Mr. Sosa & Popong Bernardo of Toyota Shaw, Inc.
” and the VSP is
BASIC CONCEPTS
Contract of Sale
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent. A contract of sale may be absolute or
conditional.
Acap v. Court of Appeals
Where ownership of a lot is allegedly transferred to Comse Pido by
virtue of a “Declaration of Heirship and Deed of Absolute Sale”
executed by Felixberto; Another document denominated as
“Declaration of Heirship and Waiver of Rights of Lot No. 1130
Hinigaran Cadastre”; The Tenant Acap claims that such document is not
one of the recognized modes of acquiring ownership.
HELD: There was no perfected contract of sale.
Delos Reyes, being then a stranger to the succession of Cosme Pido,
cannot conclusively claim ownership over the subject lot on the sole
basis of the waiver document which neither recites the elements of
either a sale, or a donation, or any other derivative mode of acquiring
ownership.
Contract of Sale versus Declaration of heirship and waiver of rights
In a Contract of Sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the
other party to pay a price certain in money or its equivalent.
Upon the other hand, a declaration of heirship and waiver of rights
operates as a public instrument when filed with the Registry of Deeds
whereby the intestate heirs adjudicate and divide the estate left by the
decedent among themselves as they see fit. It is in effect an extrajudicial
settlement between the heirs under Rule 74 of the Rules of Court.
Sale of Hereditary rights versus waiver of rights
Sale of hereditary rights presumes the existence of a contract or deed of
sale between the parties. The waiver of rights is, technically speaking, a
mode of extinction of ownership where there is an abdication or
intentional relinquishment of a known right with knowledge of its
existence and intention to relinquish it, in favor of other persons who
are co-heirs in the succession.
2 classes of acquiring ownership:
Under Article 712 of the Civil Code, the modes of acquiring ownership
are generally classified into two (2) classes, namely,
• the original mode (i.e., through occupation, acquisitive
prescription, law or intellectual creation)
• and the derivative mode (i.e., through succession mortis
causa or tradition as a result of certain contracts, such as sale,
barter, donation, assignment or mutuum).
Toyota Shaw v. Court of Appeals
Where Sosa wanted to purchase a Toyota Lite Ace to bring to his
provinve; he and Bernardo a Toyota Representative entered into an
“Agreements Between Mr. Sosa & Popong Bernardo of Toyota Shaw,
Inc.” Sosa then delivered 100,000 as downpayment and a Vehicle Sales
Proposal (VSP) NO. 928 was issued. However the car was not delivered
because according to Bernardo it was “nasulot ang unit ng ibang
malakas.”
HELD: There was no perfected contract of sale.
There is no contract of sale; Sosa did not sign the agreement and he was
well aware that he was dealing with Bernardo as an agent; and well
settled is the rule to observe prudence and reasonable diligence when
dealing with an agent with respect to contracts; “Agreements Between
still part of the negotiation stage; Anent the allegation that the sale was
one of installment basis to be financed by BA Finance, the same is
without merit for BS Finance did not approve of Sosa’s application
hence there was no meeting of the minds on installment basis.
3 Stages in a contract
There are three stages in the contract of sale, namely:
1. preparation, conception, or generation, which is the period of
negotiation and bargaining, ending at the moment of
agreement of the parties;
2. perfection or birth of the contract, which is the moment when
the parties come to agree on the terms of the contract; and
3. consummation or death, which is the fulfillment or
performance of the terms agreed upon in the contract.
Polytechnic University v. Court of Appeals
National Development Corporation, a GOCC, owned a 10-hectare
property which it leased to Firestone for ten years; upon renewal for
another 10 years, NDC granted Firestone the first option to purchase the
leased premises; However, NDC subsequently transferred ownership of
the property to Polytechnic University; Polytechnic University anchors
its claim on a memorandum order issued by President Corazon Aquino.
Further NDC claims that there was no sale to Polytechnic since it was a
transfer between instruments of the government
HELD: There was a contract of sale.
A government owned and controlled corporation has a personality of
its own, distinct and separate from that of the government. The
preponderance of evidence shows that NDC sold to PUP the whole
NDC compound, including the leased premises, without the knowledge
much less consent of private respondent FIRESTONE which had a valid
and existing right of first refusal.
All the elements of a contract of sale are present; here there is a subject
matter which is the 10-hectare property; further there is consent and
consideration; Finally, the Court held that there is a valid right of first
refusal existing in this case.
Consent; Consent to the sale is obvious from the prefatory clauses of
Memorandum Order No. 214 which explicitly states the acquiescence of
the parties to the sale of the property— WHEREAS, PUP has expressed its
willingness to acquire said NDC properties and NDC has expressed its
willingness to sell the properties to PUP
Consideration; Furthermore, the cancellation of NDC’s liabilities in
favor of the National Government in the amount of P57,193,201.64
constituted the “consideration” for the sale.
Furthermore the Conduct of Polytechnic after said sale when it took
ownership over the property and sent notices to the residents and
occupants to vacate.
Manila Metal Container Corporation v PNB
Manila Metal Corporation whose property was foreclosed by PNB was
not able to redeem its property and asked for a time extension. Special
Assets Management Department (SAMD) claims that Manila Metal’s
obligation is P1,574,560.47. When apprised of the statement of account,
Manila Metal remitted P725,000.00 to respondent PNB as “deposit to
repurchase.” PNB however, rejected to accept the said purchase price
suggested that petitioner purchase the property for P2,660,000.00, its
minimum market value. Manila Metal refused this proposal and
declared that they had already agreed with the P1,574,560.47 sale. PNB
then says that they had accepted his offer but for a price of P1,931,389.53.
HELD: There is no perfected contract of sale.
SAMD’s statement was not acceptance but merely a computation.
Regardless, it is not shown that they were authorized by PNB to accept,
hence any acceptance would not bind PNB. It appears that the
P1,574,560.47 was merely a recommendation by SAMD to PNB which
was changed to P2,660,000.00.

Further the Court held that payment of P725,000.00 was not earnest
money. Because the deposit of P725,000 was accepted by PNB on the
condition that the purchase price is still subject to the approval of the
PNB Board”
Requisites of a contract
A contract is a meeting of minds between two persons whereby one
binds himself, with respect to the other, to give something or to render
some service. Under Article 1318 of the New Civil Code, there is no
contract unless the following requisites concur:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the contract;
3. Cause of the obligation which is established.
Contracts are perfected by mere consent
Contracts are perfected by mere consent which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. Once perfected, they bind other
contracting parties and the obligations arising therefrom have the form
of law between the parties and should be complied with in good faith.
The parties are bound not only to the fulfillment of what has been
expressly stipulated but also to the consequences which, according to
their nature, may be in keeping with good faith, usage and law.
Contract of sale, definition.
By the contract of sale, one of the contracting parties obligates himself
to transfer the ownership of and deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent. The
absence of any of the essential elements will negate the existence of a
perfected contract of sale.
A definite agreement on the price is essential in a contract of sale
A definite agreement as to the price is an essential element of a binding
agreement to sell personal or real property because it seriously affects
the rights and obligations of the parties. Price is an essential element in
the formation of a binding and enforceable contract of sale. The fixing
of the price can never be left to the decision of one of the contracting
parties. But a price fixed by one of the contracting parties, if accepted by
the other, gives rise to a perfected sale.
Stages of a contract
the stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the
prospective contracting parties indicate interest in the
contract to the time the contract is perfected;
(2) perfection, which takes place upon the concurrence of the
essential elements of the sale which are the meeting of the
minds of the parties as to the object of the contract and upon
the price; and
(3) consummation, which begins when the parties perform their
respective undertakings under the contract of sale,
culminating in the extinguishment thereof.
On negotiation
A negotiation is formally initiated by an offer, which, however, must be
certain. At any time prior to the perfection of the contract, either
negotiating party may stop the negotiation. At this stage, the offer may
be withdrawn; the withdrawal is effective immediately after its
manifestation. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional and without variance of any sort from the
proposal.
Qualified Acceptance and Counter Offer
A qualified acceptance or one that involves a new proposal constitutes
a counter-offer and a rejection of the original offer. A counter-offer is
considered in law, a rejection of the original offer and an attempt to end
the negotiation between the parties on a different basis.
Consequently, when something is desired which is not exactly what is
proposed in the offer, such acceptance is not sufficient to guarantee
consent because any modification or variation from the terms of the
offer annuls the offer. The acceptance must be identical in all respects
with that of the offer so as to produce consent or meeting of the minds.
Velarde v. Court of Appeals
GEORGE RAYMUNDO executed a Deed of Sale with Assumption of
Mortgage, with a balance of P1.8 million, in favor of the AVALINO
AND MARIANO VELARDE. Pursuant to said agreements, Velarde
paid the bank (BPI) for three (3) months until they were advised that the
Application for Assumption of Mortgage was denied. This prompted
the Velarde not to make any further payment. Raymundo wrote the
Velarde informing the non-fulfillment of the obligations. Raymundo
seeks for rescission of their contract.
HELD: There is a perfected contract of sale. (despite assumption of
mortgage denial)
Velarde did not merely stop paying the mortgage obligations; they also
failed to pay the balance of the purchase price. On the other hand,
Raymundo had already performed their obligation through the
execution of the Deed of Sale, which effectively transferred ownership
of the property to petitioner through constructive delivery. Hence,
Raymundo validly exercised their right to rescind the contract, because
of the failure of petitioners to comply with their obligation to pay the
balance of the purchase price. Indubitably, the latter violated the very
essence of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents’ right to rescind the same
in accordance with law.
Contract of Sale;
In a contract of sale, the seller obligates itself to transfer the ownership
of and deliver a determinate thing, and the buyer to pay therefor a price
certain in money or its equivalent
On Rescission
Art. 1191. The power to rescind obligations is implied in reciprocal ones,
in case one of the obligors should not comply with what is incumbent
upon him. The injured party may choose between fulfillment and the
rescission of the obligation, with the payment of damages in either case.
He may also seek rescission even after he has chosen fulfillment, if the
latter should become impossible.
The right of rescission of a party to an obligation under Article 1191 of
the Civil Code is predicated on a breach of faith by the other party who
violates the reciprocity between them. The breach contemplated in the
said provision is the obligor’s failure to comply with an existing
obligation. When the obligor cannot comply with what is incumbent
upon it, the obligee may seek rescission and, in the absence of any just
cause for the court to determine the period of compliance, the court shall
decree the rescission.
Stages in the Life of a Contract of
Sale
San Miguel Properties v Sps. Huang
San Miguel properties sold 2 parcels of land to Sps. Huang; which
offered 1 Million pesos as “earnest deposit.” Subsequently, San Miguel
sent a letter returning the earnest deposit claiming that such is because
the parties failed to agree on the terms and conditions of the sale despite
the extension granted. The Sps Huang demanded execution of a deed of
sale covering the properties and attempted to return the “earnest-
deposit” but San Miguel refused claiming that the option to purchase
has already expired.
HELD: There is no contract of sale
The 1M is not earnest money but a mere guarantee that the Sps Huang
will not back out of the sale In the present case, the P1 million “earnest-
3 | SALES – 1ST EXAMINATION | 2018 |
deposit” could not have been given as earnest money because at the time
it was received their contract was not yet perfected; They presented the
amount merely as a deposit of what would eventually become the
earnest money or downpayment should a contract of sale be made by
them. The amount was thus given not as a part of the purchase price
and as proof of the perfection of the contract of sale but only as a
guarantee that respondents would not back out of the sale.
That no perfected contract is evidenced by the following:
(1) that they be given the exclusive option to purchase the
property within 30 days from acceptance of the offer;
(2) that during the option period, the parties would negotiate the
terms and conditions of the purchase; and
(3) petitioner would secure the necessary approvals while
respondents would handle the documentation.
In the present case, the parties never got past the negotiation stage.
Stages of a Contract
The stages of a contract of sale are as follows:
(1) negotiation, covering the period from the time the prospective
contracting parties indicate interest in the contract to the time the
contract is perfected;
(2) perfection, which takes place upon the concurrence of the essential
elements of the sale which are the meeting of the minds of the parties as
to the object of the contract and upon the price; and
(3) consummation, which begins when the parties perform their
respective undertakings under the contract of sale, culminating in the
extinguishment thereof.
Is mere agreement on the price of the object sufficient to perfect a sale?
No. the manner of payment of the purchase price is an essential element
before a valid and binding contract of sale can exist. Although the Civil
Code does not expressly state that the minds of the parties must also
meet on the terms or manner of payment of the price, the same is
needed, otherwise there is no sale.
Not Giving of earnest money which perfects a contract but completion
of all essential elements
Thus, it is not the giving of earnest money, but the proof of the
concurrence of all the essential elements of the contract of sale which
establishes the existence of a perfected sale.
---- o ----
Essential Characteristics of
a contract of Sale
Nominate and Principal
(1) In determining the real character of the contract, the title
given to it by the parties is not as significant as its substance.
(2) In determining the nature of a contract, the courts look at the
intent of the parties and not at the nomenclature used to
describe it.
(3) Contracts are not defined by the parties thereto but by the
principles of law.
(4) All other contracts which have for their objective the transfer
of ownership and delivery of possession of a determinate
subject matter for a valuable consideration, are governed
necessarily by the Law on Sales.
Consensual
Villanueva v. PNB
Villanueva offered to buy lots 17 and 19 from PNB. He also manifested
that he deposited 400,000 to show his good faith. PNB says that only lot
19 is available. Instead of submitting a revised offer Villanueva inserted
at the bottom of Guevarra’s letter :
CONFORME: PRICE OF P2,883,300.00 (downpayment of P600,000.00 and
the balance payable in two (2) years and quarterly amortizations.
Villanueva paid P200,000.00 to PNB which the latter issued a receipt to
acknowledge receipt of the "partial payment deposit on offer to
purchase." On the dorsal portion of Official Receipt No. 16997.
Villanueva also signed a type-written note which says
This is a deposit made to show the sincerity of my purchase offer with the
understanding that it shall be returned without interest if my offer is not
favorably considered or be forfeited if my offer is approved but I fail/refuse to
push through the purchase.
Subsquently PNB wrote to defer negotiations on said property. And
Villanueva filed for Specific Performance before the Court.
HELD: There was no perfected contract of sale
There was no mutuality the offer by Villanueva and PNB’s acceptance;
PNB deviated from the original offer on three material points
It deviated from the original offer on three material points:
• first, the object of the proposed sale is now only Lot No. 19
rather than Lot Nos. 17 and 19;
• second, the area of the property to be sold is still 41,190 sq. m
but an 8,797-sq. m portion is now part of a public road; and
• third, the consideration is P2,883,300 for one lot rather than
P3,677,000.00 for two lots.
Finally, the marginal note of Villanueva was yet again another counter-
offer. As it were, respondent, through its Board of Directors, did not
accept this last counter-offer.
Anent acceptance of 200,000 payment such did not amount to implied
acceptance of counter offer. In sum, the amounts paid by petitioner were
not in the nature of downpayment or earnest money but were mere
deposits or proof of his interest in the purchase of Lot No. Acceptance
of said amounts by respondent does not presuppose perfection of any
contract
4 | SALES – 1ST EXAMINATION | 2018 |
Contracts of Sale are perfected by mere consent
Contracts of sale are perfected by mutual consent whereby the seller
obligates himself, for a price certain, to deliver and transfer ownership
of a specified thing or right to the buyer over which the latter agrees.
Mutual consent being a state of mind, its existence may only be inferred
from the confluence of two acts of the parties: an offer certain as to the
object of the contract and its consideration, and an acceptance of the
offer which is absolute in that it refers to the exact object and
consideration embodied in said offer.
Acceptance must be mutual with the offer, otherwise it is a counter-
offer
While it is impossible to expect the acceptance to echo every nuance of
the offer, it is imperative that it assents to those points in the offer which,
under the operative facts of each contract, are not only material but
motivating as well. Anything short of that level of mutuality produces
not a contract but a mere counter-offer awaiting acceptance.
Quijada v. Court of Appeals
TRINIDAD QUIJADA and her sisters executed a deed of conditional
donation in favor of the MUNICIPALITY OF TALACOGON, the
condition being that the land shall be used exclusively for the
construction of a provincial high school. However, Trinidad remained
in possession of the land. Subsequently, Trinidad sold the land to
respondent REGALADO MONDEJAR. The Trinidad sisters file filed a
complaint for forcible entry against Mondejar. Meanwhile, the proposed
campus did not materialize, and the Sangguniang Bayan enacted a
resolution donating back the land to the donor.
HELD: There was a perfected contract of sale.
When the Trinidad sisters became the owners of the subject property
upon the reversion of the ownership of the land to them, ownership is
transferred to respondent Mondejar and those who claim their right
from him. Article 1434 of the New Civil Code supports the ruling that
the seller’s “title passes by operation of law to the buyer.”
Sale is a consensual contract
Sale, being a consensual contract, is perfected by mere consent, which is
manifested the moment there is a meeting of the minds as to the offer
and acceptance thereof on three (3) elements: subject matter, price and
terms of payment of the price.
Ownership by the seller by the time the thing is sold is not an element
for its perfection
Ownership by the seller on the thing sold at the time of the perfection of
the contract of sale is not an element for its perfection. What the law
requires is that the seller has the right to transfer ownership at the time
the thing sold is delivered. Perfection per se does not transfer ownership
which occurs upon the actual or constructive delivery of the thing sold.
A perfected contract of sale cannot be challenged on the ground of non-
ownership on the part of the seller at the time of its perfection; hence,
the sale is still valid.
Laforteza v Machuca
Laforteza entered into a Memorandum of Agreement (Contract to sell)
with Machuca over a house and lot; Machuca was able to pay earnest
money but was not able to pay the balance on time. Upon a request of
an extension of time, Machuca informed Laforteza that the balance was
already covered, but Laforteza refused to accept the balance and told
Machuca that the subject property is no longer for sale. Laforteza
contends that the Memorandum of Agreement is merely a lease
agreement with “option to purchase”;
HELD: There is a perfected contract of sale.
A perusal of the Memorandum Agreement shows that the transaction
between the petitioners and the respondent was one of sale and lease.
Further; The six-month period during which the respondent would be
in possession of the property as lessee, was clearly not a period within
which to exercise an option. In the case at bar, there was already a
perfected contract. The condition was imposed only on the performance
of the obligations contained therein not for its perfection.
The issuance of the new certificate of title in the name of the late
Francisco Laforteza and the execution of an extrajudicial settlement of
his estate was not a condition which determined the perfection of the
contract of sale.
A Contract of sale and the elements of a valid contract of sale
A contract of sale is a consensual contract and is perfected at the moment
there is a meeting of the minds upon the thing which is the object of the
contract and upon the price. From that moment the parties may
reciprocally demand performance subject to the provisions of the law
governing the form of contracts.
The elements of a valid contract of sale under Article 1458 of the Civil
Code are (1) consent or meeting of the minds; (2) determinate subject
matter; and (3) price certain in money or its equivalent.
Option
An option is a contract granting a privilege to buy or sell within an
agreed time and at a determined price. An option contract is a separate
and distinct contract from that which the parties may enter into upon
the consummation of the option. An option must be supported by
consideration. An option contract is governed by the second paragraph
of Article 1479 of the Civil Code,15 which reads:
“Article 1479. x x x An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the promissor if
the promise is supported by a consideration distinct from the price.”
Condition imposed for perfection and condition imposed on the
performance of the obligation
condition imposed upon the perfection of the contract and a condition
imposed on the performance of an obligation. Failure to comply with
the first condition results in the failure of a contract, while the failure to
comply with the second condition only gives the other party the option
either to refuse to proceed with the sale or to waive the condition.
Bilateral and Reciprocal
Cortes v. Court of appeals
Esperanza Development Corporation and Antonio Cortes entered into
a contract of sale for the purchase of a Villa.
Terms:
The Corporation shall advance 2.2 M as downpayment, and Cortes shall
likewise deliver the TCT for the 3 lots. The balance of 1.5M shall be payable
within a year from the date of the execution.
The Corporation filed the instant case for specific performance seeking
to compel Cortes to deliver the TCTs and the original copy of the Deed
of Absolute Sale.
HELD:
both parties were in delay. Cortes is yet to deliver the original copy of
the notarized Deed and the TCTs, while the Corporation is yet to pay in
full the agreed down payment of P2,200,000.00. This mutual delay of the
parties cancels out the effects of default, such that it is as if no one is
guilty of delay. Finally, There can be no rescission in the absence of
delay.
Reciprocal Obligation
are those which arise from the same cause, and which each party is a
debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are to be performed
simultaneously, so that the performance of one is conditioned upon the
simultaneous fulfillment of the other.
5 | SALES – 1ST EXAMINATION | 2018 |

Execution, meaning.
The meaning of “execution” in the instant case is not limited to the
signing of a contract but includes as well the performance or
implementation or accomplishment of the parties’ agreement.
Onerous
Art. 1458. Sale is an ONEROUS contract, as distinguished from a
gratuitous contract, because it imposes a valuable consideration as a
prestation, which ideally is a price certain in money or its equivalent.
Gaite v Fonacier
Fonacier appointed Gaiter to enter into a contract with any individual
for the exploration and development of mining claims’ So Gaite entered
into a contract with Larap Mines; Subsequently Fonacier revoked the
authority granted by him to Gaite to exploit and develop the mining
claims; Gaite then had the obligation to transfer to Fonacier in
consideration of 20,000 plus 10% of the royalties fonacier would receive
from the mining claims all his rights and interests on all the roads,
improvements, and facilities in or outside said claims, the right to use
the business name “Larap Iron Mines” and its goodwill, and all the
records and documents relative to the mines. n the same document,
Gaite transferred to Fonacier all his rights and interests over the “24,000
tons of iron ore, more or less” that the former had already extracted from
the mineral claims, in consideration of the sum of P75,000.00; Gaite
requeted for surety bonds to secure payment; upon expiration of the
bond and no payment by Fonacier was made Gaite filed before the
Court.
HELD: That the parties did not intend that no contract or payment be
made if there is no shipment is evidenced by the words of the contract
which recognized the existence of the obligation to pay. Further such
intent is bolstered by the fact that a contract of sale is normally
commutative and onerous; Nothing is found that Gaite assumes the risk
of losing his right over the iron ore without payment. Finally, even
assuming that there is doubt the rules of interpreation would incline the
sales in favor of the greater reciprocity of interests. Gaite acted within
his rights in demanding payment and instituting this action one year
from and after the contract was executed.
A Contract of sale is commutative and onerous
A contract of sale is normally commutative and onerous: not only does
each one of the parties assume a correlative obligation (the seller to
deliver and transfer ownership of the thing sold and the buyer to pay
the price), but each party anticipates performance by the other from the
very start. While in a sale the obligation of one party can be lawfully
subordinated to an uncertain event, so that the other understands that
he assumes the risk of receiving nothing for what he gives (as in the case
of a sale of hopes or expectations, emptio spei), it is not in the usual
course of business to do so; hence, the contingent character of the
obligation must clearly appear.
Hence in Gaite v Fonacier the Court held that Nothing is found in the
record to evidence that Gaite desired or assumed to run the risk of losing
his right over the ore without getting paid for it, or that Fonacier
understood that Gaite assumed any such risk. This is proved by the fact
that Gaite insisted on a bond to guarantee payment of the P65,000.00,
and not only upon a bond by Fonacier, the Larap Mines & Smelting Co.,
and the company’s stockholders, but also on one by a surety company;
and the fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the balance of
P65,000.00.
Sale is onerous
Assuming that there could be doubt whether by the wording of the
contract the parties intended a suspensive condition or a suspensive
period (dies ad quem) for the payment of the P65,000.00, the rules of
interpretation would incline the scales in favor of “the greater
reciprocity of interests”, since sale is essentially onerous. The Civil Code
of the Philippines, and there can be no question that greater reciprocity
obtains if the buyer’s obligation is deemed to be actually existing, with
only its maturity (due date) postponed or deferred, that if such
obligation were viewed as nonexistent or not binding until the ore was
sold.
Article 1378, paragraph 1, in fine, provides:
“if the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.”
Conditional obligation
What characterizes a conditional obligation is the fact that its efficacy or
obligatory force (as distinguished from its demandability) is
subordinated to the happening of a future and uncertain event; so that
if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed.
Commutative
Buenaventura v Court of Appeals
Buenaventura seeks to annul the titles of Landrito. She claims that there
was no valid consideration; that the properties are more valuable than
the sums appearing; and the sale was designed to unjustly deprive the
compulsory heirs.
HELD: The Court held that Buenaventura failed to show any legal right
to the property. Further she failed to prove the alleged simulation of the
deed of sale. That she had no knowledge of her sibling’s financial
capacity to buy the lot. In the instant case, the trial court found that the
lots were sold for a valid consideration, and that the defendant children
actually paid the purchase price stipulated in their respective Deeds of
Sale. Actual payment of the purchase price by the buyer to the seller is
a factual finding that is now conclusive upon us.
It is not the act of payment that determines the validity of a contract of
sale
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.
Article 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.
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.
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.
6 | SALES – 1ST EXAMINATION | 2018 |
Sale is a title NOT a mode
San Lorenzo Development Corp. v CA
Sps Lu sold a parcel of land to Babasanta; when babasanta later asked
for the delivery of the title after learning that Sps Lu had sold the lot to
another; Sps Lu claims that Babasanta had already backed out of the
purported sale. Hence Babasanta filed a complaint before the Court. San
Lorenzo Development filed a motion for leave of Intervention claiming
that the property was sold to it by Sps Lu through Deed of Absolute Sale
with Mortgage.
HELD: The agreement between Babasanta and Sps. Lu is a Contract to
Sell. Babasanta should have made proper tender of payment. Hence,
absent consignation by Babasanta the obligation on the part of Sps. U to
convey the property never acquired obligatory force. Anent the receipt
signed by Sps Lu, such merely indicated acceptance of 50,000 partial
payment from Babasanta.
Babasanta did not acquire ownership by the mere execution of the
receipt by Pacita Lu acknowledging receipt of partial payment for the
property. For one, the agreement between Babasanta and the Spouses
Lu, though valid, was not embodied in a public instrument. Hence, no
constructive delivery of the lands could have been effected. Further,
Babasanta had not taken possession of the property at any time after the
perfection of the sale in his favor or exercised acts of dominion over it
despite his assertions that he was the rightful owner of the lands. Simply
stated, there was no delivery to Babasanta, whether actual or
constructive, which is essential to transfer ownership of the property.
Finally, SLDC is a buyer in good faith since there is no showing that it
had knowledge of prior sale or transaction with babasanta. Since SLDC
acquired possession of the property in good faith in contrast to
Babasanta, who neither registered nor possessed the property at any
time, SLDC’s right is definitely superior to that of Babasanta’s.
Contracts are perfected by mere consent
Contracts, in general, are perfected by mere consent,19 which is
manifested by the meeting of the offer and the acceptance upon the
thing which are to constitute the contract. The offer must be certain and
the acceptance absolute. Moreover, contracts shall be obligatory in
whatever form they may have been entered into, provided all the
essential requisites for their validity are present.
Contract of Sale v Contract to Sell
Contract of Sale Contract to Sell
title passes to the vendee upon by agreement the ownership is
the delivery of the thing sold; reserved in the vendor and is not
to pass until the full payment of
the price.
the vendor has lost and cannot title is retained by the vendor
recover ownership until and until the full payment of the
unless the contract is resolved or price, such payment being a
rescinded positive suspensive condition
and failure of which is not a
breach but an event that
prevents the obligation of the
vendor to convey title from
becoming effective
Sale and Elements of a contract
Sale, being a consensual contract, is perfected by mere consent25 and
from that moment, the parties may reciprocally demand performance.26
The essential elements of a contract of sale, to wit: (1) consent or meeting
of the minds, that is, to transfer ownership in exchange for the price; (2)
object certain which is the subject matter of the contract; (3) cause of the
obligation which is established
Sale is NOT a mode but a TITLE;
The perfection of a contract of sale should not, however, be confused
with its consummation. In relation to the acquisition and transfer of
ownership, it should be noted that sale is not a mode, but merely a title.
A mode is the legal means by which dominion or ownership is created,
transferred or destroyed, but title is only the legal basis by which to
affect dominion or ownership.
Under Article 712 of the Civil Code,
“ownership and other real rights over property are acquired and
transmitted by law, by donation, by testate and intestate succession, and
in consequence of certain contracts, by tradition.”
Contracts only constitute titles or rights to the transfer or acquisition of
ownership, while delivery or tradition is the mode of accomplishing the
same. Therefore, sale by itself does not transfer or affect ownership; the
most that sale does is to create the obligation to transfer ownership. It
is tradition or delivery, as a consequence of sale, that actually transfers
ownership. Explicitly, the law provides that the ownership of the thing
sold is acquired by the vendee from the moment it is delivered to him
in any of the ways specified in Article 1497 to 1501
Art. 1497. The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee.
Art. 1498. When the sale is made through a public instrument, the
execution thereof shall be equivalent to the delivery of the thing which
is the object of the contract, if from the deed the contrary does not appear
or cannot clearly be inferred.
With regard to movable property, its delivery may also be made by the
delivery of the keys of the place or depository where it is stored or kept.
Art. 1499. The delivery of movable property may likewise be made by
the mere consent or agreement of the contracting parties, if the thing
sold cannot be transferred to the possession of the vendee at the time of
the sale, or if the latter already had it in his possession for any other
reason.
Art. 1501. With respect to incorporeal property, the provisions of the
first paragraph of article 1498 shall govern. In any other case wherein
said provisions are not applicable, the placing of the titles of ownership
in the possession of the vendee or the use by the vendee of his rights,
with the vendor's consent, shall be understood as a delivery.
2 Modes of Delivery
(1) actual delivery; and (2) legal or constructive delivery.
Actual delivery consists in placing the thing sold in the control and
possession of the vendee
Legal or constructive delivery, on the other hand, may be had through
any of the following ways:
1. the execution of a public instrument evidencing the sale;
2. symbolical tradition such as the delivery of the keys of the
place where the movable sold is being kept;
3. traditio longa manu or by mere consent or agreement if the
movable sold cannot yet be transferred to the possession of
the buyer at the time of the sale;
4. traditio brevi manu if the buyer already had possession of the
object even before the sale;
5. and traditio constitutum possessorium, where the seller
remains in possession of the property in a different capacity.
Equatorial Realty Development Inc v Mayfair
Carmelo entered into a contract of lease with Mayfair which granted
Mayfair the right of first refusal to purchase the property. However, the
same was sold to Equatorial Realty. Hence, Mayfair filed a complaint.
HELD: no right of ownership was transferred from Carmelo to
Equatorial in view of a patent failure to deliver the property to the
7 | SALES – 1ST EXAMINATION | 2018 |
buyer. Equatorial realty never took possession of the property. It has
been held that the execution of a contract of sale as a form of constructive
delivery is a legal fiction. It holds true only when there is no impediment
that may prevent the passing of the property from the hands of the
vendor into those of the vendee. When there is such impediment,
“fiction yields to reality—the delivery has not been effected. Hence,
Mayfair’s opposition to the transfer of the property by way of sale to
Equatorial was a legally sufficient impediment that effectively
prevented the passing of the property into the latter’s hands.

In short, the sale to Equatorial may have been valid from inception, but
it was judicially rescinded before it could be consummated. Petitioner
never acquired ownership, not because the sale was void, as erroneously
claimed by the trial court, but because the sale was not consummated
by a legally effective delivery of the property sold.

Further the Court held that payment of rentals by Mayfair to Equatorial

should not mean recognition of Equatorial’s title for mayfair had no
choice but to pay rentals to avoid imminent eviction. Finally, because of
Equatorial’s knowledge of mayfair’s possession Equatorial is held to be
in Badfaith.

Ownership of a thing is acquired by delivery

Ownership of the thing sold is a real right, which the buyer acquires
only upon delivery of the thing to him “in any of the ways specified in
articles 1497 to 1501, or in any other manner signifying an agreement
that the possession is transferred from the vendor to the vendee.”21 This
right is transferred, not merely by contract, but also by tradition or
delivery.

Delivery, meaning.
Transfer of possession. And there is said to be delivery if and when the
thing sold “is placed in the control and possession of the vendee.” Thus,
it has been held that while the execution of a public instrument of sale
is recognized by law as equivalent to the delivery of the thing sold such
constructive or symbolic delivery, being merely presumptive, is deemed
negated by the failure of the vendee to take actual possession of the land
sold. In the Law on Sales, delivery may be either actual or constructive,
but both forms of delivery contemplate “the absolute giving up of the
control and custody of the property on the part of the vendor, and the
assumption of the same by the vendee.”

The execution of a public instrument gives rise to the presumption of

delivery EXCEPT when delivery was not effected because a third person
was in actual possession of the thing
The execution of a public instrument gives rise, therefore, only to a
prima facie presumption of delivery. Such presumption is destroyed
when the instrument itself expresses or implies that delivery was not
intended; or when by other means it is shown that such delivery was
not effected, because a third person was actually in possession of the
thing. In the latter case, the sale cannot be considered consummated.

8 | SALES – 1ST EXAMINATION | 2018 |

 Distinguished from other
Transactions / Contract
Distinguished from Barter
Art. 1638. By the contract of barter or exchange one of the parties binds
himself to give one thing in consideration of the other's promise to give
another thing.
Art. 1468. If the consideration of the contract consists partly in money,
and partly in another thing, the transaction shall be characterized by the
manifest intention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of the thing given as
a part of the consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale.
Distinguished from Donation
Art. 725. Donation is an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another, who accepts it.
Distinguished from Contract for 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.
Art. 1713. By the contract for a piece of work the contractor binds himself
to execute a piece of work for the employer, in consideration of a certain
price or compensation. The contractor may either employ only his labor
or skill, or also furnish the material.
Inchausti v Cromwell – Test of Existence
Inchausti and Co engages in the business of buying and selling
wholesale hemp which is sold in baled form.
HELD: It is clear that in the case at bar the hemp was in existence in
baled form before the agreements of sale were made, or, at least, would
have been in existence even if none of the individual sales here in
question had been consummated. It would have been baled,
nevertheless, for sale to someone else, since, according to the agreed
statement of facts, it is customary to sell hemp in bales. Here there is a
Contract of Sale.
Distinction between Contract of Sale and Contract for work, labor, and
materials – TEST OF EXISTENCE
The distinction between a contract of sale and one for work, labor, and
materials is tested by the inquiry whether the thing transferred is one
not in existence and which never would have existed but for the order of
the party desiring to acquire it, or a thing which would have existed and
been the subject of sale to some other person, even if the order had not
been given.
When it is habitually made it is a contract of SALE
When a person stipulates for the future sale of articles which he is
habitually making, and which at the time are not made or finished, it is
essentially a contract of sale and not a contract for labor. It is otherwise
when the article is made pursuant to agreement. If the article ordered
by the purchaser is exactly such as the plaintiff makes and keeps on
hand for sale to anyone, and no change or modification of it is made at
the defendant's request, it is a contract of sale, even though it may be
entirely made after, and in consequence of, the defendant's order for it.
a contract to make is a contract of sale if the article ordered 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. It is also held in that state that 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 to which
the statute of frauds applies.
But if the goods are to be manufactured especially for the purchaser and
upon his special order, and not for the general market, the case is not
within the statute.
Celestino Co v CIR – Habituality Test
Celestino Co and Copmany claims for only 3% of Contractor’s Tax and
filed before the Court of Tax Appeals; They claim that they make
Contracts for Labor and not for sale (which imposes 7% tax).
HELD: This involves a contract of sale. Celestino Co & Company
habitually makes sash, windows and doors, as it has represented in its
stationery and advertisements to the public. That it "manufactures" the
same is practically admitted by appellant itself. The fact that windows
and doors are made by it only when customers place their orders, does
not alter the nature of the establishment, for it is obvious that it only
aecepted such orders as called for the employment of such materials-
moulding, frames, panels-as it ordinarily manufactured or was in a
position habitually to manufacture.
In our opinion when this Factory accepts a job that requires the use of
extraordinary or additional equipment, or involves services not
generally performed by it—it thereby contracts for a piece of work—
needing special orders within the meaning of Article 1467.
Article 1467
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.
CIR v Arnoldus Carpentry Shop
HELD: In the instant case, it may be that what is involved is a
CARPENTRY SHOP. But, in the same vein, there are also attendant facts
herein to show habituality of the production for the general public.
CIR claims that what exists prior to any order is but the sample model
only, nothing more, nothing less and the ordered quantity would never
have come into existence but for the particular order as represented by
the sample or model.
CIR’s main argument here is that the true test of whether or not the
contract is a piece of work (and thus classifying private respondent as a
contractor) or a contract of sale (which would classify private
respondent as a manufacturer) is the mere existence of the product at
the time of the perfection of the contract such that if the thing already
exists, the contract is of sale, if not, it is work.
However the Court rejected the argument of the CIR; Art. 1467, what
determines whether the contract is one of work or of sale is whether the
thing has been manufactured specially for the customer and upon his
special order." Thus, if the thing is specially done at the order of another,
this is a contract for a piece of work. If, on the other hand, the thing is
manufactured or procured for the general market in the ordinary course
of one's business, it is a b contract of sale.
9 | SALES – 1ST EXAMINATION | 2018 |
Here there is a contract of sale; Hence, Arnoldus is a manufacturer and
is entitled to percentage tax exemption.
Test of Existence
"the distinction between a contract of sale and one for work, labor and
materials is tested by the inquiry whether the thing transferred is one
not in existence and which never would have existed but for the order
of the party desiring to acquire it, or a thing which would have existed
and has been the subject of sale to some other persons even if the order
had not been given."
Habituality Test
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.
Engineering and Machinery Corp v CA
Engineering and Machinery corp bound itself to fabricate, furnish and
install air-conditioning system for Almeda. Subsequently a defect was
found in the aircon systems that it cannot maintain the room
temperature. An Action for damages was filed by Almeda and
Engineering and Machinery Corporation claims that the prescriptive
period is 6 months for contracts of sale; Almeda claims that this is a
contract for a piece of work and the prescriptive period is 10 years.
HELD: Clearly, the contract in question is one for a piece of work. It is
not petitioner's line of business to manufacture air-conditioning systems
to be sold "off-the-shelf." Its business and particular field of expertise is
the fabrication and installation of such systems as ordered by customers
and in accordance with the particular plans and specifications provided
by the customers. Naturally, the price or compensation for the system
manufactured and installed will depend greatly on the particular plans
and specifications agreed upon with the customers. Hence the
prescriptive period is 10 years.
Contract of Sale versus Contract of a Piece of work – Consensuality
Test
To Tolentino, the distinction between the two contracts depends on the
intention of the parties. Thus, if the parties intended that at some future
date an object has to be delivered, without considering the work or labor
of the party bound to deliver, the contract is one of sale. But if one of the
parties accepts the undertaking on the basis of some plan, taking into
account the work he will employ personally or through another, there
is a contract for a piece of work
Dino v. CA
There was an agreement between Dino owner of fashion garment store
and Sio owner of toy manufacturing shop for the manufacture of Vinyl
Frogs and mooseheads. Is the Contract one of sale or of piece of work.
HELD: The contract between the petitioners and respondent stipulated
that respondent would manufacture upon order of the petitioners 20,000
pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according
to the samples specified and approved by the petitioners. Respondent
Sio did not ordinarily manufacture these products, but only upon order
of the petitioners and at the price agreed upon.14 Clearly, the contract
executed by and between the petitioners and the respondent was a
contract for a piece of work.
Contract of Sale v Contract for piece of work – Test of Existence
“a contract for a piece of work, labor and materials may be distinguished
from a contract of sale by the inquiry as to whether the thing transferred
is one not in existence and which would never have existed but for the
order of the person desiring it. In such case, the contract is one for a piece
of work, not a sale. On the other hand, if the thing subject of the contract
would have existed and been the subject of a sale to some other person
even if the order had not been given then the contract is one of sale.”
whether the agreement between the parties was one of a contract of sale
or a piece of work, the provisions on warranty of title against hidden
defects in a contract of sale apply
CIR v CA and Ateneo
Ateneo de Manila University through its Institute of Philippine Culture
conducts researches and studies in social organizations and cultural
values and performs the work of an independent contractor; CIR now
wants to impose contractor’s tax over the works of Institute of
Philippine Culture.
HELD: no evidence that Ateneo’s Institute of Philippine Culture ever
sold its services for a fee to anyone or was ever engaged in a business
apart from and independently of the academic purposes of the
university. IPC does not sell its research. It is also well to stress that the
questioned transactions of Ateneo’s Institute of Philippine Culture
cannot be deemed either as a contract of sale or a contract for a piece of
work.
In the case at bench, it is clear from the evidence on record that there
was no sale either of objects or services because, as adverted to earlier,
there was no transfer of ownership over the research data obtained or
the results of research projects undertaken by the Institute of Philippine
Culture. Furthermore, it is clear that the research activity of the Institute
of Philippine Culture is done in pursuance of maintaining Ateneo’s
university status and not in the course of an independent business of
selling such research with profit in mind. No proprietary or commercial
research is done, and IPC retains the ownership of the results of the
research, including the absolute right to publish the same. The
copyrights over the results of the research are owned by Ateneo and,
consequently, no portion thereof may be reproduced without its
permission. The funds it receives from Ateneo are not payment but are
gifts or donations which are tax-exempt.
Contract of Sale – Transfer of ownership is the essence of sale
“By the contract of sale, one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent.”By its
very nature, a contract of sale requires a transfer of ownership. Transfer
of title or an agreement to transfer it for a price paid or promised to be
paid is the essence of sale
Ineludably, whether the contract be one of sale or one for a piece of
work, a transfer of ownership is involved and a party necessarily walks
away with an object.
Distinguished from Agency to Sell
Art. 1868. By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of
another, with the consent or authority of the latter.
Art. 1466. In construing a contract containing provisions characteristic
of both the contract of sale and of the contract of agency to sell, the
essential clauses of the whole instrument shall be considered.
Quiroga v Parsons
Parsons and Quiroga entered into a contract whereby J. Parsons was
granted the exclusive right to sell the Quiroga beds.
HELD: The Court held that their contract is one of Contract of sale and
not one of Agency. Parsons, on receiving the beds, was necessarily
10 | SALES – 1ST EXAMINATION | 2018 |
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.
Anent the contention on the return of some beds; the same was done
based on mutual tolerance; The right to return the bed was not the right
of Parson but such was merely agreed upon and is only with respect to
some beds and not all. Anent the Commissions such were mere discount
invoices the word “agency” in them means that parson is the only one
that can sell the beds; it does no contemplate of an agency as defined by
law.
Features of a contract of Agency
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.
a contract is what the law defines it to be, and not what it is called by
the contracting parties.
Puyat Sons v Arco Amusement Co
Arco approached Gonzalo for the purchase of sound reproducing
devices. Arco then authorized the order of such equipment; later Arco
discovers that the price for the equipment as sold to it by Gonzalo was
not the list price. That the prices charged to him were too high. Hence
he seeks reimbursement for the difference between the cost price and
the sale price from Gonzalo representing Puyat and Sons
HELD: The Contract entered into is not one of Agency but one of Sale.
1. Arco was presented the price by Gonzalo and it accepted;
2. Puyat was to secure, Sell and Deliver to Arco by virtue of their
agreement and was to receive actual cost price plus 10%
3. Arco is still liable for an unforeseen event brought about by
the sale; when if he was an agent he should be exempted from
liability
4. Receipt of 10% commission is not evidence of agency but
merely an additional price;
5. Puyat Sons is the exclusive agent of Starr Piano Comp in the
Philippines hence he cannot be an agent of both the vender
and the Purchaser (conflict of interest)
Therefore, Puyat as vendor is not bound to reimburse the respondent as
vendee for any difference between the cost price and the sales price
which represents the profit realized by the vendor out of the transaction.
This is the very essence of commerce without which merchants or
middleman would not exist. Finally, with respect to 25% discount of Star
such can only be availed of by its agent Puyat and Sons
In an Agency an agent is exempted from all liablity in the discharge of
his commission
the agent is exempted from all liability in the discharge of his
commission provided he acts in accordance with the instructions
received from his principal and the principal must indemnify the agent
for all damages which the latter may incur in carrying out the agency
without fault or imprudence on his part.
Ker and Co LTD v Lingad
HELD: That the contract between Ker and Co and US Rubber is one of
a Brokerage or agency is borne out of the following:
1. Ker and Co can dispose of the products of the Company only
to certain persons or entities and within stipulated limits,
unless excepted by the contract or by the Rubber Company
2. that it merely receives, accepts and/or holds upon
consignment the products, which remain properties of the
latter company
3. that every effort shall be made by petitioner to promote in
every way the sale of the products
4. that sales made by petitioner are subject to approval by the
company
5. that on dates determined by the rubber company, petitioner
shall render a detailed report showing sales during the month
6. that the rubber company shall invoice the sales as of the dates
of inventory and sales report
7. that the rubber company agrees to keep the consigned goods
fullyinsured under insurance policies payable to it in case of
loss
8. that upon request of the rubber company at any time,
petitioner shall render an inventory of the existing stock
which may be checked by an authorized representative of the
former
9. and that upon termination or cancellation of the Agreement,
all goods held on consignment shall be held by petitioner for
the account of the rubber company until their disposition is
provided for by the latter
upon analysis of the contract, as a whole, together with the actual
conduct of the parties in respect thereto, we have arrived at the
conclusion that the relationship between them is one of brokerage or
agency
Commercial Broker, defined in the National Internal Revenue Code
commercial broker “includes all persons, other than importers,
manufacturers, producers, or bona fide employees, who, for
compensation ox profit, sell or bring about sales or purchases of
merchandise for other persons or bring proposed buyers and sellers
together, or negotiate freights or other business for owners of vessels or
other means of transportation, or for the shippers, or consignors or
consignees of freight carried by vessels or other means of transportation.
The term includes commission merchants.
Contract of Sale v Contract of Agency
The decisions say the transfer of title or agreement to transfer it for a
price paid or promised is the essence of sale. If such transfer puts the
transferee in the attitude or position of an owner and makes him liable
to the transferor as a debtor for the agreed price, and not merely as an
agent who must account for the proceeds of a resale, the transaction is a
sale;
while the essence of an agency to sell is the delivery to an agent, not as
his property, but as the property of the principal, who remains the
owner and has the right to control sales, fix the price, and terms, demand
and receive the proceeds less the agent’s commission upon sales made.’
A disclaimer in the Contract that an entity is no an agent is not
sufficient
mere disclaimer in a contract that an entity like petitioner is not “the
agent or legal representative for any purpose whatsoever” does not
suffice to yield the conclusion that it is an independent merchant if the
control over the goods for resale of the goods consigned is pervasive in
character.
Schmid Oberly v RJL Martinez Fishing
Corporation
RJL needed electrical generators and Schmid advertised Nagata
products to them; Later it was founds that what was sold are 12
defective generators; Schmid then sued RJL for warranty on hidden
defects and demanded refund.
HELD: In this case Schmid is not a vendor but merely an indentor.
1. The machines were purchased through an indent order
2. The only participation of Schmid was to act as an
intermediary or middle man.
3. Here there were 2 transactions in the first where Schmid was
the seller and was the one who delivered from its own stock ,
issued its own invoice and collected directly from the buyer.
and in the second where it acted as indentor.
11 | SALES – 1ST EXAMINATION | 2018 |
In view of the above considerations, this Court rules that SCHMID was
merely acting as an indentor in the purchase and sale of the twelve (12)
generators subject of the second transaction. Not being the vendor,
SCHMID cannot be held liable for the implied warranty for hidden
defects under the Civil Code.
Indentors is lumped with commercial brokers and commission
merchants
there is no statutory definition of “indent” in this jurisdiction. However,
the Rules and Regulations to Implement Presidential Decree No. 1789
(the Omnibus Investments Code) lumps “indentors” together with
“commercial brokers” and “commission merchants”
Therefore, an indentor is a middleman in the same class as commercial
brokers and commission merchants.
Broker, defined.
1. A broker is generally defined as one who is engaged, for
others, on a commission, negotiating contracts relative to
property with the custody of which he has no concern; the
negotiator between other parties, never acting in his own
name but in the name of those who employed him; he is
strictly a middleman and for some purpose the agent of both
parties.
2. A broker is one whose occupation it is to bring parties
together to bargain, or to bargain for them, in matters of trade,
commerce or navigation.
3. a broker as an agent employed to make bargains and
contracts between other persons, in matters of trade,
commerce or navigation, for compensation commonly called
brokerage.
Commission Merchant defined.
A commission merchant is one engaged in the purchase or sale for
another of personal property which, for this purpose, is placed in his
possession and at his disposal. He maintains a relation not only with his
principal and the purchasers or vendors, but also with the property
which is subject matter of the transaction.
chief feature of a commercial broker and a commercial merchant is that
in effecting a sale, they are merely intermediaries or middlemen, and act
in a certain sense as the agent of both parties to the transaction.
Indent; may be described as an agent
a purchase order for goods especially when sent from a foreign country.
An indentor may therefore be best described as one who, for
compensation, acts as a middleman in bringing about a purchase and
sale of goods between a foreign supplier and a local purchaser.
Victorias Milling Co Inc v Ca and
Consolidated Sugar Corporation
St. Therese Merchandasing (STM) bought sugar from Victorias Milling;
Victorias issued a shipping List/Delivery Reports (SLDRs) to STM as
proof of purchase voering 25,000 bags of sugar. STM sold its rights to
Consolidated Sugar Corporation (CSC) CSC then wrote to Victorias
milling to withdraw sugar but Victorias allowed only the withdrawal of
2,000 bags. Victoria’s claim that STM had already cleared its checks and
no balance of 23,000 bags were left. Victoria’s claim that CSC had
represented itself to be STMs agent;
STM’s letter of authority in favor of CSC is reproduced below:
This is to authorize Consolidated Sugar Corporation or its representative to
withdraw for and in our behalf the refined sugar covered by Shipping
ListDelivery Receipt Refined Sugar dated October 12 1989 in the total quantity
of 25,000 bags.
HELD: In the instant case, it appears plain to us that private respondent
CSC was a buyer of the SLDFR form, and not an agent of STM. Private
respondent CSC was not subject to STM’s control. The question of
whether a contract is one of sale or agency depends on the intention of
the parties as gathered from the whole scope and effect of the language
employed. That the authorization given to CSC contained the phrase
“for and in STM’s behalf” did not establish an agency. Ultimately, what
is decisive is the intention of the parties. That no agency was meant to
be established by the CSC and STM is clearly shown by CSC’s
communication to petitioner that SLDR had been “sold and endorsed”
to it. The use of the words sold and endorsed means that STM and CSC
intended a contract of sale, and not an agency.
Agency connotes control by the Principal and intention to accept on the
part of the agent
It is clear from Article that the basis of agency is representation. n the
part of the principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions; and on the part
of the agent, there must be an intention to accept the appointment and
act on it, and in the absence of such intent, there is generally no agency.
CONTROL – distinguishes agency
One factor which most clearly distinguishes agency from other legal
concepts is control; one person- the agent - agrees to act under the
control or direction of another the principal. Indeed, the very word
agency” has come to connote control by the principal. The control
factor, more than any other, has caused the courts to put contracts
between principal and agent in a separate category.
Sold and Endorsed
That no agency was meant to be established by the CSC and STM is
clearly shown by CSC’s communication to petitioner that SLDR had
been “sold and endorsed” to it. The use of the words sold and endorsed
means that STM and CSC intended a contract of sale, and not an agency.
For and in behalf
That the authorization given to CSC contained the phrase “for and in
STM’s behalf” did not establish an agency. Ultimately, what is decisive
is the intention of the parties.
Distinguished from Payment by
Cession
Art. 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the
contrary, shall only release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements which, on the effect of
the cession, are made between the debtor and his creditors shall be
governed by special laws.
Distinguished from Dacion En Pago
Art. 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the law
of sales.
PNB v Pineda
Tayabas Cement Company contend that PNB no longer has the right to
foreclose property as they have already repossessed the equipment from
Tayabas (after Tayabas failed to remit the proceeds of the Letter of
Credit)
HELD: Here, there was no Dacion en Pago; Repossession of Equipment
cannot be considered payment nor is it considered dacion en pago; the
machines were only a security and only when they are foreclosed is
obligation of Tayabas satisfied. the repossession of the machinery and
equipment in question was merely to secure the payment of TCC’s loan
obligation and not for the purpose of transferring ownership thereof to
PNB in satisfaction of said loan. Thus, no dacion en pago was ever
accomplished.
12 | SALES – 1ST EXAMINATION | 2018 |

Proceeding from this finding, PNB has the right to foreclose the
mortgages executed by the spouses Arroyo as sureties of Tayabas.
Dacion en Pago, Defined.
Dation in payment takes place when property is alienated to the creditor
in satisfaction of a debt in money and the same is governed by sales.
Dation in payment is the delivery and transmission of ownership of a
thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation. Repossession is not Dacion en Pago
Lo v KJS
Lo who is indebted to KJS for the purchase of steel scaffolding executed
a Deed of Assignment for its credit with Jomero in favor of KJS. Jomero
Realty refused to honor deed of assignment; Hence KJS sent a letter to
Lo; However Lo claims that their obligation is extinguished by virtue of
the Deed of Assignment.
HELD: Lo’s Deed of Assignment is Similar to a Dacion en Pago which
partakes of the nature of a sale; It is bound by certain warranties under
Art. 1628; Hence Lo is BOUND to pay JKS in liey of the inexistence of its
credit from Jomero
Lo as vendor or assignor, is bound to warrant the existence and legality
of the credit at the time of the sale or assignment. When Jomero claimed
that it was no longer indebted to petitioner since the latter also had an
unpaid obligation to it, it essentially meant that its obligation to
petitioner has been extinguished by compensation. In other words,
respondent alleged the non-existence of the credit and asserted its claim
to petitioner’s warranty under the assignment. Therefore, it behooved
on petitioner to make good its warranty and paid the obligation.
Assignment of Credit
An assignment of credit is an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause, such as sale, dacion
en pago, exchange or donation, and without the consent of the debtor,
transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.
Dacion en Pago
in dacion en pago, as a special mode of payment, the debtor offers
another thing to the creditor who accepts it as equivalent of payment of
an outstanding debt.
Requisites of a valid Dacion en Pago
In order that there be a valid dation in payment, the following are the
requisites:
(1) There must be the performance of the prestation in lieu
of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit
against the third person;
(2) There must be some difference between the prestation
due and that which is given in substitution (aliud pro
alio);
(3) There must be an agreement between the creditor and
debtor that the obligation is immediately extinguished
by reason of the performance of a prestation different
from that due.
Dacion en Pago partakes the nature of a Sale
The undertaking really partakes in one sense of the nature of sale, that
is, the creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtor’s debt. As such,
the vendor in good faith shall be responsible, for the existence and
legality of the credit at the time of the sale but not for the solvency of the
debtor, in specified circumstances.
Assignment of Credit may produce effectsof a dation in payment and
extinguish obligations hence the vendor is bound by warranties
Hence, it may well be that the assignment of credit, which is in the
nature of a sale of personal property,19 produced the effects of a dation
in payment which may extinguish the obligation.20 However, as in any
other contract of sale, the vendor or assignor is bound by certain
warranties.
Warranty: 1628 of the Civil Code provides: The vendor in good faith shall
be responsible for the existence and legality of the credit at the time of the sale,
unless it should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the insolvency was
prior to the sale and of common knowledge.
Aquintey v Tibong
In this case, Tibong who obtained loans from Aquinter and resold the
same at a higher interest rate to other borrowers executed a deed of
assignment with Aquintey.
HELD: Said deed of assignment was held to be a valid daction en pago
whereby Tibong assigns her credit from other borrowers in favor of
Aquintey, giving Aquintey authority or right to collect from those
debtors; Said deed of assignment extinguished Tibong’s obligation with
respect to payments made by Aquintey.
All the requisites for a valid dation in payment are present in this case.
(1) As gleaned from the deeds, respondent Tibong Assigned to
Aquintey credits “to make good” the balance of her
obligation.
(2) Felicidad testified that she executed the deeds to enable her to
make partial payments of her account, since she could not
comply with petitioner’s frenetic demands to pay the account
in cash.
(3) Petitioner and respondent Tibong agreed to relieve the latter
of her obligation to pay the balance of her account, and for
petitioner to collect the same from respondent’s debtors.
Assignment of Credit and Dacion en Pago
An assignment of credit is an agreement by virtue of which the owner
of a credit, known as the assignor, by a legal cause, such as sale, dation
in payment, exchange or donation, and without the consent of the
debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the
assignor could enforce it against the debtor.73 It may be in the form of
sale, but at times it may constitute a dation in payment, such as when a
debtor, in order to obtain a release from his debt, assigns to his creditor
a credit he has against a third person.
Dacion en Pago
dacion en pago is the delivery and transmission of ownership of a thing
by the debtor to the creditor as an accepted equivalent of the
performance of the obligation. It is a special mode of payment where the
debtor offers another thing to the creditor who accepts it as equivalent
of payment of an outstanding debt. The undertaking really partakes in
one sense of the nature of sale, that is, the creditor is really buying the
thing or property of the debtor, payment for which is to be charged
against the debtor’s obligation.
Because it partakes the nature of a sale the elements of Sale must be
present in Dacion en Pago
As such, the essential elements of a contract of sale, namely, consent,
object certain, and cause or consideration must be present.
Davion en Pago is an objective Novation
In its modern concept, what actually takes place in dacion en pago is an
objective novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation is considered as
the object of the contract of sale, while the debt is considered as the
purchase price. In any case, common consent is an essential
prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation.
13 | SALES – 1ST EXAMINATION | 2018 |
Requisites of a Dacion en Pago
In order that there be a valid dation in payment, the following are the
requisites:
(1) There must be the performance of the prestation in lieu
of payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit
against the third person;
(2) There must be some difference between the prestation
due and that which is given in substitution (aliud pro
alio);
(3) There must be an agreement between the creditor and
debtor that the obligation is immediately extinguished
by reason of the performance of a prestation different
from that due.
Yuson v Vitan
Atty. Vitan acquired a 100,000 loan from his client Yuson they executed
1 deed of Absolute sale over a piece of land with the intent to
temporarily transfer property; They entered into a 2nd sale for atty. Vitan
to assert ownership over the said land.
HELD: Here there is no Dacion en Pago nor was there an
extinguishment of the Obligation. No Dacion en Pago was effected and
no extinguishment of the obligation due to the intention or lack thereof
to transfer the property to Yuson as gleamed from 2nd deed of sale. Also,
In the first place the property was not enough to satisfy the debt.
The records reveal that he did not really intend to sell and relinquish
ownership over his property in Sta. Maria, Bulacan, notwithstanding the
execution of a Deed of Absolute Sale in favor of complainant. The
second Deed of Absolute Sale, which reconveyed the property to
respondent, is proof that he had no such intention. This second Deed,
which he referred to as his “safety net,” betrays his intention to
counteract the effects of the first one.
Atty. Vitan was taking back with his right hand what he had given with
his left. The second Deed of Absolute Sale returned the parties right back
where they started, as if there were no sale in favor of complainant to
begin with. In effect, on the basis of the second Deed of Sale, respondent
took back and asserted his ownership over the property despite having
allegedly sold it. Thus, he fails to convince us that there was a bona fide
dation in payment or sale that took place between the parties; that is,
that there was an extinguishment of obligation.
Distinguished from Lease
Art. 1484. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following
remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more
installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.
Art. 1485. The preceding article shall be applied to contracts purporting
to be leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing.
Filinvest v CA
Sps Bang is in the business of selling gravel; they wanted to purchase a
rock crushing machine; that theyu bought such from Rizal Consolidated
Corporation. They applied for financial assistance from Filinvest subject
to conditions that the properties will be purchased by Filinvest and will
be leased to Sps Bang at the end of the 2 year lease period the property
would be owned by the Sps. Bang. Subsequently there was a defect in
the machines and Sps Bang contends that Filinvest as lessor is liable.
HELD: There is a contract of Sale of Personal property through
installment. (if it was lease then Filinivest would be liable for defective
machines) Filinvest is not liable for the machines because
· Sps. Bang had inspected it before seeking financia; aid
· Sps. Bang had more expertise and should have been more prudent
· Contract contained a waiver of warranty;
Contract of lease is often resorted to circumvent Article 1484
the device contract of lease with option to buy is at times resorted to as
a means to circumvent Article 1484, particularly paragraph (3)
thereof.Through the set-up, the vendor, by retaining ownership over the
property in the guise of being the lessor, retains, likewise, the right to
repossess the same, without going through the process of foreclosure, in
the event the vendee-lessee defaults in the payment of the installments.
There arises therefore no need to constitute a chattel mortgage over the
movable sold. More important, the vendor, after repossessing the
property and, in effect, canceling the contract of sale, gets to keep all the
installments-cum-rentals already paid.
Article 1484. In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of the following
remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or
more installments;
(3) Foreclose the chattel mortgage or the thing sold, if one has been
constituted, should the vendee's failure to pay cover two or more
installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
the contrary shall be void.
Contract to Sell
Almira v CA
Where Almira entered into a Kasunduan with Briones subject to
condition of full payment upon release of TCT.
HELD: The Contract entered into is a contract of sale not a contract to
sell and that full payment of purchase price will be effected upon release
of a separate TCT is only a condition for the payment not a condition for
the perfection of the contract of sale.
Although both parties have consistently referred to the Kasunduan as a
contract to sell, a careful reading of the provisions of the Kasunduan
reveals that it is a contract of sale. A deed of sale is absolute in nature in
the absence of any stipulation reserving title to the vendor until full
payment of the purchase price. In such cases ownership of the thing sold
passes to the vendee upon actual or constructive delivery thereof.18
There is nothing in the Kasunduan which expressly provides that
petitioners retain title or ownership of the property, until full payment
of the purchase price. The absence of such stipulation in the Kasunduan
coupled with the fact that respondent took possession of the property
upon the execution of the Kasunduan indicate that the parties have
contemplated a contract of absolute sale.
The delivery of a separate title in the name of Julio Garcia was a
condition imposed on respondent’s obligation to pay the balance of the
14 | SALES – 1ST EXAMINATION | 2018 |
purchase price. It was not a condition imposed on the perfection of the
contract of sale.
Contract to Sell v Contract of Sale
In a contract to sell, ownership is, by agreement, reserved to the vendor
and is not to pass until full payment of the purchase price; whereas, in
contract of sale, title to the property passes to the vendee upon delivery
of the thing sold. Non-payment by the vendee in a contract of sale
entitles the vendor to demand specific performance or rescission of the
contract, with damages, under Article 1191 of the Civil Code.
Montecalvo v Heirs of Eugenia Primero
Where Eugenia and Montecalvo entered into an unnotarized agreement
for alleged sale of land: 40,000 downpayment for a period of 30 to 45
days negotiation; within which 50% downpayment must be made;
Montecalvo paid only by aggregate payment amounting to 250,000.
Montecalvo claims that Eugenia is in breach for not returning 40,000 as
stipulated in their agreement; They entered into another oral agreement
HELD: we are more inclined to characterize the agreement as a contract
to sell rather than a contract of sale. Although not by itself controlling,
the absence of a provision in the Agreement transferring title from the
owner to the buyer is taken as a strong indication that the Agreement is
a contract to sell
the payment of the purchase price, in installments within the period
stipulated, constituted a positive suspensive condition, the failure of
which is not really a breach but an event that prevents the obligation of
the seller to convey title in accordance with Article 1184 of the Civil
Code. Hence, for petitioners’ failure to comply with the terms and
conditions laid down in the Agreement, the obligation of the
predecessor-in-interest of the respondents to deliver and execute the
corresponding deed of sale never arose.
Contract of Sale v Contract to Sell
we distinguished a contract of sale from a contract to sell in that in a
contract of sale the title to the property passes to the buyer upon the
delivery of the thing sold; in a contract to sell, ownership is, by
agreement, reserved in the seller and is not to pass to the buyer until full
payment of the purchase price. Otherwise stated, in a contract of sale,
the seller 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 seller 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.
Contract to Sell
In a contract to sell, the prospective seller explicitly reserves the transfer
of title to the prospective buyer, meaning, the prospective seller does
not as yet agree or consent to transfer ownership of the property subject
of the contract to sell until the happening of an event, which for present
purposes we shall take as the full payment of the purchase price. What
the seller agrees or obliges himself to do is to fulfill his promise to sell
the subject property when the entire amount of the purchase price is
delivered to him.
In other words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer
Purpose of a contract to sell
A contract to sell is commonly entered into in order to protect the seller
against a buyer who intends to buy the property in installment by
withholding ownership over the property until the buyer effects full
payment therefor
Reyes v Tuparan
A deed of conditional sale with assumption of mortgage was entered
into by Reyes and Tuparan that because Tuparan failed to pay the
purchase price within the stipulated period and collected rents from
building, Reyes filed for rescission of the deed;
HELD: The contract entered into is a contract to sell. Which contains a
suspensive condition for the fulfillment of an obligation. Nonfulfillment
of said obligation does not amount to breach of contract warranting
rescission rather it merely amounts to the non-existence of an obligation
on the part of reyes.
Article 1458 of the Civil Code
Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing,
and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
In a contract to sell: element of consent to transfer is LACKING
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking.
In a contract to sell, the prospective seller explicitly reserves the transfer
of title to the prospective buyer, meaning, the prospective seller does not
as yet agree or consent to transfer ownership of the property subject of
the contract to sell until the happening of an event, which for present
purposes we shall take as the full payment of the purchase price.
What the seller agrees or obliges himself to do is to fulfill his promise to
sell the subject property when the entire amount of the purchase price
is delivered to him. In other words, the full payment of the purchase
price partakes of a suspensive condition, the non-fulfillment of which
prevents the obligation to sell from arising and, thus, ownership is
retained by the prospective seller without further remedies by the
prospective buyer.
A contract to sell defined as a bilateral contract
A contract to sell may thus be defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of
the purchase price.
A contract to sell is NOT a conditional contract of sale
A contract to sell may not even be considered as a conditional contract
of sale where the seller may likewise reserve title to the property subject
of the sale until the fulfillment of a suspensive condition, because in a
conditional contract of sale, the first element of consent is present,
although it is conditioned upon the happening of a contingent event
which may or may not occur. If the suspensive condition is not fulfilled,
the perfection of the contract of sale is completely abated. However, if
the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.
In a contract to sell; the seller still has to convey title to the prospective
buyer
In a contract to sell, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to
convey title to the prospective buyer by entering into a contract of
absolute sale.
Failure to pay in a contract to sell does not amount to breach of
contract but it simply prevents the obligation on the part of the vendor
to convey title.
The full payment of the purchase price is the positive suspensive
condition, the failure of which is not a breach of contract, but simply an
event that prevented the obligation of the vendor to convey title from
15 | SALES – 1ST EXAMINATION | 2018 |
acquiring binding force. Thus, for its non-fulfilment, there is no contract
to speak of, the obligor having failed to perform the suspensive
condition which enforces a juridical relation. With this circumstance,
there can be no rescission or fulfillment of an obligation that is still non-
existent, the suspensive condition not having occurred as yet. Emphasis
should be made that the breach contemplated in Article 1191 of the New
Civil Code is the obligor’s failure to comply with an obligation already
extant, not a failure of a condition to render binding that obligation.
Hence there can be no rescission in a contract to sell.
Serrano v Caguiat
Serrano and Caguiat agreed on the sale of a lot; partial payment of 100k
was given by Caguiat and a receipt for partial payment was given;
giving obligation to pay within a given period. Serrano then cancels the
agreement and returns partial payment. Caguiat complains in court.
HELD: The receipt of partial payment is a contract to sell because of the
following indicators;
1. Ownership of lot was not transferred
2. Agreement between parties was not embodied in a deed of
sale
3. Serrano retained possession of certificate of title of the lot (no
delivery of the title)
With respect to earnest money of 100k Article 1482 of the Civil Code
does not apply since such applies only to contracts of sale.
Downpayment may only be construed as earnest money in a contract of
sale;
A contract to sell is AKIN to a conditional sale
A contract to sell is akin to a conditional sale where the efficacy or
obligatory force of the vendor’s obligation to transfer title is
subordinated to the happening of a future and uncertain event, so that
if the suspensive condition does not take place, the parties would stand
as if the conditional obligation had never existed. The suspensive
condition is commonly full payment of the purchase price.
[a] distinction must be made between a contract of sale in which title
passes to the buyer upon delivery of the thing sold and a contract to sell
x x x where by agreement the ownership is reserved in the seller and is
not to pass until the full payment, of the purchase price is made. In the
first case, non-payment of the price is a negative resolutory condition;
in the second case, full payment is a positive suspensive condition.
Being contraries, their effect in law cannot be identical. In the first case,
the vendor has lost and cannot recover the ownership of the land sold
until and unless the contract of sale is itself resolved and set aside. In the
second case, however, the title remains in the vendor if the vendee does
not comply with the condition precedent of making payment at the time
specified in the contract
Nonpayment
Contract of Sale Negative Resolutory Condition
Contract to Sell Positive Suspensive Condition
3 Indicators of a Contract to Sell
1. First, ownership over the property was retained by
petitioners and was not to pass to respondent until full
payment of the purchase price. Thus, petitioners need not
push through with the sale should respondent fail to remit the
balance of the purchase price before the deadline on March
23, 1990. In effect, petitioners have the right to rescind
unilaterally the contract the moment respondent fails to pay
within the fixed period.
2. Second, the agreement between the parties was not embodied
in a deed of sale. The absence of a formal deed of conveyance
is a strong indication that the parties did not intend
immediate transfer of ownership, but only a transfer after full
payment of the purchase price
3. Third, petitioners retained possession of the certificate of
title of the lot. This is an additional indication that the
agreement did not transfer to respondent, either by actual or
constructive delivery, ownership of the property.
Nabus v Pacson
Nabus and Pacson entered into a deed of conditional sale; Subsequently
Nabus sold the lot to Betty Tolero claiming that the contract is one of
contract to sell since Pecson did not pay full the purchase price the
conveyance to Tolero is valid; Pecson filed before the Court
HELD: What was entered into is a contract to sell. Hence, when Pecson
failed to pay price there was no breach of contract warranting a
recission; rather non-fulfillment only prevented the existence of an
obligation to convey the property by Nabus.
Absolute Sale versus Conditional Sale
Article 1458 of the Civil Code provides that a contract of sale may be
absolute or conditional. A contract of sale is absolute when title to the
property passes to the vendee upon delivery of the thing sold. A deed
of sale is absolute when there is no stipulation in the contract that title
to the property remains with the seller until full payment of the
purchase price. The sale is also absolute if there is no stipulation giving
the vendor the right to cancel unilaterally the contract the moment the
vendee fails to pay within a fixed period.
In a conditional sale, as in a contract to sell, ownership remains with the
vendor and does not pass to the vendee until full payment of the
purchase price. The full payment of the purchase price partakes of a
suspensive condition, and nonfulfillment of the condition prevents the
obligation to sell from arising
Failure to pay purchase price in a contract to sell
The full payment of the purchase price is the positive suspensive
condition, the failure of which is not a breach of contract, but simply an
event that prevented the obligation of the vendor to convey title from
acquiring binding force
It is not the title of the contract, but its express terms or stipulations
that determine the kind of contract entered into by the parties.
Olivarez Realty Corporation v Castillo
Olivarez and Castillo entered into a contract of conditional sale. Subject
to several conditions such as: filing of action against PTA, disturbance
compensation and payment of full purchase price; Here Olivarez realty
did not comply with those conditions nor pay even the purchase price
and Castillo files for rescission.
HELD: The contract of conditional sale is a contract to sell. Court
distinguished a contract to sell versus a conditional sale;
1. that in a conditional sale there is an automatic transfer of
ownership by operation of law; while in a contract to sell
vendor has yet to execute a deed. In this case, since Castillo
has yet to execute a deed of sale; the Agreement is a contract
to sell.
2. In a contract to sell such is goverened by the law on
conditional obligations while in a conditional contract such is
governed by the law on sales
Therefore since this case involves a contract to sell rescission will not
apply. Non fulfillment of the suspensive condition does not amount to
breach of contract but only to prevent the existence of obligation by the
vendor to convey the property.
In this case, Castillo reserved his title to the property and undertook to
execute a deed of absolute sale upon Olivarez Realty Corporation’s full
payment of the purchase price. Since Castillo still has to execute a deed
of absolute sale to Olivarez Realty Corporation upon full payment of the
purchase price, the transfer of title is not automatic. The contract in this
case is a contract to sell.
Contract to Sell versus Conditional Sale
16 | SALES – 1ST EXAMINATION | 2018 |
In both contracts to sell and contracts of conditional sale, title to the conditional contract of sale, the first element of consent is present,
property remains with the seller until the buyer fully pays the purchase although it is conditioned upon the happening of a contingent event
price. Both contracts are subject to the positive suspensive condition of which may or may not occur.
the buyer’s full payment of the purchase price.
Saberon v Ventanilla
Contract to Sell Conditional Sale
Manila Remnant Co Inc entered into a contract to sell with AuValencia.
Law on Conditional Obligations Law on Sales
It resold the same property to Crisostomo without any consideration
transfer of title to the the buyer automatically acquires
through a contract to sell.
prospective buyer is not title to the property upon full
automatic. “The prospective payment of the purchase price.
Contract of Sale versus Contract to Sell
seller [must] convey title to the This transfer of title is “by
Contract of Sale Contract to Sell
property [through] a deed of operation of law without any
the title to the property passes to , ownership is, by agreement,
conditional sale.” further act having to be
the vendee upon the delivery of reserved in the vendor and is not
performed by the seller.”
the thing sold; to pass to the vendee until full
payment of the purchase price.
Importance of distinguishing Contract to Sell from Contract of Sale
The distinction is important to determine the applicable laws and the vendor loses ownership over title is retained by the vendor
remedies in case a party does not fulfill his or her obligations under the the property and cannot recover until full payment of the price.
contract. In contracts of conditional sale, our laws on sales under the it until and unless the contract is
Civil Code of the Philippines apply. On the other hand, contracts to sell resolved or rescinded
are not governed by our law on sales but by the Civil Code provisions Non payment equals breach payment of the price is a positive
on conditional obligations. warranting rescission. suspensive condition, failure of
which is not a breach but an
event that prevents the
Ace Foods Inc v Micro Pacific Technologies obligation of the vendor to
Micro Pacific sent a letter-proposal to Acefoods for the sale of convey title from becoming
equipment; Acefoods then accepted the said offer and issued a purchase effective
order. Subsequently sent an invoice containing a reservation statement;
Ace claims that Micro Pacific reneged on their obligation and did not
offer “After Delivery Services” Hence, Ace stopped paying.

HELD: Here there is a contract of sale. The parties entered into a

Contract of Sale when Ace Foods accepted the offer of Micro Pacific
thereby satisfying the element of consent in a sale from that point their
reciprocal obligation arose.

Anent the reservation stipulation; the Court dispels that notion that the
reservation stipulation invoice is a novation to contract to sell; for either
extinctive or modificatory novation must be by express agreement.
Further, here there is no showing that a reservation statement was
made.

A contract is what the law defines it to be not what the contracting

parties call it
A contract is what the law defines it to be, taking into consideration its
essential elements, and not what the contracting parties call it. The real
nature of a contract may be determined from the express terms of the
written agreement and from the contemporaneous and subsequent acts
of the contracting parties. However, in the construction or
interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. The denomination or title given by the
parties in their contract is not conclusive of the nature of its contents.

contract of sale contract to sell

a contract of sale is classified as
a consensual contract, which
means that the sale is perfected
by mere consent. No particular
form is required for its validity.
Upon perfection of the contract,
the parties may reciprocally
demand performance, i.e., the
vendee may compel transfer of
ownership of the object of the
sale, and the vendor may require
the vendee to pay the thing sold
In contrast, a contract to sell is
defined as a bilateral contract
whereby the prospective seller,
while expressly reserving the
ownership of the property
despite delivery thereof to the
prospective buyer, binds himself
to sell the property exclusively
to the prospective buyer upon
fulfillment of the condition
agreed upon, i.e., the full
payment of the purchase price.

A contract to sell is not a conditional contract of sale

A contract to sell may not even be considered as a conditional contract
of sale where the seller may likewise reserve title to the property subject
of the sale until the fulfillment of a suspensive condition, because in a
17 | SALES – 1ST EXAMINATION | 2018 |
 Elements of a Contract
CONSENT – Minors, Insane, Demented
Persons, Deaf-Mutes
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how
to write.
Art. 1328. Contracts entered into during a lucid interval are valid.
Contracts agreed to in a state of drunkenness or during a hypnotic spell
are voidable.
Art. 1332. When one of the parties is unable to read, or if the contract is
in a language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the terms thereof have
been fully explained to the former.
Art. 1390. The following contracts are voidable or annullable, even
though there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a
contract;
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action
in court. They are susceptible of ratification
Labagala v Santiago
Labagala claims to be the sole heir of Jose Santiago who died intestate;
that subject land was sold to her but was indended to be donated.
HELD: voidable. She is not the daughter or heir; Even if she was no valid
sale or donation was effected for at thr time it was executed she was still
a minor and could not giver her consent. Consent should have been
through her legal representative but no evidence of such was presented.
If one of the parties - voidable
If both minors - unenforceable
If contract is without consideration – Void.
Petitioner could not have given her consent to the contract, being a
minor at the time. Consent of the contracting parties is among the
essential requisites of a contract, including one of sale, absent which
there can be no valid contract. Moreover, petitioner admittedly did not
pay any centavo for the property, which makes the sale void.
Neither may the purported deed of sale be a valid deed of donation. . It
lacks the acceptance of the donee required by Art. 725 of the Civil Code.
Being a minor in 1979, the acceptance of the donation should have been
made by her father, Leon Labagala or [her] mother Cornelia Cabrigas or
her legal representative pursuant to Art. 741 of the same Code.
Francisco v Herrera
Pastor Herrera Son of Eligio Herrera contests the sale between his father
and francis. Since he was suffering Senile Dementia. That his father was
then suffering from senile dementia making contracts executed by him
void. Francisco on the other hand contends that there was ratification
through acceptance of payment.
HELD: Contract is voidable by virtue of Article 1327 of the Civil Code;
But was ratified through acts of Herrare including acceptance of
payment and failure to return payment; that he cannot ask for higher
price and then later impugn validity of the contract. Ratification cures
the defects; and a voidable contract for lack of consent is valid until
annulled and is subject to ratification.
In the present case, it was established that the vendor Eligio, Sr. entered
into an agreement with petitioner, but that the former’s capacity to
consent was vitiated by senile dementia. Hence, we must rule that the
assailed contracts are not void or inexistent per se; rather, these are
contracts that are valid and binding unless annulled through a proper
action filed in court seasonably.
Void or inexistent contract
A void or inexistent contract is one which has no force and effect from
the very beginning. Hence, it is as if it has never been entered into and
cannot be validated either by the passage of time or by ratification.
There are two types of void contracts: (1) those where one of the
essential requisites of a valid contract as provided for by Article 1318 of
the Civil Code is totally wanting; and (2) those declared to be so under
Article 1409 of the Civil Code.
Voidable Contract
By contrast, a voidable or annullable contract is one in which the
essential requisites for validity under Article 1318 are present, but
vitiated by want of capacity, error, violence, intimidation, undue
influence, or deceit.
Paragas v Heirs of Dominador
HELD: that the alleged deed of sale entered into by Gregorio Balacano
signed during his deathbed is VOID. What was employed was merely a
scheme created by paragas and their attorney and catalino. No valid
consent was given by Gregorio who was suffering from liver cirrhosis.
Here there was Absence of consent and not merely vitiation of consent.
Hence, contract is void.
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.
General Rule:
A person is not incapacitated to execute contracts merely by reason of
his age or infirmities for it is only when such age and infirmities
prevents him from freely and intelligently protecting his rights is there
incapacity to give consent.
CONSENT – Sale by and between
spouses
Art. 166. Unless the wife has been declared a non compos mentis or a
spendthrift, or is under civil interdiction or is confined in a leprosarium,
the husband cannot alienate or encumber any real property of the
conjugal partnership without the wife's consent. If she refuses
unreasonably to give her consent, the court may compel her to grant the
same.
This article shall not apply to property acquired by the conjugal
partnership before the effective date of this Code.
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
18 | SALES – 1ST EXAMINATION | 2018 |
the dissolution of the marriage, may demand the value of property
fraudulently alienated by the husband.
Art. 1490. The husband and the wife cannot sell property to each other,
except:
(1) When a separation of property was agreed upon in the marriage
settlements; or
(2) When there has been a judicial separation or property under Article
191.
Art. 124. Of the Family Code The administration and enjoyment of the
conjugal partnership shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to recourse
to the court by the wife for proper remedy, which must be availed of
within five years from the date of the contract implementing such
decision.
In the event that one spouse is incapacitated or otherwise unable to
participate in the administration of the conjugal properties, the other
spouse may assume sole powers of administration. These powers do not
include disposition or encumbrance without authority of the court or
the written consent of the other spouse. In the absence of such authority
or consent, the disposition or encumbrance shall be void. However, the
transaction shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and may be perfected as a
binding contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either or
both offerors.
NOTE: Family Code took effect on August 3, 1988
Heirs of Reyes v Mijares
Where Vicente pretends that his wife Ignacia died to obtain Court order
to sell conjugal property to Sps Mijares on March 1, 1983;
HELD: Sale by husband of conjugal property without the consent of the
wife is voidable and can be properly annulled by Ignacia. Applying
Articles 166 and 173 of the Civil Code.
What are the requisites for the wife to question the sale; That it must be
during the marriage and within 10 years from the sale; The sale is
voidable in its entirety
In the case at bar, there is no dispute that Lot o. 3-B2, is a conjugal
property having been purchased using the conjugal funds of the
spouses during the subsistence of their marriage. It is beyond cavil
therefore that the sale of said lot to respondent spouses without the
knowledge and consent of Ignacia is voidable. Her action to annul the
March , 3 sale which was filed on June , 6, before her demise is perfectly
within the year prescriptive period under Article 3 of the Civil Code.
ven if we reckon the period from ovember 2, which was the date when
Vicente and the respondent spouses entered into a contract concerning
Lot o. 3-B-2, Ignacia’s action would still be within the prescribed period.
Rule: When a husband alienates encumbers conjugal property without
consent such is VOIDABLE
the husband could not alienate or encumber any conjugal real property
without the consent, express or implied, of the wife otherwise, the
contract is voidable. Indeed, in several cases the Court had ruled that
such alienation or encumbrance by the husband is void. The better view,
however, is to consider the transaction as merely voidable and not void.
This is consistent with Article 173 of the Civil Code pursuant to which
the wife could, during the marriage and within years from the
questioned transaction, seek its annulment.
Rule: annulled in its entirety
alienation or encumbrance must be annulled in its entirety and not only
insofar as the share of the wife in the conjugal property is concerned.
Guiang v CA
Where husband sold their conjugal property on March 1, 1990 after
effectivity of FC without Gildas consent;
HELD: The sale is void; anent the amicable settlement which arose from
the said void contract the same is VOID.
Under the Civil Code (for marriages before Aug 3, 1988)
Under Article 166 of the Civil Code, the husband cannot generally
alienate or encumber any real property of the conjugal partnership
without the wife’s consent. The alienation or encumbrance if so made
however is not null and void. It is merely voidable. The offended wife
may bring an action to annul the said alienation or encumbrance. Article
173 gives the wife ten (10) years x x x during [the] marriage to annul the
alienation or encumbrance was not carried over to the Family Code. It
is thus clear that any alienation or encumbrance made after August 3,
1988 when the Family Code took effect by the husband of the conjugal
partnership property without the consent of the wife is null and void.
Ainza v Sps Padua
Where Eugenia sold a lot of conjugal ownership to concepcion on April
1987. Antonio annulled only on April 1999
HELD: The sale falls under the Civil Code and the sale is voidable.
However in this case the right to annul the purported contract has
prescribed. There was no deed of Absolute Sale only an oral agreement
and such prescribes in 6 years; even applying the 10 year period; the
right to annul the sale by the husband has prescribed.
Fuentes v Roca
This involves a sale by Tarciano of conjugal property whereby he forged
the signature of his wife to the prejudice of herein parties. He sold the
property on Jan 11, 1989.
HELD: Sale was executed after the effectivity of the Family Code. Hence
the sale is void. It has no legal effect. It cannot be validated by
prescription.
Article 124 of the FC does not provide a period for wife to annul the sale;
it simply states that the same is VOID;
In contrast to Article 173 of the Civil Code, Article 124 of the Family
Code does not provide a period within which the wife who gave no
consent may assail her husband’s sale of the real property. It simply
provides that without the other spouse’s written consent or a court
order allowing the sale, the same would be void.
A void contract cannot be validated by prescription it has no effect and
the action to declare its inexistence does not prescribe. (as opposed to
that in the Civil Code where the right to annul by the spouse prescribes
in 10 years)
Under the provisions of the Civil Code governing contracts, a void or
inexistent contract has no force and effect from the very beginning. And
this rule applies to contracts that are declared void by positive provision
of law, as in the case of a sale of conjugal property without the other
spouse’s written consent. A void contract is equivalent to nothing and
is absolutely wanting in civil effects. It cannot be validated either by
ratification or prescription
Aggabao v Parulan
Where Sps. Aggabao bought from Ma. Elena a property owned by her
and her spouse Dionisio, an alleged SPA was presented by Ma. Elena
that her husband consents; Sale on March 18,1991; Aggabao later learns
upon full payment, that owners duplicate title is in the possession of
Atty. Parulan (who represents Dionisio) and that the SPA by Dionisio
allegedly consenting to the sale of conjugal property was forged.
HELD: Article 124 of the Family Code prohibiting sale of conjugal
property without consent of spouse or court authority is applicable since
the sale was effected after Aug 3 1988; Hence, sale is void but is a
continuing offer between Ma. Elena and Aggabao and may be perfected
19 | SALES – 1ST EXAMINATION | 2018 |
upon acceptance by Dionisio before offer is withdrawn by either or both
offerors.
Family Code repealed entire Title VI of the Civil Code including Articles
173
To start with, Article 254 the Family Code has expressly repealed several
titles under the Civil Code, among them the entire Title VI in which the
provisions on the property relations between husband and wife, Article
173 included, are found
Power of administration does not include acts of disposition or
encumberance
Nonetheless, we stress that the power of administration does not
include acts of disposition or encumbrance, which are acts of strict
ownership. As such, an authority to dispose cannot proceed from an
authority to administer, and vice versa, for the two powers may only be
exercised by an agent by following the provisions on agency of the Civil
Code (from Article 1876 to Article 1878). Specifically, the apparent
authority of Atty. Parulan, being a special agency, was limited to the
sale of the property in question, and did not include or extend to the
power to administer the property.
Sale is void but is a continuing offer
The last sentence of the second paragraph of Article 124 of the Family
Code makes this clear, stating that in the absence of the other spouses
consent, the transaction should be construed as a continuing offer on the
part of the consenting spouse and the third person, and may be
perfected as a binding contract upon the acceptance by the other spouse
or upon authorization by the court before the offer is withdrawn by
either or both offerors.
Pelayo v Perez
Sps. Pelayo claim to have sold a lot to Perez “fictitiously” to ward off
illegal settles since according to them Atty. Perez is an activist. (Jan 11,
1988) Mrs. Pelayo however signed only on the 3rd page as a witness;
Later Mr. Pelayo claims that the sale is voidable for it is without the
consent of his wife.
HELD: Sale was entered during the Civil Code; Contract is voidable but
implied consent was given by Mrs. Pelayo when she signed as a witness;
If Lorenza had any objections over the conveyance of the disputed
property, she could have totally refrained from having any part in the
execution of the deed of sale. Instead, Lorenza even affixed her signature
thereto. If Lorenza had any objections over the conveyance of the
disputed property, she could have totally refrained from having any
part in the execution of the deed of sale. Instead, Lorenza even affixed
her signature thereto.
Abalos v Macatangay Jr
Receipt of Memorandum of Agreement was entered into by the
husband on Oct 17 1988; Contract to sell was subsequently eneterd into
by the wide on Nov 16,1989.
HELD: Receipt of Memorandum of Agreement is an option without
consideration Nonetheless if it was a sale the same is VOID; Where
conformity is elucidated in 2 separate documents with 2 separate
signatures and terms there is no valid transaction; Further, even if there
was a disposal of ½ share sale is still void since the respective portions
of each spouse does not vest until liquidation of conjugal partnership.
Even on the supposition that the parties only disposed of their
respective shares in the property, the sale, assuming that it exists, is still
void for as previously stated, the right of the husband or the wife to one-
half of the conjugal assets does not vest until the liquidation of the
conjugal partnership. Nemo dat qui non habet. No one can give what
he has not.
The conformity of both spouses must be contained in the SAME
document; not on two separate ones with varying terms.
The congruence of the wills of the spouses is essential for the valid
disposition of conjugal property. Where the conveyance is contained in
the same document which bears the conformity of both husband and
wife, there could be no question on the validity of the transaction. But
when there are two documents on which the signatures of the spouses
separately appear, textual concordance of the documents is
indispensable. Hence, in this case where the wifes putative consent to
the sale of conjugal property appears in a separate document which
does not, however, contain the same terms and conditions as in the first
document signed by the husband, a valid transaction could not have
arisen.
Calimlim v Fortun
Where husband sold the lot to a concubine on April 15, 1980 claiming
that it his paraphernal property; And now the concubine wants to eject
the wife.
HELD: Where conjugal house was built on land of Mr Canullas (which
he inherited) Article 158 of the Civil Code provides that the land and the
building are part of the Conjugal partnership; only that the conjugal
partnership owes Mr. Canullas reimbursement for the value of the lot.
Hence the sale to concubine Daquinas is VOID; without the consent fo
the wife; Regardless of such principle, the sale is still void for being
contrary to Morals and Public Policy.
we find that the contract of sale was null and void for being contrary to
morals and public policy. The sale was made by a husband in favor of a
concubine after he had abandoned his family and left the conjugal home
where his wife and children lived and from whence they derived their
support. That sale was subversive of the stability of the family, a basic
social institution which public policy cherishes and protects.
Article 158 of the Civil Code
Article 158 of the Civil Code, which reads: “x x x “Buildings constructed
at the expense of the partnership during the marriage on land belonging
to one of the spouses also pertain to the partnership, but the value of
the land shall be reimbursed to the spouse who owns the same.”
We hold that pursuant to the foregoing provision both the land and the
building belong to the conjugal partnership but the conjugal partnership
is indebted to the husband for the value of the land. The spouse owning
the lot becomes a creditor of the conjugal partnership for the value of
the lot,1 which value would be reimbursed at the liquidation of the
conjugal partnership.
Law prohibits sale and donation even between common law spouses
Additionally, the law emphatically prohibits the spouses from selling
property to each other subject to certain exceptions. Similarly, donations
between spouses during marriage are prohibited. And this is so because
if transfers or conveyances between spouses were allowed during
marriage, that would destroy the system of conjugal partnership, a basic
policy in civil law. It was also designed to prevent the exercise of undue
influence by one spouse over the other, as well as to protect the
institution of marriage, which is the cornerstone of family law.
The prohibitions apply to a couple living as husband and wife without
benefit of marriage, otherwise, “the condition of those who incurred
guilt would turn out to be better than those in legal union.” Those
provisions are dictated by public interest and their criterion must be
imposed upon the will of the parties.
20 | SALES – 1ST EXAMINATION | 2018 |

CONSENT – Others Relatively
Disqualified; Guardians, Agents,
Administrators
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be
under his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.
(6) Any others specially disqualified by law.
Philippine Trust Co. v Roldan
Roldan was the guardian of minor Mariano Bernardo who owned 17
parcels of land. Roldan obtained court authority to sell these lands to
her brother in law Fidel Ramos in order to build a residential house. The
court approved and a sale for 14,700 was effected. (July 27 1947) a week
after on aug 5 1947 Ramos sold the lot to Roldan for 15,000 and on oct
21 1947 Roldan sold the lot to Cruz. Guardianship was transferred to
Phil trust and it filed this petition to annul the three sales by virtue of
art 1459 of the (old) civil code.
HELD: The court held that roldan sold the properties at a lesser price to
ramos. Further the dates of the two sales were only 1 week apart. In
addition the supposed residential lot was not constructed solely on the
14,500 price for the lots. These suspicions led the court to believe that
Art 1459 (1491 in New CC) of the civil code applies which prohibits
guardians from acquiring their wards property. Hence the court
annulled the three contracts of sale and ordered roldan to deliver or
return the land to Bernardo and pay the fruits beginning from 1947.
Guardianship is trust of the highest order
Remembering the general doctrine that guardianship is a trust of the
highest order, and the trustee cannot be allowed to have any
inducement to neglect his ward's interest and in line with the court's
suspicion whenever the guardian acquires the ward's property we have
no hesitation to declare that in this case, in the eyes of the law, Socorro
Roldan took by purchase her ward's parcels thru Dr. Ramos, and that
Article 1459 of the Civil Code applies.
Distajo v CA
This case involves a dispute among the heirs of Iluminada abiertas
regarding 7 parcels of land that she sold to her son rufo Disfajo. Rufo
Distajo was designated as administrator of her parcels of land, later
Iluminada sells her land to Rufo Distajo. When she died, her heirs
represented by ricardo distajo demanded possession of those lots. They
claim forgery and fraudulent machinations as well as the prohibition for
administrators to acquire the properties under his administration.
HELD: The Court held that as to the forgery and fraudulent
machination no substantial evidence to corroborate their claim was
presented. Further the Court held that Art 1491 which prohibits admin
from obtaining property under their administration does not apply
when principal consents to the sale of the property in the hands of the
administrator as in this case where iluminada signed and showed her
consent for the sale to rufo distajo.
In this case, the deeds of sale signed by Iluminada Abiertas shows that
she gave consent to the sale of the properties in favor of her son, Rufo,
who was the administrator of the properties. Thus, the consent of the
principal Iluminada Abiertas removes the transaction out of the
prohibition contained in Article 1491(2).
Prohibition in 1491(2) does not apply when principal consents
the prohibition against agents purchasing property in their hands for
sale or management is not absolute. It does not apply if the principal
consents to the sale of the property in the hands of the agent or
administrator.
Cui v Cui
This case involves a dispute over the exclusive property of Don mariano
which was later proven to be donated to him by his aunt. Jesus Cui
sought the annulment of that the sale executed by Don Mariano in favor
of Antonio Cui claiming that such was executed by his sickly father who
was then 83 years old and incompetent. Jesus mariano claims such
execution was attended with fraud and undue influence by Antonio cui
and his wife who were living together with Don Mariano; that they
could not have paid the consideration and that such property was not
the exclusive property of Don Mariano but is part of conjugal
partnership and must be partitioned among the heirs.
HELD: The Court held that although at the time of execution of sale
Don Mariano was already 84, sickly, and forgetful several documents
and acts executed by him before and after such sale prove that his
mental faculties were sufficient to allow him to understand the nature
and effect of his transactions. For example, there were several letters
executed by don Mariano even after said sale to his children, rosario,
Ramon aboitiz to whom he has a debt, herein petitioner Jesus cui. Don
Mariano even sent a letter to his children allowing them to purchase his
lots, but because Jesus et al could not purchase; it was only antonio cui
who was able to purchase a lot. Rosario who was included in the sale
was even asked by don mariano to transfer back to him the property
through a resale since she could not pay. Clearly these acts prove the
mental faculties of don mariano.
Further the court held that under Art 1459 of the old CC; An agent or
administrator is not allowed to purchase property in his hands or
management. However in this case the sale to antonio cui while he was
an agent or administrator cannot now be invoked because
1. The contention was first raised on appeal and was never raised during
at the trial court
2. That the power of attorney which made antonio agent or
administrator referred not to the exclusive property of don mariano but
to that of his conjugal properties.
3. The prohibition under 1491 was changed when the new civil code took
effect allowing sale by agent or administrator provided the principal
gives his consent. Court held this should be applied retroactively since
no vested rights are impaired here.
Agent may acquire property provided the principal consents
Hence petition is dismissed. Sale to antonio cui is valid.
Under the provisions of article 1491, section 2, of the new Civil Code, an
agent may now buy property placed in his hands for sale or
21 | SALES – 1ST EXAMINATION | 2018 |
administration, provided that the principal gives his consent thereto.
While the new Code came into effect only on August 30, 1950, however,
since this is a right that is declared for the first time, the same may be
given retroactive effect if no vested or acquired right is impaired (Article
2253, new Civil Code). During the lifetime Don Mariano, and
particularly on March 8, 1946, the herein appellants could not claim any
vested or acquired right in these properties, for, as heirs, the most they
had was a mere expectancy.
CONSENT – Attorneys
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be
under his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.
(6) Any others specially disqualified by law.
Valencia v Cabanting
This is an administrative case against 3 lawyers Cabanting, antiniw and
Jovellanos. The Valencias filed a complaint against atty Jovellano and
Cabanting for violatiom of Art 1491 of the Civil Code which prohibits
lawyers from purchasing property under litigation.
HELD: The Court held that art 1491 applies only when litigation is
pending. In this case, with respect to atty cabanting, when the lot was
purchased by him there was still a pending certiorari proceeding hence
the thing is still under litigation and purchase by it constituted
malpractice and a violation of 1491 and the canons of professonal ethics.
With respect to atty. Jovellana, sale to him was not malpractice since
there was no Attorney-Client relationship with serapia hence he is not
covered under 1491 or the canons.
In this cases sps valencia also allege falsification of documents and
conspiracy among the lawyers but only the complaint against atty
antiniw was proved hence he was disbarred. The complaints to
cabanting and Jovellano were not well taken by the court for lack of
convincing evidence. Cabanting was suspended and case against
jovellano dismissed.
Anent 1491 of the CC
Public policy prohibits the transactions in view of the fiduciary
relationship involved. It is intended to curtail any undue influence of
the lawyer upon his client. Greed may get the better of the sentiments
of loyalty and disinterestedness. Any violation of this prohibition would
constitute malpractice and is ground for suspension. Art. 1491,
prohibiting the sale to the counsel concerned, applies only while the
litigation is pending.
When is a thing under litigation
A thing is said to be in litigation not only if there is some contest or
litigation over it in court, but also from the moment that it becomes
subject to the judicial action of the judge.
Certiorari proceedings are included in scope of “under litigation”
Logic dictates, in certiorari proceedings, that the appellate court may
either grant or dismiss the petition. Hence, it is not safe to conclude, for
purposes under Art. 1491 that the litigation has terminated when the
judgment of the trial court become final while a certiorari connected
therewith is still in progress.
Director of Lands v Ababa
In this case Alberto Fernandez is the counsel of Maximo Abarquez with
respect to a litigation regarding his share in the estate of his deceased
parents. Maximo having no money to pay his counsel obliges himself to
give his lawyer Fernandez 1/2 of whatever he may recover. Having won
the litigation, Maximo later refuses to honor his obligation. And
Fernandez files an adverse claim with respect to his interest over the
property. Abarquez claim that such contingent fee arrangement is
violative of Art. 1491 of the CC which prohibits lawyers from obtaining
property subject of litigation and is also violative of the Code of
Professional Responsibility for lawyers.
HELD: However in this case the Court reiterated that the prohibition
under Art 1491 applies only to property under litigation. Where
property is sold after the completion of litigation such is not covered
under Art 1491. Further contingent fee arrangement is not covered under
Art 1491 because transfer or assignment of property in litigation takes
effect only after the finality of a favorable judgement.
Hence in the instant case the agreement between atty fernandez and
abarques is contingent upon the success of his litigation and the transfer
takes effect thereafter. Hence the contract is not prohibited. Further the
court held that a contingent fee is not violative of the Code of
Professional Responsibility since canon 10 in relation to canon 13 allows
contigent fee contracts. Further although contingent fees are subject to
scrutiny by courts for undue influence or fraud those are held not
present in this case. Finally, the adverse claim was the proper remedy
for atty. Fernandez.
What article 1491 prohibits
Article 1491 prohibits only the sale or assignment between the lawyer
and his client, of property which is the subject of litigation. As WE have
already stated: “The prohibition in said article applies only to a sale or
assignment to the lawyer by his client of the property which is the
subject of litigation. In other words, for the prohibition to operate, the
sale or assignment of the property must take place during the pendency
of the litigation involving the property
the prohibition does not apply to cases where after completion of
litigation the lawyer accepts on account of his fee, an interest in the
assets realized by the litigation
A contract for a contingent fee is not covered
A contract for a contingent fee is not covered by Article 1491 because the
transfer or assignment of the property in litigation takes effect only after
the finality of a favorable judgment.
Conjugal Partnership of Sps Cadavedo v.
Lacaya
In this case sps Cadavedo acquired a lot through homestead patent; the
same lot was sold within the 5 year from acquisition; hence within the
prohibition for sale of homestead lot. Cadavedo hired atty bandal who
was later substituted by atty vic lacaya. Sps cadavedo and atty lacaya
22 | SALES – 1ST EXAMINATION | 2018 |
entered into a written agreement for contingent fee basis that 2,000 will
be paid as attorneys fees to atty. Lacaya.
Atty. Lacaya undertook the expenses of the case allowing sps cadavedo
to win. later on they allegedly entered into an oral agreement that
because atty. Lacaya undertook the expenses he deserves 1/2 portion of
the subject property. They subsequently entered into a compromise
agreement to adjust the area and portion of lacaya's share.
Sps Cadavedo later file before the court claiming that their agreement
was a champertous contract and void for public policy, further 1/2 of
the property is excessive. In addition they claimed that lacaya's
acquisition of lot was violative of art 1491 prohibiting transfer of
property subject of litigation to their lawyer.
HELD:In this case the Court held that
1. The written contingent fee of 2,000 prevails over the oral agreement
providing 1/2 of the property to atty. Lacaya
2. Further the contingent fee as to the transfer of 1/2 of the prop is
considered a champertous contract and is void for public policy
3. The attorneys fees consisting of one half of the subject lot is excessive
and unconscionable since no technical or special skills was employed by
atty lacaya.
4. Atty lacaya's acquisition of 1/2 portion is violative of art 1491 of the
civil code because such property was transferred while a civil case and
a motion for writ of execution was pending before the lower courts.
Hence such transfer is void.
5. Finally, the court upon fixing attys fees upon quantum meruit basis
finds that it is just to hold that Atty Lacaya is entitled to 2 hectares or
1/10th of the property for his services
Champertous Contract
champertous contracts, namely, that the lawyer must also, “at his own
expense maintain, and take all the risks of, the litigation.
A thing is in litigation
A thing is in litigation if there is a contest or litigation over it in court or
when it is subject of the judicial action.
Contingent Fee Contract
While contingent fee agreements are indeed recognized in this
jurisdiction as a valid exception to the prohibitions under Article 1491
(5) of the Civil Code, contrary to the CA’s position, however, this
recognition does not apply to the present case. A contingent fee contract
is an agreement in writing where the fee, often a fixed percentage of
what may be recovered in the action, is made to depend upon the
success of the litigation. The payment of the contingent fee is not made
during the pendency of the litigation involving the client’s property but
only after the judgment has been rendered in the case handled by the
lawyer
Pena v Delos Santos
Sps Jesus and Rosita Delos santos were judgement awardees as against
Vicente Delos Santos. Jesus and Rosita through an "attorneys agreement
and undertaking" assigned and sold 2,000sqm of their land to their
counsel Atty. robiso as contingent fee during pendency of an appeal by
Delos Santos. This land was then sold by atty robiso to herein petitioner
Pena.
HELD: The Court held that Pena has no legal standing over this case
since the property was transferred to atty. Robiso while the subject lots
were still in the appellate jurisdiction stage. This transfer is therefore
violative of art 1491(5) which prohibits lawyers from obtaining subject
lots which are the subject of litigation.
Hence such transfer is void ab initio and therefore no rights could have
validly transferred to Pena. The court further held that a contingent fee
is allowed because such only includes a transfer after litigation and not
pending litigation. This prohibition is in view of the fiduciary
relationship of trust and confidence between the lawyer and his client
and to avoid an attorney from taking advantage of the ignorance of his
client. Being void ab initio there is also no application of the principle of
estoppel as contended by pena.
Contingent Fee
“A contingent fee contract is an agreement in writing where the fee,
often a fixed percentage of what may be recovered in the action, is made
to depend upon the success of the litigation. The payment of the
contingent fee is not made during the pendency of the litigation
involving the client’s property but only after the judgment has been
rendered in the case handled by the lawyer.”
Rationale of 1491(5)
The rationale advanced for the prohibition in Article 1491(5) is that
public policy disallows the transactions in view of the fiduciary
relationship involved, i.e., the relation of trust and confidence and the
peculiar control exercised by these persons. It is founded on public
policy because, by virtue of his office, an attorney may easily take
advantage of the credulity and ignorance of his client and unduly enrich
himself at the expense of his client. The principle of estoppel runs
counter to this policy and to apply it in this case will be tantamount to
sanctioning a prohibited and void transaction.
Daroy v Abecia
Article 1491 finds no application in this case. Here Daroy who won in a
litigation before the RTC, with Atty Abecia as his counsel intended to
transfer the subject parcel of land to Atty. Abecia but because they
thought such was prohibited under art 1491 they executed a deed of
absolute sale notarized in the presence of daroy and his wife in favor of
GANGAY who is the husband of the sister of atty. Abecias wife.
GANGAY then conveyed the land to Nena Abecia wife of atty. Abecia.
(It appears that there was orginally a fictitious deed of absolute sale.)
Later on Daroy goes to court and denies such sale claiming his signature
was forged by atty. Abecia; Daroy presents an NBI report proving
forgery.
HELD: However the court in this case held that what appears to have
happened is that the parties were mistaken thinking that atty.Abecia
could not validly acquire land as counsel of daroy in the subject
litigation. Hence, they executed a fictitious sale. However, the court
upheld the intention of Daroy to convey property to Atty. Abecia and
held that Daroy's claim of forgery is belied by the fact that the notary
public affirmed Daroy and his wife's appearance and signature upon
notarization of the fictitious deed of sale. Note this is not contrary to
1491 since the transfer was effected after litigation not pending
litigation.
Difference of prohibition with respect to judges and with respect to
attorneys;
the prohibition in Art. 1491 does not apply to the sale of a parcel of land,
acquired by a client to satisfy a judgment in his favor, to his attorney as
long as the property was not the subject of the litigation. For indeed,
while judges, prosecuting the prohibition with respect to
attorneys, and others connected attorneys
with the administration of
justice
are prohibited from acquiring extends only to “property and
“property or rights in litigation rights which may be the object of
or levied upon in execution,” any litigation in which they may
take part by virtue of their
profession.”
Ramos v Ngaseo
Ramos files against Ngaseo a complaint for violation of art 1491 of the
CC prohibiting transfer of ownership of property subject in a pending
litigation. Here, ramos claims that ngaseo was his counsel on a litigation
and their previous agreement was for ramos to pay 20,000 acceptance
fee and 1,000 appearance fee. That said atty ngaseo filed a belated appeal
23 | SALES – 1ST EXAMINATION | 2018 |
and even sought, through a written demand, for 1000sqm from his
property after Ramos obtained favorable judgement. An administrative
case was filed against atty. Ngaseo for violating 1491 and the Code of
Professional Responsibility.
HELD: This court however held that Art 1491 of CC does not apply in
this case since there was no actual transfer of the litigated property
either by purchase or assignment in favor of atty. Ngaseo only a written
demand for its delivery was effected and refused by Ramos. Mere
demand does not cause transfer of ownership hence this is not a
prohibited transaction contemplated under art 1491. Atty Ngaseo was
only reprimanded.
1491 discussion
Under Article 1491(5) of the Civil Code, lawyers are prohibited from
acquiring either by purchase or assignment the property or rights
involved which are the object of the litigation in which they intervene
by virtue of their profession. The prohibition on purchase is all
embracing to include not only sales to private individuals but also
public or judicial sales. The rationale advanced for the prohibition is
that public policy disallows the transactions in view of the fiduciary
relationship involved, i.e., the relation of trust and confidence and the
peculiar control exercised by these persons. It is founded on public
policy because, by virtue of his office, an attorney may easily take
advantage of the credulity and ignorance of his client and unduly enrich
himself at the expense of his client. However, the said prohibition
applies only if the sale or assignment of the property takes place during
the pendency of the litigation involving the client’s property.
Consequently, where the property is acquired after the termination of
the case, no violation of paragraph 5, Article 1491 of the Civil Code
attaches.
CONSENT – Judges
Art. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(1) The guardian, the property of the person or persons who may be
under his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior
courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any
litigation in which they may take part by virtue of their profession.
(6) Any others specially disqualified by law.
Gan Tingco v Pabinguit
Candida Acabo the owner of 6 parcels of land sold the same to Gan
Tingco. However, Gan Tingco cannot take possession of the property
since it is in the possession of Silvino Pabinguit who claims he bought it
from Faustino Abad who bought it from HENRY GARDNER. Henry
Gardner was herein Justice of Peace for an action to recover a certain
sum of money by creditors from Candida Acabo. Henry Gardner had
ordered the public sale of Acabo's lots to satisfy the judgement and at
the same time Henry Gardner as justice of peace ended up as the
winning bidder.
Hence the issue here is whether the subject property sold to satisfy a
recovery of a sum of money can be considered property subject of
litigation hence in effect causing such sale to the Justice of Peace void.
HELD: Settled is the rule that Art 1459 prohibits judges from acquiring
by purchase a property subject of litigation in his court. The Court held
that yes it is improper for a judge to acquire a property though not
directly litigated in his court is nevertheless sold as the result of a writ
of execution issued by him for what the law intends to avoid is the
improper interference with and interest of a judge in a thing levied upon
and sold by his order.
Note: When it comes to judges it is no required that the thing is under
litigation under his court; it is enough that he ordered the sale of such
property;
Article 1459 (old) 1491 New Civil Code:
article 1459, No. 5, of the Civil Code, prohibits judges from acquiring by
purchase, even at public or judicial sale, either in person or by an agent,
any property or rights litigated in the court in the jurisdiction or territory
within which they exercise their respective duties; this prohibition
includes the taking of property by assignment.
The prohibition applies to property though not directly litigated in his
court is nevertheless levied upon and sold as the result of a writ of
execution issued by him
In effect, it appears to be as delicate a matter for a judge to take part in
the sale of property that had been the subject of litigation in his court, as
to intervene in the auction of property which, though not directly
litigated in his court, is nevertheless levied upon and sold as the result
of a writ of execution issued by him. What the law intends to avoid is
the improper interference with and interest of a judge in a thing levied
upon and sold by his order.
Macariola v Asuncion
This case began through a case for partition involving Bernardita
Macariola as an heir of the deceased Francisco Reyes; this case is under
litigation by Judge Asuncion. A decision was rendered regarding the
partition and since no appeal has been made the same became final on
1963.
That a portion of the subject property was later sold by the Reyeses to
Dr. acardio galapan who later sold such lot the Judge Asuncion and his
wife Victoria Asuncion on 1965.
Macariola then files before the Court claiming that such acquisition by
the judge through purchase was void for being contrary to art. 1491
paragraph 5.
HELD: The Court held that no it is not void because the prohibition
under Art 1491 applies only to sale or assignment of property during or
in pendency of the litigation involving the property. Here the property
was sold to the Judge years after the case has attained finality. Further,
there is no showing that Dr. Acardio was used as a dummy by him for
such sale. In addition in this case the Court held that anent the other
allegations of Macariola, Judge Asuncion did not violate the provisions
of Art 14 of the Code of Commerce and Section 3(h) of the Anti-graft
and Corrupt practices Act as well as Section 12 Rule 18 of the Civil
Service Rules. However, the court reminded Judge Asuncion of Canon
3 and 25 of the Canons of Judicial Ethics that he should be more discreet
in his private and business activities because his conduct as a member
of the Judiciary must not only be characterized with propriety but must
always be above suspicion.
24 | SALES – 1ST EXAMINATION | 2018 |
On Judicial ethics written in English. Finally, the Court held that Akang here is barred by
"A judge's official conduct should be free from the appearance of laches.
impropriety, and his personal behavior, not only upon the bench and in
the performance of judicial duties, but also in his everyday life, should
be beyond reproach."

One who occupies an exalted position in the judiciary has the duty and
responsibility of maintaining the faith and trust of the citizenry in the
courts of justice, so that not only must he be truly honest and just, but
his actuations must be such as not give cause for doubt and mistrust in
the uprightness of his administration of justice.

he should be reminded to be more discreet in his private and business

activities, because his conduct as a member of the Judiciary must not
only be characterized with propriety but must always be above
suspicion.

On 1491
The prohibition in the aforesaid Article applies only to the sale or
assignment of the property which is the subject of litigation to the
persons disqualified therein. WE have already ruled that "... for the
prohibition to operate, the sale or assignment of the property must take
place during the pendency of the litigation involving the property"

RA 3872 – AN ACT TO AMEND CA 141

sections 44 and 120
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 of conveyance or encumbrances is written. Conveyances
or encumbrances made by illiterate non-Christian or literate non-
Christians where the instrument of conveyance or encumbrance is in a
language not understood by the said literate non-Christians shall not be
valid unless duly approved by the Chairman of the Commission on
National Integration."

Akang v Municipality of Isulan

Ali Akang sold a 2 hectare lot to Municipality of Isulan Province of
Sultan Kudarat through a Deed of Sale. The municipality immediately
took possession of the lot. After 34 years Akang and his wife filed a civil
action for Recovery of Possession claiming that the sale with the
Municipality was one of Contract to sell and that it was not
consummated since the price was not paid. Further he claims that he
that he is an illiterate non christian who only knows how to sign his
name in Arabic and knows how to read the Quran but can neither read
nor write in both Arabic and English. Hence the sale is not duly
approved in Accordance with Sections 145 and 146 of the Admin Code
of Mindanao and Sulu as well as by CA 141 or RA 3872.
The issue in this case is whether said sale is void for not being approved
in accordance with RA 3872.

HELD: The Court held that first there was a perfect contract of sale since
all elements of the contract are present and that payment of the purchase
price is immaterial in the perfection of the contract which is perfected
by mere consent. Further the Court held that Sec 145, 146 of the
Administrative Code of Mindanao and Sulu and RA 3872 provides that
conveyances and encumbrances made by illiterate non-Christians
where the instrument of conveyance or encumbrance is in a language
not understood by said illiterate Christian shall not be valid unless duly
approved by the Chairman of the Commision on National Integration.

The Court however held that such provision cannot blindly be applied
in this case since there is nothing on record that proves that Akang was
forced into signing or that he was taken advantage of by the
municipality. Anent his claim that he is an illiterate the same was
rebutted by the fact that he had signed documents such as an SPA

25 | SALES – 1ST EXAMINATION | 2018 |


Subject Matter
Existing, Future, and Contingent
Art. 1461. Things having a potential existence may be the object of the
contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject
to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is void.
Art. 1347. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All rights which
are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases
expressly authorized by law.
All services which are not contrary to law, morals, good customs, public
order or public policy may likewise be the object of a contract.
Sibal v Valdez
That the sheriff by virtue of a writ of execution attached and sold to
Emiliano Valdez the sugar cane planted by Sibal and his tenants on 7
parcels of land; that within 1 year from the date of said attachment and
sale Sibal offered to redeem said sugar cane but Valdez refused claiming
that the said palay is personal property and therefore not subject to
redemption.
Whether or not the sugar cane is real property or personal property.
HELD: Here the Court cited several reports and codes from the State of
California explaining the nature of crops. Further it cited Mechem on
Sales and American cases that a valid sale of a thing not yet actually in
existence may be had for so long as it is specific and identified They
must be also owned at the time by the vendor (Hull v Hull). That
pending crops may be the subject matter of a sale.
However in this case the Court later concludes that for purposes of
attachment and execution and for purposes of the Chattel Mortgage
Law "ungathered products" have the nature of personal property.
Hence, in this case the sugar cane was personal property and not subject
to redemption. Finally, the lots were owned by valdez and Sibal who
planted in good faith is entitled only one half of the 190 cavans to be
harvested therefrom.
Discussion on Subject Matter:
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. Things of
this nature are said to have a potential existence.
A man may sell property of which he is potentially and not actually
possessed. 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 cast of a
fishermans net; or fruits to grow; or young animals not yet in existence;
or the good will 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.
Pichel v Alonzo
Alonzo was awarded by the Phil Gov under RA 477 a parcel of land.
Because he alienated the same his award was cancelled on 1965. And on
1968 he sold the right over all the fruits of the coconut trees which may
be harvested in the land to Pichel
The issue in this case is whether the fruits of the coconut trees on the
land can be subject of the sale.
HELD: The Court held that the fruits which is the subject matter is a
determinate thing. Further the Court cited 1462 of the CC that things
having a potential existence may be the object of the contract of sale.
Hence citing the previous case of Sibal v Valdez that pending crops
which have potential existence may be the subject matter of the sale.
Further that the sale of the nuts of the coconut trees is not sale of a
permanent improvement of the land which is prohibited under RA 477.
Note: Things subject of a resolutory condition may be the object pf a
sale;
Tanedo v CA
Lazaro Tanedo executed a deed of absolute sale in favor of his eldest
brother Ricardo Tanedo and his wife over "one hectare of whatever
share I shall have over Lot No. 191 of the cadastral survey of Gerno
Province of Tarlac" said property being the inheritance of his father.
When his father died he again executed an Affidavit of Conformity "to
reaffirm respect acknowledge and validate sale I made" conflict arose
when Lazaro sold the same property to his heirs.
One of the contentions here against Tanedo is whether a sale of future
inheritance is valid
HELD: and the Court held that a contract of sale of anticipated future
inheritance is null and void. Article 1347 of the Civil Code provides that
no contract may be entered into upon future inheritance except in cases
expressly authorized by law. Hence the contract entered here is not
valid and the subsequent affidavit of conformity which sought to ratify
the previous sale of future inheritance is also void. Anent the sale for
1/12 share to Ricardo Tanedo and the sale in favor the children those
were not affected for they were executed after the death of the father.
Finally, Ricardo Tanedo has a better right over the lot sold to the heirs
since he registered the same first.
Sale of Future inheritance is not valid
it may be legally correct that a contract of sale of anticipated future
inheritance is null and void But to remove all doubts, we hereby
categorically rule that, pursuant to Article 1347 of the Civil Code, (n)o
contract may be entered into upon a future inheritance except in cases
expressly authorized by law.
Heirs of Reyes v Socco-Beltran
The subject property in this case is a parcel of land in Bataan. Socco
spouses had owned the land when they died the property was left the
siblings of Constancia Socco which includes Elena Socco-Beltran. Elena
filed an application to purchase the lot left to her that it was adjudicated
in her favor. The Heirs of Arturo Reyes then filed a protest claiming that
the subject property was sold by Elena's brother (Miguel Socco) in favor
of their father Arturo Reyes through a CONTRACT TO SELL and that
they are in Open Continuous Exclusive Notorious Possession and
Occupation of the property for many years. They claim that One of the
issues raised is whether Miguel Socco had validly transferred the
property to Arturo.
HELD: The Court held that there was no valid transfer since the heirs of
Arturo Reyes cannot derive title to the subject property through a
contract to sell. For in the said contract and made known to both parties
Miguel Socco was not yet the owner of the subject property he was
merely expecting to inherit his share as co-heir of Constancias estate.
26 | SALES – 1ST EXAMINATION | 2018 |
Hence he is not to owner of the property and he cannot validly transfer
the same to arturo Reyes. Therefore Art 1459 of the Civil Code applies;
The thing must be licit and the vendor must have a right to transfer
ownership thereof at the time it is delivered. -the sale is not valid since
the law specifically requires that the vendor must have ownership of the
property at the time it is delivered.
Note: this is a conditional sale with a valid subject matter upon
fulfillment that Miguel inherits; at the time of the sale however by
Miguel to Reyes he has not acquired ownership yet;
Martinez v CA
Sps. Martinez were able to purchase a fishpond in Lubao, Pampanga.
They registered the same in their name. One of the issues in this case is
the claim of the undersecretary of public works and communications
that said lot is a public river hence it forms part of public dominion
which cannot be subject to private appropriation.
HELD: The Court cited Art 339 of the Old Civil Code on property of
public ownership including those destined for public use such as roads
canals rivers torrents ports and bridges constructed by the state and
bank shores roadsteads and that of similar character. These properties
are part of public domain are OUTSIDE THE COMMERCE OF MEN
and not subject to private appropriation. Further that possession of a
Torrens Title does not operate to vest ownership of property of public
domain to sps. Martinez. The Lot No. 2 in the instant case is a branch of
the main river and has been covered by water since time immemorial
therefore it is not capable of private appropriation or acquisition by
prescription.
Property here is outside the commerce of men.
Frenzel v Catito
Alfred Fritz Frenzel is an Australian citizen who is married to Teresita
Santos a Filipino Citizen. Both were separated from Bed and Board
when Frenzel met Ederlina Catito in King's Cross Sydney Australia;
Edrelina is a filipina from Bajada Davao who is married to a German
National Klaus Muller. Both Edrelina and Frenzel decided to live
together and have a business in the Philippines. Frenzel spent for the
travel expenses of Edralina. Here in the Philippines he spent for the
creation of their business which is a beauty Parlor. He later learned
about Edralinas marriage to Klaus but she assured him that she will
divorce Klaus. Frenzel then bought a house for Edralina and 2 other
properties registered in the name of Edralina since he cannot register the
same in his name being an Australian.
Their relationship later turned sour and Frenzel demands that his
properties be conveyed back to him or at least that reimbursements be
made to him for the money he spent on the properties which are now
used by Edralina and her family. Edralina on the other hand claims that
she acquired the properties with her personal fund.
WON Frenzel can obtain relief from the Court.
HELD: The Court held that under the constitution (cited here art 14 sec
14 of the 1973 Consti) Aliens are disqualified from acquiring lands of
public domain as well as private lands. Such sale to the foreigner is a
violation of the constitution and is void ab initio. Therefore, Frezel being
a party to an illegal contract cannot come to court of law and have his
illegal objective carried out. One who loses property by engaging in a
contract which is illegal bears his own losses. hence the law leaves him
where he is found.
Anent the allegation that he acquired the properties because of his desire
to marry edralina the same was held by the court to be a mere
afterthought since he knew that they were both married to someone
else. Even assuming gratia arguendi that they had the capacity to marry
the sales are still void. Anent application of art 1416 the same applies
only to prohibited contracts not to contracts as in this case which are
void ab initio. Further the unjust enrichment doctrine cannot apply since
this case involves a violation of the Constitution and an application of
the in pari delicto doctrine.
Determinate or At least determinable
Art. 1349. The object of every contract must be determinate as to its kind.
The fact that the quantity is not determinate shall not be an obstacle to
the existence of the contract, provided it is possible to determine the
same, without the need of a new contract between the parties
Art. 1460. A thing is determinate when it is particularly designated or
physical segregated from all other of the same class.
The requisite that a thing be determinate is satisfied if at the time the
contract is entered into, the thing is capable of being made determinate
without the necessity of a new or further agreement between the parties.
Art. 1461. Things having a potential existence may be the object of the
contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject
to the condition that the thing will come into existence.
The sale of a vain hope or expectancy is void.
Art. 1462. The goods which form the subject of a contract of sale may be
either existing goods, owned or possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller after the perfection of the
contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose acquisition by the seller
depends upon a contingency which may or may not happen. (n)
Art. 1463. The sole owner of a thing may sell an undivided interest
therein. (n)
Art. 1464. In the case of fungible goods, there may be a sale of an
undivided share of a specific mass, though the seller purports to sell and
the buyer to buy a definite number, weight or measure of the goods in
the mass, and though the number, weight or measure of the goods in
the mass is undetermined. By such a sale the buyer becomes owner in
common of such a share of the mass as the number, weight or measure
bought bears to the number, weight or measure of the mass. If the mass
contains less than the number, weight or measure bought, the buyer
becomes the owner of the whole mass and the seller is bound to make
good the deficiency from goods of the same kind and quality, unless a
contrary intent appears.
Heirs of Juan San Andres v Rodriguez
Juan San Andres sold a portion of his lot to Rodriguez; there was a delivery of
possession with a condition that full payment shall be made within 5 years from
execution of formal deed of sale and after survey is conducted; Juan San Andres
dies, and his appointed administrator sent a letter to collect payment from
Rodriguez; After effecting a survey, the heirs of Juan San Andres claim that the
contract between Juan and Rodriguez was not yet perfected and Rodriguez had
enroached over their property, that the price is inadequate, that there was no
proper consignation, that Rodriguez is barred by laches; Rodriguez on the other
hand contends that the enroached portion was subsequently sold to him by Juan
as "lot adjoining previously paid lot"
HELD: The Court held that the petition of the heirs of Juan San Andres is
without merit; The Court held that the property sold is determinate or
determinable. The fact that the exact area of these adjoining residential
lots is subject to the result of a survey does not detract from the fact
that they are determinate or determinable. Since it bears sufficient
description it is determinable; description here is “the lot adjoining the
previously paid lot” is sufficient.
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Further, the Court held that all the essential elements of a contract are present.
This is not a contract to sell because Juan had undertook to transfer the
ownership thereof to respondent without any qualification, reservation or
condition; hence the contract of sale is absolute not conditional. The stipulation
that the “payment of the full consideration based on a survey shall be due and
payable in five (5) years from the execution of a formal deed of sale” is not a
condition which affects the efficacy of the contract of sale. It merely provides
the manner by which the full consideration is to be computed and the time
within which the same is to be paid. But it does not affect in any manner the
effectivity of the contract. Consequently, the contention that the absence of a
formal deed of sale stipulated in the receipt prevents the happening of a sale has
no merit.
Further; The claim of petitioners that the price of P7,035.00 is iniquitous is
untenable. The amount is based on the agreement of the parties; Finally,
petitioners argue that respondent is barred by prescription and laches from
enforcing the contract. This contention is likewise untenable because there was
proper consignation before the Court.
Melizza v City of IloIlo
What is disputed here is whether Juliana Melliza's donation to the Municpality
of IloIlo (succeeded by City of IloIlo) involves a valid subject matter such that
the area is determinate; Lot in question was subsequently transferred to UP by
the City of IloIlo and a portion of said lot was transferred to Pio San Melliza by
Juliana Melliza; Pio San Melliza now files before the Court assailing the
validity of the donation to the City of IloIlo; Sale was described here as
“whatever you need for City hall site, avenues, parks, according to the arellano
plan. Arellano plan was created since 1928 hence no further agreement was
needed.
HELD: The Court held that the subject property is determinate; Pursuant to Art
1460 of the New CC; 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. Further, 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 and the projected city hall site, with its area,
as then shown in the Arellano plan 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. Finally, the Court held that the rights of
Pio Melliza is barred by laches by reason of its failure to take possession of the
property for twenty long years;
Atiliano v Atiliano
Eulogio Atilano I sold a portion of his property to his brother Eulogio Atilano
II; the rest were sold to other persons and he retained possession of the
remaining lot. Subsequently the brother Eulogio Atilano II found that the
property occuppied by him was lot No. 535 instead of what was purportedly
sold ( lot No. 535-A ) that lot No. 535-A was occupied by the heir of Eulogio
Atiliano I; Because lot No. 535-A has a greater area he demanded that the heir
of Eulogio Atiliano I vacate the area and take posession of lot No. 535;
However because of their refusal, Eulogio Atiliano II filed before the COurt;
HELD: 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 minds 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 or accident (Art. 1359, et seq.)
In this case, the deed of sale executed in 1920 need no longer be 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 two brothers continued in
possession of the respective portions for the rest of their lives, obviously
ignorant of the initial mistake in the designation of the lot subject of the 1920
sale until 1959, when the mistake was discovered for the first time.
National Grains Authority v IAC
National Grains Authority (now National Food Authority, NFA for short) buys
palay grains from qualified farmers; LEON SORIANO offered to sell grains to
the NFA; He was then given a quota 2,640 cavans of palay representing the
maximum number of palay that he may sell to the NGA; However when Soriano
delivered 630 cavans of palay, NFA refused to pay him back accusing him to
be an unqualified or not bona fide farmer; instead they proposed that Soriano
get 630 cavans in their warehouse in lieu of the cavans that he delivered; Hence,
Soriano filed a petition before the Court; Note here that the trial Court rendered
Soriano to ba a bona fide farmer;
HELD: In the case at bar, Soriano initially offered to sell palay grains produced
in his farmland to NFA. When the latter accepted the offer by noting in
Soriano’s Farmer’s Information Sheet a quota of 2,640 cavans, there was
already a meeting of the minds between the parties. The object of the
contract, being the palay grains produced in Soriano’s farmland and the
NFA was to pay the same depending upon its quality.
The fact that the exact number of cavans of palay to be delivered has
not been determined does not affect the perfection of the contract.
Article 1349 of the New Civil Code provides: “x x x. The fact that the
quantity is not determinate shall not be an obstacle to the existence of the
contract, provided it is possible to determine the same, without the need of a
new contract between the parties.”
In this case, there was no need for NFA and Soriano to enter into a new contract
to determine the exact number of cavans of palay to be sold. Soriano can deliver
so much of his produce as long as it does not exceed 2,640 cavans. Finally,
because it was found that Soriano is a bonafide farmer NFA's refusal to pay him
for the cavans delivered is without just cause.
Schuback and Sons v CA
Ramon San Jose representing Philippine SJ Industrial trading ordered MAN bus
spare parts from Germany Johannes Schuback and Sohne Handelsgesellschaft
m.b.n. Co. (Schuback Hamburg). On December 24, 1981, defendant informed
plaintiff of his desire to avail of the prices of the parts at that time and enclosed
its Purchase Order No. 0101. Said Purchase Order contained the item
number, part number and description. Defendant promised to submit the
quantity per unit he wanted to order on December 28 or 29. On December 29,
1981, defendant personally, submitted the quantities he wanted. There was an
agreement that San Jose open a letter credit to avoid delay in shipment and
payment.
The main issue here is whether or not there was a perfected contract of sale and
whether such perfection was On december 24 or upon December 29 when the
quantity of items were determined;
HELD: There was a perfected contract of sale by virtue of the meeting of
their minds On December 24, 1981, San Jose informed Schuback of his
desire to avail of the prices of the parts at the time and simultaneously
enclosed its Purchase Order No. 0101 dated December 14, 1981. At this
stage, a meeting of the minds between vendor and vendee has occurred, the
object of the contract being the spare parts and the consideration, the price
stated in petitioner’s offer dated December 17, 1981 and accepted by the
respondent on December 24, 1981.
Further the Court held that Although the quantity to be ordered was made
determinate only on December 29, 1981, quantity is immaterial in the
perfection of a sales contract. What is of importance is the meeting of
the minds as to the object and cause, which from the facts disclosed, show
that as of December 24, 1981, these essential elements had already concurred.
Finally, the Court held that that the failure to procure a letter of credit does not
prevent the perfection of the contract between the parties, for the opening of a
letter of credit is not to be deemed a suspensive condition. The opening of a
letter of credit in favor of a vendor is only a mode of payment. It is not among
the essential requirements of a contract of sale enumerated in Article 1305 and
1474 of the Civil Code, the absence of any of which will prevent the perfection
of the contract from taking place.
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Obligation to Transfer ownership
Art. 1505. Subject to the provisions of this Title, where goods are sold by
a person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had, unless the owner of the goods is by
his conduct precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or any other
provision of law enabling the apparent owner of goods to dispose of
them as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or
under the order of a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws.
Art. 1434. When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor acquires title
thereto, such title passes by operation of law to the buyer or grantee.
Art. 1911. Even when the agent has exceeded his authority, the principal
is solidarily liable with the agent if the former allowed the latter to act
as though he had full powers.
Art. 1898. If the agent contracts in the name of the principal, exceeding
the scope of his authority, and the principal does not ratify the contract,
it shall be void if the party with whom the agent contracted is aware of
the limits of the powers granted by the principal. In this case, however,
the agent is liable if he undertook to secure the principal's ratification.
Art. 559. The possession of movable property acquired in good faith is
equivalent to a title. Nevertheless, one who has lost any movable or has
been unlawfully deprived thereof may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the owner has been
unlawfully deprived, has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid
therefor.
Art. 1506. Where the seller of goods has a voidable title thereto, but his
title has not been avoided at the time of the sale, the buyer acquires a
good title to the goods, provided he buys them in good faith, for value,
and without notice of the seller's defect of title.
Alcantara-Daus v De Leon
Hermoso de Leon inherited from his father a lot; He sought the services of Atty.
Florencio Juan to take care of the documents of the properties; They eventually
discover that the properties had been conveyed through sale or quitclaim to
Hermoso's brothers and Sisters when no conveyance was made by him. His
signature on a quitclaim in favor of his brother Rodolfo de Leon was forged.
That said lot was sold by Rodolfo to Aurora Alcantara who claims that she is a
buyer in good faith;
HELD: Undisputed is the fact that at the time of the sale, Rodolfo de Leon was
not the owner of the land he delivered to petitioner. Thus, the consummation of
the contract and the consequent transfer of ownership would depend on whether
he subsequently acquired ownership of the land in accordance with Article
1434; However the court found that their extrajudicial partition in this case was
forged; Aurora Alcantara was not in good faith since the property of Hermoso
was registered; Finally, respondents are not barred by laches after having filed
the case within 30 year period. Regardless; the assertion of laches to thwart the
claim of respondents is foreclosed, because the Deed upon which petitioner
bases her claim is a forged.
Seller’s ownership is not an element in the perfection of the contract; he
need only have ownership during the delivery
A contract of sale is consensual. It is perfected by mere consent, upon a meeting
of the minds on the offer and the acceptance thereof based on subject matter,
price and terms of payment. At this stage, the seller’s ownership of the thing
sold is not an element in the perfection of the contract of sale. The contract,
however, creates an obligation on the part of the seller to transfer ownership
and to deliver the subject matter of the contract.
It is during the delivery that the law requires the seller to have the right
to transfer ownership of the thing sold. In general, a perfected contract of
sale cannot be challenged on the ground of the seller’s non-ownership of the
thing sold at the time of the perfection of the contract
Further, even after the contract of sale has been perfected between the
parties, its consummation by delivery is yet another matter. It is
through tradition or delivery that the buyer acquires the real right of
ownership over the thing sold.
Nool v Court of Appeals
This case involves Two parcels of land owned by Conchita Nool and Gaudencio
Almojera (sps nool and almojera); these lands were used as a REM to secure a
loan from DBP; for failure to settle their obligation the REM was foreclosed
and title was issued to DBP; Ancleto Nool then purchased the lot from DBP
and title was issued under his name. Sps Nool and Almojera now claim that said
property is theirs hence they entered into a deed of sale with Anacleto Nool
whereby nool paid 30,000 pesos as downpayment to purchase the lot this is
evidenced by exhibit C and exhibit D;
HELD: The Court however held that exhibit C and exhibit D is void because
Sps Nool and Almojera no longer had ownership over the property and
could therefore not sell what they do not have to Anacleto who is the
real owner;
In the present case however, it is likewise clear that the sellers can no longer
deliver the object of the sale to the buyers, as the buyers themselves have
already acquired title and delivery thereof from the rightful owner, the
DBP. Thus, such contract may be deemed to be inoperative and may thus
fall, by analogy, under item No. 5 of Article 1409 of the Civil Code:
“Those which contemplate an impossible service.” Article 1459 of the
Civil Code provides that “the vendor must have a right to transfer the ownership
thereof [object of the sale] at the time it is delivered.” Here, delivery of
ownership is no longer possible. It has become impossible.
Further the Court held that there can be no valid "repurchase" by sps Nool and
almojeres because one can only "repurchase" what one has previously sold.
Further the properties were owned by Anacleto nool an heir to the homestead
grantee hence the rationale of the Homestead Act to keep the land within the
family of the grantee is fulfilled; Further there is no showing that Francis'
purchase was by virtue of trust; Moreover, Anacleto Nool's act of implementing
the void contract of sale cannot give validity to what was already a palpably
void contract. Finally, the spouses nool and almojeres, by virtue of the void
contract of sale must restore payment by Anacleto of 30,000.00.
Heirs of Severina San Miguel v Court of
Appeals
Severina San Miguel owned a parcel of land; without her knowledge
Dominador caused the subdivision of the lots to threee and sought for the
issuance of a title under his name; This was declared void by the lower court
and an OCT was issued in the name of Severina. Instead of pursuing with the
writ of possession and demolition Severina and Dominador enter into a
Compromise or Kasunduan where Severina agrees to sell the lot for 1.5M
whereby the title shall be delivered only upon payment of the 300,000.00;
HELD: The Court held that Severina's heirs are not in a position to transfer the
title without first contesting ownership by a certain Emiliano Eugenio who had
been paying tax of the said land; that
True, in contracts of sale, the vendor need not possess title to the thing
sold at the perfection of the contract. However, the vendor must possess
title and must be able to transfer title at the time of delivery. In a
contract of sale, title only passes to the vendee upon full payment of the
stipulated consideration, or upon delivery of the thing sold.
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 The essence of a sale is the transfer of title or an agreement to transfer
it for a price actually paid or promised.

In this case; Severina’s heirs insist that delivery of the certificate of title is
predicated on a condition—payment of three hundred thousand pesos
(P300,000.00) to cover the sale of Lot 3 of LRC Psu 1312. We find this
argument not meritorious. The condition cannot be honored for if the seller
cannot deliver the object of the sale to the buyer such contract may be deemed
inoperative and may contemplate an impossible service under Art 1405 of the
CC; Nonetheless, since Dominador in this case fully paid the lot; there should
be a delivery of the title.

"I find that the harder I work, the more luck I seem to have."
-- Thomas Jefferson

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