PUP VS.

CA
Petitioner National Development Corp., a government owned and controlled corporation, had in
its disposal a 10 hectares property. Sometime in May 1965, private respondent Firestone
Corporation manifested its desire to lease a portion of it for ceramic manufacturing business. On
August 24, 1965, both parties entered into a contract of lease for a term of 10 years renewable
for another 10 years. Prior to the expiration of the aforementioned contract, Firestone wrote
NDC requesting for an extension of their lease agreement. It was renewed with an express
grant to Firestone of the first option to purchase the leased premise in the event that it was
decided "to dispose and sell the properties including the lot..." (the lease was twice renewed,
this time conferring upon Firestone an express grant the first option to purchase the leased
premise in the event that NDC decided to dispose and sell the properties including the lot. So
Firestone now has the right of first refusal.)
Cognizant of the impending expiration of the leased agreement, Firestone informed NDC
through letters and calls that it was renewing its lease. No answer was given. Firestone's
predicament worsened when it learned of NDC's supposed plans to dispose the subject
property in favor of petitioner Polytechnic University of the Philippines. PUP referred to
Memorandum Order No. 214 issued by then President Aquino ordering the transfer of the whole
NDC compound to the National Government. The order of conveyance would automatically
result in the cancellation of NDC's total obligation in favor of the National Government.
Firestone instituted an action for specific performance to compel NDC to sell the leased property
in its favor.
ISSUE: WON there is a valid sale between NDC and PUP.
HELD: We do not see it the way PUP and NDC did. It is elementary that a party to a contract
cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration. That
principle was clearly upheld by the CA when it denied the twin motion for consideration filed by
PUP and NDC on the ground that the appellants failed to advance new arguments substantial
enough to warrant a reversal for the decision to be considered. A contract of sale as defined is a
contract where one of the parties obligates himself to transfer the ownership of and to deliver a
determinate thing to the other who shall pay therefore a sum of money or in its equivalent. ll
three (3) essential elements of a valid sale, without which there can be no sale, were attendant
in the "disposition" and "transfer" of the property from NDC to PUP - consent of the parties,
determinate subject matter, and consideration therefor.
1. consent is manifested by the Memo Order No. 214,
2. the subject matter was the property subject of the dispute.
3. the cancellation of liabilities constituted consideration

But the argument of PUP and NDC was untenable. GOCCs have personalities separate and
distinct from the government. “Sale” brings within its grasp the whole gamut of transfers where
ownership of a thing is ceded for consideration.
Since a sale was involved, the right of first refusal in favor of Firestone must be respected. It
forms an integral part of the lease and is supported by consideration—Firestone having made
substantial investments therein. Only when Firestone fails to exercise such right may the sale to
PUP proceed. The right of first refusal is an integral and indivisible part of the contract of lease
and is inseparable from the whole contract. It is not correct for the petitioners to insist that there
was no consideration paid by FIRESTONE to entitle it to the exercise of right, inasmuch as the
stipulation is part and parcel of the contract of lease making the consideration for the lease the
same as that for the option. When a lease contract contains first refusal, the lessor is under the
legal duty to the lessee not to sell to anybody at any price until after he has made a n offer to
sell the latter at a certain price and the lessee has failed to accept it.
Therefore, FIRESTONE CERAMICS, INC. shall have 6 months from the receipt of the approved
survey within which to exercise its right to purchase the lease property at 1500 per square meter
and PUP is ordered to reconvey the property to FIRESTONE in the exercise of its right of first
refusal upon payment of the purchase price thereof.
PETITION DENIED.
Pichel vs. Alonzo

Prudencio Alonzo was awarded by the Government that parcel of land designated as Lot 21 of
Subdivision Plan Psd-32465 of Balactasan, Lamitan, Basilan City in accordance with RA 477.
The award was cancelled by the Board of Liquidators on 27January 1965 on the ground that,
previous thereto, Alonzo was proved to have alienated the land to another, in violation of law. In
1972, Alonzo’s rights to the land were reinstated. On 14 August 1968, Alonzo and his wife sold
to Pichel through a “deed of sale” all the fruits of the coconut trees which may be harvested in
the land for the period, from 15 September 1968 to 1 January 1976, in consideration of
P4,200.00. It was further stipulated that the vendor’s right, title, interest and participation herein
conveyed is of his own exclusive and absolute property, free from any liens and encumbrances
and he warrants to the Vendee good title thereto and to defend the same against any and all
claims of all persons whomsoever.
Even as of the date of sale, however, the land was still under lease to one Ramon Sua, and it
was the agreement that part of the consideration of the sale, in the sum of P3,650.00, was to be
paid by Pichel directly to Ramon Sua so as to release the land from the clutches of the latter.
Pending said payment Alonzo refused to allow the Pichel to make any harvest. In July1972,
Pichel for the first time since the execution of the deed of sale in his favor, caused the harvest of
the fruit of the coconut trees in the land. Alonzo filed an action for the annulment of a “Deed of
Sale” before the CFI Basilan City. On 5 January 1973, the lower court rendered its decision
holding that although the agreement in question is denominated by the parties as a deed of sale
of fruits of the coconut trees found in the vendor’s land, it actually is, for all legal intents and
purposes, a contract of lease of the land itself; an encumbrance prohibited under RA 477. The
court thus held that the deed of sale is null and void, and ordered Alonzo to pay back Pichel the
consideration of the sale in the sum of P4,200 with interests from the date of the filing of the
complaint until paid, and Pichel to pay the sum of P500.00 as attorney’s fees; with costs against
Pichel. Hence, the petition to review on certiorari was raised before the Supreme Court. The
Supreme Court set aside the judgment of the lower court and entered another dismissing the
complaint; without costs.
ISSUE: Is the contract of sale valid?
HELD: The document in question expresses a valid contract of sale as it has the essential
elements of a contract of sale as defined under Article 1458 of the New Civil Code. Article1458
provides that “by the contract of sale one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain
in money or its equivalent,” and that “a contract of sale maybe absolute or conditional.” The
subject matter of the contract of sale are the fruits of the coconut trees on the land during the
years from 15 September 1968 up to 1 January1976, which subject matter is a determinate
thing. Things having potential existence may be the object of the contract of sale
Under Article 1461 of the New Civil Code, things having a potential existence may be the object
of the contract of sale. A valid sale may be made of a thing, which though not yet actually in
existence, is reasonably certain to come into existence as the natural increment or usual
incident of something already in existence, and then belonging to the vendor, and the title will
vest in the buyer the moment the thing comes into existence. A man may sell property of which
he is potentially and not actually possessed.
 The contract was clearly a sale of the coconut fruits. The vendor sold, transferred and
conveyed by way of absolute sale all the coconut fruits on his land thereby divesting
himself all ownership over the fruits during the seven-year period. The possession and
enjoyment of coconut trees cannot be said to be the possession and enjoyment of the
land itself because these rights are distinct and separate from each other, the first
pertaining to the accessory or improvements while the second the principal. A transfer of
the accessory or improvement is not the transfer of the principal.
 The grantee of parcel land under RA 477 is not prohibited from alienating or disposing of
the natural and industrial fruits of the land awarded to him. What the law disallows is the
encumbrance or alienation of the land itself or any of the permanent improvements
thereon.
 Respondent in his answer to the petition contends that even granting arguendo that he
executed a deed of sale of the coconut fruits he has the privilege to change his mind and
claim it as an implied lease to file an action for annulment which no law can stop, cannot
be allowed to impugn the validity of the contract he entered into, to the prejudice of
petitioner who contacted in good faith for consideration.
Quiroga vs. Persons Hardware Co.

FACTS: On Jan 24, 1911, plaintiff and the respondent entered into a contract making the latter
an “agent” of the former. The contract stipulates that Don Andres Quiroga, here in petitioner,
grants exclusive rights to sell his beds in the Visayan region to J. Parsons. The contract only
stipulates that J.Parsons should pay Quiroga within 6 months upon the delivery of beds.
Quiroga files a case against Parsons for allegedly violating the following stipulations: not to sell
the beds at higher prices than those of the invoices; to have an open establishment in Iloilo;
itself to conduct the agency; to keep the beds on public exhibition, and to pay for the
advertisement expenses for the same; and to order the beds by the dozen and in no other
manner. With the exception of the obligation on the part of the defendant to order the beds by
the dozen and in no other manner, none of the obligations imputed to the defendant in the two
causes of action are expressly set forth in the contract. But the plaintiff alleged that the
defendant was his agent for the sale of his beds in Iloilo, and that said obligations are implied in
a contract of commercial agency. The whole question, therefore, reduced itself to a
determination as to whether the defendant, by reason of the contract hereinbefore transcribed,
was a purchaser or an agent of the plaintiff for the sale of his beds.
ISSUE: Whether the contract is a contract of agency or of sale.
HELD: In the instant case, what was essential, constituting its cause and subject matter, was
that the plaintiff was to furnish the defendant with the beds which the latter might order, at the
stipulated price and that the defendant was to pay price in the manner agreed upon. These are
the essential features of a contract of sale. There was the obli on the part of the plaintiff to
supply the beds, and on that of the defendant, to pay the price. These features exclude the legal
conception of an agency or order to sell whereby the mandatory or agent receives the thing to
sell it, and does not pay its price, but delivers to the principal the price he obtains from the sale
of the thing to athird person, and if he does not succeed in selling it, he returns it.
The testimony of the person who drafted this contract, to the effect that his purpose was to be
an agent for the beds and to collect a commission on the sales is of no importance to prove that
the contract was one of agency, inasmuch as the agreements contained in the contract
constitute, according to law, covenants of purchase of sale, and not of commercial agency. It
must be understood it to be, and not what it is called by the contracting parties.
Puyat vs. Arco Amusement Company

FACTS: Arco Amusement was engaged in the business of operating cinematographs. Gonzalo
Puyat & Sons Inc (GPS) was the exclusive agent in the Philippines for the Starr Piano
Company. Desiring to equip its cinematograph with sound reproducing devices, Arco
approached GPS. After some negotiations, it was agreed between the parties that GPS would
order sound reproducing equipment from Starr Piano Company and that Arco would pay GPS,
in addition to the price of the equipment, a 10% commission, plus all expenses such as freight,
insurance, etc. When GPS inquired Starr Piano the price (without discount) of the equipment,
the latter quoted such at $1,700. Being agreeable to the price (plus 10%commission plus all
other expenses), Arco formally authorized the order. The following year, both parties agreed for
another order of sound reproducing equipment on the same terms as the first at$1,600 plus
10% plus all other expenses. Three years later, Arco discovered that the prices quoted to them
by GPS with regard to their first 2orders mentioned were not the net prices, but rather the list
price, and that it had obtained a discount from Starr Piano. Moreover, Arco alleged that the
equipment were overpriced. Thus, being its agent, GPS had to reimburse the excess amount it
received from Arco.
ISSUE: W/N there was a contract of agency, not of sale.
HELD: The contact is the law between the parties and should include all the things they are
supposed to have been agreed upon. What does not appear on the face of the contract should
be regarded merely as “dealer’s” or “trader’s talk.” The letters which the respondent accepted
the prices $1700 and $1600 for the sound reproducing equipment subject of its contract with the
petitioner, are clear in their terms and admit of no other interpretation than that the respondent
agreed to purchase from the petitioner the equipment in question at the prices indicated which
are fixed and determinate. The respondent admitted in its complaint filed with the Court of First
Instance in Manila that the petitioner agreed to sell to it the first sound reproducing equipment
and machinery.
The letters containing Arco's acceptance of the prices for the equipment are clear in their terms
andadmit no other interpretation that the prices are fixed and determinate. While the letters state
that GPSwas to receive a 10% commission, this does not necessarily mean that it is an agent of
Arco, as thisprovision is only an additional price which it bound itself to pay, and which
stipulation is notincompatible with the contract of sale. The facts and circumstances show that
Arco entered into acontract of sale with GPS, the exclusive agent of Starr Piano. As such, it is
not duty bound to reveal theprivate arrangement it had with Starr Piano relative to the 25%
discount. Being the exclusive agent ofStarr, Arco could not have secured this discount with Starr
and neither is GPS willing to waive thediscount for Arco. Thus, GPS is not bound to reimburse
Arco for any difference between the cost priceand the sales price, which represents the profit
realized by GPS out of the transaction.
Celestino Co. & Co. vs. Collector of Internal Revenue

FACTS: Celestino Co & Company is a duly registered general co-partnership doing business
under the trade name of “Oriental Sash Factory”. From 1946 to 1951 it paid percentage taxes of
7% on the gross receipts of its sash, door and window factory, in accordance with sec. 186 of
the National Internal Revenue Code which is a tax on the original sales of articles by
manufacturer, producer or importer. However, in 1952 it began to claim only 3% tax under Sec.
191, which is a tax on sales of services. Petitioner claims that it does not manufacture ready-
made doors, sash and windows for the public, but only upon special orders from the customers,
hence, it is not engaged in manufacturing under sec 186, but only in sales of services covered
by sec 191. Having failed to convince BIR, petitioner went to the Court of Tax Appeal where it
also failed. CTA, in its decision, holds that the “petitioner has chosen for its tradename and has
offered itself to the public as a “Factory”, which means it is out to do business, in its chosen
lines on a big scale. As a general rule, sash factories receive orders for doors and windows of
special design only in particular cases but the bulk of their sales is derived from a ready-made
doors and windows of standard sizes for the average home.. Even if we were to believe
petitioner’s claim that it does not manufacture ready-made sash, doors and windows for the
public and that it makes these articles only special order of its customers, that does not make it
a contractor within the purview of section 191 of the national Internal Revenue Code… there are
no less than fifty occupations enumerated in the aforesaid section…and after reading carefully
each and every one of them, we cannot find under which the business of manufacturing sash,
doors and windows upon special order of customers fall under the category” mentioned under
Sec 191.
Issue: Whether the petitioner company provides special services or is engaged in
manufacturing.
Held: The important thing to remember is that Celestino Co & Company habitually makes sash,
windows and doors, as it has represented in its stationery and advertisements to the public.
That it “manufactures” the same is practically admitted by appellant itself. The fact that windows
and doors are made by it only when customers place their orders, does not alter the nature of
the establishment, for it is obvious that it only accepted such orders as called for the
employment of such material-moulding, frames, panels-as it ordinarily manufactured or was in a
position habitually to manufacture. The Oriental Sash Factory does nothing more than sell the
goods that it mass-produces or habitually makes; sash, panels, mouldings, frames, cutting them
to such sizes and combining them in such forms as its customers may desire.
Appellant invokes Article 1467 of the New Civil Code to bolster its contention that in filing orders
for windows and doors according to specifications, it did not sell, but merely contracted for
particular pieces of work or “merely sold its services”. In our opinion when this Factory accepts a
job that requires the use of extraordinary or additional equipment, or involves services not
generally performed by it-it thereby contracts for a piece of work — filing special orders within
the meaning of Article 1467. The orders herein exhibited were not shown to be special. They
were merely orders for work — nothing is shown to call them special requiring extraordinary
service of the factory. The thought occurs to us that if, as alleged-all the work of appellant is
only to fill orders previously made, such orders should not be called special work, but regular
work. The Supreme Court affirms the assailed decision by the CTA.
Mapalo vs. Mapalo

FACTS: The spouses Miguel Mapalo and Candida Quiba were the registered owners of a
residential land located in Pangasinan. (1,635 sq. m.) The spouses donated the eastern half of
the land to Miguel’s brother – Maximo Mapalo who was about to get married. However, they
were deceived into signing, on October 15, 1936, a deed of absolute sale over the entire land in
Maximo’s favor. Their signatures were procured by fraud because they were made to believe by
Maximo and the lawyer who acted as notary public who "translated" the document, that the
same was a deed of donation in Maximo's favor covering one-half of their land. (It must be
noted that the spouses are illiterate farmers). Although the document of sale stated a
consideration of Five Hundred (P500.00) Pesos, the aforesaid spouses did not receive anything
of value for the land. In 1938, Maximo Mapalo, without the consent of the spouse, registered
the sale in his favor. After thirteen years (1951), he sold the land to the Narcisos. (Evaristo,
Petronila Pacifico and Miguel) who thereafter registered the sale and obtained a title in their
favor.
In 1952, the Narcisos filed a complaint with the CFI to be declared owners of the entire land, for
possession of its western portion; for damages; and for rentals. The Mapalo spouses filed a
counterclaim seeking cancellation of the the Narcisos’ titles as to the western half of the land.
They said that their signatures to the deed of sale of 1936 was procured by fraud and that the
Narcisos were buyers in bad faith. They also filed another complaint wherein they asked the
court to declare deeds of sale of 1936 and of 1951 over the land in question be declared null
and void as to the western half of said land. CFI ruled in favor of the Mapalo spouses. Upon
appeal filed by Narcisos, CA reversed the lower court’s ruling solely on the ground that the
consent of the Mapalo spouses to the deed of sale of 1936 having been obtained by fraud, the
same was voidable, not void ab initio, and, therefore, the action to annul the same, within four
years from notice of the fraud, had long prescribed. (From March 15, 1938). Hence, this appeal.
Issues:
1. WON the deed of sale executed in 1936 was null and void. YES
2. WON the Narcisos were purchasers in good faith. NO
Held:
1st issue: YES, the sale was void. The Civil Code governs the transaction because it was
executed in 1936. Accordingly, since the deed of sale of 1936 is governed by the Old Civil
Code, it should be asked whether its case is one wherein there is no consideration, or one with
a statement of a false consideration. If the former, it is void and inexistent; if the latter, only
voidable, under the Old Civil Code. There is lack of consideration. As observed earlier, the deed
of sale of 1936 stated that it had for its consideration Five Hundred (P500.00) Pesos. In fact,
however, said consideration was totally absent. The problem, therefore, is whether a deed
which states a consideration that in fact did not exist, is a contract without consideration, and
therefore void ab initio, or a contract with a false consideration, and therefore, at least under the
Old Civil Code, voidable.
When there is no consideration, the contract is null and void. According to Manresa, what is
meant by a contract that states a false consideration is one that has in fact a real consideration
but the same is not the one stated in the document. In our view, therefore, the ruling of this
Court in Ocejo, Perez & Co. vs. Flores, 40 Phil. 921, is squarely applicable herein. In that case
we ruled that a contract of purchase and sale is null and void and produces no effect
whatsoever where the same is without cause or consideration in that the purchase price which
appears thereon as paid has in fact never been paid by the purchaser to the vendor.

2nd issue: No, they were no purchasers in good faith.

Narcisos were not buyers in good faith. Aside from the fact that all the parties in these cases are
neighbors, except Maximo Mapalo the foregoing facts are explicit enough and sufficiently reveal
that the Narcisos were aware of the nature and extent of the interest of Maximo Mapalo their
vendor, over the above-described land before and at the time the deed of sale in their favor was
executed.The Narcisos were purchaser-in-value but not purchasers in good faith. What was the
necessity, purpose and reason of Pacifico Narciso in still going to the spouses Mapalo and
asked them to permit their brother Maximo to dispose of the above-described land? To this
question it is safe to state that this act of Pacifico Narciso is a conclusive manifestation that they
(the Narcisos) did not only have prior knowledge of the ownership of said spouses over the
western half portion in question but that they also have recognized said ownership. It also
conclusively shows their prior knowledge of the want of dominion on the part of their vendor
Maximo Mapalo over the whole land and also of the flaw of his title thereto. Under this situation,
the Narcisos may be considered purchasers in value but certainly not as purchasers in good
faith.
Tanedo vs. CA

FACTS: Lazaro Tañedo executed a deed of absolute sale in favor of Ricardo Tañedo and
Teresita Barrera in which he conveyed a parcel of land which he will inherit. Upon the death of
his father he executed an affidavit of conformity to reaffirm the said sale. He also executed
another deed of sale in favor of the spouses covering the parcel of land he already inherited.
Ricardo registered the last deed of sale in the registry of deeds in their favor. Ricardo later
learned that Lazaro sold the same property to his children through a deed of sale.

ISSUE: WON the Tañedo spouses have a better right over the property against the children of
Lazaro Tañedo.

HELD: Since a future inheritance generally cannot be a subject of a contract, the deed of sale
and the affidavit of conformity made by Lazaro has no effect. The subject of dispute therefore is
the deed of sale made by him in favor of spouses Tañedo and another to his children after he
already legally acquired the property. Thus, although the deed of sale in favor of private
respondents was later than the one in favor of petitioners, ownership would vest in the former
because of the undisputed fact of registration. On the other hand, petitioners have not
registered the sale to them at all. Petitioners contend that they were in possession of the
property and that private respondents never took possession thereof. As between two
purchasers, the one who registered the sale in his favor has a preferred right over the other who
has not registered his title, even if the latter is in actual possession of the immovable property.