sales-arranged 2.pdf

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COMMISSIONER OF INTERNAL REVENUE VS ARNOLDUS CARPENTRY SHOPAND CTA

(CASE No. 3)

FACTS:Arnoldus Carpentry Shop, Inc. (private respondent herein) is a domestic corporation which has

for its secondary purpose the "preparing, processing, buying, selling, exporting, importing,

manufacturing, trading and dealing in cabinet shop products, wood and metal home and office

furniture, cabinets, doors, windows, etc., including their component parts and materials, of any

and all nature and description". These furniture, cabinets and other woodwork were sold locally

and exported abroad.

Sometime in March 1979, the examiners of the petitioner Commissioner of Internal Revenue

conducted an investigation of the business tax liabilities of private respondent. Based on such an

examination, BIR examiners Honesto A. Vergel de Dios and Voltaire Trinidad made a report to

the Commissioner classifying private respondent as an "other independent contractor." As a

result, on January 31, 1981, private respondent received a letter/notice of tax deficiency

assessment inclusive of charges and interest for the year 1977 in the amount of P108,720.92,

representing the 3% imposed on private respondents gross sales as a result of respondents

classification as a contractor.

Respondent then filed a protest with the Commissioner of Internal Revenue, maintaining that

they are a manufacturer and therefore are entitled to the exemption on export sales. Petitionermaintained their decision to classify respondent as a contractor, to which respondent appealed to

the Court of Tax Appeals. On April 22, 1985, respondent Court of Tax Appeals rendered the

questioned decision holding that private respondent was a manufacturer thereby reversing the

decision of the petitioner.

Hence, this petition for review.

ISSUE:

Whether respondent is a manufacturer.


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HELD:

Yes. Petitioner wants to impress upon this Court that under Article 1467, the true test of whether

or not the contract is a piece of work (and thus classifying private respondent as a contractor) or

a contract of sale (which would classify private respondent as a manufacturer) is the mere

existence of the product at the time of the perfection of the contract such that if the thing alreadyexists, the contract is of sale, if not, it is work. This is not the test followed in this jurisdiction. As

can be clearly seen from the wordings of Art. 1467, what determines whether the contract is one

of work or of sale is whether the thing has been manufactured specially for the customer and

upon his special order." Thus, if the thing is specially done at the order of another, this is a

contract for a piece of work. If, on the other hand, the thing is manufactured or procured for the

general market in the ordinary course of one's business, it is a contract of sale.

Arnoldus had a ready stock of its shop products for sale to its foreign and local buyers. As amatter of fact, the purchase orders from its foreign buyers showed that they ordered by referring

to the models designed by petitioner. Even purchases by local buyers for television cabinets wereby orders for existing models. Hence, it is a manufacturer. Furthermore, it is a contract of sale.

QUIROGA VS PARSONS HARDWARE(CASE No. 4)

FACTS:

On January 24, 1911, plaintiff Andres Quiroga and J. Parsons (to whose rights and obligationsthe present defendant Parsons Hardware Co. later subrogated itself) entered into a contract,

where it was stated among others that Quiroga grants in favor of Parsons the exclusive rights tosell his beds in the Visayan Islands under some conditions. One of the said conditions providedthat Mr. Parsons may sell, or establish branches of his agency for the sale of "Quiroga" beds inall the towns of the Archipelago where there are no exclusive agents, and shall immediatelyreport such action to Mr. Quiroga for his approval while another one passed on to Parsons theobligation to order by the dozen and in no other manner the beds from Quiroga.

Alleging that the Parsons was his agent for the sale of his beds in Iloilo, Quiroga filed acomplaint against the former for violating the following obligations implied in what hecontended to be a contract of commercial agency: not to sell the beds at higher prices than thoseof the invoices; to have an open establishment in Iloilo; itself to conduct the agency; to keep the

beds on public exhibition, and to pay for the advertisement expenses for the same; and to orderthe beds by the dozen and in no other manner.


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ISSUE:

Whether the contract executed by plaintiff and defendant partakes the nature of a contract ofpurchase and sale?

HELD:

Yes. The Supreme Court declared that the contract by and between the plaintiff and thedefendant was one of purchase and sale, and that the obligations the breach of which is alleged asa cause of action are not imposed upon the defendant, either by agreement or by law.

In order to classify a contract, due regard must be given to its essential clauses. In the contract inquestion, what was essential, as constituting its cause and subject matter, is that the plaintiff wasto furnish the defendant with the beds which the latter might order, at the price stipulated, and

that the defendant was to pay the price in the manner stipulated. There was the obligation on thepart of the plaintiff to supply the beds, and, on the part of the defendant, to pay their price. Thesefeatures exclude the legal conception of an agency or order to sell whereby the mandatory oragent received the thing to sell it, and does not pay its price, but delivers to the principal the pricehe obtains from the sale of the thing to a third person, and if he does not succeed in selling it, hereturns it.

Examining the clauses of this contract, none of them is found that substantially supports theplaintiff's contention. Not a single one of these clauses necessarily conveys the idea of anagency. The words commission on sales used in clause (A) of article 1 mean nothing else, asstated in the contract itself, than a mere discount on the invoice price. The word agency, also

used in articles 2 and 3, only expresses that the defendant was the only one that could sell theplaintiff's beds in the Visayan Islands. With regard to the remaining clauses, the least that can besaid is that they are not incompatible with the contract of purchase and sale.


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GONZALO PUYAT & SONS, INC.,vs.ARCO AMUSEMENT COMPANY (formerly known as Teatro Arco) (CASE No.5)

FACTS:

In the year 1929, the "Teatro Arco was engaged in the business of operating cinematographs. In1930, its name was changed to Arco Amusement Company.

C. S. Salmon was the president, while A. B. Coulette was the business manager. About the sametime, Gonzalo Puyat & Sons, Inc., another corporation doing business in the Philippine Islands,with office in Manila, in addition to its other business, was acting as exclusive agents in thePhilippines for the Starr Piano Company of Richmond, Indiana, U.S. A.

It would seem that this last company dealt in cinematographer equipment and machinery, and theArco Amusement Company desiring to equipt its cinematograph with sound reproducingdevices, approached Gonzalo Puyat & Sons, Inc., thru its then president and acting manager, Gil

Puyat, and an employee named Santos.

After some negotiations, it was agreed between the parties, that is to say, Salmon and Couletteon one side, representing the plaintiff, and Gil Puyat on the other, representing the defendant,that the latter would, on behalf of the plaintiff, order sound reproducing equipment from the StarrPiano Company and that the plaintiff would pay the defendant, in addition to the price of theequipment, a 10 per cent commission, plus all expenses, such as, freight, insurance, bankingcharges, cables, etc.

At the expense of the plaintiff, the defendant sent a cable, to the Starr Piano Company, inquiringabout the equipment desired and making the said company to quote its price without discount. A

reply was received by Gonzalo Puyat & Sons, Inc., with the price, evidently the list price of$1,700 f.o.b. factory Richmond, Indiana. The defendant did not show the plaintiff the cable ofinquiry nor the reply but merely informed the plaintiff of the price of $1,700. Being agreeable tothis price, the plaintiff, by means of which is a letter signed by C. S. Salmon dated November 19,1929, formally authorized the order. The equipment arrived about the end of the year 1929, andupon delivery of the same to the plaintiff and the presentation of necessary papers, the price of$1.700, plus the 10 per cent commission agreed upon and plus all the expenses and charges, wasduly paid by the plaintiff to the defendant.

Sometime the following year, and after some negotiations between the same parties,plaintiff and defendants, another order for sound reproducing equipment was placed bythe plaintiff with the defendant, on the same terms as the first order. About three yearslater, in connection with a civil case in Vigan, filed by one Fidel Reyes against thedefendant herein Gonzalo Puyat & Sons, Inc., the officials of the Arco AmusementCompany discovered that the price quoted to them by the defendant with regard to theirtwo orders mentioned was not the net price but rather the list price, and that thedefendants had obtained a discount from the Starr Piano Company. Moreover, by readingreviews and literature on prices of machinery and cinematograph equipment, saidofficials of the plaintiff were convinced that the prices charged them by the defendant


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were much too high including the charges for out-of-pocket expense. For these reasons,they sought to obtain a reduction from the defendant or rather a reimbursement, andfailing in this they brought the present action.

ISSUE:

Whether Arco Amusement Co. can obtain a reduction or reimbursement from thedefendant

HELD:

The facts and circumstances indicated do not point to anything but plain ordinary transactionwhere the respondent enters into a contract of purchase and sale with the petitioner, the latter asexclusive agent of the Starr Piano Company in the United States.

It follows that the petitioner as vendor is not bound to reimburse the respondent as vendee forany difference between the cost price and the sales price which represents the profit realized bythe vendor out of the transaction. This is the very essence of commerce without which merchantsor middleman would not exist.

The distinction which the respondents seeks to draw between the cost price and the list price weconsider to be spacious. It is to be observed that the twenty-five per cent (25%) discount grantedby the Starr piano Company to the petitioner is available only to the latter as the former'sexclusive agent in the Philippines. The fact that the petitioner obtained more or less profit thanthe respondent calculated before entering into the contract or reducing the price agreed upon

between the petitioner and the respondent. Not every concealment is fraud; and short of fraud, itwere better that, within certain limits, business acumen permit of the loosening of the sleeves andof the sharpening of the intellect of men and women in the business world.


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ANGEL CLEMENO, JR., MALYN CLEMENO, and NILUS SACRAMENTOvs.ROMEO R. LOBREGAT (CASE No. 8)

Contract of Sale vs. Contract to Sell

Facts:

The Spouses Nilus and Teresita Sacramento were the owners of a parcel of land covered and the

house constructed thereon located at No. 68 Madaling Araw Street, Teresa Heights Subdivision,

Novaliches, Quezon City. The Spouses Sacramento mortgaged the property with the Social

Security System (SSS) as security for their housing loan and, likewise, surrendered the owners

and duplicate copies of the certificate of title. In 1980, the spouses executed a Deed of Sale with

Assumption of Mortgage in favor of Maria Linda Clemeno and her husband Angel C. Clemeno,

Jr., with the conformity of the SSS. In 1987, Clemeno and Romeo Lobregat entered into a verbal

contract of sale over the property with the following conditions: (a) the respondent would pay the

purchase price of the property in the amount of P270,000.00, inclusive of the balance of the loanof the Petitioners, the Spouses Clemeno with the SSS6within two years from June 4, 1987;(b)

the respondent would pay the monthly amortizations of the vendors loan with the SSS; and (c)

upon the payment of the purchase price of the property, the Spouses Clemeno would execute a

deed of sale in favor of the respondent. Lobregat paid partial payments with receipts from

Clemeno, paid realty taxes on the property, and made partial payment of the SSS loans.

Significantly, upon his receipt of the advance payment, Clemeno delivered the possession of the

premises to Lobregat who is now the present possessor thereof. The last SSS payment was paid

by Clemeno without Lobregats knowledge. Thereafter SSS had executed a Release of Real

Estate Mortgage in favor of petitioner Clemeno and released the owners duplicate of title. The

respondent offered to pay the balance of the purchase price of the property to petitioner Clemenoand asked the latter to execute the deed of sale over the property and deliver the title over the

property under his name, but petitioner Clemeno refused to do so unless the respondent agreed to

buy the property at the price prevailing in 1992 (not in 1987 where the verbal contract of sale

was perfected), which Lobregat refused. Clemeno interposed the following version: that he never

sold the property to the respondent; that he merely tolerated the respondents possession of the

property for one year or until 1987, after which the latter offered to buy the property, which offer

was rejected; and that he instead consented to lease the property to the respondent, that the

respondent failed to exercise the option to buy the property by failure to pay the entire price, and

that assuming there was a contract of sale, it would be unenforceable because it was only a

verbal agreement.

The trial court ruled that since both the sale and lease agreements were not reduced to writing,

both contracts were unenforceable under Article 1403(2) of the New Civil Code, and had

decided the case based on justice and equity. On appeal, the CA reversed the lower court

decision. Hence, this case.
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Issues:

1. WON there was a contract of sale or contract to sell

2. WON statute of frauds apply to contracts partially performed

Held:

1. We find and so hold that the contract between the parties was a perfected verbal contract of

sale, not a contract to sell over the subject property. Sale is a consensual contract and is perfected

by mere consent, which is manifested by a meeting of the minds as to the offer and acceptance

thereof on three elements: subject matter, price and terms of payment of the price. The evidence

shows that upon the payment made by the respondent of the amount of P27,000.00 on June 4,

1987, the petitioners vacated their house and delivered possession thereof to the respondent.

Conformably to Article 1477 of the New Civil Code, the ownership of the property wastransferred to the respondent upon such delivery. The petitioners cannot re-acquire ownership

and recover possession thereof unless the contract is rescinded in accordance with law. The

failure of the respondent to complete the payment of the purchase price of the property within the

stipulated period merely accorded the petitioners the option to rescind the contract of sale as

provided for in Article 1592 of the New Civil Code. Besides, the respondents failure to pay was

not because he could not pay, but because petitioner Angel Clemeno told him not to do so.

The contract entered into by the parties was not a contract to sell because there was no agreement

for the petitioners to retain ownership over the property until after the respondent shall have paid

the purchase price in full, nor an agreement reserving to the petitioners the right to unilaterallyresolve the contract upon the buyers failure to pay within a fixed period.Unlike in a contract of

sale, the payment of the price is a positive suspensive condition in a contract to sell, failure of

which is not a breach but an event that prevents the obligation of the vendor to convey the title

from becoming effective.

3. The provision on statue of frauds applies only to executory, and not to completed, executed or

partially executed contracts.In this case, the contract of sale had been partially executed by the

parties, with the transfer of the possession of the property to the respondent and the partial

payments made by the latter of the purchase price thereof.


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Melliza v. Iloilo City [G.R. No. L-24732. April 30, 1968.]

(Case No. 9)

Facts:

Juliana Melliza during her lifetime owned, among other properties, 3 parcels of residential landin Iloilo City (OCT 3462). Said parcels of land were known as Lots Nos. 2, 5 and 1214. The totalarea of Lot 1214 was 29,073 sq. m. On 27 November 1931 she donated to the then Municipalityof Iloilo, 9,000 sq. m. of Lot 1214, to serve as site for the municipal hall. The donation washowever revoked by the parties for the reason that the area donated was found inadequate tomeet the requirements of the development plan of the municipality, the so- called ArellanoPlan. Subsequently, Lot 1214 was divided by Certeza Surveying Co., Inc. into Lots 1214-A and1214-B. And still later, Lot 1214-B was further divided into Lots 1214-B-1, Lot 1214-B-2 andLot 1214-B-3. As approved by the Bureau of Lands, Lot 1214-B-1, with 4,562 sq. m., becameknown as Lot 1214-B; Lot 1214-B-2, with 6,653 sq. m., was designated as Lot 1214-C; and Lot

1214-B-3, with 4,135 sq. m., became Lot 1214-D. On 15 November 1932, Juliana Mellizaexecuted an instrument without any caption providing for the absolute sale involving all of lot 5,7669 sq. m. of Lot 2 (sublots 2-B and 2-C), and a portion of 10,788 sq. m. of Lot 1214 (sublots1214-B2 and 1214-B3) in favor of the Municipal Government of Iloilo for the sum of P6,422;these lots and portions being the ones needed by the municipal government for the constructionof avenues, parks and City hall site according the Arellano plan. On 14 January 1938, Mellizasold her remaining interest in Lot 1214 to Remedios Sian Villanueva (thereafter TCT 18178).Remedios in turn on 4 November 1946 transferred her rights to said portion of land to Pio SianMelliza (thereafter TCT 2492). Annotated at the back of Pio Sian Mellizas title certificate wasthe following that a portion of 10,788 sq. m. of Lot 1214 now designated as Lots 1412 -B-2 and1214-B-3 of the subdivision plan belongs to the Municipality of Iloilo as per instrument dated 15

November 1932. On 24 August 1949 the City of Iloilo, which succeeded to the Municipality ofIloilo, donated the city hall site together with the building thereon, to the University of thePhilippines (Iloilo branch). The site donated consisted of Lots 1214-B, 1214-C and 1214-D, witha total area of 15,350 sq. m., more or less. Sometime in 1952, the University of the Philippinesenclosed the site donated with a wire fence. Pio Sian Melliza thereupon made representations,thru his lawyer, with the city authorities for payment of the value of the lot (Lot 1214-B). Norecovery was obtained, because as alleged by Pio Sian Melliza, the City did not have funds. TheUniversity of the Philippines, meanwhile, obtained Transfer Certificate of Title No. 7152covering the three lots, Nos. 1214-B, 1214-C and 1214-D.

On 10 December 1955 Pio Sian Melizza filed an action in the CFI Iloilo against Iloilo City andthe University of the Philippines for recovery of Lot 1214-B or of its value. After stipulation offacts and trial, the CFI rendered its decision on 15 August 1957, dismissing the complaint. Saidcourt ruled that the instrument executed by Juliana Melliza in favor of Iloilo municipalityincluded in the conveyance Lot 1214-B, and thus it held that Iloilo City had the right to donateLot 1214-B to UP. Pio Sian Melliza appealed to the Court of Appeals. On 19 May 1965, the CAaffirmed the interpretation of the CFI that the portion of Lot 1214 sold by Juliana Melliza wasnot limited to the 10,788 square meters specifically mentioned but included whatever was neededfor the construction of avenues, parks and the city hall site. Nonetheless, it ordered the remand of


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the case for reception of evidence to determine the area actually taken by Iloilo City for theconstruction of avenues, parks and for city hall site. Hence, the appeal by Pio San Melliza to theSupreme Court.

The Supreme Court affirmed the decision appealed from insofar as it affirms that of the CFI, and

dismissed the complaint; without costs.

Held:

Requirement, that sale must have a determinate thing as object, is fulfilled if object of saleis capable of being made determinate at the time of the contract

The requirement of the law that a sale must have for its object a determinate thing, is fulfilled as

long as, at the time the contract is entered into, the object of the sale is capable of being made

determinate without the necessity of a new or further agreement between the parties (Art. 1273,

old Civil Code; Art. 1460, New Civil Code). The specific mention of some of the lots plus the

statement that the lots object of the sale are the ones needed for city hall site; avenues and parks,

according to the Arellano plan, sufficiently provides a basis, as of the time of the execution of

the contract, for rendering determinate said lots without the need of a new and further agreement

of the parties.

Almendra vs. IAC (CASE No. 10)

Facts:

During the two marriages of Aleja, she and her respective husbands acquired parcels of land. The

lands from the first marriage were duly partitioned. After the death of her second husband, Alejasold to her son Roman, and daughter Angeles, parcels of land. Afater Alejas death, her otherchildren filed a complaint against Roman & Angeles for the annulment of the deeds of sale intheir favor executed by Aleja; and to partition the properties. Among the questioned sales wasthe one executed in favor of Angeles which is a half portion of the conjugal property of Alejaand her 2ndhusband, the hilly portion was specifically marked in a sketch.

Issue:

WON Aleja may validly sell a one half portion of a conjugal property, the hilly portion of whichhad been specifically marked in a sketch.

Held:

Yes, she may validly sell one-half portion of a lot, the hilly portion of which had beenspecifically identified/marked in a sketch, but there must be proof that the conjugal property hadbeen partitioned after the death of the 2ndhusband. Otherwise, the sale may be considered validonly as Alejas one half interesttherein.


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Aleja could not have sold particular hilly portion specified in the deed of sale in absence of proofthat the conjugal partnership property had been partitioned after the death of Santiago. Beforesuch partition, Aleja could not claim title to any definite portion of the property for all she hadwas an ideal or abstract quota or proportionate share in the entire property.

SPOUSES ISABELO and ERLINDA PAYONGAYONG,petitioners, vs.HON. COURTOF APPEALS, SPOUSES CLEMENTE and ROSALIA SALVADOR,respondents.(CASE No. 11)

FACTS

Eduardo Mendoza (Mendoza) was the registered owner of a parcel of land situated in Barrio SanBartolome, Caloocan. On April 18, 1985, Mendoza mortgaged the parcel of land to the MeralcoEmployees Savings and Loan Association (MESALA) to secure a loan in the amount ofP81,700.00. On July 11, 1987, Mendoza executed a Deed of Sale with Assumption of Mortgage

over the parcel of land together with all the improvements thereon in favor of petitioners inconsideration of P50,000.00. Petitioners bound themselves to assume payment of the balance ofthe mortgage indebtedness of Mendoza to MESALA

On December 7, 1987, Mendoza, without the knowledge of petitioners, mortgaged the sameproperty to MESALA for the second time to secure a loan in the amount of P758,000.00. Bothmortgages were duly annotated. On November 28, 1991, Mendoza executed a Deed of AbsoluteSale9 over still the same property in favor of respondents in consideration of P50,000.00.MESALA issued a cancellation of mortgage after receiving sufficient payment from Mendoza.The respondents then caused the cancellation of Mendoza's title and registration of the sameunder their name.

petitioners filed on July 16, 1993 a complaint for annulment of deed of absolute sale and transfercertificate of title with recovery of possession and damages against Mendoza, his wife SallyMendoza, and respondents before the Quezon City RTC.

both RTC and CA found for the respondents.

ISSUE

w/n respondents are entitled to the protection accorded to purchasers in good faith


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HELD

YES. It is a well-established principle that a person dealing with registered land may safely relyon the correctness of the certificate of title issued therefor and the law will in no way oblige himto go behind the certificate to determine the condition of the property.24 He is charged with

notice only of such burdens and claims as are annotated on the title.

25

He is considered in law asan innocent purchaser for value or one who buys the property of another without notice thatsome other person has a right to or interest in such property and pays a full and fair price for thesame at the time of such purchase or before he has notice of the claim of another person.26

That petitioners did not cause the cancellation of the certificate of title of Mendoza and procureone in their names is not disputed. Nor that they had their claims annotated on the same title.Thus, at the time of the sale of the property to respondents on November 28, 1991, only themortgages in favor of MESALA appeared on the annotations of encumbrances on Mendozastitle.

he real purpose of the Torrens system of registration is to quiet title to land and to put a stop toany question of legality of the title except to claims which have been recorded in the certificateof title at the time of registration or which may arise subsequent thereto. Every registered ownerand every subsequent purchaser for value in good faith holds the title to the property free fromall encumbrances except those noted in the certificate. Hence, a purchaser is not required toexplore further what the Torrens title on its face indicates in quest for any hidden defect orinchoate right that may subsequently defeat his right thereto. In respondents case, they did notonly rely upon Mendozas title. Rosalia personally inspected the property and verified with theRegistry of Deeds of Quezon City if Mendoza was indeed the registered owner. Given thisfactual backdrop, respondents did indeed purchase the property in good faith and accordinglyacquired valid and indefeasible title thereto. Under Article 1544, preferential right was correctly

given to the respondents who had the sale registered.

MAPALO V MAPALO (CASE No. 12)

Facts

Miguel Mapalo and Candida Quiba, simple illiterate farmers, were registered owners, withTorrens title certificate O.C.T. No. 46503, of a 1,635-square-meter residential land in Manaoag,Pangasinan. Said spouses-owners, out of love and affection for Maximo Mapalo a brother ofMiguel who was about to get marrieddecided to donate the eastern half of the land to him.O.C.T. No. 46503 was delivered. As a result, however, they were deceived into signing, on

October 15, 1936, a deed of absolute sale over the entire land in his favor.

Not known to them, meanwhile, Maximo Mapalo, on March 15, 1938, registered the deed of salein his favor and obtained in his name Transfer Certificate of Title No. 12829 over the entire land.Thirteen years later on October 20, 1951, he sold for P2,500.00 said entire land in favor ofEvaristo, Petronila Pacifico and Miguel all surnamed Narciso. The sale to the Narcisos was inturn registered on November 5, 1951 and Transfer Certificate of Title No. 11350 was issued forthe whole land in their names.


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2. Firstly, it has been positively shown by the undisputed testimony of Candida Quiba thatPacifico Narciso and Evaristo Narciso stayed for some days on the western side (the portion inquestion) of the above-described land until their house was removed in 1940 by the spousesMapalo and Quiba; secondly, Pacifica Narciso admitted in his testimony in chief that when theybought the property, Miguel Mapalo was still in the premises in question (western part) which he

is occupying and his house is still standing thereon; and thirdly, said Pacifico Narciso whenpresented as a rebuttal and sub-rebuttal witness categorically declared that before buying the landin question he went to the house of Miguel Mapalo and Candida Quiba and asked them if theywill permit their elder brother Maximo to sell the property. The foregoing facts are explicitenough and sufficiently reveal that the Narcisos were aware of the nature and extent of theinterest of Maximo Mapalo their vendor, over the above-described land before and at the timethe deed of sale in their favor was executed.

LORENZO VELASCO AND SOCORRO J. VELASCO, petitioners, vs. HONORABLECOURT OF APPEALSand MAGDALENA ESTATE, Inc., responsents (CASE No. 13)

Facts:

Magdalena Estate offered to sell a parcel of land which Lorenzo Velasco agreed to buy

for 100,000. Velasco paid a downpayment of 10,000 and when he tendered to the payment of

additional 20,000, Magdalena Estate refused to accept it and refused to execute a deed of sale

agreed upon. Magdalena Estate contended that the alleged contract was unenforceable under the

Statute of Frauds. Magdalena Estate stated that the property was leased to Socorro Velasco who

indicated its desire to purchase the lot. ME indicated its willingness to sell the lot at 100k.

Socorro offered to pay a downpayment of 10k but since it was short of the agreed upon 30k

downpayment, it was accepted as a deposit. Socorro requested that the receipt be in the name of

her brother-in-law Lorenzo. Socorro failed to complete the 30k donwpayment and the 70k

balance. When she tendered payment of 20k, ME refused to accept because it had considered the

offer to sell rescinded on account of failure to complete the downpayment of 30k on the agreed

date.

Issue: WON the alleged purchase and sale agreement was perfected.

Held: No. No contract of sale was perfected because the parties did not meet with regard to themanner of payment. The complaint states that the plaintiff and defendant agreed that the total

downpayment shall be 30k and the balance of 70k was to be paid within 10yrs and that the time

with which the payment of 30k was not specified by the parties but the defendant was dulycompensated during the said time prior to completion of the downpayment of 30k by way of

lease rentals on the house existing thereon which was earlier leased by defendant to Socorro. The

Velascos themselves admitted that they and Magdalena Estate still had to meet and agree on how

and when the downpayment and the installment payments were to be paid. Hence, it cannot be

said that a definite and firm sales agreement between the parties had been perfected over the lot

in question.


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SPS. HENRY CO AND ELIZABETH CO AND MELODY CO, peti tioners, vs.COURT OFAPPEALS AND MRS. ADORACION CUSTODIO (CASE No. 14)

Facts:

Adoracion Custodio entered into a verbal contract with Spouses Co (COS) for herpurchase of the latters house, for and in consideration of the sum of $100,000.00. One weekthereafter, plaintiff paid to the defendants the amounts of $1,000.00 and P40,000.00 as earnestmoney to be deducted from the total purchase price. The purchase price of $100,000.00 ispayable in two payments $40,000.00 on December 4, 1984 and the balance of $60,000.00 onJanuary 5, 1985. On January 25, 1985, plaintiff paid 30,000.00, as partial payment of thepurchase price. Defendants counselwrote a letter to the plaintiff demanding that she pay thebalance of $70,000.00 and not receiving any response thereto, said lawyer wrote another letter toplaintiff informing her that she has lost her option to purchase the property subject of this case

and offered to sell her another property. Plaintiffs counsel, wrote a letter to defendants lawyerinforming him that plaintiff is now ready to pay the remaining balance to complete the sum of$100,000.00, the agreed amount as selling price. The RTC ruled in favor of Custodio andordered the spouses to refund the amount of $30,000.00 in Custodios favor.

Issue:

WON could still exercise her option to pay the balance of the purchase price of the property.

Held:

Yes. The Court held that the parties entered into a perfected contract of sale and not an optioncontract. All three elements of a contract of sale are present in the transaction between thepetitioners and respondent. Custodios offer to purchase the property subject of the sale at a priceof $100,000.00 was accepted by the COS. Even the manner of payment of the price was setforth in the letter. Earnest money in the amounts of US$1,000.00 and P40,000.00 was alreadyreceived by the COS. Under Article 1482 of the Civil Code, earnest money given in a saletransaction is considered part of the purchase price and proof of the perfection of the sale.Despite the fact that Custodios failure to pay the amounts of US$ 40,000.00 and US$ 60,000.00on or before the agreed upon dates, the COS did not sue for either specific performance orrescission of the contract. The COS were of the mistaken belief that CUSTODIO had lost heroption over the property when she failed to pay the remaining balance of $70,000.00 . In theabsence of an express stipulation authorizing the sellers to extrajudicially rescind the contract ofsale, the COS cannot unilaterally and extrajudicially rescind the contract of sale.


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VILLANUEVA VS. COURT OF APPEALS (CASE NO. 15)

FACTS: Gamaliel Villanueva (petitioner) has been a tenant-occupant of a unit in the 3-door

apartment building erected on a parcel of land owned by Jose Dela Cruz and Leonila dela

Cruz (private respondents). Villanueva succeeded the occupancy of the said unit from Lolita Santos in 1985. February 1986 Jose dela Cruz offered said parcel of land with the 3-door apartment

building for sale.

The Villanuevas showed interest in the property. Because said property was in arrears in the payment of the realty taxes, Jose dela Cruz

approached Irene Villanueva and asked for a certain amount to pay for the taxes so thatthe property would be cleared of any encumbrance.

o Plaintiff Irene Villanueva gave P10,000.00 on two occasions. It was agreed by them that said P10,000.00 would form part of the sale price of

P550,000.00.

Jose dela Cruz went to Irene Villanueva bringing with him Mr. Ben Sabio, a tenant of oneof the units in the 3-door apartment building located on the subject property, andrequested her to allow said Ben Sabio to purchase one-half (1/2) of the property wherethe unit occupied by him pertained to which the plaintiffs consented, so that they wouldjust purchase the other half portion and would be paying only P265,000.00.

Accordingly the property was subdivided and two (2) separate titles were secured bydefendants Dela Cruz.

o Mr. Ben Sabio immediately made payments by installments. March 1987Dela Cruz executed in favor of the spouses Guido Pili and Felicitas Pili, a

Deed of Assignment of the other one-half portion of the parcel of land wherein plaintiffVillanueva's apartment unit is situated.

Thereafter, the Villanuevas came to know of such assignment and transfer and issuanceof a new certificate of title in favor of defendants Pili so that plaintiff Villanuevacomplained to the barangay captain on the ground that there was already an agreementbetween defendants Dela Cruz and themselves that said portion of the parcel of landowned by defendants Dela Cruz would be sold to them.

ISSUE:1. W/N there is a perfected contract between Villanueva and Dela Cruz.


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HELD:1.NO. The price of the leased land not having been fixed, the essential elements which give

life to the contract were lacking. It follows that the lessee cannot compel the lessor to sellthe leased land to him. The price must be certain, it must be real, not fictitious. It is notnecessary that the certainty of the price be actual or determined at the time of executing

the contract. The fact that the exact amount to be paid therefor is not precisely fixed, is nobar to an action to recover such compensation, provided the contract, by its terms,furnishes a basis or measure for ascertaining the amount agreed upon. The price could bemade certain by the application of known factors. I n the instant case, however, what isdramaticall y clear f rom the evidence is that there was no meeting of mind as to the

pri ce, expressly or impliedly, directly or i ndirectly.

Sale is a consensual contract. He who alleges it must show its existence bycompetent proof. Here, the very essential element of price has not beenproven.

Assuming arguendo that such draft deed of sale existed, it does notnecessarily follow that there was already a definite agreement as to the price.

If indeed the draft deed of sale was that important to petitioners' cause, theyshould have shown some effort to procure it. But petitioners made no sucheffort.

Petitioners' claim that they are ready to pay private respondents is immaterialand irrelevant as the latter cannot be forced to accept such payment, therebeing no perfected contract of sale in the first place.

*NOTE:What took place was only a prolonged negotiation to buy and to sell , and at most, anoff er and a counter-off er but no def in ite agreement was reached by the parties. Hence, therules on perfected contract of sale, statute of frauds and double sale find no relevance norapplication.

SWEDISH MATCH, AB (SMAB) VS. COURT OF APPEALS (CASE NO. 16)

FACTS: SMAB is a corporation organized under the laws of Sweden not doing business in the

Philippines.

o Had three subsidiary corporations in the Philippines, all organized underPhilippine laws, to wit: Phimco I ndustri es, Inc.(Phimco), Provident Tree Farms,

Inc., and OTT/Louie (Phils.), Inc.

SMAB was then sold to Swedish Match NV of Netherlands (SMNV). Ed Enriquez was commissioned and granted full powers to negotiate by SMNV, with the

resulting transaction, however, made subject to final approval by the board.

Enriquez was held under strict instructions that the sale of Phimco shares should beexecuted on or before 30 June 1990, in view of the tight loan covenants of SMNV.

Enriquez came to the Philippines in November 1989 and informed the Philippinefinancial and business circles that the Phimco shares were for sale.


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November 1989 Antonio Litonjua submitted his offer to buy the Phimco shares forP750,000,000 in the form of a letter.

SMAB informed Litonjua that the offer was below their expectations but urged the latterto undertake a comprehensive review and analysis of the value and profit potentials of thePhimco shares.

May 1990Litonjua offered to buy the disputed shares, excluding the lighter division forUS$30.6 million, which per another letter of the same date was increased to US$36million.

The SMAB informed Litonjua that the deadline of bidding is on June 30, 1990. Litonjua informed the SMAB that he could not submit his bid on the deadline due to

some constraints.

Two days prior to the deadline for submission of the final bid, Litonjua advised SMABthat he cant submit the bid on the deadline.

SMAB informed Litonjua that on 2 July 1990, they signed a conditional contract with alocal group for the disposal of Phimco. SMAB told Litonjua that his bid would no longerbe considered unless the local group would fail to consummate the transaction on or

before 15 September 1990. As a result, Litonjua finalized his bid to 36M dollars. More than two months from receipt of Litonjuas last letter, Enriquez sent a

communication to the former, advising him that the proposed sale of SMABs shares inPhimco with local buyers did not materialize. Enriquez then invited Litonjua to resumenegotiations with SMAB for the sale of Phimco shares.

Enriquez clarified that if the sale would not be completed at the end of the fifteen (15)-day period, SMAB would enter into negotiations with other buyers.

Litonjua objected. He emphasized that the new offer constituted an attempt to reopen thealready perfected contract of sale of the shares in his favor.

ISSUE:1. W/N the alleged contract of sale is enforceable under the Statute of Frauds.2. W/N there is a contract of sale between Litonjua and SMAB.

HELD:1. NO. For a note or memorandum to satisfy the Statute, it must be complete in itself and

cannot rest partly in writing and partly in parol. The note or memorandum must containthe names of the parties, the terms and conditions of the contract, and a description of theproperty sufficient to render it capable of identification.28 Such note or memorandummust contain the essential elements of the contract expressed with certainty that may beascertained from the note or memorandum itself, or some other writing to which it refers

or within which it is connected, without resorting to parol evidence. The exchange ofcorrespondence between the parties hardly constitutes the note or memorandum withinthe context of Article 1403 of the Civil Code. Rossis letter dated 11 June 1990, heavilyrelied upon by respondents, is not complete in itself. First, it does not indicate at whatprice the shares were being sold.


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2. NO. In the case of a contract of sale, required is the concurrence of three elements, to wit:(a) consent or meeting of the minds, that is, consent to transfer ownership in exchangefor the price; (b) determinate subject matter, and (c) price certain in money or itsequivalent.35Such contract is born from the moment there is a meeting of minds upon thething which is the object of the contract and upon the price.

A negotiation is formally initiated by an offer. A perfected promise merely tends toinsure and pave the way for the celebration of a future contract. An imperfect promise(policitacion), on the other hand, is a mere unaccepted offer.38Public advertisements orsolicitations and the like are ordinarily construed as mere invitations to make offers oronly as proposals. At any time prior to the perfection of the contract, either negotiatingparty may stop the negotiation.39 The offer, at this stage, may be withdrawn; thewithdrawal is effective immediately after its manifestation, such as by its mailing and notnecessarily when the offeree learns of the withdrawal.

Litonjuas letter dated 21 May 1990, proposing the acquisition of the Phimco shares for

US$36 million was merely an of fer. This offer, however, in Litonjuas own words, "isunderstood to be subject to adjustment on the basis of an audit of the assets, liabilities andnet worth of Phimco and its subsidiaries and on the final negotiation between ourselves.The manner of payment of the pur chase pri ce is an essential element before a valid

and binding contract of sale can exist since the agreement on the manner of paymentgoes into the price such that a disagreement on the manner of payment is tantamount to afailure to agree on the price. It is dramatically clear that the US$36 million was not theactual price agreed upon but merely a preliminary offer which was subject to adjustmentafter the conclusion of the audit of the company finances. Respondents failure to submit

their fi nal bid on the deadline set by peti tioners prevented the per fection of the contract

of sale. I t was not perf ected due to the absence of one essential element which was the

pri ce certain in money or i ts equivalent.

*NOTE:The Statute of Frauds is applicable only to contracts which are executory and not tothose which have been consummated either totally or partially.


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ADELFA PROPERTIES, INC v.COURT OF APPEALS, ROSARIO JIMENEZ-CASTAEDA and SALUD JIMENEZ (CASE NO. 17)

FACTS:Private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-

owners of a parcel of land in Barrio Culasi, Las Pias, Metro Manila. On July 28, 1988, Jose andDominador sold their share consisting of one-half of said parcel of land, specifically the easternportion thereof, to petitioner Adelfa Properties, Inc. pursuant to a "Kasulatan sa Bilihan ngLupa." Subsequently, a "Confirmatory Extrajudicial Partition Agreement"was executed by theJimenezes, wherein the eastern portion of the subject lot, with an area of 8,855 square meterswas adjudicated to Jose and Dominador Jimenez, while the western portion was allocated toherein private respondents. Petitioner expressed interest in buying the western portion of theproperty from private respondents. Accordingly, on November 25, 1989, an "Exclusive Option toPurchase"was executed between petitioner and private respondents. It includes stipulation as tothe selling price and the payment of P50, 000 as option money. Before petitioner could makepayment, it received summons with a copy of a complaint filed by the nephews and nieces of

private respondents against the latter, Jose and Dominador Jimenez, and petitioner in the RTC ofMakati for annulment of the deed of sale and recovery of ownership of the property. Petitionerinformed private respondents that it would hold payment of the full purchase price and suggestedthat private respondents settle the case with their nephews and nieces. Respondent Salud Jimenezrefused to heed the suggestion of petitioner and attributed the suspension of payment of thepurchase price to "lack of word of honor." Petitioner caused to be annotated on the title of the lotits option contract with private respondents, and its contract of sale with Jose and DominadorJimenez.

The RTC rendered judgment in favor of the respondents holding that the agreement entered intoby the parties was merely an option contract, and declaring that the suspension of payment byherein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection ofthe option. It likewise ruled that herein petitioner could not validly suspend payment in favor ofprivate respondents on the ground that the vindicatory action filed by the latter's kin did notinvolve the western portion of the land covered by the contract between petitioner and privaterespondents, but the eastern portion thereof which was the subject of the sale between petitionerand the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation ofthe exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid andbinding, and ordered petitioner to pay damages and attorney's fees to private respondents, withcosts. On appeal, respondent Court of appeals affirmed in toto the decision of the RTCand heldthat the failure of petitioner to pay the purchase price within the period agreed upon wastantamount to an election by petitioner not to buy the property; that the suspension of paymentconstituted an imposition of a condition which was actually a counter-offer amounting to arejection of the option; and that Article 1590 of the Civil Code on suspension of paymentsapplies only to a contract of sale or a contract to sell, but not to an option contract which itopined was the nature of the document subject of the case at bar.


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ISSUES:(1) whether or not the "Exclusive Option to Purchase" executed between petitioner AdelfaProperties, Inc. and private respondents Rosario Jimenez-Castaeda and Salud Jimenez is anoption contract; and(2) whether or not there was a valid suspension of payment of the purchase price by said

petitioner, and the legal effects thereof on the contractual relations of the parties.

HELD:

1. NO, the SC did not conform to the findings of RTC and CA that there is an option contract.The payment of P50, 000 stipulated in the contract is not option money but an earnest money. Itwas not distinct from the cause or consideration for the sale of the property, but was itself a partthereof. Private respondents failed to show that the payment of the balance of the purchase pricewas only a condition precedent to the acceptance of the offer or to the exercise of the right tobuy. On the contrary, it has been sufficiently established that such payment was but an elementof the performance of petitioner's obligation under the contract to sell.

It is a statutory rule that whenever earnest money is given in a contract of sale, it shall beconsidered as part of the price and as proof of the perfection of the contract. It constitutes anadvance payment and must, therefore, be deducted from the total price. Also, earnest money isgiven by the buyer to the seller to bind the bargain.

*Clear distinctions between earnest money and option money, viz.: (a) earnest money is part ofthe purchase price, while option money ids the money given as a distinct consideration for anoption contract; (b) earnest money is given only where there is already a sale, while optionmoney applies to a sale not yet perfected; and (c) when earnest money is given, the buyer isbound to pay the balance, while when the would-be buyer gives option money, he is not requiredto buy.

2. YES. Petitioner was justified in suspending payment of the balance of the purchase price byreason of the aforesaid vindicatory action filed against it. The assurance made by privaterespondents that petitioner did not have to worry about the case because it was pure and simpleharassment 42is not the kind of guaranty contemplated under the exceptive clause in Article 1590wherein the vendor is bound to make payment even with the existence of a vindicatory action ifthe vendee should give a security for the return of the price.

The validity of the suspension of payment notwithstanding, we find and hold that privaterespondents may no longer be compelled to sell and deliver the subject property to petitioner fortwo reasons, that is, petitioner's failure to duly effect the consignation of the purchase price afterthe disturbance had ceased; and, secondarily, the fact that the contract to sell had been validlyrescinded by private respondents. Petitioner was duly furnished and did receive a written noticeof rescission which specified the grounds therefore, it failed to reply thereto or protest against it.Its silence thereon suggests an admission of the veracity and validity of private respondents'claim. 53Furthermore, the initiative of instituting suit was transferred from the rescinder to thedefaulter by virtue of the automatic rescission clause in the contract. 54


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But then, the records bear out the fact that aside from the lackadaisical manner with whichpetitioner treated private respondents' latter of cancellation, it utterly failed to seriously seekredress from the court for the enforcement of its alleged rights under the contract. If privaterespondents had not taken the initiative of filing Civil Case No. 7532, evidently petitioner had nointention to take any legal action to compel specific performance from the former. By such

cavalier disregard, it has been effectively estopped from seeking the affirmative relief it nowdesires but which it had theretofore disdained.

Atkins Kroll & Co. vs. Cu Hian Tek (CASE NO. 18)

FACTS:On September 13, 1951, petitioner Atkins Kroll & Co. (Atkins) sent a letter torespondent B. Cu Hian Tek (Hian Tek) offering (a) 400 cartons of Luneta brand Sardines inTomato Sauce 48 / 15-oz. Ovals at $8.25 per carton, (b) 300 cartons of Luneta brand SardinesNatural (c) 300 cartons of Luneta brand Sardines in Tomato Sauce 100/5-oz. talls at $7.48 percarton, with all of the offers subject to reply by September 23, 1951. Hian Tek unconditionally

accepted the said offer through a letter delivered on September 21, 1951, but Atkins failed todeliver the commodities due to the shortage of catch of sardines by the packers in California.

Hian Tek, therefore, filed an action for damages in the CFI of Manila which granted the same inhis favor. Upon Atkins appeal, the Court of Appeals affirmed said decision but reduced thedamages to P3,240.15 representing unrealized profits. Atkins herein contends that there was nosuch contract of sale but only an option to buy, which was not enforceable for lack ofconsideration because it is provided under the 2nd paragraph of Article 1479 of the New CivilCode that "an accepted unilatateral promise to buy or to sell a determinate thing for a pricecertain is binding upon the promisor if the promise is supported by a consideration distinct fromthe price. Atkins also insisted that the offer was a mere offer of option, because the "firm offer"was a continuing offer to sell until September 23.

ISSUE:Was there a contract of sale between the parties or only a unilateral promise to buy?

HELD:The Supreme Court held that there was a contract of sale between the parties.Petitioners argument assumed that only a unilateralpromise arose when the respondent acceptedthe offer, which is incorrect because a bilateral contract to sell and to buy was created uponrespondents acceptance.

Had Cua Hian Tek backed out after accepting, by refusing to get the sardines and / or to pay fortheir price, he could also be sued. But his letter-reply to Atkins indicated that he accepted "thefirm offer for the sale" and that "the undersigned buyer has immediately filed an application forimport license. After accepting the promise and before he exercises his option, the holder of theoption is not bound to buy. In this case at bar, however, upon respondents acceptance of hereinpetitioner's offer, a bilateral promise to sell and to buy ensued, and the respondent hadimmediately assumed the obligations of a purchaser.


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Sanchez vs. Rigos(CASE No. 19)

FACTS:

In an instrument entitled "Option to Purchase," executed on April 3, 1961, defendant-appellant

Severina Rigos "agreed, promised and committed ... to sell" to plaintiff-appellee Nicolas Sanchez

for the sum of P1,510.00 within two (2) years from said date, a parcel of land situated in the

barrios of Abar and Sibot, San Jose, Nueva Ecija. It was agreed that said option shall be deemed

"terminated and elapsed," if Sanchez shall fail to exercise his right to buy the property" within

the stipulated period. On March 12, 1963, Sanchez deposited the sum of Pl,510.00 with the CFI

of Nueva Ecija and filed an action for specific performance and damages against Rigos for the

latters refusal to accept several tenders of payment that Sanchez made to purchase the subject

land.

Defendant Rigos contended that the contract between them was only a unilateral promise to

sell, and the same being unsupported by any valuable consideration, by force of the New Civil

Code, is null and void." Plaintiff Sanchez, on the other hand, alleged in his compliant that, by

virtue of the option under consideration, "defendant agreed and committed to sell" and "the

plaintiff agreed and committed to buy" the land described in the option. The lower court

rendered judgment in favor of Sanchez and ordered Rigos to accept the sum Sanchez judicially

consigned, and to execute in his favor the requisite deed of conveyance. The Court of Appeals

certified the case at bar to the Supreme Court for it involves a question purely of law.

ISSUE:Was there a contract to buy and sell between the parties or only a unilateral promise to sell?

COURT RULING:The Supreme Court affirmed the lower courts decision. The instrument executed in 1961 is not a

"contract to buy and sell," but merely granted plaintiff an "option" to buy, as indicated by its own

title "Option to Purchase." The option did not impose upon plaintiff Sanchez the obligation to

purchase defendant Rigos' property. Rigos "agreed, promised and committed" herself to sell theland to Sanchez for P1,510.00, but there is nothing in the contract to indicate that her

aforementioned agreement, promise and undertaking is supported by a consideration "distinct

from the price" stipulated for the sale of the land. The lower court relied upon Article 1354 of the

Civil Code when it presumed the existence of said consideration, but the said Article only applies

to contracts in general.


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However, it is not Article 1354 but the Article 1479 of the same Code which is controlling in the

case at bar because the latters 2nd paragraph refers to "sales" in particular, and, more

specifically, to "an accepted unilateral promise to buy or to sell." Since there may be no valid

contract without a cause or consideration, the promisor is not bound by his promise and may,

accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes,

however, of the nature of an offer to sell which, if accepted, results in a perfected contract of

sale. Upon mature deliberation, the Court reiterates the doctrine laid down in the Atkins case and

deemed abandoned or modified the view adhered to in the Southwestern Company case.

Ang Yu Asuncion vs. CA(CASE No. 20)

FACTSOn July 29, 1987, a Second Amended Complaint forSpecific Performance was filed by Ang Yu

Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng and Jose Tan before the RegionalTrial Court of Manila. The plaintiffs were tenants or lessees of residential and commercial spaces

owned by defendants in Binondo, Manila. On several conditions defendants informed the

plaintiffs that they are offering to sell the premises and are giving them priority to acquire the

same. During negotiations, Bobby Cu Unjieng offered a price of P6- million while plaintiffs

made a counter of offer of P5- million. Plaintiff thereafter asked the defendants to put their offer

in writing to which the defendants acceded. In reply to defendants letter, plaintiffs wrote, asking

that they specify the terms and conditions of the offer to sell. When the plaintiffs did not receive

any reply, they sent another letter with the same request.Since defendants failed to specify the

terms and conditions of the offer to sell and because of information received that the defendants

were about to sell the property, plaintiffs were compelled to file the complaint to compel

defendants to sell the property to them. The court dismissed the complaint on the ground that the

parties did not agree upon the terms and conditions of the proposed sale, hence, there was no

contact of sale at all.

On November 15, 1990, the Cu Unjieng spouses executed a Deed of Sale transferring the

property in question to Buen Realty and Development Corporation. Buen Realty, as the new

owner of the subject property, wrote to the lessees demanding the latter to vacate the premises. In

its reply, it stated that Buen Realty and Development Corporation brought the property subject

tothe notice of lis pendens.

ISSUECan Buen Realty be bound by the writ of execution by virtue of the notice of lis pendens?


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RULINGNo. An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The

obligation is upon the concurrence of the essential elements thereof, viz: (a) the vinculum juris or

juridical tie which is the efficient cause established by the various sources of obligations; (b) the

object which is the prestation or conduct, required to observed; and (c) the subject-persons who,

viewed demandability of the obligation are the active (oblige) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157), which is a meeting of minds

between two persons whereby one binds himself, with respect to the other, to give something or

to render some service. A contract undergoes various stages that include its negotiation or

preparation, its perfection and, finally, its consummation. Until the contract is perfected, it

cannot, as an independent source of obligation, serve as a binding juridical relation. In sales,

particularly, to which the case at bench belongs, the 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. The registration of lis pendens

must be independently addressed in appropriate proceedings.Therefore, Buen Realty cannot beheld subject to the writ of execution issued by the respondent Judge, let alone ousted from the

ownership and possession of the property, without first being duly afforded its day in court.

EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO & BAUERMANN,INC., petitioners,vs. MAYFAIR THEATER, INC., respondent. (CASE NO. 23)

Facts:

Carmelo owned a parcel of land, together with two 2-storey buildings constructed thereonlocated at Claro M Recto Avenue, Manila, and covered by TCT No. 18529 issued in its name bythe Register of Deeds of Manila. On June 1, 1967 Carmelo entered into a contract of lease withMayfair for the latter's lease of a portion of Carmelo's property for use by Mayfair as a motionpicture theater and for a term of twenty (20) years. Mayfair thereafter constructed on the leasedproperty a movie house known as "Maxim Theatre."

Two years later, on March 31, 1969, Mayfair entered into a second contract of lease withCarmelo for the lease of another portion of Carmelo's property for similar use as a movie theaterand for a similar term of twenty (20) years. Mayfair put up another movie house known as

"Miramar Theatre" on this leased property.

Both contracts of lease provides (sic) identically worded paragraph 8, which reads: That if theLESSOR should desire to sell the leased premises, the LESSEE shall be given 30-days exclusiveoption to purchase the same. In the event, however, that the leased premises is sold to someoneother than the LESSEE, the LESSOR is bound and obligated, as it hereby binds and obligatesitself, to stipulate in the Deed of Sale hereof that the purchaser shall recognize this lease and bebound by all the terms and conditions thereof.


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Sometime in August 1974, Mr. Henry Pascal of Carmelo informed Mr. Henry Yang, President ofMayfair, through a telephone conversation that Carmelo was desirous of selling the entire ClaroM. Recto property. Mr. Pascal told Mr. Yang that a certain Jose Araneta was offering to buy thewhole property for US Dollars 1,200,000, and Mr. Pascal asked Mr. Yang if the latter waswilling to buy the property for Six to Seven Million Pesos. Mr. Yang replied that he would let

Mr. Pascal know of his decision. On September 18, 1974, Mayfair sent another letter to Carmelopurporting to express interest in acquiring not only the leased premises but "the entire buildingand other improvements if the price is reasonable. However, both Carmelo and Equatorialquestioned the authenticity of the second letter. Four years later, on July 30, 1978, Carmelo soldits entire C.M. Recto Avenue land and building, which included the leased premises housing the"Maxim" and "Miramar" theatres, to Equatorial by virtue of a Deed of Absolute Sale, for thetotal sum of P11,300,000.00.

In September 1978, Mayfair instituted the action a quofor specific performance and annulmentof the sale of the leased premises to Equatorial. In its Answer, Carmelo alleged as special andaffirmative defense (a) that it had informed Mayfair of its desire to sell the entire C.M. Recto

Avenue property and offered the same to Mayfair, but the latter answered that it was interestedonly in buying the areas under lease, which was impossible since the property was not acondominium; and (b) that the option to purchase invoked by Mayfair is null and void for lack ofconsideration. Equatorial, in its Answer, pleaded as special and affirmative defense that theoption is void for lack of consideration and is unenforceable by reason of its impossibility ofperformance because the leased premises could not be sold separately from the other portions ofthe land and building.

Issue:

whether or not the contract between the parties is an option contract

Held:

We agree with the respondent Court of Appeals that the aforecited contractual stipulationprovides for a right of first refusal in favor of Mayfair.It is not an option clause or an optioncontract. It is a contract of a right of first refusal. The rule so early established in this jurisdictionis that the deed of option or the option clause in a contract, in order to be valid and enforceable,must, among other things, indicate the definite price at which the person granting the option, iswilling to sell.

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer theownership of and to deliver a determinate thing, and the other to pay therefor a price certain inmoney or its equivalent. An unconditional mutual promise to buy and sell, as long as the objectis made determinate and the price is fixed, can be obligatory on the parties, and compliancetherewith may accordingly be exacted. An accepted unilateral promise which specifies the thingto be sold and the price to be paid, when coupled with a valuable consideration distinct andseparate from the price, is what may properly be termed a perfected contract of option. Thiscontract is legally binding, and in sales, it conforms with the second paragraph of Article 1479 ofthe Civil Code.


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Observe, however, that the option is not the contract of sale itself. The optionee has the right, butnot the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before abreach of the option, a bilateral promise to sell and to buy ensues and both parties are thenreciprocally bound to comply with their respective undertakings.

In the light of the foregoing disquisition and in view of the wording of the questioned provisionin the two lease contracts involved in the instant case, we so hold that no option to purchase incontemplation of the second paragraph of Article 1479 of the Civil Code, has been granted toMayfair under the said lease contracts. Respondent Court of Appeals correctly ruled that the saidparagraph 8 grants the right of first refusal to Mayfair and is not an option contract. It alsocorrectly reasoned that as such, the requirement of a separate consideration for the option, has noapplicability in the instant case. There is nothing in the identical Paragraphs "8" of the June 1,1967 and March 31, 1969 contracts which would bring them into the ambit of the usual offer oroption requiring an independent consideration.

An option is a contract granting a privilege to buy or sell within an agreed time and at a

determined price. It is a separate and distinct contract from that which the parties may enter intoupon the consummation of the option. It must be supported by consideration.22In the instantcase, the right of first refusal is an integral part of the contracts of lease. The consideration isbuilt into the reciprocal obligations of the parties. To rule that a contractual stipulation such asthat found in paragraph 8 of the contracts is governed by Article 1324 on withdrawal of the offeror Article 1479 on promise to buy and sell would render in effectual or "inutile" the provisionson right of first refusal so commonly inserted in leases of real estate nowadays. The Court ofAppeals is correct in stating that Paragraph 8 was incorporated into the contracts of lease for thebenefit of Mayfair which wanted to be assured that it shall be given the first crack or the firstoption to buy the property at the price which Carmelo is willing to accept. It is not also correct tosay that there is no consideration in an agreement of right of first refusal. The stipulation is partand parcel of the entire contract of lease. The consideration for the lease includes theconsideration for the right of first refusal. Thus, Mayfair is in effect stating that it consents tolease the premises and to pay the price agreed upon provided the lessor also consents that, shouldit sell the leased property, then, Mayfair shall be given the right to match the offered purchaseprice and to buy the property at that price.

What Carmelo and Mayfair agreed to, by executing the two lease contracts, was that Mayfairwill have the right of first refusal in the event Carmelo sells the leased premises. It is undisputedthat Carmelo did recognize this right of Mayfair, for it informed the latter of its intention to sellthe said property in 1974. There was an exchange of letters evidencing the offer and counter-offers made by both parties. Carmelo, however, did not pursue the exercise to its logical end.While it initially recognized Mayfair's right of first refusal, Carmelo violated such right whenwithout affording its negotiations with Mayfair the full process to ripen to at least an interface ofa definite offer and a possible corresponding acceptance within the "30-day exclusive option"time granted Mayfair, Carmelo abandoned negotiations, kept a low profile for some time, andthen sold, without prior notice to Mayfair, the entire Claro M Recto property to Equatorial.

Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale isfirst set aside or rescinded. All of these matters are now before us and so there should be no


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piecemeal determination of this case and leave festering sores to deteriorate into endlesslitigation. The facts of the case and considerations of justice and equity require that we orderrescission here and now. Rescission is a relief allowed for the protection of one of thecontracting parties and even third persons from all injury and damage the contract may cause orto protect some incompatible and preferred right by the contract.26The sale of the subject real

property by Carmelo to Equatorial should now be rescinded considering that Mayfair, which hadsubstantial interest over the subject property, was prejudiced by the sale of the subject propertyto Equatorial without Carmelo conferring to Mayfair every opportunity to negotiate within the30-day stipulated period.27

BIBLE BAPTIST CHURCH and PASTOR REUBEN BELMONTE, petitioners,vs.COURT OF APPEALS and MR. & MRS. ELMER TITO MEDINAVILLANUEVA, respondents. (CASE No. 24)

Facts:

On June 7, 1985, the Bible Baptist Church (petitioner Baptist Church) entered into a contract oflease4with Mr. & Mrs. Elmer Tito Medina Villanueva (respondent spouses Villanueva). Thelatter are the registered owners of a property located at No. 2436 (formerly 2424) Leon GuintoSt., Malate, Manila. The pertinent stipulations in the lease contract were:

1. That the LESSOR lets and leases to the LESSEE a store space known as 2424 Leon Guinto Sr.St., Malate, Manila, of which property the LESSOR is the registered owner in accordance withthe Land Registration Act; 2. That the lease shall take effect on June 7, 1985 and shall be for theperiod of Fifteen (15) years.; 3. That LESSEE shall pay the LESSOR within five (5) days of eachcalendar month, beginning Twelve (12) months from the date of this agreement, a monthly rental

of Ten Thousand Pesos (P10,000.00) Philippine Currency, plus 10% escalation clause per yearstarting on June 7, 1988; 4. That upon signing of the LEASE AGREEMENT, the LESSEE shallpay the sum of Eighty Four Thousand Pesos (P84,000.00) Philippine Currency. Said sum is to bepaid directly to the Rural Bank, Valenzuela, Bulacan for the purpose of redemption of saidproperty which is mortgaged by the LESSOR; 5. That the title will remain in the safe keeping ofthe Bible Baptist Church, Malate, Metro Manila until the expiration of the lease agreement or theleased premises be purchased by the LESSEE, whichever comes first. In the event that the saidtitle will be lost or destroyed while in the possession of the LESSEE, the LESSEE agrees to payall costs involved for the re-issuance of the title; 6. That the leased premises may be renovated bythe LESSEE, to the satisfaction of the LESSEE to be fit and usable as a Church; 7. That theLESSOR will remove all other tenants from the leased premises no later than March 15, 1986. Itis further agreed that if those tenants are not vacated by June 1, 1986, the rental will be loweredby the sum of Three Thousand Pesos (P3,000.00) per month until said tenants have left theleased premises; 8. That the LESSEE has the option to buy the leased premises during theFifteen (15) years of the lease. If the LESSEE decides to purchase the premises the terms will be:A) A selling Price of One Million Eight Hundred Thousand Pesos (P1.8 million), PhilippineCurrency. B) A down payment agreed upon by both parties. C) The balance of the selling pricemay be paid at the rate of One Hundred Twenty Thousand Pesos (P120,000.00), PhilippineCurrency, per year
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The foregoing stipulations of the lease contract are the subject of the present controversy.Although the same lease contract resulted in several cases6filed between the same parties herein,petitioner submits, for this Court's review several errors.

Issue: 1) Whether or not the option to buy given to the Baptist Church is founded upon a

consideration;

Held:

Article 1479 (2) of the Civil Code provides: An accepted unilateral promise to buy or to sell adeterminate thing for a price certain is binding upon the promissor if the promise is supported bya consideration distinct from the price. The second paragraph of Article 1479 provides for thedefinition and consequent rights and obligations under an option contract. For an optioncontract to be valid and enforceable against the promissor, there must be a separate anddistinct consideration that supports it. To summarize the rules, an option contract needs to besupported by a separate consideration. The consideration need not be monetary but could consist

of other things or undertakings. However, if the consideration is not monetary, these must bethings or undertakings of value, in view of the onerous nature of the contract of option.Furthermore, when a consideration for an option contract is not monetary, said considerationmust be clearly specified as such in the option contract or clause.

In the petition, the Baptist Church states that "[t]rue, the Baptist Church did not pay a separateand specific sum of money to cover the option alone. But the P84,000 it paid the Villanuevas inadvance should be deemed consideration for the one contract they entered into the lease withoption to buy."9 This Court finds no merit in these contentions. First, petitioners cannot insistthat the P84,000 they paid in order to release the Villanuevas' property from the mortgage shouldbe deemed the separate consideration to support the contract of option. It must be pointed out

that said amount was in fact apportioned into monthly rentals spread over a period of one year, atP7,000 per month. Thus, for the entire period of June 1985 to May 1986, petitioner BaptistChurch's monthly rent had already been paid for, such that it only again commenced paying therentals in June 1986. This is shown by the testimony of petitioner Pastor Belmonte where hestates that the P84,000 was advance rental equivalent to monthly rent of P7,000 for one year,such that for the entire year from 1985 to 1986 the Baptist Church did not pay monthly rent. ThisCourt agrees with respondents that the amount of P84,000 has been fully exhausted and utilizedby their occupation of the premises and there is no separate consideration to speak of whichcould support the option.

This Court also notes that in the present case both the Regional Trial Court and the Court ofAppeals agree that the option was not founded upon a separate and distinct consideration andthat, hence, respondents Villanuevas cannot be compelled to sell their property to petitionerBaptist Church. Having found that the option to buy granted to the petitioner Baptist Church wasnot founded upon a separate consideration, and hence, not enforceable against respondents, thisCourt finds no need to discuss whether a price certain had been fixed as the purchase price.
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There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase

price. Moreover, it was not shown that there was a perfected sale between the parties where

earnest money was given. Finally, when petitioner gave the "earnest money," the Receipt did not

reveal that she was bound to pay the balance of the purchase price. In fact, she could even forfeitthe money given if the terms of the option were not met. Thus, the P20,000.00 could only be

money given as consideration for the option contract. That the contract between the parties is

one of option is buttressed by the provision therein that should the transaction of the property not

materialize without fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to

return the full amount of P20,000.00 "earnest money" with option to buy or forfeit the same on

the fault of petitioner. It is further bolstered by the provision therein that guarantees petitioner

that she or her representative would be notified in case the subject property was sold or

encumbered to a third person. Finally, the Receipt provided for a period within which the option

to buy was to be exercised, i.e., "within ten (10) days" from 31 July 1978.

Doubtless, the agreement between respondent spouses and petitioner was an "option

contract" or what is sometimes called an "unaccepted offer." During the option period the

agreement was not converted into a bilateral promise to sell and to buy where both respondent

spouses and petitioner were then reciprocally bound to comply with their respective undertakings

as petitioner did not timely, affirmatively and clearly accept the offer of respondent spouses.

San Miguel Properties vs. Sps. Huang (CASE No. 26)

Facts:

San Miguel Properties is engaged in the purchase and sale of real properties, of which

include two parcels of land. These properties were offered for sale at P52,140,000.00. Such offer

was made to Atty. Dauz on behalf of Sps. Huang. Atty. Dauz wrote San Miguel informing the

respondents interest to buy the property and enclosed therein a check (P1,000,000.00) as earnest

deposit subject to certain conditions, to wit: (1) that they be given the exclusive option to

purchase the property within 30 days from acceptance of the offer; (2) that during the option

period, the parties would negotiate the terms and conditions of the purchase; and (3) petitioner

would secure the necessary approvals while respondents would handle the documentation.

Sobrecarey, San Miguel Properties VP indicated his conformity to the offer; signed the letter;

and accepted the earnest deposit. By agreement of the parties, they agreed that respondents willbe given 6 months within which to pay. Upon failure of respondents to pay despite the extension

of time given, petitioner through its Pres& CEO Gonzales, wrote Atty. Dauz, that they are

returning the earnest deposit. Respondent spouses through counsel, wrote petitioner demanding

the execution of a deed of conveyance in their favor. They attempted to return the earnest deposit

but was refused by San Miguel.


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WON the earnest deposit could have been given as earnest money contemplated in Art. 1482,and thus there was a perfected contract of sale

HELD:

No, hence, there was no perfected contract of sale. In the present case, the P1 million "earnest-deposit" could not have been given as earnest money as contemplated in Art. 1482. Because

when petitioner accepted the terms of respondents offer, their contract had not yet been

perfected. The first condition for an option period of 30 days sufficiently shows that a sale was

never perfected. Such option giving respondents the exclusive right to buy the properties within

the period agreed upon is separate and distinct from the contract of sale which the parties may

enter.

Sabio vs The International Corporate Bank, INC. (CASE No. 33)

Facts:

On May 25, 1973, spouses Ledonio assigned to the spouses Sabio all their rights, interests, titleand participation over a contiguous portion of the subject property measuring 119,429 squaremeters.For this purpose, a deed of assignment with assumption of mortgage was later executedby the Ledonio couple in favor of the Sabio couple. Similarly, while the subject property wasstill the object of several pending cases, the International Corporate Bank, Inc. (or Interbank)acquired from the Trans-Resource Management and Development Corporation all of the lattersrights to the subject property by virtue of a deed of assignment executed between them.Sometime thereafter, the Sabios and Interbank settled their opposing claims by entering into aMOA whereby the Sabios assigned, conveyed and transferred all their rights over the parcel ofland to Interbank, with the express exception of a 58,000 square meter contiguous portion of said

lot. The MOA also granted Interbank the right to assign all its rights and interests, provided thatall the obligations of Interbank specified shall also bind all of its assigns, heirs and successors.Subsequently, Interbank transferred all its rights and interests over the parcel of land, excludingthe 58,000 square meter contiguous portion, to the Las Pias Ventures, Incorporated (or LPVI).Subsequently, the lots were acquired by the Ayala Group from the LPVI. Consequently, the landtitle was then transferred first to LPVI, then to the Ayala Group.

Thereafter, the Sabios filed a complaint claiming that Interbank failed to comply with itsobligation, which is to transfer ownership and title over the contiguous portion to the plaintiffs.In its answer, Interbank averred that fulfillment of its obligation under the MOA becameimpossible due to the plaintiff spouses own acts. Interbank posited that they were ready to

deliver the title to the 58,000 square meter parcel and had, in fact, prepared the Deed ofConveyance required by the Register of Deeds, but the plaintiffs themselves refused to sign thesaid deed unless the subject property was cleared of all squatters and other illegal occupants. Itnevertheless repudiated plaintiffs claim that theywere obligated to clear the said property of allsquatters and occupants, much less to fence the said property, arguing that no such obligationwas imposed in the MOA.


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However, plaintiffs contended that the presence of illegal occupants and the existence ofunauthorized improvements on the subject parcel negates respondents claim that it could havepossibly completed and perfected their ownership and title over said property. The fact that thesubject parcel is possessed and occupied by squatters is a clear indication that the respondentswere never in possession, and any transfer and conveyance would be meaningless, illusory and

impracticable. Plaintiffs claim that there must first be removal of the illegal occupants andunauthorized structures, and the subject parcel should be walled-in before said property could betransferred by Interbank to them by the execution of deed of conveyance.

Issue:

WON the mere execution of the deed of conveyance is sufficient to assign, convey and transferownership and title over the contiguous portion in favor of the plaintiffs.

Held:

The SC ruled in the affirmative and held that when the sale is made through a public instrument,the execution thereof shall be equivalent to the delivery of the object of the contract, if from thedeed the contrary does not appear or cannot be inferred (Art. 1498, CC). Possession is alsotransferred, along with ownership thereof, to the plaintiffs by virtue of the deed of conveyance.Plaintiffs contention that respondents "never acquired ownership over the subject property sincethe latter was never in possession of the subject property nor was the property ever delivered" istotally without merit. Under the aforementioned Article 1498, the mere execution of the deed ofconveyance in a public document is equivalent to the delivery of the property. Since theexecution of the deed of conveyance is deemed equivalent to delivery, prior physical delivery orpossession is not legally required. It is well-established that ownership and possession are twoentirely different legal concepts. Just as possession is not a definite proof of ownership, neither isnon-possession inconsistent with ownership. Thus, it is of no legal consequence that respondentswere never in actual possession or occupation of the subject property. They, nevertheless,perfected and completed ownership and title to the subject property. Notwithstanding thepresence of illegal occupants on the subject property, transfer of ownership by symbolic deliveryunder Article 1498 can still be effected through the execution of the deed of conveyance. Thekey word is control, notpossession, of the subject property. Considering that the deed ofconveyance proposed by respondents did not stipulate or infe

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