Laforteza v.

Machuca
G.R. No. 137552
June 16, 2000

FACTS:

On August 2, 1988, Lea Zulueta-Laforteza executed a Special Power of Attorney in favor of

defendants Roberto Z. Laforteza and Gonzalo Z. Laforteza, Jr., appointing both as her Attorney-in-fact
authorizing them jointly to sell the subject house and lot property and sign any document for the
settlement of the estate of the late Francisco Q. Laforteza. Likewise on the same day, Michael Z.
Laforteza executed a Special Power of Attorney in favor of Roberto and Gonzalo Jr., likewise, granting
the same authority. Both agency instruments contained a provision that in any document or paper to
exercise authority granted, the signature of both attorneys-in-fact must be affixed. Dennis Laforteza also
executed Special Power of Attorneys on different dates.

In the exercise of the above authority, on January 20, 1989, the heirs of the late Francisco Q.
Laforteza represented by Roberto and Gonzalo entered into a Memorandum of Agreement (Contract to
Sell) with Alonzo Machuca over the subject property for the sum of Six Hundred Thirty Thousand Only
(P630,000.00) to be payable as stipulated: P30,000 upon signing the agreement and the remaining
P600,000 upon issuance of the new certificate of title in the name of the late Francisco Q. Laforteza and
upon execution of an extra-judicial settlement of the decedent’s estate with sale in favor of the plaintiff.
On June 20, 1989, the defendant was able to pay P30,000 as stipulated in the agreement. On September
18, 1989, defendants sent letter informing the defendant his obligation to pay the remaining balance to be
due after thirty (30) days, and the reconstituted title, which the defendant received on the same date, of
which on October 18, 1983, asked for an extension until November 15, 1989. Roberto, assisted by a
lawyer, was the one who affirmed said request, but not Gonzalo.

On November 20, 1989, defendant informed the heirs that Roberto had the payment for the
balance, but said heirs refused to accept said payment. Roberto declared the property not for sale for
failure to comply with the contractual obligations, and the agreement rescinded by the plaintiff-heirs.
Defendant insisted tender of payment but when the defendants refused to accept such, an action for
specific performance was filed in court. The trial court ruled in favor of the defendant. When the
petitioner-heirs appealed this to the Court of Appeals, the decision was rendered against them. So, an
appeal to the Supreme Court was made.

ISSUE:

Whether or not the rescission of the agreement for failure by the private respondent to fulfill his
obligations was validly done.

HELD:

No. The rescission of the agreement was invalid.

 The issuance of the new certificate of title in the name of the late Francisco Laforteza and the
execution of an extrajudicial settlement of his estate was not a condition which determined the perfection
of the contract of sale. Petitioners’ contention that since the condition was not met, they no longer had an
obligation to proceed with the sale of the house and lot is unconvincing. The petitioners fail to
distinguish between a condition imposed upon the perfection of the contract and a condition imposed on
the performance of an obligation. Failure to comply with the first condition results in the failure of a
contract, while the failure to comply with the second condition only gives the other party the option either
to refuse to proceed with the sale or to waive the condition. Thus, Art. 1545 of the Civil Code states:
"Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is
not performed, such party may refuse to proceed with the contract or he may waive performance of the
condition. If the other party has promised that the condition should happen or be performed, such first
mentioned party may also treat the non-performance of the condition as a breach of warranty. Where the
ownership in the things has not passed, the buyer may treat the fulfillment by the seller of his obligation
to deliver the same as described and as warranted expressly or by implication in the contract of sale as a
condition of the obligation of the buyer to perform his promise to accept and pay for the thing."

In the case at bar, there was already a perfected contract. The condition was imposed only on the
performance of the obligations contained therein. Considering however that the title was eventually
"reconstituted" and that the petitioners admit their ability to execute the extrajudicial settlement of their
father’s estate, the respondent had a right to demand fulfillment of the petitioners’ obligation to deliver
and transfer ownership of the house and lot.

The Supreme Court did not subscribe to the petitioners’ view that the Memorandum Agreement
was a contract to sell. There is nothing contained in the MOA from which it can reasonably be deduced
that the parties intended to enter into a contract to sell, i.e. one whereby the prospective seller would
explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as
yet agree or consent to transfer ownership of the property subject of the contract to sell until the full
payment of the price, such payment being a positive suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring
any obligatory force.

There is clearly no express reservation of title made by the petitioners over the property, or any
provision which would impose non-payment of the price as a condition for the contract’s entering into
force. Although the memorandum agreement was also denominated as a "Contract to Sell", it held that
the parties contemplated a contract of sale. A deed of sale is absolute in nature although denominated a
conditional sale in the absence of a stipulation reserving title in the petitioners until full payment of the
purchase price. In such cases, ownership of the thing sold passes to the vendee upon actual or
constructive delivery thereof. The mere fact that the obligation of the respondent to pay the balance of
the purchase price was made subject to the condition that the petitioners first deliver the reconstituted title
of the house and lot does not make the contract a contract to sell for such condition is not inconsistent
with a contract of sale.

The property in dispute, being an immovable property, is governed by Article 1592 of the NCC,
which needs the judicial or notarial act for its rescission. It is not disputed that the petitioners did not
make a judicial or notarial demand for rescission. The November 20, 1989 letter of the petitioners
informing the respondent of the automatic rescission of the agreement did not amount to a demand for
 rescission, as it was not notarized. It was also made five days after the respondent’s attempt to make the
payment of the purchase price. This offer to pay prior to the demand for rescission is sufficient to defeat
the petitioners’ right under article 1592 of the Civil Code.

Besides, the Memorandum Agreement between the parties did not contain a clause expressly
authorizing the automatic cancellation of the contract without court intervention in the event that the
terms thereof were violated. A seller cannot unilaterally and extrajudicially rescind a contract of sale
where there is no express stipulation authorizing him to extrajudicially rescind. Neither was there a
judicial demand for the rescission thereof.

Thus, when the respondent filed his complaint for specific performance, the agreement was still
in force inasmuch as the contract was not yet rescinded.

At any rate, considering that the six-month period was merely an approximation of the time it
would take to reconstitute the lost title and was not a condition imposed on the perfection of the contract
and considering further that the delay in payment was only thirty days which was caused by the
respondents justified but mistaken belief that an extension to pay was granted to him, the Court agreed
with the CA’s ruling that the delay of one month in payment was a mere casual breach that would not
entitle the respondents to rescind the contract. RESCISSION of a contract will not be permitted for a
slight or casual breach, but only such substantial and fundamental breach as would defeat the very object
of the parties in making the agreement.

Guinhawa v. People
468 SCRA 278 (2005)

G.R. No. 162822

DOCTRINE/S:

If, in a contract of sale, the vendor knowingly allowed the vendee to be deceived as to the thing sold in a material matter by
failing to disclose an intrinsic circumstance that is vital to the contract, knowing that the vendee is acting upon the presumption
that no such fact exists, deceit is accomplished by the suppression of the truth.

Caveat Epmtor can only be applied where it is shown or conceded that the parties to the contract stand on equal footing and
have equal knowledge or equal means of knowledge and there is no relation of trust or confidence between them.

Caveat emptor only requires the purchaser to exercise care and attention ordinarily exercised by prudent men in like business
affairs, and only applies to defects which are open and patent to the service of one exercising such care.

FACTS: Jaime Guinhawa was engaged in the business of selling brand new motor vehicles, including Mitsubishi
vans, under the business name of Guinrox Motor Sales in Naga City. He employed Gil Azotea as his sales
manager.
Guinhawa purchased a brand new Mitsubishi L-300 Versa Van from the Union Motors Corporation (UMC) in
Paco, Manila.

Olayan, the driver of Guinhawa, drove the van from Manila to Naga City. While traveling along a highway,
Olayan, the driver, suffered a heart attack. Consequently, the van went out of control, traversed the highway onto
the opposite lane, and was ditched into the canal parallel to the highway.

The van, after sustaining damages from the accident, was repaired. After its repair, it was subsequently offered
for sale in Guinhawa’s showroom.

Spouses Ralph and Josephine Silo wanted to buy a new van for the transportation of the products of their
garment business from Manila to Naga and back.

The spouses went to Guinhawa’s showroom and were shown the L-300 Versa Van (the previously damaged one)
which was on display. The couple only inspected the interior of the van. They no longer inspected the other parts
because they presumed that the vehicle was brand new. They decided to purchase the said van for 591,000
unaware that the van had been damaged and repaired. The sale was facilitated by Gil Azotea, sales manager.

Ralph Silo no longer conducted a test drive; he and his wife assumed that there were no defects in the van as it
was brand new.

Josephine Silo, with Bayani Pingol as the driver, heard a squeaking sound, which seemed to be coming from
underneath the van. Believing that the van merely needed grease, it was brought to a Shell gasoline station. Upon
examination, it was found out that some parts underneath the van had been welded. Upon further examinations, it
was confirmed that the van has been previously repaired prior to their purchase.

Upon complaint in his office, Guinhawa insisted that the defects were mere factory defects. Spouses requested
that Guinhawa replace the van with 2 Charade-Daihatsu vehicles within a week or two. Guinhawa initially agreed
to this proposal but later on changed his mind and told them that he has to sell the van first.

Josephine Silo filed for rescission of the sale and refund of their money with the Department of Trade and Industry
(DTI). However, after some time, the spouses withdrew the complaint and instead instituted a criminal complaint
for other deceits made by Guinhawa by making fraudulent representations about the car being brand new and
that it never encountered an accident.

ISSUES: WON Guinhawa made a fraudulent representation (YES)

WON the principle of Caveat Emptor may apply(NO)

RULING: YES. If, in a contract of sale, the vendor knowingly allowed the vendee to be deceived as to the thing
sold in a material matter by failing to disclose an intrinsic circumstance that it vital to the contract, knowing that the
vendee is acting upon the presumption that no such fact exists, deceit is accomplished by the suppression of the
truth.

Article 1389 of the New Civil Code provides that failure to disclose facts when there is a duty to reveal them
constitutes fraud. In a contract of sale, a buyer and seller do not deal from equal bargaining positions when the
latter has knowledge, a material

fact which, if communicated to the buyer , would render the grounds unacceptable or , at least, substantially less
desirable.
In this case, The van was placed in the showroom, thus making it appear to the public that it was a brand new unit
despite the knowledge of Guinhawa and Azotea that the van had figured in an accident, was damaged and had to
be repaired. Guinhawa was mandated to reveal the foregoing facts to Silos but they even obdurately declared
when they testified that the car did not figure in an accident, nor had it been repaired.

Guinhawa is also not relieved of his criminal liability for deceitful concealment of material facts, even if the private
complainant made a visual inspection of the van’s interior and exterior before she agreed to buy it and failed to
inspect its under chassis. Jurisprudence provides that where the vendee made only a partial investigation and
relies, in part, upon the representation of the vendee, and is deceived by such representation to his
injury, he may maintain an action for such deceit. The negligence, on the part of the vendee, should not be a
defense in this case. Otherwise, the court will allow the vendor from unjustifiably escaping with the fruits of the
fraud.

(NO) Guinhawa posits that based on the principle of caveat emptor, if the private complainant purchased the van
without first inspecting it, she must suffer the consequences. The Court ruled that Guinhawa may not use the
principle of caveat emptor as a defense in this case. Court said that the principle of caveat emptor only requires
the purchaser to exercise care and attention ordinarily exercised by prudent men in like business affairs, and only
applies to defects which are open and patent to the service of one exercising such care.

Caveat Epmtor can only be applied where it is shown or conceded that the parties to the contract stand
on equal footing and have equal knowledge or equal means of knowledge and there is no relation of trust
or confidence between them.

NUTRIMIX FEEDS CORPORATION, petitioner, vs. COURT OF APPEALS and SPOUSES EFREN AND MAURA
EVANGELISTA, respondents.
[G.R. No. 152219. October 25, 2004]

FACTS:

Respondent spouses herein started to directly procure various kinds of animal feeds from petitioner
Nutrimix Feeds Corporation. Initially, the respondents were good paying customers. In some instances, however,
they failed to issue checks despite the deliveries of animal feeds which were appropriately covered by sales
invoices.

Consequently, the respondents incurred an aggregate unsettled account with the petitioner. The
petitioner made several demands for the respondents to settle their unpaid obligation, but the latter failed and
refused to pay their remaining balance with the petitioner.
Petitioner filed with RTC a complaint, against the respondents for sum of money and damages with a
prayer for issuance of writ of preliminary attachment. In their answer with counterclaim, the respondents
admitted their unpaid obligation but impugned their liability to the petitioner. They contended that inasmuch as
the sudden and massive death of their animals was caused by the contaminated products of the petitioner, the
nonpayment of their obligation was based on a just and legal ground.
The respondents also lodged a complaint for damages against the petitioner for the untimely and
unforeseen death of their animals supposedly effected by the adulterated animal feeds the petitioner sold to
them. Petitioner moved to dismiss the respondents’ complaint on the ground of litis pendentia. The trial court
denied the same and the petitioner alleged that the death of the respondents’ animals was due to the widespread
pestilence in their farm. The petitioner, likewise, maintained that it received information that the respondents
were in an unstable financial condition and even sold their animals to settle their obligations from other enraged
and insistent creditors. It, moreover, theorized that it was the respondents who mixed poison to its feeds to make
it appear that the feeds were contaminated.

ISSUE:

Is the petitioner corporation guilty of breach of warranty due to hidden defects despite a finding that
there was a difference of approximately three months from delivery of the animal feeds, to respondent spouses, to
the time the animals died and the animal feeds were examined?

HELD: No

A difference of approximately three months enfeebles the respondents’ theory that the petitioner is guilty
of breach of warranty by virtue of hidden defects. In a span of three months, the feeds could have already been
contaminated by outside factors and subjected to many conditions unquestionably beyond the control of the
petitioner.
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.

A review of the facts of the case would reveal that the petitioner delivered the animal feeds, allegedly
containing rat poison, on July 26, 1993; but it is astonishing that the respondents had the animal feeds examined
only on October 20, 1993, or barely three months after their broilers and hogs had died.
 It bears stressing, too, that the chickens brought for laboratory tests were healthy animals, and were not
the ones that were ostensibly poisoned. There was even no attempt to have the dead fowls examined. Neither
was there any analysis of the stomach of the dead chickens to determine whether the petitioner’s feeds really
caused their sudden death. Mere sickness and death of the chickens is not satisfactory evidence in itself to
establish a prima facie case of breach of warranty. Likewise, there was evidence tending to show that the
respondents combined different kinds of animal feeds and that the mixture was given to the animals.

In essence, we hold that the respondents failed to prove that the petitioner is guilty of breach of
warranty due to hidden defects. It is, likewise, rudimentary that common law places upon the buyer of the
product the burden of proving that the seller of the product breached its warranty.

The bevy of expert evidence adduced by the respondents is too shaky and utterly insufficient to prove
that the Nutrimix feeds caused the death of their animals. For these reasons, the expert testimonies lack probative
weight. The respondents’ case of breach of implied warranty was fundamentally based upon the circumstantial
evidence that the chickens and hogs sickened, stunted, and died after eating Nutrimix feeds; but this was not
enough to raise a reasonable supposition that the unwholesome feeds were the proximate cause of the death
with that degree of certainty and probability required.

MISTERIO v. CEBU STATE COLLEGE OF SCIENCE AND TECHNOLOGY

SUMMARY: Asuncion Sadaya-Misterio and Sudlon Agricultural High School entered into a Deed of Sale over a
parcel of land. The sale was subject to Asuncion’s right to repurchase the property after the high school shall have
ceased to exist, OR 2) shall have transferred its site elsewhere. In 1983, BP 412 was enacted, which consolidated
vocational schools, including SAHS, and made them an extension of CSCST. In 1998, the heirs of Asuncion wanted
to exercise their right to redeem the property, on the ground that SAHS has ceased to exist. The Court held that the
action has prescribed, as when there is no period provided for the exercise of such right, the right to redeem should
be exercised within 4 years from the happening of the allocated condition.

DOCTRINE: The essence of a pacto de retro sale is that title and ownership of the property sold is immediately
vested in the vendee a retro, subject to the restrictive condition of repurchase by the vendor a retro within the period
provided in Article 1606 of the New Civil Code. The failure of the vendor a retro to repurchase the property vests
upon the latter by operation of law the absolute title and ownership over the property sold.

FACTS:

 1952: The Provincial Board of Cebu granted to Sudlon Agricultural High School (SAHS), the usufruct of 41
parcels of land covering 104.5441 ha of the Banilad Friar Lands Estate.
 December 31, 1956: Asuncion Sadaya-Misterio executed a Deed of Sale over a parcel of land (which was also a
part of the Banilad Friar Lands Estate) in favor of SAHS. The sale was subject to the right of Misterio to
repurchase the property 1) after the high school shall have ceased to exist, OR 2) shall have transferred its site
elsewhere.
o The right of the vendor (Misterio) to repurchase the property was annotated at the dorsal portion of the
TCT.
 The Provincial Board of Cebu, through a resolution, donated the aforementioned 41 lots to SAHS, subject to 2
conditions: (1) that if SAHS ceases to operate, the ownership of the lands would automatically revert to the
province, and (2) that SAHS could not alienate, lease, or encumber the properties.
 June 10, 1983: B.P. 412 was enacted, which consolidated as one school system certain vocational schools in
the province of Cebu, including SAHS, and which became an extension of the Cebu State College of Science
and Technology (CSCST).
  Cebu decided to recover the 41 lots it had earlier donated on the ground that SAHS had no personality to
accept the donation. When the heirs of Asuncion Misterio, who had then died intestate, learned that the
province of Cebu was trying to recover its donated property, they informed the province on August 19, 1998 of
their intention to exercise their right to repurchase the property as stipulated in the Deed of Sale.
o The province of Cebu and CSCST settled their issue over the lots by entering into a Memorandum of
Agreement where the lots were partitioned – 43 ha goes to the province while 51 ha goes to the SAHS
(now part of the CSCST).
 March 19, 1990: The Misterio heirs then sent a letter to CSCST informing their intention to exercise the option
to repurchase, on the ground that SAHS had ceased to exist.
o CSCST denied the claim, stating that SAHS still existed, albeit it changed its name [to CSCST] and
expanded its offerings [which now included collegiate courses].
 The Misterio heirs then filed a complaint before the RTC for “Nullity of Sale and/or Redemption”, alleging:
o That SAHS had no juridical personality of its own at the time of the sale, therefore the sale was null and
void
o And that assuming the sale was valid, the enactment of BP 412 abolished SAHS and converted it to
become part of CSCST, therefore rendering the operative condition granting the vendor and her heirs the
right to redeem
 After the case’s preliminary conference, the trial court issued a pre-trial order defining the issues:
o Whether SAHS has still retained its personality as such school or it had ceased to exist
o Whether the Misterio heirs have the right to exercise the right of redemption over the property
 RTC – ruled in favor of the Misterio heirs
o The sale between Asuncion and SAHS is null and void for latter’s lack of juridical personality to
acquire real property
o With the enactment of BP 412, SAHS ceased to exist and to operate (under the Corporation Code, the
constituent corporations SAHS and CSCST became one through merger or consolidation, with CSCST
as the surviving entity), hence, the Misterio heirs can exercise their right to redeem
 The OSG, representing the CSCST, appealed. Pending the appeal, the CSCST, through a Deed for Reversion,
deeded the property to the province of Cebu.
 CA – reversed the RTC
o The RTC erred in not confining itself to the issues defined by the parties during pre-trial
o While SAHS had ceased to exist when BP 412 took effect, the period for the petitioners to repurchase
the property expired on June 1987, four years after the enactment of BP 412
 Hence, the present petition by the Misterio heirs

RULING: Petition denied.

Whether the action to redeem the property has prescribed – YES.

 The essence of a pacto de retro sale is that title and ownership of the property sold is immediately vested
in the vendee a retro, subject to the restrictive condition of repurchase by the vendor a retro within the
period provided in Article 1606 of the New Civil Code. The failure of the vendor a retro to repurchase the
property vests upon the latter by operation of law the absolute title and ownership over the property sold.
o Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last
four years from the date of the contract.

Should there be an agreement, the period cannot exceed ten years.

However, the vendor may still exercise the right to repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis that the contract was a true sale with right to
repurchase
 IN THIS CASE: Asuncion (vendor a retro) and SAHS (vendee a retro) did not agree on any period for the
exercise of the right to repurchase the property. Following Article 1606 (1), the said right should be exercised
 within four years from the happening of the allocated condition contained in the deed: (a) the cessation of
the existence of the SAHS, or (b) the transfer of the school to other site.
o In this case, SAHS ceased to exist in June 10, 1983, when BP 412 took effect. The right of the
Misterio heirs, as the successors-in-interest of Asuncion (vendor a retro), started to run and lasted
until June 10, 1987.
o However, the Misterio heirs expressed their intention to redeem the property only in 1998.
 Misterio heirs contend that the issue of whether SAHS is yet to be resolved by court, hence the applicable
provision is Article 1606(3).
 The contention is misplaced as their right to repurchase the property was not dependent upon the prior final
interpretation of the said phrase. There is no doubt that the Deed of Sale actually includes a right to
repurchase. The four-year period for the petitioners to repurchase the property was not suspended merely
and solely because there was a divergence as to the precise meaning of the phrase “after the SAHS shall
cease to exist.”
 Moreover, the fact that the right to repurchase the property is annotated in the dorsal side of the RTC does not
mean the said right is imprescriptible. The annotation was only for the purpose of notifying third parties of the
petitioner’s right to repurchase the property under the terms of the deed of sale, and the law.

SOLID HOMES INC v CA

FACTS:
* Solid Homes executed in favor of State Financing
Center a Real Estate Mortgage on its properties
embraced in the TCT, in order to secure the payment of
a loan of 10M which the former obtained from the
latter.
* A year later, Solid Homes applied for and was
granted an additional loan of 1, 511,270.03 by State
Financing, and to secure its payment, Solid executed an
amendment to real estate mortgage whereby the credits
secured by the first mortgage on the abovementioned
properties were increased from 10M to 11,511,270.03.
* Solid homes obtained additional credits and
financing facilities from State Financing in the sum of
1,499,811.97 and to secure its payment, the former
executed the amendment to real estate mortgage
whereby the mortgage executed on its properties was
again amended so that the loans or credits secured
thereby were further increased from 11,511, 270.03 to
13,011,082.00
* When the obligations became due and payable, State
Financing made repeated demands upon Solid homes for
the payment thereof, but the latter failed to do so.
* State Financing filed a petition for extrajudicial
foreclosure of the mortgages 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, including the V.V.
Soliven Towers II Building 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
mortgagor Solid homes made representations and
induced State Financing to forego with the foreclosure
of the real estate mortgage. By reason thereof, State
Financing agreed to suspend the foreclosure of
mortgaged properties, subject to the terms and
conditions they agreed upon, and in pursuance of the
said agreement, they executed a document entitled
MEMORANDUM OF AGREEMENT/DACION EN PAGO.

ISSUE:
1. W/N THE MEMORANDUM OF AGREEMENT/
DACION EN PAGO EXECUTED BY THE PARTIES IS
VALID AND BINDING
2. W/N SOLID HOMES CAN CLAIM DAMAGES
ARISING FROM THE NON-ANNOTATION OF ITS RIGHT OF REPURCHASE IN THE CONSOLIDATED
TITLES
RULING: 1. YES | 2. NO
The Memorandum of Agreement/Dacion En Pago was
valid and binding, and that the registration of said
instrument in the Register of Deeds was in accordance
with law and the agreement of the parties.
Solid homes utterly failed to prove that respondent
corporation had maliciously and in bad faith caused the
non-annotation 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 Solid homes of the registration
with the register of deeds of their memorandum of
agreement/dacion en pago and the issuance of the new
certificates of title in the name of State Financing.
Clearly, petitioner was not prejudiced by the nonannotation of such right in the certificates of title issued
in the name of State Financing. Also, it was not the
function of the corporation to 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 State
Financing.
The only legal transgression of State 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-corporation

ABILLA v GOBONSENG
FACTS: Spouses Abilla instituted against Spouses
Gobonseng an action for specific performance, recovery
of sum of money and damages, seeking the
reimbursement of the expenses they incurred in the
preparation and registration of 2 public instruments--
Deed of Sale and Option to Buy. As a defense, Spouses
Gobonseng contended that the transaction covered by
these instruments was a mortgage. RTC ruled in favor of
Spouses Abilla, stating that it was a sale giving Spouses
Gobonseng until Aug. 31, 1983 within which to buy back
the 17 lots subject of the sale. CA affirmed and held
that the transaction was a pacto de retro sale, and not
an equitable mortgage.
In 1999, Spouses Gobonseng filed with the RTC an
urgent motion to repuchase the lots with tender of
payment, which was denied. However, after the judge
inhibited himself from the case, it was reraffled to a
different branch, which granted the motion to
repurchase.
ISSUE: W/N Spouses Gobonseng may exercise the right
to repurchase, as stipulated in Art. 1606 (3)
HELD: NO. Sellers in a sale judicially-declared as pacto
de retro may NOT exercise the right to repurchase
within the 30-day period provided under Art. 1606,
although they have taken the position that the same was
an equitable mortgage, if it shown that there was no
honest belief thereof since: (a) none of the
circumstances under Art. 1602 were shown to exist to
warrant a conclusion that the transaction was an
equitable mortgage; and (b) that if they truly believed
the sale to be an equitable mortgage, as a sign of good
faith, they should have consigned with the trial court
the amount representing their alleged loan, on or before
the expiration of the right to repurchase

Nyco Sales Corporation vs BA Finance Corporation

G.R. No. 71694 | August 16 1991

FACTS:

Santiago and Renato Fernandez (Fernandezes), acting in behalf of Sanshell

Corporation, approached Rufino Yao, president and general manager of Nyco Sales
Corporation (Nyco), for credit accommodation requesting for discounting privileges.

Yao agreed, which make the Fernandezes issue a post-dated BPI check for P60,000,
payable to Nyco.
Nyco endorsed the BPI check in favor of BA Finance. Thereafter, BA Finance issued a
check payable to Nyco, endorsing it in favor of Sanshell.

Accompanying the exchange of checks was a Deed of Assignment executed by

Nyco Sales (assignor) in favor of BA Finance (assignee) with the conformity of Sanshell.

Under the said Deed, the subject of the discounting was P60,000.00 BPI check. At the
back thereof and of every deed of assignment was the Continuing Surety Agreement
whereby the Fernandezes unconditionally guaranteed full, faithful and prompt payment
and discharge of any and all indebtedness of Nyco.

BPI check was dishonored.

BA Finance informed the Fernandezes who issued a substitute Security Bank and Trust
Company Check, which was again dishonored.

Nyco and the Fernandezes failed to settle obligation, hence this case. Nyco asserts that: (a)
the appellate court erred in affirming its liability for the BPI check despite the liability for SBTS;
and (b) Nyco is discharged when BA Finance failed to give a notice of dishonor for SBTC Check

ISSUE:

Whether or not Nyco Sales Corporation, as an assignor, is liable to its assignee for its
dishonored check

RULING:

The court ruled on the positive.

The relationship between Nyco Sales and BA Finance is one of assignor-assignee.

According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself
(its existence and legality) and the person of the debtor (his solvency), if so stipulated, as in the
case at bar. Consequently, if there be any breach of the above warranties, the assignor-vendor
should be held answerable therefor. There is no question then that the assignor-vendor is
indeed liable for the invalidity of whatever he assigned to the assignee-vendee. Considering
now the facts of the case at bar, BA Finance is actually enforcing the said deed and the check
covered is merely and incidental or collateral matter. The check merely evidenced the credit
which was actually assigned to BA Finance. Thus, the designation is immaterial. Nyco is being
asked to pay what is represented by the checks.
 Nyco Sales’ pretension that it had not been notified of the fact of dishonor is belied not
only by the formal demand letter issued by BA Finance but also by the fact that Nyco Sales and
Sanshell had frequent contacts before, during and after the dishonor. More importantly, as long
as the credit remains outstanding, Nyco Sales shall continue to be liable to BA Finance as its
assignor. The dishonor of an assigned check simply stresses its liability and the failure to give a
notice of dishonor will not discharge it from such liability. This is because the cause of action
stems from the breach of the warranties embodied in the Deed of Assignment, and not from the
dishonoring of the check alone.