Sales Crombonds Reviewer PDF

SALES
MIDTERMS REVIEWER ATTY. RAY PAOLO SANTIAGO CROMBONDS 2012-‐2013

Necessarily would require a segregation/designation at some point,
Law on Sales o
making the subject matter determinate at that point
Chapter 1: The Nature of Sale o “Determinate” emphasizes that the delivery and transfer can only be
made when the subject matter becomes specific/determinate.
Art. 1458. Elements of Contract of Sale
By the contract of sale one of the contracting parties obligates himself to transfer • Coronel vs CA
the ownership and to deliver a determinate thing, and the other to pay therefor a o Consent : meeting of the minds
price certain in money or its equivalent. o Subject matter
o Price certain
A contract of sale may be absolute or conditional. (1445a) • When all three are present, a perfected contract of sale arises
o Such validity not affected by previous fictitious deed of sale
o Neither is it affected by non-‐performance thereafter
Definition of Sale • SC has declared sales “void” when these requisites not present
Nature of Obligations Created in a Sale o CLV : The more proper term is to declare a “no contract” situation
o Dizon v. CA: Absence of requirements negates the existence of a
• Contract whereby one of the contracting parties (seller) obligates himself to… contract of sale
o Transfer the ownership • When there is a defect in any of the elements…
o Deliver the possession o Voidable, when defect is a vitiation of consent
o Of a determinate thing o Void : Art 1409
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• To the other party, the Buyer, who obligates himself

o To pay a price certain
o In money or its equivalent

• These are real obligations – obligations to give

o This means that they can be subject for actions of specific
performance.

o Art. 1480 : When what is to be delivered is a determinate thing, the
buyer may compel the seller to make the delivery, plus damages 1 The following contracts are inexistent and void from the beginning:
o Thus, one who defaults can’t insist on just paying damages
(1) Those whose cause, object or purpose is contrary to law, morals, good
Subject Matter of Sale customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
• “Determinable” is included in “determinate” when describing the subject
matter of a sale (3) Those whose cause or object did not exist at the time of the transaction;
• Article 1460 – the “determinate” requirement is satisfied when, at the time the (4) Those whose object is outside the commerce of men;
contract is entered into… (5) Those which contemplate an impossible service;
o The thing is capable of being made determinate
(6) Those where the intention of the parties relative to the principal object of the
o Without necessity of new or further agreement
contract cannot be ascertained;
• CLV: “Determinate” is also accurate because it refers to the obligation of the
(7) Those expressly prohibited or declared void by law.
seller

Sharing is a good thing! Ad Majorem Dei Gloriam 1
SALES MIDTERMS REVIEWER ATTY. RAY PAOLO SANTIAGO CROMBONDS 2012-‐2013

Stages in the Life of Sale Consensual
• Strictly speaking, only two • Sale is perfected by mere consent
• But SC has considered three o At the moment there is a meeting of the minds upon the object and
o Policitation consideration, the contract is perfected
• This is a period of time from when the parties indicate • Buenaventura v. CA
interest in entering into an agreement o Sale over subject matter is not real, but consensual
• To the time when the contract is perfected o It becomes valid and binding upon meeting of the minds as to the
o Perfection price.
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• The concurrence of the essential elements of the sale • Art 1475, Civil Code
o Consummation o Parties may reciprocally demand performance from the moment of
• From when the parties perform their respective obligations perfection.
• Culminates in extinguishment of the contract o Actual delivery/payment are not necessary components for a valid
sale to exist
Essential Characteristics of Sale • Thus, nondelivery or nonpayment does not invalidate or void
a perfected sale.
Nominate and Principal • These merely become legal basis for remedies.
• Nominate : it has been given a name by law o Fule v. CA
• Principal • Contract of Sale perfected at the moment there is a meeting
o It can stand on its own of the minds upon the thing, and upon the price
o Independent of other contracts for validity and existence • It has the force of law between the contracting parties
o Parties enter into a sale to achieve a sale • Noncompliance with formal requirements does not affect
• Not in preparation for another contract validity of contract
• This characteristic leads to the SC Doctrine : Real character of contract is o He who alleges existence of a sale must show it by competent proof
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indicated by the substance, not by the name given to it by the parties o Exception : Article 1322 of the Civil Code
• Lao v. CA
o Courts must look at the intent of the parties in order to determine the Modalities that Affect Characteristic of Consensuality
nature of a contract
o Not at the nomenclature used to describe it
o True aim and purpose can be shown by conduct, words, actions
• Cavite Dev Bank vs Lim
o Contracts not defined by parties
o But by the principles of law
• Thus, all other contracts which have for their objective… 2 The contract of sale is perfected at the moment there is a meeting of minds upon the thing
o Transfer of ownership and possession of a determinate subject which is the object of the contract and upon the price.
o For a valuable consideration From that moment, the parties may reciprocally demand performance, subject to the
o Will be governed by the law on Sales provisions of the law governing the form of contracts.
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When one of the parties is unable to read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.

• Consensual characteristic may be affected by certain modalities added by • PUP vs. CA
stipulation
o It is a requisite for a valid and enforceable sale that it is mutually
o Ex. Suspensive term or condition
obligatory
• Thus, not all contracts of sale become automatically and immediately effective
• NHA vs. Grace Baptist Church Onerous
o Even delivery and taking possession of subject matter, with consent of
the seller, does not perfect sale when meeting of minds is incomplete • Onerous : It imposes a valuable consideration.
o In this case, there was no agreement yet on final price. o Ideally, a price certain in money or its equivalent.
• Gaite v. Fonacier
o Stipulation regarding balance of the purchase price was deemed a
suspensive period rather than a condition.
Bilateral and Reciprocal o Why? Greater reciprocity obtains if we consider it to be a period.
• Bilateral : it imposes obligations on both parties o Rules of interpretation : we interpret in favor of the greater reciprocity
of interests.
o Obligation/promise of each party is the cause for the obligation of the
other. Commutative
• Reciprocal Obligations • Commutative : a thing of value is exchanged for equal value
o Ideally, the value of the subject matter is equivalent to the price paid
o Those which arise from the same cause
• No strict requirement though
o Each party is simultaneously a debtor and creditor of the other o What is required is the belief of the seller that he received something
of commutative value to what he gave.
o The performance of one is conditioned upon the simultaneous
fulfillment of the other • Gaite : obligations in a sale can be subordinated to a suspensive condition
o Thus, commutativeness is not objective, but subjective.
• Legal Effects of Sale being bilateral/reciprocal • Ex. Seller selling old car for P200,000
o Power to rescind is implied – it need not be stipulated in the contract o More objective review would say that the car is worth P500,000
for innocent party to invoke the remedy.
4 o The contract would still be a sale, as seller really believes that he’s
receing appropriate value
o Neither party incurs in delay if the other party does not comply/is not • However, subjective nature cannot be pushed to absurdity
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ready to comply. o Seller, knowing full well that his car is worth P200,000
o From the moment one of the parties fulfills, default by the other o Sells it for P100
begins, without need of prior demand.
6 o Such could be considered more of a donation
• Subjective nature supported by principle that inadequacy of price does not
affect ordinary sale
o Not a sufficient ground for cancelling a voluntary contract of sale

Sale is Title and Not Mode
4 Art 1191, NCC.
5 Art 1168. • Perfection of sale gives rise to obligations and rights
6 Arts. 1168 and 1191.

o Obligation of seller to deliver possession and ownership, right of buyer o Also requires formalities mandated by law in order to be valid
to receive such • When is it important to know the distinction? – when the consideration for the
• However, delivery or tradition is the mode that transfers ownership and transfer is not clear
possession. • Manongsong v. Estimo
• Sale is merely a title that creates obligation – on its own, sale does not transfer o Valid sale cannot have legal effect of depriving compulsory heirs of
the ownership as a mode. their legitimes
• Sale perfected by consent – but ownership passes only upon delivery o Valid sale dos not diminish the estate of the seller
• Acap v. CA • Because there is substitution of value
o Real right over a thing arising from a juridical act is not sufficient to • Commutative aspect
give rise to ownership • When price of sale is simulated, the sale is void, but the act may be shown to
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o Such right must be completed – in the case of sale, by actually be a donation or some other act.
acquiring the thing o Contract may be in the form of a “sale” but will end up being governed
• Mode – legal means by which ownership is created, transferred, or destroyed by some other provisions of law.
o Succession • On the other hand, a supposed donation may actually have different
o Donation considerations rather than liberality
o Discovery o Burdens placed upon the donee
• Title – constitutes the legal basis by which to affect ownership. o In that case, it becomes important to determine what the applicable
• To reiterate : Sale does not by itself transfer or affect ownership – it merely rule is (Law on Sales vs. Law on Donation)
creates the obligation to transfer ownership • Art 726 of the Civil Code
o Even if a burden is imposed on donee, it is still a donation when such
burden is less than the value of the thing given.
Sale Distinguinshed from Other Similar Contracts • Legal implication – when the burden is more valuable than the thing given, it is
• Underlying principle : intent of parties and elements of relationship are more an “onerous donation”
important than the nomenclature used to describe a certain contract o Maybe a barter or a sale.
• We look at the true aim and purpose of the contracting parties.
From Barter
From Donation • Barter : One of the parties binds himself to give one thing in consideration for
the other’s promise to give another thing
• Donation : act of liberality whereby a person disposes gratuitously of a thing or
7 • Sale : One of the parties binds himself to deliver a thing in consideration of the
right in favor of another person, who accepts it.
other’s undertaking to pay the price in money or its equivalent.
• Sale is essentially onerous, while donation is gratuitous. 9
• Rules to Differentiate Sale from Barter
• Sale is perfected by consent, donation is a solemn contract
o Requires consent

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Art 1471, NCC
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Art. 725, NCC Art. 1468, NCC

o Manifest Intention of the Parties Contractor binds himself to execute a piece of work for the employer,
o
• Even if acquisition of a thing is paid for by another object in consideration of a certain price or compensation
that’s worth more than the money component o Contractor may either employ only his labor or skill, or also furnish the
• It may still be a sale if such was the intention of the parties. material
o When Intention Does Not Appear and Consideration Consists Partly in • Statutory Rules to Distinguish Sale from a Piece of Work contract
Money and Partly in Another Thing o Inchausti v. Cromwell (1911)
• It is barter when value of the thing given as part of the • Issue : w/n seller could be held liable for sales tax on the price
consideration exceeds the amount of money given it received from bailing hemp sold to customers
• It is sale when the value of the thing given as part of • They contended that the charge for bailing should not be
consideration equals or is less than the amount of money considered as part of the sale, but as a charge for the service
given. rendered (i.e., for that piece of work)
• Actually, these distinctions are merely academic o Inchausti:
o Aside from two separate rules applicable to barter, Art 1641 say that • Distinction between sale and contract for piece of work is
barter is governed by the Law on Sales tested by the inquiry of whether the thing transferred is one
o What are the two separate rules? not in existence and which never would have existed but for
• Article 1639 the order of the party
• If one of the contracting parties, having received the • Or, a thing which would have existed and been the object of a
thing promised him in barter, should prove that it sale to some other person, even if the order was not made
did not belong to the person who gave it, he cannot o Later, the Civil Code gave statutory rules in Article 1467 – two tests
be compelled to deliver that which he offered in • Manufacturing in the ordinary course of business – sales
exchange, but he shall be entitled to damages contracts
• Article 1640 • Manufacturing upon special order for customers – piece of
• One who loses by eviction the thing received in work
barter may recover that which he gave in exchange • “Upon special order” – based on the ability of producer to
with a right to damages, or he may only demand an manufacture the goods without waiting for specific orders
indemnity for damages. However, he can only make o Celestino Co v. Collector of Internal Revenue
use of the right to recover the thing which he has • Company used to pay sales tax on its products as a
delivered while the same remains in the possession manufatcturer-‐seller
of the other party, and without prejudice to the • They began claiming that they should only be assessed a
rights acquired in good faith in the meantime by a contractor’s tax
third person. • Because they manufactured their products only
• Two instances where difference is critical upon special customers’ special orders, in
o Statute of Frauds does not apply to barter. accordance with specifications
o Right of legal redemption granted by law to an adjoining owner of an • Thus making their services a piece-‐of-‐work contract
urban land does not cover exchanges of properties. • Court held that company can’t claim the contractor’s tax –
they were sellers
• They habitually made the products
From Contract for a Piece-‐of-‐Work
• Piece of Work Contract


• That they made products only upon order did not • Could be subject of action for specific performance
alter than ture of the establishment – they would o Piece of work – subject matter is service rendered
manufacture the products as they always had • Thus it is an obligation to do
• Nature of the products – any builder could order • Cannot be subject to specific performance
such products. Thus they did not serve special o PoW not governed by Statute of Frauds
customers only.
• Essence of contract of piece of work – “sale of service”
• Company must accept a job which requires use of services From Agency to Sell or Agency to Buy
not generally performed by it
• The test, in this case, is not one of timing • Agency : a person binds himself to render some service or to do something in
• Rather, it is done by determining the nature of the representation or on behalf of the principal, with the consent or authority of
work to be performed and the products to be made. the latter.
• The products must not be ordinary products of the • Agency establishes a representative capacity in the agent
manufacturer o Highly fiduciary
• They would require special skills or equipment o Involves obligations to do
o CIR v. Eng’ng Equipment and Supply Company • Distinguishing Sale from Agency
• EEI was engaged in design and installation of aircon systems o Sale is not unilaterally revocable
• SC held that it was a contractor § Contract of agency – essentially revocable by principal
• “If the article ordered by purchaser is exactly such as [vendor] o Sale : buyer himself pays for the subject, which is his main obligation
makes and keeps on hand for sale to anyone, and no change § Agency – agent not obliged to pay the price, merely obliged
is made at defendant’s request, it is a contract of sale.” to deliver price which he may receive from buyer
• EEI undertook negotiations and execution of individual o Sale – Buyer becomes owner of subject matter after delivery
contracts – each contract job was different, no two were § Agency – agent never becomes owner
identical. o Sale – Seller warrants
§ Agency – agent assumes no personal liability as long as he
• Test : whether the manufacturer could produce the product
acts within authority and in name of principal.
ahead of any special order
o Agency is a fiduciary relationship
• What is the test to follow? CLV mentions the “main theme” in SC decisions
§ Agent disqualified from receiving personal profit
o Main distinguishing factor – essence of why parties enter into the 10
• Statutory Rule – Art. 1466 -‐-‐ importance of “essential clauses”
contract
o Quiroga v. Parsons, Puyat v. Arco Amusement : SC determined that the
o If essence is the object, the contract is sale
contract was one of sale and not agency
o If the essence is the…
• Service
• Knowledge
• Reputation
o Of the manufacturer, it is for a piece of work
• Essentially sale of services/labor
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• Practical needs for being able to distinguish In construing a contract containing provisions characteristic of both the contract of sale
o Tax Provisions and of the contract of agency to sell, the essential clauses of the whole instrument shall be
o Sale – real obligation considered.


§ The essential clause provided for a transfer of ownership
upon payment – precisely the essential features of a sale. Chapter 2: Parties of Sale
o Ker & Co. v. Lingad – ownership of goods was never transferred to
possession of the dealer General Rule on Capacity of Parties
§ Thus, not a sale
o Victorias Milling Co v. CA – distinguishing factor of agency ifs that of Art. 1489.
control
§ One person acts under the control of another. All persons who are authorized in this Code to obligate themselves, may enter into
• Value for being able to distinguish a contract of sale, saving the modifications contained in the following articles.
o Contract of Agency is valid and enforceable in any form – not under
the SoF. Where necessaries are those sold and delivered to a minor or other person without
o Exception : authority to sell land must be in writing. capacity to act, he must pay a reasonable price therefor. Necessaries are those
referred to in Article 290. (1457a)

• General Rule : any person who has capacity to act, or the power to do acts
From Dacion en Pago
with legal effects, or with the power to obligate himself may enter into a
• Dacion : property is alienated to creditor in full satisfaction of a debt in money contract of sale.
o Governed by law on sales (express provision of law)
• Natural Persons : age of majority begins at 18 years – they have capacity to
o Objective novation takes place
§ Thing offered as accepted equivalent of performance act from this point
§ Considered as object of sale – debt is the purchase price • Juridical Persons – a juridical personality distinct from the members or
• Dacion : exists in the stage of consummation partners
o A special mode of payment o Expressly recognized by law
• Requisites for Dacion o They have full juridical capacity
o Performance of the prestation in lieu of payment
o Difference between prestation due and that given in substitution Minors, Insane or Demented Persons, Deaf-‐Mutes
o Agreement that the obligation is extinguished.
• Similar to sale – creditor “buys” the thing, payment of which is charged to the • GR: Minors, insane or demented persons, deaf-‐mutes who cannot write
debtor’s debt. have no legal capacity to contract and thus cannot be parties to a sale.
• However, contracts entered into by these people are not void, but

voidable
From Lease o Subject to annulment
o Subject to ratification
• Lease : lessor binds himself to give to another the enjoyment or use of a thing
for a price certain, for a period which may be definite or indefinite. • Person who is capacitated cannot institute the action for annulment based
• “Lease with option to buy” is a conditional sale. (lease only in name) on incapacity.
• When rentals in a lease are meant to be installment payments – it is a sale by • When entered into during a lucid interval – valid
installments. • When in a state of drunkenness, under hypnotic spell – voidable.
• Incapacitated person is not obliged to make restitution


o Except insofar as he has been benefitted by the thing/price Senility and Serious Illness
Necessaries • Domingo vs. CA
o Main issue : did proponents establish existence and due execution
• This is an exception to a general rule regarding minors
of a deed of sale
o Since they cannot give consent, there can be no valid sale
o Only evidence – signature of the seller was a thumb mark made
o Thus, the sale is voidable
while sick
• However, where necessaries are sold and delivered to a minor or
11 o SC ruled that the sale was void ab initio
incapacitated person, he must pay a reasonable price therefore.
• Consideration was inadequate
o The sale here is valid.
• Alleged seller was incapacitated both physically and
• Necessaries are defined in Art. 194 of the Family Code
mentally
o Everything indispensable for sustenance
o When age or infirmities have impaired mental faculties,
o Dwelling
preventing person from properly understanding the rights, she is
o Clothing
incapacitated
o Medical Attendance
o Thus there was reason to doubt the seller’s consent to the sale of
o Education and transportation
the land.
o In keeping with the financial capacity of the family
• CLV : the essence of the ruling declaring the sale void was that there was
• Since sales can only be obligations to deliver a thing
never any meeting of the minds, and no real consideration
o Necessaries under this article may only cover sales pertaining to
o This was caused by the incapacity
sustenance, dwelling, clothing
• Paragas Doctrine
o Perhaps medicine and educational materials.
o Sale executed by senile person declared void, and not voidable
• Requisites for sale of necessaries to minors to be valid
o SC used Art 24 of NCC
o Perfection of sale
• Protection of one with mental weakness
o Delivery of subject necessaries
o CLV : this seems illogical
Emancipation o CLV prefers the annulment of contract by reason of vitiated
• RA 6809 has lowered age of majority to 18 years old consent
• Thus, issue on validity of sales entered into by emancipated minors no • In other words, CLV seems to prefer having such sales declared voidable
longer exists. (Paragas) or declaring sale void because of no meeting of the minds
(Domingo)

Sales By and Between Spouses
Art. 1490.
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Art 1489, NCC – “Where necessaries are those sold and delivered to a minor or other The husband and the wife cannot sell property to each other, except:
person without capacity to act, he must pay a reasonable price therefor. Necessaries are
those referred to in Article 290.”

(1) When a separation of property was agreed upon in the marriage settlements; or • In such case : transaction considered as a
continuing offer on the part of the consenting
(2) When there has been a judicial separation or property under Article 191. spouse and the third person
(1458a) • May be perfected as a binding contract (before
withdrawal by either party)
Sale with Third Parties o Upon acceptance of other spouse
• Before Family Code – there were limitations on when husband or wife o Or upon authorization by court
could deal with conjugal property o Guiang v. CA
• Present Family Code • Sale by husband of conjugal property without consent of
o Common provisions apply equally to both spouses wife – void (there was no full consent)
o Spouses have joint administration of the conjugal properties in o Abalos v. Macatangay Jr
CPG • Sale of husband of conjugal property without consent of
o In ACP, everything is co-‐owned capacatitated wife was void ab initio
• Art 73 of the FC • Exception : husband may dispose of conjugal property
o Either spouse may exercise … business without the consent of the without consent of wife when sale is necessary to answer
other, and latter may only object on valid, serious and moral for conjugal liabilities in Arts 161-‐162 of NCC.
grounds.
Sale Between Spouses
o Courts shall decide whether the objection is proper
o If benefits accrued before objection, obligation enforced against • Art 1490, NCC – Spouses cannot sell property to each other, except :
separate property o Separation of property was agreed upon in marriage settlement
o Otherwise, chargeable against the community property o Judicial Decree for separation of property
• Under Law on Sales • Art 1492 – Prohibition relating to spouses selling to one another applicable
o Spouse may enter into sales in regular or normal pursuit of his or to sales in
her profession, without consent o Redemption
o However – Arts. 96 and 124 of FC o Compromise
• Administration of conjugal property will belong to both o Renunciation
jointly
• In case of disagreement – husband’s decision will prevail, a. Status of Prohibited Sales between Spouses
subject to wife seeking remedy within 5 years • Contracts entered into in violation of the above two provisions are void
• Disposition/encumbrance of property shall be void • Not everyone may assail validity, though
without authority of court or written consent of other o Spouses themselves cannot – they are in pari delicto.
spouse o Creditors who became such after transaction cannot – they have
not been prejudiced
• Who can assail?
o Heirs of either spouse, who have been prejudiced

o Prior creditors • CLV’s final word – absolute prohibition under Art 87 of the FC should apply
o State – payment of taxes due on transactions. to sales between spouses.
b. Rationale for Prohibition
• Medina v. CIR
Applicability of Incapacity to Common Law Spouses
o Prevent a spouse defrauding his creditors by transferring his • Matabuena v. Cervantes
properties to the other spouse o Whether ban on donations applies to common-‐law spouses
o Avoid situation where dominant spouse unduly takes advantage • (This is moot now, Art 87 of FC also bans donations
of the weaker spouse, defrauding the latter between people living as husband and wife without
o Avoid indirect violation of prohibitions against donation between marriage)
spouses (Art 133) o SC held that the donation was void – reasons of policy.
• Art 133 now replaced by Art 87 of the FC – prohibition • Every reason to apply same prohibitive policy to
also applies to persons living together as husband and common-‐law spouses
wife without a valid marriage. • Evils sought to be avoided are still present
• Art 86 does not make the same exceptions for donations that Art 1490 • Calimlim-‐Canullas v. Fortun
does for sales o Court applied the same ruling in Matabuena to sales
o Thus, even if there is judicial separation of property, they still o Sales between common law spouses are void
can’t donate to each other. • Art 1409 – such are contrary to morals and public policy
o Explanation : donation necessarily reduces estate of donor – sale • Art 1352 – void for having unlawful cause
would result in both estates being of the same value • Art 1490 – prohibits sales between spouses
o SC : otherwise, those who “incurred guilt” (thus living w/o benefit
c. Rationale for Exceptions to Prohibition under Art. 1490 of marriage) would be in a better position that those who were
• It would seem that the situations in the exceptions are also susceptible to legally married.
the evils sought to be avoided.
o Greater danger of undue influence in separation of property Specific Incapacity Mandated by Law
o One spouse can still exercise undue influence or pressure on the
Art. 1491.
other one.
o Also, exceptions allow the circumvention of the prohibition The following persons cannot acquire by purchase, even at a public or judicial
against donations between spouses. auction, either in person or through the mediation of another:
• CLV : key element to exceptions lies in the psychology of the situation
o Hardness of heart on the part of the spouses (1) The guardian, the property of the person or persons who may be under his
guardianship;
o Businesslike approach to the relationship
o Thus, it would be unlikely for one spouse to influence the other.
(2) Agents, the property whose administration or sale may have been entrusted to
o This still doesn’t cover situations where dominant spouses could them, unless the consent of the principal has been given;
influence the other, weaker spouses
(3) Executors and administrators, the property of the estate under administration;

(4) Public officers and employees, the property of the State or of any subdivision o Justices, judges, prosecuting attorneys, clerks of courts, and
thereof, or of any government-‐owned or controlled corporation, or institution, the other officers and employees connected with the administration
administration of which has been intrusted to them; this provision shall apply to of justice, with respect to property and rights in litigation or levied
judges and government experts who, in any manner whatsoever, take part in the upon an execution before the court within whose jurisdiction or
sale; territory they exercise their respective functions
o Lawyers, with respect to property and rights which may be the
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts,
and other officers and employees connected with the administration of justice, the object of any litigation in which they may take part by virtue of
property and rights in litigation or levied upon an execution before the court within their profession.
whose jurisdiction or territory they exercise their respective functions; this • These incapacities are applied also to sales in redemption, compromise
prohibition includes the act of acquiring by assignment and shall apply to lawyers, and renunciation
with respect to the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession. Legal Status of Contracts Entered Into in Violation of Articles 1491
and 1942
(6) Any others specially disqualified by law. (1459a)
• Apart from case of agents, all cases in the enumeration cannot be
Art. 1492. validated by the consent of the persons sought to be protected
o Only in the “agents” part is “consent of principals” given as an
The prohibitions in the two preceding articles are applicable to sales in legal exception.
redemption, compromises and renunciations. (n) • It is not expressly stated that such contracts are void.
o Wolfson v. Estate of Martinez classified them as merely voidable.
• Art 1491 of the CC prohibits the following persons from entering into • Rubias v. Batiller – Court said that they must be void, not merely voidable
contracts of sale: (AGEP-‐JL) o Civil Code recognizes the nullity of contracts which are expressly
o Agents, with respect to property whose administration or sale prohibited or declared void by law and declares such inexistent
may have been entrusted to him, unless consent of principal has and void from the beginning.
been given. o Violation of such provision cannot be cured by ratification
o Guardians, with respect to property of person under his a. Different form of “ratification”
guardianship
• Rubias tries to declare a difference in the “voidness” of guardians, agents,
o Executor or administrator, with respect to property of estate administrators, as opposed to judges, judicial officers and lawyers.
under his administration
o Permanent disqualification of public and judicial officers and
o Public officers and employees, with respect to property of the lawyers is grounded on public policy.
State or any subdivision thereof
o First three may be “ratified” by means of and in “the form of a
• Or of any GOCC or institution new contract”
• Administration of which has been entrusted to them • In which case the validity will be determined as of the
• Provision includes judges and government experts who time of the execution of the new contract
take part in the sale. • Thus, the contract may be lawful when at the time of the
second contract, the legal impediments no longer exist

• In the first group (agents, guardians, administrators) o To allow exceptions based on “benefit” is to court abuse of such
o After the inhibition has ceased, only real wrong is a private one doctrine.
o A wrong that such private parties may choose to condone • Are hereditary rights included in the coverage?
• Second group o Earlier ruling : Naval v . Enriquez held that hereditary rights aren’t
o There also exists a public wrong included in the prohibition insofar as the administrator or
o Damage to the public service executor of the estate of the deceased.
o Damage to esteem with which we regard our justice system o CLV : This is hard to accept – hereditary rights gain their value
only from the estate
Agents • The estate is what is within fiduciary control of the
• Brokers do not come within this prohibition administrator
o Their authority is merely looking for a buyer/seller • If they were not included, administrator could validly
o To bring them together for them to consummate transaction acquire hereditary rights – putting him in a conflict of
• Schmid & Oberly v. RJL Martinez Fishing Corp interest situation.
o Broker : one who is engaged, for others, on a commission, • Thus, the prohibition must apply based on the spirit of
negotiating contracts relative to property with the custody of the law.
which he has no concern.
o Strictly a middleman. Judges, Justices and Those Involved in Administration of Justice
o His occupation is to bring parties together to bargain. • Gan Tingo v. Pabinguit
o As to judges, it is not required that some contest or litigation over
Guardians, Administrators and Executors
the property itself should have been tried by the judge.
• These are necessarily officers of the courts – they are appointed to such o The property is in litigation from the moment it becomes subject
positions in judicial proceedings to the judicial action of the judge
• Phil Trust Co. v. Roldan • Macariola v. Asuncion
o Guardian filed a motion for authority to sell parcels of land o Doctrine of “prohibition applicable only during period of
belonging to the ward (to invest in a house for the ward) litigation” also applies to judges.
o Guardian sold parcels of land in favor of her brother in law, who o In that case, judge acquired pieces of land which had been part of
immediately resold the parcels to the guardian a partition case decided by him
o SC here overturned an earlier doctrine which required proof that o SC held that prohibition was only applicable to property actually
the third party was a mere intermediary under litigation – and such acquisition must take place “during the
• Even without such proof, the sale may be rescinded. pendency” of the litigation
o Guardianship is a trust of the highest order – the sales were
declared void
Attorneys
• CLV : Any matter relating to advantage or benefit is irrelevant under Article • Valencia v. Cabanting – reason for the prohibition is the fiduciary
1491. relationship
o The article imposes absolute disqualification.


o Intended to curtail any undue influence of the lawyer upon his o Law on Sales : “catch-‐all” provision for all onerous contracts for
client. transfer of ownership.
• Rubias v. Batiller – nullity of such contracts is definite and permanent
o Cannot be cured by ratification or compromise.
• Araneta Inc v. Tuason de Paterno – prohibition applies only when property
they are buying is actually the subject of litigation
o It does not apply to a sale who were not the owners’ attorneys in
the case.
• Del Rosario v. Millado – prohibition does not apply when lawyer acquired
property prior to his involvement in a case concerning such.
• Municipal Council of Iloilo v. Evangelista – prohibition applies only to
lawyer who actually represented a client in a suit involving that property.
• Prohibition only apples when litigation is pending
o Even if case is on appeal, after final judgment.
Contingent Fee Agreements

• Recto v. Harden – prohibition does not apply to a contingent fee
agreement
o Fee based on value of property involved
o Lawyer can acquire a certain percentage of the value of the
properties, if his client wins.
• Vda. De Laig v. CA – such agreement not prohibited because payment is
not made during pendency of litigation
• Director of Lands v. Ababa – contingent fee always subject to supervision
of courts
o Court may protect the client from any undue influence or fraud.
• Fabillo v. IAC – lawyer still must not exert undue influence.
• CLV : Ababa and Fabilio sort of miss the point
o They exclude contingent fee agreements from prohibition
because of the timing
• Fees are paid after pendency of litigation
o However, the agreement is negotiated during the pendency of
litigation – at a point where the lawyer may still exert undue
influence
• Also – contingency fee agreement is essentially a contract for service – why
is it in the Law on Sales?


• Absence of any requisite results in either a “no contract” situation, or a
Chapter 3: Subject Matter void contract under Art. 1409.
• Effect of “no contract” situation – buyer can recover what he has paid,
Requisites of Valid Subject Matter based on the principle of unjust enrichment
• Effects of void contracts:
Art. 1459 1. If void because the illegality constitutes a criminal offense – pari
delicto will apply; courts leave the parties where they are, without
The thing must be licit and the vendor must have a right to transfer the ownership
prejudice to criminal prosecution
thereof at the time it is delivered. (n)
2. If no crime, but both are at fault – neither may recover
Art. 1460 3. If no crime, and only one party is at fault – innocent party may
recover
A thing is determinate when it is particularly designated or physically segregated • The requisites of the subject matter are meant to safeguard the
from all others of the same class. realizability and enforceability of the obligations of the seller to transfer
The requisite that a thing be determinate is satisfied if at the time the contract is ownership and deliver possession.
entered into, the thing is capable of being made determinate without the necessity
of a new or further agreement between the parties. (n) Subject Matter Must be a “Possible Thing”
Art. 1461 A thing is possible when it is: (PEFR)
Things having a potential existence may be the object of the contract of sale. • Exisiting (Art. 1462)
• Has a potential to exist, considering the state of science and technology at
The efficacy of the sale of a mere hope or expectancy is deemed subject to the
the time of perfection of the contract (Art. 1461)
condition that the thing will come into existence
• A future thing (Art. 1462)
The sale of a vain hope or expectancy is void. (n) • Contingent or subject to a resolutory condition (Art. 1462 & Art. 1465)
Art. 1462 Implications of the definition of “possible thing”
The goods which form the subject of a contract of sale may be either existing goods, • A literal application of Art. 1409(3) which holds that contracts “whose
owned or possessed by the seller, or goods to be manufactured, raised, or acquired cause or object did not exist at the time of the transaction” are deemed
by the seller after the perfection of the contract of sale, in this Title called “future inexistent and void ab initio does not apply in contracts of sale involving
goods.” possible things.
• But if the subject matter cannot come to existence (i.e. an impossible
There may be a contract of sale of goods, whoose acquisition by the seller depends
thing), the contract is void because of Art. 1409(3).
upon a contingency which may or may not happen. (n)
• The sale of goods yet to be manufactured, raised, or acquired by the seller
is valid, provided that they can come into existence.
• For things whose existence depends on a condition, capacity to exist is
Requisites of a valid subject matter: (PLD) sufficient. Certainty to exist is not necessary.
• It must be a possible thing Emptio Rei Speratae
• It must be licit
• It must be determinate or at least determinable • A contract of sale covering future things, and subject to a suspensive
condition that the subject matter will come into existence.
Effect of absence of any requisite • Literally means “the purchase of what we hope”

• If the thing does not come into existence, contract is deemed extinguished. property to Polytechnic University of the Philippines (PUP). Memorandum Order
• Covers only determinate or specific things. Generic or determinable things No. 214, issued by Pres. Cory Aquino, ordered the conveyance of the property to
are not covered since they do not come out of existence. PUP. It also cancelled the debt of NDC to the National Government.
• Crops which are yet to be harvested and have a potential existence may be Issue: Was there a contract of sale between NDC and PUP?
the valid subject matter of sale. They are considered distinct from the land
on which they grow. Sibal v. Valdez (50 Phil. 512); Pichel v. Alonzo (111 Held: Yes, there was a contract of sale in violation of Firestone’s right of first
SCRA 34) refusal. The provisions on sale are “catch-‐all” provisions which covers transfers
whereby ownership of a thing is ceded for a consideration. The cancellation of
Emptio Spei NDC’s debt was the consideration for the sale. Since the NDC, PUP, and the national
• Literally means “the purchase of hope” government are distinct from each other, the transfer was not a transfer within the
• Still a valid sale. What is prohibited by the Civil Code is the sale of a vain same entity, and was thus a conveyance of title.
hope or expectancy (Art. 1461)
• Example: sale of sweepstakes ticket. The object of the sale is the chance to
win. Subject Matter Must Be Licit
• A sale emptio spei is a possible situation where the commutative nature of
sale is not complied with. The buyer can actually get more than what he Sales Declared Illegal by Law
paid for. • Things outside the commerce of man
Sale of Things Subject to a Resolutory Condition • Animals suffering from contagious disease, rendering them unfit for use or
service they are intended for
• If the thing is extinguished by the resolutory condition, the contract of sale • Sale of future inheritance
is itself extinguished.
• Those declared void by special laws:
o The parties should return to each other what they have received,
o Narcotics, gunpowder, explosives, firearms and ammunictions.
thus preserving the commutative nature of sale.
o Wild animals and rare, wild or poisonous plants or fruits
o The fruits and interests of the things received need not be
o Sale of friar land without consent of Secretary of Agriculture
returned since they are deemed to have been mutually
• Sale of land to a foreigner is void because it is contrary to the Constitution.
compensated (Art. 1187).
Frenzel v. Catito (406 SCRA 55)
• The suspensive or resolutory condition does not affect the commutative
nature of sale. It is presumed that the parties considered these in the
Subject Matter Must Be Determinate or at Least Determinable
determination of the price or consideration for the sale.
Determinate Subject Matter
Subject Matter is Nexus of Sale
• A thing is determinate or specific when it is
• The essence of a contract of sale is the meeting of the minds with respect
to the subject matter. o Particularly designated, or
• The provisions on sale are “catch-‐all” provisions which covers transfers o Physically segregated from others of the same class.
whereby ownership of a thing is ceded for a consideration. Polytechnic • Defense of force majeure is applicable to release the seller from the
University v. CA (368 SCRA 691) consequences of failure to deliver
Polytechnic University v. CA Determinable Subject Matter
Facts: NDC owned a 10-‐hectare property which was leased by Firestone Ceramics
• 2 requisites/tests:
with a right of first refusal. Near the end of the lease term, NDC looked to sell the

o “capacity to segregate” test – at perfection, subject matter is an action seeking possession of lot 535-‐A.
capable of being made determinate Issue: What was the real subject matter of the deed of sale?
o “no further agreement” test – without necessity of a new or
Held: The SC held that the brothers intended to convey lot 535-‐A. The error in the
further agreement between the parties
deed of sale did not invalidate the transfer. It was just a mistake which did not
• A determinable subject matter is a generic object because it has not been vitiate consent. Thus, the contract of sale, as evidenced by the deed of sale, is valid.
physically segregated nor particularly designated at the point of perfection
from the rest of its kind.
• If the court still has to go back to the parties to determine their intended Quantity is Essential in the Validity of the Contract of Sale
subject matter, the sale is void because of Art. 1409(6).
• General Rule: Quantity is essential
Melliza v. City of Iloilo o It goes into the determinability of the subject matter.
Facts: Juliana Melliza sold parts of Lot No. 1214 to Iloilo City. The lots mentioned o It also goes into the price or consideration in the contract. (i.e. the
were 1214-‐C, 1214-‐D, and the area “needed for the construction of the sity hall site, total amount to be paid is determined by the quantity to be
avenues and parks according to the Arellano Plan.” The rights to the property were bought)
eventually transferred to Pio Sian Melliza. The TCT issued to him contained the o With a specific quantity, the obligation to deliver an object
annotation that lots 1214-‐B-‐2 and 1214-‐B-‐3 also belonged to City of Iloilo. becomes realizable, enforceable and demandable.
Issue: Whether or not lot 1214-‐B did belong to the City of Iloilo. • Exception: When a maximum quota/quantity is agreed upon. It is still
Held: Yes, it did. It was part of the subject matter of the deed of sale between possible to determine the quantity without the need of a new contract.
Juliana Melliza and the city. The requirement that a sale must have a determinate National Grains Authority v. IAC (171 SCRA 131)
object is fulfilled as long as, at the time of perfection of the contract, the object is
Generic Non-‐Determinable Objects
capable of being determined without further agreement. In this case, the Arellano
Plan already specified the lands which were neede for the city hall site. • Refers to fungible things (e.g. sugar, rice, oil, etc.)
• Sale of fungible things is valid if it can be made determinate at the time of
delivery.
Test of Determinability Is the Meeting of Minds of Parties and Not the Covering
• Fungible/generic things are never lost. Therefore, the obligation to deliver
Deed
is not extinguished by loss.
• The true contract of sale is intangible and is a legal concept. It is perfected
Yu Tek & Co. v. Gonzales
by the meeting of the minds.
• The Deed of Sale is merely an evidence of the contract. If it does not reflect Facts: The two parties entered into a contract where Gonzales bound himself to
deliver 600 piculs of first class sugar to YTC, without designating a particular source.
the true meeting of the minds, it may be subject to reformation. It does
Gonzales failed to deliver. YTC brought suit.
not invalidate the contract.
Issue: Whether or not force majeure is a valid defense for Gonzales.
Atilano v. Atilano
Held: No. Sugar is a fungible and generic object which is never lost. As long as the
Facts: Eulogio Atilano executed a deed of sale in favor of his brother which object is not made determinate, the thing is not lost, and the seller is still bound to
supposedly covered lot 535-‐E. It was later on discovered that what was actually deliver.
occupied was lot 535-‐A, while Eulogio was occupying lot 535-‐E. Eulogio’s heirs filed


is the whole mass itself, as a determinate object. The sale is valid. Gaite v.
Fonacier (2 SCRA 831)
If the subject matter is neither determinate or determinable, the contract is VOID
• Void by virtue of Art. 1409(6) of the Civil Code which declares inexistent Seller’s Obligation to Transfer Ownership Required at Time of
“those [contracts] where the intention of the parties relative to the Delivery
principal object of the contract cannot be ascertained.” Ownership is only required at time of delivery (consummation stage)
Art. 1463 • General Rule: Ownership is required only upon delivery. It is not required
The sole owner of a thing may sell an undivided interest therein. at the perfection of the contract, provided, that the seller will be able to
transmit ownership at the time of consummation of the contract.
Art. 1464
o Exception: In judicial sale, the forced seller who is actually the
In the case of fungible goods, there may be a sale of an undivided share of a specific mortgagor in default, is the owner because only the absolute
mass, though the seller purports to sell and the buyer to buy a definite number, owner of the thing can mortgage it.
weight or measure of the goods in the mass, and though the number, weight or
• If a buyer sells something and delivers it to the buyer without owning it,
measure of the goods in the mass is undetermined. By such a sale the buyer
the contract of sale remains valid but the buyer has no better title to the
becomes owner in commmon of such a share of the mass as the number, weight or
measure bought bears to the number, weight or measure of the mass. If the mass goods than the seller.
contains less than the number, weight or measure bought, the buyer becomes the o However, if the seller thereafter acquires title to the thing sold
owner of the whole mass and the seller is bound to make good the deficiency from and delivered, such title passes to the buyer by operation of law.
the goods of the same kind and quality, unless a contrary intent appears. (Art. 1434)
Instances where a sale will give rise to a co-‐ownership: • If the owner does not reveal that he is not the owner of the thing at the
time of perfection, the contract of sale cannot be declared null and void.
1. Sale of an undivided interest (Art. 1463) Hilltop v. Villacorta (13 CAR 113)
• Co-‐ownership will be proportional to the percentage of the undivided • The sale of copra for future delivery does not make the seller liable for
interest with respect to the whole. estafa for failing to deliver because the contract is still valid and there is
2. Sale of an undivided share in a mass of fungible things (Art. 1464) only a civil obligation. Esguerra v. People (108 Phil. 1078)
• The buyer will be a co-‐owner to the extent of the definite number, • Sale of a lot by a seller who is yet to acquire full ownership from a
weight, or measure actually bought. government agency was still valid since it involved the sale of a future
• If what was actually bought is greater than the amount available, the thing. Mananzala v. CA (286 SCRA 722)
buyer will become owner of the whole and the seller is bound to
supply the deficiency.
• If the sale covers a specific mass as a subject matter, without any
provisions as to the measuring or weighing of the subject sold, and the
price was not based on such measurement, the subject matter of the sale


• Intent can be determined by the overt acts of the parties.
Chapter 4: Price and Other Consideration • The pari delicto rule will apply in the following instances of simulated sales:
o Both parties are in bad faith
Meaning of “Price” o There is illegal consideration
o The purpose of the simulation is illegal
• Price – sum stipulated as the equivalent of the thing sold and also every
Mapalo v. Mapalo
incident taken into consideration for the fixing of the price
• The ideal consideration for a contract of sale would be “price” as a “sum Facts: Miguel Mapalo and his wife decided to donate the eastern part of their
certain in money or its equivalent.” property to Maximo Mapalo. Maximo Mapalo then made them sign a Deed of Sale
for the entire property, for the consideration of P500. He told them that it was a
o But a sale can have other valuable considerations, not necessarily
Deed of Donation. Maximo then sold the entire property to Narciso.
money. The essence of sale is the transfer of ownership for some
valuable consideration. Polytechnic University of the Philippines v. Held: With respect to the eastern portion, the consideration was the pure liberality
CA (368 SCRA 691) of the Mapalo spouses. The western portion, on the other hand, had no
consideration pertaining to it. The P500 was a simulated price. Thus, the western
• Once agreed upon, the seller cannot unilaterally increase the price. Neither
portion was reconveyed to plaintiff spouses Mapalo.
can the buyer unilaterally withdraw from the sale because of the price.

Requsites of a Valid Price Rongavilla v. CA
The price must be: Facts: Dolores Rongavilla lent P2,000 to her aunts for the repair of their house.
Rongavilla then tricked her aunts into signing a deed of sale. She told them that it
1. Real was just a document showing their indebtedness.
2. In Money or its Equivalent
Held: The deed of sale is void ab initio for having no consideration. The P2000 given
3. It must be Certain or Ascertainable
which was exchanged was not for the sale of the property, but for the purposes of
repairs to the house.
Price Must be Real

When Price is Real
When Price is False
• At the time of perfection, there is legal intention to pay on the part of the
buyer, and legal expectation on the part of the seller to receive the price. • “False price” – there is a real price agreed upon but not declared, and what
is stated in the deed of sale is not the one intended to be paid
When Price is Simulated • The sale itself is valid, but the instrument embodying it is subject to
• It is simulated when neither party had any intention that the amount will reformation.
be paid. • A false price is a form of relative simulation of contract.
• The sale if void • However, the parties may be bound by estoppel to follow the price in the
• However, such a contract can in reality be a donation or some other instrument when interests of third parties will be adversely affected by the
contract. In this way, the contract’s validity can be saved. reformation of the instrument.
• The issue thus boils down to contractual intent at the time of perfection of Effect of Non-‐payment of Price
the contract. If there was no intent to pay and receive the stipulated price,
then it is wholy simulated and thus void.

• Failure to pay is not automatically equal to the lack of consideration. There • CLV : requisite of “money or its equivalent” has not been held steadfast by
is still consideration, thus, the sale remains valid. the SC.
• Failure to pay goes into the consummation of the contract, not its o This shows that the essence of a sale is the obligations – for the
perfection.
seller to deliver, and for the buyer to pay
• Such failure to pay gives the right to the seller to demand specific
o Price may be subject to variations – it’s essentially a generic
performance or recission of the contract.
• BUT if the deed of sale says that the price has been paid when in fact it obligation
hasn’t been, this is a “badge of simulation” which would render the o The significance of the requirement – demonstrate the ideal
contract void. Montecillo v. Reynes (385 SCRA 233) example of the onerous nature of sale – that it is supported by
“valuable consideration.”
Price Must Be in Money or Its Equivalent
• Art. 1458 : Obligation of Buyer – he must pay the price certain in “money Adequacy of Price to Make it “Real” – Concept of “Valuable
or its equivalent.” Consideration.”
• Bagnas v. CA • Ong v. Ong – a sale was held valid when consideration for real property
o “Something equivalent” is something representative of money was one peso “and other valuable considerations.
o For this case, services are not included/ o Since there was no evidence that the consideration was not paid,
12
• Art. 1468 – the sale is valid when the consideration is part money and it is presumed to exist.
partly in another thing. o SC: Inadequacy is unimportant – usual practice is to place a
o The consideration for a valid sale can be the price and other nominal amount, but there are more valuable considerations to
additional considerations. be given
• Republic v. Phil Resources Development o Essence of this ruling – it is possible to agree on an adequate
o Apostol purchased logs, but only paid a small part of the price. consideration, even stating a false/nominal consideration.
o He delivered, to fulfil the balance, goods of the PRDC to the • This assumes that the valuable consideration in addition
Bureau of Prisons. Was this a valid payment? to the nominal amount was actually agreed upon.
o SC: “money or its equivalent” – payment need not be in money o There must be a valuable consideration.
o However – this case covers the consummation stage • Bagnas v. CA – a sale where consideration in the contract was “one peso
• Not perfection – they didn’t agree that such goods could and services rendered.”
be used as payment o SC : disproportion between consideration stipulated and the value
• Essentially what happened here was a dacion en pago. of the property
(substitution of the goods for the price) o They concluded – price stated was false and fictitious, thus the
• Torres v. CA sale was void ab initio.
o Contract stated that the consideration for the sale was
expectation of profits
o This was valid cause or consideration to validate the sale.

• Polytechnic University v. CA – cancellation of liabilities of seller was a valid
12
consideration. Art 1354, CC : -‐-‐ cause is presumed to exist in the contract, even when not stated

o SC : even though there was a consideration agreed upon, and the o However – fixing of price cannot be left to discretion of one of the
parties intended to pay it, the sale is void if price was merely parties – the contract of sale is not yet existing when the price has
nominal yet to be fixed
o CLV : this does not mean that the sale was void because the • No mutuality or obligatory force
services were not actually performed • Before price is fixed by third person – the sale is perfected and existing,
• Non-‐performance has nothing to do with validity although conditional
o Sale here was void because it was found that there was no o Thus, a party cannot unilaterally withdraw from the contract
intention to pay any valuable consideration – thus, void for lack of o It is conditional – suspensive condition of the third party fixing the
consideration. price.
• Arimas v. Arimas – two documents evidencing terms of sale of a hacienda • Article 1469 – If third party fixes the price in bad faith or by mistake
o Deed of sale o Parties can seek court remedy to fix the price
o Supplement which contained part of the consideration o These are the only two instances where this is possible.
• Other further considerations • When party is unable or unwilling to fix the price
o Seller : supplement was executed because he didn’t agree with o Parties cannot seek aid from the court to fix the price
the terms in the first deed of sale o The condition imposed has not yet happened
o SC: consideration in supplement must be part of the consideration o Non-‐happening extinguished the contract
for sale of the hacienda – they were both signed by the parties o The sale here is “inefficacious.”
• Consideration generally agreed upon as a whole – • When third party is prevented from fixing the price by one of the parties
otherwise, there is no price certain o Innocent party has remedies against the guilty party.
• Otherwise, there would be no meeting of the minds • Party may demand from the courts the fixing of the price.
• Based on Art. 1186 – when a party prevents a condition
Price Must Be Certain or Ascertainable at Perfection from happening, it’s considered as fulfilled.
• Certainty – when it has been expressed and agreed upon in specific terms
o Specific pesos and centavos Fixing of Subject Matter by Third Party
o Reiterate : Money is the best model of valuable consideration • The subject matter may not be left up to the will of a third party.
• Art. 1469 – when is price considered ascertainable? o Situation contemplated : price agreed upon, but there are similar
o When it is with reference to another thing certain subjects and the parties can’t choose
o Determination is left to judgment of specified person/persons. • Such designation would in fact authorize withdrawal of the parties
• Subject matter must be determinate/determinable
Price Fixed by 3rd Party o Test is one of fact – physical segregation and particular
rd
• Designation of 3 party to fix price is valid. designation
o This designation already makes the price ascertainable o It must be so without further agreement
• Why are the rules different?
o Obligation to pay the price is essentially a fungible obligation


• Any money may be used o When manner of payment is discussed after acceptance, such
• Cannot be extinguished by fortuitous event acceptance did not produce a binding contract of sale
o Obligation to deliver subject matter can only be complied when it o There was no complete meeting of the minds
is already determinate/determinable • Velasco v. CA
• It is not a generic obligation o Even if downpayment had been made and received, no valid sale
rd
• Designation cannot be left to a 3 person who may where manner of payment was not agreed upon
choose a subject that party might be unwilling to give. o Definite agreement on manner of payment – essential element in
formation of binding sale.
Price Ascertainable in Reference to Other Things Certain • Leabres v. CA
• Price of securities, grains, etc. Will be considered certain when price is... o Main cause of action as a receipt issued for an alleged sale
o That which the thing would have on a definite day o Receipt was only an acknowledgement for P1000
o Or in a particular exchange or market • No indication of the total purchase price, or of what the
• Price of thing is certain at the point of perfection when it refers to another installments were
thing certain • SC held that receipt cannot be basis of valid sale.
o Certain invoices existing and identified • San Miguel Properties Philippines v. Huang
o Known factors, or stipulated formula. o No valid sale since they were unable to arrive at acceptable terms
of payment scheme
Effect of Unascertainability • Cruz v. Dernando
o Absence of stipulation on manner of payment – it was a contract
• When price can’t be determined – inefficacious
to sell, not a contract of sale
• Law does not use the term “void”
• CLV : “terms of payment” has same requisites of “price” in order to
o There is actually a contract, but a conditional one
support a valid contract of sale – it must be certain or ascertainable.
o It can’t be voided by what happens after perfection
• If terms of payment are provided in a formula/process that doesn’t require
Manner of Payment of Price Must be Agreed Upon agreement of parties – valid, but with a condition.
rd
o Similar to when price is left up to 3 person.
• A meeting of the minds must include the terms and manner of payment of
the price Proper Understanding of Manner of Payment
o Such is an essential ingredient before a valid sale can exist
• While it is imperative that meeting of the minds be made when it comes to
o It is part of the prestation of the contract.
terms of payment, they do not always have to be expressly agreed upon –
o Specific performance can’t be availed of
when the law supplies these by default.
• Manner of payment : essence of what makes price certain
• In the earlier cases, parties were to have a mode of payment other that
o Time value of money
immediate payment
o Seller may be willing to accept lower price if it is to be paid within
o There could not have been a meeting of the minds because both
a short period of time
parties expected more negotiations as to manner of payment
• Navarro v. Sugar Producer’s Corp


• In all other cases, price is deemed to be demandable at once • Doctrine is based on unjust enrichment against the buyer
o Art 1179, CC – all obligations without conditions or periods are -‐-‐ he can’t be allowed to retain the subject matter
demandable at once. without being liable to pay the price
• In absence of stipulation indicating a different form of payment, price is • Applies even in a “no contract” situation where there is
deemed by operation of law to be immediately demandable no meeting of the minds as to price
• DBP v. CA • May also apply to void sale contract, where
o Where there is no other basis of payment defect is in the price.
o Reasonable conclusion is that subsequent payments shall be o Art 1474 is meant to cover all sale contract situations
made in same amounts as first payment. • Agreement as to the subject matter, along with tradition
• Art 1474 is a remedy in favour of the seller
When There is Sale Even When No Price Has Been Agreed Upon o What if he does not want to take advantage of the remedy, and
instead recover the subject matter?
Art. 1474
• Seems not possible if appropriation had taken place
Where the price cannot be determined in accordance with the preceding articles, or
• Art 1474 seems to contemplate a situation where there
in any other manner, the contract is inefficacious. However, if the thing or any part
is delivery but not appropriation
thereof has been delivered to and appropriated by the buyer he must pay a
reasonable price therefor. What is a reasonable price is a question of fact • Thus we must look at what appropriation means
dependent on the circumstances of each particular case. o Appropriation – covers situation of acceptance, and buyer treats
subject matter as his own,
• In such a case, courts have authority to fix the reasonable price for the
subject matter. Rulings on Receipts and Other Documents Embodying
• This article is the only exception where there would still be a valid sale
even when there is no meeting of the minds as to price. Price
• What does “preceding articles” mean? • El Oro Engravers v. CA – sales invoices are not evidence of payment, but
o CLV : 1469-‐1473 only of receipt.
• What does “inefficacious” mean? o Best evidence to prove payment : official receipt issued by seller
o “inability to produce the effect wanted” • Leabres v. CA – buyer sought to enforce purchase on land based on receipt
o Does not exclude void sales o SC : Receipt cannot be regarded as contract of sale
o Rather, it includes valid sales which have become inefficacious in o Only recognition of the sum of P1000
the same group as void sales (when it comes to price) o Requisites for valid contract were lacking
• Concept of Appropriation o Sale is not valid not enforceable
o Basis of Art 1474 – Robles v. Lizarraga Hermanos • CLV : Leabres seems to deal with the Statute of Frauds (sale was not
• An unjust enrichment would occur in allowing someone enforceable)
to appropriate the movables without compensating the o However, reading of facts was that there was partial payment and
other person. delivery of possession
o 2 Important Points o These things would remove contract from SoF.

• Toyota Shaw v. CA – written agreement was entered between a Inadequacy of Price
prospective buyer and the sales representative
o Acknowledged a downpayment of P100,000 • Art. 1355 – Lesion or inadequacy of cause does not invalidate a contract,
o SC: never a perfected contract between the parties unless there is fraud, mistake or undue influence.
§ Agreement only provided for the downpayment • Art 1470 – Gross inadequacy of price does not affect a contract of sale
§ No purchase price or manner of payment of balance o Except as it may indicate a defect in consent
• Limson v. CA – nothing in the receipt indicated that the earnest money was o Or that parties really intended a donation or some other act.
part of the purchase price, much less any showing of a perfected sale – • “Gross inadequacy” – a reasonable man would not agree to dispose of his
only conclusion is no sale. property at that amount.
• Coronel v. CA – seller executed a receipt of downpayment, indicating • In a sale, there is no requirement that the price is exactly the value of the
balance of purchase price, with obligation to transfer title upon payment subject matter.
o SC: there was a perfected contract of sale o Recall: Test for commutativeness is the belief of the parties that
o No reservation of title until payment they received good value.
o Consistent with requirement that memoranda of sale must
include all essential requisites in order to remove it from the SoF. Distinguished from Simulated Price
• Cheng v. Genato – seller acknowledged receipt of sum as partial payment • Bravo-‐Guerrero v. Bravo – simulation of contract and gross inadequacy of
o Did not provide further stipulations as to balance or manner of price are distinct legal concepts
payment o When parties to an alleged contract do not really intend to be
o SC: no sale, since requisites were not expressed in the receipt. bound – simulated
o CLV : isn’t sale a consensual contract? Defect in memorandum § Void
would affect enforceability, but should it affect validity? § No legal effect
• Xentrex v. CA – contract of sale perfected upon meeting of the minds § No real agreement
o Seller obliged itself when it accepted deposit and pulled out a unit o Gross inadequacy – not a void contract
• David v. Tiongson – sale of real property on installments § Validity of sale not affected
o Even when receipts do not provide for the installments, when § Unless there is a defect in consent or parties intended
there is partial payment, SoF no longer applies. donation or other contract
• Tigno v. Aquino – absence of receipts or any proof of consideration is not
conclusive as to the inexistence of a sale.
o Consideration always presumed
• CLV : no constant doctrine when it comes to legal consequences of
receipts.


Rescissible Contracts of Sale When Motive Nullifies Sale
• Inadequacy of Price – ground for rescission in cases covered under Article
13
• Consideration is not equal to motive
1381 of the Civil Code.
• When motive is illegal, sale is void
o Sale executed in order to frustrate another person’s right to
Judicial Sale
inheritance and to avoid tax
• Inadequacy of price may render void judicial sale of real property • Uy v. CA – Distinguished cause from motive
o Why the difference? – sale is not a result of negotiations o Cause
o In fact, property of the “Seller” to be sold at public auction § Essential reason which moves parties to enter into the
o State must protect seller from a bad deal that’s not his fault contract
• Such inadequacy however must be “shocking to the conscience of man” § “immediate, direct and proximate reason” to create the
o It must be shown that a resale would fetch a better price. obligation
• However, even if these are shown, judicial sale will not be set aside when o Motive
there is a right to redemption § Particular reason of a contracting party
o Lower sale price à easier time for the owner to redeem. § Does not affect the other party
o Proper remedy is simply for the “Seller” to exercise such right. o In this case – cause of vendor to sell the land is to obtain the
price, and for the vendee, the acquisition of the land.
Sales with Right to Repurchase o Motive of the vendor – is to use the lands for housing.
• In sales like this, inadequacy gives rise to a presumption of equitable • SC : When motive predetermines cause, it may be regarded as the cause.
mortgage. o When there was a mistake in the quality of land, the
• Remedy of the seller – have the sale reformed or declared a mortgage motive/cause was negated
contract, then pay off the debt which is secured. o And thus the contract was inexistent.
• Remedy of the buyer – foreclose on the mortgage. • Heirs of Spouses Balite v. Lim – amount reflected in Deed of Sale was lower
o Cannot appropriate the subject matter – pactum commissorium than what they agreed on
which is not allowed. o Motive was to pay lower taxes
o SC : Contract of sale was valid – motive here (lower taxes) was not
the consideration.
o Although illegal, motives do not take the place of the
consideration.

13
(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-‐fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number;


Chapter 5: Formation of Sale
Issue: WON there was already a perfected contract of sale when MMCC gave
deposit after the department issued statement of account—NO
Stages in the Life of Sale

a) Policitacion – negotiation and bargaining
Held: The exchanges were counter offers and so the contract never moved beyond
b) Perfection – moment when there is meeting of the minds on the subject
the negotiation stage. It was stipulated by the parties that PNB will accept the
matter and price deposit “on the condition that the purchase price is still subject to the approval of
c) Consummation – parties perform their respective obligations the PNB board.” Thus, there was no definite price.

Policitation Stage
Muslim and Christian Urban Poor Association, Inc. v. BRYC-‐V Development Corp.
• Negotiation is initiated by an offer which must be certain.
• In order to give rise to a contract of sale, the offer must be accepted.
Acceptance must be absolute, clear, unequivocal, plain and unequivocal. Facts: MCUPAI entered into negotiation with Seafood Corporation (SFC) for the
Manila Metal Containers Corp. v. PNB (511 SCRA 444) purchase of latter’s land. MCUPAI executed a Letter of Intent to Buy and SFC a
• Before the acceptance, there is “freedom to contract.” An owner of Letter of Intent to Sell to facilitate the former’s loan application. The sale didn’t
happen because herein buyer wasn’t able to obtain a loan, even when it was given
property is free to offer the subject property for sale to any interested
an extension of 3 months to procure it. Eventually, SFC sold the lot to BRYC-‐V.
person. There is still no obligation between the potential buyer and MCUPAI alleged that the sale violated its subsisting agreement with SFC which gave
potential seller. (Exception: option contract, infra) it a preferred right to purchase the lot.
• A Letter of Intent to Buy and Sell is just that, a declaration of intent. It is

not a conditional contract of sale or a contract to sell. It is also not an offer.
Muslim and Christian Urban Poor Association, Inc. v. BRY-‐C Dev’t. Corp. Issue: WON the letters of intent created a bilateral contract within the meaning of
Art. 1479—NO
(594 SCRA 724)

Manila Metal Container Corp. v. PNB
Held: A mere intention or plan to do something does not give rise to an obligation,
nor bind a party to do or give. It was not an offer, but merely an expression of the
Facts: PNB foreclosed the mortgage MMCC constituted in its favor. PNB won the intention to enter in to the contract. It does not contain a commitment to enter
public auction. MMCC requested for an extension of the 1-‐year redemption period, into the contract. In fact, SFC’s entering into a contract was conditioned upon
which PNB rejected. A special assets department of PNB issued to petitioner a MCUPAI’s ability to raise the funds.
statement of account indicating bid price and interest (about Php 1.5 million);
MMCC then remitted Php 725,000 as “deposit for repurchase”. PNB offered to
MMCC to buy back the property for Php 2.66 million. MMCC insists that it had
Advertisements and Invitations
already accepted the offer of the PNB department of Php 1.5 million, and it had
deposited the money as earnest money (down payment). The amount of Php 2.6 Art. 1325
million is a unilateral increase by PNB of the purchase price.


Unless it appears otherwise, business advertisements of things for sale are not When the offeror has allowed the offeree a certain period to accept, the offer may
definite offers, but mere invitations to make an offer. (n) be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as something paid or
• General rule: they are less than offers and are merely invitations to make promised. (n)
an offer
o Exception: It appears otherwise. That is, there is a determinate Definition and Essence of Option Contract
subject matter and a determinate price and terms of payment. • An option is a preparatory contract in which one party grants to the other,
• Better rule according to CLV and RP: Even if the advertisement contains for a fixed period and under specified conditions, the power to decide
definite terms, it remains an invitation so long as it is addressed to the whether or not to enter into a principal contract [of sale]. Carceller v. CA
general public.. The exception comes in when the invitation is addressed to (302 SCRA 718)
a particular offeree. • An option is a continuing offer or an unaccepted offer which must be
certain. It is distinct from the contract of sale, by as soon as the offer is
Offers accepted, the contract of sale is perfected. Adelfa Properties, Inc. v. CA
• The offeror can attach any term or condition he desires, and may fix the (240 SCRA 565)
time, place and manner of acceptance. He has full control of the offer
Carcellar v. CA
before it is accepted.
• Offeror can withdraw the offer any time, even without notifying the Facts: SIHI (landowner) entered into lease contract with Carcellar with option to
purchase within a certain period, exercised by a written notice to SIHI. Nearing
offeree. (Exception: option contract)
termination, Carceller wrote and requested for an extension to raise funds, which
• Acceptance by the offeree must be absolute. Any conditional acceptance SIHI rejected. Carceller still laterexpressed intention to exercise option to purchase
will be a counter-‐offer which rejects and terminates the original offer. after the period expired, which SIHI denied because period had lapsed. Carceller
• An offer becomes ineffective upon the death, civil interdiction, insanity or files action for specific performance.
insolvency of either offeror or offeree, before acceptance is conveyed and
received by the offeror. (Art 1323)
Issue: WON Carceller should be allowed to exercise option given the delay in giving
the required notice—YES
Option Contracts

Art. 1479
Ratio: Carceller’s letter to SIHI showed intent to exercise option to purchase despite
A promise to buy and sell a determinate thing for a price certain is reciprocally the request for the extension. Granting the option is consistent with the intention
demandable. of the parties. The delay was not substantial or fundamental as to amount to a
breach that would defeat the intention of the parties when they entered into the
An accepted unilateral promise to buy or to sell a determinate thing for a price
contract. His first letter and his formal exercise were within reasonable time frame.
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price. (1451a)
Art. 1324 Tayag v. CA
Facts: Lacsons are owners of a land, tenanted by farmer tillers who had


landholdings thereon. The farmers executed a deed of assignment in favor of Tayag o Not to withdraw the offer during the agreed period
stating that they would assign their landholdings for Php50/sq. meter payable when o To enter into a contract of sale when the option holder, if he uses
legal impediments to the sale of the property no longer existed and if the Lacsons the option (i.e. accepts the offer) within the specified period.
decide to sell the property. When Tayag called for a meeting to discuss their
• The three obligations are obligations to do. Therefore, a breach of the
agreement, the farmers expressed they would not attend and that they were going
to sell their landholdings to the Lacsons. Tayag claims that they had no right to deal option contract will only be actionable for damages, not specific
directly with the Lacsons, while their contracts with him were valid and existing. performance.
o When the offer is accepted, the obligations become obligations to

give, since the contract of sale is already perfected.
Issue: WON the deeds of assignment were option contracts—NO • The subject matter of an option contract is the option to purchase a
determinate thing. In other words, it is the subject matter is the right to
choose to buy or not.
Ratio: The payment of the purchase price was conditioned on the disappearance of
any legal impediments in sale of the property and on the Lacsons actually selling • An option contract is not covered by the Statute of Frauds. Therefore, it
it—there was no showing that they ever agreed to sell their property. There was no can be proved by parol evidence and is enforceable even if not written.
option contract here because in an option contract, the one giving is only bound to
Elements of a Valid Option Contract
hold the land in case the optionee decides the receive the lands at his election.
Here, the farmers did not just give Tayag and option; they gave him an exclusive a) Consent
right to buy the property. They cannot legally do this because they are not the b) Subject Matter-‐ the right to choose whether or not to buy a
registered owners of the land. They had no right to enter into those contracts with
determinate/determinable object for a price certain (including manner of
Tayag without the knowledge of the Lacsons.
payment)
c) Consideration which is anything of value and is separate and distinct from
Characteristics and Obligations in an Option Contract; Compared with Sale the purchase price

• Both option contract and sale are onerous contracts because both require
• Just like in a sale, the option contract will only be perfected if the parties
a separate consideration. An option without separate consideration is void
agree on the specific object (i.e. the right itself, and the conditions) and the
as a contract.
price and manner of payment of the consideration.
o Consideration in an option contract may be anything of value, not
necessarily money or its equivalent, as in sale. Meaning of “Separate Consideration”
o Exception: An option may be included within another valid • An option contract is an offer and a preparatory contract to that of sale.
contract, such as a lease or mortgage. It will be binding even if it This presupposes that there is already a purchase price on the subject
does not have a separate consideration. It is a stipulation within matter of the sale which was agreed upon by the parties. As long as the
the contract which acts like an option contract. consideration for the option contract is distinct and not included in the
• An option contract is a consensual contract. purchase price, it is considered “separate consideration”.
• It is a unilateral promise to sell a determinate thing. It only binds the • Some examples where the Court held that there was separate
optioner with the following obligations: consideration:
o Not to offer to any third party the sale of the object


In Villamor v. CA (202 SCRA 607), the buyers bought ½ of the land
o Issue: WON the Deed of Option was valid—YES
for P70 which was much higher than the prevailing market rate at
that time. The Court ruled that the separate consideration for the
Ratio:
option to buy the other half was the difference between the
market value and the P70 price paid. The consideration for the Option was the difference in the higher purchase price of
o In reciprocal contracts like lease, the obligation or promise of each the land compared to its actual market value. Consideration maybe anything of
14
party is the consideration for that of the other. Vda. De Quirino value. The option here was the consideration for the Villamors buying the first half
of the land. Since they expressed their intention to exercise the option (which is an
v. Palarca (29 SCRA 1)
offer), a valid contract was perfected.
o The monthly interest paid by the spouses on the foreclosed
property during the one year period granted to them by the bank
was considered as the separate consideration to hold the option When Option Is Without Separate Consideration
contract valid. Dijamco v. CA (440 SCRA 190)
• Without separate consideration, an option contract is void as a contract
o The option to buy included in a mortgage was deemed a vald
but would still be a valid offer. If the option is exercised before it is
stipulation since it is supported by the same consideration of the
withdrawn, it is equivalent to an offer being accepted. Thus, a valid and
mortgage, which is itself distinct from that of the sale. Soriano v.
binding sale would be perfected. Sanchez v. Rigos (45 SCRA 368)
Bautista (6 SCRA 946)
• The burden of proof to show that the option contract has a separate
• The Court had ruled in 1947 that the consideration is presumed to exist.
consideration is with the party seeking to show it. Art. 1354, which
Once proven, it is binding. Montinola v. Cojunagco (78 Phil. 481) This is in
presumes that consideration exists, cannot apply since Art. 1479, the more
contrast with the 1972 case of Sanchez v. Rigos which refused to apply that
specific provision, requires such separate consideration for an option to be
presumption.
valid.
Villamor v. CA • Lately, there have been rulings by the SC which tend to diverge from the
Facts: Villamor purchased from Reyes one half of a piece of land for more than the Sanchez doctrine. However, Sanchez is still the controlling doctrine since it
market value. They then executed a Deed of Option stating that the reason only has yet to be expressly abandoned by the Court. Montilla v. CA (161 SRA
why Villamor bought the half in the first place is because Reyes granted him 167); Natino v. IAC (197 SCRA 323); Yai Ka Sin Trading v. CA (209 SCRA
exclusive right to buy the other half whenever the need would arise for either party. 763); Diamante v. CA (206 SCRA 52)
Reyes sought to repurchase the half already bought by Villamore but the latter
• It was held in Vazquez v. CA (199 SCRA 102) that for the Sanchez doctrine
refused.
to apply, the option must be accepted and the acceptance must be
communicated to the offeror. This emphasizes the point that an option
contract is a distinct contract.
• Classroom example:
o S is selling B a condominium unit. He tells B that he can pay
P50,000 as reservation fee which will entitle him to a period of 1
14
Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the
month to think about the purchase. If he accepts, the P50,000 will
prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit be deducted from the purchase price. This is not an option
which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274)

contract because the 50,000 is not a separate consideration but is for it to be binding on Vasquez, it must hav been shown that Vallejera accepted the
actually part of the purchase price. What we have is an offer therein before it was withdrawn by Vasquez. None was made; the vendor a
innominate contract (do ut facias). Breach of the contract will retro must make actual and simultaneous tender of payment and consignation.
entitle B to damages only. The innominate contract involves a Mere expressions of readiness or willingness to repurchase are insufficient. The
right of repurchase is not a right granted the vendor by the vendee in a subsequent
prestation to do, thus, specific performance is not available.
instrument, but is a right reserved by the vendor in the same instrument of sale as
Sanchez v. Rigos one of the stipulations of the contract.
Facts: An Option to Purchase was executed where Rigos would sell a piece of land
to Sanchez upon the exercise of the option within 2 years. Sanchez made several
Option Not Deemed Part of Renewal of Lease
tenders of payment to Rigos, which latter rejected. Sanchez then deposited the
amount with the CFI and commenced suit for specific performance against Rigos. • Under the principle of tacita reconduccion, a lease is impliedly renewed if
Latter asserts that it was not a valid contract for absence of consideration. the term of the original contract of lease has expired, the lessor has not
ordered the lessee to vacate, and 15 days has passed without the
15
acquisecnce of the lessor .
Issue: WON Rigos is bound to sell by virtue of the Option to Purchase—YES
• Only the essential stipulations in the lease are deemed renewed.

• An option to purchase which is stipulated in a lease is not essential to the
Ratio: Seller cannot revoke an offer if the option to buy had a separate lease. Thus, they it is not renewed.
consideration. If the option is given without a consideration, it is a mere offer of a
contract of sale, which is not binding until accepted. If, however, acceptance is Period of Exercise of Option
made before a withdrawal, it constitutes a binding contract of sale, even thought
• If the option contract does not specify the period in which the option can
the option was not supported by a sufficient consideration. Sanchez’s tenders were
valid exercise of the option granted him and thus a contract of sale was perfected. be exercised, it cannot be presumed that it can be exercised indefinitely.
• Actions upon written contracts must be brought within 10 years.

Afterwards, it prescribes.
Vasquez v. CA Proper Exercise of Option
Facts: Vallejera sold land to Vasquez who then secured TCT. A separate instrument
• The optionee may exercise his right by merely advising the offeror of the
together with the deed of sale, a Right to Repurchase was executed by them in
favor of Vallejera. Later, Vasquez resisted this action for redemption on the premise decision to buy and expressing his readiness to pay, provided that he is
that Right to Repurchase is just an option to buy since it is not embodied in the actually able to pay. Actual payment is not necessary to exercise the
same document of sale but in a separate document, and such option is not option. Nietes v. CA (46 SCRA 654)
supported by a consideration distinct from the price, the deed for right to • Notice within the option period of clear intention to purchase the
repurchase is not binding upon them. property, even with a request for leeway or extension of the period in

Issue: WON the right of repurchase gave rise to a valid contract of sale—NO

Ratio: The right to repurchase was not supported by a separate consideration. Thus, 15
Samelo v. Manotok Services, Inc., G.R. No. 170509 (not in the book)

order to raise money to buy the property, is a valid and substantial a. If the period is not supported by a separate consideration, the
exercise of the option. Carceller v. CA (302 SCRA 718) offeror can still withdraw the offer before it is accepted, or before
• In Sanchez v. Rigos, the Court held that repeated tenders of payment, he learns of an acceptance made by the offeree.
which were refused by the optioner for no reason, was a valid exercise of b. The right to withdraw must not be done whimsically or arbitrarily,
the option. otherwise, the other party may sue for damages under Article 19.
• The refusal by the offeror to comply with the demand by the offeree with c. If there is a separate consideration, an option contract is
the exercise of his option may be enforced by specific performance. perfected, and withdrawal of the option within the period is a
Exercise of the option is acceptance of the offer which perfects the breach of the contract.
contract of sale. Thus, the obligations to do become obligations to give. d. The option contract is an independent contract by itself. If it is
withdrawn, there is a breach which can be the basis of an action
Nietes v. CA
for damages. Specific performance is not available.
Facts: Garcia (owner and lessor) entered into a Contract of Lease with Option to e. The nature of the consideration must be taken into account. If the
Buy a school with Nietes (lessee). Lessee is granted an option to buy the land within consideration was in fact part of the purchase price, then there is
the period of the contract of lease. Later, Garcia expressed his intention to rescind
no option contract, but a perfected contract of sale.
the contract due to poor maintenance of the building. In his reply, Nietes expressed
inention to exercise the option to buy. In the specific performance case filed against • Ang Yu Asuncion ruled that the the separate consideration merely
Garcia, he asserts that the full purchase price must first be paid before the option guarantees that within the option period, before the optioner withdraws
could be exercised. the offer, an acceptance by the optionee would give rise to a valid sale.
This, in effect, is similar to the doctrine in Sanchez v. Rigos which
considered an option which did not have separate consideration.
Issue: WON Garcia’s assertion is correct—NO
o The effect is that as far as the optionee is concerned, whether or
not he gives a separate consideration, his right can be defeated
Ratio: In the case of an option to buy, THE CREDITOR MAY VALIDLY AND simply by the optioner’s withdrawal. He is therefore not assured
EFFECTIVELY EXERCISE HIS RIGHT BY MERELY ADVISING THE DEBTOR OF THE that a sale will be perfected.
FORMER’S (1) DECISION TO BUY AND (2) HIS READINESS TO PAY THE STIPULATED o According to RP, the more logical action in case of a breach of an
PRICE, provided that the same is available and actually delivered to the debtor upon option contract is specific performance. But, the reasoning in Ang
execution and delivery by him of the corresponding deed of sale. In other words, Yu (I.e you can’t compel specific performance for prestations to
notice of the creditor’s decision to exercise his option to buy need not be coupled
do) is also logical.
with actual payment of the price, so long as this is delivered to the owner of the
property upon performance of his part of the agreement. o CLV says this does not provide for a commercially sound doctrine
because it emasculates the effectiveness of an option supported

by a separate consideration. There is no incentive or motivation
Summary Rules When Period is Granted to Promisee for the optionee to give, and the optioner to demand a separate
consideration.
• Ang Yu Asuncion v. CA (238 SCRA 602) sumarized the applicable rules:
Ang Yu Asuncion v. CA
Facts: Ang Yu and others were tenants and lessees of commercial spaces owned by


Ongpin. On several occasions, Ongpin informed Ang Yu that he is offering to sell the o Furthermore, the exercise of the right would be dependent upon
premises and is giving them priority to acquire the same. Negotiations were had the grantor’s eventual intention to sell the land.
and counter offers were given by both parties. Ang Yu filed for specific performance • If the right of first refusal is included in a lease, there need not be a
to compel Ongpin to sell the property when he found out that the latter was about
separate consideration for the right since it is already part and parcel of
to sell the property. Pending resolution of the case, Ongpin sold the property to
another. the entire contract of lease. The consideration for the lease is the
consideration for the right of first refusal. Equatorial Realty Dev., Inc. v.

Mayfair Theater, Inc. (264 SCRA 483)
Issue: Whether or not there was a perfected sale. – NO o The enforceability of the right of first refusal is based on the
obligatory force of the lease contract.
o If the right is violated by the grantor who sold the property to
Ratio: In a right of first refusal, while the object might be made determinate, the
another, the resulting contract is rescissible by the grantee of the
exercise of the right, would depend not only on the vendor’s intention to sell but
also on terms, including the price, that are yet to be firmed up. Its breach cannot right.
justify an issuance of a writ of execution under a judgment or sanction an action for • The Equatorial Realty ruling would only apply to rights of first refusal

specific performance without negating consensuality in the perfection of contracts. attached to a valid principal contract. If they are constituted as separate
The proper remedy is an action for damages. contracts, the ruling in Ang Yu Asuncion would apply.
o Verbal grants of the right of first refusal are unenforceable since
such right must be embodied in a written contract. Sen Po Ek
Rights of First Refusal Marketing Corp. v. Martinez (325 SCRA 210)
• How to comply with the right of first refusal when the seller decides to sell:
• A promise on the part of the owner that if he decides to sell the property
o The seller must first offer to sell the property to the grantee of the
in the future, he would first negotiate its sale to the promisee.
option.
• If the promise is breached, an action for specific performance is not
o The negotiations about the sale between the seller and the
allowed, but action for damages is allowed. Guerrero v. Yñigo (96 Phil. 37)
grantee would be deemed compliance with the right, even if there
• In Guerrero, the Court ruled that recission is also not allowed for breach of
is no final price agreed upon. Riviera Filipina, Inc. v. CA (380 SCRA
right of first refusal. This was reversed in 1992 in the case of Guzman,
245)
Bocaling & Co. v. Bonnevie (206 SCRA 668). It held that when a right of first
o If no price is agreed upon, the seller can then offer to sell to other
refusal included in a contract of lease is breached by selling the property to
parties with the same terms as those offered to the grantee.
another, the contract of sale is rescisible because of injury to third persons
o If the seller and the third party negotiate and agree upon different
(the lessees).
terms, the seller must first offer these new terms again to the
• The buyer of a real property who knew that such property was subject to grantee.
the right of first refusal cannot claim good faith. o If the grantee again rejects the new terms, the seller can proceed
• A right of first refusal is not a contract. It is not a sale nor an option with the sale of the property to the third party.
contract. • The right of first refusal granted to the lessee may not be availed of by the
o While it has a definite subject matter, there is no agreement as to sublessee because he is a stranger to the lessor. Sadhwani v. CA (281 SCRA
the price or the manner of payment. 75)

• Similar to an option contract, the right of first refusal included in a lease is
not renewed even in tacita reconduccion. Dizon v. CA (396 SCRA 152) Held: Only if the petitioner failed to exercise their right of first priority could Santos
Equatorial Realty Dev. Inc. v. Mayfair Theater Inc. thereafter lawfully sell the subject property to others, and only under the same
terms and conditions previously offered to the petitioner. The basis of the right of
Facts: Mayfair leased a portion of Carmelo’s building. Their lease contract stipulated the first refusal must be the current offer to sell of the seller or offer to purchase of
that if Carmelo wants to sell the premises, the Mayfair shall be given exclusive any prospective buyer.
option to purchase within 30 days. Carmelo informed Mayfair that it wanted to sell
the property, but they never agreed upon the price. Carmelo sold the property to
Equatorial. Mayfair filed an action for specific performance to have the property Vasquez v. Ayala Corp.
sold to it and to annul the sale to Equatorial.
Facts: Vasquez spouses own shares of stocks with Conduit Corporation. Conduit's
main asset was a 49.9 hectare land in Ayala Alabang, Muntinlupa. Spouses enter
Issues: Whether or not there was a right of first refusal. – YES into a MOA with Ayala where the latter committed to develop said lands including
the 4 parcels of land to be sold to petitioner spouses. Par. 5.15 of MOA states that
Whether or not the sale to Equatorial was valid. – YES, but rescissible. Ayala agrees to grant the spouses "a first option to purchase four developed lots
next to the “Retained Area” at the prevailing market price at the time of the
purchase.”
Held: Carmelo violated the right of first refusal when without affording its
negotiations with Mayfair the full process to ripen to a definite offer and a possible
acceptance within the "30-‐day exclusive option" time. Equatorial is a buyer in bad
Issue: W/N the stipulation is a right of first refusal or an option contract. – It was a
faith because it had notice and full knowledge of Mayfair’s rights. Hence, the sale to
right of first refusal.
Equatorial is rescissible.

Ratio: While the object may be determinate, the exercise of the right would depend
Paranaque Kings v. CA not only on the grantor's eventual intention to sell but also on terms, including
Facts: Catalina Santos, owner of the property which was leased to Paranaque Kings, price, that are yet to be firmed up. It was not an option contract because there was
sold the property to a third party (David Raymundo) for 5M. The lease contract no separate consideration. This right given by Ayala can be revoked at any time by
between Santos and PK provides that the lessee shall have the first option or communicating it to the spouses. When Ayala rejected the price at which spouses
priority to buy the properties subject of the lease. Santos rectified her error of wanted to by the lands, the option was lost.
violating the contractual right, by having the property reconveyed to her. She sold
the property to PK for 15M. However PK contests that it should be sold to them at
5M only. Riviera Filipina v. CA
Facts: Reyes executed a contract of lease with a right of first refusal in favor of
Riviera. The parcel of land was mortgaged to Prudential Bank and will be foreclosed
Issues: W/N there is a violation of a contractual right of “first option or priority” to
upon Reyes’ failure to pay. Reyes offered to sell the lot to Riviera, and the parties
buy the properties subject of the lease – NO
underwent negotiations on the price. Riviera finally confirmed to purchase the
W/N the grantee of such right is entitled to be offered the same terms and property for P5,000. Reyes negotiated and sold the lot to Cypress (owned by a
conditions as those given to a third party who eventually bought such properties – family friend) for P5,300.
YES


o If the option is supported by a separate consideration, the
Issue: W/N Riviera’s right of first refusal was violated by Reyes’ sale of the property optionee shall have the right to exercise the option anytime
to Cypress. – NO during the period, and that would give rise to a valid sale.
o The optioner, on the other hand, cannot withdraw the offer

during the option period, and any attempt to withdraw will be
Ratio: Riviera strongly exhibited a "take-‐it or leave-‐it" attitude in its negotiations void.
with Reyes. It quoted its "fixed and final" price as P5,000 and not any peso more. o If a third party bought the property in bad faith (i.e. he knew the
Riviera cannot now be heard that had it been informed of the offer of P5,300 of
existence of the option in favor of the optionee), the optionee can
Cypress, it would have matched said price. Its stubborn approach in its negotiations
with Reyes showed crystal-‐clear that there was never any need to disclose such go after the optioner and the third-‐party buyer in an action for
information and doing so would be just a futile effort on the part of Reyes. Reyes specific performance.
was under no obligation to disclose the same. o If a third party bought the property in good faith and for value,
the optionee may sue the optioner for recovery of damages for

breach of contract of sale.
Proposed Doctrine on Option Contracts vis-‐à-‐vis Right of First
Refusal Mutual Promises to Buy and Sell
• This gives rise to a mutual obligation which allows each party to demand
Alternative Doctrine of Enforceability of Rights of First Refusal
fulfillment of the obligation. It is an executory agreement. Borromeo v.
• Justice Vitug, in his decision in Ang Yu Asuncion and in his dissent in Franco (5 Phil. 49)
Equatorial Realty said that a right of first refusal is not a contract. • An unconditional mutual promise to buy and sell is enforceable by an
o In his view, breach would result in damages pursuant to Art. 19. action for specific performance.
• CLV posits that a right of first refusal over a determinate subject matter • Contract of sale v. Mutual Promise to Buy and Sell:
and supported by a separate consideration would give rise to an o A contract of sale is consummated by delivery and payment
innominate contract (do ut facias). o A bilateral promise to buy and sell gives rights in personam which
o This would allow the remedy of recission which would then give grants the parties a right to demand fulfillment. Macion v. Guiani
rise to damages if it is breached. (Note: Art. 19 would not be the (225 SCRA 102)
basis for damages.)
Macion v. Judge Guiani
Enforceability of Option Rights Should be at Par with, if not at a Higher Level Than,
Facts: Macion and Dela Vida Institute entered into a contract to sell a property for
Rights of First Refusal
the construction of an educational institution. The contract stipulated that Dela
• In light of the rulings in Equatorial Realty and Parañaque Kings, it seems Vida Institute had until July 31, 1991 to buy the property for P1,750. Dela Vida
that rights of first refusal attached to principal contracts have greater legal Institute started construction of the building, but the sale did not materialize.
Macion filed for unlawful detainer but eventually agreed to a compromise
enforceability than option contracts which are supported by separate
agreement to give Dela Vida Institute 5 months to pay, otherwise the latter would
consideration. have to vacate the property. Respondent judge opined that the proximate cause of
• CLV’s proposed better rule: private respondent's failure to comply with the compromise agreement was the


refusal of petitioners to execute a contract to sell as required under the agreement. Acceptance Must Be “Absolute”
• The acceptance must be plain and unconditional, and it will not be so if it
Issue: W/N respondent Judge may compel Macion to execute a contract to sell in involves any new proposition. Zayco v. Serra (44 Phil 326)
favor of Dela Vida Institute. -‐ YES • Acceptance must be in the exact terms in which they are made. Any
modification annuls the offer. Beumont v. Prieto (41 Phil. 670)
• If the term “to negotiate” is included in the acceptance letter, there is still
Ratio: The court looked into the contemporaneous and subsequent acts of the
no absolute acceptance. Yuvienco v. Dacuycuy (104 SCRA 668)
parties and determined their real intentions. A review of the facts reveal that even
prior to the signing of the compromise agreement and the filing of Civil Case No. • In the same way, if the word “Noted” is signed at the bottom of the
592 before the trial court, the parties had already entered into a contract to sell. In acceptance, it was deemed not to be an acceptance of the offer. DBP v.
contracts to sell, payment is a positive suspensive condition, failure of which does Ong (460 SCRA 170)
not constitute a breach but an event that prevents the obligation of the vendor to • If a party accepts but with a request that payment terms be modified,
convey title from materializing, in accordance with Article 1184 of the Civil Code. there is no absolute acceptance. Limketkai Sons Milling, Inc. v. CA (255
SCRA 626)
• The moment a party accepts the offer unconditionally, the contract of sale
Perfection Stage: Offer and Acceptance is perfected. If the seller subsequently requests for a higher price, but no
agreement is reached, the first sale is stil valid and is not novated. Uraca v.
Art. 1475 CA (278 SCRA 702)
The contract of sale is perfected at the moment there is a meeting of minds upon • A document cannot constitute a sale even when it provides for a
the thing which is the object of the contract and upon the price. downpayment since the provision on the downpayment made no specific
From that moment, the parties may reciprocally demand performance, subject to reference to a sale of a vehicle. Definiteness as to the price is an essential
the provisions of the law governing the form of contracts. (1450a) element of a binding agreement to sell personal property. Toyota Shaw,
Inc. v. CA (244 SCRA 320)
Consent that Perfects a Sale
When “Deviation” Is Allowed
• Sale, being a consensual contract is perfected by the meeting of the minds
upon the object of the contract and the price. • The change in the phrases which do not essentially change the terms of the
• Meeting of the minds happens when a certain offer and an absolute offer does not amount to a rejection and a counter-‐offer. Clarificatory
acceptance meet. changes are allowed. Villonco v. Bormaheco (65 SCRA 352)
Villonco v. Bormaheco

Offer Must Be “Certain”
Facts: Cervantes (Bormaheco) owns a lot in Buendia. It offered to sell the lot to
• An offer is certain when it contains:
Villaconco who owns a lot adjacent to the lot of the latter with the following
o A description of the subject matter which is a “possible thing,” licit conditions; (a) 100k as earnest money which will become part of the payment if lot
and determinate or at least determinable. in Sta. Ana is purchased (b) If the said property is not purchased, the money will be
o And a price which is real, in money or its equivalent, certain or at returned and the sale will not be consummated, which will be known 45 days after
least ascertainable. The terms of payment must also be included. negotiation. Villonco sent a counter offer that the 100k will have an interest of 10%


per annum. Cervantes returned the earnest money and reasoned that he acquired
the property beyond the 45 days period.
The court also had the occasion of distinguishing earnest money and option money;
(a) earnest money is part of the purchase price, while option money is the money
given as a distinct consideration for an option contract; (b) earnest money is given
Issue: Whether or not there was a perfected sale?
only where there is already a sale, while option money applies to a sale not yet
perfected; and (c) when earnest money is given, the buyer is bound to pay the
balance, while when the would-‐be buyer gives option money, he is not required to
Held: Yes. "Whenever earnest money is given in a contract of sale, it shall be
buy, but may even forfeit it depending on the terms of the option.
considered as part of the price and as proof of the perfection of the contract" (Art.
1482, Civil Code). The contract was already consummated at the time respondent
accepted the check. In fact, he accepted the earnest money, and furthermore
returned the 100k with 10% interest which serves as proof of the acceptance. Acceptance by Letter or Telegram
• Does not bind the offeror except from the time it came to his knowledge.
Therefore, mere mailing or sending the acceptance is not enough. The
Acceptance may be Express or Implied
offeror may still withdraw before he learns of the acceptance.
• Acceptance on the part of the buyer was manifested through acts such as
Acceptance Subject to a Suspensive Condition
payment of the purchase price, declaration of the property for tax
purposes, and payment of real estate taxes. Gomez v. CA (340 SCRA 720) • Even if there is a meeting of the minds, there will be no perfected contract
• By affixing their signatures as witnesses, the co-‐owners accepted the terms of sale if it is subject to a suspensive condition. Gan, Sr. v. Reforma (11 CAR
of the contract. Oesmer v. PDC (514 SCRA 228) 57)
• CLV disagrees. He proposes that the better rule should be that there is
Oesmer v. Paraiso Development Co.
already a perfected contract but it is not yet demandable because of the
Facts: Petitioners are siblings and co-‐owners of two parcels of land in Cavite. suspensive condition.
Ernesto, met with Respondent PDC and signed a Contract to Sell. A P100,000 check,
payable to Ernesto, was given as option money. Sometime thereafter, 4 other also Acceptance in Auction Sales
signed the Contract to Sell. Petitioners then wrote a letter to PDC to rescind the
• The owner of the property sold at auction may provide the terms under
contract.
which the auction will proceed and the same are binding upon all bidders,
whether they knew of such conditions or not. Leoquinco v. Postal Savings
Issue: Whether or not the sale is valid on the petitioners who signed the contract Bank (47 Phil. 772)
• An auction sale is perfected by the fall of the hammer and it does not
matter if another bidder matched the price of the highest bidder. Province
Held: Yes. The other five petitioners (excluding Ernesto) personally affixed their
of Cebu v. Heirs of Rufina Morales (546 SCRA 315)
signatures thereon. Therefore, a written authority is no longer necessary in order to
sell their shares because, by affixing their signatures on the Contract to Sell, they • Generally, the seller and the auctioneer cannot bid either by themselves or
were not selling their shares through an agent but, rather, they were selling directly by an agent. Exception is when the seller reserves such right.
and in their own right. 6/8 of the property is sold.


Earnest Money Part of the purchase price Distinct consideration for an option
contract
Art. 1482
Given only where there is already a sale Applies to a sale not yet perfected
Whenever earnest money is given in a contract of sale it shall be considered as part
The buyer is bound to pay the balance The buyer is not required to buy.
of the prices and as proof of the perfection of the contract. (1454a)

Function of Earnest Money
Effect of Recission on Earnest Money Received
• Art. 1482 gives a presumption. This prevails only in the absense of contrary
or rebuttal evidence. PNB v. CA (262 SCRA 464,484) • Except if expressly stipulated, the seller cannot keep the earnest money to
• The presumption is based on the fact that there is a valid sale. The giving of answer for damages sustained in the event that the sale fails due to the
earnest money does not establish the existence of a perfected sale. It is fault of the buyer. Goldenrod, Inc v. CA (299 SCRA 141)
still the concurrence of the esential elements of sale which perfects the • If the sale is rescinded, the seller must return the earnest money. Recission
contract. Manila Metal Containers Corp. v. PNB (511 SCRA 444) creates the obligation to return the things which were the object of the
• The presumption does not apply when earnest money is given in a contract contract, together with their fruits and interest.
to sell. Serrano v. Caguiat (517 SCRA 57). The money given in a contract to
Place of Perfection
sell is not earnest money but as part of the consideration to the seller’s
promise to reserve the subject property for the buyer. PNB v. CA (262 SCRA • The sale’s place of perfection is where the meeting of the minds as to the
464) determinate subject matter and price occurs.
• In a conditional contract of sale, the acceptance of earnest money would • In case of acceptance by telegram or letter, the presumption is that the
prove that the sale is conditionally consummated or party executed. contract was perfected in the place where the offer was made.
Villonco v. Bormaheco (65 SCRA 352) Expenses of Execution and Registration
Varying Treatments of Earnest Money The seller has to answer for the following expenses:
• The treatment of earnest money in Art. 1482 is the preferred concept 1. Execution and registration of the sale
under the law. 2. Putting the goods into a deliverable state
• However, there is nothing which prevents the parties from treating the 3. Withholding taxes due on the sale
earnest money differently.
• For example, in Spouses Doromal v. CA (66 SCRA 575), the parties treated Performance Should Not Affect Perfection
the earnest money as a guarantee that the buyer would not back out from • The ability of the parties to perform the contract (after perfection) does
the sale. This was the concept of earnest money in the old Civil Code. not affect the perfection of the contract.
• Example:
Distinguising Earnest Money and Option Money
o In Schuback v. CA (227 SCRA 719), the Court ruled that there was
• Adelfa Properties, Inc. v. CA (240 SCRA 565, 580) provides the distinctions: already a perfected sale even when the required letter of credit
Earnest Money Option Money (which was the means of payment agreed upon) had not been
opened by the buyer.


16
• Non-‐payment of the price does not render void nor reverse the effects of • Art. 1358 enumerates the contracts which require a public document.
the perfection of the contract of sale. It only creates a right to demand However, it expressly provides that sales of real property or an interest
fulfillment of the obligation or to rescind the contract. Balatbat v. CA (261 therein, are governed by Art. 1403(2) (i.e. Statute of Frauds) and Art. 1405.
SCRA 128) • Provisions of Art. 1358 are only for purposes of convenience. Non-‐
• When the seller is not the owner both at the time of perfection and compliance would not render the contract void or unenforceable. It merely
delivery, it is similar to an “impossible service” under Art. 1409(5). Thus, provides a cause of action for the parties to compel the other to have the
the contract is void. Nool v. CA (276 SCRA 149) document notarized. Dalion v. CA (182 SCRA 872)
o BUT, CLV says that the comparison to an impossible service is • Even if the deed of sale has not yet been signed and notarized, the
erroneous because the obligations are “to give,” not “to do.” contract is still perfected. Limketkai Sons Milling, Inc. v. CA (250 SCRA 523)
• However, if a deed of sale over a condominium unit or a piece of land is
Form of Sales not registered in the Registry of Deeds, it cannot bind third persons.
Form Not Generally Important for Validity of Sale Talusan v. Tayag (356 SCRA 263), Santos v. Manalili (476 SCRA 679)
Art. 1483 Dalion v. CA
Subject to the provisions of the Statute of Frauds and of any other applicable Facts: Segundo Dalion is denying that he sold his parcel of land in Southern Leyte to
statue, a contract of sale may be made in writing, or by word of mouth, or partly in Ruperto Sabesaje, contending that the document is fictitious and should have been
writing and partly by word of mouth, or may be inferred from the conduct of the executed in a public instrument. Sabesaje filed a suit for recovery of ownership of
parties. (n) the parcel of land based on the deed of absolute sale executed by Dalion.

• Sale, being a consensual contract, no particular form is required for its
validity. Issue: Whether or not the sale was valid despite the failure to embody it in a public
document
• The sale of land under a private instrument is valid. Gallar v. Hussain (20
SCRA 186) The requirement in the Statute of Frauds that sale of real estate
should be embodied in a public document is only for the purpose of Held: Yes. Art. 1358 states that “acts and contracts which have for their object the
binding third parties.

• The fact that the sale over land was not registered does not affect the

validity of the sale. Again, registration is only for the purpose of greater
efficacy and binding third persons. Universal Sugar Milling Corp. v. Heirs of
Angel Teves (389 SCRA 216)
16
• Remember: Unenforceable contracts are still valid. Art. 1358 – The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
Requirement for Public Instrument for Immovables under Art. 1358
therein are governed by Articles 1403, No. 2, and 1405;
(2) xxx
(3) xxx
(4) xxx
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even
a private one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and
1405. (1280a)

creation, transmission, modification or extinction of real rights over immovable • Even if deeds of sale were notarized by someone who was not a notary
property must appear in a public instrument” is only for convenience, not for public, the sale still remained valid. But the Deed of Sale becomes a mere
validity or enforceability. It is not a requirement for the validity of a contract of sale private document. R.F. Navarro & Co. v. Vailoces (361 SCRA 139)
of a parcel of land that this be embodied in a public instrument.
• In Dalumpines v. CA (336 SCRA 538), the signatures of the sellers were
found on the acknowledgemnt of the notarized Deed of Absolute Sale, not
A contract of sale is a consensual contract, which means that the sale is perfected the Deed of Absolute Sale itself. The Court ruled that the deed cannot be
by mere consent. No particular form is required for its validity. The authenticity of considered notarized because the notary public did not observe utmost
the signature of Dallion was proven by the testimony of several witness including care in the performance of his duty.
the person who made the deed of sale. • Even if unsigned, Contracts to Sell constitute the law between the
contracting parties. They are consensual and thus, binding as long as there
is a meeting of the minds. Gomez v. CA (340 SCRA 720)
Function of a Deed of Sale
• Substantial variance in the terms of the Contract to Sell and the
• A formal and symbolic delivery of the property sold. It can be used by the subseqeunt Deed of Absolute Sale did not void the transaction. The Deed
buyer as proof of ownership. of Absolute Sale novated the Contract to Sell. Lumbres v. Tejada, Jr. (516
• The execution of a public document is one of the highest forms of SCRA 575)
constructive delivery in the Law on Sales
• Public document:
When Form of Sale Affects its Validity
o Subscribed and acknowledged before a notary public • General Rule: Form does not affect validity of sale.
o Enjoys presumption of regularity and due execution • Exceptions: (ACM)
o High probative value a. Power to sell a piece of land by an agent must be in writing,
o Clear and convincing evidence is required to contradict such otherwise, the sale will be void.
• However, notarization does not guarantee validity. Neither is it conclusive b. Sale of large cattle must be in writing, otherwise the sale would
of the nature of the transaction conferred by the said document. Salonga be void. It must also be registered with the municipal treasurer in
v. Concepcion (470 SCRA 291) order to be valid.
• Execution and notarization of a deed of sale is not conclusive presumption c. Sale of land by “non-‐muslim hill tribe cultural minorities all
of delivery of possession. Santos v. Santos (366 SCRA 395) throughout the Philippines” is void if not approved by the
o The buyer’s immediate taking of possession and occupation of the National Commission on Indigenous Peoples (NCIP).
property corroborates the authenticity of the deed of sale • The authority of an agent to sell real estate must be embodied in a written
o But the seller’s continued possession of the property casts doubt special power of attorney. Therefore, the authority must be expressly
on the validity of the sale. It can show that the sale was simulated. given and specific. Cosmic Lumber Corp. v. CA (265 SCRA 168); Raet v. CA
• Jurat – clause at the foot of an affidavit showing when, where and before (295 SCRA 677)
whom the actual oath was sworn • An oral sale entered into by the son for the real property of his father is
o If this alone is present, the deed of sale is not notarized and void. Delos Reyes v. CA (313 SCRA 632)
remains a private document. • Likewise, the agent of a corporation must have a written authority to sell a
piece of land, otherwise, it will be void. Receipt of part of the purchase

price by the agent will not validate the sale. City-‐Lite Realty Corp. v. CA 3. Failure to object to the presentation of evidence aliunde
(325 SCRA 385) (meaning: from another place) as to the existence of a contract
• However, the agent’s written authority alone will not exempt the sale from 4. Sales effected through electronic commerce
the Statute of Frauds. The Deed of Sale itself must be in writing and
rd
Nature of Memorandum
registered in order to be enforceable and binding to 3 persons. Torcuator
v. Bernabe (459 SCRA 439) • The memorandum need not be in just one document. Several
• When the Contract to Sell is signed by the co-‐owners themselves, written correspondences taken together would constitute sufficient
authority by the agent is no longer required. The co-‐owners are acting memorandum. Berg v. Magdalena Estate, Inc. (92 Phil 110); First Phil.
directly. Oesmer v. Paraiso Dev. Corp. (514 SCRA 228) International Bank v. CA (252 SCRA 259)
• The memorandum must contain all the essential terms of the contract of
Statute of Frauds: When Form Is Important for Enforceability sale. All the requisites of a valid sale must be indicated. Paredes v. Espino
Nature and Purpose of Statue of Frauds (22 SCRA 1000)
o The manner of payment must also be included in the
• To prevent fraud and perjury in the enforcement of obligations. The
memorandum. Yuvienco v. Dacuycuy (104 SCRA 668)
written note must emobody the essentials of the contract. Torcuator v.
o But the Court has held that in sales of real property, the statute of
Bernabe (459 SCRA 439)
frauds will not apply if there has already been partial payment
• The application of the Statute of Frauds presupposed the existence of a
even if the memorandum evidencing the sale did not mention
perfected contract. Firme v. Bukal Enterprises and Dev. Corp. (414 SCRA
payment by installment. David v. Tiongson (313 SCRA 63)
190)
• The courts will not go beyond the four corners of the memorandum to
Sales Coverage in Statute of Frauds ascertain the presence of a sale. Doing so would be violative of the Statute
of Frauds. If the memoranda do not embody the essential elements of a
• The following kinds of sale are unenforceable if not embodied in a written
sale, the court will declare that there wasn’t any perfected sale. Oral
document: (1-‐500-‐R)
evidence will not suffice to prove the sale. Limketkai Sons Milling, Inc. v. CA
o A sale which is not to be performed within one year
(255 SCRA 626)
o Agreement for the sale of goods, chattel or things in action not
less than P500 Yuviengco v. Dacuycuy
o Sale of real property
Facts: Petitioners are owners of a bakery in Tacloban, they intend to sell it at 6.5M
• Evidence of the agreement must be in writing. and the offer pending until July 31, 1978 to buy the property. Atty.Gamboa went to
Cebu bringing a contact with an altered mode of payment which says that the
Exceptions to Coverage of Statue of Frauds in Sales Contracts
balance payment should be paid withing 30 days instead of the former 90 days. Due
• The following are exempted from the Statute of Frauds and are thus to the said variance in the said document, the bank draft was returned unsigned.
enforceable: (M-‐POE)
1. There is a note or memorandum in writing and subscribed by the
Issue: Whether or not there was a cause of action
party charged or his agent
2. When there has been partial consummation/partial performance Whether or not the statute of fraud will apply


3) WON the sale to NBS during the pendency of the trial in the RTC was effected
in good faith—NO
Held: SC considered the correct juridical significance of the telegram of respondents
instructing Atty. Gamboa to "proceed to Tacloban tonegotiate details." It
emphasizes the word "negotiate" advisedly because to SC’s mind it is the key word
Ratio
that negates and makes it legally impossible to hold that respondents' acceptance
of petitioners' offer, assuming that it was a "certain" offer indeed, was the 1. Contract of sale perfected-‐VP and Asst. VP have authority to sell since
"absolute" one that Article 1319. Payment on installments is entirely different from their primary responsibilities were to manage and administer real estate
cash payment. The manner of payment is an essential requisite in a contract of sale. property.Asst. VP Aromin testified that there was already a perfected
The alteration in the terms of payment clearly showed there was no meeting of the contract of sale.When they met, talked and agreed that the lot would be
minds yet to perfect a contract of sale. sold to Limketkai at Php 1000/sq. meter and on terms dictated by Albano,
the sale was perfected.

2. Statute of Frauds -‐ transaction was outside the ambit of the SoF, there is
In any sale of real property on installments, the Statute of Frauds read together the existence of a written note or memorandum, the Authorization Letters
with the perfection requirements of Article 1475 of the Civil Code must be and letter from Limketkai confirming the sale. Respondents cross-‐
understood and applied in the sense that the idea of payment on installments must examined the witnesses at length regarding the contract, price, tender of
be in the requisite of a note or memorandum therein contemplated. Under the payment, etc.
Statute of Frauds, the contents of the note or memorandum, whether in one 3. NBS not a purchaser in good faith. They ignored the lis pendens annotated
writing or in separate ones merely indicative for an adequate understanding of all on the title.
the essential elements of the entire agreement, may be said to be the contract

itself, except as to the form
Limketkai v. CA (MR)
1. No contract of sale perfected-‐ . Petitioners fail to establish any definite
Limketkai v. CA
agreement or meeting of the mind as regards the price or term of payment.
Facts: BPI as trustee of PRC , authorized Pedro Revilla to sell a lot in Barrio Bagong Petitioner’s acceptance of the offer was qualified, which amounts to a rejection of
Hog, Pasig. BPI VP Albano, Asst. VP Aromin and Limketkai had negotiations and the original offer.
eventually settled on Php 1000/sq meter. Lim asked if they could pay on terms and

so VP Albano dictated the terms of payment. About 3 days later, Limketkai learned
that its offer to pay on terms has been frozen. Lim went to BPI to tender full 2.Statute of Frauds-‐ Petitioner claims as proof of perfected contract of sale
payment of Php 33, 056, 000.00 to VP Albano but the latter refused payment and between it and respondent BPI were not subscribed by the party charged, i.e. BPI,
said his authority to sell the land had been withdrawn. Limketkai filed a case to thus did not constitute the memoranda or notes that the law speaks of.
against BPI for specific performance.

Partial Performance
Issues
• Partial performance is not limited to the giving of money. Contracts
1) WON there was a perfected contract of sale between Limketkai and BPI—YES
covered by the Statute of Frauds are ratified by acceptance of benefits
2) WON the evidence admitted by the trial court in ruling for the perfection of the
sale is admissible, given that in a sale of real property, the Statute of Frauds is under them. (Art. 1405)
applicable?—YES


• However, delivery of the deed to the buyer without intention on the part • Formal requirements are for the benefit of third parties. Non-‐compliance
of the seller to part with the title until purchase price is paid does not does not affect the validity of the contract. Fule v. CA (286 SCRA 698)
constitute partial performance. Baretto v. Manila Railroad Co. (46 Phil. • If a third party disputes the ownership of the property, the person against
964) whom that claim is brought cannot present any proof of such sale and
• Partial performance of a sale of real property will take it out of the Statute hence, has no means to enforce the contract. Thus, the Statute of Frauds is
of Frauds even if the formal requirements (i.e. it must be in writing) are not for the benefit of the parties in the sale. Claudel v. CA (199 SCRA 113)
complied with, as long as the essential requisites of sale are present. Vda. o The Claudel ruling confirms the variance in principles involving
De Jomoc v. CA (200 SCRA 74) movables and immovables. Art. 1403 treats partial execution as
• The Statute of Frauds only applies to executory contracts. Where one party applicable only to “goods and chattel.”
has performed his obligation, oral evidence will be admitted to prove the o For movables, mere possession is enough to give a presumption
agreement. Alfredo v. Borras (404 SCRA 145) (Note the difference with the of ownership (Art. 559). For immovables, a Torrens title is needed.
admissibility of parol evidence in the Limketkai case, supra.) o Note the difference in the ruling of Claudel and Vda. De Jomoc.
The controlling doctrine is that of Vda. De Jomoc: partial
Spouses Alfredo v. Spouses Borres
performance in sales of real property takes it out of the Statute of
Facts: Spouses Alfredo sold a land to Spouses Borres, the latter will pay the DBP Frauds. However, it is still the registration in the Registry of Deeds
loan of the former and the balance will be paid in cash. Carmen Alfredo issued a which will bind third parties.
receipt for the payment. Alfredos then delivered the OCT 284, along with document
o Claudel shows the effect of having a sale of real property which
of cancellation of mortgage, official receipts of realty tax payments to Adelia.
However, Borreses discovered that the Alfredos had re-‐sold portions of the subject isn’t reduced to writing. Thus, it emphasizes the importance of
land to several persons. the Statute of Frauds. (Claudel was decided based on prescription,
not according to the Statute of Frauds.)

• Reliance on testimony of witnesses as secondary evidence to prove a sale
Issue: WON sale of land in favor of Borreses is valid even if orally entered. (YES) of real property will not prosper because such a sale must be evidenced by
WON Statute of Frauds is applicable (NO) a written instrument when it involves third parties. Alba vda. De Rax v. CA
(314 SCRA 36)
• Londres v. CA (394 SCRA 133) summarized the rulings on the matter:
Ratio: Contract of Sale was a perfected contract. The contract was also
o Art. 1358 is only for convenience
consummated because both parties have performed their respective obligations.
SOF does not apply because there is a memorandum of sale, Receipt is considered a o Registration of the instrument is needed only to adversely affect
memorandum of sale. SoF only applies to executory contracts, not ones that have third parties
been partially/totally performed. o Non-‐compliance with formal requirements does not affect validity
• In the Torrens system, execution of a public document is not enough to
bind third persons. Registration with the Registry of Deeds is the operative
Effect of Partial Execution on Third Parties act. Secuya v. Vda. De Selma (326 SCRA 144)
• Sale of real property which are not in writing but are partially executed still Fule v. CA
do not bind third parties.
Facts: Fule offered to sell his land to Dr. Cruz for the price of 40,000 and her


emerald cut diamond earrings (worth 160k). They met at the safety deposit box of she owns the whole lot, including the portion bought by Secuya, presenting a TCT
Dr. Cruz and Fule examined the said jewelry. He nodded and took the earrings. Two and a deed of sale executed by Cesaria Caballero.
hours after, he complained to Atty. Belarmino and Dr. Cruz that the jewelry given to

him was a fake. He prayed for the annulment of the contract on the ground of
vitiated consent through fraud. Issue: Whether or not Secuya’s own the the property

Issue: Whether or not the sale was invalid due to fraud Held: No. The Agreement is not one of partition, because there was no property to
partition and the parties were not co-‐owners. Rather, it is in the nature of a trust

agreement. As a result of the Agreement, Maxima Caballero held the portion
Held: No. There was no fraud on the part of the private respondents. In fact, it was specified therein as belonging to Paciencia Sabellona when the application was
the petitioner through his agents who led Dr.Cruz to believe that the properties eventually approved and a sale certificate was issued in her name.Thus, she should
were worth P400,000 then supposedly discounted it to P200,000 to induce her to have transferred the same to the latter, but she never did so during her lifetime.
exchange the property. All elements were present a) consent b) subject matter and

c) price. The land was constructively delivered via deed of absolute sale and the
earrings transferred ownership when he left the Bank that day. Thus, contract can Petitioners insist that Paciencia sold the disputed property to Dalmacio Secuya
no longer be disputed. embodied in a private document. However, such document, which would have
been the best evidence of the transaction, was never presented in court, allegedly

because it had been lost. While a sale of a piece of land appearing in a private deed
Claudel v. CA is binding between the parties, it cannot be considered binding on third persons, if
it is not embodied in a public instrument and recorded in the Registry of Property
Facts: Cecilio Claudel’s heirs and siblings claimed title to the land. Siblings claim that
subject lot was sold to their parents by Cecilio through an oral contract. Their proof
of sale is a subdivision plan of the said land.
Nature and Coverage of Partial Performance
Issue: 1.Whether or not a contract of sale of land may be proven orally (NO)
• Partial payment of the purchase price is not the only manner of partial
2. Prescriptive period for filing an action for cancellation of titles and performance.
reconveyance with damages
• Other modes of partial performance: Ortega v. Leonardo (103 Phil. 870)
Ratio: Contracts of sale are valid regardless of the form it may have been entered o Possession
into except when third party, disputes the ownership of the property, the person o Making of improvements
against whom that claim is brought cannot present any proof of such sale and
o Rendition of services
hence has no means to enforce the contract. As to the prescription ,Civil Code sates
that under Art. 1145, actions regarding oral contracts must be commenced within 6 o Payment of taxes
years. o Relinquishment of rights
• Requisites of partial performance:

o Must pertain to the subject matter or the price of the sale
Secuya v. Vda. De Selma o Must involve an act or “complicity” on the party sought to be
Facts: Maxima Caballera, through an agreement of partition, allotted Lot 5679 to charged
Paciencia Sabellona. The latter then sold her share to Secuya. De Selma claims that


• Partial performance must amount to estoppel against the party sought to • Cross-‐examination on the contract is deemed a waiver of the defense of
be charged. the Statute of Frauds.
Ortega v. Leonardo Value of Business Forms to Prove Sale
Facts : Leonardo made a deal with Ortega to desist from pressing her claim and • Business forms (e.g. receipts, order slips, etc.) issued by the seller are not
promised that he would sell to her a portion of the lot provided she paid for the always fully accomplished to contain all the necessary information
surveying and subdivision of the Lot and provided further that after he acquired
describing the business transaction.
title, she could continue holding the lot as tenant by paying a monthly rental.
Ortega accepted the offer. Defendant acquired title. Ortega tendered to Leonardo • They serve as an acknowledgement that a business transaction did take
the purchase price for the lot, which the latter refused to accept, without cause or place.
reason. Alleging partial performance, plaintiff sought to compel defendant to • By themselves, they are inadequate to establish the case for the vendor.
comply with their oral contract of sale of a parcel of land. Their probative value must be evaluated in conjunction with other
evidence.
Issue: WON the partial performance of a sale of contract occurs only when part of Toyota Shaw v. CA
the purchase price is paid (NO)
Facts: Luna Sosa and Popong Bernardo, a sales representative executed a document
entitled “Agreements between Sosa & Popong Bernardo of Toyota Shaw” for the
purchase of a Toyota Lite Ace. A P 100,000.00 down payment was stipulated and
Ratio: American Jurisprudence enumerates other acts of partial performance (i.e.
that the Lite Ace would be available at the given date, with Bernardo guaranteeing
continuance in possession, making of valuable permanent improvements on the
that the vehicle would be delivered. At the given date of delivery, Lite Ace was
land, tender or offer of payment, relinquishment of rights). The complaint in this
unavailable. Sosa sued for damages.
case described several circumstances indicating partial performance. Hence, there
was partial performance and the principle excluding parol contracts for the sale of
realty, does not apply.
Issue: WON there was a perfected contract of sale -‐ NO

Waiver of Provisions of Statute of Frauds Ratio: No perfected contract of sale. There was no agreement as to the price and
• This is the third ground which takes a contract out of the Statute of Frauds. the manner of payment – w/c are both essential to the perfection of the sale.
• When a party fails to object during trial to the presentation of oral
evidence to prove the contract, he is deemed to have waived the defects
17
Sales Effected as Electronic Commerce (R.A. 8792)
of the contract. Thus, the contract will be enforceable. (Art. 1405 )
• The main point of this entire section in the book is this: electronic
documents are given the same legal recognition as paper documents.
Thus, they are admissible as evidence in court.

17
Art. 1405 – Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified
by failure to object to the presentation of oral evidence to prove the same, or by the acceptance of
benefits under them.

Form in Equitable Mortgage Claims • Parol evidence will not be admitted to prove that a sale was a “sale on
• The Statute of Frauds does not stand in the way of treating an absolute return” or “sale on approval.”
deed of sale as a mortgage, when such was the intention of the parties. • The buyer cannot accept part of the goods and reject the rest.
Cuyugan v. Santos (34 Phil. 100) Right of First Refusal Must Be Contained in Written Contract
• A contract should be construed as a mortgage or a loan instead of a pacto
• Verbal grants of such right are not enforceable. In effect, this is an addition
de retro sale when its terms are ambiguous or the circumstances
to the Statute of Frauds. Sen Po Ek Marketing Corp. v. Martinez (325 SCRA
surrounding its execution or its performance are incompatible with a sale.
210)
Parol evidence becomes admissible to prove that the instrument was
intended to be a security for a loan. Lapat v. Rosario (312 SCRA 539) When Sale Completely Simulated
• An equitable mortgage is not different from a real estate mortgage, and
• When a sale is absolutely simulated, it is completely void and non-‐existent.
the lien created thereby ought not to be defeated by requiring compliance
• If the parties enter into a sale to which they did not intend to be legally
with the formalities necessary to the validity of a voluntary real estate
bound, the contract is void and not susceptible to ratification. Rosario v. CA
mortgage. Rosales v. Suba (408 SCRA 664)
(310 SCRA 464)
Form in “Sales on Return or Approval” • Failure of the buyers to take possession of the property or to collect
rentals is contrary to the principle of ownership. It shows simulation which
Art. 1502
renders the whole transaction void. Santiago v. CA (278 SCRA 98)
When goods are delivered to the buyer “on sale or return” to give the buyer an • Although the agreement to sell did not absolutely transfer ownership of
option to return the goods instead of paying the price, the ownership passes to the the land to the buyer, the Court held that it did not show that the
buyer on delivery, but he may revest the ownership in the seller by returning or
agreement was simulated. Delivery of the certificate of ownership and the
tendering the goods within the time fixed in the contract, or, if no time has been
fixed, within a reasonable time. (n) execution of the deed of sale were suspensive conditions which gave rise
to the obligation to pay the last installments. Villaflor v. CA (280 SCRA 297)
When goods are delivered to the buyer on approval or on trial or on satisfaction, or
• “Simulation” – declaration of a fictitious will, made by agreement of the
other similar terms, the ownership therein passes to the buyer:
parties, in order to produce, for the purposes of deception, the
(1) When he signifies his approval or acceptance to the seller or does any other act appearance of a juridical act which does not exist or is different from what
adopting the transaction;
was really executed. Loyola v. CA (326 SCRA 285)
(2) If he does not signify his approval or acceptance to the seller, but retains the • In simulated contracts, the parties do not intend to be bound by the
goods without giving notice of rejection, then if a time has been fixed for the return contract and the apparent contract is not really desired or intended to
of the goods, on the expiration of such time, and, if no time has been fixed, on the
produce legal effect.
expiration of a reasonable time. What is a reasonable time is a question of fact. (n)
• Requisites of simulation: (DMD)
• The Court has held that the conditions in Art. 1502 will only apply if there o Outward declaration of will different from the will of the parties;
is an express stipulation that the sale is either a “sale on return” or a “sale o False appearance intended by mutual agreement
on approval.” Industrial Textile Manufacturing Company of the Phil., Inc. v. o Purpose is to deceive third persons
LPJ Enterprises, Inc. (217 SCRA 322) • The allegation that a signature is forged must be proven by clear, positive
and convincin evidence. R.F. Navarro & Co. v. Vailoces (361 SCRA 139)

• When a sale is void, the right to set up its nullity or non-‐existence is • Delivery transfers ownership ipso jure, without prejudice to the right of the
available to third persons who are affected. seller to claim payment of the price. Ocejo, Perez & Co. v. International
• Action for declaration of nullity is likewise available. It does not prescribe. Banking Corp. (37 Phil. 631)
• Accion pauliana is also available when the subject matter is a conveyance
undertaken in fraud of creditors.
Law on Sales To Deliver the Fruits and Accessories
Chapter 6 – Performance or Consummation of Sale Art. 1164.

The creditor has a right to the fruits of the thing from the time the
Obligations of Seller obligation to deliver it arises. However, he shall acquire no real right over
To Preserve the Subject Matter it until the same has been delivered to him. (1095)
Art. 1163. Art. 1537.
Every person obliged to give something is also obliged to take care of it The vendor is bound to deliver the thing sold and its accessions and
with the proper diligence of a good father of a family, unless the law or accessories in the condition in which they were upon the perfection of the
the stipulation of the parties requires another standard of care. (1094a) contract.
All the fruits shall pertain to the vendee from the day on which the
• In the sale of a determinate object, the obligation of taking care of the
contract was perfected. (1468a)
subject matter arises upon perfection, even before delivery. Otherwise,
the seller is liable for breach. • In a sale involving a determinate subject matter, even prior to delivery of
• It is an obligation “to do.” ownership thereof to the buyer, the buyer already has certain rights
enforceable against the seller.
To Deliver the Subject Matter
To Warrant the Subject Matter
Art. 1495.
• Please see discussions in Chap. 12.
The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is object of the sale. (1461a) Tradition as a Consequence of a Valid Sale
• Transfer of ownership is effected by delivery, actual or constructive.
Essence of Tradition
• If there is no express stipulation that title shall not pass until payment of Art. 1496.
price, and the thing sold has been delivered, ownership passes from the
The ownership of the thing sold is acquired by the vendee from the
moment the thing sold is placed in the possession and control of the buyer.
Payment of price does not determine the effect of delivery. Kuenzle &
moment it is delivered to him in any of the ways specified in Articles 1497
Streiff v. Watson & Co. (13 Phil 26) to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.


• There is delivery if and when the thing sold is placed in the control and aware of the presence of the tenants when it entered into the contract of sale
possession of the vendee. Delivery is a composite act, in which both hence it assumed the risks of ownership and possession.
parties must join and the minds of both parties concur. Equatorial Realty

Dev., Inc. v. Mayfair Theater, Inc. (370 SCRA 56)
• Tradition produces its legal consequences from the fact that delivery is Constructive Delivery
effected pursuant to a valid sale. There is no transfer of ownership by the • The essence of most forms of constructive delivery is the existence of an
execution of a deed of sale merely intended to accommodate the buyer to agreement between the seller and the buyer, and that the laatter is
enable him to generate funds for his business. understood to have control of the subject matter of the sale.
Actual Delivery Execution of Public Instrument
Art. 1497. Art. 1498.

The thing sold shall be be understood as delivered, when it is placed in the When the sale is made through a public instrument, the execution thereof
control and possession of the vendee. (1462a) shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly
• Although possession is the best gauge when there is control, nonetheless be inferred.
control can take other forms other than actual physical possession.
With regard to movable property, its delivery may also be made by the
o In a case, the lot was considered to be in the buyer’s control when
the buyer subsequently filed an ejectment suit against someone. delivery of the keys of the place or depository where it is stored or kept.
Power Commercial and Industrial Corp. v. CA (274 SCRA 597) (1463a)
Power Commercial and Industrial Corp. v. CA Art. 1487.

Facts: PCIC bought a property from spouses Quiambao. PCIC also assumed The expenses for the execution and registration of the sale shall be borne
mortgage on the land in favor of PNB. Spouses again mortgaged the land to PNB to by the vendor, unless there is a stipulation to the contrary. (1455a)
guarantee a loan. PCIC assumed this mortgage also, so parties executed a Deed of
Absolute Sale with Assumption of Mortgage, along with the application for • Jurisprudence has held that a notarized deed of sale has two functions:
assumption of mortgage, to PNB. PCIC filed for rescission of the contract for 1. it operates as a formal or symbolic delivery of the property sold
Quiambaos’ failure to eject the lessees and transfer physical possession to them.
During the pendency of the case, the mortgage was foreclosed and PNB was the 2. it authorizes the buyer to use the document as proof of
highest bidder at the public auction. ownership
Issues: W/N the contract may be rescinded due to a substantial breach of the • Constructive delivery has the same legal effect as actual or physical
contract—failure to eject tenants and violation of warranty against eviction. -‐-‐-‐ NO delivery. Municipality of Victorias v. CA (149 SCRA 31)
Held: Delivery can be actual or constructive. Symbolic delivery, as a species of • Prior physical possession it not legally required since the mere execution of
constructive delivery, may be prevented if the vendor does not possess control over the deed of conveyance in a public instrument is equivalent to the delivery
the thing sold, in which case this legal fiction must yield to reality. Here, the lot had of the property. Sabio v. International Corporate Bank (364 SCRA 385)
been placed in PCIC’s control. That’s why they were able to file the ejectment cases • Control is still necessary. If a public document was executed, but the buyer
subsequently. Since ejectment of lessees was not stipulated as a condition, it is not placed in control of the property, there is only a rebuttable
cannot be invoked as a cause to allow PCIC to rescind its contract. In fact, PCIC was


presumption of delivery which can be rebutted by clear and convincing must subsist for a reasonable length of time. Pasagui v.
evidence. Santos v. Santos (366 SCRA 395) Villablanca (68 SCRA 18)
Santos v. Santos Addison v. Felix
Facts: Jesus and Rosalia Santos executed a deed of sale of a property in favor of Facts: Spouses Marciana Felix and Balbino Tioco bought 4 parcels of land from A. A.
Salvador and Rosa. Rosalia continued to lease and receive rentals from the Addison. Felix paid at the time of execution P3000 and the manner of payment for
apartment units. Jesus, Rosalia and Salvador died. Zenaida, Salvador’s wife, subsequent installments were stipulated by the parties. The contract also provided
demanded rent from Antonio, Rosalia’s tenant. He refused. Rosalia’s siblings filed for a stipulation for rescission within 1 year from the issuance of title to the
for reconveyance of the property alleging that the deed of sale was simulated for property, and shall effect restitution among the parties. Addison filed a suit in the
lack of consideration. CFI of Manila claiming the first installment of P2000. Defendants contested that the
property was not delivered, hence they asked for a refund.
Issue: Is a sale though a public instrument tantamount to delivery of the thing sold?
-‐-‐-‐ NO Issue: W/N there was delivery and, therefore, a transfer of ownership of the thing
sold. -‐-‐-‐ NO
Held: There is nothing in Article 1498 that provides that execution of a deed of sale
is a conclusive presumption of delivery of possession; presumptive delivery can be Held: The thing is considered to be delivered when it is placed "in the hands and
negated by the failure of the vendee to take actual possession of the land or the possession of the vendee." (Art. 1462). It is true that the same article declares that
continued enjoyment of possession by the vendor. For the execution of a public the execution of a public instruments is equivalent to the delivery of the thing
instrument to effect tradition, the purchaser must be placed in control of the thing which is the object of the contract, but, in order that this symbolic delivery may
sold. To effect delivery, there must be the actual intention of the vendor to deliver, produce the effect of tradition, it is necessary that the vendor shall have had such
and its acceptance by the vendee. control over the thing sold that, at the moment of the sale, its material delivery
could have been made. It is not enough to confer upon the purchaser the

ownership and the right of possession. The thing sold must be placed in his control.
• Cases where execution of public instrument covering valid sales do not

produce the effects of tradition:
Danguilan v. IAC
1. When there is a contrary stipulation. Phil. Suburban Dev. v.
Auditor (63 SCRA 397) Facts: Apolonia filed a complaint against Danguilan for recovery of two lots. She
claimed to have purchased these lots from Domingo Melad and moved out because
2. At the time of the execution of the public instrument, the subject
Danguilan asked if he could cultivate the lands. Domingo claims Domingo signed
matter was not subject to the control of the seller. Addison v. Felix
private instruments conveying said properties on the understanding that the latter
(38 Phil. 404)
would take care of the grantor and arrange for his burial.
a. However, if there was an express agreement that the
Issue: Who has a better claim to the property? -‐-‐-‐ Danguilan
buyer had to take necessary steps to obtain material
possession, and it was proven that the buyer knew the Held: Apolonia failed to show that she consummated the contract of sale by actual
subject matter to be in possession of a third party, such delivery of the properties to her, and her actual possession thereof in concept of
agreement is valid. The seller is deemed to have owner. Such control should remain within a reasonable period after the execution
complied with his obligation to deliver by the execution of the instrument.
of the public instrument.

3. Not only must the seller have control at the execution of the
Pasagui v. Villablanca
instrument, such control or ability to transfer physical possesion


Facts: Calixto Pasagui and Fausta Mosar purchased land from Eustaquia and because Wilfredo failed to pay the amortization. Perfecto offered to pay the full
Catalina Bocar for P 2,800.00. The sale was embodied in a public instrument. amount but Libra refused since the loan was obtained not only for the tractor but
However, they failed to take possession of the property because Spouses the truck as well. There was a collection case pending filed by Gelac Trading against
Villablanca illegally took possession of the property and harvested coconuts therein. Wilfredo. The tractor was seized and sold at a public auction where Gelac Trading
As such, Pasagui filed a case for ejectment against the Villablancas. was the lone bidder. Gelac Trading sold the tractor to Antonio Gonzales.
Issue: W/N there was constructive delivery upon the execution of the public Issue:
instrument. – NO.
1. Whether or not there was constructive delivery at the time of the
Held: The seller must have actual control of the object of sale at the time of the execution of the deed of sale in favor Perfecto. – YES
execution of the instrument, and such control/ability to transfer physical possession
2. Whether or not Wilfredo must first have control and possession of the
must subsist for a reasonable amount of time after the execution of the instrument.
thing before he could transfer ownership by constructive delivery. – NO
Pasagui had not yet acquired physical possession of the land because no delivery
Held: Art 1496 states that the ownership of the thing sold is acquired by the vendee
was ever made by the seller, even by constructive delivery that proves actual
from the moment it is delivered to him in any of the ways specified in Art 1497-‐
possession and control.
1501 or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee. Although actual delivery of the tractor
could not be made, there was constructive delivery already upon the execution of
• The registration of a Deed of Sale involving land with the Registry of Deeds
rd the public instrument pursuant to Art 1498 and upon the consent or agreement of
is necessary only to bind 3 parties. As between the buyer and seller,
the parties when the thing sold cannot be immediately transferred to the
ownership is transferred by the execution of the public document. Chua v.
possession of the vendee.
CA (401 SCRA 54)
Symbolic Delivery
Art. 1499.
• Must involve or cover the subject matter, and cannot take a form relating
The delivery of movable property may likewise be made by the mere to the payment of the purchase price.
consent or agreement of the contracting parties, if the thing sold cannot
o The issuance of a receipt for partial payment cannot be taken to
be transferred to the possession of the vendee at the time of the sale, or if mean a transfer of ownership. Lorenzo Dev. Corp. v. CA (449 SCRA
the latter already had it in his possession for any other reason. (1463a) 99)
• When it comes to a third-‐party and the issue centers on the title or Constitutum Possessorium
ownership of the subject matter, constructive delivery by the execution of
• The seller held possession in the concept of owner, and pursuant to the
a public instrument would produce the effect of tradition, but only insofar
contract, the seller continues possession, but as lessee, or any other form
as title is concerned, provided that at the time of the execution there was
of possession other than in the concept of an owner.
no legal impediment on the part of the seller to transfer title to the buyer,
even if at the time of sale, control of possession of the subject matter was Traditio Brevi Manu
not in the hands of the seller. Dy, Jr. v. CA (198 SCRA 826)
• Opposite of constitutum possessorium
Dy, Jr. v. CA
• The buyer is already in the possession of the property before the sale, but
Facts: Wilfredo Dy obtained a loan from Libra to buy a truck and tractor, which not in the concept of the owner. After the sale, the buyer becomes
were mortgaged to Libra as security. Perfecto Dy purchased the tractor from possesor in the concept of owner.
Wilfredo and assumed the mortgage debt. The tractor was in Libra’s possession
Traditio Longa Manu


• Delivery by mere agreement, such as when the seller points the property Art. 1523.
subject matter of the sale by way of delivery without need of actually
delivering physical possession. Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to the
Delivery of Incorporeal Property
buyer, whether named by the buyer or not, for the purpose of
Art. 1501. transmission to the buyer is deemed to be a delivery of the goods to the
buyer, except in the cases provided for in Article 1503, first, second and
With respect to incorporeal property, the provisions of the first paragraph
third paragraphs, or unless a contrary intent appears.
of Article 1498 shall govern. In any other case wherein said provisions are
not applicable, the placing of the titles of ownership in the possession of Unless otherwise authorized by the buyer, the seller must make such
the vendee or the use by the vendee of his rights, with the vendor’s contract with the carrier on behalf of the buyer as may be reasonable,
consent, shall be understood as delivery. (1464) having regard to the nature of the goods and the other circumstances of
the case. If the seller omit so to do, and the goods are lost or damaged in
• 3 types of constructive delivery specifically applicable to incorporeal course of transit, the buyer may decline to treat the delivery to the carrier
property: as a delivery to himself, or may hold the seller responsible in damage.
1. Execution of a public instrument, if the contrary does not appear
Unless otherwise agreed, where goods are sent by the seller to the buyer
2. Placing of the titles of ownership in the possession of the buyer under circumstances in which the seller knows or ought to know that it is
3. Use and enjoyment by the buyer of the rights pertaining to the usual to insure, the seller must give such notice to the buyer as may
incorporeal property, with the seller’s consent enable him to insure them during their transit, and, if the seller fails to do
so, the goods shall be deemed to be at his risk during such transit. (n)

a. F. A. S. Sales
• For shares of stocks, delivery of the stock certificates is essential. Failure to
deliver the stock certificates may amount to substantial breach, a ground • “Freight Along Side”
for rescission. Raquel-‐Santos v. Court of Appeals, 592 SCRA 169
• the seller pays all charges and is subject to risk until the goods are placed
Delivery by Negotiable Document of Title alongside the vessel. Delivery of the goods alongside the vessel completes
• A negotiable document of title represents the actual goods. If it is the effect of delivery.
transferred in good faith and for value, and if the transferror had the b. F. O. B. Sales
ability to convey, it is equivalent to the transfer of the thing itself. (ex.
Negotiable warehouse receipt) • “free on board”
• If the document of title has merely been assigned, and not negotiated, the • “f. o. b. shipping point” – delivery of the goods to the carrier is equivalent
transferee/assignee only acquires the transferor’s title. to delivery to the buyer. Risk of loss pertains to the buyer.
Delivery through Carrier • “f. o. b. destination” – delivery to the buyer takes place upon arival of the
vessel at the point of destination. Prior to arrival, risk of loss pertains to
• This mode only applies to the sale of goods. The general rule, and in the the seller.
absence of contrary stipulation, delivery to the carrier is deemed delivery
to the buyer. The carrier acts as an agent of the buyer. c. C. I. F. Sales
• “costs, insurance, and freight”

• the price fixed covers not only the costs of the goods, but also the expense corresponding to the price of the deficiency. NACOCO’s defense is that since the
of freight, and insurance contract was c.i.f., delivery to the carrier (SS Mindoro) was equivalent to delivery to
the buyer (GFC).
• Two schools of thought on the effect of delivery under c.i.f. sales:
Issue: Is NACOCO liable to refund? YES.
1. The carrier acts as an agent of the buyer, and therefore, delivery
to the carrier is delivery to the buyer. The buyer thus obtained Ratio: While in ordinary c.i.f. delivery to the carrier is delivery to the buyer, the
ownership. (ex. General Foods v. NACOCO, 100 Phil 637) parties can insert stipulations. Here, the parties stipulated that the price to be paid
would be based on the exact net weight upon arrival at port of destination.
2. Both parties agree that the seller takes on the responsibility of
NACOCO had burden to prove that the deficiency in weight was owing to risks of
insuring the goods. Delivery to the carrier is not equivalent to
the voyage or allowable weighing errors and not the drying up of the copra. It did
delivery to the buyer. (ex. Behn, Meyer & Co. v. Yangco, 38 Phil
not prove.
602)

Pacific Vegetable Oil Corp. v. Singzon
• These shipping arrangements create presumptive effects which can guide
the courts in construing when constructive delivery occurs. However, such Facts: Singzon contracted with PVOC to deliver to latter 500 tons of copra, c.i.f. The
presumptions must necessarily give way to any stipulation or intimation to former failed and after subsequent agreement, Singzon failed again. PVOC sued him
the contrary, as these show the intent of the parties. It is still the intention for damages
of the parties which control the agreement.
Issue: Singzon liable? YES.
Behn, Meyer & Co. v. Yangco
Ratio: Under their arrangement, the vendor was not only to pay for cost, but also
Facts: The contract was for delivery of caustic soda, price including cost, insurance freight and insurance expenses. So before arrival at the destination, the risk of loss
and freight, to be shipped and delivered to Manila and paid upon delivery. From should be for the account of the seller.
shipping point at New York (carrier), British authorities detained the ship at Penang

and some of the caustic soda was removed.
Issue: Is the seller liable? YES. Effects and Completeness of Delivery
Ratio: Contract provided for “c.i.f. Manila…” The term c.i.f. presumes that property 2 Things Must Be Present to make delivery produce its lefal effect:
passes (considered delivered) to the buyer upon delivery to the common carrier.
1. Delivery must be made pursuant to a valid sale
F.o.b. presumes that the seller is responsible until delivery is made to destination.
But these are just presumptions. Intent is still controlling. Although “c.i.f.” was • Tradition pertains to the consummation stage of sale, thus, it
used, it is clear from the contract that the parties intended the seller to be liable presupposes a valid sale.
until delivery was made to destination (Manila). Not having been fulfilled, buyer has
• When a sale is fictitious, no title over the subject matter of the sale
a right to rescind for substantial breach.
can be conveyed.

2. Delivery must be made when seller has ownership over the subject matter
General Foods v. NACOCO of sale so delivered
Facts: NACOCO sold 1000 tons of copra to GFC. It was shipped to GFC aboard the SS • No man can dispose of that which does not belong to him.
Mindoro. NACOCO withdrew from GFC’s letter of credit the amount corresponding
To Whom Delivery Must Be Made
to the copra. But GFC only received 800 tons so it demanded a refund


• General Rule: Delivery must be made to the buyer or his duly In the preceeding two paragraphs, if the subject matter is indivisiable, the
authorized representatives named in the contract. Lagoon v. Hooven buyer may reject the whole of the goods.
Comalco Industries, Inc. (349 SCRA 363)
The provisions of this article are subject to any usage of trade, special
• However, parties can validly stipulate how delivery is to be made and
to whom.
agreement, or course of dealing between the parties. (n)
• Even if the buyer refuses to accept, the delivery by the seller will • When goods are in the possession of a third party at the time of the sale,
produce its legal effects. However, the seller is still legally obliged to to the seller has not fulfilled his obligation to deliver unless and until the third
take certain steps as not to be held liable for consequent loss or person acknowledges to the buyer that he holds the goods on the buyer’s
damage to the goods. behalf. (Art. 1521, CC)
Reservation of Ownership
Art. 1588.
• Ownership will not transfer to the buyer in case of express reservation in
If there is no stipulation as specified in the first paragraph of Article 1523, the contract, such as when the parties stipulate that ownership will not
when the buyer’s refusal to accept the goods is without just cause, the transfer until the purchase price is full paid, or until certain conditions are
title thereto passes to him from the moment they are placed at his fulfilled. (Art. 1478; Art. 1503)
disposal. (n)
o Technically speaking, this does not refer to conditional contracts
Rules on Effects of Delivery for Movables of sale or contracts to sell where the conditions refer to the
perfection of the contract.
Art. 1522. o The conditions mentioned here refer to the consummation stage
Where the seller delivers to the buyer a quantity of goods less than he of the contract.
contracted to sell, the buyer may reject them, but if the buyer accepts or • Article 1503 of the Civil Code gives instances where reservation of
retains the goods so delivered, knowing that the seller is not going to ownership is implied:
perform the contract in full, he must pay for them at the contract rate. If, 1. Goods are shipped, and by the bill of lading the goods are
however, the buyer has used or disposed of the goods delivered before he deliverable to the seller or his agent, the seller reserves
knows that the seller is not going to perform his contract in full, the buyer ownership of the goods. But, if except from the form of the bill of
shall not be liable for more than the fair value to him of the goods so lading, ownership would have passed to the buyer, the seller’s
received. property in the goods shall be deemed to be only for purpose of
securing performance of the buyer’s obligation, in which case
Where the seller delivers to the buyer a quantity of goods larger than he
thebuyer bears the risk of loss.
contracted to sell, the buyer may acept the goods included in the contract
and reject the rest. If the buyer accepts the whole of the goods so 2. Goods are shipped, and by the bill of lading the goods are
delivered, he must pay for them at the contract rate. deliverable to the buyer, but possession of the bill of lading is
retained by the seller, the seller reserves a right to the possession
Where the seller delivers to the buyer the goods he contracted to sell of the goods, and ownership is still transferred to the buyer
mixed with goods of a different description not included in the contract,
3. Seller draws on the buyer for the price, and transmits the bill of
the buyer may accept the goods which are in accordance with the contract exchange and the bill of lading together to the buyer, the buyer is
and reject the rest. bound to return the bill of lading if he does not honor the bill of


exchange. If he retains the bill of lading, he does not acquire no • If a certain piece of machinery delivered is in accordance with the
added right. description, and yet, it cannot be used for the purposes intended by the
buyer, he cannot refuse to pay if the seller was not made aware of the
a. If the bill of lading provides that the goods are
intended purpose. Pacific Commercial Co. v. Ermita Market & Cold Stores,
deliverable to the buyer, one who purchases in good
56 Phil. 617
faith and for value the bill of lading or the goods from the
buyer, will obtain ownership, provided that the bill of “On Sale or Return” and “Sale on Approval, Trial, Satisfaction, or Acceptance”
lading is indorsed to such purchaser.
Art. 1502.
Sale in Mass of Movables
When goods are delivered to the buyer “on sale or return” to give the
• Sale of movables in Article 1522 must be distinguished from the sale of
buyer an option to return the goods instead of paying the price, the
specific mass under Article 1480 which refers to sale of fungible things.
ownership passes to the buyer on delivery, but he may revest the
• If there is no provision in the contract for the measuring or weighing of the ownership in the seller by returning or tendering the goods within the
fungible thing, nor is the price agreed upon by the parties to be based on time fixed in the contract, or, if no time has been fixed, within a
such measurement, the subject matter of the sale is the mass itself, as a
reasonable time. (n)
determinate object. The obligation therefore, of the seller is to deliver the
whole mass, regardless of the quantity. Gaite v. Fonacier (2 SCRA 830) When goods are delivered to the buyer on approval or on trial or on
Sale by Description and/or Sample satisfaction, or other similar terms, the ownership therein passes to the
buyer:
Art. 1481.
When he signifies his approval or acceptance to the seller or does any
In the contract of sale of goods by description or by sample, the contract other act adopting the transaction;
may be rescinded if the bulk of the goods delivered do not correspond
If he does not signify his approval or acceptance to the seller, but retains
with the the description or the sample, and if the contract be by sample as
the goods without giving notice of rejection, then if a time has been fixed
well as by description, it is not sufficient that the bulk of goods correspond
for the return of the goods, on the expiration of such time, and, if no time
with the samplet if they do not also correspond with the description.
has been fixed, on the expiration of a reasonable time. What is a
The buyer shall have a reasonable opportunity of comparing the bulk with reasonable time is a question of fact. (n)
the description or the sample. (n)
• When the sale of a movable is “sale on acceptance,” no ownership could
• There is a sale by sample when a small quantity is exhibited by the seller as have been transferred to the buyer despite delivery and possession
a fair specimen of the bulk, which is not present and there is no because there was still no perfected contract when delivery was done. The
opportunity to inspect or examine the same; and the parties treated the acceptance by the buyer is a suspensive condition which will give rise to
sample as the standard of quality and that they contracted with reference the perfected contract of sale. Vallarta v. CA (150 SCRA 336)
to the sample with the understanding that the product to be delivered • In order for Art. 1502 to apply, it must be clearly expressed in writing that
would correspondent with the sample. Mendoza v. David (441 SCRA 172) the sale is that of “sale or return” or “sale on approval.” It cannot be
• If the buyer had agreed to deviations between the sample and what has proved by parol evidence. Industrial Textile Manufacturing Co. v. LPJ
been delivered, rescision will not be available. Engel v. Mariano Velasco & Enterprises (217 SCRA 322)
Co., 47 Phil. 115 Written Proof of Delivery


• Delivery of goods is generally evidenced by a written acknowlegment of Rules on Effects of Delivery for Immovables
receipt. Lao v. CA (325 SCRA 694)
Where Imovables Sold per Unit or Number
o A bill of lading cannot substitute for a delivery receipt. It is a
written acknowledgment of receipt of the goods by the carrier. It Art. 1539.
is not evidence of receipt of goods by the consignee or the person
named in the bill of lading
The obligation to deliver the thing sold includes that of placing in the
control of the vendee all that is mentioned in the contract, in conformity
o A factory consignment invoice is not evidence of actual delivery. It with the following rules:
is just a detailed statement of the nature, quantity and cost of the
thing sold. It does not prove that the goods were actually If the sale of real estate should be made with a statement of its area, at
delivered to the buyer or consignee. the rate of a certain price for a unit of measure or number, the vendor
Time and Place of Delivery
shall be obliged to deliver to the vendee, If the latter should demand it, all
that may have been stated in the contract; but, should this be not
Art. 1521. possible, the vendee may choose between a proportional reduction of the
price and the rescission of the contract, provided that, in the latter case,
Whether it is for the buyer to take possession of the goods or for the seller
the lack in the area be not less than one-‐tenth of that stated.
to send them to the buyer is a qustion depending in each case on the
contrract, express or implied, between the parties. Apart from any such The same shall be done, even when the area is the same, if any part of the
contract, express or implied or usage of trade to the contrary, the place of immovable is not of the quality specified in the contract.
delivery is the seller’s place of business if he has one, and if not his
The rescission, in this case, shall only take place at the will of the vendee,
residence; but in case of a contract of sale of specific goods, which to the
when the inferior value of the thing sold exceeds one-‐tenth of the price
knowledge of the parties when the contract or the sale was made were in
agreed upon.
some other place, then that place is the place of delivery.
Nevertheless, if the vendee would not have bought the immovable had he
Where by contract of sale the seller is bound to send the goods to the
known of its smaller area or inferior quality, he may rescind the sale.
buyer, but no time for sending them is fixed, the seller is bound to send (1469a)
them within a reasonable time.
Art. 1540.
Where the goods at the time of sale are in the possession of a third
person, the seller has not fulfilled his obligation to deliver to the buyer If, in the case of the preceeding article, there is a greater area or number
unless and until such third person acknowledges to the buyer that he in the immovable than that stated in the contract, the vendee may accept
holds the goods on the buyer’s behalf. the area included in the contract and reject the rest. If he accepts the
whole area, he must pay for the same at the contract rate. (1470a)
Demand or tender of delivery may be treated as ineffectual unless made
at a reasonable hour. What is a reasonable hour is a question of fact. Art. 1541.
Unless otherwise agreed, the expenses of and incidental to putting the The provisions of the two preceeding articles shall apply to judicial sales.
goods into a deliverable state must be borne by the seller. (n) (n)
• The expenses for delivery are to be borne by the seller since they are
expenses pertaining to “putting the goods into a deliverable state.”

• In a unit price sale, the statement of the area of immovable is not should be designated in the contract, the vendor shall be bound to deliver
conclusive and the price may be reduced or increased depending on the all that is included within said boundaries, even when it exceeds the area
area actually delivered. Rudolf Lietz, Inc. v. Court of Appeals (478 SCRA 451) or number specified in the contract; and, should he not be able to do so,
o If the vendor delivers less than the area agreed upon, the vendee he shall suffer a reduction in the price, in proportion to what is lacking in
may oblige the vendor to deliver all that is stated in the contract the area or number, unless the contract is rescinded because the vendee
or demand for the proportionate reduction of the purchase price does not accede to the failure to deliver what has been stipulated. (1471)
if delivery is not possible.
Art. 1543.
o If the vendor delivers more than the area stated in the contract,
the vendee has the option to accept only the amount agreed The actions arising from Articles 1539 and 1542 shall prescribe in six
upon or to accept the whole area, provided he pays for the months, counted from the day of delivery. (1472a)
additional area at the contract rate.
• In a contract of sale of land in a mass, the specific boundaries stated in the
Rudolf Leitz, Inc. v. CA contract must control over any statement with respect to the area
Facts: Buriol leased 1 hectare of land to Italians. He sold 5 hectares (including the contained within its boundaries. Salinas v. Faustino (566 SCRA 18)
leased one) to Rudolf. The deed of sale described the property in terms of area and • Exception to Art. 1542: The sale of land under the description “more or
boundaries, not price per unit. Rudolf later on found out that Buriol did not own less” or similar words covers “only a reasonable excess or deficiency.” Lietz
one of the hectares, and one other hectare was leased (to the Italians). So he v. CA (478 SCRA 431)
sought reduction of the price because all he really got was 3 hectares, in
accordance with Art. 1539 CC. o Exception to the exception: The buyer assumes the risk on the
actual loss of the actual area of the land. Garcia v. Velasco (72 Phil
Issue: Will his case prosper? NO. 248)
Ratio: Art. 1542 (lump sum sale of land) applies. There shall be no reduction in price Expenses of Delivery and Registration on Real Estate
even if the area delivered is less than that stated in the contract. The area within
the boundaries as stated in the contract shall control over shall control over the • In the 2002 case of Jose Clavano v. HLURB (378 SCRA 172), the SC held that
area agreed upon in the contract. a judgment on a sale that decrees the obligations of th seller to execute
and deliver the deed of absolute sale and the certificate of title, does not
necessarily include the obligation on the part of the seller to pay for
Where Immovables sold for a Lump Sum expenses in notarizing the deed of sale and in obtaining a new certificate
of title.
Art. 1542. • In the 2003 case of Chua v. CA (401 SCRA 54), the Court held that the
In the sale of real estate, made for a lump sum and not at the rate of a obligation of the seller is to transfer ownership which is done by the
certain sum for a unit of measure or number, there shall be no increase or execution of a public instrument. Thus, expenses for registration in the
Registry of Deeds, which merely binds third persons but does not transfer
decrease of the price, although there be a greater or lesser areas or
ownership, is to be borne by the buyer. Capital gains tax remains liability of
number than that stated in the contract.
the seller.
The same rule shall be applied when two or more immovables are sold for
• In the 2004 case of Vive Eagle Land, Inc. v. CA (444 SCRA 445), the SC held
a single price; but if, besides mentioning the boundaries, which is that registration of the sale should be shouldered by the seller unless there
indispensable in every conveyance of real estate, its area or number is a contrary stipulation.


• CLV doesn’t say which case is correct, but he seems to favor Chua v. CA Double Sales
since he keeps saying that the other 2 cases are in stark contrast to Chua.
Art. 1544.
Chua v. CA
If the same thing should have been sold to different vendees, the
Facts: Chua bought a house and lot from Valdes Choy. Chua paid P100,000 as
earnest money. Receipt had a stipulation that failure to pay balance on or before 15
ownership shall be transferred to the person who may have first taken
July 1989 forfeits the earnest money. Chua required that the Property be registered possession thereof in good faith, if it should be movable property.
first in his name before he would turn over the check to Valdes-‐Choy. This angered Should it be immovable property, the ownership shall belong to the
Valdes-‐Choy, claiming that what Chua required was not part of their agreement. person acquiring it who in good faith first recorded it in the Registry of
Issue: W/N Chua can compel Valdes-‐Choy to cause the issuance of a new TCT in Property.
Chua's name even before payment of the full purchase price. -‐-‐-‐ NO
Should there be no inscription, the ownership shall pertain to the person
Held: The obligation of the seller is to transfer to the buyer ownership of the thing who in good faith was first in the possession; and, in the absence thereof,
sold. There is a difference between transfer of the certificate of title in the name of to the person who presents the oldest title, provided there is good faith.
the buyer, and transfer of ownership to the buyer. Registration of title is separate (1473)
mode from execution of public instrument. The recording of the sale with the
proper Registry of Deeds and the transfer of the certificate of title in the name of Two Divergent Systems When It Comes to Land
the buyer are necessary only to bind third parties to the transfer of ownership. As
between the seller and the buyer, the transfer of ownership takes effect upon the Registered Land under the Torrens System (PD 1529)
execution of a public instrument conveying the real estate. The submission by a • Sec. 51 of PD 1529 embodies the “registration in good faith as the
seller to the buyer of the following papers would complete a sale of real estate: (1) operative act” doctrine.
owner’s duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3) tax
declaration; and (4) latest realty tax receipt. • Art. 1544 does not overcome the priority rules under PD 1529.
o “Registration” in Art. 1544 refers to the annotation of contracts,
transactions and legal processes in the Registry of Deeds
Vive Eagle Land, Inc v. CA
• When two certificates of title are issued to different persons covering the
Facts: Tatic Corp. purchased 2 parcels of land from Spouses Flores. Tatic sold the lot same land, Art. 1544 cannot apply. Instead, the principle of the Torrens
to VELI. VELI sold the lot to Genuino. Genuino demanded VELI to pay capital gains system will apply. The earlier title will prevail. Liao v. CA (323 SCRA 430)
tax, evict informal settlers and to register title in its name. VELI rejected the
demand. • Art. 1544 will also not apply in a case where a first buyer bought the land
not under the Torrens system, but under Act No. 3344, and a subsequent
Issue: W/N petitioner VELI is obliged to pay for the expenses for transfer of the
buyer bought the same property when it was already registered under the
property and the issuance of the titles to and under the name of the respondent -‐-‐-‐
Torrens system of PD 1529. The Torrens title will prevail. Naawan
YES
Community Rural Bank, Inc. v. CA (395 SCRA 43); Abrigo v. De Vera (432

Held: Under Article 1495 of the New Civil Code, petitioner VELI, as the vendor, is SCRA 544); Dagupan Trading Co. v. Macam (14 SCRA 179)
obliged to transfer title over the property and deliver the same to the
Naawan Community Rural Bank v. CA
vendee. Unless otherwise stipulated, under Art. 1487 the expenses for the
registration of the sale should be shouldered by the vendor. Facts: Lumos bought a land from Comayas and acquired TCT in his name. Upon
application for tax declaration, he found out that it had already been declared for

taxes by NCRB. What had happened was: Comayas mortgaged the land to NCRB

before; it was foreclosed and land sold to NCRB. Sheriff’s certificate was recorded the Register of Deeds is constructive notice to the second buyer. So the latter
under Act 3344. Subsequently though, Comayas obtained title in his name (that’s cannot be deemed in good faith. Juanita having been able to obtain an OCT in her
how he was able to sell to Lumos). Basically, when bank acquired the land by name does not cleanse her title of the defect carried under the provisions of Act
conveyance, it was untitled. When Lumos acquired it, it was already titled. 3344.
Issue: Who has better right? Lumos.
Ratio: Issuance of OCT had the effect of relieving the land of any claims except Unregistered Land
those annotated therein. At the time of deed of final conveyance to NCRB, the title
• Rules on double sales for immovables under Art. 1544 are applicable to
had already been issued to Comayas (without any annotation of NCRB’s claim).
unregistered land, but only insofar as they do not undermine specific rules,
Thus, Lumos was not required to go beyond the title and was entitled to rely on it.
such as the “without prejudice to better right” provision in Act No. 3344,
“Priority in time” principle applies to Act 3344, not Torrens system.
now Sec. 113, PD 1529.

• If a piece of land is sold through a private deed of sale but was never
Dagupan Trading Co. v. Macam registered. The land was then sold in public auction and the sale to the
second buyer was registered under Act No. 3344. The applicable provision
Maron siblings sold their co-‐owned unregistered property to Macam, issuing 2
is that of Sec. 33, Rule 39 of the Rules of Court, not Art. 1544. Carumba v.
deeds of sale that were similarly unregistered. Subsequently, an OCT was issued in
CA (31 SCRA 558)
favor of the Maron siblings without the deeds of sale to Macam being annotated.
Later on, a judgment was rendered against Sammy Maron, leading to the • Under Act 3344, registration of instruments affecting unregistered lands is
foreclosure sale of his 1/8 interest in the co-‐owned property. The 1/8 interest was “without prejudice to a third party with a better right,” which means that
eventually sold to DTC. mere registration does not give the buyer any right over the land if the
seller was not anymore the owner of the land having previously sold the
Doctrine: When first sale is over unregistered land and the second sale is when it is
same to somebody else even if the earlier sale was unrecorded. The rules
registered, the rules on double sale do not apply.
on double sale under Art. 1544 has no application to land not registered
Decision: The OCT issued in favor of the Maron siblings not containing an under the Torrens system. Acabal v. Acabal, (454 SCRA 555)
annotation of the sale to Macam cannot defeat the sale to Macam because
ownership had already been transferred. (This decision was promulgated before PD Abrigo v. De Vera
1529, which provides that the buyer can rely on the certificate alone etc etc). Villafania sold property to Salazar-‐Go with a right to repurchase within 1 year.
Villafania failed to repurchase so land became Salazar-‐Go’s absolute property.
Despite that, Villafania obtained a free patent over the property and sold the same
Naval v. CA to De Vera. Meanwhile, Salazar-‐Go sold the same to Sps. Abrigo.
Facts: Unregistered parcel of land was sold by Idelfonso to Gregorio in 1969. Doctrine: De Vera has a better right since he bought and registered the property in
Gregorio sold it to other people, who then took possession. In comes Juanita who good faith.
was able to obtain an OCT in her name, saying the same land was sold to her by
Spouses Abrigo registered the property under Act No. 3344 because it was
Idelfonso in 1972. Remember that both initial conveyances were made while land
unknown to them that it was covered under the Torrens System, while De Vera
was unregistered.
registered the same under the Torrens System because Villafania procured the TCT
Issue: Who has better right? Gregorio. upon purchase. De Vera’s right prevails, spouses Abrigo cannot validly argue that
they were fraudulently misled into believing that the property was
Ratio: The last was unregistered under the Torrens system at the time of the first
unregistered. A Torrens title, once registered, serves as a notice to the whole
sale. The applicable law is Act 3344, under which registration by first buyer under


world. All persons must take notice, and no one can plead ignorance of the in the first one.
registration.
Ownership of the land will then depend on:
The rules in double sale under Article 1544, whereby the buyer who is able to first nd
1) If 2 buyer, in good faith, registered the land under the Torrens System, he
register the purchase in good faith “is in full accord with Section 51 of PD 1529
prevails because of the indefeasibility of a Torrens Title.
which provides that no deed, mortgage, lease, or other voluntary instrument –
except a will purporting to convey or affect registered land shall take effect as a 2) But if registration was made under Act No. 3344, ownership by the buyer of the
conveyance or bind the land until its registration. Thus, if the sale is not land is still dependent on other better rights of a third party. Mere registration does
registered, it is binding only between the seller and the buyer but it does not not give a buyer any right over the land if the seller was not anymore the owner of
affect innocent third persons. the land having previously sold the same to somebody else.

Carumba v. CA Essential Elements for Applicability of Art. 1544
Facts: Amado sold an unregistered land to Carumba through a private document. a) There must be two valid sales
Amado owed a sum of money from Balbuena. Balbuena successfully obtained a
judgment on his credit against Amado. Sheriff issued a Definite Deed of Sale (on the • If one sale is valid, and the other is void, Art. 1544 will not apply. Fudot v.
same property sold to Carumba) in favor of Balbuena and registered it before RoD. Cattleya Land, Inc. (533 SCRA 350)
CFI said levy was void and declared Carumba as owner because he already had • Art. 1544 will not apply when one contract is that of sale, ant the other is a
possession of the land. CA said there was a double sale and Balbuena should be contract to sell. Strictly speaking, in a contract to sell, there is still no
declared owner because his sale was registered in good faith. transfer of ownership involved. San Lorenzo Dev. Corp. v. Court of Appeals
Issue: Was there a double sale? NO. (449 SCRA 99); Mendoza v. Kalaw, (42 Phil. 236); Adalin v. CA (280 SCRA
536); Cheng v. Genato (300 SCRA 722)
Doctrine: Art. 1544 does not apply to unregistered land. The purchaser of an
unregistered land at a sheriff’s execution sale only steps into the shoes of the Cheng v. Genato
judgment debtor and merely acquires the latter’s interest in the property sold as of Genato sold lands to Da Jose spouses, subsequently executing an Affidavit to Annul
the time that the property was levied upon. The first Deed of Sale while only the contract to sell without informing the latter. Cheng offered to buy the land and
embodied in a private document but coupled with the fact that Carumba had taken tendered partial payment, which was subsequently returned by Genato so that the
possession of the land sold, sufficed to vest ownership on the buyer. So when the latter may continue with his contract with the spouses.
levy was made by the Sheriff, the judgment debtor no longer had dominical interest
nor any real right over the land. No double sale. Doctrine: Requisites for Double Sale:
(a) The two (or more) sales transactions in issue must pertain to exactly the
same subject matter, and must be valid sales transactions.
Acabal v. Acabal (b) The two (or more) buyers at odds over the rightful ownership of the
If unregistered land, once it is registered under the Torrens System, registration subject matter must each represent conflicting interests; and
gives indefeasibility to the title. It cleanses the title if registration was made in good (c) The two (or more) buyers at odds over the rightful ownership of the
faith. subject matter must each have bought from the very same seller.
What if land is sold BEFORE it was registered and then sold a second time by the
same person AFTER it was registered, will 1544 apply? No. 1544 will not apply
because registration was different for both transactions; albeit, no registration at all


San Lorenzo Dev. Corp. v. CA the property as condition to the sale). Elena failed to fulfill this condition. Kado
siblings backed out of the sale and, subsequently, sold same property to Carlos, et
Spouses Lu alleged that they entered into a contract to sell lands with Babasanta,
al. by way of a Deed of Sale.
the same later on having been rescinded by the latter because of a disagreement
with the former. Subsequently, the lands were sold to San Lorenzo Dev’t Corp Doctrine: Elena, in behalf of Kado siblings, already committed to sell the property to
(SLDC) evidenced by a Deed of Absolute Sale with Mortgage. Yu and Lim and Loreto Adalin. She understood her obligation to eject the tenants on
the subject property. Payment of balance was subject to the condition that she
Doctrine: SLDC has a better right. Article 1544 does NOT apply where one of the
would secure eviction of tenants. Sale transaction not yet complete and both sellers
contract is a contract to sell.
and buyers have respective obligations to be fulfilled—buyers, pay price, sellers,
ejectment. Deed of Conditional Sale may be an accurate denomination of the
transaction, and the choice of who to sell the property to had already been made
Contract of Sale Contract to Sell
by the sellers and no longer subject to any condition. Sale made by Elena to Yu and
Title passes to the vendee By agreement the ownership is reserved in Lim (considered by the Court) is absolute.
upon the delivery of the the vendor and is not to pass until the full Court ruled that no amount of legal rationalizing can sanction the breach of
thing sold payment of the price contract. Elena committed in accepting offer after having earlier sold property to Yu
The vendor has lost and Title is retained by the vendor until the full and Lim.
cannot recover ownership payment of the price, such payment being Subsequent sale smacks of bad faith considering the tenants knew of negotiations
until and unless the contract a positive suspensive condition and failure between Elena and Yu Lim.
is resolved or rescinded of which is not a breach but an event that
prevents the obligation of the vendor to Deed of Conditional Sale (Yu, Lim and Kado) was given preference over the Deed of
convey title from becoming effective Sale of Registered Land (Carlos, Co and Kado).

Mendoza v. Kalaw b) Exact same subject matter
Mendoza filed a petition for the registration of a parcel of land he purchased from c) Exact same seller for both sales
Canet by way of an absolute sale. Kalaw opposed stating that he bought the same • Article 1544 on double sales has no application in cases where the sales
subject matter from Canet (by way of a conditional sale). involved were initiated not by just one vendor but by several successive
Doctrine: Mendoza is favored. Two sales were executed, a conditional sale and an vendors. Mactan-‐Cebu International Airport Authority v. Tirol (588 SCRA
absolute sale. Actual possession was obtained by Mendoza first. Mendoza also fully 635)
paid the purchase price, while Kalaw’s payment depended upon the performance of Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals
certain conditions mentioned in the contract of sale. A conditional sale, before the
performance of the condition, can hardly be said to be a sale of property. Art. 1473 Madrid sold property to Gamiao/Dayag (did not register), who later on sold the the
(now Art. 1544) will not be applicable. same property’s northern half to Hernandez, and the southern half to Teodoro dela
Cruz (deceased). Years later, Madrid sold the same to Marquez, who registered in
the RD. Marquez mortgaged the property to CRBI. Heirs of Teodoro assailed the
mortgage and asked for reconveyance to their father.
Adalin v. CA
Doctrine: Article 1544 cannot apply.
Kado siblings sold property to Yu and Lim, the latter executing a Deed of Conditional
Sale, which stated that Elena Kado (one of the siblings had to evict the tenants of For Article 1544 to apply, it is necessary that the conveyance must have been made


by a party who has an existing right in the thing and the power to dispose of it. It were issued in favor of Gonzales for execution of deed of sale as well as issuance of
cannot be invoked where the two different contracts of sale are made by two TCT in her name.
different persons, one of them not being the owner of the property sold. And even
Issue: Do the Dabons have a right to seek annulment of the court order? YES.
if the sale was made by the same person, if the second sale was made when such
person was no longer the owner of the property, because it had been acquired by Ratio: There was extrinsic fraud as the necessary parties in interest were not given
the first purchaser in full dominion, the second purchaser cannot acquire any right their day in court. Dabons may seek annulment of the court orders. On the issue of
double sale, court outlined the provisions of Art. 1544 and stressed that in order for

this provision to be availed of, there must have been both acquisition in good faith
and registration in good faith. Case was remanded.
Registration in Good Faith as First Priority

Meaning of “Registration”
Knowledge of the first buyer of the second sale does not amount to registration in
• Annotation of adverse claim is considered as registration. Carbonnel v.
favor of the second buyer
Court of Appeals (69 SCRA 99)
• Registration means any entry made in the books of the registry, including • If the first buyer registers the sale despite knowing about the second sale,
both registration in its ordinary and strict sense, and cancellation, he will still have better right, provided, that the second buyer had not
annotation, and even marginal notes. Cheng v. Genato (300 SCRA 722) registered it in good faith before the first buyer’s registration.
• Declaration of purchase for taxation purposes does not comply with the • For the second buyer to displace the first, he must prove that he acted in
required registration, and the fact alone does not even itself constitute good faith throughout the process, from acquisition until registration.
evidence of ownership. Bayoca v. Nogales (340 SCRA 154) Uraca v. CA (278 SCRA 702)
• “There can be no constructive notice to the second buyer through • The first buyer’s good faith remains all throughout despite his subsequent
registration under Act 3344 if the property is registered under the Torrens knowledge of the second sale. Kings Properties Corp. v. Galido (606 SCRA
system.” Amodia Vda. De Melencion v. Court of Appeals (534 SCRA 62, 82) 137)
Registration must always be in good faith Registration in Good Faith always pre-‐empts Possession in Good Faith
• What matters is if the buyer registers in good faith. If he buys in good faith, • Between two buyers, the one who registers the land is preferred over the
but subsequently registers in bad faith, he will not have a better title, even one who merely possesses it. Tañedo v. CA (252 SCRA 80)
if he registers first.
• Good faith means no notice of defect in title of the property sold. For the Possession refers to Both Material and Symbolic Possession
second buyer to be in good faith, he must not know of the prior sale to the Absent any registration, possession will determine which has better right, based on
first buyer. these guidelines:
• In spite of the three levels of tests provided under Art. 1544, the Court
seems to recognize only registration in good faith by the second buyer and d) Possession mentioned in Article 1544 includes not only material but also
does not characterize the meaning of the last two tests of possession and symbolic possession;
oldest title. Carillo v. Court of Appeals (503 SCRA 66) e) possessors in good faith are those who are not aware of any flaw in their title
or mode of acquisition;
Carillo v. CA f) Buyers of real property that is in the possession of persons other than the seller
Facts: Both Gonazales and Dabons claim to have bought the land from Aristotle must be wary – they must investigate the rights of the possessors; and
Manio. In litgitating against Manio’s alleged attorneys-‐in-‐fact for the issuance of the
deed of sale, Gonzales never impleaded Manio himself, or the Dabons. Court orders


g) good faith is always presumed, upon those who allege bad faith on the part of • If the buyer is a child of the seller, or a close family friend who lived in the
the possessors rests the burden of proof. Ten Forty Realty and Dev. Corp. v. same area, they are deemed to have known of the circumstances of the
Cruz (410 SCRA 484) land and are thus, not really third parties. Pilapil v. Court of Appeals (250
SCRA 566); Aguirre v. CA (421 SCRA 310)
Who is a Purchaser in Good Faith? 3. Gross inadequacy of price
• To be a badge of bad faith, the price must be grossly inadequate or
• To determine whether a buyer is in good faith, the reckoning point must
shocking to the conscience such that the mind revolts against it and such
be at the time of perfection of the contract. Estate of Lino Olaguer v.
that a reasonable man would neither directly or indirectly be likely to
Ongjoco (563 SCRA 373)
consent to it. Tio v. Abayata (556 SCRA 175)
• Requisites of good faith:
4. Obligation to investigate or to follow leads
o No notice that another person as a right to or interest in the
• When there are certain facts which would put a reasonable man on guard
property
and prompt him to investigate the property, he is expected to do so. Actual
o Must have paid in full price
lack of knowledge of flaw in title is not enough if these facts exist. Mathay
• Good faith is a question of fact which must be proven in court. The burden
v. CA (295 SCRA 556)
of proof is on the one who asserts it. Good faith as a presumption is not
• Examples of facts necessitating further investigation on the property:
enough. Tio v. Abayata (556 SCRA 175); Tanglao v. Parungao (535 SCRA
o There are occupants on the land, whether or not they possess it in
123)
the concept of owner. Martinez v. CA (358 SCRA 38)
Estate of Lino Olaguer v. Ongjoco o When the seller is a company which is closing shop and liquidating
assets. They might be dissipating their assets to defraud creditors.
Administrators of the Lino Olaguer’s (deceased) estate sold parcels of lands
Samson v. CA (238 SCRA 397)
(including Lot 76) to Bacani. The latter sold back Lot 76 to the administrators. Later
o The property was titled and transferred with undue haste within a
on, a TCT for the land was issued to Eduardo and Olivia (the administrators). Jose,
short period of time and that the land was a vast tract of land in a
husband of Olivia, sold portions of the same land to Ongjoco. There were 2 deeds of
prime location. Eagle Realty Corp v. Republic (557 SCRA 77)
sale for each transaction. Olaguer’s estate filed annulment case against Ongjoco et
o When the buyer deals with someone who is not a registered
al.
owner, he is expected to examine the certificate of title as well as
Doctrine: In the determination of whether or not a buyer is in good faith, the point the authority and capacity of the seller to sell the land. R.R.
in time to be considered is the moment the parties actually entered into the Paredes v. Caliling (517 SCRA 369); Chua v. Soriano (521 SCRA 68)
contract of sale. • A buyer of registered land is required to at least ask the seller to show the
title to the land. If he does not ask for it, he will be in bad faith. Santiago v.
Decision: Ongjoco can’t claim good faith on the sale of Lots 1 and 2 because a
CA (247 SCRA 336)
power of attorney to sell the land was never presented to him.
5. When there are stipulations in the deed showing bad faith
• In a case, the Court held that a stipulation in the deed of sale providing
that any losses which the buyer may incur in the event the title turns out
Instances where there is no good faith
to be vested in another person are to bo borne by the buyer alone, showed
1. Being in the realty business that the buyer did not purchase the subject matter in good faith without
• A person in the realty business (just like banks) is charged with notice of any defect in the title of the seller. Limketkai Sons Milling, Inc. v.
extraordinary diligence in ascertaining that there are no other persons CA (250 SCRA 523)
with rights over the land. Expresscredit Financing Corp. v. Velasco (473 6. Land in adverse possession
SCRA 570) • When the land is in possession of a third person, the buyer should
2. Close relationship investigate the rights of those in possession. Without such inquiry, the

buyer can hardly be regarded as a buyer in good faith. Republic v. De who accepted and applied for assumption of mortgage. Later on, Poncio informed
Guzman (326 SCRA 267) Carbonell that he could no longer continue with their sale because he’d already sold
• A buyer who could not have failed to know or discover that the land sold the same land to one Infante. Upon learning this, Carbonell registered an adverse
to him was in the adverse possession of another is a buyer in bad faith. claim. Subsequently, Infante registered her deed of sale. TCT was issued in Infante’s
Heirs of Ramon Durano, Sr. v. Uy (344 SCRA 238) name but with annotation of the adverse claim of Carbonell.
7. Existence of Lis Pendens or Adverse Claim
Issue: better claim? Carbonell.
• An annotation of lis pendens is a notice to the world that any right that
anyone will acquire over the property is subject to the result of the suit. Ratio: When Carbonell’s sale was perfected, she was in good faith because Poncio
Republic v. De Guzman (326 SCRA 267) was the owner. Her good faith did not cease even when she registered the adverse
• Any subsequent buyer of the registered land annotated with lis pendens or claim, notwithstanding knowledge of the second sale to Infante. Infante, on the
adverse claim is thus in bad faith. Kings Properties Corp. v. Galido (606 other hand, was in bad faith because she actually knew of the first sale.
SCRA 137) Furthermore, she was aware of an adverse claim on the land when she registered it.
• Even if the annotation of lis pendens was subsequently cancelled but there Carbonell was also in possession of the land when Infante bought it, so the latter
was a pending appeal, the buyer cannot invoke good faith. Po Lam v. CA should have inquired.
(316 SCRA 86)
o Exception: When knowledge of lis pendens was acquired at the
time there was order to have it cancelled.
8. Annotation of Lien in Settlement of Estate
Obligations of Buyer
• Such annotation is a warning to third persons on the possible interest of Pay the Price
excluded heirs or unpaid creditors in these properties. The buyers of these
properties must be ready for the possibility that their title be subject to Art. 1582.
rights of excluded parties. Tan v. Benolirao (604 SCRA 36) The vendee is bound to accept delivery and to pay the price of the thing
When Article 1544 Does Not Apply, Priority in Time Rule Applies sold at the time and place stipulated in the contract.
• Situations where Art. 1544 will not apply: If the time and place should not have been stipulated, the payment must
o Not all the requisites are present be made at the time and place of the delivery of the thing sold. (1500a)
o The requisites are present, but either the first to register rule or
first to possess rule were not complied with • When seller cannot show title to the subject matter, then he cannot
• In these cases, the general rule of Prius tempore, potior jure (Priority in compel the buyer to pay the price. Heirs of Severina San Miguel v. CA (364
time, priority in right) will apply. SCRA 523).
o This is actually the main rule for double sales. Carbonell v. CA (69 • Mere sending of a letter by the buyer expressing the intention to pay
SCRA 99) without the accompanying payment is not considered a valid tender of
o The rules in Art. 1544 only provide for special rules for certain payment and consignation of the amount due are essential in order to
circumstances. extinguish the obligation to pay and oblige the seller to convey title.
• The priority contemplated in this instance is that of who acquired title first. Torcuator v. Bernabe (459 SCRA 439).
The question to ask, therefore, is who among the buyers had the first • Unless there is a contrary stipulation, payment to be effective must be
perfected and valid contract of sale. made to the seller in accordance with Article 1240 which provides that
“Payment shall be made to the person in whose favor the obligation has
Carbonell v. CA been constituted, or his successor in interest, or any person authorized to
Facts: Poncio was owner of land mortgaged to bank. He offered to sell to Carbonell, receive it.” Montecillo v. Reynes (385 SCRA 244).

Accept Delivery of Thing Sold Art. 1585.
Art. 1583. The buyer is deemed to have accepted the goods when he intimates to the
seller that he has accepted them, or when the goods have been delivered
Unless otherwise agreed, the buyer of goods is not bound to accept
to him, and he does any act in relation to them which is inconsistent with
delivery thereof by installments.
the ownership of the seller, or when, after the lapse of a reasonable time,
Where there is a contract of sale of goods to be delivered by stated he retains the goods without intimating to the seller that he has rejected
installments, which are to be separately paid for, and the seller makes them. (n)
defective deliveries in respect of one or more installments, or the buyer
neglects or refuses without just cause to take delivery of or pay for one
more installments, it depends in each case on the terms of the contract
and the circumstances of the case, whether the breach of contract is so
material as to justify the injured party in refusing to proceed further and
suing for damages for breach of the entire contract, or whether the breach
is severable, giving rise to a claim for compensation but not to a right to
treat the whole contract as broken. (n)
Art. 1584.
Where goods are delivered to the buyer, which he has not previously
examined, he is not deemed to have accepted them unless and until he
has had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract if there is
no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound, on request, to afford the buyer a reasonable
opportunity of examining the goods for the purpose of ascertaining
whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an
order from or agreement with the buyer, upon the terms that the goods
shall not be delivered by the carrier to the buyer until he has paid the
price, whether such terms are indicated by marking the goods with the
words "collect on delivery," or otherwise, the 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. (n)


Chapter 7 – Documents of Title Effects of Use of “Non-‐Negotiable” Terms on Negotiable Documents
of Title
Definition and Function
Art. 1510.
• Any bill of lading, dock warrant, "quedan," or warehouse receipt or order
for the delivery of goods, or any other document used in the ordinary If a document of title which contains an undertaking by a carrier,
course of business in the sale or transfer of goods, as proof of the warehouseman or other bailee to deliver the goods to bearer, to a
possession or control of the goods, or authorizing or purporting to specified person or order of a specified person or which contains words of
authorize the possessor of the document to transfer or receive, either by like import, has placed upon it the words "not negotiable," "non-‐
endorsement or by delivery, goods represented by such document. (Art. negotiable" or the like, such document may nevertheless be negotiated by
1636)
the holder and is a negotiable document of title within the meaning of this
o Example: Warehouse Receipts, Bonded Warehouse Receipts
Title. But nothing in this Title contained shall be construed as limiting or
• 2 Functions:
o As evidence of the possession or control of the goods described defining the effect upon the obligations of the carrier, warehouseman, or
therein other bailee issuing a document of title or placing thereon the words "not
o As the medium of transferring title and possession over the goods negotiable," "non-‐negotiable," or the like. (n)
described therein, without having to effect actual delivery thereof
• Delivery and possession of the document of title is tantamount to delivery Negotiation of Negotiable Documents of Title
and possession of the goods which the document of title represents. It
represents that one who has possession of the receipt has been entrusted How Negotiation Properly Effected
has the title to the goods. Philippine Trust co. v. National Bank (42 Phil.
Art. 1508.
413); Siy Cong Bieng v. HSBC (56 Phil. 598)
A negotiable document of title may be negotiated by delivery:
1) Where by the terms of the document the carrier,
Types of Documents of Title warehouseman or other bailee issuing the same undertakes to deliver the
Negotiable Document of Title goods to the bearer; or
2) Where by the terms of the document the carrier,
Art. 1507.
warehouseman or other bailee issuing the same undertakes to deliver the
A document of title in which it is stated that the goods referred to therein goods to the order of a specified person, and such person or a subsequent
will be delivered to the bearer, or to the order of any person named in endorsee of the document has indorsed it in blank or to the bearer.
such document is a negotiable document of title. (n)
Where by the terms of a negotiable document of title the goods are
Non-‐Negotiable Document of Title deliverable to bearer or where a negotiable document of title has been
indorsed in blank or to bearer, any holder may indorse the same to
• Documents of title which are not deliverable “to bearer” or “to order.”
himself or to any specified person, and in such case the document shall
Effects of Errors on Documents of Title thereafter be negotiated only by the endorsement of such endorsee. (n)
• Clerical errors do not affect the negotiability of the instrument.


Art. 1509. Effects of Merely Transferring/Delivering of “Order” Negotiable

Documents of Title
A negotiable document of title may be negotiated by the endorsement of
the person to whose order the goods are by the terms of the document Art. 1511.
deliverable. Such endorsement may be in blank, to bearer or to a specified
person. If indorsed to a specified person, it may be again negotiated by A document of title which is not in such form that it can be negotiated by
the endorsement of such person in blank, to bearer or to another specified delivery may be transferred by the holder by delivery to a purchaser or
person. Subsequent negotiations may be made in like manner. (n) donee. A non-‐negotiable document cannot be negotiated and the
endorsement of such a document gives the transferee no additional right.
Who Can Negotiate (n)
Art. 1515.
Art. 1512.
A negotiable document of title may be negotiated: Where a negotiable document of title is transferred for value by delivery,
and the endorsement of the transferor is essential for negotiation, the
(1) By the owner therefor; or transferee acquires a right against the transferor to compel him to
(2) By any person to whom the possession or custody of the document has endorse the document unless a contrary intention appears. The
been entrusted by the owner, if, by the terms of the document the bailee negotiation shall take effect as of the time when the endorsement is
issuing the document undertakes to deliver the goods to the order of the actually made. (n)
person to whom the possession or custody of the document has been
Effects and Consequences of Unauthorized Negotiation
entrusted, or if at the time of such entrusting the document is in such form
that it may be negotiated by delivery. (n) Art. 1518.
Effects of Proper Negotiation The validity of the negotiation of a negotiable document of title is not
impaired by the fact that the negotiation was a breach of duty on the part
Art. 1513. of the person making the negotiation, or by the fact that the owner of the
A person to whom a negotiable document of title has been duly document was deprived of the possession of the same by loss, theft,
negotiated acquires thereby: fraud, accident, mistake, duress, or conversion, if the person to whom the
document was negotiated or a person to whom the document was
(1) Such title to the goods as the person negotiating the document to him subsequently negotiated paid value therefor in good faith without notice
had or had ability to convey to a purchaser in good faith for value and also of the breach of duty, or loss, theft, fraud, accident, mistake, duress or
such title to the goods as the person to whose order the goods were to be conversion. (n)
delivered by the terms of the document had or had ability to convey to a
purchaser in good faith for value; and
(2) The direct obligation of the bailee issuing the document to hold
possession of the goods for him according to the terms of the document as
fully as if such bailee had contracted directly with him. (n)


Assignment of Non-‐Negotiable Documents of Title (4) That he has a right to transfer the title to the goods and that the goods
How Assigment Made are merchantable or fit for a particular purpose, whenever such
warranties would have been implied if the contract of the parties had
Art. 1514. been to transfer without a document of title the goods represented
thereby. (n)
A person to whom a document of title has been transferred, but not
negotiated, acquires thereby, as against the transferor, the title to the
goods, subject to the terms of any agreement with the transferor.
Rules on Levy/Garnishment of Goods Covered by
If the document is non-‐negotiable, such person also acquires the right to
Documents of Title
notify the bailee who issued the document of the transfer thereof, and When Non-‐Negotiable Document of Title
thereby to acquire the direct obligation of such bailee to hold possession
Art. 1514.
of the goods for him according to the terms of the document.
A person to whom a document of title has been transferred, but not
Prior to the notification to such bailee by the transferor or transferee of a
negotiated, acquires thereby, as against the transferor, the title to the
non-‐negotiable document of title, the title of the transferee to the goods
goods, subject to the terms of any agreement with the transferor.
and the right to acquire the obligation of such bailee may be defeated by
the levy of an attachment of execution upon the goods by a creditor of the If the document is non-‐negotiable, such person also acquires the right to
transferor, or by a notification to such bailee by the transferor or a notify the bailee who issued the document of the transfer thereof, and
subsequent purchaser from the transfer of a subsequent sale of the goods thereby to acquire the direct obligation of such bailee to hold possession
by the transferor. (n) of the goods for him according to the terms of the document.
Effects of Transfer by Assignement Prior to the notification to such bailee by the transferor or transferee of a
non-‐negotiable document of title, the title of the transferee to the goods
Warranties on Negotiation and Assignment of and the right to acquire the obligation of such bailee may be defeated by
the levy of an attachment of execution upon the goods by a creditor of the
Documents of Title transferor, or by a notification to such bailee by the transferor or a
Art. 1516. subsequent purchaser from the transfer of a subsequent sale of the goods
by the transferor. (n)
A person who for value negotiates or transfers a document of title by
endorsement or delivery, including one who assigns for value a claim When Negotiable Document of Title
secured by a document of title unless a contrary intention appears,
warrants: Art. 1519.
(1) That the document is genuine; If goods are delivered to a bailee by the owner or by a person whose act in
conveying the title to them to a purchaser in good faith for value would
(2) That he has a legal right to negotiate or transfer it; bind the owner and a negotiable document of title is issued for them they
(3) That he has knowledge of no fact which would impair the validity or cannot thereafter, while in possession of such bailee, be attached by
worth of the document; and garnishment or otherwise or be levied under an execution unless the


document be first surrendered to the bailee or its negotiation enjoined. Chapter 8 – Sale By a Non-‐Owner or By One Having
The bailee shall in no case be compelled to deliver up the actual
Voidable Title
possession of the goods until the document is surrendered to him or
impounded by the court. (n)
When Seller is Not Owner of Subject Matter
Art. 1520. At Perfection
A creditor whose debtor is the owner of a negotiable document of title • Seller need not be the owner at perfection, provided he acquires title later
shall be entitled to such aid from courts of appropriate jurisdiction by on, but when delivery of ownership is no longer possible, the sale should
injunction and otherwise in attaching such document or in satisfying the be considered void. Nool v. CA (276 SCRA 149)
claim by means thereof as is allowed at law or in equity in regard to • Perfection merely creates the obligation to transfer ownership, but it does
property which cannot readily be attached or levied upon by ordinary not by itself transfer ownership.
legal process. (n)
At Consummation

Art. 1505.
Subject to the provisions of this Title, where goods are sold by a person
who is not the owner thereof, and who does not sell them under authority
or with the consent of the owner, the buyer acquires no better title to the
goods than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or any other
provision of law enabling the apparent owner of goods to dispose of them
as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or
under the order of a court of competent jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws. (n)
• Note that the provision does not say that the contract is void.
• It is at the consummation stage where the principle of nemo dat quod non
habet (one cannot give what one does not have) applies. Cavite Dev’t.
Bank v. Spouses Syrus Lim (324 SCRA 346)



Paulmitan v. CA 1) The subject matter is indivisible by nature or by intent. It renders the contract
void since the buyer would not have entered into the transaction except to
A co-‐owner could only sell that portion which may be allotted to him upon
acquire all of the properties purchased by him. Mindanao Academy, Inc. v. Yap
termination of the co-‐ownership. A sale of the entire property by one co-‐owner
(13 SCRA 190)
without the consent of the other co-‐owners is not null and void. However, only the
2) If the sale of a particular portion is with consent of other co-‐owners, the sale as
rights of the co-‐owner-‐sell are transferred, thereby making the buyer a co-‐owner of
to that portion is valid. Lack of objection by the co-‐owners is in effect already a
the property.
partial partition. Pamplona v. Moreto (96 SCRA 775)
3) A co-‐owner who sells one of the two lands owned in common with another co-‐
owner, and does not turn-‐over one-‐half of the proceeds of the sale to the other
Sales by Co-‐owner of Whole Property or Definite Portion Thereof co-‐owner, the latter may by law and equity lay exclusive claim to the remaining
• None of the co-‐owners may claim any right, title or interest to a particular parcel of land. Imperial v. Court of Appeals (259 SCRA 65)
portion of the thing owned in common. 4) Ipso jure transfer of ownership under Art. 1434. When the co-‐owner-‐seller
• A co-‐owner can demand partition, but before such, he has no right to subsequently acquires title to the definite portion or the entire property
divide the lot into two parts, and convey the whole of one part by metes subject matter of the sale, the title automatically passes to the buyer. Pisueña
and bounds. Lopez v. Ilustre (5 Phil 567) v. Heirs of Petra Unating (313 SCRA 384)
• A co-‐owner, however, has the power to alienate his undivided share over 5) Registration under the Torrens system. If the Torrens title shows that the
the property. Thus, if before partition, he sells the entire property or a property is owned solely by the seller (i.e. no indication that property is co-‐
definite portion thereof without consent of other co-‐owners, the sale will owned), the buyer can rely on the Torrens title. Cruz v. Leis (327 SCRA 570)
only be valid with regard to his undivided share in the property. The sale Mindanao Academy, Inc. v. Yap
cannot be considered as null and void. Bailon-‐Casilao v. CA (160 SCRA 738);
Paulmitan v. CA (215 SCRA 866) Facts: Rosenda and her son sold to Yap 4 parcels of land including buildings,
o The buyer thus becomes a co-‐owner of the property. equipments, books, and other fixtures of 2 schools therein which although
technically they owned, was under a co-‐ownership together with Rosenda’s other
• The remedy of the buyer therefore is to demand partition of the entire
property. He will have this right since he became a co-‐owner himself. children and such were sold by Rosenda without their consent.
Nullification of the sale is not proper. Tomas Claudio Memorial College, Inc. Doctrine: The contract of sale was void because the problem with the sale went
v. Court of Appeals (316 SCRA 502) into one of the essential requisites of a sale. There was no meeting of the minds
o CLV’s comment: The rulings seem to disregard the commercial as to the subject matter. If the problem is one of the essential requisites and was
fact that sellers and buyers agree on the price based on the size of only found during the consummation stage, the contract can be voided even if
the property (i.e. buyers will pay more if they expect to acquire already at the consummation stage. If the problem is only with regard to the
the entire property; buyers will pay less if they expect to acquire performance of an obligation, it does not affect the perfection of the sale.
just a part). The proper remedy, according to CLV, is to uphold the
validity of the sale, but allow the buyer to either (1) seek
rescission for breach of the seller’s obligation to deliver the object
agreed upon, or (2) accept partial delivery with appropriate
reduction in price.
Exceptions to Rule on Effect of Sale of Definite Portion of Co-‐owner
Memory aid: iTaco J


Exceptions to Rules on Legal Effects of Sale by a order to facilitate commercial sales on movables and to give stability to
business transaction. Sun Brothers & Co. v. Velasco (54 O.G. 5143)
Non-‐Owner • “Store” – any place where goods are kept for sale or where goods are
When Real Owner Estopped deposited and sold by one engaged in buying and selling them. City of
Manila v. Bugsuk Lumber Co. (101 Phil. 859)
Art. 1434. City of Manila v. Bugsuk
When a person who is not the owner of a thing sells or alienates and Doctrine: The necessary element of “store” is that there are good or wares
delivers it, and later the seller or grantor acquires title thereto, such title displayed or stored therein. Also, the firm must be actually engaged in the business
passes by operation of law to the buyer or grantee. of buying and selling. If a firm produces, manufactures, and delivers its own
produce from its warehouses and they have no stores open for sale, firm is not a
Bucton v. Gabar merchant store.
Doctrine: When a person who is not the owner of a thing sells and delivers it, and
later the seller acquires title thereto, such title passes by operation of law to the
buyer. Seller is subsequently barred by estoppel from claiming otherwise. Sun Brothers & Co. v. Velasco
Doctrine: The general rule is that when a person who is not the owner of a thing
sells the same, the buyer acquires no better title than the seller has. However, a
Recording Laws purchase in good faith in a merchant store, or fair, or market is protected by law. It
is an exception to the general rule that no transfer of ownership may be had
• The buyer of registered land has the right to rely on the Torrens title of the
through an act of a non-‐owner. The rights and interest of an innocent buyer for
said land, absent any factual circumstances which would lead a prudent
value who bought a thing from a merchant store should be protected when it
man to inqurie further if the vendor has the capacity to transfer interest to
comes into clash with the right and interests of a vendor. The buyer cannot be
the land. Sy v. Capistrano, Jr. (560 SCRA 103)
reasonably expected to look behind the title of articles he buys in a store.
Statutory Power; Judicial Sale
• Judgments of courts divesting the registered owner of title and vesting
Sale by a Seller Who has Voidable Title on the Subject Matter Sold
them in the other party are valid.
• Sale by a sheriff of land levied upon at public auction would validly transfer Art. 1506.
ownership to the highest bidder.
• When a defeated party refuses to execute the absolute deed of sale in Where the seller of goods has a voidable title thereto, but his title has not
accordance with the judgment, the court may direct the act to be done at been avoided at the time of the sale, the buyer acquires a good title to the
the cost of the disobedient party by some other person appointed by the goods, provided he buys them in good faith, for value, and without notice
court and the act when so done shall have the like effect as is done by the of the seller's defect of title. (n)
party. Manila Remnant Co., Inc. v. CA (231 SCRA 281)
• Since the provision talks of payment by the buyer and transfer of title to
Sale at a Merchant Store the buyer, the provision applies to the consummation stage of the
• This is an example of an imperfect or void title ripening into a valid one. contract.
The rights and interest of an innocent purchaser for value is protected in • If after perfection but before consummation, the seller’s voidable title
becomes void, the buyer does not obtain good title.


Applicable Rules to Immovables it to Jimenez who had the car exhibited in a car expo.
• Articles 1505 and 1506 do not apply to immovables. When the seller of a Issue: Is Jimenez a purchaser in bad faith? Is Tagatac entitled to possession?
parcel of land has only voidable or void title to the property, the buyer, Doctrine: Whenever there is a contract of sale which grants to the culprit-‐buyer
even though in good faith and for value, takes only the same title as the (Feist) a voidable title, even if accomplished through estafa or swindling, the buyer
seller had. in good faith (Jimenez) is granted a better title as against the original owner
• For land, the Torrens system still prevails. Heirs of Spouses Benito Gavino. (Tagatac) even though the latter (Tagatac) may be classified to have been
v. Court of Appeals (291 SCRA 495) “unlawfully deprived” of the subject matter (Art. 1506). Jimenez is therefore not a
o However, the defense of indefeasibility of Torrens title is purchaser in bad faith having no knowledge of any flaw in the title of the person
unavailing to properties and other improvements situated or built from whom he acquired it. Tagatac is not entitled to possession. Fraud and deceit
on the land. Tsai v. CA (366 SCRA 324) only made the sale voidable. But he wasn’t by any means unlawfully deprived
• A person who deals with registered land through someone who is not the thereof.
registered owner is expected to look beyond the certificate of title and
examine all the factual circumstances thereof in order to determine if the
vendor has the capacity to transfer any interest in the land. Sy v. EDCA Publishing v. Santos
Capistrano, Jr. (560 SCRA 103)
Facts: EDCA sold 406 books to Jose Cruz wherein the latter issued a check as
“Title” as to Movable Properties payment. Cruz in turn sold 120 of those books to Leonor Santos. Meanwhile, EDCA
became suspicious of Cruz when he placed his second order. They investigated and
Art. 559. found out that Jose Cruz was an impostor and the check he issued was drawn
The possession of movable property acquired in good faith is equivalent to against a closed account. EDCA then forcibly took the 120 books from Santos.
a title. Nevertheless, one who has lost any movable or has been unlawfully Held: Santos was a purchaser in good faith and exercised due diligence when he
deprived thereof may recover it from the person in possession of the asked for the invoice from EDCA before purchasing it from Cruz. Non-‐payment only
same. creates a right to demand payment or to rescind the contract, or to criminal
prosecution in the case of bouncing checks. But absent the stipulation that
If the possessor of a movable lost or which the owner has been unlawfully ownership shall not pass until full payment, delivery of the thing sold will effectively
deprived, has acquired it in good faith at a public sale, the owner cannot transfer ownership to the buyer who can in turn transfer it to another.
obtain its return without reimbursing the price paid therefor. (464a)

Exceptions to Art. 559 Aznar v. Yapdiangco
• By cross-‐reference to Art. 1505, the owner cannot recover the movable if it Facts: Santos was selling the car to Marella. Santos instructed his son, Irineo not to
was bought at a merchant store part with De dios (Marella’s nephew) until he has received the full payment of the
• By cross-‐reference to Art. 1506, if the possessor in good faith acquired title car. De dios and his companion ran away with the papers and the car, leaving
from a seller who at the time of delivery had a voidable title thereto, the Ireneo at the supposed place where payment was to be made. Marella sold the care
original owner cannot recover the movable. the same day to Aznar, the PC then seized the car. The issue here is who has a
Tagatac v. Jimenez better right over the car.
Facts: Tagatac sold her car to Feist. Feist paid by postdated PNB check but he really Held: It should be recalled that while there was indeed a contract of sale between
had no account thereat. In short, estafa. Feist sold it to Sanchez, then Sanchez sold Marella and Santos, the former, as vendee, took possession of the subject matter
thereof by stealing the same while it was in the custody of the latter's son. He


neither had a voidable title under Art. 1506 nor was it delivered to him. Santos has Chapter 9 – Loss and Deterioration, Fruits and Other
a better right.
Benefits
Moreover Art. 559 (Irrevindicability) does not apply. The common law principle
that where 1 of 2 innocent persons must suffer by a fraud perpetrated by another, • The prevailing doctrines in our jurisdiction on risk of loss and deterioration
the law imposes the loss upon the party who, by his misplaced confidence, has and the benefits of the fruits and improvement is a combination of civil law
enabled the fraud to be committed, cannot be applied in a case which is covered by and common law concepts.
an express provision of law. • The basic concept is res perit domino (the owner shall bear the risk of loss).
(This is derived from common law.)
• Ownership can only be transferred by delivery. (This is from civil law.)
Cruz v. Pahati
Facts: Belizo sold an automobile to Cruz. Belizo offered to sell the sell the same car
No Application When Subject Matter is
to a certain buyer. Cruz agreed and since the certificate of registration was missing, Determinable
Cruz made a letter addressed to the Motor Section of the Bureau of Public Works
for the issuance of a new certificate which he gave to Belizo. The letter was Art. 1263.
falsified, making it appear that a deed of sale was executed in favor of Belizo, who In an obligation to deliver a generic thing, the loss or destruction of
then got a certificate of registration on his name. Belizo was able to sell the car to
anything of the same kind does not extinguish the obligation. (n)
respondent Bulahan who later sold it to Pahati.
Held: Cruz, has the better right because plaintiff had been illegally deprived through Before Perfection
ingenious schemes by Belizo. Art 559, “one who has lost any movable or has been
lawfully deprived thereof, may recover it from the person in possession of the same • The purported seller owns the thing. Loss, deterioration, fruits and
and the only defense is if the other party has acquired it in good faith and at a improvements pertain to him.
public sale” and 1505, “sellers who are not owners xxx buyer acquires no better • The purported buyer still has no legal relationship to the thing.
right than the seller” are applicable in this situation. Roman v. Grimalt
Facts: Roman and Grimalt entered into a contract of sale for a schooner payable by
Dizon v. Suntay 3 instalments provided the title papers to the vessel were in proper form. The
vessel sank before Roman could present his title and as a result, Grimalt refused to
Facts: Suntay (owner of the ring) and Clarita Sison entered into a transaction pay the price in the contract.
wherein the ring would be sold on commission. After her demands, she was given a
pawnshop ticket, she learned that sison’s niece pledged the said item to the Held: If no contract of sale was actually executed by the parties the loss of the
pawnshop of Dizon. vessel must be borne by its owner and not by a party who only intended to
purchase it and who was unable to do so on account of failure on the part of the
Held: Owner of diamond ring may recover possession of the same form the owner to show proper title to the vessel and thus enable them to draw up the
pawnshop where the owner's agent has pledged it without authority to do so. Art contract of sale.
559 applies and the defense that the pawnshop acquired possession without notice
of any defect of the pledgor-‐agent is unavailing.



At the Time of Perfection in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
Art. 1493.
(1) If the thing is lost without the fault of the debtor, the obligation shall
If at the time the contract of sale is perfected, the thing which is the object be extinguished;
of the contract has been entirely lost, the contract shall be without any
effect. (2) If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes, or
But if the thing should have been lost in part only, the vendee may choose goes out of commerce, or disappears in such a way that its existence is
between withdrawing from the contract and demanding the remaining unknown or it cannot be recovered;
part, paying its price in proportion to the total sum agreed upon. (1460a)
(3) When the thing deteriorates without the fault of the debtor, the
Art. 1494. impairment is to be borne by the creditor;
Where the parties purport a sale of specific goods, and the goods without (4) If it deteriorates through the fault of the debtor, the creditor may
the knowledge of the seller have perished in part or have wholly or in a choose between the rescission of the obligation and its fulfillment, with
material part so deteriorated in quality as to be substantially changed in indemnity for damages in either case;
character, the buyer may at his option treat the sale:
(5) If the thing is improved by its nature, or by time, the improvement
(1) As avoided; or shall inure to the benefit of the creditor;
(2) As valid in all of the existing goods or in so much thereof as have not (6) If it is improved at the expense of the debtor, he shall have no other
deteriorated, and as binding the buyer to pay the agreed price for the right than that granted to the usufructuary. (1122)
goods in which the ownership will pass, if the sale was divisible. (n)
General Rule
• Note that Art. 1493 says that the contract is “without any effect.” It does
not use the term void because it highlights the fact that the perfection of Art. 1504.
the contract is not affected by the loss of the subject matter.
o However, the effect of the loss is that as if the sale was void. Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership
After Perfection But Before Delivery therein is transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that:
Art. 1538.
(1) Where delivery of the goods has been made to the buyer or to a bailee
In case of loss, deterioration or improvement of the thing before its for the buyer, in pursuance of the contract and the ownership in the goods
delivery, the rules in Article 1189 shall be observed, the vendor being has been retained by the seller merely to secure performance by the buyer
considered the debtor. (n) of his obligations under the contract, the goods are at the buyer's risk
Art. 1189. from the time of such delivery;
When the conditions have been imposed with the intention of suspending (2) Where actual delivery has been delayed through the fault of either the
the efficacy of an obligation to give, the following rules shall be observed buyer or seller the goods are at the risk of the party in fault. (n)


• After perfection, but before delivery, the risk of loss is borne by the seller • CLV agrees with Tolentino’s view. He says that this view better harmonizes
under the rule of res perit domino. Union Motor Corp. v. CA (361 SCRA 506) Art. 1480, 1538 and 1504.
Loss by Fault of a Party Deterioration

• If the loss is thru the fault of the seller, the buyer shall have the right to • Art. 1189 shall apply.
recover damages. (Art. 1189)
Fruits and Improvements
Loss by Fortuitous Event
Art. 1537.
Art. 1480.
The vendor is bound to deliver the thing sold and its accessions and
Any injury to or benefit from the thing sold, after the contract has been accessories in the condition in which they were upon the perfection of the
perfected, from the moment of the perfection of the contract to the time contract.
of delivery, shall be governed by Articles 1163 to 1165, and 1262.
All the fruits shall pertain to the vendee from the day on which the
This rule shall apply to the sale of fungible things, made independently contract was perfected. (1468a)
and for a single price, or without consideration of their weight, number, or
Art. 1164.
measure.
The creditor has a right to the fruits of the thing from the time the
Should fungible things be sold for a price fixed according to weight,
obligation to deliver it arises. However, he shall acquire no real right over
number, or measure, the risk shall not be imputed to the vendee until
it until the same has been delivered to him. (1095)
they have been weighed, counted, or measured and delivered, unless the
latter has incurred in delay. (1452a)
After Delivery
Art. 1262.
• After delivery to the buyer, ownership is transferred to the buyer. The
An obligation which consists in the delivery of a determinate thing shall be goods shall then be at the buyer’s risk.
extinguished if it should be lost or destroyed without the fault of the o If delivery to the buyer was made, but ownership was retained by
debtor, and before he has incurred in delay. the seller only for the purpose of securing the buyer’s obligation
to pay, the buyer shall still bear the risk.
When by law or stipulation, the obligor is liable even for fortuitous events, • If the thing is lost when the buyer bears the risk, the buyer shall still pay
the loss of the thing does not extinguish the obligation, and he shall be the balance of the purchase price. Song Fo & Co. v. Oria (33 Phil. 3)
responsible for damages. The same rule applies when the nature of the
Lawyer’s Cooperative v. Tabora
obligation requires the assumption of risk. (1182a)
Facts: Tabora bought books from LCPC and it was delivered to Tabora’s office in
• Paras and Padilla say that even if the subject matter is lost by fortuitous Naga. A fire incident burned all of the books in his library and after that Tabora
event, the buyer is still obliged to pay. They don’t cite any authority for this failed to pay his monthly instalments. He refuses to pay and raises force majeure
position. asa defense.
• Tolentino says that the obligation of the buyer to pay is also extinguished
Held: The contract specifically stated that after delivery, Buyer would bear the loss.
since sale creates a reciprocal obligation. The seller should thus return
Moreover under Art. 1504, When title/ownership remains in seller merely to secure
whatever was paid by the buyer, if there had been payment already.
performance by buyer of his obligations, the goods are at the buyer’s risk from time


of delivery. The rule that the obligor should be exempt when loss occurs through Chapter 10 – Remedies of Parties
force majeure only applied when the obligation consists in the delivery of a
determinate thing. REMEDIES IN CASES OF MOVABLES

Ordinary Remedies of Seller
Movables in General
Art. 1593.
With respect to movable property, the rescission of the sale shall of right
take place in the interest of the vendor, if the vendee, upon the expiration
of the period fixed for the delivery of the thing, should not have appeared
to receive it, or, having appeared, he should not have tendered the price
at the same time, unless a longer period has been stipulated for its
payment. (1505)
Sale of Goods

Non-‐payment of price by the buyer
Art. 1595.
Where, under a contract of sale, the ownership of the goods has passed to
the buyer and he wrongfully neglects or refuses to pay for the goods
according to the terms of the contract of sale, the seller may maintain an
action against him for the price of the goods.
Where, under a contract of sale, the price is payable on a certain day,
irrespective of delivery or of transfer of title and the buyer wrongfully
neglects or refuses to pay such price, the seller may maintain an action for
the price although the ownership in the goods has not passed. But it shall
be a defense to such an action that the seller at any time before the
judgment in such action has manifested an inability to perform the
contract of sale on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if they cannot
readily be resold for a reasonable price, and if the provisions of article
1596, fourth paragraph, are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to receive them, may
notify the buyer that the goods are thereafter held by the seller as bailee

for the buyer. Thereafter the seller may treat the goods as the buyer's and Special Remedies of “Unpaid Seller” of Goods
may maintain an action for the price. (n)
Definition of “Unpaid Seller”
When buyer wrongfully neglects or refuses to accept goods
Art. 1525.
Art. 1596. The seller of goods is deemed to be an unpaid seller within the meaning of
Where the buyer wrongfully neglects or refuses to accept and pay for the this Title:
goods, the seller may maintain an action against him for damages for (1) When the whole of the price has not been paid or tendered;
nonacceptance.
(2) When a bill of exchange or other negotiable instrument has been
The measure of damages is the estimated loss directly and naturally received as conditional payment, and the condition on which it was
resulting in the ordinary course of events from the buyer's breach of received has been broken by reason of the dishonor of the instrument, the
contract. insolvency of the buyer, or otherwise.
Where there is an available market for the goods in question, the measure
In Articles 1525 to 1535 the term "seller" includes an agent of the seller to
of damages is, in the absence of special circumstances showing proximate
whom the bill of lading has been indorsed, or a consignor or agent who
damage of a different amount, the difference between the contract price
has himself paid, or is directly responsible for the price, or any other
and the market or current price at the time or times when the goods ought
person who is in the position of a seller. (n)
to have been accepted, or, if no time was fixed for acceptance, then at the
time of the refusal to accept. Rights of Unpaid Seller
If, while labor or expense of material amount is necessary on the part of 4 Special Remedies available to the unpaid seller
the seller to enable him to fulfill his obligations under the contract of sale,
1. Possessory lien
the buyer repudiates the contract or notifies the seller to proceed no 2. Stoppage in transitu
further therewith, the buyer shall be liable to the seller for labor 3. Special right to resell goods
performed or expenses made before receiving notice of the buyer's 4. Special right to rescind
repudiation or countermand. The profit the seller would have made if the
contract or the sale had been fully performed shall be considered in • These remedies have a hierarchichal application.
awarding the damages. (n) • The last two are called “special” because they are rights accorded only to
the unpaid seller, and are of a different nature from the right of rescission
Art. 1597. in Art. 1191.
Where the goods have not been delivered to the buyer, and the buyer has
Art. 1526.
repudiated the contract of sale, or has manifested his inability to perform
his obligations thereunder, or has committed a breach thereof, the seller Subject to the provisions of this Title, notwithstanding that the ownership
may totally rescind the contract of sale by giving notice of his election so in the goods may have passed to the buyer, the unpaid seller of goods, as
to do to the buyer. (n) such, has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;


(2) In case of the insolvency of the buyer, a right of stopping the goods in When partial delivery is made
transitu after he has parted with the possession of them; Art. 1528.
(3) A right of resale as limited by this Title; Where an unpaid seller has made part delivery of the goods, he may
(4) A right to rescind the sale as likewise limited by this Title. exercise his right of lien on the remainder, unless such part delivery has
been made under such circumstances as to show an intent to waive the
Where the ownership in the goods has not passed to the buyer, the
lien or right of retention. (n)
unpaid seller has, in addition to his other remedies a right of withholding
delivery similar to and coextensive with his rights of lien and stoppage in Instances when possessory lien is lost
transitu where the ownership has passed to the buyer. (n)
Memory aid: DOW
Possesory Lien Art. 1529.
• If the ownership of the goods has passed to the buyer, the unpaid seller The unpaid seller of goods loses his lien thereon:
still has a lien on the goods or right to retain them for the price while he is
in possession. (1) When he delivers the goods to a carrier or other bailee for the purpose
• If ownership has not passed to the buyer, the unpaid seller has a right of of transmission to the buyer without reserving the ownership in the goods
witholding delivery. or the right to the possession thereof;
When possessory lien may be exercised (2) When the buyer or his agent lawfully obtains possession of the goods;
Memory aid: STI (3) By waiver thereof.
Art. 1527. The unpaid seller of goods, having a lien thereon, does not lose his lien by
Subject to the provisions of this Title, the unpaid seller of goods who is in reason only that he has obtained judgment or decree for the price of the
possession of them is entitled to retain possession of them until payment goods. (n)
or tender of the price in the following cases, namely: • The unpaid seller losses his possessory lien when he parts with physical
(1) Where the goods have been sold without any stipulation as to credit; possession of the goods. In this case, he still has the remedy of stoppage in
transitu, but only when the buyer is insolvent.
(2) Where the goods have been sold on credit, but the term of credit has
expired; Stoppage in Transitu
(3) Where the buyer becomes insolvent. Art. 1530.
The seller may exercise his right of lien notwithstanding that he is in Subject to the provisions of this Title, when the buyer of goods is or
possession of the goods as agent or bailee for the buyer. (n) becomes insolvent, the unpaid seller who has parted with the possession
of the goods has the right of stopping them in transitu, that is to say, he
When Negotiable Document of Title has been issued may resume possession of the goods at any time while they are in transit,
• No seller’s lien shall defeat the rights of an innocent purchaser for value to and he will then become entitled to the same rights in regard to the goods
whom such document has been negotiated. as he would have had if he had never parted with the possession. (n)


When a negotiable document of title is issued (2) If, after the arrival of the goods at the appointed destination, the
Art. 1535. carrier or other bailee acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in possession of them as
Subject to the provisions of this Title, the unpaid seller's right of lien or bailee for the buyer or his agent; and it is immaterial that further
stoppage in transitu is not affected by any sale, or other disposition of the destination for the goods may have been indicated by the buyer;
goods which the buyer may have made, unless the seller has assented
thereto. (3) If the carrier or other bailee wrongfully refuses to deliver the goods to
the buyer or his agent in that behalf.
If, however, a negotiable document of title has been issued for goods, no
seller's lien or right of stoppage in transitu shall defeat the right of any If the goods are delivered to a ship, freight train, truck, or airplane
purchaser for value in good faith to whom such document has been chartered by the buyer, it is a question depending on the circumstances of
negotiated, whether such negotiation be prior or subsequent to the the particular case, whether they are in the possession of the carrier as
notification to the carrier, or other bailee who issued such document, of such or as agent of the buyer.
the seller's claim to a lien or right of stoppage in transitu. (n) If part delivery of the goods has been made to the buyer, or his agent in
that behalf, the remainder of the goods may be stopped in transitu, unless
When is the buyer insolvent?
such part delivery has been under such circumstances as to show an
• A buyer is deemed insolvent when he either has ceased to pay his debts in agreement with the buyer to give up possession of the whole of the goods.
the ordinary course of business or cannot pay his debts as they become (n)
due. [Art. 1636(2)]
• Insolvency proceedings need not be commenced. • Art. 1531 presupposes that the carrier through him delivery is made is NOT
• Buyer must be insolvent for stoppage in transitu to apply. an agent of the buyer. Delivery to such carrier is not delivery to the buyer.
When Goods are Deemed “In Transit” How Stoppage in transitu may be exercised
Art. 1531. Art. 1532.

Goods are in transit within the meaning of the preceding article: The unpaid seller may exercise his right of stoppage in transitu either by
obtaining actual possession of the goods or by giving notice of his claim to
(1) From the time when they are delivered to a carrier by land, water, or
the carrier or other bailee in whose possession the goods are. Such notice
air, or other bailee for the purpose of transmission to the buyer, until the
may be given either to the person in actual possession of the goods or to
buyer, or his agent in that behalf, takes delivery of them from such carrier
his principal. In the latter case the notice, to be effectual, must be given at
or other bailee;
such time and under such circumstances that the principal, by the exercise
(2) If the goods are rejected by the buyer, and the carrier or other bailee of reasonable diligence, may prevent a delivery to the buyer.
continues in possession of them, even if the seller has refused to receive
When notice of stoppage in transitu is given by the seller to the carrier, or
them back.
other bailee in possession of the goods, he must redeliver the goods to, or
Goods are no longer in transit within the meaning of the preceding article: according to the directions of, the seller. The expenses of such delivery
must be borne by the seller. If, however, a negotiable document of title
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods
representing the goods has been issued by the carrier or other bailee, he
before their arrival at the appointed destination;

shall not obliged to deliver or justified in delivering the goods to the seller • Buyer has been in default for an unreasonable length of time
unless such document is first surrendered for cancellation. (n) Note: The buyer need not rescind the first contract judicially before reselling the
thing. If he is obliged to sell it for less than the contract price, the non-‐paying buyer
Special Right to Resell Goods is liable for the difference. Katigbak v. CA (4 SCRA 243. The seller is not obliged to
give the original owner the profits (i.e. difference of contract price and sale price), if
Art. 1533.
any. (Art. 1533)
Where the goods are of perishable nature, or where the seller expressly Transfer of Ownership
reserves the right of resale in case the buyer should make default, or
where the buyer has been in default in the payment of the price for an • Special right to resell can be excercised even if the seller had already
unreasonable time, an unpaid seller having a right of lien or having transferred ownership to the original buyer.
stopped the goods in transitu may resell the goods. He shall not thereafter • However, because of Art. 1533, the second buyer will still be able to get a
good title against the original buyer.
be liable to the original buyer upon the contract of sale or for any profit
• This is a special feature of this right to resell. The seller can still vest
made by such resale, but may recover from the buyer damages for any
ownership in the second buyer even if at the time of the second sale, he
loss occasioned by the breach of the contract of sale. did not have ownership anymore.
Where a resale is made, as authorized in this article, the buyer acquires a Special Right to Rescind
good title as against the original buyer.
It is not essential to the validity of resale that notice of an intention to Art. 1534.
resell the goods be given by the seller to the original buyer. But where the An unpaid seller having the right of lien or having stopped the goods in
right to resell is not based on the perishable nature of the goods or upon transitu, may rescind the transfer of title and resume the ownership in the
an express provision of the contract of sale, the giving or failure to give goods, where he expressly reserved the right to do so in case the buyer
such notice shall be relevant in any issue involving the question whether should make default, or where the buyer has been in default in the
the buyer had been in default for an unreasonable time before the resale payment of the price for an unreasonable time. The seller shall not
was made. thereafter be liable to the buyer upon the contract of sale, but may
It is not essential to the validity of a resale that notice of the time and recover from the buyer damages for any loss occasioned by the breach of
place of such resale should be given by the seller to the original buyer. the contract.
The seller is bound to exercise reasonable care and judgment in making a The transfer of title shall not be held to have been rescinded by an unpaid
resale, and subject to this requirement may make a resale either by public seller until he has manifested by notice to the buyer or by some other
or private sale. He cannot, however, directly or indirectly buy the goods. overt act an intention to rescind. It is not necessary that such overt act
(n) should be communicated to the buyer, but the giving or failure to give
notice to the buyer of the intention to rescind shall be relevant in any
When the right is excercisable (PERU) issue involving the question whether the buyer had been in default for an
• The unpaid seller has previously excercised possessory lien or stoppage in unreasonable time before the right of rescission was asserted. (n)
transitu When the right may be exercised (RED)
• The goods are of perishable nature
• Seller has expressly reserved such right • Unpaid seller has exercised his possessory lien or stoppage in transitu


• Seller expressly reserved the right to rescind in case of default disturbance or danger to cease, unless the latter gives security for the
• Buyer has been in default for an unreasonable length of time return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make
Remedies of Buyer the payment. A mere act of trespass shall not authorize the suspension of
Failure of Seller to Deliver the payment of the price. (1502a)
Art. 1598. RECTO LAW: Sales of Movables on Installments

Where the seller has broken a contract to deliver specific or ascertained Art. 1484.
goods, a court may, on the application of the buyer, direct that the
In a contract of sale of personal property the price of which is payable in
contract shall be performed specifically, without giving the seller the
installments, the vendor may exercise any of the following remedies:
option of retaining the goods on payment of damages. The judgment or
decree may be unconditional, or upon such terms and conditions as to (1) Exact fulfillment of the obligation, should the vendee fail to pay;
damages, payment of the price and otherwise, as the court may deem
(2) Cancel the sale, should the vendee's failure to pay cover two or more
just. (n)
installments;
Breach of Seller’s Warranty (3) Foreclose the chattel mortgage on the thing sold, if one has been
Art. 1599 provides the following remedies to the buyer in case the seller breaches constituted, should the vendee's failure to pay cover two or more
his warranty: installments. In this case, he shall have no further action against the
purchaser to recover any unpaid balance of the price. Any agreement to
1. Accept or keep the goods and set up agains the seller the breach of
warranty by way of recoupment in diminution or extinction of the price
the contrary shall be void. (1454-‐A-‐a)
2. Accept or keep the goods and maintain an action for damages agains the Rationale of Recto Law
seller
3. Refuse to accept the goods and maintain an action for damages • It was originally passed in 1939 and was eventually incorporated in the
4. Rescind the sale and refuse to receive the goods or if the goods have Civil Code as Art. 1484.
already been received, return them or offer to return them to the seller • The purpose is to prevent the abuses of mortgagees who foreclose on the
and recover the price paid. chattel mortgage, buy the property at a low price, and then suing the
• These remedies are alternative. However, the buyer still has a right to mortgagor for deficiency.
rescind if he has chosen specific performance but it has become
impossible. This is based on Art. 1191(2).
Coverage of the Law
• Installment sales are covered.
Suspension of Payments in Antipication of Breach o It is an “installment sale” if the price is payable in two or more
future payments, whether or not there is a downpayment. Levy v.
Art. 1590.
Gervacio (69 Phil. 52)
Should the vendee be disturbed in the possession or ownership of the • Contracts to Sell are not covered. Visayan Sawmill Co. v. CA (219 SCRA 378)
thing acquired, or should he have reasonable grounds to fear such • Financing transactions derived or arising from sales of movables on
disturbance, by a vindicatory action or a foreclosure of mortgage, he may installments are covered.
suspend the payment of the price until the vendor has caused the

o In this case, the seller assigned his credit to the financing subverting the policy underlying Art 1484 on the foreclosure of chattel mortgages
company. The financing company is thus bound by Art. 1484. over personal property sold on installment basis.
Zayas v. Luneta Motor Company (117 SCRA 726)

Levy Hermanos v. Gervacio
Remedies Provided Under Article 1484
Facts: Levy Hermanos, Inc., sold to Lazaro Blas Gervacio, who after downpayment,
executed a promissory note for the balance of P2,400, payable on or before June Nature of the remedies in Art. 1484
15, 1937, and mortgage the car. Gervacio failed to pay and the mortgage was • The article provides for three remedies.
foreclosed, Hermanos instituted a civil action for the balance. • These are alternative and exclusive, and the exercise of one would bar the
Held: The suggestion that the cash payment made in this case should be considered exercise of the others. Delta Motor Sales Corp. v. Niu Kim Duan (213 SCRA
as an installment in order to bring the contract sued upon under the operation of 259)
the law, is untenable. A cash payment cannot be considered as a payment by o This is the “vertical” barring effect.
installment, and even if it can be so considered, still the law does not apply, for it • However, seeking a writ of replevin is consistent with any of the three
requires non-‐payment of two or more installments in order that its provisions may remedies. Universal Motors Corp. v. Dy Hian Tat (28 SCRA 161)
be invoked. Here, only one installment was unpaid.(Applying Art. 1454) • In installment sales, if the action instituted is for specific performance and
the mortgaged property is subsequently attached and sold, the sale does
not amount to a foreclosure of the mortgage, has been upheld in
Zayas v. Luneta Motor Company subsequent decisions and seems now well-‐established. Industrial Finance
Corp. v. Ramirez (77 SCRA 152)
Facts : Petitioner Eutropio Zayas, Jr. purchased on installment basis a motor vehicle
from Escaño Enterprises in Cagayan de Oro City, dealer of Respondent Luneta Delta Motor Sales Corp. v. Niu Kim Duan
Motor Company. Car was delivered to Zayas who executed a promissory note on Facts: Defendants purchased from the plaintiff 3 units of ‘DAIKIN’ air-‐conditioner,
the balance and in addition a chattel mortgage on the car in favor of Luneta. Zayas after paying the amount of P6,966.00, the defendants failed to pay at least two (2)
was unable to pay further prompting Luneta to extra-‐judicially foreclose chattel monthly instalments. The contract has stipulations that incase the contract is
mortgage; car sold at public auction with Luneta as highest bidder. Luneta filed civil rescinded the defendant should pay the expenses of the suit, 25% of the unpaid
case for recovery of balance of P1,551.74 plus interest. He denied applicability of obligation.
Art1484 because contract was only a mere loan and not sale on installment
Held: The vendor in a sale of personal property payable in installments may
Issue: WON Article 1484 would apply to a person or entity which financed purchase exercise one of three remedies
on installments of a motor vehicle where the seller subsequently assigns loan (1) exact the fulfillment of the obligation, should the vendee fail to pay; (2) cancel
documents to the financing person or entity. the sale upon the vendee's failure to pay two or more installments; (3) foreclose
the chattel mortgage, if one has been constituted on the property sold, upon the
Held/Ratio: vendee's failure to pay two or more instalments.
Yes. Escaño was an agent of Luneta Motor Company and that the certification from
the cashier of Escaño Enterprises (submitted in evidence) on monthly installments The third remedy, however, is subject to the limitation that the vendor cannot
aid by Zayas mentioned that the note was in favor of Luneta. Escaño assigned its recover any unpaid balance of the price and any agreement to the contrary is void
rights vis-‐à-‐vis the sale to Luneta Motor Company, the nature of the transaction (Art. 1484) The three remedies are alternative and NOT cumulative. If the creditor
didn't change and as an assignee, Luneta had no better rights than assignor Escano chooses one remedy, he cannot avail himself of the other two.
under the same transaction. Transaction would still be a sale of personal property in
installments covered by Art. 1484; to rule otherwise would pave the way for


Remedy of Specific Performance Remedy of Recission
• This remedy is alternative. However, it can be argued that if the obligation • Rescission obliges both parties to make restitution. However, under Art.
to pay becomes impossible, the seller may still seek rescission based on 1486, a stipulation that the installments or rents paid shall not be returned
Art. 1191. CLV however says that the generic obligation to pay can’t is valid, as long as they are not unconscionable. Delta Motor Sales Corp. v.
become impossible. Niu Kim Duan (213 SCRA 259)
• The seller is deemed to have chosen specific performance when he files an • A stipulation which provides for the forfeiture of the amounts paid by the
action in court for recovery. Sending of demand letter to the buyer is not buyer when the contract is rescinded is not contrary to law. Such forfeited
enough. amounts are like the damages which can also be recovered in rescission.
• When judgment is rendered in favor of the seller, the buyer becomes a • Mutual restitution prevents recovering on the balance of the purchase
judgment debtor. His obligation can be executed on all personal and real price. Nonato v. IAC (140 SCRA 255)
properties of the buyer which are not exempt from execution.
When Rescission Deemed Chosen
• The fact that the seller obtained a writ of execution against the property
mortgaged, but pursuant to an action for specific performance with a plea • There is a clear indication by the seller that he wants to end the contract.
for a writ of replevin, does not amount to a foreclosure of the chattel o Sends a notice of recission to the buyer
mortgage covered by the Recto Law. Tajanglangit v. Southern Motors (101 o Takes possession of the subject matter of the sale
Phil. 606) o Files an action for rescission
• When the seller’s assignee, a financing company, is able to take back
Tajanglangit v. Southern Motors
possession of the motor vehicle with a condition that the car can be
FACTS: Spouses Tajanlangit bought 2 tractors and 1 Thresher from Southern Motors redeemed by the buyers within 15 days, such possession is clearly with the
on installment basis by issuing a Promissory Note to that effect. They then intent to cancel the contract. Nonato v. IAC (140 SCRA 255)
defaulted on the installment payments. The court entered judgment for the total • The retaking of possession of the property must be coupled with an
sum of the purchased machineries (P25,575) plus interest and collection costs. The unequivocal desire on the part of the seller to rescind. Vda. De Quiambao
sheriff then levied on the machineries and sold them on auction for P10K to the v. Manila Motor Co. (3 SCRA 445)
highest bidder, which was also Southern Motors. Since the judgment called for so
Barring Effect of Rescission
much more, Southern Motors obtained an alias writ of execution so that the sheriff
could levy attachment on the other real properties of the Tajanlangits. • Even if not explicitly stated in the law, rescission still bars the seller from
recovering deficiency or unpaid balance, in the same way that foreclosure
ISSSUE: WON SouthMo had already foreclosed on the chattel mortgage and thus on chattel mortgage does.
have no more further action against them. • It is because of the nature of rescission which requires mutual restitution.
When the subject matter is returned, and damages are paid, or payments
HELD/RATIO: There was NO foreclosure sale since SouthMo elected 1484(1) and are forfeited, the two parties are deemed to have been mutually
sued on the Note exclusively. SouthMo had the choice what remedy in Art.1484 to compensated. The seller cannot have its cake and eat it too. Nonato v. IAC
use. Neither was there cancellation of the sale which was also affirmed by the (140 SCRA 255)
sheriff. There was an execution against on the property mortgaged not a
cancellation/foreclosure on the sale. The fact that the seller obtained a writ of Nonato v. IAC
execution against the property mortgaged, but pursuant to an action for specific Facts: Restituto and Ester Nonato purchased a Volkswagen Sakbayan from the
performance with a plea for a writ of replevin, does not amount to a foreclosure of People's Car, Inc., on installment basis. The defendants executed a promissory note
the chattel mortgage covered by the Recto Law and a chattel mortgage in favor of People's Car, inc. It then assigned its rights and
interests over the note and mortgage in favor of Investor's Finance Corporation


(IFC). For failure of defendants to pay two or more installments, despite demands, Northern Motors, Inc. v. Sapinoso
the car was repossessed by IFC. Despite repossession, IFC demanded that Nonatos
FACTS: Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car
pay the balance of the price of the car.
executing a promissory note for the balance of P10,540.00 payable in installments

with interest at 12% per annum with a chattel mortgage on the car. The vendee-‐
ISSUE: Whether a vendor who had cancelled the sale of a motor vehicle for failure
mortgagor failed to pay several installments. Northern Motors, Inc. filed a
of the buyer to pay two or more of the stipulated installments, may also demand
complaint against Sapinoso and sought foreclosure. Subsequent to the
payment of the balance of the purchase price.
commencement of the action, but before the filing of his answer, defendant

Sapinoso made two payments on the promissory note. The court allowed the
Held/RATIO: Hell no. The applicable law in the case at bar is Art. 1484.
foreclosure but however ordered plaintiff to reimburse the sum of P1,250.00 which
These remedies have been recognized as alternative, not cumulative, that the
the plaintiff had received from the latter after having filed the present case.
exercise of one would bar the exercise of the others. The acts performed by the

corporation are wholly consistent with the conclusion that it had opted to cancel
ISSUE: WON the court erred in ordering Northern Motors to reimburse the sum of
the contract of sale of the vehicle. It is thus barred from exacting payment of the
P1,250 received by plaintiff after having filed the present case.
balance of the price of the vehicle. It cannot have its cake and eat it too.

HELD/RATIO: Yes. The Court erred in concluding that the legal effect of the filing of
the action was to bar plaintiff-‐appellant from accepting further payments on the
Foreclosure of Chattel Mortgage Constituted on Subject Property promissory note. There has not yet been a foreclosure sale resulting in a deficiency.
When Remedy of Foreclosure is Deemed Chosen Article 1484(3) – prohibits "further action against the purchaser to recover any
unpaid balance of the price”
• The seller is deemed to have chosen to foreclose only at the time of actual
sale of the subject property at public auction. Manila Trading & Supply Co. • There is no reason why a mortgage creditor should be barred from
v. Reyes (62 Phil. 461); Manila Motor Co., Inc. v. Fernandez (99 Phil. 782) accepting, before a foreclosure sale, payments voluntarily tendered by the
• The filing for and issuance of a writ of replevin (and the subsequent debtor-‐mortgagor who admits a subsisting indebtedness.
recovery of possession) does not mean that the seller will foreclose on the • Even a mortgage creditor, before the actual foreclosure sale, is not
mortgage. Universal Motors Corp. v. Sy Hian Tat (28 SCRA 161) precluded from recovering the unpaid balance of the price although he has
o (Filing of a writ of replevin is usually a preliminary step to filed an action of replevin for the purpose of extrajudicial foreclosure
foreclose so that the seller will be able to regain possession.) • Even a mortgage creditor who has elected to foreclose but who
• If the seller files an action denominated as “replevin with damages” which subsequently desists from proceeding with the auction sale, without
seeks to recover possession and in the alternative, to recover the unpaid gaining any advantage or benefit, and without causing any disadvantage or
balance of the price, he is still not considered as having chosen foreclosure harm to the vendee-‐mortgagor, is not barred from suing on the unpaid
as a remedy. Industrial Finance Corp. v. Ramirez (77 SCRA 152) account.
Barring Effect of Foreclosure
• It is the foreclosure and actual sale at public auction which bars further Barring Effect on Other Securities Given for Payment of Price
recovery by the seller. • If the seller had already foreclosed on the chattel mortgage, it cannot seek
• If the seller had filed an action for foreclosure and before the public deficiency judgment by foreclosing on the real estate mortgage constituted
auction, he receives further payment from the buyer, the seller is not by third-‐party mortgagors. Cruz v. Filipinas Investment & Finance Corp. (23
obliged to refund the payments. Northern Motors, Inc. v. Sapinoso (33 SCRA 791)
SCRA 356)


o The Court held that if the third-‐party mortgagor is forced to pay, vendor of any balance not satisfied by such sale. A contrary ruling would be open to
then he as the guarantor will be allowed to recover from the abuse coz mortgagees could buy the property at a foreclosure at a much lower
principal debtor. This would be an indirect subversion of Art. price, then go after the second security. It would have the effect of depriving the
1484. mortgagor of his property, yet with almost the whole debt being due. Neither may
o The action being barred also includes extrajudicial proceedings, FIFC recover from the guarantor. If the guarantor (Reyes) was compelled to pay the
not just judicial proceedings. balance, thus she would be allowed to recover what she has paid from the vendee
• The seller is likewise precluded from further extrajudicially foreclosing on (Cruz). Thus, ultimately, Cruz would be made to bear the balance, even if the CM
any additional security which the buyer himself has constituted. Ridad v. was already foreclosed. Protection of Art 1484 would be subverted which cannot be
Filipinas Investment and Finance Corp. (120 SCRA 246) allowed to happen.
• When the real estate mortgage constituted by a third-‐party is foreclosed

first, the seller cannot anymore foreclose on the chattel mortgage
constituted by the buyer. BUT the barring effect as to prevent recovery of Ridad v Filipinas Investment & Finance Corp.
deficiency judgment does not come into play. Borbon II v. Servicewide
Facts: Plaintiffs Ridad bought 2 brand new Ford Consul sedans. They executed a
Specialists, Inc. (258 SCRA 634)
promissory note and a chattel mortgage on the two cars AND another car AND
• The original wording of the Recto Law contained “any unpaid balance”
plaintiff’s taxi operation franchise or certificate of public convenience. The vendor
instead of “any unpaid balance of the price.” The Court has interpreted
assigned its rights, title and interest to the promissory note and chattel mortgage to
“any unpaid balance” to include even interest on the principal, attorney’s
Filipinas Investment and Finance Corp. The buyers defaulted on their payment. FIFC
fees, expenses of collection, and other costs. Maconday & Co., Inc. v.
foreclosed extra-‐judicially on the chattel mortgage and they were the highest
Eustaqio. (64 Phil. 446)
bidder. Another auction sale was held at a later date for the remaining properties,
o Even if this case is a 1937 case, it remains good law, despite the
including the taxi franchise. FIFC was again the highest bidder. It subsequently sold
change in wording in what is now Art. 1484 of the Civil Code. This
and conveyed the taxi franchise to Jose Sebastian who filed with the PSC for
doctrine was reiterated in the 1969 case of Filipinas Investment &
approval of the sale.
Finance Corp. v. Ridad, infra.
Plaintiff then filed an action for annulment of contract and the subsequent sales
Cruz v. Filipinas Investment & Finance Corp. with the CFI of Rizal.

Facts: Cruz purchased from Far East Motor Corp an Isuzu Diesel Bus for P44,616.24
Issue: WON the chattel mortgage was valid.
in installments with a chattel mortgage in favor of FEMC over the bus. An additional

security was given by Felicidad Vda. de Reyes (Reyes) in the form of a Second
Held:NO. Art. 1484 of the Civil Code applies.
mortgage on a parcel of land owned by her, along with the building. Thereafter,
• These remedies are alternative, not cumulative. In this case, the mortgagee chose
FEMC, for value received, indorsed the PN and assigned all its rights in the Chattel
to foreclose on the chattel mortgage on the 2 new Ford vehicles. Because they
Mortgage and Real Estate Mortgage to herein defendant, Filipinas Investment and
chose this option, they may not anymore have any further action to recover the
Finance Corp. (FIFC). Cruz defaulted in payment. Thus, FIFC took steps to foreclose
unpaid balance pursuant to Art. 1484(3). They are thus precluded from having a
the chattel mortgage on the bus and after for the other security for the deficiency.
recourse against the additional security put up by a guarantor.

Issues: WON FIFC, having already foreclosed the chattel mortgage, also can
foreclose the real estate mortgage?
Borbon II v. Servicewide Specialists, Inc.

Held/Ratio: Art 1484 applies. The remedies therein provided are alternative, not FACTS: (B&B) jointly and severally signed a promissory note in favor Pangasinan
cumulative – exercise of one bars exercise of others. Established rule is that Auto Mart, Inc. for P122,856.00 to be payable in installments without need of
foreclosure and actual sale of a Chattel Mortgage bars further recovery by the notice or demand with a Chattel Mortgage on 1 Brand new 1984 Isuzu KCD 20 Crew


Cab. The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit "All amounts barred from recovery."
Corporation, with notice to the defendants. Because the defendants did not pay
"Any unpaid balance" refers to the deficiency judgment including interest on
their monthly installments, Filinvest demanded from the defendants the payment
principal, attorney's fees, expenses of collection, and the costs.
of their installments due on January 29, 1985 by telegram. Filinvest Credit
Corporation thereafter assigned all its rights, interest and title over the Promissory
Note and the chattel mortgage to Servicewide Specialists, inc. (SSI). The plaintiff
Rules on Perverse Buyer-‐Mortgagor
attempted to collect by sending a demand letter to the defendants for them to pay
their entire obligation. The defendants claim that what they intended to buy from • General Rule: The Eustaquio doctrine bars all amounts from recovery in
Pangasinan Auto Mart was a jeepney type Isuzu K. C. Cab. Defendants further claim case the seller-‐mortgagee forecloses on the chattel mortgage.
that they are not in default of their obligation because the Pangasinan Auto Mart • Exception: When the buyer-‐mortgagor refuses to surrender the chattel to
was first guilty of not fulfilling its obligation in the contract. The defendants claim allow the seller to be able to proceed with foreclosure, the seller is allowed
that neither party incurs delay if the other does not comply with his obligation to recover expenses and attorney’s fees incurred in trying to obtain
possession of the chattel. Filipinas Investment & Finance Corp. v. Ridad (30
ISSUE: W/N awards made by the court a quo of liquidated damages and attorney's SCRA 564)
fees to private respondent appropriate. Attorney’s fees (YES) Liquidated Damages
(NO) Filipinas Investment & Finance Corp. v. Ridad
FACTS: Ridad purchased from Filipinas a Ford Sedan on installment basis but failed
RATIO: When the seller assigns his credit to another person, the latter is likewise to pay 5 installments. Extrajudicial foreclosure ensued, spouses Ridad were
bound by the same law. Accordingly, when the assignee forecloses on the considered in default for failure to appear in court, and court awarded attorney's
mortgage, there can be no further recovery of the deficiency, and the seller-‐ fees and actual expenses of seizure to Filipinas.
mortgagee is deemed to have renounced any right to the unpaid balance. Thus
there must be no payment of liquidated damages, however grant of attorney's fees DOCTRINE: Although the purpose of the Recto law is to protect the buyers on
were allowed. installment who were victimized by sellers who succeeded in unjustly enriching
themselves at the expense of the buyers, the mortgagee (seller) is also entitled
protection against PERVERSE MORTGAGORS. Perverse mortgagors are those where
after failing to pay 2 or more installments, refuse to deliver chattel to the
mortgagee or conceals it in a place outside the reach of the mortgagor. Since the
Macondray & Co., Inc. v. Eustaquio
mortgagee would enforce his rights through the means and within the limits
FACTS: Macondray sold a de Soto car Sedan from Eustaquio for P595, and for which delineated by law, the next step is to file an action for replevin to recover
he executed a note where he undertook to pay the car in 12 monthly installments, immediate possession of the chattel. In this case, the necessary expenses should be
12% interest per annum. He mortgaged same car to guarantee his note; he paid the borne by the mortgagor.
first installment but failed to pay any of the remaining. So plaintiff brought an

action to obtain possession of the car AND recover the balance owing him (interest,
attorney's fees, expenses and costs)
Lease with Option to Purchase
DOCTRINE: The Recto law prevents the mortgagee from seizing the mortgaged
property, buying it at foreclosure sale and then bringing a suit against the Art. 1485.
mortgagor for a deficiency judgment. This is to close the door to abuses already
The preceding article shall be applied to contracts purporting to be leases
committed in connection with the foreclosure of the chattel mortgages when sales
were payable in installments.
of personal property with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing. (1454-‐A-‐a)


Art. 1486. What is the Barring Effect on Such Contracts?
In the case referred to in two preceding articles, a stipulation that the • Key question: When the lessor retakes possession of the object upon non-‐
payment, is this considered as a foreclosure or a rescission?
installments or rents paid shall not be returned to the vendee or lessee
o CLV cites a lot of cases which show that the Court hasn’t really
shall be valid insofar as the same may not be unconscionable under the made a definitive answer to this question.
circumstances. (n) • However, CLV says that the Court seems to treat installment sales of
movables which are structured as lease with option to purchase as
• Some sellers opt to making contracts in the form of leases with an option
equivalent to a chattel mortgage executed on the thing itself.
to buy for a small consideration at the end of the term. These contracts
• Therefore, when the purported lessor takes possession of the subject
must be regarded as installment sales, with the rent payments as the
matter, it is treated legally as a foreclosure. Thus, the barring effect of
installments paid. Vda. De Jose v. Barrueco (67 Phil. 191)
foreclosure applies.
• Even if an option to purchase is not expressly stipulated, the stipulations in
the contract can still show that such was the intention of the parties. PCI REMEDIES IN CASES OF IMMOVABLES
Leasing & Finance, Inc. v. Giraffe-‐X Creative Imaging, Inc. (527 SCRA 405)
PCI Leasing & Finance, Inc. v. Giraffe-‐X Creative Imaging, Inc. Remedies of Seller
FACTS: Parties entered into a Lease Agreement where PCI leased two office Anticipatory Breach
equipment from Giraffe-‐ X. The lease agreement contained the monthly rental
(expensive!) a guaranty deposit and embodied a standard acceleration clause Art. 1591.
operative in the event Giraffe failed to pay any rental and/or accounts due. Giraffe
Should the vendor have reasonable grounds to fear the loss of immovable
defaulted for 3 months and were given a formal pay OR surrender equipment type
property sold and its price, he may immediately sue for the rescission of
of demand letter.
the sale.
DOCTRINE: Recto law applies because the contract is actually a lease with option to
buy. It was not a straight lease because the petitioner stands to make P13M++ in a Should such ground not exist, the provisions of Article 1191 shall be
year's time out of an investment of P8.1M. The intention of the parties must be observed. (1503)
looked into. Also, the demand letter was fashioned in the alternative: payment of
the unpaid full balance OR the surrender of the financed asset, suggesting that Failure of Buyer to Pay Price
Giraffe can keep the equipment if it exercises its option to acquire the same. This
reflects a situation where a financing company conceals up to the last moment its Art. 1592.
intention to sell the property in an attempt to circumvent the Recto law. Sellers in In the sale of immovable property, even though it may have been
this case have resorted to the device of making contracts in the form of leases stipulated that upon failure to pay the price at the time agreed upon the
either with options to the buyer to purchase for a small consideration at the end of
rescission of the contract shall of right take place, the vendee may pay,
term, provided the so-‐ called rent has been duly paid, or with stipulations that if the
even after the expiration of the period, as long as no demand for
rent throughout the term is paid, title shall thereupon vest in the lessee. It is
obvious that such transactions are leases only in name. In choosing replevin, PCI rescission of the contract has been made upon him either judicially or by a
now waived its right to bring an action to recover unpaid rentals on the leased notarial act. After the demand, the court may not grant him a new term.
items. Remedies under Article 1484 are alternative, not cumulative. (1504a)



• The Court has tended to interpret Art. 1592 liberally in favor of the buyer In Case of Subdivision or Condominium Projects
to give him every opportunity to comply with his obligation and proceed to
take the subject immovable. • P.D. 957 is known as The Subdivision and Condominium Buyers’ Protective
• Art. 1592 only covers contracts of sale. Contracts to sell are not covered. Decree.
o This decree was issued in the wake of numerous reports that
• The Court has also resorted to equitable resolutions in the application of
Art. 1592. Such was the case in Legarda Hermanos v. Saldaña. (55 SCRA subdivision and condominium developers had reneged on their
324) representations and obligation to provide subdivision roads,
drainage, sewerage, water systems, lighting system, etc. Casa
Legarda Hermanos v. Saldaña Filipinas Realty Corp. v. Office of the President (241 SCRA 165)
FACTS: Saldana bought two lots from Legarda for P1, 500 each, payable in 10 years, Section 20. Time of Completion.
divided into 120 equal monthly installments with 10% interest per annum. Saldana
paid for 8 continuous years about 95 monthly installments total P3, 582 (P1.8K Every owner or developer shall construct and provide the facilities,
interest, 1.6K applied to principal), then he stopped payment. Trial Court upheld improvements, infrastructures and other forms of development, including water
cancellation of contract to sell, CA reversed saying that Saldana suspended payment supply and lighting facilities, which are offered and indicated in the approved
because the lots were under under water/ no improvements he so it could not be subdivision or condominium plans, brochures, prospectus, printed matters, letters
delivered to him. or in any form of advertisement, within one year from the date of the issuance of
the license for the subdivision or condominium project or such other period of
DOCTRINE: The total amount paid as principal amounted to P1, 682. 23 more than time as may be fixed by the Authority.
the amount of one lot. Therefore, it is just and fair in accordance with law and
equity to consider one lot as fully paid. There was already substantial performance. Section 23. Non-‐Forfeiture of Payments.
Under Article 1234-‐ If the obligation has been substantially performed in good faith, No installment payment made by a buyer in a subdivision or condominium project
the obligor may recover as though there had been a strict and complete fulfillment, for the lot or unit he contracted to buy shall be forfeited in favor of the owner or
less damages suffered by the obligee. developer when the buyer, after due notice to the owner or developer, desists
from further payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and within
Remedies of Buyer the time limit for complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization interests but excluding
Suspension of Payment delinquency interests, with interest thereon at the legal rate.
Art. 1590. • Section 20 of P.D. 957 directs every owner and developer of real property
to provide the necessary facilities, improvements, infrastructure and other
Should the vendee be disturbed in the possession or ownership of the
forms of development, failure to carry out which is sufficient cause for the
thing acquired, or should he have reasonable grounds to fear such buyer to suspend payment, and any sums of money already paid shall not
disturbance, by a vindicatory action or a foreclosure of mortgage, he may be forfeited. Tamayo v. Huang (480 SCRA 156)
suspend the payment of the price until the vendor has caused the • In case the seller fails to comply with his obligations in Sec. 20 of P.D. 957,
disturbance or danger to cease, unless the latter gives security for the the buyer has two options: Relucio v. Brillante-‐Griffin (187 SCRA 405)
return of the price in a proper case, or it has been stipulated that, o Demand reimbursement of the amount paid.
notwithstanding any such contingency, the vendee shall be bound to make o Wait for further development of the subdivision or condominium.
the payment. A mere act of trespass shall not authorize the suspension of In this case, the buyer may suspend payment until the seller
the payment of the price. (1502a)


fulfills his obligations. He may not be ousted from the subdivision. MACEDA LAW: Sales of Real Estate on Installments
Tamayo v. Huang (480 SCRA 156)
• Sec. 23 does not require that a notice be given first by the buyer to the • R.A. 6552 is known as the “Realty Installment Buyer Protection Act.”
seller before a demand for refund can be made as the notice and demand • It declared a public policy to protect buyers of real estate on installment
can be made in the same letter or communication. Casa Filipinas Realty payments against onerous and oppressive conditions. (Sec. 2, RA 6552)
Corp v. Office of the President (241 SCRA 165) • The courts have used the Maceda Law as a policy statement of the State in
• The buyer has the right to compel the seller to complete the roads and protecting the interests of buyers of residential real estate on installments.
other facilities on the subdivisioin, even if it wasn’t stipulated in the sale. • At times, the Court has also applied the Maceda Law retroactively. Siska
The seller cannot shift to the buyer the burden of providing for access to Dev. Corp. v. Office of the President (231 SCRA 674)
and from the subdivision. Lim v. Delos Santos (8 SCRA 798); Consing v. CA Transactions Covered
(177 SCRA 14)
o If the seller defaults, the buyer should be entitled to a • It covers primarily residential real estate bought on installment.
proportionate reduction in the purchase price. • It also covers the financing of real estate on installment.
• Buyers of condominium units would be justified in suspending payments, • The Maceda Law also covers contracts to sell. This is evidenced by the use
when the developer-‐seller fails to give them a copy of the Contract to Sell of the word “cancellation” in the law itself.
despite repeated demands. Gold Loop Properties, Inc. v. CA (350 SCRA 371) • The Maceda Law uses the same definition of “sale on installment” as the
o However, when the Reservation Agreement provides that the Recto Law.
buyer shall be entitled to a Contract to Sell only upon its payment
of at least 30% of the total contract price, the non-‐happening yet Transactions Excluded From Coverage
of that condition does not render the seller in default as to The following transactions are excluded from coverage of the Maceda Law: (ICA)
warrant the buyer the right to rescind the sale and demand a
refund. G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc. 1. Sales covering industrial lots
(614 SCRA 75) 2. Sales covering commercial buildings and lots
• Nothing in P.D. 957 provides for the nullification of a contract to sell in the 3. Sales to tenants under agrarian reform laws
event the seller, at the time the contract was entered into, did not possess The Maceda Law Cannot be invoked by the Highest Bidder in Foreclosure
a certificate of registration or a license to sell, sale being a consensual Proceedings
contract. Co Chien v. Sta. Lucia Realty (513 SCRA 570)
• P.D. 957 may be applied retroactively since it is the intent of the law as • Such person is not the real party to the original installment sales
shown from its preamble. It is an instrument of social justice. Eugenio v. • He does not have any rights promoted under the Maceda Law.
Drilon (252 SCRA 106) Rights Granted
Right to Grace Period Stipulated When the buyer has paid at least 2 years of installment
• When a grace period is provided for in the contract of sale, it should be
Section 3.
construed as a right, not an obligation of the debtor, and when
unconditionally conferred, the grace period is effective without further In all transactions or contracts involving the sale or financing of real estate
need of demand either calling for the payment of the obligation or for on installment payments, including residential condominium apartments
honoring the right. Bricktown Dev. Corp. v. Amor Tierra Dev. Corp. (239 but excluding industrial lots, commercial buildings and sales to tenants
SCRA 126) under RA 3844, as amended by RA 6389, where the buyer has paid at least


two years of installments, the buyer is entitled to the following rights in • A decision rendered in an ejectment case operated as the required notice
case he defaults in the payment of succeeding installments: of cancellation under the Maceda Law. Leaño v. Court of Appeals (369
SCRA 36)
(a) To pay, without additional interest, the unpaid installments due within • A formal letter demand upon buyer to vacate the premises is not the same
the total grace period earned by him which is hereby fixed at the rate of as the notice of cancellation or demand for rescission by a notarial act
one (1) month grace period for every one (1) year of installment payments required by R.A. No. 6552. Evidently, the case of unlawful detainer filed by
made: Provided, That this right shall be exercised by the buyer only once petitioner does not exempt him from complying with the said
in every five (5) years of the life of the contract and its extensions, if any. requirement. Pagtulungan v. Dela Cruz Vda. De Manzano (533 SCRA 242)
• Where the buyers under a contract to sell offers to pay the last installment
(b) If the contract is canceled, the seller shall refund to the buyer the cash a year and a half after the stipulated date, that was beyond the sixty-‐day
surrender value of the payments on the property equivalent to fifty per grace period under Section 4 of the Maceda Law. The buyers cannot use
cent (50%) of the total payments made, and, after five (5) years of the second sentence of Section 4 of the Maceda Law against the sellers’
installments, an additional five per cent (5%) every year but not to exceed alleged failure to give an effective notice of cancellation or demand for
ninety per cent (90%) of the total payments made: Provided, That the rescission because the sellers merely sent the notice to the address
actual cancellation of the contract shall take place after thirty (30) days supplied by the buyers in the Contract to Sell. Garcia v. Court of Appeals
from receipt by the buyer of the notice of cancellation or the demand for (619 SCRA 280)
rescission of the contract by a notarial act and upon full payment of the Garcia v. CA
cash surrender value to the buyer.
FACTS: A contract to sell was entered into, down payment was made, and the rest
Down payments, deposits or options on the contract shall be included in was payable in 3 installments. The last installment was not paid. In the contract it
the computation of the total number of installment payments made. said that failure to comply with the terms of payment would cause rescission, and
possession shall be retained until a deed of absolute sale is executed by the buyers.
• The cancellation of the contract under the Maceda Law must follow the DoAS shall be executed upon full payment.
following steps: (GNR)
DOCTRINE: Maceda law inapplicable since the said law applies to contracts of real
o First, the seller should extend the buyer a grace period of at least
estate on installment payments, example: condominium. Subject lands are not
sixty (60) days from the due date of the installments.
residential real estate within the contemplation of the Maceda Law. Even if it did
o Second, at the end of the grace period, the seller shall furnish the
apply, offer of payment was made beyond the 60-‐day grace period.
buyer with a notarial notice of cancellation or demand for
rescission, effective thirty (30) days from the buyer’s receipt
thereof; a mere notice or letter, short of a notarial act, would not
When the buyer has paid less than 2 years of installments
suffice. McLaughlin v. CA (144 SCRA 693)
o Third, for contracts covering more than two years of payments,
Sec. 4.
there must be return to the buyer of the cash surrender value.
Villdara, Jr. v. Zabala (545 SCRA 325) In case where less than two (2) years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty (60) days from the
• The additional formality of a demand on [the seller’s] part for rescission by date the installment became due.
notarial act would be unnecessary since the seller therein filed an action
for annulment of contract, which is a kindred concept of rescission by If the buyer fails to pay the installments due at the expiration of the grace
notarial act. Layug v. IAC (167 SCRA 627) period, the seller may cancel the contract after thirty (30) days from


receipt by the buyer of the notice of cancellation or the demand for place despite the effectivity of the notice of cancellation. Leaño v.
rescission of the contract by a notarial act. CA (369 SCRA 36)
McLaughlin v. CA
Formula to Compute the Installment Mode
FACTS: A contract of conditional sale payable in installments was entered into by
• The proper formula to apply in deterining how many installments have
McLaughlin and Flores. Due to the latter's failure to pay the balance, a complaint
been made is to include any payment made as downpayment or
for rescission was filed in court. Parties submitted a Compromise Agreement which
reservation fee as part of the installments made, and then divide them by
had a stipulation that in case of failure to comply, McLaughlin is entitled to a writ of
the stipulated mode of payment, i.e., whether it is monthly, quarterly,
execution rescinding the Deed of Conditional Sale of Real Property and Flores
semi-‐annual or annual. Jestra Dev. & Mgt. Corp v. Pacifico (513 SCRA 413)
waives his right to appeal. Also, in case of rescission all payments made by Flores
Jestra Dev. Mgt. Corp v. Pacifico will be forfeited in favor of Flores.
FACTS: Pacifico signed a Reservation Application for the purchase of a house and DOCTRINE: Under Section 4 of the Maceda Law: "In case where less than 2 years of
lot. Upon full payment of DP, Pacifico will sign a contract to sell. 70% balance of installments were paid, the seller shall give the buyer a grace period of not less than
purchase price payable in 10 years + interest, at a monthly installment. 60 days from the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may cancel the
DOCTRINE: The proper formula to apply in determining how many installments
contract after 30 days from receipt by the buyer of the notice of cancellation or the
have been made is to include any payment made as down payment OR reservation
demand for rescission of the contract by notarial act." Any stipulation contrary to
fee as part of the installments made, and then to divide the stipulated mode of
this is void. Flores made a valid tender of payment within 30 days from receipt of
payment (i.e. monthly, quarterly, annually, semi-‐ annually) (page 419, Sales Book)
motion for execution.
Since after applying this formula, Pacifico failed to pay at least 2 years of
2 Doctrines applicable to Maceda Law:
installments, he is not entitled to a refund of the cash surrender value of his
payments. Section 4 is applicable. The cancellation is a 2 step process: a. The seller a. although the law seems to require rescission and cancellation to be both by
should extend the buyer a grace period of at least 60 days from the due date of the notarial act, this case would hold notarial act as merely applicable to rescission,
installment; b. At the end of the grace period, the seller shall furnish the buyer with whereas "notice of cancellation" need not be by notarial act.
a notice of cancellation or demand for rescission through a notarial act, effective 30
b. Even after the expiration of the grace period provided by law, the buyer can still
days from the buyer's receipt thereof. Despite the notice of dishonor, Pacifico took
prevent rescission or cancellation of the contract within the 30 day period when
no action and 60 days had lapsed.
rescission or cancellation is to take effect. (p. 420, Sales book)

Interpretation of Grace Period and Mode of Cancellation Other Rights Granted to Buyer
• The ruling in McLaughlin v. CA provides for 2 grace periods:
a. The 60-‐day period provided by law before a notice of cancellation Sec. 5.
is served to the buyer Under Sec. 3 and 4, the buyer shall have the right to sell his rights or assign
b. The before rescission or cancellation actually takes place.
the same to another person or to reinstate the contract by updating the
• Actual cancellation occurs 30 days after the notice of cancellation or
account during the grace period and before actual cancellation of the
demand for rescission is received by the buyer.
o However, if the seller does not refund the buyer pursuant to Sec. contract. The deed of sale or assignment shall be done by notarial act.
3(b) of the Maceda Law, rescission or cancellation will not take



Sec. 6. prevented from blocking the consummation of the same in light of the
precept that mere failure to fulfill the contract does not operate ipso facto
The buyer shall have the right to pay in advance any installment or the full as rescission. Platinum Plans Phil., Inc. v. Cucueco (488 SCRA 156)
unpaid balance of the purchase price any time without interest and to
have such full payment of the purchase price annotated in the certificate Cancellation of Judicial Sale
of title covering the property. • Where a judicial sale is voided without fault of the purchaser, the latter is
entitled to reimbursement of the purchase money paid by him. A judicial
Effect of Contrary Stipulation sale can only be set aside upon the return to the buyer of the purchase
price with simple interest, together with all sums paid out by him in
Sec. 7. improvements introduced on the property, taxes, and other expenses by
Any stipulation in any contract hereafter entered into contrary to the him. Seven Brothers Shipping Corp. v. CA (246 SCRA 33)
provisions of Sections 3, 4, 5 and 6, shall be null and void.
Law on Sales
Maceda Law Cannot Be Availed of by Developer
Chapter 12 – Conditions and Warranties
• The Maceda Law is aimed at protecting the buyers of real estate on
installment payments. One who buys the development from the developer Conditions
and then becomes his successor-‐in-‐interest is not covered by the law.
Lagandoan v. CA (290 SCRA 330) Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse to
Rescission on Sales of Non-‐Residential Immovables proceed with the contract or he may waive performance of the condition.
If the other party has promised that the condition should happen or be
on Installments
performed, such first mentioned party may also treat the nonperformance
• Pertinent provisions: Art. 1191 and Art. 1592, supra of the condition as a breach of warranty.
• Articles 1191 and 1592 on rescission cannot apply to a contract to sell
since “there can be no rescission of an obligation that is still non-‐existent,
Where the ownership in the thing has not passed, the buyer may treat the
the suspensive condition not having happened.” Valarao v. CA (304 SCRA
fulfillment by the seller of his obligation to deliver the same as described
155)
• Article 1592 allows the buyer of an immovable to pay as long as no
and as warranted expressly or by implication in the contract of sale as a
demand for rescission has been made; and the consignation of the balance condition of the obligation of the buyer to perform his promise to accept
of the purchase price before the trial court operates as full payment. and pay for the thing. (n)
Province of Cebu v. Heirs of Rufina Morales (546 SCRA 315)
• Automatic rescission clauses are not valid nor can be given legal effect n Two remedies where obligation of the other party to a contract of sale is
under Articles 1191 and 1592. Iringan v. Court of Appeals (366 SCRA 41) subject to a condition, and such is not performed.
o Indeed, rescission requires under the law a positive act of choice o Refusal to proceed with contract
on the party of the non-‐defaulting party. Olympia Housing v.
o Waive performance of the condition
Panasiatic Travel Corp. (395 SCRA 298)
n Romero v. CA – distinction between condition imposed on perfection and
• Vendor cannot recover ownership of the thing sold until and unless the
contract itself is resolved and set aside; a party who fails to invoke imposed on performance.
judicially or by notarial act the resolution of a contract of sale would be o Failure to comply with former results in failure of the contract

o Failure to comply with the latter results in the two remedies being
avialable to the other party.
n Heirs of Escanlar v. CA – contract of sale to become effective upon
happening of the condition

o Non-‐happening did not affect validity of the contract
o Only the effectivity
n David vs Tiongson – stipulation that deed of sale would issue after the
condition does not prevent perfection of the contract Express Warranties
Art. 1546. Any affirmation of fact or any promise by the seller relating to

the thing is an express warranty if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the same, and if
Distinctions between Conditions and Warranties the buyer purchase the thing relying thereon. No affirmation of the value
n Non-‐happening of condition does not amount to a breach : non-‐fulfillment of the thing, nor any statement purporting to be a statement of the
of warranty constitutes a breach seller's opinion only, shall be construed as a warranty, unless the seller
n When ownership has not passed, buyer may treat the fulfillment of the made such affirmation or statement as an expert and it was relied upon by
seller of his obligation under the contract as a condition for his obligation the buyer. (n)
to accept and pay.
n If the party promised that a condition would be performed/would happen,
other party may treat non-‐performance of such as a breach of warranty. n Two requisites for the existence of an express warranty
o Such stipulation elevates the condition to a warranty o It must be an affirmation of fact, or any promise by the seller
o And entitle the other party to damages relating to the subject matter of the sale
o Natural tendency of such affirmation is to induce buyer to
Other Differences purchase the thing; and
Condition Warranty o Buyer purchases relying on such affirmation/promise thereon
Goes into root of existence of the Goes into performance n Goodyear Philippines v. Sy
obligation May constitute an obligation in itself
o Warranty : affirmation/promise made by seller in relation to the
Must be stipulated by the parties May form part of the obligation by
thing sold
provision of law, even without
stipulation o Decisive test : whenther seller assumes to assert a fact of which
May attach to the seller or to the buyer Relates to subject matter itself, or the buyer is ignorant of.
obligations of the seller as to the subject n Affirmation of value or statement of seller’s opinion is not a warranty
matter o Unless seller made such statement as an expert, and was relied
upon by the buyer
o Art 1341 : mere expression of opinion does not signify fraud,

unless made by expert and other party relies on such special
knowledge


n Azarraga v. Gay oImplied warranty that seller has the right to sell the thing at the
o Assertions concerning the property’s characteristics are the usual time the ownership is to pass
and ordinary means of sellers to get a high price o Refers only to the transfer of ownership at the point of
o “A man who relis upon such affirmation…does so at his own consummation
peril.” o Not any representation as to ownership at the point of perfection
o It shall not be applicable to render liable a sheriff, auctioneer,
mortgagee, pledgee
§ Or any other person professing to sell by virtue of
Implied Warranties authorityin fact or law
§ For the sale of a thing in which a third person has a
Art. 1547.
legal/equitable interest
In a contract of sale, unless a contrary intention appears, there is: o There can be no legal waiver of this warranty without changing
basic nature of the relationship
(1) An implied warranty on the part of the seller that he has a right to sell § Right to sell -‐-‐ Requisite of sale
the thing at the time when the ownership is to pass, and that the buyer § Unless it amounts to clear assumption of risk on the part
shall from that time have and enjoy the legal and peaceful possession of of the buyer
the thing; n Warranty Against Eviction
o Implied warranty that when ownership will pass, buyer shall have
(2) An implied warranty that the thing shall be free from any hidden faults legal and peaceful possession
or defects, or any charge or encumbrance not declared or known to the o Vendor shall answer for the eviction even if there is no stipulation
buyer. regarding eviction
o When there is breach of this warranty
This Article shall not, however, be held to render liable a sheriff,
§ Purchaser has been deprived of/evicted from the whole
auctioneer, mortgagee, pledgee, or other person professing to sell by
or part of the thing sold;
virtue of authority in fact or law, for the sale of a thing in which a third
person has a legal or equitable interest. (n) § Eviction is by final judgment;
§ Basis thereof is a right prior to the sale made by the
seller; and
§ Seller has been summoned and made co-‐defendant in
n Those which by law constitute part of every contract of sale, whether or the suit for eviction at the instance of the buyer.
not the parties were aware of intended them. o Warranty cannot be enforced until the buyer loses the thing by
n Only a seller is bound by the implied warranties. final judgment
o Express stipulation in contract may make the agent of the seller § He need not appeal from the decision to make seller
bound by these. liable
n Warranty that Seller has Right to Sell § No need for buyer to resist fully the action


o Power Commercial v. CA – no action for breach of this warranty • Sheriff does not warrant the title to the
when buyer was well awar of the presence of tenants, and even property
undertook the job of ejecting these squatters • Not incumbent upon him to place purchaser in
o Jovellano v. Lualhati – vendee only needs to give notice of the possession
complaint. This perfects the right to the warranty.
o Escaler v. CA – cannot be enforced against seller when buyer
merely mailed seller a copy of the opposition of buyer to the
eviction suit
§ He did not formally summon the seller to be part of the o Amounts for which seller is liable in case of eviction
suit.
§ The vendors should be made parties to the suit at the Art. 1555. When the warranty has been agreed upon or nothing has been
instance of vendees. stipulated on this point, in case eviction occurs, the vendee shall have the
o Eviction in Part right to demand of the vendor:
§ If the part lost is of such importance that the buyer
would not have bought the thing without it, he may (1) The return of the value which the thing sold had at the time of the
demand rescission eviction, be it greater or less than the price of the sale;
• With obligation to return the thing itself.
(2) The income or fruits, if he has been ordered to deliver them to
§ Same rule applies when two or more things have beeen the party who won the suit against him;
jointly sold, when it appears that the buyer would not
have purchased one without the other (3) The costs of the suit which caused the eviction, and, in a
proper case, those of the suit brought against the vendor for the
o Particular causes Given by Law
warranty;
§ Adverse possesion has been commenced prior to sale,
but prescriptive period is completed after the transfer, (4) The expenses of the contract, if the vendee has paid them;
seller is not liable for breach of this warranty
(5) The damages and interests, and ornamental expenses, if the
§ Property is sold for nonpayment of taxes due, not made
sale was made in bad faith. (1478
known to buyer before sale, seller is liable for the
eviction.
o Waiver of warranty and Effects
o Applicability to Judicial Sales
§ Effect of waiver depends on nature of such waiver
§ Judgment debtor is also responsible for eviction in
• General or specific?
judicial sales, unless otherwise decreed in the judgment
• Good faith or bad faith on seller’s part?
§ However, Santiago Land Dev v. CA
§ If seller acted in bad faith, then any stipulation
• Buyer at execution sales takes property subject
exempting seller from answering eviction shall be void
to superior right of other parties
§ If buyer merely renounces the warranty in general terms,
§ Allure Mfg v. CA – caveat emptor applies in execution
no knowledge of a particular risk
sale


• Seller only pays value of thing at time of eviction o Seller not answerable for patent defects, or those which are
§ General waiver limits liability of seller. visible
§ If buyer waived with knowledge of risks (specific waiver) § Even for those which are invisible, if the buyer should
seller shall not be liable. know about them by reason of his trade/profession
§ JM Tuazon v. CA – even when no specific waiver, buyer o Seller responsible even if he was not aware of these hidden
cannot hold seller liable when he is aware of a third party defects
claim (HE MUST BE IN GOOD FAITH). o Applies to both movable and immovable
o Requisites for breach
§ Defect must be hidden
§ Must exist at time of the sale
n Warranty Against Non-‐apparent Servitudes
§ Must ordinarily have been excluded from the contract
o Shall apply when the following conditions are present
§ Must be important (render thing unfit or decrease fitness
§ Immovable sold is encumbered by non-‐apparent
considerably)
burden/servitude, not mentioned in the agreement; and
§ Action must be instituted within Statute of Limitations
§ Nature of such makes it so that the buyer would not have
o Remedies of Buyer/Obligation of Seller
acquired the immovable had be been aware of it.
§ Buyer should withdraw (accion redhibitoria)
o This warranty does not apply
§ Or demand a reduction of the price (action quanti
§ When servitude is mentioned in the agreement
minoris)
§ If it is recorded in the RoD
• Damages in either case.
• Unless there is an express warranty that the
• Only when the thing has not been lost
thing is free from all burdens and encumbrances
§ If it has been lost – obligations of seller depend on cause
o Remedies and Prescriptive Period
of loss, knowledge of hidden defect by seller, and
§ Buyer may bring action for rescission or sue for damages
whether there was a waiver of the warranty
within one year from execution of the deed
• Lost through hidden faults
§ If this has elapsed, he may only bring an action for
o If seller was aware – he shall bear the
damages within one year from when he discovered the
loss, and return the price and expenses
servitude.
of the contract, with damages.
n Warrant against hidden defects
o If seller was not aware – only obliged
o Seller shall be responsible when…
only to return the price and interest
§ Nature of hidden defect is such that it would render the
thereon, and reimburse the expenses
subject manner unfit for the use for which it was
of contract, but no damages.
intended
• If lost through FE or through fault of buyer
§ Diminish its fitness to such an extent that buyer would
not have bought it or he would have paid a lower price o If seller was not aware – buyer may
for it. demand the price he paid, less value of
the thing when it was lost

o If seller in bad faith, he shall pay Implied Warranties in Sale of Goods
damages to the buyer
Warranty as to Fitness or Quality
o When there is a waiver of warranty
§ If seller not aware – loss will not make seller liable
Art. 1562.
§ If seller was in bad faith – seller still liable on the
warranty In a sale of goods, there is an implied warranty or condition as to the
o Applicability to Judicial Sales quality or fitness of the goods, as follows:
§ It shall apply to judicial sales, but judgment debtor shall
not be liable for damages. (1) Where the buyer, expressly or by implication, makes known to the
o Prescriptive Period seller the particular purpose for which the goods are acquired, and it
§ Six months from delivery of the thing sold appears that the buyer relies on the seller's skill or judgment (whether he
n Redhibitory Defects of Animals be the grower or manufacturer or not), there is an implied warranty that
o Even when professional inspection is made, if the defect is such the goods shall be reasonably fit for such purpose;
that it would not be discovered even by experts, the defect is
considered redhibitory.
(2) Where the goods are brought by description from a seller who deals in
goods of that description (whether he be the grower or manufacturer or
o If veterinarian is ignorant or in bad faith, and thus does not
not), there is an implied warranty that the goods shall be of merchantable
discover/disclose the flaw, he shall be liable for damages
quality. (n)
o Sale of team
§ If two or more animals are sold together, redhibitory
n Requisites for Breach
effect of one shall only affect the one, and not the others
o Buyer sustained injury because of the product
• Unless buyer would not have purchased the
o Injury occurred because product was defective/unreasonably
others without the defective one.
unsafe
• This shall be presumed when a team, yoke, pair
o Defect existed when product left the hands of the seller
or set is bought, even if separate price had been
n Nutrimix Feeds v. CA – seller cannot be held liable if there is no proof that
fixed for each animal
the product was defective.
§ Foregoing rules with respect to animals shall be
o Product must have reached user without substantial change in
applicable to other things.
condition
o Other Rules – see 1574-‐75.
n Measure of Damage
o Prescriptive period – see 1577-‐78.
o Difference between value of goods at the time of delivery and the
o Obligation of buyer to return – see 1578
value they would have had if the warranty was complied with
o Remedies of buyer
§ Applies in absence of special circumstances showing
§ Withdrawal from contract
damage of a greater amount
§ Demand proportionate reduction of the price.
Sale of Goods by Sample/Description


Art. 1565. Addtitional Terms of Warranties for Consumer

In the case of a contract of sale by sample, if the seller is a dealer in goods
Goods
of that kind, there is an implied warranty that the goods shall be free from See RA 7394, the Consumer Act of the Philippines. (discussion in the book is
any defect rendering them unmerchantable which would not be apparent basically the codal).
on reasonable examination of the sample. (n)

n Mendoza v. David : there is an implied warranty in such sales that the
goods are free from any defect which is no apparent upon examination
that would render the goods unmerchantable. Chapter 13 – Extinguishment of Sale
n Buyer’s Option – See Art. 1599
o Accept or keep goods, enforce warranty by way of recoupment
In General
o Accept or keep goods, sue for damages
• Same grounds by which obligations in general are extinguished also apply
o Refuse to accept, sue for damages
to extinguishment of obligations arising from sale
o Rescind sale.
o PA-‐LO-‐RE-‐CO-‐CO-‐NO
n These remedies are alternative.
§ Payment
n Waiver of remedies – he cannot rescind sale if…
• Only extinguishes obligations to which they pertain in a
o When goods were received by buyer without protest, and with
contract of sale
knowledge of the breach,
• Not necessarily the contract itself
o Or when he fails to notify the seller of his intent to rescind within
§ Loss
reasonable time
§ Remission
o He fails to return/offer to return the goods to the seller
§ Deterioration caused by the breach of warranty, buyer § Compensation
may still rescind. § Confusion
n Oblgitation of Buyer on thePrice § Novation
o When buyer rescinds, he is not liable for the price when he o Annulment
returns/offers to return the goods o Rescission
o If price/part has been paid, seller should repay what has been
o Resolutory Condition
paid when the buyer returns/offers to return
o Prescription
n Refusal of seller to accept Return of Goods
o When seller refuses to accept the offer of buyer to return the o Article 1600 – Conventional Or Legal Redemption
goods, buyer is deemed to hold them as bailee for the seller, but
subject to a lien to secure payment of any part of the purchase Conventional Redemption
price already paid
o It also includes remedies for the enforcement of such lien allowed Art. 1601 – Conventional Redemption Defined
to an unpaid seller in Art. 1526.


Conventional Redemption shall take place when the vendor reserves the o Any right thereafter granted to the vendor, by the vendee cannot be
right to repurchase the thing sold, with the obligation to comply with the considered a right to repurchae, but some other right,like an option to
provisions of Article 1616 and other stipulations which may have been buy.
agreed upon. n Essence of pacto de retro – title and ownership is immediately vested in the
vendee a retro, subject to a restrictive condition of repurchase by the vendor
within the redemption period.
n Valid existence of a right to repurchase hinges upon fact that the underlying
Definition – Conventional Redemption takes place… contract of sale is valid, and that there has been performance.
n When the seller reserved for himself the right to repurchase the thing sold,
with obligation to Right of Repurchase Provable by Parol Evidence
o Return price of the sale n Right to repurchase : merely a feature in the contract of sale
o Return expenses of the contract o Thus, it is governed by the Statute of Frauds
o Any other legitimate payments made by reason of the sale o However, SC has held : when the contract of sale is in writing, parol
o Necessary and useful expenses of the thing sold. evidence may be adduced to prove the right to repurchase
n Even when sale is one with right to repurchase, buyer is subrogated to the § This is because the Deed of Sale and the verbal agreement
18
seller’s rights and actions even during the period where redemption can be allowing the right to repurchase are an integral whole
made – right to redemption does not prevent full consummation § The deed of sale itself is the “note or memorandum” required
n Who may exercise? to remove the contract from the SoF.
o Seller in whom right is recognized by contract o Also, if there is no objection to such parol evidence, it will be admissible
o Any person to whom such right may have been transferred in trial.
o In the case of legal redemption, the person so entitled by law n SC : “Best Evidence” Rule not an obstacle to the adducement of such parol
evidence
Proper Reservation of Right to Repurchase o When parol agreement was the moving cause of the written contract
19
n Distinguishing right to redeem from option to purchase o When written contract was executed on the faith/representation of the
o Art. 1601 : Right of repurchase must be reserved by the vendor through parol contract
stipulation to that effect in the contract of sale o Right to repurchase proved orally is consistent with terms of written
§ Not a right granted to the vendor by the vendee contract.
§ It is one of the stipulations in the contract
§ Once instrument executed, vendor may no longer reserve Distinguished from Option to Purchase
Right to Redeem Option to Purchase
Not a separate contract – merely part of Generally a principal contract, created
a main contract of sale – cannot exist independent of another contract
unless reserved at time of perfection
Must be imbedded into the contract of May exist before or after the perfection
sale upon its perfection of the sale, or be imbedded in another
18
Art. 1609 – vendee is subrogated to the vendor’s rights and actions. contract upon its perfection
19
Villarica v. CA, Misterio v. Cebu State College, Nool v. CA Does not need a separate consideration Must have consideration separate and

to be valid and effective distinct from the purchase price o SC : Such is void – violative of Art. 1601
Redemption period cannot exceed 10 Period for an option may exceed 10 o SC fixed period of redemption at ten years.
years years n Tayao v. Dulay
Exercise requires that notice be Requires only a notice of exercise to be o Stipulation : right of redemption cannot be exercised within 10 years
accompanied by tender of payment – given to the optioner
§ Again, SC held that it was void
consignment when tender cannot be
made § However : such nullity does not convert contract into a mere
Exercise extinguishes contract of sale Results in perfection of a contract of indebtedness nor an equitable mortgage
sale § Art. 1606 would apply – seller may exercise right to
redemption within a period of 10 years form date of contract
o Although stipulation as to the period may be unclear or void, there is still
Period of Redemption a stipulation!
Art. 1606. § Thus, we follow the 10 year period for redemption
§ We do not consider the right of redemption as being one
The right referred to in Article 1601, in the absence of an express without a stipulated period.
agreement, shall last four years from the date of the contract. n Bandong v. Austria
o Contract : sellers could exercise in March of any year
Should there be an agreement, the period cannot exceed ten years.
o Such could be exercised for a period of 10 years from date thereafter, but
However, the vendor may still exercise the right to repurchase within not after 10 years
thirty days from the time final judgment was rendered in a civil action on n Ochagabia v. CA
the basis that the contract was a true sale with right to repurchase. o Right to redeem had prescribes when exercised after 10 years.
c. Pendency of Action Tolls Redemption Period

a. When No Period Agreed Upon
n Ong Chua v. Carr : pendency of an action brought in good faith and relating to
n Stipulated right to redeem : in absence of agreement as to period of exercise, it
the validity of a sale a retro tolls the running of the period of redepmption
shall last 4 years from date of the contract
n Misterio : Pendency of a litigation does not toll the period
n Misterio v. Cebu State College
o Such period is not suspended merely because there is a divergence of
o Four year period held to begin from happening of condition contained in
opinion between the parties as to when the condition upon which the
deed of sale (rather than date of contract)
right to repurchase is triggered.
o This is inexplicable! – CLV
o Existence of right to repurchase is not dependent upon the interpretation
§ To be discussed later.
by the court of said condition
b. When Period Agreed Upon n CLV : No contradiction between these two cases
n If there is an agreement as to period, it cannot exceed 10 years o Important consideration : “vesting” of the exercise of the right by its
n if it exceeds 10 years, the agreement is only valid for the first 10 years. proper exercise (requiring notice and tender)
n Anchuel v. IAC
o Stipulation : Vendor cannot redeem within 19 years from execution


o Thus, in essence, completion of redemption process (payment of amounts n Three things need to be returned
required in Art. 1616) is tolled by the filing of a civil action relating to the o Price of the sale.
issue of such redemption o Expenses of contract, and any other legitimate payments made by reason
§ Provided that both exercise and filing would be done withing of the sale.
redemption period. o Necessary and useful expenses made on the thing sold.
n Seller may bring his action against every possessor who derives right from the
d. Non-‐payment of Price Does Not Affect Running of Redemption Period buyer
n Catangcatang v. Legayada – nonpayment of purchase price does not serve to
o Even if there is no mention of the right to repurchase in the contract
suspend the period of redemption
between buyer and subsequent buyer
o Sale was consummated upon execution of document, and delivery of land
o Without prejudice to provisions of Property Registration Decree and the
to the vendee
Mortgage Law, with respect to mortgagees/purchasers in good faith and
o Nonpayment of the balance of the price does not suspend the efficacy of
for value.
the provisions of the valid contract.
n Failure to pay useful improvements entitles buyer a retro to retain possession
Possession of Subject Matter During Period of Redemption of the land until actual reimbursement is done.
n In a sale a retro, buyer has the right to immediate possession of property sold, n Art. 1616 is not exclusive
unless otherwise agreed upon. o It should be construed with Art. 1601 which states that in order to
n Title and ownership of property are immediately vested in the buyer a retro, redeem, Art. 1616 must be complied with as well as “other stipulations
subject only to the resolutory condition of the repurchase by the seller within agreed upon.”
the period.
a. How Redemption Exercised
n Pending repurchase, the buyer may alienate, mortgage, or encumber the
n In order to exercise right to redeem, tender of payment is sufficient.
property
n Mere sending of letters expressing desire to repurchase, without tender, does
o But such alienation, mortgage or encumbrance is as revocable as his right.
not comply with the requirement of law.
o When right exercised, the buyer has to return the property free from all
n Where tender of payment cannot be validly made (because buyer cannot be
encumbrances imposed by him.
located) seller must file a suit for consignation of the redemption price within
How Redemption Effected the redemption period.
n Lee Chuy Realty v. CA
Article 1616 :
o Formal offer to redeem accompanied by tender of redemption price not
The vendor cannot avail himself of the right of repurchase without essential when right to redeem is exercised through a judicial action
returning to the vendee the price of the sale, and in addition: within the redemption period, simultaneous with consignation of the
redemption price
(1) The expenses of the contract, and any other legitimate payments made o No prescribed form for an offer to redeem
by reason of the sale; o Thus, we have two ways of redeeming
§ Formal offer accompanied by bona fide tender of payment
(2) The necessary and useful expenses made on the thing sold.


Only necessary to preserve right of redemption for • n Co-‐owner of undivided immovable who sells his share separately may
further enforcement. (as opposed to exercised). independently exercise the right of repurchase upon his own share, and buyer
§ Exercise through judicial action accompanied with cannot compel him to redeem the whole.
simultaneous deposit of the redemption price. n Creditors of the seller cannot make use of the right of redemption against the
• Filing of action is equivalent to formal offer. buyer, until after they have exhausted the property of the seller.
o When is right of redemption deemed “vested” n De Guzman v. CA
§ Formal offer to redeem, accompanied by bona fide tender of o If one of the co-‐owners/co-‐heirs alone redeem the whole property, he
payment, within redemption period. will be a mere trustee with respect to the shares of the co-‐owners/co-‐
§ Thus, the right is “vested” – it may be enforced even beyond heirs.
redemption period. o Thus, no prescription lies against the rights of these co-‐owners/co-‐heirs
to demand from the redemptioner their share in the property.
b. In Multy-‐Party Cases
n In a sale a retro, buyer of part of an undivided immovable who acquires the When Redemption not Made
20
whole thereof under Art. 498 may compel the seller to redeem the whole Art. 1607.
property, if the seller wants to make use of the right to redemption.
o Seller wants to repurchase only his part : Buyer may compel him to In case of real property, the consolidation of ownership in the vendee by
repurchase the whole thing. virtue of the failure of the vendor to comply with the provisions of article
n Several persons, jointly and in the same contract, sell an undivided immovable 1616 shall not be recorded in the Registry of Property without a judicial
with right to repurchase. order, after the vendor has been duly heard. (n)
o None of them may exercise this right for more than his respective share.
n Same rule applies if the seller who sold the immovable alone has several heirs. n Before the new Civil Code : when no redemption made, buyer automatically
o Heirs may only redeem part which he may have acquired. acquired full ownership.
n In these cases, the buyer may demand that the vendors/co-‐heirs come to an n Now, Art. 1607 above applies.
agreement upon the repurchase of the whole thing sold. o This proceeding for consolidation is an orindary civil action, not a motion
o If they cannot, buyer cannot be compelled to consent to a partial incident to another action.
redemption. o If such is denied because contract was actually an equitable mortgage,
then another action may be filed to collect/foreclose.
n Art. 1607 abolished automatic consolidation of ownership upon expiration of
period by requiring the above action (where the vendor may be heard).
o If buyer proves that the transaction was a pacto de retro, the vendor is
then given a grace period of 30 days within which to repurchase.
n Recording in the Registry of Deeds of the consolidation of ownership to the
20
Whenever the thing is essentially indivisible and the co-‐owners buyer is not a condition sine qua non to transfer of ownership
cannot agree that it be allotted to one of them who shall indemnify o Buyer would still be the owner.
the others, it shall be sold and its proceeds distributed. – Thus, the
above discussion refers to the guy who buys this property.

o Essence of pacto de retro – title and ownership are immediately vested in Feigning Equitable Mortgage Situation to Avail of Article 1606
buyer, subject to resolutory condition of repurchase. n What if seller feigns defense of equitable mortgage in order to get the 30 day
o Failure of seller to perform the said condition vests absolute title and period?
ownership over the property sold. n Adorable v. Inacala
o Failure to consolidate title under 1607 does not impair buyer’s ownership o Where evidence established no honest doubt as to parties’ intentions to
– the method prescribed is merely for purposes of registration. make it a sale pacto de retro, seller would not be entitled to art. 1606’s
benefits.
Grant of 30-‐day Redemption Right in Case of Litigation and Article 1606 n Vda. De Macoy v. CA & Felicen v. Orias
n Last paragraph of Art. 1606 – “vendor may still exercise the right to repurchase o There must be honest belief on part of vendor that the agreement was in
within thirty days from the time final judgment was rendered in a civil action reality a mortgage, merely to give security for an obligation.
on the basis that the contract was a true sale with right to repurchase.” n Abilla v. Gobonseng
n Expiration of period ipso jure extinguishes right to redeem o When sale is judicially declared pacto de retro, and after vendors take the
o However : when there was a previous suit on the nature of the contract : position that it was an equitable mortgage, having no honest belief to
seller may still exercise right to repurchase within 30 days from the time that effect – vendors may not avail of the additional 30 day period.
final judgment was rendered. § If they truly believed that the sale was an equitable
n Tapas v. CA mortgage, they should have consigned with the trial court the
o 30 day period contemplates a case involving a controversy as to the amount representing the alleged loan.
nature of the contract n However, this was reversed – Article 1606 only applies when the nature of the
o Court decides whether it is a pacto de retro or an equitable mortgage. transaction was put in issue before the court.
n Pangilinan v. Ramos o It applies in a situation where one party claimes that it was a pacto de
o 30 day period does not apply to a contract found to be an absolute sale. retro, and the other claimed that it was an equitable mortgage, and the
o It is a requisite to the exercise of the right to redempton – policy of law is courts decided that it was a pactto de retro sale.
not to leave title in uncertainty beyond such 30 day period. o However, applicability still rests on the bona fire intent of the seller a
n Rationale for 30 day period retro, if he truly beleieved that the transaction was an equitable
o Seller may have considered the sale to be an equitable mortgage. mortgage.
o Allowing the expiration of the redemption period is consistent with his o It doesn’t matter what the buyer intended the transaction to be.
claim that the sale was an equitable mortgage.
o Thus, upon finding of the court that it was indeed a pacto de retro, then Fruits
the seller mut be granted a final 30-‐day period within which to decide and Art. 1617.
if ever, exercise his right to redeem.
n However : if issue was whether the contract was an absolute sale or sale a retro If at the time of the execution of the sale there should be on the land,
o Judgment of sale a retro does not give the seller the 30 day period. visible or growing fruits, there shall be no reimbursement for or prorating
o In such a case, seller is negligent for not exercising the right to redeem. of those existing at the time of redemption, if no indemnity was paid by
the purchaser when the sale was executed.


Should there have been no fruits at the time of the sale and some exist at a. Definition of Equitable Mortgage
n Matanguihan v. CA – “one which although lacking in some formality, or form or
the time of redemption, they shall be prorated between the redemptioner
and the vendee, giving the latter the part corresponding to the time he words, or other requisites demanded by a statute, nevertheless reveals the
possessed the land in the last year, counted from the anniversary of the intention of the parties to charge real proerty as security for a debt, and
date of the sale. contains nothing impossible or contrary to law.”
n Also enumerated essential requisites
n Almeda v. Daluro – Art. 1617 applies only when parties have not provided for o Parties entered into a contract denominated as a contract of sale; and
their sharing arrangement with respect to the fruits. o The intention was to secure an existing debt by way of a mortgage
n San Pedro v. Lee – when the two above conditions are not proven, the
Equitable Mortgage existence of any circumstance enumerated in Art. 1602 cannot be the basis to
Art. 1602. treat the transaction as an equitable mortgage.
o In other words, we look at the two requisites first before going to Art.
The contract shall be presumed to be an equitable mortgage, in any of the 1602.
following cases: n When in doubt, courts construe transactions as equitable mortgages – lesser
21
transmission of rights.
(1) When the price of a sale with right to repurchase is unusually o Lapat v. Rosario : contract should be considered as a mortgage or as a
inadequate; loan instead of pacto de retro when its terms are ambiguous or the
circumstances are inconsistent with a sale.
(2) When the vendor remains in possession as lessee or otherwise;
n Molina v. CA – intention of parties is showed by all surrounding circumstances,
(3) When upon or after the expiration of the right to repurchase another not by the terminology used in the contract.
instrument extending the period of redemption or granting a new period
Pactum Commissorium
is executed;
Art. 2088.
(4) When the purchaser retains for himself a part of the purchase price;
The creditor cannot appropriate the things given by way of pledge or
(5) When the vendor binds himself to pay the taxes on the thing sold; mortgage, or dispose of them. Any stipulation to the contrary is null and
void. (1859a)
(6) In any other case where it may be fairly inferred that the real intention
of the parties is that the transaction shall secure the payment of a debt or

the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as interest 21
Art. 1603. In case of doubt, a contract purporting to be a sale with
which shall be subject to the usury laws.
right to repurchase shall be construed as an equitable mortgage. (n)


n Vda. de Zulueta v. Octaviano transfer and assign the real property to the lender in full
o Stipulation : upon redemption by buyer from third party, that instrument payment
would be considered a deed of absolute sale from seller to buyer. § Such was not pactum commissorium
o Another instrument was executed entitled “option to repurchase.”
o This was not a sale a retro – option to repurchase was in a separate Rationale Behind Provisions on Equitable Mortgages
n Designed to fight circumvention of usury laws and the policy against pactum
document.
commissorium
o Neither was it an equitable mortgage – not meant to secure a loan, no
n They envision contracts of sale w/ right to repurchase where the real intention
application of Art. 1602.
of the parties is that the repurchase price is money loaned, and the “pacto de
o SC : It was not a pactum commissorium either
retro sale” is a means of securing the loan.
§ Seller was not a debtor
§ Nothing was offered as security. When Presumed Equitable Mortgage
o Public Policy on pactum commissorium applies only when the transaction n See Art. 1602 above.
is a mortgage or other security contract – no application to a true sale or n Existence of any one of these conditions suffices to give rise to the
transfer transaction. nonconclusive presumption that the contract is an equitable mortgage.
n Guerrero v. Ynigo – “mortgage with conditional sale” n Lim v. Calaguas – in order for presumption to apply, the parties must have
o Mortgagor reserved for himself the right to redeem property by paying intended the contract to be a mortgage and not a pacto de retro .
backthe amount loaned. n Lim enumerates the following circumstances to treat the contract as an
o On failure of mortgagor to exercise such right, title would pass and be equitable mortgage.
vested in the mortgagee. o Terms used in power-‐of-‐attorney indicate that conveyance was intended
o SC: Such stipulation cannot be construed as giving mortgagee right to to be a loan secured by a mortgage
own the property upon failure of the mortgagor to pay – this is void for o Price paid in relation to value of property is grossly inadequate
being pactum commissorium. § Mere allegation of insufficency of selling price does not
n Montevirgin v. CA create the presumption if there is no proof regarding the
o Equitable mortgage guised as a sale a retro cannot be enforced as a sale market values of the area and property in question
o When a purported sale a retro is found to be an equitable mortgage, the • Inadequacy of price : Consideration so far short of
proper remedy in case the borrower does not pay the “price” is to the real value ast to startle the mind.
foreclose on the mortgage. • Even with the assertion that the price in a pacto de
§ There can be no loss of the “seller’s” right to redeem for that retro is not the assessed price, does not justify the
would be pactum commissorium. conclusion that the contract is one of equitable
§ Return of redemption price would be equa; to paying the mortgage.
principal loan – extinguishing the equitable mortgage o Practice in pacto de retro sale is to fix a
n Solid Homes v. CA relatively reduced price.
o Parties entered into a Dacion en Pago with Right to Repurchase
§ If borrower failed to comply with new terms of payment, o Seller at time of alleged sale was in urgent need of money
agreement would cause the obligation for the borrower to


o Supposed seller invested money he obtained in making improvements on n Two requisites for this provision to apply
the property sold o Parties entered into contract denominated as a contract of sale.
o Seller remained in possession o Intention was to secure an existing debt by way of mortgage.
§ Although the seller only remained in possession for a year,
such stipulation did not detract from the fact that possession Proof by Parole Evidence; Best Evidence Rule
n Parole evidence is admissible to support claims that the documents were really
(an indicium of ownership) was retained by the vendor, and
given as security for payment of a loan – provided that nature of agreement is
that the vendor retained part of the purchase price.
placed in issue.
• This pointed to an equitable mortgage.
n Matanguihan v. CA
§ Continued possession where sellers promised to vacate, but
o Parol evidence is competent to prove that the instrument in question was
did not – tolerated possession is not enough to prove
given merely as a security.
equitable mortgage.
o Upon proof of the truth of such allegations, court will enforce the
o Seller paid land tax
agreement as they truly intended.
o Buyer accepted partial payments, such acceptance being incompatible
n Austria v. Gonzales – non-‐application of “best evidence rule” to equitable
with idea of irrevocability of the title of ownership of the purchaser at the
mortgage situations
expiration of the term stipulated in the original contract for the exercise
o Decisive factor in evaluating intent in such agreements is not always the
of the right to redemption
document itself
o Seller remained bound for the repayment of the money
o But all the surrounding circumstances
o Transaction had origin in a borrowing of money.
o Thus parole evidence is acceptable.
§ When true intention was not to convey ownership, but to
secure housing loan of “buyer” in which “seller” had a direct Effects When Sale Adjudged to Be an Equitable Mortgage
interest since proceeds were to be applied to their
Art. 1605.
outstanding mortgage obligations. – Equitable Mortgage
§ Alleged loan disbursed on installments – no proof as to In the cases referred to in Articles 1602 and 1604, the apparent vendor
inadequacy of price – continued receipt of rentals by seller may ask for the reformation of the instrument. (n)
was found to be a gesture of generosity : considered sale on
installments n When a contract is construed to be an equitable mortgage, the following may
o There was a previous debt between the parties that was not extinguished result
by the sale but remained subsisting. o Any money, fruit or benefit to be received by the buyer as rent shall be
n Delay in transferring title does not give rise to presumption. considered as interest subject to usury laws;
o The apparent “Seller” may ask for reformation of the instrument;
Applicability to Deeds of Absolute Sale
o Court may decree that “buyer”-‐debtor must pay his outstanding loan to
Art. 1604. “Seller”-‐creditor
o Where trial court did not pass upon the mortgagor’s claim that he paid
The provisions of Article 1602 shall also apply to a contract purporting to
the mortgage obligation, a remand of the case to trial court is in order
be an absolute sale. (n)
§ To determine whether the mortgage had been settled

§ And if not, how much mortgagor should pay to settle the thing by purchase or dation in payment, or by any other transaction
same. whereby ownership is transmitted by onerous title. (1521a)
n Tolentino v. CA
o Although 1605 allows for reformation, nothing precludes pursuit of other Rationale for Legal Redemption
remedies to protect his interest. n Reasons of public policy
§ Declaration of nullity for the deed of sale n Benefit and convenience of redemptioner, to afford him a way out of what
§ Specific performance might be an inconvenient association
n However, nullification proposed by Tolentino would be unfair – it would leave n Intended to minimize co-‐ownership
buyer without the necessary security contract, which remains valid o Law grants a co-‐owner the exercise of said right of redemption when
o Reformation should be the proper remedy to enforce true intention shares of other owners are sold to a third person
n In the event property had been sold to a third party, nullification of that sale n Avila v. Barabat
and reconveyance should be allowed provided security arrangement over the o Once property is subdivided and distributed among the co-‐owners, no
property is preserved more reason to sustain any right of legal redemption.
n Balatero v. IAC
Salient Distinctions between Conventional and Legal Right of Redemption
o If a sale a retro is construed to be an equitable mortgage, execution of an
n Conventional = “right a retro”
affidavit of consolidation is of no consequence, and “constructive
Conventional Legal
possession” would not ripen to ownership
Can only be constituted by express Does not have to be expressly
o It was not in concept of an owner. reservation in a contract of sale at reserved, covers other onerous
n Briones-‐Vasquez v. CA time of perfection transfers of title
o consolidation of ownership in person of the mortgagee would amount to In favor of the seller Given to a third-‐party to the sale.
pactum commissorium Exercise extinguishes the underlying Constitutes a new sale in substitution
n Expiration of “period of redemption” in an equitable mortgage does not contract of sale, as though there was of the original sale
prevent the purported seller from extinguishing the main contract of loan, and never any contract at all

thus also the equitable mortgage contract
o As long as foreclosure has not been done. Legal Redemption Under Civil Code

Among Co-‐Heirs
Legal Redemption Art. 1088.
Definition Should any of the heirs sell his hereditary rights to a stranger before the
Art. 1619. partition, any or all of the co-‐heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the sale, provided they do so
Legal redemption is the right to be subrogated, upon the same terms and within the period of one month from the time they were notified in
conditions stipulated in the contract, in the place of one who acquires a writing of the sale by the vendor. (1067a)


n No right of legal redemption available to co-‐heirs when sale covers a particular o When sale of hereditary right itself, Art. 1088.
property of the estate
n Heirs who participated in the sale to a third person of their shares are bound –
co-‐heirs who did not participate have the right to redeem under this article.
Among Co-‐Owners
Art. 1620.
A co-‐owner of a thing may exercise the right of redemption in case the

shares of all the other co-‐owners or of any of them, are sold to a third
person. If the price of the alienation is grossly excessive, the redemptioner
shall pay only a reasonable one.
n Right of redemption may be exercised by a co-‐owner only when part of the
community property is sold to a stranger.
o When sold to another co-‐owner, there is no new participant.
n Should two or more co-‐owners desire to exercise the right of redemption, they
may do so only in proportion to the share they have in the co-‐owned thing.
n Right of redemption of co-‐owners excludes adjoining owners.
Effect of de Facto Partition Among Co-‐Heirs and Co-‐Owners

n Vda de Ape v. CA – when heir-‐co-‐owners partitioned property and treated
definite portions as their own, co-‐ownership has ceased and sale by one of the
heirs of his definite portion cannot trigger right of redemption
n Co-‐ownership must exist at the time of the conveyance.
Distinguishing Between the Rights of Redemption of Co-‐Heirs and Co-‐Owners
n Art. 1620 includes doctrine that a redemption by a co-‐owner of the property
owned in common, even when his own fund is used, within period, inures to
benefit of all other co-‐owners.
n Art. 1088 – heir may redeem for himself the heredity rights sold by a co-‐heir.
n Mariano v. CA – co-‐heir exercised elgal redemptiion over parcel of land
belonging to estate of decedent -‐-‐ which redemption clause to apply?
o Distinction between 1088 and 1620
o When sake of particular property or interest in property, Art. 1620

Among Adjoining Owners of Urban Land

Among Adjoining Owners of Rural Lands
Art. 1621. Art. 1622.
The owners of adjoining lands shall also have the right of redemption Whenever a piece of urban land which is so small and so situated that a
when a piece of rural land, the area of which does not exceed one hectare, major portion thereof cannot be used for any practical purpose within a
is alienated, unless the grantee does not own any rural land. reasonable time, having been bought merely for speculation, is about to
be re-‐sold, the owner of any adjoining land has a right of pre-‐emption at a
This right is not applicable to adjacent lands which are separated by reasonable price.
brooks, drains, ravines, roads and other apparent servitudes for the
benefit of other estates. If the re-‐sale has been perfected, the owner of the adjoining land shall
have a right of redemption, also at a reasonable price.
If two or more adjoining owners desire to exercise the right of redemption
at the same time, the owner of the adjoining land of smaller area shall be When two or more owners of adjoining lands wish to exercise the right of
preferred; and should both lands have the same area, the one who first
requested the redemption. (1523a) pre-‐emption or redemption, the owner whose intended use of the land in
question appears best justified shall be preferred. (n)
n Both the land sought to be redeemed and the property belonging to the
redemptioner must be rural lands. n Ortega v. Orcine – purpose of this provision
o Discourage speculation in real estate and the aggravantion of the housing
problems
o “Urban” refers to the character of the community/vicinity in which it is
found.
n Redemption of Urban land only applies when there is resale
o No right of redemption when urban land is “exchanged.”
n Legaspi v. CA – practically did away with requirement of having puchased land
previously for speculation
n Sen Po Ek Marketing v. Martinez
o 1262 only deals with small urban lands bought for speculation
o Right does not apply to a lessee trying to buy the land he is leasing.



Sale of Credit in Litigation o Notice must be given by the seller
Art. 1634. o Notice given by the buyer, even if written, does not start the 30 day
period.
When a credit or other incorporeal right in litigation is sold, the debtor n Castillo v. Samonte
shall have a right to extinguish it by reimbursing the assignee for the price o Letter and spirit of law argue against a wider scope of the notice specified
the latter paid therefor, the judicial costs incurred by him, and the interest in Art. 1088.
on the price from the day on which the same was paid. o Written notice is essential to start the running of the 30 day period.
n Conejero v. CA
A credit or other incorporeal right shall be considered in litigation from the o Any compliance with written notice suffices – no specific mode
time the complaint concerning the same is answered. n Garcia v. Calaliman
o Applied Samonte doctrine to 1623.
The debtor may exercise his right within thirty days from the date the
o Written notice is indispensable in order to remove all uncertainty as to
assignee demands payment from him.
the sale.
o Method of notification is exclusive – must be in writing – but no specific
When Legal Redemption Period Begins to Run
form.
Art. 1623.
n Vda de Ape v. CA
The right of legal pre-‐emption or redemption shall not be exercised except o Annotation of adverse claim on title does not comply with art 1623.
within thirty days from the notice in writing by the prospective vendor, or
1) Notice Must Cover Perfected Sale
by the vendor, as the case may be. The deed of sale shall not be recorded
n Spouses Doromal v. CA
in the Registry of Property, unless accompanied by an affidavit of the
o 30 day period does not run when transaction covered in notice was not a
vendor that he has given written notice thereof to all possible
perfected contract of sale
redemptioners.
o Notice must be with execution and delivery of the deed of sale.
The right of redemption of co-‐owners excludes that of adjoining owners. o Period should not be deemed to have commenced unless notice is made
after execution of formal deed of disposal.
n Cabrera v. Villanueva n This doctrine cannot be applied to legal pre-‐emption.
o Court accepted affidavit saying that seller gave written notice to co-‐
2) Summation on Strict Rules on Notice
owners as proof of compliance with 1623.
n Hermoso v. CA
n Primary Structures Corp v. Valencia
o Notice in writing is needed in 3 other species of legal redemption
o Affirmed need for strict compliance with 1623.
§ Case where share of co-‐owners are sold to a third person
o Existence of a clause in deed of sale saying that seller had complied is not
§ Redemption of adjoining rural land
the written affirmation under ouath that the required notice has been
§ Redemption of adjoining urban land
met – thus it was not deemed to be in compliance with 1623.
o Interpretation in these cases tilts in favor of the redemptioner
n CLV : Primary Structures is the better rule – why?
o Written notice required was enacted to remove all doubts about the
n Butte v. Manuel Uy and Sons Inc.
alienation.

n Francisco v. Boiser – Requirements under Art 1623 Other Instances where Right of Legal Redemption is Granted
o Notice must be given by seller in order for 30 day redemption period to
a. Redemption of Homesteads
run.
o No particular form is prescribed. Sec. 119 – Public Land Act
o Filing of suit for ejectment or collection of rentals dispenses with need for
written notice – filing of the suit amounts to actual knowledfge of the Every conveyance of land acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant,
sale.
his widow, or legal heirs, within a period of five years from the date of the
n Fernandez v. Tarun
conveyance.
o Other co-‐owner signs deed of partition embodying disposition of property
– proper notice.
3) Exceptions to Written Notice Requirement

n Sale within 5 years void even when in favor of homesteader’s own child.
n Alonzo v. IAC – exception to 1088
n Right to repurchase under homestead patent granted by law
o Situation where co-‐heirs lived with purchaser in the same lot
o Need not be provided for in deed of sale.
§ Action was brought only after 13 years of knowing about the
o Cannot be waived.
same
n Where homestead was sold at extrajudicial foreclosure, 5 year period begins to
o Deemed to have received actual notice of the same. (even if no written
run after expiration of one year period of repurchase allowed in extrajudicial
notice)
foreclosure.
o Laches seems to be the main principal.
n All other cases – from date of sale, not from date of registration.
n Pilapil v. CA
n Sec 119 of Public Land act should be read with 1616 of NCC – there should be a
o Requirement of written notice was rendered inutile when no co-‐owners
return of the price/tender of payment.
questioned the sale, even when buyers immediately took possession.
o Mere notice of intnent to redeem is insufficient.
n Distrito v. CA – Exception to the Alonzo Exception
o When co-‐owner himself is middleman to effect sale to third party, notice b. Redemption in Tax Sales
is no longer necessary
SEC. 214 – NIRC -‐-‐ Redemption of Property Sold.
o He already has actual knowledge of the sale
o 30 day period begins from such knowledge
Within one (1) year from the date of sale, the delinquent taxpayer, or any
n Verdad v. CA – Alonzo and Distrito are special exceptions one for him, shall have the right of paying to the Revenue District Officer
o Co-‐owner learned of the sale through city treasurer the amount of the public taxes, penalties, and interest thereon from the
o Her exercise of right of redemption was timely : no written notice of sale date of delinquency to the date of sale, together with interest on said
was ever given to her, thus the 30 day period had not yet run. purchase price … The owner shall not, however, be deprived of the
possession of the said property and shall be entitled to the rents and other

income thereof until the expiration of the time allowed for its redemption.


o Reciprocal
o Onerous
c. Redemption by Judgment Debtor
§ However – Nyco v. BA Finance – Assignments may be done
d. Redemption in Extrajudicial Foreclosure gratuitously or onerously
o Commutative
e. Redemption in Judicial Foreclosure n Some definitions of Assignment
o Prior to New Civil Code, assignment was not limited to the genus of sale –
f. Foreclosures by Banking Institutions
it could be dation, or donation, etc.
g. Period of Redemption when rural bank forecloses o However, with the provisions of the NCC, there should be little doubt –
assignment should only cover “sales” of credits (however : see Nyco)
h: legal right to redeem under Agrarian Reform Code o Except in case of donation, the transaction of assignment is still covered
by the law on sales.
§ Assignment by dation
Chapter 14 – Assignment § Assignment by barter
§ Assignment of credit as guaranty (mortgage contract)
Nature of Assignment in the Scheme of Things
Art. 1624.
What Makes Assignment Different?
n PNB v. CA – characterized assignment
An assignment of creditors and other incorporeal rights shall be perfected o Transfer or making over to another of the whole of any proeprty, real or
in accordance with the provisions of Article 1475. (n) personal, in possession or in action, or of any estate or right therein.
o Includes transfers of all kinds…peculiarly applicable to intangible personal
n Assignment : the sale of credits and other incorporeal rights. property
n Though intangible things may be the object of sale as defined in Art. 1458, the o Ordinarily employed to describe the trasnfer of non-‐negotiable choses in
more proper term is “assignment.” action and rights connected with property distinguished from the actual
n Assignment, more or less, is the same as sale – why then do we have a separate item
chapter in our Civil Code? n PNB v. CA implies that assignment may also refer to tangible property
o Even though they’re not technically the same, they come from the same o CLV: Properly speaking, such is a sale, not an assignment.
genus – “sale”
n What’s the point? – characteristics of the genus “sale” must necessarily pertain Validity and Binding Effect
n Subject matter of assignment : intangible property
to assignment
o Main difference of assignment from sale
o All jurisprudential doctrines pertaining to sale pertain to assignment, with
n Consensual contract – perfected the same as sale.
some modifications.
o Confirmed by Art. 1624. “in accordance with Art. 1475.”
n Assignment shares characteristics of sale
o Assignment does not cover donation involving intangibles
o Nominate
§ Donations = formal contracts
o Consensual


n Any ambiguity in the meaning of an assignment shall be resolved against the o When a credt is assigned, if the debtor pays his creditor because he didn’t
party who prepared the deed of assignment. know of the assignment, his payment shall release him from further
22
obligations (Art 1626, CC)
Binding Effect as to Third Parties o
rd
Art. 1285 – assignment of rights made by creditor to 3 person without
n Binding effect as to third persons not present unless it appears in a public
knowledge of debtor
document, or in the Registry of Property if real rights are assigned.
§ Debtor may set up against the assignee the compensation
n Remember, assignment deals with Intangible property : the only evidence as to
pertaining to him against the assignor
the transfer is the public instrument
• All credits prior to the assignment
n Without the public instrument, assignment is valid
• All later ones until he had knowledge of the
o But enforceable only between assignor and assignee, and their successors
assignment.
in interest
§ If debtor consented to such assignment : he cannot set up
n When assignment is still executory (not evidenced in writing) it is covered by
such compensation unless debtor reserved the right
the Statute of Frauds.
§ If he had knowledge, but no consent : he may set up
n Exception : When assignment involves document of title
compensation of previous debts, but not subsequent ones
o Assignment does not bind the bailee unless specific notice of the transfer
of the covering document of title is given by transferor/transferee to the Transfer of Ownership
bailee n Project Builders v. CA – assignment of credit : transferring right to an assignee
who could proceed against principal debtor
Effect of Assignment of Credit on Debtor
o Transfer takes place on perfection of contract
n C&C Commercial v. PNB
n CLV Disagrees : Assignment is also not a mode, but only a title.
o Meeting of the minds : between assignor and assignee
o Thus the transfer does not take place on perfection.
o Debtor’s consent not necessary
o It should be effected the same way as sale – constructive delivery, like
o It is sufficient that the assignment be brought to the debtor’s knowledge
executing a public instrument.
in order to be binding
o Effects of tradition of sale in general should also apply
n Debtor’s consent not needed for assignment to produce legal effects
§ Except that doctrines on actual/physical delivery have no
o Duty to pay assignee does not depend on debtor’s consent
application
o Otherwise, creditors would have a hard time assigning credit.
n Art 1508 of Civil Code supports this – placing of titles of incorporeal rights in
o Purpose of notice : only to inform debtor that he should pay someone
possession of vendee is equal to delivery
else, not the original creditor.
n This change is a novation – however, liability is not extinguished.
n Even though knowledge/consent of debtor is not required for validity of the
assignment, lack of such has effects
22
Art. 1626. The debtor who, before having knowledge of the
assignment, pays his creditor shall be released from the obligation.

o However, without registration/execution in a public instrument, such
delivery would not bind third parties.
n Leonido v. Capitol Dev Corp – notarization of the assignment of credit
n Warranty against hidden defects does not apply to an intangible – no physical
converted into a public document
existence
a. Accessories and Accessions n Assignor responsible for existence and legality of credit, at the time of sale.
n Assignment of credit includes all accessory rights (Art. 1627) o Unless it was really sold as a doubtful account
o Guaranty n Assignor does not warrant the solvency of the debtor, unless
o Mortgage o There is a stipulation to that effect; or
o Pledge o Insolvency of the debtor was prior to the assignment and of common
o Preference knowledge
n Even when there is a warranty as to the debtor’s solvency, it doesn’t last
b. Warranties forever
Art. 1628. o 1 year from the assignment, if credit was already due
o Otherwise, 1 year from the maturity of the credit
The vendor in good faith shall be responsible for the existence and legality n If assignor in good faith is liable for a warranty
of the credit at the time of the sale, unless it should have been sold as o Only expenses of the contract
doubtful; but not for the solvency of the debtor, unless it has been so o Other legitimate payments made by reason of assignment
expressly stipulated or unless the insolvency was prior to the sale and of n If assignor was in bad faith, and he breached warranties
common knowledge. o Additional liability for necessary and useful expenses
n Lo v. KJS
Even in these cases he shall only be liable for the price received and for
o When dacion takes the form of an assignment of credit (which is in the
the expenses specified in No. 1 of Article 1616.
nature of a sale) it extinguishes the obligation
The vendor in bad faith shall always be answerable for the payment of all o However, assignor/seller still warrants the existence and legality of the
expenses, and for damages. (1529) credit.
n Other specific warranties
Art. 1629. o Arts. 1631-‐1633.
In case the assignor in good faith should have made himself responsible
for the solvency of the debtor, and the contracting parties should not have

agreed upon the duration of the liability, it shall last for one year only,
from the time of the assignment if the period had already expired.
If the credit should be payable within a term or period which has not yet
expired, the liability shall cease one year after the maturity. (1530a)


Assignment of Credit in Litigation by subrogation (new one is valid) through assignment
Agreement required between original Consent of debtor not required to
Art. 1634. parties and new creditor produce legal effects

When a credit or other incorporeal right in litigation is sold, the debtor
shall have a right to extinguish it by reimbursing the assignee for the price n Extinguishment of old obligation is an effect of conventional subrogation, not a
the latter paid therefor, the judicial costs incurred by him, and the interest requirement.
on the price from the day on which the same was paid.
Assignment of Copyright
A credit or other incorporeal right shall be considered in litigation from the n Owner of copyright may assign it in whole or in part
time the complaint concerning the same is answered.
o Assignee entitled to all rights and remedies which assignor had with
respect to copyright
The debtor may exercise his right within thirty days from the date the
n Not deemed assigned inter vivos unless there is written indication of such
assignee demands payment from him. (1535)
intention
n Reason for the rule on assignments in litis pendencia n Submission of a work to a newspaper or magazine for publication shall
constitute an assignment
o Such are deemed speculative
o Law would rather benefit the debtor, than the one who merely speculates o But only for one publication
o Unless a greater right is granted
for profit
o If assignor is willing to dispose of the credit at a low price, debtor should n Two or more persons jointly own a copyright
o Consent of other owners is needed for an owner to grant licenses
benefit
n Right to redeem on debtor’s part shall not exist when the law considers the n Copyright is distinct from property subject to it
o Transfer of copy right is not transfer of material object
assignment as not for speculation. E.g.,
o Assignment of credit to the co-‐heir or co-‐owner of such credit/right o In the same way, transfer of the work does not imply assignment of the
copyright.
o Assignment to a creditor in payment for his own credit; and
o Assignment to the possessor of a tenement/piece of land which is subject
to the right in litigation that was assigned
Assignment as Equitable Mortgage
n In the foregoing cases, assignee has a legitimate purpose for taking the n Assignment of intangibles may be used to secure loans
assignment – not merely speculation n Principles pertaining to Equitable Mortgage will apply
n DBP v. CA
Differentiating from Subrogation o Assignment to secure payment of promissory notes
n Licaros v. Gatmaitan – Differences between assignment and subrogation o Such is equivalent to an equitable mortgage
o Thus, nonpayment of loan cannot authorize assignee to register the
Subrogation Assignment
assigned rights in his name – Pactum Commissorium
Extinguishes original obligation, gives Same right passed from one person to
rise to a new one another

Nullity of an old obligation may be cured Nullity of obligation not remedied


Chapter 15 – Bulk Sales Law o As long as the transaction is within the description, no matter what it’s
being done for, it is covered by the Bulk Sales Law.
n Intended as a species of bankruptcy law to protect supply
n Qualification of “in the normal course of business” applies only to the first type
creditors/businessmen against preferential/fraudulent transfers done by
o Second two types are by nature not in the normal course of business
merchants
n Bulk sales are of a nature that they do not fall within the normal course, which
n Intended to prevent a situation where merchants would sell their businesses
thus should warn parties to such transactions
then vanish, leaving their creditors without recourse against the “buyers in
good faith and for value.” “Bulk Sales” not Covered by Law
n Law covers all transactions, good faith or not, that are within the description of n Some exceptions : even if transaction comes within Sec. 2, Bulk Sales Law does
a “bulk sale” not apply to these cases
n Primary Objective – compel seller in bulk to… o Seller produces and delivers a written waiver of the provisions of the Law
o execute and deliver a verified list of creditors to the buyer from his creditors as shown by verified statements; and
o give notice of the intended sale to the creditors o Transactions effected by executors, administrators, receivers, assignees in
o Use the proceeds to pay outstanding liabilities insolvency, or public officers, acting under legal process.
Transactions covered by the law “Business” Covered by the Law
n People v. Wong
Sec. 2. Sale and transfer in bulk. — Any sale, transfer, mortgage or o Bulk sales law should be construed strictly against the State and in favor
assignment of a stock of goods, wares, merchandise, provisions, or
of the accused
materials otherwise than in the ordinary course of trade and the regular
o In this case, accused was held liable for selling his foundry shop, along
prosecution of the business of the vendor, mortgagor, transferor, or
with all other assets
assignor, or sale, transfer, mortgage or assignment of all, or substantially
o SC : Bulk Sales Law contemplates sale of merchandise, stock, and goods –
all, of the business or trade theretofore conducted by the vendor,
not the sale of the whole shop with the equipment, credits, etc.
mortgagor, transferor, or assignor, or of all, or substantially all, of the
o Foundry shop which does not sell merchandise is not uncluded.
fixtures and equipment used in and about the business of the vendor,
mortgagor, transferor, or assignor, shall be deemed to be a sale and n Meaning of merchandise and Stock
transfer in bulk, in contemplation of this Act: Provided, however, That if o Merchandise : something sold everyday, going in and out of the store,
such vendor, mortgagor, transferor or assignor, produces and delivers a replaced by other goods – things usually bought and sold in trade by
written waiver of the provisions of this Act from his creditors as shown by merchants
verified statements, then, and in that case, the provisions of this section o Stock : those goods kept for sale.
shall not apply. n DBP v. RTC – reiterated the Wong ruling re : applicability to bulk sales not
involving merchandise and stock.
n Three Types of Transaction n Thus – enumeration in the first type of bulk sales : only covers those sold in the
o Extraordinary sale of goods normal course of business.
o Extraordinary sale of fixtures and equipment o Wong : “sale of fixtures and equipment” excludes materials used in the
o Sale of Business Enterprise process of production.
n Motive/intention/consequence of sale is not an element n However, Wong and DPB rulings seem only to interpret the first type

o When it comes to the other two types, law does not limit the coverage to n On Seller/Mortgagor/Assignor
a particular type of business. o Violation of his obligations to prepare a list of creditors and apply the
o We do not consider the Wong and DBP rulings when it comes to the other proceeds of the sale to these creditors subjects him to criminal liability.
two types of Bulk sales o Sworn statement should be registered with DTI
§ Noncompliance with this does not affect validity nor does it
Obligations of Seller/Encumbrancer When subject him to criminal penalty
o If the list does not include all names of creditors, or with wrong amounts,
Transaction is a Bulk Sale
it subjects him to criminal liability
n See Sections 3-‐7 of the Bulk Sales Law.
o Failure to deliver advance notice does not subject him to criminal liability.
o To sell the stocks/goods/merchandise for no consideration, or for
Consequences of Violation of the Law
nominal consideration only, subject seller to criminal liability.
n Sec 11 : Imprisonment of not less that 6 months, not more than 5 years, w/ fine
n On Buyer/Mortgagee/Transferee
not exceeding P5,000.
o No direct obligation
n We evaluate the effects of breaking the law from 3 different standpoints : on
o It can be said that no criminal liability attaches to the buyers
the transaction itself, on the seller, on the buyer.
§ Some argue that they are principals by indispensable
n On the Transaction itself
cooperation, if they were aware of the intent/conspired with
o If sworn listing of creditors is not prepared, or if the proceeds are not
the seller
applied to them, the sale shall be fraudulent and void.
o There are still effects though – recall : sale may be rendered fraudulent
o This is not merely a presumption : it is in fact treated as void
and void
o No legal effects arise from the transaction
§ Thus, he would find himself not entitled to the things he paid
§ No right of action accrues
for.
o Thus, the subject matter is still owned by the assignor, and still subject to
§ He may also be sued for recovery of what he has obtained.
the satisfaction of his liabilities
§ He may also be liablie for damages for having helped defraud
o People v. Mapoy
creditors.
§ Sale is void, but the relationship between seller and creditor
is unchanged.
§ Proper remedy of creditor is to collect on the credit against
the defendant, and if he cannot pay, to attach on the
property fraudulently sold/mortgaged
o Failure to make an advanced written disclosure to creditors does not
render the sale fraudulent and void
o Legal consequences of a sale in Bulk for Nominal Value
§ Law declares it unlawful, but not fraudulent and void
§ However, if there was no other valuable consideration, we
have to declare it void for lack of cause/consideration



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SALES

MIDTERMS REVIEWER ATTY. RAY PAOLO SANTIAGO CROMBONDS 2012-­‐2013

• To the other party, the Buyer, who obligates himself

Sharing is a good thing! Ad Majorem Dei Gloriam 5

Sharing is a good thing! Ad Majorem Dei Gloriam 6

Sharing is a good thing! Ad Majorem Dei Gloriam 7

Sharing is a good thing! Ad Majorem Dei Gloriam 12

Contingent Fee Agreements

Sharing is a good thing! Ad Majorem Dei Gloriam 13

Sharing is a good thing! Ad Majorem Dei Gloriam 16

Sharing is a good thing! Ad Majorem Dei Gloriam 17

Sharing is a good thing! Ad Majorem Dei Gloriam 20

Sharing is a good thing! Ad Majorem Dei Gloriam 21

Sharing is a good thing! Ad Majorem Dei Gloriam 23

Sharing is a good thing! Ad Majorem Dei Gloriam 25

Sharing is a good thing! Ad Majorem Dei Gloriam 26

Sharing is a good thing! Ad Majorem Dei Gloriam 27

Sharing is a good thing! Ad Majorem Dei Gloriam 30

Sharing is a good thing! Ad Majorem Dei Gloriam 32

Sharing is a good thing! Ad Majorem Dei Gloriam 33

Villonco v. Bormaheco

Sharing is a good thing! Ad Majorem Dei Gloriam 34

Sharing is a good thing! Ad Majorem Dei Gloriam 35

Sharing is a good thing! Ad Majorem Dei Gloriam 36

Art. 1483 Dalion v. CA

Sharing is a good thing! Ad Majorem Dei Gloriam 39

Sharing is a good thing! Ad Majorem Dei Gloriam 40

Sharing is a good thing! Ad Majorem Dei Gloriam 41

Sharing is a good thing! Ad Majorem Dei Gloriam 42

Law on Sales To Deliver the Fruits and Accessories

Chapter 6 – Performance or Consummation of Sale Art. 1164.

Art. 1163. Art. 1537.

Sharing is a good thing! Ad Majorem Dei Gloriam 45

Art. 1497. Art. 1498.

Power Commercial and Industrial Corp. v. CA Art. 1487.

Sharing is a good thing! Ad Majorem Dei Gloriam 46

Sharing is a good thing! Ad Majorem Dei Gloriam 47

Sharing is a good thing! Ad Majorem Dei Gloriam 48

Sharing is a good thing! Ad Majorem Dei Gloriam 50

Sharing is a good thing! Ad Majorem Dei Gloriam 51

Sharing is a good thing! Ad Majorem Dei Gloriam 52

Sharing is a good thing! Ad Majorem Dei Gloriam 54

Sharing is a good thing! Ad Majorem Dei Gloriam 56

Sharing is a good thing! Ad Majorem Dei Gloriam 57

Sharing is a good thing! Ad Majorem Dei Gloriam 58

Sharing is a good thing! Ad Majorem Dei Gloriam 59

Sharing is a good thing! Ad Majorem Dei Gloriam 62

Sharing is a good thing! Ad Majorem Dei Gloriam 63

Art. 1509. Effects of Merely Transferring/Delivering of “Order” Negotiable

Sharing is a good thing! Ad Majorem Dei Gloriam 64

Sharing is a good thing! Ad Majorem Dei Gloriam 65

Sharing is a good thing! Ad Majorem Dei Gloriam 66

Sharing is a good thing! Ad Majorem Dei Gloriam 67

Sharing is a good thing! Ad Majorem Dei Gloriam 68

Sharing is a good thing! Ad Majorem Dei Gloriam 69

Sharing is a good thing! Ad Majorem Dei Gloriam 70

Sharing is a good thing! Ad Majorem Dei Gloriam 71

Loss by Fault of a Party Deterioration

Sharing is a good thing! Ad Majorem Dei Gloriam 72

Sale of Goods

Sharing is a good thing! Ad Majorem Dei Gloriam 74

Sharing is a good thing! Ad Majorem Dei Gloriam 75

Art. 1531. Art. 1532.

MIDTERMS REVIEWER ATTY. RAY PAOLO SANTIAGO CROMBONDS 2012-‐2013

A co-‐owner of a thing may exercise the right of redemption in case the

Effect of de Facto Partition Among Co-‐Heirs and Co-‐Owners