Levi Hermanos, Inc. vs.

Gervacio
Facts:
On March 10, 1937, plaintiff Levy Hermanos, Inc., sold to defendant Lazaro Blas Gervacio, a
Packard car. Defendant, after making the initial payment, executed a promissory note for the
balance of P2,400, payable on or before June 15, 1937, with interest at 12 per cent per annum,
to secure the payment of the note, he mortgaged the car to the plaintiff. Defendant failed to pay
the note it its maturity. Wherefore, plaintiff foreclosed the mortgage and the car was sold at
public auction, at which plaintiff was the highest bidder for P1,800. The present action is for the
collection of the balance of P1,600 and interest. Defendant admitted the allegations of the
complaint, and with this admission, the parties submitted the case for decision. The lower court
applied, the provisions of Act No. 4122, inserted as articles 1454-A of the Civil Code, and
rendered judgment in favor of the defendant. Plaintiff appealed.

Article 1454-A of the Civil Code reads as follows:

In a contract for the sale of personal property payable in installments shall confer upon the
vendor the right to cancel the sale or foreclose the mortgage if one has been given on the
property, without reimbursement to the purchaser of the installments already paid, if there be an
agreement to this effect.
However, if the vendor has chosen to foreclose the mortgage he shall have no further action
against the purchaser for the recovery of any unpaid balance owing by the same and any
agreement to the contrary shall be null and void.

Issue:
Whether or not Article 1454-A of the Civil Code shall apply in this case.

Ruling:
In Macondray and Co. vs. De Santos (33 Off. Gaz., 2170), we held that "in order to apply the
provisions of article 1454-A of the Civil Code it must appear that there was a contract for the
sale of personal property payable in installments and that there has been a failure to pay two or
more installments." The contract, in the instant case, while a sale of personal property, is not,
however, one on installments, but on straight term, in which the balance, after payment of the
initial sum, should be paid in its totality at the time specified in the promissory note. The
transaction is not is not, therefore, the one contemplated in Act No. 4122 and accordingly the
mortgagee is not bound by the prohibition therein contained as to the right to the recovery of the
unpaid balance. The suggestion that the cash payment made in this case should be considered
as an installment in order to bring the contract sued upon under the operation of the law, is
completely untenable. A cash payment cannot be considered as a payment by installment, and
even if it can be so considered, still the law does not apply, for it requires non-payment of two or
more installments in order that its provisions may be invoked. Here, only one installment was
unpaid. Judgment is reversed, and the defendant-appellee is hereby sentenced to pay
plaintiff-appellant the sum of P1,600 with interest at the rate of 12 per cent per annum from June
15, 1937, and the sum of P52.08 with interest at the rate of 6 per cent from the date of the filing
of the complaint, with costs in both instances against the appellee.
Zayas vs. Luneta Motor Company
Facts:
The petitioner Eutropio Zayas, Jr, purchased on installment basis a motor vehicle described as
ONE (1) UNIT FORD THAMES FREIGHTER W/PUJ BODY with Engine No. 400E-127738 and
Chassis No. 400E-127738 from Mr. Roque Escaño of the Escaño Enterprises in Cagayan de
Oro City, dealer of respondent Luneta Motor Company.

The motor vehicle was delivered to the petitioner who 1) paid the initial payment in the amount
of P1,006.82; and 2) executed a promissory note in the amount of P7,920.00, the balance of the
total selling price, in favor of respondent Luneta Motor Company. The promissory note stated
the amounts and dates of payment of twenty-six installments covering the P7,920.00 debt.
Simultaneously with the execution of the promissory note and to secure its payment, the
petitioner executed a chattel mortgage on the subject motor vehicle in favor of the respondent.
After paying a total amount of P3,148.00, the petitioner was unable to pay further monthly
installments prompting the respondent Luneta Motor Company to extra-judicially foreclose the
chattel mortgage (Annex "A" to Answer, Original Record, p. 10, supra). The motor vehicle was
sold at public auction with the respondent Luneta Motor Company represented by Atty. Leandro
B. Fernandez as the highest bidder in the amount of P5,000.00 (Annex "B" to Answer, Original
Record, p. 11, supra). Since the payments made by petitioner Eutropio Zayas, Jr. plus the
P5,000.00 realized from the foreclosure of the chattel mortgage could not cover the total amount
of the promissory note executed by the petitioner in favor of the respondent Luneta Motor
Company, the latter filed Civil Case No. 165263 with the City Court of Manila for the recovery of
the balance of P1,551.74 plus interests.

In his answer with affirmative defenses and counterclaim, Eutropio Zayas, Jr. admitted having
executed the promissory note for the monthly payments, on a Ford Thames vehicle bearing
Engine No. 400E-127738 which he purchased from the Luneta Motor Company but he denied
his alleged outstanding liability of P1,551.74 plus interest thereon ... the said obligation if there
was any, had already been discharged either by payment or by sale in public auction of the said
motor vehicle as evidenced by a Notice of Sale marked as Annex "A" and Certificate of Sale
marked as Annex "B"; (Answer, p. 7, Original Record). He alleged as affirmative defenses,
among others: 1) that the plaintiff has no cause of action against him; and 2) that pursuant to
Article 1484 of the New Civil Code and the case of Pacific Commercial Co. v. De La Rama, (72
Phil. 380) his obligation per the promissory note was extinguished by the sale at public auction
of the motor vehicle, the subject of the chattel mortgage which was executed by him in favor of
the plaintiff as security for the payment of said promissory note.

In its Reply, Luneta Motor Company denied the applicability of Article 1484 of the Civil Code ...
for the simple reason that the contract involved between the parties is not one for a sale on
installment"

City Court:
On Petition of counsel for the defendant for the dismissal of this case on the ground that the
defendant is no longer liable for the deficiency judgment inas much as the chattel mortgage has
been foreclosed, with the plaintiff as the highest bidder thereof, citing the case of Ruperto G.
Cruz v. Filipinas Investment decided on May 27, 1968, G.R. No. L-24772 in connection with
Article 1484 of the Civil Code, and finding the same well taken.

Court of First Instance Manila:

This is an appeal taken by plaintiff from the order of the City Court of Manila, dismissing its
complaint on the ground that the defendant is no longer liable for the deficiency judgment
inasmuch as the chattel mortgage has been foreclosed, with the plaintiff as the highest bidder
thereof, in line with the ruling of the Supreme Court in the case of Ruperto G. Cruz v. Filipinas
Investment (G.R. No. L24772) in connection with Article 1484 of the Civil Code.

Issue:
Whether or not Article 1484 of the NCC is applicable.

Ruling:
The Escaño Enterprises of Cagayan de Oro City was an agent of Luneta Motor Company. A
very significant evidence which proves the nature of the relationship between Luneta Motor
Company and Escaño Enterprises is Annex "A. of the petitioner's OPPOSITION TO URGENT
MOTION FOR RECONSIDERATION. (Original Record, p. 36) Annex "A" is a Certification from
the cashier of Escano Enterprises on the monthly installments paid by Mr. Eutropio Zayas, Jr. In
the certification, the promissory note in favor of Luneta Motor Company was specifically
mentioned. But even assuming that the "distinct and independent entity" theory of the private
respondent is valid, the nature of the transaction as a sale of personal property on installment
basis remains. When, therefore, Escaño Enterprises, assigned its rights vis-a-vis the sale to
respondent Luneta Motor Company, the nature of the transaction involving Escano Enterprises
and Eutropio Zayas, Jr. did not change at all. As assignee, respondent Luneta Motor Company
had no better rights than assignor Escaño Enterprises under the same transaction. The
transaction would still be a sale of personal property in installments covered by Article 1484 of
the New Civil Code. To rule otherwise would pave the way for subverting the policy underlying
Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages over personal
property sold on installment basis. The established rule is to the effect that the foreclosure and
actual sale of a mortgaged chattel bars further recovery by the vendor of any balance on the
purchaser's outstanding obligation not so satisfied by the sale.
Tajanlangit vs. Southern Motors, Inc.
Facts:
In April 1953 Amador Tajanlangit and his wife Angeles, residents of Iloilo, bought, from the
Southern Motors Inc. of Iloilo two tractors and a thresher. In payment for the same, they
executed the promissory note Annex A whereby they undertook to satisfy the total purchase
price of P24,755.75 in several installments (with interest) payable on stated dates from May 18,
1953 December 10, 1955. The note stipulated that if default be made in the payment of interest
or of any installment, then the total principal sum still unpaid with interest shall at once become
demandable etc. The spouse failed to meet any installment. Wherefore, they were sued, in the
above Civil Case No. 2942, for the amount of the promissory note.1 The spouses defaulted, and
the court, after listening to the Southern Motors' evidence entered Judgment for it in the total
sum of P24,755.75 together with interest at 12 per cent, plus 10 per cent of the total amount due
as attorney's fees and costs of collection.

Carrying out the order of execution, the sheriff levied on the same machineries and farm
implements which had been bought by the spouses; and later sold them at public auction to the
highest bidder — which turned out to be the Southern Motors itself — for the total sum of
P10,000.

As its judgment called for much more, the Southern Motors subsequently asked and obtained,
an alias writ of execution; and pursuant thereto, the provincial sheriff levied attachment on the
Tajanlangits' rights and interests in certain real properties — with a view to another sale on
execution.

To prevent such sale, the Tajanlangits instituted this action in the Iloilo court of first instance for
the purpose among others, of annulling the alias writ of execution and all proceedings
subsequent thereto. Their two main theories: (1) They had returned the machineries and farm
implements to the Southern Motors Inc., the latter accepted them, and had thereby settled their
accounts; for that reason, said spouses did not contest the action in Civil Case No. 2942; and
(2) as the Southern Motors Inc. had repossessed the machines purchased on installment (and
mortgaged) the buyers were thereby relieved from further responsibility, in view of the Recto
Law, now article 1484 of the New Civil Code.

For answer, the company denied the alleged "settlement and understanding" during the
pendency of civil case No. 2949. It also denied having repossessed the machineries, the truth
being that they were attached by the sheriff and then deposited by the latter in its shop for
safekeeping, before the sale at public auction.

CFI’s Decision:
The proceedings in Civil Case No. 2942 above referred to, were had in the Court of First
Instance (Branch 1) of the Province and of the City of Iloilo. While this court (Branch IV)
sympathizes with plaintiffs, it cannot grant, in this action, the relief prayed for the complaint
because courts of similar jurisdiction cannot invalidate the judgments and orders of each other.
Plaintiffs have not pursued the proper remedy. This court is without authority and jurisdiction to
declare null and void the order directing the issuance of alias writ of execution because it was
made by another court of equal rank and category (see Cabiao and Izquierdo vs. Del Rosario
and Lim, 44 Phil., 82-186).
WHEREFORE, judgement is hereby rendered dismissing the complaint with costs against
plaintiffs costs against plaintiffs. Let the writ of preliminiary injunction issued on August 26,
1954, be lifted.

Issues:
Whether or not appellants may prohibit and forbid the appellee Sheriff of Iloilo from attaching
and selling at public auction sale the real properties of appellants.

Ruling:
ART. 1484. In a contract of sale of personal property the price of which is payable in
installments, the vendor may exercise 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. (New Civil Code.)

Appellants would invoke the last paragraph. But there has been no foreclosure of the chattel
mortgage nor a foreclosure sale. Therefore the prohibition against further collection does not
apply. It is true that there was a chattel mortgage on the goods sold. But the Southern Motors
elected to sue on the note exclusively, i.e. to exact fulfillment of the obligation to pay. It had a
right to select among the three remedies established in Article 1484. In choosing to sue on the
note, it was not thereby limited to the proceeds of the sale, on execution, of the mortgaged
good.Concerning their second theory, — settlement or cancellation — appellants allege that the
very implements sold "were duly returned" by them, and "were duly received and accepted by
the said vendor-mortgagee". Therefore they argue, "upon the return of the same chattels and
due acceptance of the same by the vendor-mortgagee, the conditional sale is ipso facto
cancelled, with the right of the vendor-mortgagee to appropriate whatever downpayment and
posterior monthly installments made by the purchaser as it did happen in the present case at
bar."

The trouble with the argument is that it assumes that acceptance of the goods by the Southern
Motors Co, with a view to "cancellation" of the sale. The company denies such acceptance and
cancellation, asserting the goods, were deposited in its shop when the sheriff attached them in
pursuance of the execution. Its assertion is backed up by the sheriff, of whose credibility there is
no reason to doubt. Anyway this cancellation or settlement theory may not be heeded now,
because it would contravene the decision in Civil Case No. 2942 above-mentioned — it would
show the Tajanlangits owned nothing to Southern Motors Inc. Such decision is binding upon
them, unless and until they manage to set it aside in a proper proceeding — and this is not it.
Cruz vs. Filipinas Investment & Finance Corp.
Facts:
That on July 15, 1963, plaintiff Ruperto G. Cruz purchased on installments, from the Far East
Motor Corporation, one (1) unit of Isuzu Diesel Bus, described in the complaint, for P44,616.24,
Philippine Currency, payable in installments of P1,487.20 per month for thirty (30) months,
beginning October 22, 1963, with 12 % interest per annum, until fully paid. As evidence of said
indebtedness, plaintiff Cruz executed and delivered to the Far East Motor Corporation a
negotiable promissory note in the sum of P44,616.24. That to secure the payment of the
promissory note, Annex "A", Cruz executed in favor of the seller, Far East Motor Corporation, a
chattel mortgage over the aforesaid motor vehicle. That as no down payment was made by
Cruz, the seller, Far East Motor Corporation, on the very improvements thereon, in San Miguel,
Bulacan...; same date, July 15, 1963, required and Cruz agreed to give, additional security for
his obligation besides the chattel mortgage, Annex "B"; that said additional security was given
by plaintiff Felicidad Vda. de Reyes in the form of SECOND MORTGAGE on a parcel of land
owned by her, together with the building. hat also on July 15, 1963, the Far East Motor
Corporation for value received indorsed the promissory note and assigned all its rights and
interest in the Deeds of Chattel Mortgage and in the Deed of Real Estate Mortgage (Annexes
"A", "B" and "B-l") to the defendant, Filipinas Investment & Finance Corporation, with due notice
of such assignment to the plaintiffs. That plaintiff Cruz defaulted in the payment of the promisory
note (Annex "A") ; that the only sum ever paid to the defendant was Five Hundred Pesos
(P500.00) on October 2, 1963, which was applied as partial payment of interests on his principal
obligation; that, notwithstanding defendant's demands, Cruz made no payment on any of the
installments stipulated in the promissory note. That by reason of Cruz's default, defendant took
steps to foreclose the chattel mortgage on the bus; that said vehicle had been damaged in an
accident while in the possession of plaintiff Cruz. That at the foreclosure sale held on January
31, 1964 by the Sheriff of Manila, the defendant was the highest bidder, defendant's bid being
for Fifteen Thousand Pesos (P15,000.00). That the proceeds of the sale of the bus were not
sufficient to cover the expenses of sale, the principal obligation, interests, and attorney's fees,
i.e., they were not sufficient to discharge fully the indebtedness of plaintiff Cruz to the defendant.
That on February 12, 1964, preparatory to foreclosing its real estate mortgage on Mrs. Reyes'
land, defendant paid the mortgage indebtedness of Mrs. Reyes to the Development Bank of the
Philippines, in the sum of P2,148.07, the unpaid balance of said obligation. That pursuant to a
provision in the real estate mortgage contract, authorizing the mortgagee to foreclose the
mortgage judicially or extra-judicially, defendant on February 29, 1964 requested the Provincial
Sheriff of Bulacan to take possession of, and sell, the land subject of the Real Estate Mortgage,
Annex "B-1", to satisfy the sum of P43,318.92, the total outstanding obligation of the plaintiffs to
the defendant, as itemized in the Statement of Account, which is made a part hereof as Annex
"F". That on March 20, 1964, plaintiff Reyes through counsel, wrote a letter to the defendant
asking for the cancellation of the real estate mortgage on her land, but defendant did not comply
with such demand as it was of the belief that plaintiff's request was without any legal basis. In
the action commenced by Ruperto G. Cruz and Felicidad V. Vda. de Reyes in the Court of First
Instance of Rizal (Civil Case No. Q-7949), for cancellation of the real estate mortgage
constituted on the land of the latter in favor of defendant Filipinas Investment & Finance
Corporation.
Issue:
Whether defendant, which has already extrajudicially foreclosed the chattel mortgage executed
by the buyer, plaintiff Cruz, on the bus sold to him on installments, may also extrajudicially
foreclose the real estate mortgage constituted by plaintiff Mrs. Reyes on her own land, as
additional security, for the payment of the balance of Cruz' Obligation, still remaining unpaid

Ruling:
There is no controversy that, involving as it does a sale of personal property on installments, the
pertinent legal provision in this case is Article 1484 of the Civil Code of the Philippines. The
aforequoted provision is clear and simple: should the vendee or purchaser of a personal
property default in the payment of two or more of the agreed installments, the vendor or seller
has the option to avail of any one of these three remedies — either to exact fulfillment by the
purchaser of the obligation, or to cancel the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These remedies have been recognized as alternative,
not cumulative, that the exercise of one would bar the exercise of the others. It is here agreed
that plaintiff Cruz failed to pay several installments as provided in the contract; that there was
extrajudicial foreclosure of the chattel mortgage on the said motor vehicle; and that
defendant-appellant itself bought it at the public auction duly held thereafter, for a sum less than
the purchaser's outstanding obligation. Defendant-appellant, however, sought to collect the
supported deficiency by going against the real estate mortgage which was admittedly
constituted on the land of plaintiff Reyes as additional security to guarantee the performance of
Cruz' obligation, claiming that what is being withheld from the vendor, by the proviso of Article
1484 of the Civil Code, is only the right to recover "against the purchaser", and not a recourse to
the additional security put up, not by the purchaser himself, but by a third person.

There is no merit in this contention. To sustain appellant's argument is to overlook the fact that if
the guarantor should be compelled to pay the balance of the purchase price, the guarantor will
in turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code) ;
so that ultimately, it will be the vendee who will be made to bear the payment of the balance of
the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the
protection given by Article 1484 would be indirectly subverted, and public policy overturned.
Considering the purpose for which the prohibition contained in Article 1484 was intended, the
word "action" used therein may be construed as referring to any judicial or extrajudicial
proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the
supposed unsatisfied balance of the purchase price from the purchaser or his privy. Certainly,
an extrajudicial foreclosure of a real estate mortgage is one such proceeding.
 PCI Leasing and Finance, Inc. vs. Giraffe-X Creative Imaging
Facts:
On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease
Agreement, whereby the former leased out to the latter one (1) set of Silicon High Impact
Graphics and accessories worth ₱3,900,00.00 and one (1) unit of Oxberry Cinescan 6400-10
worth ₱6,500,000.00. In connection with this agreement, the parties subsequently signed two (2)
separate documents, each denominated as Lease Schedule. Likewise forming parts of the basic
lease agreement were two (2) separate documents denominated Disclosure Statements of
Loan/Credit Transaction (Single Payment or Installment Plan) that GIRAFFE also executed for
each of the leased equipment. These disclosure statements inter alia described GIRAFFE,
vis-à-vis the two aforementioned equipment, as the "borrower" who acknowledged the "net
proceeds of the loan," the "net amount to be financed," the "financial charges," the "total
installment payments" that it must pay monthly for thirty-six (36) months, exclusive of the 36%
per annum "late payment charges." Thus, for the Silicon High Impact Graphics, GIRAFFE
agreed to pay ₱116,878.21 monthly, and for Oxberry Cinescan, ₱181.362.00 monthly. Hence,
the total amount GIRAFFE has to pay PCI LEASING for 36 months of the lease.

A year into the life of the Lease Agreement, GIRAFFE defaulted in its monthly rental-payment
obligations. And following a three-month default, PCI LEASING, through one Atty. Florecita R.
Gonzales, addressed a formal pay-or-surrender-equipment type of demand letter dated
February 24, 1998 to GIRAFFE. The demand went unheeded.

Hence, on May 4, 1998, in the RTC of Quezon City, PCI LEASING instituted the instant case
against GIRAFFE. In its complaint, docketed in said court as Civil Case No. 98-34266 and
raffled to Branch 2276 thereof, PCI LEASING prayed for the issuance of a writ of replevin for the
recovery of the leased property. After trial, judgment be rendered in favor of plaintiff [PCI
LEASING] and against the defendant [GIRAFFE].

Upon PCI LEASING’s posting of a replevin bond, the trial court issued a writ of replevin, paving
the way for PCI LEASING to secure the seizure and delivery of the equipment covered by the
basic lease agreement.

Instead of an answer, GIRAFFE, as defendant a quo, filed a Motion to Dismiss, therein arguing
that the seizure of the two (2) leased equipment stripped PCI LEASING of its cause of action.
Expounding on the point, GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on
installment sales of personal property, PCI LEASING is barred from further pursuing any claim
arising from the lease agreement and the companion contract documents, adding that the
agreement between the parties is in reality a lease of movables with option to buy. The given
situation, GIRAFFE continues, squarely brings into applicable play Articles 1484 and 1485 of
the Civil Code, commonly referred to as the Recto Law.

It is thus GIRAFFE’s posture that the aforequoted Article 1484 of the Civil Code applies to its
contractual relation with PCI LEASING because the lease agreement in question, as
supplemented by the schedules documents, is really a lease with option to buy under the
companion article, Article 1485. Consequently, so GIRAFFE argues, upon the seizure of the
leased equipment pursuant to the writ of replevin, which seizure is equivalent to foreclosure,
PCI LEASING has no further recourse against it. In brief, GIRAFFE asserts in its Motion to
Dismiss that the civil complaint filed by PCI LEASING is proscribed by the application to the
case of Articles 1484 and 1485, supra, of the Civil Code.

In its Opposition to the motion to dismiss, PCI LEASING maintains that its contract with
GIRAFFE is a straight lease without an option to buy. Prescinding therefrom, PCI LEASING
rejects the applicability to the suit of Article 1484 in relation to Article 1485 of the Civil Code,
claiming that, under the terms and conditions of the basic agreement, the relationship between
the parties is one between an ordinary lessor and an ordinary lessee.

Trial Court’s Decision:

The trial court granted GIRAFFE’s motion to dismiss mainly on the interplay of the following
premises: 1) the lease agreement package, as memorialized in the contract documents, is akin
to the contract contemplated in Article 1485 of the Civil Code, and 2) GIRAFFE’s loss of
possession of the leased equipment consequent to the enforcement of the writ of replevin is
"akin to foreclosure, … the condition precedent for application of Articles 1484 and 1485 [of the
Civil Code].

Issue:
Whether or not the contract was covered by Article 1484 and 1485 of the NCC hence barred
PCI LEASING from any recovery

Petitioner’s Arguments:
Petitioner foists the argument that the Recto Law, i.e., the Civil Code provisions on installment
sales of movable property, does not apply to a financial leasing agreement because such
agreement, by definition, does not confer on the lessee the option to buy the property subject of
the financial lease. To the petitioner, the absence of an option-to-buy stipulation in a financial
leasing agreement, as understood under R.A. No. 8556, prevents the application thereto of
Articles 1484 and 1485 of the Civil Code.

Ruling:
Considering the factual findings of both the court a quo and the appellate court, the only logical
conclusion is that the private respondent did opt, as he has claimed, to acquire the motor
vehicle, justifying then the application of the guarantee deposit to the balance still due and
obligating the petitioner to recognize it as an exercise of the option by the private respondent.
The result would thereby entitle said respondent to the ownership and possession of the vehicle
as the buyer thereof. We, therefore, see no reversible error in the ultimate judgment of the
appellate court. Evidently, the letter did not make a demand for the payment of the
₱8,248,657.47 AND the return of the equipment; only either one of the two was required. The
demand letter was prepared and signed by Atty. Florecita R. Gonzales, presumably petitioner’s
counsel. As such, the use of "or" instead of "and" in the letter could hardly be treated as a
simple typographical error, bearing in mind the nature of the demand, the amount involved, and
the fact that it was made by a lawyer. Certainly Atty. Gonzales would have known that a world of
difference exists between "and" and "or" in the manner that the word was employed in the letter.

The demand could only be that the respondent need not return the equipment if it paid the
₱8,248,657.47 outstanding balance, ineluctably suggesting that the respondent can keep
possession of the equipment if it exercises its option to acquire the same by paying the unpaid
balance of the purchase price. Stated otherwise, if the respondent was not minded to exercise
its option of acquiring the equipment by returning them, then it need not pay the outstanding
balance. This is the logical import of the letter: that the transaction in this case is a lease in
name only. The so-called monthly rentals are in truth monthly amortizations of the price of the
leased office equipment.

On the whole, then, we rule, as did the trial court, that the PCI LEASING- GIRAFFE lease
agreement is in reality a lease with an option to purchase the equipment. This has been made
manifest by the actions of the petitioner itself, foremost of which is the declarations made in its
demand letter to the respondent. There could be no other explanation than that if the
respondent paid the balance, then it could keep the equipment for its own; if not, then it should
return them. This is clearly an option to purchase given to the respondent. Being so, Article
1485 of the Civil Code should apply.

Being leases of personal property with option to purchase as contemplated in the above article,
the contracts in question are subject to the provision that when the lessor in such case "has
chosen to deprive the lessee of the enjoyment of such personal property," "he shall have no
further action" against the lessee "for the recovery of any unpaid balance" owing by the latter,
"agreement to the contrary being null and void."

In choosing, through replevin, to deprive the respondent of possession of the leased equipment,
the petitioner waived its right to bring an action to recover unpaid rentals on the said leased
items. Paragraph (3), Article 1484 in relation to Article 1485 of the Civil Code, which we are
hereunder re-reproducing, cannot be any clearer.
Nolasco vs. Cuerpo
Facts:
On July 22, 2008, petitioners and respondents entered into a Contract to Sell (subject contract)
over a 165,775-square meter parcel of land located in Barangay San Isidro, Rodriguez, Rizal
covered by Original Certificate of Title No. 152 (subject land). The subject contract provides,
inter alia, that: (a) the consideration for the sale is P33,155,000.00 payable as follows: down
payment in the amount of P11,604,250.00 inclusive of the amount of P2,000,000.00 previously
paid by respondents as earnest money/reservation fee, and the remaining balance of
P21,550,750.00 payable in 36 monthly installments, each in the amount of P598,632.00 through
post-dated checks; (b) in case any of the checks is dishonored, the amounts already paid shall
be forfeited in petitioners' favor, and the latter shall be entitled to cancel the subject contract
without judicial recourse in addition to other appropriate legal action; (c) respondents are not
entitled to possess the subject land until full payment of the purchase price; (d) petitioners shall
transfer the title over the subject land from a certain Edilberta N. Santos to petitioners' names,
and, should they fail to do so, respondents may cause the said transfer and charge the costs
incurred against the monthly amortizations; and (e) upon full payment of the purchase price,
petitioners shall transfer title over the subject land to respondents. However, respondents sent
petitioners a letter dated November 7, 2008 seeking to rescind the subject contract on the
ground of financial difficulties in complying with the same. They also sought the return of the
amount of P12,202,882.00 they had paid to petitioners. As their letter went unheeded,
respondents filed the instant complaint for rescission before the RTC.

In their defense, petitioners countered that respondents' act is a unilateral cancellation of the
subject contract as the former did not consent to it. Moreover, the ground of financial difficulties
is not among the grounds provided by law to effect a valid rescission.

RTC’s Decision:
In a Decision dated March 1, 2010, the RTC ruled in favor of respondents and, accordingly,
ordered: (a) the rescission of the subject contract; and (b) the return of the amounts already
paid by respondents to petitioners, as well as the remaining post-dated checks issued by
respondent Celerino S. Cuerpo representing the remaining monthly amortizations.
It found petitioners to have substantially breached paragraph 7 of the subject contract which
states that "[t]he [petitioners] shall, within ninety (90) days from the signing of [the subject
contract] cause the completion of the transfer of registration of title of the property subject of [the
said contract], from Edilberta N. Santos to their names, at [petitioners'] own expense." As such,
respondents were entitled to rescission under Article 1191 of the Civil Code. CA affirmed RTC’s
Decision

Issue:
whether or not the CA correctly affirmed the rescission of the subject contract and the return of
the amounts already paid by respondents to petitioners, as well as the remaining post-dated
checks issued by respondent Celerino S. Cuerpo representing the remaining monthly
amortizations.
Ruling:
"More accurately referred to as resolution, the right of rescission under Article 1191 is
predicated on a breach of faith that violates the reciprocity between the parties to the contract.
This retaliatory remedy is given to the contracting party who suffers the injurious breach on the
premise that it is 'unjust that a party be held bound to fulfill his promises when the other violates
his.'" Note that the rescission (or resolution) of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental violations as would defeat the very
object of the parties in making the agreement. Ultimately, the question of whether a breach of
contract is substantial depends upon the attending circumstances.

Paragraph 7 of the subject contract state in full:

7. [Petitioners] shall, within ninety (90) days from the signing of [the subject contract], cause the
completion of the transfer of registration of title of the property subject of [the subject contract],
from Edilberta N. Santos to their names, at [petitioners'] own expense. Failure on the part of
[petitioners] to undertake the foregoing within the prescribed period shall automatically authorize
[respondents] to undertake the same in behalf of [petitioners] and charge the costs incidental to
the monthly amortizations upon due date. (Emphasis and underscoring supplied)

A plain reading of paragraph 7 of the subject contract reveals that while the RTC and the CA
were indeed correct in finding that petitioners failed to perform their obligation to effect the
transfer of the title to the subject land from one Edilberta N. Santos to their names within the
prescribed period, said courts erred in concluding that such failure constituted a substantial
breach that would entitle respondents to rescind (or resolve) the subject contract. To reiterate,
for a contracting party to be entitled to rescission (or resolution) in accordance with Article 1191
of the Civil Code, the other contracting party must be in substantial breach of the terms and
conditions of their contract. A substantial breach of a contract, unlike slight and casual breaches
thereof, is a fundamental breach that defeats the object of the parties in entering into an
agreement. Here, it cannot be said that petitioners' failure to undertake their obligation under
paragraph 7 defeats the object of the parties in entering into the subject contract, considering
that the same paragraph provides respondents contractual recourse in the event of petitioners'
non-performance of the aforesaid obligation, that is, to cause such transfer themselves in behalf
and at the expense of petitioners. Indubitably, there is no substantial breach of paragraph 7 on
the part of petitioners that would necessitate a rescission (or resolution) of the subject contract.
As such, a reversal of the rulings of the RTC and the CA is in order.

The foregoing notwithstanding, the Court cannot grant petitioners' prayer in the instant petition
to order the cancellation of the subject contract and the forfeiture of the amounts already paid by
respondents on account of the latter's failure to pay its monthly amortizations, simply because in
their Answer with Compulsory Counterclaim and Motion for Summary Judgment filed before the
RTC, petitioners neither prayed for this specific relief nor argued that they were entitled to the
same. Worse, petitioners were declared "as in default" for failure to file the required pre-trial
brief and, thus, failed to present any evidence in support of their defense. It is settled that
"[w]hen a party deliberately adopts a certain theory and the case is decided upon that theory in
the court below, he will not be permitted to change the same on appeal, because to permit him
to do so would be unfair to the adverse party."
Moldex Realty vs. Saberon
Facts:
Interested in acquiring a 180-square meter lot known as Lot 2, Block 1 of Metrogate Subdivision
in Dasmariñas, Cavite, respondent Flora A. Saberon (Flora) asked Moldex, the developer, to
reserve the lot for her as shown by a Reservation Application dated April 11, 1992. While the
cash purchase price for the land is ₱396,000.00, the price if payment is made on installment
basis is ₱583,498.20 at monthly amortizations of ₱8,140.97 payable in five years with 21%
interest per annum based on the balance and an additional 5% surcharge for every month of
delay on the monthly installment due. Flora opted to pay on installment and began making a
periodical payments from 1992 to 1996 in the total amount of ₱375,295.49.

In April, August, and October 1996, Moldex sent Flora notices reminding her to update her
account. Upon inquiry, however, Flora was shocked to find out that as of July 1996, she owed
Moldex ₱247,969.10. In November 1996, the amount ballooned to ₱491,265.91.

Moldex thus suggested to Flora to execute a written authorization for the sale of the subject lot
to a new buyer and a written request for refund so that she can get half of all payments she
made. However, Flora never made a written request for refund.

As of April 1997, Moldex computed Flora’s unpaid account at ₱576,569.89. It then sent Flora a
Notarized Notice of Cancellation of Reservation Application and/or Contract to Sell. Flora, on
the other hand, filed before the Housing and Land Use Regulatory Board (HLURB) Regional
Field Office IV a Complaint for the annulment of the contract to sell, recovery of all her payments
with interests, damages, and the cancellation of Moldex’s license to sell.

Aside from imputing bad faith on the part of Moldex in bloating her unpaid balance, Flora
alleged that the contract to sell between her and Moldex is void from its inception. According to
Flora, Moldex violated Section 5 of Presidential Decree (PD) No. 957 when it sold the subject lot
to her on April 11, 1992 or before it was issued a license to sell on September 8, 1992.

In its defense, Moldex averred that Flora was only able to pay ₱228,201.03 and thereafter
defaulted in her in payment from April 1994 to May 1997. Hence, Flora’s subsequent payments
were applied to her delinquencies. As regards the alleged bloating, Moldex explained that the
amount reflected in Flora’s Statement of Account included the arrears and surcharges incurred
due to her non-payment of the monthly installments. And since Flora was not able to settle her
account, Moldex exercised its right under Republic Act (RA) No. 6552, or the Maceda Law, by
cancelling the reservation Agreement/Contract to Sell and forfeiting all payments made. Finally,
Moldex alleged that since Flora was at fault, the latter cannot be heard to make an issue out of
Moldex’s lack of license or demand relief from it.

HLURB:
Rejecting Moldex contentions, the HLURB Board, in a Decision19 dated July 29, 1999,
dismissed the petition and affirmed in toto the Arbiter’s Decision. It held that the law is clear on
the prerequisite of a license to sell before a developer can sell lots. Since Moldex did not have a
license to sell at the time it contracted to sell the subject lot to Flora, the Board agreed with the
Arbiter in declaring the contract invalid and in ordering the refund of Flora’s payments.

CA:
In its Decision of October 31, 2006, the CA agreed with the findings of the tribunals below. It
ratiocinated that Moldex’s non-observance of the mandatory provision of Section 5 of PD 957
rendered the contract to sell void, notwithstanding Flora’s payments and her knowledge that
Moldex did not at that time have the requisite license to sell. It also held that the subsequent
issuance by the HLURB of a license to sell in Moldex’s favor did not cure the defect or result to
the ratification of the contract.

Issue:
Whether or not respondent is nevertheless entitled to a 50% refund under the Maceda Law.

Ruling:
A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of
subdivision lots and condominium units without prior issuance of a Certificate of Registration
and License to Sell by the HLURB, it does not provide that the absence thereof will
automatically render a contract, otherwise validly entered, void. The penalty imposed by the
decree is the general penalty provided for the violation of any of its provisions. It is well-settled
in this jurisdiction that the clear language of the law shall prevail. Under the Maceda Law, the
defaulting buyer who has paid at least two years of installments has the right of either to avail of
the grace period to pay or, the cash surrender value of the payments made.

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

It is on record that Flora had already paid more than two years of installments (from March 11,
1992 to July 19, 1996) in the aggregate amount of ₱375,295.49. Her last payment was made on
July 19, 1996. It is also shown that Flora has defaulted in her succeeding payments. Thereafter,
Moldex sent notices to Flora to update her account but to no avail. She could thus no longer
avail of the option provided in Section 3(a) of the Maceda Law which is to pay her unpaid
installments within the grace period. Besides, Moldex already sent Flora a Notarized Notice of
Cancellation of Reservation Application and/or Contract to Sell. Hence, the only option available
is Section 3(b) whereby the seller, in this case, Moldex shall refund to the buyer, Flora, the cash
surrender value of the payments on the property equivalent to 50% of the total payments made,
or ₱187,647.75.
Spouses Domingo vs. Spouses Manzano
Facts:
Respondents Emmanuel and Tita Manzano (the Manzanos) were the registered owners of a
35,281-square meter parcel of land with improvements in Bagong Barrio, Caloocan City (subject
property), covered by Transfer Certificate of Title (TCT) No. 160752. Petitioners paid the
₱100,000.00 reservation fee upon the execution of the agreement. Thereafter, they also made
payments on several occasions, amounting to ₱160,000.00. However, they failed to tender full
payment of the balance when the March 2001 deadline came. Even then, Estabillo advised
petitioners to continue their payments; thus, they made additional payments totaling ₱85,000.00.
All in all, as of November 2001, petitioners had made payment in the amount of ₱345,000.00.

All this time, the Manzanos remained in possession of the subject property.

In December 2001, petitioners offered to pay the remaining ₱555,000.00 balance, but Estabillo
refused to accept payment; instead, he advised petitioners to await respondent Tita Manzano' s
(Tita) arrival from abroad.

When Tita arrived, petitioners tendered payment of the balance, but the former refused to
accept it. Instead, she told them that the property was no longer for sale and she was forfeiting
their payments. For this reason, petitioners caused the annotation of an affidavit of adverse
claim upon TCT No. 160752.

Soon thereafter, petitioners discovered that respondent Carmelita Aquino (Aquino) bought the
subject property on May 7, 2002, and a new title – TCT No. C-359293 – had been issued in her
name. Their adverse claim was nevertheless carried over to Aquino's new title.

Petitioners sought to compel the Manzanos to accept payment of the remaining balance,
execute a deed of sale over the subject property in their favor, and restrain the sale in favor of
Aquino. Petitioners later filed an Amended Complaint, praying further that Aquino's new title -
TCT No. C-359293 - be cancelled and annulled, and that instead, the Manzanos' TCT No.
160752 be reinstated, or alternatively, that a new title be issued in their name upon continuation
of the sale in their favor and payment of the outstanding balance.

In their respective Answers, Aquino and Estabillo alleged essentially that there was no sale
between petitioners and the Manzanos, but a mere offer to buy from petitioners, which was
refused due to late payment; that the case was premature for failure to resort to conciliation; and
that Aquino's new title was indefeasible and may not be collaterally attacked.

RTC’s Decision:
On May 22, 2009, the RTC issued a Decision declaring that, as against Aquino, petitioners have
a prior right over the subject property. It held that the agreement between petitioners and the
Manzanos was a contract of sale. Applying Article 1544 of the Civil Code, the RTC held that
Aquino was a buyer in bad faith, as she knew of petitioners’ prior purchase and registered
adverse claim – and such knowledge was equivalent to registration, and thus, the registration of
her sale was done in bad faith.

CA’s Decision:
The above passage clearly indicates that first, the ownership is reserved to the vendors, and
second, that the title of the subject property passes to the buyers only upon full payment of
Php900,000.00 [in] March 2001. Additionally, appellees have never even granted possession of
the subject property, and that no deed of sale, absolute or conditional, has been executed in
their favor. All have been held as indications that the contracting parties have entered into a
contract to sell. Considering these well-settled precedents, We rule that: first, the contract
between the parties was a contract to sell; second, that since there are no double sales over the
same realty, Art. 1544 of the Civil Code is therefore inapplicable to the instant case; third, that
because the contract between the Manzanos and the appellees was a contract to sell, and
appellees have not paid the full purchase price by full payment or consignment, specific
performance does not lie for a reconveyance of the property; and fourth, that by virtue of the
inapplicability of Art. 1544 and the nature of a contract to sell, appellant cannot be deemed in
bad faith. In the matter of reimbursements, it bears stating that we are also aware that the
appellees paid less than two years' installments on their contract. It is thus relevant to discuss
R.A. 6552, or the 'Realty Installment Buyer Act' which has been held applicable to contracts to
sell realty on installments. Clearly, the above provision and Sec. 4 apply only when the buyer
defaults in payment. In case the defaulting buyer paid less than two years' installments, RA.
6552 grants him no right to recover his installments. But appellees were not in default The
acceptance by Estabillo of their late installments waived the original period for payment,
following Angeles v. Calasanz. We find that Estabillo's acceptance also bound his principals, the
Manzanos, who accepted the late payments, amounting to a tacit ratification of the agent's acts,
and obligated the Manza.nos to comply with its consequences. Therefore, the period to pay the
balance has not yet lapsed and appellees were not in default.

Issues:
Whether or not Article 1544 applies in this case.

Ruling:
Petitioners' main contention is that while their agreement with the Manzanos was admittedly a
mere contract to sell where title is retained by the latter until full payment of the price, they
nonetheless have a superior right over the subject property, as against Aquino, by virtue of the
applicability of Article 1544 and the fact that Aquino was a buyer in bad faith. This Court,
however, agrees with the CA' s pronouncement that Article 1544 cannot apply to the present
case.

And it is precisely for the above reason that Article 1544 of the Civil Code cannot apply. Since
failure to pay the price in full in a contract to sell renders the same ineffective and without force
and effect, then there is no sale to speak of. Even petitioners' posture that their annotation of an
adverse claim on TCT No. 160752 is equivalent to registration or claim of ownership necessarily
fails, on account of the fact that there was never a sale in their favor - and without a sale in their
favor, they could not register or claim ownership of the subject property. Thus, as between the
parties to the instant case, there could be no double sale which would justify the application of
Article 1544. Petitioners failed to pay the purchase price in full, while Aquino did, and thereafter
she was able to register her purchase and obtain a new certificate of title in her name. As far as
this Court is concerned, there is only one sale - and that is, the one in Aquino's favor. "Since
there is only one valid sale, the rule on double sales under Article 1544 of the Civil Code does
not apply.
Gregorio vs. Crisologo
Facts:
During his lifetime, Alfredo was granted a homestead patent under the Public Land Act (C.A.
141) over a 54,730-square meter parcel of land (the property) in Nuangan, Kidapawan, North
Cotabato. Alfredo died sometime in 1971, and on October 9, 1974, his heirs, including
respondent, executed an extra-judicial settlement of estate with simultaneous sale of the
property in favor of spouses Andres Seguritan and Anecita Gregorio (petitioner). The property
was sold for P25,0000.00, and title to the property was issued in the name of the spouses.

On September 26, 1979, respondent filed a complaint demanding the repurchase of the
property under the provisions of the Public Land Act. She alleged that she first approached the
spouses personally and offered to pay back the purchase price of ₱25,000.00 but the latter
refused. Subsequently, respondent and her son, Alfredo Culig, Jr. (petitioner’s attorney-in-fact)
wrote letters reiterating their desire to repurchase the property but the spouses did not answer.

For their part, the spouses Seguritan countered that the respondent had no right to repurchase
the property since the latter only wanted to redeem the property to sell it for a greater profit.
Meanwhile, Andres Seguritan died on May 15, 1981, and was substituted by petitioner.

RTC’s Decision:
On January 5, 1998, the Regional Trial Court (RTC), Branch 17, Kidapawan, North Cotabato
(the trial court) rendered its decision dismissing the complaint. The trial court, relying on the
case of Lee Chuy Realty Corporation v. Court of Appeals ruled that a formal offer alone, or the
filing of a case alone, within the prescribed period of five (5) years is not sufficient to effect a
valid offer to redeem—either must or should be coupled with consignation of the repurchase
price if bona fide tender of payment has been refused.

CA’s Decision:
In its decision dated July 11, 2006, the CA granted the appeal. It ruled that the Lee Chuy case is
not applicable because: 1.) it does not involve the exercise of the right of redemption of
homestead or free patent lots, but instead the right of legal pre-emption or redemption in relation
to the rights of co-owners under the Civil Code; 2.) the Civil Code provisions on conventional
and legal redemption do not apply, even suppletorily, to the legal redemption of homestead or
free patent lands under the Public Land Act; IN FINE, We hold that appellants have validly
exercised the right of redemption. The decision of the trial [court] will be reversed. Upon
returning the purchase price of P25,000.00 and, in addition, the expenses enumerated under
Article 1616 of the Civil Code, the appellant may avail of the right of repurchase.

Petitioner’s arguments:
Petitioner insists that there was no valid redemption since there was no valid tender of payment
nor consignation of the amount of repurchase made by the respondent. Citing Lee v. Court of
Appeals, which in turn cites Article 1616 of the Civil Code, petitioner maintains that tender of
payment of the repurchase price is necessary to exercise the right of redemption. Thus, when
respondent filed to tender payment of the repurchase price, and admitted her failure to consign
the amount in court, she lost her right to repurchase the property.28 Petitioner also states that
respondent is not entitled to the right of repurchase because the latter’s aim in redeeming the
land is purely for speculation and profit.

Issue:
Whether or not there was a valid redemption

Ruling:
The formal offer to redeem, accompanied by a bona fide tender of the redemption price, within
the period of redemption prescribed by law, is only essential to preserve the right of redemption
for future enforcement beyond such period of redemption and within the period prescribed for
the action by the statute of limitations. Where, as in the instant case, the right to redeem is
exercised thru the filing of judicial action within the period of redemption prescribed by the law,
the formal offer to redeem, accompanied by a bona fide tender of the redemption price, might
be proper, but is not essential. The filing of the action itself, within the period of redemption, is
equivalent to a formal offer to redeem. The case of Vda. de Panaligan v. Court of Appeals35
further clarified that tender of payment of the repurchase price is not among the requisites, and
thus unnecessary for redemption under the Public Land Act. We also do not agree with
petitioner’s insistence that Article 1616 of the Civil Code applies in this case. As found by the
CA, the provision only speaks of the amount to be tendered when exercising the right to
repurchase, but it does not state the procedure to be followed in exercising the right. The Public
Land Law does not fix the form and manner in which reconveyance may be enforced, nor
prescribe the method and manner in which demand therefor should be made; any act which
should amount to a demand for reconveyance should, therefore, be sufficient.

Petitioner claims that even if the redemption is timely made, respondent is not entitled to the
right of repurchase because respondent intends to resell the property again for profit, and that
her "aim in redeeming the land is purely for speculation and profit." To support her claim,
petitioner states that respondent and her heirs are professionals and her siblings are residing in
Canada. Indeed, the main purpose in the grant of a free patent or homestead is to preserve and
keep in the family of the homesteader that portion of public land which the State has given to
him so he may have a place to live with his family and become a happy citizen and a useful
member of the society. We have ruled in several instances, that the right to repurchase of a
patentee should fail if the purpose was only speculative and for profit, or "to dispose of it again
for greater profit" or "to recover the land only to dispose of it again to amass a hefty profit to
themselves." In all these instances, we found basis for ruling that there was intent to sell the
property for a higher profit. We find no such purpose in this case.
Delta Dev. And Management Services vs. Enriquez
Facts:
Petitioner DELTA is a domestic corporation engaged in the business of developing and selling
real estate properties, particularly Delta Homes I in Cavite. DELTA is owned by Ricardo De
Leon (De Leon),6 who is the registered owner of a parcel of land covered by Transfer Certificate
of Title (TCT) No. T-6371837 of the Registry of Deeds of the Province of Cavite, which
corresponds to Lot 4 of Delta Homes I. Said Lot 4 is the subject matter of these cases.

On July 3, 1995, De Leon and his spouse obtained a ₱4 million loan from the BANK for the
express purpose of developing Delta Homes I. To secure the loan, the spouses De Leon
executed in favor of the BANK a real estate mortgage (REM) on several of their properties,
including Lot 4. Subsequently, this REM was amended by increasing the amount of the secured
loan from ₱4 million to ₱8 million. Both the REM and the amendment were annotated on TCT
No. T-637183. DELTA then obtained a Certificate of Registration and a License to Sell from the
Housing and Land Use Regulatory Board (HLURB). Sometime in 1997, DELTA executed a
Contract to Sell with respondent Angeles Catherine Enriquez (Enriquez) over the house and lot
in Lot 4 for the purchase price of ₱614,950.00. Enriquez made a downpayment of ₱114,950.00.

That the vendee/s offered to buy and the Owner agreed to sell the above-described property
subject to the following terms and conditions to wit:
That the (sic) warning shall be served upon the Vendee/s for failure to pay x x x Provided,
however, that for failure to pay three (3) successive monthly installment payments, the Owner
may consider this Contract to Sell null and void ab initio without further proceedings or court
action and all payments shall be forfeited in favor of the Owner as liquidated damages and
expenses for documentations.
That upon full payment of the total consideration if payable in cash, the Owner shall execute a
final deed of sale in favor of the Vendee/s. However, if the term of the contract is for a certain
period of time, only upon full payment of the total consideration that a final deed of sale shall be
executed by the Owner in favor of the Vendee/s.

When DELTA defaulted on its loan obligation, the BANK, instead of foreclosing the REM,
agreed to a dation in payment or a dacion en pago. The Deed of Assignment in Payment of
Debt was executed on September 30, 1998 and stated that DELTA "assigns, transfers, and
conveys and sets over [to] the assignee that real estate with the building and improvements
existing thereon x x x in payment of the total obligation owing to [the Bank] x x x."16 Unknown to
Enriquez, among the properties assigned to the BANK was the house and lot of Lot 4,17 which
is the subject of her Contract to Sell with DELTA. The records do not bear out and the parties
are silent on whether the BANK was able to transfer title to its name. It appears, however, that
the dacion en pago was not annotated on the TCT of Lot 4.

On November 18, 1999, Enriquez filed a complaint against DELTA and the BANK before the
Region IV Office of the HLURB alleging that DELTA violated the terms of its License to Sell by:
(a) selling the house and lots for a price exceeding that prescribed in Batas Pambansa (BP)
Bilang 220;20 and (b) failing to get a clearance for the mortgage from the HLURB. Enriquez
sought a full refund of the ₱301,063.42 that she had already paid to DELTA, award of damages,
and the imposition of administrative fines on DELTA and the BANK.

HLURB’s Decision:
In his June 1, 2000 Decision, HLURB Arbiter Atty. Raymundo A. Foronda upheld the validity of
the purchase price, but ordered DELTA to accept payment of the balance of ₱108,013.36 from
Enriquez, and (upon such payment) to deliver to Enriquez the title to the house and lot free from
liens and encumbrances. The Board held that all developers should obtain a clearance for
mortgage from the HLURB, regardless of the date when the mortgage was secured, because
the law does not distinguish. Having violated this legal requirement, DELTA was held liable to
pay the administrative fine. The Board upheld the validity of the contract to sell between DELTA
and Enriquez despite the alleged violation of the price ceilings in BP 220. The Board held that
DELTA and Enriquez were presumed to have had a meeting of the minds on the object of the
sale and the purchase price. Absent any circumstance vitiating Enriquez’consent, she was
presumed to have willingly and voluntarily agreed to the higher purchase price; hence, she was
bound by the terms of the contract.

CA’s Decision:
The CA ruled against the validity of the dacion en pago executed in favor of the BANK on the
ground that DELTA had earlier relinquished its ownership over Lot 4 in favor of Enriquez via the
Contract to Sell. Since the dacion en pago is invalid with respect to Lot 4, the appellate court
held that DELTA remained indebted to the BANK to the extent of Lot 4’s value. Thus, the CA
ordered DELTA to pay the corresponding value of Lot 4 to the BANK. The CA also rejected the
BANK’s argument that, before DELTA can deliver the title to Lot 4 to Enriquez, DELTA should
first redeem the mortgaged property from the BANK. The CA held that the BANK does not have
a first lien on Lot 4 because its real estate mortgage over the same had already been
extinguished by the dacion en pago. Without a mortgage, the BANK cannot require DELTA to
redeem Lot 4 prior to delivery of title to Enriquez.

Petitioner’s Arguments:
DELTA points out that the Contract to Sell contained a condition that ownership shall only be
transferred to Enriquez upon the latter’s full payment of the purchase price to DELTA. Since
Enriquez has yet to comply with this suspensive condition, ownership is retained by DELTA. As
the owner of Lot 4, DELTA had every right to enter into a dation in payment to extinguish its
loan obligation to the BANK. The BANK’s acceptance of the assignment, without any
reservation or exception, resulted in the extinguishment of the entire loan obligation; hence,
DELTA has no more obligation to pay the value of Enriquez’s house and lot to the BANK.

Respondent’s Arguments:
Echoing the argument of DELTA, the BANK argues that the Contract to Sell did not involve a
conveyance of DELTA’s ownership over Lot 4 to Enriquez. The Contract to Sell expressly
provides that DELTA retained ownership over Lot 4 until Enriquez paid the full purchase price.
Since Enriquez has not yet made such full payment, DELTA retained ownership over Lot 4 and
could validly convey the same to the BANK via dacion en pago. Should the dacion en pago over
Lot 4 be invalidated and the property ordered to be delivered to Enriquez, the BANK contends
that DELTA should pay the corresponding value of Lot 4 to the BANK. It maintains that the loan
obligation extinguished by the dacion en pago only extends to the value of the properties
delivered; if Lot 4 cannot be delivered to the BANK, then the loan obligation of DELTA remains
to the extent of Lot 4’s value.

Issue:
1. Whether the Contract to Sell conveys ownership
2. Whether the dacion en pago extinguished the loan obligation, such that DELTA has no
more obligations to the BANK

Ruling:
1. Since the Contract to Sell did not transfer ownership of Lot 4 to Enriquez, said ownership
remained with DELTA. DELTA could then validly transfer such ownership (as it did) to another
person (the BANK). However, the transferee BANK is bound by the Contract to Sell and has to
respect Enriquez’s rights thereunder. This is because the Contract to Sell, involving a
subdivision lot, is covered and protected by PD 957. One of the protections afforded by PD 957
to buyers such as Enriquez is the right to have her contract to sell registered with the Register of
Deeds in order to make it binding on third parties. The purpose of registration is to protect the
buyers from any future unscrupulous transactions involving the object of the sale or contract to
sell, whether the purchase price therefor has been fully paid or not. Registration of the sale or
contract to sell makes it binding on third parties; it serves as a notice to the whole world that the
property is subject to the prior right of the buyer of the property (under a contract to sell or an
absolute sale), and anyone who wishes to deal with the said property will be held bound by such
prior right.

While DELTA, in the instant case, failed to register Enriquez’s Contract to Sell with the Register
of Deeds, this failure will not prejudice Enriquez or relieve the BANK from its obligation to
respect Enriquez’s Contract to Sell. Despite the non-registration, the BANK cannot be
considered, under the circumstances, an innocent purchaser for value of Lot 4 when it accepted
the latter (together with other assigned properties) as payment for DELTA’s obligation. The
BANK was well aware that the assigned properties, including Lot 4, were subdivision lots and
therefore within the purview of PD 957. It knew that the loaned amounts were to be used for the
development of DELTA’s subdivision project, for this was indicated in the corresponding
promissory notes. The technical description of Lot 4 indicates its location, which can easily be
determined as included within the subdivision development. Under these circumstances, the
BANK knew or should have known of the possibility and risk that the assigned properties were
already covered by existing contracts to sell in favor of subdivision lot buyers.

Bound by the terms of the Contract to Sell, the BANK is obliged to respect the same and honor
the payments already made by Enriquez for the purchase price of Lot 4. Thus, the BANK can
only collect the balance of the purchase price from Enriquez and has the obligation, upon full
payment, to deliver to Enriquez a clean title over the subject property.
2. In the case at bar, the Dacion en Pago executed by DELTA and the BANK indicates a clear
intention by the parties that the assigned properties would serve as full payment for DELTA’s
entire obligation. Without any reservation or condition, the Dacion stated that the assigned
properties served as full payment of DELTA’s "total obligation" to the BANK. The BANK
accepted said properties as equivalent of the loaned amount and as full satisfaction of DELTA’s
debt. The BANK cannot complain if, as it turned out, some of those assigned properties (such
as Lot 4) are covered by existing contracts to sell. As noted earlier, the BANK knew that the
assigned properties were subdivision lots and covered by PD 957. It was aware of the nature of
DELTA’s business, of the location of the assigned properties within DELTA’s subdivision
development, and the possibility that some of the properties may be subjects of existing
contracts to sell which enjoy protection under PD 957. Banks dealing with subdivision properties
are expected to conduct a thorough due diligence review to discover the status of the properties
they deal with. It may thus be said that the BANK, in accepting the assigned properties as full
payment of DELTA’s "total obligation," has assumed the risk that some of the assigned
properties (such as Lot 4) are covered by contracts to sell which it is bound to honor under PD
957.

In this case, however, the BANK does not even point to any breach of warranty by DELTA in
connection with the Dation in Payment. To be sure, the Dation in Payment has no express
warranties relating to existing contracts to sell over the assigned properties. As to the implied
warranty in case of eviction, it is waivable and cannot be invoked if the buyer knew of the risks
or danger of eviction and assumed its consequences
Heirs of Macalalad vs. Rural Bank of Pola, Inc.
Facts:
On September 26, 2003, herein petitioners' predecessor-in-interest, Paz Macalalad (Paz) filed,
with the RTC of Calapan City, a Complaint for "Declaration of Nullity of TCT No. T-117484"
alleging that: she is the sole surviving legal heir of one Leopoldo Constantino, Jr. (Leopoldo)
who died intestate on November 13, 1995 and without any issue; during his lifetime, Leopoldo
owned a parcel of land with an area of 42,383 square meters, which is located at
Pinagsabangan II, Naujan, Oriental Mindoro and registered under TCT No. RT-124 (T-45233);
on July 14, 1998, after the death of Leopoldo, it was made to appear that the latter sold the
subject lot to the spouses Remigio and Josephine Pimentel (Spouses Pimentel) in whose
names a new TCT (No. T-96953) was issued; thereafter, the Spouses Pimentel obtained a loan
from herein respondent Rural Bank of Pola, Inc. (respondent bank) and gave the subject parcel
of land as collateral for the said loan, as evidenced by a contract of mortgage executed by the
Spouses Pimentel in favor of respondent bank; respondent bank, acting in bad faith, in utter
disregard of its duty to investigate the validity of the title of the Spouses Pimentel and without
verifying the location of the lot, accepted the same as collateral for the Spouses Pimentel's loan;
subsequently, the Spouses Pimentel failed to pay their loan leading respondent bank to
foreclose the mortgage over the subject property where it (respondent bank) emerged as the
highest bidder; consequently, respondent bank obtained ownership of the disputed lot; and the
TCT in the name of the Spouses Pimentel was cancelled and a new one (TCT No. T-117484)
was issued in respondent bank's name. Paz contended that respondent bank be made to suffer
the ill effects of its negligent acts by praying that TCT No. T-117484 be cancelled and a new
one be issued in the name of Leopoldo, the original owner.

In its Answer, respondent bank denied the material averments in Paz's complaint and claimed,
in its affirmative defense, that: it is a mortgagee and purchaser in good faith; and it gave full faith
and credit to the duly registered TCT given by the Spouses Pimentel as evidence of their
ownership of the mortgaged property. Respondent bank also argued that a title procured
through fraud and misrepresentation can still be the source of a completely valid and legal title if
the same is in the hands of an innocent purchaser for value.

RTC’s Decision:
On October 23, 2007, the RTC rendered its Decision dismissing petitioners' complaint for lack of
merit. The RTC held that, "[a]fter a careful study and evaluation of the evidence adduced by
both plaintiff and the defendant bank, it was clearly established that the latter had fully complied
with the standard operating procedure in verifying the ownership of the land in question" and
that "[t]he defendant bank, as a mortgagee, has a right to rely in good faith on the certificate of
title of the mortgagor of the subject property given as security for the loan being applied for by
the registered owners, the Spouses Pimentel, hence, the defendant bank is, therefore,
considered a mortgagee in good faith."

CA’s Decision:
On September 28, 2011, the CA promulgated its assailed Decision affirming the Decision of the
RTC. The CA echoed the ruling of the RTC by holding that the "appellee bank was not remiss in
its duty to conduct an ocular inspection on the subject premises and to investigate as to the
validity of the title of the property being given as security" and that by "observing [the] standard
practices for banks, defendant-appellee bank exercised due care and diligence in ascertaining
the condition of the mortgaged property before entering into a mortgage contract and approving
the loan."

Issue:
1. Whether or not the Deed of Sale from which the respondent bank supposedly derived its
title to the property is a complete nullity.
2. Whether or not respondent bank acted in bad faith, when it approved the loan of the
Spouses Pimentel as secured by the disputed property, because it (respondent bank)
was remiss in its obligation to verify the alleged ownership of the said spouses over the
subject property.

Ruling:
1. Nonetheless, without delving into this issue, this Court reiterates the settled principle that no
one can give what one does not have.Nemo dat quod non habet. Stated differently, no one can
transfer a right to another greater than what he himself has. Applying this principle to the instant
case, granting that the deed of sale in favor of the Spouses Pimentel was forged, then, as
discussed above, they could not have acquired ownership as well as legal title over the same.
Hence, they cannot give the subject property as collateral in the mortgage contract they entered
into with respondent bank. In the present case, even assuming that the deed of sale between
Leopoldo and the Spouses Pimentel was indeed forged, the same may, nonetheless, give rise
to a valid title in favor of respondent bank if it is shown that the latter is a mortgagee in good
faith. Such good faith will entitle respondent bank to protection such that its mortgage contract
with the Spouses Pimentel, as well as respondent bank's consequent purchase of the subject
lot, may no longer be nullified. Hence, as correctly pointed out by both the RTC and the CA, the
basic issue that needs to be resolved in the instant case is whether or not respondent bank is a
mortgagee and a subsequent purchaser of the subject lot in good faith.

2. Moreover, in the present case, respondent is not an ordinary mortgagee; it is a

mortgagee-bank. As such, unlike private individuals, it is expected to exercise greater care and
prudence in its dealings, including those involving registered lands. A banking institution is
expected to exercise due diligence before entering into a mortgage contract. The ascertainment
of the status or condition of a property offered to it as security for a loan must be a standard and
indispensable part of its operations. In this case, the Court finds no cogent reason to depart
from the findings of both the RTC and the CA that respondent was able to successfully
discharge its burden of proving its status as a mortgagor and subsequent purchaser in good
faith and for value. As correctly found by the RTC in the instant case, defendant​-appellee bank
[herein respondent bank] was not remiss in its duty to conduct an ocular inspection on the
subject premises and to investigate as to the validity of the title of the property being given as
security. As records would show, defendant-appellee bank sent a representative/appraiser (Mr.
Ronnie Marcial) to conduct an ocular inspection of the subject property. The said
representative/appraiser was able to ascertain the owner thereof, the nature of the subject
property, its location and area, its assessed value and its annual yield (See: Report of
Inspection and Credit Investigation, Records, p. 140). Moreover, defendant-appellee bank made
a verification from the Office of the Register of Deeds of Oriental Mindoro if the subject property
is indeed titled in the name of the mortgagors (Spouses Pimentel)
Mendoza vs. Spouses Palugod
Facts:
In 1991, Lolita and Jasminia bought the subject lot [with an area of 120 sq. m.] on installment
for one (1) year until they decided to pay the balance in full. [The lot is located in Sagana
Remville Homes, Habay, Bacoor, Cavite. Sometime in 1996, Lolita and Jasminia constructed a
residential house on the subject lot. Although Lolita has no receipts, she shared in the cost of
the construction of the house from her income in the catering business and selling of various
products. [Jasminia, based on a certification, was separated from employment on December 30,
1998, and on January 18, 1999, she received her retirement pay in the amount of
P1,383,773.59.] On May 11, 2004, Jasminia executed a Deed of [Absolute] Sale in favor of
Lolita, who eventually mortgaged [on November 19, 2004] the subject property to [petitioner]
Elizabeth Gutierrez as a security for a loan in the amount of Php800,000.00.

On the other hand, [respondents spouses Ramon, Sr. and Natividad Palugod] alleged that their
daughter, the late Jasminia, acquired the property located in Sagana Homes, Habay, Bacoor[,]
Cavite. Meanwhile, Lolita, taking advantage of her relationship with Jasminia, caused the latter
to sign a Deed of Absolute Sale in her favor. Thereafter, Lolita, aided by her brother Wilfredo
Mendoza as witness, entered it for registration with the Office of the Registry of Deeds. Thus,
TCT (Torrens [sic] Certificate of Title) No. T-308560 in the name of Jasminia was cancelled and
TCT No. T-1077041 was issued in the name of Lolita. [Respondents], upon learning from the
Office of the Registry of Deeds that Jasminia's certificate of title has been cancelled, executed
an Affidavit of Adverse Claim of their right and interest over the property as the only compulsory
and legitimate heirs of Jasminia. However, [petitioner] Lolita, knowing fully well of the impending
suit, made it appear that she mortgaged the property to [petitioners] Spouses Gutierrez as a
security for a loan amounting to Php800,000.00. Thus, [respondents] filed a complaint for
Declaration of Nullity of the Deed of Absolute Sale and the Deed of Real Estate Mortgage with
the RTC of Bacoor[,] Cavite.

RTC’s Decision:
On March 14, 2013, the RTC of Bacoor, Cavite, Branch 19, rendered the assailed Decision in
favor of [respondents]. The RTC declared that there can be no contract unless the following
concur: (a) consent; (2) object certain; and (3) cause of the obligation. [Respondents] were able
to prove by preponderance of evidence that the Deed of Sale involved no actual monetary
consideration. [Petitioner] Lolita, in her testimony, admitted that the sale was without monetary
consideration. The RTC ruled that the Deed of Sale is void for being simulated, hence, the Deed
of Real Estate Mortgage executed therein by [petitioner] Lolita in favor of [petitioners] Spouses
Gutierrez is likewise void, since, in a real estate mortgage, it is essential that the mortgagor be
the absolute owner of the property to be mortgaged.

CA’s Decision:
The CA ruled that respondents, being the only surviving heirs of Jasminia Paloma Palugod
(Jasminia), have the legal personality to question the validity of the deed of sale between
Jasminia and petitioner Lolita Espiritu Santo Mendoza (petitioner Lolita). The CA found no
cogent reason to deviate from the finding of the RTC that the deed of sale is null and void for
being absolutely simulated since it did not involve any actual monetary consideration. The CA
likewise agreed with the RTC's finding that the real estate mortgage between petitioner Lolita
and petitioners spouses Alexander and Elizabeth Gutierrez is null and void because the
mortgagor was not the absolute owner of the mortgaged property.

Issue:
Whether or not the Deed of Sale is valid.

Ruling:
The foregoing testimony of petitioner Lolita and the documentary evidence in support thereof
show that she had income and the means to pay​ the consideration stated in the DAS. These
documentary evidence - (1) Certification from E.B. Loredo Realty Corporation dated January 6,
2005 that petitioner Lolita had been a sales agent of the said realty corporation from January
2001 up to December 2002 (Exh. "3"); (2) Certification from Cesar C. Cruz & Partners Law
Offices dated December 22, 2004 that petitioner Lolita was supplying food consisting of lunch
and snacks to the employees of the said law office from 1982 to 1988 (Exh. "3-A"); (3)
Certification from Chinabank, SM City Bacoor Branch dated December 16, 2004 that since 1998
petitioner Lolita maintained accounts with the said bank under TD#168020017540,
TD#168020018239, SA#2680029315 and SA#2680873817 (Exh. "4"); (4) Notarized
Memorandum of Agreement between MMG International Holdings Co., Ltd. (MMG) and
Jasminia Palugod &/or Lolita Mendoza (Capitalist) dated June 26, 2002 wherein the Capitalist
turned over P800,000.00 for MMG to use as capital for six months at 2.5% monthly
compensation, expiring on December 26, 2002 (Exh. "5"); and (6) Notarized Memorandum of
Agreement between MMG and Lolita Mendoza (Capitalist) dated June 26, 2002 wherein the
Capitalist turned over P200,000.00 for MMG to use as capital for six months at 2.5% monthly
compensation, expiring on December 26, 2002 (Exh. "6") - were all unrebutted by respondents.
For their part, both the CA and the RTC totally ignored them. From the foregoing, it is evident to
the Court that petitioner Lolita's proof of payment of the DAS' consideration was her sworn
testimony. Testimony, given under oath, and subjected to cross-examination is proof.
Unfortunately, both the CA and the RTC brushed this aside only because the RTC zeroed in on
the lack of receipts.

Since the evidence of the parties are mainly testimonial, it behooved the RTC, as well as the
CA, to weigh the version of respondents against that of petitioners. The Court is called upon to
do the same in order to determine which evidence preponderates. Given the significant
inconsistencies in the testimony of respondent Natividad, the credibility of her testimony is, to
the Court, doubtful. To be sure, a witness' credibility is determined by the probability or
improbability of his testimony. As well, the witness' means and opportunity of knowing the facts
that he is testifying to are relevant. The improbability of respondent Natividad's assertions is
demonstrated by the evidence, both documentary and testimonial, that petitioner Lolita adduced
to rebut the same. Put simply, respondent Natividad's observations are those of an outsider
because she was not living with her daughter during the period at issue and cannot be relied
upon.
The RTC and the CA also did not even mention the glaring inconsistencies noted above, which
if properly considered, would have seriously affected the outcome of the case.

In addition, the lower courts misapprehended the admission by petitioner Lolita that she did not
pay the consideration before the Notary Public. They excised from their judgments petitioner
Lolita's sworn testimony as to how the consideration was paid by her. The portion of petitioner
Lolita's testimony that the lower courts quoted in their respective Decisions does not even
indubitably show that no consideration had been paid. What petitioner Lolita admitted was that
the consideration was not paid "before the Notary Public," and, as correctly pointed out by her,
there is no legal requirement that the consideration of a sale be paid in the very presence of the
Notary Public before whom the deed of sale is acknowledged.

Given the foregoing, contrary to the findings of the CA and the RTC, which evidently arose from
their misapprehension and non-consideration of relevant facts, respondents have not
discharged their burden of proof to rebut either the presumption of sufficient consideration of the
DAS or the evidence of petitioner Lolita. In fine, respondents failed to establish their cause of
action by preponderance of evidence.

All told, petitioners' evidence has superior weight. While petitioner Lolita could not present
receipts to show her payments to the late Jasminia, her sworn testimony which in certain
portions were corroborated by pertinent documents, remains more credible than that of
respondent Natividad. Indeed, the lack of receipts may be explained by the "close friendship"
between petitioner Lolita and Jasminia. The non-admission by petitioner Lolita of the "husband
and wife" relationship that she shared with Jasminia and her being a "lesbian or tomboy," as
respondent Natividad claimed, is of no moment. Whatever transpired between her and Jasminia
is a private matter, which the Court would not even speculate on. As to the gender identity and
sexual preference of petitioner Lolita, that is likewise a private matter.

Even from a pure evaluation of only the parties' testimonial evidence, wherein doubts on the
truthfulness of their respective narrations of the relevant facts are perceived and there may be
difficulty in determining who between respondent Natividad and petitioner Lolita is the more
credible witness and in which side the testimonial evidence preponderates, the evidence of the
parties should, at the very least, be held to be in equipoise. That being the situation,
respondents, who have the burden of proof in the present case, fail upon their cause of action.

Consequently, the DAS executed by Jasminia in favor of petitioner Lolita over the subject
property is valid, the presumption that it has sufficient consideration not having been rebutted.