41

ESSENTIAL PREREQUISITES OF CONTRACTS, Incidental Fraud

Incidental fraud is that which is not serious in character and without which the other party would still have entered into the contract
Alejandro Tankeh v. Development Bank of the Philippines, Sterling Shippery Lines, Inc. Ruperto V. Tankeh, Vicente Arenas and Asset
Privatization Trust
G.R. NO. 171428, November 11, 2013
Leonen, J:
Facts:
Respondent Ruperto Tankeh, President of Sterling Shipping Lines, obtained loan from Development Bank of the Philippines (DBP) to finance
the vessel M/V Sterling Ace. Petitioner Dr. Alejandro Tankeh together with other signatories executed a promissory note binding himself liable
to pay said loan. Sterling Shipping Lines,m Inc. through respondent Ruperto V. Tankeh executed a Deed of Assignment in favor of DBP.
Thereafter, petitioner wrote a letter to respondent Ruperto Tankeh saying that he was severing all ties and terminating his involvement with
Sterling Shipping Lines. Inc. Petitioner alleged that respondent Ruperto V. Tankeh had exercised deceit and fraud in causing petitioner to bind
himself jointly and severally to pay respondent DBP the amount of the mortgage loan. Although he had been made a stockholder and director of
the respondent corporation Sterling Shipping Lines., petitioner alleged that he had never invested any amount in the corporation and that he had
never been an actual member of the board of Directors. He alleged that all the money he had supposedly invested was provided by respondent
Ruperto Tankeh:
ISSUE:
Did respondent Ruperto Tankeh commit fraud in obtaining the petitioners consent to enter into the contract as to warrant nullity of the contract?
HELD:
NO. There are two types of fraud contemplated in the performance of contract dulo incidente or dolo causante. Dolo causante determines or is
the essential cause of the consent while dolo incidente refers only to some particular or accidents of the obligation. The effects of dolo causante
are nullify of the contract and the indemnification of damages and dolo incidente also oblige the person employing it pay damages. There was
no dulo causante or fraud used to obtain the petitioners consent to enter into the contract. Petitioners had the opportunity to become aware of the
facts that attended the signing of the promissory note. He even admitted that he has a lawyer-son who the petitioner had hoped would assist him
in the administration of Sterling Shipping Lines, Inc. The totality of the facts on record belies petitioners claim that fraud was used to obtain his
consent to the contract given his personal circumstances and the applicable law.
Although there was no fraud that had leer, undertaken to obtain petitioners consent, there was fraud in the performance of the contract. The
records showed that petitioner had been unjustly excluded from participating in the management of the affairs of the corporation. This exclusion
from the management in the affairs of Sterling Shipping Lines , Inc. constituted fraud incidental to the performance of the obligation. In the case
of Geraldez, this Court defined incidental fraud as those which are not serious in character and without the other party would still have entered
into the contract.Accordingly, the contract is valid. However, because of the presence of incidental fraud , payment of damages is awarded.
42
RECISSIBLE CONTRACTS, Slight or Casual Breach
The well-settled rule is that rescission will not be permitted for a slight or casual breach of the contract
Planters Development Bank v. Spouses Ernesto Lopez and Florentina Lopez substituted by Joseph Wilfred Joven, Joseph Gilbert Joven
and Marilyn Joven.
G.R. No. 186332, October 23, 2013
Brion, J:
FACTS:
Emilio and Florentina Lopez obtained a real estate loan of 3 million pesos from Planters Bank to finance the construction of four story complex.
-------- loans were to be based on the submission of job accomplishment reports. The economy of the Phil. Then worsened. To finish the job
quickly, the spouses loaned another 1.2 million pesos from Planters Bank. The spouses were not able to avail of the full amount of the loan as
Planters Bank did not release 700, 000 pesos of it. This caused the spouses to file for a rescission of contract with damages at the PTC.
In defense, Planters Bank claimed that their refusal to release the loan was because of violation in the loan agreement, that is , no submission of
accomplishment reports and the building of a six story dorm. Planters Bank also states that there can be no rescission of the agreement as there
was only 3 substantial breach on their part for not releasing 700,000 out of the 4.2M loan. Hence, this petition for review on certiorari.
ISSUE:
Is Planters Bank liable for a substantial breach on the loan agreement, which would lead to its recission.
HELD:
NO. Planters Bank refusal to release the remaining balance, was merely a slight or casual breach as shown below. In other words, its breach was
not sufficiently fundamental to defeat the object of the parties in entering into the loan agreement. The well settled is that rescission will not be
permitted for a slight or casual breach of the contract. The question of whether a breach of contract is substantial depends upon the attending
circumstances.

The factual circumstances of this case lead us to the conclusion that Planters Bank substantially completed with its obligation. Planters Bank
released P3,500.000.00 of the P4,200,000.00 loan. Only the amount of P700,000.00 was not released. This constitute 16.66% of the entire loan .
Moreover, the progress report dated May 30, 1984 states that 85% of the six-story building was already completed by the spouses Lopez.
Even assuming that Planters Bank substantially breached its obligation, Article 1385 of the Civil Code states that recession cannot take place
when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In the present
case, the mortgaged properties had already been foreclosed. They were already sold to the highest bidder at a public auction. Hence, action for
rescission is improper.
43
VOID CONTRACTS, Ulta Vires Acts
An act which is outside of the municipality jurisdiction is considered as a void ultra vires act
Land Bank of the Philippines v. Eduardo M. Cacayuran
G.R. No. 191667. April 17, 2013
Perlas-Bernabe, J:
FACTS:
The Municipality s Sanggunian Bayan, (SB) passed certain resolution to implement a multi-plan to redevelop Agoo Plaza where the Imelda
Garden and Jose Rizal Monument were situated. To finance phase 1 of the said plan, the SB passed a resolution authorizing then Mayor
Eufranio Eriguel to obtain a loan from Land Bank and mortgage a portion of the Agoo Plaza lot as collateral. It further authorized the
assignment of a portion of its Internal Revenue Allotment (IRA) and the monthly income from the proposed project of which were used to
construct Kiosks on the Imelda Garden. The kiosk was then the same securities as that of the first loan. For the construction of a commercial
center as the second phase of the plan. Land Bank granted this second loan in favor of the municipality.
The construction of the commercial center was, however , was vehemently objected to by some residents, led by respondent Cacayyuran,
involving his right as a taxpayer filed a complaints against the officers of the Municipality and Land Bank assailing the validity of the loans on
the ground that the Plaza Lot used as a collateral is of public dominion. The RTC held that the loan agreement were null and void. Th
e
CA affirmed the RTCs decision.
ISSUE:
Are the subject loan agreement ultra vires?
HELD:
YES. Generally an ultra vires act is one committed outside the object for which a corporation is created as defined by the law of its organization
and therefore beyond the powers conferred upon it by law. An act which is outside of the municipality s jurisdiction is considered as a void ultra
vires act, while an act attended only by an irregularity but remains within the municipalitys power is considered as an ultra vires act subject to
ratification and /or validation.
Records disclose that the said loans were executed by the Municipality for the purpose of funding the conversion of Agoo Plaza into a
commercial center. However, the conversion of the said plaza is beyond the Municipalitys jurisdiction considering the propertys nature as one
for public use and thereby, forming part of the public dominion. It cannot be the subject of appropriation either by the State or by private
persons.
Article 1409(1) of the Civil Code provides that a contract whose purpose is contrary to law, morals, good customs, public order or public policy
is considered void and as such creates no rights or obligations or any judicial relations. Consequently, given the unlawful purpose, they are
considered ultra vires in the primary sense, rendering them void and in effect, non-binding on the Municipality. Nevertheless, while the Subject
Loans cannot bind the Municipality for being ultra vires. The officers who authorized the passage of the Subject Resolutions are personally
liable. The subject loans are deemed void.
44
VOID CONTRACTS, In Pari Delicto
An exception to the doctrine of in pari delicto arises when its application contravenes well- established public-policy
Domingo Gonzalo v John Tarnate Jr.
G.R. No. 160600, January 15, 2012
Bersamin, J:
FACTS:
Departments of Public Works and Highway had awarded the contract for the improvement of the Sadsadan Maoa-ay Section of the Mountain.
Province of Benguet Road to Gonzalo Construction. Petitioner Domingo Gonzalo subcontracted to respondent John Tarnate Jr. the supply
materials and labor for the project, In furtherance of their agreement, Gonzalo executed a deed of assignment whereby he wa assigning to
Ternate an amount equivalent to 10% equipment that had been utilized in the project.
ISSUE:
Is the petitioner liable for the 10% fee notwithstanding that both parties were in pari delicto?

HELD:
YES. Petitioner Domingo Gonzalo is liable for the 10% fee notwithstanding that both parties were in delicto.Gonzalo subcontracted he
implementation of the project to Tarnate in violation of the statutory prohibition provided in PD 1594. Their subcontract was illegal because it
did not bear the approval of the DPWH Secretary. Necessarily, the deed of assignment was also illegal, because it sprung from the subcontract.
The doctrine of in pari delicto is a universal doctrine that holds that no action arises, in equity or at law, from an illegal contract, no suit can be
maintained for its specific performance, or to recover the property to be sold or delivered , or the money agreed to be paid , or damages for its
violation, and where the parties are in pari delicto, no affirmative relief or any kind will be given to one against the other.
Nonetheless, the application of the doctrine of in pari delicto is not always rigid. An accepted exception, arises when its application contravenes
well- established public policy. Gonzalo would be unjustly enriched at the expense of Tarnate if the latter was to be barred from recovering
because of the rigid application of the doctrine of in pari delicto. Lastly ,the letter and spirit of Article 22 of the Civil Code command Gonzalo to
make a full reparation or compensation to Tarnate. The illegality of their contract should not be allowed to deprive Tarnate from being fully
compensated.
45
VOID CONTRACTS, In Pari Delicto
The doctrine of in pare delicto in inapplicable if its application will put a premiuym to the circumvention or the laws as contemplated
by the parties
Oscar Constantino, Maxima Constantino and Casimira Maturingan v.Heirs of
Pedro Constantino , Jr. represented by Asuncion
Laquidandanan.
G.R. No. 181508, October 2, 2013
Perez, J:
FACTS:
Petitioners and respondents are grandchildren and great grandchildren , respectively of Pedro Constantino Sr. owner of subject lot. This case
involves a Petition for Review of the CA decision reversing the RTC decision which he declared the subject deed and tax declaration void.
Pedro Constantino Sr. who owned the subject unregistered parcel of land was survived by six children upon his death. Respondents filed a
complaint against petitioners alleging that petitioners asserted their claim of ownership over the whole parcel of land owned by the late Pedro Sr.
to the exclusion of respondents who were occupying a portion thereof. A tax declaration in the name of petitioners Oscar and Maxima was also
found to be unlawfully issued due to the execution of a fictitious deed wherein petitioners misrepresented themselves as the sole and only heirs
of Pedro Sr. They later divided the lot resulting to two new tax declarations. Maximas share was later conveyed to her sister Casimira to whom
a new tax declaration was issued.
Petitioners, on the other hand asserted that the subject deed was valid and that respondent have adjudicated unto themselves to the exclusion of
other heirs, another parcel of land owned by Pedro Sr. through a deed of Extrajudicial Settlement with Waiver.
ISSUE:
Are both parties in pari delicto for misrepresentation in both deeds?
HELD:
NO. In this case , there are two Deeds of extrajudicial assignments unto the signatories of the portions of the estate of an ancestor common to
them and another set or signatories likewise assigning unto themselves portions of the same estate. The separate Deeds came into being out of an
identical intention of the signatories in both to exclude their co-heirs of their rightful share in the entire estates of Pedro Sr. It was , in reality an
assignment of specific portions of the estates of Pedro Sr. without resorting to a lawful petition of estate as both sets of heirs intended to exclude
the other heirs.
The inapplicability is dictated not only by the fact that two deeds, not one contract are involved, but because such an application would result in
the validation of both deeds instead of their nullification as necessitated by their illegality. It must be emphasized that the underlying agreement
resulting in the execution of the deeds is nothing but a void agreement.
Accordingly, in order not to put a premium to the circumvention or the laws as contemplated by the parties in the instant case, we must declare
both contracts as void. Indeed any circumvention of the law cannot be countenanced.
46
COMPROMISES, Validity
The validity of a compromise is dependent upon its compliance with the requisites and principle of contracts dictated by law..
Land Bank of the Philippines v Heirs of Spouses Jorga Rigor-Soriano and Magin Soriano
G.R. No. 178312, January 30, 2013
Bersamin J:
FACTS:
The respondents are the children of the late Spouses Soriano, owners of the subject two parcels of land. The properties were subjected to
Operation Land Transfer (OLT) and were valued by the Land Bank and the Department of Agrarian Reform (DAR) at P10,000,00 / hectare.
Contending that such variation was too low compared to existing valuations of agricultural lands, the respondents commenced on action for just
compensation. They asked that a final evaluation of the properties be pegged at P1,800.000.00 , based on Administrative Order No. 61, Series of

1992 and Republic Act No. 6657. Land Bank disagreed, insisting that P.D. 27 and Executive Order No. 228 governed the fixing of just
compensation for the properties. It prayed that the valuation by the DAR be retained or that a valuation be made judicially. The RTC rendered a
judgment ordering the Land Bank of the Philippines to pay the total amount of P1,227,571.10 representing the just compensation of the
properties covered. On appeal, the CA sustained the decision of the RTC.
The court received the Joint Motion to Approve the Attached Agreement and the Agreement dated November 29, 2012. Thereby, the parties
prayed that the Court consider and approve the Agreement as its disposition of the petition for review on certiorari, and render its judgments in
accordance with the terms of the Agreement.
ISSUE:
Is the Agreement dated November 29, 2012 valid and binding on the parties?
HELD:
YES. There is no question that foregoing Agreement was a compromise that the parties freely and voluntarily entered into for the purpose of
finally seeking their dispute in this case. Under Article 2028 of the Civil Code, a compromise is a contract whereby the parties, by making
reciprocal concession, avoid litigation or put an end to one already commenced. Accordingly, a compromise is either judicial, if the objective is
to put an end to a pending litigation, or extra judicial, if the objective is to avoid a litigation. As a contract, a compromise is perfected by mutual
consent. However, a judicial compromise , while immediately binding between the parties upon its execution, is not executor until it is approved
by the court and reduced to a judgments. The validity of a compromise is dependent upon its compliance with the requisites and principles of
contracts dictated by law. Also, the terms and conditions of a compromise must be be contrary to law, morals, good customs, public policy and
public order.
Finding the Agreement to have been validly and voluntarily executed by the parties in compliance with the requirements of law, Court hereby
approves it.
47
CONTRACT OF SALE, Elements of a
Contract of Sale
A contract of sale is perfected at the moment there is meeting of the ____ on the thing and on the price
Aquiles Riosa V. Tabaco La Suerte Corporation
G.R. NO. 203786, October 23, 2013
Mendoza, J.:
FACTS:
Petitioner Aquiles Rosa filed a Complaint or Annulment /Declaration of Nullity of Deed of Absolute Sale and Transfer Certificate of the Title
Reconveyance and Damages against respondent Tabaco La Suerte Corporation before the RTC. Petitioner alleged that he was the owner and in
actual possession of a property situated in Tabaco City, Albay by virtue of a deed of cession and quitclaim executed by his parents. He then
obtained loans from Sia Ko Pio, the CEO of respondent in the total amount of P50,000.00. Sia Ko Pio presented to petitioner a document
purportedly a receipt of the loan with an undertaking to pay the total amount of P52,000.00. In September 2001, petitioner received a letter from
respondent informing him that the subject6 lot was already registered in its name.
Petitioner claimed that by means of fraud, misrepresentation and deceit employed by Sia Ko Pio, he was made to sign the documents which he
thought was a receipt and undertaking to pay the loan, only to find out later that it was a document of sale in favor of respondent. Petitioner
argues that there was no perfected contract of sale because (1) there was no transaction between the petitioner and respondent for the sale of the
property in question (2) there was no board resolution authorizing Sia Ko Pio to purchase the property; (3) there was no evidence that the money
received by petitioner from Sia Ko Pio came from petitioner; and (4) he did not appear before the notary public for notarization of the
instrument of sale.
ISSUE:
Was there a perfected and valid contract of sale between petitioner and respondent?
HELD:
NO, The elements of a contract of sale are: (1) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
(2) determinate subject matter, and (3) price certain in money or its equivalent. The transactions were between petitioner, as borrower, and Sia
Ko Pio, as lender not a sale between petitioner and respondent.
The court also look that the element of consent is wanting. Under Article 1475 of the Civil Code, the contract of sale is perfected at the moment
there is a meeting of minds on the thing which is the object of the contract and on the price. Petitioner acknowledged that he signed the receipt
for a loan. There is however, no proof that it came from respondent as signifying a consideration for a contract of sale. Accordingly, there is no
basis for a holding that the personal loan of petitioner, from respondent was the consideration for the sale of his property in favor of the latter.
Therefore, there is no perfected and valid contract for sale.
48
CONTRACT OF SALE, Simulated Contract of Sale
Consideration is essential for a sale not to be considered as simulated and notarization is not essential for converance
to be true and binding.
Dr. Lorna C Formaran v. Glenda E. Ong and Solomon S. Ong.

G.R. No. 186264, July 8, 2013

Perez, j.:
FACTS:
A parcel of land was donated to petitioner. Petitioner immediately took possession of the land wherein one-half (1/2) thereof is the land in
question. After petitioner acquired ownership by way of donation over the parcel of land, she declared the same for taxation. Until the present
time she is still in actual possession of the land, including the land in question. Subsequently, Glenda Ong (respondent) filed a complaint for
unlawful detainer against the plaintiff on the ground that the property was already sold by petitioner in favor of respondent.
Petitioner for her part filed on action for annulment of the Deed of Sale against respondents on the ground that the sale is simulated for want of
consideration as it was intended only to secure the loan obtained by defendant as requested by the latter.
ISSUE:
Is the sale between petitioner and respondent valid?
HELD:
NO. The Supreme Court ruled that the Deed of Sale is simulated for it is devoid of any consideration. It was executed less than two (2) months
from the time the subject land was donated to petitioner by the parents of respondent. Several years after the donation, petitioner mortgaged the
land to Aklan Development Bank. Also, from the time of the alleged sale, petitioner has been in actual possession of the subject land. The SC
also noted that the sale was registered twenty-four (24) years after the execution of the Deed of Sale. Respondent did not introduce any
improvement on the subject land, and petitioners house was erected on part of the subject land. If the sale was legitimate, defendant Glenda
should have immediately taken possession of the land declared it 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
respondents submission that the sale was legitimate and the consideration was paid.
The Court, also noted that while the Deed of A bsolute Sale was notarized, it cannot lead to he conclusion that the sale is true conveyance to
which the parties are irrevocably and undeniably bound. Although the notarization of Deed of Absolute Sale rest in its favor the presumption of
regularity, it does not validate nor make binding an instruments never intended, in the first place, to have nay binding effect upon the parties.
Based from the circumstances stated above, the sale between he petitioner and respondents is not valid.
49
CONTRACT OF SALE, Reservation of Ownership
The reservation of ownership in the contract of sale does not change the transaction into a contract to sell.
Ace Foods Inc. v. Micro Pacific Technologies Co.Ltd.
G.R. NO. 200602, December 11, 2013
FACTS:
Respondent MTCL sent a letter-proposal for the delivery and sale of computer hardware and products for various offices of ACE Foods. ACE
accepted and issued Purchase Orders for the subject products. The products were delivered as reflected in the Invoice Receipt, which stated a
title reservation. ACE failed to pay the purchase price despite demands and instead sent a letter to MTCL stating the return of the subject
products thru its sales representative.
ACE filed a complaint before RTC praying that MTCL pull out from its premises the subject products for breach of its after delivery services
obligations. MTCL maintained that it had duly complied with its obligations that the products were in good conditions, when they were
delivered, installed and configured in ACEs premises. It prayed that ACE and MTCL was in the nature of a contract to sell ordered MTCL to
remove the subject products from ACEs premises and pay actual damages and attorneys fees.
ISSUE:
Is the contract between ACE and MTCL a contract of sale?
HELD:
YES, A contract of sale had been perfected the precise moment ACE Foods sent MTCL he Purchase Order and accepted the latters proposal
to sell the subject products in consideration of the purchase price. Thereafter, the reciprocal obligations of the parties- i.e. on one hand, of MTCL
to deliver the said products to ACE NOR Foods, and on the other hand ACE Foods to pay the purchase price therefore within thirty (30) days
from delivery-already arose and consequently may be demanded.
The stipulation concerning MTCLs reservation of ownership of the subject products as reflected in the Invoice Receipt did not change the
complexion of the transaction from a contract of sale into a contract to sell. It had not been shown that the file reservation stipulation had been
included in the original agreement or had subsequently modified or superseded the original agreement of the parties. The fact that the Invoice
Receipt was signed by a representative of ACE Foods does not by and itself , prove novation of the contract since (1) it was not shown that the
signatory was authorized by ACE Foods (the actual party to the transaction) to novate the original agreements; (2) to show that the fact of
delivery, and (3) as matter of judicial notice, invoices are generally issued at the consummation stage of the contract and not its perfection, and
have been treated as documents which are not actionable per se, although they may prove sufficient delivery. Thus, absent any clear indication
that the ___ reservation stipulation was actually agreed upon the same is deemed to be a mere unilateral imposition on the part of o
MTCL and which has no effect on the nature of the parties original agreement. As a contract of sale. Perforce, the obligations arising
therein among others. ACE Foods obligation to pay the purchases price as well as to accept the delivery of the goods remain enforceable and
substituting.

50
CONTRACT OF SALE, Date and Place of Delivery
The thing sold is considered delivered to the buyer only when it is placed in the buyers procession at the agreed place of delivery.
San Fernando Regala Trading, Inc. v. Cargill Philippines, Inc. /Cargill Philippines, Inc. v. San Fernando Regala Trading, Inc.
G.R. NO. 178008 / G.R. No. 178042 , October 9, 2013
Abad, J:
FACTS:
Cargill Philippines Inc. (Cargill) and San Fernando Regala Trading, Inc. (San Fernando) were cane molasses traders that did business with each
other. Cargill entered into Contract 5026 covering its sale to San Fernando of 4,000 metric tons (mt.) of molasses. Cargill agreed to deliver the
molasses within the months of April to May 1997. It also entered into Contract 5047 covering another sale to San Fernando of 5,000 mt. of
molasses. The delivery period under this contract was within October-November December 1996 Cargill alleged that under Contract 5026, it
was offered to deliver 4,000 mt. of molasses but San Fernando accepted only 951 mt. refusing to accept the rest. The barge stayed at the wharf
for 71 days, its contents unclaimed by San Fernando. Due to delay. Cargill was liable for demurrage. Cargill also suffered damages by way of
unrealized profits because it had to sell the cargo to another buyer at a loss. It also alleged that under Contract 5047, San Fernando failed or
refused for unjustified reasons to accept the delivery. In its answer with counterclaim, San Fernando claimed that Cargill reneged on its
contractual obligations to deliver certain quantities of molasses. Cargill denied this, insisting that San Fernando actually refused to accept
delivery of the goods.
ISSUE:
Did both parties commit shortcoming in complying with their contractual obligations?
HELD:
YES. The Court stated that the thing sold could only be understood as delivered to the buyer when it is placed in the buyers control and
possession at the agreed place of delivery. In Contract 5026 Cargill presented no evidence that it attempted to make additional deliveries to fully
comply with its obligation. Contract 5026 required Cargill to deliver 4,000 mt. of molasses during the period of April to May 1997 Anything
less than that quantity constitute breach of agreement. Since Cargill only delivered 2,125 mt. of molasses during the agreed period, Cargill
should be regarded as having violated Contract 5026 with respect to the undelivered balance.
Under Contract 5047, Cargill was in breach as the contract provided for delivery of the molasses within the months of October. November and
December 1996. Thus when Cargill wrote San Fernando on May 1997 proposing to move the delivery dates of this contract to May, June and
July 1997, it was already in default. San Fernandos refusal to signify its conformity means that it was not amenable to the change, in failing to
make any delivery under Contract 5047, Cargill should pay San Fernando the profit that it lost because of such breach. The Court ruled that San
Fernando does not need to write a demand letter to Cargill for the latters delivery of the molasses as agreed upon, for Cargills obligation under
the contract specified the date and place of delivery (October November December 1996). From the circumstances stated above both parties
committed shortcomings in complying with their contractual obligations.
51
CONTRACT TO SELL. Distinguish from Contract to Sale
In Contract to sell, ownership shall not pass to the vendees until full payment of purchase price, non-payment of purchase price only
gives right to seller to Command specific performance or rescission
Ali Akang v Municipality of Isulan, Sultan Kudarat Province
G.R. No. 186014, June 26, 2013
Reyes, J:
FACTS:
Petitioner Ali Akang was the registered owner of a lot located in Sultan Kudarat. Petitioner sold a two-hectare portion of the property to the
Municipality of Isulan, through then Isulan Mayor Datu Ampatuan under a Deed of Sale, the price or consideration of which is P3,000.00, to be
paid after the execution of the contract. Respondent immediately took possession of the property and began construction of a municipal
building, 39 years later, petitioner filed a civil action for Recovery of Possession of Property and /or
Quieting of Title thereon and
Damages against the respondent. Petitioner alleged that the agreement was one to sell, which was non-consummated, as the purchase price was
not paid. Respondent denied petitioners allegation that the Deed of Sale was valid and that it has been in open, continuous and exclusive
possession for the property for (40) years.
ISSUE:
Is petitioner entitled to recover ownership and possession of the property in dispute?
HELD:
NO. In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold, whereas in a contract to sell, the
ownership is, by agreement, retained by the seller and is not to pass to the vendee until full payment of the purchase price. The Deed of Sale
executed by the petitioner and the respondent is a perfected contract of sale, all its element being present. There was mutual agreement between
them to enter into the sale, as shown by their free and voluntary signing of the contract. There was also an absolute transfer of ownership of the
property by the petitioner to the respondent as shown in the stipulation.(Petitioner) hereby sell, transfer, cede, and convey and assign as by these
presents to have sold, transferred, ceded, conveyed and assigned There was also a determined subject matter, that the two-hectare parcel of land
as described in the Deed of Sale. Lastly the price or consideration is at P3,000.00,which was to be paid after its execution of the contract.

Even assuming that petitioner was not paid, that fact has no effect on the validity of the contract of sale. None-payment of the
purchase price merely give rise to a right in favor of petitioner to either demand specific performance or rescission of the contract. Therefore,
petitioner is not entitled to recover ownership and possession of the property.
54
CONTRACT TO SELL, Remedy of Rescission in Case of Breach
The remedy of rescission is available when the buyer transferred the title of the subject land in her name without the knowledge and
consent of the seller.
Spouses Delfin O. Tumibay and Aurora Tumibay v. Spouses Melvin A. Lopez and Rowena T. Visitacion Lopez.
G.R. No. 171692, June 3, 2013
Del Castillo j:
FACTS:
Spouses Tumibay own a parcel of land in the name of petitioner Aurora. Petitioners executed an SPA in favor of Reynalda, mother of respondent
Rowena, allowing her to offer for sale the subject land. Subsequently, petitioners and respondent Rowena agreed to enter into an oral contract to
sell over the subject land for the price of P800, 000.00 to be paid in 10 years through monthly installments. Rowena paid the first monthly
installment to petitioner, followed by 22 intermittent monthly installments. After paying a total of $10,000.00, Reynalda then transferred the
title to the subject land in Rowena;s name through a deed of sale without the knowledge and consent of petitioner.
Petitioner assails the transaction between Reynaldo and respondent for the former allegedly violated the terms of the SPA by selling the subject
and without seeking approval of petitioners as to the selling price. Petitioners also claimed that the monthly payments paid by respondents were
mere deposits pending agreement as to the purchase price.
ISSUES:
1. Was there a contract to sell between petitioner and respondents?
2. If there is a contract to sell, did respondents breach such contract with petitioner?
3. If there is a breach, the contract between petitioner and respondent is petitioner entitled to rescind the contract?

HELD:
1. YES, a contract in sell has been defined a collateral contract whereby the prospective seller, while expressly reserving owner of the
property despite delivery to the prospective buyer, binds himself to sell said property exclusively the prospective buyer upon fulfillment of
the condition agreed upon, that is full payment of the purchase price. In a contract to sell, ownership is retained by the seller and is not to
pass until full payment of the price.
While there is no written contract evidencing the contract to sell, it is sufficiently established by the fact that the subject land was not
immediately through any formal deed of conveyance that petitioner continuously received. Only payments from respondent and that
respondent admitted that she caused the transfer of the title in her name only after sometime when she believed she had substantially paid
the purchase price.
2. YES, there was a breach of the contract to sell because the time of the execution of the deed of sale , the full price of the subject land has
not yet paid.
3. YES, Art. 1191 of the Civil Code provides that Rescission will not be permitted for a slight or casual breach of the contract, but only for a
fundamental breach thereof. The Court finds that respondents act of transferring the title to the subject in her name without the knowledge
and consent of petitioners and despite non-payment of the full purchase price is a substantial breach, thus recession can be availed by
petitioners.
54
CONTRACT TO SELL, Failure to Comply with the Agreement
Failure of the buyer to comply with his obligation under contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale.
Heirs of Deceased Dolores C. Ventura v. Heir of Spouses Eustacio and Trinidad L. Endaya.
G.R. NO. 190016, October 2, 2013
FACTS:
Dolores C. Ventura entered into a Contract to Sell with the spouses Endaya for the purchase on two parcels of land in Paranaque City. The
contract provided that upon full payment, the spouses Endaya would execute a final deed of sale over the same in favor of Ventura. The latter
was placed in possession of the property, but before the payment period expired. Ventura died.
ISSUE:
Should the respondents be compelled to execute the final deed of sale over the two parcel of land in favor of petitioners?
HELD:
NO. A contract to sell is defined as a bilateral contract whereby the prospective seller while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the latter upon his fulfillment of
the conditions as agreed upon, i.e. the full payment of the purchased price and / or compliance with the other obligations stated in the contract to

sell. The failure of the prospective buyer to make full payment abide by his commitment stated in the contract to sell prevents the obligation on
the prospective seller to execute the corresponding deed of sale from arising.
Aside from the payment of the purchase price and interest on the outstanding balance, the contract to sell likewise imposed upon petitioners the
obligation to pay the real property tax over the subject properties. However, the records submitted clearly show that only the payments
corresponding to the principal obligation and the interest on the outstanding balance were paid. Since the petitioners failed to comply with all
the obligations stipulated in the contract to sell, the respondents have no obligation to execute a deed of sale over the properties. Thus, the
respondent cannot be compelled to execute a deed of sale in favor of petitioners.
54
CONTRACT TO SELL, Procuring Clause
Procuring cause refers to a cause which starts a series of events and results, without break in their continuity, in the accomplishment of
a brokers prime objective of producing a purchaser who is ready, willing and able to buy on the owners term.
Oriental Petroleum and Mineral Corporation v. Tuscan Realty, Inc.
G.R. NO. 195481, July 10, 2013
Abad, J:
FACTS:
Petitioner (Oriental Petroleum and Minerals Corporation (ORIEL PETROLEUM) owned two condominium units at Corinthian Plaza in Makati
City. It gave respondent Tuscan Realty, Inc. (Tuscan Realty) a non-exclusive authority to offer these units for sale. Respondent submitted initial
and updated lists of its prospective client-buyer that included Gateway Holdings Corporation (GATEWAY) . Subsequently, Oriental Petroleum
advised Tuscan Realty that if would undertake direct negotiation with Gateway for the sale of the units, which resulted in a contract to sell
between them.
Meanwhile, Gateway assigned its right as buyer of the units to Alonzo Ancheta in whose favor Oriental Petroleum executed a deed of absolute
sale. Prompted by this development, Tuscan Realty demanded payment of its brokers commission of P2, 087, 862, 00 by Oriental Petroleum.
The latter refused to pay, however, claiming that Tuscan Realty did nothing to close the deal with Gateway and Ancheta. Thus, respondent
Tuscan Realty did nothing to close its deal with Gateway and Ancheta. Thus, respondent Realty filed a complaint for sum of money with
application for preliminary attachment against petitioners Oriental Petroleum
ISSUE:
Is respondents Tuscan Realty entitled to a brokers commission for the sale of Oriental Petroleums condominium units to Ancheta?
HELD:
YES. Applying the principle of procuring cause respondent Tuscan Realty should be given its brokers commission. The term procuring cause
refers to a cause which starts a series of events and results, without break in the continuity in the accomplishments of a brokers prime objective
of producing a purchaser who is ready, willing and able to buy on the owners terms. This is similar to the concept of proximate cause in Torts,
without which the injury would have occurred. To be regarded as the procuring cause of a sale, a brokers effort must have been the foundation
of the negotiations that subsequently resulted in a sale.
In this case, it is clear that it was on account of Tuscan Realtys effort that Oriental Petroleum got connected to Gateway the prospective buyer,
resulting in the latter two entering into a contract to sell involving the two condominium units. Although Gateway turned around and sold the
condominium units to Ancheta, the fact is that such ultimate sale could not happened without Gateways indispensable intervention as
immediate buyer.
55
CAPACITY TO CONTRACT. Contingent Fee
Contract for contingent fee executed between a lawyer and a client is not included in the prohibition under Art. 1491 (5) of the Civil
Code.
Heirs of ManuelUy Ek Liong v. Mauricia Meer Castillo, Heirs of Buenaflor Umali
G.R. NO. 176425, June 5, 2013
FACTS:
Respondent Mauricia Castillo was the owner of four parcel of land. With the death of Mauricia, the land was extra judicially partitioned by the
respondent heirs of Buenaflor Umali. Respondent heirs instituted a civil case before the RTC, for the purpose of seeking the annulment of the
transactions involving the sale of the inherited lots to Philippine Machinery Parts Manufacturing Co. Inc. ( PMPMCI). The latter acquired the
inherited properties after the same has been mortgaged to Insurance Corporation of the Philippines(ICP) by one of respondent heirs, and after
foreclosure of the mortgage, ICP sold the properties to PMPCI.
Due to financial difficulties in the prosecution of the civil case, respondents entered into an AGREEMENT whereby they procured the legal
services of Atty. Edmundo Zapede and the assistance of Manuel UY Ek Liong who, as financier , agreed to underwrite the litigation expenses
entailed by the case, in exchanged, it was agreed that in the event of a favorable decision, Atty. Zepeda and Manuel would be entitled to a share
of forty(40%) of all the realties and /or monetary benefits , gratuities or damages which may be adjudicated in favor of respondents.
Upon non-compliance with the AGREEMENT, petitioners filed a complaint for specific performances against and heirs of Buenaflor , he
responds however that the AGREEMENT was illegal for being contrary to public policy.
ISSUE:

Is the AGREEMENT ordered with Atty. Zepeda valid?

HELD:
YES, Article 1491 (5) of the Civil Code prohibits lawyer from acquiring by purchase or assignment the property of rights involve which are
objects of the litigation in which they intervene by virtue of their profession. However the prohibition applied only during the pendency of a suit
and generally does not cover contracts or contingent fees where the transfer takes effect only after the finality of a favorable judgment. As the
AGREEMENT is a contract for contingent fees then such agreement does not fall within the prohibition under Article 1491 (5) of the Code,
Hence it is valid.
56
BREACH OF WARRANTY, Eviction
Eviction shall take place whenever by final judgment based on a right prior to the sale on an act imputable to the vendor, the vendees is
deprived of whole or part of the thing purchased.\
Bignay Ex-Evi Philippines, Inc. Union Bank of the Philippines.
G.R. No. 171590, February 12, 2014
Del Castillo, J.
FACTS:
Bignay file a civil case for breach of warranty against eviction under Articles 1547 and 1548 of the Civil Code, with damages, against Union
Bank and Robles.
Bignay alleged in its Complaints that at the time of the sale, the title to the property who lost due to fire at the Register of Deeds and that at the
time of the sale, Union Bank represented that there were no liens or encumbrances over the property other than those annotated on the title, and
that a reconstitution of the lost little would be made. On these assurances, Bignay began and completed construction of a building on the
property. It turned out that the property was the subject of a civil case instituted by a certain Rosario who mortgaged the property in favor of
Union Bank, Bignay began to receive copies of court orders and pleadings relative to the case. Bignay then issued a demand to Union Bank to
make good on its warranties however despite such demands, it appeared that Bignay was in jeopardy of losing the property as a result of Union
Banks lack of candor and bad faith in not disclosing the pending case.
Meanwhile, a decision was rendered in the civil case filed by Rosario wherein the lower court ruled that the mortgage to Union Bank was null
and void. As a result of this decision, Bignay was evicted from the property. By that time, Bignay had already started with the construction of a
new building in the subject property.
ISSUE:
Is Bignays eviction valid?
HELD:
NO, Eviction shall take place whenever by a final judgment bases on a right prior to the sale of an act imputable to the vendor; the vendee is
deprived for the whole or of a part of the thing purchased. In case eviction occurs the vendee shall have the right to demand of the vendor,
among others, the return of the value which the thing sold had at the time of the eviction, be it greater or less than the price of the sale, the
expenses of the contract, if the vendee has paid them and the damages and interests and ornamental expenses if the sale was made in bad faith.
In the case of bar, Bignay purchased the property without knowledge of the pending civil case concerning the subject property. Union Bank is
therefore answerable or its express undertaking under the deed of sale to defend its title to the Parcels /of land with improvement thereon against
the claims of any person whatsoever.
Record reveals now ever, that Union Bank are grossly negligent in the handling and prosecution of the civil case involving the subject property.
As a result, the decision became final and executor and Bignay was evicted from the property. Such negligence in the handling of the case is far
from coincidental, it is decidedly glaring, and amounts to bad faith. Based from these circumstances. Bignays eviction is not valid.
57.
BREACH OF WARRANTY, Remedy of Recoupment
Remedy of recoupment refers to the reduction or extinction of the price of the same item or unit sold and not to a different transaction
or contract of sale.
First United Constructors Corporation, et al, v. Bayahihan Automotive Corporation.
G.R. No. 164985 , January 15, 2014
FACTS:
Petitioner First United Construction Corporation (FUCC) and petitioner Blue Star Construction Corporation (Blue Star) were associate
construction firms sharing business on a case to case basis. They ordered six units of dump trucks from the respondent, a domestic corporation
engaged in the business of importing and reconditioning used Japan-made trucks. A good business relationship was established between
petitioners and respondent so petitioners ordered an additional one unit of Hino Prime Mover and one unit of Izuzu Transit Mixer. For the
additional purchase, petitioners paid cash and the balance through postdated checks. Upon presentment of the checks, respondents learned that
petitioners ordered the payment stopped. Petitioners informed them that they are withholding payment because respondent failed to repair one of
the six units of dump trucks earlier ordered by petitioner.

Due to petitioners refusal to pay, respondents commenced an action for collection against petitioner. Petitioner contends that they
are______stopping payment for the last two trucks ordered for they already informed respondent of the defects of one of the dump trucks earlier
ordered, and respondent failed to comply with its warranty. Respondent on the other hand contends that petitioner are not justified in
withholding payments for the last two trucks ordered as the purchase of these trucks was entirely different transaction from the sale of dump
trucks which petitioner claims as defective.
HELD:
NO, Article 1599 (1) of the Civil Code which provides for the remedy of recoupment in diminution or extinction of price in case of breach of
warranty by the seller should be interpreted as referring to the reduction or extinction of the price of the same item or unit sold and not to a
different transaction or contract of sale. This is a more logical interpretation of the said article considering that it talks of breach of warranty with
respect to a particular item sold by the seller. Necessarily therefore, the buyers remedy should relate to the same transaction and not to another.
Defendant appellants act of ordering the payment on the prime mover and transit mixer stopped was improper considering that the said sale
was a different contract from that of the dump trucks earlier purchased by defendants-appellants. Therefore, it was not proper for petitioner to
exercise his right of recoupment through withholding payment of the trucks mention.
58
MACEDA LAW, Payment in Installment
Right of buyer to refund accrues only when he has paid at least two years of Installment
Manuel Uy & Sons, Inc. v. Valbuenco, Inc.
G.R. No. 179594 , Sept. 11, 2013
FACTS:
Petitioner Manuel Uy & Sons, Inc, is the registered owner of 3 parcels of land. Petitioner , as vendor, executed two (2) Conditional Deeds of
Sale in favor of respondent, Valbuenco, Inc. The parties agreed that in both conditional sale----- and he remaining balance shall be paid
within----------------was able to pay the down payments for both conditional-------------------- complied with the conditions under the conditional
deeds of sale in releasing the mortgages of the subject lands, compelling the unlawful occupants to surrender possession of the subject lots, and
paying the mortgage with Philippine Trust Company. However respondents was not satisfied with the manner by which petitioner complied with
the condition a letter------- its intention to rescind the conditional deeds of sale and attached with --------------- rescission.
ISSUES:
1.
2.

Is respondent entitled to a refund?

Was respondent given notice of the notarial rescission?

HELD:
1. NO, R.A. No. 6552, otherwise known as the Reality Installment Buyer Act, applies to contracts to sell. The law recognizes the right of
the seller in conditional sales of all kinds of real estates (industrial, commercial, residential) the right of the seller to cancel the
contract upon nonpayment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to
convey title by the buyer which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding
force. Under the law, the right of the buyer to refund accrues only when he has paid at least two years of installments. In this case ,
respondent has paid less than two years of installments; hence it is not entitled to a refund.
2.

No. The court noted that in the complaint initially filed by the respondent, petitioner filed an answer with an attached copy of the
notarial acts of rescission. Respondent received a copy of that answer with all its attachment. By receipt thereof, respondent already
received notices of the notarial recission,
Moreover, respondents admitted the same when it attached those notices to its reply.

59
MACEDA LAW, Twin Requirements for Rescission
Notarial rescission and payment of case surrender value for a valid and effective cancellation of the contract under the Maceda Law, the
mandatory twin requirements of a notarized notice of cancellation and refund of the cash surrender value must be complied with .
Gatchalian Realty, Inc. v. Evelyn M. Angeles
G.R. No. 202358, November 27, 2013
Carpio, J:
FACTS:
Respondent Angeles purchased a house and lot from Gatchalian Realty, Inc.(petitioner) valued at P750,000.00 and P450,000.00 respectively
with 24% interest per annum to be paid by installment within the period of ten years. The house and for were delivered to petitioner in 1995.
Nonetheless, under the contracts to sell executed between the parties respondent retained ownership of the property until full payment of the
purchase price. After sometime, respondent failed to satisfy her monthly installement with petitioner. Respondent was only able to pay thirty
five (35) installments for the contract to sell involving the house while forty-eight (48) installments for the Contract to sell involving the lot..
Respondent was given at least twelve (12 ) notices for payment in a span of three (3) years but she still failed to settle her account. After giving a
total of fifty-one (51) months grace period for both contracts and in consideration of the continued disregard of the demands of petitioner,
respondent was serve with a notice of notarial recission by registered mail which she allegedly received as evidence by a return receipt.

Petitioner finished a demand letter to respondent demanding payment of the amount of P112,304.42 as outstanding rentals for her use and
occupation of the house and lot and to vacate the same. Respondent was informed that the 50% cash surrender value that she is entitled to has
already been deducted with the rentals that she was not able to pay. The letter also, states that after deducting the rentals from the refundable
amount, respondent still has a balance of P112,304.42 which she is required to settle within fifteen (15) days from receipt of the demand letter.
ISSUE:
Was the contract between the petitioner and respondent properly cancelled?
HELD:
NO, Although a notarize notice of cancellation was given to respondent, petitioner failed to pay the proper cash surrender value in accordance
with the Maceda Law.
The court noted that the cash surrender value due to respondent has been compensated with the reasonable rent, which she owes. However, it
was improper to apply compensation in this case since one of the requirements under Article 1`290 of the Civil Code on compensation is that the
obligation be liquidated or demandable. There was nothing in the contract, which provided for the amount of rentals in case the buyer defaults in
her installment payments. Hence, the rentals due to GRI cannot be considered as liquidated. Since there was an improper compensation of the
obligation, the cash surrender value is not considered as paid. The Court stated that for a valid and effective cancellation of the contract under
Maceda Law, the mandatory twin requirements of a notarized notice of cancellation and refund of the cash surrender value must be complied
with. Since petitioner failed to pay he proper cash surrender value to respondent, the contract between petitioner and respondent was not
properly cancelled.
60
DOUBLE SALE, Good Faith
Good Faith is required for the rule on double sale to apply
Peblia Alfaro and the heirs of Prosperous Alfaro v. spouses Dumalagan et .al.
G.R. No. 186622, January 22, 2014
Perez, J:
FACTS:
On June 1995, Pagano sold a lot to petitioner spouses Prosperous and Peblia Alfaro(spouses Alfaro) through a Deed of Absolute Sale. To
preserve their right of possession of the subject property, respondents filed this instant petition.
According to respondent Spouses Dumalagan, they are the real owner of a portion of the subject property based on a notarized Deed of Absolute
Sale dated December 1993. To prove ownership and possession, respondent offered in evidence a Certificate of Completion and a Certificate of
Occupancy, both dated 10 August 1993o and Visayan Electric Company Inc. electric bills, Right after their purchase from Bagano , respondent
Spouses Dumalagan took possession of the subject property and constructed a nipa hut which the latter on leased.
Meanwhilek, Spouses Bagano filed a complaint for Declaration of Nullity of Sale with Damages and Preliminary Injunction against petitioner
entitled, Spouses Olegario P. Bagano and Cecilia C. Bagano v. Spouses Peblia and Prosperous Alfaro (Begano case). In said case, this court
sustained the validity of the Deed of Absolute Sale between the petitioners and Spouses Bagano, which the appellate court reversed and set
aside. According to the appellate court, petitioners cannot claim good faith by referring to the annotations written at the back of Bagaros title. It
noted that the annotated adverse claims, even if not in the names of respondents have the effect of charging petitioners as subsequent buyers
with constructive notice of the defect of the sellers title. Moreover, as shown by the records, petitioners had prior knowledge that portions of the
subject property have been sold to third person.
ISSUE:
Is petitioner considered buyer in good faith?
HELD:
NO, Records reveal that there were two adverse claims annotated in the title. However, petitioners contend that the annotated adverse claims
have already expired pursuant to Section 70 of PD 1523, which provides that an adverse claim shall be effective only for a period of 30 days
from the date of its registration. Petitioners claim hat the constructive notice ended 30 days from 22 February 1995 or on 23 March 1995. The
law also states that after the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition by the party
in interest. Taken together this means that the cancellation of the adverse claim is still necessary to render it ineffective, otherwise, the
inscription will remain annotated and shall continue as a lien upon the property.
Therefore, petitioners cannot claim------ faith on the basis of the supposed infectivity of the annotated adverse claims as the same have not been
cancelled at the time of the purchase. Assuming that the annotated adverse claim expired on 23 March1995, petitioners still cannot claim good
faith as they were aware of occupants in the subject property other than the seller. They were also aware that aside from the nipa hut, there were
other structures in the subject property, one of which was built by Pesarillo.
The rule on double sale is also inapplicable in the case at bar, for it requires that good faith is present. As correctly held by the appellate Court6,
petitioners prior registration of the subject property, with prior knowledge or respondents claim ownership and possession cannot confer
ownership or better right over the subject property.