Audio Case Digest In Law On Sales By Busy Book Law.

Cases In Sales.

Title. Cruz versus Fernando.

Doctrine. The determination of whether an agreement is a contract of sale or a contract to sell

depends on the presence or absence of a definite manner of payment of the purchase price. A
contract of sale transfers ownership upon delivery of the property, while a contract to sell
reserves ownership until full payment of the price. Failure to fulfill suspensive conditions in a
contract to sell prevents its perfection and transfer of ownership.

Facts. Luis Cruz and Aida Cruz (petitioners) occupied a portion of a property owned by spouses
Alejandro Fernando, Sr. and Rita Fernando (respondents). The respondents filed a complaint
against the petitioners, demanding them to vacate the property and pay monthly rental. The
dispute arose from a Kasunduan (agreement) executed between the petitioners and the previous
owners, the spouses Clodualdo and Teresita Glorioso. The respondents alleged that they bought
the entire property from the Gloriosos after the petitioners failed to exercise their option to buy
the rear portion.

Issue. The main issue revolves around whether the agreement between the petitioners and the
Gloriosos was a perfected contract of sale or a mere contract to sell.

Ruling. The court ruled that the agreement between the petitioners and the Gloriosos was a
contract to sell and not a contract of sale. The absence of a definite manner of payment of the
purchase price and the existence of a suspensive condition regarding the relocation of the house
indicated that it was a contract to sell. The petitioners' failure to relocate their house as stipulated
in the agreement rendered the contract to sell ineffective and unperfected, preventing the transfer
of ownership to them.
Title. NFF Industrial versus G & L Associated.

Doctrine. In sales transactions, valid delivery is crucial to establish an obligation to pay.

Acceptance of delivery can be inferred from the conduct of the buyer, even if the delivery does
not strictly adhere to the specified instructions.

Facts. Petitioner NFF Industrial Corporation manufactures bulk bags, and respondent G & L
Associated Brokerage, is one of its customers. Respondent Gerardo Trinidad is the general
manager of the respondent company.

On July 20, 1999, respondent company placed an order for one thousand pieces of bulk bags
from petitioner at a specified price. A Purchase Order was made, instructing immediate delivery
to "G & L Associated Brokerage, Inc., c/o Hi-Cement Corporation, Norzagaray, Bulacan."

Later, respondent company ordered an additional one thousand pieces of bulk bags, for a total of
two thousand pieces, with the same terms and delivery instructions.

Petitioner made deliveries of the bulk bags to Hi-Cement Corporation, but respondents claimed
that the ordered bulk bags were not received by their authorized representative, as required by
the Purchase Order.

Issues. The main issue is whether there was a valid delivery in accordance with the law,
establishing an obligation for the respondent company to pay for the bulk bags.

Ruling. Petitioner contends that it delivered the bulk bags to respondent company, and the latter
effectively had control and possession of the bags. Respondents, on the other hand, argue that
there was no valid delivery as the authorized representative did not receive the bags.

The court ruled in favor of the petitioner, stating that although the bags were not delivered to the
specified person as per the Purchase Order, acceptance of delivery can be inferred from the
conduct of the respondents. By using the bulk bags in their business activities and allowing the
delivery to enter the premises, respondents effectively abandoned any delivery-related issues.
Mr. Trinidad acknowledged receipt of the first batch and even followed up on the remaining
orders.

The case emphasizes that even if there is a deviation from the delivery instructions, acceptance
of delivery can be inferred from the buyer's conduct. Consequently, the buyer may be held liable
to pay for the price of the goods. In this case, the use of the bulk bags by the respondent
demonstrated an act of dominion, inconsistent with the ownership of the petitioner.

Overall, the case underscores the importance of valid delivery in sales transactions and highlights
that conduct can be indicative of acceptance, even when delivery instructions are not strictly
followed.
Title. Sanchez versus Rigos.

Doctrine. An accepted unilateral promise to buy or sell a determinate thing for a price certain is
binding upon the promisor if the promise is supported by a consideration distinct from the price.
However, if the promise lacks such consideration, the offeror can withdraw the promise before
acceptance, but once accepted, a bilateral contract of sale is formed.

Facts. Plaintiff Nicolas Sanchez and defendant Severina Rigos executed an "Option to Purchase"
agreement, wherein Rigos agreed to sell a parcel of land to Sanchez for a specified price within
two years. Sanchez made several tenders of payment, but Rigos rejected them. Eventually,
Sanchez deposited the payment with the Court of First Instance and filed an action for specific
performance and damages against Rigos.

In her defense, Rigos argued that the contract was a unilateral promise to sell and was null and
void due to the lack of valuable consideration.

Issue. The main issue revolves around the application of Article 1479 of the Civil Code, which
determines the validity of a unilateral promise to sell in sales contracts. The question is whether
the contract between Sanchez and Rigos is binding, given the absence of consideration for Rigos'
promise to sell.

Ruling. The court upheld Rigos' argument and ruled in her favor. It clarified that the "Option to
Purchase" agreement was a unilateral promise to sell, not a contract to buy and sell. While Rigos
had committed to selling the land to Sanchez, the latter did not agree to buy the property as part
of the contract.

According to Article 1479, an accepted unilateral promise to buy or sell requires a consideration
distinct from the price to be binding. In this case, Sanchez did not allege the existence of such
consideration in his complaint.

Furthermore, the court considered Article 1324 of the Civil Code, which states that an offer may
be withdrawn before acceptance, except when the option is founded upon consideration.
However, this provision cannot be applied in isolation from Article 1479, which specifically
addresses unilateral promises to buy or sell.

The court clarified that in cases like this, where the option lacks a distinct consideration, it may
still be treated as an offer to sell. If the offer is accepted before withdrawal, a bilateral contract of
sale is formed, and the offeree assumes the obligations of a purchaser. Therefore, Rigos' promise
to sell became binding upon acceptance by Sanchez.
Title. Rosario versus PCI.

Doctrine. The failure to foreclose a chattel mortgage does not bar a creditor from suing for the
unpaid balance under a promissory note secured by the mortgage. The remedies of foreclosure
and collection are alternative, and the creditor may choose either one.

Facts. The spouses Rosario purchased a vehicle from Car Merchants, Incorporated and applied
for a loan with PCI Leasing to pay the balance. They executed a promissory note and a chattel
mortgage in favor of PCI Leasing. The spouses later defaulted on their loan payments, and PCI
Leasing filed a complaint for the unpaid balance and a writ of replevin.

Issue. Whether PCI Leasing's failure to foreclose the chattel mortgage bars them from suing for
the unpaid balance under the promissory note.

Ruling. The court ruled that the failure to foreclose the chattel mortgage does not prevent PCI
Leasing from suing for the unpaid balance under the promissory note. The remedies of
foreclosure and collection are alternative, and the creditor may choose either one. In this case,
PCI Leasing chose to sue for the unpaid balance, and the court found them entitled to the amount
due, but the awarded attorney's fees were deleted.
Title. Noynay versus Citihomes.

Doctrine. In an unlawful detainer case, the cause of action requires the existence of a legal right
on the part of the plaintiff, a corresponding obligation of the defendant, and an act or omission of
the defendant violating the plaintiff's rights. The assignee is subrogated to the rights and
obligations of the assignor, and the assignor becomes a stranger to the contractual relations after
assignment.

Facts. Spouses Michelle and Noel Noynay executed a contract to sell a property with Citihomes
Builder and Development, Incorporated in 2004. Later, Citihomes assigned its rights, titles,
interests, and participation in various contracts to United Coconut Planters Bank in 2005.
Spouses Noynay allegedly defaulted on payments, and Citihomes declared them delinquent.
Citihomes sent a notice of delinquency and cancellation of the contract, demanding Spouses
Noynay to vacate the premises. Spouses Noynay did not comply, and Citihomes filed a
complaint for unlawful detainer against them.

Issue. Whether Citihomes has a cause of action for ejectment against Spouses Noynay after the
assignment of rights to UCPB.

Ruling. The Court agrees with the Municipal Trial Court for Cities that Citihomes has no cause
of action against Spouses Noynay. The deed of assignment executed by Citihomes in favor of
UCPB shows an intent to assign all rights and benefits under the contract to sell, making
Citihomes a stranger to the jural relations established by the contract. Thus, Citihomes no longer
had the right to cancel the contract or evict Spouses Noynay. Moreover, the failure of Citihomes
to comply with the requirements for the proper cancellation of the contract under the Maceda
Law rendered their possession of the property legal. As such, the unlawful detainer case against
Spouses Noynay was dismissed, and they were entitled to remain undisturbed in possession of
the property.
Title. Radio wealth versus Palileo.

Doctrine. The rule provided in Article 1544 of the Civil Code, which determines the rightful
owner in case of a double sale of immovable property, applies differently to unregistered land
compared to registered land. In the case of unregistered land, the person who acquires it through
an execution sale only steps into the shoes of the judgment debtor and merely acquires the latter's
interest in the property as of the time the property was levied upon. Thus, a prior buyer of
unregistered land, even if the sale was unrecorded, has a superior right over a subsequent buyer
who purchased the land in an execution sale and whose transfer was registered.

Facts. On April 13, 1970, defendant spouses Enrique Castro and Herminia Castro sold a parcel of
unregistered coconut land to plaintiff-appellee Manuelito Palileo. The sale was evidenced by a
notarized Deed of Absolute Sale. However, the deed was not registered. After the sale, Palileo
exercised acts of ownership over the land through his mother, Rafaela Palileo. He also paid real
estate taxes on the land continuously.

On November 29, 1976, a judgment was rendered against defendant Enrique Castro in favor of
petitioner Radiowealth Finance Company. Pursuant to a writ of execution, the subject land was
levied upon and sold at public auction to Radiowealth Finance Company. A certificate of sale
and a deed of final sale were executed and registered with the Registry of Deeds.

Issue. The main issue is whether the rule in Article 1544 of the Civil Code, which governs
double sales of immovable property, is applicable to a parcel of unregistered land purchased at a
judicial sale. Specifically, the court is asked to determine the rightful owner between two buyers
of unregistered land. the first buyer in a prior unrecorded sale or the second buyer who purchased
the land in an execution sale with registration.

Ruling. The Court ruled in favor of the first buyer, Manuelito Palileo. The Court of Appeals
correctly held that the execution sale of the unregistered land in favor of petitioner Radiowealth
Finance Company is of no effect because the land no longer belonged to the judgment debtor at
the time of the execution sale. In cases of unregistered land, Article 1544 of the Civil Code,
which applies to registered land, cannot be invoked to benefit the purchaser at the execution sale,
even if the latter was a buyer in good faith and the second sale was registered. The execution sale
purchaser merely steps into the shoes of the judgment debtor and acquires the latter's interest in
the property as of the time it was levied upon.

As such, the Court affirmed the decision of the Court of Appeals in favor of Manuelito Palileo as
the rightful owner of the unregistered land, despite the prior unrecorded sale. The registration of
the execution sale did not grant superior rights to Radiowealth Finance Company, and Palileo's
prior ownership prevails.
Title. Skunac Corporation versus Sylianteng.

Doctrine. When two or more sales transactions pertain to exactly the same subject matter, the
same buyers represent conflicting interests, and each bought from the very same seller, Article
1544 of the Civil Code on double sale of registered land may apply. However, if the sales were
initiated by different sellers, Article 1544 does not apply, and the principles of regularity,
authenticity, and due execution of documents come into play.

Facts. The case involves two parcels of land, Lot 1 and Lot 2, located in Block 2 of the Pujalte
Subdivision in Greenhills, San Juan City. The land was originally registered in the name of Luis
A. Pujalte on October 29, 1945.

Plaintiffs-appellants, Roberto S. Sylianteng and Caesar S. Sylianteng, claim ownership of the

subject lots through a Deed of Absolute Sale executed in their favor by their mother,
Emerenciana Sylianteng, on June 27, 1983. Emerenciana allegedly acquired the lots from Luis
Pujalte through a Deed of Sale dated June 20, 1958, which was reflected in Entry P.E. 4023,
annotated on the covering TCT, and subsequently issued TCT No. 42369. When Emerenciana
sold the lots to appellants, TCT 39488 was issued in their names.

Petitioners, Skunac Corporation and Alfonso F. Enriquez, claim that Romeo Pujalte, declared by
the RTC of Pasig City as the sole heir of Luis Pujalte, caused the reconstitution of the Mother
Title and subsequently sold the lots to them in 1992. Thus, TCT 5888-R was issued in the name
of Skunac for Lot 1, and TCT 5889-R was issued in the name of Enriquez for Lot 2.

Respondents contend that they have a better right to the lots as their transactions preceded those
of petitioners. They further assert that petitioners were not innocent purchasers in good faith
because they had prior notice of the previous transactions through the memorandum of
encumbrances annotated on the titles.

Issue. Whether the application of Article 1544 of the Civil Code on double sale of registered land
is proper in this case.

Ruling. No, the application of Article 1544 is not proper in this case.

Summary. The dispute involves conflicting claims of ownership over the subject lots.
Respondents base their ownership on a Deed of Sale executed in their favor by their mother,
Emerenciana Sylianteng, while petitioners claim ownership from a sale made by Romeo Pujalte,
alleged to be the sole heir of Luis Pujalte.

The Court ruled that Article 1544 of the Civil Code, which deals with double sale of registered
land, does not apply because the two sales transactions pertain to different sellers. As such, the
principles of regularity, authenticity, and due execution of documents are considered.
The Court upheld the validity of the Deed of Sale between Luis Pujalte and Emerenciana
Sylianteng, finding it properly notarized and registered. Consequently, respondents' claim of
ownership is upheld, and their titles are deemed valid. On the other hand, petitioners' claim was
invalidated because Romeo Pujalte, who sold the lots to them, was not the rightful heir of Luis
Pujalte.

Furthermore, the Court found that petitioners were not innocent purchasers in good faith, as they
had prior knowledge of the previous transactions through the memorandum of encumbrances
annotated on the titles. Therefore, the Court awarded moral damages, exemplary damages, and
attorney's fees to respondents for the suffering and inconvenience they endured due to
petitioners' bad faith.
Title. Nuguid versus Court of Appeals.

Doctrine. the principle of innocent purchase for value was applied, protecting the rights of the
petitioners who acted in good faith and acquired the property from registered owners without
knowledge of any prior unregistered sale. As a result, the petitioners were allowed to retain
ownership of the disputed property, while the private respondents' claim to one-half portion of
the property was rejected.

Facts. Spouses Diosdado Nuguid and Mariqueta Venegas purchased a parcel of land from the
heirs of Victorino and Crisanta dela Rosa, evidenced by a registered document entitled
"Kasulatan ng Partihan at Bilihan." However, the private respondents, claiming to be the heirs of
Juliana Salazar, alleged that the sale to Nuguid and Venegas was based on a forged deed and
sought to recover ownership of half of the property.

Issue. Whether the petitioners were purchasers in good faith and are thus entitled to retain
ownership of the disputed property.

Ruling. The Supreme Court ruled in favor of the petitioners, declaring them purchasers in good
faith. They had no knowledge of the prior unregistered sale to Juliana Salazar and dealt with
occupants Doray dela Rosa and Pedro Guevarra, who did not assert adverse ownership over the
property. The private respondents' claim of becoming aware of the petitioners' title only in 1978
was dubious, as the petitioners had openly occupied the property since their purchase in 1961.
Title. Spring Homes versus Lumbres.

Doctrine. Knowledge of a prior sale by the first buyer defeats the rights of the second buyer,
even if the second buyer registers the second sale ahead of the first.

Facts. Spouses Pedro L. Lumbres and Rebecca T. Roaring entered into a Joint Venture
Agreement with Spring Homes Subdivision for the development of certain parcels of land. Later,
Spring Homes executed a Contract to Sell with Spouses Pedro Tablada, Jr. and Zenaida Tablada
for the sale of a specific parcel of land within the subdivision. However, the Tablada couple
discovered that the property was mortgaged as security for a loan. They filed a complaint for
Nullification of Title, Reconveyance, and Damages against Spring Homes and the Spouses
Lumbres, seeking to nullify the second Deed of Absolute Sale in favor of the Lumbres and the
title issued, while asserting the validity of the first Deed of Absolute Sale in their favor.

Issue. Whether the Spouses Tablada were purchasers of the parcel of land in Spring Homes
Subdivision in bad faith.

Ruling. Yes. The knowledge of the first sale gained by the second buyer defeats their rights, even
if they register the second sale ahead of the first. In this case, the Spouses Lumbres were aware
of the previous sale to the Spouses Tablada through a valid Deed of Absolute Sale. Their
knowledge of the prior sale rendered their registration of the second sale in bad faith, thereby
negating any claim to priority over the Spouses Tablada. As a result, the rights of the Spouses
Tablada as the first buyers prevail over those of the Spouses Lumbres as the second buyers.
Title. Rosaroso versus Soria.

Doctrine. A buyer must act in good faith and conduct due diligence when purchasing immovable
property that is already in the possession of others. Failure to do so may result in the buyer losing
ownership rights, even if the sale is registered.

Facts. Spouses Luis Rosaroso and Honorata Duazo acquired several real properties, including the
subject properties in Daan Bantayan, Cebu City. Luis later married Lourdes Pastor Rosaroso.
After Luis' death, a complaint for Declaration of Nullity of Documents with Damages was filed
by Luis' children against his daughter, Lucila Soria, her daughter Laila Solutan, and Meridian
Realty Corporation. The plaintiffs alleged that Luis, with Lourdes' consent, executed a Deed of
Absolute Sale covering the subject properties in their favor. However, Lucila and Laila obtained
a Special Power of Attorney from Luis and sold the same properties to Meridian. The plaintiffs
sought to nullify the SPAs and the sale to Meridian.

Issue. Whether the First Sale was valid, and whether Meridian was a buyer in good faith.

Ruling. The First Sale was valid. The Second Sale to Meridian was void because Luis no longer
owned the subject properties at the time of the sale, having previously sold them to his children.
However, Meridian was not a buyer in good faith as it failed to conduct due diligence. The
property was already in the possession of others, and Meridian did not investigate the rights of
the occupants before making the purchase. Therefore, the Court held that Meridian could not
claim ownership over the subject properties.

Buyers of immovable properties must act in good faith and conduct proper investigations,
especially when the property is already in the possession of others. Failure to do so may result in
the buyer losing ownership rights, even if the sale is registered.
Title. Arcaina and Banta versus Ingram.

Doctrine. In a sale of real estate made for a lump sum and not at a specified rate per unit area, the
boundaries stated in the contract prevail over the area specified. If the actual area within the
boundaries exceeds the stated area, the vendor is obliged to deliver only the area stated in the
contract, unless the excess is reasonable.

Facts.

The petitioner, Noemi L. Ingram, entered into a contract with the respondents, Dasmarinas T.
Arcaina and Magnani T. Banta, for the sale of Lot 3230 located in Albay.

The contract price was 1,860,000.00, and Ingram made installment payments totaling
1,715,000.00.

After a survey, it was discovered that the property had an area of 12,000 sq. m., exceeding the
stated area of 6,200 sq. m. in the deeds of sale.

Ingram claimed ownership of the entire lot, while petitioners insisted that only 6,200 sq. m. was
sold at 300.00 per sq. m.

Issue. Whether the sale of Lot 3230 was made for a lump sum or at a specified rate per square
meter.

Ruling.

The sale of Lot 3230 was made for a lump sum, and Article 1542 of the Civil Code applies.

Under Article 1542, when the area and boundaries of a property are declared in a sale for a lump
sum, the vendor is obliged to deliver all that is included within the boundaries, regardless of
whether the actual area is more or less than what was specified in the contract of sale.

However, if the discrepancy between the actual area and the stated area is not reasonable, the
vendor is only obliged to deliver the area stated in the contract.

In this case, the difference of 5,800 sq. m. between the actual area of 12,000 sq. m. and the stated
area of 6,200 sq. m. is substantial and unreasonable.

Therefore, the vendor is only obliged to deliver the area stated in the contract, which is 6,200 sq.
m.

Ingram is entitled to the 6,200 sq. m. of the property and must pay the remaining balance of
145,000.00 to the respondents.
Title. Philippine Steel Coating Corporation versus Quinones.

Doctrine. An express warranty in a contract of sale arises when the seller makes an affirmation
of fact or promise about the subject matter of the sale, inducing the buyer to make the purchase
relying on such statement. Non-payment of the purchase price may be justified if a breach of
warranty is proven.

Facts.

Respondent Quinones, owner of Amianan Motors, filed a complaint for damages against
petitioner PhilSteel.

PhilSteel's sales engineer, Richard Lopez, offered Quinones their new product. primer-coated,
long-span, rolled galvanized iron sheets.

Quinones inquired about the compatibility of the primer-coated sheets with the paint process
used by Amianan Motors, and PhilSteel's sales manager, Ferdinand Angbengco, assured him that
a laboratory test had proven their compatibility.

After purchasing and using the sheets, Quinones received complaints from customers about the
paint peeling off the buses. Quinones claimed that the damage was due to hidden defects of the
primer-coated sheets and their incompatibility with their paint process.

The RTC and CA ruled in favor of Quinones, finding that Angbengco's assurance constituted an
express warranty.

Issues.

1. Were Angbengco's oral statements a case of express warranty under Article 1546 of the
Civil Code?

2. Is non-payment of the price justified on allegations of breach of warranty?

Ruling.

1. Yes. Angbengco's oral statements created an express warranty under Article 1546. To
establish an express warranty, the following requisites must be met.

1. the seller makes an affirmation of fact or promise about the subject matter of the sale;
2. the natural effect of the affirmation or promise is to induce the buyer to make the
purchase; and 3. the buyer relies on the affirmation or promise in making the purchase.
Here, Angbengco's positive affirmations induced Quinones to buy the primer-coated G.I.
sheets, and Quinones relied on these statements.

2. Yes, non-payment of the purchase price is justified since a breach of warranty was
proven. Quinones opted for a reduction in price or non-payment of the unpaid balance of
the purchase price as provided under Article 1599 of the Civil Code. Recoupment allows
the reduction or extinction of the price of the item or unit if a breach of warranty is
established in the sale contract.
Title. Pilipinas Makro versus Coco Charcoal.

Doctrine. An express warranty in a contract of sale is a positive affirmation of fact or promise by

the seller about the subject matter of the sale, inducing the buyer to make the purchase. If a
property purchased is encroached upon by a third party, the buyer may be entitled to a refund
based on the terms of the sale contract.

Facts.

Petitioner Pilipinas Makro sought to acquire real properties in Davao City to build and operate a
store.

Makro entered into notarized Deeds of Absolute Sale with respondents Coco Charcoal Phils.,
Inc. and Lim Kim San for two adjacent parcels of land. After engaging a geodetic engineer for
resurvey, Makro discovered that portions of the properties purchased were encroached upon by
the Department of Public Works and Highways for a road widening project.

Makro demanded a refund from respondents for the value of the encroached area, but the
demands were not heeded, leading to separate complaints against Coco Charcoal and Lim.

Issue.

Was Makro entitled to a refund for the encroached area based on the express warranty in the
Deeds of Absolute Sale?

Ruling.

Yes. The Deeds of Absolute Sale contained a warranty stating that the properties were free from
any encumbrances that would prevent Makro from fully possessing them. The encroachment by
the DPWH constituted a breach of this warranty. The Court found that Makro did not have actual
knowledge of the extent of the encroachment during its ocular inspection before the sale. Thus,
Makro was entitled to a refund based on the terms of the Deeds of Absolute Sale.

Note. The court also ruled on other procedural issues, but the focus of this digest is on the topic
of sales and the entitlement to a refund based on the express warranty in the sale contract.
Title. Valderama versus Arguelles.

Doctrine. A subsequent annotation of a notice of lis pendens on a certificate of title does not
necessarily render a petition for cancellation of adverse claim on the same title moot and
academic. Adverse claims and notices of lis pendens serve different purposes and are not of the
same nature. The cancellation of an adverse claim is still necessary to render it ineffective, as it
constitutes a lien on the property.

Facts.

Respondents filed a petition to cancel adverse claim involving a parcel of land. They claimed
that they obtained the land through an absolute deed of sale executed by the previous owner,
Conchita Francia.

Petitioner and Tarcila, as sisters of Conchita, opposed the petition, arguing that Conchita's claims
and rights against the property were transmitted to her heirs upon her death.

While the petition was pending, respondents filed a complaint for recovery of ownership and
possession of the property against petitioner and Tarcila. Petitioner and Tarcila subsequently
filed a notice of lis pendens with respect to the certificate of title of the property, and respondents
moved for the cancellation of the adverse claim, claiming it was moot and academic.

The RTC ordered the cancellation of the adverse claim, and the CA dismissed petitioner's appeal,
considering it a question of law. Petitioner filed a petition for review.

Issue. Whether the subsequent annotation of a notice of lis pendens on a certificate of title
renders the petition for cancellation of adverse claim on the same title moot and academic.

Ruling. No, a subsequent annotation of a notice of lis pendens does not render the petition for
cancellation of adverse claim moot and academic. Adverse claims and notices of lis pendens are
not of the same nature and serve different purposes. The cancellation of an adverse claim is
necessary to render it ineffective as it constitutes a lien on the property. The two remedies,
adverse claim, and notice of lis pendens, may be availed of at the same time.
Title. Isla versus Estorga.

Doctrine. Parties are free to stipulate their preferred rate of monetary interest on a loan.
However, courts have the authority to equitably temper interest rates that are found to be
excessive, iniquitous, unconscionable, and/or exorbitant. The legal rate of interest prevailing at
the time the agreement was entered into is applied if the agreed interest rate is nullified.

Facts. Petitioners obtained a loan from the respondent with a real estate mortgage as security.
The loan was payable within six months to one year, with a ten per cent monthly interest. After
failing to pay, respondent filed for judicial foreclosure. Petitioners argued that the mortgage was
not valid and the interest rate was unconscionable.

The RTC granted the judicial foreclosure and ordered petitioners to pay the principal amount
with twelve percent interest per annum and attorney's fees. The CA affirmed with modifications,
reducing the monthly interest and providing for legal interest.

Issues. Whether the CA erred in awarding

1. twelve percent interest on the principal obligation until full payment, and
2. attorney's fees.

Ruling. There are two types of interest. monetary interest and compensatory interest. Monetary
interest is the rate stipulated by the parties, while compensatory interest is imposed as damages
for delay or failure to pay the principal loan. Courts have the authority to temper excessive,
iniquitous, unconscionable, or exorbitant interest rates, retaining the loan's principal and
applying the legal rate of interest prevailing at the time of contracting.

In this case, the agreed ten percent monthly interest was found to be unconscionable, and thus,
the courts reduced it to twelve percent per annum, the prevailing legal rate of interest for loans
and forbearances of money at the time of the contract.
Title. Raceles versus Spouses Javier.

Doctrine. The right of a lessee to suspend the payment of rent under Article 1658 of the Civil
Code can only be invoked if the lessor fails to make necessary repairs or maintain the lessee in
peaceful and adequate enjoyment of the leased property. However, this right does not apply after
the lease agreement has expired, and it does not absolve the lessee from their obligation to pay
the rent as stipulated in the lease contract.

Facts. Respondents, Spouses Germil and Rebecca Javier, offered to purchase a property from the
petitioner, Victoria Racelis. As they could not afford the full price, they proposed to lease the
property temporarily until they could raise sufficient funds to buy it. The petitioner agreed to the
arrangement. The respondents paid an initial sum as goodwill money and continued to pay rent.
However, when the petitioner asked them to vacate the property and terminated the lease
agreement, the respondents refused to leave and stopped paying rent. In response, the petitioner
disconnected the electrical services and filed an ejectment complaint.

The Metropolitan Trial Court ruled in favor of the respondents, stating that they were entitled to
suspend rent payment under Article 1658 of the Civil Code due to the petitioner's act of
disconnecting the electricity. The RTC reversed this decision, and the Court of Appeals ruled in
favor of the respondents.

Issue. Can the respondents invoke their right to suspend the payment of rent under Article 1658
of the Civil Code?

Ruling. No. Article 1658 of the Civil Code allows a lessee to suspend rent payment if the lessor
fails to make necessary repairs or maintain the lessee in peaceful and adequate enjoyment of the
property. However, this right does not apply in the present case because the lease agreement had
already expired when the petitioner disconnected the electrical service. At that point, the
petitioner had demanded the respondents to vacate the premises, but they unlawfully withheld
possession of the property. Since the lease was terminated, the petitioner was no longer obliged
to maintain the respondents' peaceful and adequate enjoyment of the property.

Even if the respondents were entitled to invoke their right under Article 1658, it does not absolve
them from their obligation to pay the rent according to the stipulated terms in the lease
agreement. The respondents are liable for a reasonable amount of rent for their continued use and
occupation of the property after the lease expiration. Failure to pay rent in such circumstances
would unjustly enrich the respondents at the petitioner's expense.

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