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Sales

BarOps Head I PY Caunan

Acads Head I Beth Liceralde

Subject Head I Jas Gapatan

Faculty Adviser I
TABLE OF CONTENTS
I. INTRODUCTION..................................................................................................................................................................................................................... 1
A. DEFINITION OF SALE .......................................................................................................................................................................................................1
B. CHARACTERISTICS OF A CONTRACT OF SALE ....................................................................................................................................................................1
C. KINDS OF A CONTRACT OF SALE ......................................................................................................................................................................................1
D. SALE AS DISTINGUISHED FROM OTHER CONTRACTS ...........................................................................................................................................................1

II. PARTIES TO A CONTRACT OF SALE ................................................................................................................................................................................3


CAPACITY OF PARTIES ........................................................................................................................................................................................................3

III. SUBJECT MATTER .............................................................................................................................................................................................................5


REQUISITES OF A VALID SUBJECT MATTER ............................................................................................................................................................................5

IV. OBLIGATION OF THE SELLER TO TRANSFER OWNERSHIP ......................................................................................................................................8


A. SALE BY A PERSON NOT THE OWNER ................................................................................................................................................................................8
B. SALE BY ONE HAVING A VOIDABLE TITLE ...........................................................................................................................................................................9

V. PRICE....................................................................................................................................................................................................................................10
REQUISITES OF A VALID PRICE ...........................................................................................................................................................................................10

VI. FORMATION OF THE CONTRACT OF SALE..................................................................................................................................................................13


PREPARATORY STAGE..............................................................................................................................................................................................13
PERFECTION STAGE ..................................................................................................................................................................................................15
FORMALITIES OF THE CONTRACT ...........................................................................................................................................................................15

VII. TRANSFER OF OWNERSHIP .........................................................................................................................................................................................18


A. MANNER OF TRANSFER.................................................................................................................................................................................................18
B. KINDS OF DELIVERY .....................................................................................................................................................................................................18
C. DOUBLE SALES ...........................................................................................................................................................................................................20

VIII. RISK OF LOSS OR DETERIORATION ........................................................................................................................................................................ 23


A. GENERAL RULE ...........................................................................................................................................................................................................23
B. WHEN OWNERSHIP IS TRANSFERRED .............................................................................................................................................................................24

IX. DOCUMENTS OF TITLE ................................................................................................................................................................................................... 24


A. NEGOTIABLE DOCUMENTS OF TITLE ...............................................................................................................................................................................24
B. NON-NEGOTIABLE DOCUMENTS OF TITLE ........................................................................................................................................................................26

X. REMEDIES OF AN UNPAID SELLER.................................................................................................................................................................................27


MEANING OF UNPAID SELLER ..................................................................................................................................................................................27
REMEDIES OF AN UNPAID SELLER...........................................................................................................................................................................27

XI. PERFORMANCE OF THE CONTRACT ............................................................................................................................................................................31


A. DELIVERY OF THE THING SOLD .....................................................................................................................................................................................31
B. PAYMENT OF PRICE .....................................................................................................................................................................................................35

XII. WARRANTIES ..................................................................................................................................................................................................................37


A. EXPRESS WARRANTIES ................................................................................................................................................................................................37
B. IMPLIED WARRANTIES ..................................................................................................................................................................................................38
C. BUYER’S WAIVER IN CASE OF BREACH OF WARRANTY ..................................................................................................................................................42

XIII. BREACH OF CONTRACTS ........................................................................................................................................................................................... 43


A. SALE OF GOODS.....................................................................................................................................................................................................43
B. SALE OF IMMOVABLES AND THINGS OTHER THAN GOODS .............................................................................................................................45
C. SALE OF MOVABLES ON INSTALLMENT ..............................................................................................................................................................45
D. SALE OF IMMOVABLES ON INSTALLMENT ..........................................................................................................................................................46

XIV. EXTINGUISHMENT OF THE SALE................................................................................................................................................................................47


A. CONVENTIONAL REDEMPTION.............................................................................................................................................................................47
B. LEGAL REDEMPTION..............................................................................................................................................................................................50

XV. BULK SALES LAW...........................................................................................................................................................................................................53


A. ACT NO. 3952.............................................................................................................................................................................................................53
B. RA 3952 ....................................................................................................................................................................................................................54

XVI. RETAIL TRADE LIBERALIZATION ACT ......................................................................................................................................................................56


RA 8762 ........................................................................................................................................................................................................................56
CA 108 ..........................................................................................................................................................................................................................59
I. Introduction Sales

I. Introduction 5. ONEROUS

As opposed to gratuitous, because the thing is


A. Definition of sale sold in consideration of a price and vice versa

6. PRINCIPAL
CC Art. 1458
By the contract of sale one of the contracting
It can stand on its own; unlike an accessory
parties obligates himself to transfer the ownership
contract
and to deliver a determinate thing, and the other
to pay therefor a price certain in money or its
equivalent. C. Kinds of a contract of sale
A contract of sale may be absolute or conditional.
1. ABSOLUTE
 The definition in Art 1458 brings about the
creation of two sets of obligations: for the Where the sale is not subject to any condition
seller, (1) to transfer ownership and (2) whatsoever and where title passes to the buyer
deliver possession of the subject matter; for upon the delivery of the thing sold.
the buyer: to pay the price. Obligations, as
referred to in the Article, are obligations to 2. CONDITIONAL
give; thus it may be the subject of actions for
specific performance. (Villanueva) Where the sale contemplates a contingency
and in general, where the contract is subject to
certain conditions (usually the full payment of the
B. Characteristics of a contract of sale purchase price). Conditions are attached to the
contract; the title will only pass once the conditions
1. NOMINATE have been fulfilled.

It has a peculiar name and form as prescribed


D. Sale as distinguished from other
in the law
contracts
2. CONSENSUAL
1. SALE VS. CONTRACT FOR A PIECE OF
It is founded upon and completed by mere WORK2
consent of the contracting parties1 (See Article
1475) CC Art. 1467
A contract for the delivery at a certain price of an
CC Art. 1475 article which the vendor in the ordinary course of
The contract of sale is perfected at the moment his business manufactures or procures for the
there is a meeting of minds upon the thing which is general market, whether the same is on hand at
the object of the contract and upon the price. the time or not, is a contract of sale, but if the
goods are to be manufactured specially for the
From that moment, the parties may reciprocally customer and upon his special order, and not for
demand performance, subject to the provisions of the general market, it is a contract for a piece of
the law governing the form of contracts. (1450a) work.
3. COMMUTATIVE
CC Art. 1713
By the contract for a piece of work the contractor
It is a contract in which each of the contracting
binds himself to execute a piece of work for the
parties gives a thing of value and receives an employer, in consideration of a certain price or
equivalent compensation. The contractor may either employ
only his labor or skill, or also furnish the material.
4. BILATERAL
CC Art. 1714
It is a contract in which both the contracting If the contractor agrees to produce the work from
parties are bound to fulfill the obligations material furnished by him, he shall deliver the
reciprocally towards each other (i.e. the vendor thing produced to the employer and transfer
becomes bound to deliver the thing sold and the
dominion over the thing. This contract shall be
vendee to pay the price for it)

2
CELESTINO V. COLLECTOR: A factory which habitually
1
QUIJADA V. CA: Sale being a consensual contract, is makes sash, windows and doors, and sells the goods to the
perfected by mere consent, which is manifested the moment public is a manufacturer. The fact that the windows and doors
there is a meeting of the minds as to the offer and acceptance are made by it only when customers place their orders and
thereof on 3 elements: price, subject matter and terms of according to such form or combination as suit the fancy of the
payment. Ownership by the seller on the thing sold at the purchasers does not alter the nature of the establishment;
time of perfection of the contract of sale is not an element for COMMISSIONER V. ENGINEERING: The test of a contractor
its perfection. What the law requires is that the seller has the is that he renders service in the course of an independent
right to transfer ownership at the time the thing sold is occupation, representing the will of his employer only as to
delivered. the result of his work, and not as to the means by which it is
accomplished.

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I. Introduction Sales
governed by the following articles as well as by the consideration exceeds the amount of the money or
pertinent provisions on warranty of title and its equivalent; otherwise, it is a sale. (1446a)
against hidden defects and the payment of price in
a contract of sale. CC Art. 1638
By the contract of barter or exchange one of the
CC Art. 1715 parties binds himself to give one thing in
The contract shall execute the work in such a consideration of the other's promise to give
manner that it has the qualities agreed upon and another thing. (1538a)
has no defects which destroy or lessen its value or
fitness for its ordinary or stipulated use. Should the CC Art. 1639
work be not of such quality, the employer may If one of the contracting parties, having received
require that the contractor remove the defect or the thing promised him in barter, should prove that
execute another work. If the contract fails or it did not belong to the person who gave it, he
refuses to comply with this obligation, the cannot be compelled to deliver that which he
employer may have the defect removed or another offered in exchange, but he shall be entitled to
work executed, at the contractor's cost. damages. (1539a)

 In a contract for work, labor or materials or CC Art. 1640


for a piece of work, the thing transferred is One who loses by eviction the thing received in
one not in existence and which never would barter may recover that which he gave in exchange
have existed but for the order of the party with a right to damages, or he may only demand
desiring to acquire it; while in a contract of an indemnity for damages. However, he can only
sale, the thing transferred is one which would make use of the right to recover the thing which he
have existed and been the subject of sale to has delivered while the same remains in the
some other person, even if the order had not possession of the other party, and without
been given. (De Leon) prejudice to the rights acquired in good faith in the
 This follows the Massachusetts Rule: a meantime by a third person. (1540a)
contract for the delivery at a certain price of
an article which the vendor, in the ordinary CC Art. 1641
course of his business, manufactures or As to all matters not specifically provided for in this
procures for the general market, whether the Title, barter shall be governed by the provisions of
same is on hand at the time or not, is a the preceding Title relating to sales. (1541a)
contract of sale. But if the goods are to be
manufactured specially for the customer and 4. SALE VS. DACION EN PAGO
upon his special order and not for the general
market, it is a contract for a piece of work. CC Art. 1245
(Baviera) Dation in payment, whereby property is alienated
to the creditor in satisfaction of a debt in money,
2. SALE VS. AGENCY TO BUY AND SELL3 shall be governed by the law of sales. (n)

CC Art. 1466 Dacion En Pago Sale


In construing a contract containing provisions
characteristic of both the contract of sale and of Presupposes a preexisting Obligations are created
the contract of agency to sell, the essential clauses debt & extinguishes the from the perfection of the
of the whole instrument shall be considered. (n) debt contract

Price is the value of the Fixing of the price is more


3. SALE VS. BARTER OR EXCHANGE
thing given freely agreed upon
CC Art. 1468 (Manresa)
If the consideration of the contract consists partly
in money, and partly in another thing, the 5. SALE VS. DONATION
transaction shall be characterized by the manifest
intention of the parties. If such intention does not CC Art. 725
clearly appear, it shall be considered a barter if the Donation is an act of liberality whereby a person
value of the thing given as a part of the disposes gratuitously of a thing or right in favor of
another, who accepts it.
3
QUIROGA V. PARSONS: In the contract in the instant case,  Under Art 1471, when the price of the
what was essential, constituting its cause and subject matter, contract of sale is simulated, the sale may be
was that the plaintiff was to furnish the defendant with the
beds which the latter might order, at the stipulated price, and void but the act may be shown to have been
that the defendant was to pay this price in the manner agreed in reality a donation x x x On the other hand,
upon. These are precisely the essential features of a contract a purported donation may have other
of purchase and sale. There was the obligation on the part of considerations placed on the donee, thus it
the plaintiff to supply the beds, and, on that of the defendant,
becomes critical to determine what rule
to pay their price. These features exclude the legal conception
of an agency or older to sell whereby the mandatory or agent applies (law on sales or law on donations)
receives the thing to sell it, and does not pay its price, but (Villanueva)
delivers to the principal the price he obtains from the sale of
the thing to a third person, and if he does not succeed in
selling it, he returns it.

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I. Introduction Sales
6. SUMMATION: TESTS TO DETERMINE THE
NATURE OF THE CONTRACT II. Parties to a Contract of Sale
4 Tests Sale = object: Piece of Work Capacity of parties
transfer of = object:
ownership service CC Art. 1489
(mental, All persons who are authorized in this Code to
physical labor)
obligate themselves, may enter into a contract of
1. Nature of Ordinary Extra-ordinary sale, saving the modifications contained in the
business following articles.
Where necessaries are those sold and delivered to
2. Existence of Does not Depends on
a minor or other person without capacity to act, he
thing order
must pay a reasonable price therefor. Necessaries
3. Market General Specific are those referred to in Article 290. (1457a)
Clientele
CC Art. 1490
4. Statute of Covered Not covered The husband and the wife cannot sell property to
frauds each other, except:
1. When a separation of property was agreed upon
in the marriage settlements; or
4 Tests (but the Sale Agency to Sell
ultimate test is: 2. When there has been a judicial separation or
intention of the property under Article 191. (1458a)
parties)
CC Art. 1491
1. Risk of Loss Borne by Borne by The following persons cannot acquire by purchase,
seller principal, not even at a public or judicial auction, either in person
agent or through the mediation of another:
1. The guardian, the property of the person or
2. Payment Buyer Principal, not
persons who may be under his guardianship;
agent
2. Agents, the property whose administration or
3. Exclusive Remittance test sale may have been entrusted to them, unless
Dealership the consent of the principal has been given;
3. Executors and administrators, the property of
4. Return of None Mandatory the estate under administration;
unsold goods 4. Public officers and employees, the property of
the State or of any subdivision thereof, or of
any government-owned or controlled
corporation, or institution, the administration of
Sale Barter
which has been intrusted to them; this
1. Intention of provision shall apply to judges and government
parties experts who, in any manner whatsoever, take
part in the sale;
2. Value of thing Money > thing Thing > Money 5. Justices, judges, prosecuting attorneys, clerks
vs. Value of of superior and inferior courts, and other
money officers and employees connected with the
administration of justice, the property and
rights in litigation or levied upon an execution
2 Tests Sale Dacion En Pago before the court within whose jurisdiction or
territory they exercise their respective
1. Debt None Pre-existing functions; this prohibition includes the act of
acquiring by assignment and shall apply to
2. Stage of Perfection Extinguishment lawyers, with respect to the property and rights
contract which may be the object of any litigation in
which they may take part by virtue of their
profession.
6. Any others specially disqualified by law.
(1459a)

CC Art. 1492
The prohibitions in the two preceding articles are
applicable to sales in legal redemption,
compromises and renunciations. (n)

1. ABSOLUTE INCAPACITY

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II. Parties to a Contract of Sale Sales
In the event that one spouse is incapacitated or
 Those who have the legal capacity to give otherwise unable to participate in the
consent to contracts may validly enter into a administration of the conjugal properties, the other
contract of sale, unless specifically prohibited spouse may assume sole powers of administration.
by law. However, when necessaries are sold These powers do not include disposition or
and delivered to a minor or other encumbrance without authority of the court or the
incapacitated person, the latter must pay a written consent of the other spouse. In the absence
reasonable price therefore. Necessaries are of such authority or consent, the disposition or
those indispensable for sustenance, clothing, encumbrance shall be void. However, the
dwelling, education, and medical treatment. transaction shall be construed as a continuing offer
on the part of the consenting spouse and the third
2. RELATIVE INCAPACITY person, and may be perfected as a binding contract
upon the acceptance by the other spouse or
MARRIED PERSONS authorization by the court before the offer is
withdrawn by either or both offerors. (165a)
As regards contracts with third parties
As regards contracts between spouses
CC Art. 73
Either spouse may exercise any legitimate CC Art. 87
profession, occupation, business or activity without Every donation or grant of gratuitous advantage,
the consent of the other. The latter may object direct or indirect, between the spouses during the
only on valid, serious, and moral grounds. marriage shall be void, except moderate gifts
In case of disagreement, the court shall decide which the spouses may give each other on the
whether or not: occasion of any family rejoicing. The prohibition
1. The objection is proper; and shall also apply to persons living together as
2. Benefit has occurred to the family prior to the husband and wife without a valid marriage. (133a)
objection or thereafter. If the benefit accrued
prior to the objection, the resulting obligation CC Art. 1490
shall be enforced against the separate property The husband and the wife cannot sell property to
of the spouse who has not obtained consent. each other, except:
1. When a separation of property was agreed upon
The foregoing provisions shall not prejudice the
in the marriage settlements; or
rights of creditors who acted in good faith. (117a)
2. When there has been a judicial separation or
property under Article 191. (1458a)
CC Art. 96
The administration and enjoyment of the
 There is a potential circumvention of the
community property shall belong to both spouses
policy of the law if sales between spouses are
jointly. In case of disagreement, the husband's
allowed if there was a judicial separation of
decision shall prevail, subject to recourse to the
property, since undue influence is not
court by the wife for proper remedy, which must be
completely erased by the separation of
availed of within five years from the date of the
property. This prohibition also applies to
contract implementing such decision.
common-law unions4. (Villanueva)
In the event that one spouse is incapacitated or
otherwise unable to participate in the SPECIAL DISQUALIFICATIONS (SEE CC ARTS. 1491
administration of the common properties, the other AND 1492 IN THE PREVIOUS PAGE)
spouse may assume sole powers of administration. 1. It is immaterial that no damage is suffered by
These powers do not include disposition or the owner. The contract is void as the law
encumbrance without authority of the court or the seeks to prevent said persons from being
written consent of the other spouse. In the absence tempted to take advantage of their position.
of such authority or consent, the disposition or They occupy a position of trust and confidence
encumbrance shall be void. However, the in relation to the property under their
transaction shall be construed as a continuing offer administration or jurisdiction.
on the part of the consenting spouse and the third 2. Agents can not buy the property of their
person, and may be perfected as a binding contract principalj without the consent of the latter.
upon the acceptance by the other spouse or BROKERS, however, do not come within the
authorization by the court before the offer is prohibition, as their authority consists merely in
withdrawn by either or both offerors. (206a) looking for a buyer or seller, and to bring the
latter and his principal together to consummate
CC Art. 124
The administration and enjoyment of the conjugal
4
partnership shall belong to both spouses jointly. In CALIMLIM-CANULLAS V. FORTUN: …if transfers or
conveyances between spouses were allowed during marriage,
case of disagreement, the husband's decision shall that would destroy the system of conjugal partnership. It was
prevail, subject to recourse to the court by the wife also designed to prevent the exercise of undue influence by
for proper remedy, which must be availed of within one spouse over the other, as well as to protect the institution
five years from the date of the contract of marriage, which is the cornerstone of family law. The
implementing such decision. prohibitions apply to a couple living as husband and wife
without benefit of marriage, otherwise, "the condition of those
who incurred guilt would turn out to be better than those in
legal union."

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II. Parties to a Contract of Sale Sales
the transaction. Of course, after the agency is
terminated, the agent can buy the property of III. Subject Matter
the principal, which was formerly under his
administration. Requisites of a valid subject matter
3. Although executors and administrators can not
buy the property under their administration, an
1. MUST BE EXISTING, FUTURE, OR
executor may buy the hereditary rights of an
CONTINGENT
heir to the estate under his administration,
because the buyer, in such case, can not get
CC Art. 1348
the share of the heir in the estate until after the
Impossible things or services cannot be the object
administration is ended.
of contracts. (1272)
4. With regard to the lawyers, the prohibition does
not apply to other properties of the client, nor
CC Art. 1462
to assignments of the property formerly in
The goods which form the subject of a contract of
litigation when such assignment will take effect
sale may be either existing goods, owned or
only after final judgment (compensation of
possessed by the seller, or goods to be
lawyers payable on a contingent basis, unless
manufactured, raised, or acquired by the seller
unconscionable).5
after the perfection of the contract of sale, in this
5. Examples of other persons especially
Title called "future goods."
disqualified by law are: (1) aliens purchasing
private agricultural lands (Art XII, Secs 3 & 7, There may be a contract of sale of goods, whose
Consti); (2) an unpaid seller having a right of acquisition by the seller depends upon a
lien…(Art 133 par 5) (Baviera) contingency which may or may not happen. (n)

CC Art. 1347
All things which are not outside the commerce of
men, including future things, may be the object of
a contract. All rights which are not intransmissible
may also be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract. (1271a)

 Emption rei speratai – If the parties make the


contract depend upon the existence of a thing,
so that if the thing does not come into
existence the contract is considered as not
made ad there is no obligation to pay the
price, such contract is valid under [Art. 1461
(2), CC; it is what the Roman law designates
as emptio rei speratae (purchase of an
expected thing).
 Emptio spei – If the parties intend the
contract to exist at all events, so that the
buyer will have to pay the price even if the
thing does not actually came into existence . .
. it is called emtio spei (purchase of hope or
expectancy”. This contract is, however, void
under Art. 1461. (Tolentino)

CC Art. 1461
Things having a potential existence may be the
object of the contract of sale.
The efficacy of the sale of a mere hope or
expectancy is deemed subject to the condition that
the thing will come into existence.
The sale of a vain hope or expectancy is void. (n)

CC Art. 1347
5
All things which are not outside the commerce of
RUBIAS V. BATILLER: the purchase by a lawyer of the men, including future things, may be the object of
property in litigation from his client is categorically prohibited
by Art. 1491, paragraph (5) of the Civil Code, and that a contract. All rights which are not intransmissible
consequently, plaintiff's purchase of the property in litigation may also be the object of contracts.
from his client was void and could produce no legal effect

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III. Subject Matter Sales
No contract may be entered into upon future  Properties belonging to the State or its
inheritance except in cases expressly authorized by political subdivision which are intended for
law. public use or public service or for the
All services which are not contrary to law, morals, development of natural wealth are outside the
good customs, public order or public policy may commerce of man.
likewise be the object of a contract. (1271a)  Churches are also outside the commerce of
man.
 Law prohibits sale of future inheritance. The  But public property when no longer intended
rights to succession are transmitted from the for public use or service form part of the
moment of the death of the decedent so one patrimonial property of the State and
cannot sell or promise to sell what he expects therefore can be leased or sold.
to inherit from a living person. But the law
allows an heir to sell his interests in an 3. MUST BE DETERMINATE
inheritance
 The object of the contract of sale must be licit, CC Art. 1460
meaning within the commerce of man, and A thing is determinate when it is particularly
determinate. Determinate has been expanded designated or physical segregated from all other of
to cover generic things, future things and the same class.
things in potential existence 6. The requisite that a thing be determinate is
 Things subject to a resolutory condition may satisfied if at the time the contract is entered into,
be the object of the contract of sale.(Article the thing is capable of being made determinate
1465) without the necessity of a new or further
agreement between the parties. (n)
2. MUST BE LICIT
DETERMINATE VS. DETERMINABLE7
CC Art. 1347 A thing is determinate if it can be physically
All things which are not outside the commerce of segregated, particularly designated; capable of
men, including future things, may be the object of being made determinate without need of another
a contract. All rights which are not intransmissible agreement. It is determinable if it is capable of
may also be the object of contracts. being determined via another agreement.
No contract may be entered into upon future
inheritance except in cases expressly authorized by 4. PARTICULAR KINDS
law.
GENERIC THINGS
All services which are not contrary to law, morals,
good customs, public order or public policy may CC Art. 1246
likewise be the object of a contract. (1271a) When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and
CC Art. 1459 circumstances have not been stated, the creditor
The thing must be licit and the vendor must have a cannot demand a thing of superior quality. Neither
right to transfer the ownership thereof at the time can the debtor deliver a thing of inferior quality.
it is delivered. (n) The purpose of the obligation and other
circumstances shall be taken into consideration.
CC Art. 1575 (1167a)
The sale of animals suffering from contagious
diseases shall be void. CC Art. 1409
A contract of sale of animals shall also be void if The following contracts are inexistent and void
the use or service for which they are acquired has from the beginning:
been stated in the contract, and they are found to 6. Those where the intention of the parties relative
be unfit therefor. (1494a) to the principal object of the contract cannot be
ascertained;
 The sale of narcotics or dangerous drugs
except upon prescription, or any wild bird or  Generic things could also become subject
mammal, or rare wild plants protected by law matters of a contract of sale provided (1) they
or of tubli or other poisonous plants or fruits, have been physically segregated8 /
dynamited fish or other aquatic animals,
gunpowder, dynamite, explosives or blasting 7
MELLIZA V. CITY OF ILOILO: The requirement of the law
supplies, firearms or ammunitions are that a sale must have for its object a determinate thing, is
prohibited by law therefore are illicit. fulfilled as long as, at the time the contract is entered into,
the object of the sale is capable of being made determinate
without the necessity of a new or further agreement between
the parties
6 8
PICHEL V. ALONZO: The subject matter of the contract of YU TEK V. GONZALEZ: This court has consistently held that
sale in question are the fruits of the coconut trees on the land there is a perfected sale with regard to the "thing" whenever
during the years from September 15, 1968 up to January 1, the article of sale has been physically segregated from all
1976, which subject matter is a determinate thing. Under Art. other articles. In the case at bar the undertaking of the
1461 of the New Civil Code, things having a potential defendant was to sell to the plaintiff 600 piculs of sugar of the
existence may be the object of the contract of sale; first and second classes. There was no delivery under the
SIBAL VS. VALDEZ: pending crops which have potential contract. Now, if called upon to designate the article sold, it is
existence may bethe subject matter of sale. clear that the defendant could only say that it was "sugar." He

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III. Subject Matter Sales
particularly designated, and (2) they are of the Province which the property is situated,
capable of substitution a notice of the pendency of the action.
 From the moment of the filing of such notice,
FUTURE GOODS 3rd persons are charged with notice of the
litigation & take the property subject to the
CC Art. 1462 outcome of the litigation. (Baviera and De
The goods which form the subject of a contract of Leon)
sale may be either existing goods, owned or
possessed by the seller, or goods to be THINGS SUBJECT TO A RESOLUTORY CONDITION
manufactured, raised, or acquired by the seller
after the perfection of the contract of sale, in this CC Art. 1465
Title called "future goods." Things subject to a resolutory condition may be the
There may be a contract of sale of goods, whose object of the contract of sale. (n)
acquisition by the seller depends upon a
contingency which may or may not happen. (n) 5. QUANTITY OF SUBJECT MATTER9

SALE OF UNDIVIDED INTEREST OR SHARE CC Art. 1349


The object of every contract must be determinate
CC Art. 1463 as to its kind. The fact that the quantity is not
The sole owner of a thing may sell an undivided determinate shall not be an obstacle to the
interest therein. (n) existence of the contract, provided it is possible to
determine the same, without the need of a new
CC Art. 1464 contract between the parties. (1273)
In the case of fungible goods, there may be a sale
of an undivided share of a specific mass, though
the seller purports to sell and the buyer to buy a
definite number, weight or measure of the goods in
the mass, and though the number, weight or
measure of the goods in the mass is undetermined.
By such a sale the buyer becomes owner in
common 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 contains less than the number, weight or
measure bought, the buyer becomes the owner of
the whole mass and the seller is bound to make
good the deficiency from goods

SALE OF THINGS IN LITIGATION

CC Art. 1381
The following contracts are rescissible:
4. Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;

CC Art. 1385
2. Neither shall rescission take place when the
things which are the object of the contract are
legally in the possession of third persons who
did not act in bad faith.

 Sales of things under litigation entered into by


defendants without the knowledge & approval
of the litigants or of the court are rescissible.
 However, rescission cannot take place when
the things are legally in the possession of 3rd
persons who did not act in bad faith (&
without knowledge of defect)
 In an action affecting the title or the right of
possession of real property, the plaintiff may
record in the office of the Registrar of Deeds 9
SCHUBACK V. CA: Although the quantity to be ordered was
made determinate only on December 29, 1981, quantity is
immaterial in the perfection of a sales contract. What is of
importance is the meeting of the minds as to the object and
could only use this generic name for the thing sold. We cause, which from the facts disclosed, show that as of
conclude that the contract in the case at bar was merely an December 24, 1981, these essential elements had already
executory agreement; a promise of sale and not a sale. concurred.

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IV. Obligation of the Seller to Transfer Ownership Sales

IV. OBLIGATION OF THE SELLER TO the owner of the goods is by his conduct precluded
from denying the seller's authority to sell.
TRANSFER OWNERSHIP Nothing in this Title, however, shall affect:
1. The provisions of any factors' act, recording
laws, or any other provision of law enabling the
A. Sale by a person not the owner apparent owner of goods to dispose of them as
if he were the true owner thereof;
CC Art. 1636 2. The validity of any contract of sale under
In the preceding articles in this Title governing the statutory power of sale or under the order of a
sale of goods, unless the context or subject matter court of competent jurisdiction;
otherwise requires: 3. Purchases made in a merchant's store, or in
1. "Document of title to goods" includes any bill of fairs, or markets, in accordance with the Code
lading, dock warrant, "quedan," or warehouse of Commerce and special laws. (n)
receipt or order for the delivery of goods, or
any other document used in the ordinary course CC Art. 1431
of business in the sale or transfer of goods, as Through estoppel an admission or representation is
proof of the possession or control of the goods, rendered conclusive upon the person making it,
or authorizing or purporting to authorize the and cannot be denied or disproved as against the
possessor of the document to transfer or person relying thereon.
receive, either by endorsement or by delivery,
goods represented by such document. GENERAL RULE
"Goods" includes all chattels personal but not
No one can transfer a better title than what he
things in action or money of legal tender in the
has over the property sold. Only the owner of the
Philippines. The term includes growing fruits or
goods or one authorized by the owner to sell can
crops.
transfer title thereto to the buyer10.
"Order" relating to documents of title means an
order by endorsement on the documents. EXCEPTIONS
"Quality of goods" includes their state or
condition. ESTOPPEL (CC ART 1505)
Even if the person who sold the thing was not
"Specific goods" means goods identified and the owner, if he should subsequently acquire
agreed upon at the time a contract of sale is ownership thereof, his conveyance is deemed valid
made. & his title passes by operation of law to the buyer11
An antecedent or pre-existing claim, whether for
money or not, constitutes "value" where goods If the owner of the goods is precluded by his
or documents of title are taken either in conduct from denying the seller’s authority to sell,
satisfaction thereof or as security therefor. buyer may acquire a better title, although the
seller had neither the title nor the authority to sell
2. A person is insolvent within the meaning of this
the goods.
Title who either has ceased to pay his debts in
the ordinary course of business or cannot pay
RECORDING LAWS; TORRENS SYSTEM – PD 1529
his debts as they become due, whether
None in the Phils. But NCC relies on the
insolvency proceedings have been commenced
general principle of law that one deals with an
or not.
agent at his own risk.
3. Goods are in a "deliverable state" within the
meaning of this Title when they are in such a
state that the buyer would, under the contract,
be bound to take delivery of them. (n)
10
AZNAR V. YAPDIANGCO: In the case on hand, the car in
CC Art. 559 question was never delivered to the vendee by the vendor as
The possession of movable property acquired in to complete or consummate the transfer of ownership by
good faith is equivalent to a title. Nevertheless, one virtue of the contract. It should be recalled that while there
who has lost any movable or has been unlawfully was indeed a contract of sale between Vicente Marella and
deprived thereof may recover it from the person in Teodoro Santos, the former, as vendee, took possession of
the subject matter thereof by stealing the same while it was in
possession of the same. the custody of the latter's son. Art. 712 above contemplates
If the possessor of a movable lost or which the that the act be coupled with the intent of delivering the thing.
11
SIY CONG BIEN V. HSBC: Since plaintiff had voluntarily
owner has been unlawfully deprived, has acquired clothed the person who negotiated the quedans with all the
it in good faith at a public sale, the owner cannot attributes of ownership and upon which the bank relied, it is
obtain its return without reimbursing the price paid estopped to deny that the bank had a valid title to the
therefor. (464a) quedans;
JALBUENZA V. LIZARRAGA: Bigelow on Estoppel says: ". . .
it is now a well established principle that where the true owner
CC Art. 1505 of property, for however short a time, holds out another, or,
Subject to the provisions of this Title, where goods with knowledge of his own right, allows another to appear, as
are sold by a person who is not the owner thereof, the owner of or as having full power of disposition over the
and who does not sell them under authority or with property, the same being in the latter's actual possession, and
innocent third parties are thus led into dealing with some
the consent of the owner, the buyer acquires no
[such] apparent owner, they will be protected." (as cited in
better title to the goods than the seller had, unless Hernaez vs. Hernaez)

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IV. Obligation of the Seller to Transfer Ownership Sales
COURT ORDERS contract is annulled, the latter acquired a valid
The general principle that the vendor must be title13.
the owner or the one authorized by the owner to  An antecedent or pre-existing claim, WON for
sell the goods in order to pass title over them to money constitutes “value” where goods or
the buyer does not apply when the sale takes place document of titloe are taken in satisfaction
by virtue of a power granted by law or by a court. thereof or as security therefore
Thus a sale by the sheriff, or by other execution or
subject of foreclosure, is valid even if the owner did
not authorize or consent to the sale (Baviera).

Validity of sale under statutory power (legal


sale – e.g. law authorizing sale of patrimonial
property to a specific person at auction) or of court
to sell (judicial sale e.g. writ of execution levying
upon the debtor’s property at auction)

PURCHASE AT A MERCHANT’S STORE, MARKET OR


FAIR12

Purpose of the exception


1. To protect innocent purchasers who buy at
merchant stores, market or fair
2. To facilitate commercial sales in movables
3. To give stability to business transactions

B. Sale by one having a voidable title

CC Art. 1506
Where the seller of goods has a voidable title
thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title to
the goods, provided he buys them in good faith, for
value, and without notice of the seller's defect of
title. (n)

CC Art. 559
The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the
owner has been unlawfully deprived, has acquired
it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid
therefor. (464a)

 Seller can transfer a valid title to an innocent


purchaser for value, unless title was annulled.
 So long as the goods are still in the
possession of the 1st buyer, they may still be
recovered by the vendor in an action for
annulment. 13
DE GARCIA V. CA: Respondent Angelina D. Guevara,
 But once it has been transferred to an having been unlawfully deprived of the diamond ring in
innocent purchaser for value before the question, was entitled to recover it from petitioner Consuelo
S. de Garcia who was found in possession of the same. The
only exception the law allows is when there is acquisition in
good faith of the possessor at a public sale, in which case the
owner cannot obtain its return without reimbursing the price.
12
SUN BROTHERS V. VELASCO: The policy of the law has (Cruz v. Pahati; Aznar v. Yapdiangco);
always been that, where the rights and interests of a vendor REBULLIDA V. BUSTAMANTE: It appearing that the ring in
come into clash with that of an innocent buyer for value, the question was lost or was stolen from the place where the
latter must be protected. The rule lawful owner deposited it, the case squarely falls under Art.
appears to be a wise and necessary rule not only to facilitate 464 of the Civil Code, which provides that the “one who has
commercial sales on movables but to give stabilityto business lost personal property or who has been unlawfully deprived of
transactions. it may recover it from whoever is possessing it.” The mere
MASICLAT V. CENTENO: The transaction between Ramon fact that the possessor, even in good faith, ad purchased the
Masiclat and his unknown seller took place on Miranda Street ring from another person would not bar the right of the owner
and not in the public market and this is . . . conclusive. Hence, to recover it once the identity and the owner’s deprivation are
Art. 1505 CC, invoked by the petitioners, has no application. established.

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V. Price Sales

V. Price14 proven that were founded upon another cause


which is true & lawful (1471, 1353)
 If the price is simulated, the sale is void but
CC Art 1469 the act may be shown to have been in reality
Should such person or persons be unable or a donation, or some other act or contract
unwilling to fix it, the contract shall be (1471)
inefficacious, unless the parties subsequently agree
upon the price. Requisites of a valid price
If the third person or persons acted in bad faith or
by mistake, the courts may fix the price. 1. MUST BE REAL
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller CC Art. 1471
or the buyer, the party not in fault may have such If the price is simulated, the sale is void, but the
remedies against the party in fault as are allowed act may be shown to have been in reality a
the seller or the buyer, as the case may be. donation, or some other act or contract. (n)
(1447a)
CC Art. 1386
CC Art. 1470 Rescission referred to in Nos. 1 and 2 of Article
Gross inadequacy of price does not affect a 1381 shall not take place with respect to contracts
contract of sale, except as it may indicate a defect approved by the courts. (1296a)
in the consent, or that the parties really intended a
donation or some other act or contract. (n) CC Art. 1353
The statement of a false cause in contracts shall
CC Art. 1471 render them void, if it should not be proved that
If the price is simulated, the sale is void, but the they were founded upon another cause which is
act may be shown to have been in reality a true and lawful. (1276)
donation, or some other act or contract. (n)
CC Art. 1354
CC Art. 1472 Although the cause is not stated in the contract, it
The price of securities, grain, liquids, and other is presumed that it exists and is lawful, unless the
things shall also be considered certain, when the debtor proves the contrary. (1277)
price fixed is that which the thing sold would have
on a definite day, or in a particular exchange or CC Art. 1470
market, or when an amount is fixed above or below Gross inadequacy of price does not affect a
the price on such day, or in such exchange or contract of sale, except as it may indicate a defect
market, provided said amount be certain. (1448) in the consent, or that the parties really intended a
donation or some other act or contract. (n)
CC Art. 1473
The fixing of the price can never be left to the CC Art. 1381
discretion of one of the contracting parties. The following contracts are rescissible:
However, if the price fixed by one of the parties is 1. Those which are entered into by guardians
accepted by the other, the sale is perfected. whenever the wards whom they represent
(1449a) suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
CC Art. 1474 2. Those agreed upon in representation of
Where the price cannot be determined in absentees, if the latter suffer the lesion stated
accordance with the preceding articles, or in any in the preceding number;
other manner, the contract is inefficacious. 3. Those undertaken in fraud of creditors when the
However, if the thing or any part thereof has been latter cannot in any other manner collect the
delivered to and appropriated by the buyer he claims due them;
must pay a reasonable price therefor. What is a 4. Those which refer to things under litigation if
reasonable price is a question of fact dependent on they have been entered into by the defendant
the circumstances of each particular case. (n) without the knowledge and approval of the
litigants or of competent judicial authority;
 A contract of sale is null & void and produces 5. All other contracts specially declared by law to
no effect whatsoever if the same is without be subject to rescission. (1291a)
cause or consideration or that the price which
appears to have been paid has in fact never FALSE PRICE
been paid. There is a true price but it was not written
 The existence of a contract is permanent & down or stipulated in the contract. There was a
incurable. consideration although it was not found in the
 The statement of a false cause in contracts contract (Real consideration not stated)
shall render them void if it should not be

14
INCHAUSTI V. CROMWELL: Price is the sum stipulated as
the equivalent of the thing sold and also every incident taken
into consideration for the fixing of the price put to the debit of
the buyer and agreed to by him

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V. Price Sales
SIMULATED PRICE15 3. MUST BE CERTAIN OR ASCERTAINABLE AT
There was no price paid. The parties merely TIME OF PERFECTION17
said there was a price and “created” their own
price (no consideration but stated) CC Art. 1474
Where the price cannot be determined in
2. MUST BE IN MONEY OR ITS EQUIVALENT accordance with the preceding articles, or in any
other manner, the contract is inefficacious.
CC Art. 1458 However, if the thing or any part thereof has been
By the contract of sale one of the contracting delivered to and appropriated by the buyer he
parties obligates himself to transfer the ownership must pay a reasonable price therefor. What is a
and to deliver a determinate thing, and the other reasonable price is a question of fact dependent on
to pay therefor a price certain in money or its the circumstances of each particular case. (n)
equivalent.
A contract of sale may be absolute or conditional. CC Art. 1469
(1445a) In order that the price may be considered certain,
it shall be sufficient that it be so with reference to
CC Art. 1468 another thing certain, or that the determination
If the consideration of the contract consists partly thereof be left to the judgment of a special person
in money, and partly in another thing, the or persons.
transaction shall be characterized by the manifest Should such person or persons be unable or
intention of the parties. If such intention does not unwilling to fix it, the contract shall be
clearly appear, it shall be considered a barter if the inefficacious, unless the parties subsequently agree
value of the thing given as a part of the upon the price.
consideration exceeds the amount of the money or If the third person or persons acted in bad faith or
its equivalent; otherwise, it is a sale. (1446a) by mistake, the courts may fix the price.
 The price should be in money or its equivalent16 Where such third person or persons are prevented
(e.g. letters of credit & other negotiable from fixing the price or terms by fault of the seller
instruments). Otherwise, the transaction might or the buyer, the party not in fault may have such
be barter or an innominate contract. remedies against the party in fault as are allowed
 Property given to the creditor in satisfaction of the seller or the buyer, as the case may be.
a debt in money with the PRICE PAID IN (1447a)
ADVANCE is a sale.
CC Art. 1470
Gross inadequacy of price does not affect a
DATION IN PAYMENT SALE
contract of sale, except as it may indicate a defect
Presupposes a prior Obligations are created in the consent, or that the parties really intended a
existing credit & from the perfection of the donation or some other act or contract. (n)
extinguishes the obligation contract
CC Art. 1471
If the price is simulated, the sale is void, but the
 Fixing of the price is more or less arrived at
act may be shown to have been in reality a
with ample contractual freedom than the
donation, or some other act or contract. (n)
value of the thing given in dation.
CC Art. 1472
The price of securities, grain, liquids, and other
things shall also be considered certain, when the
price fixed is that which the thing sold would have

15
MAPALO V. MAPALO: a contract of purchase and sale is
17
null and void and produces no effect whatsoever where the TOYOTA SHAW V. CA: Article 1458 of the Civil Code
same is without cause or consideration in that the purchase defines a contract of sale and Art. 1475 specifically provides
price which appears thereon as paid has in fact never been when it is deemed perfected. The document (in Exhibit “A”,
paid by the purchaser to the vendor; see case), executed and signed by the petitioner's sales
BAGNAS V. CA: upon the consideration alone that the representative, is not a contract of sale. No obligation on the
apparent gross, not to say enormous, disproportion between part of Toyota to transfer ownership of a determinate thing to
the stipulated price (in each deed) of P1.00 plus unspecified Sosa and no correlative obligation on the part of the latter to
and unquantilled services and the undisputably valuable real pay therefor a price certain appears therein. The provision on
estate allegedly sold — worth at least P10,500.00 going only the downpayment of P100,000 made no specific reference to a
by assessments for tax purposes which, it is well-known, are sale of a vehicle. If it was intended for a contract of sale, it
noteriously low indicators of actual value — plainly and could only refer to a sale on installment basis, as the VSP
unquestionably demonstrates that they state a false and executed the following day confirmed. But nothing was
fictitious consideration, and no other true and lawful cause mentioned about the full purchase price and the manner the
having been shown, the Court finds both said deeds, insofar installments were to be paid. This Court had already ruled that
as they purport to be sales, not merely voidable, but void ab a definite agreement on the manner of payment of the price is
initio. an essential element in the formation of a binding and
16
REPUBLIC V. PHIL. RESOURCES: Although Art. 1458 of enforceable contract of sale. This is so because the agreement
the new Civil Code provides that price . . . is always paid in as to the manner of payment goes into the price such that a
terms of money and the supposed payment being in kind it is disagreement on the manner of payment is tantamount to a
no payment at all," yet the same article provides that the failure to agree on the price. Definiteness as to the price is an
purchaser may pay "a price certain in money or its equivalent" essential element of a binding agreement to sell personal
which means that payment of the price need not be money. property.

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V. Price Sales
on a definite day, or in a particular exchange or C. BY REFERENCE TO DEFINITE DAY, PARTICULAR
market, or when an amount is fixed above or below EXCHANGE MARKET20
the price on such day, or in such exchange or
market, provided said amount be certain. (1448) CC Art. 1472
The price of securities, grain, liquids, and other
CC Art. 1473 things shall also be considered certain, when the
The fixing of the price can never be left to the price fixed is that which the thing sold would have
discretion of one of the contracting parties. on a definite day, or in a particular exchange or
However, if the price fixed by one of the parties is market, or when an amount is fixed above or below
accepted by the other, the sale is perfected. the price on such day, or in such exchange or
(1449a) market, provided said amount be certain. (1448)

4. MANNER OF PAYMENT MUST BE AGREED D. BY REFERENCE TO ANOTHER THING CERTAIN


UPON18
E. NEVER BY ONE PARTY
5. HOW PRICE IS DETERMINED
CC Art. 1473. The fixing of the price can never be
CC Art. 1469 left to the discretion of one of the contracting
In order that the price may be considered certain, parties. However, if the price fixed by one of the
it shall be sufficient that it be so with reference to parties is accepted by the other, the sale is
another thing certain, or that the determination perfected. (1449a)
thereof be left to the judgment of a special person
or persons. 6. INADEQUACY OF PRICE21
Should such person or persons be unable or
unwilling to fix it, the contract shall be CC Art. 1355
inefficacious, unless the parties subsequently agree Except in cases specified by law, lesion or
upon the price. inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue
If the third person or persons acted in bad faith or influence. (n)
by mistake, the courts may fix the price.
Where such third person or persons are prevented CC Art. 1470
from fixing the price or terms by fault of the seller Gross inadequacy of price does not affect a
or the buyer, the party not in fault may have such contract of sale, except as it may indicate a defect
remedies against the party in fault as are allowed in the consent, or that the parties really intended a
the seller or the buyer, as the case may be. donation or some other act or contract. (n)
(1447a)
CC Art. 1381
A. BY A THIRD PERSON19 The following contracts are rescissible:
1. Those which are entered into by guardians
B. BY THE COURTS whenever the wards whom they represent
suffer lesion by more than one-fourth of the
Art. 1469. value of the things which are the object thereof;
3. If the third person or persons acted in bad faith 2. Those agreed upon in representation of
or by mistake, the courts may fix the price. absentees, if the latter suffer the lesion stated
in the preceding number;
3. Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the
claims due them;
18
VELASCO V. CA: It is not difficult to glean from the 4. Those which refer to things under litigation if
aforequoted averments that the petitioners themselves admit
that they and the respondent still had to meet and agree on
they have been entered into by the defendant
how and when the down-payment and the installment without the knowledge and approval of the
payments were to be paid. Such being the situation, it cannot, litigants or of competent judicial authority;
therefore, be said that a definite and firm sales agreement 5. All other contracts specially declared by law to
between the parties had been perfected over the lot in be subject to rescission. (1291a)
question. Indeed, this Court has already ruled before that a
definite agreement on the manner of payment of the purchase
price is an essential element in the formation of a binding and CC Art. 1602
enforceable contract of sale. The fact, therefore, that the The contract shall be presumed to be an equitable
petitioners delivered to the respondent the sum of P10,000 as mortgage, in any of the following cases:
part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties under Art.
1482 of the new Civil Code;
20
NAVARRO V. SUGAR’S PRODUCERS: When the manner of Price is certain at the point of perfection by reference to
payment of purchase price is discussed after acceptance,, another thing certain, such as to certain invoices then in
then such acceptance did not produce a binding and existence and clearly identified by the agreement
enforceable contract of sale. There was no complete meeting (MCCOLLOUGH V. AENLLE) or known factors or stipulated
of the minds formula (MITSUI V. MANILA)
19 21
BARRETTO V. SANTA MARINA: It is necessary to a ERENETE V. BEZORE: That the consideration in the sale
perfected sale that the parties agree upon the thing sold and was "cheap" is not a ground for the infirmity of the sale.
that the price be fixed, it being sufficient for the latter purpose Inadequacy of cause in a contract does not of itself invalidate
that the price be left to the judgment of a specified person. the contract.

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V. Price Sales
1. When the price of a sale with right to
repurchase is unusually inadequate; VI. FORMATION OF THE CONTRACT OF
2. When the vendor remains in possession as
lessee or otherwise;
SALE
3. When upon or after the expiration of the right
to repurchase another instrument extending the PREPARATORY STAGE
period of redemption or granting a new period
is executed; 1. OFFER
4. When the purchaser retains for himself a part of
the purchase price; CC Art. 1475
5. When the vendor binds himself to pay the taxes The contract of sale is perfected at the moment
on the thing sold; there is a meeting of minds upon the thing which is
6. In any other case where it may be fairly the object of the contract and upon the price.
inferred that the real intention of the parties is
that the transaction shall secure the payment of From that moment, the parties may reciprocally
a debt or the performance of any other demand performance, subject to the provisions of
obligation. the law governing the form of contracts. (1450a)

In any of the foregoing cases, any money, fruits, or FORM OF OFFER22


other benefit to be received by the vendee as rent
or otherwise shall be considered as interest which The offer must be certain. Business
shall be subject to the usury laws. (n) advertisements/advertisements for bidders are
mere invitations to make an offer, unless otherwise
stated.

CC Art. 1319
Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not
bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is
presumed to have been entered into in the place
where the offer was made. (1262a)

CC Art. 1325
Unless it appears otherwise, business
advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)

CC Art. 1326
Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the
contrary appears. (n)

FORM OF ACCEPTANCE

1. The acceptance must be absolute23.


2. The acceptance must be plain and
unconditional.

22
VILLONCO V. BORMAHECO: It is true that an acceptance
may contain a request for certain changes in the terms of the
offer and yet be a binding acceptance. 'So long as it is clear
that the meaning of the acceptance is positively and
unequivocally to accept-the offer, whether such request is
granted or not, a contract is formed.'” Thus, it was held that
the vendor's change in a phrase of the offer to purchase,
which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the
tender of a counter-offer
23
ZAYCO V SERRA: In an offer to sell, the acceptance must
be plain and unconditional to have the effect of converting the
offer to sell to a perfect contract. It will not be so if it involves
any new proposal, for in that case it would not mean
conformity with the offer, which is what gives rise to the
generation of the contract.

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VI. Formation of Contract of Sale Sales
3. To bind the offeror, the offeree must comply 2. Subject matter: an option right or accepted
with the conditions of the offer. Where the unilateral offer to buy, or an option right or
acceptance was not in accordance with the accepted unilateral offer to sell a determinate
terms and conditions of the offer, the offer object for a price certain, including the manner
lapsed even though the offeree later on was of payment thereof
willing to accept the terms and conditions of the 3. Prestation: a consideration25 separate and
offer. distinct from the purchase price for the option
given
VICES VITIATING CONSENT
 It must be in writing. [NOTE that the
CC Art. 1330 prescription of written contracts is 4 years.]
A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is 3. RIGHT OF FIRST REFUSAL26
voidable. (1265a)
4. BILATERAL PROMISE TO BUY AND SELL
CC Art. 1331
In order that mistake may invalidate consent, it (See Article 1479 supra)
should refer to the substance of the thing which is
the object of the contract, or to those conditions 1. Both parties are bound by his promise, although
which have principally moved one or both parties nothing has been paid or delivered27.
to enter into the contract. 2. An executory contract of sale the promise of
Mistake as to the identity or qualifications of one of one is the consideration for the promise of the
the parties will vitiate consent only when such other.
identity or qualifications have been the principal 3. In a bilateral promise, it is necessary that the
cause of the contract. thing be determinate and the price already
A simple mistake of account shall give rise to its fixed.
correction. (1266a) 4. It gives the right to demand fulfillment of the
contract but does not pass title or dominion
CC Art. 1338 over the property.
There is fraud when, through insidious words or
machinations of one of the contracting parties, the
other is induced to enter into a contract which,
without them, he would not have agreed to. (1269) 25
SORIANO V BAUTISTA: An option to buy attached to a
24
real estate mortgage is a valid stipulation, and the
2. OPTION CONTRACT mortgagor’s promise to sell is supported by the same
consideration as that of the mortgage itself, which is distinct
CC Art. 1479 and from that which would support the sale, an additional
amount having been agreed upon to make up the entire price
A promise to buy and sell a determinate thing for a
of P3,900 should the option be exercised. (NOTE: The
price certain is reciprocally demandable. significance of this ruling is that it shows the wide range of
An accepted unilateral promise to buy or to sell a “consideration” that can validly support an option contract,
e.g., the real mortgage itself);
determinate thing for a price certain is binding SANCHEZ V RIGOS: (NOTE: The significance of this ruling is
upon the promissor if the promise is supported by that it shows that the only importance of a consideration for
a consideration distinct from the price. (1451a) an option is that the option cannot be withdrawn by the
grantor during the stipulated period.)
26
EQUATORIAL REALTY DEVELOPMENT, INC. V MAYFAIR
CC Art. 1324
THEATER: In the present case, no fixed price is stated in the
When the offerer has allowed the offeree a certain contract of lease of the property in case of sale. Therefore, it
period to accept, the offer may be withdrawn at cannot be an option contract; it is more akin to a right of first
any time before acceptance by communicating refusal, in which no separate consideration is required as it is
such withdrawal, except when the option is already included in the reciprocal obligations of the parties in
the contract of lease. Although it cannot be legally categorized
founded upon a consideration, as something paid
as an option, it is nevertheless a valid and binding stipulation
or promised. (n) between the parties.
PARAÑAQUE KINGS ENTERPRISES V CA: The basis of the
ELEMENTS OF A VALID OPTION CONTRACT right of first refusal must be the current offer to sell of the
1. Consent seller of offer to purchase of any prospective buyer. Only after
could the owner validly offer to sell the property to a third
person under the same terms as offered to the grantee
27
DE LA CAVADA V DIAZ: A promise made by one party, if
in accordance with the form required by law, may be a good
24
DE LA CAVADA V DIAZ: An option contract is a privilege consideration for a promise made by another. In this case, the
existing in one person, for which he had paid a consideration defendant promised to convey the land as soon as they
and which gives him the right to buy certain merchandise or become registered. The plaintiff promised to pay the
certain specified property, from another person, if he chooses, defendant the price in accordance with the terms of their
at any time within the agreed period at a fixed price contract. An option contract is a privilege existing in one
LIMSON V CA: An option is not of itself a purchase, but person for which he had paid a consideration, which gives him
merely secures the privilege to buy. It is not a sale of the right to buy during the certain period. The contract of
property, but a sale of the right to purchase. Its distinguishing option, being different from the contract, may be entered into
characteristic is that it imposes no binding obligation on the by the parties upon the consummation of the option, its
person holding the option, aside from the consideration for the consideration is likewise entirely different.
offer. Although the consideration of P20,000 was referred to
as earnest money, such was not an earnest money. Rather, it
was an option money.

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VI. Formation of Contract of Sale Sales

PERFECTION STAGE28 Considered payment of part of the price; proof


of perfection of the contract; may be given as a
guarantee that the vendee would not back out.
1. WHEN DEVIATION ALLOWED

The rule that “acceptance must be absolute” is EARNEST MONEY OPTION MONEY
not really absolute because certain deviations may (LIMSON V. CA –
be made in the acceptance. Even with such FOOTNOTE 24)
deviations, the offer will still be converted into a Part of the purchase Distinct consideration for
valid and binding contract. price an option contract

2. SALE BY AUCTION Given only when there is Given when the sale is not
already a sale yet perfected
CC Art. 1476. In the case of a sale by auction:
1. Where goods are put up for sale by auction in When given, the buyer is When given, the would-be
bound to pay the balance buyer is not bound to pay
lots, each lot is the subject of a separate
the balance; he may even
contract of sale.
forfeit it
2. A sale by auction is perfected when the
auctioneer announces its perfection by the fall
of the hammer, or in other customary manner. 4. PLACE OF PERFECTION
Until such announcement is made, any bidder
may retract his bid; and the auctioneer may (See Art. 1319 at page 15) – where the offer was
withdraw the goods from the sale unless the made
auction has been announced to be without
reserve. FORMALITIES OF THE CONTRACT
3. A right to bid may be reserved expressly by or
on behalf of the seller, unless otherwise
1. GENERAL RULE: FORM NOT IMPORTANT
provided by law or by stipulation.
4. Where notice has not been given that a sale by
CC Art. 1483
auction is subject to a right to bid on behalf of
Subject to the provisions of the Statute of Frauds
the seller, it shall not be lawful for the seller to
and of any other applicable statute, a contract of
bid himself or to employ or induce any person
sale may be made in writing, or by word of mouth,
to bid at such sale on his behalf or for the
or partly in writing and partly by word of mouth, or
auctioneer, to employ or induce any person to
may be inferred from the conduct of the parties.
bid at such sale on behalf of the seller or
(n)
knowingly to take any bid from the seller or any
person employed by him. Any sale contravening
CC Art. 1358
this rule may be treated as fraudulent by the
The following must appear in a public document:
buyer. (n)
1. Acts and contracts which have for their object
the creation, transmission, modification or
 Contract is perfected when the auctioneer
extinguishment of real rights over immovable
accepts the bid by the fall of the hammer or
property; sales of real property or of an interest
gavel or in any other customary manner.
therein a governed by Articles 1403, No. 2, and
 If auction is announced to be “without
1405;
reserve,” goods cannot be withdrawn from the
2. The cession, repudiation or renunciation of
sale after the bid is made.
hereditary rights or of those of the conjugal
 By taking part in the auction and offering
partnership of gains;
bidding, the buyer voluntarily submitted to
3. The power to administer property, or any other
the terms and conditions of the auction sale
power which has for its object an act appearing
announced in the notice.
or which should appear in a public document, or
 Puffing/by-bidding – means employed by
should prejudice a third person;
owner to increase the price of the bids; illegal.
4. The cession of actions or rights proceeding from
an act appearing in a public document.
3. EARNEST MONEY (CF. OPTION MONEY)
2. EXCEPTIONS
CC Art. 1482
Whenever earnest money is given in a contract of
A. STATUTE OF FRAUDS
sale, it shall be considered as part of the price and
as proof of the perfection of the contract. (1454a)
CC Art. 1403.
The following contracts are unenforceable, unless
PAYMENT OF EARNEST MONEY
they are ratified:
2. Those that do not comply with the Statute of
28 Frauds as set forth in this number. In the
FULE V CA: Contracts are perfected by mere consent. From
this moment, the parties are bound not only to fulfillment of following cases an agreement hereafter made
what has been expressly stipulated but also to all shall be unenforceable by action, unless the
consequences which, according to their nature, may be in same, or some note or memorandum, thereof,
keeping with good faith, usage and law. Being consensual, a be in writing, and subscribed by the party
contract of sale has the force of law and they are expected to
abide in good faith by their contractual commitments.
charged, or by his agent; evidence, therefore,

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VI. Formation of Contract of Sale Sales
of the agreement cannot be received without C. SALE OF LARGE CATTLE
the writing, or a secondary evidence of its
contents: Revised Administrative Code Sec. 529
a. An agreement that by its terms is not to be No transfer of large cattle shall be valid unless the
performed within a year from the making same is registered and a certificate of transfer
thereof; obtained as herein provided; but large cattle under
d. An agreement for the sale of goods, chattels two years of age may be registered and branded
or things in action, at a price not less than gratis for the purpose of effecting a valid transfer
five hundred pesos, unless the buyer accept are made at the same time.
and receive part of such goods and chattels,
or the evidences, or some of them, of such  Registration is made with the municipal
things in action or pay at the time some part treasurer.
of the purchase money; but when a sale is
made by auction and entry is made by the D. SECONDARY EVIDENCE
auctioneer in his sales book, at the time of
the sale, of the amount and kind of property Before secondary evidence may be introduced
sold, terms of sale, price, names of the of the terms of the sale, due execution and
purchasers and person on whose account subsequent loss of the original instrument must be
the sale is made, it is a sufficient proved.
memorandum;
e. An agreement of the leasing for a longer Due execution
period than one year, or for the sale of real May be proved by the testimony of the person
property or of an interest therein; who executed it, the person before whom its
execution was acknowledged, or any person who
CC Art. 1405 was present and saw it executed and delivered, or
Contracts infringing the Statute of Frauds, referred whom, after its execution and delivery, saw it and
to in No. 2 of Article 1403, are ratified by the recognized the signatures, or by a person to whom
failure to object to the presentation of oral the parties to the instrument had previously
evidence to prove the same, or by the acceptance confessed the execution thereof.
of benefit under them.
E. RA 8792 -- ELECTRONIC COMMERCE ACT
Purpose of statute [PERTINENT PROVISIONS PROVIDED INFRA]
To prevent fraud and perjury in the
enforcement of obligations depending for their Sec. 7. Legal Recognition of Electronic documents
evidence upon the unassisted memory of Electronic documents shall have the legal effect,
witnesses. validity or enforceability as any other document or
legal writing, and-
Exceptions to statute of frauds a. Where the law requires a document to be in
1. When there is a note or memorandum thereof writing, that requirement is met by an
in writing, and subscribed by the party charged electronic document if the said electronic
or his agent document maintains its integrity and
2. When there has been partial consummation reliability and can be authenticated so as to
3. When there has been a failure to object to the be usable for subsequent reference, in that
presentation of evidence i. The electronic document has remained
4. Sales through electronic commerce complete and unaltered, apart from the
addition of any endorsement and any
B. SALE OF REALTY THROUGH AN AGENT authorized change, or any change which
arises in the normal course of
CC Art. 1874 communication, storage and display; and
When a sale of a piece of land or any interest ii. The electronic document is reliable in the
therein is through an agent, the authority of the light of the purpose for which it was
latter shall be in writing; otherwise, the sale shall generated and in the light of all relevant
be void. (n) circumstances.
b. Paragraph (a) applies whether the
 The agent’s authority to sell should be in requirement therein is in the form of an
writing; otherwise, void29. obligation or whether the law simply
provides consequences for the document not
being presented or retained in its original
from.
c. Where the law requires that a document be
presented or retained in its original form,
29
CITY LITE REALTY V CA: There was no perfected contract that requirement is met by an electronic
between F.P. Holdings and City Lite. Art. 1874 provides that document if-
when the sale of the piece of land or any interest therein is
through an agent, the authority of the agent shall be in
i. There exists a reliable assurance as to
writing; otherwise, the sale shall be void. The absence of the the integrity of the document from the
authority to sell can be determined from the written time when it was first generated in its
memorandum issued by F.P. Holding’s president, requesting final from; and
Metro Drug’s assistance in finding buyers. Final evaluation,
appraisal and acceptance can only be made by F.P. Holdings.

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VI. Formation of Contract of Sale Sales
ii. That document is capable of being for the purpose of verifying the originator of
displayed to the person to whom it is to an electronic data message or electronic
be presented: Provided, That no document, or detecting error or alteration in
provision of this Act shall apply to vary the communication, content or storage of an
any and all requirements of existing laws electronic document or electronic data
on formalities required in the execution message from a specific point, which, using
of documents for their validity. algorithms or codes, identifying words or
For evidentiary purposes, an electronic document numbers, encryptions, answers back or
shall be the functional equivalent of a written acknowledgement procedures, or similar
document under existing laws. security devices.

This Act does not modify any statutory any The Supreme Court may adopt such other
statutory rule relating to admissibility of electronic authentication procedures, including the use of
data massages or electronic documents, except the electronic notarization systems as necessary and
rules relating to authentication and best evidence. advisable, as well as the certificate of
authentication on printed or hard copies of the
Sec. 8. Legal Recognition of Electronic Signatures electronic documents or electronic data messages
An electronic signature on the electronic document by electronic notaries, service providers and other
shall be equivalent to the signature of a person on duly recognized or appointed certification
a written document if the signature is an electronic authorities.
signature and proved by showing that a prescribed The person seeking to introduce an electronic data
procedure, not alterable by the parties interested in message or electronic document in any legal
the electronic document, existed under which- proceeding has the burden of proving its
a. A method is used to identify the party authenticity by evidence capable of supporting a
sought to be bound and to indicate said finding that the electronic data message or
party's access to the electronic document electronic document is what the person claims it on
necessary for his consent or approval be.
through the electronic signature; In the absence of evidence to the contrary, the
b. Said method is reliable and appropriate for integrity of the information and communication
the purpose for which the electronic system in which an electronic data message or
document was generated or communicated, electronic document is recorded or stored may be
in the light of all circumstances, including established in any legal proceeding
any relevant agreement; a. By evidence that at all material times the
c. It is necessary for the party sought to be information and communication system or
bound, in or order to proceed further with other similar device was operating in a
the transaction to have executed or provided manner that did not affect the integrity of
the electronic signature; and the electronic data message or electronic
d. The other party is authorized and enable to document, and there are no other
verify the electronic signature and to make reasonable grounds to doubt the integrity of
the decision to proceed with the transaction the information and communication system;
authenticated by the same. b. By showing that the electronic data message
or electronic document was recorded or
Sec. 11. Authentication of Electronic Data stored by a party to the proceedings who is
Messages and Electronic Documents adverse in interest to the party using it; or
Until the Supreme Court by appropriate rules shall c. By showing that the electronic data message
have so provided, electronic documents, electronic or electronic document was recorded or
data messages and electronic signatures, shall be stored in the usual and ordinary course of
authenticated by demonstrating, substantiating business by a person who is not a party to
and validating a claimed identity of a user, device, the proceedings and who did not act under
or another entity is an information or the control of the party using the record.
communication system, among other ways, as
follows;
a. The electronic signatures shall be
authenticated by proof that a letter,
character, number or other symbol in
electronic form representing the persons
named in and attached to or logically
associated with an electronic data message,
electronic document, or that the appropriate
methodology or security procedures, when
applicable, were employed or adopted by
such person, with the intention of
authenticating or approving in an electronic
data message or electronic document;
b. The electronic data message or electronic
document shall be authenticated by proof
that an appropriate security procedure,
when applicable was adopted and employed

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VII. Transfer of Ownership Sales

VII. TRANSFER OF OWNERSHIP Sale on Return


 Ownership passes on delivery but buyer may
revest such ownership to the seller by
A. Manner of transfer returning or tendering goods within the time
fixed or within a reasonable time
 As opposed to a Conditional Sale (where title
CC Art. 1477
passes upon full payment or satisfaction of
The ownership of the thing sold shall be transferred
condition passing of legal title), in sale on
to the vendee upon the actual or constructive
return, title passes on delivery
delivery thereof. (n)
Sale on Approval
CC Art. 1496
 Title passes – in case of goods sent to the
The ownership of the thing sold is acquired by the
buyer on the hope that the latter will find
vendee from the moment it is delivered to him in
them satisfactory and order that type of goods
any of the ways specified in Articles 1497 to 1501,
– when the goods are used or when they were
or in any other manner signifying an agreement
retained beyond a reasonable time
that the possession is transferred from the vendor
to the vendee. (n)
Executory Sales
 Ownership of the thing shall not pass until the
1. GENERAL RULE
price is fully paid
 Seller may reserve the right of possession or
Ownership of thing shall transfer to the vendee
ownership in the goods until certain conditions
upon the ACTUAL or CONSTRUCTIVE DELIVERY of
have been fulfilled
the thing sold30
B. EXPRESS RESERVATION
OR: any manner signifying an agreement that
possession is transferred from vendor to vendee
CC Art. 1478
(Art. 1496)
The parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has
 Contract of sale constitutes a RIGHT to
fully paid the price. (n)
TRANSFER or ACQUISITION of OWNERSHIP
 Delivery is the method of accomplishing this
C. IMPLIED RESERVATION
right
CC Art. 1503
2. EXCEPTIONS
When there is a contract of sale of specific goods,
the seller may, by the terms of the contract,
A. SALE ON APPROVAL, TRIAL, OR SATISFACTION
reserve the right of possession or ownership in the
goods until certain conditions have been fulfilled.
CC Art. 1502
The right of possession or ownership may be thus
When goods are delivered to the buyer "on sale or
reserved notwithstanding the delivery of the goods
return" to give the buyer an option to return the
to the buyer or to a carrier or other bailee for the
goods instead of paying the price, the ownership
purpose of transmission to the buyer.
passes to the buyer of delivery, but he may revest
the ownership in the seller by returning or
tendering the goods within the time fixed in the B. Kinds of Delivery
contract, or, if no time has been fixed, within a
reasonable time. (n) 1. REAL DELIVERY

 When goods are delivered to the buyer on CC Art. 1497


approval or on trial or on satisfaction, or other The thing sold shall be understood as delivered,
similar terms, the ownership therein passes to when it is placed in the control and possession of
the buyer: the vendee. (1462a)
1. When he signifies his approval or
acceptance to the seller or does any other  “Delivered” – when placed in the control and
act adopting the transaction; possession of the vendee; conveyance of
2. If he does not signify his approval or ownership without prejudice to the right of
acceptance to the seller, but retains the vendor to claim payment of the price31
goods without giving notice of rejection,
then if a time has been fixed for the return
of the goods, on the expiration of such
time, and, if no time has been fixed, on
the expiration of a reasonable time. What
is a reasonable time is a question of fact.
31
BEAN V. CADWALLER: Actual manual delivery of an article
sold is not essential to the passing of the title thereto (art
30
KUENZIE V. MACKE & CHANDLER: the ownership of 1450, Civil Code) unless made so by the terms of the contract
personal property can not be transferred to the prejudice of or by an understanding of the parties. The parties to the
third persons except by delivery of the property itself; and contract may agree when and on what conditions the property
that a sale without delivery gives the would-be purchaser no in the subject of the contract was passed to the prospective
rights in said property except those of a creditor owner

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VII. Transfer of Ownership Sales
transferred to the possession of the vendee at the
2. CONSTRUCTIVE DELIVERY time of the sale, or if the latter already had it in his
possession for any other reason. (1463a)
SYMBOLIC
Traditio Brevi Manu33
CC Art. 1498 Delivery of movable property takes place when
When the sale is made through a public the vendee had the thing already in his possession
instrument, the execution thereof shall be before the sale took place, not as owner but as
equivalent to the delivery of the thing which is the lessee, borrower or depositary.
object of the contract, if from the deed the
contrary does not appear or cannot clearly be Traditio Constitutum Possessorium
inferred.
With regard to movable property, its delivery may CC Art. 1500
also be made by the delivery of the keys of the There may also be tradition constitutum
place or depository where it is stored or kept. possessorium. (n)
(1463a)
 In traditio constitutum possessorium, the
Delivery by public instrument 32 vendor remains in possession of the property
 When sale is made through a public sold, by virtue of a lease agreement with the
instrument, the EXECUTION thereof shall be vendee34.
equivalent to delivery IF from the deed the  Vendee became as lessor, the legal possessor
contrary does not appear while the vendor is in material possession of
» operates as formal/symbolic delivery the property in the name and representation
» authorizes buyer to use such document as of the vendee.
proof of ownership
 Symbolic delivery may produce the effect of 3. DELIVERY TO COMMON CARRIER
tradition if vendor have had such control over
the thing sold that at the moment of the sale, CC Art. 1503
its material delivery could have been made When there is a contract of sale of specific goods,
 GENERAL RULE: he who purchases through a the seller may, by the terms of the contract,
public instrument should be deemed a reserve the right of possession or ownership in the
“possessor in fact” and this presumption goods until certain conditions have been fulfilled.
should give way before proof to the contrary The right of possession or ownership may be thus
 A person must be in ACTUAL POSSESSION to reserved notwithstanding the delivery of the goods
be able to transfer CONSTRUCTIVE to the buyer or to a carrier or other bailee for the
POSSESSION through public instrument purpose of transmission to the buyer.

Traditio Longa Manu


Delivery takes place when the thing is placed 33
HEIRS OF PEDRO ESCANLAR V. CA: The September 15,
in the sight of the purchaser so that he can take 1978 sale of rights, interests and participation as to 1/2
possession of it at pleasure portion pro indiviso of the two subject lots is a contract of sale
for the following reasons: First, private respondents as sellers
did not reserve unto themselves the ownership of the property
CC Art. 1499 until full payment of the unpaid balance of P225,000.00.
The delivery of movable property may likewise be Second, there is no stipulation giving the sellers the right to
made by the mere consent or agreement of the unilaterally rescind the contract the moment the buyer fails to
contracting parties, if the thing sold cannot be pay within the fixed period. 24 Prior to the sale, petitioners
were in possession of the subject property as lessees. Upon
sale to them of the rights, interests and participation as to the
32
FLORENDO V. FOZ: It is the material delivery of the 1/2 portion pro indiviso, they remained in possession, not in
property sold which the defendant must make in compliance concept of lessees anymore but as owners now through
with the contract, inasmuch as the formal delivery de jure was symbolic delivery known as traditio brevi manu. Under Article
made, according to the provisions of article 1462, 2nd 1477 of the Civil Code, the ownership of the thing sold is
paragraph, of the same code: When the sale should be made acquired by the vendee upon actual or constructive delivery
by means of a public instrument, the execution thereof shall thereof
34
be equivalent to the delivery of the thing which is the object BAUTISTA V SIOSON: Even if the vendor sells the
of the contract, if in said instrument the contrary does not property again to another, the second purchaser cannot
appear or may be clearly inferred. As the contrary does not acquire ownership as he bought the property from a mere
appear nor is to be inferred from the public instrument tenant. In a case which frequently occurs, where the vendor,
executed by the defendant, its execution was really a formal on the same date on which the deed of sale is executed, by
or symbolical delivery of the property sold and authorized the means of a constitutum possessorium agreement converts
plaintiff to use the tile of ownership as proof that he was himself into a tenant or lessee of the property that he sold,
thenceforth the owner of the property; and continues in possession thereof as such tenant, the
MASALLO V. CESAR: As Matea Crispino admits, however, purchaser who acquired the property through delivery or
that she did not have possession of the land when she symbolic tradition, with all the consequent effects of a deed of
executed and delivered her deed to plaintiff, the mere conveyance, is deemed to be in possession thereof by the
execution and delivery of the deed did not constitute a express will of the contracting parties, and therefore, it must
delivery of possession be recognized that, through such constitutum possessorium
SPOUSES VELARDE V. CA: The general rule, therefore, is agreement, the purchaser, who by that covenant becomes the
that the execution of public instrument has the same legal lessor, is in lawful possession of the leased property, and that
effects as actual or physical delivery, i.e., it transfers the vendor, by the same covenant, converted himself into the
ownership of the subject matter to the buyer, and constitutes lessee and is in material possession of the leased property in
valid compliance by the seller of his obligations under the the name and representation of the purchaser, its lawful
contract of sale. owner.

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VII. Transfer of Ownership Sales
Where goods are shipped, and by the bill of lading TERMS, “F.O.B.”; “C.I.F.”; “F.A.S.”
the goods are deliverable to the seller or his agent,
or to the order of the seller or of his agent, the f.o.b.
seller thereby reserves the ownership in the goods. “Free on board” means that the seller bears
But, if except for the form of the bill of lading, the expenses of transportation up to the f.o.b. point.
ownership would have passed to the buyer on
shipment of the goods, the seller's property in the c.i.f.
goods shall be deemed to be only for the purpose “Cost, insurance, freight” signifies that the
of securing performance by the buyer of his price quoted includes the costs of the goods,
obligations under the contract. insurance, and freight charges on the goods up to
Where goods are shipped, and by the bill of lading the place of destination
the goods are deliverable to order of the buyer or
of his agent, but possession of the bill of lading is f.a.s.
retained by the seller or his agent, the seller “Free alongside” means that the seller bears
thereby reserves a right to the possession of the the expenses of transportation until he delivers the
goods as against the buyer. goods alongside a vessel at a named post.

Where the seller of goods draws on the buyer for  These terms may be used only in connection
the price and transmits the bill of exchange and bill with fixing the price and will not be construed
of lading together to the buyer to secure as fixing the place of delivery to the buyer
acceptance or payment of the bill of exchange, the  Best indication of the intention of parties as to
buyer is bound to return the bill of lading if he does the place of delivery is the manner and place
not honor the bill of exchange, and if he wrongfully of payment agreed upon by the parties
retains the bill of lading he acquires no added right » Where price is payable upon proof of
thereby. If, however, the bill of lading provides shipment, then the buyer agrees to accept
that the goods are deliverable to the buyer or to delivery at the point of shipment
the order of the buyer, or is indorsed in blank, or » Where the price is payable only upon
to the buyer by the consignee named therein, one arrival of the goods at the point of
who purchases in good faith, for value, the bill of destination, then that is the place of
lading, or goods from the buyer will obtain the delivery to the buyer
ownership in the goods, although the bill of
exchange has not been honored, provided that EFFECT OF FORM OF BILL OF LADING
such purchaser has received delivery of the bill of  Ownership is retained: The seller may consign
lading indorsed by the consignee named therein, or the goods to himself or to his agent and thus
of the goods, without notice of the facts making prevent title from passing to the buyer until
the transfer wrongful. (n) the latter pays the price
 Mere possession is retained: The seller may
CC Art. 1523 consign the goods to the order of the buyer on
Where, in pursuance of a contract of sale, the the latter’s agent but by retaining the bill of
seller is authorized or required to send the goods lading, he thereby prevents the buyer from
to the buyer, delivery of the goods to a carrier, obtaining the goods from the carrier until
whether named by the buyer or not, for the price is paid
purpose of
Unless otherwise agreed, where goods are sent by C. Double Sales
the seller to the buyer under circumstances in
which the seller knows or ought to know that it is
CC Art. 1544
usual to insure, the seller must give such notice to
If the same thing should have been sold to
the buyer as may enable him to insure them during
different vendees, the ownership shall be
their transit, and, if the seller fails to do so, the
transferred to the person who may have first taken
goods shall be deemed to be at his risk during such
possession thereof in good faith, if it should be
transit. (n)
movable property.
GENERAL RULE Should it be immovable property, the ownership
Delivery of goods to carrier is considered shall belong to the person acquiring it who in good
delivery to the buyer, and hence, title passed to faith first recorded it in the Registry of Property.
the buyer at the point of shipment Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in
EXCEPTION the possession; and, in the absence thereof, to the
Seller may reserve title by the form of the bill person who presents the oldest title, provided
of lading with intent to remain the owner for all there is good faith. (1473)
purposes and not merely for the sole purpose of
securing payment, or unless contrary intent  If the same thing should have been sold by
appears in the contract of sale the owner to different buyers, the question as
to who of the latter acquired ownership
depends on the nature of the thing sold.

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VII. Transfer of Ownership Sales
GENERAL RULE
Prior tempore, prior jure35 Exception to the Exception
SALE OF MOVABLES36 Above rule does not apply to lands registered
under Act 496 which provides that registration of
CC Art. 1544 (1) instruments shall be the “operative act to convey
If the same thing should have been sold to and affect the land”; hence, prior unrecorded sale
different vendees, the ownership shall be cannot prejudice execution sales if no third-party
transferred to the person who may have first taken claim was presented before the execution sale took
possession thereof in good faith, if it should be place. [Third persons are not required to go beyond
movable property. the register and determine the condition of the
property.]
SALE OF IMMOVABLES
UNREGISTERED LAND
CC Art. 1544 (2)
Should it be immovable property, the ownership P.D. 1529, Sec. 113
shall belong to the person acquiring it who in good Recording of instruments relating to unregistered
faith first recorded it in the Registry of Property. lands. - No deed, conveyance, mortgage, lease, or
other voluntary instrument affecting land not
 To be entitled to priority, the second buyer registered under the Torrens system shall be valid,
must not only show prior recording of his deed except as between the parties thereto, unless such
but must have acted in good faith, without instrument shall have been recorded in the manner
knowledge of the existence of another herein prescribed in the office of the Register of
alienation by the vendor to another Deeds for the province or city where the land lies.
 POSSESSOR IN GOOD FAITH: one who is not a. The Register of Deeds for each province or
aware that there exists in his title or mode of city shall keep a Primary Entry Book and a
acquisition any flaw which invalidates it Registration Book. The Primary Entry Book
» good faith is always presumed; burden of shall contain, among other particulars, the
proof is on person alleging bad faith entry number, the names of the parties, the
» good faith of second buyer must continue nature of the document, the date, hour and
until his contract ripens into ownership by minute it was presented and received. The
tradition or recording recording of the deed and other instruments
» as to Torrens title: it is enough that relating to unregistered lands shall be
purchaser examines the latest certificate of effected by any of annotation on the space
title issued in the name of his vendor and provided therefor in the Registration Book,
he need not trace its origin to prior after the same shall have been entered in
certificates of title the Primary Entry Book.
b. If, on the face of the instrument, it appears
SALE BY VIRTUE OF EXECUTION OR ATTACHMENT that it is sufficient in law, the Register of
Deeds shall forthwith record the instrument
General Rule in the manner provided herein. In case the
Article 1544 not applicable to execution sales Register of Deeds refuses its administration
because the purchaser at such sales is substituted to record, said official shall advise the party
to or acquires whatever rights, title or interests the in interest in writing of the ground or
judgment debtor may have over the property as of grounds for his refusal, and the latter may
the time of levy. [It is the duty of the purchaser, appeal the matter to the Commissioner of
before bidding, to ascertain the rights of the Land Registration in accordance with the
judgment debtor over the property.] provisions of Section 117 of this Decree. It
shall be understood that any recording made
Exception under this section shall be without prejudice
Attachment or execution cannot prejudice prior to a third party with a better right.
unrecorded sales made by the judgment debtor, c. After recording on the Record Book, the
and is preferred only over claims contracted Register of Deeds shall endorse among other
subsequent to its recording things, upon the original of the recorded
instruments, the file number and the date as
well as the hour and minute when the
35
CARBONELL V CA: Jose Poncio sold his lot to Carbonell on document was received for recording as
27 Jan 1955 and 4 days later sold the same property to shown in the Primary Entry Book, returning
Infante. A formal deed of sale was executed in favor of to the registrant or person in interest the
Infante. Carbonell, upon seeing Infante building a wall around
duplicate of the instrument, with appropriate
the lot, registered an adverse claim on the property. The deed
of sale in favor of Infante was later registered and the latter annotation, certifying that he has recorded
was thereafter in possession of the lot. Held: The second sale the instrument after reserving one copy
was not valid. As there in inscription, prior registration in good thereof to be furnished the provincial or city
faith is pre-condition to a superior title. Carbonell registered assessor as required by existing law.
her adverse claim four days before the registration of the
property by Infante.
d. Tax sale, attachment and levy, notice of lis
36
RIVERA V ONG: Ong Che has a better title to the property pendens, adverse claim and other
(over which he and Rivera had overlapping claims). He was a instruments in the nature of involuntary
purchaser of the articles in good faith, acquired possession by dealings with respect to unregistered lands,
virtue of his purchase, and therefore has a better title than if made in the form sufficient in law, shall
the first purchaser.

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VII. Transfer of Ownership Sales
likewise be admissible to record under this
section.
e. For the services to be rendered by the
Register of Deeds under this section, he
shall collect the same amount of fees
prescribed for similar services for the
registration of deeds or instruments
concerning registered lands.

 Registration requirement is understood to be


without prejudice to third party with a better
right37
 Mere registration of sale in one’s favor does
not give him any right over the land:
» if the vendor was not the owner of the land
» if the vendor has already parted with his
ownership before such sale in favor of third
party who had previously taken possession
of the land, even though the prior sale was
unrecorded
 A person having a “better right” would be one
who had previously acquired ownership
thereof through the modes of acquiring
ownership under the Civil Code: tradition as a
result of sale, donation, succession and
prescription38

FIRST IN POSSESSION IN GOOD FAITH


If neither vendee registered the sale in his
favor or registration was done in bad faith, the
vendee who was first in possession in good faith
acquired ownership of the land39

OLDEST TITLE
If neither of the vendees registered their deeds
of sale nor acquired possession of the land sold,
the one who can present the oldest title provided
there is good faith, has the better right.

“Older title” means any document showing


acquisition of the land in good faith, like a deed of
sale or a receipt for the price;

Public document is not included as there is


delivery thru a public instrument, unless the
contrary can be clearly inferred therefrom

37
NAAWAN RURAL BANK V. CA: It is a well-known rule in
this jurisdiction that persons dealing with registered land have
the legal right to rely on the face of the Torrens Certificate of
Title and to dispense with the need to inquire further, except
when the party concerned has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to
make such inquiry.
38
HANOPOL V PILAPIL: A better right which is unrecorded
and which would prevail over a recorded sale is one which was
gained independently of the sale, as title by prescription.
39
SANCHEZ V RAMOS: Delivery may be actual or
constructive. Thus, if the first sale is evidenced in a public
instrument, there is delivery of the thing sold, if the contrary
does not appear in the deed.
QUIMSON V ROSETE: Possession includes not only material
but also symbolic possession which is acquired through the
execution of a public instrument. As the land was considered
delivered by the execution of the public instrument, the
vendor remained in possession by mere tolerance of the first
vendee. Hence, when the land was sold again to defendant,
the vendor did not transmit anything to him, and the
possession of the latter was a mere detainer. The first vendee
acquired ownership by delivery thru the execution of a public
instrument.

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VIII. Risk of Loss or Deterioration Sales

VIII. RISK OF LOSS OR DETERIORATION » Buy the remainder at a proportionate price


3. WHEN LOSS OCCURS AFTER PERFECTION
BUT BEFORE DELIVERY
A. General Rule
CC Art. 1496
The ownership of the thing sold is acquired by the
CC Art. 1263
vendee from the moment it is delivered to him in
In an obligation to deliver a generic thing, the loss
any of the ways specified in Articles 1497 to 1501,
or destruction of anything of the same kind does
or in any other manner signifying an agreement
not extinguish the obligation. (n)
that the possession is transferred from the vendor
to the vendee. (n)
 An obligation to deliver a generic thing is not
extinguished by loss because genus never
CC Art. 1504
perishes.
Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is
NOTE that the next 3 situations contemplate loss of transferred to the buyer, but when the ownership
specific things therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been
1. WHEN LOSS OCCURS BEFORE PERFECTION made or not, except that:
1. Where delivery of the goods has been made to
When loss occurred before perfection, it is the buyer or to a bailee for the buyer, in
borne by the seller. This is because ownership is pursuance of the contract and the ownership in
still with him40. the goods has been retained by the seller
merely to secure performance by the buyer of
2. WHEN LOSS OCCURS AT THE TIME OF his obligations under the contract, the goods
PERFECTION are at the buyer's risk from the time of such
delivery;
CC Art. 1493 2. Where actual delivery has been delayed through
If at the time the contract of sale is perfected, the the fault of either the buyer or seller the goods
thing which is the object of the contract has been are at the risk of the party in fault. (n)
entirely lost, the contract shall be without any
effect. CC Art. 1406
But if the thing should have been lost in part only, When a contract is enforceable under the Statute
the vendee may choose between withdrawing from of Frauds, and a public document is necessary for
the contract and demanding the remaining part, its registration in the Registry of Deeds, the parties
paying its price in proportion to the total sum may avail themselves of the right under Article
agreed upon. (1460a) 1357.

CC Art. 1494 CC Art. 1189


Where the parties purport a sale of specific goods, When the conditions have been imposed with the
and the goods without the knowledge of the seller intention of suspending the efficacy of an obligation
have perished in part or have wholly or in a to give, the following rules shall be observed in
material part so deteriorated in quality as to be case of the improvement, loss or deterioration of
substantially changed in character, the buyer may the thing during the pendency of the condition:
at his option treat the sale: 1. If the thing is lost without the fault of the
1. As avoided; or debtor, the obligation shall be extinguished;
2. As valid in all of the existing goods or in so 2. If the thing is lost through the fault of the
much thereof as have not deteriorated, and as debtor, he shall be obliged to pay damages; it
binding the buyer to pay the agreed price for is understood that the thing is lost when it
the goods in which the ownership will pass, if perishes, or goes out of commerce, or
the sale was divisible. (n) disappears in such a way that its existence is
unknown or it cannot be recovered;
 If at the time the sale is perfected, the thing 3. When the thing deteriorates without the fault of
had been lost entirely, the contract shall be the debtor, the impairment is to be borne by
ineffective. This is because there can be no the creditor;
contract without an object. 4. If it deteriorates through the fault of the debtor,
 The loss must have occurred before the the creditor may choose between the rescission
contract was entered into, without the of the obligation and its fulfillment, with
knowledge of both parties. indemnity for damages in either case;
 Options of buyer when there is partial loss and 5. If the thing is improved by its nature, or by
a loss which results in substantial change in time, the improvement shall inure to the benefit
character of the creditor;
» Withdraw from the contract 6. If it is improved at the expense of the debtor,
he shall have no other right than that granted
to the usufructuary. (1122)
40
ROMAN V GRIMALT: The sale was not perfected as the
buyer agreed to buy the vessel, provided that the title was in
proper form. As the vendor failed to perfect his title, the loss
was borne by him

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VIII. Risk of Loss or Deterioration Sales
CC Art. 1538
In case of loss, deterioration or improvement of the IX. DOCUMENTS OF TITLE
thing before its delivery, the rules in Article 1189
shall be observed, the vendor being considered the Document of title – a document used in the
debtor. (n) ordinary course of business in the sale or transfer
of goods, as proof of the possession or control of
 When loss occurs after perfection but before the goods, or authorizing or purporting to authorize
delivery, the seller bears the risk of loss. The the possessor of the document to transfer or
buyer does not bear the risk of loss until the receive, either by endorsement or by delivery,
goods are delivered, actually or goods represented by such document. (Art. 1636)44
constructively. This is because the rule is a
combination of the common-law rule that the The functions of documents of title are (1)
owner bears the risk of loss (res perit Evidence of the possession or control of the goods
domino), and the Roman law requiring described therein (2) Medium of transferring title
delivery to transfer ownership. and possession over the goods described therein
without having to effect actual delivery thereof
B. When ownership is transferred (Villanueva)

CC Art. 1511
GENERAL RULES A document of title which is not in such form that it
can be negotiated by delivery may be transferred
1. The risk of loss shall be borne by the owner. by the holder by delivery to a purchaser or donee.
2. Ownership is transferred upon delivery. A non-negotiable document cannot be negotiated
and the endorsement of such a document gives the
EXCEPTIONS transferee no additional right. (n)

1. Contrary stipulation41
2. Security title42 A. Negotiable documents of title
3. Delay through the fault of the buyer or the
seller43 – at the risk of the party at fault CC Art. 1507
A document of title in which it is stated that the
goods referred to therein will be delivered to the
bearer, or to the order of any person named in
such document is a negotiable document of title.
(n)

 Negotiable document of title – a document of


title in which it is stated that the goods
referred to therein will be delivered to the
bearer, or to the order of any person named
in such document.
41
SUN BROS. APPLIANCES V PEREZ: The law allows an
1. HOW NEGOTIATED
agreement which stipulates that (1) where goods are sold and
delivered to the buyer, the title is to remain in the seller until
full payment, [but] (2) the loss or destruction of the property CC Art. 1508
while in the possession of the buyer before payment, does not A negotiable document of title may be negotiated
relieve him from the obligation to pay the price; in which case, by delivery:
the buyer suffers the loss. The reasons for its validity are:
First, the absolute and unconditional nature of the vendee’s
1. Where by the terms of the document the
promise to pay for the goods. Second, the vendor has fully carrier, warehouseman or other bailee issuing
performed his contract and the vendee received what he the same undertakes to deliver the goods to the
bargained for. Third, the policy of providing an incentive to bearer; or
care properly for the goods, which is under the control and 2. Where by the terms of the document the
dominion of the vendee.
42
LAWYER’S COOP. V TABORA: Despite the loss of the carrier, warehouseman or other bailee issuing
books in a fire, the risk of loss would be borne by the buyer the same undertakes to deliver the goods to the
although he was not the owner yet. This is because the order of a specified person, and such person or
stipulation “ownership shall only be transferred upon full a subsequent endorsee of the document has
payment” was agreed merely to secure the performance by
indorsed it in blank or to the bearer.
the buyer of his obligation. Moreover, in the contract, it was
agreed that loss or damage to the books after delivery to the Where by the terms of a negotiable document of
buyer shall be borne by the buyer. title the goods are deliverable to bearer or where a
While under the rule, an obligor should be exempt from
liability when the loss occurs in a fortuitous event, this cannot
negotiable document of title has been indorsed in
be used by the buyer as a defense to exempt himself from blank or to bearer, any holder may indorse the
paying. His obligation does not pertain to the delivery of the same to himself or to any specified person, and in
subject matter, but to the payment of the purchase price. The
ability to pay in money or legal tender is never lost through a
44
fortuitous event. PHIL. TRUST CO. V NATIONAL BANK: The purpose of
43
NORTH NEGROS SUGAR CO. V CIA. GEN DE TABACOS: documents of title is that the seller is allowed by fiction of law
If there was delay in accepting delivery but there was to deal with the goods described therein as though he had
segregation of goods, such that place of delivery was at the physically delivered them to the buyer; and the buyer may
seller’s warehouse, the buyer bears the risk of loss. This is take the document of title as though he had actually taken
because the seller becomes merely a depositary. possession and control over the goods described therein

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IX. Documents of Title Sales
such case the document shall thereafter be person to whose order the goods were to be
negotiated only by the endorsement of such delivered by the terms of the document had or
endorsee. (n) had ability to convey to a purchaser in good
faith for value; and
CC Art. 1509 2. The direct obligation of the bailee issuing the
A negotiable document of title may be negotiated document to hold possession of the goods for
by the endorsement of the person to whose order him according to the terms of the document as
the goods are by the terms of the document fully as if such bailee had contracted directly
deliverable. Such endorsement may be in blank, to with him. (n)
bearer or to a specified person. If indorsed to a
specified person, it may be again negotiated by the  A person to whom a document has been
endorsement of such person in blank, to bearer or negotiated acquires
to another specified person. Subsequent » rights of the vendor
negotiations may be made in like manner. (n) » rights of the original consignee
 Thus, a buyer of a document of title may
CC Art. 1510 acquire a better title than his vendor, since he
If a document of title which contains an acquires the rights of the original consignee.
undertaking by a carrier, warehouseman or other
bailee to deliver the goods to bearer, to a specified 4. UNAUTHORIZED NEGOTIATION
person or order of a specified person or which
contains words of like import, has placed upon it CC Art. 1518
the words "not negotiable," "non-negotiable" or the The validity of the negotiation of a negotiable
like, such document may nevertheless be document of title is not impaired by the fact that
negotiated by the holder and is a negotiable the negotiation was a breach of duty on the part of
document of title within the meaning of this Title. the person making the negotiation, or by the fact
But nothing in this Title contained shall be that the owner of the document was deprived of
construed as limiting or defining the effect upon the possession of the same by loss, theft, fraud,
the obligations of the carrier, warehouseman, or accident, mistake, duress, or conversion, if the
other bailee issuing a document of title or placing person to whom the document was negotiated or a
thereon the words "not negotiable," "non- person to whom the document was subsequently
negotiable," or the like. (n) negotiated paid value therefor in good faith without
notice of the breach of duty, or loss, theft, fraud,
TERMS OF THE DOCUMENT HOW accident, mistake, duress or conversion. (n)
NEGOTIATED
 There is a conflict between Art. 1512 and Art.
 Goods are deliverable to By delivery of the 1518 since under Art. 1512, only the owner of
bearer document to the document or one to whom possession of
 Endorsed in blank by the another the document has been entrusted may
person to whose order the negotiate it. However, under Art. 1518, the
goods were deliverable validity of the negotiation of a negotiable
document of title is not impaired by the fact
Goods are deliverable to the By indorsement of
that the negotiation was a breach of duty on
order of a specified person such person
the part of the person making the negotiation,
or by the fact that the owner of the document
2. WHO MAY NEGOTIATE IT was deprived of the possession of the same
by loss, theft, fraud, accident, mistake,
CC Art. 1512 duress, or conversion. (Baviera)
A negotiable document of title may be negotiated:
1. By the owner therefor; or 5. IMPLIED WARRANTIES
2. By any person to whom the possession or
custody of the document has been entrusted by CC Art. 1516
the owner, if, by the terms of the document the A person who for value negotiates or transfers a
bailee issuing the document undertakes to document of title by endorsement or delivery,
deliver the goods to the order of the person to including one who assigns for value a claim secured
whom the possession or custody of the by a document of title unless a contrary intention
document has been entrusted, or if at the time appears, warrants:
of such entrusting the document is in such form 1. That the document is genuine;
that it may be negotiated by delivery. (n) 2. That he has a legal right to negotiate or transfer
it;
3. RIGHTS ACQUIRED BY NEGOTIATION 3. That he has knowledge of no fact which would
impair the validity or worth of the document;
CC Art. 1513 and
A person to whom a negotiable document of title 4. That he has a right to transfer the title to the
has been duly negotiated acquires thereby: goods and that the goods are merchantable or
1. Such title to the goods as the person fit for a particular purpose, whenever such
negotiating the document to him had or had warranties would have been implied if the
ability to convey to a purchaser in good faith for contract of the parties had been to transfer
value and also such title to the goods as the

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IX. Documents of Title Sales
without a document of title the goods B. Non-negotiable documents of title
represented thereby. (n)
1. HOW TRANSFERRED
CC Art. 1517
The endorsement of a document of title shall not CC Art. 1514
make the endorser liable for any failure on the part A person to whom a document of title has been
of the bailee who issued the document or previous transferred, but not negotiated, acquires thereby,
endorsers thereof to fulfill their respective as against the transferor, the title to the goods,
obligations. (n) subject to the terms of any agreement with the
transferor.
 A person who negotiates a document of title If the document is non-negotiable, such person
warrants also acquires the right to notify the bailee who
1. the genuineness and validity of the issued the document of the transfer thereof, and
document; thereby to acquire the direct obligation of such
2. his right to negotiate it; and, bailee to hold possession of the goods for him
3. all the warranties of a vendor of goods. according to the terms of the document.
 But he does not warrant that Prior to the notification to such bailee by the
1. the common carrier will fulfill its obligation transferor or transferee of a non-negotiable
to the deliver the goods; or document of title, the title of the transferee to the
2. the previous indorsers will fulfill their goods and the right to acquire the obligation of
obligation. such bailee may be defeated by the levy of an
attachment of execution upon the goods by a
6. CREDITOR’S RIGHT AGAINST THE GOODS creditor of the transferor, or by a notification to
such bailee by the transferor or a subsequent
CC Art. 1519 purchaser from the transfer of a subsequent sale of
If goods are delivered to a bailee by the owner or the goods by the transferor. (n)
by a person whose act in conveying the title to
them to a purchaser in good faith for value would 2. RIGHTS ACQUIRED BY TRANSFER OF
bind the owner and a negotiable document of title DOCUMENT OF TITLE
is issued for them they cannot thereafter, while in
possession of such bailee, be attached by CC Art. 1515
garnishment or otherwise or be levied under an Where a negotiable document of title is transferred
execution unless the document be first surrendered for value by delivery, and the endorsement of the
to the bailee or its negotiation enjoined. The bailee transferor is essential for negotiation, the
shall in no case be compelled to deliver up the transferee acquires a right against the transferor to
actual possession of the goods until the document compel him to endorse the document unless a
is surrendered to him or impounded by the court. contrary intention appears. The negotiation shall
(n) take effect as of the time when the endorsement is
actually made. (n)
CC Art. 1520
A creditor whose debtor is the owner of a  The law makes a distinction between
negotiable document of title shall be entitled to “negotiation” [negotiable document of title]
such aid from courts of appropriate jurisdiction by and “transfer” [non-negotiable document of
injunction and otherwise in attaching such title].
document or in satisfying the claim by means » Transfer
thereof as is allowed at law or in equity in regard to ▪ the assignment of rights of the
property which cannot readily be attached or levied consignee of a non-negotiable
upon by ordinary legal process. (n) document of title to another
▪ where an order document of title was
 Goods in the hands of the carrier covered by a sold or assigned, without indorsement
negotiable document cannot be attached or  The transferee does not acquire a better title
levied upon, UNLESS than his transferor [unlike in a negotiable
» the document be first surrendered to the document of title, where the buyer may
carrier; or acquire a better title].
» impounded by the court; or
» its negotiation be enjoined.

RATIONALE FOR THE RULE


A negotiable document of title represents the
goods; hence it is not allowable for a carrier to
deliver the goods without the surrender of the bill
of lading to them, or for the law to allow
attachment on the goods.

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X. Remedies of an Unpaid Seller Sales

X. REMEDIES OF AN UNPAID SELLER  If ownership had passed to the buyer but the
goods are still in the possession of the seller
or are in transit to the buyer: the unpaid
MEANING OF UNPAID SELLER seller could withhold delivery or stop the
goods in transit should the buyer become
insolvent. As a consequence of his lien over
CC Art 1524
the goods, the unpaid seller could resell the
The seller of goods is deemed to be an unpaid
goods to another or resume ownership over
seller within the meaning of this Title:
them, without court order, and may still used
1. When the whole of the price has not been paid
the buyer for damages
or tendered;
2. When a bill of exchange or other negotiable
1. LIEN
instrument has been received as conditional
payment, and the condition on which it was
CC Art 1527
received has been broken by reason of the
Subject to the provisions of this Title, the unpaid
dishonor of the instrument, the insolvency of
seller of goods who is in possession of them is
the buyer, or otherwise.
entitled to retain possession of them until payment
In Articles 1525 to 1535 the term "seller" includes or tender of the price in the following cases,
an agent of the seller to whom the bill of lading has namely:
been indorsed, or a consignor or agent who has 1. Where the goods have been sold without any
himself paid, or is directly responsible for the price, stipulation as to credit;
or any other person who is in the position of a 2. Where the goods have been sold on credit, but
seller. (n) the term of credit has expired;
3. Where the buyer becomes insolvent.
UNPAID SELLER
The seller may exercise his right of lien
notwithstanding that he is in possession of the
If the whole price has not been paid or
goods as agent or bailee for the buyer. (n)
tendered, or when the check received as
conditional payment was dishonored by non-
CC Art 1528
payment or insolvency of the buyer.
Where an unpaid seller has made part delivery of
the goods, he may exercise his right of lien on the
SELLER
remainder, unless such part delivery has been
Includes the agent of the seller to whom the
made under such circumstances as to show an
bill of lading was endorsed, or the consignor or
intent to waive the lien or right of retention. (n)
agent who had paid the price or is responsible for
the price, or any other person who is in the
CC Art 1529
position of a seller.
The unpaid seller of goods loses his lien thereon:
1. When he delivers the goods to a carrier or other
REMEDIES OF AN UNPAID SELLER bailee for the purpose of transmission to the
buyer without reserving the ownership in the
CC Art 1526 goods or the right to the possession thereof;
Subject to the provisions of this Title, 2. When the buyer or his agent lawfully obtains
notwithstanding that the ownership in the goods possession of the goods;
may have passed to the buyer, the unpaid seller of 3. By waiver thereof.
goods, as such, has: The unpaid seller of goods, having a lien thereon,
1. A lien on the goods or right to retain them for does not lose his lien by reason only that he has
the price while he is in possession of them; obtained judgment or decree for the price of the
2. In case of the insolvency of the buyer, a right of goods. (n)
stopping the goods in transitu after he has
parted with the possession of them;  The unpaid seller’s lien implies that he has a
3. A right of resale as limited by this Title; right to retain possession of the goods until
4. A right to rescind the sale as likewise limited by payment or tender of the whole price, unless
this Title. he agreed to sell on credit.
Where the ownership in the goods has not passed  If the unpaid seller agrees to sell on credit, he
to the buyer, the unpaid seller has, in addition to may refuse to deliver them if the buyer
his other remedies a right of withholding delivery becomes insolvent, or if the term of the credit
similar to and coextensive with his rights of lien had expired and the price has not been paid.
and stoppage in transitu where the ownership has  Loss of lien: the unpaid seller losses his lien
passed to the buyer. (n) when:
1. he delivers the goods to the carrier or
 If ownership over the goods had not yet other bailee, consigning them to the buyer
passed to the buyer: the seller, as owner, under a straight or non-negotiable bill of
could retain the goods or resell them to lading, or
another, without prejudice to his liability for 2. when the goods were delivered to the
damages for any breach of contract buyer, or
committed by him. 3. when he waived his lien.

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 It is not lost on the remainder of the goods possession of the goods or by giving notice of his
when only partial delivery was made, unless claim to the carrier or other bailee in whose
such was intended to operate as symbolical possession the goods are. Such notice may be
delivery of the whole. The lien is not lost by given either to the person in actual possession of
the mere fact that the seller had already the goods or to his principal. In the latter case the
obtained judgment for the price. notice, to be effectual, must be given at such time
 Revival of lien: the unpaid seller’s lien is and under such circumstances that the principal,
revived if the goods are returned by the buyer by the exercise of reasonable diligence, may
in wrongful repudiation of the contract. prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the
2. STOPPAGE IN TRANSITU seller to the carrier, or other bailee in possession of
the goods, he must redeliver the goods to, or
CC Art 1530 according to the directions of, the seller. The
Subject to the provisions of this Title, when the expenses of such delivery must be borne by the
buyer of goods is or becomes insolvent, the unpaid seller. If, however, a negotiable document of title
seller who has parted with the possession of the representing the goods has been issued by the
goods has the right of stopping them in transitu, carrier or other bailee, he shall not obliged to
that is to say, he may resume possession of the deliver or justified in delivering the goods to the
goods at any time while they are in transit, and he seller unless such document is first surrendered for
will then become entitled to the same rights in cancellation. (n)
regard to the goods as he would have had if he had
never parted with the possession. (n) CC Art 1533
Where the goods are of perishable nature, or
CC Art 1531 where the seller expressly reserves the right of
Goods are in transit within the meaning of the resale in case the buyer should make default, or
preceding article: where the buyer has been in default in the
1. From the time when they are delivered to a payment of the price for an unreasonable time, an
carrier by land, water, or air, or other bailee for unpaid seller having a right of lien or having
the purpose of transmission to the buyer, until stopped the goods in transitu may resell the goods.
the buyer, or his agent in that behalf, takes He shall not thereafter be liable to the original
delivery of them from such carrier or other buyer upon the contract of sale or for any profit
bailee; made by such resale, but may recover from the
2. If the goods are rejected by the buyer, and the buyer damages for any loss occasioned by the
carrier or other bailee continues in possession breach of the contract of sale.
of them, even if the seller has refused to
receive them back. Where a resale is made, as authorized in this
article, the buyer acquires a good title as against
Goods are no longer in transit within the meaning the original buyer.
of the preceding article:
1. If the buyer, or his agent in that behalf, obtains It is not essential to the validity of resale that
delivery of the goods before their arrival at the notice of an intention to resell the goods be given
appointed destination; by the seller to the original buyer. But where the
2. If, after the arrival of the goods at the right to resell is not based on the perishable nature
appointed destination, the carrier or other of the goods or upon an express provision of the
bailee acknowledges to the buyer or his agent contract of sale, the giving or failure to give such
that he holds the goods on his behalf and notice shall be relevant in any issue involving the
continues in possession of them as bailee for question whether the buyer had been in default for
the buyer or his agent; and it is immaterial that an unreasonable time before the resale was made.
further destination for the goods may have It is not essential to the validity of a resale that
been indicated by the buyer; notice of the time and place of such resale should
3. If the carrier or other bailee wrongfully refuses be given by the seller to the original buyer.
to deliver the goods to the buyer or his agent in
The seller is bound to exercise reasonable care and
that behalf.
judgment in making a resale, and subject to this
If the goods are delivered to a ship, freight train, requirement may make a resale either by public or
truck, or airplane chartered by the buyer, it is a private sale. He cannot, however, directly or
question depending on the circumstances of the indirectly buy the goods. (n)
particular case, whether they are in the possession
of the carrier as such or as agent of the buyer. CC Art 1534
If part delivery of the goods has been made to the An unpaid seller having the right of lien or having
buyer, or his agent in that behalf, the remainder of stopped the goods in transitu, may rescind the
the goods may be stopped in transitu, unless such transfer of title and resume the ownership in the
part delivery has been under such circumstances goods, where he expressly reserved the right to do
as to show an agreement with the buyer to give up so in case the buyer should make default, or where
possession of the whole of the goods. (n) the buyer has been in default in the payment of the
price for an unreasonable time. The seller shall not
CC Art 1532 thereafter be liable to the buyer upon the contract
The unpaid seller may exercise his right of of sale, but may recover from the buyer damages
stoppage in transitu either by obtaining actual

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for any loss occasioned by the breach of the possession, there is constructive possession of
contract. the whole.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has SALE OF GOODS IN TRANSIT
manifested by notice to the buyer or by some other The unpaid seller’s right of lien or stoppage in
overt act an intention to rescind. It is not transitu is not affected by any sale or other
necessary that such overt act should be disposition of the goods which the buyer may have
communicated to the buyer, but the giving or made unless the seller has assented thereto.
failure to give notice to the buyer of the intention
to rescind shall be relevant in any issue involving  Where a negotiable document of title has
the question whether the buyer had been in default been issued for the goods, no seller’s lien or
for an unreasonable time before the right of right of stoppage in transitu cannot defeat the
rescission was asserted. (n) rights of any purchaser for value in good faith
to whom such document has been negotiated.
CC Art 1535  Where the document of title is a straight bill of
Subject to the provisions of this Title, the unpaid lading, the seller’s right of stoppage will not
seller's right of lien or stoppage in transitu is not be cut off as the transferee acquires no
affected by any sale, or other disposition of the greater or added rights than his transferor.
goods which the buyer may have made, unless the
seller has assented thereto. RIGHT OF STOPPAGE; HOW EXERCISED
The unpaid seller may exercise his right by
If, however, a negotiable document of title has 1. obtaining actual possession of the goods or
been issued for goods, no seller's lien or right of 2. by giving notice of his claim to the carrier
stoppage in transitu shall defeat the right of any or other bailee in whose possession the
purchaser for value in good faith to whom such goods are.
document has been negotiated, whether such
negotiation be prior or subsequent to the When notice of stoppage in transit is given to
notification to the carrier, or other bailee who the carrier, the latte must redeliver the goods to,
issued such document, of the seller's claim to a lien or according to the directions of, the seller. If
or right of stoppage in transitu. (n) however, a negotiable document of title
representing the goods has been issued by the
 Old common law remedy which is an carrier, the latter shall not be obliged to deliver the
extension of the lien for the price and entitles goods unless such document is first surrendered
the unpaid seller to resume possession of the for cancellation.
goods while they are in transit before the
goods come in possession of the vendee if the 3. RESALE
later is or becomes insolvent.
 Goods are considered to be in transit from the CC Art 1533
time they are delivered to a carrier or other Where the goods are of perishable nature, or
bailee by the seller for the purpose of where the seller expressly reserves the right of
transmission to the buyer, until the buyer or resale in case the buyer should make default, or
his agent takes delivery of them from the where the buyer has been in default in the
carrier. To terminate the transit by delivery to payment of the price for an unreasonable time, an
a middleman, it must be delivery to keep, not unpaid seller having a right of lien or having
to transport. stopped the goods in transitu may resell the goods.
 Goods are still considered to be in transit even He shall not thereafter be liable to the original
if they reached their ultimate destination buyer upon the contract of sale or for any profit
when the buyer rejects them and they remain made by such resale, but may recover from the
in the possession of the carrier. buyer damages for any loss occasioned by the
 Goods are no longer in transit if the buyer or breach of the contract of sale.
his agent obtained delivery of the goods even
before they reached their ultimate destination, Where a resale is made, as authorized in this
or when the goods arrived at the ultimate article, the buyer acquires a good title as against
destination but the carrier or other bailee the original buyer.
wrongfully refuses to deliver the goods to the It is not essential to the validity of resale that
buyer or his agent, or when the carrier, upon notice of an intention to resell the goods be given
arrival of the goods at the ultimate by the seller to the original buyer. But where the
destination, enters into a new contract with right to resell is not based on the perishable nature
the buyer or his agent. of the goods or upon an express provision of the
 If there was partial delivery of the goods to contract of sale, the giving or failure to give such
the buyer, the remainder of the goods may be notice shall be relevant in any issue involving the
stopped in transitu, unless such part delivery question whether the buyer had been in default for
has been made under such circumstances as an unreasonable time before the resale was made.
to show an agreement with the buyer to give It is not essential to the validity of a resale that
up possession of the whole. Where the notice of the time and place of such resale should
buyer has taken some portion of the whole be given by the seller to the original buyer.
mass which was then susceptible of

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The seller is bound to exercise reasonable care and manifested by notice to the buyer or by some other
judgment in making a resale, and subject to this overt act an intention to rescind. It is not
requirement may make a resale either by public or necessary that such overt act should be
private sale. He cannot, however, directly or communicated to the buyer, but the giving or
indirectly buy the goods. (n) failure to give notice to the buyer of the intention
to rescind shall be relevant in any issue involving
 When the goods are of perishable nature, or the question whether the buyer had been in default
where the seller expressly reserves the right for an unreasonable time before the right of
of resale in case the buyer should default in rescission was asserted. (n)
payment, or where the buyer has been in
default for an unreasonable length of time,  An unpaid seller having the right of lien or
the unpaid seller, having a right of lien or having stopped the goods in transitu may
having stopped the goods in transitu, may rescind the transfer of title and resume
resell the goods and recover from the buyer ownership in the goods where he expressly
damages for breach of contract. reserved the right to do so in case the buyer
 The resale may be in a public or private sale, defaults, or where the buyer has been in
but the seller cannot buy them directly or default in payment of the price for an
indirectly. The seller is entitled to any profit unreasonable time. The transfer of title shall
he may make out of the resale. not be held to have been rescinded by the
 In case he sells them at a loss, he is entitled unpaid seller until he manifests by notice to
to recover the difference from the original the buyer or by some overt act an intention to
buyer. It is not essential to the validity of a rescind. After rescinding the transfer of title,
resale that previous notice of an intention to the seller may still recover damages from the
resell or notice of the time and place or resale buyer for breach of contract.
be given to the original buyer.  As used in Art. 1534, the term “rescind” is
 Damages recoverable: Whether the action is equivalent to return of the title over the
for damages or to recover loss from a resale, undelivered goods to the seller and the right
the purpose is to compensate the seller for to recover damages for loss due to breach of
loss for breach of contract. Thus, if the contract.
purchaser fails to take delivery and pay the
price, the vendor, without need of first
rescinding the contract judicially, is entitled to
resell, and if obliged to sell for less than the
contract price, the buyer is liable for the
difference.
 Due diligence must be exercised to secure the
highest price obtainable in the best available
market. The burden of showing it was
exercised is on the vendor.

4. RESCISSION45

CC Art 1534
An unpaid seller having the right of lien or having
stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the
goods, where he expressly reserved the right to do
so in case the buyer should make default, or where
the buyer has been in default in the payment of the
price for an unreasonable time. The seller shall not
thereafter be liable to the buyer upon the contract
of sale, but may recover from the buyer damages
for any loss occasioned by the breach of the
contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has

45
MERCHANTS REFRIGERATING CORP v TITMAN: A
rescission of the contract would accomplish the following
results:
(1) termination of the original contract
(2) return of the title to the undelivered portion of the goods
to the seller
(3) release of the buyer from his obligation to take and pay
for the balance of the goods
(4) the unpaid seller would be free to pursue its remedies on
quantum meruit to recover what it had delivered to the buyer
(Merchants Refrigerating Co. v Benjamin Titman Corp)

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XI. PERFORMANCE OF THE CONTRACT 3. DEMAND or TENDER of PAYMENT shall be


made at a reasonable hour. Where by
agreement, the seller is bound to send the
A. Delivery of the Thing Sold goods to the buyer, he is bound to send
them within the time agreed upon, or if no
time was fixed, within a reasonable time.
1. PLACE, TIME, AND MANNER OF DELIVERY
REASONABLE TIME for delivery is
determined by the circumstances attending
CC Art. 1521
the particular transaction
Whether it is for the buyer to take possession of
4. Where the goods at the time of the sale
the goods or of the seller to send them to the
are in the possession of a THIRD PERSON,
buyer is a question depending in each case on the
there is NO delivery UNLESS and UNTIL
contract, express or implied, between the parties.
such their person ACKNOWLEDGES to the
Apart from any such contract, express or implied,
buyer that the holds the goods on the
or usage of trade to the contrary, the place of
latter’s behalf.
delivery is the seller's place of business if he has
5. EXPENSES of placing the goods in a
one, and if not his residence; but in case of a
DELIVERABLE STATE shall be borne by the
contract of sale of specific goods, which to the
SELLER unless otherwise stipulated.
knowledge of the parties when the contract or the
6. If the sale involves a specific thing, the
sale was made were in some other place, then that
vendor is bound to deliver the thing sold
place is the place of delivery.
and its accessions and accessories in the
Where by a contract of sale the seller is bound to condition in which they were upon the
send the goods to the buyer, but no time for perfection of the contract.
sending them is fixed, the seller is bound to send 7. All of the fruits of the thing shall pertain to
them within a reasonable time. the vendee from the time of the perfection
Where the goods at the time of sale are in the of the contract but he does not acquire a
possession of a third person, the seller has not real right over it until they are delivered to
fulfilled his obligation to deliver to the buyer unless him.
and until such third person acknowledges to the 8. The vendee has the obligation to pay the
buyer that he holds the goods on the buyer's expenses incurred by the vendor in the
behalf. production, gathering and preservation of
the fruits.
Demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour. What WHEN TIME IS OF ESSENCE46
is a reasonable hour is a question of fact. Time is of the essence of the contract
Unless otherwise agreed, the expenses of and whenever the intention of the parties is clear that
incidental to putting the goods into a deliverable performance of its terms shall be accomplished
state must be borne by the seller. (n) exactly at the stipulated day or implied from the
nature of the contract itself, the subject matter or
CC Art. 1169 the circumstances under which the contract is
xxx In reciprocal obligations, neither party incurs in made
delay if the other does not comply or is not ready
to comply in a proper manner with what is WHEN NOT BOUND TO DELIVER
incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other CC Art. 1524
begins. (1100a) The vendor shall not be bound to deliver the thing
CC Art. 1524 sold, if the vendee has not paid him the price, or if
The vendor shall not be bound to deliver the thing no period for the payment has been fixed in the
sold, if the vendee has not paid him the price, or if contract. (1466)
no period for the payment has been fixed in the
contract. (1466) CC Art. 1536
The vendor is not bound to deliver the thing sold in
 Generally, payment and delivery of the thing case the vendee should lose the right to make use
sold are concurrent acts, in consonance with of the terms as provided in Article 1198. (1467a)
the rule in reciprocal obligations. Agreement
of the parties determines whether it is for the
46
buyer to take possession of the goods or for SMITH BELL v MATTI: In this case, the seller had done all
the seller to send them to the buyer. Absent that could be expected when he placed the machinery at the
disposal of the buyer on Apr 1919. When the time of delivery
stipulation to the contrary, the ff. rules shall is not fixed in the contract, time is not of the essence;
be observed: delivery could hence be made within a reasonable time.
1. The buyer should take delivery of the SOLER v CHELSEY: Defendant cannot be compelled to accept
goods from the seller’s place of business if delivery as he gave his consent to the contract, on the
assurance of the plaintiff that the goods were “on the way”
he has one, and if none, his residence.
when as a matter of fact, they were not yet shipped at the
2. In case of sale of specific goods which, at time. This assertion was an essential element of the contract.
the time of the sale, are known to the REPUBLIC V LITTON: Court ruled for plaintiff. It was shown
parties to be in ANOTHER PLACE, the that the goods were intended for election purposes, and the
buyer should take delivery from such purchase order provided that the stipulated delivery period
shall not be exceeded.
place.

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suing for damages for breach of the entire
CC Art. 1198 contract, or whether the breach is severable, giving
The debtor shall lose every right to make use of rise to a claim for compensation but not to a right
the period: to treat the whole contract as broken. (n)
1. When after the obligation has been contracted, General Rule
he becomes insolvent, unless he gives a The buyer is not bound to accept delivery of
guaranty or security for the debt; goods by installments.
2. When he does not furnish to the creditor the
guaranties or securities which he has promised; Exception
3. When by his own acts he has impaired said When otherwise stipulated
guaranties or securities after their
establishment, and when through a fortuitous  In case of a contract that calls for the delivery
event they disappear, unless he immediately of the goods at stated intervals which are to
gives new ones equally satisfactory; be paid for separately, the terms of the
4. When the debtor violates any undertaking, in contract and the circumstances surrounding
consideration of which the creditor agreed to the case would determine whether prompt
the period; payment or delivery is of the essence such
5. When the debtor attempts to abscond. (1129a) that a delay or breach would entitle the
aggrieved to treat the entire contract as
 The vendor is not bound to deliver the thing broken OR to regard each breach as
sold in case the vendee should lose the right severable. SEVERABILITY depends on whether
to make use of the stipulated term in the the breach is so material as to justify the
following cases: aggrieved party in refusing to proceed further
1. When the vendee becomes insolvent with the entire contract or so immaterial that
2. When the vendee does not furnish the the breach is severable, giving rise merely to
guaranties or securities he has promised a claim for damages
3. When the guaranties or securities given were
impaired through the vendee’s acts or were DELIVERY OF WRONG QUANTITY
lost or destroyed through a fortuitous event,
unless he gives new equally satisfactory CC Art. 1522
guaranties or securities Where the seller delivers to the buyer a quantity of
4. When the vendee violates any condition for goods less than he contracted to sell, the buyer
which he was granted the term may reject them, but if the buyer accepts or
5. When the vendee attempts to abscond retains the goods so delivered, knowing that the
seller is not going to perform the contract in full,
NOTE: Art. 1467 has been replaced by Art. 1198 he must pay for them at the contract rate. If,
which provides that the vendee shall lose the however, the buyer has used or disposed of the
benefit of the term when, after the obligation has goods delivered before he knows that the seller is
been contracted, he becomes insolvent, unless he not going to perform his contract in full, the buyer
gives a guaranty or security. “Insolvency” under shall not be liable for more than the fair value to
this article cannot be understood in the sense him of the goods so received.
of a judicially declared insolvency or Where the seller delivers to the buyer a quantity of
suspension of payments, because the debtor goods larger than he contracted to sell, the buyer
cannot give a security or guaranty in such may accept the goods included in the contract and
case. The doctrine therefore in Visayan reject the rest. If the buyer accepts the whole of
Distributors v Flores interpreting insolvency in Art the goods so delivered he must pay for them at the
1467 old CC as something which must be judicially contract rate.
declared or something which involves suspension
Where the seller delivers to the buyer the goods he
of payments, no longer holds.
contracted to sell mixed with goods of a different
description not included in the contract, the buyer
2. SALE OF GOODS may accept the goods which are in accordance with
the contract and reject the rest.
DELIVERY BY INSTALLMENT
In the preceding two paragraphs, if the subject
CC Art. 1583 matter is indivisible, the buyer may reject the
Unless otherwise agreed, the buyer of goods is not whole of the goods.
bound to accept delivery thereof by installments. The provisions of this article are subject to any
Where there is a contract of sale of goods to be usage of trade, special agreement, or course of
delivered by stated installments, which are to be dealing between the parties. (n)
separately paid for, and the seller makes defective
deliveries in respect of one or more installments, or General Rule
the buyer neglects or refuses without just cause to The buyer is not bound to accept delivery of a
take delivery of or pay for one more installments, it quantity of goods more or less than that agreed
depends in each case on the terms of the contract upon or to accept goods which are of a description
and the circumstances of the case, whether the different from that agreed upon.
breach of contract is so material as to justify the
injured party in refusing to proceed further and

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Exception
There is usage of trade, special stipulation or CC Art. 1540
course of dealing to the contrary. If, in the case of the preceding article, there is a
greater area or number in the immovable than that
Remedies stated in the contract, the vendee may accept the
1. Where the seller delivers a quantity less than area included in the contract and reject the rest. If
that agreed upon, the buyer may reject them. If he accepts the whole area, he must pay for the
the buyer accepts or retains that goods same at the contract rate. (1470a)
delivered, knowing the inability of the seller to
deliver the rest, the buyer is bound to pay for CC Art. 1541
them at the contract rate. If the buyer has used The provisions of the two preceding articles shall
or disposed of the goods before knowing the apply to judicial sales. (n)
inability of the seller to deliver the rest, the
buyer shall pay not more than the fair value of CC Art. 1542
the goods. (NOTE: “fair value” means the price In the sale of real estate, made for a lump sum and
of the goods in the open market.) not at the rate of a certain sum for a unit of
2. If the quantity delivered is more than that measure or number, there shall be no increase or
agreed upon, the buyer may reject the excess, decrease of the price, although there be a greater
unless the subject matter is indivisible, in which or less area or number than that stated in the
case, the buyer may reject the whole. contract.
3. Where the seller delivers the goods mixed with The same rule shall be applied when two or more
goods of a different description not included in immovables as sold for a single price; but if,
the contract, the buyer may accept the goods besides mentioning the boundaries, which is
which are in accordance with the contract, and indispensable in every conveyance of real estate,
reject the rest, unless the subject matter is its area or number should be designated in the
indivisible, in which case, the buyer may reject contract, the vendor shall be bound to deliver all
the whole. that is included within said boundaries, even when
it exceeds the area or number specified in the
 Delivery by the seller of only a part of an contract; and, should he not be able to do so, he
entire contract would itself be an indication shall suffer a reduction in the price, in proportion to
that he might not intend to fully perform. what is lacking in the area or number, unless the
PRESUMPTION: Buyer knows that the seller contract is rescinded because the vendee does not
might intend to not fully perform, if said accede to the failure to deliver what has been
purchaser accepts a partial delivery on an stipulated. (1471)
entire contract, absent any statement to the
contrary. (The law applies peculiarly to CC Art. 1543
installment and divisible contracts.) The actions arising from Articles 1539 and 1542
shall prescribe in six months, counted from the day
3. SALE OF IMMOVABLES of delivery. (1472a)
CC Art. 1539 WHERE PRICE IS AT CERTAIN RATE PER UNIT OF
The obligation to deliver the thing sold includes MEASURE
that of placing in the control of the vendee all that The seller is bound to deliver the entire land
is mentioned in the contract, in conformity with the sold in accordance with the terms of the contract.
following rules:
If the sale of real estate should be made with a General Rule
statement of its area, at the rate of a certain price The vendee has to option to demand a
for a unit of measure or number, the vendor shall proportionate reduction of the price or
be obliged to deliver to the vendee, if the latter rescission of the contract: if price is fixed at a
should demand it, all that may have been stated in certain rate per unit of measure and the area is
the contract; but, should this be not possible, the delivered is less than that stated in the contract, or
vendee may choose between a proportional even if the area is correct but part of the land is
reduction of the price and the rescission of the not of the quality stated in the contract
contract, provided that, in the latter case, the lack
in the area be not less than one-tenth of that Exception
stated. Where the entire land is not of the quality
The same shall be done, even when the area is the stated in the contract, as in such a case, the
same, if any part of the immovable is not of the consent must have been obtained by mistake or
quality specified in the contract. fraud (contract may then be voidable.)

The rescission, in this case, shall only take place at CC Art. 1539. See above.
the will of the vendee, when the inferior value of
the thing sold exceeds one-tenth of the price
agreed upon.
Nevertheless, if the vendee would not have bought
the immovable had he known of its smaller area of
inferior quality, he may rescind the sale. (1469a)

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SALE FOR A LUMP SUM47 payment of the price, in the absence of agreement
or usage of trade permitting such examination. (n)
CC Art. 1542. See above.
 The buyer is entitled to examine the goods to
 If the sale of real property is for a lump sum, decide whether he will become the owner, and
there shall be no increase or decrease in the until the examination is completed or waived,
price, whether the actual area delivered he is under NO obligation to accept them. He
turned out to be greater or less than that may however waive this right by simply
stated in the contract. refusing to inspect the goods, taking them as
 If besides mentioning the boundaries, the they are or by any other similar act.
area should also be stated in the contract, the
vendor shall be bound to deliver all that is MANIFESTATION OF ACCEPTANCE
included within said boundaries and there
shall be no increase or decrease in the price CC Art. 1585
whether the area so delivered be greater or The buyer is deemed to have accepted the goods
less than that stated in the contract.48 when he intimates to the seller that he has
 If the vendor fails to deliver all the land accepted them, or when the goods have been
included within said boundaries, as where part delivered to him, and he does any act in relation to
of the land belongs to a third person, the them which is inconsistent with the ownership of
vendee shall have the option to demand a the seller, or when, after the lapse of a reasonable
reduction in the price in proportion to the time, he retains the goods without intimating to
deficiency in the area stated in the the seller that he has rejected them. (n)
contract or a rescission of the contract
(Actions prescribe in six months from date of  The buyer is deemed to have accepted the
delivery.) goods when:
1. He intimates to the seller that the has
4. INSPECTIONS AND ACCEPTANCE accepted them
2. The goods have been delivered to him and
RIGHT OF INSPECTION he does any act in relation to them which is
inconsistent with the ownership of the seller
CC Art. 1584 3. After the lapse of a reasonable time, he
Where goods are delivered to the buyer, which he retains the goods without intimating to the
has not previously examined, he is not deemed to seller that he has rejected them.
have accepted them unless and until he has had a  Exercise of acts of ownership over the goods
reasonable opportunity of examining them for the is a manifestation of acceptance, such as
purpose of ascertaining whether they are in making use of them as owner, making
conformity with the contract if there is no alterations in the goods or subjecting it to the
stipulation to the contrary. process of manufacture. EXCEPTION: Buyer’s
Unless otherwise agreed, when the seller tenders right to make a test of goods, but only if
delivery of goods to the buyer, he is bound, on necessary, to enable him to determine
request, to afford the buyer a reasonable whether to accept or reject the goods.
opportunity of examining the goods for the purpose
of ascertaining whether they are in conformity with BREACH OF WARRANTY
the contract.
CC Art. 1586
Where goods are delivered to a carrier by the In the absence of express or implied agreement of
seller, in accordance with an order from or the parties, acceptance of the goods by the buyer
agreement with the buyer, upon the terms that the shall not discharge the seller from liability in
goods shall not be delivered by the carrier to the damages or other legal remedy for breach of any
buyer until he has paid the price, whether such promise or warranty in the contract of sale. But, if,
terms are indicated by marking the goods with the after acceptance of the goods, the buyer fails to
words "collect on delivery," or otherwise, the buyer give notice to the seller of the breach in any
is not entitled to examine the goods before the promise of warranty within a reasonable time after
the buyer knows, or ought to know of such breach,
47
AZARRAGA v GAY: Where the price was for a lump sum the seller shall not be liable therefor. (n)
and the area which was stated in the contract to be 98
hectares, turned out to be only 60 hectares, but the purchaser  The purpose of the notice of breach of
had previously investigated and inspected the condition of the warranty is to PROTECT the seller against
land, and had ample opportunity to do so, the purchaser
belated damage claims which would prevent
cannot later on allege that the vendor made false
representation. the seller from making an adequate and
ASIAIN v JALANDONI: There was mutual mistake which proper investigation of his alleged liability.
was so material as would go into the essence of the contract.  Acceptance of delivery means an ASSENT to
Rescission is proper. The buyer would have not have bought become OWNER of the goods on the part of
the land had he known of the smaller area or inferior quantity.
48
ROBLE v ARBASA: A vendee of land, when sold in gross or
the buyer, but not an assent that the goods
with the description "more or less" with reference to its area, fulfill the description and terms of the
does not thereby ipso facto take all risk of quantity in the contract.
land. The use of "more or less" or similar words in designating
quantity covers only a reasonable excess or deficiency.

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XI. Performance of the Contract Sales
REFUSAL TO ACCEPT 2. Where actual delivery has been delayed through
the fault of either the buyer or seller the goods
CC Art. 1587 are at the risk of the party in fault. (n)
Unless otherwise agreed, where goods are
delivered to the buyer, and he refuses to accept B. Payment of Price
them, having the right so to do, he is not bound to
return them to the seller, but it is sufficient if he
notifies the seller that he refuses to accept them. If 1. LIABILITY FOR INTEREST
he voluntarily constitutes himself a depositary
thereof, he shall be liable as such. (n) Art. 1582, 1589. See above.

CC Art. 1588  The buyer shall owe interest on the price from
If there is no stipulation as specified in the first the time the thing is delivered up to the time
paragraph of article 1523, when the buyer's refusal of payment if there is stipulation requiring
to accept the goods is without just cause, the title interests, or even if there is none, if the thing
thereto passes to him from the moment they are delivered produces fruits or income, or if the
placed at his disposal. (n) buyer incurs in default from the time of
judicial or extra-judicial demand for payment
CC Art. 1589
The vendee shall owe interest for the period 2. SUSPENSION OF PAYMENT
between the delivery of the thing and the payment
of the price, in the following three cases: CC Art. 1590
1. Should it have been so stipulated; Should the vendee be disturbed in the possession
2. Should the thing sold and delivered produce or ownership of the thing acquired, or should he
fruits or income; have reasonable grounds to fear such disturbance,
3. Should he be in default, from the time of by a vindicatory action or a foreclosure of
judicial or extrajudicial demand for the payment mortgage, he may suspend the payment of the
of the price. (1501a) price until the vendor has caused the disturbance
or danger to cease, unless the latter gives security
 Unless otherwise agreed, when the goods are for the return of the price in a proper case, or it
delivered to the buyer and he has a right to has been stipulated that, notwithstanding any such
refuse to accept them, he need not return contingency, the vendee shall be bound to make
them. It is sufficient that the buyer notifies the payment. A mere act of trespass shall not
the seller that he refuses to accept the goods, authorize the suspension of the payment of the
and thereafter, the former becomes the price. (1502a)
depository of the rejected goods.
 However, where title already passed to the  “Disturbance” or threat of disturbance – must
buyer and there was a breach of warranty, the come through a vindicatory action or
buyer may RESCIND the contract by returning foreclosure of mortgage, and not through a
or offering to return the goods to the seller mere threat or claim of a third person.
and recover the price which had been paid.  If the third person claims a servitude on the
, thing sold, the remedy of the buyer is to
REFUSAL TO ACCEPT demand rescission of the contract or payment
of the proper indemnity.
CC Art. 1582  In order that the buyer may have a right to
The vendee is bound to accept delivery and to pay suspend payment, it is absolutely necessary
the price of the thing sold at the time and place that the cause of disturbance or danger be
stipulated in the contract. based on a fact arising before the sale or if it
arose after the sale, the cause is imputable to
If the time and place should not have been the vendor or his successor in interest.49
stipulated, the payment must be made at the time
and place of the delivery of the thing sold. (1500a) 3. SALE OF REAL PROPERTY

CC Art. 1504 CC Art. 1592


Unless otherwise agreed, the goods remain at the In the sale of immovable property, even though it
seller's risk until the ownership therein is may have been stipulated that upon failure to pay
transferred to the buyer, but when the ownership the price at the time agreed upon the rescission of
therein is transferred to the buyer the goods are at the contract shall of right take place, the vendee
the buyer's risk whether actual delivery has been may pay, even after the expiration of the period,
made or not, except that: as long as no demand for rescission of the contract
1. Where delivery of the goods has been made to
the buyer or to a bailee for the buyer, in 49
BARENG v CA: The vendee had a right to suspend
pursuance of the contract and the ownership in payment from the time he was informed of the co-owner’s
the goods has been retained by the seller claim. But such right ceased from the time a compromise was
merely to secure performance by the buyer of reached between the co-owners whereby the vendor agreed to
his obligations under the contract, the goods give to the co-owner two-thirds of whatever he could collect
from the buyer. After the compromise, when the vendor
are at the buyer's risk from the time of such
brought an action against the buyer to collect the balance,
delivery; said buyer owed interests on the amount from the time of the
filing of the complaint.

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XI. Performance of the Contract Sales
has been made upon him either judicially or by a R.A. 6553; P.D. 957 (SECS. 23 AND 24)
notarial act. After the demand, the court may not
grant him a new term. (1504a)  Approved on 26 Aug 1972, the Realty
Installment Buyer Protection Act declared
that it is a public policy to protect buyers of
CC Art. 1560 real-estate on installments, including
If the immovable sold should be encumbered with residential condominiums, apartments,
any non-apparent burden or servitude, not excluding industrial lots, commercial buildings
mentioned in the agreement, of such a nature that and lands sold under R.A. 3844 as amended,
it must be presumed that the vendee would not against onerous and oppressive conditions
have acquired it had he been aware thereof, he  R.A. 6552, sec 2, in sale or financing of real
may ask for the rescission of the contract, unless estate on installment payments where the
he should prefer the appropriate indemnity. Neither buyer has paid at least two years of
right can be exercised if the non-apparent burden installments, provides that in case such buyer
or servitude is recorded in the Registry of Property, defaults in the payment of the succeeding
unless there is an express warranty that the thing installments, he has a right to pay, without
is free from all burdens and encumbrances. additional interests, the arrears within a
grace period of one month for every year
Within one year, to be computed from the of installment payments made;
execution of the deed, the vendee may bring the  In the same case, if the contract is cancelled,
action for rescission, or sue for damages. the seller shall refund to the buyer the case
One year having elapsed, he may only bring an surrender value of payments made,
action for damages within an equal period, to be equivalent to 50% of total payments and an
counted from the date on which he discovered the additional 5% for every year after five years
burden or servitude. (1483a) of the life of the contract and its extensions, if
any.
CC Art. 1664  Actual cancellation shall not take place until
The lessor is not obliged to answer for a mere act after 30 days from receipt by the buyer of the
of trespass which a third person may cause on the notice of cancellation or demand for rescission
use of the thing leased; but the lessee shall have a by a notarial act, and only upon full payment
direct action against the intruder. of the cash surrender value to the buyer.51
There is a mere act of trespass when the third
person claims no right whatever. (1560a)
there is just cause authorizing the granting of a new period,
EFFECT OF NON-PAYMENT as in this case.

51
ACTIVE REALTY v DAROYA: In this case, respondent
CC Art. 1191
has already paid in four (4) years a total of
The power to rescind obligations is implied in P314,860.76 or P90,835.76 more than the contract
reciprocal ones, in case one of the obligors should price of P224,035.00. Also, the records clearly show that
not comply with what is incumbent upon him. the petitioner failed to comply with the mandatory twin
requirements for a valid and effective cancellation under the
The injured party may choose between the law,19 i.e., he failed to send a notarized notice of cancellation
fulfillment and the rescission of the obligation, with and refund the cash surrender value.
the payment of damages in either case. He may
also seek rescission, even after he has chosen VALARAO v CA: The Court held that the rescission of the
contract and the forfeiture of the payments already made
fulfillment, if the latter should become impossible. could not be effected as per the pertinent provision of the
The court shall decree the rescission claimed, aforementioned law. Section 3(a) of Maceda Law provided
that a buyer “…who has paid at least two years of installments
unless there be just cause authorizing the fixing of is entitled to pay, without additional interest the unpaid
a period. installment due within the total grace period earned by
him, which is hereby fixed at a rate of one month grace
This is understood to be without prejudice to the
period for every year of installment payments made.
rights of third persons who have acquired the Hence, since the private respondent was entitled to a one-
thing, in accordance with Articles 1385 and 1388 month grace period for every year of installments paid, she
and the Mortgage Law. (1124) had a total grace period of three months from 31 December
1990
 In absolute sales of real property, even if
OLYMPIA HOUSING v PANASIATIC TRAVEL:
there is a stipulation providing for ipso jure Unfortunately for petitioner, it would be incorrect to apply
rescission, in case of default in payment, the Layug c IAC to the instant case. Layug is basically an action
law requires the seller to demand the for annulment of contract, a kindred concept of rescission,
resolution of the contract from the buyer whereas the instant case before the Court is one for recovery
of possession on the thesis of a prior rescission of the contract
judicially or by a notarial act, before such covering the property. Not only is an action for reconveyance
stipulation could be given effect. Otherwise, conceptually different from an action for rescission but that,
the buyer could still pay the price EVEN after also, the effects that flow from an affirmative judgment in
the expiration of the period to pay.50 either case would be materially dissimilar in various respects.
The judicial resolution of a contract gives rise to mutual
restitution which is not necessarily the situation that can arise
in an action for reconveyance. Additionally, in an action for
50
DELA CRUZ v LEGAZPI: The injured party may choose rescission (also often termed as resolution), unlike in an
between fulfillment and rescission of the obligation, with action for reconveyance predicated on an extrajudicial
payment of damages in either the rescission claimed unless rescission (rescission by notarial act), the Court, instead of

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XI. Performance of the Contract Sales
 Down-payments, deposits or options in the
contract shall be included in the computation XII. WARRANTIES
of the total number of installments made. The
right to pay the arrears within the grace A. Express Warranties
period could only be availed of by the buyer
once in every five years of the life of the
Warranty – where one party promised that the
contract and its extensions, if any.
contingency or some act fixed by the contract shall
 In case of less than two years of installments
be performed, like a promise that the goods are of
were paid, the grace period shall be not less
a certain kind and character or that certain state of
than 60 days from the date the installment
facts would exist, the promise constitutes a
became due. If the buyer fails to pay within
warranty, and failure of which gives rise to an
the grace period, the seller may cancel the
action for its breach.
contract within 30 days from receipt by the
buyer of the notice of cancellation or demand
Breach: the buyer may
for rescission of the contract by a notarial act.
1. accept goods + maintain an action for
 During the grace period or before the actual
damages
cancellation of the contract, the buyer shall
2. accept goods + set up breach of warranty
have the right to:
as a recoupment in diminution/ extinction
1. sell or assign his rights, to be evidenced in a
of price
notarial instrument, to a third person
3. refuse to accept goods and maintain action
2. update his account
for damages
3. pay in advance any installment or the full
4. rescind + refuse to accept goods; or return
unpaid balance of the price without interest
(or offer to return) goods + recover price
paid

1. DISTINGUISHED FROM CONDITION

CC Art. 1545
Where the obligation of either party to a contract of
sale is subject to any condition which is not
performed, such party may refuse to proceed with
the contract or he may waive performance of the
condition. If the other party has promised that the
condition should happen or be performed, such
first mentioned party may also treat the
nonperformance of the condition as a breach of
warranty.
Where the ownership in the thing has not passed,
the buyer may treat the fulfillment by the seller of
his obligation to deliver the same as described and
as warranted expressly or by implication in the
contract of sale as a condition of the obligation of
the buyer to perform his promise to accept and pay
for the thing. (n)

CONDITION
An uncertain event or contingency fixed by
parties, the existence or happening of which was
necessary to the efficacy of the contract, and
failure of which permits the injured party to treat
the contract as at an end, but creates no right of
action. Where a condition is not performed, the
buyer may refuse to proceed with the contract, or
accept the goods and waive performance of the
condition.52

52
ROMERO v CA, LIM v CA: distinguished condition imposed
on perfection on the contract vs condition imposed on
performance of obligation; failure to comply with 1st condition
results in failure of contract, while failure to comply with 2nd
only gives other party option to either refuse to proceed with
the sale or to waive the condition as mandated under Art
decreeing rescission, may authorize for a just cause the fixing 1545.
of a period.

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Distinctions according to Villanueva53 that the goods are merchantable; mere expression
Condition Warranty of an opinion54

Generally goes into the Goes into the performance 3. DISTINGUISHED FROM FALSE
root of the existence of of such obligation, and in REPRESENTATION55
the obligation fact may constitute an
obligation in itself
B. Implied Warranties56
Must be stipulated by the May form part of obligation
parties in order to form by contract or provision of 1. IMPLIED WARRANTY OF TITLE
part of an obligation law, without parties having
agreed thereto CC Art. 1547
In a contract of sale, unless a contrary intention
May attach itself either to Whether express or
appears, there is:
obligation of seller to implied, relates to subject
1. An implied warranty on the part of the seller
deliver possession or matter itself or to the
transfer ownership over obligations of the seller as that he has a right to sell the thing at the time
subject matter of sale to the subject matter of when the ownership is to pass, and that the
the sale buyer shall from that time have and enjoy the
legal and peaceful possession of the thing;
2. An implied warranty that the thing shall be free
2. DISTINGUISHED FROM OPINION, DEALER’S from any hidden faults or defects, or any charge
TALK or encumbrance not declared or known to the
buyer.
CC Art. 1546
Any affirmation of fact or any promise by the seller This Article shall not, however, be held to render
relating to the thing is an express warranty if the liable a sheriff, auctioneer, mortgagee, pledgee, or
natural tendency of such affirmation or promise is other person professing to sell by virtue of
to induce the buyer to purchase the same, and if authority in fact or law, for the sale of a thing in
the buyer purchase the thing relying thereon. No which a third person has a legal or equitable
affirmation of the value of the thing, nor any interest. (n)
statement purporting to be a statement of the
seller's opinion only, shall be construed as a CC Art. 1548
warranty, unless the seller made such affirmation Eviction shall take place whenever by a final
or statement as an expert and it was relied upon judgment based on a right prior to the sale or an
by the buyer. (n) act imputable to the vendor, the vendee is
deprived of the whole or of a part of the thing
WARRANTY purchased.
An affirmation of fact or any promise by seller The vendor shall answer for the eviction even
relating to the thing which has a natural tendency though nothing has been said in the contract on
to induce the buyer to purchase the same, relying the subject.
on such promise of affirmation

OPINION/DEALER’S TALK
An affirmation of the value of the thing or any 54
SONGCO v SELLNER: Opinion or dealer’s talk is not
statement of the seller’s opinion shall not be warranty. Opinion or dealer’s talk is the usual or ordinary
construed as a warranty, unless the seller made means used by sellers to get a high price and is understood as
such an affirmation as an expert and it was relied affording to buyers no ground for omitting to make inquiries.
upon by the buyer Caveat emptor. A man who relies on such an affirmation does
so at his own peril and must take the consequences of his
imprudence.
TEST What would make a misrepresentation void: (a) false
Whether the vendor assumes to assert a fact representation is as to matters of fact substantially affecting
of which the buyer is ignorant, in which case it is a buyer’s interest, and not as to matters of opinion, judgment,
warranty, or whether it is merely an expression of probability or expectation; (b) the party to the contract who
has special/expert knowledge takes advantage of the
an opinion or judgment on the part of the seller on ignorance of another to impose upon him the false
a matter of which the seller has no special representation.
knowledge and on which the buyer may be
expected also to have an opinion or exercise his MOLES v IAC: Ordinarily, what does not appear on the face
judgment. of the written instrument should be regarded as dealer's or
trader's talk; conversely, what is specifically represented as
true in said document, as in the instant case, cannot be
“IN GOOD CONDITION” VS. “EXCELLENT QUALITY” considered as mere dealer's talk
The first relates to the quantity, kind or
55
condition of the goods sold, it is an affirmation of PHIL. MANUFACTURING v. Go JUCCO: An intention to
deceive or mislead the other party to his prejudice is an
fact or promise, and not a mere expression of an
essential element of fraud. Concealment of facts does not
opinion; the second is not an express warranty and necessarily amount to false representation, unless there was
the purchaser must rely on the implied warranty an active misstatement of fact or a partial statement of fact,
such that withholding of that which is not stated makes that
which is stated absolutely false.

53
(Law on Sales , 2004)

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XII. Warranties Sales
The contracting parties, however, may increase, relation to the whole, that he would not have
diminish, or suppress this legal obligation of the bought it without said part, he may demand the
vendor. (1475a) rescission of the contract; but with the obligation
CC Art. 1549 to return the thing without other encumbrances
The vendee need not appeal from the decision in that those which it had when he acquired it.
order that the vendor may become liable for He may exercise this right of action, instead of
eviction. (n) enforcing the vendor's liability for eviction.
CC Art. 1550 The same rule shall be observed when two or more
When adverse possession had been commenced things have been jointly sold for a lump sum, or for
before the sale but the prescriptive period is a separate price for each of them, if it should
completed after the transfer, the vendor shall not clearly appear that the vendee would not have
be liable for eviction. (n) purchased one without the other. (1479a)

CC Art. 1551 CC Art. 1557


If the property is sold for nonpayment of taxes due The warranty cannot be enforced until a final
and not made known to the vendee before the judgment has been rendered, whereby the vendee
sale, the vendor is liable for eviction. (n) loses the thing acquired or a part thereof. (1480)

CC Art. 1552 CC Art. 1558


The judgment debtor is also responsible for The vendor shall not be obliged to make good the
eviction in judicial sales, unless it is otherwise proper warranty, unless he is summoned in the suit
decreed in the judgment. (n) 57 for eviction at the instance of the vendee. (1481a)

CC Art. 1553 CC Art. 1559


Any stipulation exempting the vendor from the The defendant vendee shall ask, within the time
obligation to answer for eviction shall be void, if he fixed in the Rules of Court for answering the
acted in bad faith. (1476) complaint, that the vendor be made a co-
defendant. (1482a)
CC Art. 1554
If the vendee has renounced the right to warranty 2. IMPLIED WARRANTY AGAINST HIDDEN
in case of eviction, and eviction should take place, ENCUMBRANCES OR DEFECTS58
the vendor shall only pay the value which the thing
sold had at the time of the eviction. Should the CC Art. 1561
vendee have made the waiver with knowledge of The vendor shall be responsible for warranty
the risks of eviction and assumed its against the hidden defects which the thing sold
consequences, the vendor shall not be liable. may have, should they render it unfit for the use
(1477) for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the
CC Art. 1555 vendee been aware thereof, he would not have
When the warranty has been agreed upon or acquired it or would have given a lower price for it;
nothing has been stipulated on this point, in case but said vendor shall not be answerable for patent
eviction occurs, the vendee shall have the right to defects or those which may be visible, or for those
demand of the vendor: which are not visible if the vendee is an expert
1. The return of the value which the thing sold had who, by reason of his trade or profession, should
at the time of the eviction, be it greater or less have known them. (1484a)
than the price of the sale;
2. The income or fruits, if he has been ordered to CC Art. 1562
deliver them to the party who won the suit In a sale of goods, there is an implied warranty or
against him; condition as to the quality or fitness of the goods,
3. The costs of the suit which caused the eviction, as follows:
and, in a proper case, those of the suit brought 1. Where the buyer, expressly or by implication,
against the vendor for the warranty; makes known to the seller the particular
4. The expenses of the contract, if the vendee has purpose for which the goods are acquired, and
paid them; it appears that the buyer relies on the seller's
5. The damages and interests, and ornamental skill or judgment (whether he be the grower or
expenses, if the sale was made in bad faith.
(1478) 58
MOLES v IAC: …we have to consider the rule on
redhibitory defects contemplated in Article 1561 of the Civil
CC Art. 1556 Code. A redhibitory defect must be an imperfection or defect
Should the vendee lose, by reason of the eviction, of such nature as to engender a certain degree of importance.
a part of the thing sold of such importance, in An imperfection or defect of little consequence does not come
within the category of being redhibitory.
INVESTMENTS AND DEV’T INC. v CA: “Implied warranty
57
SANTIAGO LAND v CA: Although in voluntary sales or against hidden faults or defects under Art 1547 of the Civil
transaction, the vendor can be expected to defend his title Code cover only those that make the object of the sale unfit
because of his warranty to the vendees: no such obligation is for the use for which it was intended at the time of the sale,
owed by the owner whose land is sold at execution sale. and that in the sale of agricultural land, the existing tenancy
relationship pertaining thereto cannot be considered as hidden
fault or defect.

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XII. Warranties Sales
manufacturer or not), there is an implied CC Art. 1570
warranty that the goods shall be reasonably fit The preceding articles of this Subsection shall be
for such purpose; applicable to judicial sales, except that the
2. Where the goods are brought by description judgment debtor shall not be liable for damages.
from a seller who deals in goods of that (1489a)
description (whether he be the grower or
manufacturer or not), there is an implied
warranty that the goods shall be of CC Art. 1571
merchantable quality. (n) Actions arising from the provisions of the preceding
ten articles shall be barred after six months, from
CC Art. 1563 the delivery of the thing sold. (1490)
In the case of contract of sale of a specified article
under its patent or other trade name, there is no WARRANTIES IN SALE OF ANIMALS
warranty as to its fitness for any particular
purpose, unless there is a stipulation to the CC Art. 1577
contrary. (n) The redhibitory action, based on the faults or
defects of animals, must be brought within forty
CC Art. 1564 days from the date of their delivery to the vendee.
An implied warranty or condition as to the quality This action can only be exercised with respect to
or fitness for a particular purpose may be annexed faults and defects which are determined by law or
by the usage of trade. (n) by local customs. (1496a)
CC Art. 1565 CC Art. 1578
In the case of a contract of sale by sample, if the If the animal should die within three days after its
seller is a dealer in goods of that kind, there is an purchase, the vendor shall be liable if the disease
implied warranty that the goods shall be free from which cause the death existed at the time of the
any defect rendering them unmerchantable which contract. (1497a)
would not be apparent on reasonable examination
of the sample. (n) CC Art. 1579
If the sale be rescinded, the animal shall be
CC Art. 1566 returned in the condition in which it was sold and
The vendor is responsible to the vendee for any delivered, the vendee being answerable for any
hidden faults or defects in the thing sold, even injury due to his negligence, and not arising from
though he was not aware thereof. the redhibitory fault or defect. (1498)
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of CC Art. 1580
the hidden faults or defects in the thing sold. In the sale of animals with redhibitory defects, the
(1485) vendee shall also enjoy the right mentioned in
article 1567; but he must make use thereof within
CC Art. 1567 the same period which has been fixed for the
In the cases of Articles 1561, 1562, 1564, 1565 exercise of the redhibitory action. (1499)
and 1566, the vendee may elect between
withdrawing from the contract and demanding a SALE BY SAMPLE OR DESCRIPTION
proportionate reduction of the price, with damages
in either case. (1486a) CC Art. 1481
In the contract of sale of goods by description or
CC Art. 1568 by sample, the contract may be rescinded if the
If the thing sold should be lost in consequence of bulk of the goods delivered do not correspond with
the hidden faults, and the vendor was aware of the description or the sample, and if the contract
them, he shall bear the loss, and shall be obliged be by sample as well as description, it is not
to return the price and refund the expenses of the sufficient that the bulk of goods correspond with
contract, with damages. If he was not aware of the sample if they do not also correspond with the
them, he shall only return the price and interest description.
thereon, and reimburse the expenses of the The buyer shall have a reasonable opportunity of
contract which the vendee might have paid. comparing the bulk with the description or the
(1487a) sample. (n)
CC Art. 1569 CC Art. 1565
If the thing sold had any hidden fault at the time of In the case of a contract of sale by sample, if the
the sale, and should thereafter be lost by a seller is a dealer in goods of that kind, there is an
fortuitous event or through the fault of the vendee, implied warranty that the goods shall be free from
the latter may demand of the vendor the price any defect rendering them unmerchantable which
which he paid, less the value which the thing had would not be apparent on reasonable examination
when it was lost. of the sample. (n)
If the vendor acted in bad faith, he shall pay
damages to the vendee. (1488a)
3. IMPLIED WARRANTY OF QUALITY

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XII. Warranties Sales
offering to return the goods to the seller and
CC Art. 1562 rescinding the sale.
In a sale of goods, there is an implied warranty or Where the buyer is entitled to rescind the sale
condition as to the quality or fitness of the goods, and elects to do so, he shall cease to be liable
as follows: for the price upon returning or offering to return
1. Where the buyer, expressly or by implication, the goods. If the price or any part thereof has
makes known to the seller the particular already been paid, the seller shall be liable to
purpose for which the goods are acquired, and repay so much thereof as has been paid,
it appears that the buyer relies on the seller's concurrently with the return of the goods, or
skill or judgment (whether he be the grower or immediately after an offer to return the goods in
manufacturer or not), there is an implied exchange for repayment of the price.
warranty that the goods shall be reasonably fit
for such purpose; Where the buyer is entitled to rescind the sale
2. Where the goods are brought by description and elects to do so, if the seller refuses to
from a seller who deals in goods of that accept an offer of the buyer to return the goods,
description (whether he be the grower or the buyer shall thereafter be deemed to hold the
manufacturer or not), there is an implied goods as bailee for the seller, but subject to a
warranty that the goods shall be of lien to secure payment of any portion of the
merchantable quality. (n) price which has been paid, and with the
remedies for the enforcement of such lien
CC Art. 1563 allowed to an unpaid seller by Article 1526.
In the case of contract of sale of a specified article 5. In the case of breach of warranty of quality,
under its patent or other trade name, there is no such loss, in the absence of special
warranty as to its fitness for any particular circumstances showing proximate damage of a
purpose, unless there is a stipulation to the greater amount, is the difference between the
contrary. (n) value of the goods at the time of delivery to the
buyer and the value they would have had if
CC Art. 1564 they had answered to the warranty. (n)
An implied warranty or condition as to the quality
or fitness for a particular purpose may be annexed 4. ADDITIONAL WARRANTIES IN SALE OF
by the usage of trade. (n) CONSUMER PRODUCTS

CC Art. 1599 RA 7394 Art. 68 Additional Provisions on


Where there is a breach of warranty by the seller, Warranties
the buyer may, at his election: In addition to the Civil Code provisions on sale with
1. Accept or keep the goods and set up against warranties, the following provisions shall govern
the seller, the breach of warranty by way of the sale of consumer products with warranty:
recoupment in diminution or extinction of the a. Terms of express warranty. - Any seller or
price; manufacturer who gives an express
2. Accept or keep the goods and maintain an warranty shall:
action against the seller for damages for the 1. set forth the terms of warranty in clear
breach of warranty; and readily understandable language and
3. Refuse to accept the goods, and maintain an clearly identify himself as the warrantor;
action against the seller for damages for the 2. identify the party to whom the warranty
breach of warranty; is extended;
4. Rescind the contract of sale and refuse to 3. state the products or parts covered;
receive the goods or if the goods have already 4. state what the warrantor will do in the
been received, return them or offer to return event of a defect, malfunction of failure
them to the seller and recover the price or any to conform to the written warranty and
part thereof which has been paid. at whose expense;
5. state what the consumer must do to avail
When the buyer has claimed and been granted a
of the rights which accrue to the
remedy in anyone of these ways, no other
warranty; and
remedy can thereafter be granted, without
6. stipulate the period within which, after
prejudice to the provisions of the second
notice of defect, malfunction or failure to
paragraph of Article 1191.
conform to the warranty, the warrantor
Where the goods have been delivered to the will perform any obligation under the
buyer, he cannot rescind the sale if he knew of warranty.
the breach of warranty when he accepted the b. Express warranty - operative from moment
goods without protest, or if he fails to notify the of sale. - All written warranties or
seller within a reasonable time of the election to guarantees issued by a manufacturer,
rescind, or if he fails to return or to offer to producer, or importer shall be operative
return the goods to the seller in substantially as from the moment of sale.
good condition as they were in at the time the 1. Sales Report. - All sales made by
ownership was transferred to the buyer. But if distributors of products covered by this
deterioration or injury of the goods is due to the Article shall be reported to the
breach or warranty, such deterioration or injury manufacturer, producer, or importer of
shall not prevent the buyer from returning or the product sold within thirty (30) days

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XII. Warranties Sales
from date of purchase, unless otherwise 1. "Full warranty" if the written warranty
agreed upon. The report shall contain, meets the minimum requirements set
among others, the date of purchase, forth in paragraph (d); or
model of the product bought, its serial 2. "Limited warranty" if the written
number, name and address of the buyer. warranty does not meet such minimum
The report made in accordance with this requirements.
provision shall be equivalent to a d. Minimum standards for warranties. - For the
warranty registration with the warrantor of a consumer product to meet
manufacturer, producer, or importer. the minimum standards for warranty, he
Such registration is sufficient to hold the shall:
manufacturer, producer, or importer 1. remedy such consumer product within a
liable, in appropriate cases, under its reasonable time and without charge in
warranty. case of a defect, malfunction or failure to
2. Failure to make or send report. - Failure conform to such written warranty;
of the distributor to make the report or 2. permit the consumer to elect whether to
send them the form required by the ask for a refund or replacement without
manufacturer, producer, or importer shall charge of such product or part, as the
relieve the latter of its liability under the case may be, where after reasonable
warranty: Provided, however, That the number of attempts to remedy the defect
distributor who failed to comply with its or malfunction, the product continues to
obligation to send the sales reports shall have the defect or to malfunction.
be personally liable under the warranty. The warrantor will not be required to
For this purpose, the manufacturer shall perform the above duties if he can show
be obligated to make good the warranty that the defect, malfunction or failure to
at the expense of the distributor. conform to a written warranty was
3. Retail. - The retailer shall be subsidiarily caused by damage due to unreasonable
liable under the warranty in case of use thereof.
failure of both the manufacturer and
distributor to honor the warranty. In e. Duration of warranty. - The seller and the
such case, the retailer shall shoulder the consumer may stipulate the period within
expenses and costs necessary to honor which the express warranty shall be
the warranty. Nothing therein shall enforceable. If the implied warranty on
prevent the retailer from proceeding merchantability accompanies an express
against the distributor or manufacturer. warranty, both will be of equal duration.
4. Enforcement of warranty or guarantee. - Any other implied warranty shall endure not
The warranty rights can be enforced by less than sixty (60) days nor more than one
presentment of a claim. To this end, the (1) year following the sale of new consumer
purchaser needs only to present to the products.
immediate seller either the warranty card
f. Breach of warranties. –
of the official receipt along with the
1. In case of breach of express warranty,
product to be serviced or returned to the
the consumer may elect to have the
immediate seller. No other documentary
goods repaired or its purchase price
requirement shall be demanded from the
refunded by the warrantor. In case the
purchaser. If the immediate seller is the
repair of the product in whole or in part
manufacturer's factory or showroom, the
is elected, the warranty work must be
warranty shall immediately be honored.
made to conform to the express warranty
If the product was purchased from a
within thirty (30) days by either the
distributor, the distributor shall likewise
warrantor or his representative. The
immediately honor the warranty. In the
thirty-day period, however, may be
case of a retailer other than the
extended by conditions which are beyond
distributor, the former shall take
the control of the warrantor or his
responsibility without cost to the buyer of
representative. In case the refund of the
presenting the warranty claim to the
purchase price is elected, the amount
distributor in the consumer's behalf.
directly attributable to the use of the
5. Record of purchases. - Distributors and
consumer prior to the discovery of the
retailers covered by this Article shall
non-conformity shall be deducted.
keep a record of all purchases covered by
2. In case of breach of implied warranty,
a warranty or guarantee for such period
the consumer may retain in the goods
of time corresponding to the lifetime of
and recover damages, or reject the
the product's respective warranties or
goods, cancel and contract and recover
guarantees.
from the seller so much of the purchase
6. Contrary stipulations: null and void. - All
price as has been paid, including
covenants, stipulations or agreements
damages.
contrary to the provisions of this Article
shall be without legal effect.
c. Designation of warranties. - A written C. Buyer’s Waiver In Case Of Breach Of
warranty shall clearly and conspicuously Warranty
designate such warranty as:

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CC Art. 1599
xxx Where the goods have been delivered to the XIII. BREACH OF CONTRACTS
buyer, he cannot rescind the sale if he knew of the
breach of warranty when he accepted the goods A. SALE OF GOODS
without protest, or if he fails to notify the seller
within a reasonable time of the election to rescind,
1. REMEDIES OF THE SELLER
or if he fails to return or to offer to return the
goods to the seller in substantially as good
ACTION FOR THE PRICE
condition as they were in at the time the ownership
was transferred to the buyer. But if deterioration or
CC Art. 1595
injury of the goods is due to the breach or
Where, under a contract of sale, the ownership of
warranty, such deterioration or injury shall not
the goods has passed to the buyer and he
prevent the buyer from returning or offering to
wrongfully neglects or refuses to pay for the goods
return the goods to the seller and rescinding the
according to the terms of the contract of sale, the
sale. xxx
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 may
maintain an action for the price. (n)

ACTION FOR DAMAGES

CC Art. 1596
Where the buyer wrongfully neglects or refuses to
accept and pay for the goods, the seller may
maintain an action against him for damages for
nonacceptance.
The measure of damages is the estimated loss
directly and naturally resulting in the ordinary
course of events from the buyer's breach of
contract.
Where there is an available market for the goods in
question, the measure of damages is, in the
absence of special circumstances showing
proximate damage of a different amount, the
difference between the contract price and the
market or current price at the time or times when
the goods ought to have been accepted, or, if no
time was fixed for acceptance, then at the time of
the refusal to accept.
If, while labor or expense of material amount is
necessary on the part of the seller to enable him to
fulfill his obligations under the contract of sale, the
buyer repudiates the contract or notifies the seller
to proceed no further therewith, the buyer shall be
liable to the seller for labor performed or expenses
made before receiving notice of the buyer's
repudiation or countermand. The profit the seller
would have made if the contract or the sale had

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XIII. Breach of Contracts Sales
been fully performed shall be considered in Where the buyer is entitled to rescind the sale
awarding the damages. (n) and elects to do so, he shall cease to be liable
for the price upon returning or offering to return
RESCISSION the goods. If the price or any part thereof has
already been paid, the seller shall be liable to
CC Art. 1597 repay so much thereof as has been paid,
Where the goods have not been delivered to the concurrently with the return of the goods, or
buyer, and the buyer has repudiated the contract immediately after an offer to return the goods in
of sale, or has manifested his inability to perform exchange for repayment of the price.
his obligations thereunder, or has committed a Where the buyer is entitled to rescind the sale
breach thereof, the seller may totally rescind the and elects to do so, if the seller refuses to
contract of sale by giving notice of his election so accept an offer of the buyer to return the goods,
to do to the buyer. (n) the buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a
2. REMEDIES OF THE BUYER lien to secure payment of any portion of the
price which has been paid, and with the
SPECIFIC PERFORMANCE remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
CC Art. 1598 5. In the case of breach of warranty of quality,
Where the seller has broken a contract to deliver such loss, in the absence of special
specific or ascertained goods, a court may, on the circumstances showing proximate damage of a
application of the buyer, direct that the contract greater amount, is the difference between the
shall be performed specifically, without giving the value of the goods at the time of delivery to the
seller the option of retaining the goods on payment buyer and the value they would have had if
of damages. The judgment or decree may be they had answered to the warranty. (n)
unconditional, or upon such terms and conditions
as to damages, payment of the price and CC Art 1571
otherwise, as the court may deem just. (n) Actions arising from the provisions of the preceding
ten articles shall be barred after six months, from
BREACH OF WARRANTY the delivery of the thing sold. (1490)
CC Art. 1599 RESCISSION
Where there is a breach of warranty by the seller,
the buyer may, at his election: CC Art. 1599
1. Accept or keep the goods and set up against Where there is a breach of warranty by the seller,
the seller, the breach of warranty by way of the buyer may, at his election:
recoupment in diminution or extinction of the 1. Accept or keep the goods and set up against
price; the seller, the breach of warranty by way of
2. Accept or keep the goods and maintain an recoupment in diminution or extinction of the
action against the seller for damages for the price;
breach of warranty; 2. Accept or keep the goods and maintain an
3. Refuse to accept the goods, and maintain an action against the seller for damages for the
action against the seller for damages for the breach of warranty;
breach of warranty; 3. Refuse to accept the goods, and maintain an
4. Rescind the contract of sale and refuse to action against the seller for damages for the
receive the goods or if the goods have already breach of warranty;
been received, return them or offer to return 4. Rescind the contract of sale and refuse to
them to the seller and recover the price or any receive the goods or if the goods have already
part thereof which has been paid. been received, return them or offer to return
When the buyer has claimed and been granted a them to the seller and recover the price or any
remedy in anyone of these ways, no other part thereof which has been paid.
remedy can thereafter be granted, without When the buyer has claimed and been granted a
prejudice to the provisions of the second remedy in anyone of these ways, no other
paragraph of Article 1191. remedy can thereafter be granted, without
Where the goods have been delivered to the prejudice to the provisions of the second
buyer, he cannot rescind the sale if he knew of paragraph of Article 1191.
the breach of warranty when he accepted the Where the goods have been delivered to the
goods without protest, or if he fails to notify the buyer, he cannot rescind the sale if he knew of
seller within a reasonable time of the election to the breach of warranty when he accepted the
rescind, or if he fails to return or to offer to goods without protest, or if he fails to notify the
return the goods to the seller in substantially as seller within a reasonable time of the election to
good condition as they were in at the time the rescind, or if he fails to return or to offer to
ownership was transferred to the buyer. But if return the goods to the seller in substantially as
deterioration or injury of the goods is due to the good condition as they were in at the time the
breach or warranty, such deterioration or injury ownership was transferred to the buyer. But if
shall not prevent the buyer from returning or deterioration or injury of the goods is due to the
offering to return the goods to the seller and breach or warranty, such deterioration or
rescinding the sale.

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injury shall not prevent the buyer from returning Neither shall rescission take place when the things
or offering to return the goods to the seller and which are the object of the contract are legally in
rescinding the sale. the possession of third persons who did not act in
Where the buyer is entitled to rescind the sale bad faith.
and elects to do so, he shall cease to be liable In this case, indemnity for damages may be
for the price upon returning or offering to return demanded from the person causing the loss.
the goods. If the price or any part thereof has (1295)
already been paid, the seller shall be liable to
repay so much thereof as has been paid, CC Art. 1591
concurrently with the return of the goods, or Should the vendor have reasonable grounds to fear
immediately after an offer to return the goods in the loss of immovable property sold and its price,
exchange for repayment of the price. he may immediately sue for the rescission of the
Where the buyer is entitled to rescind the sale sale.
and elects to do so, if the seller refuses to Should such ground not exist, the provisions of
accept an offer of the buyer to return the goods, Article 1191 shall be observed. (1503)
the buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a C. SALE OF MOVABLES ON
lien to secure payment of any portion of the
INSTALLMENT59
price which has been paid, and with the
remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526. CC Art. 1484
5. In the case of breach of warranty of quality, In a contract of sale of personal property the price
such loss, in the absence of special of which is payable in installments, the vendor may
circumstances showing proximate damage of a exercise any of the following remedies:
greater amount, is the difference between the 1. Exact fulfillment of the obligation, should the
value of the goods at the time of delivery to the vendee fail to pay;
buyer and the value they would have had if 2. Cancel the sale, should the vendee's failure to
they had answered to the warranty. (n) pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
B. SALE OF IMMOVABLES AND THINGS vendee's failure to pay cover two or more
OTHER THAN GOODS installments. In this case, he shall have no
further action against the purchaser to recover
CC Art. 1191 any unpaid balance of the price. Any agreement
The power to rescind obligations is implied in to the contrary shall be void. (1454-A-a)60
reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the 59
LEVY v GERVACIO: CC Art 1454 is aimed at sales where
fulfillment and the rescission of the obligation, with the price is payable in several installments. A cash payment
(in sales with two installments) cannot be considered as a
the payment of damages in either case. He may
payment in installments, and even if it can be so considered,
also seek rescission, even after he has chosen still the law does not apply, for it requires nonpayment of two
fulfillment, if the latter should become impossible. or more installments in order that its provisions may be
invoked. In this case, only one installment was unpaid.
The court shall decree the rescission claimed, 60
TAJANLANGIT v SOUTHERN MOTORS: It is true that
unless there be just cause authorizing the fixing of there was a chattel mortgage on the goods sold, but Southern
a period. Motors elected to sue the note exclusively – to exact
fulfillment of the obligation to pay. It had the right to
This is understood to be without prejudice to the select among the three remedies established in Art 1484. In
rights of third persons who have acquired the choosing to sue on the note, it was not thereby limited to the
thing, in accordance with Articles 1385 and 1388 proceeds of the sale, on execution, of the mortgaged good.
and the Mortgage Law. (1124) FILINVEST v CA: The remedies IN 1484 are alternative
and not cumulative. Hence, the exercise of one bars the
exercise of the others.
CC Art. 1192 NONATO v IAC: The corporation is barred from exacting
In case both parties have committed a breach of payment from Nonato of the balance of the price of the
the obligation, the liability of the first infractor shall vehicle when it had already repossessed it.
CRUZ v FILIPINAS INVESTMENTS: The vendor of
be equitably tempered by the courts. If it cannot
personal property sold on installment basis is precluded, after
be determined which of the parties first violated foreclosing the chattel mortgage on the thing sold, from
the contract, the same shall be deemed having a recourse against the additional security put up by a
extinguished, and each shall bear his own third party to guarantee the purchaser’s performance of his
damages. (n) obligation.
NORTHERN MOTORS v SAPINOSO: What Art 1484 (3)
prohibits is “further action against the purchaser to recover
CC Art 1385 any unpaid balance of the price;” and although this Court has
Rescission creates the obligation to return the construed the word “action” to mean “any judicial or
things which were the object of the contract, extrajudicial proceeding by virtue of which the vendor may
together with their fruits, and the price with its lawfully be enabled to exact recovery of the supposed
unsatisfied balance of the purchase price from the purchaser
interest; consequently, it can be carried out only or his privy,” there is no occasion at this stage to apply the
when he who demands rescission can return restrictive provision of the said article because there has not
whatever he may be obliged to restore. yet been a foreclosure sale resulting in a deficiency. The
payment of the sum of P1,250 of Sapinoso was a voluntary

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CC Art. 1485
The preceding article shall be applied to contracts D. SALE OF IMMOVABLES ON
purporting to be leases of personal property with
INSTALLMENT
option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
(1454-A-a) 1. ANTICIPATORY BREACH

CC Art. 1486 CC Art. 1591


In the case referred to in two preceding articles, a Should the vendor have reasonable grounds to fear
stipulation that the installments or rents paid shall the loss of immovable property sold and its price,
not be returned to the vendee or lessee shall be he may immediately sue for the rescission of the
valid insofar as the same may not be sale.
unconscionable under the circumstances. (n) Should such ground not exist, the provisions of
Article 1191 shall be observed. (1503)
CC Art. 1533
Where the goods are of perishable nature, or 2. PD 957, SECTION 23 & 2462
where the seller expressly reserves the right of
resale in case the buyer should make default, or PD 957 Sec. 23 Non-Forfeiture of Payments
where the buyer has been in default in the No installment payment made by a buyer in a
payment of the price for an unreasonable time, an subdivision or condominium project for a lot or unit
unpaid seller having a right of lien or having he contracted to buy shall be forfeited in favor of
stopped the goods in transitu may resell the goods. the owner or developer when the buyer, after due
He shall not thereafter be liable to the original notice to the owner or developer, desists from
buyer upon the contract of sale or for any profit further payment due to the failure of the owner or
made by such resale, but may recover from the developer to develop the subdivision or
buyer damages for any loss occasioned by the condominium project according to the approved
breach of the contract of sale. plans and within the time limit for complying with
Where a resale is made, as authorized in this the same. Such buyer may, at his option, be
article, the buyer acquires a good title as against reimbursed the total amount paid including
the original buyer. amortization interests but excluding delinquency
interests, with interest thereon at the legal rate.
It is not essential to the validity of resale that
notice of an intention to resell the goods be given PD 957 Sec. 24 Failure to pay installments
by the seller to the original buyer. But where the The rights of the buyer in the event of his failure to
right to resell is not based on the perishable nature pay the installments due for reasons other than
of the goods or upon an express provision of the failure of the owner or developer to develop the
contract of sale, the giving or failure to give such project shall be governed by Republic Act No. 6552
notice shall be relevant in any issue involving the
question whether the buyer had been in default for 3. RA 6552 “MACEDA LAW”: SALE OF
an unreasonable time before the resale was made. RESIDENTIAL REALTY ON INSTALLMENT63
It is not essential to the validity of a resale that
notice of the time and place of such resale should
be given by the seller to the original buyer.
The seller is bound to exercise reasonable care and 62
CASA FILIPINAS REALTY v OP: PD 957 to stem the tide
judgment in making a resale, and subject to this of “fraudulent manipulations perpetrated by unscrupulous
requirement may make a resale either by public or subdivision and condominium sellers and operators, such as
failure to deliver titles to buyers or titles free from liens and
private sale. He cannot, however, directly or encumbrances. Should the notice requirement in Sec 23 be
indirectly buy the goods. (n) construed as required to be given before a buyer desists from
further paying, the intent of the law to protect subdivision lot
 When the seller assigns his credit to another buyers will tend to be defeated.
person, the latter may likewise avail of the
BRICKTOWN DEV’T v TIERRA: When a grace period is
remedies under Art 1484 (assuming case is provided for in the contract of sale, it should be construed as
one of sale of movables on installment). If the a right, not an obligation of the debtor, and when
remedy chosen is rescission, a stipulation in unconditionally conferred, the grace period is effective without
the contract that the installments paid shall further need of demand either calling for the payment of the
obligation or for honoring the right.
not be returned to the vendee is valid insofar
as the same may not be unconscionable under 63
MCLAUGHLIN v CA: Sec 4 of RA 6552 provides: “In case
the circumstances61 where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days
from the date the installment became due. If the buyer fails
act on his part and did not result from a “further action” to pay the installments due at the expiration of the grace
instituted by Northern Motors. period, the seller may cancel the contract after thirty days
BORBON v SERVICE-WIDE SPECIALIST: from receipt by the buyer of the notice of the cancellation or
When the seller assigns his credit to another person, the latter the demand for rescission of the contract by a notarial act.”
is likewise bound by the same law. Accordingly, when the Flores tendered the manager’s check after 17 days, which is
assignee forecloses on the mortgage, there can be no further well within the 30-day period. However, Flores did not follow
recovery of the deficiency, and the seller-mortgagee is tender of payment with consignation. Since McLaughlin
deemed to have renounced any right thereto. refused to accept the tender of payment, it was incumbent
61
Villanueva citing Delta Motor v. Niu Kim Duan, 213 SCRA upon Flores to deposit the amount in court.
259

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XIII. Breach of Contracts Sales
4. RESCISSION ON SALE ON
RESIDENTIAL REALTY ON INSTALLMENT
NON-
XIV. EXTINGUISHMENT OF THE SALE
CC Art 1191 CC Art. 1600
The power to rescind obligations is implied in Sales are extinguished by the same causes as all
reciprocal ones, in case one of the obligors should other obligations, by those stated in the preceding
not comply with what is incumbent upon him. articles of this Title, and by conventional or legal
redemption. (1506)
The injured party may choose between the
fulfillment and the rescission of the obligation, with
CC Art. 1231
the payment of damages in either case. He may
Obligations are extinguished:
also seek rescission, even after he has chosen
1. By payment or performance;
fulfillment, if the latter should become impossible.
2. By the loss of the thing due;
The court shall decree the rescission claimed,
3. By the condonation or remission of the debt;
unless there be just cause authorizing the fixing of
4. By the confusion or merger of the rights of
a period.
creditor and debtor;
This is understood to be without prejudice to the 5. By compensation;
rights of third persons who have acquired the 6. By novation.
thing, in accordance with Articles 1385 and 1388 Other causes of extinguishment of obligations, such
and the Mortgage Law. (1124) as annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed
CC Art 1592 elsewhere in this Code. (1156a)
In the sale of immovable property, even though it
may have been stipulated that upon failure to pay
A. CONVENTIONAL REDEMPTION
the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee
may pay, even after the expiration of the period, DEFINITION
as long as no demand for rescission of the contract
has been made upon him either judicially or by a In conventional redemption, the vendor reserves
notarial act. After the demand, the court may not the right to repurchase the thing sold, with the
grant him a new term. (1504a) obligation of returning the price of the sale the
expenses of the contract, the necessary and useful
expenses made on the thing, and other payments
made by reason of the sale.64

DISTINGUISHED FROM EQUITABLE


MORTGAGE

EQUITABLE MORTGAGE
One which, although lacking in some formality
or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to
charge real property as a security for debt, and
contains nothing impossible or contrary to law

BADGES OF AN EQUITABLE MORTGAGE65

CC Art. 1602
The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
1. When the price of a sale with right to
repurchase is unusually inadequate;
2. When the vendor remains in possession as
lessee or otherwise;
3. When upon or after the expiration of the right
to repurchase another instrument extending the

64
VILLARICA v CA: The right of repurchase is not a right
granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract.
TORRES v CA: For a sale to be one a retro, it is necessary
that the right be reserved in the same contract
65
CLARAVALL v CA: The urgent necessity for money of the
apparent vendor, the inadequacy of the consideration for the
supposed sale, and the extension of the period of redemption
are circumstances which are indicative that the contract is an
equitable mortgage.

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XIV. Extinguishment of the Sale Sales
period of redemption or granting a new period consideration in order to separate and distinct from
is executed; be valid and effective purchase price
4. When the purchaser retains for himself a part of
the purchase price; May not be beyond the 10 May be beyond the 10
5. When the vendor binds himself to pay the taxes year period year period
on the thing sold;
6. In any other case where it may be fairly Requires tender of May be exercised by
inferred that the real intention of the parties is payment of amount notice
required by law, including
that the transaction shall secure the payment of
consignment thereof if
a debt or the performance of any other
tender cannot be made
obligation. In any of the foregoing case, any effectively
money, fruits, or other benefit to be received by
the vendees as rent or otherwise shall be
considered as interest which shall be subject to PERIOD OF REDEMPTION
the usury laws.
CC Art. 1606
 A contract shall be construed as an equitable The right referred to in Article 1601, in the absence
mortgage when any of the circumstance in of an express agreement, shall last four years from
Art. 1602 is present. the date of the contract.
Should there be an agreement, the period cannot
Reason for the rule exceed ten years.
To curtail the practice of creditors in making
However, the vendor may still exercise the right to
their agreement of mortgage appear in the form of
repurchase within thirty days from the time final
a sale with pacto de retro, in order to circumvent
judgment was rendered in a civil action on the
the prohibition of pactum commissorium in pledge
basis that the contract was a true sale with right to
and mortgage
repurchase. (1508a)
CC Art. 2208
GENERAL RULE
The creditor cannot appropriate the things given by
Period starts running at the date of the
way of pledge or mortgage, or dispose of them.
execution of the contract.
Any stipulation to the contrary is null and void
EXCEPTION
 Because in making it appear a pacto de retro
When there is a suspensive condition.
sale, the creditors can do away with
foreclosure proceedings
WHEN NO PERIOD AGREED UPON
Period: Four (4) years from the date of the
Remedy
contract
Reformation of the instrument [must be
brought within 10 years]
WHEN PERIOD AGREED UPON67
1. If the agreement is construed to be an
The period is binding and it may also be
equitable mortgage, any money or other benefit
extended, as long as it does not exceed 10 years.
received as “rents,” shall be considered as
“interest.”
Reason for limitation
2. Where the agreement is upheld as a pacto de
A pacto de retro is a suspension of title and it
retro sale, the vendor may still exercise the
is against public interest to permit such uncertainty
right within 30 days from the time the
to continue for a long time.
judgment becomes final.
EXERCISE OF THE RIGHT TO REDEEM68
DISTINGUISHED FROM OPTION TO BUY66

Right of redemption Option to buy


67
Not a separate contract, Principal contract and may TAYAO v DULAY: Although the stipulation as to the period
may be unclear or void, a period of redemption was agreed
but merely part of a main be created independent of
upon. Thus, it is the 10-year period that applies, not the 4-
contract of sale; cannot another contract year period.
exist unless reserved at BALUYOT v VENEGAS: The object of the sale cannot be
the time of the perfection repurchased during the first 10 years.
of the main contract of The stipulation is void and against public policy.
sale BANDONG v Austria : The provisions of the contract,
whereby the parties undertook by express agreement to
Need not have separate Must have a consideration secure to the vendors a right to repurchase in the month of
March of any year after the date of the contract, were valid
and binding upon the parties for a period of ten years from
the date of the contract but wholly without force and effect
66
ADIARTE v TUMANENG: An agreement to repurchase thereafter.
68
becomes an option to buy when entered into after the time to GARGOLLO v DUERO: The vendor a retro is not given the
redeem stipulated had already expired, because then the option to require the vendee a retro to remove the useful
vendee a retro became the absolute owner of the thing sold, improvement, but must pay for the useful improvements
and the subsequent grant of the right to repurchase is a new introduced by the vendee a retro; otherwise, the latter may
agreement. retain possession of the thing until reimbursement is made.

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XIV. Extinguishment of the Sale Sales
 A vendor must manifest his right to redeem in until after they have exhausted the property
writing. This must be accompanied with an of the vendor.
actual or simultaneous tender of payment of  If several persons, jointly and in the same
the redemption price. contract, should sell an undivided immovable
» Redemption price – includes the amount of with a right of repurchase, none of them may
the sale, the expenses of the contract and exercise this right for more than his respective
other legitimate payments made by the share. The same rule shall apply if the person
vendee by reason of such sale, and the who sold an immovable alone has left several
necessary and useful expenses made on heirs.
the thing by the vendee.  When the co-owners of an indivisible
 It is only when the vendee flatly refused that immovable, in order to end the co-ownership,
tender of payment is not necessary. sold their interests absolutely to the same
Consignation of the redemption price in court person who previously bought the share of a
is not necessary to preserve the right. In the co-owner subject to a right of redemption, the
absence of the vendee a retro, the right may latter can be compelled to redeem the whole
be exercised by filing a suit against him and property.
consigning the amount in court.
 The exercise of redemption is not limited only FROM WHOM TO REDEEM
to the total redemption price enumerated in
Art 1616 of the CC, since said legal provision CC Art. 1615
is not restrictive nor exclusive. It includes If the vendee should leave several heirs, the action
other stipulations which may have been for redemption cannot be brought against each of
agreed upon69 them except for his own share, whether the thing
be undivided, or it has been partitioned among
BY WHOM EXERCISED them.
But if the inheritance has been divided, and the
CC Art. 1610 thing sold has been awarded to one of the heirs,
The creditors of the vendor cannot make use of the the action for redemption may be instituted against
right of redemption against the vendee, until after him for the whole. (1517)
they have exhausted the property of the vendor.
(1512) CC Art. 1608
The vendor may bring his action against every
CC Art. 1611 possessor whose right is derived from the vendee,
In a sale with a right to repurchase, the vendee of even if in the second contract no mention should
a part of an undivided immovable who acquires the have been made of the right to repurchase, without
whole thereof in the case of article 498, may prejudice to the provisions of the Mortgage Law
compel the vendor to redeem the whole property, and the Land Registration Law with respect to third
if the latter wishes to make use of the right of persons. (1510)
redemption. (1513)
 From whom to redeem
CC Art. 1612 1. Vendee a retro
If several persons, jointly and in the same 2. His heirs or assigns
contract, should sell an undivided immovable with 3. His agent
a right of repurchase, none of them may exercise
this right for more than his respective share. EFFECT OF REDEMPTION
The same rule shall apply if the person who sold an
immovable alone has left several heirs, in which CC Art. 1617
case each of the latter may only redeem the part If at the time of the execution of the sale there
which he may have acquired. (1514) should be on the land, visible or growing fruits,
there shall be no reimbursement for or prorating of
CC Art. 1613 those existing at the time of redemption, if no
In the case of the preceding article, the vendee indemnity was paid by the purchaser when the sale
may demand of all the vendors or co-heirs that was executed.
they come to an agreement upon the purchase of Should there have been no fruits at the time of the
the whole thing sold; and should they fail to do so, sale and some exist at the time of redemption,
the vendee cannot be compelled to consent to a they shall be prorated between the redemptioner
partial redemption. (1515) and the vendee, giving the latter the part
corresponding to the time he possessed the land in
 Who may redeem the last year, counted from the anniversary of the
1. Vendor date of the sale. (1519a)
2. His heirs or assigns
3. His agent CC Art. 1618
 The creditors of the vendor cannot make use The vendor who recovers the thing sold shall
of the right of redemption against the vendee, receive it free from all charges or mortgages
constituted by the vendee, but he shall respect the
leases which the latter may have executed in good
69
Villanueva citing Solid Homes v. CA, 275 SCRA 267

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faith, and in accordance with the custom of the The right of redemption of co-owners excludes that
place where the land is situated. (1520) of adjoining owners. (1524a)71
 Laches seems to be a special exception to
 The vendor can eject a lessee only after the notice rule under Art 1623.72
expiration of the period of lease or of the
period for redemption. REDEMPTION AMONG CO-OWNERS
 The vendor a retro is entitled to the return of
the thing with damages for the use and CC Art. 1620
occupation if the same. A co-owner of a thing may exercise the right of
redemption in case the shares of all the other co-
EFFECT OF NON-REDEMPTION owners or of any of them, are sold to a third
person. If the price of the alienation is grossly
CC Art. 1607 excessive, the redemptioner shall pay only a
In case of real property, the consolidation of reasonable one.
ownership in the vendee by virtue of the failure of Should two or more co-owners desire to exercise
the vendor to comply with the provisions of article the right of redemption, they may only do so in
1616 shall not be recorded in the Registry of proportion to the share they may respectively have
Property without a judicial order, after the vendor in the thing owned in common. (1522a)
has been duly heard. (n)
WHEN THE RIGHT MAY BE EXERCISED
CC Art. 1606 When a share of a co-owner is sold to a third
xxx However, the vendor may still exercise the person, who is a stranger.
right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the THRUST OF THE LAW
basis that the contract was a true sale with right to To reduce the number of co-owners until the
repurchase.70 community is done away with.
 The ownership of the vendee becomes WHEN THE RIGHT IS NOT AVAILABLE
absolute and irrevocable by operation of law. 1. Where the share of the co-owner is sold to
 The vendee is not entitled to recover damages another co-owner
by virtue of non-redemption, notwithstanding 2. Where the share of a co-owner was merely
a stipulation in the contract for payment of mortgaged
damages.
 Should two or more co-owners desire to
B. LEGAL REDEMPTION exercise the right, they may only do so in
proportion to the share they may respectively
DEFINITION have in the thing owned in common.

Legal redemption is the right to be subrogated, REDEMPTION AMONG ADJOINING OWNERS


upon the same terms and conditions stipulated in
the contract, in the place of one who acquires a The law distinguishes between rural and urban
thing by purchase or dation in payment, or by any lands. The distinction is based on the character of
other transaction whereby ownership is transmitted the community or vicinity in which it is found.
by onerous title. This is to encourage the maximum development
and utilization of lands.
WHEN PERIOD OF LEGAL REDEMPTION
BEGINS RURAL LANDS

CC Art. 1623 CC Art. 1621


The right of legal pre-emption or redemption shall The owners of adjoining lands shall also have the
not be exercised except within thirty days from the right of redemption when a piece of rural land, the
notice in writing by the prospective vendor, or by
the vendor, as the case may be. The deed of sale
71
shall not be recorded in the Registry of Property, HERMOSO v CA : It was error for the respondent court to
unless accompanied by an affidavit of the vendor rule that the right of the petitioner to redeem the alienated
share had long proscribed. This finding fails to take into
that he has given written notice thereof to all account that the period of legal redemption is not a
possible redemptioners. prescriptive period. It is a condition precedent to the exercise
of the right of redemption. It is a period set by law to restrict
the right of the person exercising the right of legal
redemption. It is not one of prescription. While the law
requires that the notice must be in writing, it does not state
any particular form thereof, so long as the reasons for a
70
ABILLA v GABONSENG: The applicability of Article 1606 written notice are present. The records of the case show that
rests on the bona fide intent of the vendor a retro, i.e., the sale of the brothers’ share was deliberately hidden from
respondent in this case. If he honestly believed that the the petitioners. For sometime after the sale, the petitioners
transaction was an equitable mortgage, the said article applies were ignorant about its execution. When they somehow
and he can still repurchase the property within thirty days heard rumors about it, they had to take one step after another
from finality of the judgment declaring the transaction as a to find out if the information was true.
72
sale with pacto de retro. Parenthetically, it matters not what Villanueva citing Alonzo v. IAC
the vendee intended the transaction to be.

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XIV. Extinguishment of the Sale Sales
area of which does not exceed one hectare, is When the right may be exercised
alienated, unless the grantee does not own any When a piece of urban land which is so small
rural land. and so situated that a major portion thereof cannot
This right is not applicable to adjacent lands which be used for any practical purpose within a
are separated by brooks, drains, ravines, roads and reasonable time, having been bought merely for
other apparent servitudes for the benefit of other speculation, is about to be resold
estates.
Thrust of the law
If two or more adjoining owners desire to exercise To discourage speculation in real estate and
the right of redemption at the same time, the aggravate the housing problem.
owner of the adjoining land of smaller area shall be
preferred; and should both lands have the same When the right is not available
area, the one who first requested the redemption. When the urban land is transferred under an
(1523a) “exchange” of properties [because there is no
resale]74
 When two or more owners of adjoining lands
When the right may be exercised wish to exercise the right of pre-emption or
When a piece of rural land not exceeding 1 ha., redemption, the owner whose intended use of
is alienated [unless the grantee does not own any the land in question appears best justified
rural land] shall be preferred.

Thrust of the law ASSIGNMENT OF A CHOSE IN ACTION


1. to prevent the rural land not exceeding 1 ha.
from passing into the hands of a person other CC Art. 1634
than the adjacent owners who can make use of When a credit or other incorporeal right in litigation
the alienated property for the development of is sold, the debtor shall have a right to extinguish it
their own lands by reimbursing the assignee for the price the latter
2. To consolidate scattered small agricultural lands paid therefor, the judicial costs incurred by him,
under one ownership and the interest on the price from the day on which
the same was paid.
When the right is not available
Adjacent lands which are separated by brooks, A credit or other incorporeal right shall be
drains, ravines, roads and other apparent considered in litigation from the time the complaint
servitudes for the benefit of other estates [because concerning the same is answered.
owners cannot be said to be adjoining owners The debtor may exercise his right within thirty days
anymore] from the date the assignee demands payment from
him. (1535)
 If two or more adjoining owners desire to
exercise the right of redemption at the same When the right may be exercised
time, the owner of the adjoining land of When a credit or other incorporeal right in
smaller area shall be preferred; and should litigation is sold.
both lands have the same area, the one who
first requested the redemption. Thrust of the law
To discourage speculation in lawsuits which
URBAN LANDS73 would make the courts an instrument for profit.

CC Art. 1622 When the right is not available [because the


Whenever a piece of urban land which is so small assignee has a valid interest in the right or
and so situated that a major portion thereof cannot property assigned]
be used for any practical purpose within a 1. When the assignment of a credit was made
reasonable time, having been bought merely for before any litigation
speculation, is about to be re-sold, the owner of 2. Assignments made to a co-heir or co-owner of
any adjoining land has a right of pre-emption at a the credit, to a creditor in payment of his credit,
reasonable price. to the possessor of a tenement or land which is
If the re-sale has been perfected, the owner of the subject to the assigned credit. (Art. 1635)
adjoining land shall have a right of redemption,
also at a reasonable price. REDEMPTION OF HOMESTEAD

When two or more owners of adjoining lands wish CA 141 Sec. 119
to exercise the right of pre-emption or redemption, Every conveyance of land acquired under a free
the owner whose intended use of the land in patent or homestead, when proper, shall be
question appears best justified shall be preferred. subject to repurchase by the applicant, his widow
(n) or legal heirs within 5 years from the date of
conveyance.

73 74
ORTEGA v ORCINE The term “urban” in Art. 1622 does not SEN PO EK MARKETING v. MARTINEZ:
necessarily refer to the nature of the land itself but to the Article 1622 is not applicable to a lessee trying to buy the land
character of the community or vicinity in which it is found. he is leasing.

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XIV. Extinguishment of the Sale Sales
PERIOD OF REDEMPTION
WHO MAY REDEEM Within 1 year from the date of registration of
1. The applicant the certificate of sale
2. His widow
3. Legal heirs REDEMPTION IN EXTRAJUDICIAL
FORECLOSURE OF MORTGAGES
PERIOD OF REDEMPTION
Within 5 years from the date of conveyance Act No. 3135. Sec. 6
In extrajudicial foreclosure of mortgage, the
REDEMPTION IN TAX SALES debtor, his successors-in-interest, any judicial or
judgment creditor of said debtor, or any junior
NIRC of 1997. Sec. 215 Forfeiture to encumbrancer may redeem the property within 1
Government for Want of Bidder year from the date of the sale.75
In case there is no bidder for real property exposed
for sale as herein above provided or if the highest
bid is for an amount insufficient to pay the taxes, WHO MAY REDEEM
penalties and costs, the Internal Revenue Officer 1. the debtor
conducting the sale shall declare the property 2. his successors- in-interest
forfeited to the Government in satisfaction of the 3. judicial creditor/judgment creditor of the debtor
claim in question and within two (2) days 4. any person having a lien on the property
thereafter, shall make a return of his proceedings
and the forfeiture which shall be spread upon the PERIOD OF REDEMPTION
records of his office. It shall be the duty of the Within 1 year from the date of the sale
Register of Deeds concerned, upon registration
with his office of any such declaration of forfeiture, REDEMPTION IN JUDICIAL FORECLOSURE OF
to transfer the title of the property forfeited to the MORTGAGES
Government without the necessity of an order from
a competent court. RA 879176 Sec. 47 Foreclosure of Real Estate
Within one (1) year from the date of such Mortgage
forfeiture, the taxpayer, or any one for him may In the event of foreclosure, whether judicially or
redeem said property by paying to the extra-judicially, of any mortgage on real estate
Commissioner or the latter's Revenue Collection which is security for any loan or other credit
Officer the full amount of the taxes and penalties, accommodation granted, the mortgagor or debtor
together with interest thereon and the costs of whose real property has been sold for the full or
sale, but if the property be not thus redeemed, the partial payment of his obligation shall have the
forfeiture shall become absolute. right within one year after the sale of the real
estate, to redeem the property by paying the
WHO MAY REDEEM amount due under the mortgage deed, with
1. the delinquent taxpayer interest thereon at rate specified in the mortgage,
2. anyone for him and all the costs and expenses incurred by the
bank or institution from the sale and custody of
PERIOD OF REDEMPTION said property less the income derived therefrom.
Within 1 year from the date of sale However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial
REDEMPTION BY A JUDGMENT DEBTOR foreclosure shall have the right to enter upon and
take possession of such property immediately after
Rules of Court. Rule 39. Sec. 27 Who may the date of the confirmation of the auction sale and
redeem real property so sold administer the same in accordance with law. Any
Real property sold as provided in the last preceding petition in court to enjoin or restrain the conduct of
section, or any part thereof sold separately, may foreclosure proceedings instituted pursuant to this
be redeemed in the manner hereinafter provided, provision shall be given due course only upon the
by the following persons: filing by the petitioner of a bond in an amount fixed
a. The judgment obligor, or his successor in by the court conditioned that he will pay all the
interest in the whole or any part of the damages which the bank may suffer by the
property; enjoining or the restraint of the foreclosure
b. A creditor having a lien by virtue of an proceeding.
attachment, judgment or mortgage on the Notwithstanding Act 3135, juridical persons whose
property sold, or on some part thereof, property is being sold pursuant to an extrajudicial
subsequent to the lien under which the foreclosure, shall have the right to redeem the
property was sold. Such redeeming creditor property in accordance with this provision until, but
is termed a redemptioner. not after, the registration of the certificate of
foreclosure sale with the applicable Register of
WHO MAY REDEEM Deeds which in no case shall be more than three
1. the judgment obligor (3) months after foreclosure, whichever is earlier.
2. his successors-in-interest
3. creditor having a lien by virtue of an 75
This provision is taken from Baviera only– not sure if this is
attachment the exact wording of the law.
76
The General Banking of Law of 2000

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Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act XV. BULK SALES LAW77
shall retain their redemption rights until their
expiration. A. Act No. 3952
GENERAL RULE
ACT NO. 3952. An act to regulate the sale,
No right to redeem is granted to the debtor-
transfer, mortgage or assignment of goods,
mortgagor when there has been judicial foreclosure
wares, merchandise, provisions or materials,
of real estate mortgage.
in bulk, and prescribing penalties for the
violation of the provisions thereof.
EXCEPTION
When the mortgagee is a bank or a banking
Sec 1
institution.
This Act shall be known as "The Bulk Sales Law."

Sec. 2 Sale and transfer in bulk


Any sale, transfer, mortgage or assignment of a
stock of goods, wares, merchandise, provisions, or
LEGAL RIGHT TO REDEEM UNDER THE
materials otherwise than in the ordinary course of
AGRARIAN REFORM CODE
trade and the regular prosecution of the business
of the vendor, mortgagor, transferor, or assignor,
RA 3844. Sec. 12 Lessee’s Right of Redemption
or sale, transfer, mortgage or assignment of all, or
In case the landholding is sold to a third person
substantially all, of the business or trade
without the knowledge of the agricultural lessee,
theretofore conducted by the vendor, mortgagor,
the latter shall have the right to redeem the same
transferor, or assignor, or of all, or substantially
at a reasonable price and consideration; Provided,
all, of the fixtures and equipment used in and
That the entire landholding sold must be
about the business of the vendor, mortgagor,
redeemed: Provided, further, That where there are
transferor, or assignor, shall be deemed to be a
two or more agricultural lessees, each shall be
sale and transfer in bulk, in contemplation of this
entitled to said right of redemption only to the
Act: Provided, however, That if such vendor,
extent of the area actually cultivated by him. The
mortgagor, transferor or assignor, produces and
right of redemption under this Section may be
delivers a written waiver of the provisions of this
exercised within two years from the registration of
Act from his creditors as shown by verified
the sale, and shall have priority over any other
statements, then, and in that case, the provisions
right of legal redemption.
of this section shall not apply.
WHO MAY REDEEM
Sec. 3 Statement of creditors
The lessee who has no knowledge of the sale
It shall be the duty of every person who shall sell,
to a third person
mortgage, transfer, or assign any stock of goods,
wares, merchandise, provisions or materials in
PERIOD OF REDEMPTION
bulk, for cash or on credit, before receiving from
Within 2 years from the registration the sale
the vendee, mortgagee, or his, or its agent or
representative any part of the purchase price
CONDITIONS FOR REDEMPTION
thereof, or any promissory note, memorandum, or
The entire landholding sold must be redeemed
other evidence therefor, to deliver to such vendee,
mortgagee, or agent, or if the vendee, mortgagee,
 Where there are two or more agricultural
or agent be a corporation, then to the president,
lessees, each shall be entitled to said right of
vice-president, treasurer, secretary or manager of
redemption only to the extent of the area
said corporation, or, if such vendee or mortgagee
actually cultivated by him
be a partnership firm, then to a member thereof, a
written statement, sworn to substantially as
hereinafter provided, of the names and addresses
of all creditors to whom said vendor or mortgagor
may be indebted, together with the amount of
indebtedness due or owing, or to become due or
owing by said vendor or mortgagor to each of said
creditors, which statement shall be verified by an
oath to the following effect:

PHILIPPINE ISLANDS
PROVINCE OR CITY OF _________________}
Before me, the undersigned authority, personally
appeared __________________ (vendor,

77
LIWANAG v MENGHRAJ: The constitutional right to
dispose freely of one’s property is not absolute. The creditor
should be protected in his rights against the debtor. The
State, in the exercise of its police power, seeks to protect such
creditor against insolvent and fraudulent vendors

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XV. Bulk Sales Law Sales
mortgagor, agent or representative, as the case mortgagor, or assignor, who shall knowingly or
may be), bearing cedula No. ____________ issued willfully make, or deliver or cause to be made or
at ___________ on the day of _____________ delivered, a statement, as provided for in section
who, by me being first duly sworn, upon his oath, three hereof, which shall not include the names of
deposes and states that the foregoing statement all such creditors, with the correct amount due and
contains the names of all of the creditors of to become due to each of them, or shall contain
________________ (vendor, or mortgagor) any false or untrue statement, shall be deemed to
together with their addresses, and that the amount have violated the provisions of this Act.
set opposite each of said respective names, is the
amount now due and owing, and which shall Sec. 7
become due and owing by _____________ (vendor It shall be unlawful for any person, firm or
or mortgagor) to such creditors, and that there are corporation, as owner of any stock of goods,
no creditors holding claims due or which shall wares, merchandise, provisions or materials, in
become due, for or on account of goods, wares, bulk, to transfer title to the same without
merchandise, provisions or materials purchased consideration or for a nominal consideration only.
upon credit or on account of money borrowed, to
carry on the business of which said goods, wares, Sec. 8
merchandise, provisions or materials are a part, Nothing in this Act contained shall apply to
other than as set forth in said statement. executors, administrators, receivers, assignees in
______________________ insolvency, or public officers, acting under judicial
Subscribed and sworn to before me this process.
__________ day of _________, 19____, at
_____________. Sec. 9
The sworn statement containing the names and
Sec. 4 Fraudulent and void sale, transfer or addresses of all creditors of the vendor or
mortgage mortgagor provided for in section three of this Act,
Whenever any person shall sell, mortgage, shall be registered in the Bureau of Commerce.
transfer, or assign any stock of goods, wares, For the registration of each such sworn statement
merchandise, provisions or materials, in bulk, for a fee of five pesos shall be charged to the vendor
cash or on credit, and shall receive any part of the or mortgagor of the stock of goods, wares,
purchase price, or any promissory note, or other merchandise, provisions or materials, in bulk.
evidence of indebtedness for said purchase price or
advance upon mortgage, without having first Sec. 10
delivered to the vendee or mortgagee or to his or The provisions of this Act shall be administered by
its agent or representative, the sworn statement the Director of the Bureau of Commerce and
provided for in section three hereof, and without Industry, who is hereby empowered, with the
applying the purchase or mortgage money of the approval of the Department Head, to prescribe and
said property to the pro rata payment of the bona adopt from time to time such rules and regulations
fide claim or claims of the creditors of the vendor as may be deemed necessary for the proper and
or mortgagor, as shown upon such sworn efficient enforcement of the provisions of this Act.
statement, he shall be deemed to have violated
this Act, and any such sale, transfer or mortgage Sec. 11
shall be fraudulent and void. Any person violating any provision of this Act shall,
upon conviction thereof, be punished by
Sec. 5 Inventory imprisonment not less than six months, nor more
It shall be the duty of every vendor, transferor, than five years, or fined in sum not exceeding five
mortgagor, or assignor, at least ten days before thousand pesos, or both such imprisonment and
the sale, transfer or execution of a mortgage upon fine, in the discretion of the court.
any stock of goods, wares, merchandise, provisions
or materials, in bulk, to make a full detailed Sec. 12
inventory thereof and to preserve the same This Act shall take effect on its approval.
showing the quantity and, so far as is possible with
the exercise of reasonable diligence, the cost price B. RA 3952
to the vendor, transferor, mortgagor or assignor of
each article to be included in the sale, transfer or
mortgage, and notify every creditor whose name Sec. 2
and address is set forth in the verified statement of Any sale, transfer, mortgage or assignment of a
the vendor, transferor, mortgagor, or assignor, at stock of goods, wares, merchandise, provisions, or
least ten days before transferring possession materials otherwise than in the ordinary course of
thereof, personally or by registered mail, of the trade and the regular prosecution of the business
price, terms conditions of the sale, transfer, of the vendor, mortgagor, transferor, or assignor,
mortgage, or assignment. or any sale, transfer, mortgage or assignment of
all, or substantially all, of the business or trade
Sec. 6 theretofore conducted by the vendor, mortgagor,
Any vendor, transferor, mortgagor or assignor of transferor, or assignor, or of all, or substantially
any stock of goods, wares, merchandise, provisions all, of the fixtures and equipment used in and
or materials, in bulk, or any person acting for, or about the business of the vendor, mortgagor,
on behalf of any such vendor, transferor, transferor or assignor, shall be deemed to be a

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sale and transfer in bulk, in contemplation of this without consideration or for a nominal
Act: Provided, however, that if such vendor, consideration only
mortgagor, transferor or assignor produces and
delivers a written waiver of the provisions of this PENALTY: 6 months – 5 years imprisonment; fine
Act from his creditors as shown by verified of < P5,000; or both; penalty imposable to the
statements, then, and in that case, the provisions debtor
of this section shall not apply.

THRUST OF THE LAW

To protect persons who extended credit to


merchants, relying on the fact that their stock of
merchandise was not to be sold in bulk, but kept
up and replenished from time to time (with the
extension of credit comes the presupposition of
continuance in the business of merchandising)

TYPES OF TRANSACTIONS COVERED78

1. Any sale, transfer, mortgage or assignment of a


stock of goods, wares, merchandise, provisions
or materials otherwise than in the ordinary
course of trade and the regular prosecution of
the business
2. Any sale, transfer, mortgage or assignment of
all, or substantially all, of the business or trade
theretofore conducted by the vendor, etc.
3. Any sale, transfer, mortgage or assignment of
all, or substantially all, of the fixtures and
equipment used in and about the business of
the vendor, etc.

Stock – common use when applied to goods in a


mercantile house refers to those which are kept for
sale

COMPLIANCE REQUIREMENT

1. Delivery of the list of creditors to the vendee or


mortgagee before receiving the consideration
2. Application of the consideration to the pro-rata
payment of the claims of creditors appearing in
the list
3. Preparation of a full, detailed inventory of the
goods sold or mortgaged
4. Dotification to creditors at least 10 days before
delivery

EFFECTS OF NON-COMPLIANCE

1. If the purchase or mortgage money is not


applied pro-rata to the payment of the bona
fide claims of the creditors of the
vendor/mortgagor, the sale, transfer, or
mortgage shall be fraudulent and void.
2. The law penalizes any intentional omission of
the names of the creditors in the required list,
with the correct amount due or to become due,
or any false or untrue statement therein. The
law also penalizes any transfer of title in bulk,

78
PEOPLE v WONG: The object of the sale in this case is not
covered by the provision alleged to have been infringed.
Wong’s business was a foundry shop that manufactures iron
works and processes or casts metalsMerchandise – something
that is sold everday and is constantly going out of the store
and being replaced by other goods.

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XVI. Retail Trade Liberalization Act Sales

XVI. RETAIL TRADE LIBERALIZATION A natural-born citizen of the Philippines who has
lost his Philippine citizenship but who resides in the
ACT Philippines shall be granted the same rights as
Filipino citizens for purposes of this Act.

RA 8762 Sec. 5 Foreign Equity Participation


Foreign-owned partnerships, associations and
RA 8762. An act liberalizing the retail trade corporations formed and organized under the laws
business, repealing for the purpose RA 1180, of the Philippines may, upon registration with the
as amended, and for other purposes. Securities and Exchange Commission (SEC) and
the Department of Trade and Industry (DTI) or in
Sec. 1 Title case of foreign-owned single proprietorships, with
This Act shall be known as the "Retail Trade the DTI, engage or invest in the retail trade
Liberalization Act of 2000." business, subject to the following categories:
Category A - Enterprises with paid-up capital of the
Sec. 2 Declaration of Policy equivalent in Philippine Pesos of less than Two
It is the policy of the State to promote consumer Million Five Hundred Thousand US Dollars
welfare in attracting, promoting and welcoming (US$2,500,000.00) shall be reserved exclusively
productive investments that will bring down prices for Filipino citizens and corporations wholly-owned
for the Filipino consumer, create more jobs, by Filipino citizens.
promote tourism, assist small manufacturers,
Category B - Enterprises with a minimum paid-up
stimulate economic growth and enable Philippine
capital of the equivalent in Philippine Pesos of Two
goods and services to become globally competitive
Million Five Hundred Thousand US Dollars
through the liberalization of the retail trade sector.
(US$2,500,000.00) may be wholly owned by
Pursuant to this policy, the Philippine retail industry foreigners except for the first two (2) years after
is hereby liberalized to encourage Filipino and the effectivity of this Act wherein foreign
foreign investors to forge an efficient and participation shall be limited to not more than
competitive retail trade sector in the interest of (60%) of total equity.
empowering the Filipino consumer through lower
Category C - Enterprises with a paid-up capital of
prices, higher quality if goods, better services and
the equivalent in Philippine Pesos of Seven Million
wider choices.
Five Hundred Thousand US Dollars
(US$7,500,000.00) or more maybe wholly owned
Sec. 3 Definition
by foreigners: Provided, however, that in no case
As used in this Act:
shall the investments for establishing a store in
1. "Retail Trade" shall mean any act, occupation or
Categories B and C be less than the equivalent in
calling of habitually selling direct to the general
Philippine Pesos of Eight Hundred Thirty Thousand
public merchandise, commodities or goods for
US Dollars (US$830,000.00).
consumption, but the restriction of this law shall
not apply to the following: Category D - Enterprises specializing in high-end or
a. Sales by a manufacturer, processor, laborer, luxury products with a paid up capital of the
or worker, to the general public the products equivalent in Philippine Pesos of Two Hundred Fifty
manufactured, processed or produced by Thousand US Dollars (US$250,000.00) per store
him if his capital does not exceed One may be wholly-owned by foreigners.
Hundred Thousand Pesos (P100,000.00); The foreign investor shall be required to maintain
b. Sales by a farmer or agriculturist selling the in the Philippines, the full amount of the prescribed
products of his farm; minimum capital. Unless the foreign investor has
c. Sales in restaurant operations by a hotel notified the SEC and the DTI of its intention to
owner or inn-keeper irrespective of the repatriate its capital and cease operations in the
amount of capital: Provided, that the Philippines. The actual use in Philippine operations
restaurant is incidental to the hotel of the inwardly remitted minimum capital
business; and requirements shall be monitored by the SEC.
d. Sales which are limited only to products
manufactured, processed or assembled by a Failure retail stores shall secure a certification from
manufacturer through a single outlet, the Bangko Sentral ng Pilipinas (BSP) and the DTI,
irrespective of capitalization. which will verify or confirm inward remittance of
2. "High-end or luxury goods" shall refer to goods the minimum required capital investment.
which are not necessary for life maintenance
and whose demand is generated in large part Sec. 6. Foreign Investors Acquiring Shares of
by the highest income groups. Luxury goods Stock of Local Retailers. - Foreign Investors
shall include, but are not limited to, products acquiring shares from existing retail stores whether
such as: jewelry, branded or designer clothing or not publicly listed whose net worth is in excess
and footwear, wearing apparel, leisure and of the peso equivalent of Two Million Five Hundred
sporting goods, electronics and other personal Thousand US Dollars (US$2,500,000.00) may
effects. purchase only up to a minimum of sixty percent
(60%) of the equity thereof within the first two (2)
Sec. 4 Treatment of Natural-Born Citizen Who Has years from the effectivity of this Act and thereafter,
Lost His Philippine Citizenship they may acquire the remaining percentage

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XVI. Retail Trade Liberalization Act Sales
consistent with the allowable foreign participation prohibited activities shall hereafter be formulated
as herein provided. by the DTI.

Sec. 7. Public Offering of Shares of Stock. - All


retail trade enterprises under Categories B and C in Sec. 11 Implementing Agency; Rules and
which foreign ownership exceeds eighty percent Regulations
(80%) of equity shall offer a minimum of thirty The monitoring and regulation of foreign sole
percent (30%) of their equity to the public through proprietorships, partnerships, associations or
any stock exchange in the Philippines within eight corporations allowed to engage in retail trade shall
(8) years from their start of operations. be the responsibility of the DTI. This shall include
resolution of conflicts.
Sec. 8 Qualifications of Foreign Retailers The DTI, in coordination with the SEC, the NEDA
No foreign retailer shall be allowed to engage in and the BSP, shall formulate and issue the
retail trade in the Philippines unless all the implementing rules and regulations necessary to
following qualifications are met: implement this Act within ninety (90) days after its
a. A minimum of Two Hundred Million US approval.
Dollars (US$200,000,000.00) net worth in
its parent corporation for Categories B and Sec. 12 Penalty Clause
C, and Fifty Million US Dollars Any person who shall be found guilty of violation of
(US$50,000,000.00) net worth in its parent any provision of this Act shall be punished by
corporation for Category D; imprisonment of not less than six (6) years and
b. Five (5) retailing branches or franchises in one (1) day but not more than eight (8) years, and
operation anywhere around the world unless a fine of not less than One Million Pesos
such retailers has at least one (1) store (P1,000,000.00) but not more than Twenty Million
capitalized at a minimum of Twenty-Five Pesos (P20,000,000.00).
Million US Dollars (US$25,000,000.00);
c. Five (5)-year track record in retailing; and In the case of associations, partnerships or
d. Only nationals from, or judicial entities corporations, the penalty shall be imposed upon its
formed or incorporated in, countries which partners, president, directors, managers and other
allow the entry of Filipino retailers, shall be officers responsible for the violation. If the
allowed to engage in retail trade in the offender is not a citizen of the Philippines, he shall
Philippines. be deported immediately after service of sentence.
The DTI is hereby authorized to pre-qualify all If the Filipino offender is a public officer or
foreign retailers, subject to the provisions of this employee, he shall, in addition to the penalty
Act, before they are allowed to conduct business in prescribed herein, suffer dismissal and permanent
the Philippines. disqualification from public office.
The DTI shall keep a record of qualified foreign Sec. 13 Repealing Clause
retailers who may, upon compliance with law, Republic Act No. 1180, as amended, is hereby
establish retail stores in the Philippines. It shall repealed. Republic Act No. 3018, as amended, and
ensure that the parent retail trading company of all other laws, executive orders, rules and
the foreign investor complies with the qualifications regulations or parts thereof inconsistent with this
on capitalization and track record prescribed in this Act are repealed or modified accordingly.
section.
The Inter-Agency Committee on Tariff and Related Sec. 14. Separability Clause
Matters of the National Economic Development If any provision of this Act shall be held
Authority (NEDA) Board shall formulate and unconstitutional, the other provisions not otherwise
regularly update a list of foreign retailers of high- affected thereby shall remain in force and effect.
end or luxury goods and render an annual report
on the same to Congress. Sec. 15 Effectivity
This Act shall take effect fifteen (15) days after its
Sec. 9 Promotional of Locally Manufactured approval and publication in at least two (2)
Products newspapers of general circulation in the
For ten (10) years after the effectivity of this Act, Philippines.
at least thirty percent (30%) of the aggregate cost
of the stock inventory of foreign retailers falling 1. SCOPE AND DEFINITION OF RETAIL
under Categories B and C and ten percent (10%) TRADE79
for Category D, shall be made in the Philippines.
RETAIL TRADE
Sec. 10 Prohibited Activities of Qualified Foreign
Retailers Any act, occupation or calling of habitually
Qualified foreign retailers shall not be allowed to selling direct to the general public merchandise,
engage in certain retailing activities outside their commodities or goods for consumption
accredited stores through the use of mobile or
rolling stores or carts, the use of sales 79
KING v HERNAEZ : 79 There is no distinction between
representatives, door-to-door selling, restaurants control and non-control positions with respect to employment
and sari-sari stores and such other similar retailing of aliens. The Retail Trade Law read in connection with the
activities: Provided, that a detailed list of Anti-Dummy Act seeks a complete ban on aliens.

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XVI. Retail Trade Liberalization Act Sales
EXCEPT Category D - Enterprises specializing in high-end or
luxury products with a paid up capital of the
1. Sales by a manufacturer, processor, laborer or equivalent in Philippine Pesos of Two Hundred Fifty
worker of products made by him if his capital is Thousand US Dollars (US$250,000.00) per store
less than or equal to 100,000 pesos may be wholly-owned by foreigners.
2. Sales by a farmer or agriculturist of the The foreign investor shall be required to maintain
products of his farm in the Philippines, the full amount of the prescribed
3. Sales limited only to products manufactured, minimum capital. Unless the foreign investor has
processed or assembled by the manufacturer in notified the SEC and the DTI of its intention to
a single outlet irrespective of capitalization repatriate its capital and cease operations in the
Philippines. The actual use in Philippine operations
“GENERAL PUBLIC” of the inwardly remitted minimum capital
requirements shall be monitored by the SEC.
Activities of seller must be such that the target
clientele are not only a particular person or group Failure retail stores shall secure a certification from
of persons. the Bangko Sentral ng Pilipinas (BSP) and the DTI,
which will verify or confirm inward remittance of
 SEC Opinion No. 11, series of 2003: Engaging the minimum required capital investment.
in the selling of merchandise as an incident to
the primary purpose of a corporation does not 4. HOW ALIENS MAY INVEST IN RETAIL
constitute retail trade (e.g., operation of TRADE IN THE PHILIPPINES
pharmacy by a hospital) within the purview of
the Act (Villanueva) Sec. 8 Qualifications of Foreign Retailers
No foreign retailer shall be allowed to engage in
2. RIGHTS OF FORMER NATURAL-BORN retail trade in the Philippines unless all the
FILIPINOS following qualifications are met:
e. A minimum of Two Hundred Million US
Natural-born Filipinos who have lost their Dollars (US$200,000,000.00) net worth in
citizenship but who reside in the Philippines shall its parent corporation for Categories B and
be given the same rights as Filipino citizens with C, and Fifty Million US Dollars
respect to this law. (US$50,000,000.00) net worth in its parent
corporation for Category D;
3. CATEGORIES OF RETAIL TRADE f. Five (5) retailing branches or franchises in
ENTERPRISES operation anywhere around the world unless
such retailers has at least one (1) store
Sec. 5 Foreign Equity Participation capitalized at a minimum of Twenty-Five
Foreign-owned partnerships, associations and Million US Dollars (US$25,000,000.00);
corporations formed and organized under the laws g. Five (5)-year track record in retailing; and
of the Philippines may, upon registration with the h. Only nationals from, or judicial entities
Securities and Exchange Commission (SEC) and formed or incorporated in, countries which
the Department of Trade and Industry (DTI) or in allow the entry of Filipino retailers, shall be
case of foreign-owned single proprietorships, with allowed to engage in retail trade in the
the DTI, engage or invest in the retail trade Philippines.
business, subject to the following categories: The DTI is hereby authorized to pre-qualify all
foreign retailers, subject to the provisions of this
Category A - Enterprises with paid-up capital of the Act, before they are allowed to conduct business in
equivalent in Philippine Pesos of less than Two the Philippines.
Million Five Hundred Thousand US Dollars
(US$2,500,000.00) shall be reserved exclusively The DTI shall keep a record of qualified foreign
for Filipino citizens and corporations wholly-owned retailers who may, upon compliance with law,
by Filipino citizens. establish retail stores in the Philippines. It shall
ensure that the parent retail trading company of
Category B - Enterprises with a minimum paid-up the foreign investor complies with the qualifications
capital of the equivalent in Philippine Pesos of Two on capitalization and track record prescribed in this
Million Five Hundred Thousand US Dollars section.
(US$2,500,000.00) may be wholly owned by
foreigners except for the first two (2) years after The Inter-Agency Committee on Tariff and Related
the effectivity of this Act wherein foreign Matters of the National Economic Development
participation shall be limited to not more than Authority (NEDA) Board shall formulate and
(60%) of total equity. regularly update a list of foreign retailers of high-
end or luxury goods and render an annual report
Category C - Enterprises with a paid-up capital of on the same to Congress.
the equivalent in Philippine Pesos of Seven Million
Five Hundred Thousand US Dollars
(US$7,500,000.00) or more maybe wholly owned
by foreigners: Provided, however, that in no case
shall the investments for establishing a store in
Categories B and C be less than the equivalent in
Philippine Pesos of Eight Hundred Thirty Thousand
US Dollars (US$830,000.00).

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5. RULES ON FOREIGN RETAILERS IN THE of a violation of this section shall be punished by
PHILIPPINES imprisonment of not less than five nor more than
fifteen years, and by a fine not less than the value
6. PENALTY CLAUSE of the right, franchise or privilege, enjoyed or
acquired in violation of the provisions hereof but in
Sec. 12 Penalty Clause no case less than P5000.
Any person who shall be found guilty of violation of
any provision of this Act shall be punished by Sec. 2-A Unlawful use, Exploitation or enjoyment
imprisonment of not less than six (6) years and Any person, corporation, or association which,
one (1) day but not more than eight (8) years, and having in its name or under its control, a right,
a fine of not less than One Million Pesos franchise, privilege, property or business, the
(P1,000,000.00) but not more than Twenty Million exercise or enjoyment of which is expressly
Pesos (P20,000,000.00). reserved by the Constitution or the laws to citizens
In the case of associations, partnerships or of the Philippines or of any other specific country,
corporations, the penalty shall be imposed upon its or to corporations or associations at least sixty per
partners, president, directors, managers and other centum of the capital of which is owned by such
officers responsible for the violation. If the citizens, permits or allows the use, exploitation or
offender is not a citizen of the Philippines, he shall enjoyment thereof by a person, corporation or
be deported immediately after service of sentence. association not possessing the requisites prescribed
If the Filipino offender is a public officer or by a the Constitution or the laws of the Philippines;
employee, he shall, in addition to the penalty or leases, or in any other way, transfers or conveys
prescribed herein, suffer dismissal and permanent said right, franchise, privilege, property or business
disqualification from public office. to a person, corporation or association not
otherwise qualified under the Constitution, or the
provisions of the existing laws; or in any manner
CA 108 permits or allows any person, not possessing the
qualifications required by the Constitution, or
CA 108 (Anti-Dummy Act). An act to punish existing laws to acquire, use, exploit or enjoy a
acts of evasion of the laws on the right, franchise, privilege, property or business, the
nationalization of certain rights, franchises or exercise and enjoyment of which are expressly
privileges. reserved by the Constitution or existing laws to
citizens of the Philippines or of any other specific
Sec. 1 Penalty country, to intervene in the management,
In all cases in which any constitutional or legal operation, administration or control thereof,
provisions requires Philippine or any other specific whether as an officer, employee or laborer therein
citizenship as a requisite for the exercise or with or without remuneration except technical
enjoyment of a right, franchise or privilege, any personnel whose employment may be specifically
citizen of the Philippines or of any other specific authorized by the Secretary of Justice, and any
country who allows his name or citizenship to be person who knowingly aids, assists or abets in the
used for the purpose of evading such provision, planning consummation or perpetration of any of
and any alien or foreigner profiting thereby, shall the acts herein above enumerated shall be
be punished by imprisonment for not less than five punished by imprisonment for not less than five
nor more than fifteen years, and by a fine of not nor more than fifteen years and by a fine of not
less than the value of the right franchise or less than the value of the right, franchise or
privilege, which is enjoyed or acquired in violation privilege enjoyed or acquired in violation of the
of the provisions hereof but in no case less than provisions hereof but in no case less than five
P5000. thousand pesos: Provided, however, That the
The fact that the citizen of the Philippines or of any president, managers or persons in charge of
specific country charged with a violation of this Act corporations, associations or partnerships violating
had, at the time of the acquisition of his holdings in the provisions of this section shall be criminally
the corporations or associations referred to in liable in lieu thereof: Provided, further, That any
section two of this Act, no real or personal person, corporation or association shall, in addition
property, credit or other assets the value of which to the penalty imposed herein, forfeit such right,
shall at least be equivalent to said holdings, shall franchise, privilege, and the property or business
be evidence of a violation of this Act. enjoyed or acquired in violation of the provisions of
this Act: And provided, finally, That the election of
Sec. 2 Simulation of minimum capital stock aliens as members of the board of directors or
In all cases in which a constitutional or legal governing body of corporations or associations
provision requires that, in order that a corporation engaging in partially nationalized activities shall be
or association may exercise or enjoy a right, allowed in proportion to their allowable
franchise or privilege, not less than a certain per participation or share in the capital of such entities.
centum of its capital must be owned by citizens of
the Philippines or of any other specific country, it Sec. 2-B
shall be unlawful to falsely simulate the existence Any violation of the provisions of this Act by the
of such minimum stock or capital as owned by such spouse of any public official, if both live together,
citizens, for the purpose of evading said provision. shall be cause for the dismissal of such public
The president or managers and directors or official.
trustees of corporations or associations convicted

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Sec. 2-C
The exercise, possession or control by a Filipino
citizen having a common-law relationship with an
alien of a right, privilege, property or business, the
exercise or enjoyment of which is expressly
reserved by the Constitution or the laws to citizens
of the Philippines, shall constitute a prima facie
evidence of violation of the provisions of Section 2-
A hereof.

Sec. 3
Any corporation or association violating any of the
provisions of this Act shall, upon proper court
proceedings, be dissolved.

Sec. 3-A Reward to informer


In case of conviction under the provisions of this
Act, twenty-five per centum of any fine imposed
shall accrue to the benefit of the informer who
furnishes to the Government original information
leading to said conviction and who shall be
ascertained and named in the judgment of the
court. If the informer is a dummy, who shall
voluntarily take the initiative of reporting to the
proper authorities any violation of the provisions of
this Act and assist in the prosecution, resulting in
the conviction of any person or corporation
profiting thereby or involved therein, he shall be
entitled to the reward hereof in the sum equivalent
to twenty-five per centum of the fine actually paid
to or received by the Government, and shall be
exempted from the penal liabilities provided for in
this Act.

Sec. 4
This Act shall take effect upon its approval.

Approved, October 30, 1936.

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special thanks to:
Office of the College Secretary
UP College of Law

UP Law Center

UP College of Law Library

UP Law BarOps 2006

Review Committee
I
Subject Committee
[Subject] I
Armi Bayot [head] . Keisie Marfil . Paulyne
Information Management
Committee I Regalado Theresa Roldan . Lem Arenas
Chino Baybay . Tristan Tresvalles . Al Siason