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ATENEO DE MANILA LAW SCHOOL Absence of any essential elements negates a sale xDizon v.

CA, 302 SCRA 288


(1999),5 even when earnest money has been paid. Manila Metal Container Corp. v. PNB,
LAW ON SALES OUTLINE1 DEAN CESAR L. VILLANUEVA First Semester, SY 2009- 511 SCRA 444 (2006).
2010 AND ATTY. ALEXANDER C. DY Sale being a consensual contract, its essential elements must be proven xVillanueva
v. CA, 267 SCRA 89 (1997); but once proven, a sale’s validity is not affected by a
previously executed fictitious deed of sale xPeñalosa v. Santos, 363 SCRA 545 (2001);
I. THE NATURE OF SALE and the burden is on the other party to prove otherwise. xHeirs of Ernesto Biona v. CA,
362 SCRA 29 (2001).
A. DEFINITION (Art. 1458)
2. Stages of Contract of Sale
Sale is a contract by which one of the contracting parties obligates himself to transfer the
ownership2 and to deliver possession, of a determinate thing, and the other to pay therefor a Policitacion covers the period from the time the prospective contracting parties
price certain in money or its equivalent. xCruz v. Fernando, 477 SCRA 173 (2005).3 indicate interest in the contract to the time the contract is perfected. Perfection takes
place upon the concurrence of the essential elements, which are the meeting of the minds
1. Elements of Sale of the parties as to the object of the contract and upon the price. Consummation begins
when the parties perform their respective undertakings, culminating in the extinguishment
Elements of sale: (a) consent or meeting of the minds; (b) determinate subject matter; thereof. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000).6
and (c) price certain in money or its equivalent. xNavarra v. Planters Dev. Bank, 527 SCRA
562 (2007).4
3. Sale Creates Real Obligations “To Give” (Art. 1165)

4. Essential Characteristics of Sale:


1
The Outline presents the manner by which the LAW ON SALES will be taken-up in class.
The x's and those footnoted in the Outline represent cases or topics which need no a. Nominate and Principal
extended discussions, either because the essence of the rulings are already summarized
A contract of sale is what the law defines it to be, taking into consideration its
in the Outline or they contain similar rulings or doctrines as other cases to be discussed.
essential elements, and not what the contracting parties call it. xSantos v. Court of
Unless otherwise indicated, the numbered articles refer to articles of the Civil Code of the
Appeals, 337 SCRA 67 (2000).7
Philippines.
2
Ownership is the independent and general power of a person over a thing for purposes
b. Consensual (Art. 1475)
recognized by law and within the limits established thereby. According to Art. 428 of the Civil
Code, this means that: The owner has the right to enjoy and dispose of a thing, without other
limitations than those established by law. x x x Aside from 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. Flancia v. Court
of Appeals, 457 SCRA 224 (2005).
3
Alfredo v. Borras, 404 SCRA 145 (2003); Manila Metal Container Corp. v. PNB, 511 SCRA
444 (2006); Roberts v. Papio, 515 SCRA 346 (2007). 5
4 Roberts v. Papio, 515 SCRA 346 (2007).
Jovan Land, Inc. v. CA, 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. 6
CA, 312 SCRA 528 (1999); San Andres v. Rodriguez, 332 SCRA 769 (2000); Roble v. Arbasa, Limketkai Sons Milling, Inc. v. Court of Appeals, 250 SCRA 523 (1995); Jovan Land, Inc. v.
362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001); Katipunan v. CA, 268 SCRA 160 (1997); Bugatti v. Court of Appeals, 343 SCRA 335 (2000); Moreno, Jr. v.
Katipunan, 375 SCRA 199 (2002); Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, Private Management Office, 507 SCRA 63 (2006); Manila Metal Container Corp. v. PNB, 511
404 SCRA 683 (2003); Jimenez, Jr. v. Jordana, 444 SCRA 250 (2004); San Lorenzo Dev. Corp. SCRA 444 (2006); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Province of Cebu v.
v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Roberts v. Papio, 515 Heirs of Rufina Morales, 546 SCRA 315 (2008).
7
SCRA 346 (2007); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Republic v. Florendo, Bowe v. CA, 220 SCRA 158 (1993); Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275
549 SCRA 527 (2008). SCRA 237 (1997); Cavite Development Bank v. Lim, 324 SCRA 346 (2000).
2

A contract of sale is not a real, but a consensual contract, and becomes valid and c. Bilateral and Reciprocal (Arts. 1169 and 1191)
binding upon the meeting of the minds of the parties as to the object and the price 8,
that: A contract of sale gives rise to “reciprocal obligations”, which arise from the same
cause with each party being a debtor and creditor of the other, such that the obligation
 Upon its perfection, the parties may reciprocally demand performance. of one is dependent upon the obligation of the other; and they are to be performed
xHeirs of Venancio Bejenting v. Bañez, 502 SCRA 531 (2006);9 subject simultaneously, so that the performance of one is conditioned upon the simultaneous
only to the provisions of the law governing the form of contracts. xCruz v. fulfillment of the other. xCortes v. Court of Appeals, 494 SCRA 570 (2006).11
Fernando, 477 SCRA 173 (2005).
The power to rescind is implied in reciprocal ones in case one of the obligors
 It remains valid even if parties have not affixed their signatures to its should not comply with what is incumbent upon him, and without need of prior demand.
written form xGabelo v. CA, 316 SCRA 386 (1999), or the manner of xAlmocera v. Ong, 546 SCRA 164 (2008).12
payment is breached. xPilipinas Shell Petroleum Corp v. Gobonseng,
496 SCRA 305 (2006). d. Onerous (√Gaite v. Fonacier, 2 SCRA 830 [1961]).
The binding effect of sale is based on the principle that the obligations arising e. Commutative (BUT SEE: Arts. 1355 and 1470)
therefrom have the force of law between the parties. xVeterans Federation of the
Philippines v. Court of Appeals, 345 SCRA 348 (2000). In a contract of sale, there is no requirement that the price be equal to the exact
value of the subject matter of sale; all that is required is that the parties believed that
Perfection Distinguished from Demandability – Not all contracts of sale they will receive good value in exchange for what they will give. √Buenaventura v. CA,
become automatically and immediately effective. In sales with assumption of mortgage, 416 SCRA 263 (2003).
there is a condition precedent to the seller’s consent and without the approval of the
mortgagee, the sale is not perfected. xBiñan Steel Corp. v. Court of Appeals, 391
f. Sale Is Title and Not Mode
SCRA 90 (2002).
Sale is not a mode, but merely a title. A mode is the legal means by which
“No Contract Situation” versus “Void Contract” – Absence of consent (i.e.,
dominion or ownership is created, transferred or destroyed, but title is only the legal
complete meeting of minds) negates the existence of a perfected sale. xFirme v. Bukal
basis by which to affect dominion or ownership. Sale by itself does not transfer or affect
Enterprises and Dev. Corp., 414 SCRA 190 (2003). The contract then is null and void
ownership; the most that sale does is to create the obligation to transfer ownership. It is
ab initio, absolutely wanting in civil effects; hence, it does not create, modify, or
tradition or delivery, as a consequence of sale, that actually transfers ownership. xSan
extinguish the juridical relation to which it refers. xCabotaje v. Pudunan, 436 SCRA 423
Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005),13 citing VILLANUEVA, PHILIPPINE LAW ON
(2004).
SALES, 1995 ed., at p. 5.
When there is no meeting of the minds on price, the contract “is not perfected”
Seller’s ownership of the thing sold is not an element of perfection; what the law
and does not serve as a binding juridical relation between the parties. xManila Metal
requires is that seller has the right to transfer ownership at the time of delivery.
Container Corp. v. PNB, 511 SCRA 444 (2006),10 and should be more accurately
xQuijada v. CA, 299 SCRA 695 (1998).14
denominated as inexistent, as it did not pass the stage of generation to the point of
perfection. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004). BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a “sale” as “a contract
transferring dominion and other real rights in the thing sold.”
8
Romero v. CA, 250 SCRA 223 (1995); Balatbat v. CA, 261 SCRA 128 (1996); Coronel v. CA,
263 SCRA 15 (1996); City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999); Agasen v. 11
CA, 325 SCRA 504 (2000); Laforteza v. Machuca, 333 SCRA 643 (2000); Londres v. Court of Ong v. Court of Appeals, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000);
Appeals, 394 SCRA 133 (2002); Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura Agro Conglomerates, Inc. v. CA, 348 SCRA 450 (2000); Velarde v. Court of Appeals, 361 SCRA
v. Court of Appeals, 416 SCRA 263 (2003); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); 56 (2001); Carrascoso, Jr. v. Court of Appeals, 477 SCRA 666 (2005).
12
Yason v. Arciaga, 449 SCRA 458 (2005); Ainza v. Padua, 462 SCRA 614 (2005); Roberts v. Vda. De Quirino v. Palarca, 29 SCRA 1 (1969)
Papio, 515 SCRA 346 (2007); MCC Industrial Sales Corp. v. Ssangyong Corp., 536 SCRA 408 13
Acap v. CA, 251 SCRA 30 (1995).
(2007); Castillo v. Reyes. 539 SCRA 193 (2007) . 14
9
Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001); Alcantara-Daus v.
Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008). de Leon, 404 SCRA 74 (2003); Heirs of Jesus M. Mascuñana v. Court of Appeals, 461 SCRA 186
10
Roberts v. Papio, 515 SCRA 346 (2007). (2005).
3

B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS To Tolentino, the distinction depends on the intention of parties: if parties intended
that at some future date an object has to be delivered, without considering the work or
A contract is what the law defines it to be, taking into consideration its essential elements, labor of the party bound to deliver, the contract is one of sale; but if one of the parties
and the title given to it by the parties is not as much significant as its substance. 15 The transfer accepts the undertaking on the basis of some plan, taking into account the work he will
of ownership in exchange for a price paid or promised is the very essence of a contract of sale. employ personally or through another, the contract is for a piece of work. xEngineering &
xSantos v. Court of Appeals, 337 SCRA 67 (2000). Machinery Corp. v. CA, 252 SCRA 156 (1996).
In determining the real character of sale, courts look at the intent of the parties, their true
aim and purpose in entering into the contract, as well as “by their conduct, words, actions and 4. Agency to Sell (Art. 1466)
deeds prior to, during and immediately after executing the agreement,” and not at the Assumption by “agent” of the risk pertaining to the cost or price of the subject matter
nomenclature used to describe it, xLao v. Court of Appeals, 275 SCRA 237 (1997). makes the relationship that of buyer-seller, for the agent does not assume risk with
respect to the price or the property subject of the relationship. xKer & Co., Ltd. v. Lingad,
1. Donation (Arts. 725 and 1471) 38 SCRA 524 (1971). Consequently: (a) the contractual relationship is not inherently
Unlike a donation, sale is a disposition for valuable consideration with no diminution of revocable. √Quiroga v. Parsons, 38 Phil. 501 (1918); or (b) the purported agent does
the estate but merely substitution of values, with the property sold replaced by the not have to account for the profit margin earned from acquiring the property for the
equivalent monetary consideration; unlike donation, a valid sale cannot have the legal effect purported principal. √Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).
of depriving the compulsory heirs of their legitimes. xManongsong v. Estimo, 404 SCRA 683 One factor that most clearly distinguishes agency from other legal concepts,
(2003). including sale, is control; one person – the agent – agrees to act under the control or
The rules on double sales under Art. 1544 find no relevance to contracts of donation. direction of another – the principal. xVictorias Milling Co., Inc. v. CA, 333 SCRA 663
xHemedes v. Court of Appeals, 316 SCRA 347 (1999). (2000).
Commercial broker, commission merchant or indentor is a middleman acting in his
2. Barter (Arts. 1468, 1638 to 1641) own name, and acts as agent for both seller and buyer to effect a sale between them.
Although he is neither seller nor buyer to the contract effected he may voluntarily assume
3. Contract for Piece-of-Work (Arts. 1467, 1713 to 1715) warranties of seller. xSchmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
The Crux: “Ineluctably, whether the contract be one of sale or one for a piece of
work, a transfer of ownership is involved and a party necessarily walks away with an 5. Dacion En Pago (Arts. 1245 and 1934)
object.” xCommissioner of Internal Revenue v. CA, 271 SCRA 605 (1997), citing Governed by the law on sales, dation in payment is a transaction that takes place
VILLANUEVA, LAW ON SALES, pp. 7-9 (1995). In both provisions on warranty of title against when property is alienated to the creditor in full satisfaction of a debt in money—it involves
hidden defects applies. xDiño v. CA, 359 SCRA 91 (2001). the delivery and transmission of ownership of a thing as an accepted equivalent of the
When a person stipulates for the future sale of articles which he is habitually making, performance of the obligation. xYuson v. Vitan, 496 SCRA 540 (2007).
and which at the time are not made or finished, it is essentially a contract of sale and not In its modern concept, what actually takes place in dacion en pago is an objective
a contract for labor xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911); even when he novation of the obligation where the thing offered as an accepted equivalent of the
executes production thereof only after an order is placed by customers. √Celestino & Co. performance of an obligation is considered as the object of the contract of sale, while the
v. Collector, 99 Phil. 841 (1956). debt is considered as the purchase price. xAquintey v. Tibong 511 SCRA 414 (2006).
If the thing is specially done only upon the specific order of another, this is a contract Elements of dation in payment: (a) performance of the prestation in lieu of payment
for a piece of work; if the thing is manufactured or procured for the general market in the (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a
ordinary course of business, it is a contract of sale. √Commissioner of Internal credit against the third person; (b) some difference between the prestation due and that
Revenue v. Engineering Equipment & Supply Co., 64 SCRA 590 (1975).16 which is given in substitution (aliud pro alio); and (c) agreement between the creditor and
debtor that the obligation is immediately extinguished by reason of the performance of a

15 16
Romero v. CA, 250 SCRA 223 (1995); Lao v. Court of Appeals, 275 SCRA 237 (1997); Commissioner of Internal Revenue v. Arnoldus Carpentry Shop, 159 SCRA 199 (1988); Del
Orden v. Aurea, 562 SCRA 660 (2008); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).. Monte Philippines, Inc. v. Aragones, 461 SCRA 139 (2005).
4

presentation different from that due. √Lo v. KJS Eco-Formwork System Phil., Inc., 413 Under Art. 1332, when one of the parties is unable to read, or if the contract is in a
SCRA 182 (2003).17 language not understood by him, and mistake or fraud is alleged, the person enforcing
the contract must show that the terms thereof have been fully explained to the former;
There is no dation in payment where there is no transfer of ownership in the creditor’s otherwise, sale is void. [?] xVda. De Ape v. Court of Appeals, 456 SCRA 193 (2005).
favor, as when the possession of the thing is merely given to the creditor by way of
security. Fort Bonifacio Dev. Corp. v. Yllas Lending Corp., 567 SCRA 454 (2008). While a person is not incompetent to contract merely because of advanced years or
by reason of physical infirmities, when such age or infirmities have impaired the mental
For dacion to arise, there must be actual delivery of the property to the creditor by faculties so as to prevent the person from properly, intelligently or firmly protecting his
way of extinguishment of the pre-existing debt. xPhilippine Lawin Bus Co. v. CA, 374 property rights, then he is undeniably incapacitated, and the sale he entered into is void
SCRA 332 (2002).18 BUT SEE OBITER: xSSS v. Court of Appeals, 553 SCRA 677 (2008). [?]. √Paragas v. Heirs of Dominador Balacano, 468 SCRA 717 (2005).19
There is no dation when there is no such transfer of ownership in favor of the creditor,
as when the possession is only by way of security. xPNB v. Pineda, 197 SCRA 1 (1991). 3. Sales By and Between Spouses:
A creditor, especially a bank, which enters into dacion en pago, should know and a. Contracts with Third Parties (Arts. 73, 96, and 124, Family Code)
must accept the legal consequence thereof, that the pre-existing obligation is totally
extinguished. xEstanislao v. East West Banking Corp., 544 SCRA 369 (2008). Under Art. 124 of Family Code, sale by husband of a conjugal property without the
wife’s consent is void, not merely voidable, since the resulting contract lacks one of the
essential elements of full “consent”. xGuiang v. CA, 291 SCRA 372 (1998).20
6. Lease (Arts. 1484 and 1485)
A wife affixing her signature to a Deed of Sale as a witness is deemed to have given
When rentals in a “lease” are clearly meant to be installment payments to a sale
her consent. xPelayo v. Perez, 459 SCRA 475 (2005).
contract, despite the nomenclature given by the parties, it is a sale by installments and
governed by the Recto Law. xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989). As an exception, husband may dispose of conjugal property without wife’s consent
if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and
162. xAbalos v. Macatangay, Jr., 439 SCRA 64 (2004).

II. PARTIES TO A CONTRACT OF SALE (Arts. 1489-1492) b. Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)

1. General Rule: Every person having legal capacity to obligate himself, may validly enter Sales between spouses who are not governed by a complete separation of property
into a contract of sale, whether as seller or as buyer. (Art. 1489) regime are void, not just voidable. xMedina v. Collector, 1 SCRA 302 (1960).
Sale by husband of conjugal land to his concubine is null and void for being
2. Minors, Insane and Demented Persons, Deaf-Mutes (Arts. 1327, 1397 and 1399) contrary to morals and public policy and “subversive of the stability of the family, a basic
social institution which public policy cherishes and protects.” √Calimlim-Canullas v.
A minor cannot be deemed to have given her consent to a contract of sale; consent is
Fortun, 129 SCRA 675 (1984).21
among the essential requisites of a contract, including one of sale, absent of which there
can be no valid contract. [?] xLabagala v. Santiago, 371 SCRA 360 (2001). Since under Art. 1490, the spouses cannot validly sell property to one another, then
policy consideration and the dictates of morality require that the prohibition should apply
a. Necessaries (Arts. 1489 and 290) also to common-law relationships. cf. Matabuena v. Cervantes, 38 SCRA 284 (1971).

b. xEmancipation (Arts. 399 and 1397; Inutile: Majority age now at 18 years, Arts. 234 Nevertheless, when property resold to a third-party buyer in good faith and for
and 236, Family Code, amended by R.A. 6809). value, reconveyance is no longer available. xCruz v. CA, 281 SCRA 491 (1997).

c. Protection of the Senile and Elderly (Art. 24) and Illiterates (Art. 1332)
19
17
Aquintey v. Tibong 511 SCRA 414 (2006). Domingo v. Court of Appeals, 367 SCRA 368 (2001).
20
18
Filinvest Credit Corp. v. Philippine Acetylene Co., Inc. 111 SCRA 421 (1982); Vda. de Jayme Cirelos v. Hernandez, 490 SCRA 625 (2006); Bautista v. Silva, 502 SCRA 334 (2006).
21
v. Court of Appeals, 390 SCRA 380 (2002). Ching v. Goynako, Jr., 506 SCRA 735 (2006).
5

The in pari delicto doctrine would apply to the spouses-parties under Art. 1490, c. Judges
since only the heirs and the creditors can question the sale’s nullity. xModina v. Court of
Appeals, 317 SCRA 696 (1999). A judge should restrain himself from participating in the sale of properties—it is
incumbent upon him to advise the parties to discontinue the transaction if it is contrary
to law. Britanico v. Espinosa, 486 SCRA 523 (2006).
4. Others Relatively Disqualified (Arts. 1491 and 1492)
A judge who buys property in litigation before his court after the judgment
Contracts entered into in violation of Arts. 1490 and 1492 are not merely voidable, becomes final does not violate Art. 1491, but he can be administratively disciplined for
but are null and void. √Rubias v. Batiller, 51 SCRA 120 (1973).22 violation of the Code of Judicial Ethics. xMacariola v. Asuncion, 114 SCRA 77 (1982).

a. Guardians, Agents and Administrators Even when the main cause is a collection of a sum of money, the properties levied
are still subject to the prohibition. xGan Tingco v. Pabinguit, 35 Phil. 81 (1916).
No more need to comply with xRodriquez v. Mactal, 60 Phil. 13 (1934) which
required showing that a third party bought as conduit/nominee of the buyer disqualified
under Art. 1491; rather, the presumption now is that such disqualified party obtained
the property in violation of said article. √Philippine Trust Co. v. Roldan, 99 Phil. 392
III. SUBJECT MATTER OF SALE (Arts. 1459 to 1465)
(1956).
“Transfer of title or an agreement to transfer it for a price paid or promised to be paid is
Prohibition against agents does not apply if the principal consents to the sale of
the essence of sale.” xCommissioner of Internal Revenue v. CA and Ateneo de Manila
the property in the hands of the agent. xDistajo v. CA, 339 SCRA 52 (2000).
University, 271 SCRA 605 (1997).
Hereditary rights are not included in the prohibition insofar as administrator or The Civil Code provisions defining sales is a “catch-all” provision which effectively
executor of the estate of the deceased. xNaval v. Enriquez, 3 Phil. 669 (1904). brings within it grasp a whole gamut of transfers whereby ownership of a thing is ceded for a
consideration. √Polytechnic University v. CA, 368 SCRA 691 (2001).
b. Attorneys. Where under an agreement, a party renounces and transfers whatever rights, interests,
Prohibition applies only while litigation is pending. xDirector of Lands v. Ababa, 88 or claims she has over a parcel of land in favor of another party in consideration of the
SCRA 513 (1979); even when the litigation is not adversarial in nature √Rubias v. latter’s payment of therein loan, the agreement is essentially a sale, and the rule on delivery
Batiller, 51 SCRA 120 (1973); or when it is a certiorari proceeding that may have no effected through a public instrument apply. xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273
merit xValencia v. Cabanting, 196 SCRA 302 (1991). (2006).

Prohibition applies only to a sale to a lawyer of record, and does not cover 1. Must Be Existing, Future or Contingent (Arts. 1347, 1348, and 1462)
assignment of the property given in judgment made by a client to an attorney, who has
not taken part in the case. xMunicipal Council of Iloilo v. Evangelista, 55 Phil. 290 a. Emptio Rei Speratae (Arts. 1461 and 1347)
(1930);23 nor to a lawyer who acquired property prior to the time he intervened as
counsel in the suit involving such property. xDel Rosario v. Millado, 26 SCRA 700 Pending crops which have potential existence may be valid object of sale.
(1969). xSibal v. Valdez, 50 Phil. 512 (1927); and such transaction cannot be considered to
effectively be sale of the land or any part thereof. xPichel v. Alonzo, 111 SCRA 341
Prohibition does not apply: (a) to sale of a land acquired by a client to satisfy a
(1981).
judgment in his favor, to his attorney as long as the property was not the subject of the
litigation. xDaroy v. Abecia, 298 SCRA 172 (1998); or (b) to a contingency fee
arrangement which grants the lawyer of record proprietary rights to the property in b. Emptio Spei (Art. 1461)
litigation since the payment of said fee is not made during the pendency of litigation but
only after judgment has been rendered. √Fabillo v. IAC, 195 SCRA 28 (1991).24 c. Subject to Resolutory Condition (Art. 1465)

22
2. Must Be Licit (Arts. 1347, 1459 and 1575)
Uy Sui Pin v. Cantollas, 70 Phil. 55 (1940); Medina v. Collector, 1 SCRA 302 (1961).
23
Gregorio Araneta, Inc. v. Tuason de Paterno, 49 O.G. 45 (1952).
24
Recto v. Harden, 100 Phil. 427 (1956); Vda. de Laig v. CA, 86 SCRA 641 (1978).
6

Under Art. 1347, a sale involving future inheritance is void and cannot be the sale, even when required letter of credit had not been opened by the buyer.
source of any right nor create any obligation. xTañedo v. Court of Appeals, 252 SCRA √Johannes Schuback & Sons Phil. Trading Corp. v. CA, 227 SCRA 719 (1993).
80 (1996).
Article 1347 does not cover waiver of hereditary rights which is not equivalent to 5. Seller’s Obligation to Transfer Title to Buyer (Art. 1459, 1462, and 1505)
sale, since waiver is a mode of extinction of ownership in favor of the other persons a. Seller's Ownership Need Not Exist at Perfection:
who are co-heirs. xAcap v. Court of Appeals, 251 SCRA 30 (1995).
Sale of copra for future delivery does not make seller liable for estafa for failing
A mortgagor is not prevented from selling the property, since it is merely to deliver because the contract is still valid and the obligation was civil and not
encumbrance and effect a loss of his principal attribute as owner to dispose of the criminal. xEsguerra v. People, 108 Phil. 1078 (1960).
property. Law even considers void a stipulation forbidding the owner from alienating
mortgaged immovable. xPineda v. CA, 409 SCRA 438 (2003). A perfected contract of sale cannot be challenged on the ground of the seller’s
non-ownership of the thing sold at the time of the perfection of the contract; it is at
3. Must Be Determinate or At Least “Determinable” (Art. 1460) delivery that the law requires the seller to have the right to transfer ownership of the
thing sold. xAlcantara-Daus v. de Leon, 404 SCRA 74 (2003).
When the deed of sale describes a lot adjacent to the land seen, agreed upon and
delivered to the buyer, such land is the one upon which the minds have met, and not It is essential that seller is owner of the property he is selling. The principal
that erroneously described in the deed. √Atilano v. Atilano, 28 SCRA 231 (1969).1 obligation of a seller is “to transfer the ownership of” the property sold (Art. 1458).
This law stems from the principle that nobody can dispose of that which does not
a. Generic things may be object of sale (Arts. 1246 and 1409[6]) belong to him. NEMO DAT QUOD NON HABET. xNoel v. CA, 240 SCRA 78
(1995).
Subject matter is determinable when by a formula or description agreed upon
at perfection there is a way by which the courts can delineate independent of the That the sellers are no longer owners of the goods at perfection does not
will of the parties. √Melliza v. City of Iloilo, 23 SCRA 477 (1968). appear to be one of the void contracts enumerated in Art. 1409 of Civil Code, and
under Art. 1402 the Civil Code itself recognizes a sale where the goods are to be
Where the lot sold is said to adjoin the “previously paid lot” on three sides “acquired x x x by the seller after the perfection of the contract of sale” clearly
thereof, the subject lot is capable of being determined without the need of any new implying that a sale is possible even if the seller was not the owner at the time of
contract, even when the exact area of the adjoining residential lot is subject to the sale, provided he acquires title to the property later on; nevertheless such contract
result of a survey. xSan Andres v. Rodriguez, 332 SCRA 769 (2000). may be deemed to be inoperative and may thus fall, by analogy, under Art. 1409(5):
Determinable subject matter of sale are not subject to risk of loss until they are “Those which contemplate an impossible service.” √Nool v. CA, 276 SCRA 149
physically segregated or particularly designated. √Yu Tek & Co. v. Gonzales, 29 (1997).
Phil. 384 (1915). b. Subsequent Acquisition of Title by Non-Owner Seller (Art. 1434) – validates the
b. Undivided Interest (Art. 1463) or Undivided Share in a Mass of Fungible Goods sale and title passes to the seller by operation of law.
(Art. 1464) – May result it co-ownership. c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462).

4. Quantity of Subject Matter Not Essential for Perfection? (Art. 1349) X6. Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)
Sale of grains is perfected even when the exact quantity or quality is not known, a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rare
so long as the source of the subject is certain. √NGA v. IAC, 171 SCRA 131 (1989). wild plants (Act 3983); poisonous plants or fruits (R.A. 1288); dynamited fish (R.A
Where seller quoted to buyer the items offered for sale, by item number, part 428); gunpowder and explosives (Act 2255); firearms and ammunitions (P.D. 9);
number, description and unit price, and the buyer had sent in reply a purchase order sale of realty by non-Christians (Sec. 145, Revised Adm. Code, R.A 4252)
without indicating the quantity being order, there was already a perfected contract of b. Following Sales of Land Void:
 By Non-Christian if not approved by Provincial Governor per Sec. 145 of
1 Revised Administrative Code. xTac-an v. CA, 129 SCRA 319 (1984).
Londres v. CA, 394 SCRA 133 (2002).
7

 Friar land without consent of Secretary of Agriculture required under Act No. subterfuge on the part of buyer, the agreement cannot also be taken as a
1120. xAlonso v. Cebu Country Club, Inc., 375 SCRA 390 (2002); Liao v. CA, consideration and sale is void. √Yu Bun Guan v. Ong, 367 SCRA 559 (2001).
323 SCRA 430 (2000).
 Made in violation of land reform laws declaring tenant-tillers as the full owners of (3) Effects When Price Simulated – The principle of in pari delicto nonoritur action,
the lands they tilled. xSiacor v. Gigantana, 380 SCRA 306 (2002). which denies all recovery to the guilty parties inter se, where the price is
simulated; the doctrine applies only where the nullity arises from the illegality of
 Reclaimed lands are of the public domain and cannot, without congressional fiat, the consideration or the purpose of the contract. xModina v. Court of Appeals,
be sold, public or private. Fisheries Dev. Authority v. Court of Appeals, 534 317 SCRA 696 (1999).2
SCRA 490 (2007).
b. When Price is “False” (Arts. 1353 and 1354)
When the parties intended to be bound but the deed did not reflect the actual
IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474) price agreed upon, there is only a relative simulation of the contract which remains
valid and enforceable, but subject to reformation. xMacapgal v. Remorin, 458 SCRA
“Price” signifies the sum stipulated as the equivalent of the thing sold and also every 652 (2005).
incident taken into consideration for the fixing of the price put to the debit of the buyer and
agreed to by him. xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911). When price indicated in deed of absolute sale is undervalued consideration
pursuant to intention to avoid payment of higher capital gains taxes, the price stated
Seller cannot unilaterally increase the price previously agreed upon with the buyer, is false, but the sale is still valid and binding on the real terms. xHeirs of Spouses
even when due to increased construction costs. xGSIS v. Court of Appeals, 228 SCRA 183 Balite v. Lim, 446 SCRA 54 (2004).
(1993).
c. Non-Payment of Price
Buyer who opted to purchase the land on installment basis with imposed interest,
cannot later unilaterally disavow the obligation created by the stipulation in the contract Sale being consensual, failure of buyer to pay the price does not make the
which sets the interest at 24% per annum: “The rationale behind having to pay a higher sum contract void for lack of consideration or simulation, but results in buyer’s default, for
on the installment is to compensate the vendor for waiting a number of years before which the seller may exercise his legal remedies. xBalatbat v. CA, 261 SCRA 128
receiving the total amount due. The amount of the stated contract price paid in full today is (1996).3
worth much more that a series of small payments totaling the same amount. x x x To assert
that mere prompt payment of the monthly installments should obviate imposition of the “In a contract of sale, the non-payment of the price is a resolutory condition
stipulated interest is to ignore an economic fact and negate one of the most important which extinguishes the transaction that, for a time, existed and discharges the
principles on which commerce operates.” xBortikey v. AFP RSBS, 477 SCRA 511 (2005). obligations created thereunder. [?] The remedy of an unpaid seller in a contract of
sale is to seek either specific performance or rescission.” xHeirs of Pedro Escanlar v.
Court of Appeals, 281 SCRA 176 (1997).4
1. Price Must Be Real (Art. 1471)
Badge That Price Is Simulated, Not Just Unpaid: It is a badge of simulated
a. When Price “Simulated”
price, which render the sale void, when the price, which appears thereon as paid, has
(1) √Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two aged ladies, not in fact never been paid by the purchaser to the seller. xVda. de Catindig. v. Heirs of
versed in English, sign a Deed of Sale on representation by buyer that it was Catalina Roque, 74 SCRA 83 (1976).5
merely to evidence their lending of money, the situation constitutes more than just
fraud and vitiation of consent to give rise to a voidable contract, since there was in 2
Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67 Phil. 682 (1939)
fact no intention to enter into a sale, there was no consent at all, and more 3
importantly, there was no consideration or price agreed upon, which makes the Peñalosa v. Santos, 363 SCRA 545 (2001); Soliva v. The Intestate Estate of Marcelo M.
contract void ab initio. √Rongavilla v. Court of Appeals, 294 SCRA 289 (1998). Villalba, 417 SCRA 277 (2003); Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315
(2008).
(2) √Mate v. CA, 290 SCRA 463 (1998), versus: When Deed of Sale was executed to 4
Villaflor v. Court of Appeals, 280 SCRA 297 (1997).
facilitate transfer of property to buyer to enable him to construct a commercial 5
Ocejo v. Florex, 40 Phil. 921 (1920); Ladanga v. CA, 131 SCRA 361 (1984); Rongavilla v.
building and to sell the property to the children, such arrangement being merely a
Court of Appeals, 294 SCRA 289 (1998); Labagala v. Santiago, 371 SCRA 360 (2001); Cruz v.
8

2. Must Be in Money or Its Equivalent (Arts. 1458 and 1468) Consideration is generally agreed upon as whole even if it consists of several
parts, and even if it is contained in one or more instruments; otherwise there would be
Price must be “valuable consideration” as mandated by Civil Law, instead of “any no price certain, and the contract of sale not perfected. xArimas v. Arimas, 55 O.G.
price” mandated in common law. √Ong v. Ong, 139 SCRA 133 (1985); √Bagnas v. 8682.
CA, 176 SCRA 159 (1989); √Republic v. Phil. Resources Dev., 102 Phil. 960 (1958).
Consideration for sale can take different forms, such as the prestation or promise b. Price Never Set By One or Both Parties (Arts. 1473, 1182), unless the price is
of a thing or service by another, thus: separately accepted by the other party.

 When deed provides that the consideration was the expected profits from the c. Effects of Unascertainability: Sale is inefficacious.
subdivision project. xTorres v. Court of Appeals, 320 SCRA 428 (1999).
 Cancellation of liabilities on the property in favor of the seller. xPolytechnic BUT: If Buyer Appropriates the Object, He Must Pay Reasonable Price. (Art.
University v. Court of Appeals, 368 SCRA 691 (2001). 1474)
 Assumption of mortgage constituted on the property sold. xDoles v. Angeles, There can be no concept of “appropriation” when it comes to land? –
492 SCRA 607 (2006).6 Where a church organization has been allowed possession and introduce
improvements on the land as part of its application to purchase with the NHA, and
3. Must Be Certain or Ascertainable at Perfection (Art. 1469) thereafter it refused the formal resolution of the NHA Board setting the price and
insisted on paying the lower price allegedly given by the NHA Field Office, there
a. How Price Determined to Be Ascertainable can be no binding contract of sale upon which an action for specific performance
can prosper, not even on fixing the price equal to the fair market value of the
(i) Set by third person appointed at perfection (Art. 1469) property. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).
(ii) Set by the courts (Art. 1469)
4. Manner of Payment of Price ESSENTIAL
(iii) By reference to a definite day, particular exchange or market (Art. 1472)
A definite agreement on the manner of payment of price is an essential element in the
(iv) By reference to another thing certain, such as to invoices then in existence formation of a binding and enforceable contract sale; without it the sale is void and an action
and clearly identified by the agreement xMcCullough v. Aenlle, 3 Phil. 285 for specific performance must fail. √Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007).8
(1904); or known factors or stipulated formula (xMitsui v. Manila, 39 Phil. 624
(1919). When the manner of payment of the price is discussed after “acceptance,” then such
“acceptance” did not produce a binding and enforceable contract of sale. xNavarro v. Sugar
Price is ascertainable if the terms of the contract furnishes the courts a basis or Producer's Corp., 1 SCRA 1180 (1961).
measure for determining the amount agreed upon, without having to refer back to
either or both parties. xVillanueva v. Court of Appeals, 267 SCRA 89 (1997).7 Where there is no other basis for the payment of the subsequent amortizations in a
Deed of Conditional Sale, the reasonable conclusion one can reach is that the subsequent
Where the sale involves an asset under a privatization scheme which attaches a payments shall be made in the same amount as the first payment. [?] xDBP v. Court of
peculiar meaning or signification to the term “indicative price” as merely constituting a Appeals, 344 SCRA 492 (2000).
ball-park figure, then the price is not certain. xMoreno, Jr. v. Private Management
Office, 507 SCRA 63 (2006).
5. Inadequacy of Price Does Not Affect Ordinary Sale (Arts. 1355 and 1470)

Bancom Finance Corp., 379 SCRA 490 (2002); Montecillo v. Reynes, 385 SCRA 244 (2002);
Republic v. Southside Homeowners Asso., 502 SCRA 587 (2006); Quimpo, Sr. v Abad Vda de 8
Velasco v. CA, 51 SCRA 439 (1973); Co v. Court of Appeals, 286 SCRA 76 (1998); San
Beltran, 545 SCRA 174 (2008).
6 Miguel Properties Philippines v. Huang, 336 SCRA 737 (2000); Montecillo v. Reynes, 385 SCRA
The deed of sale with assumption of mortgage is a registrable instrument and must be 244 (2002); Edrada v. Ramos, 468 SCRA 597 (2005); Cruz v. Fernando, 477 SCRA 173 (2005);
registered with the Register of Deeds in order to bind third parties. Rodriguez v. Court of Appeals, Marnelego v. Banco Filipino Savings and Mortgage Bank, 480 SCRA 399 (2006); Boston Bank of
495 SCRA 490 (2006). the Phil. v. Manalo, 482 SCRA 108 (2006); Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156
7
Boston Bank of the Philippines v. Manalo, 482 SCRA 108 (2006). (2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).
9

Mere inadequacy of the price does not affect the validity of the sale when both parties V. FORMATION OF CONTRACT OF SALE (Arts. 1475-1488)
are in a position to form an independent judgment concerning the transaction, unless fraud,
mistake, or undue influence indicative of a defect in consent is present. The contract may be A. POLICITACION STAGE (Art. 1479)
annulled for vitiated consent and not due to the inadequacy of price. xBautista v. Court of Policitation stage covers the doctrine of “freedom of contract” which signifies or
Appeals, 436 SCRA 141 (2004).9 implies the right to choose with whom to contract. A property owner is free to offer his
Absent any evidence of the fair market value of a land as of the time of its sale, it property for sale to any interested person, and is not duty bound to sell the same to the
cannot be concluded that the price at which it was sold was inadequate. xAcabal v. Acabal, occupant thereof, absent any prior agreement vesting the occupants the right of first
454 SCRA 897 (2005).10 priority to buy. xGabelo v. Court of Appeals, 316 SCRA 386 (1999).

a. Gross Inadequacy of Price May Avoid Judicial Sale: A negotiation is formally initiated by an offer, which, however, must be certain. At any
time prior to the perfection of the contract, either negotiating party may stop the
(i) Only when it is shocking to the conscience of man. xPascua v. Simeon, 161 SCRA 1 negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective
(1988); and immediately after its manifestation. To convert the offer into a contract, the acceptance
must be absolute and must not qualify the terms of the offer; it must be plain,
(ii) There is showing that, in the event of a resale, a better price can be obtained. xCu unequivocal, unconditional and without variance of any sort from the proposal. √Manila
Bie v. Court of Appeals, 15 SCRA 307 (1965).11 Metal Container Corp. v. PNB, 511 SCRA 444 (2006).13
UNLESS: There is right of redemption, in which case the proper remedy is to redeem. An unaccepted unilateral promise (offer to buy or to sell) prior to acceptance, does
xDe Leon v. Salvador, 36 SCRA 567 (1970).12 not give rise to any obligation or right. xRaroque v. Marquez, 37 O.G. 1911.
BUT: By way of extraordinary circumstances perceived, when in a judicial sale the right Where the offer is given with a stated time for its acceptance, the offer is terminated
of redemption has been lost, where the inadequacy of the price is purely at the expiration of that time. xVillegas v. Court of Appeals, 499 SCRA 276 (2006).
shocking to the conscience, such that the mind revolts at it and such that a
reasonable man would neither directly or indirectly be likely to consent to it, the
same will be se aside. xCometa v. Court of Appeals, 351 SCRA 294 (2001). 1. Option Contract

There is “gross inadequacy in price” if a reasonable man will not agree to dispose of An option is a preparatory contract in which one party grants to the other, for a fixed
his property. Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008). period and under specified conditions, the power to decide, whether or not to enter into a
principal contract. It binds the party who has given the option, not to enter into the
When judicial sale is voided without fault of purchaser, the latter is entitled return of principal contract with any other person during the period designated, and, within that
price with simple interest, together with all sums paid out by him in improvements period, to enter into such contract with the one to whom the option was granted, if the
introduced on the property, taxes, and other expenses. xSeven Brothers Shipping Corp. latter should decide to use the option. It is a separate agreement distinct from the
v. Court of Appeals, 246 SCRA 33 (1995). contract of sale which the parties may enter into upon the consummation of the option.
√Carceller v. Court of Appeals, 302 SCRA 718 (1999).14
b. Lesion of more than 1/4 of value of thing makes sale rescissible unless approved
An option imposes no binding obligation on the person holding the option aside
by court (Art. 1386).
from the consideration for the offer. Until accepted, it is not treated as a sale. √Tayag v.
c. Gross inadequacy of price may raise the presumption of equitable mortgage (Art. Lacson, 426 SCRA 282 (2004).15
1602).

13
Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007).
14
9 Laforteza v. Machuca, 333 SCRA 643 (2000); Buot v. CA, 357 SCRA 846 (2001); Tayag v.
Ereñeta v. Bezore, 54 SCRA 13 (1973).
10 Lacson, 426 SCRA 282 (2004); Abalos v. Macatangay, Jr., 439 SCRA 649 (2004); Vasquez v.
Avila v. Barabat, 485 SCRA 8 (2006). Ayala Corp., 443 SCRA 231 (2004).
11
Tayengco v. Court of Appeals, 15 SCRA 306 (1965); Republic v. NLRC, 244 SCRA 564 15
Adelfa Properties, Inc. v. CA, 240 SCRA 565 (1995); Kilosbayan, Inc. v. Morato, 246 SCRA
(1995). 540 (1995); San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000); Limson v.
12
Vda. de Gordon v. Court of Appeals, 109 SCRA 388 (1981). CA, 357 SCRA 209 (2001).
10

Tenants, not being the registered owners, cannot grant an option on the land, much enforced with ten (10) years as provided under Art. 1144. xDizon v. Court of Appeals,
less any “exclusive right” to buy the property under the Latin saying “nem dat quod non 302 SCRA 288 (1999).
habet.” xTayag v. Lacson, 426 SCRA 282 (2004).
There must be “virtual” exercise of option with the option period. √Carceller v.
Court of Appeals, 302 SCRA 718 (1999).
a. Meaning of “Separate Consideration” (Arts. 1479 and 1324)
A unilateral promise to sell, in order to be binding upon the promissor, must be 2. Right of First Refusal
for a price certain and supported by a consideration separate from such price.
xSalame v. Court of Appeals, 239 SCRA 356 (1995).16 A right of first refusal cannot be the subject of specific performance, but breach
would allow a recovery of damages. xGuerrero v. Yñigo, 96 Phil. 37 (1954).
The “separate consideration” in an option may be anything of value, unlike in
sale where it must be the price certain in money or its equivalent. √Villamor v. Court Rights of first refusal only constitute “innovative juridical relations”, but do not rise to
of Appeals, 202 SCRA 607 (1991),17 such when the option is attached to a real the level of contractual commitment since with the absence of agreement on price
estate mortgage xSoriano v. Bautista, 6 SCRA 946 (1962). certain, they are not subject to contractual enforcement. √Ang Yu Asuncion v. Court of
Appeals, 238 SCRA 602 (1994).
Although no consideration is expressly mentioned in an option contract, it is
presumed that it exists and may be proved, and once proven, the option is binding. Right of first refusal contained in a lease, when breached by promissor allows
xMontinola v. Cojuangco, 78 Phil. 481 (1947). enforcement by the promisee by way of rescission of the sale entered into with the third
party, pursuant to Arts. 1381(3) and 1385 of Civil Code. xGuzman, Bocaling & Co. v.
b. No Separate Consideration: Void as Option, Valid as a Certain Offer √Sanchez v. Bonnevie, 206 SCRA 668 (1992); √Equatorial Realty Dev., Inc. v. Mayfair Theater,
Rigos, 45 Inc., 264 SCRA 483 (1996);20 √Paranaque Kings Enterprises, Inc. v. CA, 268 SCRA
SCRA 368 727, 741 (1997).
(1972).18 In a right of first refusal, while the object might be made determinate, the exercise of
BUT LATELY: xYao Ka Sin Trading v. CA, 209 SCRA 763 (1991); xMontilla v. CA, 161 the right would be dependent not only on the grantor’s eventual intention to enter into a
SCRA 855 (1988); xNatino v. IAC, 197 SCRA 323 (1991); and binding juridical relation with another but also on terms, including the price, that are yet
xDiamante v. CA, 206 SCRA 52 (1992). to be firmed up. . . . the “offer” may be withdrawn anytime by communicating the
withdrawal to the other party. √Vasquez v. Ayala Corp., 443 SCRA 231 (2004).
c. There Must Be Acceptance of Option Offer. √Vazquez v. CA, 199 SCRA 102 A right of first refusal clause simply means that should the lessor decide to sell the
(1991). leased property during the term of the lease, such sale should first be offered to the
lessee; and the series of negotiations that transpire between the lessor and the lessee
d. Proper Exercise of Option Contract. √Nietes v. CA, 46 SCRA 654 (1972). on the basis of such preference is deemed a compliance of such clause even when no
An option attached to a lease when not exercised within the option period is final purchase agreement is perfected between the parties. The lessor was then at liberty
extinguished and cannot be deemed to have been included in the implied renewal to offer the sale to a third party who paid a higher price, and there is no violation of the
(tacita reconduccion) of the lease. xDizon v. CA, 302 SCRA 288 (1999). right of the lessee. √Riviera Filipina, Inv. v. Court of Appeals, 380 SCRA 245 (2002).21

Proper exercise of an option gives rise to the reciprocal obligations of sale A right of first refusal in a lease in favor of the lessee cannot be availed of by the
xHeirs of Luis Bacus v. Court of Appeals, 371 SCRA 295 (2001),19 which must be sublessee. xSadhwani v. Court of Appeals, 281 SCRA 75 (1997).

4. Mutual Promises to Buy and Sell (Art. 1479): “True Contract to Sell”
16
JMA House, Inc. v. Sta. Monica Industrial and Dev. Corp., 500 SCRA 526 (2006).
17
De la Cavada v. Diaz, 37 Phil. 982 (1918); xSan Miguel Properties Philippines, Inc. v. 20
Rosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001); Conculada v. CA, 367 SCRA 164
Huang, 336 SCRA 737 (2000) (2001); Polytechnic University v. CA, 368 SCRA 691 (2001); Riviera Filipina, Inv. v. Court of
18
Affirming Atkins, Kroll & Co., Inc. v. Cua, 102 Phil. 948 (1958); overturning Southwestern Appeals, 380 SCRA 245 (2002); Lucrative Realty and Dev. Corp. v. Bernabe, Jr., 392 SCRA 679
Sugar Molasses Co. v. Atlantic Gulf & Pacific Co., 97 Phil. 249 (1955). (2002); Villegas v. Court of Appeals, 499 SCRA 276 (2006).
19 21
Limson v. Court of Appeals, 357 SCRA 209 (2001). Polytechnic University v. CA, 368 SCRA 691 (2001); Villegas v. CA, 499 SCRA 276 (2006).
11

Mutual promises to buy and sell a certain thing for a certain price gives each of the 1. Absolute Acceptance of a Certain Offer (Art. 1475)
contracting parties a right to demand from the other the fulfillment of the obligation.
xBorromeo v. Franco, 5 Phil. 49 (1905). A qualified acceptance or one that involves a new proposal constitutes a counter-
offer and a rejection of the original offer. The acceptance must be identical in all respects
Even in this case the certainty of the price must also exist, otherwise, there is no with that of the offer so as to produce consent or meeting of minds. √Manila Metal
valid and enforceable contract to sell. xTan Tiah v. Yu Jose, 67 Phil. 739 (1939). Container Corp. v. PNB, 511 SCRA 444 (2006).26
An accepted bilateral promise to buy and sell is in a sense similar to, but not Placing the word “Noted” and signing such note at the bottom of the written offer
exactly the same, as a perfected contract of sale because there is already a meeting of cannot be considered an acceptance that would give rise to a valid contract of sale.
minds upon the thing which is the object of the contract and upon the price. 22 But a xDBP v. Ong, 460 SCRA 170 (2005).
contract of sale is consummated only upon delivery and payment, whereas in a bilateral
promise to buy and sell gives the contracting parties rights in personam, such that each If sale subject to suspensive condition: No perfected sale of a lot where the
has the right to demand from the other the fulfillment of their respective undertakings. award thereof was expressly made subject to approval by the higher authorities and
√Macion v. Guiani, 225 SCRA 102 (1993).23 there eventually was no acceptance manifested by the supposed awardee. xPeople's
Homesite & Housing Corp. v. CA, 133 SCRA 777 (1984).
The cause of action under a mutual promise to buy and sell is 10 years. xVillamor
v. Court of Appeals, 202 SCRA 607 (1991). 2. When “Deviation” Allowed: √Villonco v. Bormaheco, 65 SCRA 352 (1975).

B. PERFECTION STAGE (Arts. 1475, 1319, 1325 and 1326) 3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)
Sale is perfected at the moment there is a meeting of minds upon the thing which is The terms and conditions provided by the owner of property to be sold at auction
the object of the contract and upon the price. From that moment, the parties may are binding upon all bidders, whether they knew of such conditions or not. xLeoquinco
reciprocally demand performance subject to the law governing the form of contracts. v. Postal Savings Bank, 47 Phil. 772 (1925).
xMarnelego v. Banco Filipino Savings and Mortgage Bank, 480 SCRA 399 (2006).24
A auction sale is perfected by the fall of the hammer or in other customary manner
Mutual consent being a state of mind, its existence may only be inferred from the and it does not matter that another was allowed to match the bid of the highest bidder.
confluence of two acts of the parties: an offer certain as to the object of the contract and its xProvince of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
consideration, and an acceptance of the offer which is absolute in that it refers to the exact
object and consideration embodied in said offer. xVillanueva v. PNB, 510 SCRA 275
(2006).25 4. Earnest Money (Art. 1482)

If a material element of a contemplated contract is left for future negotiations, the Earnest money given by the buyer shall be considered as part of the price and as
same is too indefinite to be enforceable. For a contract to be enforceable, its terms must proof of the perfection of the contract. It constitutes an advance payment to be deducted
be certain and explicit, not vague or indefinite. xBoston Bank of the Phil. v. Manalo, 482 from the total price. xEscueta v. Lim, 512 SCRA 411 (2007).
SCRA 108 (2006). Absent proof of the concurrence of all the essential elements of a contract of sale,
So long as there is any uncertainty or indefiniteness, or future negotiations or the giving of earnest money cannot establish the existence of a perfected contract of
consideration yet to be had between the parties, there is no contract at all. xMoreno, Jr. v. sale. √Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006). 27
Private Management Office, 507 SCRA 63 (2006). Article 1482 does not apply when earnest money given in a contract to sell
xSerrano v. Caguiat, 517 SCRA 57 (2007), especially where by stipulation the buyer has
22
El Banco Nacional Filipino v. Ah Sing, 69 Phil. 611 (1940); Manuel v. Rodriguez, 109 Phil. 1 the right to walk away from the transaction, with no obligation to pay the balance,
(1960).
23
Borromeo v. Franco, 5 Phil. 49 (1905); Villamor v. CA, 202 SCRA 607 (1991); Coronel v. 26
Beaumont v. Prieto, 41 Phil. 670 (1916); Zayco v. Serra, 44 Phil. 326 (1923).
CA, 263 SCRA 15 (1996). 27
24
Limjoco v. CA, 37 SCRA 663 (1971); Villonco v. Bormaheco, 65 SCRA 352 (1975); Spouses
Valdez v. Court of Appeals, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 Doromal, Sr. v. CA, 66 SCRA 575 (1975); PNB v. CA, 262 SCRA 464 (1996); San Miguel
(2004); Ainza v. Padua, 462 SCRA 614 (2005); Cruz v. Fernando, 477 SCRA 173 (2005). Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000); Platinum Plans Phil. Inc. v.
25
Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006). Cucueco, 488 SCRA 156 (2006).
12

although he will forfeit the earnest money. xChua v. Court of Appeals, 401 SCRA 54 sufficient, clear and convincing evidence is required, otherwise the document
(2003).28 should be upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).31
When there is no provision for forfeiture of earnest money in the event the sale fails  Notarization of Deeds of Sale by one who was not a notary public does not
to materialize, then with the rescission it becomes incumbent upon seller to return the affect the validity thereof; said documents were merely converted into private
earnest money as legal consequence of mutual restitution. xGoldenrod, Inc. v. Court of documents. xR.F. Navarro & Co. Inc. v. Vailoces, 361 SCRA 139 (2001).
Appeals, 299 SCRA 141 (1998).  Notarization of a deed of sale does not guarantee its validity nor is it conclusive
of the true agreement of the parties thereto, because it is not the function of the
5. Difference Between Earnest Money and Option Money. √Oesmer v. Paraiso Dev. notary public to validate an instrument that was never intended by the parties to
Corp., 514 have any binding legal effect. xSalonga v. Concepcion, 470 SCRA 291 (2005).32
SCRA 228
 Buyer’s immediate taking of possession of subject property corroborates the
(2007).
truthfulness and authenticity of the deed of sale. xAlcos v. IAC, 162 SCRA 823
6. Sale Deemed Perfected Where Offer Was Made. (Art. 1319) (1988). Conversely, the seller’s continued possession of the property makes
dubious the contract of sale between them. xSantos v. Santos, 366 SCRA 395
C. FORMAL REQUIREMENTS OF SALES (Arts. 1357, 1358, 1406 and 1483) (2001).33
 Any substantial difference between the terms of the Contract to Sell and the
1. Form Not Important for Validity of Sale concomitant Deed of Absolute Sale (such as difference in subject matter, and
difference in price and/or the terms thereof), does not make the transaction
Sale of land under private instrument is valid. xGallar v. Husain, 20 SCRA 186 between the seller and the buyer void, for it is truism that the execution of the
(1967).29 Deed of Absolute Sale effectively rendered the previous Contract to Sell
Articles 1357 and 1358, in relation to Art. 1403(2), require that the sale of real ineffective and cancelled [through the process of novation]. xLumbres v. Talbrad,
property must be in writing for it to be enforceable, it need not be notarized for there is Jr., 516 SCRA 575 (2007).
nothing in those provisions which require that it must be executed in a public document
to be valid. xMartinez v. CA, 358 SCRA 38 (2001);30 but both its due execution and its b. Value of Business Forms to Prove Sale:
authenticity must be proven, pursuant to Sec. 20, Rule 132 of the Rules of Court. xTigno Business forms, e.g., order slip, delivery charge invoice and the like, which are
v. Aquino, 444 SCRA 61 (2003). issued by the seller in the ordinary course of the business are not always fully
accomplished to contain all the necessary information describing in detail the whole
a. Other Rulings on Deeds of Sale: business transaction—more often than not they are accomplished perfunctorily
 Seller may agree to a deed of absolute sale before full payment of the purchase without proper regard to any legal repercussion for such neglect such that despite
price. xPan Pacific Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006). their being often incomplete, said business forms are commonly recognized in
ordinary commercial transactions as valid between the parties and at the very least
 Assuming that the buyers failed to pay the full price stated in the Deed of Sale, they serve as an acknowledgment that a business transaction has in fact
such partial failure would not render the sale void. Bravo-Guerrero v. Bravo, 465 transpired. xDonato C. Cruz Trading Corp. v. CA, 347 SCRA 13 (2000).
SCRA 244 (2005).
These documents are not mere scraps of paper bereft of probative value but
 That marital consent was executed prior to the Deed of Absolute Sale does not vital pieces of evidence of commercial transactions. They are written memorials of
indicate that it is a phoney. Pan Pacific Industrial Sales Co., Inc. v. CA, 482
SCRA 164 (2006). 31
Yason v. Arciaga, 449 SCRA 458 (2005); Union Bank v. Ong, 491 SCRA 581 (2006);
 A Deed of Sale when acknowledged before a notary public, enjoys the Tapuroc v. Loquellano Vda. De Mende, 512 SCRA 97 (2007); Alfaro v. Court of Appeals, 519
presumption of regularity and due execution. To overthrow that presumption, SCRA 270 (2007); Santos v. Lumbao, 519 SCRA 408 (2007); Pedrano v. Heirs of Benedicto
Pedrano, 539 SCRA 401 (2007); Olivares v. Sarmiento, 554 SCRA 384 (2008).
28
San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000). 32
Nazareno v. CA, 343 SCRA 637 (2000); Santos v. Heirs of Jose P. Mariano, 344 SCRA 284
29
F. Irureta Goyena v. Tambunting, 1 Phil. 490 (1902). (2000)
30 33
Heirs of Biona v. CA, 362 SCRA 29 (2001). Domingo v. CA, 367 SCRA 368 (2001).
13

the details of the consummation of contracts. xLagon v. Hooven Comalco (i) Sale of Real Property – A sale of realty cannot be proven by means of
Industries, Inc., 349 SCRA 363 (2001). witnesses, but must necessarily be evidenced by a written instrument, duly
subscribed by the party charged, or by secondary evidence of the contents
2. WHEN FORM IMPORTANT IN SALE of such document. No other evidence can be received except the
documentary evidence referred to. xGorospe v. Ilayat, 29 Phil. 21 (1914).39
a. To Bind Third Parties
(ii) Agency to Sell or to Buy – As contrasted from sale, an agency to sell does
Article 1358 which requires the embodiment of certain contracts in a public not belong to any of the three categories of contracts covered by Arts. 1357
instrument is only for convenience, and registration of the instrument only adversely and 1358 and not one enumerated under the Statutes of Frauds in Art.
affects third parties. Formal requirements are, therefore, for the benefit of third 1403. xLim v. Court of Appeals, 254 SCRA 170 (1996).40
parties; and non-compliance therewith does not adversely affect the validity of the
contract nor the contractual rights and obligations of the parties thereunder. √Fule v. (iii) Rights of First Refusal – A “right of first refusal” is not covered by the
CA, 286 SCRA 698 (1998);34 √Dalion v. CA, 182 SCRA 872 (1990).35 statute of frauds. Furthermore, Art. 1403(2)(e) of Civil Code presupposes
the existence of a perfected, albeit unwritten, contract of sale; a right of first
Non-registration of a contract of sale does not affect its validity and binding refusal, such as the one involved in the instant case, is not by any means a
effect as between the contracting parties themselves. xUniversal Robina Sugar perfected contract of sale of real property. xRosencor Dev. Corp. v. Inquing,
Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002). 354 SCRA 119 (2001).
While sale of land appearing in a private deed is binding between the parties, it (iv) Equitable Mortgage – Statute does not stand in the way of treating an
cannot be considered binding on third persons, if it is not embodied in a public absolute deed as a mortgage, when such was the parties’ intention,
instrument and recorded in the Registry of Deeds. √Secuya v. Vda. De Selma, 326 although the agreement for redemption or defeasance is proved by parol
SCRA 244 (2000).36 evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).41
(v) Right to Repurchase – The deed of sale and the verbal agreement allowing
b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405) the right of repurchase should be considered as an integral whole; the
The term “Statute of Frauds” is descriptive of the statutes which require certain deed of sale is itself the note or memorandum evidencing the contract.
classes of contracts, such as agreements for the sale of real property, to be in writing, xMactan Cebu International Airport Authority v. Court of Appeals, 263
the purpose being to prevent fraud and perjury in the enforcement of obligations SCRA 736 (1996).
depending for their evidence on the unassisted memory of witnesses by requiring (2) Memorandum (√Yuviengco v. Dacuycuy, 104 SCRA 668 [1981]; √Limketkai
certain enumerated contracts and transactions to be evidenced by a writing signed by Sons Milling, Inc. v. CA, 250 SCRA 523 [1995]; BUT SEE 255 SCRA 6).
the party to be charged.37
For the memorandum to take the sale out of the coverage of the Statute of
Presupposes Valid Contract of Sale – “The application of the Statute of Frauds, it must contain “all the essential terms of the contract” of sale. xTorcuator
Frauds presupposes the existence of a perfected contract.” When the records show v. Bernabe, 459 SCRA 439 (2005),42 even when scattered into various
that there was no perfected contract of sale, there is no basis for the application of correspondences which can be brought together xCity of Cebu v. Heirs of
the Statute of Frauds. xFirme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 Candido Rubi, 306 SCRA 408 (1999).43
(2003).38
EXCEPTION: Electronic Documents under the E-COMMERCE ACT (R.A. 8792)
(1) Coverage:

34 39
Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002). Alba Vda. De Rax v. Court of Appeals, 314 SCRA 36 (1999).
35 40
Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995); Agasen v. CA, 325 SCRA 504 Torcuator v. Bernabe, 459 SCRA 439 (2005).
(2000). 41
Rosales v. Suba, 408 SCRA 664 (2003).
36
Talusan v. Tayag, 356 SCRA 263 (2001); Santos v. Manalili, 476 SCRA 679 (2005). 42
Paredes v. Espino, 22 SCRA 1000 (1968).
37
Shoemaker v. La Tondeña, 68 Phil. 24 (1939). 43
Berg v. Magdalena Estate, Inc., 92 Phil. 110 (1952); Limketkai Sons Milling, Inc. v. CA, 250
38
xRosencor Development Corp. v. Inquing, 354 SCRA 119 (2001). SCRA 523 (1995); First Philippine Int’l Bank v. CA, 252 SCRA 259 (1996).
14

(3) Partial Execution (Art. 1405) √Ortega v. Leonardo, 103 Phil. 870 (1958); In itself, the absence of receipts, or any proof of consideration, would not
√Claudel v. Court of Appeals, 199 be conclusive of the inexistence of a sale since consideration is always
SCRA 113 (1991). presumed. xTigno v. Aquino, 444 SCRA 61 (2003).
Delivery of the deed to buyer’s agent, with no intention to part with the title Receipts proves payment which takes the sale out of the Statute of Frauds.
until the purchase price is paid, does not take the case out of the Statute of √Toyota Shaw, Inc. v. Court of Appeals, 244 SCRA 320 (1995).
Frauds. xBaretto v. Manila Railroad Co., 46 Phil. 964 (1924).
The Statute of Frauds does not apply to contracts either partially or totally c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)
performed. In addition, a contract that violates the Statute of Frauds is ratified by When sale of a piece of land or any interest therein is through an agent, the
the acceptance of benefits under the contract, such as the acceptance of the authority of the latter shall be in writing; otherwise, the sale shall be void, even when:
purchase price and using the proceeds to pay outstanding loans. √Alfredo v.
Borras, 404 SCRA 145 (2003).44  Agent is the son of the owner. xDelos Reyes v. CA, 313 SCRA 632 (1999)

(4) Waiver – (Art. 1405) Cross-examination on the contract is deemed a waiver of the  There is partial payment of the price received by the supposed agent. xDizon
defense of the Statute. xLimketkai Sons Milling, Inc. v. CA, 250 SCRA 523 v. CA, 396 SCRA 154 (2003).47
(1995).45  In the case of a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325
SCRA 385 (2000).48
(5) Rulings on Receipts and Other Documentary Evidence of Sale
When the Contract to Sell was signed by the co-owners themselves as witnesses,
Since a contract of sale is perfected by mere consent, then when the dealer the written authority for their agent mandated under Article 1874 of the Civil Code is no
of motor vehicles accepts a deposit of P50,0000 and pulls out a unit from the longer required. xOesmer v. Paraiso Dev. Corp., 514 SCRA 228, 237 (2007).
assembler for that purpose, it was in breach of contract when it sold the car
subsequently to another buyer. xXentrex Automotive, Inc. v. Court of Appeals, c. Sale of Large Cattle (Art. 15851; Sec. 529, Revised Adm. Code)
291 SCRA 66 (1998).
XD. SIMULATED SALES
A sales invoice is a commercial document-commercial documents or
papers are those used by merchants or businessmen to promote or facilitate Characteristic of simulation is that the apparent contract is not really desired or
trade or credit transactions—they are not mere scraps of paper bereft of intended to produce legal effect or in any way alter the parties’ juridical situation, or that the
probative value, but vital pieces of evidence of commercial transactions, written parties have no intention to be bound by the contract. The requisites are: (a) an outward
memorials of the details of the consummation of contracts. Seaiol Petroleum declaration of will different from the will of the parties; (b) false appearance must have been
Corp. v. Autocorp Group, 569 SCRA 387 (2008). intended by mutual agreement; and (c) purpose is to deceive third persons. xManila
Sales invoices are not evidence of payment of the price, but evidence of Banking Corp. v. Silverio, 466 SCRA 438 (2005).49
the receipt of the goods; since the best evidence to prove payment is the official
receipt. El Oro Engravers Corp. v. Court of Appeals, 546 SCRA 42 (2008). 1. Badges and Non-badges of Simulation:

A receipt which is merely an acknowledgment of the sum received, without  Non-payment of the stipulated consideration, absence of any attempt by the buyers
any indication therein of the total purchase price of the land or of the monthly to assert their alleged rights over the subject property. xVillaflor v. CA, 280 SCRA
installments to be paid, cannot be the basis of valid sale. xLeabres v. CA, 146 297 (1997).50
SCRA 158 (1986).46
47
44
Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Soliva v. The Intestate Estate of Marcelo M. Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).
48
Villalba, 417 SCRA 277 (2003); Ainza v. Padua, 462 SCRA 614 (2005); De la Cena v. Briones, Pineda v. CA, 376 SCRA 222 (2002).
508 SCRA 62 (2006). 49
Rosario v. CA, 310 SCRA 464 (1999); Loyola v. CA, 326 SCRA 285 (2000); Yu Bun Guan v.
45
Lacanilao v. CA, 262 SCRA 486 (1996). Ong, 367 SCRA 559 (2001); Payongayong v. CA, 430 SCRA 210 (2004).
46 50
Limson v. CA, 357 SCRA 209 (2001). Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008).
15

 Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 otherwise valid, undertaken in fraud of creditors. xManila Banking Corp. v. Silverio, 466
SCRA 98 (1997); but not when there appears a legitimate lessor-lessee relationship SCRA 438 (2005).
between the vendee and the vendor. xUnion Bank v. Ong, 491 SCRA 581 (2006).
The rescissory action to set aside contracts in fraud of creditors is accion pauliana,
 Although the agreement did not provide for the absolute transfer ownership of the essentially a subsidiary remedy accorded under Article 1383 which the party suffering
land to buyer, that did not amount to simulation, since delivery of certificate of damage can avail of only when he has no other legal means to obtain reparation for the
ownership and execution of deed of absolute sale were expressly stipulated as same. In such action, it must be shown that both contracting parties have acted
suspensive conditions, which gave rise to the corresponding obligation on part of maliciously so as to prejudice the creditors who were prevented from collecting their
buyer to pay the last installments. xVillaflor v. CA, 280 SCRA 297 (1997). claims. Rescission if generally unavailing should a third person, acting in good faith, is in
lawful possession of the property since he is protect by law against a suit for rescission by
 When signature on a deed of sale is a forgery. Fidel v. Court of Appeals, 559 SCRA the registration of the transfer to him in the registry. xUnion Bank v. Ong, 491 SCRA 581
186 (2008). But bare assertions that the signature appearing on the Deeds of Sale (2006).
is not that of her husband is not enough to allege simulation, since forgery is not
presumed; it must be proven by clear, positive and convincing evidence. xR.F. 4. Effect When Sale Declared Void:
Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).
 The action for the declaration of the contract’s nullity is imprescriptible—an action for
 Simulation of contract and gross inadequacy of price are distinct legal concepts, reconveyance of property on a void contract of sale does not prescribe. Fil-Estate
with different effects – the concept of a simulated sale is incompatible with Golf and Dev., Inc. v. Navarro, 526 SCRA 51 (2007).
inadequacy of price. When the parties to an alleged contract do not really intend to
be bound by it, the contract is simulated and void. Gross inadequacy of price by  Possessor is entitled to keep the fruits during the period for which the buyer held the
itself will not result in a void contract, and it does not even affect the validity of a property in good faith. xDBP v. CA, 316 SCRA 650 (1999).
contract of sale, unless it signifies a defect in the consent or that the parties actually
intended a donation or some other contract. xBravo-Guerrero v. Bravo, 465 SCRA  Then restoration of what has been given is in order, since the relationship between
244 (2005). parties in any contract even if subsequently voided must always be characterized
and punctuated by good faith and fair dealing. xDe los Reyes v. CA, 313 SCRA 632
2. When Motive Nullifies the Sale (1999); xHeirs of Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97 (2003).

In sale, consideration is, as a rule, different from the motive of parties, and when Alien who purchases land in the name of his Filipina lover, has no standing to seek
the primary motive is illegal, such as when the sale was executed over a land to legal remedies to either recover the property or the purchase price paid, since the
illegally frustrate a person's right to inheritance and to avoid payment of estate tax, the transaction is void ab initio for being in violation of the constitutional prohibition. xFrenzel
sale is void because illegal motive predetermined purpose of the contract. xOlegario v. v. Catito, 406 SCRA 55 (2003).
CA, 238 SCRA 96 (1994).51
Where the parties to a contract of sale agreed to a consideration, but the amount
reflected in the final Deed of Sale was lower, their motivation being to pay lower taxes VI. CONSUMMATION (Arts. 1493-1506) AND
on the transaction, the contract of sale remains valid and enforceable upon the terms of PERFORMANCE OF CONTRACT (Arts. 1536-1544, 1582-1590)
the real consideration. Although illegal, the motives neither determine nor take the
place of the consideration. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).
A. OBLIGATIONS OF SELLER
3. Remedies Allowed When Sale Simulated 1. Preserve Subject Matter (Art. 1163)
When a contract of sale is void, the right to set up its nullity or non-existence is 2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)
available to third persons whose interests are directly affected thereby. Likewise, the
remedy of accion pauliana is available when the subject matter is a conveyance, 3. DELIVER THE SUBJECT MATTER (Art. 1477)
a. Legal Premises for Doctrines on Tradition

51
Uy v. CA, 314 SCRA 69, 81 (1999).
16

 When the sale is void or fictitious, no valid title over the subject matter can be but title passes by the delivery of the goods. xPhil. Suburban Dev. Corp. v. Auditor
conveyed to the buyer even with delivery. Nemo potest nisi quod de jure General, 63 SCRA 397 (1975).54
potest – No man can do anything except what he can do lawfully. xTraders
Royal Bank v. CA, 269 SCRA 15 (1997). Failure of the buyer to make good the price does not, in law, cause the
ownership to revest to the seller unless the bilateral contract of sale is first
 When seller had no ownership over the subject matter at the time of delivery, rescinded or resolved pursuant to Art. 1191. xBalatbat v. CA, 261 SCRA 128 (1996).
no valid title can pass in favor of the buyer. Nemo dat quod non habet – No
man can give that which he does not have. xTsai v. CA, 366 SCRA 324 c. Physical Delivery (Art. 1497)
(2001).52
It is not necessary that seller himself delivers title to the buyer because the
One can sell only what one owns or is authorized to sell, and the buyer can thing sold is understood as delivered when it is placed in control and possession of
acquire no more than what the seller can transfer legally. Daclag v. Macahilig, 560 buyer. Thus, when sellers themselves introduced the tenant to the buyer as the new
SCRA 137 (2008). owners of the land, and from that time on the buyer acted as landlord thereof, there
was delivery that transferred title to the buyer. xAlfredo v. Borras, 404 SCRA 145
A tax declaration, by itelf, is not considered conclusive evidence of ownership
(2003).
—it is merely an indicium of a claim of ownership. Daclag v. Macahilig, 560 SCRA
137 (2008). Nevertheless when at the time of delivery there is no proof that the
seller had ownership and as in fact the tax declaration to the subject property was d. Constructive Delivery: EXECUTION OF A PUBLIC INSTRUMENT (Art. 1498)
in the name of another person, then there was no transfer of ownership by
Where deed of sale or any agreement analogous to a deed of sale, is made
delivery. xHeirs of Severina San Miguel v. Court of Appeals, 364 SCRA 523
through a public instrument, its execution is equivalent to the delivery of the property.
(2001).
Caoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).55

b. General Doctrines on Tradition, Whether Actual or Constructive: Under Art. 1498, the mere execution of the deed of conveyance in a public
instrument is equivalent to the delivery of the property, and that prior physical
It may be stipulated that ownership in the thing shall not pass to buyer until he delivery or possession is not legally required, since ownership and possession are
has fully paid price (Art. 1478). two entirely different legal concepts. Notwithstanding the presence of illegal
occupants on the subject property, transfer of ownership by symbolic delivery under
In the absence of such stipulation to the contrary, tradition produces its natural
Art. 1498 can still be effected through the execution of the deed of conveyance.
effects in law, most important of which being conveyance of ownership, without
xSabio v. International Corporate Bank, 364 SCRA 385 (2001).
prejudice to right of the seller to claim payment of the price. xFroilan v. Pan Oriental
Shipping Co., 12 SCRA 276 (1964).53 There is nothing in Article 1498 that provides that execution of a deed of sale is
a conclusive presumption of delivery of possession; presumptive delivery can be
Delivery contemplates “the absolute giving up of the control and custody of the
negated by the failure of the vendee to take actual possession of the land or the
property on the part of the vendor, and the assumption of the same by the vendee.
continued enjoyment of possession by the vendor. √Santos v. Santos, 366 SCRA
Non nudis pactis sed traditione dominia rerum transferantur. And there is said to be
395 (2001).56
delivery if and when the thing sold “is placed in the control and possession of the
vendee.” xEquatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001).
(i) As to Movables (Arts. 1498-1499, 1513-1514; √Dy, Jr. v. CA, 198 SCRA 826).
Since delivery of subject matter of sale is an obligation on the part of the seller,
the acceptance thereof by the buyer is not a condition for the completeness of Where it is stipulated that deliveries must be made to the buyer or his duly
delivery. xLa Fuerza v. CA, 23 SCRA 1217 (1968). authorized representative named in the contracts, the seller is under obligation to

In the absence of an express stipulation to the contrary, payment of purchase 54


price of the goods is not a condition precedent to the transfer of title to the buyer, Ocampo v. Court of Appeals, 233 SCRA 551 (1994).
55
Tating v. Marcella, 519 SCRA 79 (2007)
52
Tangalin v. Court of Appeals, 371 SCRA 49 (2001) 56
Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001); xEngreso v. De La
53
Kuenzle & Streiff v. Watson & Co., 13 Phil. 26 (1909); Ocejo, Perez & Co. v. Int'l Banking Cruz, 401 SCRA 217 (2003); Ten Forty Realty and Dev. Corp. v. Cruz, 410 SCRA 484 (2003);
Corp., 37 Phil. 631 (1918). Copuyoc v. De Solas, 504 SCRA 176 (2006).
17

deliver in accordance with such instructions.. xLagon v. Hooven Comalco and the transfer of the certificate of title in the name of the buyer are
Industries, Inc., 349 SCRA 363 (2001). necessary only to bind third parties to the transfer of ownership. As between
the seller and the buyer, the transfer of ownership takes effect upon the
Execution by supposed buyers of a chattel mortgage over subject vehicle in execution of a public instrument conveying the real estate. √Chua v. Court
favor of the financing company does not mean that ownership had been transferred of Appeals, 401 SCRA 54 (2003).
to them, for delivery must be on the part of the seller. xUnion Motor Corp. v. CA,
361 SCRA 506 (2001). BUT SEE: Under Art. 1495, seller is obliged to transfer title over the property
and deliver the same to the vendee. √Vive Eagle Land, Inc. v.
Neither issuance of an invoice, which is not a document of title xP.T. Cerna Court of Appeals, 444 SCRA 445 (2004).
Corp. v. CA, 221 SCRA 19 (1993),57 nor of the registration certificate of vehicle
xUnion Motor Corp. v. CA, 361 SCRA 506 (2001),58 would constitute constructive (2) Customary Steps in Selling Immovables – “Customarily, in the absence of a
delivery. contrary agreement, the submission by an individual seller to the buyer of the
following papers would complete a sale of real estate: (1) owner’s duplicate
(ii) As to Immovables (Art. 1498) copy of the Torrens title; (2) signed deed of absolute sale; (3) tax declaration;
and (4) latest realty tax receipt. They buyer can retain the amount for the
Issuance of an acknowledgment receipt of partial payment, when it is not a capital gains tax and pay it upon authority of the seller, or the seller can pay
public instrument does not convey title. xSan Lorenzo Dev. Corp. v. Court of the tax, depending on the agreement of the parties.” √Chua v. Court of
Appeals, 449 SCRA 99 (2005). Appeals, 401 SCRA 54 (2003).
In case of immovables, when sale is made through a public instrument, the
(iii) As to Incorporeal Property (Arts. 1498 and 1501).
execution thereof shall be equivalent to the delivery of the thing which is the object
of the contract, if from the deed the contrary does not appear or cannot clearly be
inferred xMunicipality of Victorias v. CA, 149 SCRA 31 (1987);59 and that prior e. Constitutum Possessorium (Art. 1500) – A provision in the deed of sale granting to
physical delivery or possession is not legally required since execution of the deed is seller a right to lease the subject matter of the sale is valid: the possession is deemed to
deemed equivalent to delivery. xManuel R. Dulay Enterprises, Inc. v. Court of be constituted in the vendee by virtue of this mode of tradition.” xAmigo v. Teves, 96
Appeals, 225 SCRA 678 (1993), Provided That: Phil. 252 (1954).

(a) The thing sold is subject to the control of the seller √Addison v. Felix, 38 f. Traditio Brevi Manu – Prior to the sale, petitioners were in possession of the subject
Phil. 404 (1918); and property as lessees. Upon sale to them of the rights, interests and participation as to the
½ portion pro indiviso, they remained in possession, not in the concept of lessees
(b) Such control should remain within a reasonable period after the execution anymore but as owners now through symbolic delivery known as traditio brevi manu.
of the instrument √Danguilan v. IAC, 168 SCRA 22 (1988); √Pasagui xHeirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).
v. Villablanca, 68 SCRA 18 (1975).
4. Transfer Ownership to Vendee Upon Delivery (Arts. 1477, 1478, and 1496)
EXCEPT: When buyer assumes the risks of ownership and possession. √Power
Commercial and Industrial Corp. v. CA, 274 SCRA 597 (1997). a. When Buyer Refuses to Accept (Art. 1588)
Execution of Deed of Conditional Sale with provision that final deed of sale b. In Case of Express or Implied Reservation (Arts. 1478 and 1503)
to be executed upon full payment does not transfer ownership of the subject
matter. xFortune Tobacco Corp. v. NLRC, 200 SCRA 766 (1991). 5. Taking-Out Insurance Coverage (Art. 1523)
(1) Registration of Title is Separate Mode from Execution of Public
Instrument – The recording of the sale with the proper Registry of Deeds 6. Time and Place of Delivery (Art. 1521).

57
Norkis Distributors v. CA, 193 SCRA 694 (1991). 7. Expenses of Execution and Registration (Art. 1487), and of Putting Goods in
58 Deliverable Estate (Art. 1521).
Abuan v. Garcia, 14 SCRA 759 (1965); Santos v. Santos, 366 SCRA 395 (2001).
59
Florendo v. Foz, 20 Phil. 388 (1911); Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of
Rosete, 87 Phil. 159 (1950); Phil. Suburban Dev. v. Auditor, 63 SCRA 397 (1975). the sale should be shouldered by the vendor xVive Eagle Land, Inc. v. Court of Appeals,
18

444 SCRA 445 (2004); and (b) duty to withhold taxes due on the sale is imposed on Under an arrangement “c.i.f. Pacific Coast” (destination), “the vendor is to pay
seller. xEquitable Realty Development Inc. v. Mayfair Theater, Inc., 332 SCRA 139 (2000). 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
Buyer has more interest in having the capital gains tax paid immediately since this the port of destination.” √Pacific Vegetable Oil Corp. v. Singzon, Supreme Court
is a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far Advance Decisions, 29 April 1955.
as the government is concerned, the capital gains tax remains a liability of the seller since
it is a tax on the seller’s gain from the sale of the real estate. Payment of the capital gains
tax, however, is not a pre-requisite to the transfer of ownership to the buyer. The transfer b. Sale on Approval, Trial or Satisfaction (Art. 1502)
of ownership takes effect upon the signing and notarization of the deed of absolute sale.” In a “sale or return,” the ownership passes to the buyer on delivery pursuant
xChua v. Court of Appeals, 401 SCRA 54 (2003). to a perfected contract of sale; and the subsequent return of the goods reverts
A judgment on a contract of sale that decrees seller’s obligations to execute and ownership back to the seller. In such case, tradition as a mode of acquiring
deliver the deed of absolute sale and the certificate of title, does not necessarily include ownership must be in consequence of a contract. xVallarta v. Court of Appeals,
within its terms the obligation to pay for the expenses in notarizing a deed of sale and 150 SCRA 336 (1987).
in obtaining new certificate of title. xJose Clavano, Inc. v. HLRB, 378 SCRA 172 (2002). In a “sale on approval” (also called “sale on acceptance, “sale on trial” or
“sale on satisfaction”), the delivery of the object does not transfer ownership to the
B. SPECIAL RULES ON COMPLETENESS OF DELIVERY buyer since the delivery was not for purposes of transferring ownership, since the
prestation to effect a meeting of the minds to give rise to a valid contract is
1. In Case of Movables (Art. 1522 and 1537, 1480) incumbent on the buyer. xVallarta v. Court of Appeals, 150 SCRA 336 (1987).

When the contract does not provide for the measuring or weighing of a sold For a sale to be a “sale or return” or a “sale on approval,” there must be a
specific mass, and the price agreed upon was not based on such measurement, then clear agreement to either of such effect, otherwise, the provisions of Art. 1502 of
“[t]he subject matter of the sale is, therefore, a determinate object, the mass, and not Civil Code governing such sales cannot be invoked by either party to the contract.
the actual number of units or tons contained therein, so that all that is required of seller xIndustrial Textile Manufacturing Co. v. LPJ Enterprises, Inc., 217 SCRA 322
was to deliver in good faith to his buyer all of those found in the mass, notwithstanding (1993).
that the quantity delivered is less than the amount estimated in the contract.” xGaite v.
Fonacier, 2 SCRA 831 (1961). c. Sale by Description and/or Sample (Art. 1481)
a. Rules on Delivery to Carrier (Art. 1523) There is a sale by sample when a small quantity is exhibited by the seller as a
fair specimen of the bulk, which is not present and there is no opportunity to inspect
(i) FAS Sales – “The seller pays all charges and is subject to risk until the goods
or examine the same; and the parties treated the sample as the standard of quality
are placed alongside the vessel”. xA. Soriano Y Cia. v. Collector, 97 Phil. 505
and that they contracted with reference to the sample with the understanding that
(1955).
the product to be delivered would correspondent with the sample. xMendoza v.
(ii) FOB Sales – In mercantile contracts of American origin, “F.O.B.” stand for the David, 441 SCRA 172 (004)
words “Free on Board,” i.e., that the seller shall bear all expenses until the
Even in sales by description and/or sample, buyer will not be released from his
goods are delivered according as to whether the goods are to be delivered
obligation to accept and pay for the goods by deviations on the part of the seller
“F.O.B.” at the point of shipment or at the point of destination determines the
from the exact terms of the contract, if buyer had acquiesced to such deviations
time when property passes. √Behn Meyer & Co. v. Yangco, 38 Phil. 602,
after due notice thereof. xEngel v. Mariano Velasco & Co., 47 Phil. 115 (1924).
606 (1918).
When the machine delivered is in accordance with the description stated in the
(iii) CIF Sales √General Foods v. NACOCO, 100 Phil. 337 (1956).
sales contract, the buyer cannot refuse to pay the balance of the purchase price
“C.I.F.” found in British contracts stand for costs, insurance, and freight; they and the cost of installation if it proves that the machine cannot be used satisfactorily
signify that the price fixed covers not only the costs of the goods, but the expense of for the purposes for which he bought it when such purpose was not made known to
freight and insurance to be paid by the seller. √Behn Meyer & Co. v. Yangco, 38 the seller. xPacific Commercial Co. v. Ermita Market & Cold Stores, 56 Phil. 617
Phil. 602, 606 (1918). (1932).
19

d. Buyer's Right to Inspect Before Acceptance (Arts. 1481 and 1584) Except when C. DOUBLE SALES (Arts. 1544 and 1165)
carrier delivers COD.
1. Priority of Torrens System of Registration – The rules on double sales under Art. 1544
do not overcome the rules provided under the Property Registration Decree (P.D. 1459),
2. In Case of Immovables
such as:
a. Where Sold Per Unit or Number (Arts. 1539 and 1540) (a) When two different titles are issued over the same registered land, the buyer who
claims under a title that was first issued shall be preferred. xLiao v. Court of
In a unit price sale, the statement of the area of immovable is not conclusive and
Appeals, 323 SCRA 430 (2000);
the price may be reduced or increased depending on the area actually delivered. If
the vendor delivers less than the area agreed upon, the vendee may oblige the (b) Invoking the rules on double sales and “priority in time” under Art. 1544 would be
vendor to deliver all that is stated in the contract or demand for the proportionate misplaced by a first buyer who bought the land not within the Torrens system but
reduction of the purchase price if delivery is not possible. If the vendor delivers more under Act No. 3344, as against the second buyer who bought the same property
than the area stated in the contract, the vendee has the option to accept only the when it was already registered under the Torrens system, because:
amount agreed upon or to accept the whole area, provided he pays for the additional
area at the contract rate. √Rudolf Lietz, Inc. v. Court of Appeals, 478 SCRA 451  of the “well-known rule in this jurisdiction that persons dealing with
(2005).60 registered land have the legal right to rely on the fact of the Torrens
Certificate of Title and to dispense with the need to inquire further,
b. Where Sold for a Lump Sum [“A cuerpo cierto or por precio alzado”] (Art. 1542) except when the party concerned has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to make
In a contract of sale of land in a mass, the specific boundaries stated in the such inquiry;” and
contract must control over any statement with respect to the area contained within its
boundaries. Salinas v. Faustino, 566 SCRA 18 (2008).  the Torrens system rule that formal registration proceedings undertaken
on the property and the subsequent issuance of a title over the land had
In a lump sum sale, when the land delivered to the buyer is exactly as that under the Torrens system had the legal effect of cleansing title on the
described in the deed and covered within the boundaries designated, the difference in property of all liens and claims which were not annotated therein.
actual area (34 versus 10 hectares) will not authorize the buyer to rescind the
contract because the seller has complied with delivering the subject matter agreed √Naawan Community Rural Bank, Inc. v. Court of Appeals, 395 SCRA 43
upon. xTeran v. Villanueva, 56 Phil. 677 (1932); this is the rule when evidence shows (2003).62
that the parties never gave importance to the area of the land in fixing the price (97
BUT SEE: √Naval v. Court of Appeals, 483 SCRA 102 (2006).
versus 60 hectares). xAzarraga v. Gay, 52 Phil. 599 (1928).
EXCEPT: A buyer of land, when sold in gross or with the description “more or less” or 2. Tests Applicable under Article 1544:
similar words in designating quantity covers only a reasonable excess of
deficiency. In the case at bar an area of “644 square meters more” is not Caveat emptor requires the buyer to be aware of the supposed title of the seller
reasonable excess or deficiency, to be deemed included in the deed of and he who buys without checking the seller's title takes all the risks and losses
sale. xRoble v. Arbasa, 362 SCRA 69 (2001);√Rudolf Lietz, Inc. v. consequent to such failure. xCaram, Jr. v. Laureta, 103 SCRA 7 (1981).
Court of Appeals, 478 SCRA 451 (2005).61 The provision on double sale presumes title or ownership to pass to first buyer,
EXCEPTION TO EXCEPTION: When buyer, who has been occupying the land for two exception being: (a) when the second buyer, in good faith, registers the sale ahead of
years as lessee, actually is deemed to take risk on the actual size of the the first buyer, and (b) should there be no inscription by either of the two buyers, when
property bought at lump sum. xGarcia v. Velasco, 72 Phil. 248 (1941). the second buyer, in good faith, acquires possession of the property ahead of the first
buyer. Unless, the second buyer satisfies these requirements, title or ownership will not
transfer to him to the prejudice of the first buyer.” xCoronel v. CA, 263 SCRA 15
(1996).
60
Goyena v. Tambunting, 1 Phil. 490 (1902); Santa Ana v. Hernandez, 18 SCRA 973 (1966).
61 62
Asiain v. Jalandoni, 45 Phil 296 (1923); Balantakbo v. Court of Appeals, 249 SCRA 323 Reiterated in Abrigo v. De Vera, 432 SCRA 544 (2005); Ver Reyes v. Salvador, Sr., 564
(1995); Esguerra v. Trinidad, 518 SCRA 186 (2007). SCRA 456 (2008).
20

In spite of the three levels of tests provided under Art. 1544, the Court seems to Article 1544 applies where the same thing is sold to different vendees by the
recognize only registration in good faith by the second buyer and does not characterize same vendor. It does not apply where the same thing is sold to different vendees by
the meaning of the last two test of possession and oldest title. √Carillo v. Court of different vendors.or even to the same buyer but by different sellers. Salera v.
Appeals, 503 SCRA 66 (2006). Rodaje, 530 SCRA 432, 438 (2007).66
a. MAIN RULE: PRIOR TEMPORE, PRIOR JURE. √Carbonell v. CA, 69 SCRA 99 (1976).63 For Article 1544 to apply, it is necessary that the conveyance must have been
made by a party who has an existing right in the thing and the power to dispose of
3. Requisites for Double Sale: it. It cannot be invoked where the two different contracts of sale are made by two
different persons, one of them not being the owner of the property sold. And even if
a. There Must Be Two Different Valid Sales: Article 1544 do not apply where: the sale was made by the same person, if the second sale was made when such
person was no longer the owner of the property, because it had been acquired by
 There is only one valid sale, while the other sale over the same property is void. the first purchaser in full dominion, the second purchaser cannot acquire any right.
Fudot v. Cattleya Land, Inc., 533 SCRA 350 (2007);64 or √Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals, 448
 Where one of the contract is a contract to sell. √San Lorenzo Dev. Corp. v. SCRA 347 (2005),67 citing VILLANUEVA, PHILIPPINE LAW ON SALES 100 (1995).
Court of Appeals, 449 SCRA 99 (2005).65
3. Registration in Good Faith as First Priority
(1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims:
a. Meaning of “Registration”
√Mendoza v. Kalaw, 42 Phil. 236 (1921); √Adalin v. CA, 280 SCRA 536
(1997). The annotation of adverse claim can qualify as the registration mandated under
the rules on double sale. √Carbonnel v. Court of Appeals, 69 SCRA 99 (1976).
The rules on double sales under Art. 1544 are not applicable to contract to
sell, because of the circumstances that must concur in order for the provisions to Registration means any entry made in the books of the registry, including both
Art. 1544 on double sales to apply, namely that there must be a valid sales registration in its ordinary and strict sense, and cancellation, annotation, and even
transactions, and buyers must be at odds over the rightful ownership of the marginal notes. It is the entry made in the registry which records solemnly and
subject matter who must have bought from the very same seller, are lacking in a permanently the right of ownership and other real rights. xCheng v. Genato, 300
contract to sell for neither a transfer of ownership nor a sales transaction has SCRA 722 (1998).68
been consummated, and such contract is binding only upon the fulfillment or non-
fulfillment of an event. Nevertheless, the governing principle of Art. 1544 should Declaration of purchase for taxation purposes does not comply with the required
apply, mainly the governing principle of primus tempore,portior jure (first in time, registration, and the fact alone does not even itself constitute evidence of ownership.
stronger in right). √Cheng v. Genato, 300 SCRA 722 (1998). xBayoca v. Nogales, 340 SCRA 154 (2000).
Registration of the Extra-judicial Partition which merely mentions the sale is not
b. Exact Same Subject Matter the registration covered under Art. 1544 and cannot prevail over the registration of
Article 1544 applies where the same thing is sold to different buyers by the the pacto de retro sale. xVda. de Alcantara v. CA, 252 SCRA 457 (1996).
same seller. xOng v. Oalsiman, 485 SCRA 464 (2006); and therefore does not apply “There can be no constructive notice to the second buyer through registration
where there was a sale to one party of the land itself while the other contract was a under Act 3344 if the property is registered under the Torrens system.” xAmodia Vda.
mere promise to sell the land or at most an actual assignment of the rights to De Melencion v. Court of Appeals, 534 SCRA 62, 82 (2007).
repurchase the same land. xDischoso v. Roxas, 5 SCRA 781 (1962).
b. Registration Must Always Be in Good Faith – In cases of double sales of
c. Exact Same Seller for Both Sales immovables, what finds relevance and materiality is not whether or not the second

63 66
Tanglao v. Parungao, 535 SCRA 123 (2007). Ong v. Olasiman, 485 SCRA 464 (2006).
64 67
Espiritu v. Valerio, 9 SCRA 761 (1963); Remalante v. Tibe, 158 SCRA 138 (1988); Delfin v. Gallardo v. Gallardo, 46 O.G. No. 11 p. 5568; Sigaya v. Mayuga, 467 SCRA 341, 357
Valdez, 502 SCRA 24 (2006). (2005).
65 68
Torrecampo v. Alindogan, Sr., 517 SCRA 84 (2007). Ulep v. Court of Appeals, 472 SCRA 241 (2005).
21

buyer was a buyer in good faith or that he was first to register, but whether or not The registration of a sale after the annotation of the notice of lis pendens does
said second buyer registers such second sale in good faith, that is, without not obliterate the effects of delivery and possession in good faith. The rules on
knowledge of any defect in the title of the property sold. xMartinez v. CA, 358 SCRA constructive notice upon registration provided for under Section 52 of the Property
38 (2001);69 this is so because the defense of indefeasibility of a Torrens title does Registration Decree (P.D. No. 1529) operate only from the time of the registration of
not extend to a transferee who takes the certificate of title in bad faith. xOcceña v. the notice of lis pendens which in this case was effected only after the time the sale in
Esponilla, 431 SCRA 116 (2004). favor of the second buyer had long been consummated by delivery of the subject
matter. √San Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99 (2005).
c. Knowledge of First Buyer of the Second Sale Does Not Amount to Registration
in Favor of the Second Buyer 4. Possession Refers Both to Material and Symbolic Possession.
Knowledge gained by the first buyer of the second sale cannot defeat the first In the absence of inscription under double sales, the law gives preferential right to
buyer's rights except where the second buyer registers in good faith the second sale the buyer who in good faith is first in possession, under the following jurisprudential
ahead of the first. Such knowledge of the first buyer does not bar her from availing of parameters: (a) Possession mentioned in Article 1544 includes not only material but also
her rights under the law, among them, to register first her purchase as against the symbolic possession; (b) possessors in good faith are those who are not aware of any
second buyer. But in converso, knowledge gained by the second buyer of the first flaw in their title or mode of acquisition; (c) Buyers of real property that is in the
sale defeats his rights even if he is first to register the second sale, since such possession of persons other than the seller must be wary – they must investigate the
knowledge taints his prior registration with bad faith. This is the priced exacted by rights of the possessors; and (d) good faith is always presumed, upon those who allege
Article 1544 for the second buyer being able to displace the first buyer; that before bad faith on the part of the possessors rests the burden of proof. xTen Forty Realty and
the second buyer can obtain priority over the first, he must show that he acted in Dev. Corp. v. Cruz, 410 SCRA 484 (2003).72
good faith throughout (i.e., in ignorance of the first sale and of the first buyer's right) –
from the time of acquisition until the title is transferred to him by registration or failing
5. Who is Purchaser in Good Faith?
registration, by delivery of possession.” xUraca v. CA, 278 SCRA 702 (1997).70
In the determination of whether or not a buyer is in good faith, the point in time to be
In a situation where a party has actual knowledge of the claimant’s actual, open
considered is the moment when the parties actually entered into the contract of sale.
and notorious possession of a disputed property at the time of registration, the actual
√Estate of Lino Olaguer v. Ongjoco, 563 SCRA 373 (2008).
notice and knowledge are equivalent to registration, because to hold otherwise would
be to tolerate fraud and the Torrens system cannot be used to shield fraud – while a. Must Have Paid Price in Full – A purchaser is good faith is one who buys property of
certificates of title are indefeasible, unassailable and binding against the whole world, another, without notice that some other person has a right to, or interest in, such
they merely confirm or record title already existing and vested. √Consolidated Rural property and pays a full and fair price for the same at the time of such purchase,
Bank (Cagayan Valley), Inc. v. Court of Appeals, 448 SCRA 347 (2005). or before he has notice of the claim or interest of some other person in the property.
Tanglao v. Parungao, 535 SCRA 123 (2007)73
d. Registration in Good Faith Always Pre-empts Possession in Good Faith –
Between two purchasers, the one who registered the sale in his favor has a preferred Under Article 1544, mere registration is not enough to acquire a new title.
right over the other who has not registered his title, even if the latter is in actual Good faith must concur. Clearly, when the buyer has not yet fully paid the purchase
possession of the immovable property. xTañedo v. CA, 252 SCRA 80 (1996).71
71
Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263 (2001); Dauz v.
Exchavez, 533 SCRA 637 (2007).
69 72
Blanco v. Rivera, 488 SCRA 148 (2006); Gabriel v. Mabanta, 399 SCRA 573 (2003); De la Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159 (1950); Navera v.
Cena v. Briones, 508 SCRA 62 (2006); Tanglao v. Parungao, 535 SCRA 123 (2007); Bernardez v. CA, 184 SCRA 584 (1990).
Court of Appeals, 533 SCRA 451 (2007). 73
Agricultural and Home Extension Dev. v. CA., 213 SCRA 536 (1992); Veloso v. CA, 260
70
Cruz v. Cabana, 129 SCRA 656 (1984); Gatmaitan v. CA, 200 SCRA 37 (1991); Vda. de SCRA 593 (1996); Balatbat v. CA, 261 SCRA 128 (1996); Mathay v. CA, 295 SCRA 556 (1998);
Jomoc v. CA, 200 SCRA 74 (1991); Bucad v. CA, 216 SCRA 423 (1992); Berico v. CA, 225 SCRA Diaz-Duarte v. Ong, 298 SCRA 388 (1998); Liao v. CA, 323 SCRA 430 (2000); Tanongon v.
469 (1993); Bautista v. CA, 322 SCRA 294 (2000); Bautista v. CA, 322 SCRA 294 (2000); Ulep v. Samson, 382 SCRA 130 (2002); xUniversal Robina Sugar Milling Corp. v. Heirs of Angel Teves,
Court of Appeals, 472 SCRA 241 (2005); Escueta v. Lim, 512 SCRA 411 (2007); Lumbres v. 389 SCRA 316 (2002); Aguirre v. Court of Appeals, 421 SCRA 310 (2004); Galvez v. Court of
Tablada, Jr., 516 SCRA 575 (2007); Fudot v. Cattleya Land, Inc., 533 SCRA 350 (2007); Tanglao Appeals, 485 SCRA 346 (2006); Chua v. Soriano, 521 SCRA 68 (2007); Raymundo v. Bandong,
v. Parungao, 535 SCRA 123 (2007). 526 SCRA 514 (2007).
22

price, and as long as seller remains unpaid, the buyer cannot feign good faith. a reasonable man would neither directly or indirectly be likely to consent to it.
xPortic v. Cristobal, 546 SCRA 577 (2005). Tio v. Abayata, 556 SCRA 175 (2008).
b. Burden of Proof – The burden of proving the status of a purchaser in good faith lies (4) Obligation to Investigate or To Follow Leads – A purchaser who is aware of
upon him who asserts that status. It is not sufficient to invoke the ordinary facts which should put a reasonable man upon his guard cannot turn a blind
presumption of good faith, that is, that everyone is presumed to have acted in good eye and later claim that he acted in good faith, such as
faith, since the good faith that is here essential is integral with the very status that
must be established. xTanglao v. Parungao, 535 SCRA 123 (2007).74  A buyer of a registered land would be in bad faith when he purchases
without asking to see the owner’s copy of the title and/or without visiting
BUT SEE: It is anxiomatic that good faith is always presumed in the absence of any the land where he would then have seen first buyer occupying the same.
direct evidence of bad faith. xSantiago v. CA, 247 SCRA 336 (1995). xSantiago v. CA, 247 SCRA 336 (1995).77
c. Instances When No Good Faith:  When there are occupants to the land being bought, since it is the
common practice in the real estate industry, an ocular inspection of the
(1) Being In Business on Realty – A mortgagee who eventually ended buying premises involved is a safeguard a cautious and prudent purchaser
the property at the public auction, cannot claim to be a buyer in good faith usually takes. xMartinez v. CA, 358 SCRA 38 (2001).78
when his business in the constructing and selling townhouses and extending
credit to the public, including real estate loans; for he is charged with greater  Any person engaged in business would be wary of buying from a
diligence that ordinary buyers or encumbrances for value, because it would company that is closing shop, because it may be dissipating its assets to
be standard in his business, as a matter of due diligence required of banks defraud creditors. Such buyer is bound to inquire whether the owners had
and financing companies, to ascertain whether the property being offered as unsettled obligations encumbrance that could burden the property.
security for the debt has already been sold to another to prevent injury to xSamson v. Court of Appeals, 238 SCRA 397 (1994).
prior innocent buyers. xExpresscredit Financing Corp. v. Velasco, 473 SCRA
570 (2005).75 (5) Land in Adverse Possession – Buyer who could not have failed to know or
discover that the land sold to him was in the adverse possession of another
A banking institution is expected to exercise due diligence before entering is a buyer in bad faith. xHeirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238
into a mortgage contract, and the ascertainment of the statute or condition of (2000).79
a proper offered to it as security for a loan must be a standard and
indispensable part of its operations; and it cannot simply rely upon reviewing (6) Existence of Lis Pendens – Settled is the rule that one who deals with
the title to the property offered for mortgage. Tio v. Abayata, 556 SCRA 175 property with a notice of lis pendens, even when at the time of sale the
(2008).76 annotation was cancelled but there was a pending appeal, cannot invoke the
right of a purchaser in good faith. A purchaser cannot close his eyes to facts
(2) Close Relationship – The sale to one’s daughter and sons will give rise to the which should put a reasonable man on guard and claim that he acted in the
conclusion that the buyers, not being really third parties, knew of the belief that there was no defect in the title of the seller. xPo Lam v. CA, 316
previous sales and cannot be considered in good faith. The buyers “are SCRA 721 (1999).
deemed to have constructive knowledge by virtue of their relationship” to
their sellers. xPilapil v. Court of Appeals, 250 SCRA 566 (1995).
77
(3) Gross Inadequacy of Price – Mere inadequacy of price is not ipso facto a R.R. Paredes v. Calilung, 517 SCRA 369 (2007); Chua v. Soriano, 521 SCRA 68 (2007).
78
bade of lack of good faith—to be so, the price must be grossly inadequate or Mathay v. CA, 295 SCRA 556 (1998); Republic v. De Guzman, 326 SCRA 267 (2000); Heirs
shocing to the conscience such that the mind revolts agains it and such that of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000); Heirs of Celestial v. Heirs of Celestial, 408
SCRA 291 (2003); Erasusta, Jr. v. Court of Appeals, 495 SCRA 319 (2006); De la Cena v.
Briones, 508 SCRA 62 (2006); Tanglao v. Parungao, 535 SCRA 123, 132 (2007).
79
74 Modina v. CA, 317 SCRA 696, 706 (1999); Republic v. De Guzman, 326 SCRA 267 (2000);
Tsai v. CA, 366 SCRA 324 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Raymundo v.
Martinez v. CA, 358 SCRA 38 (2001); Heirs of Trinidad de Leon Vda. De Roxas v. Court of
Bandong, 526 SCRA 514 (2007).
75 Appeals, 422 SCRA 101 (2004); Occeñna v. Esponilla, 431 SCRA 116 (2004); PNB v. Heirs of
Lloyd’s Enterprises and Credit Corp. v. Dolleton, 555 SCRA 142 (2008). Estanislao Militar, 494 SCRA 308 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Tanglao
76
Bank of Commerce v. San Pablo, Jr., 522 SCRA 713 (2007). v. Parungao, 535 SCRA 123 (2007); Tio v. Abayata, 556 SCRA 175 (2008).
23

EXCEPT: When knowledge of lis pendens was acquired at the time there was of the amount due are essential in order to extinguish the obligation to pay and oblige
order to have it cancelled. xPo Lam v. CA, 347 SCRA 86 (2000). the seller to convey title. xTorcuator v. Bernabe, 459 SCRA 439 (2005).
Unless the parties to a sale have agreed to the payment of the purchase price to
6. When Subject of Sale Is Unregistered Land √Naawan Community Rural Bank v. CA,
any other party, then its payment to be effective must be made to the seller in
395 SCRA 43
accordance with Article 1240 which provides that “Payment shall be made to the
(2003).
person in whose favor the obligation has been constituted, or his successor in interest,
The rules in double sale under Article 1544, whereby the buyer who is able to first or any person authorized to receive it.” xMontecillo v. Reynes, 385 SCRA 244 (2002).
register the purchase in good faith “is in full accord with Section 51 of PD 1529 which
provides that no deed, mortgage, lease, or other voluntary instrument – except a will 2. Accept Delivery (Arts. 1582-1585)
purporting to convey or affect registered land shall take effect as a conveyance or bind
the land until its registration. Thus, if the sale is not registered, it is binding only between
the seller and the buyer but it does not affect innocent third persons. √Abrigo v. De
Vera, 432 SCRA 544 (2004). VII. DOCUMENTS OF TITLE (Arts. 1507-1520)
When first sale is over unregistered land and the second sale is when it is 1. Definition (Art. 1636)
registered, the rules on double sale do not apply. √Dagupan Trading Co. v. Macam, 14
SCRA 179 (1965). 2. Purpose of Documents of Title
Article 1544 is inapplicable to unregistered land because “the purchaser of Through a document of title, seller is allowed by fiction of law to deal with the
unregistered land at a sheriff’s execution sale only steps into the shoes of the judgment goods described therein as though he had physically delivered them to the buyer; and
debtor, and merely acquires the latter’s interest in the property sold as of the time the buyer may take the document as though he had actually taken possession and control
property was levied upon,” as expressly provided for in then Sec. 35, Rule 39 of the over the goods described therein. xPhilippine Trust Co. v. National Bank, 42 Phil. 413
Revised Rules of Court on execution sale [now Sec. 33, Rule 39, 1997 Rules of Civil (1921).
Procedure)]. √Carumba v. CA, 31 SCRA 558 (1970).
Warehouse receipt represents the goods, but the intrusting of the receipt is more
Under Act 3344, registration of instruments affecting unregistered lands is “without than the mere delivery of the goods; it is a representation that the one to whom the
prejudice to a third party with a better right,” which means that mere registration does not possession of the receipt has been so entrusted has the title to the goods. xSiy Cong
give the buyer any right over the land if the seller was not anymore the owner of the land Bieng v. Hongkong & Shanghai Bank, 56 Phil. 598 (1932).
having previously sold the same to somebody else even if the earlier sale was
unrecorded. The rules on double sale under Art. 1544 has no application to land no
registered under the Torrens system.√Acabal v. Acabal, 454 SCRA 555 (2005).80 3. Negotiable Documents of Title
a. How Negotiated (Arts. 1508-1509)
D. OBLIGATIONS OF BUYER
b. Who Can Negotiate (Art. 1512)
1. Pay the Price (Art. 1582)
c. Effects of Negotiation (Art. 1513)
When seller cannot show title to the subject matter, then he cannot compel the
buyer to pay the price. xHeirs of Severina San Miguel v. CA, 364 SCRA 523 (2001). The endorsement and delivery of a negotiable quedan operates as the transfer of
possession and ownership of the property referred to therein, and had the effect of
Mere sending of a letter by the buyer expressing the intention to pay without the divorcing the property covered therein from the estate of the insolvent prior to the filing
accompanying payment is not considered a valid tender of payment and consignation of the petition for insolvency. xPhilippine Trust Co. v. National Bank, 42 Phil. 413
(1921).
80
Hanopol v. Pilapil, 7 SCRA 452 (1963); Radiowealth Finance Co. v. Palileo, 197 SCRA 245
(1991); Spouses Honorio Santiago v. CA, 247 SCRA 336 (1995); Bayoca v. Nogales, 340 SCRA d. Unauthorized Negotiation (Art. 1518)
154 (2000); Fidel v. Court of Appeals, 559 SCRA 186 (2008); Daclag v. Macahilig, 560 SCRA 137 As between the owner of a negotiable document of title who endorsed it in blank
(2008). and entrusted it to a friend, and the holder of such negotiable document of title to whom
24

it was negotiated and who received it in good faith and for value, the latter is preferred, In a contract of sale of co-owned property, what the vendee obtains by virtue of
under the principle that as between two innocent persons, he who made the loss such a sale are the same rights as the vendor had as co-owner (i.e., his spiritual
possible should bear the loss. xSiy Long Bieng v. Hongkong and Shanghai Banking share), and the vendee merely steps into the shoes of the vendor as co-owner.
Corp., 56 Phil. 598 (1932). xPanganiban v. Oamil, 542 SCRA 166 (2008);82 except when the intention of the
purchase was clearly the property itself and not just the spiritual share. √Mindanao v.
4. Non-negotiable Documents of Title Yap, 13 SCRA 190 (1965).

a. How Transferred or Assigned (Art. 1514) An agreement that purports a specific portion of an un-partitioned co-owned
property is not void; it shall effectively transfer the seller’s ideal share in the co-
b. Effects of Transfer (Art. 1514). ownership. Heirs of the Late Spouses Aurelio and Esperanza Balite v. Lim, 446 SCRA
54 (2004).83
5. Warranties of Seller of Documents of Title (Art. 1516)
In which case, the proper action is not for nullification of sale, or for the recovery
of possession of the property owned in common from the other co-owners, but for
6. Rules of Levy/Garnishment of Goods (Arts. 1514, 1519, 1520).
division or partition of the entire property. xTomas Claudio Memorial College, Inc. v.
Court of Appeals, 316 SCRA 502 (1999).84
A co-owner who sells one of the two lands owned in common with another co-
VIII. SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: LIFE OF A
owner, and does not turn-over one-half of the proceeds of the sale to the other co-
CONTRACT OF SALE
owner, the latter may by law and equity lay exclusive claim to the remaining parcel of
land. xImperial v. Court of Appeals, 259 SCRA 65 (1996).
1. Effect of Sale Where Seller Not Owner at Time of Delivery (Art. 1505; √Paulmitan
v. Court of Appeals, 215 SCRA 866 [1992]). 2. Exceptions: When Ownership Transfers by Act of the Non-Owner
In sale, it is essential that the seller is the owner of the property he is selling. a. Estoppel on True Owner (Art. 1434) √Bucton v. Gabar, 55 SCRA 499 (1974).
The principal obligation of a seller is “to transfer the ownership of” the property sold
(Art. 1458). This law stems from the principle that nobody can dispose of that which b. Recording Laws; Torrens System (Pres. Decree 1529).
does not belong to him: NEMO DAT QUOD NON HABET. xNoel v. CA, 240 SCRA
78 (1995).81 The defense of indefeasibility of Torrens title where the disputed buildings and
equipment are located is unavailing, since such defense is available to sale of lands
Although a situation (where the sellers were no longer owners) does not appear and not to sale of properties situated therein. xTsai v. CA, 366 SCRA 324 (2001).
to be one of the void contracts enumerated in Art. 1409 of Civil Code, and under Art.
1402 Civil Code itself recognizes a sale where the goods are to be “acquired x x x by An innocent purchaser for value is one who purchases a titled land by virtue of a
the seller after the perfection of the contract of sale” clearly implying that a sale is deed executed by the registered owner himself not by a forged deed. xInsurance
possible even if the seller was not the owner at the time of sale, provided he acquires Services and Commercial Traders, Inc. v. CA, 341 SCRA 572 (2000).
title to the property later on, but when delivery of ownership is no longer possible, the A person who deals with registered land through someone who is not the
sale should be considered void, and consequently, the right to repurchase provided registered owner is expected to look beyond the certificate of title and examine all the
therein would also be void xNool v. CA, 276 SCRA 149 (1997). factual circumstances thereof in order to determine if the vendor has the capacity to
If one buys the land of another, to which the seller is supposed to have a good transfer any interest in the land. Sy v. Capistrano, Jr., 560 SCRA 103 (2008).
title, and in consequence of facts unknown alike to both parties, the seller has in fact 82
no title at all, equity will cancel the sale and cause the purchase money to be restored Estoque v. Pajimula, 24 SCRA 59 (1968); Aguirre v. CA, 421 SCRA 310 (2004); Acabal v.
to the buyer, putting both parties in status quo. xDBP v. CA, 249 SCRA 331 (1995). Acabal, 454 SCRA 555 (2005); Barcenas v. Tomas, 454 SCRA 593 (2005).
83
Almendra v. IAC, 204 SCRA 142 (1991); Fernandez v. Fernandez, 363 SCRA 811 (2001);
a. Sales by Co-Owners (Art. 493) xAguirre v. CA, 421 SCRA 310 (2004); Santos v. Lumbao, 519 SCRA 408 (2007); Republic v.
Heirs of Francisca Dignos-Sorono, 549 SCRA 58 (2008).
84
Heirs of Romana Ingjug-Tiro v. Casals, 363 SCRA 435 (2001); Aguirre v. Court of Appeals,
81
Azcona v. Reyes, 59 Phil. 446 (1934); Coronel v. Ona, 33 Phil. 456 (1916). 421 SCRA 310 (2004).
25

Where innocent third persons, relying on the correctness of the certificate of title IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS
thus issued, acquire rights over the property, the court cannot disregard such rights
and order the cancellation of the certificate, since the effect of such outright 1. No Application When Subject Matter is Determinable (Art. 1263)
cancellation will be to impair public confidence in the certificate of title. Every person
dealing with the registered land may safely rely on the correctness of the certificate of 2. Effect of Loss/Deterioration of Thing Sold:
title issued therefor and the law will in no way oblige him to go behind the certificate
to determine the condition of the property. xHeirs of Spouses Benito Gavino. v. Court a. Before Perfection (√Roman v. Grimalt, 6 Phil. 96 [1906]).
of Appeals, 291 SCRA 495 (1998).
b. At Time of Perfection (Arts. 1493 and 1494).
c. Statutory Power Order of Courts
c. After Perfection But Before Delivery (Arts. 1164, 1189, and 1262).
When a defeated party refuses to execute the absolute deed of sale in
(1) General Rule: Before delivery, risk of loss is borne by seller under the rule of
accordance with the judgment, the court may direct the act to be done at the cost of
res perit domino. xChrysler Phil. v. Court of Appeals, 133 SCRA 567 (1984).
the disobedient party by some other person appointed by the court and the act when
so done shall have the like effect as is done by the party. xManila Remnant Co., Inc. In the case of a motor vehicle, where there was neither physical or
v. CA, 231 SCRA 281 (1994) constructive delivery of a determinate thing, the thing sold remained at the
seller’s risk. xUnion Motor Corp v. Court of Appeals, 361 SCRA 506 (2001).
d. Sale in Merchants Stores, Fairs or Markets (Arts. 85 and 86, Code of
Commerce) √City of Manila v. Bugsuk, 101 Phil. 859 (1957); √Sun Bros. & Co. (2) Loss by Fault of a Party (Arts. 1480, 1504, 1538)
v. Velasco, 54 O.G. 5143 (1958).
(3) Loss by Fortuitous Event (Arts. 1480, 1163, 1164, 1165, 1504, 1538, and
1189; READ Comments of PARAS, TOLENTINO, PADILLA, and BAVIERA).
3. Sale by One Having Voidable Title (Art. 1506, as an exception to Art. 559)
(4) Deterioration (Arts. 1480, 1163-65, and 1262; Arts. 1189 and 1538)
Whenever there is an underlying contract of sale which grants to the culprit-buyer
a voidable title, even when this is accompanied by the criminal act of estafa or (5) Fruits or Improvements from time of perfection pertain to buyer (Arts. 1480,
swindling, Article 1506 would grant to the buyer in good faith a better title as against the 1537-1538).
original owner even though the latter may be classified to have been “unlawfully
deprived” of the subject matter under Art. 559. √Tagatac v. Jimenez, 53 O.G. 3792 d. After Delivery (Art. 1504) √Lawyer's Coop v. Tabora, 13 SCRA 762 (1965).86
(1957); √EDCA Publishing v. Santos, 184 SCRA 614 (1990).
Thus, when owner did not voluntarily deliver possession of the car, and in effect it
was stolen from him, then one who buys the car even in good faith from the thief will X. REMEDIES FOR BREACH OF CONTRACT OF SALE (Arts. 1594-1599)
lose the car to the owner who is deemed to have been unlawfully deprived. √Aznar v.
Yapdiangco, 13 SCRA 486 (1965).
A. ON PART OF SELLER
In all other cases of unlawful deprivation done through estafa, the original owner
recovers even from the buyer in good faith. √Cruz v. Pahati, 98 Phil. 788 (1956). 1. In Case of Movables ((Arts. 1593, 1595 to 1597)
[CLV: Decision showed that second buyer, or current possessor could not claim
good faith because of erasures in the covering documents presented by his Under Article 1597, when the buyer of scrap iron fails to put up the letter of credit in
seller] favor of the seller as the condition of the sale, the seller had a right to terminate the
contract, and non-compliance with the condition meant that the seller’s obligation to sell
Owner of diamond ring may recover possession of the same from pawnshop
never did arise. xVisayan Sawmill Co. v. Court of Appeals, 219 SCRA 378 (1993).
where the owner’s agent had pledged it without authority to do so; Article 559 applies
and the defense that the pawnshop acquired possession without notice of any defect of
the pledgor-agent is unavailing. √Dizon v. Suntay, 47 SCRA 160 (1972).85 [CLV: In 2. Unpaid Seller of Goods (Arts. 1524-1535)
those cases possessor is a merchant and only has a pledge in his favor].

85 86
Valera v. Matute, 9 Phil. 479 (1908); Arenas v. Raymundo, 19 Phi. 47 (1911). Song Fo & Co. v. Oria, 33 Phil. 3 (1915); Lawyer's Coop v. Narciso, 55 O.G. 3313).
26

a. Definition of “Unpaid Seller” (Art. 1525) of replevin, does not amount to a foreclosure of the chattel mortgage covered by the
Recto Law. √Tajanglangit v. Southern Motors, 101 Phil. 606 (1957).88
b. Rights of Unpaid Seller:
 Possessory lien (Arts. 1526-1529, 1503, 1535) e. Nature of Remedy of Rescission

 Stoppage in transitu (Arts. 1530-1532, 1535, 1636[2]) Surrender of mortgaged property is not necessarily equivalent to rescission.
xVda. de Quiambao v. Manila Motors Co., Inc., 3 SCRA 444 (1961).
 Right of Resale (Art. 1533)
Mutual restitution prevents recovering on the balance of the purchase price.
 Right to Rescind (Art. 1534) √Nonato v. IAC, 140 SCRA 255 (1985); but stipulation on non-return of payments
is valid provided not unconscionable. xDelta Motor Sales Corp. v. Niu Kim Duan,
Even before the formal statutory adoption of the remedies of an unpaid seller, the 213 SCRA 259 (1992).
Supreme Court had already recognized the right of a seller, when the contract of sale
is still executory in stage, to resell the movables subject matter of the sale, when the f. Remedy of Foreclosure
buyer fails to pay the purchase price. xHanlon v. Hausserman, 40 Phil. 796 (1920).
Barring effect would cover a third-party mortgage, when it was the chattel
Seller in possession of the goods may sell them at buyer's risk. xKatigbak v. mortgage that was first foreclosed. √Ridad v. Filipinas Investment, 120 SCRA 246
Court of Appeals, 4 SCRA 243 (1962). (1983).

3. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS (Arts. 1484, 1485, 1486) When the seller assigns his credit to another person, the latter is likewise
bound by the same law. √Zayas v. Luneta Motors, 117 SCRA 726 (1982).89
The Recto Law prevents mortgagee from seizing the mortgaged property, buying
it at foreclosure sale for a low price and then bringing the suit against the mortgagor for (i) “Barring” Effects of Foreclosure – Filing of the action of replevin in order to
a deficiency judgment. The almost invariable result was that the mortgagor found foreclose on the chattel mortgage does not produce the barring effect under
himself minus the property and still owing practically the full amount of his original the Recto Law; for it is the fact of foreclosure and actual sale of the mortgaged
indebtedness. xMagna Financial Services Group, Inc. v. Colarina, 477 SCRA 245 chattel that bar further recovery by the seller of any balance on the buyer’s
(2005). outstanding obligation not satisfied by the sale. The voluntary payment of the
installment by the buyer-mortgagor is valid and not recoverable in spite the
a. “Installment Sale” requires at least stipulated two (2) payments in the future, restrictive provisions of Art. 1484(3). √Northern Motors v. Sapinoso, 33
whether or not there is a downpayment. √Levy v. Gervacio, 69 Phil. 52 (1939). SCRA 356 (1970). 90
b. Contracts to Sell Movables Not Covered. xVisayan Sawmill Company, Inc. v. Foreclosure on the chattel mortgage prevents further action on the
Court of Appeals, 219 SCRA 378 (1993). supporting real estate mortgage, whether the chattel mortgage is first
foreclosed √Cruz v. Filipinas Investment & Finance Corp., 23 SCRA 791
c. Remedies Available to Unpaid Seller Not Cumulative But Alternative and (1968);91 and vice versa when the real estate mortgage is first foreclosed.
Exclusive. √Delta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).87 √Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).
Seeking a writ of replevin consistent with any of the three remedies. All amounts barred from recovery. √Macondray & Co. v. Eustaquio, 64
xUniversal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 (1969). Phil. 446 (1937).

d. Remedy of Specific Performance


88
The fact that the seller obtained a writ of execution against the property Southern Motors v. Moscoso, 2 SCRA 168 (1961); Industrial Finance Corp. v. Ramirez, 77
mortgaged, but pursuant to an action for specific performance with a plea for a writ SCRA 152 (1977); Rosario v. PCI Leasing and Finance, Inc., 474 SCRA 500 (2005).
89
Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).
90
Manila Motor Co. v. Fernandez, 99 Phil. 782 (1956); Magna Financial Services Group, Inc.
87 v. Colarina, 477 SCRA 245 (2005).
De la Cruz v. Asian Consumer, 214 SCRA 103 (1992); Borbon II v. Servicewide Specialists,
91
Inc., 258 SCRA 634 (1996). Pascual v. Universal Motors Corp., 61 SCRA 121 (1974).
27

(ii) Rule on “Perverse Buyer”. √Filipinas Investment & Finance Corp. v. Ridad,  the option to demand reimbursement of the total amount paid, or to wait
30 SCRA 564 (1969). for further development of the subdivision, and when the buyer opts for
the latter alternative, he may suspend payment of the installments until
g. Purported Lease with Option to Buy such time that the owner or developer has fulfilled its obligations.
xTamayo v. Huang, 480 SCRA 156 (2006);
The Court took judicial notice of the practice of vendors of personal property
of denominating a contract of sale on installment as one of lease to prevent the  buyer required only to give due notice to the owner or developer of the
ownership of the object of the sale from passing to the vendee until and unless buyer’s intention to suspend payment. xZamora Realty and Dev. Corp.
the price is fully paid. xElisco Tool Manufacturing Corp. v. CA, 307 SCRA 731 v. Office of the President, 506 SCRA 591 (2006);
(1999).92
 Sec. 23 does not require that a notice be given first by the buyer to the
Where a lease agreement over equipment is without an express option to seller before a demand for refund can be made as the notice and
purchase, but nevertheless when a final demand is given prior to suit, the demand demand can be made in the same letter or communication. xCasa
letter indicates clearly it was within the option of the lessee to fully pay the balance Filipinas Realty Corp v. Office of the President, 241 SCRA 165 (1995);
of the unpaid rentals and would be able to keep the equipment, then the real and
contract between the parties was a sale of movable on installment disguised as a
lease agreement. √PCI Leasing and Finance, Inc. v. Giraffe-X Creative  Option granted by law is with buyer and not the developer/seller.
Imaging, Inc., 527 SCRA 405 (2007). xRelucio v. Brillante-Garfin, 187 SCRA 405 (1990).
“Buyer” under P.D. 957 would include one who acquires for a valuable
4. IN CASE OF IMMOVABLES: consideration a condominium unit by way of assignment by the condominium
project owner in payment of its indebtedness for contractor’s fee. xAMA Computer
a . Anticipatory Breach (Art. 1591) √Legarda v. Saldaña, 55 SCRA 324 (1974). College, Inc. v. Factora, 378 SCRA 121 (2002).

b. Sales of Subdivision Lots and Condominium Units (Secs. 23 and 24, P.D. 957) Buyers of condominium units would be justified in suspending payments,
when the developer-seller fails to give them a copy of the Contract to Sell despite
P.D.957 “was issued in the wake of numerous reports that many real estate repeated demands. xGold Loop Properties, Inc. v. CA, 350 SCRA 371 (2001).
subdivision owners, developers, operators and/or sellers have reneged on their
representations and obligations to provide and maintain properly subdivision Nothing in P.D. 957 provides for the nullification of a contract to sell in the
roads, drainage, sewerage, water systems, lighting systems and other basic event the seller, at the time the contract was entered into, did not possess a
requirements or the health and safety of home and lot buyers. It was designed to certificate of registration and license to sell. Co Chien v. Sta. Lucia Realty, 513
stem the tide of fraudulent manipulations perpetrated by unscrupulous subdivision SCRA 570 (2007).
and condominium sellers free from liens and encumbrances.” xCasa Filipinas
Realty Corp. v. Office of the President, 241 SCRA 165 (1995).
5. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552).
Section 20 of P.D. 957 directs every owner and developer of real property to
provide the necessary facilities, improvements, infrastructure and other forms of “The contract for the purchase of a piece of land on installment basis is not only
development, failure to carry out which is sufficient cause for the buyer to suspend lawful; it is also of widespread usage or custom in our economic system. . . . If [buyer]
payment, and any sums of money already paid shall not be forfeited. xTamayo v. eventually found the interest stipulation in the contract financially disadvantageous to
Huang, 480 SCRA 156 (2006). him, he cannot now turn to this Court for succor without impairing the constitutional right
to the obligation of contracts. This Court will not relieve petitioner of the necessary
In case the developer of a subdivision or condominium fails in its obligation consequences of his free and voluntary, and otherwise lawful, act. . .” x Bortikey v. AFP
under Section 20, Section 23 gives the buyer: Retirement and Separation Benefits System, 477 SCRA 511 (2005).

92
a. “Role” of Maceda Law – Maceda Law’s declared policy is to protect buyers of real
Vda. de Jose v. Barrueco, 67 Phil. 191 (1939); U.S. Commercial v. Halili, 93 Phil. 271 estate on installment basis against onerous and oppressive conditions, and seeks to
(1953); H.E. Heacock v. Bantal Manufacturing, 66 Phil. 245 (1938); Manila Gas Corp. v. Calupita, address the acute housing shortage problem in our country that has prompted
66 Phil. 747 (1938); Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
28

thousands of middle and lower class buyers of houses, lots and condominium units  First, the seller should extend the buyer a grace period of at least sixty (60)
to enter into all sorts of contracts with private housing developers involving days from the due date of the installments.
installment schemes. xActive Realty & Dev. Corp. Daroya, 382 SCRA 152 (2002).93
 Second, at the end of the grace period, the seller shall furnish the buyer with a
Maceda Law recognizes in conditional sales of all kinds of real estate seller’s notarial notice of cancellation or demand for rescission, effective thirty (30)
right to cancel the contract upon non-payment of an installment by the buyer, which days from the buyer’s receipt thereof; a mere notice or letter, short of a notarial
is simply an event that prevents the obligation of the vendor to convey title from act, would not suffice. √McLaughlin v. CA, 144 SCRA 693 (1986).97
acquiring binding force. xPagtulunan v. Dela Cruz Vda. De Manzano, 533 SCRA 242
(2008).94  Third, for contracts covering more than two years of payments, there must be
return to the buyer of the cash surrender value. xVilldara, Jr. v. Zabala, 545
SCRA 325 (2008).98
b. Transactions Covered
The additional formality of a demand on [the seller’s] part for rescission by
The formal requirements of rescission under the Maceda Law apply even to
notarial act would appear, in the premises, to be merely circuitous and consequently
contracts entered into prior to its effectivity. xSiska Dev. Corp. v. Office of the
superfluous” since the seller therein filed an action for annulment of contract,
President, 231 SCRA 674 (1994).95 BUT SEE xPeople’s Industrial and Commercial
which is a kindred concept of rescission by notarial act. xLayug v. IAC, 167 SCRA
Corp. v. CA, 281 SCRA 206 (1997).
627 (1988).
Maceda Law finds no application to a contract to sell where the suspensive
A decision rendered in an ejectment case operated as the required notice of
condition has not been fulfilled, because said Law presuppose the existence of a
cancellation under the Maceda Law; but as the buyer was not given the cash
valid and effective contract to sell a condominium. [?] xMortel v. KASSCO, Inc., 348
surrender value of the payments she made, there was still no actual cancellation of
SCRA 391, 398 (2000).96
the contract. xLeaño v. Court of Appeals, 369 SCRA 36 (2001).
Maceda Law makes no distinctions between “option” and “sale” which under
A formal letter demand upon buyer to vacate the premises is not the same as
P.D. 957 also includes “an exchange or attempt to sell, an option of sale or
the notice of cancellation or demand for rescission by a notarial act required by
purchase, a solicitation of a sale or an offer to sell directly,” and the all-embracing
R.A. No. 6552. Evidently, the case of unlawful detainer filed by petitioner does not
definition virtually includes all transactions concerning land and housing acquisition,
exempt him from complying with the said requirement. xPagtulunan v. Dela Cruz
including reservation agreements. xRealty Exchange Venture Corp. v. Sendino, 233
Vda. De Manzano, 533 SCRA 242 (2008).
SCRA 665 (1994).
Maceda Law has no application to protect the developer or one who succeeds 6. RESCISSION ON SALES OF NON-RESIDENTIAL IMMOVABLES ON INSTALLMENTS (Arts. 1191 and
the developer. xLagandaon v. Court of Appeals, 290 SCRA 463 (1998). 1592)
Articles 1191 and 1592 on rescission cannot apply to a contract to sell since “there
c. How to Determine Years of Installments: √Jestra Dev. and Management Corp. v.
can be no rescission of an obligation that is still non-existent, the suspensive condition
Pacifico, 513 SCRA 413
not having happened.” xValarao v. CA, 304 SCRA 155 (1999).99
(2007).

d. How Cancellation of Contract Can Be Effected – The cancellation of the contract 97


Luzon Brokerage v. Maritime Bldg., 86 SCRA 305 (1978); Luzon Brokerage v. Maritime
under the Maceda Law must follow the following steps: Bldg., 43 SCRA 93 (1972); Fabrigas v. San Francisco del Monte, 475 SCRA 247 (2005).
98
93 Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 (2002); Olympia Housing v. Panasiatic
OIympia Housing Inc. v. Panasiatic Travel Corp., 395 SCRA 298 (2003); Jestra Dev. and
Travel Corp., 395 SCRA 298 (2003); Jestra Dev. and Management Corp. v. Pacifico, 513 SCRA
Management Corp. v. Pacifico, 513 SCRA 413 (2007).
94 413 (2007).
Leaño v. Court of Appeals, 369 SCRA 36 (2001); Cordero v. F.S. Management & Dev. Corp., 99
Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Albea v. Inquimboy, 86 Phil. 477
506 SCRA 451 (2006).
95 (1950); Manuel v. Rodriguez, 109 Phil. 1 (1960); Joseph & Sons Enterprises, Inc. v. CA, 143
Eugenio v. Executive Secretary Franklin M. Drilon, 252 SCRA 106 (1996); PNB v. Office of SCRA 663 (1986) Gimenez v. CA, 195 SCRA 205 (1991); Jacinto v. Kaparaz, 209 SCRA 246
the President, 252 SCRA 620 (1996). (1992); Odyssey Park, Inc. v. Court of Appeals, 280 SCRA 253 (1997); Rillo v. Court of Appeals,
96
Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006). 274 SCRA 461 (1997); Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156 (2006).
29

Article 1592 allows the buyer of an immovable to pay as long as no demand for breach of a party, while rescission under Art. 1383 is a subsidiary action limited to
rescission has been made; and the consignation of the balance of the purchase price cases of rescission for lesion under Art. 1381. xOng v. Court of Appeals, 310 SCRA 1
before the trial court operates as full payment. xProvince of Cebu v. Heirs of Rufina (1999).101
Morales, 546 SCRA 315 (2008).
Automatic rescission clauses are not valid nor can be given legal effect under 2. Basis of Remedy of Rescission (Resolution)
Articles 1191 and 1592 . xIringan v. Court of Appeals, 366 SCRA 41 (2001).100 Indeed, Rescission under Art. 1191 is predicated on a breach of faith by the other party
rescission requires under the law a positive act of choice on the party of the non- who violates the reciprocity between them, and the breach contemplated is the
defaulting party. xOlympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003). obligor’s failure to comply with an existing obligation. When the obligee may seek
Vendor cannot recover ownership of the thing sold until and unless the contract rescission and, in the absence of any just cause for the court to determine the period
itself is resolved and set aside; a party who fails to invoke judicially or by notarial act the of compliance, the court shall decree the rescission. xVelarde v. Court of Appeals,
resolution of a contract of sale would be prevented from blocking the consummation of 361 SCRA 56 (2001).102
the same in light of the precept that mere failure to fulfill the contract does not operate To rescind is to declare a contract void at its inception and to put an end to it as
ipso facto as rescission. Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156 (2006). though it never was. It is not merely to terminate it and release the parties from
further obligations to each other, but to abrogate it from the beginning and restore the
parties to their relative positions as if no contract has been made. xVelarde v. Court
B. ON PART OF BUYER of Appeals, 361 SCRA 56 (2001).103
1. In case of Movables (Arts. 1598-1599) When a party asks for the resolution or cancellation of a contract it is implied
2. In case of Immovables (Arts. 1191; Secs. 23 and 24, P.D. 957) that he recognizes it existence – a non-existent contract cannot be cancelled. xPan
Pacific Industrial Sales Co., Inc. v. Court of Appeals, 482 SCRA 164 (2006).
3. Suspension of Payment (Art. 1590)
Non-payment of the purchase price is a resolutory condition for which the
The pendency of suit over the subject matter of the sale justifies the buyer in remedy is either rescission or specific performance under Article 1191. This is true for
suspending payment of the balance of the purchase price by reason of aforesaid reciprocal obligations where the obligation is a resolutory condition of the other. On
vindicatory action filed against it. The assurance made by the seller that the buyer did not the other hand, the buyer is entitled to retain the purchase price or a part thereof if
have to worry about the case because it was pure and simple harassment is not the kind the seller fails to perform any essential obligation of the contract. Such right is
of guaranty contemplated under Article 1590 wherein the buyer is bound to make premised on the general principles of reciprocal obligation. xGil v. Court of Appeals,
payment if the seller should give a security for the return of the price. xAdelfa 411 SCRA 18 (2003).104
Properties, Inc. v. Court of Appeals, 240 SCRA 565 (1995).
Consignation by the buyer of the purchase price of the property, there having
been no previous receipt of a notarial demand for rescission, is sufficient to defeat the
right of the seller to demand for a rescission of the deed of absolute sale. xGil v.
Court of Appeals, 411 SCRA 18 (2003).
XI. REMEDY OF RESCISSION IN SALES CONTRACTS COVERING IMMOVABLES:
CONTRACT OF SALE versus CONTRACT TO SELL Creditors do not have such material interest as to allow them to sue for
rescission of a sale – theirs is only a personal right to receive payment for the loan,
not a real right over the property subject of the deed of sale. xAdorable v. CA, 319
A. NATURE OF REMEDY OF RESCISSION (RESOLUTION) (Arts. 1191, 1479, 1592) SCRA 200 (1999).

1. Distinguishing from Other Remedy of Rescission (Universal Food Corp. v. CA, 33


101
SCRA 22 [1970]). But see contra Suria v. IAC, 151 SCRA 661 [1987]). Iringan v. Court of Appeals, 366 SCRA 41 (2001).
102
Almira v. Court of Appeals, 399 SCRA 351 (2003).
While Art. 1191 uses the term “rescission,” the original term which was used in 103
the old Civil Code was “resolution.” Resolution is a principal action which is based on Ocampo v. CA, 233 SCRA 551 (1994); Co v. CA, 312 SCRA 528 (1999).
104
Central Philippine University v. CA, 246 SCRA 511 (1995); Romeo v. CA, 250 SCRA 223
100
Escueta v. Pando, 76 Phil. 256 (1946). (1995); Cheng v. Genato, 300 SCRA 722 (1998); Uy v. CA, 314 SCRA 63 (1999).
30

Action for Rescission Not Similar to An Action for Reconveyance – In the Pursuant to Art. 1188, in a contract to sell, even if the buyers did not mistakenly
sale of real property, the seller is not precluded from going to the court to demand make partial payments, inasmuch as the suspensive condition was not fulfilled, it is
judicial rescission in lieu of a notarial act of rescission. But such action is different only fair and just that the buyers be allowed to recover what they had paid in
from an action for reconveyance of possession on the thesis of a prior rescission of expectancy that the condition would happen; otherwise, there would be unjust
the contract covering the property. The effects that flow from an affirmative judgment enrichment on the part of the seller. xBuot v. Court of Appeals, 357 SCRA 846 (2001).
in either case would be materially dissimilar in various respects: judicial resolution of
a contract gives rise to mutual restitution which is not necessarily the situation that
arise in an action for reconveyance. In an action for rescission, unlike in an action for B. DISTINCTIONS BETWEEN CONTRACT OF SALE AND CONTRACT TO SELL
reconveyance predicated on an extrajudicial rescission (rescission by notarial act),
the court, instead of decreeing rescission, may authorize for a just cause the fixing of 1. CONTRACT OF SALE versus CONTRACT TO SELL (Art. 1458) √Adelfa Properties, Inc. v.
a period. xOlympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003). CA, 240 SCRA
575 (1995).109
3. Power to Rescind Generally Judicial in Nature In a contract of sale, title to the property passes to buyer upon the delivery of the
thing sold; in a contract to sell, ownership is, by agreement, reserved in the seller and is
A seller cannot unilaterally and extrajudicially rescind a contract of sale where
not to pass to buyer until full payment of purchase price. Otherwise stated, in a contract of
there is no express stipulation authorizing it. Unilateral rescission will not be judicially
sale, seller loses ownership over the property and cannot recover it until and unless the
favored or allowed if the breach is not substantial and fundamental to the fulfillment of
contract is resolved or rescinded, whereas in a contract to sell, title is retained by the seller
the obligation. xBenito v. Saquitan-Ruiz, 394 SCRA 250 (2002).105
until full payment of the price. In the latter contract, payment of the price is a positive
Nonetheless, the law does not prohibit the parties from entering into agreement suspensive condition, failure of which is not a breach but an event that prevents the
that violation of the terms of the contract would cause cancellation thereof, even obligation of the vendor to convey title from becoming effective. xCastillo v. Reyes, 539
without court intervention. xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276 SCRA 193 (2007).110
(1964).106
a. Rationale of Contracts to Sell
4. Mutual Restitution and Forfeiture (Art. 1385)
A contract to sell is commonly entered into so as to protect the seller against a
When sale is annulled, parties are governed by Art. 1398 whereunder they shall buyer who intends to buy the property in installments by withholding ownership over
restore to each other the things which have been the subject matter of the contract, the property until the buyer effects full payment therefor. It cannot be inferred in a
with their fruits, and price with interest. xInes v. Court of Appeals, 247 SCRA 312 situation where both parties understood the price to be paid in cash. xCity of Cebu v.
(1995).107 Heirs of Candido Rubi, 306 SCRA 408 (1999).

The seller’s right in a contract to sell with reserved title to extrajudicially cancel b. Is a Contract to Sell a “Sale” under Article 1458?
the sale upon failure of the buyer to pay the stipulated installments and retain the
sums and installments already received has long been recognized by the well- A “contract to sell” as “a bilateral contract whereby the prospective seller, while
established doctrine of 39 years standing. xPangilinan v. CA, 279 SCRA 590 expressly reserving the ownership of the subject property despite delivery thereof to
(1997).108 the prospective buyer, binds himself to sell the said property exclusively to the
prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of
109
105 Sta. Lucia Realty & Dev., Inc. V. Uyecio, 562 SCRA 226 (2008); Ver Reyes v. Salvador, Sr.,
Ocejo, Perez & Co. v. International Banking Corp. 37 Phil. 631 (1918); Republic v. Hospital
564 SCRA 456 (2008).
de San Juan de Dios, 84 Phil. 820 (1949); De la Rama Steamship Co. v. Tan, G.R. No. 8784, 110
May 21, 1956; 99 Phil. 1034 (unrep.) (1956); Heirs of Jesus M. Mascuñana v. Court of Appeals, Lim v. CA, 182 SCRA 564 (1990); Buot v. CA, 357 SCRA 846 (2001); Abesamis v. CA, 361
461 SCRA 186 (2005). SCRA 328 (2001); Tuazon v. Garilao, 362 SCRA 654 (2001); Leaño v. CA, 369 SCRA 36 (2001);
106 Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Almira v.
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 95 (1972); Luzon
Court of Appeals, 399 SCRA 351 (2003); Chua v. Court of Appeals, 401 SCRA 54 (2002); Flancia
Brokerage v. Maritime Bldg., 86 SCRA 305 (1978).
107 v. Court of Appeals, 457 SCRA 224 (2005); Vidad, Sr. v. Tayamen, 531 SCRA 147 (2007); Hulst
Velarde v. Court of Appeals, 361 SCRA 56 (2001). v. PR Builders, Inc., 532 SCRA 74 (2007); Heirs of Antonio F. Bernabe v. Court of Appeals, 559
108
The Manila Racing Club v. The Manila Jockey Club, 69 Phil. 55 (1939). SCRA 53 (2008); Orden v. Aurea, 562 SCRA 660 (2008).
31

the purchase price.” √Coronel v. CA, 263 SCRA 15, 27 (1996).111 BUT SEE: √PNB v. A contract is one of sale, absent any stipulation therein (a) reserving title over the
CA, 262 SCRA 464 (1996). property to the vendee until full payment of the purchase price, 114 and (b) giving the
vendor the right to unilaterally rescind the contract in case of non-payment. 115 √Valdez
To be sure, a contract of sale may either be absolute or conditional. One form of v. Court of Appeals, 439 SCRA 55 (2004).116 BUT SEE: √Dignos v. Court of Appeals,
conditional sales is what is now popularly termed as a “Contract to Sell,” where 158 SCRA 375 (1988).
ownership or title is retained until the fulfillment of a positive suspensive condition
normally the payment of the purchase price in the manner agreed upon. For a contract, The reservation of title may not be found in express provision of the contract, but
like a contract to sell, involves a meeting of minds between two persons whereby one may also be determined from proven acts of the parties. xSalazar v. CA, 258 SCRA
binds himself, with respect to the other, to give something or to render some service. 325 (1996).
xGomez v. Court of Appeals, 340 SCRA 720, 728 (2000).112
The absence of a formal deed of conveyance is a strong indication that the parties
A contract to sell is akin to a conditional sale, in which the efficacy or obligatory did not intend immediate transfer of ownership, but only a transfer after full payment of
force of the vendor’s obligation to transfer title is subordinated to the happening of a the purchase price,117 and the seller retained possession of the certificate of tile and all
future and uncertain event, so that if the suspensive condition does not take place, the other documents relative to the sale until there was full payment of the purchase price.
parties would stand as if the conditional obligation never existed. Orden v. Aurea, 562 xChua v. Court of Appeals, 401 SCRA 54 (2003).
SCRA 660 (2008).
An agreement in which ownership is reserved in the vendor and is not to pass to
the vendee until full payment of the purchase price is known as a contract to sell. The
c. Importance of “Locating” the Condition to Pay Price in Full
absence of full payment suspends the vendors’ obligation to convey title, even if the
In a contract of sale, the non-payment of the price is a resolutory condition which sale has already been registered. Registration does not vest, but merely serves as
extinguishes the transaction that, for a time existed, and discharges the obligations evidence of, title to a particular property. Our land registration laws do not give title
created thereunder. xBlas v. Angeles-Hutalla, 439 SCRA 273 (2004). Whereas, in a holders any better ownership than what they actually had prior to registration. xPortic v.
contract to sell, the payment of the purchase price is a positive suspensive condition. Cristobal, 456 SCRA 577 (2005).
The vendor’s obligation to convey the title does not become effective in case of failure
to pay. xBuot v. Court of Appeals, 357 SCRA 846 (2001).113 e. Issue of Substantial Breach (Arts. 1191 and 1234)
When the obligation of buyer to pay the full amount of the purchase price was The concept of substantial breach is irrelevant to a contract of sale. xLuzon
made subject to the condition that the seller first delivery the clean title over the parcel Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972).118
bough within twenty (20) months from the signing of the contract, such condition is
imposed merely on the performance of the obligation, as distinguished from a condition In a contract to sell real property on installments, the full payment of the purchase
imposed on the perfection of the contract. The non-happening of the condition merely price is a positive condition, the failure of which is not considered a breach, casual or
granted the buyer the right to rescind the contract or even to waive it and enforce serious, but simply an event that prevented the obligation of the vendor to convey title
performance on the part of the seller, all in consonance with Art. 1545 of Civil Code
which provides that “Where the obligation of either party to a contract of sale is subject
to any condition which is not performed, such party may refuse to proceed with the
contract or he may waive performance of the condition.” √Babasa v. Court of 114
Topacio v. CA, 211 SCRA 219 (1992); Laforteza v. Machuca, 333 SCRA 643 (2000); Almira
Appeals, 290 SCRA 532 (1998). v. Court of Appeals, 399 SCRA351 (2003).
115
Roque v. Lapuz, 96 SCRA 741 (1980); Angeles v. Calanz, 135 SCRA 323 (1985);Alfonso v.
d. Necessary Stipulations in a Contract to Sell: CA, 186 SCRA 400 (1990)
116
xSan Andres v. Rodriguez, 332 SCRA 769 (2000); Vda. De Mistica v. Naguiat, 418 SCRA
73 (2003); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004); Villadar, Jr. V. Zabala, 545 SCRA 325
(2008); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
111
Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156 (2006). 117
Bowe v. Court of Appeals, 220 SCRA 158 (1993); xRayos v. Court of Appeals, 434 SCRA
112
Demafelis v. Court of Appeals, 538 SCRA 305 (2007). 365 (2004); Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008).
113 118
Heirs of Spouses Sandejas v. Lina, 351 SCRA 183 (2001); Zamora Realty and Dev. Corp v. Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994); Sta. Lucia Realty &
Office of the President, 506 SCRA 591 (2006). Dev., Inc. v. Uyecio, 562 SCRA 226 (2008).
32

from acquiring any obligatory force. The transfer of ownership and title would occur Where buyer had religiously been paying monthly installments for 8 years, but even
after full payment of the price. xLeaño v. CA, 369 SCRA 36 (2001).119 after default he was willing and had offered to pay all the arrears, the Court granted
additional period of 60 days from receipt of judgment for buyer to make all installments
2. Minimum Requirement for Cancellation of Contract to Sell payments in arrears plus interests, although demand for rescission had already been made.
xJ.M. Tuazon Co., Inc. v. Javier, 31 SCRA 829 (1970).
The act of a party in treating a contract as cancelled should be made known to the
other party because this act is subject to scrutiny and review of the courts in case the
alleged defaulter bring the matter for judicial determination. √University of the Philippines
v. De los Angeles, 35 SCRA 103 (1970); √Palay Inc. v. Clave, 124 SCRA 638 (1983).120 XII. CONDITIONS AND WARRANTIES

A contract to sell imposes reciprocal obligations and so cannot be terminated 1. Conditions (Art. 1545)
unilaterally by either party. Judicial rescission is required under Article 1191. However, this
rule is not absolute. We have held that in proper cases, a party may take it upon itself to Failure to comply with condition imposed upon perfection of the contract results in
consider the contract rescinded and act accordingly albeit subject to judicial confirmation, failure of a contract, while the failure to comply with a condition imposed on the
which may or may not be given. √Lim v. Court of Appeals, 182 SCRA 564 (1990). BUT performance of an obligation only gives the other party the option either to refuse to
SEE: In a contract to sell, upon failure of buyer to comply with its obligation, there was no proceed with sale or waive the condition. √Laforteza v. Machuca, 333 SCRA 643
need to judicially rescind the contract to sell. Failure by one of the parties to abide by the (2000).122
conditions in a contract to sell resulted in the rescission of the contract. √AFP Mutual
Benefit Assn., Inc. v. CA, 364 SCRA 768 (2001).121 In a “Sale with Assumption of Mortgage,” the assumption of mortgage is a condition
to the seller’s consent so that without approval by the mortgagee, no sale is perfected. In
A grace period is a right, not an obligation of the debtor, and when unconditionally such case, the seller remains the owner and mortgagor of the property and retains the
conferred, the grace period is effective without further need of demand either calling for the right to redeem the foreclosed property. xRamos v. CA, 279 SCRA 118 (1997).123
payment of the obligation or for honoring the right. xBricktown Dev. Corp. v. Amor Tierra
Dev.., 239 SCRA 126 (1995). There has arisen here a confusion in the concepts of validity and the efficacy of a
contract. Under Art. 1318 of Civil Code, the essential requisites of a contract are: consent
The act of the seller in notifying the buyer of his intention to sell the properties to other of the contracting parties; object certain which is the subject matter of the contract and
interest persons if the latter failed to pay the balance of the purchase price is sufficient cause of the obligation which is established. Absent one of the above, no contract can
notice for the cancellation or resolution of their contract to sell. Orden v. Aurea, 562 SCRA arise. Conversely, where all are present, the result is a valid contract. However, some
660 (2008). parties introduce various kinds of restrictions or modalities, the lack of which will not,
however, affect the validity of the contract. Thus, a provision “this Contract of Sale of
3. Equity Resolutions on Contracts To Sell rights, interests and participations shall become effective only upon the approval by the
Honorable Court,” in the event of non-approval by the courts, affect only the effectivity
Although buyer clearly defaulted in his installment payments in a contract to sell and not the validity of the contract of sale. √Heirs of Pedro Escanlar v. Court of
covering two parcels of land, the Supreme Court nevertheless awarded ownership over one Appeals, 281 SCRA 176 (1997).
of the two (2) lots jointly purchased by the buyer, on the basis that the total amount of
installments paid, although not enough to cover the purchase price of the two lots were 2. Conditions versus Warranties. √Power Commercial and Industrial Corp. v. Court
enough to cover fully the purchase price of one lot, ruling there was substantial of Appeals, 274 SCRA 597 (1997).
performance insofar as one of the lots concerned as to prevent rescission thereto. xLegarda
Hermanos v. Saldaña, 55 SCRA 3246 (1974). 3. Express Warranties (Art. 1546)
A warranty is a statement or representation made by the seller of goods,
contemporaneously and as part of the contract of sale, having reference to the character,
119
Manuel v. Rodriguez, 109 Phil. 1 (1960); Laforteza v. Machuca, 333 SCRA 643 (2000); quality or title of the goods, and by which he promises or undertakes to insure that certain
Villamaria, Jr. v. Court of Appeals, 487 SCRA 571 (2006).
120 122
Jison v. CA, 164 SCRA 339 (1988); Lim v. CA, 182 SCRA 564 (1990); Cheng v. Genato, Romero v. Court of Appeals, 250 SCRA 223 (1995); Adalin v. CA, 280 SCRA 536 (1997);
300 SCRA 722 (1998). Republic v. Florendo, 549 SCRA 527 (2008).
121 123
Torralba v. De los Angeles, 96 SCRA 69 (1980). Biñan Steel Corp. v. Court of Appeals, 391 SCRA 90 (2002).
33

facts are or shall be as he then represents them Ang v. Court of Appeals, 567 SCRA 53 No Warranty Against Eviction When Execution Sale – In voluntary sales,
(2008). vendor can be expected to defend his title because of his warranty to the vendees but
no such obligation is owed by the owner whose land is sold at execution sale.
A warranty is an affirmation of fact or any promise made by a vendor in relation to the xSantiago Land Dev. Corp. v. CA, 276 SCRA 674 (1997). BUT SEE: Art. 1552.
thing sold. The decisive test is whether the vendor assumes to assert a fact of which the
vendee is ignorant. xGoodyear Philippines, Inc. v. Sy, 474 SCRA 427 (2005). The seller, in delcariung that he owned and had clean title to the vehilce, gave an
implied warranty of title, and in pledging that he “will defend the same from all claims or
The principle of caveat emptor only requires the purchaser to exercise care and any claim whatsoever [and] will save the vendee from any suit by the government of
attention ordinarily exercised by prudent men in like business affairs, and only applies to the Republic of the Philippines,” he gave a warranty against eviction, and the
defects which are open and patent to the service of one exercising such care. It can only prescriptive period to file a breach thereof is six months after the delivery of the vehicle.
be applied where it is shown or conceded that the parties to the contract stand on equal √Ang v. Court of Appeals, 567 SCRA 53 (2008).
footing and have equal knowledge or equal means of knowledge and there is no relation of
trust or confidence between them. It does not apply to a representation that amounts to a
warranty by the seller and the situation requires the buyer to rely upon such promise or c. Warranty Against Non-Apparent Servitudes (Arts. 1560)
affirmation. √Guinhawa v. People, 468 SCRA 278 (2005).124
d. Warranty Against Hidden Defects (Arts. 1561-1580)
“The law allows considerable latitude to seller’s statements, or dealer’s talk; and
experience teaches that it is exceedingly risky to accept it at its face value. Assertions The stipulation in a lease with option to purchase (treated as a sale of movable on
concerning the property which is the subject of a contract of sale, or in regard to its installments) that the buyer-lessee “absolutely releases the lessor from any liability
qualities and characteristics, are the usual and ordinary means used by sellers to obtain a whatsoever as to any and all matters in relation to warranty in accordance with the
high price and are always understood as affording to buyers no ground for omitting to provisions hereinafter stipulated,” was held as an express waiver of warranty against
make inquiries. A man who relies upon such an affirmation made by a person whose hidden defect in favor of the seller-lessor which “absolved the [seller-lessor] from any
interest might so readily prompt him to exaggerate the value of his property does so as his liability arising from any defect or deficiency of the machinery they bought.” xFilinvest
peril, and must take the consequences of his own imprudence.” xSongco v. Sellner, 37 Credit Corp. v. Court of Appeals, 178 SCRA 188 (1989).
Phil. 254 (1917). A hidden defect is one which is unknown or could not have been known to the
Breach of an express warranty makes the seller liable for damages. The following buyer. Under the law, the requisites to recover on account of hidden defects are as
requisites must be established in order that there be an express warranty in sale: (1) the follows: (a) The defect must be hidden; (b) The defect must exist at the time the sale
express warranty must be an affirmation of fact or any promise by the seller relating to the was made; (c) The defect must ordinarily have been excluded from the contract; (d)
subject matter of the sale; (2) the natural tendency of such affirmation or promise is to The defect, must be important (render the thing unfit or considerably decreases
induce the buyer to purchase the thing; and (3) the buyer purchases the thing relying on fitness); (e) The action must be instituted within the statute of limitations. √Nutrimix
such affirmation or promise thereon. xCarrascoso, Jr. v. CA, 477 SCRA 666 (2005). Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).126
Seller’s agent can by agreement be liable for the warranty against hidden defects.
4. Implied Warranties (Art. 1547) xSchmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
a. Seller Has Right to Sell e. Warranty as to Fitness or Quality of Goods
b. Warranty Against Eviction (Arts. 1548-1560) In order to enforce the implied warranty that the goods are reasonably fit and
Seller must be summoned in the suit for eviction at the instance of the buyer (Art. suitable to be used for the purpose which both parties contemplated, the following must
1558), and be made a co-defendant (Art. 1559); or made a third-party defendant. be established: (a) that the buyer sustained injury because of the product; (b) that the
Escaler v. CA, 138 SCRA 1 (1985).125 injury occurred because the product was defective or unreasonably unsafe; and finally
(c) the defect existed when the product left the hands of the petitioner. √Nutrimix
Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).

124
Oro Land Realty Dev. Corp. v. Claunan, 516 SCRA 681 (2007)
125 126
Canizares Tiana v. Torrejos, 21 Phil. 127 (1911); J.M. Tuazon v. CA, 94 SCRA 413 (1979). Investments & Development, Inc. v. CA, 162 SCRA 636 [1988]).
34

A manufacturer or seller of a product cannot be held liable for any damage (accion quanti minoris), with damages in either case. √Nutrimix Feeds Corp. v. Court of
allegedly caused by the product in the absence of any proof that the product in Appeals, 441 SCRA 357 (2004).
question is defective, which was present upon the delivery or manufacture of the
product; or when the product left the seller’s or manufacturer’s control; or when the
product was sold to the purchaser; or the product must have reached the user or
consumer without substantial change in the condition it was sold. √Nutrimix Feeds XIII. EXTINGUISHMENT OF SALE
Corp. v. Court of Appeals, 441 SCRA 357 (2004).
A. IN GENERAL (Arts. 1231, 1600).
f. Sale of Goods by Sample
B. CONVENTIONAL REDEMPTION
There is a sale by sample when a small quantity is exhibited by the seller as a fair
specimen of the bulk, which is not present and there is no opportunity to inspect or 1. Definition (Art. 1601)
examine the same. To constitute a sale by sample, it must appear that the parties Right to repurchase must be constituted as part of a valid sale at perfection.
treated the sample as the standard of quality and that they contracted with reference to xVillarica v. CA, 26 SCRA 189 (1968).127
the sample with the understanding that the product to be delivered would
correspondent with the sample. In a contract of sale by sample, there is an implied An agreement to repurchase becomes a promise to sell when made after the sale
warranty that the goods shall be free from any defect which is not apparent on because when the sale is made without such agreement the purchases acquires the
reasonable examination of the sample and which would render the goods things sold absolutely; and, if he afterwards grants the vendor the right to repurchase, it
unmerchantable. xMendoza v. David, 441 SCRA 172 (2004). is a new contract entered into by the purchases as absolute owner. √Roberts v. Papio,
515 SCRA 346 (2007).128
g. Additional Warranties for Consumer Products (Arts. 68, Consumer Act, R.A.
In sales denominated as pacto de retro, the price agreed upon should not generally
7394).
be considered as the just value of the thing sold, absent other corroborative evidence—
there is no requirement in sales that the price be equal to the exact value of the thing
5. Effects and Prescription of Warranties
subject matter of the sale. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
A breach in the warranties of the seller entitles the buyer to a proportionate reduction
of the purchase price. PNB v. Mega Prime Realty and Holding Corp., 567 SCRA 633 2. Redemption Period
(2008).
The period to repurchase is not suspended merely because there is a divergence of
The prescriptive period for instituting actions based on a breach of express warranty opinion between the parties as to the precise meaning of the phrase providing for the
is that specified in the contract, and in the absence of such period, the general rule on condition upon which the right to repurchase is triggered. The existence of seller a retro’s
rescission of contract, which is four years, while for actions based on breach of implied right to repurchase the proper is not dependent upon the prior final interpretation by the
warranty, the prescriptive period is six months from the date of the delivery of the thing court of the said phrase. √Misterio v. Cebu State College of Science and Technology,
sold. Ang v. Court of Appeals, 567 SCRA 53 (2008). 461 SCRA 122 (2005).

6. Effects of Waivers 3. Situation Prior to Redemption

The phrase “as is, where is” basis pertains solely to the physical condition of the thing In a sale a retro, buyer has a right to the immediate possession of the property sold,
sold, not to its legal situation. In the case at bar, the US tax liabilities constitute a potential unless otherwise agreed upon, since title and ownership of the property sold are
lien which applies to the subject’s matter’s legal situation, not to its physical aspect. Thus, immediately vested in the buyer a retro, subject only to the resolutory condition of
the buyer has no obligation to shoulder the same. xNDC v. Madrigal Wan Hui Lines Corp.,
412 SCRA 375 (2003).

7. Buyer’s Options in Case of Breach of Warranty (Art. 1599). 127


Claravall v. CA, 190 SCRA 439 (1990); Torres v. CA, 216 SCRA 287 (1992); Roberts v.
The remedy against violation of warranty against hidden defects is either to withdraw Papio, 515 SCRA 346 (2007).
from the contract (accion redhibitoria) or to demand a proportionate reduction of the price 128
Ramos v. Icasiano, 51 Phil (1927).
35

repurchase by the seller a retro within the stipulated period. xVda. de Rigonan v. consolidation where the vendor a retro may be duly heard. If the vendee succeeds in
Derecho, 463 SCRA 627 (2005).129 proving that the transaction was indeed a pacto de retro, the vendor is still given a period
of thirty days from the finality of the judgment within which to repurchase the property.
4. Who Can Redeem (Arts. 1611 to 1614) xSolid Homes v. Court of Appeals, 275 SCRA 267 (1997).
Once the vendor fails to redeem the property within the stipulated period,
5. How Redemption Effected (Art. 1616)
irrevocable title shall be vested in the vendee by operation of law. xVda. de Rigonan v.
In order to exercise the right to redeem, only tender of payment is sufficient Derecho, 463 SCRA 627 (2005).
xLegaspi v. CA, 142 SCRA 82 1986); consignation is not required after tender is refused
Under a sale a retro, the failure of the buyer to consolidate his title under Art. 1607
xMariano v. CA, 222 SCRA 736 (1993).
does not impair such title and ownership because the method prescribed thereunder is
But when tender not possible, consignation should be made xCatangcatang v. merely for the purpose of registering and consolidating titles to the property. In fact, the
Legayada, 84 SCRA 51 (1978). failure on the part of a seller a retro to exercise the redemption right within the period
agreed upon or provided for by law, vests upon the buyer a retro absolute title and
Well-settled is the rule that a formal offer to redeem must be accompanied by a ownership over the property sold by operation of law. Consequently, after the effect of
valid tender of the redemption price and the filing of a judicial action, plus the consolidation, the mortgage or re-sale by the seller a retro of the same property would
consignation of the redemption price within the period of redemption, is equivalent to a not transfer title and ownership to the mortgagee or buyer, as the case may be, under
formal offer to redeem. xVillegas v. Court of Appeals, 499 SCRA 276 (2006). the Latin maxim NEMO DAT QUOD NON HABET. xCadungog v. Yap, 469 SCRA 561
(2005).
A formal offer to redeem, accompanied by a bona fide tender of redemption price,
is not essential where the right to redeem is exercised through a judicial action within the
redemption period and simultaneously depositing the redemption price. xLee Chuy 9. EQUITABLE MORTGAGE (Arts. 1602-1604)
Realty Corp. v. CA, 250 SCRA 596 (1995).
If the terms of the pacto de retro sale were unfavorable to the vendor, courts have
no business extricating her from that bad bargain—courts are not guardians of persons
6. Redemption Price (Art. 1616) who are legally competent. Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
A stipulation in a sale a retro requiring as part of the redemption price interest for The law on equitable mortgage favors the least transmission of rights and interest
the cost of money, is not in contravention with Art. 1616, since the provision is not over a property in controversy, since the law seeks to prevent circumvention of the law
restrictive nor exclusive, and does not bar additional amounts that the parties may agree on usury and the prohibition against pactum commissorium provisions. Additionally, it is
upon, since the article itself provides “and other stipulations which may have been aimed to end unjust or oppressive transactions or violations in connection with a sale or
agreed upon.” xSolid Homes v. Court of Appeals, 275 SCRA 267 (1997). property. The wisdom of these provisions cannot be doubted, considering many cases of
unlettered persons or even those with average intelligence invariably finding themselves
7. Fruits (Art. 1617) in no position whatsoever to bargain fairly with their creditors. xSpouses Miseña v.
Rongavilla, 303 SCRA 749 (1999).130
Article 1617 on the disposition of fruits of property redeemed applies only when the
parties failed to provide a sharing arrangement thereof; otherwise, the parties contractual Besides, it is a fact that in time of grave financial distress which render persons
stipulations prevail. xAlmeda v. Daluro, 79 SCRA 327 (1977). hard-pressed to meet even their basic needs or answer an emergency, such persons
would have no choice but to sign a deed of absolute sale of property or a sale thereof
8. Effect When No Redemption Made: Consolidation (Art. 1607) with pacto de retro if only to obtain a much-needed loan from unscrupulous money
lenders. xMatanguihan v. Court of Appeals, 275 SCRA 380 (1997).131
Article 1607 abolished automatic consolidation of ownership in the vendee a retro
upon expiration of the redemption period by requiring the vendee to institute an action for An equitable mortgage is defined as one which although lacking in some formality
or form or words, or other requisites demanded by a statute, nevertheless reveals the
129
Reyes v. Hamada, 14 SCRA 215 (1965); Solid Homes, Inc. v. CA, 275 SCRA 267 (1997);
Misterio v. Cebu State College of Science and Technology, 461 SCRA 122 (2005); Cadungog v. 130
Yap, 469 SCRA 561 (2005); Ramos v. Dizon, 498 SCRA 17 (2006); Lumayag v. Heirs of Jacinto Lao v. Court of Appeals, 275 SCRA 237 (1997).
131
Nemeño, 526 SCRA 51 (2007). Salonga v. Concepcion, 470 SCRA 291 (2005).
36

intention of the parties to charge real property as security for a debt, and contains A contract of sale actually intended to secure the payment of an obligation is
nothing impossible or contrary to law. xRaymundo v. Bandong, 526 SCRA 514 (2007).132 presumed an equitable mortgage. xRomulo v. Layug, Jr., 501 SCRA262 (2006).137
The essential requisites of an equitable mortgage are: (a) The parties entered into a The presence of only one circumstance defined in Art. 1602 is sufficient for a
contract denominated as a contract of sale; and (b) Their intention was to secure an contract of sale a retro to be presumed an equitable mortgage. xHilado v. Medalla 377
existing debt by way of a mortgage. xMolina v. Court of Appeals, 398 SCRA 97 SCRA 257 (2002).138
(2003).133
The presumption in Article 1602 jibes with the rule that the law favors the least
The decisive factor in evaluating whether an agreement is an equitable mortgage is transmission of property rights. xEnriquez, Sr. v. Heirs of Spouses Nieves and Alfredo
the intention of the parties, as shown not necessarily by the terminology used in the Baldonado, 498 SCRA 365 (2006); but it is not conclusive, for it may be rebutted by
contract but by all the surrounding circumstances, such as the relative situation of the competent and satisfactory proof to the contrary. xSantiago v. Dizon, 543 SCRA 402
parties at that time, the attitude, acts, conduct, declarations of the parties, the (2008).
negotiations between them leading to the deed, and generally, all pertinent facts having a
tendency to fix and determine the real nature of their design and understanding. The provisions of Art. 1602 on the presumption of equitable mortgage applies also
Necessitous men are not always free, in that to answer a pressing emergency, they will to a contract purporting to be an absolute sale. xTuazon v. CA, 341 SCRA 707 (2000).139
submit to any term that the crafty may impose on them. Banga v. Bello, 471 SCRA 653 A contract purporting to be an absolute sale is presumed to be an equitable
(2005).134 mortgage: (a) when the price of the sale is unusually inadequate; 140 (b) when the vendor
remains in possession as lessee or otherwise; 141 (c) when after the expiration of the right
That is why parol evidence is competent and admissible in support of the of repurchase, it is extended by the buyer. xHilado v. Heirs of Rafael Medalla, 37 SCRA
allegations that an instrument in writing, purporting on its face to transfer the absolute 257 (2002);142 (d) when the purported seller continues to collect rentals from the lessees
title to property, or to transfer the title with a right to repurchase under specified of the property sold. Ramos v. Dizon, 498 SCRA 17 (2006)
conditions reserved to the seller, was in truth and in fact given merely as security for the
repayment of a loan. xMariano v. Court of Appeals, 220 SCRA 716 (1993).135 When the vendor is in urgent need of money when he executes the sale, the
alleged sale with pacto de retro will be construed as an equitable mortgage. Bautista v.
a. Badges of Equitable Mortgage (Art. 1602136) Unangst, 557 SCRA 256 (2008).
“Inadequacy of purchase price” is considered so far short of the real value of the
132
Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); Alvaro v. property as to startle a correct mind. xSantiago v. Dizon, 543 SCRA 402 (2008); or that
Ternida, 479 SCRA 288 (2006); Cirelos v. Hernandez, 490 SCRA 624 (2006); Lumayag v. Heirs the mind revolts at it as such that a reasonable man would neither directly or indirectly be
of Jacinto Nemeño, 526 SCRA 51 (2007); Olivares v. Sarmiento, 554 SCRA 384 (2008); Tio v. likely to consent to it. xVda de Alvarez v. CA, 231 SCRA 309 (1994).
Abayata, 556 SCRA 175 (2008).
133 To presume a contract is an equitable mortgaged based on gross inadequacy of
Matanguihan v. CA, 275 SCRA 380 (1997); Martinez v. CA, 358 SCRA 38 (2001); Hilado
price, it must be clearly shown from the evidence presented that the consideration was in
v. Heirs of Rafael Medlla, 37 SCRA 257 (2002); Ceballos v. Intestate Estate of the Late Emigdio fact grossly inadequate at the time the sale was executed. Mere inadequacy of price is
Mercado, 430 SCRA 323 (2004); San Pedro v. Lee, 430 SCRA 338 (2005); Go v. Bacaron, 472 not sufficient to create the presumption. xOlivares v. Sarmiento, 554 SCRA 384 (2008).
SCRA 229 (2005), citing VILLANUEVA, CESAR L. PHILIPPINE LAW ON SALES, (1998 ed.), p. 271;
Romulo v. Layug, Jr., 501 SCRA262 (2006); Roberts v. Papio, 515 SCRA 346 (2007); Raymundo 137
Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008).
v. Bandong, 526 SCRA 514 (2007); Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008). 138
134 Claravall v. CA, 190 SCRA 439, 448 (1990); Uy v. CA, 230 SCRA 664 (1994); Lobres v.
Austria v. Gonzales, Jr., 420 SCRA 414 (2004); Raymundo v. Bandong, 526 SCRA 514
CA, 351 SCRA 716 (2001); Alvaro v. Ternida, 479 SCRA 288 (2006); Diño v. Jardines, 481 SCRA
(2007).
135 226 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Aleligay v. Laserna, 537 SCRA 699
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Cuyugan v. Santos, 34 Phil. 100 (1916); (2007); Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Bautista v. Unangst, 557 SCRA
Matanguihan v. CA, 275 SCRA 380 (1997); Hilado v. Heirs of Rafael Medlla, 37 SCRA 257 256 (2008).
(2002); Madrigal v. Court of Appeals, 456 SCRA 659 (2005); Legaspi v. Ong, 459 SCRA 122 139
Zamora v.CA, 260 SCRA 10 (1996).
(2005); Banga v. Bello, 471 SCRA 653 (2005); Diño v. Jardines, 481 SCRA 226 (2006); Ayson, 140
Jr. V. Paragas, 557 SCRA 50 (2008). Romulo v. Layug, Jr., 501 SCRA262 (2006).
141
136
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Balatero v. IAC, 154 SCRA 530 (1987); Romulo v. Layug, Jr., 501 SCRA262 (2006); Bautista v. Unangst, 557 SCRA 256 (2008).
142
Mariano v. CA, 220 SCRA 716 (1993); Lobres v. CA, 351 SCRA 716 (2001). Cruz v. Court of Appeals, 412 SCRA 614 (2003).
37

Mere tolerated possession is not enough to prove that the transaction was an declaration of nullity of the deed of sale and specific performance. xTolentino v. Court of
equitable mortgage. xRedondo v. Jimenez, 536 SCRA 639 (2007). Appeals, 386 SCRA 36 (2002).
Payment of real estate taxes is a usual burden attached to ownership, and when In an equitable mortgage situation, the consolidation of ownership in the person of
such payment is coupled with continuous possession of the property, it constitutes the mortgagee in equity upon failure of the mortgagor in equity to pay the obligation,
evidence of great weight that a person under whose name the realty taxes were declared would amount to a pactum commissorium. The only proper remedy is to cause the
has a valid and right claim over the land. xGo v. Bacaron, 472 SCRA 229 (2005).143 foreclosure of the mortgage in equity. xBriones-Vasquez v. Court of Appeals, 450 SCRA
644 (2005); or to determine if the principal obligation secured by the equitable mortgage
However mere allegations without proof to support inadequacy of price, or when has been paid or settled. xBanga v. Bello, 471 SCRA 653 (2005).
continued possession by the seller is supported by a valid arrangement consistent with
the sale, would not support the allegation of equitable mortgage. xCirelos v. Hernandez, c. Pactum Commissorium (Art. 2088)
490 SCRA 624 (2006).144
A stipulation which is a pactum commisorium enables the mortgagee to acquire
Although under the agreement the seller shall remain in possession of the property ownership of the mortgaged properties without need of any foreclosure proceedings—it
for only one year, such stipulation does not detract from the fact that possession of the is a nullity being contrary to the provisions of Article 2088 of the Civil Code. xLumayag v.
property, an indicium of ownership, was retained by the alleged vendor to qualify the Heirs of Jacinto Nemeño, 526 SCRA 315 (2007).147
arrangement as an equitable mortgage, especially when it was shown that the vendor
retained part of the purchase price. xLegaspi v. Ong, 459 SCRA 122 (2005).145 It does not apply when the security for a debt is also money in the form of time
deposit. xConsing v. CA, 177 SCRA 14 (1989).
Under Article 1602, delay in transferring title is not one of the instances enumerated
by law—instances in which an equitable mortgage can be presumed. Nor does the fact The provision in a MOA/Dacion en Pago with a Right to Repurchase that in the
that the original transaction on the land was to support a loan, which when it was not event the borrower fails to comply with the new terms of restructuring the loan, the
paid on due date was negotiated into a sale, without evidence that the subsequent deed agreement shall automatically operate to be an instrument of dacion en pago without
of sale does not express the true intentions of the parties, give rise to a presumption of need of executing any new document does not constitute pactum commissorium. √Solid
equitable mortgage. xCeballos v. Intestate Estate of the Late Emigdio Mercado, 430 Homes, Inc. v. Court of Appeals, 275 SCRA 267 (1997).
SCRA 323 (2004).
BUT SEE: The stipulation in the promissory note providing that upon failure of the
The fact that the price in a pacto de retro sale is not the true value of the property makers to pay interests, ownership of the property would automatically be transferred to
does not justify the conclusion that the contract is one of equitable mortgage; in fact a the payee, and the covering deed of sale would be registered is in substance a pactum
pacto de retro sale, the practice is to fix a relatively reduced price to afford the seller a commissorium in violation of Art. 2088, and consequently, the resultant sale is void and
retro every facility to redeem the property . xIgnacio v. CA, 246 SCRA 242 (1995).146 the registration and obtaining of new title in the name of the buyer would have be
declared void also. √A. Francisco Realty v. Court of Appeals, 298 SCRA 349
Article 1602 being remedial in nature, may be applied retroactively in cases prior to (1998).148
the effectivity of the Civil Code. xOlea v. CA, 247 SCRA 274 (1995).
e. Final Chance to Redeem in “Mistaken Equitable Mortgage” (Art. 1606)
b. Remedies Allowed for Equitable Mortgage (Art. 1602, 1605).
The 30 day period under Art. 1606 does not apply if the courts should find the sale
In the case of an equitable mortgage, although Art. 1605 which allows for the to be absolute. xPangilinan v. Ramos, 181 SCRA 359 (1990).149
remedy of reformation, nothing therein precludes an aggrieved party from pursuing other
remedies to effectively protect his interest and recover his property, such as an action for Sellers in a sale judicially declared as pacto de retro may not exercise the right to
repurchase within the 30-day period provided under Art. 1606, although they have taken
the position that the same was an equitable mortgage, if it is shown that there was no
143
Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51 (2007).
144 147
Austria v. Gonzales, Jr., 420 SCRA 414 (2004). Guerrero v. Yñigo, 96 Phil. 37 (1954); Montevirgin v. CA, 112 SCRA 641 (1982); Vda. de
145 Zulueta v. Octaviano, 121 SCRA 314 (1983).
Oronce v. CA, 298 SCRA 133 (1998).
148
146
De Ocampo v. Lim, 38 Phil. 579 (1918); Feliciano v. Limjuco, 41 Phil.147 (1920); Belonio v. Legaspi v. Ong, 459 SCRA 122 (2005).
149
Movella, 105 Phil. 756 (1959). Tapas v. Court of Appeals, 69 SCRA 393 (1976).
38

honest belief thereof since: (a) none of the circumstances under Art. 1602 were shown to When the seller a retro dies, the right to redeem cannot be exercised by a co-heir
exist to warrant a conclusion that the transaction was an equitable mortgage; and (b) that alone, since the right to redeem belonged in common to all the heirs. xDe Guzman v.
if they truly believed the sale to be an equitable mortgage, as a sign of good faith, they Court of Appeals, 148 SCRA 75 (1987).
should have consigned with the trial court the amount representing their alleged loan, on
or before the expiration of the right to repurchase. √Abilla v. Gobonseng, 374 SCRA 51 For the right of redemption to be exercised, co-ownership must exist at the time of
(2002).150 the conveyance is made by a co-owner and the redemption is demanded by the other
co-owner or co-owners. xAvila v. Barabat, 485 SCRA 8 (2006).
C. LEGAL REDEMPTION Redemption by co-owner redounds to the benefit of all other co-owners. xMariano
v. Court of Appeals, 222 SCRA 736 (1993).
1. Definition (Art. 1619)
Legal redemption is in the nature of a privilege created by law partly for reasons of c. Distinguishing Between Right of Redemption of Co-heirs and Co-owners –
public policy and partly for the benefit and convenience of the redemptioner, to afford him Article 1620 includes the doctrine that a redemption by a co-owner of the property
a way out of what might be a disagreeable or [an] inconvenient association into which he owned in common, even when he uses his own fund, within the period prescribed by
has been thrust. It is intended to minimize co-ownership. xFernandez v. Tarun, 391 law inures to the benefit of all the other co-owners. xAnnie Tan v. Court of Appeals, 172
SCRA 653 (2002).151 SCRA 660 (1989).152

2. Legal Redemption Rights under the Civil Code d. Among Adjoining Owners (Arts. 1621 and1622)
a. Among Co-heirs (Art. 1088) Requisite to show property previously bought on “speculation” dropped. xLegaspi
Redemption right pertain to disposition of right to inherit, and not when there is a v. CA, 69 SCRA 360 (1976).
sale of a particular property of the estate. xPlan v. IAC, 135 SCRA 270 (1985). Right of redemption covers only “resale” and does not cover exchanges or barter
When the heirs have partitioned the estate among themselves and each have of properties xDe Santos v. City of Manila, 45 SCRA 409 (1972); and cannot arise
occupied and treated definite portions thereof as their own, co-ownership has ceased unless both adjacent lands are rural lands. xPrimary Structures Corp. v. Valencia, 409
even though the property is still under one title, and the sale by one of the heirs of his SCRA 371 (2003).
definite portion cannot trigger the right of redemption in favor of the other heirs. xVda. When there is no issue that when the adjoining lands involved are both rural
De Ape v. Court of Appeals, 456 SCRA 193 (2005). lands, then the right of redemption can be exercised and the only exemption provided
The heirs who actually participated in the execution of the extrajudicial settlement, is when the buyer can show that he did not own any other rural land. But the burden of
which included the sale to a third person of their pro indiviso shares in the property, are proof to provide for the exception lies with the buyer. xPrimary Structures Corp. v.
bound by the same; while the co-heirs who did not participate are given the right to Valencia, 409 SCRA 371, 374 (2003).
redeem their shares pursuant to Article 1088. xCua v. Vargas, 506 SCRA 374 (2006).
e. Sale of Credit in Litigation (Art. 1634) – 30 days from notice of demand to pay.
b. Among Co-owners (Art. 1620)
2. When Period of Legal Redemption Begins (Art. 1623)
The right of redemption may be exercised by a co-owner only when part of the
community property is sold to a stranger, now when sold to another co-owner because The interpretation of Art. 1623 where there is a need for notice in writing, should
a new participant is not added to the co-ownership. xFernandez v. Tarun, 391 SCRA always tilt in favor of the redemptioner and against the buyer, since the purpose is to
653 (2002). reduce the number of participants until the community is terminated, being a hindrance to
the development and better administration of the property. “It is a one-way street,” in favor
of the redemptioner since he can compel the buyer to sell to him but he cannot be
compelled by the vendee to buy. xHermoso v. Court of Appeals, 300 SCRA 516 (1998).

150
Vda. de Macoy v. CA, 206 SCRA 244 (1992).
151 152
Basa v. Aguilar, 117 SCRA 128 (1982). De Guzman v. CA, 148 SCRA 75 (1987); Adille v. CA, 157 SCRA 455 (1988).
39

The 30-day period does not begin to run in the absence of written notification coming xBadillo v. Ferrer, 152 SCRA 407 (1987), but only on the form of giving notice but
from the seller. xCua v. Vargas, 506 SCRA 374 (2006);153 and it must be a written notice of not on the ruling of who is the proper party to give notice;
a perfected sale. xSpouses Doromal v. Court of Appeals, 66 SCRA 575 (1975).
 Affirmed ruling in xAlonzo v. IAC, 150 SCRA 259 (1987), that the filing of the suit
The written notice of sale is mandatory, notwithstanding actual knowledge of a co- for ejectment or collection of rentals against a co-owner actually dispenses with
owner, in order to remove all uncertainties about the sale, its terms and conditions, as well the need for a written notice, and must be construed as commencing the running
as its efficacy and status. xVerdad v. Court of Appeals, 256 SCRA 593 (1996).. of the period to exercise the right of redemption, since the filing of the suit
amounted to actual knowledge of the sale from which the 30-day period of
Notice to minors may validly be served upon parents even when the latter have not redemption commences to run.
been judicially appointed as guardians since the same is beneficial to the children.
xBadillo v. Ferrer, 152 SCRA 407 (1987).
a. Rare Exceptions:
Neither the registration of the sale xCabrera v. Villanueva, 160 SCRA 627 (1988), nor
the annotation of an adverse claim xVda. De Ape v. Court of Appeals, 456 SCRA 193 When the sale to the buyer was effected through the co-owner who acted as the
(2005), nor notice being given by the city treasurer xVerdad v. Court of Appeals, 256 SCRA broker, and never indicated that he would exercise his right to redeem. xDistrito v. CA,
593 (1996), comply with the written notice required under Art. 1623 to begin the tolling of 197 SCRA 606 (1991).
the 30-day period of redemption. When the buyers took possession of the property immediately after the execution
The notice required under Article 1623 is deemed to have been complied with when of the deed of sale in their favor and lived in the midst of the other co-owners who
the other co-owner has signed the Deed of Extrajudicial Partition and Exchange of Shares never questioned the same. xPilapil v. CA, 250 SCRA 560 (1995).
which embodies the disposition of part of the property owned in common. xFernandez v.
Tarun, 391 SCRA 653 (2002). 4. OTHER LEGAL REDEMPTION RIGHTS
The existence of a clause in the deed of sale to the effect that the vendor has
a. Redemption in Patents (Sec. 119, C.A. 141)
complied with the provisions of Article 1623, cannot be taken to “being the written
affirmation under oath, as well as the evidence, that the required written notice to petitioner Right to repurchase is granted by law and need not be provided for in the deed of
under Article 1623 has been meet, for the person entitled to the right is not a party to the sale. xBerin v. Court of Appeals, 194 SCRA 508 (1991).
deed of sale. xPrimary Structures Corp. v. Valencia, 409 SCRA 371 (2003).
Under the free patent or homestead provisions of the Public Land Act a period
√Francisco v. Boiser, 332 SCRA 305 (2000), summarized the case-law on Art. of five (5) years from the date of conveyance is provided, to be reckoned from the
1623, and with definitiveness declared: date of the sale and not from the date of registration in the office of the Register of
Deeds. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995).154
 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
b. Redemption in Tax Sales (Sec. 215, NIRC of 1997)
sufficient. This expressly affirms the original ruling in Butte v. Manuel Uy and
Sons, Inc., 4 SCRA 526 (1962), as affirmed in xSalatandol v. Retes, 162 SCRA
c. Redemption by Judgment Debtor (Secs. 27-28, Rule 39, Rules of Civil Procedure)
568 (1988). This expressly overruled the ruling in xEtcuban v. CA, 148 SCRA 507
(1987), which allowed the giving of notice by the buyer to be effective under Article Written notice must be given to the judgment debtor before the sale of the property
1623; on execution, to give him the opportunity to prevent the sale by paying the judgment debt
sought to be enforced and the costs which have been incurred. xTorres v. Cabling, 275
 When notice is given by the proper party (i.e., the seller), no particular form of
SCRA 329 (1997).
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 sufficient, as held previously in Where there is a third-party claim, sheriff should demand from the judgment creditor
xDistrito v. CA, 197 SCRA 606 (1991); Conejero v. CA, 16 SCRA 775 (1966); who becomes the highest bidder, payment in cash of his bid instead of merely crediting
the amount to the partial satisfaction of the judgment debt. xTorres v. Cabling, 275
SCRA 329 (1997).
153
Garcia v. Calaliman, 17 SCRA 201 (1989); Mariano v. Court of Appeals, 222 SCRA 736
154
(1993). Mata v. Court of Appeals, 318 SCRA 416 (1999).
40

Under Sec. 28, Rule 39 of the 1997 Rules of Civil Procedure, the period of g. Legal Right to Redeem under Agrarian Reform Code
redemption shall be “at any time within one (1) year from the date of registration of the
certificate of sale,” so that the period is now to be understood as composed of 365 days, Under Section 12 of R.A. 3844, as amended, in the event that the landholding is
unlike the 360 days under the old provisions of the Rules of Court. xYsmael v. CA, 318 sold to a third person without the knowledge of the agricultural lessee, the latter is
SCRA 215 (1999). granted by law the right to redeem it within 180 days from notice in writing and at a
reasonable price and consideration. xQuiño v. CA, 291 SCRA 249 (1998).157
d. Redemption in Extrajudicial Foreclosure (Sec. 6, Act 3135)
The redemption of extra-judicially foreclosed properties is exercised within one (1)
XIV. ASSIGNMENT (Arts. 1624-1635)
year from the date of the auction sale as provided for in Act 3135. xLee Chuy Realty
Corp. v. CA, 250 SCRA 596 (1995). 1. Definition and Nature of Assignment
The execution of a dacion en pago by sellers effectively waives the redemption Assignment is the process of transferring the right of assignor to assignee who
period normally given a mortgagor. xFirst Global Realty and Dev. Corp. v. San Agustin, would then have the right to proceed against the debtor. The assignment may be done
377 SCRA 341 (2002). gratuitously or onerously, in the latter case, the assignment has an effect similar to that of
a sale. xLicaros v. Gatmaitan, 362 SCRA 548 (2001).158
e. Redemption in judicial foreclosure of mortgage (Sec. 47, R.A. 8791)
In its most general and comprehensive sense, an assignment is “a transfer or
A stipulation to render the right to redeem defeasible by an option to buy on the part making over to another of the whole of any property, real or personal, in possession or in
of the creditor. √Soriano v. Bautista, 6 SCRA 946 (1962). action, or of any estate or right therein. It includes transfers of all kinds of property, and is
peculiarly applicable to intangible personal property and, accordingly, it is ordinarily
No right to redeem from a judicial foreclosure sale, except those granted by banks employed to describe the transfer of non-negotiable choses in action and of rights in or
or banking institutions. xGSIS v. CFI, 175 SCRA 19 (1989). connected with property as distinguished from the particular item or property.” xPNB v.
The one-year redemption period in the case of foreclosure is not interrupted by the Court of Appeals, 272 SCRA 291 (1997).
filing of an action assailing the validity of the mortgage, so that at the expiration thereof,
the mortgagee who acquires the property at the foreclosure sale can proceed to have 2. Perfection by Mere Consent (Art. 1624)
title consolidated in his name and a writ of possession issued in his favor. xUnion Bank v.
CAs, 359 SCRA 480 (2001).155 3. But Must Be in Public Instrument to Affect Third Parties (Art. 1625).
After bank has foreclosed the property as highest bidder in the auction sale, the 4. Effects of Assignment
accepted offer of spouses-borrowers to “repurchase” the property was actually a new
option contract, and the condition that the spouses-borrowers will pay monthly interest a. Assignment of Credit
during the one-year option period is considered to be the separate consideration to hold
the option contract valid. xDijamco v. Court of Appeals, 440 SCRA 190 (2004). An assignment of credit is an agreement by virtue of which the owner of a credit,
known as the assignor, by a legal cause, such as sale, dacion en pago, exchange or
f. Redemption in Foreclosure by Rural Banks (R.A. No. 720) donation, and without the consent of the debtor, transfers his credit and accessory rights
to another, known as the assignee, who acquires the power to enforce it to the same
If the land is mortgaged to a rural bank, mortgagor may redeem within two (2) years extent as the assignor could enforce it against the debtor. xAquintey v. Tibong, 511
from the date of foreclosure or from the registration of the sheriff's certificate of sale at SCRA 414 (2006).159
such foreclosure if the property is not covered or is covered, respectively, by Torrens title.
If the mortgagor fails to exercise such right, he or his heirs may still repurchase within
five (5) years from expiration of the two (2) year redemption period pursuant to Sec. 119 156
Heirs of Felicidad Canque v. CA, 275 SCRA 741 (1997).
of the Public Land Act (C.A. 141). xRural Bank of Davao City v. CA, 217 SCRA 554 157
Springsun Management Systems Corp. v. Camerino, 449 SCRA 65 (2005).
(1993).156 158
Nyco Sales Corp. v. BA Finance Corp., 200 SCRA 637 (1991); Rodriguez v. CA, 207 SCRA
553 (1992); Project Builders, Inc. v. Court of Appeals, 358 SCRA 626 (2001).
155 159
Vaca v. CA, 234 SCRA 146 (1994). Lo v. KJS Eco-Formwork System Phil., Inc., 413 SCRA 182 (2003).
41

As a consequence, the third party steps into the shoes of the original creditor as When dacion en pago takes the form of an assignment of credit, it produces the
subrogee of the latter. Although constituting a novation, such assignment does not effects of a dation in payment, which may extinguishes the obligation; however, by virtue of
extinguish the obligation under the credit assigned, even when the assignment is the warranty in Art. 1628, which makes the vendor liable for the existence and legality of
effected without his consent. xSouth City Homes, Inc. V. BA Finance Corp., 371 SCRA the credit at the time of sale, when it is shown that the assigned credit no longer existed at
603 (2001). the time of dation, then it behooves the assignor to make good its warranty and pay the
obligation. xLo v. KJS Eco-Formwork System Phil., Inc., 413 SCRA 182 (2003).
b. Issues re Debtor (Art. 1626)
In an assignment of credit, the consent of the debtor is not essential for its 6. Right of Repurchase on Assignment of Credit under Litigation (Arts. 1634
perfection, his knowledge thereof or lack of it affecting only the efficaciousness or and1635)
inefficaciousness of any payment he might make. xProject Builders, Inc. v. Court of
Appeals, 358 SCRA 626 (2001). 7. Subrogation versus Assignment of Credit (Art.1301)

Consent of debtor is not necessary in order that assignment may fully produce legal Subrogation extinguishes the obligation and gives rise to a new one; assignment
effects, and the duty to pay does not depend on the consent of the debtor. Otherwise, all refers to the same right which passes from one person to another. The nullity of an old
creditors would be prevented from assigning their credits because of the possibility of the obligation may be cured by subrogation, such that a new obligation will be perfectly valid;
debtors’ refusal to given consent. What the law requires in an assignment of credit is but the nullity of an obligation is not remedied by the assignment of the creditor’s right to
mere notice to debtor, and the purpose of the notice is only to inform the debtor that from another. In an assignment of credit, the consent of the debtor is not necessary in order that
the date of the assignment, payment should be made to the assignee and not to the the assignment may fully produce legal effects; whereas, conventional subrogation
original creditor. xNIDC v. De los Angeles, 40 SCRA 489 (1971).160 requires an agreement among the three parties concerned – original creditor, debtor, and
new creditor. It is a new contractual relation based on the mutual agreement among all the
c. Accessories and Accessions (Art. 1627) necessary parties. √Licaros v. Gatmaitan, 362 SCRA 548 (2001).161

Assignment of a credit includes all the accessory rights, such as guaranty, 8. Assignment of Copyright (Sec. 180, Intellectual Property Code)
mortgage, pledge or preference. xUnited Planters Sugar Milling Co., Inc. (UPSUMCO) v.
Court of Appeals, 527 SCRA 336 (2007). 9. Assignment as an Equitable Mortgage

d. Tradition in Assignment When an assignor executes a Deed of Assignment covering her leasehold rights in
order to secure the payment of promissory notes covering the loan she obtained from the
Notarization converts an Assignment of Credit, a private document, into a public bank, such assignment is equivalent to an equitable mortgage, and the non-payment of
document, thus, complying with the mandate of Article 1625 of the Civil Code and the loan cannot authorize the assignee to register the assigned leasehold rights in its
making it enforceable even as against third persons. xLedonio v. Capitol Dev. Corp., 526 name as it would be a violation of Art. 2088 against pactum commissorium. The proper
SCRA 379 (2007). remedy of the assignee is to proceed to foreclose on the leasehold right assigned as
security for the loan. xDBP v. Court of Appeals, 284 SCRA 14 (1998).
5. Warranties of Assignor (Art. 1628)
Assignor warrants only the existence or legality of the credit but not the solvency of
the debtor. √Nyco Sales Corp. v. BA Finance, 200 SCRA 637 (1991).
XV. BULK SALES LAW (ACT NO. 3952)
EXCEPTIONS: (a) If this is expressly warranted.
1. Scope (√Chin v. Uy, 40 O.G. 4 Supp. 52)
(b) If insolvency is known by the assignor prior to assignment.
The Bulk Sales Law must be construed strictly. Thus, the disposal by the owner of a
(c) If insolvency is prior to assignment is common knowledge. foundry shop of all his iron bars and others does not fall under the law, because the
contents of a foundry shop are not wares and merchandise. The Law only covers sales in
160
Sison & Sison v. Yap Tico, 37 Phil. 587 (1918); C & C Commercial Corp. v. PNB, 175 SCRA
1 (1989); Project Builders, Inc. v. Court of Appeals, 358 SCRA 626 (2001); .Aquintey v. Tibong,
161
511 SCRA 414 (2006); Ledonio v. Capitol Development Corp., 526 SCRA 379 (2007). Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
42

bulk of fixtures and equipment used in the mercantile business, which involves the buying subsidiary liability is invalid, since the proper remedy of the creditor is to collect on the
and selling of merchandise. xPeople v. Wong, [CA] 50 O.G. 4867 (1954). credit against the defendant, and if they cannot pay to attach on the property fraudulently
mortgage since the same still pertain to the debtors-defendants. xPeople v. Mapoy, 73
The Law applies to merchants who are in the business of selling goods and wares Phil. 678 (1942).
and similar merchandise, and cannot cover the sale of assets by a manufacturer since the
nature of his business does not partake of merchandise. √DBP v. The Honorable Judge
of the RTC of Manila, 86 O.G. No. 6 1137 (05 February 1990).
XVI. RETAIL TRADE LIBERALIZATION ACT OF 2000 AND RELATED
2. Coverage of “Bulk Sale” – Sale, transfer, mortgage or assignment of: PROVISIONS OF THE ANTI-DUMMY LAW
(a) Goods, wares, merchandise, provisions or material other than in the 1. Public Policy under RTLA 2000: A reversal of paradigm; focus from the protecting
ordinary course of business; the retailers to promoting the interests of
(b) All, or substantially all of all or substantially all of the fixtures and consumers.
equipment used in and about the business. 2. Scope and Definition of “Retail Trade”
(c) All, or substantially all of the business or trade theretofore conducted by a. Importance of Retaile Trade (√King v. Hernaez, 4 SCRA 792)
the vendor, mortgagor, transferor, or assignor;
b. Elements: (1) Seller habitually engaged in selling;
3. Compliance Requirements Under the Law (2) Selling direct to the general public; and
a. The merchant must give the buyer a certified schedule of his debts: names of (3) Object of the sale is limited to merchandise,
creditors, amounts owing to each and the nature of the debt. commodities or goods for consumption.
b. Purchase price paid must be applied to these debts.
c. Meaning of “Habitually Selling”
c. Ten (10) days before the sale, the seller must take an inventory of his stock and
Engaging in the sale of merchandise as an incident to the primary purpose of a
advise all his creditors of the same.
corporation [e.g., operation of a pharmacy by a hospital; sale of cellphones by a
EXCEPTION: When the seller obtains a written waiver from all creditors. telecommunication company] does not constitute “retail trade” within the purview of the
Retail Trade Nationalization Law, as this is taken from the provision thereof excluding
form the term “retail business” the operation of a restaurant by a hotel-owner or -keeper
4. Effects of Non-Compliance
since the same does not constitute the act of habitually selling direct to the general
a. If purchase money or mortgage proceeds are not applied pro-rata to payment of the public merchandise, commodities or goods for consumption. SEC Opinion No. 11,
bona fide claims of the creditors, the sale is deemed fraudulent and void. (Sec. 4) series of 2002, 13 November 2002.

b. Non-giving of the list of creditors or intentional omission of the names of some of the d. Meaning of “Consumption” (DOJ Opinion No. 325, series of 1945; IRR of Law).
creditors, and placing of wrong data required by law, would subject the seller or
mortgagor to penal sanctions. (Sec. 4) The Law limits its application to the sale of items sold for domestic or household,
or properly called consumer goods; whereas, when the same items are sold to
c. Bulk transfer without consideration or for nominal consideration punishable. (Sec. 7) commercial users, they would constitute non-consumer goods and not covered by the
d. Failure to comply with other provisions of the law the non-application of the Law. √Balmaceda v. Union Carbide Philippines, Inc. 124 SCRA 893 (1983).162
consideration proportionately to the creditors, the preparation of the inventory, and
the notification to creditors, are also made punishable. (Sec. 11) e. Meaning of “General Public” (DOJ Opinion No. 253, series of 1954).
A sale in bulk done without complying with the terms of the Law, makes the
transaction fraudulent and void, but does not change the basic relationship between the 162
Marsman & Co., Inc. v. First Coconut Central Co., Inc., 162 SCRA 206 (1988); B.F.
seller, assignor/encumbrancer and his creditor. The portion of a judgment providing for
Goodrich Philippines, Inc. v. Reyes, Sr., 121 SCRA 363 (1983).
43

Even when the same of consumer goods is limited only to the officers of the the a. Law penalizes Filipinos who permit aliens to use them as nominees or dummies to
company, the same would still constitute retail trade covered by the Law. √Goodyear enjoy privileges reserved for Filipinos or Filipino corporations. Criminal sanctions
Tire v. Reyes, Sr., 123 SCRA 273 (1983). are imposed on the president, manager, board member or persons in charge of
the violating entity and causing the latter to forfeit its privileges, rights and
Where the glass company manufactures glass products only on specific orders, it franchises.
does not sell directly to consumers but manufacturers its products only for the
particular clients, it cannot be said that it is a merchandiser. √DBP v. Honorable b. Section 2-A of the Law prohibits aliens from intervening in the management,
Judge of the RTC of Manila, 86 O.G. No. 6 1137 (05 February 1990). operation, administration or control of nationalized business, whether as officers,
employees or laborers, with or without remuneration. Aliens may not take part in
3. Categories of Retail Trade Enterprises technical aspects, provided no Filipino can do such technical work, and with
express authority from the President of the Philippines.
a. Category A – Exclusive to Filipino citizens and 100% Filipino entities
c. Later, Pres. Decree 715 was enacted amending the law by the addition of a proviso
b. Categories B and C expressly allowing the election of aliens as members of the boards of directors or
the governing bodies of corporations or associations engaged in partially
c. Category D – Luxury Items nationalized activities in proportion to their allowable participation or share in the
d. Exempted Areas capital of such entities.

e. Rights Granted to Former Natural-Born Filipinos The amendment was meant to settle the uncertainty created in the obiter
opinion in Luzon Stevedoring Corp. v. Anti-Dummy Board, 46 SCRA 474 (1972),
which rejected the argument of a public utility corporation that had no-American
4. Foreign Investment or Engage in Retail Trade in the Philippines aliens in its employ, that the Anti-Dummy Law covered only employment in wholly
a. Requirements for Foreign Investors nationalized businesses and not in those that are only partly nationalized.

b. Grandfather Rule on 100% Filipino Ownership of Corporate Entity: SEC The Filipino common-law wife of a Chinese national is not barred from engaging in
Opinions, dated 20 March 1972 and 22 April 1983; DTI Opinion to Tanada, the retail business provided she uses capital exclusively derived from her paraphernal
Teehankee & Carreon Law Office, dated 3 August 1959. properties; allowing her common-law Chinese husband to take part in management of
the retail business would be a violation of the law. xTalan v. People, 169 SCRA 586
c. Public Offerings of Shares of Stock (1989).

5. Foreign Retailers in the Philippines


—oOo—
a. Pre-qualification requirements
b. Rules on Branches/Stores
UPDATED: 02 JUNE 2009; 571 SCRA
c. Promotion of Locally-Manufactured Products
d. Prohibited Activities of Foreign Retailers
e. Binding Effect of License to Engage in Retail on Private Parties
When a license to engage in cocktail lounge and restaurant is issued to a Filipino
citizen, it is conclusive evidence of the latter's ownership of the retail business as far as
private parties are concerned. xDando v. Fraser, 227 SCRA 126 (1993).

6. Penalty Provisions

7. Applicability of the Anti-Dummy Act (Comm. Act. 108, as amended by P.D. 715)

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