Ang vs Court of Appeals

G.R. No. 177874 September 29, 2008

Petitioner: Jaime D. Ang

Respondent: Court of Appeals and Bruno Soledad

FACTS: Under a “car-swapping” scheme, respondent Soledad sold his Mitsubishi GSR sedan 1982
model to petitioner Ang by Deed of Absolute Sale dated July 28, 1992. Ang later offered the
Mitsubishi GSR for sale through Far Eastern Motors, a second-hand auto display center. The vehicle
was eventually sold to a certain Paul Bugash. Before the deed could be registered in Bugash’s name,
however, the vehicle was seized by virtue of a writ of replevin on account of the alleged failure of
Ronaldo Panes, the owner of the vehicle prior to Soledad, to pay the mortgage debt constituted
thereon.

To secure the release of the vehicle, Ang paid BA Finance the amount of P62,038.47. Soledad refused
to reimburse the said amount, despite repeated demands, drawing Ang to charge him for Estafa with
abuse of confidence. It was dismissed later for insufficiency of evidence. Ang filed the first complaint
for damages against Soledad. It was dismissed for failure to submit the controversy to barangay
conciliation. Ang thereafter secured a certification to file action and again filed a complaint for
damages which was dismissed on the ground that the amount involved is not within its jurisdiction.
Ang thereupon filed with the Municipal Trial Court in Cities (MTCC) a complaint the subject of the
instant petition. After trial, the MTCC dismissed the complaint on the ground of prescription pursuant
to Article 1571.

Ang appealed to the RTC which affirmed the dismissal of the complaint, albeit it rendered judgment in
favor of Ang “for the sake of justice and equity, and in consonance with the salutary principle of non-
enrichment at another’s expense.” Soledad’s Motion for Reconsideration was denied. He elevated the
case to the Court of Appeals. The appellate court accordingly reversed the RTC decision and denied
Ang’s motion for reconsideration.

ISSUE: Whether Ang’s cause of action has prescribed

RULING: The resolution of the sole issue of whether the complaint had prescribed hinges on a
determination of what kind of warranty is provided in the Deed of Absolute Sale subject of the
present case. Art. 1546 of the Civil Code defines express warranty. Among the implied warranty
provisions of the Civil Code are: as to the seller’s title (Art. 1548), against hidden defects and
encumbrances (Art. 1561), as to fitness or merchantability (Art. 1562), and against eviction (Art.
1548). The earlier cited ruling in Engineering & Machinery Corp. states that “the prescriptive period
for instituting actions based on a breach of express warranty is that specified in the contract, and in
the absence of such period, the general rule on rescission of contract, which is four years (Article
1389, Civil Code).” For actions based on breach of implied warranty, the prescriptive period is, under
Art. 1571 (warranty against hidden defects of or encumbrances upon the thing sold) and Art. 1548
(warranty against eviction), six months from the date of delivery of the thing sold.

In declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale
was forged, Soledad gave an implied warranty of title. In pledging that he “will defend the same from
all claims or any claim whatsoever [and] will save the vendee from any suit by the government of the
Republic of the Philippines,” Soledad gave a warranty against eviction. Given Ang’s business of buying
and selling used vehicles, he could not have merely relied on Soledad’s affirmation that the car was
free from liens and encumbrances. He was expected to have thoroughly verified the car’s registration
and related documents.

Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach
thereof is six months after the delivery of the vehicle, following Art. 1571. But even if the date of
filing of the action is reckoned from the date petitioner instituted his first complaint for damages on
November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present
petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992,
the date of delivery of the vehicle.

PHILIPPINE STEEL COATING, CORP. VS. EDUARD QUINONES (G.R. NO. 194533) APRIL 19, 2017

Facts: A complaint for damages was filed by respondent Quinones (owner of Amianan Motors) against
petitioner PhilSteel. Richard Lopez, a sales engineer of PhilSteel, offered Quinones their new product:
primer-coated, long-span, rolled galvanized iron (G.I.) sheets. The latter showed interest but asked if
the primer-coated sheets were compatible with the Guilder acrylic paint process used by Amianan
Motors in the finishing of its assembled buses. Uncertain, Lopez referred the query to his immediate
superior, Ferdinand Angbengco, PhilSteel’s sales manager.

Angbengco assured Quinones that the quality of their new product was superior to that of the non-
primer coated G.I. sheets being used by the latter in his business. He further guaranteed that a
laboratory test had in fact been conducted by PhilSteel, and that the results proved that the two
products were compatible.

However, Quinones received several complaints from customers who had bought bus units, claiming
that the paint or finish used on the purchased vehicles was breaking and peeling off. Quinones sent a
letter-complaint to PhilSteel claiming that the damage to the vehicles was attributable to the hidden
defects of the primer-coated sheets and/or their incompatibility with the Guilder acrylic paint process
used by the Amianan Motors. Because of the barrage of complaints, Quinones was forced to repair
the damaged buses.

PhilSteel counters that that the breaking and peeling off of the paint was caused by the erroneous
painting application done by Quinones.

The RTC rendered a Decision in favor of Quinones and ordered PhilSteel to pay damages. The trial
court concluded that the paint blistering and peeling off were due to the incompatibility of the
painting process with the primer-coated G.I. sheets. It also found out that the assurance made by
Angbengco constituted an express warranty under Article 1546.

The CA affirmed the ruling of the RTC in toto.

Issues:

Were the oral statements made by Angbengco a case of express warranty under Article 1546 of the
Civil Code that may be invoked to warrant payment of damages?
Is non-payment of price justified on allegations of breach of warranty?
Ruling:

Yes. Article 1546 of the Civil Code provides that any affirmation of fact or any promise by the seller
relating to the thing is an express warranty if the natural tendency of such affirmation or promise if
to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon. As
held in Carrascoso, Jr. vs. CA, the following requisites must be established in order to prove that
there is an express warranty in a contract of sale: (1) the express warranty must be an affirmation
of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural effect
of the affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer
purchases the thing relying on that affirmation or promise. Here, the oral statements of Angbengco
created an express warranty. hey were positive affirmations of fact that the buyer relied on, and
that induced him to buy petitioner’s primer-coated G.I. sheets. Seller is expert in the eyes of the
buyer.
Yes, the non-payment of the unpaid purchase price was justified since a breach of warranty was
proven. Quinones has opted for a reduction in price or non-payment of the unpaid balance of the
purchase price. According to Article 1599, Civil Code, recoupment refers to the reduction of extinction
of the price of the same item, unit, transaction or contract upon which a plaintiff’s claim is founded.
PILIPINAS MAKRO, INC., Petitioner vs. COCO CHARCOAL PHILIPPINES, INC. and LIM KIM SAN,
Respondents G.R. No. 196419 (October 4, 2017) Third Division Justice Martires I. NATURE OF THE
ACTION: Sum of Money II.

FACTS: Pilipinas Makro, Inc. (Makro) was in need of acquiring real properties in Davao City. Makro
found two parcels of land contiguous and parallel to each other belonging to Coco Charcoal Phils.,
(CCP) and Lim Kim San (Lim). Aside from the technical descriptions, Makro, CCP and Lim executed two
(2) deeds of sale containing identical provisions, similar terms, conditions, and warranties. After the
resurvey, it was discovered that 131 square meters of the lot purchased from CCP, and 130 square
meters from Lim had been encroached upon by DPWH project. Initially, Makro offered a compromise
agreement in consideration of a refund of 75% of the value of the encroached portions. Failing to
recover such, Makro filed separate complaints against CCP and Lim to collect the refund sought. RTC
ruled in favor of Markro, but CA reversed. While CA agreed that the DPWH project encroached upon
the properties, it ruled that Makro was not entitled to a refund. It explained that the warranty
expressed in Section 4(i) 11 of the deeds of sale is similar to the warranty against eviction under Art.
1548 of the Civil Code. As such, only a buyer in good faith may sue to a breach of warranty against
eviction. It averred that Makro could not feign ignorance of the ongoing road widening project, and
noted Makro's actual knowledge of the encroachment before the execution of the sale constitutes its
recognition that CCP and Lim's warranty against liens, easements, and encumbrances does not
include the respective 131 and 130 square meters. III.

ISSUE: Whether or not CA erred in denying Makro a refund on the ground of bad faith. IV.

RULING: Yes. An express warranty pertains to any affirmation of fact or any promise by the seller
relating to the thing, the natural tendency of which is to induce the buyer to purchase the same. It
includes all warranties derived from the language of the contract, so long as the language is express-it
may take the form of an affirmation, a promise or a representation. On the other hand, an implied
warranty is one which the law derives by application or inference from the nature of transaction or
the relative situation or circumstances of the parties, irrespective of any intention of the seller to
create it. In other words, an express warranty is different from an implied warranty in that the former
is found within the very language of the contract while the latter is by operation of law. Thus, CA
erred in treating Section 4(i) of the deeds of sale as akin to an implied warranty against eviction. First,
the deeds of sale categorically state that the sellers assure that the properties sold were free from
any encumbrances which may prevent Makro from fully and absolutely possessing the properties in

question. Second, in order for the implied warranty against eviction to be enforceable, the following
requisites must concur: (a) there must be a final judgment; (b) the purchaser has been deprived of the
whole or part of the thing sold; (c) said deprivation was by virtue of a prior right to the sale made by
the vendor; and (d) the vendor has been summoned and made co-defendant in the suit for eviction at
the instance of the vendee. Evidently, there was no final judgment and no opportunity for the
vendors to have been summoned precisely because no judicial action was instituted. Further, even if
Section 4(i) of the deeds of sale was to be deemed similar to an implied warranty against eviction, CA
erred in concluding that Makro acted in bad faith. It is undisputed that Makro's legal counsel
conducted an ocular inspection on the properties in question before the execution of the deeds of
sale and that there were noticeable works and constructions going on near them. Nonetheless, these
are insufficient to charge Makro with actual knowledge that the DPWH project had encroached upon
respondents' properties. A mere ocular inspection could not have possibly determined the exact
extent of the encroachment. It is for this reason that only upon a relocation survey was it discovered
that 131 and 130 square meters of the lots purchased from CCP and Lim, respectively, had been
adversely affected by the DPWH project.

Spouses Uy vs Ariza August 17, 2006 - G.R. No. 158370

DOCTRINE: Art. 1548. Eviction shall take place whenever by a final judgment based on a right prior to
the sale or an act imputable to the vendor, the vendee is deprived of the whole or part of the thing
purchased.
-It should be stressed that in order that an action for the enforcement of warranty in case of eviction
to prosper, it is a precondition that the seller must have been summoned in the suit for the eviction at
the instance of the vendee.

FACTS: Spouses Uy bought 2 parcels of land they have chosen from respondents and occupied the
same. However, it appeared that the parcels of land petitioners chosen and occupied were already
titled in the names of the Delgados which were purportedly sold by the respondents to the Delgados.
Petitioners were sued for unlawful detainer by the Delgados. compromised the case without giving
notice to the respondents.
Petitioners
Thereafter, petitioners demand from respondents that they be allowed to choose again but
respondents refused. Petitioners then filed a case for specific performance anchoring on the claim
that they could not exercise their right to choose the portion bought because the same were already
sold to another. Respondents faulted petitioners for losing possession of the parcels of land by
entering into a compromise agreement with the Delgados on two grounds: first, because respondents
have allegedly initiated the necessary legal steps to defend their possessory rights to the disputed
land by filing a case for the declaration of nullity of the title of the Delgados, and second, because
petitioners failed to interpose a third-party complaint to implead respondents in the unlawful
detainer case.

ISSUE: Whether or not petitioners have a valid cause of action

RULING: No. At the outset, it could already be seen that indeed, [petitioners] have no cause of action
against [respondents]. The case for specific performance which was filed by [petitioners] against
[respondents] is not the proper remedy in this case. Rather, said action was purely an afterthought on
the part of [petitioners] when they were eventually evicted from the lots they bought from
[respondents]. The facts of the case are very clear. [Petitioners] bought from [respondents] a 200
square meter lot which was part of a bigger parcel of land covered by TCT No. 20007 registered in the
names of [respondents], and which [petitioners] immediately took possession of. After a year,
[petitioners] again bought from [respondents] and took possession of the adjacent lot also measuring
200 square meters. Since the sale, [petitioners] had been in peaceful possession of the lots until they
were evicted from the same by third persons claiming to be the owners of

the said lots. Thus, if [petitioners] have a cause of action against [respondents], it would be one for
the enforcement of warranty against eviction and not one for specific performance. What is before Us
is a clear case of eviction. Thus, the action for specific performance filed by [petitioners] against
[respondents] must necessarily fail. If at all, [petitioners] may file an action for the enforcement of
warranty in case of eviction which every vendor of a parcel of land is enjoined by law to guarantee as
provided under Article 1548 of the New Civil Code: Art. 1548. Eviction shall take place whenever by a
final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is
deprived of the whole or part of the thing purchased. The vendor shall answer for the eviction even
though nothing has been said in the contract on the subject. The contracting parties, however, may
increase, diminish or suppress this legal obligation of the vendor. But even if [petitioners] would file
an action for the enforcement of warranty in case of eviction against [respondents], We are afraid
that the same will not prosper. The records of the case reveal that the unlawful detainer case filed by
third persons against [petitioners], which led to the ouster of the latter from the subject lots, was
decided by compromise agreement without impleading [respondents] as third-party defendants. It
should be stressed that in order for the case to prosper, it is a precondition that the seller must have
been summoned in the suit for the eviction of the buyer. This rule is provided under the provisions of
Articles 1558 and 1559 of the New Civil Code, to wit: Art. 1558. The vendor shall not be obliged to
make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the
vendee. Art. 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court for
answering the complaint, that the vendor be made a co-defendant. Applying the above-quoted
provisions of law, the Supreme Court enumerated the requisites in the enforcement of a vendors
liability for eviction, in the case of Maria Luisa De Leon Escaler and Ernesto Escaler v. Court of Appeals,
et al., [G.R. No. L-42636. August 1, 1985.], to wit: In order that a vendors liability for eviction may be
enforced, the following requisites must concur a) there must be a final judgment; b) the purchaser
has been deprived of the whole or part of the thing sold; c) said deprivation was by virtue of a right
prior to the sale made by the vendor; and d) the vendor has been summoned and made co-defendant
in the suit for eviction at the instance of the vendee. In the case at bar, the fourth requisite that of
being summoned in the suit for eviction (Case No. 4252) at the instance of the vendee is not present.

ATTY. GEROMO vs. LA PAZ HOUSING

Atty. Reyes G. Geromo, Florencio Buentipo, Jr., Ernaldo Yambot and Lydia Bustamante, petitioners Vs.
La Paz Housing and Development Corporation and Government Service Insurance System,
respondents.
G.R. No. 211175
January 18, 2017

Facts:

Year 1987, Atty. Geromo, Bustamante and Yambot started occupying their respective residential units
from Adelina 1−A subdivision in San Pedro, Laguna from La Paz, through GSIS financing. The
properties were all situated along the old Litlit Creek. Buentipo, on the other hand, opted to demolish
the turned over unit and build a new structure thereon. After more than two (2) years of occupation,
cracks started to appear on the floor and walls on their houses. The petitioners, through the President
of the Adelina 1−A Homeowners Association, requested La Paz, being the owner/developer to take
remedial action. They collectively decided to construct a riprap/retaining wall in which La Paz
contributed p3,000 for each but petitioners claimed that despite of this retaining wall, the condition
of their housing units worsened as the years passed. La Paz alleged that the structural defects could
have been caused by the 1990 earthquake. Year 1998, the petitioners decided to leave their housing
units.
May 2002, upon the request of the petitioners, the Municipal Engineer of San Pedro and the Mines
and Geosciences Bureau (MGB) of the Department of Environment and Natural Resources (DENR)
conducted an ocular inspection of the subject properties. They found that there was “differential
settlement of the area where the affected units were constructed”. On the basis thereof, Atty.
Geromo filed a complaint for breach of contract with damages against La Paz and GSIS before Housing
and Land Regulatory Board (HLURB) on May 3, 2003, Buentipo, Yambot and Bustamante filed a similar
complaint against La Paz and GSIS. They asserted that La Paz was liable for implied warranty against
hidden defects and it was negligent in building their houses on unstable land. La Paz averred that it
had secured the necessary permits and licenses for the subdivision project. The GSIS moved for the
dismissal of the complaint for its only participation in the transaction was to grant loans to the
petitioners for the purchase of their respective properties.

August 9, 2014 Decision, the HLURB Arbiter found La Paz liable for the structural damage on the
petitioners housing units, explaining that the damage was caused by its failure to properly fill and
compact the soil on which the houses were built and to maintain (3) meters easement from the edge
of the creek as require by law. As to GSIS, the HLURB ruled that GSIS is not liable. September 12, 2005
decision of HLURB Board of Commissioners set aside the Arbiter’s decision. The petitioners move for
reconsideration but denied. The aggrieved petitioners elevated the case to Office of the President
(OP) which initially dismissed due to late filing. The petitioners question the dismissal before the CA,
and the CA ordered the OP to resolve the appeal on the merits. Then the OP finally rendered a
decision dismissing the appeal for lack of merit. The petitioners appealed the OP decision on CA, but
the CA affirmed the ruling of the OP. The petitioners moved for reconsideration but denied.

Issue:

Whether La Paz should be held liable for the structural defects on its implied warranty against hidden
defects.
Held:

Yes, La Paz is liable for the structural defects on its implied warranty against hidden defects.
Under Civil Code Article 1561, The vendor shall be responsible for warranty against the hidden defects
which the thing sold may have, should they render it unfit for the use for which it is intended, or
should they diminish its fitness for such use to such an extent that, had the vendee been aware
thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall
not be answerable for patent defects or those which may be visible, or for those which are not visible
if the vendee is an expert who, by reason of this trade or profession, should have known them. And
under Article 1566 of the Civil Code, the vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the
contrary has been stipulated and the vendor was not aware of the hidden faults or defects in the
thing sold.

Wherefore, the petition is GRANTED. The August 9, 2004 Decision of the HLURD Arbiter is hereby
REINSTATED with MODIFICATION to read as follows: (1) Ordering respondent La Paz Housing and
Development Corporation to immediately undertake and cause the necessary repairs/construction of
the subject units to make it suitable for human habitation for which it was originally intended; (2) In
the alternative, if it would no longer possible for the said units to be repaired to make it suitable for
human habitation, ordering respondent La Paz to give each petitioner another property of the same
nature and size, more or less, within the subdivision project or in any project owned and develop by
La Paz in San Pedro, Laguna, or pay the monetary equivalent thereof; and (3) Ordering respondent La
Paz to pay each of the petitioners: a. the sum P200,000.00 as temperate damages; b. the sum of
P150,000.00 as moral damages; c. the sum of P150,000.00 as exemplary damages; d. the sum of
P100,000.00 as attorney’s fees; and e. cost of suit. All awards shall earn legal interest at the rate of six
percent per annum from the finality of the judgment until full payment, in line with recent
jurisprudence. SO ORDERED.

JOSEPH HARRY WALTER POOLE-BLUNDEN v. UNION BANK OF PHILIPPINES, GR No. 205838, 2017-11-
29

Facts:

2001, Poole-Blunden came across an advertisement placed by Union Bank in the Manila Bulletin. The
ad was for the public auction of certain properties. One of these properties was a condominium unit,
identified as Unit 2-C of T-Tower Condominium (the "Unit"), located at 5040 P. Burgos corner
Calderon Streets, Makati City.[6] UnionBank had acquired the property through foreclosure
proceedings "after the developer defaulted in the payment of its loan from [UnionBank]."[7] The Unit
was advertised to have an area of 95 square meters. Thinking that it was sufficient and spacious
enough for his residential needs, Poole-Blunden decided to register for the sale and bid on the unit.[8]

Poole-Blunden placed his bid and won the unit for P2,650,000.00.[11] On May 7, 2001, Poole-Blunden
entered into a Contract to Sell with UnionBank

Poole-Blunden started occupying the unit in June 2001. By July 20, 2003, he was able to fully pay for
the Unit, paying a total amount of P3,257,142.49.[14] In late 2003, Poole-Blunden decided to
construct two (2) additional bedrooms in the Unit. Upon examining it, he noticed apparent problems
in its dimensions. He took rough measurements of the Unit, which indicated that its floor area was
just about 70 square meters, not 95 square meters, as advertised by UnionBank.[15] Poole-Blunden
got in touch with an officer of UnionBank to raise the matter, but no action was taken.[16] On July 12,
2004, Poole-Blunden wrote to UnionBank, informing it of the discrepancy. He asked for a rescission of
the Contract to Sell, along with a refund of the amounts he had paid, in the event that it was
conclusively established that the area of the unit was less than 95 square meters.[17]
UnionBank informed Poole-Blunden that after inquiring with the Housing and Land Use Regulatory
Board (HLURB), the Homeowners' Association of T-Tower Condominium, and its appraisers, the Unit
was confirmed to be 95 square meters, inclusive of the terrace and the common areas surrounding it.

Poole-Blunden was not satisfied with UnionBank's response as the condominium's Master Title
expressly stated that the "boundary of each unit are the interior surfaces of the perimeter walls,
floors, ceilings, windows and doors thereof."[20] Thus, he hired an independent geodetic engineer,
Engr. Gayril P. Tagal (Engr. Tagal) of the Filipinas Dravo Corporation, to survey the Unit and measure
its actual floor area. Engr. Tagal issued a certification stating that the total floor area of the Unit was
only 74.4 square meters.[21] Poole-Blunden gave UnionBank a copy of Engr. Tagal's certification on
July 12, 2005.[22]

Poole-Blunden's dissatisfaction with UnionBank's answer prompted him to file his Complaint for
Rescission of Contract and Damages with the Regional Trial Court, Makati City.[24] On April 20, 2010,
the Regional Trial Court dismissed Poole-Blunden's complaint for lack of merit... the Court of Appeals
affirmed the ruling of the Regional Trial Court

Issues:

sole issue of whether or not respondent Union Bank of the Philippines committed such a degree of
fraud as would entitle petitioner Joseph Harry Walter Poole-Blunden to the voiding of the Contract to
Sell the condominium unit identified as Unit 2C, T-Tower Condominium, 5040 P. Burgos corner
Calderon Streets, Makati City.

Ruling:

Thus, the unit sold to petitioner was deficient in relation to its advertised area. This advertisement
having been made by respondent, it is equally settled there was a falsity in the declarations made by
respondent prior to, and with the intention of enticing buyers to the sale. What remains in issue is
whether or not this falsity amounts to fraud warranting the voiding of the Contract to Sell.

Petitioner's contention on how crucial the dimensions and area of the Unit are to his decision to
proceed with the purchase is well-taken. The significance of space and dimensions to any buyer of
real property is plain to see. This is particularly significant to buyers of condominium units in urban
areas, and even more so in central business districts, where the scarcity of space drives vertical
construction and propels property values. It would be immensely guileless of this Court to fail to
appreciate how the advertised area of the Unit was material or even indispensable to petitioner's
consent. As petitioner emphasized, he opted to register for and participate in the auction for the Unit
only after determining that its advertised area was spacious enough for his residential needs.[48]

The significance of the Unit's area as a determining cause of the Contract to Sell is readily discernible.
Falsity on its area is attributable to none but to respondent, which, however, pleads that it should not
be considered as having acted fraudulently given that petitioner conceded to a sale on an as-is-where-
is basis, thereby waiving "warranties regarding possible errors in boundaries or description of
property."

Section 12 of the Contract to Sell spells out the "as-is-where-is" terms of the purchase... is clear from
the records that respondent fully knew that the Unit's area, reckoned strictly in accordance with the
Condominium Act, did not total 95 square meters. Respondent admits that the only way the Unit's
area could have amounted to 95 square meters was if some areas for common use were added to its
interior space. It acknowledged knowing this fact through the efforts of its appraisers and even
conceded that their findings were documented in their reports.

inspecting the Unit prior to the auction sale, petitioner took note of its actual state: "he noticed that
the ceilings were down, [that] there was water damage from the leaks coming from the unit above,
and [that] the parquet floor was damaged."[58] He also took note of its irregular shape and the
circular terrace outside it. These observations represent the full extent of what was readily
perceptible to petitioner. The precise measurement of the Unit's area, in contrast, could only be
determined by someone with specialized or technical capabilities. While ordinary persons, such as
petitioner, may hold such opinions that the Unit looks small, their perception could not be
ascertained until after an examination by someone equipped with peculiar skills and training to
measure real property. Indeed, petitioner's suspicions were not roused until years after he had
occupied the Unit and confirmed until after a certification was issued by a surveyor. Any waiver of
warranties under Section 12 of the Contract to Sell could have only been concerned with the readily
apparent subpar condition of the Unit. A person not equipped with technical knowledge and expertise
to survey real property could not reasonably be expected to recognize deficiencies in measurement at
the first instance especially if that property was of "irregular shape," "neither square nor rectangle,"
and having a "circular terrace."[59]

Contrary to the Court of Appeals' assertion, Article 1542 of the Civil Code does not bar the voiding of
the Contract to Sell.

Article 1542 has nothing to do with annulling fraudulently made sales. What it is concerned with is the
proportionate reduction of the purchase price in relation to the measurable units of the thing sold

Petitioner does not seek a reduction of the purchase price. He seeks judicial relief to have the entirety
of his purchase annulled, his consent having been fraudulently obtained. By filing an action under
Article 1390 of the Civil Code, petitioner declared that his consent to the entire subject matter of the
contract was vitiated. What suffices as relief is the complete annulment of the sale, not the partial
reimbursement upon which Article 1542 is premised. Likewise, Article 1542 does not contemplate the
seller's delivery to the buyer of things other than the agreed object of the sale. While it is true that
petitioner did not buy the unit on a per-square-meter basis, it remains that what he bought was a
condominium unit. A condominium unit's bounds are reckoned by "the interior surfaces of [its]
perimeter walls, floors, ceilings, windows and doors."[60] It excludes common areas. Thus, when
petitioner agreed to purchase the Unit at a lump-sum price, he never consented to including common
areas as part of his purchase. Article 1542's concern with a ratable reduction of the price delivered by
the buyer assumes that the seller correctly delivered, albeit deficiently, the object of the sale.

In any case, for Article 1542 to operate, "the discrepancy must not be substantial."[61] Article 1542
remains anchored on a sense of what is reasonable. An estimate given as a premise for a sale should
be "more or less" the actual area of the thing sold.[62] Here, the area advertised and stipulated in the
Contract to Sell was 95 square meters but the actual area of the unit was only 74.4 square meters.[63]
By no stretch of the imagination can a 21.68% deficiency be discounted as a mere minor discrepancy.

By definition, fraud presupposes bad faith or malicious intent. It transpires when insidious words or
machinations are deliberately employed to induce agreement to a contract. Thus, one could
conceivably claim that respondent could not be guilty of fraud as it does not appear to have crafted a
deceptive strategy directed specifically at petitioner. However, while petitioner was not a specific
target, respondent was so callously remiss of its duties as a bank. It was so grossly negligent that its
recklessness amounts to a wrongful willingness to engender a situation where any buyer in
petitioner's shoes would have been insidiously induced into buying a unit with an actual area so
grossly short of its advertised space.

Whether it was unaware of the unit's actual interior area; or, knew of it, but wrongly thought that its
area should include common spaces, respondent's predicament demonstrates how it failed to
exercise utmost diligence in investigating the Unit offered as security before accepting it. This
negligence is so inexcusable; it is tantamount to bad faith. Even the least effort on respondent's part
could have very easily confirmed the Unit's true area

Respondent's failure to do so indicates how it created a situation that could have led to no other
outcome than petitioner being defrauded

WHEREFORE, the Petition is GRANTED.

Principles:

Banks are required to observe a high degree of diligence in their affairs. This encompasses their
dealings concerning properties offered as security for loans. A bank that wrongly advertises the area
of a property acquired through foreclosure because it failed to dutifully ascertain the property's
specifications is grossly negligent as to practically be in bad faith in offering that property to
prospective buyers. Any sale made on this account is voidable for causal fraud. In actions to void such
sales, banks cannot hide under the defense that a sale was made on an as-is-where-is basis. As-is-
where-is stipulations can only encompass physical features that are readily perceptible by an ordinary
person possessing no specialized skills.

For there to be a valid contract, all the three (3) elements of consent, subject matter, and price must
be present.[41] Consent wrongfully obtained is defective. The party to a contract whose consent was
vitiated is entitled to have the contract rescinded. Accordingly, Article 1390 of the Civil Code[42]
stipulates that a contract is voidable or annullable even if there is no damage to the contracting
parties where "consent is vitiated by mistake, violence, intimidation, undue influence or fraud." Under
Article 1338 of the Civil Code "

However, not all instances of fraud enable the voiding of contracts. Article 1344 clarifies that in order
to make a contract voidable, the fraud "should be serious and should not have been employed by
both contracting parties."

Thus, Tankeh v. Development Bank of the Philippines[44] explained, "There are two types of fraud
contemplated in the performance of contracts: dolo incidente or incidental fraud and dolo causante
or fraud serious enough to render a contract voidable."[45] The fraud required to annul or avoid a
contract "must be so material that had it not been present, the defrauded party would not have
entered into the contract."[46] The fraud must be "the determining cause of the contract, or must
have caused the consent to be given.

Reliance on Section 12's as-is-where-is stipulation is misplaced for two (2) reasons. First, a stipulation
absolving a seller of liability for hidden defects can only be invoked by a seller who has no knowledge
of hidden defects. Respondent here knew that the Unit's area, as reckoned in accordance with the
Condominium Act, was not 95 square meters. Second, an as-is-where-is stipulation can only pertain to
the readily perceptible physical state of the object of a sale. It cannot encompass matters that require
specialized scrutiny, as well as features and traits that are immediately appreciable only by someone
with technical competence.

seller is generally responsible for warranty against hidden defects of the thing sold. As stated in
Article 1561

Article 1566, paragraph 2 states the seller's liability for hidden defects shall be inapplicable if there is
a stipulation made to the contrary. However, a mere stipulation does not suffice. To be fully absolved
of liability, Article 1566, paragraph 2 also requires a seller to be unaware of the hidden defects in the
thing sold

Article 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing
sold, even though he was not aware thereof. This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold.

Hian v. Court of Tax Appeals,[51] this Court construed an as-is-where-is stipulation as pertaining to
the "physical condition" of the thing sold and "not to [its] legal situation."[52] As further explained in
National Development Company v. Madrigal Wan Hai Lines Corporation:[53] In Hian vs. Court of Tax
Appeals, we had the occasion to construe the phrase "as is, where is" basis, thus:

The phrase "as is, where is" basis pertains solely to the physical condition of the thing sold, not to its
legal situation. In the case at bar, the US tax liabilities constitute a potential lien which applies to
NSCP's legal situation, not to its physical aspect. Thus, respondent as a buyer, has no obligation to
shoulder the same.[

A condominium unit's area is a physical attribute. In Hian's contemplation, it appeared that the total
area of a condominium unit is a valid object of an as-is-where-is clause. However, while as-is-where-is
clauses exclusively apply to the physical attributes of a thing sold, they apply only to physical features
that are readily observable. The significance of this Court's pronouncements in Hian and National
Development Company are in clarifying that legal status, which is a technical matter perceptible only
by lawyers and regulators, cannot be encompassed by an as-is-where-is stipulation. Hian and National
Development Company are not a sweeping approbation of such stipulations' coverage of every
corporeal attribute or tangible trait of objects being sold. Thus, in Asset Privatization v. T.J.
Enterprises,[55] the as-is-where-is stipulation was understood as one which "merely describes the
actual state and location of the machinery and equipment sold,"[56] and nothing else. Features that
may be physical but which can only be revealed after examination by persons with technical
competence cannot be covered by as-is-where-is stipulations. A buyer cannot be considered to have
agreed "to take possession of the things sold 'in the condition where they are found and from the
place where they are located'"[57] if the critical defect is one which he or she cannot even readily
sense.

Banks assume a degree of prudence and diligence higher than that of a good father of a family,
because their business is imbued with public interest[66] and is inherently fiduciary.[67] Thus, banks
have the obligation to treat the accounts of its clients "meticulously and with the highest degree of
care."[68] With respect to its fiduciary duties, this Court explained:

Article 1172 of the Civil Code states that the degree of diligence required of an obligor is that
prescribed by law or contract, and absent such stipulation then the diligence of a good father of a
family. Section 2 of RA 8791 prescribes the statutory diligence required from banks — that banks
must observe "high standards of integrity and performance" in servicing their depositors.[69]
(Citations omitted)

The high degree of diligence required of banks equally holds true in their dealing with mortgaged real
properties, and subsequently acquired through foreclosure, such as the Unit purchased by petitioner.
In the same way that banks are "presumed to be familiar with the rules on land registration," given
that they are in the business of extending loans secured by real estate mortgage,[70] banks are also
expected to exercise the highest degree of diligence. This is especially true when investigating real
properties offered as security, since they are aware that such property may be passed on to an
innocent purchaser in the event of foreclosure. Indeed, "the ascertainment of the status or condition
of a property offered to it as security for a loan must be a standard and indispensable part of a bank's
operations":[71]

When the purchaser or the mortgagee is a bank, the rule on innocent purchasers or mortgagees for
value is applied more strictly. Being in the business of extending loans secured by real estate
mortgage, banks are presumed to be familiar with the rules on land registration. Since the banking
business is impressed with public interest, they are expected to be more cautious, to exercise a higher
degree of diligence, care and prudence, than private individuals in their dealings, even those involving
registered lands. Banks may not simply rely on the face of the certificate of title. Hence, they cannot
assume that, simply because the title offered as security is on its face free of any encumbrances or
lien, they are relieved of the responsibility of taking further steps to verify the title and inspect the
properties to be mortgaged. As expected, the ascertainment of the status or condition of a property
offered to it as security for a loan must be a standard and indispensable part of a bank's operations. It
is of judicial notice that the standard practice for banks before approving a loan is to send its
representatives to the property offered as collateral to assess its actual condition, verify the
genuineness of the title, and investigate who is/are its real owner/s and actual possessors.[72]
(Citations omitted) Credit investigations are standard practice for banks before approving loans and
admitting properties offered as security. It entails the assessment of such properties: an appraisal of
their value, an examination of their condition, a verification of the authenticity of their title, and an
investigation into their real owners and actual possessors.
Nutrimix Feeds Corporation v. Court of Appeals
G.R. No. 152219, 25 October 2004

FACTS:

On April 5, 1993, the Spouses Efren and Maura Evangelista, the respondents herein, started to directly
procure various kinds of animal feeds from petitioner Nutrimix Feeds Corporation. The petitioner gave
the respondents a credit period of thirty to forty-five days to postdate… checks to be issued in
payment for the delivery of the feeds.

When the above-mentioned checks were deposited at the petitioner’s depository bank, the same
were, consequently, dishonored because respondent Maura Evangelista had already closed her
account. On December 15, 1993, the petitioner filed with the Regional Trial Court of Malolos, Bulacan,
a complaint, docketed as Civil Case No. 1026-M-93, against the respondents for sum of money and
damages with a prayer for issuance of writ of preliminary attachment.

On January 19, 1994, the respondents also lodged a complaint for damages against the petitioner,
docketed as Civil Case No. 49-M-94, for the untimely and unforeseen death of their animals
supposedly effected by the adulterated animal feeds the petitioner sold to them.

ISSUE:

Whether or not Nutrimix is guilty of breach of warranty due to hidden defects.

RULING:

NO. The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of the
New Civil Code of the Philippines. A hidden defect is one which is unknown or could not have been
known to the vendee. Under the law, the requisites to recover on account of hidden defects are as
follows:

a) the defect must be hidden;

b) the defect must exist at the time the sale was made;
c) the defect must ordinarily have been excluded from the contract;
d) the defect, must be important (renders thing UNFIT or considerably decreases FITNESS);
e) the action must be instituted within the statute of limitations

In the sale of animal feeds, there is an implied warranty that it is reasonably fit and suitable to be
used for the purpose which both parties contemplated. To be able to prove liability on the basis of
breach of implied warranty, three things must be established by the respondents.

The first is that they sustained injury because of the product; the second is that the injury occurred
because the product was defective or unreasonably unsafe; and finally, the defect existed when the
product left the hands of the petitioner. A manufacturer or seller of a product cannot be held liable
for any damage allegedly caused by the product in the absence of any proof that the product in
question was defective.

The defect must be present upon the delivery or manufacture of the product; or when the product
left the seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the
product must have reached the user or consumer without substantial change in the condition it was
sold.

Tracing the defect to the petitioner requires some evidence that there was no tampering with, or
changing of the animal feeds. The nature of the animal feeds makes it necessarily difficult for the
respondents to prove that the defect was existing when the product left the premises of the
petitioner.
CASE DIGEST: FIRST UNITED CONSTRUCTORS CORPORATION AND BLUE STAR CONSTRUCTION
CORPORATION, Petitioners, v. BAYANIHAN AUTOMOTIVE CORPORATION, Respondent. G.R. No.
164985; January 15, 2014.

FACTS: Petitioner First United Constructors Corporation (FUCC) and petitioner Blue Star Construction
Corporation (Blue Star) were associate construction firms sharing financial resources, equipment and
technical personnel on a case-to-case basis. From May 27, 1992 to July 8, 1992, they ordered six units
of dump trucks from the respondent, a domestic corporation engaged in the business of importing
and reconditioning used Japan-made trucks, and of selling the trucks to interested buyers who were
mostly engaged in the construction business.

On September 19, 1992, FUCC ordered from the respondent one unit of Hino Prime Mover that the
respondent delivered on the same date. On September 29, 1992, FUCC again ordered from the
respondent one unit of Isuzu Transit Mixer that was also delivered to the petitioners. For the two
purchases, FUCC partially paid in cash, and the balance through post-dated checks.

Upon presentment of the checks for payment, the respondent learned that FUCC had ordered the
payment stopped.The respondent immediately demanded the full settlement of their obligation from
the petitioners, but to no avail. Instead, the petitioners informed the respondent that they were
withholding payment of the checks due to the breakdown of one of the dump trucks they had earlier
purchased from respondent, specifically the second dump truck delivered on May 27, 1992.

Due to the refusal to pay, the respondent commenced this action for collection on April 29, 1993,
seeking payment of the unpaid balance in the amount of P735,000.00 represented by the two checks.

RTC finds the petitioner liable. CA affirmed the judgment of the RTC.

ISSUE: Did the petitioners validly exercise the right of recoupment through the withholding of
payment of the unpaid balance of the purchase price of the two purchases?

HELD: The Supreme Court affirms the decision of the CA.

Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1)
Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment
in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against
the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an
action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and
refuse to receive the goods or if the goods have already been received, return them or offer to return
them to the seller and recover the price or any part thereof which has been paid. When the buyer has
claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second paragraph of article 1191.

Recoupment (reconvencion) is the act of rebating or recouping a part of a claim upon which one is
sued by means of a legal or equitable right resulting from a counterclaim arising out of the same
transaction.7It is the setting up of a demand arising from the same transaction as the plaintiff claim,
to abate or reduce that claim. DENIED.

Villarica v. Court of Appeals

G.R. No. L-19196, 29 November 1968, 26 SCRA 189

FACTS:

On May 19, 1951, the spouses Angel Villarica and Nieves Palma Gil de Villarica sold to the spouses
Gaudencio Consunji and Juliana Monteverde a lot containing an area of 1,174 sq. meters, situated in
the poblacion of the City of Davao, for the price of P35,000. The instrument of absolute sale dated
May 19, 1951 in the form of a deed poll, drafted by Counselor Juan B. Espolong who had been
appointed by the Villaricas as their agent to sell the lot, was acknowledged on May 25, 1951, before
the same Juan B. Espolong who was also a Notary Public. The public instrument of absolute sale and
the vendors’ TCT No. 2786 were delivered to the vendees. On the same day, May 25, 1951, the
spouses Consunji executed another public instrument, “, whereby they granted the spouses Villarica
an option to buy the same property within the period of one year for the price of P37,750. In July,
same year, the spouses Consunji registered the absolute deed of sale, in the names of the spouses
Villarica was cancelled and a new TCT No. 3147 was issued in the names of the spouses Consunji.

In February, 1953, the spouses Consunji sold the lot to Jovito S. Francisco for the price of P47,000 by
means of a public instrument of sale “. This public instrument of sale was registered in view of which
TCT No. 3147 in the names of the spouse Consunji was cancelled and a new TCT in the name of Jovito
S. Francisco was issued.

On April 14, 1953, the spouses Villarica brought an action in the Court of First Instance of Davao
against the spouses Consunji and Jovito S. Francisco for the reformation of the instrument of absolute
sale, into an equitable mortgage as a security for a usurious loan of P28,000 alleging that such was the
real intention of the parties. Defendants answered that the deed of absolute sale expressed the real
intention of the parties and they also alleged a counterclaim for sums of money borrowed by the
plaintiffs from the Consunjis which were then due and demandable. After trial, the Court of First
Instance of Davao rendered its decision holding that the instrument of absolute sale, was really
intended as an equitable mortgage.

ISSUE:

Whether or not the instrument to be reformed was an equitable mortgage?

RULING:

No. The transaction was not an equitable mortgage.

The vendors did not remain in possession of the land sold as lessees or otherwise. On their request in
order to help them in the expenses of their children in Manila, the vendors were merely allowed by
the vendees to collect the monthly rents of P300 for five months up to October, 1951, on the
understanding that the amounts so collected would be charged against them. But thereafter the
vendees were the ones who collected the monthly rents from the tenants. It follows that the vendors
did not remain in possession of the land as lessees or otherwise.

(3) In Exh. “D” the Consunjis as new owners of the lot granted the Villaricas an option to buy the
property within the period of one year from May 25, 1951 for the price of P37,750. Said option to buy
is different and distinct from the right of repurchase which must be reserved by the vendor, by
stipulation to that effect, in the contract of sale. This is clear from Article 1601 of the Civil Code, which
provides:

Conventional redemption shall take place when the vendor reserves the right to repurchase the thing
sold, with the obligation to comply with the provisions of article 1616 and other stipulation which may
have been agreed upon.

The right of repurchase is not a right granted the vendor by the vendee in a subsequent instrument,
but is a right reserved by the vendor in the same instrument of sale as one of the stipulations of the
contract. Once the instrument of absolute sale is executed, the vendor can no longer reserve the right
to repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument
cannot be a right of repurchase but some other right like the option to buy in the instant case. Hence,
Exhibits “B” and “D” cannot be considered as evidencing a contract of sale with pacto de retro. Since
Exh. “D” did not evidence a right to repurchase but an option to buy, the extension of the period of
one year for the exercise of the option by one month does not fall under No. 3, of Article 1602 of the
Civil Code, which provides that: When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is executed.

CONCHITA NOOL v. CA, GR No. 116635, 1997-07-24

Facts:

"Two (2) parcels of land are in dispute and litigated upon here. The first has an area of 1 hectare . It
was formerly owned by Victorino Nool and covered by Transfer Certificate of Title No. T-74950. With
an area of 3.0880 hectares, the other parcel was previously owned by

Francisco Nool under Transfer Certificate of Title No. T-100945. Both parcels are situated in San
Manuel, Isabela. The plaintiff spouses, Conchita Nool and Gaudencio Almojera, now the appellants,
seek recovery of the aforementioned parcels of land from the defendants, Anacleto

Nool, a younger brother of Conchita, and Emilia Nebre, now the appellees.

In their complaint, plaintiff-appellants alleged inter alia that they are the owners of subject parcels of
land, and they bought the same from Conchita's other brothers, Victorino Nool and Francisco Nool;
that as plaintiffs were in dire need of money, they obtained a loan from... the Iligan Branch of the
Development Bank of the Philippines, in Ilagan, Isabela, secured by a real estate mortgage on said
parcels of land, which were still registered in the names of Victorino Nool and Francisco Nool, at the
time, and for the failure of plaintiffs to pay the... said loan, including interest and surcharges, totaling
P56,000.00, the mortgage was foreclosed; that within the period of redemption, plaintiffs contacted
defendant Anacleto Nool for the latter to redeem the foreclosed properties from DBP, which the
latter did; and as a result,... the titles of the two (2) parcels of land in question were transferred to
Anacleto Nool; that as part of their arrangement or understanding, Anacleto Nool agreed to buy from
the plaintiff Conchita Nool the two (2) parcels of land under controversy, for a total price of

P100,000.00, P30,000.00 of which price was paid to Conchita, and upon payment of the balance of
P14,000.00, plaintiffs were to regain possession of the two (2) hectares of land, which amounts
defendants failed to pay, and the same day the said arrangement[6] was made; another covenant[7]
was entered into by the parties, whereby defendants agreed to return to plaintiffs the lands in
question, at anytime the latter have the necessary amount; that plaintiffs asked the defendants to
return the same... but despite the intervention of the Barangay Captain of their place, defendants
refused to return the said parcels of land to plaintiffs; thereby impelling them (plaintiffs) to come to
court for relief.

In their answer defendants-appellees theorized that they acquired the lands in question from the
Development Bank of the Philippines, through negotiated sale, and were misled by plaintiffs when
defendant Anacleto Nool signed the private writing agreeing to return subject lands... when plaintiffs
have the money to redeem the same; defendant Anacleto having been made to believe, then, that his
sister, Conchita, still had the right to redeem the said properties.

The pivot of inquiry here, as aptly observed below, is the nature and significance of the private
document, marked Exhibit 'D' for plaintiffs, which document has not been denied by the defendants,
as defendants even averred in their Answer that they gave an advance payment of

P30,000.00 therefor, and acknowledged that they had a balance of P14,000.00 to complete their
payment. On this crucial issue, the lower court adjudged the said private writing (Exhibit 'D') as an
option to sell not binding upon and considered the same validly withdrawn by... defendants for want
of consideration; and decided the case in the manner abovementioned.

There is no quibble over the fact that the two (2) parcels of land in dispute were mortgaged to the
Development Bank of the Philippines, to secure a loan obtained by plaintiffs from DBP (Ilagan Branch),
Ilagan, Isabela. For the non-payment of said loan, the mortgage was... foreclosed and in the process,
ownership of the mortgaged lands was consolidated in DBP (Exhibits 3 and 4 for defendants). After
DBP became the absolute owner of the two parcels of land, defendants negotiated with DBP and
succeeded in buying the same. By virtue of such sale by

DBP in favor of defendants, the titles of DBP were cancelled and corresponding Transfer Certificates
of Title (Annexes 'C' and 'D' to the complaint) issued to the dependants."[8]

Issues:

Petitioners impute to Respondent Court the following alleged "errors":

"1. The Honorable Court of Appeals, Second Division has misapplied the legal import or meaning of
Exhibit 'C' in a way contrary to law and existing jurisprudence in stating that it has no binding effect
between the parties and considered validly... withdrawn by defendants-appellees for want of
consideration.

The petitioner-spouses plead for the enforcement of their agreement with private respondents as
contained in Exhibits "C" and "D," and seek damages for the latter's alleged breach thereof. In Exhibit
C, which was a private handwritten document labeled by the parties as Resibo ti

Katulagan or Receipt of Agreement, the petitioners appear to have "sold" to private respondents the
parcels of land in controversy covered by TCT No. T-74950 and TCT No. T-100945. On the other hand,
Exhibit D, which was also a private handwritten document in Ilocano and labeled... as Kasuratan,
private respondents agreed that Conchita Nool "can acquire back or repurchase later on said land
when she has the money."[15

In seeking to enforce her alleged right to repurchase the parcels of land, Conchita (joined by her co-
petitioner-husband) invokes Article 1370 of the Civil Code which mandates that "(i)f the terms of a
contract are clear and leave no doubt upon the intention of the contracting... parties, the literal
meaning of its stipulation shall control." Hence, petitioners contend that the Court of Appeals erred in
affirming the trial court's finding and conclusion that said Exhibits C and D were "not merely voidable
but utterly void and inexistent."

Ruling:

The petition is bereft of merit

We cannot sustain petitioners' view. Article 1370 of the Civil Code is applicable only to valid and
enforceable contracts. The Regional Trial Court and the Court of Appeals ruled that the principal
contract of sale contained in Exhibit C and the auxilliary contract of repurchase... in Exhibit D are both
void. This conclusion of the two lower courts appears to find support in Dignos vs. Court of Appeals,
[16] where the Court held:

"Be that as it may, it is evident that when petitioners sold said land to the Cabigas spouses, they were
no longer owners of the same and the sale is null and void."

In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time
of sale. Since Exhibit D, the alleged contract of repurchase, was dependent on the validity of Exhibit C,
it is itself void. A void contract cannot give rise to a valid... one.[17] Verily, Article 1422 of the Civil
Code provides that "(a) contract which is the direct result of a previous illegal contract, is also void
and inexistent."

We should however add that Dignos did not cite its basis for ruling that a "sale is null and void" where
the sellers "were no longer the owners" of the property. Such a situation (where the sellers were no
longer owners) does not appear to be one of the void contracts enumerated... in Article 1409 of the
Civil Code.[18] Moreover, the Civil Code[19] itself recognizes a sale where the goods are to be
"acquired x x x by the seller after the perfection of the contract of sale," clearly implying that a sale
is... possible even if the seller was not the owner at the time of sale, provided he acquires title to the
property later on.

In the present case however, it is likewise clear that the sellers can no longer deliver the object of the
sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the
rightful owner, the DBP. Thus, such contract may be deemed to be... inoperative[20] and may thus
fall, by analogy, under item no. 5 of Article 1409 of the Civil Code: "Those which contemplate an
impossible service." Article 1459 of the Civil Code provides that "the vendor must have a right to
transfer the ownership thereof

[object of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible. It has
become impossible.

Furthermore, Article 1505 of the Civil Code provides that "where goods are sold by a person who is
not the owner thereof, and who does not sell them under authority or with consent of the owner, the
buyer acquires no better title to the goods than the seller had, unless the... owner of the goods is by
his conduct precluded from denying the seller's authority to sell." Here, there is no allegation at all
that petitioners were authorized by DBP to sell the property to the private respondents.
Jurisprudence, on the other hand, teaches us that "a person... can sell only what he owns or is
authorized to sell; the buyer can as a consequence acquire no more than what the seller can legally
transfer."[21] No one can give what he does not have neno dat quod non habet. On the other hand,
Exhibit D presupposes that... petitioners could repurchase the property that they "sold" to private
respondents. As petitioners "sold" nothing, it follows that they can also 'repurchase" nothing. Nothing
sold, nothing to repurchase. In this light, the contract of repurchase is also inoperative and by the...
same analogy, void.

Principles:

A contract of repurchase arising out of a contract of sale where the seller did not have any title to the
property "sold" is not valid. Since nothing was sold, then there is also nothing to repurchase.

RONALDO P. ABILLA and GERALDA A. DIZON, petitioners,

vs.
CARLOS ANG GOBONSENG, JR. and THERESITA MIMIE ONG, respondents.
G.R. No. 146651. August 6, 2002.
Rule Synopsis
The exercise of a right provided under Art. 1606, par. 3, i.e. the exercise of a vendor-a-retro’s right to
repurchase within 30 days from a final judgment declaring the contract to be a pacto de retro sale is
predicated on the good faith belief of said vendor that the subject contract is not a pacto de retro sale
but something else, e.g. mortgage.

Case Summary
Carlos Gobonseng, Jr. and Theresita Ong (sellers) sold real estate to Ronaldo Abilla and Geralda Dizon
(buyers). They executed a “Deed of Sale” and “Option to Buy.” The buyers bore the cost of said
contracts. They asked for reimbursement but the sellers refused.

Thus, the buyers filed an action for specific performance, recovery of sum of money. In said action,
the sellers raised the defense that their agreement was a mortgage and not a pacto de retro sale.

The RTC ruled in favor of the buyers, finding the subject contract to be a pacto de retro sale (they are
entitled to reimbursement, it is generally the seller who bore the costs of the executing the contract),
but ruled that the seller’s right to redeem had already prescribed. The CA affirmed. On motion for
reconsideration, the sellers sought to exercise their right to redeem citing third paragraph of Art. 1606
giving the seller-a-retro the right to repurchase the property within 30 days from the final judgment
declaring the contract to be a real pacto de retro sale (this issue was not raised on the trial court). This
was denied.
The seller then filed an urgent motion to repurchase the lots in question with tender of payment
before the RTC. The RTC denied. The SC affirmed.

Issue resolved —
May the sellers in a sale judicially declared as a pacto de retro exercise the right of repurchase under
Article 1606, third paragraph, of the Civil Code, after they have taken the position that the same was
an equitable mortgage?
HELD – NO.
In this case, the lower courts found that the subject transaction was truly a pacto de retro sale, but
also that none of the circumstances under Article 1602 of the Civil Code exists to warrant a conclusion
that it was an equitable mortgage, as argued by the sellers. Citing the CA, the SC noted that the sellers
did not even made an attempt to consign the alleged loan upon the expiration of their right to
repurchase.

Furthermore, the SC said that it was the consistent stand of the sellers that the subject transaction
was an equitable mortgage, it cannot then, assert thereafter change its theory and seek an exercise of
its right to repurchase. This is under the circumstances where the Court found nothing which will cast
a doubt as to the real nature of the contract as pacto de retro.

The application of the third paragraph of Article 1606 is predicated upon the bona fides of the vendor
a retro, that is, his belief that the contract was a mortgage was founded on facts attendant upon the
execution of the sale with pacto de retro, honestly and sincerely entertained, that the agreement was
in reality a mortgage, one not intended to affect the title to the property ostensibly sold, but merely
to give it as security for a loan or other obligation. The reason was to prevent sellers from resurrecting
at will an expired option to repurchase simply filing an action in court to reform the contract.

G. R. No. 117501 July 8, 1997 SOLID HOMES, INC., petitioner, vs. HON. COURT OF APPEALS, STATE
FINANCING CENTER, INC., and REGISTER OF DEEDS FOR RIZAL, respondents. PANGANIBAN, J.:

Solid Homes executed in favor of State Financing (Center, Inc.) a Real Estate Mortgage on its
properties in order to secure the payment of a loan of P10,000,000.00 which the former obtained
from the latter. A year after, Solid Homes applied for and was granted an additional loan of
P1,511,270.03 by State Financing, and to secure its payment, Solid Homes executed the Amendment
to Real Estate Mortgage. Sometime thereafter, Solid Homes obtained additional credits and financing
facilities from State Financing in the sum of P1,499,811,97, and to secure its payment, Solid Homes
executed in favor of State Financing the Amendment to Real Estate Mortgage. When the loan
obligations abovementioned became due and payable, State Financing made repeated demands upon
Solid Homes for the payment thereof, but the latter failed to do so. So State Financing filed a petition
for extrajudicial foreclosure of the mortgages abovementioned with the Provincial Sheriff of Rizal,
who, in pursuance of the petition, issued a Notice of Sheriff's Sale, whereby the mortgaged properties
of Solid Homes and the improvements existing thereon, were set for public auction sale in order to
satisfy the full amount of Solid Homes' mortgage indebtedness, the interest thereon, and the fees and
expenses incidental to the foreclosure proceedings. Before the scheduled public auction sale, the
Solid Homes made representations and induced State Financing to forego with the foreclosure of the
real estate mortgages. By reason thereof, State Financing agreed to suspend the foreclosure of the
mortgaged properties, subject to the terms and conditions they agreed upon, and in pursuance of
their said agreement, they executed a document entitled MEMORANDUM OF AGREEMENT/DACION
EN PAGO ("Memorandum"). Among the terms and conditions that said parties agreed upon was
(State Financing) hereby grants (Solid Homes) the right to repurchase the aforesaid real properties,
including the condominium units and other improvements thereon, within ten (10) months counted
from and after the one hundred eighty (180) days from date of signing hereof. However, a day before
the expiry date of its right to repurchase the properties involved in the (Memorandum) on June 27,
1984, Solid Homes filed the present action against defendants State Financing and the Register of
Deeds for Metro Manila District II (Pasig), seeking the annulment of said (Memorandum) and the
consequent reinstatement of the mortgages over the same properties Solid Homes raised a lone
question contesting the denial of its claim for damages. Such damages allegedly resulted from the bad
faith and malice of State Financing in deliberately failing to annotate Solid Homes' right to repurchase
the subject properties in the former's consolidated titles thereto. As a result of the non-annotation,
Solid Homes claimed to have been prevented from generating funds from prospective buyers to
enable it to comply with the Agreement and to redeem the subject properties.

Is the failure to annotate the vendor a retro's right of repurchase in the certificates of title of the real
estate properties subject of dacion en pago conclusive evidence of the vendee a retro's malice and
bad faith, entitling the former to damages?

The trial court found, and the Court of Appeals affirmed, that petitioner's claim for actual damages
was baseless. Solid Homes utterly failed to prove that respondent corporation had maliciously and in
bad faith caused the nonannotation of petitioner's right of repurchase so as to prevent the latter from
exercising such right. On the contrary, it is admitted by both parties that State Financing informed
petitioner of the registration with the Register of Deeds of Pasig of their Memorandum of
Agreement/Dacion en Pago and the issuance of new certificates of title in the name of the respondent
corporation. Petitioner exchanged communications and held conferences with private respondent in
order to draw a mutually acceptable payment arrangement for the former's repurchase of the subject
properties. A written offer from another corporation alleging willingness to avail itself of petitioner's
right of repurchase was even

attached to one of these communications. Clearly, petitioner was not prejudiced by the non-
annotation of such right in the certificates of titles issued in the name of State Financing. Besides, as
the Court of Appeals noted, it was not the function of respondent corporation for cause said
annotation. It was equally the responsibility of petitioner to protect its own rights by making sure that
its right of repurchase was indeed annotated in the consolidated titles of private respondent. The only
legal transgression of State Financing was its failure to observe the proper procedure in effecting the
consolidation of the titles in its name. But this does not automatically entitle the petitioner to
damages absent convincing proof of malice and bad faith on the part of private respondent and actual
damages suffered by petitioner as a direct and probable consequence thereof. In fact, the evidence
proffered by petitioner consist of mere conjectures and speculations with no factual moorings.
Furthermore, such transgression was addressed by the lower courts when they nullified the
consolidated of ownership over the subject properties in the name of respondent corporation,
because it had been effected in contravention of the provisions of Article 1607 of the Civil Code. Such
rulings are consistent with law and jurisprudence. Neither can moral damages be awarded to
petitioner. Time and again, we have held that a corporation — being an artificial person which has no
feelings, emotions or senses, and which cannot experience physical suffering or mental anguish — is
not entitled to moral damages. While the amount of exemplary damages need not be proved,
petitioner must show that he is entitled to moral or actual damages; but the converse obtains in the
instant case. Award of attorney's fees is likewise not warranted when moral and exemplary damages
are eliminated and entitlement thereto is not demonstrated by the claimant. Lastly, "(n)ominal
damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded by
the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him." As elaborated above and in the decisions of the two lower courts, no
right of petitioner was violated or invaded by respondent corporation

SENEN B. AGUILAR v. VIRGILIO B. AGUILAR

FACTS:

The parties in this case are brothers, except Alejandro Sangalang, herein intervenor-respondent.
Senen and Virgilio purchased a house and lot located in Parañaque City, Metro Manila for the benefit
of their father, Maximiano Aguilar (now deceased). The brothers wanted their father to enjoy his
retirement in a quiet neighbourhood. On February 23, 1970, they executed a written agreement
stipulating that their shares in the house and lot would be equal; and that Senen would live with their
father on condition that he would pay the Social Security System (SSS) the remaining loan obligation
of the former owners. In 1974, their father died. Virgilio then demanded that Senen vacate the house
and that the property be sold, the proceeds to be divided between them. Senen refused to comply
with Virgilios demand. On March 27, 1995, Senen filed with the Regional Trial Court, Branch 260,
Parañaque City, an action for legal redemption against Virgilio and another brother, Angel. Senen
alleged that while he knows that Virgilio sold his share of the property to Angel in January 1989,
however, he (Senen) was not furnished any written notice of the sale. Consequently, as a co-owner,
he has the right to redeem the property.

ISSUE:

WON Co-owners is required to receive a written notice of the sale by the vendee or vendor.

RULING:

The Supreme Court ruled that the petitioner’s contention lacks merit. The old rule is that a written
notice of the sale by the vendor to his co-owners is indispensable for the latter to exercise their
retracto legal de comuneros. More recently, however, we have relaxed the written notice
requirement as ruled in Si V. Court of Appeals, we ruled that a co-owner with actual notice of the sale
is not entitled to a written notice for such would be superfluous. The law does not demand what is
unnecessary. Petitioner has actual knowledge of the sale of Virgilios share to Angel in 1989. As
provided by Article 1623, he has thirty days from such actual knowledge within which to exercise his
right to redeem the property. Inexplicably, petitioner did not take any action. He waited for seven (7)
years before filing his complaint. Definitely, such an unexplained delay is tantamount to laches. To be
sure, to uphold his right would unduly cause injury to respondent-intervenor, a purchaser in good
faith and for value. Wherefore, the petition is denied.

ARMANDO BARCELLANO v. DOLORES BAÑAS, GR No. 165287, 2011-09-14

Facts:

Respondent Bañas is an heir of Bartolome Bañas who owns in fee simple Lot 4485, PLS-722-D situated
in Hindi, Bacacay, Albay. Adjoining the said lot is the property of Vicente Medina (Medina)... with an
area of 1,877... square meters. On 17 March 1997, Medina offered his lot for sale to the adjoining
owners of the property, the heirs of Bartolome Bañas, including herein respondent Dolores Bañas,
Crispino Bermillo (Bermillo) and Isabela Bermillo-Beruela (Beruela)

On 3 April 1997, Medina sold the property to herein petitioner Armando Barcellano for P60,000.00.

the heirs of Bañas learned about the sale and went to the house of Medina to inquire about it.

he heirs conveyed their intention to redeem the property but Medina replied that there was already a
deed of sale executed between the parties.[7] Also, the Bañas heirs failed to tender the P60,000.00
redemption amount... to Medina.

Aggrieved, the heirs went to the Office of the Barangay Council on 5 April 1997.

According to one of the Bañas heirs, Barcellano told them that he would be willing to sell the property
but for a higher price of P90,000.00.

On 24 October 1997, Dolores Bañas filed an action for Legal Redemption before the Regional Trial
Court. However, on 5 February 1998, the petition was withdrawn

On 11 March 1998, Dolores Bañas, as represented by Bermillo, filed another action[12] for Legal
Redemption. It was opposed by Barcellano insisting that he complied with the provisions of Art. 1623
of the New Civil Code but Bañas failed to exercise her... right within the period provided by law.

On 15 March 2000, the trial court dismissed the complaint of the Bañas heirs for their failure to
comply with the condition precedent of making a formal offer to redeem and for failure to file an
action in court together with the consignation of the redemption... price within the reglementary
period of 30 days.
On appeal, the Court of Appeals reversed and set aside the ruling of the lower court and granted the
heirs the right to redeem the subject property.

Barcellano maintains that the written notice required under Art. 1623 to be given to adjoining owner
was no longer necessary because there was already actual notice.

Nothing in the records and pleadings submitted by the parties shows that there was a written notice
sent to the respondents. Without a written notice, the period of thirty days within which the right of
legal pre-emption may be exercised, does not start

Issues:

the person having the right to redeem is STILL entitled to the written notice

Ruling:

The law is clear in this case, there must first be a written... notice to the family of Bañas.

The respondent Bañas has a perfect right of redemption and was never in danger of losing such right
even if there was no redemption complaint filed with the barangay, no tender of payment or no...
consignation.

Principles:

Primary Structures Corporation v. Sps. Valencia

G.R. No. 150060, 19 August 2003

FACTS:

Petitioner is a private corporation based in Cebu City and the registered owner of Lot 4523 situated in
Liloan, Cebu, with an area of 22,214 square meters. Adjacent to the lot of petitioner are parcels of
land, identified to be Lot 4527, Lot 4528, and Lot 4529 with a total… combined area of 3,751 square
meters. The three lots, aforenumbered, have been sold by Hermogenes Mendoza to respondent
spouses sometime in December 1994.

Petitioner… learned of the sale of the lots only in January, 1996, when Hermogenes Mendoza sold to
petitioner Lot No. 4820, a… parcel also adjacent to Lot 4523 belonging to the latter. Forthwith, it sent
a letter to respondents, on 30 January 1996, signifying its intention to redeem the three lots. On 30
May 1996, petitioner sent another letter to respondents tendering payment of the price paid to
Mendoza by respondents for the lots.

Respondents, in response, informed petitioner that they had no intention… of selling the parcels.
Thereupon, invoking the provisions of Articles 1621 and 1623, petitioner filed an action against
respondents to compel the latter to allow the… legal redemption. Petitioner claimed that neither
Mendoza, the previous owner, nor respondents gave formal or even just a verbal notice of the sale of
the lots as so required by Article 1623 of the Civil Code.

Regional Trial Court of Cebu dismissed petitioner’s complaint and respondents’ counterclaim; both
parties appealed the decision of the trial court to the Court of Appeals. The appellate court affirmed
the assailed decision.

ISSUE:

The issue posed for resolution by the Court in the instant petition focus on the application of Article
1621 and Article 1623 of the Civil Code.
RULING:

The issues posed for resolution by the Court in the instant petition focus on the application of Article
1621 and Article 1623 of the Civil Code.

Whenever a piece of rural land not exceeding one hectare is alienated, the law grants to the adjoining
owners a right of redemption except when the grantee or buyer does not own any other rural land.
[1] In order that the right may arise, the land sought to… be redeemed and the adjacent property
belonging to the person exercising the right of redemption must both be rural lands. If one or both
are urban lands, the right cannot be invoked.[2]

The trial court found the lots involved to be rural lands.

Respondents in the instant case, however, did not dispute before the Court of Appeals the holding of
the trial court that the lots in question are rural lands. In… failing to assail this factual finding on
appeal, respondents would be hardput to now belatedly question such finding and to ask the Court to
still entertain that issue.

Article 1621 of the Civil Code expresses that the right of redemption it grants to an adjoining owner of
the property conveyed may be defeated if it can be shown that the buyer or grantee does not own
any other rural land. The appellate court, sustaining the trial court, has… said that there has been no
evidence proffered to show that respondents are not… themselves owners of rural lands for the
exclusionary clause of the law to apply.

Article 1623 of the Civil Code provides that the right of legal pre-emption or redemption shall not be
exercised except within thirty days from notice in writing by the prospective vendor, or by the vendor,
as the case may be. In stressing the… mandatory character of the requirement, the law states… that…
the deed of sale shall not be recorded in the Registry of Property unless the same is accompanied by
an affidavit of the vendor that he has given notice thereof to all possible redemptioners.

The Court of Appeals has equated the statement in the deed of sale to the effect that the vendors
have complied with the provisions of Article 1623 of the Civil Code, as being the written affirmation
under oath, as well as the evidence, that the… required written notice to… petitioner under Article
1623 has been met.

Respondents, like the appellate court, overlook the fact that petitioner is not a party to the deed of
sale between respondents and Mendoza and has had no hand in the preparation and execution of the
deed of sale relied upon by petitioner in contending that actual knowledge should be an equivalent to
a written notice of sale.

The written notice of sale is mandatory. This Court has long established the rule that notwithstanding
actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling co-owner
in order to remove all uncertainties about the sale, its terms and… conditions, as well as its efficacy
and status.

WHEREFORE, the instant petition is GRANTED, and the assailed decision of the Court of Appeals is
reversed and set aside. Petitioner is hereby given a period of thirty days from finality of this decision
within which to exercise its right of legal redemption. No costs.

PROJECT BUILDERS, INC., GALICANO A. CALAPATIA, JR., and LEANDRO ENRIQUEZ, petitioners, vs. THE
COURT OF APPEALS and INDUSTRIAL FINANCE CORPORATION, respondents
G.R. No. 99433 | June 19, 2001

FACTS:
On August 21, 1975, Industrial Finance Corporation and Project Builders Inc. entered into an
agreement whereby IFC would provide a maximum amount of P2,000,000.00 against which PBI would
discount and assign to IFC on a ‘with recourse non-collection basis’ its accounts receivable under the
contracts to sell specified in said agreement. And on June 15, 1976, PBI’s credit line with IFC was
increased to P5,000,000.00. It was stipulated that the increased credit line granted includes the
amount already assigned/discounted.

PBI discounted with IFC on different dates, accounts receivables with different maturity dates from
different condominium unit buyers. And each time a certain account receivable was discounted, the
covering Contract to Sell was assigned by PBI to IFC.

The total amount of receivables discounted by PBI is P7,986,815.38 and consists of twenty accounts.
Of such receivables, P4,549,132.72 was released to PBI and the difference represents the discounting
fee or finance fee.

To secure compliance with the terms and conditions of the agreement, PBI executed a Deed of Real
Estate Mortgage in favor of IFC. When PBI allegedly defaulted, IFC foreclosed the mortgage and was
the highest bidder in the amount of P3,500,000.00.

The foreclosed property was redeemed a year later, but after application of the redemption payment,
IFC claims that there is still deficiency in the amount of P1,323,043.08.

Hence, on July 17, 1981, IFC filed a collection suit against Project Builders, Inc., Galicano Calapatia Jr.,
Pablo Malasarte, Teodoro Banas and Leandro Enriquez.

PBI et al denied liability and in their answer they allege that the plaintiff has no cause or right of
action because the obligation is already fully paid out of the proceeds of foreclosure sale of
defendant’s property. Further, defendants alleged that a proper accounting of the transaction
between the parties will show that it is the plaintiff who is liable to the defendants.

ISSUE:
Whether or not respondent financing company was really subrogated in the place of the supposed
seller or assignor

RULING:
An assignment of credit is an act of transferring, either onerously or gratuitously, the right of an
assignor to an assignee who would then be capable of proceeding against the debtor for enforcement
or satisfaction of the credit The transfer of rights takes place upon perfection of the contract, and
ownership of the right, including all appurtenant accessory rights, is thereupon acquired by the
assignee. The assignment binds the debtor only upon acquiring knowledge of the assignment but he is
entitled, even then, to raise against the assignee the same defenses he could set up against the
assignor. Where the assignment is on account of pure liberality on the part of

the assignor, the rules on donation would likewise be pertinent; where valuable consideration is
involved, the assignment partakes of the nature of a contract of sale or purchase.

Upon an assignment of a contract to sell, the assignee is effectively subrogated in place of the
assignor and in a position to enforce the contract to sell to the same extent as the assignor could.
In an assignment of credit, the consent of the debtor is not essential for its perfection, his knowledge
thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment he might
make.

“What the law requires in an assignment of credit is not the consent of the debtor but merely notice
to him. A creditor may, therefore, validly assign his credit and its accessories without the debtor’s
consent. The purpose of the notice is only to inform the debtor that from the date of the assignment,
payment should be made to the assignee and not to the original creditor.”

The assignment, it might be pointed out, was “with recourse,” and default in the payment of
installments had been duly established when petitioner corporation foreclosed on the mortgaged
parcels of land. The resort to foreclosure of the mortgaged properties did not preclude

private respondent from collecting interest from the assigned Contracts To Sell from the time of
foreclosure to the redemption of the foreclosed property. The imposition of interest was a mere
enforcement or exercise of the right to the ownership of the credit or receivables which the parties
stipulated in the 1976 financing agreement.

As owner of the account receivables, private respondent was impressed with the entitlement over
such interest payment.

Florita Liam vs. United Coconut Planters Bank G.R. No. 194664 June 15, 2016 Topic: Interpretation of
Contracts

Facts: On April 11, 1996, Liam entered into a contract to sell with Primetown Property Group, Inc.
(PPGI) for the purchase of a condominium unit of the latter’s Makati Prime City condominium project.
The parties stipulated that the unit will be delivered not later than 35 months from the date of actual
construction. PPGI obtained a loan from UCPB to finance the construction and thereafter transferred
to UCPB its right to collect all receivables form condominium buyers, executed under a Memorandum
of Agreement. PPGI notified Liam of the sale of its receivables to UCPB and directed her to remit any
remaining balance to UCPB. PPGI further stated that the payment arrangement shall in no way cause
any amendment nor the cancellation of the Contract to Sell. Liam wrote UCPB asking for the
deferment of her amortization payments until the time of the delivery of the unit, which was delayed.
Her requests were left unanswered. Thus, Liam demanded for the refund of all payments she made
for PPGI’s failure to deliver the unit on the stipulated date. UCPB proposed a financing package to
Liam for the full settlement of the balance of the purchase price. However, Liam saw UCPB’s
advertisement offering to the public the sale of “ready for occupancy” units in Palm Tower of MPC
condominium project at a much lower price. Liam requested UCPB to suspend the restructuring of her
loan and instead asked for downgrading of her purchased unit to another unit equivalent in value to
the total payments she already made. However, her requests remained unheeded. Liam filed a
complaint for specific performance. PPGI denied receiving any demand from Liam and averred that
she is already estopped from making any claims against PPGI because she agreed to the substitution
of PPGI by UCPB. UCPB averred that it had no legal obligation to deliver the unit to Liam because it is
not the developer of the project and is only a mere creditor of PPGI. It maintained that it only
acquired PPGI’s right to collect its receivables from Liam and other condominium buyers. UCPB
contends that the newspaper advertisement pertained to the units it acquired from PPGI as payment
from the latter’s loan and did not have any connection with the contract to sell between Liam and
PPGI.

Issue: Whether or not the transaction between UCPB and PPGI was an assignment of credit?

Held: The transaction between UCPB and PPGI was an assignment of credit and not subrogation. An
assignment of credit is an agreement by virtue of which the owner of credit, by a legal cause, and
without the consent of the debtor, transfers his credit and accessory rights to another who acquires
the power to enforce it to the same extent as the assignor could enforce it against the debtor. It may
at times be in the form of dation in payment, such as when a debtor, in

order to obtain a release form his debt, assigns to his creditor a credit he has against a third person.
The crucial distinction between assignment and subrogation deals with the necessity of the consent of
the debtor in the original transaction. In assignment of credit, mere notice of the assignment and not
consent is required. Meanwhile, in subrogation, agreement among the three parties concerned – the
original creditor, the debtor, and the new creditor – is required. It is a new contractual relations based
on the mutual agreement among all necessary parties. The terms of the MOA and Deed of
Assignment show that the parties intended an assignment of PPGI’s credit in favor of UCPB. Article
1370 of the Civil Code provides that the primary consideration in determining the true nature of a
contract is the intention of the parties. If the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning of tis stipulation shall control. The
provisions of the agreement between PPGI and UCPB are clear, explicit and unambiguous as to leave
no doubt about their objective of executing an assignment of credit instead of subrogation. Therefore,
UCPB should not be held liable for the obligation and liabilities of PPGI under its contract to sell with
Liam, considering that the bank is a mere assignee of the rights and receivables under the agreement
it executed with PPGI.

EDGAR LEDONIO v. CAPITOL DEVELOPMENT CORPORATION, GR NO. 149040, 2007-07-04

Facts:

respondent alleged that petitioner obtained from a Ms. Patrocinio S. Picache two loans, with the
aggregate principal amount of P60,000.00, and covered by promissory notes duly signed by
petitioner. In the first promissory note,[5] dated 9

November 1988, petitioner promised to pay to the order of Ms. Picache the principal amount of
P30,000.00, in monthly installments of P3,000.00, with the first monthly installment due on 9 January
1989. In the second promissory note,[6] dated 10 November

1988, petitioner again promised to pay to the order of Ms. Picache the principal amount of
P30,000.00, with 36% interest per annum, on 1 December 1988. In case of default in payment, both
promissory notes provide that (a) petitioner shall be liable for a penalty equivalent to

20% of the total outstanding balance; (b) unpaid interest shall be compounded or added to the
balance of the principal amount and shall bear the same rate of interest as the latter; and (c) in case
the creditor, Ms. Picache, shall engage the services of counsel to enforce her... rights and powers
under the promissory notes, petitioner shall pay as attorney's fees and liquidated damages the sum
equivalent to 20% of the total amount sought to be recovered, but in no case shall the said sum be
less that P10,000.00, exclusive of costs of suit.

Ms. Picache executed an Assignment of Credit[7] in favor of respondent

Since petitioner did not pay any of the loans covered by the promissory notes when they became due,
respondent -- through its Vice President Nina P. King and its counsel King, Capuchino, Banico &
Associates -- sent petitioner several demand letters.[8]

Despite receiving the said demand letters, petitioner still failed and refused to settle his indebtedness,
thus, prompting respondent to file the Complaint with the RTC... petitioner sought the dismissal of
the Complaint averring that respondent had no cause of action against him. He denied obtaining any
loan from Ms. Picache and questioned the genuineness and due execution of the promissory notes,
for they were... the result of intimidation and fraud; hence, void. He asserted that there had been no
transaction or privity of contract between him, on one hand, and Ms. Picache and respondent, on the
other. The assignment by Ms. Picache of the promissory notes to respondent was a mere ploy... and
simulation to effect the unjust enforcement of the invalid promissory notes and to insulate Ms.
Picache from any direct counterclaims, and he never consented or agreed to the said assignment.
the RTC rendered a Decision[12] on 6 August 1993, ruling in favor of respondent.

The RTC also sustained the validity and enforceability of the Assignment of Credit executed by Ms.
Picache in favor of respondent, even in the absence of petitioner's consent to the said assignment,...
petitioner filed an appeal with the Court of Appeals

The appellate court, in a Decision,[14] dated 20 March 2001, found no cogent reason to depart from
the... conclusions arrived at by the RTC in its appealed Decision, dated 6 August 1993, and affirmed
the latter Decision in toto.

Issues:

whether or not the Court of Appeals committed grave abuse of discretion in affirming in... toto the
RTC Decision

Petitioner's main argument is that the Court of Appeals erred when it ruled that there was an
assignment of credit and that there was no novation/subrogation in the case at bar.

Ruling:

This Court cannot sustain petitioner's contention and hereby declares that the transaction between
Ms. Picache and respondent was an assignment of credit, not conventional subrogation, and does not
require petitioner's consent as debtor for its validity and enforceability.

An assignment of credit has been defined as an agreement by virtue of which the owner of a credit
(known as the assignor), by a legal cause - such as sale, dation in payment or exchange or donation -
and without need of the debtor's consent, transfers that credit and its... accessory rights to another
(known as the assignee), who acquires the power to enforce it, to the same extent as the assignor
could have enforced it against the debtor.

On the other hand, subrogation, by definition, is the transfer of all the rights of the creditor to a third
person, who substitutes him in all his rights. It may either be legal or conventional. Legal subrogation
is that which takes place without agreement but by operation of... law because of certain acts.
Conventional subrogation is that which takes place by agreement of parties.

Although it may be said that the effect of the assignment of credit is to subrogate the assignee in the
rights of the original creditor, this Court still cannot definitively rule that assignment of credit and
conventional subrogation are one and the same.

Since his consent is immaterial, the only other matter which this Court must determine is whether
petitioner had knowledge of the Assignment of Credit, dated 1 April 1989, between Ms. Picache and
respondent. Both the Court of Appeals and the RTC ruled in the affirmative, and so... must this Court.
Petitioner does not deny having knowledge of the assignment of credit by Ms. Picache to the
respondent. In 1989, when petitioner's loans became overdue, it was respondent and its counsel who
sent several demand letters to him. It can be reasonably presumed that... petitioner received said
letters for they were sent by registered mail, and the return cards were signed by petitioner's agent.
Petitioner expressly acknowledged receipt of respondent's demand letter, dated 13 June 1989, to
which he replied with another letter, dated 21 June

1989, stating that he would settle his account with respondent but also requesting consideration of
the losses he suffered from the electric power disconnection at the property he leased from MRMC. It
further appears that petitioner had never questioned why it was respondent... seeking payment of
the loans and not the original creditor, Ms. Picache. All these circumstances tend to establish that
respondent already knew of the assignment of credit made by Ms. Picache in favor of respondent and
explains his acceptance of all the demands for payment of... the loans made upon him by the
respondent.
Finally, assuming arguendo that this Court considers petitioner a third person to the Assignment of
Credit, dated 1 April 1989, the fact that the said document was duly notarized makes it legally
enforceable even as to him.

Notarization converted the Assignment of Credit, dated 1 April 1989, a private document, into a
public document,[33] thus, complying with the mandate of the afore-quoted provision and making it
enforceable even as against third persons.

Principles:

A noted authority on civil law provided a discourse[22] on the difference between these two
transactions, to wit -

Conventional Subrogation and Assignment of Credits. - In the Argentine Civil Code, there is essentially
no difference between conventional subrogation and assignment of credit. The subrogation is merely
the effect of the assignment. In fact it is expressly... provided (article 769) that conventional
redemption shall be governed by the provisions on assignment of credit.

Under our Code, however, conventional subrogation is not identical to assignment of credit. In the
former, the debtor's consent is necessary; in the latter, it is not required. Subrogation extinguishes an
obligation and gives rise to a new one; assignment... refers to the same right which passes from one
person to another. The nullity of an old obligation may be cured by subrogation, such that the new
obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of
the creditor's right to... another.

FORT BONIFACIO DEVELOPMENT CORPORATION vs. VALENTIN L. FONG March 25, 2015 G.R. No.
209370 PERLAS-BERNABE, J.: Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. The same principle on obligatory force
applies by extension to the contracting party’s assignees, in turn, by virtue of the principle of relativity
of contracts. The reason that a contracting party’s assignees, although seemingly a third party to the
transaction, remain bound by the original party’s transaction under the relativity principle further lies
in the concept of subrogation, which inheres in assignment. Facts: On June 5, 2000, FBDC, a domestic
corporation engaged in the real estate development business, entered into a Trade Contract with MS
Maxco Company, Inc. (MS Maxco), then operating under the name "L&M Maxco, Specialist
Engineering Construction," for the execution of the structural and partial architectural works of one of
its condominium projects in Taguig City, the Bonifacio Ridge Condominium (Project). Records show
that FBDC had the right to withhold five percent (5%) of the contract price as retention money. Under
the Trade Contract, FBDC had the option to hire other contractors to rectify any errors committed by
MS Maxco by reason of its negligence, act, omission, or default, as well as to deduct or set-off any
amount from the contract price in such cases. Hence, when MS Maxco incurred delays and failed to
comply with the terms of the Trade Contract, FBDC took over and hired other contractors to complete
the unfinished construction. Unfortunately, corrective work had to likewise be done on the numerous
defects and irregularities caused by MS Maxco, which cost P11,567,779.12 Pursuant to the Trade
Contract, FBDC deducted the said amount from MS Maxco’s retention money. The Trade Contract
likewise provided that MS Maxco is prohibited from assigning or transferring any of its rights,
obligations, or liabilities under the said Contract without the written consent of FBDC. Sometime in
April 2005, FBDC received a letter dated April 18, 2005 (April 18, 2005 letter) from the counsel of Fong
informing it that MS Maxco had already assigned its receivables from FBDC to him (Fong) by virtue of
a notarized Deed of Assignment dated February 28, 2005. Under the Deed of Assignment, MS Maxco
assigned the amount of 1,577,115.90 to Fong as payment of the former’s obligation to the latter,
which amount was to be taken from the retention money with FBDC. In its letter-reply dated October
11, 2005, FBDC acknowledged the five percent (5%) retention money of MS Maxco, but asserted that
the same was not yet due and demandable and that it was already the subject of garnishment by MS
Maxco’s other creditors. Despite Fong’s repeated requests, FBDC refused to deliver to Fong the
amount assigned by MS Maxco. Finally, in a letter dated January 31, 2006, FBDC informed Fong that
after the rectification of the defects in the Project, as well as the garnishment made by MS Maxco’s
creditors, nothing was left of its retention money with FBDC from which Fong’s claims may be
satisfied. This prompted Fong, doing business under the name "VF Industrial Sales" to file the instant
civil case, before the RTC, against MS Maxco or FBDC for the payment of the sum of 1,577,115.90,
with legal interest due, costs of suit, and litigation expenses.

Issue: Whether or not FBDC was liable to pay Fong the amount of 1,577,115.90, representing a
portion of MS Maxco’s retention money.

Ruling: No. (Pursuant to the Trade Contract, FBDC’s consent must first be obtained before any
assignment could take effect). Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. As such, the stipulations in contracts
are binding on them unless the contract is contrary to law, morals, good customs, public order or
public policy. The same principle on obligatory force applies by extension to the contracting party’s
assignees, in turn, by virtue of the principle of relativity of contracts which is fleshed out in Article
1311 of the Civil Code, viz.: Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the contract are not transmissible
by their nature, or by stipulation or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent. The reason that a contracting party’s assignees, although
seemingly a third party to the transaction, remain bound by the original party’s transaction under the
relativity principle further lies in the concept of subrogation, which inheres in assignment. Case law
states that when a person assigns his credit to another person, the latter is deemed subrogated to the
rights as well as to the obligations of the former. By virtue of the Deed of Assignment, the assignee is
deemed subrogated to the rights and obligations of the assignor and is bound by exactly the same
conditions as those which bound the assignor. Accordingly, an assignee cannot acquire greater rights
than those pertaining to the assignor. The general rule is that an assignee of a non- negotiable chose
in action acquires no greater right than what was possessed by his assignor and simply stands into the
shoes of the latter. Applying the foregoing, the Court finds that MS Maxco, as the Trade Contractor,
cannot assign or transfer any of its rights, obligations, or liabilities under the Trade Contract without
the written consent of FBDC, the Client, in view of Clause 19.0 on "Assignment and Sub-letting" of the
Trade Contract between FBDC and MS Maxco which explicitly provides that: “The Trade Contractor
[Ms Maxco] shall not, without written consent of the Client [FBDC], assign or transfer any of his rights,
obligations or liabilities under this Contract x x x.” Fong, as mere assignee of MS Maxco’s rights under
the Trade Contract it had previously entered with FBDC, i.e., the right to recover any credit owing to
any unutilized retention money, is equally bound by the foregoing provision and hence, cannot validly
enforce the same without FBDC’s consent. Without any proof showing that FBDC had consented to
the assignment, Fong cannot validly demand from FBDC the delivery of the sum of 1,577,115.90 that
was supposedly assigned to him by MS Maxco as a portion of its retention money with FBDC. The
practical efficacy of the assignment, although valid between Fong and MS Maxco, remains contingent
on FBDC's consent. Without the happening of said condition, only MS Maxco, and not Fong, can
collect on the credit. Note, however, that this finding does not preclude any recourse that Fong may
take against MS Maxco.

NYCO Sales Corp vs BA Finance Corp August 16, 1991

G.R. No. 71694

FACTS: Nyco Sales whose president and general manager Rufino Yao is engaged in the business of
selling construction materials. Fernandezes acting on behalf of Sanshell Corporation approached Yao
for credit accommodation. They requested Nyco thru Yao to garant Sanshell discounting priveleges
which Nyco had with BA Finance. Fernandezes went to Yao for the purpose of discounting Sanshell’s
BPI PDC’s on the aount of Php 60,000 payable to Nyco. Nyco then thru Yao endorsed the check in
favor of BA Finance. BA Finance then issued a check payable Nyco which endorsed it in favor of
Sanshell which made use of the negotiation. Nyco executed a Deed of Assignment in favor of BA
Finance with the conformity of Sanshell. Under the deed, the subject of Assignment was the BPI PDC
Check. Agreed that there will be a Continuing Suretyship Agreement whereby Fernandezes
unconditionally guaranteed to BA Finance the compliance of all indebtness of Nyco. The check was
subsequently dishonored by the drawee bank upon presentment for payment. BA Finance reported
the matter to the Fernandezes and issued a substitute (Security Bank) check with the same amount to
BA Finance which was again subsequently dishonored. Despite repeated demands, Nyco and the
Fernandezes failed to pay the obligation. BA Finance then instituted an action to the court. Nyco and
Fernandezes were considered in default. TC ruled in favor of BA Finance ordering the Fernandezes
and Nycho solidarily to pay the former. Nycho moved to set aside the order and impleaded Sanshell.
TC ruled in favor of BA Finance. With regards to the Fernandezes, the TC denied the cross claim of
Nycho because it seems that Fernadezes never received the cross claim of Nycho and have not been
declared in default. Upon appeal, affirmed TC decision with modification with respect to the running
time of interest running from February 19, 1979 instead of February 1 1979. Hence this appeal.
NYCHO’S CONTENTIONS: o o o

Discharged of liability when BA Finance failed to give a notice of dishonor. No novation when BA
Finance accepted SBTC check. Yao as President is not authorized to enter into credit assignment with
BA Finance since there is no Board Resolution authorizing the same.

ISSUE: Whether or not Nyco is liable for the acts of its president. RULING: YES.

The by-laws of Nyco expressly authorized its President to enter into contracts, borrowing money ,
signing, indorsing checks in behalf of the compant. Also, it appears that the same kind of transaction
already happened between Nyco and BA Finance. Hence, Nyco is placed from estopped from denying
Yao’s authority because of its silence just to escape liability.