Case no. Six to Twelve

Civil Law: Law on Sales

FilOil Marketing vs. IAC

Pabalan sold a parcel of land to Villa Rey Transit. On the day of the sale, the TCT was delivered by Pabalan to Villarama, president of Villa Rey, who caused the issuance of the new title in his own name. The transfer appeared to be a deed of sale.

On the same day Villarama mortgaged the lot in behalf of Villa Rey to FilOil as security for a loan. Having defaulted the payment, the lot was extrajudicially foreclosed in which FilOil won the bidding. However before FilOil could consolidate the ownership, Pabalan filed a complaint against Villarama, Villa Rey and FilOil.

The complaint alleged that the sale was conditional and did not transfer the title to the buyer until full payment of the price. RTC and CA both rendered a judgment in favor of complainant.

SC: It is obvious that the instrument is not a contract to sell as contended by Pabalan. It is a deed of sale in which the title was transferred to the vendee as of the date of the transaction notwithstanding that the purchase price had not been fully paid at that time.
In stipulation, it is recognized that the vendee may sell the property prior to full payment of all the amount.

Villarama acted in bad faith when he secured the cancellation of vendor’s title and replaced it in his own name. Pabalan left the drafting of the deed of sale to Villarama whom she trusted. This circumstance alone imposed to Villarama the moral if not the legal responsibility to explain the meaning and consequence of the contract she was signing.

FilOil also acted in bad faith in accepting the property as security to the loan without exercising more vigilance in inquiring with Pabalan, as lessor, into the antecedent of the transfer of title to Villarama.


Servicewide Specialist vs. IAC

Siton purchased from Car Traders Phil. a Mitsubishi Celeste. He paid the 25T downpayment and executed a PN expressly stipulating that the remaining obligation shall be payable without the need of notice of demand. He also executed a chattel mortgage over the vehicle in favor of Car Trader.

The PN and credit was first assigned by Car Trader in favor of Filinvest Credit Corp. which the latter assigned the same to Servicewide Specialist. Siton was advised of the reassignment.

Alleging Siton failed to pay the installment , Servicewide instituted the present action against Siton and John Doe. De Dumo appeared as John Doe alleging that he purchased the vehicle to Siton. He averred that he was the one who continued the payment of installment. The trial court ordered Siton and de Dumo to pay jointly and severally the remaining balance. CA affirmed the ruling.

SC: Servicewide alleged that the sale between Siton and De Dumo was void as contrary to the provision of Deed of Chattel Mortgage. The Rule is that the chattel mortgagor continues to be the owner of the property, and therefore, has the power to alienate the same; however he is alleged under pain of penal liability to secure the written consent of the mortgagee.

We find it correct in holding that Siton and De Dumo is jointly and severally liable to the obligation as there was no implication that the liability of Siton is extinguished when the time he sold the property to De Dumo. The same does not constitute novation.

The acceptance of payment from De Dumo merely results the addition of debtors and not novation.


Traders Royal Bank vs. Court of Appeals

Filriters is the registered owner of a Central Bank Certificate of Indebtedness. Under a Deed of Assignment Filriters transferred the CBCI to PhilFinance. Subsequently PhilFinance transferred the CBCI to TRB while the same was still in the name of Filriters. The transfer was made under a repurchase agreement granting PhilFinance the right to repurchase the instrument note. When PhilFinance failed to buy back the note on maturity date, it executed a deed of assignment to TRB all its rights and title.

TRB sought the transfer and registration of CBCI in its name however CB refused to effect the transfer in view of the action filed by Filriters.

Trial court and CA nullified the transfer made between PhilFinance to TRB.

SC: The assignment of certificate from Filriters to PhilFinance was fictitious, having made without consideration and did not conform to bank circular which provides that any assignment of registered certificates shall not be valid unless made by the registered owner thereof in person or by his representative duly authorized in writing.
TRB interest has no basis, since it was derived from PhilFinance, whose interest was inexistent. What happened is that PhilFinance merely borrowed CBCI from Filriters, a sister corporation, to guarantee its financing operations. Therefore the transfer of certificate from PhilFinance to TRB is complete nullity.


Guzman, Bocaling & Co. vs. Bonnevie

A property of the Intestate Estate of Reynoso was leased to Bonnevie by the administratrix for a period of 1 year with stipulation that if ever the property shall be sold, the lessees shall be given a first priority to purchase the same, all things and consideration being equal.

According to administratrix she notified Bonnevie by registered mail that she was selling the property however Bonnevie never replied to the notice. The same was offered and sold to petitioner. The administratrix send a letter to Bonnevie to vacate the premises but the latter refused.

An action for ejectment was filed which resulted to a compromise agreement; Bonnevie shall vacate the premises. Bonnevie did not comply hence a motion for execution was filed. While the case was pending, Bonnevie filed an action to annul the contract of sale to Guzman and the cancellation of the title. Bonnevie asked the court to require the seller to sell the property to him under the same terms and condition.

The ejectment case was dismissed and when it was appealed the same was consolidated with the other civil case of annulment of sale. CFI rendered a judgment in favor of Bonnevie. It was affirmed by CA.

SC: There was no satisfactory proof that the letter was sent to Bonnevie; that administratrix never showed the registry return card.

Even if the letter had been sent to and received by Bonnevie and they did not exercise their right of first priority, the administrator would still be guilty of violating the contract of lease which stated that Bonnevie could exercise, ‘all things and conditions being equal’.

The fact that Bonnevie had financial problems at that time was no justification for denying them the first option to buy the property. And even Bonnevie could not buy the property, the administrator could not sell the property to another for a lower price and under more favorable terms and conditions.

Guzman & Co. could not be deemed a purchaser in good faith for the record shows that it categorically admitted it was aware of the lease in favor of Bonnevie, who were actually occupying the property.

A purchaser in good faith and for value is one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice or claim of the interest of some other person in property.

Petition is DENIED.


Polytechnic University of the Philippines vs. Court of Appeals

NDC, during 60s, leased its property in Sta. Mesa to Firestone for ten years renewable for another 10 years with the same conditions. The contract was renewed several times and the latest of which contains stipulation that should the lessor decides to sell the property, priority should be given to the lessee.

When the contract was about to expire Firestone expressed its desire to renew the contract. NDC promised for the renewal. Firestone’s predicament worsen when rumors of NDC’s supposed plan to dispose the property in favor of PUP came to its knowledge. Firestone sent notice to NDC conveying its desire to purchase the property in exercise of its contractual right of first refusal.

Firestone filed an action for specific performance to compel NDC to sell the leased premises. It averred it is pre-empting the sale of the property to PUP. PUP intervened.

The trial court ordered the sale of the property to Firestone. It was affirmed by CA.

SC: It is elementary that a party to a contract cannot unilaterally withdraw a right of first refusal that stands upon valuable consideration.

A contract of sale is a contract where one of the parties obligates himself to transfer the ownership of and deliver a determinate thing to the other who shall pay therefore a sum certain in money or its equivalent.

The inherent weakness of the NDC’s proposition that there was no sale as it was only government which was involved in the transaction. A GOCC has a personality of its own distict and separate from the government.

The right of first refusal is an integral and indivisible part of the contract of lease and is inseparable to the whole contract. The consideration for the rightis built into the reciprocal obligations of the parties. Thus it is not correct for the petitioner to insist that there wasno consideration paid by Firestone to be entitled of such right.

Petition is DENIED.


Rosencor Development Corporation vs. Inquing

Respondents were lessees since 1971 of a property owned by Tiangco. The agreement was made orally with stipulation that the lessees were given the right to purchase the property if they decide to sell the same.

Upon the death of Tiangco, the heirs took over the property and the lease contract continued with the same stipulation. Respondents made improvements on the property which were not deducted to rents.

A certain Atty. Aguila sent a notice to vacate the premises addressed to respondents but the latter refused. Thereafter the heir offered to sell the property to respondents for 2M, however the latter offered to buy the same for only 1M.

Later on, respondents again received a letter from Atty. Aguila that the property was already sold to Rosencor. It was further known that the price was only for 726000. Respondent offered to reimburse the selling price but the same was refused. Respondents filed the instant action for rescission of the Deed of Sale between heirs (De Leon) and Rosencor.

The trial court dismissed the complaint. It said that the right to redemption was made orally therefore unenforceable. The CA reversed the ruling.

SC: Is the right of first refusal covered by the Statute of Fraud? The term is descriptive of statutes which require certain classes of contracts to be in writing. The statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to render it enforceable.

The right of first refusal is not among the listed as unenforceable under the statutes of frauds. As such a right of first refusal need not be written to be enforceable and may be proven by oral evidence.

We agree with the CA that the respondents have sufficiently proven the existence of first refusal. It must also be noted that the petitioner did not present evidence to contradict such existence during trial.

May a contract of sale entered into in violation of third party’s right of first refusal be rescinded in order that such third party can exercise said right? In the prevailing doctrine, the contract of sale entered into in violation of a right of first refusal of another person, while valid, is rescissible. There is however, a circumstance which prevents the application of this doctrine in the case at bench. The vendees in this case have proven that it had acted in bad faith for the doctrine to be applicable.

This Court did not find that Rosencor acted in bad faith in the purchase of the property. CA decision is REVERSED.


State Investment House vs. Court of Appeals

Solid Homes entered in a Contract to Sell with Oreta involving a parcel of land in Capitol Park Subd. Solid Homes executed several real estate mortgage contracts in favor of State Investment Homes over its subdivided parcels of land including the property sold to Oreta..

Upon failure to pay, State Investment extrajudicially foreclosed the property including the disputed title.

Oreta filed a complaint before the HLURB against State and Solid Homes for failure of Solid Homes to execute the necessary absolute deed of sale. The Office of Legal, Adjudication and Legal Affairs rendered a decision in favor of Oreta ordering the delivery of title to the latter. HLURB affirmed the ruling.

When it was brought up to SC, the latter referred the case to CA which decided affirming the decision.

SC: We note that herein petitioner admits the superior rights of respondent over the subject property as it did not pray for the nullification of the contract between Solid and Oreta, but instead asked the payment of the release value of the property in question. And even if we were to pass upon the first assigned error, we find the respondent court’s ruling on the matter to be well founded. State’s registered mortgaged right over the property is inferior to that of Oreta’s unregistered right.

The unrecorded sale between Solid and Oreta is preferred for the reason that if the original owner had parted with his ownership of the thing sold then he no longer had the ownership and free disposal of that thing so as to be able to mortgage it again. The decision is AFFIRMED.