ACOMPILATION OF CASE DIGEST ON LAW OF SALES

Chiara S. Bertillo

I. Elements of a Contract.

OLEGARIO B. CLARIN vs ALBERTO L. RULONA

G.R.No. L-30786 February 20, 1984
Guiterrez. J.

Facts: The Petitioner owns a parcel of land amouting to 10 hectares in

Carmen Bohol. Said land was his share to a common inheritance he got
from his late father.

On 1959, Clarin executed a Contract of Sale with Rulona on the

questioned property. Rulona alleged that they agreed on the
consideration of 2,500. 1,00 os which shall be paid during as down
payment and the rest shall be paind in monthly instalments of 100.
Rulona already paid a total of 1,100 when Clarin decided to return the
payment on the ground that he was not able to convince his co-heirs to
sell his share of the property. Alleging that their had been no perfected
contract since the sale was subject to a condition that there must be
consent from his co-heirs

ISSUE: Whether or not there is a perfected contract?

RULING: Yes there is. During trial there were 3 documents

shown. Exhibit A shows that upon payment of P800.00 by Rulona, a
survey of the land was authorized. Exhibit B shows that P200.00, part of
the down payment was paid to Clarin and that the 1stinstallment of
P100.00 was also made. Though these exhibits are not the Contract of
Sale, they show that there was a contract of sale between Rulona and
Clarin.
Construing Exhibits A and B together, it can be seen that the Clarin
agreed to sell and Rulona agreed to buy a definite object, that is, 10
hectares of land which is part and parcel of Lot 20 PLD No. 4, owned in
common
by the Clarin and his sisters although the boundaries of the 10 hectares
would be delineated at a later date. The parties also agreed on a definite
price which is P2,500.00. Exhibit B further shows that Clarin has
received from Rulona as initial payment, the amount of P800.00. Hence,
it cannot be denied that there was a perfected contract of sale between
the parties and that such contract was already partially executed when
the petitioner received the initial payment of P800.00. The latter’s
acceptance of the payment clearly showed his consent to the contract
thereby precluding him from rejecting its binding effect.

Further, Clarin’s letter to Rulona marked Exhibit C stated;

“My dear Mr. Rulona: Replying to your letter of recent date, I deeply
regret to inform you that my daughter, Alice, who is now in Manila, could
not be convinced by me to sell the land in question, that is, the ten
(10) hectares of land referred to in our tentative agreement. It is for
this reason that I hereby authorize the bearer, Mr. Paciano Parmisano,
to return to you in person the sum of One Thousand and One Hundred
(P1,100.00) Pesos which you have paid in advance for the proposed
sale of the
land in question.”

The reasons given by the Clarin cannot operate against the validity of
the contract in question. A contract is valid even though one of the
parties entered into it against his better judgment.

NOTES:

Lastly, the court held that although as co-owner the petitioner could not
dispose of a specific portion of the land, nevertheless, his share was
bound by the effect of the sale

Suffice it to state that a contract to be binding upon the contracting

parties need not be notarized. Neither should it specify the manner of
payment of the consideration nor should it specify the manner of
payment of the consideration nor should it contain the proper heading

DOMING ACASIO vs. CORPORACION DE LOS PP. DOMINICOS DE FILIPINAS

G.R. No. L-9428 December 21, 1956
BENGZON, J.

FACTS: The defendant company is the owner of a House in Sta. Ana

Manila which was leased to Esteban Garcia for P75 a month. Two rooms
in it were subleased to the Spouses Acasio for P25 month. In 1950,
Garcia gave notice to the spouses to vacate the property. Upon refusal
of the spouses, a complaint of illegal detainer was filed which was later
on dismissed certain equitable facts and circumstances which the court
found to have been established in that case. Garcia left the property,
Mrs. Acacio went to Francisco the Trust Officer of the BPI
( administering the properties of the defendant company) ask the house
be leased to her. He then informed Mrs. Acasio of the increase in rent
from P75 to P100 a month and later on asked if she be given time to talk
it over with her husband. But fear that it might be given to someone else.
Mrs. Acasio paid P100 for the month of February.

Mr. Acasio was not happy of the arrangement and took his frustration
and protest of the increase through a letter addressed to the President of
the BPI. The reason to which was provided in the reply: (Increase in the
accessed Value) Due to subsequent refusal to be succumb of the terms
of the lease, an ejectment suit was filed against him in the (MTC) which
adjudged continuance of possession and payment of P75 up until July,
and payment of P100 on the succeeding months or if not vacate the
property.

On appeal, he argues that her payment of P100 as found by the Court of

Appeals did not constitute an agreement (of lease) "for it was made
under circumstances that certainly negated consent" referring, obviously,
to her paying "with a certain degree of reluctance".

ISSUE: Whether or not there is a valid contract of Lease?

RULING: YES. Nevertheless, as pointed out in appellee's brief, such

reluctance did not have the legal effect of preventing the formation of a
contract.

There must, them, be a distinction to be made between a case

where a person gives his consent reluctantly and even against his
good sense and judgment, and where he, in reality, gives no
consent at all, as where he executes a contract or performs an act
 against his will under a pressure which he cannot resist. It is clear
that one acts as voluntarily and independently in the eye of the law
when he acts reluctantly and with hesitation as when he acts
spontaneously and joyously. Legally speaking he acts as
voluntarily and freely when he acts wholly against his better sense
and judgment as when he acts in conformity with them. Between
the two acts there is no difference in law. (Vales vs. Villa, 35 Phil.
789.)

Her conformity gave rise to a new contract of lease between the

corporation and the Acasios — not a renewal of a previous lease.
The latter, therefore, could not, after one month as lessees ask for
a "longer term".

NOTES:
However, it appearing that the monthly rent of P75 had been paid since
1948 we do not think the owner could be criticized for demanding a
higher compensation, bearing in mind the downward trend of the value
of the local currency with consequent rising prices and the "increase in
the assessed value of the property and of the improvements which had
been made thereon".

SPS. PARAGAS, vs. HEIRS OF DOMINADOR BALANCANO

G.R. NO. 168220, August 31, 2005
CHICO-NAZARIO, J.:

FACTS:
Gregorio Balacano, married to Lorenza Sumigcay, was the registered
owner of Lot 1175-E and Lot 1175-F of the Subd. Plan Psd-38042 in
Isabela. Prior to his death, Gregorio was admitted at the Veterans
General Hospital in Bayombong, Nueva Vizcaya on June 28, 1996 and
stayed there until July 19, 1996. He was transferred in the afternoon of
July 19, 1996 to the Veterans Memorial Hospital in Quezon City where
he was confined until his death.

Gregorio purportedly sold on July 22, 1996, or barely a week prior to his
death, a portion of Lot 1175-E (specifically consisting of 15,925 square
meters from its total area of 22,341 square meters) and the whole Lot
1175-F to the Spouses Rudy ("Rudy") and Corazon Paragas
(collectively, "the Spouses Paragas") for the total consideration
of P500,000.00. This sale appeared in a deed of absolute sale notarized
by Atty. Alexander V. de Guzman, Notary Public for Santiago City, on
the same date - July 22, 1996 - and witnessed by Antonio Agcaoili
("Antonio") and Julia Garabiles ("Julia"). Gregorio's certificates of title
over Lots 1175-E and 1175-F were consequently cancelled and new
certificates of title were issued in favor of the Spouses Paragas.

The Spouses Paragas then sold on October 17, 1996 a portion of Lot
1175-E consisting of 6,416 square meters to Catalino for the total
consideration of P60,000.00.

Domingo's children filed on October 22, 1996 a complaint for annulment

of sale and partition against Catalino and the Spouses Paragas. They
essentially alleged - in asking for the nullification of the deed of sale -
that: (1) their grandfather Gregorio could not have appeared before the
notary public on July 22, 1996 at Santiago City because he was then
confined at the Veterans Memorial Hospital in Quezon City; (2) at the
time of the alleged execution of the deed of sale, Gregorio was seriously
ill, in fact dying at that time, which vitiated his consent to the disposal of
the property; and (3) Catalino manipulated the execution of the deed and
prevailed upon the dying Gregorio to sign his name on a paper the
contents of which he never understood because of his serious condition.

ISSUE: Whether or not there is a valid contract

Rulings: It is not disputed that when Gregorio signed the deed of sale,
Gregorio was seriously ill, as he in fact died a week after the deed's
signing. Gregorio died of complications caused by cirrhosis of the liver.
Gregorio's death was neither sudden nor immediate; he fought at least a
month-long battle against the disease until he succumbed to death on
July 22, 1996. Given that Gregorio purportedly executed a deed during
the last stages of his battle against his disease, we seriously doubt
whether Gregorio could have read, or fully understood, the contents of
the documents he signed or of the consequences of his act. We note in
this regard that Gregorio was brought to the Veteran's Hospital at
Quezon City because his condition had worsened on or about the time
the deed was allegedly signed. This transfer and fact of death not long
after speak volumes about Gregorio's condition at that time. We likewise
see no conclusive evidence that the contents of the deed were
sufficiently explained to Gregorio before he affixed his signature. The
evidence the defendants-appellants offered to prove Gregorio's consent
to the sale consists of the testimonies of Atty. de Guzman and Antonio.
As discussed above, we do not find Atty. de Guzman a credible witness.
Thus, we fully concur with the heretofore-quoted lower court's evaluation
of the testimonies given by Atty. de Guzman and Antonio because this is
an evaluation that the lower court was in a better position to make.

2. Yes. The irregular and invalid notarization of the deed is a falsity that
raises doubts on the regularity of the transaction itself. While the deed
was indeed signed on July 18, 1996 at Bayombong, Nueva Viscaya, the
deed states otherwise, as it shows that the deed was executed on July
22, 1996 at Santiago City. Why such falsity was committed, and the
circumstances under which this falsity committed, speaks volume about
the regularity and the validity of the sale. Artm24 of Civil Code tells us
that in all contractual property or other relations, when one of
themparties is at disadvantage on account of his moral dependence,
ignorance, indigence, mentalmweakness, tender age or other handicap,
the courts must be vigilant for his protection. Based on the foregoing,
Gregorio’s consent to the sale of the lots was absent making the contact
null and
Void.

NOTE:

The general rule is that a person is not incompetent to contract

merely because of advanced years or by reason of physical
infirmities. However, when such age or infirmities have impaired
the mental faculties so as to prevent the person from properly,
 intelligently, and firmly protecting her property rights then she is
undeniably incapacitated.

DORADO VDA DE DELFIN vs DELLOTA

G.R. NO. 143697 January 28, 2008
SANDOVAL-GUTIERREZ, J.:

ASE TITLE : DORADO VDA.

FACTS:

DE DELFIN VS. SALVADOR D.

DELLOTA
CITATION : 542 SCRA 397
(SCRA)
TOPIC : EQUITABLE
MORTGAGE (ART. 1602-1604)
FACTS:
The late Dionisia Dorado
Delfin and her heirs sought to
recover a
certain parcel of land from
respondent Salvador D. Dellota.
Petitioners
contended that the Deed of
Sale with Right of entered into
by Dionisia and respondent Dellota
is an equitable mortgage under
Article
1602 of the Civil Code. They
insist that the price stipulated
for a five-
hectare portion of the subject
property is grossly inadequate. This
readily
shows that the contract is an
equitable mortgage, not a sale with
right of
redemption. The trial court rendered
a judgment adverse to Dionisia
while the
CA affirmed in toto the trial court’
decision.
ISSUE:
Whether the Deed of Sale with
Right of Redemtion executed by
Dionisia
and Dellota is an equitable mortgage
under Article 1602 of the Civil
Code.
HELD:
The Supreme Court says NO.
Petition denied.
RATIO:
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, and contains nothing
impossible or contrary to law. The
essential
requisites of an equitable
mortgage are: (1) the parties
enter into what
appears to be a contract of sale,
(2) but their intention is to secure
an
existing debt by way of mortgage.
Jurisprudence recognizes that there
is no conclusive test to determine
whether a deed purporting to be a
sale on its face is really a simple
loan
accommodation secured by a
mortgage. However, our case
law consistently
shows that the presence of
even one of the circumstances
enumerated in
Article 1602 suffices to convert
a purported contract of sale
into an
equitable mortgage. In this case,
what should be determined is
whether the
consideration of P5,300.00 paid
by Gumersindo to Dionisa for a
five-hectare
portion of Lot No. 1213 on June 9,
1949 is “unusually inadequate.”
Following De Ocampo and
Buenaventura, this Court finds no
cogent reason
to conclude that the 1949 price
of P5,300.00 as agreed upon by the
parties
was unreasonable or unusually
inadequate. Moreover, under the
rules of
evidence, it is presumed that a
person takes ordinary care of
his
concerns. In the present case,
there is no evidence herein
whatsoever to
show that Dionisia did not
understand the ramifications of
her signing the
“Deed of Sale with Right of
Redemption.” Nor is there any
showing that she
was threatened, forced or defrauded
into affixing her signature on the
said
contract.
If the terms of the pacto de retro
sale were unfavorable to Dionisia,
this Court has no business
extricating her from that bad
bargain. Courts are
not guardians of persons who are not
legally incompetent, like Dionisi
ASE TITLE : DORADO VDA. DE
DELFIN VS. SALVADOR D.
DELLOTA
CITATION : 542 SCRA 397
(SCRA)
TOPIC : EQUITABLE
MORTGAGE (ART. 1602-1604)
FACTS:
The late Dionisia Dorado
Delfin and her heirs sought to
recover a
certain parcel of land from
respondent Salvador D. Dellota.
Petitioners
contended that the Deed of
Sale with Right of entered into
by Dionisia and respondent Dellota
is an equitable mortgage under
Article
1602 of the Civil Code. They
insist that the price stipulated
for a five-
hectare portion of the subject
property is grossly inadequate. This
readily
shows that the contract is an
equitable mortgage, not a sale with
right of
redemption. The trial court rendered
a judgment adverse to Dionisia
while the
CA affirmed in toto the trial court’
decision.
ISSUE:
Whether the Deed of Sale with
Right of Redemtion executed by
Dionisia
and Dellota is an equitable mortgage
under Article 1602 of the Civil
Code.
HELD:
The Supreme Court says NO.
Petition denied.
RATIO:
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, and contains nothing
impossible or contrary to law. The
essential
requisites of an equitable
mortgage are: (1) the parties
enter into what
appears to be a contract of sale,
(2) but their intention is to secure
an
existing debt by way of mortgage.
Jurisprudence recognizes that there
is no conclusive test to determine
whether a deed purporting to be a
sale on its face is really a simple
loan
accommodation secured by a
mortgage. However, our case
law consistently
shows that the presence of
even one of the circumstances
enumerated in
Article 1602 suffices to convert
a purported contract of sale
into an
equitable mortgage. In this case,
what should be determined is
whether the
consideration of P5,300.00 paid
by Gumersindo to Dionisa for a
five-hectare
portion of Lot No. 1213 on June 9,
1949 is “unusually inadequate.”
Following De Ocampo and
Buenaventura, this Court finds no
cogent reason
to conclude that the 1949 price
of P5,300.00 as agreed upon by the
parties
was unreasonable or unusually
inadequate. Moreover, under the
rules of
evidence, it is presumed that a
person takes ordinary care of
his
concerns. In the present case,
there is no evidence herein
whatsoever to
show that Dionisia did not
understand the ramifications of
her signing the
“Deed of Sale with Right of
Redemption.” Nor is there any
showing that she
was threatened, forced or defrauded
into affixing her signature on the
said
contract.
If the terms of the pacto de retro
sale were unfavorable to Dionisia,
this Court has no business
extricating her from that bad
bargain. Courts are
not guardians of persons who are not
legally incompetent, like Dionisia.
FACTS: Dionisia Dorado Delfin, herein petitioner, represented by her
heirs, was the registered owner of Lot No. 1213 situated in Panitan,
Capiz with an area of 143,935 square meters covered by Original
Certificate of Title No. RP-1124 (14972).

On June 16, 1929, Dionisia executed an "Escritura De Venta Con Pacto

de Retro" over a 50,000-square meter portion of Lot No. 1213 in favor of
spouses Ildefonso Dellota and Patricia Delfin. However, Dionisia failed to
exercise her right of redemption.

On June 9, 1949, Dionisia sold another portion of Lot No. 1213

consisting of 50,000 square meters to Gumersindo Deleata (respondent
herein represented by his estate), as evidenced by a notarized "Deed of
Sale with Right of Redemption," thus, leaving an unsold area of more
than 43,000 square meters.
Dionisia never redeemed this 50,000-square meter portion from
Gumersindo. Records show that Salvador Dellota (also a respondent
represented by his heirs) leased this area from Gumersindo.

.On October 12, 1956, Dionisia executed a "Deed of Mortgage and

Promise To Sell" in favor of Salvador over a 90,000-square meter
portion of Lot No. 1213, without specifying whether it included the
50,000-square portion sold (with right of redemption) to Gumersindo.

On June 8, 1964, Dionisia filed with the then Court of First Instance,
Branch 2, Roxas City, a complaint for recovery of possession and
damages with an application for a writ of preliminary mandatory
injunction, docketed as Civil Case No. V-2760. Impleaded as defendant
was respondent Salvador D. Dellota, represented by his wife Genoveva
D. Dellota and their children.

For his part, Gumersindo filed a motion for intervention.

On April 30, 1991, after the hearing/proceedings lasting for almost three
decades, the trial court rendered its Decision, the dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered:

1. Ordering defendant Genoveva D. Dellota to allow the plaintiffs to

redeem the 40,000-square meter portion of subject Lot 1213, Panitan
Cadastre, after plaintiffs shall have paid the defendant the amount
of P2,000;

2. Declaring the ownership over the 50,000-square meter portion of the

subject lot as consolidated by operation of law to and in the name of the
Interventors and heirs of Gumersindo Delena; andcralawlibrary

3. Ordering the plaintiffs to pay the costs of this suit.

SO ORDERED.

On appeal by Dionisia, the Court of Appeals rendered a Decision

affirming in toto the judgment of the trial court.

Hence, the present petition.

Dionisia's heirs now contend that the Court of Appeals erred in not
holding that the Deed of Sale with Right of Redemption dated June 9,
1949 entered into by Dionisia and Gumersindo is an equitable mortgage
under Article 1602 of the Civil Code. They insist that the price
of P5,300.00 for a five-hectare portion of Lot No. 1213 is grossly
inadequate. This readily shows that the contract is an equitable
mortgage, not a sale with right of redemption.

ISSUE: WON the Gross Inadequacy of the Price voids the Sale.

RULING: Jurisprudence recognizes that there is no conclusive test to

determine whether a deed purporting to be a sale on its face is really a
simple loan accommodation secured by a mortgage. However, our case
law consistently shows that the presence of even one of the
circumstances enumerated in Article 1602 suffices to convert a
purported contract of sale into an equitable mortgage. 6 In this case, what
should be determined is whether the consideration of P5,300.00 paid by
Gumersindo to Dionisa for a five-hectare portion of Lot No. 1213 on June
9, 1949 is "unusually inadequate."

In Aguilar v. Ribato and Gonzales Vila,7 this Court ruled that there is

gross inadequacy in price if a reasonable man will not agree to dispose
of his property.

In De Ocampo and Custodio v. Lim,8 this Court held that in sales

denominated as pacto de retro, the price agreed upon should not
generally be considered as the just value of the thing sold, absent
other corroborative evidence. This is because, on the part of the
vendor, the right to repurchase the land makes it immaterial to him
whether or not the price of the sale is the just value thereof. As for the
vendee, the price does not induce him to enter into the contract as he
does not acquire the thing irrevocably, but subject to repurchase at the
stated period. Rather, the vendee pins his hope on the expectancy that
he will acquire the thing absolutely at a favorable price should the vendor
fail to redeem the thing sold. Subsequently, in Buenaventura v. Court of
Appeals,9 this Court ruled that there is no requirement in sales that the
price be equal to the exact value of the thing subject matter of the sale.

Following De Ocampo and Buenaventura, this Court finds no cogent

reason to conclude that the 1949 price of P5,300.00 as agreed upon by
the parties was unreasonable or unusually inadequate. Moreover, under
the rules of evidence, it is presumed that a person takes ordinary care of
his concerns.10 In the present case, there is no evidence herein
whatsoever to show that Dionisia did not understand the ramifications of
her signing the "Deed of Sale with Right of Redemption." Nor is there
any showing that she was threatened, forced or defrauded into affixing
her signature on the said contract.

If the terms of the pacto de retro sale were unfavorable to Dionisia, this

Court has no business extricating her from that bad bargain. Courts are
not guardians of persons who are not legally incompetent, 11 like Dionisia.

There is “gross inadequacy in price” if a reasonable man will not

agree to dispose ofhis property.Dorado Vda. De Delfin v. Dellota, 542
SCRA 397 (2008).
Spouses Buenaventura v. CA
G.R. No. 126376, 20 November 2003
CARPIO J.

FACTS: Defendant parents sold real properties to their co-defendant

children which were sought to be declared void ab initio by their
petitioner children on the ground.

1. a) Firstly, there was no actual valid consideration for the deeds of

sale xxx over the properties in litis;
2. b) Secondly, assuming that there was consideration in the sums
reflected in the questioned deeds, the properties are more than
three-fold times more valuable than the measly sums appearing
therein;
3. c) Thirdly, the deeds of sale do not reflect and express the true
intent of the parties (vendors and vendees); and
4. d) Fourthly, the purported sale of the properties in litiswas the
result of a deliberate conspiracy designed to unjustly deprive the
rest of the compulsory heirs (plaintiffs herein) of their legitime.

Defendants, on the other hand, aver (1) that plaintiffs do not have a
cause of action against them as well as the requisite standing and
interest to assail their titles over the properties in litis; (2) that the sales
were with sufficient considerations and made by defendants parents
voluntarily, in good faith, and with full knowledge of the consequences of
their deeds of sale; and (3) that the certificates of title were issued with
sufficient factual and legal basis.

ISSUE:

Whether the Deeds of Sale are void for the gross inadequacy of price.
RULING:

Petitioners ask that assuming that there is consideration, the same is

grossly inadequate as to invalidate the Deeds of Sale.

Articles 1355 of the Civil Code states:

Art. 1355. Except in cases specified by law, lesion or inadequacy of

cause shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. (Emphasis supplied)

Article 1470 of the Civil Code further provides:

Art. 1470. Gross inadequacy of price does not affect a contract of sale,
except as may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract. (Emphasis supplied)

Petitioners failed to prove any of the instances mentioned in Articles

1355 and 1470 of the Civil Code which would invalidate, or even affect,
the Deeds of Sale. Indeed, there is no requirement that the price be
equal to the exact value of the subject matter of sale. All the
respondents believed that they received the commutative value of what
they gave. As we stated in Vales v. Villa:
As to Legal Capacity

Petitioners do not have any legal interest over the properties subject of
the Deeds of Sale. As the appellate court stated, petitioners’ right to their
parents’ properties is merely inchoate and vests only upon their parents’
death. While still living, the parents of petitioners are free to dispose of
their properties. In their overzealousness to safeguard their future
legitime, petitioners forget that theoretically, the sale of the lots to their
siblings does not affect the value of their parents’ estate. While the sale
of the lots reduced the estate, cash of equivalent value replaced the lots
taken from the estate.
NOTES:

A contract of sale is not a real contract, but a consensual contract. As a

consensual contract, a contract of sale becomes a binding and valid
contract upon the meeting of the minds as to price. If there is a meeting
of the minds of the parties as to the price, the contract of sale is valid,
despite the manner of payment, or even the breach of that manner of
payment. If the real price is not stated in the contract, then the contract
of sale is valid but subject to reformation. If there is no meeting of the
minds of the parties as to the price, because the price stipulated in the
contract is simulated, then the contract is void. 14 Article 1471 of the
Civil Code states that if the price in a contract of sale is simulated, the
sale is void.

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

contract of sale. Payment of the price has nothing to do with the
perfection of the contract. Payment of the price goes into the
performance of the contract. Failure to pay the consideration is different
from lack of consideration. The former results in a right to demand the
fulfillment or cancellation of the obligation under an existing valid
contract while the latter prevents the existence of a valid contract. 15

Art. 1470. Gross inadequacy of price does not affect a contract of sale,
except as may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract.
DOLES vs. MA. AURA TINA ANGELES
G.R. No. 149353 June 26, 2006
AUSTRIA-MARTINEZ, J.

FACTS:

: Respondent alleged that petitioner was indebted to the former in the

concept of a personal loan amounting to P405,430.00 representing the
principal amount and interest; that on October 5, 1996, by virtue of a
"Deed of Absolute Sale",3petitioner, as seller, ceded to respondent, as
buyer, a parcel of land, as well as the improvements thereon, with an
area of 42 square meters, in order to satisfy her personal loan with
respondent. Petitioner, denied that she borrowed money from
respondent, and averred that from June to September 1995, she
referred her friends to respondent whom she knew to be engaged in the
business of lending money in exchange for personal checks through her
capitalist Arsenio Pua. She alleged that her friends, borrowed money
from respondent and issued personal checks in payment of the loan;
that the checks bounced for insufficiency of funds; that despite her
efforts to assist respondent to collect from the borrowers, she could no
longer locate them; that she was forced to issue eight checks amounting
to P350,000 to answer for the bounced checks of the borrowers she
referred; that prior to the issuance of the checks she informed
respondent that they were not sufficiently funded but the latter
nonetheless deposited the checks and for which reason they were
subsequently dishonored, that she was forced by respondent to execute
an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to
avoid criminal prosecution

. RTC: Plaintiff Angeles’ admission that the borrowers are the friends of
defendant Doles and further admission that the checks issued by these
borrowers in payment of the loan obligation negates the cause or
consideration of the contract of sale executed by and between plaintiff
and defendant.

CA Reversed: The CA concluded that petitioner was the borrower and,

in turn, would "re-lend" the amount borrowed from the respondent to her
friends. Hence, the Deed of Absolute Sale was supported by a valid
consideration, which is the sum of money petitioner owed respondent
amounting to
P405,430.00, representing both principal and interest. Petitioner filed her
Motion for Reconsideration, arguing that respondent categorically
admitted in open court that she acted only as agent or representative of
Arsenio Pua, the principal financier and, hence, she had no legal
capacity to sue petitioner.

Hence this petition

ISSUE: Whether the Deed of Absolute Sale is supported by a valid

consideration.

RULING:

In the case at bar, both petitioner and respondent have undeniably

disclosed to each other that they are representing someone else, and so
both of them are estopped to deny the same. It is evident from the
record that petitioner merely refers actual borrowers and then collects
and disburses the amounts of the loan upon which she received a
commission; and that respondent transacts on behalf of her "principal
financier", a certain Arsenio Pua. If their respective principals do not
actually and personally know each other, such ignorance does not affect
their juridical standing as agents, especially since the very purpose of
agency is to extend the personality of the principal through the facility of
the agent.

With respect to the admission of petitioner that she is "re-lending" the

money loaned from respondent to other individuals for profit, it must be
stressed that the manner in which the parties designate the relationship
is not controlling. If an act done by one person in behalf of another is in
its essential nature one of agency, the former is the agent of the latter
notwithstanding he or she is not so called. 30 The question is to be
determined by the fact that one represents and is acting for another, and
if relations exist which will constitute an agency, it will be an agency
whether the parties understood the exact nature of the relation or not. 31
That both parties acted as mere agents is shown by the undisputed fact
that the friends of petitioner issued checks in payment of the loan in the
name of Pua. If it is true that petitioner was "re-lending", then the checks
should have been drawn in her name and not directly paid to Pua.

With respect to the second point, particularly, the finding of the CA that
the disbursements and payments for the loan were made through the
bank accounts of petitioner and respondent,

suffice it to say that in the normal course of commercial dealings and for
reasons of convenience and practical utility it can be reasonably
expected that the facilities of the agent, such as a bank account, may be
employed, and that a sub-agent be appointed, such as the bank itself, to
carry out the task, especially where there is no stipulation to the
contrary.32

In view of the two agency relationships, petitioner and respondent are

not privy to the contract of loan between their principals. Since the sale
is predicated on that loan, then the sale is void for lack of consideration.

NOTES:

Furthermore, the CA held that the alleged threat or intimidation by

respondent did not vitiate consent, since the same is considered just or
legal if made to enforce one’s claim through competent authority under
Article 133511 of the Civil Code;

The CA concluded that petitioner was the borrower and, in turn, would
"re-lend" the amount borrowed from the respondent to her friends.
Hence, the Deed of Absolute Sale was supported by a valid
consideration, which is the sum of money petitioner owed respondent
amounting to P405,430.00, representing both principal and interest.

The CA took into account the following circumstances in their entirety:

the supposed friends of petitioner never presented themselves to
respondent and that all transactions were made by and between
petitioner and respondent;7 that the money borrowed was deposited with
the bank account of the petitioner, while payments made for the loan
were deposited by the latter to respondent’s bank account; 8 that
petitioner herself admitted in open court that she was "re-lending" the
money loaned from respondent to other individuals for profit; 9 and that
the documentary evidence shows that the actual borrowers, the friends
of petitioner, consider her as their creditor and not the respondent.

GUERRERO vs. BRAVO

G.R. No. 152658. July 29, 2005
CARPIO, J.:
FACTS:

Spouses Mauricio Bravo and Simona Andaya Bravo owned two parcels
of land located along Evangelista Street, Makati City, Metro Manila. The
Properties are registered under TCT Nos. 58999 and 59000 issued by
the Register of Deeds of Rizal on 23 May 1958. The Properties contain a
large residential dwelling, a smaller house and other improvements.

Mauricio and Simona had three children - Roland, Cesar and Lily, all
surnamed Bravo. Cesar died without issue. Lily Bravo married David
Diaz, and had a son, David B. Diaz, Jr. ("David Jr."). Roland had six
children, namely, Lily Elizabeth Bravo-Guerrero ("Elizabeth"), Edward
Bravo ("Edward"), Roland Bravo, Jr. ("Roland Jr."), Senia Bravo,
Benjamin Mauricio Bravo, and their half-sister, Ofelia Bravo ("Ofelia").

Simona executed a General Power of Attorney ("GPA") on 17 June 1966

appointing Mauricio as her attorney-in-fact. In the GPA, Simona
authorized Mauricio to "mortgage or otherwise hypothecate, sell, assign
and dispose of any and all of my property, real, personal or mixed, of
any kind whatsoever and wheresoever situated, or any interest therein
xxx."6 Mauricio subsequently mortgaged the Properties to the Philippine
National Bank (PNB) and Development Bank of the Philippines (DBP) for
₱10,000 and ₱5,000, respectively.7

On 25 October 1970, Mauricio executed a Deed of Sale with Assumption

of Real Estate Mortgage ("Deed of Sale") conveying the Properties to
"Roland A. Bravo, Ofelia A. Bravo and Elizabeth Bravo" 8 ("vendees").
The sale was conditioned on the payment of ₱1,000 and on the
assumption by the vendees of the PNB and DBP mortgages over the
Properties.

As certified by the Clerk of Court of the Regional Trial Court of Manila,

the Deed of Sale was notarized by Atty. Victorio Q. Guzman on 28
October 1970 and entered in his Notarial Register. 9 However, the Deed
of Sale was not annotated on TCT Nos. 58999 and 59000. Neither was it
presented to PNB and DBP. The mortage loans and the receipts for loan
payments issued by PNB and DBP continued to be in Mauricio’s name
even after his death on 20 November 1973. Simona died in 1977.

On 23 June 1997, Edward, represented by his wife, Fatima Bravo, filed

an action for the judicial partition of the Properties. Edward claimed that
he and the other grandchildren of Mauricio and Simona are co-owners of
the Properties by succession. Despite this, petitioners refused to share
with him the possession and rental income of the Properties. Edward
later amended his complaint to include a prayer to annul the Deed of
Sale, which he claimed was merely simulated to prejudice the other
heirs.

In 1999, David Jr., whose parents died in 1944 and who was
subsequently raised by Simona, moved to intervene in the case. David
Jr. filed a complaint-in-intervention impugning the validity of the Deed of
Sale and praying for the partition of the Properties among the surviving
heirs of Mauricio and Simona. The trial court allowed the intervention in
its Order dated 5 May 1999.10

RTC upheld Mauricio’s sale of the Properties to the vendees. The trial
court ruled that the sale did not prejudice the compulsory heirs, as the
Properties were conveyed for valuable consideration. The trial court also
noted that the Deed of Sale was duly notarized and was in existence for
many years without question about its validity.

CA declared the Deed of Sale void for lack of Simona’s consent. The
appellate court held that the GPA executed by Simona in 1966 was not
sufficient to authorize Mauricio to sell the Properties because Article
1878 of the Civil Code ("Article 1878") requires a special power of
attorney for such transactions. The appellate court reasoned that the
GPA was executed merely to enable Mauricio to mortgage the
Properties, not to sell them.

SEEK REVERSAL

1. WHETHER THE COURT OF APPEALS ERRED IN NOT

UPHOLDING THE VALIDITY AND ENFORCEMENT OF THE DEED OF
SALE WITH ASSUMPTION OF MORTGAGE.

Properties is void because: (1) Mauricio executed the Deed of Sale

without Simona’s consent; and (2) the sale was merely simulated, as
shown by the grossly inadequate consideration Mauricio received for the
Properties.

ISSUE: WHETHER OR NOT THERE IS A VALID SALE?

RULING:

1. AS TO CONSENT

In this case, Simona expressly authorized Mauricio in the GPA to "sell,

assign and dispose of any and all of my property, real, personal or
mixed, of any kind whatsoever and wheresoever situated, or any interest
therein xxx" as well as to "act as my general representative and agent,
with full authority to buy, sell, negotiate and contract for me and in my
behalf."25 Taken together, these provisions constitute a clear and specific
mandate to Mauricio to sell the Properties. Even if it is called a "general
power of attorney," the specific provisions in the GPA are sufficient for
the purposes of Article 1878. These provisions in the GPA likewise
indicate that Simona consented to the sale of the Properties.

2. AS TO CONSIDERATION

We point out that the law on legitime does not bar the disposition of
property for valuable consideration to descendants or compulsory heirs.
In a sale, cash of equivalent value replaces the property taken from the
estate.26 There is no diminution of the estate but merely a substitution in
values. Donations and other dispositions by gratuitous title, on the other
hand, must be included in the computation of legitimes. 27

Respondents, however, contend that the sale of the Properties was

merely simulated. As proof, respondents point to the consideration of
₱1,000 in the Deed of Sale, which respondents claim is grossly
inadequate compared to the actual value of the Properties.

Simulation of contract and gross inadequacy of price are distinct legal

concepts, with different effects. When the parties to an alleged contract
do not really intend to be bound by it, the contract is simulated and
void.28 A simulated or fictitious contract has no legal effect
whatsoever29 because there is no real agreement between the parties.

In contrast, a contract with inadequate consideration may nevertheless

embody a true agreement between the parties. A contract of sale is a
consensual contract, which becomes valid and binding upon the meeting
of minds of the parties on the price and the object of the sale. 30 The
concept of a simulated sale is thus incompatible with inadequacy of
price. When the parties agree on a price as the actual consideration, the
sale is not simulated despite the inadequacy of the price. 31

Gross inadequacy of price by itself will not result in a void contract.

Gross inadequacy of price does not even affect the validity of a contract
of sale, unless it signifies a defect in the consent or that the parties
actually intended a donation or some other contract. 32 Inadequacy of
cause will not invalidate a contract unless there has been fraud, mistake
or undue influence.33 In this case, respondents have not proved any of
the instances that would invalidate the Deed of Sale.

NOTES:

 If there is a meeting of the minds of the parties as to the price, the

contract of sale is valid, despite the manner of payment, or even
the breach of that manner of payment

Art. 173. The wife may, during the marriage and within ten years
from the transaction questioned, ask the courts for the annulment of
any contract of the husband entered into without her consent, when such
consent is required, or any act or contract of the husband which tends to
defraud her or impair her interest in the conjugal partnership
property. Should the wife fail to exercise this right, she or her heirs
after the dissolution of the marriage, may demand the value of
property fraudulently alienated by the husband
II. STAGES OF A CONTRACT
1. Policitacion
2. Perfection
3. Consumation

ROBERN DEV’T CORP. vs PEOPLE'S LANDLESS ASSOCIATION

G.R. No. 173622 March 11, 2013
DEL CASTILLO, J.:

FACTS:

Al-Amanah owned a 2000-square meter lot. On December 12, 1992, Al-

Amanah Davao Branch, thru its officer-in-charge Febe O. Dalig (OIC
Dalig), asked some of the members of PELA to desist from building their
houses on the lot and to vacate the same, unless they are interested to
buy it. The informal settlers thus expressed their interest to buy the lot at
P100.00 per square meter, which Al-Amanah turned down for being far
below its asking price. Consequently, Al-Amanah reiterated its demand
to the informal settlers to vacate the lot. In a letter dated March 18, 1993,
the informal settlers together with other members comprising PELA
offered to purchase the lot for P300,000.00, half of which shall be paid
as down payment and the remaining half to be paid within one year. In
the lower portion of the said letter, Al-Amanah made the following
annotation: Note: Subject offer has been acknowledged/received but
processing to take effect upon putting up of the partial amt. of
P150,000.00 on or before April 15, 1993. By May 3, 1993, PELA had
deposited P150,000.00 as evidenced by four bank receipts. For the first
three receipts, the bank labelled the payments as "Partial deposit on
sale of TCT No. 138914", while it noted the 4th receipt as "Partial/Full
payment on deposit on sale of A/asset TCT No. 138914." In the
meantime, the PELA members remained in the property and introduced
further improvements. On November 29, 1993, Al-Amanah, thru Davao
Branch Manager Abraham D. Ututalum-Al Haj, wrote then PELA
President Bonifacio Cuizon, Sr. informing him of the Head Office’s
disapproval of PELA’s offer to buy the said 2,000- square meter lot. On
the other hand, PELA members claimed there was already a sale based
on the bank’s offer.

RTC
In its August 10, 1999 Decision,35 the RTC dismissed PELA’s Complaint.
It opined that the March 18, 1993 letter PELA has been relying upon as
proof of a perfected contract of sale was a mere offer which was already
rejected.

CA
Reversing the RTC in its assailed Decision 37 of August 16, 2005, the CA
ruled that there was already a perfected contract of sale between PELA
and Al-Amanah. It held that the annotationon the lower portion of the
March 18, 1993 letter could be construed to mean that for Al-Amanah to
accept PELA’s offer, the sum of ₱150,000.00 must be first put up. The
CA also observed that the subsequent receipt by Al-Amanah of the
amounts totalling ₱150,000.00, and the annotation of "deposit on sale of
TCT No. 138914," on the receipts it issued explicitly indicated an
acceptance of the association’s offer to buy. Consequently, the CA
invalidated the sale between Robern and Al-Amanah.
ISSUE: WHETHER OR NOT THERE IS A PERFECTED CONTRACT
OF SALE?

RULING:

In sale, "When there is merely an offer by one party without acceptance

of the other, there is no contract." The decision to accept a bidder’s
proposal must be communicated to the bidder. However, a binding
contract may exist between the parties whose minds have met, although
they did not affix their signatures to any written document, as
acceptance may be expressed or implied. It "can be inferred from the
contemporaneous and subsequent acts of the contracting parties." It is
thus undisputed, and PELA even acknowledges, that OIC Dalig made it
clear that the acceptance of the offer, notwithstanding the deposit, is
subject to the approval of the Head Office. Recognizing the corporate
nature of the bank and that the power to sell its real properties is lodged
in the higher authorities,65 she never falsely represented to the bidders
that she has authority to sell the bank’s property. And regardless of
PELA’s insistence that she execute a written agreement of the sale, she
refused and told PELA to wait for the decision of the Head Office,
making it clear that she has no authority to execute any deed of sale

Contracts undergo three stages: "a) negotiation which begins from the
time the prospective contracting parties indicate interest in the contract
and ends at the moment of their agreement[; b) perfection or birth, x x x
which takes place when the parties agree upon all the essential
elements of the contract x x x; and c) consummation, which occurs when
the parties fulfill or perform the terms agreed upon, culminating in the
extinguishment thereof."66

In the case at bench, the transaction between Al-Amanah and PELA

remained in the negotiation stage. The offer never materialized into a
perfected sale, for no oral or documentary evidence categorically proves
that Al-Amanah expressed amenability to the offered ₱300,000.00
purchase price. Before the lapse of the 1-year period PELA had set to
pay the remaining ‘balance,’ Al-Amanah expressly rejected its offered
purchase price, although it took the latter around seven months to inform
the former and this entitled PELA to award of damages. 67 Al-Amanah’s
act of selling the lot to another buyer is the final nail in the coffin of the
negotiation with PELA. Clearly, there is no double sale, thus, we find no
reason to disturb the consummated sale between Al-Amanah and
Robern.

NOTES

III. Kinds of Sales

Absolute Contract of Sale vs Conditional Contract of Sale

Dignos v. CA
G.R. No. L-59266; 29 February 1988
Bidin, J.

FACTS:

Spouses Silvestre Dignos and Isabela Lumungsod de Dignos sold their

parcel of land in Opon, Lapu-Lapu to private respondent Antonio Jabil
for the sum of P28,000.00 payable for 2 installments, with an
assumption of indebtedness with the First Insular Bank of Cebu in the
sum of P12,000.00 as was acknowledged by vendors in the Deed of
Absolute Sale (Exh. C), and the next installment to be paid 3 months
after. But the same land was also sold by Spouses Dignos (Exh. J)
which was registered in the Registry of Deeds. This prompted Jabil to file
a civil suit against Spouses Dignos for the 2nd sale to Spouses Luciano
Cabigas and Jovita de Cabigas, who were then US citizens. CFI of Cebu
rendered the 2nd sale to Spouses Cabigas null and void, directing
Spouses Dignos to return the P35,000.00 to Spouses Cabigas and
ordered Jabil to pay the remaining balance. Spouses Dignos contend
that Exh. C is a contract to sell and as such, anchored their contention
on the very terms of the contract as mentioned in ¶4, that said spouses
have agreed to sell the herein mentioned property to Alilano B. Jabil and
condition in ¶5, in which the spouses agreed to sign a final deed of
absolute sale upon payment of the remaining balance of P4,000.00.

CFI

WHEREFORE, the Court hereby declares the deed of sale executed on

November 25, 1965 by defendant Isabela L. de Dignos in favor of
defendant Luciano Cabigas, a citizen of the United States of America,
null and void ab initio, and the deed of sale executed by defendants
Silvestre T. Dignos and Isabela Lumungsod de Dignos not rescinded. 

CA

A motion for reconsideration of said decision was filed by the

defendants- appellants (petitioners) Dignos spouses, but on December
16, 1981, a resolution was issued by the Court of Appeals denying the
motion for lack of merit.

Hence, this petition.

THE COURT OF APPEALS COMMITTED A GRAVE ERROR OF LAW

IN GROSSLY, INCORRECTLY INTERPRETING THE TERMS OF THE
CONTRACT, EXHIBIT C, HOLDING IT AS AN ABSOLUTE SALE,
EFFECTIVE TO TRANSFER OWNERSHIP OVER THE PROPERTY IN
QUESTION TO THE RESPONDENT AND NOT MERELY A
CONTRACT TO SELL OR PROMISE TO SELL; THE COURT ALSO
ERRED IN MISAPPLYING ARTICLE 1371 AS WARRANTING
READING OF THE AGREEMENT, EXHIBIT C, AS ONE OF ABSOLUTE
SALE, DESPITE THE CLARITY OF THE TERMS THEREOF SHOWING
IT IS A CONTRACT OF PROMISE TO SELL.

CONTENTION OF THE DIGNOS:

It is further contended that in said contract, title or ownership over the

property was expressly reserved in the vendor, the Dignos spouses until
the suspensive condition of full and punctual payment of the balance of
the purchase price shall have been met. So that there is no actual sale
until full payment is made (Rollo, pp. 51-52).
In bolstering their contention that Exhibit "C" is merely a contract to sell,
petitioners aver that there is absolutely nothing in Exhibit "C" that
indicates that the vendors thereby sell, convey or transfer their
ownership to the alleged vendee. Petitioners insist that Exhibit "C" (or 6)
is a private instrument and the absence of a formal deed of conveyance
is a very strong indication that the parties did not intend "transfer of
ownership and title but only a transfer after full payment"

ISSUE: Whether or not the contract is a deed of absolute sale?

RULING:

Such contention is untenable.

By and large, the issues in this case have already been settled by this
Court in analogous cases.

Thus, it has been held that a deed of sale is absolute in nature although
denominated as a "Deed of Conditional Sale" where nowhere in the
contract in question is a proviso or stipulation to the effect that title to the
property sold is reserved in the vendor until full payment of the purchase
price, nor is there a stipulation giving the vendor the right to unilaterally
rescind the contract the moment the vendee fails to pay within a fixed
period Taguba v. Vda. de Leon, 132 SCRA 722; Luzon Brokerage Co.,
Inc. v. Maritime Building Co., Inc., 86 SCRA 305).

A careful examination of the contract shows that there is no such

stipulation reserving the title of the property on the vendors nor does it
give them the right to unilaterally rescind the contract upon non-payment
of the balance thereof within a fixed period.

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

While it may be conceded that there was no constructive delivery of the

land sold in the case at bar, as subject Deed of Sale is a private
instrument, it is beyond question that there was actual delivery thereof.
As found by the trial court, the Dignos spouses delivered the possession
of the land in question to Jabil as early as March 27,1965 so that the
latter constructed thereon Sally's Beach Resort also known as Jabil's
Beach Resort in March, 1965; Mactan White Beach Resort on January
15,1966 and Bevirlyn's Beach Resort on September 1, 1965. Such facts
were admitted by petitioner spouses (Decision, Civil Case No. 23-L;
Record on Appeal, p. 108).

Moreover, the Court of Appeals in its resolution dated December

16,1981 found that the acts of petitioners, contemporaneous with the
contract, clearly show that an absolute deed of sale was intended by the
parties and not a contract to sell.

Be that as it may, it is evident that when petitioners sold said land to the
Cabigas spouses, they were no longer owners of the same and the sale
is null and void

NOTE:

The contract in question (Exhibit C) is a Deed of Sale, with the following

conditions:

1. That Atilano G..Jabilis to pay the amount of Twelve

Thousand Pesos P12,000.00) Phil. Philippine Currency as
advance payment;

2. That Atilano G. Jabil is to assume the balance of Twelve

Thousand Pesos (P12,000.00) Loan from the First Insular
Bank of Cebu;

3. That Atilano G. Jabil is to pay the said spouses the

balance of Four. Thousand Pesos (P4,000.00) on or before
September 15,1965;

4. That the said spouses agrees to defend the said Atilano

G. Jabil from other claims on the said property;
 5. That the spouses agrees to sign a final deed of absolute
sale in favor of Atilano G. Jabil over the above-mentioned
property upon the payment of the balance of Four Thousand
Pesos. (Original Record, pp. 10-11)

PEOPLE'S HOMESITE & HOUSING CORPORATION vs CA

G.R. No. L-61623 December 26, 1984
AQUINO, J.:

FACTS:

The PHHC board of directors on February 18, 1960 passed Resolution

No. 513 wherein it stated "that subject to the approval of the Quezon
City Council of the above-mentioned Consolidation Subdivision Plan, Lot
4. containing 4,182.2 square meters be, as it is hereby awarded to
Spouses Rizalino Mendoza and Adelaida Mendoza, at a price of twenty-
one pesos (P21.00) per square meter" and "that this award shall be
subject to the approval of the OEC (PHHC) Valuation Committee and
higher authorities".

The city council disapproved the proposed consolidation subdivision plan

on August 20, 1961 (Exh. 2). The said spouses were advised by
registered mail of the disapproval of the plan (Exh. 2-PHHC). Another
subdivision plan was prepared and submitted to the city council for
approval. The revised plan, which included Lot 4, with a reduced area of
2,608.7, was approved by the city council on February 25, 1964 (Exh.
H).

On April 26, 1965 the PHHC board of directors passed a

resolution recalling all awards of lots to persons who failed to pay the
deposit or down payment for the lots awarded to them (Exh. 5). The
Mendozas never paid the price of the lot nor made the 20% initial
deposit.

On October 18, 1965 the PHHC board of directors passed Resolution

No. 218, withdrawing the tentative award of Lot 4 to the Mendoza
-spouses under Resolution No. 513 and re-awarding said lot jointly and
in equal shares to Miguela Sto. Domingo, Enrique Esteban, Virgilio
Pinzon, Leonardo Redublo and Jose Fernandez, subject to existing
PHHC rules and regulations. The prices would be the same as those of
the adjoining lots. The awardees were required to deposit an amount
equivalent to 20% of the total selling price (Exh. F).

The five awardees made the initial deposit. The corresponding deeds of
sale were executed in their favor. The subdivision of Lot 4 into five lots
was approved by the city council and the Bureau of Lands.

On March 16, 1966 the Mendoza spouses asked for reconsideration of

the withdrawal of the previous award to them of Lot 4 and for the
cancellation of the re-award of said lot to Sto. Domingo and four others.
Before the request could be acted upon, the spouses filed the instant
action for specific performance and damages.

The trial court sustained the withdrawal of the award. The Mendozas
appealed. The Appellate Court reversed that decision and declared void
the re-award of Lot 4 and the deeds of sale and directed the PHHC to
sell to the Mendozas Lot 4 with an area of 2,603.7 square meters at P21
a square meter and pay to them P4,000 as attorney's fees and litigation
expenses. The PHHC appealed to this Court.

ISSUE: Whether or not there was a perfected sale of Lot 4, with the
reduced area, to the Mendozas which they can enforce against the
PHHC by an action for specific performance.

RULING: We hold that there was no perfected sale of Lot 4. It was

conditionally or contingently awarded to the Mendozas subject to the
approval by the city council of the proposed consolidation subdivision
plan and the approval of the award by the valuation committee and
higher authorities.

The city council did not approve the subdivision plan. The Mendozas
were advised in 1961 of the disapproval. In 1964, when the plan with the
area of Lot 4 reduced to 2,608.7 square meters was approved, the
Mendozas should have manifested in writing their acceptance of the
award for the purchase of Lot 4 just to show that they were still
interested in its purchase although the area was reduced and to obviate
ally doubt on the matter. They did not do so. The PHHC board of
directors acted within its rights in withdrawing the tentative award.
"The contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the
price. From that moment, the parties may reciprocally demand
performance, subject to the law governing the form of contracts." (Art.
1475, Civil Code).

NOTES:

"In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition. (Art. 1181, Civil
Code). "Se llama suspensive la condicion de la que depende la
perfeccion, o sea el principio del contrato". (9 Giorgi, Teoria de las
Obligaciones, p. 57).
 CONTRACT OF SALE VS CONTRACT TO SELL

G.R. No. 170917               November 28, 2007

SPOUSES NESTOR CASTILLO and ROSIE REYES-CASTILLO, Petitioners,
vs.
SPOUSES RUDY REYES and CONSOLACION REYES, Respondents.

NACHURA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court assailing the December 6, 2005 Decision 1 of the Court of
Appeals (CA) in CA-G.R. CV No. 79385.

On November 7, 1997, Emmaliza Bohler and respondents negotiated for

the sale of the former’s house and lot located at Poblacion, New
Washington, Aklan, to the latter for the consideration of
₱165,000.00.2 On the following day, November 8, they signed an
Agreement which pertinently reads as follows:

We, the undersigned, agree to the following terms and conditions

regarding the sale of the house and lot located at Poblacion, New
Washington, Aklan:

1. That the total amount to be paid shall be One Hundred Sixty-

Five Thousand Pesos (₱165,000.00) to be paid in full on or before
the 15th of December 1997;

2. That a partial payment (sic) a total amount of One Hundred

Thirty Thousand Pesos (₱130,000.00) shall be made today, the
8th of November 1997;

3. That the remaining balance in the amount (sic) of Thirty-Five

Thousand Pesos (₱35,000.00) shall be made as per #1 above;

4. That the buyers, represented by the Spouses Rudy and

Consolacion Reyes (sic) shall be responsible for all the legal and
other related documents and procedures regarding this sale;

5. That the seller, represented by Ms. Emmaliza M. Bohler, shall

vacate the said house and lot on or (sic) the 31st of January, 1998;

6. That the tenants, represented by the Spouses Romeo and

Epifania Vicente, shall vacate the same on or before the 30th of
April, 1998; and

7. That all parties concerned shall agree to all the terms and
conditions stipulated herein.3
Upon the signing of the said contract, respondents handed to Bohler
₱20,000.00 cash and allegedly a ₱110,000.00-check. Bohler
nonetheless insisted that the entire partial payment should be in cash as
she needed it to redeem the subject property from the bank on the
following Monday. She hence demanded for its payment up to midnight
on that day otherwise she would cancel the sale. Because the
respondents failed to make good the ₱110,000.00, Bohler subsequently
sold the property to the petitioners.4

Having learned of the subsequent sale, the respondents immediately

tendered the check, asked the bank for a certification that it was funded
and consulted their lawyer who sent a notice of lis pendens to the
Register of Deeds and the Provincial Assessor. 5 Civil Case No. 6070 for
annulment of sale, specific performance and damages was subsequently
filed by the respondents with the Regional Trial Court (RTC) of Kalibo,
Aklan against Bohler and the petitioners.

RTC rendered its Decision6 declaring the November 8, 1997 Agreement

a contract to sell. Considering that no actual sale happened between
Bohler and the respondents, the former could validly sell the property to
the petitioners. Thus, the trial court dismissed the complaint.

Aggrieved, respondents appealed the case to the CA. In the challenged

December 6, 2005 Decision,7 the appellate court reversed the trial
court’s ruling, declared the November 8, 1997 Agreement a contract of
sale, and annulled the subsequent sale to the petitioners. The CA ruled,
among others, that the wordings of the agreement and the conduct of
the parties suggest that they intended to enter into a contract of sale.
Ownership was not reserved by the vendor and non-payment of the
purchase price was not made a condition for the contract’s effectivity. 8

Petitioners, thus, filed the instant petition for review on certiorari imputing
the following errors to the CA:

1. The appellate court erred in declaring the contract styled

AGREEMENT dated 08 November 1997 as a "contract of sale"
and not a contract to sell.

2. The appellate court erred in declaring the petitioners in bad faith

when they bought the subject matter house and lot on 02 March
1998 from Emmaliza H. Bohler.9

ISSUE:
 Whether the transaction between Bohler and the respondents is a
perfected contract of sale or a mere contract to sell.

RULING:

Sale is a consensual contract and is perfected by mere consent, which is

manifested by a meeting of the minds as to the offer and acceptance
thereof on the subject matter, price and terms of payment of the price. 10 

In the instant case, the November 8, 1997 Agreement clearly indicates

that Bohler and the Spouses Reyes had a meeting of the minds on the
subject matter of the contract, the house and lot; on the price,
₱165,000.00; and on the terms of payment, an initial payment of
₱130,000.00 on the date of execution of the agreement and the
remaining balance on or before December 15, 1997. At that precise
moment when the consent of both parties was given, the contract of sale
was perfected.

The said agreement cannot be considered a contract to sell. In a

contract of sale, the title to the property passes to the vendee upon the
delivery of the thing sold; 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. Otherwise stated, in a contract of
sale, the vendor loses ownership over the property and cannot recover it
until and unless the contract is resolved or rescinded; whereas, in a
contract to sell, title is retained by the vendor until full payment of the
price. In the latter contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents the
obligation of the vendor to convey title from becoming effective. 11 The
November 8, 1997 Agreement herein cannot be characterized as a
contract to sell because the seller made no express reservation of
ownership or title to the subject house and lot. 12 Instead, the Agreement
contains all the requisites of a contract of sale.

Quiroga vs Parsons
G.R. No. L-11491
Subject: Sales
Doctrine: Contract of Agency to Sell vs Contract of Sale
Facts: 

On Jan 24, 1911, plaintiff and the respondent entered into a contract
making the latter an “agent” of the former. The contract stipulates that
Don Andres Quiroga, here in petitioner, grants exclusive rights to sell his
beds in the Visayan region to J. Parsons. The contract only stipulates
that J.Parsons should pay Quiroga within 6 months upon the delivery of
beds.

Quiroga files a case against Parsons for allegedly violating the following
stipulations: not to sell the beds at higher prices than those of the
invoices; to have an open establishment in Iloilo; itself to conduct the
agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. With the exception of the obligation on
the part of the defendant to order the beds by the dozen and in no other
manner, none of the obligations imputed to the defendant in the two
causes of action are expressly set forth in the contract. But the plaintiff
alleged that the defendant was his agent for the sale of his beds in Iloilo,
and that said obligations are implied in a contract of commercial agency.
The whole question, therefore, reduced itself to a determination as to
whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of
his beds.

Issue: Whether the contract is a contract of agency or of sale.

Held: In order to classify a contract, due attention 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. Payment was to be made at the end of sixty days, or
before, at the plaintiff’s request, or in cash, if the defendant so preferred,
and in these last two cases an additional discount was to be allowed for
prompt payment. These are precisely the essential features of a contract
of purchase and sale. There was the obligation on the part of the plaintiff
to supply the beds, and, on the part of the defendant, to pay their price.
These features exclude the legal conception of an agency or order to sell
whereby the mandatory or agent received the thing to sell it, and does
not pay its price, but delivers to the principal the price he obtains from
the sale of the thing to a third person, and if he does not succeed in
selling it, he returns it. By virtue of the contract between the plaintiff and
the defendant, the latter, on receiving the beds, was necessarily obliged
to pay their price within the term fixed, without any other consideration
and regardless as to whether he had or had not sold the beds.
In respect to the defendant’s obligation to order by the dozen, the only
one expressly imposed by the contract, the effect of its breach would
only entitle the plaintiff to disregard the orders which the defendant might
place under other conditions; but if the plaintiff consents to fill them, he
waives his right and cannot complain for having acted thus at his own
free will.
For the foregoing reasons, we are of opinion 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.

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

ANDRES QUIROGA, plaintiff-appellant,
vs.
PARSONS HARDWARE CO., defendant-appellee.

AVANCEÑA, J.:
On January 24, 1911, in this city of manila, a contract in the following
tenor was entered into by and between the plaintiff, as party of the first
part, and J. Parsons (to whose rights and obligations the present
defendant later subrogated itself), as party of the second part:

CONTRACT EXECUTED BY AND BETWEEN ANDRES

QUIROGA AND J. PARSONS, BOTH MERCHANTS
ESTABLISHED IN MANILA, FOR THE EXCLUSIVE SALE
OF "QUIROGA" BEDS IN THE VISAYAN ISLANDS.

ARTICLE 1. Don Andres Quiroga grants the exclusive right to sell

his beds in the Visayan Islands to J. Parsons under the following
conditions:

(A) Mr. Quiroga shall furnish beds of his manufacture to Mr.

Parsons for the latter's establishment in Iloilo, and shall invoice
them at the same price he has fixed for sales, in Manila, and, in
the invoices, shall make and allowance of a discount of 25 per cent
of the invoiced prices, as commission on the sale; and Mr. Parsons
shall order the beds by the dozen, whether of the same or of
different styles.

(B) Mr. Parsons binds himself to pay Mr. Quiroga for the beds
received, within a period of sixty days from the date of their
shipment.

(C) The expenses for transportation and shipment shall be borne

by M. Quiroga, and the freight, insurance, and cost of unloading
from the vessel at the point where the beds are received, shall be
paid by Mr. Parsons.

(D) If, before an invoice falls due, Mr. Quiroga should request its
payment, said payment when made shall be considered as a
prompt payment, and as such a deduction of 2 per cent shall be
made from the amount of the invoice.

The same discount shall be made on the amount of any invoice

which Mr. Parsons may deem convenient to pay in cash.

(E) Mr. Quiroga binds himself to give notice at least fifteen days
before hand of any alteration in price which he may plan to make
in respect to his beds, and agrees that if on the date when such
alteration takes effect he should have any order pending to be
served to Mr. Parsons, such order shall enjoy the advantage of the
 alteration if the price thereby be lowered, but shall not be affected
by said alteration if the price thereby be increased, for, in this latter
case, Mr. Quiroga assumed the obligation to invoice the beds at
the price at which the order was given.

(F) Mr. Parsons binds himself not to sell any other kind except the
"Quiroga" beds.

ART. 2. In compensation for the expenses of advertisement which,

for the benefit of both contracting parties, Mr. Parsons may find
himself obliged to make, Mr. Quiroga assumes the obligation to
offer and give the preference to Mr. Parsons in case anyone
should apply for the exclusive agency for any island not comprised
with the Visayan group.

ART. 3. Mr. Parsons may sell, or establish branches of his agency

for the sale of "Quiroga" beds in all the towns of the Archipelago
where there are no exclusive agents, and shall immediately report
such action to Mr. Quiroga for his approval.

ART. 4. This contract is made for an unlimited period, and may be

terminated by either of the contracting parties on a previous notice
of ninety days to the other party.

Of the three causes of action alleged by the plaintiff in his complaint,

only two of them constitute the subject matter of this appeal and both
substantially amount to the averment that the defendant violated the
following obligations: not to sell the beds at higher prices than those of
the invoices; to have an open establishment in Iloilo; itself to conduct the
agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the
dozen and in no other manner. As may be seen, with the exception of
the obligation on the part of the defendant to order the beds by the
dozen and in no other manner, none of the obligations imputed to the
defendant in the two causes of action are expressly set forth in the
contract. But the plaintiff alleged that the defendant was his agent for the
sale of his beds in Iloilo, and that said obligations are implied in a
contract of commercial agency.

ISSUE: The whole question, therefore, reduced itself to a determination

as to whether the defendant, by reason of the contract hereinbefore
transcribed, was a purchaser or an agent of the plaintiff for the sale of
his beds.

In order to classify a contract, due regard must be given to its essential

clauses. In the contract in question, what was essential, as constituting
its cause and subject matter, is that the plaintiff was to furnish the
defendant with the beds which the latter might order, at the price
stipulated, and that the defendant was to pay the price in the manner
stipulated. The price agreed upon was the one determined by the
plaintiff for the sale of these beds in Manila, with a discount of from 20 to
25 per cent, according to their class. Payment was to be made at the
end of sixty days, or before, at the plaintiff's request, or in cash, if the
defendant so preferred, and in these last two cases an additional
discount was to be allowed for prompt payment. These are precisely the
essential features of a contract of purchase and sale. There was the
obligation on the part of the plaintiff to supply the beds, and, on the part
of the defendant, to pay their price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent
received the thing to sell it, and does not pay its price, but delivers to the
principal the price he obtains from the sale of the thing to a third person,
and if he does not succeed in selling it, he returns it. By virtue of the
contract between the plaintiff and the defendant, the latter, on receiving
the beds, was necessarily obliged to pay their price within the term fixed,
without any other consideration and regardless as to whether he had or
had not sold the beds.

It would be enough to hold, as we do, that the contract by and between

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

The plaintiff calls attention to the testimony of Ernesto Vidal, a former

vice-president of the defendant corporation and who established and
managed the latter's business in Iloilo. It appears that this witness, prior
to the time of his testimony, had serious trouble with the defendant, had
maintained a civil suit against it, and had even accused one of its
partners, Guillermo Parsons, of falsification. He testified that it was he
who drafted the contract Exhibit A, and, when questioned as to what was
his purpose in contracting with the plaintiff, replied that it was to be an
agent for his beds and to collect a commission on sales. However,
according to the defendant's evidence, it was Mariano Lopez Santos, a
director of the corporation, who prepared Exhibit A. But, even supposing
that Ernesto Vidal has stated the truth, his statement as to what was his
idea in contracting with the plaintiff is of no importance, inasmuch as the
agreements contained in Exhibit A which he claims to have drafted,
constitute, as we have said, a contract of purchase and sale, and not
one of commercial agency. This only means that Ernesto Vidal was
mistaken in his classification of the contract. But it must be understood
that a contract is what the law defines it to be, and not what it is called
by the contracting parties.

The plaintiff also endeavored to prove that the defendant had returned
beds that it could not sell; that, without previous notice, it forwarded to
the defendant the beds that it wanted; and that the defendant received
its commission for the beds sold by the plaintiff directly to persons in
Iloilo. But all this, at the most only shows that, on the part of both of
them, there was mutual tolerance in the performance of the contract in
disregard of its terms; and it gives no right to have the contract
considered, not as the parties stipulated it, but as they performed it. Only
the acts of the contracting parties, subsequent to, and in connection
with, the execution of the contract, must be considered for the purpose
of interpreting the contract, when such interpretation is necessary, but
not when, as in the instant case, its essential agreements are clearly set
forth and plainly show that the contract belongs to a certain kind and not
to another. Furthermore, the return made was of certain brass beds, and
was not effected in exchange for the price paid for them, but was for
other beds of another kind; and for the letter Exhibit L-1, requested the
plaintiff's prior consent with respect to said beds, which shows that it was
not considered that the defendant had a right, by virtue of the contract,
to make this return. As regards the shipment of beds without previous
notice, it is insinuated in the record that these brass beds were precisely
the ones so shipped, and that, for this very reason, the plaintiff agreed to
their return. And with respect to the so-called commissions, we have
said that they merely constituted a discount on the invoice price, and the
reason for applying this benefit to the beds sold directly by the plaintiff to
persons in Iloilo was because, as the defendant obligated itself in the
contract to incur the expenses of advertisement of the plaintiff's beds,
such sales were to be considered as a result of that advertisement.

In respect to the defendant's obligation to order by the dozen, the only

one expressly imposed by the contract, the effect of its breach would
only entitle the plaintiff to disregard the orders which the defendant might
place under other conditions; but if the plaintiff consents to fill them, he
waives his right and cannot complain for having acted thus at his own
free will.

For the foregoing reasons, we are of opinion 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.

CONTRACT ON A PIECE OF WORK

Art. 1467. A contract for the delivery at a certain price of an article which
the vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the
time or not, is a contract of sale but if the goods are to be manufactured
specially for the customer and upon his special order, and not for the
general market, it is a contract for a piece of work.

G.R. No. 55793 May 18, 1990

CONCRETE AGGREGATES, INC., petitioner,

vs.
COURT OF TAX APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.

Santiago, Tinga & Associates for petitioner.

REGALADO, J.:

This petition for review on certiorari seeks the annulment of the decision

of respondent Court of Tax Appeals, 1 dated September 19, 1980, and
its resolution denying reconsideration thereof, dated December 3, 1980,
both promulgated in CTA Case No. 2433, entitled "Concrete Aggregates,
Inc. vs. Commissioner of Internal Revenue," the decretal portion of
which decision reads:

Having reached the conclusion that petitioner is a

manufacturer subject to the 7% sales tax under Section 186
of the then National Internal Revenue Code, the decision of
respondent dated July 24, 1972 should therefore be
sustained. Accordingly, petitioner Concrete Aggregates, Inc.
is hereby ordered to pay to respondent Commissioner of
Internal Revenue the total amount of P244,022.76
representing sales and ad valorem taxes for the first
semester of 1968 inclusive of surcharges, plus interest at the
rate of 14% per centum from January 1, 1973 up to the date
of full payment thereof pursuant to Section 183 (now 193) of
the National Internal Revenue Code.

WHEREFORE, the decision appealed from is hereby

affirmed at petitioner's costs.

SO ORDERED. 2

The records disclose that petitioner is a domestic corporation, duly

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

Sometime in 1968, the agents of respondent commissioner conducted

an investigation of petitioner's tax liabilities. As a consequence thereof,
in a letter dated December 14, 1970 said respondent assessed and
demanded payment from petitioner of the amount of P244,002.76 as
sales and ad valorem taxes for the first semester of 1968, inclusive of
surcharges. Petitioner disputed the said assessment in its letter dated
February 2, 1971 without, however, contesting the portion pertaining to
the ad valorem tax.

In his letter dated July 24, 1972, respondent reiterated the said
assessment of sales and ad valorem taxes which, as explained in his
preceding letter, had been arrived at as follows. 3

Taxable sales P 4,164,092.44

——————

7% sales tax due thereon P 291,486.47

Less: Tax already paid 116,523.55

——————

Deficiency tax due P 174,962.92

Add: 25% surcharge 43,740.73

——————

Total deficiency tax and surcharge P 218,703.65

Add: 1 1/2% ad valorem on P20,239.29

25% surcharge thereon 5,059.82 25,299.11

———— —————

TOTAL AMOUNT DUE & COLLECTIBLE P244,002.76

Consequently, demand for the payment of the said amount within ten
days from receipt of the letter was made by respondent on petitioner,
otherwise the same would be collected thru the summary remedies
provided for by law. Instead of paying, petitioner appealed to respondent
court.

As earlier stated, a judgment adverse to petitioner was handed down by

respondent court, whereupon he came to this Court on a petition for
review. In its resolution dated September 7, 1981, the Court, through its
First Division, denied the petition for review for lack of merit. 4 Petitioner
filed a motion for reconsideration which was likewise denied in the
resolution of October 19, 1981 for lack of merit, the denial being
expressly declared to be final.  5 With leave of court, petitioner filed its
second motion for reconsideration which was granted by the Court in its
resolution dated November 23, 1981. 6

The sole issue in this case is whether petitioner is a contractor subject to

the 3% contractor's tax under Section 191 of the 1968 National Internal
Revenue Code or a manufacturer subject to the 7% sales tax under
Section 186 of the same Code.

Petitioner disclaims liability on the ground that it is a contractor within the

meaning of Section 191 of the 1968 Tax Code, the pertinent portion of
which reads:

Sec. 191. Percentage tax on road, building, irrigation,

artesian well, waterworks, and other construction work
contractors, proprietors or operators of dockyards, and
others. — Road, building, irrigation, artesian well,
waterworks, and other construction work contractors; . . . and
other independent contractors, . . . shall pay a. tax equivalent
to three per centum of their gross receipts.

xxx xxx xxx

Petitioner contends that its business falls under "other construction work
contractors" or "other independent contractors" and, as such, it was a
holder of a license under Republic Act No. 4566, otherwise known as the
"Contractors Licensing Law" and was classified thereunder as a "general
engineering contractor" and "specialty asphalt and concrete
contractor. 7 It advances the theory that it produced asphalt and concrete
mix only upon previous orders, which may be proved by its system of
requiring the filling of job orders where the customers specify the
construction requirements, and that without such order, it would not do
so considering the highly perishable nature of the asphalt and concrete
mix. 8

It emphasizes that the mixing of asphalt and cement, if they were to be

sold to the public, is not a simple matter of putting things together in a
rotating bowl but involves a careful selection of components, proper
measuring and weighing of ingredients, calibration of the plant to arrive
at the right mixing temperature, and testing of the strength of the
material, altogether using its own means and methods without submitting
itself to control by the customers. 9
Thus, it adopts the view that if the article subject of the sale is one which
is not ready for delivery, as it is yet to be manufactured according to the
order, the seller thereof is a contractor. However, if the article subject of
the sale is one which is ready for delivery when the order therefor is
placed, the seller is a manufacturer. 10 Complementary to this, it
postulates that as a contractor dealing exclusively in the construction of
roads, buildings and other building or construction works, its business
consists of rendering service by way of furnishing its customers with pre-
mixed concrete or asphalt, in effect merely doing for the customers what
the latter used to do themselves, that is, to buy the ingredients and then
mix the concrete or asphalt. 11 It concludes that in doing so, it does not
become a manufacturer.

We have had the occasion to construe Section 191, now Section 205, of
the Tax Code in Commissioner of Internal Revenue vs. The Court of
Tax Appeals, et al. 12 where we reiterated the test as to when one may
be considered a contractor within its context, thus;

The word "contractor" has come to be used with special

reference to a person who, in the pursuit of the independent
business, undertakes to do a specific job or piece of work for
other persons, using his own means and methods without
submitting himself to control as to the petty details. (Aranas,
Annotations and Jurisprudence on the National Internal
Revenue Code, p. 318, par. 191(2), 1970 Ed.) The true test
of a contractor as was held in the cases of Luzon
Stevedoring Co. vs. Trinidad, 43 Phil. 803, 807-808, and La
Carlota Sugar Central vs. Trinidad, 43 Phil. 816, 819, would
seem to be that he renders service in the course of an
independent occupation, representing the will of his
employer only as to the result of his work, and not as to the
means by which it is accomplished. (Emphasis supplied)

It is quite evident that the percentage tax imposed in Section 191 is

generally a tax on the sale of services or labor. In its factual findings,
respondent court found that petitioner was formed and organized
primarily as a manufacturer; that it has an aggregate plant at Montalban,
Rizal, which processes rock aggregates mined by it from private lands; it
operates a concrete batching plant at Longos, Quezon City where the
specified aggregates from its plant at Montalban are mixed with sand
and cement, after which water is added and the concrete mixture is sold
and delivered to customers; and at its plant site at Longos, Quezon City,
petitioner has also an asphalt mixing machinery where bituminous
asphalt mix is manufactured. 13

We see no reason to disturb the findings of respondent court. Petitioner

is a manufacturer as defined by Section 194(x), now Section 187(x), of
the Tax Code.

Sec. 1 94. Words and phrases defined. — In applying the

provisions of this Title words and phrases shall be taken in
the sense and extension indicated below:

xxx xxx xxx

(x) "Manufacturer" includes every person who by physical or

chemical process alters the exterior texture or form or inner
substance of any raw material or manufactured or partially
manufactured product in such manner as to prepare it for a
special use or uses to which it could not have been put in its
original condition, or who by any such process alters the
quality of any such raw material or manufactured or partially
manufactured product so as to reduce it to marketable shape
or prepare it for any of the uses of industry, or who by any
such process combines any such raw material or
manufactured or partially manufactured products with other
materials or products of the same or different kinds and in
such manner that the finished product of such process or
manufacture can be put to a special use or uses to which
such raw material or manufactured or partially manufactured
products, in their original condition could not have been put,
and who in addition alters such raw material or manufactured
or partially manufactured products, or combines the same to
produce such finished products for the purpose of their sale
or distribution to others and not for his own use or
consumption.

As aptly pointed out by the Solicitor General, petitioner's raw materials

are processed under a prescribed formula and thereby changed by
means of machinery into a finished product, altering their quality,
transforming them into marketable state or preparing them for any of the
specific uses of industry. Thus, the raw materials become a distinct class
of merchandise or "finished products for the purpose of their sales or
distribution to others and not for his own use or consumption." Evidently,
without the above process, the raw materials or aggregates could not, in
their original form, perform the uses of the finished product. 14
In a case involving the making of ready-mixed concrete, it was held that
concrete is a product resulting from a combination of sand or gravel or
broken bits of limestones with water and cement; a combination which
requires the use of skill and most generally of machinery. Concrete in
forms designed for use and supplied to others for buildings, bridges and
other structures is a distinct article of commerce and the making of them
would be manufacturing by the corporation doing so. 15

Selling or distribution is an essential ingredient of manufacturing. The

sale of a manufactured product is properly incident to manufacture. The
power to sell is an indispensable adjunct to a manufacturing
business. 16 Petitioner, as a manufacturer, not only manufactures the
finished articles but also sells or distributes them to others. This is
inferable from the testimonial evidence of petitioner's witness that, in the
marketing of its products, the company has marketing personnel who
visit the client, whether he is a regular or a prospective customer, and
that it is the customer who specifies the requirement according to his
needs by filling up a purchase order, after which a job order is issued.
This is followed by the delivery of the finished product to the job site. 17

Petitioner relies heavily on the case of The Commissioner of Internal

Revenue vs. Engineering Equipment and Supply Co., et al. 18 and on the
basis thereof posits that it has passed the test of a contractor under
Article 1467 of the Civil Code which provides:

Art. 1467. A contract for the delivery at a certain price of an

article which the vendor in the ordinary course of his
business manufactures or procures for the general market,
whether the same is on hand at the time or not, is a contract
of sale but if the goods are to be manufactured specially for
the customer and upon his special order, and not for the
general market, it is a contract for a piece of work.

It is readily apparent that, in declaring private respondent in the

aforesaid Engineering Equipment case as a contractor, the Court relied
on findings of fact distinguishable from those in the case at bar.

. . . We find that Engineering did not manufacture air

conditioning units for sale to the general public, but imported
some items (as refrigeration coils, . . .) which were used in
executing contracts entered into by it. Engineering, therefore,
undertook negotiations and execution of individual contracts
for the design, supply and installation of air conditioning units
of the central type . . ., taking into consideration in the
 process such factors as the area of the space to be air
conditioned; the number of persons occupying or would be
occupying the premises; the purpose for which the various
air conditioning areas are to be used; and the sources of
heat gain or cooling load on the plant such as the sun load,
lighting, and other electrical appliances which are or may be
in the plan. . . . Engineering also testified during the hearing
in the Court of Tax Appeals that relative to the installation of
air conditioning system, Engineering designed and
engineered complete each particular plant and that no two
plants were identical but each had to be engineered
separately.

As found by the lower court, which finding We adopt —

Engineering, in a nutshell, fabricates, assembles, supplies

and installs in the buildings of its various customers the
central type air conditioning system; prepares the plans and
specifications therefor which are distinct and different from
each other; the air conditioning units and spare parts or
accessories thereof used by petitioner are not the window
type of air conditioners which are manufactured, assembled
and produced locally for sale to the general market; and the
imported air conditioning units and spare parts or
accessories thereof are supplied and installed by petitioner
upon previous orders of its customers conformably with their
needs and requirements.

The facts and circumstances aforequoted support the theory

that Engineering is a contractor rather than a manufacturer.

It is still good law that a contract to make is a contract of sale if the

article is already substantially in existence at the time of the order and
merely requires some alteration, modification or adaptation to the
buyer's wishes or purposes. A contract for the sale of an article which
the vendor in the ordinary course of his business manufactures or
procures for the general market, whether the same is on hand at the
time or not is a contract for the sale of goods. 19

Petitioner insists that it would produce asphalt or concrete mix only upon
previous job orders otherwise it would not do so. It does not and will not
carry in stock cement and asphalt mix. 20 But the reason is obvious.
What practically prevents the petitioner from mass production and
storage is the nature of its products, that is, they easily harden due to
temperature change and water and cement reaction. 21 Stated differently
by respondent court, "it is self-evident that it is due to the highly
perishable nature of asphalt and concrete mix, as petitioner itself argues,
that makes impossible for them to be carried in stock because they cool
and harden with time, and once hardened, they become useless. 22

Had it not been for this fact, petitioner could easily mass produce the
ready-mixed concrete or asphalt desired and needed by its various
customers and for which it is mechanically equipped to do. It is clear,
however, that petitioner does nothing more than sell the articles that it
habitually manufactures. It stocks raw materials, ready at any time, for
the manufacture of asphalt and/or concrete mix. 23 Its marketing system
would readily disclose that its products are available for sale to anyone
needing them. Whosoever would need its products, whether builder,
contractor, homeowner or payer with sufficient money, may order
aggregates, concrete mix or bituminous asphalt mix of the kind
manufactured by petitioner.24 The habituality of the production of goods
for the general public characterizes the business of petitioner.

We are likewise persuaded by the submissions of the Solicitor General

that the ruling in Celestino Co & Company vs. Collector of Internal
Revenue  25 is applicable to this case in that unless an activity is covered
by Section 191 of the Tax Code, one who manufactures articles,
although upon a previous order and subject to the specifications of the
buyer, is nonetheless a manufacturer.

We also reject petitioner's theory that, with the amendment of Section

191 of the Tax Code, it can be considered as a "specialty contractor." As
observed by respondent, a specialty contractor is one whose operations
pertain to construction work requiring special skill and involves the use of
specialized building trades or crafts. The manufacture of concrete and
cement mix do not involve the foregoing requirements as to put it within
such special category.

ON THE FOREGOING CONSIDERATIONS, certiorari is DENIED and

the appealed decision of respondent Court of Tax Appeals is
AFFIRMED.

 
 OBJECT OF THE CONTRACT

G.R. No. L-36902 January 30, 1982

LUIS PICHEL, petitioner,
vs.
PRUDENCIO ALONZO, respondent.

GUERRERO, J.:

FACTS:

Plaintiff Prudencio Alonzo was awarded by the Government that parcel

of land designated as Lot No. 21 of Subdivision Plan Psd 32465 of
Balactasan, Lamitan, Basilan City in accordance with Republic Act No.
477. The award was cancelled by the Board of Liquidators on January
27, 1965 on the ground that, previous thereto, plaintiff was proved to
have alienated the land to another, in violation of law. In 197 2, plaintiff's
rights to the land were reinstated.

On August 14, 1968, plaintiff and his wife sold to defendant an the fruits
of the coconut trees which may be harvested in the land in question for
the period, September 15, 1968 to January 1, 1976, in consideration of
P4,200.00. Even as of the date of sale, however, the land was still under
lease to one, Ramon Sua, and it was the agreement that part of the
consideration of the sale, in the sum of P3,650.00, was to be paid by
defendant directly to Ramon Sua so as to release the land from the
clutches of the latter. Pending said payment plaintiff refused to snow the
defendant to make any harvest.

In July 1972, defendant for the first time since the execution of the deed
of sale in his favor, caused the harvest of the fruit of the coconut trees in
the land.
 A complaint was filed due to the foregoing. There were 2 issues. W The
lower court rendered its decision now under review, holding that
although the agreement in question is denominated by the parties as a
deed of sale of fruits of the coconut trees found in the vendor's land, it
actually is, for all legal intents and purposes, a contract of lease of the
land itself. According to the Court:

... the sale aforestated has given defendant complete control

and enjoyment of the improvements of the land. That the
contract is consensual; that its purpose is to allow the
enjoyment or use of a thing; that it is onerous because rent
or price certain is stipulated; and that the enjoyment or use of
the thing certain is stipulated to be for a certain and definite
period of time, are characteristics which admit of no other
conclusion. ... The provisions of the contract itself and its
characteristics govern its nature. 4

The Court, therefore, concluded that the deed of sale in question is an

encumbrance prohibited by Republic Act No. 477 

The Petitioner filed a petition for review before the SC. Contending theat
the Lower Court erred in interpreting that in declaring furthermore the
deed of sale in question to be a contract of lease over the land itself on
the basis of facts which were not proved in evidence;

ISSUE: Whether or not the Deed of Sale is one of Contract of Leace of

Contract of Sale?

Whether or not it is a violation of RA 447

RULING:

We do not agree with the trial court that the contract executed by and
between the parties is "actually a contract of lease of the land and the
coconut trees there." (CFI Decision, p. 62, Records). The Court's holding
that the contract in question fits the definition of a lease of things
wherein 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 (Art. 1643, Civil Code of the Philippines) is
erroneous. The essential difference between a contract of sale and a
lease of things is that the delivery of the thing sold transfers ownership,
while in lease no such transfer of ownership results as the rights of the
lessee are limited to the use and enjoyment of the thing leased.

In Rodriguez vs. Borromeo, 43 Phil. 479, 490, the Supreme Court held:

Since according to article 1543 of the same Code the

contract of lease is defined as the giving or the concession of
the enjoyment or use of a thing for a specified time and fixed
price, and since such contract is a form of enjoyment of the
property, it is evident that it must be regarded as one of the
means of enjoyment referred to in said article 398, inasmuch
as the terms enjoyment, use, and benefit involve the same
and analogous meaning relative to the general utility of which
a given thing is capable. (104 Jurisprudencia Civil, 443)

In concluding that the possession and enjoyment of the coconut trees

can therefore be said to be the possession and enjoyment of the land
itself because the defendant-lessee in order to enjoy his right under the
contract, he actually takes possession of the land, at least during harvest
time, gather all of the fruits of the coconut trees in the land, and gain
exclusive use thereof without the interference or intervention of the
plaintiff-lessor such that said plaintiff-lessor is excluded in fact from the
land during the period aforesaid, the trial court erred. The contract was
clearly a "sale of the coconut fruits." The vendor sold, transferred and
conveyed "by way of absolute sale, all the coconut fruits of his land,"
thereby divesting himself of all ownership or dominion over the fruits
during the seven-year period. The possession and enjoyment of the
coconut trees cannot be said to be the possession and enjoyment of the
land itself because these rights are distinct and separate from each
other, the first pertaining to the accessory or improvements (coconut
trees) while the second, to the principal (the land). A transfer of the
accessory or improvement is not a transfer of the principal. It is the other
way around, the accessory follows the principal. Hence, the sale of the
nuts cannot be interpreted nor construed to be a lease of the trees,
much less extended further to include the lease of the land itself.

3. Resolving now this principal issue, We find after a close and

careful examination of the terms of the first paragraph of Section 8
hereinabove quoted, that the grantee of a parcel of land under
R.A. No. 477 is not prohibited from alienating or disposing of the
natural and/or industrial fruits of the land awarded to him. What the
 law expressly disallows is the encumbrance or alienation of the
land itself or any of the permanent improvements thereon.
Permanent improvements on a parcel of land are things
incorporated or attached to the property in a fixed manner,
naturally or artificially. 

NOTES:

The subject matter of the contract of sale in question are the fruits of the
coconut trees on the land during the years from September 15, 1968 up
to January 1, 1976, which subject matter is a determinate thing. Under
Article 1461 of the New Civil Code, things having a potential existence
may be the object of the contract of sale. And in Sibal vs. Valdez, 50
Phil. 512, pending crops which have potential existence may be the
subject matter of the sale. Here, the Supreme Court, citing Mechem on
Sales and American cases said which have potential existence may be
the subject matter of sale. Here, the Supreme Court, citing Mechem on
Sales and American cases said:

Mr. Mechem says that a valid sale may be made of a thing,

which though not yet actually in existence, is reasonably
certain to come into existence as the natural increment or
usual incident of something already in existence, and then
belonging to the vendor, and the title will vest in the buyer
the moment the thing comes into existence. (Emerson vs.
European Railway Co., 67 Me., 387; Cutting vs. Packers
Exchange, 21 Am. St. Rep. 63) Things of this nature are said
to have a potential existence. A man may sell property of
which he is potentially and not actually possess. He may
make a valid sale of the wine that a vineyard is expected to
produce; or the grain a field may grow in a given time; or the
milk a cow may yield during the coming year; or the wool that
shall thereafter grow upon sheep; or what may be taken at
the next case of a fisherman's net; or fruits to grow; or young
animals not yet in existence; or the goodwill of a trade and
the like. The thing sold, however, must be specific and
Identified. They must be also owned at the time by the
vendor. (Hull vs. Hull 48 Conn. 250 (40 Am. Rep., 165) (pp.
522-523)
G.R. No. L-66696 July 14, 1986

FRANCISCA ARSENAL and REMEDIO ARSENAL, petitioners,

vs.
THE INTERMEDIATE APPELLATE COURT, HEIRS OF TORCUATO
SURALTA, and SPOUSES FILOMENO PALAOS and MAHINA
LAGWAS, respondents.

GUTIERREZ, JR., J.:

FACTS:

On September 10, 1957, said Filomeno Palaos and his wife Mahina
Lagwas executed in favor of the plaintiff, Torcuato Suralta, sold four (4)
hectares of the land embraced in his Torrens Certificate for the sum of P
890.00, Philippine Currency, by means of a deed of acknowledged
before a Notary (Exh. C). Plaintiff Suralta immediately took possession
of the four-hectare portion of Lot 81 above-mentioned cultivated and
worked the same openly, continuously and peacefully up to the present
time in concept of owner thereof. He built a house and introduced
permanent improvements thereon now valued at no less than
P20,000.00.

Sometime in 1964, the defendant-spouses Francisca Arsenal and

Remedio Arsenal became tenants of an adjoining land owned by
Eusebio Pabualan that is separated from the land in question only by a
public road. They also came to know the plaintiff as their neighbor who
became their compadre later, and saw him very often working and
cultivating the land in question. In the course of their relationship the
plaintiff came to know of their intention to buy the remaining land of
Filomeno Palaos (t.s.n., pp. 13-14, 45-47).

On March 14, 1967, said Filomeno Palaos and his wife executed a
notarial Deed of Sale (Exh. 1 for the defendant) in consideration of the
amount of P800.00, Philippine Currency, supposedly for the remaining
three (3) hectares of their land without knowing that the document
covered the entirety of Lot 81 including the four-hectare portion
previously deeded by them to the plaintiff. The deed of sale was
presented to the Office of the Commission on National Integration at
Malaybalay for approval because Palaos and his wife belong to the
cultural minorities and unlettered. The field representative and inspector
of that office subsequently approved the same (Exh. K and Exh. 2)
without inspecting the land to determine the actual occupants thereon.
The defendants Arsenal took possession of the three-hectare portion of
Lot 81 after their purchase and have cultivated the same up to the
present time but they never disturbed the plaintiff's possession over the
four-hectare portion that he had purchased in 1957. On March 28, 1967,
Francisca Arsenal caused the tax declaration of the entire lot to be
transferred in her name (Exh. 6). The plaintiff learned of the transfer of
the tax declaration to Francisca Arsenal and because of their good
relations at the time, he agreed with Arsenal to contribute in the payment
of the land taxes and paid yearly from 1968 to 1973 the amount of
P10.00 corresponding to his four-hectare portion to Francisca Arsenal
(Exhs. F, F-1, G, G-1, H, and H-1).

On July 11, 1973, the plaintiff presented his Sales Contract in the Office
of the Register of Deeds but it was refused registration for having been
executed within the prohibitive period of five years from the issuance of
the patent. In order to cure the defect, he caused Filomeno Palaos to
sign a new Sales Contract (Exh. D) in his favor before Deputy Clerk of
Court Florentina Villanueva covering the same four-hectare portion of
Lot 81. In August 1973, the plaintiff caused the segregation of his portion
from the rest of the land by Geodetic Engineer Benito P. Balbuena, who
conducted the subdivision survey without protest from Francisca Arsenal
who was notified thereof. The subdivision plan (Exh. E) was approved by
the Commissioner of Land Registration on April 18, 1974.

In December 1973, however, the plaintiff saw for the first time the Deed
of Sale embracing the whole Lot 81 signed by Filomeno Palaos in favor
of Francisca Arsenal. Immediately he asked Palaos for explanation but
the latter told him that he sold only three hectares to Arsenal. Plaintiff
approached Francisca Arsenal for a satisfactory arrangement but she
insisted on abiding by her contract. Because of their disagreement,
Francisca Arsenal registered her Deed of Sale on December 6, 1973
and obtained Transfer Certificate of Title No. T-7879 (Exh. E) for the
entire Lot 81 without the knowledge of the plaintiff.

On January 7, 1974, the plaintiff sent a telegram (Exh. 1) to

the Secretary of Agriculture and Natural Resources
requesting suspensions of the approval of the sale executed
by Filomeno Palaos in favor of Francisca Arsenal, not
knowing that the latter had already secured a transfer
certificate of title from the Register of Deeds.

In the middle part of said month of January 1974, plaintiff

however learned of the cancellation of the original certificate
 of title of Palaos and the issuance of the Transfer Certificate
to Arsenal so he sought the help of the municipal authorities
of Kitaotao to reach an amicable settlement with Francisca
Arsenal who, on the other hand, refused to entertain all
overture to that effect. ... .

On March 6, 1974, Torcuato Suralta filed a case against Filomeno

Palaos, Mahina Lagwas, Francisca Arsenal, Remedio Arsenal and the
Register of Deeds of Bukidnon for the annulment of Transfer Certificate
of Title No. T-7879 issued to the Arsenals insofar as it covers the four-
hectare portion previously sold to him.

In answer to the complaint, the Arsenals denied previous knowledge of

the sale to Suralta of the land in question. As a special defense, they
assailed the validity of the purchase by Suralta in 1957, pointing to the
prohibition contained in the Public Land Law against its disposal within
the period of five years from the issuance of the homestead patent. They
also questioned the legality of the sale made to Suralta in 1957 by
Filomeno Palaos and Mahina Lagwas for not having been approved by
the Commission on National Integration despite the fact that Palaos and
his wife belong to the cultural minorities, are illiterates, and do not
understand the English language in which the deed of sale in favor of
Suralta was written.

.RTC Benefit of the Prohibition is not inured to the Third Parties.

CA Petiiton

ISSUE: Whether or not the sale to Suralta was valid?

RULING:

The above provisions of law are clear and explicit. A contract which
purports of alienate, transfer, convey or encumber any homestead within
the prohibitory period of five years from the date of the issuance of the
patent is void from its execution. In a number of cases, this Court has
held that such provision is mandatory (De los Santos v. Roman Catholic
Church of Midsayap, 94 Phil. 405).
Under the provisions of the Civil Code, a void contract is inexistent from
the beginning. It cannot be ratified neither can the right to set up the
defense of its illegality be waived. (Art. 1409, Civil Code).

To further distinguish this contract from the other kinds of contract, a

commentator has stated that:

The right to set up the nullity of a void or non-existent

contract is not limited to the parties as in the case of
annullable or voidable contracts; it is extended to third
persons who are directly affected by the contract. (Tolentino,
Civil Code of the Philippines, Vol. IV, p. 604, [1973]).

Any person may invoke the inexistence of the contract

whenever juridical effects founded thereon are asserted
against him. (Id. p. 595).

Concededly, the contract of sale executed between the respondents

Palaos and Suralta in 1957 is void. It was entered into three (3) years
and eight (8) months after the grant of the homestead patent to the
respondent Palaos in 1954.

Being void, the foregoing principles and rulings are applicable. Thus, it
was erroneous for the trial court to declare that the benefit of the
prohibition in the Public Land Act "does not inure to any third party."
Such a sweeping declaration does not find support in the law or in
precedents. A third person who is directly affected by a void contract
may set up its nullity. In this case, it is precisely the petitioners' interest
in the disputed land which is in question.

NOTES:

This execution of the formal deed after the expiration of the prohibitory
period did not and could not legalize a contract that was void from its
inception. 

. Sec. 118. Except in favor, of the Government or any of its branches,

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

No alienation, transfer, or conveyance of any homestead after five years

and before twenty-five years after issuance of title shall be valid without
the approval of the Secretary of Agriculture and Natural Resources,
which approval shall not be denied except on constitutional and legal
ground (As amended by Com. Act No. 456, approved June 8, 1939).

xxx xxx xxx

Sec. 120. Conveyance and encumbrance made by persons belonging to

the so-called 'non-Christian Filipinos' or national cultural minorities, when
proper, shall be valid if the person making the conveyance or
encumbrance is able to read and can understand the language in which
the instrument or conveyance or encumbrance is written. Conveyances
and encumbrances made by illiterate non-Christians or literate non-
Christians where the instrument of conveyance is in a language not
understood by the said literate non-Christian shall not be valid unless
duly approved by the Chairman of the Commission on National
Integration. (As amended by Rep. Act No. 3872, approved June 18,
1964).

xxx xxx xxx

Sec. 124. Any acquisition, conveyance, alienation, transfer, or other

contract made or executed in violation of any of the provisions of
sections one hundred and eighteen, one hundred and twenty, one
hundred and twenty-one, one hundred and twenty-two, and one hundred
twenty-three of this Act shall be unlawful and null and void from its
execution and shall produce the effect of annulling and cancelling the
grant, title, patent, or permit originally issued, recognized or confirmed,
actually or presumptively, and cause the reversion of the property and its
improvements to the State.
PIO SAN MELISSA vs CITY OF ILOILO and UP

FACTS:

Julaian owns parcels of Land in Iloilo. Lot 25 and Lot 1214 with 29,073
sqm. Juliana Melissa donated to the then Municipality of Iloilo, 9,000 square
meters of Lot 1214, to serve as site for the municipal hall.  1 The donation was
however revoked by the parties for the reason that the area donated was found
inadequate to meet the requirements of the development plan of the municipality, the
so-called "Arellano Plan".

Subsequently, Lot No. 1214 was divided by Certeza Surveying Co., Inc. into Lots 

On January 14, 1938 Juliana Melliza sold her remaining interest in Lot 1214 to
Remedios Sian Villanueva who thereafter obtained her own registered title thereto,
under Transfer Certificate of Title No. 18178. Remedios in turn on November 4, 1946
transferred her rights to said portion of land to Pio Sian Melliza, who obtained
Transfer Certificate of Title No. 2492 thereover in his name. Annotated at the back of
Pio Sian Melliza's title certificate was the following:

... (a) that a portion of 10,788 square meters of Lot 1214 now designated as
Lots Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the
Municipality of Iloilo as per instrument dated November 15, 1932....

On August 24, 1949 the City of Iloilo, which succeeded to the Municipality of Iloilo,
donated the city hall site together with the building thereon, to the University of the
Philippines (Iloilo branch). The site donated consisted of Lots Nos. 1214-B, 1214-C
and 1214-D, with a total area of 15,350 square meters, more or less.

Sometime in 1952, the University of the Philippines enclosed the site donated with a
wire fence. Pio Sian Melliza thereupon made representations, thru his lawyer, with
the city authorities for payment of the value of the lot (Lot 1214-B). No recovery was
obtained, because as alleged by plaintiff, the City did not have funds (p. 9,
Appellant's Brief.)

The University of the Philippines, meanwhile, obtained Transfer Certificate of Title

No. 7152 covering the three lots, Nos. 1214-B, 1214-C and 1214-D.

On December 10, 1955 Pio Sian Melliza filed an action in the Court of First Instance
of Iloilo against Iloilo City and the University of the Philippines for recovery of Lot
1214-B or of its value.
CFI The defendants answered, contending that Lot 1214-B was
included in the public instrument executed by Juliana Melliza in favor of
Iloilo municipality in 1932. After stipulation of facts and trial, the Court of
First Instance rendered its decision on August 15, 1957, dismissing the
complaint.

CA affirmed the interpretation of the CFI.

Hence, this petition.

Appellant maintains that the public instrument is clear that only Lots Nos.
1214-C and 1214-D with a total area of 10,788 square meters were the
portions of Lot 1214 included in the sale; that the purpose of the second
paragraph, relied upon for a contrary interpretation, was only to better
identify the lots sold and none other; and that to follow the interpretation
accorded the deed of sale by the Court of Appeals and the Court of First
Instance would render the contract invalid because the law requires as
an essential element of sale, a "determinate" object 

ISSUE: Whether or not the Contract is invalid?

Whether or not Pio Mellisa has the right to the the Lot?

RULING:

Such contention fails on several counts. The requirement of the law that
a sale must have for its object a determinate thing, is fulfilled as long as,
at the time the contract is entered into, the object of the sale is capable
of being made determinate without the necessity of a new or further
agreement between the parties (Art. 1273, old Civil Code; Art. 1460,
New Civil Code). The specific mention of some of the lots plus the
statement that the lots object of the sale are the ones needed for city hall
site, avenues and parks, according to the Arellano plan, sufficiently
provides a basis, as of the time of the execution of the contract, for
rendering determinate said lots without the need of a new and further
agreement of the parties.

The Arellano plan was in existence as early as 1928. As stated, the

previous donation of land for city hall site on November 27, 1931 was
revoked on March 6, 1932 for being inadequate in area under said
Arellano plan. Appellant claims that although said plan existed, its metes
and bounds were not fixed until 1935, and thus it could not be a basis for
determining the lots sold on November 15, 1932. Appellant however fails
to consider that the area needed under that plan for city hall site was
then already known; that the specific mention of some of the lots
covered by the sale in effect fixed the corresponding location of the city
hall site under the plan; that, therefore, considering the said lots
specifically mentioned in the public instrument Exhibit "D", and the
projected city hall site, with its area, as then shown in the Arellano plan
(Exhibit 2), it could be determined which, and how much of the portions
of land contiguous to those specifically named, were needed for the
construction of the city hall site.

2. No.It is clear and annotated in the back of the title of Lot 1214 which
Pio San Melizza has acquired from Remedios Sian Villanueva that a
portion of 10,788 square meters of Lot 1214 now designated as Lots
Nos. 1214-B-2 and 1214-B-3 of the subdivision plan belongs to the
Municipality of Iloilo as per instrument dated November 15, 1932. The
City of Iloilo has the full ownership with the said part of the Lot 1214 and
has the right to donate it to whomever they wish to award it. The court
ruled that the instrument executed by Juliana Melliza in favor of Iloilo
municipality included in the conveyance Lot 1214-B. In support of this
conclusion, it referred to the portion of the instrument stating and ruled
that this meant that Juliana Melliza not only sold Lots 1214-C and 1214-
D but also such other portions of lots as were necessary for the
municipal hall site, such as Lot 1214-B. And thus it held that Iloilo City
had the right to donate Lot 1214-B to the U.P.

NOTES:

ATILANO VS ATILANO

FACTS: Eulogion Atilano acquired by purchase Lot No. 535 and

thereafter obtained a transfer certificate. Sometine in 1920, Eulogio had
his land subdivide in to 5 part. Lot. 535 A-E. After the subdivision has
been effected, he executed a deed of sale covering Lot 535A to his
brother Eulogio II for a 150 Pesos Consideration.

Three other portions, namely lots Nos. 535-B, 535-C and 535-D, were
likewise sold to other persons, the original owner, Eulogio Atilano I,
retaining for himself only the remaining portion of the land, presumably
covered by the title to lot No. 535-A. Upon his death the title to this lot
passed to Ladislao Atilano, defendant in this case.

On December 6, 1952, Eulogio Atilano II having become a widower upon

the death of his wife Luisa Bautista, he and his children obtained transfer
certificate of title No. 4889 over lot No. 535-E in their names as co-
owners. Desiring to put an end to the co-ownership, they had the land
resurveyed so that it could properly be subdivided; and it was then
discovered that the land they were actually occupying on the strength of
the deed of sale executed in 1920 was lot No. 535-A and not lot 535-E,
as referred to in the deed, while the land which remained in the
possession of the vendor, Eulogio Atilano I, and which passed to his
successor, defendant Ladislao Atilano, was lot No. 535-E and not lot No.
535-A.

CFI : the heirs of Eulogio Atilano II, who was by then also deceased,
filed the present action in the Court of First Instance of Zamboanga,
alleging, inter alia, that they had offered to surrender to the defendants
the possession of lot No. 535-A and demanded in return the possession
of lot No. 535-E, but that the defendants had refused to accept the
exchange.

Bakit nga ba? The plaintiffs' insistence is quite understandable, since lot
No. 535-E has an area of 2,612 square meters, as compared to the
1,808 square-meter area of lot No. 535-A.

In their answer to the complaint the defendants alleged that the

reference to lot No. 535-E in the deed of sale of May 18, 1920 was an
involuntary error; that the intention of the parties to that sale was to
convey the lot correctly identified as lot No. 535-A; that since 1916.

SUPPORT as a matter of fact Eulogio Atilano I even increased the area

under his possession when on June 11, 1920 he bought a portion of an
adjoining lot, No. 536, from its owner Fruto del Carpio.

On the basis of the foregoing allegations the defendants interposed a

counterclaim, praying that the plaintiffs be ordered to execute in their
favor the corresponding deed of transfer with respect to lot No. 535-E.

The trial court rendered judgment for the plaintiffs on the sole ground
that since the property was registered under the Land Registration Act
the defendants could not acquire it through prescription. There can be,
of course, no dispute as to the correctness of this legal proposition; but
the defendants, aside from alleging adverse possession in their answer
and counterclaim, also alleged error in the deed of sale

ISSUE:

RULING:  From all the facts and circumstances we are convinced that
the object thereof, as intended and understood by the parties, was that
specific portion where the vendee was then already residing, where he
reconstructed his house at the end of the war, and where his heirs, the
plaintiffs herein, continued to reside thereafter: namely, lot No. 535-A;
and that its designation as lot No. 535-E in the deed of sale was simple
mistake in the drafting of the document.1âwphi1.ñet The mistake did not
vitiate the consent of the parties, or affect the validity and binding effect
of the contract between them. The new Civil Code provides a remedy for
such a situation by means of reformation of the instrument. This remedy
is available when, there having been a meeting of the funds of the
parties to a contract, their true intention is not expressed in the
instrument purporting to embody the agreement by reason of mistake,
fraud, inequitable conduct on accident (Art. 1359, et seq.) In this case,
the deed of sale executed in 1920 need no longer reformed. The parties
have retained possession of their respective properties conformably to
the real intention of the parties to that sale, and all they should do is to
execute mutual deeds of conveyance..

The logic and common sense of the situation lean heavily in favor of the
defendants' contention. When one sells or buys real property — a piece
of land, for example — one sells or buys the property as he sees it, in its
actual setting and by its physical metes and bounds, and not by the
mere lot number assigned to it in the certificate of title. In the particular
case before us, the portion correctly referred to as lot No. 535-A was
already in the possession of the vendee, Eulogio Atilano II, who had
constructed his residence therein, even before the sale in his favor even
before the subdivision of the entire lot No. 535 at the instance of its
owner, Eulogio Atillano I. In like manner the latter had his house on the
portion correctly identified, after the subdivision, as lot No. 535-E, even
adding to the area thereof by purchasing a portion of an adjoining
property belonging to a different owner. The two brothers continued in
possession of the respective portions the rest of their lives, obviously
ignorant of the initial mistake in the designation of the lot subject of the
1920 until 1959, when the mistake was discovered for the first time.
YU TEK v. GONZALES
G.R. No. L-9935 February 1, 1915
Trent, J.

Doctrine:
There is a perfected sale with regard to the “thing” whenever the article
of sale has been physically segregated from all other articles.

Facts:
Gonzalez received P3,000 from Yu Tek and Co. and in exchange, the
former obligated himself to deliver 600 piculs of sugar of the first and
second grade, according to the result of the polarization, within the
period of three months. It was also stipulated that in case Gonzales fails
to deliver, the contract will be rescinded he will be obligated to return the
P3,000 received and also the sum of P1,200 by way of indemnity for loss
and damages.

Plaintiff proved that no sugar had been delivered to him under the
contract nor had he been able to recover the P3,000.

Gonzales assumed that the contract was limited to the sugar he might
raise upon his own plantation; that the contract represented a perfected
sale; and that by failure of his crop he was relieved from complying with
his undertaking by loss of the thing due.

Issue:
Whether or not there was a perfected contract of sale

Held:
No. This court has consistently held that there is a perfected sale with
regard to the “thing” whenever the article of sale has been physically
segregated from all other articles.

In the case at bar, the undertaking of the defendant was to sell to the
plaintiff 600 piculs of sugar of the first and second classes. Was this an
agreement upon the “thing” which was the object of the contract? For the
purpose of sale its bulk is weighed, the customary unit of weight being
denominated a “picul.” Now, if called upon to designate the article sold, it
is clear that the defendant could only say that it was “sugar.” He could
only use this generic name for the thing sold. There was no
“appropriation” of any particular lot of sugar. Neither party could point to
any specific quantity of sugar and say: “This is the article which was the
subject of our contract.”

We conclude that the contract in the case at bar was merely an

executory agreement; a promise of sale and not a sale. There was no
perfected sale.
G.R. No. L-31586 February 28, 1972

ERNESTO, FORTUNATA, MONTANO, ZOSIMA, RAMON, GUADALUPE, LUIS,

JOSEFINA and ROSALIA all surnamed YTURRALDE petitioners-appellants,
vs.
THE HONORABLE COURT OF APPEALS, HONORABLE VICENTE G. ERICTA,
in his capacity as Judge of the Court of First Instance of Zamboanga del Sur,
and ISABELO REBOLLOS, respondents-appellees.

Jose A. Ambrosia and Patrio C. Aveñdano for petitioners-appellants.

Geronimo G. Pajarito for respondents-appellees.

MAKASIAR, J.:p
Petitioners-appellants in this appeal by certiorari seek the reversal of the decision of the Court of Appeals dated December 24, 1969.

The Court of Appeals narrated the facts thus: .

It appears that the spouses Francisco Yturralde and Margarita de los

Reyes, owned a parcel of agricultural land located in Guilinan,
Tungawan, Zamboanga del Sur, containing an area of 14.1079
hectares, more or less, and registered in their names under Original
Certificate of Title No. 2356 of the Office of the Register of Deeds of
Zamboanga del Sur. Sometime in the year 1944, Francisco Yturralde
died intestate, survived by his wife, Margarita de los Reyes, and their
children who are the petitioners herein, Ernesto, Fortunata, Montano,
Zosimo, Ramon, Guadalupe, Luis, Josefina and Rosalia, all surnamed
Yturralde. In 1950, Margarita de los Reyes contracted a second
marriage with her brother-in-law and uncle of the petitioners herein,
Damaso Yturralde .

On May 30, 1952, Damaso Yturralde and Margarita de los Reyes

executed a deed of sale with right of repurchase in favor of the
respondent herein, Isabelo Rebollos, covering the above-mentioned
property in consideration of the sum of P1,715.00. The vendors a
retro failed to exercise the right to repurchase the property within the
three-year period agreed upon, which expired on May 30, 1955. In
1961, Margarita de los Reyes died.

On May 3, 1965, the respondent, Isabelo Rebollos, filed a petition for

consolidation of ownership with the Court of First Instance of
Zamboanga del Sur, docketed as Civil Case No. 436 therein, naming
as respondents in the case the petitioners herein and Damaso
Yturralde (Annex A, Petition). Summons was then issued, and received
on June 17, 1965 by the respondent therein, Damaso, Ernesto,
Fortunata, Montano, Guadalupe, Luis and Rosalia, all surnamed
Yturralde (Annexes C and F, Petition). However, summons could not
be served on three of the respondents therein, Josefina, Zosima and
Ramon Yturralde, as they were no longer residing at their last known
addresses (Annexes B, C and F, Petition). The Judge then presiding
the Court of First Instance of Zamboanga del Sur, Hon. Dimalanes
Buissan, in his order dated October 7, 1965, directed that summons be
served upon the said three respondents therein (Annex C, Petition).
The copies of the petition sent to said three respondents, but returned
without service, were then delivered by Rebollos to the Clerk of Court
of the Court of First Instance of Zamboanga del Sur to complete the
delivery thereof under Section 6 of Rule 13, Rules of Court (Annex D,
Petition). Thereafter, on motion filed by Rebollos to declare the
respondents in the case in default (Annex E, Petition), the Court issued
an order dated November 13, 1965, declaring all the respondents
therein in default, after which Rebollos presented his evidence
(Annexes F and G, Petition). On November 20, 1965, the Court
rendered a decision consolidating the ownership of the subject property
in favor of Rebollos, and ordering the Register of Deeds of Zamboanga
del Sur to cancel Original Certificate of Title No. 2356 covering said
property and, in lieu thereof, to issue a transfer certificate of title in the
name of Rebollos (Annex H, Petition).

On June 3, 1966, Rebollos filed a motion to order the petitioner

Montano Yturralde herein to surrender and deliver to the Register of
Deeds the owner's duplicate of Original Certificate of Title No. 2356,
which motion was granted by the Court presided at the time by Judge
Antonio Montilla (Annexes I and H, Petition). Due to the failure of
petitioner Montano Yturralde to comply with the order (Annex J) and on
the motion filed by Rebollos, the Court, then presided by the
respondent Judge ordered the arrest of said Montano Yturralde, but the
order of arrest was subsequently lifted on motion filed by Montano
Yturralde (Annexes K, L, M, N, O and P, Petition).

On motion filed by Rebollos, dated January 6, 1969, the respondent

Judge ordered the execution of the judgment in Civil Case No. 436,
and on January 20, 1969, the corresponding writ of execution was
issued (Annexes Q, R and S, Petition). The petitioners herein then filed
a motion for reconsideration of the order granting execution and for the
quashing of the writ of execution, which was denied by the respondent
Judge in his order of March 21, 1969 (Annex T, U, V and W, Petition).
On petition filed by Rebollos, the respondent Judge, ordered the
demolition of all buildings not belonging to said Rebollos found on the
premises in question (Annexes X and Y, Petition).The petitioners then
filed a motion for reconsideration of the order of demolition, which was
denied by the respondent Judge, who, however, on motion of said
petitioners, directed the respondent Sheriff to defer the implementation
of the writ of execution and the order of demolition until after June 23,
1969 (Annexes Z and AA, Petition). Thereafter, the petitioners
instituted the present proceedings.

The petition was given due course by this Court, and on June 19, 1969,
a writ of preliminary injunction was issued, restraining the respondents
from enforcing the decision and the orders complained of in Civil Case
No. 436, until further orders. In his answer to the petition filed by the
respondent, Isabelo Rebollos, he averred that on January 3, 1968, he
sold the property in question to Pilar M. vda. de Reyes under a deed of
absolute sale and, accordingly, a Transfer Certificate of Title was
issued in favor of said vendee covering the subject property by the
Register of Deeds (Answers and Annexes 4 and 5 thereto).

The case before us is one for prohibition. (Section 2 of Rule 65, Rules
of Court). (Pp. 16-19, rec.).
The Court of Appeals held that the action for prohibition before it seeking to restrain
the enforcement of the decision in Civil Case No. 436 and the implementing orders
issued subsequent thereto by the respondent Judge of the Court of First Instance of
Zamboanga del Sur, will not prosper; because prohibition is a preventive remedy to
restrain the exercise of a power or the performance of an act and not a remedy
against acts already accomplished, which cannot be undone through a writ of
prohibition, and in the instant case, the judgment of the lower trial court consolidates
the ownership of the entire property involved in Civil Case No. 436 in favor of
respondent Isabelo Rebollos, orders the cancellation of the original certificate of title
covering the same, and directs the issuance of a new certificate of title in the name
of respondent Rebollos.

By virtue of an absolute deed of sale executed on January 3, 1968 by respondent

Isabelo Rebollos, a new certificate of title was issued in the name of the vendee,
Pilar M. Vda. de Reyes (citing Annexes 4 and 5 of the Answer). The respondent
Court of Appeals then concluded that "As the thing sought to be restrained had
already been done, and since a certificate of title is conclusive evidence of the
ownership of the land referred to therein (Section 47, Act No. 496, as amended;
Aldecoa & Co. vs. Warner, Barnes & Co., 30 Phil. 153; Yumul vs. Rivera, et a1., 64
Phil. 13), and the same cannot be collaterally attacked, but can only be challenged in
a direct proceeding (Menderson vs. Garrido, 90 Phil. 624), prohibition in this case is
not the proper remedy." .

Petitioners-appellants claim that the Court of Appeals erred (1) in sustaining the
actuation of the trial court in allowing service of summons upon appellants Josefina,
Zosima and Ramon Yturralde by registered mail pursuant to Section 6, Rule 13, of
the Rules of Court; (2) in sustaining the ruling of the trial court that it properly
acquired jurisdiction over the aforesaid three appellants by virtue of such mode of
service of summons; and (3) in not declaring as null and void the decision of the trial
court along with its implementing orders, at least insofar as the aforenamed three
appellants are concerned on the ground that they were not given their day in court.

The three assigned errors shall be discussed jointly.

The respondent Court of Appeals erred in holding that the petition for prohibition
before it will not prosper as the act sought to be prevented had already been
performed; because the order for the issuance of the writ of execution, the
corresponding writ of execution and the order for demolition respectively dated
January 6, 1969, January 20, 1969 and May 15, 1969 in Special Civil Case No. 436
were not enforced by the respondent trial judge, who in his order dated May 26,
1969 directed the provincial sheriff to defer the implementation thereof (Annex "AA",
p. 66, record of C.A. G.R. No. 43310; pp. 19-26, rec.). The petitioners herein
reiterated that they are still in possession of the property in question, which
possession was recognized and protected by the respondent Court of Appeals itself
when it issued the writ of preliminary injunction dated June 19, 1969 against private
respondent Isabelo Rebollos pursuant to its resolution dated June 17, 1969 (pp. 67-
74, rec. of C.A. G.R. No. 43310).
It should be noted that the petition for prohibition filed with the Court of Appeals
prayed for the issuance of the writ of preliminary injunction.

enjoining herein respondents from enforcing the Decision dated

November 20, 1965, the orders dated January 15, 1969, March 21,
1969, May 15, 1969 and May 26, 1969, Annexes "H", "R", "W", "Y",
and "AA" hereof, and after due hearing ..., the preliminary writ of
injunction be made permanent and so with the writ of prohibition.

Petitioners also pray for such other and further reliefs to which they
may be entitled under the law.

While it is true that the decision in Special Civil Case No. 436 was already rendered,
Original Certificate of Title No. 2356 was cancelled and a new transfer certificate of
title issued in the name of Pilar V. vda. de Reyes by virtue of the deed of absolute
sale executed on January 3, 1968 by private respondent Isabelo Rebollos in her
favor; the writ of execution and the order of demolition, as heretofore stated, were
never enforced by reason of which herein petitioners remain and are still in
possession of the land. Moreover, the general prayer for such other reliefs as herein
petitioners may be entitled to under the law, includes a prayer for the nullification of
the decision of November 20, 1965 as well as the questioned orders above-
mentioned.

II

Unlike the old Civil Code, Article 1607 of 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." In the case of Teodoro vs. Arcenas,  this Court, through Mr.
1

Justice Jose B. L. Reyes, ruled that under the aforesaid Article 1607 of the new Civil
Code, such consolidation shall be effected through an ordinary civil action, not by a
mere motion, and that the vendor a retro should be made a party defendant, who
should be served with summons in accordance with Rule 14 of the Revised Rules of
Court; and that the failure on the part of the court to cause the service of summons
as prescribed in Rule 14, is sufficient cause for attacking the validity of the judgment
and subsequent orders on jurisdictional grounds.  The Court in said case stressed
2

that the reason behind the requirement of a judicial order for consolidation as
directed by Article 1067 of the new Civil Code is because "experience has
demonstrated too often that many sales with right of re-purchase have been devised
to circumvent or ignore our usury laws and for this reason, the law looks upon them
with disfavor (Report of the Code Commission, pp. 63-64). When, therefore, 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. Furthermore, the obvious intent of our Civil Code, in requiring a
judicial confirmation of the consolidation in the vendee a retro of the ownership over
the property sold, is not only to have all doubts over the true nature of the transaction
speedily ascertained, and decided, but also to prevent the interposition of buyers in
good faith while such determination is being made. Under the former method of
consolidation by a mere extrajudicial affidavit of the buyer a retro, the latter could
easily cut off any claims of the seller by disposing of the property, after such
consolidation, to strangers in good faith and without notice. The chances of the
seller a retro to recover his property would thus be nullified, even if the transaction
were really proved to be a mortgage and not a sale."  3

The doctrine in the aforesaid case of Teodoro vs. Arcenas was reiterated by this
Supreme Tribunal through Mr. Justice Jose P. Bengzon in the case of Ongcoco, et
al. vs. Honorable Judge, et al. 
4

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 in the manner directed by Rule 14 of the Revised
Rules of Court. The said three petitioners cannot therefore be legally declared in
default. Rule 13 of the Revised Rules of Court on service and filing of pleadings and
other papers with the court, does not apply to service of summons. Rule 14 of the
Revised Rules of Court on service of summons, which should govern, provides that
"upon the filing of the complaint, the Clerk of Court shall forthwith issue the
corresponding summons to the defendants" (Section 1, Rule 14), which summons
shall be served by the sheriff or other proper court officer or for special reason by
any person specially authorized by the court issuing the summons by personally
handing a copy of the same to the defendants (Sections 5 & 7, Rule 14). If the
residence of the defendant is unknown or cannot be ascertained by diligent inquiry or
if the defendant is residing abroad, service may be made by publication in a
newspaper of general circulation in accordance with Sections 16 & 17, Rule 14.  The
5

sheriff or private respondent Isabelo Rebollos himself should have made a diligent
inquiry as to the whereabouts of the three petitioners aforementioned. The trial court
could have directed such an inquiry, which would have disclosed that petitioners
Josefina, Ramon and Zosima reside respectively at Sibugey in Zamboanga del Sur,
Roxas Street in Basilan City, and Washington, D.C., U.S.A. There is no showing that
such a diligent inquiry was made to justify a substituted service of summons by
publication. The return dated June 18, 1965, of the acting chief of police of
Tungawan, Zamboanga del Sur, to the clerk of court and ex-officio provincial sheriff
"that Josefina, Zosima and Ramon are no longer residing in this municipality" (Annex
"B" to Petition of Court of Appeals, p. 20, rec. of C.A. G.R. No. 43310), does not
suffice to indicate that a careful investigation of their whereabouts was made. And
even if it did, substituted service of summon by publication should have been
required. Aside from the fact that the said return of service is a nullity as it is not
under oath, there is no showing even that the acting chief of police was especially
authorized by the court to serve the summons (Sections5 & 20, Rule 14, Revised
Rules of Court.)6

To emphasize, Section 3 of Rule 14 of the Revised Rules of Court commands the

service of summons together with a copy of the petition, on each of the defendants
who must be specifically named in the summons, upon the filing of such petition, like
the petition in Special Civil Case No. 436 filed by privaterespondent Isabelo Rebollos
for consolidation of ownership over the lot coveredby Original Certificate of Title No.
2356 in the name of "Francisco Yturralde married to Margarita de los Reyes." .

III
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. 
7

The pacto de retro sale executed by Margarita de los Reyes "casada en segundas

nuptias con Damaso Yturralde," expressly stipulates that she only sold all her rights,
interests and participation in the lot covered by O.C.T. No. 2356 (Annex "I", p. 66,
rec.). Margarita therefore, could not, for she had no right to, sell the entire lot, which
is registered under O.C.T. No. 2356 "inthe name of Francisco Yturralde married to
Margarita de los Reyes." Said lot is acknowledge by herein petitioners as the
conjugal property of Francisco and Margarita (p. 2, rec. of C.A. G.R. No. 43310).
What she validly disposed of under the aforesaid pacto de retro sale of 1952 was
only her conjugal share in the lot plus her successional right as heir in the conjugal
share of her deceased husband Francisco.

Consequently, the vendee a retro, Isabelo Rebollos, cannot legally petition for the
consolidation of his ownership over the entire lot.

But in the petition he filed in Special Civil Case No. 436 on May 3, 1965 against
herein nine petitioners as children and heirs of the deceased spouses Francisco
Yturralde (who died in 1944) and Margarita de los Reyes (who died in 1961), and
Damaso Yturralde, stepfather of herein petitioners, Rebollos prayed for the
consolidation of his ownership over the entire lot covered by O.C.T. No. 2356, and
not merely over the interest conveyed to him by Margarita. As the petition of private
respondent Rebollos sought to divest all of them of their undivided interest in the
entire agricultural land, which undivided interest was never alienated by them to
Rebollos, herein petitioners became indispensable parties. Rebollos himself
acknowledged that they are indispensable parties, for he included them as party-
defendants in his petition in order to acquire their undivided interest in the lot. While
summons were served properly on all the other defendants in said Civil Case No.
436, herein petitioners Josefina, Zosima and Ramon were not so served. Because of
such failure to comply with Rule 14 of the Revised Rules of Court on service of
summons on indispensable parties, as heretofore stated, the trialcourt did not validly
acquire jurisdiction over the case; because no complete and final determination of
the action can be had without the aforesaid three petitioners Josefina, Zosima and
Ramon.

The petition for consolidation filed by herein private respondent Rebollos is similar in
effect to an action for partition by a co-owner, wherein each co-owner is an
indispensable party; for without him no valid judgment for partition may be
rendered. 8

That the three children, herein petitioners Josefina, Zosima and Ramon, are
essential parties, without whom no valid judgment may be rendered, is further
underscored by the fact that the agricultural land in question was owned by them in
common and pro indiviso with their mother and their brothers and sisters and was
not then as now physically partitioned among them.

For attempting to acquire the entire parcel by foisting upon the court the
misrepresentation that the whole lot was sold to him, private respondent Isabelo
Rebollos must suffer the consequences of his deceit by the nullification of the entire
decision in his favor granting the consolidation of his title over the entire land in
question. This Court condemns such deception.

It should be noted that herein petitioners in 1967 also filed an action against only
Isabelo Rebollos for the recovery of ownership, annulment of judgment, redemption
and damages in the Court of First Instance of Zamboanga del Sur docketed as Civil
Case No. 944 and entitled "Fortunata Yturralde, et al. vs. Rebollos" (pp. 76, 84-96,
rec. of C.A. G.R. No. 43310).

In their complaint in said Civil Case No. 944 dated May 23, 1967 (pp. 117-124, rec.
of C.A. G.R. No. 43310), herein petitioners allege inter alia that the respondent trial
court (in Special Civil Case No. 436) had no jurisdiction over their share in the
aforementioned lot through a "summary proceedings without notice to them" (pp. 88-
89, rec. of C.A. G.R. No. 43310).

Herein petitioners should amend their complaint in Civil Case No. 944 so as
toinclude Pilar V. vda. de Reyes party defendant therein in order that they can obtain
a full and complete valid judgment in the same action; because the vendee is an
indispensable party.  9

It is a curious fact that Rebollos filed his petition for consolidation of title only on May
3, 1965, almost ten years after the redemption period expiredon May 30, 1955, and
about four years after the death in 1961 of the vendor a retro.

lt is equally interesting to note that after herein petitioners filed in 1967 an action
against Rebollos for the recovery of ownership, annulment of judgment, redemption
and damages, Rebollos sold on January 3, 1968 the land in question to Pilar V. vda.
de Reyes, with the deed of sale duly notarized by Atty. Geronimo G. Pajarito,
counsel for Rebollos in Special Civil Case No. 436 (pp. 16-17, 22-25, 31, 42, 44-47,
51, 56, 59, 61-62, 93, rec. of C.A. G.R. No. 43310).

But more intriguing is the fact that, after Rebollos sold on January 3, 1968 the land to
Pilar V. vda. de Reyes, Rebollos himself, not his vendee, filed:

(1) a motion dated January 6, 1969 for the issuance of a writ of

execution from the judgment in Special Civil Case No. 436, by reason
of which the corresponding writ of execution was issued on January 20,
1969; .

(2) an opposition to the motion of herein petitioners for the

reconsideration of the aforesaid order of January 20, 1969; and .

(3) a motion dated April 7, 1969 for execution and demolition of the
buildings of herein petitioners (pp, 61-62, rec. of CA-G.R. No. 43310).
WHEREFORE, judgment is hereby rendered reversing the decision of respondent
Court of Appeals dated December 24, 1969, and setting aside as null and void .

(1) the decision of the respondent trial judge dated November 20, 1965; .

(2) the order for the issuance of the writ of execution dated January 6, 1969; .

(3) the writ of execution dated January 20, 1969; and .

(4) the order of demolition dated May 15, 1969 in Special Civil Case No. 436; .

without prejudice to the final outcome of Civil Case No. 944.

With costs against private respondent Isabelo Rebollos.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Castro, Fernando, Teehankee,

Barredo and Villamor, JJ., concur.

.R. No. L-21921             October 4, 1924

ATKINS, KROLL & COMPANY, INC., plaintiff-appellant,

vs.
SANTIAGO DOMINGO, defendant-appellee.

W. A. Armstrong for appellant.

Pablo Lorenzo and Laurel, Alas & De la Rosa for appellee.

STREET, J.:

This action was instituted in the Court of First Instance of Zamboanga by Atkins,
Kroll & Company, Inc., against Santiago Domingo, for the purpose of enforcing
recognition of its alleged right of ownership over lot No. thirty-eight (38) of the
cadastral plan of the Zamboanga townsite, expediente No. 7880, and to recover
possession of the same from the defendant, and at the same time to secure a
partition of lots Nos. 36 and 55 in the same plan, according to the proportional
interests pertaining to the plaintiff and defendant as joint owners thereof. Upon
hearing the cause the trial court entered a judgment recognizing the rights of the
plaintiff as tenant in common with the defendant in respect to the land in all of said
lots to the full extent claimed by the plaintiff and made an appropriate order for a
division thereof, but the court at the same time held that the buildings on lots Nos. 36
and 38 are of the exclusive ownership of the defendant, Santiago Domingo, and that
before the plaintiff can obtain possession of said buildings the defendant is entitled to
be reimbursed for their value, which the court fixed at P18,000, in accordance with
article 361 of the Civil Code. At the same time the court denied the right of the
plaintiff to recover any part of the rents received by the defendant for said houses,
though it recognized the obligation of the defendant to reimburse the plaintiff for the
defendant's share of the taxes paid by the plaintiff on all of the properties. From this
judgment the plaintiff appealed, and under its assignment of error so much of the
decision is called in question as relates to the title to the buildings on lost Nos. 36
and 38 and to the right of the plaintiff to an accounting for rents which have been
collected exclusively by the defendant on all of the lots.

The appeal is concerned principally with the question of the title to

the improvements on lots Nos. 36 and 38, as distinguished from the title to the land,
and the manner in which this question arises can be most readily exhibited in brief
history of the registered title.

On June 24, 1912, the Court of Land Registration, sitting in the Province of
Zamboanga, adjudicated the three lots already mentioned, Nos. 36, 38, and 55, to
Buenaventura Domingo. No mention was made in the decision of the improvements
on said lots, but when the corresponding decrees of registration were issued on
October 4, thereafter, the words "with all the improvements existing thereon" were
inserted, as is the common practice in cases where the improvements have not been
expressly declared by the court to belong to some other person than the owner of
the land. The same phrase appeared in the respective certificates of title covering
the lots, with the result that according to the Torrens certificates Buenaventura
Domingo was the owner not only of each of said lots but also of the improvements
existing thereon.

Buenaventura Domingo died intestate on October 21, 1912, leaving a widow and a
number of children and grandchildren as heirs. One of his sons, namely, Santiago
Domingo, the defendant in this case, qualified on October 29, 1914, as administrator
of his estate. Another son, named Leon Domingo, died on August 21, 1913, and
Santiago Domingo likewise qualified as administrator of Leon's estate. In the course
of the administration of the estate of Buenaventura Domingo, the defendant, as his
administrator, submitted a project of partition to the court, in which lots Nos. 36, 38
and 55 are mentioned as properties pertaining to the decedent. In this project no
mention was made of improvements on any of said lots with the exception of a small
house of strong materials on lot No. 38, the title to which is not in question and may
be dismissed from consideration. On August 8, 1918, the court duly approved the
project of partition. No objection to this action appears to have been made by any
person interested in the estate.

The share of Santiago Domingo in his father's estate, so far as affects lots Nos. 36
and 55, has remained undisturbed and said interest is still vested in him. It is
different with lot No. 38, for on February 17, 1922, the said Santiago Domingo sold
his entire interest in lot No. 38, "with all the improvements existing thereon," by
contract of sale with pacto de retro to one Ong Kong. The interest thus sold was
subject to repurchase within the period of one year, but redemption was never
effected; and on February 17, 1923, the property was duly consolidated in Ong
Kong. On February 19, 1923, Ong Kong sold his entire interest in the lot and
improvements thereon to the present plaintiff, Atkins, Kroll & Co.

The shares pertaining to the other heirs in lots Nos. 36, 38, and 55 suffered a
number of mutations as to ownership; but in the end, through various transactions,
the authenticity, legality, and good faith of which are not questioned either in the
pleadings or in the proof, all of said interests came to rest in the plaintiff, Atkins, Kroll
& Co. Each step in all of these mutations of title was accompanied by the
corresponding proper changes in the Torrens certificates of title Nos. 3433, 3843,
3435, showing the present ownership of the lots and improvements. From these
certificates it appears that the plaintiff, Atkins, Kroll & Co. is the owner of three-
fourths of lot No. 36, with the improvements thereon; of the whole of lot No. 38, with
the improvements thereon; and of three-fourths of lot No. 55, excluding the
improvements.

It appears that the defendant, Santiago Domingo, is now in possession of said

property and has at all times been in possession since the plaintiff acquired its
interest therein, and he has during the same period exclusively enjoyed the use of all
the lots, with the income derived from the buildings thereon. This circumstance,
coupled with this refusal to admit the plaintiff's claim as coowner, resulted, as already
stated, in the institution of the present action by the plaintiff, for the purpose of
recovering possession of lot No. 38 and to secure a partition of lots Nos. 36 and 55,
with an accounting for the plaintiff's proper proportion of the profits. This brings us to
consider the origin and nature of the defendant's claim to the exclusive ownership of
the buildings on lots Nos. 36 and 38. 1awph!l.net

In this connection it appears that the buildings referred to were erected in the latter
months of the year 1912 and first half of 1913, and the defendant asserts that they
were built by him with his own money and with the consent of his father. Upon this
circumstance in connection with article 361 and related provisions of the Civil Code,
the defendant bases his claim to the exclusive ownership of said buildings.

We note that this claim was first put forth by the defendant in what he called an
explanatory report submitted to the court in the administration of the estate of
Buenaventura Domingo on February 1, 1919. In that writing the defendant asked that
the buildings on lots Nos. 36 and 38 be segregated from the mass of the property left
by his father and that he himself be declared to be the exclusive owner of the
buildings. This move was opposed by Zoila Domingo, a daughter and sole heir of
Leon Domingo. In the end the court, upon July 19, 1922, entered a resolution
ignoring the defendant's claim and ordering that the project of partition be carried
into effect. If it be true, as the defendant claims, that the houses referred to were built
with his money, it must strike one as remarkably strange that he should have waited
for nearly seven years, or until February 1, 1919, before formulating his claim or
taking any step whatever to protect his title to said buildings.

But assuming, as we may, that the buildings in question were in fact constructed by
the defendant with his own money, and with the consent of his father as owner of the
land, it is clear that the defendant's right to the buildings in controversy has been
lost, except in so far as he is owner of an undivided one-fourth interest by
inheritance; and the interests of the two parties to this litigation in the properties in
question must be taken to be exactly as they are stated in the existing certificates of
title. This results from the fact that the plaintiff is a purchaser for value who has
acquired the interests shown on the existing Torrens certificates upon the faith of the
registered title, and the defendant is in no position to arrest the effect of these
documents.
But is it insisted that the plaintiff has been affected with the notice of the defendant's
right by the filing of a lis pendens. This requires a few words of explanation. Going
back to August 18, 1920, we find that on said date the defendant filed with the
register of deeds a notice of lis pendens, setting forth his claim of ownership as to
the improvements in question, and referring to the controversy planted in his
explanatory report in the administration proceedings. Notice of said lis pendens was
noted on the back of the corresponding certificates of title. Upon the date stated the
plaintiff had already acquired a mortgage upon the interest of Zoila Domingo in the
estate of her grandfather, Buenaventura Domingo; and by the foreclosure of that
mortgage all of her interest in lots Nos. 36 and 38 became vested in the plaintiff as
purchaser. The remaining interests acquired by the plaintiff in the same properties
appear to have been acquired by it after the notice of lis pendens was filed.

As will be seen, the filing of the lis pendens was intended to affect third persons with
notice of the claim which the defendant had asserted in his explanatory report in the
proceedings over the state of Buenaventura Domingo. But it will be remembered that
the efforts of the defendant to get his claim recognized in those proceedings
completely failed of effect. For this reason the lis pendens must be considered to
have lost its efficacy. The effect of notice by lis pendens is, of course, to charge the
stranger with notice of the particular litigation referred to in the notice, and, if the
notice is effective, the stranger who acquires the property affected by the lis
pendens takes subject to the eventuality of the litigation. But when the adverse right
fails in such litigation, the lis pendens becomes innocuous.

It should be noted that the defendant, supposing his claim to have been made in
good faith, might have protected it, at any time before the property had passed into
the hands of a third person, by a proceeding under section 112 of Act No. 496. Said
section declares that any person may at any time apply by petition to the court,
where "new interests have arisen or been created which do not appear upon the
certificate," and procure such interests to be noted. Such a petition must be filed and
entitled in the original case in which the decree of registration was entered. (Sec.
112, par. 2, Act No. 496.)

In Blass vs. De la Cruz and Melendres (37 Phil., 1), this court held that the
registration of land in the name of a particular person vests in him not only the title to
the land but also the title to the improvements thereon, unless special reservation is
noted with respect to the improvements. In that case the improvements which
became the subject of controversy had been placed on the land before it was
registered and the decree of registration was res judicata as to the improvements. In
the case before us the buildings which are the subject of controversy were placed on
the land after the decree of registration. This circumstance made a proceeding under
section 12 of Act No. 496 all the more necessary in order to protect the new interest
thus created. So far as registered land is concerned, the right recognized in article
361 and related provisions of the Civil Code is subject to the contingency that it shall
be noted in the registered title before the property passes into the hand of a
purchaser for value.

The considerations so far adduced apply alike to the improvements on lots Nos. 36
and 38, but there is another circumstance which is fatal to the defendant's claim to
any of the improvements on lot No. 38. This is found in the fact that he sold his
interest in said lot, including the improvements, to Ong Kong, the plaintiff's
predecessor in interest. It is evident that the defendant is estopped by his own deed
from claiming any interest in the buildings on this lot, whatever might have been the
law governing his claim to the buildings on the other lot.

From what has been said it is evidence that the trial court was in error in declaring
the defendant to be the owner of the buildings on lots Nos. 36 and 38 and in failing to
require the defendant to account; and in order to clarify the situation we declare: (1)
That the ownership of the lots Nos. 36, 38, and 55, is as stated in the Torrens
certificates of title Nos. 3433, 3843, and 3435 (Exhibits A, B, and C of the plaintiff);
(2) that the plaintiff is entitled to possession of lot No. 38 and that partition must be
made of lots Nos. 36 and 55 in the manner provided by law; (3) the plaintiff is further
entitled to recover of the defendant such portion of the defendant and which shall
have been paid by the plaintiff; (4) the plaintiff shall also recover of the defendant
such portion of the rents of said properties as correspond to the interests of the
plaintiff since its acquisition of the same.

The judgment will be reversed and the cause remanded for further proceedings in
conformity with this opinion, without express pronouncement as to costs. So ordered.
PRICE OR CONSIDERATION
VDA. DE GORDON V. CA (November 23, 1981)
FACTS:
Two parcels of land owned by Restituto Vda. De Gordon. Within 10
years from 1053 to 1963 Restituto was not able to pay the taxes. Hence,
The City Treasurer of Quezon City, upon warrant of a certified copy of
the record of such delinquency, advertised for sale.

The public sale on 3 December 1964, the parcels of land were sold to
Rosario Duazo for the amount of P10,500.00 representing the tax,
penalty and costs. The certificate of sale executed by the City Treasurer
was duly registered on 28 December 1964 in the office of the Register of
Deeds of Quezon City. Upon the failure of the registered owner to
redeem the parcels of land within the 1-year period prescribed by law,
the City Treasurer of Quezon City executed on 4 January 1966 a final
deed of sale of said lands and the improvements thereon. Said final
deed of sale was also registered in the Office of the Register of Deeds of
Quezon City on 18 January 1966. Later on, Duazo filed a petition for
consolidation of ownership.

ISSUE: WON the price for the lands is inadequate so as to render the
sale invalid.

RULING:

While the price of P10,500.00 is less than the total assessed value of the
land and the improvement thereon, said price cannot be considered so
grossly inadequate as to be shocking to the conscience of the court.

In Director of Lands vs. Abarca, 61 Phil. 70, cited by the lower court in
the order appealed from, the Supreme Court considered the price of
P877.25 as so inadequate to shock the conscience of the court because
the assessed value of the property in question was P60,000.00. The
assessed value of the land was more than sixty times the price paid at
the auction sale.

In the case at bar, the price of P10,500.00 is about one sixth of the total
assessed value of the two parcels of land in question and the residential
house thereon. The finding of the lower court that the house and land in
question have a fair market value of not less than P200,000.00 has no
factual basis. It cannot be said, therefore, that the price of P10,500.00 is
so inadequate as to be shocking to the conscience of the court.

Mere inadequacy of the price alone is not sufficient ground to annul the
public sale. (Barrozo vs. Macaraeg, 83 Phil. 378).

NOTES:
Petitioner's third and last assignment of error as to the alleged gross
inadequacy of the purchase price must likewise fail. As the Court has
held in Velasquez vs. Coronet  6 alleged gross inadequacy of price is not
material "when the law gives the owner the right to redeem as when a
sale is made at public auction, upon the theory that the lesser the price
the easier it is for the owner to effect the redemption." As the Court
further stressed in the recent case of Tajonera vs. Court of
Appeals, 7 the law governing tax sales for delinquent taxes may be
"harsh and drastic, but it is a necessary means of insuring the prompt
collection of taxes so essential to the life of the Government."
G.R. No. L-67888 October 8, 1985

IMELDA ONG, ET AL., petitioners,

vs.
ALFREDO ONG, ET AL., respondents.

RELOVA, J.:

This is a petition for review on certiorari of the decision, dated June 20,
1984, of the Intermediate Appellate Court, in AC-G.R. No. CV-01748,
affirming the judgment of the Regional Trial Court of Makati, Metro
Manila.

Imelda Ong, for and in consideration of One (P1.00) Peso and other
valuable considerations, executed in favor of private respondent Sandra
Maruzzo, then a minor, a Quitclaim Deed whereby she transferred,
released, assigned and forever quit-claimed to Sandra Maruzzo, her
heirs and assigns, all her rights, title, interest and participation in the
ONE-HALF (½) undivided portion of the parcel of land, particularly
described as follows:

A parcel of land (Lot 10-B of the subdivision plan (LRC) Psd

157841, being a portion of Lot 10, Block 18, Psd-13288, LRC
(GLRC) Record No. 2029, situated in the Municipality of
Makati, Province of Rizal, Island of Luzon ... containing an
area of ONE HUNDRED AND TWENTY FIVE (125)
SQUARE METERS, more or less.

Subsequently, Imelda Ong revoked the aforesaid Deed of Quitclaim and,

thereafter, on January 20, 1982 donated the whole property described
above to her son, Rex Ong-Jimenez.

However, Sandra Maruzzo, through her guardian (ad litem) Alfredo Ong,

filed with the Regional Trial Court of Makati, Metro Manila an action
against petitioners, for the recovery of ownership/possession and
nullification of the Deed of Donation over the portion belonging

Petitioners claimed that the Quitclaim Deed is null and void inasmuch as
it is equivalent to a Deed of Donation, acceptance of which by the donee
is necessary to give it validity. Further, it is averred that the donee,
Sandra Maruzzo, being a minor, had no legal personality and therefore
incapable of accepting the donation.
The RTC the trial court rendered judgment in favor of respondent
Maruzzo and held that the Quitclaim Deed is equivalent to a Deed of
Sale and, hence, there was a valid conveyance in favor of the latter.

Petitioners appealed to the respondent Intermediate Appellate Court.

They reiterated their argument below and, in addition, contended that
the One (P1.00) Peso consideration is not a consideration at all to
sustain the ruling that the Deed of Quitclaim is equivalent to a sale.

On June 20, 1984, respondent Intermediate Appellate Court

promulgated its Decision affirming the appealed judgment and held that
the Quitclaim Deed is a conveyance of property with a valid cause or
consideration; that the consideration is the One (P1.00) Peso which is
clearly stated in the deed itself; that the apparent inadequacy is of no
moment since it is the usual practice in deeds of conveyance to place a
nominal amount although there is a more valuable consideration given.

HENCE, this petition.

ISSUE: Whether or not the inadequacy of the value of consideration

invalidates the deed?

RULING: Bad faith and inadequacy of monetary consideration does not

render conveyance inexistent, assignor’s liberality may be sufficient
cause for a valid contract It is not unusual in deeds of conveyance
adhering to the Anglo-Saxon practice of stating that the consideration
given is the sum of P1, although the actual consideration may have been
much more. Moreover, assuming that said consideration of P1 is
suspicious, this circumstance, alone, does not necessarily justify the
inference that the vendees were not purchasers in good faith and for
value. Neither does this inference warrant the conclusion that the sales
were null and void ab initio. Indeed, bad faith and inadequacy of the
monetary consideration do not render a conveyance inexistent, for the
assignor’s liberality may be sufficient cause for a valid contract (Article
1350, Civil Code), whereas fraud or bad faith may render either
rescissible or voidable, although valid until annulled, a contract
concerning an object certain entered into with a cause and with the
consent of the contracting parties(See Morales Development v. CA, 27
SCRA 484)

NOTES:

Moreover, even granting that the Quitclaim deed in question is a

donation, Article 741 of the Civil Code provides that the requirement of
the acceptance of the donation in favor of minor by parents of legal
representatives applies only to onerous and conditional donations where
the donation may have to assume certain charges or burdens (Article
726, Civil Code). The acceptance by a legal guardian of a simple or pure
donation does not seem to be necessary (Perez vs. Calingo, CA-40 O.G.
53). Thus, Supreme Court ruled in Kapunan vs. Casilan and Court of
Appeals, (109 Phil. 889) that the donation to an incapacitated donee
does not need the acceptance by the lawful representative if said
donation does not contain any condition. In simple and pure donation,
the formal acceptance is not important for the donor requires no right to
be protected and the donee neither undertakes to do anything nor
assumes any obligation. The Quitclaim now in question does not impose
any condition.
Spouses LADANGA vs CA

FACTS:.

The Appellate Court and Judge Jose C. Colayco found that Clemencia, a
spinster who retired as division superintendent of public schools at 65 in
1961, had a nephew named Bernardo S. Aseneta, the child of her sister
Gloria, and a niece named Salvacion, the daughter of her sister Flora.
She legally adopted Bernardo in 1961 (Exh. B).

On a single date, April 6, 1974 (when Clemencia was about 78 years

old), she signed nine deeds of sale in favor of Salvacion for various real
properties. One deed of sale concerned the said Paco property
(administered by the Ladanga spouses) which purportedly was sold to
Salvacion for P26,000 (Exh. C). The total price involved in the nine
deeds of sale and in the tenth sale executed on November 8, 1974 was
P92,200.

On the witness stand, Clemencia denied having "received even one

centavo" of the price of P26,000 (15, 16, 32 tsn August 16, 1976), much
less the P92,000. She considered the allegation that she received the
price as a he, exclaiming on the witness stand: "Susmaryosep!
P92,000!". This testimony was corroborated by Soledad L. Maninang,
69, a dentist with whom Clemencia had lived for more than thirty years in
Kamuning, Quezon City.

The notary testified that the deed of sale for the Paco property was
signed in the office of the Quezon City registry of deeds. He did not see
Salvacion giving any money to Clemencia.

In May, 1975, Bernardo as guardian of Clemencia, filed an action for

reconveyance of the Paco property, accounting of the rentals and
damages. Clemencia was not mentally incompetent but she was placed
under guardianship because she was an easy prey for exploitation and
deceit.

As already stated, in the instant case, the trial court and the Appellate
Court declared void the sale of the Paco property. The Ladanga spouses
contend that the Appellate Court disregarded the rule on burden of
proof. This contention is devoid of merit because Clemencia herself
testified that the price of P26,000 was not paid to her. The burden of the
evidence shifted to the Ladanga spouses. They were not able to prove
the payment of that amount. The sale was fictitious.
ISSUES: Whether or not there is a perfected contract?

RULING: NO! A contract of sale is void and produces no effect

whatsoever where the price, which appears therein as paid, has in fact
never been paid by the purchaser to the vendor (Meneses Vda. de
Catindig vs. Heirs of Catalina Roque, L-25777, November 26, 1976, 74
SCRA 83, 88; Mapalo vs. Mapalo, 123 Phil. 979, 987; Syllabus, Ocejo,
Perez & Co.vs. Flores and Bas, 40 Phil. 921).

Such a sale is inexistent and cannot be considered consummated

(Borromeo' vs. Borromeo, 98 Phil. 432; Cruzado vs. Bustos and Escaler,
34 Phil. 17; Garanciang vs. Garanciang, L-22351, May 21, 1969, 28
SCRA 229).

It was not shown that Clemencia intended to donate the Paco property
to the Ladangas. Her testimony and the notary's testimony destroyed
any presumption that the sale was fair and regular and for a true
consideration.

Judge Colayco concluded that the Ladangas abused Clemencia's

confidence and defrauded her of properties with a market value of
P393,559.25 when she was already 78 years old.
PROVINCHEIR OF CEBU VS HEIR OF MORALES

FACTS:, Province of Cebu leased in favor of Rufina Morales a 210-

square meter lot which formed part of Lot No. 646-A of the Banilad
Estate. Subsequently or sometime in 1964, petitioner donated several
parcels of land to the City of Cebu. Among those donated was Lot No.
646-A which the City of Cebu divided into sub-lots

The city sold Lot No. 646-A-3 as well as the other donated lots at public
auction in order to raise money for infrastructure projects. The highest
bidder for Lot No. 646-A-3 was Hever Bascon but Morales was allowed
to match the highest bid since she had a preferential right to the lot as
actual occupant thereof.6 Morales thus paid the required deposit and
partial payment for the lot.

Morales died during the pendency of Civil Case No. 238-BC. 10 Apart
from the deposit and down payment, she was not able to make any other
payments on the balance of the purchase price for the lot.

On March 11, 1983, one of the nieces of Morales, respondent Catalina

V. Quesada, wrote to then Cebu Governor Eduardo R. Gullas asking for
the formal conveyance of Lot No. 646-A-3 to Morales’ surviving heirs, in
accordance with the award earlier made by the City of Cebu. The
requests remained unheeded thus, Quesada, together with the other
nieces of Morales filed an action for specific performance and
reconveyance of property against petitioner, in the the Regional Trial
Court of Cebu City.They also consigned with the court the amount of
P13,450.00 representing the balance of the purchase price which
petitioner allegedly refused to accept.14

Respondents averred that the award at public auction of the lot to

Morales was a valid and binding contract entered into by the City of
Cebu and that the lot was inadvertently returned to petitioner under the
compromise judgment in Civil Case No. 238-

THE RTC [T]he Court is convinced that there was already a

consummated sale between the City of Cebu and Rufina Morales. There
was the offer to sell in that public auction sale. It was accepted by Rufina
Morales with her bid and was granted the award for which she paid the
agreed downpayment.

Petitioner appealed to the Court of Appeals which affirmed the decision

of the trial court in toto.
Hence this petition,

FINDING THAT WITH THE DEPOSIT AND PARTIAL PAYMENT MADE

BY RUFINA MORALES, THE SALE WAS IN EFFECT CLOSED FOR
ALL LEGAL PURPOSES, AND THAT THE TRANSACTION WAS
PERFECTED AND CONSUMMATED;

ISSUE: Whether there is a perfected sale despite lack of payment.

RULING: No. Similarly, petitioner erroneously contends that the failure

of Morales to pay the balance of the purchase price is evidence that
there was really no contract of sale over the lot between Morales and the
City of Cebu. On the contrary, the fact that there was an agreed price for
the lot proves that a contract of sale was indeed perfected between the
parties. Failure to pay the balance of the purchase price did not render
the sale inexistent or invalid, but merely gave rise to a right in favor of
the vendor to either demand specific performance or rescission of the
contract of sale.25 It did not abolish the contract of sale or result in its
automatic invalidation.

The City of Cebu was no longer the owner of Lot 646-A-3 when it ceded
the same to petitioner under the compromise agreement in Civil Case
No. 238-BC. At that time, the city merely retained rights as an unpaid
seller but had effectively transferred ownership of the lot to Morales. As
successor-in-interest of the city, petitioner could only acquire rights that
its predecessor had over the lot. These rights include the right to seek
rescission or fulfillment of the terms of the contract and the right to
damages in either case.
 PHILIPPINE RESOURCES DEVELOPMENT CORPORATION
and the COURT OF APPEALS, respondents.
Facts:
Apostol, allegedly acting for the Philippine Resources Development
Corp. (PRDC), contracted with the Bureau of Prison for the purchase of
100 tons of designated logs, but only a small payment of the purchase
price was made. In lieu of the balance of the purchase price, he caused
to be delivered goods of the PRDC to the Bureau of Prison as payment
for the outstanding price. The Republic brought an action against
Apostol for the collection of sums owing to it for his purchase of Palawan
Almaciga and other logs. His total debt amounted to some P34,000.
PRDC intervened claiming that Apostol, as President of the company,
without prior authority, took goods (steel sheets, pipes, bars, etc) from
PRDC warehouse and appropriated them to settle his personal debts in
favor of the government. The Republic opposed the intervention of
PRDC, arguing that price is always paid in money and that payment in
kind is no payment at all; hence, money and not the goods of PRDC are
under dispute.

The Government asserted that the subject matter of its litigation with
Apostol was a sum of money allegedly due to the Bureau of Prison from
Apostol and not the goods reportedly turned over by Apostol in payment
of his private debt to the Bureau of Prison and the recovery of which was
sought by PRDC; and for this reason, PRDC had no legal interest in the
very subject matter in litigation as to entitle it to intervene. The
Government argued that the goods which belonged to PRDC were not
connected with the sale because “Price … is always paid in terms of
money and the supposed payment being in kind, it is no payment at all.”

Issues:
(1) Whether or not payment in kind is equivalent to price paid in money.
(2) Whether PRDC had the right to intervene in the sales transaction
executed between Apostol and the Bureau of Prisons and in the suit
brought by the Government to enforce such sale.

Held:
(1) YES. Price may be paid in money or ITS EQUIVALENT—in this
case, the goods. Payment need not be in the form of money. The prices
for the goods have, in fact, been assessed and determined.

Republic is not at all authority to say that under Article 1458, as it defines
a contract of sale and the obligation of the buyer to “pay the price certain
in money or its equivalent”, the term “equivalent” of price can cover other
than money or other media of exchange, since Republic covers not the
perfection stage of a contract of sale, but rather the consummation stage
where the price agreed upon (which ideally should be in money or its
equivalent) can be paid under the mutual arrangements agreed upon by
the parties to the contract of sale, even by dation in payment.

(2) Yes, PRDC thus has a substantial interest in the case and must be
permitted to intervene—its goods paid out without authority being under
dispute in this case. The Court held that the Government’s contentions
were untenable, ruling that Article 1458 provides that the purchaser may
pay “a price certain in money or its equivalent,” which means payment of
the price need not be in money. Whether the goods claimed by PRDC
belong to it and delivered to the Bureau of Prison by Apostol in payment
of his account is sufficient payment therefor, is for the court to pass upon
and decide after hearing all the parties in the case. PRDC therefore had
a positive right to intervene in the case because should the trial court
credit Apostol with the value price of the materials delivered by him,
certainly PRDC would be affected adversely if its claim of ownership to
such goods were upheld.
VELASCO VS CA

Petitioner: On November 29, 1962 parties entered into contract of sale

of land for P100,000. The payment terms would be a down payment
of P10,000 and 20,000 and the P70,000 is payable in installment.
Petitioner then paid the P10,000 down payment on November 29, 1962.
On January 8, 1964 he paid the remaining 20,000 but the respondent
refused to accept and execute a deed of sale.

Respondent: No contract of sale was perfected because the minds of

the parties did not meet. The property was leased by Socorro Velasco
and the defendant indicated willingness in selling the property for
100,000 under the terms of P30,000 down payment, 20,000 of which to
be paid on November 30, 1962 and the remaining 70,000 is payable in
10 years with 9% interest per annum. On November 29, 1962 Socorro
paid 10,000, short of the alleged 20,000 agreed down payment.
However, said payment was accepted. On January 8, 1964 Socorro
tendered the 20,000 down payment but defendant refused to accept
because the latter considered the contract rescinded on the account the
former’s failure to complete the down payment on or before December
31, 1962.

ISSUE:WON a contracted sale was perfected between the parties.

HELD:No. The minds of the parties did not meet “in regard to the
manner of payment.” It is not difficult to glean from the aforequoted
averments that the petitioners themselves admit that they and the
respondent still had to meet and agree on how and when the down-
payment and the installment payments were to be paid. Such being the
situation, it cannot, therefore, be said that a definite and firm sales
agreement between the parties had been perfected over the lot in
question. Indeed, this Court has already ruled before that a definite
agreement on the manner of payment of the purchase price is an
essential element in the formation of a binding and enforceable contract
of sale.3 The fact, therefore, that the petitioners delivered to the
respondent the sum of P10,000 as part of the down-payment that they
had to pay cannot be considered as sufficient proof of the perfection of
any purchase and sale agreement between the parties herein under
article 1482 of the new Civil Code, as the petitioners themselves admit
that some essential matter — the terms of payment — still had to be
mutually covenanted.

Toyota Shaw v. CA [G.R. No. 116650. May 23, 1995.]

Facts:

Sosa wanted to purchase a Toyota Car. She met Bernardo, the sales
representative of Toyota. Sosa emphasized to the sales rep that she
needed the car not later than 17 June 1989. They contracted an
agreement on the delivery of the unit and that the balance of the
purchase price would be paid by credit financing. The following day,
Sosa delivered the downpayment and a Vehicle sales proposal was
printed. On the day of delivery, Bernardo called Sosa to inform him that
the car could not be delivered. Toyota contends, on the other hand, that
the Lite Ace was not delivered to Sosa because of the disapproval by
B.A. Finance of the credit financing application of Sosa. Toyota then
gave Sosa the option to purchase the unit by paying the full purchase
price in cash but Sosa refused. Sosa asked that his down payment be
refunded. Toyota did so on the very same day by issuing a Far East
Bank check for the full amount, which Sosa signed with the reservation,
“without prejudice to our future claims for damages.” Thereafter, Sosa
sent two letters to Toyota. In the first letter, she demanded the refund of
the down payment plus interest from the time she paid it and for
damages. Toyota refused to the demands of Sosa.
Issue:

Whether or not there was a perfected contract of sale

Ruling:

What is clear from the agreement signed by Sosa and Gilbert is not a
contract of sale. No obligation on the part of Toyota to transfer
ownership of the car to Sosa and no correlative obligation on the part of
Sosa to pay . The provision on the down payment of
PIOO,OOO.OO made no specific reference to a sale of a vehicle. If it
was intended for a contract of sale, it could only refer to a sale on
installment basis, as the VSP executed the following day. Nothing was
mentioned about the full purchase price and the manner the installments
were to be paid. An agreement on the manner of payment of the price is
an essential element in the formation of a binding and enforceable
contract of sale. This is so because the agreement as to the manner of
payment goes, into the price such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price. Definiteness as
to the price is an essential element of a binding agreement to sell
personal property.

AS TO PERFECTION:
Three stages in the contract of sale There are three stages in the
contract of sale, namely (a) preparation, conception, or generation,
which is the period of negotiation and bargaining, ending at the moment
of agreement of the parties; (b) perfection of birth of the contract, which
is the moment when the parties come to agree on the terms of the
contract; and (c) consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract. In the present
case, the “Agreements between Mr. Sosa & Popong Bernardo of Toyota
Shaw, Inc.” may be considered as part of the initial phase of the
generation of negotiation stage of a contract sale. The second phase of
the generation or negotiation stage was the execution of the VSP (the
downpayment of the purchase price was P53,148.00 while the balance
to be paid on installment should be financed by B.A. Finance. It is
assumed that B.A Finance was acceptable to Toyota).

PERFECTION OF A CONTRACT