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1. Ten Forty Realty vs Cruz

FACTS

- Ten Forty Realty filed a complaint of ejectment against Marina Cruz who has allegedly occupied the
residential lot in Olongapo City, which they bought from Barbara Galino, by virtue of a Deed of
Absolute Sale. It appears that Barbara sold the same lot to Marina who immediately occupied the
land. Ten Forty is saying the occupation by Marina was merely tolerated by them.
- Marina’s defense:
(1) Ten Forty, being a corporation, is not qualified to own the property which is a public land.
(2) Barbara Galino did not sell her property to Ten Forty but merely obtained a loan.
(3) Ten Forty never occupied the property before she did. Barbara Galino was in possession at the
time of the sale, and vacated the lot in favor of Marina.
(4) She was the one who caused the cancellation of the tax declaration in the name of Barbara and
a new one was issued in her name.
(5) Ten Forty only obtained its tax declaration 7 months after she did.
- MTCC ruled in favor of Ten Forty and ordered Marina to vacate.
- RTC reversed. The RTC ruled as follows: 1) respondent’s entry into the property was not by mere
tolerance of petitioner, but by virtue of a Waiver and Transfer of Possessory Rights and Deed of Sale
in her favor; 2) the execution of the Deed of Sale without actual transfer of the physical possession
did not have the effect of making petitioner the owner of the property, because there was no
delivery of the object of the sale as provided for in Article 1428 of the Civil Code; and 3) being a
corporation, petitioner was disqualified from acquiring the property, which was public land.
- CA affirmed: Case cannot be unlawful detainer because there has been no prior contract between
the parties. Neither can it be forcibly entry because there is no showing that there was prior
physical possession by the petitioner.

ISSUE: WON Marina may be validly ejected from the property  NO

RULING:

1. In a contract of sale, the buyer acquires the thing sold only upon its delivery. The execution of a
public instrument gives rise to a presumption of delivery, but this presumption is destroyed when
delivery is not effected because of a legal impediment. Constructive delivery is deemed negated
upon failure of vendee to take actual possession of the land. Ten Forty was not able to take
possession and the SC found it highly unlikely that they allowed occupation of Marina by mere
tolerance.
2. In cases of double sale, the person who first recorded it in the Registry of Property shall be
considered the lawful owner. In this case, however, petitioner was unable to establish that the
Deed was recorded in the Registry of Deeds of Olongapo. An unverified notation on the Deed is not
equivalent to a registration. In the absence of this requirement, the law gives preferential right to
the buyer who in good faith is first in possession.
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3. To determine who is first in possession, the following parameters have been established:
a. Possession includes not only material but also symbolic possession
b. Possessors in good faith are not aware of any flaw in their title or mode of acquisition
c. Buyers of property that is in possession of persons other than the seller must be wary –
they must investigate
d. Good faith is always presumed. Burden of proof rests on the one alleging bad faith.

Property has not been delivered, hence Ten Forty did not acquire possession either materially or
symbolically. Petitioner has not proven that respondent was aware of any defect to her title. At the
time, the property had not been registered which was why Marina relied on tax declarations. Galino
was actually occupying the property when respondent took possession. Thus, there was no
circumstance that could have required her to investigate further.

4. Private corporations are disqualified from acquiring lands of public domain. At the time of the sale,
there is no evidence that the property had already ceased to be of public domain.

DECI: Petition DENIED

2. RURAL BANK v PELAGIA DIMATULAC, GLORIA DIMATULAC, NORA M. VDA. DE GRACIA AND
ANTONIO NUQUI
There was a Deed of Sale between Rural Bank and Valentin & Razon (who had TCT; vendees of Reyes),
however, Rural Bank did not take actual possession of the property. It is now suing to recover de facto
possession of the lot.

Steps:
MARCH 1997:
Complaint: (convoluted) ejectment case [unlawful detainer and damages] filed by Rural against Dimatulac
et al
RURAL: “respondents were occupying the property by mere tolerance as they had no contract of lease
with it, nor right or claim annotated on its title”. As the absolute and registered owner of the subject land
as a mortgagee-purchaser in a foreclosure sale it is entitled to possession of the land as an attribute of
ownership. It cannot be faulted for relying on the validity of Valentin and Razon's title as it had checked
and verified the status of said title on file with the Register of Deeds and found that it was free from any
lien and encumbrance.
MTC: Dimatulac lawful beneficiaries. Dismissed due to lack of jurisdiction
RTC: affirmed MTC [3rd ground: respondents were in possession of the lot as lawful/rightful possessors, vis-
a-vis their status as occupants-beneficiaries of the DAR, previously RPA. Therefore, respondents had a
better right to possession as against petitioner rural bank]
CA: dismissed the petitioner's petition for review to set aside the decision
SC: denied

Facts:
 August 17, 1965: Prudencia Reyes purchased from the now defunct RPA, an 800sqm parcel of land
>>> TCT No. 65765 was issued in her favor >>> TCT later cancelled by DAR due to her non-
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occupancy of said property >>> DAR made the land available for distribution to the landless
residents of San Rafael
 1971: respondents took possession of the property and were allocated portions of 200 square
meters each. They paid the purchase price and awaited their Emancipation Patent titles
 April 4, 1973: Despite her knowledge that the land had reverted to the government, Reyes sold the
property to the spouses Maximo Valentin and Retina Razon in a Deed of Sale.
 The spouses thereafter obtained TCT
 On finding, however, that respondents were in possession of the property, Valentin and Razon filed
a complaint for recovery and damages against respondents >>> RP intervened, contended that the
title of Valentin and Razon was null and void, because the sale by Reyes was in violation of the
terms and conditions of sale of the lot by the RPA to Reyes >>> TC in favor of VR >>> CA cancelled
the title of the spouses, and decreed the reversion of the property to the government for
disposition to qualified beneficiaries >>> decision attained finality Sept 22, 1990
 During PENDENCY of abovementioned case, Razon, through her attorney-in-fact, mortgaged the
property to petitioner rural bank to secure a loan of P37,500 >>> Razon failed to pay >>> Property
extrajudicially foreclosed >>> Oct 1987, Rural Bank bought the property

Relevant Issue Raised by RURAL: The Sept 22, 1990 Final and executory judgment of the Court of Appeals
does not bind the bank because it was not impleaded as a party by the Dimatulacs

SC: It does.
Legal Basis: Rule 39, Section 47 (b) of the 1997 Rules of Civil Procedure, speaks of conclusiveness of
judgment as "between the parties and their successors-in-interest by title subsequent to the
commencement of the action." In the present case, petitioner herein derived its title from the Valentin and
Razon spouses, after an extrajudicial foreclosure sale.
Explanation:
1. Under the law which permits a successor in interest to redeem the property sold on execution, the
term "successor-in-interest" includes one to whom the debtor has transferred his statutory right of
redemption; one to whom the debtor has conveyed his interest in the property for the purpose of
redemption; or one who succeeds to the interest of the debtor by operation of law.
2. Rural acquired its title while a case was pending before the Court of Appeals. To acquire title, the
successor-in-interest must do so subsequent to the commencement of the action, and not before
such commencement.
3. Having derived little from the Spouses Valentin and Razon, whose title was nullified by the final and
executory decision of the Court of Appeals in CA-G.R. CV No. 14909, the petitioner cannot escape
the effect of the appellate court's judgment in said case. The rural bank as purchaser at an auction
sale does not have a better right to said property than their predecessors-in-interest, namely the
Valentin and Razon couple

3. OCCEÑA vs. ESPONILLA

Facts:
 The Tordesillas own lot 265. When they died their children Harold and Angela and Grandchildren,
Arnold and Lilia de la Flor inherited the land.
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 1951-the heirs executed a deed of pacto de retro sale in favor of Alberta Morales concerning the
SW portion of the lot.
 1954- Arnold and Lilia executed a Deed of Definite Sale of Shares, rights and Interests over the
same portion in favor of Morales, attesting that the portion is their share in the estate. Morales
possessed the lot as owner.
 1956- Arnold borrowed the OCT from Morales and acknowledged receipt through an Affidavit
saying that the OCT will be held in trust by him and he will return it without any changes.
 1966-Arnold and Angela executed a deed of extrajudicial settlement (w/o knowledge of Morales)
declaring the two of them as the only co-owners of the entire lot 265 without acknowledging the
previous sale of the portion to Morales. Alberta and nieces demanded for the return of the OCT
numerous times but Arnold just kept on promising to return it.
 1983-Angela died and Arnold declared himself as sole heir of Angela and consolidated the title of
the entire lot in his name.
 1985-Morales died. Her nieces succeeded in owning the lot. Before the nieces left for US they again
asked for the OCT so they can register it in their names but Arnold just promised again.
 1986- Arnold used the OCT to subdivide the entire lot into three sublots, 265-A, -B, and -C.
 1993-after the death of Arnold, the nieces learned of the second sale when they were informed by
their caretaker that the Occeñas are trying to eject them.
 1994- they filed the case for annulment of sale and cancellation of title against the Occeñas saying
that the latter were in bad faith because their caretaker informed the Occeñas during the ocular
inspection not to push through with the sale because the lot has been previously sold to Morales
who constructed a house thereon.
 The Occeñas claimed that the OCT in the name of the Tordesillas which was cancelled and later
transferred to the name of Angela and Arnold were without any adverse claim annotated and they
are not required to go beyond a clean certificate of title. The lot was surveyed and subdivided
without opposition from Morales and her nieces. And that they relied on what Arnold said that the
occupants were squatters and he just tolerated them. They set up the defense of prescription and
laches because of Morales’ failure to annotate their claim for over 40 years.
 Trial Court ruled in favor of the Occeñas.
 CA reversed the ruling of TC.
Issue: WON the Occeñas own the lots.
Held: NO. They are buyers in bad faith.
 This is a case of double sale of an immovable property. Article 1544 of the New Civil Code provides
that in case an immovable property is sold to different vendees, the ownership shall belong: (1) to
the person acquiring it who in good faith first recorded it in the Registry of Property; (2) should
there be no inscription, the ownership shall pertain to the person who in good faith was first in
possession; and, (3) in the absence thereof, to the person who presents the oldest title, provided
there is good faith.
 In all cases, good faith is essential. It is the basic premise of the preferential rights granted to the
one claiming ownership over an immovable. What is material is whether the second buyer first
registers the second sale in good faith, i.e., without knowledge of any defect in the title of the
property sold. The defense of indefeasibility of a Torrens title does not extend to a transferee who
takes the certificate of title in bad faith, with notice of a flaw.
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 A purchaser in good faith and for value is one who buys property without notice that some other
person has a right to or interest in such property and pays its fair price before he has notice of the
adverse claims and interest of another person in the same property. , Occeña admitted that he
found houses built on the land during its ocular inspection prior to his purchase. He relied on the
representation of vendor Arnold that these houses were owned by squatters and that he was
merely tolerating their presence on the land. He should have verified from the occupants of the
land the nature and authority of their possession instead of merely relying on the representation of
the vendor that they were squatters, having seen for himself that the land was occupied by persons
other than the vendor who was not in possession of the land at that time.
 the settled rule is that a buyer of real property in the possession of persons other than the seller
must be wary and should investigate the rights of those in possession. Without such inquiry, the
buyer can hardly be regarded as a buyer in good faith and cannot have any right over the property
 Indeed, the general rule is that one who deals with property registered under the Torrens system
need not go beyond the same, but only has to rely on the title. He is charged with notice only of
such burdens and claims as are annotated on the title. However, this principle does not apply when
the party has actual knowledge of facts and circumstances that would impel a reasonably cautious
man to make such inquiry or when the purchaser has knowledge of a defect or the lack of title in his
vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of the
title of the property in litigation.
 They did not inquire from the caretaker how they could get in touch with the heirs of Morales to
verify the ownership of the land. Having discovered that the land they intended to buy was
occupied by a person other than the vendor not in actual possession thereof, it was incumbent
upon the petitioners to verify the extent of the occupant’s possessory rights.
 Laches cannot be used to defeat justice or perpetuate fraud and injustice. Prescription does not
apply when the person seeking annulment of title or reconveyance is in possession of the lot
because the action partakes of a suit to quiet title which is imprescriptible.
 It likewise bears to stress that when vendor Arnold reacquired title to the subject property by
means of fraud and concealment after he has sold it to Morales, a constructive trust was created in
favor of Morales and her heirs. As the defrauded parties who were in actual possession of the
property, an action to enforce the trust and recover the property cannot prescribe.

4. ANGEL M. PAGADUAN, AMELIA P. TUCCI, TERESITA P. DEL MONTE, ORLITA P. GADIN, PERLA P.
ESPIRITU, ELISA P. DUNN, LORNA P. KIMBLE, EDITO N. PAGADUAN, and LEO N. PAGADUAN vs.
SPOUSES ESTANISLAO & FE POSADAS OCUMA

FACTS:

 Petitioners Angel N. Pagaduan, Amelia P. Tucci, Teresita P. del Monte, Orlita P. Gadin, Perla P.
Espiritu, Elisa P. Dunn, Lorna P. Kimble, Edito N. Pagaduan and Leo N. Pagaduan are all heirs of the
late Agaton Pagaduan.
 Respondents are the spouses Estanislao Ocuma and Fe Posadas Ocuma.

 The subject lot used to be part of a big parcel of land that originally belonged to Nicolas Cleto
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 The first line of disposition: Cleto sold land to Antonio Cereso on May 11, 1925. Cereso in turn sold
the land to the siblings with the surname Antipolo on September 23, 1943. The Antipolos sold the
property to Agaton Pagaduan, father of petitioners, on March 24, 1961. All the dispositions in this
line were not registered and did not result in the issuance of new certificates of title in the name of
the purchasers.

 The second line of disposition: started on January 30, 1954, after Cleto’s death, when his widow
Ruperta Asuncion as his sole heir and new owner of the entire tract, sold the same to Eugenia
Reyes. This resulted in the issuance of Transfer Certificate of Title (TCT) No. T-1221 in the name of
Eugenia Reyes in lieu of TCT No. T-1220 in the name of Ruperta Asuncion.

 On November 26, 1961, Eugenia Reyes executed a unilateral deed of sale where she sold the
northern portion with an area of 32,325 square meters to respondents for P1,500.00 and the
southern portion consisting of 8,754 square meters to Agaton Pagaduan for P500.00. (FIRST SALE)

 Later, on June 5, 1962, Eugenia executed another deed of sale, this time conveying the entire parcel
of land, including the southern portion, in respondent’s favor (SECOND SALE).

 Thus, TCT No. T-1221 was cancelled and in lieu thereof TCT No. T-5425 was issued in the name of
respondents. On June 27, 1989, respondents subdivided the land into two lots.

 On July 26, 1989, petitioners instituted a complaint for reconveyance of the southern portion with
an area of 8,754 square meters, with damages, against respondents before the RTC of Olongapo
City.

 RTC: decided in petitioners’ favor; a constructive trust over the property was created in petitioners’
favor

 CA: reversed decision; while the registration of the southern portion in the name of respondents
had created an implied trust in favor of Agaton Pagaduan, petitioners, however, failed to show that
they had taken possession of the said portion.

ISSUE: Whether Petitioners have a better right over the southern portion of the lot previously sold

HELD: YES

RATIO:

 In this case, there was a double sale. Article 1544 should apply.

ART. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first possession thereof in good faith, if it should be
movable property.
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Should it be immovable property, the ownership shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first
in possession; and, in the absence thereof; to the person who presents the oldest title, provided
there is good faith.

 where it is an immovable property that is the subject of a double sale, ownership shall be
transferred: (1) to the person acquiring it who in good faith first recorded it in the Registry of
Property; (2) in default thereof, to the person who in good faith was first in possession; and (3) in
default thereof, to the person who presents the oldest title, provided there is good faith. The
requirement of the law then is two-fold: acquisition in good faith and registration in good faith.

 DOUBLE SALE: first sale by Eugenia Reyes to Agaton Pagaduan and a second sale by Eugenia Reyes
to the respondents.13

 For a second buyer like the respondents to successfully invoke the second paragraph, Article 1544
of the Civil Code, it must possess good faith from the time of the sale in its favor until the
registration of the same.

 Respondents sorely failed to meet this requirement of good faith since they had actual knowledge
of Eugenia’s prior sale of the southern portion property to the petitioners, a fact antithetical to
good faith. This cannot be denied by respondents since in the same deed of sale that Eugenia sold
them the northern portion to the respondents for P1,500.00, Eugenia also sold the southern
portion of the land to Agaton Pagaduan for P500.00.14

 It is to be emphasized that the Agaton Pagaduan never parted with the ownership and possession
of that portion of Lot No. 785 which he had purchased from Eugenia Santos. Hence, the
registration of the deed of sale by respondents was ineffectual and vested upon them no
preferential rights to the property in derogation of the rights of the petitioners.

 Knowledge gained by respondents of the first sale defeats their rights even if they were first to
register the second sale. Knowledge of the first sale blackens this prior registration with bad
faith.16 Good faith must concur with the registration. 17Therefore, because the registration by the
respondents was in bad faith, it amounted to no registration at all.

 As the respondents gained no rights over the land, it is petitioners who are the rightful owners,
having established that their successor-in-interest Agaton Pagaduan had purchased the property
from Eugenia Reyes on November 26, 1961 and in fact took possession of the said property.

DISPOSITIVE: Petition is granted

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5. Naawan Community Rural Bank v. CA

Facts:

This is an action for quieting of title brought by Spouses Alfredo and Annabelle Lumo (Spouses Lumo).
Guillermo Comayas (Comayas) offered to sell to Spouses Lumo a house and lot in Cagayan de Oro.
Interested, Spouses Lumo made inquiries at the Office of the Register of Deeds and Bureau of Lands where
they found out that the property was mortgaged to Mrs. Galupo for P8,000.00 and that the title was with
the latter. They gave Comayas P10,000.00 to redeem the property, and eventually it was released of the
adverse claim. This release was then annotated on the title. Even before this release, Spouses Lumo and
Comayas executed a deed of absolute sale, the property sold for P125,000 but only P30,000.00 was
stipulated in the deed. The deed was then registered and a title was issued in the name of Spouses Lumo.
When they requested the issuance of a new tax declaration, they found out that the property was already
in the name of Naawan Community Rural Bank, Inc. for tax purposes.

It turns out that the property was mortgaged to bank before but such was foreclosed and acquired by the
bank. At the time the mortgage was constituted, the land was still unregistered. About a year after, it was
registered under the Land Registration Act (LRA) and title was issued in the name of Comayas. It was only
after the land was covered by the Torrens System that the sheriffs deed of final conveyance was delivered
to the bank and it was registered under Act 3344, not the LRA. Thus, the bank obtained a tax declaration.

The bank filed an ejectment case against Comayas which was decided in its favor, but the judgment could
not be executed because Spouse Lumo were already in possession of the land. Spouse Lumo then
instituted this proceeding for fear of ejectment.

The RTC decided in favor of Spouses Lumo, finding them purchasers for value and in good faith. They were
declared absolute owners and possessors. The CA affirmed the RTC decision.

Issue: Do Spouses own the property?

Ruling and Ratio: Yes.

Bank: The registration under Act 3344 which was earlier should prevail over the deed of absolute sale
covered by the LRA.

SC: No. When a person claims to have superior proprietary rights over another on the ground that he
derived his title from a sheriff’s sale, Article 1544 on “first or prior registration” will apply only if said
execution sale of real property is under the LRA, not Act 3344. When Spouses Lumo purchased the
property, it was already under the Torrens System and such registration is the operative act that gives
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validity to the transfer and creates a lien upon the land. The issuance of the title relived the land of the
adverse claims except those annotated.

Bank: Assuming that registration under LRA was enough, the deed of sale to Spouse Lumo should still be
cancelled because Spouses were not purchasers in good faith. The prior registration under Act 3344 served
as constructive notice to Spouses Lumo that it was already registered under the name of the bank.

SC: The right created by the LRA cannot accrue under an inscription of bad faith Mere registration of title
in case of double sale is not enough; good faith must concur. Here good faith is present. The priority in
time rule invoked by the bank is misplaced because its registration was not under the LRA as opposed to
that of the Comayas. It is a well-known rule that persons dealing with registered land have the legal right
to rely on the face of the Torrens Certificate of Title and to dispense with the need to inquire further,
except when the party concerned has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry. Here, the Spouse could have relied on the title. But they
still inquired further and exercised the required diligence. They found no adverse claim or liens or
encumbrances. They are purchasers in good faith. The court rules for Spouses Lumo and affirms the
declaration as owners and purchasers in good faith.

6. NAVAL v CA

Facts:
- December 2, 1969 – Ildefonso Naval sold a parcel of land (858 sqm) to Gregorio Galarosa. The sale
was recorded in the Registry of Property of the Registry of Deeds the following day pursuant to Act
No. 3344, the law governing registrations of all instruments on unregistered lands.
- Gregorio Galarosa the sold portions of the land to Balilla (Nov 1976), Nacion (Jan 1977), Spouses
Moya (Jul 1977), and Camalla (Sept 1987). All buyers occupied the portions, built improvements
thereon, and paid taxes on them.
- The controversy arose when Juanita Naval, petitioner and great granddaughter of Ildefonso, was
issued a TCT by the Registry of Deeds covering 733 sqm of the same land because apparently,
Ildefonso sold it to her on 1972.
- November 10, 1977, petitioner filed for recovery of possession against the buyers of Gregorio, but
was dismissed because of failure to prosecute.
- 20 years later, April 21, 1997, Naval refiled the complaint for recovery of possession with damages
before MCTC against the buyers.
- MCTC declared Naval as owner of the land. RTC affirmed. CA reversed based on Art. 1544 which
states in the second paragraph that if the same immovable property had been sold to different
vendees, ownership belongs to the person acquiring it who in good faith first recorded it in the
Registry of property.

Issue: Who has the superior right over the land, Juanita Naval or the buyer-repondents? WON Art 1544 of
the NCC is applicable in this case.

Held:
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The buyer-respondents have superior right over Naval on the subject property. However, Art 1544 is
inapplicable to the case at bar since the subject land was unregistered at the time of the first sale. The
registration contemplated under this provision has been held to refer to registration under the Torrens
System, which considers the act of registration as the operative act which binds the land. (Carumba v CA)

The applicable law is Act 3344, which provides for the registration of all instruments on land neither
covered by the Spanish mortgage law or the Torrens System. Under this law, registration by the first buyer
is constructive notice to the second buyer that can defeat his right as such buyer in good faith.

Registration of an instrument involving unregistered land in the Deeds Registry creates a constructive
notice and binds third persos who may subsequently deal with the same property (Bautista v Fule)

Even if petitioner argues that she bought and registered the land in good faith, the buyer-respondents still
have a superior right over the property. The issue of good faith or bad faith of the buyer is relevant only
where the subject of the sale Is registered land, and the purchaser is buying the same from the registered
owner whose title to the land is clean. Thus the subsequent buyer’s claim of good faith would not protect
them if it turns out that their seller did not own the property at the time of the sale.

One can only sell what one owns or is authorized to sell. Buyer can acquire no more than what the seller
can transfer legally (nemo dat quod non habet). Since Ildefonso no longer owned the land in 1972 when he
sold it to Juanita, the latter did not acquire any right to it.

7. Carbonell v. CA

Facts:

– Jose Poncio, a native of the Batanes Islands, was the owner of the parcel of land with improvements
situated at 179 V. Agan St., San Juan, Rizal covered by TCT 5040 and subject to a mortgage in favor of the
Republic Savings Bank for the sum of P1,500.00.

– Rosario Carbonell, a cousin and adjacent neighbor of Poncio, and also from the Batanes Islands, lived in
the adjoining lot at 177 V. Agan Street. Both Rosario Carbonell and Emma Infante offered to buy the said
lot from Poncio. Poncio, unable to keep up with the installments due on the mortgage, approached
Carbonell one day and offered to sell to the latter the said lot, excluding the house wherein he lived.
Carbonell accepted the offer and proposed the price of P9.50 per square meter.

– Poncio accepted the price proposed by Carbonell, on the condition that from the purchase price would
come from the money to be paid to the bank. Carbonell and Poncio went to the bank and secured the
consent of the President thereof for her to pay the arrears on the mortgage and to continue the payment
of the installments as they fall due. The amount in arrears reached a total sum of P247.26. 200 was paid by
Carbonell with the balance paid by Poncio which was later refunded by Carbonell.

– On 27 January 1955, Carbonell and Poncio executed a document allowing Poncio to occupy the land sold
within one year, and may continue to do so with rent thereafter if could not find any place to move his
house. Carbonell brought to Poncio a prepared deed of sale together with the amount of some P400, the
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balance she still had to pay in addition to her assuming the mortgage obligation to Republic Savings Bank.
She was told, however, that Poncio could not proceed any more with the sale, because he had already
given the lot to Emma Infante (and Ramon Infante); and that he could not withdraw from his deal with
Infante, even if he were to go to jail. Carbonell then sought to contact Infante, but the latter refused to see
her. On 5 February 1955, Carbonell saw Infante erecting a wall around the lot with a gate.

– Poncio admitted that Infante improved her offer and he agreed to sell the land and its improvements to
her for P3,535.00. In a private MOA dated 31 January 1955, Poncio indeed bound himself to sell to Infante,
the property for the sum of P2,357.52, with Infante still assuming the existing mortgage debt in favor of
Republic Savings Bank in the amount of P1,177.48. Infante lives just behind the houses of Poncio and
Carbonell. On 2 February 1955, Poncio executed the formal deed of sale in favor of Infante in the total sum
of P3,554.00 and on the same date, the latter paid Republic Savings Bank the mortgage indebtedness of
P1,500.00. The mortgage on the lot was eventually discharged.

– Carbonell registered an adverse claim on the property on 8 February 1955. The deed of sale in favor of
Infante was registered only on 12 February 1955. As a consequence thereof, a TCT was issued to her but
with the annotation of the adverse claim of Carbonell. Infante took immediate possession of the lot
involved, covered the same with garden soil and built a wall and gate, hired an architect to build a house;
but the construction of the same started only in 1959, years after the litigation actually began and during
its pendency. Infante spent for the house the total amount of P11,929.

– Carbonell, thru counsel, filed a second amended complaint against Poncio and Infante, praying that she
be declared the lawful owner of the questioned parcel of land; that the subsequent sale to Infante be
declared null and void, and that Poncio be ordered to execute the corresponding deed of conveyance of
said land in her favor and for damages and attorney’s fees. Poncio and Infante moved to dismiss the
complaint on the ground, among others, that Carbonell’s claim is unenforceable under the Statute of
Frauds, the alleged sale in her favor not being evidenced by a written document

– The trial court sustained the objection and dismissed the complaint on the ground that the
memorandum presented by Carbonell to prove said sale does not satisfy the requirements of the law.

– From the above order of dismissal, Carbonnel appealed to the Supreme Court which ruled that the
Statute of Frauds, being applicable only to executory contracts, does not apply to the alleged sale between
Carbonell and Poncio, which Carbonell claimed to have been partially performed, so that Carbonell is
entitled to establish by parol evidence “the truth of this allegation, as well as the contract itself.” The order
appealed from was thus reversed, and the case remanded to the court a quo for further proceedings.

– After trial in the court a quo, the TC declared the second sale by Poncio to Infante of the land in question
null and void and ordered Poncio to execute the proper deed of conveyance of said land in favor of
Carbonell after compliance by the latter of her covenants under her agreement with Poncio.

– After the re-hearing, the TC reversed its earlier decision on the ground that the claim of Infante was
superior to the claim of Carbonell, and dismissing the complaint.
 12

– On appeal, CA reversed the TC decision declaring Carbonell to have a superior right to the land in
question, and condemning Infante to reconvey to Carbonell, after her reimbursement to them of the sum
of P3,000 plus legal interest, the land in question and all its improvements.

– On Infante's motion for reconsideration, the CA annulled and set aside their earlier decision.

– The SC reversed the decision of the last decision of the CA and declared Carbonell to have the superior
right to the land in question and directed Carbonell to reimburse to Infante the sum of P1,500 within 3
months from the finality of the decision; directed the Register of Deeds of Rizal to cancel TCT issued in
favor of Infante covering the disputed lot and to issue a new TCT in favor of Carbonell. Infante may remove
their useful improvements from the lot within 3 months from the finality of this decision, unless Carbonell
elects to acquire the same and pay Infante the amount of P13,429 within 3 months from the finality of the
decision. Should Carbonell fail to pay the said amount within the period of 3 months from the finality of
the decision, the period of 3 months within which Infante may remove their useful improvements shall
commence from the expiration of the 3 months given Carbonell to pay for the said useful improvements;
with costs against Poncio and Infante.

1. Double sale; Article 1544

Article 1544, New Civil Code, which is decisive of this case, recites “If the same thing should have been
sold to different vendees, the ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property. Should it be immovable property, the
ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of
Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided
there is good faith.”

2. Good faith essential in registering deed of sale

It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the
protection of the second paragraph of said Article 1544. Unlike the first and third paragraphs of said Article
1544, which accord preference to the one who first takes possession in good faith of personal or real
property, the second paragraph directs that ownership of immovable property should be recognized in
favor of one “who in good faith first recorded” his right. Under the first and third paragraphs, good faith
must characterize the prior possession. Under the second paragraph, good faith must characterize the act
of anterior registration (DBP vs. Mangawang, et al., 11 SCRA 405; Soriano, et al. vs. Magale, et al., 8 SCRA
489).

3. Decisive fact if there is no inscription, or if there is inscription

If there is no inscription, what is decisive is prior possession in good faith. If there is inscription, as in the
present case, prior registration in good faith is a pre-condition to superior title.

4. Carbonell’s prior purchase and registration in good faith

When Carbonell bought the lot from Poncio on 27 January 1955, she was the only buyer thereof and the
title of Poncio was still in his name solely encumbered by bank mortgage duly annotated thereon.
Carbonell was not aware of any sale to Infante as there was no such sale to Infante then. Hence,
Carbonell’s prior purchase of the land was made in good faith. Her good faith subsisted and continued to
 13

exist when she recorded her adverse claim 4 days prior to the registration of Infante’s deed of sale.
Carbonell’s good faith did not cease after Poncio told her on 31 January 1955 of his second sale of the
same lot to Infante. Because of that information, Carbonell wanted an audience with Infante, which desire
underscores Carbonell’s good faith. Infante refused to see her. Carbonell did the next best thing to protect
her right, she registered her adverse claim on 8 February 1955. Under the circumstances, this recording of
her adverse claim should be deemed to have been done in good faith and should emphasize Infante’s bad
faith when she registered her deed of sale 4 days later on 12 February 1955.

5. Bad faith of Infante; Facts showing bad faith

Bad faith arising from previous knowledge by Infante of the prior sale to Carbonell is shown by the
following facts: (1) Infante refused to see Carbonell, who wanted to see Infante after she was informed by
Poncio that he sold the lot to Infante but several days before Infante registered her deed of sale. Ordinarily,
one will not refuse to see a neighbor. Her refusal to talk to Carbonell could only mean that she did not
want to listen to Carbonell’s story that the latter had previously bought the lot from Poncio. (2) Carbonell
was already in possession of the mortgage passbook [not Poncio’s savings deposit passbook: Infantes] and
Poncio’s copy of the mortgage contract, when Poncio sold the lot to Infante. This shows that the lot was
already sold to Carbonell who, after paying the arrearages of Poncio, assumed the balance of his mortgage
indebtedness to the bank, which in the normal course of business must have necessarily informed Infante
about the said assumption by Carbonell of the mortgage indebtedness of Poncio. Before or upon paying in
full the mortgage indebtedness of Poncio to the bank, Infante naturally must have demanded from Poncio
the delivery to her of his mortgage passbook as well as Poncio’s mortgage contract so that the fact of full
payment of his bank mortgage will be entered therein; and Poncio, as well as the bank, must have
inevitably informed her that said mortgage passbook could not be given to her because it was already
delivered to Carbonell; (3) The fact that Poncio was no longer in possession of his mortgage passbook and
that the said mortgage passbook was already in possession of Carbonell, should have compelled Infante to
inquire from Poncio why he was no longer in possession of the mortgage passbook and from Carbonell
why she was in possession of the same (Paglago, et al., vs. Jarabe, et al., 22 SCRA 1247, 1252-1253); (4)
Carbonell registered on 8 February 1955 her adverse claim, which was accordingly annotated on Poncio’s
title 4 days before Infante registered on 12 February 1955 her deed of sale executed on 2 February 1955.
Infante was again on notice of the prior sale to Carbonell. Such registration of adverse claim is valid and
effective (Jovellanos vs. Dimalanta, L-11736-37, January 30, 1959, 105 Phil. 1250-51); (5) In his answer to
the complaint filed by Poncio, as defendant in the CFI, he alleged that both Infante and Carbonell offered
to buy the lot at P15 per sq.m., which offers he rejected as he believed that his lot is worth at least P20 per
sq.m. Knowledge of this should have put Infante on her guard and should have compelled her to inquire
from Poncio whether or not he had already sold the property to Carbonell (See Carbonell vs. Poncio, L-
11231, 12 May 1958).

6. “Contract for ½ lot…” not in the purview of Statute of Frauds; not a contract of sale; indicates sale as an
accomplished act
The private document executed by Poncio and Carbonell and witnessed by Constancio Meonada captioned
“Contract for One-half Lot which I Bought from Jose Poncio,” was not such a memorandum in writing
within the purview of the Statute of Frauds. The memorandum in question merely states that Poncio is
allowed to stay in the property which he had sold to Carbonell. There is no mention of the consideration, a
description of the property and such other essential elements of the contract of sale. There is nothing in
 14

the memorandum which would tend to show even in the slightest manner that it was intended to be an
evidence of contract of sale. On the contrary, from the terms of the memorandum, it tends to show that
the sale of the property in favor of Carbonell is already an accomplished act. By the very contents of the
memorandum itself, it cannot therefore, be considered to be the memorandum which would show that a
sale has been made by Poncio in favor of Carbonell.”

7. Contract of Sale not in the purview of Statute of Frauds as it is allegedly partially performed
Because the complaint alleges and the Carbonell claims that the contract of sale was partly performed, the
same is removed from the application of the Statute of Frauds and Carbonell should be allowed to
establish by parol evidence the truth of her allegation of partial performance of the contract of sale. There
was a partial performance of the verbal sale executed by Poncio in favor of the Carbonell, when the latter
paid P247.26 to the Republic Savings Bank on account of Poncio’s mortgage indebtedness.

8. Language (Dialect) used of memorandum indicates lack of intent on the part of Carbonell to mislead
Poncio
The document signed by Poncio is in the Batanes dialect, which, according to Carbonell’s uncontradicted
evidence, is the one spoken by Poncio, he being a native of said region. The allegation in Poncio’s answer
to the effect that he signed the document under the belief that it ‘was a permit for him to remain in the
premises in the event’ that ‘he decided to sell the property’ to Carbonell at P20 a sq. m. is, on its face,
difficult to believe. If he had not decided as yet to sell the land to Carbonell, who had never increased her
offer of P15 a sq,m., there was no reason for Poncio to get said permit from her. Upon the other hand, if
Carbonell intended to mislead Poncio, she would have caused the document to be drafted, probably, in
English, instead of taking the trouble of seeing to it that it was written precisely in his native dialect, the
Batanes. Moreover, Poncio’s signature on the document suggests that he is neither illiterate nor so
ignorant as to sign a document without reading its contents, apart from the fact that Meonada had read
the document to him and given him a copy thereof , before he signed thereon, according to Meonada’s
uncontradicted testimony.

9. Carbonell entitled to introduce parol evidence

The Court would not know why Poncio’s bank deposit book is in Carbonell’s possession, or whether there
is any relation between the P247.26 entry therein and the partial payment of P247.26 allegedly made by
Carbonell to Poncio on account of the price of his land, if the Court does not allow Carbonell to explain it
on the witness stand. She is entitled, legally as well as from the viewpoint of equity, to an opportunity to
introduce parol evidence in support of the allegations of her second amended complaint.

10. One-half lot clearly the parcel of land occupied by Poncio and where he has his improvements erected
The one half lot was mentioned in the document because the original description carried in the title states
that it was formerly part of a bigger lot and only segregated later. Such explanation is tenable, in
considering the time value of the contents of the document, there is a sufficient description of the lot
referred to as none other than the parcel of land occupied by Poncio and where he has his improvements
erected. The identity of the parcel of land involved is sufficiently established by the contents of the note.

11. Existence of a contract of sale

There had been celebrated a sale of the property excluding the house for the price of P9.50 per square
meter, so much so that on faith of that, Rosario had advanced the sum of P247.26 and binding herself to
 15

pay unto Jose the balance of the purchase price after deducting the indebtedness to the Bank. Since the
wording of the private document goes so far as to describe their transaction as one of sale, already
consummated between them, as can be noted with the past tense used in the phrase, ‘the lot sold by him
to me’ and going so far even as to state that from that day onwards, vendor would continue to live therein,
for one year, ‘during which time he will not pay anything’ this can only mean that between Rosario and
Jose, there had been a true contract of sale, consummated by delivery constitutum possessorium
(Art.1500, New Civil Code); vendor’s possession having become converted from then on, as a mere tenant
of vendee, with the special privilege of not paying rental for one year.

12. Contract is consensual; Oral contract does not invalidate sale but merely incapable of proof
Even if the document was not registered at all, it was a valid contract nonetheless. Under the law, a
contract sale is consensual, perfected by mere consent (Couto vs. Cortes, 8 Phil. 459). Under the New Civil
Code, while a sale of an immovable is ordered to be reduced to a public document (Art. 1358), that
mandate does not render an oral sale of realty invalid, but merely incapable of proof. Where still executory
and action is brought and resisted for its performance (1403, par. 2, 3); but where already wholly or partly
executed or where even if not yet, it is evidenced by a memorandum, in any case where evidence to
further demonstrate is presented and admitted, then the oral sale becomes perfectly good, and becomes a
good cause of action not only to reduce it to the form of a public document, but even to enforce the
contract in its entirety (Art. 1357).

13. Perfected sale; Justice Gatmaitan correct

In his dissent concurred in by Justice Rodriguez, Justice Gatmaitan maintains his decision of 2 November
1967 as well as his findings of facts therein, and reiterated that the private memorandum is a perfected
sale, as a sale is consensual and consummated by mere consent, and is binding on and effective between
the parties. This statement of the principle is correct.

14. Mortgage of lot about to be foreclosed when Poncio agreed to sell the lot to Carbonell; Ample
consideration in the sale
The mortgage on the lot was about to be foreclosed by the bank for failure on the part of Poncio to pay
the amortizations thereon. To forestall the foreclosure and at the same time to realize some money from
his mortgaged lot, Poncio agreed to sell the same to Carbonell at P9.50 per square meter, on condition
that Carbonell [1] should pay (a) the amount of P400.00 to Poncio and (b) the arrears in the amount of
P247.26 to the bank; and [2] should assume his mortgage indebtedness. The bank president agreed to the
said sale with assumption of mortgage in favor of Carbonell and Carbonell accordingly paid the arrears of
P247.26. On January 27, 1955, she paid the amount of P200.00 to the bank because that was the amount
that Poncio told her as his arrearages and Poncio advanced the sum of P47.26 which amount was refunded
to him by Carbonell the following day. This conveyance was confirmed that same day, January 27, 1955, by
the private document which was prepared in the Batanes dialect by the witness Constancio Meonada, who
is also from Batanes like Poncio and Carbonell. The sale did not include Poncio’s house on the lot. Poncio
was given the right to continue staying on the land without paying any rental for one year, after which he
should pay rent if he could not still find a place to transfer his house. All these terms are part of the
consideration of the sale to Carbonell. There was ample consideration, and not merely the sum of
P200.00, for the sale of Poncio to Carbonell of the lot in question.
 16

15. Carbonell, not Infante, victim of injustice and outrage

Poncio, induced by the higher price offered to him by Infante, reneged on his commitment to Carbonell
and told Carbonell, who confronted him about it, that he would not withdraw from his deal with Infante
even if he is sent to jail. The victim, therefore, “of injustice and outrage” is the widow Carbonell and not
the Infantes, who without moral compunction exploited the greed and treacherous nature of Poncio, who,
for love of money and without remorse of conscience, dishonored his own plighted word to Carbonell, his
own cousin.

16. Infante not entitled to recover value of improvements introduced in the lot
The bad faith of Emma Infante – from the time she enticed Poncio to dishonor his contract with Carbonell,
and instead to sell the lot to her (Infante) by offering Poncio a much hinger price than the price for which
he sold the same to Carbonell – is clear. Being guilty of bad faith, both in taking physical possession of the
lot and in recording their deed of sale, the Infantes cannot recover the value of the improvements they
introduced in the lot. And after the filing by Carbonell of the complaint in June 1955, the Infantes had less
justification to erect a building thereon since their title to said lot is seriously disputed by Carbonell on the
basis of a prior sale to her.

17. Poncio did not remain owner by possessing the lot

Being a valid consensual contract, the document effectively transferred the possession of the lot to the
vendee Carbonell by constitutum possessorium (Article 1500, New Civil Code); because thereunder the
vendor Poncio continued to retain physical possession of the lot as tenant of the vendee and no longer as
owner thereof. More than just the signing of the document by Poncio and Carbonell with Constancio
Meonada as witness to perfect the contract of sale, the transaction was further confirmed when Poncio
agreed to the actual payment by Carbonell of his mortgage arrearages to the bank on 27 January 1955 and
by his consequent delivery of his own mortgage passbook to Carbonell. If he remained owner and
mortgagor, Poncio would not have surrendered his mortgage passbook to Carbonell.

18. Poncio does not own another parcel of land with the same area adjacent to Carbonell
It is not shown that Poncio owns another parcel with the same area, adjacent to the lot of his cousin
Carbonell and likewise mortgaged by him to the Republic Savings Bank. The transaction therefore between
Poncio and Carbonell can only refer and does refer to the lot involved. If Poncio had another lot to remove
his house, the document would not have stipulated to allow him to stay in the sold lot without paying any
rent for one year and thereafter to pay rental in case he cannot find another place to transfer his house.

19. Carbonell liable to efund amount Infante paid the bank to redeem the mortgage
While Carbonell has the superior title to the lot, she must however refund to Infante the amount of
P1,500, which Infante paid to the Republic Savings Bank to redeem the mortgage.

20. Article 546 and 547, NCC

The Infante spouses being possessors in bad faith, their rights to the improvements they introduced on the
disputed lot are governed by Articles 546 and 547 of the New Civil Code.

21. Infante’s expenses

Their expenses consisting of P1,500 for draining the property, filling it with 500 cubic meters of garden soil,
building a wall around it and installing a gate and P11,929for erecting a bungalow thereon, are useful
 17

expenditures; for they add to the value of the property (Aringo vs. Arenas, 14 Phil. 263; Alburo vs.
Villanueva, 7 Phil. 277; Valencia vs. Ayala de Roxas, 13 Phil. 45).

22. Article 546 and 547; Possessor in good faith entitled to right of retention of useful improvement and
right to a refund for useful expenses; Implies contrary to possessor in bad faith
Under the second paragraph of Article 546, the possessor in good faith can retain the useful improvements
unless the person who defeated him in his possession refunds him the amount of such useful expenses or
pay him the increased value the land may have acquired by reason thereof. Under Article 547, the
possessor in good faith has also the right to remove the useful improvements if such removal can be done
without damage to the land, unless the person with the superior right elects to pay for the useful
improvements or reimburse the expenses therefor under paragraph 2 of Article 546. These provisions
seem to imply that the possessor in bad faith has neither the right of retention of useful improvements nor
the right to a refund for useful expenses.

23. Equity; Infante’s right of remotion or the value of the improvements (not current value) if Carbonell
appropriates for herself the improvements
If the lawful possessor can retain the improvements introduced by the possessor in bad faith for pure
luxury or mere pleasure only by paying the value thereof at the time he enters into possession (Article 549
NCC), as a matter of equity, the Infantes, although possessors in bad faith, should be allowed to remove
the improvements, unless Carbonell chooses to pay for their value at the time Infante introduced said
useful improvements in 1955 and 1959. Infante cannot claim reimbursement for the current value of the
said useful improvements; because they have been enjoying such improvements for about 2 decades
without paying any rent on the land and during which period Carbonell was deprived of its possession and
use.

8. Tanglao vs Parungao
Facts:

 The spouses Parungao purchased from Spring Homes subdivision 7 lots for a total price of 708K.
They made improvements on the lots consisting of a concrete perimeter fence with cyclone wires,
a steel gate, two fish breeding building and elevated the ground.
 Under the terms of the Contracts to Sell signed by respondents, the balance was to paid within one
year from execution and should they apply for A LOAN, they would continue to pay the monthly
installment until their obligation was fully paid.
 Respondents failed to pay the installments and failed to secure a loan because Spring Homes
refused to deliver to them the TCTs covering the lots required for the application of said loan.
 They requested for the TCTs but what Spring Homes gave them was only the Contracts to Sell which
they gave back for corrections of the lot numbers and the names of the buyers.
 After this, Spring Homes sold some of the lots of the Parungaos to the Tanglaos. The Tanglaos
forcibly opened the steel gate as well as the doors of the buildings and entered the premises.
 HLURB: Ruled in favor of the Parungaos – there were structures and a fence showing that there
were adverse claimants to the property.
 18

 CA: affirmed HLURB.

Issue: Who owns the land in this double sale?

Held: Parungaos.

Discussion:

 The Court highlighted the provisions of Article 1544 on preferential rights when there is a double
sale:
o In good faith, first recorded in registry of property
o In default thereof, in good faith of who was first in possession.
o In default thereof, in good faith, person who presents oldest title.
 Good faith being essential, in this case, the Court found that the Tanglaos were not in good faith as
it was clear that there were already occupants and improvements on the two lots in question. The
Tanglaos should have seen these. They cannot be regarded as in good faith and cannot have any
right over the property.

9. SAN LORENZO DEVELOPMENT CORP. V. COURT OF APPEALS, BABASANTA, and Spouses LU

FACTS:
 Spouses Lu owned 2 parcels of land in Sta. Rosa Laguna
 Aug. 20, 1986: Lu purportedly sold the 2 lots to Babasanta, who made a P50,000 downpayment. He
later made other payments totalling P200,000.
 May 1989: Babasanta wrote Lu a letter, asking for execution of the final deed of sale, saying he
heard that they sold the same property to another without his knowledge and consent.
 Babasanta later sued, and SLDC filed a Motion for Intervention, alleging it was a buyer in good faith
and for value ∴ it had a better right over the property:
o Feb. 11, 1989: Option to Buy, SLDC paid P316,160 option money
o May 3, 1989: Deed of Absolute Sale, certificates of title were delivered to SLDC clean and
free from any adverse claims and/or notice of lis pendens
 RTC: SLDC.
o Applied Art. 1544. Since both Babasanta and SLDC didn’t register the respective sales in
their favor, ownership of the property should pertain to the buyer who first acquired
possession of the property. The execution of a public instrument in favour of SLDC
constituted sufficient delivery, and symbolic possession was transferred to SLDC which was
a buyer in good faith.
 CA: Babasanta
o SLDC was a buyer in bad faith.

ISSUES:
1. Who has a better right over the property?
2. Did the registration of the sale after the annotation of the lis pendens obliterate the effects of
delivery and possession in good faith by SLDC?
 19

HELD: SLDC
1. SLDC has the better right, since the contract between Babasanta and Lus was only a contract to sell,
and there was no delivery to Babasanta. (∴ no double sale)
 Art. 1544: primus tempore, potior jure (first in time, stronger in right)
o In case of double sale of an immovable, the one who acquires it first and first
records it in the Registry of Property, both made in good faith, shall be deemed the
owner.
2. No.
 Although SLDC registered the sale after learned about Babasanta’s claim, the SC considered
SLDC’s good faith from the time of execution of the first deed up to the moment of transfer
of delivery and possession. The subsequent annotation of lis pendens has no effect at all on
the sale to SLDC, which had already been consummated.
 SLDC (contract of sale) had a superior right to Babasanta (contract to sell), which is
irrelevant to SLDC’s status as a buyer in good/bad faith.
o Babasanta neither possessed nor registered the property at any time.

 Assuming arguendo that SLDC’s registration of the sale was tainted by the notice of lis
pendens and assuming that this case involves a double sale, the court would still rule for
SLDC.
o Abarquez v. CA
 Israels (1st vendees) were first in possession, but the sale was only notarized
and registered after Abarquez (2nd vendee) registered the same.
 Israels, since Abarquez’s registration lacked good faith.
 If a vendee in a double sale registers the sale after he acquired knowledge of
a previous sale, the registration is considered in bad faith and doesn’t confer
upon him any right. In that case, it’s as if there was no registration at all and
the buyer who has taken possession first in good faith shall be preferred.
o SLDC had prior possession in good faith (delivery was effected immediately after
execution of the deed of sale, at which point SLDC didn’t know about the earlier
contract with Babasanta)
Criteria (all coupled with good faith):
1. Priority of entry in the registry of property
2. Priority of possession
3. Date of title
 20

10. RICARDO CHENG v. RAMON B. GENATO and ERNESTO R. DA JOSE & SOCORRO DA JOSE

FACTS:
1. Contract to Sell (September 6, 1989) executed by Ramon B. Genato in favor of Sps. Ernesto R. Da
Jose and Socorro B. Da Jose where the former was to sell his two parcels of land (Paradise Farms,
San Jose del Monte, Bulacan) to latter
a. P1M (P50k as down payment and P950k in 30d after having satisfactorily verified the
authenticity of documents and that no restrictions imposed on the property shall be
detrimental to their interest)
b. It was executed in a public instrument and annotated at the back of the two titles
2. October 4, 1989, 2d before the deadline for full payment, Sps. Da Jose asked and was granted an
extension of another 30d, or until November 5, 1989
a. Accdg to Genato: Extension was conditioned that a new set of documents is made in 7d
b. Accdg to sps. Da Jose: No condition
3. Rescission of Contract to Sell by Genato because of failure to pay by Oct. 6, the deadline
a. By virtue of an Affidavit to Annul the Contract to Sell (October 13, 1989), which was not
annotated at the back of his titles
b. Without due notice to sps. Da Jose
4. Ricardo Cheng went to Genato’s residence (October 24, 1989) and expressed interest in buying the
properties
a. Cheng was shown copies of the tiles, the annotations at the back, and the Affidavit to Annul
the Contract to Sell which has not been annotated
b. Nonetheless, Cheng issued a P50k check upon the assurance by Genato that the previous
contract with the Da Jose spouses will be annulled
c. Handwritten Receipt by Genato: “Received from Ricardo Cheng the Sum of P50k as
partial…”
d. Cheng called to remind Genato to register the affidavit (October 25, 1989)
5. Registration of the Affidavit (October 26, 1989) by Genato
a. Coincidental meeting b/w Genato and sps. Da Jose at the Registry of Deeds (October 27,
1989)
b. Sps. Da Jose learned about the affidavit and protested, reminding Genato of the 30d
extension
c. Genato thus decided to continue the Contract to Sell with sps. Da Jose (Conforme Letter,
October 27, 1989)
 21

6. Genato informed Cheng of his decision and returned the P50k check, twice, and Cheng refused,
twice, and demanded compliance with their agreement which he claimed to have been perfected
a. Cheng executed an affidavit of adverse claim and had it annotated on the TCT's (November
2, 1989)
7. Full Payment by sps. Da Jose
8. COMPLAINT for Specific Performance (December 8, 1989) by Cheng to compel Genato to execute a
deed of sale to him, contending that:
a. P50k check was partial payment and considered as an earnest money
b. Contract was already perfected
9. ANSWER of Genato:
a. Agreement with Cheng, embodied in the handwritten receipt, was only a simple receipt of
an option-bid deposit
b. Receipt never stated that it was a partial payment / earnest money
c. Agreement was subject to the condition that the prior contract with sps. Da Jose should first
be cancelled
10. ANSWER of sps. Da Jose
a. Superior right to the property as first buyers
b. Unilateral cancellation of the Contract to Sell was without effect and void
c. Cheng's bad faith as a buyer being duly informed by Genato of the existing annotated
Contract to Sell on the titles
11. RTC (January 18, 1994): Receipt to Cheng was a Sale
a. Sale was without reservation. Otherwise, Receipt would have provided such material
condition or reservation, especially as it was Genato himself who had made the receipt in
his own hand
b. Valid Rescission of the Contract to Sell by virtue of the Affidavit to Annul the Contract to
Sell, Genato having the right to unilaterally rescind the contract under Article 1191
c. Cheng should be preferred over sps. Da Jose in the purchase
12. Court of Appeals (July 7, 1997): Reversed
a. Contract to Sell in favor of sps. Da Jose spouses was not validly rescinded
b. Subsequent Contract to Sell b/w Genato and Cheng, embodied in the handwritten receipt,
was without force and effect due to the failure to rescind the prior contract
c. Cheng in bad faith
13. Certiorari by Cheng, contending that
a. Agreement was not just a contract to sell but one of conditional contract of sale (raised for
the first time)
b. Better rights in his favor, thus precluding the application of the rule on double sales

ISSUE: WON First contract to sell was validly rescinded (NO)

WON Agreement with Cheng was a Contract to Sell and NOT of Sale (YES)
WON Double Sale applies (NO)
HELD:
1. No valid rescission
 22

a. Although agreement was a Contract to Sell with no obligation on the part of the vendor if
the positive suspensive condition of payment has not been complied with, there was no
default here yet because of the 30d extension period
i. The extension had no further condition, OTHERWISE:
ii. Genato could not have been persuaded to continue his contract with them and later
on agree to accept the full settlement of the purchase price knowing fully well that
he himself imposed such sine qua non condition in order for the extension to be
valid
iii. Genato could have immediately annotated his affidavit to annul the contract to sell
on his title when it was executed on October 13, 1989 and not only on October 26,
1989 after Cheng reminded him of the annotation
iv. Genato could have sent at least a notice of such fact, there being no stipulation
authorizing him for automatic rescission
b. ASSUMING, that sps. Da Jose were in default, avoiding the contract ipso facto, it was still
necessary to give notice, verbal or written, of the decision to rescind the contract
i. Written notice must be sent to the defaulter informing him of the same; Act of a
party in treating a contract as cancelled should be made known to the other
ii. PURPOSE:
1. Rescission is provisional, always subject to scrutiny and review by the courts
in case the alleged defaulter brings the matter to the proper courts
(University of the Philippines vs. De Los Angeles)
2. To avoid and prevent the defaulting party from assuming the offer as still in
effect due to the obligee's tolerance for such non-fulfillment
2. Agreement with Cheng was a Contract to Sell
a. Receipt embodies a contract to sell. This was Cheng's contention in his pleadings and the
issue of a conditional sale was only raised before the SC
b. ASSUMING It was a conditional contract to sell, it did not acquire any obligatory force since
it was subject to suspensive condition that the earlier contract to sell between Genato and
sps. Da Jose should first be cancelled or rescinded — a condition never met, as Genato later
maintained his earlier contract with sps. Da Jose
3. Not a Double Sale. NCC 1544 does not apply
a. REQUISITES OF NCC 1544:
i. The two (or more) sales transactions in issue must pertain to exactly the same
subject matter, and must be valid sales transactions.
ii. The two (or more) buyers at odds over the rightful ownership of the subject matter
must each represent conflicting interests; and
iii. The two (or more) buyers at odds over the rightful ownership of the subject matter
must each have bought from the very same seller.
b. Requisites are lacking in a contract to sell: No consummated sale or transfer of ownership
c. BUT! Governing Principle of 1544 Applies: PRIMUS TEMPORE, PORTIOR JURE (first in time,
stronger in right)
i. When does the Second Buyer displace the First:
1. Second buyer must show that he acted in good faith (i.e. in ignorance of the
first sale and of the first buyer's rights) from the time of acquisition until title
 23

is transferred to him by registration or failing registration, by delivery of

possession;
2. Second buyer must show continuing good faith and innocence or lack of
knowledge of the first sale until his contract ripens into full ownership
through prior registration as provided by law
ii. Cheng in bad faith
1. Knowledge of the first transaction b/w sps. Da Jose and Genato defeated his
rights even if he is first to register the second transaction, since such
knowledge taints his prior registration with bad faith (good faith must concur
with registration)
2. Even before the receipt was issued to Cheng, information of the pre-existing
agreement has been brought to his knowledge which did not deter him from
pursuing his agreement with Genato. It was he who sought Genato in order
to inquire about the property and offered to buy the same
3. In re: Good Faith of a Vendee: Leung Yee vs. F.L. Strong Machinery Co says
that Knowledge of facts which should have put a purchaser upon such
inquiry and investigation as might be necessary to acquaint him with the
defects in the title of his vendor. A purchaser cannot close his eyes to facts
which should put a reasonable man upon his guard, and then claim that he
acted in good faith under the belief that there was no defect in the title of
the vendor. His mere refusal to believe that such defect exists, or his willful
closing of his eyes to the possibility of the existence of a defect in his
vendor's title, will not make him an innocent purchaser for value, if it
afterwards develops that the title was in fact defective, and it appears that
he had such notice of the defect as would have led to its discovery had he
acted with that measure of precaution which may reasonably be required of
a prudent man in a like situation.
iii. Sps. Da Jose in good faith
1. Contract with Sps. Da Jose was first in time and registered long before
Cheng’s adverse claim
2. Knowledge of the new agreement b/w Cheng and Genato
a. did not defeat their rights as first buyers except where Cheng, as
second buyer, registers or annotates his transaction or agreement on
the title of the subject properties in good faith ahead of sps. Da Jose
b. did not bar them from availing of their rights granted by law, among
them, to register first their agreement as against the second buyer
iv. What is Registration:
1. any entry made in the books of the registry, including both registration in its
ordinary and strict sense, and cancellation, annotation, and even marginal
notes
2. the entry made in the registry which records solemnly and permanently the
right of ownership and other real rights
 24

11. SUN BROTHERS V. PEREZ

Facts:

- December 6, 1958 P and R entered into a Conditional Sale Agreement

o Pursuant to the agreement, P delivered to R an air conditioner unit
o R received the item and made a down payment of P274 (the agreed total price is P1,678)
o Air conditioner was installed
- December 27, 1958 air conditioner was destroyed by fire
o Thereafter, R did not pay any of the monthly installments after leaving a balance of P1,404
- The conditional sale executed by the plaintiff and defendant contained the following stipulation:

"2. Title to said property shall vest in the Buyer only upon full payment of the entire account as
herein provided, and only upon complete performance of all the other conditions herein specified:

"3. The Buyer shall keep said property in good condition and properly protected against the
elements, at his/its address above-stated, and undertakes that if said property or any part thereof
be lost, damaged, or destroyed for any causes, he shall suffer such loss, or repair such damage, it
being distinctly understood and agreed that said property remains at Buyer's risk after delivery;"

- CFI ruled in favor pf P, ordering R to pay the balance

o declared that as the buyer would be liable in case of loss for any cause, such buyer assumed
liability even in case of loss by fortuitous event
- RESPONDENT’S ARGUMENTS
o inasmuch as the title to the property sold shall vest in the buyer only upon full payment of
the price, the loss of the vendor; that the phrase "for any cause" used in paragraph 2 of the
agreement may not be interpreted to include a fortuitous event absolutely beyond the
control of the appellant;
o and that although Article 1174 of the new Civil Code recognizes the exception on fortuitous
event when the parties to a contract expressly so stipulate, the phrase "for any cause" used
in the contract did not indicate any intention of the parties that the loss of the unit due to
fortuitous event is to be included within the responsibility of the vendor.
- PETITIONER’S ARGUMENTS
o the stipulation in the contract of sale whereby the buyer shall be liable for any loss, damage
or destruction for any cause, is not contrary to law, morals or public policy and is specifically
authorized to be stipulated upon between the parties by Article 1174 of the Civil Code;
o that the risk of loss was expressly stipulated to be undertaken by the buyer, even if the title
to the property sold remained, also by stipulation, in the vendor;
o that the terms "any cause" used in the agreement includes a fortuitous event, and an
express stipulation making the vendee responsible in such case is valid.
Issue: W/N loss by fire extinguishes the obligation of the R to pay P the subsequent installments of the
initial payment

Ratio: NO
 25

- the agreement making the buyer responsible for any loss whatsoever, fortuitous or otherwise, even
if the title to the property remains in the vendor, is neither contrary to law, nor to morals or public
policy.
-
- GOVERNMENT VS. AMECHAZURRA (and American decisions)
o where goods are sold and delivered to the vendor under an agreement that the title is to
remain in the vendor until payment, the loss or destruction of the property while in the
possession of the vendor before payment, without his fault, does not relieve him from the
obligation to pay the price, and he, therefore, suffers the loss.
o In accord with this rule are the provisions of the Uniform Sales Act and the Uniform
Conditional Sales Act. There are several basis for this rule.
1. First is the absolute and unconditional nature of the vendee's promise to pay for the
goods. The promise is nowise dependent upon the transfer of the absolute title.
2. Second is the fact that the vendor has fully performed his contract and has nothing
further to do except receive payment, and the vendee received what he bargained
for when he obtained the right of possession and use of the goods and the right to
acquire title upon making full payment of the price.
3. A third basis advanced for the rule is the policy of providing an incentive to care
properly for the goods, they being exclusively under the control and dominion of the
vendee."
- In the case at bar, the loss by fire or fortuitous event was expressly agreed in the contract to be
borne by the buyer and this express agreement is not contrary to law but sanctioned by it as well
as by the demands of sound, public policy

12. LAWYERS COOPERATIVE PUBLISHING COMPANY,vs.PERFECTO A. TABORA,

Facts:

- May 3, 1955 - Perfecto Tabora bought a set of American Jurisprudence from Lawyers Cooperative
Publishing Company for P1,682.40. It was stipulated in their contract that the set shall be payable
in installments and "title to and ownership of the books shall remain with the seller until the
purchase price shall have been fully paid. Loss or damage to the books after delivery to the buyer
shall be borne by the buyer.”
- Tabora made a partial payment of 300 and the books were delivered to him. However a fire broke
out which burned the books. By good will, the Publishing Co. sent him free of charge volumes 75,
76, 77 and 78 of the Philippine Reports
- However upon Tabora’s failure to pay for the burned books, the Publishing Co filed an action with
the CFI for recovery of the balance for the books. Tabora pleaded the defense of force majeure thus
he couldn’t be responsible for the loss.
- CFI: ruled in favor of the Publishing Co.
- Tabora’s contentions:
o Publishing Co should bear the loss since as stipulated in the contract, title and ownership
shall not transfer until the books have been fully paid
 26

o Even if ownership has transferred, the loss occurred through force majeure without any
contribution from Tabora

ISSUE: WON Tabora should pay the Publshing Co.

HELD: YES

(1) Defense of stipulation in contract is inapplicable

- GENERAL RULE: loss of the object of the contract of sale is borne by the owner or in case of force
majeure the one under obligation to deliver the object is exempt from liability
- EXCEPTION: stipulation to the contrary, which in this case is present as it clearly stated “loss or
damage to the books after delivery to the buyer shall be borne by the buyer.”
- The stipulation that ownership shall not transfer is only to secure that the balance for the books be
paid, and such stipulation that makes seller liable is sanctioned by Art 1504
o Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery.

(2) defense of force majeure is inapplicable

- GEN RULE: One can escape liability under force majeure only if the obligation consists in the
delivery of a determinate thing and there is no stipulation holding him liable even in case of
fortuitous event
- In this case, obligation does not refer to a determinate thing, but to money, and the obligor bound
himself to assume the loss after the delivery of the goods to him. Tabora agreed to assume any risk
concerning the goods from the time of their delivery, which is an exception to the rule provided for
in Article 1262 of our Civil Code.

13. KATIGBAK v CA [4 SCRA 243 (January 31, 1962)]

Facts:
 Artemio Katigbak saw an advertisement selling a Double Drum Carco Tractor Winch.
 He then went to Lundberg, the owner and operator of International Tractor and Equipment Co.,
Ltd., who posted the ad, to inspect the equipment. He got a quoted price of P12,000.
 Katigbak went to see Daniel Evangelista to get a reduction from the price.
 They agreed that Katigbak would purchase the winch for P12,000 payable at P5,000 upon delivery
and P7,000 within 60 days.
 The winch needed some repairs so Katigbak had to advance the amount of P2,029.85 for spare
parts (from the P5,000).
 The sale was NOT CONSUMMATED. Katigbak sued Evangelista and Lundberg for the refund of the
P2,029.85.
 27

 Lundberg’s defense: Katigbak has no cause of action against him since he is not a party to the
agreement between Katigbak and Evangelista; he is also asking for actual/compensatory damages
and moral damages
 Evangelista’s defense: It was KAtigbak who refused to comply with the contract to purchase the
winch; he was forced to sell it to a third person for only P10,000; thus incurring a loss of P2,000
which he is now claiming from Katigbak plus moral damages and attorney’s fees.
 TC: Evangelista and Lundberg order to pay P2,029.85 to Katigbak.
 CA: Modified; dismissing complaint as to Lundberg; reducing the judgment in favor of Katigbak to
P29.85 (P2,029.85 – P2,000); sentencing Katigbak to pay Evangelista P700 as attorney’s fees.

Issue: WON the CA was correct in applying the doctrine in Hanlon v Hausserman case.

Held/Ratio:
Yes.
The situation in the present case is similar to the Hanlon case:
 contract between Hanlon and the mining company was executory as to both parties, and the
obligation of the company to deliver the shares could not arise until Hanlon should pay or tender
payment
 Similar to that which arises every day in business transactions in which the purchaser of goods
upon an executory contract fails to take delivery and pay the purchase price
 The vendor in such case is entitled to resell the goods.
o If he is obliged to sell for less than the contract price, he holds the buyer for the difference
o if he sells for as much as or more than the contract price, the breach of contract by the
original buyer is damnum absque injuria.
 No need for an action of rescission to authorize the vendor, who is still in possession, to dispose
of the property where the buyer fails to pay the price and take delivery

Katigbak failed to take delivery of the winch, and such failure was attributable to him which is accepted
under jurisprudence. The right to resell the equipment, therefore, cannot be disputed. The difference of
the price should also be borne by the supposed vendee who failed to take delivery/or to pay the price.

Disposition: Petition dismissed; judgment affirmed.

 28

14. HARRISON MOTORS CORPORATION vs. NAVARRO

Facts:
 Harrison (importer, assembler and manufacturer) assembled 2 Isuzu Elf trucks using imported
component parts.
 June 1987- Harrison sold the trucks to Navarro. Prior to the sale Navarro was told that all the
BIR taxes and customs duties for the parts of the trucks had been paid for.
 September 1987-BIR and LTO entered into a MOA providing that prior to registration to LTO of
any assembled or re-assembled motor vehicle which used imported parts, a Certificate of
Payment should first be obtained from the BIR to prove payment of all taxes required under
existing laws.
 October 1987- Bureau of Customs (BOC) issued an order promulgating rules, regulations and
procedure for the voluntary payment of duties and taxes on imported motor vehicles
assembled by non-assemblers
 December 1987-BIR issued an order which provided the procedure governing the processing
and issuance of the Certificate of Payment of internal revenue taxes for purposes of registering
motor vehicles.
 June 1988 -BIR, BOC and LTO entered into a tripartite MOA which provided that prior to the
registration in the LTO of any locally assembled motor vehicle using imported component parts,
a Certificate of Payment should first be obtained from the BIR and the BOC to prove that all
existing taxes and customs duties have been paid.
 December of 1988- government agents seized and detained the two trucks after discovering
that there were still unpaid BIR taxes and customs duties thereon
 Navarro was ordered to pay the proper assessments or her trucks would be impounded. She
went to Claros (Harrison’s President) to ask for the receipts evidencing payment of BIR taxes
and customs duties. He refused to comply. She demanded for him to pay the assessed taxes and
warned him that he would have to reimburse her should she be forced to pay for the
assessments herself. Her demands were again ignored.
 She ended up paying the BIR taxes and customs duties because she wants the trucks to be
released. She claims reimbursement.
 Harrison argues that it was no longer obliged to pay for the additional taxes and customs duties
imposed on the imported component parts because the regulations took effect after the
execution of the sale. Harrison contends that holding it liable would violate the non-impairment
clause of the consti and the principle of non-rectroactivity of laws in NCC A4. Furthermore,
petitioner claims that it did pay the assessed taxes and duties otherwise it would not have been
able to secure the release of such spare parts from the customs and to register the vehicles
with the LTO under its name.
 RTC ordered Harrison to pay Navarro the reimbursement for taxes paid, attorney’s fees and the
costs of suit
 CA affirmed

Issue: WON there was a seller’s express warranty that the taxes and customs duties have been paid
(which induced Navarro to purchase the trucks.)
Held: Yes.
 29

 Harrison’s allegation that it already paid the BIR taxes and customs duties is highly doubtful.
This entire controversy would have been avoided if Navarro was furnished with the receipts
evidencing payment of BIR taxes and customs duties.
 It is true that the ownership of the trucks shifted to private respondent after the sale. But
petitioner must remember that prior to its consummation it expressly intimated to her that it
had already paid the taxes and customs duties. Such representation shall be considered as a
seller’s express warranty under Art. 1546 which covers any affirmation of fact or any promise by
the seller which induces the buyer to purchase the thing and actually purchases it relying on
such affirmation or promise. It includes all warranties which are derived from express language,
whether the language is in the form of a promise or representation. Presumably, therefore,
Navarro would not have purchased the two (2) Elf trucks were it not for Harrison’s assertion and
assurance that all taxes on its imported parts were already settled.
 This express warranty was breached the moment petitioner refused to furnish Navarro with the
corresponding receipts since such documents were the best evidence she could present to the
government to prove that all BIR taxes and customs duties on the imported component parts
were fully paid. Without evidence of payment, she was powerless to prevent the trucks from
being impounded.
 Under Art. 1599 once an express warranty is breached the buyer can accept or keep the goods
and maintain an action against the seller for damages. This was what Navarro did. She opted to
keep the two (2) trucks which she apparently needed for her business and filed a complaint for
damages, particularly seeking the reimbursement of the amount she paid to secure the release
of her vehicles.

Issue: WON Harrison is obliged to pay the BIR taxes and customs duties.
Held: Yes.
 The records reveal that the Memorandum Orders and MOA do not impose any additional BIR
taxes or customs duties.
 Petitioner’s contention is unmeritorious. What Sec. 10, Art. III, of the Constitution prohibits is
the passage of a law which enlarges, abridges or in any manner changes the intention of the
contracting parties. The Memorandum Orders and the two (2) Memoranda of Agreement do
not impose any additional taxes which would unduly impair the contract of sale between
petitioner and private respondent. Instead, these administrative regulations were passed to
enforce payment of existing BIR taxes and customs duties at the time of importation.
 Although Navarro is the one required by the administrative regulations to secure the Certificate
of Payment for the purpose of registration, Harrison as the importer and the
assembler/manufacturer of the two (2) Elf trucks is still the one liable for payment of revenue
taxes and customs duties. Its obligation to pay does not arise from the administrative
regulations but from the tax laws existing at the time of importation. Even if Navarro already
owned the two (2) trucks when the Memorandum Orders and MOA took effect, the fact
remains that petitioner was still the one duty-bound to pay for the BIR taxes and customs
duties.
 The fact that petitioner was able to secure the release of the parts from customs and to register
the assembled trucks with the LTO does not necessarily mean that all taxes and customs duties
were legally settled. As a matter of fact, the provisions of the two (2) Memoranda of Agreement
clearly establish that the government is aware of the widespread registration of assembled
motor vehicles with the LTO even if the taxes due on their imported component parts remain
unpaid.
 30

15. Mendoza v. Caparros

Facts:

Agapito Ferreras (Ferreras) sold two parcels of land situated in Quezon to Paulino Pelejo (Pelejo). Pelejo
later sold these properties to Spouses Victoriano Mendoza y Bernabela Tolentino (Spouses). After the
death of the spouses, their children adjudicated the land to one of their siblings Pedro Mendoza
(Mendoza). However Ferreras was able to secure the title to the lands which was eventually registered
erroneously in the name of Justina Caparros and also in the names of her daughters. There appears to
be no bad faith. Upon an action brought by Mendoza, this title was cancelled and a new one was issued
in Mendoza’s name.

Pelejo is now questioning why he is a party to the suit. He says it was malicious because he is not a
necessary party. His counterclaim in the above case should be granted.

Issue: Should Pelejo’s counterclaim for damages (?) be granted?

Ruling and Ratio: No.

SC: When he sold the two parcels of lands to spouses, there was a warranty that they would be
defended against adverse claims. As a condition of the sale, he took it upon himself to respond for the
spouses in the event of eviction or deprivation of the property due to adverse claims. Thus, there was
no malice in impleading him. Mendoza was only trying to protect his rights, and did not intend to harm
or cause injury to Pelejo.

WARNING: Poor translation and heavy help from context clues are the ingredients of this digest.
Forgive me for any mistake I might have committed.

16. Engineering Machinery vs CA

Facts:

 There was a September 1962 contract between the petitioner and private respondent Almeda
wherein the petitioner would install and fabricate an air conditioning system for the building of
private respondent for a consideration of 210,000php. The needed materials, labor, tools and
others were to be furnished by petitioner. The project was completed in 1963.
 Almeda sold his building to National Investment and Development Corporation (NIDC) in 1965.
But when NIDC failed to comply with the requirements of their deed of sale, he took possession
and ownership of the building through judicial rescission and then learned of the defects of the
air conditioning system of the building. Upon inspection, the inspector found out that the
system could not sustain the desired room temperature. Almeda filed for damages.
 Petitioner said that the prescription time for defects of things sold which was six months had
elapsed. Private respondent countered this by saying that theirs was not a contract of sale but a
contract for a piece of work which prescription was 10 years and thus he was on time.
 31

Petitioner countered this by saying that the six month prescription applies to the contract of
piece of work by virtue of Art. 1714 which says that a contract shall be governed by provisions
on warranty of title and against hidden defects.
 RTC: The RTC ruled that it was a contract for a piece of work because it involved the installation
of an air conditioning system which the defendant itself, manufactured, fabricated and installed.
 CA: the Court of Appeals affirmed the decision of the trial court.

Issue: Whether or not the work was a contract of sale or a contract of a piece of work.

Held:

 The Court looked at the commentary of Tolentino regarding the difference between a contract
of piece of work and contract of sale.
o If the parties intended that the at some future date, a thing has to be delivered without
considering the work or labor of the part bound to deliver, then it is a contract of sale.
 Clearly, the contract here was a contract for a piece of work. It is not the business of petitioner
to manufacture air conditioners off-the-shelf. It only installs systems. The consideration for the
work to be done depends upon the specifications agreed with the customers.
 On HIDDEN DEFECTS: The vendor is responsible for warranty against the hidden defects which
the thing sold may have or when it would diminish to the extent that if the buyer knew it, it
would not have bought it. There are two remedies for violations of the warranty against hidden
defects are either to withdraw from the contract or to demand a proportionate reduction of the
price, with damages in both.
 On whether this falls upon the provisions regarding the warranty against hidden defects, the
Court said that upon closer scrutiny of the complaint, it is not for enforcement of warranty of
hidden defects but a breach of contract. Thus the action has not prescribed. The lower court
said that the petitioner indeed failed to install items required in the contract.

17. PACIFIC COMMERCIAL CO. V. ERMITA MARKET & COLD STORES

FACTS:
 Pacific Commercial sold to EMCS an automatic refrigerating machine (description in Spanish)
o Signed PCC’s usual printed sales-contract form
o Purchase price P2,550 payable by instalments
o Dec. 7, 1927: machine was delivered to EMCS
o Dec. 26, 1927: PCC finished installing the machine; installation cost P250.67
o EMCS paid P810, leaving a balance of P1,740
 A few days after the installation of the machine, EMCS told PCC that the machine wasn’t
working properly and that it lacked ammonia receiver and oil separator.
 PCC told EMCS that the machine installed was complete and had all the accessories stated in
the contract. To please EMCS, PCC installed an additional oil separator for free.
 32

 The machine didn’t give the results expected from it, and EMCS refused to pay the balance and
the installation cost.
 PCC sued.
 EMCS filed a cross-complaint, alleging:
o Machine delivered and installed wasn’t the same as the one described in the contract, it
lacked the implements necessary to make it automatic
o Bought it for its cold storage business, and the refrigerator never reached the
temperature needed to preserve meat, fish, vegetables, and fruit. EMCS had to close
down its business.
o PCC was negligent in not repairing/putting in good working condition the machine.
 PCC said that whatever defects were caused by the coils which were supplied and installed by
EMCS itself and its personnel’s incompetence in operating the machine
 CFI: PCC

HELD:  PCC
 PCC delivered the machine as described in the sales contract.
 The machine would’ve worked properly if the coils had been installed properly and it was
operated by competent persons—this fault not attributable to PCC, since the coils were
supplied and installed by someone else, and the machine operated by EMCS.
 Also:
o EMCS didn’t fully understand the use of the motor, since the machine couldn’t operate
automatically when EMCS had 3 refrigerating rooms which had to be kept at 3 different
temperatures.
o Lack of the thermostat as claimed by EMCS is irrelevant, it wasn’t included in the sales
contract and the thermostat would be useless anyway since there were 3 different
temperatures of EMCS’s insufficient equipment.

18. NUTRIMIX FEEDS CORPORATION v. COURT OF APPEALS and SPOUSES EFREN AND MAURA
EVANGELISTA

Short Facts: There was an agreement b/w Nutrimix and sps. Evangelista where vendee-sps. procured
its animal feeds directly from vendor-Nutrimix. Vendees were given credit period for payment but
subsequently failed and refused to pay, allegedly because the feeds delivered to them by Nutrimix
were contaminated and had resulted to the death of their livestock. Thus, Nutrimix sued them for
payment while Sps. Evangelista sued Nutrimix for breach of warranty against hidden defects. The
Supreme Court found no breach of warranty because it was not proven that the sample feeds
submitted to various laboratories were from the same feeds delivered by Nutrimix and fed to the
animals.

Detailed Facts:

1. Sale Accommodation (beginning April 5, 1993) between Nutrimix and Sps. Evangelista
a. Vendor Nutrimix to deliver various kinds of animal feeds
b. Vendee sps. given a credit period (30-45 days to postdate checks) in which to pay
(because Efren’s brother, Eugenio, was close with Nutrimix’s President)
2. Failure to pay by sps. for deliveries of animal feeds made on June, July, August
 33

a. Checks issued were dishonored because Maura Evangelista closed her account
b. Refusal of Sps. to pay despite demand

3. SUIT (December 15, 1993) for Sum of Money, Damages, Writ of Preliminary Attachment by
Nutrimix v. Sps. Evangelista
4. ANSWER of Sps:
a. Admitted unpaid obligation
b. BUT Nonpayment is valid because according to their previous agreement:
i. Checks issued were only to guarantee payment of the purchases
ii. Payment was to be procured from the expected proceeds in the sale of their
broilers and hogs
iii. BUT There was a sudden and massive death of their animals due to the
contaminated products of Nutrimix

5. SUIT (January 19, 1994) for Damages by Sps. Evangelista v. Nutrimix

a. Due to untimely and unforeseen death of their animals effected by the adulterated
animal feeds sold to them by Nutrimix
b. Nutrimix liable under NCC 1561 and 1566 for hidden defects
6. ANSWER of Nutrimix:
a. Death of animals was due to widespread pestilence in the sps’ farm
b. It was the sps who mixed poison to the feeds to make it appear that feeds were
contaminated due to inability to pay
c. Sps. were in unstable financial condition
7. TWO CASES WERE CONSOLIDATED

8. EVIDENCE of Nutrimix: Testimony of Asst. Mgr. Arenas that Pres. Bartolome met with the sps. to
discuss settlement of their unpaid account and that the sps. pleaded for the continuance of the
delivery because their livestock were suffering from a disease

9. EVIDENCE presented by Sps to prove contamination:

a. Testimony of Maura Evangelista
i. that the feeds were stored in a bodega made of concrete wall and galvanized iron
sheet roofing with monolithic flooring
ii. that 18k chickens died at rapid intervals since 830PM after feeding them with
Nutrimix at 130PM from the deliveries of three kinds of animal feeds (130 bags)
made on 10AM, July 26, 1993
iii. that chickens and hogs died after being fed the animal feeds delivered that same
day on July 27, 1993
b. Testimony of Dr. Garcia, Supervising Agriculturist of the Bureau of Animal Industry
i. That a pail of sample feeds for chicken were presented to her for examination on
October 20, 1993
ii. That result was negative of salmonella BUT High aflatoxin level (possibly caused
by MOLD) BUT WHICH would not cause instantaneous death
c. Testimony of Dr. Diaz, vet who accompanied Efren Evangelista in Bureau of Animal
Industry
i. That the feeds brought to the laboratory came from one bag of sealed Nutrimix
feeds
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d. Testimony of Dr. Medina III, Chief Scientist Research Specialist,, Ph Nuclear Research
Institute
i. That sample feeds in a small unmarked plastic bag and four live healthy chickens
were brought to him for exam
ii. Those he fed Nutrimix to died due to pulverized chromosomes from bone
marrow and blood chromosomes
e. Testimony of Magsipoc, Forensic Chemist, NBI
i. That a sealed plastic bag of animal feed yielded positive results to the tests for
Coumatetralyl Compound, the active component of Racumin (rat poison)
f. Testimony of Austria, Chief of Pesticide Analytical Section, Bureau of Plans Industry
i. That samples were positive for Warfarin, a rodenticide

10. RTC: Spouses to Pay

a. Inadequacy of proof that Nutrimix was responsible for contamination of feeds
b. Court is predisposed to believe that the feeds were contaminated sometime between
their storage at the Evangelista’s bodega and their consumption by the poultry and hogs
i. Contamination was perpetrated by unidentified or unidentifiable ill-meaning
mischief-makers over whom Nutrimix had no control
11. CA: Both cases dismissed
a. Nutrimix breached its warranty against hidden defects according to testimony of Dr. Diaz
that the samples examined were taken from a sealed sack of Nutrimix feeds
12. PETITION FOR REVIEW by Nutrimix
a. Samples not proved to be taken from sealed bag of Nutrimix
b. ASSUMING samples were from sealed bag, no proof that they were the same feeds that
Nutrimix delivered and fed to the animals

ISSUE: WON Nutrimix breached its warranty against hidden defects

HELD: No

1. HIDDEN DEFECT (NCC 1561, 1566)

a. Defined: One which is unknown or could not have been known to the vendee
b. Elements:
i. Defect must be hidden
ii. Defect must exist at the time the sale was made
iii. Defect must ordinarily have been excluded from the contract
iv. Defect must be important, rendering the thing unfit or considerably decreasing
its fitness
v. Action must be instituted within the statute of limitations
c. In re: Sale of Animal Feeds
i. Implied Warranty: That feeds are reasonably fit and suitable to be used for the
purpose which both parties contemplated
ii. General Rule: Manufacturer/Seller of a product cannot be held liable for any
damage allegedly cause by the product in the absence of any proof that the
product in question was defective
iii. Requirements for Liability:
1. That vendee sustained injury because of the product
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2. That the injury occurred because the product was defective or

unreasonably unsafe
3. That the defect existed when
a. the product left the hands of the vendor (control)
b. the product was sold to the purchaser
c. it reached the user or consumer without substantial change in the
condition it was sold
d. Burden of Proof: Buyer to prove that the seller of the product breached its warranty
e. Remedy:
i. To withdraw from the contract (accion redhibitoria)
ii. To demand a proportionate reduction of the price (accion quanti minoris)

IN THIS CASE….

2. No proof that the feeds were not tampered with or changed from time of delivery to
consumption; ONLY CIRCUMSTANTIAL EVI which is not enough
a. Deliveries received on July 26, 1993, Deaths thereafter occurred YET examined only on
October 20, 1993 (3 months after death of broilers and hogs)
i. Feeds could have already been contaminated by outside factors and subjected to
many conditions beyond the control of Nutrimix
ii. Samples submitted for lab exams
1. Were positive of aflatoxin (Mold)
2. not proved that they were the same ones delivered by Nutrimix and fed
to the animals
iii. No examination of poisoned animals, where chickens brought for testing were
not the ones poisoned but were healthy
b. Common practice to mix animal feeds, as admitted by Sps. Evangelista
c. Allegation of contaminated feeds only an afterthought because during the sps’ meeting
with Nutrimix President, they asked for more time to pay because their animals were
plagued by disease
3. THUS, Liable for unpaid obligations