SAN BEDA UNIVERSITY

COLLEGE OF LAW

CIVIL LAW REVIEW II

CASE DIGESTS
 Part Two – Sales and Lease

I. Sales
A. Nature and Form
1. Essential Requisites
(1) Quiroga v. Parsons Hardware, 38 Phil. 501
(2) Ker & Co. v. Lingad, 38 SCRA 524
(3) Delpher Trades Corp. v. Intermediate Appellate Court, G.R. No. 19259, January 26,
1988
2. Perfection
(4) Sanchez v. Rigos, 1972
(5) Mendoza v. Comple, G.R. No. L-19311, October 29, 1965
(6) Equatorial Realty Development Corp. v. Mayfair Theaters, Inc. 264 SCRA 483
(7) Vda. de Quirino v. Palarca
3. Contract of Sale v. Contract to Sell
(8) Luzon Brokerage Co. v. Maritime Bldg., 43 SCRA 93
(9) Masiclat v. Centeno, 99 Phil. 1043
(10) Olivarez v. Castillo, G.R. No. 196251, July 9, 2014
B. Capacity to Buy or Sell
• Cases:
(11) Abalos v. Macatangay, G.R. No. 155043, September 30, 2004
(12) Pelayo v. Court of Appeals, G.R. No. 141323, June 8, 2005
(13) Rubias v. Batiller, 51 SCRA 120
(14) Del Rosario v. Millado, A.C. No. 724, January 31, 1969
C. Effects of the Contract When the Thing Sold Has Been Lost
D. Obligations of the Vendor
• Cases:
(15) Barreto & Sons, Inc. v. CompaniaMaritima, G.R. No. L-22358, January 29, 1975
(16) Addison v. Felix, 38 Phil. 404
(17) Martin v. Reyes, G.R. No. L-4402, July 20, 1952
(18) Power Commercial & Industrial Corp. v. Court of Appeals, 274 SCRA 597
(19) Katigbak v. Court of Appeals, 4 SCRA 243
(20) Hernandez v. Vda. de Salas, 69 Phil. 744
(21) Carumba v. Court of Appeals, 31 SCRA 558
(22) Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals, G.R. No.
132161, January 17, 2005
(23) Carbonell v. Court of Appeals, 69 SCRA 99
(24) Dagupan Trading Co. v. Macam, G.R. No. L-18497, May 31, 1965
(25) Sta. Romana v. Imperio, G.R. No. L-17280, December 29, 1965
(26) Bernales v. Intermediate Appellate Court, G.R. No. 71491, June 28, 1988
(27) Vda. de Reyes v. De Leon, G.R. No. L-22331, June 6, 1967
(28) Valdevieso v. Damalerio, G.R. No. 133303, February 15, 2005
(29) Andaya v. Manansala, 107 Phil. 1151

E. Obligations of the Vendee

• Cases:
(30) Bareng v. Court of Appeals, 107 Phil. 641
(31) Romero v. Court of Appeals, G.R. No. 119777
(32) Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93
(33) Rayos v. Reyes, 398 SCRA 24, 2003
F. Breach of Contract
1. Remedies
• Cases:
(34) Ong v. Court of Appeals, 310 SCRA 1
(35) Iringan v. Court of Appeals, G.R. No. 129107, September 26, 2001
(36) Tiana v. Torrejon, 21 Phil. 127
2. Recto Law and Maceda Law

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 • Cases:
(37) Southern Motors v. Moscoso, 2 SCRA 168
(38) Cruz v. Filipinas Investment & Finance Corp., 23 SCRA 791
(39) Filipinas Investment & Finance Corp. v. Vitug, 28 SCRA 658
(40) U.S. Commercial Co. v. Halili, 93 Phil 371
(41) Rillo v. Court of Appeals, 34 Phil. 570
(42) Leaño v. Court of Appeals, G.R. No. 129318, November 15, 2001
(43) Valarao v. Court of Appeals, 304 SCRA 155
(44) Jestra Development & Management Corp. v. Pacifico, G.R. No. 167452, January
30, 2007
G. Extinguishment
1. In General
2. Pacto de Retro Sale
• Cases:
(45) Bandong v. Austria, 31 Phil. 479
(46) Reyes v, Rosales, 25 Phil. 495
(47) Medel v. Francisco, 51 Phil. 367
(48) Baluyot v. Venegas, 22 SCRA 412
(49) Ceynas v. Ulanday, 105 Phil. 1007
(50) De Bayquen v. Baloro, G.R. No. 28161, August 13, 1986
(51) Crisologo v. Centeno, G.R. No. L-20014, November 27, 1968
(52) Yturralde v. Court of Appeals, 43 SCRA 413
(53) Cabrera v. Villanueva, G.R. No. 75044, April 15, 1988
(54) Doromal v. Court of Appeals, G.R. No. L-36083, September 5, 1975
(55) Butte v. Manuel Uy& Sons, Inc. 4 SCRA 526, 864
(56) De la Cruz v. Cruz, 32 SCRA 307
(57) Legaspi v. Court of Appeals, G.R. No. L-39877, February 20, 1976
3. Equitable Mortgage
• Cases:
(58) Montevirgen v. Court of Appeals, 112 SCRA 641
(59) Crisostomo v. Court of Appeals, 197 SCRA 833
(60) Heirs of Arches v. Vda. de Diaz, 50 SCRA 440
(61) Labasan v. Lacuesta, 86 SCRA 16
(62) Villarica v. Court of Appeals, G.R. No. L-19196, November 29, 1968
H. Assignment of Credits

II. Barter or Exchange

III. Lease
A. General Provisions
• Cases:
(63) Mamaril v. Boy Scouts of the Philippines, 688 SCRA 437
(64) Ermitaño v. Paglas, 689 SCRA 158
(65) MarimperioCompaniaNaveria, SA v. Court of Appeals, G.R. No. 40234, December
14, 1987
(66) Filoil Refinery Corp. v. Mendoza, G.R. No. 55526, June 15, 1987
B. Rights and Obligations of Lessor
• Cases:
(67) Tanio v. Ticson, G.R. No. 154895, November 18, 2004
(68) Limpin Investment Corp. v. Lim Sy, G.R. No. 31920, April 8, 1988
(69) Roxas v. Intermediate Appellate Court, G.R. No. 74279, January 20, 1988
C. Rights and Obligations of Lessee
• Cases:
(70) United States Lines v. San Miguel Brewery, 10 SCRA 808
(71) Paterno v. Court of Appeals, G.R. No. 115763, March 29, 1997
(72) Divino v. Fabie de Marcos, 4 SCRA 186
(73) Henson v. Intermediate Appellate Court, 148 SCRA 11
(74) Jespajo Realty Corp. v. Court of Appeals, G.R. No. 113626, September 27, 2002
(75) Rantael v. Court of Appeals, 97 SCRA 453

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 (76) F.S. Divina GraciaAgro Commercial v. Court of Appeals, April 21, 1981
(77) Vda. de Bocaling v. Laguda, 54 SCRA 243
(78) Southwestern University v. Salvador, 90 SCRA 318
(79) Chua v. Court of Appeals, G.R. No. 140886, April 19, 2001
(80) Alcantara v. Reta, Jr., G.R. No. 136996, December 14, 2001

Part Seven – January 2017 to December 2019

II. Sales and Lease

• Cases:
(1) Spring Homes Subdivision Co., Inc. v. Spouses Tablada, Jr., G.R No. 200009, January 23,
2017
(2) Arcaina v. Ingram, G.R. No. 196444, February 15, 2017
(3) Land Bank of the Philippines v. Musni, G.R. No. 206343, February 22, 2017
(4) Republic v. Philippine International Corp., G.R. No. 181984, March 20, 2017
(5) Peralta v. Raval, G.R. Nos. 188467/188764, March 29, 2017
(6) Philippine Steel Coating Corp. v. Quinones, G.R. No. 194533, April19, 2017
(7) Alejo v. Spouses Cortez, G.R. No. 206114, June 19, 2017
(8) Gatan v. Vinarao, G.R. No. 205912, October 18, 2017
(9) Hi-Lon Manufacturing, Inc. v. Commission on Audit, G.R. No. 210669, August 1, 2017
(10) Desiderio Dalisay Investments, Inc. v. Social Security System, G.R. No. 208185,
September 6, 2017
(11) Spouses Pamplona v. Spouses Cueto, G.R. No. 204735, February 19, 2018
(12) Villamil v. Spouses Erguiza, G.R. No. 19599, June 20, 2018
(13) Santos v. Arrojado, A.C. No. 8502, June 27, 2018
(14) Padilla v. Universal Robina Corp., G.R. No. 214805, December 14, 2017
(15) Pilipinas Makro, Inc. v. Coco Charcoal Philippines, Inc., G.R. No. 196419, October 4,
2017
(16) Poole-Blunden v. Union Bank of the Philippines, G.R. No. 205838, November 29, 2017
(17) Philippine National Bank v. Bacani, G.R. No. 194983, June 20, 2018
(18) Orbe v. Filinvest Land, Inc., G.R. No. 208185, September 6, 2017
(19) Peralta v. Raval, G.R. Nos. 188467/188764, March 29, 2017
(20) Hilltop Market Fish Vendors' Association, Inc. v. Yaranon, G.R. No. 188057, December 7,
2017
(21) D.M. Ragasa Enterprises, Inc., v. Banco De Oro, Inc. (formerly Equitable PCI Bank, Inc.),
G.R. No. 190512, June 20, 2018
(22) Racelis v. Spouses Javier, G.R. No. 189609, January 29, 2018
(23) Shangri-la Properties, Inc. v. BF Corporation, G.R. Nos. 187552-53/G.R. Nos. 187608-
09, October 15, 2019
(24) Vive Eagle Land, Inc. v. National Home Mortgage Finance Corp., G.R. No. 230817,
September 04, 2019
(25) Escabarte v. Heirs of Isaw, G.R. No. 208595, August 28, 2019
(26) Bayan v. Bayan, G.R. No. 220741, August 14, 2019
(27) Conje v. Spouses Tsamoudakis, G.R. No. 184220 (Notice), July 24, 2019
(28) Spouses Chua v. Spouses Lo, G.R. No. 196743, August 14, 2019
(29) Heirs of Arellano v. Tolentino, G.R. No. 207152, July 15, 2019
(30) Saclolo v. Marquito, G.R. No. 229243, June 26, 2019
(31) Spouses Salitico v. Heirs of Felix, G.R. No. 240199, April 10, 2019
(32) Spouses Sy v. De Vera-Navarro, G.R. No. 239088, April 03, 2019
(33) Agustin v. De Vera, G.R. No. 233455, April 03, 2019
(34) Spouses Batalla v. Prudential Bank, G.R. No. 200676, March 25, 2019
(35) Food Fest Land, Inc. v. Siapno, G.R. No. 226088, February 27, 2019
(36) Spouses Velasco v. Laigo, G.R. No. 199215 (Notice), January 16, 2019
(37) Salvaña v. Labnao, G.R. No. 210624 (Notice), December 10, 2018
(38) Land Bank of the Philippines v. R.T. Katigbak Construction Corp., G.R. No. 236517
(Notice), December 05, 2018
(39) Heirs of Spouses Sotes v. Estaca, G.R. No. 211849 (Notice), December 03, 2018
(40) Heirs of Spouses Coloma v. Spouses Meredor, G.R. No. 224136 (Notice), November 21,
2018

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(41) Heirs of Bayog-Ang v. Quinones, G.R. No. 205680,
(42) Barez v. Linsag, G.R. No. 201211 (Notice), November 21, 2018
(43) Heirs of Jarque v. Jarque, G.R. No. 196733, November 21, 2018
(44) Royal Plains View, Inc. v. Mejia, G.R. No. 230832, November 12, 2018
(45) NoellWhessoe, Inc. v. Independent Testing Consultants, Inc., G.R. No. 199851,
November 07, 2018
(46) Muller v. Philippine National Bank, G.R. No. 215922, October 01, 2018
(47) Lifestyle Redefined Realty Corp. v. Heirs of Uvas, G.R. Nos. 217716 & 217857,
September 17, 2018
(48) Neri v. Yu, G.R. No. 230831, September 05, 2018
(49) Spouses Beltran v. Spouses Cangayda, G.R. No. 225033, August 15, 2018
(50) Crescini v. E. Aspe Pawnshop, G.R. No. 195130 (Notice), August 08, 2018
(51) Aledro-Ruña v. Lead Export and Agro-Development Corp., G.R. No. 225896, July 23,
2018
(52) Vargas v. Acsayan, Jr., G.R. Nos. 206780 & 206843, March 20, 2019
(53) Malabanan v. Malabanan, Jr., G.R. No. 187225, March 06, 2019
(54) Amoguis v. Ballado, G.R. No. 189626, August 20, 2018
(55) Spouses Modomo v. Spouses Layug, G.R. No. 197722, August 14, 2019
(56) Heirs of Alido v. Campano, G.R. No. 226065, July 29, 2019
(57) Lazo v. Spouses Villas, G.R. No. 221792 (Notice), January 30, 2019

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 SALES
Nature and Form

CAUSE AND SUBJECT MATTER ARE THE ESSENTIAL CLAUSES OF A CONTRACT OF SALE

1. Quiroga v. Parsons Hardware Co.

G.R. No. L-11491, August 23, 1918
Avanceña, J.

FACTS:
Plaintiff Andres Quiroga and J. Parsons (to whose rights and obligations the present defendant
Parsons Hardware Co. later subrogated itself) entered into a contract, where Quiroga grants in favor of
J. Parsons the exclusive rights to sell “Quiroga” beds in the Visayan Islands under the following
conditions/clauses, among others: (1) that Mr. Parsons may sell, or establish branches of his agency
for the sale of "Quiroga" beds in all the towns of the Archipelago where there are no exclusive agents,
and (2) Mr. Quiroga shall invoice them at the same price he has fixed for sales, in Manila, and, in the
invoices, shall make and allowance of a discount of 25 per cent of the invoiced prices, as commission
on the sale.

Alleging that the Parsons was his agent for the sale of his beds in Iloilo, Quiroga filed a complaint
against the former for violating the following obligations implied in what he contended to be a contract
of commercial agency: 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.

ISSUE:
Is the defendant an agent of plaintiff for the sale of his beds through the grant of exclusive right to
sell?

RULING:
No, the contract by and between the plaintiff and the defendant was one of purchase and 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. 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. Not a single one of the clauses necessarily
conveys the idea of an agency. The words commission on sales used in clause (1) mean nothing else,
as stated in the contract itself, than a mere discount on the invoice price. The word agency, also used
in clause (2) only expresses that the defendant was the only one that could sell the plaintiff's beds in
the Visayan Islands.

Thus, the Supreme Court declared that the contract by and between the plaintiff and the defendant
was one of purchase and sale, and that the obligations the breach of which is alleged as a cause of
action are not imposed upon the defendant, either by agreement or by law.

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 SALES
Nature and Form

DEALER’S POSSESSION OF PRINCIPAL’S PROPERTY FOR RESALE GIVES RISE TO AGENCY

TO SELL SINCE THE LATTER RETAINS TITLE AND CONTROL OVER SAID PROPERTY

2. Ker & Co., Ltd. v. Lingad

G.R. No. L-20871, April 30, 1971
Fernando, J.

FACTS:
The case stemmed from the assessment made by Melecio R. Domingo, then Commissioner of Internal
Revenue against Ker & Co. for commercial broker’s percentage tax, surcharge, and compromise
penalty. Ker & Co’s request for the cancellation of said assessment was turned down by Domingo
prompting the former to file a petition for review with the CTA. Petitioner now seeks the reversal of the
decision of the CTA holding it taxable as a commercial broker under the NIRC.

The tax liability arose from a contract that Ker & Co., designated as Distributor, had with the United
States Rubber International (USRI), as the Company. As Distributor, Ker & Co., is required to exert
every effort to have the shipment of the products in the maximum quantity and to promote in every way
the sale thereof. The prices, discounts, terms of payment, terms of delivery and other conditions of
sale were subject to change in the discretion of USRI. All specifications for the goods ordered were
subject to acceptance of USRI. Then came this crucial stipulation: "The Company shall from time to
time consign to the Distributor and the Distributor will receive, accept and/or hold upon consignment
the products specified under the terms of this agreement. All goods on consignment shall remain the
property of the Company until sold by the Distributor to the purchaser or purchasers.

ISSUE:
Does the retention clause over the title to the goods contradict a vendor-vendee relationship?

RULING:
Yes. The Supreme Court held that the relationship between Ker & Co. and USRI is one of brokerage
or agency. In the language of Justice J. B. L. Reyes in the case of CIR v. Constantino, who penned the
opinion: "Since the company retained ownership of the goods, even as it delivered possession unto
the dealer for resale to customers, the price and terms of which were subject to the company's control,
the relationship between the company and the dealer is one of agency, ... ." The SC also cited
Salisbury v. Brooks: “the decisions say the transfer of title or agreement to transfer it for a price paid or
promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an
owner and makes him liable to the transferor as a debtor for the agreed price, and not merely as an
agent who must account for the proceeds of a resale, the transaction is a sale; while the essence of an
agency to sell is the delivery to an agent, not as his property, but as the property of the principal, who
remains the owner and has the right to control sales, fix the price, and terms, demand and receive the
proceeds less the agent's commission upon sales made.”

Hence, Ker & Co is only an agent of the USRI because it can dispose of the products of the Company
only to certain persons or entities and within stipulated limits, unless excepted by the contract or by the
USRI, it merely receives, accepts and/or holds upon consignment the products, which remain
properties of USRI. The company retained ownership of the goods, even as it delivered possession
unto the dealer for resale to customers, the price and terms of which were subject to the company’s
control, the relationship between the company and the dealer is one of brokerage or agency.

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 SALES
Nature and Form

NO CONTACT OF SALE IN TRANSFERS BETWEEN PARTIES WITH IDENTITY OF INTEREST

3. Delpher Trades Corp. v. Intermediate Appellate Court

G.R. No. 69259, January 26, 1988
Gutierrez, Jr., J.

FACTS:
The petitioners question the decision of the IAC which sustained the private respondent's contention
that the deed of exchange whereby co-owners-siblings Delfin and Pelagia Pacheco conveyed a parcel
of land to Delpher Trades Corporation in exchange for 2,500 shares of stock was actually a deed of
sale which violated a right of first refusal under a lease contract.

On the ground that it was not given the first option to buy the leased property pursuant to the proviso in
the lease agreement, respondent lessee Hydro Pipes Philippines, Inc., filed an amended complaint for
reconveyance of the leased property in its favor under conditions similar to those whereby Delpher
Trades Corporation acquired the property from Pelagia Pacheco and Delphin Pacheco. After trial, the
CFI ruled in favor of the plaintiff recognizing Hydro Pipes’ right of first refusal. The IAC affirmed this.
Now, the petitioners, filed a petition for certiorari to review the appellate court's decision.

It is the petitioner’s submission that there has been no violation of the right of first refusal and no actual
transfer of ownership interests under the deed of exchange between Delpher and the Pachecos since
the beneficial ownership and control of petitioner corporation remained in the hands of the original co-
owners-siblings Pachecos. The petitioners maintain that the Pachecos did not sell the property. They
argue that there was no sale and that they exchanged the land for shares of stocks in their own
corporation. "Hence, such transfer is not within the letter, or even spirit of the contract. There is a sale
when ownership is transferred for a price certain in money or its equivalent (Art. 1468, Civil Code)
while there is a barter or exchange when one thing is given in consideration of another thing (Art.
1638, Civil Code).

ISSUE:
Was the deed of exchange equivalent to a deed of sale even if there was no actual transfer of
ownership interests between Delpher and the Pachecos?

RULING:
No, the deed of exchange is not equivalent to a deed of sale. It is to be stressed that by their
ownership of the 2,500 no par shares of stock, the Pachecos have control of the corporation. Their
equity capital is 55% as against 45% of the other stockholders, who also belong to the same family
group.

In effect, the Delpher Trades Corporation is a business conduit of the Pachecos. What they really did
was to invest their properties and change the nature of their ownership from unincorporated to
incorporated form by organizing Delpher Trades Corporation to take control of their properties and at
the same time save on inheritance taxes. Thus, there was no transfer of interests even though there
was transfer of stocks.

Since there is no sale, there will be no right of first refusal for respondents in the case at bar. Right of
first refusal arises when the property is to be sold in which case the one who holds the right has the
first option to purchase the said property.

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 SALES
Nature and Form

OPTION TO PURCHASE EXECUTED WITHOUT SEPARATE CONSIDERATION IS A BILATERAL

CONTRACT WHICH MAY GENERATE A CONTRACT OF SALE WHEN ACCEPTED PRIOR TO ITS
WITHDRAWAL

4. Sanchez v. Rigos
G.R. No. L-25494, June 14, 1972
Concepcion, C.J.

FACTS:
This is an appeal from a decision of the CFI to the CA, which certified the case to the Supreme Court,
upon the ground that it involves a question purely of law.

Sanchez and Rigos executed an instrument called Option to Purchase (annex A) whereby Rigos
promised to sell to Sanchez a parcel of land within 2 years from date. If Sanchez fails to exercise his
right to buy, the option shall be deemed terminated and elapsed. Sanchez’ several tenders of payment
of the agreed selling price were rejected by Rigos, prompting Sanchez to deposit the same to the CFI
and file an action for specific performance.

Sanchez alleges that, by virtue of the option under consideration, the contract is reciprocally
demandable. On the other hand, Rigos alleges as special defense that the contract between the
parties "is 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". The CFI ruled in favor of Sanchez relying upon Article
1354 of our Civil Code and ordered Rigos to accept the consigned payment.

ISSUE:
Was there a perfected contract of sale?

RULING:
None, but there is a valid option contract. This Court itself, in the case of Atkins, Kroll and Co., Inc. v.
CuaHian Tek, decided later that Southwestern Sugar & Molasses Co. v. Atlantic Gulf & Pacific Co.,
saw no distinction between Articles 1324 and 1479 of the Civil Code and applied the former where a
unilateral promise to sell similar to the one sued upon here was involved, treating such promise as an
option which, although not binding as a contract in itself for lack of a separate consideration,
nevertheless generated a bilateral contract of purchase and sale upon acceptance. In other words,
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.

Article 1479 is controlling in the case at bar. In order that said unilateral promise may be "binding upon
the promisor, Article 1479 requires the concurrence of a condition, namely, that the promise be
"supported by a consideration distinct from the price." Accordingly, the promisee cannot compel the
promisor to comply with the promise, unless the former establishes the existence of said distinct
consideration. In other words, the promisee has the burden of proving such consideration.

The option did not impose upon plaintiff the obligation to purchase defendant's property. Annex A is
not a "contract to buy and sell." It merely granted plaintiff an "option" to buy. And both parties so
understood it, as indicated by the caption, "Option to Purchase," given by them to said instrument.
Under the provisions thereof, the defendant "agreed, promised and committed" herself to sell the land
therein described to the plaintiff 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.

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 SALES
Nature and Form

PROMISOR CANNOT BE COMPELLED TO SELL IF NO SEPARATE CONSIDERATION WAS

GIVEN

5. Mendoza v. Comple
G.R. No. L-19311, October 29, 1965
Bengzon, C.J.

FACTS:
The plaintiffs have appealed from the order of Judge Honorio Romero of the CFI, that dismissed their
action to require defendant to comply with their alleged contract of purchase and sale of a parcel of
land. His honor held that the complaint merely described an accepted promise to sell by defendant,
which promise could be withdrawn (and was withdrawn on time) because it was not supported by "a
consideration distinct" from the price of the sale.

Plaintiffs alleged in the complaint that they were reluctant first in purchase said parcel of land. After a
series of negotiations, the defendant finally agreed to sell to the plaintiffs the parcel of land in question
plus the additional area of twenty-four square meters above stated, for the price of P4,500.00,
Philippine currency; and upon their mutual agreement, the plaintiffs were given by the defendant a
period of three weeks from April 15, 1961 and until May 6, 1961, within which to raise the amount of
P4,500.00. They agreed that the final deed of conveyance will be executed by the defendant in favor
of the plaintiff as soon as the plaintiffs shall be ready with the cash within the period given them.

On May 1, 1961, before the expiration of the period of three weeks given to the plaintiffs by the
defendant on aforesaid, the said defendant came over to the house of the plaintiffs, and then and there
advised them that she is calling off the deal and that she is backing out from their agreement.

ISSUE:
May defendants be compelled to sell said parcel of land by virtue of the promise to sell?

RULING:
No, there was no accepted promise to sell said land.

It will be observed that there is no allegation that plaintiffs had agreed to buy the land, So, according to
the facts described in the complaint, if plaintiffs did not produce or have the money on or before May 6,
1961, no liability attached to them. Neither could defendant (if she so elected) compel them to buy.

The negotiations as thus related in the complaint merely amounted to an undertaking by defendant
that if plaintiffs had the amount of P4,500.00 on or before May 6, 1981, she would sell the lot to them
for that sum upon the execution of the contract; and that plaintiffs accepted or agreed to such promise.
The New Civil Code provides that such promise is binding upon the promisor if the promise is
supported by a consideration distinct from the price (Art. 1479).

Now, as there was no such "distinct" consideration (no allegation as to it), the defendant was not
bound to stand by her promise even if accepted, before withdrawal.

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 SALES
Nature and Form

NO SEPARATE CONSIDERATION NEEDED TO BIND PARTIES TO A RIGHT OF FIRST

REFUSAL

6. Equatorial Realty Development, Inc. v. Mayfair Theater Inc.

G.R. No. 106063, November 21, 1996
Hermosisima, Jr., J.

FACTS:
Petitioner filed a Petition for Review attacking the decision of the Court of Appeals involving questions
in the resolution of which the respondent appellate court analyzed and interpreted particular provisions
of our laws on contracts and sales.

Carmelo (lessor) owned a parcel of land in C.M. Recto Ave., two portions of which he leased to
Mayfair (lessee) for a term of twenty (20) years each. Mayfair constructed on the leased properties
movie houses known as Maxim Theatre and Marimar Theatre. Both contracts of lease provide a
stipulation that if the lessor should desire to sell the leased premises, the lessee shall be given 30-
days exclusive option to purchase the same. In the event, however, that the leased premises is sold to
someone other than the lessee, the lessor is bound and obligated, as it hereby binds and obligates
itself, to stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and be
bound by all the terms and conditions thereof.

Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President of Mayfair, through a telephone
conversation that Carmelo was desirous of selling the entire C.M. Recto property. Mayfair replied
through a letter stating said to the aforementioned provision in the lease agreement. Carmelo did not
reply to this letter. Mayfair sent another letter to Carmelo purporting to express interest in acquiring not
only the leased premises but "the entire building and other improvements if the price is reasonable.
However, both Carmelo and Equatorial questioned the authenticity of the second letter.Four years
later, Carmelo sold its entire C.M. Recto Ave. land and building, which included the leased premises
housing the "Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale.

ISSUE:
Does the exclusive option to purchase stipulation in the lease contract binding upon Carmelo despite
the lack of separate consideration from Mayfair?

RULING:
Yes, the contract stipulation grants the right of first refusal to Mayfair and is not an option contract.

The rule so early established in this jurisdiction is that the deed of option or the option clause in a
contract, in order to be valid and enforceable, must, among other things, indicate the definite price at
which the person granting the option, is willing to sell. An accepted unilateral promise which specifies
the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and
separate from the price, is what may properly be termed a perfected contract of option. This contract is
legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code.

Here, the Court held 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. 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 stipulation of the two contracts of lease which would bring them into
the ambit of the usual offer or option requiring an independent consideration.

10
 SALES
Nature and Form

LESSOR AND LESSEE; OPTION TO BUY; NOVATION OF CONTRACT

7. Vda. de Quirino v. Palarca

G.R. No. L-28269, August 15, 1969
Concepcion, C.J.

FACTS:
This is an appeal by certiorari from the decision of the Court of Appeals affirming the decision of the
CFI ordering petitionerConsuelo Vda. De Quirino to execute a deed of conveyance in favor of the
respondent Jose Palarca over subject property and to deliver the certificate of title and the amount of
P12,000 in cash.

Petitioner Quirino, the lessor, and respondent Palarca, the lessee, entered into a lease contract
whereby the former leased to the latter a parcel of land for a term of 10 years with monthly rental of
P250. It was also agreed upon that the lessee could demolish the lessor's old building and construct
any building therein which shall belong to the lessee and that within 1 year after the expiration of the
lease, the lessee would have "the right and option to buy the leased premises" for P12,000. Within 1
year after the expiration of the lease, the lessee informed the lessor that he was exercising his right to
buy the leased property for the agreed price of P12,000. The lessor replied, however, that she cannot
accede to the lessee's requests because the contract has been novated by another agreement,
wherein the rent of P250 a month was reduced to P100.00.

The lessee instituted the present action to compel the lessor to comply with her obligation to execute
the corresponding deed of sale in his favor, upon payment by him of said sum of P12,000. The lessor
alleged, among others, that the lessee’s option to purchase is null and void for want of consideration.

ISSUE:
Is the lessee’s option to purchase contained in the lease contract valid despite want of consideration?

RULING:
Yes. To begin with, the allegation of lessor is based upon the premise that the option of the lessee is
devoid of consideration, which is false. Indeed, in reciprocal contracts, like the one in question, the
obligation or promise of each party is the consideration for that of the other.

In the language of Article 1350 of our Civil Code, "(i)n onerous contracts the cause is understood to
be, for each contracting party, the prestation or promise of a thing or service by the other ... ." As a
consequence, "(t)he power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him."

In the case at bar, the consideration for the lessor's obligation to sell the leased premises to the
lessee, should he choose to exercise his option to purchase the same, is the obligation of the lessee to
sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to
exercise his option to buy said premises. Then, again, the amount of the rentals agreed upon in the
contract of October 4, 1947 — which amount turned out to be so burdensome upon the lessee, that
the lessor agreed, five (5) years later, to reduce it —as well as the building and/or improvements
contemplated to be constructed and/or introduced by the lessee, were, undoubtedly, part of the
consideration for his option to purchase the leased premises.

11
 SALES
Nature and Form

EXECUTION OF A DEED OF CONDITIONAL SALE DOES NOT SIMULTANEOUSLY VEST TITLE

TO THE BUYER SINCE TRANSFER OF TITLE IS CONDITIONED UPON FULL PAYMENT

8. Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.

G.R. No. L-25885, January 31, 1972
Reyes, J.B.L., J.

FACTS:
This is an interpleader action filed by lessee Luzon Brokerage Co., Inc. (Luzon) to compel Maritime
Building Co. Inc. (Maritime) and Myers Building Co. Inc. (Myers) to interplead as to who is entitled to
the rentals. The CFI has ruled in favor of Myers from which Maritime has directly appealed to the CA.

Myers, owner of three parcels of land with improvements therein entered into a contract entitled "Deed
of Conditional Sale" in favor of Maritime, whereby the former sold the same to the latter for
P1,000,000.00 to be paid in monthly installments. They agreed that in case of failure on the part of the
vendee to pay any of the installments due and payable, the contract shall be annulled at the option of
the vendor and all payments already made by vendee shall be forfeited and the vendor shall have right
to re-enter the property and take possession thereof. Maritime failed to pay the monthly installments
for March, April, and May. Myers made a demand for the payment of the installments but it was
returned unclaimed. The next month, Myers wrote Maritime advising it of the cancellation of the Deed
of Conditional Sale, demanding the return of the possession of the properties, and holding them liable
for use and occupation of the said properties. Myers also demanded upon the Luzon Brokerage Co.,
Inc., to whom Maritime leased the properties, for the payment of monthly rentals and the surrender of
the property. As a consequence, the Luzon Brokerage Co., Inc. filed this action for interpleader.

Maritime contends that there has been no breach of contract by Maritime as the default in payment
were in good faith; and assuming that there was one, Myers was not entitled to rescind or resolve the
contract without recourse to judicial process.

ISSUE:
Does execution of a deed of conditional sale simultaneously vest title to the buyer despite non-
payment of the purchase price?

RULING:
No. The distinction between contracts of sale and contract to sell with reserved title has been
recognized in repeated decisions upholding the power of promisors under contracts to sell in case of
failure of the other party to complete payment, to extrajudicially terminate the operation of the contract,
refuse conveyance and retain the sums or installments already received, where such rights are
expressly provided for, as in the case at bar.

Appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged by Article
1592, transferring ownership simultaneously with the delivery of the real property sold, but one in
which the vendor retained ownership of the immovable object of the sale, merely undertaking to
convey it provided the buyer strictly complied with the terms of the contract. In suing to recover
possession of the building from Maritime, appellee Myers is not after the resolution or setting aside of
the contract and the restoration of the parties to the status quo ante, as contemplated by Article 1592,
but precisely enforcing the provisions of the agreement that it is no longer obligated to part with the
ownership or possession of the property because Maritime failed to comply with the specified condition
precedent, which is to pay the installments as they fell due.

12
 SALES
Nature and Form

TRANSFER OF POSSESSION WITHOUT THE INTENT OF THE SELLER TO PART WITH THE
OWNERSHIP OF HER GOODS DOES NOT VEST TITLE UPON THE BUYER

9. Masiclat v. Centeno
G.R. No. L-8420, May 31, 1956
Paras, J.

FACTS:
Defendant-respondent Centeno owned 15 sacks of rice offered for sale at her store situated on a
street near public market. One morning, a person approached defendant and offered to purchase the
rice in question. Defendant agreed to sell 15 sacks of rice in question at P26/sack, which the buyer
promised to pay as soon as he would receive the price of his adobe stones which were being then
unloaded from a truck owned by Francisco Tan, then parked at the opposite side of the street in front
of the Union Grocery facing the defendant’s store. Relying on this promise and upon the request of
said purchaser, the defendant ordered the rice in question loaded in the said truck, of which the
plaintiff was the caretaker, expecting that as soon as the adobe stones would be paid, said purchaser
would pay her the price of the rice.

While the rice was being loaded on the truck and even thereafter, defendant kept an eye on it waiting
for the purchaser to come to pay her. When the adobe stones were completely unloaded from the
truck, the defendant looked for the purchaser, but the latter was not found. So defendant decided to
unload the rice from the truck but to her surprise plaintiff-petitioner Masiclat objected on the ground
that he has bought it at P26/sack from a person whom he did not know and whom he met only that
morning for the first time. Defendant insisted in unloading the rice and the plaintiff objected. Hence,
defendant called a policeman to investigate the matter and the latter brought the rice in question to the
Municipal building where it was deposited pending investigation. Plaintiff then initiated this action for
recovery of possession of the rice in question.

ISSUE:
Is loading of the sacks of rice in the truck of the buyer considered an effective delivery that transfers
ownership?

RULING:
No. Although a contract of sale is perfected upon the parties having agreed as to the thing which is the
subject matter of the contract and the price, ownership is not considered transmitted until the property
is actually delivered and the purchaser has taken possession and paid the price agreed upon.

The sale between Centeno and the unknown purchaser was not consummated because although the
former allowed the rice to be loaded in the truck, she did not intend to transfer its ownership until she
was paid the stipulated price; and this is very evident from the fact that respondent continually watched
her rice and demanded its unloading as soon as the unknown purchaser was missing. Respondent
thus has not lost ownership and legal possession thereof.

13
 SALES
Nature and Form

IN A CONTRACT TO SELL, A DEED OF ABSOLUTE SALE MUST BE EXECUTED TO VEST TITLE

TO THE BUYER UPON FULL PAYMENT OF THE PURCHASE PRICE

10. Olivarez Realty Corporation v. Castillo

G.R. No. 196251, July 9, 2014
Leonen, J.

FACTS:
This is a petition for review on certiorari of the Court of Appeals' decision and resolution affirming in
toto that RTC’s decision that Olivarez Realty breached the contract of conditional sale and ordered that
the contract be rescinded.

Castillo and Olivarez, entered into a contract of conditional sale whereby Castillo agreed to sell his
property to Olivarez who in turn agreed to a down payment of P5,000,000 and for the balance to be
paid in 30 equal monthly installments. The parties agreed that Olivarez Realty may immediately
occupy the property upon signing of the deed of conditional sale.

Castillo filed a complaint against Olivarez with the RTC rescinding their contract of conditional sale,
alleging that the corporation only paid P2,500,000 of the purchase price. Contrary to the agreement,
the corporation neither cleared the land of the tenants nor paid them disturbance compensation.
Despite demand, Olivarez Realty Corporation refused to fully pay the purchase price. Olivarez alleged
that Castillo did not clear the property of the tenants within six months from the signing of the deed of
conditional sale. Thus, according to defendants, the corporation had "all the legal right to withhold the
subsequent payments to [fully pay] the purchase price.

ISSUE:
Is there a perfected contract of conditional sale that entitles Castillo to rescind his contract with
Olivarez?

RULING:
No. Here, the parties entered into a contract to sell which may however be cancelled by Castillo since
Olivarez Realty Corporation illegally withheld payments of the purchase price. In this case, Castillo
reserved his title to the property and undertook to execute a deed of absolute sale upon Olivarez
Realty Corporation’s full payment of the purchase price. Since Castillo still has to execute a deed of
absolute sale to Olivarez Realty Corporation upon full payment of the purchase price, the transfer of
title is not automatic.

In both contracts to sell and contracts of conditional sale, title to the property remains with the seller
until the buyer fully pays the purchase price. Both contracts are subject to the positive suspensive
condition of the buyer’s full payment of the purchase price In a contract of conditional sale, the buyer
automatically acquires title to the property upon full payment of the purchase price. This transfer is “by
operation of law without any further act having to be performed by the seller.” In a contract to sell,
transfer of title to the prospective buyer is not automatic. “The prospective seller must convey title to
the property through a deed of conditional sale. Failure to fully pay the purchase price is “merely an
event which prevents the seller’s obligation to convey title from acquiring binding force.” This is
because “there can be no rescission of an obligation that is still nonexistent, the suspensive condition
not having happened.”

In this case, since Castillo still has to execute a deed of absolute sale to Olivarez Realty upon full
payment of the purchase price, the transfer of the title is not automatic. The contract is a contract to
sell. Hence, Article 1911 of the Civil Code (right to rescind reciprocal obligation) does not apply. The
contract to sell is instead cancelled, and the parties shall stand as if the obligation to sell never existed.

14
 SALES
Capacity to Buy or Sell

CONGRUENCE OF THE WILLS OF THE SPOUSES IS ESSENTIAL FOR VALID DISPOSITION OF

CONJUGAL PROPERTY

11. Abalosv.Macatangay, Jr.

G.R. No. 155043, September 30, 2004
Tinga, J.

FACTS:
The instant petition seeks a reversal of the Decision of the Court of Appeals which reversed the trial
court’s decision dismissing the action for specific performance filed by respondent, and ordered
petitioner and his wife to execute in favor of herein respondent a deed of sale over the subject
property.

Armed with a Special Power of Attorney, purportedly issued by petitioner’s wife, Arturo Abalos
executed a Receipt and Memorandum of Agreement (RMOA) in favor of Respondent, binding himself
to sell to Respondent the subject property and not to offer the same to any other party within 30 days
from date. Further, the RMOA stated that full payment would be effected as soon as possession of the
property shall have been turned over to respondent. Subsequently, Arturo’s wife, Esther Abalos,
executed a SPA, appointing her sister, to act for and in her behalf relative to the property to
respondent.

Through a letter sent to the Spouses Abalos, respondent expressed his willingness to pay the full
amount of the purchase price. Esther executed in favor of respondent, a Contract to Sell the property
to the extent of her conjugal interest therein, and agreed to surrender possession of the property to
respondent. Esther also obligated herself to execute and deliver to respondent a deed of absolute sale
upon full payment. Neither of the spouses complied with their promises.

Respondent then filed for a complaint for specific performance before the RTC which was dismissed.
The CA reversed the RTC decision. Hence, the petition.

ISSUE:
Does the execution of two separate documents by the husband and wife selling their respective
interests in a conjugal property comply with the consent requirement as to give rise to a valid sale of
the whole of said conjugal property?

RULING:
No. The husband, even if he is statutorily designated as administrator of the conjugal partnership,
cannot validly alienate or encumber any real property of the conjugal partnership without the wife’s
consent. Similarly, the wife cannot dispose of any property belonging to the conjugal partnership
without the conformity of the husband. The law is explicit that the wife cannot bind the conjugal
partnership without the husband’s consent, except in cases provided by law. The congruence of the
wills of the spouses is essential for valid disposition of conjugal property. When there are two
documents on which the signatures of the spouses separately appear, textual concordance of the
documents is indispensable.

Even on the supposition that the parties only disposed of their respective shares in the property, the
sale, assuming that it exists, is still void for the right of the husband or the wife to one-half of the
conjugal assets does not vest until the liquidation of the conjugal partnership.

15
 SALES
Capacity to Buy or Sell

WIFE GAVE CONSENT TO THE HUSBAND'S DISPOSITION OF CONJUGAL PROPERTY BY

SIGNING AS INTRUMENTAL WITNESS TO THE DEED OF SALE

12. Pelayo v. Perez

G.R. No. 141323. June 8, 2005
Austria-Martinez, J.

FACTS:
This resolves the petition for review on certiorari seeking the reversal of the Decision of the CA which
reversed the Decision of the RTC.

David Pelayo (Pelayo), by a Deed of Absolute Sale executed on January 11, 1988, conveyed to Melki
Perez (Perez) two parcels of agricultural land. LorezaPelayo (Loreza), wife of Pelayo, witnessed the
execution of the deed but signed only on the third page in the space provided for witnesses on account
of which Perez' application for registration of the deed was denied. Perez thereupon asked Loreza to
sign on the first and second pages of the deed but she refused, hence, he instituted on August 8, 1991
the instant complaint for specific performance against her and her husband Pelayo (defendants).

Defendant Pelayo claimed in any event that the deed was without his wife Loreza's consent, hence, in
light of Art. 166 of the Civil Code, it is null and void. The RTC held that the deed was null and void. The
CA declared the deed to be enforceable and ruled that by Lorenza's signing as witness to the
execution of the deed, she had knowledge of the transaction and is deemed to have given her consent
to the same. Hence, this petition for review on certiorari.

ISSUE:
Is the signing as witness by the wife considered consent to a make the sale of conjugal property by the
husband valid?

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

In the present case, despite respondent's repeated demands for Lorenza to a fix her signature on all
the pages of the deed of sale, showing respondent's insistence on enforcing said contract, Lorenza still
did not file a case for annulment of the deed of sale. Thus, if the transaction was indeed entered into
without Lorenza's consent, the SC find it quite puzzling why for more than three and a half years,
Lorenza did absolutely nothing to seek the nullification of the assailed contract. The foregoing
circumstances lead the Court to believe that Lorenza knew of the full import of the transaction between
respondent and her husband; and, by a fixing her signature on the deed of sale, she, in effect, signified
her consent to the disposition of their conjugal property.

16
 SALES
Capacity to Buy or Sell

A LAWYER WHO APPEARED AS COUNSEL OF RECORD MAY NOT PURCHASE THE

PROPERTY OF A CLIENT UNDER LITIGATION

13. Rubias v. Batiller

G.R.No.L-35702, May 29, 1973
Teehankee, J.

FACTS:
In this appeal certified by the CA to the Supreme Court as involving purely legal questions, the
Supreme Court affirm the dismissal order rendered by the CFI.

Plaintiff Domingo D. Rubias, a lawyer, filed a suit to recover the ownership and possession of certain
portions of lot under Psu-99791 which he bought from his father-in-law, Francisco Militante in 1956
against its present occupant defendant, Isaias Batiller, who allegedly entered said portions of the lot on
two occasions — in 1945 and in 1959. Before the war with Japan, Francisco Militante led with the CFI
of Iloilo an application for the registration of title of the land technically described in Psu-99791. The
CFI dismissed the application for registration. The applicant, Francisco Militante, appealed from the
decision of the CFI to the CA. Pending the disposal of the appeal, Francisco Militante sold to the
plaintiff Domingo Rubias, the land technically described in Psu-99791. The CA affirmed the decision of
the CFI in the land registration case.

Defendant's counsel manifested in open court that before any trial on the merit of the case could
proceed he would file a motion to dismiss plaintiff's complaint which he did, alleging that plaintiff does
not have a cause of action against him because the property in dispute which he (plaintiff) allegedly
bought from his father-in-law, Francisco Militante was the subject matter of Land registration case filed
in the CFI of Iloilo, which case was brought on appeal to the CA in which aforesaid case plaintiff was
the counsel on record of his father-in-law, Francisco Militante. The defendant invoked Articles 1409
and 1491 of the Civil Code. The CFI practically agreed with defendant's contention that the contract
between plaintiff and Francisco Militante was null and void and dismissed the case. The CA elevated
the appeal to the SC as it involved pure questions of law.

ISSUE:
Is the purchase made by Rubias, the counsel of record, of the property of his client in litigation valid?

RULING:
No. It is categorically prohibited by Article 1491, paragraph (5) of the Philippine Civil Code, reproduced
supra; and that consequently, plaintiff's purchase of the property in litigation from his client was void
and could produce no legal effect, by virtue of Article 1409, paragraph (7) of our Civil Code which
provides that contracts "expressly prohibited or declared void by law" are "inexistent and void from the
beginning" and that "these contracts cannot be ratified. Neither can the right to set up the defense of
illegality be waived."

Article 1491 of our Civil Code (like Article 1459 of the Spanish Civil Code) prohibits in its six
paragraphs certain persons, by reason of the relation of trust or their peculiar control over the property,
from acquiring such property in their trust or control either directly or indirectly and "even at a public or
judicial auction," as follows: (1) guardians; (2) agents; (3) administrators; (4) public officers and
employees; (5) judicial officersand employees, prosecuting attorneys, and lawyers; and (6) others
especially disqualified by law.

17
 SALES
Capacity to Buy or Sell

THERE IS NO VIOLATION OF ARTICLE 1491 IF ATTORNEY ACQUIRED INTEREST OVER A

SUBJECT MATTER OF THE LITIGATION IN WHICH HE HAD TAKEN PART BY REASON OF HIS
PROFESSION PRIOR TO HIS INTERVENTION AS COUNSEL THEREIN

14. Del Rosario v. Millado

A.C. No. 724, January 31, 1969
Concepcion, C.J.

FACTS:
This a disbarment proceeding filed by complainant Florentino B. del Rosario against respondent,
Attorney Eugenio Millado, upon the ground that the latter had committed malpractice by acquiring an
interest in the land involved in a litigation in which he had taken part by reason of his profession.

Eladio Tiburcio, now deceased, claimed titled to a tract of land. Respondent Atty. Millado was allowed
by ConradoBaluyot, an heir of Tiburcio, to construct a house on part of said land in consideration of his
professional services in defense of the claim thereto of the Tiburcios.Respondent’s understanding with
Baluyot was that, should he succeed in securing a decision favorable to the Tiburcios, respondent
could buy the land on which his house was built, namely, lots 4 and 5 of Block E-102, by paying the
current value thereof.

Subsequent to the above agreement, herein complainant del Rosario filed an ejectment case against
Mrs. Pascual, another heir of said deceased. Mrs. Pascual asked respondent to be her counsel in said
ejectment case. However, after filing the answer of Mrs. Pascual, respondent ceased to be her
counsel.

Complainant del Rosario subsequently filed this disbarment case against respondent Atty. Millado. In
his answer, respondent alleged that his interest in said land had been acquired before he intervened in
said proceedings, as counsel for one of the parties therein.

ISSUE:

Can respondent validly acquire interest over the subject lots?

RULING:

Yes, the respondent can validly acquire interest over the subject lots.

Indeed, the provisions of the Civil Code and of the Canons of Legal Ethics, prohibit the purchase by
lawyers of any interest in the subject matter of the litigation in which they participated by reason of their
profession, and complainant herein has not established a violation of such injunction.

The records show that respondent's alleged interest in said lots was acquired before he intervened as
counsel for Mrs. Pascual in the ejectment cases against her and that said interest is not necessarily
inconsistent with that of his aforementioned client, aside from the fact that he had made no substantial
misrepresentation in the pleadings filed by him in said cases. This fact and the absence of said conflict
are made more manifest by the circumstance that the charges under consideration have been
preferred, not by Mrs. Pascual, but by her opponent in one of the ejectment cases above mentioned.

Finding no merit in the complaint, the same was dismissed.

18
 SALES
Obligations of the Vendor

DELIVERY AND PAYMENT ARE SO INTERRALATED AND INTERTWINED WITH EACH OTHER
THAT WITHOUT DELIVERY OF GOODS, THERE IS NO CORRESPONDING OBLIGATION TO PAY

15. Barretto& Sons, Inc. v.CompañiaMaritima

G.R. No. L-22358, January 29, 1975
Esguerra, J.

FACTS:
This is a Petition for review on certiorari filed by petitioner, Pio Barretto Sons, Inc., against the decision
of the CA which reverses the judgment of the trial court ordering respondent, CompaniaMaritima, to
pay the sum of P 6,054.26 to petitioner.

Petitioner filed a complaint for collection of a sum of money for the payment of lumber alleged to have
been purchased and received by respondent from petitioner. The trial court rendered judgment in favor
of petitioner ordering respondent to pay the sum of P6,054.36. On appeal, the CA reversed the
judgment of the trial court and ordered the dismissal of the case on the ground that delivery of the
lumber by petitioner to respondent was not duly proved. Petitioner's motion for reconsideration was
denied.

Hence, this petition for review on certiorari. Petitioner maintains that the CA erred in creating and
raising, motu propio, for the first time a new issue, that of the question of delivery. Petitioner further
asserts that the case having been tried and decided by the trial court on the issue of whether or not
there was payment made by respondent, it is alone on this issue that the CA should have decided the
case and not on the issue of whether or not there was delivery of the lumber in question.

ISSUE:
Can the CA rule the case on the issue of delivery despite the fact that the issue was not raised before
the trial court?

RULING:
Yes. The issue of delivery on which the CA based its decision reversing that of the trial court is no new
issue at all.

For delivery and payment in a contract of sale, or for that matter in quasi-contracts, are so interrelated
and intertwined with each other that without delivery of the goods there is no corresponding obligation
to pay. The two complement each other. Thus, "by the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent." (Art. 1458, 1st par., new Civil Code).

It is clear that the two elements cannot be dissociated, for "the contract of purchase and sale is,
essentially, a bilateral contract, as it gives rise to reciprocal obligations; to wit, on the part of the seller,
‘to deliver a determinate thing, and on the part of the buyer, ‘to pay a certain price therefor in money or
in something representing it.’"

19
 SALES
Obligations of the Vendor

SYMBOLIC DELIVERY MAY PRODUCE THE EFFECT OF TRADITION BUT IT IS NECESSARY

THAT THE VENDOR SHALL HAVE HAD SUCH CONTROL OVER THE THING SOLD

16. Addison v. Felix

38 Phil 404 1918
Street, J.

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 symbolic delivery made and therefore, a transfer of the ownership of the thing sold?

RULING:
NO. 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.

20
 SALES
Obligations of the Vendor

VENDOR NEED NOT BE ABSOLUTE OWNER OF PROPERTY SUBJECT OF CONTRACT OF A

FUTURE SALE

17. Martin v. Reyes

G.R. No. L-4402, July28, 1952
Bengzon, J.

FACTS:
This is an appeal from the CA decision pronouncing the document signed by petitioner as void for not
having been signed before ownerships was acquired.
The respondents Pedro Revilla and Maria Reyes obtained from the La Previsora Filipina sometime
before November 18, 1939 a loan of P6,500; and with the money, they bought a lot.Respondents
mortgaged the property to La Previsora for the purpose of guaranteeing repayment of the debt in
installments with an interest at 12 percent per annum. It turned out later that Monte de Piedad y Caja
de Ahorros had obtained a judgment against Pedro Revilla for the sum of P45,000 and had levied
execution therefor upon the property and its rentals. Apprised of this development, La Previsora
started foreclosure proceedings, alleging non-payment of its credit by the mortgagors. The conflicting
interests were later the object of amicable settlement among the parties, as a result of which the herein
respondents notarized the deed whereby in satisfaction of their obligations to La Previsora (then
amounting to P8,204.60) they ceded the property to the said institutions, reserving the right to
repurchase for P8,204.60 within sixty days. The deed was acknowledged on November 3, 1941. It
seems that La Previsora sold the property to petitioner Canuto Martin, who then executed the
document undertaking to allow respondents to repurchase the property within sixty days from October
31, 1941, but at the price of P14,000. This document was signed by Maria Reyes signifying her assent.
At the trial she pleaded that the document, without embodying their true agreement, had been
obtained thru deceit and abuse of confidence. However, her assertions were not credited by the Court
of Appeals. Nevertheless, that court declared the document void for the only reasons that it had been
signed by Canuto Martin before acquiring ownership.

ISSUE:
Can a vendor had authority to sell even if he is not the owner at the time of the execution of the
contract?

RULING:
YES, Property or goods which, at the time of the sale, are not owned by the seller, but which are
thereafter to be acquired by him, cannot be the subject of an executed sale, but may be the subject of
a contract for the future sale and delivery thereof, and it has been held that even though the contract is
in the form of the present sale it will not pass the title, after the goods have been acquired, until the
seller has done some act appropriating them to the contract. Such a contract of the future sale and
delivery of goods, which the seller has not in possession but which he intends to acquire by producing,
manufacturing, or purchasing before the day of delivery, is valid as an executory contract to be fulfilled
by acquiring and delivering the goods specified in the contract, even though the acquisition of the
goods by the seller depends upon a contingency which may or may not happen.

21
 SALES
Obligations of the Vendor

SYMBOLIC DELIVERY, A FORM OF CONSTRUCTIVE DELIVERY WHERE OWNERSHIP IS

TRANSFERRED THROUGH EXECUTION OF A PUBLIC DOCUMENT CAN BE PREVENTED IF
THE VENDOR DOES NOT POSSESS CONTROL OVER THE THING SOLD.

18. Power Commercial and Industrial Corporation v. Court of Appeals

G.R. No. 119745, June 20, 1997
Panganiban, J.

FACTS:
Power Commercial and Industrial Corporation(PCIC) needed a bigger office space and warehouse for
its products. It entered into a contract of sale with spouses Quiambao involving a parcel of land in
Makati. They agreed a down payment of P108,00 and a balance of P295,000 upon the execution of
the deed of transfer of title. PCIC also assumed, as part of the purchase price, the existing mortgages
on the land in favor of PNB. However, the assumption of mortgage was not approved by PNB.
Nevertheless, PCIC paid a part of the loan (P41,880 compared to the total loan of P145,000) and
asked PNB that the mortgage and title be transferred in their name. PCIC sent a letter to PNB alleging
that it is to its understanding that the lot was free and clear of problems and that the previous owner
would be responsible for the removal of the people who were there. Inasmuch as the previous owner
has not been able to keep his commitment, it said that it should take legal possession of the lot in
order to take the necessary procedures for it to use and physically occupy the lot. PNB sent a reply
letter stating that PCIC should remit additional payments and interest to PNB to place PCIC’s account
in current form.

PCIC filed a case against Spouses Quiambao for rescission and damages. It demanded the return of
the payments it made. The RTC ruled that the failure of Spouses Quiambao to deliver actual
possession entitled PCIC to rescind the sale. CA reversed the RTC and held that the deed of sale did
not obligate the Spouses Quiambao to eject the lessees from the land nor was the occupation thereof
by said lessees a violation of the warranty against eviction. There was no substantial breach to justify
the rescission of the contract.

ISSUE:
1. Was there a valid delivery of the lot
2. Was there a substantial breach of contract warranting rescission

RULING:
1. Yes. The Civil Code provides that delivery can either be (1) actual (Article 1497) or (2)
constructive (Articles 1498-1501). Symbolic delivery (Article 1498), as species of constructive
delivery, effects the transfer of ownership through the execution of a public document.
Considering that the deed of sale between the parties did not stipulate or infer otherwise,
delivery was effected through the execution of said deed. The lot sold had been placed under
the control of petitioner; thus, the ruling of the ejectment suit was subsequently done. It
signified that its new owner intended to obtain for itself and to terminate said occupants' actual
possession thereof. Prior physical delivery or possession is not legally required and the
execution of the deed of sale is deemed equivalent to delivery.This deed operates as a formal
or symbolic delivery of the property sold and authorizes the buyer to use the document as
proof of ownership. Nothing more is required.
2. No. The alleged "failure" of respondent spouses to eject the lessees from the lot in question
and to deliver actual and physical possession thereof cannot be considered a substantial
breach of a condition for two reasons: first, such "failure" was not stipulated as a condition —
whether resolutory or suspensive — in the contract; and second, its effects and
consequences were not specified either. If the parties intended to impose on respondent
spouses the obligation to eject the tenants from the lot sold, it should have included in the
contract a provision. In Romero vs Court of Appeals, the contract specifically stipulated that
the ejectment was a condition to be fulfilled; otherwise, the obligation to pay the balance
would not arise. This is not so in the case at bar.

22
 SALES
Obligations of the Vendor

IF THE BUYER FAILS TO TAKE DELIVERY AND PAY THE PURCHASE PRICE OF THE SUBJECT
MATTER OF THE SALE, THE SELLER IS ENTITLED TO RESELL THE SAME WITHOUT THE
NEED OF JUDICIAL RESCISSION. IF HE IS OBLIGED TO SELL IT FOR A LOWER PRICE THAN
THE CONTRACT PRICE OF THE FIRST SALE, THE FIRST BUYER IS LIABLE FOR THE
DIFFERENCE

19. Katigbak v. Court of Appeals

G.R. No. L-16480, January 31, 1962
Paredes, J.

FACTS:
An agreement for the purchase and sale of a Double Drum Carco Tractor Winch was made between
Artemio Katigbak (buyer) and Daniel Evangelista (seller). The price was quoted at P12,000, payable at
P5,000 upon delivery and the balance of P7,000 within 60 days. The condition of the sale was that the
winch would be delivered in good condition. Katigbak was apprised that the winch needed some
repairs, It was then stipulated that the amount necessary for the repairs will be advanced by Katigbak
but deductible from the initial payment of P5,000.00. The repairs were undertaken and the total of
P2,029.85 or spare parts was advanced by Katigbak for the purpose.

For one reason or another, the sale was not consummated. Evangelista sold the tractor to a third
person for P10,000. Katigbak sued Evangelista for the P2,029.85. Evangelista, on his part, claimed
that while there was an agreement between him and Katigbak for the purchase and sale of the winch
and that Katigbak advanced the payment for the spare parts, he Katigbak refused to comply with his
contract to purchase the same; that as a result of such refusal he (Evangelista) was forced to sell the
same to a third person for only P10,000.00, thus incurring a loss of P2,000.00, which amount Katigbak
should be ordered to pay.

The RTC ruled that Evanglista should pay Katigbak P2029.85. The CA reversed the judgment. It ruled
that Katigbak committed a breach of contract. He should pay Evangelista P29.85 pesos Money
advanced by Katigbak(2,209.85) – Loss of Evangelista (2,000) = P29.85

ISSUE:
Was the failure of the buyer to pay the purchase price and take delivery of the object of sale would
allow the seller to sell his property to another without rescinding the first sale judicially.

RULING:
Yes. The case of Hanlon vs Haussermann was applied in this case wherein the SC said that if the
purchaser fails to take delivery and pay the purchase price of the subject matter of the contract, the
vendor, without the need of first rescinding the contract judicially, is entitled to resell the same, and if
he is obliged to sell it for less than the contract price, the first buyer is liable for the difference. There is
no need for an action of rescission to authorize the vendor, who is still in possession, to dispose of the
property where the buyer fails to pay the price and take delivery.

Katigbak failed to take delivery of the winch, subject matter of the contract and such failure or breach
was, according to the Court of Appeals, attributable to him, The right to resell the equipment, therefore,
cannot be disputed.

23
 SALES
Obligations of the Vendor

PURCHASER ON EXECUTION SALE NOT REQUIRED TO GO BEHIND REGISTRY TO

DETERMINE CONDITIONS OF PROPERTY

20. Hernandez v. Vda. de Salas

G.R. No. 46840, June 17, 1940
Moran, J.

FACTS:
This is an Appeal from a judgment rendered by the CFI of Rizal.Nicolas Rivera owns 40 hectares of
lots of Hacienda Maysilo in Rizal. 18 hectares of the lot which is unsegregated were sold to Mariano P.
Leuterio in 1922. The latter in turn sold a total area of 16,900 sq.m to Rafael Villanueva by deeds
which had never been registered (1922). Later Rafael Villanueva sold the land to herein Plaintiff.
Victoriano Hernandez.

Perfecto J. Salas Rodriguez on a separate civil action against Mariano Leuterio was granted a writ of
execution. In pursuance thereof, the provincial sheriff of Rizal levied upon the properties of Leuterio
including the 18 hectares bought from Nicolas Rivera. The levy was duly recorded in the office of the
Register of Deeds and noted on transfer certificate of title No. 8540 covering lot No. 28. One month
after, Rafael Villanueva filed with the sheriff a third-party claim, but as the judgment creditor gave an
indemnity bond, the sheriff proceeded with the execution. On March 30, 1926, said officer executed
the corresponding deed in favor of Rodriguez. On March 1, 1926, the 40 hectares owned by Rivera
were segregated. Two TCTs were issued in favor of Nicolas Rivera, one with No. 10533, for lot No. 28-
A, and the other with No. 10535, for lots Nos. 27-A and 29-A. The execution lien of Rodriguez as well
as the auction sale which were annotated on TCT No. 8540, were transferred to and annotated on the
new TCT No. 10533 covering lot No. 27-A. There having been no redemption, a final deed of sale was
executed on March 30, 1927 by the sheriff in favor of Rodriguez, and TCT No. 12242 was issued the
following day in the latter's name. Rodriguez died, and by virtue of a partition approved by the probate
court, lot No 28-A was adjudicated to his widow, MacariaKatigbak Vda. De Salas, now defendant, in
whose favor TCT title No. 22157 was issued by the Register of Deeds of Rizal on August 9, 1932.

CFI of Rizal rendered judgment, ordering Katigbak to segregate from lot No. 28-A, covered by her TCT
No. 22157, a portion equivalent to 16,900 square meters, and to execute, in due form, the
corresponding deed in favor Hernandez.

ISSUE:
Was Perfecto Rodriguez has better right than Villaneuva on the parcel of land sold?

RULING:
Perfecto have a better right to the parcel of land.It is a well-settled rule that, when the property sold on
execution is registered under the Torrens system, registration is the operative act that gives validity to
the transfer, or creates a lien on the land, and a purchaser, on execution sale, is not required to go
behind the registry to determine the conditions of the property. Such purchaser acquires such right,
title and interest as appear on the certificate of title issued on the property, subject to no liens,
encumbrances or burdens that are not noted thereon.

The two purchasers derived their title from Mariano P. Leuterio, who in turn acquired his from Nicolas
Rivera. The purchase made by Villanueva took place prior to the execution sale, but was never
registered. The property is registered under the Torrens system, there being a certificate of title issued
in favor of Nicolas Rivera bearing No. 10533 on lot No. 28-A. No certificate of title was ever issued in
favor of Mariano P. Leuterio, but the levy and the execution sale of the property were noted on the
transfer certificate of title of Nicolas Rivera without the latter's objection, and in the notation it appeared
that the property had been sold by Nicolas Rivera to Mariano P. Leuterio. It was, therefore, Mariano P.
Leuterio alone who, in Rivera's certificate of title, appeared as the sole owner of the property at the
time of the levy and execution sale.

24
 SALES
Obligations of the Vendor

REGISTRATION IN GOOD FAITH PREVAILS OVER POSSESSION IN DOUBLE SALE, DOESN’T

APPLY TO PURCHASER OF UNREGISTERED LAND AT SHERIFF’S EXECUTION SALE

21. Carumba v. Court of Appeals

G.R. No. L-27587, February 18, 1970
Reyes, J.B. L., J.

FACTS:
Petition for certiorari to review the decision of Court of Appeals (CA) that reversed the judgment of
Cour of First Instance (CFI) of Camarines Sur which ruled in favor of Amado Carumba.

On April 12, 1956, the spouses Amado Canuto and Nemesia Ibasco (SpsCanuto), by virtue of a
`Deed of Sale of Unregistered Land with Covenants of "Warranty' sold a parcel of land, partly
residential and partly coconut land located in Camarines Sur, to the spouses Amado Carumba and
Benita Canuto (Sps. Carumba). The deed of sale was never registered and the Notary was not then an
authorized notary public in Camarines Sur. It has been expressly admitted by Carumba that he is the
brother-in-law of Amado Canuto, the alleged vendor of the property sold to him. On January 21, 1957,
a complaint for a sum of money was filed by Santiago Balbuena against Sps.Canuto. A decision was
rendered in favor of Balbuena. On October 1, 1958, the ex-officio Sheriff issued a "Definite
Deed of Sale of the property now in question in favor of Balbuena, which instrument of sale was
registered before the Office of the Register of Deeds of Camarines Sur, on October 3, 1958.

The CFI, finding that after execution of the document Carumba had taken possession of the land,
planting bananas, coffee and other vegetables thereon, declared him to be the owner of the property
under a consummated sale.The CA declared that there having been a double sale of the land
subject of the suit, Balbuena's title was superior to that of Carumba since the execution sale had been
properly registered in good faith and the sale to Carumba was not recorded.

ISSUE:
Was Carumba has better right over the land than Balbuena

RULING:
Carumba has better right over the land.

While under the invoked Article 1544 registration in good faith prevails over possession in the
event of a doubt sale by the vendor of the same piece of land to different vendees, said article is of no
application to the case at bar, even if Balbuena, the later vendee, was ignorant of the prior sale
madeby his judgment debtor in favor of petitioner Carumba. The reason is that
thepurchaser of Unregistered land at a sheriff's execution sale only steps into the shoes of the
judgment debtor, and merely acquires the latter's interest in the property sold as of the time the
property was levied upon. This is specifically provided by section 35 of Rule 39 of the Revised
Rules of Court, the second paragraph of said section specifically providing that:

"Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee
shall be substituted to and acquire all the right, title, interest, and claim of the judgment debtor to the
property as of the time of the levy, except as against the judgment debtor in possession, in which case
the substitution shall be effective as of the time of the deed . . . " (Italics supplied)

When the levy was made by the Sheriff, therefore, the judgment debtor no longer had dominical
interest nor any real right over the land that could pass to the purchaser at the execution sale. Hence,
the latter must yield the land to petitioner Carumba. The rule is different in case of lands covered by
Torrens titles, where the prior sale is neither recorded nor known to the execution purchaser prior to
the levy;but the land here in question is admittedly not registered under Act No. 496.

25
 SALES
Obligations of the Vendor

IN A SITUATION WHERE NOT ALL THE REQUISITES OF ART. 1544 OF NCC ARE PRESENT,
THE PRINCIPLE THAT “HE WHO IS FIRST IN TIME IS PREFERRED IN RIGHT” APPLIES

22. Consolidated Rural Bank (Cagayan Valley) v. Court of Appeals

G.R. No. 132161, January 17, 2005
Dizon, J.

FACTS:
This is a petition for certiorari under Rule 45 which seeks to review the decision of the CA, reversing
the decision of the RTC which declared that Pacifico V. Marquez (Marquez) as the lawful owner of the
subject properties covered by TCTs and declared that the mortgage of some of the properties in favor
of Consolidated Rural Bank (Cagayan Valley) (CRB) valid.

The Madrid brothers were registered owners a lot in Isabela. In 1957, Rizal Madrid solid part of his
share to Gamiao and Dayag by virtue of a deed of sale, to which his brothers offered no objection. The
deed of sale was not registered with the Office of the Register of Deeds. Gamiao and Dayag sold the
southern portion of the land to Teodoro dela Cruz (dela Cruz) and the northern portion was sold to
Restituto Hernandez (Hernandez). In 1976, the Madrid brothers conveyed all their rights and interests
to Marquez. The deed of sale was registered with the Office of the Register of Deeds. Marquez
subdivided the lot into eight. Four of the subidivided lots were mortgaged to CRB to secure a loan of
P100,000, and one was also mortgaged to RBC to secure a loan of P10,000. These deeds of real
estate mortgage were registered with the Office of the Register of Deeds. Marquez later on defaulted
in the payment of his loan and CRB caused the foreclosure of the mortgages and the lots were sold to
it as the highest bidder.

The heirs of dela Cruz and heirs of Hernandez filed a case for reconveyance and damages as to their
respective portions in the land. Marquez argued that he was a buyer in good faith and for value. He
argued as well that being the first registrant, the sale in favour of him must prevail over the sale to
Gamiao and Dayag which shouldn’t be binding upon him, that being unregistered. CRB, on the other
hand, insisted that they were mortgagees in good faith and that they had the right to rely on the titles of
Marquez.

ISSUE:
Was Marquez, being the first registrant, has a better right over the property?

RULING:
No, the heirs of dela Cruz and Hernandez have a better right over the property.The provisions of Art.
1544 do not apply in this case. Said provision contemplates a case of double sale by a single vendor.
In the case at bar, the subject property was not transferred to several purchasers by a single vendor.
In the first sale, the vendors were Gamiao and Dayag whose right to the property originated from their
acquisition thereof from Rizal Madrid. In the second sale, the vendors were the Madrid brothers but at
that time they were no longer the owners since they had long disposed of the property.

In a situation where not all the requisites are present which would warrant the application of 1544, the
principle that “he who is first in time is preferred in right” should apply. In the instant case, the sale by
Gamiao and Dayag who first bought it from Rizal Madridwas anterior to the sale to Marquez. The Heirs
of dela Cruz and Hernandez also had possession of the property first. Thus, applying the principle, the
Heirs have a superior right to the subject property. Moreover, since the Madrid brothers were no longer
the owners of the lot at the time of the sale to Marquez, Marquez did not acquire any right to it.

26
 SALES
Obligations of the Vendor

OWNERSHIP OF IMMOVABLE PROPERTY SHOULD BE RECOGNIZED IN FAVOR OF ONE WHO

IN GOOD FAITH FIRST RECORDED HIS RIGHT

23. Carbonell v. Court of Appeals

G.R. No. L-29972, January 26, 1976
Makasiar, J.

FACTS:
Rosario Carbonell seeks a review of the resolution of the Court of Appeals, reversing its decision, and
its resolution denying petitioner’s motion for reconsideration.

Respondent Jose Poncio was the owner of the parcel of land with improvements located in Rizal. It
was subject to a mortgage in favor of Republic Savings Bank for Php 1,500. Both peitionersCarbonell
and respondent Emma Infante offered to buy the land from Poncio. Poncio was unable to keep up with
the installments due on the mortgage and approached petitioner Carbonell. He offered to sell to the
latter the lot excluding the house. Petitioner accepted and proposed a price of Php9.50/sqm. Poncio
accepted the price on the condition that the from the purchase price would come the money to be paid
to the bank.

Petitioner and respondent Poncio went to the bank and secured the consent of the president for her to
pay arrears on the mortgage and continue payments as they fell due. The arrears reached Php 247.26
but petitioner only brought Php 200 as requested by Poncio who had to withdraw the rest from his
deposit. Petitioner refunded the difference to Poncio the next day. Petitioner and respondent executed
a document in the Batanes langues which allowed Poncio to stay in the house for a year and even
beyond with payment of rent.

Petitioner asked that a formal deed be prepared. Later, Poncio told petitioner that he could not
proceed with anymore sale because he had already given the lot to respondent Emma Infante. He had
bound himself in a private memorandum dated January 31, 1955 to sell the property for Php 2,357.52.
On February 2, 1955 respondent Poncio executed a formal deed of sale in favor of Infante who
assumed the mortgage. The mortgage was eventually discharged.

Informed that the sale in favor of Infante had not yet been registered, Atty. Garcia prepared an adverse
claim for Carbonell, who signed and swore to and registered the same on February 8, 1955. The deed
of sale in favor of Infante was registered on February 12, 1955. As a consequence, the TCT was
issued with an annotation of adverse claim of petitioner Carbonell.

Respondent Infante took immediate possession of the lot involved then covered the same with garden
soil and built a wall and gate for a total of P1,500. She later hired an architect to build a house with the
construction beginning in 1959. A total of P11,929 was spent.

Carbonell sought to be declared the lawful owner of the parcel of land. The Trial Court initially ruled in
her favor and ordered Poncio to execute the proper conveyance but it reversed itself after a re-hearing
of the case. The Court of Appeals had initially reversed the decision of the trail court but later upheld
the said decision instead after herein respondents filed a Motion for Reconsideration.

ISSUE:
Was Poncio bound to execute the conveyance in favor of Carbonell?

RULING:
Yes, Poncio was bound to execute the conveyance because Carbonell was the rightful owner of the
land by virtue of a valid sale.

Article 1544, New Civil Code, which is decisive of this case, recites:

27
 If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if
it should movable property.
Should it be immovable property, the ownership shall belong to the person acquiring
it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who
presents the oldest title, provided there is good faith (emphasis supplied).

It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the
protection of the second paragraph of said Article 1544.

Unlike the first and third paragraphs of said Article 1544, which accord preference to the one who first
takes possession in good faith of personal or real property, the second paragraph directs that
ownership of immovable property should be recognized in favor of one "who in good faith first
recorded" his right. Under the first and third paragraph, good faith must characterize the act of anterior
registration. (DBP v.Mangawang, et al., 11 SCRA 405; Soriano, et al. v.Magale, et al., 8 SCRA 489).

If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in
the case at bar, prior registration in good faith is a pre-condition to superior title.

When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof and
the title of Poncio was still in his name solely encumbered by bank mortgage duly annotated thereon.
Carbonell was not aware — and she could not have been aware — of any sale of Infante as there was
no such sale to Infante then. Hence, Carbonell's prior purchase of the land was made in good faith.
Her good faith subsisted and continued to exist when she recorded her adverse claim four (4) days
prior to the registration of Infantes's deed of sale. Under the circumstances, this recording of her
adverse claim should be deemed to have been done in good faith and should emphasize Infante's bad
faith when she registered her deed of sale four (4) days later on February 12, 1955.

28
 SALES
Obligations of the Vendor

THE SUBSEQUENT ISSUANCE OF AN ORIGINAL TORRENS TITLE DOES NOT AFFECT THE
PREVIOUS SALE WHICH TRANSPIRED BEFORE ITS REGISTRATION

24. Dagupan Trading Company v. Macam

G.R. No. L-18497, May 31, 1965
Dizon, J.

FACTS:
This is an appeal taken by the Dagupan Trading Company (DTC) from the decision of the Court of
Appeals affirming the one rendered by the Court of First Instance of Pangasinan that DTC never
acquired any right over the subject property by virtue of the earlier sale over the same property that
transpired between Sammy Maron (Maron), the vendor and RusticoMacam (Macam), the vendee.

In 1955, Maron and his seven brothers and sisters were pro-indiviso owners of a parcel of unregistered
land in Pangasinan. While their application for registration of said land under Act. No. 496 was
pending, two deeds of sale conveying the property to Macam, who thereafter took possession thereof
and proceeded to introduce substantial improvements therein. A month after the sale, an Original
Certificate of Title covering the land was issued in the name of the Maron's, free from all liens and
encumbrance. After a few months, a final judgment was rendered in MTC Manila against Maron in
favor of DTC with respect to his one-eighth share in the subject property, and levy was made upon
whatever interest he had in the aforementioned property, and thereafter said interest was sold at public
auction to the judgment creditor. A certificate of final sale was then issued in favor of DTC.

DTC then commenced the action against Macam, praying that it be declared owner of one-eighth
portion of the land. Macam, on the other hand, alleged that he acquired Maron's share in the property
as well as that of all his co-heirs by virtue of the sale that transpired before the issuance of the original
certificate of title in their name; that at the time the levy in execution was made on Maron's share
therein, the latter had no longer any right or interest in said property.

ISSUE:
Who has the better right as between DTC and Macam, to the one-eighth share of Sammy Maron in the
property?

RULING:
Macam has the better right over the subject property.

If the property covered by the conflicting sales were unregistered land, Macam would undoubtedly
have the better right. On the other hand, were the land involved in the conflicting transactions duly
registered land, Macam has the better right. However, the present case does not fall within either
situation. Hence, whatshould determine the issue are the provisions of the last paragraph of Section
35, Rule 39 of the Rules of Court, to the effect that upon the execution and delivery of the final
certificate of sale in favor of the purchaser of land sold in an execution sale, such purchaser "shall be
substituted to and acquire all the right, title, interest and claim of the judgment debtor to the property as
of the time of the levy."

Now We ask: What was the interest and claim of Sammy Maron on the subject property at the time of
the levy? The answer is none, because for a considerable time prior to the levy, his interest had
already been conveyed to Macam, "fully and retrievably”, making the judgment rendered against
Maron in favor of the DTC was void and of no effect Needless to say, the unregistered sale and the
consequent conveyance of title and ownership in favor of Macam could not have been cancelled and
rendered of no effect upon the subsequent issuance of the Torrens title over the entire parcel of land.

29
 SALES
Obligations of the Vendor

THE VENDOR WARRANTS HIS TITLE TO THE THING SOLD AND IN THE EVENT OF EVICTION,
THE VENDEE ENTITLED TO THE RETURN OF THE VALUE WHICH THE THING SOLD HAD AT
THE TIME OF THE EVICTION, BE IT GREATER OR LESS THAN THE PRICE OF THE SALE

25. Sta. Romana v. Imperio

G.R. No. L-17280, December 29, 1965
Concepcion, J.

FACTS:
This is a case of Appeal, taken by Diosdado Sta. Romana, from a decision of the Court of Appeals, as
amended, insofar as it sentences him to reimburse to Carlos Imperio, the sum of P8,463, with
costs.Silvio R. Viola executed in favor of Dr. Jose P. Viola a power of attorney, vesting in the latter the
authority to take charge of, manage and administer seven (7) parcels of registered land, to be
converted into a "subdivision" for residential purposes, until all of the subdivision lots therein shall have
been sold. Meanwhile, the Agent had executed, in favor of Pablo Ignacio, a deed in which he
undertook to sell on installments six (6) lots. Meanwhile, the principal sold the land to appellant herein.
A week later. the appellant, in turn, conveyed said land to the appellee.Having failed to take
possession of the land sold to him by the Agent, Pablo Ignacio commenced his action in the CFI,
against said occupants, as well as against appellee, appellant, and the Principal, to annul the sales
made by the latter to appellant, by appellant to appellee and by appellee to said occupants, as well as
for the possession of the land in question and damages.The lower court ruled in favor of Ignacio.
Appellee and the occupants appealed from this judgment, which was affirmed by the CA. On motion
for reconsideration filed by appellee, CA rendered an amended decision ordering appellant to
reimburse the appellee in the sum of P8,463.00, representing the aggregate amount to be refunded by
him (appellee) to the aforementioned occupants, pursuant to the original decision. Appellant seeks a
review thereof and argues that the court failed to consider thefact that apellee was in in pari delicto.

ISSUE:
Is the appellant liable to reimburse the appellee despite the fact that the latter was in in pari delicto?

RULING:
Yes. Appellant alleges that appellee had never filed a cross-claim against him and that, at any rate,
appellee is not entitled to reimbursement from him because they are in part delicto. Although it is true
that the appellee has not filed a cross-claim against the appellant, it is a fact that the occupants had
filed a cross-claim against both of them; and that, upon payment to the occupants of the amount of the
cross-claim adjudged to be due them, the appellee becomes subrogated into their rights, under said
cross-claim, against the appellant. Moreover, it is an elementary principle of law (Articles 1495, 1547
and 1555, Civil Code of the Philippines), as well as of justice and equity, that, unless a contrary
intention appears, the vendor warrants his title to the thing sold, and that, in the event of eviction, the
vendee shall be entitled to the return of the value which the thing sold had at the time of the eviction,
be it greater or less than the price of the sale. In the case at bar, it has been established that the land
in dispute was, at the time of the eviction worth at least the sum of P83463, which is the aggregate
amount charged by the appellee from said occupants.

Appellant cites Article 1412 of the Civil Code of the Philippines, in support of the view that appellee
may not recover said amount from appellant, upon the ground that both are in pari delicto. This
provision is part of Title II of Book IV of the Civil Code, on contracts in general and it refers to contract
which are null and void ab initio, pursuant to Article 1409 of the Civil Code. The contract between
appellant and appellee does not fall, however, under this provision, and is, accordingly, beyond the
purview of the aforementioned Article 1412. Said contract is governed by Title VI of the same Book, on
Sales in particular, specially by the aforesaid Articles 1495, 1547 and 1555, which are part of said Title
VI, regarding breach of the warranty arising from a valid contract of sale, due to the application of Art
1544 of the same title, regulating the effects of double sales. Incidentally, these provisions suggest,
also, the remedies available to appellant herein.

30
 SALES
Obligations of the Vendor

INNOCENT PURCHASER FOR VALUE IS ENTITLED TO THE PROTECTION OF LAW

26. Bernales v. Intermediate Appellate Court

G.R. Nos. 71490-91, June 28, 1988
Paras, J.

FACTS:
Elpidio Siagan and Augusto Siagan are the two sons of Henry Siagan who claim ownership of a
certain piece of cadastrally surveyed land. Ernesto Bernales claimed that it was Augusto’s mother who
brought the property into the marriage. It was argued to have been inherited entirely by Augusto and
was sold to Sps. Pasimio who in turn sold it to the Roman Catholic Bishop of Bangued, Inc. who
bought the same for the sole purpose of disposing the same at cost to the actual occupants-tenants
thereon in the furtherance of the Land Reform Program of the government. Bernales alleges that he
has been in possession and has occupied and tilled the same lot from 1965 to date. Such was
confirmed by the Roman Catholic Bishop of Bangued.

On the other hand, private respondents maintain that the lot was originally owned by Henry Siagan
who died intestate and the ownership of said lot was already the subject of litigation. Eventually, the
two sons mutually recognized and accepted each other as the only heirs entitled to inherit the estate of
Henry Siagan and terminated the proeedings. Augusto Siagan renounced, quit-claimed, waived, ceded
and conveyed any interest and right he had over the lot in favor of Elpidio Siagan. Later, Elpidio
Siagan sold the lot to the spouses Alfonso Cadiam and OgnayCullawit. Following their purchase, they
took possession of the land, fenced it and planted it with rice but herein petitioners forcibly
dispossessed them therefrom, uprooting the plants of said couple who then brought a criminal
complaint for theft of rice plants against the petitioners. This led to the referral of the criminal charge to
the Court of Agrarian Relations but because petitioners claimed ownership in their answer before the
CAR, spouses Cadiam and OgnayCullawit filed a case for recovery of ownership of the same lot.

The lower court rendered a decision in favor of the petitioners. On appeal to the Court of Appeals, the
joint decision appealed from was reversed and set aside, and another joint decision was rendered,
hence this case.

ISSUE:
Does the spouses Cadiam and Cullawit being the innocent purchaser has a better right compared to
Bernales and his co-plaintiffs?

RULING:
Yes. The party with the better right in this case would be the Cadiam spouses who were found by the
Court of Appeals as innocent purchasers for value with a Transfer Certificate of Title under the Torrens
System in their names.

The Cadiam spouses to whom a Transfer Certificate of Title was issued after the purchase of the lot
from Elpidio Siagan for a valuable consideration as stated in the Deed and who had no knowledge of
any flaw or defect of the title at the time of the purchase, are evidently as ruled by the Court of
Appeals, innocent purchasers for value and above all considerations, are entitled to the protection of
the law.

In contrast, petitioners allegedly acquired subject property by virtue of the sale made by
ConstanteSiagan six months before the execution of the Memorandum of Agreement and the other
documents above-mentioned. ConstanteSiagan, claiming to have inherited Lot 14194 from his
grandmother, sold said lot to the Pasimio spouses, who later sold the same to the Roman Catholic
Bishop of Bangued, Inc. and the latter in turn sold the same to the petitioners. But the authority of
ConstanteSiagan to sell said lot was wanting. The ownership and possession of DagaoanSawadan
over Lot 1494 were transmitted through hereditary succession to Augusto Siagan, her son, and not to
ConstanteSiagan,her grandson. Constante cannot claim to have inherited the same in 1967 because

31
his father Augusto Siagan who entered into the amicable settlement and quit claim with Elpidio Siagan
was still living and he died only in October, 1975. Much less is there any document showing that said
property was transmitted or ceded to him either by DagaoanSawadan or Augusto Siagan. Thus, the
sale made by non-owner ConstanteSiagan and all subsequent sales made thereunder, are null and
void.

32
 SALES
Obligations of the Vendor

“PRIOR TEMPORE POTIOR JURE" (HE WHO IS FIRST IN TIME IS PREFERRED IN RIGHT.)

27. Vda. De Reyes v. De Leon

G.R. No. L-22331, June 6, 1967
Regala, J.

FACTS:
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria
Guizon Subdivision in Tondo, Manila, which the spouses leased from the Consolidated Asiatic Co. On
January 12, 1961, Lanuza executed a document entitled "Deed of Sale with Right to Repurchase"
whereby he conveyed to Maria Bautista Vda. de Reyes and Aurelia R. Navarro the house, together
with the leasehold rights to the lot, a television set and a refrigerator in consideration of the sum of
P3,000.

When the original period of redemption expired, the parties extended it to July 12, 1961 by an
annotation to this effect on the left margin of the instrument. Lanuza's wife, who did not sign the deed,
this time signed her name below the annotation.

It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same house
in favor of Martin de Leon to secure the payment of P2,720 within one year. This mortgage was
executed on October 4, 1961 and recorded in the Office of the Register of Deeds of Manila on
November 8, 1961 under the provisions of Act No. 3344.

As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962 a
petition for the extra-judicial foreclosure of the mortgage. On the other hand, Reyes and Navarro
followed suit by filing in the Court of First Instance of Manila a petition for the consolidation of
ownership of the house on the ground that the period of redemption expired on July 12, 1961 without
the vendees exercising their right of repurchase. The petition for consolidation of ownership was filed
on October 19. On October 23, the house was sold to De Leon as the only bidder at the sheriffs sale.

De Leon immediately took possession of the house, secured a discharge of the mortgage on the
house in favor of a rural bank by paying P2,000 and, on October 29, intervened in court and asked for
the dismissal of the petition filed by Reyes and Navarro on the ground that the unrecorded pacto de
retro sale could not affect his rights as a third party.

ISSUES:

a. Was the sale in question was not only voidable but void ab initio for having been made by Lanuza
without the consent of his wife;
b. Was the pacto de retro sale in the case is in reality an equitable mortgage and therefore cannot be
the basis of a petition for consolidation of ownership;
c. Was the sale, being unrecorded, cannot affect third parties.

RULING:

a. No. The conveyance of real property of the conjugal partnership made by the husband without
the consent of his wife is merely voidable. This is clear from article 173 of the Civil Code which gives
the wife ten years within which to bring an action for annulment. As such it can be ratified as Lanuza's
wife in effect did in this case when she gave her conformity to the extension of the period of
redemption by signing the annotation on the margin of the deed. We may add that actions for the
annulment of voidable contracts can be brought only by those who are bound under it, either
principally or subsidiarily (art. 1397), so that if there was anyone who could have questioned the sale
on this ground it was Lanuza's wife alone.

33
b. Yes. Between an unrecorded sale of a prior date and a recorded mortgage of a later date the former
is preferred to the latter for the reason that if the original owner had parted with his ownership of the
thing sold then he no longer had the ownership and free disposal of that thing so as to be able to
mortgage it again. Registration of the mortgage under Act No. 3344 would, in such case, be of no
moment since it is understood to be without prejudice to the better right of third parties.Nor would it
avail the mortgagee any to assert that he is in actual possession of the property for the execution of
the conveyance in a public instrument earlier was equivalent to the delivery of the thing sold to the
vendee.

c. De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact
that, first, the supposed vendors (the Lanuzas) remained in possession of the thing sold and, second,
when the three-month period of redemption expired the parties extended it. These are circumstances
which indeed indicate an equitable mortgage.4 But their relevance emerges only when they are seen in
the perspective of other circumstances which indubitably show that what was intended was a
mortgage and not a sale. These circumstances are: 1. The gross inadequacy of the price; 2. The non-
transmission of ownership to the vendees; 3. The delay in the filing of the petition for consolidation.

Under these circumstances we cannot but conclude that the deed in question is in reality a mortgage.
This conclusion is of far-reaching consequence because it means not only that this action for
consolidation of ownership is improper, as De Leon claims, but, what is more that between the
unrecorded deed of Reyes and Navarro which we hold to be an equitable mortgage, and the registered
mortgage of De Leon, the latter must be preferred. Preference of mortgage credits is determined by
the priority of registration of the mortgages,following the maxim "Prior tempore potior jure" (He who is
first in time is preferred in right.)Under article 2125 of the Civil Code, the equitable mortgage, while
valid between Reyes and Navarro, on the one hand, and the Lanuzas, on the other, as the immediate
parties thereto, cannot prevail over the registered mortgage of De Leon.

34
 SALES
Obligations of the Vendor

A LEVY ON ATTACHMENT, DULY REGISTERED, TAKES PREFERENCE OVER A PRIOR

UNREGISTERED SALE

28. Valdevieso v. Damalerio

G.R. No. 133303, February 17, 2005
Chico-Nazario, J.

FACTS:
Sometime in 1995, Lorenzo and Elenita Uy sold to petitioner a parcel of land. The property was
covered by a TCT in the names of the Uy spouses but the deed of sale to petitioner was not
registered. Neither was title to the land transferred to petitioner immediately but the latter declared the
property for taxation purposes.

Sometime in 1996, spouses Damalerio filed with the RTC a complaint for sum of money against the Uy
spouses, with application for the issuance of a writ of preliminary attachment, which the trial court
issued, by virtue of which the property sold to petitioner that was still in the names of the Uyspouses
was levied. The levy was recorded in the Registry of Deeds and annotated at the back of the
TCT.Later, a new TCT was issued in the name of the petitioner, cancelling the previous TCT. The
attachment annotated at the back of the title remained in the new title.

Now petitioner filed a third-party claim to discharge or annul the attachment levied on the property on
the ground that it belonged to him and not to the Uy spouses. The trial court ruled that the levy of the
property by virtue of an attachment is lawful only when the levied property belongs to the defendant.
When it was elevated to the CA, it declared that an attachment or levy of execution, though posterior to
the sale, if registered before such sale, takes precedence over the sale.

ISSUE:
Was a registered writ of attachment on the land is a superior lien over that of an earlier unregistered
deed of sale

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

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

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

We would note that the law applicable to the facts of this case is Section 51 of P.D. No. 1529. Said
Section provides:

35
Sec. 51. Conveyance and other dealings by registered owner. - An owner of registered land may
convey, mortgage, lease, charge, or otherwise deal with the same in accordance with existing laws. He
may use such forms of deeds, mortgages, leases or other voluntary instruments as are sufficient in
law. But no deed, mortgage, lease, or other voluntary instrument, except a will purporting to convey or
affect registered land, shall take effect as a conveyance or bind the land, but shall operate only as a
contract between the parties and as evidence of authority to the Register of Deeds to make
registration.

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

36
 SALES
Obligations of the Vendor

THE VENDOR'S LIABILITY FOR WARRANTY AGAINST EVICTION IN A CONTRACT OF SALE IS

WAIVABLE AND MAY BE RENOUNCED BY THE VENDEE

29. Andaya v. Manansala

G.R. No. L-14714, April 30, 1960
Reyes, J.

FACTS:
On June 13, 1934, Isidro Fenis sold the land in question to EustaquiaLlanes, with right of repurchase
within a period of five years. After the expiry of said period, and without repurchasing the said property,
Isidro Fenis sold it again to Maria Viloria. Then, Maria Viloria sold by way of sale with right to
repurchase within a period of one year, the said property together with another parcel of land to
defendant Melencio Manansala. Upon the expiry of the said period, Manansala registered with the
Register of Deeds an affidavit consolidating his title on the property. A year later, Maria Viloria sold by
way of absolute sale the same property to Ciriaco Casiño, Fidela Valdez, and the plaintiff spouses
Ariston Andaya and Micaela Cabrito, for P4,800.00. Then, Llanes instituted a civil case to quiet title
and recover possession from Casino. Subsequently, Manansala sold the land to Valdez and Casino for
P1500. It was stipulated that there was a warranty (i)that said land is free from all liens and
encumbrances and (ii) in case of eviction, the vendor shall answer to the vendee in the manner
provided by law. Subsequently, Llanes included Manansala, Valdez, Cabrito and Andaya as co-
defendants. The case was decided in favor of Llanes. A writ of execution was issued and the land was
sold at a public auction.

Andaya and Cabrito instituted a case against Manansala in the CFI of Ilocos Sur for the recovery of
damages because of the breach of warranty of title and against eviction. Manansala denied liability
and stated that his co-purchasers pleaded him to sell to them at a low price after the case instituted by
Llanes against them.

The lower court decided that it is inequitable to hold defendant liable under ART 1555 since plaintiffs
apparently knew that the warranty could not have been intended. And that the obligation of the
defendant is that of a vendor in cases of a rescission of contract.

ISSUE:
Is Manansala liable as a vendor, who had a warranty against eviction, in cases of a rescission of a
contract.

RULING:
NO. He is exempt from liability. The vendor's liability for warranty against eviction in a contract of sale
is waivable and may be renounced by the vendee (ART 1548). Not having appealed from the decision
of the lower court, appellees are bound by these findings, the implication of which is that they not only
renounced or waived the warranty against eviction, but that they knew of the danger of eviction and
assumed its consequences. Therefore, the appellant is not even obliged to restore to them the price of
the land at the time of eviction, but is completely exempt from liability whatsoever.

Neither may appellant be condemned to return the price received from appellees on the theory of
rescission of their contract of sale, as held by the court below. In the first place, the remedy of
rescission contemplates that the one demanding it is able to return whatever he has received under
the contract; and when this can not be done, rescission can not be carried out (Art. 1385). It is for this
reason that the law on sales does not make rescission a remedy in case the vendee is totally evicted
from the thing sold, as in this case, for he can no longer restore the thing to the vendor.

37
 SALES
Obligations of the Vendee

SHOULD THE VENDEE BE DISTURBED IN THE POSSESSION OR OWNERSHIP OF THE THING

ACQUIRED, HE MAY SUSPEND PAYMENT OF THE PRICE UNTIL THE VENDOR CAUSED THE
DISTURBANCE TO CEASE

30. Bareng v. Court of Appeals

G.R. No. L-12973, April 25, 1960
Reyes, J.B.L., J.

FACTS:
This is an appeal by Certiorari from the judgment of the CA sentencing Vicente Bareng to pay
Patrocinio Alegria of his indebetedness to the latter.

Vicente Bareng purchased from respondent Alegria the cinematographic equipment installed at the
Pioneer Theater in Laoag, Ilocos Norte, for the sum of P15,000. P10,000 of which was paid, and
Bareng signed 4 promissory notes for the balance. The first promissory note amounting to P1,000 was
duly paid by Bareng. Shortly before the second note fell due, the other respondent Agustin Ruiz
informed Bareng that he was a co-owner of the equipment in question. Ruiz sent Bareng a telegram
instructing him to suspend payments to Alegria for the balance of the price as he was not agreeable to
the sale. When Alegria sought to collect the second note on the same day, Bareng only paid P400 and
refused to make any more payments on account of Ruiz’s claims.

Ruiz filed suit against Alegria and Bareng for his share in the price of the cinema equipment. Alegria
and Ruiz reached a compromise wherein the former recognized the latter as co-owner of the
equipment sold to Bareng and promised to pay 2/3 of whatever amount he could recover from the
latter. Alegria then sued Bareng for the amount of P13,500, allegedly the unpaid balance of the price.
But Bareng answered that only P3,600 had not been paid, and prayed for the rescission of the sale for
the supposed violation of Alegria of certain express warranties as to the quality of the equipment, and
asked for payment of damages for alleged violation of Alegria’s warranty of title. Bareng added that he
is not liable to pay interests to Alegria because he was justified in suspending payment of the balance
of the price of the equipment from the time he learned of Ruiz’s adverse claims over said equipment,
pursuant to Art. 1590 of the Civil Code.

ISSUE:
Does the existence of an adverse claim on a sold equipment justifies suspension of payment of the
balance of the price and its interest?

RULING:

NO. Bareng, the vendee, is liable to pay interest of the unpaid balance of the price of the equipment in
question.

Art. 1590 of the Civil Code provides that: “Should the vendee be disturbed in the possession or
ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the
vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of
the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the
vendee shall be bound to make the payment. A mere act of trespass shall not authorize the
suspension of the payment of the price.”

It is undisputed that petitioner had the right to suspend payment of the balance of the price of the
cinema equipment in question to his vendor from the time he was informed by Ruiz of the latter’s
claims of co-ownership thereof, especially upon his receipt of Ruiz’s telegram wherein the latter
asserted that he was not agreeable to the sale. However, said right of Bareng ended as soon as
“thevendor has caused the disturbance or danger to cease,” which, in this case, was when Alegria
reached a compromise with Ruiz whereby Ruiz expressed his conformity to the sale to Bareng, subject

38
to the payment of his share in the price by Alegria. From the time Alegria and Ruiz reached this
settlement, there was no longer any danger of threat to Bareng’s ownership and full enjoyment of the
equipment he bought from Alegria, by virtue of which Alegria sued petitioner for the unpaid balance.
Bareng admitted his indebtedness in the amount of P3,600, yet he did not tender payment of said
amount nor did he deposit the same in court, but instead sought for rescission of the sale. It is clear
that Bareng was in default on the unpaid balance of the price of the equipment from the date of filing of
the complaint by Alegria, and under Art. 2209 of the Civil Code, he must pay legal interests thereon
from said date.

39
 SALES
Obligations of the Vendee

A CROSS-CLAIM CONSITUTES A JUDICIAL DEMAND FOR RESCISION THAT SATISFIES

ARTICLE 1592

32. Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.

G.R. No., L-25855, January 31, 1972
Reyes, J.B.L., J.

FACTS:
This is a Direct Appeal from the Decision of the RTC declaring Myers Building Co. Inc. entitled to
receive rentals from plaintiff. On the cross-claim by Myers, the Maritama Building Co. is ordered to pay
the former, damages and rentals wrongfully collected by it from plaintiff, Luzon Brokerage Co. Inc.
Defendant Myers Building Co. entered into a Deed of Conditional Sale, in favor of Maritime Building
Co. over parcels of land. The balance was to be paid in monthly. The parties further agreed that: a) If
Maritime defaults, the contract would be annulled at Myers’ option; b) All payments already made shall
be forfeited; and c) Myers shall have the right to re-enter the property and take possession. Moreover,
if Maritime refuses to peacefully deliver the possession of the properties subject of this contract to the
Myers in case of rescission, a suit should be brought in court by the Myers to seek judicial declaration
of rescission. Maritime failed to pay the installment for March 1961, for which the Vice-President,
George Schedler of the Maritime Building Co., Inc., wrote a letter to the President of Myers requesting
for a moratorium on the monthly payment of the installments until the end of the year. Myers made a
demand upon Maritime for the unpaid installments; also, Myers advised Maritime of the cancellation of
the Deed of Conditional Sale and demanded the return of the property, holding Maritime liable for
rentals. Myers thereafter demanded from its lessee, Luzon Brokerage, to avoid paying to the wrong
party, filed an action for interpleader. After the filing of this action, the Myers Building Co., Inc. in its
answer filed a cross-claim against the Maritime Building Co., Inc. praying for the confirmation of its
right to cancel the said contract.

ISSUE:
May Myers Company extra-judicially rescind the Deed of Conditional Sale for failure to pay
instalment??

RULING:
YES. Respondent can extra-judicially rescind the Deed of Conditional Sale.

ART. 1592. In the sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract shall of right take place,
the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand, the court may
not grant him a new term. Under this provision a vendee in default can continue to make payments as
long as no judicial/notarial demand for rescission has been made.

A judicial action for the rescission of a contract is not necessary where the contract provides that it
may be revoked and cancelled for violation of any of its terms. The party who deems the contract
violated may consider it resolved or rescinded without previous court action, but it proceeds at its own
risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle
whether the action taken was or was not correct in law. But the law definitely does not require that the
contracting party who believes itself injured must first file suit and wait for a judgment before taking
extrajudicial steps to protect its interest. Neither can Maritime invoke Art. 1592 of the Civil Code
because the cross-claim filed by Myers constitutes a judicial demand for rescission that satisfies the
said article.

Thus, the cross-claim filed by Myers against Maritime in the court constituted a judicial demand for
rescission that satisfies the requirements of said article.

40
 SALES
Obligations of the Vendee

CONSIGNATION AND TENDER OF PAYMENT MUST NOT BE ENCUMBERED BY CONDITIONS;

THE ISSUE OF GOOD FAITH OR BAD FAITH OF THE BUYER IS RELEVANT ONLY WHERE THE
SUBJECT OF THE SALE IS REGISTERED LAND

33. Rayos v. Reyes

G.R. No. 150913, February 20, 2003
Bellosillo, J.

FACTS:
This is a Petition for Review before the SC wherein petitioners Spouses Teofilo and SimeonaRayos
challenge the decision of the RTC and CA in declaring void the separate deeds of absolute sale and
ordering petitioners to vacate and reconvey the lands to respondents Donato Reyes, Saturnino Reyes,
Tomasa R. Bustamante And Toribia R. Camelo, as heirs of Mamerto Reyes.

Spouses Francisco and Asuncion Tazal formerly owned three (3) parcels of unregistered land situated
in Brgy. Sapa, Burgos, Pangasinan. Spouses Tazal soldthem for ₱724.00 to one Mamerto Reyes, with
right to repurchase within two (2) years from date thereof. After the sale, Mamerto Reyes took physical
possession of the properties and paid the taxes thereon. Tazal sold again two out of three parcels of
land in favor of Blas Rayos without first availing of his right to repurchase the properties. After the
expiration of the redemption period, Francisco Tazal attempted to repurchase the properties from
Mamerto Reyes by asserting that the deed of sale with right of repurchase was actually an equitable
mortgage and offering the amount of ₱724.00 to pay for the alleged debt. But Mamerto Reyes refused
the tender of payment. Francisco Tazal filed a complaint against Mamerto Reyes for the declaration of
their transaction as a contract of equitable mortgage. During the pendency of the civil case, Francisco
Tazal again sold the third parcel of land previously purchased by Mamerto Reyes to petitioner-spouses
Teofilo and SimeonaRayos. Petitioner-spouses bought from Blas Rayos the two (2) lots that Tazal had
sold at the first instance to Mamerto Reyes and thereafter to Blas Rayos.

Respondents as heirs of Mamerto Reyes executed an affidavit adjudicating to themselves the

ownership of the parcels of land and registered the deed of sale with right of repurchase with the
register of deeds. Respondents filed a complaint for damages and recovery of ownership against
herein petitioner-spouses Rayos. Petitioners argued on the other hand that the consignation of
₱724.00 had the full effect of redeeming the properties from respondents and their predecessor-in-
interest.

ISSUE:
1. Is there a valid consignation that perfected the redemption of the parcels of land?
2. Are petitioners purchasers in good faith?

RULING:
1. NO, there was no valid consignation that perfected the redemption of the parcels of land. In order
that consignation may be effective the debtor must show that (a) there was a debt due; (b) the
consignation of the obligation had been made because the creditor to whom a valid tender of payment
was made refused to accept it; (c) previous notice of the consignation had been given to the person
interested in the performance of the obligation; (d) the amount due was placed at the disposal of the
court; and, (e) after the consignation had been made the person interested was notified thereof.

Consignation and tender of payment must not be encumbered by conditions if they are to produce the
intended result of fulfilling the obligation. In the instant case, the tender of payment of ₱724.00 was
conditional and void as it was predicated upon the argument of Francisco Tazal that he was paying a
debt which he could do at any time. The ostensible purposes of offering the amount in connection with
a purported outstanding debt were to evade the stipulated redemption period in the deed of sale
whichhad already expired when the tender of payment was made, and as a corollary, to avail of the
thirty (30)-day grace period under Art. 1606 of the Civil Code within which to exercise the right to
repurchase. Mamerto Reyes was therefore within his right to refuse the tender of payment offered by

41
petitioners because it was conditional upon his waiver of the two (2)-year redemption period stipulated
in the deed of sale with right to repurchase.

It is also futile to argue that the deposit of ₱724.00 with the Court of First Instance could have
perfected the redemption of the three (3) parcels of land because it was not approved by the trial court,
much less accepted by Mamerto Reyes or his heirs, herein respondents.

2. NO, petitioners are not purchasers in good faith.

As we held in David v. Bandin, "the issue of good faith or bad faith of the buyer is relevant only where
the subject of the sale is registered land and the purchaser is buying the same from the registered
owner whose title to the land is clean x x x in such case the purchaser who relies on the clean title of
the registered owner is protected if he is a purchaser in good faith for value." Since the properties in
question are unregistered lands, petitioners as subsequent buyers thereof did so at their peril. Their
claim of having bought the land in good faith, i.e., without notice that some other person has a right to
or interest in the property, would not protect them if it turns out, as it actually did in this case, that their
seller did not own the property at the time of the sale.

In the proceedings a quo, what is evident is the admitted fact of payment made by Mamerto Reyes as
respondents’ predecessor-in-interest of the taxes on the properties prior to and at the time when the
contracts of sale in favor of petitioner-spouses were perfected, which undoubtedly confirms the
precedence of respondents’ possession of the parcels of land in question. This situation should have
compelled petitioners to investigate the right of respondents over the properties before buying them,
and in the absence of such inquiry, the rule is settled that a buyer in the same circumstances herein
involved cannot claim to be a purchaser in good faith.

42
 SALES
Breach of Contract

FAILURE TO PAY THE PURCHASE PRICE IN A CONTRACT TO SELL PREVENTS THE

OBLIGATION FROM ACQUIRING OBLIGATORY FORCE

34. Ong v.Court of Appeals

G.R. No. 97347, July 6, 1999
Ynares-Santiago, J.

This is a petition for review on certiorari from the judgment rendered by the CA and RTC setting aside
the "Agreement of Purchase and Sale" entered into by petitioner Jaime Ong and private respondent
spouses Miguel K. Robles and Alejandra M. Robles.

Petitioner Jaime Ong, and respondent spouses Miguel K. Robles and Alejandra Robles executed an
"Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio,
Quezon. The terms and conditions of the contract provide that:
1. The Sellers promise to sell to said BUYER the two parcels of agricultural land situated at
Barangay Puri, San Antonio Quezon, .
2. That upon the payment of the total purchase price by the BUYER the SELLERS bind
themselves to deliver to the former a deed of sale and conveyance for the described two
parcels of land
3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender
and transfer possession of the said parcels of land including all the improvements that may be
found thereon, including the rice mill and piggery to the BUYER

Petitioner Ong took possession of the subject parcels of land together with the piggery, building, rice
mill, residential house and other improvements thereon. Ong failed to pay the purchase price.
Respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the
properties. Their demand was left unheeded, so they filed a complaint for rescission of contract and
recovery of properties with damages.Petitioner contends that Article 1191 of the New Civil Code is not
applicable since he has already paid respondent spouses a considerable sum and has therefore
substantially complied with his obligation. He cites Article 1383 instead, to the effect that where
specific performance is available as a remedy, rescission may not be resorted to.

ISSUE:
May the Agreement of Purchase and Sale entered into between the parties, however, be rescinded
based on Article 1191 for failure to complete payment of purchase price?

RULING:
YES. Petitioner having failed to complete payment of purchase price prevented the obligation from
acquiring an obligatory force which entitles the other party to rescind.

A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a
contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by
agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase
price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force.

Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title
covering the two parcels of land upon full payment by the buyer of the purchase price of
P2,000,000.00. This promise to sell was subject to the fulfillment of the suspensive condition of full
payment of the purchase price by the petitioner. Petitioner, however, failed to complete payment of the
purchase price. The non-fulfillment of the condition of full payment rendered the contract to sell
ineffective and without force and effect. It must be stressed that the breach contemplated in Article
1191 of the New Civil Code is the obligor's failure to comply with an obligation.Failure to pay, in this

43
instance, is not even a breach but merely an event which prevents the vendor's obligation to convey
title from acquiring binding force.Hence, the agreement of the parties in the case at bench may be set
aside, but not because of a breach on the part of petitioner for failure to complete payment of the
purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of
respondent spouses to convey title from acquiring an obligatory force.

44
 SALES
Breach of Contract

A JUDICIAL OR NOTARIAL ACT IS NECESSARY PRIOR TO THE RESCISSION OF A CONTRACT

OF SALE OF IMMOVABLE PROPERTY IN ORDER TO BECOME VALID

35. Iringanv. Court of Appeals

G.R. No. 129107, September 26, 2001
Quisumbing, J.

FACTS:
This is a petition for review of the Court of Appeals, which affirmed the decision of the RTC, declaring
the rescission of the contract of sale.

Antonio Palao (Respondent) sold to Alfonso Iringan (Petitioner) a lot located at Poblacion of
Tuguegarao. They executed a Deed of Sale and stipulated the schedule of payment in three
installments. Petitioner only paid Php 40,000 when the second payment become due. Thus,
respondent sent a letter to petitioner stating that the contract is rescinded and that he would not accept
any further payment since petitioner failed to comply with his obligation to pay the full amount of the
second installment. When the parties failed to arrive at an agreement as to amount to be returned to
the petitioner, respondent filed a Complaint for Judicial Confirmation of Rescission of Contract and
Damages against Iringan and his wife. In their answer, they alleged that the contract of sale was a
consummated contract and hence the proper remedy was for collection of the balance of the purchase
price and not rescission. The RTC and CA declared the rescission of the contract of sale.

The petitioner alleged that no rescission was effected by virtue of the letter sent by respondent
because a judicial or notarial act is necessary before one party can unilaterally effect a rescission. On
the other hand, respondent contended that the right to rescind is vested by law on the oblige and since
petitioner did not oppose to his intent to rescind, petitioner, in effect, agreed to it.

ISSUE:
Did the respondent comply with the requirement of the law for judicial decree of rescission when he
filed an action for Judicial Confirmation of Rescission?

RULING:
Yes, the respondent complied with such requirement when he filed an action for Judicial Confirmation
of Rescission.

Article 1592 of the NCC provides that “in a sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall
take place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by a notarial act…”Clearly, a
judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic
rescission has been stipulated. Take note that the law uses the phrase “even though” emphasizing that
when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies.

In this case, even if the right to rescind is made available to the injured party, the obligation is not ipso
facto erased by the failure of the other party to comply with what is incumbent upon him. The party
entitled to rescind should apply to the court for a decree of rescission. The right cannot be exercised
solely on a party's own judgment that the other committed a breach of the obligation. The operative act
which produces the resolution of the contract is the decree of the court and not the mere act of the
vendor. Since a judicial or notarial act is required by law for a valid rescission to take place, the letter
written by respondent declaring his intention to rescind did not operate to validly rescind the contract.
However, when respondent filed an action for Judicial Confirmation of Rescission and Damages, he
complied with the requirement of the law for judicial decree of rescission.

45
 SALES
Breach of Contract

INDISPENSABLE REQUISITES FOR AN ACTION UPON WARRANTY OF TITLE TO THE

PROPERTY IN CASE OF EVICTION

36. Tiana v. Torrejon

G.R. No. 6638, December 28, 1911
Johnson, J.

FACTS:
This is an action for the breach of the warranty of the title to a parcel of land against the Jose Terrejon
(defendant).

Leopoldo Tiana (plaintiff) purchased a lot with buildings and improvements from the defendant. At the
sale, defendant-vendor warranted the title thereto. Before the execution of the deed of sale, defendant
filed an application for registration of the property with the Land Registration Court. Despite having
executed the deed of sale, he continued to prosecute the same. It was only when defendant sent a
written statement to the effect that he had transferred all his rights in property in question to plaintiff
that the latter intervened with the case. The court dismissed the application and declared the property
in question to be public property and notice was sent to the defendant. Plaintiff also discovered that the
lot with its buildings and improvements passed into the possession of the military authorities, which he
received no payment for. Since then, the plaintiff was deprived of possession of the land and the rent
of the estate.

Plaintiff filed an action for breach of warranty of the title of the land.As a defense, defendant claims that
he was not notified of the suit.

ISSUE:
Did the defendant-vendor breach the warranty against eviction when the plaintiff was deprived of
possession of the subject lot?

RULING:
Yes, there was a breach of warranty against eviction by the defendant-vendor when the plaintiff was
deprived of possession of the subject lot.

Under Art. 1475 of the Civil Code (now Article 1548 of the NCC), there are three indispensable
requisites for an action upon the warranty of title to the property in case of eviction: (1) Final judgment;
(2) that the vendee be deprived of the whole or part of the thing sold; and (3) a right prior to the sale.
Another indispensable requisite is found in Art. 1481 of the Civil Code (now Article 1558 of the NCC):
that the vendor be given notice of the suit at the instance of the vendee.

All the requisites mentioned above are present in this case. The vendor cannot escape his obligation
of warranty by alleging that although there may be a final judgment against the vendee, such judgment
became final with the latter’s consent. Defendant also cannot set up a defense that he was not notified
of the suit for he himself was the applicant in that case, without the intervention of Plaintiff, and such
objection on the part of the government to his claims already subsisted.

Therefore, the defendant is liable for the breach of warranty of the title to the subject lot.

46
 SALES
Breach of Contract

REMEDY OF EXACTING FULFILLMENT OF THE OBLIGATION UNDER ART. 1484 OF THE NCC
DOES NOT PRECLUDE ATTACHMENT AND LEVY OF THE MORTGAGED PROPERTY WHICH
MAY INCLUDE THE OBJECT OF THE SALE

37. Southern Motors, Inc. v.Moscoso

G.R. No. L-14475, May 30, 1961
Paredes, J.

FACTS:
Plaintiff-appellee Southern Motors, Inc. sold to defendant-appellant 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.
The defendant’s house and lot at San Jose, Antique were also attached. Of said account of P4,915.00,
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.

Subsequently, the 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. The 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, acting upon the plaintiff's motion for the immediate sale of the
mortgaged truck, the Provincial Sheriff sold the truck at public auction in which plaintiff itself was the
only bidder.

The trial court condemned the defendant to pay the plaintiff the amount of P4,475.00 with interest.
While the appellee claims that in filing the complaint, demanding payment of the unpaid balance of the
purchase price, it has availed of the first remedy provided in said article i.e. to exact fulfillment of the
obligation (specific performance); the appellant, on the other hand, contends that appellee had availed
itself of the third remedy viz, the foreclosure of the chattel mortgage on the truck.

ISSUE:
Was the attachment caused to be levied on the truck and its immediate sale at public auction
tantamount to the foreclosure of the chattel mortgage on said truck?

RULING:
NO, the attachment caused to be levied on the truck and its immediate sale at public auction, was not
tantamount to the foreclosure of the chattel mortgage on said truck.

The New Civil Code provides:

Art. 1484. In a contract of sale of personal property, the price of which is payable in
installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.

47
The Supreme Court ruled that Manifestly, the appellee 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 appellee 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 herein appellee 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.

The Court further stated that there was nothing unlawful or irregular in appellee's act of attaching the
mortgaged truck itself. Since herein appellee 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.

48
 SALES
Breach of Contract

FORECLOSURE AND ACTUAL SALE OF MORTGAGED CHATTEL BARS FURTHER RECOVERY

BY THE VENDOR OF ANY BALANCE ON PURCHASER’S OUTSTANDING OBLIGATION NOT
SATISFIED BY THE SALE

38. Cruz v. Filipinas Investment and Finance Corp.

G.R. No. L-24772, May 27, 1968
Reyes, J.B.L., J.

FACTS:
This is an Appeal interposed by Filipinas Investment & Finance Corporation from the Decision of the
RTC for cancellation of Real Estate Mortgage.

Plaintiff Ruperto G. Cruz purchased on installments, from the Far East Motor Corporation, one (1) unit
of Isuzu Diesel Bus. As evidence of said indebtedness, plaintiff Cruz executed and delivered to the Far
East Motor Corporation a negotiable promissory note. To secure the payment of the promissory note,
Cruz executed in favor of the seller, Far East Motor Corporation, a chattel mortgage over the aforesaid
motor vehicle. As no down payment was made by plaintiff, the seller, Far East Motor Corporation,
required and Cruz agreed to give, additional security for his obligation besides the chattel mortgage.
Such additional security was given by plaintiff Felicidad Vda. de Reyes in the form of SECOND
MORTGAGE on a parcel of land owned by her, together with the building.

The Far East Motor Corporation assigned all its rights and interest in the Deeds of Chattel Mortgage
and in the Deed of Real Estate Mortgage to the defendant, Filipinas Investment & Finance
Corporation, with due notice of such assignment to the plaintiffs. Plaintiff defaulted in the payment of
the promissory note notwithstanding defendant's demand which lead the latter to foreclose the chattel
mortgage on the bus. The proceeds of the foreclosure sale were not sufficient to discharge fully the
indebtedness of plaintiff Cruz to the defendant. Subsequently, the defendant requested the Provincial
Sheriff to take possession of, and sell, the land subject of the Real Estate Mortgage to satisfy the
balance of plaintiff’s obligation.

Plaintiff Reyes through counsel, wrote a letter to the defendant asking for the cancellation of the real
estate mortgage on her land, but defendant did not comply with such demand as it was of the belief
that plaintiff's request was without any legal basis. However, the provincial Sheriff held in abeyance the
sale of the mortgaged real estate pending the result of this action.

ISSUE:
May defendant Filipinas Investment & Finance Corporation, which has already extrajudicially
foreclosed the chattel mortgage executed by plaintiff Cruz on the bus, may also extrajudicially
foreclose the real estate mortgage constituted by plaintiff Mrs. Reyes on her own land, as additional
security?

RULING:
NO, Filipinas Investment & Finance Corporation may not foreclose said real estate mortgage.

There is no controversy that, involving as it does a sale of personal property on installments, the
pertinent legal provision in this case is Article 1484 of the Civil Code of the Philippines, which reads:

ART. 1484. In a contract of sale of personal property, the price of which is payable
in installments, the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;

49
 (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 aforequoted provision is clear and simple: should the vendee or purchaser of a personal property
default in the payment of two or more of the agreed installments, the vendor or seller has the option to
avail of any one of these three remedies — either 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. These remedies have been recognized as alternative, not cumulative, that the exercise of
one would bar the exercise of the others.It may also be stated that the established rule is to the effect
that the foreclosure and actual sale of a mortgaged chattel bars further recovery by the vendor of any
balance on the purchaser's outstanding obligation not so satisfied by the sale.

To sustain appellant's argument is to overlook the fact that if the guarantor should be compelled to pay
the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid
from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be
made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel
mortgage given by him. Thus, the protection given by Article 1484 would be indirectly subverted, and
public policy overturned.

Neither is there validity to appellant's allegation that, since the law speaks of "action", the restriction
should be confined only to the bringing of judicial suits or proceedings in court. Considering the
purpose for which the prohibition contained in Article 1484 was intended, the word "action" used
therein may be construed as referring to any judicial or extrajudicial proceeding by virtue of which the
vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase
price from the purchaser or his privy. Certainly, an extrajudicial foreclosure of a real estate mortgage is
one such proceeding.

50
 SALES
Breach of Contract

RECTO LAW IS NOT APPLICABLE WHEN THE AGREEMENT OF VENDOR AND ASSIGNEE
ALLOWS ASSIGNEE TO SEEK RECOURSE FROM THE VENDOR AND NOT THE BUYER

39. Filipinas Investment & Finance Corp.v.Vitug, Jr.

G.R. No. L-25951, June 30, 1969
Barredo, J.

FACTS:
This is an appeal from an order of dismissal by the CFIof the complaint of Filipinas Investment &
Finance Corporation (Appellant) whereby it sought to recover from Supreme Sales & Development
Corporation (Appellee) the deficiency that resulted after it had foreclosed the chattel mortgage on and
sold at public auction, the car of the other defendant, Julian Vitug, Jr. (Vitug).

Vitug executed said promissory note payable in monthly installments for the purchase price of a motor
vehicle bought from appellee. Appellee negotiated and assigned the promissory note in favor of
appellant, including the right of recourse against appellee. Vitug defaulted in the payment of
consecutive monthly installments. There being a provision in the promissory note and chattel mortgage
that failure to pay the installments due would result in the entire obligation becoming due and
demandable, appellant demanded from appellee the payment of such outstanding balance. In turn,
appellee authorized appellant to take such action as may be necessary to enable it to take possession
of the motor vehicle. Vitug voluntarily surrendered the car to appellant and thereafter, the car was sold
at public auction, but the proceeds still left a deficiency. Appellant then filed the case to hold appellee
liable for the payment of such outstanding balance. Appellee filed an urgent motion to dismiss on the
ground that under Article 1484 of the Civil Code, otherwise known as the Recto Law, appellant has no
cause of action against appellee.

ISSUE:
Does the provision regarding recourse between appellant and appellee violate the Recto Law which
declares null and void any agreement in contravention thereof?

RULING:
No, the provision does not violate the Recto Law.

Where in the assignment made by the vendor to the assignee of the promissory note and chattel
mortgage of the vendee involving property bought by installments, there was definite and clear
agreement between the vendor and assignee that should the assignee fail to secure recovery from the
vendee, the right was reserved to the assignee to seek recourse for the deficiency against the vendor,
the assignee can recover from the vendor the deficiency that resulted after the assignee had
foreclosed the chattel mortgage on and sold at public auction the chattel involved. The Recto Law
providing for non-recovery of the unpaid balance of the price after the property sold had been
foreclosed is not violated

In the present case, the assignment made by appellee to appellant of the promissory note and
mortgage of Vitug was on a with-recourse basis. There was a definite and clear agreement between
appellant and appellee that should appellant fail to secure full recovery from Vitug, the right was
reserved to appellant to seek recourse for the deficiency against appellee. The remedy presently being
sought is not against the buyer of the car or Vitug but against the seller, independent of whether or not
such seller may have a right of recovery against the buyer, which, in this case, he does not have under
the Recto Law

Hence, Recto Law does not apply, and the order of dismissal is reversed.

51
 SALES
Breach of Contract

40. U.S. Commercial Co. v.Halili

G.R. No. L-5535, May 29, 1953
Reyes, J.

FACTS:
This is an action to recover unpaid rentals on used army vehicles leased by U.S. Commercial Co.
(Plaintiff) to Fortunato Halili (Defendant).

Plaintiff entered into two contracts with the defendant leasing to the latter for a term of one year used
army vehicles. Under the terms of both contracts, the title to the vehicles was to remain in the lessor
during the term of the lease until all the rents collected from the lessee should equal the total value
fixed for them, in which event the lease would terminate and the lessor would then transfer the title to
the lessee. It was provided that the lessor would have the right to terminate the contracts and
repossess the trucks should the lessee fail to pay on the dates specified and in the event the contracts
were terminated on account of the lessee's default, all the payments made should remain the property
of the lessor and not be recoverable by the lessee, the latter also waiving the benefit of section 1454-A
of the Civil Code. After paying several rentals under the two contracts, the lessee defaulted in the
payment. The lessee returned the vehicles but refused to pay all rentals in arrears. Hence, defendant
brought the action where the trial court dismissed the case and ruled that under Art. 1454-A, plaintiff's
repossession of the vehicles precluded it from bringing an action to recover the unpaid rents.The
plaintiff contended that the defendant’s voluntary surrender of the vehicles to the former took the case
out of the operation of Art. 1454.The Article in question reads:
ART. 1454-A. In a contract for the sale of personal property payable in installments, failure to pay two or
more installments shall confer upon the vendor the right to cancel the sale or foreclose the mortgage if
one has been given on the property, without reimbursement to the purchaser of the installments already
paid, if there be an agreement to this effect. However, if the vendor has chosen to foreclose the mortgage
he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the
same, and any agreement to the contrary shall be null and void. The same rule shall apply to the leases
of personal property with option to purchase, when the lessor has chosen to deprive the lessee of the
enjoyment of such personal property."

ISSUE:
Do the contracts come within the purview of Art. 1454-A?

RULING:
Yes, Art. 1454-A applies since the contracts are leases of personal property with option to purchase.

In fact, the contracts bear the heading or title “Lease-Sale (Lease-Sale of Transportation and/or
Mechanical Equipment). The inclusion of a clause waiving benefit of the article is conclusive proof of
the parties' understanding that they were entering into a lease contract with option to purchase. The
contracts are thus subject to the provision that when the lessor "has chosen to deprive the lessee of
the enjoyment of such personal property," "he shall have no further action" against the lessee "for the
recovery of any unpaid balance".

In this case, it appears that the voluntary delivery of the vehicles was made in obedience to plaintiff's
demand. The plaintiff has in fact chosen to deprive the lessee of the enjoyment of the property leased.
The article does not require that the deprivation of the enjoyment of the property be brought about thru
court action. Here, the contracts specifically authorized the lessor to repossess the vehicles whenever
the lessee defaulted in the payment of rent and the lessee could not in that event refuse a demand for
the delivery of the vehicles without violating the terms of his undertaking.As to the waiver, the article
itself states that "any agreement to the contrary shall be null and void" since it is contrary to both the
letter and the policy of the law and cannot be given effect. In choosing the alternative remedy of
depriving the defendant of the enjoyment of the vehicles leased with option to purchase, plaintiff
waived its right to bring such action. Hence, the lessor is precluded from recovering the unpaid rentals
pursuant to Art. 1454-A.

52
 SALES
Breach of Contract

RESCISSION OF OBLIGATION NOT APPLICABLE IN CONTRACT TO SELL;

MACEDA LAW RECOGNIZES THE RIGHT OF THE SELLER TO CANCEL CONTRACTS UPON
NON-PAYMENT OF INSTALLMENT BY THE BUYER

41. Rillo v. Court of Appeals,

G.R. No. 125347, June 19, 1997
Puno, J.

FACTS:
This is an appeal under Rule 45 of the Rules of Court to set aside the decision of the CA cancelling the
"Contract to Sell" between petitioner Emiliano Rillo and private respondent Corb Realty Investment
Corporation.

Petitioner signed a "Contract to Sell of Condominium Unit" with private respondent. One half of the
contract price was paid upon its execution, while the balance was to be paid in 12 equal monthly
installments of P7,092.00 beginning July 18, 1985.On the first month, petitioner failed to pay the initial
amortization. On September and October 1985, he paid hid first and second amortization. On July
1987 after RILLO's last payment, CORB REALTY informed him by letter that it is cancelling their
contract due to his failure to settle his accounts on time. CORB REALTY also expressed its willingness
to refund RILLO's money.CORB REALTY, however, did not cancel the contract an amount from
petitioner.RILLO defaulted again in his monthly installment payment. CORE REALTY filed a
complaint for cancellation of the contract to sell with the RTC.

Rillo averred that he already paid a substantial amount of money and that CorbReaty could not claim
any right under their previous agreement as the same was already novated.

ISSUE:
1. May a rescission be a proper remedy on a perfected and consummated contract?
2. May the court apply Maceda Law in this case?

RULING:
1. YES. The respondent court did not err when it did not apply Articles 1191 and 1592 of the
Civil Code on rescission to the case at bar.

The contract between the parties is not an absolute conveyance of real property but a contract to sell.
In a contract to sell real property on installments, the full payment of the purchase price is a positive
suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an
event which prevented the obligation of the vendor to convey title from acquiring any obligatory force."
The transfer of ownership and title would occur after full payment of the purchase price.

2. YES. Given the nature of the contract of the parties, the respondent court correctly applied
Republic Act No. 6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of
all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract
upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation
of the vendor to convey title from acquiring binding force. It also provides the right of the buyer on
installments in case he defaults in the payment of succeeding installments, viz:

(1) Where he has paid at least two years of installments,

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

53
 b. If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty per cent of the total payments made and, after
five years of installments, an additional five per cent every year but not to exceed ninety per
cent of the total payments made: Provided, That the actual cancellation of the contract shall
take place after cancellation or the demand for rescission of the contract by a notarial act and
upon full payment of the cash surrender value to the buyer.

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

(2) Where he has paid less than two years in installments,

Sec. 4. . . . the seller shall give the buyer a grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act.

Petitioner RILLO paid less than two years in installment payments, hence, he is only entitled to a grace
period of not less than sixty (60) days from the due date within which to make his installment payment.
CORB REALTY, on the other hand, has the right to cancel the contract after 30 days from receipt by
RILLO of the notice of cancellation.

Hence, the respondent court did not err when it upheld CORB REALTY's right to cancel the subject
contract upon repeated defaults in payment by RILLO.

54
 SALES
Breach of Contract

FULL PAYMENT OF THE PURCHASE PRICE IS A SUSPENSIVE CONDITION TO CONVEY TITLE

FROM ACQUIRING ANY OBLIGATORY FORCE

ANY ATTEMPT TO CANCEL THE CONTRACT TO SELL WOULD HAVE TO COMPLY WITH THE
PROVISIONS OF REPUBLIC ACT NO. 6552, THE "REALTY INSTALLMENT BUYER PROTECTION
ACT."

42. Leaño v. Court of Appeals,

G.R. No. 129018, November 15, 2001
Pardo, J.

FACTS:
This is a Petition for Review on Certiorari of the decision of the CA affirming that of the RTC ordering
petitioner CarelitaLeaño to pay respondent Fernando a certain sum corresponding to her outstanding
obligations under the contract to sell.

Fernando, as vendor and petitioner Leaño, as vendee executed a contract to sell. In the contract,
Leaño bound herself to pay Fernando the sum of P107,750.00 as the total purchase price of the lot.
The contract also provided for a grace period of one month within which to make payments, together
with the one corresponding to the month of grace. Should the month of grace expire without the
installments for both months having been satisfied, an interest of 18% per annum will be charged on
the unpaid installments. Should a period of ninety (90) days elapse from the expiration of the grace
period without the overdue and unpaid installments having been paid with the corresponding interests
up to that date, respondent Fernando, as vendor, was authorized to declare the contract cancelled and
to dispose of the parcel of land, as if the contract had not been entered into.

Fernando filed an ejectment case against against Leano. Leano filed with the RTC for specific
performance with preliminary injunction and assailed the MTC ruling for being violative of her right to
due process and for being contrary to R.A 6552 regarding protection to buyers of lots on installments.
According to the RTC, the transaction was an absolute sale, making Leaño the owner upon actual and
constructive delivery thereof. Fernando was divested of ownership and cannot recover the same
unless the contract is rescinded pursuant to Article 1592 of the Civil Code which requires a judicial or
notarial demand. Since there had been no rescission, petitioner Leaño, as the owner in possession of
the property, cannot be evicted.

ISSUE:
1. Was the transaction between the parties amounted to an absolute sale or a conditional sale?
2. Was there a proper cancellation of the contract to sell?

RULING:
1. It is a conditional sale. Contrary to the findings of the trial court, the transaction between the
parties was a conditional sale not an absolute sale. The intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid the total purchase price.

First, the contract to sell makes the sale, cession and conveyance "subject to conditions" set forth in
the contract to sell. Second, what was transferred was the possession of the property, not ownership.
Finally, the ownership of the lot was not transferred to Carmelita Leaño.

In a contract to sell real property on installments, the full payment of the purchase price is a positive
suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an
event that prevented the obligation of the vendor to convey title from acquiring any obligatory force.The
transfer of ownership and title would occur after full payment of the price.

55
In the case at bar, petitioner Leaño's non-payment of the installments prevented the obligation of
respondent Fernando to convey the property from arising. In fact, it brought into effect the provision of
the contract on cancellation.

2. No, there was no proper cancellation.

Any attempt to cancel the contract to sell would have to comply with the provisions of Republic Act No.
6552, the "Realty Installment Buyer Protection Act."

R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring
binding force.The law also provides for the rights of the buyer in case of cancellation. Thus, Sec. 3 (b)
of the law provides that

"If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of the total payments made and, after five
years of installments, an additional five percent every year but not to exceed ninety percent of
the total payment 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."

The decision in the ejectment case operated as the notice of cancellation required by Sec. 3(b). As
petitioner Leaño was not given then cash surrender value of the payments that she made, there was
still no actual cancellation of the contract. Consequently, petitioner Leaño may still reinstate the
contract by updating the account during the grace period and before actual cancellation.

56
 SALES
Breach of Contract

CONTRACTUAL BREACH SHOULD BE PROVEN TO ENFORCE THE AUTOMATIC FORFEITURE

CLAUSE;

BUYER WHO HAS PAID AT LEAST TWO YEARS OF INSTALMENT IS ENTITLED TO PAY THE
REMANING INSTALLMENTS WITHIN THE TOTAL GRACE PERIOD

43. Valarao v. Court of Appeals

G.R. No. 130347, March 3, 1999
Panganiban, J.

FACTS:
This is a petition for review where Spouses Abelardo Valarao, Gloriosa Valarao, thru their son Carlos
Valarao, assail the decision of the CA which reversed and set aside the decision of the RTC. CA
ordered Meden A. Arellano, the private respondent to pay an amount in favor of the petitioners and
directing the latter to execute in favor of the private respondent, upon receipt of the aforesaid amount,
the final and absolute deed of sale of the subject property with all the improvements.

Petitioners sold to Private Respondent under a Deed of Conditional Sale a parcel of land for the sum
of P3,225,000.00 payable under a schedule of payment stated therein. It was stipulated upon that
should the private respondent fail to pay three (3) successive monthly installments or anyone year-end
lump sum payment within the period stipulated, the sale shall be considered automatically rescinded
without the necessity of judicial action and all payments made by the private respondent shall be
forfeited in favor of the petitioners by way of rental for the use and occupancy of the property and as
liquidated damages. All improvements introduced by the private respondent to the property shall
belong to the petitioners without any right of reimbursement. The Private respondent failed to pay the
monthly installments when it became due. Petitioners thru counsel sent to Private respondent a letter
notifying her that they were enforcing the provision on automatic rescission as a consequence of which
the Deed of Conditional Sale was deemed null and void, and all payments made, as well as the
improvements introduced on the property, were thereby forfeited.

Private respondent alleged that as of September, 1990, she had already paid the amount of
P2,028,000.00 although she admitted having failed to pay the installments due in October and
November, 1990. Private respondent denied that she had refused to pay the installments due in the
months of October, November and December, and countered that it was the petitioners who refused to
accept payment, thus constraining her to file a petition for consignation before the RTC of Quezon
City.

ISSUE:
1. Is the automatic forfeiture clause enforceable?
2. Is RA 6552 or the Maceda law applicable?

RULING:
1. NO. The automatic forfeiture clause is not enforceable because petitioners failed to prove the
conditions that would warrant the implementation of this clause.

As a general rule, a contract is the law between the parties. Thus, from the moment the contract is
perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all consequences which, according to their nature, may be in keeping with good faith, usage
and law. Also, the stipulations of the contract being the law between the parties, courts have no
alternative but to enforce them as they were agreed upon and written, there being no law or public
policy against the stipulated forfeiture of payments already made. However, it must be shown that
private respondent-vendee failed to perform her obligation, thereby giving petitioners-vendors the right
to demand the enforcement of the contract.

57
The petitioners were not justified in refusing to accept the tender of payment made by private
respondent on December 30 and 31, 1990. Had they accepted it on either of said dates, she would
have paid all threemonthly installments due. The Court takes note of her willingness and persistenceof
the private respondent to pay, and, petitioners cannot now say otherwise. It is the petitioner who
refused to accept payment and thus have no reason to demand the enforcement of the automatic
forfeiture clause. They cannot be rewarded for their own misdeed.

2. Yes. RA 6552 or the Maceda law is applicable.

Sec. 3 of the Maceda Law provides that “In all transactions or contracts involving the sale or financing
of real estate on installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under Republic Act. 3844 as amended by
Republic Act Numbered 6389, 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 on the
payments on the property equivalent to fifty percent of the total payments made and, after five years of
installments, an additional five percent every year but not to exceed ninety percent of the total
payments made: Provided, That the actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the buyer.

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

The private respondent was entitled to a one-month grace period for every year of installments paid,
which means that she had a total grace period of three months from December 31, 1990. To rule in
favor of petitioners would result in patent injustice and unjust enrichment. This tribunal is not merely a
court of law, but also a court of justice.

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 SALES
Breach of Contract

BEFORE CANCELLATION OF CONTRACT, SELLER SHOULD EXTEND BUYER GRACE PERIOD

OF 60 DAYS FROM DUE DATE

44. Jestra Development & Management Corp. v. Pacifico

G.R. No. 167452, January 30, 2007
Carpio-Morales, J.

FACTS:
This is a Petition for Review filed by Jestra Development and Management Corporation against Daniel
Ponce Pacifico assailing the Decision of the CA, which affirmed the Decision of the Office of the
President (OP) in HLURB Case adopting the OP's conclusion that petitioner failed to deliver
possession of the subject property to respondent upon his full payment of the down-payment.

Respondent signed a Reservation Application with Fil-Estate Marketing Association for the purchase of
a house and lot located at Paranaque, Metro Manila and paid the reservation fee of 20,000.00. Under
the Reservation Application, upon fulfillment of the 30% down payment by respondent, he will sign a
contract to sell with the owner and developer of the property which is the Petitioner. Respondent run
out of funds to pay for the property, and he requested to Petitioner to suspend payment. Petitioner
denied his request. Respondent filed a complaint before the HLURB against Petitioner claiming that
despite his full payment of the down payment, Petitioner failed to deliver to him the property within 90
days as provided in the contract to sell dated March 6, 1997 and Petitioner instead sold the property to
another buyer in October 1998.

Petitioner alleged that its act of canceling the contract to sell with the respondent was not
unconscionable because such act is allowed under RA 6552.

ISSUE:
Is the petitioner’s act of cancelling the contract to sell with Respondent valid?

RULING:
YES. The cancellation of the contract to sell of Petitioner is valid.

R.A. No. 6552 was enacted to protect buyers of real estate on installment against onerous and
oppressive conditions. While the seller has under the Act the option to cancel the contract due to non-
payment of installments, he must afford the buyer a grace period to pay them and, if at least two years
installments have already been paid, to refund the cash surrender value of the payments. In Fabrigas
v. San Francisco del Monte, Inc., this Court described the cancellation of the contract under Section 4
as a two-step process. First, the seller should extend the buyer a grace period of at least sixty (60)
days from the due date of the installment. Second, at the end of the grace period, the seller shall
furnish the buyer with a notice of cancellation or demand for rescission through a notarial act, effective
thirty (30) days from the buyer's receipt thereof.

Respondent admits that under the restructured scheme, the first installment on the 70% balance of the
purchase price was due on January 5, 1998. While he issued checks to cover the same, the first two
were dishonored due to insufficiency of funds. While respondent was notified of the dishonor of the
checks, he took no action thereon, hence, the 60 days grace period lapsed. Respondent made no
further payments thereafter. Instead, he requested for suspension of payment and for time to dispose
of the property to recover his investment.

Respondent admits that petitioner was justified in canceling the contract to sell via the notarial Notice
of Cancellation which he received on May 13, 1998. The contract was deemed cancelled 30 days from
May 13, 1998 or on June 12, 1998. Despite notice the respondent failed to pay installments due until
the lapse of the grace period hence the Petitioner’s act of cancelling the contract to sell is valid.

59
 SALES
Extinguishment

STATUTORY LIMITATION ON THE EXERCISE OF THE RIGHT TO REPURCHASE FOR A PERIOD

OF FOUR YEARS IN ARTICLE 1508 IS APPLICABLE ONLY IN THE ABSENCE OF AN EXPRESS
AGREEMENT

45. Bandong v. Austria

G.R. No. 9785, September 24, 1915
Carson, J.

FACTS:
The present petition assails the lower court decision that the right of repurchase expired at the end of
four years from the date of the instant contract of the parties.On 29 April 1905, the plaintiffs sold to
Antonio Ventenilla, since deceased, a parcel of land for the sum of P350, expressly reserving a right to
repurchase under and in accordance with the terms of the deed of sale. The written contract contained
the following stipulation:

“We also set forth that one of the promises we have made to Don Antonio is that we will repurchase
this land at the same price; neither of us make any stipulation as to interest on the money or the
products of the land, but in the month of March of any year, if we repurchase.”

The vendors offered to repurchase in the month of March, 1913, but this offer was declined on the
ground that the right to repurchase had prescribed: a contention which is renewed by the defendant in
this action.

The lower court was of the opinion that the right to repurchase expired at the end of four years from
the date of the contract, relying on article 1508 of the Civil Code i.e. "The right mentioned in the
preceding article (right to repurchase), in the absence of an express agreement, shall last four years
counted from the date of the contract. "In case of stipulation, the period of redemption shall not exceed
ten years."

ISSUE:
Did plaintiff’s right of repurchase prescribe after four years from the date of the contract despite the
stipulation in the contract that the repurchase will be in the month of March in any year?

RULING:
No. Plaintiff’s right of repurchase did not prescribe after four years from the date of the contract.

Article 1508 of the Civil Code provides: "The right mentioned in the preceding article (right to
repurchase), in the absence of an express agreement, shall last four years counted from the date of
the contract. In case of stipulation, the period of redemption shall not exceed ten years."

The parties having expressly agreed that the vendors should have the right to repurchase in the month
of March of any year after the date of the contract, the only statutory limitation placed upon them in the
exercise of that right is the limitation found in the second paragraph of article 1508 of the Civil Code
which limits the power of the vendor even by express agreement, to reserve a right to repurchase for a
longer period than ten years. It is admitted that the vendors ordered to repurchase the land in question
in the month of March, 1913, less than eight years from the date of the contract. Thus, the SC held that
the provisions of the contract of sale, whereby the parties undertook by express agreement to cure to
the vendors a right to repurchase in the month of March of any year after the date of the contract, were
valid and binding upon the parties for a period of ten years from the date of the contract but wholly
without force and effect thereafter.

Hence, Plaintiff’s right of repurchase did not prescribe after four years from the date of the contract.

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 SALES
Extinguishment

CONSTRUCTION OF DOUBTFUL CLAUSE IN A PACTO DE RETRO SALE SHOULD NOT BE

CONSTRUED TOO HARSHLY AGAINST THE VENDOR

46. Rosales v. Reyes

G.R. No. 8162, October 10, 1913
Trent, J.

FACTS:
This is an appeal from a judgment sustaining a demurrer to the complaint on the ground that it does
not state facts sufficient to constitute a cause of action.

On July 29, 1902, Rivera sold a parcel of land to Reyes and Ordoveza for 800 pesos under pacto de
recto, on the condition, that the repurchase could not be made until after three years from the date of
the contract of sale. On May 29, 1903, Rivera sold his right to repurchase to Rosales for 1,075 pesos.

Rosales, who is the plaintiff in this case, alleges that in January, 1908, he tendered 800 pesos to
Reyes and Ordoveza with the request that the land be surrendered to him in accordance with the
contract entered into between them and Rivera in 1902, but that they refused to accept the money and
comply with his request. The objection to the complaint is that the right to repurchase had expired
before Rosales attempted to exercise it. This is based upon the First paragraph of article 1508 of the
Civil Code, which reads: "The right (to repurchase) . . . in the absence of an express agreement, shall
last four years counted from the date of the contract." The contract of 1902 provided that the right to
repurchase could not be exercised within three years from the date of the contract. Thus, the
defendant refused to accept the offer of the plaintiff on the ground that the right of repurchase has
prescribed since it was exercised 6 years after the sale.

ISSUE:
Can Rosales exercise his right of repurchase 6 years from execution of the sale on the ground that the
condition stating that “repurchase could not be made until three years from the date of the contract”
extended the period of repurchase to 7 years from the execution of the contract?

RULING:
Yes. Rosales can exercise the right of repurchase within the 7-year period from the execution of the
contract.

The vendor should be allowed four years from the expiration of the time within which the right to
redeem could not be exercised, or in the event that four years would extend the life of the contract
beyond ten years, the balance of the ten-year period, on the ground that vendors, where the right to
redeem is not thus suspended and no express agreement as to the length of time during which it may
be exercised is made, are also allowed four years. This construction is the most logical and just.

In the present case, the only stipulation of the parties with reference to the right to repurchase was that
it could not be exercised within three years from the date of the sale. Had it not been for this condition,
it is evident that the right would have expired four years from the date of the sale. Thus, the SC is of
the opinion that the effect of the express stipulation or agreement in the contract as discussed was to
extend the life of the contract to seven years from the date of its execution; its duration is seven years
from the date of the contract.

Hence, Rosales can exercise the right to repurchase within the 7-year period from the execution of the
contract.

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 SALES
Extinguishment

VOID SUSPENSION, 4 YEARS RIGHT OF REPURCHASE COUNTED FROM DATE OF CONTRACT

47. Medel v. Francisco

G.R. No. L-27890, December 31, 1927
Avancena, J.

FACTS:
In an appeal, PoncianoMedel (Medel) challenges the decision of CFI denying his action of compelling
the register of deed to cancel the notation of the right of repurchase on the title of the subject land on
account of the time within which to exercise said right having expired.

Carlos N. Francisco (Francisco), defendant herein, sold the land belonging to him to TelesforoCalasan
with a right of repurchase, which was noted on the back of the TCT, on May 16, 1917. Calasan, in turn,
sold the land to Medel, petitioner, on December 4, 1926.The stipulation in the contract of sale has the
following terms: This sale is made with the condition that the vendor Carlos N. Francisco reserves the
right to repurchase, at the cost price of this sale, a fourth part of the land above described from which
he can remove earth for the sole and exclusive use of his earthen jar factory when the same is
established.

Francisco contends that the period to exercise the right of repurchase is ten years as provided in Art.
1508 (Now Art. 1609) of the Civil Code: “Repurchase, in the absence of any express agreement, lasts
four years and, in case of stipulation, the period shall not exceed ten years.” Medel alleged that it is 4
years from the date of the contract.

ISSUE:
Can Francisco still repurchase the property after the lapse of 4 years despite allegation that the
condition attached to Francisco’s right of repurchase “when his earthen jar factory is established”
void?

RULING:
No, Francisco can no longer repurchase the property after the lapse of 4 years because the condition
attached to Francisco’s right of repurchase “when his earthen jar factory is established” void.

According to Art. 1508 (now Art. 1609) of the Civil Code, the right repurchase, in the absence of any
express agreement, lasts four years and, in case of stipulation, the period shall not exceed ten years.

The clause of the contract quoted does not express, in this case, a stipulation of time. Accordingly to
its terms, Francisco reserved the right to redeem the land when he might have an earthen jar factory.
This does not mean that he could repurchase the land any time before he had the earthen jar
factory, but when he had it.

The meaning of the clause is then clear that the parties did not stipulate any time for exercising the
right or repurchase; and, in accordance with the law, the right lasts no longer than four years from the
date of the contract, which period had already expired without having been made use of. These four
years must be counted from the date of the contract notwithstanding the suspension of the exercise of
the right of repurchase, because the stipulation of this suspension, as in this case which is the
establishment of an earthen jar factory, is null and void, it having exceeded four years, which
constitutes the legal period of this right.

No, Francisco can no longer repurchase the property after the lapse of 4 years because the condition
attached to Francisco’s right of repurchase “when his earthen jar factory is established” void.

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 SALES
Extinguishment

VOID SUSPENSION, RIGHT OF REPURCHASE COUNTED FROM DATE OF CONTRACT

48. Baluyot v. Venegas

G.R. No. L-22968, January 31, 2968
Makalintal, J.

FACTS:
In an appeal, Eulogio Venegas (Venegas) challenges CFI’s decision granting BenedictoBaluyot, et.
al’s action compelling Venegas to reconvey the land to them pursuant to the contractual provision on
right of repurchase.

Plaintiffs are the heirs of CrisantoBaluyot who sold a parcel of land to defendant Venegas. The sale,
executed on July 24, 1951, contains the following provision for repurchase:

3. That the parties hereto stipulated that at anytime after the expiration of the period of ten (10) years
to be computed from October 1, 1951, the Vendor, his heirs or successors-in-interest has the option
and priority to purchase the aforedescribed parcel of land for the same consideration of P4,000.00.
4. That the Vendee hereby accepts and agrees with the conditions and terms of this sale.

On July 18, 1963, Baluyot, et. al commenced an action in CFI to compel defendant to reconvey the
land to them pursuant to the contractual provision aforequoted, alleging that previous offers on their
part to exercise the right therein granted had proven unavailing.

Venegas avers that the stipulation in the contract giving the vendor the "option" to purchase back the
land is void and contrary to law, particularly Article 1606 of the Civil Code. This article reads: Art. 1606.
The right referred to in article 1601, in the absence of an express agreement, shall last four years from
the date of the contract. Should there be an agreement, the period cannot exceed ten years. However,
the vendor may still exercise the right to repurchase within thirty days from the time final judgment was
rendered in a civil action on the basis that the contract was a true sale with right to repurchase.

ISSUE:
Can Baluyot still repurchase the property after the lapse of 4 years despite the allegation that the
provision stipulating “right to repurchase after the expiration of 10 years” is considered void?

RULING:
No. Baluyot can no longer repurchase the property after the lapse of 4 years because the provision
stipulating “right to repurchase after the expiration of 10 years” is considered void.

Art.1606 of the Civil Code limits the period for repurchase: in case there be an agreement, to the
maximum of ten years from the date of the contract. The right to repurchase in the present case did
not even arise, since by the time it was supposed to begin, it was already interdicted by law. Right to
repurchase was sought to be exercised 12 years thereafter or in 1963. By express agreement, it could
not have been exercised except "after the expiration of the period of 10 years from 1951. Such
stipulation is not legally feasible.

Article 1606 of the Civil Code concerning the period of repurchase is not a statute of limitation. It is a
rule of substantive law which goes into the validity of the period agreed upon, and requires no
affirmative plea in the answer to be applicable.

Hence, Baluyot can no longer repurchase the property after the lapse of 4 years because the provision
stipulating “right to repurchase after the expiration of 10 years” is considered void.

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 SALES
Extinguishment

EXERCISE OF THE RIGHT TO REPURCHASE

49. Ceynas v.Ulanday

GR No. L-12700, June 29, 1959
Bautista Angelo, J.

FACTS:
This is an appeal that is based purely on questions of law questioning the rights of the parties under a
Pacto de Retro sale.

On February 22, 1944, Petitioner Ceynas, together his brothers and sisters, executed a deed of sale
with right to repurchase of their shares involving their six parcels of land situated in Pangasinan. The
said Sale has a consideration of P2,200.00 in favor of Respondent Spouses PamfiloUlanday and
Simplicia Fabia. Sometime in July 1944, the same brothers and sisters obtained from the spouses an
additional amount of P800.00 on condition that it should be covered by the same deed of sale with
right to repurchase.

On February 20, 1948, Petitioner Rufino Ceynas instituted an action before the RTC for the purpose of
having said deed of sale be declared as a simple mortgage and to compel the Respondent Spouses to
accept payment thereby declaring their obligation to have been paid in full. This action was dismissed
without prejudice on the ground that it was premature. The Court also rendered a judgment declaring
that only Petitioner Rufino can exercise the right to redeem his share in the property sold, and
dismissing the complaint insofar as the other plaintiffs are concerned on the ground that they have
already for forfeited their right of redemption because of their failure to avail of it within the period
stipulated. Petitioner Rufino’s brothers and sisters contended that the trial court erred in dismissing the
complaint insofar as they are concerned, thereby over-looking the fact that Petitioner Rufino filed an
action on February 20, 1948 on their behalf and in representation of his brothers and sisters. They
contended that this action has the effect of tolling the period of redemption.

ISSUE:
Can Rufino’s act of instituting an action before the RTC for the purpose of having said deed of sale be
declared as a simple mortgage and to compel the Respondent Spouses to accept payment toll the
period of redemption insofar as his brothers and sisters are concerned?

RULING:
No. The action taken by Petitioner Rufino cannot have the effect of tolling the period of redemption
insofar as his brothers and sisters are concerned, nor can it benefit his brothers and sisters even if
they have sold jointly their undivided shares in the lands in question.

Under the law, Petitioner Rufino can only exercise his right to repurchase insofar as his share is
concerned. This can be clearly be inferred from Article 1514 of the Spanish Civil Code, which provides:
"If several persons, collectively and in the same contract, should sell their undivided realty, reserving
the right of repurchase, none of them can exercise this right for more than his respective share."

Unless, therefore, there is proof to the effect that Petitioner Rufino attempted to redeem the whole
undivided interest on behalf and in that of his brothers and sisters, we cannot now conclude that the
filing of the action by Rufino on February 20, 1948 has the effect of tolling the period of redemption for
all of them.

Hence, the action taken by Petitioner Rufino cannot have the effect of tolling the period of redemption
insofar as his brothers and sisters are concerned.

64
 SALES
Extinguishment

AUTOMATIC TRANSFER OF OWNERSHIP UPON EXPIRATION OF THE PERIOD TO REDEEM.

50. De Bayquen v. Baloro

GR No. L-28161, August 13, 1986
Paras, J.

FACTS:
This is an appeal from the decision of the RTC dismissing the complaint of Petitioners Eufemia De
Bayquen and Estefania De Elpa against Respondent EulalioBalaoro. The RTC ruled that the
petitioners have already lost their right to repurchase the land under controversy and that by operation
of law, the ownership of such land had become consolidated in the respondent.

On January 16, 1954, Petitioners sold the land under question to Respondent Balaoro, reserving their
right to repurchase the said land within four (4) years. Petitioners failed to repurchase the land within
the four-year period but not until after more than thirteen (13) years.Petitioners contended that the trial
court erred in holding that there is no dispute between the parties regarding the nature of the purported
"deed of sale with right to repurchase" and that actually, the transaction is one of a mortgage. They
also insisted that the trial court erred in holding that the ownership over the property in question was,
by operation of law, given to the respondent immediately after petitioners failed to repurchase the
property within four years since the respondent failed to file in court the consolidation proceedings in
the property. On the other hand, respondent refutes the claim and stated that the contract is indeed a
deed of sale with right to repurchase since it was admitted by the petitioners and the same has been
stipulated upon by the parties.

ISSUE:
a. Was the contract entered into between the parties a deed of sale with right of repurchase?
b. Did respondents in this case acquired ownership over the property in question, by operation of law,
immediately after petitioners failed to repurchase the property within four years?

RULING:
a. Yes. The contract entered into between the parties is a deed of sale with right of repurchase. There
is no doubt that the true nature of the transaction was a contract of sale with right to purchase. The
Supreme Court agreed with the trial court's finding that the contract is not an equitable mortgage but a
deed of sale with right to repurchase. The deed of conveyance executed by the parties states the
purchase price as P2,000.00. The respondent admittedly took immediate possession after the
execution of the contract; no extension of the period of redemption, at or after its expiration, was made.
He also did not retain any part of the purchase price.

Hence, the contract entered into between the parties is a deed of sale with right of repurchase

b. Yes. respondents in this case acquired ownership over the property in question, by operation of law,
immediately after petitioners failed to repurchase the property within four yearsIn the case of Rosario
v. Rosario, the Court held that “where the contract between the parties is admitted and which has been
stipulated by the parties to be a deed of sale with right to repurchase, there should be no issue or
dispute about the effects thereof that once there is failure to redeem within the stipulated period,
ownership thereof becomes vested or consolidated by operation of law on the vendee. Any other
interpretation would be violative of the sanctity of the contract between the parties.” What the
respondent needs to file in court was not the consolidation itself but the registration of the
consolidation. Hence, respondents in this case acquired ownership over the property in question, by
operation of law, immediately after petitioners failed to repurchase the property within four years.

65
 SALES
Extinguishment

IN PETITION FOR CONSOLIDATION OF OWNERSHIP, VENDORS A RETRO MUST BE NAMED

AS RESPONDENTS

51. Crisologo v. Centeno

G.R. No. L-20014, November 27, 1968
Capistrano, J.

FACTS:
This in an appeal from the decision of CA reversing CFI’s decision that vendors, respondents herein,
were duly notified of the hearing concerning the petition for consolidation of ownership filed by the
petitioners.

On January 18, 1955, the spouses Francisco Crisologo and Consolacion Florentino filed in the Court
of First Instance (CFI) of Ilocos Sur an ex parte petition for consolidation of ownership in them as
vendees a retro of two parcels of land in Ilocos Sur, on the ground that the vendors, the spouses Isaac
Centeno and Asuncion Aquino, have failed to exercise their right of repurchase within the periods
stipulated. On January 28, 1955, the CFI granted the petition after hearing and presentation of
evidence. On July 19, 1956, the vendors filed a motion to set aside the CFI order dated January 28,
1955. On July 27, 1956, the court a quo, through Judge Antonio, granted the motion on the ground
that the movants had not been duly notified of the hearing. On motion by the petitioners to set aside
the Order of July 27, 1956, the order was set aside on the ground that the vendors had been notified
by registered mail of the hearing.

The Court of Appeals rendered judgment in the appeal setting aside the lower court's Order of
February 27, 1957, after holding that the vendors had not been legally notified of the petition and the
hearing, and that the Order of January 28, 1955, was a patent nullity

ISSUE:
Did the petitioner err in not including the respondents, vendors herein, in the petition for consolidation
thereby rendering the proceedings therein void?

RULING:
Yes. Petitioner erred in not including the respondents, vendors herein, in the petition for consolidation
thereby rendering the proceedings therein void

Article 1607 of the Civil Code which provides that in case of real property, the consolidation of
ownership in the vendee by virtue of the failure of the vendor to comply with the provisions of article
1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has
been duly heard.

In the instant case, the caption and title of the petition for consolidation of ownership named the
vendees as petitioners, but did not name the vendors as respondents, and said vendors were not duly
summoned and heard. In view thereof, the Order of January 28, 1955, was a patent nullity having been
issued contrary to the contentious proceeding contemplated in Article 1607 of the Civil Code, and the
lower court not having acquired jurisdiction over the persons of the vendors. The judgment of the Court
of Appeals setting aside the Order of February 27, 1957, and in consequence thereof the Order of
January 28, 1955, as a patent nullity on the ground that the lower court did not acquire jurisdiction over
the persons of the vendors because they had not been duly summoned is res judicata on the question
of nullity of said orders

Hence, Petitioner erred in not including the respondents, vendors herein, in the petition for
consolidation thereby rendering the proceedings therein void.

66
 SALES
Extinguishment

PETITION FOR CONSOLIDATION OF OWNERSHIP REQUIRES JUDICIAL ORDER FROM THE

COURT

52. Yturralde v. Court of Appeals

G.R. No. L-31586, February 28, 1972
Makasiar, J.

FACTS:
This is a petition for prohibition assailing the decision of the CA in affirming the writ of execution issued
by the RTC granting the consolidation of title in favour of private respondent Rebollos despite the
alleged improper service of summons to the petitioners.

Spouses Francisco Yturralde and Margarita de los Reyes, owned a 14-hectare parcel of agricultural
land, and registered in their name. In 1944, Francisco died intestate, survived by his wife, Margarita de
los Reyes, and their children who are the petitioners herein. Margarita de los Reyes contracted a
second marriage with her brother-in-law and uncle of the petitioners herein, DamasoYturralde. In 1952,
spouses Damaso and Margarita executed a deed of sale with right of repurchase in favor of the private
respondent IsabeloRebollos covering the property The vendors a retro failed to exercise the right to
repurchase the property within the three-year period agreed upon.

Respondent filed petition for consolidation of ownership of the property. The Court rendered a decision
consolidating the ownership in favor of private respondent Rebollos and ordering the Register of
Deeds to cancel Original Certificate of Title covering said property and, in lieu thereof, to issue a
transfer certificate of title in the name of Rebollos. Petitioners alleged that jurisdiction over them was
not acquired by the court as there was improper service of summons.

ISSUE:
Was the RTC correct in granting the action for consolidation of title filed by Rebollos valid despite
improper service of summons to the petitioners as indispensable parties, being heirs of the vendors?

RULING:
No. The RTC was incorrect in granting the action for consolidation of title filed by Rebollos due to
improper service of summons to the petitioners as indispensable parties, being heirs of the vendors

The new Civil Code of 1950 provides that consolidation of ownership in the vendee a retro of real
property by virtue of the failure of the vendor a retro "to comply with the provisions of Article 1616 shall
not be recorded in the Registry of Property without a judicial order, after the vendor has been duly
heard." Article 1607 speaks of a judicial order after the vendor shall have been duly heard, it
contemplates none other than a regular court proceeding under the governing Rules of Court, wherein
the parties are given full opportunity to lay bare before the court the real covenant.

The action for consolidation should be brought against all the indispensable parties, without whom no
final determination can be had of the action; and such indispensable parties who are joined as party
defendants must be properly summoned pursuant to Rule 14 of the Revised Rules of Court. If anyone
of the party defendants, who are all indispensable parties is not properly summoned, the court
acquires no jurisdiction over the entire case and its decision and orders therein are null and void The
jurisdiction over the persons of herein petitioners Josefina, Zosima and Ramon all surnamed Yturralde,
was not properly acquired by the court because they were not properly served with summons.

Hence, the RTC was incorrect in granting the action for consolidation of title filed by Rebollos due
improper service of summons to the petitioners as indispensable parties, being heirs of the vendors.

67
 SALES
Extinguishment

REDEMPTION BY A CO-OWNER MUST BE MADE WITHIN THE 30-DAY PERIOD FROM NOTICE
OF SALE

53. Cabrera v. Villanueva

G.R. No. 75069, April 15, 1988
Paras, J.

FACTS:
This is a petition for review by way of appeal by certiorari of the judgment of the CA reversing the
judgment of the RTC of Manila in a civil action for Legal Redemption of real property.

Petitioner Erlinda O. Cabrera is a co-owner of a real property situated in Manila. Feliciano Oropesa
and Antonio Oropesa, the other co-owners, sold their shares in the property to Victoriana E. Villanueva
(private respondent herein). A new TCT was issued by the RD of Manila constituting respondent as a
co-owner pro indiviso of the land. This was after the former co-owners Feliciano and Antonio executed
a Joint Affidavit attesting to the fact that they had notified in writing the other co-owners of the property
in question and said co-owners did not offer any objection thereto. Several years later, respondent
sent a letter to petitioner proposing to her the partition of the property in question. Petitioner did not
agree to such proposal and instead, offered to redeem respondent Villanueva’s purchased share.
Villanueva refused such proposal, hence the filing of an action for legal redemption by the petitioner.

Respondent alleged that petitioner failed to exercise her right of legal redemption within the prescribed
30-day period provided by law (Art. 1623 of the Civil Code). Petitioner, on the other hand, alleges that
she never received any written notice of the sale from her co-owners on the sale of their shares.

ISSUE:
Did the petitioner exercise her right of legal redemption (on October 30, 1980) within the prescribed
30-day period notwithstanding the fact that the Joint Affidavit attesting to the fact that petitioner was
notified by her co-owners was dated April 1, 1968?

RULING:
No. Petitioner failed to exercise her right of legal redemption within the prescribed 30-day period.

For the legal and effective exercise of the right of legal redemption, one must make the offer within the
period set down in Art. 1623. In other words, if no claim or offer is made within said period, no action
will be allowed to enforce the right of redemption. It is necessary however to determine first if and
when the written notice of sale was duly served by the vendors to their co-owner.

Notwithstanding the actual knowledge of a co-owner, he or she is still entitled to a written notice from
the vendor-co-owner in order to remove all uncertainty as to the sale, its terms and validity and to quiet
any doubts that the alienation is not definitive. The law however does not require a specific form of
written notice to the redemptioner. A reading of the Joint Affidavit executed by the vendors Feliciano
and Antonio both surnamed Oropesa, affirms the fact that a written notice of the sale was really sent
by them to their co-owner petitioner herein. We agree with petitioner that the Joint Affidavit does not
amount to that written notice required by law. However, it is clearly a written affirmation under oath that
the required written notice of sale was given to the other co-owner.

Since there is no evidence on record as to when the written notice of the sale referred to in the Joint
Affidavit was given to petitioner, We can only assume that it was made before April 1, 1968, the date of
the Joint Affidavit. Counting therefore from this date, petitioner has already lost her right to redeem the
property under Art. 1623 when she made her offer to redeem from private respondent in her letter
dated October 30, 1980. For more than ten years, petitioner remained unperturbed by the fact that
private respondent was already registered as a co-owner and her uncles were no longer co-owners. It
was only several years later when the value of the property considerably increased that
petitionerasserted her claim re the right to redeem under Art. 1623. Petitioner has thus slept on her

68
rights and is now estopped from questioning the validity of the sale. We may even regard the receipt of
a copy of the transfer certificate of title, indicating private respondent as one of the co-owners, as
service of the written notice required by Art. 1623. Clearly, petitioner's right to redeem expired a long
time ago.

Hence, petitioner failed to exercise her right of legal redemption within the prescribed 30-day period.

69
 SALES
Extinguishment

THE NOTICE IN WRITING OF THE SALE CONTEMPLATED IN ARTICLE 1623 OF THE CIVIL
CODE REFERS TO A CONSUMMATED SALE AND NOT MERELY PROPOSALS;

THE REDEMPTION PRICE SHOULD BE THE PRICE STIPULATED IN THE DEED, REGARDLESS
OF WHAT MIGHT HAVE BEEN ACTUALLY PAID BY THE BUYER

54. Spouses Doromalv. Court of Appeals

G.R. No. L-36083, September 5, 1975
Barredo, J.

FACTS:
This is a Petition for review on certiorari of the decision of the CA which reversed the decision of the
CFI of Iloilo dismissing herein private respondent Filomena Javellana's action for redemption of a
certain property sold by her co-owners to herein petitioners for having been made out of time.

The co-owners of a parcel of land sold their 6/7 share thereof to petitioners for P115,250. The deed of
sale, however, stated that the purchase price was only P30,000. The consideration of P30,000 was
placed in the deed of sale to minimize the payment of registration fees, stamps and sales tax. Private
respondent, who was a 1/7 co-owner of the property, was informed of her co-owner's proposal to sell
the land in question through several letters, but was never notified, least of all, in writing, of the
actual execution and registration of the deed of sale. When private respondent, in the exercise of
her right as legal redemptioner, sought to redeem the property, and tendered the sum of P30,000 in
cash, petitioners refused to accept the payment. Hence, private respondent filed the instant case.

Petitioners contend that respondent’s right to redeem has already lapsed since it was made beyond
the 30-day period from the written notice given to her. Petitioners maintain that the letters sent to
respondent Javellana constituted as the written notice required by law since the same even informed
her of the price per square meter and the giving of a P5,000 earnest money paid by the buyers.
Alternatively, petitioners claim that should redemption be granted, it should be at the true and real
price by them paid. Respondent on the other hand alleges that, the notice in writing of the sale
contemplated in Art. 1623 of the Civil Code refers to a notice in writing after the execution and
registration of the instrument of sale, hence, of the document of sale, and not a mere proposal or offer.

ISSUES:
1. Does the written notice of the proposal given to Javellana constitute the notice in writing of the
sale contemplated in Article 1623 of the Civil Code so as to effectively bar her from redeeming
the said property after the lapse of 30 days from the said notice?
2. At what amount should the redemption price be? That stated in the deed of sale or the true and
real price paid by the buyer?

RULING:
1. No. The written notice of proposal is does not constitute the written notice of sale contemplated in
Article 1623 so as to effectively bar her from redeeming the said property after the lapse of 30 days
from the said notice.

For purposes of the co-owner's right of redemption granted by Article 1620 of the Civil Code, the notice
in writing which Article 1623 requires to be made to the other co-owners and from receipt of which the
30-day period to redeem should be counted is a notice not only of a perfected sale but of the actual
execution and delivery of the deed of sale. This is implied from the latter portion of Article 1623 which
requires that before a register of deeds can record a sale by a co-owner, there must be presented to
him, an affidavit to the effect that the notice of the sale had been sent in writing to the other co-owners.
A sale may not be presented to the register of deeds for registration unless it be in the form of a duly
executed public instrument. Moreover, the law prefers that all the terms and conditions of the sale
should be definite and in writing.

70
In the instant case, neither of said letters [sent to respondent] referred to a consummated sale. In other
words, while the letters relied upon by petitioners could convey the idea that more or less some kind of
consensus had been arrived at among the other co-owners to sell the property in dispute to petitioners,
it cannot be said definitely that such a sale had even been actually perfected. We are more inclined to
believe that the said P5,000 were paid in the concept of earnest money as the term was understood
under the Old Civil Code, that is, as a guarantee that the buyer would not back out, considering that it
is not clear that there was already a definite agreement as to the price then and that petitioners were
decided to buy 6/7 only of the property should respondent Javellana refuse to agree to part with her
1/7 share.Respondent herein has never been notified in writing of the execution of the deed of sale by
which petitioners acquired the subject property, it necessarily follows that her tender to redeem the
same made on June 10, 1968 was well within the period prescribed by law.

2. It should be the price stipulated in the contract/deed of sale, thus, in this case, P30,000.

According to Art. 1619 of the Civil Code, the redemptioner’s right is to be subrogated upon the same
terms and conditions stipulated in the contract and here, the stipulation in the public evidence of the
contract, made public by both vendors and vendees is that the price was P30,000.00.

The Affidavit of the vendor that he has given written notice thereof of all possible redemptioners under
Art. 1620 of the Civil Code could not but have been to give a clear and unmistakable guide to
redemptioner, on how much he should pay and when he should redeem. From this must follow that
notice must have been intended to state the truth and if vendor and vendee should have instead,
decided to state an untruth therein, it is they who should bear the consequences of having thereby
misled the redemptioner who had the right to rely and act thereon and on nothing else; stated
otherwise, all the elements of equitable estoppel are here since the requirement of the law is to submit
the Affidavit of notice to all possible redemptioners, that affidavit to be a condition precedent to
registration of the sale therefore.

The law is definite that she can subrogate herself in place of the buyer, 'upon the same terms and
conditions stipulated in the contract.' Thus, the redemption in controversy should be only for the price
stipulated in the deed, regardless of what might have been actually paid by petitioners.

71
 SALES
Extinguishment

LEGAL REDEMPTIONER MUST BE A CO-OWNER AT THE TIME THE UNDIVIDED SHARE IS

SOLD

55. Butte v. Uy and Sons, Inc.

G.R. No. L-15499, February 28, 1962
Reyes, J. B. L., J.

FACTS:
This is an appeal from the decision of the CFI of Manila dismissing the action for legal redemption filed
by Butte.

Ramirez, during his lifetime, was a co-owner of a house and lot. He thereafter died and a special
proceeding was instituted to settle his estate.Meanwhile, Mrs. Ramirez, one of the co-owners of the
late Ramirez in the Sta. Cruz property soled her share to Uy&Sons, Inc. After the execution of an
affidavit to effect formal notices of sale to all possible redemptioners, the deed of sale was registered
and a TCT was issued in the name of the vendee. Herein defendants sent a letter to the BPI as
administrator of Ramirez’ estate informing it of the sale. The letter was forwarded to Mrs. Butte, a
beneficiary of the 1/3 of free portion of Ramirez’ estate.

Mrs. Butte sent a letter and a check to defendants offering to redeem 1/6 of the share sold but
defendants refused the tender.Plaintiff then consigned the amount in court and filed an action for legal
redemption.

ISSUE:
Can Butte, having been bequeathed 1/3 of the free portion of Ramirez’s estate, exercise the right of
legal redemption over the 1/6 properties sold despite the presence of judicial administrator?

RULING:
Yes, Butte can exercise the right of legal redemption over the 1/6 properties sold despite the presence
of judicial administrator.

The Civil Code provides that (ART. 1620) A co-owner of a thing may exercise the right of redemption
in case the shares of all the other-co-owners or of any of them, are sold to a third person. If the price of
the alienation is grossly excessive, the redemptioner shall pay only a reasonable one. Should two or
more co-owners desire to exercise the right of redemption, they may only do so in proportion to the
share they may respectively have in the thing owned in common.

As testamentary heir of the estate of J.V. Ramirez, she and her co-heirs acquired an interest in the
undivided one-sixth (1/6) share owned by her predecessor (causante) in the Santa Cruz property, from
the moment of the death of the aforesaid co-owner, J.V. Ramirez. As co-owners of the property, the
heirs of Ramirez, or any one of them, became personally vested with right of legal redemption as soon
as one of the co-owner sold her own pro-indiviso interest to Uy& Sons. Even if subsequently, the
undivided share of Ramirez (and of his heirs) should eventually be sold to satisfy the creditors of the
estate, it would not destroy their ownership of it before the sale, but would only convey or transfer it as
in turn sold (of it actually is sold) to pay his creditors. The right of any of the Ramirez heirs to redeem
the share will not be retroactively affected. All that the law requires is that the legal redemptioner
should be a co-owner at the time the undivided share of another co-owner is sold to a stranger.
Whether or not the redemptioner will continue being a co-owner after exercising the legal redemption
is irrelevant for the purposes of law.

Hence, Butte can exercise the right of legal redemption over the 1/6 properties sold despite the
presence of judicial administrator.

72
 SALES
Extinguishment

LEGAL REDEMPTION CAN ONLY BE EXERCISED BY A CO-OWNER

56. Dela Cruz v. Cruz

G.R. No. L-27759, April 17, 1970
Reyes, J. B. L., J.

FACTS:
This is a direct appeal from the summary judgement of the Pasay CFI dismissing the plaintiff’s
complaint against the defendants for the pre-emption of the legal redemption of a portion of registered
land.

Spouses Cruz and Montes, defendants, were owners of a parcel of land.In the owners’ TCT, it was
stipulated that a portion of the said lot was sold to plaintiff Dela Cruz. The defendants sold the
remaining portion of the land to Miranda. Dela Cruz filed a complaint against defendants praying to
have himself declared as entitled to purchase by way of pre-emption and legal redemption ½ portion of
the land sold to Miranda. The CFI dismissed the complaint.

Dela Cruz contends that after he bought from defendants the northern half of the parcel of land, he
and the spouses became co-owners which entitles him to the right of pre-emption or legal redemption
over the portion that was subsequently sold to Miranda.

ISSUE:
Can Dela Cruz validly redeem from Miranda a portion of land sold to him on the theory that he is a co-
owner of the said property?

RULING:
No, Dela Cruz, not being a co-owner of the said lot, cannot exercise redemption.

Tested against the concept of co-ownership, as authoritatively expressed by the commentators,

appellant is not a co-owner of the registered parcel of land, taken as a unit or subject of co-ownership,
since he and the spouses do not "have a spiritual part of a thing which is not physically divided" (3
Sanchez Roman 162), nor is each of them an "owner of the whole, and over the whole he exercises
the right of dominion, but he is at the same time the owner of a portion which is truly abstract ..." (3
Manresa 405). The portions of appellant-plaintiff and of the defendant spouses are concretely
determined and identifiable, for to the former belongs the northern half, and to the latter belongs the
remaining southern half, of the land. That their respective portions are not technically described, or that
said portions are still embraced in one and the same certificate of title, does not make said portions
less determinable or identifiable or distinguishable, one from the other, nor that dominion over each
portion less exclusive, in their respective owners. Hence, no right of redemption among co-owners
exists.

Hence, Dela Cruz cannot exercise redemption.

73
 SALES
Extinguishment

CONSIGNATION IS NOT REQUIRED TO PRESERVE THE RIGHT OF REPURCHASE

57. Legaspi v. Court of Appeals

G.R. No. L-45510, May 27, 1986
Gutierrez, Jr., J.

FACTS:
This is an appeal by way of certiorari from the decision of the CA reversing RTC’s decision that
Legaspi has validly exercised the right of repurchase within the 5 year period stipulated in the pacto de
retro sale.

Bernardo B. Legaspi is the registered owner of two parcels of land which he sold to his son-in-law,
Leonardo B. Salcedo, on October 15, 1965 with the right to repurchase the same within five years from
the execution of the deed of sale; that on October 14, 1970, Legaspi offered and tendered to Salcedo
the sum of P25,000.00 for the repurchase of the two parcels of land; that the tender of payment was
refused by Salcedo without justifiable or legal cause; that Salcedo refused to convey the properties to
Legaspi as requested by the latter; that on October 15, 1970, Legaspi deposited in the Office of the
Clerk of Court of First Instance of Cavite City the amount of P25,125.00

In his answer with compulsory counterclaim, Salcedo by way of special defense claimed that Legaspi
was no longer entitled to repurchase the properties in question for failure to exercise his right within the
stipulated period. That what actually transpired on October 15, 1970 was that Legaspi asked for an
extension of one year within which to repurchase the two parcels of land bringing with him a document
entitled "Extension Period to Repurchase" which Salcedo declined to sign.

ISSUE:
Did the tender of payment made by Legaspi on October 14, 1970 result to the exercise of the right of
repurchase?

RULING:
YES. The tender of payment made by Legaspi on October 14, 1970 resulted to the exercise of the
right of repurchase

Tender of payment is the manifestation made by the debtor to the creditor of his desire to comply with
his obligation, with the offer of immediate performance. It is an act preparatory to consignation as an
attempt to make a private settlement before proceeding to the solemnities of consignation. The Court
have early held that: Consignation is not required to preserve the right of repurchase as a mere tender
of payment is enough if made on time as a basis for an action to compel the vendee a retro to resell
the property. (Villegas v. Capistrano, 9 Phil..... 416; Resales v. Reyes, et al. 25 Phil..... 495; Paez, et
al., v.Magno, 46 O.G. p. 5425).

The records clearly manifest that the petitioner was able to make a valid tender of payment on the 14th
of October 1970 by offering personally the amount of P25,000.00 to the private respondent who
refuse. Since the case at bar involves the exercise of the right to repurchase, a showing that petitioner
made a valid tender of payment is sufficient. It is enough that a sincere or genuine tender of payment
and not a mock or deceptive one was made. The fact that he deposited the amount of the repurchase
money with the Clerk of Court was simply an additional security for the petitioner.

Hence, the tender of payment made by Legaspi on October 14, 1970 resulted to the exercise of the
right to repurchase.

74
 SALES
Extinguishment

IN AN EQUITABLE MORTGAGE, DEFAULT IN PAYMENT OF THE DEBT DUE WOULD NOT

AUTOMATICALLY VEST IN THE CREDITOR, THE OWNERSHIP OF THE MORTGAGED
PROPERTY

58. Montevirgen v. Court of Appeals

G.R. No. 44943, March 17, 1982
De Castro, J.

FACTS:
This is a petition for review on certiorari of the decision of the Court of Appeals affirming the trial
court's order that upon failure of the petitioners to pay their obligation within the period as fixed in the
judgment, petitioners also lost the right to redeem the property and as such, the absolute ownership
over the subject premises has become consolidated in the respondents.

Petitioners Montevirgen filed an action against respondent-spouses Serafin Abutin and Carmen Senir
for the annulment of a deed of sale with pacto de retro, title to which was transferred to respondents
upon the registration of the deed of pacto de retro sale. The trial court, by virtue of the agreement
reached by the parties, rendered a decision declaring the transaction an equitable mortgage and fixing
a period of ten (10) months from July 1, 1971 within which the petitioners must pay their obligation with
legal interest, otherwise execution would follow.

Petitioners having failed to pay their obligation within the ten-month period, respondents moved for
execution of the decision of July 1, 1971. Petitioners opposed the motion for execution alleging that
there must be a foreclosure of mortgage upon failure to redeem and not an outright execution sale.
Said opposition was denied by the trial court and an Order of Execution was issued. A sale was
conducted and confirmed with the Respondents as victors. Petitioners filed a Motion to Annul the
Sheriff's Certificate of Sale

ISSUE:
Did petitioner’s default in payment of the debt due resulted to the consolidation of ownership over the
mortgaged property in the creditor’s name?

RULING:
NO. Petitioner’s default in payment of the debt due did not result to consolidation of ownership over the
mortgaged property in the creditor’s name.

It contradicts the agreement between the parties and the declaration in the decision that the contract
between the parties was an equitable mortgage, not a pacto de retro sale. It would produce the same
effect as a pactum commissorium, a forfeiture clause that has traditionally been held as contrary to
good morals and public policy and, therefore, void.

In the case of Guanzon v.Argel the Court ruled that the only right of a mortgagee in case of non-
payment of a debt secured by mortgage would be to foreclose the mortgage and have the encumbered
property sold to satisfy the outstanding indebtedness. The mortgagor's default does not operate to vest
in the mortgagee the ownership of the encumbered property, for any such effect is against public
policy as enunciated by the Civil Code. It is the duty of respondents, as mortgagees, to foreclose the
mortgage and buy it if he wishes to secure a perfect title to the mortgaged property

Hence, petitioner’s default in payment of the debt due did not result to consolidation of ownership over
the mortgaged property in the creditor’s name.

75
 SALES
Extinguishment

PURCHASER OR MORTGAGEE CANNOT CLOSE HIS EYES TO FACTS WHICH SHOULD PUT A
REASONABLE MAN UPON HIS GUARD

59. Crisostomo v. Court of Appeals

G.R. Nos. 91383-84, May 31, 1991
Paras, J.

FACTS:
This is a petition for review on certiorari of the decision of the Court of Appeals upholding the validity of
the real estate mortgage on the ground that respondent Diana Torres is a mortgagee in good faith.

Petitioner Socorro Crisostomo was the registered owner of a residential house and lot in Mandaluyong.
Private respondent Norma San Jose offered to buy the above-mentioned parcel of land including the
house, which Crisostomo accepted, and it was agreed upon to be paid from the proceeds of a loan
that was to be obtained by San Jose from a bank using Crisostomo's title as collateral. As payment,
San Jose issued 3 post-dated checks. Crisostomo, upon San Jose's request, executed a deed of sale
over the same property and the latter registered such title with the Registry of Deeds. When
Crisostomo encashed the post-dated checks, they were all dishonored. Soon enough, Crisostomo
discovered that San Jose's loan application was disapproved because the collateral was insufficient for
the amount of the loan she was borrowing, thus, Crisostomo demanded from San Jose to return the
title of the land. However, San Jose informed Crisostomo that the title was in the possession of Diana
Torres, the mortgagee.

Crisostomo demanded from Torres to reconvey the subject property to her but this demand was not
satisfied. Petitioner was thus compelled to file a civil case against San Jose and Torres alleging that
Torres was not a mortgagee in good faith as circumstances show that she can readily ascertain who
the real owner of the property mortgaged.

ISSUE:
Can Torres be considered a mortgagee in good faith despite the knowledge of her lawyer that the
owner of the real estate is Crisostomo and the fact that she could already ascertain who the real owner
is when she visited the property?

RULING:
No, Torres cannot be considered a mortgagee in good faith baceuse of the knowledge of her lawyer
that the owner of the real estate is Crisostomo and the fact that she could already ascertain who the
real owner is when she visited the property.

A purchaser or mortgagee’s mere refusal to believe that such defect exists, or his willful closing of his
eyes to the possibility of the existence of a defect in the vendor's or mortgagor's title, will not make him
an innocent purchaser or mortgagee for value, if it afterwards develops that the title was in fact
defective, and it appears that he had such notice of the defects as would have led to its discovery had
he acted with the measure of precaution which may be required of a prudent man in a like situation.

Atty. Flor Martinez, lawyer of Torres, admitted on cross-examination that Crisostomo was the owner
from whom San Jose allegedly bought the property. When Atty. Martinez personally inspected the
property with San Jose for her client Torres, she allowed herself to be introduced to Crisostomo to
convince Crisostomo that the procedure is in accordance with her agreement with San Jose. Torres
herself also visited the property and carefully evaded seeing Crisostomo personally, who could have
easily enlightened her as to the true owner. Such unnatural behavior points more convincingly to the
fact that she was aware that San Jose was not its real owner.

Hence, Torres cannot be considered a mortgagee in good faith.

76
 SALES
Extinguishment

FAILURE TO MAKE AN ALTERNATIVE PRAYER IS NOT A BAR TO COLLECT INDEBTEDNESS

60. Heirs of Arches v. Vda. de Diaz

G.R. No. L-27136., April 30, 1973
Makalintal, Acting C.J.

FACTS:
This is an appeal from the order of the CFI of Capiz dismissing the complaint of petitioner to recover
the amount covered by the alleged pacto de retro sale after the SC ruled that the agreement was an
equitable mortgage.

Defendant Maria Vda. de Diaz executed in favor of the late Jose Arches a deed of sale with pacto de
retro over a parcel of land known as Lot No. 2706. Arches during his lifetime filed a petition to
consolidate ownership over the lot, however, the defendant opposed the petition alleging among other
things that the said deed of sale with pacto de retro did not express the true intention of the parties,
which was merely to constitute a mortgage on the proper security for a loan. The Court ruled that the
contract was an equitable mortgage and it attained finality. The petitioner heirs of Jose Arches
demanded from the defendant the payment of P12,500.00, the consideration mentioned in the deed of
sale a retro and P1,543.70 in connection with the reconstitution of the title to Lot No. 2706 in the name
of the vendor.

Defendant moved to dismiss it on the ground that the first cause of action for recovery of the sum of
P12,500.00 was barred by the statute of limitations and that the second cause of action for
reimbursement of the sum of P1,543.70, standing alone is not within the jurisdiction of the trial court.

ISSUE:
Was the decision of the cadastral court, holding in effect that the sale with pacto de retro was an
equitable mortgage and consequently dismissing the petition to consolidate ownership, a bar to the
right of petitioner to foreclose the mortgage or to collect indebtedness?

RULING:
No, the decision of the cadastral court that the contract is an equitable mortgage and not a pacto de
retro is not a bar to the right of the petitioner to foreclose the mortgage or to collect the indebtedness.
In the case of Correa v. Mateo and Icasiano, wherein an unrecorded pacto de retro sale was construed
as an equitable mortgage, it was ruled that the plaintiff had the right "within sixty days after final
judgment, for a failure to pay the amount due and owing him, to foreclose his mortgage in a proper
proceeding and sell all or any part of the ten parcels of land to satisfy his debt."

It would be unjust in this case to allow the defendant to escape payment of his debt and, worse still, to
rationalize such a result by his very claim that he is a debtor and not, as the plaintiff says, a vendor of
property in favor of the latter. Strictly speaking, where the petition of the vendee in a pacto de
retro sale is for a judicial order pursuant to Article 1607 of the Civil Code, so that consolidation of
ownership by virtue of the failure of the vendor to redeem may be recorded in the Registry of Property,
the right of action to foreclose the mortgage or to collect the indebtedness arises from the judgment of
the court declaring the contract as equitable mortgage. Although an alternative prayer to this effect
may be made in the petition, the same cannot but be conditional, that is, only in the event such a
declaration made, contrary to the plaintiff's claim and the principal relief he seeks.His failure to make
that alternative prayer, and the failure of the court to grant it in the judgment dismissing the petition,
should not be considered as a bar to collecting the indebtedness in a proper action for that purpose.

Hence, the decision of the cadastral court that the contract is an equitable mortgage and not a pacto
de retro is not a bar to the right of the petitioner to foreclose the mortgage or to collect the
indebtedness.

77
 SALES
Extinguishment

IN CASE OF DOUBT A CONTRACT PURPORTING TO BE A SALE WITH A RIGHT TO

REPURCHASE SHALL BE CONSTRUED AS AN EQUITABLE MORTGAGE WHEN THE PRICE OR
CONSIDERATION OF THE SALE IS UNUSUALLY INADEQUATE

61. Labasan v. Lacuesta

G.R. No. L-25931, October 30, 1978
Muñoz Palma, J.

FACTS:
Sometime in 1927, spouses Lacuesta were the owners of an unregistered, irrigated riceland located in
the municipality of Badoc, province of Ilocos Norte. On April 20, 1927, the spouses executed in favor of
spouses Labasan a document written in the Ilocano dialect. On April 23, 1948 spouses Lacuesta filed
with the CFI a complaint against spouses Labasan, seeking the reconveyance of the parcel of land
subject of the said document.

In the complaint, it was alleged that spouses Lacuesta secured a loan P225.00 from GelacioLabasan
and as security for the payment of that loan, they offered their riceland; sometime in 1943, they
tendered payment of the loan but Labasan refused to accept it; after "liberation" they offered again to
pay their loan and demanded the return of their land but they were once more refused because
defendants claimed that they were the owners of the property. In the answer to the complaint only one
special defense was raised — that Lacuesta conveyed by means of a written document the land with
right to repurchase the same within the period of ten years, but because of plaintiff's failure to exercise
that right within the stipulated period, the vendees a retro have become the absolute owners of the
land and the latter in fact donated the property to their son Roberto Labasan who is now the owner of
the property.

The trial court ruled that the document executed by the Lecuestas was a pacto de retro sale and that
the latter lost their right to redeem the land for not having taken any step within the agreed of ten
years. The CA reversed the decision and ruled that the contract was an equitable mortgage and
ordered the defendants Labasan to reconvey the land to the Lacuestas without the latter paying the
loan of P225.00 inasmuch as the same was deemed paid from the fruits of the property which the
Labasans had been receiving for the past thirty-two years.

ISSUE:
Is the contract entered into between the parties a pacto de retro sale or an equitable mortgage?

RULING:
It is an equitable mortgage. Article 1602 paragraph 1of the New Civil Code expressly provides that in
case of doubt a contract purporting to be a sale with a right to repurchase shall be construed as an
equitable mortgage when the price or consideration of the sale is unusually inadequate. The second
paragraph of Article 1602 of the New Civil Code provides that when the vendor remains in possession
as lessee or otherwise, the contract shall be construed as an equitable mortgage. The Court agrees
that the document is not a pacto de retro sale.

First, the reason behind the execution of the said document was that the Lacuestas were in urgent
necessity for money and had to secure a loan of P225.00 from GelacioLabasan for which the riceland
was given as "security". Second, the amount of P225.00, even in 1927, was too inadequate for a
purchase price of an irrigated riceland, the land being valued at the time for no less than P1, 000.00.
Third, although symbolically the possession of the property was transferred to GelacioLabasan, it was
Lacuesta, the supposed vendor, who continued to be in physical possession of the property, took
charge of its cultivation, and all tenancy matters. Fourth, GelacioLabasan, the supposed vendee a
retro never declared the property in his name for taxation purposes nor did he pay the taxes thereon
since the execution of the document in 1927. Fifth, as noted in the decision of the CA, the supposed
vendees a retro, now the herein petitioners, failed to take any step since 1927 to consolidate their
alleged ownership over the land. Under Article 1509 of the Old or Spanish Civil Code, if the

78
Vendor failed to redeem within the period agreed upon, the vendee's title became irrevocable by the
mere registration of an affidavit of consolidation. Finally, we have the rule that in case of any doubt
concerning the surrounding circumstances in the execution of a contract, the least transmission of
rights and interests shall prevail if the contract is gratuitous, and, if onerous the doubt is to be settled in
favor of the greatest reciprocity of interest.

79
 SALES
Extinguishment

ONCE THE INSTRUMENT OF ABSOLUTE SALE IS EXECUTED, THE VENDOR CAN NO LONGER
RESERVE THE RIGHT TO REPURCHASE, AND ANY RIGHT THEREAFTER GRANTED THE
VENDOR BY THE VENDEE IN A SEPARATE INSTRUMENT CANNOT BE A RIGHT OF
REPURCHASE BUT SOME OTHER RIGHT LIKE THE OPTION TO BUY

62. Villarica v. Court of Appeals

G.R. No. L-19196, November 29, 1968
Capistrano, J.

FACTS:
This is a petition for certiorari or review which seeks to reverse the decision of CA ruling that the
contract entered into by Spouses Villarica and Spouses Consunji is a contract of absolute sale not
equitable mortgage.

On May 19, 1951, the spouses Villarica sold to the spouses Consunji a lot containing an area of 1,174
sq. meters, situated in the poblacionof the City of Davao, for the price of P35,000. The instrument of
absolute sale dated May 19, 1951, in the form of a deed poll was acknowledged on May 25, 1951. On
the same day, the spouses Consunji executed another public instrument whereby they granted the
spouses Villarica an option to buy the same property within the period of one year for the price of
P37,750. In February 1953, the spouses Consunji sold the lot to Jovito S. Francisco for the price of
P47,000 by means of a public instrument of sale. A new TCT in the name of Jovito S. Francisco was
issued.

On April 14, 1953, the spouses Villarica brought an action in the CFI against the spouses Consunji and
Jovito S. Francisco for the reformation of the instrument of absolute sale into an equitable mortgage as
a security for a usurious loan of P28,000 alleging that such was the real intention of the parties. CFI
ruled that the document was indeed a contract of equitable mortgage and allowed the reformation. The
CA reversed the decision and ruled that the document executed was a contract of absolute sale.

Petitioners contend that the Court of Appeals erred in finding that the public instrument of absolute
sale. According to them, it should be presumed as an equitable mortgage on the grounds that (1) the
price of P35,000 was unusually inadequate; (2) the vendors remained in possession of the property
sold; (3) the period of one year for repurchase granted in the instrument was extended for one month;
and (4) the vendors pay the taxes on the land sold.

ISSUE:
Should the instrument of absolute sale entered into by the parties be presumed as an equitable
mortgage?

RULING:
No. First, the price of P35,000 was not inadequate. The price of P70,000 found by the trial court to be
the market price of the land at the time of the trial in 1956 was not the market price in 1951 when the
Villaricas sold the lot to the Consunjis. Second, the vendors did not remain in possession of the land
sold as lessees or otherwise. Third, on their request in order to help them in the expenses of their
children in Manila, the vendors were merely allowed by the vendees to collect the monthly rents of
P300 for five months up to October 1951 on the understanding that the amounts so collected would be
charged against them. The new owners of the lot granted the Villaricas an option to buy the property
within the period of one year from May 25, 1951 for the price of P37,750. Said option to buy is different
and distinct from the right of repurchase which must be reserved by the vendor, by stipulation to that
effect, in the contract of sale. The right of repurchase is not a right granted the vendor by the vendee in
a subsequent instrument, but is a right reserved by the vendor in the same instrument of sale as one of
the stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can no
longer reserve the right to repurchase, and any right thereafter granted the vendor by the vendee in a
separate instrument cannot be a right of repurchase but some other right like the option to buy in
theinstant case. Hence, Exhibits "B" and "D" cannot be considered as evidencing a contract of sale

80
with pacto de retro. Since Exh. "D" did not evidence a right to repurchase but an option to buy, the
extension of the period of one year for the exercise of the option by one month does not fall under No.
3, of Article 1602 of the Civil Code.

81
 LEASE
General Provisions

PARKING FOR A FEE GIVES RISE TO A CONTRACT OF LEASE

63. Mamaril v. The Boy Scout of the Philippines

G.R. No. 179382, January 14, 2013
Perlas-Bernabe, J.

FACTS:
This is a Petition for Review on Certiorari assailing the decision of the CA modifying the RTC decision
and absolving respondent Boy Scout of the Philippines (BSP) from liability.

Petitioner spouses Benjamin and Sonia Mamaril are jeepney operators who park their six passenger
jeepneys every night at the BSP compound for P300.00 per month for each unit. One of said jeepneys
went missing and was never recovered. According to the two security guards of AIB Security Agency
(AIB) with whom respondent BSP had contracted for its security and protection, a male person who
looked familiar to them took the subject vehicle out of the compound. Petitioners filed a complaint for
damages against BSP, AIB, and the two security guards on the ground that the loss of the jeepney
was due to the gross negligence of the security guards on-duty who allowed the jeepney to be driven
out by a stranger despite their agreement that only authorized drivers duly endorsed by the owners
could do so.

BSP denied any liability contending that the parking ticket itself expressly stated that the “management
shall not be responsible for loss of vehicle or any of its accessories or article left therein”. AIB alleged
that it has observed due diligence in the selection, training and supervision of its security guards, while
the security guards claimed that the person who drove out the lost vehicle from the BSP compound
represented himself as the owners' authorized driver and had with him a key to the subject vehicle.

The RTC held that the BSP, AIB, and security guards jointly and severally liable. The CA absolved
BSP from any liability and further ruled that the agreement between petitioners and BSP was
substantially a contract of lease whereby the former paid parking fees to the latter for the lease of
parking slots. As such, the lessor, BSP, was not an insurer nor bound to take care and/or protect the
lessees' vehicles.

ISSUE:
Is the agreement a contract of lease?

RULING:
Yes, the contract between the parties herein was one of lease as defined under Article 1643 of the
Civil Code.

It has been held that the act of parking a vehicle in a garage, upon payment of a fixed amount, is a
lease. Even in a majority of American cases, it has been ruled that where a customer simply pays a
fee, parks his car in any available space in the lot, locks the car and takes the key with him, the
possession and control of the car, necessary elements in bailment, do not pass to the parking lot
operator, hence, the contractual relationship between the parties is one of lease. Since the owners
parked their six passenger jeepneys inside the BSP compound for a monthly fee of P300.00 for each
unit and took the keys home with them, a lessor-lessee relationship indubitably existed between them
and BSP.

Article 1654 of the Civil Code provides that "the lessor (BSP) is obliged: (1) to deliver the thing which is
the object of the contract in such a condition as to render it fit for the use intended; (2) to make on the
same during the lease all the necessary repairs in order to keep it suitable for the use to which it has
been devoted, unless there is a stipulation to the contrary; and (3) to maintain the lessee in the
peaceful and adequate enjoyment of the lease for the entire duration of the contract." In relation
thereto, Article 1664 of the same Code states that "the lessor is not obliged to answer for a mere act of
trespass which a third person may cause on the use of the thing leased; but the lessee shall have a

82
direct action against the intruder." Here, BSP was not remiss in its obligation to provide Sps. Mamaril a
suitable parking space for their jeepneys as it even hired security guards to secure the premises;
hence, it should not be held liable for the loss suffered by Sps. Mamaril. Accordingly, the mishandling
of the parked vehicles that resulted in herein complained loss should be recovered only from the
tortfeasors and their employer, AIB; and not against the lessor, BSP.

83
 LEASE
General Provisions

LESSOR STILL ENTITLED TO PAYMENT OF RENTALS DURING REDEMPTION PERIOD,

UNLESS PURCHASER FILED AN INDEMNITY BOND

64. Ermitaño v. Paglas

G.R. No. 174436, Jan. 23, 2013
Peralta, J.

FACTS:
This is a Petition for review on certiorari seeking to reverse and set aside the decision of the CA ruling
that respondent did not act in bad faith when she bought the property in question.

Petitioner Ermitaño and respondent Paglas executed a Contract of Lease wherein petitioner leased in
favor of respondent a 336 sqm. residential lot and house for one year. After the execution of the lease
contract, respondent found out that petitioner mortgaged the leased property and that the same was
already foreclosed and sold to Charlie Yap (mortgagee) in an extrajudicial foreclosure sale. Yap’s
brother offered to sell the property to respondent who later bought it from Yap. It was made clear in the
Deed of Sale of Real Property that the property was still subject to petitioner’s right of redemption.
Prior to respondent’s purchase, petitioner filed a suit for the declaration of nullity of the mortgage in
favor of Yap and the sheriff’s provisional certificate of sale. Petitioner also sent a letter demanding
respondent to pay the rentals which are due and to vacate the leased premises. Eventually, petitioner
filed a case of unlawful detainer against respondent, but it was denied. The RTC and CA affirmed the
denial. The CA held that respondent had every right to rely on the validity of the documents evidencing
the mortgage and the foreclosure proceedings.

ISSUES:
Is the petitioner entitled to the payment of unpaid rentals?

RULING:
Yes. The rule has always been that it is only upon the expiration of the redemption period, without the
judgment debtor having made use of his right of redemption, that the ownership of the land sold
becomes consolidated in the purchaser.

Under Act No. 3135, the purchaser in a foreclosure sale has, during the redemption period, only an
inchoate right and not the absolute right to the property with all the accompanying incidents. As a
consequence of the inchoate character of the purchaser's right during the redemption period, Act No.
3135, as amended, allows the purchaser at the foreclosure sale to take possession of the property
only upon the filing of a bond, in an amount equivalent to the use of the property for a period of twelve
(12) months, to indemnify the mortgagor in case it be shown that the sale was made in violation of the
mortgage or without complying with the requirements of the law. The mere purchase and certificate of
sale alone do not confer any right to the possession or beneficial use of the premises. Absent
respondent's filing of such petition and bond prior to the expiration of the period of redemption, coupled
with her failure to pay her rent, she did not have the right to possess the subject property.

Hence, petitioner, as mortgagor and owner, was entitled not only to the possession of the disputed
house and lot but also to the rents, earnings and income derived therefrom. However, since there is no
allegation, much less evidence, that petitioner redeemed the subject property within one year from the
date of registration of the certificate of sale, respondent became the owner thereof. Hence, the only
remaining right that petitioner can enforce is his right to the rentals during the time that he was still
entitled to physical possession of the subject property — that is from May 2000 until February 23,
2001.

84
 LEASE
General Provisions

IN A CONTRACT OF SUB-LEASE, THE PERSONALITY OF THE LESSEE DOES NOT DISAPPEAR

65. MarimperioCompaniaNaveria, SA v. Court of Appeals

G.R. No. 40234, December 14, 1987
Paras, J.

FACTS:
In 1964, Philippine Traders Corporation (Philippine) and Union Import and Export Corporation (Union)
entered into a joint business venture for the purchase of copra from Indonesia for sale in Europe.
James Liu President and General Manager of the Union took charge of the European market and the
chartering of a vessel to take the copra to Europe. Peter Yap of Philippine on the other hand, found
one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of copra for sale. ExequielToeg of
Interocean Shipping Company (Interocean) was commissioned to look for a vessel and he found the
vessel "SS Paxoi" of Marimperio available. Philippine and Union authorized Toeg to negotiate for its
charter but with instructions to keep confidential the fact that they are the real charterers.
Consequently, a "Uniform Time Charter" for the hire of vessel "Paxoi" was entered into by the owner,
MarimperioCompania Naviera, S.A through its agents N. & J, Vlassopulos Ltd. And Matthews
Wrightson, Burbridge, Ltd. (Matthews),representing Interocean, which was made to appear as
charterer although it merely acted in behalf of the real charterers, private respondents. In view of the
aforesaid Charter, plaintiff Charterer cabled a firm offer to P.T. Karkam to buy the 4000 tons of copra
for U.S.$180.00 per ton. The offer was accepted and plaintiffs opened two irrevocable letters of Credit
in favor of P.T. Karkam. The Charterer was twice in default in its payments which were supposed to
have been done in advance. The shipowners withdrawn the vessel from Charterer's service and
holding said Charterer responsible for unpaid hirings and all legal claims. The shipowners entered into
another charter agreement with another Charterer. The respondents led a complaint against the
Unknown Owners of the Vessel "SS Paxoi" for specific performance with prayer for preliminary
attachment.

ISSUE: Can the respondents, sublessees, bring the suit for specific performance against petitioner
based on the charter party

RULING:
No. According to Article 1311 of the Civil Code, a contract takes effect between the parties who made
it, and also their assigns and heirs, except in cases where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by provision of law. Since a contract
may be violated only by the parties, thereto as against each other, in an action upon that contract, the
real parties in interest, either as plaintiff or as defendant, must be parties to said contract. Therefore, a
party who has not taken part in it cannot sue or be sued for performance or for cancellation thereof,
unless he shows that he has a real interest affected thereby. It is undisputed that the charter party was
entered into between petitioner MarimperioCompañia Naviera, S.A., through its duly authorized agent
in London, the N & J Vlassopulos Ltd., and the Interocean Shipping Company of Manila through the
latter's duly authorized broker, the Overseas Steamship Co., Inc., represented by Matthews the
Interocean Shipping Company sublet the said vessel to respondent Union Import and Export
Corporation which in turn sublet the same to respondent Philippine Traders Corporation. It is obvious
from the disclosure made in the charter party by the authorized broker, the Overseas Steamship Co.,
Inc., that the real charterer is the Interocean Shipping Company (which sublet the vessel to Union
Import and Export Corporation which in turn sublet it to Philippine Traders Corporation).

In a sub-lease, there are two leases and two distinct judicial relations although intimately connected
and related to each other, unlike in a case of assignment of lease, where the lessee transmits
absolutely his right, and his personality disappears; there only remains in the juridical relation two
persons, the lessor and the assignee who is converted into a lessee. In other words, in a contract of
sub-lease, the personality of the lessee does not disappear; he does not transmit absolutely his rights
and obligations to the sub-lessee; and the sub-lessee generally does not have any direct action

85
against the owner of the premises as lessor, to require the compliance of the obligations contracted
with the plaintiff as lessee, or vice versa.

While in the instant case, the true charterers of the vessel were the private respondents herein and
they chartered the vessel through an intermediary which upon instructions from them did not disclose
their names. Article 1883 cannot help the private respondents, because although they were the actual
principals in the charter of the vessel, the law does not allow them to bring any action against the
adverse party and vice, versa.

86
 LEASE
General Provisions

WHEN THERE IS NO EXPRESS PROHIBITION, THE LESSEE MAY SUBLET THE THING LEASED

66. Filoil Refinery Corp. v. Mendoza

G.R. No. 55526, June 15, 1987
Paras, J.

FACTS:
This is a petition for the issuance of the writs of 1) certiorari to annul and set aside: (a) the order issued
by the CFI of Cebu dismissing petitioners' appeal from the decision rendered in the same case and (b)
the order in the same case denying petitioners' motion for reconsideration of the dismissal of their
appeal and 2) mandamus to compel respondent Honorable Rafael T. Mendoza, as Presiding Judge of
Branch V, Court of First Instance of Cebu, to give due course to petitioners' appeal.

Private respondents filed a complaint in which the lower court rendered a decision rescinding the
contract of lease over a 750 square meters lot situated in Cebu City entered into between Filoil
Refinery Corporation and private respondents, Jesus P. Garcia and Severina B. Garcia and ordering
the petitioner herein to vacate the leased premises. Herein petitioners violated the terms and
conditions of the lease agreement in the sense that the signatory Filoil Refinery Corporation subleased
it to Filoil Marketing and subsequently to Petrophil Corporation and that herein petitioners were
delayed several times in the payment of the monthly rentals.

Private respondents filed their Motion for execution pending appeal. Petitioners opposed said motion
and filed their notice of appeal. The private respondents filed a Motion for Execution pending appeal
which was opposed by petitioners in their Motion for Reconsideration, but which was later denied by
the lower court, prompting petitioners to file a Petition for Certiorari with the Court of Appeals. The CA
however denied said petition.Private respondents filed a motion to dismiss the appeal of petitioners in
the original complaint on the ground of alleged abandonment by reason of the failure of the petitioners
to amend their record on appeal.

The lower court dismissed the appeal because it is believed the Court of Appeals will not be in a
position to know why the case was decided on summary judgment, what exhibits have been admitted
in evidence and why Filoil Marketing Corporation had been ordered impleaded. Petitioners filed their
Motion for Reconsideration which was denied by the lower court. Hence, the present petition for
certiorari and mandamus.

ISSUE: Is the rescission of the contract of lease between petitioners and respondents valid?

RULING:
No. In rescinding the contract of lease between petitioner Filoil Refinery Corporation and private
respondents, the lower court found that petitioners illegally subleased the lot to petitioner Filoil
Marketing Corporation and that the latter, in turn, assigned its sublease to petitioner Petrophil
Corporation. However, an examination of the lease contract reveals that there is no express prohibition
against the assignment of the leasehold right. Under the law, when there is no express prohibition, the
lessee may sublet the thing leased and all rights acquired by virtue of an obligation are transmissible, if
there has been no stipulation to the contrary. All these arguments however have become moot and
academic considering that the contract of lease sought to be rescinded expired or terminated last
September 16, 1982 or almost 5 years ago by its own terms as provided for in the Lease Contract.
Petitioners have won the case without the necessity of an order by this Court to reverse the judgment
of the respondent court and/or to grant the petition as prayed for.

87
 LEASE
Rights and Obligations of Lessor

A LESSEE IS NOT ALLOWED TO CHALLENGE THE TITLE OF THE LESSOR; EXCEPTION –

UNJUST ENRICHMENT

67. Tamiov.Ticson
G.R. No. 154895, November 18, 2004
Panganiban, J.

FACTS:
This is a Petition for Review on Certiorari under Rule 45 challenging the Resolution of the Court of
Appeals.

The Roman Catholic Archbishop of Manila (RCAM) is the owner of an apartment unit. It was originally
leased to one Fernando Lim. After the death of the latter, his children occupied the same. One of the
children of Lim assigned the lease in favor of respondent in exchange for financial assistance.
Thereafter, respondent entered into a contract of lease in favor of petitioner for a period of three (3)
months. After signing the contract and paying the rentals, petitioner discovered that the apartment was
actually owned by RCAM. Thereafter, petitioner refused to vacate the premises after the lapse of the
lease period which gave rise to a case for unlawful detainer. The MTC found respondent guilty of
concealment amounting to fraud and dismissed the case for unlawful detainer. RTC reversed the
decision. Meanwhile, petitioner entered into a Contract of Lease with RCAM for one year and paid the
corresponding price. CA ordered petitioner to pay rental arrearages.

ISSUE:
Is the payment of rental arrearages to respondent proper?

RULING:
No, the CA erred in ordering the payment of rental arrearages in favor of the respondent. The
assignment of a lease by the lessee involves a transfer of rights and obligations pertaining to the
contract; hence, the consent of the lessor is necessary under Art. 1649 of the Civil Code. Said law was
violated in this case as there was no evidence that RCAM agreed to the substitution of the original
lease. Moreover, generally, a lessee is not allowed to challenge the title of the lessor. However, the
payment of arrearages to respondent would unjustly enrich the latter at the expense of the petitioner
as it would result to double payment of rentals.

88
 LEASE
Rights and Obligations of Lessor

THE OWNER OF THE LEASED PREMISES HAS THE RIGHT NOT ONLY TO TERMINATE THE
LEASE AT THE EXPIRATION OF THE TERM, BUT ALSO TO DEMAND A NEW RATE OF RENT

68. Limpan Investment Corp. v. Sy

G.R. No. L-31920, April 8, 1988
Paras, J.

FACTS:
In this petition for review on certiorari, petitioner corporation seeks to reverse and set aside the
decision of the Court of Appeals which dismissed its complaint for unlawful detainer against
respondent.

Lim Sy is the lessee of the premises identified as Nos. 706-708 Misericordia Street, City of Manila,
which is a portion of a big building presently belonging to petitioner. The property was then owned and
registered in the name of Isabelo Lim. Lim Sy and Isabelo Lim did not agree on the rental rate, which
pushed the latter to file an ejectment case against the former. When the case reached the Court of
Appeals, the rate was fixed at P600. Lim Sy had been paying regularly the rentals for the leased
premises. Thereafter, Isabelo Lim sent a letter to Lim Sy notifying the latter that the rentals would be
increased to P750 a month. Notwithstanding said notice, Lim Sy only paid P600 a month. Petitioner
and Isabelo Lim, as joint owners of the property, filed an action for ejectment against Lim Sy on
account of his refusal to pay the increased rental. Lim Sy filed a motion to dismiss the complaint on the
ground that the decision of the Court of Appeals was res judicata of the ejectment case. A decision
was rendered in favor of Lim Sy. No appeal was taken therefrom, and the decision became final. A few
years later, petitioner, claiming to be the sole owner of the leased premises, sent a letter to Lim Sy
stating that if he still desires to occupy the premises, he should pay the amount of P950. Lim Sy,
however, insists on paying the amount fixed by the Court of Appeals. Limpan filed an action for
ejectment against Lim Sy. On the other hand, Lim Sy filed a motion to dismiss on the ground that the
action is barred by prior judgments. When this case reached the Court of Appeals, Lim Sy once again
prevailed. The appellate court ruled that the present action was brought to nullify and set at naught the
previous decision since the plaintiff does not need the premises and the apparent reason for the notice
of termination of the lease was to collect a higher rental of P950.00 a month, among others.

ISSUE:
Can the lessor terminate a contract of lease on a month to month basis upon oral and written notice of
termination?

RULING:
Yes. Petitioner has a clear and indubitable right to eject respondent, the period of the lease having
expired at the end of every monthly period. By the manner of payment of rentals, that is monthly is
advance, the terms of the contract whether oral or written are very clear, that it is renewed from month
to month (unless sooner terminated upon due notice). The owner of the land leased has the right not
only to terminate the lease at the expiration of the term, but also to demand a new rate of rent. The
tenant or lessee has the option either to accept the new rent or vacate the premises. As lessees, after
the termination of their lease, refused either to pay the new rent or to vacate the lots after the
termination of their lease, they have evidently become deforciants, and can be ousted judicially without
the need of a demand. Furthermore, this Court has ruled that although the first action of the owner for
the ejectment of the tenant was dismissed by the court under a judgment that became final and
executory, such dismissal does not preclude the owner from making a new demand upon the tenant to
vacate should the latter again fail to pay the rents due. This second demand for the payment of the
rents and for the surrender of the possession of the leased premises and the refusal of the tenant to
vacate would then constitute a new cause of action. The action on the first case could not therefore,
serve as a bar to the second action for ejectment.

89
 LEASE
Rights and Obligations of Lessor

THERE ARE REQUISITES THAT MUST CONCUR TO WARRANT EJECTMENT OF A TENANT ON

THE GROUND OF NEED FOR PERSONAL USE

69. Roxasv. Intermediate Appellate Court

G.R. Nos. L-74279 & 74801-03, January 20, 1988
Gancayco, J.

FACTS:
This is a petition for review of the decision of the then Intermediate Appellate Court and its order
denying the motion for reconsideration filed by petitioners.

The lots in controversy were all part of a big parcel of land formerly owned by Saint Rita’s College, to
whom the defendants and herein plaintiff Maximo Roxas paid rentals as lessees. Saint Rita’s College
sold the land to B.F. Goodrich, Inc. Since the latter was a foreign company, it was forced by the Parity
Act to sell the same to one Roxanne Salem. The land was sold by Salem to the plaintiffs. In three
separate complaints for ejectment filed by petitioners Roxas et al. against private respondents Talle et
al., it was alleged that the latter have been occupying and withholding possession of certain properties
of Roxas et al. and that they refused to vacate the same despite the notice to vacate within a period of
90 days as petitioners need the premises for their own use and/or of the immediate members of their
family.

ISSUE:
Can respondents be validly ejected on the ground of personal use by the owner and/or the immediate
members of their family?

RULING:
Yes. Under Section 5 of Batas Pambansa Blg. 25, certain requisites must concur in order to validly
eject a tenant on the ground of personal use of the owners and/or their immediate family, to wit: 1. The
owner or lessor needs the property for his own use or for the use of any immediate member of the
family; 2. that such owner or immediate member of the family is not the owner of any available
residential unit; 3. that the period of lease has expired; and 4. that the lessor has given the lessee
notice three months in advance of lessor’s intention to repossess the property.

In the case at bar, there is no question with respect to first, third and fourth requisites - petitioners need
their properties for their own use and/or of the immediate members of their family, that the period of
the lease had expired being one from month to month, and that the petitioners had given written notice
to private respondents three months in advance of their intention to repossess the properties. With
respect to the second requisite, the Supreme Court stressed that even assuming any of the petitioners
own other residential units, what the law requires is that the same is an available residential unit, for
the use of such owner/lessor or the immediate member of his family. Thus even if an owner/lessor
owns another residential unit, if the same is not available as for example the same is occupied or it is
not suitable for dwelling purposes, it is no obstacle to the ejectment of a tenant on the ground that the
premises is needed for use of the owner or immediate member of his family.

90
 LEASE
Rights and Obligations of Lessee

LESSOR IS LIABLE TO DAMAGES FOR DEFECTS IN THE THING LEASED

70. United States Lines Co. v. San Miguel Brewery, Inc.

G.R. No. L-19383, April 30, 1964
Labrador, J.

FACTS:
This is a petition to review by certiorari the decision of the Court of Appeals on the ground that said
decision is contrary to law.

On November 1, 1951, while the S/S "Peter J. McGuire" was anchored in Manila Bay, its
refrigeration facilities went out of order. Mr. Finch, one of petitioner's officers, contacted Chua Seng,
Manager of the People's Food Supply to inform him that they needed a place wherein to store the
perishable supplies of the vessel. Chua recommended the Insular Ice and Cold Storage Plant
(operated by respondent). Compartment A in room I-B on the ground floor of the storage plant was
leased to the petitioner at a daily rental of P19.00. The food provisions of the vessel were stored in
said compartment on November 1, 1951 and withdrawn on November 6, 1951 when they were
brought by launch direct to the S/S "Peter J. McGuire" in the Manila Bay. It was then that petitioner
found the foodstuffs stored by it to have been gnawed, soiled and damaged by rodents. Whereupon,
petitioner reported the matter to the Bureau of Quarantine, whose representative Dr. IsaganiChanco
went aboard the vessel and examined the foodstuffs. Dr. Chanco found "evidence of rat bites and
gnawings" as well as "several pieces of rat excreta" in the food provisions, for which reason he told
the captain of the vessel to throw the provisions out of sea because they were contaminated and no
longer fit for consumption. Employees of the Rodent Control Section of the Bureau of Quarantine
were ordered by its Director to catch the rats in respondent's cold storage plant, and in three
weeks, i.e., from November 19 to December 15, 1951, a total of 66 rats were caught by these
government employees in said room I-B of the storage plant.

The United States Lines Company, therefore, brought an action in the Court of First Instance of
Manila, against the San Miguel Brewery, Inc. to recover for damages and for attorney's fees.

ISSUE:
May the lessor of a cold storage plant be held responsible for the deterioration of the foodstuffs
stored in one of its cold storage rooms by a lessee thereof, because said foodstuffs were gnawed by
rodents?

RULING:
Yes, the lessor is liable.

Art. 1653 of the Civil Code provides: “The provisions governing warranty, contained in the Title on
Sales, shall be applicable to the contract of lease. In the cases where the return of the price is
required, reduction shall be made in proportion to the time during which the lessee enjoyed the
thing”. The warranty provided for is found in Article 1566 of the Civil Code which provides: “The
vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he
was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the
vendor was not aware of the hidden faults or defects in the thing sold.”

Considering that the agreement between the petitioner United States Lines Company and the
respondent San Miguel Brewery, Inc. should be understood as having warranted that the leased
premises would be free from rats, which would destroy the foodstuffs stored in the premises, lessor
should be made liable.

91
 LEASE
Rights and Obligations of Lessee

TRANSFER OF RIGHTS AND OBLIGATIONS PERTAINING TO LEASE REQUIRES LESSOR'S

CONSENT

71. Paterno v. Court of Appeals

G.R. No. 115763, May 29, 1997
Romero, J.

FACTS:
The instant petition for review presents issues relative to a forcible entry suit filed by petitioner against
private respondent.

Petitioner Pio Q. Paterno owns the apartment unit subject of this case, located at 1640-A J.P. Laurel
Street, San Miguel, Manila. In 1964, petitioner and one Lydia Lim entered into a written contract of
lease of said apartment unit for one year, from August 1, 1964 to August 2, 1965. Upon expiration of
the contract, Lydia Lim opted to continue staying in the leased premises, paying on a monthly basis.
Sometime in 1969, Lim left for the United States as an immigrant, leaving her sister, private
respondent Angelina Reyes, to stay in the apartment.

According to petitioner, he was unaware of Lim's migration and was of the belief that Lim herself was
in continuous occupation of the leased premises. Petitioner also alleged that it was only in December
1991 that he discovered Lim's absence, and that private respondent currently occupied the apartment.
On January 6, 1992, petitioner sent Angelina Reyes a notice to vacate. Private respondent's refusal to
leave the apartment prompted petitioner to sue her for forcible entry in March 1992 before the MeTC of
Manila. Private respondent contended that Lim entrusted the care of the leased premises to her and
promised to send money for its monthly rental; hence, she continued to stay in the subject apartment
even as she regularly paid the rent. The rental for the entire year 1990 was even paid in advance on
January 15, 1990 with a yearly ten percent increase. Receipts were made out in the name of Lydia
Lim.

ISSUE:
Did Lim abandon thereby her monthly lease?

RULING:
Yes, Lim abandoned her monthly lease. Abandonment constitutes the actual, absolute and irreversible
desertion of one's right or property. Abandonment requires the concurrence of two elements, the first
being the intent to abandon a right or claim and the second, an external act by which that intention is
expressed and carried into effect. Also, the assignment of lease involves a transfer of rights and
obligations pertaining to the lease and requires the consent of the lessor. Both elements concur in the
case at bar. Lim's leaving for the United States was characterized by an intent to stay there
permanently, to take on a foreign citizenship and reside there. Lim has not been back since 1969. In
December 1991, when petitioner allegedly discovered her absence, Lim had been gone for twenty two
years already. Although the number of years of absence is a less significant factor than the intent of
the erstwhile lessee, over two decades of absence would indicate that Lim had left with no intention to
return to this country. Clearly, she abandoned her lease of the apartment in San Miguel, Manila. In
addition, to rule otherwise would be patently unjust for any lessee can claim that she can leave a
relative or some other person as a caretaker while she is gone indefinitely. Said absentee lessee can
never be served with judicial processes personally for he or she is outside the court's jurisdiction
leaving the lessor without recourse to judicial relief. When Lim left, she relinquished her right to the
apartment in question and virtually assigned her monthly lease to her sister, herein private respondent.
Thus, petitioner, in all likelihood, consented to said assignment because he should have known the
real lessee after more than two decades of collecting the rent, personally or through a representative.
Feigning complete lack of knowledge of Angelina Reyes as tenant, petitioner should in fact be charged
with knowledge and implied consent of said fact.
|||

92
 LEASE
Rights and Obligations of Lessee

THE POWER OF THE COURTS TO "FIX A LONGER TERM FOR LEASE" IS PROTESTATIVE OR
DISCRETIONARY

72. Divinov.Fabiede Marcos

G.R. No. L-13924, January 31, 1962
Paredes, J.

FACTS:
The defendant Ramona Fabie de Marcos is the owner of Hacienda Fabiel located in Manila, being
administered by defendant Ventura Marcos. On May 7, 1936, plaintiff purchased from one Antonio
Castro, the house located at 2633 Herran, a lot pertaining to the Hacienda, which was built thereon
years before the purchase. Before buying the house, plaintiff was assured by the owner of the house
and the rental collector, that it will remain thereon as long as rental is paid for. In 1953, to show that he
meant the assurance well, Marcos reduced the rental from P24.00 to P22.00 a month. On August 23,
1955, defendants filed a complaint for Ejectment with the Municipal Court of Manila against the plaintiff
for having failed to pay the rentals from February 1954 to May 1955 and to compel him to pay an
increased rental at P40.00 a month beginning August 1, 1955, which the municipal court dismissed.
On appeal, the CFI affirmed the said judgment.

Thereafter, defendants informed the plaintiff that the contract of lease would be terminated on April 30,
1956 and that there was no written agreement between the parties as to the manner the rentals would
be paid. Although they were usually paid monthly, the defendants had allowed the plaintiff to pay the
rentals beyond one month, that if the intention of defendants was to increase the rentals from P22.00
to P40.00 monthly, plaintiff was willing to pay not more than P30.00 monthly. The trial court rendered a
decision ordering the defendants to execute a contract of lease in favor of the plaintiff for a period of
two years. The defendants appeal the present case.

ISSUE:
Is plaintiff entitled to remain in the premises? If allowed, within what period may the Court allow Divino
to remain in the said premises?

RULING:
Yes. Commenting on Article 1687 of the Civil Code, this Court has said: —"... the power of the courts
to "fix a longer term for lease" is protestative or discretionary, — "may" is the word — to be exercised
or not in accordance with the particular circumstances of the case; a longer term to be granted where
equities come into play demanding extension, to be denied where none appear, always with due
deference to the parties' freedom to contract. ..."

The lot in question has been rented to the petitioner for about 20 years and his predecessor in interest
for more. Even though rentals had been paid monthly, still no period for the duration of the lease had
been set. The lease had been consistently and tacitly renewed. The length of his occupancy of the lot
(since 1936), and the impression acquired by him that he could stay on the premises as long as he
could pay the rentals would seem that there exists just grounds for granting the extension of lease and
that the extension of two years granted by the trial court, is both fair and equitable.

The Court held that the period should commence from February 19, 1957, the date of the denial of the
motion for reconsideration, filed by the plaintiff. As far as the plaintiff is concerned, the decision
became final on said date, for his failure to appeal. The rental of the lot which should be paid during
the period of extension is P22.00 monthly. That was the rental plaintiff was paying, when the ejectment
proceeding was initiated. But the appellee himself offered in his pleadings the sum of P30.00 which we
deem reasonable, under the circumstances then obtaining. We, therefore, hold that plaintiff should pay
P30.00 monthly rental, during the period of extension.

93
 LEASE
Rights and Obligations of Lessee

IN LITIGATIONS INVOLVING THE ADJUDICATION OF RIGHTS AND OBLIGATIONS BETWEEN

THE LESSOR AND THE LESSEE, THE LEASE CONTRACT SHALL GOVERN

73. Henson v. Intermediate Appellate Court

G.R. No. L-72456, February 19, 1987
Gutierrez, Jr., J.

FACTS:
The petitioner leases out office spaces in her building at #494 Soldado Street, Ermita, Manila. The
lessee in the lease contract was designated as Sto. Niño Travel and Tour Agency, a sole
proprietorship represented by private respondent Ely Fuderanan, its President and General Manager.
On May 15, 1980, the petitioner received the sum of P8,000.00 as "reservation deposit" for Apartment
No. 116 at Luz J. Henson Building for which she issued a receipt to private respondent Fuderanan. On
the same day, the petitioner and private respondent Fuderanan entered into a lease contract. Pursuant
to the lease contract, private respondent paid Henson the amount of P6,000.00 in cash as deposit for
rentals, water service and four keys and P1,660.00 in cash and P4,640.00 in a postdated check as
rentals due from May 15, 1980 to July 14, 1980, which was dishonored due to insufficiency of funds.

On May 30, 1980, the Chief of the Licensing and Inspection Division of the Ministry of Tourism
disapproved the request of the private respondents to transfer their office to the premises owned by
the petitioner on the ground that the place failed to meet the minimum 50 square meter-space
requirement of the Bureau. Due to that, the private respondents informed the petitioner in writing that
they had to vacate the leased premises in question on or about June 14, 1980. Two days later, the
petitioner notified the private respondents in writing of the dishonor of Commendador’s postdated
check.On July 9, 1980, that petitioner wrote to them demanding that they make good their dishonored
check. Private respondents said that they had to rescind the lease contract and requested the refund
of the amounts they paid by way of advance and deposit rentals less the amount of rental due which
was not granted by the petitioner. Petitioner filed an action against the private respondents to recover
the value of the dishonored check and the rental fees corresponding to the unexpired portion of the
term of the lease contract between them. The trial court ruled in favor of the private respondent. The
appellate court dismissed the petitioner’s complaint on the ground that the reason for the non-
compliance of the obligation to occupy the leased premises came from a third party.

ISSUE:
Did the judicial interpretation of the lease contract amount to the courts’ contracting for the parties?

RULING:
Yes. In litigations involving the adjudication of rights and obligations between the lessor and the
lessee, the lease contract shall govern. The primary and elementary rule of construction of documents
is that when the words or language thereof is clear and plain or readily understandable by any ordinary
reader thereof, there is absolutely no room for interpretation or construction anymore. In the case at
bar, the lease contract executed by the petitioner and the private respondents remains as the law
between them.It was error on the part of the appellate court to make room for construction of the
provisions of the subject lease contract when the case plainly calls for application thereof. The
predicament in which Sto. Niño Travel and Tour Agency found itself is entirely of its own making. It
should have ascertained all the rules and requirements for the operation of a travel agency before it
even started to look for premises to house its office. The petitioner had absolutely nothing to do with
the private respondents’ violating the requirements. Moreover, the record shows that the petitioner-
lessor offered the occupancy of the bigger rooms in her apartments for lease to the private
respondents in order that they could meet the minimum space requirement of 50 square meters
ordered by the Ministry of Tourism. The private respondents declined the offer because they were not
willing to pay for the corresponding increase in the rental fees.

94
 LEASE
Rights and Obligations of Lessee

ARTICLE 1687 DOES NOT APPLY TO LEASE WITH A FIXED PERIOD

74. Jespajo Realty Corp.v. Court of Appeals

G.R. No. 113626, September 27, 2002
Austria-Martinez, J.

FACTS:
This is a petition for review on certiorari under Rule 45 seeking to review and set aside the decision of
the CA which reversed the decision of the RTC and reinstated the MTC ruling.

Jespajo Realty Corporation entered into separate contracts of lease with Tan Te Gutierrez and Co
Tong. Pursuant to the contract, Tan Te occupied room No. 217 of the subject building at a monthly rent
of P847.00 while Co Teng occupied the Penthouse at a monthly rent of P910.00. It includes among
others that the lease period shall be effective as of February 1, 1985 and shall continue for an
indefinite period provided the lessee is up-to-date in the payment of his monthly rentals. For the
duration of the contract, the lessee agrees to an automatic 20% yearly increase in the monthly rentals.

On January 2, 1990, the lessor corporation sent a written notice to the lessees informing them of the
formers intention to increase the monthly rentals on the occupied premises to P3,500.00 monthly
effective February 1, 1990. The lessees in a letter dated March 10, 1990 manifested their opposition.
Due to the opposition and the failure of the lessees to pay the increased monthly rentals in the amount
of P3,500.00, the lessor through its counsel in a letter dated April 10,1990 demanded that the lessees
vacate the premises and pay the amount of P7,000.00 corresponding to the months of February and
March, 1990. The lessees exerted effort to pay the rentals due for the months of February and March
1990 at the monthly rate stipulated in the contract but was refused by the lessor so that on May 2,
1990, they instituted before the MTC of Manila, Branch 16 a case for consignation. The lessor
instituted an ejectment suit against the lessees before the MTC of Manila which rendered a decision
dismissing the ejectment suit for lack of merit. Jespajo Realty Corporation then appealed to the
Regional Trial Court which ruled in its favor. However, said RTC decision was reversed by the Court of
Appeals.

ISSUE:
Is the subject contract of lease effective on a month-to-month basis since rental payments are made
monthly?

RULING:
No, the agreement is not effective on a month-to-month basis since it does not fall under Art. 1687.

Art. 1687 of the Civil Code provides that if the period for the lease has not been fixed, it is understood
to be from year to year, if the rent agreed upon is annual; from month to month, if it is monthly; from
week to week, if the rent is weekly; and from day to day, if the rent is to be paid daily.

In this case, the lease contract between petitioner and respondents is with a period subject to a
resolutory condition. The condition imposed in order that the contract shall remain effective is that the
lessee is up-to-date in his monthly payments. It is undisputed that the lessees Gutierrez and Co Tong
religiously paid their rent at the increasing rate of 20% annually. The agreement between the lessor
and the lessees are therefore still subsisting, with the original terms and conditions agreed upon, when
the petitioner unilaterally increased the rental payment to more than 20% or P3,500.00 a month. When
there is a fixed period for the lease, whether the period be definite or indefinite or when the period of
the lease is expressly left to the will of the lessee, Art. 1687 will not apply.

95
 LEASE
Rights and Obligations of Lessee

JUDICIAL EJECTMENT LIES WHEN THE LEASE IS FOR A DEFINITE PERIOD

75. Rantaelv. Court of Appeals

G.R. No. L-47519, April 30, 1980
Teehankee, J.

FACTS:
This is a Petition for Certiorari to review the decision of the Court of Appeals.

Sometime in May 1970, private respondent Teresa F. Llave and petitioner Roberto Rantael entered
into a verbal agreement by virtue of which the former leased to the latter the premises of unit 51-A of
her four-unit apartment at Stanford St., Cubao, Quezon City, at the monthly rental of P160.00. In July
1973, Llave sought to increase the monthly rental to P180.00 which caused Rantael to file a complaint
against her with the Presidential Action Unit, Office of the President, charging violation of the
provisions of Presidential Decree No. 20. At the conference called by the OP, Llave agreed to roll back
the monthly rent to P160.00 provided her juridical relationship with Rantael be formalized through a
written lease contract to which Rantael acceded. Thus, on August 1, 1974 Llave and Rantael entered
into an "Agreement on Occupancy of Apartment" by which terms the said Rantael agreed "to use,
occupy and live in Llave's apartment at Stanford, Quezon City, known as Door 51-A on a month to
month basis, beginning today." The said agreement also expressly provided, inter alia, that upon thirty
(30) days notice, either party may terminate this agreement, each fulfilling their respective obligations
herein agreed.

Subsequently, Llave notified Rantael of her decision to terminate the lease agreement and requested
him to vacate the premises of unit 51-A after thirty days from receipt of the said communication.
Notwithstanding his receipt of the notice on February 17, 1976, Rantael refused to vacate the premises
of unit 51-A, compelling Llave to file an ejectment suit against him in the City Court of Quezon City.
After due hearing, the City Court rendered its decision upholding the right of Llave to terminate the
lease agreement and ordering Rantael to vacate and restore to Llave possession of the leased
premises. The CFI affirmed in toto the judgment appealed from. Rantael then petitioned the CA to
review the decision of the CFI but the appellate court dismissed his petition on November 29, 1977.

ISSUE:
Is there a suspension of the lessor’s right of judicial ejectment pursuant to PD 20?

RULING:
No, the right of judicial ejectment by the lessor is not suspended.

Section 4 of PD No. 20 provides that except when the lease is for a definite period, the provisions of
paragraph (1) of Article 1673 of the Civil Code insofar as they refer to dwelling unit or land on which
another's dwelling is located shall be suspended until otherwise provided; but other provisions of the
Civil Code and the Rules of Court on lease contracts insofar as they are not in conflict with the
provisions of this Act, shall apply.

By express exception of P.D. No. 20, judicial ejectment lies "when the lease is for a definite period" or
when the fixed or definite period agreed upon has expired. The contractual relations between the
partiies ceased after the expiration of the first thirty days reckoned from August 1, 1974 but continued
for the next thirty-day period and expired after the last day thereof, repeating the same cycle for the
succeeding thirty-day periods, until the said respondent Llave exercised her express prerogative under
the agreement to terminate the same.The lease in the case at bar having a definite period, it
indubitably follows that the exception, rather than the general rule, applies and, therefore, respondent
Llave's right to judicially eject petitioner Rantael from the premises may be duly enforced.

96
 LEASE
Rights and Obligations of Lessee

THE COURT IS ACCORDED THE POWER TO FIX A LONGER TERM OF LEASE.

76. F.S. Divina GraciaAgro Commercial v. Court of Appeals

G.R. No. L-47350, April 21, 1981
Guerrero, J.

FACTS:
This is a petition for certiorari to review the decision of the Court of Appeals in CA-G.R. No. S.P. 06585
entitled "Rufino Q. Fernandez v. Hon. Ricardo M. Ilarde, et al.,"

Private respondent, Rufino Fernandez, continued as lessee of a building and lot of which his deceased
father had been lessee since 1899. When petitioner,bought the said property from the original owner in
July 1974, private respondent paid rentals to petitioner, and in the continuance of the lease, the parties
verbally agreed on an increased rentals. In October 1975, however, petitioner advised private
respondent of the termination of his lease contract on October 31, 1975, giving him only one month
extension to occupy the premises. Upon refusal of private respondent to vacate, petitioner filed a
complaint for unlawful detainer. The City Court dismissed the complaint and fixed the monthly rentals
at P3,000 and the duration of the lease to 7½ years, The decision was modified twice on appeal, first;
by the Court of First Instance which fixed the lease duration to one year, and then by the Court of
Appeals which fixed the period to five years.|||

Petitioner argued that CA committed a grave error in the correct application of extending the lease for
another five (5) years which is an incorrect application of Art. 1687 of the Civil Code. Petitioner claimed
that CA practically made a contract between the parties which is contrary to the spirit and intent of Art.
1687 and that it did not observe the criteria set out by SC in the application of Art. 1687 in the exercise
of its discretion.

ISSUE:
Can the CA order an extension of a lease term pursuant to Article 1687 of the Civil Code?

RULING:
Yes."Art. 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if
the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the rent is
weekly; and from day to day, if the rent is to be paid daily. However, even though a monthly rent is
paid, and no period for the lease has been set, the court may fix a longer term for the lease after the
lessee has occupied the premises for over one year . . .”
Article 1687 of the New Civil Code must be correlated with Article 1197 of the New Civil Code which
provides:
"Art. 1197. If the obligation does not fix a period, but from its nature and circumstances it can
be inferred that a period was intended, the court may fix the duration thereof. . . ."
Considering both Articles together, it is at once clear and evident that the court is
accorded the power to fix a longer term for the lease, which power is potestative or discretionary in
nature. This prerogative is addressed to the court's sound judgment and is controlled by equitable
considerations. "The court may fix a longer term where equities come into play demanding an
extension." (Divinov.Fabie de Marcos, 4 SCRA 186).
It may not, therefore, be contended that the Court of Appeals in the exercise of its
discretionary power under Article 1687 in relation with Article 1197 made a contract between the
parties, since the very purpose of the law is not the fixing of a longer term for the lease, but to
make the indefinite period of lease definite by fixing once and for all the remaining duration of the
lease.

97
 LEASE
Rights and Obligations of Lessee

LESSEES ARE NOT POSSESSORS IN GOOD FAITH

77. Vda de. Bacaling v. Laguda

G.R. No. L-26694 December 18, 1973
Esguerra, J.

FACTS:
Petitioner Nelita Moreno Vda. De Bacaling (petitioner) seeks a writ of certiorari with preliminary
injunction to annul an Order of Judge of the City Court of Iloilo, ordering the demolition of the
residential house of petitioner and to assail the Order of Judge of the Court of First Instance of Iloilo,
approving said demolition.

Respondent Hector Laguda (respondent) is the registered owner of a residential land while petitioner
and her late husband, Dr. Ramon Bacaling (Dr. Bacaling), with the acquiescence of respondent,
constructed a residential house on a portion of said lot, paying monthly rental. Unable to pay the lease
rental for almost two (2) years, an action for ejectment was filed by respondent against petitioner in her
capacity as judicial administratrix of the estate of her late husband, Dr. Bacaling, in the City Court of
Iloilo City. The filing of said case spawned various court suits.

Suffering from several of legal reverses, the petitioner entered into a compromise agreement with
respondent relative to the ejectment suit. Said agreement provided that petitioner had agreed to vacate
the premises and remove the residential house therefrom; that petitioner would pay the unpaid rentals;
that petitioner was given 50 days to comply with the provisions of the amicable settlement; and that
failure to so comply would waive petitioner’s right to bar enforcement of the execution of judgment in
the case. The City Court of Iloilo City subsequently approved the amicable settlement and enjoined the
parties to comply with its terms. Later on, for failure of the petitioner to satisfy the conditions of the
settlement within the 50-day period, respondent moved for execution which the Court granted.

Petitioner argued that the residential house to be demolished is worth an amount for which she is
entitled to reimbursement as a builder in good faith, in addition to reasonable expenses they may incur
in transferring the same to another place.

ISSUE:
Is the petitioner, a lessee, a builder in good faith and therefore entitled to reimbursement?

RULING:
No, the petitioner is not entitled to reimbursement in the event that the residential house is to be
demolished because neither she nor her deceased husband is a builder in good faith.

The rule is well-settled that lessees, like petitioner, are not possessors in good faith, because they
knew that their occupancy of the premises continues only during the life of the lease, and they cannot
as a matter of right, recover the value of their improvements from the lessor, much less retain the
premises until they are reimbursed. Their rights are governed by Article 1678 of the Civil Code which
allows reimbursement of lessees up to one-half of the value of their improvements if the lessor so
elects.
In this case, petitioner’s contention cannot stand legal scrutiny. It is undisputed that petitioner herein is
the lessee of respondent. As such, she cannot be considered a possessor in good faith. It follows then
that petitioner is not entitled to reimbursement of the value of the residential house to be demolished.

98
 LEASE
Rights and Obligations of Lessee

THE FINDING OF THE LOWER COURT, THAT RESPONDENT LESSEE IS A BUILDER IN GOOD
FAITH, CAN NO LONGER BE DISTURBED AFTER PETITIONER WITHDREW ITS APPEAL

78. Southwestern University v. Salvador

G.R. No L-45013,May 28, 1979
De Castro, J.

FACTS:
On December 6, 1963, Southwestern University (SU) (petitioner)an educational institution located in
Cebu City filed separate actions for ejectment against Jose Baliguat and Julia Haya with the City Court
of Cebu. SU alleged that it had acquired by purchase (conditional sale) three parcels of land located at
Jones Avenue, Cebu City, from the Development Bank of the Philippines sometime in July 1963. It
sought to eject the defendant Baliguat from the 84 square meters lot where Baliguat built a house on,
which forms part of the three parcels of land on which the defendant built a house, when the latter
failed to pay the P20.00 monthly rental despite repeated demands.

The respondent judge rendered judgment and stated that defendant,is entitled to recover from the
plaintiff an indemnity in the total sum of P3,000.00 respecting the reasonable value of the house built
by him in good faith on the land in question and Baliguat and Ilaya are entitled to remain in possession
of the premises in question until the full amount of indemnity are paid to them. Should plaintifffail to pay
to the defendant the indemnitywithin ninety (90) days from the finality of this judgment, then each of
the herein defendants shall have the right to buy the land.

SU filed an appeal in the CFI of Cebu, after the appeal was pending for more than three (3) years, it
withdrew the appeal on February 1, 1973 on the ground that it is no longer interested in pursuing the
appeal. However, amotion for execution was filed by petitioner to which the court denied as the court
believes that the judgment has already become final and executory. SU filed a Motion for
Reconsideration which was denied for lack of merit and ordered the plaintiff toexecute a Deed of Sale
in favor of the defendant for the 84 square meters of land in Cebu City. The petitioner questions the
finding of the City Court and the CFI that respondent was a builder in good faith, by relying on the fact
that as a lessee, he cannot be considered a builder in good faith and therefore Article 448 of the Civil
Code does not apply.

ISSUE:
Can the petitioner still question the ruling of the trial court rendering the Baliguat and Haya builders in
good faith after withdrawing its appeal?

RULING:
No. While it has been held that a lessee could not be a considered as a builder in good faith, then
Article 448 of the Civil Code cannot be applied; thefinding of the lower courts contrary to such can no
longer be disturbed at this stage because the petitioner’s act of withdrawing his appeal is tantamount
to his acquiescence and acceptance of the decision, as petitioner himself said in his motion to dismiss
that “he is nolonger interested in pursuing the appealhaving been convinced of the fairness and
reasonableness of the judgment of the lower court.” Where an appellant withdraws his appeal, he must
face the consequence of his withdrawal; such as the decision of the court a quo becoming final and
executory.”

99
 LEASE
Rights and Obligations of Lessee

THE POWER OF THE COURTS TO ESTABLISH A GRACE PERIOD PURSUANT TO ART. 1687 IS
POTESTATIVE OR DISCRETIONARY, TO BE EXERCISED OR NOT, DEPENDING ON THE
PARTICULAR CIRCUMSTANCES OF THE CASE

79. Chua v. Court of Appeals

G.R. No. 140886, April 19, 2001
Bellosillo, J

FACTS:
Respondent Chua, plaintiff in the trial court, alleged that he was the former owner of properties leased
by petitioner and lease have been paid on a month-to-month basis. Chua decided to sell the property
but he offered petitioner a right of first refusal to be exercised within five days from receipt thereof but
petitioner failed to manifest his intention within the period. Thus, respondent Chua sold the property to
respondent MAGICAIRE.

On 4 December 1995 respondent Chua through a letter informed petitioner about the sale transaction,
the termination of their lease agreement effective 31 March 1996 and demanded that petitioner vacate
the premises after the end of the period, at the same time waiving the rentals for January to March
1996 in consideration of petitioner's understanding and cooperation. The MTC concluded that
petitioner could be ejected and that it unlawfully withheld possession thereof, thus liable to pay
accrued rentals as reasonable compensation for its use and occupation until final surrender to
respondents. The decision was affirmed by RTC and CA.

Petitioner argued that since he has been occupying the premises for more than thirty (30) years, his
lease contract should be understood as one for an indefinite period entitling him to an extension
thereof pursuant to Art. 1687 of the Civil Code while the plaintiff claims that pursuant ot Article 1687, if
the period for the lease has not been fixed, it is understood to be from month to month , therefore, the
petitioner can no longer ask for an extension of the lease.

ISSUE:
Can the petitioner ask the Court for an extension of the lease?

RULING:
Yes. Article 1687, to the extent pertinent to the present case, is explicit that if the period for the lease
has not been fixed, it is understood to be from month to month if the rent agreed upon is monthly.
However, even though a monthly rent is paid, and no period for the lease has been set, the courts may
fix a longer term for the lease after the lessee has occupied the premises for over a year. Howener, the
power of the courts to establish a grace period pursuant to Art. 1687 is potestative or discretionary, to
be exercised or not, depending on the particular circumstances of the case: a longer term to be
granted where equities come into play demanding extension, to be denied where none appears,
always with due deference to the parties' freedom to contract.

Here, even as this Court has the discretion to fix a longer term for the lease, we find that petitioner's
continuing possession as lessee of the premises from the supposed expiration of the lease on 31
March 1996 up to the present, or for a period now of more than five (5) years, suffices as an extension
of the period. There is no longer need to extend it any further.

100
 LEASE
Rights and Obligations of Lessee

RIGHT OF FIRST REFUSAL NOT AVAILABLE TO PERSONS WHO ARE NOT “LEGITIMATE
TENANTS”

80. Alcantara v. Reta, Jr.

G.R. No.136996, December 14, 2001
Pardo, J.

FACTS:
On Petition for Review, petitioners seek to review the decision by the CA affirming the ruling of the
RTC dismissing their complaint for the exercise of the right of first refusal under (Presidential Decree
No. 1517) P.D. No. 1517.

Petitioners Edilberto Alcantara, Ricardo Roble, et al., were allegedly the tenants or lessees of the land
owned by respondent Reta. The latter allowed petitioner Roble to use 62 coconut trees for P186 from
where he gathered tuba, and was allowed to construct his house on the land to facilitate the same.
Meanwhile, Reta entered into a verbal lease agreement with the other petitioners for the use of the
land. Subsequently, Reta converted the land into a commercial center and threatened petitioners with
ejectment from the land.

Petitioners asserted that they have the right of first refusal to purchase the land in accordance with
Sec. 3(g) of P.D. No. 1517, since they are the legitimate lessees thereof. On the other hand, Reta
claimed that the land is beyond the ambit of P.D. No. 1517 since it has not been proclaimed as an
Urban Land Reform Zone; and that the applicable law is B.P. Blg. 25 for failure of petitioners to pay the
rentals for the use of the land.

ISSUE:
Whether or not petitioners are legitimate lessees and have the right of first refusal under P.D. No.
1517.

RULING:
No, petitioners are not lessees, and are thus not entitled to the rights and privileges granted by P.D.
No. 1517.

P.D. No. 1517, otherwise known as “The Urban Land Reform Act” pertains to certain areas proclaimed
as Urban Land Reform Zones. To be able to qualify and avail oneself of its rights and privileges, one
must be: (1) a legitimate tenant of the land for 10 years or more; (2) must have built his home on the
land by contract; and (3) has resided continuously for the last 10 years.

Those who do not fall within the said category cannot be considered “legitimate tenants” and,
therefore, are not entitled to the right of first refusal to purchase the property should the owner of the
land decide to sell the same at a reasonable price within a reasonable time. The arrangement with
petitioner Roble would show that it is a usufruct and not a lease since he was given the right to enjoy
the property with the obligation of preserving its form and substance. Thus, petitioner Roble is not a
legitimate tenant as defined by P.D. No. 1517. As to the other petitioners, the verbal lease
agreements, which were on a monthly basis since rentals were paid monthly, ceased to exist as there
was termination of the lease.

Therefore, petitioners cannot avail of the right of first refusal under P.D. No. 1517.

101
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

TO OBTAIN PRIORITY IN DOUBLE SALES, GOOD FAITH IN ACQUISITION AND REGISTRATION

MUST CONCUR

1. Spring Homes Subdivision Co., Inc. v. Spouses Tablada

G.R. No. 200009, January 23, 2017
Peralta, J.

FACTS:
Involved is a petition for review on certiorari under Rule 45 of the Rules of Court seeking to reverse
and set aside the decision of the CA which reversed and set aside the ruling of the RTC dismissing the
complaint of respondents Sps. Pedro Tablada, Jr. and Zenaida Tablada.

Petitioners Spouses Pedro Lumbres and Rebecca Roaring (Sps. Lumbres) entered into a Joint
Venture Agreement with Spring Homes Subdivision Co. (Spring Homes), for the development of
several parcels of land. For convenience, the Sps. Lumbres transferred the titles to the parcels of land
in the name of Spring Homes. In 1995, Spring Homes entered into a Contract to Sell with Sps. Tablada
for the sale of the subject property located in Spring Homes Subdivision. Meanwhile, Sps. Lumbres
filed with the RTC a complaint for Collection of Sum of Money, Specific Performance and Damages
against Spring Homes for its alleged failure to comply with the terms of the Joint Venture Agreement.
Unaware of the pending action, Sps. Tablada began constructing their house on the subject lot and
thereafter occupied the same. In 1996, Spring Homes executed a Deed of Absolute Sale in favor of
Sps. Tablada, who paid Spring Homes a total of P179,500.00, which is more than the P157,500.00
purchase price indicated in the Deed of Absolute Sale. This notwithstanding, Spring Homes failed to
deliver the title of the property.

Meanwhile, the Sps. Lumbres and Spring Homes entered into a Compromise Agreement, wherein
Spring Homes conveyed several properties, including the subject property, in favor of Sps. Lumbres.
Thus, Sps. Lumbres were authorized to collect Spring Homes’ account receivables arising from the
conditional sales of several properties, as well as to cancel said sales, in the event of default in the
payment by the subdivision lot buyers. By virtue of this authority, Sps. Lumbres demanded from Sps.
Tablada the payment for an alleged outstanding balance of the purchase price of the subject property.
When no payment was received, Sps. Lumbres caused the cancellation of the Contract to Sell
previously executed by Spring Homes in favor of Sps. Tablada. In 2000, a second Deed of Absolute
Sale over the subject property was executed in favor of Sps. Lumbres. As a result, Sps. Tablada filed a
complaint for Nullification of Title, Reconveyance and Damages against Spring Homes and Sps.
Lumbres, praying that the Deed of Absolute Sale executed in favor of Sps. Lumbres be nullified, and
that the first Deed of Absolute Sale be declared valid.

Sps. Lumbres claim that they were in good faith since the first Deed of Absolute Sale between Spring
Homes and Sps. Tablada was not annotated at the back of the subject property’s title, so that they
must be declared the true and valid owners of the subject property.

ISSUE:
Was there a double sale involving the subject property, and did petitioners Sps. Lumbres acquire good
and valid title over the same?

RULING:
Yes, there was a double sale involving the subject property, but the Sps. Lumbres acquired the same
in bad faith, and so they cannot be considered to be the true and valid owners thereof.

Art. 1544 of the Civil Code states that “should [the same thing sold to different vendees] be immovable
property, the ownership shall belong to the person acquiring it sho in good faith first recorded it in the
Registry of Property.” Thus, ownership of an immovable property which is the subject of a double sale
shall be transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of

102
Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in
default thereof, to the person who presents the oldest title, provided there is good faith. The
requirement of the law then is two-fold: acquisition in good faith and registration in good faith.

Here, the first buyers of the subject property, the Sps. Tablada, were able to take the property into
possession but failed to register the same because of Spring Homes’ unjustified failure to deliver the
owner’s copy of the title, whereas the second buyers, the Sps. Lumbres, were able to register the
property in their names. But from the very beginning, the Spouses Lumbres had already known of the
fact that the subject property had previously been sold to the Spouses Tablada, by virtue of a valid
Deed of Absolute Sale. In fact, the Spouses Tablada were already in possession of said property and
had even constructed a house thereon. Clearly then, the Spouses Lumbres were in bad faith the
moment they entered into the second Deed of Absolute Sale and thereafter registered the subject
property in their names. For this reason, the Court cannot, therefore, consider them as the true and
valid owners of the disputed property and permit them to retain title thereto.

103
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

ARTICLE 1542 DOES NOT COMPEL A VENDOR TO DELIVER DOUBLE THE AMOUNT THAT HE
ORIGINALLY SOLD WITHOUT A CORRESPONDING INCREASE IN PRICE

2. Arcaina v. Ingram
G.R. No. 196444, February 15, 2017
Jardeleza, J.

FACTS:
This is a Petition for Review on Certiorari assailing the Decision and Resolution of the CA, which
affirmed with modification the Decision of the RTC.

DasmariñasArcaina is the owner of Lot No. 3230 (property) located in Albay.She sold the property to
Noemi Ingram.Arcaina’s attorney-in-fact, Magnani Banta, represented that Lot No. 3230 has an area of
more or less 6,200sq.m. per the tax declaration covering it.However, after a survey was conducted,
Ingram discovered that Lot No. 3230 has an area of 12,000 sq. m. Banta allegedly insisted that the
difference of 5,800 sq. m. remains unsold. Whereas, Ingram claimed that she owns the whole lot by
virtue of the sale.Thus, the complaint for recovery instituted by Ingram against Arcaina.The RTC held
that pursuant to Art. 1542, Arcaina, as the vendor, is obligated to deliver all the land included in the
boundaries of the property, regardless of whether the real area should be greater or smaller than what
is recited in the deeds of sale.Petitioners insist that they sold the property on a per-square-meter basis,
at the rate of P300.00 per sq.m. They argue that it is Article 1539, and not Article 1542 of the Civil
Code, which governs.

ISSUE:
Is a vendor obligated to deliver all the land included in the boundaries of the property, regardless of
whether the real area should be greater or smaller than what is recited in the deeds of sale?

RULING:
No, Art. 1542 does not compel a vendor to deliver double the amount that he originally sold without a
corresponding increase in price.

In sales involving real estate, the parties may choose between two types of pricing agreement: a unit
price contract wherein the purchase price is determined by way of reference to a stated rate per unit
area or a lump sum contract which states a full purchase price for an immovable the area of which
may be declared based on an estimate or where both the area and boundaries are stated.Here, the
Deed of Sale executed by Banta on March 21, 2005 and the Deed of Sale executed by Arcaina on
April 13, 2005 both show that the property was conveyed to Ingram at the predetermined price of
P1,860,000.00. There was no indication that it was bought on a per-square-meter basis. Thus, Article
1542 of the Civil Code governs the sale.

In a lump sum contract, a vendor is generally obligated to deliver all the land covered within the
boundaries, regardless of whether the real area should be greater or smaller than that recited in the
deed.The Court, however, clarified that the rule laid down in Article 1542 is not hard and fast and
admits of an exception.In case there is conflict between the area actually covered by the boundaries
and the estimated area stated in the contract of sale, he/she shall do so only when the excess or
deficiency between the former and the latter is reasonable.

We find that the difference of 5,800 sq. m. is too substantial to be considered reasonable. We note that
only 6,200 sq. m. was agreed upon between petitioners and Ingram. Declaring Ingram as the owner of
the whole 12,000 sq. m. on the premise that this is the actual area included in the boundaries would be
ordering the delivery of almost twice the area stated in the deeds of sale. Surely, Article 1542 does not
contemplate such an unfair situation to befall a vendor-that he/she would be compelled to deliver
double the amount that he/she originally sold without a corresponding increase in price.

104
BANKS MAY NOT RELY SIMPLY ON THE FACE OF THE CERTIFICATE OF TITLE

DAMAGES ARE NOT AWARDED IF THE PLAINTIFF DID NOT SEEK RELIEF FROM THE COURT
WITH CLEAN HANDS

3. Land Bank of the Philippines v. Musni

G.R. No. 206343, February 22, 2017
Leonen, J.

FACTS:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, praying that the
assailed Decision, and the Resolutionof the CA be nullified and set aside, and that judgment to the
complaint against petitioner be rendered dismissed.

Lorenzo Musni was the compulsory heir of Jovita Musni, who owns a lot in Tarlac, under TCT No.
07043.Musni filed before the RTC a complaint for reconveyance of land and cancellation of TCT No.
333352 against the Spouses Santos, Eduardo Sonza and the Land Bank, alleging that Nenita Sonza
Santos falsified a Deed of Sale, and caused the transfer of title of the lot in her and her brother
Eduardo Sonza's names.He filed a criminal case against Nenita and Eduardo for falsification of a
public document, and the municipal trial court rendered a decision finding Nenita guilty of the imputed
crime.He further claimed that the Spouses Santos and Eduardo mortgaged the lot to Land Bank as
security for their loan of P1,400,000.00; that upon failure to pay the loan, Land Bank foreclosed the
property and Musni was dispossessed of the lot.The trial court ruled in favor of Musni.It also found that
Land Bank was not an "innocent purchaser for value” as the institution of the criminal case against
Nenita should have alerted the bank to ascertain the ownership of the lot before it foreclosed the
same.The CA affirmed with modifications the Decision of the trial court.Hence, this petition.

Petitioner reiterates that it observed good faith in both the mortgage transaction, and the foreclosure
sale. From the time the property was mortgaged to it until the title was consolidated in its name, no one
filed an adverse claim or notice oflis pendens with the Registry of Deeds.Moreover, petitioner insists
that the "filing of the [criminal] complaint could not operate as a notice to the whole world."Since the
bank "was not a party to the case, it could not have been notified of the existence of the [criminal]
complaint."Petitioner also assails the Court of Appeal's deletion of the P448,000.00 award in its favor,
which constitutes the amount suffered by the bank in its undertakings with respondents Spouses
Santos.

ISSUES:
1. Is petitioner a mortgagee in good faith and an innocent purchaser for value for the reason that it has
no knowledge of the criminal complaint and that there was no notice of lis pendens?
2. Is petitioner entitled to the award of damages?

RULING:
1. Petitioner is neither a mortgagee in good faith nor an innocent purchaser for value.

Petitioner's defense that it could not have known the criminal action since it was not a party to the case
and that there was no notice of lis pendens filed by respondent Musni, is unavailing.The rule on
"innocent purchasers or [mortgagees] for value" is applied more strictly when the purchaser or the
mortgagee is a bank. Banks are expected to exercise higher degree of diligence in their dealings,
including those involving lands. Banks may not rely simply on the face of the certificate of
title.Petitioner was actually remiss in its duty to ascertain the title of respondents to the property.The
TCT No. 304649 apparently shows the defect in the owner's title. The title of Eduardo and Nenita to
the subject property was dubious because the certificate of title was issued before the inscription of the
Decision of the DARAB. Accordingly, Land Bank cannot be considered a mortgagee in good faith.

A purchaser in good faith is one who buys property without notice that some other person has a right
to or interest in such property and pays its fair price before he has notice of the adverse claims and
interest of another person in the same property.The subject property was foreclosed on May 4, 1999
while the complaint for falsification was filed on March 4, 1999.Clearly, the factual circumstances

105
surrounding the acquisition of the disputed property do not make Land Bank an innocent purchaser for
value or a purchaser in good faith.

2. Petitioner is not entitled to the award of P448,000.00 as damages.

This Court affirms the removal of the damages since petitioner did not seek relief from the Court with
clean hands. Petitioner may have incurred losses when it entered into the mortgage transaction with
respondents Spouses Santos and Eduardo, and the corresponding foreclosure sale. However, the
losses could have been avoided if only petitioner exercised the required due diligence.

106
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

ONCE A LEASE IS RECORDED, IT BECOMES BINDING ON THIRD PERSONS

4. Republic v. Philippine International Corp.

G.R. No. 181984, March 20, 2017
Sereno, CJ.

FACTS:
Cultural Center of the Philippines (CCP) and respondent PIC entered into a Lease Agreement In that
agreement, CCP leased to PIC a parcel of land for 25 years and renewable for the same term. Eight
years later, CCP alienated the subject property in favor of Philippine National Bank (PNB) through a
Deed of Dacion in Payment with Lease.

Proclamation No. 50 was issued. It launched a program for the privatization of certain government
corporations and/or assets and created the Committee on Privatization and the Asset Privatization
Trust (APT). Subsequently, PNB assigned the subject property to the national government pursuant to
Proclamation No. 50.On the same day, the national government executed a Trust Agreement with
APT, whereby the former conveyed the leased premises in trust to the latter for administration and
disposition.

PIC then requested PNB to annotate the former's leasehold right. However, PNB refused the request
in view of the transfer of the subject property to APT and the latter's insistence that it was not bound by
the Lease Agreement between CCP and PIC.By reason of PNB's refusal, PIC instituted a Complaint to
compel CCP, PNB, and APT to respect the terms and conditions of the Lease Agreement andto be
compelled to deliver the title of the subject property, so that the lease could be annotated thereon.
RTC ruled in favor of PIC after finding that APT already had constructive notice of the lease, which the
latter must therefore respect.

Prior to the expiration of the 25-year lease agreement, PIC wrote APT stating that it was exercising its
option to renew the lease pursuant to the Lease Agreement. APT denied it. By virtue of Executive
Order (E.O.) No. 323, the PMO was created. It was mandated to take over the assets of APT and
inherit the latter's powers and functions. Thus, PMO now holds the subject property on behalf of the
national government.

In view of the forthcoming expiration of the lease period, PMO informed PIC that its request to exercise
its option to renew the lease had been denied.As a result, PMO demanded that PIC vacate the subject
property.Upon the latter's refusal, PMO filed a Complaint for unlawful detainer.

MeTC ruled in favor of PIC and upheld the validity of the latter's renewal of the lease for another 25
years pursuant to the Lease Agreement.

PMO raises the argument that it was not a party to the original lease contract between CCP and PIC;
hence, it is not bound by the contract.

ISSUE:
Is PMO bound by the contract of lease despite its claim that it was not a party to the lease agreement?

RULING:
Yes. It is undisputed that PMO is the successor agency of APT. Consequently, it assumes the existing
obligations of APT upon the termination of the latter's existence.

At any rate, assuming that PMO was a third party to the Lease Agreement, it is still bound by it. PIC's
leasehold rights have been clearly annotated on TCT No. 90816. It is settled that once a lease is

107
recorded, as in this case, it becomes binding on third persons. Therefore, from the time of the
execution of the lease contract, its efficacy continues until it is terminated on the grounds provided for
by law.

On account of the foregoing annotation, as well as the finding that APT had constructive notice of the
lease, PMO can no longer deflect the binding effect of the Lease Agreement on the latter.

108
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

“RESCISSION” IN ARTICLE 1381 IS NOT AKIN TO THE “RESCISSION” IN ARTICLE 1191 and
ARTICLE 1592

5. Peralta v. Raval
G.R. No. 188467, March 29, 2017
Reyes, J.

FACTS:
The controversy involves a lease agreement for 40 years over two parcels of land between Spouses
Argaza and petitoner Peralta executed on Febuary 19,1974. Under the lease contract, petitioner was
to construct on the leased land a building that should become property of the Spouses Argaza upon
lease termination, to pay realty taxes for both lots, and to develop a water system for the use of the
both parties to the lease contract. A Deed of Assignment was executed by Argaza transferring all his
interests, rights and participation in the subject properties for a consideration to respondent Raval.
Petitioner refused to recognized validity of the assignment, prompting him to still deposit his rental
payments in the account of Flaviano Jr., more specifically to the accounts that were opened by
Peralta's wife, Gloria, under the name “Gloria F. Peralta (in-trust-for): FlavianoArzaga Jr.” The
respondent then started demanding petitioner's compliance with lease contract's terms and conditions
but the latter fails to do. Consequently, responded filed an action for recission of the lease agreement
based on Article 1191 for failure to comply with his obligations under the contract. Petitioner then filed
a counterclaim assailing the action for recission has already prescribed based on Article 1389 and that
the deed of assignment is null and void.

ISSUE:
1. Is the deed of assignment, upon which Raval anchored his right to seek the lease agreement's
rescission, null and void, such that Raval could not have obtained any rights and obligations
therefrom?
2.Is an action for rescission of lease contracts covered by rules on rescissible contracts (Article 1381)
which prescribes in four years?

RULING:
1. No. The Court sustains the validity of the deed of assignment upon which Raval anchored his
claims against the subject properties and contract of lease. By being the assignee under the deed,
Raval obtained the rights, interests and privileges of his predecessors-in-interest over the property,
including the right to seek the rescission of the agreement, should valid grounds exist to support it.
Peralta's defenses against Raval's claim of rights, in effect, challenge the prior decision of the trial
court to recognize the deed of assignment and more importantly, the ruling that ordered the issuance
of the TCTs under Raval's name. Essentially, it is also a challenge upon the TCTs that were already
issued by the Register of Deeds. By law and jtirispn1dence, these TCTs that have been issued by
virtue of the assignment, however, cannot be collaterally attacked by Peralta in this case.

Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree,
provides that "[a] certificate of title shall not be subject to collateral attack. It cannot be altered,
modified, or cancelled except in a direct proceeding in accordance with law."

2. No. We must stress however, that the "rescission" in Article 1381 is not akin to the the
"rescission" in Article 1191 and Article 1592. In Articles 1191 and 1592, the rescission is a principal
action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion as enumerated in said article.The
prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144,
which provides that the action upon a written contract should be brought within ten years from the time
the right of action accrues.

The same prescriptive period of 10 years, counted from the time that the right of action accrues,
applies in the case at bar. Raval's cause of action did not refer to Article 1389, yet one that was based

109
on a written contract. Thus, contrary to Peralta' s insistent claim, the action for rescission had not yet
prescribed at the time of its filing in 1998. Raval's cause of action accrued not on the date of the lease
agreement's execution in 1974, but from the time that there was a violation and default by Peralta in
his obligations under the lease agreement.

110
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

WARRANTY MAY BE ORAL

6. Philippine Steel Coating Corp. v. Quiñones

G.R. No.194533, April 19, 2017
Sereno, C.J.

FACTS:
This case arose from a Complaint for damages filed by respondent Quiñones (owner of Amianan
Motors) against petitioner PhilSteel.

The Complaint alleged that in early 1994, Richard Lopez, a sales engineer of PhilSteel, offered
Quiñones their new product: primer-coated, long-span, rolled galvanized iron (G.I.) sheets. The latter
showed interest, but asked Lopez if the primer-coated sheets were compatible with the Guilder acrylic
paint process used by Amianan Motors in the finishing of its assembled buses. Uncertain, Lopez
referred the query to his immediate superior, Ferdinand Angbengco, PhilSteel’s sales manager.

Angbengco assured Quiñones that the quality of their new product was superior to that of the non-
primer-coated G.I. sheets being used by the latter in his business. Quiñones expressed reservations,
as the new product might not be compatible with the paint process used by Amianan Motors.

Angbengco further guaranteed that a laboratory test had in fact been conducted by PhilSteel, and that
the results proved that the two products were compatible; hence, Quiñones was induced to purchase
the product and use it in the manufacture of bus units.

However, sometime in 1995, Quiñones received several complaints from customers who had bought
bus units, claiming that the paint or finish used on the purchased vehicles was breaking and peeling
off. Quiñones then sent a letter-complaint to PhilSteel invoking the warranties given by the latter.

ISSUE:
1. Are the oral statements made by seller on the characteristics of a generic good can be considered
warranties that may be invoked to warrant payment of damages?
2. Are general warranties on the suitability of products sold prescribe in six (6) months under Article
1571 of the Civil Code?
3. Does the nonpayment of price justified on allegations of breach of warranty?

RULING:
1. Yes. The seller, Angbengco, did not simply make vague oral statements on purported
warranties. Petitioner expressly represented to respondent that the primer-coated G.I. sheets were
compatible with the acrylic paint process used by the latter on his bus units. This representation was
made in the face of respondent’s express concerns regarding incompatibility. Petitioner also claimed
that the use of their product by Quiñones would cut costs. Angbengco was so certain of the
compatibility that he suggested to respondent to assemble a bus using the primer-coated sheet and
have it painted with the acrylic paint used in Amianan Motors. Thus, it was not accurate for petitioner to
state that they had made no warranties.

Despite its claims to the contrary, petitioner was an expert in the eyes of the buyer Quiñones. The
latter had asked if the primer-coated G.I. sheets were compatible with Amianan Motors’ acrylic painting
process. Petitioner’s former employee, Lopez, testified that he had to refer Quiñones to the former’s
immediate supervisor, Angbengco, to answer that question. As the sales manager of PhilSteel,
Angbengco made repeated assurances and affirmations and even invoked laboratory tests that
showed compatibility. In the eyes of the buyer Quiñones, PhilSteel — through its representative,
Angbengco — was an expert whose word could be relied upon.

Contrary however to petitioner’s position, the so-called dealer’s or trader’s talk cannot be treated as
mere exaggeration in trade as defined in Article 1340 of the Civil Code. Quiñones did not talk to an

111
ordinary sales clerk such as can be found in a department store or even a sari-sari store. If Lopez, a
sales agent, had made the assertions of Angbengco without true knowledge about the compatibility or
the authority to warrant it, then his would be considered dealer’s talk. But sensing that a person of
greater competence and knowledge of the product had to answer Quiñones’ concerns, Lopez wisely
deferred to his boss, Angbengco.

Angbengco undisputedly assured Quiñones that laboratory tests had been undertaken, and that those
tests showed that the acrylic paint used by Quiñones was compatible with the primer-coated G.I.
sheets of Philsteel. Thus, Angbengco was no longer giving a mere seller’s opinion or making an
exaggeration in trade.

2. No. The prescription period applicable to the instant case is that prescribed for breach of an
express warranty. The applicable prescription period is therefore that which is specified in the contract;
in its absence, that period shall be based on the general rule on the rescission of contracts: four years.
In this case, no prescription period specified in the contract between the parties has been put forward.
Quiñones filed the instant case on 6 September 199619 or several months after the last delivery of the
thing sold.20 His filing of the suit was well within the prescriptive period of four years; hence, his action
has not prescribed.

3. Yes. Quiñones has opted for a reduction in price or nonpayment of the unpaid balance of the
purchase price. Applying Article 1599(1), this Court grants this remedy.

The above provisions define the remedy of recoupment in the diminution or extinction of price in case
of a seller’s breach of warranty. According to the provision, recoupment refers to the reduction or
extinction of the price of the same item, unit, transaction or contract upon which a plaintiff’s claim is
founded.

In the case at bar, Quiñones refused to pay the unpaid balance of the purchase price of the primer-
coated G.I. sheets PhilSteel had delivered to him. He took this action after complaints piled up from his
customers regarding the blistering and peeling-off of the paints applied to the bus bodies they had
purchased from his Amianan Motors. The unpaid balance of the purchase price covers the same G.I.
sheets. Further, both the CA and the RTC concurred in their finding that the seller’s breach of express
warranty had been established. Therefore, this Court finds that respondent has legitimately defended
his claim for reduction in price and is no longer liable for the unpaid balance of the purchase price of
P448,041.50.

112
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

DISPOSITION OF CONJUGAL PROPERTY OF ONE SPOUSE SANS THE WRITTEN CONSENT OF

THE OTHER IS VOID

7. Alejo v. Cortez
G.R. No. 206114, June 19, 2017
Tijam, J.

FACTS:
It appears that sometime in March 1996, Jorge’s father, Ricardo, approached his sister, herein
petitioner Dolores Alejo (Dolores), to negotiate the sale of the subject property.8 Accordingly, on March
29, 1996, Jacinta executed a Kasunduan with Dolores for the sale of the property for a purchase price
of Php500,000. Under the Kasunduan, Dolores was to pay Php70,000 as down payment, while
Php230,000 is to be paid on April 30, 1996 and the remaining balance of Php200,000 was to be paid
before the end of the year 1996.9 The Kasunduan was signed by Jacinta and Ricardo as witness.
Jorge, however, did not sign the agreement.

However, on July 3, 1996, Jorge wrote a letter to Dolores denying knowledge and consent to the
Kasunduan. Jorge further informed Dolores that Jacinta was retracting her consent to the Kasunduan
due to Dolores’ failure to comply with her obligations.

This was followed by another letter dated September 29, 1996 from Jorge to Dolores demanding that
the latter pay the balance of Php200,000 on or before October 5, 1996, otherwise the purchase price
shall be increased to Php700,000.12 According to Dolores, she was being compelled by Jorge to sign
the agreement but that she refused to do so. As a result, Jorge went to her house, destroyed its water
pump and disconnected the electricity. Before the officials of the Barangay, Dolores tendered the
balance of Php200,000 but Jorge refused to accept the same. Instead, Jorge filed cases for ejectment
and annulment of sale, reconveyance and recovery of possession against her. These cases were later
on dismissed by the trial court on technical grounds.

ISSUES:
1. Is the Kasunduan a perfected and binding contract, absent the written consent of the other spouse?
2. Is Dolores a possessor in good faith?

RULING:
1. No. The law is unequivocal when it states that the disposition of conjugal property of one
spouse sans the written consent of the other is void. Here, it is an established fact that the Kasunduan
was entered into solely by Jacinta and signed by her alone. By plain terms of the law therefore, the
Kasunduan is void.

Nevertheless, We agree with the RTC and the CA when it held that the void Kasunduan constitutes a
continuing offer from Jacinta and Dolores and that Jorge had the option of either accepting or rejecting
the offer before it was withdrawn by either, or both, Jacinta and Dolores. The point of contention is
whether Jorge accepted such continuing offer. If so, then the Kasunduan is perfected as a binding
contract; otherwise, the Kasunduan remains void.

2. Yes. While the Kasunduan was void from the beginning, Dolores is, in all fairness, entitled to
recover from the Spouses Leonardo the amount of Php300,000 with legal interest until fully paid.

Moreover, the CA correctly appreciated Dolores’ standing as a possessor in good faith. It appears that
Dolores acted in good faith in entering the subject property and building improvements on it. Ricardo
represented that Jacinta and Jorge wanted to sell the subject property. Dolores had no reason to
believe that Ricardo and Jacinta were lying. Indeed, upon her own brother’s prodding, Dolores willingly
parted with her money and paid the down payment on the selling price and later, a portion of the
remaining balance. The signatures of Jacinta and of Ricardo (as witness) as well as her successful
entry to the property appear to have comforted Dolores that everything was in order. Article 526 of the

113
Civil Code provides that she is deemed a possessor in good faith, who is not aware that there exists in
her title or mode of acquisition any flaw that invalidates it.

Likewise, as correctly held by the CA, Dolores, as possessor in good faith, is under no obligation to
pay for her stay on the property prior to its legal interruption by a final judgment. She is further entitled
under Article 448 to indemnity for the improvements introduced on the property with a right of retention
until reimbursement is made. The Spouses Leonardo have the option under Article 546 of the Civil
Code of indemnifying Dolores for the cost of the improvements or paying the increase in value which
the property may have acquired by reason of such improvements.

114
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

FORGERY MUST BE PROVED BY CLEAR AND CONVINCING EVIDENCE; OTHERWISE,

NOTARIZED ABSOLUTE DEED OF SALE IS PRIMA FACIE DEEMED AUTHENTIC AND DULY
EXECUTED

8. Gatan v. Vinarao
G.R. No. 205912, October 18, 2017
Leonardo de Castro, J.

FACTS:
Bernardino and Rogelia, his wife and herein petitioner, owned a parcel of land located in Cabagan,
Isabela. Sometime in 2000, Bernardo passed away, and in 2002, his relative, Mildred, herein
respondent, asked for permission from Rogelia to temporarily erect a house on a portion of their lot.

Rogelia gave respondent permission to build a house thereon; however, she later discovered that an
Absolute Deed of Sale in 1989 was supposedly executed between Bernardino and a certain Aurelia,
as sellers, in favor of Mildred’s parents, as buyers of a portion of the aforementioned parcel of land.

Petitioner then sought the annulment of the above mentioned Deed of Sale, stating that the signature
of her husband was obviously forged as he was illiterate and that she did not know the Aurelia who co-
signed the document as seller.

Respondent insisted that the Absolute Deed of Sale was authentic as it was duly notarized. They also
presented a witness who affirmed that Bernardino personally signed the document in controversy.
Moreover, respondent asserted that back in the day Rogelia used the name Aurelia.

ISSUE:
Was the forgery of Absolute Deed of Sale proven, based on the evidence presented by the parties?

RULING:
No. The Court held that the Absolute Deed of Sale, being duly notarized, enjoys the prima facie
presumption of authenticity and due execution.

It is a well-settled principle that a duly notarized contract enjoys the prima facie presumption of
authenticity and due execution, as well as the full faith and credence attached to a public instrument.
To overturn this legal presumption, evidence must be clear, convincing, and more than merely
preponderant to establish that there was forgery that gave rise to a spurious contract.

In this case, petitioner merely asserted self-serving allegations and reasoning without clear and
convincing evidence showing that the document was actually forged, as opposed to respondent
presenting a witness to show that Bernardino personally signed the document. The Court also
accorded credence to the claim that Rogelia herself used the name Aurelia in the past.
Hence, the Court ruled that the Absolute Deed of Sale was not forged, based on the evidence
presented by the parties.

115
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

MISTAKE BY GOVERNMENT OFFICIALS CANNOT MAKE PUBLIC LAND INTO PRIVATE

PROPERTY WHICH MAY THEN BE AN OBJECT OF SALE IN A PRIVATE TRANSACTION

9. Hi-Lon Manufacturing, Inc. v. Commission on Audit

G.R. No. 210669, August 1, 2017
Peralta, J.

FACTS:
Sometime in 1978, the government, through the then Ministry of Public Works and Highways,
converted to a road right-of-way (RROW) a 29,690 sq. m. portion of the 89,070 sq. m. parcel of land
owned by CIREC located in Calamba, Laguna, for the Manila South Expressway Extension Project.

PPIC then acquired the aforementioned property and mortgaged the same with the DBP. Despite the
use of the 29,690 sq. m. portion of the property as RROW, the government neither annotated its claim
or lien on the titles of CIREC, PPIC and DBP nor initiated expropriation proceedings over the same.

Eventually, DBP submitted all its acquired assets, including the subject property, to the Asset
Privatization Trust (APT) for disposal. Fibertex then acquired the land and after paying in full,
requested that two deeds of sale be executed covering two portions of the said property being in its
name and in the name of TGPI, its subsidiary corporation. Later on, TGPI sold the entire 89,070 sq. m.
property to HI-LON.

Finally, HI-LON sold the 29,690 sq. m. portion of the lot used as RROW to the Republic of the
Philippines, executing a Deed of Absolute Sale and receiving partial payment therefor. Subsequently,
however, the parties discovered that TGPI only acquired 59,380 sq. m. of the property through the
APT public bidding, excluding the 29,690 sq. m. lot used as RROW as the latter portion was actively
used by the government as a public road.

Due to the foregoing, the Republic then demanded return of the partial payment made to HI-LON. HI-
LON, however, contended that the Republic’s neglect to register its lien over the property and its
subsequent offer to buy and willingness to execute an Absolute Deed of Sale estops it to recognize HI-
LON’s ownership over the subject property.

ISSUE:
Is there a valid contract of sale between HI-LON and the Republic?

RULING:
No. The Court held that as property of public dominion akin to a public thoroughfare, a RROW cannot
be registered in the name of private persons under the Land Registration Law and be the subject of a
Torrens Title. If erroneously included in a Torrens Title, the land involved remains as such a property
of public dominion.

Likewise, the mistake of government officials cannot estop the Republic and defeat the nature of the
RROW as property of public dominion. Thus, the subject property in this case is not rightfully owned by
HI-LON and cannot be a valid object of sale.

116
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

IN A CONTRACT OF SALE, OWNERSHIP PASSES ONLY UPON DELIVERY OF THE THING TO

THE BUYER

10. Desiderio Dalisay Investments, Inc. v. Social Security System

G.R. No. 231053, April 04, 2018
Velasco Jr., J.

FACTS:
This Petition for Review on Certiorari under Rule 45 seeks the reversal and setting aside of the
Decision and Resolution of the CA.

The late Desiderio Dalisay, during his lifetime and as president of petitioner Desiderio Dalisay
Investments, Inc. (DDII), offered to SSS that they partially settle their obligations to the latter via
dacion. Dalisay offered several properties for P3.5M in favor of SSS to partially extinguish petitioner's
obligation which amounted to P4.4M. Then, years later, the SSS' Committee met with the corporation,
represented by Atty. Cabarroguis. During said meeting, Atty. Cabarroguis explained that he has "the
authority to offer [the properties] in the amount of P2M." He also gave them an assurance that that
they will turn the properties over to SSS free of liens and encumbrances, and that his clients are ready
to vacate the premises and you can have it occupied anytime.

DDII argues that Atty. Cabarroguis did not have the requisite authority to make said representations
and thereby bind the corporation. DDII thus maintains that the offer to SSS remained at P3.5M. It
alleged that the negotiations between SSS were not fruitful as they failed to agree on the terms and
conditions set forth by latter. Thus, there was no meeting of the minds between the parties.
Consequently, there was no dation in payment to speak of, contrary to the claim of SSS.

SSS argued that the offer for dacion was categorically accepted by SSS, thereby perfecting such.

ISSUE:
Did SSS validly acquire title or interest over the subject properties?

RULING:
Yes, SSS validly acquired title or interest over the subject properties.

Stages of a contract of sale

Briefly, the stages of a contract of sale are:

(1) negotiation, covering the period from the time the prospective contracting parties indicate interest
in the contract to the time the contract is perfected;
(2) perfection, which takes place upon the concurrence of the essential elements of the sale, which is
the meeting of the minds of the parties as to the object of the contract and upon the price; and
(3) consummation, which begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof.

First Stage: Negotiation Offer validly reduced

The negotiation stage covers the period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is perfected. This then includes the making of an offer
by one party to another and ends when both parties agree on the object and the price.

Here, while petitioner is correct that there is no evidence of Atty. Cabarroguis' authority to represent
the company in said meeting, this however is outweighed by the fact that no one questioned Atty.
Cabarroguis' representations and authority after the conclusion of the negotiations; and that a few

117
days after the said meeting, the company immediately arranged for the property's turnover through
Dalisay-Tirol, Acting President and General Manager, and eventually delivered possession thereof to
SSS.

Hence, DDII's offer was validly reduced from P3.5M to P2M.

Second Stage: Perfection Acceptance absolute and unqualified

There was perfected dation in payment in this case.

Within the purview of the law on sales, a contract of sale is perfected by mere consent, upon a meeting
of the minds on the offer and the acceptance thereof based on subject matter, price and terms of
payment.It is perfected at the moment there is a meeting of the minds upon the thing which is the
object of the contract and upon the price.

Here, SSS' acceptance of the offer at P2M resulted in a perfected dation. The offer was validly
reduced from P3.5M to P2M. SSS' agreement to the P2M offer was not a counter-offer but an
acceptance of the new reduced offer communicated by the company's representative, Atty.
Cabarroguis, which acceptance perfected the proposed dation in payment.

Third Stage: Consummation Transfer of possession to SSS tantamount to "delivery"

The agreement on dacionenpago was consummated by DDII's delivery of the property to SSS. The
third stage of a contract of sale is consummation which begins when the parties perform their
respective undertakings under the contract of sale, culminating in the extinguishment thereof.

While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired only
upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to
transfer ownership and to deliver the thing sold, but the real right of ownership is transferred only "by
tradition" or delivery thereof to the buyer.

Under the Civil Code, ownership does not pass by mere stipulation but only by delivery. Manresa
explains, "the delivery of the thing signifies that title has passed from the seller to the buyer."
According to Tolentino, the purpose of delivery is not only for the enjoyment of the thing but also a
mode of acquiring dominion and determines the transmission of ownership, the birth of the real right.
The delivery under any of the forms provided by Articles 1497 to 1505 of the Civil Code signifies that
the transmission of ownership from vendor to vendee has taken place.

Here, nowhere in their communications or during the discussions at the meeting is it stated that the
company will turn over possession of the property to SSS to show its goodwill while the negotiations
were pending. The turnover of the properties to SSS was tantamount to delivery or "tradition" which
effectively transferred the real right of ownership over the properties from DDII to SSS.If it indeed
turned over the possession of the property to simply show goodwill in the negotiations, then there
would be no need for it to give SSS possession of the subject property free from all liens and
encumbrances.

In the Law on Sales, delivery may be either actual or constructive, but both forms of delivery
contemplate "the absolute giving up of the control and custody of the property on the part of
the vendor, and the assumption of the same by the vendee." This being the case, We find that
SSS has validly and in good faith acquired title to the property subject of the dispute, making the action
to quiet title filed by DDII improper.

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 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

IN A CONTRACT TO SELL, OWNERSHIP DOES NOT PASS TO THE BUYER UNTIL FULL
PAYMENT OF THE PRICE

11. Spouses Pamplona v. Spouses Cueto

G.R. No. 204735, February 19, 2018
Bersamin, J.

FACTS:
Under review is an appeal of the decision promulgated by the CA ordering the petitioners Sps Cipriano
Pamplona and BibianaIntac to execute a deed of sale on the property in favor of the respondents Sps
Lilia and Vedasto Cueto upon the release of the consigned amount.

Petitioners, the registered owners of a Lot (subject property) and Lilia mutually agreed that the latter
would buy and the former would sell on installment, the subject property including the house standing
thereon for the total sum of US$25,000 payable on a monthly installment of US$300. The agreement
was verbal considering that Lilia and petitioner are sisters and brother-in-law, respectively. Lilia
allowed her son Rolando to reside at the subject property. Then a case for unlawful detainer was filed
and decided against Rolando. When Lilia learned of the eviction case, she executed and registered an
Affidavit of Adverse Claim with a written tender of payment of US$11,000 sent to petitioners. As a
consequence of the petitioner’s unreasonable refusal to recognize respondents' just and valid demand,
they were constrained to consign the US$11,000 as final payment to petitioners.

Respondents claim that they had purchased the property on installment pursuant to an oral contract to
sell. Petitioners insist that the amounts paid by the respondents to them were in payment of the latter's
indebtedness for a previous loan.

ISSUE:
Was a partially executed contract to sell entered into by petitioners and respondents?

RULING:
Yes, the existence of the partially executed contract to sell between Bibiana and Lilia was sufficiently
established in this case.

It is uncontested that Lilia sent money to Bibiana. The parties agreed for Roilan to occupy the property
during the period when Lilia was remitting money to Bibiana.

That Bibiana and Lilia had entered into a contract to sell instead of a contract of sale must be well-
noted. The distinctions between these kinds of contracts are settled.A contract to sell is akin to a
conditional sale where the efficacy or obligatory force of the vendor's obligation to transfer title is
subordinated to the happening of a future and uncertain event, so that if the suspensive condition does
not take place, the parties would stand as if the conditional obligation had never existed. The
suspensive condition is commonly full payment of the purchase price. In a contract of sale, the title
passes to the buyer upon delivery of the thing sold and the non-payment of the price is a negative
resolutory condition. The vendor has lost and cannot recover the ownership of the land sold until and
unless the contract of sale is itself resolved and set aside. In a contract to sell where by agreement
the ownership is reserved in the seller and is not to pass until the full payment, of the purchase price is
made and the full payment is a positive suspensive condition. The title remains in the vendor if the
vendee does not comply with the condition precedent of making payment at the time specified in the
contract. In other words, in a contract to sell, ownership is retained by the seller and is not to pass to
the buyer until full payment of the price.

Under the oral contract to sell, the ownership had yet to pass to Lilia, and Bibiana retained ownership
pending the full payment of the purchase price agreed upon.

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 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

A CONTRACT TO SELL IS AKIN TO A CONDITIONAL SALE

12. Villamil v. Spouses Erguiza

G.R. No. 19599, June 20, 2018
Marites, J.

FACTS:
This is a petition for review on certiorari wherein petitioner Lily Villamil is seeking to reverse and set
aside the decision of the Court of Appeals which nullified the decision of the Regional Trial Court, in
her action for the recovery of possession and damages against respondent-spouses Erguiza.

Villamil together with her deceased brother and sister, entered into an agreement with Juanito Erguiza
for the purpose of selling a co-owned parcel of land to the latter subject to the condition that the former
would get the authorization for minor children from the proper courts. In case of failure, the partial
payment made by Erquiza shall be applied as rent for 20 year. During such time, petitioner was able to
consolidate ownership in her name. A demand to return the property was made but was refused by
defendants. MTCC and RTC ruled in favor of petitioner, concluding that the respondents had no
intention to pay balance and were lessees. CA reversed the decision, declaring that the agreement
was a contract to sell.Petitioner contends that respondent-spouses knew that petitioner was the owner
of the subject property because they sought her permission to build their house thereon. Respondent
avers that that petitioner and her siblings did not take steps to fulfil the suspensive condition and that
they made an illegal act of transferring the share of the minors in the name of petitioner

ISSUES:
1. Does a contract entered into and made dependent upon the proper court's approval of the sale of
the shares of the minor owners a contract to sell?
2. Does the act of petitioner of not filing any petition to seek approval of the court as regards the sale
of the shares of the minor owners would result to principle of constructive fulfillment?

RULING:
1. Yes, A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the
vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so
that if the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed.

An examination of the agreement would reveal that the parties entered into a contract to sell. First,
petitioners merely promised to sell the subject property, thus, signifying their intention to reserve
ownership. Second, the execution of a deed of absolute sale was made dependent upon the proper
court's approval of the sale of the shares of the minor owners. Third, the agreement was not embodied
in a deed of sale. Fourth, petitioner retained possession of the certificate of title of the lot. This is an
additional indication that the agreement did not transfer to private respondents, either by actual or
constructive delivery, ownership of the property. Finally, respondent Juanito admitted during trial that
they have not finalized the sale in 1972 because there were minor ownerssuch that when they
constructed their house thereon, they sought the permission of petitioner.

2. Yes. Petitioner prevented the fulfillment of the suspensive condition. She did not file any
petition as regards the sale of the shares of the minor owners. Thus, the condition is deemed
constructively fulfilled, as the intent to prevent fulfillment of the condition and actual prevention thereof
were definitely present.They remain to be prospective buyers of the subject property who, up to now,
are awaiting fulfillment of the obligation of the prospective sellers to execute a deed of sale. Hence,
inasmuch as the sellers allowed them to have the subject property in their possession pending the
execution of a deed of sale, respondent-spouses are entitled to possession pending the outcome of
the contract to sell.

120
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

PROHIBITION UNDER 1491(5) DOES NOT EXTEND TO IMMEDIATE FAMILY OR RELATIVES OF

LAWYER LABORING UNDER DISQUALIFICATION

13. Santos v. Arrojado

A.C. No. 8502, June 27, 2018
Del Castillo, J.

FACTS:
This is a review by the Supreme Court of a disbarment case filed by Christopher Santos against Atty.
Arrojado for the violation of Article 1491 of the Civil Code, by acquiring an interest in the land involved
in a litigation in which he had taken part by reason of the exercise of his profession. The report and
recommendation of the Integrated Bar of the Philippines – Commission on Bar Discipline
recommended his exoneration.

Complainant Santos alleged that he was the defendant in the unlawful detainer case filed by Lilia
Rodriguez (Lilia) wherein the respondent lawyer, Atty. Arrojado, was the counsel for Lilia. The case
eventually reached the SC which resolved the same in favor of Atty. Arrojado's client. Complainant,
however, claimed that, while the case was pending before the SC, Lilia sold one of the properties
in litis pendentia to Atty. Arrojado's son, Julius P. Arrojado (Julius) and that Atty. Arrojado even signed
as a witness of that sale. Believing that Atty. Arrojado committed malpractice when he acquired,
through his son Julius, an interest in the property subject of the unlawful detainer case, complainant
instituted this complaint.

Atty. Arrojado postulated that, when the sale took place, Julius was already of legal age and discretion,
as well as a registered nurse and an established businessman; and that while it was through him
(respondent lawyer) that Lilia and Julius met, he did not at all facilitate the transaction.

ISSUE:
Does the act of the prosecuting attorney’s son of acquiring the property in litis pendentia constitutes a
violation of Article 1491(5) of the Civil Code?

RULING:
No. As worded, Article 1491(5) of the Civil Code covers only (1) justices; (2) judges; (3) prosecuting
attorneys; (4) clerks of court; (5) other officers and employees connected with the administration of
justice; and (6) lawyers. The enumeration cannot be stretched or extended to include relatives of the
lawyer - in this case, Julius, son of respondent lawyer.

Were the Supreme Court to include within the purview of the law the members of the immediate family
or relatives of the lawyer laboring under disqualification, we would in effect be amending the law. The
Court applies to this case the old and familiar Latin maxim expressiouniusestexclusioalterius, which
means that the express mention of one person, thing, act, or consequence excludes all others. Stated
otherwise, "where the terms are expressly limited to certain matters, it may not, by interpretation or
construction, be stretched or extended to other matters."

Article 1491 provides that "[t]he following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another xxx." However, perusal of the
records would show that complainant failed to adduce any shred of evidence that Julius acted or
mediated on behalf of respondent lawyer, or that respondent lawyer was the ultimate beneficiary of the
sale transaction. The mere fact that it was Julius, son of respondent lawyer, who purchased the
property, will not support that respondent lawyer violated Article 1491(5) of the Civil Code.

Thus, the administrative case is dismissed.

121
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

IMPLIED WARRANTY IN THE SALE OF ANIMAL FEEDS THAT IT IS SUITABLE TO BE USED

FOR THE PURPOSE WHICH BOTH PARTIES CONTEPLATED

14. Padilla v. Universal Robina Corp.

G.R. No. 214805, December 14, 2017
Del Castillo, J.

FACTS:
This Petition for Review on Certiorari assails the Decision of the CA in reversing the Decision of the
RTC.

For various years, URC, sold/supplied on credit day-old chicks and poultry feeds to complainants who,
in turn, provided the labor, poultry houses, electricity and water facilities to care and grow these chicks
until they are ready for harvest. URC had the option of buying from complainants the full-grown broiler
chickens that met the target harvest weight at an agreed price per kilo. Continuing Credit
Accommodation with Real Estate Mortgage (CCAREM) were executed by the parties whereby URC
agreed to extend a continuous credit accommodation in favor of each complainant, while each
complainant put up a real estate mortgage. The business relationship for both parties continued for
years. However, after sometime, complainants informed URC of the stunting or slow growth and high
mortality rate of the chickens. As a result, complainants incurred outstanding obligations. The
complainants claimed that they incurred losses and sustained damages from the stunting/slow growth
of the chickens as a result of the low quality feeds with high aflatoxin content and class B or junior day-
old chicks supplied by URC in evident bad faith. Since the stunting and eventual condemnation/death
of the chickens was due to URC's fault, complainants claimed that their obligation to pay URC was
extinguished.

Portion of CCAREM states: “In case the thing purchased should be lost, damaged or destroyed without
the fault of the COMPANY-MORTGAGEE, … - like death of day-old chicks or chickens by reason of
any sickness, disease, "peste or NCD," … – the risk of loss shall be borne by the MORTGAGOR
and/or PRINCIPAL and their liability to pay their obligation to COMPANY-MORTGAGEE is not
extinguished.”

URC maintains that it is unlikely that it supplied its customers with defective poultry feeds because if it
were, it would not have passed quality control. Petitioners, however, insist that the cause of the
stunted growth of the broiler chicks was the defective poultry feeds supplied by URC, and that URC
caused the condemnation of the chickens, based on the alleged admission made by Lim during a
meeting called by the URC management.

ISSUE:
Does the contractual obligation, to pay the day-old chicks, poultry feeds and other products purchased
by petitioners with URC, extinguished pursuant to the low quality feeds supplied by URC?

RULING:
NO. Manufacturer or seller of animal feeds cannot be held liable for any damage allegedly caused by
the product in the absence of proof that the product was defective. The defect of the product requires
evidence that there was no tampering with, or changing of the animal feeds. The Court explained that
"[i]n the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be
used for the purpose which both parties contemplated."

122
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

REQUISITES OF IMPLIED WARRANTY AGAINST EVICTION

15. Pilipinas Makro, Inc., v. Coco Charcoal Philippines, Inc.

G.R. No. 196419, October 4, 2017
Martires, J.:

FACTS:
This Petition for Review on Certiorari seeks to reverse and set aside the Decision of CA which
reversed the Decision of the RTC granting Pilipinas Makro Inc.’s (Makro) and ordered respondents
Coco Charcoal Philippines Inc. (Coco Charcoal) and Lim Kim San (Lim) to refund the amount
corresponding to the value of the encroached area.

Petitioner Makro was in need of acquiring real properties in Davao City to build on and operate a store
to establish its business presence in the city. Makro then found two parcels of land suitable for its
purpose owned by respondents Coco Charcoal and Lim. Subsequently, the parties executed two
separate notarized Deeds of Absolute Sale wherein the respondents sold each of their parcels of land
to petitioners. Respondent's parcels of land are contiguous and parallel to each other and the deeds,
aside from technical description, contained identical provisions, terms, conditions, and warranties.
Upon the resurvey and relocation of the two adjacent lots, it was discovered that both lots purchased
from respondents had been encroached upon by the DPWH for its road widening project and
construction of a drainage canal to develop and expand the Davao-Cotabato National Highway. Makro
then informed the representatives of respondents about the supposed encroachment and offered a
compromise agreement in consideration of a refund of 75% of the value of the encroached portions.
Thereafter, Makro sent a final demand letter to collect which remained unheeded. Hence, Makro filed
separate complaints against Coco Charcoal and Lim to collect the refund sought.

The RTC found that respondents were in bad faith because they had concealed from Makro the fact
that the DPWH had already taken possession of a portion of the lands they had sold, respectively,
considering that drainage pipes had already been installed prior to the sale. However, the CA ruled
that Makro was not entitled to a refund. It explained that the warranty expressed in Section 4(i) of the
deeds of sale is similar to the warranty against eviction set forth under Article 1548 of the Civil Code.
As such, the CA posited that only a buyer in good faith may sue to a breach of warranty against
eviction. It averred that Makro could not feign ignorance of the ongoing road widening project. The
appellate court noted Makro's actual knowledge of the encroachment before the execution of the sale
constitutes its recognition that respondent’s warranty against liens, easements, and encumbrances
does not include the respective areas affected by the DPWH project, but covers only the remainder of
the property.

ISSUE:
1. Was Section 4(i) of the deeds of sale akin to a warranty against eviction?
2. Was petitioner’s knowledge of the encroachment due to the conducted ocular inspection before the
execution of the sales constitutes bad faith, hence, petitioner is not entitled to refund?

RULING:
1. No, it cannot be deemed a warranty against eviction.

A warranty is a collateral undertaking in a sale of either real or personal property, express or implied;
that if the property sold does not possess certain incidents or qualities, the purchaser may either
consider the sale void or claim damages for breach of warranty. Thus, a warranty may either be
express or implied.

An express warranty pertains to any affirmation of fact or any promise by the seller relating to the
thing, the natural tendency of which is to induce the buyer to purchase the same. It includes all

123
warranties derived from the language of the contract, so long as the language is express-it may take
the form of an affirmation, a promise or a representation. On the other hand, an implied warranty is
one which the law derives by application or inference from the nature of transaction or the relative
situation or circumstances of the parties, irrespective of any intention of the seller to create it. In other
words, an express warranty is different from an implied warranty in that the former is found within the
very language of the contract while the latter is by operation of law.

Section 4(i) of the Deeds of sale provide: Representations and Warranties - The SELLER hereby
represents and warrants to the BUYER that: The Property is and shall continue to be free and
clear of all easements, liens and encumbrances of any nature whatsoever, and is, and shall
continue to be, not subject to any claim set-off or defense which will prevent the BUYER from
obtaining full and absolute ownership and possession over the Property or from developing or
using it as a site for its store building.

Here, the CA erred in treating Section 4(i) of the deeds of sale as akin to an implied warranty against
eviction. First, the deeds of sale categorically state that the sellers assure that the properties sold were
free from any encumbrances which may prevent Makro from fully and absolutely possessing the
properties in question. Second, in order for the implied warranty against eviction to be enforceable, the
following requisites must concur: (a) there must be a final judgment; (b) the purchaser has been
deprived of the whole or part of the thing sold; (c) said deprivation was by virtue of a prior right to the
sale made by the vendor; and (d) the vendor has been summoned and made co-defendant in the suit
for eviction at the instance of the vendee. Evidently, there was no final judgment and no opportunity for
the vendors to have been summoned precisely because no judicial action was instituted.

2. No. Petitioner is not a buyer in bad faith.

Even if Section 4(i) of the deeds of sale was to be deemed similar to an implied warranty against
eviction, the CA erred in concluding that Makro acted in bad faith. It is true that the warranty against
eviction cannot be enforced if the buyer knew of the risks or danger of eviction and still assumed its
consequences.

It is undisputed that Makro's legal counsel conducted an ocular inspection on the properties in
question before the execution of the deeds of sale and that there were noticeable works and
constructions going on near them. Nonetheless, these are insufficient to charge Makro with actual
knowledge that the DPWH project had encroached upon respondents' properties. A mere ocular
inspection could not have possibly determined the exact extent of the encroachment. It is for this
reason that only upon a relocation survey performed by a geodetic engineer, was it discovered that the
lots purchased from respondents had been adversely affected by the DPWH project.

124
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

FALSITY IN THE AREA OF A CONDO UNIT CONSTITUTE FRAUD; AS-IS-WHERE-IS

STIPULATION ONLY PERTAIN TO PERCEPTIBLE PHYSICAL STATE

16. Poole-Blunden v. Union Bank of the Philippines

G.R. No. 205838, November 29, 2017
Leonen, J.

FACTS:
This resolves a Petition for Review on Certiorari praying that the assailed Decision and Resolution of
the Court of Appeals be reversed and set aside and that judgment be rendered annulling or rescinding
the Contract to Sell between petitioner Poole-Blunden and respondent UnionBank.

Poole-Blunden (petitioner) came across an advertisement placed by Union Bank (respondent) in the
Manila Bulletin. The ad was for the public auction of certain properties. One of these properties was a
condominium unit, identified as Unit 2-C of T-Tower Condominium. The Unit was advertised to have an
area of 95 square meters. Thinking that it was sufficient and spacious enough for his residential needs,
petitioner decided to register for the sale and bid on the unit. He visited the unit for inspection. He was
accompanied by a representative of UnionBank. The unit had an irregular shape; it was neither a
square nor a rectangle and included a circular terrace. Petitioner did not doubt the unit's area as
advertised. However, he found that the ceiling was in bad condition.

Petitioner placed his bid and won the unit. On May 7, 2001, he entered into a Contract to Sell with
respondent. Petitioner started occupying the unit in June 2001. By July 20, 2003, he was able to fully
pay for the Unit. In late 2003, he decided to construct two (2) additional bedrooms in the Unit. Upon
examining it, he noticed apparent problems in its dimensions. He took rough measurements of the
Unit, which indicated that its floor area was just about 70 square meters, not 95 square meters, as
advertised by respondent. He hired an independent geodetic engineer to survey the Unit and measure
its actual floor area which turned-out that it was only 74.4 square meters. Respondent explained that
the total area of the subject unit based on the ratio allocation maintenance cost submitted by the
developer to HLURB is 98 square meters (60 square meters as unit area and 38 square meters as
share on open space). Petitioner's dissatisfaction with UnionBank's answer prompted him to file his
Complaint for Rescission of Contract and Damages with the Regional Trial Court.

ISSUES:
1. Does the act of the respondent in advertising and selling a condominium unit as having an area of
95 square meters which in fact it is only 74.4 square meters constitutes fraud as would entitle
petitioner to the voiding of the Contract to Sell
2. Does as-is-where-is stipulation absolve respondent of its liability for hidden defects when the defect
involved is the precise measurement of a condominium unit

RULING:
1. YES. Section 6(a) of the Condominium Act specifies that areas of common use "are not part
of the unit" Thus, the unit sold to petitioner was deficient in relation to its advertised area. This
advertisement having been made by respondent, it is equally settled there was a falsity in the
declarations made by respondent prior to, and with the intention of enticing buyers to the sale.

The party to a contract whose consent was vitiated is entitled to have the contract rescinded.
Accordingly, Article 1390 of the Civil Code stipulates that a contract is voidable or annullable even if
there is no damage to the contracting parties where "consent is vitiated by mistake, violence,
intimidation, undue influence or fraud." Article 1344 clarifies that in order to make a contract voidable,
the fraud "should be serious and should not have been employed by both contracting parties."

Petitioner's contention on how crucial the dimensions and area of the Unit are to his decision to
proceed with the purchase is well-taken. The significance of space and dimensions to any buyer of real
property is plain to see. This is particularly significant to buyers of condominium units in urban areas,

125
and even more so in central business districts, where the scarcity of space drives vertical construction
and propels property values. It would be immensely guileless of this Court to fail to appreciate how the
advertised area of the Unit was material or even indispensable to petitioner's consent. As petitioner
emphasized, he opted to register for and participate in the auction for the Unit only after determining
that its advertised area was spacious enough for his residential needs.

2. NO. Reliance on Section 12's as-is-where-is stipulation is misplaced for two (2) reasons. First,
a stipulation absolving a seller of liability for hidden defects can only be invoked by a seller who has no
knowledge of hidden defects. Respondent here knew that the Unit's area, as reckoned in accordance
with the Condominium Act, was not 95 square meters. Second, an as-is-where-is stipulation can only
pertain to the readily perceptible physical state of the object of a sale. It cannot encompass matters
that require specialized scrutiny, as well as features and traits that are immediately appreciable only by
someone with technical competence.

The precise measurement of the Unit's area, in contrast, could only be determined by someone with
specialized or technical capabilities. While ordinary persons, such as petitioner, may hold such
opinions that the Unit looks small, their perception could not be ascertained until after an examination
by someone equipped with peculiar skills and training to measure real property. Indeed, petitioner's
suspicions were not roused until years after he had occupied the Unit and confirmed until after a
certification was issued by a surveyor.

126
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

MONEY IN A TIME DEPOSIT CANNOT BE CONSIDERED AS AN OPTION MONEY FOR THE

REPURCHASE

17. Philippine National Bank v. Bacani

G.R. No. 194983, June 20, 2018
Reyes, Jr., J.

FACTS:
This is a petition for review on certiorari led under Rule 45 of the Rules of Court, seeking to reverse
and set aside the Decision and Resolution CA.

The subject property was used to secure the loan that Spouses Bacani obtained from PNB. When the
Spouses Bacani failed to pay their loan, PNB extrajudicially foreclosed the subject property. It was
awarded to PNB as the highest bidder. Spouses Bacani failed to redeem the property. Consequently,
Rodolfo's title was cancelled, and in its place, TCT No. T-185028 was issued in the name of PNB.

PNB issued SEL Circular No. 8-7/89, stating that, former owners or their heirs were given priority in the
re-acquisition of their foreclosed assets "on negotiated basis without public bidding." Spouses Bacani
initiated negotiations with PNB regarding the re-acquisition of their property. Spouses Bacani
continued to follow-up on their request to repurchase. PNB advised them to increase their offer
because their initial proposal was low and below fair market value. PNB later informed the Spouses
Bacani that the request for repurchase was refused and instead, the subject property would be sold in
a public auction. PNB sold the subject property through a negotiated sale to Renato de Leon (Renato).
The respondents filed a complaint for the annulment of the sale and Renato's title over the subject
property, together with a prayer for the payment of damages.

The CA ruled in favor of respondent and relied on the supposed time deposit account of the Spouses
Bacani with PNB. According to the CA, PNB should have considered this deposit as a manifestation of
the Spouses Bacani's willingness and ability to pay for the reacquisition of the subject property.

ISSUE:
Is a time deposit considered as option money that warrants a perfected option contract?

RULING:
NO. There was no perfected option contract. Upon the expiration of the period to redeem, the Spouses
Bacani do not have an enforceable right to repurchase the subject property.

By the very nature of the deposit, which is a form of a loan, PNB could not have assumed that the
Spouses Bacani's alleged time deposit account was meant as an option money intended to secure the
privilege of buying the subject property within a given period of time, especially since there was no
option contract between them. Neither may PNB consider the deposit as a down payment on the price
of the subject property because there was no perfected contract of sale. The time deposit with PNB did
not create a contract of sale, or at the very least, an option contract, between PNB and the Spouses
Bacani.

Furthermore, considering that the reacquisition of the subject property involves a contract, there should
be a meeting of the minds as to its terms and conditions. When the offer is not accepted by either
party, the contract is not perfected and there is no binding juridical relation between the parties. The
Spouses Bacani, therefore, cannot demand to repurchase the property, in the absence of PNB's
consent to the offer. At most, the PNB circular grants a privilege to the Spouses Bacani as the former
owners, to be given priority. It does not confer an enforceable and absolute right to reacquire the
property.

127
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

“AT LEAST TWO YEARS OF INSTALLMENTS” PERTAINS TO THE AGGREGATE VALUE OF 24

MONTHLY INSTALLMENTS

18. Orbe v. Filinvest Land, Inc.

G.R. No. 208185, September 6, 2017
Leonen, J.

FACTS:
This resolves a Petition for Review on Certiorari under Rule 45 praying that the assailed Decision and
Resolution of the Court of Appeals in CA-G.R. SP No. 118285 be reversed and set aside.

Orbe purchased land with Filinvest with a total contract price of P2,566,795, payable from August 04,
2001 to April 08, 2009 on a monthly basis. From June 17, 2001 to July 14, 2004, Orbe paid a total of
P608,648.20. Orbe was unable to make further payments allegedly on account of financial difficulties.
As a result, Filinvest sent a notice of cancellation rescinding the contract. Orbe filed a complaint for
refund with the HLURB. HLURB ruled in favour of Orbe. Filinvest appealed to the Office of the
President, but the OP affirmed the decision of the HLURB. Filinvest appealed to the CA, and the CA
Reversed the decision of the Office of the President.

Filinvest asserted that Orbe failed to make 24 monthly amortization payments on her account, and
thus, could not benefit from Section 3 of Republic Act No. 6552. Orbe emphasized that she had made
payments "beginning June, 2001 up to October, 2004."

ISSUE:
Do payments "beginning June, 2001 up to October, 2004" equivalent of two years of installment
payments that will entitle petitioner to avail of the benefits of refund under Section 3 of Maceda Law?

RULING:
No. When Section 3 speaks of paying "at least two years of installments," it refers to the equivalent of
the totality of payments diligently or consistently made throughout a period of two (2) years.
Accordingly, where installments are to be paid on a monthly basis, paying "at least two years of
installments" pertains to the aggregate value of 24 monthly installments. The phrase "at least two
years of installments" refers to value and time. It does not only refer to the period when the buyer has
been making payments, with total disregard for the value that the buyer has actually conveyed. It
refers to the proportionate value of the installments made, as well as payments having been made for
at least two (2) years.

128
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

ARTICLE 1659 OF THE CIVIL CODE APPLIES TO RESCISSION OF LEASE AGREEMENTS

19. Peralta v. Raval

G.R. No.188467/188764, March 29, 2017
Reyes, J.

FACTS:
Subject of these consolidated petitions for review on certiorari under Rule 45 is the decision of the CA
denying the action for rescission of the lease agreement filed by respondent Jose Roy Raval against
Renato Ma. Peralta but granted in his favor an award of unpaid rental payments.

On February 19, 1974, the Spouses Arzaga, as lessors, entered into a Contract of Leasewith Peralta,
as lessee, over the two parcels of residential land with a lease term of 40 years. Sometime in 1995,
FlavianoArzaga, Jr., being an adopted son and heirs of the lessors, assigned to Raval via a Deed of
Assignment all his interests, rights and participation in the subject properties for a consideration of
₱500,000.00 for which Peralta refused to recognize and still deposited his rental payments for the
account of Flaviano Jr. Raval demanded from Peralta compliance with the lease contract's terms and
conditions but his demand went unheeded. After several demands and barangay conciliation, Raval
eventually filed in 1998 a complaint for rescission of lease against Peralta alleging that Peralta failed to
comply with the terms of the lease contract and his demands as a lessor.

Peralta insists that the deed of assignment is void and that Raval's action had already prescribed for
having been filed more than four years after the execution of the lease contract in 1974 in reference
with Article 1389 of the NCC. On the other hand, Raval insists on a rescission of lease agreement for
Peralta has failed to comply with his obligations under the contract, which as a consequence, has
given Raval the statutory right to rescind the lease agreement under Article 1191 of the NCC.

ISSUE:
Is the action for rescission of lease agreement prescribed for having filed more than four years after
the execution of the lease contract?

RULING:
No. It must be emphasized though that specifically on the matter of rescission of lease agreements,
Article 1659 of the NCC applies as a rule. It reads: Article 1659. If the lessor or the lessee should not
comply with the obligations set forth in Articles 1654 and 1657, the aggrieved party may ask for the
rescission of the contract and indemnification for damages, or only the latter, allowing the contract to
remain in force. Article 1654 referred to in Article 1659 pertains to the obligations of a lessor in a lease
agreement. Article 1657, on the other hand, enumerates the obligations of a lessee.

Raval's cause of action did not refer to Article 1389, yet one that was based on a written contract.
Thus, contrary to Peralta' s insistent claim, the action for rescission had not yet prescribed at the time
of its filing in 1998. Raval's cause of action accrued not on the date of the lease agreement's execution
in 1974, but from the time that there was a violation and default by Peralta in his obligations under the
lease agreement.

Clearly, the filing of the action for rescission in 1998 was within the 10-year prescriptive period that
applies to the suit.

129
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

CONTRACT OF LEASE IS A CONSENSUAL CONTRACT

20. Hilltop Market Fish Vendors' Association, Inc. v. Yaranon

G.R. No. 188057, July 12, 2017
Carpio, J.

FACTS:
This petition for review assails the decisionof the CA affirming the decision of the RTC in finding that
there was already a perfected contract of lease between the petitioner Hilltop Market Fish Vendors’
Association (Hilltop) and the respondent City Government of Baguio and that the issuance of the
Certificate was imposed only on the performance of the obligations contained in it.

In 1974, Hilltop and City of Baguio, represented by its then Mayor Luis Lardizabal, entered into a
Contract of Leaseover a lot owned by the City of Baguio which provided the lease period of 25 years,
renewable for the same period at the option of both parties, and the annual lease rental is ₱25,000,
with the first payment commencing upon the issuance by the City Engineer's Office of the Certificate of
full occupancy (Certificate) of the building to be constructed by Hilltop on the lot. Sometime in 1975,
Hilltop constructed Rillera building on the lot. Even though the City Engineer's Office did not issue a
Certificate, Hilltop's members occupied the Rillera building and conducted business in it. In 2005,
respondent then Mayor Braulio Yaranon (Yaranon) issued Administrative Order No. 030 S. 2005 (AO
No. 30), ordering the City Building and Architects Office (CBAO) and Public Order and Safety Division
to immediately close the Rillera building to have it cleaned, sanitized and enclosed; to prevent illegal
activities in it; and for its completion and preparation for commercial use. Thus, Hilltop filed with the
RTC a Complaint with Very Urgent Application for Temporary Restraining Order and Writ of
Preliminary Injunction praying that the court issue an injunction against the implementation of AO No.
30 and order the concerned office to issue the Certificate to make the contract of lease effective.

Hilltop argues that the CA erred in finding that the contract of lease entered into by the parties was
already perfected contrary to evidence and to law.

ISSUE:
Is the contract of lease entered into between Hilltop and City of Baguio already perfected?

RULING:
Yes. In a contract of lease, one of the parties binds himself to give to another the enjoyment or use of
a thing for a price certain, and for a period which may be definite or indefinite. Being a consensual
contract, a lease is perfected at the moment there is a meeting of the minds upon the thing and the
cause or consideration which are to constitute the contract. Thereafter, the lessor is obliged to deliver
the thing which is the object of the contract in such a condition as to render it fit for the use intended,
and the lessee is obliged to use the thing leased as a diligent father of a family, devoting it to the use
stipulated or that which may be inferred from the nature of the thing leased.

In a contract of lease, the cause or essential purpose is the use and enjoyment of the thing. The thing
or subject matter of the contract in this case was clearly identified and agreed upon as the lot where
the building would be constructed by Hilltop. The consideration were the annual lease rental and the
ownership of the building upon the termination of the lease period.

Considering that Hilltop and the City of Baguio agreed upon the essential elements of the contract, the
contract of lease had been perfected.

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 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

LESSOR IS ENTITLED TO RENTALS AFTER THE TERMINATION OF THE LEASE BY VIRTUE OF

AN AUTOMATIC RESCISSION CLAUSE ONLY WHEN HE INVOKES SAID CLAUSE AND THE
LESSEE REFUSES TO VACATE THE PREMISES

21. D.M. Ragasa Enterprises, Inc. v. Banco De Oro, Inc. (formerly Equitable PCI Bank Inc.)
G.R. No. 190512, June 20, 2018
Caguioa, J.

FACTS:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing
the Decision and Resolution of the Court of Appeals.

Ragasa and then Equitable Banking Corporation executed a Contract of Lease, as lessor and lessee,
respectively, over the ground and second floors of a commercial building located at Tomas Morato,
Quezon City, for a period of five years, commencing on February 1, 1998 up to January 31, 2003.
Pursuant to the contract, Equitable Bank paid the amounts of P367,821.00 representing three months
advance rentals, and P367,821.00 representing three months rentals as security deposit.

Equitable Bank entered into a merger with PCI Bank thereby forming Equitable PCI Bank, Inc. The
latter would eventually, pending the present case, merge with Banco de Oro, Inc. to form the
respondent bank. As a result of the merger, the bank sent a notice informing Ragasa that the former
was pre-terminating their Lease Contract effective June 30, 2001. Ragasa responded with a demand
letter for payment of monthly rentals for the remaining term of the Lease Contract from July 1, 2001 to
January 31, 2003 totaling P3,146,596.42, inasmuch as there is no express provision in the Lease
Contract allowing pre-termination. The bank countered that its only liability for pre-terminating the
contract is the forfeiture of its security deposit pursuant to item 8(m) of the Lease Contract. On June
30, 2001, the bank vacated the subject premises without heeding Ragasa's demand for payment.

Ragasa filed a Complaint against the bank for Collection of Sum of Money (amounting to
P3,146,596.42 representing the monthly rentals under the Lease Contract for the period July 1, 2001
to January 31, 2003) and Damages. Ragasa argued that under the Lease Contract, the forfeiture of
the bank's security deposit does not exempt it from payment of the rentals for the remaining term of
the lease because the bank's act of pre-terminating the contract was a major breach of its terms. In its
Answer, the bank argued that item 8(m) of the Lease Contract is actually a penalty clause which, in
line with Article 1226 of the Civil Code, takes the place of damages and interests in case of breach.
Hence, for breaching the Lease Contract by pre-terminating the same, the bank is liable to forfeit its
security deposit in favor of Ragasa but would not be liable for rentals corresponding to the remaining
life of the Contract.

ISSUES:
1. Is the claim of Ragasa that it is entitled to damages in the amount of P3,146,596.42, representing
the monthly rentals from July 1, 2001 to January 31, 2003, or the unexpired period of the lease, valid?
2. What is the nature of item 8(m) of the Lease Contract: "The full deposit shall be forfeited in favor of
the LESSOR upon non-compliance of the Term of the Contract of Lease by the TENANT, and cannot
be applied to Rental"?

RULING:
1. No. Entitlement to rentals after the termination of the lease pursuant to an automatic
rescission or termination clause is possible in the case where the lessor invokes the clause and the
lessee refuses to vacate the leased premises. The lessee will be liable for damages equivalent to the
rentals for the duration of its possession from the termination of the lease until he vacates the
premises.

131
That is not the situation here. The bank did not continue to possess the Leased Premises after its
automatic termination, as it vacated the same on June 30, 2001.

The provision or clause that is applicable in case of non-compliance of the Term or period of the Lease
Contract is item 8(m) which mandates that the full deposit of P367,821.00 or the equivalent of three
months rentals shall be forfeited with the proviso that the deposit cannot be applied to rental.
This proviso as to non-application to rental of the deposit means that the forfeiture is without prejudice
to the payment of any unpaid rental at the time of the non-compliance or breach of the Term or period
of the Lease Contract. Since the bank had no unpaid rental as of June 30, 2001, the proviso finds no
application in the present case.

2. Item No. 8(m) is a penalty or penal clause.

A penal clause is an accessory obligation which the parties attach to a principal obligation for the
purpose of insuring the performance thereof by imposing on the debtor a special prestation (generally
consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or
inadequately fulfilled. Quite common in lease contracts, this clause functions to strengthen the
coercive force of the obligation and to provide, in effect, for what would be the liquidated damages
resulting from a breach.

Item 8(m) of the Lease Contract is an accessory obligation or prestation to the principal obligation of
lease. It specifies the stipulated amount of liquidated damages — the full deposit — to be awarded to
the injured party in case of breach of the Term or period of the principal obligation. Hence, as to
source, it is conventional.

If item 8(m) is intended by the parties for a strictly penal purpose or a punishment on the guilty party,
then item 8(m) is both complementary and cumulative. If it is not, then it is subsidiary and reparatory.

132
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

LESSEES MAY SUSPEND THE PAYMENT OF RENT UNDER ARTICLE 1658 OF THE CIVIL CODE
ONLY IF THEIR LEGAL POSSESSION IS DISRUPTED; EARNEST MONEY GIVEN IS THE COST
OF HOLDING THE SELLER’S SEARCH FOR A BUYER IN ABEYANCE

Racelis, in her capacity as administrator v. Spouses Javier

G.R. No. 189609, January 29, 2018
Leonen, J.

FACTS:
Through this Petition for Review, petitioner Victoria N. Racelis (Racelis) challenges the CA Decision
and Resolution, which ordered her to reimburse the sum of P24,000.00 to respondents Spouses
Germil Javier and Rebecca Javier (the Spouses Javier).

Racelis is the administrator of the properties of the late Pedro Nacu, Sr, among which was a residential
house and lot in Marikina City. The Spouses Javier offered to purchase the Marikina property.
Because they could not afford to pay the price of P3,500,000.00, they offered to lease the property
instead, while they raise enough money. Racelis agreed. The parties agreed on a month-to-month
lease. Sometime in July 2002, Racelis inquired whether the Spouses Javier were still interested to
purchase the property. The Spouses Javier reassured her of their commitment and even promised to
pay P100,000.00 to buy them more time within which to pay the purchase price. On several occasions,
they tendered small sums of money to complete the promised P100,000.00, but by the end of 2003,
they only delivered a total of P78,000.00. Meanwhile, they continued to lease the property and started
to fall behind in rent. Realizing that the Spouses Javier had no genuine intention of purchasing the
property, Racelis wrote to inform them that her family had decided to terminate the lease agreement
and to offer the property to other interested buyers. Racelis likewise demanded that they vacate the
property and offered to return the earnest money after the property will be sold to a prospective buyer.
The Spouses Javier refused to vacate and insisted that the sum of P78,000.00 was advanced rent and
proposed that this amount be applied to their outstanding liability until they vacate the premises. The
parties disagree on the application of the P78,000.00. Therafter, Racelis caused the disconnection of
the electrical service over the property forcing the Spouses Javier to purchase a generator. This matter
became the subject of a complaint for damages filed by the Spouses Javier against Racelis. Racelis
was absolved from liability. Meanwhile, Racelis filed a complaint for ejectment against the Spouses
Javier.

Petitioner asserts that respondents cannot invoke the right given to lessees under Article 1658 of the
Civil Code in withholding the payment of rent because she was justified in causing the temporary
disconnection of electrical service over the property because respondents were remiss in paying rent.
Petitioners likewise claim that she did not expressly waive her right over the initial payment of
P78,000.00 but merely extended an offer to reimburse this amount, which respondents rejected.
Hence, she is entitled to retain it and it cannot be used to offset respondents' accrued rent.

ISSUES:
1. Is the act of petitioner of temporarily disconnecting the electrical service over the property posits the
right of respondents to invoke their right to suspend the payment of rent under Article 1658 of the Civil
Code
2. Is the amount of P78,000.00, tendered as reassurance of respondent’s commitment to accumulate
the purchase price, an initial payment which can be used to offset the respondents’ accrued rent

RULING:
1. No. Article 1658 of the Civil Code allows a lessee to postpone the payment of rent if the lessor
fails to either (1) "make the necessary repairs" on the property or (2) "maintain the lessee in peaceful
and adequate enjoyment of the property leased." This provision implements the obligation imposed on
lessors under Article 1654(3) of the Civil Code. The failure to maintain the lessee in the peaceful and
adequate enjoyment of the property leased does not contemplate all acts of disturbance. Lessees may
suspend the payment of rent under Article 1658 of the Civil Code only if their legal possession is

133
disrupted. That there was a disturbance of the peace or order in which he maintained his things in the
leased story does not mean that he lost the peaceful enjoyment of the thing rented.The duty 'to
maintain the lessee in the peaceful and adequate enjoyment of the lease for the duration of the
contract' mentioned in No. 3 of Article 1654 is merely a warranty that the lessee shall not be disturbed
in his legal, and not physical, possession.

In this case, the disconnection of electrical service over the leased premises was not just an act of
physical disturbance but one that is meant to remove respondents from the leased premises and
disturb their legal possession as lessees. Ordinarily, this would have entitled respondents to invoke the
right accorded by Article 1658 of the Civil Code. However, this rule will not apply in the present case
because the lease had already expired when petitioner requested for the temporary disconnection of
electrical service.

2. No. The P78,000.00 initial payment cannot be characterized as advanced rent. First, records
show that respondents continued to pay monthly rent until February 2004 despite having delivered the
P78,000.00 to petitioner on separate dates in 2003. Second, as observed by the MTC, respondents
indicated in the receipt that the P78,000.00 was initial payment or goodwill money. They could have
easily stated in the receipt that the P78,000.00 was advanced rent instead of denominating it as "initial
payment or goodwill money." Respondents even proposed that the initial payment be used to offset
their accrued rent.

Based on the evidence on record, petitioner and respondents executed a contract to sell, not a
contract of sale. Petitioner reserved ownership of the property and deferred the execution of a deed of
sale until receipt of the full purchase price. In this case, since respondents failed to deliver the
purchase price at the end of 2003, the contract to sell was deemed cancelled. The contract's
cancellation entitles petitioner to retain the earnest money given by respondents.

Earnest money, under Article 1482 of the Civil Code, is ordinarily given in a perfected contract of sale.
However, earnest money may also be given in a contract to sell. In a contract to sell, earnest money is
generally intended to compensate the seller for the opportunity cost of not looking for any other buyers.
It is a show of commitment on the part of the party who intimates his or her willingness to go through
with the sale after a specified period or upon compliance with the conditions stated in the contract to
sell.

Earnest money, therefore, is paid for the seller's benefit. It is part of the purchase price while at the
same time proof of commitment by the potential buyer. Absent proof of a clear agreement to the
contrary, it is intended to be forfeited if the sale does not happen without the seller's fault.

There is no unjust enrichment on the part of the seller should the initial payment be deemed forfeited.
After all, the owner could have found other offers or a better deal. The earnest money given by
respondents is the cost of holding this search in abeyance. To rule that the partial earnest money
should even be returned is both inequitable and would have dire repercussions as a precedent.

134
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

COMPLIANCE WITH THE REQUISITES IN ART. 1724 IS A CONDITION PRECEDENT FOR

RECOVERY

23. Shangri-la Properties, Inc. v. BF Corp.

G.R. Nos. 187552-53. October 15, 2019
Bersamin, C.J.

FACTS:
Before the Court are the consolidated appeals of Shangri-la Properties, Inc. (SLPI) and BF Corporation
(BFC) to separately assail the decision promulgated on August 12, 2008 and the resolution
promulgated on April 16, 2009, whereby the CA partially modified the award of the Arbitral Tribunal in
connection with their dispute arising from their construction agreement.

SLPI, the project owner, and BFC, the trade contractor, entered into an agreement for the execution of
the builder's work for Phases I and II, and the Car Parking Structure of the EDSA Plaza Project. BFC
sued SLPI and the members of the latter's board of directors for the collection of sum of money. The
proceedings before the trial court were stayed by this court, as affirmed by the Supreme Court, until
termination of an arbitration proceeding as required in their contract.

Among the issues submitted for the resolution of the Arbitral Tribunal is BFC's claims for unpaid
progress billings, the Arbitral Tribunal segregated the claims into two types, namely: of the first type
were the billings for the original scope of work under the agreement (contract bills), and of the second
were the billings for unpaid variation orders. The Arbitral Tribunal ruled that BFC was entitled to the
payment of the contract bills for having completed the original scope of work by finishing construction
of Phase I, Phase II, and the Carpark of the Project. As to the second type, it concluded that SLPI had
given the required written authorization for the performance of the works. Hence, it granted a sum of
money for the unpaid progress billings.

ISSUE:
Is BFC entitled for its claims for variation works it performed upon the instructions of SLPI?

RULING:
YES. The Arbitral Tribunal correctly ruled that BFC had complied with the twin requirements imposed
by Article 1724 of the Civil Code which governs the recovery of costs for any additional work because
of a subsequent change in the original plans. The underlying purpose of the provision is to prevent
unnecessary litigation for additional costs incurred by reason of additions or changes in the original
plan. The provision was undoubtedly adopted to serve as a safeguard or as a substantive condition
precedent to recovery. As such, added costs can only be allowed upon: (a) the written authority from
the developer or project owner ordering or allowing the changes in work; and (b) upon written
agreement of the parties on the increase in price or cost due to the change in work or design
modification. Compliance with the requisites is a condition precedent for recovery; the absence of one
requisite bars the claim for additional costs.

SLPI gave written instructions to BFC to accommodate all requests for changes and variations when
the former sent a letter to the latter advising it of its obligation to accommodate all changes and
variation orders during the duration of the contract, and the specific variation orders that were
approved by SLPI. Notably, these variation orders comply with the twin requirements of Art. 1724 by
reason of the fact that SLPI appears to have agreed on the price of BFC for these change orders.
Coupled by the written instruction of Project Manager to approve all variation orders for the
enhancement of the EDSA Plaza Project, it behooves SLPI to pay for these works.

135
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

A CONTRACT TO SELL IS AKIN TO A CONDITIONAL SALE WHERE THE EFFICACY TO

TRANSFER TITLE IS SUBORDINATED TO THE HAPPENING OF A FUTURE AND UNCERTAIN
EVENT

24. Vive Eagle Land, Inc. v. National Home Mortgage Finance Corp.
G.R. No. 230817, September 4, 2019.
Peralta, J.

FACTS:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the
Decision and the Resolution of the Court of Appeals.

Petitioner Vive Eagle Land, Inc. filed a complaint for declaration of nullity of rescission, declaration of
suspension of payment of purchase price and interest, and other reliefs against respondents National
Home Mortgage Finance Corporation (NHMFC). Vive alleged that it entered into a Deed of Sale of
Rights, Interests, and Participation Over Foreclosed Assets, whereby it agreed to purchase NHMFC's
rights, interests, and participation in the foreclosed property of Alyansa ng mgaMaka-
MaralitangAsosasyon for a total purchase price of P40,000,000.00 payable in the following manner: (1)
the amount of P8,000,000.00 as 20% downpayment payable in two equal installments, and (2) the
balance of P32,000,000.00 shall be paid in 10 equal installments. Vive paid the first installment of the
down payment. However, it did not pay the subsequent installments.

A portion of the contract executed by the parties reads: “Upon full payment by the VENDEE of the
saIes price …, the VENDOR shall execute a Certificate of [full payment] and deliver the Duplicate
Original Transfer Certificate of Title Nos. 86340 and 86341 to the VENDEE. Expenses for the transfer
of the title to VENDEE shall be for VENDEE's account.”

ISSUE:
Does the agreement of the parties that duplicate original transfer certificate of title will be executed
upon full payment by the vendee of the sales price is a contract to sell?

RULING:
YES. A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the
vendor's obligation to transfer title is subordinated to the happening of a future and uncertain event, so
that if the suspensive condition does not take place, the parties would stand as if the conditional
obligation had never existed. In a contract to sell, the fulfillment of the suspensive condition will not
automatically transfer ownership to the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into
a contract of absolute sale. Conversely, in a conditional contract of sale, the fulfillment of the
suspensive condition renders the sale absolute and the previous delivery of the property has the effect
of automatically transferring the seller's ownership or title to the property to the buyer.

NHMFC expressly reserved title and ownership of the subject property in its name pending Vive's
payment of the full amount even though possession thereof was already granted in favor of Vive. It is,
therefore, clear that the parties intended their agreement to be merely a contract to sell, conditioned
upon the full payment of the purchase price. In a contract of sale, the vendee's non-payment of the
price is a negative resolutory condition, while in a contract to sell, the vendee's full payment of the
price is a positive suspensive condition to the coming into effect of the agreement. In the first case, the
vendor has lost and cannot recover the ownership of the property unless he takes action to set aside
the contract of sale. In the second case, the title simply remains in the vendor if the vendee does not
comply with the condition precedent of making payment at the time specified in the contract.

It is immaterial that the parties described the cancellation of the agreement as one of rescission, which
is not available in contracts to sell. The parties, as laymen, are understandably not adept in the legal
terms and their implications. At any rate, courts are not held captive by the conclusions of the parties in

136
their contracts. It is an established principle in law that a contract is what the law defines it to be and
not what the contracting parties call it.

137
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

ACTUAL NOTICE OF THE CO-HEIRS SATISFIES THE REQUIREMENT OF WRITTEN NOTICE BY

THE VENDOR IN CASE OF LEGAL REDEMPTION

25. Escabarte v. Heirs of Isaw

G.R. No. 208595, August 28, 2019
Reyes, J.

FACTS:
Spouses Bawing were the owners of a parcel of land, located in Zamboanga del Norte. Spouses
Bawing died intestate. Thus, the property passed on to their children, namely, Onday, Igbay, Garay,
Anong, Octoc, Martina, Leoncio and Pedro.

PelagiaIsig, the declared sole legitimate heir of Octoc, Igbay, and Martina sold their respective aliquot
shares in the property to spouses Barrios. Spouses Barrios reconveyed the shares sold to them as
evidenced by a Deed of Resale duly annotated at the back of OCT and was under the names of
Fausto and BenignoIsaw, sons of Garay. Meanwhile, in 1976, Fausto executed a Deed of Absolute
Sale conveying all rights, interest and participation over the properties in favor of his brother Benigno.
In 1980, the subdivision of the property into five (5) lots was duly approved. TCTs, both in the name of
BenignoIsaw, were issued for Lots 1 and 3, respectively.

23 years later or on October 17, 2003, petitioners were seeking the annulment of TCTs of Lots 1 and 3
and the judicial partition of the property of Spouses Bawing. They alleged that they agreed that the
document of conveyance should be in the name of Fausto and Benigno considering that they provided
the amount needed for the redemption of the shares sold to spouses Barrios but subject to the
condition that after Benigno and Fausto were reimbursed, the property should be partitioned among
the heirs. However, without the benefit of any extrajudicial settlement of the estate of spouses Bawing,
Benigno fraudulently sought the titling of Lots 1 and 3 in his name.

ISSUE:
Do Lots 1 and 3, which were registered in Benigno's name form part of the estate of spouses Bawing?

RULING:
No. Under Article 1088 of the New Civil Code: “For a transaction to be considered one of legal
redemption inuring to the benefit of the co-heirs, the following requisites must concur: 1) there should
be several heirs or partitioners to the common thing; 2) one of them sells his hereditary right; 3) the
sale should be made to a stranger to the inheritance and before the partition is made; 4) one or more
of the co-heirs exercise this right within the period of one month counted from the time they
are notified in writing of the sale by the vendor; and 5) the buyer is reimbursed for the price of the
same”. In this case, the fourth requisite is lacking. As a general rule, the 30-day redemption period
given to the remaining co-heirs under Article 1088 runs from written notice of the sale by the vendor.

In the present case, the Court cannot accept the private respondents' pretense that they were unaware
of the sales made by their brother and sister in 1963 and 1964. By requiring written proof of such
notice, we would be closing our eyes to the obvious truth in favor of their palpably false claim of
ignorance, thus exalting the letter of the law over its purpose. The Court is satisfied that in this case
the other brothers and sisters were actually informed, although not in writing, of the sales made in
1963 and 1964, and that such notice was sufficient.As to when the 30-day period of redemption
began, the Court do not declare that this period started from the dates of such sales in 1963 and 1964,
but sometime between those years and 1976, when the first complaint for redemption was filed, the
other co-heirs were actually informed of the sale and that thereafter the 30-day period started running
and ultimately expired. This could have happened any time during the interval of thirteen years, when
none of the co-heirs made a move to redeem the properties sold. By 1977, in other words, when Tecla
Padua filed her complaint, the right of redemption had already been extinguished because the period
for its exercise had already expired.

138
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

UPON NOTICE OF THE FORECLOSURE SALE OR RECEIPT OF ANY NOTICE OF THE FACT OF
SALE, THE RIGHT OF LEGAL REDEMPTION OF THE REDEMPTIONER ALREADY ACCRUES

26. Bayan v. Bayan

G.R. No. 220741, August 14, 2019
Reyes, Jr., J.

FACTS:
Petitioners, together with respondent Celia, are the registered co-owners of three parcels of residential
and commercial land located in Quezon City. Celia, acting for herself and as alleged Attorney-in-Fact
of petitioners, was able to obtain loans on three different occasions from her co-respondents. To
secure the payment of her loans, Celia executed a fraudulent SPAs which supposedly embodied her
authority to act on behalf of the petitioners, who was permanently living in the United States. With such
spurious authority, Celia executed in favor of Dy and Tanghal two Deeds of Real Estate Mortgage
covering the parcels of land which she co-owned with petitioners. Petitioners insisted that all the
transactions made by Celia were without their knowledge and consent and their signatures embodied
in the SPA were forged. This prompted them to file the instant action. However, during the pendency of
the case, Dy and Tanghal proceeded to foreclose the mortgage.

RTC ruled in favor of the petitioners. On appeal, petitioners filed a Motion for Partial Reconsideration
wherein they prayed that the CA partially reconsider its Decision by granting their right of legal
redemption over the one-third (1/3) share of Celia through the payment of one-third of the mortgage
debt, without interest, to be exercised within a reasonable period to be set by the trial court.

ISSUE:
Can the 1/3 share of Celia in the land be recovered through legal redemption by the petitioners even
during appeal?

RULING:
No. Petitioners' right of redemption accrued the moment they have written notice of the foreclosure
sale. In legal pre-emption or redemption under the Civil Code of the Philippines, written notice of the
sale to all possible redemptioners is indispensable. Article 1623 of the Civil Code provides: The right of
legal pre-emption or redemption shall not be exercised except within thirty days from the notice in
writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be
recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has
given written notice thereof to all possible redemptioners.

In the instant case, the fact that petitioners alleged in their complaint about the foreclosure sale of the
mortgage, the Sheriff's Certificate of Sale and their annotation/inscription on the TCTs conclusively
shows that petitioners were notified of the sale and were furnished said documents, and is tantamount
to an actual knowledge of such fact of sale. No other notice is needed because the Sheriff's Certificate
of Sale itself confirms the fact of sale, its perfection and its due execution. The bottomline is that
petitioners need not wait for the Court to make a definitive ruling on the validity or invalidity of the
mortgage made by their co-owner. Upon notice of the foreclosure sale or receipt of any written notice
of the fact of sale, petitioners' right of legal redemption had already accrued such that they should
have included said issue at the very onset in their complaint. Not having raised the same with the
lower court, it cannot be entertained for the fist time in the Motion for Reconsideration with the
appellate court.

139
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

PRESCRIPTION IS ANOTHER MODE OF ACQUIRING OWNERSHIP AND OTHER REAL RIGHTS

OVER AN IMMOVABLE PROPERTY

27. Conje v. Spouses Tsamoudakis

G.R. No. 184220 (Notice), July 24, 2019
Ponente, J.

FACTS:
Petitioner Gloria Conje et.al. are heirs of brothers Roberto and CatalinoSamares. They claimed to be
the rightful owners of a land located in Leyte by virtue of intestate succession from their predecessors-
in-interest who were declared owners of the land. They allege that the land was surreptitiously
declared for tax purposes in the name of Rodrigo Abapo even without any document evidencing
conveyance by the Samares brothers to him. Abapo sold the land to herein respondents Tsamoudakis
by virtue of a Deed of Sale. Petitioners filed a case of recovery of ownership against Tsamoudakis with
the MCTC, while the latter filed a 3rd party complaint against Abapo by virtue of his warranty to his title.

Spouses Tsamoudakis aver that they were the ones who offered to buy the disputed property from
Abapo in an effort to recover what was once owned by her grandfather Teodoro Larosa. Roberto
Samares sold the land to Pascual Millar who sold the land to Teodoro Laroza who then sold the same
to Abapo and Abapo to Spouses Tsamoudakis, the present owners and possessors of the land who
built a residential building thereon. Petiitoners contend that there could have been no such sale
between Samares and Millar in 1938 because Samares died in 1933.

MCTC ruled in favor of respondents as the rightful owners of the property. Evidence shows that by
virtue of respondent’s adverse, public, continuous and peaceful possession of the property for more
than 30 years, ownership belongs to respondents. Petitioners failed to show that they have a rightful
claim of ownership over the property, and that they have continuous possession over it. RTC reversed
the decision. On appeal, the CA reinstated the MCTC’s decision.

ISSUE:
Is there a sale between Roberto Samares and Pascual Millar in 1938?

RULING:
Yes. Petitioners failed to present sufficient evidence of their ownership of the property. Respondents
became owners of the property through extraordinary acquisitive prescription. To refute the transfer of
the property between Roberto Samares and Pascual Millar in 1938, petitioners claim that the transfer
could not have happened since the former died in 1933, the best evidence to prove such claim would
have been to present Samares’ death certificate. Petitioners have inexplicably failed to present it.

On the other hand, respondents have established ownership of the property through extraordinary
acquisitive prescription. Prescription is another mode of acquiring ownership and other real rights over
an immovable property. It is concerned with lapse of time in the manner and under conditions laid
down by law, namely, that the possession should be in the concept of an owner, public, peaceful,
uninterrupted and adverse. Possession is open when it is patent, visible, apparent, notorious and
clandestine. It is continuous when uninterrupted, unbroken and not intermittent or occasional;
exclusive when the adverse possessor can show exclusive dominion over the land and an
appropriation of it to his own use and benefit; and notorious when it is so conspicuous that it is
generally known and talked of by the public or the people in the neighborhood. Acquisitive prescription
may be either extraordinary which requires uninterrupted adverse possession for 30 years, or ordinary
which requires possession in good faith and with a just title for a period of 10 years. Hence, this
petition is denied.

140
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

IF INDEED OWNERSHIP OVER THE LOT IS RESERVED IN FAVOR OF THE VENDOR AND
TRANSFER THEREOF WOULD ONLY BE EFFECTED UPON FULL PAYMENT OF THE PRICE,
THE SALE TRANSACTION IS A CONTRACT TO SELL

28. Spouses Chua v. Spouses Lo

G.R. No. 196743, August 14, 2019
Reyes Jr., J.

FACTS:
Spouses Lolito and Myrna Chua were the owners of a parcel of coconut land. They sold a part of the
said land to sisters Delia and Josefina on 2 separate sales. The land was subdivided, and several
TCTs were issued. Josefina and Delia asked that the TCTs for the land they bought be registered in
their names. However, Sps. Chua contended that the TCT for the land covered 600 sqm more than
what the sisters bought. Hence, they entered into an agreement that of the 2 TCTs covering the land
bought by the sisters, 1 would be in the name of Josefina (wife of Agustin Lo) while the other would be
subdivided to segregate the excess 600 sqm, and be named in the name of Lolito. Hence a Deed of
Sale was made. However, in violation of the agreement Josefina and Agustin Lo forcibly occupied the
600 sqm excess property which was sold to Lolito’s brother Sergio.

Meanwhile, Delia died leaving her husband Victor Lo and children as heirs. Victor then sold the land in
dispute to Agustin Lo Realty Corp., and another non-existent lot. Pursuant thereto, Agustin Lo Realty
Corporation occupied the land and constructed a building thereon. Thereafter, Sps. Chua demanded
that they vacate the excess 600sqm and to remove construction thereon. Failing to have reached an
amicable settlement, Sps. Chua filed a Complaint for Quieting of Title, Annulment of Sale, Recovery of
Possession and Damages, with Preliminary Injunction.

ISSUE:
Are the sale transactions between Sps. Chua and Josefina and Delia a contract to sell?

RULING:
Yes. Sps. Chua contend that the sale transactions were essentially contracts to sell, such that a
contract of sale (transferring the ownership) will be executed upon full payment by the vendees of the
purchase price. If indeed ownership over the lot is reserved in favor of the vendor and transfer thereof
would only be effected upon full payment of the price, then no doubt, the 1976 and 1977 sale
transactions are Contracts to Sell. By law, a contract to sell is defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, the full payment of the purchase price.

At the time of the execution of the Deeds of sale, the ownership of the lot was not yet transferred to the
buyers Josefina and Delia. As evidenced by the acquiescence by the sisters that the title of the land be
issues in the name of Sps. Chua, and the fact that the latter were able to mortgage the land. The
parties cannot deny that the total area of the land delivered to the sisters were in excess of 600 sqm.
No one objected to the transfer of title made by Lolito to his brother Sergio. Therefore, petitioner’s
action to quiet title stands on legal grounds.

The Deed of Sale executed by Victor to Agustin Lo Realty Corporation appears to be valid but in fact
casts a cloud on Sergio’s title. The lot was not entirely owned by Victor; hence he had no right to
dispose of the said portion by virtue of the Deed of Sale.The sale is void. As for the sale of the 500
sqm by Myrna to Josefina. The same is valid and binding. Apart from the fact that said sale was well-
supported by a Certification signed by Myrna attesting to the sale of 500 sq m in favor of Josefina, no
one from the parties disputed its existence and genuineness. For this reason, the spouses Chua is
obligated to execute a separate contract/agreement to fortify this sale transaction and to deliver the
said 500 sqm.

141
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

UPON DEATH OF THE LESSEE IN A LEASEHOLD AGREEMENT, THE LEASEHOLD SHALL

CONTINUE BETWEEN THE LESSOR AND THE LESSEE’S HEIRS

29. Heirs of Arellano v. Tolentino

GR. 207152, June 15, 2019
J. Reyes, Jr., J.

FACTS:
Timoteo Tolentino (Timoteo) executed a leasehold agreement with Bartolome
entitled KasunduanBuwisansaSakahan. In the said contract, Timoteo undertook to
cultivate palay during the rainy season and to make annual rental payments in the amount of 21
cavans of palay.

During Timoteo's lifetime, he permitted Pablito Arellano (Pablito), his son from a former marriage, to
assist him in cultivating the subject land and remitting the landowner's share to the product. Upon
Timoteo's death in 2004, a conflict arose between family members as to who was the lawful successor
to Timoteo's tenancy in the subject land.

On one hand, respondent claims that she and her children as heirs of Timoteo should be the
successor of Timoteo's tenancy rights. On the other, Pablito claims that he is the rightful tenant as his
continuous cultivation of the subject land, known to the Songcos, was tantamount to his stepfather's
abandonment of his tenancy rights and relinquishment thereof to him.

ISSUE:
Is Pablito the lawful tenant of the subject land?

RULING:
NO. Under Chapter XI, Section 166(13)of R.A. No. 3844, the concept of "personal cultivation" has a
specific definition. It does not only mean actual physical cultivation by the tenant, but it could also
mean cultivation "with the aid of labor from within his immediate household." Under Section 166(8)of
the same Chapter, "members of the family of the lessee" are considered as "immediate farm
household" who could aid the agricultural lessee in personally cultivating the land. Allowing, thus,
Pablito, Timoteo's stepson, to cultivate the land in his stead still comes within the purview of "personal
cultivation" on the part of Timoteo in legal contemplation. It cannot, by itself, be considered as a
violation of Timoteo's obligation as a tenant, much less, an abandonment of his tenancy rights. At
most, therefore, Pablito could only be considered as a farmhand, helping in the cultivation of the land
tenanted by his stepfather.

It bears stressing that physical cultivation of the land per se would not warrant the lawful tenant to
automatically be dispossessed of the tenanted land. The dispossession should be court-authorized
after due determination of the existence of any of the grounds under R.A. No. 3844. While there may
be implied tenancy, there can be no implied dispossession of a landholding, nor can there be an
implied rescission of an agricultural leasehold agreement. There can be no implied tenancy when there
is another express tenancy on the same landholding.

Upon Timoteo's death, therefore, the leasehold shall continue between the Songcos and the
respondent, Timoteo's surviving spouse, in accordance with Section 9 of R.A. No. 3844.

142
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

THE NOMENCLATURE GIVEN BY THE PARTIES TO THE CONTRACT IS NOT CONCLUSIVE OF

THE NATURE AND EFFECTS THEREOF, THUS EVEN IF A DOCUMENT APPEARS ON ITS FACE
TO BE A SALE, THE OWNER MAY PROVE THAT IT IS REALLY A LOAN WITH MORTGAGE

30. Saclolo v. Marquito

G.R. No. 229243, June 26, 2019
Caguioa, J.

FACTS:
Petitioners obtained a loan from Felipe Marquito, the father of the respondents, placing their land as
collateral for the loan obligation. After which, respondents' father began occupying the land.
Respondents, on the other hand, alleged that in 1984, petitioners sold the subject property under
a Memorandum of Deed of Sale with Right of Repurchase. Sometime in 2004, petitioners verbally
informed respondents of their intention to "redeem" the property. A written offer to redeem the property
was thereafter made. However, respondents refused. Thus, petitioners filed a Complaint for
redemption of mortgaged properties, specific performance with damages before the RTC. After trial,
the RTC found that the true transaction between the parties was one of equitable mortgage. However,
it held that the period for the redemption of the property had lapsed as it was filed beyond the four-year
period under Article 1606 of the Civil Code.

ISSUE:
Is the transaction between the parties a sale with right of repurchase?

RULING:
NO. Article 1602 of the Civil Code of the Philippines provides that a contract shall be presumed to be
an equitable mortgage, in any of the following cases:
1. When the price of a sale with right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

The provision shall apply to a contract purporting to be an absolute sale. In case of doubt, a contract
purporting to be a sale with right to repurchase shall be considered as an equitable mortgage. In a
contract of mortgage, the mortgagor merely subjects the property to a lien, but the ownership and
possession thereof are retained by him. For the presumption in Article 1602 of the New Civil Code to
arise, two requirements must concur: (a) that the parties entered into a contract denominated as a
contract of sale; and (b) that their intention was to secure an existing debt by way of a mortgage. The
existence of any of the circumstances defined in Article 1602 of the New Civil Code, not the
concurrence nor an overwhelming number of such circumstances is sufficient for a contract of sale to
be presumed an equitable mortgage.

The nomenclature given by the parties to the contract is not conclusive of the nature and legal effects
thereof. Even if a document appears on its face to be a sale, the owner of the property may prove that
the contract is really a loan with mortgage, and that the document does not express the true intent of
the parties.

143
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

UPON DEATH OF THE DECEDENT, THE HEIR/DEVISEE/LEGATEE BECOMES THE ABSOLUTE

OWNER OF THE PROPERTY INHERITED THUS, HE/SHE CAN VALIDLY DISPOSE OF THE SAME
IMMEDIATELY AFTER SUCH DEATH

31. Spouses Salitico v. Heirs of Felix

G.R. No. 240199, April 10, 2019
Caguioa, J.

FACTS:
Amanda is the owner of a parcel of land located in Bulacan, which is registered in her name under
OCT No. P-1908.By virtue of a document entitled HulingHabilinni Amanda H. Burgos, the subject
property was inherited by the niece of Amanda, Resurreccion, as a devisee. Thereafter, Resurreccion,
as the new owner of the subject property, executed a document entitled Bilihang Tuluyan ng
Lupawhich transferred ownership over the land in favor of the petitioners Sps. Salitico. The latter then
took physical possession of the subject property. Subsequently, a proceeding for the probate of
the HulingHabilin was undertaken. Thereafter, petitioners Sps. Salitico received a demand letter
requiring them to vacate the subject property and surrender possession over it to the respondent heirs.
This prompted Sps. Salitico filed the present Complaint, seeking among others, the execution of the
corresponding Deed of Absolute Sale by way of confirming the BilihangTuluyan ng Lupa.

ISSUES:
Can Resurreccion, as devisee, validly sell the subject property upon death of the decedent?

RULING:
YES. Upon the death of Amanda, Resurreccion became the absolute owner of the devised subject
property, subject to a resolutory condition that upon settlement of Amanda's Estate, the devise is not
declared inofficious or excessive. Hence, there was no legal bar preventing Resurreccion from
entering into a contract of sale with the petitioners Sps. Salitico with respect to the former's share or
interest over the subject property.

Article 777 of Civil Code operates at the very moment of the decedent's death, meaning that the
transmission by succession occurs at the precise moment of death and, therefore, at that precise time,
the heir is already legally deemed to have acquired ownership of his/her share in the inheritance, "and
not at the time of declaration of heirs, or partition, or distribution." Thus, there is no legal bar to an heir
disposing of his/her hereditary share immediately after such death.

In a contract of sale, the parties' obligations are plain and simple. The law obliges the vendor to
transfer the ownership of and to deliver the thing that is the object of sale to the vendee. Therefore, as
a consequence of the valid contract of sale entered into by the parties, Resurreccion had the obligation
to deliver the subject property to the petitioners Sps. Salitico. In fact, it is not disputed that the physical
delivery of the subject property to the petitioners Sps. Salitico had been done, with the latter
immediately entering into possession of the subject property after the execution of the BilihangTuluyan
ng Lupa.

144
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

PRESENCE OF EVEN ONE OF THE CIRCUMSTANCES ENUMERATED IN ARTICLE 1602

SUFFICES TO CONVERT A PURPORTED CONTRACT OF SALE INTO AN EQUITABLE
MORTGAGE

32. Spouses Sy v. De Vera-Navarro

G.R. No. 239088, April 3, 2019
Caguioa, J.

FACTS:
Petitioner John was one of the coowners of a parcel of land and a four-storey building. Petitioners Sps.
Sy alleged that the subject property has a market value of more than P40,000,000.00. The controversy
arose when petitioner John, for himself and in representation of his co-owners, borrowed
P3,720,000.00 from respondent De Vera-Navarro, secured by a Real Estate Mortgage Contract. After
the execution of the Mortgage Contract, respondent De Vera-Navarro asked petitioner John to execute
an undated Deed of Absolute Sale with a stated consideration in the amount of P5,000,000.00,
supposedly for the purpose of providing additional security for the loan. Petitioners also claimed both
parties verbally agreed that the mode of payment for the said loan would be respondent De Vera-
Navarro's collection of rental payments from the tenants of the subject property in the total amount of
P70,000.00 per month for five years. In 2011, to the surprise of petitioner John, he was informed by
respondent BHTLI through a letter that the ownership of the subject property had been transferred to
respondent De Vera-Navarro. In the main, petitioners Sps. Sy claimed that they are the rightful owners
of the subject property since the Deed of Absolute Sale executed purportedly between petitioners and
respondent De Vera-Navarro is null and void. RTC declared that the purported Deed of Absolute Sale
between petitioner John and respondent De Vera-Navarro an equitable mortgage and thus null and
void. CA reversed saying that it was contract of sale.

ISSUES:
1. Was the contract between Spouses Sy and De Vera-Navarro a contract of sale or an equitable
mortgage?
2. Was BHTLI a buyer in good faith on the ground that it had no knowledge of any flaw in the title of
the transferor?

RULING:
1. It is an equitable mortgage. An equitable mortgage is defined as one which although lacking in
some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for a debt, and contains nothing impossible
or contrary to law. Its essential requisites are: (1) that the parties entered into a contract denominated
as a contract of sale; and (2) that their intention was to secure an existing debt by way of a mortgage.
Article 1602 of the Civil Code states that a contract shall be presumed to be an equitable mortgage, in
any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument extending the
period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.

Applying the foregoing to the instant case, the Court finds that the presence of at least four badges of
an equitable mortgage creates a very strong presumption that the purported contract of sale entered
between petitioner John and respondent De Vera-Navarro is an equitable mortgage.

145
First, it is not disputed by any party that the supposed vendor of the subject property, petitioner John,
remains to be in possession of the subject property despite purportedly selling the latter to respondent
De Vera-Navarro.

Second, the purchase price of the purported sale indicated in the undated Deed of Absolute Sale is
inadequate.

Third, the evidence on record shows that respondent De Vera-Navarro retained for herself the
supposed purchase price.

Fourth, from the evidence presented by petitioners Sps. Sy, it is established that the real intention of
the parties is for the purported contract of sale to merely secure the payment of their debt owing to
respondent De Vera Navarro.

2. NO. Respondent BHTLI is NOT a buyer in good faith. The Court has held that actual lack of
knowledge of the flaw in title by one's transferor is not enough to constitute a buyer in good faith where
there are circumstances that should put a party on guard, such as the presence of occupants in the
subject property. Again, it is not disputed that petitioners Sps. Sy have been in continuing possession
of the subject property. Yet, this fact did not prompt respondent BHTLI to investigate further as to the
contract of sale it entered with respondent De Vera-Navarro.

146
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

TRANSFER OF PROPERTY, ACTUAL OR CONSTRUCTIVE, WITHOUT ANY EXPRESS OR

IMPLIED RESERVATION OF OWNERSHIP OF PROPERTY BY THE VENDOR IS AN INIDICIA
THAT THE CONTRACT ENTERED INTO BY THE PARTIES IS A CONTRACT OF SALE

33. Agustin v. De Vera

G.R. No. 233455, April 3, 2019
Caguioa, J.

FACTS:
Gregorio De Vera (Gregorio) owned a parcel of residential land with an area of 180 sqm. Gregorio and
spouses Agustin executed a document entitled "Contract to Purchase and Sale" whereby the former
agreed to sell to the latter the said property. As agreed, spouses Agustin paid the partial payment of
P15,000.00 and immediately took possession of the land. They had since constructed thereon their
residential house and paid the real estate taxes. In 2001, Hipolito Agustin sold one-half portion of the
land to his sister, Imelda Agustin, who also introduced improvements on the property and constructed
a sari-sari store. Under a Deed of Absolute Sale dated September 3, 2007, Gregorio sold the subject
property to Romana M. De Vera (Romana) for the price of Php500,000.00. Petitioners Hipolito and
Imelda filed the present case before the RTC. They alleged that they were surprised to discover a
deed of absolute sale over the same property purportedly executed by Gregorio, then already 80 years
old, fourteen (14) days prior to his death, in favor of Romana. Petitioners Hipolito and Imelda argued
that Romana is a buyer in bad faith who had knowledge of Hipolito's ownership of the subject land by
virtue of sale which was annotated on the title, and of petitioners Hipolito and Imelda's actual
possession for more than 20 years already. Assuming there was a double sale, petitioners Hipolito and
Imelda asserted that they are to be preferred as first buyers and first in possession in good faith and
for value. They further contended that the 2007 sale is void as Gregorio had nothing more to sell after
the execution of the Contract to Purchase and Sale in 1986.

ISSUE:
Was the contract entered into by Hipolito and Gregorio a contract of sale or contract to sell?

RULING:
It is a contract of sale. According to Article 1458 of the Civil Code, by a 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.

Accordingly, the elements of a valid contract of sale under Article 1458 of the Civil Code are: (1)
consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its
equivalent.

Jurisprudence has then established that the hallmark of a contract to sell is the existence of a clear
agreement by the parties that the transfer of ownership is conditioned upon the full payment of the
purchase price, such that, by agreement of the parties, ownership is reserved to the seller until the
purchase price has been fully paid. The nomenclature of the subject contract as a "Contract to
Purchase and Sale" is of no moment, considering that "[t]he Court looks beyond the title of said
document, since the denomination or title given by the parties in their contract is not conclusive of the
nature of its contents." To reiterate, in the instant case, it is not disputed that there is absolutely no
stipulation in the Contract to Purchase and Sale to the effect that ownership over the subject property
is reserved in favor of Gregorio pending the complete payment of the purchase price by Hipolito.
Neither is there a provision granting Gregorio the unilateral right to rescind the Contract to Purchase
and Sale in case of non-payment. Therefore, bearing in mind the foregoing, the Contract to Purchase
and Sale is a contract of sale, and not a contract to sell.

147
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

LOAN AGREEMENT IS INDEPENDENT OF THE CONTRACT OF SALE

34. Spouses Batalla v. Prudential Bank

G.R. No. 200676, March 25, 2019
J.C. Reyes, Jr., J.

FACTS:
Spouses Batalla purchased a brand new Honda Civic from respondent Honda Cars San Pablo, Inc.
(Honda). To finance the purchase of the said motor vehicle, Spouses Batalla applied for a car loan with
Prudential Bank. Three days after spouses Batalla received the car, the rear right door of the car broke
down. Spouses Batalla sent a letter to the manager of Prudential notifying it of the said defects and
demanding the immediate replacement of the motor vehicle. Unable to secure a brand new car in
replacement of the alleged defective vehicle, Spouses Batalla filed a Complaint for Rescission of
Contracts and Damages against Prudential and Honda.

Spouses Batalla argued that the car loan it obtained from Prudential was for the purchase of a brand
new motor vehicle. They lamented that what was delivered to them was a defective vehicle. Thus, they
assailed that because of the breach of the implied warranty against hidden defects, they were entitled
to rescind the contract of sale, together with the car loan and the promissory note.

ISSUES:
1. Was the defect of the car a breach of implied warranty against hidden defect that would entitle the
petitioners to rescind the contract of sale?
2. May the petitioners rescind the contract of loan and promissory note due to the defect of the car?

RULING:
1. No, the petitioners are not entitled to rescind the contract of sale. According to Article 1561 of
the Civil Code, the vendor shall be responsible for any hidden defects which render the thing sold unfit
for the use for which it is intended, or should they diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he would not have acquired it or would have given a lower
price. In an implied warranty against hidden defects, vendors cannot raise the defense of ignorance as
they are responsible to the vendee for any hidden defects even if they were not aware of its existence.
However, in order for the implied warranty against hidden defects to be applicable, the following
conditions must be met: (a) Defect is Important or Serioeus, that is, the thing sold is unfit for the use
which it is intended and diminishes its fitness for such use or to such an extent that the buyer would
not have acquired it had he been aware thereof; (b) Defect is Hidden; (c) Defect Exists at the time of
the sale; and (d) Buyer gives Notice of the defect to the seller within reasonable time.

In the case at bar, it was not sufficiently proven that the defects of the car door were important or
serious. Spouses Batalla failed to prove that such defect had severely diminished the roadworthiness
of the motor vehicle. Moreover, it cannot be ascertained whether the defects existed at the time of the
sale. Thus, implied warranty against hidden defects is no applicable. Consequently, the vendor, Honda
is not liable. Therefore, petitioners cannot rescind the contract of sale.

2. No, petitioners cannot rescind the contract of loan and promissory note. A contract of loan is
distinct and separate from a contract of sale. A contract of loan is one where one of the parties delivers
money or other consumable thing upon the condition that the same amount of the same kind and
quality shall be paid. It is perfected upon delivery of the object of the contract. On the other hand, a
contract of sale is a special contract whereby the seller obligates himself to deliver a determinate thing
and to transfer its ownership to the buyer. In a loan, the object certain is the money or consumable
thing borrowed by the obligor, while in a sale the object is a determinate thing to be sold to the vendee
for a consideration. In addition, a loan agreement is perfected only upon the delivery of the object i.e.,
money or another consumable thing, while a contract of sale is perfected by mere consent of the
parties.

148
In the case at bar, the transactions of Spouses Batalla with Prudential and Honda are distinct and
separate from each other. From the time Spouses Batalla accepted the loan proceeds from Prudential,
the loan agreement had been perfected. As such, they were bound to comply with their obligations
under the loan agreement regardless of the outcome of the contract of sale with Honda. Even
assuming that the car that Spouses Batalla received was not brand new or had hidden defects, they
could not renege on their obligation of paying Prudential the loan amount. Therefore, petitioners
cannot rescind the contract of loan and promissory note due to the defect of the car.

149
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

WHEN A LESSEE ASSIGNS HIS RIGHTS UNDER A CONTRACT OF LEASE WITHOUT THE
CONSENT OF THE CREDITOR, SAID LESSEE IS NOT RELEASED FROM THE OBLIGATION
SINCE THERE IS NO VALID NOVATION

35. Food Fest Land, Inc. v. Siapno

G.R. No. 226088, February 27, 2019
Peralta, J.

FACTS:
Respondents are the registered owners of a 521-square-meter parcel of land (subject land) in
Dagupan City. In 1997, respondents entered into a Contract of Lease involving the subject land with
petitioner Food Fest Land, Inc. (Food Fest), a local corporation who wanted to use such land as the
site of a fastfood restaurant. The term of the lease was for 15 years with Food Fest having the right to
pre-terminate the lease on the third year. As consideration, Food Fest paid monthly rental of P43,901
for the first year with an agreement that it will escalate by 10% annually for the succeeding years. It
also included a non-waiver clause which states that “no waiver by the parties of any of their rights
under the contract shall be deemed to have been made unless expressed in writing and signed by the
party concerned.” Food Fest assigned all its rights to Tucky Foods which in turn assigned all its rights
and obligations to Joyfoods Corp. From the first to fifth year, Joyfoods paid the rentals according to the
stipulations of the contract. However, by the sixth year of the contract onwards, the rental escalation
clause was not observed. Respondents called the attention of Joyfoods and opened the rental amount
for negotiation but no agreement was reached. During the twelfth year, Joyfoods sent a letter
conveying its intent to pre-terminate the lease due to “severe and irreversible business losses.”
Respondents filed a complaint for sum of money in the amount of P988,907.74 which refer to
escalation for the years 2007 and 2008. RTC and CA ruled in favor of respondents.

Food Fest and Joyfoods argued that the unpaid balance only amounted to P382,055.22 because there
was (1) an agreement suspending indefinitely the rental escalation clause and (2) an agreement fixing
the rate of the rent for the eleventh and twelfth year at P90,000. Food Fest also argues that the
assignment of its rights and obligation to Tucky Foods and the assignment of the latter to Joyfoods,
resulted in Food Fest’s release from its obligations under the Contract of Lease.

ISSUE:
Is Food Fest still liable under the Contract of Lease despite the assignment thereof?

RULING:
Yes. The assignment did not release Food Fest from its obligations under the Contract of Lease
because respondents did not consent to such assignment. Novation of an obligation by substituting the
person of the debtor, as the term suggests, entails the replacement of the debtor by a third person.
When validly made, it releases the debtor from the obligation which is then assumed by the third
person as the new debtor. To validly effect such kind of novation, however, it is not enough for the
debtor to merely assign his debt to a third person, or for the latter to assume the debt of the former; the
consent of the creditor to the substitution of the debtor is essential and must be had as provided under
Article 1293 of the Civil Code.

Here, the facts do not permit the conclusion that novation had taken place. The settled facts do not
show that respondents had expressly consented in writing to the substitution of Food Fest by
Joyfoods. The consent of respondents to such substitution has to be in writing, in light of the non-
waiver clause of the Contract of Lease. There was also no implied consent as the respondents did
nothing in the way of releasing Food Fest from its obligations other than, perhaps, its acceptance of
rental payments from Joyfoods. Hence, there is no novation.

150
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

A NEW LEASE IS IMPLIED IF THE LESSEE CONTINUES ENJOYING THE THING LEASED FOR
15 DAYS AFTER THE TERMINATION OF THE ORIGINAL CONTRACT, UNLESS NOTICE TO THE
CONTRARY HAS BEEN PREVIOUSLY GIVEN BY EITHER PARTY

36. Spouses Velasco v. Laigo

G.R. No. 199215 (Notice), January 16, 2019

FACTS:
Spouses Laigo leased a portion of their property in La Union to spouses Velasco for a period of 20
years, commencing from September 1, 1976 to August 31, 1996, renewable for another 10 years.
Spouses Velasco constructed improvements on the property. When spouses Laigo died, they were
succeeded by their heirs, the respondents herein. Upon expiration of the original lease period, the
heirs and spouses Velasco renewed the lease for another 10 years, covering the period of September
1, 1996 to August 31, 2006. In 2000, Fidel, as heir and representative of the heirs of Sabino Laigo,
filed an ejectment suit against spouses Velasco. He sought the eviction of spouses Velasco on the
ground of non-payment of rentals.The MTC found that spouses Velasco paid the rentals and
dismissed the case. Consequently, Atty. Rillera was appointed as the respondents’ attorney-in-fact to
administer the estate of their parents and when the lease expired in 2006, he demanded that spouses
Velasco vacate the property. Spouses Velasco refused, claiming that the lease was extended until
2025. Respondents filed the unlawful detainer case on the ground of expiration of the lease.

ISSUE:
Is the lease contract extended or renewed after the expiration of the lease period in 2006?

RULING:
Yes. The Court finds that the action for ejectment should be dismissed for lack of cause of action at the
time of the filing of the complaint.

Under Article 1670 of the Civil Code, a new lease is implied if the lessee continues enjoying the thing
leased for 15 days after the termination of the original contract, unless notice to the contrary has been
previously given by either party. Conversely, if a notice of the termination of the lease is given, the fact
that the lessee continues to stay for 15 more days is not a ground for inferring a new lease. Thus, an
implied new lease or tacitareconduccion will set in when the following requisites are found to exist: (a)
the term of the original contract of lease has expired; (b) the lessor has not given the lessee a notice to
vacate; and (c) the lessee continued enjoying the thing leased for 15 days with the acquiescence of
the lessor. This implied renewal of the lease is not for the original period of the contract, but for the
periods established by Article 1682 and 1687 of the Civil Code.

In this case, petitioners occupied the property for more than 15 days following the expiration of the
period in August 31, 2006. Records show that the written notice to vacate was given only on October
4, 2006, or after an implied lease already commenced. This implied lease was for a year to year period
pursuant to Article 1687, because the term of the expired Lease Agreement provided for the payment
of annual rents.

In sum, while there was no extension of lease for a continuous period until 2025, an implied lease for a
successive yearly period existed between the parties when respondents failed to timely give a written
notice to vacate to petitioners. Considering this, at the time the complaint for unlawful detainer was
filed on March 6, 2007, respondents had no right to eject petitioners because an implied lease had
already commenced. This gave petitioners the right to occupy the leased property for a year or until
August 31, 2007. Hence, at the time they filed the complaint, respondents had no cause of action to
eject petitioners.

151
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

IN THE SALE OF IMMOVABLE PROPERTY TO DIFFERENT VENDEES, OWNERSHIP SHALL

BELONG TO THE ONE ACQUIRING IT WHO IN GOOD FAITH RECORDED IT IN THE REGISTRY
OF PROPERTY

37. Salvaña v. Labnao

G.R. No. 210624 (Notice), December 10, 2018

FACTS:
This is an appeal by certiorari under Rule 45 of the Rules of Court assailing the Decision and the
Resolution of the Court of Appeals (CA) affirming the Decision of the Regional Trial Court, Cebu City.

The controversy involves a parcel of land located at Tawagan, Sirao, Cebu City, originally part of Lot
owned by the late Moises Mabini (Mabini). When Mabini died, the property was partitioned and
distributed among his heirs: respondent Leoncia Mabini Labnao (Leoncia), Nieves Mabini (Nieves), et.
Al. The subject lot was adjudicated to Nieves and was subsequently issued TCT. Nieves died and the
lot was then passed on to her children: Elisa Insures Salvaña (Elisa), et. Al. ["collectively, the Insures].
In 1997, the Insures filed a Complaint for Reconveyance of Real Estate, Declaration of Nullity of
Extrajudicial Settlement of Estate with Sale and Certificate of Title against Leoncia, her husband
ZosimoLabnao (Zosimo), their daughter, JavillaLabnaoHermoso and Manuel Cantos Development
Corporation (MCDC). The Insures sold half of their shares to FalconeriSibonghanoy (Sibonghanoy) for
P16,000.00. Sibonghanoy took possession and cultivated the lot sold to him. Consequently, Tax
Declaration was issued under his name. When Elisa went to the City Assessors Office to pay the real
estate tax due on her share, she was informed that the tax declaration issued under her name had
been cancelled and transferred to respondent Zosimo. Upon verification, she found out that the entire
subject lot had been transferred to Zosimo and a new title, TCT had been issued in his name. Zosimo
was able to transfer the subject lot in his name by virtue of a deed of sale executed by MCDC on June
5, 1996. MCDC was also able to obtain ownership of the subject lot by virtue of a Deed of Extrajudicial
Settlement of Estate with Sale dated December 20, 1995. Subsequently, TCT was issued in MCDC's
name.

The Insures denied selling the property to MCDC or giving consent to such transaction. They asserted
that they had not received a single centavo for the purported sale. The Labnaos had always been
under the impression that the conveyance made in favor of Sibonghanoy was merely an equitable
mortgage. Sibonghanoy had never considered himself as part owner of the subject lot; that is why the
sale was never recorded in the Registry of Deeds.

ISSUE:
Is the extrajudicial settlement of estate with sale made in favor of MCDC in 1995 valid despite the
earlier sale made to Sibonghanoy in 1987?

RULING:
Yes, the sale to MCDC is valid.Article 1544 of the Civil Code clearly provides: “If the same thing should
have been sold to different vendees xxx. Should it be immovable property, the ownership shall belong
to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be
no inscription, the ownership shall pertain to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the oldest title, provided there is good faith.”

In the present case, in spite of the sale of the portion of the subject lot in 1987, Sibonghanoy failed to
register the sale with the Register of Deeds and, thus, no title was ever issued in his name. Neither did
he register his adverse claim on the subject property. The CA correctly ruled that "priority of ownership
has to be given to MCDC who, in good faith, had the second sale recorded in the Registry of Property,
and, after it, its transferee, appellee ZosimoLabnao." Sibonghanoy slept on his right by failing to
register the property in his name at the earliest opportunity.Therefore, the sale to MCDC was valid for
being registered first in good faith.

152
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

THERE EXISTS A BREACH OF CONTRACT WHERE THE LESSOR PRE-TERMINATES A LEASE

CONTRACT ON THE BASIS OF A PRE-TERMINATION CLAUSE WHICH WAS NEVER INTENDED
BY THE PARTIES TO BE EXERCISED

38. Land Bank of the Philippines v. R.T. Katigbak Construction Corp.

G.R. No. 236517 (Notice), December 5, 2018

FACTS:
This is a Petition for Review on Certiorari, praying that the 2017 Decision and 2018 Resolution of the
Court of Appeals be reversed and set aside. The Court of Appeals affirmed with modification the 2015
Joint Decision of the RTC of Antipolo City, which found Land Bank of the Philippines' pre-termination
of the Lease Contract unlawful and declared the foreclosure sale of respondents' property as void.

Katigbak Corp bought a piece of land through the lending facility of Land Bank and planned to build a
7-story commercial building. Katigbak and Land Bank entered into a loan agreement where Katigbak
borrowed P14.7M for the payment of the lot and the construction of the first three floors of the
proposed commercial building. The loan was secured by a Real Estate Mortgage on the lot, including
all its existing and future improvements. They entered into a 15-year lease agreement where the bank
will rent the first three floors of the proposed building and further amended the loan agreement
increasing the loan for the remaining parts of the building.Katigbak Corp. executed a Deed of
Assignment of Rentals, where it assigned, transferred, and conveyed to Land Bank the lease rentals of
the building as "payment/amortization of its loan with the Land Bank”. Later, Land Bank decided to pre-
terminate the lease contract which consequently caused the foreclosure of the mortgaged property.

ISSUE:
Does a lessor who pre-terminate a lease contract on the basis of a pre-termination clause which was
never intended by the parties to be exercised commit breach of contract?

RULING:
Yes. Apart from the [Lease Contract], records are bereft of evidence showingthat the parties agreed to
a pre-termination clause. On the contrary, records arereplete with evidence proving that it was the
intent of the parties that [KatigbakCorp.'s] loan payment and [Land Bank's] lease shall be
[coterminous] such thatthe lease cannot be pre-terminated as payment[,] for the loan will come from
thelease rental payments.

Edna Famorca, a former officer of [Land Bank] who wasinvolved in the subject transactions pursuant
to [Land Bank's] expansionprogram, testified that:[Katigbak Corp., et al.] took up the matter of the pre-
termination clausecontained in the [Lease Contract] with her and she said that she did not thinkthat
[Land Bank] would exercise it; when she elevated the matter to FelixbertoBustos, then Executive Vice-
President of [Land Bank], the latter told her thatthere is no way [Land Bank] would exercise the pre-
termination clause aspayment for the loan would come from the rental income; she then relayed
whatFelixberto Bustos told her to [Katigbak Corp., et al.]; further, [Land Bank] gave[Katigbak Corp., et
al.] the assurance that it would not pre-terminate the [LeaseContract] as it is merely a pro-
forma.Felixberto Bustos, former [Land Bank] Executive Vice-President, testifiedthat the pre-termination
clause was merely pro-forma and such fact wasconveyed to [Katigbak Corp., et al.].

The testimonies of petitioner's officers corroborate respondents' allegation thatthe loan and the lease
were coterminous, and that the pre-termination clause was neverintended to be exercised. Petitioner
cannot disown the statements of its formerofficers since their testimonies were (related to their acts
when they were stillemployed with it. They had personal knowledge of both the lease and the
loantransactions, and were directly dealing with respondents. They assured respondentsthat the pre-
termination clause was merely pro-forma. Respondents had no reason todistrust them as they were
then high-ranking officers. Thus, they were compelled tosign the pre-termination clause on the promise
that it would never be exercised.

153
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

BY THE CONTRACT OF SALE, ONE OF THE CONTRACTING PARTIES OBLIGATES HIMSELF

TO TRANSFER THE OWNERSHIP OF, AND TO DELIVER, A DETERMINATE THING, AND THE
OTHER TO PAY THEREFOR A PRICE CERTAIN IN MONEY OR ITS EQUIVALENT

39. Heirs of SpousesSotesv. Estaca

G.R. No. 211849 (Notice), December 3, 2018

FACTS:
This is petition for review on certiorari under Rule 45 of the Revised Rules of Court seeking the
reversal of the Decision and Resolution rendered by CAwhich dismissed the Complaint for Specific
Performance, Cancellation of Title, Damages and Attorney's Fees filed by the Spouses Sotes.

AtanacioPernia (Atanacio) was the owner of a parcel of land and the ascendant of herein co-
respondents Reynaldo, Cesaria and Fructosa.

On 1965, Santiago Sotes purchased from Atanacio, 2 has (portion) of land and was covered by a
Deed of Absolute Sale. On 1978, Santiago claims that he purchased another 2 has of land (disputed
property), this time from Arsenio -Atanacio's son. The sale was evidenced, by a Deed of Sale of even
date (1978 Deed of Sale). On 1996, the respondents executed a Deed of Sale (1996 Deed of Sale) in
favor of Santiago, confirming the previous sale made to him by their brother Arsenio under the 1978
Deed of Sale.

On 1997, the Heirs of Atanacio executed an Extra-Judicial Partition, adjudicating the disputed property
in favor of the respondents.

Accordingly, a new title was issued awarding ownership of the disputed property in favor of the
respondents. Claiming that they had already purchased the disputed property, the Spouses Sotes
demanded from the respondents the execution of a proper deed of conveyance for the transfer in their
name, pursuant to the 1978 and 1996 Deeds of Sale. However, their demand was unheeded.
Consequently, the Spouses Sotes filed a Complaint for Specific Performance, Cancellation of Title,
Damages and Attorney's Fees.

ISSUE:
Whether or not the Spouses Sotes are the rightful owners of the disputed property?

RULING:
No. A simple perusal of the afore-mentioned contracts would readily show that they do not specify a
determinate subject matter. Both Deeds do not provide a description of the property subject of the
sale, including their metes and bounds. No other useful description was given to fully indicate or prove
which part of the property was actually conveyed to the Spouses Sotes.

It bears noting that by the contract of sale, one of the contracting parties obligates himself to transfer
the ownership of, and to deliver, a determinate thing, and the other to pay therefor a price certain in
money or its equivalent.

The elements of a contract of sale are the (i) consent or meeting of the minds, that is, consent to
transfer ownership in exchange for the price; (ii) determinate subject matter; and (iii) price certain in
money or its equivalent. The absence of any of the essential elements shall negate the existence of a
perfected contract of sale.

Accordingly, judging from the Deeds of Sale, there was no determinate subject matter that would
render the sale valid and effective. Thus, the Deeds could not serve as proof that there was indeed an
intention on the parties to transfer the disputed property, by way of sale.

154
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

TORRENS SYSTEM DOES NOT CREAT OR VEST TITLE, IT ONLY CONFIRMS AND RECORDS
THE TITLE ALREADY EXISTING AND VESTED

40. Heirs of Spouses Coloma v. Spouses Meredor

G.R. No. 224136 (Notice), November 21, 2018

FACTS:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision of
the Court of Appeals and Resolution affirming the Decision of the Regional Trial Court of Camiling,
Tarlac, insofar as it dismissed the complaint of petitioners for recovery of ownership and possession.

The instant controversy involves a one-hectare parcel of land covered by TCT No. 47452 and
registered in the name of Juan Coloma married to Juliana Parazo (Sps. Coloma). Juan and Juliana
married in 1954 and died intestate in 2006. During the subsistence of their marriage, TCT No. 47452
was cancelled on the basis of a Deed of Absolute Sale dated July 23, 1979 and duly notarized,
wherein Juan apparently sold the same to herein respondents.

Petitioners filed a complaint for recovery of ownership/possession and annulment of title and
documents against respondents alleging that Juan did not sell the subject land to respondents, and if
ever he did, the sale is void for being without the conformity of Juliana.

In their answer, respondents averred that Juan need not need the consent of his wife to sell the
subject land as the same was his capital property, having been inherited from his parents as
evidenced by Deed of Succession.

ISSUE:
Is the sale of the subject land without the spouse’s consent was valid?

RULING:
Yes, the contract of sale was valid and perfected. Sps. Coloma married in 1954 and there being no
indication that they adopted a different property regime in a marriage settlement, the property regime is
conjugal property of gains. However, the Court applied the pertinent provisions of the Family Code on
conjugal partnership of gains considering that the 1997 Deed of Absolute Sale, upon which the claim
of ownership of the respondent is based, were executed after the Family Code took effect on August 3,
1988.

Under the Family Code, if the properties are acquired during the marriage, the presumption is that they
are conjugal, and the burden of proof is on the party claiming that they are not conjugal who must
present clear and convincing evidence. This, however, is counter-balanced by the requirement that the
properties must first be proven to have been acquired during the marriage before they are presumed
conjugal. Article 109 enumerates property acquired by each spouse during the marriage by gratuitous
title as one of the exclusive properties of each of the spouses.

In the case at bar, it cannot be denied that the subject land was Juan’s exclusive property having been
acquired by him through gratuitous title as evidenced by Deed of Succession. To prove that the subject
land was acquired during the marriage, petitioners argue that TCT No. 47452 was dated January 10,
1963. However, this cannot be sustained because the Torrens system does not create or vest title, it
only confirms and records the title already existing and vested. Thus, the fact that TCT No. 47452 was
dated January 10, 1963 does not necessarily lead to the conclusion that it was in 1963 when Juan
acquired the property from which the subject land is part of.

Therefore, the sale by Juan without the consent of Juliana is valid because the property is his
exclusive property.

155
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

FOR ARTICLE 1544 TO APPLY, IT IS REQUIRED THAT THE SAME THING MUST HAVE BEEN
SOLD TO DIFFERENT VENDEES.

ARTICLE 1498 STATES THAT “WHEN THE SALE IS MADE THROUGH A PUBLIC INSTRUMENT,
THE EXECUTION THEREOF SHALL BE EQUIVALENT TO THE DELIVERY OF THE THING WHICH
IS THE OBJECT OF THE CONTRACT, IF FROM THE DEED THE CONTRARY DOES NOT
APPEAR OR CANNOT CLEARLY BE INFERRED.”

41. Heirs of Bayog-Ang v. Quinones

G.R. No. 205680, November 21, 2018
Tijam, J.

FACTS:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the Decision of
the Court of Appeals which reversed and set aside the Decision of the Regional Trial Court, Midsayap,
Cotabato, dismissing the case for Specific Performance with Damages because the petitioners were
the first to register in good faith their acquisition of the property.

The subject of this dispute is a parcel of land previously owned by Ciriaco Bayog-Ang (Bayog-Ang).
Respondents claimed that the said parcel of land was sold to her by Bayog-Ang as evidenced by a
Deed of Absolute Sale dated February 25, 1964, and she demanded from the petitioners that the said
portion be segregated and transferred but the same went unheeded. Worse, the petitioners, through
alleged malicious manipulation, executed an Extrajudicial Settlement of Estate in 1996 adjudicating the
land in their favor, and as a result of which, T-91543 was issued under their names.

In their Answer, petitioners denied any knowledge of the deed of sale executed by Bayog-Ang in favor
of Quinones nor of the latter's claim over the land. They also claimed that before the execution of the
extra-judicial settlement, they went to the Register of Deeds to verify the status of the land and found
nothing was annotated on the certificate of title.On the other hand, respondent testified that she
purchased the land from Bayog-Ang and as a result, a Deed of Absolute Sale was executed and
notarized before a certain Atty. Cambronero.

ISSUE:
1. Is Article 1544 of the Civil Code applicable if the “second sale” is through inheritance?
2. Did the respondents acquire ownership of the property sold through a notarized document?

RULING:
1. No, Article 1544 on Double Sale does not apply. For Article 1544 to apply, it is required that
the same thing must have been sold to different vendees. It contemplates a case of double or multiple
sales by a single vendor. More specifically, it covers a situation where a single vendor sold one and
the same immovable property to two or more buyers.

What is undisputed from the facts of this case is that while respondents anchor their claim on the
subject lot through the Deed of Absolute Sale executed between Bayog-ang and Florence, petitioners
claim the same as part of their inheritance as heirs of Bayog-ang. Thus, there is no double sale in the
present case because the “second transaction” is not a sale.

2. Yes, the respondents have acquired ownership of the property thus removing it from the
estate of Bayog-Ang. Under the law on sales, Article 1496 of the New Civil Code provides that "the
ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of
the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee." In particular, Article 1497 provides that "the
thing sold shall be understood as delivered, when it is placed in the control and possession of the
vendee," while Article 1498 states that "when the sale is made through a public instrument, the

156
execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if
from the deed the contrary does not appear or cannot clearly be inferred."

In the present case, what is fairly established is that the Deed of Absolute Sale is a notarized
document. A document acknowledged before a notary public is a public document that enjoys the
presumption of regularity. It is a prima facie evidence of the truth of the facts stated therein and a
conclusive presumption of its existence and due execution. To overcome this presumption, there must
be presented evidence that is clear and convincing. Absent such evidence, the presumption must be
upheld.

Thus, in accordance with Article 1498, the sale of the subject land through the Deed of Absolute Sale
dated February 25, 1964, which is a public instrument, transferred ownership from Bayog-Ang to
Florence, there being no indication of any intention to the contrary.

157
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

AN EQUITABLE MORTGAGE REVEALS THE INTENTION OF THE PARTIES TO CHARGE REAL

PROPERTY AS SECURITY FOR A DEBT

42. Barez v. Linsag

G.R. No. 201211, November 21, 2018
Reyes, Jr., J.

FACTS:
This is a petition for review on certiorari seeking to annul and set aside the Decision of the CA.The
petitioners are Felipe Barez (Felipe), married to the late Yolanda Barez (Yolanda), and his daughter,
Marie Yvette Barez (Marie). Respondents are the children and only heirs of deceased spouses Davao
and Darangen who are the registered owner of the subject land in dispute. The spouses Davao and
Darangen mortgaged the subject lot to the Philippine National Bank (PNB) to secure a loan. In 1963,
the entire obligation to PNB was paid by the spouses Barez, in the name of spouses Davao and
Darangen. As the land was previously sold by Davao to a certain Isabel Odal (Isabel), a Deed of
Resale between Isabel and Davao was executed on the same date which was also financed by
spouses Barez. Afterwards, Davao sold the subject land to Yolanda, and the title to said land was
transferred and registered in the name of Yolanda on the same day. Years later, Yolanda donated the
land to Marie who became its registered owner. In 1997, respondents filed a civil case against spouses
Barez and later included Marie, seeking to declare the Deed of Sale dated in 1963 as null or, in the
alternative, an equitable mortgage. RTC dismissed the complaint which was reversed by the CA.

Respondents claim that the real intention of their parents in executing the Deed of Sale was not to sell
but only to transfer the mortgage of the subject land from PNB to spouses Barez for a period of 10
years.

ISSUE:
Was the transaction between the spouses an equitable mortgage?

RULING:
Yes, it was an equitable mortgage. An equitable mortgage is one which although lacking in some
formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as security for a debt, there being no impossibility nor
anything contrary to law in this intent. Under Article 1604 of the Civil Code, a transaction purporting to
be an absolute sale shall be deemed an equitable mortgage if any of the circumstances in Article 1602
of the Civil Code is present.

In the instant case, paragraph 2 and 6 of Article 1602 are present because (1) the vendor remained in
possession of the property as a lessee, and (2) based on the circumstances surrounding the Deed of
Sale, it can fairly be inferred that the parties’ real intention was for the transaction to secure the
payment of a debt. Moreover, the two (2) requisites for the presumption of an equitable mortgage to
arise are: (a) the parties entered into a contract denominated as a contract of sale; and (b) their
intention was to secure an existing debt by way of a mortgage. The presence of the first requisite is
undisputed. Also, it is evident that spouses Davao and Darangen, wanting to save the subject land
from foreclosure, obtained funds from spouses Barez. However, the real intention was not to give up
the land, but to guarantee the payment of the funds obtained from spouses Barez.

Thus, the transaction between the spouses is an equitable mortgage.

158
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

A CO-OWNER HAS NO RIGHT TO SELL OR ALIENATE A CONCRETE, SPECIFIC, OR

DETERMINATE PART OF THE THING IN COMMON TO THE EXCLUSION OF THE OTHER CO-
OWNERS BECAUSE HIS RIGHT OVER THE THING IS REPRESENTED BY AN ABSTRACT OR
IDEAL PORTION WITHOUT ANY PHYSICAL ADJUDICATION.

IF A THIRD PERSON REDEEMS THE PROPERTY ON BEHALF OF THE VENDOR, HE OR SHE

DOES NOT BECOME OWNER OF THE PROPERTY REDEEMED, BUT ONLY ACQUIRES A LIEN
OVER THE PROPERTY

43. Heirs of Jarque v. Jarque

G.R. No. 196733, November 21, 2018
Jardeleza, J.

FACTS:
This is a petition for review on certiorari filed by the heirs of Roger Jarque (Roger) (petitioners) seeking
to nullify the Court of Appeals decision and resolution granting the petition for review filed by
MarcialJarque, LeliaJarque-Lagsit, and Teresita Jarque-Bailon (collectively, respondents) against the
decision of the Regional Trial Court, Sorsogon City, which affirmed the decision MCTC in favor of
petitioners.

Petitioners claim that since their grandfather Laureano's death in 1946, their father, Roger, inherited
Lot No. 2560 (“lot”) and exercised all attributes of ownership and possession over it. Roger mortgaged
the property to Benito Coranes (Benito). However, when Roger was about to redeem the property,
Benito told him that it had already been redeemed by Lupo. When Roger went to Lupo to take back the
property, Lupo pleaded with Roger to let the property remain with him. Roger acceded to Lupo's
request. When Lupo died, Roger informed Lupo's wife, Asuncion, of his desire to take back the
property; however, the latter requested that she be allowed to continue possessing the property since
she needed a source of livelihood for her family's survival. Once again, Roger acquiesced. Upon
Asuncion's death, her eldest child, Dominga, likewise pleaded with Roger to allow her to continue
possession of the property. Again, Roger yielded to the request. When Dominga died, her siblings,
respondents here, continued to possess the property under the same terms and conditions as their
predecessors-in-interest. Upon inquiry with the Municipal Assessor's Office, Roger and his children
found that Dominga, during her lifetime, executed and registered a Ratification of Ownership of Real
Property, where she claimed to have acquired the property thru redemption from Benito. This
prompted Roger to file a complaint for annulment of deeds and other documents, recovery of
ownership and possession, accounting, and damages against respondents.

Respondents claim that on December 21, 1972, Servanda sold the lot to Benito, with a reservation of
the right to repurchase the same. When the period to repurchase was about to expire, Servanda
requested her granddaughter, Dominga to redeem the property. Dominga yielded to her grandmother's
request and repurchased the property in 1974. Thereafter, she took possession of the lot and
religiously paid taxes due on it. Later on, Dominga transferred all her rights over the property to Lelia,
who took possession of the property in the concept of an owner.

ISSUES:
1. Is the sale of Servanda of the whole lot to Benito valid?
2. Did Dominga acquire ownership over the lot thru redemption?

RULING:
1. No, Servanda had no right to sell the lot to Benito. Under Article 1082 of the Civil Code, every
act intended to put an end to indivision among co-heirs is deemed to be a partition.

In this case, as soon as the lot was identified, occupied, and possessed by Roger to the exclusion of
all the other heirs, the co-ownership as to said property was terminated. These are acts which
happened prior to the alleged sale of the property to Benito.

159
Even assuming there was no partition, under Article 493 of the Civil Code, a co-owner has no right to
sell or alienate a concrete, specific, or determinate part of the thing in common to the exclusion of the
other co-owners because his right over the thing is represented by an abstract or ideal portion without
any physical adjudication. An individual co-owner cannot adjudicate to himself or claim title to any
definite portion of the land or thing owned in common until its actual partition by agreement or judicial
degree.

In this case, while Servanda may sell her undivided aliquot share as a co-owner, she may not alienate
the whole of the lot to the exclusion of the other co-owners.

Thus, what may only be considered sold to Benito, and which was eventually redeemed by Dominga,
is Servanda's right over her undivided aliquot share in the property-not the right over her lot. Therefore,
at the time of the sale, Servanda had no right to sell the lot either as sole owner or co-owner.

2. No. As a rule, the right to repurchase under Article 1601 may only be exercised by the vendor,
or his successors. If so exercised, the ownership of the property reverts back to the vendor or his
successor. On the other hand, if a third person redeems the property on behalf of the vendor, he or
she does not become owner of the property redeemed, but only acquires a lien over the property for
the amount advanced for its repurchase. As such, the third person's right merely consists of the right to
be reimbursed for the price paid to the vendee.

In this case, Dominga did not acquire ownership over the lot because it was not proven that
Servanda's right to repurchase the same was transferred to her. What was only established by
respondents' evidence is the fact of Dominga's repurchase.

Thus, at most, Dominga may only be considered as agent of Servanda in redeeming the lot and
merely acquired the rights Servanda previously possessed, i.e., her aliquot share in the co-ownership
or her usufruct. On the other hand, if Dominga acted in her own name in redeeming the property, she
may be considered as a third person paying the purchase price on behalf of Servanda. In both cases,
Dominga’s exercise of Servanda’s redemption does not vest in her title to, or ownership over the lot.

160
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

STRICLY SPEAKING, IN A CONTRACT TO SELL, THERE CAN BE NO RESCISSION OR

RESOLUTION OF AN OBLIGATION THAT IS STILL NON-EXISTENT DUE TO THE NON-
HAPPENING OF THE SUSPENSIVE CONDITION.

44. Royal Plains View, Inc. v. Meija

G.R. No. 230832, November 12, 2018
Reyes, Jr., J.

FACTS:
This is a Petition for Review on Certiorari questioning the Decision and Resolution of the Court of
Appeals which reversed the Regional Trial Court, Tagum City, Davao Del Norte which dismissed with
prejudice the case for Declaration of Nullity of Instrument.

Subject of the present controversy is a parcel of land registered to the late Dominador Ramones
(Dominador) a portion of which was sold to Bias Mejia, father of Nestor Mejia (Nestor). In 2005, Nestor
met petitioner Renato Padillo (Renato), the President of petitioner Corporation, Royal Plains View, Inc.,
a real estate company. Nestor and petitioner Corporation, entered into a contract denominated as
Deed of Conditional Sale involving said parcel of land where it provides among others, upon full
payment of the agreed consideration, the vendor shall execute the deed of absolute sale in favor of the
vendee. Later, Renato received a document entitled "Rescission of Deed of Conditional Sale from
Nestor whereby the latter rescinded the Deed of Conditional Sale alleging that petitioners (Renato and
the Corporation) had defaulted in the payment of the monthly installments agreed upon.

Petitioners filed a Complaint for Declaration of Nullity of the Instrument denominated as Rescission of
Conditional Sale, Specific Performance, Sums of Money, etc. against respondent Nestor arguing that
the unilateral rescission made by the respondent Nestor is invalid.

Respondent posited that he can unilaterally rescind the contract in case of the non payment of the
installment price agreed upon

ISSUE:
Is the rescission by the seller in a contract to sell upon the default of the buyer valid?

RULING:
No. The contract between the parties is not an absolute conveyance of real property but a contract to
sell. In a contract to sell real property on installments, the full payment of the purchase price is a
positive suspensive condition, the failure of which is not considered a breach, casual or serious, but
simply an event which prevented the obligation of the vendor to convey title from acquiring any
obligatory force. Strictly speaking, in a contract to sell, there can be no rescission or resolution of an
obligation that is still non-existent due to the non-happening of the suspensive condition.

Considering the foregoing, it follows then that respondent Nestor's act of rescinding the Deed of
Conditional Sale, or, more correctly, canceling it, is theoretically valid and the parties shall stand as if
the obligation to sell never existed. The reason is not that respondent Nestor has the power to
rescind such contract, but because their obligation thereunder did not arise. While we recognize
the seller's right to unqualifiedly cancel the contract to sell upon the buyer's default, such cancellation
must be made with notice to the other party who failed to perform his end part of the bargain.

In this case, respondent Nestor's action in canceling the contract to sell is unjustified. First. There was
no showing that respondent Nestor made a demand to pay the remaining balance at the moment
petitioners failed to pay the monthly installment due for December 2009. Second. It appearing that
payment was still not made, there is no showing that respondent Nestor sent a notice to petitioners
informing them that he is already canceling the contract to sell or, at the very least, his intent to cancel
the said contact. Therefore, considering that the Deed of Conditional Sale was not validly cancelled, it
follows then that the same subsists and remains effective.

161
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

CONTRACTOR IS SOLIDARILY LIABLE WITH THE OWNER AND SUBCONTRACTOR FOR ANY
LIABILITIES AGAINST THE SUPPLIER

45. NoellWhessoe, Inc. v. Independent Testing Consultants, Inc.

G.R. No. 199851, November 7, 2018
Leonen, J.

FACTS:
This is a Petition for Review on Certiorari assailing the Court of Appeals decision affirming the Reginal
Trial Court’s finding that Noelle Whessoe, Inc. was solidarily liable with Liquigaz Philippines
Corporation and Petrotech Systems, Inc. to Independent Testing Consultants, Inc.

Sometime in June 1998, Petrotech, a subcontractor of Liquigaz, engaged the services of respondent
Independent Testing Consultants to conduct non-destructive testing on Liquigaz's piping systems and
liquefied petroleum gas storage. It later billed Petrotech for its services, however, despite demand
Petrotech refused to pay. Respondent filed a Complaint for collection of sum of money against
Petrotech, Liquigaz, and NoellWhessoe. It joined NoellWhessoe as a defendant, alleging that it was
Liquigaz's contractor that subcontracted Petrotech.

In its Answer, Liquigaz argued that respondent had no cause of action against it since there were no
contractual relations between them. NoellWhessoe, on the other hand, denied that it was Liquigaz's
contractor and that its basic role was merely to supervise the construction of its gas plants. The RTC
found Liquigaz, NoellWhessoe, and Petrotech solidarity liable to Independent Testing Consultants. On
appeal, the CA affirmed the RTC.

Petitioner asserts that it should not have been made solidarity liable to respondent since it had no
privity of contract with the latter. It maintains that the Contract Agreement was between Liquigaz and
Whessoe UK, an entity separate and distinct from petitioner. Respondent on the other hand, counters
that petitioner directly approved and commissioned its services.

ISSUE:
Is petitioner NoellWhessoe, Inc. solidarily liable with respondents Liquigaz Philippines Corporation and
Petrotech Systems, Inc. for unpaid fees to respondent Independent Testing Consultants, Inc.

RULING:
No. In JL Investment and Development, Inc. v. Tendon Philippines, Inc., the Supreme Court explained
that Article 1729 of the Civil Code is an exception to the general rule on the privity of contracts. That
this provision imposes a direct liability on an owner of a piece of work in favor of suppliers of materials
hired by the contractor "up to the amount owing from the [owner] to the contractor at the time the claim
is made." As the Court of Appeals correctly ruled, the supplier's cause of action under this provision,
reckoned from the time of judicial or extra-judicial demand, subsists so long as any amount remains
owing from the owner to the contractor. Only full payment of the agreed contract price serves as a
defense against the supplier's claim.

Article 1729, while serving as an exception to the general rule on the privity of contracts, likewise
provides for an exception to this exception. The contractor is solidarily liable with the owner and
subcontractor for any liabilities against a supplier despite the absence of contract between the
contractor and the supplier, except when the subcontractor has already been fully paid for its services.
Thus, petitioner still cannot be held solidarily liable with Liquigaz and Petrotech for any remaining
receivables from respondent Independent Testing Consultants. Any remaining obligations to it should
be solidarily borne by the owner, Liquigaz, and the subcontractor, Petrotech.

In certain situations, the supplier may also be referred to as a subcontractor to provide materials or
services. There are also situations where, as in this case, the subcontractor further subcontracts some
materials and services to another subcontractor. This sub-subcontractor would be considered the

162
supplier of materials and services. In this case, the owner is Liquigaz, the contractor is petitioner, the
subcontractor is Petrotech, and the supplier/sub-subcontractor is respondent Independent Testing
Consultants. Respondent Independent Testing Consultants may demand payment for all of its unpaid
fees from Liquigaz, petitioner, or Petrotech, even if its contract was only with the latter.

163
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

EVEN WHEN THERE IS NO LEASE AGREEMENT BETWEEN THE PARTIES, OR EVEN WHEN
THE PARTIES OCCPANT AND PROPERTY OWNER – ARE STRANGERS AS AGAINST EACH
OTHER, STILL THE OCCUPANT IS LIABLE TO PAY RENT TO THE PROPERTY OWNER BY
VIRTUE OF THE FORCED LEASE THAT IS CREATED BY THE FORMER’S USE AND
OCCUPATION OF THE LATTER’S PROPERTY.

46. Muller v. Philippine National Bank

G.R. No. 215922, October 1, 2018
Del Castillo, J.

FACTS:
This is a Petition for Review on Certiorari assailing the Decision and Resolution of the Court of
Appeals reversing the Decision of the Regional Trial Court, Iloilo City.

Spouses Fritz and Thelma Muller are the occupants of parcels of land with improvements owned by
Philippine National Bank. PNB informed the Mullers that their lease will expire and that they had rental
arrears for two and a half years. Seeking to renew the lease contract for another year, Fritz wrote to
PNB proposing to buy the subject properties. However, PNB denied the request for renewal of the
lease. On March 17, 1988, PNB demanded for the Mullers to vacate the subject properties in view of
the expiration of the lease. However, the demand fell on deaf ears. Due to continued occupation of the
Mullers, PNB sent its final demand letter on July 17, 2006, demanding from them the payment of the
rental arrears from June 1984 up to June 1, 2006. The Mullers failed to pay due attention to the written
demands against them which prompted PNB to institute a Complaint for Ejectment. The RTC declared
that the reckoning point from which a claimant in an unlawful detainer case, in this case, the PNB, may
invoke the accrual of its claims is the date of receipt of last demand.

Petitioners argue that rentals may be awarded to respondent only from the time of the latest demand
and not prior ones; that prior to said latest demand, PNB had no right to collect rent, since it is only
after receipt thereof that they may be considered illegal occupants of the bank's property and thus
obligated to pay rent; and that prior to said latest or last demand, their possession of the subject
properties may be said to have been tolerated by PNB, and as such, they were "not required to pay
the rent within the period prior to their receipt of the latest demand to vacate."

Respondent PNB, on the other hand, argues that as owner, it is entitled to reasonable compensation
for petitioners' continued use and occupation of its properties, which thus prevented it from enjoying
the same as well as the fruits thereof; that petitioners' occupation was not by mere tolerance, since
there was an oral lease agreement between them, and for this reason they must pay rent.

ISSUE:
Is respondent PNB entitled to rentals in arrears prior to July 17, 2006, the date of final demand?

RULING:
Yes. Under Article 1670 of the Civil Code, "[i]f at the end of the contract the lessee should continue
enjoying the thing leased for fifteen days with the acquiescence of the lessor, and unless a notice to
the contrary by either party has previously been given, it is understood that there is an implied new
lease, not for the period of the original contract, but for the time established in Articles 1682 and 1687.
The other terms of the original contract shall be revived."

Thus, when petitioners' written lease agreement with respondent expired on June 1, 1987 and they did
not vacate the subject properties, the terms of the written lease, other than that covering the period
thereof, were revived. The lease thus continued. In this sense, the prescriptive periods cited by
petitioners - as provided for in Articles 1144 and 1145 of the Civil Code - are inapplicable. As far as the
parties are concerned, the lease between them subsisted and prescription did not even begin to set in.

164
Even then, it can be said that so long as petitioners continued to occupy the subject properties - with or
without PNB's consent - there was a lease agreement between them. They cannot escape the
payment of rent, by any manner whatsoever. Secondly, even when the parties' lease agreement
ended and petitioners failed or refused to vacate the premises, it may be said that a forced lease was
thus created where petitioners were still obligated to pay rent to respondent as reasonable
compensation for the use and occupation of the subject properties. Indeed, even when there is no
lease agreement between the parties, or even when the parties occupant and property owner – are
strangers as against each other, still the occupant is liable to pay rent to the property owner by virtue
of the forced lease that is created by the former’s use and occupation of the latter’s property.

Thus, respondent PNB entitled to rentals in arrears prior to July 17, 2006.

165
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

AN ORDINARY BUYER MAY RELY ON THE CERTIFICATE OF TITLE ISSUED IN THE NAME OF
THE SELLER, AND NEED NOT INVESTIGATE BEYOND WHAT THE TITLE OF THE SUBJECT
PROPERTY STATES.

47. Lifestyle Redefined Realty Corporation v. Heirs of Uvas

G.R. No. 217716, September 17, 2018.
Tijam, J.

FACTS:
These are consolidated Petitions for Reviews on Certiorari under Rule 45 of the Rules of Court,
assailing the Decision of the Court of Appeals which denied petitioners Lifestyle Redefined Realty
Corporation (Lifestyle Corporation) and Evelyn Barte (Evelyn), and Rizal Commercial Banking
Corporation’s (RCBC) appeal.

U-Bez Integrated Resources, Inc. (U-Bex), controlled by Spouses Dennis and NimfaUvas obtained
various amounts of loans from RCBC. To secure said loans, Spouses Uvas executed a Real Estate
Mortgage over a parcel of land pertaining to a property located at Malate (subject property). An auction
sale was conducted where the subject property was sold to RCBC as the highest bidder. RCBC then
consolidated its title on the subject property. Subsequently, the subject property was sold to Lifestyle
Corporation and Evelyn. Lifestyle Corporation and/or Evelyn was a lessee of Spouses Uvas in the
subject property during the time of the loan up to the time RCBC sold the same to her.

The Heirs of Dennis Uvas (respondent Heirs) filed a Complaint for annulment of foreclosure sale,
certificate of sale, and cancellation of title with damages against RCBC questioning the foreclosure
stating that they were never informed of the foreclosure, that they were surprised that RCBC was
already the registered owner of the subject property, and claiming that the foreclosure sale is void for
lack of publication and notice to them.

RCBC, in its Answer, defended the validity of the foreclosure sale alleging that ever since Dennis died,
all communications were made to Dennis’ wife regarding the loans obtained by U-bex. In a
Supplemental Complaint, respondent Heirs alleged that after the filing of their initial complaint, RCBC
sold the property to Lifestyle Corporation and Evelyn claiming that such sale is void for it was derived
from a void title and alleging that Lifestyle Corporation and Evelyn and RCBC conspired against them
and are in bad faith. Lifestyle Corporation and Evelyn claim that they are buyers in good faith
considering that the sale between them and RCBC was already perfected way before the inscription of
lis pendens.

ISSUE:
Were Lifestyle Corporation and Evelyn in good faith when they purchased the subject property from
RCBC?

RULING:
Yes. Lifestyle Corporation and Evelyn were in good faith when they purchased the subject property as
they had a right to rely on the clean title of the subject property at the time of the sale.

As a rule, an ordinary buyer may rely on the certificate of title issued in the name of the seller, and
need not investigate beyond what the title of the subject property states. In order to be considered a
buyer in good faith, a person must buy the property without notice of a right or interest of another party,
and pay the purchase price at the time of sale or before notice of a claim on the property. "The
protection of innocent purchasers in good faith for value grounds on the social interest embedded in
the legal concept granting indefeasibility of titles. Between the third party and the owner, the latter
would be more familiar with the history and status of the titled property." The honesty of intention that
constitutes good faith implies freedom from knowledge of circumstances that ought to put a prudent
person on inquiry. Good faith consists in the belief of the possessors that the persons from whom they

166
received the thing are its rightful owners who could convey their title. "Good faith, while always
presumed in the absence of proof to the contrary, requires this well-founded belief."

In this case, the annotation of lis pendens, per se, does not automatically equate to the conclusion that
Lifestyle Corporation and Evelyn intentionally bought the property with knowledge, or to defeat
respondent Heirs' claims on the subject property. Plainly, it can be said that Lifestyle Corporation and
Evelyn were not expected to make further investigations on the property. The rule is settled that "one
who deals with property registered under the Torrens System is charged with notice only of such
burdens and claims as are annotated on the title." Considering that Lifestyle Corporation and Evelyn
were already in possession of the subject property, being former lessees of respondent Heirs' mother,
her full payment of the property consummated the transfer of ownership in her favor. Such
consummation of the sale between RCBC and Lifestyle Corporation and Evelyn was way before the
annotation of the lis pendens.

Thus, Lifestyle Corporation and Evelyn were indeed in good faith. The foreclosure, as well as the
subsequent sale of the property to Lifestyle Corporation and Evelyn must be upheld.

167
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

ONE CANNOT BE HELD LIABLE UNDER THE TRANSACTION IF SHE MERELY PLACED AN
ORDER ONLINE

48. Neri v. Yu
G.R. No. 230831, September 5, 2018
Peralta, J.

FACTS:
This case is a Petition for Review on Certiorari under Rule 45 of the Rules of Court of petitioner
Maribelle Neri which seeks to reverse and set aside the Decision and Resolution of the Court of
Appeals holding petitioner and Bridgette Insoy jointly liable to respondent Ryan Roy Yu.

Respondent filed a Complaint before the RTC for Sum of Money against one Bridgette “Gigi” Insoy
(Insoy) and petitioner. Respondent alleged that he and his friends Matalam and Lao went on a leisure
trip to Cebu City planning to check out a Toyota Prado sports utility vehicle that he intended to buy
from petitioner. Petitioner fetched the three men and brought them to a Toyota Yard where they met
Insoy, petitioner’s supposed business partner in Cebu. Respondent’s group was shown different
models of Toyota vehicles that the two women claimed they were authorized to sell. Petitioner
convinced respondent to consider buying Toyota vehicles from her saying they can get a big discount
if they buy from her as a group because it would be considered a bulk purchase. Petitioner assured
respondent that her transaction is legitimate. Yu’s group returned to Davao City convinced by
petitioner’s representations. Respondent then transferred the amount P1.2 Million from his Account in
Equitable PCI Bank (EPCIB) to petitioner’s account in said bank. Petitioner then issued a receipt
acknowledging payment for a Toyota Super Grandia. Petitioner then assured respondent that the
vehicle will be delivered after a week however after several extensions and repeated demands, no
vehicle was delivered to respondent and petitioner started avoiding him and ignoring his calls.
Petitioner, on the other hand, denied that she was Insoy’s business partner or agent and further
averred that except for Lao's Yaris, her two units of Prado ordered and her subsequent order of a
Toyota Hi-Lux as well as the vehicles ordered by Yu's group were never delivered. Consequently, after
exerting much effort to contact Insoy to no avail, petitioner filed a criminal complaint for estafa against
the former.

According to petitioner, the memorandum for all intents and purposes only attested to the fact of
payment of one unit of Toyota Grandia, thus, the CA is gravely mistaken by concluding that petitioner
is the seller when there is no circumstance, either by declaration or by supporting evidence that she
obligated herself to respondent to transfer ownership of and deliver the subject vehicle. She also
argues that in the assumption that respondent was really convinced that petitioner was an agent of
Insoy in the car dealership business, respondent failed to exert effort to ascertain not only the fact of
petitioner's agency but also the nature and extent of her authority to represent Insoy.

ISSUE:
Is the petitioner engaged in the business of selling cars when she “merely placed orders online”?

RULING:
Yes. The petitioner is engaged in the business of selling cars and respondent’s group directly
transacted with her for the purchase of their vehicle.

It is clear from testimonies that Yu's group, of whom only Lao is known to Neri, directly went to her and
transacted directly with her for the purchase of their respective Toyota vehicles, and she was the one
who ordered these vehicles for them online. Add this to the undisputed fact that Neri received their
payments in her bank account and issued an acknowledgment receipt without qualification that such
acknowledgment of payment was only for Insoy. The conclusion becomes inescapable that Neri
transacted as a seller, not as a mere conduit or middleman or agent.

168
The main argument of Neri is that she merely "placed an order online." True, Neri cannot be held liable
under the transaction if she merely placed an order online. However, it would be an entirely different
story if the act of placing an order online is coupled with her efforts in convincing Yu to buy a Toyota
Grandia on several occasions. Neri even provided the transportation from the Cebu Waterfront Hotel to
the Toyota Yard. In addition to this, Neri received the amount of Php1.2 Million and issued a
corresponding Acknowledgment Receipt without qualification with regard to her authority to receive the
said amount, or in what capacity she was receiving it, as agent or seller. The testimonies of Yu's
witnesses point to Neri as representing herself as a seller. Moreover, the mere act of Neri in "ordering
the vehicles online" cannot overshadow her other acts in negotiating, arranging and facilitating the
purchase of the subject vehicles.

Thus, Petitioner Neri is considered a vendor and is engaged in the business of selling cars therefore
she is liable to respondent Yu.

169
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

SALE IS A CONSENSUAL CONTRACT PERFECTED BY THE MEETING OF THE MINDS

49. Spouses Beltran v. Spouses Cangayda

G.R. No. 225033, August 15, 2018
Caguioa, J.

FACTS:
This is a Petition for Review on Certiorari filed under Rule 45 of the Rules of Court against the
Decision and Resolution rendered by the CA-Cagayan de Oro City which stemmed from an appeal
from the of the RTC directing petitioners Antonio and Felisa Beltran to vacate the disputed property
registered in the name of respondents Apolonio, Jr. and Loreta Cangayda.

Respondents verbally agreed to sell the disputed property to petitioners. Petitioners took possession of
the disputed property and built their family home thereon after initial payment. Petitioners subsequently
made additional payments.Despite respondents' repeated demands, petitioners failed to pay their
remaining balance.

Respondents referred the matter to the OBC Chairman of Magugpo, Tagum City. The parties signed
an Amicable Settlement dated August 24, 1992. Petitioners failed to pay within the period set forth in
the Amicable Settlement.Nearly 17 years after the expiration of petitioners' period to pay their
remaining balance, respondents served upon petitioners a "Last and Final Demand" to vacate the
disputed property within 30 days from notice. This demand was left unheeded.
On March 12, 2009, respondents filed a complaint for recovery of possession and damages before the
RTC alleging that petitioners had been occupying the disputed property without authority, and without
payment of rental fees.

Petitioners alleged that when they later attempted to tender payment two days after said deadline
respondents refused to accept their payment, demanding, instead, for an additional payment of
P50,000.00.

The RTC characterized the oral agreement between the parties as a contract to sell. Hence the RTC
held that ownership over the disputed property never passed to petitioners.The CA affirmed the
findings of the RTC.

ISSUES:
Was the oral agreement between parties characterized as a contract to sell?

RULING:
NO. The agreement between the parties isan oral contract of sale. As aconsequence, ownership of
thedisputed property passed topetitioners upon its delivery.

Jurisprudence defines the distinctions between a contract of sale and a contract to sell to be as
follows: In a contract of sale, title passes to the vendee upon the delivery of the thing sold; whereas in
a contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until and
unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price.

In this case, neither the testimony of respondent nor the clause 6 of the Amicable Settlement supports
the conclusion that the parties’ agreement is not a contract of sale, but only a contract to sell – the
reason being that it is not evident from said testimony and clause 6 that there was an express
agreement to reserve ownership despite delivery of the disputed property.
Therefore, the agreement is a contract of sale.

170
Being a consensual contract, sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price. From that moment, the parties may
reciprocally demand performance, subject to the provisions of the law governing the form of contracts.
A perfected contract of sale imposes reciprocal obligations on the parties whereby the vendor
obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer who, in
turn, is obligated to pay a price certain in money or its equivalent. Failure of either party to comply with
his obligation entitles the other to rescission as the power to rescind is implied in reciprocal obligations.

In a contract of sale, ownership of a thing sold shall pass to the buyer upon actual or constructive
delivery thereof in the absence of any stipulation to the contrary. (Art. 1477-1478). In accordance with
the cited provisions, ownership of the disputed property passed to petitioners when its possession was
transferred in their favor, as no reservation to the contrary had been made.

171
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

A LEASE CONTRACT IS NOT ALWAYS NECESSARY TO ESTABLISH A CAUSE OF ACTION

FOR AN UNLAWFUL DETAINER.

50. Crescini v. E. Aspe Pawnshop

G.R. No. 195130, August 8, 2018
Leonardo-de Castro, J.

FACTS:
This is a petition for review on certiorari seeking to nullify the Court of Appeals’ Decision and
Resolution granting the review of the Regional Trial Court’s Decision and reinstating the Municipal Trial
Court in Cities Decision.

The dispute involves an unlawful detainer case filed by Crescini against Aspe. Crescini acquired the
land and building from its former owner Purita Lee by virtue of a Sale. Crescini registered his
ownership. At that time, Lee had an existing six-year lease contract (1999 lease) from December 28,
1999 until December 28, 2005 with Aspe over the property. With knowledge of this lease, Crescini sent
a written notice to Aspe informing the latter that the property was transferred to him. Crescini then sent
a letter where he informed Aspe that he will not renew the lease contract or grant any further
extension.

On January 3, 2006, without the knowledge of Crescini, Aspe entered into another lease contract
(2006 lease) with Lee for a period of 12 months, or up to December 31, 2006. On the fifth month of this
lease, Crescini sent a letter where he made an offer to allow Aspe to continue with the occupancy,
provided they both enter into a formal lease contract for a monthly rent of P15,000.00 to be reckoned
from January 1, 2006. Hearing nothing, Crescini, through counsel, made a formal demand on October
12, 2006 for Aspe to vacate and pay the monthly rentals of P15,000.00 starting from January 1, 2006.
For Aspe's failure to comply with his demands, Crescini initiated the action for unlawful detainer.
During the pendency of the proceedings, Aspe vacated the premises and surrendered the key to the
property to the MTCC.Crescini was placed in possession of the property.

Crescini contends that unlawful detainer is also proper when a person who occupies the land of
another at the latter’s tolerance or permission fails to vacate the premises upon the owner’s demand.
Aspe claims the absence of a contract of lease renders the first requisite of unlawful detainer case
missing.

ISSUE:
Is Aspe liable for rental payments or reasonable compensation to Crescini for the period of January
2006 until surrender of the property to the latter?

RULING:
Yes, Aspe is liable for rent to Crescini.

An action for unlawful detainer pertains to specific circumstances of dispossession. It refers to a

situation where the current occupant's initially lawful possession became unlawful due to the expiration
of the right to possess, which may be sourced from a contract, express or implied, or by mere
tolerance.Thus, a lease contract is not at all times necessary for a successful unlawful detainer action.
An ejectment complaint based on possession by tolerance of the owner is a category of unlawful
detainer cases, which may also succeed after establishing the key jurisdictional facts

The Finding that Crescini did not have a lease contract with Aspe is incorrect. When Crescini bought
the land and building, he was subrogated to the rights and obligations of Lee as lessor in the 1999
lease over the property as the latter's successor-in-interest. Thereafter, upon expiration of the lease in
2006, Aspe's possession and occupation of the property was converted into one by mere tolerance or
permission of Crescini. This was evident in Crescini's letters to Aspe, allowing the latter to occupy the

172
property with the view that they will eventually enter into a formal lease contract. Later, this tolerance
ceased upon Crescini's written notice to vacate to Aspe, making Aspe's possession unlawful.

The ownership of Crescini over the property operates to reject Aspe's defense that she had a valid
lease contract with Lee. As of the execution of the 2006 lease, Lee was no longer the registered owner
of the property, and there is no showing that she had been granted authority to execute the lease.
While there are instances when the lessor need not be the owner of the property being leased, he
should have a right (e.g., either as a usufructuary or a lessee) or at least an authority (e.g., as an agent
of the owner, usufructuary, or lessee) to lease it out. Here, it does not appear that Lee had either the
right or the authority to grant Aspe the lease of the property in 2006. Since Lee had no property to
lease out, this makes the 2006 lease void for lack of an object certain.

Therefore, Crescini is entitled not only to the possession of the property, but also to the rental arrears
or reasonable compensation for the occupation and use of the premises.

173
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

IN CASE THE BUYER DOES NOT DEAL WITH THE REGISTERED OWNER OF THE REAL
PROPERTY, THE LAW REQUIRES THAT A HIGHER DEGREE OF PRUDENCE BE EXERCISED
BY THE PURCHASER.

51. Aledro-Ruña v. Lead Export and Agro-Development Corp.

G.R. No. 225896, July 23, 2018
Gesmundo, J.

FACTS:
This is an appeal by certiorari assailing the decision of the Court of Appeals which denied petitioner’s
appeal for lack of merit.

Segundo Aledro (Segundo) allegedly executed both a Contract of Lease with one Alfredo Rivera
(Rivera) and a Deed of Absolute Sale with Mario Advento (Advento), both transactions involving the
same two (2) parcels of land. In 1982, Advento sold the properties to Andres Ringor (Ringor) and in
1988 the latter leased the lands to respondent. It appears that the OCT was not transferred to the of
Ringor. The heirs of Segundo, including petitioner, filed a complaint for Real Action over Immovable,
Declaration of Nullity of Deed, and Damages against Advento and respondent which was dismissed
with prejudice in 2003 on the ground of lack of interest to prosecute.

In 2010, petitioner filed a case for unlawful detainer against respondent wherein the latter countered by
saying that it is barred by res judicata as the previous case was already dismissed with prejudice. In
the meantime, Ringor still sold the subject properties to Wifredo Gonzales (Gonzales) and Oscar
Cabuñas (Cabuñas) who again leased the properties to an affiliate of respondent. The RTC dismissed
the case and upheld respondent’s right to possess the lands by virtue of the lease contract with
Ringor. The CA affirmed the RTC, hence this petition.

ISSUE:
Whether or not the subsequent buyers, Gonzales and Cabuñas are buyers in good faith and
respondent has the right to possess the subject properties as lessees.

RULING:
No, respondent has no right to possess the land as lessee.

Respondent's possession as a lessee was based on a contract of lease executed in its favor by the
alleged subsequent buyers of the subject properties, namely Ringor and later, by Gonzales and
Cabuñas. These buyers only had unregistered deeds of sale in their favor. Since 1981 when Segundo
allegedly sold the subject property to Advento, two subsequent transfers have been made, the last
buyers being Gonzales and Cabuñas. Yet, the certificates of title of the parcels of land undisputedly
remain under the name of Segundo and have never been transferred to any of the subsequent buyers
up to the present. Neither were the purported deeds of sale executed in favor of Ringor, Gonzales and
Cabuñas, and other subsequent transferees registered nor annotated on the certificates of title of the
subject properties. Thus, when Ringor purchased the lands from Advento, and was later purchased by
Gonzales and Cabuñas from Ringor, they did not directly deal with the registered owner of the land.
The fact that the lands were not in the name of their sellers should have put them on guard and should
have prompted them to inquire on the status of the properties being sold to them.

Clearly, Ringor, Gonzales and Cabuñas cannot be considered buyers in good faith because of their
failure to exercise due diligence as regards their respective sale transactions.

174
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

AN ASSIGNMENT OF RIGHTS MAY PARTAKE OF A NATURE OR A SALE AND ONLY THE

CONSENT OF THE ASSIGNOR AND ASSIGNEE ARE NECESSARY; IN CASE OF DOUBT,
DEBTOR PRESUMED TO HAVE ASSUMED THE LESSER OBLIGATION

52. Vargas v. Acsayan, Jr.

G.R. Nos. 206780 & 206843, March 20, 2019
Reyes, Jr., J.

FACTS:
Assailed in this Consolidated Petitions for Review on Certiorari. The case arose from a Complaint with
Prayer for Preliminary Attachment filed by Jose F. Acsayan, Jr. (respondent), against defendants
Maximino and Estela Tabangcora (spouses Tabangcora), petitioner spouses Rico and Cecilia Vargas
(spouses Vargas), Stardiamond, et al.

The spouses Tabangcora offered to sell to respondent a parcel of land consisting of about 4 hectares
for a purchase price of P5,950,000.00, which is to be paid as follows: 1) as downpayment, he shall
immediately pay the indebtedness incurred by the spouses Tabangcora with the Land Bank of the
Philippines (LBP) which was covered by a mortgage over the subject property herein; and 2) the
balance shall be paid upon execution of a Deed of Absolute Sale in favor of respondent.

Thus, respondent issued a check in favor of LBP. Despite repeated demands, spouses Tabangcora
failed to execute the Deed of Absolute Sale. Respondent decided to investigate the status of the
subject property. Apparently, spouses Vargas had executed a Special Power of Attorney designating
spouses Tabangcora as their attorneys-in-fact for the purpose of entering into an Agreement and a
Real Estate Mortgage with Stardiamond.The aforesaid Agreement provides that the spouses
Tabangcora and spouses Vargas would purchase on credit from Stardiamond the buildings and
improvements constructed on the subject land. Respondent filed a Complaint with a Prayer for
Preliminary Attachment seeking, among others, to declare the agreement between spouses
Tabangcora and Stardiamond as well as the Real Estate Mortgage executed in favor or Stardiamond
as null and void.

The spouses Tabangcora also denied offering the subject property for sale to herein respondent and
instead, asserted that the amount covered by Metrobank Check No. 0067796 in the amount of
P4,617,293.88 was in the form of a loan, which was intended to be used for the redemption of the
subject property from LBP.

ISSUES:
1. Is the Deed of Assignment void and never passed anything as there was no consideration?
2. Is the contract between the parties a contract of loan rather than a sale?

RULING:
1. No. The Courts sustains the validity of the Deed of Assignment executed by spouses Vargas.

Under Article 1624 of the Civil Code, assignment of rights partakes of a nature of a sale, such that it is
perfected at the moment there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. The meeting of the minds contemplated here is that between the assignor
of the credit and his assignee, there being no necessity for the consent of any other person not a party
to the contract. Here, the CA invalidated the Deed of Assignment purportedly because the parties
never mentioned anything about a valuable consideration that was paid by the spouses Tabangcora to
spouses Vargas.

Under Art. 1354 of the Civil Code, consideration is presumed unless the contrary is proven. The
presumption that a contract has sufficient consideration cannot be overthrown by a mere assertion that
it has no consideration.

175
2. Yes. The contract is a contract of loan. From the start of their transaction, respondent knew
that the initial money (he called the downpayment) which he will give to spouses Tabangcora was
intended to pay the loan of the spouses Tabangcora with LBP. As a matter of fact, he even issued a
check with LBP as the payee.

At any rate, in the event of doubt as to the nature and conditions of a contract that cannot be decided
by the language of an x x x agreement, in justice, it must be presumed that the debtor assumed the
lesser obligation and that the liability contracted is that which permits the greatest reciprocity of interest
and rights. Since there was doubt as to whether the agreement between the parties was a loan or a
sale, it is more sound that the agreement in question be considered as a loan contract — with the
spouses Tabangcora not surrendering all the rights to the property but simply conferring upon
respondent merely to collect from the spouses Tabangcora what is owing to him (with interest for the
use of his money) thereby promoting a greater reciprocity of rights and obligations between them.

176
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

ONE IS A BUYER IN GOOD FAITH WHEN HE PURCHASES AND PAYS THE FAIR PRICE FOR A
PROPERTY ABSENT ANY NOTICE THAT ANOTHER HAS A RIGHT OVER IT

53. Malabanan v.Malabanan, Jr.

G.R. No.187225, March 6, 2019
Leonen, J.

FACTS:
This is a petition for review on certiorari seeking to reverse the decision of the CA setting aside the
earlier ruling of the RTC which ordered the nullity of the TCT issued in favor of the respondents.

Melinda Malabanan along with her deceased husband bought a 2000 square meter lot evidenced by a
Deed of Absolute Sale executed by one Ma. Cristina Rodriguez in their favor. As a result, a TCT was
issued in the name of Spouses Melinda and Jose Malabanan. The spouses built a house on the lot
which the family had possessed since 1984. Sometime later, Melinda had to leave the Philippines to
work abroad and only came home on November 8, 1990. Upon her return, Melinda discovered that the
TCT covering their supposed lot had long been canceled. Jose allegedly executed a special power of
attorney in favor of Francisco Malabanan Jr. who was the father-in-law of Melinda. Francisco sold it to
another but he retrieved the lot and the same became registered in his name and in his spouse,
Adelfina’s name. These transactions happened on March 20, 1985. Upon Adelfina’s death, the subject
lot became part of the estate to be distributed among her heirs which was why the lot became
registered under the name of Ramon Malabanan, who was Jose's brother. Ramon then sold the lot to
Spouses Dominador III and Guia Montano.

Melinda filed a complaint against the respondents for the alleged fraudulent transfer of the subject lot.
Melinda argued that the property, being acquired during her marriage to Jose, was a conjugal property
and as such, Jose may not alienate the same without her consent. She reiterated that her signature in
the Special Power of Attorney had been forged which was testified by an expert witness, and thus, no
valid act can come from it. Dominador argues that when he bought the property, there was no
annotation on the certificate of title.

ISSUE:
Is Dominador an innocent purchaser in good faith and for value?

RULING:
No. Dominador is not an innocent purchaser in good faith and for value. A person is a buyer in good
faith or an "innocent purchaser for value" when he or she purchases and pays the fair price for a
property, absent any notice that another has a right over it. To justify good faith in merely relying on the
certificate of title, the following must be present:
a. The seller is the registered owner of the land;
b. The latter is in possession thereof; and
c. At the time of the sale, the buyer was not aware of any claim or interest of some other person in
the property, or of any defect or restriction in the title of the seller or in his capacity to convey title
to the property.

Here, the land has always been possessed by Melinda. Dominador should have inquired about this
before he purchased the property. Verifying the status of the property would not have been difficult for
a seasoned businessman like him, who incidentally lives in the same neighborhood where the property
is located. Hence, Dominador is not a buyer in good faith.

177
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

A BUYER IN GOOD FAITH IS ONE WHO PURCHASES AND PAYS FAIR PRICE FOR A
PROPERTY WITHOUT NOTICE THAT ANOTHER HAS AN INTEREST OVER OR RIGHT TO IT

54. Amoguis v. Ballado

G.R. No. 189626, August 20, 2018
Leonen, J.

FACTS:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court.

Francisco and Concepcion Ballado (spouses Ballado) entered into a contract to sell with St. Joseph
Realty to buy on installment Lot Nos. 1 and 2. St. Joseph Realty provided for automatic rescission and
cancellation in the contract to sell upon failure of the vendee to pay when due, three (3) consecutive
monthly installments. CristantoPinili, St. Joseph Realty’s collector refused to receive their payments
until the small house made of light materials the spouses Ballado built for their caretaker is removed.
Francisco informed St. Joseph Realty that the small house had already been taken down but Pinili still
did not come to collect. Later on, they discovered that St. Joseph Realty had rescinded their contracts
despite not receiving any notices sent to the Spouses’ address indicated in the contract. Meanwhile,
St. Joseph Realty sold Lot Nos. 1 and 2 to EpfianioAmoguis, father of Gregorio and Tito Amoguis
(Amoguis Brothers), for a better price. The Amoguis Brothers occupied the lots and took down
Francisco’s mango and chico trees and the barbed wire fences Francisco installed.

Spouses Ballado filed a complaint for damages, injunction, cancellation of titles and a TRO to enjoin
the Amoguis Brothers from erecting walls around the lots. The Amoguis Brothers argued that the Court
should have considered valid the rescission and cancellation of the contract to sell, and that they
should not have been declared buyers in bad faith.

ISSUE:
Are Amoguis Brothers buyers in good faith and have preferential right to Lot Nos. 1 and 2?

RULING:
No. Petitioners are not buyers in good faith.

A buyer in good faith is one who purchases and pays fair price for a property without notice that
another has an interest over or right to it. If a land is registered and is covered by a certificate of title,
any person may rely on the correctness of the certificate of title, and he or she is not obliged to go
beyond the four (4) corners of the certificate to determine the condition of the property. This rule does
not apply, however, when the party has actual knowledge of facts and circumstances that would impel
a reasonably cautious man to make such inquiry or when the purchaser has knowledge of a defect or
the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the
status of the title of the property in litigation.

It is incumbent upon a buyer to prove good faith should he or she assert this status. This burden
cannot be discharged by merely invoking the legal presumption of good faith. Based on the evidence
on record, petitioners failed to discharge this burden. Though they were informed by Francisco on his
claim to the properties only after their purchase, it is undisputed from the records that mango and chico
trees were planted on the properties, and that they were cordoned off by barbed wires. St. Joseph
Realty also informed them that there were previous buyers, who allegedly abandoned their purchase.
To merely claim that they were buyers in good faith, absent any proof, does not make the case for
them.

178
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

LESSEES WHO DEPRIVED THE LESSORS OF THE OPTION TO APPROPRIATE THE

IMPROVEMENTS ARE NOT ENTITLED TO REIMBURSEMENT; NOVATION IS NEVER
PRESUMED

55. Spouses Modomo v. Spouses Layug

G.R. No. 197722, August 14, 2019
Caguioa, J.

FACTS:
This is a petition for review on certiorari under Rule 45 of the Rules of Court against the Decision and
Resolution rendered by the Court of Appeals.

Spouses Layug alleged that they are the registered owners of a parcel of land in Brgy. Tejeros, Makati
City. Pursuant to the contract of lease, Spouses Modomo agreed to pay P170,000 as monthly rentals
subject to an escalation of 10% for the 2nd and 3rd year, 15% on the 4th and 5th year and 20% on the 6th
and 7th year. It was also agreed by the parties that real estate taxes on the property shall be paid by
Spouses Modomo. Subsequently, Spouses Modomo defaulted in the payment of escalation of rental
fees, rental fees, and real estate taxes due on the property. Spouses Layug sent a letter to Spouses
Modomo demanding to settle their unpaid rentals but to no avail. Ultimately, Spouses Layug sent a
letter to Spouses Modomo terminating the contract of lease and to vacate the premises.

Spouses Layug filed a complaint for ejectment against Spouses Modomo. Spouses Modomo argued
that considering that Jocelyn Modomo had introduced improvements on the property, she asked
Spouses Layug to change certain provisions of the contract of lease: reduce the monthly rentals to
P150,000 and the non imposition of the escalation clause and the real estate tax provision. Spouses
Layug allegedly agreed and Spouses Modomo religiously paid rentals in accordance with the
subsequent agreement. Thereafter, Spouses Layug reneged on their agreement by imposing the
escalation clause. Spouses Modomo prayed that the ejectment case be dismissed because the
contract of lease had been amended by subsequent oral agreement between the parties and that
Spouses Layug are in estoppel in pais due to their unconditional acceptance of reduced rentals.

ISSUES:
1. Are Spouses Modomo entitled to reimbursement for useful improvements made upon the leased
property?
2. Are the provisions of the contract of lease governing rental fees, escalation, and real estate tax
payment partially novated by the parties’ alleged subsequent verbal agreement?

RULING:
1. No. Spouses Modomo are not entitled to reimbursement for the cost of improvements made
on the leased property.

Article 1678 provides that if the lessee makes, in good faith, useful improvements which are suitable to
the use for which the lease is intended, without altering the form or substance of the property leased,
the lessor upon the termination of the lease shall pay the lessee one-half of the value of the
improvements at that time. Should the lessor refuse to reimburse said amount, the lessee may remove
the improvements, even though the principal thing may suffer damage thereby. He shall not, however,
cause any more impairment upon the property leased than is necessary.

Suffice it to state that Spouses Modomo have, by their own acts, deprived the Spouses Layug of the
option to appropriate the improvements made upon the leased premises by causing their demolition.
Notably, Spouses Modomo did not dispute that they had "vacated the leased premises [and] left no
single piece of wood or materials on the premises [and] demolished everything." Hence, they are
precluded from seeking reimbursement for improvements that are now inexistent.

179
2. Yes, in part. While there has been a modificatory novation of the contract of lease through the
parties’ subsequent verbal agreement, such novation of the contract of lease relates solely to the
lowering of the monthly rental fee. The provisions governing escalation and real estate tax payment,
stand.

While the Civil Code permits the subsequent modification of existing obligations, these obligations
cannot be deemed modified in the absence of clear evidence to this effect. Novation is never
presumed, and the animus novandi, whether total or partial, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken. Accordingly, the burden to
show the existence of novation lies on the party alleging the same.

Applying the foregoing principles, the Court finds that while there has been a modificatory novation of
the Contract of Lease through the parties' subsequent verbal agreement, such novation relates solely
to the lowering of the monthly rental fee from Php170,000.00 to Php150,000.00. The Spouses Layug’s
letters of demand to Spouses Modomo reflected that the former consistently computed the latter’s
unpaid balance on the basis of the lowered monthly rental fee. However, Spouses Modomo failed to
establish that the provisions governing escalation and proportional payment of real estate tax payment
have been similarly modified. No evidence exists on record to warrant the non imposition of the
provisions on escalation and payment of real estate tax.

180
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

ORAL SALE OF REAL PROPERTY IS NOT VOID OR INVALID

56. Heirs of Alido v. Campano

G.R. No. 226065, July 29, 2019
Reyes, Jr., J.

FACTS:
This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court filed by petitioners, heirs
of Soledad Alido,seeking to reverse and set aside the Decision of the CA in ruling that oral sale of
lands subject of a free patent to respondent Flora Campano is not void, but only unenforceable under
the Statute of Frauds.

Soledad Alido, the registered owner of a parcel of land in Alimondian, Iloilo, was able to register the
said parcel of land under her name. Respondent took possession of the land and the owner's duplicate
of OCT No. F-16558, and paid its realty taxes, pursuant to an alleged sale. When Alido died, her heirs
namely, Reynaldo, Maggie, and Rodrigo, petitioners in this case executed a Deed of Adjudication of
the property and sought to register the property in their names. As such, they needed to retrieve OCT
No. F-16558, but respondent refused to do so. Thus, they were constrained to file a verified petition for
respondent to surrender the owner's duplicate of the title.

Petitioners believe that respondent cannot defeat their claim of ownership because it is supported by a
certificate of title issued in the name of their predecessor. On the other hand, respondent claims
ownership over the property by virtue of an oral sale between her and Alido.

ISSUE:
Are contracts of sale of real property without its term being reduced in writing void or invalid?

RULING:
No. It is erroneous to conclude that contracts of sale of real property without its term being reduced in
writing are void or invalid.

Failure to observe the proper form prescribed by Article 1358 does not render the acts or contracts
enumerated therein invalid. It has been uniformly held that the form required under the said Article is
not essential to the validity or enforceability of the transaction, but merely for convenience. The Court
agrees with the CA in holding that a sale of real property, though not consigned in a public instrument
or formal writing, is, nevertheless, valid and binding among the parties, for the time-honored rule is that
even a verbal contract of sale of real estate produces legal effects between the parties. Article 1358
does not require the accomplishment of the acts or contracts in a public instrument in order to validate
the act or contract but only to insure its efficacy.

However, since the sale of a parcel of land is in violation of the five-year prohibition on the alienation of
land acquired via a free patent application, it is void and produces no legal effect. As successors-in-
interest of Alido, petitioners' right to challenge the sale between Alido and respondent cannot be
barred by laches as it was in violation of the restriction on the sale of land acquired through free
patent. Consequently, petitioners may recover the parcel of land Alido had sold to respondent.
However, as a result of the annulment of the sale between Alido and respondent, the latter may claim
the purchase price and interest.

181
 CASES DECIDED WITHIN JANUARY 2017 TO DECEMBER 2019
Sales and Lease

EXISTENCE OF ONE OF CIRCUMSTANCES UNDER ART. 1602, NOT A CONCURRENCE, GIVE

RISE TO THE PRESUMPTION THAT THE CONTRACT IS AN EQUITABLE MORTGAGE;

PAYMENT MAY BE MADE TO ONE IN WHOSE FAVOR THE OBLIGATION WAS CONSTITUTED,
HIS SUCCESSOR-IN-INTEREST, OR TO ANY PERSON AUTHORIZED TO RECEIVE IT

57. Lazo v. Spouses Villas

G.R. No. 221792 (Notice), January 30, 2019

FACTS:
This is an appeal by certiorari seeking to reverse and set aside the Decision and Resolution of the CA,
which affirmed with modification the decision of the RTC, a complaint for specific performance with
temporary restraining order/writ of injunction.

Petitioner offered for sale to Rosario Bautista said parcel of land for the amount of P100,000.Bautista
acceded but informed petitioner that she would initially pay P35,000 in cash which petitioner accepted.
Thus, petitioner executed a deed of conditional sale over the said property in favor of Bautista, further
agreeing that petitioner would execute a deed of absolute sale upon full payment. Bautista eventually
paid in full, yet despite demands to execute the deed of absolute sale, petitioner failed to do so.
Bautista learned that the parcel of land was a portion of a property registered in the name of Republic
Planter’s Bank (now Maybank), which sold the entire property to petitioner. Meanwhile, petitioner
disclosed that she was in need of money sometime in September 1987 and she asked Atty. Dandal if
he could help her obtain a loan. Atty. Dandal introduced her to Eleuterio, his friend. Euleterio, through
Atty. Dandal, lent her the amount of P50, 000. In turn, she sold him 500 sq.m.of the land. In their
written agreement, she had a period of 2 years to repurchase the said property. Eleuterio was given
the duplicate copy of the TCT, thru one Atty. Dandal.

Bautista filed for specific performance before the RTC for the issuance of the deed of absolute sale in
her favor, and the surrender of the said TCT. Petitioner argues that her obligation was extinguished
when she paid the amount due to Atty. Dandal pursuant to Article 1240 of the Civil Code. Atty. Dandal
was authorized by Eleuterio to receive the repayment amount from petitioner. Thereafter, Atty. Dandal
should personally deliver the repayment sum to Eleuterio.

ISSUES:
1. Is the agreement entered into by the parties a sale with right of repurchase?
2. Did payment made to Atty. Dandal by petitioner extinguish her obligation?

RULING:
1. No. Petitioner and Eleuterio entered into an equitable mortgage, not a sale with right of
repurchase. Article 1602 of the New Civil Code enumerates the instances when a contract shall be
presumed to be an equitable mortgage. The existence of one, not a concurrence, or an overwhelming
number of circumstances, suffices to give rise to the presumption that the contract is an equitable
mortgage.

The Court is convinced that the subject transaction is one of equitable mortgage on the basis of
paragraph 1, 2, and 6 of Article 1602. First, the purchase price of the supposed sale is unusually
inadequate. Second, it is undisputed that the petitioner remained to be in possession of the subject
property. Third, it is evident that the parties entered into the subject transaction solely in consideration
of the loan extended by Eleuterio to the petitioner. The underlying cause of the subject transaction is
the loan. Based on the foregoing circumstances, the Court finds that the parties entered into an
equitable mortgage. In an equitable mortgage, nonpayment of the debt when due gives the mortgagee
the right to foreclose the mortgage, sell the property and apply the proceeds of the sale to the
satisfaction of the loan obligation.

182
2. Yes. Petitioner's payment to Atty. Dandal, the authorized representative of Eleuterio,
extinguished the obligation under the equitable mortgage. She validly made payment within the two-
year period.

Atty. Dandal's act of returning the amount paid by petitioner to her did not revive her obligation under
the equitable mortgage.

There is no merit to the Spouses Villas' contention that only payment to the person in whose favor the
obligation was constituted extinguishes an obligation. The Civil Code is unequivocal that payment itself
extinguishes an obligation. Payment may be made to the person in whose favor the obligation was
constituted, his successor-in-interest, or to any person authorized to receive it. Thus, when an obligee
makes payment to any of the persons enumerated in Art. 1240 of the Civil Code, his/her obligation is
extinguished in accordance with Art. 1231 of the Civil Code. To rule otherwise would be to nullify the
express provisions of the Civil Code.

Since the equitable mortgage was extinguished, Eleuterio's right to foreclose on the property did not
arise. The ownership thereof was never vested in him, or his wife or the two of them as spouses. The
money in the possession of petitioner due to Atty. Dandal's return of the same should be returned by
her to Eleuterio, or his heirs or assigns, on the basis of the principle of unjust enrichment.

183