G.R. No.

142618 July 12, 2007

PCI LEASING AND FINANCE, INC., Petitioner,

vs.
GIRAFFE-X CREATIVE IMAGING, INC., Respondent.

Facts:

On December 4, 1996, petitioner PCI LEASING and respondent GIRAFFE entered into a Lease Agreement, whereby the former
leased out to the latter two equipment with accessories. Forming parts of the basic lease agreement were separate documents
described that GIRAFFEas the "borrower" who acknowledged that it must pay monthly for thirty-six (36) months. The
agreement embodied a standard acceleration clause if GIRAFFE fails to pay.

GIRAFFE defaulted in its monthly rental-payment obligations. Following a three-month default, PCI LEASING addressed a pay-
or-surrender-equipment demand letter to GIRAFFE. The demand went unheeded. Hence, PCI LEASING instituted the instant
case against GIRAFFE praying for the issuance of a writ of replevin for the recovery of the leased property.After trial, judgment
be rendered in favor of PCI LEASING. The trial court issued a writ of replevin, paving the way for PCI LEASING to secure the
seizure and delivery of the equipment.

GIRAFFE filed a Motion to Dismiss arguing that the seizure of the twoleased equipment stripped PCI LEASING of its cause of
action. GIRAFFE argues that, pursuant to Article 1484 of the Civil Code on installment sales of personal property, PCI LEASING is
barred from further pursuing any claim arising from the lease agreement, adding that the agreement between the parties is in
reality a lease of movables with option to buy. The given situation, GIRAFFE continues, squarely brings into applicable play
Articles 1484 and 1485 of the Civil Code, commonly referred to as the Recto Law.

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

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

Issue:

Whether or not the Lease Agreement between the parties are covered by Articles 1484 and 1485 of the New Civil Code.

Held:

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

Borbon II vs. Servicewide

G.R. No. 106418. July 11, 1996
VITUG, J.:

FACTS: The Borbons signed a promissory note where they jointly and severally promised to pay Pangasinan Auto Mart, Inc. the
sum of P122,856.00, to be payable without need of notice or demand, in installments of P10,238.00 monthly for 12 months. To
secure the Promissory Note, the defendants executed a Chattel Mortgage on 1 brand new 1984 Isuzu, KCD 20 Crew Cab. The
rights of PAMI was later assigned to Filinvest with notice to the Borbons. Filinvest assigned all its rights over the Promissory
Note and the chattel mortgage to the plaintiff. Because the Borbons did not pay their monthly installments, Filinvest demanded
from the defendants the payment of their installments due by telegram. The plaintiff attempted to collect by sending a demand
letter to the Borbons which totaled P185,257.80. The Borbonss claim that what they intended to buy was a jeepney type Isuzu
K. C. Cab. The vehicle that they bought was not delivered. Instead, through misrepresentation and machination, the PAMI
delivered an Isuzu crew cab. Later the representative of PAMI told the Borbons that their available stock is an Isuzu Cab but
minus the rear body, which the Borbons agreed to deliver with the understanding that the PAMI will refund the Borbons the
amount of P10,000.00 to have the rear body completed. PAMI was not able to replace the vehicle until the vehicle delivered
was seized by order of this court. The assignee exercise all the rights of the assignor. The Borbons further claim that they are
not in default of their obligation because the Pangasinan Auto Mart was first guilty of not fulfilling its obligation in the contract.
ISSUE: Whether petitioners could not avoid liability under the promissory note and the chattel mortgage
HELD: No. When the seller assigns his credit to another person, the latter is likewise bound by the same law. Accordingly, when
the assignee forecloses on the mortgage, there can be no further recovery of the deficiency, and the seller-mortgagee is
deemed to have renounced any right thereto. A contrario, in the event the seller-mortgagee first seeks, instead, the
enforcement of the additional mortgages, guarantees or other security arrangements, he must then be held to have lost by
waiver or non-choice his lien on the chattel mortgage of the personal property sold by any mortgaged back to him, although,
similar to an action for specific performance, he may still levy on it.

CASE TITLE : UNIVERSAL MOTORS CORPORATION vs. DY HIAN TAT, ET AL.

CITATION : G.R. No. L-23788 (May 16, 1969)

TOPIC : RECTO LAW

FACTS OF THE CASE:

 Appellant DyHian Tat bought from appellee Universal Motors Corporation a Mercedes-Benz diesel truck on an instalment
basis.

 When appellant defaulted in the payment of the instalments, appellee filed an action for replevin before the CFI of Manila
in order to recover possession of said truck.

 Appellee further prayed that in event said truck could not be recovered, appellant should pay to the former not only the
unpaid balance for the sale of the truck but also the attorney’s fees and the costs of suit.

 Appellant, on the hand, admits that appellee is entitled to the possession of the said truck.

 The CFI rendered its judgment adjudging that the appellee has the right of possession over the Mercedes-Benz Diesel
Truck.

 The lower court further ordered that appellant pay to appellee amounts representing attorney's fees and costs of suit.

 Appellant appealed the decision of the CFI to the Supreme Court on the ground that the awarding of attorney’s fees by the
lower court erred to the appellee is contrary to the provisions of article 1484 of the New Civil Code of the Philippines.

ISSUE(S):

1. Whether Article 1484 of the Civil Code is applicable to the case at bar; and,
2. Whether appellee is entitled to the award of attorney’s fees.

HELD:

1. As to the First Issue:

 The Supreme Court say NO.
According to the Supreme Court, Article 1484 of the Civil Code does not apply to the case at bar because the present
case is an action for replevin and not a foreclosure of mortgage. Nowhere in the stipulation of facts or even in the pleadings
does it appear that appellee has foreclosed its mortgage. Merely because a copy of the mortgage has been attached to the
complaint does not make this action one of foreclosure of a chattel mortgage. True, appellee succeeded in recovering the truck
in question, precisely by means of the present action of replevin, but surely, this case is far from being the action of foreclosure
of chattel mortgage.
The mere fact that appellee has secured possession of the truck in question does not necessarily mean that it will
foreclose its mortgage. Indeed, there is no showing at all that appellee is causing the sale thereof at public auction or in even
preparing to do so. It is quite possible that appellee wanted merely to be sure that the truck is not lost or rendered valueless,
preparatory to having it levied upon under a writ of attachment.
2. As to the Second Issue:
The Supreme Court says YES.
Appellant raises for the first time in this appeal the issue that appellee did not present any evidence to prove that it
actually incurred expenses by way of attorney's fees. Apart from the fact that it is too late in the day for appellant to bring up
this point, it appears that what has been awarded to appellee is in the nature of liquidated damages. (Art. 2226, Civil Code) As
these is no claim that they are iniquitous or unconscionable, (Art. 2227, Id.) the law does not require any proof thereof.
JUDGMENT OF THE CFI AFFIRMED, WITH COSTS AGAINST APPELLANT.

CASE TITLE : NORTHERN MOTORS, INC., plaintiff-appellant, vs. CASIANO

SAPINOSO and "JOHN DOE", defendants-appellees.
CITATION : G.R. No. L-28074 (May 29, 1970)
TOPIC : “BARRING EFFECTS” OF FORECLOSURE
FACTS OF THE CASE:
 Appellee CasianoSapinoso purchased from Appellant Northern Motors, Inc. an Opel Kadett car.

 Sapionoso made a down payment and executing a promissory note in favour Northern Motors.

 To secure the payment of the promissory note, Sapinoso executed in favor of Northern Motors, Inc. a chattel mortgage on
the car.

 The mortgage contract provided, among others, that upon default by the mortgagor in the payment of any part of the
principal or interest due, the mortgagee may elect any of the following remedies: (a) sale of the car by the mortgagee; (b)
cancellation of the contract of sale; (c) extrajudicial foreclosure; (d) judicial foreclosure; (e) ordinary civil action to exact
fulfillment of the mortgage contract.

 It was further stipulated that "whichever remedy is elected by the mortgagee, the mortgagor expressly waives his right to
reimbursement by the mortgagee of any and all amounts on the principal and interest already paid by him."

 Sapinoso failed to pay the was only able to pay some of the instalments, so Northern Motors filed a complaint against the
former (Sapinoso).

 In its complaint, Northern Motors, Inc., stated that it was availing itself of the option given it under the mortgage contract
of extrajudicially foreclosing the mortgage, and prayed that a writ of replevin be issued upon its filing of a bond for the
seizure of the car and for its delivery to it

 Subsequent to the commencement of the action, but before the filing of his answer, defendant Sapinosomade two more
payments in the amount of P1,250.00 on the promissory note

 In the meantime, upon the plaintiff's filing of a bond, a writ of replevin was issued by the court.

 By virtue of a seizure warrant, the car was seized from Sapinoso and handed to appellant company.

 Sapinoso, on the other hand, filed an answer admitting the allegations in the complaint with respect to the sale to him of
the car, the terms thereof, the execution of the promissory note and of the chattel mortgage contract, and the options
open to the plaintiff under the said contract.
 Sapinoso, in his answer to the complaint, allegedthat upon demand he immediately surrendered the possession of the car
to the appellants' representative.

 Sapinoso further alleged that he failed to pay the instalments because the car was defective and appellant company failed
to fix it despite Sapinoso’s repeated demands. And the appellant company, instead of fixing the car, filed the present
complaint.

 Sapinoso prayed for the dismissal of the complaint and the return of the car to him.

 After trial, the lower rendered judgment holding that appellant acquired the right to foreclose the chattel mortgage, which
it could avail of — as it has done in the present case — by filing an action of replevin to secure possession of the
mortgaged car as a preliminary step to the foreclosure sale contemplated in the Chattel Mortgage Law

 The lower court further held that since appellant company availed of the right to foreclose the chattel mortgage, the
appellant has no more right to collect of the attorney's fees stipulated in the promissory note, and should return to
Sapinoso the sum of P1,250.00 which he paid to appellant company after the filing of the present case.

 Northern Motors appealed the lower court’s decision to the Supreme Court, contending that under Article 1484 of the Civil
Code it is the exercise, not the mere election, of the remedy of foreclosure that bars the creditor from recovering the
unpaid balance of the debt
 Northern Motors further contend that what the said Article 1484 prohibits is "further action" to collect payment of the
deficiency after the creditor has foreclosed the mortgage; and that in paying plaintiff-appellant the sum of P1,250.00
before defendant-appellee Sapinoso filed his answer, and in not filing a counterclaim for the recovery thereof, the said
defendant-appellee in effect renounced whatever right he might have had to recover the said amount.
ISSUE:
Whether or not Northern Company is obliged to return the amount of P1,250.00 paid to it by Sapinoso after the filing
of the complaint.
HELD:
The Supreme Court says NO. Appealed judgment of lower is modified.
 According to the Supreme Court, the lower court erred in concluding that the legal effect of the filing of the action was to
bar plaintiff-appellant from accepting further payments on the promissory note.

 According further to the Supreme Court, that the ultimate object of the action is the foreclosure of the chattel mortgage, is
of no moment, for it is the fact of foreclosure and actual sale of the mortgaged chattel that bar further recovery by the
vendor of any balance on the purchaser's outstanding obligation not satisfied by the sale.

 In any event, what Article 1484(3) prohibits is "further action against the purchaser to recover any unpaid balance of the
price;" and although this Court has construed the word "action" in said Article 1484 to mean "any judicial or extrajudicial
proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance
of the purchase price from the purchaser or his privy, there is no occasion at this stage to apply the restrictive provision of
the said article, because there has not yet been a foreclosure sale resulting in a deficiency.

 THEREFORE, THE PAYMENT OF THE SUM OF P1,250.00 BY SAPINOSO WAS A VOLUNTARY ACT ON HIS PART AND DID NOT
RESULT FROM A "FURTHER ACTION" INSTITUTED BY NORTHERN MOTORS.

 If the mortgage creditor, before the actual foreclosure sale, is not precluded from recovering the unpaid balance of the
price although he has filed an action of replevin for the purpose of extrajudicial foreclosure, or if a mortgage creditor who
has elected to foreclose but who subsequently desists from proceeding with the auction sale, without gaining any
advantage or benefit, and without causing any disadvantage or harm to the vendee-mortgagor, is not barred from suing on
the unpaid account, there is no reason why a mortgage creditor should be barred from accepting, before a foreclosure
sale, payments voluntarily tendered by the debtor-mortgagor who admits a subsisting indebtedness.
CASE TITLE : RUPERTO G. CRUZ, ET AL. plaintiffs-appellees vs. FILIPINAS
INVESTMENT and FINANCE CORPORATION, defendant-appellant
CITATION : G.R. No. L-24772 (May 27, 1968)
TOPIC : “BARRING” EFFECTS OF FORECLOSURE
FACTS OF THE CASE:
 Plaintiff Ruperto G. Cruz purchased on an installmentbasis from the Far East Motor Corporation, one (1) unit of Isuzu
Diesel Bus, payable in 30 monthly installments.

 As evidence of said indebtedness, plaintiff Cruz executed and delivered to the Far East Motor Corporation a negotiable
promissory note.

 To secure the payment of the promissory note. Cruz executed in favour of Far East Motor Corporation, a chattel mortgage
over the aforesaid motor vehicle.

 Since no down payment was made by Cruz, Far East Motor Corporation, required Cruz to give, additional security for his
obligation besides the chattel mortgage,

 The additional security was given by plaintiff FelicidadVda. de Reyes in the form of deed of real estate mortgage (second
mortgage) over a building and lot owned by her.

 At the time of the second mortgage, the land was already mortgaged to the Development Bank of the Philippines to secure
a loan obtained by Felicidad Reyes from said bank.

 Far East Motor Corporation, on the other hand, indorsed the promissory note and assigned all its rights and interest in the
Deeds of Chattel Mortgage and in the Deed of Real Estate Mortgage defendant Filipinas Investment & Finance Corporation
(FIFC), with due notice of such assignment to the plaintiffs.

 Plaintiff Cruz defaulted in the payment of the promisory note and despite FIFC’s repeated demands, Cruz made no
payment on any of the installments stipulated in the promissory note.

 That by reason of Cruz's default, FIFCtook steps to foreclose the chattel mortgage on the bus.

 The bus, however had been damaged in an accident while in the possession of plaintiff Cruz;

 Defendant was the highest bidder in the foreclosure sale but since the proceeds of the sale of the bus were not sufficient
to discharge fully the indebtedness of plaintiff Cruz to the defendant;

 Before foreclosing its real estate mortgage on Mrs. Reyes' land, defendant paid the mortgage indebtedness of Mrs. Reyes
to the Development Bank of the Philippines.

 Before the land could be sold, Mrs.Reyes through counsel, wrote a letter to the defendant asking for the cancellation of
the real estate mortgage on her land, but defendant did not comply with such demand as it was of the belief that plaintiff's
request was without any legal basis.

 To prevent the sale of the land, Mrs. Reyes, et al. filed an action for the cancellation of the real estate mortgage
constituted on the land before the Court of First Instance of Rizal.

 At the request of the plaintiffs, the provincial Sheriff of Bulacan held in abeyance the sale of the mortgaged real estate
pending the result of this action.

 The CFI rendered judgment in favour the plaintiffs and ordered the cancellation of the real estate mortgage over the land.

 The CFI declared that the extrajudicial foreclosure of the chattel mortgage on the bus barred further action against the
additional security put up by plaintiff Reyes.

 Defendants appealed the CFI decision to the Supreme Court.

ISSUE:

Whether defendants have the right to extrajudicially foreclose the real estate mortgage on the land of plaintiff Reyes.

HELD:

The Supreme Court says NO.However, appellant is entitled to reimbursement by appellee Vda. de Reyes of the
amount which the former paid to the Development Bank of the Philippines for the release of the first mortgage on the land of
said appellee. Judgment of the CFI is modified.

 The Supreme Court held that the present case involves the sale of personal property on installments, the pertinent legal
provision in this case is Article 1484 of the Civil Code of the Philippines.

 The established rule is to the effect that the foreclosure and actual sale of a mortgaged chattel bars further recovery by
the vendor of any balance on the purchaser's outstanding obligation not so satisfied by the sale.

 And the reason for this doctrine was aptly stated in the case of Bachrach Motor Co. vs. Millan, supra, thus:
Undoubtedly the principal object of the above amendment 6 was to remedy the abuses committed in
connection with the foreclosure of chattel mortgages. This amendment prevents mortgagees from seizing the
mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a
deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus the
property and still owing practically the full amount of his original indebtedness. Under this amendment the vendor of
personal property, the purchase price of which is payable in installments, has the right to cancel the sale or foreclose
the mortgage if one has been given on the property. Whichever right the vendor elects he need not return to the
purchaser the amount of the installments already paid, "if there be in agreement to that effect". Furthermore, if the
vendor avails himself of the right to foreclose the mortgage the amendment prohibits him from bringing an action
against the purchaser for the unpaid balance.

 Neither is there validity to appellant's allegation that, since the law speaks of "action", the restriction should be confined
only to the bringing of judicial suits or proceedings in court.

 Considering the purpose for which the prohibition contained in Article 1484 was intended, the word "action" used therein
may be construed as referring to any judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be
enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy.
Certainly, an extrajudicial foreclosure of a real estate mortgage is one such proceeding.

CASE TITLE : EUTROPIO ZAYAS, JR., petitioner, vs. LUNETA MOTOR COMPANY and HONORABLE JUAN O.
REYES, Presiding Judge of the Court of First Instance of Manila, Branch XXI, respondents.
CITATION : G.R. No. L-30583 October 23, 1982
TOPIC : REMEDY OF FORECLOSURE
FACTS OF THE CASE:
 Petitioner EutropioZayas, Jr. purchased on instalment basis a jeepney from Mr.RoqueEscaño of the Escaño Enterprises in
Cagayan de Oro City, dealer of respondent Luneta Motor Company;

 Upon delivery of the motor vehicle to petitioner he paid the initial payment and executed a promissory note for the
remaining balance of the purchase price, payable in twenty-six (26) instalments, in favour of Luneta Motor Company.

 Simultaneous with the execution of the promissory note, petitioner executed a chattel mortgage on the subject motor
vehicle in favour of Luneta Motor Company.

 Petitioner was unable to unable to pay in full the monthly instalments (he paid only a total amount of P3,148.00) so
respondent Luneta Motor Company proceed to extra-judicially foreclose the chattel mortgage.

 The subject motor vehicle was sold for P5,000.00 at a public auction to respondent Luneta Motor Company.
 Since the payments made by petitioner plus the amount (P5,000.00) realized from the foreclosure of the chattel mortgage
could not cover the total amount of the promissory note executed by petitioner in favour of respondent Luneta Motor
Company, the latter filed a case against petitioner before the City Court of Manila to recover the balance plus interest.

 Petitioner in his answer to the complaint, contended that his obligation to private respondent per the promissory note was
extinguished by the sale at public auction of the subject motor vehicle.

 Luneta Motor Company in reply denied the applicability of Article 1484 of the Civil Code for the simple reason that the
contract involved between the parties is not one for a sale on instalment.

 Petitioner moved for the dismissal of the case for the lack of interest on the part of respondent. The motion was granted
by the lower court.

 According to the lower court, petitioner was correct in contending that he is no longer liable for the deficiency judgment
inasmuch as the chattel mortgage has been foreclosed, with the respondent as the highest bidder thereofLet this case be
dismissed without pronouncement as to costs.

 Luneta Motor Company appealed the case to the Court of First Instance of Manila which ordered the remand of the case
to the City Court of Manila.

 According to the CFI the case at bar may not be decided merely, as the City Court had done, on the question of law since
the presentation of evidence is necessary to adjudicate the questions involved.

 Aggrieved, EutropioZayas, Jr., filed a petition for review by certiorari before the Supreme Court to secure a reversal of the
respondent court's orders which remanded the present for further proceedings instead of affirming the city court's order
of dismissal,

ISSUE:

Whether Petitioner is correct in his contention that his obligation to private respondent per the promissory note was
extinguished by the sale at public auction of the subject motor vehicle.

HELD:

The Supreme Court says YES. Petition granted. Order of the CFI reversed.

 According to the Supreme Court, the established rule is to the effect that the foreclosure and actual sale of a mortgaged
chattel bars further recovery by the vendor of any balance on the purchaser's outstanding obligation not so satisfied by
the sale.

 And the reason for this doctrine was aptly stated in the case of Bachrach Motor Co. vs. Millan, supra, thus:

 Undoubtedly the principal object of the above amendment was to remedy the abuses committed in connection with the
foreclosure of chattel mortgages.

 This amendment prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price
and then bringing suit against the mortgagor for a deficiency judgment.

 The almost invariable result of this procedure was that the mortgagor found himself minus the property and still owing
practically the full amount of his original indebtedness.

 Under this amendment the vendor of personal property, the purchase price of which is payable in installments, has the
right to cancel the sale or foreclose the mortgage if one has been given on the property.

 Whichever right the vendor elects he need not return to the purchaser the amount of the installments already paid, "if
there be an agreement to that effect". Furthermore, if the vendor avails himself of the right to foreclose the mortgage this
amendment prohibits him from bringing an action against the purchaser for the unpaid balance. (Cruz v. Filipinas
Investment & Finance Corporation, 23 SCRA 791)
 The findings and conclusions of the Supreme Court are borne out by the records available to the respondent court. There
was no necessity for the remand of records to the city court for the presentation of evidence on the issue raised in the
case.

CASE TITLE : LEVY HERMANOS, INC., plaintiff-appellant vs. LAZARO BLAS

GERVACIO, defendant-appellee.

CITATION : G.R. No. L-46306 (October 27, 1939)

TOPIC : RECTO LAW

FACTS OF THE CASE:

 Plaintiff Levy Hermanos, Inc. sold a car to defendant Lazaro Blas Gervacio.

 Gervacio made a down payment for the car and then executed a promissory note for the balance in favor of Levy
Hermanos, Inc.

 In order to secure payment of the note for the balance of P2,400.00, the former (Gervacio) mortgaged the car to the latter
(Levy Hermanos).

 After Gervacio failed to pay the note upon its maturity, Levy Hermanos foreclosed the mortgage.

 The car was sold at a public auction where it was bought for P1,800.00 by Levy Hermanos for being the highest bidder.

 Despite having already bought the car at the public auction, plaintiff instituted an action before the CFI of Manila against
defendant for the collection of the balance of the P1,600.00 and interest.

 The CFI, applying the provisions of Act No. 4122, inserted as Article 1454-A of Civil Code, rendered judgment in favor of
Gervacio.

 Levy Hermanos, Inc. appealed the judgment.

ISSUE:

Whether plaintiff is entitled to the collection of the balance of P1,600.00 and interest.

HELD:

The Supreme Court says YES.Judgment of the CFI reversed.

The contract, in the instant case, while a sale of personal property, is not, however, one on installments, but on
straight term, in which the balance, after payment of the initial sum, should be paid in its totality at the time specified in the
promissory note. The transaction is not is not, therefore, the one contemplated in Act No. 4122 and accordingly the mortgagee
is not bound by the prohibition therein contained as to the right to the recovery of the unpaid balance.

Undoubtedly, the law is aimed at those sales where the price is payable in several installments, for, generally, it is in these
cases that partial payments consist in relatively small amounts, constituting thus a great temptation for improvident purchasers
to buy beyond their means. There is no such temptation where the price is to be paid in cash, or, as in the instant case, partly in
cash and partly in one term, for, in the latter case, the partial payments are not so small as to place purchasers off their guard
and delude them to a miscalculation of their ability to pay.
 Theoretically, perhaps, there is no difference between paying the price in two installments, in so far as the size of
each partial payment is concerned; but in actual practice the difference exists, for, according to the regular course of business,
in contracts providing for payment of the price in two installments, there is generally a provision for initial payment. But all
these considerations are immaterial, the language of the law being so clear as to require no construction at all.
phi1.nêt
The suggestion that the cash payment made in this case should be considered as an installment in order to bring the
contract sued upon under the operation of the law, is completely untenable. A cash payment cannot be considered as a
payment by installment, and even if it can be so considered, still the law does not apply, for it requires non-payment of two or
more installments in order that its provisions may be invoked. Here, only one installment was unpaid.

B.3 PAMECA Wood Treatment Plant, Inc. vs. Court of Appeals | 310 SCRA 281 [1999]

FACTS:PAMECA loaned P2M from DBP and executed a promissory note, secured by its inventory of furniture and equipment.
PAMECA defaulted thus DBP extrajudicially foreclosed on the chattels. DBP was the only bidder so it was able to buy said
property for P322K. Subsequently for the deficiency, it filed a complaint against PAMECA and its solidary debtors, according to
the promissory note it signed.

ISSUE:Whether an action can be instituted for deficiency of a debt after a foreclosure of the chattel mortgage.

RULING:Yes. Chattel Mortgage Law expressly entitles the mortgagor to the balance of the proceeds, upon satisfaction of the
principal obligation and costs. Since the Chattel Mortgage Law bars the creditor-mortgagee from retaining the excess of the
sale proceeds, there is a corollary obligation on the part of the debtor-mortgagee to pay the deficiency in case of a reduction in
the price at public auction.

Corporate Law Case Digest: Bachrach Motor Co V. Lacson Ledesma (1937)

G.R. No. L-42462 August 31, 1937
Lessons Applicable: Quasi-negotiable Character of Certificate of Stock (Corporate Law)

FACTS:
 June 30, 1927: CFI favored Bachrach Motor Co., Inc (Bachrach) against Mariano Lacson Ledesma
 Ledesma mortgaged to the Philippine National Bank (PNB) Talisay-Silay Milling Co., Inc shares
 September 29, 1928: PNB brought an action against Ledesma and his wife Concepcion Diaz for the recovery of a mortgage
credit
 January 2, 1929: PNB amended its complaint by including the Bachrach Motor Co., Inc., as party defendant because they
claim to have rights to some of the subject matters of this complaint
 January 30, 1929: Bachrach field a gen. denial
 CFI: favored PNB
 December 20, 1929: Bachrach brought an action in the CFI against the Talisay-Silay Milling Co., Inc., to recover P13,850
against the bonus or dividend w/c, by virtue of the resolution of December 22, 1923, Central Talisay-Silay Milling Co., Inc.,
had declared in favor of Ledesma as one of the owners of the hacienda which had been mortgaged to the PNB to secure
the obligation of the Talisay-Silay Milling Co., Inc. in favor of said bank
 CFI: favored Bachrach
ISSUE: W/N shares of stock are personal property and therefore can be subject to pledge or chattel mortgage

HELD: YES. AFIRMED

 section 4 of the Chattel Mortgage Law, in so far as it provides that a chattel mortgage shall not be valid against any person
except the mortgagor, his executors or administrators, unless the possession of the property is delivered to and retained by
 the mortgagee or unless the mortgage is recorded in the office of the register of deeds of the province in which the
mortgagor resides.
 pledge of the 6,300 stock dividends is valid against the Bachrach because the certificate was delivered to the creditor bank,
notwithstanding the fact that the contract does not appear in a public instrument
 Certificates of stock or of stock dividends, under the Corporation Law, are quasi negotiable instruments in the sense that
they may be given in pledge or mortgage to secure an obligation
 certificates of stock, while not negotiable in the sense of the law merchant, like bills and notes, are so framed and dealt
with as to be transferable, when property endorsed, by mere delivery, and as they frequently convey, by estoppel against
the corporation or against prior holders, as good a title to the transferee as if they were negotiable, and inasmuch as a
large commercial use is made of such certificates as collateral security, and it is to the public interest that such use should
be simplify and facilitated by placing them as nearly as possible on the plane of commercial paper, they are often spoken of
and treated as quasi negotiable, that is as having some of the attributes and partaking of the character of negotiable
instruments, in passing from hand to hand, especially where they are accompanied by an assignment and power of
attorney, executed in blank, to transfer them to anyone who may obtain possession as holders, even though such
assignment and power are under seal.

Adelfa Properties v. CA
G.R. No. 111238; 25 January 1995

Regalado, J.

FORMATION/PERFECTION OF CONTRACT OF SALE | Option Contract

FACTS:

Private respondents and their brothers Jose and Dominador Jimenez were registered owners of a parcel of land in Las Piñas.
Jose and Dominador sold their share (1/2 parcel of land) pursuant to “Kasulatan sa Bilihan ng Lupa” to petitioner, Adelfa
Properties. Eastern portion belonged to them while western portion belonged to Rosario and Salud. Adelfa Properties (now
owners of eastern portion) expressed interest in buying the western portion by executing “Exclusive Option to Purchase” with
₱50,000.00 as option money. Before petitioner could make payment, it received summons that the nephews and nieces of
private respondents filed an annulment of deed of sale. As a result, petitioner withheld payment of full purchase price. Salud
attributed the suspension of payment to “lack of word of honor.” Francisca Jimenez was sent to see the counsel of petitioner to
inform him that they were cancelling the transactions. Subsequently, a Deed of Conditional Sale was executed in favor of
Emylene Chua. Private respondents’ counsel sent ₱25,000.00 refund of the option money. According to the RTC, agreement
entered into was merely an option contract and the suspension of payment by petitioner is a counter-offer which is tantamount
to a rejection of option. Thus, the sale to Chua was valid. CA ruled that failure of petitioner to pay the purchase price in the
period agreed upon was tantamount to election not to buy such land.

ISSUE:

Is the agreement between Adelfa Properties and private respondents strictly an option contract?

HELD:

The contract between the parties is a contract to sell and not an option contract nor a contract of sale. Two features which
convince that parties never intended to transfer ownership except upon full payment of purchase price: (1) the exclusive option
to purchase does not mention that petitioner is obliged to return possession or ownership of property as consequence of non-
payment; and (2) no delivery, actual or constructive, was made to petitioner; option to purchase was not included in a public
instrument which would have effect of delivery. Neither did petitioner take actual, physical possession of the property at any
given time. With this regard, there was an implied agreement that ownership shall not pass to the purchaser until he had fully
paid the price. Also, the alleged option money was actually earnest money since the amount was not distinct from the cause or
consideration for the sale of the property, but was itself a part thereof.
Paredes v Espino

Date: March 13, 1968

Ponente: Reyes, JBL

Facts:
 Paredes filed an action to compel (i.e. specific performance and damages) Espino to execute a deed of sale and to pay
damages. The complaint alleged that Espino had entered into the sale to Paredes of Lot. 67 of the Puerto Princesa
Cadastre at P4.00 a square meter. According to Paredes, said deal had been closed by letter and telegram but the
actual execution of the deed of sale and payment of the price were deferred to the arrival of Espino at Puerto
Prinsesa. However, upon Espino’s arrival, he refused and to execute the deed of sale. As a result, Paredes lost
expected profits from a resale of the property.
o Exhibit A: Letter from Espino accepting Paredes’ offer re: purchase price of P4.00 a square meter
o Exhbit B: Telegram from Espino advising Paredes of his arrival by boat
 Espino filed a MD on the ground that the complaint stated no cause of action and was unenforceable under the
Statute of Frauds.
 CFI: Dismissed complaint there being no written contract (CC 1403).
Issue: WON enforcement pleaded in the complaint is barred by the Statute of Frauds; therefore, unenforceable
Held: No.
Ratio:
 Article 1403 (2) – “…unless the same, or some note of memorandum thereof, be in writing, and subscribed by the
party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a
secondary evidence of its contents.”
 Exhibits A and B constitute an adequate memorandum of the transaction. All essential terms of the contract are
present; hence, they satisfy the requirements of the Statue of Frauds
o Signed by Espino
o Refered to property sold as Lot. 67 covered by TCT No. 62
o Stipulated its area as 1826 square meters
o Purchase price payable in cash
 Berg v Magdalena Estate: “a sufficient memorandum may be contained in two or more documents.”
 Shaffer v Palma: “whether the agreement is in writing or not, is a question of evidence; and the authenticity of the
writing need not be established until the trial is held.” Paredes having alleged that the contract is backed by letter and
telegram, and the same being a sufficient memorandum, his cause of action is thereby established, especially since
Espino has not denied the letters in question. At any rate, if the Court below entertained any doubts about the
existence of the written memorandum, it should have called for a preliminary hearing on that point, and not
dismissed the complaint.

Dispositive: Appealed order is set aside and the case remanded to the Court of origin for trial and decision.

Norkis Distributors Inc. vs. Court of Appeals, and Nepales

Norkis Distributors Inc. vs. Court of Appeals, and Nepales

193 SCRA 694
February 1991

FACTS:

On September 20, 1979, private respondent Alberto Nepales bought from the Norkis Distributors, Inc. (Norkis) in its Bacolod
branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No.L2-329401K Frame No.NL2-0329401, color
maroon, which was then on display in the Norkis showroom. The Branch Manager Avelino Labajo agreed to accept the
P7,500.00 price payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan.
Hence, credit was extended to Nepales, and as security for the loan, he executed a chattel mortgage on the motorcycle in favor
of DBP. Labajo issued the Norkis Sales Invoice No. 0120 perfecting the contract of sale, and Nepales signed the same to conform
to the terms of the sale, while the unit remained in Norkis' possession. On November 6, 1979, it was registered under Alberto
Nepales’ name in the Land Transportation Commission.

On January 22, 1980, the motorcycle was delivered to a certain Julian Nepales who was allegedly the agent of Alberto Nepales
but the latter denies it. The record shows, however, that Alberto and Julian Nepales presented the unit to DBP's Appraiser-
Investigator Ernesto Arriesta at the DBP offices in Kabankalan, Negros Occidental Branch. On February 3, 1980, the motorcycle
met an accident at Binalbagan, Negros Occidental while being driven by a certain Zacarias Payba. The unit was a total wreck,
was returned, and stored inside Norkis' warehouse.

On March 20, 1980, DBP released the proceeds of private respondent's motorcycle loan to Norkis in the total sum of P7,500. As
the price of the motorcycle later increased to P7,828 in March, 1980, Nepales paid the difference of P328 and demanded the
delivery of the motorcycle. Norkis failed to deliver the unit, and Nepales filed an action for specific performance with damages
in the RTC of Himamaylan, Negros Occidental. Norkis answered that the motorcycle had already been delivered to private
respondent before the accident, hence, he should bear the risk of loss or damage as owner of the unit. The lower court ruled in
favor of Nepales, and the Court of Appeals affirmed the decision but deleted the award of damages "in the amount of P50.00 a
day from February 3, 1980 until payment of the present value of the damaged vehicle." Norkis concedes that there was no
"actual" delivery of the vehicle, but insists that there was constructive delivery of the unit upon the issuance of the sales
invoice, upon the registration of the unit in Nepales’ name, and upon the issuance of the official receipt.

ISSUE:

Who should bear the risk of loss?

COURT RULING:

Affirming the decision of the Court of Appeals, the Supreme Court reiterated that Article 1496 of the Civil Code which provides
that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership
thereof is transferred to the buyer," is applicable in the case at bar for there was neither an actual nor constructive delivery of
the thing sold.

The Court of Appeals correctly ruled that the purpose of the execution of the sales invoice dated September 20, 1979 and the
registration of the vehicle in the name of Alberto Nepales with the Land Registration Commission was not to transfer the
ownership and dominion over the motorcycle to him, but only to comply with the requirements of the DBP for processing
private respondent's motorcycle loan. The circumstances in the case itself more than amply rebut the disputable presumption
of delivery upon which Norkis anchors its defense to Nepales' action.

DOROMAL V. CA (September 5, 1975)

FACTS:
A parcel of land in Iloilo were co-owned by 7 siblings all surnamed Horilleno. 5 of the siblings gave a SPA to their niece Mary
Jimenez, who succeeded her father as a co-owner, for the sale of the land to father and son Doromal. One of the co-owner,
herein petitioner, Filomena Javellana however did not gave her consent to the sale even though her siblings executed a SPA for
her signature. The co-owners went on with the sale of 6/7 part of the land and a new title for the Doromals were issued.

Respondent offered to repurchase the land for 30K as stated in the deed of sale but petitioners declined invoking lapse in time
for the right of repurchase. Petitioner also contend that the 30K price was only placed in the deed of sale to minimize payment
of fees and taxes and as such, respondent should pay the real price paid which was P115, 250.

ISSUE:
WON the period to repurchase of petitioner has already lapsed.

HELD:
Period of repurchase has not yet lapsed because the respondent was not notified of the sale. The 30-day period for the right of
repurchase starts only after actual notice not only of a perfected sale but of actual execution and delivery of the deed of sale.
The letter sent to the respondent by the other co-owners cannot be considered as actual notice because the letter was only to
inform her of the intention to sell the property but not its actual sale. As such, the 30-day period has not yet commenced and
the respondent can still exercise his right to repurchase.

The respondent should also pay only the 30K stipulated in the deed of sale because a redemptioner’s right is to be subrogated
by the same terms and conditions stipulated in the contract.

Parañaque Kings Enterprises, Inc. vs Court of Appeals 268 SCRA 727. February 26, 1997
Facts:
Defendant Catalina Santos is the owner of 8 parcels of land located in Parañaque. Frederick Chua leased the property of
defendant and assigned all rights and interest and participation in the leased property to Lee Ching Bing by deed of assignment.
Lee Ching Bing also assigned all his rights and interest in the leased property to Parañaque Kings Enterprises, Inc. All of these
contracts/deeds were registered.
Paragraph 9 of the assigned leased (sic) contract provides among others that:
9. That in case the properties subject of the lease agreement are sold or encumbered, Lessors shall impose as a condition that
the buyer or mortgagee thereof shall recognize and be bound by all the terms and conditions of this lease agreement and shall
respect this Contract of Lease as if they are the LESSORS thereof and in case of sale, LESSEE shall have the first option or priority
to buy the properties subject of the lease;
Defendant Santos sold the eight parcels of land subject of the lease to Defendant David Raymundo, for a consideration
of P5Million, in contravention of the contract of lease, for the first option or priority to buy was not offered by defendant
Santos to the plaintiff. Santos, realizing the error, she had it reconveyed to her for the same consideration of P5Million and
subsequently the property was offered for sale to plaintiff for the sum of P15Million, however the period of 10 days to make
good of the offer expired. Another deed of sale was executed by Santos in favor of Raymundo for consideration of P9Million.
Hence, the petitioner filed a complaint before the RTC.

RTC dismissed the complaint for lack of a valid cause of action. It ratiocinated that Santos complied with the lease
agreement by offering the properties for sale to the plaintiff and there was a definite refusal on the part of the plaintiff to
accept the offer.
CA affirmed in toto the ruling of RTC.
Issue:
Whether or not there is valid cause of action.
Ruling:
Yes.
The principal legal question, as stated earlier, is whether the complaint filed by herein petitioner in the lower court states a
valid cause of action. Since such question assumes the facts alleged in the complaint as true, it follows that the determination
thereof is one of law, and not of facts. There is a question of law in a given case when the doubt or difference arises as to what
the law is on a certain state of facts, and there is a question of fact when the doubt or difference arises as to the truth or the
falsehood of alleged facts.
A cause of action exists if the following elements are present: (1) a right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right,
and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the
obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages.
A careful examination of the complaint reveals that it sufficiently alleges an actionable contractual breach on the part of private
respondents. Under paragraph 9 of the contract of lease between respondent Santos and petitioner, the latter was granted the
first option or priority to purchase the leased properties in case Santos decided to sell. If Santos never decided to sell at all,
there can never be a breach, much less an enforcement of such right. But on September 21, 1988, Santos sold said properties to
Respondent Raymundo without first offering these to petitioner. Santos indeed realized her error, since she repurchased the
properties after petitioner complained. Thereafter, she offered to sell the properties to petitioner for P15 million, which
petitioner, however, rejected because of the ridiculous price. But Santos again appeared to have violated the same provision of
the lease contract when she finally resold the properties to respondent Raymundo for only P9 million without first offering
them to petitioner at such price. Whether there was actual breach which entitled petitioner to damages and/or other just or
equitable relief, is a question which can better be resolved after trial on the merits where each party can present evidence to
prove their respective allegations and defenses.
The decision of the RTC and CA are reversed and set aside. The case is remanded to the RTC for further proceedings.
EQUATORIAL REALTY V. MAYFAIR (November 21, 1996)

FACTS:
Petitioner Carmelo and Bauermann Inc. leased its parcel of land with 2-storey building to respondent Mayfair Theater Inc.
They entered a contract which provides that if the LESSOR should desire to sell the leased premises, the LESSEE shall be given
30-days exclusive option to purchase the same.

Carmelo informed Mayfair that it will sell the property to Equatorial. Mayfair made known its interest to buy the property but
only to the extent of the leased premises.
Notwithstanding Mayfair’s intention, Carmelo sold the property to Equatorial.

ISSUE:
WON the sale of the property to Equatorial is valid.

HELD:
The sale of the property should be rescinded because Mayfair has the right of first refusal. Both Equatorial and Carmelo are in
bad faith because they knew of the stipulation in the contract regarding the right of first refusal.

The stipulation is a not an option contract but a right of first refusal and as such the requirement of a separate consideration for
the option, has no applicability in the instant case. The consideration is built in the reciprocal obligation of the parties.

In reciprocal contract, the obligation or promise of each party is the consideration for that of the other. (Promise to lease in
return of the right to first refusal)

With regard to the impossibility of performance, only Carmelo can be blamed for not including the entire property in the right
of first refusal. Court held that Mayfair may not have the option to buy the property. Not only the leased area but the entire
property.

Case Digests G.R. No. 168325 :

December 8, 2010

ROBERTO D. TUAZON, Petitioner, v. LOURDES Q. DEL ROSARIO-SUAREZ, CATALINA R. SUAREZ-DE LEON, WILFREDO DE LEON,
MIGUEL LUIS S. DE LEON, ROMMEL LEE S. DE LEON, and GUILLERMA L. SANDICO-SILVA, as attorney-in-fact of the defendants,
exceptLourdesQ. Del Rosario-Suarez, Respondents. DELCASTILLO,J.:

FACTS: Respondent Lourdes Q. Del Rosario-Suarez was the owner of a parcel of land in Quezon City. Petitioner Roberto D.
Tuazon andLourdesexecuted a Contract of Lease over the land for a period of three years. During the effectivity of the
lease,Lourdessent a letter to Roberto where she offered to sell to the latter subject parcel of land.She pegged the price
atP37,541,000.00 and gave him two years to decide on the offer. More than four months after the expiration of the Contract of
Lease, Lourdes sold subject parcel of land to the De Leons. The new owners notified Roberto to vacate the premises.Roberto
refused hence, the De Leons filed a complaint for Unlawful Detainer against him.The MeTC rendered a Decision ordering
Roberto to vacate the property for non-payment of rentals and expiration of the contract. While the ejectment case was on
appeal, Roberto filed with the RTC of Quezon City a Complaint for Annulment of Deed of Absolute Sale, Reconveyance,
Damages and Application for Preliminary Injunction againstLourdesand the De Leons. The court declared the Deed of Absolute
Sale made byLourdesin favor of the De Leons as valid and binding.The offer made byLourdesto Roberto did not ripen into a
contract to sell because the price offered by the former was not acceptable to the latter.The offer made byLourdesis no longer
binding and effective at the time she decided to sell the subject lot to the De Leons because the same was not accepted by
Roberto.The CA affirmed. ISSUE: Whether or not Responentviolated Petitioners right to buy subject property under the
principle of "right of first refusal" by not giving him "notice" and the opportunity to buy the property under the same terms and
conditions or specifically based on the much lower price paid by the De Leons. HELD: The petition is without merit. CIVIL LAW;
OPTION CONTRACTS; RIGHT OF FIRST REFUSAL This case involves an option contract and not a contract of a right of first refusal.
An option contract is entirely different and distinct from a right of first refusal in that in the former, the option granted to the
offeree is for afixed periodand at adetermined price.It is clear that the offer embodies an option contract as it grants Roberto a
fixed period of only two years to buy the subject property at a price certain ofP37,541,000.00. It is undisputed that Roberto did
not accept the terms stated in the letter ofLourdesas he negotiated for a much lower price. Robertos act of negotiating for a
much lower price was a counter-offer and is therefore not an acceptance of the offer ofLourdes.The counter-offer of Roberto
for a much lower price was not accepted byLourdes. There is therefore no contract that was perfected between them with
regard to the sale of subject property.Roberto, thus, does not have any right to demand that the property be sold to him at the
price for which it was sold to the De Leons neither does he have the right to demand that said sale to the De Leons be annulled.
The petition is DENIED and the decision of the CA is AFFIRMED.

Ang Yu Asuncion et al. vs. Court of Appeals and Buen Realty Corp.
(G.R. No. 109125, December 2, 1994)
Ponente: Vitug

Topic: Sales; Contract of sale v. Contract to sell; remedies for violation of right of first refusal

Facts:
Petitioners Ang Yu Asuncion et. al. are lessees of residential and commercial spaces owned by the Unjiengs. They have been
leasing the property and possessing it since 1935 and have been paying rentals.

In 1986, the Unjiengs informed Petitioners Ang Yu Asuncion that the property was being sold and that Petitioners were being
given priority to acquire them (Right of First Refusal). They agreed on a price of P5M but they had not yet agreed on the terms
and conditions. Petitioners wrote to the Unjiengs twice, asking them to specify the terms and conditions for the sale but
received no reply. Later, the petitioners found out that the property was already about to be sold, thus they instituted this case
for Specific Performance [of the right of first refusal].

The Trial Court dismissed the case. The trial court also held that the Unjieng’s offer to sell was never accepted by the Petitioners
for the reason that they did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale
at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of
P11-million or below, plaintiffs will have the right of first refusal.

The Court of Appeals affirmed the decision of the Trial Court.

In the meantime, in 1990, the property was sold to De Buen Realty, Private Respondent in this case. The title to the property
was transferred into the name of De Buen and demanded that the Petitioners vacate the premises.

Because of this, Petitioners filed a motion for execution of the CA judgement. At first, CA directed the Sheriff to execute an
order directing the Unjiengs to issue a Deed of Sale in the Petitioner’s favour and nullified the sale to De Buen Realty. But then,
the CA reversed itself when the Private Respondents Appealed.

Issues:
1. Whether or not the Contract of Sale is perfected by the grant of a Right of First Refusal.
2. Whether or not a Right of First Refusal may be enforced in an action for Specific Performance.
Held:
1. No. A Right of First Refusal is not a Perfected Contract of Sale under Art. 1458 or an option under Par. 2 Art
1479 or an offer under Art. 1319. In a Right of First Refusal, only the object of the contract is determinate. This means
that novinculum juris is created between the seller-offeror and the buyer-offeree.
2. No. Since a contractual relationship does not exist between the parties, a Right of First Refusal may not be
enforced through an action for specific performance. Its conduct is governed by the law on human relations under
Art. 19-21 of the Civil Code and not by contract law.
Therefore, the Supreme Court held that the CA could not have decreed at the time the execution of any deed of sale between
the Unjiengs and Petitioners.

Other Rules, Comments and Discussion:

This case is notable because it lays down the rules on options contracts and right of first refusal as well as promises to buy and
sell. First, the Supreme Court discussed the stages of the formation of a sales contract, these are:
1. Negotiation – covers the period from the time the prospective contracting parties indicate interest in the
contract to the time the contract is concluded (perfected).
2. Perfection – takes place upon the concurrence of the essential elements thereof. In a sales contract this is
governed by Art. 1458
3. Consummation – begins when the parties perform their respective undertakings under the contract
culminating in the extinguishment thereof
Until the contract is perfected (No. 2), it cannot, as an independent source of obligation, serve as a binding juridical relation. A
sales contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer
ownership of a thing or right to another, called the buyer, over which the latter agrees (Art 1458).

Under Art. 1458, there is no perfection of a sale under a “Contract to Sell”. A Contract to Sell is characterized as a conditional
sale and the breach of the suspensive condition will prevent the obligation to transfer title from acquiring obligatory force.

Promises to Buy and Sell

Unconditional mutual promise to buy and sell – As long as the object is made determinate and the price is fixed, can be
obligatory on the parties, and compliance therewith may accordingly be exacted. The Right of First Refusal falls under this
classification.

Accepted unilateral promise – If it specifies the thing to be sold and the price to be paid and when coupled with a valuable
consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. This contract
is legally binding. (Par. 2 Art. 1458) Note however, that the option is a contract separate and distinct from the contract of sale.
Once the option is exercised before it is withdrawn, a bilateral promise to sell and to buy ensues and both parties are then
reciprocally bound to comply with their respective undertakings.

Offers with a Period

Where a period is given to the offeree within which to accept the offer, the following rules generally govern:
1. If the period is not itself founded upon or supported by a consideration – Offeror may withdraw offer at any
time before its acceptance (or knowledge of its acceptance). However, the right to withdraw must not be exercised
whimsically or arbitrarily otherwise it can give rise to damages under Art. 19 of the New Civil Code
2. If period is founded on a separate consideration – This is a perfected contract of option. Withdrawal of the
offer within the period of the option is deemed a breach of the contract of option (not the sale). “If, in fact, the
optioner-offeror withdraws the offer before its acceptance (exercise of the option) by the optionee-offeree, the latter
may not sue for specific performance on the proposed contract (“object” of the option) since it has failed to reach its
own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option.”
3. Earnest money – This is not an offer with a period. Earnest money is distinguished from the option contract
if the consideration given will be considered as a part of the purchase price of the object of the sale. Earnest money is
evidence of a perfected contract of sale. (Art. 1482)
Right of First Refusal
This is “an innovative juridical relation” because it is neither a perfected contract of sale under Art. 1458 nor an option contract
under par. 2 Art 1479. The object might be made determinate, the exercise of the right, however, is dependent on the offeror’s
eventual intention to enter into a binding juridical relation with another but also on terms and conditions such as price. There is
no juridical tie or vinculum juris.

Breach of the right cannot justify correspondingly an issuance of a writ of execution under a court judgement that recognizes its
existence, such as in Ang Yu Asuncion. An action for Specific Performance is not allowed under a Right of First Refusal because
doing so would negate the indispensable element of consensuality in the perfection of contracts.

This right is not inconsequential because it gives right to an action for damages under Art. 19.

Other Acts that Won’t Bind

Public advertisements or solicitations – Construed as mere invitations to make offers and/or proposals.
Related Cases
The cases of Equatorial v. Mayfair and Parañaque Kings v. Court of Appeals held that if a sale happens in violation of a Right of
First Refusal where the buyer is aware of the existence of that right in favor of another (such as when it is written in a lease
contract), the sale may be rescinded and the seller may be forced to offer the property to the party with the Right of First
Refusal.

However, the case of Ang Yu Asuncion may still be good law for cases not involving a third party buyer in bad faith.

PERCELINO DIAMANTE, petitioner, vs.

HON. COURT OF APPEALS and GERARDO DEYPALUBUS, respondents.

FACTS: A fishery lot, encompassing an area of 9.4 hectares and designated as Lot No. 518-A of the Cadastral Survey of
Dumangas, Iloilo, was previously covered by Fishpond Permit No. F-2021 issued in the name of Anecita Dionio. Upon Anecita's
death, her heirs, petitioner Diamante and Primitivo Dafeliz, inherited the property which they later divided between
themselves; petitioner got 4.4. hectares while Dafeliz got 5 hectares. It is the petitioner's share that is the subject of the present
controversy. Primitivo Dafeliz later sold his share to private respondent.
On 21 May 1959, petitioner sold to private respondent his leasehold rights over the property in question for P8,000.00 with the
right to repurchase the same within three (3) years from said date.
On 16 August 1960, private respondent filed an application with the Bureau of Fisheries, dated 12 July 1960, for a fishpond
permit and a fishpond lease agreement over the entire lot, submitting therewith the deeds of sale executed by Dafeliz and the
petitioner.
Pressed by urgent financial needs, petitioner, on 17 October 1960, sold all his remaining rights over the property in question to
the private respondent for P4,000.00.
On 25 October 1960, private respondent, with his wife's consent, executed in favor of the petitioner an Option to Repurchase
the property in question within ten (10) years from said date, with a ten-year grace period.
Private respondent submitted to the Bureau of Fisheries the definite deed of sale; he did not, however, submit the Option to
Repurchase.
Thereafter, on 2 August 1961, the Bureau of Fisheries issued to private respondent Fishpond Permit
On 11 December 1963, petitioner, contending that he has a valid twenty-year option to repurchase the subject property,
requested the Bureau of Fisheries to respondent’s permit insofar as the said property is concerned. On 18 December 1964, his
letter-complaint was dismissed. Petitioner then sought a reconsideration of the dismissal; the same was denied on 29 April
1965. His appeal to the Secretary of the DANR was likewise dismissed on 30 October 1968. Again, on 20 November 1968,
petitioner sought for a reconsideration; this time, however, he was successful.
Issue: Was there a valid Option? No

RULING: It is settled by this Court that "an agreement to repurchase becomes a promise to sell when made after the sale,
because when the sale is made without such an agreement, the purchaser acquires the thing sold absolutely, and if he
afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchaser, as absolute owner
already of the object. In that case the vendor has not reserved to himself the right to repurchase."
Hence, the Option to Repurchase executed by private respondent in the present case, was merely a promise to sell, which must
be governed by Article 1479 of the Civil Code.

A copy of the so-called Option to Repurchase is neither attached to the records nor quoted in any of the pleadings of the
parties. This Court cannot, therefore, properly rule on whether the promise was accepted and a consideration distinct from the
price, supports the option. Undoubtedly, in the absence of either or both acceptance and separate consideration, the promise
to sell is not binding upon the promissor (private respondent).
A unilateral promise to buy or sell is a mere offer, which is not converted into a contract except at the moment it is accepted.
Acceptance is the act that gives life to a juridical obligation, because, before the promise is accepted, the promissor may
withdraw it at any time. Upon acceptance, however, a bilateral contract to sell and to buy is created, and the offeree ipso
facto assumes the obligations of a purchaser; the offeror, on the other hand, would be liable for damages if he fails to deliver
the thing he had offered for sale.
The contract of option is a separate and distinct contract from the contract which the parties may enter into upon the
consummation of the option, and a consideration for an optional contract is just as important as the consideration for any other
kind of contract. Thus, a distinction should be drawn between the consideration for the option to repurchase, and the
consideration for the contract of repurchase itself.
Even if the promise was accepted, private respondent was not bound thereby in the absence of a distinct consideration.

SPOUSES JULIO D. VILLAMOR AND MARINA VILLAMOR vs THE HON. COURT OF APPEALS AND SPOUSES MACARIA LABINGISA
REYES AND ROBERTO REYES
G.R. No. 97332 October 10, 1991

FACTS:
Macaria sold 300 square meters from her 600 square meter lot to the spouses Villamor which is located at Baesa, Caloocan City,
for the total amount of P21,000.00.

Earlier, Macaria borrowed P2,000.00 from the spouses which amount was deducted from the total purchase price of the 300
square meter lot sold.

Macaria executed a "Deed of Option" in favor of Villamor in which the remaining 300 square meter portion (TCT No. 39934) of
the lot would be sold to Villamor under the conditions stated therein.

Included in the Deed of Option is:

That the only reason why the Spouses-vendees Julio Villamor and Marina V. Villamor, agreed to buy the said one-half portion at
the above-stated price of about P70.00 per square meter, is because I, and my husband Roberto Reyes, have agreed to sell and
convey to them the remaining one-half portion still owned by me and now covered by TCT No. 39935 of the Register of Deeds
for the City of Caloocan, whenever the need of such sale arises, either on our part or on the part of the spouses (Julio) Villamor
and Marina V. Villamor, at the same price of P70.00 per square meter, excluding whatever improvement may be found the
thereon;

In 1984, when the husband of Macaria retired, wanted to repurchased the said 300 square meter of lot from the petitioners.
However, petitioners rejected the said offer and expresses their desire to purchase the remaining half of the lot.

Trial Court rendered judgment in favor of Villamor.

Court of Appeals reversed the decision premised on the finding of respondent court that the Deed of Option is void for lack of
consideration.

ISSUE:
Whether there is a Separate Consideration for the Option Contract? YES

RULING:
As expressed in Gonzales v. Trinidad, 67 Phil. 682, consideration is "the why of the contracts, the essential reason which moves
the contracting parties to enter into the contract." The cause or the impelling reason on the part of private respondent executing
the deed of option as appearing in the deed itself is the petitioner's having agreed to buy the 300 square meter portion of
private respondents' land at P70.00 per square meter "which was greatly higher than the actual reasonable prevailing price."

The respondent appellate court failed to give due consideration to petitioners' evidence which shows that in 1969 the Villamor
spouses bough an adjacent lot from the brother of Macaria Labing-isa for only P18.00 per square meter which the private
respondents did not rebut. Thus, expressed in terms of money, the consideration for the deed of option is the difference
between the purchase price of the 300 square meter portion of the lot in 1971 (P70.00 per sq.m.) and the prevailing reasonable
price of the same lot in 1971. Whatever it is, (P25.00 or P18.00) though not specifically stated in the deed of option, was
ascertainable. Petitioner's allegedly paying P52.00 per square meter for the option may, as opined by the appellate court, be
improbable but improbabilities does not invalidate a contract freely entered into by the parties

The "deed of option" entered into by the parties in this case had unique features. Ordinarily, an optional contract is a privilege
existing in one person, for which he had paid a consideration and which gives him the right to buy, for example, certain
merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a fixed
price (Enriquez de la Cavada v. Diaz, 37 Phil. 982). If We look closely at the "deed of option" signed by the parties, We will
notice that the first part covered the statement on the sale of the 300 square meter portion of the lot to Spouses Villamor at
the price of P70.00 per square meter "which was higher than the actual reasonable prevailing value of the lands in that place at
that time (of sale)." The second part stated that the only reason why the Villamor spouses agreed to buy the said lot at a much
higher price is because the vendor (Reyeses) also agreed to sell to the Villamors the other half-portion of 300 square meters of
the land. Had the deed stopped there, there would be no dispute that the deed is really an ordinary deed of option granting the
Villamors the option to buy the remaining 300 square meter-half portion of the lot in consideration for their having agreed to
buy the other half of the land for a much higher price. But, the "deed of option" went on and stated that the sale of the other
half would be made "whenever the need of such sale arises, either on our (Reyeses) part or on the part of the Spouses Julio
Villamor and Marina V. Villamor. It appears that while the option to buy was granted to the Villamors, the Reyeses were
likewise granted an option to sell. In other words, it was not only the Villamors who were granted an option to buy for which
they paid a consideration. The Reyeses as well were granted an option to sell should the need for such sale on their part arise.

A contract of sale is, under Article 1475 of the Civil Code, "perfected at the moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand perform of
contracts." Since there was, between the parties, a meeting of minds upon the object and the price, there was already a
perfected contract of sale. What was, however, left to be done was for either party to demand from the other their respective
undertakings under the contract. It may be demanded at any time either by the private respondents, who may compel the
petitioners to pay for the property or the petitioners, who may compel the private respondents to deliver the property.

However, the Deed of Option did not provide for the period within which the parties may demand the performance of their
respective undertakings in the instrument. The parties could not have contemplated that the delivery of the property and the
payment thereof could be made indefinitely and render uncertain the status of the land. The failure of either parties to demand
performance of the obligation of the other for an unreasonable length of time renders the contract ineffective.

Under Article 1144 (1) of the Civil Code, actions upon written contract must be brought within ten (10) years. The Deed of
Option was executed on November 11, 1971. The acceptance, as already mentioned, was also accepted in the same
instrument. The complaint in this case was filed by the petitioners on July 13, 1987, seventeen (17) years from the time of the
execution of the contract. Hence, the right of action had prescribed. There were allegations by the petitioners that they
demanded from the private respondents as early as 1984 the enforcement of their rights under the contract. Still, it was
beyond the ten (10) years period prescribed by the Civil Code.

CARCELLER V. CA (February 10, 1999)

FACTS:
Respondent State Investment Houses Inc. has a parcel of land in Cebu City leased to petitioner Jose Ramon Caceller with an
option to purchase valid until the expiration of the lease contract.

3weeks before the expiration of the contract, petitioner made a request to the respondent for the extension of the lease
contact so he can have an ample time to raise enough funds to avail of the option of sale.

Respondent denied the request and a month after the expiration of the contract, petitioner made known his intention to buy
the property.

Respondent reiterated the provisions in the contract and asked the petitioner to leave the property, which will now be offered
to the general public for a higher price.

ISSUE:
WON can still exercise his option of sale even after the time to do such has already lapsed.

HELD:
The contract must be interpreted together with the intention of the parties. The letter of the plaintiff to the respondent
requesting for an extension is sufficient proof of his intent to avail of the option of sale.

In contractual relations, the law allows the parties reasonable leeway on the terms of their agreement, which is the law
between them. When petitioner made his intention to buy known to the buyer one month after the expiration of contract is
within a reasonable time- frame.

Petitioner may buy the property but not anymore to the price stated in the contract. As such, respondent may increase the
price of the land but only to a reasonable and fair market value.
An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the
power to decide, whether or not to enter into a principal contract. It binds the party who has given the option, not to enter into
the principal contract with any other person during the period designated, and, within that period, to enter into such contract
with the one to whom the option was granted, if the latter should decide to use the option. It is a separate agreement distinct
from the contract which the parties may enter into upon the consummation of the option.

Mapalo v. Mapalo
G.R. Nos. L-21489 & L-21628; 19 May 1966

Bengzo, JP, J.

FACTS:

Spouses Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners of a residential land in Manaoag,
Pangasinan. Said spouses out of love for Maximo Mapalo — Miguel’s brother who was about to get married — decided to
donate the eastern half of the land to him. As a result, in 1936, they were deceived into signing a deed of absolute sale over the
entire land in Maximo’s favor. The document of sale stated a consideration of P500.00 which Spouses Mapalo did not receive
anything. Following the execution of document, Miguel and Candida built a fence of permanent structure in the middle of the
land segregating the eastern portion from its western portion. 13 years later, Maximo sold for P2,500.00 the entire land in favor
of the Narcicos and they registered the same. Narcisos filed to be declared owners of the entire land with possession of its
western portion. Spouses Mapalo contend that the deed of sale of 1936 was procured with fraud and the Narcicos were buyers
in bad faith. Also, it was invoked that the deeds of sale be declared null and void as to the western half of said land for being
fictitious. In reversing the ruling of the CFI, the CA averred that having obtained the deed of sale by fraud, the same was
voidable, not void ab initio and the action to annul the same had already prescribed which was within 4 years of notice of fraud.
While they are definitely victims, they lost their right by prescription.

ISSUE:

Does the contract involve ‘no consideration’ or ‘false consideration’?

HELD:

The rule under the Civil Code, be it the old or the new, is that contracts without a cause or consideration produce no effect
whatsoever. Nonetheless, under the Old Civil Code, the statement of a false consideration renders the contract voidable, unless
it is proven that it is supported by another real and licit consideration. And it is further provided by the Old Civil Code that the
action for annulment of a contract on the ground of falsity of consideration shall last 4 years, the term to run from the date of
the consummation of the contract. In the present case, the contract of sale has no consideration and therefore it is void and
inexistent for the said consideration of P500.00 was totally absent. Purchase price which appears thereon as paid has in fact
never been paid by the purchaser to vendor. This is contrary to what is meant by a contract that states a false consideration is
one that has in fact a real consideration but the same is not the one stated in the document. Needless to add, the inexistence of
a contract is permanent and incurable and cannot be the subject of prescription.

Topic: Cause or Consideration

References: G.R. No. 186264, July 8, 2013
Title: Dr. Lorna Formaran vs. Dr. Glenda Ong and Solomon Ong

Facts:

According to plaintiff’s complaint, she owns the parcel of land which was donated to her intervivos by her uncle and aunt,
spouses MelquiadesBarraca and PraxedesCasidsid; that upon the proddingsand representation of defendant Glenda, that she
badly needed a collateral for a loan which she was applying from a bank to equip her dental clinic, plaintiff made it appear that
she sold one-half of the parcel of land to the defendant Glenda; that the sale was totally without any consideration and
fictitious; that contrary to plaintiff’s agreement with defendant Glenda for the latter to return the land, defendant Glenda filed
a case for unlawful detainer against the plaintiff. Defendant Glenda insisted on her ownership over the land in question on
account of a Deed of Absolute Sale executed by the plaintiff in her favor.
Petitioner filed on action for annulment of the Deed of Sale against respondents before the Regional Trial Court. The trial court
rendered a Decision in favor of petitioner and against the respondent by declaring the Deed of Absolute Sale null and void for
being an absolutely simulated contract and for want of consideration; declaring the petitioner as the lawful owner entitled to
the possession of the land in question. Respondents coursed an appeal to the CA. The CA reversed and set aside the Decision of
the trial court and ordered petitioner to vacate the land in question and restore the same to respondents.
Issue:

Whether or not the Deed of Absolute Sale is null and void for being an absolutely simulated contract?

Ruling:

Yes. The Court believes and so holds that the subject Deed of Sale is indeed simulated,as it is: (1) totally devoid of
consideration; (2) it was executed on August 12, 1967, less than two months from the time the subject land was donated to
petitioner on June 25, 1967 by no less than the parents of respondent Glenda Ong; (3) on May 18, 1978, petitioner mortgaged
the land to the Aklan Development Bank for a ₱23,000.00 loan; (4) from the time of the alleged sale, petitioner has been in
actual possession of the subject land; (5) the alleged sale was registered on May 25, 1991 or about twenty four (24) years after
execution; (6) respondent Glenda Ong never introduced any improvement on the subject land; and (7) petitioner’s house stood
on a part of the subject land. These are facts and circumstances which may be considered badges of bad faith that tip the
balance in favor of petitioner.

The amplitude of foregoing undisputed facts and circumstances clearly shows that the sale of the land in question was purely
simulated. It is void from the very beginning. If the sale was legitimate, defendant Glenda should have immediately taken
possession of the land, declared in her name for taxation purposes, registered the sale, paid realty taxes, introduced
improvements therein and should not have allowed plaintiff to mortgage the land. These omissions properly militated against
defendant Glenda’s submission that the sale was legitimate and the consideration was paid.

Balatbat v. CA
Facts:
A parcel of land was acquired by plaintiff Aurelio Roque and Maria Mesina during their conjugal union. Maria died on August
28, 1966. On June 15, 1977, Aurelio filed a case for partition. The trial court held that Aurelio is entitled to the ½ portion at his
share in the conjugal property, and 1/5 of the other half which formed part of Maria’s estate, divided equally among him at his
4 children. The decision having become final and executory, the Register of Deeds of Manila issued a transfer certificate of title
on October 5, 1979 according to the ruling of the court. On April 1, 1980, Aurelio sold his 6/10 share to spouses Aurora Tuazon-
Repuyan and Jose Repuyan, as evidenced by a deed of absolute sale. On June 21, 1980, Aurora caused the annotation of her
affidavit of adverse claim. On August 20, 1980, Aurelio filed a complaint for rescission of contract grounded on the buyers’
failure to pay the balance of the purchase price. On February 4, 1982, another deed of absolute sale was executed between
Aurelio and his children, and herein petitioner Clara Balatbat, involving the entire lot. Balatbat filed a motion for the issuance of
writ of possession, which was granted by the court on September 20, 1982, subject to valid rights and interests of third persons.
Balatbat filed a motion to intervene in the rescission case, but did not file her complaint in intervention. The court ruled that
the sale between Aurelio and Aurora is valid.
Issues:
(1) Whether the alleged sale to private respondents was merely executory
(2) Whether there was double sale
(3) Whether petitioner is a buyer in good faith and for value
Held:
(1) Contrary to petitioner's contention that the sale dated April 1, 1980 in favor of private respondents Repuyan was merely
executory for the reason that there was no delivery of the subject property and that consideration/price was not fully paid, we
find the sale as consummated, hence, valid and enforceable. The Court dismissed vendor's Aurelio Roque complaint for
rescission of the deed of sale and declared that the Sale dated April 1, 1980, as valid and enforceable. No appeal having been
made, the decision became final and executory.
The execution of the public instrument, without actual delivery of the thing, transfers the ownership from the vendor to the
vendee, who may thereafter exercise the rights of an owner over the same.In the instant case, vendor Roque delivered the
owner's certificate of title to herein private respondent. The provision of Article 1358 on the necessity of a public document is
only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of
land that this be embodied in a public instrument. A contract of sale being consensual, it is perfected by the mere consent of
the parties. Delivery of the thing bought or payment of the price is not necessary for the perfection of the contract; and failure
of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration
but results at most in default on the part of the vendee, for which the vendor may exercise his legal remedies.
(2) Article 1544 of the Civil Code provides that in case of double sale of an immovable property, ownership shall be transferred
(1) to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof, to the person
who in good faith was first in possession; and (3) in default thereof, to the person who presents the oldest title, provided there
is good faith. In the case at bar, vendor Aurelio Roque sold 6/10 portion of his share to private respondents Repuyan on April 1,
1980. Subsequently, the same lot was sold again by vendor Aurelio Roque (6/10) and his children (4/10), represented by the
Clerk of Court pursuant to Section 10, Rule 39 of the Rules of Court, on February 4, 1982. Undoubtedly, this is a case of double
sale contemplated under Article 1544 of the New Civil Code.
Evidently, private respondents Repuyan's caused the annotation of an adverse claim on the title of the subject property on July
21, 1980. The annotation of the adverse claim in the Registry of Property is sufficient compliance as mandated by law and
serves notice to the whole world. On the other hand, petitioner filed a notice of lis pendens only on February 2, 1982.
Accordingly, private respondents who first caused the annotation of the adverse claim in good faith shall have a better right
over herein petitioner. As between two purchasers, the one who has registered 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. Further, even in
default of the first registrant or first in possession, private respondents have presented the oldest title. Thus, private
respondents who acquired the subject property in good faith and for valuable consideration established a superior right as
against the petitioner.
(3) Petitioner cannot be considered as a buyer in good faith. If petitioner did investigate before buying the land on February 4,
1982, she should have known that there was a pending case and an annotation of adverse claim was made in the title of the
property before the Register of Deeds and she could have discovered that the subject property was already sold to the private
respondents. It is incumbent upon the vendee of the property to ask for the delivery of the owner's duplicate copy of the title
from the vendor. One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that he
has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the same rule must
be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. Good faith, or the want of it is not a visible, tangible fact
that can be seen or touched, but rather a state or condition of mind which can only be judged of by actual or fancied tokens or
signs.

Bagnas v. CA
Facts:

Hilario Mateum died on March 11, 1964, single, without ascendants or descendants, and survived only by petitioners who are
his collateral relatives. He left no will, no debts, and an estate consisting of 29 parcels of land in Kawit and Imus, 10 of which are
involved in this controversy. On April 3, 1964, respondents who are also collateral relatives of the deceased, but more remote,
registered 2 deeds of sale purportedly executed by Mateum in their favor. The considerations were P1.00 and “services
rendered, being rendered, and to be rendered for my benefit”. On the strength of the deeds, respondents were able to secure
title over the 10 parcels of land. On May 22, 1964, petitioners commenced a suit against respondents, seeking annulment of the
deeds of sale a fictitious, fraudulent or falsified or, alternatively, as donations void for want of acceptance in public instrument.
Respondents contend that the sales were made for valuable considerations, and attacked the legal standing of the petitioners
as being mere collateral heirs.

Issues:

(1) Whether petitioners have the legal standing to sue

(2) Whether the sale is void for want of consideration

Held:

(1) The law as it is now no longer deems contracts with a false cause, or which are absolutely simulated or fictitious, merely
voidable, but declares them void, i.e., inexistent ("nulo") unless it is shown that they are supported by another true and lawful
cause or consideration. A logical consequence of that change is the juridical status of contracts without, or with a false, cause is
that conveyances of property affected with such a vice cannot operate to divest and transfer ownership, even if unimpugned. If
afterwards the transferor dies the property descends to his heirs, and without regard to the manner in which they are called to
the succession, said heirs may bring an action to recover the property from the purported transferee. As pointed out, such an
action is not founded on fraud, but on the premise that the property never leaves the estate of the transferor and is
transmitted upon his death to heirs, who would labor under no incapacity to maintain the action from the mere fact that they
may be only collateral relatives and bound neither principally or subsidiarily under the deed or contract of conveyance.

(2) Upon the consideration alone that the apparent gross, not to say enormous, disproportion between the stipulated price (in
each deed) of P l.00 plus unspecified and unquantified services and the undisputably valuable real estate allegedly sold worth at
least P10,500.00 going only by assessments for tax purposes which, it is well-known, are notoriously low indicators of actual
value plainly and unquestionably demonstrates that they state a false and fictitious consideration, and no other true and lawful
cause having been shown, the Court finds both said deeds, insofar as they purport to be sales, not merely voidable, but void ab
initio. Neither can the validity of said conveyances be defended on the theory that their true causa is the liberality of the
transferor and they may be considered in reality donations because the law also prescribes that donations of immovable
property, to be valid, must be made and accepted in a public instrument, and it is not denied by the respondents that there has
been no such acceptance which they claim is not required. The transfers in question being void, it follows as a necessary
consequence and conformably to the concurring opinion in Armentia, with which the Court fully agrees, that the properties
purportedly conveyed remained part of the estate of Hilario Mateum, said transfers notwithstanding, recoverable by his
intestate heirs, the petitioners herein, whose status as such is not challenged.

G.R. No. 191696

ROGELIO DANTIS vs. JULIO MAGHINANG, JR

Principle: The best evidence rule requires that the highest available degree of proof must be produced. For documentary
evidence, the contents of a document are best proved by the production of the document itself to the exclusion of secondary or
substitutionary evidence.

Facts:
 Petitioner Dantis filed a complaint for quieting of title and recovery of possession against Respondent Maghinang.
Petitioner alleged that he was the registered owner of subject land, acquiring such thru an extrajudicial partition of
the estate from his deceased father. That respondent built a house on a part of his estate; that his demands for
respondent to vacate were unheeded.
 Respondent Julio denied the allegations. He said that his father bought the land from the Petitioner’s father and that
he has succeeded to its ownership. He also claims that he was entitled to a separate registration of said lot on the
basis of the documentary evidence of sale, and his open and uninterrupted possession of the property.
 Defendant presented the ff evidence to prove the sale of land to his father:
1. Exhibit 3 – affidavit executed by Ignacio Dantis, grandfather of the Petitioner of the agreement to sell such land
2. Exhibit 4 – an undated handwritten receipt evidencing downpayment for said lot
 But defendant admitted that the affidavit was not signed by the alleged vendor, Emilio Dantis, the father of
petitioner. Also, he admitted that the receipt he presented was admittedly a mere photocopy.
 RTC rendered its decision in favor of petitioner. RTC found that the documents would only serve as proofs that the
purchase price for the subject lot had not yet been completely paid and, hence, Rogelio was not duty-bound to
deliver the property to Julio, Jr. The RTC found Julio, Jr. to be a mere possessor by tolerance.
 CA ruled in favor of Defendant Maghinang. It held that theundated receipt was proof of the sale of the lot. It also
ruled that the partial payment of the purchase price, coupled with the delivery gave efficacy to the oral sale, and that
Petitionerwas duty-bound to convey what had been sold after full payment of the selling price.
Issue: WON the pieces of evidence (affidavit and photocopy of the receipt) submitted by the defendant are adequate proofs of
the existence of the alleged oral contract of sale of the lot in dispute.

Ruling:
No.

Exhibit "3," the affidavit of Ignacio, is hearsay evidence and, thus, cannot be accorded any evidentiary weight. Evidence is
hearsay when its probative force depends on the competency and credibility of some persons other than the witness by whom it
is sought to be produced. The exclusion of hearsay evidence is anchored on three reasons: 1) absence of cross-examination; 2)
absence of demeanor evidence; and 3) absence of oath.The affidavit was not identified and its averments were not affirmed by
affiant Ignacio. Accordingly, it must be excluded from the judicial proceedings being an inadmissible hearsay evidence.

Exhibit "4," the undated handwritten receipt, is considered secondary evidence being a mere photocopy whichcannot be
admitted to prove the contents of the document. The best evidence rule requires that the highest available degree of proof
must be produced. For documentary evidence, the contents of a document are best proved by the production of the document
itself to the exclusion of secondary or substitutionary evidence, pursuant to Rule 130, Section 3.

A secondary evidence is admissible only upon compliance with Rule 130, Section 5, which states that: when the original has
been lost or destroyed, or cannot be produced in court, the offeror, upon proof of its execution or existence and the cause of
its unavailability without bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic
document, or by the testimony of witnesses in the order stated.

In the case, Defendant failed to prove the due execution of the original of Exhibit "4" as well as its subsequent loss. Also, his
testimony was riddled with improbabilities and contradictions which raise doubt on the veracity of his evidence. When asked
where the original was, Defendant’s testimonygave the impression that the original of the document was lost while it was in
the possession of his parents. During cross-examination, however, he testified that it was lost while it was in his
possession.Further, Exhibit 4 would not be an adequate proof of the existence of the alleged oral contract of sale because it
failed to provide a description of the subject lot, including its metes and bounds, as well as its full price or consideration.

Bar Q:

X filed a complaint for quieting of title and recovery of possession against Y.Y on his defense claims that his father bought the
land from the X’s father and claims its ownership. Y presented 2 pieces of evidence in court: (a) an affidavit executed by X’s
grandfather of the agreement of the sale of said land; and (b) a photocopy of an undated handwritten receipt evidencing
downpayment for said lot. Y admitted that the affidavit was not signed by the alleged vendor, X’s grandfather. Also, he
admitted that the receipt he presented was admittedly a mere photocopy.

Are the pieces of evidence presented adequate to prove the alleged sale?