REGULATORY FRAMEWORK AND LEGAL ISSUES IN BUSINESS

LAW ON SALES & CREDIT TRANSACTIONS

CASE DIGEST NO. 1

1. Polytechnic University of the Philippines vs. CA, GR No. 143513, November 14, 2001

Facts:

In the early 60’s, the National Development Corporation owned 10 hectares of property, the NDC
compound, located along Pureza St., Sta. Mesa, Manila.

Sometime in May 1965, Firestone Ceramics Inc. offered the NDC to lease a portion of the property for its
operations. On August 24, 1965, both parties entered into a contract of lease indicating a portion of the property
measuring 2.90118 hectares for use as a manufacturing plant for a term of 10 years, renewable for another
decade under the same agreement. Upon agreement, Firestone constructed several warehouses and other
improvements on the agreed portion. On January 8, 1969, the parties entered into a second contract of lease
covering NDC’s steel warehouses in Davao, to be transported to Manila and used in the compound and the 2.6-
hectare premises. The contract indicated that it was similar to the lease of the 2.6-hectare lot. On July 31, 1974,
the parties entered into a third, similar contract concerning a 6-unit pre-fabricated steel warehouse, to expire on
December 2, 1978.

Before its expiration, Firestone and NDC agreed to extend their contract for another 10 years, renewable
for another 10 years, under a new arrangement. As included in the stipulations, Firestone shall be granted a right
of first refusal in the event of disposal of the said properties including the lot. In early 1988 before the expiration of
their contract, Firestone informed NDC of its renewal of their contract through telegrams and calls. Only its
telegram was acknowledged and promised immediate action.

Firestone learned the supposed plan of NDC to dispose of the subject property in favor of the Polytechnic
University of the Philippines. Hence, Firestone notified NDC of its offer to purchase the property. This later turned
into a court case as the latter filed an action for specific performance compelling the former to sell the leased
property in its favor in line with their contract. Being a party to the case, PUP presented a memorandum order
issued by former President Cory Aquino ordering the transfer of the whole compound to the National Government,
which will then transfer the same to PUP. The order of such conveyance will offset NDC’s debt, amounting to
P57,193,201.64, in favor of the National Government. They also argued that the contract of lease entered into by
NDC and Firestone had expired and the right of first refusal only refers to the 6-unit pre-fabricated warehouse and
not the lot where it was located.

Issue:

(I) Whether or not there was a valid sale

(II) Whether or not Firestone Ceramics, Inc. can rightfully invoke their right of first refusal.

Ruling:

(I) It was held that there was a sale as the essential requisites of a valid contract of sale were present.
Consent was observed in the memorandum order, object certain which was the NDC Compound, and the cause
or consideration which is the cancellation of NDC’s debts amounting to P57,193,201.64. Although the parties only
indicate that there was only conveyance, their conduct supports that of sale.

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 (II) The Supreme Court concluded that Firestone, upon receipt of the approved survey, be granted 6
months to exercise its right of first refusal. The third contract of lease, containing the clause granting Firestone the
right of first refusal, does not only pertain to the warehouses but is interrelated with the first contract as the latter is
needed by the former for it to be of benefit to their operations. Hence, they also have such right for the leased lot.

2. Romero vs. CA, GR No. 107207, November 23, 1995

Facts:

Virgilio R. Romero decided to put up a warehouse in Metro Manila. Upon the suggestion made by Alfonso
Flores and his wife, Enriqueta Chua vda. de Ongsiong’s land was selected. Romero and Ongsiong entered into a
Deed of Conditional Sale which indicated the purchase price of the land amounting to P1,561,000, P50,000
payment upon signing of the contract, and that the balance be paid 45 days after the removal of the squatters
from the area which shall be fulfilled within a month.

Ongsiong took the matter of ejecting the squatter families to the Metropolitan Trial Court. However, she
failed to fulfill the condition and wanted to rescind the contract because of such failure. As Ongsiong
communicated the matter to Romero and sought to return the P50,000, the latter refused and offered to take the
matter but expenses be chargeable to the purchase price.

Both parties did not agree as Ongsiong prayed for rescission while Romero wanted to contract to push
through. Ongsiong filed for rescission plus damages with the Regional Trial Court which ruled in favor of Romero.
Consequently, Ongsiong appealed for the matter in which the Court of Appeal ruled in her favor. Hence the
petition of Romero.

Issue:

Whether or not Ongsiong had the right to rescind their contract.

Ruling:

The Supreme Court reversed the verdict of the Court of Appeal. Ongsiong shall not have the right to
rescind the contract as she was not the aggrieved party but Romero. Further, Romero shall be the one to exercise
such right if intended, but instead, he waived the fulfillment of the said condition.

3. Sanchez vs. Mapalad Realty Corp, GR No. 148516, December 27, 2007

Facts:

Mapalad Realty Corp. has a registered ownership over 4 parcels of land located along Roxas Boulevard,
Baclaran, Paranaque. After EDSA Revolution, Jose Campos turned over all assets, properties, records, and
documents of Mapalad, being one of the companies held in trust for the former President Marcos, to the new
administration governed by President Aquino.

It was then discovered by Rolando Josef, appointed VP/Treasurer and GM of Mapalad, that 4 Transfer
Certificate of Title covering the 4 parcels of land were missing. He inquired regarding the matter until he
discovered that the corporation’s former director and general manager, Felicito L. Manalili. Manalili promised to
return the TCTs as he found them which never happened.

Several issues arise including the deeds of absolute sale covering the parcels of land signed by the same
Magsaysay in his capacity as President and board chairman of Mapalad, bearing the same date, and notarized by

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the same Clemente, but under different considerations, one having a total purchase price of P20,190,000 while
the other amounting to P7,268,400. The properties were sold to Nordelak Development Corporation.

A. Magsaysay, a corporation controlled by Miguel Magsaysay, acquired all shares of Mapalad and
consequently sold its properties to Novo Properties, Inc. In addition, Miguel sold all of its shares Novo terminating
all his interest in Mapalad. In denial, Magsaysay signified that he never signed the deeds of absolute sale.
Mapalad filed an action for annulment of deed of sale and reconveyance of title plus damages against Nordelak.
Claiming in good faith, pending the case, Nordelak sold the properties for an amount of P50,000,000 to Manuel
Luis Sanchez.

Issue:

Whether or not there was a valid sale between Nordelak and Mapalad.

Ruling:

As concluded by the court, even if the signature of Magsaysay is proven to be genuine, there can be no
valid sale as he was no longer affiliated with the aggrieved corporation upon the sale of his shares to Novo on the
date of sale of the subject properties. Magsaysay is of no authority to act on behalf of the corporation, hence there
is no valid sale as it lacks consent from Mapalad. Apart from consent, Mapalad also did not receive any
consideration. On the grounds that the said contract lacks both consent and consideration, being essential
elements of a contract, the Court declared it void from the beginning. Further, following the contract between
Nordelak and Mapalad being void, Nordelak has no authority to sell such things it does not own, hence the order
of rescission of the contract between Nordelak and Sanchez.

4. Robern Development Corp. vs. People’s Landless Assoc., GR No. 173622, March 11, 2013

Facts:

Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City, where members of the
People’s Landless Association reside. Through the OCI of their Davao branch, Febe Dalig, the bank asked the
informal settlers to stop building their houses on the lot and vacate the premises unless they were interested in
purchasing the same. The informal settlers expressed their interest in buying until they had reached an
agreement. PELA offered a downpayment of P150,000 and the remaining within one year. Through a letter, Al-
Amanah acknowledged the offer and indicated that execution shall proceed upon the partial payment before a
specific date.

PELA deposited the downpayment and continued residing therein. However, Al-Amanah disapproved of
the offer previously made on the grounds of insufficient consideration. Subsequently, Robern, not knowing the
situation, offered to buy the same for P400,000 of which P80,000 had already been deposited and assume the
ejection of the settlers. Hence the dispute.

Issue:

Whether or not there was a perfected contract of sale between the People’s Landless Association and Al-
Amanah.

Ruling:

The Court held that there was no perfected sale between PELA and Al-Amanah as two of the essential
requisites of a valid contract, consent and consideration, were absent. The contract remained in the negotiation
stage as it lacked consent from the bank’s top management and there was no acceptance of the consideration

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offered by PELA. Hence, there was no double sale, and the consummated contract of sale between Robern and
Al-Amanah was valid.

5. Balatbat vs. CA, GR No. 109410, August 28, 1996

Facts:

Aurelio Roque, upon filing a case for partition, acquired 6/10 of a parcel of land he and his wife acquired
during their conjugal union, while his children received ¼ each of the remaining, hence the issuance of TCT.
Roque sold his share to the Repuyan spouses, evidenced by a deed of absolute sale, with a P5,000
downpayment and P45,000 to be paid after the partition and subdivision of the property. Aurora Tuazon Repuyan
caused the annotation of her adverse claim on the subject lot, indicating that she bought 6/10 of the same. Upon
the grounds of failure to pay the remaining, Roque filed a case to rescind their contract.

Another deed of sale was subsequently executed between Roque and his children and Clara Balatbat
covering the entire parcel of land. Balatbat, after legal procedure, was issued by the court writ of possession
subject to valid rights and interests of third persons. The sale entered into by Roque and the Repuyan spouses,
subject of the case for rescission, was declared, after due hearing, valid.

Issue:

(I) Whether or not the alleged sale to the Repuyan spouses was merely executory.

(II) Whether or not there was a double sale.

Ruling:

(I) No, the Court ruled that it was consummated and not merely executory. The execution of the public
instrument without actual delivery of the thing transfers ownership. In this case, the execution of the deed of sale
was sufficient for the transfer of ownership to the vendee. Although the consideration was not fulfilled, the public
document does not indicate that ownership shall be retained until full payment, hence the essence of a
consummated contract of sale. It was valid as the failure to pay the price after the execution of such contract is
not a ground for its nullity but would result in a legal delay on the part of the buyer.

(II) The court held that an event of double sale occurred as the same immovable property was sold twice
to different parties. In this case, it manifests as Roque sold his portion and subsequently sold the same in addition
to the share of his children. Further, under the rules set in the New Civil Code, being first in the order of priority,
the ownership of the thing shall be transferred to the person acquiring the thing who in good faith first recorded it
in the Registry of Property. In this case, the execution by Aurora Tuazon Repuyan of an affidavit of adverse claim
on the subject property is sufficient to notify and bind the whole world, hence, the rightful owner.

6. Gaite vs. Fonacier, GR No. L-11827, July 31, 1961

Facts:

Isabelo Fonacier was the owner of 11 iron lode mineral claims known as Dawahan Group. Through a
deed of assignment, Fonacier constituted Fernando Gaite as his attorney-in-fact and to enter into a contract with
any person for the exploration and development of the subject parcels of land on a royalty basis based on the
tons of ore to be extracted. Thereafter, Gaite conveyed the mining claims to the Larap Iron Mines which belonged
to him, began operating, and extracted approximately 24,000 metric tons of deposit.

Consequently, Fonacier and Gaite, upon the decision of the former to revoke the authority given to the
latter, agreed to its revocation under a condition. Gatie turned over all the documents, records, rights and interests

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on the claims, its improvements, roads, and facilities, as well as the right to use the business name “Larap Iron
Mines” and its goodwill for a certain amount. In addition, Gaite included the sale of the estimated 24,000 tons of
extracted ore for P75,000, of which P10,000 was paid upon signing and the balance to be paid upon the sale of
the same.

To secure the balance, the parties agreed to a surety bond which provides that the surety company shall
only be obligated when an actual sale is made and that the same will expire in a year. The bond then expired and
Gatie demanded payment but to no avail, hence his complaint.

The court held that the obligation was one with a term, that it shall be paid upon selling sufficient ore
within one year, and that the surety bond that expired was a condition of the credit, making the obligation due and
demandable.

Issue:

(I) Whether or not the lower court committed an error in holding that the obligation to pay Gaite was one
with a term and not with a suspensive condition.

(II) Whether or not the lower court erred in holding that there was an adequate and not lesser tons of ores
sold.

Ruling:

(I) The Court held that the obligation of Fonacier to pay Gaite was one with a term. If such was
considered to be one with a suspensive condition, it would amount to leaving the payment at the discretion of the
debtor. On the same note, the vendee would be given the chance to indefinitely prevent such payment by not
undertaking the sale of the extracted ore on which the agreement was based. Moreover, the demand of Gaite for
payment is right as upon failure to renew the surety bond leading to the expiration of the same, the debtor loses
every right to make use of the period.

(II) The Court affirmed the decision of the lower court as the contract only indicates an object estimated to
be a quantity of 24,000 metric tons of ores without an express provision or conduct of measuring the subject
matter. Furthermore, the rough estimate was not very far from the estimate of an expert. Therefore, such variation
between the estimate of Gaite and the expert shall not be considered material, considering that it was also
indicated in the contract that it was approximated.

7. Aznar vs. Yapdiangco, GR No. L-18536, March 31, 1965

Facts:

Teodoro Santos, upon advertisement of the sale of his FORD FAIRLANE 500, through his son, Irineo
Santos, negotiated with Vicente Marella through his nephew, L. De Dios. Both parties agreed to the sale of the car
for P14,700 to be paid only after the registration of the car in Marella’s name. They executed a deed of sale in
favor of Marella and registered the car to the vendee. Thereafter, the price was left unpaid, hence Teodoro
instructed Irineo not to give the registration papers and a copy of deed of sale until Marella paid. Unfortunately,
Irineo became a victim of deception as he was tricked into giving the documents with such payment, and notified
the authorities. The car in question was then sold by Marella to Jose Aznar, a buyer in good faith, for P15,000.
Consequently, the car was seized by the authorities as a result of Santos’ report. Hence the dispute of who owns
the thing.

Issue:

Whether the rightful owner of the disputed car is Teodoro Santos and not Jose Aznar.

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Ruling:

The Court affirmed the decision of the lower court as Teodoro Santos has a better right following the
concept of delivery of the car. It was held that for a transfer of ownership to happen, there must be delivery on the
part of the vendor, whether actual or constructively. In this case, such delivery did not take place as Marella
unlawfully deprived Teodoro of his car. Therefore, Teodoro was still the owner of the same. The Court did not merit
the appeal of Aznar as they contended that they shall be the rightful owner in accordance with Article 1506
because the seller of the same lacks title of the thing, hence not applicable.

8. Agro Conglomerates, Inc. vs. CA, GR No. 117660, December 18, 2000

Facts:

Agro Conglomerates, Inc. owned two parcels of land which it sold to Wonderland Food Industries, Inc.
Both parties, provided in their Memorandum of Agreement, agreed the certain conditions including the price and
its payment. The vendor, the vendee, and the respondent bank Regent Savings & Loan Bank executed an
Addendum to the previous agreement. The parties further agreed that the seller would secure a loan from Summa
Savings and Loan Associations to cover the initial payment, to be paid by the purchaser. However, this was not
notarized. Subsequently, Mario Soriano, as authorized by the seller, signed several promissory notes payable to
the bank. However, the sale did not materialize, hence the recission of the contract.

Issue:

Whether or not there is a valid contract of sale.

Ruling:

The Court ruled that there was no valid sale between Agro Conglomerates and Wonderland Food
Industries, Inc. As per the definition of a contract of sale, delivery of the object is essential to a sale. Hence, in this
particular case, the contract did not materialize upon failure to deliver the farmland. Therefore, there is no valid
sale.

CASE DIGEST NO. 2

1. Sibal vs Valdez

Facts:

Several properties of Leon Sibal including the crops planted on it were attached and sold at a public
auction by Vitaliano Mamawal, Deputy Sheriff of the Province of Tarlac, by virtue of a writ of execution. Within one
year from its execution, Sibal offered to redeem and tendered the sugar cane to Valdez with the amount sufficient
to cover the price paid by the latter, interest thereon, and any other direct costs paid thereon after such purchase.
However, Valdez refused and argued that the sugar cane in question was personal property and was not subject
to redemption.

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 Sibal prayed that a writ of preliminary injunction be issued against Valdez from distributing the lands,
taking possessions, or harvesting the sugar cane, as well as palay planted on the subject parcels of land. He also
prayed that a judgment be rendered in his favor and order such redemption.

The preliminary injunction merited. Valdez submitted a counterclaim indicating that due to the preliminary
injunction, he suffered loss and damages. The lower court rendered a judgment against Sibal and held that the
crops in question were personal property and not subject to redemption. Hence, the appeal.

Issue:

Whether there was a valid sale in consideration of the pending crops being the object.

Ruling:

Yes, the Court held that the pending crops can be a valid object of a contract of sale. As such crops have
potential existence, it can be a subject matter of a contract of sale, and may be dealt separately from the land on
which they grow. Hence, there was a valid sale.

2. Quijada vs CA, GR 126444

Facts:

Trinidad Corvera Vda. de Quijada inherited a two-hectare land in Agusan del Sur from Pedro Corvera
which she later donated, along with her siblings, to the Municipality of Talacogon for a condition that the land shall
be used for a proposed school campus. Despite the donation, she sold 1 hectare of the same land to Regalado
Mondejar and verbally sold the remaining 1 to the same later.

After her death, her heirs filed a complaint for forcible entry against Mondejar which was dismissed. Later,
the municipality reverted the land to the donors. Further, Mondejar sold the portions of the land. Trinidad’s
children, the heirs, sued Mondjar claiming that the land was never sold by their late mother and that the sale was
void.

Issue:

Whether there was a valid sale between the late Trinidad and Mondejar in consideration of the object
which was also the subject of the prior donation to the municipality.

Ruling:

The court affirmed that there was a valid sale between the parties since Trinidad retained an interest in
the land as the donation was subject to a resolutory condition. As the condition wasn’t fulfilled, the land was
reverted to the donor. The subject matter of the sale was valid as ownership need not to be manifested at the time
of perfection of the contract. Hence, constitutes a valid sale between Trinidad and Mondejar.

3. Melliza vs City of Iloilo, 23 SCRA 477

Facts:

Juliana Melliza owns three parcels of land including Lots No. 2, 5, and 1214. She donated 9,000 out of
29,073 square meters of Lot No. 1214 to the Municipality of Iloilo to serve as the site for the municipal hall.
However, the land wouldn’t cover the planned project and hence was revoked.

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 Subsequently, Lot No. 1214 was divided into Lots 1214-A and 1214-B, and later, 1214-B was further
divided into Lot No. 1214-B-1, 1214-B-2, and 1214-B-3, now known as Lots No. 1214-B, C, and D, respectively.
Further, Melliza executed an instrument without a caption indicating that Lots No. 5, Sublots 2-B and 2-C, and
Lots Nos. 1214-B-2 and 1214-B-3 have been sold to the City of Iloilo needed for avenues, parks, and city hall site
for the Arellano Plan. The remainder of the interest of Lot No. 1214 was then sold to Remedios, who then sold the
same to Pio Melliza.

The City of Iloilo later donated the parcel of land sold to them by Juliana to the University of the
Philippines, Iloilo, including the portion sold to Pio. As a result, UP constructed wire fences and enclosed the
property, hence, the demand by Pio Melliza for compensation for his land. However, the City of Iloilo refused as
they contend that the land was included in the prior sale as stated in the document executed by Juliana Melliza.
Hence the issue being brought to the Court of First Instance which held that Lot No. 1214-B was included in the
prior executed document, hence the City of Iloilo has the right to donate the same. Further, the Court of Appeals
affirmed the latter’s decision.

Issue:

Whether or not there was a determinate object constituting a valid sale.

Ruling:

The Court ruled that the object is determinate and includes Lot No. 1214-B. Under the Civil Code, the
object is determinate if it is determinable at the time of execution of contract without the need for a further
agreement. In the case at hand, the object of the sale are those specified and those necessary for the Arellano
Plan.

4. Heirs of Juan San Andres vs Vicente Rodriguez, GR135634

Facts:

A portion, measuring 345 sq. meters, of a specific lot located at Liboton, Naga City, owned by Juan San
Andres was sold evidenced by a deed of sale, in favor of Vicente Rodriguez for a consideration. Ramon San
Andres was appointed as the judicial administrator of Juan’s estate upon the latter’s death. Ramon then hired a
geodetic engineer to create a consolidated plan for the estate which led, upon survey, to the discovery that
Vicente had enlarged the area which he previously bought from the decedent. Consequently, the latter refused to
vacate the said portion upon receipt of the letter sent by the former.

Vicente asserted that apart from the 345 sqm. lot, the remaining portion measured at 509 sqm. has been
sold to him, and that the payment for the same is to effect in 5 years upon execution of the deed of sale after a
conducted survey. Further, he alleged that with the consent of the decedent, he took possession and improved the
subject. Moreover, he consigned to the court the payment for the remaining portion. Later, Ramon and Vicente
died, who were then substituted.

The trial court ruled that there was no sale in the absence of a determinate object. Upon appeal, the Court
of Appeals reversed the decision, holding that the same was determinable.

Issue:

Whether or not the object is determinate constituting a valid sale.

Ruling:

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 The Court ruled that the contract of sale is valid. The contract was perfected upon the agreement of Juan
and Vicente upon the object and price. Moreover, the receipt evidencing that Juan received a sum among others,
denoted the total area of 854 sqm., including the 504 sqm. portion, as “previously paid lot, hence is deemed
determinable.

5. Yu Tek vs Gonzales, L-9935

Facts:

Basilio Gonzales and Yu Tek and Co. executed a written contract whereby the former acknowledges the
receipt of the sum of P3,000 from the latter, the former binds himself to deliver 600 piculs of sugar of first and
second grade to the latter within three months, and provides for rescission of contract and refund of the sum plus
damages of P1,200 upon failure to do so.

Yu Tek and Co. proved that there occurred no delivery of the object nor did it recover the stipulated refund
and damages. Upon trial, Gonzales alleges that the court erred in refusing to permit parol evidence showing that
the parties intended that the sugar was to be obtained from the crops that he raised on his plantation. He further
added that due to the almost total failure of the crop, he was unable to fulfill his obligation. He also contends that
he presumed that the object was to limited to the sugar he might raise from his own plantation, that perfection of
sale is manifested by the contract, and that failure of his crop relieves him from complying with his obligation by
loss of the object of the contract.

Issue:

Whether or not there was a valid sale in considering the undetermined measure of sugar.

Ruling:

The Court ruled that there is no perfected contract of sale. Gonzales’ contention is not applicable as the
measurement used, piculs, in determining the amount of sugar does not make the same determinate. Hence,
there is no valid sale.

6. National Grains Authority vs IAC, GR74470

Facts:

As Leon Soriano offered to sell palay grains to the National Food Authority through William Cabal,
Provincial Manager, who required the former to submit the documents for pre-qualifying as a seller which were
consequently approved. Soriano was given a quota of 2,640 cavans of palay, which was noted in the Farmer’s
Information Sheet representing the maximum number of cavans that he may sell to the NFA. Accordingly, on the
same and the following day, he was able to deliver 630 cavans which were not rebagged, classified, and weighed
and later demanded payment.

However, Cabal, upon the demand for payment, contended that it was suspended since Soriano is not a
bona fide farmer and advised the latter to withdraw what was delivered. Insisted that the palay grains be delivered
and paid, and filed a case for specific performance. Petitioners argue that such delivery was merely to offer the
same as the object were not rebagged, classified, and weighed, hence not considered sold.

Issue:

Whether a contract of sale was perfected or not.

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Ruling:

Yes, the Court ruled that there is a perfected contract of sale. The essential requisites of a sale were
present in the case at the bar, the consent being manifested by Soriano’s offer and acceptance of NFA by noting
the same on the Farmer’s Information Sheet, the object being the palay grains produced in Soriano’s farmland,
and price as NFA was to pay depending on its quality.

The palay grains delivered, being a portion only of the maximum quota does not invalid the contract of
sale, as it was merely a cap, not a determined quantity of canvans to be complied with. Hence, the 630 cavans of
palay grains delivered shall be paid. The court ordered NFA to pay the price of P47,250 plus legal interest to
Soriano.

7. Johannes Schuback vs CA, GR 105387

Facts:

On October 16, 1981, the defendant, Ramon San Jose, Jr., established a contract with the plaintiff,
Johannes Schuback for wanting to purchase MAN bus spare parts from Germany and provided a list of parts he
desired to purchase along with specifications. The latter communicated the matter with its trading partner,
Schuback Hamburg, and subsequently, on December 17, made a formal offer to the defendant containing the
details, unit prices, and total cost of the spare parts. On December 24, the defendant informed the petitioner of his
intention listed in the letter including a purchase order with all the specific details and descriptions. On December
29, the defendant submitted the quantities to the general manager of the plaintiff, Mr. Dieter Reichert, as well as
an annotation indicating a 3% discount.

The plaintiff immediately ordered the items from its trading partner. Thereafter, on January 4, 1982,
Schuback Hamburg sent a proforma invoice to the defendant indicating the requirement for a letter of credit to be
opened in their favor. The defendant confirmed that he received the invoice. In the same year, the petitioner
requested the creation of a letter of credit to prevent delays in shipment and interest payments but the defendant
informed the former that they are having difficulties in applying for a letter of credit.

The defendant contends that there was no valid contract between them.

Issue:

Whether or not there was a perfected sale.

Ruling:

Yes, the Court reversed the Court of Appeals’ decision and ruled that there was a valid sale. The Court
confirmed the presence of the essential elements of a contract of sale on December 24, 1981, upon acceptance
of the offered consideration for the specific spare parts offered on December 17. The Court further ruled that the
defendant’s contention upon the grounds that the 3% discount is an indication of prompt acceptance of the offer.
The failure to open a letter of credit in favor of the vendor is just a means of payment and is not an essential
element of a contract of sale. Hence, there was no indication of an invalid sale.

8. Antonia Torres vs CA, GR 134559

Facts:

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 Antonia Torres and Emeteria Barring entered into a joint venture agreement with Manuel Torres for the
development of a parcel of land, turning the latter into a subdivision. They executed a deed of absolute sale
covering the parcel of land under the name of Manuel who then mortgaged the land to obtain a loan amounting to
P40,000. The subject land was foreclosed by the bank upon the failure of the project. The petitioners argue that
the project failed due to the respondent’s lack of skill and accused him of converting the money for personal
benefit.

The petitioners filed a criminal case for estafa against Manuel and his wife which was dismissed, hence
their appeal. The CA then ruled that the JVA entered into by the parties constitutes a partnership, hence they both
must bear the loss. The petitioners then contended that the transaction between them and the respondent was
not a partnership and that the JVA was void as it was a result of an earlier illegal contract, which was a sale of the
land without a valid price.

Issue:

Whether a sale was perfected under a valid consideration or not.

Ruling:

Yes, the Court ruled that there was a valid consideration, hence a valid sale. A consideration or cause of a
sale can take various forms. Although their contract indicated that the petitioners did not receive payment for the
parcel of land sold, the consideration or cause of such sale was the expected profits from the subdivision project.
Hence, there was a valid sale.

9. Mapalo vs Mapalo, GR L-21489 & L-21628

Facts:

The spouses Miguel Mapalo and Candida Quiba owns a residential land at Pangasinan. They donated
the east portion, being half of the parcel of land, to Maximo Mapalo, Miguel’s brother. However, the spouses,
being illiterate farmers, were deceived to believe that upon translation of such agreement, they were signing the
same. The fraudulent act of his brother and its lawyer procured their signatures on a deed of absolute sale
contemplating the totality of the parcel of land, under the same consideration which was, consequently, not
received.

Maximo, without consent of the spouse, registered the sale in his favor and later sold the same to the
Narcisos who then registered and obtained a title. Thereafter, the Narcisos filed a complaint to be declared as
owners of such land, for possession of the western portion, and rentals.

Upon the counterclaim filed by the spouses as to the western portion, contending that it is void in the
presence of fraud and the Narcisos being buyers in bad faith the Court of First Instance ruled in their favor. But
this was reversed by the Court of Appeals upon appeal of the Narcisos upon the grounds that it was merely
voidable within the prescription period of four years, but is not void from the beginning.

Issue:

Whether the deed of absolute sale between the Mapalo spouses and Maximo is void or merely voidable.

Ruling:

The Court ruled that the deed of absolute sale is void. According to the old and new Civil Code, a contract
without consideration is void, while under the old one, false consideration renders a contract voidable with an

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action for its annulment within the prescription period of four years. In this case, the contract was deemed that
without consideration as the purchase price thereon was never really received by the spouses.

10. Bagnas vs CA, L38498

Facts:

Hilario Mateum died leaving 29 parcels of land without ascendants or descendants, will, and debts, and
was survived only by collateral relatives with the petitioners, Bagnas et al., being his cousin, his nearest kin, and
the respondents Retonil et al., being relatives to a farther extent.

Retonil et al., claim ownership of 10 parcels of land. They contended that a year before Mateum died,
they registered with the Registry of Deeds 2 deeds of sale covering subject parcels of land, executed by Mateum
in their favor at a price of P1 and services rendered, being rendered, and to be rendered. The narrated events
resulted in their acquisition of 3 of the 10 subject parcels of land.

The properties sold were assessed to be more than P10,000. The petitioners filed a case against the
respondents seeking annulment of the deeds of sale being fictitious, fraudulent, or alternatively, as donations void
for want of acceptance embodied in a notarized document. Their complaint was denied by the respondents
claiming that the sales in their favor were made for a good and valuable consideration, free from fraud.

Issue:

Whether the said consideration constitutes a valid sale or not.

Ruling:

The court ruled that the deeds of absolute sale were void, hence there was no valid sale. The gross
inadequacy of the consideration contemplated, being the price of P1 as well as the unquantified value of services
and the assessed value of the property, which was, in fact, merely for tax purposes and is a low indicator of its
actual value, evidence that the deeds of sale were void from the beginning due to false and fictitious
consideration. Moreover, the respondents cannot argue that it was a donation as it failed to conform with the
requirements for a valid donation. Hence. The certificates were annulled and the respondents were ordered to
return the properties, account for the fruits, and pay the costs.

11. Republic of the Phil. vs Philippine Resources Development Corp. and CA, GR L-10141

Facts:

The Republic of the Philippines, in representation of Bureau of Prisons, filed a complaint against Macario
Apostol and Empire Insurance Co. for the collection of the latter’s unpaid balance for its previous purchase of
Palawan Almaciga and other logs amounting to P34,015.06 with legal interest. Further, the Philippine Resources
Development Corporation intervened in the case claiming that Apostol, beyond his authority and without prior
consent, as the president of the company, appropriated several corporate properties including G.I. sheets, black
sheets, M.S. plates, round bars, and G. I. pipes to settle personal debts in favor of the government. The Republic
opposed such intervention, contending that there was no payment as the price is always paid in money, hence
PRDC lacks interest thereon as money and not the latter’s goods is in question.

Issue:

Whether or not the appropriation of goods is equivalent to payment of money.

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Ruling:

Yes, the Court ruled that the purchaser may pay “a price certain in money or its equivalent, hence
payment need not be in money. Therefore, the delivery by Macario Apostol of such sheets, plates, bars, and pipes
could be sufficient payment, subject to the decision of the Court after the due hearing. However, if the claim of the
Philippine Resources Development Corporation for the ownership of the goods appropriated by Apostol is true,
should the trial court hold it as payment, then the former would be adversely affected.

12. Sps. Buenaventura vs CA, GR 12376

Facts:

Defendant spouses Leonardo Joaquin and Feliciana Landrito are parents of the plaintiffs and co-
defendants. The spouses and co-defendants executed deeds of sale of real properties owned by the former which
are sought to be declared null and void from the beginning by the plaintiffs. The plaintiffs contend that such deeds
are simulated for having no actual valid consideration, and if there is, it is grossly inadequate. They further argue
that the deeds do not reflect the true intent of the parties and that the sale adversely deprives the heirs of their
legitime.

Issue:

Whether or not the deeds of sale are void for lack of consideration, and assuming there is, void for being
grossly inadequate.

Ruling:

No, the Court ruled that it is not the act of payment that determines the validity of a contract of sale. A
sale, being a consensual contract, is perfected by mere agreement of the parties as to price, and not its payment
or the manner of payment. Further, failure to pay the consideration merely results in a right to demand the balance
or cancellation of the obligation under an existing valid contract while lack of consideration makes a contract void.
In addition, gross inadequacy of price does not prevent the perfection of a contract of sale. Moreover, if the real
price is not indicated in the contract, then such sale is valid, subject to reformation. Hence, as the petitioners
failed to prove absolute simulation of price, the deeds of sale executed are valid.

13. Cavite Development Bank vs CA, GR 131679

Facts:

The petitioners herein, Cavite Development Bank (CDB) and Far East Bank and Trust Company (FEBTC)
are banking institutions. Rodolfo Guansing loaned a sum of money from CDB, secured by a parcel of land. Upon
his delay of payment, the land was foreclosed and was consequently sold to CDB, the highest bidder, and was not
redeemed. Thereafter, Lolita Chan Lim offered to purchase the property for P300,000, conditioned upon (1) 10%
option money, (2) the balance payable in cash, and (3) the property shall be cleared of illegal occupants or
tenants. Lim paid P30,000 as option money but later discovered that the property was registered in the father of
the mortgagor, Perfecto Guansing who filed a case for the cancellation of his son’s title and consequently restored
the same in his favor. Herein, Lim questioned CDB’s ability to sell the subject property.

Issue:

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 (I) Whether the contract between Lolita Chan Lim and Cavite Development Bank constitutes an option
contract or a contract of sale.

(II) Whether or not the sale between Cavite Development Bank and Lolita Chan Lim is void.

Ruling:

(I) The Court ruled that it was a contract of sale having been proven by the payment of earnest money.
The sum of P30,000, although stated as option money, is in nature of earnest money as the offer implies that the
former forms part of the purchase price. Hence, there was a perfected sale.

(II) Yes, the Court held that the sale between the parties is void. The Civil Code provides that ownership
needs only to be with the seller at the time the object of sale is to be delivered. In this case, CDB did not acquire
the ownership of the property as the same was not held by its mortgagor but by its father. As the title was restored
to Perfecto, Rodolfo never really acquired a legal title, so did the CDB. Hence, as CDB cannot comply with its
obligation to deliver ownership of the object of sale, the contract between them is likewise void.

14. Sanchez vs Rigos, GR L-25494

Facts:

Nicolas Sanchez and Severino Rigos executed a document entitled “Option to Purchase” whereby Mrs.
Rigos promised to sell Sanchez a parcel of land to the sum of P1,510 within two years. Within the prescribed
period, Sanchez tendered in several payments the sum which was rejected by Mrs. Rigos, inducing him to deposit
the same to the Court of First Instance and file an action against the latter. The lower court ruled in favor of
Sanchez, hence the appeal of Mrs. Rigos.

Issue:

Whether there was a perfected sale or merely an option agreement.

Ruling:

The Court affirmed the decision of the lower court that the option agreement constitutes a perfected sale
as the same was accepted by Sanchez before the withdrawal of Mrs. Rigos. The Court cited that unless the
option is supported by a consideration distinct from the purchase price, the offeror may withdraw the same before
acceptance. Thus, in application to this specific case, even though the option agreement does not bind the
parties, an acceptance of the offer has been made before withdrawal, hence a perfected bilateral contract of sale.

15. Serrano vs Caguiat, 517 SCRA 57

Facts:

The petitioner spouses Onnie Serrano and Amparo Herrera entered into a contract covering a lot located
at Las Pinas, Metro Manila with respondent Godofredo Caguiat at P1,500 per sq. meter. As partial payment,
P100,000 was given by Caguiat and promised the balance whereby he received a document entitled “Receipt of
Partial Payment” indicating such promise to be done on or before a specific date as a condition for execution of a
deed of sale. The respondent informed the petitioners his intent and readiness to pay and requested to prepare
the final deed of sale. Consequently, the petitioners wrote the respondent that Amparo Herrera is leaving abroad
and that they are canceling the sale and providing for the recovery of the earnest money. Thereafter, the
petitioners wrote a letter and delivered the sum. The respondent, concerning the cancellation, filed an action for

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specific performance and damages. Thereupon, after due hearing, the trial court rendered that a sale was
perfected for having the presence of earnest money and ordered the execution of the final deed of sale. The case
was filed with a motion for reconsideration which was dismissed. Hence the appeal.

Issue:

Whether the document, “Receipt of Partial Payment,” constitutes a perfected sale or a contract to sell.

Ruling:

The Court held that the document was that of a contract to sell. It indicated that the execution of a final
deed of sale for transfer of ownership is subject to the full payment of the balance within a specific period.
Therefore, upon nonfulfillment of the condition, the petitioners have the right to rescission. Further, the ownership
of the subject property was reserved by the petitioners by retaining its title. Therefore, as the condition was not
fulfilled, the respondent has no right to compel the petitioners for the ultimate transfer of ownership in his favor.

CASE DIGEST NO. 3

1. Development Bank of the Philippines v. Court of Appeals, G.R. No.118342, January 5, 1998, 284 SCRA
14.

Facts:

Lydia P. Cuba was granted a Fishpond Lease Agreement by the government and was able to procure
several loans from Development Bank of the Philippines secured by two Deeds of Assignment of her leasehold
rights. She defaulted and the bank automatically appropriated the leasehold rights. Consequently, the bank
agreed to sell the rights back and executed a Deed of Conditional Sale in favor of Lydia who then failed to pay.
The bank through a notarial act rescinded, took possession, and eventually selling the same to Agripina Caperal
who was then awarded a new lease agreement by the Ministry of Agriculture and Food.

Issue:

(I) Whether or not the appropriation without foreclosure proceedings was contrary to Article 2088.

(II) Whether or not the agreement between Lydia and DBP constitutes a mortgage contract.

Ruling:

(I) Yes, the Court ruled that the Development Bank of the Philippines’ automatic appropriation of Lydia’s
leasehold rights was contrary to Article 2088. The Civil Code provides that the creditor can, in no case,
appropriate the things given by way of pledge or mortgage or dispose of them. The remedy of a creditor in cases
when the debtor fails to settle its obligation is to seek the sale of the mortgaged property through legal
proceedings. Therefore, in this case, the automatic foreclosure after Lydia’s default, without legal proceedings,
violates the said article and, hence void.

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 (II) Yes, the Court ruled that the assignment of leasehold rights constitutes a mortgage contract. The
agreement between the parties leaves no uncertainty as they manifest the intention of securing the principal
obligation.

2. Bustamante v. Rosel, G. R. No. 126800, November 29, 1999, 319 SCRA 413.

Facts:

Norma Rosel extended a loan amounting to Natalia and the late Ismael Bustamante. To secure the loan,
Natalia, the registered owner of a parcel of land, pledged 70 square meters. They agreed that upon failure of
Natalia to pay, Rosel shall have the option to purchase the collateral for a sum, inclusive of the principal and
interest. On the due date, Rosel offered to buy the land which was refused by Natalia and requested an
extension. Further, Natalia offered alternatives which Rosel declined, insisting for the collateral. Moreover,
Natalia’s attempt to pay the loan on the due date, Rosel refused, insisting on the sale of the collateral. After the
proceedings, the Regional Trial Court ruled in favor of Natalia but was consequently reversed by the Court of
Appeals.

Issue:

(I) Whether Natalia failed to repay the loan at its maturity date.

(II) Whether the stipulation in the contract was valid and enforceable.

Ruling:

(I) No, the Court ruled in favor of Natalia that she did not fail to pay the loan. Natalia, on the due date
stipulated, tendered to pay and even consigned the amount as Rosel refused to accept the same. Therefore,
Natalia did not incur default and Rosel acted in bad faith.

(II) No, the Court rendered a judgment ruling that the stipulation is one of pactum commissorium, hence
void. The stipulation provided in their agreement contemplates pactum commissorium as it reflects the intention of
Rosel to automatically acquire the parcel of land given as security for the principal obligation which is the loan.

3. Ong v. Roban Lending Corporation, G.R. No. 172592, July 9, 2008, 557 SCRA 516.

Facts:

The spouses Wilfredo Ong and Edna Sheila Paguio-Ong procured several loans totaling to P4,000,000
from Roban Lending Corporation, secured by a real estate mortgage on their parcels of land in Binauganan,
Tarlac City. Later, the spouses entered into several agreements amending the real estate mortgage which
consolidated their loans totaling P5,916,117.50, Dacion in Payment Agreement assigning their mortgaged
properties to Roban Lending Corporation to settle their obligation, and a Memorandum of Agreement which
contemplates an automatic dacion in payment upon failure of the spouses to pay within one year.

The spouses previously filed a complaint before the RTC contending that the Memorandum of Agreement
and the Dacion in Payment Agreement contemplate pactum commissorium and, therefore void. The corporation
defended the legality of its transactions arguing that the voluntary execution of the subsequent agreements
novated the mortgage and that dacion in payment is lawful and valid.

Issue:

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 Whether the Memorandum of Agreement and the Dacion in Payment Agreement are null and void for
being pactum commissorium.

Ruling:

Yes, the Court ruled that the Memorandum of Agreement and the Dacion in Payment are null and void as
both contemplate pactum commissorium. A provision indicated in their agreement included the automatic
acquisition of ownership by Roban Lending Corporation upon failure of the Ong Spouses to settle their debt within
a year. Further, there was no stipulation regarding foreclosure nor redemption. Hence. The both agreements are
null and void.

4. Estate of Litton v. Mendoza & Court of Appeals, G.R. No. L-49120, June 30, 1988, 163 SCRA 246.

Facts:

CMB Products, with Mendoza as president, offered to sell textile cotton materials to the Bernal Spouses
who were engaged in manufacturing embroidery, garments, and cotton materials. For this purpose, the former
introduced the latter to Alfonso Tan. Mendoza as the guarantor, the spouses purchased on credit from Tan.

Tan delivered the cotton materials and, given the arrangement, CBM Products asked for and received a
post-dated check for the payment of the spouses’ debt. The parties arranged that Mendoza retains possession of
the check until the cotton materials are finally manufactured into garments, which will then be sold by Mendoza for
the spouses. The contemplated check matured without having been cashed, hence Mendoza demanded for
another check without a date.

Subsequently, the spouses became indebted to Mendoza as the latter issued two checks in favor of Tan,
he also asked the spouses to sign an instrument whereby the latter assigned the said amount to Insular Products,
Inc.. Tan discounted the same but were returned with a stamp of “stop payment” as ordered by Mendoza for the
failure of the spouses to deposit sufficient funds for the check issued by the latter in his favor.

This resulted into Tan suing Mendoza while the Bernal spouses brought an action for interpleader for not
knowing whom to pay. Pending the litigation, Tan assigned in favor of Litton Sr. his credit against Mendoza, and
duly submitted to the court with notice to the parties. The court, affirmed by the Court of Appeals, ordered
Mendoza to settle the liability.

Mendoza and Tan then entered into a compromised agreement which was asserted by the former and
filed for a motion of reconsideration, praying for his release from liability, but was opposed to by the latter for being
null and void. The latter contended that the former lost his right to the credit as it already assigned the same in
favor of Litton, Sr.

Issue:

Whether or not a plaintiff in a case, who had previously assigned his litigated credit to his creditor, can
validly enter into a compromise agreement without notice to the assignee.

Ruling:

No, the Court ruled in favor of the assignee, declaring the compromise agreement null and void. The court
puts emphasis on the assignor’s right to alienate the litigated credit requires notice and consent from the assignee

17 | P a g e
for such assignment to be valid. In the case at hand, it was found that Litton, Sr. was not notified nor had given
consent for the agreement. Therefore, the compromise agreement is void.

5. Prudential Bank v. Alviar & Alviar, G.R. No. 150197, July 28, 2005, 464 SCRA 353.

Facts:

Don A. Alviar and Georgia B. Alviar executed a real estate mortgage, in favor of Prudential Bank, to
secure a loan of P250,000, containing a blanket mortgage clause. The stipulation provides that it covers not only
the existing loan but also any future loans and credits obtained by the Alviar spouses. Thereafter, the spouses
obtained additional loans of P2,640,000 and P545,000,000, secured by separate securities, foreign currency
deposit accounts and temporary overdraft conversion, respectively.

Upon nonpayment of all loans including those subsequently obtained, the bank filed for extrajudicial
foreclosure of the mortgaged parcel of land. The respondent contended that such foreclosure is not proper as
subsequent loans were secured by separate securities and, hence are not covered by the dragnet clause.

Issue:

Whether or not the blanket mortgage clause covers the subsequent loans.

Ruling:

No, the Court held that the dragnet clause does not secure the subsequent loans as the same were
covered by separate securities. Such a clause in a real estate mortgage does not automatically secure
subsequent loans unless expressly indicated in the promissory notes or loan agreements. In addition, the security
test reveals that the subsequent loans were covered by other securities and not by the original mortgage.
Therefore, foreclosure was determined to be proper for the outstanding of the first loan and inappropriate for the
subsequent loans.

6. People’s Bank & Trust Company & Atlantic Gulf and Pacific Co. of Manila v. Dahican Lumber Company,
et al., G.R. No. L-17500, May 16, 1967, 20 SCRA 84.

Facts:

Atlantic Gulf & Pacific Company of Manila (ATLANTIC) sold and assigned all of its rights in the Dahican
Lumber concession to Dahican Lumber Company (DALCO) for a sum of $500,000, of which only a portion
amounting to $50,000 was paid. To develop the concession, DALCO procured several loans amounting to
$200,000 from the People’s Bank & Trust Company (BANK), and through the BANK, a loan of $250,000 from the
Export-Import Bank of Washington D.C. evidenced by both DALCO and Dahican America Lumber Corporation
(DAMCO), all payable to the BANK or its order.

To secure the loans, DALCO executed in favor of the BANK, the latter acting for itself and as trustee of
the Export-Import Bank of Washington D.C. a deed of mortgage covering five parcels of land located in
Camarines Norte, its buildings, and other improvements situated thereon, as well as all the personal properties of
the mortgagor in its place of business in the municipalities of Mambulao and Capalonga of the same province.
DALCO also executed a second mortgage on the same properties in favor of ATLANTIC to secure payment for its
unpaid balance. Both mortgages provided that the lien shall extend to properties to be subsequently acquired.

18 | P a g e
 Upon DALCO and DAMCO’s failure to pay their balance, the BANK settled the same to the Export-Import
Bank of Washington D.C. and the latter assigned to the former its credit and the first mortgage securing it. Further,
the BANK gave the debtors a certain period to pay.

Consequently, DALCO bought several properties in addition to or in replacement of what they already
owned and used. The BANK requested the complete list of the said properties but DALCO failed to comply.
DALCO refused and retracted these sales, hence resulting in the foreclosure proceedings of ATLANTIC and the
BANK against DALCO and DAMCO.

Issue:

(I) Whether or not the after-acquired properties are covered by the Deeds of Mortgage.

(II) Assuming that they are subject thereto, whether or not the mortgages are binding and valid on the
said properties considering that they were not registered in accordance with the law.

Ruling:

(I) Yes, the Court ruled that the after-acquired properties are subject to the mortgage. The mortgage
agreement explicitly reflects the intention of the parties that all property of every nature and description among
other things taken in exchange or replacement, and other things that the mortgagor may acquire, construct,
install, attach, or use in connection with the concession, any after-acquired properties in simple terms, shall be
subject to the lien of both mortgages in the same manner and extent as those already included.

(II) Yes, the Court ruled that the mortgages are deemed valid even though the same were not registered
following the Chattel Mortgage Law. The properties contemplated by the agreement were intended to be utilized
as real properties, hence are not covered by the aforementioned law.

7. Korea Exchange Bank v. Filkor Business Integrated, Inc., et al., G.R. No. 138292, April 10, 2002, 380
SCRA 381.

Facts:

Respondent Filkor Business Integrated, Inc. borrowed US$140,000 from petitioner Korea Exchange Bank
of which only a portion amounting to US$40,000 was paid. In addition, Filkor executed nine trust receipts in favor
of Korea Exchange Bank but failed to fulfill the same. Filkor also negotiated proceeds from seventeen letters of
credit, issued by the Republic Bank of New York and the Banque Leumi France, S.A. were dishonored because of
discrepancies. Prior to all the mentioned transactions, Filkor executed a real estate mortgage to secure the
payment of all of its transactions subjecting the improvements belonging to it constructed on the lot it was leasing
at the Cavite Export Processing Zone. In addition, Respondents Kim Eung Joe and Lee Han Sang also executed
Continuing Suretyships whereby they bind themselves jointly and severally with Filkor to pay for the latter’s
obligations to Korea Exchange Bank.

Filkor failed to satisfy its obligations, hence the filing of Korea Exchange Bank praying for its payment and
the foreclosure and sale of the property mortgaged at a public auction in case of failure to comply within ninety
days from judgment. However, the Regional Trial Court only granted its prayers under all its 27 causes of action
and failed to order the foreclosure in case of failure to comply.

Hence, the petitioner filed a motion for partial reconsideration, praying the relief of the foreclosure and
sale, but the trial court denied the same and ruled that the bank had abandoned its mortgage lien by filing an
action for collection instead of foreclosure.

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Issue:

(I) Whether the bank’s complaint was an action for foreclosure of the real estate mortgage or for collection
of a sum of money.

(II) Whether the Regional Trial Court erred in ruling that the bank had abandoned the real estate
mortgage because of its filing of a simple collection case.

Ruling:

(I) The Court ruled that the petitioner’s complaint filed with the RTC was an action for foreclosure of a real
estate mortgage as evidenced by its allegations and prayer.

(II) The Court also ruled that the RTC erred in concluding that it was a simple collection case and not
ordering foreclosure. It modified the judgment to include the prayer of the petitioner that in case of failure of Filkor
to satisfy its debts within ninety days, foreclosure of the mortgage shall proceed.

8. PCI Leasing & Finance, Inc. v. Trojan Metal Industries Inc., et al., G.R. No. 176381, December 15, 2010,
638 SCRA 615.

Facts:

Trojan Metal Industries, Inc. (TMI) sought a loan from PCI Leasing and Finance, Inc. (PCILF) but instead,
they reached an agreement that PCILF will buy various equipment owned by TMI. They executed deeds of sale in
consideration totaling P2,865,070. Afterward, the parties entered into a lease agreement, wherein TMI leased its
previously owned equipment from PCILF and issued postdated checks representing 24 monthly installments. As
security, TMI gave a guaranty deposit of P1,030,350 which will be automatically forfeited should TMI return the
leased equipment before the lease’s expiration.

In favor of PCILF, TMI executed a Continuing Guaranty of Lease Obligations, upon the agreement to
immediately pay whatever obligations would be due to the former upon TMI’s failure to satisfy its obligations under
the lease agreement.

To obtain another loan from another financing entity, TMI used the leased equipment as a temporary
security, which PCILF considered to be a violation of their lease agreement. TMI, at this point, paid a total of
P1,717,091.00.11. Through a letter, PCILF extended its demand for the payment of TMI’s balance.

Issue:

Whether the sale with lease agreement the parties entered into was a financial lease or a loan secured by
chattel mortgage.

Ruling:

The Court agreed with the decision of the Court of Appeals, ruling that the transaction was a loan secured
by a chattel mortgage. The subject equipment was already owned by TMI before its transaction with PCILF, hence
the nature of their contract does not reflect that of a financial lease. Further, PCILF’s sale of the equipment can be
deemed as an act exercising his right to foreclose the same as creditor-mortgagee, not as an owner.

9. ACME Shoe, Rubber & Plastic Corporation v. Court of Appeals, G.R. No. 103576, August 22, 1996, 260
SCRA 714.

Facts:

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 Acme Shoe, Rubber & Plastic Corporation executed a chattel mortgage, through its president and general
manager, Chua Pac, in favor of Producers Bank of the Philippines, securing a loan of P3,000,000. The said
mortgage provided for a dragnet clause indicating that the same would stand as a security for future credits
regardless of its nature and when such obligation has been contracted.

The first loan was duly paid. Thereafter, another loan amounting to P2,700,000 was granted and
consequently fully paid. The bank extended a third loan of P1,000,000 which was not satisfied. The bank
thereupon applied for an extrajudicial foreclosure of the chattel mortgage, the proceedings of which resulted to the
petition which was denied as the petitioner shall comply with their contractual agreement. Hence the issuance of
the foreclosure order.

Issue:

Whether or not the foreclosure of the chattel mortgage is proper.

Ruling:

No, the Court held that the extrajudicial foreclosure of the chattel mortgage shall not merit. The mortgage
ceased to exist upon the full payment of the first obligation. In addition, chattel mortgage only secures existing
obligations at the time of its constitution. Therefore, although a purported dragnet clause provided for in the
chattel mortgage gives rise to a binding commitment, security only arises after executing a new chattel mortgage
or by amending the old contract.

10. Makati Leasing & Finance Corporation v. Wearever Textile Mills, Inc. & Court of Appeals, G.R. No. L-
58469, May 16, 1983, 122 SCRA 296.

Facts:

Wearever Textile Mills, Inc. procured a loan from Makati Leasing and Finance Corporation by assigning
several receivables to the latter under the Receivable Purchase Agreement. To secure its collection, the private
respondent executed a chattel mortgage covering certain raw materials inventory and certain machinery,
otherwise described as Artos Aero Dryer Stentering Range. The private respondent defaulted and the petitioner, in
an attempt to extrajudicially foreclose the mortgage, failed. The latter then filed for a judicial foreclosure which was
later granted.

The Court of Appeals, upon the petition of the private respondent, then revised the decision and ordered
the return of the machinery as the same is a real property and, hence cannot be subject to chattel mortgage.

Issue:

Whether the subject machinery is a real or personal property.

Ruling:

The Court ruled that the subject machinery is one of personal property. It provided that the parties of a
contract may by agreement treat as personal property although the same is, by its nature, a real property,
provided that no third party would be prejudiced. Furthermore, the private respondent, Wearever, is estopped from
questioning the validity of the chattel mortgage as it had already benefitted from the same.

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