compiled sales digests

8/18/2019 Compiled Sales Digests

1/27

SALES

#53 Romero vs. CA, Ongs iong(Tom)

Facts:Being interested in building a warehouse in the Metro Manila area, Romero entered into a Deed

of Conditional Sale with Ongsiong on June 9 1988 over a parcel of land located in Paranaque, Rizal.Being the owner of the land, Ongsiang was to be paid P50,000 as downpayment for the property, the saidamount to be used for the filing of an ejectment suit against the squatters occupying the said land.Ongsiang was to evict the squatters from the property within 60 days from the signing of the Deed ofConditional Sale or she must reimburse the P50,000 downpayment. Romero, on the other hand, shall paythe P1,511,600 balance of the land purchase price within 45 days from the clearance of the land, failureto do so would result in the forfeiture of the P50,000 amount.

The ejection case was filed by Ongsiong against the squatters in the MTC of Paranaque, whichthen ordered the squatters to vacate the premises on February 21 1989, several months outside the 60-day period agreed upon in the contract. The writ of execution was issued on March 30 1989. On April 71989, Ongsiong sought to return the P50,000 DP to Romero, stating that she failed to remove thesquatters from the land, to which Romero demanded that the sale push through and that the costs ofejection would be chargeable to the purchase price of the land. On April 21 1989 the MTC suspended theenforcement of the writ of execution in order to give time for the squatters to relocate.

On June 19 1989, Ongsiong’s counsel informed Romero’s counsel of the termination of the Deedof Conditional Sale due to the failure to evict the squatters from the property in question, to whichRomero’s counsel replied that Ongsiong doesn’t have the right to rescind the contract and that such rightbelongs to Romero, and also that Romero’s demanding that the sale push through.

Hence, on June 27 1989 Ongsiong filed with the RTC of Makati a complaint for rescission of deedof conditional sale, damages, and consignation of the P50,000 DP. On the other hand, the MTC issuedan alias writ of execution in the ejectment case but the squatters cannot be uprooted from the property inquestion.

Finally, the RTC dismissed the case, stating that Ongsiong has no right to rescind the contractand that such right belongs to Romero. RTC also ordered Ongsiong to evict the squatters from the

property and to push through with the sale of the property.

Ongsiong appealed to the CA, which then reversed the trial court’s decision, stating that thecontract in question has a resolutory condition (i.e. eviction of squatters from land), that Ongsiong hassubstantially complied with her obligation to do so, and that it was Romero who failed to pay the balanceof the purchase price of the land.

Issue: W/N Ongsiong the vendor has no right to rescind the contract due to her failure to fulfill herobligations as stated under the contract;

Held: Yes. A perfected contract of sale may either be absolute or conditional depending on whether the

agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be

conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of apositive condition the breach of the condition will simply prevent the duty to convey title from acquiring anobligatory force . If the condition is imposed on an obligation of a party which is not complied with, theother party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course,the condition is imposed upon the perfection of the contract itself, the failure of such condition wouldprevent the juridical relation itself from coming into existence.

The term "condition" in the context of a perfected contract of sale pertains to the compliance byone party of an undertaking the fulfillment of which would signal the demandability of the reciprocalprestation of the other party. The reciprocal obligations referred to would normally be, in the case of

Page 1 of 27


2/27

SALES

vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certainobligations.

The sale in question is a duly perfected contract. A sale is at once perfected when the sellerobligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to thebuyer over which the latter agrees. In this case, the ejectment of the squatters is a condition the operativeact of which sets into motion the period of compliance by petitioner of his own obligation, i.e ., to pay thebalance of the purchase price. Ongsiong’s failure to remove the squatters from the property within thestipulated period gives Romero the right to either refuse to proceed with the agreement or waive thatcondition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner andnot to private respondent.

In contracts of sale Article 1545 allows the obligee to choose between proceeding with theagreement or waiving the performance of the condition. It is this provision which is the pertinent rule in thecase at bench. Here, evidently, Romero has waived the performance of the condition imposed onOngsiong to free the property from squatters.

In any case, Ongsiong's action for rescission is not warranted. She is not the injured party. Theright of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breachof faith by the other party that violates the reciprocity between them. It is Ongsiong who has failed in herobligation under the contract. Romero did not breach the agreement.

Page 2 of 27


3/27


4/27

SALES

A contract for the delivery at a certain price of an article which the vendor in the ordinarycourse of his business manufactures or procures for the general market, whether thesame is on hand at the time or not is a contract of sale, but if the goods are to bemanufactured specially for the customer and upon his special order, and not for thegeneral market, it is a contract for a piece of work (Art. 1467, Civil Code). The mere factalone that certain articles are made upon previous orders of customers will not argueagainst the imposition of the sales tax if such articles are ordinarily manufactured by thetaxpayer for sale to the public (Celestino Co. vs. Collector, 99 Phil. 841).

To Tolentino, the distinction between the two contracts depends on the intention of the parties. Thus, ifthe parties intended that at some future date an object has to be delivered, without considering the workor labor of the party bound to deliver, the contract is one of sale. But if one of the parties accepts theundertaking on the basis of some plan, taking into account the work he will employ personally or throughanother, there is a contract for a piece of work.

Clearly, the contract in question is one for a piece of work. It is not petitioner's line of business tomanufacture air-conditioning systems to be sold "off-the-shelf." Its business and particular field ofexpertise is the fabrication and installation of such systems as ordered by customers and in accordancewith the particular plans and specifications provided by the customers. Naturally, the price or

compensation for the system manufactured and installed will depend greatly on the particular plans andspecifications agreed upon with the customers.

The obligations of a contractor for a piece of work are set forth in Articles 1714 and 1715 of the CivilCode, which provide:

Art. 1714. If the contractor agrees to produce the work from material furnished by him, heshall deliver the thing produced to the employer and transfer dominion over the thing.This contract shall be governed by the following articles as well as by the pertinentprovisions on warranty of title and against hidden defects and the payment of price in acontract of sale.

Art. 1715. The contractor shall execute the work in such a manner that it has the qualitiesagreed upon and has no defects which destroy or lessen its value or fitness for itsordinary or stipulated use. Should the work be not of such quality, the employer mayrequire that the contractor remove the defect or execute another work. If the contractorfails or refuses to comply with this obligation, the employer may have the defect removedor another work executed, at the contractor's cost.

The provisions on warranty against hidden defects , referred to in Art. 1714 above-quoted, are foundin Articles 1561 and 1566, which read as follows:

Art. 1561. The vendor shall be responsible for warranty against the hidden defects whichthe thing sold may have, should they render it unfit for the use for which it is intended, orshould they diminish its fitness for such use to such an extent that, had the vendee beenaware thereof, he would not have acquired it or would have given a lower price for it; butsaid vendor shall not be answerable for patent defects or those which may be visible, orfor those which are not visible if the vendee is an expert who, by reason of his trade orprofession, should have known them.

xxx xxx xxx

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in thething sold, even though he was not aware thereof.

Page 4 of 27


5/27

SALES

This provision shall not apply if the contrary has been stipulated, and the vendor was notaware of the hidden faults or defects in the thing sold.

The r emedy against violations of the warranty against hidden defects is either to withdraw from thecontract (redhibitory action) or to demand a proportionate reduction of the price ( accion quanti manoris ),with damages in either case.

Side Issue: WON the action has prescribed

Held: NO!

In Villostas vs . Court of Appeals , we held that, "while it is true that Article 1571 of the Civil Code providesfor a prescriptive period of six months for a redhibitory action, a cursory reading of the ten precedingarticles to which it refers will reveal that said rule may be applied only in case of implied warranties"; andwhere there is an express warranty in the contract, as in the case at bench, the prescriptive period is theone specified in the express warranty, and in the absence of such period, "the general rule on rescissionof contract, which is four years (Article 1389, Civil Code) shall apply".

Consistent with the above discussion, it would appear that this suit is barred by prescription because thecomplaint was filed more than four years after the execution of the contract and the completion of the air-conditioning system.

However, a close scrutiny of the complaint filed in the trial court reveals that the original action is notreally for enforcement of the warranties against hid den defects, but one for breach of t he contractitself.

*** pasensha na mahaba, but you have to read all to understand ☺

Page 5 of 27


6/27

SALES

#55 VICENTE GOMEZ, as successor-in-interest of awardee LUISA GOMEZ vs.COURT OF APPEALS, City of MANILA acting thru the City Tenants Securit y Commit tee now the

Urban Settlement Office, Regis ter of Deeds of Manila(barney)

Facts:

Facts:

Pursuant to the Land for the Landless Program of the City of Manila, Luisa Gomez and the City of Manilaentered into a Contract to Sell concerning a particular lot in Tondo. In the contract, there are terms andconditions that the awardee (Gomez) must comply with, as these are integral part of the contract to sell.

Some of the terms are the following:

1. The vendee shall be a Filipino citizen and must occupy and use the lot exclusively for his/herresidential purpose.

2. The vendee hereby warrants and declares under oath that he/she is a bona fide and actualoccupant and tenant of the lot and that he/she fully understands that any false statement ormisrepresentation hereof shall be sufficient cause for the automatic cancellation of his/her rightsunder this agreement as well as ground for criminal prosecution.

3. Until complete payment of the purchase price and compliance with all the vendee's obligationsherein, title to the lot remains in the name of the owner. During the effectivity of this agreement,however, the owner may transfer its title or assign its rights and interest under this agreement toany person, corporation, bank or financial institution.

4. Title shall pass to the vendee upon execution of a final deed of sale in his/her favor.5. In order not to defeat the purpose of this social land reform program of the City of Manila and to

prevent real estate speculations within twenty years from complete payment of the purchase priceand execution of the final deed of sale, the lot and residential house or improvement thereon shallnot be sold, transferred, mortgaged, leased or otherwise alienated or encumbered without thewritten consent of the City Mayor.

6. During the effectivity of this agreement, the residential house or improvement thereon shall not beleased, sold, transferred or otherwise alienated by the vendee without the written consent of the

owner.7. In the event that the vendee dies before full payment of the purchase price of the lot, his/hersurviving spouse, children heirs and/or successors-in-interest shall succeed in all his/herrights and interest, as well as assume all/his/her obligations under this agreement.\

On 18 January 1980, Luisa Gomez finally paid in full the P3,556.00 purchase price of the lot. Despite thefull payment, Luisa still paid in installment an amount of P8,244.00, in excess of the purchase price,which the City of Manila, through the CTSC, accepted. In 1982, Luisa, together with her spouse Daniel,left again for the United States of America where she died on 09 January 1983. She is survived by herhusband and four children. The children donated the land to their Uncle, Vicente Gomez.

Subsequently, the Urban Settlements Officer conducted an investigation regarding reported violations ofthe terms and conditions of the award committed by the lot awardees. Gomez was found to be in violation

of the terms. The place was found actually occupied by Mrs. Erlinda Perez and her family together withMr. Mignony Lorghas and family, who are paying monthly rentals of P210.00 each to Vicente Gomez,brother of awardee. Daniel Gomez is now presently residing in the United States of America and onlyreturns for vacation once in a while as a Balikbayan. Thus it was ordered to cancel the lot award, andfurther declaring the forfeiture of payments made by said awardees as reasonable compensation for theuse of the homelots.

Issue: Can the sale be cancelled considering that the full purchase price has been paid already?

Held: YES.

Page 6 of 27


7/27

SALES

A thorough scrutiny of the records and an even more exhaustive perusal of the evidence, bothdocumentary and testimonial, would lead to the inevitable conclusion that the fact of cancellation of theaward covering Lot 4, Block 1, by the City of Manila, acting through the CTSC, was properly exercisedwithin the bounds of law and contractual stipulation between the parties.Viewed broadly, petitioner anchors his case on the premise, albeit erroneous, that upon full payment ofthe purchase price of the lot in January 1980, Luisa Gomez, actual awardee, already acquired a vestedright over the real property subject of the present controversy. Thus, according to petitioner, upon thedeath of Luisa Gomez, the alleged vested right was transmitted by operation of law to her lawful heirs.

Primarily, it must be stressed that the contract entered into between the City of Manila and awardee LuisaGomez was not one of sale but a contract to sell, which, under both statutory and case law, hasits own attributes, peculiarities and effects.

In a contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in acontract to sell, by agreement, the ownership is reserved in the vendor and is not to pass until the fullpayment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until andunless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendoruntil the full payment of the purchase price, such payment being a positive suspensive condition andfailure of which is not a breach but an event that prevents the obligation of the vendor to convey title frombeing effective. Thus, a deed of sale is considered absolute in nature where there is neither a stipulationin the deed that title to the property sold is reserved in the seller until the full payment of the price, nor onegiving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within afixed period. To our mind, however, this pronouncement should not curtail the right of the parties in acontract to sell to provide additional stipulations, nor bar them from imposing conditions relative to thetransfer of ownership. To be sure, a contract of sale may either be absolute or conditional. One form ofconditional sales is what is now popularly termed as a "Contract to Sell", where ownership or title isretained until the fulfillment of a positive suspensive condition normally the payment of the purchase pricein the manner agreed upon.

The contracting parties are accorded the liberality and freedom to establish such stipulations, clauses,terms and conditions as they may deem convenient, provided the same are not contrary to law, morals,good custom, public order or public policy. In the law on contracts, such fundamental principle is known

as the autonomy of contracts. Under the present circumstances, we see no hindrance that prohibits theparties from stipulating other lawful conditions, aside from full payment of the purchase price, which theypledge to bind themselves and upon which transfer of ownership depends.

It is clearly stipulated that the lot cannot be leased and that the actual occupant should be the awardee.By violating its terms, breach thereof would result to the automatic cancellation of the vendee's rights andall payments made by him/her shall be forfeited and considered as rentals for the use of the lot.

Nonetheless, we ought to stress that in the present case, forfeiture of the installments paid as rentals,only applies to the purchase price of P3,556.00 and not to the overpayment of the amount of P8,244.00.

Page 7 of 27


8/27

SALES

#56 Central Bank vs . Bichara(Bea)

Facts:

Spouses Bichara sold two properties to the Central Bank. The Deed of Sale stipulated that the totalpurchase price is P405,500; and such payment is to be effected only after the Deed of Sale shall havebeen duly registered and a clean title issued in the name of the vendee, Central Bank; Bichara is likewiseto undertake at their expense to fill the parcels of land with an escombro free from waste materials.

The two annotations (adverse claim and notice of lis pendens) on the vendors Certificate of Title werecancelled and Spouses Bichara were issued a TCT. Despite these Central Bank failed to pay. On itspart, Bichara did not fill up the lot with escombro despite several demands made by Central Bank.Central Bank was then constrained to undertake the filling up of the said lots by contracting the servicesof BGV construction. Yet Central Bank still did not pay Spouses Bichara.

Spouses Bichara filed an action for rescission or specific performance with damages. They allege thatCentral Bank failed to pay the purchase price despite demand. Central Bank tendered payment to thevendors but the Spouses Bichara refused the tender, in view of their complaint for rescission.

Trial Court It ordered the vendors to accept the deposited amount of P360, 500, considering that theCentral Bank expended in filling up the lots.

Court of Appeals reversed the decision of the trial court. It ordered the rescission of the contract ofsale and the reconveyance of the properties to the vendors. It also ordered the reimbursement to theCentral Bank of the cost of filling up the lot with escombro. The noon-payment of the purchase priceconstitutes a very good reason to rescind a sale, for it violates the very essence of the contact of sale.Central Bank’s deliberate refusal to pay the purchase price for 9 long years cannot be regarded as acasual, but substantial and fundamental breach of obligation which defeats the object of the parties.

Issue: Whether Spouses Bichara is entitled to the rescission of the contract of sale.

Held:No. Central Bank’s obligation to pay arose as soon as the deed of sale was registered and a clean title

was issued. Only a substantial breach of the terms and conditions will warrant rescission. Whetherbreach is substantial is largely determined by the circumstances. Spouses Bichara were guilty of non-performance of the stipulation that Central Bank was not obliged to pay until the vendors compact the lotswith escombro fee from waste material. The deed of sale expressly stipulated that the vendors were toundertake, at their expense the filling up of the lots with escombro.Spouses Bichara should not be allowed to rescind the contract where they themselves did not performtheir essential obligation. It should be emphasized that a contract of sale involves reciprocitybetween parties. Since, the vendors were in bad faith, they may not seek for rescission of theagreement they themselfes breached.

Page 8 of 27


9/27

SALES

#57 Tuazon v . CA (2000)(Benjie)

Topic: Equitable Mortgage/Absolute Sale

Facts:

The case originated from a contract of mortgage constituted on the conjugal lot owned by spouses Tomasand Natividad Tuazon. Tomas mortgaged the subject lot to the Philippine Bank of Commerce (PBCom),to secure a loan. When the mortgagors failed to pay the mortgage debt, the mortgaged property wasforeclosed and sold at public auction, with PBCom itself as the highest bidder. Petitioner then tendered toPBCom the redemption amount of One Million (P1,000,000.00) Pesos and the bank issued a Certificateof Redemption. To keep the creditors, suppliers and laborers of Tuazon’s company from levying onsubject property, petitioner decided to transfer the title thereof to John Siy Lim for the assumedconsideration of P380,000.00. By virtue of the said deed, the TCT in the name of the Tuazons wascancelled and in lieu thereof another TCT was issued in the name of Lim. The Tuazons brought aComplaint for Reformation of Contract, Quieting of Title with Damages against Lim on the ground that thereal intention of the parties was to enter into a loan accommodation only. The new title was to serve assecurity for the loan. The Deed of Absolute Sale, prepared by the Tuazons’ lawyer, was executed bypetitioner and signed by the spouses.

The RTC decided for the private respondent. On MR, the court reconsidered its previous decision anddeclared that the Deed of Absolute Sale as an equitable mortgage. Lim elevated the case to the CA.Petitioner invites attention and places reliance on the alleged inadequacy of the purchase price and hishaving remained in possession of subject land.

Issue: Whether the transaction between the petitioner and the private respondent was one of absolutesale and not equitable mortgage.

Held:It was an absolute sale. “Article 1602 of the Civil Code provides that a contact shall be presumed to be anequitable mortgage by the presence of any of the following:

(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 extendingthe 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 isthat the transaction shall secure the payment of a debt or the performance of any otherobligation.

“Under Article 1604 of the New Civil Code, the provisions of Article 1602 shall also apply to a contractpurporting to be an absolute sale. And for these provisions of law to apply, two requisites must concur:that the parties entered into a contract denominated as a contract of sale and that their intention was tosecure an existing debt by way of mortgage. While the existence of any of the circumstances in Article

1602, not a concurrence nor an overwhelming number thereof, suffices to give rise to the presumptionthat the contract is an equitable mortgage; the present case is entirely different. Records on hand and thedocumentary evidence introduced by the parties indubitably show no room for construction, Article 1365of the New Civil Code on reformation of contracts applies only if there is evidence, clear and convincing,that the parties did agree upon a mortgage of subject property. Here, everything appears to be clear andunambiguous and nothing is doubtful, within the contemplation of Article 1602. When the words of thecontract are clear and readily understandable, there is no room for construction. The contract is the lawbetween the parties.

For an action for reformation of an instrument as provided for in Article 1359 to prosper, the following

Page 9 of 27


10/27

SALES

requisites must concur, to wit: (1) there must have been a meeting of the minds of the parties to thecontract; (2) the instrument does not express the true intention of the parties; and (3) the failure of theinstrument to express the true intention of the parties is due to mistake, fraud, inequitable conduct oraccident. Here, petitioner has not shown or established the presence of the aforestated requirements forthe reformation of the deed in question. XXX. What is more, any doubt as to the real meaning of thecontract must be resolved against the person who drafted the instrument and is responsible for theambiguity thereof. Prepared by the lawyer of the herein petitioner, Tomas See Tuazon, subject Deed of

Absolute Sale executed on July 15, 1987 is couched in clear terms and conditions. John Siy Lim had nohand in its preparation. Besides, the voluntary, written and unconditional acceptance of contractualcommitments negate the theory of equitable mortgage.”

Page 10 of 27


11/27

SALES

#58 Consolid ated Rural Bank (Cagayan Valley), Inc., Petitioner, Vs. The Honorable Court Of Appeal s And Heirs Of Teodoro Dela Cruz, Responden ts .

G.R. No. 132161, January 17, 2005(Farrah)

FACTS:

Rizal, Anselmo, Gregorio, Filomeno and Domingo, all surnamed Madrid were the registered owners of LotNo. 7036-A situated in San Mateo, Isabela per TCT No. T-8121 issued by the Register of Deeds ofIsabela in September 1956.

In 1956, Lot No. 7036-A was subdivided into several lots. One of the resulting subdivision lots was LotNo. 7036-A-7 with an area of Five Thousand Nine Hundred Fifty-Eight (5,958) square meters

On August 1957, Rizal Madrid sold part of his share identified as Lot No. 7036-A-7, to Aleja Gamiao andFelisa Dayag by virtue of a Deed of Sale to which his brothers Anselmo, Gregorio, Filomeno andDomingo offered no objection as evidenced by their Joint Affidavit dated 14 August 1957. The deed ofsale was not registered with the Register of Deeds (RD) of Isabela. However, Gamiao and Dayagdeclared the property for taxation purposes in their names on under Tax Declaration No. 7981

On May 28, 1964, Gamiao and Dayag sold the southern half of Lot No. 7036-A-7, to Teodoro dela Cruzand the northern half to Restituto Hernandez who both took possession and cultivated the portions of theproperty respectively sold to them. Later, on 28 December 1986, Restituto Hernandez donated thenorthern half to his daughter, Evangeline Hernandez-del Rosario while the children of Teodoro dela Cruzcontinued possession of the southern half after their father’s death on 7 June 1970.

Thereafter, on June 15, 1976, In a Deed of Sale , the Madrid brothers conveyed all their rights andinterests over Lot No. 7036-A-7 to Pacifico Marquez. The deed of sale was registered with the Office ofthe Register of Deeds of Isabela on 2 March 1982.

Subsequently, Marquez subdivided Lot No. 7036-A-7 into eight (8) lots, namely: Lot Nos. 7036-A-7-A to7036-A-7-H, for which TCT Nos. T-149375 to T-149382 were issued to him on 29 March 1984. On thesame date, Marquez and his spouse, Mercedita Mariana, mortgaged Lots Nos. 7036-A-7-A to 7036-A-7-Dto the Consolidated Rural Bank, Inc. of Cagayan Valley (hereafter, CRB) to secure a loan of OneHundred Thousand Pesos (P100,000.00) which was registered with the RD. Then on February 6, 1985,Marquez mortgaged Lot No. 7036-A-7-E likewise to the Rural Bank of Cauayan (RBC) to secure a loan ofTen Thousand Pesos (P10,000.00).

As Marquez defaulted in the payment of his loan, CRB caused the foreclosure of the mortgages in itsfavor and the lots were sold to it as the highest bidder. On October 31, 1985, Marquez sold Lot No. 7036-

A-7-G to Romeo Calixto (Calixto).

Heirs-now respondents herein-represented by Edronel dela Cruz, filed a case for reconveyance anddamages the southern portion of Lot No. 7036-A against Marquez, Calixto, RBC and CRB in December

1986. On the other hand, Evangeline del Rosario, the successor-in-interest of Restituto Hernandez, filedwith leave of court a Complaint in Intervention wherein she claimed the northern portion of Lot No. 7036- A-7.

Marquez as defendant alleged in his Answer to the Amended Complaint , that apart from being the firstregistrant, he was a buyer in good faith and for value; That the sale executed by Rizal Madrid to Gamiaoand Dayag was not binding upon him, it being unregistered. Calixto, manifested that he had no interest inthe subject property as he ceased to be the owner thereof, the same having been reacquired bydefendant Marquez while CRB, as defendant, and co-defendant RBC insisted that they were mortgagees

Page 11 of 27


12/27


13/27

SALES

recorded, even if afterwards the right of such vendor is annulled or resolved by virtue of a previousunrecorded title, nevertheless this refers only to third parties.

In a situation where not all th e requisites are present which would warrant the application of Art. 1544,the principle of prior tempore, potior jure or simply "he who is first in time is preferred in right," shouldapply. The only essential requisite of this rule is priority in time; in other words, the only one who

can invoke this is t he first vendee . Undisputedly, he is a purchaser in good faith because at the time hebought the real property, there was still no sale to a second vendee. In the instant case, the sale to theHeirs by Gamiao and Dayag, who first bought it from Rizal Madrid, was anterior to the sale by the Madridbrothers to Marquez. The Heirs also had possessed the subject property first in time. Thus, applying theprinciple, the Heirs, without a doubt, have a superior right to the subject property.

In any event, assuming arguendo that Article 1544 applies to the present case, the claim of Marquez stillcannot prevail over the right of the Heirs since according to the evidence he was not a purchaser andregistrant in good faith.

Following Article 1544, in the double sale of an immovable, the rules of preference are:

(a) the first registrant in good faith;(b) should there be no entry, the first in possession in good faith; and(c) in the absence thereof, the buyer who presents the oldest title in good faith. 54

Prior registration of the subject property does not by itself confer ownership or a better right over theproperty. Article 1544 requires that before the second buyer can obtain priority over the first, he mustshow that he acted in good faith throughout ( i.e ., in ignorance of the first sale and of the first buyer’srights) from the time of acquisition until the title is transferred to him by registration or failing registration,by delivery of possession

In the instant case, the actions of Marquez have not satisfied the requirement of good faith from the timeof the purchase of the subject property to the time of registration. As found by the Court of Appeals,Marquez knew at the time of the sale that the subject property was being claimed or "taken" by the Heirs.

One who purchases real property which is in actual possession of others should, at least, make someinquiry concerning the rights of those in possession. The actual possession by people other than thevendor should, at least, put the purchaser upon inquiry. He can scarcely, in the absence of such inquiry,be regarded as a bona fide purchaser as against such possessions. The rule of caveat emptor requiresthe purchaser to be aware of the supposed title of the vendor and one who buys without checking thevendor’s title takes all the risks and losses consequent to such failure.

It is further perplexing that Marquez did not fight for the possession of the property if it were true that hehad a better right to it. In our opinion, there were circumstances at the time of the sale, and even at thetime of registration, which would reasonably require a purchaser of real property to investigate todetermine whether defects existed in his vendor’s title. Instead, Marquez willfully closed his eyes to thepossibility of the existence of these flaws. For failure to exercise the measure of precaution which may berequired of a prudent man in a like situation, he cannot be called a purchaser in good faith.

As ruled in the case of Spouses Mathay v. Court of Appeals, While, it is a recognized principle that aperson dealing on a registered land need not go beyond its certificate of title, it is also a firmly settled rulethat where there are circumstances which would put a party on guard and prompt him to investigate orinspect the property being sold to him, such as the presence of occupants/tenants thereon, it is, ofcourse, expected from the purchaser of a valued piece of land to inquire first into the status or nature ofpossession of the occupants, i.e., whether or not the occupants possess the land in concept of owner.This rule equally applies to mortgagees of real property as held in the case of Crisostomo v. Court of

Appeals

Page 13 of 27

http://www.lawphil.net/judjuris/juri2005/jan2005/gr_132161_2005.html#fnt54#fnt54http://www.lawphil.net/judjuris/juri2005/jan2005/gr_132161_2005.html#fnt54#fnt54


14/27

SALES

Banks, their business being impressed with public interest, are expected to exercise more care andprudence than private individuals in their dealings, even those involving registered lands. Hence, formerely relying on the certificates of title and for its failure to ascertain the status of the mortgagedproperties as is the standard procedure in its operations, we agree with the Court of Appeals that CRB isa mortgagee in bad faith.

While certificates of title are indefeasible, unassailable and binding against the whole world, they merelyconfirm or record title already existing and vested. They cannot be used to protect a usurper from the trueowner, nor can they be used for the perpetration of fraud; neither do they permit one to enrich himself atthe expense of others.

(2) No. it is an established principle that no one can give what one does not have. Accordingly, one cansell only what one owns or is authorized to sell, and the buyer can acquire no more than what the sellercan transfer legally. In this case, since the Madrid brothers were no longer the owners of the subjectproperty at the time of the sale to Marquez, the latter did not acquire any right to it. Hence the mortgagesmade by Marquez to CRB and RBC were null and void.

(3) No. The requirement of good faith in the possession of the property finds no application in caseswhere there is no second sale. In the case at bar, Teodoro dela Cruz took possession of the property in

1964 long before the sale to Marquez transpired in 1976 and a considerable length of time eighteen (18)years in fact before the Heirs had knowledge of the registration of said sale in 1982. Thus, there was noneed for the appellate court to consider the issue of good faith or bad faith with regard to Teodoro delaCruz’s possession of the subject property.

Likewise, we are of the opinion that it is not necessary that there should be any finding of possession byGamiao and Dayag of the subject property. It should be recalled that the regularity of the sale to Gamiaoand Dayag was never contested by Marquez. In fact the RTC upheld the validity of this sale, holding thatthe Madrid brothers are bound by the sale by virtue of their confirmation thereof in the Joint Affidavit dated 14 August 1957. That this was executed a day ahead of the actual sale on 15 August 1957 doesnot diminish its integrity as it was made before there was even any shadow of controversy regarding theownership of the subject property.

Moreover, tax declarations "are good indicia of possession in the concept of an owner, for no on e in hisright mind would be paying taxes for a property that is not in his actual or constructive possession." 71

WHEREFORE , the Petition is DENIED. The dispositive portion of the Court of Appeals Decision, asmodified by its Resolution dated 5 January 1998, is AFFIRMED. Costs against petitioner.

Page 14 of 27

http://www.lawphil.net/judjuris/juri2005/jan2005/gr_132161_2005.html#fnt71#fnt71http://www.lawphil.net/judjuris/juri2005/jan2005/gr_132161_2005.html#fnt71#fnt71http://www.lawphil.net/judjuris/juri2005/jan2005/gr_132161_2005.html#fnt71#fnt71


15/27

SALES

#59 Alvaro vs. Ternida(Inah)

Facts:

Respondent spouses Osmundo Ternida and Julita Returban are owners of the contested property. In1986, respondent Julita mortgaged the land to spouses Salvador and Juanita for P28,000. She wasmade to sign a deed of pacto de retro sale which was explained to her as a mortgage document. Asworded, the document provided that Julita had 3 years from date of execution of the document torepurchase the land. After a year (1987), Salvador executed a Deed of Transfer of Mortgage in favor ofspouses Calpito and Valelo for a consideration of P32,000. Thereafter, Julita requested from the latter anadditional amount of P3,000, at which point, she was asked to sign a deed of sale with right torepurchase. In 1990, Julita again asked for an additional amount of P1,000 but she was informed thatCalpito and Valelo have transferred the mortgage to herein petitioners, spouses Tito Alvaro and MariaValelo. Petitioner spouses gave her an additional amount of P1000. Julita now claims that petitionersasked her to sign a document that she believed was a mortgage document, but later on turned out to be aDeed of Absolute Sale over the contested property. When Julita tried to redeem the property, thepetitioners refused claiming they had purchased the property and were in fact issued Tax Declaration No.2747. Julita then filed a complaint for annulment of deed of sale. Trial court dismissed the complaint forlack of cause of action, and its MR was likewise denied. On appeal to CA, RTC decision was reversed.Hence, this petition for review.

Issue: Whether the CA erred in declaring the transaction between the parties as an equitable mortgageinstead of an absolute sale

Held: Petition denied.

An equitable mortgage is defined as one which although lacking in some formality, or form or words orother requisites demanded by statute, nevertheless reveals the intention of the parties to charge realproperty as security for a debt, and contains nothing impossible or contrary to law. For the presumptionof an equitable mortgage to arise, two requisites must concur: (1) that the parties entered into a contractdenominated as sale; (2) that their intention was to secure an existing debt by way of a mortgage.Consequently, the 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 laon obligation.We find no merit in petitioner’s contention that in the deed of absolute sale executed between them andJulita, the latter totally conveyed her ownership over the disputed property. We have consistentlydecreed that nomenclature used by the contracting parties to describe a contract does not determine itsnature. The decisive factor is the intention of the parties to the contract – as shown by their conduct,words, actions and deeds – prior to, during and after executing the agreement. The Civil Codeenumerates several instances when a contract is clothed with the presumption that it is an equitablemortgage. Applying the foregoing considerations in the instant case, we find that the true intention of theparties in the execution of the deed of absolute sale was never to convey the ownership of the disputedproperty but merely to secure the loan obtained by Julita.

Page 15 of 27


16/27

SALES

#60 Leonid es C. Diño Vs. Lina Jardines(Karl)

Facts:

Leonides C. Diño (petitioner) filed a Petition for Consolidation of Ownership with the RTC-Baguio (RTC).She alleged that Lina Jardines (respondent) executed in her favor a Deed of Sale with Pacto de Retroover a parcel of land with improvements thereon, covered by a Tax Declaration, for the amount of P165k.The stipulated redemption period was 6 months; which expired without redemption having been made. Assuch, ownership was consolidated in favor of petitioner. In her amended complaint, she prayed fordamages and that she be declared the absolute owner of the property in question (as respondentcontested certain aspects of the loan, which will be discussed hereafter). Respondent countered bysaying that the Deed of Sale with Pacto de Retro did not embody the real intention of the parties for whatthey entered into was one of simple loan with the sale over the land as security. Further, the amountborrowed by respondent was only P50k with 9% monthly interest to be paid within a period of 6 months.Since the initial amount was insufficient to buy construction materials for the house she was then building,she again borrowed an additional amount of P30k.

Respondent also stated that it was never her intention to sell her property to petitioner for the value of thehouse and lot is around P1.5M. Thus, it was unthinkable for her to sell her land for only P165k.Respondent has even paid a total of P55k and is willing to settle the unpaid amount. However, petitionerinsisted on appropriating the property of respondent which she put up as collateral for the loan. Lastly,respondent has been the one paying for the realty taxes on the subject property; and due to the malicioussuit filed by petitioner, respondent suffered moral damages. The RTC ruled in favor of the petitioner,holding that the contract entered into was one of deed of sale with right to repurchase or pacto de retrosale. The RTC also held that the petitioner has acquired whatever rights respondent has over the parcelof land involved as the latter has to Torrens Title over the land, and as such, is the owner of the houseand the other improvements. The court RTC ordered the consolidation of ownership in favor of petitioner.The tax declaration of respondent was also ordered cancelled apart from the order of payment ofdamages in favor of petitioner. The CA reversed the RTC.

The CA held that the true nature of the contract between the parties is one of equitable mortgage, asshown by the fact that (a) respondent is still in actual physical possession of the property; (b) respondent

is the one paying the real property taxes on the property; and (c) the amount of the supposed sale priceof P165k earns monthly interest. The CA thus ordered the defendant to pay the amount of P165k withinterest until fully paid. MR was denied. Petitioner went to the SC.

Issue: Was the true nature of the contract one of sale with pacto de retro or one of equitable mortgage?

Held:

The CA was correct in holding that the sale was one of equitable mortgage. This ruling was based ondocumentary evidence and on admissions and stipulation of facts made by the parties. Article 1602 ofthe CC enumerates the instances when a purported pacto de retro sale may be considered anequitable mortgage . They are: (1) When the price of a sale with right to repurchase is unusuallyinadequate ; (2) When the vendor remains in pos session as lessee or otherwise ; (3) When upon or

after the expiration of the right to repurchase another instrument extending the period ofredemption or gr anting a new period is executed ; (4) When the purchaser retains for hims elf a partof the purchase price ; (5) When the vendor bind s himself to pay the taxes on the thing so ld ; (6) Inany other case where it may be fairly inferred that the real intention of the parties is that thetransaction shall secure the payment of a debt or the performance of any other obligation . In anyof the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent orotherwise shall be considered as interest which shall be subject to the usury laws.

The presence of even one of the above-mentioned circumstances is sufficient basis to declare acontract of sale with right to repurchase as one of equitable mortgage. For, in practically all of the

Page 16 of 27


17/27

SALES

so-called contracts of sale with right of repurchase, the real intention of the parties is that thepretended purchase price is money loaned and in order to secure the payment of the loan, acontract purporting to be a sale with pacto de retro is drawn up . Further, Article 1603 of the CCprovides that in case of doubt, a contract purpo rting to be a sale with right to repurchase shall beconstru ed as an equitable mortgage .

Here, paragraphs (2) and (5) of Article 1602 are present . Moreover, the fact that petitioner herselfdemands payment of interests on the purported purchase price of the subject property clearly showsthat the intention of the parties was merely for the property to stand as security for a loan . Thetransaction between herein parties was then correctly construed by the CA as an equitable mortgage.

Spill: The deletion of damages was meritorious. The Court is clothed with ample authority to reviewmatters, even if they are not assigned as errors in the appeal, if it finds that their consideration isnecessary in arriving at a just decision of the case. Here, the award for actual damages of the RTC iserror because no evidence supports the same (a witness’ testimony is not competent proof). The CA wasalso correct in ordering respondent to pay "legal interest" on the amount of P165k.

WHEREFORE, the petition is hereby DENIED . The Decision of the Court of Appeals dated June 9, 2000is AFFIRMED with the MODIFICATION that the legal interest rate to be paid by respondent on theprincipal amount of P 165,000.00 is twelve (12%) percent per annum from March 29, 1989 until fully paid.SO ORDERED.

Page 17 of 27


18/27

SALES

#61 OCCENA vs. ESPONILLA (2004)(Liz)

Facts: Spouses Irene and Nicolas Tordesillas owns a 1,198 sq.m lot in Antique. After their death, the lotwas inherited by their children Harod and Angela, and grandchildren Arnold and Lilia. The heirs executeda Deed of Pacto de Retro Sale in favor of Alberta Morales covering the southwestern portion of the lot

with an area of 748 square meters. 3 years later, Arnold and Lilia executed a Deed of Definite Sale ofShares, Rights, Interests and Participations over the same 748-lot in favor of Alberta Morales. Thenotarized deed attested that the lot sold by vendors to Alberta were their share in the estate of theirdeceased parents.

Alberta possessed the lot as owner, constructed a house on it and appointed a caretaker to oversee herproperty. Thereafter, vendor Arnold borrowed the OCT from Alberta covering the lot. He executed an

Affidavit acknowledging receipt of the OCT in trust and undertook to return said OCT free from changes,modifications or cancellations.

In 1966, Arnold and Angela, nephew and daughter respectively of the Tordesillas spouses, without theknowledge of Alberta, executed a Deed of Extrajudicial Settlement declaring the two of them as the onlyco-owners of the undivided 1,198 sq. m. lot no. 265, without acknowledging their previous sale of 748 sq.

m. to Alberta. A number of times, thereafter, Alberta and her nieces asked Arnold for the OCT of the landbut Arnold just kept on promising to return it.

In 1983, Arnold executed an Affidavit of Settlement of the Estate of Angela who died in 1978 withoutissue, declaring himself as the sole heir of Angela and thus consolidating the title of the entire lot in hisname. In 1985, vendee Alberta Morales died. Her nieces-heirs, Lydia, Elsa and Dafrosa, succeeded inthe ownership of the lot. Months later, as the heirs were about to leave for US, they asked Arnold todeliver to them the OCT so they can register it in their name. But Arnold did not deliver.

In 1986, after Alberta’s heirs left for the US, Arnold used the OCT he borrowed from Alberta, andsubdivided the entire lot into 3 sublots, and registered them all under his name. He then paid the realestate taxes on the property. He sold lot nos. 265-B & C to spouses Tomas and Sylvina Occeña, whichincluded the 748 sq. m. portion previously sold to Alberta Morales. A Deed of Absolute Sale over said lotswas executed to the Occeña spouses and titles were transferred to their names.

In 1993, after the death of Arnold, the 3 nieces-heirs of Alberta Morales learned about the second sale oftheir lot to the Occeña spouses when they were notified by caretaker Abas that they were being ejectedso the heirs filed a case for annulment of sale and cancellation of titles, with damages, against the secondvendees Occeña spouses. In their complaint, they alleged that the Occeñas purchased the land in badfaith as they were aware that the lots sold to them had already been previously sold to Alberta Morales.That when Tomas Occeña conducted an ocular inspection of the lots, Morito Abas, the caretaker, warnedthem not to push through with the sale as the land was no longer owned by vendor Arnold.

Issue/s: Whether or not the Occena’s are in BF

Held: Yes, the Occena’s are in BF. This is a case of double sale of an immovable property. Article 1544of the NCC provides that in case an immovable property is sold to different vendees, the ownership shallbelong:

(1) to the person acquiring it who in good faith first recorded it in the Registry of Property;(2) should there be no inscription, the ownership shall pertain to the person who in good faith was firstin possession; and,(3) in the absence thereof, to the person who presents the oldest title, provided there is good faith. Whatis material is whether the second buyer first registers the second sale in good faith, i.e., withoutknowledge of any defect in the title of the property sold. 10 The defense of indefeasibility of a Torrens title

Page 18 of 27


19/27

SALES

does not extend to a transferee who takes the certificate of title in bad faith, with notice of a flaw.Occena’s failed to prove good faith in their purchase and registration of the land. A purchaser in goodfaith and for value is one who buys property without notice that some other person has a right to orinterest in such property and pays its fair price before he has notice of the adverse claims and interest ofanother person in the same property. It is the "honesty of intention" which constitutes good faith implies afreedom from knowledge of circumstances which ought to put a person on inquiry.

At the trial, Tomas Occeña admitted that he found houses built on the land during its ocular inspectionprior to his purchase. He relied on the representation of vendor Arnold that these houses were owned bysquatters and that he was merely tolerating their presence on the land. Tomas should have verified fromthe occupants of the land the nature and authority of their possession instead of merely relying on therepresentation of the vendor that they were squatters, having seen for himself that the land was occupiedby persons other than the vendor who was not in possession of the land at that time.

The settled rule is that a buyer of real property in the possession of persons other than the seller must bewary and should investigate the rights of those in possession. Without such inquiry, the buyer can hardlybe regarded as a buyer in good faith and cannot have any right over the property. A purchaser cannotsimply close his eyes to facts which should put a reasonable man on his guard and then claim that heacted in good faith under the belief that there was no defect in the title of his vendor. His mere refusal tobelieve that such defect exists or his willful closing of his eyes to the possibility of the existence of adefect in his vendor’s title will not make him an innocent purchaser for value if it later develops that thetitle was in fact defective, and it appears that he would have notice of the defect had he acted with thatmeasure of precaution which may reasonably be required of a prudent man in a similar situation.

The general rule is that one who deals with property registered under the Torrens system need not gobeyond the same, but only has to rely on the title. He is charged with notice only of such burdens andclaims as are annotated on the title. However, this principle does not apply when the party has actualknowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiryor when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts toinduce a reasonably prudent man to inquire into the status of the title of the property in litigation. One whofalls within the exception can neither be denominated an innocent purchaser for value nor a purchaser ingood faith.

SPILL: (On laches) the action to annul title filed by respondents-heirs is not barred by laches andprescription. Laches is a creation of equity and cannot be used to defeat justice or perpetuate fraud andinjustice. Neither should its application be used to prevent the rightful owners of a property fromrecovering what has been fraudulently registered in the name of another. Prescription does not applywhen the person seeking annulment of title or reconveyance is in possession of the lot because theaction partakes of a suit to quiet title which is imprescriptible. In this case, Morales had actual possessionof the land when she had a house built thereon and had appointed a caretaker to oversee her property.Her undisturbed possession of the land for a period of fifty (50) long years gave her and her heirs acontinuing right to seek the aid of a court of equity to determine the nature of the claim of ownership ofpetitioner-spouses.

Morales’ caretaker became aware of the second sale to petitioner-spouses only in 1991 when hereceived from the latter a notice to vacate the land. Respondents-heirs did not sleep on their rights for in1994, they filed their action to annul petitioners’ title over the land. When vendor Arnold reacquired title tothe subject property by means of fraud and concealment after he has sold it to Alberta Morales, aconstructive trust was created in favor of Morales and her heirs. As the defrauded parties who were inactual possession of the property, an action of the respondents-heirs to enforce the trust and recover theproperty cannot prescribe. They may vindicate their right over the property regardless of the lapse oftime.Hence, the rule that registration of the property has the effect of constructive notice to the wholeworld cannot be availed of by petitioners and the defense of prescription cannot be successfully raisedagainst respondents.

Page 19 of 27


20/27

SALES

In sum, the general rule is that registration under the Torrens system is the operative act which givesvalidity to the transfer of title on the land. However, it does not create or vest title especially where a partyhas actual knowledge of the claimant’s actual, open and notorious possession of the property at the timeof his registration. A buyer in bad faith has no right over the land. As petitioner-spouses failed to registerthe subject land in good faith, ownership of the land pertains to respondent-heirs who first possessed it ingood faith.

Page 20 of 27


21/27

SALES

#62 EQUATORIAL REALTY DEVELOPMENT, INC. vs. MAYFAIR THEATER, INC.(Majê)

Facts:

Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereon located at

Recto, Manila, and covered by TCT issued in its name by the Register of Deeds of Manila. Carmeloentered into a contract of lease with Mayfair for use by Mayfair as a motion picture theater and for a termof 20 years. Mayfair then constructed on the leased property a movie house known as "Maxim Theatre."Two years later, Mayfair entered into a second contract of lease with Carmelo for the lease of anotherportion of latter’s property for similar use and term. Mayfair again put up another movie house known as"Miramar Theatre" on this leased property. Paragraph 8 of both contracts of lease provide:

“That if the LESSOR should desire to sell the leased premises, the LESSEE shall be given 30-daysexclusive option to purchase the same.

In the event, however, that the leased premises is sold to someone other than the LESSEE, the LESSORis bound and obligated, as it hereby binds and obligates itself, to stipulate in the Deed of Sale hereof thatthe purchaser shall recognize this lease and be bound by all the terms and conditions thereof.”

After sometime, Henry Yang, President of Mayfair was informed by Pascal of Carmelo, that the latterwants to sell the entire property - Jose Araneta was offering to buy the whole property for $ 1.2M. Mr.Yang was also asked if he was willing to buy the property for Php 6-7M. Mr. Yang replied that he wouldlet Mr. Pascal know of his decision later tru a letter but Carmelo did not reply to said letter. Mayfair sentanother letter to Carmelo saying that it will acquire the entire building and other improvements if the priceis reasonable. But, both Carmelo and Equatorial questioned the authenticity of the 2 nd letter. 4 yearsafter, the entire property was sold, including the leased premises housing the "Maxim" and "Miramar"theatres to Equatorial. Mayfair instituted the action a quo for specific performance and annulment of thesale of the leased premises to Equatorial. RTC dismissed the complaint and ruled in favor of Carmelo. Itadjudged paragraph 8 in the lease contracts as an option clause which however cannot be deemed to bebinding on Carmelo because of lack of distinct consideration therefor. On appeal, CA reversed saiddecision and differentiated between Article 1324 and Article 1479 of the Civil Code and concluded that

since paragraph 8 of the two lease contracts does not state a fixed price for the purchase of the leasedpremises, which is an essential element for a contract of sale to be perfected, what paragraph 8 is, mustbe a right of first refusal and not an option contract. Hence, the instant petition.

Issues:

1) WON paragraph 8 is a contract of right of first refusal.2) WON the contract of sale was rescissible.

Held:

1) YES.

We agree with the CA that the aforecited contractual stipulation provides for a right of first refusal in favorof Mayfair. It is not an option clause or an option contract . It is a contract of a right of first refusal.

An agreement in writing to give a person the option to purchase lands within a given time at a namedprice is neither a sale nor an agreement to sell. It is simply a contract by which the owner of propertyagrees with another person that he shall have the right to buy his property at a fixed price within a certaintime. He does not sell his land; he does not then agree to sell it; but he does sell something; that is, theright or privilege to buy at the election or option of the other party. The second party gets in praesenti, notlands, nor an agreement that he shall have lands, but he does get something of value; that is, the right to

Page 21 of 27


22/27

SALES

call for and receive lands if he elects. The owner parts with his right to sell his lands, except to the secondparty, for a limited period. The second party receives this right, or, rather, from his point of view, hereceives the right to elect to buy. This refers to the contract of option, or, what amounts to the samething, to the case where there was cause or consideration for the obligation, the subject of the agreementmade by the parties.

The rule so early established in this jurisdiction is that the deed of option or the option clause in acontract, in order to be valid and enforceable, must, among other things, indicate the definiteprice at which the person granting the option, is willing t o sell .

As elucidated in the case of Ang Yu Asuncion vs . Court of Appeals : “In sales, the contract is perfectedwhen a person, called the seller, obligates himself, for a price certain, to deliver and to transferownership of a thing or r ight to another, called the buyer, over which the latter agrees . Article 1458of the Civil Code provides:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer theownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money orits equivalent.

A contract of sale may be absolute or conditional.

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

To rule that a contractual stipulation such as that found in paragraph 8 of the contracts isgoverned by Article 1324 on withdrawal of the offer or Article 1479 on promise to buy and sellwould render in effectual or "inutile" the provisions on right of first refusal so commonly inserted inleases of real estate nowadays. The Court of Appeals is correct in stating that Paragraph 8 wasincorporated into the contracts of lease for the benefit of Mayfair which wanted to be assured thatit shall be given the first crack or the first option to buy the property at the price which Carmelo iswilling to accept. It is not also correct to say that there is no consideration in an agreement of rightof first refusal. The stipulation is part and parcel of the entire contract of lease. The considerationfor the lease includes the consideration for the right of first refusal. Thus, Mayfair is in effectstating that it consents to lease the premises and to pay the price agreed upon provided thelessor also consents that, should it sell the leased property, then, Mayfair shall be given the rightto match the offered purchase price and to buy the property at that price.

2) YES.

Finding that paragraph 8 is that of a contractual grant of the right of first refusal to Mayfair, theconsequential rights, obligations and liabilities of Carmelo, Mayfair and Equatorial are as follows:

Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the property in questionrescissible. We agree with respondent Appellate Court that the records bear out the fact that Equatorialwas aware of the lease contracts because its lawyers had, prior to the sale, studied the said contracts. Assuch, Equatorial cannot tenably claim to be a purchaser in good faith, and, therefore, rescission lies.

Rescission is a remedy granted by law to the contracting parties and even to third persons, to securereparation for damages caused to them by a contract, even if this should be valid, by means of therestoration of things to their condition at the moment prior to the celebration of said contract. It is a reliefallowed for the protection of one of the contracting parties and even third persons from all injury anddamage the contract may cause, or to protect some incompatible and preferent right created by the

Page 22 of 27


23/27

SALES

contract. Rescission implies a contract which, even if initially valid, produces a lesion or pecuniarydamage to someone that justifies its invalidation for reasons of equity.

Petitioners assert the alleged impossibility of performance because the entire property is indivisibleproperty. It was petitioner Carmelo which fixed the limits of the property it was leasing out. Commonsense and fairness dictate that instead of nullifying the agreement on that basis, the stipulation should be

given effect by including the indivisible appurtenances in the sale of the dominant portion under the rightof first refusal. A valid and legal contract where the ascendant or the more important of the two parties isthe landowner should be given effect, if possible, instead of being nullified on a selfish pretext posited bythe owner. Following the arguments of petitioners and the participation of the owner in the attempt to stripMayfair of its rights, the right of first refusal should include not only the property specified in the contractsof lease but also the appurtenant portions sold to Equatorial which are claimed by petitioners to beindivisible. Carmelo acted in bad faith when it sold the entire property to Equatorial without informingMayfair, a clear violation of Mayfair's rights. While there was a series of exchanges of letters evidencingthe offer and counter-offers between the parties, Carmelo abandoned the negotiations without givingMayfair full opportunity to negotiate within the 30-day period.

Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set asideor rescinded. All of these matters are now before us and so there should be no piecemeal determination

of this case and leave festering sores to deteriorate into endless litigation. The facts of the case andconsiderations of justice and equity require that we order rescission here and now. Rescission is a reliefallowed for the protection of one of the contracting parties and even third persons from all injuryand damage the contract may cause or to protect some incompatible and preferred right by thecontract. The sale of the subject real property by Carmelo to Equatorial should now be rescindedconsidering that Mayfair, which had substantial interest over the subject property, was prejudiced by thesale of the subject property to Equatorial without Carmelo conferring to Mayfair every opportunity tonegotiate within the 30-day stipulated period.

Page 23 of 27


24/27

SALES

#63San Miguel Properties (SMP) v. Huang(March)

Facts:

San Miguel Properties owns two parcels of land totalling 1, 738 square meters at the corner ofMeralco Avenue and General Capinpin Street, Barrio Oranbo, Pasig City. These properties were offeredfor sale for P52,140,000.00 in cash. The offer was made to Atty. Helena M. Dauz who was acting forspouses Huang. Atty. Dauz signified her clients’ interest in purchasing the properties for the amount forwhich they were offered by SMP, under the following terms: the sum of P500,000.00 would be given asearnest money and the balance would be paid in eight equal monthly installments from May to December,1994. However, SMPrefused the counter-offer. Another letter was sent this time offering “the sum ofP1,000,000.00 representing earnest-deposit money” subject to the conditions:

1. We will be given the exclusive option to purchase the property within the 30 days fromdate of your acceptance of this offer.2. During said period, we will negotiate on the terms and conditions of the purchase;SMPPI will secure the necessary Management and Board approvals; and we initiate thedocumentation if there is mutual agreement between us.3. In the event that we do not come to an agreement on this transaction, the said amountof P1,000,000.00 shall be refundable to us in full upon demand. . . .

SMP offered a 90 day period w/in w/c to pay, Atty Dauz countered for 6 months. This howeverwas not acted upon, prompting Atty Dauz to propose a 4 month period of amortization. Atty then askedfor 45 days w/in w/c to exercise their option to buy. Despite the lapse of the period Atty Diaz failed tocommunicate their decision prompting SMP to return the 1M. Atty now files for a specific performance forSMP to sell the property to Huang. RTC dismissed the case. CA reversed saying that there was aperfected contract of sale and that the 1M being an earnest money is considered as part of the sale price.That the fact the parties had not agreed on the mode of payment did not affect the contract as such is notan essential element for its validity.

Issue : WON there is a perfected contract of sale.

Held : None

The Court holds that Sps Huang did not give the P1 million as "earnest money" as provided by Art. 1482 of the Civil Code. They presented the amount merely as a deposit of what would eventuallybecome the earnest money or down payment should a contract of sale be made by them. The amountwas thus given not as a part of the purchase price and as proof of the perfection of the contract of salebut only as a guarantee that Sps Huang would not back out of the sale.

The P1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. 1482 because, at the time when SMP accepted the terms of Sps Huang’ offer of March 29, 1994,their contract had not yet been perfected. This is evident from the following conditions attached by SpsHuang to their letter, to wit: (1) that they be given the exclusive option to purchase the property within 30

days from acceptance of the offer; (2) that during the option period, the parties would negotiate the termsand conditions of the purchase; and (3) SMP would secure the necessary approvals while Sps Huangwould handle the documentation.

The first condition for an option period of 30 days sufficiently shows that a sale was neverperfected. As SMP correctly points out, acceptance of this condition did not give rise to a perfected salebut merely to an option or an accepted unilateral promise on the part of Sps Huang to buy the subjectproperties within 30 days from the date of acceptance of the offer. Such option giving Sps Huang theexclusive right to buy the properties within the period agreed upon is separate and distinct from thecontract of sale which the parties may enter. All that Sps Huang had was just the option to buy the

Page 24 of 27


25/27

SALES

properties which privilege was not, however, exercised by them because there was a failure to agree onthe terms of payment. No contract of sale may thus be enforced by Huang.

Furthermore, even the option secured by Sps. Huang from SMP was fatally defective. Under thesecond paragraph of Art. 1479, an accepted unilateral promise to buy or sell a determinate thing for aprice certain is binding upon the promisor only if the promise is supported by a distinct consideration.Consideration in an option contract may be anything of value, unlike in sale where it must be the pricecertain in money or its equivalent. There is no showing here of any consideration for the option. Lackingany proof of such consideration, the option is unenforceable.

Equally compelling as proof of the absence of a perfected sale is the second condition that,during the option period, the parties would negotiate the terms and conditions of the purchase. Thestages of a contract of sale are as follows: (1) negotiation, covering the period from the time theprospective contracting parties indicate interest in the contract to the time the contract is perfected; (2)perfection, which takes place upon the concurrence of the essential elements of the sale which are themeeting 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 ofsale, culminating in the extinguishment thereof. In the present case, the parties never got past thenegotiation stage. The alleged "indubitable evidence" of a perfected sale cited by the appellate court wasnothing more than offers and counter-offers which did not amount to any final arrangement containing theessential elements of a contract of sale. While the parties already agreed on the real properties whichwere the objects of the sale and on the purchase price, the fact remains that they failed to arrive atmutually acceptable terms of payment, despite the 45-day extension given by SMP.

The appellate court opined that the failure to agree on the terms of payment was no bar to theperfection of the sale because Art. 1475 only requires agreement by the parties as to the price of theobject. This is error. In Navarro v. Sugar Producers Cooperative Marketing Association, Inc., we laid downthe rule that the manner of payment of the purchase price is an essential element before a valid andbinding contract of sale can exist. Although the Civil Code does not expressly state that the minds of theparties must also meet on the terms or manner of payment of the price, the same is needed, otherwisethere is no sale. As held in Toyota Shaw, Inc. v. Court of Appeals, agreement on the manner of paymentgoes into the price such that a disagreement on the manner of payment is tantamount to a failure toagree on the price.

Thus, it is not the giving of earnest money, but the proof of the concurrence of all the essentialelements of the contract of sale which establishes the existence of a perfected sale.

Page 25 of 27


26/27

SALES

#64 Ramos V. Sarao(Marcus)

Facts:

Spouses Ramos executed a contract over their conjugal house and lot in favor of Sarao for and inconsideration of P1,310,430. Entitled “DEED OF SALE UNDER PACTO DE RETRO,” the contract,granted the Ramos spouses the option to repurchase the property within 6 months from February 21,1991, for P1,310,430 plus an interest of 4.5% a month. It was further agreed that should the spouses failto pay the monthly interest or to exercise the right to repurchase within the stipulated period, theconveyance would be deemed an absolute sale.

On July 30, 1991, Ramos tendered to Sarao the amount of P1,633,034.20 in the form of two manager’schecks, which the latter refused to accept for being allegedly insufficient. Ramos filed a Complaint for theredemption of the property and deposited with the RTC two checks that Sarao refused to accept. Saraofiled against the Ramos spouses a Petition “for consolidation of ownership in pacto de retro sale.” TheRTC dismissed the Complaint and granted the prayer of Sarao to consolidate the title of the property inher favor. The CA sustained the RTC’s finding that the disputed contract was a bonafide pacto de retrosale, not a mortgage to secure a loan.

Issue:

WON the parties intended the contract to be a bona fide pacto de retro sale or an equitable mortgage.

Held: Equitable Mortgage

In a pacto de retro, ownership of the property sold is immediately transferred to the vendee a retro,subject only to the repurchase by the vendor a retro within the stipulated period. The vendor a retro’sfailure to exercise the right of repurchase within the agreed time vests upon the vendee a retro, byoperation of law, absolute title to the property. Such title is not impaired even if the vendee a retro fails toconsolidate title under Article 1607 of the Civil Code.

On the other hand, an equitable mortgage is a contract that — although lacking the formality, the form or

words, or other requisites demanded by a statute — nevertheless reveals the intention of the parties toburden a piece or pieces of real property as security for a debt. The essential requisites of such a contractare as follows: (1) the parties enter into what appears to be a contract of sale, but (2) their intention is tosecure an existing debt by way of a mortgage. The nonpayment of the debt when due gives themortgagee the right to foreclose the mortgage, sell the property, and apply the proceeds of the sale to thesatisfaction of the loan obligation.

Furthermore, a contract purporting to be a pacto de retro is construed as an equitable mortgage when theterms of the document and the surrounding circumstances so require. The law discourages the use of apacto de retro, because this scheme is frequently used to circumvent a contract known as a pactumcommissorium. The Court has frequently noted that a pacto de retro is used to conceal a contract of loansecured by a mortgage. Such construction is consistent with the doctrine that the law favors the leasttransmission of rights.

Contrary to Sarao’s bare assertions, a meticulous review of the evidence reveals that the alleged contractwas executed merely as security for a loan.

The loan obligation was clear from Sarao’s evidence as found by the trial court, which we quote:“x x x [Sarao] also testified that Myrna did not tender payment of the correct and sufficient price for saidreal property within the 6-month period as stipulated in the contract, despite her having been shown thecomputation of the loan obligation, inclusive of capital gains tax, real estate tax, transfer tax and otherexpenses. She admitted though that Myrna has tendered payment amounting to P1,633,034.20 in theform of two manager’s checks, but these were refused acceptance for being insufficient. She also

Page 26 of 27


27/27

SALES

claimed that several letters (Exhs. 2, 4 and 5) were sent to Myrna and her lawyer, informing them of thecomputation of the loan obligation inclusive of said expenses. x x x.”

Respondent herself stressed that the pacto de retro had been entered into on the very same day that theproperty was to be foreclosed by a commercial bank. Such circumstance proves that the spouses direlyneeded funds to avert a foreclosure sale. Had they intended to sell the property just to realize someprofit, as Sarao suggests, they would not have retained possession of the house and continued to livethere. Clearly, the spouses had entered into the alleged pacto de retro sale to secure a loan obligation,not to transfer ownership of the property.

Inasmuch as the contract between the parties was an equitable mortgage, Respondent Sarao’s remedywas to recover the loan amount from petitioner by filing an action for the amount due or by foreclosing theproperty.

compiled sales digests

Documents