Вы находитесь на странице: 1из 81

THE LAW ON SALES

CHAPTER 1

NATURE OF A CONTRACT OF SALE

Definition

Article 1458, CC

 Contract whereby the seller obligates himself to


transfer the ownership, and to deliver the
possession, of a determinate thing, to the buyer,
who binds himself to pay therefor a price certain.

Nature of Obligations Arising from a Sale

Seller’s Obligations:

 Transfer the Ownership, and


 Deliver the Possession, of the Subject Matter or
Determinate Thing;

Buyer’s Obligation:

 Pay the Price.

- The above-stated obligations are real


obligations or obligations “to give,” which can
serve as bases for a complaint for specific
performance, if not complied with.

- Articles 1480 & 1165, CC, allow recovery of


damages, plus delivery of determinate thing,
by the buyer, if the seller refuses to comply
with his obligations.

Subject Matter of Sale


2

 Determinate Thing (Art. 1458) or Determinable


Thing (Art. 1460)

Elements of Contract of Sale

 Consent;
 Subject Matter; and
 Price.

- Concurrence of the three (3) elements results


in the perfection or birth of a contract of sale.

- Absence of any of the elements prevents the


birth of a contract of sale.

- A defect or illegality involving any of the


elements makes the contract of sale either
voidable or void.

Stages in the Life of Sale

 Policitacion, negotiation or preparation;


 Perfection; and
 Consummation.

Essential Characteristics of Sale

 Nominate/Principal

- designated name;
- independent;
- intent of the parties is given weight

 Consensual

- Perfected by mere consent


3

- Factors Affecting Consensual Nature

* Suspensive term/condition

In sales with assumption of


mortgage, the assumption of mortgage
is a condition precedent for perfection.

* Absence of agreement on final price


prevents the perfection of sale
notwithstanding delivery by seller, and
possession by buyer, of the determinate
thing.

 Bilateral and Reciprocal

- imposes obligations on both parties;


- obligation of one is cause for obligation of the
other;
- each party is debtor and creditor of the other;
- as a bilateral contract with reciprocal
obligations, it is implied that (1) the power to
rescind is present, (2) no delay is incurred if
the other party does not comply, and (3) the
default by one starts from the moment the
other party performs his obligation, without
further demand.

 Onerous

- requires the payment of a price certain

 Commutative

- it is presumed that the value of the subject


matter is equivalent to the price paid;
- honest belief of the seller that he receives
good value for the thing he sold is a sufficient
standard;
4

- inadequacy of price does not affect the


nature of contract as a sale;
- however, as an exception, a great
discrepancy between the value of the thing
and the amount received may negate the
existence of sale and indicate another
contract such as donation in which liberality
is the consideration.

Sale is Title and Not Mode

 sale is title that creates the obligation to transfer


ownership, including possession, of a determinate
thing; Roman, not common law, concept;
 sale is not a mode of conferring ownership upon
the buyer;
 in sale, which is consensual in nature, ownership
of the determinate thing is transferred to the
buyer through delivery or tradition;

 title or sale is the juridical justification; mode or


delivery is the actual process of acquiring or
transferring ownership over a thing;
 “Declaration of Heirship and Waiver of Rights” is
neither a sale of nor a mode of transferring
ownership over a thing (Acap v. CA, 251 SCRA 30,
38 (1995);
 transfer of ownership for a price paid or promised
is the essence of sale.

Sale Distinguished from Other Contracts

 From Donation

- sale is onerous while donation is gratuitous;


- sale is perfected by mere consent while
donation, being a solemn contract, requires
5

compliance with formalities mandated by law


for its validity.

 From Barter

- in barter, one party binds himself to give a


thing in consideration of the other party’s
promise to give another thing; in sale, one
party binds himself to deliver a thing
consideration of the other’s undertaking to
pay a price certain.

- Rules to Determine Whether Contract is Sale


or Barter:

a. Manifest intention of the parties;


b. If intention is unclear and consideration
is partly in money and partly in another
thing:

- it is barter, where the value of


the thing exceeds the amount
given;

- it is sale, where the value of


the thing given equals or is
less than the amount given.

 From Contract for Piece-of-Work

- in contract for a piece-of-work, the contractor


binds himself to execute a piece of work for
the employer in consideration of a certain
price;

- the main distinguishing factor between sale


and contract for a piece-of-work is the basic
reason why the parties enter into a contract:
a) if the essence is the object, the contract is
6

sale; if the essence is the service, knowledge,


or reputation of the maker or manufacturer, it
is contract for a piece-of-work.

 From Agency to Sell/Buy

- sale is not unilaterally revocable while


agency to sell is essentially revocable, being
based on fiduciary relationship,
notwithstanding the presence of a
irrevocability clause;
- in sale, the buyer becomes the owner after
delivery while in agency to buy, the agent
does not become the owner even after
delivery of the thing to him;
- in agency to sell, the agent is barred from
earning a profit from the transaction, which
pertains to his principal;
- in sale, the seller warrants; in agency, the
agent assumes no personal liability as long as
he acts within his authority and in the name
of the principal;

- Factors to be considered in distinguishing a


sale from agency to sell/buy:

a. essential clause that “payment was to


be made at the end of sixty days xxx”
shows the features of a sale;
b. contractual provision that stipulated
the “fixed prices for the equipment;”
c. contractual stipulation on insurance
against loss or damage shows that
ownership over the thing was not
transferred;
d. control, which one party exercises over
the other; if one acts independently, it is
sale; if one takes orders from another, it
is agency.
7

- Distinction is important because a sale


must conform to the Statute of Frauds
for enforceability while an agency to sell
is valid and enforceable in any form.

 From Dacion En Pago

- dation in payment is one whereby property is


alienated to the creditor in full satisfaction of
a debt in money;
- it constitutes the delivery and transmission of
a thing by the debtor to the creditor as an
accepted equivalent of the performance of
the obligation;
- in its modern concept, dacion en pago is an
objective novation of the obligation where the
thing offered as an accepted equivalent of
the performance of an obligation is
considered as the object of the contract,
while the debt is considered as the purchase
price;

- dacion en pago only involves the


consummation of the contract, being a
special mode of payment; before the delivery
of the subject matter, there is no separate
contract entered; what exists is only an
arrangement by which an obligation will be
satisfied or extinguished.
- SC implicitly ruled that in dacion en pago
involving the delivery of a particular parcel of
land as the accepted prestation, a new
contract of sale was deemed constituted
subject to specific performance. (SSS v.
Atlantic Gulf, 553 SCRA 677 (2008).

 From Lease
8

- in lease, the lessor binds himself to give to


the lessee the use of the thing for a price
certain, for a definite or indefinite period;

CHAPTER 2

PARTIES TO A CONTRACT OF SALE

General Rule on Capacity of Parties

 General Rule: Any person who has “capacity to


act” or “the power to do acts with legal effects,” or
one who has the power to obligate himself, may
enter into a contract of sale, either as seller or
buyer;
 a natural person has capacity to act once he
attains the age of majority (18 years of age (Art.
234, Family Code, as amended by R. A. No. 6809);
 a artificial being or a juridical person (corporations
and entities with legal personality) exists in
contemplation of law; as such, it is given the
power to enter into contracts;

 Special Rule: Minors, insane and demented


persons, and deaf-mutes who do not know how to
write, have no legal capacity to enter into a
contract; however, if these incapacitated persons
enter into contracts, the contract is not void but
merely voidable (valid until annulled);
 Exception: insane and demented persons can
enter into contracts during their lucid intervals –
the contract is valid;
 when a party to the contract is drunk or under
hypnosis, the contract is voidable;
 an incapacitated person is obliged to make a
restitution to the extent of the benefit or price he
received;
9

Necessaries

- general rule: a minor has no legal capacity to


enter into a contract; if he does, the contract
is voidable (valid until annulled) because the
consent given is defective under the law;
- exception: the contract which a minor enters
into is valid when necessaries are sold and
delivered to him;
- necessaries, under the Family Code, cover
“everything indispensable for sustenance,
dwelling, clothing, medical attendance,
education and transportation;
- considering that sale involves the delivery of
a determinate thing, necessaries in a sale
only involve things for sustenance, dwelling,
and clothing, medicines, books and other
educational materials;
- sale of necessaries to a minor is valid when
sale is perfected and necessaries are
delivered to the minor.

Emancipation

- previously, this takes place when a minor


enters into a contract of marriage;
- this is no longer possible under the Family
Code, which declares null and void a
marriage entered into by persons below 18
years of age;

Senility and Serious Illness


- incapacity to give consent (senility, advanced
age, and serious illness) or gross and
shocking inadequacy of the price or
consideration only render the contract of sale
merely voidable;
- however, in at least two (2) decisions, the
Supreme Court considered the sales “void ab
10

initio” on the grounds of physical and mental


incapacity and gross inadequacy of the price;

Sales By and Between Spouses

 Sales With Third Parties

- generally, under the Civil Code and the


Family Code, a spouse may, without the
consent of the other, enter into a contract of
sale in the regular or normal pursuit of his/her
profession, vocation or trade;
- but, under the Family Code (Articles 96 &
124), administration and enjoyment of the
community property or conjugal property
belong to both spouses jointly;
- in case of disagreement, the husband’s
decision prevails; but the wife can question
the sale before the proper court within 5
years from contract date;
- general rule: any disposition or encumbrance
of community property or conjugal property
shall be void without a court order or written
consent of the other spouse; at best, the sale
is considered a continuing offer subject to the
other spouse’s acceptance or the court’s
approval before the offer is withdrawn;
- SC declared null and void a sale which a
husband entered into with a third party
involving conjugal property because it lacked
the consent of the other spouse; under Art.
124, FC, consent of both spouses is
necessary. The sale cannot be ratified by
compromise. (Guiang v. CA, 26 June 1998).
If consent is merely vitiated, ratification can
cure the defect. (Ibid.)
- exception: sale of conjugal property without
the wife’s consent is valid if the sale is made
11

to answer for conjugal liabilities under


Articles 161 & 162, CC;

 Sales Between Spouses

- Art. 1490, CC – spouses cannot sell property


to each other, except: a) when a separation
of property was agreed upon in a marriage
settlement; or b) when there is a judicial
decree for the separation of property;
- prohibition under Art. 1490 applies also to
sales in legal redemption, compromises and
renunciations;

 Sales Between Spouses are Void

- SC declared sale between spouses null and


void ab initio; proper parties who can assail
the validity are limited to the following: a)
heirs of the spouses who are prejudiced; b)
prior creditors; and c) the State insofar as
taxes due on the sale transactions are
concerned;
- rationale for prohibition:

- prevent dispositions in fraud of


creditors;
- prevent a dominant spouse from taking
advantage of the weaker spouse;
- avoid a circumvention of prohibition
against donations between spouses
under Art. 133, CC;
- spouses governed by a complete
separation of property regime are not
prohibited from selling to each other
because no fraud can be committed
against one spouse or third parties, and
the value of the estates of each spouse
remains unaltered;
12

- spouses under an absolute community


property regime cannot enter into a
contract of sale with each other because
a party-owner cannot buy what he/she
already owns by virtue of the property
regime;

Specific Incapacity Mandated By Law

 Persons prohibited from entering into contracts of


sale (Art. 1491, CC):

- Agent;
- Guardian;
- Executor or administrator;
- Public officers and employees;
- Justices, judges, prosecuting attorney, clerks
of court and other officers and employees;
- Lawyers;
- Prohibition applies to sales in legal
redemption, compromises and renunciations;
what cannot be done directly, cannot be done
indirectly.

 Contracts in violation of Arts. 1491 & 1942, CC,


are void and could produce no legal effect;

- but, sales contracted by guardians, agents,


administrators and executors, though void
under Art. 1491, CC, can be “ratified” by
means of and in the form of a new contract;
- this is allowed because only a private wrong
is involved, which can be disregarded or
condoned by the private party concerned;
- however, sales contracted by judges, judicial
officers, prosecutors and lawyers are beyond
ratification because private parties cannot
validate an act that is contrary to public
policy;
13

 Proper Party to Raise Issue of Nullity:

- any person may invoke the inexistence of the


contract whenever juridical effects xxx are
asserted against him (Tolentino, Vol. IV, pp.
578 – 579)

 Fraud or Lesion Irrelevant in Nullity of Sale

 Agents

– not covered by prohibition under Art. 1491, CC,


as their authority is limited to looking for or
bringing parties together to consummate a
transaction;

 Guardians, Administrators and Executors

- these persons who occupy fiduciary positions


are absolutely prohibited from entering into
contracts of sale with respect to the
properties under their administration;
- a court-approved sale cannot prevail over the
absolute prohibition under Art. 1491, CC;
- Benefit or advantage which may accrue in
favor of the ward, estate or principal is totally
irrelevant in upholding the prohibited sale;

 Hereditary Rights Not Included in the Prohibition

- hereditary rights pertain to the heirs upon the


death of the owner and do not form part of
the estate under administration;

 Judges, Justices and Those Involved in


Administration of Justice
14

- prohibition applies once the property comes


under the judicial action of the judge, as in
the case of levy or execution; action involving
property need not be tried by the judge;
- prohibition applies during the period of
litigation;

 Attorneys

- due to the fiduciary relationship between


attorney and client, sale between them
involving a property under litigation is
prohibited to completely curtail any undue
influence of the lawyer upon his client;
- nullity of sale is permanent and cannot be
cured by ratification;
- does not apply to a sale involving a property
under litigation to attorneys who did not in
any manner act as counsel for any of the
litigants;
- does not apply to a sale or acquisition that
occurred before the litigation involving the
property;
- does not apply to a sale by client to attorney
involving a property not subject to litigation;

 Contingent Fee Arrangements

- a lawyer is not barred from acquiring a


certain percentage of the value of the
property in litigation that may be awarded to
his client;
- reason: payment is not made during the
pendency of the litigation but only after
judgment is rendered in favor of the client;;
- does the prohibition involving a contract of
sale apply to a contingent fee contract, which
is a contract for service?
15

- the Law of Sale is a “catch-all” provision that


applies to any transaction involving the
transfer of ownership over the property under
litigation

CHAPTER 3

SUBJECT MATTER

Requisites of Valid Subject Matter

 The validity of a sale depends inter alia on a valid


subject matter, which can either be:

- existing;
- having potential existence;
- a future thing; or
- something contingent or subject to resolutory
condition or a possible thing;

- subject matter must be licit; and

- subject matter must be determinate or


determinable.

 No contract is formed or the contract may be


considered void under Art. 1409, CC, if subject
matter lacks any of the requirements;

 Determining whether a sale is perfected or void is


important because of the remedies available to
the parties involved; if no contract is formed, the
parties are left to themselves and cannot seek
redress from the courts; however, if the contract is
void, the party who made payment can recover his
money on the ground of unjust enrichment by the
other party;
16

 Art. 1411, CC

- When the cause or object is illegal, and the


act amounts to a criminal offense, the parties
are considered in pari delicto, making them
without a cause of action against each other;
- however, if a party is innocent or without
fault, he can recover what he has given,
without complying with his promise;

 Art. 1412, CC

- When the cause or object is illegal but the act


does not amount to a crime, both parties
have no recourse if both are at fault;
- If one is at fault, he has no remedy
whatsoever; but, the innocent party can
recover what he has given, without
complying with his promise;

 Art. 1416, CC

- If the contract is prohibited to protect the


plaintiff, he can recover what he has given or
paid, if public policy is enhanced;
- SC ruling: even if a contract is declared void,
a party can recover what he has paid or given
because the parties are bound by good faith
and fair dealing;
- when a sale is perfected, what is constituted
is the obligation of the seller to deliver the
thing, coupled with the right of the buyer to
demand the performance of the obligation;

 Subject Matter Must Be “Possible Thing”

- it is sufficient if the thing in a contract of sale


is a “possible thing” or something that can
17

exist at the time of delivery, not perfection, of


the sale;

 Legal Bases Why Thing Need Not Exist at the


Time Sale is Perfected

- Art. 1347, CC – all things which are not


outside the commerce of men, including
future things, may be the object of a
contract;
- Art. 1461, CC – things having a potential
existence may be the object of a contract of
sale (emptio rei speretae);
- Art. 1409 (3) –
- Art. 1459, CC – it only requires that the seller
must have a right to transfer ownership of
the subject matter at the time it is delivered;
- Thus, when Art. 1409 (3) states that
contracts are inexistent and void from the
beginning when “the cause or object did not
exist at the time of the transaction,” it only
refers to “impossible things,” (things
which cannot come into existence), not
to things that did not exist at the time of
perfection, but which are capable of coming
into existence;

 Emptio Rei Speretae (Art. 1461, CC)

- contract covering future things, subject to a


suspensive condition: that the subject matter
will come into existence;
- if it does not arise or exist, the contract is
extinguished upon expiration of the time or
period or upon ascertainment that the event
will not take place;
- this covers only determinate things;
18

- pending crops can be the subject of matter of


sale, apart from the land on which they grow
(Sibal v. Valdez);
- prohibition under the Public Land Act from
selling land acquired thereunder does not
extend to sale of coconut trees (or fruits, for
that matter) planted thereof;
- prohibition extends only to the land, not to
the fruits or crops planted thereon (Pichel v.
Alonzo);
- sale subject to condition that seller will
acquire property is valid;

 Emption Spei

- sale of a sweepstakes ticket; object of the


sale is the ticket or the chance to win (not the
prize);

 Sale of Things Subject to Resolutory


Condition

- Article 1465, CC
- things subject to a resolutory condition
may be the object of sale;

 Subject Matter is Nexus of Sale

- in sale, the subject matter must be existing


or must come into existence; otherwise, sale
is void or the sale is extinguished, with the
obligation to return the price, if already
given;
- similar contracts such as barter and dacion
en pago are governed by the Law on Sales;
- Civil Code provisions of sale are “catch-all”
provisions that cover transactions involving
transfers of ownership for a consideration
(Polytechnic University v. Court of Appeals);
19

2. Subject Matter Must Be Licit

- a thing is licit when:


- it is not outside the commerce of man; or
- the right is transmissible;
- if thing is illicit, contract of sale is void;
- illicit things (animals suffering from
contagious disease, unfit for use or service,
future inheritance);
- a mere waiver of acquired hereditary rights
cannot transfer ownership rights in favor of a
non-heir; reason: elements of sale, donation
or other derivate mode of acquiring ownersjip
are not present;

a. Sales Declared Illegal by Law

- where subject matter is prohibited


(narcotics, wild birds or mammals, rare wild
plants, poisonous plants or fruits, dynamited
fish, gunpowder and explosives, firearms and
ammunitions, sale of realty by non-
Christians);
- sale of friar land without the consent of the
Secretary of Agriculture is null and void;
- objects outside the commerce of men refer to
objects that cannot be appropriated such as
the open seas and the heavenly bodies
(Quijada v. Court of Appeals);
- sale in favor of an alien using a “dummy” is
null and void, being in violation of the
constitutional provision prohibiting aliens
from owning private lands in the Philippines;
- sales in violation of land reform laws is null
and void;

3. Subject Matter Must Be Determinate


or at Least Determinable
20

a. Determinate Subject Matter

- particularly designated or physically


segregated from all others of the same class;
- when the thing is determinate, the seller is
not liable if the thing is lost due to a caso
fortuito or force majeure;

b. Determinable Subject Matter

- at the time the sale is perfected, the thing is


capable of being determined; and
- it can be determined without the necessity of
a new or further agreement;
- in short, it is a generic object;
- stipulation that the sale includes lands
“needed for the construction of the city hall
site, avenues and parks according to the
Arellano plain” is valid, covering as it does a
determinable thing (Melliza v. City of Iloilo);
- the requisite of determinability is met if the
courts will not consult parties to the contract
to establish the identity of the thing;
contractual terms must be sufficient to
enable the court to find the property subject
of sale;

c. Test of Determinability is the Meeting of


Minds of the Parties

- general rule: the public can deal with


registered land exclusively on the basis of the
title thereto;
- exception: “one sells or buys real property as
he sees it, in its actual setting and by its
physical metes and bounds, and not by the
mere lot number assigned to it in the
certificate of title;”
21

- hence, what matters is the true intention of


the parties, not a mere error in the deed of
sale;

d. When Quantity of Subject Matter Not


Essential for Perfection

- the meeting of the minds on the identity, the


nature and quality of the subject matter
results in the perfection of the contract of
sale;
- general rule: the actual quantity of goods is
essential in the meeting of the minds of the
parties;
- exception: where the seller was allowed to
deliver a specified quota of 2,640 cavans of
rice, although no exact quantity was agreed
upon, the sale was deemed perfected
(National Grains Authority v. Intermediate
Appellate Court);
- controlling doctrine: the specific quantity of
the subject matter is not important when the
quantity thereof can be determined without
resorting to a new agreement by the parties;
- certain generic objects may be the object of a
contract of sale provided these objects are
determinable at the time of perfection;
- actually, this contract may be denominated
as preparatory contract to enter into a
contract of sale or a supply agreement, in
commercial parlance;
- the preparatory contract involves an
agreement to enter into a sale involving a
personal obligation “to do,” not the real
obligation to deliver and to pay;
- in a preparatory contract, a complaint for
specific performance will not prosper because
of the constitutional guarantee against
involuntary servitude; instead, a complaint
22

for damages may be filed against the party in


default;

e. Generic Non-Determinable Objects

- a generic object that is determinable can be


the subject matter of a sale; however, the
obligation to deliver can only be complied
with once the thing becomes determinate;
- thus, before delivery, the risk of loss does not
arise because a generic thing is never lost;
- when a party binds himself to deliver “600
piculs of first class of sugar,” the party in
default is liable for breach of contract, which
implies that a valid sale was entered into;
however, he cannot invoke force majeure
(storm) to defeat liability for breach because
the buyer does not assume the risk of loss of
a generic, but determinable, subject matter,
until the thing is made determinate, either
through physical segregation or physical
designation (Yu Tek & Co. v. Gonzales);
- Article 1246, CC, does not allow that any
generic subject matter can be the object of a
sale; in fact, under Article 1409 (6), CC,
“where the intention of the parties relative to
the principal object of the contract cannot be
ascertained,” the contract is deemed
inexistent or void;
- thus, Article 1246, CC, covers only the quality
of a generic subject matter; consequently,
the contract is void if the quality of the
subject matter is not ascertainable without
resorting to a new agreement;

f. Status of Sale Not Complying with Third


Requisite
23

- if there is no agreement or meeting of the


minds with respect to the subject matter,
which is neither determinate or determinable,
the contract is void;
- basis: the “enforceability” or
“demandability” of the obligation to deliver is
in peril;

g. Sale of Undivided Interest

- sale of an undivided interest results in co-


ownership (Article 1463, CC);

h. Sale of Undivided Share in Mass

- when the parties agree on a definite number,


weight or measure of the goods in the mass,
although the same are undetermined, the
buyer becomes a co-owner to the extent of
the number, weight or measure of the goods
that he buys;
- however, if the mass is less than what he
buys, he becomes the owner of the whole
mass, but the seller remains liable to make
good the deficiency, unless there is a
contrary intent or stipulation;
- when there is no stipulation for the
measuring or weighing of the subject matter,
but the parties agree on a price which is not
based on a particular measurement or
weight, the subject matter of the sale is the
mass, not the actual number of units or tons
contained in the agreement; hence, it is
incumbent upon the seller to deliver all the
ore found in the mass, although the quantity
delivered is less than the amount estimated
(Gaite v. Fonacier);

i. Sale of Mortgaged Property


24

- a prior mortgage of the property does not


prevent the mortgagor from selling the
property, since a mortgage is merely an
encumbrance on the property and does not
extinguish the debtor’s title over his property;
- a stipulation prohibiting the mortgagor-debtor
from selling the mortgage property is void;

4. Seller’s Obligation to Transfer Ownership


Required at the Time of Delivery of the Thing

- generally, a sale cannot be annulled on the


ground that the seller at the time of
perfection was not the owner of the thing
sold;
- it is sufficient that the seller is the owner at
the time of the delivery; in fact, acquisition of
the subject matter may even depend on a
contingency; this circumstance, however,
does not render the sale null and void;
- sale of copra for future delivery does not
make the seller liable for estafa for failure to
deliver the object of the sale; the obligation
to deliver is civil, not criminal, in nature
(Esguerra v. People);
- sale of a lot to be acquired from a
government agency is valid, being a sale of a
future thing (Mananzala v. Court of
Appeals)

a. Conflicting Rulings

- SC held that sale by non-owner of property is


void; thus, the right to repurchase attached
to the sale is also void (Nool v. Court of
Appeals);
- comment: SC equated real obligation to
personal obligation; SC should have made the
25

sellers liable for breach of contract; if specific


performance is impossible, SC can decree
rescission of sale, with damages;
- a seller cannot “dispose of that which does
not belong to him;”
- Art. 1459, CC – “vendor must have a right to
transfer the ownership thereof at the time it
is delivered.”
- summary of principles: ownership by the
seller of the thing sold at the time of
perfection of the contract of sale is not an
element of its perfection; the law only
requires that the seller has the right to
transfer ownership at the time the thing sold
is delivered; perfection per se does not
transfer ownership which occurs upon actual
or constructive delivery of the thing sold; a
sale cannot be validly challenged on the
ground that the seller was not the owner at
the time of perfection (Quijada v. Court of
Appeals);

b. Exception: When Seller Must Be Owner


at the Time of Sale

- judicial sale: in mortgage, it is essential that


the mortgagor is the absolute owner of the
thing mortgaged, in anticipation of a
foreclosure sale;

CHAPTER 4

(PRICE AND OTHER CONSIDERATION)

Meaning of “Price”
26

– sum stipulated as equivalent of the thing sold;


– seller cannot unilaterally increase the price due to
increased construction cost;
– buyer cannot unilaterally withdraw from contract
in case interest rate is increased;

Requisites for Valid Price

– it must be real;
– it must be money or its equivalent;
– it must be certain or ascertainable;

Price Must Be Real

- legal intention to pay and to receive;

A. When Price is Simulated

– parties had no intention that the amount will be


paid;
– in simulation, a colorable contract exists; it is
devoid of substance;

When Price is False

– what is stated is not the one intended to be paid;


– sale is valid and enforceable, subject to
reformation;
– parties may be estopped from reflecting the real
price, if third parties are concerned;

Meeting of Minds as to Price

- parties must agree on the price;

Effect of Non-Payment of Price


27

– failure to pay price, if condoned, does not cancel


the sale; non-payment relates to consummation,
not perfection;
– non-payment does not render sale invalid; gives
rise to demand for specific performance or
rescission

Simulation of Price Affects


Delivery of Subject Matter

- delivery of subject matter by virtue of a void sale


for lack of consideration does not transfer
ownership to the buyer;

Price Must Be in Money or its Equivalent


(Valuable Consideration)

– Art. 1458, CC, requires payment of price certain in


money or its equivalent;
– does “equivalent” mean something representative
of money such as a check or draft?
– consideration for valid sale can be the price and
other consideration;

(Valuable Consideration)

– expectation of profits from the subdivision project


is valid cause or consideration (Torres v. Court of
Appeals);
– cancellation of the liabilities of the seller is valid
consideration for sale (PUP v. CA);
– price is subject to variations; other forms of cause
or consideration which are valuable can support a
valid sale;

Concept of “Valuable Consideration”


28

– in Philippine jurisprudence, for consideration to


support a contract of sale, it must be a “valuable
consideration;”
– hence, a nominal price renders the sale void;

Price Must Be Certain or Ascertainable at Perfection

– certain when expressed and agreed upon in terms


of specific pesos and/or centavos;
– money is the best model of valuable consideration;
– price is ascertainable if it can be determined with
reference to a particular thing or its determination
is left to the judgment of a specified person/s (Art.
1469, CC);

Price Fixed by Third Party

– designation of a third party to fix the price is valid;


it makes the price ascertainable;
– parties can ask the court to fix the price if
designated party fixes the price in bad faith or by
mistake (Art. 1469, CC);

Fixing of Subject Matter


by Third Party

– designation of a third party to fix the subject


matter is not provided by law;
– a “species” obligation cannot be performed by a
third party who may choose a thing beyond the
capacity of the seller to deliver;
Effect of Unascertainability

- when price is unascertainable, contract of sale is


inefficacious;

Manner of Payment of Price Must Be Agreed Upon


29

– manner of payment goes into the essence of what


makes price certain or ascertainable;
– manner and terms of payment are intertwined
with the concept of price; they constitute an
integral part of the price;

When Sale Exists Even When No Price is Agreed Upon

– Art. 1471, CC, provides the only exception that a


valid sale exists even if no agreement upon the
price is made;
– “xxx However, if the thing or any part thereof has
been delivered to and appropriated by the buyer,
he must pay a reasonable price therefor. What is
reasonable price is a question of fact dependent
on the circumstances of each particular case.”

Meaning of “Inefficacious” Under Art. 1474, CC

- devoid of legal effect; does not exclude void


sale contracts due to
uncertain/unascertainable contracts;

CHAPTER 5

FORMATION OF SALE

Stages in the Life of Sale

- policitacion – negotiation;
- perfection – birth of contract; when parties
come to agree;
30

- consummation – death of contract; when


parties perform obligation;

Negotiation Stage

- deals with matters arising prior to perfection


such as invitation to make offer, offer,
acceptance, right of first refusal, option
contract, supply agreement, mutual promises
to buy and sell or contracts to sell, agency to
sell or agency to buy;
- there is freedom to contract;

1. Advertisements and Invitations

- business advertisements are not definite


offers;
- general rule: advertisements are mere
invitations to make an offer;
- do not giver rise to a valid/binding sale;
- exception: when advertisements appear
otherwise; meaning, when advertisement
specifies a determinate subject matter, the
price and terms of payment, and is addressed
to a particular person, which amount to a
definite offer;

2. Offers

- an offer, before acceptance, is subject to the


will of the offeror;
- offer with a period amount to nothing upon
expiration thereof;
- offeree may accept or reject offer in its
entirety;
- counter-offer replaces the original offer;
- conditional acceptance amounts to a counter-
offer;
31

- offer becomes ineffective by reason of death,


civil interdiction, insanity, or insolvency of
either offeror or offeree;

3. Option Contracts

a. Determining the “Location” of


Options

- Art. 1479, CC
- “An accepted unilateral promise to buy or to
sell a determinate thing for a price certain is
binding upon the promisor if the promise is
supported by a consideration distinct from
the price.”
- When the option is founded upon a proper
consideration, then the offer may not be
withdrawn at any time during the option
period;

b. Definition and Essence of Option


Contract

- option contract – privilege existing in one


person, for which he had paid a consideration
and which gives him a right to buy a certain
property, from another person, if he chooses,
at any time within the agreed period at a
fixed price (Cavada v. Diaz);
- option – continuing offer or contract by which
the owner shall have the right to buy the
property at a fixed price within a certain time;
it merely secures the privilege to buy (Adelfa
Properties, Inc. v. Court of Appeals);

c. Characteristics/Obligations in an
Option Contract; Compared with Sale

- option contract is onerous like sale;


32

- consideration in an option contract is


anything of value while that of sale is price
certain in money or its equivalent;
- option contract and sale are consensual
contracts;
- option contract is essentially a unilateral
contract as the optioner is the one obliged;
sale is bilateral;
- subject matter of option contract is the option
to purchase, not the subject matter of the
sale to be entered into;
- option is an unaccepted offer; states the
terms and conditions on which the owner is
willing to sell his land, if the holder elects to
accept them within the time agreed upon; if
the holder does so elect, notice must be
given to the other party;
- acceptance within the period results in a valid
or binding contract;
- contract of sale defines the rights and
obligations of the parties at the time of
execution, preventing either party from
exercising the option to withdraw or proceed;
offer and acceptance are concurrent;

d. Elements of Valid Option Contract

- consent;
- subject matter; option right (offer to
sell/promise to sell; offer to buy/promise to
buy);
- prestation; consideration separate and
distinct from the purchase price for the option
given;

e. Meaning of “Separate
Consideration”
33

- anything or undertaking of value, which must


be separate and distinct from the purchase
price agreed upon;

e. When Option is Without Separate


Consideration

- general rule: without a consideration


separate from the purchase price, an option
contract is void; however, it can be treated as
a valid offer;
- exception: if the option is exercised prior to
its withdrawal, this becomes an accepted
offer, giving rise to a valid and binding sale;

f. Period of Exercise of Option

- when the option contract does not provide


the period within which the option will be
exercised, the period is not indefinite; the
right of option prescribes in ten (10) years as
actions based on a written contract expire
after ten (10) years;
- renewal of the lease does not include the
extension of an option to purchase attached
to the contract of lease;

g. Effects of Exercise of Option

- when there is an option contract, the timely


acceptance of the offer converts the option
contract into a bilateral promise to sell and to
buy;
h. Rules When Period is Given to
Offeree Within Which to Accept

- if the period is not supported by a separate


consideration, offeror can withdraw before
acceptance;
34

- right to withdraw must not be exercised


whimsically or arbitrarily;
- if the period has a separate consideration,
the option contract is deemed perfected;
withdrawal of the offer amounts to a breach;
- the option is an independent contract,
distinct from the projected main agreement;

i. Right of First Refusal

- promise on the part of the owner that in case


he decides to sell the property, he would first
negotiate its sale to the promise;
- a right of first refusal clause is not a sufficient
basis for specific performance because there
is no agreement on the price;

4. Mutual Promise to Buy and Sell

- promise to sell a determinate thing with a


promise to buy at a specified price is binding
as an executory agreement;

5. Earnest Money Defined

- money given as part of the purchase price


and as proof of the perfection of the contract
(Dizon v. Lustre)

a. Function of Earnest Money

- Art. 1482, CC, provides that earnest money


given in a sale is considered as part of the
purchase price; prevails only in the absence
of contrary or rebuttal evidence; hence, it is a
disputable presumption;
35

b. Distinctions Between Earnest


Money (EM) and Option Money (OM)

- EM is part of the purchase price while OM is


given as a distinct consideration for an option
contract;
- EM is given only where a sale has been
perfected while OM is given before a sale is
perfected;
- When EM is given, buyer is bound to pay the
balance, while OM, if given by the
prospective buyer, does not require him to
buy;

c. Effect of Rescission on Earnest


Money Received

- without any stipulation, the seller of a real


property does not have the right to keep the
earnest money received to answer for
damages sustained in case sale does not
prosper due the prospective buyer’s fault;
- amounts received as part of downpayment
could not be forfeited whey the buyer fails to
pay the balance of the purchase price;
- however, in case of rescission under Art.
1385, CC, there is an obligation to return the
object of the contract, including fruits and
interest;

d. Non-Performance Does Not Affect


Perfection

- non-performance of the parties’ obligations


does not affect the perfection of the contract;

Form of Sales
36

1. Generally, Form is Irrelevant to the Validity


of Sale

- subject to the provisions of the Statute of


Frauds, “a contract of sale may be made in
writing, or by word of mouth, or partly in
writing and partly by word of mouth, or may
be inferred from the conduct of the parties.”
(Art. 1483, CC)
- sale of land under a private instrument is
valid; title is transferred once delivery of land
is made in favor of the buyer (Gallar v.
Husain)
- necessity of public document involving sales
of real property or an interest therein is for
the purpose of convenience; not a
requirement for validity or enforceability
(Dalion v. Court of Appeals)
- however, sale contained in a private
document does not bind third parties
(Talusan v. Tayag);
- sale of land in a public document and
recording of the document in the Registry of
Deeds makes the sale binding on third parties
(Secuya v. Vda. De Selma);

a. Function of Deed of Sale

- deed of sale – formal or symbolic delivery of


the property sold;
- a deed of sale, to become a public document,
must be subscribed and acknowledged before
a notary public;
- notarization of the document is neither a
guarantee of its validity nor of the veracity of
its contents; notary public does not validate
the document;
- the execution and notarization of a deed of
sale, though a form of constructive delivery,
37

is not conclusive presumption of delivery of


possession (Santos v. Santos, 366 SCRA
395;

2. When Form of Sale Affects Its Validity

- general rule: form of sale is not important for


the validity of a sale;
- exceptions:
a. the power to sell a piece of land or interest
therein must be in writing; otherwise, the sale
by the agent is void;
b. sale of large cattle must be in writing;
otherwise, it is void; sale thereof must also be
registered with the municipal treasurer;
c. sale of land by “non-muslim hill tribe cultural
minorities all throughout the Philippines” is
void if not approved the National Commission
on Indigenous Peoples;

3. Statute of Frauds: When Form is Important


for Enforceability

a. Nature and Purpose of Statue of Frauds

- purpose: prevent fraud and perjury in the


enforcement of obligations;
- application of the Statute of Frauds
presupposes the existence of a perfected
contract;

b. Sales Covered in Statute by Frauds

- the following agreements are unenforceable,


unless there is a note or memorandum in
writing, and subscribed by the party or his
agent:
38

a. a sale agreement which is not to be


performed within a year from the
making thereof;
b. an agreement for the sale of goods,
chattels or things in action, at a price
not less than P 500; and
c. a sale of real property or of an interest
therein

c. Sales Not Covered by Statute of Frauds

a. when there is a note/memorandum in


writing, subscribed by the party and
his agent;
b. when the is partial consummation of
the sale;
c. failure to object to evidence aliunde
regarding the existence of contract;
d. when sales are effected through
electronic commerce;

d. Nature of Memorandum

- in writing and subscribed by the party


charged;
- various letters taken collectively can
constitute a memorandum; these documents
contain names of parties, terms and
conditions, price, description of property;
- in short, the memorandum must contain all
the elements of a contract of sale;
- Statute of Frauds applies only to executory
contracts; it does not apply to completed,
executed or partially executed contracts;

e. Partial Performance
39

- partial performance of the sale takes the


transaction outside the coverage of the
Statute of Frauds;

f. Effect of Partial Execution on Third


Parties

- third parties cannot invoke partial


performance as basis to take the transaction
outside of the coverage of the Statute of
Frauds;
- reason: third parties have legal remedies
against the contract;

g. Nature and Coverage of Partial


Performance

- partial performance, which takes the contract


out of the coverage of the Statute of Frauds,
includes:

 partial payment of purchase price;


 possession;
 making of improvements;
 rendition of services;
 payment of taxes;
 relinquishment of rights;
 tender of payment plus building of
improvements;

h. Waiver of Provisions of Statute of


Frauds

- an oral contract of sale becomes enforceable


by waiver of the provisions of the Statute of
Frauds; example: failure to object to oral
testimony or cross-examination on the
contract;
40

i. Sales Effected as Electronic Commerce

a. Legal Recognition of Electronic


Data Message

- an electronic data message or information


shall not be denied validity or enforceability
(Sec. 6, Electronic Commerce Act);
- electronic document includes information,
data, figures, symbols or other modes of
written expression which is received,
recorded, transmitted, stored, processed,
retrieved or produced electronically (Sec. 5
(f), E-Commerce Act);
- electronic signature refers to any distinctive
mark, characteristic and/or sound in
electronic form, representing the identity of a
person and attached to or logically
associated with the electronic data message
or electronic document (Sec. 5 (e), E-
Commerce Act);

b. Legal Recognition of Electronic


Documents

- electronic documents have the legal effect,


validity or enforceability as any other
document (Sec. 7, E-Commerce Act);

c. Legal Recognition of Electronic


Signatures
- an electronic signature on the electronic
document is equivalent to the signature of a
person on a written document (Sec. 8, E-
Commerce Act);

d. Presumption Relating to Electronic


Signatures
41

- in any proceedings involving an electronic


signature, it shall be presumed that:
a. the electronic signature is the signature
of the person to whom it correlates; and
b. the electronic signature was affixed by
that person with the intention of signing
or approving the electronic document;

- exception: unless the person relying thereon


knows the defects in or unreliability of the
signature, or reliance thereon is
unreasonable;

e. Consummation of Electronic
Transactions

- electronic transactions made through


networking among banks, or linkages thereof
with other entities or networks, and vice
versa, shall be deemed consummated upon
actual dispensing of cash or the debit of one
account and the corresponding credit to
another;
- the obligation of a bank, entity or person
similarly situated to another arising
therefrom shall be deemed absolute and shall
not be subjected to the process of preference
of credits;

CHAPTER 6

PERFORMANCE OR CONSUMMATION OF SALE

Obligations of Seller

1. To Preserve Subject Matter


42

- every person obliged to give a determinate


thing is also obliged to take care of it with the
proper diligence of a good father of a family,
unless the law or the stipulation of the parties
requires another standard of care (Art. 1163,
CC);
- ancillary obligation “to do;”
- a necessary legal assurance to the buyer that
the seller can fully comply with the main
obligation to deliver the object of sale;

2. To Deliver Subject Matter

- seller is bound:
a. to transfer the ownership of the thing, which
is the object of the sale;
b. to deliver the thing;

- title passes from the moment the thing sold


is placed in the possession and control of the
buyer;
- except when there is a provision that title
shall not pass until full payment of the price;
- delivery of the thing produces conveyance of
ownership, without prejudice to the right of
the seller to claim payment of the price;
delivery ipso jure transfers it ownership to
the buyer (Ocejo, et al v. International
Banking Corp.);

3. To Deliver Fruits and Accessories

- the transferee has a right to the fruits of the


thing from the time the obligation to deliver it
arises; however, he shall acquire no real right
over them until the same has been delivered
to him (Art. 1164,CC);
43

- this provision applies only to an obligation to


deliver a determinate thing;
- the obligation to deliver a determinate thing
includes the obligation to deliver its
accessions and accessories, and all the fruits
thereof from the time of perfection;

4. To Warrant the Subject Matter

- seller is obliged to “warrant the thing which is


the object of the sale;”

Tradition as a Consequence of Valid Sale

- ownership of the thing sold is a real right,


which the buyer acquires only upon delivery
of the thing to him in any of the ways
authorized under the Civil Code; this right is
transferred, not merely by contract, but also
by tradition or delivery (Equatorial Realty
Dev., Inc. v. Mayfair Theater, Inc.);
- there is delivery when the thing sold is placed
in the control and possession of the vendee;

Types of Delivery

1. Actual Delivery

- when the thing sold is placed in the control


and possession of the buyer;
- however, control can take other forms other
than actual physical possession;
- the key word is control, not possession in
determining the legal effect of tradition;

2. Constructive Delivery
44

- manner signifying an agreement that the


possession is transferred from the vendor to
the vendee;
- execution of a public instrument is a form of
constructive delivery;

a. Execution of Public Instrument

- regarding the sale of movables and


immovables through a public instrument, the
execution thereof is equivalent to delivery, in
the absence of a contrary intention;
- deed of sale has two functions:
1. formal/symbolic delivery;
2. authority for buyer to use the
document as proof of ownership;
- general rule: execution of a public instrument
has the legal effect of actual or physical
delivery;
- this general rule applies only to a public
instrument evidencing a valid sale;

i. Constructive Delivery Has Same Legal


Effect as Actual Delivery

- the mere execution of the deed of


conveyance in a public instrument is
equivalent to the delivery of the property
(Art. 1498, CC);

ii. When Execution of Public Instrument


Does Not Produce Effects of Delivery

- when there is a stipulation to the contrary;


examples: certain date for purchase to take
possession, where title is not transferred until
full payment; seller reserves right to use and
enjoy the property; seller has no control over
the thing sold at the moment of the sale;
45

- when at the time of the execution of the


public instrument, the subject matter was not
subject to the control of the seller;
- when control over the property or the ability
to transfer physical possession does not
subsist for a reasonable length of time from
the execution of the public instrument;
- thus, mere execution of a public instrument
does not create a conclusive presumption of
delivery;

b. Symbolic Delivery

- as to movables, constructive delivery is made


by delivery of the keys of the place where the
movable is stored;
- an acknowledgment receipt of partial
payment does not amount to symbolic
delivery;

c. Constitutum Possessorium

- takes effect when seller, at the time of


perfection, possesses subject matter in the
concept of an owner, and the seller only
possesses the property as a lessee;

d. Traditio Brevi Manu

- opposite of constitutum possesorium; would-


be buyer earlier possessed the property as a
lessee but now possesses the same in the
concept of an owner by virtue of the sale;

e. Traditio Longa Manu

- delivery of a thing by agreement; under Art.


1499, CC, delivery of movable property is
made by mere consent, as possession thereof
46

cannot be effected in favor of the buyer at


the time of sale;

f. Delivery of Incorporeal Property

- involves property having no physical


existence; delivery thereof is effected by
constructive delivery (public instrument, title
is placed in the possession of the buyer, use
and enjoyment by the buyer);

g. Delivery by Negotiable Document of


Title

- person to whom a negotiable document of


title is negotiated acquires title to the goods
as transferor;
- invoice, which is not a negotiable document
of title, does not give the effect of
constructive delivery;

h. Delivery through Carrier

- a form of constructive delivery; pertains only


to sale of goods;
- general rule: delivery to carrier is deemed
delivery to buyer; carrier acts as an agent of
the buyer;
- exception: stipulation/circumstances to the
contrary;
- the seller has the duty to enter into a
contract with the carrier on behalf of the
buyer under reasonable terms and
conditions;
- if the seller fails to do so, and the goods are
lost or damaged, buyer may hold the seller
liable for damages;
- where goods sent to buyer are normally
insured, but seller fails to notify buyer of the
47

same, the risk of loss or damage pertains to


seller;
- F.A.S. Sales – seller pays all charges and is
subject to risk until goods are placed
alongside vessel; meaning: delivery of goods
alongside vessel completes the effect of
tradition;
- F.O.B Sales – “free on board;” seller shall bear
all expenses until the goods are delivered;
- “f.o.b.” at the point of shipment – delivery of
the goods to the carrier is equivalent to
delivery to the buyer; at that point, the risk of
loss pertains to the buyer;
- “f.o.b.” , destination – delivery to the buyer is
completed when the vessel has arrived at the
point of destination; prior thereto, the risk of
loss is shouldered by the seller;
- C.I.F. Sales – “costs, insurance, and freight;”
the price fixed covers not only the costs of
the goods, freight and insurance are paid by
the seller;
- effects of delivery under c.i.f. sales:
a. first school of thought: delivery to carrier is
delivery to buyer; carrier acts as an agent of
the buyer; buyer must have insurable interest
in the thing insured;
b. second school of thought: delivery to carrier
is not delivery to buyer; both parties agree
that seller is responsible for insuring and
shipping the goods, for which he gets a
package price; thus, seller bears the risk of
loss during the shipment period;

Effects and Completeness of Delivery

- to transfer ownership to the buyer, delivery must


be made pursuant to a valid sale; and delivery
must be effected when seller has ownership over
the subject matter of sale;
48

When Buyer Refuses to Accept

- delivery is complete even if buyer unjustly refuses


to accept the goods, once the goods are placed at
his disposal; title therefore passes to buyer;

Rules on Double Sales

- when subject matter is movable, ownership shall


pertain to the buyer who may have first taken
possession thereof in good faith (Art. 1544, CC);
- when subject matter is immovable, ownership
shall pertain to the buyer who in good faith first
recorded the sale in the Registry of Property; if
there is no inscription, to the person who in good
faith first acquired possession thereof; or in the
absence thereof, to the person who in good faith
presents the oldest title;
- registration in good faith under the Torrens System
is of the highest order; this does not apply to
unregistered land;

Other Principles

- purchaser in good faith – one who buys the


property of another without any notice that some
other person has a right to or interest in the
property and pays a full and fair price for the
property;
- obligation to investigate known facts – a purchaser
cannot close his eyes to facts which should put a
reasonable man upon his guard;
- land in adverse possession requires buyer to
inquire as to the occupant’s right over the
property; purchaser must go beyond the certificate
of title;
- annotation of lis pendens on the title renders the
buyer in bad faith;
49

- annotation of adverse claim places subsequent


buyers in bad faith;

Obligations of Buyer

Pay for the price

- pay for the price at the time and place


stipulated in the contract;
- letter expressing intent to pay is not a valid
tender of payment;
- to be effective, payment shall be made to the
person in whose favor the obligation has
been constituted or his successor in interest,
or any person authorized to receive (Art.
1240, CC);
- buyer is obliged to pay interest for the period
between delivery and payment of the price
when it is so stipulated, if object delivered
produces fruits/income, or buyer defaults
from demand;

Accept Delivery of Thing Bought

- buyer is bound to accept delivery of the thing


bought at the time and place stipulated in the
contract; if not stipulated, at the time and
place of the delivery of the thing sold;
Opportunity to Inspect Goods

- general rule: buyer is given a reasonable


opportunity to examine the goods to
determine if the same are consistent with the
specifications in the contract;
- exception: C.O.D. Sales or “collect on
delivery” sales – buyer is not entitled to
examine the goods before the payment of the
price, in the absence of agreement or usage
of trade permitting such examination;
50

Goods Sold on Installments

- unless otherwise agreed, buyer of goods is


not bound to accept delivery thereof by
installments;

Effect of Acceptance of Goods on Seller’s


Warranty

- acceptance of the goods does not discharge


the seller from liability for damages or for
breach of warranty, unless there is a
stipulation to the contrary;
- however, acceptance of the goods without
notice of any defect thereof or breach of
warranty excuses the seller from liability;

Refusal to Accept Goods

- buyer is not bound to return the goods, if he


refuses to accept the same for a valid reason;
he is only required to notify the seller of his
refusal to accept;
- buyer can voluntarily constitute himself as a
depository, and becomes liable as such;
- in case of refusal to accept goods without a
valid reason, title thereto passes to him from
the moment the goods are placed at his
disposal;

CHAPTER 6

SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE

When Seller is not Owner of the Subject Matter


51

At Perfection

- perfection of sale merely creates the


obligation on the part of the seller to transfer
ownership, but by itself perfection does not
transfer ownership;
- it is not critical for perfection of sale to take
place that the seller is the owner of subject
matter at the time of perfection;
- law on estoppel provides: when the person
who is the owner of a thing sells or alienates
and delivers it, and later the seller or grantor
acquires title thereto, such title passes by
operation of law to the buyer or grantee (Art.
1434, CC);
- word “sells” in Art. 1434, CC, refers to the
perfection stage of a sale;

At Consummation

- where goods are sold by a person who is not


the owner thereof, and who does not sell then
under authority or with the consent of the
owner, the buyer acquires no better title to
the goods that the seller had (Art. 1505, CC);
- Art. 1505 does not provide that the sale of
good by a non-owner is void; it only states
the nature of the title of the buyer;
- One can sell only what one owns or is
authorized to sell; thus, the buyer can
acquire no more than what the seller can
transfer legally;

Sale by Co-Owner of the Whole Property or Definite


Portion Thereof

- in co-ownership, none of the co-owners may


claim any right, title or interest to a particular
portion of the thing owned in common;
52

- a co-owner has no right to sell a divided part


of the real estate, although he is the owner of
an undivided half of a tract of land;
- a co-owner has a right to sell and convey an
undivided half, but he has no right to divide
the lot into two parts, and convey the whole
of one part by metes and bounds;

Exceptions to Rule on Effect of Sale of Definite Portion


by Co-Owner

- general rule: sale by co-owner of the entire


property owned in common or any definite
portion thereof is void, but the sale is valid
with respect the co-owner’s ideal share;
- exceptions:
- a. when the subject matter is indivisible by
nature or by intent;
- b. when the sale of a particular portion of
the thing owned in common is with the
consent of the other co-owners; partial
partition results;

CHAPTER 7

LOSS AND DETERIORATION, FRUITS AND OTHER

BENEFITS

Before Perfection

- the rules on loss, deterioration, fruits and


improvement of the purported subject matter
are the same: such loss, deterioration, fruits
and improvements pertain to the purported
seller, since ownership remains in the seller;

At the Time of Perfection


53

- if at the time the sale is perfected, the


subject matter has been entirely lost, the
contract shall be “without any effect” (Article
1493, CC);
- however, if the thing is lost in part only, the
buyer may choose between withdrawing from
the contact and demanding the remaining
part, paying its price in proportion to the total
sum agreed upon;
- Art. 1493, CC, does not hold a sale at
“perfection” to be void when the object
thereof is lost; it uses the phrase “without
any effect;”
- strictly speaking, the physical existence or
non-existence of the subject matter is not
important for perfection of the sale;
- however, if subject matter is lost, there is no
point in entering into a contract as the seller
cannot comply with obligation to deliver the
subject matter;
- Tolentino’s view: “the contract never comes
into existence. There can be no sale without
a thing to be sold. xxx there is no need of an
action to annul the contract, because there
can be no annulment of something that does
not exist.”

How to Treat Loss, Deterioration and Benefits After


Perfection

- if the subject matter is lost at the point of


perfection, and the seller bears the loss and
the buyer is relieved of his obligation under
the contract, then the implication is that after
the perfection, they buyer bears the risk of
loss and deterioration even without prior
delivery to him;
54

After Perfection But Before Delivery

Loss of Subject Matter

- CC has retained the Roman law rule that


ownership is transferred only by delivery,
whether actual or constructive;
- however, CC also adopted the common law
principle of res perit domino, i.e., it is the
owner of the thing (the seller before delivery)
who bears the consequences of its loss;

Tolentino’s view:

- in reciprocal obligations, the extinguishment


of the obligation duet to loss of the thing
‘affects both debtor and creditor; the entire
juridical relation is extinguished, so that if the
creditor has himself an obligation, this is
likewise extinguished.
- the debtor must return to the creditor
whatever the latter may have already
delivered by reason of the obligation; a
logical consequence of the principle of res
perit domino recognized in the code.
- the risk pertains to the debtor, which means
that if an obligation is extinguished by the
loss of the thing or impossibility of
performance through fortuitous events, the
counter-prestation is also extinguished;
- the debtor is released from liability but he
cannot demand the prestation which has
been stipulated for his benefit;
- examples: a. if the thing leased is destroyed
by fortuitous event, the lessee is not obliged
to pay the stipulated rental; b. in a contract
of a piece of work where the contractor
furnished both labor and material, if the thing
55

is lost before delivery, the contractor cannot


recover the agreed compensation.
- these are the results of the reciprocal
character of the obligations; he who gives
nothing has no reason to demand anything;

Summary of Rules According to Tolentino

- risk of loss is borne by the seller from time of


perfection up to period before delivery;
- however, the seller is not liable for damages
if the thing is lost through a fortuitous event;
- before delivery, if the determinate subject of
the sale is lost through the fault of the seller,
the buyer does not need to pay the price but
he can recover damages for breach of
contract;
- if the determinate subject matter is lost
through a fortuitous event, the seller is
excused from his obligation to deliver the
thing; he is not liable for damages because
he committed no breach;
- buyer is therefore not obliged to pay the price
because seller failed to comply;
- the net effect is the diminution of the value of
the seller’s estate; risk of loss is borne by the
seller;

Proper Doctrine on Loss, Deterioration, Fruits and


Improvements

Prior to Perfection

- both title and beneficial interests pertain to


the seller; therefore, the seller bears the risk
of loss, deterioration, and benefits from the
fruits and improvements;
56

- the buyer is without any risk because neither


title nor beneficial interest over the subject
matter pertains to him;

After Delivery

- as delivery effectively transfers title and


beneficial interest to the buyer, the buyer
bears both the risk of loss and deterioration,
as well as benefits from the fruits and
improvements of the subject matter of sale;
- at this juncture, neither title nor beneficial
interests pertain to the seller; as such,
whatever happens to the subject matter
without his fault will not affect him;

After Perfection But Before Delivery

- in this situation, title and beneficial interests


do not pertain to the same person;
- according to jurisprudence, the party who
had greater stake on the subject matter at
the point of loss, deterioration or
improvement should bear the risk of loss;
- thus, under this situation, the party who is
understood to have the beneficial interest
over the subject matter bears the risk of loss
or deterioration, or obtains benefits from the
improvement of the thing;
- examples:
- a. when the obligor possesses the goods
for the benefit of the buyer, benefits and
improvements pertain to the buyer; hence,
the buyer bears the risk of deterioration;
- b. when goods are retained by the seller to
secure the performance of the buyer’s
obligations, buyer bears the risk of loss or
deterioration;
57

- c. when seller retains control over the goods


until buyer complies with his obligations, or
where buyer does not intend to have
dominion, use or control over the goods, the
owner-seller bears the risk of loss or
deterioration;

CHAPTER 8

REMEDIES OF PARTIES

Remedies in Cases of Movables

Ordinary Remedies of Seller

Movables in General

- in sales of movables, seller can rescind the


sale in case the buyer does not show up to
receive the subject matter of the sale, or if he
appears, the buyer does not offer to pay the
price;

Sale of Goods
Non-Payment of Price by Buyer

- when ownership has passed to the buyer, but


the buyer does not pay, seller can maintain
an action against the buyer for the price of
the goods or an action for specific
performance;
- when the ownership of the goods has not
passed, seller may offer to deliver the goods
to the buyer; if buyer refuses to accept the
goods, seller may act as bailee for the buyer,
with notice to the buyer; thereafter, seller
may treat the goods as his own and maintain
58

an action for the price of the goods against


the buyer;
- when price payable on certain day, and the
buyer refuses to pay the price, seller may
maintain action for the price;

Special Remedies of “Unpaid Seller” of Goods

- seller of goods is deemed to be an “unpaid


seller” either: a. when the whole of the price
has not been paid or tendered; or b. when a
bill of exchange or other negotiable
instrument has been received as conditional
payment, and the condition is violated due to
the dishonor of the instrument, insolvency of
the buyer, or otherwise;
- term includes an agent of the seller to whom
the bill of lading is indorsed, or consignor or
agent who paid or is directly responsible for
the price, or any person in the position of a
seller;
- unpaid seller has the following remedies
(whether or not ownership over the goods
has been transferred to the buyer):
- a. possessory lien;
- b. stoppage in transitu;
- c. special right of resale;
- d. special right to rescind;
- these remedies have hierarchical application;
meaning, the rights to resell and rescind can
only be availed after possessory lien and
stoppage in transitu have been exercised;

Possessory Lien

- lien is a legal claim or charge on property as


security for the payment of some debt or
obligation; its meaning is more extensive
than the right to retain; it is enforceable
59

against the property in the hands of any


person, except against a bona fide purchaser
for value without notice (Hongkong &
Shanghai Banking Corp. v. Rafferty);

Stoppage in transitu

- stoppage in transitu – seller’s right of


stopping the goods in transitu after he has
parted with the possession thereof, in case
buyer is insolvent;
seller may resume possession of the goods at
any time while goods are in transit;
- this can be exercised even if ownership over
the goods has passed to the buyer; this right
is not affected by any sale, or other
disposition of the goods made by the buyer,
unless the seller consents thereto;

When Goods are Deemed “In Transit”

- from time goods are delivered to a carrier or


other bailee for transmission to buyer, until
buyer or agent obtains goods from
carrier/bailee;
- if buyer rejects the goods, and the
carrier/bailee continues in possession thereof,
even if seller refuses to take back the goods;

How Right is Exercised

- obtain actual possession of the goods; or


- notify carrier/bailee in possession thereof of
his claim over the goods;

Special Right to Resell Goods


60

- even if ownership in the goods has passed to


the buyer, unpaid seller has a special right of
resale, under conditions provided by law;

When Right Can Be Exercised

- to avail of this right, unpaid seller must have


previously exercised right of possessory lien
or stoppage in transitu;
- goods must be sold under the following
conditions:
- a. goods are of perishable nature;
- b. seller is expressly reserved in case buyer
defaults;
- c. buyer is in default in the payment of the
price for an unreasonable time;

Buyer’s Liability for the Difference

- if the buyer fails to take delivery and pay the


purchase price of the subject matter of the
contract, the seller, notwithstanding the
absence of judicial rescission, can resell the
goods; and if the seller is obliged to resell the
goods for less than the contract price, the
buyer is liable for the difference (Katigbak v.
Court of Appeals);

Standard of Care/Disqualification in Resale

- seller is bound to exercise reasonable care


and judgment in making a resale, and subject
to this requirement may make a resale either
by public or private sale;
- seller cannot directly or indirectly buy the
goods;

Special Right to Rescind


61

- despite the transfer of ownership over the


goods to the buyer, the unpaid seller has a
special right to rescind the sale;

When Right May Be Exercised

- an unpaid seller who has a right of lien or has


stopped the goods in transitu, may rescind
the transfer of title and resume ownership in
the goods in any of the following instances:
- a. where the seller expressly reserved the
right to rescind in case the buyer defaults; or
- b. where the buyer has been in default in
the payment of the price for an unreasonable
time;

Effect of Exercise of Right to Rescind

- seller is not liable to the buyer upon the sale;


seller may even recover from buyer damages
for loss arising from the contractual breach;

Transfer of Title
- transfer of title is rescinded upon
manifestation of intention to rescind to the
buyer, either through a notice or some other
overt act;

Remedies of Buyer

- 1. action for specific performance (in


case seller has breached obligation to deliver
specific or ascertained goods);
- 2. remedies under Art. 1599, CC:
- a. accept or keep the goods and set up
against the seller the breach of warranty by
way of recoupment;
62

- b. accept or keep the goods and maintain


an action against the seller for damages for
the breach of warranty;
- c. refused to accept the goods and
maintain an action against the seller for
damages for breach of warranty;
- d. rescind the sale and refuse to receive the
goods, or if good have been received, return
them or offer to return them to the seller and
recover the price or any part thereof which
has been paid;
- if fulfillment becomes impossible, buyer can
exercise right to rescind, even if previously he
availed of specific performance;
- 3. suspension of payments in
anticipation of breach - buyer may
suspend the payment of the price in case of:
a. disturbance in the possession or
ownership of the thing acquired; or
b. existence of reasonable grounds that
such disturbance will occur; or
c. any vindicatory action; or
d. foreclosure of mortgage;
unless the seller gives security for the return
of the price;
- in case of a pending suit involving the subject
matter of the sale, buyer can suspend
payment of the balance of the purchase price
(Adelfa Properties v. CA);

Sales of Movables on Installments (Recto Law,


now incorporated in Art. 1484, CC)

- in a sale of personal property the price of


which is payable in installments, the seller
may exercise any of the following remedies:
a. exact fulfillment of the obligation,
should the buyer fail to pay any
installment;
63

b. cancel the sale, should the buyer’s


failure to pay cover two or more
installments;
c. foreclose the chattel mortgage on the
thing sold, if one has been constituted,
should the buyer’s failure to pay cover
two or more installments;
- the above-stated remedies are alternative,
not cumulative; exercise of one bars the exercise
of the others; remedies cannot also be pursued
simultaneously;

When is Sale on Installments?

- where the price is payable in several


installments; where partial payments consist
in relatively small amounts;
- Recto Law/Art. 1484 applies to financing
transactions derived from sales of movables
on installments; the execution of a contract
of loan is immaterial because the promissory
note had been assigned or negotiated by the
original seller;
- Recto Law/Art. 1484 does not apply if an
initial payment is made, and the balance is
payable in the future; this is a straight sale,
not a sale on installments (Levy Hermanos
v. Gervacio); in this case, the seller can
recover the unpaid balance from the buyer,
even if the buyer has been deprived thereof
through foreclosure;

Contracts to Sell Movables Not Covered

- when the contract governing the sale of


movables is a contract to sell, the rules on
rescission and substantial breach do not
apply;
64

- reason: if the suspensive condition does not


occur, the contract to sell is extinguished;
thus, there is no contract to rescind;

Remedies in Cases of Immovables

Remedies of Seller

Rescission of Sale (Anticipatory Breach)

- under Art. 1591, CC, if the seller has


reasonable grounds to fear the loss of the
immovable property sold and its price, he
may sue for the rescission of the sale;
- in case Art. 1591 does not apply, the seller
may sue for rescission of the sale under Art.
1191, CC, based on substantial breach by the
buyer for his failure to comply with his
obligation to pay the price when due;

Rescission under Art. 1592 (Failure of Buyer to


Pay Price)

- in case the buyer fails to pay the price, the


seller has the option under Art. 1592, CC, to
rescind the sale upon judicial or notarial
demand;

Contracts to Sell Not Covered by Article 1592, CC

- Art. 1592 applies to ordinary sale transferring


ownership simultaneously with the delivery of
the real property sold;

Remedies of Buyer

Suspension of Payment
65

- Art. 1590, CC< allows the buyer to suspend


payment of the price incase of:
- a. disturbance in the possession or
ownership of the thing acquired; or
- b. the presence of reasonable grounds
causing fear that disturbance in his
possession or ownership thereof will occur;
- a mere act of trespass will not allow
suspension of payment;

In Case of Subdivision or Condominium Projects

- buyer can invoke Sections 23 and 24 of P. D.


No. 957 that his installment payments in a
subdivision or condominium project cannot
be forfeited in favor of the owner or
developer;
- under P. D. No. 957, buyer has the option to
demand reimbursement of the total amount
paid, or to wait for further development of
the subdivision or condominium project
(Relucio v. Brillante-Garfin);
- buyer in a subdivision land can compel the
seller to complete the roads and other
facilities of the subdivision, despite the
absence of such or similar stipulation (Lim v.
De los Santos);
- buyer can suspend payment of his monthly
amortization where the seller fails to give a
copy of the Contract to Sell despite repeated
demands (Gold Loop Properties v. CA);
- P. D. No. 957 does not allow the nullification
of a contract to sell in case the seller, at the
time of the contract was entered into, did not
possess a Certificate of Registration and
License to Sell (Cho Chien v. Sta. Ljucia
Realty & Dev., Inc.);

P. D. No. 957 Given Retroactive Effect


66

- P. D. No. 957 was applied to a land purchase


agreement entered into prior to the issuance
of P. D. No. 957; as an instrument of social
justice, the law favors the weak and the
disadvantaged (Eugenio v. Drilon);

Right to Grace Period Stipulated

- when a grace period is stipulated in a


contract of sale, it is construed as a right;
when it is unconditionally conferred, the
grace period is effective without further need
of demand for payment;

Maceda Law (Sales of Real Estate on


Installments)

- the law (Realty Installment Buyer Protection


Act) declares as “public policy to protect
buyers of real estate on installment
payments against onerous and oppressive
conditions;”
- it recognizes the seller’s right of cancellation
of sale on installments of industrial and
commercial properties with full retention of
previous payments (Luzon Brokerage v.
Maritime Bldg.);

Transactions Covered

- the Maceda Law does not cover all sales of


realty on installments, but primarily
residential real estate;
- it also covers “financing” of such acquisitions;
expressly covers “all transactions or
contracts involving the sale or financing of
real estate on installment payments,
67

including residential condominium


apartments;”

Maceda Law Covers Contracts to Sell

- use of the term “cancellation” under the


Maceda Law clearly indicates that it covers
contracts to sell residential real estate on
installments;

Transactions Excluded from Coverage

- sales covering industrial lots;


- sales covering commercial buildings (and
commercial lots by implication); and
- sales to tenants under agrarian reform laws;

Contrary Stipulations are Void

- contractual stipulations that are contrary to


the provisions of the Maceda Law are null and
void; (Section 7, Maceda Law);

Maceda Law Cannot be Availed of by Developer

- it does not apply to protect the developer or


one who succeeds the developer (Lagandaon
v. CA);

Cancellation of Judicial Sale

- where a judicial sale is voided without fault of


the purchaser, the purchaser is entitled to
reimbursement of the purchase money;
- a judicial sale can only be set aside upon the
return to the buyer of the purchase price with
simple interest, including sums paid in
improvements, taxes, and other expenses;
68

CHAPTER 9

CONDITIONS AND WARRANTIES

Conditions and Warranties

- a contract of sale may be subject to


conditions, as well as warranties, express or
implied; otherwise, the caveat emptor
(“buyer beware”) rule may also find
application (Filinvest Credit Corp. v. Court of
Appeals);
- 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 (Delta
Motors v. Geronimo);
- if one party promised that the condition
should happen or be performed, the party
concerned may treat the non-performance of
the condition as a breach of warranty (Delta
Motors v. Geronimo);
Express Warranty

- any affirmation of fact or any promise, by the


seller relating to the thing is an express
warranty if it is intended to induce the buyer
to purchase the same, and if the buyer
purchases the thing relying thereon (Art.
1546, CC);
- a statement of the seller’s opinion on the
thing does not amount to a warranty (Art.
1546, CC);

Implied Warranties
69

- that the seller has a right to sell the thing at


the time when ownership is to pass, and from
then on, the buyer shall have and enjoy legal
and peaceful possession of the thing;
- that the thing shall be free from any hidden
faults or defects, or any charge or
encumbrance not declared or known to the
buyer;
- these warranties shall not make liable a
sheriff, auctioneer, pledge, or other person
selling the things, for the sale of a thing in
which a third person has a legal or equitable
interest (Art. 1547, CC; Sta. Romana v.
Imperio);

Implied Warranty Against Eviction

- eviction shall take place whenever by a final


judgment based on a right prior to the sale or
any act imputable to the vendor, the vendee
is deprived of the whole or of a part of the
thing purchased ( Arts. 1548 – 1549; 1557 –
1559, CC; Bautista v. Lasam);

Requisites for Vendor’s Liability

- final judgment;
- buyer is deprived of the whole or part of the
thing sold;
- deprivation is caused by a right prior to the
sale in question; and
- vendor is summoned and made a co-
defendant in the suit for eviction at the
instance of the vendee (De Leon Escaler v.
CA);

Waiver
70

- if the vendee has renounced the right to


warranty in case of eviction (consciente), and
eviction should take place, the vendor shall
only pay the value of the thing sold at the
time of eviction;
- in case the waiver is made with knowledge of
the risks of eviction and assumed its
consequences (intencionada), the vendor
shall not be liable (Art. 1554, CC, PNB v. Silo);
- any waiver or stipulation exempting the
vendor from the obligation to answer for
eviction shall be void, if he acted in bad faith
(Art. 1553, CC; Angelo v. Pacheco);

Effects of Eviction

- the vendee shall have the right to demand of


the vendor:
- a. the return of the value of the thing sold
a the time of the eviction, be it greater or less
than the price of the sale;
- b. the income or fruits, if he has been
ordered to deliver them to the party who won
the suit against him;
- c. the costs of the suit;
- d. the expenses of the contract, if the
vendee has paid them;
- e. the damages and interest, and
ornamental expenses, if the sale was made in
bad faith (Art. 1555, CC);

Implied Warranty Against Hidden Defects of Or


Encumbrances Upon the Thing Sold

- vendor shall be responsible for warranty


against the hidden defects which the thing
sold may have, should they render it unfit for
the use for which it is intended or should they
diminish its fitness for such an extent that,
71

had the vendee been aware thereof, he


would not have acquired it or would have
given a lower price for it; the vendor is
responsible for any such hidden faults or
defects even though he was not aware
thereof;
- this warranty shall not apply if the contrary
has been stipulated and the vendor was not
aware of the hidden faults or defects in the
thing sold;
- the vendor shall not be answerable for patent
defects or those which may be visible, or for
those which are not visible if the vendee is an
expert who, by reason of his trade or
profession, should have known them;
- in a sale of goods, there is an implied
warranty or condition as to the quality or
fitness of the goods, as follows:
- 1. where the buyer makes known to the
seller the purpose for which the goods are
acquired, and the buyer relies on the seller’s
skill or judgment, there is an implied
warranty that the goods shall be reasonably
fit for such purpose;
- 2. where the goods are bought by
description from a seller who deals in such
goods, there is an implied warranty that the
goods shall be of merchantable quality (Art.
1562, CC);
- in a contract of sale by sample, if the seller is
a dealer in goods of that kind, there is an
implied warranty that the goods are free from
any defect that will render the goods
unmerchantable which is not apparent on
reasonable examination of the sample (Art.
1565, CC);

Effects of Hidden Defects or Encumbrances


72

- vendee may elect between withdrawing from


the contract and demanding a proportionate
reduction of the price, with damages in either
case (Consolidated Plywood Industries v. IFC
Leasing);
- actions arising from the responsibilities of the
vendor for hidden defects or encumbrances
shall be barred after six months, from the
delivery of the thing sold (Art. 1571, CC);
- there is no implied warranty as to the
condition, adaptation, fitness, suitability or
quality of a thing sold as and for “second-
hand article;”
- an identor is one who, for compensation, acts
as a middleman in bringing about a purchase
and a sale goods between a foreign supplier
and a local purchaser;
- an indentor is not liable for the implied
warranty for hidden defects;
- a mere expression of opinion that the
equipment is “very good” cannot be
construed as an express warranty;

Redhibitory Defects of Animals

- the redhibitory defect of one shall only give


rise to its redhibition (Art. 1572, CC);
- the defect is redhibitory in nature if expert
knowledge is not sufficient to discover the
hidden defect of animals;
- there is no warranty against hidden defects of
animals sold at fairs or at public auction, or of
livestock sold as condemned (Art. 1574, CC);
- the redhibitory action must be brought within
forty days from the date of the delivery to the
vendee;

Extinguishment of Sale
73

- sales are extinguished by the same causes as


all other obligations and by conventional or
legal redemption, regardless of whether the
contract is a perfected sale or a
consummated sale (Ocejo v. International
Bank);

Conventional Redemption

- takes place when the vendor reserves the


right to repurchase the thing sold, with the
obligation to return to the vendee the
purchase price and the expenses of the
contract, other legitimate expenses in
connection with the sale, as well as the
necessary and useful expenses on the thing
sold (Art. 1601, CC);
- the right to repurchase under Art. 1601 shall
last for four years from the date of the
contract; the period cannot exceed ten years
counted from the execution of the contract;
- in the following instances, the contract is
presumed to be an equitable mortgage:
- 1. when the price of a sale with right to
repurchase is unusually inadequate;
- 2. when the vendor remains in possession
as lessee or otherwise;
- 3. when upon or after the expiration of the
right to repurchase, another instrument
extending the period of redemption or
granting a new period is executed ;
- 4. when the purchaser retains for himself a
part of the purchase price;
- 5. when the vendor binds himself to pay
the taxes on the thing sold;
- 6. where the parties intend that the
transaction shall secure the payment of a
debt or the performance of any other
obligation;
74

Persons Entitled to Exercise Redemption

- the vendor-a-retro normally exercises the


right of redemption;
- a co-owner of an undivided immovable may
independently exercise the right of
repurchase as regards his own share (Art.
1614, CC);

Proper Exercise of Conventional Redemption

- the proper exercise of the conventional right


of redemption requires a tender of payment;
a mere letter expressing that desire is not
sufficient;
- the right of redemption is correctly availed of
by returning the price of the sale;

Failure of Redemption

- if the vendor fails to redeem the property


within the prescribed period, the right is lost
and all rights pertaining to the property and
all those incidental thereto are irrevocably
consolidated in the buyer;

Legal Redemption

- it is the right to be subrogated in the place of


one who acquires a thing by purchase or
dation in payment. Or by any other
transaction whereby ownership is transmitted
by onerous title (Art. 1619, CC);

Period of and Exercise of Redemption

- the right of legal pre-emption or redemption


shall not be exercised within thirty days from
75

the notice in writing by the prospective


vendor;
- notice is indispensable; actual knowledge by
the redemptioner is not legally sufficient;
- to exercise the right, tender of payment,
unlike in conventional redemption, is not
required;
- other instances of legal redemption include
the right of redemption in the foreclosure of
mortgages, execution sales, levy of real
property for unpaid taxes and other cases
under special laws;
- the use of a check is not improper in the
exercise of the right of redemption by judicial
action;

CHAPTER 10

AGENCY

Concept

- by the contract of agency, a person (the agent)


binds himself to render some service or to do
something in representation or on behalf of
another, with the consent or authority of the
principal;

Effects of the Agency

The Agent

- the agent must act within the scope of his


authority;
- he may do such act as may be conducive to
the accomplishment of the purpose of the
agency;
76

- the agent has a fiduciary relation to his


principal; he is liable for the damages which,
through his non-performance, the principal
may suffer;
- the agent shall be liable for damages, if,
there being a conflict between his interests
and those of his principal, he should prefer
his own;
- every agent is bound to render an account of
his transactions and to deliver to the principal
whatever he may have received by virtue of
the agency;

The Principal

- the principal must advance to the agent,


should the latter request, the sums necessary
for the execution of the agency;
- the principal must also indemnify the agent
for all the damages which the execution of
the agency may have caused the latter,
without fault or negligence on his part;
Extinguishment of the Agency

Agency is extinguished:

- by its revocation;
- by the withdrawal of the agent;
- by the death, civil interdiction, insanity or
insolvency of the principal or of the agent;
- by the dissolution of the firm or association
which entrusted or accepted the agency;
- by the accomplishment of the object or
purpose of the agency;
- by the expiration of the period for which the
agency was constituted (Art. 1919, CC);

Revocation
77

- agency is premised on confidence;


- the principal may revoke the agency at will
and compel the agent to return the
documents evidencing the agency regardless
of the term of the agreement (Barretto v. Sta.
Marina); but revocation does not preclude
possibility of damages accruing against the
principal ( Valenzuela v. CA);
- revocation may be express or implied (Art.
1920, CC);
- appointment of a new agent revokes the
previous agency; a general power of attorney
is revoked by a special one; direct
management by the principal of the business
entrusted to agent revokes the agency;
- agency cannot be revoked if it is coupled with
an interest such as:
- a. when a bilateral contract depends upon
it;
- b. when it is the means of fulfilling an
obligation already contracted; or
- c. when a partner is appointed manager of
a partnership and his removal from the
management is unjustifiable;

Withdrawal of Agent

- agent may withdraw from the agency by


giving due notice to the principal;
- agent must indemnify the principal if
principal sustains any damage by reason of
the agent’s withdrawal;
- health reasons will excuse agent from
liability;

Death of Principal or Agent

- agency remains in full force and effect even


after the death of the principal, if it was
78

constituted in the common interest of both


principal and agent, or that of a third person
(Art. 1390, CC);
- any act of the agent, without knowledge of
the death of the principal or of any cause that
extinguishes the agency, is valid (Art. 1931,
CC);
- if the agent dies, the agency is extinguished,
except when it is coupled with an interest
(Paso v. Ravina);

PLEDGE, REAL ESTATE MORTGAGE AND CHATTEL


MORTGAGE

Pledge

- it is a contract which requires:


- a. that it be constituted to secure the
fulfillment of a principal obligation;
- b. that the pledgor be the absolute owner
of the thing pledged;
- c. that the person constituting the pledge
has the free disposal of the property, and in
the absence thereof, that he be legally
authorized for the purpose; and
- d. that the thing pledged be placed in the
possession of the creditor, or of a third
person by common agreement (Lopez v. CA);
- its essence is that when the principal
obligation becomes due, the thing pledged
may be alienated for the payment of the
creditor (Lopez v. CA);

Real Estate Mortgage

- it is a lien on specific or identified immovable


property; it directly and immediately subjects
the property upon which it is imposed,
79

whoever is the possessor may be, to the


fulfillment of the principal obligation;
- it creates a real right enforceable against the
whole world;
- a mortgage, whether registered or not, is
binding between the parties; registration is
necessary only to make the same valid as
against other parties (Samanilla v. Cajucom);

Chattel Mortgage

- security for the performance of obligation


effected by recording of the personal
property mortgaged in the chattel mortgage
register;
- the recording or registration is equivalent to a
symbolic delivery of the chattel to the
mortgagee and the mortgage lien follows the
chattel wherever it goes;
- recording serves as constructive notice to all
who may deal with the chattel (Northern
Motors v. Coquia);

Pactum Commissorium

- the creditor cannot appropriate without


foreclosure the things given by way of pledge
or mortgage, or dispose of them; any
stipulation to the contrary is null and void
(Art. 2088, CC);

Object

- all movables which are within commerce may


be pledged provided they are susceptible of
possession (Art. 2094; CC);
- only immovables and alienable real rights
may be the object of real estate mortgage;
80

- personal property may be the object of a


chattel mortgage; for purposes of the Chattel
Mortgage Law, growing fruits are considered
as personalty);

Effects

- pledge gives a right to the creditor to retain


the thing in his possession until the debt is
paid;
- the mortgagor in chattel and real estate
mortgages continues in the possession of the
property;

Extinguishment/Foreclosures

- a contract of real security is extinguished at


the same time as that of the principal
contract or obligation; it is extinguished upon
the foreclosure of the property by the
creditor;
- foreclosure can be effected judicially or
extrajudicially;
- in pledge, the creditor may proceed before a
Notary Public to the sale of the thing pledged;

Deficiency Judgment

- in pledge, the sale of the thing pledged shall


extinguish the principal obligation; if the price
of the sale is more than said amount, the
debtor shall not be entitled to the excess,
unless it is otherwise agreed;
- if the price of the sale is less, neither shall
the creditor be entitled to recover the
deficiency;
- in mortgage, the deficiency or excess is for
the account or credit, as the case may be, of
the debtor, except in the foreclosure of
81

chattel mortgage of property on installment


where the foreclosure disentitles the
installment seller from recovering the
deficiency;
- the loss of the property mortgaged does not
free the debtor-mortgagor from the principal
obligation;

Equity and Rights of Redemption

- in judicial foreclosure, equity of redemption


may be exercised within 90 days from the
order of foreclosure; after foreclosure, there is
no right of redemption except in foreclosures
of real property by banking institutions and in
the extrajudicial foreclosures of real property
by a mortgagee by an actual tender of
payment;
- right of redemption can be exercised within
one year from registration of the certificate of
foreclosure;
- during the redemption period, the purchaser
is entitled to the possession provided that:
- a proper motion has been filed;
- a bond is approved;
- no third person is involved;
-