety of lot No. 535, and up to the time of his death, Eulogio Atilano I had been possessing and had his house on the


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA portion designated as lot No. 535-E, after which he was succeeded in such possession by the defendants herein; and that as a matter of fact Eulogio Atilano I even increased the area under his possession when on June 11, 1920 he bought a portion of an adjoining lot, No. 536, from its owner Fruto del Carpio. On the basis of the foregoing allegations the defendants interposed a counterclaim, praying that the plaintiffs be ordered to execute in their favor the corresponding deed of transfer with respect to lot No. 535-E. ISSUE: The real issue here is not adverse possession, but the real intention of the parties to that sale. RULING The logic and common sense of the situation lean heavily in favor of the defendants' contention. When one sells or buys real property — a piece of land, for example — one sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title. In the particular case before us, the portion correctly referred to as lot No. 535A was already in the possession of the vendee, Eulogio Atilano II, who had constructed his residence therein, even before the sale in his favor even before the subdivision of the entire lot No. 535 at the instance of its owner, Eulogio Atillano I. In like manner the latter had his house on the portion correctly identified, after the subdivision, as lot No. 535-E, even adding to the area thereof by purchasing a portion of an adjoining property belonging to a different owner. The two brothers continued in possession of the respective portions the rest of their lives, obviously ignorant of the initial mistake in the designation of the lot subject of the 1920 until 1959, when the mistake was discovered for the first time. From all the facts and circumstances we are convinced that the object thereof, as intended and understood by the parties, was that specific portion where the vendee was then already residing, where he reconstructed his house at the end of the war, and where his heirs, the plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A; and that its designation as lot No. 535-E in the deed of sale was simple mistake in the drafting of the document.1âwphi1.ñet The mistake did not vitiate the consent of the parties, or affect the validity and binding effect of the contract between them. The new Civil Code provides a remedy for such a situation by means of reformation of the instrument. This remedy is available when, there having been a meeting of the funds of the parties to a contract, their true intention is not expressed in the instrument purporting to embody the agreement by reason of mistake, fraud, inequitable conduct on accident (Art. 1359, et seq.) In this case, the deed of sale executed in 1920 need no longer reformed. The parties have retained possession of their respective properties conformably to the real intention of the parties to that sale, and all they should do is to execute mutual deeds of conveyance.


Melliza vs. City of Iloilo (April 30, 1968) FACTS Juliana Melliza during her lifetime owned, among other properties, three parcels of residential land in Iloilo City registered in her name under Original Certificate of Title No. 3462. Said parcels of land were known as Lots Nos. 2, 5 and 1214. The total area of Lot No. 1214 was 29,073 square meters. On November 27, 1931 she donated to the then Municipality of Iloilo, 9,000 square meters of Lot 1214, to serve as site for the municipal hall. 1 The donation was however revoked by the parties for the reason that the area donated was found inadequate to meet the requirements of the development plan of the municipality, the so-called "Arellano Plan". Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to Remedios Sian Villanueva who thereafter obtained her own registered title thereto, under Transfer Certificate of Title No. 18178. Remedios in turn on November 4, 1946 transferred her rights to said portion of land to Pio Sian Melliza, who obtained Transfer Certificate of Title No. 2492 thereover in his name. On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo, donated the city hall site together with the building thereon, to the University of the Philippines (Iloilo branch). The site donated consisted of Lots Nos. 1214-B, 1214-C and 1214-D, with a total area of 15,350 square meters, more or less. Sometime in 1952, the University of the Philippines enclosed the site donated with a wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B). No recovery was obtained, because as alleged by plaintiff, the City did not have funds (p. 9, Appellant's Brief.) The University of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D. On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance of Iloilo against Iloilo City and the University of the Philippines for recovery of Lot 1214-B or of its value. ISSUE: Whether or not the conveyance by Juliana Melliza to Iloilo municipality included that portion of Lot 1214 known as Lot 1214-B RULING The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties (Art. 1273, old Civil


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the statement that the lots object of the sale are the ones needed for city hall site, avenues and parks, according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of the contract, for rendering determinate said lots without the need of a new and further agreement of the parties. The Arellano plan was in existence as early as 1928. As stated, the previous donation of land for city hall site on November 27, 1931 was revoked on March 6, 1932 for being inadequate in area under said Arellano plan. Appellant claims that although said plan existed, its metes and bounds were not fixed until 1935, and thus it could not be a basis for determining the lots sold on November 15, 1932. Appellant however fails to consider that thearea needed under that plan for city hall site was then already known; that the specific mention of some of the lots covered by the sale in effect fixed the corresponding location of the city hall site under the plan; that, therefore, considering the said lots specifically mentioned in the public instrument Exhibit "D", and the projected city hall site, with its area, as then shown in the Arellano plan (Exhibit 2), it could be determined which, and how much of the portions of land contiguous to those specifically named, were needed for the construction of the city hall site. And, moreover, there is no question either that Lot 1214-B is contiguous to Lots 1214-C and 1214-D, admittedly covered by the public instrument. It is stipulated that, after execution of the contract Exhibit "D", the Municipality of Iloilo possessed it together with the other lots sold. It sits practically in the heart of the city hall site. Furthermore, Pio Sian Melliza, from the stipulation of facts, was the notary public of the public instrument. As such, he was aware of its terms. Said instrument was also registered with the Register of Deeds and such registration was annotated at the back of the corresponding title certificate of Juliana Melliza. From these stipulated facts, it can be inferred that Pio Sian Melliza knew of the aforesaid terms of the instrument or is chargeable with knowledge of them; that knowing so, he should have examined the Arellano plan in relation to the public instrument Exhibit "D"; that, furthermore, he should have taken notice of the possession first by the Municipality of Iloilo, then by the City of Iloilo and later by the University of the Philippines of Lot 1214-B as part of the city hall site conveyed under that public instrument, and raised proper objections thereto if it was his position that the same was not included in the same. The fact remains that, instead, for twenty long years, Pio Sian Melliza and his predecessors-in-interest, did not object to said possession, nor exercise any act of possession over Lot 1214-B. Applying, therefore, principles of civil law, as well as laches, estoppel, and equity, said lot must necessarily be deemed included in the conveyance in favor of Iloilo municipality, now Iloilo City.


FACTS Petitioner National Grains Authority (now National Food Authority, NFA for short) is a government agency created under Presidential Decree No. 4. One of its incidental functions is the buying of palay grains from qualified farmers. On August 23, 1979, private respondent Leon Soriano offered to sell palay grains to the NFA, through William Cabal, the Provincial Manager of NFA stationed at Tuguegarao, Cagayan. He submitted the documents required by the NFA for pre-qualifying as a seller, namely: (1) Farmer's Information Sheet accomplished by Soriano and certified by a Bureau of Agricultural Extension (BAEX) technician, Napoleon Callangan, (2) Xerox copies of four (4) tax declarations of the riceland leased to him and copies of the lease contract between him and Judge Concepcion Salud, and (3) his Residence Tax Certificate. Private respondent Soriano's documents were processed and accordingly, he was given a quota of 2,640 cavans of palay. The quota noted in the Farmer's Information Sheet represented the maximum number of cavans of palay that Soriano may sell to the NFA. In the afternoon of August 23, 1979 and on the following day, August 24, 1979, Soriano delivered 630 cavans of palay. The palay delivered during these two days were not rebagged, classified and weighed. when Soriano demanded payment of the 630 cavans of palay, he was informed that its payment will be held in abeyance since Mr. Cabal was still investigating on an information he received that Soriano was not a bona tide farmer and the palay delivered by him was not produced from his farmland but was taken from the warehouse of a rice trader, Ben de Guzman. On August 28, 1979, Cabal wrote Soriano advising him to withdraw from the NFA warehouse the 630 cavans Soriano delivered stating that NFA cannot legally accept the said delivery on the basis of the subsequent certification of the BAEX technician, Napoleon Callangan that Soriano is not a bona fide farmer. Instead of withdrawing the 630 cavans of palay, private respondent Soriano insisted that the palay grains delivered be paid. He then filed a complaint for specific performance and/or collection of money with damages on November 2, 1979, against the National Food Authority and Mr. William Cabal, Provincial Manager of NFA with the Court of First Instance of Tuguegarao, and docketed as Civil Case No. 2754. Meanwhile, by agreement of the parties and upon order of the trial court, the 630 cavans of palay in question were withdrawn from the warehouse of NFA. An inventory was made by the sheriff as representative of the Court, a representative of Soriano and a representative of NFA. ISSUE whether or not there was a contract of sale RULING

NGA vs. IAC (March 8, 1989)

Article 1458 of the Civil Code of the Philippines defines sale as a contract whereby one of the contracting


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other party to pay therefore a price certain in money or its equivalent. A contract, on the other hand, is a meeting of minds between two (2) persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code of the Philippines). The essential requisites of contracts are: (1) consent of the contracting parties, (2) object certain which is the subject matter of the contract, and (3) cause of the obligation which is established (Art. 1318, Civil Code of the Philippines. In the case at bar, Soriano initially offered to sell palay grains produced in his farmland to NFA. When the latter accepted the offer by noting in Soriano's Farmer's Information Sheet a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The object of the contract, being the palay grains produced in Soriano's farmland and the NFA was to pay the same depending upon its quality. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Article 1349 of the New Civil Code provides: ". . .. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties." In this case, there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. Soriano can deliver so much of his produce as long as it does not exceed 2,640 cavans.

Schuback & Sons vs. CA (November 11, 1993) FACTS Sometime in 1981, defendant established contact with plaintiff through the Philippine Consulate General in Hamburg, West Germany, because he wanted to purchase MAN bus spare parts from Germany. Plaintiff communicated with its trading partner. Johannes Schuback and Sohne Handelsgesellschaft m.b.n. & Co. (Schuback Hamburg) regarding the spare parts defendant wanted to order. On October 16, 1981, defendant submitted to plaintiff a list of the parts he wanted to purchase with specific part numbers and description. Plaintiff referred the list to Schuback Hamburg for quotations. Upon receipt of the quotations, plaintiff sent to defendant a letter dated 25 November, 1981 enclosing its offer on the items listed by defendant. On December 17, 1981, plaintiff submitted its formal offer containing the item number, quantity, part number, description, unit price and total to defendant. OntoDecember, 24, 1981, defendant informed plaintiff of his desire avail of the prices of the parts at that time and enclosed Purchase Order No. 0101 dated 14 December 1981. Said Purchase Order contained the item number, part number and description. Defendant promised to submit the quantity per unit he wanted


to order on December 28 or 29. Plaintiff immediately ordered the items needed by defendant from Schuback Hamburg to enable defendant to avail of the old prices. Schuback Hamburg in turn ordered (Order No. 12204) the items from NDK, a supplier of MAN spare parts in West Germany. On January 4, 1982, Schuback Hamburg sent plaintiff a proforma invoice to be used by defendant in applying for a letter of credit. Said invoice required that the letter of credit be opened in favor of Schuback Hamburg. Defendant acknowledged receipt of the invoice. An order confirmation was later sent by Schuback Hamburg to plaintiff which was forwarded to and received by defendant on February 3, 1981. In the meantime, Schuback Hamburg received invoices from, NDK for partial deliveries on Order No.12204. Schuback Hamburg paid NDK. The latter confirmed receipt of payments made on February 16, 1984. On October 18, 1982, Plaintiff again reminded defendant of his order and advised that the case may be endorsed to its lawyers. Defendant replied that he did not make any valid Purchase Order and that there was no definite contract between him and plaintif. Plaintiff sent a rejoinder explaining that there is a valid Purchase Order and suggesting that defendant either proceed with the order and open a letter of credit or cancel the order and pay the cancellation fee of 30% of F.O.B. value, or plaintiff will endorse the case to its lawyers. Schuback Hamburg issued a Statement of Account to plaintiff enclosing therewith Debit Note charging plaintiff 30% cancellation fee, storage and interest charges in the total amount of DM 51,917.81. Said amount was deducted from plaintiff's account with Schuback Hamburg. Demand letters sent to defendant by plaintiff's counsel dated March 22, 1983 and June 9, 1983 were to no avail ISSUE: Whether or not a contract of sale has been perfected between the parties. RULING Article 1319 of the Civil Code states: "Consent is manifested by the meeting of the offer and 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." The facts presented to us indicate that consent on both sides has been manifested. The offer by petitioner was manifested on December 17, 1981 when petitioner submitted its proposal containing the item number, quantity, part number, description, the unit price and total to private respondent. On December 24, 1981, private respondent informed petitioner of his desire to avail of the prices of the parts at that time and simultaneously enclosed its


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA Purchase Order No. 0l01 dated December 14, 1981. At this stage, a meeting of the minds between vendor and vendee has occurred, the object of the contract: being the spare parts and the consideration, the price stated in petitioner's offer dated December 17, 1981 and accepted by the respondent on December 24,1981. Although said purchase order did not contain the quantity he wanted to order, private respondent made good, his promise to communicate the same on December 29, 1981. At this juncture, it should be pointed out that private respondent was already in the process of executing the agreement previously reached between the parties. Indeed a perfection of contract was reached between the parties, we differ as to the exact date when it occurred, for perfection took place, not on December 29, 1981. Although the quantity to be ordered was made determinate only on December 29, 1981, quantity is immaterial in the perfection of a sales contract. What is of importance is the meeting of the minds as to the object and cause, which from the facts disclosed, show that as of December 24, 1981, these essential elements had already occurred. On the part of the buyer, the situation reveals that private respondent failed to open an irrevocable letter of credit without recourse in favor of Johannes Schuback of Hamburg, Germany. This omission, however. does not prevent the perfection of the contract between the parties, for the opening of the letter of credit is not to be deemed a suspensive condition. The facts herein do not show that petitioner reserved title to the goods until private respondent had opened a letter of credit. Petitioner, in the course of its dealings with private respondent, did not incorporate any provision declaring their contract of sale without effect until after the fulfillment of the act of opening a letter of credit. The opening of a letter of credit in favor of a vendor is only a mode of payment. It is not among the essential requirements of a contract of sale enumerated in Article 1305 and 1474 of the Civil Code, the absence of any of which will prevent the perfection of the contract from taking place.


precluded from denying the seller's authority to sell.

Exception (When Seller Must Be the Owner at Time of Sale) The exception to the rule that ownership by the seller is not essential at the time of perfection would be in the case of judicial sale. Alcantara-Daus vs. De Leon (June 16, 2003) FACTS A parcel of land (Lot No. 4786 of the Cadastral Survey of San Manuel) situated in the Municipality of San Manuel, Bounded on the NW., by Lot No. 4785; and on the SE., by Lot Nos. 11094 & 11096; containing an area of 4,212 sq. m., more or less. Covered by Original Certificate of Title No. 22134 of the Land Records of Pangasinan.’which [Respondent] Hermoso de Leon inherited from his father Marcelino de Leon by virtue of a [D]eed of [E]xtra-judicial [P]artition. Sometime in the early 1960s, [respondents] engaged the services of the late Atty. Florencio Juan to take care of the documents of the properties of his parents. Atty. Juan let them sign voluminous documents. After the death of Atty. Juan, some documents surfaced and most revealed that their properties had been conveyed by sale or quitclaim to [Respondent] Hermoso’s brothers and sis ters, to Atty. Juan and his sisters, when in truth and in fact, no such conveyances were ever intended by them. His signature in the [D]eed of [E]xtrajudicial [P]artition with [Q]uitclaim made in favor of Rodolfo de Leon was forged. They discovered that the land in question was sold by Rodolfo de Leon to [Petitioner] Aurora Alcantara. They demanded annulment of the document and reconveyance but defendants refused. Aurora Alcantara-Daus [averred] that she bought the land in question in good faith and for value on December 6, 1975. [She] has been in continuous, public, peaceful, open possession over the same and has been appropriating the produce thereof without objection from anyone.

4) OBLIGATION TO TRANSFER OWNERSHIP

ISSUE: Whether or not the Deed of Absolute Sale dated December 6, 1975 executed by Rodolfo de Leon (deceased) over the land in question in favor of petitioner was perfected and binding upon the parties therein?

Obligation of the Seller

RULING

Article 1459.The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered.

Petitioner argues that, having been perfected, the Contract of Sale executed on December 6, 1975 was thus binding upon the parties thereto. A contract of sale is consensual. It is perfected by mere consent, upon a meeting of the minds on the offer and the acceptance thereof based on subject matter, price and terms of payment.At this stage, the seller’s ownership of the thing sold is not an element in the perfection of the contract of sale. The contract, however, creates an obligation on the

General Rule (Seller may not be the Owner of the Object) Article 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


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA part of the seller to transfer ownership and to deliver the subject matter of the contract. It is during the delivery that the law requires the seller to have the right to transfer ownership of the thing sold. In general, a perfected contract of sale cannot be challenged on the ground of the seller’s non -ownership of the thing sold at the time of the perfection of the contract. Further, even after the contract of sale has been perfected between the parties, its consummation by delivery is yet another matter. It is through tradition or delivery that the buyer acquires the real right of ownership over the thing sold. Undisputed is the fact that at the time of the sale, Rodolfo de Leon was not the owner of the land he delivered to petitioner. Thus, the consummation of the contract and the consequent transfer of ownership would depend on whether he subsequently acquired ownership of the land in accordance with Article 1434 of the Civil Code. Therefore, we need to resolve the issue of the authenticity and the due execution of the Extrajudicial Partition and Quitclaim in his favor.


amounts defendants failed to pay, and the same day the said arrangement 6 was made; another covenant 7 was entered into by the parties, whereby defendants agreed to return to plaintiffs the lands in question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants to return the same but despite the intervention of the Barangay Captain of their place, defendants refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to court for relief. In their Answer, defendants-appellees theorized that they acquired the lands in question from the Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs when defendant Anacleto Nool signed the private writing, agreeing to return subject lands when plaintiffs have the money to redeem the same; defendant Anacleto having been made to believe, then, that his sister, Conchita, still had the right to redeem the said properties. ISSUE: Are Exhibits "C" and "D" Valid and Enforceable?

Nool vs. CA (July 24, 1997) FACTS Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare. It was formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-74950. With an area of 3.0880 hectares, the other parcel was previously owned by Francisco Nool under Transfer Certificate of Title No. T-100945. Both parcel's are situated in San Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now the appellants, seek recovery of the aforementioned parcels of land from the defendants, Anacleto Nool, a younger brother of Conchita, and Emilia Nebre, now the appellees. In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject parcels of land, and they bought the same from Conchita's other brothers, Victorino Nool and Francisco Nool; that as plaintiffs were in dire need of money, they obtained a loan from the Ilagan Branch of the Development Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said parcels of land, which were still registered in the names of Victorino Nool and Francisco Nool, at the time, and for the failure of plaintiffs to pay the said loan, including interest and surcharges, totaling P56,000.00, the mortgage was foreclosed; that within the period of redemption, plaintiffs contacted defendant Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the latter did; and as a result, the titles of the two (2) parcels of land in question were transferred to Anacleto Nool; that as agreed part oftotheir or understanding, Anacleto Nool buy arrangement from plaintiff Conchita Nool the two (2) parcels of land under controversy, for a total price of P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of P14,000.00, plaintiffs were to regain possession of the two (2) hectares of land, which

RULING Article 1370 of the Civil Code is applicable only to valid and enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal contract of sale contained in Exhibit C and the auxiliary contract of repurchase in Exhibit D are both void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of Appeals, 16 where the Court held: Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were no longer owners of the same and the sale is null and void. In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C, it is itself void. A void contract cannot give rise to a valid one. 17 Verily, Article 1422 of the Civil Code provides that "(a) contract which is the direct result of a previous illegal contract, is also void and inexistent." We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code. 18 Moreover, the Civil Code 19itself recognizes a sale where the goods are to be "acquired . . . by the seller after the perfection of the contract of sale," clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative 20 and may


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LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA thus fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: "Those which contemplate an impossible service." Article 1459 of the Civil Code provides that "the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has become impossible. Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with 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." Here, there is no allegation at all that petitioners were authorized by DBP to sell the property to the private respondents. Jurisprudence, on the other hand, teaches us that "a person can sell only what he owns or is authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally transfer." 21 No one can give what he does not have — nono dat quod non habet. On the other hand, Exhibit D presupposes that petitioners could repurchase the property that they "sold" to private respondents. As petitioners "sold" nothing, it follows that they can also "repurchase" nothing. Nothing sold, nothing to repurchase. In this light, the contract of repurchase is also inoperative — and by the same analogy, void.

Heirs of San Miguel vs. CA (September 4, 2001) FACTS This case involves a parcel of land srcinally claimed by Severina San Miguel (petitioners' predecessor-in-interest, hereafter, "Severina").Without Severina's knowledge, Dominador managed to cause the subdivision of the land into three (3) lots. On July 19, 1977, the Land Registration Commission (hereafter "LRC") rendered a decision directing the issuance of Original Certificate of Title No. 0-1816 in the names of Dominador, et al. On or about August 22, 1978, Severina filed with the Court of First Instance of Cavite a petition for review of the decision alleging that the land registration proceedings were fraudulently concealed by Dominador from her. The trial court issued an order in favor of Severina's heirs. On August 6, 1993, Severina's heirs, decided not to pursue the writs of possession and demolition and entered into a compromise with Dominador, et al. According to the compromise, Severina's heirs were to sell the subject lots10 to Dominador, et al. for P1.5 M with the delivery of Transfer Certificate of Title No. (hereafter, "the certificate of title") conditioned uponT-223511 the purchase of another lot 11 which was not yet titled at an additional sum of P300,000.00. On the same day, on August 6, 1993, pursuant to the kasunduan, Severina's heirs and Dominador, et al. executed a deed of sale designated as "kasulatan sa bilihan ng lupa."


On November 16, 1993, Dominador, et al. filed with the trial court, Branch 19, Bacoor, Cavite, a motion praying that Severina's heirs deliver the owner's copy of the certificate of title to them. In time, Severina's heirs opposed the motion stressing that under the kasunduan, the certificate of title would only be surrendered upon Dominador, et al.'s payment of the amount P300,000.00 within two months from August 6, 1993, which was not complied with. Dominador, et al. admitted non-payment of P300,000.00 for the reason that Severina's heirs have not presented any proof of ownership over the untitled parcel of land covered by LRC-Psu-1312. Apparently, the parcel of land is declared in the name of a third party, a certain Emiliano Eugenio. ISSUE: Whether Dominador, et al. may be compelled to pay the P300,000.00 as agreed upon in the kasunduan (as a prerequisite for the release of the certificate of title), despite Severina's heirs' lack of evidence of ownership over the parcel of land. RULING No. Although a contract is the law between the parties, the provisions of positive law which regulate contracts are deemed written therein and shall limit and govern the relations between the parties. True, in contracts of sale, the vendor need not possess title to the thing sold at the perfection of the contract. However, the vendor must possess title and must be able to transfer title at the time of delivery. In a contract of sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the thing sold. Under the facts of the case, Severina's heirs are not in a position to transfer title. Without passing on the question of who actually owned the land covered by LRC Psu -1312, we note that there is no proof of ownership in favor of Severina's heirs. In fact, it is a certain Emiliano Eugenio, who holds a tax declaration over the said land in his name. Though tax declarations do not prove ownership of the property of the declarant, tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for prescription. Severina's heirs have nothing to counter this document. Therefore, to insist that Dominador, et al. pay the price under such circumstances would result in Severina's heirs' unjust enrichment. Basic is the principle in law, "Niguno non deue enriquecerse tortizamente condano de otro." The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or promised. In Nool v. Court of Appeals,43 we held that if the sellers cannot deliver the object of the sale to the buyers, such contract may be deemed to be inoperative. By analogy, such a contract may fall under Article 1405, No. 5 of the Civil Code, to wit: ARTICLE 1405. The following contracts are inexistent


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and void from the beginning: . . . (5) Those which contemplate an impossible service. xxx xxx xxx Severina's heirs insist that delivery of the certificate of title is predicated on a condition — payment of three hundred thousand pesos (P300,000.00) to cover the sale of Lot 3 of LRO Psu 1312. We find this argument not meritorious. The condition cannot be honored for reasons afore-discussed. Article 1183 of the Civil Code provides that, "Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid, x x x" Hence, the non-payment of the three hundred thousand pesos (P300,000.00) is not a valid justification for refusal to deliver the certificate of title.

---- END OF 1ST EXAM COVERAGE ----


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Sales SR TSN 1st Exam 2016 2017

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