Sps. Santos V. Ca Facts

1. SPS. SANTOS v.
CA
Facts:
- The petitioner spouses owned a house and lot located at Parañaque City. The same
properties were mortgaged with the Rural Bank of Salinas Inc., to secure a loan of
P150,000 maturing on June 16, 1987.
- Petitioner Rosalinda Santos became very good friends with herein private respondent
Carmen Caseda.
- On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment of P16,915.
Since santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen,
to which Carmen and her husband agreed.
- The Casedas gave an initial payment of 54k and immediately took possession of the
property, which they then leased out. The Casedas however failed to pay the remaining
balance of the loan because they suffered bankruptcy.
- Seeing that Casedas lacked the means to pay the remaining installments and/or
amortization of the loan, repossessed the property. The Santoses then collected the
rentals from the tenants.
- Carmen Caseda sold her fishpond in Batangas. She then approached petitioners and
offered to pay the balance of the purchase price for the house and lot. The petitioners
did not agree because they wanted a higher price.
- Caseda then filed a civil case with the RTC to have the Santoses execute the final deed
of the conveyance of the property, or in default thereof, to reimburse the amount of
P180k paid in cash and P249k pain to the rural bank…
- The RTC rendered a decision and dismissed the complaint.
o Casedas were short of the demand purchase price. They cannot, therefore,
demand specific performance.
- On appeal, the CA reversed the lower court.
o Rescission was not justified under the circumstance and allowed the Caseda
spouses a period of 90 days within which to pay the balance of the agreed purchase
price.
- Hence, this petition.
Issue:
Whether or not the contract is a contract of sale or a mere contract to sell
Held:
The contract was a mere contract to sell. In contracts to sell, ownership is reserved by
the vendor and is not pass until full payment of the purchase price. This is applicable to the instant
case, given that property involved is a titled realty under mortgage to a bank and would require
notarial and other formalities of law before transfer thereof could be validly effected.
It must be emphasized from the outset that a contract is what the law defines it to be,
taking into consideration its essential elements, and not what the contracting parties call
it.14 Article 145815 of the Civil Code defines a contract of sale. Note that the said article
expressly obliges the vendor to transfer the ownership of the thing sold as an essential
element of a contract of sale.16 We have carefully examined the contents of the unofficial
receipt, Exh. D, with the terms and conditions informally agreed upon by the parties, as well as
the proofs submitted to support their respective contentions. We are far from persuaded that
there was a transfer of ownership simultaneously with the delivery of the property
purportedly sold. The records clearly show that the title to the property has remained
always in the name of Rosalinda Santos.
Note further that although the parties agreed that the Casedas would assume the
mortgage, all amortization payments made by Carmen Caseda to the bank were in the name of
Rosalinda Santos. We likewise find that the bank's cancellation and discharge of mortgage dated
January 20, 1990, was made in favor of Rosalinda Santos. The foregoing circumstances
categorically and clearly show that no valid transfer of ownership was made by the Santoses
to the Casedas. Absent this essential element, their agreement cannot be deemed a contract
of sale.
We agree with petitioner's averment that the agreement between Rosalinda Santos
and Carmen Caseda is a contract to sell.
In view of our finding in the present case that the agreement between the parties is a
contract to sell, it follows that the appellate court erred when it decreed that a judicial rescission
of said agreement was necessary. This is because there was no rescission to speak of in the
first place. As we earlier pointed:
1. In a contract to sell, title remains with the vendor and does not pass on to the vendee
until the purchase price is paid in full.
2. Thus, in contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but
a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force.
3. This is entirely different from the situation in a contract of sale, where non-payment of
the price is a negative resolutory condition. The effects in law are not identical.
4. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover
it, unless the contract of sale is rescinded and set aside.
5. In a contract to sell, however, the vendor remains the owner for as long as the vendee
has not complied fully with the condition of paying the purchase. If the vendor should
eject the vendee for failure to meet the condition precedent, he is enforcing the contract
and not rescinding it.
When the petitioners in the instant case repossessed the disputed house and lot for
failure of private respondents to pay the purchase price in full, they were merely enforcing
the contract and not rescinding it. As petitioners correctly point out the Court of Appeals erred
when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles
1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a
resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated
to the provisions of Article 1592 when applied to sales of immovable property. Neither provision
is applicable in the present case.
2. LAO v. CA
Facts:
- On June 24, 1992, herein private respondents filed a complaint for unlawful detainer on
the ground that said petitioner is the owner of the premises occupied the property
without rent. That despite demand to vacate, petitioner refused to vacate the premises.
- Petitioner claimed that he is the owner of the house and lot which he purchased from N.
Domingo Realty but the agreement was actually a loan secured by mortgage.
- The metropolitan trial court rendered judgment ordering petitioner to vacate the
premises.
- On appeal, the RTC reversed the MTC decision and dismissed the complaint
o Subject property was acquired by private respondent from N. Domingo by a deed

of sale and, and PR is now the registered owner, but in truth the petitioner is the
beneficial owner of the property because the real transaction over the subject
property was not a sale but a loan secured by the mortgage thereon.
- PR filed an appeal with the CA which reversed the decision of the RTC, and reinstated
the decision of the MTC.
o MTC has no jurisdiction to resolve the issue of ownership in an action for unlawful
detainer, since the action constitutes an action for ejectment.
o The inferior court shall resolve the issue of ownership only to determine who is
entitled to the possession of the premises.
- Manuel Lao’s MR was denied by the CA. Hence, this petition.
Issue: Whether or not private respondent had acquired ownership over the property in
question.
Held:
• Absolute Sale or Equitable Mortgage?
PETITIONER PRIVATE RESPONDENTS
• His transaction with herein • Anchored its right in the ejectment

respondents was not an absolute sale, suit on a contract of sale in which
but an equitable mortgage. petitioner transferred the title of the
property in question
COURT:
We find the agreement between the private respondent and N. Domingo Realty & Housing
Corp, as represented by petitioner, manifestly one of equitable mortgage.
In determining the nature of a contract of sale, the Court looks at the intent of the parties not
at the nomenclature used to describe it. Pivotal to deciding this issue is the true aim and purpose
of the contracting parties as shown by the terminology used in the contract, as well as “by their
conduct, words, actions, and deeds prior, during, and immediately after executing the
agreement.” In this regard, parol evidence becomes admissible to prove the true intent and
agreement of the parties which the Court will enforce even if the title of the property in
question has already been registered and a new transfer certificate of title issued in the
name of the transferee. In Macapinlac vs. Gutierrez Repide, which involved an identical question,
the Court succinctly stated:
. . This conclusion is fully supported by the decision in Cuyugan vs. Santos, where
this court held that a conveyance in the form of a contract of sale with pacto de
retro will be treated as a mere mortgage, if really executed as security for a
debt, and that this fact can be shown by oral evidence apart from the instrument of
conveyance, a doctrine which has been followed in the later cases of Villa vs. Santiago (38
Phil., 157), and Cuyugan vs. Santos (39 Phil., 970).
In the first place, it must be borne in mind that the equitable doctrine which has
been so fully stated above, to the effect that any conveyance intended as security for
a debt will be held in effect to be a mortgage, whether so actually expressed in the
instrument or not, operates regardless of the form of the agreement chosen by the
contracting parties as the repository of their will. Equity looks through the form and
considers the substance; and no kind of engagement can be adopted which will enable
the parties to escape from the equitable doctrine to which reference is made. In
other words, a conveyance of land, accompanied by registration in the name of the
transferee and the issuance of a new certificate, is no more secured from the operation
of this equitable doctrine than the most informal conveyance that could be devised.
The law enumerates when a contract may be presumed to be an equitable mortgage:

1. When the price of a sale with right to repurchase is unusually inadequate;
2. When the vendor remains in possession as lessee or otherwise;
3. When upon or after the expiration of the right repurchase another instrument extending
the period of redemption or granting a new period is executed;
4. When the purchaser retains for himself a part of the purchase price;
5. When the vendor binds himself to pay the taxes on the thing sold;
6. In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation.
3. BUENAVENTURA v. CA – COMMUTATIVE CHARACTERISTIC
Facts:
- Defendant Sps. Joaquin are the parents of petitioners Consolascion, Nora, Emma, and
Natividad as well as of defendants Fidel, Tomas, Artemio, Clarita, Felicitas, Fe, and Gavino
(JOAQUINS)
- Sought to be declared null and void ab initio are certain deeds of sale covering 6 parcels
of land executed by defendant parents in favor of their co-defendant children and the
corresponding certificates of title issued in their names.
- In seeking the declaration of nullity of the aforesaid deeds of sale and certificates of title,
petitioners aver, among others, that there was no actual valid consideration for the deeds of
sale over the properties in litis. The deeds of sale are simulated, thus null and void ab initio.
- Defendants, on the other hand, aver that the sales were with sufficient considerations and
made by defendants parents voluntarily, in good faith, and with full knowledge of the
consequences of their deeds of sale
- RTC:
- Ruled in favor of the defendants and dismissed the complaint.
- The deeds of sale were all executed for valuable consideration
Court of Appeals:
- Affirmed RTC. Petitioners’ right to the properties of their parents, as compulsory heirs,
is merely inchoate and vests only upon the latter’s death.
- Petitioners are definitely not parties to the deeds of sale in question. Neither do they
claim to be creditors of their defendant parents.
- Plaintiffs are not parties to the alleged deed of sale and are not principally or subsidiarily
bound thereby; hence, they have no legal capacity to challenge their validity.
Hence, this petition.
Issue:
1. Whether the deeds of sale are void for lack of consideration: NO
Petitioners failed to show that the prices in the Deeds of Sale were absolutely
simulated. The trial court did not find the allegation of absolute simulation of price credible.
Petitioners failure to prove absolute simulation of price is magnified by their lack of
knowledge of their respondent siblings financial capacity to buy the questioned lots.
On the other hand, the Deeds of Sale which petitioners presented as evidence plainly
showed the cost of each lot sold. Not only did respondents minds meet as to the purchase price,
but the real price was also stated in the Deeds of Sale. As of the filing of the complaint,
respondent siblings have also fully paid the price to their respondent father.
A contract of sale is not a real contract, but a consensual contract. As a consensual

contract, a contract of sale becomes a binding and valid contract upon the meeting of the minds
as to price. If there is a meeting of the minds of the parties as to the price, the contract of sale
is valid, despite the manner of payment, or even the breach of that manner of payment. If the
real price is not stated in the contract, then the contract of sale is valid but subject to
reformation. If there is no meeting of the minds of the parties as to the price, because
the price stipulated in the contract is simulated, then the contract is void. Article 1471 of
the Civil Code states that if the price in a contract of sale is simulated, the sale is void.
It is not the act of payment of price that determines the validity of a contract of sale.
Payment of the price has nothing to do with the perfection of the contract. Payment of the price
goes into the performance of the contract. Failure to pay the consideration is different from lack
of consideration. The former results in a right to demand the fulfillment or cancellation of the
obligation under an existing valid contract while the latter prevents the existence of a valid
contract. (lack of consideration)
2. Whether or not deed of absolute sale are void for gross inadequacy of price
Under Article 1355 of the Civil Code, “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. 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.
Petitioners failed to prove any of the instances mentioned in Articles 1355 and 1470 of
the Civil Code which would invalidate, or even affect, the Deeds of Sale. Indeed, there is no
requirement that the price be equal to the exact value of the subject matter of sale. All
the respondents believed that they received the commutative value of what they gave.
4. FULE V. COURT OF APPEALS
Facts:
- Petitioner Gregorio Fule, a banker by profession and a jeweler, acquired a 10-hectare

property in Tanay, Rizal which used to be under the name of Fr. Antonio Jacobe. The
latter had mortgaged it to the Rural Bank of Alaminos to secure a loan in the amount of
P10,000, but the mortgage was later foreclosed and the property offered for public
auction upon his default.
- Upon the instructions of the petitioner, Dichoso and Mendoza found private respondent
Dr. Ninevetch Cruz as an interested buyer of the Tanay property.
- It so happened that at the time, Fule manifested his interest in buying private
respondent’s diamond earrings. Petitioner offered to buy the jewelry for P100,000.00 but
Dr. Cruz declined.
- Fule then made another bid to buy them for US$6,000.00 ($1.00=25.00). At this time,
the petitioner inspected said jewelry and then made a sketch thereof for 20 to 30 mins.
- Having sketched the jewelry, Fule gave back the jewelry to Dr. Cruz who again refused to
sell them.
- However, negotiations for barter of the jewelry and the Tanay property ensued.
o A thing is given in exchange for another thing (Article 1638)
o “…one of the parties binds himself to give one thing in consideration of the other’s
promise to give another thing.”
- Fule then secured the property and bought it from Fr. Jacobe for P70,000.00
- Meanwhile, as Dr. Cruz had already agreed to the proposed barter, petitioner went to
Prudential Bank once again to take a look at the jewelry
- Several days later, petitioner Fule, together with Dichoso and Mendoza, arrived at the
residence of Atty. Belarmino to finally execute a deed of absolute sale.
- Petitioner then headed to the bank where Dr. Cruz handed over the subject diamond
earrings to him.
- Fule again examined the jewelry for about 10-15 mins. He expressed his satisfaction by
nodding his head.
- Two hours later, however, petitioner arrived at the residence of Atty. Belarmino
complaining that the jewelry given to him was fake. They had the earrings examined by a
jeweler, which later on declared that the diamonds were indeed fake.
- Due to the said events, Fule filed a complaint against private respondents praying, among
other things, that the contract of sale of the Tanay property be declared null and void
on the ground of fraud and deceit.
RTC Ruling: IN FAVOR OF THE RESPONDENTS (DR. NINEVETCH CRUZ)
1. Dra. Cruz delivered the subject jewelries into the hands of Fule who even examined the
jewelry. Being a professional banker and a jeweler, Fule is competent to detect a fake
diamond from the real thing.
2. There was an undue delay because of the lapse of a considerable length of time since he
got hold of the jewelries.
3. All elements of a valid contract of sale were present despite the fact that the
agreement between petitioner and Dr. Cruz was principally a barter contract.
a. Consent or meeting of the minds;
b. Determinate subject matter;
c. Price certain in money or its equivalent
o Petitioner’s ownership over the Tanay Property passed unto Dr. Cruz upon
constructive delivery thereof by virtue of the execution of the Deed of
Absolute Sale – when Deed of Absolute Sale was executed, it was equivalent to
the delivery of the Tanay property in favor of Dr. Cruz (operates as a symbolic
delivery)
o On the other hand, the ownership of Dr. Cruz over the diamond earrings
transferred to Fule upon her actual personal delivery to him at the lobby of the
Prudential Bank.
o Art. 1497: The thing sold shall be understood as delivered, when it is placed
in the control and possession of the vendee.
o Delivery or traditionis one of the modes of acquiring ownership.
4. Fule is already estopped to come back after the lapse of considerable length of time
to claim what he got was fake.
o Two hours is more than enough time to make a switch of a Russian diamond to a
real diamond. He must have raised his complain soon after he examined it in the
lobby of the bank.
o Once a contract is shown to have been consummated, its existence and binding
effect can no longer be disputed.
- From the trial court’s adverse decision, Fule elevated the matter to the CA, the CA,
however, rendered decision affirming in toto the lower court’s decision.
Issue:
Whether or not the CA erred in upholding the validity of the contract of barter of
sale
Held:
No. It is evident from the facts that there was a meeting of the minds between petitioner
and Dr. Cruz. As such, they are bound by the contract unless there are reasons or circumstances
that warrant its nullification.
A contract of sale 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. Being consensual, a contract of sale
has the force of law between the contracting parties and they are expected to abide in good faith
by their respective contractual commitments. Article 1358 which requires the embodiment of
certain contracts in a public instrument, is only for convenience, and registration of the
instrument only adversely affects third parties. Formal requirements are, therefore, for the
benefit of third parties. Non-compliance therewith does not adversely affect the validity of
the contract nor the contractual rights and obligations of the parties thereunder.
Both the trial court and the appellate court correctly ruled that there were no legal bases
for nullification of the contract of sale. Ownership over the parcel of land and the pair of diamond
earrings had been transferred to Dr. Cruz and petitioner, respectively, upon the actual and
constructive delivery thereof. Said contract of sale being absolute in nature, title passed to the
vendee upon delivery of the thing sold since there was no stipulation in the contract that title to
the property sold has been reserved in the seller until full payment of the price or that the vendor
has the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period. Such stipulations are not manifest in the contract of sale.
B. Whether or not the contract can be voided in accordance with the law so as to compel
the parties to restore to each other the things that have been subject of the contract
Answer: Contracts that are voidable or annullable, even though there may have been no damage
to the contracting parties are:
1. Those where one of the parties is incapable of giving consent to a contract; and
2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence or
fraud.
o Petitioner asserts that he entered into the contract in the belief that the pair of the
earrings was genuine. On the pretext that those jewelries turned out to be counterfeit,
however, petitioner subsequently sought the nullification of said contract on the
ground that it was in fact tainted with fraud such that his consent was vitiated.
There is fraud when, through the insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, would not have agreed
to. However, nothing in the case at bar any evidence manifesting that PR employed such insidious
words to entice petitioner to enter into a contract of barter. Neither is there any evidence
showing that Dr. Cruz induced Fule to sell his Tanay property or that she persuaded him to take
the earrings in exchange for said property. On the contrary, it was actually him who used
machinations to convince Dr. Cruz to exchange her jewelry for the Tanay property.
5. BIAN STEEL v. CA
Facts:
- Bian Steel Corporation (BSC) filed a complaint against Joenas Metal Corporation and Sps.
Ng Ley Huat and Leticia Dy Ng for collection of a sum of money with damages.
- Pursuant to an attachment bond, the sheriff of RTC Manila levied on the property
registered in the name of the spouses. This property under preliminary attachment was
in fact mortgaged to the Far East Bank and Trust Company (FEBTC).
- The sheriff, however, could not serve the summons on the reason that the spouses could
not be located. Hence, BSC filed a motion to serve the summons by publication.
- In the meantime, Sps. Ng sold the property to Mylene and Myla Garcia by means of a
deed of sale prior to the filing of collection of a sum of money against them by BSC.
However, said transaction was registered only about a month and a half later after the
mortgagee FEBTC gave its approval to the sale.
- The annotation of the preliminary attachment made earlier by the sheriff of RTC Manila
on the old title was transferred to TCT under the Garcias’ name.
- On August 28, 1998, the Garcias filed a complaint-in-intervention in the earlier pending
case against Sps. Ng, alleging that they were the registered owners of the property which
was the subject of BSC’s writ of preliminary attachment. However, this was denied.
- On April 14, 1999, the trial court rendered judgment by default in favor of BSC.
- Consequently, the subject property was scheduled for public auction.
- Meanwhile, prior to the said public auction, Garcias filed an action against BSC, the
sheriff, Register of Deeds-QC, and FEBTC for cancellation of the notice of levy
annotated on the transfer certificate of the subject property. The Garcias claimed that
they were the owners of the property in dispute, having acquired the same on June 29,
1998 by means of a deed of absolute sale with assumption of mortgage from Sps. Ng.
- Here, they were able to secure a TRO enjoining any person from continuing with the public
auction sale earlier scheduled. Hence, the schedule was moved to a later date.
- HOWEVER, shutangina, the Garcias filed another case with the CA for the issuance of
writ of preliminary injunction with a prayer for TRO to perpetually prevent the public
auction sale of the subject property. This caused the further postponement of the
auction.
- This prompted the petitioner BSC to file a motion for intervention, to comment and oppose
the petition filed by the Garcias. However, this was denied by the CA. Hence, petitioner
filed with the SC seeking to annul CA’s resolutions. Likewise, the Garcias filed with the
SC a petition seeking to set aside CA’s decision as well as its resolution denying their
motion for reconsideration.
- Unfortunately, the sheriff of RTC Manila proceeded with the public auction and awarded
the property to BSC as the highest bidder. It was a little too late when the Supreme
Court issued a TRO to enjoin them from proceeding with the public sale.
o The Garcias wanted to prevent the consolidation of the title and possession by
BSC until such time as the rights and interests of both sets of petitioners in the
two cases before the same Court shall have been determined and finally resolved.
Issue:
Who, between BSC and the Garcias, has a better right to the disputed property?
Held:
The BSC has a better right to the said property. It is doctrinal that a levy on
attachment, duly registered, has preference over a prior unregistered sale and, even if the prior
unregistered sale is subsequently registered before the sale on execution but after the levy is
made, the validity of the execution sale should be upheld because it retroacts to the date of
levy. The priority enjoyed by the levy on attachment extended, with full force and affect, to the
buyer at the auction sale conducted by virtue of such levy. The sale between the Sps. Ng and
the Garcias was undoubtedly a valid transaction between them. However, in view of the prior
levy on attachment on the same property, the Garcias took the property subject the
attachment.
The Garcias claim they purchased the property ahead of the inscription of the levy on
attachment thereon on July 27, 1998. But, even if consensual, not all contracts of sale become
automatically and immediately effective. In Ramos v. Court of Appeals, the Court held that:
In sales with assumption of mortgage, the assumption of mortgage is a condition

precedent to the seller’s consent and therefore, without approval of the mortgage, the
sale is not perfected.
Apart therefrom, notwithstanding the approval of the sale by mortgagee FEBTC, there
was yet another step the Garcias had to take and it was the registration of the sale from the Ngs
to them. Insofar as third persons are concerned, what validly transfers a person’s interest in real
property is the registration of the deed.
Thus, when the Garcias bought the property on June 29, 1998, it was no more than a
private transaction between them and the Ngs. It needed to be registered before it could
become binding on all third parties, including BSC. It turned out that the Garcias registered
it only on August 12, 1998, after FEBTC approved the sale. It was too late by then because, on
July 27, 1998, the levy in favor of BSC had already been annotated on the original title on file
with the Registry of Deeds. This notice now became binding on the whole world, including the
Garcias. The rights which had already accrued in favor of BSC by virtue of the levy on attachment
over the property were never adversely affected by the unregistered transfer from the spouses
Ng to the Garcias.
o Article 1544: If the same thing should have been sold to different vendees, xxx should it
be IMMOVABLE property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property. Xxx
Because of the principle of constructive notice to the whole world, one who deals with
registered property which is the subject of an annotated levy on attachment cannot invoke the
rights of a purchaser in good faith. As between two purchasers, the one who registers the sale
in his favor has a preferred right over the other who has not registered his title even if the
latter is in actual possession of the immovable property. And, as between two purchasers who
both registered the respective sales in their favor, the one who registered his sale ahead of
the other would have better rights than the other who registered later.
Applying said provision of the law and settled jurisprudence to the instant case, when the
disputed property was consequently sold on execution to BSC, this auction sale retroacted to
the date of inscription of BSC’s notice of attachment of July 27, 1998. The earlier registration
thus gave BSC superior and preferential rights over the attached property as against the
Garcias who registered the purchase of the property at a later date.
6. NHA v. GRACE BAPTIST CHURCH
Fcats:
- Respondent Grace Baptist Church wrote a letter to NHA manifesting its interest in
acquiring Lots 4 and 17 of the General Mariano Alvarez Resettlement Project in Cavite.
- Consequently, the NHA passed a resolution approving the sale of the subject lots to
respondent Church for a total of P450,000.00. The Church was duly informed of this
Resolution through a letter sent by the NHA.
- On April 8, 1991, the Church tendered to the NHA a manager’s check in the amount of
P55,350.00 allegedly in full payment of the subject properties.
- Petitioner returned the check, stating that the amount is insufficient considering that
the price of the properties have changed.
- After several demands to and refusal from NHA, the Church instituted a complaint for
specific performance and damage against the NHA.
- In ruling the case, the RTC held that there was no contract of sale perfected with
respect to Lots 7 and 14.
- On appeal, the CA affirmed the trial court’s finding that there was no contract of sale
between the parties. However, petitioner was ordered to execute the sale of the lots to
respondent Church, since the NHA’s resolution which earlier approved the sale of the
subject lots to respondent at the price of P700/sqm has not be revoked and was,
therefore, still in effect. As a result, the NHA is estopped from fixing a different price
for the subject properties. Considering further that the Church had been occupying the
subject lots and even introduced improvements thereon, the Court of Appeals ruled that,
in the interest of equity, it should be allowed to purchase the subject properties.
NHA: The Court cannot compel it to sell the subject property to the Church without violating its
freedom to contract. Moreover, it contends that equity should be applied only in the absence of
any law governing the relationship between the parties, and that the law on sales and contracts in
general apply to the case.
Issue:
Whether or not NHA can be compelled to sell the said lots to respondent in the
absence of any perfected contract of sale between the parties
Held:
1. As to the issue on estoppel:
- NHA is not estopped from selling the subject lots at a price equal to their fair market
value, even if it failed to expressly revoke Resolution No. 2126. It is a hornbook law
that the principle of estoppel does not operate against the Government for the act of
its agents, or, as in this case, their inaction.
2. Main Issue:
No. It, appearing that this case involves an unperfected contract, the Civil Law principles
governing contract should apply. In Vda. de Urbano v. GSIS, it was ruled that a qualified
acceptance constitutes a counteroffer as expressly stated by Article 1319. It further held that
when there is absolutely no acceptance of an offer or if the offer is expressly rejected, there is
no meeting of the minds. All that is established was a counteroffer.
In the case at bar, the offer of the NHA to sell the subject property, as embodied in the
Resolution, was similarly not accepted by the respondent. Thus, alleged contract involved in this
case should be more accurately denominated as inexistent. There being no concurrence of the
offer and acceptance, it did not pass the stage of generation to the point of perfection. As such,
it is without force and effect from the very beginning or from its incipiency, as if it had never
been entered into, and hence, cannot be validated either by lapse of time or ratification. Equity
cannot give validity to a void contract, and this rule should apply with equal force to inexistent
contracts.
7. CONGREGATION OF THE RELIGIOUS VIRGIN MARY v. OROLA
Facts:
- Sometime in April 1999, RVM and respondent Orola met to discuss the sale of the latter’s
property adjacent to St. Mary’s Academy. Said property (Lot 159-B-2) was still
registered in the name of Orola’s predecessor-in-interest, Manuel Laserna.
- A contract to sell dated June 2, 1999 made out in the names of herein petitioner and
respondents as parties to the agreement was presented with a total consideration of the
property at P5.5-million with 10% of the total consideration payable upon the execution
of the contract, and which was already signed by all the respondents.
- Respondent Orola acknowledged the receipt of a check bearing the amount of

P555,500.00 as 10% down payment from the RVM Congregation.
- Respondents executed an extrajudicial settlement of the estate of Trinidad Laserna

adjudicating unto themselves, in pro indiviso shares, Lot 159-B-2, and which proved the
transfer of said lot into their name.
- Thereafter, respondents, armed with an undated Deed of Absolute Sale which they had
signed, forthwith a scheduled meeting with VRM Balleque at the RVM Headquarters to
finalize the sale.
- However, VRM Balleque did not meet with the respondents.
o RVM denied respondent’s demand for payment because the alleged Contract to
Sell was merely signed by Sr. Enheco as witness, and not VRM Balleque as the head
of the corporation sole.
- Thus, respondents filed with the RTC a complaint with alternative causes of action of
specific performance or rescission.
Trial Court:
- There was a perfected contract of sale between the parties and granted respondents’
prayer for rescission.
- Dissatisfied, both parties filed their respective appeals. The CA dismissed respondent’s
appeal for failure to file an Appeal Brief. However, RVM’s appeal continued.
CA:
- Set aside the RTC ruling and granted action for specific performance.
- The CA, albeit sustaining the trial court’s finding on the existence of a perfected contract
of sale between the parties, noted that the records and evidence adduced did not
preponderate for either party on the manner of effecting payment for the subject
property. The CA was unable to determine from the records if the balance of the
purchase price was due in 2 years, as claimed by RVM, OR, upon transfer of title to the
property in the names of respondents, as they averred.
- Thus, CA applied Articles 1385 and 1384 which pronounce rescission as a subsidiary
remedy recovering only the damages caused.
- Hence, this petition
RVM: The order to pay interest is inconsistent with the professed adherence by the CA to the
greatest reciprocity of interest between the parties.
Issue: Specific performance or rescission?
Held:
Specific performance. As uniformly found by the lower courts, there was, indeed, a
perfected contract of sale between the parties. As there was already a binding contract of sale
between the parties, RVM had the corresponding obligation to pay the remaining balance of the
purchase price upon the issuance of the title in the name of respondents. The supposed 2-year
period within which to pay the balance did not affect the nature of the agreement as a perfected
contract of sale. In fact, this 2-year period is NEITHER reflected in any of the drafts to the
contract, nor in the acknowledgment receipt of the downpayment executed by the respondents
Josephine and Antonio with the conformity of Sr. Enhenco. The 2-year period to effect payment
has been mooted by the lapse of time.
However, the CA mistakenly applied Articles 1383 and 1384 to this case because
respondent’s cause of action against RVM is predicated on Article 1191 for breach of reciprocal
obligation. It is evident from the allegations in respondents’ Complaint that the instant case does
not fall within the enumerated instances in Article 1381. Certainly, the Complaint did not pray for
rescission of the contract based on economic prejudice.
Moreover, contrary to the CA’s finding that the evidence did not preponderate for either
party, the records reveal, as embodied in the trial court’s exhaustive disquisition, that RVM
committed a breach of the obligation when it suddenly refused to execute and sign the agreement
and pay the balance and thereby breached the contract, respondents rightfully availed if the
alternative remedies provided in Article 1191. Accordingly, respondents are entitled to damages
regardless of whichever relief, rescission or specific performance, would be granted by the lower
courts.
Article 1191 Article 1381

Provision: The power to rescind obligations is Provision: The following contracts are
implied in reciprocal ones, in case one of the rescissible:
obligors should not comply with what is
incumbent upon him. a. Those which are entered into by
guardians whenever the wards whom
they represent suffer lesion by more
than fourth of the value of the things
The injured party may choose between the which are object thereof;
fulfillment and the rescission of the
obligation, WITH THE PAYMENT OF b. Those agreed upon in representation of
DAMAGES IN EITHER CASE. He may also absentees, if the latter suffer the
seek rescission, even after he has chosen lesion state in the preceding number;
fulfillment, if the latter should become
impossible. c. Those undertaken in fraud of creditors
when the latter cannot in any other
manner collect the claims due them;
The court shall decree the rescission claimed, d. Those which refer to things under
unless there be just cause authorizing the litigation if they have been entered into
fixing of a period. by the defendant without the
knowledge and approval of the litigants
or of competent judicial authority;
This is understood to be without prejudice to e. All other contracts specially declared

the rights of third persons who have acquired by law to be subject of rescission.
the thing, in accordance with Articles 1385
and 1388 and the Mortgage Law.
o Speaks of remedy of rescission in o Rescission by reason of lesion or
reciprocal obligation within the context economic prejudice.
of Article 1124 of the Old Civil Code
which uses the term “resolution.” o Subsidiary action and is not based on a
party’s breach of obligation.
o The cause of action is subordinated to

o Applies only to reciprocal obligations the existence of that the prejudice,
such that a party’s breach thereof because it is the raison d’etre as well as
partakes of a tacit resolutory condition the measure of the right to rescind.
which entitles the injured party to
rescission.
o Contemplates alternative remedies for

the injured party who is granted the
option to pursue, as principal actions,
either a rescission or specific
performance of the obligation, with
payment of damages in each use.
o Rescission for breach of contract
o The rescission is not predicated on

injury to economic interests of the party
plaintiff but on the breach of faith by
the defendant, that violates the
reciprocity between the parties.
o Not a subsidiary action, and Article 1191

may be scanned without disclosing
anywhere that the action for rescission
thereunder is subordinated to anything
other than the culpable breach of his
obligations by the defendant.
8. GAITE v. FONACIER
Facts:
- Defendant Fonacier was the owner of 11 iron lode mineral claims, known as the Dawahan
Group.
- By a virtue of Deed of Agreement, Fonacier appointed petitioner Gaite as his attorney-

in-fact to enter into a contract with any individual or juridical person for the exploration
and development of the mining claims.
- Gaite in turn executed a general assignment conveying the development and exploitation
of said mining claims into the Larap Iron Mines on the same royalty basis provided for in
the Deed of Agreement.
- For some reason, however, Fonacier decided to revoke the authority granted by him to
Gaite, and Gaite agreed thereto subject to certain conditions.
- As a result, they executed “Revocation of Power of Attorney and Contract” wherein Gaite
transferred to Fanacier 20,000 as a consideration, plus 10% of the royalties that Fonacier
would receive from the mining claims. In the same document, Gaite transferred to
Fonacier all his rights and interests over the 24,000 tons of ore that the former had
already extracted from the mineral claims, in consideration of the sum of P75,000.00,
10,000 of which is paid upon the signing of the agreement. The balance of 65,000 will be
paid later on.
- To secure the payment of the said balance, Fonacier promised to execute in favor of Gaite
a surety bond, and pursuant to this, Fonacier delivered to Gaite a surety bond with himself
as principal and the Larap Mines and Smelting Co and its stockholders as sureties.
- Gaite testified, however, the when its bond was presented to him by Fonacier, together
with Revocation of Power of Attroney and Contract, he refused to sign the same unless
another bond underwritten by a bonding company was put up by defendants to secure the
payment of the P65,000 balance of their price of the iron ore in the stockpiles in the
mining claims. Hence, a second bond was executed with the Far Eastern Surety and
Insurance Co. as additional surety, but it provided that the liability of the surety company
would attach only when there had been an actual sale of iron ore by the Larap Mines &
Smelting Co for an amount not less than P65,000, and that the liability of said surety
company would automatically expire on December 8, 1995.
- On the same day that Fonacier revoked the power of attorney, Fonacier entered into a
“Contract of Mining Operation,” transferring unto the Larap Mines and Smelting Co the
right to develop etc the mining claims in question in consideration of certain royalties. He
likewise transferred the complete title to the approx.. 24,000 tons of iron ore which he
acquired from Gait, to the Larap & Smelting Co in consideration for the signing by the
company and its stockholders of the surety bonds delivered by Fonacier to Gaite.
- Come December 8, 1995 (expiration of second bond), Fonacier and his sureties failed to
pay Gaite the said balance of P65,000. Hence, Gaite filed a complaint against them for
the payment of the P65,000 balance of the price of the ore.
SALE DISTINGUISHED FROM OTHER CONTRACTS
A. SALE v. AGENCY TO SELL

SALE AGENCY TO SELL
Obligation as Regards the Price
Buyer pays the price Agent delivers the price , which he got from
his buyer, to his principal.
Transfer of Ownership
Buyer receives the goods as owner. Agent receives the goods of the principal who
retains his ownership over them.
Warranty as to the Object Sold
Seller warrants the thing sol Agent makes no warranty for which he
assumes personal liability as long as the acts
within his authority and in the name of the
seller.
Right to Return the Thing
Buyer, as a general rule, cannot return the Agent can return the goods in case he is unable
object sold. to sell the same to a third person
Right over the Thing
Buyer can deal with the thing sold as he Agent in dealing with the thing received, must
pleases being the owner act according to the instructions of the
principal.
Revocability
Contract of sale is not unilaterally revocable Essentially revocable because it covers an

underlying fiduciary relationship between the
principal and the agent.
The transfer of title or agreement to transfer it for a price paid is the essence of sale.
If such transfer puts the transferee in the position of an owner and makes him liable for the
agreed price, the transaction is a sale. On the other hand, the essence of an agency to sell is the
delivery to an agent, not as his property, but as property of his 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 the sales made.
B. SALE v. CONTRACT FOR A PIECE OF WORK
SALE CONTRACT FOR A PIECE OF WORK
Risk of Loss
Borne by the buyer Borne by the worker or contractor, not by the

employer (the person who ordered)
Object of the Contract
Sell of a manufactured item; it is a sale of The services dominate the contract even
goods even though the item is manufactured though there is a sale of goods involved.
by labor furnished by the seller and upon
previous order of the customer.
Applicability of Statute of Frauds
Governed by the Statute of Frauds Not governed by the Statute of Frauds
Existence of Thing
The thing transferred is one which would The thing transferred is not in existence and
have existed and would have been the would have never existed but for the order of
subject of sale to some other person, even the party desiring to acquire it
if the order had not been given
Rules to Determine if the Contract is one of Sale or a Piece of Work
If ordered or manufactured in the ordinary If manufactured especially for the customer

course of business, then the contract is one and upon his special order, and not for the
of sale general market
Contract for a Piece of Work

1. When a factory accepts a job that requires the use of extraordinary or additional
equipment, or if it involves services not generally performed by it, the same thereby
contracts for a piece of work.
2. 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.
C. SALE v. BARTER
SALE BARTER
Nature
A thing is given in exchange for a price A thing is given in exchange for another thing
certain in money or its equivalent (Article 1638)
“…one of the parties binds himself to give one

thing in consideration of the other’s promise
to give another thing.”
Applicable Law
Law on sales Law on barter or exchange
Applicability of Statute of Frauds
The rules on the Statute of Frauds, which The rules on Statute of Frauds, which apply to
apply to the sale of real property and sale of real property and personal property
personal property bought at P500 or more, bought P500 or more, do not apply.
apply
If the consideration is partly in money and partly in another thing
1. The transaction is characterized by the manifest intention of the parties
2. If there is no manifest intention—

a. Barter if the value of the thing is more valuable than money;
b. Sale if the value of the thing is equal or less than the amount of money
Rule on Money Exchange: If local currency is exchanged for foreign currency, there is purchase
and sale. If the local currency is exchanged with other denominations of the same local currency,
there is barter.
o The rule is the same if a foreign currency is exchanged in the Philippines for another
foreign currency.
D. SALE v. DATION IN PAYMENT (DACION EN PAGO)
SALE DATION IN PAYMENT
Existence of Credit
No pre-existing credit Pre-existing credit
Payment of Price
Buyer still has to pay the price The debtor receives the payment before the
contract is perfected
Consideration
On the part of the seller: the price On the part of the debtor: the
extinguishment of the debt
On the part of the buyer: the acquisition of
the object On the part of the creditor: the acquisition
of the object offered in lieu of the original
credit
Determination of Price
Greater freedom in determining the price Less freedom in determining the price
Obligation
Obligations are created Obligations are extinguished
Governing Law
Law on sales Law on sales
E. SALE v. LEASE
SALE LEASE
Ownership is transferred upon delivery No transfer of ownership because the rights

of the lease are limited to the use and
enjoyment of the thing
Extent of Transfer
Permanent, UNLESS subject to a resolutory

condition
o Resolutory Condition – when the

fulfillment of the condition results in Temporary
extinguishment of rights arising out of
obligation
Who may Convey the Property
Seller must be the owner at the time the

property is delivered, or at least authorized
by the owner to transfer ownership. Lessor need not be the owner
Significance of Price of Object

Usually, the selling price is mentioned, as
the parties involved can fix it. However, the
fixing of the price cannot be left to the The object distinguished from the rent, is
discretion of one of the contracting parties. usually not mentioned
F. CONTRACT OF SALE v. CONTRACT TO SELL
CONTRACT OF SALE CONTRACT TO SELL
Effect of Perfection of Contract
Gives rise to reciprocal demandable Only gives rise to a reciprocal suspensive

obligations: conditional obligation (i.e. non-demandable
obligation until the condition happens) on the
1. On seller – to transfer ownership and seller to transfer ownership only when the
deliver possession of the thing buyer paid the price in full
2. On buyer – to pay a price certain
Title passes to the buyer upon delivery of Ownership will pass only upon full payment of
the thing sold the price
Effect on non-payment of Price
Failure to pay is a negative resolutory It is not a breach of the contract but simply
condition, which puts an end to the an event that prevents the obligation of the
transaction vendor to convey title from acquiring a binding
force
Remedy in case of non-payment of price
1. Specific performance; Action to recover possession – if the buyer

refuses to surrender the thing to the seller
2. Rescission
Ownership of vendor
Vendor has lost and cannot recover the Title remains in the vendor if the vendee does
ownership until and unless the contract of not comply with the condition precedent
sale itself is resolved and set aside
Execution of sale document
Vendee becomes the owner of the property Vendor still need to execute another
upon delivery of the thing sold. instrument conveying the property to the
vendee (e.g. deed of absolute sale)
Contract to SELL
1. Exclusive right and privilege to purchase an object
2. A bilateral contract where 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
positive suspensive condition (ie full payment of the purchase price). Failure to do so is
not a breach but a situation preventing the obligation of the vendor to convey title from
acquiring obligatory force. Thus, for its non-fulfillment, there will be no contract to speak
of for the obligor failed to perform the suspensive condition which enforces a juridical
relation.
3. The real character of the contract is determined by the intention of the parties. Although
a document is denominated as “Deed of Absolute Sale,” and there is no provision therein
regarding the reservation of ownership to the seller, it will be construed as a Contract to
Sell if the true intent of the parties is to transfer the ownership of the properties only
upon the buyer’s full payment of the purchase price.
4. A buyer who covertly usurps the seller’s ownership of the property prior to the full
payment of the price is in breach of the contract and the seller is entitled to rescission
because the breach is substantial and fundamental as it defeats the very object of the
parties in entering into the contract to sell
Conditional Sale
1. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss

of those already acquired, shall depend upon the happening of the event which constitutes
the obligation;
2. There was no perfected contract of sale of a lot if it was conditionally or contingently
awarded, subject to the approval by the city council of the proposed consolidation
subdivision plan, and the approval of the award by the valuation committee and higher
authorities
o Absolute Contract of Sale v. Conditional Contract of Sale
ABSOLUTE CONDITIONAL
When Title Passes
Title passes to the buyer upon delivery There is a stipulation reserving the title to the
seller until the fulfillment of the condition
even if there is delivery
Right to Rescind the Contract
Both parties have the right to rescind the There is a stipulation that the seller may
contract unilaterally rescind the contract in case of
non-fulfillment of the condition
o Conditional Sale v. Contract to Sell
CONDITIONAL CONTRACT TO SELL
Reservation of Title to the Subject Property
In BOTH cases, the seller may reserve the title to property until fulfillment of the
suspensive condition (e.g. payment)
Effect of Fulfillment of Suspensive Condition
The sale is perfected; if there has been Ownership is not automatically transferred
previous delivery of the subject property to to the buyer (even if there has been previous
the buyer, ownership automatically
transfers to the buyer by operation of law delivery to him) upon fulfillment of suspensive
without any further act on the part of the condition.
seller
Seller still has to convey title to prospective

buyer by entering into a contract of absolute
sale.
Effect of Sale of the Subject Property to Third Persons
Upon the fulfillment of suspensive There is no double sale (because there is no

condition, sale becomes absolute which previous sale of property despite fulfillment
affects the seller’s title. of suspensive condition)
The third person becomes a buyer in bad The third person is not a buyer in bad faith.
faith if he possesses constructive or actual
knowledge of defect in seller’s title. Prospective buyer cannot seek relief of
reconveyance of property.
A subsequent buyer cannot defeat the first

buyer’s title.
G. CONTRACT OF SALE v. OPTION CONTRACT
CASES
1. SANTOS v. COURT OF APPEALS
Facts:
- The petitioner spouses owned a house and lot located at Parañaque City. The same
properties were mortgaged with the Rural Bank of Salinas Inc., to secure a loan of
P150,000 maturing on June 16, 1987.
- Petitioner Rosalinda Santos became very good friends with herein private respondent
Carmen Caseda.
- On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment of P16,915.
Since santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen,
to which Carmen and her husband agreed.
- The Casedas gave an initial payment of 54k and immediately took possession of the
property, which they then leased out. The Casedas however failed to pay the remaining
balance of the loan because they suffered bankruptcy.
- Seeing that Casedas lacked the means to pay the remaining installments and/or
amortization of the loan, repossessed the property. The Santoses then collected the
rentals from the tenants.
- Carmen Caseda sold her fishpond in Batangas. She then approached petitioners and
offered to pay the balance of the purchase price for the house and lot. The petitioners
did not agree because they wanted a higher price.
- Caseda then filed a civil case with the RTC to have the Santoses execute the final deed
of the conveyance of the property, or in default thereof, to reimburse the amount of
P180k paid in cash and P249k pain to the rural bank…
- The RTC rendered a decision and dismissed the complaint.
o Casedas were short of the demand purchase price. They cannot, therefore,
demand specific performance.
- On appeal, the CA reversed the lower court.
o Rescission was not justified under the circumstance and allowed the Caseda
spouses a period of 90 days within which to pay the balance of the agreed purchase
price.
Issue:
Whether or not the contract is a contract of sale or a mere contract to sell
Held:
The contract was a mere contract to sell. In contracts to sell, ownership is reserved by
the vendor and is not pass until full payment of the purchase price. This is applicable to the instant
case, given that property involved is a titled realty under mortgage to a bank and would require
notarial and other formalities of law before transfer thereof could be validly effected.
It must be emphasized from the outset that a contract is what the law defines it to be,
taking into consideration its essential elements, and not what the contracting parties call it.
Article 1458 of the Civil Code defines a contract of sale. Note that the said article expressly
obliges the vendor to transfer the ownership of the thing sold as an essential element of a
contract of sale.16 We have carefully examined the contents of the unofficial receipt, Exh. D,
with the terms and conditions informally agreed upon by the parties, as well as the proofs
submitted to support their respective contentions. We are far from persuaded that there was
a transfer of ownership simultaneously with the delivery of the property purportedly sold.
The records clearly show that the title to the property has remained always in the name of
Rosalinda Santos.
Note further that although the parties agreed that the Casedas would assume the
mortgage, all amortization payments made by Carmen Caseda to the bank were in the name of
Rosalinda Santos. We likewise find that the bank's cancellation and discharge of mortgage dated
January 20, 1990, was made in favor of Rosalinda Santos. The foregoing circumstances
categorically and clearly show that no valid transfer of ownership was made by the Santoses
to the Casedas. Absent this essential element, their agreement cannot be deemed a contract
of sale.
We agree with petitioner's averment that the agreement between Rosalinda Santos
and Carmen Caseda is a contract to sell.
In view of our finding in the present case that the agreement between the parties is a
contract to sell, it follows that the appellate court erred when it decreed that a judicial rescission
of said agreement was necessary. This is because there was no rescission to speak of in the
first place. As we earlier pointed:
6. In a contract to sell, title remains with the vendor and does not pass on to the vendee
until the purchase price is paid in full.
7. Thus, in contract to sell, the payment of the purchase price is a positive suspensive
condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but
a situation that prevents the obligation of the vendor to convey title from acquiring an
obligatory force.
8. This is entirely different from the situation in a contract of sale, where non-payment of
the price is a negative resolutory condition. The effects in law are not identical.
9. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover
it, unless the contract of sale is rescinded and set aside.
10. In a contract to sell, however, the vendor remains the owner for as long as the vendee
has not complied fully with the condition of paying the purchase. If the vendor should
eject the vendee for failure to meet the condition precedent, he is enforcing the contract
and not rescinding it.
When the petitioners in the instant case repossessed the disputed house and lot for
failure of private respondents to pay the purchase price in full, they were merely enforcing
the contract and not rescinding it. As petitioners correctly point out the Court of Appeals erred
when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles
1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a
resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated
to the provisions of Article 1592 when applied to sales of immovable property. Neither provision
is applicable in the present case.
2. CARLOS v. RAMIL - DONATION
Facts:
- The lands in question were many years ago owned by one Agustin Carlos, a relative of the
petitioner.
- Agustin and his wife had no children and died leaving no heirs except herein petitioner
Alejandra.
- Getting old and needing someone to care for them, Carlos and his wife took a young girl
from their neighborhood.
- In the year 1901, the said daughter was about to marry the defendant Ramil. The spouses,
fearing that the husband would remove the daughter from the house and take her to live
with him separately, Agustin and his wife, after the marriage of the said daughter and
Ramil, made an agreement with them that if they would remain living in their house, caring
for them as long as they should live, they would give to the children the real estate.
- This agreement, which was duly signed and executed by all the parties thereto, assumes
somewhat the appearance of a remunerative donation.
Issue:
Whether or not the said donation is of remunerative in character
Held:
No. The instrument in question is not a remunerative donation within the meaning of the
term used in the Civil Code, but is rather a contract by which Carlos and his wife transferred to
the defendant and his wife the lands described in the complaint upon the consideration that the
latter should give to the former the care therein mentioned and prescribed. That contract was
fully executed upon the part of the defendant and his wife. They cared for Carlos and his wife as
long as they lived, giving them food, clothing, and shelter. If the transaction between Carlos and
the defendant was a donation, it was una donacion con causa onerosa (onerous donation) and
NOT una donacion remuneatoria.
Onerous donation v. Remunerative donation

ONEROUS REMUNERATIVE
The services which form the consideration Consideration for the gift have been
for the gift have not yet been performed performed.
Governed by the provisions relative to Law on donations govern

contracts
3. SANTOS v. CITY OF MANILA
Facts:
- On May 14, 1957, the City of Manila, thru a letter, advised AU Inc that about 2,400 sqm
of its site on Legarda Street were needed by the City for the construction of Azcarraga
extension. This letter was answered by the AU with the proposition that in exchange of
said parcel of land, the City cede to the University the esteros adjoining the Arellano
site, on the basis of 2 sqm of estero for every sqm of the Arellano land.
- Upon other hand, Enrique C. Lopez, predecessor-in-interest of herein petitioner de

Santos, having been advised regarding the widening, wrote to the City Engineer proposing
that the required area be exchanged with the City property at the back of his lot which
is a part of the Estero de San Miguel
- Hence, on October 1, 1958, a contract of exchange was entered into between the City of
Manila and the Arellano University Inc., by virtue of a resolution of the Municipal Board
of Manila— whereby 5 parcels of land of the City of Manila were exchanged for 3 parcels
of land of the Arellano University Inc.
- On account of said contract of exchange, this action was brought by Antonio de Santos
against the City of Manila and the AU Inc to declare, among others, that the said contract
of exchange null and void insofar as Lot No. 1 is concerned.
- Manila City, on its part, alleged that it is the owner of the lot in question and that
petitioners has no preferential or better right than defendant AU to acquire said lot by
preemption, legal redemption, sale, exchange, or other form of acquisition.
4. MAMERTA VDA. DE JAYME v. COURT OF APPEALS
Facts:
- The Sps. Graciano and Mamerta Jayme are the registered owners of Lot 2700 situated in
Mandaue, Cebu.
- On January 8, 1973, they entered into a Contract of Lease with George Neri, president
of Airland Motors Corporation, covering one-half of Lot 2700. The lease was for 20
years.
- The parties stipulated in the said contract that Cebu Asiancars may use the leased
premises as a collateral to secure payment of a loan which Asiancars may obtain from any
bank, provided that proceeds of the loan shall be used solely for the construction of a
building which, upon the termination of the lease or the voluntary surrender of the leased
premises before the expiration of the contract, shall automatically become the property
of the Jayme sps.
- In October 1977, Asiancars obtained a loan of P6-million from the MBTC and the entire
Lot 2700 was offered as one of several properties given as collateral for the loan. As
mortgagors, the spouses signed a Deed of Real Estate Mortgage in favor of MBTC
- To assure the Jayme spouses, Neri and other officers of Asiancars executed an
undertaking. In it, they promised to compensate the spouses with regard to the said
mortgage with MBTC.
- Meeting financial difficulties, Asiancars conveyed ownership of the building on the leased
premised to MBTC, by way of dacion en pago.
- Eventually, MBTC extrajudicially foreclosed the mortgage. A public auction was held and
MBTC was the highest bidder. A certificate of sale was issued and was registered with
the Register of Deeds.
- As a result of the foreclosure, Graciano Jayme’s heirs filed a civil complaint for Annulment
of Contract against respondent Asiancars and MBTC.
o Petitioners claim that Neri and Asiancars did not tell them that the indebtedness
secured by the mortgage was for P6,000,000 and that the security was the whole
of Lot 2700.
o They further alleged that the deed presented to their parents was in blank
without explanation on the stipulations.
o That since the spouses were illiterate, the spouses were deceived into signing the
Deed of Real Estate Mortgage.
- Respondents, on the other hand, deny that fraud was employed, nor was there a scheme
to make the spouses sign as mortgagors instead of guarantors.
- In ruling the case, the RTC held that the REM executed by Jaymes in favor of MBTC was
valid and binding. It declared that the Jaymes are allowed to redeem the mortgaged
property for P2.9M within 90 days and thus, it also required the defendants to reimburse
the Jaymes the amount that the petitioners will pay to MBTC for the redemption.
- Petitioners and respondent MBTC elevated the case to the CA, which affirmed the ruling
of the RTC.
o Period to redeem said lot had expired
o Ordering the Sheriff to issue a definite Deed of Sale in favor of MBTC
o Dacion en pago is valid and binding
Issue:
a) Whether or not the REM should be annulled on the ground of vitiated consent
b) Whether or not the dacion en pago is valid and binding (MAIN ISSUE!!!)
Held:
a) No. The records clearly show that the sps Jayme agreed to use their property as
collateral for Neri’s loan because Neri had their full trust and confidence. Mamerta
herself testified that she and her husband were assured by Neri’s promise that he would
take full responsibility for whatever happens to the property and that he would comply
with his obligations to the bank. Further, the spouses were assisted by their own lawyer
in all their transactions. Nelia Sanchez, the daughter of the spouses even admitted that
their parents consulted her and her siblings before their parents executed the Deed.
With the assistance of a lawyer and consultation with their literate children, the
spouses though illiterate could not feign ignorance of the stipulations of the deed.
Petitioners failed to show the required quantum of evidence that they were fraudulently
made to sign as mortgagors.
The appellate court found that the spouses lost their right to redeem their
property. Under Section 78 of the General Banking Act, the mortgagor or debtor whose
real property has been foreclosed and sold at public auction, has the right to redeem the
property within 1 year from the sale of the real estate as a result of the foreclosure. If
no redemption is timely made, the buyer in foreclosure sale becomes the absolute owner
of the property purchased. In this case, the cert of sale was registered on Feb 23, 1981,
giving petitioners until Feb 23, 1982 to redeem the property. This they failed to do, hence,
ownership of the property already vested in the purchaser MBTC.
b) Yes. The alienation of the building by Asiancars in favor of MBTC for the partial
satisfaction of its indebtedness is valid.
The ownership of the building had been effectively in the name of Asiancars,
though with the provision that ownership be transferred to the Jaymes upon termination
of the lease or the voluntary surrender of the premises. The lease was constituted on
January 8, 1973 and was to expire 20 years thereafter, or on January 8, 1993. The
alienation via dacion en pago was made by Asiancars to MBTC on December 1980, during
the subsistence of the lease. At this point, Asiancars could validly exercise rights of
ownership, including the right to alienate it.
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 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 debt. As such, the
essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In this 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.
5. DAO HENG BANK, INC. v. BDO UNIVERSAL BANK
Facts:
- The Sps. Lilia and Reynaldo Laigo obtained loans from Dao Heng Bank in the total amount
of 11 million, to secure payment, three REM covering two parcels of land were executed.
- The loans were payable within 12 months from execution of the promissory notes. As of
2000, respondents failed to settle their outstanding obligation, drawing them to verbally
offer to cede to Dao Heng one of the two mortgaged lots by way of dacion en pago.
- For failure to pay the outstanding balance, Dao Heng filed an application to foreclose the
REM executed by the respondents. The properties subject of the mortgage were sold at
a public auction conducted on December 20, 2000 to Banco de Oro Universal Bank.
- Meanwhile, it appears that respondents negotiated for the redemption of the mortgages
for by a June 29, 2001 letter to the petitioner, to which Dao Heng advised Lilia Laigo
regarding the conditions for redemption. However, nothing was heard from respondents,
hence, petitioner advised Laigo by letter that in view of their failure to conform to the
conditions set by it for the redemption, it would proceed to consolidate the titles
immediately.
- Six days before the expiration of the redemption, respondent filed a complaint praying
for the annulment of the foreclosure of the properties subject of the REMs and for them
to be allowed to deliver by way of dacion en pago one of the mortgaged properties as full
payment of their mortgaged obligation.
- By respondents’ claim, Dao Heng verbally agreed to enter into a dacion en pago. However,
Dao Heng claimed that there was no meeting of the minds between the parties on the
settlement of respondents’ loan via dacion en pago
- Dao Heng thereupon moved to dismiss the complaint on the ground that the action is
unenforceable under the Statute of Frauds and the complaint states no cause of action.
- Respondents, on the other hand, opposed the motion, contending that their delivery of
the titles to the mortgaged properties constituted partial performance of their obligation
under the dacion en pago to take it out from the coverage of the Statue of Frauds
- The trial court granted petitioner’s Motion to Dismiss
o Respondents contention that their case is an exception to the operation of the

rule on statute of frauds is untenable. The titles were not delivered to them
pursuant to the dacion en pago but by reason of the execution of the mortgage
loan agreement. If indeed a dacion en pago was entered into between the parties,
it is inconceivable that a written document would not be drafted considering the
magnitude of the amount involved.
- On appeal, the CA reinstated respondents’ complaint.
o Holding that the complaint states a cause of action, respondents having alleged
that there was a partial performance of the agreement to settle their obligation
via dacion en pago when they agreed to have the properties appraised to thus place
their agreement within the exception on Statute of Frauds.
Issue:
Whether or not the case at bar is an exception under the statute of frauds
Held:
No. Respondents claim that petitioner’s commissioning of an appraiser to appraise the

value of the mortgaged properties, his services for which they and petitioner paid, and their
delivery to petitioner of the titles to the properties constitute partial performance of their
agreement to take the case out of the provisions on the Statute of Frauds.
There is no concrete showing, however, that after the appraisal of the properties,
petitioner approved respondent’s proposal to settle their obligation via dacion en pago. the
delivery of the petitioned of the titles to the properties is a usual condition sine qua non to the
execution of the mortgage, both for security and registration purposes. For if the title to a
property is not delivered to the mortgagee, what will prevent the mortgagor from again
encumbering it also by mortgage or even by sale to a third party.
Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature

of sale whereby property is alienated to the creditor in satisfaction of a debt in money. 13 It is an
objective novation of the obligation, hence, common consent of the parties is required in order to
extinguish the obligation.
. . . 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. 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 elements of a contract of sale, namely, consent, object certain, and cause or consideration
must be present. 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
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."14 (Emphasis, italics
and underscoring supplied; citation omitted)
Being likened to that of a contract of sale, dacion en pago is governed by the law on
sales. The partial execution of a contract of sale takes the transaction out of the provisions of
the Statute of Frauds so long as the essential requisites of consent of the contracting
parties, object and cause of the obligation concur and are clearly established to be present.
6. LUZON DEV’T BANK v. ENRIQUEZ
Facts:
- On July 3, 1995, Ricardo De Leon (owner of DELTA) and his spouse obtained a P8 million
loan from herein petitioner Luzon Dev’t Bank for the purpose of developing Delta Homes
I.
- To secure the loan, the Sps. De Leon executed a REM in favor of the bank on several of
their properties, including Lot 4.
- Sometime in 1997, DELTA executed a Contract to Sell with respondent Angeles Catherine
Enriquez over the house and lot in Lot 4 for the purchase price of P600,000++. Enriquez
made a DP of P114,000++
- When DELTA defaulted on its obligation, the Bank, instead of foreclosing the REM, agreed
to a dation in payment; hence, The Deed of Assignment in Payment of Debt was executed
and stated that Delta "assigns, transfers, and conveys and sets over to the assignee (bank)
that real estate with the building and improvements existing thereon in payment of the
total obligation owing to to the Bank"
- Unknown to Enriquez, among the properties assigned to the Bank was the house and lot of
Lot 4, which is the subject of her Contract to Sell with Delta.
- In appears, however, that the dacion en pago was not annotated on the TCT of Lot 4.
- Enriquez filed a complaint against Delta and the Bank before the HLURB alleging that
Delta violated the terms of its License to Sell by selling the house and lots for a price
exceeding that prescribed in BP 220; and failing to get a clearance for the mortgage from
the HLURB. Enriquez sought a full refund of the downpayment she paid to Delta.
- HLURB upheld the validity of the purchase price, but ordered Delta to accept payment of
the balance of P100,000++, and to deliver to Enriquez the title to the house and lot free
from liens and encumbrances.
- Upon MR to the HLURB BOC, the Borad likewise upheld the validity of the contract to
sell between Delta and Enriquez. That Delta and Enriquez were presumed to have had a
meeting of the minds on the object of the sale and the purchase price.
- Both Enriquez and the Ban appealed to the Office of the President.
o The Bank disagreed with the ruling upholding Enriquez’s Contract to Sell; it argued
that it has become impossible for Delta to comply with the terms of the contract
to sell and to deliver Lot 4’s title to Enriquez given that Delta had already
relinquished all its rights to Lot 4 in favor of the Bank via dation in payment.
o Enriquez: the Board erred in not applying the ceiling price as prescribed in BP 220
o The OP affirmed in toto the decisions of the HLURB
- Only the Bank appealed to the CA.
o It reiterated that Delta can no longer deliver Lot 4 to Enriquez because Delta had
sold the same to the Bank by virtue of dacion en pago. As an alternative argument,
in case the appellate court should find that DELTA retained ownership over Lot 4
and could convey the same to Enriquez, the BANK prayed that its REM over Lot 4
be respected such that DELTA would have to redeem it first before it could
convey the same to Enriquez in accordance with Section 25 of PD 957.
- 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. 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.

ARGUMENTS:
DELTA BANK
DELTA assails the CA Decision for holding The Contract to Sell did not involve a
that DELTA conveyed its ownership over Lot 4 conveyance of DELTA’s ownership over Lot 4
to Enriquez via the Contract to Sell. DELTA to Enriquez. The Contract to Sell expressly
points out that the Contract to Sell contained provides that DELTA retained ownership over
a condition that ownership shall only be Lot 4 until Enriquez paid the full purchase
transferred to Enriquez upon the latter’s full price. Since Enriquez has not yet made such
payment of the purchase price to DELTA. full payment, DELTA retained ownership over
Since Enriquez has yet to comply with this Lot 4 and could validly convey the same to the
suspensive condition, ownership is retained by BANK via dacion en pago
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.
Issue/s:
1. W/N the Contract to Sell conveys ownership;
2. W/N the dacion en pago extinguished the loan oblgation, such that Delta has no more
obligations to the Bank
Held:
1. Contract to sell does not transfer ownership
Both parties are correct in arguing that the Contract to Sell executed by DELTA in favor of
Enriquez did not transfer ownership over Lot 4 to Enriquez. A contract to sell is one where the
prospective seller reserves the transfer of title to the prospective buyer until the happening
of an event, such as full payment of the purchase price. What the seller obliges himself to
do is to sell the subject property only when the entire amount of the purchase price has
already been 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." It does not, by itself, transfer ownership to the buyer.
In the instant case, there is nothing in the provisions of the contract entered into by DELTA
and Enriquez that would exempt it from the general definition of a contract to sell. The terms
thereof provide for the reservation of DELTA’s ownership until full payment of the purchase
price; such that DELTA even reserved the right to unilaterally void the contract should Enriquez
fail to pay three successive monthly amortizations.
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.
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. Dacion en pago extinguished the loan obligation
The BANK then posits that, if title to Lot 4 is ordered delivered to Enriquez, DELTA has the
obligation to pay the BANK the corresponding value of Lot 4. According to the BANK, the dation
in payment extinguished the loan only to the extent of the value of the thing delivered. Since Lot
4 would have no value to the BANK if it will be delivered to Enriquez, DELTA would remain
indebted to that extent.
We are not persuaded. Like in all contracts, the intention of the parties to the dation in
payment is paramount and controlling. The contractual intention determines whether the property
subject of the dation will be considered as the full equivalent of the debt and will therefore serve
as full satisfaction for the debt. "The dation in payment extinguishes the obligation to the extent
of the value of the thing delivered, either as agreed upon by the parties or as may be proved,
unless the parties by agreement, express or implied, or by their silence, consider the thing as
equivalent to the obligation, in which case the obligation is totally extinguished."
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 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
7. SSS v. ATLANTIC GULF AND PACIFIC COMPANY OF MANILA, INC
Facts:
On Februalry 20024, AG&P and SEMIRARA filed a complaint for specific performance against
the SSS. The complaint alleged that:
Sometime in 2000, herein respondents informed the SSS of its premiums and loan
amortization delinquencies amounting to P7.3 million. AG&P proposed to pay its said arrears
by end of 2000, but requested for the condonation of all penalties. In turn, the SSS suggested
2 options to AG&P, either to pay by installment or through dacion en pago. AG&P chose dacion
en pago of its 5,999 sqm property in Baguio City with an appraised value of P80 million. Since
AG&P is not amenable to subdivide the said property, private respondent then made another
proposal to SSS. This time, offering as payment a portion of its lot situated in Batangas. In
addition, SEMIRARA was included in the proposed settlement through dacion en pago since it
has also outstanding delinquencies with the SSS.
SSS, in its Resolution, approved AG&P’s proposal to settle its and SEMIRARA’s
delinquencies through dacion en pago which amounted to P29.2++ million as of March 31, 2001.
To effect the property transfer, a Deed of Assignment has to be executed between the
plaintiffs and the defendant. Because of SSS failure to come up with the required Deed of
Assignment, AG&P prepared the draft and submitted it to the OVP-NCR thru SSS Baclaran
Branch. Unfortunately, SSS failed to take any action on said Deed of Assignment causing
AG&P to re-submit it to the same OVP-NCR.
More than a year after the approval of AG&P’s proposal, SSS sent the revised copy of the
Deed of Assignment to AG&P. However, the amount has ballooned from P29 million to P40
million allegedly because of the additional interests and penalty charges assessed on
plaintiff’s outstanding obligation from April 2001 up to January 2003.
AG&P demanded for the deletion of the additional interests on the ground that delay in
the approval of the deed and the subsequent delay in conveyance of the property in
defendant’s name was solely attributable to SSS. AG&P and SEMIRARA maintain their
willingness to settle their alleged obligation of P29,261,902.45 to SSS. Herein petitioner
SSS, however, refused to accept the payment through dacion en pago, unless plaintiffs also
pay the additional interests and penalties being charged
SSS moved for the dismissal of the complaint for lack of jurisdiction and non-exhaustion of
administrative remedies. The RTC granted SSS’s motion and dismissed PR’s complaint. Upon
appeal, the CA reversed the decision of the trial court and held that the subject of the complaint
is no longer the payment of the premium and loan amortization delinquencies, but the enforcement
of the dacion en pago pursuant to SSS Resolution. The action then is one for specific
performance which may fall under the jurisdiction of the RTC. Hence, this petition.
Issue:
To which body has jurisdiction to entertain a controversy arising from the non-
implementation of a dacion en pago agreed upon by the parties as a means of settlement of
PR’s liabilities
Held:
What determines the nature of the action as well as the tribunal or body which has
jurisdiction over the case are the allegations in the complaint.
The pertinent provision of law detailing the jurisdiction of the Commission is Section 5(a)
of the Social Security Act of 1997. The law clearly vests upon the Commission jurisdiction over
"disputes arising under this Act with respect to coverage, benefits, contributions and penalties
thereon or any matter related thereto..." Dispute is defined as "a conflict or controversy."
From the allegations of respondents’ complaint, it readily appears that there is no longer
any dispute with respect to respondents’ accountability to the SSS. Respondents had, in fact,
admitted their delinquency and offered to settle them by way of dacion en pago, subsequently
approved by the SSS in a resolution. SSS stated in said resolution that "the dacion en pago
proposal of AG&P Co. of Manila and Semirara Coals Corporation to pay their liabilities in the total
amount of P30,652,710.71 as of 31 March 2001 by offering their 5.8 ha. property located in San
Pascual, Batangas, be, as it is hereby, approved.." This statement unequivocally evinces its consent
to the dacion en pago
The controversy, instead, lies in the non-implementation of the approved and agreed
dacion en pago on the part of the SSS. As such, respondents filed a suit to obtain its enforcement
which is a suit for specific performance and one capable of pecuniary estimation beyond the
competence of the Commission.
8. CIR v. CA
Facts:
On July 8, 1983, PR ADMU received from CIR a demand letter assessing private
respondent the sum of P174,043 for alleged deficiency contractor’s tax and an assessment in the
sum of P1,141,837 for alleged deficiency income tax. Private respondent contested the validity of
the assessments. Consequently, the CIR cancelled the assessment for deficiency income tax but
modifying the assessment for contractor’s tax by increasing the amount due.
Unsatisfied, private respondent requested for reinvestigation of the modified

assessment. At the same time, it filed before the CA a petition for review of the said letter-
decision of CIR. While petition was pending, CIR issued a final decision reducing the assessment.
However, said final decision of the CIR was cancelled by the CTA.
On appeal, petitioner contends that the respondent court erred in holding that private
respondent is not an “independent contractor” within the purview of Section 205 of the Tax Code.
To petitioner, the term “independent contractor” encompasses all kinds of services rendered for
a fee. Petitioner thus submits that since PR falls under the definition of an “independent
contractor” and is not among the exceptions, PR is therefore subject to the 3% contractor’s tax
imposed under the same Code.
The Court of Appeals disagreed with the Petitioner Commissioner of Internal Revenue and
affirmed the assailed decision of the Court of Tax Appeals. Hence, this petition.
Issue:
1. W/N PR falls under the purview of independent contractor pursuant to the Tax Code
2. W/N PR is subject to 3% contractor’s tax under the Tax Code
Held:
According to the CIR, to fall under its coverage, the law requires that the independent
contractor be engaged in the business of selling its services. Hence, to impose the 3% contractor’s
tax on Ateneo’s Institute of Philippine Culture, it should be sufficiently proven that the private
respondent is indeed selling its services for a fee in pursuit of an independent business.
After reviewing the records of this case, 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.
Stressing that "it is not the Ateneo de Manila University per se which is being taxed,"
Petitioner CIR contends that "the tax is due on its activity of conducting researches for a
fee. The tax is due on the gross receipts made in favor of IPC pursuant to the contracts the
latter entered to conduct researches for the benefit primarily of its clients. The tax is imposed
on the exercise of a taxable activity. . . . The sale of services of private respondent is made under
a contract and the various contracts entered into between private respondent and its clients are
almost of the same terms, showing, among others, the compensation and terms of payment."
In theory, the Commissioner of Internal Revenue may be correct. However, the records
do not show that Ateneo's IPC in fact contracted to sell its research services for a fee. Clearly
then, as found by the Court of Appeals and the Court of Tax Appeals, petitioner's theory is
inapplicable to the established factual milieu obtaining in the instant case.
In the first place, the petitioner has presented no evidence to prove its bare contention
that contracts for sale of services were ever entered into by the private respondent.
Moreover, the CTA accurately and correctly declared that the "funds received by the
Ateneo de Manila University are technically not a fee. They may however fall as gifts or donations
which are tax-exempt" as shown by private respondent's compliance with the requirement of
Section 123 of the National Internal Revenue Code providing for the exemption of such gifts to
an educational institution.
It is clear that the funds received by Ateneo's Institute of Philippine Culture are not
given in the concept of a fee or price in exchange for the performance of a service or delivery of
an object. Rather, the amounts are in the nature of an endowment or donation given by IPC's
benefactors solely for the purpose of sponsoring or funding the research with no strings
attached. As found by the two courts below, such sponsorships are subject to IPC's terms and
conditions. 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 amounts given to IPC, therefore, may not be deemed, it
bears stressing as fees or gross receipts that can be subjected to the three percent contractor's
tax.
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 of a piece of work.
"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. Thus, Article 1458 of the Civil Code "expressly makes the obligation to transfer
ownership as an essential element of the contract of sale. Even in the absence of this express
requirement, however, most writers, including Sanchez Roman, Gayoso, Valverde, Ruggiero, Colin
and Capitant, have considered such transfer of ownership as the primary purpose of sale. Perez
and Alguer follow the same view, stating that the delivery of the thing does not mean a mere
physical transfer, but is a means of transmitting ownership. Transfer of title or an agreement to
transfer it for a price paid or promised to be paid is the essence of sale."
In the case of a 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. . . .
If the contractor agrees to produce the work from materials furnished by him, he shall
deliver the thing produced to the employer and transfer dominion over the thing, . . .
Ineludibly, 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. 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.
9. INCHAUSTI AND CO v. CROMWELL
Facts:
Petitioner is engaged in the business of buying and selling at wholesale hemp, both for its
own account and on commission. In all sales of hemp by Inchausti, the price is quoted to the buyer
at so much per picul. As to bailing, the hemp will be delivered in bales and that a charge, the
amount of which depends upon the then prevailing rate, is to be made against the buyer under the
denomination of “prensaje.” This charge is made in the same manner in all cases, even when the
operation of bailing was performed by the plaintiff or by its principal long before the contract of
sale was made.
Between January 1, 1905 and March 31, 1910, Inchausti collected and received prensaje
from purchasers of hemp sold by the said firm for its own account, in addition to the price
expressly agreed upon for the said hemp, sums aggregating P380,124.35. And between October
1, 1908 and March 1, 1910, collected for the account of the owners of hemp sold by the Inchausti
in Manila on commission.
Inchausti has always paid to the CIR the tax collectible upon the selling price expressly
agreed upon for all hemp sold by the plaintiff firm both for its own account and on commission,
but has not, until compelled to do so, paid the said tax upon sums received from the purchaser of
such hemp under the denomination of prensaje.
On April 29, 1910, the defendant CIR made a demand in writing upon Inchausti for the
payment within the period of 5 days of the sum of P1,370 as a tax of 1/3 of 1% on the sums of
money mentioned in par. IX hereof and upon the said sums of money so collected from purchasers
of hemp under the denomination of prensaje. Inchausti protested on the said assessment, and
thus appealed to the CIR, but the CIR refused to return to plaintiff the said sum of P1,370 or ay
part thereof.
Petitioner contends that said assessment by the CIR is illegal on the ground that said
charge does not constitute a part of the selling price of the hemp, but is a charge made for the
service of bailing the hemp.
Issue:
a. Whether or not the charge made under the denomination of prensaje is a part of the
gross value of the hemp sold and of its actual selling price
Held:
Yes. It is customary to sell hemp in bales, and that the price quoted in the market for
hemp per picul is the price for the hemp baled. The fact is that among large dealers like Inchausti,
it is practically impossible to handle hemp without its being baled, and that if the plaintiff sold a
quality of hemp it would be delivered in bales, and that the purchase price would include the cost
and expense of baling.
In other words, it is the facts stipulated, as well as it would be the fact of necessity, that
in all dealing in hemp in the general market, the selling price consists of the value of the hemp
loose plus the cost and expense of putting it into marketable form. In the sales made by the
petitioner, there were no services performed by him for his vendee. There was agreement that
services should be performed. Indeed, at the time of such sales, it was not known by the vendee
(buyer) whether the hemp was then actually baled or not. All that he knew and all that concerned
him was that the hemp should be delivered to him baled. He did not ask the plaintiff to perform
services for him, nor did the plaintiff agree to do so. The contract was single and consisted in the
sale and purchase of hemp. The purchaser contracted nothing else and the vendor agreed to
deliver nothing else.
The word “price” signifies the sum stipulated as the equivalent of the thing sold and also
every incident taken into consideration for the fixing of the price, put to the debit of the vendee
and agreed to by him. It is quite possible that the plaintiff, in this case in connection with the
hemp which he sold, had himself already paid the additional expense of baling as a part of the
purchase price which he paid and that he himself had received the hemp baled from his vendor.
It is quite possible also that such vendor of the plaintiff may have received the same hemp from
his vendor in baled form, that he paid the additions cost of baling as a part of the purchase price
which he paid. In such case the plaintiff performed no service whatever for his vendee, nor did
the plaintiff's vendor perform any service for him.
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 no 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.
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. When a person stipulates for the future sale of article 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 of 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.
It has been held in Massachusetts that 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 adoption 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.
It is clear to our minds that in the case at bar the baling was performed for the general
market and was not something done by plaintiff which was a result of any peculiar wording of the
particular contract between him and his vendee. It is undoubted that the plaintiff prepared his
hemp for the general market. This would be necessary. One whose exposes goods for sale in the
market must have them in marketable form. The hemp in question would not have been in that
condition if it had not been baled. the baling, therefore, was nothing peculiar to the contract
between the plaintiff and his vendee. It was precisely the same contract that was made by every
other seller of hemp, engaged as was the plaintiff, and resulted simply in the transfer of title to
goods already prepared for the general market.
10. CELESTINO CO & COMPANY v. CIR
Facts:
From 1946 to 1951, petitioner paid a percentage taxes of 7% on the gross receipts of its
sash, door, and window factory. However, in 1952, it began to claim liability only to the
contractor’s 3% tax instead of 7%. Petitioner claims that it does not manufacture ready-made
doors, sash, and windows for the public, but only upon special orders from the customers, hence,
it is not engaged in manufacturing, but only in sales of services.
Having failed to convince the BIR, it brought the matter to the CTA, where it also failed.
The CTA held that the petitioner has chosen for its tradename and has offered itself to the
public as a “factory”, which means, it is out to do business in its chosen lines on a big scale. As a
general rule, sash factories receive orders for doors and windows of special design only in
particular cases but the bulk of their sales is derives from a ready-made doors and windows of
standard sizes for the average home. Even if we were to believe petitioner's claim that it does
not manufacture ready-made sash, doors and windows for the public and that it makes these
articles only special order of its customers, that does not make it a contractor within the purview
of section 191 of the national Internal Revenue Code. There are no less than fifty occupations
enumerated in the aforesaid section of the national Internal Revenue Code subject to percentage
tax and after reading carefully each and every one of them, we cannot find under which the
business of manufacturing sash, doors and windows upon special order of customers fall under the
category of "road, building, navigation, artesian well, water workers and other construction work
contractors" are those who alter or repair buildings, structures, streets, highways, sewers, street
railways railroads logging roads, electric lines or power lines, and includes any other work for the
construction, altering or repairing for which machinery driven by mechanical power is used.
Issue:
Whether or not petitioner’s line of business involves a contract for a piece of work
Held:
No. The Court held that the company could not claim the lower contractor’s tax, and that
it was actually a manufacturer, with its sales subject to the higher sales tax, taking into
consideration the following:
(a) The Company habitually made sash, windows and doors, as it had represented itself as
manufacturer (factory) in its stationery and advertisements to the public.
(b) That the products were made only when customers placed their orders, did not alter
the nature of the establishment, for it was obvious that fulfilling the order, only
require the employment of such materials-molding, frames, panels as it ordinarily
manufactured or was in a position to habitually manufacture; and
(c) The nature of the products manufactured was such that “any builder or homeowner,
with sufficient money, may order windows or doors of the kind manufactured,” and it
was not true that it served special customers only or confined its services to them
alone, and that it was possible for the company to “easily duplicate or even mass-
produce the same doors— it is mechanically equipped to do so.”
The Court recognized that the presence of a contract for piece-of-work is the “sale of
service” unlike in a sale where the essence is the sale of an object. It also conceded that if the
company “accepts any 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— filling
special orders within the meaning of Article 1467.”
In the case at bar, however, the Court found that the orders exhibited were not shown
to be special: “They were merely orders for work— nothing shown to call them special requiring
extraordinary service of the factory.”
**Celestino Co implies that the test of “special orders” under Article 1467 is not one of timing,
or habit, but actually must be drawn from the nature of the work to be performed and the
products to be made: it must be of the nature that the products are not ordinary products of the
manufacturer, and they would require the use of extraordinary skills or equipment, if to be
performed by a manufacturer.
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 — filing special orders within the meaning of Article 1467. The orders herein
exhibited were not shown to be special. They were merely orders for work — nothing is shown to
call them special requiring extraordinary service of the factory
On the other hand, petitioner's idea of being a contractor doing construction jobs is
untenable. Nobody would regard the doing of two window panels a construction work in common
parlance.
Appellant invokes Article 1467 of the New Civil Code to bolster its contention that
in filing orders for windows and doors according to specifications, it did not sell, but merely
contracted for particular pieces of work or "merely sold its services".
Said article reads as follows:
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 contract for a piece of work.
It is at once apparent that the Oriental Sash Factory did not merely sell its services to
Don Toribio Teodoro & Co. (To take one instance) because it also sold the materials. The truth of
the matter is that it sold materials ordinarily manufactured by it — sash, panels, mouldings — to
Teodoro & Co., although in such form or combination as suited the fancy of the purchaser. Such
new form does not divest the Oriental Sash Factory of its character as manufacturer. Neither
does it take the transaction out of the category of sales under Article 1467 above quoted,
because although the Factory does not, in the ordinary course of its business, manufacture and
keep on stock doors of the kind sold to Teodoro, it could stock and/or probably had in stock the
sash, mouldings and panels it used therefor (some of them at least).
11. CIR v. ENGINEERING EQUIPMENT AND SUPPLY
Facts:
*** One Juan dela Cruz wrote to the Commissioner of Internal Revenue denouncing herein
respondent for tax evasion by misdeclaring its imported articles and failing to pay the correct
percentage taxes due thereon in connivance with its foreign suppliers. Engineering was
likewise denounced to the Central Bank for alleged fraud in obtaining its dollar allocations.
Thereafter, a raid and search was conducted, on which voluminous records of the firm were
confiscated.
The Engineering and Supply Company (EEI), which was engaged in the design and
installation of central type air-conditioning system, was assessed the advance sales tax for
its importation of parts and materials as a manufacturer and seller of the central air-
conditioning system, instead of the compensating tax it paid as a contractor.
Respondent protested the assessment, it claimed that it is not a manufacturer and seller
of air-conditioning units and spare parts or accessories thereof, but a contractor engaged in
the design, supply and installation of the central type of air-conditioning system, which
essentially a tax on the sale of service or labor of a contractor rather than on the sale of
articles subject.
Respondents appealed before the CTA. In ruling in favor of EEI, the CTA held that
respondent, as a contractor, is exempt from deficiency manufacturer’s sales. Hence, this
petition.
Issue:
Whether or not Engineering is a manufacturer of air condition units under Section

185(m) in relation to Sections 183(b) and 194 of the Code, or a contractor under Section
191
The Commissioner contends that The respondent, on the other hand, claims
Engineering is a manufacturer and seller that it is not a manufacturer of air
of air conditioning units, therefore, it is conditioning, but a contractor engaged in the
subject to the 30% advance sales tax design, supply and installation of the central
prescribed by Section 185(m), in relation type of air-conditioning system subject to
to Section 194. the 3% tax imposed by Section 191 of the
Tax Code, which is essentially a tax on the
sale of services or labor of a contractor
rather than on the sale of articles subject
to the tax referred to in Sections 184, 185,
and 186 of the Tax Code.
Held:
Engineering is a contractor rather than a manufacturer. The Court held that

Engineering did not manufacture air conditioning units for sale to the general public, but imported
some items which were used in executing contracts entered into by it. Engineering, therefore,
undertook negotiations and execution of individual contracts for the design, supply, and
installation of air conditioning units of the central type, taking into consideration in the
process such factors as the area of the space to be airconditioned, among others. Engineering
also testified that relative to the installation of air conditioning system, Engineering designed and
engineered complete each particular plant and that no two plants were identical but each had to
be engineered separately.
In short, Engineering definitely did not and was not engaged in the manufacture of air
conditioning units but had its services contracted for the installation of a central system.
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.
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 defendant’s request, it
is a contract of sale, even though it may be entirely made after, and in consequence of, the
defendants order for it.
The New Civil Code likewise distinguishes a contract of sale from a contract for a piece
of work, thus:
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 contact for a piece of work.
The word contractor has come to be used with special reference to a person who, in the
pursuit of the independent business, undertakes to do a specific job or piece of work for
other persons, using his own means and methods without submitting himself to control as to
the petty details. The true test of a contractor would seem to be that he renders service in
the course of an independent occupation, representing the will of his employer only as to
the result of his work, and not as to the means by which it is accomplished.
Notes:
o Habituality Test – when the manufacturer engages in the same activity in the ordinary
course of business, and does not need to employ extraordinary skills and equipment, that
would classify the underlying transaction as a sale.
o The core test in EEI was that each product or system executed by it had, by its nature,
to be unique and always different from other orders it had to service in the past, and
that even if it wanted to, EEI could not stockpile or even mass-produce the products
because of their very nature.
o The main distinguishing factor between a sale and a contract for a piece-of-work is the
essence of why the parties enter into it: if the essence is the object, irrespective of the
party giving or executing it, the contract is sale; if the essence if the service, knowledge,
or even reputation of the person who executed or manufactures the object, the contract is
for piece of work, which is essentially the sale of service or labor.
o Practical Needs for Being Able to Distinguish
o Pursuant to Article 1714, a contract for a piece-of-work shall be governed by the
provisions on warranty of title and against hidden defects and the payment of price
in a contract of sale.
o As to the tax provisions applicable to the transactions.
SALE PIECE OF WORK
- Where the main subject matter is the

- Constituted of real obligations and
service to be rendered (obligation to
would be the proper subject of an
do), would not allow an action for
action for specific performance.
specific performance in case the
contractor refuses to comply with his
obligation. Instead, Article 1715
provides that “Should the work be not
of such quality, the employer may
require that the contractor remove
the defect or execute another work.
If the contractor fails or refuses to
comply with this obligation, the
employer may have the defect
removed or another work executed
at the contractor’s cost.
- Only when the SM is indeterminate or A contract for a piece-of-work, unlike a sale,

generic is the buyer granted the is not governed by the Statute of Frauds
remedy under Article 1165 to have the
SM done by a third party with cost
chargeable to the seller
FROM AGENCY TO SELL OR TO BUY
Contract of Agency – a person binds himself to render some service or to do something in

representation or on behalf of the principal, with the consent or authority of the latter.
o One that essentially establishes a representative capacity in the person of the agent on
behalf of the principal, and one characterized as highly fiduciary.
Involving obligations to do (to represent the principal), contracts of agency to sell or to
buy are essentially different from sales.
CONTRACT OF SALE CONTRACT OF AGENCY
- Because it covers an underlying

- From its very nature, sale is not
fiduciary relationship, contract of
unilaterally revocable
agency is essentially revocable, even in
the presence of an irrevocability
clause
- The agent is not obliged to pay the

- Buyer himself pays for the price of
price, and is merely obliged to deliver
the object, which constitutes his main
the price which he may receive from
obligation.
the buyer.
- In an agency to buy, the agent does not

- The buyer, after delivery, becomes
become the owner of the thing subject
the owner of the subject matter
of the agency, even if the object is
delivered to him.
- The agent who effects the sale

- The seller warrants
assumes no personal liability as long as
he acts within his authority and in the
name of the principal.
- Because of the fiduciary nature of the

-
relationship, in an agency to sell, the
agent is disqualified from receiving
any personal profit from the
transaction covered by the agency,
and any profit received should pertain
to the principal.
12. QUIROGA v. PARSONS HARDWARE
Facts:
Quiroga entered into a contract with J. Parsons. The said contract granted defendant
Parsons the right to sell as an “agent” the Quiroga beds in the Visayas. Parsons was obliged under
the contract to pay for the beds within a specified period after delivery even when not yet sold,
at a discount of 25% as commission for the sales. Quiroga subsequently sought the rescission of
the agreement claiming that Parsons, as agent, had violated its obligation:
a) Not to sell the beds at higher prices than those of the invoices;
b) To have an open establishment in Iloilo;
c) To keep the beds on public exhibition; and
d) To pay for the advertisement expenses for the same; and
e) To order the beds by the dozen and in no other manner
Except for ordering the beds in dozens, none of the other obligations imputed to Parsons
were expressly stipulated in the contact to serve as basis for rescission based on substantial
breach. However, Quiroga further alleged that the defendant was his agent for the sale of
his beds in Iloilo, and that said obligations are implied in a contract of commercial agency. In
other words, he invoked the essential irrevocability of agency as his legal basis to rescind the
agreement.
Issue:
Whether or not Quiroga could rescind the contract
a. Whether or not the defendant was a purchaser or an agent of the plaintiff for
the sale of his beds.
Held:
The Court found the arrangement to be one of sale, since the essential clause provides
that “payment was to be made at the end of 60 days, or before, at the plaintiff’s request, or in
cash, if the defendant so preferred, and in these last two cases an additional discount was to be
allowed for prompt payment.” These conditions to the Court were precisely the essential features
of a contract of purchase and sale” because there was the obligation of the part of the plaintiff
to supply the beds, and, on the part of the defendant, to pay their price, thus:
These features exclude the legal conception of an agency or order to sell whereby the
mandatory agent received the thing to sell it, and does not pay its price, but delivers to
the principal the price he obtains from the sale of the thing to a third person, and if he
does not succeed in selling it, he returns it. By virtue of the contract between the plaintiff
and the defendant, the latter, on receiving the beds, was necessarily obliged to pay their
price within the term fixed, without any other consideration and regardless as to whether
he had or had not sold the beds.
The Court also noted that merely because by their contract, the parties designated the
arrangement as an agency did not mean the characterization to be conclusive, but it must be
understood that a contract is what the law defines it to be, and no what it is called by the
contracting parties.
The contract by and between Parsons and Quiroga is one of purchase and sale, in
order to show that it was not one made on the basis of commission on sales, as Quiroga
claims it was, for their contracts are incompatible with each other. Not a single one of the
clauses necessarily conveys the idea of agency. The words commission on sales used in one of the
clauses mean nothing else than a mere discount in the invoice price. The word agency only
expresses that the defendant was the only one that could sell the plaintiff’s beds in the Visayan
Islands. With regard to the remaining clauses, the least that can be said is that they are not
incompatible with the contract of purchase and sale.
In the contract in question, what was essential is that the plaintiff was to furnish the
defendant with beds which the latter might order, at the price stipulated, and that the defendant
was to pay the price in the manner stipulated. The price agreed upon was the one determined by
Quiroga for the sale of these beds in Manila, with a discount of from 20% to 25%, according to
their class. Payment was to be made at the end of 60 days, or before, at the plaintiff’s request,
or in cash, if the defendant so preferred. These are precisely the essential features of a
contract of purchase and sale. There was the obligation on the part of the defendant, to pay
the price. These features exclude the legal conception of an agency or order to sell it, and does
not pay its price, but delivers it to the principal the price he obtains from the sale of the thing
to a third person, and if he does not succeed in selling it, he returns it. By virtue of the contract
between the plaintiff and the defendant, the latter, on receiving the beds, was necessarily obliged
to pay their price within the term fixed, without any other consideration and regardless as to
whether he had or had not sold the beds.
13. GONZALO PUYAT & SONS v. ARCO AMUSEMENT CO.
Facts:
Gonzalo Puyat & Sons Inc. was acting as exclusive agents in the Philippines for the Starr
Piano Company of Richmond, Indiana, USA. Herein respondent Arco Amusement had engaged the
services of Gonzalo Puyat & Sons to purchase from the Starr Piano Company specified sound
reproducing equipment.
It was agreed between the parties that Gil Puyat (president of GPS) would order sound
reproducing equipment from the Starr Piano Company and that the plaintiff would pay the
defendant a 10% commission, plus other charges. The transaction went through.
Another order for sound reproducing equipment was placed by the plaintiff with the
defendant (price + 10% commission). The equipment arrived in due time, and the defendant paid
the price with its 10% commission, and 160$ for all expenses and charges. This amount is a mere
flat charge and rough estimate by the defendant equivalent to 10% of the price of $1,600 of the
equipment.
About three years later, the officials of Arco Amusement Company discovered that the
price quoted to them by the Gonzalo Puyat with regard to their two orders mentioned was not the
net price but rather the list price, and that they had obtained a discount from the Starr Piano
Company. And that the price charged them by Gonzalo Puyat were much too high including the
charges for out-of-pocket expense. For these reasons, they sought to obtain a reduction from
the defendant or rather a reimbursement. However, in failing to receive reimbursement, Arco
filed an action to recover on the ground that being only its agent, any benefit or profit received
from the transaction must inure to Arco, as the principal.
The trial court held that the contract between the petitioner and the respondent was
one of purchase and sale, and absolved the petitioner from the complaint. The appellate court,
however, held that the relation between the parties was that of agent and principal, the petitioner
acting as agent of the respondent in the purchase of the equipment, and ordered petitioner to
pay respondent. It further held that even if the contract between the parties was one of purchase
and sale, the petitioner was guilty of fraud in concealing the true price and hence would still be
liable to reimburse the respondent for the overpayments made by the latter.
Issue:
Whether the contract entered into by the parties are of purchase and sale, or of
agent and principal.
Held:
Purchase and Sale. In construing that the contract between Arco and Puyat was not an
agency to buy, but rather a sale, the Court looked into the provision of their contract, and found
that the letters between the parties clearly stipulate for fixed prices on the equipment ordered,
which “admitted no other interpretation that that the respondent agreed to purchase from the
petitioner the equipment in question at the prices indicated which are fixed and determinate. The
Court held that whatever unforeseen events might have taken place unfavorable to the petitioner,
such as change in prices, mistake in their quotation, loss of the goods not covered by insurance or
failure of the Starr Piano to properly fill the orders as per specifications, the respondent might
still legally hold the petitioner to the prices fixed.
The Court held that such stipulation “is incompatible with the pretended relation of
agency between the petitioner and the respondent, because in agency, 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. Although under their agreement, Gonzalo Puyat & Sons
was entitled to receive 10% commission, the same did not necessarily make it an agent, as the
provision is only an additional price which Arco bound itself to pay, and which stipulation was not
incompatible with the contract of purchase and sale.
Being a contract of sale and purchase, the Court also did not sustain the allegation of
fraud by Gonzalo Puyat against Arco. In the first place, the contract is the law bet. The parties
and should include all the things they are supposed to have been agreed upon. What does not
appear on the face of the contract should be regarded merely as “dealer’s” or “trader’s talk”,
which can not bind either party. The letters by which the respondent accepted the prices of
$1,700, and $1,600, respectively, for the equipment subject of its contract are clear in their
terms and admit no other interpretation that the respondent in question at the prices indicated
which are fixed and determinate. The respondent even admitted that the petitioner agreed to
sell to it the first equipment and machinery.
Whatever unforeseen events might have taken place unfavorable to the petitioner, such
as change in prices, mistake in their quotation, loss of goods not covered by insurance or failure
of the Starr Piano to properly fill the orders, the respondent might still legally hold the petitioner
to the prices as agreed upon. This is incompatible with the pretended relation of agency between
the parties, because in agency, 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 the damages which the latter may incur in carrying
out the agency without fault or imprudence on his part.
As to the 10% commission, this does not necessarily make the petitioner an agent of the
respondent, as this provision is only an additional price which the respondent bound itself to pay,
and which stipulation is not incompatible with the contract of purchase and sale.
In the second place, to hold the petitioner an agent of the respondent in the purchase of
equipment and machinery from the Starr Piano is incompatible with the admitted fact that the
petitioner is the exclusive agent of the same company in the PH. It is out of the ordinary for one
to be the agent of both the vendor and the purchaser. The facts and circumstance indicated do
not point to anything but plain ordinary transaction where the respondent enters into a contract
of purchase and sale with the petitioner, the latter as exclusive agent of the Starr Piano in the
US.
14. VICTORIAS MILLING CO. v. CA
Facts:
St. Therese Merchandising (STM) sold to private respondent Consolidated Sugar

Corporation (CSC) its rights for P14.750-million. CSC issued one check dated on the same date of
the purchase, and 3 postdated checks in payment. That same day, CSC wrote petitioner that it
had been authorized by STM to withdraw the sugar covered in the recent sale.
Several days later, STM issued 16 checks in the total amount of P31.9-million with
petitioner as payee. The latter, in turn, issued an official receipt acknowledging receipt of the
said checks in payment of 50,000 bags of sugar cane.
CSC surrendered SLDR No. 1214M to the petitioner’s NAWACO warehouse and was
allowed to withdraw sugar. However, after 2,000 bags had been released, petitioner refused to
allow further withdrawals of sugar. CSC then sent petitioner a later informing it that SLDR had
been sold and endorsed to it but that it had been refused
Held:
The Court held that one of the factors that most clearly distinguishes agency from other
legal concepts, including sale, “is control; one person— the agent— agrees to act under the control
of direction of another— the principal.” In the case at bar, it was held that when an entity
purchases sugar under a Shipping/List Delivery Receipt from the original owner to the buyer, for
and in our behalf, in order to authorize the buyer to withdraw part of the merchandise from the
bailee, such did not establish an agency, since the letter to the bailee of the original owner used
clearly the words “sold and endorsed” for the document of title, which meant clearly to cover a
sale, not an agency to sell.
15. FILINVEST CREDIT CORP. v. CA
Facts:
The private respondents, the Sps. Jose Sy bang and Iluminada Tan, were engaged in the
sale of gravel. In order to increase their production, they engaged the services of Mr. Ruben
Mercurio, the proprietor of Gemini Motor Sales, to look for a rock crusher which they could buy.
Mr. Mercurio referred the PR to the Rizal Consolidated Corporation which then had for sale one
such machinery similar to what they are looking for.
Upon inspection, the PR signified their intent to purchase the same. They were however
confronted with a problem— the rock crusher was P550,000. Hence, in order to purchase the
same, PR applied a financial assistance from the petitioner. The petitioner agreed to extend to
the PRs financial aid on certain conditions. Accordingly, a contract of lease of machinery (with
option to purchase) was entered into by the parties whereby the PRs agreed to lease from the
petitioner the rock crusher for 2 years. The contract likewise stipulated that at the end of the
2-year period, the machine would be owned by the PRs.
Three months from the date of the delivery, however, the PRs, claiming that they had
only tested the machine for a month, sent a letter-complaint to the petitioner, alleging that
contrary to the 20-40 tons per hour capacity of the machine stated in the lease contract, the
machine could only process 5 tons of rocks per hour. The petitioner did not, however, act on them.
Subsequently, the PRs stopped payment on the remaining checks they had issued to the petitioner.
As a result, the petitioner foreclosed the REM. To thwart the impending auction of their
properties, the PRs filed a complaint against the petitioner for the rescission of the contract of
lease, annulment of the REM, with prayer for the issuance of a writ of preliminary injunction. A
TRO was subsequently issued in favor of the PRs.
2 years later, the trial court ruled in favor of the PRs— annulling the REM and ordering
petitioners to return the property to the PRs.
On appeal, the CA affirmed in toto the decision of the lower court. Hence, this petition.
Issue:
Whether the real transaction was of lease or of sale
Held:
SALE ON INSTALLMENTS.
The fact that the rock crusher was purchased from Rizal Consolidated Corporation in the
name and with the finds of the petitioner proves beyond doubt that the ownership was effectively
transferred to it. It is precisely this ownership which enabled the petitioner to enter into the
“Contract of Lease” with the PRs.
The real intention of the parties should prevail. The nomenclature of the agreement
cannot change its true essence, or as a sale on installments. It is apparent here that the intent
of the parties is for the so-called rentals to be the installment payments. Upon the completion of
the payments, then the rock crusher would become the property of the PRs. This form of
agreement has been criticized as a lease only in name.
PARTIES TO A CONTRACT OF SALE
1. Capacity of Minors, Insane or Demented Persons and Deaf-Mutes

a. Necessaries (Art. 1489)
General Rule on Capacity of Parties: Any person who has “capacity to act,” or “the power to do
acts with legal effects,” or with the power to obligate himself, may enter into a contract of sale,
whether as a seller or as buyer.
• Natural persons – the age of majority begins at 18 years – has the capacity to act
• Juridical persons – such as corporations, partnerships, associations and cooperatives, a
juridical personality separate and distinct from that of the shareholders, partners,
members, is expressly recognized by law, with full “juridical capacity” to obligate
themselves and enter into valid contracts.
a. MINORs, INSANE or DEMENTED PERSONS, and DEAF-MUTES
General rule: Minors, insane and demented persons, and def-mutes who do not know how to
write, have no legal capacity to contract. However, contracts entered into by such legally
incapacitated persons are not void, but merely voidable, subject to annulment or ratification.
- Contracts entered into during lucid intervals by insane or demented persons are generally
valid; whereas, those entered into a state of drunkenness, or during a hypnotic spell, are
merely voidable.
- When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution, except insofar as he has been
benefited by the thing or price received by him.
1. Necessaries – under Article 194 of the Family Code, necessaries cover everything
indispensable for sustenance, dwelling, clothing, medical attendance, education and
transportation, in keeping with the financial capacity of the family… and education includes
his schooling or training for some profession, trade, or vocation, even beyond the age of
majority. Transportation shall include expenses in going to and from school, or to and from
place of work.”
• A minor is without legal capacity to give consent to a sale, and since a consent is an
essential requisite of every contract, the absence thereof cannot give rise to a valid
sale. However, this defective consent gives rise to a voidable sale, meaning “valid until
annulled”
Art. 1489: All persons who are authorized in this Code to obligate
themselves, may enter into a contract of sale, saving the modifications
contained in the following articles.
Where necessaries are sold and delivered to a minor or other person

without capacity to act, he must pay a reasonable price therefor.
Necessaries are those referred to in Article 290.
• In sales, the sale of necessaries considered valid under Art. 1489 can only cover
sales pertaining to sustenance, dwelling, and clothing, and perhaps medicine and
educational books and materials.
In order for the sale of necessaries to minors to be valid, and not merely voidable,
two elements must be present:
1. Perfection of the sale; and

2. Delivery of the subject necessaries.
If there is only perfection at the times the case reaches litigation, the sale is not
void, but voidable for vice in consent, and the rules on voidable contracts apply.
2. EMANCIPATION – terminates parental authority over the person and property

of the minor, who shall then be qualifies and responsible for all acts of civil life.
Before:
- RA 6809 lowered the age of majority to 18 years of age

- 21 years old;
- Emancipation took place (1) by marriage of the minor; or (2) by voluntarily emancipation
by recording in the Civil Register of an agreement in a public instrument executed by the
present exercising parental authority and the minor at least 18 year old
3. SENILITY AND SERIOUS
Effects on the Validity of a Sale
General Rule: A person is not incompetent to contract merely because of advanced year or by
reason of physical infirmities. HOWEVER, if such age or infirmities have impaired the mental
faculties so as to prevent the person from properly, intelligently, and firmly protecting her
property rights then she is undeniably incapacitated.
• Incapacity to give consent (senility, advanced age, and serious illness), which constitute
only vice in consent, and would render the contract merely voidable.
4. SALES BY AND BETWEEN SPOUSES
1. Sales With Third Parties
- Under Article 73 of the FC, either spouse may exercise any legitimate profession,
occupation, business or activity WITHOUT the consent of the other, and the latter
may object only on valid, serious and moral grounds. In cases of disagreements,
the courts shall decide whether or not:
1. The objection is proper; and
2. Benefits has accrued to the family prior to the objection or thereafter. If the
benefit accrued prior to the objection, the resulting obligation shall be enforced
against the community property. If the benefit accrued thereafter, such
obligation shall be enforced against the separate property of the spouse who
has not obtained consent.
- Under the Law on Sales, the spouse may, without the consent of the other, enter into
sale transactions in the regular or normal pursuit of his or her profession, vocation or
trade.
- However, under Articles 96 and 124 of FC:
The administration and enjoyment of the community property or the conjugal property
shall belong to both spouses jointly. In case of disagreement, the husband’s decision shall
prevail, subject to the wife seeking remedy from the courts, which must be availed within
five (5) years from the date of the contract.
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. The disposition or encumbrance of community property or conjugal property
shall be void without authority of the court or the written consent of the other spouse. In
such a case, the transaction shall be construed as a continuing offer on the part of the
consenting spouse and the third person, and maybe 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.
2. Sales Between Spouses
- Article 1490 of the NCC, spouses cannot sell property to each other, except:
a. When a separation of property was agreed upon in the marriage settlements;
or
b. When there has been a judicial decree for separation of property.
- Article 1492: the prohibition relating to spouses selling to one another is applicable even
to sales in legal redemption, compromises and renunciations
• Legal redemption - Legal redemption (retracto legal de comuneros) is a privilege
created by law, partly by reason of public policy and partly for the benefit of the
redemptioner to afford him a way out of a disagreeable or inconvenient association
into which he has been thrust. It is intended to minimize co-ownership. The law grants
a co-owner the exercise of the said right of redemption when the shares of the other
owners are sold to "a third person." A third person, within the meaning of this Article,
is anyone who is not a co-owner.
• Compromise - Article 2028. A compromise is a contract whereby the parties, by
making reciprocal concessions, avoid a litigation or put an end to one already
commenced.
o Judicial vs Extrajudicial
A compromise is judicial if the objective is to put an end to a pending litigation.

It is extrajudicial if the objective is to avoid a litigation.
o Contract rules apply
As a contract, a compromise is perfected by mutual consent.xxx The validity

of a compromise is dependent upon its compliance with the requisites and
principles of contracts dictated by law. Also, the terms and conditions of a
compromise must not be contrary to law, morals, good customs, public policy
and public order.
o Compromise- effect and execution

A compromise has upon the parties the effect and authority of res judicata;
but there shall be no execution except in compliance with a judicial
compromise. [Article 2037, Civil Code]
A judicial compromise, while immediately binding between the parties upon its
execution, is not executory until it is approved by the court and reduced to a
judgment.
o Instances when compromise not allowed
Article 2035. No compromise upon the following questions shall be valid:
(1) The civil status of persons;
(2) The validity of a marriage or a legal separation;
(3) Any ground for legal separation;
(4) Future support;
(5) The jurisdiction of courts;
(6) Future legitime.
a. Status of Prohibited Sales Between Spouses

- Contracts entered into in violation of Articles 1490 and 1492 are not merely
voidable, but have been declared as being null and void.
- Not anyone is given the right to assail the validity of the transaction. Spouses
themselves cannot avail themselves of the illegality of the sale on the ground of pari
delicto (equal fault)
- The only persons who can question the sale are the following:
a. Heirs of either of the spouses who have been prejudiced;
b. Prior creditors; and
c. The State when it comes to the payment of the proper taxes due on the
transactions
b. Rationale for Prohibition
(a) To prevent a spouse defrauding his creditors by transferring his properties to the
other spouse;
(b) To avoid a situation where the dominant spouse would unduly take advantage of the
weaker spouse, thereby effectively defrauding the latter; and
(c) To avoid an indirect violation of the prohibition against donations between spouses
under Article 133 of the Civil Code
o Article 133, now Article 87 of FC: Declares void every donation between
spouses during marriage, seeks to prevent the first two evils enumerates above.
The prohibition shall also apply to persons living together as husband and wife
without a valid marriage.
Article 87 (Fam Code) Article 1490 (Capacity to Buy or Sell)
• Exempts from its prohibition sales

• No mention of exceptions in case of
between spouses governed by the
donations, hence, donations between
complete separation of property
such spouses would be void.
regime
• A sale between such spouses, being an
• A donation between spouses governed
onerous and commutative contract,
by the complete separation of
would result in the separate estates of
property regime, being a gratuitous
the spouses being of the same value as
contract, would necessarily reduce the
before the sale and no fraud could
estate of the donor and increase the
result, either to the spouses or to
estate of the donee.
their creditors.
- Reason why spouses governed by the absolute community of property regime cannot sell
to one another because having the same estate between themselves, a sale is not possible
because there simply cannot be a purchase of what a party-buyer already owns.
C. Rationale for Exceptions to Prohibition under Article 1490
Complete separation of property regime:
1. By execution of a pre-nuptial agreement stipulating such property regime to apply

2. By the spouses going to court to ask for the dissolution of the prevailing conjugal
partnership of gains or absolute community of property regimes.
To avoid greater danger of undue influence or fraud in situation where the spouses are
governed by complete separation of property regime. Separate creditors of the selling spouses
could equally be defrauded.
- Article 1490 should apply more to spouses governed by the absolute community of
property regime, because the evils sought to be avoided by the law cannot for practical
purposes happen in such regime, since no matter what undue influence in exercised by the
dominant spouse, or attempt to defraud the creditor of a spouse, or attempt to
circumvent the prohibition against donation, such attempts would prove futile because of
the continued existence of the common fund on which both spouses can continue to claim.
3. Applicability of Incapacity to Common Law Spouses – the provision applies because of

the all-inclusive coverage under Article 87 of the FC to those living as husband and wife
without the benefit of a valid marriage.
SPECIFIC INCAPACITY MANDATED BY LAW (ART. 1491 AND 1492)

Art. 1491: The following persons are prohibited from entering into contracts of sales:
a) Agent, with respect to the property whose administration or sale may have been
entrusted to him, unless the consent of the principal has been given;
b) Guardian, with respect to the property of the person who is under his
guardianship.
c) Executor or administrator, with respect to the property of the estate under
his administrations;
d) Public officers and employees, with respect to the property of the State or
any subdivision thereof, or any GOCC, or institution, the administration of which
has been entrusted to them; it includes judges and government experts who, in
any manner whatsoever, take part in the sale;
e) Justices, judges, prosecuting attorneys, clerks of courts, and other officers
and employees connected with the administrations of justice, with respect
to the property and rights in litigation or levied upon an execution before the
curt within whose jurisdiction or territory they exercise their respective
functions; and
f) Lawyers, with respect to the property and rights in litigation or levied upon
an execution before the court within whose jurisdiction or territory they
exercise their respective functions; and
Note: This applies to sales in legal redemptions, compromises and renunciations, confirming the
policy that what cannot be done directly, cannot be done indirection.
1. Legal Status of Contracts Entered into in Violation of Arts. 1491 and 1492
• Agents – only purchases made by agents of the property covered by the agency are valid
and binding when made with express consent of their principals
• No such exception is granted in all other instances covered by said article.
• In all cases covered, consent or knowledge by the persons who is sought to be protected
by the law, cannot validate any of the transactions covered.
• INEXISTENT AND VOID FROM THE BEGINNING. Since the provision is based on
public policy, hence, prohibition cannot be validated by confirmation or ratification (as to
contracts entered into by public and judicial officers and lawyers)
a. Reason: There is a damage to public service or to the high esteem that should be
accorded to the administration of justice in our society. Ratification cannot
validate a relationship, which continues to be tainted with a public wrong .
b. Private parties cannot ratify or compromise among themselves matters contrary
to public interests.
• Contracts expressly prohibited by law are inexistent and void from the beginning and that
these contracts cannot be ratified.
• However, in cases of guardians, agents, and administrators, they may be ratified by
means of and in the form of a new contract, in which case its validity shall be determined
only by the circumstances at the time of execution of such new contract. The ratification
or second contract would then be valid from its execution, however, it does not retroact
to the date of the first contract.
2. Proper Party to Raise Issue of Nullity
- Article 1491 states that, “any person may invoke the inexistence of the contract
whenever juridical effects found thereon are asserted against him.”
3. Fraud or Lesion Not Relevant for Nullity
- The rationale for the absolute disqualifications set by Article 1491, is in line with “the
general doctrine that each of such relationships is a trust of the highest order, and the
trustee cannot be allowed to have any inducement to neglect his ward’s interest; and
therefore to avoid the temptation which naturally besets a person holding such fiduciary
position so circumstanced, necessitates the annulment of the transaction.
AGENTS
• Brokers not covered under the prohibitions as their authority consists merely in looking
for a buyer or a seller, and to bring the former and the latter together to consummate
the transactions
• Broker – one whose occupation is to bring parties together to bargain, or to bargain for
them, in matters of trade, commerce, or navigation.
GUARDIANS, ADMINISTRATORS AND EXECUTORS
• Officers of the courts since they are appointed or confirmed to such position pursuant
to judicial proceedings.
• Guardianship is a trust of the highest order, and the trustee cannot be allowed to have
any inducement to neglect his ward’s interest.
• The language of the law is clear on the imposition of an absolute disqualification on the
persons states therein occupying fiduciary positions.
JUDGES, JUSTICES and THOSE INVOLVED IN ADMINISTRATION OF JUSTICE
• This prohibition is applicable only during the period of litigation, should not cover only
lawyers, but judges as well.
• During litigation = during the pendency of the litigation involving the property
ATTORNEYS
• 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.
• Public interest and public policy remain paramount and do not permit of compromise or
ratification
a. Contingent Fee Arrangements
- The prohibition under Article 1491 does not apply to a contingent fee based on the value
of property involved in litigation and therefore does not prohibit a lawyer from acquiring
a certain percentage of the value of the properties in litigation that may be awarded to
his client.
- Since the payment of said fee is not made during the pendency of the litigation but only
AFTER judgment has been rendered in the case handled by the lawyer.
- Always subject to the supervision of the courts with respect to the stipulated amount and
may be reduced or nullified; so that in the event that there is any undue influence or fraud
in the execution of the contract or that the fee is excessive, the client is not without
remedy because the court will amply protect him.
- A contract of contingent fee is not covered by Article 1491 because the transfer or
assignment of the property in litigation takes only AFTER the finality of a favorable
judgment.
SUBJECT MATTER
REQUISITES:
(a) It must be existing, having potential existence, a future thing, or even contingent or
subject to a resolutory condition, in other words, it must be a POSSIBLE THING;
(b) It must be LICIT; and
(c) In must be DETERMINATE or at least DETERMINABLE
a. Lack of ANY requisite results in non-existent sale

• In case of payment of the agreed price, in a “no contract”, the buyer can still recover
the amount based in the principle of “unjust enrichment
• Article 1411 provides that only when the nullity of a contract proceeds from the illegality
of the cause or object of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto, would the parties have no cause of action against each
other; otherwise, the innocent may claim what he has given.
• Article 1412, when the act does not constitute a criminal offense, the ff rules shall
apply:
(a) When the fault is on the part of BOTH CPs, neither may recover what has given;
(b) When only one of the CPs is at fault, he cannot recover what he has given; but the
one, who is not at fault, may demand the return of what he has given.
• Article 1416 provides that when the contract is not illegal per se but merely prohibited,
and the legal prohibition is designed for the protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he has paid or delivered.
b. Legal Requisites of Subject Matter Intended to Govern Underlying Obligations of Seller
1. SUBJECT MATTER MUST BE “POSSIBLE THING”

- The thing may be existing or non-existing at the time of perfections of the contract of
sale
- The proper consideration of the first requisite is to consider whether the subject matter
is of a type and nature, that it exists or could be made to exist to allow the seller
reasonable certainty of being able to comply with his obligations under the contract.
- When the existence of a thing is subject to a condition, then it remains a “possible thing,”
for it has the capacity, not certainty, of coming into existence if subject to a
suspensive condition, or it already exists but may or may cease to exist if it is subject to
a resolutory condition.
o Resolutory – terminated upon fulfillment
o Suspensive – suspends rights and obligations until a certain future event occurs
- Even when SM does not exist at the time of perfection of the sale, the contract is still
valid under Arts. 1461 and 1403(3); however, when the SM is of such nature that it cannot
come to existence— an impossible thing— the o contract is indeed void.
- It is only important that the seller must have

Sps. Santos V. Ca Facts

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1. SPS. SANTOS v.

- The RTC rendered a decision and dismissed the complaint.

- On appeal, the CA reversed the lower court.

- Hence, this petition.

Whether or not the contract is a contract of sale or a mere contract to sell

o Subject property was acquired by private respondent from N. Domingo by a deed

- Manuel Lao’s MR was denied by the CA. Hence, this petition.

PETITIONER PRIVATE RESPONDENTS

• His transaction with herein • Anchored its right in the ejectment

The law enumerates when a contract may be presumed to be an equitable mortgage:

2. When the vendor remains in possession as lessee or otherwise;

3. BUENAVENTURA v. CA – COMMUTATIVE CHARACTERISTIC

- Ruled in favor of the defendants and dismissed the complaint.

- The deeds of sale were all executed for valuable consideration

Hence, this petition.

1. Whether the deeds of sale are void for lack of consideration: NO

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

4. FULE V. COURT OF APPEALS

- Petitioner Gregorio Fule, a banker by profession and a jeweler, acquired a 10-hectare

o A thing is given in exchange for another thing (Article 1638)

RTC Ruling: IN FAVOR OF THE RESPONDENTS (DR. NINEVETCH CRUZ)

a. Consent or meeting of the minds;

b. Determinate subject matter;

c. Price certain in money or its equivalent

o Delivery or traditionis one of the modes of acquiring ownership.

- Hence, this petition.

- Consequently, the subject property was scheduled for public auction.

- Hence, this petition.

In sales with assumption of mortgage, the assumption of mortgage is a condition

6. NHA v. GRACE BAPTIST CHURCH

- Hence, this petition.

1. As to the issue on estoppel:

- Respondent Orola acknowledged the receipt of a check bearing the amount of

- Respondents executed an extrajudicial settlement of the estate of Trinidad Laserna

- However, VRM Balleque did not meet with the respondents.

- Hence, this petition

Issue: Specific performance or rescission?

Article 1191 Article 1381

This is understood to be without prejudice to e. All other contracts specially declared

o The cause of action is subordinated to

o Contemplates alternative remedies for

o Rescission for breach of contract

o The rescission is not predicated on

o Not a subsidiary action, and Article 1191

- By a virtue of Deed of Agreement, Fonacier appointed petitioner Gaite as his attorney-

SALE DISTINGUISHED FROM OTHER CONTRACTS

A. SALE v. AGENCY TO SELL

Obligation as Regards the Price

Warranty as to the Object Sold

Right to Return the Thing

Right over the Thing

Contract of sale is not unilaterally revocable Essentially revocable because it covers an

B. SALE v. CONTRACT FOR A PIECE OF WORK

SALE CONTRACT FOR A PIECE OF WORK

Borne by the buyer Borne by the worker or contractor, not by the

Object of the Contract

Applicability of Statute of Frauds

Governed by the Statute of Frauds Not governed by the Statute of Frauds

Rules to Determine if the Contract is one of Sale or a Piece of Work

If ordered or manufactured in the ordinary If manufactured especially for the customer

Contract for a Piece of Work

“…one of the parties binds himself to give one