1.

SILVESTRE DIGNOS and ISABEL LUMUNGSOD, petitioners,

vs.
HON. COURT OF APPEALS and ATILANO G. JABIL, respondents

FACTS: Dignos spouses were owners of a parcel of land, On June 7, 1965, appellants
(petitioners) Dignos spouses sold the said parcel of land to plaintiff-appellant (respondent
Atilano J. Jabil) for the sum of P28,000.00, payable in two installments, with an assumption of
indebtedness with the First Insular Bank of Cebu in the sum of P12,000.00, which was paid and
acknowledged by the vendors in the deed of sale executed in favor of plaintiff-appellant, and
the next installment in the sum of P4,000.00 to be paid on or before September 15, 1965.

On November 25, 1965, the Dignos spouses sold the same land in favor of, Luciano Cabigas and
Jovita L. De Cabigas, who were then U.S. citizens, for the price of P35,000.00. A deed of
absolute sale was executed by the Dignos spouses in favor of the Cabigas spouses, and which
was registered in the Office of the Register of Deeds.

As the Dignos spouses refused to accept from plaintiff-appellant the balance of the purchase
price of the land, and as plaintiff- appellant discovered the second sale made by defendants-
appellants to the Cabigas spouses, plaintiff-appellant brought the present suit. In bolstering
their contention that the said contract is merely a contract to sell, petitioners aver that there is
absolutely nothing in Contract that indicates that the vendors thereby sell, convey or transfer
their ownership to the alleged vendee. Petitioners insist that Contract is a private instrument
and the absence of a formal deed of conveyance is a very strong indication that the parties did
not intend "transfer of ownership and title but only a transfer after full payment" . Moreover,
petitioners anchored their contention on the very terms and conditions of the contract, more
particularly paragraph four which reads, "that said spouses has agreed to sell the herein
mentioned property to Atilano G. Jabil ..." and condition number five which reads, "that the
spouses agrees to sign a final deed of absolute sale over the mentioned property upon the
payment of the balance of four thousand pesos."

Issue: Is the contract between the parties a contract of sale or a contract to sell?

HELD:

Thus, it has been held that a deed of sale is absolute in nature although denominated as a
"Deed of Conditional Sale" where nowhere in the contract in question is a proviso or stipulation
to the effect that title to the property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the
contract the moment the vendee fails to pay within a fixed period Taguba v. Vda. de Leon, 132
SCRA 722; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305).
A careful examination of the contract shows that there is no such stipulation reserving the title
of the property on the vendors nor does it give them the right to unilaterally rescind the
contract upon non-payment of the balance thereof within a fixed period.

On the contrary, all the elements of a valid contract of sale under Article 1458 of the Civil
Code, are present, such as: (1) consent or meeting of the minds; (2) determinate subject
matter; and (3) price certain in money or its equivalent. In addition, Article 1477 of the same
Code provides that "The ownership of the thing sold shall be transferred to the vendee upon
actual or constructive delivery thereof." As applied in the case of Froilan v. Pan Oriental
Shipping Co., et al. (12 SCRA 276), this Court held that in the absence of stipulation to the
contrary, the ownership of the thing sold passes to the vendee upon actual or constructive
delivery thereof.

While it may be conceded that there was no constructive delivery of the land sold in the case at
bar, as subject Deed of Sale is a private instrument, it is beyond question that there was actual
delivery thereof. As found by the trial court, the Dignos spouses delivered the possession of the
land in question to Jabil as early as March 27,1965 so that the latter constructed thereon Sally's
Beach Resort also known as Jabil's Beach Resort in March, 1965; Mactan White Beach Resort on
January 15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts were admitted
by petitioner spouses

Moreover, the Court of Appeals in its resolution dated December 16, 1981 found that the acts
of petitioners, contemporaneous with the contract, clearly show that an absolute deed of sale
was intended by the parties and not a contract to sell.

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.

2. Tan Vs Benolirao

FACTS: A 689 sq.m. parcel of land in Tagaytay City with TCT №. 26432, co-owned by respondent
spouses Lamberto and Erlinda Benolirao and spouses Reynaldo and Norma Taningco, was the
subject of a Deed of Conditional Sale in favor of petitioner Delfin Tan for P 1,378,000. Pursuant
to the deed, petitioner paid the P 200,000 downpayment. Then, Lamberto Benolirao died and an
extrajudicial settlement of his estate was executed which caused the issuance of a new
certificate of title over the property (TCT №. 27355) with a corresponding annotation in
accordance with Section 4, Rule 74 of the Rules of Court. Despite a second extension, petitioner
failed to comply with his obligation to pay the remaining balance due. In response to the
demand letter subsequently sent by the vendors, petitioner demanded the return of his
downpayment, contending that the annotation on the title was an encumberance on the
property that would prevent the vendors from delivering a clear title to him. When the vendors
refused, petitioner filed a complaint for specific performance and caused the annotation of a
notice of lis pendens on the title. Respondents filed a motion for cancellation of the notice of lis
pendens and was granted. The lower court, after due proceedings, ruled that the forfeiture was
proper while the Court of Appeals affirmed in toto hence, the present petition.

ISSUES: Whether or not the Contract is a contract to SELL

HELD: Contract is a mere contract to sell

A contract is what the law defines it to be, taking into consideration its essential elements, and
not what the contracting parties call it.[8] Article 1485 of the Civil Code 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.

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid
or promised.[9]
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, i.e.,full payment of the purchase
price.[10] 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 the present case, the true nature of the contract is revealed by paragraph D thereof,
which states:
xxx
d) That in case, BUYER has complied with the terms and conditions of this contract,
then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of
Absolute Sale;

xxx

Jurisprudence has established that where the seller promises to execute a deed of
absolute sale upon the completion by the buyer of the payment of the price, the contract is
only a contract to sell.[12] Thus, while the contract is denominated as a Deed of Conditional Sale,
the presence of the above-quoted provision identifies the contract as being a mere contract to
sell.

Contract to sell is not rescinded but terminated

What then happens to the contract?

We have held in numerous cases[18] that the remedy of rescission under Article 1191
cannot apply to mere contracts to sell. We explained the reason for this in Santos v. Court of
Appeals,[19] where we said:

[I]n a contract to sell, title remains with the vendor and does not pass on to the
vendee until the purchase price is paid in full. Thus, in a contract to sell, the
payment of the purchase price is a positive suspensive condition. Failure to pay
the price agreed upon is not a mere breach, casual or serious, but a situation
that prevents the obligation of the vendor to convey title from acquiring an
obligatory force. This is entirely different from the situation in a contract of sale,
where non-payment of the price is a negative resolutory condition. The effects in
law are not identical. In a contract of sale, the vendor has lost ownership of the
thing sold and cannot recover it, unless the contract of sale is rescinded and set
aside. In a contract to sell, however, the vendor remains the owner for as long
as the vendee has not complied fully with the condition of paying the purchase
price. If the vendor should eject the vendee for failure to meet the condition
precedent, he is enforcing the contract and not rescinding it. x x x Article 1592
speaks of non-payment of the purchase price as a resolutory condition. It does
not apply to a contract to sell. As to Article 1191, it is subordinated to the
provisions of Article 1592 when applied to sales of immovable property. Neither
provision is applicable [to a contract to sell]. [Emphasis supplied.]

We, therefore, hold that the contract to sell was terminated when the vendors could no
longer legally compel Tan to pay the balance of the purchase price as a result of the legal
encumbrance which attached to the title of the property. Since Tans refusal to pay was due to
the supervening event of a legal encumbrance on the property and not through his own fault or
negligence, we find and so hold that the forfeiture of Tans down payment was clearly
unwarranted. hold that the contract to sell was terminated when the vendors could no longer
legally compel Tan to pay the balance of the purchase price as a result of the legal
encumbrance which attached to the title of the property.

3. LINO ARTATES
vs.
DANIEL URBI,
FACTS: In September 1952, the proper land authorities issued in favor of herein appellant Lino
Artates and Manuela Pojas (spouses Artates) a homestead which is covered by Patent No. V-
12775 and duly registered in their names (OCT No. P-572). In October 1955, Lino Artates
inflicted injuries upon herein defendant Daniel Urbi who then filed Civil Case No. 40 against the
former. The Justice of the Peace of Court of the CFI of Camilaniugan, Cagayan, awarded
damages in favor of Urbi in the amount of P1,476.35, so in June 1962, the Provincial Sheriff of
Cagayan made a public sale of the homestead to satisfy the said judgment.

The spouses Artates alleged that the sale of the homestead to satisfy Lino Artates’
indebtedness accrued in October 1955 violated the provision of the Public Land Law exempting
said property from execution for any debt contracted within five years from the date of the
issuance of the patent, and that Urbi executed a deed of sale of the same parcel of land in June
1961 for the sum of P2,676.35 to herein defendant Crisanto Soliven, who was a minor, to
defraud them.

In March 1953, the CFI of Camilaniugan, Cagayan, upheld the execution made by the Provincial
Sheriff upon the homestead, and at declared null and void the sale of the land between Urbi
and Soliven.

Issue: whether or not a homestead patent may be subject of a sale.

HELD: Section 118 of the Public Land law (Commonwealth Act 141) provides as follows:

SEC. 118. Except in favor of the Government or any of its branches, units, or institution, or
legally constituted banking corporations, lands acquired under free patent or homestead
provisions shall not be subject to encumbrance or alienation from the date of the approval of
the application and for a term of five years from and after the date of issuance of the patent or
grant, nor shall they become liable to the satisfaction of any debt contracted prior to the
expiration of said period, but the improvements or crops on the land may be mortgaged or
pledged to qualified persons, associations or corporations.

As thus prescribed by law, for a period of five years from the date of the government grant,
lands acquired by free or homestead patent shall not only be incapable of being encumbered or
alienated except in favor of the government itself or any of its institutions or of duly constituted
banking corporations, but also, they shall not be liable to the satisfaction of any debt contracted
within the said period,3 whether or not the indebtedness shall mature during or after the
prohibited time. This provision against the alienation or encumbrance of public lands granted
within five years from the issuance of the patent, it has been held, is mandatory;5 a sale made
in violation thereof is null and void6 and produces no effect whatsoever. Though it may be a
limitation on the right of ownership of the grantee, the salutary purpose of the provision
cannot be denied: it is to preserve and keep for the homesteader or his family the land given to
him gratuitously by the State,7 so that being a property owner, he may become and remain a
contented and useful member of our society.8

In the case at bar, the homestead patent covering the land in question (No.
V-12775) was issued to appellants on 23 September 1952, and it was sold at public auction to
satisfy the civil liability of appellant Lino Artates to Daniel Urbi, adjudged in the 14 March 1956
decision of the Justice of the Peace Court of Camalaniugan, Cagayan. There can be no doubt
that the award of damages to Urbi created for Artates a civil obligation, an indebtedness, that
commenced from the date such obligation was decreed on 14 March 1956. Consequently, it is
evident that it can not be enforced against, or satisfied out of, the sale of the homestead lot
acquired by appellants less than 5 years before the obligation accrued. And this is true even if
the sale involved here is not voluntary. For purposes of complying with the law, it is immaterial
that the satisfaction of the debt by the encumbrancing or alienation of the land grant made
voluntarily, as in the case of an ordinary sale, or involuntarily, such as that effected through levy
on the property and consequent sale at public auction. In both instances, the spirit of the law
would have been violated.9

4. HEIRS OF ENRIQUE ZAMBALES vs.

COURT OF APPEALS

FACTS: The spouses Enrique Zambales and Joaquina Zambales (the Zambaleses), who are
illiterate, were the homestead patentees of a parcel of land in the Municipality of Del Pilar,
Roxas, Palawan, pursuant to Homestead Patent No. V-59502 dated September 6, 1955. They
claimed in November 1956 that respondent Nin Bay Mining Corporation (Corporation) had
removed silica sand from their land and destroyed the plants and other improvements thereon,
to which said Corporation denied to have done so. On October 29, 1959, the Zambaleses, duly
assisted by their counsel, Atty. Perfecto de los Reyes, and the Corporation, entered into a
Compromise Agreement which state, among others, that the Zambaleses are giving the
Corporation full power and authority to sell, transfer and convey on September 10, 1960 or at
any time thereafter the whole or any part of herein subject property.

On September 10, 1960, the Corporation sold the disputed property to Joaquin B. Preysler for
the sum of P8,923.70 fixed in the Compromise Agreement. On December 6, 1969, or ten (10)
years after the Trial Court's Decision based on the Compromise Agreement, and nine (9) years
after the sale to Preysler, the Zambaleses filed a civil action in the CFI of Palawan for
"Annulment of a Deed of Sale with Recovery of Possession and Ownership with Damages”,
alleging that Atty. de los Reyes and the Corporation induced them through fraud, deceit and
manipulation to sign the Compromise Agreement.
The trial court declared null and void the deed of sale executed between Preysler and the
Corporation, but the Court of Appeals reversed the said decision after finding that the alleged
fraud or misrepresentation in the execution of the Compromise Agreement had not been
substantiated by evidence.

ISSUE:

Are the compromise agreement and the subsequent deed of sale valid and legal?

RULING:

The Supreme Court sustained the finding of the appellate court that fraud and
misrepresentation did not vitiate petitioners' consent to the Agreement because the latter
were not as ignorant as they themselves tried to show. The Zambaleses were political leaders
who speak in the platform during political rallies, and the lawyers they have hired belong to
well-established law firms in Manila, which show that although they were illiterate, they are
still well-informed. However, while the Compromise Agreement was held to be in violation of
the Public Land Act, which prohibits alienation and encumbrance of a homestead lot within five
years from the issuance of the patent. Although the issue was not raised in the Courts below,
the Supreme Court has the authority to review matters even if they are not assigned as errors
in the appeal, if it is found that their consideration is necessary in arriving at a just decision of
the case. The bilateral promise to sell between the Zambaleses and the Corporation, and the
subsequent deed of sale between Preysler and the latter were declared null and void

5. ANDRES QUIROGA

vs.
PARSONS HARDWARE CO

FACTS: A contract was entered into by herein plaintiff Quiroga and defendant J. Parsons wherein
the former granted the latter with the exclusive right to sale Quiroga beds in the Visayan Islands
subject to conditions. A complaint was filed by plaintiff averring that defendant violated the ff.
obligations: not to sell the beds at higher prices than those of the invoices; to have an open
establishment in Iloilo; itself to conduct the agency; to keep the beds on public exhibition, and to
pay for the advertisement expenses for the same; and to order the beds by the dozen and in no
other manner. With the exception of the obligation on the part of the defendant to order the
beds by the dozen and in no other manner, none of the obligations imputed to the defendant in
the are expressly set forth in the contract. Plaintiff alleged that the defendant was his agent for
the sale of his beds in Iloilo, and that said obligations are implied in a contract of commercial
agency.

ISUUE: Whether or not the contact is a contract of sale or a contract of agency.

HELD: the contract is a contract of Sale.

In order to classify a contract, due regard must be given to its essential clauses. In the contract
in question, what was essential, as constituting its cause and subject matter, is that 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. The price agreed upon
was the one determined by the plaintiff for the sale of these beds in Manila, with a discount of
from 20 to 25 per cent, according to their class. Payment was to be made at the end of sixty
days, or before, at the plaintiff's request, or in cash, if the defendant so preferred, and in these
last two cases an additional discount was to be allowed for prompt payment. These are
precisely the essential features of a contract of purchase and sale. There was the obligation on
the part of the plaintiff to supply the beds, and, on the part of the defendant, 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. By virtue of the contract between the plaintiff and the
defendant, the latter, on receiving the beds, was necessarily obliged to pay their price within
the term fixed, without any other consideration and regardless as to whether he had or had not
sold the beds.

It would be enough to hold, as we do, that the contract by and between the defendant and
the plaintiff is one of purchase and sale, in order to show that it was not one made on the
basis of a commission on sales, as the plaintiff claims it was, for these contracts are
incompatible with each other. But, besides, examining the clauses of this contract, none of
them is found that substantially supports the plaintiff's contention. Not a single one of these
clauses necessarily conveys the idea of an agency. The words commission on sales used in
clause (A) of article 1 mean nothing else, as stated in the contract itself, than a mere discount
on the invoice price. The word agency, also used in articles 2 and 3, only expresses that the
defendant was the only one that could sell the plaintiff's beds in the Visayan Islands. With
regard to the remaining clauses, the least that can be said is that they are not incompatible
with the contract of purchase and sale.

6. CONCRETE AGGREGATES, INC. VS. COURT OF TAX APPEALS

FACTS: The records disclose that petitioner is a domestic corporation, duly organized and
existing under the laws of the Philippines, with business address at Longos, Quezon City. It has
an aggregate plant at Montalban, Rizal which processes rock aggregates mined by it from
private lands. Petitioner also maintains and operates a plant at Longos, Quezon City for the
production of ready-mixed concrete and plant-mixed hot asphalt.

Sometime in 1968, the agents of respondent commissioner conducted an investigation of

petitioner's tax liabilities. As a consequence thereof, in a letter dated December 14, 1970 said
respondent assessed and demanded payment from petitioner of the amount of P244,002.76 as
sales and ad valorem taxes for the first semester of 1968, inclusive of surcharges. Petitioner
disputed the said assessment in its letter dated February 2, 1971 without, however, contesting
the portion pertaining to the ad valorem tax. Consequently, demand for the payment of the
said amount within ten days from receipt of the letter was made by respondent on petitioner,
otherwise the same would be collected thru the summary remedies provided for by law.
Instead of paying, petitioner appealed to respondent court. Petitioner contends that its
business falls under "other construction work contractors" or "other independent contractors"
and, as such, it was a holder of a license under Republic Act No. 4566, otherwise known as the
"Contractors Licensing Law" and was classified thereunder as a "general engineering
contractor" and "specialty asphalt and concrete contractor. 7 It advances the theory that it
produced asphalt and concrete mix only upon previous orders, which may be proved by its
system of requiring the filling of job orders where the customers specify the construction
requirements, and that without such order, it would not do so considering the highly perishable
nature of the asphalt and concrete mix. 8

It emphasizes that the mixing of asphalt and cement, if they were to be sold to the public, is not
a simple matter of putting things together in a rotating bowl but involves a careful selection of
components, proper measuring and weighing of ingredients, calibration of the plant to arrive at
the right mixing temperature, and testing of the strength of the material, altogether using its
own means and methods without submitting itself to control by the customers. 9

ISSUE: Is the petitioner a contractor subject to the 3% contractor's tax under Section 191 or a
manufacturer subject to the 7% sales tax under Section 186?

HELD: The Supreme Court affirmed respondent CTA’s decision and declared that petitioner is a
manufacturer as defined by Section 194(x), now Section 187(x), of the Tax Code. It reiterated
the respondent CTA’s finding that petitioner was formed and organized primarily as a
manufacturer; that it has an aggregate plant at Montalban, Rizal, which processes rock
aggregates mined by it from private lands; it operates a concrete batching plant at Longos,
Quezon City where the specified aggregates from its plant at Montalban are mixed with sand
and cement, after which water is added and the concrete mixture is sold and delivered to
customers; and at its plant site at Longos, Quezon City, petitioner has also an asphalt mixing
machinery where bituminous asphalt mix is manufactured.
 Engineering, in a nutshell, fabricates, assembles, supplies and installs in the buildings of its
various customers the central type air conditioning system; prepares the plans and
specifications therefor which are distinct and different from each other; the air conditioning
units and spare parts or accessories thereof used by petitioner are not the window type of air
conditioners which are manufactured, assembled and produced locally for sale to the general
market; and the imported air conditioning units and spare parts or accessories thereof are
supplied and installed by petitioner upon previous orders of its customers conformably with
their needs and requirements.

The facts and circumstances aforequoted support the theory that Engineering is a contractor
rather than a manufacturer.

It is still good law that a contract to make is a contract of sale if the article is already
substantially in existence at the time of the order and merely requires some alteration,
modification or adaptation to the buyer's wishes or purposes. A contract for the sale 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 for the sale of
goods. 19

Petitioner insists that it would produce asphalt or concrete mix only upon previous job orders
otherwise it would not do so. It does not and will not carry in stock cement and asphalt
mix. But the reason is obvious. What practically prevents the petitioner from mass production
and storage is the nature of its products, that is, they easily harden due to temperature change
and water and cement reaction. Stated differently by respondent court, "it is self-evident that
it is due to the highly perishable nature of asphalt and concrete mix, as petitioner itself argues,
that makes impossible for them to be carried in stock because they cool and harden with time,
and once hardened, they become useless.

Had it not been for this fact, petitioner could easily mass produce the ready-mixed concrete or
asphalt desired and needed by its various customers and for which it is mechanically equipped
to do. It is clear, however, that petitioner does nothing more than sell the articles that it
habitually manufactures. It stocks raw materials, ready at any time, for the manufacture of
asphalt and/or concrete mix. Its marketing system would readily disclose that its products are
available for sale to anyone needing them. Whosoever would need its products, whether
builder, contractor, homeowner or payer with sufficient money, may order aggregates,
concrete mix or bituminous asphalt mix of the kind manufactured by petitioner. The habituality
of the production of goods for the general public characterizes the business of petitioner.

We are likewise persuaded by the submissions of the Solicitor General that the ruling
in Celestino Co & Company vs. Collector of Internal Revenue s applicable to this case in that
unless an activity is covered by Section 191 of the Tax Code, one who manufactures articles,
although upon a previous order and subject to the specifications of the buyer, is nonetheless a
manufacturer.
We also reject petitioner's theory that, with the amendment of Section 191 of the Tax Code, it
can be considered as a "specialty contractor." As observed by respondent, a specialty
contractor is one whose operations pertain to construction work requiring special skill and
involves the use of specialized building trades or crafts. The manufacture of concrete and
cement mix do not involve the foregoing requirements as to put it within such special category.

7. People’s Homesite vs. Court of Appeals, and Mendoza133 SCRA 777

FACTS: February 1960, herein petitioner People’s Homesite& Housing Corporation (PHHC)
passed a resolution, subject to the approval of the Court Court Council of the PHHC’s
consolidation subdivision plan, awarding Lot 4 with an area of 4,182.2 square meters located at
Diliman, Court City to respondents Rizalino and Adelaida Mendoza (spouses Mendoza) at a
price of twenty-one pesos (P21.00) per square meter. The Court Court Council disapproved the
consolidation subdivision plan in August 1960 but approved in February 1964 its revised version
where Lot 4 was reduced to an area of 2,608.7 square meters. Then in October 1965, the PHHC
withdrew the tentative award of Lot 4 to the spouses Mendoza for the latter’s failure neither to
pay its price nor to make a 20% initial deposit, and re-awarded said lot jointly and in equal
shares to MiguelaSto. Domingo, Enrique Esteban, Virgilio Pinzon, Leonardo Redublo and Jose
Fernandez, all of whom made the initial deposit. The subdivision of Lot 4 into five lots was later
approved by the Court council and the Bureau of Lands.

The spouses Mendoza asked for reconsideration and for the withdrawal of the said 2nd award
to Sto. Domingo and four others, and at the same time filed an action for specific performance
plus damages. The trial court sustained the award but the Court of Appeals reversed the said
decision, declared void the re-award to Sto. Domingo and four others, and ordered the PHHC to
sell Lot 4 with an area of 2,608.7 square meters at P21.00 per square meter to spouses
Mendoza.

ISSUE: Was there a perfected sale of Lot 4, with its reduced area, between the parties?

COURT RULING: The Supreme Court found that there was no perfected sale of Lot 4 because
the said lot was conditionally or contingently awarded to the Mendozas subject to the approval
by the Court council of the proposed consolidation subdivision plan and the approval of the
award by the valuation committee and higher authorities.

When the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved in 1964,
the spouses Court should have manifested in writing their acceptance of the award for the
purchase of Lot 4 just to show that they were still interested in its purchase although the area
was reduced. Article 1475 of the Civil Court says “[t]he contract of sale is perfected at the
moment there is a meeting of minds upon the thing which is the object of the contract and
upon the price. From that moment, the parties may reciprocally demand performance, subject
to the law governing the form of contracts.” Indeed, there was a no meeting of the minds
between the parties on the purchase of Lot 4 with an area of 2,608.7 square meters at P21 a
square meter and the PHHC board of directors acted within its rights in withdrawing the
tentative award.

8. Toyota Shaw Inc. vs. Court of Appeals, and Sosa

FACTS:

Luna L. Sosa and his son, Gilbert, went to purchase a yellow Toyota Lite Ace from the Toyota
office at Shaw Boulevard, Pasig (petitioner Toyota) on June 14, 1989 where they met Popong
Bernardo who was a sales representative of said branch. Sosa emphasized that he needed the
car not later than June 17, 1989 because he, his family, and a balikbayan guest would be using it
on June 18 to go home to Marinduque where he will celebrate his birthday on June 19.
Bernardo assured Sosa that a unit would be ready for pick up on June 17 at 10:00 in the
morning, and signed the "Agreements Between Mr. Sosa &Popong Bernardo of Toyota Shaw,
Inc.,” a document which did not mention anything about the full purchase price and the
manner the installments were to be paid. Sosa and Gilbert delivered the down payment of
P100,000.00 on June 15, 1989 and Bernardo accomplished a printed Vehicle Sales Proposal
(VSP) No. 928 which showed Sosa’s full name and home address, that payment is by
"installment," to be financed by "B.A.," and that the "BALANCE TO BE FINANCED" is
"P274,137.00", but the spaces provided for "Delivery Terms" were not filled-up.

When June 17 came, however, petitioner Toyota did not deliver the Lite Ace. Hence, Sosa asked
that his down payment be refunded and petitioner Toyota issued also on June 17 a Far East
Bank check for the full amount of P100,000.00, the receipt of which was shown by a check
voucher of Toyota, which Sosa signed with the reservation, "without prejudice to our future
claims for damages." Petitioner Toyota contended that the B.A. Finance disapproved Sosa’s the
credit financing application and further alleged that a particular unit had already been reserved
and earmarked for Sosa but could not be released due to the uncertainty of payment of the
balance of the purchase price. Toyota then gave Sosa the option to purchase the unit by paying
the full purchase price in cash but Sosa refused.

The trial court found that there was a valid perfected contract of sale between Sosa and Toyota
which bound the latter to deliver the vehicle and that Toyota acted in bad faith in selling to
another the unit already reserved for Sosa, and the Court of Appeals affirmed the said decision.

ISSUE: Was there a perfected contract of sale between respondent Sosa and petitioner Toyota?

COURT RULING:
The Supreme Court granted Toyota’s petition and dismissed Sosa’s complaint for damages
because the document entitled “Agreements BetweenMr. Sosa &Popong Bernardo of Toyota
Shaw, Inc.,” was not a perfected contract of sale, but merely an agreement between Mr. Sosa
and Bernardo as private individuals and not between Mr. Sosa and Toyota as parties to a
contract.

There was no indication in the said document of any obligation on the part of Toyota to transfer
ownership of a determinate thing to Sosa and neither was there a correlative obligation on the
part of the latter to pay therefor a price certain. The provision on the downpayment of
P100,000.00 made no specific reference to a sale of a vehicle. If it was intended for a contract
of sale, it could only refer to a sale on installment basis, as VSP No.928 executed on June 15,
1989 confirmed. The VSP also created no demandable right in favor of Sosa for the delivery of
the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.

9. Southwestern Sugar & Molasses Co. vs. Atlantic Gulf & Pacific Company

FACTS:

On March 24, 1953, defendant-appellant Atlantic granted plaintiff-appelleeSouthwestern an

option period of ninety days to buy the formers barge No. 10 for the sum of P30,000. On May
11 of the same year, Southwestern Company communicated its acceptance of the option to
Atlantic through a letter, to which the latter replied that their understanding was that the "offer
of option" is to be a cash transaction and to be effected "at the time the lighter is available." On
June 25, Atlantic advised the Southwestern Company that since there is still further work for it,
the barge could not be turned over to the latter company.

On June 27, 1953, the Southwestern Company filed this action to compel Atlantic to sell the
barge in line with the option, depositing with the court a check covering the sum of P30,000,
but said check was later withdrawn with the approval of the court. On June 29, the Atlantic
withdrew its "offer of option" with due notices to Southwestern Company stating that the
option was granted merely as a favor. The Atlantic contended that the option to sell it made to
Southwestern Company is null and void because said option to sell is not supported by any
consideration.

The trial court granted herein plaintiff-appelleeSouthwestern Company’s action for specific
performance and ordered herein defendant-appellant Atlantic to pay damages equivalent to 6
per centum per annum on the sum of P30,000 from the date of the filing of the complaint.

ISSUE:

Is Atlantic liable for specific performance and to pay damages in favor of Southwestern
Company?
COURT RULING:

The Supreme Court reversed the trial court’s decision applying Article 1479 of the new Civil
Code. The Court reiterated that "an accepted unilateral promise" can only have a binding effect
if supported by a consideration, which means that the option can still be withdrawn, even if
accepted, if said option is not supported by any consideration. The option that Atlantic had
provided was without consideration, hence, can be withdrawn notwithstanding Southwestern
Company’s acceptance of said option.

American jurisprudence hold that an offer, once accepted, cannot be withdrawn, regardless of
whether it is supported or not by a consideration, but the specific provisions of Article 1479
commands otherwise. While under the "offer of option" in question appellant Atlantic has
assumed a clear obligation to sell its barge to appellee Southwestern Company and the option
has been exercised in accordance with its terms, and there appears to be no valid or justifiable
reason for the former to withdraw its offer, the Court cannot adopt a different attitude because
the law on the matter is clear.

10. Atkins Kroll & Co. vs. Cu HianTek

FACTS:

On September 13, 1951, petitioner Atkins Kroll & Co. (Atkins) sent a letter to respondent B. Cu
HianTek (HianTek) offering (a) 400 cartons of Luneta brand Sardines in Tomato Sauce 48 / 15-
oz. Ovals at $8.25 per carton, (b) 300 cartons of Luneta brand Sardines Natural 48/15 oz. talls at
$6.25 per carton, and (c) 300 cartons of Luneta brand Sardines in Tomato Sauce 100/5-oz. talls
at $7.48 per carton, with all of the offers subject to reply by September 23, 1951. HianTek
unconditionally accepted the said offer through a letter delivered on September 21, 1951, but
Atkins failed to deliver the commodities due to the shortage of catch of sardines by the packers
in California.

HianTek, therefore, filed an action for damages in the CFI of Manila which granted the same in
his favor. Upon Atkins’ appeal, the Court of Appeals affirmed said decision but reduced the
damages to P3,240.15 representing unrealized profits. Atkins herein contends that there was
no such contract of sale but only an option to buy, which was not enforceable for lack of
consideration because it is provided under the 2nd paragraph of Article 1479 of the New Civil
Code that "an accepted unilatateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promisor if the promise is supported by a consideration distinct
from the price.” Atkins also insisted that the offer was a mere offer of option, because the "firm
offer" was a continuing offer to sell until September 23.

Was there a contract of sale between the parties or only a unilateral promise to buy?

COURT RULING:
The Supreme Court held that there was a contract of sale between the parties. Petitioner’s
argument assumed that only a unilateral promise arose when the respondent accepted the
offer, which is incorrect because a bilateral contract to sell and to buy was created upon
respondent’s acceptance.

Had B. CuaHianTek backed out after accepting, by refusing to get the sardines and / or to pay
for their price, he could also be sued. But his letter-reply to Atkins indicated that he accepted
"the firm offer for the sale" and that "the undersigned buyer has immediately filed an
application for import license.” After accepting the promise and before he exercises his option,
the holder of the option is not bound to buy. In this case at bar, however, upon respondent’s
acceptance of herein petitioner's offer, a bilateral promise to sell and to buy ensued, and the
respondent had immediately assumed the obligations of a purchaser.

11. Sanchez vs. Rigos

FACTS:

In an instrument entitled "Option to Purchase," executed on April 3, 1961, defendant-appellant

SeverinaRigos "agreed, promised and committed ... to sell" to plaintiff-appellee Nicolas Sanchez
for the sum of P1,510.00 within two (2) years from said date, a parcel of land situated in the
barrios of Abar and Sibot, San Jose, Nueva Ecija. It was agreed that said option shall be deemed
"terminated and elapsed," if “Sanchez shall fail to exercise his right to buy the property" within
the stipulated period. On March 12, 1963, Sanchez deposited the sum of Pl,510.00 with the CFI
of Nueva Ecija and filed an action for specific performance and damages against Rigos for the
latter’s refusal to accept several tenders of payment that Sanchez made to purchase the subject
land.

Defendant Rigos contended that the contract between them was only “a unilateral promise to
sell, and the same being unsupported by any valuable consideration, by force of the New Civil
Code, is null and void." Plaintiff Sanchez, on the other hand, alleged in his compliant that, by
virtue of the option under consideration, "defendant agreed and committed to sell" and "the
plaintiff agreed and committed to buy" the land described in the option. The lower court
rendered judgment in favor of Sanchez and ordered Rigos to accept the sum Sanchez judicially
consigned, and to execute in his favor the requisite deed of conveyance. The Court of Appeals
certified the case at bar to the Supreme Court for it involves a question purely of law.

ISSUE:

Was there a contract to buy and sell between the parties or only a unilateral promise to sell?

COURT RULING:

The Supreme Court affirmed the lower court’s decision. The instrument executed in 1961 is not
a "contract to buy and sell," but merely granted plaintiff an "option" to buy, as indicated by its
own title "Option to Purchase." The option did not impose upon plaintiff Sanchez the obligation
to purchase defendant Rigos' property. Rigos "agreed, promised and committed" herself to sell
the land to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her
aforementioned agreement, promise and undertaking is supported by a consideration "distinct
from the price" stipulated for the sale of the land. The lower court relied upon Article 1354 of
the Civil Code when it presumed the existence of said consideration, but the said Article only
applies to contracts in general.

However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in the
case at bar because the latter’s 2nd paragraph refers to "sales" in particular, and, more
specifically, to "an accepted unilateral promise to buy or to sell." Since there may be no valid
contract without a cause or consideration, the promisor is not bound by his promise and may,
accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,
however, of the nature of an offer to sell which, if accepted, results in a perfected contract of
sale. Upon mature deliberation, the Court reiterates the doctrine laid down in the Atkins case
and deemed abandoned or modified the view adhered to in the Southwestern Company case.

12. FEDERICO SERRA, petitioner,

vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION

FACTS: RCBC, in its desire to put up a branch in Masbate, negotiated with Serra who owns of a
374 square meter parcel of land located at Quezon St., Masbate, Masbate for the purchase of
the then unregistered property. A contract of LEASE WITH OPTION TO BUY was signed by the
party which states:

RCBC will hold the same for a period of 25 years commencing from June 1, 1975 to June 1, 2000
and shall have the option to purchase said parcel of land within a period of ten (10) years from
the date of the signing for 210.00 per sqm and Serra undertakes to register the property under
TORRENS SYSTEM.

CBC is authorized to construct as its sole expense a building and such other improvements on
said parcel of land and if RCBC shall fail to exercise its option to purchase in case the parcel of
land is registered under the TORRENS SYSTEM within the ten-year period, said building and/or
improvements, shall become the property of the Serra after the expiration of the 25-year lease
period without the right of reimbursement on the part of the RCBC.

Serra was able to registered and placed under the TORRENS SYSTEM. 9 years after the signing
of contract, when RCBC decided to exercise its option and informed petitioner, Serra replied
that he is no longer selling the property. A complaint for specific performance and damages
were filed by RCBC against Serra. On Serra’s defense, he averred that the option was not
supported by any consideration distinct from the price and hence not binding upon him. The
trial court rendered decision in favor of RCBC ordering Serra to execute and deliver a proper
deed of sale the respondent. the Court of Appeals affirmed the findings of the trial court
averring that the option is supported by a distinct and separate consideration as embodied in
the agreement.Hence this petion.

ISSUE: W/N the option to purchase by RCBC is supported by consideration distinct from the
price.

HELD: YES.

Article 1479 of the Code provides that an accepted unilateral promise to buy and sell a
determinate thing for a price certain is binding upon the promisor if the promise is supported
by a consideration distinct from the price. Jurisprudence has taught us that an optional contract
is a privilege existing only in one party — the buyer. For a separate consideration paid, he is
given the right to decide to purchase or not, a certain merchandise or property, at any time
within the agreed period, at a fixed price. This being his prerogative, he may not be compelled
to exercise the option to buy before the time expires.

In the present case, the consideration is even more onerous on the part of the lessee since it
entails transferring of the building and/or improvements on the property to petitioner, should
respondent bank fail to exercise its option within the period stipulated.The bugging question
then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A
price is considered certain if it is so with reference to another thing certain or when the
determination thereof is left to the judgment of a specified person or persons. 19 And generally,
gross inadequacy of price does not affect a contract of sale. 20Contracts are to be construed
according to the sense and meaning of the terms which the parties themselves have used. In
the present dispute, there is evidence to show that the intention of the parties is to peg the
price at P210 per square meter

13. Roman vs. Grimalt

FACTS: In between the 13th to the 23d of June, 1904, petitioner Pedro Roman, the
owner, and respondent Andres Grimalt, the purchaser, verbally agreed upon the sale of
the schooner Santa Marina. In his letter on June 23, Grimalt agreed to buy the vessel
and offered to pay in three installments of P500 each on July 15, September 15, and
November 15, provided the title papers to the vessel were in proper form. The title of
the vessel, however, was in the name of one Paulina Giron and not in the name of
Roman as the alleged owner. Roman promised to perfect his title to the vessel, but
failed so the papers he presented did not show that he was the owner of the vessel. On
June 25, 1904, the vessel sank in the Manila harbor during a severe storm, even before
 Roman was able to produce for Grimalt the proper papers showing that the former was
in fact the owner of the vessel in question and not Paulina Giron. As a result, Grimalt
refused to pay the purchase price when Roman made a demand on June 30, 1904. On
July 2, 1904, Roman filed this complaint in the CFI of Manila, which found that the
parties had not arrived at a definite understanding, and later dismissed said complaint.

ISSUE: Who should bear the risk of loss?

COURTRULING: The Supreme Court affirmed the decision of the lower court and
declared Roman as the one who should bear the risk of lost because there was no actual
contract of sale. If no contract of sale was actually executed by the parties, the loss of
the vessel must be borne by its owner and not by a party who only intended to purchase
it and who was unable to do so on account of failure on the part of the owner to show
proper title to the vessel and thus enable them to draw up the contract of sale. Grimalt
was under no obligation to pay the price of the vessel, the purchase of which had not
been concluded. The conversations between the parties and the letter Grimalt had
written to Roman did not establish a contract sufficient in itself to create reciprocal
rights between the parties.

14. Mayfair vs Equatorial

FACTS: Mayfair Theater, Inc. was a lessee of portions of a building owned by Carmelo
&Bauermann, Inc. Their lease contracts of 20. Lease contracts contained a provision granting
Mayfair a right of first refusal to purchase the subject properties. However, before the
contracts ended, the subject properties were sold for P11,300 by Carmelo to Equatorial Realty
Development, Inc. This prompted Mayfair to file a case for the annulment of the Deed of
Absolute Sale between Carmelo and Equatorial, specific performance and damages. The Court
ruled in favor of Mayfair. Barely five months after Mayfair had submitted its Motion for
Execution, Equatorial filed an action for collection of sum of money against Mayfair claiming
payment of rentals or reasonable compensation for the defendant’s use of the subject premises
after its lease contracts had expired. Maxim Theater contract expired, while the Lease Contract
covering the premises occupied by Miramar Theater lapsed. The lower court debunked the
claim of Equatorial for unpaid back rentals, holding that the rescission of the Deed of Absolute
Sale in the mother case did not confer on. Equatorial any vested or residual propriety rights,
even in expectancy. It further ruled that the Court categorically stated that the Deed of
Absolute Sale had been rescinded subjecting the present complaint to res judicata. Hence,
Equatorial filed the present petition.

ISSUE: WON the right of first refusal to be enforceable must among other things indicate a
definite price to grant option

HELD: No we so hold that no option to purchase in contemplation of the second

paragraph of Article 1479 of the Civil Code, has been granted to Mayfair under the said
lease contracts. Respondent Court of Appeals correctly ruled that the said paragraph 8
grants the right of first refusal to Mayfair and is not an option contract. It also correctly
reasoned that as such, the requirement of a separate consideration for the option, has
no applicability in the instant case. There is nothing in the identical Paragraphs "8" of
the June 1, 1967 and March 31, 1969 contracts which would bring them into the ambit
of the usual offer or option requiring an independent consideration.

An option is a contract granting a privilege to buy or sell within an agreed time and at a
determined price. It is a separate and distinct contract from that which the parties may
enter into upon the consummation of the option. It must be supported by
consideration.22 In the instant case, the right of first refusal is an integral part of the
contracts of lease. The consideration is built into the reciprocal obligations of the
parties.

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts
is governed by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy
and sell would render in effectual or "inutile" the provisions on right of first refusal so
commonly inserted in leases of real estate nowadays. The Court of Appeals is correct in
stating that Paragraph 8 was incorporated into the contracts of lease for the benefit of
Mayfair which wanted to be assured that it shall be given the first crack or the first
option to buy the property at the price which Carmelo is willing to accept. It is not also
correct to say that there is no consideration in an agreement of right of first refusal. The
stipulation is part and parcel of the entire contract of lease. The consideration for the
lease includes the consideration for the right of first refusal. Thus, Mayfair is in effect
stating that it consents to lease the premises and to pay the price agreed upon provided
the lessor also consents that, should it sell the leased property, then, Mayfair shall be
given the right to match the offered purchase price and to buy the property at that price.
As stated in Vda. De Quirino vs. Palarca,23 in reciprocal contract, the obligation or
promise of each party is the consideration for that of the other.

The respondent Court of Appeals was correct in ascertaining the true nature of the
aforecited paragraph 8 to be that of a contractual grant of the right of first refusal to
Mayfair.
 15. NORKIS DISTRIBUTORS, INC. vs. COURT OF APPEALS193
FACTS:
Petitioner Norkis Distributors, Inc. is the distributor of Yamaha motorcycles in Negros
Occidental. On September 20, 1979, private respondent Alberto Nepales bought from the
Norkis Bacolod branch abrand new Yamaha Wonderbike motorcycle Model YL2DX. The price of
P7,500.00 was payable by means of a Letter of Guaranty from the DBP, which Norkis agreed to
accept. Credit was extended toNepales for the price of the motorcycle payable by DBP upon
release of his motorcycle loan. As security or the loan, Nepales would execute a chattel
mortgage on the motorcycle in favor of DBP. Petitioner issued a sales invoice
which Nepales signed in conformity with the terms of the sale. In the meantime, however, the
motorcycle remained in Norkis' possession. On January 22, 1980, the motorcycle was
delivered to a certain Julian Nepales, allegedly the agent of Alberto Nepales. 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
timeof the accident. The unit was a total wreck was returned. On March 20, 1980, DBP released
the proceeds of private respondent's motorcycle loan to Norkis in thetotal 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 of
Negros Occidental. 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.

ISSUE:
Whether or not there has been a transfer of ownership of the motorcycle to Alberto Nepales.

HELD:

No. The issuance of a sales invoice does not prove transfer of ownership of the thing sold to the
buyer. Aninvoice is nothing more than a detailed statement of the nature, quantity and cost of
the thing sold andhas been considered not a bill of 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. 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.

16. Southern Motors vsMoscoso 2 SCRA 168 May 30, 1961

FACTS:

Plaintiff Southern Motors, Inc. sold to defendant Angel Moscoso one Chevrolet truck on
installment basis, for P6,445.00. Upon making a down payment, the defendant executed a
promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase
price to secure the payment of which, a chattel mortgage was constituted on the truck in favor
of the plaintiff. Of said account, the defendant had paid a total of P550.00, of which P110.00
was applied to the interest and P400.00 to the principal, thus leaving an unpaid balance of
P4,475.00. The defendant failed to pay 3 installments on the balance of the purchase price.

Plaintiff filed a complaint against the defendant, to recover the unpaid balance of the
promissory note. Upon plaintiff’s petition, a writ of attachment was issued by the lower court
on the properties of the defendant. Pursuant thereto, the said Chevrolet truck, and a house and
lot belonging to defendant, were attached by the Sheriff and said truck was brought to the
plaintiff’s compound for safe keeping. After attachment and before the trial of the case on the
merits, acting upon the plaintiff’s motion for the immediate sale of the mortgaged truck, the
Provincial Sheriff of Iloilo sold the truck at public auction in which plaintiff itself was the only
bidder for P1,OOO.OO. The trial court condemned the defendant to pay the plaintiff the
amount of P4,475.00 with interest at the rate of 12% per annum from August 16, 1957, until
fully paid, plus 10% thereof as attorneys fees and costs. Hence, this appeal by the defendant.

ISSUE:

Whether or not the attachment caused to be levied on the truck and its immediate sale at
public auction, was tantamount to the foreclosure of the chattel mortgage on said truck.

HELD:

No.Article 1484 of the Civil Code provides that 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: (I) 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; and (3) Foreclose the
chattel mortgage on the thing sold, if one has been constituted, should the vendee’s failure to
pay cover two or more installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be
void.

The plaintiff had chosen the first remedy. The complaint is an ordinary civil action for recovery
of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted the
procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for
ordinary civil actions, under the Rules of Court. Had the plaintiff elected the foreclosure, it
would not have instituted this case in court; it would not have caused the chattel to be
attached under Rule 59, and had it sold at public auction, in the manner prescribed by Rule 39.
That the plaintiff did not intend to foreclose the mortgage truck, is further evinced by the fact
that it had also attached the house and lot of the appellant at San Jose, Antique.

We perceive nothing unlawful or irregular in plaintiff’s act of attaching the mortgaged truck
itself. Since the plaintiff has chosen to exact the fulfillment of the appellant’s obligation, it may
enforce execution of the judgment that may be favorably rendered hereon, on all personal and
real properties of the latter not exempt from execution sufficient to satisfy such judgment. It
should be noted that a house and lot at San Jose, Antique were also attached. No one can
successfully contest that the attachment was merely an incident to an ordinary civil action. The
mortgage creditor may recover judgment on the mortgage debt and cause an execution on the
mortgaged property and may cause an attachment to be issued and levied on such property,
upon beginning his civil action.

17. Pascual vs Universal Corp. 61 SCRA 121 November 20, 1974

FACTS:

Plaintiff-appellee spouses Lorenzo Pascual and Leonila Torres (spouses Pasqual) executed the
real estate mortgage subject matter of this complaint on December 14, 1960 to secure the
payment of the indebtedness of PDP Transit, Inc. (PDP Trans.) for the purchase of 5 units of
Mercedes Benz trucks, with a total purchase price or principal obligation of P152,506.50 which
was to bear interest at 1% per month starting that day, but the plaintiffs' guarantee is not to
exceed P50,000.00 which is the value of the mortgage. The PDP Trans., as the spouses Pasqual's
principal, paid to defendant-appellant Universal Motors Corporation (Universal Motors) the
sum of P92,964.91 on April 5, 1961 for two of the five Mercedes Benz trucks and on May 22,
1961 for the remaining three, thus leaving a balance of P68,641.69 including interest due on
February 8, 1965.

On March 19, 1965, Universal Motors filed this complaint with the CFI of Manila against the
PDP Trans. to collect the balance due under the Chattel Mortgages and to repossess all the
units sold to PDP Trans. as the spouse Pascual’s principal, including the 5 units guaranteed
under the subject Real (Estate) Mortgage. During the hearinbg, Universal Motors admitted that
it was able to repossess all the units sold to the latter, including the 5 units guaranteed by the
subject real estate mortgage, and to foreclose all the chattel mortgages constituted thereon,
resulting in the sale of the trucks at public auction. As the real estate mortgagors, the spouses
Pascual filed an action with the CFI of Quezon City for the cancellation of the mortgage they
constituted on 2 parcels of land in favor of the Universal Motors to guarantee the obligation of
PDP Trans. to the amount of P50,000. The said CFI rendered judgment in favor of the spouses
Pascual and ordered the cancellation of the mortgage.

ISSUE:

Whether or not Article 1484 of the New Civil Code applicable in the case at bar?

HELD:

The Supreme Court affirmed the lower court’s decision. Appellant Universal Motors argues that
Article 1484 is not applicable to the case at bar because there is no evidence on record that the
purchase by PDP Trans. of the 5 trucks was payable in installments and that the PDP Trans. had
failed to pay two or more installments. Universal Motors also contends that what Article 1484
prohibits is for the vendor to recover from the purchaser the unpaid balance of the price after
he has foreclosed the chattel mortgage on the thing sold, but not a recourse against the
security put up by a third party.

The Supreme Court concluded to the contrary, saying that the first issue was whether or not
the sale was one on installments. The lower court found that it was, and that there was failure
to pay two or more installments, a finding which is not subject to review by the Supreme Court.

The next contention is that what article 1484 withholds from the vendor is “the right to recover
any deficiency from the purchaser after the foreclosure of the chattel mortgage,” and not a
“recourse to the additional security put up by a third party to guarantee the purchaser's
performance of his obligation.” But the Supreme Court to sustain this argument of the
appellant would be to indirectly subvert and public policy overturn the protection given by
Article 1484.
 18. FILINVEST CREDIT CORPORATION, petitioner,
vs.
THE COURT OF APPEALS, JOSE SY BANG and ILUMINADA TAN SY BANG,*respondents

FACTS:
Herein private respondents spouses Jose Sy Bang and Iluminada Tan were engaged in the sale
of gravel produced from crushed rocks and used for construction purposes. They intended to
buy rock crusher from Rizal Consolidated Corporation which carried a cash price tag of
P550,000.00. They applied for financial assistance from herein petitioner Filinvest Credit
Corporation, who agreed to extend financial aid on the certain conditions.
A contract of lease of machinery (with option to purchase) was entered into by the parties
whereby the private respondents agreed to lease from the petitioner the rock crusher for two
years starting from July 5, 1981, payable as follows: P10,000.00 – first 3 months, P23,000.00 –
next 6 months, P24,800.00 – next 15 months. It was likewise stipulated that at the end of the
two-year period, the machine would be owned by the private respondents. Thus the private
respondent issued in favor of the petitioner a check for P150,550.00, as initial rental (or
guaranty deposit), and 24 postdated checks corresponding to the 24 monthly rentals. In
addition, to guarantee their compliance with the lease contract, the private respondent
executed a real estate mortgage over two parcels of land in favor of the petitioner. The rock
crusher was delivered to the spouses.

However, 3 months later, the souses stopped payment when petitioner had not acted on the
complaints of the spouses about the machine. As a consequence, petitioner extra-judicially
foreclosed the real estate mortgage. The spouses filed a complaint before the RTC. The RTC
rendered a decision in favor of private respondent. The petitioner elevated the case to CA
which affirmed the decision in toto. Hence, this petition.

ISSUES:
1. Whether or not the nature of the contract is one of a contract of sale.\
2. Whether or not the remedies of the seller provided for in Article 1484 are cumulative.

HELD:
1. Yes. The intent of the parties to the subject contract is for the so-called rentals to be the
installment payments. Upon the completion of the payments, then the rock crusher, subject
matter of the contract, would become the property of the private respondents. This form of
agreement has been criticized as a lease only in name.
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make
a bargain in that form, for one reason or another, have frequently restored to the device of
making contracts in the form of leases either with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent has been duly paid, or with
stipulations that if the rent throughout the term is paid, title shall thereupon vest in the lessee.
It is obvious that such transactions are leases only in name. The so-called rent must necessarily
be regarded as payment of the price in installments since the due payment of the agreed
amount results, by the terms of bargain, in the transfer of title to the lessee.

2. No, it is alternative. The seller of movable in installments, in case the buyer fails to pay 2 or
more installments, may elect to pursue either of the following remedies: (1) exact fulfillment by
the purchaser of the obligation; (2) cancel the sale; or (3) foreclose the mortgage on the
purchased property if one was constituted thereon. It is now settled that the said remedies are
alternative and not cumulative, and therefore, the exercise of one bars the exercise of the
others. Indubitably, the device – contract of lease with option to buy – is at times resorted to as
a means to circumvent Article 1484, particularly paragraph (3) thereof. 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 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.

19. Ridadvs Filipinas Investment and Finance Corporation GR No. 39806 January 27, 1983

FACTS:

Ridad purchased from Supreme Sales 2 Ford Consul Sedans, payable in 24 installments, for
which he executed a PN with chattel mortgage over the said property. Another chattel
mortgage was executed this time upon a separate Chevy car, and another one upon the
franchise to operate taxi cabs. Supreme Sales thereafter assigned its rights under the PN to
Filinvest. Ridad defaulted and Filinvest foreclosed on the mortgage. It was the highest bidder
for the foreclosure sale of the sedans. But unable to fully satisfy the debt, it also foreclosed the
Chevy and the franchise.

ISSUE: W/N Filinvest may still foreclose the Chevy and the franchise to fully satisfy the debt

HELD: NO. When the unpaid seller forecloses on the mortgage, the law precludes him from
bringing further actions against the vendee for whatever balance, which was not satisfied by
the first foreclosure. By choosing to foreclose on the Ford sedans, Filinvest renounced all other
rights which it might have had under the PN; it must content itself with the proceeds of the sale
of the sedans at the public auction.

Issue: Is the chattel mortgage and its subsequent sale valid? NO

Article 1484 of the Civil Code is applicable. Under this article, the vendor of personal property
the purchase price of which is payable in installments, has the right, should the vendee default
in the payment of two or more of the agreed installments, to exact fulfillment by the purchaser
of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased personal
property, if one was constituted. The vendor can only choose one option. If the vendor avails
himself of the right to foreclose the mortgage, the law prohibits him from further bringing an
action against the vendee for the purpose of recovering whatever balance of the debt secured
is not satisfied by the foreclosure sale.

Purpose of the law is to prevent mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and the bringing suit against the mortgagor for a deficiency
judgment. Without the law, the mortgagor-buyer would find himself without the property and
still owing practically the full amount of his original debt. In this case, defendant Filipinas chose
to foreclose the mortgage upon default of plaintiffs, and bought the vehicles at the public
auction as the highest bidder. Filipinas is deemed to have renounced any and all rights which it
might otherwise have under the promissory note and the chattel mortgage as well as the
payment of the unpaid balance. The lower court rightly declared the nullity of the chattel
mortgage in so far as the taxi franchise and the Chevrolet were concerned, under the authority
of the ruling in the case of Levy Hermanos, Inc. v Pacific Commercial Co., et al. The vendor’s
right to foreclose is limited only on the thing sold. The vendor of personal property sold on
installment is precluded, after foreclosing the chattel mortgage on the thing sold, from having a
recourse against the additional security put up by a third party to guarantee the purchaser’s
performance of his obligation. (Cruz v Filipinos Investment & Finance Corporation) Otherwise, if
the vendee could still be compelled to pay the balance of the purchase price, the vendee will be
made to bear the payment of the balance despite the earlier foreclosure.

20. De la Cruz vs. Asian Consumer and Industrial Finance Corp

FACTS: spouses Romulo de la Cruz and Delia de la Cruz, and one Daniel Fajardo, petitioners
herein, purchased on installment basis one (1) unit Hino truck from Benter Motor Sales
Corporation (BENTER for brevity). To secure payment, they executed in favor of BENTER a
chattel mortgage over the vehicle 1 and a promissory note for P282, 360.00 payable in thirty
(30) monthly installments of P9, 412.00. On the same date, BENTER assigned its rights and
interest over the vehicle in favor of private respondent Asian Consumer and Industrial Finance
Corporation (ASIAN for brevity). Although petitioners initially paid some installments they
subsequently defaulted on more than two (2) installments. Thereafter, notwithstanding the
demand letter of ASIAN, petitioners failed to settle their obligation.

On 26 September 1984, by virtue of a petition for extrajudicial foreclosure of chattel mortgage,

the sheriff attempted to repossess the vehicle but was unsuccessful because of the refusal of
the son of petitioner, Rolando de la Cruz to surrender the same. Hence, the return of the sheriff
that the service was not satisfied. On 10 October 1984, petitioner Romulo de la Cruz brought
the vehicle to the office of ASIAN and left it there where it was inventoried and inspected. On
27 November 1984, ASIAN filed an ordinary action with the court a quo for collection of the
balance of P196,152.99 of the purchase price, plus liquidated damages and attorney’s fees.

ISSUE: WON the delivery of vehicle in the office of Asian consummates the foreclosure of
chattel mortgage.

HELD: No, there being no actual foreclosure of the mortgaged property, ASIAN is correct in
resorting to an ordinary action for collection of the unpaid balance of the purchase price.

SIAN initiated a petition for extrajudicial foreclosure of the chattel mortgage. But the sheriff
failed to recover the motor vehicle from petitioners due to the refusal of the son of petitioners
Romulo and Delia de la Cruz to surrender it. It was not until 10 October 1984, or almost a
month later that petitioners delivered the unit to ASIAN. The action to recover the balance of
the purchase price was instituted on 27 November 1984. It is thus clear that while ASIAN
eventually succeeded in taking possession of the mortgaged vehicle, it did not pursue the
foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever
conducted. As we ruled in Filinvest Credit Corp. v. Phil. Acetylene Co., Inc. 8 —

"Under the law, the delivery of possession of the mortgaged property to the mortgagee, the
herein appellee, can only operate to extinguish appellant’s liability if the appellee had actually
caused the foreclosure sale of the mortgaged property when it recovered possession thereof
(Northern Motors, Inc. v. Sapinoso, 33 SCRA 356 [1970]; Universal Motors Corp. v. Dy Hian Tat,
28 SCRA 161 [1969]; Manila Motors Co., Inc. v. Fernandez, 99 Phil. 782 [1956]). It is worth
noting that it is the fact of foreclosure and actual sale of the mortgaged chattel that bar
recovery by the vendor of any balance of the purchaser’s outstanding obligation not satisfied by
the sale (New Civil Code, par. 3, Article 1484). As held by this Court, if the vendor desisted, on
his own initiative, from consummating the auction sale, such desistance was a timely disavowal
of the remedy of foreclosure, and the vendor can still sue for specific performance" (Industrial
Finance Corp. v. Tobias, 78 SCRA 28 [1977]; Radiowealth, Inc. v. Lavin, L-18563, April 27, 1963, 7
SCRA 804; Pacific Commercial Co. v. dela Rama, 72 Phil. 380 [1941]).

21. Agustin v. Court of Appeals G.R. No. 107846. April 18, 1997

Facts: Leovillo C. Agustin executed a promissory note in favor of ERM Commercial for the
amount ofP43,480.80 (ERM). The note was payable in monthly installments and secured by a
chattel mortgage over an Isuzu diesel truck, both of which were subsequently assigned to
private respondent Filinvest Finance Corporation.
When petitioner defaulted in paying the installments, private respondent demanded from him
the payment of the entire balance or, in lieuthereof, the possession of the mortgaged
vehicle. Neither payment nor surrender was made.

Aggrieved, private respondent filed a complaint with the Regional Trial Court of Manila, Branch
26 (RTC Branch 26) against petitioner praying for the issuance of a writ of replevin o Trial
ensued and, thereafter, a writ of replevin was issued by RTC Branch 26. By virtue thereof,
private respondent acquired possession of the vehicle. Upon repossession, the latter
discovered that the vehicle was no longer in running condition and that several parts were
missing which private respondent replaced. The vehicle was then foreclosed and sold at public
auction.

Petitioner contends that the award of repossession expenses to private respondent as

mortgagee is “contrary to the letter, intent and spirit of Article 1484 of the Civil Code”. He
asserts that private respondent’s repossession expenses have been amply covered by the
foreclosure of the chattel mortgage, hence he could no longer be held liable.

Issue:

Whether or not mortgagor is liable to pay expenses as a result of the enforcement of the
foreclosure.

Held:

Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his
failure to pay two or more installments, or if he conceals the chattel to place it beyond the
reach of the mortgagee, he may be held liable to pay expenses as a result of the enforcement
of the foreclosure.

It logically follows as a matter of common sense, that the necessary expenses incurred in the
prosecution by the mortgagee of the action for replevin so that he can regain possession of the
chattel, should be borne by the mortgagor.

Recoverable expenses would, in our view, include expenses properly incurred in effecting
seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin.

22. Fiestan vs. Court of Appeals, and Developmentt Bank of the Philippines

FACTS: For failure of petitioner spouses Dionisio Fiestan and Juanita Arconada (spouses
Fiestan) to pay their mortgage indebtedness to respondent Development Bank of the
Philippines (DBP), the latter was able to acquire at a public auction sale on August 6, 1979 the
parcel of land (Lot No. 2-B covered by TCT No. T-13218) that the spouses Fiestan owned in
Ilocos Sur after extrajudicial foreclosure of said property.

The Provincial Sheriff issued a certificate of sale that same day which was registered on
September 28 in the Office of the Register of Deeds of Ilocos Sur. Earlier, or on September 26,
spouses Fiestan also executed a Deed of Sale in favor of DBP which was likewise registered on
September 28, 1979. When spouses Fiestan failed to redeem their parcel of land within the 1
year period which expired on September 28, 1980, the Register of Deeds cancelled their title
over the subject property and issued TCT No. T-19077 to DBP upon the latter’s duly executed
affidavit of consolidation of ownership. On April 13, 1982, the DBP sold the lot to Francisco
Peria, so the Register of Deeds of Ilocos Sur cancelled DBP’s title over said property and issued
TCT No. T-19229 to Peria’s name, who later secured a tax declaration for said lot and
accordingly paid the taxes due thereon. He thereafter mortgaged said lot to the PNB-Vigan
Branch as security for his loan of P115,000.00.

Since the spouses Fiestan were still in possession of the property, the Provincial Sheriff
ordered them to vacate the premises, but instead of leaving, they filed a complaint in the RTC
of Vigan, Ilocos Sur for annulment of sale, mortgage and cancellation of transfer certificates of
title against the DBP-Laoag City, PNB-Vigan Branch, Ilocos Sur, Francisco Peria and the Register
of Deeds of Ilocos Sur. The lower court dismissed said complaint, declaring valid the
extrajudicial foreclosure sale of the mortgaged property in favor of the DBP and its subsequent
sale to Francisco Periaas well as the real estate mortgage constituted in favor of PNB-Vigan. The
Court of Appeals likewise affirmed said decision. The spouses Fiestan herein seek to annul the
extrajudicial foreclosure sale of the mortgaged property on the ground that the Provincial
Sheriff conducted the foreclosure without first effecting a levy on said property before selling
the same at the public auction sale.

ISSUE: Who has the right to acquire by purchase the subject property?

COURT RULING: In denying the petition, the Supreme Court reiterated that the formalities of a
levy, which the Provincial Sheriff of Ilocos Sur allegedly failed to comply with, are not basic
requirements before an extrajudicially foreclosed property can be sold at public auction.

The spouses Fiestan insisted that what prevails over the case are par. (2) of Article 1491 and
par. (7) of Article 1409 of the Civil Code which prohibits agents from acquiring by purchase,
even at a public or judicial auction either in person or through the mediation of another, the
property whose administration or sale may have been entrusted to them unless the consent of
the principal has been given.
However, the Supreme Court ruled that the power to foreclose is not an ordinary agency that
contemplates exclusively the representation of the principal by the agent but is primarily an
authority conferred upon the mortgagee for the latter's own protection, as provided under
Section 5 of Act No 3135, as amended, which is a special law that must prevail over the Civil
Code which is a general law.

Even in the absence of statutory provision, there is authority to hold that a mortgagee, and in
this case the DBP, may purchase at a sale under his mortgage to protect his own interest or to
avoid a loss to himself by a sale to a third person at a price below the mortgage debt.

23. Borbon vs Servicewide Specialists

Facts: Defendants Daniel L. Borbon and Francisco Borbon signed a promissory note to the order
of Pangasinan Auto Mart Inc., to pay without notice or demand the amount of P 122856
payable in installment for twelve months and a late payment charge of 3%shall be added on
each unpaid installment. It was further stipulated that acceptance
bythe holder of payment of any installment after due date will not be considered asextending
the time for payment nor the failure of the holder to exercise any of its rights be deemed
a waiver of such rights.

The rights of Pangasinan Auto Mart was later assigned to Filinvest Credit Corporation. Filinvest
assigned all its rights, interest andtitleover the Promissory notes and the chattel mortgage to
the plaintiff. Defendants failedto pay their monthly installments, Filinvest demanded from
defendants payment of their installments. After accounts were assigned to the plaintiff, it
attempted to collect bysending a demand letter to the defendant for them to
pay their entire obligation.

Defendants claim that what they intend to buy from Pangasinan was a jeepney type
isuzu K.C Cab. The vehicle they bought was not delivered.

Instead, through misinterpretation and machination, the Pangasinan Motor Inc. delivered an
Isuzu
crewcab, as this is the unit available at their warehouse. Later the representative of Pangasinan
Auto mart, Inc. (assignor) told the defendants that their available stock is anIsuzu Cab but
minus the rear body, which the defendants agreed to deliver with the
understanding that the Pangasinan Auto Mart, Inc. will refund the defendants the amount of
P10,000.00 to have the rear body completed Despite communications with the Pangasinan
Auto Mart, Inc. the latter was not able to replace the vehicle until the
vehicle delivered was seized by order of this court. The defendants argue that an assignee
stands in the place of an assignor which, to the mind of the court, is correct.

The assignee exercises all the rights of the assignor. The defendants further claim that they are
not in default of their obligation because the Pangasinan Auto Mart was first guilty of not
fulfilling its obligation in the contract. The defendants claim that neither party incurs delay if
the other does not comply with his obligation.

Issue: WON the petitioners may recover the deficiency?

Held: No.

When the seller assigns his credit to another person, the latter is likewise bound by the same
law. Accordingly, when the assignee forecloses on the mortgage, there can be no further
recovery of the deficiency, and the seller-mortgagee is deemed to have renounced any right
thereto.

Acontrario, in the event of the seller-mortgagee first seeks, instead, the enforcement of the
additional mortgages, guarantees or other security arrangements, he must be then be held to
have lost by waiver or non-choice his lien on the chattel mortgage of the personal property sold
by and mortgaged back to him, although, similar to an action for specific performance, he may
still levy on it.

24. Dominador Dizon vs Lourdes Suntay

FACTS: Lourdes Suntay was the owner of a 3 carat diamond ring valued at P5.5k (in 1962). In
June 1962, Suntay entered into an agency to sell with Clarita Sison. Unknown to Suntay, Sison
pawned the ring to Dominador Dizon who owns a pawnshop. Time passed, and Sison failed to
sell the ring nor was she able to return the ring to Suntay.Suntay later discovered that the ring
was actually pawned.

She demanded Dizon to return the ring. Dizon refused. Suntay filed for a replevin suit which she
won. Dizon appealed and he lost. He claims that estoppel should be used against Suntay as she
left the ring under the custody of Sison who then pawned it to her.

ISSUE:

Whether or not Suntay can still claim the ring.

HELD: Yes.

Suntay can under Article 559 of the Civil Code which provides:

The possession of movable property acquired in good faith is equivalent to a title.

Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may
recover it from the person in possession of the same. If the possessor of a movable lost of
which the owner has been unlawfully deprived, has acquired it in good faith at a public sale,
the owner cannot obtain its return without reimbursing the price paid therefor.

Dizon must bear the burden due to his misplaced confidence. Suntay’s right over the ring is
superior to that of Dizon. Estoppel may not be used against Suntay. She is the rightful owner
merely exercising her right to recover. Neither the promptings of equity nor the mandates of
moral right and natural justice come to Dizon’s rescue.

He is engaged in a business where presumably ordinary prudence would manifest itself to

ascertain whether or not an individual who is offering jewelry by way of a pledge is entitled to
do so. If no such care be taken, perhaps because of the difficulty of resisting opportunity for
profit, he should be the last to complain if thereafter the right of the true owner of such jewelry
should be recognized.

25. EDCA PUBLISHING v. SANTOS

FACTS:

The movable property in this case consists of books, which were bought from EDCA by an
impostor who sold it to SANTOS. EDCA Publishing sold to a person identifying himself as
Professor Jose Cruz who placed an order by telephone with the former for 406 books, payable
on delivery. EDCA prepared the corresponding invoice and delivered the books as ordered, for
which Cruz issued a personal check. On October 7, 1981, Cruz then sold the 120 of the books to
Leonor Santos who asked for verification, and was then showed the invoice for the books.

Meanwhile, EDCA having become suspicious over a second order placed by Cruz even before
clearing of his first check, made inquiries with the De la Salle College where he had claimed to
be a dean and was informed that there was no such person in its employ. Further verification
revealed that Cruz had no more account or deposit with the Philippine Amanah Bank, against
which he had drawn the payment check.
EDCA then went to the police, which set a trap and arrested Cruz. Investigation disclosed his
real name as Tomas de la Peña and his sale of 120 of the books he had ordered from EDCA to
the private respondents.

ISSUE:

Whether or not EDCA PUBLISHINGAND DISTRIBUTING CORP was unlawfully deprived of the
property?

HELD:NO

Santos was a good faith buyer after taking steps to verify the identity of the seller. When she
was showed the invoice, she reasonably believed that he was a legitimate seller. With regard to
unlawful deprivation, EDCA was not unlawfully deprived of the property by mere failure of
consideration.

There was already a perfected contract of sale. Proof was even substantiated when EDCA gave
the invoice as proof of payment upon delivery of the books. This did not amount to unlawful
taking, because by the delivery of EDCA to Cruz, ownership of the books already transferred to
him.

It would certainly be unfair now to make the SANTOSES bear the prejudice sustained by EDCA
as a result of its own negligence. We cannot see the justice in transferring EDCA's loss to the
SANTOSES who had acted in good faith, and with proper care, when they bought the books
from Cruz.

26. Layug Vs IAC

FACTS: proceedings at bar is a contract for the purchase on installments by Antonio Layug of
twelve (12) lots owned by Rodrigo Gabuya, situated at Barrio Bara-as, Iligan City. The contract,
entered into on October 4, 1978, set the price for the lots at P120,000.00 payable in three (3)
yearly installments, The contract provided for the automatic cancellation of the contract and
forfeiture of all installments thus far paid, which would be considered as rentals for the use of
the lots, Layug paid the first two annual installments, totalling P80,000.00. But he failed to pay
the last installment of P40,000.00, which fell due on October 5, 1980. Gabuya made several
informal demands for payment; and when all these proved unavailing, he made a formal
written demand therefor under date of April 18, 1981 which was sent to and received by Layug
by registered mail. When this, too, went unheeded, Gabuya finally brought suit in the Court of
First Instance of Lanao del Norte for the annulment of his contract with Layug and for the
recovery of damages.

ISSUE: WON Layudg is entitled to get back the entire amount already paid.

HELD: No. R.A. 6552 governs sales of real estate on installments. It recognizes the vendor's right
to cancel such contracts upon failure of the vendee to comply with the terms of the sale, but
imposes, chiefly for the latter's protection, certain conditions thereon. We have had occasion to
rule that "even in residential properties the Act" recognizes and reaffirms the vendor's right to
cancel the contract to sell upon breach and nonpayment of the stipulated installments. ..." 13

The law provides inter alia 14 that "in all transactions or contracts involving the sale or financing
of real estate on installment payments, including residential condominium apartments,
..., 15 where the buyer has paid at least two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of succeeding installments:

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

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

Layug had paid two (2) annual installments of P40,000.00 each. He is deemed therefore, in the
words of the law, to have "paid at least two years of installments." He therefore had a grace
period of "one month .. for every year of installment payments made," or two (2) months
(corresponding to the two years of installments paid) from October 5, 1980 within which to pay
the final installment. That he made no payment within this grace period is plain from the
evidence. He has thus been left only with the right to a refund of the "cash surrender value of
the payments on the property equivalent to fifty percent of the total payments made," or
P40,000.00 (i.e., ½ of the total payments of P80,000.00). Such refund will be the operative act
to make effective the cancellation of the contract by Gabuya, conformably with the terms of
the law. The additional formality of a demand on Gabuya's part for rescission by notarial act
would appear, in the premises, to be merely circuitous and consequently superfluous.
 27. POWER COMMERCIAL V. CA

FACTS: Petitioner asbestos manufacturer Power Commercial and industrial corporation bought
the property of spouses Reynaldo and Angelita Quiambao located in Makati City. Since there
are lessees occupying the subject land, part of the deed of sale is a warranty of respondents
that will defend its title and peaceful possession in favor of the petitioners. The property is
mortgage to PNP and as such, petitioners filed a request to assume responsibility of the
mortgage. Because of petitioners failure to produce the required papers, their petition was
denied. Petitioners allege that the contract should be rescinded because of failure of delivery.

ISSUE: WON the contract is recissible due to breach of contract.

HELD: There is no breach of contract in this case since there is no provision in the contract that
imposes the obligation to the respondents to eject the people occupying the property.

There was also a constructive delivery because the deed of sale was made in a public
document. The contention of the petitioners that there could be no constructive delivery
because the respondents are not in possession of the property is of no merit. What matters in a
constructive delivery is control and not possession. Control was placed in the hands of the
petitioners that is why they were able to file an ejectment case. Prior physical delivery or
possession is not legally required and the execution of the deed of sale is deemed equivalent to
delivery.

28. Addison vs. Felix

FACTS: The defendants-appellees spouses Maciana Felix and BalbinoTioco purchased from
plaintiff-appellant A.A. Addison four parcels of land to which Felix paid, at the time of the
execution of the deed, the sum of P3,000 on account of the purchase price. She likewise bound
herself to the remainder in installments, the first of P,2000 on July 15, 1914, the second of
P5,000 thirty days after the issuance to her of a certificate of title under the Land Registration
Act, and further, within ten years from the date of such title, P10 for each cocoanut tree in
bearing and P5 for each such tree not in bearing that might be growing on said parcels of land
on the date of the issuance of title to her, with the condition that the total price should not
exceed P85,000. It was further stipulated that Felix was to deliver to the Addison 25% of the
value of the products that she might obtain from the four parcels "from the moment she takes
possession of them until the Torrens certificate of title be issued in her favor," and that within 1
year from the date of the certificate of title in her favor, Marciana Felix may rescind the
contract of purchase and sale.
In January 1915, Addison , filed suit in the CFI of Manila to compel Felix to pay the first
installment of P2,000, demandable, in accordance with the terms of the contract of sale. The
defendants Felix and her husband Tioco contended that Addison had absolutely failed to deliver
the lands that were the subject matter of the sale, notwithstanding the demands they made
upon him for this purpose.

The evidence adduced shows Addison was able to designate only two of the four parcels, and
more than two-thirds of these two were found to be in the possession of one Juan Villafuerte,
who claimed to be the owner of the parts he so occupied. The trial court held the contract of
sale to be rescinded and ordered Addison to return to Felix the P3,000 paid on account of the
price, together with interest thereon at the rate of 10% per annum.

ISSUE: Was there a delivery made and, therefore, a transfer of ownership of the thing sold?

COURT RULING: The Supreme Court affirmed the decision of the lower court, with
modification that the interest thereon will be at the rate of 6% (instead of 10%) per annum
from the date of the filing of the complaint until payment. The thing is considered to be
delivered when it is placed "in the hands and possession of the vendee." It is true that the same
article declares that the execution of a public instrument is equivalent to the delivery of the
thing which is the object of the contract, but, in order that this symbolic delivery may produce
the effect of tradition, it is necessary that the vendor shall have had such control over the thing
sold that, at the moment of the sale, its material delivery could have been made.

Symbolic delivery through the execution of a public instrument is sufficient when there is no
impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by
the sole will of the vendor. But if, notwithstanding the execution of the instrument, the
purchaser cannot have the enjoyment and material tenancy of the thing and make use of it
himself or through another in his name, because such are opposed by a third person’s will, then
the delivery has not been effected.

In the case at bar, therefore, it is evident, that the mere execution of the instrument was not a
fulfillment of the vendor's obligation to deliver the thing sold, and that from such non-
fulfillment arises the purchaser's right to demand, as she has demanded, the rescission of the
sale and the return of the price.