Ang Yu Asuncion vs CA

G.R. No. 109125, December 2, 1994

FACTS:

Petitioners allege that they are tenants or lessees of residential and commercial spaces owned by defendants in
Ongpin Street, Binondo, Manila since 1935 and that on several occasions before October 9, 1986, defendants informed
plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same. During the
negotiations, Bobby Cu Unjieng offered a price of P6-million while petitioners made a counter offer of P5-million. On
October 24, 1986, petitioners asked the respondents to specify the terms and conditions of the offer to sell. Petitioners
now raise that since respondents failed to specify the terms and conditions of the offer to sell and because of information
received that the latter were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants
to sell the property to them.

The trial court found that the respondents’ offer to sell was never accepted by the petitioners for the reason that
they did not agree upon the terms and conditions of the proposed sale, hence, there was no contract of sale at all. The
Court of Appeals affirmed the decision of the lower court. This decision was brought to the Supreme Court by petition for
review on certiorari which subsequently denied the appeal on May 6, 1991 “for insufficiency in form and substance”.

On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng
spouses executed a Deed of Sale transferring the property in question to herein respondent Buen Realty and
Development Corporation, for P15,000,000.00. On July 1, 1991, respondent as the new owner of the subject property
wrote a letter to the petitioners demanding that the latter vacate the premises. On July 16, 1991, the petitioners wrote a
reply to respondent corporation stating that the latter brought the property subject to the notice of lis pendens regarding
Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs.

The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as
modified by the Court of Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, the RTC ordered the Cu Unjiengs to execute the necessary Deed of Sale of the property in
litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in
recognition of petitioners’ right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer.
The court also set aside the title issued to Buen Realty Corporation for having been executed in bad faith. On September
22, 1991, the Judge issued a writ of execution.

On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without
force and effect the above questioned orders of the court a quo.

ISSUE:

Whether or not Buen Realty can be bound by the writ of execution by virtue of the notice of lis pendens, carried
over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter’s purchase of the property on 15
November 1991 from the Cu Unjiengs.

HELD:

We affirm the decision of the appellate court.

In the law on sales, the so-called “right of first refusal” is an innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil Code.
In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be
dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on
terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as
merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the
pertinent scattered provisions of the Civil Code on human conduct.

The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a “right of first refusal” in
favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if,
as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first
refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages
in a proper forum for the purpose.

Furthermore, Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the
writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property,
without first being duly afforded its day in court.
 G.R. No. 179965. February 20, 2013.
NICOLAS P. DIEGO, petitioner, vs. RODOLFO P. DIEGO and EDUARDO P. DIEGO, respondents.

FACTS:

1. In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, respondent herein, entered into an oral contract
to sell covering Nicolas's share, as co-owner of the family's Diego Building situated in Dagupan City.
2. Rodolfo made a downpayment. It was agreed that the deed of sale shall be executed upon payment of the remaining
balance. However, Rodolfo failed to pay the remaining balance.
3. Meanwhile, the building was leased out to third parties, but Nicolas's share in the rents were not remitted to him by
herein respondent Eduardo, another brother of Nicolas and designated administrator of the Diego Building. Instead,
Eduardo gave Nicolas's monthly share in the rents to Rodolfo.
4. Despite demands and protestations by Nicolas, Rodolfo and Eduardo failed to render an accounting and remit his
share in the rents and fruits of the building, and Eduardo continued to hand them over to Rodolfo.
5. Thus, Nicolas filed a Complaint against Rodolfo and Eduardo before the RTC of Dagupan City. Nicolas prayed that
Eduardo be ordered to render an accounting of all the transactions over the Diego Building; that Eduardo and Rodolfo
be ordered to deliver to Nicolas his share in the rents.
6. Rodolfo and Eduardo filed their Answer with Counterclaim for damages and attorney's fees. They argued that Nicolas
had no more claim in the rents in the Diego Building since he had already sold his share to Rodolfo
7. RTC dismissed the case for lack of merit and ordering Nicolas to execute a deed of absolute sale in favor of Rodolfo
upon payment by the latter of the balance of the agreed purchase price.
8. The trial court held that when Nicolas received the downpayment, a "contract of sale" was perfected. Finally, the trial
court held that the balance from Rodolfo will only be due and demandable when Nicolas executes an absolute deed of
sale.
9. Nicolas appealed to the CA which sustained the trial court's Decision in toto. The CA held that since there was a
perfected contract of sale between Nicolas and Rodolfo, the latter may compel the former to execute the proper sale
document. Besides, Nicolas's insistence that he has since rescinded their agreement in 1997 proved the existence of
a perfected sale. It added that Nicolas could not validly rescind the contract because: "1) Rodolfo had already made a
partial payment; 2) Nicolas had already partially performed his part regarding the contract; and 3) Rodolfo opposes
the rescission."
10. The CA then proceeded to rule that since no period was stipulated within which Rodolfo shall deliver the balance of
the purchase price, it was incumbent upon Nicolas to have filed a civil case to fix the same.

ISSUE: WHETHER OR NOT THE REMEDY OF RESCISSION IS AVAILABLE IN CONTRACTS TO SELL.

The contract to sell is terminated or cancelled. The remedy of rescission is not available in contracts to sell. As explained
in Spouses Santos v. Court of Appeals:

In view of our finding in the present case that the agreement between the parties is a contract to sell, it follows that the
appellate court erred when it decreed that a judicial rescission of said agreement was necessary. This is because there
was no rescission to speak of in the first place. As we earlier pointed out, in a contract to sell, title remains with the vendor
and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the
purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or
serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is
entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition.
The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot
recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the
owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor
should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it.
When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay
the purchase price in full, they were merely enforcing the contract and not rescinding it. As petitioners correctly point out,
the Court of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles
1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It
does not apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to
sales of immovable property. Neither provision is applicable in the present case.

Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the purchase price, the contract to sell
was deemed terminated or cancelled. As we have held in Chua v. Court of Appeals, "[s]ince the agreement . . . is a mere
contract to sell, the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the
condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by
the buyer." Similarly, we held in Reyes v. Tuparan that "petitioner's obligation to sell the subject properties becomes
demandable only upon the happening of the positive suspensive condition, which is the respondent's full payment of the
purchase price. Without respondent's full payment, there can be no breach of contract to speak of because petitioner has
no obligation yet to turn over the title. Respondent's failure to pay in full * the purchase price in full is not the breach of
contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from
being bound to convey title to respondent." Otherwise stated, Rodolfo has no right to compel Nicolas to transfer ownership
to him because he failed to pay in full the purchase price. Correlatively, Nicolas has no obligation to transfer his ownership
over his share in the Diego Building to Rodolfo.

Thus, it was erroneous for the CA to rule that Nicolas should have filed a case to fix the period for Rodolfo's payment of
the balance of the purchase price. It was not Nicolas's obligation to compel Rodolfo to pay the balance; it was Rodolfo's
duty to remit it.

WHEREFORE, premises considered, the Petition is GRANTED. The June 29, 2007 Decision and October 3, 2007
Resolution of the Court of Appeals in CA-G.R. CV No. 86512, and the April 19, 2005 Decision of the Dagupan City
Regional Trial Court, Branch 40 in Civil Case No. 99-02971-D, are hereby ANNULLED and SET ASIDE.
 Asset Privatization Trust vs. T.J. Enterprise
G.R. No. 167195 May 8, 2009
Facts:
Petitioner was a government entity created for the purpose to conserve, to provisionally manage and to dispose
assets of government institutions. It had acquired assets consisting of machinery and refrigeration equipment stored at the
Golden City compound which was leased to and in the physical possession of Creative Lines, Inc., (Creative Lines).
These assets were being sold on an as-is-where-is basis.
Petitioner and respondent entered into an absolute deed of sale over certain machinery and refrigeration
equipment wherein respondent paid the full amount as evidenced by petitioner’s receipt. After two (2) days, respondent
demanded the delivery of the machinery it had purchased. Petitioner issued a Gate Pass to respondent to enable them to
pull out from the compound the properties designated ; however, during the hauling of Lot No. 2 consisting of sixteen (16)
items, only nine (9) items were pulled out by respondent. Respondent filed a complaint for specific performance and
damages against petitioner and Creative Lines. Upon inspection of the remaining items, they found the machinery and
equipment damaged and had missing parts. Petitioner claimed that there was already a constructive delivery of the
machinery and equipment upon the execution of the deed of sale it had complied with its obligation to deliver the object of
the sale since there was no stipulation to the contrary and it was the duty of respondent to take possession of the
property.
The RTC ruled that petitioner is liable for breach of contract and should pay for the actual damages suffered by
respondent. It found that at the time of the sale, petitioner did not have control over the machinery and equipment and,
thus, could not have transferred ownership by constructive delivery. The Court of Appeals affirmed the judgment; hence,
this petition.
Issue:
Whether or not the petitioner had complied with its obligations to make delivery of the properties and failure to
make actual delivery of the properties was not attributable was beyond the control of petitioner?
Held:
No. There was no constructive delivery of the machinery and equipment upon the execution of the deed of
absolute sale or upon the issuance of the gate pass since it was not the petitioner but Creative Lines which had actual
possession of the property. The presumption of constructive delivery is not applicable as it has to yield to the reality that
the purchaser was not placed in possession and control of the property.
Petitioner also claims that its failure to make actual delivery was beyond its control. It posits that the refusal of
Creative Lines to allow the hauling of the machinery and equipment was unforeseen and constituted a fortuitous event.
The matter of fortuitous events is governed by Art. 1174 of the Civil Code which provides that except in cases expressly
specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires
assumption of risk, no person shall be responsible for those events which could not be foreseen, or which though
foreseen, were inevitable. A fortuitous event may either be an act of God, or natural occurrences such as floods or
typhoons, or an act of man such as riots, strikes or wars. However, when the loss is found to be partly the result of a
person’s participation whether by active intervention, neglect or failure to act, the whole occurrence is humanized and
removed from the rules applicable to a fortuitous event. Thus, the risk of loss or deterioration of property is borne by
petitioner. Thus, it should be liable for the damages that may arise from the delay.

ADELFA PROPERTIES INC., VS CA

ART 1324
ADELFA PROPERTIES, INC., petitioner, vs.COURT OF APPEALS, ROSARIO JIMENEZ-CASTAÑEDA and SALUD
JIMENEZ, respondents.(G.R. No. 111238 January 25, 1995)
THE CASE

FACTS
● Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered co-owners of a
parcel of land situated in Barrio Culasi, Las Piñas, Metro Manila.
● Jose and Dominador Jimenez sold their share consisting of one-half of said parcel of land to herein petitioner
pursuant to a "Kasulatan sa Bilihan ng Lupa”.
● Petitioner expressed interest in buying the western portion of the property from private respondents. Accordingly,
on November 25, 1989, an "Exclusive Option to Purchase" 5 was executed between petitioner and private
 respondents.
● Before petitioner could make payment, it received summons. The nephews and nieces of private respondents
against the latter, Jose and Dominador Jimenez, and herein petitioner filed for annulment of the deed of sale in
favor of Household Corporation and recovery of ownership of the property.
● As a consequence, petitioner informed private respondents that it would hold payment of the full purchase price
and suggested that private respondents settle the case with their nephews and nieces. Respondent Salud
Jimenez refused to heed the suggestion of petitioner and attributed the suspension of payment of the purchase
price to "lack of word of honor."
● Private-respondents informed Atty. Bernardo, petitioner's counsel, that they were cancelling the transaction.
Despite Atty. Bernardo's offers to pay the purchase price, private-respondents rejected his offers.
● Private respondents executed a Deed of Conditional Sale 10 in favor of Emylene Chua over the same parcel of
land.
● private respondents' counsel sent a letter to petitioner enclosing therein a check for P25,000.00 representing the
refund of fifty percent of the option money paid under the exclusive option to purchase. Private respondents then
requested petitioner to return the owner's duplicate copy of the certificate of title of respondent Salud Jimenez.
● Petitioner failed to surrender the certificate of title, hence private respondents filed a case for annulment of
contract with damages, praying, among others, that the exclusive option to purchase be declared null and void;
that defendant, herein petitioner, be ordered to return the owner's duplicate certificate of title.
RTC RULING The agreement entered into by the parties was merely an option contract, and declaring that the
suspension of payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a rejection of
the option. Also, petitioner could not validly suspend payment in favor of private respondents because that the action filed
by the latter's kin did not involve the western portion of the land covered by the contract between petitioner and private
respondents, but the eastern portion which was the subject of the sale between petitioner and the brothers Jose and
Dominador Jimenez.
CA RULING The failure of petitioner to pay the purchase price within the period agreed upon was tantamount to an
election by petitioner not to buy the property; that the suspension of payment constituted an imposition of a condition
which was actually a counter-offer amounting to a rejection of the option.
ISSUES 1) WON the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castañeda and Salud Jimenez is an option contract (YES);
(2) WON there was a valid suspension of payment of the purchase price by said petitioner, and the legal effects thereof on
the contractual relations of the parties. YES.

SC RULING
the alleged option contract as a contract to sell, rather than a contract of sale. The distinction between the two is
important for in contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a contract to
sell, by agreement the ownership is reserved in the vendor and is not to pass until the full payment of the price. In a
contract of sale, the vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded;
whereas in a contract to sell, title is retained by the vendor until the full payment of the price, such payment being a
positive suspensive condition and failure of which is not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither a
stipulation in the deed that title to the property sold is reserved in the seller until the full payment of the price, nor one
giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.

The parties never intended to transfer ownership to Adelfa Properties to completion of payment of the purchase price,
this is inferred by the fact that the exclusive option to purchase, although it provided for automatic rescission of the
contract and partial forfeiture of the amount already paid in case of default, does not mention that Adelfa Properties is
obliged to return possession or ownership of the property as a consequence of non-payment. There is no stipulation anent
reversion or reconveyance of the property in the event that petitioner does not comply with its obligation. With the absence
of such a stipulation, it may legally be inferred that there was an implied agreement that ownership shall not pass to the
purchaser until he had fully paid the price.

The validity of the suspension of payment notwithstanding, we find and hold that private respondents may no longer be
compelled to sell and deliver the subject property to petitioner for two reasons, that is, petitioner's failure to duly effect the
consignation of the purchase price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had
been validly rescinded by private respondents.

Adelfa Properties justified in suspending payment of balance by reason of vindicatory action filed against it.

The mere sending of a letter by the vendee expressing the intention to pay, without the accompanying payment, is not
considered a valid tender of payment. Besides, a mere tender of payment is not sufficient to compel private respondents
to deliver the property and execute the deed of absolute sale. It is consignation which is essential in order to extinguish
petitioner's obligation to pay the balance of the purchase price.

By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to and did announce the
rescission of the contract through its letter to petitioner dated July 27, 1990. That written notice of rescission is deemed
sufficient under the circumstances.

In the case at bar, it has been shown that although petitioner was duly furnished and did receive a written notice
of rescission which specified the grounds therefore, it failed to reply thereto or protest against it. Its silence
thereon suggests an admission of the veracity and validity of private respondents' claim.
Filinvest Credit Corp. v. Philippine Acetylene (1982)

Petitioners: FILINVEST CREDIT CORPORATION, PLAINTIFF-APPELLEE

Respondents: PHILIPPINE ACETYLENE, CO., INC., DEFENDANT-APPELLANT

Ponente: De Castro

Topic: Dation in payment, 1245

SUMMARY: (1-2 sentence summary of facts, issue, ratio and ruling)

FACTS:

Acetylene Co. purchased a Chevrolet 1969 model from Alexander Lim evidenced by a Deed of Sale, with a P20,000-
downpayment and a P35,247.80-balance, payable under the terms and conditions of the promissory note at a monthly
installment of P1,036.70 for 34 months, due and payable on the first day of each month starting December 1971 through
and inclusive September 1, 1974 with 12% interest per annum on each unpaid installment, and attorney's fees equivalent
to 25% of the total of the outstanding unpaid amount.

Acetylene Co. executed a chattel mortgage over the same motor vehicle in favor of Lim as security for the payment of
said promissory note.

Lim assigned all his rights, title, and interests in the promissory note and chattel mortgage to the Filinvest Finance
Corporation by virtue of a Deed of Assignment. Filinvest Finance Corporation assigned all its rights, title, and interests on
the aforesaid promissory note and chattel mortgage to the new corporation, Filinvest Credit Corporation which, which, in
effect, the payment of the unpaid balance owed by Acetylene Co. to Alexander Lim was financed by Filinvest Credit.

Acetylene Co. failed to comply with the terms and conditions set forth in the promissory note and chattel mortgage since it
had defaulted in the payment of nine successive installments.

Filinvest sent a demand letter to Acetylene to remit the amount in full including interests and charges or return the
mortgaged property to Lim within five days from date of the letter.

Acetylene wrote back, advising Filinvest of its decision to return the mortgaged property, which return shall be in full
satisfaction of its indebtedness pursuant to Art. 1484.

The mortgaged vehicle was returned to Filinvest with the document "Voluntary Surrender with Special Power of Attorney
to Sell" executed by Acetylene.

Filinvest, however, could not sell the vehicle as there were unpaid taxes on it, and thus requested Acetylene to settle the
installments in arrears and accruing interest of P4,232.21 on or before April 9, 1973.

Filinvest offered to deliver back the motor vehicle but Acetylene refused to accept it.

Thus, Filinvest instituted an action for collection of a sum of money with damages in the CFI of Manila.

Acetylene Co. avers that Filinvest has no cause of action against it since its obligation towards Filinvest was extinguished
when in compliance with Filinvest’s demand letter, it returned the mortgaged property to the Filinvest, and that assuming
arguendo that the return of the property did not extinguish its obligation, it was nonetheless justified in refusing payment
since the Filinvest is not entitled to recover the same due to the breach of warranty committed by the original vendor-
assignor Lim.

The CFI ruled in favor of Filinvest. Hence, this appeal, certified by the CA to SC due to only questions of law, by Acetylene
Co.

Consistent with its stand in the CFI, Acetylene Co. reiterates its main contention that Filinvest, after giving Acetylene Co.
an option either to remit payment in full plus stipulated interests and charges or return the mortgaged motor vehicle, had
elected the alternative remedy of exacting fulfillment of the obligation, thus, precluding the exercise of any other remedy
provided for under Article 1484 of the Civil Code of the Philippines:

"Article 1484. Civil Code In a contract of sale of personal property the price of which is payable in installments, the
vendor may exercise any of the following remedies:

1) Exact fulfillment of the obligation, should the vendee fail to pay;

2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to
pay cover two or more installments.

In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void."

In support of the above contention, Acetylene Co. maintains that when it opted to return, as in fact it did return, the
mortgaged motor vehicle to the Filinvest, said return necessarily had the effect of extinguishing Acetylene Co.'s obligation
for the unpaid price to the Filinvest, construing the return to and acceptance by the Filinvest of the mortgaged motor
vehicle as a mode of payment, specifically, dation in payment or dacion en pago which according to Acetylene Co.,
virtually made Filinvest the owner of the mortgaged motor vehicle by the mere delivery thereof, citing Articles 1232, 1245,
and 1497 of the Civil Code.

"Article 1232. Payment means not only the delivery of money but also the performance, in any manner, of an
obligation.

xxx

"Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money,
shall be governed by the law of sales.

xxx

"Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of
the vendee."

ISSUE/S:

 WoN the return of the mortgaged motor vehicle to the appellee by virtue of its voluntary surrender by the appellant
totally extinguished and/or cancelled its obligation to the appellee (dation in payment)
o NO. The mere return of the mortgaged motor vehicle by the mortgagor, Acetylene Co., to the mortgagee,
Filinvest, does not constitute dation in payment or dacion en pago in the absence, express or implied of
the true intention of the parties.
o [Sacion en pago] really partakes in one sense of the nature of sale, that is, the creditor is really buying the
thing or property of the debtor, payment for which is to be charged against the debtor's debt. As such, the
essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must
be present. In its modern concept, what actually takes place in dacion en pago is an objective novation of
the obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the purchase price. In any
case, common consent is an essential prerequisite, be it sale or novation, to have the effect of totally
extinguishing the debt or obligation.
o The evidence on the record fails to show that the mortgagee, Filinvest, consented, or at least intended,
that the mere delivery to, and acceptance by him, of the mortgaged motor vehicle be construed as actual
payment, more specifically dation in payment or dacion en pago.
o If at all, only transfer of possession of the mortgaged motor vehicle took place.
 o An examination of the language of the "Voluntary Surrender with Special Power of Attorney To Sell"
reveals that the possession of the mortgaged motor vehicle was voluntarily surrendered by the Acetylene
Co. to the Filinvest authorizing the latter to look for a buyer and sell the vehicle in behalf of the Acetylene
Co. who retains ownership thereof, and to apply the proceeds of the sale to the mortgage indebtedness,
with the undertaking of the Acetylene Co. to pay the difference, if any, between the selling price and the
mortgage obligation. With the stipulated conditions as stated, the Filinvest, in essence was constituted as
a mere agent to sell the motor vehicle which was delivered to the Filinvest, not as its property, for if it
were, he would have full power of disposition of the property, not only to sell it as is the limited authority
given him in the special power of attorney.
 WoN, as Acetylene Co. argued, by accepting the delivery of the mortgaged motor vehicle, Filinvest is estopped
from demanding payment of the unpaid obligation.
o NO. Filinvest never accepted the mortgaged motor vehicle in full satisfaction of the mortgaged debt.
Under the law, the delivery of possession of the mortgaged property to the mortgagee, Filinvest, can only
operate to extinguish appellant's liability if the appellee had actually caused the foreclosure sale of the
mortgaged property when it recovered possession thereof.
o The fact of foreclosure and actual sale of the mortgaged chattel that bar the recovery by the vendor of any
balance of the purchaser's outstanding obligation not satisfied by the sale. As held by [the SC], if the
vendor desisted, on his own initiative, from consummating the auction sale, such desistance was a timely
disavowal of the remedy of foreclosure, and the vendor can still sue for specific performance. This is
exactly what happened here.
 WoN the warranty for the unpaid taxes on the mortgaged motor vehicle may be properly raised and imputed to or
passed over to Filinvest
o NO. The Deed of Sale between Alexander Lim and appellant and the Deed of Assignment between
Alexander Lim and appellee are very clear on this point….If it appears subsequently that "there are such
counterclaims, offsets or defenses that may be interposed by the debtor at the time of the assignment,
such counterclaims, offsets or defenses shall not prejudice the FILINVEST FINANCE CORPORATION
and I (Alexander Lim) further warrant and hold the said corporation free and harmless from any such
claims, offsets, or defenses that may be availed of."
 Republic of the Philippines
SUPREME COURT
Manila

EN BANC

G.R. No. L-25951 June 30, 1969

FILIPINAS INVESTMENT & FINANCE CORPORATION, plaintiff-appellant,

vs.
JULIAN R. VITUG, JR. and SUPREME SALES & DEVELOPMENT CORPORATION, defendants-appellees.

Wilhelmina V. Joven for plaintiff-appellant.

Antonio V. Borromeo for defendants-appellants.

BARREDO, J.:

Appeal from an order of dismissal by the Court of First Instance of Manila, in its Civil Case No. 60915, entitled Filipinas
Investment & Finance Corporation vs. Julian R. Vitug, Jr. and Supreme Sales & Development Corporation, of the
amended complaint of July 16, 1965 of plaintiff-appellant Filipinas Investment & Finance Corporation whereby it sought to
recover from defendant-appellee Supreme Sales & Development Corporation the deficiency that resulted after it had
foreclosed the chattel mortgage on and sold at public auction, the car of the other defendant, Julian Vitug, Jr. who had
failed to pay to appellee installments due on the promissory note representing the purchase price of said car which he had
bought from the same, appellant being the assignee of appellee of its rights in the said promissory note.

The material allegations in appellant's amended complaint are:

The defendant, Julian R. Vitug, executed and delivered to appellee a promissory note in the amount of P14,605.00
payable in monthly installments according to a schedule of payments; the payment of the aforesaid amount which was the
purchase price of a motor vehicle, a 4-door Consul sedan, bought by said defendant from appellee, was secured by a
chattel mortgage over such automobile; on the same day, appellee negotiated the above-mentioned promissory note in
favor of appellant Filipinas Investment & Finance Corporation, assigning thereto all its rights, title and interests to the
same, the assignment including the right of recourse against appellee; defendant Vitug defaulted in the payment of part of
the installment which fell due on January 6, 1965, as well as the subsequent three consecutive monthly installments which
he was supposed to have paid on February 6, March 6 and April 6, 1965; there being a provision in the aforesaid
promissory note and chattel mortgage that failure to pay the installments due would result in the entire obligation
becoming due and demandable, appellant demanded from appellee the payment of such outstanding balance; in turn,
appellee "authorized (appellant) to take such action as may be necessary to enable (it) to take possession of the ... motor
vehicle." Pursuant to such authority, appellant secured possession of the mortgaged vehicle by means of a writ of replevin
duly obtained from the court, preparatory to the foreclosure of the mortgage, but said writ became unnecessary because
upon learning of the same, defendant Vitug voluntarily surrendered the car to appellant; thereafter, the said car was sold
at public auction, but the proceeds still left a deficiency of P8,349.35, plus interest of 12% per annum from April 21, 1965;
and appellant, the above foreclosure and sale notwithstanding, would hold appellee liable for the payment of such
outstanding balance, plus attorney's fees and costs.

On August 4, 1965, appellee filed an urgent motion to dismiss on the ground, inter alia, that under Article 1484 of the Civil
Code of the Philippines, which particular provision is otherwise known as the Recto Law, appellant has no cause of action
against appellee. Said provision is as follows:

ART. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies: (1) Exact fulfillment of the obligation should the vendee fail to pay; (2) Cancel the
sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary
shall be void.

In its order of August 30, 1965, subject of this appeal, the lower court found the aforesaid ground to be meritorious and, as
already stated, the amended complaint was dismissed as to appellee Supreme Sales & Development Corporation.
According to the order of dismissal:
It is undisputed in the instant case that the amount of P14,605.00 mentioned as consideration in both the promissory note
and the chattel mortgage in the instant case represents the selling price of one (1) automobile New Ford Consul 315 4-
door Sedan, payable in the installments mentioned in said documents. Under pars. 5 and 9 of the amended complaint, the
writ of replevin was obtained in the instant case for purposes of foreclosure of mortgage. In applying for a writ of replevin,
the plaintiff thereby made his choice, namely, to foreclose the mortgage covering said automobile; and having accepted
said automobile from defendant Julian R. Vitug, Jr., what remains is for the plaintiff to sell said automobile through either a
judicial or an extrajudicial foreclosure of said mortgage, without benefit of a deficiency judgment or deficiency collection ...
should the proceeds of the foreclosure sale be less than the balance of the installment sale price of said automobile due
and collectible.

On September 23, 1965, appellant filed a motion for reconsideration but this was denied on October 26, 1965, hence, this
appeal.

The principal error assigned by appellant has reference to the applicability of Art. 1484 of the Civil Code, as amended, to
the facts of this case. Appellant maintains that: .

II

THE TRIAL COURT ERRED IN HOLDING THAT ARTICLE 1484 OF THE CIVIL CODE OF THE PHILIPPINES IS
APPLICABLE TO THE TRANSACTION BETWEEN PLAINTIFF-APPELLANT AND DEFENDANT-APPELLEE.

Under the facts alleged in the amended complaint which are deemed admitted by the motion to dismiss, 1 this assignment
of error must be sustained.

The specific allegations in the amended complaint which have material bearing on the issue herein are:

4. On November 4, 1964, defendant Supreme Sales & Development Corporation, with notice to defendant Julian R. Vitug,
Jr. negotiated in favor of (endorsed and delivered to) plaintiff the above-mentioned promissory note, Annex "A", on a with
recourse basis whereby in case of the failure and/or refusal of the maker thereof, defendant Julian R. Vitug, Jr. to pay the
obligation under the said promissory note, plaintiff shall have the right to recourse against the said defendant corporation.

On the same date, the said defendant corporation, with notice to defendant Julian R. Vitug, Jr., assigned to plaintiff its
rights, title, and interests to the aforesaid promissory note and chattel mortgage, Annexes "A" and "B" hereof, as shown by
the Deed of Assignment executed by defendant Supreme Sales & Development Corporation in favor of plaintiff, a copy of
which is hereto attached as Annex "C" and made an integral part hereof, which assignment is also subject to the right of
recourse above-mentioned.

13. The defendant corporation is liable to plaintiff for the entire balance of the obligation covered by the promissory note,
Annex "A", and secured by the chattel mortgage, Annex "B", as a general endorser of the promissory note, Annex "A",
and assignor of the chattel mortgage on a with- recourse basis. But should plaintiff be able to sell the above-described
motor vehicle, then the said defendant corporation is liable to the plaintiff for the payment of the balance of the obligation
after applying thereto the proceeds of the sale of the said vehicle. (Record on Appeal, pp. 12 and 15.)

Thus it can be seen that the assignment made by appellee to appellant of the promissory note and mortgage of defendant
Vitug was on a with-recourse basis. In other words, there was a definite and clear agreement between appellant and
appellee that should appellant fail to secure full recovery from defendant Vitug, the right was reserved to appellant to seek
recourse for the deficiency against appellee. Accordingly, the question for resolution by the Court now is whether or not
this provision regarding recourse contained in the agreement between appellant and appellee violates the Recto Law
which declares null and void any agreement in contravention thereof. We do not believe that it does.

As pointed out in appellant's brief, the transaction between appellant and appellee was purely an ordinary discounting
transaction whereby the promissory note executed by defendant Vitug was negotiated by appellee in favor of appellant for
a valuable consideration at a certain discount, accompanied by an assignment also of the chattel mortgage executed by
said defendant to secure the payment of his promissory note and with the express stipulation that should there be any
deficiency, recourse could be had against appellee. Stated otherwise, the remedy presently being sought is not against
the buyer of the car or the defendant Vitug but against the seller, independent of whether or not such seller may have a
right of recovery against the buyer, which, in this case, he does not have under the Recto Law. It is clear to Us, on the
other hand, that under said law, what Congress seeks to protect are only the buyers on installment who more often than
not have been victimized by sellers who, before the enactment of this law, succeeded in unjustly enriching themselves at
the expense of the buyers because aside from recovering the goods sold, upon default of the buyer in the payment of two
installments, still retained for themselves all amounts already paid, in addition, furthermore, to other damages, such as
attorney's fees, and costs. Surely, Congress could not have intended to impair and much less do away with the right of the
seller to make commercial use of his credit against the buyer, provided said buyer is not burdened beyond what this law
allows.1awphil.nêt

We are not unmindful that in the case of Cruz, et al. vs. the same Filipinas Investment & Finance Corporation, L-24772,
May 27, 1968, 23 SCRA 791, this Court broadened the scope of the Recto Law beyond its letter and held that within its
spirit, a seller of goods on installment does not have any right of action against a third party who, in addition to the buyer's
mortgage of the goods sold, furnishes additional security for the payment of said installments or the purchase price of said
goods. In that case, it was held:.

It is here agreed that plaintiff Cruz failed to pay several installments as provided in the contract; that there was
extrajudicial foreclosure of the chattel mortgage on the said motor vehicle; and that defendant-appellant itself bought it at
the public auction duly held thereafter, for a sum less than the purchaser's outstanding obligation. Defendant-appellant,
however, sought to collect the supposed deficiency by going against the real estate mortgage which was admittedly
constituted on the land of plaintiff Reyes as additional security to guarantee the performance of Cruz' obligation, claiming
that what is being withheld from the vendor, by the proviso of Article 1484 of the Civil Code, is only the right to recover
against the purchaser, and not a recourse to the additional security put up, not by the purchaser himself, but by a third
person.

There is no merit in this contention. To sustain appellants argument is to overlook the fact that if the guarantor should be
compelled to pay the balance of the purchase price, the guarantor will in turn be entitled to recover what she had paid
from the debtor vendee (Art. 2066, Civil Code); so that ultimately, it will be the vendee who will be made to bear the
payment of the balance of the price, despite the earlier foreclosure of the chattel mortgage given by him. Thus, the
protection given by Article 1484 would be indirectly subverted, and public policy overturned.

As can be seen, that ease of Cruz was entirely different from this one at bar. In that case, herein appellant Filipinas
Investment & Finance Corporation was trying to recover from the guarantor of the buyer, whereas in the present case, it is
precisely stipulated in effect, that the Filipinas Investment & Finance Corporation had a right of recourse against the seller
should the buyer fail to pay the assigned credit in full.

It is the contention of appellee that since what were assigned to appellant were only whatever rights it had against the
buyer, it should follow that inasmuch as appellee has no right to recover from the defendant beyond the proceeds of the
foreclosure sale, the appellant, as assignee, should also have no right to recover any deficiency. We do not view the
matter that way. The very fact that the assignee was given the stipulated right of recourse against the assignor negates
the idea that the parties contemplated to limit the recovery of the assignee to only the proceeds of the mortgage sale.

ACCORDINGLY, the order of dismissal of the lower court is reversed and this case is ordered remanded to the lower
court for further proceedings, with costs against appellee Supreme Sales & Development Corporation.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Zaldivar, Sanchez, Castro, Capistrano and Teehankee, JJ., concur.

Dizon and Fernando, JJ., took no part.

Case Title : AMADOR TAJANLANGIT, ET AL. vs. SOUTHERN MOTORS, INC., ET AL.

Citation : G.R. No. L-10789 (May 28, 1957)

Topic : Remedy of Specific Performance

Facts of the Case:

 Appellants Amador Tajanlangit and his wife Angeles bought from appellee Southern Motors, Inc. two (2) tractors and
a thresher (for the total purchase price of P24,755.75).

 As payment for the sale said farm machineries and farm implements, appellants executed a promissory note in favor
of appellee.

 Appellants, by way of the promissory note, undertook to pay the total purchase price in several installments and that
in the case of default, the total unpaid principal sum with interest shall become due and demandable at once.

 Appellants failed to meet any installment and so appellee sued the former before the CFI, Branch 1, of Iloilo.

 The CFI Iloilo rendered its judgment finding appellants liable to the appelles for the total sum of P24,755.75 together
with 12% interest.

 Carrying out the order of execution, the sheriff levied on the same machineries and farm implements which had been
bought by the spouses were sold at a public auction appellees for the total sum of P10,000.

 As the CFI’s judgment called for much more, the Southern Motors subsequently asked and obtained, an  alias writ of
execution; and pursuant thereto, the provincial sheriff levied attachment on other real properties owned by the the
Tajanlangits.

 To prevent the sale of their real properties, the Tajanlangits filed an action before the CFI, Branch 4, in order to annul
the writ of execution.

 The Tajanlangits theorized that they already settled their account with Southern Motors after the return of the
machineries and farm implements.

 The Tajanlangits further theorized that since Southern Motors Inc. had repossessed the machines purchased on
installment (and mortgaged) they were, therefore, relieved from further responsibility, in view of the Recto Law, now
article 1484 of the New Civil Code.

 Southern Motors, on the other hand, denied having repossessed the machineries, the truth being that they were
attached by the sheriff and then deposited by the latter in its shop for safekeeping, before the sale at public auction.

 The CFI, Branch 4, dismissed the complaint filed by the Tajanlangits because the latter have not pursued the proper
remedy.

 According to said CFI, it cannot grant the relief prayed for by the Tajanlangits because courts of similar jurisdiction
cannot invalidate the judgments and orders of each other.

 The plaintiffs brought the matter to the Court of Appeals, but the appellate court referred the case to the Supreme
Court on the opinion that the appeal involved questions of jurisdiction and/or law.

Issue:

Whether the attachment made on the real properties of the appellant is proper.

Held:

The Supreme Court says YES. Judgment of the CFI, Branch 4 is affirmed. According to the Supreme Court,
there has been no foreclosure of the chattel mortgage nor a foreclosure sale. Therefore the prohibition against further
collection does not apply. It is true that there was a chattel mortgage on the goods sold. But the Southern Motors elected
to sue on the note exclusively, i.e. to exact fulfillment of the obligation to pay. It had a right to select among the three
remedies established in Article 1484. In choosing to sue on the note, it was not thereby limited to the proceeds of the sale,
on execution, of the mortgaged good.
 Paulmitan v. CA

G.R. No. 61584, November 25, 1992

The dispute covers 2 lots, Lot 757 and Lot 1091, which were owned by Agatona Paulmitan. She had 2 children, Pascual
and Donato. Pascual’s (7) children (Alicio, Elena, Abelino, Adelina, Anita, Baking, Anito) are the respondents
and Donato and his daughter and son-in-law are petitioners. Donato executed an Affidavit of Declaration of Heirship,
adjudicating to himself Lot 757 claiming that he is the sole surviving heir thus the OCT of Agatona was cancelled and a
TCT was issued in his name. He executed a deed of sale of Lot 1091 in favor of his daughter, Juliana. For non-payment
of taxes, the lot was forfeited and sole at a public to the Provincial Government of Negros Occidental, however, Juliana
was able to redeem the property. Upon learning these, the children of Pascual filed w/ the CFI a complaint against
petitioners to partition the land plus damages. Petitioners’ defense was that the action has already prescribed for it was
filed more than 11 years after the issuance of the TCT and that Juliana has acquired exclusive ownership thru the Deed of
Sale and by redeeming the said property. The CFI dismissed the complaint and became final and executory. With respect
to Lot 1091, the court decided in favor of respondents. They are entitled to ½ of Lot 1091, pro indiviso. The redemption did
not in anyway prejudice their rights. The land was ordered to be partitioned and the petitioners were ordered to pay the
respondents their share of the fruits and the respondents to pay their share in the redemption of the land. The CA affirmed
the decision thus the case at bar.

ISSUE:
(1) Whether or not Pascual’s children and Donato and Juliana were co-owners of their mother’s lot

(2) Whether or not Juliana acquired full ownership by redeeming the property

YES: When Agatona died, her estate was still unpartitioned. Art. 1078 states that “Where there are 2 or more heirs, the
whole estate of the decedent is, before its partition, owned in common by such heirs, subject to the payment of debts of
the deceased”. Since Pascual and Donato were still alive when she died, they are co-owners of the estate. When Pascual
died, his children succeeded him in the co-ownership of the property.

When Donato sold to his daughter the lot, he was only a co-owner of the same thus he can only sell his undivided portion
of the property. Art. 493 states that “each co-owner shall have the full ownership of his part and of the fruits and benefits
pertaining thereto, and he may therefore alienate, assign or mortgage it and even substitute another person in
its enjoyment, except when personal rights are involved. But the effect of the alienation or mortgage, with respect to the
co-owners, shall be limited to the portion which may be allotted to him in the division upon the termination of the co-
ownership.” Only the rights of the co-owner-seller are transferred making the buyer (Juliana) a co-owner.

NO: When she redeemed the property, it did not end the co-ownership. The right of repurchase may be exercised by a co-
owner w/ respect to his/her share alone as stated in Art. 1612. But she may compel them to reimburse her for half of the
repurchase price for a co-owner has the right to compel other co-owners to contribute to the expenses for the preservation
of the thing and to taxes.
Mindanao Academy vs. Yap [G.R. No. L-17681. February 26, 1965.]
De Nuqui vs. Yap [G.R. No. L-17682. February 26, 1965]
En Banc, Makalintal (J): 6 concur, 4 took no part

Facts:
By deed entitled “Mutual Agreement,” executed on 10 May 1964, Rosenda A. de Nuqui (widow of Sotero Dionisio)
and her son Sotero Dionisio, Jr. sold 3 parcels of residential land in Oroquieta, Misamis Occidental, and another parcel in
Ozamis City in favor of Ildefonso D. Yap. Included in the sale were certain buildings situated on said lands as well as
laboratory equipment, books, furniture and fixtures used by 2 schools established in the respective properties: the
Mindanao Academy in Oroquieta and the Misamis Academy in Ozamis City. The aggregate price stated in the deed was
P100,700.00, to be paid according to the terms and conditions specified in the contract. Besides Rosenda and her son
Sotero, Jr., both of whom signed the instrument, Adelaida Dionisio Nuesa (a daughter of Rosenda, and married to Wilson
Nuesa) is also named therein as co-vendor, but actually did not take part either personally or through her uncle and
supposed attorney-in-fact, Restituto Abuton. These three (mother and children) are referred to in the deed as the owners
pro-indiviso of the properties sold. The truth, however, was that there were other co-owners of the lands, namely, Erlinda
D. Diaz (and Antolin Diaz), Ester Aida D. Bas (and Mauricio O. Bas), Rosalinda D. Belleza (and Apolinario Belleza) and
Luz Minda D. Dajao (and Elifio C. Dajao), children also of Rosenda by her deceased husband Sotero Dionisio, Sr., and
that as far as the school buildings, equipment, books, furniture and fixtures were concerned, they were owned by the
Mindanao Academy, Inc., a corporation operating both the Mindanao Academy in Oroquieta and the Misamis Academy in
Ozamis City. The buyer, Ildefonso D. Yap, obtained possession of the properties by virtue of the sale, took over the
operation of the two schools and even changed their names to Harvardian Colleges.

Two actions were commenced in the CFI Misamis Occidental; one for annulment of the sale and recovery of rents
and damages (Civil Case 1774, filed 3 May 1955) with the Mindanao Academy, Inc., the five children of Rosenda Nuqui
who did not take part in the deed of sale, and several other persons who were stockholders of the said corporation (Pedro
N. Abuton, Sy Paoco, Josefa Dignum and Perfecto Velasquez), as plaintiffs, and the parties who signed the deed of sale
as defendants; and another for rescission (Civil Case 1907, filed 17 July 1956) with Rosenda Nuqui, Sotero Dionisio, Jr.
and Erlinda D. Diaz (and the latter’s husband Antolin Diaz) as plaintiffs, and Ildefonso D. Yap as lone defendant. The
other 4 children of Rosenda did not join, having previously ceded and quitclaimed their shares in the litigated properties in
favor of their sister Erlinda D. Diaz. The actions were tried jointly and on 31 March 1960 the court rendered judgment,
declaring the Mutual Agreement null and void ab initio and ordering Ildefonso Yap to pay the costs of the proceedings in
both cases. The Court also ordered Yap, in Civil Case 1907, to restore to the plaintiffs in said case all the buildings and
grounds described in the Mutual Agreement together with all the permanent improvements thereon; and to pay to the
plaintiffs therein the amount of P300.00 monthly from 31 July 1956 up to the time he shall have surrendered the properties
in question to the plaintiffs therein, plus P1,000.00 as attorney’s fees to plaintiffs Antolin and Erlinda D. Diaz. The Court
ordered Yap, in Civil Case 1774, to restore to the Mindanao Academy, Inc., all the books, laboratory apparatus, furniture
and other equipments described in the Mutual Agreement and specified in the Inventory attached to the Records of this
case; or in default thereof, their value in the amount of P23,500.00; to return all the Records of the Mindanao Academy
and Misamis Academy; and to pay to the plaintiffs stockholders of the Mindanao Academy, Inc., the amount of
P10,000.00 as nominal damages; P3,000.00 as exemplary damages; and P2,000.00 as attorney’s fees. These damages
being apportioned to each of the plaintiff-stockholders in proportion to their respective interests in the corporation.
Ildefonso D. Yap appealed from the judgment.

The Supreme Court affirmed the judgment appealed from but modified it by eliminating there from the award of
attorney’s fees of P1,000.00 in favor of Erlinda D. Diaz and her husband, and the award of nominal and exemplary
damages in Civil Case 1774; and making the award of attorney’s fees in the sum of P2,000.00 payable to counsel for the
account of the Mindanao Academy, Inc. instead of the plaintiff stockholders; without pronouncement as to costs.

1. Mutual Agreement entirely void and non-existent; Question on rescission not categorically ruled on
The mutual agreement dated 10 May 1954 is entirely void and legally non-existent in that the vendors therein ceded to
Yap not only their interest, rights, shares and participation in the property sold but also those that belonged to persons
who were not parties thereto. This conclusion is premised on two grounds: (a) the contract purported to sell properties of
which the sellers were not the only owners, since of the four parcels of land mentioned in the deed their shares consisted
only of 7/12, (6/12: Rosenda Nuqui and 1/12 for Sotero, Jr.), while in the buildings, laboratory equipment, books, furniture
and fixtures they had no participation at all, the owner being the Mindanao Academy, Inc.; and (b) the prestation involved
in the sale was indivisible, and therefore incapable of partial annulment, inasmuch as Yap would not have entered into the
transaction except to acquire all of the properties purchased by him.

2. No bad faith committed by co-owners who did not take part in sale
The quitclaim, in the form of an extrajudicial partition, was made on 6 May 1956, after the action for annulment was filed,
wherein, the plaintiffs were not only Erlinda but also the other co-owners who took no part in the sale and to whom there
has been no imputation of bad faith. Further, the trial courts’ finding of bad faith is an erroneous conclusion induced by a
manifest oversight of an undisputed fact, namely, that on 10 June 1954, just a month after the deed of sale in question,
Erlinda D. Diaz did file an action against Ildefonso D. Yap and Rosenda Nuqui, among others, asserting her rights as co-
owner of the properties (Case 1646). Finally, bad faith on the part of Erlinda would not militate against the nullity of the
sale, considering that it included not only the lands in common by Rosenda Nuqui and her six children but also the
buildings and school facilities owned by the Mindanao Academy, Inc., an entity which had nothing to do with the
transaction and which could be represented solely by its Board of Trustees.

3. Vendor and vendee both in bad faith; treated to have acted in good faith vis-à-vis each other
Both vendors and vendee in the sale acted in bad faith and therefore must be treated, vis-a-vis each other, as having
acted in good faith. The return of the properties by the vendee is a necessary consequence of the decree of annulment.
No part of the purchase price having been paid, as far as the record shows, the trial court correctly made no
corresponding order for the restitution thereof. Rosenda Nuqui and her son Sotero, it is true, acted in bad faith when they
sold the properties as theirs alone; but so did the defendant Yap when he purchased them with knowledge of the fact that
there were other co-owners. Although the bad faith of one party neutralizes that of the other and hence as between
themselves their rights would be as if both of them had acted in good faith at the time of the transaction, this legal fiction
of Yap’s good faith ceased when they sold the properties as theirs alone.

4. Erlinda Diaz entitled to recover share of rents in proportion to her own interest; Possessor in good faith
entitled to fruits as long as possession is not legally interrupted
Prior to the sale, the Mindanao Academy Inc. was paying P300.00 monthly for its occupancy of the lands on which the
buildings are situated. This is the amount the defendant has been ordered to pay to the plaintiffs in Civil Case 1907,
beginning 31 July 1956, when he filed his “first pleading” in the case. There can be no doubt that Erlinda D. Diaz is
entitled to recover a share of the said rents in proportion to her own interest in the lands and the interest of her four co-
owners which she had acquired. A possessor in good faith is entitled to the fruits only so long as his possession is not
legally interrupted, and such interruption takes place upon service of judicial summons (Arts. 544 and 1123, Civil Code).

5. Award of attorney’s fees to Erlinda Diaz erroneous; Erlinda had no cause of action for rescission in Civil Case
1907 as she was not party to the agreement
The award of attorney’s fees to Erlinda D. Diaz and her husband is erroneous. Civil Case 1907, in which said fees have
been adjudged, is for rescission (more properly resolution) of the so-called “mutual agreement” on the ground that Yap
failed to comply with certain undertakings specified therein relative to the payment of the purchase price. Erlinda Diaz was
not a party to that agreement and hence had no cause of action for rescission. The trial court did not decide the matter of
rescission because of the decree of annulment it rendered in the other case (Civil Case 1774), wherein the defendants
are not only Ildefonso D. Yap but also Rosenda Nuqui and her son Sotero. Erlinda D. Diaz could just as well have
refrained from joining as plaintiff in the action for rescission, not being a part to the contract sought to be rescinded and
being already one of the plaintiffs in the other action. In other words, it cannot be said with justification that she was
constrained to litigate, in Civil Case 1907, because of some cause attributable to the appellant.
6. Builder in bad faith not entitled to reimbursement (New building)
Yap claims reimbursement for the value of the improvements he allegedly introduced in the schools, consisting of new
building worth P8,000.00 and a toilet costing P800.00, besides laboratory equipment, furniture, fixtures and books for the
libraries. It should be noted that the judgment of the trial court specifies, for delivery to the plaintiffs (in Civil Case 1907),
only “the buildings and grounds described in the mutual agreement together with all the permanent improvements
thereon.” If Yap constructed a new building, he cannot recover its value because the construction was done after the filing
of the action for annulment, thus rendering him a builder in bad faith who is denied by law any right of reimbursement.

7. Equipment, books, furniture and fixture brought in by him may be retained by him as they are outside the
scope of the judgment
In connection with the equipment, books, furniture and fixtures brought in by him, he is not entitled to reimbursement
either, because the judgment does not award them to any of the plaintiffs in the two actions. What is adjudged (in Civil
Case 1774) is for Yap to restore to the Mindanao Academy, Inc. all the books, laboratory apparatus, furniture and other
equipment “described in the Mutual Agreement and specified in the Inventory attached to the records of this case; or in
default thereof, their value in the amount of P23,500.00.” In other words, whatever has been brought in by the defendant
is outside the scope of the judgment and may be retained by him.

8. Stockholders not entitled to nominal and exemplary damages

According to the second amended complaint the stockholders were joined merely pro forma, and “for the sole purpose of
the moral damage which has been all the time alleged in the original complaint.” Indeed the interests of the said
stockholders, if any, were already represented by the corporation itself, which was the proper party plaintiff; and no cause
of action accruing to them separately from the corporation is alleged in the complaint, other than that for moral damages
due to “extreme mental anguish, serious anxiety and wounded feelings.” The trial court, however, ruled out the claim for
moral damages and no appeal from such ruling has taken. The award for nominal and exemplary damages should be
eliminated in toto.
9. Award for attorney’s fees upheld for the corporation but not to stockholders
The award for attorney’s fees in the amount of P2,000.00 was upheld, although the same should be for the account of the
corporation and not of the plaintiff stockholders of the Mindanao Academy, Inc.; and payable to their common counsel as
prayed for in the complaint.

10. Nullity of contract precludes enforcement of its stipulation

A warranty clause in the deeds provides that if any claim shall be filed against the properties or any right, share or interest
which are in the possession of the party of the vendors which had been hereby transferred, ceded and conveyed unto the
vendee the vendor assumes as it hereby holds itself answerable. It is unnecessary to pass upon the question in view of
the total annulment of the sale on grounds concerning which both parties thereto were at fault. The nullity of the contract
precludes enforcement of any of its stipulations.
Sps. Felix & Nicanora Bucton vs. Sps. Zosimo & Josefina Gabar   G.R. No. L-36359 January 31, 1974

Facts:

Nicanora Bucton & Josefina Gabar are sisters-in-law. Josefina bought a land from Villarin on installment basis.
Josefina then entered into a verbal agreement with Nicanora that the latter would pay one-half of the price and would then
own one-half of the land. Nicanora agreed. She paid the initial amount evidenced by a receipt. Sps Bucton then took
possession of the land and made thereon improvements. When a deed of sale was executed in favor of Sps Gabar for the
land, Sps Bucton sought to obtain a separate title but was refused. Sps Bucton filed a case for specific performance which
was granted by the trial court. CA reversed, ruling that the action for specific performance was based on the receipt of the
initial payment which was executed 22 years ago, thus had already prescribed (10 years prescription for an action based
on a written agreement –Art. 1444). Sps Bucton argues that as owners in actual, continuous and physical possession of
the land since its purchase, their right of action did not prescribe.

Issue; WON Sps Bucton’s right of action to compel Sps Gabar to execute a formal deed of conveyance in their favor, has
prescribed.

Held: No.

The real and ultimate basis of petitioners’ action is their ownership of one-half of the lot coupled with their possession
thereof (not the receipt), which entitles them to a conveyance of the property.

By the delivery of the possession of the land, the sale was consummated and title was transferred to Sps Bucton, that the
action is actually not for specific performance, since all it seeks is to quiet title, to remove the cloud cast upon Bucton’s
ownership as a result of Gabar’s refusal to recognize the sale made and that as Sps Bucton are in possession of the land,
the action is imprescriptible.

 
EDCA Publishing vs. Santos [G.R. No. 80298. April 26, 1990.]
First Division, Cruz (J): 4 concur

Facts:
On 5 October 1981, a person identifying himself as Professor Jose Cruz placed an order by telephone with EDCA
Publishing and Distributing Corp. for 406 books, payable on delivery. EDCA prepared the corresponding invoice and
delivered the books as ordered, for which Cruz issued a personal check covering the purchase price of P8,995.65. On 7
October 1981, Cruz sold 120 of the books to Leonor Santos who, after verifying the seller’s ownership from the invoice he
showed her, paid him P1,700.00. Meanwhile, EDCA having become suspicious over a second order placed by Cruz even
before clearing of his first check, made inquiries with the De la Salle College where he had claimed to be a dean and was
informed that there was no such person in its employ. Further verification revealed that Cruz had no more account or
deposit with the Philippine Amanah Bank, against which he had drawn the payment check. EDCA then went to the police,
which set a trap and arrested Cruz on 7 October 1981. Investigation disclosed his real name as Tomas de la Peña and his
sale of 120 of the books he had ordered from EDCA to Leonor Santos (and Gerardo Santos, doing business as Santos
Bookstore). On the night of said date 7 October 1981, EDCA sought the assistance of the police in Precinct 5 at the UN
Avenue, which forced their way into Santos Bookstore and threatened Leonor Santos with prosecution for buying stolen
property. They seized the 120 books without warrant, loading them in a van belonging to EDCA, and thereafter turned
them over to EDCA. Protesting this high handed action, the Santos spouses sued for recovery of the books after demand
for their return was rejected by EDCA. A writ of preliminary attachment was issued and EDCA, after initial refusal, finally
surrendered the books to the Santos spouses.

Ownership of the books was recognized in the Santos spouses by the Municipal Trial Court, which was sustained
by the Regional Trial Court, which was in turn sustained by the Court of Appeals. EDCA appealed to the Supreme Court.

The Supreme Court affirmed the challenged decision and denied the petition, with costs against EDCA
Publishing.

1. Article 559 of the Civil Code

Article 559 provides that “The possession of movable property acquired in good faith is equivalent to a title. Nevertheless,
one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of
the same. If the possessor of a movable lost or of which the owner has been unlawfully deprived has acquired it in good
faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

2. Arbitrary action, act of taking the law on own hands, condemned

The Court expresses its disapproval of the arbitrary action of EDCA Publishing in taking the law into its own hands and
forcibly recovering the disputed books from the Santos spouses. The circumstance that it did so with the assistance of the
police, which should have been the first to uphold legal and peaceful processes, has compounded the wrong even more
deplorably. Questions, such as the ownership of the books, are decided not by policemen but by judges and with the use
not of brute force but of lawful writs.

3. Possession of movable property acquired in good faith equivalent to title

The first sentence of Article 559 provides that “the possession of movable property acquired in good faith is equivalent to
a title,” thus dispensing with further proof. It cannot be said that the spouses cannot establish their ownership of the
disputed books because they have not even produced a receipt to prove they had bought the stock.

4. Santos a purchaser in good faith, even if books were bought at discount

Leonor Santos first ascertained the ownership of the books from the EDCA invoice showing that they had been sold to
Cruz, who said he was selling them for a discount because he was in financial need. The Santos spouses are in the
business of buying and selling books and often deal with hard-up sellers who urgently have to part with their books at
reduced prices. To Leonor Santos, Cruz must have been only one of the many such sellers she was accustomed to
dealing with. It is hardly bad faith for any one in the business of buying and selling books to buy them at a discount and
resell them for a profit.

5. Contract of sale consensual and is perfected upon agreement

The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter
and the consideration. According to Article 1475 of the Civil Code, “The contract of sale is perfected at the moment there
is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties
may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.” Article 1477,
on the other hand, provides that “The ownership of the thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof.” Article 1478 provides that “The parties may stipulate that ownership in the thing shall not
pass to the purchaser until he has fully paid the price.”

6. Rule in the transfer of ownership

Ownership in the thing sold shall not pass to the buyer until full payment of the purchase price only if there is a stipulation
to that effect. Otherwise, the rule is that such ownership shall pass from the vendor to the vendee upon the actual or
constructive delivery of the thing sold even if the purchase price has not yet been paid. Absent the stipulation, delivery of
the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another.

7. Effect of non-payment; Relief

Non-payment only creates a right to demand payment or to rescind the contract, or to criminal prosecution in the case of
bouncing checks.

8. Asiatic Commercial Corporation vs. Ang; Company not unlawfully deprived of property, sale valid
In Asiatic Commercial Corporation v. Ang, the company sold some cosmetics to Francisco Ang, who in turn sold them to
Tan Sit Bin. Asiatic not having been paid by Ang, it sued for the recovery of the articles from Tan, who claimed he had
validly bought them from Ang, paying for the same in cash. Finding that there was no conspiracy between Tan and Ang to
deceive Asiatic, the Court of Appeals declared that the company was not unlawfully deprived of the cartons of Gloco Tonic
within the scope of this legal provision. It has voluntarily parted with them pursuant to a contract of purchase and sale.
The circumstance that the price was not subsequently paid did not render illegal a transaction which was valid and legal at
the beginning.

9. Tagatac vs. Jimenez; Sale voidable due to fraud but subsists as valid until annulled In Tagatac v. Jimenez,
Trinidad C. Tagatac sold her car to Warner Feist, who sold it to Sanchez, who sold it to Jimenez. When the payment
check issued to Tagatac by Feist was dishonored, Tagatac sued to recover the vehicle from Jimenez on the ground that
she had been unlawfully deprived of it by reason of Feist’s deception. In ruling for Jimenez, the Court of Appeals held that
“the fraud and deceit practiced by Feist earmarks this sale as a voidable contract (Article 1390). Being a voidable contract,
it is susceptible of either ratification or annulment. If the contract is ratified, the action to annul it is extinguished (Article
1392) and the contract is cleansed from all its defects (Article 1396); if the contract is annulled, the contracting parties are
restored to their respective situations before the contract and mutual restitution follows as a consequence (Article 1398).
However, as long as no action is taken by the party entitled, either that of annulment or of ratification, the contract of sale
remains valid and binding. When Tagatac delivered the car to Feist by virtue of said voidable contract of sale, the title to
the car passed to Feist (the title was defective and voidable). Nevertheless, at the time he sold the car to Felix Sanchez,
his title thereto had not been avoided and he therefore conferred a good title on the latter, provided he bought the car in
good faith, for value and without notice of the defect in Feist’s title (Article 1506). There being no proof on record that Felix
Sanchez acted in bad faith, it is safe to assume that he acted in good faith.
10. Ownership validly transferred to the Santos spouses
Actual delivery of the books having been made, Cruz acquired ownership over the books which he could then validly
transfer to the Santos spouses. The fact that he had not yet paid for them to EDCA was a matter between him and EDCA
and did not impair the title acquired by the spouses to the books.

11. Injustice will arise if “unlawfully deprived” would be interpreted in a different manner
One may well imagine the adverse consequences if the phrase “unlawfully deprived” were to be interpreted in the manner
premised on the argument that the impostor acquired no title to the books that he could have validly transferred to the
spouses. A person relying on the seller’s title who buys a movable property from him would have to surrender it to another
person claiming to be the original owner who had not yet been paid the purchase price therefor. The buyer in the second
sale would be left holding the bag, so to speak, and would be compelled to return the thing bought by him in good faith
without even the right to reimbursement of the amount he had paid for it.

12. Diligence exercised by Santos, but not by EDCA

Leonor Santos took care to ascertain first that the books belonged to Cruz before she agreed to purchase them. The
EDCA invoice Cruz showed her assured her that the books had been paid for on delivery. Santos did not have to go
beyond that invoice to satisfy herself that the books being offered for sale by Cruz belonged to him; yet she did. Although
the title of Cruz was presumed under Article 559 by his mere possession of the books, these being movable property,
Leonor Santos nevertheless demanded more proof before deciding to buy them. By contrast, EDCA was less than
cautious — in fact, too trusting — in dealing with the impostor. Although it had never transacted with him before, it readily
delivered the books he had ordered (by telephone) and as readily accepted his personal check in payment. It did not
verify his identity although it was easy enough to do this. It did not wait to clear the check of this unknown drawer. Worse,
it indicated in the sales invoice issued to him, by the printed terms thereon, that the books had been paid for on delivery,
thereby vesting ownership in the buyer.

13. Santos spouses cannot be made to suffer

It would certainly be unfair to make the spouses bear the prejudice sustained by EDCA as a result of its own negligence.
There is no justice in transferring EDCA’s loss to the Santoses who had acted in good faith, and with proper care, when
they bought the books from Cruz. While the Court sympathized with EDCA for its plight, it is clear that its remedy is not
against the spouses but against Tomas de la Peña, who has apparently caused all this trouble.

14. Santos have the right to complain

The spouses have themselves been unduly inconvenienced, and for merely transacting a customary deal not really
unusual in their kind of business. It is they and not EDCA who have a right to complain.
Aznar vs. Yapdiangco [G.R. No. L-18536. March 31, 1965.]
En Banc, Regala (J): 10 concurring
Facts: In May 1959, Teodoro Santos advertised in two metropolitan papers the sale of his Ford Fairlane 500. In the
afternoon of 28 May 1959, a certain L. De Dios, claiming to be a nephew of Vicente Marella, went to the Santos residence
to answer the ad. However, Teodoro was out during this call and only the latter’s son, Irineo received and talked with De
Dios. The latter told the young Santos that he had come in behalf of his uncle, Marella, who was interested to buy the
advertised car. On being informed of the above, Teodoro instructed his son to see Marella the following day at his given
address: 1642 Crisostomo Street, Sampaloc, Manila. And so, in the morning of 29 May 1959, Irineo went to said address.
At this meeting, Marella agreed to buy the car for P14,700.00 on the understanding that the price would be paid only after
the car had been registered in his name. Irineo then fetched his father who, together with De Dios, went to the office of a
certain Atty. Jose Padolina where the deed of sale for the car was executed in Marella’s favor. The parties to the contract
thereafter proceeded to the Motor Vehicles’ Office in Quezon City where the registration of the car in Marella’s name was
effected. Up to that stage of the transaction, the purchase price had not been paid. From the Motor Vehicles Office,
Teodoro returned to his house. He gave the registration papers and a copy of the deed of sale to his son and instructed
him not to part with them until Marella shall have given the full payment for the car. Irineo and De Dios then proceeded to
1642 Crisostomo Street, Sampaloc in Manila where the former demanded for the payment from Marella. Marella said that
the amount he had on hand then was short by some P2,000.00 and begged off to be allowed to secure the shortage from
a sister supposedly living somewhere in Azcarraga Street, also in Manila. Thereafter, he ordered De Dios to go to the said
sister and suggested that Irineo to go with him. At the same time, he requested for the registration papers and the deed of
sale from Ireneo on the pretext that he would like to show them to his lawyers. Trusting the good faith of Marella, Ireneo
handed over the same to the latter and thereupon, in the company of De Dios and another unidentified person, proceeded
to the alleged house of Marella’s sister. At a place in Azcarraga, Irineo and De Dios alighted from the car and entered a
house, while their unidentified companion remained in the car. Once inside, De Dios asked Irineo to wait at the sala while
he went inside a room. That was the last that Ireneo saw of him. For, after a considerable length of time waiting in vain for
De Dios to return, Ireneo went down to discover that neither the car nor their unidentified companion was there anymore.
Going back to the house, he inquired from a woman he saw for De Dios and he was told that no such name lived or was
even known therein. Whereupon, Ireneo rushed to 1642 Crisostomo to see Marella. He found the house closed and
Marella gone. Finally, he reported the matter to his father who promptly advised the police authorities. That very same
day, Marella was able to sell the car in question to Jose B. Aznar, for P15,000.00. Aznar acquired the said car from
Marella in good faith, for a valuable consideration and without notice of the defect appertaining to the vendor’s title. While
the car was thus in the possession of Aznar and while he was attending to its registration in his name, agents of the
Philippine Constabulary seized and confiscated the same in consequence of the report to them by Teodoro that the said
car was unlawfully taken from him.
Aznar filed a complaint for replevin before the CFI Quezon City (Branch IV) against Captain Rafael Yapdiangco, the head
of the Philippine Constabulary unit which seized the car. Claiming ownership of the vehicle, he prayed for its delivery to
him. In the course of the litigation, however, Teodoro Santos moved and was allowed to intervene by the lower court. At
the end of the trial, the lower court rendered a decision awarding the disputed motor vehicle to Santos. From the decision,
Aznar appealed.
The Supreme Court dismissed the appeal and affirmed the decision of the lower court in full; with costs against Aznar
1. Article 559 of the Civil Code; Santos entitled to recovery of personal property Santos had been unlawfully
deprived of his personal property by Marella, from whom Aznar traces his right. Consequently, although Aznar acquired
the car in good faith and for a valuable consideration from Marella, the said decision concluded, still Santos was entitled to
its recovery on the mandate of Article 559 of the New Civil Code which provides: “ The possession of movable property
acquired in good faith is equivalent to title. Nevertheless, one who has lost any movable or has been unlawfully deprived
thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or of which the
owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return
without reimbursing the price paid therefor.” Under Article 559, the rule is to the effect that if the owner has lost the thing,
or if he has been unlawfully deprived of it, he has a right to recover it, not only from the finder, thief or robber, but also
from the third person who may have acquired it in good faith from such finder, thief or robber.
2. Seller’s title, voidable at least, essential in Article 1506; Article 559 applies Article 1506 provides:” Where the
seller of goods has a voidable title thereto, but his title has not been voided at the time of the sale, the buyer acquires a
good title to the goods, provided he buys them in good faith, for value, and without notice of the seller’s defect of title.”
Under the provision, it is essential that the seller should have a voidable title at least. It is very clearly inapplicable where
the seller had no title at all.
3. Ownership or title acquired only by tradition or delivery; Article 712 of the Civil Code
Under Article 712 of the Civil Code, “ownership and other real rights over property are acquired and transmitted by law,
by donation, by testate and intestate succession, and in consequence of certain contracts, by tradition.” As interpreted by
this Court in a host of cases, by this provision, ownership is not transferred by contract merely but by tradition or delivery.
Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the mode of
accomplishing the same. (Gonzales vs. Rojas, 16 Phil. 51; Ocejo, Perez and Co. vs. International Bank, 37 Phil. 631;
Fidelity and Deposit Co. vs. Wilson, 8 Phil. 51; Kuenzle & Streiff vs. Wacke & Chandler, 14 Phil. 610; Easton vs. Diaz &
Co., 32 Phil. 180). For the legal acquisition and transfer of ownership and other property rights, the thing transferred must
be delivered, inasmuch as, according to settled jurisprudence the tradition of the thing is a necessary and indispensable
requisite in the acquisition of said ownership by virtue of a contract. (Walter Easton vs. E. Diaz & Co. & the Provincial
Sheriff of Albay, supra.) So long as property is not delivered, the ownership over it is not transferred by contract merely
but by delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or
tradition is the method of accomplishing the same, the title and the method of acquiring it being different in our law.”
(Gonzales vs. Rojas, 16 Phil. 51) In the present case, the car was never delivered to the vendee by the vendor as to
complete or consummate the transfer of ownership by virtue of the contract. It should be recalled that while there was
indeed a contract of sale between Vicente Marella and Teodoro Santos, the former, as vendee, took possession of the
subject matter thereof by stealing the same while it was in the custody of the latter’s son.
4. Delivery of key not delivery contemplated by Article 712; Intent must be present There is no adequate evidence
on record as to whether Irineo Santos voluntarily delivered the key to the car to the unidentified person who went with him
and L. De Dios to the place in Azcarraga where a sister of Marella allegedly lived. But even if Irineo Santos did, it was not
the delivery contemplated by Article 712 of the Civil Code. For then, it would be indisputable that he turned it over to the
unidentified companion only so that he may drive Irineo Santos and De Dios to the said place in Azcarraga and not vest
the title to the said vehicle to him as agent of Vicente Marella. Article 712 above contemplates that the act be coupled with
the intent of delivering the thing. (10 Manresa 132)
5. Article 559 establishes exception to the general rule or irrevindicability
Article 559 establishes two exceptions to the general rule of irrevindicability to wit: when the owner (1) has lost the thing,
or (2) has been unlawfully deprived thereof. In these cases, the possessor cannot retain the thing as against the owner,
who may recover it without paying any indemnity, except when the possessor acquired it in a public sale. (Del Rosario vs.
Lucena, 8 Phil. 535; Varela vs. Finnick, 9 Phil. 482; Varela vs. Matute, 9 Phil. 479; Arenas vs. Raymundo, 19 Phil. 46.
Tolentino, id., Vol II, p. 261.)
6. Cruz vs. Pahati on Article 559
In the case of Cruz vs. Pahati, et al., 52 OG 3053, the Court ruled that “Under Article 559 of the new Civil Code, a Person
illegally deprived of any movable may recover it from the person in possession of the same and the only defense the latter
may have is if he has acquired it in good faith at a public sale, in which case, the owner cannot obtain its return without
reimbursing the price paid therefor. In the present case, plaintiff has been illegally deprived of his car through the
ingenious scheme of defendant B to enable the latter to dispose of it as if he were the owner thereof. Plaintiff, therefore,
can still recover possession of the car even if it is in the possession of a third party who had acquired it in good faith from
defendant B. The maxim that “no man can transfer to another a better title than he has himself’ obtains in the civil as well
as in the common law.” (U.S. vs. Sootelo, 28 Phil. 147)
7. Common law principle yields to statutory provision
The right of the owner to recover personal property acquired in good faith by another, is based on his being dispossessed
without his consent. The common law principle that where one of two innocent persons must suffer by a fraud perpetrated
by another, the law imposes the loss upon the party who, by his misplaced confidence, has enabled the fraud to be
committed, cannot be applied in a case which is covered by an express provision of the new Civil Code, specifically Article
559. Between a common law principle and a statutory provision, the latter must prevail in this jurisdiction. (Cruz vs. Pahati,
supra).
Dominador Dizon vs. Lourdes Suntay (G.R. No. L-30817, September 29, 1972, 47 SCRA 161)

FACTS:

Respondent Lourdes G. Suntay and one Clarita R. Sison entered into a transaction wherein the Suntay’s three-
carat diamond ring, valued at P5,500.00, was delivered to Sison for sale on commission. Upon receiving the ring, Sison
executed and delivered to the receipt to Suntay. After the lapse of a considerable time without Clarita R. Sison having
returned to the ring to her, Suntay made demands on Clarita R. Sison for the return of said jewelry. Clarita R. Sison,
however, could not comply with Suntay’s demands because on June 15, 1962, Melia Sison, niece of the husband of
Clarita R. Sison, evidently in connivance with the latter, pledged the ring with the petitioner Dominador Dizon's pawnshop
for P2,600.00 without Suntay’s knowledge. When Suntay found out that Clarita R. Sison pledged the ring, she filed a case
of estafa against the latter with the fiscal's office. Subsequently, Suntay wrote a letter to Dizon on September 22, 1962
asking for the return of her ring which was pledged with the latter’s pawnshop under its Pawnshop Receipt serial B No.
65606, dated June 15, 1962.

Dizon refused to return the ring, so Suntay filed an action for its recovery with the CFI of Manila, which declared that she
had the right to its possession. The Court of Appeals likewise affirmed said decision.

ISSUE:

Who has the right title over the subject property?

COURT RULING:

The Supreme Court affirmed the decision of the lower courts. The controlling provision is Article 559 of the Civil
Code which provides that “[T]he possession of movable property acquired in good faith is equivalent to a title.
Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in
possession of the same. If the possessor of a movable lost of which the owner has been unlawfully deprived, has
acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.”
The only exception the law allows is when there is acquisition in good faith of the possessor at a public sale, in which case
the owner cannot obtain its return without, reimbursing the price. Hanging on to said exception as his basis, Dizon insisted
that the principle of estoppel should apply in this case but the Supreme Court ruled otherwise.

In the present case not only has the ownership and the origin of the jewels misappropriated been unquestionably
proven but also that Clarita R. Sison, acting fraudulently and in bad faith, disposed of them and pledged them contrary to
agreement with no right of ownership, and to the prejudice of Suntay, who was illegally deprived of said jewels and who,
as the owner, has an absolute right to recover the jewels from the possession of whosoever holds them, which in this
case is Dizon’s pawnshop. Dizon ought to have been on his guard before accepting the pledge in question, but evidently
there was no such precaution availed of and he has no one to blame but himself. While the activity he is engaged in is no
doubt legal, it is not to be lost sight of that it thrives on taking advantage of the necessities precisely of that element of our
population whose lives are blighted by extreme poverty. From whatever angle the question is viewed then, estoppel
certainly cannot be justly invoked.
 CRUZ V. PAHATI, et al.
GR NO. L-8257 April 13. 1956

SALE BY NON OWNERS OR ONE HAVING VOIDABLE TITLE

Facts:
1. An action of replevin instituted by Cruz in the CFI of Manila to recover the possession of an automobile and
certain amount as damages and attorneys fees resulting from his illegal deprivation thereof.
2. Pahati bought the automobile from Bulahan for P4,900.00 which he paid in check. The Manila Police
Department impounded the automobile, Pahati cancelled the sale and stopped the payment of the check and returned the
automobile to Bulahan and then surrendered the check for cancellation.
3. Bulahan on his part claims that he acquired the automobile from Jesusito Belizo for value and without having
any knowledge of any defect in the title and as evidenced by a deed of sale. Belizo, a dealer of second hand cars.
4. The CFI declared Bulahan entitled to the car in question and ordered Cruz to return it to Bulaha. It was found
out that the automobile was originally owned by Nothern Motors Inc, which sold it to Chinaman Lu Dag, then sold it to
Belizo and Belizo sold it to Cruz.
5. One year thereafter, Belizo offered the plaintiff’s (Cruz) to sell the automobile claiming to have a buyer for it.
Cruz agreed. At that time, plaintiff’s certificate of registration was missing and Belizo suggested to wrote a letter
addressed to the Motor Section of the Bureau of Public Works for the issuance of a new registration certificate alleging as
reason for loss.
5. The letter was falsified and converted into an authorized deed of sale in favor of Belizo by erasing a portion
thereof and adding in its place the words “sold the above car to Mr. Jesusito Belizo of 25 Valencia, San Francisco del
Monte, for 5,000”.
6. Belizo then obtained a certificate of registration in his name and then sold the car to Bulahan who in turn sold it
to Pahati, also a second hand car dealer. Belizo falsified the letter to enable him to sell the car to Bulahan.
7. This case involves a conflict of rights of two persons who claim to be owners of the same property; Cruz and
Bulahan. Both were found to be innocent and to have acted in good faith. Both victms of Belizo.

Issue: Who has a better right of the two over the car?

Ruling: Cruz has a better right.

The law applicable to the case is Article 559 of the new Civil Code which provides:
ART. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession
of the same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

Applying the above legal provisions to the facts of this case, one is inevitably led to the conclusion that plaintiff has a
better right to the car in question than defendant Bulahan for it cannot be disputed that plaintiff had been illegally deprived
thereof because of the ingenious scheme utilized by Belizo to enable him to dispose of it as if he were the owner thereof.
Plaintiff therefore can still recover the possession of the car even if defendant Bulahan had acted in good faith in
purchasing it from Belizo. Nor can it be pretended that the conduct of plaintiff in giving Belizo a letter to secure the
issuance of a new certificate of registration constitutes a sufficient defense that would preclude recovery because of the
undisputed fact that that letter was falsified and this fact can be clearly seen by a cursory examination of the document. If
Bulahan had been more diligent he could have seen that the pertinent portion of the letter had been erased which would
have placed him on guard to make an inquiry as regards the authority of Belizo to sell the car. This he failed to do.

"Whoever may have been deprived of his property in consequence of a crime is entitled to the recovery thereof, even if
such property is in the possession of a third party who acquired it by legal means other than those expressly stated in
Article 464 of the Civil Code" (p. 147), which refers to property pledged in the "Monte de Piedad", an establishment
organized under the authority of the Government. The Court further said: It is a fundamental principle of our law of
personal property that no man can be divested of it without his own consent; consequently, even an honest purchaser,
under a defective title, cannot resist the claim of the true owner. The maxim that 'No man can transfer a better title than he
has himself "obtain in the civil as well as in the common law."

FALLO:

Wherefore, the decision appealed from is reversed. The Court declares plaintiff to be entitled to recover the car in
question, and orders defendant Jesusito Belizo to pay him the sum of P5,000 as moral damages, plus P2,000 as
attorney's fees. The Court absolves defendant Bulahan and Pahati from the complaint as regards the claim for damages,
reserving to Bulahan whatever action he may deem proper to take against Jesusito Belizo. No costs.
 ROMAN vs. GRIMALT

G.R.No. 2412, April 11, 1906

FACTS:

Pedro Roman, the owner of the schooner Sta. Maria and Andres Grimalt had been negotiating for several days for
the purchase of the schooner. They agreed upon the sale of the vessel for the sum of P1500 payable on three
installments, provided the title papers to the vessel were in proper form. The sale was not perfected and the purchaser did
not consent to the execution of the deed of transfer for the reason that the title of the vessel was in the name of one
Paulina Giron and not in the name of Pedro Roman. Roman promised however, to perfect his title to the vessel but he
failed to do so. The vessel was sunk in the bay in the afternoon of June 25, 1904 during a severe storm and before the
owner had complied with the condition exacted by the proposed purchaser. On the 30th of June 1904, plaintiff demanded
for the payment of the purchase price of the vessel in the manner stipulated and defendant failed to pay.

ISSUE: Whether there was a perfected contract of sale and who will bear the loss.

HELD: There was no perfected contract of sale because the purchase of which had not been concluded. The
conversations had between the parties and the letter written by defendant to plaintiff did not establish a contract sufficient
in itself to create reciprocal rights between the parties.

If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by the
party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show
proper title to the vessel and thus enable them to draw up contract of sale.
 LAWYERS COOPERATIVE PUBLISHING COMPANY V. PERFECTO A. TABORA
G.R. No. L-21263             April 30, 1965

Facts:
 Perfecto A. Tabora(buyer) bought from the Lawyers Cooperative Publishing Company(seller) one complete set of
American Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus one set of American
Jurisprudence, General Index, consisting of 4 volumes, for a total price of P1,675.50 which, in addition to the cost
of freight of P6.90, makes a total of P1,682.40. Tabora made a partial payment of P300.00, leaving a balance of
P1,382.40. The books were duly delivered and receipted for by Tabora on May 15, 1955 in his law office in Naga
City.
 However, a big fire broke out in that locality which destroyed and burned all the buildings standing on one whole
block including at the law office and library of Tabora.
 As a result, the books bought from the company as above stated, together with Tabora's important documents
and papers, were burned during the conflagration.
 This unfortunate event was immediately reported by Tabora to the company in a letter he sent on May 20, 1955.
On May 23, the company replied and as a token of goodwill it sent to Tabora free of charge volumes 75, 76, 77
and 78 of the Philippine Reports.
 As Tabora failed to pay he monthly installments agreed upon on the balance of the purchase price
notwithstanding the long time that had elapsed, the company demanded payment of the installments due, and
having failed, to pay the same, it commenced the present action before the CFI of Manila for the recovery of the
balance of the obligation.
 Defendant, in his answer, pleaded  force majeure as a defense. He alleged that the books bought from the plaintiff
were burned during the fire that broke out in Naga City on May 15, 1955, and since the loss was due to  force
majeure he cannot be held responsible for the loss.
 CFI rendered judgment for the plaintiff. It ordered Tabora to pay the sum of P1,382.40, with legal interest thereon
from the filing of the complaint, plus a sum equivalent to 25% of the total amount due as liquidated damages, and
the cost of action.
 Tabora appealed to the CA, but the case was forwarded to the SC by virtue of a certification issued by the CA
that the case involves only questions of law.

Issue:
W/N respondent Tabora should bear the loss and pay the unpaid purchase price.

Ratio:
YES.
 It was provided in the contract that "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."

 General Rule: the 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. BUT, this rule does not apply in this case
because the parties clearly agreed to the abovementioned contrary stipulation.

 Although the seller agreed that the ownership of the books shall remain with it until the purchase price shall have
been fully paid, such stipulation cannot make the seller liable in case of loss not only because such was
agreed merely to secure the performance by the buyer of his obligation but in the very contract it was
expressly agreed that the "loss or damage to the books after delivery to the buyer shall be borne by the
buyer."

Any such stipulation is sanctioned by Article 1504 of our Civil Code, which in part provides:
 (1) 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
  Force majeure will not exempt Tabora from his liability. This is because this only holds true when the
obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable
even in case of fortuitous event. Here these qualifications are not present. The obligation does not refer to a
determinate thing, but is pecuniary in nature(money), and the obligor bound himself to assume the loss
after the delivery of the goods to him. Obligor(Tabora) agreed to assume any risk concerning the goods
from the time of their delivery.

WHEREFORE, the decision appealed from is modified by eliminating that portion which refers to liquidated damages. No
costs.