PRINCIPLE/ DOCTRINE

PRINCIPLE/ DOCTRINECASE TITLECASE DETAILS

Contract of Sale

That which where one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and to pay there a price certain in money or its equivalent. (Art. 1458)

A contract of sale may either be:

1. Absolute one where the title to the property is not reserved to the vendor or if the vendor is not granted the right to rescind the contract based on the fulfilment or non-fulfilment, as the case may be, of the prescribed condition.

2. Conditional one where the vendor is granted the right to unilaterally rescind the contract predicated on the fulfilment or non-fulfilment, as the case may be, of the prescribed condition.Dignos vs. CAFacts: The Dignos spouses owned a parcel of land, which was sold to plaintiff-appellant Jabil for the sum of P28,000 payable in two installments. Meanwhile, the Dignos spouses sold the same land to Cabigas spouses. As the Dignos spouses refused to accept the second payment and upon discovery of the second sale, Jabil brought this suit.

Petitioners contend that the Deed of Sale is a mere contract to sell and not an absolute sale; that the same is subject to two positive conditions. It is further contended that in said contract, title or ownership over the property was expressly reserved in the vendor until the suspensive condition of full and punctual payment of the balance of the purchase price shall have been met. Thus, there is no actual sale until full payment is made.

Issue: WON the contract is a Deed of Absolute Sale or a Contract to Sell.

Ruling: The contract is a Deed of Absolute Sale. A Deed of Sale is absolute in nature although denominated as a Deed of Conditional Sale where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within a fixed period.

Object of Contract of Sale

Thing must be licit; and

Lawful, i.e., within the commerce of man

Things may be licit:

a. Per se (of its nature)

b. Per accidens (made illegal by possession of the law)

The vendor must have a right to transfer the ownership thereof at the time it is delivered. (Art. 1459)Artates Pojas vs. Urbi, Et. Al.Facts: Spouses Artates and Pojas sought the annulment of the execution of a homestead issued and duly registered in their names. A public sale was made to satisfy a judgment against Artates, which amount was awarded to Urbi for physical injuries. Plaintiff spouses alleged that said sale violated the provision of the Public Land Law exempting said property from execution from any debt contracted within the five-year period from the date of the issuance of the patent.

Issue: WON the execution sale is valid.

Ruling: The execution sale is null and void. As thus prescribed by law, for a period of five years from the date of the government grant, lands acquired by free or homestead patent shall not only be incapable of being encumbered or alienated in favour of the government itself or any of its institutions or of duly constituted banking corporations, but also, they shall not be liable to the satisfaction of any debt contracted within the said period, whether or not the indebtedness shall mature during or after the prohibited time. This provision is mandatory and a sale made in violation thereof is null and void and produces no effect.

Though it may be a limitation on the right of ownership of the grantee, the salutary purpose of the provision is to preserve and keep for the homesteader or his family the land given to him gratuitously by the State, so that being a property owner, he may become and remain a contented and useful member of the society.

Heirs of Enrique Zambales vs. CAFacts: The Zambales spouses were the homestead patentees of a parcel of land. Claiming that the Nin Bay Mining Corp. had removed silica sand from their land and destroyed the plants and other improvements therein, they instituted a case claiming for damages. The Zambales spouses entered into a Compromise Agreement with the Corporation; by virtue of which, the disputed property was sold to one Preysley. Ten years after the Trial Courts decision based on the Compromise Agreement and nine years after the sale, the Zambales spouses filed a civil case for annulment of the Deed of Sale with recovery of possession and ownership with damages, contending that it was their lawyer who prevailed upon them to sign the Compromise Agreement; that they wer unschooled and did not understand the contents thereof.

Issue: WON the Compromise Agreement violates the alienation and encumbrance of a homestead lot within five years from the issuance of the patent.

Ruling: The sale is void. The law does not distinguish between executor and consummated sales. The bilateral promise to buy and sell the homestead lot at a price certain, which was reciprocally demandable, was entered into within the five-year prohibitory period and is therefore, illegal and void. To all interests and purposes, therefore, there was an actual executory sale perfected during the period of prohibition except that it was reciprocally demandable thereafter and the agency to sell to any third person was deferred until after the expiration of the prohibitory period, and the agency to sell made effective only after the lapse of the said period, was merely a devise to circumvent the prohibition.

The bilateral promise to buy and sell and the agency to sell entered into within five years from the date of the homestead patent was in violation of the Public Land Law, although the executed sale was deferred until after the expiration of the five-year prohibitory period.

Contract of Sale vs. Agency to Sell

Contract of Sale

Agency to Sell

Buyer pays the price.

The agent delivers the price which he turn he got from his buyer.

The buyer after the delivery becomes the owner.

The agent who is supposed to sell does not become the owner, even if the property has been delivered to him.

The seller warrants.

The agent who sells assumes no personal liability as long as he acts within his authority and in the name of the principal.

The buyer, as general rule, cannot return the object sold.

The agent can return the object in case he is unable to sell the same to a third person.

The buyer can deal with the thing sold as he pleases being the owner.

The agent in dealing with the thing received, must act and is bound according to the instructions of his principal.

Quiroga vs. Parsons Hardware Co.Facts: A contract was entered into by and between Quiroga and Parsons for the exclusive sale of Quiroga beds in the Visayan Islands. The tenor of said contract provides that Quiroga shall furnish beds of his manufacture to Parsons for the latters establishment in Iloilo, and shall invoice them at the same price he fixed for sales in Manila, and in the invoices, shall make an allowance of a discount as commission on the sales; and Parsons shall order the beds by the dozen, whether of the same or different styles. Parsons further binds himself to pay Quiroga for the beds received within 60 days from the date of their shipment, and binds himself not to sell any other kind except Quiroga beds.

Quiroga contends that Parsons violated the following obligations: not to sell beds at higher prices than those of the invoices, to have an open establishment in Iloilo; to conduct the agency, to keep the beds on public exhibition, and to pay for the advertisement expenses for the same, and to order the beds by the dozen and in no other manner. He further alleged that Parsons was his agent for the sale in Iloilo, and said obligations are implied in a contract of commercial agency.

Issue: WON Parsons, by reason of the contract, was a purchaser or an agent of Quiroga.

Ruling: The contract entered into by the parties is one of a purchase and sale. In the contract in question, what was essential, as constituting the cause and subject matter, is that Quiroga was to furnish Parsons with beds which the latter might order, at the price stipulated, and that Parsons was to pay the price in the manner stipulated. These features exclude the legal conception of an Agency or Order to Sell, whereby the mandatory or agent received the thing to sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale of the thing to a third person, and if he does not succeed in selling it, he returns it.

Contract of Sale vs. Contract for a Piece of Work

Rules To Determine if Sale/Piece of Work:

Sale if ordered in the ordinary course of business.

Piece of work if manufactured especially for the customer and upon his special order, and not for the general market.

Sale

Contract For Piece Of Work

the thing transferred is one which would have existed and would have been the subject of sale to some other person, even if the order had not been given

the thing transferred is not in existence and would never have existed but for the order of the party desiring to acquire it

the primary objective of the contract is sale of the manufactured item; it is a sale of goods even though the item is manufactured by labor furnished by the seller and upon previous order of the customer

the services dominate the contract even though there is a sale of goods involved

governable by the statute of frauds

not within the statute of frauds

Concrete Aggregates vs. CTAFacts: Concrete Aggregates Inc. is a domestic corporation which processes rock aggregates mined by it from private lands and produce ready-mixed concrete and plant-mixed hot asphalt. Upon the investigation conducted by the CTA, the peitioner is liable to pay taxes which the latter disputes. Petitioner contends that it is a contractor subject only to the 3% contractor's tax under Section 191 of the 1968 National Internal Revenue Code and not a manufacturer subject to the 7% sales tax under Section 186 of the same Code.

Issue: WON the petitioner is a contractor or a manufacturer.

Ruling: Concrete Aggregates Inc. is a manufacturer. Petitioner's raw materials are processed under a prescribed formula and thereby changed by means of machinery into a finished product, altering their quality, transforming them into marketable state or preparing them for any of the specific uses of industry.

A contract to make is a contract of sale if the article is already substantially in existence at the time of the order and merely requires some alteration, modification or adaptation to the buyer's wishes or purposes. A contract for the sale of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not is a contract for the sale of goods.

CONTRACTOR

one who undertakes to do a specific job or piece of work for other persons, using his own means and methods

TRUE TEST: renders service in the form of independent occupation, representing the will of his employer only as to the result of his work

Perfection Of Contract of Sale

General Rule: The contract of sale is perfected the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.(Art.1475)

Exception: When the sale is subject to a suspensive condition by virtue of law or stipulation.

In CONDITIONAL OBLIGATIONS the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. (Art. 1181)

Rules

1. When the offer is accepted without conditions or qualifications, the sale is perfected.

2. If the acceptance is with conditions or qualifications, the sale is not perfected for such is equivalent to a counter-offer.

*The acceptance must be certain, absolute and complete.

For and offer to be valid, it must be certain, definite and intentional(Art.1319)

When the sale is subject to a suspensive condition: from the moment the condition is fulfilled.

Peoples Homesite and Housing Corp. vs. CTAFacts: The PHHC board of directors passed Resolution No. 513 awarding to Spouses Mendoza the Consolidation Subdivision Plan on Lot 4 subject to the approval of the Quezon City Council. The city council disapproved the said proposed plan. However approval was made by the said council upon submission of a revised plan reducing the land area. Later on, PHHC board of directors passed another resolution withdrawing the tentative award to the Mendoza -spouses who never paid the price of the lot nor made the 20% initial deposit. The spouses contend that there was a perfected sale of Lot 4 thus they can enforce against the PHHC an action for specific performance.

Issue: WON there was a perfected contract of sale.

Ruling: There was no perfected contract of sale of Lot 4. It was conditionally or contingently awarded to the Mendozas subject to the approval by the city council of the proposed consolidation subdivision plan and the approval of the award by the valuation committee and higher authorities. When the plan with the area of Lot 4 reduced to 2,608.7 square meters was approved, the Mendozas should have manifested in writing their acceptance of the award for the purchase of Lot 4 just to show that they were still interested in its purchase although the area was reduced and to obviate ally doubt on the matter. They did not do so. The PHHC board of directors acted within its rights in withdrawing the tentative award. We cannot say there was a meeting of minds on the purchase of Lot 4.

Toyota Shaw, Inc. vs. CAFacts: Sosa wanted to purchase a Toyota Lite Ace. upon contacting Toyota Shaw, Inc., he was told that there was an available unit. Sosa and his son, Gilbert, went to the Toyota and met Bernardo, a sales representative of Toyota. The parties agreed that the car shall be delivered on June 17, 1989 and that the balance of the purchase price would be paid by credit financing through B.A. Finance. They accomplished a printed Vehicle Sales Proposal (VSP) which shows that the customer's name, home address , the model series of the vehicle, the installment mode of payment with the initial cash outlay down. On the date of the delivery, the vehicle was not delivered. Toyota alleged that no sale was entered into between it and Sosa.

Issue: WON the stnadard VSP woulfd represent a contract of sale between the parties.

Ruling: Neither logic nor recourse to one's imagination can lead to the conclusion that VSP is a perfected contract of sale. It is not a contract of sale, thus no obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefor a price certain appears therein.

A definite agreement on the manner of payment of the price is an essential element in the formation of a binding and enforceable contract of sale. This is so because the agreement as to the manner of payment goes into the price such that a disagreement on the manner of payment is tantamount to a failure to agree on the price. Definiteness as to the price is an essential element of a binding agreement to sell personal property.

The VSP was a mere proposal which was aborted in lieu of subsequent events. It follows that the VSP created no demandable right in favor of Sosa for the delivery of the vehicle to him, and its non-delivery did not cause any legally indemnifiable injury.

Limketkai Sons Milling, Inc. vs. CAFacts: Philippine Remnants Co., Inc. constituted BPI as its trustee to manage, administer, and sell its real estate property. BPI gave Revilla the formal authority, to sell the lot for P1,000.00 per square meter. Revilla contacted Limketkai Sons Milling who agreed to buy the land. There were negotiatons on the price and the term of payment between BPI and the Limketkai until agreement has been reached. BPI later on refused the payment tendered by the petitioner and sold the property to NBS instead.

Issue: WON there was a meeting of mind between Limketkai and BPI.

Ruling: There was a perfected contract of sale between Limketkai and BPI. The negotiation or preparation stage started with the authority given by Philippine Remnants to BPI to sell the lot, followed by (a) the authority given by BPI and confirmed by Philippine Remnants to broker Revilla to sell the property, (b) the offer to sell to Limketkai, (c) the inspection of the property and finally (d) the negotiations with Aromin and Albano at the BPI offices.

The perfection of the contract took place when Aromin and Albano, acting for BPI, agreed to sell and Alfonso Lim with Albino Limketkai, acting for petitioner Limketkai, agreed to buy the disputed lot at P1,000.00 per square meter. Aside from this there was the earlier agreement between petitioner and the authorized broker. There was a concurrence of offer and acceptance, on the object, and on the cause thereof.

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer, whether such request is granted or not, a contract is formed.

Article 1479 & 1324

Promise to buy and sell vs. accepted unilateral promise to buy or to sell:

A unilateral promise to sell, to be binding, must be supported by a consideration distinct from a price, which means that the option can still be withdrawn, even if accepted , if the same is not supported by a consideration

Southwestern Sugar & Molasses Co. vs. Atlantic Gulf & Pacific Company

June 1955

Facts: On March 24, 1953, Atlantic granted Southwestern an option period to buy the formers barge. On May 11 of the same year, Southwestern Company communicated its acceptance of the option to Atlantic. The latter replied that their understanding was that the "offer of option" is to be a cash transaction and to be effected "at the time the lighter is available." On June 25, Atlantic advised the Southwestern Company that the barge could not be turned over to the latter company.

On June 27, 1953, the Southwestern Company filed this action to compel Atlantic to sell the barge in line with the option, depositing with the court a check covering the amount, but said check was later withdrawn with the approval of the court. On June 29, the Atlantic withdrew its "offer of option" with due notices to Southwestern Company. The Atlantic contended that the option to sell it made to Southwestern Company is null and void because said option to sell is not supported by any consideration.

Issue: Whether or not the option to sell made to Southwestern Company is null and void because said option to sell is not supported by any consideration.

Ruling: The Supreme Court reversed the trial courts decision applying Article 1479 of the new Civil Code. The Court reiterated that "an accepted unilateral promise" can only have a binding effect if supported by a consideration, which means that the option can still be withdrawn, even if accepted, if said option is not supported by any consideration. The option that Atlantic had provided was without consideration, hence, can be withdrawn notwithstanding Southwestern Companys acceptance of said option.

The acceptance of an offer to sell a determinate thing for a price certain creates a bilateral contract to sell and to buy. The offeree, upon acceptance, ipso facto aacquires the obligation as the purchaser. The offeror would be liable for damages if he fails to deliver the thing he had offered for sale.Atkins Kroll & Co. vs. Cu Hian Tek Facts: On September 13, 1951, Atkins Kroll & Co. (Atkins) sent a letter to Cu Hian Tek (Hian Tek) offering to sell sardines with corresponding quantity. Hian Tek unconditionally accepted the said offer through a letter, but Atkins failed to deliver the commodities due to the shortage of catch of sardines by the packers in California.

Hian Tek, filed an action for damages in the CFI of Manila which granted the same in his favor. Upon Atkins appeal, the Court of Appeals affirmed said decision.

Issue: WON there was a contract of sale between the parties or only a unilateral promise to buy

Ruling: The Supreme Court held that there was a contract of sale between the parties. Petitioners argument assumed that only a unilateral promise arose when the respondent accepted the offer, which is incorrect because a bilateral contract to sell and to buy was created upon respondents acceptance.

After accepting the promise and before he exercises his option, the holder of the option is not bound to buy. In this case at bar, however, upon respondents acceptance of herein petitioner's offer, a bilateral promise to sell and to buy ensued, and the respondent had immediately assumed the obligations of a purchaser.

In order that unilateral promise may be binding upon the promisor, Article 1479 requires that the promise be supported by a consideration distinct from the price.Sanchez vs. Rigos

Facts: In an instrument entitled "Option to Purchase," executed on April 3, 1961, 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 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 P1,510.00 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.

Issue: WON there was a contract to buy and sell between the parties or only a unilateral promise to sell

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 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.

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.

A commitment by the bank to resell the property within a specified period, although accepted by the party in whose favor it was made, is considered an option not supported by consideration distinct from the price, and therefore, not binding upon the promissorSpouses Natino vs. IAC

Facts: On 12 October 1970, petitioners executed a real estate mortgage in favor of respondent bank. Petitioners failed to pay the loan on due date. The bank applied for the extrajudicial foreclosure of the mortgage. At the foreclosure sale, the respondent bank was the highest and winning bidder. A certificate of sale was executed in its favor by the sheriff and the same was registered with the Office of the Register of Deeds. The certificate of sale expressly provided that the redemption period shall be two years from the registration thereof.

No redemption was made by petitioners within the two-year period and the sheriff issued a Final Deed of Sale.

Issue: WON the petitioners were given an extension of the period of redemption.

Ruling: We find the petition to be devoid of merit. The attempts to redeem the property were done after the expiration of the redemption period and that no extension of that period was granted to petitioners.

Even if the President and Manager of the bank is to be understood to have promised to allow the petitioners to buy the property at any time they have the money, the Bank was not bound by the promise not only because it was not approved or ratified by the Board of Directors but also because, and more decisively, it was a promise unsupported by a consideration distinct from the re-purchase price.

The second paragraph of Article 1479 of the Civil Code expressly provides:

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissory if the promise is supported by a consideration distinct from the price.

WHEREFORE, the instant petition is DISMISSED, with costs against the Petitioners.

WHO BEARS THE RISK OF LOSS (Art 1480 & 1485)

1. Object lost before perfection = seller bears it

Reason: There was no contract, for there was no cause or consideration. Being the owner, the seller bears the loss.

2. Object lost after delivery to the buyer = buyers bears it

Res perit domino the owner bears the loss

3. Thing is lost at the time of the perfection = contracts is void and non-existent

4. If the object is lost after perfection but before delivery = buyer bears the loss as an exception to the rule of res perit domino

Reason: Art. 1480 pars. 1&2 clearly states that injuries between perfection and delivery shall be governed by Art. 1262.

Roman vs. Grimalt

Facts: In between the 13th to the 23d of June, 1904, petitioner Pedro Roman, the owner, and respondent Andres Grimalt, the purchaser, verbally agreed upon the sale of the schooner Santa Marina. In his letter on June 23, Grimalt agreed to buy the vessel and offered to pay in three installments of P500 each on July 15, September 15, and November 15, provided the title papers to the vessel were in proper form. The title of the vessel, however, was in the name of one Paulina Giron and not in the name of Roman as the alleged owner. Roman promised to perfect his title to the vessel, but failed so the papers he presented did not show that he was the owner of the vessel. On June 25, 1904, the vessel sank in the Manila harbor during a severe storm, even before Roman was able to produce for Grimalt the proper papers showing that the former was in fact the owner of the vessel in question and not Paulina Giron. As a result, Grimalt refused to pay the purchase price when Roman made a demand on June 30, 1904.

On July 2, 1904, Roman filed this complaint in the CFI of Manila, which found that the parties had not arrived at a definite understanding, and later dismissed said complaint.

Issue: Who should bear the risk of loss?

Ruling: The Supreme Court affirmed the decision of the lower court and declared Roman as the one who should bear the risk of lost because there was no actual contract of sale. If no contract of sale was actually executed by the parties, the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale. Grimalt was under no obligation to pay the price of the vessel, the purchase of which had not been concluded. The conversations between the parties and the letter Grimalt had written to Roman did not establish a contract sufficient in itself to create reciprocal rights between the parties.

Norkis Distributors, In.c vs. CA

Facts: Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the distributor of Yamaha motorcycles in Negros Occidental with office in Bacolod City with Avelino Labajo as its Branch Manager. On September 20, 1979, private respondent Alberto Nepales bought from the Norkis-Bacolod branch a brand new Yamaha Wonderbike motorcycle Model YL2DX with Engine No. L2-329401K Frame No. NL2-0329401, Color Maroon, then displayed in the Norkis showroom. The price of P7,500.00 was payable by means of a Letter of Guaranty from the Development Bank of the Philippines (DBP), Kabankalan Branch, which Norkis' Branch Manager Labajo agreed to accept. Hence, credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. Branch Manager Labajo issued Norkis Sales Invoice No. 0120 (Exh.1) showing that the contract of sale of the motorcycle had been perfected. Nepales signed the sales invoice to signify his conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis' possession.On November 6, 1979, the motorcycle was registered in the Land Transportation Commission in the name of Alberto Nepales.

Issue: Who should bear the loss of the motorcycle?

Ruling: NORKIS, the seller. The issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale. In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of delivering the thing. The act, without the intention, is insufficient.

When the motorcycle was registered by Norkis in the name of private respondent, Norkis did not intend yet to transfer the title or ownership to Nepales, but only to facilitate the execution of a chattel mortgage in favor of the DBP for the release of the buyer's motorcycle loan. The Letter of Guarantee issued by the DBP, reveals that the execution in its favor of a chattel mortgage over the purchased vehicle is a pre-requisite for the approval of the buyer's loan. If Norkis would not accede to that arrangement, DBP would not approve private respondent's loan application and, consequently, there would be no sale.

In other words, the critical factor in the different modes of effecting delivery, which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition.

Article 1496 of the Civil Code which provides that "in the absence of an express assumption of risk by the buyer, the things sold remain at seller's risk until the ownership thereof is transferred to the buyer," is applicable to this case, for there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of res perit domino.

PROMISE TO BUY AND SELL vs. ACCEPTED UNILATERAL PROMISE TO BUY OR TO SELL (ART. 1479 and 1324)

Kinds of Promises Treated in Art. 1479

1. An accepted unilateral promise to sell in which the promise (acceptor) elects to buy;

2. An accepted unilateral promise to buy which the promise (acceptor) elects to sell; and

3. A bilateral promise to buy and sell reciprocally accepted in which either of the parties chooses to exacts fulfilment.

Effect of Unaccepted Unilateral Promise

No judicial effect of legal bond. Such unaccepted imperfect promise or offer is called policitation.Option

A privilege existing in one person for which he has paid a consideration, which gives him a right to buy and sell from/to another person, if he chooses, at any time, within the agreed period at a fixed price, or under, or in compliance with certain terms and conditions. An option without consideration = VOID (effect is the same as if there is no option.Option Contract

A contract made to keep an offer open for a specified period, so that the offer cannot be revoked by the offeror during that period. Option is valid because it is supported by a consideration. Here, the buyer cannot be compelled to buy.Accepted Unilateral Promise to Sell

Since there may be no valid contract without cause or consideration, the promissory is not bound by his promise and may, accordingly, withdraw it. If acceptance is made before withdrawal, it constitutes a binding contract of sale although the option is given without consideration.Bilateral Promise to Buy AND Sell

Reciprocally demandable Hence, it requires no consideration distinct from the price.

Serra vs .CA

Facts: Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in 1975, respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the purchase of the then unregistered property. A contract of LEASE WITH OPTION TO BUY was instead forged by the parties. The foregoing agreement was subscribed before Notary Public Romeo F. Natividad. Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his part of the agreement by having the property registered and placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of Deeds of the Province of Masbate.

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent bank decided to exercise its option and informed petitioner, through a letter, of its intention to buy the property at the agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the respondent, petitioner replied that he is no longer selling the property.

Issue: WON the contract lease with option to buy is valid.

Ruling: YES. f

In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within the period stipulated. The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite.

A price is considered certain if it is so with reference to another thing certain or when the determination thereof is left to the judgment of a specified person or persons. And generally, gross inadequacy of price does not affect a contract of sale.

Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used. In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square meter.

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager to effect the sale immediately, means that he understood perfectly the terms of the contract. He even had the same property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his offer to sell the property at the agreed price of P210 per square meter.

RECTO LAW (Art. 1484 and 1485)

Remedies of the Seller

1. Exact fulfilment of the obligation should the buyer fail to pay any instalment;

2. Cancel the sale, should the buyers failure to pay cover two or more instalments;

3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the buyers failure to pay cover two or more instalments.

Article 1484 of the Civil Code provides for the remedies of a seller in contracts of sale of personal property by installments, and incorporates the provisions of Act No. 4122, known as the Installment Sales Law or the Recto Law, which then amended Article 1454 of the Civil Code of 1889.

RATIONALE

The object of Recto Law was to remedy the abuses committed in connection with the foreclosure of chattel mortgages and was meant to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment.

Under Article 1484 of the New Civil Code:

In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise REMEDIES stated above.

The remedies have been recognized as alternative, not cumulative, in that the exercise of one would also bar the exercise of the others. They cannot also be pursued simultaneously.

If the seller should foreclose on the mortgage constituted on the thing sold, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void.

The provisions of Recto Law are applicable to financing transactions derived or arising from sales of movables on installments, even if the underlying contract at issue is a loan because the promissory note has been assigned or negotiated by the original seller.

Take NOTE: In Filinvest vs. CA

Filinvest was held not liable for the defect only by virtue of the waiver of warranty against defect stipulated in the contract.

BUT:

If not for the waiver, Filinvest though a financing institution, is not immune from any recourse by the private respondents.

The fact that the rock crusher was purchased from Rizal Consolidated Corporation in the name and with the funds of the Filinvest proves beyond doubt that the ownership thereof was effectively transferred to it. It is precisely this ownership which enabled the petitioner to enter into the "Contract of Lease of Machinery and Equipment"

The device contract of lease with option to buy is at times resorted to as a means to circumvent Article 1484, particularly paragraph (3) thereof.

Through the set-up, the vendor, by retaining ownership over the property in the guise of being the lessor, retains, likewise, the right to repossess the same, without going through the process of foreclosure, in the event the vendee-lessee defaults in the

payment of the installments

There arises therefore no need to constitute a chattel mortgage over the movable sold. More important, the vendor, after repossessing the property and, in effect, canceling the contract of sale, gets to keep all the installments-cum-rentals already paid.

It is thus for these reasons that Article 1485 of the new Civil Code provides that:

Article 1485.

The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of possession or enjoyment of the thing.

Caveat emptor or "buyer beware"

Common sense dictates that a buyer inspects a product before purchasing it and does not return it for defects discovered later on, particularly if the return of the product is not covered by or stipulated in a contract or warranty.

Southern Motors vs. Moscoso

Facts: On June 6, 1957, plaintiff-appellee Southern Motors, Inc. sold to defendant-appellant Angel Moscoso one Chevrolet truck, on installment basis, for P6,445.00. Upon making a down payment, the defendant executed a promissory note for the sum of P4,915.00, representing the unpaid balance of the purchase price), to secure the payment of which, a chattel mortgage was constituted on the truck in favor of the plaintif.

Of said account of P4,915.00, the defendant had paid a total of P550.00, of which P110.00 was applied to the interest up to August 15, 1957, and P400.00 to the principal, thus leaving an unpaid balance of P4,475.00. The defendant failed to pay 3 installments on the balance of the purchase price.

On November 4, 1957, the plaintiff filed a complaint against the defendant, to recover the unpaid balance of the promissory note. Upon plaintiff's petition, embodied in the complaint, a writ of attachment was issued by the lower court on the properties Of the defendant.

Pursuant thereto, the said Chevrolet truck, and a house and lot belonging to defendant, were attached by the Sheriff of San Jose, Antique, where defendant was residing on November 25, 1957, and said truck was brought to the plaintiff's compound in Iloilo City, for safe keeping.

Issue: WON the remedy chosen by appellee is the foreclosure of the truck or a specific performance of the defendants obligation.

Ruling: Manifestly, the appellee had chosen the first remedy (specific performance). The complaint is an ordinary civil action for recovery of the remaining unpaid balance due on the promissory note. The plaintiff had not adopted the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions, under the Rules of Court.

Had appellee elected the foreclosure, it would not have instituted this case in court; it would not have caused the chattel to be attached under Rule 59, and had it sold at public auction, in the manner prescribed by Rule 39. That the herein appellee did not intend to foreclose the mortgage truck, is further evinced by the fact that it had also attached the house and lot of the appellant at San Jose, Antique.

As the plaintiff has chosen to exact the fulfillment of the defendant's obligation, the former may enforce execution of the judgment rendered in its favor on the personal and real property of the latter not exempt from execution sufficient to satisfy the judgment. That part of the judgment against the properties of the defendant except the mortgaged truck and discharging the writ of attachment on his other properties is erroneous.

We perceive nothing unlawful or irregular in appellee's act of attaching the mortgaged truck itself. Since herein appellee has chosen to exact the fulfillment of the appellant's obligation, it may enforce execution of the judgment that may be favorably rendered hereon, on all personal and real properties of the latter not exempt from execution sufficient to satisfy such judgment. It should be noted that a house and lot at San Jose, Antique were also attached. No one can successfully contest that the attachment was merely an incident to an ordinary civil action. (Sections 1 & 11, Rule 59; Sec. 16, Rule 39).

The mortgage creditor may recover judgment on the mortgage debt and cause an execution on the mortgaged property and may cause an attachment to be issued and levied on such property, upon beginning his civil action.

Pascual & Leonila Torres vs. Universal Motors

Facts: Spouses Torres executed a real estate mortgage on two parcel of land to secure the payment of the indebtedness of PDP Transit, Inc. for the purchase of five (5) Mercedes Benz trucks from Universal Motors Corp.Separate deeds of chattel mortgages on the Mercedez Benz units were also executed by PDP Transit in favor of UMC

PDP Transit Inc. was able to pay a sum of P92,964.91, leaving balance of P68,641.69 including interest due as of February 8, 1965

On March 19, 1965, Universal Motors Corporation filed a complaint against PDP Transit, and it was able to repossess all the units sold, including the five (5) units guaranteed by the subject real estate mortgage, and to foreclose all the chattel mortgages constituted thereon, resulting in the sale of the trucks at public auction.

Spouses Lorenzo Pascual and Leonila Torres filed an action in the CFI Quezon City for the cancellation of the mortgage. A judgment was rendered in their favor.

UMC contends (on appeal) that what Article 1484 withholds from the vendor is the right to recover any deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the additional security put up by a third party to guarantee the purchaser's performance of his obligation

Issue: WON UMC correct in its contentions?Ruling: NO. if the guarantor should be compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him.

Thus, the protection given by Article 1484 would be indirectly subverted, and public policy overturned."

Filinvest Credit vs. CAFacts: Spouses Tan sells gravel produced from crushed rocks used for construction purposes. Wanting to increase production, they asked Mr. Ruben Mercurio to look for a more efficient rock crusher and were referred to Rizal Consolidated Corporation which then had for sale one such machinery.After inspection of said machinery, couple decided to buy the same and applied for financial assistance from Filinvest Credit Corporation on the conditions that:

that the machinery be purchased in the petitioner's name;

that it be leased (with option to purchase upon the termination of the lease period) to the private respondents; and

that the private respondents execute a real estate mortgage in favor of the petitioner as security for the amount advanced by the latter.

A contract of lease of machinery (with option to purchase) was entered into by the parties stipulating that at the end of the two-year period, the machine would be owned by the spouses. The latter executed a real estate mortgage over two parcels of land issued in favor Filinvest and issues check for P150,550.00, as initial rental (or guaranty deposit), and twenty-four (24) postdated checks corresponding to the 24 monthly rentals.

Three months after the delivery of the machinery, the couple claiming that they had only tested the machine that month, sent a letter-complaint to the Filinvest, alleging that contrary to the 20 to 40 tons per hour capacity of the machine as stated in the lease contract, the machine could only process 5 tons of rocks and stones per hour and refused to pay.

As a consequence of the non-payment of the rentals on the rock crusher as they fell due despite the repeated written demands, Filinvest extrajudicially foreclosed the real estate mortgage.

To thwart the impending auction of their properties, Spouses Jose Sy Bang and Iluminada Tan filed before the RTC (QC) a complaint against Filinvest, asked for the rescission of the contract of lease, annullment of the real estate mortgage. A judgment was rendered in their favor.

On appeal, the petitioner (Filinvest) reasserts that the cause of action should be directed against Rizal Consolidated Corporation, the original owner-seller of the subject rock crusher, or Gemini Motors Sales which served as a conduit facilitator of the purchase of the said machine.

The petitioner argues that it is a financing institution engaged in quasi-banking activities, primarily the lending of money to entrepreneurs such as the private respondents and the general public, but certainly not the leasing or selling of heavy machineries like the subject rock crusher. The petitioner denies being the seller of the rock crusher and only admits having financed its acquisition by the private respondents. Further, the petitioner absolves itself of any liability arising out of the lease contract it signed with the private respondents due to the waiver of warranty made by the latter.

Issue: WON Filinvest is immuned from liability arising from the defect of the machinery?Ruling: YES. The spouses has independently inspected and verified the leased property and has selected and received the same from the Dealer of his own choosing in good order and excellent running and operating condition and on the basis of such verification, etc. the LESSEE has agreed to enter into this Contract.

One of the stipulations in the contract they entered into with the petitioner is an express waiver of warranties in favor of the latter. By so signing the agreement, the private respondents absolved the petitioner from any liability arising from any defect or deficiency of the machinery they bought.

Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. (1462a)

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. (1463a)

Art. 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. (1463a)

Addison vs. FelixFacts: By a public instrument Addison sold to Marciana Felix, four parcels of land, described in the instrument. Felix paid, at the time of the execution of the deed, the sum of P3,000 on account of the purchase price, and bound herself to pay the remainder in installments.

It was further stipulated that the purchaser was to deliver to the vendor 25 per centum of the value of the products that she might obtain from the four parcels "from the moment she takes possession of them until the Torrens certificate of title be issued in her favor."

It was also covenanted that "within one year from the date of the certificate of title in favor of Marciana Felix, Addison may rescind the present contract of purchase and sale. Later on, Addison filed suit in Court of First Instance of Manila to compel Marciana Felix to make payment of the first installment and of the interest in arrears.

The defendant answered the complaint and alleged by way of special defense that the plaintiff had absolutely failed to deliver to the defendant the lands that were the subject matter of the sale, notwithstanding the demands made upon him for this purpose. The evidence adduced shows that after execution of the deed of the sale Addison, at the request of Felix, went to Lucena, accompanied by a representative of the latter, for the purpose of designating and delivering the lands sold. He was able to designate only two of the four parcels, and more than two-thirds of these two were found to be in the possession of one Juan Villafuerte, who claimed to be the owner of the parts so occupied by him.

Issue: won there was delivery of the land sold.Ruling: NO. The record shows that the plaintiff did not deliver the thing sold. With respect to two of the parcels of land, he was not even able to show them to the purchaser; and as regards the other two, more than two-thirds of their area was in the hostile and adverse possession of a third person.

The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed "in the hands and possession of the vendee." (Civ. Code, art. 1462.) It is true that the same article declares that the execution of a public instruments is equivalent to the delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and the right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality the delivery has not been effected.

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n)Sampaguita Pictures vs. JalwindorFacts: Sampaguita leased to Capitol 300 Inc. the roof deck of its building with the agreement that all permanent improvements Capitol will make on said property shall belong to Sampaguita without any part on the latter to reimburse Capitol for the expenses of said improvements.

Shortly, Capitol purchased on credit from Jalwindor glass and wooden jalousies, which the latter itself delivered and installed in the leased premises, replacing the existing windows

. Jalwindor filed with the CFI of Rizal, Quezon City an action for collection of a sum of money with a petition for preliminary attachment against Capitol for its failure to pay its purchases. Later, Jalwindor and Capitol submitted to the trial court a Compromised Agreement wherein Capitol acknowledged its indebtedness and that all the materials that Capitol purchased will be considered as security for such undertaking. Meanwhile, Sampaguita filed a complaint for ejectment and for collection of a sum of money against Capitol for the latters failure to pay rentals and the City Court of Quezon City ordered Capitol to vacate the premises and to pay Sampaguita.

On the other hand, Capitol likewise failed to comply with the terms of the Compromise Agreement, and a levy was made on the glass and wooden jalousies. Sampaguita filed a third-party claim alleging that it is the owner of said materials and not Capitol, but Jalwindor filed an idemnity bond in favor of the Sheriff and the items were sold at public auction, with Jalwindor as the highest bidder . Sampaguita filed with the CFI of Rizal, Quezon City an action to nullify the Sheriff's sale and for an injunction to prevent Jalwindor from detaching the glass and wooden jalousies.

Issue: WON there was a delivery made and, therefore, a transfer of ownership of the thing sold?

Ruling: YES. When the glass and wooden jealousies were delivered and installed in the lease premises, Capitol became the owner thereof. Ownership is not transferred by perfection of the contract but by delivery, either actual or constructive. Capitol entered into a lease contract with Sampaguita, and the latter became the owner of the items mentioned by virtue of the contract agreement. When levy was made on the items, Capitol ( the judgment debtor) was no longer the owner thereof.

Article 1491

Par. 2 thereof; Agents cannot acquire the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given. The rule, however, does not apply to mortgagee purchasing the mortgaged property at a public sale.Fiestan vs. CA

Facts: Spouses Fiestan mortgaged their land to DBP as security for a loan. Upon failure to pay, the land was foreclosed an. DBP acquired lot as highest bidder. One year redemption period having expired, DBP title over the land was consolidated.

Issue: WON DBP is prohibited to acquire the property under Art. 1491(2)?

Ruling: NO. The prohibition does not apply in the instant case where the sale in dispute was made pursuant to a special power inserted in or attached to the real estate under Act No. 3135 as amended. As special statute, Act 3135 prevails over provisions of Civil Code as general statute. Moreover, even in the absence of such provision, the mortgagee may still purchase the subject property to protect his interest.

Article 1506 & 559

Owner has the right to recover the property which he is unlawfully deprived of. Unlawful deprivation is not limited to properties stolen. It encompasses situations where there has been invalid transmission of ownership.Dizon vs. Suntay

Facts: Respondent Suntay delivered a diamond ring to certain Clarita Sison for the latter to sell it on commission. Time lapses and there was no return of the ring nor the purchase price. Demand was made and later Sison was found out to have pledged it to petitioner Dizon. Suntay thereafter filed for the recovery of the thing. Lower and appellate courts found in her favor under Art 559 as owner thereof. Hence this petition.

Issue: May Suntay still recover possession of the thing pledged?

Ruling: YES. Suntay may recover the diamond ring from the pawnshop with which another person has pledged it without authority to do so. Art 559 applies and the defense that the pawnshop acquired possession of the ring without notice of any defect in the title of the pledge is unavailing. Since the thing was pledged by a pledgor having no authority to do so, the real owner is not stopped from pursuing an action against the pawnshop for the recovery of the possession of the thing. Petitioner is engaged in the business where presumably ordinary prudence would manifest itself to ascertain whether or not the individual offering jewelry by way of pledge is entitled to do so. No such precaution was exercised by petitioner. He, therefore, has only himself to blame for the fix he is now.

Article 1506 & 559

The non-payment of books sold after the check given as payment thereof was dishonored does not amount to unlawful deprivation.EDCA Publishing vs. Santos

Facts: A person identifying himself as Joe Cruz placed an order by telephone with EDCA Publishing & Distributing Co. for 406 books payable on delivery. Books were delivered for which Cruz issued a personal check as payment. Cruz was later found out to be an impostor and the check issued was dishonored after its presentation for payment. EDCA, after knowing that the said books were subsequently sold to Leonor Santos, asked help of the police to seize the books without warrant claiming it was unlawfully deprived of the books.

Issue: WON EDCA was unlawfully deprived of the books since the check issued was dishonored?

Ruling: NO. Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in case of bouncing checks. Unless otherwise stipulated, delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. It would certainly be unfair now to make private respondent bear the prejudice sustained by EDCA as a result of its own negligence. The Court cannot see the justice in transferring EDCAs loss to the Santoses who had acted in good faith, and with proper case, when they bought the books from Cruz.