OBLIGATIONS OF THE VENDOR: (WPD-TT)

1. Transfer ownership
2. Deliver the thing sold
3. Warrant against eviction and against hidden defects (can be waived or modified
since warranty is not an essential element of the contract of sale)
4. Take care of the thing, pending delivery, with proper diligence (Article 1163)
5. Pay for the expenses of the deed of sale, unless there is stipulation to the contrary

DELIVERY

Is a mode of acquiring ownership, as a consequence of certain contracts such as sale,

by virtue of which, actually or constructively, the object is placed in the control and
possession of the vendee.

In all forms of delivery, it is necessary that the act of delivery be coupled with the
intention of delivering the thing. The act without the intention is insufficient.

Kinds:

1. Actual or real – placing the thing under the control and possession of the buyer.
2. Legal or constructive – delivery is represented by other signs or acts indicative
thereof
3. delivery by the execution of a public instrument.

NOTE: Gives rise only to a prima facie presumption of delivery which is destroyed
when actual delivery is not effected because of a legal impediment

1. traditio symbolica - to effect delivery, the parties make use of a token or symbol to
represent the thing delivered
2. traditio longa manu – seller pointing out to the buyer the things which are
transferred, which at the time must be in sight.
3. traditio brevi manu – buyer simply continues in possession of the thing but under title
of ownership.
4. traditio constitutum possessorium – seller continues in possession but under a
different title other than ownership.
5. Quasi-tradition – delivery of rights, credits or incorporeal property, made by:
6. placing titles of ownership in the hands of buyer
7. allowing buyer to make use of rights
8. Tradition by operation of law
Constructive delivery requires three things before ownership may be transferred:

1. The seller must have control over the thing

2. The buyer must be put under control
3. There must be the intention to deliver the thing for purposes of ownership

When is the vendor not bound to deliver the thing sold:

1. If the vendee has not paid him the price

2. If no period for payment has been fixed in the contract
3. Even if a period for payment has been fixed in the contract, if the vendee has lost
the right to make use of the same.

Sale or return

Property is sold, but the buyer, who becomes the owner of the property on delivery, has
the option to return the same to the seller instead of paying the price.

NOTES:

 It is a kind of sale with a condition subsequent.

 The buyer must comply with the express or implied conditions attached to the return
privilege; otherwise, the sale becomes absolute.
 Buyer, being the owner, bears the risk of loss

Sale on trial, approval, or satisfaction

A contract in the nature of an option to purchase if the goods prove to be satisfactory,

the approval of the buyer being a condition precedent.

Rules:
1. title remains in the seller
2. risk of loss remains with seller except when the buyer is at fault or has agreed to
bear the loss
3. buyer must give goods a trial, except where it is evident that it cannot perform the
work
4. period within which buyer must signify his acceptance runs only when all the parts
essential for the operation of the object have been delivered.
5. if it is stipulated that a third person must satisfy approval or satisfaction, the
provision is valid, but the third person must be in good faith. If refusal to accept is
not justified, seller may still sue.
6. Generally, the sale and delivery to a buyer who is an expert on the object purchased
is not a sale on approval, trial, or satisfaction.

Instances where Seller is still the Owner despite Delivery:

1. Sale on trial, approval or satisfaction

2. Contrary intention appears by the term of the contract;
3. Implied reservation of ownership (Article 1503)
1. If under the bill of lading, the goods are deliverable to seller or agent or their
order;
2. If the bill of lading, although stating that the goods are to be delivered to the
buyer or his agent, is kept by the seller or his agent;
3. When the buyer, although the goods are deliverable to order of buyer, and
although the bill of lading is given to him, does not honor the bill of exchange
sent along with it.

Transfer of ownership where goods sold delivered to carrier

General Rule: Delivery to the carrier is deemed to be delivery to the buyer
Exception: Where the right of possession or ownership of specific goods sold is
reserved

SALE OF GOODS BY A NON-OWNER

GENERAL RULE: Buyer acquires no title even if in good faith and for value under the
maxim Nemo dat quid non habet (“You cannot give what you do not have”).

EXCEPTIONS: (SMERVS)
1. Owner is estopped or precluded by his conduct
2. When sale is made by the registered owner or apparent owner in accordance with
recording or registration laws
3. Sales sanctioned by judicial or statutory authority
4. Purchases in a merchant's store, fairs or markets
5. When a person who is not the owner sells and delivers a thing, subsequently
acquires title thereto (Art. 1434)
6. When the seller has a voidable title which has not been avoided at the time of the
sale (Art. 1506)

Place of delivery of goods

1. Where there is an agreement, place of delivery is that agreed upon

2. Where there is no agreement, place of delivery determined by usage of trade
3. Where there is no agreement and no prevalent usage, place of delivery is the
seller’s place
4. In any other case, place of delivery is the seller’s residence
5. In case of specific goods, which to the knowledge of the parties at the time the
contract was made were in some other place, that place is the place of delivery, in
the absence of agreement or usage of trade to the contrary

Time of delivery of goods

1. Stipulated time
2. In the absence thereof, within a reasonable time

NEGOTIABLE DOCUMENT OF TITLE (NDT)

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.

May be negotiated by delivery or indorsement.

The document is negotiable if:

1. The goods are deliverable to the bearer; or

2. If the goods are deliverable to the order of a certain person
Persons who may negotiate NDT:

1. The owner; or
2. Any person to whom the possession or custody thereof has been entrusted by the
owner, if by the terms of the document the bailee issuing the document undertakes
to deliver the goods to the order of the person to whom the possession or custody of
the document has been entrusted or if at the time of such entrusting the document in
such form that it may be negotiated by delivery.

If the holder of a negotiable document of title (deliverable to bearer) entrusts the

document to a friend for deposit, but the friend betrays the trust and negotiates the
document by delivering it to another who is in good faith, the said owner cannot impugn
the validity of the negotiation. As between two innocent persons, he who made the loss
possible shall bear the loss, without prejudice to his right to recover from the wrongdoer.

RIGHTS OF PERSON TO WHOM DOCUMENT HAS BEEN NEGOTIATED:

1) The title of the person negotiating the document, over the goods covered by the
document;
2) The title of the person (depositor or owner) to whose order by the terms of the
document the goods were to be delivered, over such goods;
3) The direct obligation of the bailee to hold possession of the goods for him, as if the
bailee had contracted to him directly

NOTE: Mere transferee does not acquire directly the obligation of the bailee (in Art.
1513). To acquire it, he must notify the bailee.

WHO CAN DEFEAT RIGHTS OF TRANSFEREE:

1. Creditor of transferor
2. Transferor
3. Subsequent purchaser

RULES WHEN QUANTITY IS LESS THAN AGREED UPON:

1. Buyer may reject; or

2. Buyer may accept what has been delivered, at the contract rate
RULES WHEN QUANTITY IS MORE THAN AGREED UPON:

1. Buyer may reject all; or

2. Buyer may accept the goods agreed upon and reject the rest; or
3. Buyer may accept all and must pay for them at the contract rate

NOTE: Acceptance, even if not express may be implied when the buyer exercises acts
of ownership over the excess goods.

RULES WHEN GOODS MIXED WITH GOODS OF DIFFERENT DESCRIPTION:

Buyer may accept the goods which are in accordance with the contract and reject the
rest

NOTE: If the subject matter is indivisible, in case of delivery of larger quantity of goods
or of mixed goods, the buyer may reject the whole of the goods

DELIVERY TO THE CARRIER

GENERAL RULE: Where the seller is authorized or required to send the goods to the
buyer, delivery to the carrier is delivery to the buyer.

EXCEPTIONS:

1. When a contrary intention appears

2. Implied reservation of ownership under pars. 1,2,3 of Art. 1503

Kinds of Delivery to the Carrier

1. I.F. (cost, insurance, freight) – signify that the price fixed covers not only the costs of
the goods, but the expense of the freight and the insurance to be paid by the seller
2. O.B. (free on board) – goods are to be delivered free of expense to the buyer to the
point where they are F.O.B. The point of F.O.B., either at the point of shipment or
the point of destination, determines when the ownership passes.
NOTE: the terms C.I.F. and F.O.B. merely make rules of presumption

1. O.D. (collect on delivery) – the carrier acts for the seller in collecting the purchase
price, which the buyer must pay to obtain possession of the goods.

SELLER’S DUTY AFTER DELIVERY TO CARRIER

1. To enter on behalf of buyer into such contract reasonable under the circumstances
2. To give notice to buyer regarding necessity of insuring the goods

PAYMENT OF THE PURCHASE PRICE

GENERAL RULE: The seller is not bound to deliver the thing sold unless the purchase
price has been paid.

EXCEPTION: The seller is bound to deliver even if the price has not been paid, if a
period of payment has been fixed.

Sale of Real Property by Unit

 Entire area stated in the contract must be delivered

 When entire area could not be delivered, vendee may:

1. Enforce the contract with the corresponding decrease in price

2. Rescind the sale:
3. If the lack in area is at least 1/10 than that stated or stipulated
4. If the deficiency in quality specified in the contract exceeds 1/10 of the price agreed
upon
5. If the vendee would not have bought the immovable had he known of its smaller
area of inferior quality irrespective of the extent of lack of area or quality

Sale for a Lump Sum (A Cuerpo Cierto)

Vendor is obligated to deliver all the land included within the boundaries, regardless of
whether the real area should be greater or smaller
Ordinarily, there can be no rescission or reduction or increase whether the area be
greater or lesser, unless there is gross mistake.

What is important is the delivery of all the land included in the boundaries.

DOUBLE SALE (Art. 1544)

Requisites: VOCS

1. two or more transactions must constitute valid sales;

2. they must pertain exactly to the same object or subject matter;
3. they must be bought from the same or immediate seller; AND
4. two or more buyers who are at odds over the rightful ownership of the subject matter
must represent conflicting interests.

Rules of preference:

1. Personal Property
2. first possessor in good faith
3. Real Property
4. first registrant in good faith
5. first possessor in good faith
6. person with oldest title in good faith

NOTES:
Purchaser in Good Faith – one who buys the property of another without notice that
some other person has a right to or interest in such property and pays a full and fair
price for the same at the time of such purchase or before he has notice of the claim or
interest of some other person in the property.

 Registration requires actual recording; if the property was never really registered as
when the registrar forgot to do so although he has been handed the document, there
is no registration.
 Possession is either actual or constructive since the law made no distinction.
 Possession in Art.1544 includes not only material but also symbolic possession.
 Title means title because of sale, and not any other title or mode of acquiring
property
 When the property sold on execution is registered under Torrens, registration is the
operative act that gives validity to the transfer or creates a lien on the land, and a
purchaser on execution sale is not required to go behind the registry to determine
the conditions of the property. Exception: Where the purchaser had knowledge, prior
to or at the time of the levy, of such previous lien or encumbrance, his knowledge is
equivalent to registration.

CONDITION

Effect of Non-fulfillment of Condition

1. If the obligation of either party is subject to any condition and such condition is not
fulfilled, such party may either:
2. refuse to proceed with the contract
3. proceed with the contract , waiving the performance of the condition.
4. If the condition is in the nature of a promise that it should happen, the non-
performance of such condition may be treated by the other party as breach of
warranty.

WARRANTY

a statement or representation made by the seller of goods, contemporaneously and as

a part of the contract of sale, having reference to the character, quality, or title of the
goods, and by which he promises or undertakes to insure that certain facts are or shall
be as he then represents.

Kinds:

1. EXPRESS – any affirmation of fact or any promise by the seller relating to the thing
if the natural tendency of such affirmation or promise is to induce the buyer to
purchase the same and if the buyer purchases the thing relying thereon

NOTE: A mere expression of opinion, no matter how positively asserted, does not
import a warranty unless the seller is an expert and his opinion was relied upon by the
buyer.
2. IMPLIED - that which the law derives by implication or inference from the nature of
the transaction or the relative situation or circumstances of the parties, irrespective
of any intention of the seller to create it.
3. Warranty against eviction
4. Warranty against hidden defects
5. Warranty as to Fitness and Merchantability

When Implied Warranty not Applicable

1.) “As is and where is” sale

2.) Sale of secondhand articles
3.) Sale by virtue of authority in fact or law

NOTE: An implied warranty is a natural, not an essential element of a contract, and is

deemed incorporated in the contract of sale. It may however, be waived or modified by
express stipulation.

There is no implied warranty as to the condition, adaptation, fitness or suitability or the

quality of an article sold as a second-hand article. But such articles might be sold under
such circumstances as to raise an implied warranty.

* A certification issued by a vendor that a second-hand machine was in A-1 condition is

an express warranty binding on the vendor.

1. Warranty against eviction

Warranty in which the seller guarantees that he has the right to sell the thing sold and to
transfer ownership to the buyer who shall not be disturbed in his legal and peaceful
possession thereof.

Elements:

1. vendee is deprived, in whole or in part, of the thing purchased;

2. the deprivation is by virtue of a final judgment;
3. the judgment is based on a prior right to the sale or an act imputable to the vendor;
4. the vendor was summoned in the suit for eviction at the instance of the
vendee; AND
5. no waiver of warranty by the vendee.

Vendor's liability shall consist of:

1. Total eviction: (VICED)

2. Value of the thing at the time of eviction;
3. Income or fruits if he has been ordered to deliver them to the party who won the suit;
4. Costs of the suit;
5. Expenses of the contract; AND
6. Damages and interests if the sale was in bad faith.

2. Partial eviction:
3. to enforce vendor’s liability for eviction (VICED); OR
4. to demand rescission of contract.

Question: Why is rescission not a remedy in case of total eviction?

Answer: Rescission contemplates that the one demanding it is able to return whatever
he has received under the contract. Since the vendee can no longer restore the subject-
matter of the sale to the vendor, rescission cannot be carried out.

The suit for the breach can be directed only against the immediate seller, not sellers of
the seller unless such sellers had promised to warrant in favor of later buyers or unless
the immediate seller has expressly assigned to the buyer his own right to sue his own
seller.

NOTE: The disturbance referred to in the case of eviction is a disturbance in law which
requires that a person go to the courts of justice claiming the thing sold, or part thereof
and invoking reasons. Mere trespass in fact does not give rise to the application of the
doctrine of eviction.

Prescription
Where one acquires ownership and other real right through the lapse of time in the
manner and conditions prescribed by law.

1. Completed before sale- vendee can enforce warranty against eviction

2. Completed after sale- vendor is not liable for eviction. (art. 1550)

Effect of Waiving Warranty in Bad Faith

1. Vendor in bad faith- cannot be exempted from warranty. Because he has knowledge
beforehand of a presence of a fact giving rise to eviction. (art. 1553)
2. Vendee in bad faith- not entitled to warranty against eviction nor right to recover
damages. He proceeded to the sale with the assumption of the risk of eviction. (art.
1554)

Vendor’s liability is waivable but any stipulation exempting the vendor from the
obligation to answer for eviction shall be void if he acted in bad faith.

Kinds of Waiver:

1. Consciente – voluntarily made by the vendee without the knowledge and

assumption of the risks of eviction

NOTE: vendor shall pay only the value which the thing sold had at the time of eviction

1. Intencionada – made by the vendee with knowledge of the risks of eviction and
assumption of its consequences
o EFFECT: vendor not liable unless acted in bad faith
o

NOTE: Every waiver is presumed to be consciente. To consider it intencionada, it must

be accompanied by some circumstance which reveals the vendor’s knowledge of the
risks of eviction and his intention to submit to such consequences.

WHERE IMMOVABLE SOLD ENCUMBERED WITH NON-APPARENT BURDEN

EASEMENT OR SERVITUDE
Easement or servitude is an encumbrance imposed upon an immovable for the benefit
of another immovable owned by a different person.

Kinds of easement or servitude

1. a) Apparent easement- expressly made

2. b) Non-apparent easement- no external indication of its existence

Requisites for Vendor’s Liability for Immovable sold with Easement

1.) Must be non-apparent
2.) Not indicated in the agreement
3.) Must be of such nature that the vendee would not have acquired the immovable had
he been aware thereof.

Remedies & Right of Vendee

1.) Within 1 year from execution of the deed of sale: a. Rescission; or b. Damages.
2.) After one (1) year from of execution of deed of sale: a. Damages, within a period of
one (1) year from discovery of easement or servitude

When right cannot be exercised:

1. a) if the burden or servitude is apparent

2. b) if the non-apparent burden or servitude is registered
3. c) if vendee had knowledge of the encumbrance, whether it is registered or not

When action must be brought

- within ONE YEAR from the execution of the deed of sale

1. Warranty against hidden defects

Warranty in which the seller guarantees that the thing sold is free from any hidden faults
or defects or any charge or encumbrance not declared or known to the buyer.
Elements: (SHENPW)

1. defect must be Serious or important;

2. it must be Hidden;
3. it must Exist at the time of the sale;
4. vendee must give Notice of the defect to the vendor within a reasonable time;
5. action for rescission or reduction of price must be brought within the proper Period
(within 6 mos. from delivery of the thing or 40 days from date of delivery in case of
animals); and
6. no Waiver of the warranty.

When defect important

1. a) Renders the thing sold unfit for its intended use;

2. b) Diminishes its fitness for such use

NOTE: The use contemplated must be that which is stipulated, and in absence of
stipulation, that which is adopted to the nature of the thing, and to the business of the
buyer.

Remedies of the Vendee:

1. Accion redhibitoria (rescission)

2. Accion quanti minoris (reduction of the price)

NOTES:

Hidden faults or defects pertain only to those that make the object unfit for the use for
which it was intended at the time of the sale.

This warranty in Sales is applicable in Lease

Ignorance of Vendor of Hidden Defects

Ignorance does not relieve the vendor from liability. Good faith cannot be availed of as a
defense by the vendor.

Caveat Venditor (“Let the seller beware”): the vendor is liable to the vendee for any
hidden faults or defects in the thing sold, even though he was not aware thereof.

Caveat Emptor (“Let the buyer beware”): requires the purchaser to be aware of the
supposed title of the vendor and one who buys without checking the vendor’s title takes
all the risks and losses consequent to such failure.

Effect of loss of thing on account of hidden defects:

1. If vendor was aware of hidden defects, he shall bear the loss and vendee shall have
the right to recover: (PED)
2. the price paid
3. expenses of the contract
4. damages
5. If vendor was not aware, he shall be obliged to return: (PIE)
6. price paid
7. interest thereon
8. expenses of the contract if paid by the vendee

Effect if the cause of loss was not the hidden defect

If the thing sold had any hidden fault at the time of the sale, and should thereafter be
lost by a (1) fortuitous event OR (2) through the fault of the vendee:

the vendee may demand of the vendor the price which he paid less the value of the
thing at the time of its loss.

NOTE: the difference between the price paid and the value of the thing at the time of its
loss represents the damage suffered by the vendee and the amount which the vendor
enriched himself at the expense of the vendee
If the vendor acted in bad faith:

vendor shall pay damages to the vendee

1. Implied Warranties of Quality

Warranty of Fitness

Warranty in which the seller guarantees that the thing sold is reasonably fit for the
known particular purpose for which it was acquired by the buyer

GENERAL RULE: There is no implied warranty as to the quality or fitness for any
particular purpose of goods under a contract of sale

EXCEPTIONS:

1. Where the buyer, expressly or by implication manifests to the seller the particular
purpose for which the goods are required
2. Where the buyer relies upon the seller’s skill or judgment

There is an implied warranty that the goods are reasonably fit for such special purpose.

Warranty of Merchantability

Warranty in which the seller guarantees, where the goods were bought by description,
that they are reasonably fit for the general purpose for which they are sold

It requires identity between what is described in the contract AND what is tendered, in
the sense that the latter is of such quality to have some value

Instances where implied warranties are inapplicable:

1. As is and where is sale - vendor makes no warranty as to the quality or workable
condition of the goods, and that the vendee takes them in the condition in which they
are found and from the place where they are located.
2. Sale of second-hand articles
3. Sale by virtue of authority in fact or law

RULES IN CASE OF SALE OF ANIMALS

Redhibitory vice or defect

A defect which the seller is bound to warrant in animals, the following special rules shall
apply:

1. Defect must be hidden

2. Must be of such nature that expert knowledge is not sufficient to discover it

Veterinarian is liable if he fails to discover or disclose the hidden defect through

ignorance or bad faith. (art. 1576)

RULES IN CASE OF SALE OF ANIMALS

1. When two or more animals have been sold at the same time and the redhibitory
defect is in one, or some of them but not in all, the general rule is that the redhibition
will not affect the others without it. It is immaterial whether the price has been fixed
for a lump sum for all the animals or for a separate price for each.
2. No warranty against hidden defects of animals sold at fairs or at public auctions, or
of livestock sold as condemned. This is based on the assumption that the defects
must have been clearly known to the buyer.
3. Sale of animals shall be void when:
4. a) animals sold are suffering from contagious disease
5. b) if the use or service for which they are acquired has been stated in the contract,
and they are found to be unfit therefor
6. Limitation of the action: 40 days from the date of their delivery to the vendee
7. Vendor shall be liable if the animal should die within 3 days after its purchase if the
disease which caused the death existed at the time of the contract

Animal died with Vices

If loss is caused for fortuitous event or by fault of vendee and animal has vices, the
buyer may either: 1. withdraw from the contract; or 2. demand a reduction in price.
REMEDIES FOR BREACH OF CONTRACT

1. Remedies of the seller

1. Action for payment of the price (Art. 1595)
2. Action for damages for non-acceptance of the goods (Art. 1596)
3. Action for rescission (Art. 1597)
2. Remedies of the buyer
1. Action for specific performance (Art. 1598)
2. Action for rescission or damages for breach of warranty (Art 1599)

1. REMEDIES OF THE SELLER FOR BREACH OF CONTRACT

IN CASE OF MOVABLES

1. Ordinary Remedies

1. Movables in General – Failure of the vendee to appear to receive delivery or, having
appeared, failure to tender the price at the same time, unless, a longer period for its
payment has been stipulated

 action to rescind the sale (Art. 1593)

1. Sale of Goods –

 action for the price (Art. 1595)

 action for damages (Art. 1596)

2. Unpaid Seller

Types:

1. The seller of the goods who has not been paid or to whom the price has not been
tendered
2. The seller of the goods, in case a bill of exchange or other negotiable instrument has
been received as conditional payment, AND the condition on which it was received
has been broken by reason of the dishonor of the instrument, insolvency of the
buyer or otherwise.

Remedies:

1. Possessory lien over the goods

2. Right of stoppage in transitu after he has parted with the possession of the goods
and the buyer becomes insolvent
3. Special Right of resale
4. Special Right to rescind the sale
5. Action for the price
6. Action for damages

3. Article 1484 or Recto Law

Remedies of vendor in sale of personal property by installments

Requisites:

1. Contract of sale
2. Personal property
3. Payable in installments
4. In the case of the second and third remedies, that there has been a failure to pay
two or more installments

NOTE: Apply likewise to contracts purporting to be leases of personal property with

option to buy

Art. 1484 does not apply to a sale:

1. Payable on straight terms (partly in cash and partly in one term)

2. Of Real property

Remedies:
1. Specific performance upon vendee’s failure to pay

NOTE: Does not bar full recovery for judgment secured may be executed on all
personal and real properties of the buyer which are not exempt from execution

2. Rescission of the sale if vendee shall have failed to pay two or more installments

NOTES:
Nature of the remedy – which requires mutual restitution – bars further action on the
purchase price

GENERAL RULE: cancellation of sale requires mutual restitution, that is all partial
payments of price or rents must be returned

EXCEPTIONS: a stipulation that the installments or rents paid shall not be returned to
the vendee or lessee shall be valid insofar as the same may not be unconscionable
under the circumstan-ces (Article 1486).

3. Foreclosure of the chattel mortgage on the thing sold if vendee shall have failed to
pay two or more installments. In this case, there shall be no further action against
the purchaser to recover unpaid balance of the price.

NOTES:

 Further recovery barred only from the time of actual sale at public auction conducted
pursuant to foreclosure
 Other chattels given as security cannot be foreclosed if they are not subject of the
installment sale
 If the vendor assigns his right to a financing company, the latter may be regarded as
a collecting agency of the vendor and cannot therefore recover any deficiency from
the vendee
 When the vendor assigns his credit to another person, the latter is likewise bound by
the same law.

Accordingly, when the assignee forecloses on the mortgage, there can be no further
recovery of the deficiency and the vendor-mortgagee is deemed to have renounced any
right thereto.
NOTE: Remedies are alternative and exclusive

IN CASE OF IMMOVABLES

1. Ordinary Remedies
2. In case of anticipatory breach –

 rescission (Article 1591)

1. Failure to pay the purchase price –

 rescission upon judicial or notarial demand for rescission (Article 1592)

 the vendee may pay, even after the expiration of the period, as long as no demand
for rescission has been made upon him

NOTE: Article 1592 does not apply to:

 Sale on instalment of real estate

 Contract to sell
 Conditional sale
 Cases covered by RA 6552: Realty Installment buyer protection act

2. A. No. 6552 or Maceda Law

An Act to Provide Protection to buyers of Real Estate on Installment Payments

Law governing sale or financing of real estate on installment payments

Requisites:

1. transactions or contracts involving the sale OR financing of real estate on installment

payments, including residential condominium apartments; and
2. buyer defaults in payment of succeeding installments.

Rights of the buyer:

1. If Buyer has paid at least two (2) years of installments

1. The buyer must pay, without additional interest, the unpaid installments due within
the total grace period earned by him. There shall be one (1) month grace period for
every one (1) year of installment payments made

NOTE: This right shall be exercised by the buyer ONLY once in every 5 years of the life
of the contract AND its extensions.

2. Actual cancellation can only take place after 30 days from receipt by the buyer of the
notice of cancellation OR demand for rescission by a notarial act AND upon full
payment of the cash surrender value to the buyer

NOTE: The seller shall refund to the buyer the cash surrender value of the payments on
the property equivalent to 50% of the total payments made. After five (5) years of
installments, there shall be an additional 5% every year but not to exceed 90% of the
total payments made

3. The buyer shall have the right to sell his rights or assign the same to another
person OR to reinstate the contract by updating the account during the grace period
and before actual cancellation of the contract
4. The buyer shall have the right to pay in advance any installment or the full unpaid
balance of the purchase price any time without interest and to have such full
payment of the purchase price annotated in the certificate of title covering the
property.

1. If Buyer has paid less than 2 years of installments

1. The seller shall give the buyer a grace period of NOT less than 60 days from the
date the installment became due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after 30 days from
receipt by the buyer of the notice of cancellation or the demand for rescission of
contract by a notarial act.
2. Same No. 3 and 4 paragraph A above

NOTE: Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made

Remedies of Unpaid Seller

1. Possessory Lien

When may be exercised:

1. Where the goods have been sold without any stipulation as to credit
2. When the goods have been sold on credit, but the term of credit has expired
3. Where the buyer becomes insolvent

When lost:

1. Delivery of the goods to a carrier or bailee for the purpose of transmission to the
buyer without reserving ownership or right of possession
2. When the buyer lawfully obtains possession of the goods
3. By waiver of the lien

NOTE: Possessory lien is lost after the seller loses possession but his lien as an
unpaid seller remains; hence he is still an unpaid creditor with respect to the price of
specific goods sold. His preference can only be defeated by the governments claim to
the specific tax on the goods themselves (Arts. 2247 and 2241).
NOTE: The bringing of an action to recover the purchase price is not one of the ways of
losing the possessory lien. An unpaid seller does not lose his lien by reason that he has
obtained a money judgement or decree for the price of goods (Art. 1529, last
paragraph).

1. Stoppage of goods in transitu

Requisites:

1. Seller must be unpaid

2. Buyer must be insolvent
3. Goods must be in transit
4. Seller must either:
5. actually take possession of the goods sold OR
6. give notice of his claim to the carrier or other person in possession
7. Seller must surrender the negotiable document of title, if any, issued by the carrier or
bailee
8. Seller must bear the expenses of delivery of the goods after the exercise of the right

GOODS ARE CONSIDERED IN TRANSITU:

1. after delivery to a carrier or other bailee and before the buyer or his agent takes
delivery of them; and
2. If the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them
GOODS ARE NO LONGER CONSIDERED IN TRANSITU:

1. after delivery to the buyer or his agent in that behalf;

2. if the buyer or his agent obtains possession of the goods at a point before the
destination originally fixed;
3. if the carrier or the bailee acknowledges to hold the goods on behalf of the buyer;
and
4. if the carrier or bailee wrongfully refuses to deliver the goods to the buyer

Effects of the exercise of the right

1. The goods are no longer in transit.

2. The contract of carriage ends; instead the carrier now becomes a mere bailee, and
will be liable as such.
3. The carrier should not deliver anymore to the buyer or the latter’s agent; otherwise
he will clearly be liable for damages.
4. The carrier must redeliver to, or according to the directions of the seller.

WAYS OF EXERCISING THE RIGHT TO STOP:

1. By taking actual possession of the goods

2. By giving notice of his claim to the carrier or bailee

 Special Right of Resale

May be exercised only when the unpaid seller has either a right of lien OR has stopped
the goods in transitu AND under ANY of the following conditions:

1. Where the goods are perishable in nature

2. Where the right to resell is expressly reserved in case the buyer should make a
default
3. Where the buyer delays in the payment of the price for an unreasonable time

1. Rescission

Types:

1. Special Right to Rescind Under Art. 1534 – If the seller has either the right of
lien OR a right to stop the goods in transitu AND under either of 2 situations:
2. Where the right to rescind on default has been expressly reserved
3. Where the buyer has been in default for an unreasonable time
4. Under Art. 1597 (“technical rescission”)

1. Action for the price

When may be exercised:

1. Where the ownership has passed to the buyer AND he wrongfully

neglects OR refuses to pay for the price
2. Where the price is payable on a day certain AND he wrongfully neglects OR refuses
to pay for the price, irrespective of the delivery or transfer of title
3. Where the goods cannot readily be resold for a reasonable price AND the buyer
wrongfully refuses to accept them even before the ownership of the goods has
passed, if Article 1596 is inapplicable.

1. Action for damages

When may be exercised:

1. In case of wrongful neglect or refusal by the buyer to accept or pay for the thing sold
(Art. 1596 par.1)
2. In an executory contract, where the ownership in the goods has not passed, and the
seller cannot maintain an action to recover the price (Art 1595)
3. If the goods are not yet identified at the time of the contract or subsequently

1. REMEDIES OF THE BUYER FOR BREACH OF CONTRACT

1. Action for specific performance (Art. 1598)

 Where the seller has broken the contract to deliver specific or ascertained goods
 The judgment or decree may be unconditional, or upon such terms and conditions
as to damages, payment of the price and otherwise as the court may deem just

2. Remedies of buyer for breach of warranty by seller (Art. 1599):

1. Recoupment – accept the goods and set up the seller’s breach to reduce or
extinguish the price
2. Accept the goods and maintain an action for damages for breach of warranty
3. Refuse to accept the goods and maintain an action for damages for breach of
warranty
4. Rescind the contract by returning or offering the return of the goods, and recover the
price of any part thereof

NOTE: These are alternative remedies.

When rescission by buyer not allowed:

1. if the buyer accepted the goods knowing of the breach of warranty without protest
2. if he fails to notify the seller within a reasonable time of his election to rescind
3. if he fails to return or offer to return the goods in substantially as good condition as
they were in at the time of the transfer of ownership to him

EXTINGUISHMENT OF SALE

Sales are extinguish by: (Art. 1600)

1. By the same causes as all obligations:

2. Payment/performance
3. Prescription
4. Loss of thing due
5. Annulment
6. Novation
7. Condonation/remission
8. Confusion or merger
9. Compensation
10. Rescission
11. Resolutory Conditions

2. by the various causes of extinguishment in title VI (sales):

3. Cancellation of sale of personal property in installments (art. 1484)
4. Resale of the goods by unpaid seller (art. 1532)
5. Rescission of the sale by unpaid seller (art. 1534)
6. Rescission by the buyer in case of partial eviction (art. 1556)
7. Rescission by buyer in case of breach of warranty against hidden defect (art. 1567)
8. Rescission by buyer in sale of animals with redihibitory defects (art. 1580)
3. By redemption

A.) CONVENTIONAL REDEMPTION (Retracto Conventional or Pacto de Rectro) – is

one whereby the parties by their voluntary will or agreement, who seek to serve their
interest, stipulates that the vendor shall have the right to acquire by complying wih the
provision of Article 1616, e.i. To return to the vendee the price paid; the expenses or
payment by reason of the sale; and the necessary and useful expenses made on the
thing sold.

A sale with conventional redemption is deemed to be an equitable mortgage in

any of the following cases: (IPERTOD)

1. Unusually Inadequate purchase price;

2. Possession by the vendor remains, as lessee or otherwise;
3. Extension of redemption period after expiration;
4. Retention by the vendee of part of the purchase price;
5. Vendor binds himself to pay the Taxes of the thing sold;
6. Any Other case where the parties really intended that the transaction should secure
the payment of a debt or the performance of any obligation; or
7. When there is Doubt as to whether contract is contract of sale with right of
repurchase or an equitable mortgage.

Equitable Mortgage

One which lacks the proper formalities, form of words, or other requisites prescribed by
law for a mortgage, but shows the intention of the parties to make the property subject
of the contract as security for a debt and contains nothing impossible or contrary to law

When can there be presumption as to Equitable Mortgage?

1) Parties must have entered into a contract denominated as a contract of sale

2) The intention of the parties was to secure an existing debt by way of mortgage
NOTE: In the cases referred to in Arts. 1602 and 1604, the apparent vendor may ask for
the reformation of the instrument.

Remedy of Reformation: To correct the instrument so as to make it express the true

intent of the parties.

Redemption Period

1. if there is an agreement: period agreed upon cannot exceed 10 years

2. if no agreement as to the period: 4 years from the date of the contract
3. the vendor who fails to repurchase the property within the period agreed upon may,
however, exercise the right to repurchase within 30 days FROM the time final
judgment was rendered in a civil action on the basis that the contract was a true sale
with right of repurchase

LEGAL REDEMPTION
The right to be subrogated, upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by (1) purchase or (2) dation in
payment, or (3) by any other transaction whereby ownership is transferred by onerous
title.

May be effected against movables or immovables.

It must be exercised within thirty (30) days from the notice in writing by the vendor.

NOTE: Written notice under Article 1623 is mandatory for the right of redemption to
commence

BASIS OF LEGAL REDEMPTION: Not on any proprietary right, which after the sale of
the property on execution, leaves the judgment debtor and vests in the purchaser, but
on a bare statutory privilege to be exercised only by the persons named in the statute.

Tender of payment is not necessary; offer to redeem is enough.

Instances of legal redemption:

1. Under the Civil Code (legal redemption):

2. Sale of a co-owner of his share to a stranger (Article 1620)
3. When a credit or other incorporeal right in litigation is sold (Article 1634)
4. Sale of an heir of his hereditary rights to a stranger (Article 1088)
5. Sale of adjacent rural lands not exceeding one hectare (Article 1621)
6. Sale of adjacent small urban lands bought merely for speculation (Article 1622)

1. Under special laws:

2. An equity of redemption in cases of judicial foreclosures
3. A right of redemption in cases of extra-judicial foreclosures
4. Redemption of homesteads
5. Redemption in tax sales
6. Redemption by an agricultural tenant of land sold by the landowner

Right of Legal Redemption of Co-owners

The following are the requisites for the right to exist:

1. There must be co-ownership;

2. There must be alienation of all or any of the shares of the other coowners;
3. The sale must be to a third person or stranger;
4. The sale must be before partition;
5. The right must be exercised within the period provided;
6. Vendee must be reimbursed for the price of the sale.

Against whom the right may be exercised

The right of legal redemption is not granted solely and exclusively to the original
coowner but applies to those who subsequently acquire their respective share while the
co-ownership subsist. In other words, the right cannot be exercised against another co-
owner but rather it is exercised against the buyer who bought the share.

Legal Redemption of Adjacent Owners of RURAL Lands

The following are the requisites for the right to exist:

1. The land must be rural;

2. Land must be adjacent;
3. There must be alienation;
4. Rural land alienates must not exceed 1 hectare;
5. Vendee must already own some rural land; and
6. Rural land sold must not be separated by brooks, drainage, ravines, roads and other
apparent servitudes from the adjoining lands.

NOTE: Legal right of redemption of rural land refers to land used for agriculture rather
than residential purposes.

If two or more adjoining owners desire to exercise the right of redemption

1. Owner of the smaller area shall be preferred.

2. If both lands have same area, the one who first requested the redemption shall be
preferred. (art. 1621)

Rights of Adjacent Owner of URBAN Lands

The owners may exercise two (2) rights, right of pre-emption or right of redemption.

The following are the requisites in order to exercise such right:

1. Land must be urban;

2. One exercising the right must be an adjacent owner;
3. The land sold must be so small and so situated that a major portion thereof cannot
be used for any practical purpose within a reasonable time;
4. Such urban land was bought by its owner merely for speculation; and
5. It is about to be resold, or that its resale has been perfected.

NOTE: If two or more owner wish to exercise their rights, the one whose intended use
of the land appears best justified shall be preferred. (art. 1622) Coowners are preferred
over adjacent owners. (art. 1623, par 2)
Pre-emption

It is the act of purchasing before others. If exercised, they will have preference over
other potential buyers.

PRE-EMPTION REDEMPTION

1. arises before 1. arises after

sale sale

2. no rescission
2. there can be
because no
rescission of the
sale as yet
original sale
exists

3. the action is
3. action is
directed against
directed against
the prospective
the buyer
seller

Period which Right may be Exercise

The period shall be exercised within 30 days from the notice in writing by the
prospective vendor, or by the vendor. If notice is not given, the 30-day period has not
even begun to run. However, no specific form of written notice is required. The 30-day
notice in writing should be counted from notice, not of the perfected sale, but of the
actual execution and delivery of the document of sale.