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CHAPTER 1
NATURE OF SALE
DEFINITION OF SALE
Article 1458 of the Civil Code denes sale as a contract
whereby one of the contracting parties (Seller) obligates himself
to transfer the ownership, and to deliver the possession, of a
determinate thing; and the other party (Buyer) obligates himself
to pay therefor a price certain in money or its equivalent.1
The Roman Law concept embodied in the old Civil Code2
that treated delivery of tangible property as the sole purpose of
sale has been modied under the present Article 1458, which
applies the common law concept of requiring the obligation to
transfer the ownership of the subject matter of the sale as a
principal obligation of the seller.
1. Nature of Obligations Created in a Sale
The denition of the contract of sale under Article 1458
provides that its perfection brings about the creation of two sets
of obligations:
(a) Two OBLIGATIONS of the SELLER to:
(i) Transfer the Ownership,3 and
1
Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173 (2005);
Roberts v. Papio, 515 SCRA 346 (2007).
2
Art. 1445 of the old Civil Code.
3
Flancia v. Court of Appeals, 457 SCRA 224, 231 (2005), denes ownership as
the independent and general power of a person over a thing for purposes recognized
by law and within the limits established thereby aside form the jus utendi and the
jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus
disponendi, is the power of the owner to alienate, encumber, transform and even destroy
the thing owned.
LAW ON SALES
NATURE OF SALE
LAW ON SALES
NATURE OF SALE
17
Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160, 164 (1997); Dizon v. Court
of Appeals, 302 SCRA 288 (1999); Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156
(2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio,
515 SCRA 346 (2007).
18
Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994); Toyota Shaw, Inc. v.
Court of Appeals, 244 SCRA 320 (1995); Limketkai Sons Milling, Inc. v. Court of Appeals,
250 SCRA 523 (1995); Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160 (1997);
Province of Cebu v. Heirs of Runa Morales, 546 SCRA 315 (2008).
19
San Miguel Properties Philippines v. Huang, 336 SCRA 737, 743 (2000).
LAW ON SALES
NATURE OF SALE
2. Consensual
Sale is consensual contract (as contrasted from solemn
and real contracts), since it is perfected by mere consent, at the
moment there is a meeting of the minds upon the thing which is
the object of the contract and upon the price.25
Buenaventura v. Court of Appeals,26 held that a sale over a
subject matter is not a real contract, but a consensual contract,
which becomes a valid and binding contract upon the meeting of
the minds as to the price. Once there is a meeting of the minds
as to the price, the sale is valid, despite the manner of its actual
payment, or even when there has been breach thereof. If the
real price is not stated in the contract, then the sale is valid but
subject to reformation; if there is no meeting of the minds as to
the price, because the price stipulated is simulated, then the
contract is void.27
Under Article 1475 of the Civil Code, from the moment of
perfection of the sale, the parties may reciprocally demand
performance, even when the parties have not afxed their
signatures to the written form of such sale,28 but subject to
the provisions of the law governing the form of contracts.29
Consequently, the actual delivery of the subject matter or
payment of the price agreed upon are not necessary components
to establish the existence of a valid sale;30 and their non25
Art. 1475, Civil Code. Balatbat v. Court of Appeals, 261 SCRA 128 (1996); Coronel
v. Court of Appeals, 263 SCRA 15 (1996); Xentrex Automotive, Inc. v. Court of Appeals,
291 SCRA 66 (1998); Laforteza v. Machuca, 333 SCRA 643 (2000); Londres v. Court of
Appeals, 394 SCRA 133 (2002); San Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA
99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Ainza v. Padua, 462 SCRA 614
(2005); Cruz v. Fernando, 477 SCRA 173 (2005); Marnelgo v. Banco Filipino Savings and
Mortgage Bank, 480 SCRA 399 (2006); MCC Industries Sales Corp. v. Ssanyong Corp.,
536 SCRA 408 (2007); Castillo v. Reyes, 539 SCRA 193 (2007); Roberts v. Papio, 515
SCRA 346 (2007).
26
416 SCRA 263 (2003).
27
Ibid, at p. 271, citing VILLANUEVA, PHILIPPINE LAW ON SALES, p. 54 (1998).
28
Gabelo v. Court of Appeals, 316 SCRA 386 (1999); Province of Cebu v. Heirs of
Runa Morales, 546 SCRA 315 (2008).
29
Co v. Court of Appeals, 312 SCRA 528 (1999). Also City of Cebu v. Heirs of
Candido Rubi, 306 SCRA 408 (1999); San Lorenzo Dev. Corp. v. Court of Appeals, 449
SCRA 99 (2005).
30
Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. Court of
Appeals, 416 SCRA 263 (2003).
LAW ON SALES
31
Gabelo v. Court of Appeals, 316 SCRA 386 (1999); Alcantara-Daus v. de Leon,
404 SCRA 74 (2003); Buenaventura v. Court of Appeals, 416 SCRA 263 (2003), citing this
particular passage in VILLANUEVA, PHILIPPINE LAW ON SALES, p. 54 (1998).
32
Veterans Federation of the Philippines v. Court of Appeals, 345 SCRA 348
(2000).
33
286 SCRA 698 (1998).
34
Citing Art. 1475, Civil Code; Romero v. Court of Appeals, 250 SCRA 223
(1995).
35
Citing Aspi v. Court of Appeals, 236 SCRA 94 (1994).
36
Citing Olegario v. Court of Appeals, 238 SCRA 96 (1994).
37
286 SCRA 698, 712-713 (1998). Reiterated in Quijada v. Court of Appeals, 299
SCRA 695 (1998); Agasen v. Court of Appeals, 325 SCRA 504 (2000).
NATURE OF SALE
10
LAW ON SALES
Art. 1458, Civil Code; People v. Tan, 338 SCRA 330 (2000).
Art. 1191, Civil Code; see also Vda. De Quirino v. Palarca, 29 SCRA 1 (1969).
46
Agro Conglomerates, Inc. v. Court of Appeals, 348 SCRA 450 (2000). See also
Ong v. Court of Appeals, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000);
Carrascoso, Jr. v. Court of Appeals, 477 SCRA 666 (2005). See also Vda. De Quirino v.
Palarca, 29 SCRA 1 (1969) as it pertains to an option contract.
47
Art. 1191, Civil Code.
48
Art. 1168, last paragraph, Civil Code; Almocera v. Ong, 546 SCRA 164 (2008).
49
Ibid.
50
Art. 1191, Civil Code.
45
NATURE OF SALE
11
simply choose not to proceed with the sale by offering also the
other party not to be bound by his own obligation; that each party
has the remedy of specic performance; and that rescission or
resolution cannot be enforced by defaulting party upon the other
party who is ready and willing to proceed with the fulllment of
his obligation.51
Polytechnic University of the Philippines v. Court of Appeals,52
summed up the reciprocal and nominate nature of sale, thus:
It is therefore a general requisite for the existence of a valid
and enforceable contract of sale that it be mutually obligatory,
i.e., there should be a concurrence of the promise of the vendor
to sell a determinate thing and the promise of the vendee to
receive and pay for the property so delivered and transferred.53
Consequently, Carrascoso, Jr. v. Court of Appeals,54 held that
since a sale is constituted of reciprocal obligations, then [t]he
right of rescission of a party to an obligation under Article 1191 is
predicated on a breach of faith by the other party who violates the
reciprocity between them.
4. Onerous
Sale is an onerous contract, as distinguished from a
gratuitous contract, because it imposes a valuable consideration
as a prestation, which ideally is a price certain in money or its
equivalent.55
In Gaite v. Fonacier,56 the Court ruled that the stipulation in
a contract of sale on the payment of the balance of the purchase
price must be deemed to cover a suspensive period rather than a
condition since there can be no question that greater reciprocity
obtains if the buyers obligation is deemed to be actually existing,
with only its maturity (due date) postponed or deferred, than if
such obligation were viewed as non-existing or not binding until
12
LAW ON SALES
the ore was sold.57 The Court held that the rules of interpretation
would incline the scales in favor of the greater reciprocity of
interests, since sale is essentially an onerous contract.
5. Commutative
Sale is a commutative contract, as distinguished from an
aleatory contract, because a thing of value is exchanged for equal
value, i.e., ideally the value of the subject matter is equivalent
to the price paid. Nevertheless, there is no requirement that the
price be equal to the exact value of the subject matter; all that is
required is for the seller to believe that what was received was of
the commutative value of what he gave.58
Again Gaite held that a sale is normally commutative
and onerous: not only does each one of the parties assume a
correlative obligation (the seller to deliver and transfer ownership
of the thing sold, and the buyer to pay the price), but each party
anticipates performance by the other from the very start.59 Gaite
recognized that although in a sale the obligation of one party
can be lawfully subordinated to an uncertain event, so that the
other understands that he assumes the risk of receiving nothing
for what he gives (as in the case of a sale of hope or expectancy,
emptio spei), it is not in the usual course of business to do so;
hence, the contingent character of the obligation must clearly
appear.60
Gaite therefore acknowledged that obligations in a sale can
be subordinated to a suspensive condition with the party fully
aware that he assumes the risk of receiving nothing for what
he gives, although such stipulation may seem to be contrary
to the commutative nature of a sale. This conrms the view that
although commutativeness is an essential characteristic of a
sale, the test for compliance therewith is not objective but rather
subjective; i.e., so long as the party believes in all honesty that he
is receiving good value for what he transferred, then it complies
51
57
Ibid, at p. 838.
Buenaventura v. Court of Appeals, 416 SCRA 263 (2003).
59
2 SCRA 831, 837 (1961).
60
Ibid.
58
NATURE OF SALE
13
Arts. 1355 and 1470, Civil Code; Ereeta v. Bezore, 54 SCRA 13 (1973).
14
LAW ON SALES
NATURE OF SALE
15
16
LAW ON SALES
70
74
Romero v. Court of Appeals, 250 SCRA 223 (1995); Lao v. Court of Appeals,
275 SCRA 237 (1997); Cavite Dev. Bank v. Spouses Cyrus Lim, 324 SCRA 346 (2000);
Santos v. Court of Appeals, 337 SCRA 67 (2000).
75
Santos v. Court of Appeals, 337 SCRA 67 (2000).
76
Lao v. Court of Appeals, 275 SCRA 237 (1997).
NATURE OF SALE
17
77
18
LAW ON SALES
NATURE OF SALE
19
20
LAW ON SALES
Article 1468 of the Civil Code provides for the following rules
in cases of dispute whether the contract is a sale or a barter,
especially when the consideration agreed upon is partly in money
and partly in another thing:
(a) Manifest Intention of the Parties Even if the
acquisition of a thing is paid for by another
object of greater value than the money component, it may still be a sale and not a barter,
when such was the intention of the parties;
(b) When Intention Does Not Appear and
Consideration Consists Partly in Money and
Partly in Another Thing:
(i) It is a barter, where the value of the
thing given as part of the consideration
exceeds the amount of money given or
its equivalent;
(ii) It is a sale, where the value of the thing
given as part of the consideration equals
or is less than the amount of money
given.
86
87
NATURE OF SALE
21
22
LAW ON SALES
price it received from bailing the hemp that it sold to its customers.
The seller contended that the charge for bailing is to be treated
not as part of the sale but as a charge for the service of bailing
the hemp.
Inchausti & Co. held that the distinction between a sale and
a contract for work, labor, and materials is tested by the inquiry of
whether the thing transferred is one not in existence and which
never would have existed but for the order of the party desiring
to acquire it, or a thing which would have existed and been the
subject of sale to some other person, even if the order had not
been given. In that case, the Court held that the hemp was in
existence in baled form before the agreements of sale were
made, or, at least, would have been in existence even if none
of the individual sales in question had been consummated; and
that it would have been baled, nevertheless, for sale to someone
else, since it was proven customary to sell hemp in bales.
Subsequently, Article 1467 of the Civil Code gave the
statutory rules in distinguishing a sale from a contract for a pieceof-work, employing language similar to the Inchausti & Co. ruling,
thus:
ART. 1467. A contract for the delivery at a certain
price of an article which the vendor in the ordinary
course of his business manufactures or procures for
the general market whether the same is on hand at the
time or not, is a contract of sale, but if the goods are to
be manufactured specially for the customer and upon
his special order, and not for the general market, it is a
contract for a piece of work. (n)
NATURE OF SALE
23
24
LAW ON SALES
101
100
102
Ibid, at p. 846.
159 SCRA 199 (1988).
NATURE OF SALE
25
26
LAW ON SALES
104
106
Ibid, at p. 598.
NATURE OF SALE
27
28
LAW ON SALES
Reiterated in Engineering & Machinery Corp. v. Court of Appeals, 252 SCRA 156
(1996).
108
109
110
111
Ibid, at p. 165.
Dio v. Court of Appeals, 359 SCRA 91 (2001).
NATURE OF SALE
29
30
LAW ON SALES
112
116
Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
Art. 1891, Civil Code.
118
38 Phil. 501 (1918).
117
NATURE OF SALE
31
Ibid, at p. 505.
Ibid, at p. 506.
121
72 Phil. 402 (1941).
120
32
LAW ON SALES
recover the same under the premise that being only its agent,
any benet or prot received from the transaction must inure to
Arco, as the principal.122
In construing that the underlying contract between Arco and
Puyat was not an agency to buy, but rather a sale, the Court
looked into the provisions of their contract, and found that the
letters between the parties clearly stipulated for xed prices on
the equipment ordered, which admitted no other interpretation
than that the respondent agreed to purchase from the petitioner
the equipment in question at the prices indicated which are xed
and determinate.123 The Court held that whatever unforeseen
events might have taken place unfavorable to the defendant
(petitioner), such as change in prices, mistake in their quotation,
loss of the goods not covered by insurance or failure of the Starr
Piano Company to properly ll the orders as per specications,
the plaintiff (respondent) might still legally hold the defendant
(petitioner) to the prices xed.124
The Court held that such stipulation is incompatible with
the pretended relation of agency between the petitioner and the
respondent, because in agency, the agent is exempted from all
liability in the discharge of his commission provided he acts in
accordance with the instructions received from his principal.125
Although under their agreement, Gonzalo Puyat & Sons was
entitled to receive 10% commission, the same did not necessarily
make it an agent, as the provision is only an additional price
which Arco bound itself to pay, and which stipulation was not
incompatible with the contract of purchase and sale.
Being a contract of sale and purchase, the Court also
did not sustain the allegation of fraud by Gonzalo Puyat &
Sons against Arco. Firstly, it held that the contract is the law
between the parties and should include all the things they are
122
Art. 1891 of the Civil Code provides: . . . Every agent is bound to render an
account of his transactions and to deliver to the principal whatever he may have received
by virtue of the agency, even though it may not be owing to the principal. Every stipulation
exempting the agent from the obligation to render an account shall be void.
123
72 Phil. 402, 407 (1941).
124
Ibid.
125
Ibid.
NATURE OF SALE
33
34
LAW ON SALES
126
Ibid, at p. 406.
Ibid, at p. 409.
128
38 SCRA 524 (1971).
129
Ibid, at p. 525.
127
130
131
Ibid, at p. 530.
333 SCRA 663, (2000).
NATURE OF SALE
35
36
LAW ON SALES
NATURE OF SALE
37
38
LAW ON SALES
142
148
NATURE OF SALE
39
40
LAW ON SALES
CHAPTER 2
PARTIES OF SALE
Discussions on the capacities of the parties to a sale tackle
the essential element of consent in contracts of sale. But unlike
discussions of consent as a meeting of minds that brings about
the perfection of a sale, the chapter focuses on the integrity or
quality of the consent of the parties to a sale, and thereby leads
into discussions on vitiation of consent, and the absolute and
relative incapacities of the parties to enter into a contract of sale.
153
40
PARTIES OF A SALE
41
42
LAW ON SALES
price therefore,15 and the resulting sale is valid, and not merely
voidable.
Necessaries, are now dened by Article 194 of the Family
Code to cover everything indispensable for sustenance, dwelling,
clothing, medical attendance, education and transportation, in
keeping with the nancial capacity of the family ... [and education]
include[s] his schooling or training for some profession, trade or
vocation, even beyond the age of majority. Transportation shall
include expenses in going to and from school, or to and from
place of work. Since sales cover only the obligation to deliver
a thing, the sale of necessaries considered valid under Article
1489 can only cover sales pertaining to sustenance, dwelling,
and clothing, and perhaps medicine and educational books and
materials.
In order for the sale of necessaries to minors to be valid,
and not merely voidable, two elements need to be present: (a)
perfection of the sale; and (b) delivery of the subject necessaries.
If there is only perfection at the time the case reaches litigation,
the sale of course is not void, but voidable for vice in consent,
and the rules on voidable contracts apply.
1. Necessaries
A minor is without legal capacity to give consent to a sale,
and since consent is an essential requisite of every contract, the
absence thereof cannot give rise to a valid sale;14 nonetheless,
the defective consent gives rise to a voidable sale, meaning valid
until annulled.
The Title on Sales in the Civil Code specically provides
that although a minor is not capacitated to validly enter into a
sale, [w]here necessaries are sold and delivered to a minor or
other person without capacity to act, he must pay a reasonable
7
2. Emancipation
The rules on emancipation under Articles 234 to 236 of
the Family Code, have been rendered moot by Rep. Act No.
6809, which has lowered the age of majority to 18 years of age.
Consequently, the issue on the validity of sales entered into by
emancipated minors no longer exists.
Previously, under the Family Code, emancipation takes
place by the attainment of majority ... [which] commences at
the age of twenty-one years.16 In addition, it was provided that
emancipation also took place (1) By marriage of the minor; or (2)
By the voluntarily emancipation by recording in the Civil Register
of an agreement in a public instrument executed by the parent
exercising parental authority and the minor at least eighteen
15
16
PARTIES OF A SALE
43
44
LAW ON SALES
17
21
22
Ibid, at p. 380.
Ibid, at p. 380.
PARTIES OF A SALE
45
46
LAW ON SALES
ten years from the questioned transaction, bring an action for the
annulment of the contract on the entire property, and not just the
one-half portion that pertains to her share.
Under the present Family Code, common provisions apply
equally to both spouses, not only because the default rule is the
absolute community of property regime,26 but more so even
when the spouses chose under their marriage settlements to
be governed by the conjugal partnership of gains, the spouses
would still have joint administration of the conjugal properties.27
Under Article 73 of the Family Code, either spouse may
exercise any legitimate profession, occupation, business or
activity without the consent of the other; and the latter may
object only on valid, serious and moral grounds. In cases of
disagreements, the courts shall decide whether or not the
objection is proper, and make rulings on the benets, depending
on whether the benets had accrued to the family prior to the
objection or thereafter. The article also provides that if benets
accrued prior to the objection, the resulting obligation shall be
enforced against the separate property of the spouse who has
not obtained consent; otherwise, the same shall be chargeable
against the community property, without prejudice to the
creditors who acted in good faith.
Under the Law on Sales, therefore, it would seem that a
spouse may, without the consent of the other spouse, enter into
sale transactions in the regular or normal pursuit of his or her
profession, vocation or trade. Nevertheless, under Articles 96
and 124 of the Family Code, the administration and enjoyment
of the community property or the conjugal property, as the case
may be, shall belong to both spouses jointly; and in case of
disagreement, the husbands decision shall prevail, subject to the
wife seeking remedy from the courts, which must be availed of
within ve (5) years from the date of the contract. In addition, the
disposition or encumbrance of community property or conjugal
property, as the case may be, shall be void without authority of
the court or the written consent of the other spouse. In such a
23
26
27
PARTIES OF A SALE
47
48
LAW ON SALES
(1961).
32
28
PARTIES OF A SALE
49
50
LAW ON SALES
PARTIES OF A SALE
51
52
LAW ON SALES
approach to the relationship, rather than of two lovers falling headover-heels for one another. Whereas, the conjugal partnership of
gains or the absolute community of property regime exemplies
spouses wishing to share most if not all with one another
conrming their romantic fervor. On the other hand, in a situation
where spouses who before or at the time they say their I dos
would be so cold-hearted and unromantic to pause and stipulate
complete separation of property, or who during marriage would
be cold-blooded as to agree and seek court separation of their
properties, clearly indicates that it would be unlikely that one
spouse would allow the other spouse to inuence him or her; or
would allow his or her properties to be involved in a suit covering
the creditors of the other spouse. After all, if a spouse takes time
and effort to insulate his or her properties from the other spouse,
why would he or she later on involve himself or herself in the
fraudulent manipulations of the other spouse, and consequently
open himself or herself (as well as his or her separate properties)
to suits by creditors for fraud and recovery of damages?
But even the foregoing explanation does not adequately
cover a situation where a dominant spouse would insist upon
the complete separation of property regime, either at the time of
the execution of the marriage settlements, or by judicial action
during marriage, precisely to venture upon a future course of
defraudation or being in a position to defraud either his weaker
spouse or his separate creditors. In the end, the absolute
prohibition under Article 133, now Article 87 of the Family Code,
on donations between spouses, should also be made to apply to
sales between spouses, irrespective of their property regime.
3. Applicability of Incapacity to Common Law Spouses
In Matabuena v. Cervantes,38 the Court was asked to decide
the issue of whether the ban in Article 133 of the Civil Code on
a donation between the spouses during a marriage applies to a
common-law relationship. In that case, the sister of the deceased
common-law husband, sought to annul the previous donation by
the deceased during his lifetime to his then common law spouse,
38
PARTIES OF A SALE
53
54
LAW ON SALES
39
42
40
43
Ibid, at p. 680.
281 SCRA 491 (1997).
44
Ibid, at p. 495.
PARTIES OF A SALE
55
56
LAW ON SALES
47
PARTIES OF A SALE
57
58
LAW ON SALES
Supra, at p. 133.
Supra, at pp. 133-134.
54
Supra, at p. 135.
55
Supra, at pp. 130-131.
53
56
PARTIES OF A SALE
59
to the same subject matter and the same price, or it would require
in addition the payment of a new price or consideration as part
of the new meeting of the minds when the inhibition no longer
prevails. These are issues yet to be addressed by the Court.
b. Proper Party to Raise Issue of Nullity
Rubias quoted Tolentino in discussing who would be the
proper parties who could raise the nullity of contracts entered into
in violation of Article 1491, stating that [A]ny person may invoke
the inexistence of the contract whenever juridical effects found
thereon are asserted against him,57 and that If the contract
has already been fullled, an action is necessary to declare its
inexistence since nobody can take the law into his own hands
and thus the intervention of the competent court is necessary
to declare the absolute nullity of the contract and to decree the
restitution of what has been given under it. If the contract is still
fully executory, no party need bring an action to declare its nullity;
but if any party should bring an action to enforce it, the other
party can simply set up the nullity as defense.58
60
LAW ON SALES
PARTIES OF A SALE
61
60 Phil. 13 (1934).
60 Phil. 13 (1934).
62
LAW ON SALES
PARTIES OF A SALE
63
64
LAW ON SALES
67
72
68
73
35 Phil. 81 (1916).
114 SCRA 77 (1982).
69
Ibid, at p. 92, citing The Director of Lands v. Ababa, 88 SCRA 513, 519 (1979).
See also Rosario Vda. de Laig v. Court of Appeals, 86 SCRA 641, 646 (1978).
70
196 SCRA 302 (1991).
71
Ibid, at p. 307, citing In re Attorney Melchor Ruste, 40 O.G. p. 78; Beltran v.
Fernandez, 70 Phil. 248 (1940).
PARTIES OF A SALE
65
66
LAW ON SALES
79
83
PARTIES OF A SALE
67
68
LAW ON SALES
to-toe who are both handicapped, so that one cannot rightly say
that the other occupies a superior or advantageous position as to
the other: the client is disadvantaged by the fact that he must rely
on the lawyer for the legal assessment of the case and the legal
battle that must be fought; and the lawyer, by the fact that he is
actually taking a risk since by the contingent fee arrangement
he really would get nothing for all his efforts and trouble, by the
loss of the case. It may be a case of two handicapped persons
venturing together into the unknown, or at least the uncertain.
Also the Court is faced with a public policy issue of allowing
pauper litigants to be ably represented before the courts for
their just claims. Without a contingency fee arrangement, even
one that grants to the lawyer a proprietary claim on the subject
matter of litigation, many otherwise meritorious causes of action
would never nd competent legal representation. As Ababa held:
Contracts of this nature are permitted because they redound to
the benet of the poor client and the lawyer especially in cases
where the client has meritorious cause of action, but no means
with which to pay for legal services unless he can, with the
sanction of law, make a contract for a contingent fee to be paid
out of the proceeds of the litigation.86 But even that reasoning
only supports a contingency fee arrangement in general, and
does not justify a particular contingency fee arrangement that
directly grants to the lawyer proprietary interests in the property
subject of litigation. Indeed, the same public policy can still be
achieved by allowing contingency fee arrangement that allows
the lawyer a percentage of the value of the property in litigation,
which is essentially still a monetary claim with the property
subject of litigation not being sold or assigned to the lawyer, but
as a measure to determine the value of the attorneys fee.
In addition, the Court deems itself solicitous when it comes
to contingency fee arrangement, since lawyers are ofcers of the
courts, whose actuations are always subject to court supervision,
and that contingency fee arrangement are not just contracts, and
are always subject to the courts discretionary review to ensure
that clients are protected from over-bearing lawyers. As held
86
Supra, at p. 525.
PARTIES OF A SALE
69
87
88
Supra, at p. 37.
Supra, at p. 525.
70
LAW ON SALES
CHAPTER 3
SUBJECT MATTER
REQUISITES OF VALID SUBJECT MATTER
A valid contract of sale would result from the meeting of the
minds of the parties on a subject matter that has at the time of
perfection the following requisites:
(a) It must be existing,1 having potential existence,2 a future thing,3 or even contingent4
or subject to a resolutory condition;5 in other
words, it must be a POSSIBLE THING;
(b) It must be LICIT;6 and
(c) It must be DETERMINATE
DETERMINABLE.7
or
at
least
70
SUBJECT MATTER
71
72
LAW ON SALES
SUBJECT MATTER
73
74
LAW ON SALES
SUBJECT MATTER
75
76
LAW ON SALES
SUBJECT MATTER
77
they have received. This default rule will thus preserve the
commutative nature of sale.
In determining how restitution could best be achieved between the parties, Article 1187 provides that The effect of a conditional obligation to give, once the condition has been fullled,
shall retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal prestations
upon the parties, the fruits and interest during the pendency of the
condition shall be deemed to have been mutually compensated.
The ruling in Gaite v. Fonacier,13 should also be considered
where it held that a contract of sale being an onerous and
commutative contract, that the rules of interpretation would incline
the scales in favor of the greatest reciprocity of interests, and
unless the stipulation is clear, a clause should be interpreted as
a term rather than as a condition.
Subjecting the object of sale (i.e., the obligation of the
seller to deliver) to either a suspensive or a resolutory condition
does not undermine the commutative nature of a contract of
sale, essentially because the existence of such a condition has
tempered the amount of the consideration or price that could be
demanded from the buyer. In other words, under a free-market
system, sellers and buyers dealing at arms length have their
own methods to properly price things, including an object of sale
subject to a condition.
d. Subject Matter Is Nexus of Sale
From the foregoing discussions it can be deduced that
whether the contract of sale involves a present object (such as
a hope or expectancy in emptio spei) or a future thing subject to
a suspensive condition (emptio rei speratae), or a present object
subject to a resolutory condition, the subject matter must be
existing or must come to existence to be delivered to the buyer;
otherwise, the contract of sale is void, or an existing contract of
sale is extinguished, with the obligation on the part of the seller
to return the price he has received thereby.
13
78
LAW ON SALES
SUBJECT MATTER
79
80
LAW ON SALES
Ibid.
406 SCRA 55 (2003).
35
Siacor v. Gigantana, 380 SCRA 306 (2002).
36
Art. 1460, Civil Code.
34
SUBJECT MATTER
81
82
LAW ON SALES
SUBJECT MATTER
83
84
LAW ON SALES
parties. The defect in the nal deed would not work to invalidate
the contract where all the essential elements for its validity are
present and can be proven.
The doctrine that one sell or buys real property as he sees
it, in its actual setting and by its physical metes and bounds, and
not by the mere lot number assigned to it in the certicate of title,
has been reiterated in Londres v. Court of Appeals,42 and presents
a clear contemporary exception to the almost sacrosanct doctrine
under the Torrens system that the public can deal with registered
land exclusively on the basis of the title thereto.
d. When Quantity of Subject Matter Not
Essential for Perfection
The meeting of the minds on the identity, the nature and
quality, of the subject matter is essential for the purpose of
perfection of sale; it is what makes the subject matter determinate
or at least determinable. This is borne by the fact that when the
nature and quantity of the subject matter is agreed upon, the
subject matter, although essentially generic or fungible, has
complied with the characteristic of being determinable, since the
parties know more or less the exact nature of the object or objects
which will become the subject of performance without need of
further agreement. Such characteristic prevents the seller from
delivering something not within the contemplation of the buyer
and perhaps much inferior than the price agreed upon; and at the
same time, it prevents the buyer from demanding the delivery of
an object not contemplated by the seller, and perhaps superior
compared to the price agreed upon.
Logically, the actual quantity of goods as subject matter
of sale would also be essential in the meeting of the minds,
since quantity constitutes an essential ingredient to achieve the
requisite of the goods being determinate or determinable. If it
were otherwise, the ability to enforce the obligation of the seller to
deliver would be totally lacking. Without agreement as to quantity,
how much or how many of the described goods could be the object
42
SUBJECT MATTER
85
86
LAW ON SALES
43
45
Ibid, at p. 136.
227 SCRA 719 (1993).
SUBJECT MATTER
87
Ibid, at p. 722.
88
LAW ON SALES
SUBJECT MATTER
89
PARAS, CIVIL CODE OF THE PHILIPPINES ANNOTATED, Vol. IV (1994 ed.), at p. 375.
90
LAW ON SALES
SUBJECT MATTER
91
that such sale would not be set aside unless it is made to appear
that a larger sum could have been realized from a sale in parcels
or that a sale of less than the whole would have been sufcient
to satisfy the debt.
i. Sale of Mortgaged Property
Pineda v. Court of Appeals,54 afrmed the principle that a prior
mortgage of the property does not prevent the mortgagor from
selling the property, since a mortgage is merely encumbrance
on the property and does not extinguish the title of the debtor
who does not lose his principal attribute as owner to dispose of
the property. It also noted that the law even considers void a
stipulation forbidding the owner of the property from alienating
the mortgaged immovable.
4. Sellers Obligation to Transfer Ownership
Required at Time of Delivery
In general, a perfected contract of sale cannot be challenged
on the ground that seller had no ownership of the thing sold at the
time of perfection.55
Although the seller must be the owner of the thing in
order to transfer ownership to the buyer, he need not be the
owner thereof at the time of perfection; it is sufcient that he be
the owner at the time of the delivery;56 otherwise, he may be
held liable for breach of warranty against eviction. In fact, the
acquisition by the buyer of the subject matter of the sale may
even depend upon contingency and this would not affect the
validity of the sale.57
Article 1505 of the Civil Code provides that when goods are
sold by a person who is not the owner thereof, and who does
not sell them under authority or with the consent of the owner,
the buyer acquires no better title to the goods than the seller
92
LAW ON SALES
had, unless there is estoppel on the part of the owner;58 but this
pertains only to the consummation stage of the sale and does not
affect the validity of the contract itself.
Hilltop v. Villacorta,59 held that a contract of sale cannot be
declared null and void for failure of the seller to reveal the fact
that it was not the owner of the property sold.
Esguerra v. People,60 held that the sale of copra for future
delivery does not make the seller liable for estafa for failing
to deliver because the contract is still valid and the obligation
becomes civil and not criminal.
Mananzala v. Court of Appeals,61 recognized that the sale of
a lot by a seller who is yet to acquire full ownership thereof from
a government agency was still a valid sale since it involved the
sale of a future thing.
a. Conicting Rulings
Lately, however, in Nool v. Court of Appeals,62 the Court held
that sale by one who is not the owner of the subject matter is
void, and consequently, the right to repurchase attached to the
sale would also be void. The Court held that although a situation
(where the sellers were no longer owners) does not appear to be
one of the void contracts enumerated in Article 1409 of the Civil
Code, and under Article 1402 the Civil Code itself recognizes a
sale where the goods are to be acquired x x x by the seller after
the perfection of the contract of sale clearly implying that a sale
is possible even if the seller was not the owner at the time of sale,
provided he acquires title to the property later on, nevertheless
it held
In the present case however, it is likewise clear that
the sellers can no longer deliver the object of the sale
to the buyers, as the buyers themselves have already
54
58
55
59
SUBJECT MATTER
93
94
LAW ON SALES
64
65
(1916).
66
63
Ibid. at p. 150.
67
SUBJECT MATTER
95
96
LAW ON SALES
68
69
Ibid, at p. 696.
324 SCRA 346 (2000).
oOo
70
97
CHAPTER 4
98
LAW ON SALES
MEANING OF PRICE
By denition under Article 1458, the ideal consideration for
a contract of sale would be price as a sum certain in money or
its equivalent. However, it is possible that a sale may still be
valid when it has for its cause or consideration an item other than
price. Consider the Supreme Courts ruling in Torres v. Court
of Appeals,1 thus: Consideration, more properly denominated
as cause, can take different forms, such as the prestation or
promise of a thing or service by another. Therefore, it would be
valid for a sale of the subject matter to have as its consideration
the expectation of prots from the subdivision project as part of
the joint venture arrangement between the parties.2
In other words, the usual or dened consideration for a
sale is price, but that a contract of sale may still validly exist and
thereby be governed by the Law on Sales, when it is supported
by other valuable considerations. This is in line with the principal
doctrine reiterated by the Court in Polytechnic University of the
Philippines v. Court of Appeals,3 that the concept of contract of
sale under Article 1458 of the Civil Code is in effect, a catchall provision which effectively brings within its grasp a whole
gamut of transfers whereby ownership of a thing is ceded for a
consideration.
Ibid, at p. 607.
Inchausti & Co. v. Cromwell, 20 Phil. 345 (1911).
7
Government Service Insurance v. Court of Appeals, 228 SCRA 183 (1993).
8
Art. 1308, Civil Code.
9
Bortikey v. AFP Retirement and Separation Benets System, 477 SCRA 511
(2005).
10
Art. 1471, Civil Code.
11
Arts.1458 and 1468, Civil Code.
6
97
99
100
LAW ON SALES
101
102
LAW ON SALES
their registered land although they were told that they were
signing a donation for the eastern half of said property in favor of
the brother. Although the deed of sale stated a consideration of
5500.00, no such consideration was paid.
On the issue over the western part of the land which was
never intended to be conveyed by the spouses, the Court
differentiated between a contract that had no consideration from
one which merely contained a false consideration. It ruled that
according to Manresa, what is meant by a contract that states a
false consideration is one that has in effect a real consideration
but the same is not the one stated in the document. In Mapalo,
aside from the false consideration of 5500.00, there was no real
consideration as to the western half of the property; therefore, the
contract was one with no consideration and not one that merely
states a false consideration. It was void, and its inexistence
was permanent and incurable and could not be subject of
prescription.
Similar is the decision in Rongavilla v. Court of Appeals,29
where the Court held that when two aged ladies, not versed
in English, were made to sign a Deed of Absolute Sale on the
representation by the buyer that the document was merely to
evidence their lending of money, the situation constituted more
than just fraud and vitiation of consent to give rise to a voidable
contract, since there was in fact no intention to enter into a sale,
there was no consent at all, and there was no consideration or
price agreed upon, which made the contract void.
e. Effect of Non-Payment of Price
If the price is xed but is later on remitted or condoned,
this is perfectly all right, for then the price would not be ctitious.
The failure to pay the price does not cancel a sale for lack of
consideration, for there is still consideration. The failure to
pay a real price goes not into perfection of the sale but into its
consummation.30 The failure to pay the price or the balance
thereof does not render the sale inexistent or invalid, but merely
29
30
103
104
LAW ON SALES
31
105
106
LAW ON SALES
The ruling of the Court would mean that when the deed of
sale declares that the price has been paid, when in fact it has
never been paid, that would be considered a badge of simulation
and would render the contract void.
f. Accommodation Does Not Make Sale
Void for Lack of Price
Yu Bun Guan v. Ong,44 held that when the Deed of Sale was
executed merely to facilitate the transfer of the property to the
buyer pursuant to an agreement to enable the buyer to construct
a commercial building and to sell the property to the children, but
that in truth the agreement was a mere subterfuge on the part of
the buyer, the agreement cannot be taken as a consideration for
the sale which the Court held to be void.
The ruling in Yu Bun Guan is in stark contrast to the Courts
earlier decision in Mate v. Court of Appeals,45 which sustained the
validity of the arrangement even when fraud may have been the
intention of the party accommodated, more so when fraud has not
been considered an efcient cause to render a contract void, but
rather voidable by reason of vice in the consent of the party-victim.
In Mate, the Court held that where the registered owner
of land (Mate), in order to accommodate a relative (Josena)
who was threatened to be criminally sued by a creditor (Tan)
for issuance of bouncing checks, executed a Deed of Absolute
Sale with a right of repurchase in favor of said creditor, and for
which the registered owner received post-dated checks from the
kin to cover the amount necessary for him to repurchase the
property, plus interests income for the accommodation, the fact
that the checks bounced did not render the sale void for having
a ctitious consideration. The Court, quoting from the decision of
the respondent court, held
xxx
xxx
xxx
43
Ibid, at p. 256.
367 SCRA 559 (2001).
45
290 SCRA 463 (1998).
44
46
47
107
Early on, Perez & Co. v. Flores,48 held that a sale is null
and void and produces no effect whatsoever where the same is
without cause or consideration in that the purchase price which
appears thereon as paid has in fact never been paid by the
purchaser to the vendor.49 The essence of the ruling is that there
was never any real price agreed upon, and the failure to delivery
the price was one of the indications to show its simulation.
2. Price Must Be in Money or Its Equivalent:
Valuable Consideration
Article 1458 of the Civil Code, in dening the obligation of
the buyer, provides that he must pay the price certain in money
or its equivalent. It had been proposed, though not resolved, in
Bagnas v. Court of Appeals,50 that Article 1458 requires that
equivalent be something representative of money, e.g., a check
or draft, citing Manresa,51 to the effect that services are not the
equivalent of money insofar as said requirement is concerned
and that a contract is not a true sale where the price consists of
services or prestations.52
Nevertheless, even Article 1468 of the Civil Code recognizes
that if the consideration of the contract consists partly in money,
and partly in another thing, the transaction can still be considered
a contract of sale when this is the manifest intention of the parties.
This shows that the consideration for a valid contract of sale can
be the price and other additional consideration.
In Republic v. Phil. Resources Development,53 Apostol,
allegedly acting for the Philippine Resources Development Corp.
(PRDC), contracted with the Bureau of Prison for the purchase
of 100 tons of designated logs, but only a small payment of the
purchase price was made. In lieu of the balance of the purchase
price, he caused to be delivered goods of the PRDC to the
48
108
LAW ON SALES
Ibid, at p. 965.
109
110
LAW ON SALES
58
Article 1354 provides: Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the contrary.
59
Ibid, at p. 136.
60
176 SCRA 159 (1989).
111
112
LAW ON SALES
113
114
LAW ON SALES
115
116
LAW ON SALES
117
83
Reiterated in Limketkai Sons Milling, Inc. v. Court of Appeals, 255 SCRA 626
(1996); Uraca v. Court of Appeals, 278 SCRA 720 (1997); Co v. Court of Appeals, 286
SCRA 76 (1998).
84
146 SCRA 158 (1986).
85
336 SCRA 737 (2000).
118
LAW ON SALES
119
120
LAW ON SALES
121
91
122
LAW ON SALES
There are two important points that can be drawn from the
foregoing, thus:
(a) The doctrine is based on the principle of
unjust enrichment directed against the buyer
who is not allowed to retain the subject
matter of the sale without being liable to pay
the price even when no such agreement on
the price was previously made; and
(b) The doctrine applies even when there
is a no contract situation because of
no meeting of the minds as to the price,
although there was a meeting of the minds
as to the subject matter, and may also apply
to void sale contract situation where the
defect is as to the price.
The other important conclusion to be drawn from the
background material on Article 1474 is that it is actually meant to
cover all sale contract situations where there must have been at
least a meeting of the minds or an agreement to buy and sell the
94
TOLENTINO, CIVIL CODE OF THE PHILIPPINE (1959 ed.) Vol. V, at pp. 13-14, citing Standard
Coal Co. v. Stewart, 269 Pac. 1014; Caskey v. William, 227 Ky. 73, 11 S.W. (2nd) 991;
Ross-Meehan Foundaries v. Nashville Bridge Co., 149 Tenn. 693, 261 S.W. 674.
123
124
LAW ON SALES
125
126
LAW ON SALES
96
Ibid, at p. 328.
357 SCRA 209 (2001).
101
263 SCRA 15 (1996).
102
300 SCRA 722 (1998).
100
127
128
LAW ON SALES
Ibid, at p. 738.
291 SCRA 66 (1998).
129
INADEQUACY OF PRICE
130
LAW ON SALES
Ibid, at p. 379.
See also Ereeta v. Bezore, 54 SCRA 13 (1973).
110
Dorado Vda. De Deln v. Dollota, 542 SCRA 397 (2008).
111
40 O.G. Supp. 15, p. 203 (1940).
112
436 SCRA 141 (2004).
109
113
131
132
LAW ON SALES
3. Judicial Sale
Gross inadequacy of price may avoid judicial sale of real
property. The difference in ruling for judicial sale is because the
contract of sale is not the result of negotiations and bargaining; in
fact, the property of the supposed seller would be sold at public
auction without his intervention. In such a case, the courts must
be allowed to come in to protect the supposed seller from a bad
bargain that is really not of his own doing.
However, for a judicial sale to be set aside on the ground
of inadequacy of price, the inadequacy must be such as to be
shocking to the conscience of man.120 In addition, there must
be showing that, in the event of a resale, a better price can be
obtained.121 But even if the foregoing requisites are shown, a
judicial sale will not be set aside by the court when there is a
right of redemption, since the more inadequate the winning bid
at public sale, the more easily it is for the owner to redeem the
property.122 In this case, the proper remedy is not rescission, but
to exercise the right of redemption.
4. Sales with Right to Repurchase
In a conventional sale with a right to repurchase feature,
the gross inadequacy of price raises a presumption of equitable
mortgage.123 The proper remedy of the alleged seller, who is
actually an equitable mortgagor, is not to rescind the contract of
sale, but to have it reformed or declared a mortgage contract, and
to pay off the indebtedness which is secured. On the other hand,
the remedy of the alleged buyer would not be to appropriate the
subject matter as a buyer for that would be pactum commissorium,
but to foreclose on the quitable mortgage.124
120
Pascua v. Simeon, 161 SCRA 1 (1988). Reiterated in Cometa v. Court of
Appeals, 351 SCRA 294 (2001); Acabal v. Acabal, 454 SCRA 555 (2005).
121
Cu Bie v. Court of Appeals, 15 SCRA 307 (1965); Tayengco v. Court of Appeals,
15 SCRA 306 (1965).
122
De Leon v. Salvador, 36 SCRA 567 (1970); Vda. de Gordon v. Court of Appeals,
109 SCRA 388 (1981).
123
Art. 1602, Civil Code.
124
Briones-Vasquez v. Court of Appeals, 450 SCRA 644 (2005).
133
134
LAW ON SALES
of the capital gains tax liability should not be confused with the
consideration. Although illegal, the motives neither determine nor
take the place of the consideration.130
oOo
130
135
CHAPTER 5
FORMATION OF SALE
STAGES IN THE LIFE OF SALE
The phases that a contract of sale goes through have been
summarized by the Supreme Court to be as follows:
(a) POLICITACION, negotiation, preparation, conception or generation stage, which is the period of negotiation and bargaining, ending at
the moment of perfection;
(b) PERFECTION or birth of the contract, which is
the point in time when the parties come to
agree on the terms of the sale; and
(c) CONSUMMATION or death of the contract,
which is process of fulllment or performance
of the terms agreed upon in the contract.1
The negotiation stage covers the period from the time the
prospective contracting parties indicate interest in the contract
to the time the contract is concluded (perfected). The perfection
stage of the contract takes place upon the concurrence of the
essential elements thereof. ... The stage of consummation begins
when the parties perform their respective undertakings under the
contract culminating in the extinguishment thereof.2
POLICITACION STAGE
Policitacion or negotiation stage actually deals with legal
matters arising prior to the perfection of sale, dealing with the
1
Toyota Shaw, Inc. v. Court of Appeals, 244 SCRA 320 (1995); Limketkai Sons
Milling, Inc. v. Court of Appeals, 250 SCRA 523 (1995); Jovan Land, Inc. v. Court of
Appeals, 268 SCRA 160 (1997).
2
Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994).
135
136
LAW ON SALES
FORMATION OF SALE
137
Ibid, at p. 530.
Art. 1325, Civil Code.
11
Art. 1326, Civil Code.
10
138
LAW ON SALES
and binding sale. In other words, even without the general rule
provided under Article 1325, the situation would be exactly the
same, since such an advertisement (lacking at least one of
the three requisites) would always not constitute a valid offer.
Such view would make Article 1325 a surplusage, with no useful
purpose to serve.
The better view to the author is that even when the
advertisement contains a certain offer, it remains legally a mere
invitation so long as it is addressed to the public at large, and the
exception comes in whenever it expressly provides that the rst
absolute acceptance shall be binding, or when it is addressed to
a particular offeree.
2. Offers
An offer, prior to its acceptance, is subject to the complete
will of the offeror;12 it may be withdrawn or destroyed by the offeror
prior to its acceptance;13 and it is not even necessary that the
offeree learns of the withdrawal.14 If the offer is given for a period,
the expiration of the period without further act or its withdrawal
prior to acceptance would destroy the offer.15
The offeror has the right to attach to an offer any term or
condition he desires, and may x the time, place and manner
of acceptance;16 and the offeree has no authority to treat it as
consisting of separate and distinct parts, since he must accept
and comply with all the requirements provided in the offer.17 The
offeree has only the choice to accept or reject the offer in its
entirety; he has no choice to reject that portion of the offer which
is disadvantageous and accept only that which is benecial. Such
12
Art. 1320 of Civil Code provides that The person making the offer may x the
time, place and manner of acceptance, all of which must be complied with.
13
Art. 1323 of the Civil Code provides that the offer may be withdrawn at any time
before acceptance by communication such withdrawal. See also Manila Metal Container
Corp. v. PNB, 511 SCRA 444 (2006).
14
Laudico v. Arias, 43 Phil. 270 (1922).
15
Art. 1324, Civil Code; Beaumont v. Prieto, 41 Phil. 671 (1916); Villegas v. Court
of Appeals, 499 SCRA 276 (2006).
16
Art. 1321, Civil Code.
17
Ibid.
FORMATION OF SALE
139
140
LAW ON SALES
Logan v. Philippine Acetylene Co., 33 Phil. 173, 183 (1916); Manila Metal
Container Corp. v. PNB, 511 SCRA 444 (2006).
19
Art. 1319, Civil Code.
20
Art. 1323, Civil Code.
21
Emphasis supplied.
37 Phil. 982 (1918); see also Villamor v. Court of Appeals, 202 SCRA 607
(1991).
23
Also Laforteza v. Machuca, 333 SCRA 643 (2000); Buot v. Court of Appeals, 357
SCRA 846 (2001).
24
240 SCRA 565 (1995).
25
See also Abalos v. Macatangay, Jr., 439 SCRA 649 (2004).
FORMATION OF SALE
141
142
LAW ON SALES
FORMATION OF SALE
143
144
LAW ON SALES
37
38
Ibid.
See Montilla v. Court of Appeals, 161 SCRA 167, 173 (1988).
FORMATION OF SALE
145
146
LAW ON SALES
the other half with an express provision therein that the only
reason why the buyers earlier agreed to purchase the rst half
at that high price was because of the undertaking of the sellers
to sell the other half later also at the same price. When the deed
of option was sought to be exercised thirteen years later, it was
interposed by the sellers-offerors that the option was void for
lack of consideration separate and distinct from the purchase
price stipulated.
Villamor held that the consideration of the deed of option is
the why of the contracts, the essential reason which moves the
contracting parties to enter into the contract.46 It held that the
cause or the impelling reason on the part of the buyers-offerees
in executing the deed of option as appearing in the deed itself was
the sellers-offerors having agreed to buy the original half of the
land at 570.00 per square meter which was greatly higher than
the actual reasonable prevailing price,47 and that such cause or
consideration is clear from the deed itself. Note that the separate
consideration under the option was in fact an integral part of the
higher price they paid originally for the rst parcel of land bought,
which the Court considered to be ne, so long as it was not part
of the price to be paid for the other parcel of land.
39
Equatorial Realty Dev., Inc. v. Mayfair Theater, Inc., 264 SCRA 483 (1996);
Limson v. Court of Appeals, 375 SCRA 209 (2001).
40
239 SCRA 356 (1994).
41
246 SCRA 540 (1995).
42
See also Art. 1479, Civil Code; San Miguel Properties Philippines v. Huang, 336
SCRA 737 (2000).
43
San Miguel Properties Philippines v. Huang, 336 SCRA 737 (2000).
44
Salame v. Court of Appeals, 239 SCRA 356 (1995).
45
202 SCRA 607 (1991).
46
Ibid, at p. 615.
Ibid.
48
29 SCRA 1 (1969).
49
440 SCRA 190 (2004).
47
FORMATION OF SALE
147
148
LAW ON SALES
Sanchez also held that the burden of proof to show that the
option contract was supported by a separate consideration is with
the party seeking to show it. No reliance can be placed upon the
provisions of Article 1354 of the Civil Code which presumes the
existence of a consideration in every contract, since in the case
of an option contract, Article 1479 being the specic provision,
requires such separate consideration for an option to be valid.
The Sanchez doctrine expressly afrmed the earlier ruling
in Atkins, Kroll & Co., Inc. v. Cua,55 which treated an accepted
promise to sell, although not binding as a contract for lack of
separate consideration, nevertheless having capacity to generate
a bilateral contract of sale upon acceptance. It also conformed
with the earlier ruling in Beaumont v. Prieto,56 which held that
... there is in fact practically no difference between
a contract of option to purchase land and an offer or
promise to sell it. In both cases, the purchaser has the
right to decide whether he will buy the land, and that
right becomes a contract when it is exercised, or, what
amounts to the same thing, when use is made of the
option, or when the offer or promise to sell the property
is accepted in conformity with the terms and conditions
specied in such option, offer, or promise.57
Ibid, at p. 376.
102 Phil. 948 (1958).
56
41 Phil. 670 (1916).
57
Ibid, at p. 688.
58
97 Phil. 249 (1955).
59
15 SCRA 162 (1965).
55
50
FORMATION OF SALE
149
150
LAW ON SALES
60
65
FORMATION OF SALE
151
152
LAW ON SALES
leased premises under the option, and the lessee had intended
to purchase the leased premises, and having invested very
substantial amount to introduce improvements therein, then the
exercise of the option within a reasonable period after the end of
the lease, immediately after the lessee was informed of the denial
of the request for the extension of the lease, should be considered
still a valid exercise of the option that would give grounds for an
action for specic performance against the lessor to execute the
necessary sale contract in favor of the lessee. The delay of 18
days was considered neither substantial nor fundamental that
would defeat the intention of the parties when they executed the
lease contract with option to purchase. However, the purchase
price would have to be the fair market value of the property at the
time the option was exercised, with legal interests thereon.
In essence, Carceller sort-of recognized that notice within the
option period of clear intention to purchase the property pursuant
to such option, with request for leeway within which to be able to
raise the funds to close the deal is a valid or at least substantial
exercise of the option. In other words, the acceptance or exercise
of the option must still be made within the option period to give
rise to a valid and binding sale, and it is only then that the principle
of substantial compliance would have relevance.
Also signicant in Carceller was the ruling of the Court that
in a valid option contract, the refusal of the offeror to comply with
the demand by the offeree to comply with the exercise of his
option may be enforced by an action for specic performance
which seems contrary to the earlier ruling in Ang Yu Asuncion
discussed hereunder.
k. Effects of Exercise of Option
In Heirs of Luis Bacus v. Court of Appeals,72 the Court
held that once an option is exercised: The [o]bligations under
an option to buy are reciprocal obligations. The performance of
one obligation is conditional on the simultaneous fulllment of
the other obligation ... when private respondent opted to buy the
69
72
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153
Ibid, at p. 301.
357 SCRA 209 (2001).
75
Ibid, at p. 218.
76
238 SCRA 602 (1994).
74
154
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155
and binding sale; and that an acceptance within the option period
after the optioner shall have unlawfully withdrawn the offer would
not give rise to a sale. This rule is clear from Ang Yu Asuncion,
when it held that
The optionee has the right, but not the obligation, to
buy. Once the option is exercised timely, i.e., the offer
is accepted before a breach of the option, a bilateral
promise to sell and to buy ensures and both parties are
then reciprocally bound to comply with their respective
undertakings.
156
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conditional exercise of his option right even after the option period
and after the optioner-offeror-lessor had in fact given clear notice
of the withdrawal of the option; and even granted the remedy of
specic performance requested by the optionee to compel the
optioner to execute the covering Deed of Absolute Sale.
The Ang Yu Asuncion treatment of the option contract is also
not consistent with the doctrine it adopted for a lesser form of
option called the right of rst refusal. The author therefore dares
to predict that in the future the Supreme Court would adjust the
prevailing doctrine to conform to the essence of its rulings on
rights of rst refusal, discussed hereunder.
3. Rights of First Refusal
One of the early cases that covered the situation of a right
of rst refusal (i.e., a promise on the part of the owner that if he
decides to sell the property in the future, he would rst negotiate
its sale to the promissee), would be the case of Guerrero v.
Yigo,78 where the promise was part of the undertaking of the
mortgagor to the mortgagee, thus
79
96 Phil. 37 (1954).
Ibid, at p. 42.
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157
158
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159
property in the event the lessor should desire to sell the same,
such contractual stipulation which does not provide for a price
certain nor the terms of payment, actually grants a right for rst
refusal and is not an option clause or an option contract, thus
As early as 1916, in the case of Beaumont vs.
Prieto,85 unequivocal was our characterization of
an option contract as one necessarily involving the
choice granted to another for a distinct and separate
consideration as to whether or not to purchase a
determinate thing at pre-determined xed price. ...
There was, therefore, a meeting of minds on the part
of the one and the other, with regard to the stipulations
made in the said document. But it is not shown that there
was any cause or consideration for that agreement,
and this omission is a bar which precluded our holding
that the stipulations contained . . . is a contract of
option, for . . . there can be no contract without the
requisite, among others, of the cause for the obligation
to be established. . .
The rule so early established in this jurisdiction
is that the deed of option or the option clause in a
contract, in order to be valid and enforceable, must,
among other things, indicate the denite price at which
the person granting the option, is willing to sell. As
such, the requirement of a separate consideration for
the option, has no applicability.86
160
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In essence, the Equatorial Realty ruling pins the enforceability of a right of rst refusal on the obligatory force of the main
contract of lease to which it is attached to, and thereby conrms
the Ang Yu Asuncion doctrine that on its own, a right of rst refusal clause or contract cannot be the subject of an action for
specic performance because of lack of an agreement on the
price.
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161
162
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87
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163
to the lessee conrming that the latter has lost his right of rst
refusal.
The prevailing doctrine therefore is that a sale entered into
in violation of a right of rst refusal of another person found in a
valid principal contract is rescissible.92 The basis of the right of
rst refusal must be the current offer of the seller to sell or the
offer to purchase of a prospective buyer. Only after the lessee
grantee fails to exercise its rights under the same terms and
within the period contemplated can the owner validly offer to sell
the property to a third person, again under the same terms as
offered to the grantee.93
b. Various Rulings On Rights of First Refusal
Contained in Lease Agreement
(1) Rentals Deemed to Be Consideration to
Support Right
Lucrative Realty and Dev. Corp. v. Bernabe, Jr.,94 held that
[I]t is not correct to say that there is no consideration for the
grant of the right of rst refusal if such grant is embodied in the
same contract of lease. Since the stipulation forms part of the
entire lease contract, the consideration for the lease includes
the consideration for the grant of the right of rst refusal.95 The
reasoning of the Court is rather strange considering that by its
previous rulings, an enforceable right of rst refusal does not
need consideration for its validity and effectivity, since it is merely
a stipulation in a valid principal contract.
(2) Sublessee May Not Take Advantage of
Right of First Refusal of Sublessor
164
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165
166
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102
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167
168
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third party buyer bought the property from the optioner knowing
of the existence of the option in favor of the optionee, he would
be a proper party to the action for specic performance that the
optionee can bring against the optioner once he has exercised
his option. On the other hand, if the third party buyer bought the
property in good faith and for value, then he is protected by law,
and the remedy of the optionee (who has become the buyer in a
valid and binding sale) is to sue the optioner (who has become
the seller) for recovery of damages for breach of contract of sale,
rather than to sue for damages for breach of the option contract
as held in Ang Yu Asuncion.
In any event the ruling in Ang Yu Asuncion would suggest
that the best scheme for a prospective buyer to take if he
is interested in a specic property, but wants to maintain an
option to be able to get out of it later on, would be the earnest
money scheme, whereby a sale is perfect upon the granting of
the earnest money, with clear option on the part of the buyer to
withdraw from the contract by forfeiting the earnest money. This
arrangement is recognized in one case105 by the Supreme Court.
5. Mutual Promises to Buy and Sell
The promise to sell a determinate thing coupled with a
correlative promise to buy at a specied price is binding as an
executory agreement.106 Even in this case the certainty of the
price must also exist, otherwise, there is no valid and enforceable
contract to sell.107 Such an arrangement would be the true
contract to sell, which embodies the main obligation of the seller
to enter into a contract of sale upon full compliance with the
condition of the buyer fully paying the purchase price, wherein
the main obligation is a person obligation to do. Such contracts
to sell are really within the policitacion stage for they do not
represent a species of a sale dened under Article 1458 of the
Civil Code.
105
103
Ibid, at p. 255.
104
Ibid, at p. 256.
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169
170
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Supra, citing Art. 1459 and Atkins, Kroll and Co., Inc. v. Cua Hian Tek, 102 Phil.
948 (1958).
109
202 SCRA 607 (1991).
110
11 CAR 57 (1967).
111
263 SCRA 15 (1996).
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171
172
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173
174
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124
127
128
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175
required a much higher price than the original offer, and the buyer
negotiated on the matter but no nal agreement was reached, the
rst sale remained valid and binding and is not deemed novated
by the fact of negotiation thereafter done on the price.
In Uraca the sellers-lessors offered in writing to the
buyers-lessees the sale of the premises they were renting for
51,050,000.00, which offer was accepted unconditionally in
writing by the buyers. When sellers saw the buyers, the sellers
required a higher price of 51,400,000.00 in cash or managers
check and not the 51,050,000.00 as erroneously stated in their
letter-offer. After some haggling, the buyers agreed to the price of
51,400,000.00 but counter-proposed that it be paid in installments
with a down payment of 51,000,000.00, and the balance of
5400,000.00 to be paid in 30 days. The seller did not accept
the counter-offer, and subsequently sold the property to another
party. The Court held that the original sale at 51,050,000.00
remained valid and binding and enforceable against the sellers
and the second-buyer. From the moment of acceptance of the
original offer of the sellers by the buyers, there arose a valid
and binding sale since undisputedly the contractual elements
of consent, object certain and cause occurred. The subsequent
bargaining for an increase price did not result into a novation
since there was no nal agreement nor was there a resulting new
contract: Since the parties failed to enter into a new contract
that could have extinguished their previously perfected contract
of sale, there can be novation of the latter.129
On the other hand, in Toyota Shaw, Inc. v. Court of
Appeals,130 the Court held that a document cannot constitute a
sale even when it provides for a downpayment since the provision
on the downpayment made no specic reference to a sale of
a vehicle. Deniteness as to the price is an essential element
of a binding agreement to sell personal property. The problem
with Toyota Shaw ruling is that, outside of Statute of Frauds
consideration, it considered that a contract of sale is only what is
embodied in the document, when the evidence showed that other
elements necessary to constitute a valid contract were agreed
129
130
Ibid, at p. 711.
244 SCRA 320 (1995).
176
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177
178
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136
132
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179
sale on his behalf or the seller, or knowingly to take any bid from
the seller or any person employed by him.141
The owner of the property sold at auction may provide the
terms under which the auction will proceed and the same are
binding upon all bidders, whether they knew of such conditions
or not.142
4. Earnest Money
a. Function of Earnest Money
Under Article 1482 of the Civil Code, whenever earnest
money is given in a sale, it shall be considered as part of the
price and as proof of the perfection of the contract. 143 The rule is
no more than a disputable presumption and prevails only in the
absence of contrary or rebuttal evidence.144
Also, the presumption is founded upon the fact that there must
rst be a valid sale. Thus, in San Miguel Properties Philippines
v. Huang,145 it was held that it is not the giving of earnest money,
but the proof of the concurrence of all the essential elements of
the sale which establishes the existence of a perfected sale.146
In Serrano v. Caguiat,147 it was held that the presumption under
Article 1482 does not apply when earnest money is given in a
contract to sell.
Villonco v. Bormaheco,148 held that even when the sale is
subject to a condition, the acceptance of the earnest money
would prove that the sale is conditionally consummated or partly
executed subject to the fulllment of the condition, the nonfulllment of which would be a negative resolutory condition.
On the other hand, in Philippine National Bank v. Court of
Appeals,149 the receipt of earnest money could not lead to the
141
Ibid.
Leoquinco v. Postal Savings Bank, 47 Phil. 772 (1925).
143
Escueta v. Lim, 512 SCRA 411 (2007).
144
Philippine National Bank v. Court of Appeals, 262 SCRA 464, 484 (1996).
145
336 SCRA 732 (2000).
146
Reiterated in Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).
147
517 SCRA 57 (2007).
148
65 SCRA 352 (1975).
149
262 SCRA 464 (1996).
142
180
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181
182
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FORMATION OF SALE
183
184
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FORM OF SALES
By way of introduction, it should be noted that the discussions
in this section point out that rules on forms, and of validity and
enforceability of contracts of sale, are strictly kept within the
contractual relationship of the seller and buyer pursuant to the
characteristic of relativity of every contract, and do not necessarily
apply to third parties whose rights may be affected adversely
by the terms of a sale. In addition, except for Statute of Frauds
which govern enforceability (i.e., performance), rules relating to
166
Ibid, at p. 140.
Dignos v. Court of Appeals, 158 SCRA 375 (1988).
168
276 SCRA 149 (1997).
167
164
165
Ibid, at p. 722.
261 SCRA 128 (1996).
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185
186
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187
188
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189
190
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performance of his duty and took for granted the solemn duties
appertaining to his ofce, contrary to the requirements under
Section 1 of Public Act No. 2103 which requires that the notary
public shall certify that the person acknowledging the instrument
or document is known to him and that he is the same person
who executed it, and acknowledged that the same is his free act
and deed. In this case, the notary public cannot acknowledge an
inexistent contract for want of the signatures of the contracting
parties.
In Gomez v. Court of Appeals,192 the Court upheld the
Contract to Sell, which explicitly provided for additional terms and
conditions upon which the lot awardees are bound: Although
unsigned, the Contract to Sell . . . constitutes the law between the
contracting parties. After all, under the law there exists a binding
contract between the parties whose minds have met on a certain
matter notwithstanding that they did not afx their signatures to
its written form.
On the other hand, in Lumbres v. Tablada, Jr.,193 the Court
held that substantial variance in the terms between the Contract
to Sell and the concomitant Deed of Absolute Sale, did not
void the transaction between the parties for it is truism that the
execution of the Deed of Absolute Sale effectively rendered the
previous Contract to Sell ineffective and cancelled, through the
process of novation.
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191
192
LAW ON SALES
ingly, does not even refer to any agreement for the sale of the
property.
In Oesmer v. Paraiso Dev. Corp.,205 it was held that when
the Contract to Sell was signed by the co-owners themselves as
witnesses, then the written authority mandated under Article 1874
was no longer required because their signature was equivalent to
the co-owner-principals selling the property directly and in their
own right.
3. STATUTE OF FRAUDS: WHEN FORM IS IMPORTANT FOR
ENFORCEABILITY
a. Nature and Purpose of Statute of Frauds
The Statute was introduced in the Philippines by Section
335 of Act No. 190 (Code of Civil Procedure) and subsequently
found in Section 21, Rule 123 of the old Rules of Court.206 It is
now contained in Article 1403(2) of the Civil Code. Torcuator v.
Bernabe,207 well described the Statute in the following manner:
The term Statute of Frauds is descriptive of the
statutes which require certain classes of contracts,
such as agreements for the sale of real property, to
be in writing, the purpose being to prevent fraud and
perjury in the enforcement of obligations depending
for their evidence on the unassisted memory of
witnesses by requiring certain enumerated contracts
and transactions to be evidenced by a writing signed
by the party to be charged. The written note or
memorandum, as contemplated by Article 1403 of
the Civil Code, should embody the essentials of the
contract.
200
205
FORMATION OF SALE
193
194
LAW ON SALES
d. Nature of Memorandum
Article 1403 of the Civil Code clearly states the nature of the
memorandum that would take the transaction out of the coverage
of the Statute of Frauds against proof by oral evidence: it must be
in writing and subscribed by the party charged. The party charged
of course would either be the seller or buyer against whom the
sale is sought to be enforced.
Berg v. Magdalena Estate, Inc.,215 held that the sufcient
memorandum may be contained in two or more documents. In
First Philippine International Bank v. Court of Appeals,216 it was
held that various correspondences when taken together would
constitute sufcient memorandum since they include the
names of the parties, the terms and conditions of the contract,
the price and a description of the property as the object of the
contract.217 In addition, Paredes v. Espino,218 held that for the
memorandum to take the sale transaction out of the coverage of
the Statute of Frauds, it must contain all the essential terms of
the contract of sale.
Yuvienco v. Dacuycuy,219 makes it clear that it is not enough
that the total price or consideration is mentioned in some
212
Ibid.
Barretto v. Manila Railroad Co., 46 Phil. 964 (1924); Limketkai Sons Milling, Inc.
v. Court of Appeals, 250 SCRA 523 (1995); Lacanilao v. Court of Appeals, 262 SCRA 486
(1996).
214
The Electronic Commerce Act, Republic Act 8792.
215
92 Phil. 110, 115 (1952).
216
252 SCRA 259 (1996).
217
Reiterated in City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).
218
22 SCRA 1000 (1968).
219
104 SCRA 668 (1981).
213
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195
196
LAW ON SALES
Ibid, at p. 680.
Ibid.
222
Ibid, at pp. 680-681.
223
313 SCRA 63 (1999).
224
255 SCRA 626 (1996).
221
Ibid, at p. 641.
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197
198
LAW ON SALES
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199
the parties themselves. The Court however held that in the event
that a third party disputes the ownership of the property, the person
against whom that claim is brought cannot present any proof of
such sale and hence has no means to enforce the contract. Thus,
the Statute of Frauds was precisely devised to protect the parties
in a sale of real property so that no such contract is enforceable
unless certain requisites, for purpose of proof, are met.237
200
LAW ON SALES
237
See also Diama v. Macalibo, 74 Phil. 70 (1942); Zaide v. Court of Appeals, 163
SCRA 713 (1988).
238
Ibid, at pp. 119-120.
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201
202
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FORMATION OF SALE
203
247
204
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FORMATION OF SALE
205
Sec. 7, ibid.
Sec. 7, ibid.
252
Sec. 12, ibid.
251
206
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207
208
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FORMATION OF SALE
209
210
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255
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211
212
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263
267
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213
214
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CHAPTER 6
PERFORMANCE OR
CONSUMMATION OF SALE
OBLIGATIONS OF SELLER
1. To Preserve the Subject Matter
Article 1163 of the Civil Code lays down a rule applicable
to obligations and contracts in general, that [E]very person
obliged to give a determinate thing is also obliged to take
care of it with the proper diligence of a good father of a family,
unless the law or the stipulation of the parties requires another
standard of care.
When a sale covers a specic or determinate object, upon
perfection and even prior to delivery, and although the seller still
owns the subject matter, he is already obliged to take care of
the subject matter with the diligence of a good father of a family;
otherwise, he becomes liable to the buyer for breach of such
obligation, as when the thing deteriorates or is lost through
sellers fault.
The ancillary obligation to preserve the subject matter of
the sale involves a personal obligation to do, rather than a real
obligation to give, and arises as a necessary legal assurance
to the buyer that the seller would be able to comply fully with the
main obligation to deliver the object of sale.
2. To Deliver the Subject Matter
271
Loyola v. Court of Appeals, 326 SCRA 285 (2000). See also Cruz v. Bancom
Finance Corp., 379 SCRA 490 (2002).
272
361 SCRA 139 (2001).
273
Fil-Estate Golf and Dev., Inc. v. Navarro, 526 SCRA 51 (2007).
274
Manila Banking Corp. v. Silverio, 466 SCRA 438 (2005).
Under Article 1495 of the Civil Code, the seller is bound: (a)
to transfer the ownership of, and (b) to deliver the thing, which
is the object of the sale to the buyer. Even in the denition of
sale under Article 1458, it covers the twin-obligations of the seller
214
215
216
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13 Phil. 26 (1909).
37 Phil. 631 (1918).
217
the title to and the possession of the property, and the other
acquires the right to and the possession of the same.5
Santos v. Santos,6 held that the critical factor in the different
modes of effecting delivery, which gives legal effect to the act is
the actual intention of the vendor to deliver, and its acceptance
by the vendee. Without that intention, there is no tradition.7 This
is quite an inelegant way to put forth the principle on tradition
based on two factors:
(a) Acceptance, although an obligation on the
part of the buyer, is not essential for delivery
by the seller to achieve its legal effects;
and
(b) An express intention on the matter by the
parties to a sale, at the point of delivery is
not essential for tradition to produce its legal
consequences.
The legal effects of the parties intention must be gauged at
the point of perfection by which the obligation to deliver the subject
matter is created: was there mutual intention and agreement to
transfer the ownership of the subject matter; if in the afrmative,
there is a valid sale; if in the negative, we have a simulated sale
which is void ab initio. Besides, the rule has always been that
tradition that is effected by reason of a valid sale would produce
its legal consequences, without the parties having to say so, or
particularly intend it at the point of delivery.8
The essence of the Equatorial Realty and Santos rulings is
that tradition produces its legal consequences from the fact that
delivery is effected pursuant to a valid sale. Consequently, in one
case,9 it was held that there is no transfer of ownership by the
5
218
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219
220
LAW ON SALES
the delivery of the subject matter of sale, if from the deed the
contrary does not appear or cannot clearly be inferred.16 In
several cases,17 the Court held that the notarized deed of sale
has two functions:
(a) It operates as a formal or symbolic delivery
of the property sold; and
(b) It authorizes the buyer to use the document
as proof of ownership.
Therefore, the general rule is that the execution of a public
instrument has the same legal effects as actual or physical
delivery, i.e., it transfers the ownership of the subject matter to
the buyer, and constitutes valid compliance by the seller of his
primary obligations under the sale.18
Of course, the foregoing rules apply only to a public instrument
that evidences a valid sale. Thus, Torcuator v. Bernabe,19 held
that a special power of attorney authorizing the agents to execute
a deed of sale over the property can by no means be interpreted
as delivery or conveyance of ownership over said property, thus:
Taken by itself, in fact, the special power of attorney can be
interpreted as tied up with any number of property arrangements,
such as a contract of lease or a joint venture.20
(1) Constructive Delivery Has the Same Legal Effect
as Actual or Physical Delivery
Municipality of Victorias v. Court of Appeals,21 held that the
legal effects and consequences of actual or physical delivery,
also apply equally to constructive delivery: Similarly, when the
sale is made through a public instrument, the execution thereof
16
Florendo v. Foz, 20 Phil. 388 (1911). Also Roman v. Grimalt, 6 Phil. 96 (1906),
citing Art. 1462 of the old Civil Code, which held that When the sale is made by means
of a public instrument the execution thereof shall be equivalent to the delivery of the thing
which is the object of the contract. (at p. 99).
17
Manuel R. Dulay Enterprises, Inc. v. Court of Appeals, 225 SCRA 678 (1993);
Power Commercial and Industrial Corp. v. Court of Appeals, 274 SCRA 597 (1997);
Garcia v. Court of Appeals, 312 SCRA 180 (1999).
18
Velarde v. Court of Appeals, 361 SCRA 56 (2001).
19
459 SCRA 439 (2005).
20
Ibid, at p. 451.
21
149 SCRA 31 (1987).
221
222
LAW ON SALES
(2006).
23
24
(1993).
25
27
223
224
LAW ON SALES
Ibid, at p. 406.
364 SCRA 523 (2001).
30
261 SCRA 128 (1996).
31
Ibid, at pp. 138-139.
32
200 SCRA 766 (1991).
33
Ibid, at p. 772.
29
34
225
Ibid, at p. 409.
274 SCRA 597 (1997).
39
Articles 1477 and 1495, Civil Code; Fidelity & Deposit Co. v. Wilson, 8 Phil. 51,
56-57 (1907); Tan Leonco v. Go Inqui, 8 Phil. 531 (1907); Kuenzle & Streiff v. Macke &
Chandler, 14 Phil. 610, 611-612 (1909).
38
226
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227
228
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43
47
48
Ibid, at p. 830.
Ibid, at p. 831.
229
230
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b. Symbolic Delivery
As to movables, constructive delivery may also be made
by the delivery of the keys of the place or depository where the
movable is stored or kept.51
Symbolic delivery must involve or cover the subject matter,
and cannot take a form relating to the payment of the purchase
price. Thus, Lorenzo Dev. Corp. v. Court of Appeals,52 held that
the issuance of an acknowledgment receipt of the partial payment
for the property bought cannot be taken to mean a transfer of
ownership thereof to the buyer because no constructive delivery
of the real property could have been effected by virtue thereof.
c. Constitutum Possessorium
This mode of constructive delivery takes effect when at the
time of the perfection of the sale, the seller held possession of
the subject matter in the concept of owner, and pursuant to the
contract, the seller continues to hold physical possession thereof
no longer in the concept of an owner, but as a lessee or any other
form of possession other than in the concept of owner.53
d. Traditio Brevi Manu
This mode of delivery is opposite that of constitutum
possessorium, where before the sale, the would-be buyer was
already in possession of the would-be subject matter of the
sale, say as a lessee, and pursuant to sale, he would now hold
possession in the concept of an owner.
Heirs of Pedro Escanlar v. Court of Appeals,54 illustrates
the application of traditio brevi manu. In that case, prior to
the sale, would-be buyers were in possession of the subject
property as lessees. Upon sale to them of the rights, interests
and participation as to the one-half () portion pro indiviso, they
remained in possession, not in the concept of lessees anymore
51
49
50
231
232
LAW ON SALES
233
transit, and if the seller fails to do so, the goods shall be deemed
to be at his risk during such transit.59
(1) F.A.S. Sales
Under such arrangement, the seller pays all charges and is
subject to risk until the goods are placed alongside the vessel.60
In other words, delivery of the goods alongside the vessel
completes the effect of tradition.
(2) F.O.B. Sales
In mercantile contracts of American origin, f.o.b. stands
for the words free on board, and under such arrangement
the seller shall bear all expenses until the goods are delivered,
depending on whether the goods are to be delivered f.o.b. at
the point of shipment or at the point of destination.61 Under an
f.o.b., shipping point arrangement, delivery of the goods to the
carrier is equivalent to delivery to the buyer, and at that point the
risk of loss pertains to the buyer.
Under an f.o.b., destination arrangement, only when the
vessel has arrived at the point of destination would there be
delivery to the buyer and prior to that point in time, the risk of loss
over the subject matter of the sale will be borne by the seller.
(3) C.I.F. Sales
The letters c.i.f. found in British contracts stand for costs,
insurance, and freight; they signify that the price xed covers
not only the costs of the goods, but the expense of freight and
insurance to be paid by the seller.62 Under that arrangement, the
amount quoted by the seller and agreed to by the buyer, covers
not only the cost of the merchandise (i.e., the price), but also the
cost of insurance and freight. There are two schools of thought
on the effect of delivery under c.i.f. sales.
59
234
LAW ON SALES
60
63
64
235
is equally strong that the duty of the seller is to have the goods
transported to their ultimate destination and that title to property
does not pass until the goods have reached their destination.65
Nevertheless, Behn, Meyer & Co. upheld the principle
that both of the terms c.i.f. and f.o.b. merely make rules of
presumption which yield to proof of contrary intention.66 The Court
then held that since in the instant case the c.i.f. arrangement
was accompanied with the word Manila which was the point of
destination, then this must be taken to mean that the contract
price, covering costs, insurance, and freight, signies that the
delivery was to be made at Manila.67
In Pacic Vegetable Oil Corp. v. Singzon,68 the Court held
that under an arrangement c.i.f. Pacic Coast (the point of
destination), the vendor is to pay not only the cost of the goods,
but also the freight and insurance expenses, and, as it was
judicially interpreted, this is taken to indicate that the delivery is
to be made at the port of destination.
Behn, Meyer & Co. and Pacic Vegetable agree with the
second school of thought that since c.i.f. includes both insurance
and freight expenses to be paid by the seller, ordinarily therefore,
in a c.i.f. arrangement, the risk of loss for the account of the buyer
arises only when the vessel arrives at the point of destination.
On the other hand General Foods v. NACOCO,69 upholds
the rst school of thought that [t]here is no question that under
an ordinary C.I.F. agreement, delivery to the buyer is complete
upon delivery of the goods to the carrier and tender of the
shipping and other documents required by the contract and the
insurance policy taken in the buyers behalf.70 General Foods
therefore holds that although it is the seller who may make the
arrangement for the insurance coverage and freightage of the
goods, he does this for the account and benet of the buyer, who
has agreed to pay for such amounts.
236
LAW ON SALES
65
71
Ibid, at p. 341.
237
238
LAW ON SALES
239
240
LAW ON SALES
76
79
80
241
242
LAW ON SALES
81
86
243
244
LAW ON SALES
91
94
95
245
246
LAW ON SALES
247
107
248
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249
250
LAW ON SALES
contract, the rules of lump sum sale shall prevail in the sale of
real property.
Balantakbo v. Court of Appeals,117 reiterated that the rule is
quite well-settled that what really denes a piece of land is not
the area calculated with more or less certainty mentioned in the
description but the boundaries therein laid down as enclosing the
land and indicating its limits: where the land is sold for a lump sum
and not so much per unit of measure or number, the boundaries
of the land stated in the contract determine the effects and scope
of the sale not the area thereof.118
In Esguerra v. Trinidad,119 the Court held
Under Article 1542, what is controlling is the entire
land included within the boundaries, regardless of
whether the real area should be greater or smaller than
that recited in the deed. This is particularly true since
the are of the land ... was described in the deed as
humigit kumulang, that is, more or less. A caveat is
in order, however, the use of more or less or similar
words in designating quantify covers only a reasonable
excess or deciency. A vendee of land sold in gross
or with the description more or less with reference
to its area does not thereby ipso facto take all risks of
quantity in the land. Numerical data are not of course
the sole gauge of unreasonableness of the excess
of deciency in area. Courts must consider a host of
other factors, in one case (Roble v. Arbas, 362 SCRA
69 [2001]), the Court found substantial discrepancy in
area due to contemporaneous circumstance. Citing
change in the physical nature of the property, it was
therein established that the excess area at the southern
portion was a product of reclamation, which explained
why the lands technical description in the deed of
sale indicated the seashore as its southern boundary,
hence the inclusion of the reclaimed area was declared
unreasonable. The increase by a fourth of a fraction
117
251
252
LAW ON SALES
DOUBLE SALES
1. Rules on Double Sales Must Be Considered
as Rules on Tradition 127
The various rules on double sales, including those provided
under Article 1544 of the Civil Code, are rules that pertain to the
consummation stage in the life of a sale; they cover the effects
and consequences of tradition in a particular situation where the
same seller has sold the same subject property to two or more
buyers who do not represent the same interests. Consequently,
the various rules on double sales usually can only operate under
the same premise that tradition, whether actual or constructive,
can be made operative, that is:
(a) The conicting sales are all valid and demandable sales, pursuant to which tradition
was or could be effected; and
(b) The seller who effected multiple sales
to various buyers over the same subject
matter actually had ownership to convey.128
124
125
Ibid, at p. 70.
378 SCRA 172 (2002).
253
254
LAW ON SALES
255
256
LAW ON SALES
that the second rule that grants preference to a buyer who rst
takes possession of the immovable in good faith, is consistent
with the essence of the principle that the sale, even when it is
valid and enforceable, is merely a title or the legal justication
to acquire ownership, but it is tradition that is the mode by which
ownership is transferred to a buyer. Consequently, outside the
applicability of the primary rule on registration, the buyer who rst
obtains possession of the subject matter in good faith is preferred
against another claiming buyer, under the inversely phrased
principle of Nemo dat quod non habet, that No man can receive
from his seller what the latter no longer has.
Finally, in the absence of rst inscription or rst possession,
both in good faith, Article 1544 reects in the third rule applicable
to double sales of immovable the principle of prius tempore,
potior jure, which means that the rst buyer, having the oldest
title in good faith, should be preferred.
3. Two Divergent Systems When It Comes to Land
Although registration of a sale occupies the highest preference for determining who owns land and other real estate, it has
assumed two divergent paths in Philippine jurisdiction, between
registered land (which is covered by the Torrens system) and
unregistered land (not covered by the Torrens system).
Registration under the Torrens system was previously governed by Act No. 496 (The Public Land Act), but now governed
by Pres. Decree No. 1529 (The Property Registration Decree).
Annotation or registration of transactions over unregistered land
was governed by Act No. 3344, but is now also provided for in
Pres. Decree No. 1529. The doctrinal difference between the two
sets of registration systems for real estate is quite stark.
a. The Case for Registered Land
Section 51 of Pres. Decree No. 1529 embodies the
registration in good faith as the operative act doctrine, thus
Sec. 51. Conveyance and other dealings by
registered owners. An owner of registered land may
257
258
LAW ON SALES
136
137
Ibid, at p. 50.
432 SCRA 544 (2004).
259
260
LAW ON SALES
140
261
262
LAW ON SALES
33, Rule 39 of the 1997 Rules of Civil Procedure providing that the
purchaser at public auction shall be substituted to and acquire
all the rights, title, interest and claim of the judgment obligor to
the property as of the time of the levy, overrides the provision of
Article 1544 when it involves unregistered land since under Act
No. 3344 registration of instruments affecting unregistered lands
is without prejudice to a third party with a better right.
In contrast, in Radiowealth Finance Co. v. Palileo,145 citing
Carumba, the Court noted that under the Torrens system, it is the
act of registration that operates to convey and affect registered
land, and that therefore a bona de purchaser of a registered
land at an execution sale (in spite of the merely stepping into
the shoes of the judgment debtor rule for public auctions done
pursuant to the Rules of Court) acquires a good title as against a
prior transferee, if such transfer was unrecorded, thus:
... There is no ambiguity regarding the application
of the law with respect to lands registered under the
Torrens System. Section 51 of Presidential Decree
No. 1529 (amending Section 50 of Act No. 496) clearly
provides that the act of registration is the operative
act to convey or affect registered lands insofar as
third person are concerned. Thus, a person dealing
with registered land is not required to go behind the
register to determine the condition of the property.
He is only charged with notice of the burdens on the
property which are noted on the face of the register or
certicate of title. Following this principle, this Court
has time and again held that a purchaser in good
faith of registered land (covered by a Torrens Title)
acquires a good title as against all the transferees
thereof whose right is not recorded in the registry of
deed at the time of sale.146
263
147
148
264
LAW ON SALES
265
266
LAW ON SALES
notice and binds third person who may subsequently deal with
the same property.152
In Naval, although the second buyer was able to register
the land under the Torrens system, the Court held that it cannot
detract from the fact that she acquired the land as unregistered
land, and her act of registration under the Torrens system cannot
cleanse her title of defect that it carried under the provisions of
Act No. 3344. The Court claried that the issue of good faith
or bad faith of the buyer under Article 1544 or that under the
Property Registration Decree is relevant only where the subject
of the sale is registered land and the purchaser is buying the
same from the registered owner of whose title to the land is
clean. In Naval, the second buyer did not buy the land from a
registered owner thereof, but in fact she was the one who had
the land subsequently registered, with constructive knowledge
of the previous sale which was deemed to have placed her in
bad faith.
The rulings in Dagupan Trading and Naval cover unusual
cases, constituting equitable exception to the basic tenets laid
down in Carumba and Radiowealth Finance. More importantly,
the rulings in Dagupan Trading and Naval are diametrically
opposed to the rulings in Naawan Community Rural Bank and
Abrigo discussed above.
Under a global set of rules pertaining to double sales, the
particular rules provided under Article 1544 take only third rung,
with registration under the Torrens system and the rule on public
auction sales under the Rules of Court, coming in rst and second,
respectively. If this were the case, what does the rst rule under
Article 1544 on rst to register in good faith still cover? This
is where things become truly confusing based on the conicting
decisions of the Court.
There is a line of decisions that says that the rst to register
in good faith rule in Article 1544 covers precisely the absolutely
rst rule of registration being the operative fact under the Torrens
152
See also Bautista v. Fule, 85 Phil. 391 (1950), cited in Naawayan Community
Rural Bank, Inc. v. Court of Appeals, 395 SCRA 43 (2003).
267
268
LAW ON SALES
269
sales was void for having forged the signature of the seller, the
provisions of Article 1544 were held to be inapplicable.156
We therefore look with rabid curiosity at the pronouncement
in Caram, Jr. v. Laureta,157 where in a double sales situation it held
that that the second contract of sale, having been registered in
bad faith, is null and void. Article 1410 of the Civil Code of the
Philippines provides that any action or defense for the declaration
of the inexistence of a contract does not prescribe. In effect,
Caram, Jr. considered the failure of the second buyer to comply
with the registration requirement under Article 1544 in good faith
to make his sale void, thus
The fact that the second contract is not considered
void under Article 1409 and that Article 1544 does not
declare void a deed of sale registered in bad faith does
not mean that said contract is not void. Article 1544
specically provides who shall be the owner in case
of a double sale (sic) of an immovable property. To
give full effect to this provision, the status of the two
contracts must be declared valid so that one vendee
may contract must be declared void to cut off all rights
which may arise from said contract. Otherwise, Article
1544 will be meaningless.158
270
LAW ON SALES
271
272
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162
Ibid, at p. 239.
69 SCRA 99 (1976).
164
280 SCRA 536 (1997).
165
263 SCRA 15 (1996).
163
166
Ibid, at p. 28.
San Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99 (2005).
168
300 SCRA 722 (1998).
167
273
169
Ibid, at p. 740.
Dischoso v. Roxas, 5 SCRA 781, 789-790 (1962).
171
Cruzado v. Bustos, 34 Phil. 17 (1916). Reiterated in Ong v. Olasiman, 485 SCRA
464 (2006); Solera v. Rodaje, 530 SCRA 432 (2007).
170
274
LAW ON SALES
275
276
LAW ON SALES
the respective dates of their purchases, but posits the main rule
prius tempore, potior jure, thus:
The governing principle here is prius tempore, potior
jure (rst in time, stronger in right). Knowledge gained
by the rst buyer of the second sale cannot defeat the
rst buyers rights except only as provided by the Civil
Code and that is where the second buyer rst registers
in good faith the second sale ahead of the rst. Such
knowledge of the rst buyer does not bar her from
availing of her rights under the law, among them, to
register rst her purchase as against the second buyer.
But in converso knowledge gained by the second buyer
of the rst sale defeats his rights even if he is rst to
register the second sale, since such knowledge taints
his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil
Code for the second buyer being able to displace the rst
buyer: that before the second buyer can obtain priority
over the rst, he must show that he acted in good faith
throughout (i.e., in ignorance of the rst sale and of the
rst buyers rights) from the time of acquisition until
the title is transferred to him by registration or failing
registration, by delivery of possession. The second
buyer must show continuing good faith and innocence
or lack of knowledge of the rst sale until his contract
ripens into full ownership through prior registration as
provided by law.175
277
278
LAW ON SALES
279
tering the deed. Thus, it has been held that in cases of double
sale[s] of immovables, what nds relevance and materiality is not
whether or not the second buyer was a buyer in good faith but
whether or not said second buyer registers such second sale in
good faith, that is, without knowledge of any defect, in the title of
the property sold.184
In Escueta v. Lim,185 it was held that by applying Article
1544, a second buyer of the property who may have had actual or
constructive knowledge of such defect in the sellers title cannot
be a registrant in good faith; such second buyer cannot defeat
the rst buyers title, and if title has been issued to the second
buyer, the rst buyer may seek reconveyance of the property
subject of the sale.
f. Peculiar Developments
The rather well-established Carbonell doctrine seems to be
undergoing indirect erosions by the obiter ruling in San Lorenzo
Dev. Corp. v. Court of Appeals,186 where the Court held that the
provisions of Article 1544 presented an actual race between the
two buyers in equal level, thus: When the thing sold twice is an
immovable, the one who acquires it and rst records it in the
Registry of Property, both made in good faith, shall be deemed
the owner. Verily, the act of registration must be coupled with
good faith that is, the registrant must have no knowledge of
the defect or lack of title of his vendor or must not have been
aware of facts which should have put him upon such inquiry and
investigation as might be necessary to acquaint him with the
defects in the title of his vendor.187 The Court thereby decreed
the annotation of lis pendens by the rst buyer as ineffective to
overcome the previous possession acquired in good faith by the
second buyer, because the annotation was done at the time when
rst buyer already knew of the second sale. Impliedly included in
the ruling is that the annotation of lis pendens by the rst buyer
280
LAW ON SALES
Gabriel v. Mabanta, 399 SCRA 573 (2003); Alfredo v. Borras, 404 SCRA 145
(2003).
189
184
Ibid, at p. 166.
185
512 SCRA 411 (2007).
186
449 SCRA 99 (2005).
187
Ibid, at pp. 115-116.
281
282
LAW ON SALES
The element of having paid in full as part of good faith determination has since been consistently reiterated in subsequent
Supreme Court rulings.197
192
Reiterated in Tsai v. Court Appeals, 366 SCRA 324 (2001); Aguirre v. Court of
Appeals, 421 SCRA 310 (2004); Raymundo v. Bondong, 526 SCRA 514 (2007); Tanglao
v. Parungao, 535 SCRA 123 (2007).
193
247 SCRA 336 (1995).
194
410 SCRA 484 (2003).
195
213 SCRA 563 (1992).
196
Ibid, at pp. 565-565, quoting from Co v. Court of Appeals, 196 SCRA 705 (1996).
Reiterated in Diaz-Duarte v. Ong, 298 SCRA 388 (1998); Millena v. Court of Appeals, 324
SCRA 126 (2000); Tanongon v. Samson, 382 SCRA 130 (2002); Universal Robina Sugar
Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Heirs of Aguilar-Reyes v.
Spouses Mijares, 410 SCRA 97 (2003); San Roque Realty and Dev. Corp. v. Republic,
532 SCRA 493 (2007).
197
Veloso v. Court of Appeals, 260 SCRA 593 (1996); Balatbat v. Court of Appeals,
261 SCRA 128 (1996); Mathay v. Court of Appeals, 295 SCRA 556 (1998); Diaz-Duarte
v. Ong, 298 SCRA 388 (1998); Tanongon v. Samson, 382 SCRA 130 (2002); Heirs of
Aguilar-Reyes v. Spouses Mijares, 410 SCRA 97 (2003); Portic v. Cristobal, 546 SCRA
577 (2005); Galvez v. Court of Appeals, 485 SCRA 346 (2006).
(1999).
295 SCRA 556 (1998). Also Modina v. Court of Appeals, 317 SCRA 696
283
284
LAW ON SALES
285
286
LAW ON SALES
209
287
288
LAW ON SALES
Ibid, at p. 321.
250 SCRA 523, 543 (1995).
220
517 SCRA 369 (2007).
221
Reiterated in Chua v. Soriano, 521 SCRA 68 (2007).
222
Cheng v. Genato, 300 SCRA 722 (1998). Also Ulep v. Court of Appeals, 472
SCRA 241 (2005).
223
Carbonell v. Court of Appeals, 69 SCRA 99 (1976); Balatbat v. Court of Appeals,
261 SCRA 128 (1996).
219
224
289
290
LAW ON SALES
Ibid, at p. 362. Also Tanglao v. Parungao, 535 SCRA 123, 131-132 (2007).
410 SCRA 484 (2003).
291
292
LAW ON SALES
In Balatbat v. Court of Appeals,240 the seller sold his proindiviso share in a registered land co-owned with his children.
Subsequently, the same entire lot was sold again by the same
seller and his children, represented by the Clerk of Court under
the Rules of Court, pursuant to a nal judgment. The Court held
that undoubtedly this was a case of double sales of immovable
property covered by Article 1544, and hence ownership shall
vests in the person acquiring it who in good faith rst recorded
it in the Registry of Property. The rst buyer had caused the
annotation of an adverse claim on the title of the subject property,
which is deemed sufcient compliance as mandated by law and
serves notice to the whole world, and is preferred to the notice of
lis pendens annotated by the second buyer subsequently.
In addition, Balatbat held that although the second buyer
was in possession of the subject property by virtue of the writ
of possession issued by the court, the writ was conditioned as
follows subject to the valid rights and interest of third persons
over the same portion thereof, other than vendor or any other
person or persons privy to or claiming any right to interest under
it.241 The Court held that [a]s between two purchasers, the one
who has registered the sale in his favor, has a preferred right
over the other who has not registered his title even if the latter is
in actual possession of the immovable property.242
239
Ibid, at p. 88.
261 SCRA 128 (1996).
241
Ibid, at p. 134.
242
Ibid, at p. 142.
240
293
294
LAW ON SALES
Ibid, at p. 118.
213 SCRA 415 (1992).
247
Ibid, at p. 119.
248
184 SCRA 584 (1990).
246
243
244
295
296
LAW ON SALES
249
254
Essentially lifted by Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of
Appeals, 448 SCRA 347 (2005).
255
300 SCRA 722 (1998).
256
Ibid, at p. 740.
297
had the rst perfected and valid sale over the same subject
matter with the same seller. The rationale of the rule is that if
none of the contending buyers have validly effected a transfer of
ownership in his favor through any of the modes of tradition, then
the rst buyer in point of time should be preferred because his
title (i.e., the legal basis upon which he can claim ownership over
the subject matter), was rst in time.
Under a global set of rules pertaining to double sales, the
principle of First in time, priority in right, occupies the cellar
position only when special rules do not apply, perhaps because it
is the least representative of the mode of tradition.
OBLIGATIONS OF BUYER
1. Pay the Price
Buyer is obliged to pay for the price at the time and place
stipulated in the contract.257 Mere sending of a letter by the
buyer expressing his intention to pay without the accompanying
payment is not considered a valid tender of payment.258 Unless
the parties have agreed to the payment of the price to any other
party, then its payment to be effective must be made to the seller
in accordance with Art. 1240 of the Civil Code which provides
that [P]ayment shall be made to the person in whose favor the
obligation has been constituted or his successor in interest, or
any person authorized to receive.259
Buyer is also obliged to pay interest for the period
between delivery of the subject matter and the payment
of the price when: (a) the same has been stipulated; (b)
should object delivered produce fruits or income; or (c)
in case the buyer is in default, from the time of judicial
or extrajudicial demand.260
298
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299
300
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270
301
CHAPTER 7
DOCUMENTS OF TITLE
DEFINITION AND FUNCTION
A document of title of goods includes any bill of lading,
dock warrant, quedan, or warehouse receipt or order for the
delivery of goods, or any other document used in the ordinary
course of business in the sale or transfer of goods, as proof of the
possession or control of the goods, or authorizing or purporting to
authorize the possessor of the document to transfer or receive,
either by endorsement or by delivery, goods represented by such
document.1
Documents of title therefore serve two (2) functions:
(a) As evidence of the possession or control of
the goods described therein; and
(b) As the medium of transferring title and possession over the goods described therein,
without having to effect actual delivery
thereof.
In an early case,2 the Supreme Court held that a warehouse
receipt represents the goods, but the entrusting of the receipt is
more than the mere delivery of the goods; it is a representation
that the one to whom the possession of the receipt has been so
entrusted has the title to the goods.
In another case,3 the Court held that the endorsement and
delivery of a negotiable quedan prior to the ling of the petition for
insolvency, operates as the transfer of possession and ownership
of the goods referred to therein, and had the effect of divorcing
the property covered from the estate of the insolvent.
1
302
LAW ON SALES
301
4
5
DOCUMENTS OF TITLE
303
304
LAW ON SALES
DOCUMENTS OF TITLE
305
306
LAW ON SALES
a. By Delivery Alone
A negotiable document of title may be negotiated by delivery
alone (without need of endorsement) in the following cases:
10
14
15
DOCUMENTS OF TITLE
307
Siy Cong Bieng v. Hongkong & Shanghai Bank, 56 Phil. 598 (1932).
308
LAW ON SALES
DOCUMENTS OF TITLE
309
310
LAW ON SALES
17
DOCUMENTS OF TITLE
311
312
LAW ON SALES
DOCUMENTS OF TITLE
313
In all situations where the owner had neither lost nor been
unlawfully deprived of the goods, the assignee-buyers title
to the goods is preferred even against the owner who can no
longer recover the goods. In such cases, the assignee-buyers
ownership to the goods is not derived from the assignor-seller, but
is granted directly under the aegis of Article 559 which states that
[t]he possession of the movable property acquired in good faith
is equivalent to title. In such situations, it does not even matter if
the assignor-seller had no ownership at all to the goods he sold
to the assignee-buyer since the latters title is not dependent on
the assignor-sellers title.
On the other hand, if the owner had lost the goods or been
unlawfully deprived thereof, the owner may recover against the
assignee-buyer, even when the latter is in good faith and bought
for value, because Article 559 expressly does not give to the
assignee-buyer any original title; and in such case the assigneebuyers title to the goods must be derived from that of the assignorsellers. If the assignor-seller had no title to the goods sold, the
assignee-buyer receives no title even if the goods are delivered
to him under the principle Nemo dat quod non habet.
2. When Goods Covered by Negotiable Document
In a situation where the goods are covered by a negotiable
document of title properly negotiated to the holder-buyer, the
premise would have to be that by issuing such negotiable
document the bailee has constituted himself as an agent to
possess the goods for the benet of the holder of the document as
his principal, then it becomes apparent that the same principles
under Article 559 of the Civil Code would have to apply.
If the owner had neither lost nor been unlawfully deprived
of the goods, then the holder-buyer acquires valid ownership of
such goods because his possession in good faith and for value,
which by itself would constitute as an original source of ownership
under Article 559, is clearly evidenced by his being a holder in
due course of the negotiable document of title.
On the other hand, if the owner had lost or been unlawfully
deprived of the goods, the owner may recover against the bailee,
314
LAW ON SALES
DOCUMENTS OF TITLE
315
the owner, the buyer requires no better title to the goods than the
seller had. Article 1505 provides for exception to the principle
of Nemo dat quod non habet that it provides, and the case of
goods covered by a negotiable instrument is not within any of the
exceptions.
Furthermore, Article 1506 provides that [w]here the seller
of goods has a voidable title thereto, but his title has not been
avoided, at the time of sale, the buyer acquires good title to
the goods, provided he buys them in good faith, for value, and
without notice of the sellers defect. The article does require that
the minimum requirements for the buyer to obtain valid title to
goods by reason of delivery is that at least the seller had voidable
title thereto, and the principle under said article cannot extend to
benet a buyer in good faith and for value who takes delivery of
the goods from a seller who had void title thereto.
Finally, the rules of warranties clearly provide that owner has
title to the goods as one of his warranties, and consequently
if it turns out that owner does not have title to the goods, then
it would constitute an actionable breach of warranties, and the
remedy of the buyer-holder is to run after the transferor of the
negotiable document of title.
316
LAW ON SALES
DOCUMENTS OF TITLE
317
faith for value would bind the owner and a negotiable document
of title is issued for them, such goods cannot thereafter, while
in possession of such bailee, be attached by garnishment or
otherwise or be levied under an execution unless the document
be rst surrendered to the bailee or its negotiation enjoined.24
The bailee shall in no case be compelled to deliver up the actual
possession of the goods until the document is surrendered to him
or impounded by the court.25
The special rules on goods covered by a negotiable document
of title show that in such case ownership and possession of the
document itself is equivalent to the holder having actual ownership
and possession of the goods covered thereby. The goods are
treated to be inseparable from the negotiable document of title
covering them, and vice-versa.
In such case, a creditor whose debtor is the owner of a
negotiable document of title shall be entitled to such aid from
courts of appropriate jurisdiction by injunction and otherwise in
attaching such document or in satisfying the claim by means
thereof as is allowed at law or in equity in regard to property
which cannot readily be attached or levied upon by ordinary legal
process.26
oOo
318
LAW ON SALES
CHAPTER 8
SALE BY A NON-OWNER OR BY
ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
Discussions on the legal effects of the sale by a seller who
(a) is not the owner of the subject matter sold, or (b) only has a
voidable title thereto, provide revealing angles in the way one looks
into the nature of the contract of sale, and the stages, as it were,
of its life. The discussions hereunder would also demonstrate the
rather loose manner by which the Supreme Court uses the terms
sale, sell, and sold in evolving doctrinal pronouncements on
the nature of sale itself, considering that sale is a progressive
contract, and like the metamorphosis that a larva undergoes, sale
has variant stages as it goes through its legal existence.
The author begs indulgence with the reference to sale as
though it were a person or a being. This is resorted to only for the
purpose of demonstrating more clearly the essence of its life.
24
1
Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994); Toyota Shaw, Inc. v.
Court of Appeals, 244 SCRA 320 (1995); Limketkai Sons Milling, Inc. v. Court of Appeals,
250 SCRA 523 (1995); Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160 (1997).
25
318
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
319
Ibid.
Art. 1191, Civil Code.
320
LAW ON SALES
4
Art. 1475 Civil Code. Also, Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160,
163-164 (1997); Quijada v. Court of Appeals, 299 SCRA 695 (1998); Co v. Court of
Appeals, 312 SCRA 528 (1999).
5
Balatbat v. Court of Appeals, 261 SCRA 128 (1996); Pealosa v. Santos, 363
SCRA 545 (2001); Soliva v. The Intestate Estate of Marcelo M. Villalba, 417 SCRA 277
(2003).
6
Navarro v. Sugar Producers Corp., 1 SCRA 12180 (1961); Leabres v. Court of
Appeals, 146 SCRA 158 (1986); Coronel v. Court of Appeals, 263 SCRA 15 (1996).
7
Art. 1461, Civil Code.
8
Art. 1465, Civil Code.
9
Arts. 1459 and 1475, Civil Code.
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
321
322
LAW ON SALES
only what one owns or is authorized to sell, and the buyer can
acquire no more than what the seller can transfer legally.13
In Mindanao Academy, Inc. v. Yap,14 a widow, without the
consent or authority of her co-owners-children, sold school
properties to buyer Yap, who obtained possession of the
properties by virtue of the sale, and took over the operations
of the school. Consequently, the other co-owners brought two
actions against buyer Yap: one for annulment of sale, and the
other for rescission. The two cases having been tried together,
the trial court ruled that the sale was null and void. On appeal, the
Court upheld the decision of the trial court, as follows:
The lower court did not rule categorically on the
question of rescission considering it unnecessary to do
so in view of its conclusion that the contract of sale
is null and void. This conclusion is premised on two
grounds: (a) the contract purported to sell properties of
which the sellers were not the only owners ...; and (b)
the prestation involved in the sale was indivisible, and
therefore incapable of partial annulment, inasmuch as
the buyer Yap, by his own admission, would not have
entered into the transaction except to acquire all of the
properties purchased by him.15
In afrming the nullity of the sale, by the fact that the seller
sold under the sale properties that she did not own solely, the
Court seemed to have reasoned improperly. Certainly, a seller
may validly sell (enter into a valid and binding sale) properties
which he entirely does not own at the time of perfection.
Such contract is valid, and an action to annul such contract
is improper; and it is his failure to comply with his obligation
to transfer ownership over the subject matter that would give
rise to an action for rescission with damages. But really much
depends on what the Court meant to cover by the term contract
of sale as being null and void.
13
Gonzales v. Heirs of Thomas and Paula Cruz, 314 SCRA 585, 597 (1999). Also
Segura v. Segura, 165 SCRA 368 (1988).
14
13 SCRA 190 (1965).
15
Ibid, at p. 194; emphasis supplied.
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
323
324
LAW ON SALES
16
19
20
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
325
326
LAW ON SALES
21
Ibid, at p. 149.
240 SCRA 78 (1995).
23
Ibid, at p. 88.
24
249 SCRA 331 (1995).
22
25
26
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
327
328
LAW ON SALES
(2005).
27
31
32
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
329
Ibid, at p. 602.
Lopez v. Cuaycong, 74 Phil. 601 (1944). Reiterated in Fernandez v. Fernandez,
363 SCRA 811 (2001); Acabal v. Acabal, 454 SCRA 555 (2005); Panganiban v. Oamil,
542 SCRA 166 (2008).
35
160 SCRA 738 (1988).
34
330
LAW ON SALES
The effects of the sale of the entire property by one of the coowners, without the consent of the other co-owners, as affecting
only the sellers pro-indiviso share, has been revisited lately in
Paulmitan v. Court of Appeals,37 which rightly found that the sale
by a co-owner of the entire property without the consent of the
other co-owners cannot be considered as null and void.38
Tomas Claudio Memorial College, Inc. v. Court of Appeals,39
held that when a co-owner sells the entire property, the sale is
valid as to his spiritual share since a co-owner is entitled to
sell his individual share and the proper action to take is not
the nullication of the sale, or for recovery of possession of the
property owned in common from the other co-owners, but for
division or partition of the entire property.40
The foregoing rulings seem to gloss over the commercial fact
that often the meeting of minds between the seller and the buyer
comes about by the commutative nature of the transaction, i.e.,
that the buyer was willing to pay a higher price, if he thought the
seller was obliging himself to sell the entire property or a denite
portion thereof. If it turns out that the seller had no capacity to do
so, because he is in fact merely a co-owner, then it may happen
more often than not that the sale is void under the provisions of
Article 1409(6) where the intention of the parties relative to the
principal object of the contract cannot be ascertained. Otherwise,
to compel the buyer to stick by the terms of the contract, would
lead to either or both of two things: (a) you compel the buyer to
accept a subject matter (i.e., spiritual share) to which he never
agreed to buy; and (b) to pay the agreed price for a subject matter
36
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
331
332
LAW ON SALES
41
42
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
333
334
LAW ON SALES
47
Ibid, at p. 578.
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
335
336
LAW ON SALES
49
51
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
337
338
LAW ON SALES
Limketkai Sons Milling, Inc. v. Court of Appeals, 250 SCRA 523 (1995).
Ibid, at p. 543.
54
Pres. Decree No. 1529.
53
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
339
340
LAW ON SALES
Ibid, at p. 358.
366 SCRA 324 (2001).
60
341 SCRA 572 (2000).
59
61
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
341
342
LAW ON SALES
who bought them in good faith and for value. In the resulting suit
over the books between EDCA and Santos, the Court held that
Santos did not have to establish his ownership over the books
since under Article 559 his possession of books acquired in good
faith is equivalent to title. In denying the contention of EDCA that
it had been unlawfully deprived of the books, the Court held
non-payment of the purchase price by the impostor, although
amounting to fraud, did not amount to unlawful deprivation under
Article 559, but merely may be considered vitiation of consent as
to make the contract voidable; but that so long as the contract has
not been annulled, it remained valid, and the subsequent sale
and delivery by the impostor of the books to Santos effectively
transferred ownership to Santos.
The implication of the Tagatac and EDCA Publishing rulings
is that Article 1506 represents an operative act which would
constitute a further exception to the provisions of Article 559,
which means that if the owner has been unlawfully deprived by
means of deceit pertaining to the non-payment of the purchase
price, but the one who takes the movable is able to sell and
deliver the movable to another person who takes it in good faith
and for value before the owner is able to rescind the earlier sale,
the buyer obtains good title and the original owner has no cause
of action to recover; and
What is gratifying from a reading of the foregoing three cases
is that the Court incisively distinguished between the perfection
stage and the consummation stage of the sale to arrive at a
proper resolution of the issues.
In Tagatac, the Court ruled that deceit or fraud, which do not
render the contract void but merely voidable (valid until annulled)
resulted into the existence of a sale, so that when delivery was
effected pursuant to such voidable contract, tradition effectively
and legally transferred ownership to the buyer, even though
he was a deceitful person. It also correctly ruled that the nonpayment of the price by the bouncing of the check went into the
performance of the contract and not to its perfection and therefore
non-payment could not reverse the coming into existence of the
sale by the meeting of minds of the parties.
SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE:
THE LIFE OF CONTRACT OF SALE
343
344
LAW ON SALES
CHAPTER 9
oOo
1
Art. 1263 of the New Civil Code provides that: In an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind does not extinguish
the obligation.
66
Ibid, at p. 618.
344
345
shall likewise be borne by the buyer, and he must still pay the price
agreed upon even when eventually the subject matter delivered
is no longer in the same condition. Under the same principle, any
improvement or fruits of the subject matter after perfection are for
the benet of the buyer.
On the other hand, under common law principles, it is the
owner who bears the risk of loss (res perit domino), in the absence
of any stipulation to the contrary. However, in a sale, ownership
of the subject matter is transferred to the buyer from the moment
the contract is entered into and the goods are available to be
delivered to the buyer. When it comes to goods, it is not delivery
under common law that transfers ownership to the buyer, but the
perfection of an unconditional sale with availability of the subject
matter for delivery.
Therefore, even when the legal principles were different, the
legal consequences from the point of perfection were the same
in both legal systems: upon perfection of an unconditional sale
involving specic or determinate subject matter, the risk of loss,
deterioration and the benets of fruits and improvements, were
for the account of the buyer.
In amending the provisions relating to the risk of loss, the
Code Commission decided to adopt the common law principle
that it should be the owner of the subject matter of the sale that
should bear the risk of loss (res perit domino); but they maintained
the civil law principle that ownership can only be transferred by
delivery. This legal fusion on principles have caused the current
confusion that prevails on the issue of risk of loss.
BEFORE PERFECTION
Before the perfection of a sale, the rules on loss, deterioration,
fruits and improvement of the purported subject matter are
the same: such loss, deterioration, fruits and improvements
shall pertain to the purported seller, since he owns the thing.
Notwithstanding the extent of the negotiations that have taken
place, prior to perfection, the purported subject matter bears no
legal or even equitable relationship to the purported buyer, and
346
LAW ON SALES
6 Phil. 96 (1906).
Ibid, at p. 98, citing Art. 1450 of the old Civil Code, now Art. 1475 of the New Civil
Code.
4
5
Ibid, at p. 99.
Ibid.
347
348
LAW ON SALES
holds that the contract never comes into existence. There can
be no sale without a thing to be sold. In such case, there is no
need of an action to annul the contract, because there can be no
annulment of something that does not exist.7 Paras also refers
to such a contract as being void when at the time of perfection,
the subject matter thereof is lost.8
Nevertheless, the provisions of Articles 1493 and 1494 of
the New Civil Code should be instructive of how to treat loss,
deterioration and benets after perfection: If the subject matter is
lost at the point of perfection, and the seller bears the loss and
the buyer is relieved of his obligations under the contract, then
the implication is that after perfection the buyer then bears the
risk of loss and deterioration even without prior delivery to him.
TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. V (1959 ed.), p. 37, citing 10 MANRESA 119.
PARAS, CIVIL CODE OF THE PHILIPPINES, Vol. V (1990 ed.), p. 89.
349
1477 of the New Civil Code. On the other hand, although the
Supreme Court has held that the general rule under Philippine
jurisdiction is that after perfection but before delivery, the risk of
loss is borne by the seller under the rule of res perit domino,9 the
statutory bases for such doctrine are not clear-cut and sometimes
conicting.
Firstly, the general principle of res perit domino is now
covered by Article 1504 of the New Civil Code, which provides
that [u]nless otherwise agreed, the goods remain at the sellers
risk until the ownership therein is transferred to the buyer, but
when the ownership therein is transferred to the buyer the goods
are at the buyers risk whether actual delivery of the goods has
been made or not. Unfortunately, Article 1504 is worded to cover
only goods.10
Secondly, Article 1480 of the New Civil Code (based on
Article 1452 of the old Civil Code), provides that [a]ny injury to or
benet from the thing sold, after the contract has been perfected,
from the moment of the perfection of the contract to the time
of delivery, shall be governed by Articles 1163 to 1165, and
1262. As applied to the sale, under cross-referred Article 1165,
it is provided that when what is to be delivered is a determinate
thing, the buyer, in addition to the right to recover damages,
may compel the seller to make the delivery. This shows that the
underlying obligation in a sale is a real obligation and therefore
may be subject to the remedy of specic performance. Under
cross-referred Article 1262, as applied to a sale, the obligation to
deliver a determinate thing shall be extinguished if it should be
lost or destroyed without the fault of the seller, and before he has
incurred in delay.
Thirdly, Article 1538 of the New Civil Code provides that [i]n
case of loss, deterioration or improvement of the thing before its
delivery, the rules in Article 1189 shall be observed, the vendor
9
Union Motor Corp v. Court of Appeals, 361 SCRA 506 (2001); Chrysler Philippines
v. Court of Appeals, 133 SCRA 567 (1984).
10
Under Article 1636(1) of the New Civil Code, goods include all chattels personal
but not things in action or money of legal tender in the Philippines, and includes growing
fruits or crops.
350
LAW ON SALES
12
351
352
LAW ON SALES
13
Ibid, at p. 58.
PADILLA, CIVIL CODE, pp. 840-841.
15
TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. IV (1991 ed.), p. 337.
16
Ibid, citing 3 COLLIN & CAPITANT 734, DE BUEN, 2 VON TUHR, OBLIGACIONES 110.
14
17
18
353
not obliged to pay the price because of the inability of the seller
to comply with his obligation. The net effect of course is that the
buyer ends up not the poorer, whereas, the sellers estate has
diminished by the value of the thing lost. Consequently, the risk
of loss would have been borne by the seller, and the provisions
of Articles 1480 and 1538 do not contradict the adopted principle
under the new Civil Code of res perit domino.
The position would then make Articles 1480 and 1538
consistent with the provisions of Articles 1504. Under Article
1504, unless otherwise agreed, the goods remain at the sellers
risk until the ownership therein is transferred to the buyer; but
when the ownership is transferred to the buyer the goods are at
the buyers risk whether actual delivery of the goods has been
made or not, except that:
(a) Where delivery of the goods has been
made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the
ownership in the goods has been retained
by the seller merely to secure performance
by the buyer of his obligations under the
contract, the goods are at the buyers risk
from the time of such delivery;
(b) Where actual delivery has been delayed
through the fault of either the buyer or seller
the goods are at the risk of the party in
fault.
Article 1504 is a new provision in the present Civil Code,
without a counter-part in the old Civil Code. Also, by its language,
the rules it establishes on the risk of loss pertain specically to
goods, and it applies the common law principle of res perit
domino. The term goods includes all chattels personal and
growing fruits or crops, but not things in action or money of legal
tender.19
19
354
LAW ON SALES
355
356
LAW ON SALES
provides that this rule shall apply to sale of fungible things, made
independently and for a single price, or without consideration
of their weight, number, or measure. Should fungible things be
sold for a price xed according to weight, number, or measure,
the risk shall not be imputed to the buyer until they have been
weighed, counted, or measured and delivered, unless the latter
has incurred in delay.
Under Article 1537, the seller is bound to deliver the thing
sold and its accessions and accessories in the condition in
which they were upon the perfection of the contract; all the fruits
shall pertain to the buyer from the day on which the contract is
perfected.
The only logical and reasonable conclusion one can derive
from the foregoing discussions is that the rule of res perit domino
provided in Article 1504 on goods, applies only to loss and
has no application to issues pertaining to deterioration or fruits
and improvements over the subject matter of the sale. This also
shows that because of the faulty grafting into the Philippine Law
of Sales of common law principle, the rules of risk of loss based
on res perit domino determined by delivery, are different from the
rules pertaining to deterioration, fruits and improvement based
on res perit domino under the common law rule determined by
the perfection of the contract, or the civil law rule based on the
perfection of contract. Again, note that both the common law rule
and the civil law rule had a common point of transfer of the risk of
loss and deterioration and the benets of fruits and improvement:
perfection of the sale; whereas, the hybrid rule on the risk of
loss under the present Civil Code happens not at the point of
perfection, but at the point of delivery.
AFTER DELIVERY
Under Article 1504, when ownership of the goods has been
transferred to the buyer, the goods shall be at the buyers risk.
One of the exceptions provided by the article is when the delivery
of the goods has been made to the buyer and the ownership
in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract,
357
although ownership is not yet with the buyer, the goods are still
at the buyers risk. The other exception provided is that if actual
delivery had been delayed through the fault of either the buyer or
seller, the goods are at the risk of the party at fault.
In Song Fo & Co. v. Oria,21 the Court held that after the delivery of the vessel by the seller to the buyer, and it was lost, the
buyer was still obliged to pay the balance of the purchase price.
In Lawyers Cooperative v. Tabora,22 the ownership of the
books purchased on installment were retained by the seller,
although they have already been delivered to the buyer, under
the condition that ownership thereof will be transferred to the
buyer upon his full payment of the purchase price, it was held that
despite the loss of the books in a re, the risk of loss would be
borne by the buyer although he was not the owner yet, not only
because such was agreed merely to secure the performance by
the buyer of his obligation, but also because in the very contract
itself, it was agreed that loss or damage to the books after delivery
to the buyer shall be borne by the buyer.23
Lawyers Cooperative also disposed of the defense of
the buyer of pleading force majeure in exempting himself from
paying for the books which were lost to re. The Court held that
although an obligor is relieved from his obligation under the rule
that an obligor should be held exempt from liability when the loss
occurs through a fortuitous event, nevertheless, as applied to the
buyer in a sale, his obligation does not pertain to the delivery of
the subject matter, but to the payment of the purchase price, and
the ability to pay in money or legal tender is never lost through
fortuitous event.
358
LAW ON SALES
(c) When what is to be delivered is a determinate thing, the obligor who incurs fraud,
negligence, or delay, or contravene the
21
33 Phil. 3 (1915).
13 SCRA 762 (1965).
23
Also Lawyers Coop. v. Narciso, 55 O.G. 3313.
22
24
25
359
360
LAW ON SALES
361
CHAPTER 10
REMEDIES OF PARTIES
INTRODUCTION
In the realm of performance, the main rule in Sales was
that of caveat emptor (Let the buyer beware), which required
the buyer to be aware of the supposed title of the seller to the
subject matter; and that a buyer who buys without checking the
sellers title takes all the risks and losses consequent to such
failure.1 Today, the doctrine is not meant to excuse the seller
from his warranties, but is essentially used to determine whether
the buyer, in taking delivery of the subject matter of sale, can
be considered a buyer in good faith;2 or to determine whether
the buyer assumed the risks and contingencies attached to the
subject matter of sale.3
In one case,4 the Supreme Court held that while the buyer
purchases vessels at its own risk, such assumed risk pertained
only to the possibility of the sale being rescinded. Therefore,
in the absence of a formal rescission of the sale, it would be
erroneous to make such buyer liable for the value of the vessels
lost, or to order the return of the vessels without the sale rst
being rescinded.
In another case,5 the Court held that the rule of caveat
emptor also applies to execution sales, and consequently, the
sheriff does not warrant the title to the property sold by him and
it is not incumbent on him to place the purchaser in possession
of the property.
362
LAW ON SALES
Salvoro v. Taega, 87 SCRA 349 (1978); Oro Land Realty Dev. Corp. v. Claunan,
516 SCRA 681 (2007).
2
Caram, Jr. v. Laureta, 103 SCRA 7 (1981).
3
Samson v. Court of Appeals, 238 SCRA 397 (1994).
4
Union Insurance Society of Canton v. Court of Appeals, 260 SCRA 431 (1996).
5
Allure Manufacturing, Inc. v. Court of Appeals, 199 SCRA 285 (1991).
361
REMEDIES OF PARTIES
363
364
LAW ON SALES
2. Sale of Goods
11
REMEDIES OF PARTIES
365
366
LAW ON SALES
17
REMEDIES OF PARTIES
367
368
LAW ON SALES
4. Stoppage in Transitu
Notwithstanding that the ownership in the goods may have
passed to the buyer, the unpaid seller of goods has, in case of the
insolvency of the buyer, a right of stopping the goods in transitu
after he has parted with the possession of them.26
Under Article 1530 of the Civil Code, when the buyer of
goods is or becomes insolvent, the unpaid seller who has parted
with the possession of the goods has the right of stopping them
in transitu, that is to say, he may resume possession of the goods
at any time while they are in transit, and he will then become
entitled to the same rights in regard to the goods as he would
have had if he had never parted with the possession.
The unpaid sellers right of stoppage in transitu is not
affected by any sale or other disposition of the goods which the
buyer may have made, unless the seller assented thereto.27
a. When Negotiable Document of Title Issued
If a negotiable document of title has been issued for goods,
no sellers right to stoppage in transitu shall defeat the right of any
purchaser for value and in good faith to whom such document
21
25
REMEDIES OF PARTIES
369
370
LAW ON SALES
he holds the goods on his behalf and continues in possession of them as bailee for
the buyer or his agent (and it is immaterial
that further destination for the goods may
have been indicated by the buyer);
28
31
29
32
REMEDIES OF PARTIES
371
372
LAW ON SALES
38
34
REMEDIES OF PARTIES
373
374
LAW ON SALES
43
REMEDIES OF PARTIES
375
376
LAW ON SALES
C. REMEDIES OF BUYER
1. Failure of Seller to Deliver
Where the seller has broken a contract to deliver specic
or ascertained goods, the buyer may seek action for specic
performance to direct that the contract shall be performed
specically, without giving the seller the option of retaining the
goods on payment of damages.51
The judgment or decree may be unconditional, or upon such
terms and conditions as to damages, payment of the price and
otherwise, as the court may deem just.52
2. Breach of Sellers Warranty
Under Article 1599 of the Civil Code, where there is a breach
of warranty by the seller in the sale of goods, the buyer may, at
his election, avail of the following remedies:
(a) Accept or keep the goods and set up against
the seller, the breach of warranty by way of
recoupment in diminution or extinction of
the price;
(b) Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
(c) Refuse to accept the goods, and maintain
an action against the seller for damages for
breach of warranty;
(d) Rescind the sale and refuse to receive the
goods or if the goods have already been
received, return them or offer to return them
50
53
54
REMEDIES OF PARTIES
377
378
LAW ON SALES
REMEDIES OF PARTIES
379
Ibid, at p. 54.
380
LAW ON SALES
REMEDIES OF PARTIES
381
382
LAW ON SALES
REMEDIES OF PARTIES
383
384
LAW ON SALES
70
74
REMEDIES OF PARTIES
385
386
LAW ON SALES
77
80
REMEDIES OF PARTIES
387
388
LAW ON SALES
81
85
82
86
REMEDIES OF PARTIES
389
390
LAW ON SALES
held that the point by which the seller is deemed to have chosen
the remedy of foreclosure is only at the time of actual sale of
the subject property at public auction pursuant to the foreclosure
proceedings commenced.90
Universal Motors Corp. v. Sy Hian Tat,91 held that the ling
by the seller of an action for the issuance of a writ of replevin,
and the actual recovery of possession of the subject property,
would not amount to a foreclosure, even with the attachment of
the mortgage contract on the complaint itself, since no actual
foreclosure pursuant to the relevant provisions of the Rules of
Court have been pursued. The Court held that the mere fact that
[the seller] has secured possession of the truck in question does
not necessarily mean that it will foreclose its mortgage. Indeed,
there is no showing at all that [the seller] is causing the sale
thereof at public auction or is even preparing to do so. It is quite
possible that [the seller] wanted merely to be sure that the truck
is not lost or rendered valueless, preparatory to having it levied
upon under a writ of attachment.92
Industrial Finance Corp. v. Ramirez,93 held that even with
the ling of an action denominated as replevin with damages
where the allegations of the complaint sought the repossession
of the movable to allow extrajudicial foreclosure and sale of the
same, and in the alternative should the movable not be recovered
sought for the recovery of the unpaid balance of the price, the
ling of such complaint does not amount to having chosen the
remedy of foreclosure.
b. Barring Effect of Foreclosure
It is the foreclosure and actual sale at public action of the
mortgaged chattel that shall bar further recovery by the seller
of any balance on the purchasers outstanding obligation not
satised by the sale; prior to that point in time, the seller has
90
Manila Trading & Supply Co. v. Reyes, 62 Phil. 461 (1935); Manila Motor Co., Inc.
v. Fernandez, 99 Phil. 782 (1956).
91
28 SCRA 161 (1969).
92
Ibid, at p. 166.
93
77 SCRA 152 (1977).
REMEDIES OF PARTIES
391
392
LAW ON SALES
98
Ibid, at p. 797.
61 SCRA 121 (1974).
100
120 SCRA 246 (1983).
99
REMEDIES OF PARTIES
393
394
LAW ON SALES
Ibid, at p. 640.
64 Phil. 446 (1937).
104
Ibid, at p. 453.
103
101
REMEDIES OF PARTIES
395
396
LAW ON SALES
105
107
REMEDIES OF PARTIES
397
398
LAW ON SALES
REMEDIES OF PARTIES
399
116
117
400
LAW ON SALES
118
119
REMEDIES OF PARTIES
401
402
LAW ON SALES
Note that in its ruling in Halili, the Court uses the language
of then Article 1454-A which refers to the effects of foreclosure.
120
122
REMEDIES OF PARTIES
403
404
LAW ON SALES
REMEDIES OF SELLER
1. Anticipatory Breach
REMEDIES OF PARTIES
405
406
LAW ON SALES
B. REMEDIES OF BUYER
1. Suspension of Payment
Under Article 1590 of the Civil Code, should the buyer be
disturbed in the possession or ownership of the thing acquired,
or should he have reasonable grounds to fear such disturbance,
by a vindicatory action or a foreclosure of mortgage, the buyer
may suspend the payment of the price until the seller has caused
the disturbance or danger to cease, unless the seller gives a
security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency, the
buyer shall be bound to make the payment. Again, a mere act of
trespass shall not authorize the suspension of the payment of
the price.
127
130
131
REMEDIES OF PARTIES
407
408
LAW ON SALES
132
138
REMEDIES OF PARTIES
409
of Pres. Decree 957: P.D. 957 did not expressly provide for
retroactivity in its entirety, but such can be plainly inferred from
the unmistakable intent of the law. The intent of the law, as
culled from its preamble and from the situation, circumstances
and conditions it sought to remedy, must be enforced.144 x x x It
goes without saying that, as an instrument of social justice, the
law must favor the weak and the disadvantaged, including, in
this instance, small lot buyers and aspiring homeowners. P.D.
957 was enacted with no other end in view than to provide a
protective mantle over helpless citizens who may fall prey to the
manipulations and machinations of unscrupulous subdivisions
and condominium sellers.145
In Philippine National Bank v. Ofce of the President,146 the
Court held that a buyer of a property at a foreclosure sale may
not dispossess prior purchasers on installments of individuals
lots therein, nor compel them to pay again for the lots which they
previously brought from the defaulting mortgagor-subdivision
developer, based on the provisions of Pres. Decree 957 which
may even be applied retroactively, thus:
While P.D. 957 did not expressly provide for
retroactivity in its entirety, yet the same can be plainly
inferred from the unmistakable intent of the law to
protect innocent lot buyers from scheming subdivision
developers. As between small lot buyers and the
gigantic nancial institution which the developers deal
with, it is obvious that the law as an instrument of
social justice must favor the weak. ...147
xxx.
410
LAW ON SALES
Ibid, at p. 110.
Ibid, at p. 111.
146
252 SCRA 5 (1996). See also Union Bank of the Philippines v. Housing and
Land Use Regulatory Board, 210 SCRA 558 (1992).
147
Ibid, at p. 10.
145
148
Ibid, at p.15.
Bricktown Dev. Corp. v. Amor Tierra Dev. Corp., 239 SCRA 126 (1995).
150
Sec. 2, Rep. Act No. 6552; OIympia Housing Inc. v. Panasiatic Travel Corp., 395
SCRA 298 (2003).
151
86 SCRA 305 (1978).
149
REMEDIES OF PARTIES
411
412
LAW ON SALES
153
156
157
Ibid, at p. 158.
144 SCRA 693 (1986).
REMEDIES OF PARTIES
413
Act No. 6552).158 If that be the case, then the value of the Maceda
Law goes beyond its language and can be interpreted to further a
policy that may not even be found within its language.
Take for example the case of Palay, Inc. v. Clave,159 which
involved a contract to sell entered into by the parties in 1965 (the
Maceda Law took effect in 1972), which provided for automatic
extrajudicial rescission upon default in payment of any monthly
installment after the lapse of 90 days from the expiration of the
grace period of one month, without need of notice and with forfeiture of all installments paid. Although the Maceda Law was inapplicable, the Court took into consideration Section 3 of the Law
which provided for the indispensability of notice of cancellation to
the buyer and declared it is a matter of public policy to protect
buyers of real estate on installment payments against onerous
and oppressive conditions. Waiver of notice is one such onerous
and oppressive condition to buyers of real estate on installment
payments.160
b. Retroactive Application of Law
In Siska Dev. Corp. v. Ofce of the President,161 the Court
extended the formal requirements of rescission under the Maceda
Law to apply even to contracts entered into prior to the effectivity
of the Maceda Law.
However, in one case, the Court refused to apply retroactively
the terms of the Maceda Law, thus: As with Presidential Decrees
Nos. 9576 and 1344, Republic Act No. 6552 does not expressly
provide for its retroactive application and, therefore, it could not
have encompass(ed) the cancellation of the contracts to sell
pursuant to an automatic cancellation clause which had become
operational long before the approval of the law.162
414
LAW ON SALES
1. Transactions Covered
It should be noted that the Maceda Law does not cover all
sales of realty on installments, but primarily residential real estate.
But unlike the Recto Law on movables, the Maceda Law covers not
only sales on installments of real estate, but also nancing of
such acquisitions. It expressly covers all transactions or contracts
involving the sale or nancing of real estate on installment
payments, including residential condominium apartments.163
Unlike Article 1592 of the Civil Code, which the Court has
interpreted not to be applicable to contracts to sell, the Maceda
Law clearly includes in its provisions both contracts of sale and
contracts to sell. This conclusion is clear from the use by the
Law of the twin terms of notice of cancellation or the demand for
rescission of the contract.
On the other hand, we would adopt for the Maceda Law the
same denition of sale by installments held by Levy Hermanos,
Inc. for sales of movables by installments, which should involve
at least two (2) installments to be paid in the future at the time of
the perfection of the contract. The rationale of Levy Hermanos,
Inc. as to sales of movables, equally should apply to sale of real
estate in installments, thus: the law is aimed at those sales where
the price is payable in several installments, for, generally, it is
in these cases that partial payments consists in relatively small
amounts, constituting thus a great temptation for improvident
purchasers to buy beyond their means.164
In any event, the public policy behind the Maceda Law is
so all-encompassing with respect to residential real estate and
condominium units, that it would cover even sales or nancing
transactions which may not t into the installment concept.
a. Maceda Law Covers Contracts to Sell
158
Ibid, at p. 700.
159
12 SCRA 639 (1983).
160
Ibid, at pp. 66-67.
161
231 SCRA 674 (1994).
162
Peoples Industrial and Commercial Corp. v. Court of Appeals, 281 SCRA 206
(1997).
REMEDIES OF PARTIES
415
For that reason, the author nds quite surprising the ruling in
Mortel v. KASSCO, Inc.,165 which held that when a contract to sell
is constituted over a condominium unit subject to the suspensive
condition which is the acquisition of individual condominium
certicates of title (CCT) over the building which seller undertook
to accomplish within one year from the date of execution, then the
non-fulllment of the condition extinguished the contract meant
that the contract to sell did not take into effect. Consequently,
the [Maceda Law] invoked by [buyer] ... nd no application to the
present case because said laws presuppose the existence of a
valid and effective contract to sell a condominium.166
The reasoning in Mortel is defective for the following
reasons: First, there is no doubt under the provisions of the
Maceda Law that it covers both contracts of sale and contracts
to sell on installments condominium units, and the coverage is
based on the nature of the contract and subject matter at the time
of perfection, and not what happens at consummation. Secondly,
precisely when the conditions attaching to the contract to sell
(such as non-payment of the installments) is not fullled which
have the effect of extinguishing the contract, the Maceda Law
governs the effective remedies and consequences available to
the parties (i.e., notarial rescission and return of cash surrender
value, etc.). Therefore, the non-fulllment of condition under a
contract to sell does not take it out of the Maceda Law.
2. Transactions Excluded from Coverage
The following transactions, although involving sales on
installments, are expressly excluded from the coverage of the
Law, thus:
(a) Sales covering industrial lots;
(b) Sales covering commercial buildings (and
commercial lots by implication); and
416
LAW ON SALES
167
168
REMEDIES OF PARTIES
417
418
LAW ON SALES
the buyer to vacate the premises in question did not serve the
same requirement as that of notice of cancellation or demand
for recission by a notarial act as required under the Maceda
Law. It was also reitereated that a case for unlawful detainer
does not exempt the seller from complying with the notarial act
required under the law.
b. Less Than Two (2) Years Installments Paid
In case where less than two (2) years of installments were
paid, the buyer shall still be entitled to a grace period of sixty (60)
days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract
after thirty (30) days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a
notarial act.
c. Compensation Rule on Amortization Payments
The Courts ruling in Leao v. Court of Appeals,172 recognizes
the principle of compensation to be applicable to remedies under
the Maceda Law.
Leao held that although the contract to sell allows
a total of 10 years within which to pay the purchase price,
nevertheless, the buyer cannot ignore the stipulation on the
monthly amortization payments required under the contract by
claiming that the ten-year period within which to pay has not
elapsed. When the buyer fails to pay any monthly amortization,
he is under Article 1169 already in default and liable for the
damages stipulated in the contract. Nevertheless, the Court
agreed with the trial court that the default committed by the
buyer in respect of the obligation could be compensated by
the interest and surcharges imposed upon the buyer under the
contract.
169
172
REMEDIES OF PARTIES
419
420
LAW ON SALES
REMEDIES OF PARTIES
421
422
LAW ON SALES
REMEDIES OF PARTIES
423
424
LAW ON SALES
183
Ibid.
Seven Brothers Shipping Corp. v. Court of Appeals, 246 SCRA 33 (1995).
184
425
CHAPTER 11
426
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
427
428
LAW ON SALES
Ibid, at p. 23.
Ibid, at p. 23. Difference between remedies of resolution and rescission reiterated
in Ong v. Court of Appeals, 310 SCRA 1 (1999).
7
Iringan v. Court of Appeals, 366 SCRA 41 (2001).
8
Art. 1389, Civil Code.
6
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
429
430
LAW ON SALES
indicated use of the subject matter. The facts did indicate that
NHA would not have entered into the contract were the lands
not suitable for housing. In other words, the quality of the land
was an implied condition for the NHA to enter into the contract.
Under Article 1545 of the Civil Code, where the obligation of the
party to a contract of sale is subject to any condition which is
not performed, the other party may refuse to proceed with the
contract or he may waive performance of the condition; if the
other party promised that the condition should happen or be
performed, the other party may also treat the non-performance
of the condition as a breach of warranty, which would entitle the
other party to rescind. Rescission may have also been justied
for breach of warranty against hidden defects.
2. Remedy of Rescission Covered
The remedy of rescission covered by this chapter is that
referred to in Article 1191 of the Civil Code, thus:
ART. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulllment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulllment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the xing of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the
Mortgage Law.
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
431
432
LAW ON SALES
13
19
This ruling would perhaps nd basis under Article 1545 which provides that
Where the ownership in the thing has not passed, the buyer may treat the fulllment 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.
20
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972).
21
43 SCRA 93 (1972).
22
Ibid, at p. 101.
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
433
See also Supercars Management & Dev. Corp. v. Flores, 446 SCRA 34 (2004).
Under Article 1385 of the Civil Code, rescission creates the obligation to return
the things which were the object of the contract but such rescission can only be carried out
when the one who demands rescission can return whatever he may be obliged to restore.
This principal has been applied to rescission of reciprocal obligations under Article 1191
of the Civil Code. Co v. Court of Appeals, 312 SCRA 528 (1999).
25
69 Phil. 55 (1939).
24
434
LAW ON SALES
Ibid, at p. 57.
279 SCRA 590 (1997).
28
340 SCRA 720 (2000).
29
314 SCRA 69 (1999).
30
333 SCRA 643 (2000).
31
Ibid, citing Co v. Court of Appeals, 312 SCRA 528 (1999). Also Supercars
Management & Dev. Corp. v. Flores, 446 SCRA 34 (2004).
27
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
435
436
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
437
438
LAW ON SALES
42
45
43
46
Ibid, at p. 48.
394 SCRA 250 (2002).
44
Reiterated in Heirs of Jesus M. Mascuana v. Court of Appeals, 461 SCRA 186
(2005).
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
439
440
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
441
442
LAW ON SALES
56
Ibid, at pp. 477-478. Reiterated in Almocera v. Ong, 546 SCRA 164 (2008).
313 SCRA 63 (1999).
58
340 SCRA 720 (2000).
59
Reiterated in Demafelis v. Court of Appeals, 538 SCRA 305 (2007); Villador, Jr.
v. Zaballa, 545 SCRA 325 (2008).
57
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
443
60
Ibid, at pp. 727-729,citing Galang v. Court of Appeals, 225 SCRA 37 (1993). Also
Villamaria, Jr. v. Court of Appeals, 487 SCRA 571 (2006).
61
369 SCRA 36 (2001).
62
Ibid, at p. 44.
63
477 SCRA 666 (2005).
444
LAW ON SALES
(1999).
66
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
445
446
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
447
Ibid, at p. 190.
448
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
449
450
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
451
452
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
453
The test employed by the Court seems to be an after-thefact (i.e., after perfection) determination of whether the seller has
by tradition transferred ownership to the buyer. Tradition does
not determine the nature of the contract, but is pursued only as
a consequence of the contract. If seller refuses to deliver in spite
of a clear obligation to do so, that would be a breach that should
entitle the buyer to rescind the contract. On the other hand,
when there is an express stipulation that seller will not transfer
ownership until buyer shall have fully paid the purchase price, the
refusal of the seller to effect tradition until the buyer shall have
complied with his own obligation, would not authorize the buyer
to rescind the contract for then there would be no breach.
(2) Agreement as to Deed of Absolute Sale
In a number of decisions, the Supreme Court has considered
as an important factor whether there is a stipulation or promise
that the seller shall execute a deed of absolute sale upon
completion of payment of the purchase price by the buyer, or
whether the agreement between the parties is embodied in a
private document. In other words, such situations are treated as
87
88
454
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
455
456
LAW ON SALES
95
Ibid, at p. 67.
97
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
457
458
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
459
460
LAW ON SALES
103
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
461
AND
JURISPRUDENCE
ON THE
CIVIL CODE
OF THE
462
LAW ON SALES
necessarily be done judicially since only the courts can grant the
remedy of recalling ownership that has passed to the buyer and
reverting it to the seller. On the other hand, in a contract to sell,
by express agreement, delivery of the subject matter does not
transfer ownership to the buyer, and therefore when the condition
is not fullled (i.e., non-payment of the purchase price) no court
intervention is needed to rescind the contract since ownership
has remained with the seller. If court intervention is necessary,
it is not for the rescission of the contract, but for the recovery of
the possession from the buyer who is not entitled thereto, and
refuses to voluntarily return the subject matter of the sale.
In their executory stages (i.e., the subject matter of sale has
not been delivered to the buyer), there is no practical difference in
remedies available to the innocent party in both a contract of sale
and a contract to sell for purposes of rescission, since both can be
done extrajudicially: in a contract of sale, by mere notarial notice
of rescission under Article 1592 the contract may be rescinded; in
a contract to sell, mere notice of cancellation would be sufcient
under Supreme Court rulings.111 When performance stage has
been reached, generally, court action is necessary to rescind a
contract of sale; whereas, no such court action is necessary to
rescind a contract to sell.
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
463
and its price, he may immediately sue for the rescission of the
sale; otherwise, if no such grounds exist, the provisions of Article
1191 must be observed.
As discussed above, Article 1592 provides that even when
automatic rescission may have been expressly stipulated,
nonetheless, the buyer may still remove the default by payment
of what is due as long as no demand for rescission of the contract
has been made upon him either judicially or by notarial act.
Therefore, Article 1592 contains the principle that the remedy of
rescission requires the taking of a positive act on the part of the
non-defaulting party.
464
LAW ON SALES
115
112
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
465
Also Odyssey Park, Inc. v. Court of Appeals, 280 SCRA 253 (1997).
Ibid, at p. 10. Same ruling as in Luzon Brokerage Co., Inc. v. Maritime Building
Co., Inc., 46 SCRA 381 (1972); Rillo v. Court of Appeals, 274 SCRA 461 (1997); Cheng
v. Genato, 300 SCRA 722 (1998); Gonzales v. Heirs of Thomas and Paula Cruz, 314
SCRA 585 (1999); Padilla v. Spouses Paredes, 328 SCRA 434 (2000); Santos v. Court of
Appeals, 337 SCRA 67 (2000).
121
31 SCRA 829 (1970).
122
55 SCRA 324 (1974).
120
466
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
467
468
LAW ON SALES
125
129
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
469
470
LAW ON SALES
fairness to allow the other party the right to question in court the
propriety of the act of the seller. Nevertheless, whether there was
notice or not, if the factual basis for an extrajudicial rescission or
cancellation is present, the courts should decree the cancellation
to have become effective.
Indeed, in a contract to sell, as the Court itself held in a later
case of Torralba v. De los Angeles,132 on the contention of the
buyer that the seller should have resorted to a judicial decree
rescinding the contract to sell before awarding the lot to another
buyer
This contention is untenable. The contract executed
by the petitioner and the PHHC expressly provided that
the contract shall be deemed annulled and cancelled
and the PHHC shall be at liberty to take possession
of said property and dispose the same to any other
person upon default of the petitioner to pay the installments due. Hence, there was no contract to rescind
in court because from the moment the petitioner defaulted in the timely payment of the installments, the
contract between the parties was deemed ipso facto
rescinded.133
Torralba thus correctly expressed the principle that the nonfulllment of the condition ipso facto cancels or resolves a contract
to sell so that there is legally nothing else to do at that point.134 So
that notice to the defaulting party cannot be the operative act to
make the cancellation or resolution of a contract to sell valid and
effective. However, the facts of Torralba still show that despite
its pronouncements notice was given by the seller to the buyer
before rescinding the contract to sell.
One cannot say that Torralba decided as it did because essentially even possession of the subject property, although the
covering contract was a contract to sell, had not been transferred
to the buyer; and that had possession been transferred to the
132
96 SCRA 69 (1980).
Ibid, at p. 76; emphasis supplied.
134
Reiterated in AFP Mutual Benet Asso. v. Court of Appeals, 364 SCRA 768
(2001).
133
130
131
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
471
buyer, even in a contract to sell, judicial action is necessary to recover the property from the buyer. But even then, the court action
is not one really to rescind, but for recovery of possession, and
certainly notice is not required to have such a cause of action.
Lim v. Court of Appeals,135 expressly applied the University
of the Philippines ruling as allowing the seller to consider the
contract to sell between them terminated for non-payment of the
stipulated consideration,136 and the only risk involved is that the
courts may not afrm the factual basis upon which to base the
non-happening of the suspensive condition.
In Palay, Inc. v. Clave,137 a Contract to Sell a piece of
land expressly provided that the contract shall be automatically
rescinded upon default in payment of any monthly installment
after the lapse of 90 days from the expiration of the grace period
of one month, without need of notice and with forfeiture of all
installments paid. For failure of the buyer to pay installments due,
the seller treated the contract as canceled without notice to the
buyer. In ruling that the cancellation was void because of lack of
notice, the Court held
472
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
473
474
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
475
476
LAW ON SALES
146
149
147
150
Ibid, at p. 98.
Ibid, at pp. 104-105; emphasis supplied.
148
46 SCRA 381, 387 (1972).
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
477
478
LAW ON SALES
Ibid, at p. 331.
Joseph & Sons Enterprises, Inc. v. Court of Appeals, 143 SCRA 663 (1986);
Dignos v. Court of Appeals, 158 SCRA 375 (1988).
157
195 SCRA 205 (1991).
158
Ibid, at p. 210.
159
209 SCRA 246 (1992).
156
152
This particular ruling in Roque was reiterated in Alfonso v. Court of Appeals, 186
SCRA 400 (1990).
153
Ibid, at p. 760.
154
135 SCRA 323 (1985).
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
479
160
480
LAW ON SALES
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
481
482
LAW ON SALES
AT PERFECTION:
1. Requisite Contractual Stipulations In a contract to
sell, there must be a stipulation that:
(a) Full payment of the purchase price by the buyer
constitutes a suspensive condition on the obligation
of the seller to sell and transfer ownership of the
subject matter;170
165
169
170
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
483
484
LAW ON SALES
171
Vda. De Mistica v. Naguiat, 418 SCRA 73 (2003); Valdez v. Court of Appeals,
439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004).
172
Coronel v. Court of Appeals, 263 SCRA 15 (1996); David v. Tiongson, 313 SCRA
63 (1999); Gomez v. Court of Appeals, 340 SCRA 720 (2000); Villanueva, Jr. v. Court of
Appeals, 487 SCRA 571 (2006); Demafelis v. Court of Appeals, 538 SCRA 305 (2007);
Villador, Jr. v. Zaballa, 545 SCRA 325 (2008).
173
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 95 (1972);
Jacinto v. Kaparaz, 209 SCRA 246 (1992); Topacio v. Court of Appeals, 211 SCRA 219
(1992); Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 575 (1995); Ong v. Court
of Appeals, 240 SCRA 565 (1995); Babasa v. Court of Appeals, 290 SCRA 532 (1998);
Almira v. Court of Appeals, 399 SCRA 351 (2003).
174
Romero v. Court of Appeals, 250 SCRA 223 (1995); Coronel v. Court of Appeals,
263 SCRA 15, 27 (1996); Heirs of Pedro Escanlar v. Court of Appeals, 281 SCRA 176
(1997); Almocera v. Ong, 546 SCRA 164 (2008).
175
Roque v. Lapuz, 96 SCRA 741 (1980).
176
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
485
486
LAW ON SALES
Contra to (b):
(i) Even when the basis for the breach of the
condition is present, a notice of rescission or
cancellation must be made on buyer to effect
the extinguishment of the contract to sell.188
181
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
487
488
LAW ON SALES
C. REMEDIES AVAILABLE:
The Manila Racing Club v. The Manila Jockey Club, 69 Phil. 55 (1939).
J.M. Tuazon Co., Inc. v. Javier, 31 SCRA 829 (1970); Legarda Hermanos v.
Saldana, 55 SCRA 3246 (1974); Siska Dev. Corp. v. Ofce of the President, 231 SCRA
674 (1994).
195
262 SCRA 486 (1996).
196
University of the Philippines v. De los Angeles, 35 SCRA 103 (1970); Palay, Inc.
v. Clave, 124 SCRA 638 (1983); Siska Dev. Corp. v. Ofce of the President, 231 SCRA
674 (1994).
197
96 SCRA 69 (1980).
194
190
The Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Manuel v. Rodriguez,
109 Phil. 1 (1960); Salazar v. Court of Appeals, 258 SCRA 325 (1996); Pangilinan v. Court
of Appeals, 279 SCRA 590 (1997); Vidal, Sr. v. Tayamen, 531 SCRA 147 (2007); Hulst v.
PR Builders, Inc., 532 SCRA 74 (2007).
191
Romero v. Court of Appeals, 250 SCRA 223 (1995); Lim v. Court of Appeals, 263
SCRA 569 (1996).
192
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972).
REMEDIES OF RESCISSION
AND CANCELLATION FOR IMMOVABLES
489
198
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 46 SCRA 381 (1972);
Rillo v. Court of Appeals, 274 SCRA 461 (1997); Pangilinan v. Court of Appeals, 279
SCRA 590 (1997); Odyssey Park, Inc. v. Court of Appeals, 280 SCRA 253 (1997); Valarao
v. Court of Appeals, 304 SCRA 155 (1999); Gonzales v. Heirs of Thomas and Paula Cruz,
314 SCRA 585 (1999); Padilla v. Spouses Paredes, 328 SCRA 434 (2000);
199
Topacio v. Court of Appeals, 211 SCRA 219 (1992); Lacanilao v. Court of
Appeals, 262 SCRA 486 (1996); Rillo v. Court of Appeals, 274 SCRA 461 (1997);
Odyssey Park, Inc. v. Court of Appeals, 280 SCRA 253 (1997).
200
Luzon Brokerage Co., v. Maritime Building Co., Inc., 86 SCRA 305 (1978);
Santos v. Court of Appeals, 337 SCRA 67 (2000).
201
Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Albea v. Inquimboy, 86
Phil. 477 (1950); Manuel v. Rodriguez, 109 Phil. 1 (1960); Luzon Brokerage v. Martime
Building, Inc., 86 SCRA 305 (1978); Roque v. Lapuz, 96 SCRA 741, 759 (1980); Angeles
v. Calasanz, 135 SCRA 323 (1985); Joseph & Sons Enterprises, Inc. v. Court of Appeals,
143 SCRA 663 (1986); Lim v. Court of Appeals, 182 SCRA 564 (1990); Jacinto v. Kaparaz,
209 SCRA 246 (1992).
202
Rillo v. Court of Appeals, 274 SCRA 461 (1997).
490
LAW ON SALES
CHAPTER 12
490
491
492
LAW ON SALES
On the other hand, if the party has promised that the condition should happen or be performed, the other party may also
treat the non-performance of the condition as a breach of warranty.7 Such stipulation would elevate the condition to a warranty,
and the non-happening of the condition would itself constitute a
breach of such warranty, and would entitle the other party to sue
for damages.
Ibid, at p. 190.
313 SCRA 63 (1999).
6
279 SCRA 118 (1997).
5
493
494
LAW ON SALES
xxx.
If the parties intended to impose on the [sellers]
the obligation to eject the tenants from the lot sold,
it should have included in the contract a provision
similar to that referred to in Romero vs. Court of
Appeals, where the ejectment of the occupants
of the lot sold ... was the operative act which set
into motion the period of [buyers] compliance with
his own obligation, i.e., to pay the balance of the
purchase price. Failure to remove the squatters
within the stipulated period gave the other party the
right to either refuse to proceed with the agreement
or to waive that condition of ejectment in consonance
with Article 1545 of the Civil Code ...
xxx.
As stated, the provision adverted to in the contract
pertains to the usual warranty against eviction, and
not to a condition that was not met. The terms of the
contract are so clear as to leave no room for any other
interpretation.9
EXPRESS WARRANTIES
Since the breach of an express warranty makes the seller
liable for damages, it is important to note that the following
Art. 1546, Civil Code. Also Carrascoso, Jr. v. Court of Appeals, 477 SCRA 666
(2005).
11
8
495
496
LAW ON SALES
IMPLIED WARRANTIES
Implied warranties are those which by law constitute part of
every contract of sale, whether or not the parties were aware of
them, and whether or not the parties intended them.
Although only a seller is bound by the implied warranties of
law, nevertheless, by express contractual stipulation, an agent of
the seller may bind himself to such warranties.17
14
18
15
19
Ibid, at p. 603.
162 SCRA 636 (1988).
16
Ibid, at pp. 641-642.
17
Schmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
497
498
LAW ON SALES
b. Eviction in Part
Should the buyer lose, by reason of the eviction, a part of
the thing sold of such importance, in relation to the whole, that
he would not have bought it without said part, he may demand
the rescission of the contract; but with the obligation to return the
thing without other encumbrances than those which it had when
he acquired it.30 He may exercise this right of action, instead of
enforcing the vendors liability for eviction.
The same rule shall be observed when two or more things
have been jointly sold for a lump sum, or for a separate price for
each of them, when it clearly appears that the buyer would not
have purchased one without the other.31
26
499
500
LAW ON SALES
32
501
expected eviction, the waiver has the effect of wiping out the
warranty as to that specic risk, but not as to eviction caused by
other reasons not covered in the waiver.
J.M. Tuazon v. Court of Appeals,39 has, however, held that
even when there is no specic waiver, a buyer cannot take refuge
on the warranty against eviction when he purchases the land fully
aware of a claim by a third party on the title to the land and who
was in actual possession thereof; when the buyer cannot show
that he is a buyer in good faith, it is not entitled to the warranty
against eviction.
3. Warranty Against Non-Apparent Servitudes
502
LAW ON SALES
Under Article 1560 of the Civil Code, the warranty shall apply
only when the following conditions are present:
39
503
504
LAW ON SALES
505
506
LAW ON SALES
e. Prescriptive Period
Actions on warranties against hidden defects shall be barred
after six (6) months from the delivery of the thing sold.56
5. Redhibitory Defects of Animals
Under Article 1576 of the Civil Code, even when professional
inspection has been made, if the hidden defect of animals should
be of such a nature that expert knowledge is not sufcient to
discover it, the defect shall be considered as redhibitory. But if
the veterinarian, through ignorance or bad faith, should fail to
discover or disclose it, he shall be liable for damages.57
a. Sale of Team
Under Article 1572 of the Civil Code, if two or more animals
are sold together, whether for a lump sum or for a separate price
for each of them, the redhibitory defect of one shall only give
rise to its redhibition, and not that of the others; unless it should
appear that the buyer would not have purchased the sound
animal or animals without the defective one. The latter case shall
be presumed when a team, yoke, pair, or set is bought, even
if a separate price has been xed for each one of the animals
composing the same.
Note that the foregoing rules with respect to the sale of
animals shall in like manner be applicable to the sale of other
things.58
b. Other Rules on Sale of Animals
There is no warranty against hidden defects of animals
sold at fairs or at public auctions, or of live stock sold as
condemned.59
The sale of animals suffering from contagious diseases
shall be void.60
51
56
52
57
Ibid, at p. 196.
Ibid, at p. 197.
53
Ibid, at p. 197.
54
412 SCRA 375 (2003).
55
Art. 1570, Civil Code.
507
508
LAW ON SALES
If the animal should die within three (3) days after its
purchase, the vendor shall be liable if the disease which cause
the death existed at the time of the contract.63
When the buyer returns the objects bought and demands
the payment of the purchase price, he is in effect withdrawing
from the contract as provided in Article 1567, where the
prescriptive period is six (6) months from the delivery of the
thing sold.64
61
62
67
509
510
LAW ON SALES
70
73
74
Ibid, at p. 185.
Art. 1191, second paragraph, Civil Code.
511
512
LAW ON SALES
If the price or any part thereof has already been paid, the
seller shall be liable to repay so much thereof as has been paid,
concurrently with the return of the goods, or immediately after
an offer to return the goods in exchange for repayment of the
price.76
75
78
513
the warranty, and that in such case the retailer shall shoulder the
expenses and costs necessary to honor the warranty.
The remedy of the retailer in such case would be to proceed
against the distributor or manufacturer.79
2. Enforcement of Warranty
The warranty rights can be enforced by presentment to the
immediate seller either the warranty card or the ofcial receipt
along with the product to be serviced or returned to the immediate
seller. No other documentary requirement shall be demanded
from the purchaser.80
514
LAW ON SALES
3. Duration of Warranty
oOo
82
83
Ibid.
Ibid.
515
CHAPTER 13
EXTINGUISHMENT OF SALE
IN GENERAL
The same grounds by which obligations in general are extinguished, also apply to the extinguishment of the obligations
arising from contracts of sale. They include payment of the price
or performance (i.e., delivery of subject matter), loss of the subject matter, condonation or remission, confusion or merger of the
rights of creditor and debtor, compensation, novation, annulment,
rescission, fulllment of a resolutory condition, and prescription.1
Payment or performance only extinguishes the obligations
to which they pertain to in a contract of sale, but not necessarily
the contract itself, since the relationship between buyer and seller
remains after performance or payment, such as the continuing
enforceability of the warranties of the seller.
More importantly, under Article 1600 of the Civil Code,
sales are also extinguished by conventional or legal redemption.
Redemption as a mode of extinguishment is therefore unique to
contracts of sale.
CONVENTIONAL REDEMPTION
1. Denition
Conventional redemption shall take place when the seller
reserved for himself the right to repurchase the thing sold, with
the obligation to: (a) return the price of the sale, (b) the expenses
of the contract, (c) any other legitimate payments made by reason
of the sale, (d) and the necessary and useful expenses made on
the thing sold.2
1
2
515
516
LAW ON SALES
EXTINGUISHMENT OF SALE
517
518
LAW ON SALES
sold, since the deed of sale and the verbal agreement allowing
the right of repurchase should be considered as an integral
whole, then the deed of sale relied upon by the seller is in itself
the note or memorandum evidencing the contract, which would
take the case outside the provisions of the Statute of Frauds.13
Parol evidence may also be admitted to prove that a right of
repurchase was part of a deed of sale, when no objection to such
parol evidence was made during trial.14
The Court also held that the best evidence rule would not
be an obstacle to the adducement of such parol evidence where
it is shown that the parol agreement was the moving cause of
the written contract, or where the parol agreement forms part of
the consideration of the written contract, and it appears that the
written contract was executed on the faith of the parol contract or
representation, and especially so when the right of repurchase
proved by parol evidence is not inconsistent with the terms of the
written contract.15
4. Distinguished from Option to Purchase
The differences between a right of redemption from an
option right may be summarized as follows:
(a) A right to redeem is not a separate contract,
but merely part of a main contract of sale,
and in fact cannot exist unless reserved at
the time of the perfection of the contract
of sale; whereas, an option to purchase
is generally a principal, albeit preparatory,
contract and may be created independent
of another contract;
Mactan Cebu International Airport Authority v. Court of Appeals, 263 SCRA 736
(1996).
11
12
14
15
Ibid, at p. 742.
Ibid, at p. 742.
EXTINGUISHMENT OF SALE
519
520
LAW ON SALES
In Misterio v. Cebu State College of Science and Technology,18 the four year period was held to begin from the happening
of the stipulated condition contained in the covering deed of sale,
rather than from the date of the contract, and even when the entire
covered period from the date of the contract would exceed ten
(10) years. The inexplicable ruling in Misterio is further discussed
hereunder.
b. When Period Agreed Upon
Should there be an agreement as to the period of redemption,
the period cannot exceed 10 years;19 if exceeds 10 years, the
agreement is valid only for the rst 10 years.
In Anchuel v. Intermediate Appellate Court,20 where it was
stipulated in the sale a retro that the seller cannot redeem the
property within a period of 19 years from the execution of the
contract, the Court held that such stipulation is void since it
violated Article 1601 of the Civil Code; it therefore held that the
period of redemption would be 10 years.21
In Tayao v. Dulay,22 it was stipulated by the parties in the sale
a retro that the sellers right of redemption cannot be exercised
within 10 years. Although the Court found the stipulation to be
void, it held that such nullity of the stipulation did not convert the
contract into a mere indebtedness nor an equitable mortgage,
and since there was an agreement, although void, the provisions
of Article 1606 of the Civil Code would apply in that the seller
may exercise his right of redemption within a period of 10 years
from the date of the contract. Tayao illustrated clearly that when
a period of redemption is agreed upon by the parties in a sale
a retro, although the stipulation as to period may be unclear or
void, it is the 10 year period provided in Article 1606 that applies
and not the 4 year period provided therein where there is no
agreement as to period.
18
16
17
EXTINGUISHMENT OF SALE
521
522
LAW ON SALES
23
27
24
28
EXTINGUISHMENT OF SALE
523
524
LAW ON SALES
31
35
32
36
84 SCRA 51 (1978).
Ibid, at p. 56.
33
Solid Homes, Inc. v. Court of Appeals, 275 SCRA 267 (1997).
34
461 SCRA 122 (2005).
Ibid, at pp. 135-136. Also Vda. de Rigonan v. Derecho, 463 SCRA 627 (2005).
Art. 1616, Civil Code.
37
Art. 1608, Civil Code.
38
1 SCRA 1311 (1961).
EXTINGUISHMENT OF SALE
525
526
LAW ON SALES
EXTINGUISHMENT OF SALE
527
b. In Multi-Parties Cases
In sale a retro, the buyer of part of an undivided immovable
who acquires the whole thereof in the case of Article 498,46 may
compel the seller to redeem the whole property, if the latter wishes
to make use of the right of redemption.47
If several persons, jointly and in the same contract, should
sell an undivided immovable with a right of repurchase, none of
them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable
alone has left several heirs, in which case each of the latter may
only redeem the part which he may have acquired.48
In the case of the preceding situation, the buyer may demand
of all the vendors or co-heirs, that they come to an agreement
upon the repurchase of the whole thing sold; and should they fail
to do so, the buyer cannot be compelled to consent to a partial
redemption.49
On the other hand, each one of the co-owners of an
undivided immovable who may have sold his share separately,
may independently exercise the right of repurchase as regards
his own share, and the buyer cannot compel him to redeem the
whole property.50
In addition, the creditors of the seller cannot make use of
the right of redemption against the buyer, until after they have
exhausted the property of the seller.51
In De Guzman v. Court of Appeals,52 the Court held that
under the rules contained in Article 1612 of the Civil Code, should
one of the co-owners or co-heirs succeed alone in redeeming
the whole property, such co-owner or co-heir shall be considered
46
Art. 498. Whenever the thing is essentially indivisible and the co-owners cannot
agree that it be allotted to one of them who shall indemnify the others, it shall be sold and
its proceeds distributed.
47
Art. 1611, Civil Code.
48
Art. 1612, Civil Code.
49
Art. 1613, Civil Code.
50
Art. 1614, Civil Code .
51
Art. 1610, Civil Code.
52
148 SCRA 74 (1987).
528
LAW ON SALES
Code.
EXTINGUISHMENT OF SALE
529
530
LAW ON SALES
the true nature of the contract, and the court is called upon to
decide whether it is a sale with pacto de retro or an equitable
mortgage ... there can be no controversy as to the contract being
one of absolute deed of sale, pure and simple. There could not
even then be a period of redemption.61
Pangilinan v. Ramos,62 held that the 30-day period for
redemption granted under Article 1606 does not apply to a
contract found to be an absolute sale. It also held that the thirty
day period is pre-emptory because the policy of the law is not to
leave the purchasers title in uncertainty beyond the established
thirty day period. It is not a prescriptive period but is more a
requisite or condition precedent to the exercise of the right of
legal redemption.63 Nevertheless, it cited as authority the case
of Caro v. Court of Appeals,64 which referred to the 30-day legal
redemption right of a co-owner under Article 1623 of the Civil
Code, and not the 30-day period provided under Article 1606.
The rationale for the grant of the 30-day period of
redemption under Article 1606 is quite clear: although a period of
redemption is stated in the purported sale a retro, nevertheless,
the purported seller has placed no importance thereto since he
considers the transaction to be an equitable mortgage; being
an equitable mortgage, then the purported seller has every right
to extinguish the equitable mortgage by paying-up the loan at
any time before the purported buyer has foreclosed on the
mortgage. Allowing the expiration of the stipulated redemption
period is not negligence or fault on the part of the purported
seller, and is in fact consistent with his position that the sale is
not one a retro but actually an equitable mortgage. Therefore,
should a judgment be nally rendered upholding the transaction
to be one of sale a retro, then it is but fair to grant to the seller
a nal 30-day period within which to redeem from the time he
is bound by the judgment nding the contract to be one not of
equitable mortgage.
61
Ibid, at p. 399.
181 SCRA 359 (1990).
63
Ibid, at p. 366.
64
113 SCRA 10 (1982).
62
EXTINGUISHMENT OF SALE
531
On the other hand, if the issue before the court is one whether
the contract at issue was one of absolute sale or a sale a retro, a
judgment nding the contract to be a sale a retro should not authorize the application of the 30-day redemption period under Article
1606 in favor of the seller who had previously allowed the period of
redemption to expire. In such a case, the seller a retro was negligent
or at fault for not having exercised his right to redeem during the
redemption period, and should not be granted a new period.
a. Feigning Equitable Mortgage Situation
to Avail of Article 1606
Even when the sale involved a true sale a retro, and the seller
failed to redeem within the redemption period, there was danger
that the seller, as a desperate move, would feign the defense
of equitable mortgage in a suit led to redeem the property,
and knowing that the evidence would still yield a judgment on a
sale a retro, would nevertheless allow him to avail of the 30-day
redemption period allowed under the last paragraph of Article
1606.
The Court rst addressed this issue in Adorable v. Inacala,65
where it held that where the evidence established that there could
be no honest doubt as to the parties intention that the transaction
was clearly and denitely a sale with pacto de retro, the seller
would not be entitled to the benet of Article 1606.
In Vda. De Macoy v. Court of Appeals,66 the sellers raised
the defense that the sale was actually an equitable mortgage, but
with an alternative defense that even assuming the transaction
to be a pacto de retro sale, they can nevertheless repurchase
the property by virtue of Article 1606. The ruling was reiterated
in Felicen, Sr. v. Orias,67 which held that the application of the
third paragraph of Article 1606 is predicated upon the bona des
of the vendor a retro. It must appear that there was a belief on
his part, founded on facts attendant upon the execution of the
sale with pacto de retro, honestly and sincerely entertained, that
532
LAW ON SALES
65
68
66
69
EXTINGUISHMENT OF SALE
533
applies and he can still repurchase the property within thirty days
from nality of the judgment declaring the transaction as a sale
with pacto de retro. Parenthetically, it matters not what the buyer
intended the transaction to be.
10. Fruits
If at the time of the execution of the sale there should be on
the land, visible or growing fruits, there shall be no reimbursement
for or pro-rating of those existing at the time of the redemption,
if no indemnity was paid by the purchaser when the sale was
executed.
Should there have been no fruits at the time of the sale,
and some exist at the time of redemption, they shall be prorated between the redemptioner and the buyer, giving the latter
the part corresponding to the time he possessed the land in
the last year, counted from the anniversary of the date of the
sale.71
Almeda v. Daluro,72 held that the provisions of Article 1617
of the Civil Code on fruits applies only when the parties have
not provided for their sharing arrangement with respect to the
fruits existing at the time of redemption: In the case at bar, the
Agreement ... specically provided that the parties would share
equally the net harvest of the palay planted on the land in
question. Since said Agreement is not contrary to law, morals or
public policy, the same is, therefore, binding on the parties.73
11. Equitable Mortgage
a. Denition of Equitable Mortgage
Matanguihan v. Court of Appeals,74 dened an equitable
mortgage as one which although lacking in some formality,
or form or words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real
71
534
LAW ON SALES
EXTINGUISHMENT OF SALE
535
b. Pactum Commissorium
Under Article 2088 of the Civil Code, a creditor cannot
appropriate the things given by way of pledge or mortgage, or
dispose of them; any stipulation to the contrary is null and void.
In Vda. de Zulueta v. Octaviano,83 an instrument was executed
between the parties where it was provided inter alia that upon the
redemption of the land by the buyer from a third party, then the
instrument shall be considered a deed of absolute and denite
sale by the seller to the buyer and the Register of Deeds was
authorized to cancel title and to issue a new title in favor of the
buyer. Subsequently, another instrument was executed entitled
an option to repurchase, between the same parties over the
same parcel of land.
The Court could not consider the transactions to be one
of sale a retro since the option to purchase was executed
subsequently and in a separate document citing the Villarica
doctrine. The Court could not also consider the transactions to
be an equitable mortgage since nothing in the main document
tended to show that the property sold was meant to be a security
for the payment of a loan, and none of the circumstances under
Article 1602 showing an equitable mortgage were shown to be
present.
81
536
LAW ON SALES
Ibid, at p. 325.
96 Phil. 37 (1954).
86
112 SCRA 641 (1982).
85
EXTINGUISHMENT OF SALE
537
apparent seller shall fail to pay the obligation within the period as
xed in the judgment, he would also lose the right to redeem the
property and as such, the absolute ownership over the subject
premises would be consolidated in the buyer. The Court held
We do not agree with the respondent courts
interpretation. It contradicts the agreement between
the parties and the declaration in the decision that
the contract between the parties was an equitable
mortgage, not a pacto de retro sale. It would produce
the same effect as a pactum commissorium, a forfeiture
clause that has traditionally been held as contrary to
good morals and public policy and therefore void.87
538
LAW ON SALES
87
88
EXTINGUISHMENT OF SALE
539
In one case,94 the Court held that the law favors the least
transmission of rights and interest over a property in controversy; the purpose of the law is to prevent circumvention of the
law on usury and the prohibition against a creditor appropriating the mortgage property, and additionally, to end unjust or
oppressive transactions or violations in connection with a sale
of property.
Since Article 1602 is remedial in nature, it was applied retroactively in cases prior to the effectivity of the New Civil Code.95
d. When Presumed Equitable Mortgage
Under Article 1602 of the Civil Code, the contract of sale
with right to repurchase (sale a retro) shall be presumed to be an
equitable mortgage, in any of the following cases:
(a) When the price of under a sale a retro is
unusually inadequate;
(b) When the seller remains in possession as
lessee or otherwise;
(c) When the period of redemption is extended
or renewed under a separate instrument;
(d) When the buyer retains part of the purchase
price;
(e) When the seller binds himself or continues
to pay the taxes on the thing sold;
93
(2005).
94
95
540
LAW ON SALES
EXTINGUISHMENT OF SALE
541
542
LAW ON SALES
EXTINGUISHMENT OF SALE
543
544
LAW ON SALES
119
Art. 1604, Civil Code; Zamora v. Court of Appeals, 260 SCRA 10 (1996); Tuazon
v. Court of Appeals, 341 SCRA 707 (2000); Lorbes v. Court of Appeals, 351 SCRA 716
(2001); Cruz v. Court of Appeals, 412 SCRA 614 (2003).
120
Tuazon v. Court of Appeals, 341 SCRA 707 (2000); Cruz v. Court of Appeals,
412 SCRA 614 (2003).
121
Cuyugan v. Santos, 34 Phil. 100 (1916); Lim v. Calaguas, 45 O.G. No. 8, p.
3394 (1948); Mariano v. Court of Appeals, 220 SCRA 716 (1993); Matanguihan v. Court
of Appeals, 275 SCRA 380 (1997); Hilado v. Medalla, 377 SCRA 257 (2002); Madrigal v.
Court of Appeals, 456 SCRA 659 (2005).
122
Legaspi v. Ong, 459 SCRA 122 (2005).
EXTINGUISHMENT OF SALE
545
546
LAW ON SALES
125
123
EXTINGUISHMENT OF SALE
547
548
LAW ON SALES
LEGAL REDEMPTION
1. Denition
Legal redemption is the right to be subrogated upon the
same terms and conditions stipulated in the contract, in the place
of one who acquires a thing by purchase or dation in payment,
131
EXTINGUISHMENT OF SALE
549
(c) The exercise of the right a retro extinguishes the underlying contract of sale as
though there was never any contract at all;
whereas, the exercise of the legal right of
redemption, although it extinguishes the
original sale, actually constitutes a new
sale in substitution of the original sale.
3. Legal Redemption under Civil Code
a. Among Co-Heirs
Under Article 1088 of the Civil Code, should any of the
heirs sell his hereditary rights to a stranger before the partition
of the decedents estate, any or all of the other co-heirs may be
subrogated to the rights of the purchaser by reimbursing him for
the price of the sale, provided they do so within the period of one
(1) month from the time they were notied in writing of the sale
by the selling co-heir.
There is no right of legal redemption available to the coheirs when the sale covers a particular property of the estate,
since the legal right of redemption applies only to the sale by an
heir of his hereditary right.138
Likewise, the heirs who participated in the execution of the
extrajudicial settlement which included the sale to a third person
of their pro indiviso shares in the property are bound by the
same, which the co-heirs who did not participate would have the
right to redeem their shares pursuant to Article 1088 of the Civil
Code.139
b. Among Co-Owners
Under Article 1620 of the Civil Code, a co-owner of a thing
may exercise the right of redemption in case the shares of all the
other co-owners or of any of them, are sold to a third person. If
the price of the alienation is grossly excessive, the redemptioner
shall pay only a reasonable price therefor.
138
139
550
LAW ON SALES
EXTINGUISHMENT OF SALE
551
552
LAW ON SALES
145
Ibid.
Primary Structures Corp. v. Valencia, 409 SCRA 371 (2003).
151
Ibid.
152
Ibid.
153
Ibid.
154
38 SCRA 276 (1971).
150
EXTINGUISHMENT OF SALE
553
554
LAW ON SALES
urban lands that are bought for speculations; the right does not
apply to a lessee trying to buy the land that he is leasing.
g. Sale of Credit in Litigation
When a credit or other incorporeal right in litigation is sold,
the debtor shall have a right to extinguish it by reimbursing the
assignee for the price the latter paid therefor, the judicial costs
incurred by him, and the interest on the price from the day on
which the same was paid.159 The debtor may exercise his right
within 30 days from the date the assignee demands payment
from him.160
h. When Legal Redemption Period Begins to Run
The right of legal pre-emption or redemption shall not be
exercised except within 30 days from the notice in writing by
the prospective seller, or seller, as the case may be. The article
also provides that, the deed of sale shall not be recorded in the
Registry of Property unless accompanied by an afdavit of the
seller that he has given written notice thereof to all possible
redemptioners.
In Cabrera v. Villanueva,161 the Court accepted the sworn
declaration of the seller in an afdavit executed by him to the
effect that he had given written notice of the sale to his co-owners,
as proof that in fact the written notice required under Article 1623
has been complied with.
In contrast, Primary Structures Corp. v. Valencia,162 afrmed
the need for strict compliance with the provisions of Article
1623 by pointing that In stressing the mandatory character of
the requirement, the law states that the deed of sale shall not
be recorded in the Registry of Property unless the same is
accompanied by an afdavit of the vendor that he has given
notice thereof to all possible redemptioners.163 In that decision,
159
155
Ibid, at p. 282.
156
De Santos v. City of Manila, 45 SCRA 409 (1972).
157
69 SCRA 360 (1976).
158
325 SCRA 210 (2000).
EXTINGUISHMENT OF SALE
555
the Court held that the existence of a clause in the deed of sale
to the effect that the seller has complied with the provisions of
Article 1623 cannot be taken to being the written afrmation
under oath, as well as the evidence, that the required written
notice to petitioner under Article 1623 has been meet ... [since
party entitled to redemption] is not a party to the deed of sale
... and has had no hand in the preparation and execution of the
deed of sale. It could not thus be considered a binding equivalent
of the obligatory written notice prescribed by the Code.164
The author believes that Primary Structures Corp. provides
the better rule when compared to the ruling in Cabrera, as
gleaned from the other decisions of the Supreme Court discussed
hereunder.
Butte v. Manuel Uy & Sons, Inc.,165 held that under the
language of the law, the notice must be given by the vendor or
seller; notice given by the buyer, even when in written form, does
not start the running of the 30-day period of redemption. The Court
held:
The text of Article 1623 clearly and expressly
prescribes that the thirty days for making the redemption
are to be counted from notice in writing by the vendor.
Under the old law (Civil Code of 1889, Article 1524),
it was immaterial who gave the notice; so long as the
redeeming co-owner learned of the alienation in favor
of the stranger, the redemption period began to run. It
is thus apparent that the Philippine legislature in Article
1623 deliberately selected a particular method of giving
notice, and that method must be deemed exclusive.166
556
LAW ON SALES
168
164
EXTINGUISHMENT OF SALE
557
558
LAW ON SALES
EXTINGUISHMENT OF SALE
559
560
LAW ON SALES
ments under Article 1623 and the case-law that has interpreted
the article, and with denitiveness declared:
(a) For the 30-day redemption period to begin
to run, notice must be given by the seller;
and that notice given by the buyer or even
by the Register of Deeds is not sufcient.
This expressly afrms the original ruling
in Butte v. Manuel Uy and Sons, Inc.,179
as afrmed in Salatandol v. Retes,180 and
expressly overruled the ruling in Etcuban
v. Court of Appeals,181 which allowed the
giving of notice by the buyer to be effective
under Article 1623;
(b) When notice is given by the proper party
(i.e., the seller), no particular form of written
notice is prescribed under Article 1623, so
that the furnishing of the copies of the deeds
of sale to the co-owner would be sufcient,
as held previously in Distrito v. Court of
Appeals,182 Conejero v. Court of Appeals,183
Badillo v. Ferrer,184 but only on the form of
giving notice but not on the ruling of who is
the proper party to give notice;
(c) Afrmed the ruling in Alonzo v. Intermediate
Appellate Court,185 that the ling of the suit
for ejectment or collection of rentals against
a co-owner actually dispenses with the need
for a written notice, and must be construed
as commencing the running of the period
in the best position to conrm whether consent to the essential obligation of selling the
property and transferring ownership thereof to the vendee has been given. (at p. 800.)
179
4 SCRA 526 (1962).
180
162 SCRA 568 (1988).
181
148 SCRA 507 (1987).
182
197 SCRA 606 (1991).
183
16 SCRA 775 (1966).
184
152 SCRA 407 (1987).
185
150 SCRA 259 (1987).
EXTINGUISHMENT OF SALE
561
562
LAW ON SALES
EXTINGUISHMENT OF SALE
563
564
LAW ON SALES
of sale, the delinquent taxpayer, or anyone for him, shall have the
right of redeeming the property by paying to the Revenue District
Ofcer the amount of the public taxes, penalties, and interest
thereon from the date of delinquency to the date of sale, together
with interest on the purchase price.
201
Lee Chuy Realty Corp. v. Court of Appeals, 250 SCRA 596 (1995).
Reyes v. Hamada, 14 SCRA 215 (1965).
206
6 SCRA 946 (1962).
207
Ibid, at pp. 948-949.
205
EXTINGUISHMENT OF SALE
565
566
LAW ON SALES
EXTINGUISHMENT OF SALE
567
568
LAW ON SALES
sale can proceed to have title consolidated in his name and a writ
of possession issued in his favor.212
CHAPTER 14
ASSIGNMENT
212
Vaca v. Court of Appeals, 234 SCRA 146 (1994); Union Bank v. Court of Appeals,
358 SCRA 479 (2001).
213
First Global Realty and Dev. Corp. v. San Agustin, 377 SCRA 341 (2002).
214
Rural Bank of Davao City v. Court of Appeals, 217 SCRA 554 (1993); The Heirs
of Felicidad Canque v. Court of Appeals, 275 SCRA 741 (1997).
215
Quio v. Court of Appeals, 291 SCRA 249 (1998).
ASSIGNMENT
569
570
LAW ON SALES
PARAS, CIVIL CODE OF THE PHILIPPINES, Vol. V (1990 ed.), pp. 258-259.
TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. V (1959 ed.), p. 165.
ASSIGNMENT
571
572
LAW ON SALES
10
Ibid, at p. 312.
Ibid at p. 317, citing 6A C.J.S. 781; emphasis supplied.
12
358 SCRA 626 (2001).
13
Ibid, at pp. 632-633. Reiterated in Aquintey v. Tibong, 511 SCRA 414 (2006).
11
8
9
ASSIGNMENT
573
574
LAW ON SALES
ASSIGNMENT
575
Art. 1626, Civil Code; Aquintey v. Tibong, 511 SCRA 414 (2006).
358 SCRA 626 (2001).
23
Ibid, at pp. 632-633.
22
576
LAW ON SALES
like the genus sale, is not a mode but merely constitute title,
and does not by its perfection alone transfer ownership of the
subject matter thereof.
Although the chapter of the Civil Code on assignment does
not particularly cover this point, the transfer of title or ownership
over the subject matter of assignment should also be effected
not by the mere perfection of the assignment, but by the same
manner by which ownership is transferred under the species
sale, by constructive delivery, such as the execution of a public
instrument. Since assignment falls under the genus sale, then
the effects of tradition of sale in general should also apply to
assignment; except that doctrines as to actual or physical delivery
have no application, since the object of assignment does not
have physical existence.
This position is bolstered by Article 1508 of the Civil Code
on sales in general which provides that for incorporeal property,
the provisions of Article 1498 shall govern on the effects of the
execution of a public instrument. In addition it states that for sale
of incorporeal property, the placing of the titles of ownership in the
possession of the vendee or the use by the vendee of his rights,
with the vendors consent, shall be understood as a delivery.
However, without the execution of the public instrument, or the
registration in the Registry of Deeds in case of real rights, such
constructive delivery would not bind third parties.
In Leonido v. Capitol Dev. Corp.,24 it was held that the
notarization of the Assignment of Credit, converted it into a public
document, thereby complying with the mandate of Article 1625 of
the Civil Code and making it enforceable even as against third
person.
a. Accessories and Accessions
Like the effect in species sale, the assignment of a credit
includes all the accessory rights, such as a guaranty, mortgage,
pledge or preference.25
24
ASSIGNMENT
577
b. Warranties
The warranty against hidden defects generally has no application to an intangible because it has no physical existence.
In assignment, the assignor shall be responsible for the
existence and legality of the credit at the time of sale, unless it
has been expressly sold as a doubtful account, in which case
the assignee takes the credit at his own risk.26 Consequently, the
invalidity of the credit assigned makes the assignor-vendor liable
for breach of such warranty.27
578
LAW ON SALES
the rst paragraph of Article 1628 of the Civil Code, which makes
the seller or assignor liable for the existence and legality of the
credit at the time of sale. The Court held that when it is shown
that the assigned credit no longer existed at the time of dation,
then it obliged the assignor-debtor to make good its warranty and
pay the obligation.
Other specic warranties pertaining to assignment are as
follows:
(a) One who assigns an inheritance right without
enumerating the things it is composed of,
shall only be answerable for his character
as an heir;32 but any fruits received he shall
pay to the assignee, unless the contrary
has been stipulated;33
26
32
ASSIGNMENT
579
580
LAW ON SALES
The right to redeem on the part of the debtor shall not exist
with respect to the following assignments which the law considers
not for speculation:
(a) Assignment of the credit or incorporeal
right to the co-heir or co-owner of the rights
assigned;
37
(2003).
38
39
ASSIGNMENT
581
ASSIGNMENT OF COPYRIGHT
The owner of a copyright may assign it in whole or in part;
and within the scope of the assignment, the assignee is entitled
to all the rights and remedies which the assignor had with respect
to the copyright.41
The copyright is not deemed assigned inter vivos in whole
or in part unless there is a written indication of such intention.42
The submission of a literary, photographic or artistic work
to a newspaper, magazine or periodical for publication shall
constitute an assignment but only a license to make a single
publication, unless a greater right is expressly granted.43
If two or more persons jointly own a copyright or any
part thereof, neither of the owners shall be entitled to grant
licenses without the prior written consent of the other owner or
owners.44
40
Ibid.
Sec. 180, Intellectual Property Code.
42
Sec. 180.2, ibid.
43
Sec. 180.3, ibid.
44
Sec. 180.3, ibid.
41
582
LAW ON SALES
583
CHAPTER 15
584
LAW ON SALES
583
585
586
LAW ON SALES
(b) Transactions effected by executors, administrators, receivers, assignees in insolvency, or public ofcers, acting under legal
process.4
2. Business Covered by the Law
In People v. Wong,5 the Court of Appeals held that since the
Law is penal in nature, it should be construed strictly against
the State and liberally in favor of the accused. In that case, the
accused was being held liable for violating the Law by a creditor
for having sold his foundry shop, together with the goodwill
and all other assets pertaining to it without complying with the
requirements of the Law. Wong held that the object of the sale
was not covered by the Law:
What was sold was the shop itself, together with the
goodwill, credits, equipment, tools and machineries
thereof, including a Dodge truck, which are not the
stock of merchandise, goods, wares, provisions or
materials in bulk, contemplated in the afore-quoted
Section 3 of Act No. 3952.6
587
TOLENTINO, COMMMERCIAL LAW, Vol. II (4th ed.), pp. 1267-1268, quoting from Boise
Credit Mens Assoc. v. Ellis, 26 Ida. 438, 144 Pac. 6; Peoples Savings Bank v. Van Allsburg,
165 Mich. 524, 131 N.W. 101; Albretcht v. Cudihee, 37 Wash. 206, 79 Pac. 628.
9
86 O.G., No. 6, 1137 (1987).
10
Ibid, at p. 1140.
588
LAW ON SALES
589
590
LAW ON SALES
12
14
Sec. 7, ibid.
591
592
LAW ON SALES
15
17
593
594
LAW ON SALES
19
Art. 1313 of the Civil Code provides that Creditors are protected in cases of
contracts intended to default them.
Art. 1381 provides that contracts entered into in fraud of creditors when the
latter cannot in any other manner collect the claims due them, are rescissible. Art. 1388
provides that Whoever acquires in bad faith the things alienated in fraud of creditors,
shall indemnify the latter for damages suffered by them on account of the alienation,
whenever, due to any cause, it should be impossible for him to return them.
595
CHAPTER 16
595
596
LAW ON SALES
4
Inchong v. Hernandez, 101 Phil. 1155 (1957): Through it, and within the eld of
economy it regulates, Congress attempts to translate national aspirations for economic
independence and national security, rooted in the drive and urge for national survival and
welfare, into a concrete and tangible measures designed to free the national retailer from
the competing dominance of the alien, so that the country and the nation may be free from
a supposed economic dependence and bondage. (at pp. 1160-1161.)
5
Sec. 2, Retail Trade Liberalization Act of 2000 (hereinafter referred to as R.A.
No. 8762).
6
Ibid.
597
598
LAW ON SALES
599
der the old Retail Trade Nationalization Law, which the Supreme
Court had interpreted to exclude from its coverage merchandise
and goods which are not consumer goods. Consequently, on
this score the same jurisprudential doctrine under the old Retail
Trade Nationalization Law must apply to RTLA 2000.
Although, the Implementing Rules and Regulations (IRR)
of RTLA 2000 dene consumption to mean the utilization of
economic goods in the satisfaction of want resulting in immediate
destruction, gradual decay or deterioration or transformation into
other goods,14 the same denition also appeared in the rules
and regulations implementing the old Retail Trade Nationalization
Law, but nevertheless did not gure in the Courts rulings dening
consumer goods.
Balmaceda v. Union Carbide Philippines, Inc.,15 held that
the term retail trade should be associated with, and limited to,
goods for personal, family or household use, consumption and
utilization. It construed the old Retail Trade Nationalization Law to
refer to consumption goods or consumer goods which directly
satisfy human wants and desires and are needed for home and
daily life. Accordingly, it excluded from the coverage of retail trade
goods which are considered generally raw materials used in the
manufacture of other goods, or if not, as one of the component
raw material, or at least as elements utilized in the process of
production and manufacturing.16
Goodyear Tire and Rubber Co. v. Reyes,17 held that a manufacturer which sells rubber products to the government, public
14
600
LAW ON SALES
601
22
Manufacturer refers to a person who alters raw material or manufactured or
partially manufactured products, or combines the same in order to produce nished
products for the purpose of being sold or distributed to others. (Sec. 1[i], Rule I, IRR).
23
Processor refers to a person who converts raw materials into marketable
form by special treatment or a series of action that changes the nature or state of the
product, like slaughtering, milling, pasteurization, drying, or dessicating, quick freezing
and the like. Mere packing, packaging, sorting or classifying does not make a person a
processor. (Sec. 1[m], Rule I, IRR).
602
LAW ON SALES
603
604
LAW ON SALES
IN
605
606
LAW ON SALES
RETAIL TRADE
34
36
The cut-off date of 25 March 2002 is provided under Sec. 1, Rule III, IRR.
Ibid.
607
608
LAW ON SALES
For purposes of investments (as distinguished from engaging), the SEC has adopted the rule that shares belonging to corporations or partnerships at least 60% of the capital of which
is owned by Filipino citizens shall be considered as Philippine
nationality, but if the percentage of Filipino ownership in the
corporation or partnership is less than 60%, only the number of
shares corresponding to such percentage shall be counted as of
Philippine nationality.39
In an en banc ruling on 2 November 1989,40 SEC formally
adopted the method of determining corporate nationality on the
basis of the Opinion of the Department of Justice No. 18, s. 1989,
dated 19 January 1989, which reads
Shares belonging to corporations or partnerships at
least 60% of the capital of which is owned by Filipino
citizens shall be considered as of Philippine nationality,
but if the percentage of Filipino ownership in the
corporation or partnership is less than 60% only the
number of shares corresponding to such percentage
shall be counted as of Philippine nationality. Thus,
if 100,000 shares are registered in the name of a
corporation or partnership at least 60% of the capital
stock or capital respectively, of which belong to Filipino
citizens, all of the said shares shall be recorded as
owned by Filipinos. But if less than 60% or, say, only
50% of the capital stock or capital of the corporation
or partnership, respectively belongs to Filipino citizens,
only 50,000 shares shall be counted as owned by
Filipinos and the other 50,000 shares shall be recorded
as belonging to aliens.
609
610
LAW ON SALES
unless the foreign investor has notied the SEC and the DTI
of its intention to repatriate its capital and cease operations in
the Philippines.42 The actual use in Philippine operations of the
inwardly remitted minimum capital requirement shall be monitored
by the SEC.43
Failure to maintain the full amount of the prescribed minimum
capital prior to notication of the SEC and the DTI, shall subject
the foreign investor to penalties or restrictions on any future
trading activities and business in the Philippines.44
Foreign retail stores shall secure a certication from the
Bangko Sentral ng Pilipinas (BSP) and the DTI, which will verify
or conrm inward remittance of the minimum required capital
investment.45
3. Foreign Investors Acquiring Shares of
Stock of Local Retailers
Foreign investors acquiring shares from existing retail stores
whether or not publicly listed whose net worth is in excess of
the peso equivalent of US$2.5 Million (i.e., Category B), may
purchase only up to a maximum of sixty percent (60%) of the
equity thereof within the rst two (2) years from the effectivity
of RTLA 2000 and thereafter, they may acquire the remaining
percentage consistent with the allowable foreign participation.46
4. Public Offering of Shares of Stock
All retail trade enterprises under Categories B and C, in
which foreign ownership exceeds eighty percent (80%) of equity,
shall offer a minimum of thirty percent (30%) of their equity to the
public through any stock exchange in the Philippines within eight
(8) years from their start of operations.47
42
611
612
LAW ON SALES
FOREIGN RETAILERS
The IRR of RTLA 2000 dene a foreign retailer as an individual who is not a Filipino citizen, or a corporation, partnership, association or entity that is not wholly-owned by Filipinos,
engaged in retail trade,48 which would include domestic partnerships, associations, and corporations which are not wholly-owned
by Filipinos, and would require the application of the grandfather
rule.
1. Prequalication Requirements49
Before a foreign retailer is allowed to establish or organize
an entity that will engage in the retail trade business or invest in a
retail store in the Philippines, it must possess all of the following
qualications:
(a) A minimum Net Worth,50 of:
(i) US$200 Million of the registrant corporation in Categories B and C; and
(ii) US$50 Million of the registrant corporation in Category D.
(b) Five (5) retailing branches or franchises,51
in operation anywhere around the world
unless such retailer has at least one (1)
store,52 capitalized at a minimum of US$25
Million;
48
613
614
LAW ON SALES
PENALTY CLAUSE
Any person who shall be found guilty of violation of any
provision of RTLA 2000 shall be punished by:
58
63
615
616
LAW ON SALES
68
72
617
It has also been held that when an alien gives or donates his
money to a citizen of the Philippines so that the latter could invest
it in retail trade, such act, provided it is done in good faith, does
not violate our laws. What was prohibited by the Anti-dummy Law
and the retail trade law then prevailing was the conduct of retail
trade by the alien himself.75
The foregoing rulings are still applicable under RTLA 2000
but more specically to Category A retailing, and to Categories
B, C, and D, when the capital and per-store investment
requirements are not met.
IMPLEMENTING AGENCY
1. DTI as Implementing Agency
The DTI is agency authorized to pre-qualify all foreign retailers
before they are allowed to conduct business in the Philippines,76
and to issue the implementing rules and regulations.77 The DTI
shall keep a record of qualied foreign retailers who may, upon
compliance with law, establish retail stores in the Philippines. It
shall ensure that the parent retail trading company of the foreign
investor complies with the qualications on capitalization and
track record prescribed in this section.
The Inter-Agency Committee on Tariff and Related Matters
of the National Economic Development Authority (NEDA) Board
shall formulate and regularly update a list of foreign retailers of
high-end or luxury goods and render and annual report on the
same to Congress.
The monitoring and regulation of foreign sole proprietorships,
partnerships, associations, or corporations allowed to engage
in retail trade, including the resolution of conicts, shall be the
responsibility of the DTI.
The DTI, in coordination with the SEC, the NEDA and
the BOI shall formulate and issue the implementing rules and
75
Sui v. Court of Appeals, 341 SCRA 364 (2000), citing People v. Aurelia Altea, 53
O.G. No. 5, p. 1464.
76
Sec. 8, R.A. No. 8762.
77
Sec. 11, R.A. No. 8762.
618
LAW ON SALES
619
APPENDIX A
619
620
LAW ON SALES
[Obligations] and II [Contracts] of this Book, by the rules governing the most analogous nominate contracts, and by the customs
of the place.6
The tremendous advances achieved in science and technology, and the increasing complexities of business and commercial transactions and relationships, have brought about in
our modern society innovative contractual innovations that have
not before been designated as among the nominate contracts
governed by the specic provisions of the Civil Code and special statutes. Derivatives, commercial franchising, underwriting
agreements, to name a few, are terms used to dene contracts
that were fashioned in fairly recent times, all of which would constitute innominate contracts since they have not been dened
particularly by any statutory provision, nor is there a set of law
that governs their peculiar characteristics. Yet no single set of
doctrinal rules have been systematically achieved as the governing law to decide issues arising from such innominate contracts.
As will be shown in the discussions hereunder, the lack of
central doctrinal rules pertaining to innominate contracts has
led the Philippine Supreme Court to infect nominate contracts
with rulings that should rightfully apply to innominate contracts.
In attempts to dene the rights and obligations of contracting
parties in contractual relations which should be considered as
innominate contracts, the courts tend to lean back and t the
relationship into a nominate contractual relationship, and thereby
make doctrinal pronouncement that do not t into the essence
of the chosen nominate contract. Consequently, such practice
has introduced viral doctrines that infect and tend to weaken the
logical fabric of the set of laws governing the infected nominate
contract.
OBJECTIVES OF PAPER
The paper endeavors to demonstrate the dangerous tendency
of the courts to force into particular nominate contract scenarios
issues that arise from innominate contractual relationship and the
6
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
621
622
LAW ON SALES
12
TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. IV, p. 399 (1973 ed.); PARAS, CIVIL
CODE OF THE PHILIPPINES, Vol. IV, p. 85 (Thirteenth Ed. 1994).
13
2 Phil. 682 (1901).
14
27 SCRA 263 (1969).
15
73 SCRA 564 (1976).
16
Ibid, at pp. 572-573.
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
623
Ibid.
98 SCRA 424 (1980).
19
Ibid, at p. 439.
18
624
LAW ON SALES
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
625
626
LAW ON SALES
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
627
628
LAW ON SALES
24
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
629
630
LAW ON SALES
(b) In a contract to sell, the perfection of the contract only gives rise to reciprocal conditional
obligations, i.e., non-demandable obligations
until the condition happens.31
29
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
631
632
LAW ON SALES
only the courts can grant the remedy of recalling ownership that
has passed to the buyer and returning it to the seller. On the other
hand, in a contract to sell, delivery of the subject matter does not
transfer ownership to the buyer, and therefore when the condition
is not fullled (i.e., non-payment of the purchase price) no court
intervention is needed to rescind the contract since ownership
has remained with the seller. If court intervention is necessary, it
is not for the rescission of the contract, but for the recovery of the
possession from the buyer who is not entitled thereto.
In their executory stages, there is no practical difference in
remedies available to the innocent party in both a contract of
sale and a contract to sell for purposes of rescission, since both
can be done extrajudicially. When performance stage has been
reached, generally, court action is necessary to rescind a contract
of sale; whereas, no such court action is necessary to rescind a
contract to sell.
In any event the failure to clearly dene the differences
between the obligations created by a contract of sale, on one
hand, and the obligations created by a contract to sell, on the other,
has actually created a distortion of doctrinal pronouncements in
certain decisions of the Supreme Court when covering facio ut
facias contracts because of their similarity to contracts to sell.
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
633
On the other hand, the requisites for the price of a valid and
binding sale contract are: (a) it must be real;38 (b) it must be in
money or its equivalent (i.e., must be valuable consideration as
distinguished from nominal consideration);39 (c) it must be certain
or ascertainable;40 and (d) the manner of payment of price must
be agreed upon.41 When the certainty of the price is not met at
perfection, then there is no valid and enforceable contract.42
It is the established doctrine that [a]n offer to sell and an
acceptance do not create a valid and binding contract to sell when
the terms and conditions of the price and its payments have not
been agreed upon, and any action for specic performance will
not prosper.43
In spite of the requisites of subject matter and price to
support a valid and binding sale contract, the Supreme Court
started to legitimize certain contracts as being and embodied in
the genus sale when more properly they should be considered
as part of the scope of facio ut facias contracts.
634
LAW ON SALES
45
46
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
635
636
LAW ON SALES
and merely bound himself to the terms of the price of the spare
parts described, a binding contract of sale existed between them
upon issuance of the purchase order even though the quantities
were conrmed only later on, at the time the supplier ordered the
items from the German manufacturer as to have made it liable for
the 30% cancellation charge.
The Court of Appeals held that there could not be a valid
sale contract between the supplier and the buyer at the time of
the issuance of the purchase order and the ordering of the items
by the supplier from the German manufacturer, and therefore
dismissed the case. On appeal, citing National Grains Authority,
the Supreme Court held: [Q]uantity is immaterial in the perfection
of a sales contract. What is of importance is the meeting of the
minds as to the object and cause, which from the facts disclosed
. . . these essential elements had already concurred [at the time
the supplier placed the order with the German manufacturer].48
The problem with the basic ruling in Johannes Schuback is
that at the point of perfection decreed by the Supreme Court, the
quantity of the subject matter being unspecied, nor where there
any terms or stipulations upon which the courts could determine
the same without need of entering into a new agreement, would
not fulll the requirements of determinable subject matter; and
therefore, no valid and binding sale contract had yet arisen at
the point. If there was already a perfect contract of sale upon the
giving of the purchase order without quantity, and in fact later
the buyer did not conrm any quantity, there could be no basis
of an action for specic performance on the part of the seller,
since there was also no basis to compute the price which would
depend upon the actual quantity of the items ordered.
The proper characterization of the contract that arose
between the supplier and the buyer at the time the purchase
order was given without specication of the quantity of the items
ordered would have been a suppliers contract under the genus
facio ut facias which would have preserved the integrity of the
doctrines pertaining to the characteristics of the proper subject
48
Ibid, at p. 722.
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
637
638
LAW ON SALES
50
54
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
639
640
LAW ON SALES
55
56
Ibid, at p. 614.
206 SCRA 668 (1992).
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
641
Ibid, at p. 615.
264 SCRA 483 (1996).
642
LAW ON SALES
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
643
Ibid, at p. 511.
644
LAW ON SALES
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
645
denite items respecting the subject matter and the price. The
supply agreement is meant to be the underlying basis by which
a series of subsequent binding contracts would be entered into.
In the above illustration, it would be a series of sales contracts as
each order is placed and serviced.
The underlying supply agreement in the illustration between
the supplier and the buyer is not a species of the sales contract
because by itself it has not created obligations on the part of
the seller to deliver ownership and possession of determinate
or determinable subject matter, and no obligation on the part
of the buyer to pay a price certain. The supply agreement does
not, therefore, create real obligations on the part of either of the
contracting parties; what it constitutes is an agreement to agree,
which in the illustration above would cover an agreement to enter
into series of sales contracts.
An agreement to agree is a species of the innominate
contract facio ut facias because it essentially covers bilateral
obligations to do (i.e., obligations to enter into a contract), and
do not create real obligations. Consequently, a supply agreement,
in case of breach thereof, is not capable of enforcement by
specic performance, but would give legal basis for recovery of
damages for breach of contract, which recognizes the underlying
contractual relationship between the contracting parties, and the
application of the principle of obligatory force.
A supply agreement may also be in preparation for a
specic future sale contract and not meant to establish a longterm relationship between supplier and buyer. This was the case
in Johannes Schuback whereby the purchase order was issued
by the buyer without yet committing itself to the exact quantity of
the subject matter. In effect, when the buyer issued the purchase
order, it entered into a limited supply agreement with the supplier,
i.e., with the specic quotation given by the supplier binding itself
to supply the parts at specied unit prices during the covering
period. The buyer, in issuing the purchase order, committed itself
at that point to purchase or rather to enter into a purchase
agreement within the period indicated. What was constituted at
that point was merely an agreement to agree, which meant that
646
LAW ON SALES
both parties agreed that they will enter into a nal sale contract
within the covered period.
Prime White Cement Corp. v. Intermediate Appellate
Court,64 although the ratio decidendi dealt with corporate issues
on powers of corporate ofcers to bind the corporation and the
principle of self-dealings by corporate directors, nevertheless
recognized a Dealership Agreement entered into by a supplier
with the manufacturing corporation for the supply of white
cement products over a period would be valid and binding if the
price formula covered in the contract was reasonable to afford
protection to the corporation. In that case, the Court held that
when the Dealership Agreement provided that the corporation
would be obligated to supply 20,000 bags of white cement per
month, for ve years ... at a xed price of 59.70 per bag,65 the
price was in fact unreasonable as to be void at the instance
of the corporation, having been entered into with a director of
the corporation. The Court held that the dealing director is a
businessman himself and must have known, or at least must be
presumed to know, that at that time, prices of commodities in
general, and white cement in particular, were not stable and were
expected to rise. At the time of the contract, petitioner corporation
had not even commenced the manufacture of white cement, the
reason why delivery was not to begin until 14 months later. . . no
provision was made in the dealership agreement to allow for an
increase in price mutually acceptable to the parties.66
Prime White Cement recognized that in a Supply Agreement,
involving the delivery of merchandise over a long period of time,
it would even be unreasonable to x the price already for goods
yet to be delivered in the future; and that properly the contract
should provide only for future agreement of the price at the time
of compliance with the delivery commitments. The Court even
cited that in the sub-contracts entered into by the dealing director
such exible price-xing formula were provided based on the
prevailing market rate at the time of delivery, were deemed to
be more reasonable. There was therefore implied recognition
64
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
647
648
LAW ON SALES
the offeree an offer to sell; and on the part of the offeree, that if it
be his desire at that point to accept the offer to enter into a sale
contract. The only existing obligation created by the perfection of
a right of rst refusal arrangement therefore is an obligation to
do on the part of the offeror, and a privilege on the part of the
offeree, which if exercised would give rise to a valid and binding
sale contract. The arrangement would be a species of facio ut
facias contracts that encompass an I do that you may do or We
agree to negotiate in good faith towards seeing if we can perfect
a contract of sale, situation if you look at the entire exercise of
the relationship.
Under such contractual classication, then the Supreme
Court could move into the doctrinal position it took in Equatorial
Realty that refused to treat a right of rst refusal arrangement
as belonging to a class of preparatory/juridical relations not
governed by law on contracts but by the codal provisions on
human relations. As a species of facio ut facias contracts, a
right of rst refusal arrangement can therefore be enforced
according to the law on contracts instead of the panoramic and
indenite rule on human relations. But contrary to the sweeping
acknowledgment given in Equatorial Realty, being a species of
the facio ut facias contracts, a right of rst refusal arrangement
merely covers an obligation to do and is not subject to specic
performance unless and until it reaches the next stage of tipping
into a sale contract (by the exercise of the right) and therefore
would constitute real obligations which can then be the subject of
specic performance. Under such position, the Ang Yu Asuncion
doctrine of stating that a right of rst refusal arrangement is not
by itself subject to specic performance is correct because of
the very nature of the personal obligation constituted, but unlike
the Ang Yu Asuncion doctrine, the remedy for its breach is not
damages under Article 19 of the Civil Code on human relations
which does not recognize a contractual relationship, but an action
for damages for breach of contract under the Equatorial Realty
doctrine which recognizes the relationship as given rise to a
contract. Under such a setting, rights of rst refusal so commonly
inserted in leases and other contracts over real estate would not
be rendered inutile.
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS
649
650
LAW ON SALES
CONCLUSIONS
The author agrees with the observation of Justice Vitug
in his dissenting opinion in Equatorial Realty that [i]t would be
perilous a journey ... to try to seek out a common path for such
juridical relations as [sales] contracts, options, and rights for rst
refusal since they differ, substantially enough in their concepts,
consequences and legal implications.67
Several contractual and juridical relationships are being
evolved in the modern business world not even dreamt of at the
time when the provisions of the Civil Code were drafted covering
both nominate and innominate contracts. Although Article 1307 of
the Civil Code enjoins that innominate contracts be regulated and
construed by the rules governing the most analogous nominate
contracts, the intention has never been for innominate contract
situations to dilute the logical and well-established doctrinal basis
of analogous nominate contracts.
There is a need to recognize that many new contracts being
fashioned today are truly innovative, and should be adjudged
by analyzing their inherent structure to be able to evolve a
jurisprudential pool of integrated and logical doctrines that would
be the basis upon which parties can know of their rights and
obligations.
oOo
67
LAW ON SALES
BY
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iii
iv
ACKNOWLEDGMENT
PREFACE
vi
vii
viii
ix
TABLE OF CHAPTERS
CHAPTER 1
CHAPTER 2
40
CHAPTER 3
70
CHAPTER 4
97
CHAPTER 5
CHAPTER 6
OF
CHAPTER 7
CHAPTER 8
CHAPTER 9
xii
TABLE OF CONTENTS
CHAPTER 1
xiii
1
2
3
5
6
7
9
10
11
12
14
17
18
19
20
21
28
29
29
30
34
35
38
CHAPTER 2
PARTIES OF SALE
GENERAL RULE ON CAPACITY OF PARTIES
MINORS, INSANE OR DEMENTED PERSONS, DEAF-MUTES
1. Necessaries ...........................................................
2. Emancipation.........................................................
3. Senility and Serious Illness ...................................
SALES BY AND BETWEEN SPOUSES
1. Sale With Third Parties ..........................................
2. Sales Between Spouses .......................................
a. Status of Prohibited Sales Between
Spouses............................................................
b. Rationale for Prohibition ...................................
c. Rationale for Exceptions to Prohibition
under Article 1490 ............................................
3. Applicability of Incapacity to Common
Law Spouses .........................................................
SPECIFIC INCAPACITY MANDATED BY LAW
1. Legal Status of Contracts Entered Into In
Violation of Articles 1491 and 1942 .......................
a. A Different Form of Ratication .....................
b. Proper Party to Raise Issue of Nullity ..............
c. Fraud or Lesion Not Relevant for Nullity ..........
2. Agents ...................................................................
xiv
41
42
43
45
47
47
49
50
52
55
57
59
59
60
60
62
63
63
65
CHAPTER 3
SUBJECT MATTER
REQUISITES OF VALID SUBJECT MATTER
a. Lack of Any Requisite Results in
Non-existent Sale .............................................
b. Legal Requisites of Subject Matter
Intended to Govern Underlying
Obligations of Seller .........................................
1. Subject Matter Must Be Possible Thing ..............
a. Emptio Rei Speratae ........................................
b. Emptio Spei ......................................................
c. Sale of Things Subject to Resolutory
Condition ..........................................................
d. Subject Matter Is Nexus of Sale .......................
2. Subject Matter Must Be Licit..................................
a. Sales Declared Illegal by Law ..........................
3. Subject Matter Must Be Determinate
or at Least Determinable .......................................
a. Determinate Subject Matter ..............................
b. Determinable Subject Matter ............................
c. Test of Determinability Is the Meeting
of Minds of Parties and Not the Covering
Deed .................................................................
d. When Quantity of Subject Matter Not
Essential for Perfection ....................................
e. Generic Non-Determinable Objects..................
xv
89
90
90
91
91
92
95
96
CHAPTER 4
70
72
72
75
76
76
77
78
79
80
80
81
83
84
88
99
99
99
101
101
102
105
106
107
109
112
112
113
114
115
115
118
119
120
121
121
131
131
132
132
133
CHAPTER 5
FORMATION OF SALE
STAGES IN THE LIFE OF SALE
POLICITATION STAGE
1. Advertisements and Invitations .............................
2. Offers .....................................................................
3. Option Contracts ...................................................
a. Determining the Location of Options ..............
b. Denition and Essence of Option Contract.......
xvii
137
138
139
139
140
166
168
171
171
xviii
142
144
145
147
149
150
150
151
152
153
156
161
163
163
163
164
164
164
xix
172
176
177
177
4.
177
178
179
179
180
181
181
182
182
182
185
5.
6.
7.
201
202
202
203
203
203
206
206
207
207
208
210
210
211
211
CHAPTER 6
OBLIGATIONS OF SELLER
1. To Preserve the Subject Matter ............................
2. To Deliver the Subject Matter ...............................
3. To Deliver the Fruits and Accessories ...................
4. To Warrant the Subject Matter ...............................
214
214
215
216
216
218
xx
218
219
219
220
222
227
230
230
230
231
231
231
232
233
233
233
237
237
237
238
238
239
239
240
241
241
243
243
243
244
245
245
245
246
247
248
250
250
252
253
255
255
256
258
264
268
268
270
273
273
274
279
280
280
281
282
283
284
284
285
286
287
287
287
288
289
290
DOCUMENTS OF TITLE
DEFINITION AND FUNCTION
a. Warehouse Receipts and Bonded
Warehouse Acts ...............................................
b. Rationale for Documents of Title ......................
TYPES OF DOCUMENTS OF TITLE
1. Negotiable Document of Title ................................
2. Non-Negotiable Document of Title ........................
3. Effects of Errors on Documents of Title .................
4. Effects of Use of Non-Negotiable Terms
on Negotiable Documents of Title .........................
296
297
298
294
295
299
299
CHAPTER 7
291
298
298
299
xxiv
302
303
303
304
304
304
304
305
305
305
306
307
308
310
310
336
337
340
312
313
315
316
CHAPTER 9
345
347
348
354
356
357
320
2. At Consummation ..................................................
321
328
331
334
334
335
335
REMEDIES OF PARTIES
INTRODUCTION .......................................................................
361
362
362
363
363
363
365
365
376
376
377
xxvii
366
367
367
367
368
368
369
369
369
370
370
371
371
371
373
373
373
373
374
374
374
374
375
375
378
378
379
381
381
381
383
385
385
387
388
389
389
390
391
394
395
398
404
404
404
405
406
406
407
408
408
410
412
413
414
414
415
416
416
416
417
417
418
418
419
419
422
423
423
424
CHAPTER 11
425
427
428
430
431
432
433
433
434
435
435
437
439
440
444
444
444
449
450
453
455
CHAPTER 12
459
460
462
EXPRESS WARRANTIES
IMPLIED WARRANTIES
463
465
468
474
480
480
482
484
484
485
485
486
487
488
496
496
497
498
499
499
499
500
501
501
502
502
503
503
504
505
506
506
506
506
507
507
507
xxxii
508
2.
3.
4.
5.
6.
508
509
510
510
511
511
511
512
513
513
513
514
CHAPTER 13
EXTINGUISHMENT OF SALE
IN GENERAL
CONVENTIONAL REDEMPTION
1. Denition ..............................................................
2. Proper Reservation of Right to Repurchase..........
3. Right of Repurchase May Be Proved
by Parol Evidence ................................................
4. Distinguished from Option to Purchase .................
5. Period of Redemption............................................
a. When No Period Agreed Upon ........................
b. When Period Agreed Upon ...............................
c. The Mysterious Aberration of Misterio ..............
d. Pendency of Action Tolls Redemption
Period ...............................................................
e. Non-Payment of Price Does Not Affect
Running of Redemption Period .......................
xxxiii
515
516
517
518
519
519
520
521
522
523
523
524
525
527
528
529
531
533
533
533
535
538
539
544
544
545
547
548
548
549
549
549
550
550
551
552
554
554
557
557
581
582
CHAPTER 15
THE BULK SALES LAW
560
TRANSACTIONS COVERED BY THE LAW
561
561
562
563
564
565
565
567
567
CHAPTER 14
585
586
OBLIGATIONS OF SELLER/ENCUMBRANCER
WHEN TRANSACTION IS A BULK SALE .......................................
588
590
592
592
593
ASSIGNMENT
CHAPTER 16
NATURE OF ASSIGNMENT IN THE SCHEME OF THINGS
WHAT MAKES ASSIGNMENT DIFFERENT?
1. Validity and Binding Effect .....................................
2. Binding Effect as to Third Parties ..........................
3. Effect of Assignment of Credit on Debtor ..............
4. Transfer of Ownership ...........................................
a. Accessories and Accessions ............................
b. Warranties ........................................................
xxxv
580
595
596
597
597
598
598
601
603
604
607
609
610
610
611
612
613
613
613
614
614
614
614
615
IMPLEMENTING AGENCY
1. DTI as the Implementing Agency ..........................
2. Role of DOJ and SEC ...........................................
617
618
APPENDIX A
THE LAW ON CONTRATOS INNOMINADOS ............................
xxxvii
619
xxxviii