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SALES | A T T Y .

D U J U N C O

ESSENTIAL REQUISITES DIS TING UIS HED FROM OT HER CON T RACT S

DI Z ON V. CA CON TRACT TO S ELL

FACTS: LUZ ON BR OKER AG E V. M A R IT IM E B UI LDING


• In 1974, Overland Express Lines, Inc. entered into a FACTS:
Contract of Lease with Option to Buy with herein
petitioners involving a land in Quezon City. • April 1949 - Myers Bldg Co. entered into a Deed of
o The term of the lease was for one (1) year, Conditional Sale (DOCS) in favor of Maritime Bldg Co. over
during which period, the lessee was granted an 3 parcels of land with improvements in Manila City for
option to purchase the lot for P3,000.00 per P1M. Maritime paid P50k upon execution. The balance
square meter. Thereafter, the lease shall be on was to be paid in monthly installments of P10k at 5%
a per month basis with a monthly rental of interest p.a. (later lowered to P5k at 5.5% p.a.). The
parties agreed that:
P3,000.00.
o If Maritime defaults, the contract would be
• for failure to pay the increased rental of P8,000.00 per annulled at Myers' option.
month effective June 1976, herein petitioners filed an o All payments already made shall be forfeited.
action for ejectment to which the Corporation was o Myers shall have the right to reenter the
ordered to vacate the leased premises. property and take possession.
• Private respondent argued that it delivered the check of • Maritime failed to pay the installment for March 1961.
P300,000.00 to Alice A. Dizon who acted as agent of Maritime VP Schedler requested Myers President Parsons
petitioners pursuant to the supposed authority given by for a moratorium on the payments.
petitioner Fidela Dizon, the payee thereof. o Maritime's suspension of payment arose from
o Private respondent further contended that an award of backwages in a Labor Case favor of
petitioners' filing of the ejectment case against members of the Luzon Labor Union. Schedler
it based on the contract of lease with option to claims he is being sued for the backwages for
which F.H. Myers, former majority stockholder
buy holds petitioners in estoppel to question the
of Luzon Brokerage, allegedly promised to
authority of petitioner Fidela Dizon.
indemnify him when Schedler bought F.H.
o It insisted that the payment of P300,000.00 as Myers' stock.
partial payment of the purchase price o Parsons replied that the payments are
constituted a valid exercise of the option to buy. addressed to Myers Bldg Co., not the estate of
F.H. Myers, and Board of Directors refused to
ISSUE: WON there was a perfected contract of sale.
grant the moratorium.
RULING: NO. • May 16, 1961 - Myers made a demand upon Maritime for
the unpaid installments.
The elements of a contract of sale are consent, object, and price in • June 5, 1961 - Myers advised Maritime of the cancellation
money or its equivalent. Absence of any of these essential of the DOCS and demanded the return of the property,
elements negates the existence of a perfected contract of sale. Sale holding Maritime liable for rentals at P10k monthly.
is a consensual contract and he who alleges it must show its • Myers demanded from its lessee, Luzon Brokerage, the
existence by competent proof. payment of monthly rentals of P10k + return of the
property. Luzon Brokerage, to avoid paying to the wrong
In an attempt to resurrect the lapsed option, private respondent party, filed an action for interpleader.
gave P300,000.00 to petitioners (thru Alice A. Dizon) on the o Myers filed a cross-claim, praying for judicial
erroneous presumption that the said amount tendered would confirmation of its right to rescind.
constitute a perfected contract of sale pursuant to the contract of • CFI: Maritime committed breach by nonpayment. Myers
lease with option to buy. There was no valid consent by the is entitled to cancel the DOCS, forfeit the payments made,
petitioners (as co-owners of the leased premises) on the supposed repossess the property, and collect the rentals thereof.
sale entered into by Alice A. Dizon, as petitioners' alleged agent,
ISSUES / RULING:
and private respondent. The basis for agency is representation and
a person dealing with an agent is put upon inquiry and must WON was guilty of breach.
discover upon his peril the authority of the agent. There was no
showing that petitioners consented to the act of Alice A. Dizon nor YES. The non-payment of the installments designed to coerce
authorized her to act on their behalf with regard to her transaction Myers Bldg Co. into answering for an alleged promise of the late F.
with private respondent. H. Myers. Maritime cannot ignore the fact that whatever obligation
F. H. Myers/ his estate had assumed was not, and could not have
been, an obligation of the corporation, Myers Bldg Co. Hence, the
breach was tainted with dolo or a "conscious and intentional design

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to evade the normal fulfillment of existing obligations" (Capistrano spouses in favor of the Cabigas spouses, and which was registered
Vol. 3). Having acted in bad faith, Maritime is not entitled to ask the in the Office of the Register of Deeds.
court to grant further time to make payment.
As the Dignos spouses refused to accept from Jabil the balance of
From another point of view, it is irrelevant whether the purchase price of the land, and as Jabil discovered the second
Maritime's breach was casual or serious, for as pointed out in sale made by defendants-appellants to the Cabigas spouses, Jabil
Manuel v. Rodriguez, In contracts to sell, where ownership is brought the present suit.
retained by the seller and is not to pass until the full payment of
the price, such payment, as we said, is a positive suspensive ISSUES / RULING:
condition, the failure of which is not a breach, casual or serious, but WON subject contract is a deed of absolute sale or a contract to
simply an event that prevented the obligation of the vendor to sell. DEED OF ABSOLUTE SALE
convey title from acquiring binding force, in accordance with
Article 1117 of the Old Civil Code. To argue that there was only a a deed of sale is absolute in nature although denominated as a
casual breach is to proceed from the assumption that the contract "Deed of Conditional Sale" where nowhere in the contract in
is one of absolute sale, where non-payment is a resolutory question is a proviso or stipulation to the effect that title to the
condition, which is not the case. property sold is reserved in the vendor until full payment of the
purchase price, nor is there a stipulation giving the vendor the right
WON Myers is entitled to extrajudicially rescind the Deed of to unilaterally rescind the contract the moment the vendee fails to
Conditional sale. pay within a fixed period.
YES. SC held in Lopez v. Commissioner of Customs that a judicial A careful examination of the contract shows that there is no such
action for the rescission of a contract is not necessary where the stipulation reserving the title of the property on the vendors nor
contract provides that it may be revoked and cancelled for violation does it give them the right to unilaterally rescind the contract upon
of any of its terms. As further explained in UP v. de Los Angeles, the non-payment of the balance thereof within a fixed period.
party who deems the contract violated may consider it resolved or
rescinded without previous court action, but it proceeds at its own WON there was delivery. YES
risk. For it is only the final judgment of the corresponding court that Article 1477 of the same Code provides that "The ownership of the
will conclusively and finally settle whether the action taken was or thing sold shall be transferred to the vendee upon actual or
was not correct in law. But the law definitely does not require that constructive delivery thereof." this Court held that in the absence
the contracting party who believes itself injured must first file suit of stipulation to the contrary, the ownership of the thing sold
and wait for a judgment before taking extrajudicial steps to protect passes to the vendee upon actual or constructive delivery thereof.
its interest.
While it may be conceded that there was no constructive delivery
Neither can Maritime invoke Civil Code Art. 1592 (where vendee in of the land sold in the case at bar, as subject Deed of Sale is a
default can continue to make payments as long as no private instrument, it is beyond question that there was actual
judicial/notarial demand for rescission has been made) because delivery thereof. As found by the trial court, the Dignos spouses
the cross-claim filed by Myers constitutes a judicial demand for delivered the possession of the land in question to Jabil as early as
rescission that satisfies the said article. Moreover, this is not an March 27,1965 so that the latter constructed thereon Sally's Beach
ordinary sale envisaged by Article 1592, transferring ownership Resort also known as Jabil's Beach Resort in March, 1965; Mactan
simultaneously with the delivery of the real property sold, but one White Beach Resort on January 15,1966 and Bevirlyn's Beach
in which the vendor retained ownership of the immovable object Resort on September 1, 1965. Such facts were admitted by
of the sale, merely undertaking to convey it provided the buyer petitioner spouses
strictly complied with the terms of the contract. What Myers seeks
is not really rescission and restoration of the parties to the status WON petitioners already have rescinded the contract with Jabil.
quo ante but enforcement of the provisions. NO

the contract of sale being absolute in nature is governed by Article


DI GN OS V. CA
1592 of the Civil Code. It is undisputed that petitioners never
FACTS: On June 7, 1965, appellants (petitioners) Dignos spouses notified private respondents Jabil by notarial act that they were
sold a parcel of land to respondent Atilano J. Jabil for the sum of rescinding the contract, and neither did they file a suit in court to
P28,000.00, payable in two installments, with an assumption of rescind the sale. The most that they were able to show is a letter of
indebtedness with the First Insular Bank of Cebu in the sum of Cipriano Amistad who, claiming to be an emissary of Jabil, informed
P12,000.00, which was paid and acknowledged by the vendors in the Dignos spouses not to go to the house of Jabil because the
the deed of sale Jabil, and the next installment in the sum of latter had no money and further advised petitioners to sell the land
P4,000.00 to be paid on or before September 15, 1965. in litigation to another party.

On November 25, 1965, the Dignos spouses sold the same land in
favor of Spouses Cabigas, who were then U.S. citizens, for the price
of P35,000.00. A deed of absolute sale was executed by the Dignos
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CON TRACT FOR A P IECE OF W ORK objected and argued that they are contractors and not
manufacturers and should be liable only for the 3% tax on sales of
CELES T IN O AN D CO. V. COLLECT OR services or pieces of work.

FACTS: Celestino Co & Company is a duly registered general co- The commissioner demanded upon Engineering the payment of
partnership doing business under the trade name of “Oriental Sash the assessed tax and suggested that Engineering pay P10k as
Factory”. From 1946 to 1951 it paid percentage taxes of 7% on the compromise for Engineering’s penal liability for violation of the Tax
gross receipts of its sash, door and window factory, in accordance Code.
with section 186 of the National Revenue Code imposing taxes on ISSUE: WON EES is a contractor for a piece of work thus only liable
sales of manufactured articles. However in 1952 it began to claim for 3% tax
liability only to the contractor’s 3% tax (instead of 7%) under
section 191 of the same Code. It bolstered its contention by RULING: YES.
claiming that it does not manufacture ready-made sash, doors and
windows for the public and that it makes these articles only upon Contractor – a person who, in the pursuit of the independent
special order of its customers; hence it is a contractor within the business, undertakes to do a specific job or piece of work for other
purview of section 191 of the National Internal Revenue Code persons, using his own means and methods without submitting
which enumerates no less 50 occupations subject to taxation. himself to control as to the petty details.
Having failed to convince the Bureau of Internal Revenue, it True test of contractor – he renders service in the course of an
brought the matter to the Court of Tax Appeals, where it also failed. independent occupation representing the will of his employer only
ISSUE: WON petitioner could be taxed under section 191 (3%) as to the result of his work, and not as to the means by which it is
accomplished.
RULING: NO.
The SC found that EES was not a manufacturer of air-conditioning
The percentage tax imposed in section 191 of the Tax Code is units. While it imported such items, they were not for sale to the
generally a tax on the sales of services, in contradiction with the tax general public and were used as mere components for the design
imposed in section 186 of the same Code which is a tax on the of the centralized air-conditioning system, the designs and
original sales of articles by the manufacturer, producer or importer. specifications of w/c are different for every client. Various technical
The fact that the articles sold are manufactured by the seller does factors must be considered and it can be argued that no two plants
not exchange the contract from the purview of section 186 of the are the same; all are engineered separately and distinctly. Each
National Internal Revenue Code as a sale of articles. Moreover, the project requires careful planning and meticulous layout. Such
fact that windows and doors are made by it only when customers central air-conditioning systems and their designs would not have
place their orders, does not alter the nature of the establishment, existed were it not for the special order of the party desiring to
for it is obvious that it only accepted such orders as called for the acquire it. EES is thus not liable for the sales tax.
employment of such materials-molding, frames, panels-as it
ordinarily manufactured or was in a position habitually to ** In comparison with Celestino case:
manufacture. Engineering advertised itself as Engineering Equipment and Supply
Also, the business enterprise of petitioner does not fall under the Company, Machinery Mechanical Supplies, Engineers, Contractors
enumeration provided in section 191. It would require a stretch of while Oriental used “Oriental Sash Factory”. It also paid the
the law and much effort to make the business of manufacturing contractors tax on all the contracts for design and construction of
sash, doors and windows upon special order of customers fall central system unlike Oriental who did not pay contractors tax.
under the category of road, building, navigation, artesian well, Engineering did not have ready-made air conditioning units for sale
water works and other construction work contractors. unlike oriental whose bulk of their sale came from ready-made
Construction work contractors are those who alter or repair doors and windows
buildings, structures, streets, highways, sewers, street railways, AG EN CY TO BUY OR S ELL
railroads, logging roads, electric, steam or water plants telegraph
and telephone plants and lines, electric lines or power lines, and
Q UI R OG A V. PA R S ON S
includes any other work for the construction, altering or repairing
for which machinery driven by mechanical power is used. FACTS: A contract was entered into between Andres Quiroga and
J. Parsons, who were both merchants, which granted the exclusive
COM M IS S I ON ER V. ENGI N EER ING EQ UI PMEN T
right to sell his beds in the Visayan Islands to Parsons under the
FACTS: Engineering Equipment & Supply (EES) was engaged in the following conditions:
business of designing and installing central air-conditioning 1) There be a discount of 2.5% as commission for the sale;
systems. It was assessed by the Commissioner of Internal Revenue 2) Parsons shall order the beds by the dozen, whether of the
for 30% advanced sales tax, among other penalties pursuant to an same or of different styles;
anonymous complaint filed before the BIR. EES vehemently

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3) Expenses for transportation and shipment shall be borne would only entitle the plaintiff to disregard the orders which the
by Quiroga; defendant might place under other conditions; but if the plaintiff
4) Parsons is bound to pay Quiroga for the beds received consents to fill them, he waives his right and cannot complain for
within 60 days from the date of their shipment; having acted thus at his own free will.
5) If Quiroga should request payment before the invoice falls
due, it shall be considered as prompt payment with 2% For the foregoing reasons, we are of opinion that the contract by
deduction; and between the plaintiff and the defendant was one of purchase
6) 15-day notice must at least be given by Quiroga before and sale, and that the obligations the breach of which is alleged as
any alteration in price of beds; and a cause of action are not imposed upon the defendant, either by
7) Parsons binds himself to only sell Quiroga beds. agreement or by law.

Quiroga alleged that Parsons breached its contract by selling the G . P UYA T A N D S ON S V. A R CO A M US EM ENT
beds at a higher price, not having an open establishment in Iloilo,
FACTS: Gonzalo Puyat, exclusive agent in the Philippines for Star
not maintaining a public exhibition, and for not ordering the beds
Piano Company of Richmond, Indiana, U.S.A., and Arco Amusement
by the dozen. Quiroga argued that since there was a contract of
Company agreed that Gonzalo would, on behalf of Arco, order
agency between them, such obligations were necessarily implied.
sound reproducing equipment from Star and that Arco would pay
ISSUE: WON the contract is of agency or of sale. Gonzalo, in addition to the price of the equipment, a 10%
commission, plus all expenses such as freight, insurance, etc. Upon
RULING: SALE. receipt by Gonzalo of the reply of Star inquiring about the price,
In order to classify a contract, due attention must be given to its Gonzalo informed Arco of the price of $1,700.00. Being agreeable
essential clauses. In the contract in question, what was essential, to this price, Arco formally authorized the order.
as constituting its cause and subject matter, is that the plaintiff was Arco discovered that the price quoted to them by Gonzalo was not
to furnish the defendant with the beds which the latter might the net price but the list price and that Gonzalo obtained a discount
order, at the price stipulated, and that the defendant was to pay from Star. Arco instituted action to obtain a reduction from
the price in the manner stipulated. Gonzalo or a reimbursement of what Gonzalo obtained as a
The Supreme Court declared that the contract by and between the discount from Star on the theory that the relation between Arco
plaintiff and the defendant was one of purchase and sale. Nothing and Gonzalo was that of principal and agent.
in the contract conveys the idea of agency. ISSUE: Whether the contract between Gonzalo and Arco is of sale
The words commission on sales used in clause (A) of article 1 mean or of agency.
nothing else, as stated in the contract itself, than a mere discount RULING: SALE
on the invoice price. The word agency, also used in articles 2 and
3, only expresses that the defendant was the only one that could For the following reasons:
sell the plaintiff's beds in the Visayan Islands. With regard to the
1) The contract between the parties is clear that Arco agreed to
remaining clauses, the least that can be said is that they are not
purchase from Gonzalo the equipment at prices indicated
incompatible with the contract of purchase and sale.
($1,700.00, plus the 10% commission and plus all the expenses
Payment was to be made at the end of sixty days, or before, at the and charges) which are fixed and determinate and Gonzalo
plaintiff’s request, or in cash, if the defendant so preferred, and in agreed to sell said equipment to Arco
these last two cases an additional discount was to be allowed for 2) Whatever unforeseen events might have taken place
prompt payment. These are precisely the essential features of a unfavorable to Arco, such as change in prices, loss of the goods
contract of purchase and sale. not covered by insurance, or failure of Star to properly fill the
orders, Arco should legally hold Gonzalo to the price of $1,700
There was the obligation on the part of the plaintiff to supply the - This is incompatible with the pretended relation of agency,
beds, and, on the part of the defendant, to pay their price. These because in agency, the agent is exempted from all liability in
features exclude the legal conception of an agency or order to sell the discharge of his commission provided he acts in
whereby the mandatory or agent received the thing to sell it, and accordance with the instructions received from his principal,
does not pay its price, but delivers to the principal the price he and the principal must indemnify the agent for all damages
obtains from the sale of the thing to a third person, and if he does which the latter may incur in carrying out the agency without
not succeed in selling it, he returns it. By virtue of the contract fault or imprudence on his part;
between the plaintiff and the defendant, the latter, on receiving 3) While Gonzalo was to receive a 10% commission, it did not
the beds, was necessarily obliged to pay their price within the term necessarily make Gonzalo an agent of Arco as this provision is
fixed, without any other consideration and regardless as to only an additional price which Arco bound itself to pay, and
whether he had or had not sold the beds. which stipulation was not incompatible with the contract of
In respect to the defendant’s obligation to order by the dozen, the purchase and sale; and
only one expressly imposed by the contract, the effect of its breach
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4) To hold Gonzalo an agent of Arco in the purchase of the 10.8 million. the Laigos took no action so their property was
equipment from Star is incompatible with the admitted fact foreclosed. They now contend that the foreclosure was illegal since
that Gonzalo is the exclusive agent of Star in the Philippines. It there was a verbal agreement for dacion en pago. Dao Heng
is out of the ordinary for one to be the agent of both the however contends that the dacion en pago falls under the statute
vendor and the vendee. of fraud therefore it is not enforceable. The Laigo’s counter this by
stating that the dacion is an exception since it is no longer
KER A N D CO. V. LI NG A D executory but had undergone partial performance when the titles
to the property were delivered to Dao Heng.
FACTS: CIR assessed the sum of P20,272.33 as the commercial
broker’s percentage tax, surcharge, and compromise penalty ISSUE: WON there was a dacion en pago between the parties
against Ker & Co.
RULING: There is no showing that the dacion en pago has been
Ker and Co. requested for the cancellation of the assessment and accepted by both parties. Since there is no mutual consent, there
filed a petition for review with the Court of Tax Appeals. The CTA is no dacion
ruled that Ker and Co is liable as a commercial broker. Ker has a
contract with US rubber in which Ker is the distributor of the said Dacion en pago as a mode of extinguishing an existing obligation
company. Ker was precluded from disposing the products 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
elsewhere unless there has been a written consent from the
novation of the obligation, hence, common consent of the parties
company. The prices, discounts, terms of payment, terms of
is required in order to extinguish the obligation.
delivery and other conditions of sale were subject to change in the
discretion of the Company. . . . In dacion en pago, as a special mode of payment, the debtor
offers another thing to the creditor who accepts it as equivalent of
ISSUE: Whether the relationship of Ker and Co and US rubber was payment of an outstanding debt. The undertaking really partakes
that of a vendor- vendee or principal-broker 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
RULING: PRINCIPAL-BROKER be charged against the debtor's debt. As such the elements of a
Ker and Co is only an agent of the US rubber because it can dispose contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what
of the products of the Company only to certain persons or entities
actually takes place in dacion en pago is an objective novation of
and within stipulated limits, unless excepted by the contract or by
the obligation where the thing offered as an accepted equivalent
the Rubber Company, it merely receives, accepts and/or holds of the performance of an obligation is considered as the object of
upon consignment the products, which remain properties of the the contract of sale, while the debt is considered the purchase
latter company, every effort shall be made by petitioner to price. In any case, common consent is an essential prerequisite, be
promote in every way the sale of the products and that sales made it sale or novation, to have the effect of totally extinguishing the
by petitioner are subject to approval by the company. Since the debt or obligation."
company retained ownership of the goods, even as it delivered
possession unto the dealer for resale to customers, the price and 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
terms of which were subject to the company’s control, the
sale takes the transaction out of the provisions of the Statute of
relationship between the company and the dealer is one of agency.
Frauds so long as the essential requisites of consent of the
If such transfer puts the transferee in the attitude or position of an contracting parties, object and cause of the obligation concur and
are clearly established to be present.
owner and makes him liable to the transferor as a debtor for the
agreed price, and not merely as an agent who must account for the There is no concrete showing, however, that after the appraisal of
proceeds of a resale, the transaction is a sale; while the essence of the properties, petitioner approved respondents' proposal to settle
an agency to sell is the delivery to an agent, not as his property, but their obligation via dacion en pago. The delivery to petitioner of the
as the property of the principal, who remains the owner and has titles to the properties is a usual condition sine qua non to the
the right to control sales, fix the price, and terms, demand and execution of the mortgage, both for security and registration
receive the proceeds less the agent's commission upon sales made. purposes. For if the title to a property is not delivered to the
mortgagee, what will prevent the mortgagor from again
DACION EN P AG O encumbering it also by mortgage or even by sale to a third party.

LEASE
DA O HENG B AN K V. SPS . LAI G O

FACTS: Spouses Laigo obtained a loan from Dao Heng Bank Inc. As B A CHR A CH V. M EN DOZ A
a security 3 real estate mortgages were executed. As of 2000, the
FACTS: the action was brought to recover a sum of money for the
Laigos failed to pay on time so as a remedy, they verbally agreed to
balance alleged to be due on the purchase price of an auto-truck
cede one of the mortgaged property to Dao Heng by way of dacion
sold by the plaintiff to the defendant.
en pago (dation in payment). In August 2000, Dao Heng, thru a
letter informed the Laigos that there total obligation amounts to

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It appears that defendant paid in cash for the truck and executed a While the act deals with 3 subjects: sales of personal property on
series of promissory notes which were secured by chattel installment plan, chattel mortgages, and leases of personal
mortgage. The defendant brought the truck to the plaintiff’s repair property with option to repurchase, all three are comprehended
shop which even if the repair was completed, the latter refused to within the subject of installment payments.
return the truck until the unpaid amount of the truck be paid.
WON the Act is constitutional. YES
ISSUE: WON the retention of the plaintiff is valid.
As ruled in Bachrach Motor Co. vs. Millan the principal object of the
RULING: Yes, Art. 1600 and 1866 of the Civil Code (1731 and 2098 law was to remedy the abuses committed in connection with the
of NCC) allows the plaintiff to have the right of retention of the foreclosure of chattel mortgages. The amendment prevents
truck until the amount due was paid or tendered to him. mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the
BACHRAC H MOTOR CO. V. M IL AN** mortgagor for a deficiency judgment.
FACTS: resp bought a second hand Renault touring car from Petitioner Parties have no vested rights in particular remedies or modes of
payable in monthly installment as evidence by the promissory note w/ procedure, and the Legislature may change existing remedies and
chattel mortgage. R defaulted in payment dec-Feb 1934. P seeks to modes of procedure without impairing the obligations of contracts,
recover the balance (P928.50 +12% interest/yr) of the promissory note. provided an efficacious remedy remains for the enforcement of a
ISSUE: WON the P has right to exact fulfillment of the obligation under mortgage may not, even when public policy is invoked as an excuse,
Art 1454. be pressed so far as to cut down the security of a mortgage without
moderation or reason or in a spirit of oppression.
RULING: Yes, in a sale of personal property on the installment plan the
vendor may elect to exact the fulfillment of the obligation, as the **In the Philippines three remedies are available to the vendor
plaintiff has done in this case, cancel the sale or foreclose his mortgage who has sold personal property on the installment plan. (1) He may
if one has been given on the property so sold. If he elects to cancel or elect to exact fulfillment of the obligation (Bachrach Motor Co. vs.
foreclose he is bound by the provisions of article 1454-A of the Civil Millan [1935], 61 Phil 409). (2) If the vendee shall have failed to pay
Code (Art 1124 is not repealed). Art 1454 merely prevents mortgagees two or more installments, the vendor may cancel the sale. (3) If the
from seizing the mortgaged property, buying it at foreclosure sale for vendee shall have failed to pay two or more installments, the
a low price and then bringing suit against the mortgagor for a vendor may foreclose the mortgage if one has been given on the
deficiency judgment. property.
M A NI LA T R A DING AN D S UP P LY IN G CO. V. R EY ES OBJECT OF THE CONTRACT

FACTS: On December 13, 1933, following the enactment of Act No.


MUST BE LICIT
4122 or the Installment Sales Law, E.M. Reyes executed in favor of
the Manila Trading & Supply Co., a chattel mortgage on an
M A R TI N EZ V. CA
automobile as security for the payment of the sum of P400, which
Reyes agreed to pay in ten equal monthly installments. Reyes failed FACTS:
to pay some of the installments due on his obligation. Thereupon
the Manila Trading & Supply Co., proceeded to foreclose its chattel • Sps. Martinez and Suarez registered owners of 2 parcels
mortgage. The mortgaged property was sold at public auction and of land which are fishponds.
after applying the sum, with interest, costs, and liquidated o The property involved in the instant case is the
damages to Reyes' indebtedness, the latter still owed the Manila 2nd parcel of land
Trading. • The disputed property was originally owned by Paulino
Montemayor through a “titulo real” way back in 1883.
When Reyes failed to pay the deficiency on the debt, the company After his death, the property was passed to his
instituted an action in the Court of First Instance of Manila for the
successors-in-interest, who in turn sold it Potenciano
recovery thereof. To plaintiff's complaint defendant filed an Garcia.
answer in which he pleaded as a defense that plaintiff, having
• Potenciano was prevented by the municipal president
chosen to foreclose its chattel mortgage, had no further action
from restoring the dikes constructed on the property,
against defendant for the recovery of the unpaid balance owed by
thus he filed a case against the municipal president to
him to plaintiff, as provided by Act No. 4122.
restrain the latter from molesting him in the possession
**Act 4122 provides that if the vendor choses foreclosure, he shall of the said land, and which was granted by the court.
have no further action against the purchaser for the recovery of • Potenciano applied for the registration of the land in his
any unpaid balance owing by the same** name which was granted by the CFI sitting as land
registration court
ISSUES / RULING:

WON the Act violates the “One title, one subject” rule. NO

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SALES | A T T Y . D U J U N C O

• These lands were subsequently bought by Emilio Cruz, • Subsequently, one of the lot was divided
thereafter the ownership was changed until eventually • Juliana Melliza executed an instrument without any
they were acquired by the spouses Martinez and Suarez. caption providing for the absolute sale involving all of lot
• To avoid any untoward incident, the disputants agreed to 5, 7669 sq. m. of Lot 2 (sublots 2-B and 2-C), and a portion
refer the matter to the committee on rivers and streams of 10,788 sq. m. of Lot 1214 (sublots 1214-B2 and 1214-
which declared that the fishpond was not a public river B3) in favor of the Municipal Government of Iloilo for the
but a private fishpond owned by the spouses. sum of P6,422; these lots and portions being the ones
• The municipal officials refused to recognize the decision needed by the municipal government for the construction
because the spouses sued the Mayor praying that the of avenues, parks and City hall site according the
latter be enjoined from molesting them in their “Arellano plan.”
possession of their property and in construction of the • Melliza sold her remaining interest in Lot 1214 to
dikes therein. Remedios Sian Villanueva. Remedios in turn transferred
• While the case was still pending, the secretary of public her rights to said portion of land to Pio Sian Melliza.
works ordered another investigation of the said land, o Annotated at the back of Pio’s title was the
directing the appellees to remove the dikes they had following “that a portion of 10,788 sq. m. of Lot
constructed. The spouses commenced the present case 1214 now designated as Lots 1412-B-2 and
which the lower court decided in their favor. 1214-B-3 of the subdivision plan belongs to the
• The CA reversed the judgment, hence this appeal. Municipality of Iloilo as per instrument dated 15
November 1932
ISSUE/RULING: • the City of Iloilo, which succeeded to the Municipality of
WON the land in question is a valid subject matter in the contract Iloilo, donated the city hall site together with the building
of sale. thereon, to the University of the Philippines (Iloilo
branch).
NO. the land in question is not licit because the land is outside the • the University of the Philippines enclosed the site
commerce of man being a property of public domain which is non- donated with a wire fence. Pio Sian Melliza thereupon
registrable. made representations, thru his lawyer, with the city
authorities for payment of the value of the lot (Lot 1214-
Art. 399 of the Old Civil Code, Property of public ownership is that
B). No recovery was obtained, because as alleged by Pio
destined to the public use, such as roads, canals rivers xxx and that
Sian Melliza, the City did not have funds.
of a similar character.
• The University of the Philippines, meanwhile, obtained
In Ledesma v. Municipality of Iloilo, a simple possession of a Transfer Certificate of Title No. 7152
certificate of title under the Torrens system does not necessarily • Pio Sian Melizza filed an action in the CFI Iloilo against
make the possessor the true owner therein. The person does not Iloilo City and the University of the Philippines for
by virtue of said certificate alone become the owner of the land recovery of Lot 1214-B or of its value
illegally included. • The CFI dismissed the complaint, ruling that the
instrument executed by Juliana Melliza in favor of Iloilo
The evidence submitted before the trial court shows that the municipality included in the conveyance Lot 1214-B, and
contested land is a river of public dominion. The technical thus it held that Iloilo City had the right to donate Lot
description embraced in said title is bounded practically on all sides 1214-B to UP.
by rivers. The lot is a branch of the main river that has been covered • the CA affirmed the interpretation of the CFI that the
with waters since time immemorial, therefore public domain. Being portion of Lot 1214 sold by Juliana Melliza was not limited
a river, it is not capable f private appropriation or acquisition or by to the 10,788 square meters specifically mentioned but
prescription. included whatever was needed for the construction of
MUST BE DETERMINATE OR DETERMINABLE avenues, parks and the city hall site.

ISSUE: WON the subject of the sale is a determinate thing.


M ELLI Z A V. CI TY OF I LOI LO
RULING: YES
FACTS:
The paramount intention of the parties was to provide Iloilo
• Melliza during her lifetime owned, among others, 3 municipality with lots sufficient or adequate in area for the
parcels of residential land, which has 29k sq. m. She construction of the Iloilo City hall site, with its avenues and parks.
donated 9k sq. m. to the municipality of Iloilo to serve as For this matter, a previous donation for this purpose between the
the site for the municipal hall. However, the donation was same parties was revoked by them, because of inadequacy of the
revoked because the area was inadequate to meet the area of the lot donated. Said instrument described 4 parcels of land
requirements of the development plan or the Arellano by their lot numbers and area; and then it goes on to further
Plan. describe, not only those lots already mentioned, but the lots object

AUFSOL-SZG |7
SALES | A T T Y . D U J U N C O

of the sale, by stating that said lots were the ones needed for the only to find out that their lot was actually the E one and
construction of the city hall site, avenues and parks according to not the A. (their titles mixed up)
the Arellano plan. If the parties intended merely to cover the • Atilano 2 died, so his heirs instituted an action against
specified lots (Lots 2, 5, 1214-C and 1214-D), there would scarcely Ladislao to exchange the said lots (because E is larger than
have been any need for the next paragraph, since these lots were A)
already plainly and very clearly described by their respective lot • According to Ladislao, the deed of sale was an involuntary
number and areas. Said next paragraph does not really add to the error, and that the intention of the parties of the sale
clear description that was already given to them in the previous meant to convey A, even if it was really E, as Atilano 1 had
one. It is therefore the more reasonable interpretation to view it as already built his house and even increased its area by
describing those other portions of land contiguous to the lots that, purchasing the lot next to it.
by reference to the Arellano plan, will be found needed for the
purpose at hand, the construction of the city hall site. ISSUE: WON the heirs of Atilano 2 are entitled to the real lot E as
stated in the deed of sale.
The requirement of the law that a sale must have for its object a
determinate thing, is fulfilled as long as, at the time the contract is RULING: NO.
entered into, the object of the sale is capable of being made When one sells or buys real property — a piece of land, for example
determinate without the necessity of a new or further agreement — one sells or buys the property as he sees it, in its actual setting
between the parties (Art. 1273, old Civil Code; Art. 1460, New Civil and by its physical metes and bounds, and not by the mere lot
Code). The specific mention of some of the lots plus the statement number assigned to it in the certificate of title. In the present case,
that the lots object of the sale are the ones needed for city hall site, the portion correctly referred to as lot No. 535-A was already in the
avenues and parks, according to the Arellano plan, sufficiently possession of the vendee, Eulogio Atilano II, who had constructed
provides a basis, as of the time of the execution of the contract, for his residence therein, even before the sale in his favor even before
rendering determinate said lots without the need of a new and the subdivision of the entire lot No. 535 at the instance of its
further agreement of the parties. owner, Eulogio Atillano I. The two brothers continued in possession
of the respective portions the rest of their lives, obviously ignorant
The Arellano plan was in existence as early as 1928. The previous of the initial mistake in the designation of the lot subject of the
donation of land for city hall site on 27 November 1931 was 1920 until 1959, when the mistake was discovered for the first
revoked on 6 March 1932 for being inadequate in area under said time.
Arellano plan. The area needed under that plan for city hall site was
The real issue here is not adverse possession, but the real intention
then already known; that the specific mention of some of the lots
of the parties to that sale. From all the facts and circumstances we
covered by the sale in effect fixed the corresponding location of the are convinced that the object thereof, as intended and understood
city hall site under the plan; that, therefore, considering the said by the parties, was that specific portion where the vendee was then
lots specifically mentioned in the public instrument, and the already residing, where he reconstructed his house at the end of
projected city hall site, with its area, as then shown in the Arellano the war, and where his heirs, the plaintiffs herein, continued to
plan (Exhibit 2), it could be determined which, and how much of reside thereafter: namely, lot No. 535-A; and that its designation as
the portions of land contiguous to those specifically named, were lot No. 535-E in the deed of sale was simple mistake in the drafting
needed for the construction of the city hall site. of the document. The mistake did not vitiate the consent of the
parties, or affect the validity and binding effect of the contract
For 20 long years, Pio Sian Melliza and his predecessors-in-interest, between them.
did not object to said possession, nor exercise any act of possession
over Lot 1214-B. Applying, therefore, principles of civil law, as well The new Civil Code provides a remedy for such a situation by means
as laches, estoppel, and equity, said lot must necessarily be of reformation of the instrument. This remedy is available when,
deemed included in the conveyance in favor of Iloilo municipality, there having been a meeting of the funds of the parties to a
contract, their true intention is not expressed in the instrument
now Iloilo City.
purporting to embody the agreement by reason of mistake, fraud,
inequitable conduct on accident (Art. 1359, et seq.) In this case, the
A T I LAN O V. A TI LA N O
deed of sale executed in 1920 need no longer reformed. The parties
FACTS: have retained possession of their respective properties
conformably to the real intention of the parties to that sale, and all
• Atilano 1 acquired by purchase from one Villanueva a lot they should do is to execute mutual deeds of conveyance.
which he subdivided into five parcels (as A-E)
Y U T EK V. G ON Z A LES
• He sold E to his brother, Atilano 2, the B, C, and D were
sold to other people, while he kept the A for himself, FACTS:
which passed to his successor (ladislao) after he passed
away. • A contract was executed between herein parties,
• After his wife died, Atilano 2 wanted to partition A among whereby Gonzales acknowledges the receipt of P3k from
himself and his children, they then had the land surveyed, Yu Tek, and that in consideration of which he obligates
himself to deliver to the latter 600 piculs of sugar of the

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SALES | A T T Y . D U J U N C O

1st and 2nd grade, according to the result of polarization, • Gaite executed a general assignment to the Larap Iron
within 3 months. There is a stipulation providing for the Mines owned solely by him. However, Fonacier decided
rescission with P1200 penalty on case of failure to deliver. to revoke the authority granted which he assented.
• No sugar was delivered, hence Yu Tek filed a case asking o Said revocation included the transfer to
for the P3k plus the P1.2k. Fonacier the rights and interests over the “24k
• The 3k was awarded, thus both parties appealed. tons of iron ore, more or less” already extracted
for a certain consideration.
ISSUE/RULING: o To secure it, Fonacier delivered to Gaite a surety
WON THE COMPLIANCE OF THE OBLIGATION TO DELIVER bond. When it expired, no payment had been
DEPENDS UPON THE PRODUCTION IN DEFENDANT’S made by Fonacier on the theory that they had
PLANTATION. lost right to make use of the period when their
bond expired.
NO. There is no clause in the written contract which even remotely
suggests such a condition. The contract placed no restriction upon ISSUE / RULING:
the defendant in the matter of obtaining the sugar. He was equally WON the sale is conditional or one with a period.
at liberty to purchase it on the market or raise it himself. The right
of the parties must be determined by the writing itself. PERIOD. The shipment or local sale of the iron ore is not a condition
precedent (or suspensive) to the payment of the balance of
WON the undertaking to sell 600 piculs of sugar of 1st and 2nd class P65,000.00, but was only a suspensive period or term. What
is the “thing” within the meaning of 1450. characterizes a conditional obligation is the fact that its efficacy or
NO. Article 1450 defines a perfected sale as follows: “The sale shall obligatory force (as distinguished from its demandability) is
be perfected between vendor and vendee and shall be binding on subordinated to the happening of a future and uncertain event; so
both of them, if they have agreed upon the thing which is the object that if the suspensive condition does not take place, the parties
of the contract and upon the price, even when neither has been would stand as if the conditional obligation had never existed.
delivered.” Article 1452 provides that “the injury to or the profit of A contract of sale is normally commutative and onerous: not only
the thing sold shall, after the contract has been perfected, be does each one of the parties assume a correlative obligation (the
governed by the provisions of articles 1096 and 1182.” There is a seller to deliver and transfer ownership of the thing sold and the
perfected sale with regard to the “thing” whenever the article of buyer to pay the price),but each party anticipates performance by
sale has been physically segregated from all other articles. the other from the very start. While in a sale the obligation of one
Sugar is one of the staple commodities of this country. For the party can be lawfully subordinated to an uncertain event, so that
purpose of sale its bulk is weighed, the customary unit of weight the other understands that he assumes the risk of receiving nothing
being denominated a "picul." There was no delivery under the for what he gives (as in the case of a sale of hopes or expectations,
contract. Now, if called upon to designate the article sold, it is clear emptio spei), it is not in the usual course of business to do so;
that the defendant could only say that it was "sugar." He could only hence, the contingent character of the obligation must clearly
use this generic name for the thing sold. There was no appear.
"appropriation" of any particular lot of sugar. Neither party could Nothing is found in the record to evidence that Gaite desired or
point to any specific quantity of sugar and say: "This is the article assumed to run the risk of losing his right over the ore without
which was the subject of our contract." getting paid for it, or that Fonacier understood that Gaite assumed
WON there is a perfected contract of sale. any such risk. This is proved by the fact that Gaite insisted on a bond
a to guarantee payment of the P65,000.00, an not only upon a bond
NO. the contract in the case at bar was merely an executory by Fonacier, the Larap Mines & Smelting Co., and the company's
agreement; a promise of sale and not a sale. At there was no stockholders, but also on one by a surety company; and the fact
perfected sale, it is clear that articles 1452, 1096, and 1182 are not that appellants did put up such bonds indicates that they admitted
applicable. The defendant having defaulted in his engagement, the the definite existence of their obligation to pay the balance of
plaintiff is entitled to recover the P3,000 which it advanced to the P65,000.00.
defendant.
whether there were really 24,000 tons of iron ore in the stockpiles
G A IT E V. F ON A CI ER sold by appellee Gaite to appellant Fonacier, and whether, if
there had been a short-delivery as claimed by appellants, they are
FACTS: entitled to the payment of damages

• Fonacier, owner of 11 iron lode mineral claims (Dawahan first, that this is a case of a sale of a specific mass of fungible goods
Group), constituted a Deed of Assignment and appointed for a single price or a lump sum, the quantity of "24,000 tons of iron
Gaite as his attorney-in-fact to enter into a contract for its ore, more or less," stated in the contract Exhibit "A," being a mere
exploration and development on a royalty basis. estimate by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties had
AUFSOL-SZG |9
SALES | A T T Y . D U J U N C O

actually measured of weighed the mass, so that they both tried to clutches of the latter. Pending said payment plaintiff
arrive at the total quantity by making an estimate of the volume refused to allow the defendant to make any harvest.
thereof in cubic meters and then multiplying it by the estimated • In July 1972, defendant for the first time since the
weight per ton of each cubic meter. execution of the deed of sale in his favor, caused the
harvest of the fruit of the coconut trees in the land.
The sale between the parties is a sale of a specific mass or iron ore
• Alonzo filed for the annulment of the contract on the
because no provision was made in their contract for the measuring
ground that it violated the provisions of R.A. 477, which
or weighing of the ore sold in order to complete or perfect the sale,
states that lands awarded under the said law shall not be
nor was the price of P75,000,00 agreed upon by the parties based
subject to encumbrance or alienation, otherwise the
upon any such measurement.(see Art. 1480, second par., New Civil
awardee shall no longer be entitled to apply for another
Code). The subject matter of the sale is, therefore, a determinate
piece of land.
object, the mass, and not the actual number of units or tons
• The lower court ruled that the contract, which it held as a
contained therein, so that all that was required of the seller Gaite
contract of lease, is null and void.
was to deliver in good faith to his buyer all of the ore found in the
mass, notwithstanding that the quantity delivered is less than the ISSUE / RULING:
amount estimated by them (Mobile Machinery & Supply Co., Inc.
vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of Whether the respondent had the right or authority to execute the
the Louisiana Civil Code). There is no charge in this case that Gaite "Deed of Sale" in 1968, his award having been cancelled
did not deliver to appellants all the ore found in the stockpiles in previously by the Board of Liquidators on January 27, 1965
the mining claims in questions; Gaite had, therefore, complied with
YES. Until and unless an appropriate proceeding for reversion is
his promise to deliver, and appellants in turn are bound to pay the
instituted by the State, and its reacquisition of the ownership and
lump price.
possession of the land decreed by a competent court, the grantee
But assuming that plaintiff Gaite undertook to sell and appellants cannot be said to have been divested of whatever right that he may
undertook to buy, not a definite mass, but approximately 24,000 have over the same property. Herein respondent is not deemed to
tons of ore, so that any substantial difference in this quantity have lost any of his rights as grantee during the period material to
delivered would entitle the buyers to recover damages for the the case at bar, i.e., from the cancellation of the award in 1965 to
short-delivery, was there really a short-delivery in this case? its reinstatement in 1972. Within said period, respondent could
exercise all the rights pertaining to a grantee.
We think not. As already stated, neither of the parties had actually
measured or weighed the whole mass of ore cubic meter by cubic WON the contract is of sale or lease.
meter, or ton by ton. Both parties predicate their respective claims
SALE. The document in question expresses a valid contract of sale.
only upon an estimated number of cubic meters of ore multiplied
It has the essential elements of a contract of sale. The subject
by the average tonnage factor per cubic meter.
matter of the contract of sale in question are the fruits of the
MUST BE EXISTING, FUTURE OR CONTINGENT coconut trees on the land during the years from September 15,
1968 up to January 1, 1976, which subject matter is a determinate
thing. Under Article 1461 of the New Civil Code, things having a
P I CHEL V. A LON Z O
potential existence may be the object of the contract of sale.
FACTS: Pending crops which have potential existence may be the subject
matter of sale. The essential difference between a contract of sale
• Prudencio Alonzo was awarded by the Government a and a lease of things is that the delivery of the thing sold transfers
parcel of land in Basilan City in accordance with Republic ownership, while in lease no such transfer of ownership results as
Act No. 477. The award was cancelled by the Board of the rights of the lessee are limited to the use and enjoyment of the
Liquidators on January 27, 1965 on the ground that, thing leased.
previous thereto, plaintiff was proved to have alienated
the land to another, in violation of law. In 1972, plaintiff's WON the contract is an encumbrance as contemplated by the law.
rights to the land were reinstated.
NO. The contract was clearly a "sale of the coconut fruits." The
• On August 14, 1968, plaintiff and his wife sold to Luis vendor sold, transferred and conveyed "by way of absolute sale, all
Pichel all the fruits of the coconut trees which may be
the coconut fruits of his land," thereby divesting himself of all
harvested in the land in question for the period,
ownership or dominion over the fruits during the seven-year
September 15, 1968 to January 1, 1976, in consideration period. The possession and enjoyment of the coconut trees cannot
of P4,200.00. Even as of the date of sale, however, the
be said to be the possession and enjoyment of the land itself
land was still under lease to one, Ramon Sua, and it was because these rights are distinct and separate from each other, the
the agreement that part of the consideration of the sale,
first pertaining to the accessory or improvements (coconut trees)
in the sum of P3,650.00, was to be paid by defendant while the second, to the principal (the land). A transfer of the
directly to Ramon Sua so as to release the land from the
accessory or improvement is not a transfer of the principal. It is the
other way around, the accessory follows the principal. Hence, the
A U F S O L - S Z G | 10
SALES | A T T Y . D U J U N C O

sale of the nuts cannot be interpreted nor construed to be a lease at the time, he agreed with Arsenal to contribute in the
of the trees, much less extended further to include the lease of the payment of the land taxes and paid yearly from 1968 to
land itself. 1973 to Francisca Arsenal.
• On July 11, 1973, the plaintiff presented his Sales Contract
The grantee of a parcel of land under R.A. No. 477 is not prohibited
in the Office of the Register of Deeds but it was refused
from alienating or disposing of the natural and/or industrial fruits
registration for having been executed within the
of the land awarded to him. What the law expressly disallows is the
prohibitive period of five years from the issuance of the
encumbrance or alienation of the land itself or any of the
patent. In order to cure the defect, he caused Filomeno
permanent improvements thereon. Permanent improvements on
Palaos to sign a new Sales Contract in his favor covering
a parcel of land are things incorporated or attached to the property
the same four-hectare portion of Lot 81. In August 1973,
in a fixed manner, naturally or artificially. They include whatever is
the plaintiff caused the segregation of his portion from
built, planted or sown on the land which is characterized by fixity,
the rest of the land by Geodetic Engineer Benito P.
immutability or immovability. Houses, buildings, machinery, animal
Balbuena, who conducted the subdivision survey without
houses, trees and plants would fall under the category of
protest from Francisca Arsenal who was notified thereof.
permanent improvements, the alienation or encumbrance of
• In December 1973, however, the plaintiff saw for the first
which is prohibited. The purpose of the law is not violated when a
time the Deed of Sale embracing the whole Lot 81 signed
grantee sells the produce or fruits of his land. On the contrary, the
by Filomeno Palaos in favor of Francisca Arsenal.
aim of the law is thereby achieved, for the grantee is encouraged
Immediately he asked Palaos for explanation but the
and induced to be more industrious and productive, thus making it
latter told him that he sold only three hectares to Arsenal.
possible for him and his family to be economically self-sufficient
Plaintiff approached Francisca Arsenal for a satisfactory
and to lead a respectable life. At the same time, the Government is
arrangement but she insisted on abiding by her contract.
assured of payment on the annual installments on the land. We
Because of their disagreement, Francisca Arsenal
agree with herein petitioner that it could not have been the
registered her Deed of Sale on December 6, 1973 and
intention of the legislature to prohibit the grantee from selling the
obtained Transfer Certificate of Title No. T-7879 for the
natural and industrial fruits of his land, for otherwise, it would lead
entire Lot 81 without the knowledge of the plaintiff.
to an absurd situation wherein the grantee would not be able to
• On March 6, 1974, Torcuato Suralta filed a case against
receive and enjoy the fruits of the property in the real and
Filomeno Palaos, Mahina Lagwas, Francisca Arsenal,
complete sense.
Remedio Arsenal and the Register of Deeds of Bukidnon
A R S EN A L V. I A C for the annulment of Transfer Certificate of Title No. T-
7879 issued to the Arsenals insofar as it covers the four-
FACTS: hectare portion previously sold to him.
• On May 4, 1976, the trial court rendered judgment in
• On January 7, 1954, the defendant Filomeno Palaos favor of Suralta. Spouses Arsenal appealed to IAC but
secured OCT No. P-290 from the Register of Deeds of appeal was dismissed for lack of cause of action. Hence,
Bukidnon for Lot 81 by virtue of Homestead Patent this petition for review on certiorari.
granted to him.
• On September 10, 1957, said Filomeno Palaos and his wife ISSUE: WON there was a valid contract of sale between the parties.
Mahina Lagwas executed in favor of the plaintiff,
RULING: NO.
Torcuato Suralta, sold four (4) hectares of the land for the
sum of P 890.00 by means of a deed. Plaintiff Suralta The contract of sale executed between the respondents Palaos and
immediately took possession of the four-hectare portion Suralta in 1957 is void. It was entered into three (3) years and eight
of Lot 81 cultivated and worked the same openly, (8) months after the grant of the homestead patent to the
continuously and peacefully up to the present time in respondent Palaos in 1954.
concept of owner thereof.
• On March 1967, Filomeno Palaos and his wife executed a The law on the matter which is the Public Land Act (Commonwealth
notarial Deed of in favor of the defendant-spouses Act No. 141, as amended) provides:
Francisca Arsenal and Remedio Arsenal in consideration
Sec. 118. Except in favor, of the Government or any of its branches,
of the amount of P800.00 supposedly for the remaining
units or institutions, lands acquired under free patent or
three (3) hectares of their land without knowing that the
homestead provisions shall not be subject to encumbrance or
document covered the entirety of Lot 81 including the
alienation from the date of the approval of the application and for
four-hectare portion previously deeded by them to the
a term of five years from and after the date of issuance of the
plaintiff.
patent or grant nor shall they become liable to the satisfaction of
• On March 1967, Francisca Arsenal caused the tax any debt contracted prior to the expiration of said period, but the
declaration of the entire lot to be transferred in her name. improvements or crops on the land may be mortgaged or pledged
The plaintiff learned of the transfer of the tax declaration to qualified persons, associations, or corporations.
to Francisca Arsenal and because of their good relations

A U F S O L - S Z G | 11
SALES | A T T Y . D U J U N C O

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


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

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


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

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

*** The court also ruled that the Spouses Arsenal are not entitled
to the land in question because of BAD FAITH. The petitioners were
in bad faith in including the entire area of the land in their deed of
sale. They cannot be entitled to the four-hectare portion of the land
for lack of consideration. To uphold their claim of ownership over
that portion of land would be contrary to the well-entrenched
principle against unjust enrichment consecrated in our Civil Code
to the end that in cases not foreseen by the lawmaker, no one may
unjustly benefit himself to the prejudice of another.

*** The land is given back to Filomeno Palaos. Any new transaction,
however, would be subject to whatever steps the Government may
take for the reversion of the property to it.

A U F S O L - S Z G | 12

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