References:

- Commentary on Sales by Dean Cesar Villanueva and Atty Teresa

Tiansay
- Lectures primarily by Atty Tiansay but with Dean Villanueva on
occasion
- Block B2022 Digest System and Block 2D 2012 Digests (TVT uses
these)

Special mention to Bea Rodriguez for the notes on Assignment and the
Bulk Sales Law
 ESSENTIAL CHARACTERISTICS OF SALE
I. Contract of Sale 1. Nominate and principal
2. Consensual
3. Bilateral and reciprocal
4. Onerous and commutative
DEFINITION AND ESSENCE OF A SALE
5. Sale is Title, not Mode.

Art 1458: By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to 1. Nominate and principal
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

Nominate. Sale is a nominate contract since it has been expressly named by law.
Nature of obligation created in a sale. The Seller is obliged to (1) transfer the ownership, and Principal. It can stand on its own and does not depend on another contract for its validity or
(2) deliver the possession of the subject matter. The Buyer is obliged to pay the price in certain existence.
money or its equivalent. Implication: Name given by parties to contract is not determinative. In determining the
nature of a contract, the courts look at the intent of the parties and not at the nomenclature
used to describe it. Pivotal to deciding such issue (on whether a contact is a sales contract or
ELEMENTS OF A SALE
not) is the true aim and purpose of the contracting parties, as well as by their conduct, words,
1. Consent – meeting of the minds to transfer ownership in exchange
actions, and deeds prior to, during, and immediately after executing the contract. Lao v CA
for the price
Implication: Law of Sales. All other contracts which have for their objective the transfer of
2. Subject matter
ownership and delivery of possession of a determinate subject matter for a valuable
3. Price or consideration – certain in money or its equivalent.
consideration are governed necessarily by the Law of Sales. See Chapter 3, Subject Matter.

Consensual nature. Perfection of the contract is achieved upon concurrence of all three 2. Consensual
requisites. Details on each element are discussed in subsequent sections.
Commentary on void contracts. The SC has the tendency to consider contracts of sale lacking Art 1475: The Contract of Sale is perfected at the moment there is a meeting of minds upon the thing which is the
one of the requisites as ‘void contracts’, which can be confusing. Recall oblicon. There are two object of the contract and upon the price. From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts.
types of void contract: (1) void and inexistent contracts; and (2) ostensible yet void contracts.
The first type is when there is absence of one or more essential elements of a contract; the
second, when there is express provision of law declaring such contract void. Consensual. It is perfected by mere consent, at the moment there is a meeting of the minds
upon the thing which is the object of the contract and upon the price.
STAGES IN THE LIFE OF SALE Consensual, as differentiated from solemn and real contracts. A real contract requires the
1. Policitation, negotiation, or preparation stage – period from the time the prospective delivery of the object of the contract for perfection (e.g. commodatum or loan). A solemn
contracting parties indicate their interests in the contract to the time the contract is contract requires certain formalities to be complied with for perfection (e.g. donations).
perfected. - Class discussion: Art 1475. Upon perfection of the contract, both parties are obliged to
2. Perfection – takes place upon the concurrence of the essential elements of sale perform their respective obligations. Neither party can renege, and the offended party can
3. Consummation – begins when the parties perform their respective undertaking under the demand for specific performance according to Art 1165, which provides that, “When what
contract of sale, culminating in the extinguishment thereof. is to be delivered is a determinate thing, the creditor … may compel the debtor to make

2
 the delivery. If the thing is indeterminate or generic, he may ask that the obligation be the obligation to pay exists is only postponed or deferred to a later date is preferred than
complied with at the expense of the debtor.” the obligation as non-existing before delivery of ore. While one can lawfully subordinate
▪ Consensual nature of contracts. A sale over a subject matter is not a real contract, but a an obligation to an uncertain event, thereby assuming the risk of receiving nothing, it is not
consensual contract, despite the manner of its actual payment or even when there has been in the usual course of business to do so. Gaite v Fonacier
breach thereof. If the real price is not stated in the contract, then the sale is valid but subject Commutative. A thing of value is exchanged for equal value.
to reformation; if their price agreed upon is simulated, the contract is void. Buenaventura Subjective test for commutativity of contracts. The inadequacy of price does not affect
v CA ordinary sale. It may, however, indicate vice in consent, in which case the sale may be annulled.
▪ Stipulations on a contract of sale. Even if consensual, not all contracts of sale become By in itself, inadequacy of price is not a sufficient ground for the cancellation of a voluntary
automatically and immediately effective. In sales with assumption of mortgage, the contract of sale otherwise free from invalidating effects. Alarcon v Kasalig
assumption of mortgage is a condition precedent to the seller’s consent and therefore, ▪ Subjective test for commutativity. There is no requirement that the price be equal to
without approval of the mortgagee, the sale is not perfected. Binan Steel Corp v CA the exact value of the subject matter; all that is required is that the parties believed that
they will receive good value in exchange for what they will give. Buenaventura v CA
3. Bilateral and reciprocal.
5. Sale is a Form of Title, not a Mode.
Bilateral. It imposes obligations on both parties to the relationship. The obligation or promise
of each party is the cause or consideration for the obligation or promise of the other. Title, definition and function. Title is the legal basis by which to affect dominion or ownership.
Reciprocal obligations. Those which arise from the same cause, and in which each party is a It merely creates the obligation on the part of the seller to transfer ownership and deliver
debtor and a creditor of the other, such that the obligation of one is dependent upon the possession. It is the juridical justification. It does not actually transfer the ownership.
obligation of each other. Mode, its function. It is the legal means or process by which dominion or ownership is created,
Legal effects and consequences. (1) The power to rescind (i.e. to return the parties to their transferred, or destroyed. In other words, it is the actual process of acquisition or transfer of
status prior the contract) is implied and such power need not be stipulated in the contract in ownership over a thing. Salient examples are tradition or delivery, succession, donation, etc.
order for the innocent party to invoke the remedy; and (2) neither party incurs delay if the other
party does not comply, or is not ready to comply in a proper manner, with what is incumbent
SALE, AS DISTINGUISHED FROM SIMILAR CONTRACTS
upon him; and (3) from the moment one of the parties fulfills his obligation, the default by the
other begins without the need for prior demand.
▪ When rescission of a contract of sale is sought under Art 1191 of the Code, it need not be SIMILAR CONTRACTS
judicially invoked because the power to resolve is implied in reciprocal obligations. The 1. Donations
resolution immediately produces legal and court intervention becomes necessary when the 2. Barter
party who allegedly failed to comply with their obligation disputes the resolution of the 3. Contract for a piece-of-work
contract. Lam v Kodak PH 4. Agency to sell
5. Dacion en pago
4. Onerous and commutative 6. Lease

Onerous contract, defined. It imposes a valuable consideration as a prestation, which ideally 1. Donation
is a price certain in money or its equivalent.
▪ Emptio spei, or sale of hope or expectancy. Referring to the payment of balance of the Art 1471: If the price is simulated, the sale is void; but the act may be shown to have been in reality a donation, or
mine hinged on the delivery of a certain iron load, the Court held that the obligation covers some other act or contract.
a suspensive period rather a suspensive condition. In other words, the interpretation that

3
Donation. An act of liberality whereby a person disposes gratuitously of a thing or right in Contract for a piece-of-work. The contractor binds himself to execute a piece of work for the
favor of another person, who accepts it. employer, in consideration of a certain price or compensation; the contractor may either
DONATION SALE employ only his labor or skill, or also furnish the material. In simpler terms, it is a ‘sale of service.’
Gratuitous contract Onerous contract Statutory rule. Art 1467 provides for the statutory rule in distinguishing contracts of sale and
Solemn contract Consensual contract for a piece-of-work. There are two tests for the distinction: (1) Manufacturing in the ordinary
Affects the legitime of heirs (the overall value Does not affect the legitime of heirs (the course of business to cover sales contracts; and (2) manufacturing upon special order of
of the legitime is decreased) price compensates for the object, hence, no customers, to cover contracts for piece-of-work.
net loss of overall value of legitime) Application of the tests in jurisprudence. The two assigned cases under this topic both deal
with tax: manufacturer-seller’s tax (sales tax) and contractor’s tax (for a piece-of-work). The
Rule of thumb, Art 726. When the value of the burden placed upon the donee is more than former is higher; therefore, most businesses would prefer being taxed for the latter.
the value of the thing given, it becomes an ‘onerous donation’, thereby placing such donation ▪ Door maker. The Oriental Sash Factory asserts that it should pay the contractor’s tax,
within the realm of the Law of Sales. If the value is less, then it is considered a donation (Art postulating that the ‘upon special orders’ was more of timing, rather than necessity: if the
726). manufacture of goods is made upon or after he orders of customers and on the basis of
their specifications, the underlying relationship would be for a piece-of-work. The Court
2. Barter held that Oriental habitually made doors and that the products (doors) were made only
when customers placed their orders did not alter the nature of the establishment. It was
Barter. One of the parties binds himself to give one thing in consideration of the other’s not true that it served only special customers – it was mechanically equipped to duplicate
promise to give another thing. and even mass produce the same doors. Celestino Co v CIR
Applicability of Law on Sales, Art 1641. The Art provides that barter shall be governed by ▪ Same; not a question of timing or habit. The test of ‘special orders’ is not one of timing
the law of sales, with the exception of Art 1639 and 1640, which are special for provisions for or of habit, but must be drawn from the nature of the work to be performed and the
barter. The critical difference between sales and barter, as noted by the commentary, lies in the products to be made: the products must not be ordinary products of the manufacturer,
application of the Statute of Frauds to sale of real property and personal property over PHP and they would require the use of extraordinary skills or equipment, if to be performed by
500 to sales only, and right of legal redemption. a manufacturer. Id
▪ Centralized aircon. The Engineering Equipment and Supply Company (EEI), which was
RULES TO DISTINGUISH BARTER AND SALE engaged in the design and installation of central type air-conditioning systems, was taxed
1. Manifest intention of parties. Even if the acquisition of a thing is paid for by with manufacturer’s tax. It asserted that it should be taxed with the contractor’s tax,
another object of greater value than the money component, it may still be a sale considering the specialization required to make their products. The Court agreed, stating
and not a barter, when such was the intention of the parties. that the ‘distinction between a contract of sale and one for work is tested by the inquiry
2. When intention does not appear and consideration is partly money and whether the thing transferred is one not in existence and which never would have existed
partly another thing but for the order of the party desiring to acquire it, or a thing which would have existed
a. Barter, where the value of the thing given as part of the consideration and has been the subject of sale to some other person even if the order would not have
exceeds the amount of money given or its equivalent. been given.’ CIR v EEI
b. Sale, where the value of the thing given as part of the consideration equals ▪ Same, commentary analysis. The ruling confirms the abandonment of the timing
or is less than the amount given. application of the special orders test. Moreover, it seems that the habituality test does not
prevail. EEI was habitually engaged in the production of central air-conditioning systems, and
3. Contract for a piece-of-work yet, the Court held that it is only liable for contractor’s tax. Furthermore, while they
employed sub-contracts for the design of the said systems, it did not employ extraordinary
skills or new equipment it had to execute an order. The core test applied in the case was

4
 that each product or system executed by it had, by its nature, to be unique and always contract is that of sale, because it involves the obligation on the part of the plaintiff to
different from other orders it had to service in the past, and even if it wanted to, EEI could supply the beds while the defendant had to pay for their price. Quiroga v Parsons
not stockpile or even mass-produce the products of their very nature. Id ▪ Same, agency to sell. In an agency to sell, the agent receives the thing to sell it. He does
Final analysis and class discussion. The commentary notes the consistent theme of the SC not pay the price but delivers to the principal the price he obtains from the sale to a third
decisions lies in the intent of the parties: if the essence is the object, irrespective of the party person, and if he does not succeed, he returns it. Id
executing giving or executing it, the contract is sale; if the essence is the service, knowledge, or ▪ Sound reproducing equipment. Buyer engaged the services of Seller to purchase sound
reputation of the person who executes or manufactures the object, the contract is for piece-of- reproducing equipment from a US company. Later, buyer found out that seller quoted not
work. Recall the example in class involving a designer of dresses: even if the object is pre-made, the net price, but the list price and that seller had received a discount from the US company.
it can be considered as a piece-of-work if the dress was purchased because of the reputation Buyer, on the premise that seller was his agent, sought to recover the latter because any
of the maker. benefit or profit ought to inure to the principal (buyer). The Court held that the seller is not
Implication. Because a contract for a piece-of-work involves an obligation to do, it cannot his agent, because of a stipulation that held the seller liable for unfavorable events such as
be susceptible to a demand for specific performance. Art 1715 provides the remedy in such the loss of goods. Gonzalo Puyat & Sons v Arco Amusement
cases. Also, such contract is not governed by the Statute of Frauds. ▪ Same, liability of the agent. The stipulation is incompatible with the pretended relation
of agency between the petitioner and the respondent, because in agency, the agent is
4. Agency to sell. exempted from all liability in the discharge of his commission provided he acts in
accordance with the instructions received from his principal. Id
Article 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the ▪ Control as the determining factor. One of the factors that most clearly distinguishes
contract of agency to sell, the essential clauses of the whole instrument shall be considered. agency from other legal concepts, including sale, ‘is control; one person – the agent –
agrees to act under the control of direction of another – the principal.’ Victorias Milling v
CA
Agency to sell. A person (agent) binds himself to render some service or to do something in
representation or on behalf of the principal, with the consent and authority of the latter.
5. Dacion en pago (Dation in payment)

AGENCY TO SELL CONTRACT OF SALE

Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money,
Revocable (because fiduciary) Not revocable
shall be governed by the law of sales
Agent is not obliged to pay the price; obliged Buyer himself pays for the price of the object,
only to deliver the price received from buyer since it is his main obligation
Agent does not become owner of the thing Buyer becomes owner of the thing Dation in payment. Property is alienated to the creditor in full satisfaction of a debt in money.
Agent assumes no personal liability as long Sellers warrants It constitutes the delivery and transmission of a thing by the debtor to the creditor as an
as he acts within his authority and in the accepted equivalent of the performance of the obligation.
name of the principal In relation to the Law on Sales. By express provision, dation in payment is governed by the
Agent is disqualified from receiving any Profit is the seller’s. law on sales, since it essentially involves the transfer of ownership of a subject matter.
personal profit from the transaction (though Recall: dation is novation. It is an objective novation (change in the object of the contract)
he may receive commission or of the obligation where the thing offered as unaccepted equivalent of the performance of an
compensation) obligation is considered as the object of the contract of sale while the deb tis considered as the
purchase price. There must be clear agreement that the things offered is accepted for the
▪ Beds. Plaintiff buyer granted the defendant seller the right to sell as an agent ‘Quiroga extinguishment of debt.
beds’ in Visayas. He contends that he can revoke the agency as basis to rescind the
agreement. However, looking over the stipulations of the contract, the Court held that the

5
 REQUISITES OF A VALID DACION EN PAGO
Lo v KJS Eco-Formwork System Phil
1. Performance of the prestation in lieu of payment (animo solvendi) which may consist in the
delivery of a corporeal thing, real right, or a credit against the third person;
2. Some difference between the prestation due and that which is given in substitution (aliud
pro alio); and
3. An agreement between creditor and debtor that the obligation is immediately extinguished
by reason of the performance of the prestation.

▪ First requisite. Dation in payment requires delivery and transmission of ownership of a

thing to the creditor as an accepted equivalent of the performance of the obligation. PNB
v Pineda
▪ Third requisite. There must be an agreement that the property is in lieu of payment. It is
essential that the transfer must be accompanied by a meeting of the minds on whether the
loan would be extinguished by the dation. Philippine Lawin bus Co v CA
▪ In relation to the third requisite. Dation extinguishes the obligation only to the extent of
the value of thing delivered unless the parties by agreement consider the thing as
equivalent to the obligation, in which case the obligation is totally extinguished. Tan Shuy
v Maulawin

6. Lease

Lease. In a lease, the lessor binds himself to give to another the enjoyment or use of a thing
for a price certain and for a period which may be definite or indefinite. Distinguishing between
a true lease and a sale with installment is discussed in detail in Chapter 10.

6
 General rule. Minors, insane, demented persons, and deaf-mutes who do know how to write
II. PARTIES TO THE CONTRACT OF SALE have no legal capacity to contract (Art 1327). Nonetheless, contracts entered into by such
legally incapacitated individuals are voidable, not void, subject to annulment or ratification.
Action for annulment. Such action cannot be instituted by the person who is capacitated since
Article 1245. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale,
he is disqualified from alleging the incapacity of the person with whom he contracts.
saving the modifications contained in the following articles. Necessaries. Under Art 1489, where necessaries are sold and delivered to minors, he must a
Where the necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay reasonable price therefore – hence, the resulting sale is valid, not merely voidable. For the sale
a reasonable price therefore. Necessaries are those referred to in Art 290 (now 194 of the Family Code).
to be valid, these two elements must be present: (1) perfection of the contract, and (2) delivery
General rule on capacity of the parties. Proper parties include persons who have the capacity of the subject necessaries.
to act, which is the power to do acts with legal effects (Art 37). More specifically, persons with - Discussion. Remember, a contract with minors is valid until annulled.
the power to obligate themselves (Art 1489).
Capacity to act. Persons who have the capacity to act include (1) natural persons and (2) NECESSARIES
juridical persons. For the former, it begins upon entering the age of majority. The latter is Art 194 of the Family Code
defined as the fitness to be the subject of legal relations. Examples are corporations, Covers everything indispensable for sustenance, dwelling, etc. But since sales cover only the
partnerships, associations, etc. obligation to deliver, the sale of necessaries considered under Art 1489 are the following:
1. Sustenance, dwelling, and clothing; and
2. Perhaps medicine, educational books and materials.
Incapacitated persons
Senility (old age) and serious illness. The general rule is that a person is not incompetent to
contract merely because of advanced years or by reason of physical infirmities. However, when
Article 1327. The following cannot give consent to a contract:
1. Unemancipated minors; such age or infirmities have impaired the mental faculties so as to prevent the person from
2. Insane or demented persons, and deaf-mutes who do not know how to write. properly, intelligently, and firmly protecting her property rights, then she is undeniably
Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness
incapacitated. Domingo v CA
or during a hypnotic spell are voidable.
Article 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on account of ▪ Octogenarian. The seller who signed the deed of sale on his death bed was an
his moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be octogenarian suffering from liver cirrhosis. The Court declared the contract to be null and
vigilant for his protection.
void. Paragas v Heirs of Dominador Balacano
Article 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him,
and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully ▪ Same, commentary. The commentary notes that the SC decisions in these cases,
explained to the former. particularly in the Domingo case, are unfortunate. He writes that the sales should not have
Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally
void ab initio because they lack legal ground. Rather, they should have been: (1) voidable,
or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted;
nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base for incapacity to give consent; (2) a ground for rescission or specific performance, in the
their action upon these flaws of the contract. case where the price was never paid or received; and (3) valid, in the case where the
Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received
consideration was grossly and shockingly inadequate, unless there is a showing of vice in
by him. consent or there was intention to effect a donation.
Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to - Class discussion: The Courts view senile people at their deathbeds to give a total
the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract absence of consent; hence, the resulting contract of sale is null and void. The general
Article 1403. The following contracts are unenforceable, unless they are ratified: rule, however, is that such contracts, if the parties have shown consent, is valid.
(3) Those where both parties are incapable of giving consent to a contract.

7
 2. Sales between spouses
SALES BY AND BETWEEN SPOUSES
Article 1490. The husband and the wife cannot sell property to each other, except:
1. When a separation of property was agreed upon in the marriage settlements; or
1. Sales with third parties. 2. When there has been a judicial separation of property under article 191.
Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption,
compromises and renunciations.
Article 73, FC. Either spouse may exercise any legitimate profession, occupation, business or activity without the Article 87, FC. Every donation or grant of gratuitous advantage, direct or indirect, between the spouses during the
consent of the other. The latter may object only on valid, serious, and moral grounds. marriage shall be void, except moderate gifts which the spouses may give each other on the occasion of family
Article 96, FC. The administration and enjoyment of the community property shall belong to both spouses jointly. rejoicing. The prohibition shall also apply to persons living together as husband and wife without marriage.
In case of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper
remedy, which must be availed of within five years from the date of the contract implementing such decision.
General rule. Contracts entered in violation of Art 1490 and 1492 are not merely voidable, but
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the common
properties, the other spouse may assume sole powers of administration. These powers do not include disposition or are void.
encumbrance without authority of the court or the written consent of the other spouse. In the absence of such Valid parties to such void contracts. The only persons who can question the sale the
authority or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a
following: heirs of either spouses who are prejudiced; prior creditors; and the State when it
continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by comes to the payment of the proper taxes. The spouses themselves cannot avail of the illegality
either or both offerors. of the sale on the ground of pare delicto.
Article 124, FC. Same as above, except for the Conjugal Partnership of Gains (CPG)
Rationale for the prohibition. The reasons are as follows: (1) to prevent a spouse from
defrauding his creditors by transferring his properties to the other spouse; (2) to avoid a
Art 73, FC. Either spouse may exercise any legitimate business or activity without the consent situation where the dominant spouse would unduly take advantage of the weaker spouse,
of the other, and the latter may object only on valid, serious, and moral grounds. In case of thereby effectively defrauding the latter; and (3) to avoid an indirect violation of the prohibition
disagreements, the charges (of the transaction) depend on whether the benefits redounded to against donations between spouses under Art 87 of the Family Code. Note that the last includes
the family and when the object was made. donations between common law spouses.
Same, Dean Mel commentary. The general rule is when a transaction redounds to the benefit ▪ Common-law spouses. The sister of the deceased common-law husband sought to annul
of the family, it shall be charged to the ACP or CPG. If after objection based on valid, serious, the previous donation of the deceased during his lifetime to his then common-law spouses,
and moral grounds, the transaction continues, it shall be charged against the separate property although the two subsequently married after. The Court held that although Art 133 of the
of the offending spouse. However, if the creditor is in good faith, he can still go against the Civil Code (the predecessor of Art 87 of the FC) considers as void a donation during
ACP or CPG. marriage, it also applies equally to common-law relationships. Matabuena v Cervantes
Joint administration of the communal or community property. Under Art 96 and 124 of - Commentary. The issue in that case is no longer an issue with the effectivity of the
the Family Code, the spouses enjoy the administration and enjoyment of such property jointly. Family Code, which explicitly provides that the prohibition applies to common-law
Hence, the disposition or encumbrance of community property or conjugal property shall be relationships.
void without authority of the court or written consent of the other spouse. ▪ Prohibition applies to sales. The same prohibition on common-law relationships apply to
Continuing offer rule. In such a case, the transaction is construed as a continuing offer on sales between spouses. Calimlim-Canullas v Fortun
the part of the consenting spouse and the third person, and may be perfected as a binding
contract upon acceptance by the other spouse or authorization by the court before the offer is
withdrawn by either or both offerors. It takes the effect of a ratifiable contract.

8
 the validity of the new contract. The ratification or second contract would then be valid from
WHEN BUYERS RELATIVELY DISQUALIFIED its execution; however, it does not retroact to the date of the first contract. Id
Same, second group. The functional difference of the second group from the first is that there
exists both private wrong and public wrong, which is damage to the public service. Parties
Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in
person or through the mediation of another: cannot ‘ratify’ or seek a second contract between themselves when the inhibition no longer
1. The guardian, the property of the person or persons who may be under his guardianship; exists because the same continues to be tainted with a public wrong. Commentary
2. Agents, the property whose administration or sale may have been entrusted to them, unless the consent of the Proper party to raise nullity. Any person may invoke the inexistence of the contract whenever
principal has been given;
3. Executors and administrators, the property of the estate under administration; juridical effects found thereon are asserted against him. If the contract has already been
4. Public officers and employees, the property of the State or of any subdivision thereof, or of any government fulfilled, an action (in court) is necessary to declare its inexistence; the intervention of a
owned or controlled corporation, or institution, the administration of which has been entrusted to them; this
competent court is necessary to declare the absolute nullity of the contract and to decree
provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and restitution of what has been given under it. If the contract is still fully executory, no party need
employees connected with the administration of justice, the property and rights in litigation or levied upon an bring an action to declare its nullity; but if a party seeks to enforce it, the other party can simply
execution before the court within whose jurisdiction or territory they exercise their respective functions; this
set up the nullity as defense.
prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property
and rights which may be the object of any litigation in which they may take part by virtue of their profession;
6. Any others specially disqualified by law. RELATIVE DISQUALIFICATION
Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption,
1. Agents
compromises and renunciations.
2. Guardians, administrators, executors
3. Judges, justices, those involved in the administration of justice
Leading case: Rubias v Batiller 4. Attorneys
Facts: Seller sought claim a piece of land in Iloilo. His action was denied by the courts. Pending
final disposition of his appeal, he sold the lot to his son-in-law, which is the petitioner-buyer in 1. Agents
this case. It also happens that the buyer was the counsel of the seller for his case on the
ownership of the land Extent of the prohibition. The prohibition as to agents is the only one in 1491 that is not
Held: absolute – agents may validly purchase property entrusted to them provided they acquire the
Legal statues of contracts entered into in violation of 1491 and 1492. The law does not principal’s consent.
expressly state the status of such actions. Early jurisprudence provides that they are voidable Brokers. Brokers do not come within the coverage of the prohibition. Their duty is only to look
or annullable (Wolfson v Estate of Martinez). This was superseded by Director of Lands v Abagat, for a buyer or a seller, and to bring them together to consummate a sale.
which held that such contracts are void. In this case, the Court ruled that such contracts are
inexistent and void from the beginning because it is contrary to public policy. Rubias v 2. Guardians, administrators, and executors
Batiller
Same, no legal effect. Contracts expressly prohibited or declared void by law are inexistent Defined. They are necessarily officers of the courts since they are appointed or confirmed to
and void from the beginning; they have no legal effect. These contracts cannot be ratified. such position pursuant to judicial proceedings.
Neither can the right to set up the defense of illegality be waived. Id ▪ Indirect sale. The guardian filed a motion with the RTC for authority to sell the parcels of
‘Ratification’. There is a difference in the state of ‘nullity’ between prohibited contracts entered land of the ward for the purpose of investing for a residential house of the ward. She sold
into by (1) guardians, agents, administrators, and executors; and (2) judges, judicial officers, it to her brother in-law. The latter later sold it to the guardian. Petitioner in this case, the
fiscals, and lawyers. It has been opined that the contracts of the first group may be ‘ratified’ by substitute guardian, sought to annul the sale. Philippine Trust Co v Roldan
means of and in the form of a new contract. The causes of nullity, having ceased, cannot impair ▪ Same, proof. Previous rulings (Rodriguez v Mactal) required proof that a third-party buyer
was a mere intermediary of the guardian, or that the latter had previously agreed with the

9
 third-party buyer to buy the property for the guardian. The Court abandoned this doctrine in the case wherein said judgment was rendered, made in payment of professional services
and held that even without such proof, the sale can be rescinded on account of the fiduciary in other cases. Municipal of Iloilo v Evangelista
nature of guardianship. Id Prohibition does not apply:
▪ Proof of benefit, irrelevant. Any matter relating to advantage or benefit is wholly ▪ Subject of litigation. The provision only applies to attorneys when the property they are
irrelevant under Art 1491. The Art has entirely shut the door to such persons occupying buying is the subject of litigation, and does not apply to a sale to attorneys who were not
fiduciary positions, to even desire to acquire, directly or indirectly, properties of their wards, the defendant’s attorneys in that case. Gregorio Araneta v Tuason de Paterno
estate, or principal, as the case may be. Commentary ▪ Prior to litigation. The prohibition does not apply to a lawyer who acquired the property
Hereditary rights. It seems that the ruling in the above case did not overturn the ruling in prior to the time he intervened as counsel in the ejectment suit involving such property.
Naval v Enriquez, which held that hereditary rights are not included in the prohibition insofar Del Rosario v Millado
as the administrator or executor of the estate of the deceased. However, from a practical ▪ Not a subject of litigation. The prohibition does not apply to the sale of a parcel of land,
viewpoint, such administrator or executor is in a conflict-of-interests situation, for he can validly acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property
acquire any of hereditary rights of any heir, or he may use his position to compel or convince was not the subject of litigation. Daroy v Abecia
the heirs to sell or assign their hereditary rights to him. Contingency fees. The prohibition does not apply to contingency fees since the payment of
said fee is not made during the pendency of the litigation but only after judgment has been
3. Judges, justices, and those involved in the administration of justice rendered in the case handled by the lawyer. Directors of lands v Ababa
▪ Limitation on Contingency fees. The 1988 Code of Professional Responsibility allows a
Property involved. It is not required that some contest or litigation over the property itself lawyer to have a lien over funds and property of his client and may apply so much thereof
should have been tried by the said judge; such property is in litigation from the moment that as may be necessary to satisfy his lawful fees and disbursements. However, as long as the
it became subject to the judicial action of the judge such as levy on execution. Gan Tingco v lawyer does not exert undue influence on his client, that no fraud is committed or
Pabinguit imposition applied, or that the compensation is clearly not excessive as to amount to
Period of litigation. The prohibition is applicable only during the period of litigation. extortion, a contract for contingent fee is valid and enforceable. Fabillo v IAC
Nevertheless, a judge may be held liable for violating the canons of judicial ethics. Macariola v
Asuncion

4. Attorneys

Prohibition applies:
▪ Even though litigation is not adversarial in nature. The nullity of such prohibited
contracts is definite and permanent and cannot be cured by ratification. The public interest
and public policy remain paramount and do not permit of compromise and ratification.
Rubias v Batller
▪ Certiorari. The prohibition applies only during the period the litigation is pending. A
certiorari petition, even if does not have merit, still constitutes the period of the pendency
of a litigation; hence, the disqualification still stands. Valencia v Cabanting
▪ Agency case. The prohibition applies only to sale to a lawyer who in fact represented the
client in the particular suit involving the object of the sale and cannot cover the assignment
of the property given in judgment made by a client to an attorney, who has not taken part

10
 favor of another party in consideration of the latter’s payment of a loan, the agreement is
III. Subject-Matter of Sale essentially a sale. Caiobes Jr. vs Caiobes-Pantoja

POSSIBLE GOODS
Subject matter of sale. Transfer of title or an agreement to transfer it for a price paid or (1) Existing goods
promised to be paid is the essence of sale (2) Future goods
(3) Contingent goods
Catch-all provision. Civil code provisions defining sales is a “catch-all” provision, which (4) Subject to a resolutory
effectively brings with the Law of Sales a whole gamut of transfers whereby ownership of a condition
thing is ceded for a consideration. Polytechnic University v CA

(1) Existing Goods. The things are existing and owned or possessed by the seller at the time
REQUISITES OF A VALID SUBJECT-MATTER the contract of sale was perfected.
1. Possible
2. Licit (2) Future Goods.
3. Determinate or at least determinable 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.
Art 1461. Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of
Art 1409. The following contracts are inexistent and void from the beginning:
a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a
xxx
vain hope or expectancy is void
(3) Those whose cause or object did not exist at the time of the transaction
Emptio Rei Speratae. “The purchase of what we hope”. These are goods to be manufactured,
Void and inexistent contract. Should any of these requisites be absent, the contract is void. raised, or acquired by the seller after the perfection of the contract of sale.
Implications of a void contract. Recall Oblicon (Dean Mel). There are two kinds of void ▪ Growing crops. Pending crops which have potential existence may be valid objects of sale.
contracts: void and inexistent, and ostensible but void. The former is void because it lacks an Sibal v Valdez
essential element of a contract – a “no contract” situation. The latter is void by reason of law or ▪ Sale of a lot by a seller who is yet to acquire full ownership from the government agency is
public policy. The distinction between the two matters when it comes to the application of a valid sale since it involves the sale of a future thing, but really the sale was subject to the
certain legal principles such as pari delicto rule. condition that the seller will acquire the property. Mananzala vs CA
In relation to sale. If the subject matter is not determinate or determinable, the contract is
Emptio Spei. “Purchase of hope”. Purchase of “hope” is still a valid sale, what is prohibited is
void and inexistent. If the subject matter is not possible or licit, then it is ostensible but void.
the purchase of “vain hope or expectancy”.
Possibility or chance. What is being bought is the “chance” or possibility that the condition
1. Possible
will be fulfilled. Example: purchase of a lotto ticket. The object is not the price itself, but the
Possible, defined. Subject-matter must be existing, future, or contingent. It must be a thing possibility of winning the prize.
(as distinguished from a service).
Commentary. The proper consideration of the first requisite is whether the subject matter is (3) Contingent Goods.
of a type and nature, taking into consideration the state of technology and science at the time
Art 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed
the sale is perfected, that exists or could be made to exist to allow the buyer reasonable certainty
by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale,
of being able to compel compliance by seller of his real obligation to deliver. in this Title called "future goods.”
▪ Corporeal and incorporeal property included. Where under an agreement a party There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency
renounces and transfers whatever rights, interests, or claims he has over a parcel of land in which may or may not happen.

11
Suspensive condition. A contract on future goods may be subjected to a suspensive condition 3. Determinate or at least determinable
– the existence of the thing. In the event that the condition is not fulfilled because the thing did
not come into existence, the contract is deemed extinguished. Determinable, defined. A thing is determinate when it is particularly designated or physically
segregated from all others of the same class.
(4) Subject to a resolutory condition Art 1460. A thing is determinate when it is particularly designated or physical segregated from all others of the same
class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is
Art 1465. Things subject to a resolutory condition may be the object of the contract of sale. capable of being made determinate without the necessity of a new or further agreement between the parties.
Art 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as Art 1409. The following contracts are inexistent and void from the beginning:
the time expires or if it has become indubitable that the event will not take place. (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained
Subject to a resolutory condition. Art 1465 provides that things subject to a resolutory Inexistent and void. A contract wherein the principal object of the contract that cannot be
condition may be the object of the contract of sale. If the thing is extinguished by the resolutory ascertained (determined) is void and inexistent, from which no rights can be enforced. But when
condition, the contract of sale itself is extinguished. the subject-matter of a sale is determinate, the basis upon which to enforce the seller’s
Restitution. The parties should then return to each other what they have received under Art. obligation to deliver, as well as the basis upon which to demonstrate breach, are certain and
1190, in order to preserve the commutative nature of the sale. Fruits and interests need not be unequivocal.
returned since they are deemed mutually compensated under Art. 1187 Determinability. By its very definition, a determinate subject-matter is a generic object,
because it has neither been physically segregated nor particularly designated at the point of
2. Licit perfection. However, during consummation, the thing must have been segregated and
designated to be the subject-matter of the sale. It will be made determinate.
Art 1409. The following contracts are inexistent and void from the beginning:
1. Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy
4. Those whose object is outside the commerce of men TESTS OF DETERMINABILITY
Art 1347. All things which are not outside the commerce of men, including future things, may be the object of a A thing is determinable only when two requisites are present at
contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered
the time of perfection:
into upon future inheritance except in cases expressly authorized by law
Art 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it 1. Capacity to Segregate
is delivered. 2. No Further Agreement
Licit, defined. Simply means that the subject-matter is not illegal or prohibited. It may be illegal
because it is against penal laws. It may be prohibited because it is against mandatory and Capacity to Segregate. If at the perfection of the sale the subject matter is capable of being
prohibitory laws expressly declaring it as not subject to sale. made determinate AND
Illicit goods. The thing must be within the commerce of men and it includes rights which are No Further Agreement. That it is capable of being made determinate without necessity of a
transmissible. When the subject matter is illicit, the resulting contract of sale is void. new or further agreement between the parties.
In pari delicto applies. If the nullity of a contract proceeds from the illegality of the object of
the contract and the act constitutes a criminal offense, pari delicto will apply. If both parties are Test of capacity to segregate. In essence, the requisite of being “determinable” is met when
in pari delicto, they would have no cause of action against each other. However, if only one at perfection, the agreement between the parties included a formula which can be used by the
party is at fault, the innocent party may claim what he has given without being bound to comply courts to establish the subject-matter upon which the obligation to deliver can be enforced,
with his promise. without needing to get back to any one or both the parties of the object of their intention.
▪ A sale involving future inheritance is void and does not create an obligation. Tanedo v CA Test of no further agreement. When the formula requires the court to have to go back to the
▪ A mortgagor can legally sell the mortgaged property – mortgages are merely parties to determine their confirmation, then it would undermine the very enforceability and
encumbrances that do not affect the principal attribute as owner thereof. The law even demandability of the underlying obligation to deliver; it would actually render the sale void
considers void a stipulation forbidding owner from alienating mortgaged immovable. under Art. 1409 (6) because the original contractual intention of the parties cannot be
Pineda v CA determined, and would run counter to the principle of mutuality or obligatory force of every
valid contract

12
▪ There should be no need to make further agreements between the contracting parties Quantity is essential all the time, because it goes to the satisfaction of the determinate
to segregate the object. The requirement of the law is that a sale must have for its object
Art 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate
a determinate thing and this requirement is fulfilled as long as, at the time the contract is shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the
entered into, the object of the sale is capable of being made determinate without the need of a new contract between the parties
necessity of a new or further agreement between the parties. Melliza vs City of Iloilo
or determinable subject-matter. Without quantity, the subject-matter is NOT determinate or
determinable. The rule applies specifically for determinable generic subject-matters because its
SUMMARY OF RULES ON DETERMINABILITY
quantity may not be definite during the perfection however during the consummation it should
(1) The test of determinability is the meeting of minds of parties and not the
be so.
covering deed.
Quantity, as applied to the test of no further agreement. Specific quantity is not important
(2) Generic things may be the object of a sale.
when it is still possible to determine the quantity without need of a new contract between the
(3) Quantity is an essential part of determinability
parties during delivery. As a determinate thing is already so during the perfection, then its
(4) Instances where a sale will give rise to a Co-Ownership
quantity is already definite.
▪ Sale of grains is perfected even when the exact quantity or quality is not known, so long as
(1) The test of determinability is the meeting of minds of parties and not the covering
the source of the subject is certain. When a maximum quota/quantity is agreed upon, it is
deed
still possible to determine the quantity without need of a new contract thus the subject-
▪ When the deed of sale describes a lot adjacent to the land seen, agreed upon and delivered matter is determinable. National Grains Authority vs IAC
to the buyer, such land is the one upon which the minds have met, and not that erroneously - Lecture. The problem with this ruling is that a quota, whether a minimum or maximum, by
described in the deed. Deed of sale must give way to the real contract of the parties. The itself, is too broad to be the sole basis of determining quantity. There should be some other
defect in the final deed would not work to invalidate the contract where all the essential factor or formula, which, taken with the quota, would allow the quantity to be determined
elements for its validity are present and can be proven. Atilano vs Atilano without the need for a new or further agreement.
▪ Where seller quoted items offered for sale, by item number, part number, description and
(2) Generic things may be the object of sale unit price, and buyer had sent in reply a purchase order without indicating the quantity
Sale of determinable generic things, valid. Although the sale of determinable generic things being ordered, there was a perfected contract of sale, even when required letter of credit
is valid, the obligation to deliver the subject-matter can only be complied with when the had not been opened by the buyer. Johannes Schuback & Sons v CA
subject-matter has been made determinate, either by physical segregation or particular - Lecture. The ruling in this case while correct as to the judgment, incorrectly said that the
designation. contract was perfected when the purchase order was sent. Based on the requisites of
Force majeure. Determinable subject-matters which are generic before the time of delivery, perfection of the contract, the offer must be certain in such a way that all the essential
are not subject to risk of loss until they are physically segregated or particularly designated. Yu requisites of a valid subject matter and a valid price must concur. In this sense, there
Tek & Co. v. Gonzales Hence, in case of a fortuitous event, loss of the generic thing does not should not have been perfection prior to the determination of the quantity of the subject
extinguish the contract of sale. matter.
Quality. Courts have the power to set the appropriate quality of the subject matter of a sale
when the same is determinable generic. The purpose of the obligation and other circumstances (4) Instances where a sale will give rise to a Co-ownership
are taken into account when determining the quality (Art 1246). The implication of this
provision is that the absence of a stipulation as to the quality of the subject matter will not Art 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and
who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the
render the sale void.
goods
Art 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or
(3) Quantity as an essential part of determinability grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

a. Sale of an undivided interest (Art. 1463)

Art 1463. The sole owner of a thing may sell an undivided interest therein.

13
 - Exception: In judicial sale, the forced seller who is actually the mortgagor in default, is
b. Sale of an undivided share in a mass of fungible things (Art. 1464) the owner because only the absolute owner of the thing can mortgage it.
▪ Subsequent acquisition of title by non-owner Seller validates the sale and title passes
Art 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the to the buyer by operation of law. If a buyer sells something and delivers it to the buyer
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, and though the number, weight or measure of the without owning it, the contract of sale remands valid but the buyer has no better title to
goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass the goods than the seller (Art. 1505). However, if the seller thereafter acquires title to the
as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains thing sold and delivered, such title passes to the buyer by operation of law (Art. 1434)
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 of the same kind and quality, unless a contrary intent appears

Co-owner. Simply put, if the buyer wants to buy a certain portion of an undivided mass of
fungible thing (property law definition), he becomes a co-owner of the undivided mass
proportionate to how much he has bought.
Example: I buy 500 kilos of rice from a rice mill currently holding a mass of rice weighing 1000
kilos. That makes me 50% owner of the entire mass. The sale will be valid even though my
share has not yet been physically segregated or particularly designated.
▪ If the sale covers a specific mass as a subject-matter without any provisions as to the
measuring or weighing of the subject sold, and the price was not based on such
measurement, the subject matter of the sale is the whole mass itself as a determinate
object. The sale is valid. Gaite vs Fonacier

SELLER’S OBLIGATION TO TRANSFER TO BUYER

Art 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is
delivered.

General Rule: A perfected contract of sale cannot be challenged on the ground of the seller’s
ownership of the thing sold at the time of perfection; it is at delivery that the law requires the
seller to have the ownership of the thing sold.
Recall: sale merely a title, not a mode. The rule supports the principle that a sale constitutes
merely a title and not a mode, and its perfection does not per se affect the title or ownership
over the subject matter thereof.
Nemo dat quod non habet. “Nobody can dispose of that which does not belong to him.”
When goods are sold by a person who is not the own

STATUS OF CONTRACTS WITH ISSUES ON OWNERSHIP

From Clarence Tiu
▪ Between the unauthorized seller and buyer: valid because all the essential elements of
a sale are present.
▪ Between the real owner and the buyer: unenforceable under Art. 1403(1),
unenforceability is a personal defense.

14
 Art 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to
IV. Price and other Consideration deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent

Definition. 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
Summary: Ideally, money. The ideal consideration for a contract of sale would be “price” as a sum certain
The requisites of a valid price are: (1) it must be real; (2) it must be money or its equivalent in money or its equivalent (Art 1458). However, it is possible that a sale may still be valid when
(valuable consideration); (3) it must be certain or at least ascertainable; and (4) the manner it has for its cause or consideration an item other than price.
as to the payment must be set. Or its equivalent. A sale can have other valuable consideration, not necessarily money, the
essence of sale is the transfer of ownership for some valuable consideration.
The price is real when there is an intention for the buyer to pay the price and the intention
of the seller to receive it. It must not be simulated. When there is absolute simulation,
REQUISITES OF A VALID PRICE
the contract is void. When there is relative simulation, the contract is valid but subject
1. Real
to reformation.
2. Money or its equivalent
The price must be money or its equivalent. There must be valuable consideration. (valuable consideration)
Hence, contracts with nominal prices (i.e. ridiculously low price) are valid as long as there 3. Certain or ascertainable
4. Manner as to payment thereof
is no showing of absence or vitiation of consent and there is proof of valuable
consideration.
1. Price must be real
The price is certain when it is expressed in money (pesos). The price is ascertainable when
the price is made certain with reference to another thing or by designation by a third
Art 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or
party. some other act or contract.

Reference to another thing may be made when: (1) price is fixed is that which the thing
When is price real? Reflected by the intention of the parties at the time of the perfection of
would have on a definite day; (2) an amount is fixed above or below the price on such day;
the sale:
(3) referring to certain invoices then in existence and clearly identified by the agreement; (1) Buyer – legal intention to pay the price
or (4) through known factors or stipulated formula. (2) Seller – legal expectation to receive such price as the value of the subject matter
The ascertainability when made by a third party depends on how it was designated: (1)
Simulated prices
without incident, valid; (2) with fraud or by mistake; parties can ask the court to fix the
When price is simulated. Neither party had any intention whatsoever that the amount be paid.
price; (3) 3rd party unable or unwilling to designate, inefficacious; or (4) prevented by one
A void contract.
party, innocent party can ask court to fix price. Absolute simulation. Essentially, there is no consideration. There is a colorable contract but
without any substance, because the parties have no intention to be bound by it. It is void, and
The terms of payment, while not included in the provision, has been held to be essential,
the parties may recover from each other what they may have given under the contract.
without which, the price is void.
▪ Effect of absolute simulation. The contract is void, its inexistence permanent, and
incurable, and could not be the subject of prescription. Mapalo v Mapalo
▪ No consideration or price makes the contract void. When two aged ladies, not versed
in English, sign a deed of sale on representation by the buyer that it was merely to evidence
their debt, the situation constitute more than just fraud and vitiation of consent to give rise
to a voidable contract, since there was in fact no intention to enter into a sale, there was

15
 no consent at all, and more importantly, there was no consideration or price agreed upon, the buyer, the agreement cannot also be taken as a consideration and sale is void. In pari
which makes the contract void. Rongavilla vs CA delicto is not applicable. Yu Buan Guan vs Ong
In pari delicto. The principle of in pari delicto denies all recovery to the guilty parties inter se.
It only applies where the nullity arises from the illegality of the consideration or purpose of the Non-payment of Price
contract. It does not apply to inexistent and void contracts where the price is merely simulated. Sale is a consensual contract. Failure of buyer to pay the price does not make the contract
Yu Buan Guan vs Ong void for lack of consideration or simulation, but results in buyer’s default, for which seller may
exercise his legal remedies.
Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be proved that they Resolutory condition. Non-payment is a resolutory condition which extinguishes the
were founded upon another cause which is true and lawful. (1276) transaction that, for a time, existed and discharges the obligations created thereunder. The
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the remedy of an unpaid seller is to seek either specific performance or rescission.
debtor proves the contrary. (1277)

2. Price must be “MONEY OR ITS EQUIVALENT”

When price is false. When there is a real price upon which the minds of the parties had met, Equivalent. Refers to something representative of money (e.g. check or draft). Consideration
but not declared, and what is stated in the contract is not the one intended to be paid. may be part money and other additional consideration.
Relative simulation. Essentially, there is a false consideration. The contract is presumed to be Services. Services are not the equivalent of money insofar as said requirement is concerned
valid, unless proved otherwise; in which case, it will be void (considered as absolute simulation). and that a contract is not a true sale where the price consists of services or prestations.
The contract must be subjected to reformation to indicate the real price upon which the minds
of the parties have met.
Art 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction
Estoppel because of relative simulation. The parties may be bound by the false consideration shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be
because of estoppel, especially when the interest of the State or third parties would be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money
adversely affected by the reformation of the instrument. or its equivalent; otherwise, it is a sale.
▪ When the price indicated in the deed of absolute sale is undervalued consideration Art 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or some other act or contract.
pursuant to the parties’ intention to avoid payment of higher capital gains taxes, the price
stated is false, but the sale is still valid and binding on the real terms. Heirs of Balite vs Lim Adequacy of price. It is possible for parties to a sale to agree on an adequate consideration,
▪ When accommodation not necessarily void: false consideration. The facts that the and though they will state a false or nominal consideration in their covering deed, it would not
checks bounced did not render the sale void for having a fictitious consideration. In affect the validity of their contract of sale, provided that valuable consideration was in fact
preparing and executing the deed of sale, appellant actually accommodated Josefina so agreed upon.
she would not be criminally charged. It is plain that consideration existed at the time of the Simple or mere inadequacy of price. Mere inadequacy pf price does not affect the validity of
execution of the contract. Mate v CA the sale when both parties are in a position to form an independent judgment concerning the
- Commentary: Mate is a prime example to show that even when undoubtedly the price transaction, unless fraud, mistake, or undue influence indicative of a defect in consent is
stipulated is relatively simulated (i.e. false) the underlying sale would still be valid and present. The contract may be annulled for vitiated content, and not due to inadequacy of price.
enforceable provided there is another consideration. Gross inadequacy of price. There is gross inadequacy of price if a reasonable man will not
- Lecture: TVT does not agree with the ruling and CLV. Hehe. There was valuable agree to dispose of his property at that amount. Generally, it does not affect a contract of sale,
consideration in the form of the two checks given to Mate to ensure the transaction. unless there is an indication of vice in consent or the contract is not really that of sale.
The sale was not really simulated but operated more like a mortgage. However, the 1. It may give rise to the presumption that the contract is that of equitable mortgage (Art
Court should have voided the sale for being a pactum commisorium. 1602).
▪ Accommodation: transfer of building from husband’s name to children. No portion of 2. It may render a judicial sale (such as the foreclosure and public bidding of a mortgage)
the consideration stated in the Deed was ever paid. It is clear that neither party had any voidable.
intention whatsoever to pay the amount. When the deed of sale was executed to facilitate 3. It may be rescissible when the lesion or economic damage is suffered by the beneficiaries
transfer of property to buyer to enable him to construct a commercial building and to sell in a fiduciary relationship, unless approved by the court.
the property to the children, such arrangement being merely a subterfuge on the part of

16
 a. Those entered into by guardians whenever the ward whom they represent suffer lesion Art 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to
by more than one-fourth of the value of the object of the sale; and another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should
b. Those agreed upon in representation of absentees, if the latter should suffer lesion by such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties
subsequently agree upon the price.
more than one-fourth of the value of the object of the sale. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third
person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault
▪ “One peso (P1) and other valuable considerations” as nominal payment. The apparent may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be.
inadequacy is of no moment since it is the usual practice in deeds of conveyance to place
a nominal amount although there is a more valuable consideration given. Consideration in
Certain. When it has been expressed and agreed in terms of specific pesos and/or centavos;
this case was “1 peso and other valuable considerations”. Court held no evidence was
which afforms the proposition that money represents the best model of valuable consideration.
adduced to show that the consideration stated in the deed was no paid or was simulated,
it is presumed to exist under Art. 1354. It held that the statement in the deed of the
ASCERTAINABILITY OF PRICE
consideration of P1.00 is not unusual in “deeds of conveyance adhering to the Anglo-Saxon
Ascertainable. Essentially, the price is not yet certain but can be made certain through the
practice of stating a nominal consideration, although the actual consideration may have
following:
been much more. Ong v Ong
1. Reference to another thing certain; or
▪ Nominal consideration. It is possible for the parties of a sale to free on an adequate
a. When price fixed is that which the thing would have on a definite day, or particular
consideration, and though they will state a false or nominal consideration in their covering
exchange or market;
deed, it would not affect the validity of the contract of sale, provided that valuable
b. When an amount is fixed above or below the price on such day, provided the said
consideration was in fact agreed upon. Id
amount be certain;
▪ There must be evidence to adduce that services, if indicated to be part of the
c. Certain invoices then in existence and clearly identified by the agreement; or
consideration, were actually rendered to be counted as valuable consideration. The
d. Known factors or stipulated formula.
gross disproportion between the consideration stipulated and the value of the property,
2. Designation by third party.
would show that the price stated was false and no other true and lawful cause having been
shown, the Court found the deed void. Bagnas vs CA
THIRD PARTY DESIGNATES THE PRICE
- CLV. Bagnas should not be interpreted to mean that although the parties agreed that
1. If 3 party fixes the price without incident: the contract of sale becomes demandable.
rd
services agreed upon to be part of the consideration, the fact that no service was
2. If 3rd party fixes the price in bad faith or by mistake: the parties can ask the court to fix the
rendered would make the contract void. What happened in this case as distinguished
price.
from Ong vs Ong is that evidence was added to indicate that there was no real intention
3. If 3rd party is unable or unwilling to fix the price: the contract becomes inefficacious.
to pang any indicated valuable consideration
4. If 3rd party is prevented by one of the parties from fixing the price: the innocent party can
ask the court to fix the price.
VALUABLE CONSIDERATION
1. Money Designation by third party. The designation of a third party is allowed by law and valid, and
2. Things, goods such designation by itself makes the price ascertainable as to give rise to a valid contract of
3. Services sale, although conditional. The actual designation of the price is a suspensive condition.
4. Partly money, partly another thing
(Art 1468) Bad faith or mistake. In case the third party designates the price in bad faith or by mistake,
the parties can ask the court to fix the price.
Inefficacious. In case the third party is unable or unwilling to fix the price, the contract becomes
inefficacious. An inefficacious contract is, in all respects except for name, a void contract.
3. Certain or ascertainable
Prevented by one of the parties. The suspensive condition is deemed fulfilled, and the
innocent party can ask the court to designate the price.

17
 Need not always expressed. Generally, price is deemed demandable at once. Only in cases
Art 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the
where it was stipulated in the contract or the parties intended that a different term of payment
price fixed by one of the parties is accepted by the other, the sale is perfected. would be applicable that there must be ascertainability of the manner of the payment of price.
▪ When the manner of payment of the price is discussed after “acceptance” of the offer, then
such acceptance did NOT produce a binding and enforceable contract of sale. This is
Designation of one of the contracting parties. The fixing of the price cannot be validly left because there was NO complete meeting of the minds and there is NO basis to sue on a
to the discretion of one of the contracting parties. However, if the price designated by one of contract that is VOID. This is why specific performance cannot be availed of. Navarro vs
the contracting parties is ratified through acceptance, then there is perfection of contract. Sugar Producer’s Corp
Designation of subject matter by 3rd party. Such designation is not allowed. ▪ Absence of stipulation on manner of payment supports the position that such
contract was a contract to sell, not a contract of sale which essentially constitutes
Art 1474. Where the price cannot be determined in accordance with the preceding Arts, or in any other manner, the obligations to do and not subject to an action for specific performance. Cruz vs Fernando
contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the
Sr
buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case.

Effect of unascertainability. The contract becomes inefficacious. However, if the thing or any
part thereof has been delivered and appropriated by the buyer, the seller may ask for a
reasonable price therefor.
The only exception. The provision is the only exception allowed by law when it comes to the
absence of the meeting of the minds when it comes to price. To invoke this exception, the
following requirements must be met:
1. There was a meeting of the minds of the parties of sale and purchase as to the subject
matter;
2. There was an agreement that price would be paid which fails to meet the criteria of being
certain or ascertainable; and
3. There was delivery by the seller and appropriation by the buyer, of the subject matter of
the sale.

Appropriation. As to movables, it would seem that appropriation would necessarily entail a

transformation of the subject matter such that it can no longer be returned to its original state.
As to immovables, such as land, the concept of appropriation under 1474 does not apply;
rather, such an instance would be treated as if the buyer is a builder in good faith (property
law).

4. Manner of payment of price is ESSENTIAL

Essential. Although not explicitly stated by the Civil Code, the terms and manner of payment
of the price is essential before a valid contract of sale can be said to exist. At the very least, the
terms of payment should be ascertainable in the same manner price is ascertained.

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 For the midterms, the stages are split into three sub-sections: Negotiation, Perfection, and the
V. Formation of the Contract of Sale – Negotiation Formal Requirements of the contract of sale.

Policitacion Stage. Policitacion or negotiation stage actually deals with legal matters arising
prior to the perfection of sale, dealing with the concepts of invitation to make offer, offer,
Summary: acceptance, right of first refusal, option contract, supply agreement, mutual promises to buy
Discussion under this section mainly revolves on two preparatory acts prior to perfection: and sell or contracts to sell, and even agency to sell or agency to buy.
option contracts and right of first refusal.
Normally, negotiation is formally initiated by an offer, which, however, must be certain, an
An option contract is a sale of the right to purchase the property rented or lease. It is a
imperfect promise (policitacion) is merely an offer by an offeror to an offeree. Policitacion, or
contract whose subject matter is the right to purchase, not the actual property itself.
unaccepted unilateral promise to buy or to sell, prior to acceptance, does not give rise to any
The option contract must have a separate consideration of anything of value. Without obligation or right, and creates no privity between the purported seller (offeror) and buyer
the separate consideration, the option contract is void. There are conflicting rulings on (offerees).
Not binding. These relations, until a contract is perfected, are not considered binding
what happens afterwards. Both agree that though the option contract is void, there stands
commitments; and at any time prior to the perfection of the contract, either negotiating party
a continuing offer of the right to purchase. But they differ on the effect of timely acceptance
may stop the negotiation, and walk away from the situation, generally without adverse legal
of the grantee: (1) the prevailing jurisprudence (PNOC v Keppel) indicates that a contract
consequences. It is important to consider that at policitation stage, there is “freedom to
TO sell is born; while the (2) preferred jurisprudence (Sanchez v Rigos) indicates that a contract,” which signifies the right to choose with whom to contract and what to contract.
contract of sale is born. See notes on the lecture and commentary for clarification.
PREPARATORY ACTS
The separate consideration must be anything of value. There must be express
1. Advertisements and invitations
indication in the contract of said consideration; otherwise, the burden is on the party
2. Offers
invoking the option to prove its existence.
3. Option contracts
The rules of acceptance and the corresponding liabilities are embodied in the decision 4. Right of first refusal
of Ang Yu Asuncion v CA. The pertinent rules are reproduced herein in verbatim with a 5. Mutual promises to buy and sell
summary thereafter. Note the divergent views of CLV and TVT with respect to substantial
1. Advertisements and invitations.
acceptance.

Right of first refusal. There is a separate summary in the section below on the rules. Note Advertisements. Unless it appears otherwise, advertisements of things for sale are not definite
the conflict between the commentary and jurisprudence. I’m not too sure what’s the correct offers, but mere invitations to make an offer.
answer so it might be best to understand both sides. ‘Unless it appears otherwise’. It has been posited (Recall Dean Mel’s discussion on this topic)
that the exception is that if the advertisement specifies a determinate subject matter and the
price and terms thereof are certain, then it would constitute an offer. CLV disagrees. Instead, he
STAGES IN THE FORMATION OF SALE posits that the correct interpretation of the exception contemplates a situation wherein the
Policitacion/Negotiation: negotiation, preparation, conception or generation stage, which is advertisement provides a certain offer, with a stipulation to be binding to the first absolute
the period of negotiation and bargaining, ending at the moment of perfection acceptance, or when it is addressed to a particular offeree instead of the public at large.
Perfection: “birth” of the contract, which is the point in time when the parties come to agree
on the terms of the sale (as to the subject-matter and price) 2. Offer.
Consummation: “death” of the contract, which is process of fulfillment or performance of the
terms agreed upon in the contract Negotiation and offer. Negotiation is formally initiated by an offer, which must be certain. At
any time prior to the perfection of the contract, either negotiating party may stop the

19
negotiation. At this stage, the offer may be withdrawn; the withdrawal is effective immediately OBLIGATIONS IMPOSED ON THE ONE GAVE THE OPTION
after its manifestation. To convert the offer into a contract, the acceptance must be absolute (1) Not to sell it to other people;
and must qualify the terms of the offer; it must be plain, unequivocal, unconditional, and (2) Not to withdraw the offer within the period (more on this later); and
without variance of any sort from the proposal. (3) To enter into contract with grantee if accepted.
Prior to acceptance. An offer, prior to its acceptance, is not binding to either party. It may be
withdrawn at will, without notice to the offeree. An offer with a period expires at the end of the Subject matter: right to purchase. The subject-matter is not the subject matter of sought sale,
period without further act, or its withdrawal at any time prior to acceptance. but rather the option to purchase such subject matter.
Counter-offer. When the offeree negotiates, in any manner, or conditionally accepts the offer, Consideration: anything of value. There must be a separate consideration; otherwise, the
then a counter-offer is constituted. This necessarily means the rejection of the original offer. option contract is void. Unlike the contract of sale, note that it only requires anything of value;
whereas the contract of sale requires a ‘valuable consideration’.
3. Option contract Perfected option contract. An accepted unilateral promise which specifies the thing to be sold
and the price to be paid, when coupled with a valuable consideration distinct and separate from
Art 1479. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the price.
the promisor if the promise is supported by a consideration distinct from the price SEPARATE CONSIDERATION
Art 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any General rule: An option contract must have a separate consideration. An option without
time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration,
as something paid or promised
separate consideration is VOID as a contract.

Separate consideration. Consideration in an option contract may be anything of value, not

Option Contract. It is a privilege existing in one person, for which he had paid a consideration
necessarily money or its equivalent. As long as the consideration for the option contract is
and which gives him the right to buy certain merchandise or certain specified property, from
distinct and not included in the purchase price.
another person, if he chooses, at any time within the agreed period at a fixed price. - Definitive ruling. Following the ruling in PNOC v Keppel, the consideration for the option
Continuing offer. An option is a continuing offer or contract by which the owner stipulates with contract should be clearly specified as such in the option contract or clause. Otherwise, the
another that the latter shall have the right to buy the property at a fixed price within a certain
offeree must bear the burden of proving that a separate consideration for the option
time, or under, or in compliance with, certain terms and conditions, or which gives to the owner
contract exists.
of the property the right to sell or demand a sale.
Presence of separate consideration. Where an offer is supported by separate consideration,
▪ An option is not of itself a purchase, but merely secure the privilege to buy; it is not a sale
a valid option contract exists. There is a contracted offer which the offeror cannot withdraw
of property, but a sale of the right to purchase. It imposes no binding obligation on the from without incurring liability in damages. PNOC v Keppel
person holding the option, aside from the consideration of the offer. Adelfa Properties v CA Absence of separate consideration, void but: Since there may be no valid contract without
a cause or consideration, the promisor is not bound by his promise and may, accordingly,
ELEMENTS OF THE OPTION CONTRACT
withdraw it. Pending notice of its withdrawal, his accepted promise partakes of the nature of
1. Consent or meeting of the minds;
an offer to sell, which, if accepted, results in a perfected contract of sale. Sanchez v Rigos
2. Subject matter: an option right to an unaccepted unilateral offer to sell or to buy, or an
Recent jurisprudence: An option unsupported by a separate consideration stands as an
accepted promise to sell or promise to buy; unaccepted offer to buy (or to sell) which, when properly accepted, ripens into a contract to
(1) a determinate or determinable object; sell. PNOC v Keppel
(2) for a price certain, including the manner of payment thereof;
- Lecture: Atty Tiansay dislikes this ruling because the proper ruling should have been the
3. Prestation: a separate consideration.
ruling in Sanchez v Rigos – the end result would be a contract OF sale, rather than a
contract TO sell.
Consent: Consensual, but unilateral. Perfected upon meeting of the minds, but only creates
- Commentary: There are two lines of jurisprudence on the effect of the absence of a
an obligation on one of the parties – the offeror.
separate consideration: (1) the Sanchez ruling, which states that the void option contract
becomes an offer, if accepted within the period, may result into a contract of sale; and (2)
the Southwestern Sugar v Atlantic case, which states that an option without a separate

20
 consideration is void, can be withdrawn notwithstanding the acceptance made previously 1. If the period is not founded or supported by a separate consideration:
by the offeree. a. The offeror has a right to withdraw:
Exception: An option may be included within another binding contract, such as a lease or (1) Before acceptance of offer; or
mortgage. It will be binding even if it does not have a separate consideration because the (2) After acceptance, but before he had knowledge thereof.
consideration is the same as the consideration to the lease/mortgage. It is a stipulation within b. The right to withdraw is qualified – it must not be whimsical and arbitrary.
the contract which acts like a contract. c. Otherwise, liable for damages under Abuse of Rights (Art 19).
Option Not Deem Part of Renewal of Lease. An option to purchase attached to a contract of 2. If the period is based on a separate consideration:
lease when not exercised within the original period is extinguished and cannot be deemed to a. The offeror has no right to withdraw. Otherwise he would be liable for:
have been included in the implied renewal of the lease even under the principle of tacita (1) Breach of option, if withdrawn before the acceptance of the offer.
reconduccion. Under such principle, a lease is impliedly renewed if the term of the original b. In either case, the optionee cannot sue for specific performance.
contract of lease has expired, the lessor has not order the lessee to vacate, and 15 days has
passed without the acquiescence of the lessor. CLV. The ruling in Ang Yu is not commercially sound because it reduces the effectiveness of an
option supported by a separate consideration. But in the subsequent ruling in Carceller, the
RULES IN ACCEPTING AN OFFER OR OPTION CONTRACT Court granted the offeree’s prayer for specific performance because of the offeree’s substantial
Ang Yu Ascuncion v CA compliance in the acceptance of the offer.
Where a period is given to the offeree within which to accept the offer, the following rules - Note: Ang Yu is still the definitive ruling on the acceptance and remedies in case of a
generally govern: breach of the option contract.
(1) If the period is not itself founded upon or supported by a consideration, the offeror is still
free and has the right to withdrawal the offer before its acceptance, or, if an acceptance OPTION PERIOD
has been made, before the offeror’s coming to know of such fact, by communicating that Period when the option should be exercised. Rather straightforward.
withdrawal to the offeree. The right to withdraw, however, must not be exercised When none stipulated. When the option contract does not contain a period, it cannot be
whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 presumed that the exercise thereof can be made indefinite. According to the Civil Code, actions
of the Civil Code which ordains that “every person must, in the exercise of his rights and in upon written contract must be brought within 10 years. Otherwise, the right of option would
the performance of his duties, act with justice, give everyone his due, and observe honesty prescribe.
and good faith.” Specific performance. Even upon acceptance and payment of the amount due, the action for
(2) If the period has a separate consideration, a contract of “option” is deemed perfected, and specific performance to enforce the option to purchase must be filed within 10 years.
it would be a breach of that contract to withdraw the offer during the agreed period. The
option, however, is an independent contract by itself, and it is to be distinguished from the ACCEPTANCE: PROPER EXERCISE OF THE OPTION
projected main agreement (subject matter of the option) which is obviously yet to be Acceptance. Notice of the exercise of the option need not be coupled with actual payment of
concluded. If, in fact, the optioner-offeror withdraws the offer before its acceptance the price, so long as payment is delivered to the seller upon performance of the seller’s part of
(exercise of the option) by the option- offeree, the latter may not sue for specific the agreement.
performance on the proposed contract (“object” of the option) since it has failed to reach Effect of acceptance. Timely, affirmative, and clear acceptance of the offer would convert the
its own stage of perfection. The optioner-offeror, however, renders himself liable for option contract into a bilateral promise to sell and to buy where both parties are then
damages for breach of the option. In these cases, care should be taken of the real nature reciprocally bound to comply with their respective undertakings. Note that this is only true
of the consideration given, for if, in fact, it has been intended to be part of the consideration where the option has a separate consideration. Otherwise, acceptance would result into a
for the main contract with right of withdrawal on the part of the optionee, the main contract to sell (or contract of sale, if you follow the better ruling).
contract could be deemed perfected; a similar instance would be an “earnest money” in a ▪ Document evidencing the acceptance must be signed by the party given the option.
contract of sale that can evidence its perfection The annotation and registration of the right to repurchase at the back of the certificate of
title of the petitioners cannot be considered as acceptance of the right to repurchase.
Annotation at the back of the certificate of title of registered land is for the purpose of
The ruling above can be summarized as follows: binding purchasers of such registered land. In effect, the annotation of the right to

21
 repurchase found at the back of the certificate of title over the subject parcel of land of the Right of First Refusal. It is a promise on the part of the owner that if he decides to sell the
private respondents only served as notice of the existence of such unilateral promise of the property in the future, he would first negotiate its sale to the promise.
petitioners to resell the same to the private respondents. This, however, cannot be equated “Innovative juridical relation”. It is neither a perfected sale nor an option contract. Essentially,
with acceptance of such right to repurchase by the private respondent. Neither can the it is only a preparatory juridical relation that is not governed by the law on contracts. Ang Yu
signature of the petitioners in the document called “right to repurchase” signify acceptance Asuncion
of the right to repurchase. The respondents did not sign the offer. Acceptance should be
made by the promisee, in this case, the private respondents and not the promisors, the Usually found in lease contracts. Simply means that should the lessor decide to sell the leased
petitioners herein. It would be absurd to require the promisor of an option to buy to accept property during the term of the lease, such sale should be first offered to the lessee, and the
his own offer instead of the promisee to whom the option to buy is given. Vasquez vs CA series of negotiations that transpire between the lessor and lessee on the basis of such
▪ Mere advisory to the party who gave the option is sufficient. In an option to buy, the preference is deemed a compliance of such clause even when no final purchase agreement is
party in whose favor the option contract exist may validly and effectively exercise his right perfected between the parties. After such negotiations, the lessor can now offer the sale to a
by merely advising the offeror of the decision to buy and expressing his readiness to third party.
pay the stipulated price, provided that the same is available and actually delivered to the
offeror upon execution and delivery by him of the corresponding deed of sale.In other BREACH OF RIGHT OF FIRST REFUSAL
words, notice of the exercise of the option need not be coupled with actual payment of
the price, so long as this is delivered to the owner of the property upon performance of Summary of prevailing jurisprudence. Here, have a summary.
his part of the agreement. Nietes vs CA 1. First question: Is it attached to a principal contract or is it a separate contract?
▪ Substantial” compliance with the exercise of an option. Notice of clear intention to a. If the right is attached to a valid principal contract, such as a lease contract, breach
purchase the property, even with a request for leeway or extension of the period in order thereof makes the subsequent sale rescissible. Equatorial Realty v Mayfair Theater
to raise money to buy the property is a valid and substantial exercise of the option. Carceller b. If the right is found in a separate contract, the right must first be proven to exist. If
vs CA proven, also rescissible. Rosencor v Inquing
- Nota bene: Atty. Tiansay expressed her dislike of the resolution of the Carceller case. In c. BUT, for both cases, rescissible only if the buyer is not a purchaser in good faith
brief, the Court held that even though the period for acceptance had already lapsed, and for value. Otherwise, the contract of sale cannot rescinded. Can only go for
when the optionee (one given the option) performed acts that gave his ‘clear intention’ damages against the grantor of the right.
of accepting the option, in this case, a request for extension of the lease, there is 2. Terms of the contract. There must be a substantial identity of the terms offered to
substantial compliance with the exercise of the option. The ruling was based on equity, the grantee and to third persons. Otherwise, the sale is also rescissible.
rather on law. However, it seems that CLV in the commentary prefers this ruling over
the Ang Yu Asuncion ruling, which allows the optioner to renege on the option even
How does the right begin. When the owner/seller decides to sell the contract, even though
after acceptance, with liability only for breach of contract.
the terms and price have not been agreed upon. The buyer cannot compel the seller to make
- In any case, the prevailing ruling is the Ang Yu Asuncion ruling, but the substantial
a sale when the seller does not choose to sell the property. However, once he has decided that
compliance may be invoked if the facts warrant exercise of equity.
he intends to sell, the following steps are taken:
1. Seller must first offer to sell the property to the grantee of the option.
4. Right of first refusal
2. The negotiations about the sale between the seller and the grantee would be deemed
compliance with the right, even if there is NO final price agreed upon.
Art 1381. The following contracts are rescissible: 3. If NO price is agreed upon, the seller can then offer to sell to other parties with the SAME
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them
Art 1385. Rescission creates the obligation to return the things which were the object of the contract, together with
terms as those offered to the grantee.
their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission 4. If the seller and the third party negotiate and agree to DIFFERENT terms, the seller must
can return whatever he may be obliged to restore. first offer these new terms against to the grantee.
5. If the grantee again rejects the new terms, the seller can proceed with the sale of the
property to the third party.

22
 REMEDY TO BREACH OF RIGHT OF FIRST REFUSAL right is not covered under the Statute of Frauds and can therefore be proved with parol
As to whether the contract is attached to a principal contract or not: evidence.
1. The right is attached to a principal contract.
2. The right is granted on a separate contract. - Comment: How to reconcile. I’m not sure. Seeing that the Rosencor was decided in 2001
and the book published in 2016, the case should have been cited if it were the prevailing
Attached to a principal contract. jurisprudence or a stray decision by the court. Just take note of both rulings and apply
Attachment. By attached, we mean stipulated into the principal contract. either during the exam.
Subsequent sale is rescissible. A sale entered into in violation of a right of first refusal to - Note: Question was asked during the midterms (1st sem, AY 2019-2020). TVT gave full
another person found in a valid principal contract is rescissible. Equatorial Realty v Mayfair points when I answered the question using the Rosencor ruling.
Theater
Rationale. There need not be a separate consideration in a right of first refusal since such Purchaser in good faith and for value. Both situations (attached to principal contract and
stipulation is part and parcel of the entire contract of lease to which it may be attached to; the granted on a separate contract) allow rescission where the buyer is in bad faith. However, when
consideration for the lease includes the consideration for the right of first refusal. the buyer is a purchaser in good faith and for value, the grantee of the right cannot demand
Effect of rescission. The subsequent sale is rescinded in the favor of the person in whom the for rescission. His only remedy is to go against the grantor of the right for damages. Rosencor
right is vested and although no price may have been stipulated in the original grant of the right, Dev Corp v Inquing
the same price by which the third-party buyer bought the property shall be deemed to be the Legal basis. The legal basis of the rescission of such subsequent sale is Art 1381 (3), on a
price by which the right shall be exercisable. In other words, the price in the subsequent now contract undertaken in fraud of creditors when the latter cannot in any manner collect the claim
becomes the offer price to the grantee of the right. However, this presupposes that the due them. The right to rescission is later qualified under Art 1385, which provides that rescission
subsequent buyer is in bad faith. More on that later. shall not take place “when the things which are the object of the contract are legally in the
- Discussion. The ruling is iffy in the sense that the right, which is supposed to be less than possession of third persons who did not act in good faith”.
an option contract and more of a preparatory juridical relation, does not require a separate
consideration for it to be valid. Essentially, as long as the principal contract has a valid An oral grant of the right to first refusal constituted separately may be valid and binding,
consideration, the right of first refusal adopts such consideration to make itself valid. but not against a purchaser for value and in good faith. Rosencor Dev Corp v Inquing
Whereas for an option contract, the separate consideration must be expressly provided. ▪ Facts: An oral grant of the right of first refusal was granter to the lessee. This was made
during the term of the lease contract but was granted separately therefrom and not
Granted on a separate contract. reduced into writing. The lot was later sold without first offering the same to the lessees.
Nota bene: The commentary is not updated with respect to this section. The prevailing They now claim for rescission of the sale, claiming that they were not given the chance to
doctrine is found in Rosencor v Inquing exercise the right. Possible? No.
▪ The right is not under the Statute of Frauds. Not all agreements affecting land must be
Commentary. The ruling in Equatorial Realty is limited only with respect to a right of first refusal put into writing to attain enforceability. A right of first refusal is not among those listed as
granted in a valid principal contract. If it is granted in a separate contract, the ruling in Ang Yu unenforceable under the statute of frauds. As such, the right need not be written to be
Asuncion applies – such right cannot be exercised and enforced and the remedy of the grantee enforceable and may be proven by oral evidence.
is only damages under Art 19. This proposition was affirmed in Sen Po Ek Marketing v Martinez, ▪ Rescission not available against a purchaser for value and in good faith. The prevailing
which held that when the right is not stipulated in the lease contract, it cannot be exercised, doctrine is that a contract of sale entered into in violation of the right, while valid, is
and verbal grants of such right cannot be enforceable since the right of first refusal must be rescissible. However, the law also provides that rescission shall not take place when the
clearly embodied in a written contract. object of the contract is legally in the possession of third persons who did not act in bad
faith.
But jurisprudence provides – that a right of first refusal, an oral one at that, constituted - In this case, because the grant was made orally, there was no proof that the buyer had
separately during the term of the contract of lease may be valid and binding. In Rosencor Dev knowledge of the grant when they purchased the land. Hence, there was no showing of
Corp v Inquing, the court held that an oral grant of the right need not be in writing to become bad faith on the buyer’s side. Rescission cannot be allowed, but the grantee can still go
valid and enforceable – as long as the party invoking such right can prove its existence. The against the grantor for damages.

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 IDENTITY OF OFFERS lease, and is not deemed incorporated in the implied renewal or extension of the contract
Same terms offered to third parties. In order to have full compliance with the contractual of lease. Dizon v CA
right granting a lessee the first option to purchase the property leased, the price for which it ▪ Right does not apply when there is no intention to sell to a third party. The right is
was sold to a third party should have likewise been offered to the party entitled to the option. triggered only incase where the owner of the property intends to sell it to a third party;
Identity of terms. There should be an identity of the terms and conditions to be offered to the otherwise, if the owner seeks to eject the tenant on the ground that the former needs the
lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. The premises for residential purposes, the tenant cannot invoke his right of first refusal.
series of negotiations that transpire between the lessor and lessee on the basis of the right is
deemed a compliance of such clause even when no final purchase agreement is perfected 5. Mutual promise to buy and sell (true contract to sell)
between the parties. The lessor would then be at liberty to offer the sale to a third party who
paid a higher price, and there is no violation of the right of the lessee. Art 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

Notice of loss of right. After such series of negotiations, when no sale between the lessor and
Mutual Promises to Buy and Sell (True Contract to Sell). The promise to sell a determinate
lessee is perfected, then a written notice confirming the lost of the right of first refusal may be
thing coupled with a correlative promise to buy at a specified price is binding as an executory
sent, as in the case of Riviera Filipina v CA.
agreement. Even in this case the certainty of the price must also exist, otherwise, there is no
valid and enforceable contract to sell.
The basis of the right must be the current offer to self of the seller or offer to purchase
True contract to sell. Such an arrangement would be the “true” contract to sell, which
of any prospective buyer. Paranaque Kings v CA
embodies the main obligation of the seller to enter into a contract of sale upon full compliance
o Facts: The owner of the land initially sold the subject lot to a third party for P5M. The
with the condition of the buyer fully paying the purchase price, wherein the main obligation is
Grantee complained. Realizing the mistake, the owner had the land reconveyed to her for
a person obligation “to do.”
the same consideration. She then offered the same to the grantee for P15M. Grantee
refused. When the period expired, owner then sold the lot to a third-party for P9M. Grantee
now claims that the property should be sold to him for P5M. Correct? No, the amount of
the offered must be at the current offer.
o Held: The basis of the right must be the current offer to sell of the seller or offer to purchase
of any prospective buyer. Only after the grantee fails to exercise its right of first priority
under the same terms and within the period contemplated, could the owner validly offer
to sell the property to a third person, again, under the same terms as offered to the grantee.
o Class discussion: Should the grantee be offered the sale every time the terms change?
Generally, yes, whether the new terms are lower or even higher than the initial terms.
However, as mentioned above, the grantor may, after negotiations, notify the grantor that
his right to first refusal is lost because of his refusal.

OTHER RULES BASED ON JURISPRUDENCE:

▪ Rentals deemed to be consideration to support the right. Lucrative Realty v Bernabe
▪ Sublessee may not take advantage of sublessor’s right. A right of first refusal granted
in the contract of lease in favor of the lessee cannot be availed of by the sublessee.
However, had the contract of lease granted the lessee the right to assign the lease, then
the assignee would be entitled to exercise such right. Sadhwani v CA
▪ Right does not extend with the extension of the lease. A provision entitling the lessee
the option to purchase the leased premises expires with the termination of the original

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 Essentially, the offer certain must be complete as to all the requisites of a valid subject matter
V. Formation of the Contract of Sale – Perfection and valid price or consideration which must be met with an absolute acceptance for perfection
of the contract of sale.

ACCEPTANCE
Summary: Absolute or unconditional acceptance. In order to be efficacious and binding, it is necessary
A contract of sale is perfected upon two acts: (1) giving of an offer certain; and (2) that acceptance should be unequivocal and unconditional and the acceptance and proposition
absolute acceptance. shall be without any variation whatsoever; and that any modification or deviation of the offer
annuls the latter and frees the offeror to offer it to another person.
An offer certain must have all requisites of a valid subject matter and a valid price or
consideration, namely: a possible, licit, determinate or determinable subject matter and a
The acceptance must be identical in all respects with that of the offer so as to produce
real, money or its equivalent, certain or ascertainable price with terms of payment thereof. consent or meeting of the minds. Manila Metal Container v PNB
Absolute acceptance must be unqualified, unconditional acceptance of the offer certain. ▪ Facts: The buyer seeks repurchase of its foreclosed property. Seller-bank gave a proposal.
Buyer did not agree. This continued for several more instances. Buyer now demands for
Otherwise, there is no sale. The only exception is when only clarificatory remarks are made.
specific performance. Meritorious? No, there was no perfected contract of sale.
For sales of auction, just read the provisions. ▪ Qualified acceptance. One that involves a new proposal constitutes a counter-offer and
rejection of the original offer. A counter-offer is considered in law, a rejection of the original
For earnest money, it must be part of the purchase price, which presupposes a valid offer and an attempt to end the negotiation between the parties on a different basis. The
contract of sale. Remember how to differentiate it with option money. acceptance must be identical in all respects with that of the offer so as to produce consent
or meeting of the minds.
Perfection. A sale is at once perfected when the seller obligates himself for a price certain, to Other jurisprudence on acceptance:
deliver and to transfer ownership of a specified thing or right to the buyer over which the latter ▪ “To negotiate”. The use of the term in the acceptance letter given by the buyer was held
agrees. In other words, it is perfected upon (1) meeting of the minds upon (2) the thing which to indicate that there was as yet no absolute acceptance of the offer made. Yuvienco v
is the object of the contract, and upon (3) the price. Dacuycuy
Consensual; binding upon perfection. From that moment [perfection], the parties may ▪ “Noted”. Placing the word and signing such note at the bottom of the written offer cannot
reciprocally demand performance subject to the law governing the form of contracts. be considered an acceptance that would give rise to a valid sale. DBP v Ong
Mutual consent. Because consent is a state of mind, its existence may only be inferred from ▪ Agreement but there is inquiry as to terms of payment. The buyer inquired if it was
the confluence of the acts of the parties: (1) an offer certain as to the object of the contract and possible to pay on credit terms. The representative of the seller stated that there was no
its consideration; and (2) an acceptance of the offer which is absolute in that it refers to the harm in asking. A few days later, seller told buyer that land was no longer for sale. Buyer
exact object and consideration embodied in said offer. Villanueva v PNB brought action for specific performance. The Court held that the acceptance of the offer
was not unqualified and absolute because it was not identical in all respects with that of
the offer – specifically, with the terms of payment.
ELEMENTS OF PERFECTION Deviations from the offer are allowed if they are not substantial but merely clarificatory.
1. There must be an offer certain as to the object of the contract and its consideration, Villonco v Bormaheco
which means it must have a: ▪ Facts: Seller sent an offer to buyer. Buyer replied confirming the terms, with the deviation
a. Valid subject matter, which is a: (1) possible thing, (2) licit, and (3) determinate or by adding a 10% interest in case sale is not consummated, accompanied by a check for
at least determinable; and earnest money. Seller encashed the check, and sent a response, affirming the earlier reply,
b. Valid price or consideration, which is: (4) real, (5) money or its equivalent, (6) and that the 10% would be computed on a per annum basis. Later on, seller refused to
certain or ascertainable, and (7) with terms of payment thereof. sell the lot. Buyer filed an action for specific performance. Seller claims that there was no
2. There must be absolute acceptance of the offer certain. absolute acceptance. Correct? No.

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▪ Clarificatory. Seller’s action of inserting “per annum” to clarify the imposition of the 10% Earnest Money. Earnest money given by the buyer shall be considered as part of the price and
interest does not constitute a counter-offer. Even if literally, there was a correction or as proof of the perfection of the contract. It constitutes an advance payment to be deducted
modification contained in the acceptance, the changes were not substantial, but merely from the total price.
clarificatory. Presumption of perfection of contract. The provision gives rise to the presumption that the
money given by the buyer is earnest money – part of the purchase price and as additional proof
Form of acceptance. Generally, acceptance must be affirmatively and clearly made and must of the perfection of the contract – when there is showing that there is an offer certain met with
be evidenced by some acts or conduct communicated to the offeror. It may be shown by acts, absolute acceptance.
conduct or words of the accepting party that clearly manifest a present intention or Presupposes perfection of the contract of sale. While seemingly counter-intuitive, it makes
determination to accept the offer to buy and sell. more sense when applied to its practical use and effect of rescission.
Exception. In case where a formal acceptance is required. In other words, where there is For example, Buyer A gives money to Seller B, to guarantee that the buyer
stipulation in the offer fixing the time, place, or manner of acceptance, acceptance must be would not back out of the contract of sale. If prior to said giving of money,
made in accordance with such; otherwise, there is no perfected contract of sale. there was perfection of the contract, then said money would act as a
Acceptance through letter or telegram. It does not bind the offeror except from the time it downpayment to the contract of sale. If there is no perfection yet, then the
came to his knowledge. Hence, the offer may still be withdrawn by the offeror. money would act as similar to a reservation of the object of the sale.
Use of earnest money. Since it is a part of the purchase, it effectively works as a downpayment.
SALE BY AUCTION In case there is rescission, it is incumbent to the seller to return the earnest money, unless there
is a stipulation to the contrary.
Art 1476. In the case of a sale by auction:
1. Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale. EARNEST MONEY AND OPTION MONEY
2. A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other
customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may
EARNEST MONEY OPTION MONEY
withdraw the goods from the sale unless the auction has been announced to be without reserve. Part of the purchase price Money given as a distinct consideration for
3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by the option contract
stipulation.
Given only where there is a sale Given even before perfection of sale
4. Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall
not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for The buyer is bound to pay the balance The buyer is not required to buy and may
the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any even forfeit it depending on the terms of
bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the contract
the buyer.

o The Contract to Sell entered into by the parties is not a unilateral promise to sell merely
Jurisprudence. The provisions are rather straightforward. Some case law on the matter: because it used the word option money when it referred to the amount of P100,000.00,
▪ The terms and conditions provided by the owner of property to be sold at auction are which also form part of the purchase price. Settled is the rule that in the interpretation of
binding upon all bidders, whether they knew of such conditions or not. Leoquinco vs Postal contracts, the ascertainment of the intention of the contracting parties is to be discharged
Savings by looking to the words they used to project that intention in their contract, all the words,
▪ An auction sale is perfected by the fall of the hammer or in other customary manner and it not just a particular word or two, and words in context, not words standing alone.
does not matter that another was allowed to match the bid of the highest bidder. Until o In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was
such announcement is made, any bidder may RETRACT his bid and the auctioneer may referred to as “option money.” However, a careful examination of the words used in the
withdraw the goods from the sale unless the actions has been announced to be without contract indicates that the money is not option money but earnest money.
reserve. Province of Cebu vs Heirs of Rufina Morales

EARNEST MONEY
Art 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract.

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 V. Formation of the Contract of Sale – 1. For greater efficacy; to bind third parties.
Formal Requisites of Sale
Convenience. Art. 1358 requires the embodiment of certain contracts in a public instrument
for convenience. Registration of the instrument only adversely affects third parties. Non-
Summary: compliance does not affect the validity of the contract nor the contractual rights and
General rule. Contracts of sale do not require any form. obligations of the parties to each other. Fule v CA
Exception: When form required for (1) greater efficacy, (2) enforceability, and (3) validity. ▪ The provision of Art. 1358 on the necessity of a public document is only for convenience,
not for validity or enforceability. It is not a requirement for the validity of a contract of
When required for greater efficacy, it is usually just to bind third parties. sale of a parcel of land that this be embodied in a public instrument. Dalion vs CA
When required for validity, just note the enumeration listed in the sections as to what ▪ While a sale of a piece of land appearing in a private deed is binding between the parties,
contracts require a proper form. it cannot be considered binding on third persons, if it is not embodied in a public
The bulk of the discussion is when form is required for enforceability, in relation to the instrument and recorded in the Registry of Property. For land, execution of public
Statute of Frauds. Basically, the Statute requires certain contracts to be put into writing to instrument is NOT enough, there must also be registration under the Torrens Sytem with
be enforceable. Note some contracts we usually run into that are not part of the Statute of the Register of Deeds. Secuya vs Vda De Selma
Frauds.
This class of contracts can be removed from the operation of the Statute through: (1) 2. For enforceability under the Statute of Frauds
evidence in notes or memoranda, (2) partial performance or execution, (3) failure to object Statute of Frauds. Statute of Frauds requires certain classes of contracts, to be in writing, the
with respect to the enforceability of the contract, and (4) sale through electronic commerce. purpose being to prevent fraud and perjury in the enforcement of obligations depending for
their evidence on the unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the party to be charged.
FORMAL REQUISITES OF SALE Torcuator v Bernabe
Essential that there be a prior valid contract of sale. The Statute of Frauds only affects the
Art 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential enforceability of the sale, not its validity. As such, the note or memorandum presented, taken
requisites for their validity are present. However, when the law requires that a contract be in some form in order that
together, must evidence a contract of sale.
it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties stated in the following Art cannot be exercised
Art 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the Notable contracts not part of the statute
following Art, the contracting parties may compel each other to observe that form, once the contract has been ▪ Agency to buy or sell. As contrasted from sale, agency to sell does not belong to any of
perfected. This right may be exercised simultaneously with the action upon the contract.
the categories of contracts covered by Art 1357 and 1358 and not one enumerated under
Art 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its
registration in the Registry of Deeds, the parties may avail themselves of the right under Art 1357. the Statute of Frauds. Lim v CA
Art 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale ▪ Rights of first refusal. The right is not covered since the Statute presupposes the existence
may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred of a perfected, albeit, unwritten contract of sale. A right of first refusal is not by any means
from the conduct of the parties.
a perfected sale. Rosencor Dev Corp v inquing
▪ Equitable mortgage. The Statute does not stand in the way of treating an absolute deed
as a mortgage when such was the parties’ intention, although the agreement for
FORM MAY BE REQUIRED FOR:
redemption or defeasance is proved by parol evidence.
1. Greater efficacy (binding third persons);
2. Enforceability (Statute of Frauds); and
3. Validity.

General rule. Because sale is a consensual contract, there is no form required for its validity.

27
Sales-related provisions in the Statute ▪ An exception to the unenforceability of contracts pursuant to the Statute of Frauds is the
Art 1403. The following contracts are unenforceable, unless they are ratified existence of a written note or memorandum evidencing the contract, which memorandum
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an may be found in several writings, not necessarily in one document. Limketkai vs CA
agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, Receipts. It is an acknowledgment on the part of the seller of the receipt of the purchase price
be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
or a portion thereof. While generally, they evidence partial payment, the Court have had
1. An agreement that by its terms is not to be performed within a year from the making thereof; inconsistent rulings on them.
4. An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless Note: The rule of thumb seems to be: there must be an indication of the perfection of the
the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things contract, particularly with the terms of payment, or that they should at least indicate that there
in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms
had been partial payment (in the case of installments) for receipts to be considered as
of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memoranda taking the contract out of the Statute of Frauds.
memorandum; ▪ Sales invoice. Sales invoices are not evidence of payment since they are only evidence of
5. An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest the receipt of goods. The best evidence to prove payment of the price is official receipt
therein.
issued by the seller. El Oro Engravers v CA
▪ A receipt which is merely an acknowledgement of the sum received, without any indication
EXCEPTIONS TO THE STATUTE OF FRAUDS therein of the total purchase price of the land or of the monthly installments to be paid,
Taking out of the Statute of Frauds cannot be the basis of a valid sale. Leabres v CA
(1) Note or memorandum
(2) Partial execution (2) Partial execution. When there has been partial consummation/partial performance.
(3) Failure to object during trial (waiver)
(4) Sale effected through electronic commerce Estoppel. Essentially, once one party has accepted the benefits of the contract of sale, they are
now estopped in impugning the enforceability of the contract.
Partial performance takes the contract out of the Statute of Frauds. Circumstances
(1) Note or memorandum. There is a note or memorandum in writing and subscribed/signed indicating partial execution of the contract, taken together, may constitute sufficient
by the party charged or his agent embodying the essential contracts of the sale. partial performance. Ortega v Leonardo
▪ In any sale of real property on installments, the Statute of Frauds read together with the ▪ Held: While, as a general rule, an oral agreement to sell a piece of land is not provable,
perfection requirements of Art 1475 of the Civil Code must be applied such that payment however, where there is partial performance of the sale contract, the principle excluding
on installments of the sale must be in the requisite note or memorandum. Means manner evidence of parol contracts for the sale of realty will not apply. Some circumstances
of payment must also be included in the note or memo. Under the Statute of Frauds, the indicating partial performance of an oral contract of sale of realty are: relinquishment of
contents of the note or memorandum, whether in one writing or in separate ones merely rights, continued possession, building of improvements, tender of payment rendition of
indicative for an adequate understanding of all the essential elements of the entire services, payment of taxes, surveying of the land at the vendee's expense, etc. Partial
agreement, may be said to be the contract itself, except as to the form. Yuviengco vs payment of the purchase price is NOT the only manner of partial performance. Ortega vs
Dacuycuy Leonardo
▪ For the memorandum to take the sale out of the coverage of the Statute, it must - In this case, the Court did not need to discuss whether any two or three of the acts
contain all the essential terms of the contract of sale, even when scattered into various constituted sufficient performance. It is enough to hold that the combination of all of
correspondences which can be brought together. City of Cebu v Heirs of Candido Rubi them amounted to partial performance.
▪ A definite agreement on the manner of the payment of the price is an essential element in - Lecture. Should actually be estoppel. There was acceptance of the benefits by the
the formation of a binding and enforceable contract of sale. The agreement failed to person trying to veer away from the enforceability of the contract (one invoking the
disclose such details; hence, shows the absence of a meeting of minds between Seller and Statute).
Buyer. Toyota Shaw v CA ▪ The rule of thumb is that a sale of land, once consummated, is valid regardless of the form
it may have been entered into. For nowhere does law or jurisprudence prescribe that the
contract of sale be put in writing before such contract can validly cede or transmit rights

28
 over a certain real property between the parties themselves. However, in the event that a SALE WHERE FORM AFFECTS VALIDITY
third party, as in this case, disputes the ownership of the property, the person against whom 1. Power to sell a piece of land or other interest therein by an agent must be in writing
that claim is brought cannot present any proof of such sale and hence has no means to otherwise the sale will be void (Art. 1874);
enforce the contract. Claudel vs CA 2. Sale of Large Cattle must be in writing and registered with the municipal treasurer
- Lecture. The options of taking out the contract from the Statute are not mutually otherwise sale would be void (Art. 1581, Revised Administrative Code Sec. 529)
exclusive. In this case, which is not good case law for partial execution, there was 3. Sale of land by “non-muslim tribe cultural minorities all throughout the Philippines is void
actually partial performance by payment, but this was not recognized because the if not approved by the National Commission on Indigenous People
evidence of the payment was flimsy at best. Had there been any other note or
memorandum, then they should have won the case.
▪ The Statute of Frauds applies only to executory contracts and not to contracts either
partially or totally performed. Thus, where one party has performed one’s obligation, oral
evidence will be admitted to prove the agreement. In addition, a contract that violates the
Statute of Frauds is ratified by the acceptance of benefits under the contract. Alfredo vs
Borras

(3) Failure to object during trial. Failure to object to the presentation of parol evidence or
other evidence as to the existence of a contract.

Waiver of right. When a party fails to object during trial to the presentation of oral evidence
to prove the contract, he is deemed to have waiver the defects of the contract – its
unenforceability – thus, the contract will become enforceable (Art. 1405)
o Even assuming that parol evidence was initially inadmissible, the same became competent
and admissible because of the cross-examination, which elicited evidence proving the
evidence of a perfected contract. The cross-examination on the contract is deemed a waiver
of the defense of the Statute of Frauds. Limketkai vs CA
Cross-examination. Cross-examination on the contract is deemed a waiver of the defense of
the Statute of Frauds. The moment the witness is presented, the opposing lawyer should object
or move to have the oral testimony stricken.

(4) Sale affected through electronic commerce.

Electronic documents are given the same legal recognition as paper documents, thus they are
admissible as evidence in court.
NOTE: Even if the contract is taken out of the SoF, it may still be necessary to be embodied in
a public instrument, or in the case of land, registered, to bind third parties

3. Validity

General Rule: Form NOT required for validity of sale

29
 (b) An express intention on the matter by the parties to the sale, at the point of delivery is not
essential for tradition to produce its legal consequences; and
VI. Consummation of the Contract of Sale
(c) The only way to prevent the legal consequences of tradition from coming into effect at the
point of delivery is by an express reservation to the contrary set by the parties.

Note: CLV lectured on this topic. It’s bound to be asked in the finals. Lecture: the two magics of delivery. (1) Upon substantial performance of delivery, the power
to rescind no longer belongs to the buyer but becomes the seller’s right. The buyer can only
OBLIGATIONS OF THE SELLER demand for damages in case there is breach of contract. (2) ownership is transferred to the
buyer.
DELIVERY
1. Preserve the Subject Matter before actual delivery
Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof. (n)
Diligence of a good father. When sale covers a specific or determinate object, upon its
perfection and even prior to delivery, and he still owns the subject matter, the seller is obliged
to take care of the subject matter with the diligence of a good father of a family. Definition
▪ Delivery contemplates “the absolute giving-up of the control and custody of the property
2. Deliver the subject matter on the part of the vendor, and the assumption of the same by the vendee. Non nudis pactis
sed traditione dominia rerum transferantur. There is delivery if and when the thing sold “is
Tradition. Under Art 1495, the seller is bound: (a) transfer the ownership of, and (b) to deliver placed in the control and possession of the vendee.” Equatorial Realty Dev. v. Mayfair
the thing which is the object of the sale to the buyer. The means by which the seller can transfer Theater
the ownership of the subject matter is by the mode of tradition or delivery. ▪ “Delivery” in sales refers to the concurrent transfer of two things: (1) possession and (2)
ownership. If the vendee is placed in actual possession of the property, but by agreement
3. Deliver the fruits and accessories of the parties ownership of the same is retained by the vendor until the vendee has fully
paid the price, the mere transfer of the possession of the property subject of the sale is not
Accessories follow the principal. Under Art 1537, the seller is bound to deliver the thing sold the “delivery” contemplated in the Law on Sales or as used in Art. 1543 of the Civil Code.
and its accessions and accessories in the condition in which there were upon the perfection of Cebu Winland Dev. Corp. v. Ong Siao Hua
the contract, and all the fruits shall pertain to the buyer from the day on which the contract was
perfected. Price and delivery

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully
TRADITION paid the price. (n)

It may be stipulated that ownership in the thing shall not pass to buyer until he has fully paid
Transfer of ownership. Ownership of the thing sold is a real right, which the buyer acquires price.
only upon delivery of the thing to him. This right is transferred, not merely by contract, but also ▪ Absence of an express stipulation to the contrary, payment of price of the goods is not a
by tradition or delivery. Delivery is an act by which one party parts with the title to and the condition precedent to the transfer of title to the buyer, but title passes by the delivery of
possession of the property, and the other acquires the right to and possession of the same. the goods. Phil. Suburban Dev. Corp. v. Auditor General
▪ Failure of buyer to make good the price does not cause the ownership to re-vest to the
Legal principles on tradition. seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Art. 1191.
(a) Acceptance by the buyer, although an obligation on his part, is not essential for delivery by Balatbat v. Court of Appeals
the seller to achieve its legal effects;

30
Tradition Per Se Transfers Ownership to the Buyer CONSTRUCTIVE DELIVERY

Art. 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to
thereof. (n) him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an
Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully agreement that the possession is transferred from the vendor to the vendee. (n)
paid the price. (n)
Art. 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any
of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession Constructive delivery. Under Art 1496, constructive delivery can take several forms and may
is transferred from the vendor to the vendee. (n)
be any manner signifying an agreement that the possession is transferred from the vendor to
the vendee. Its essence is the existence of an agreement between seller and buyer that the
▪ Absence of a stipulation to the contrary, tradition produces its natural legal effects, most latter is understood to have control of the subject matter of sale.
important of which being conveyance of ownership, without prejudice to right of seller to Legal effects. The legal effects and consequences of actual or physical delivery also apply
claim payment of price. Froilan v. Pan Oriental Shipping equally to constructive delivery.
▪ In a contract of sale, title to the property sold passes to buyer upon delivery of thing sold;
seller loses ownership by delivery and cannot recover it until and unless contract is resolved Public instruments
or rescinded by court process. David v. Misamis Occidental II Electric Cooperative
Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot
TYPES OF DELIVERY
clearly be inferred.
1. Actual or physical delivery; and With regard to movable property, its delivery may also be made by the delivery of the keys of the place or
2. Constructive delivery depository where it is stored or kept. (1463a)
a. Execution of public instrument Art. 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In
any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of
b. Symbolic delivery
the vendee or the use by the vendee of his rights, with the vendor's consent, shall be understood as a delivery. (1464)
c. Constitutum possessorium
d. Tradito brevi manu
e. Traditio longa manu Execution of public instruments. When sale is made through a public instrument, execution
f. Delivery through carrier thereof shall be equivalent to delivery of the thing object of the sale, if from the deed the
contrary does not appear or cannot clearly be inferred. Municipality of Victorias v. Court of
Appeals
ACTUAL DELIVERY
▪ Under Art. 1498, the mere execution of the deed of conveyance in a public instrument is
Actual delivery. There is actual or physical delivery when the thing sold is placed in the control
equivalent to the delivery of the property, and that prior physical delivery or possession is
and possession of the buyer. The key word is control, not possession, in determining the legal
not legally required, since ownership and possession are two entirely different legal
effect of tradition.
concepts. Notwithstanding the presence of illegal occupants on the subject property,
▪ Article 1477 recognizes that the “ownership of the thing sold shall be transferred to the
transfer of ownership by symbolic delivery under Art. 1498 can still be effected through the
vendee upon the actual or constructive delivery thereof;” related to this is Article 1497
execution of the deed of conveyance. Sabio v. Int’l Corporate Bank
which provides that “[t]he thing sold shall be understood as delivered when it is placed in
▪ Delivery of notarized deed of sale and the owner’s duplicate copy of the OCT to the buyer
the control and possession of the vendee.” Santiago v. Villamor
is tantamount to constructive delivery of the object of the sale. Kings Properties Corp. v.
▪ It is not necessary that seller himself physically delivers title to the buyer because the thing
Galido
sold is understood as delivered when it is placed in control and possession of buyer. Thus,
when sellers themselves introduced the tenant to the buyer as the new owners of the land,
and from that time on the buyer acted as landlord thereof, there was delivery that
transferred title to the buyer. Alfredo v. Borras

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 REQUISITES OF CONSTRUCTIVE DELIVERY ▪ Even when it comes to incorporeal rights, the execution of a public instrument as a mode
Note: this was just lectured by CLV. It does not appear in the commentary. of constructive delivery requires that such rights must be within the control of the seller at
It appears from jurisprudence that the requisites for constructive delivery are the following: the time the instrument is executed. Santiago v Villamor
(1) Execution of the public document without reservation or contrary stipulation; ▪ In the sale of shares of stock, delivery of a stock certificate is one of the essential requisites
(2) It must be effected at the time when seller has the capacity to transfer ownership, and for the transfer of ownership of the stocks purchased. Seller’s failure to delivery the stock
possession and control of the subject matter; and certificates representing the shares of stock amounted to a substantial breach which gave
(3) There must be a passage of a reasonable time for the buyer to take control and possession. rise to a right to rescind the sale. Raquel-Santos v. Court of Appeals

While it is true that sale through a public instrument is equivalent to delivery which has Delivery of negotiable document of title
the effect of transferring ownership, the delivery can be rebutted by clear and convincing How delivered. Under Art 1513, a person to whom a negotiable document of title has been
evidence. Santos v. Santos duly negotiated acquires title to the goods as transferor had or had ability to convey to a
▪ Facts: Spouses sold their lot through a public document to their children, A and B. Spouses, purchaser in good faith for value. The buyer of the goods can by the process of negotiation of
in spite of the sale, retained possession and control of the property. A’s children now claim the covering document have a title better than that of his immediate seller.
ownership of the lot. Is the sale fictitious? Title. Art 1514 provides that the buyer to whom a document of title has been transferred by
▪ Yes. There is nothing in Article 1498 that provides that execution of a deed of sale is a assignment, acquires only his transferor’s title to the goods, and always subject to the terms of
conclusive presumption of delivery of possession; presumptive delivery can be negated by any agreement with the transferor.
the failure of buyer to take actual possession of the land or the continued enjoyment of
possession by the vendor. When execution of public instrument does not produce effects of delivery:
Effects of delivery on ownership can be segregated from the delivery of possession. Dy, Stipulation to the contrary.
Jr. v. CA ▪ As a general rule, when sale is made through a public instrument, the execution thereof
▪ Facts: Seller had previously mortgaged a tractor which buyer assumed when he bought it shall be equivalent to the delivery of the thing which is the object of sale, if from the deed
from seller, with mortgagee’s consent. Seller and buyer executed a deed of sale but delivery the contrary does not appear or cannot clearly be inferred. In order the execution of a public
could not yet be effected as the tractor was still in mortgagee’s possession. Before full instrument to effect tradition, the purchaser must be placed in control of the thing sold. A
payment of the mortgaged, the tractor was attached by a different creditor of the seller person who does not have actual possession of the thing sold cannot transfer constructive
and subsequently sold. Who has better rights to the tractor? possession by the execution and delivery of a public instrument. Asset Privatization Trust v.
▪ Held: Buyer. In this case, actual delivery of the subject tractor could not be made because T.J. Enterprises
it was still in the possession of the mortgagor. However, there was constructive delivery ▪ A contract to sell, or a conditional contract of sale where the suspensive condition has not
already upon the execution of the public instrument. Effects of delivery on ownership can happened, even when found in a public document, cannot be treated as constituting
be segregated from the delivery of possession. Since seller no longer had ownership of the constructive delivery, especially when from the face of the instrument it is shown that the
tractor, it cannot be lawfully attached by the creditor. seller “was not yet the owner of the property and was only expecting to inherit it.” Heirs of
Arturo Reyes v. Socco-Beltran
Delivery of incorporeal property ▪ Neither the issuance of: an acknowledgment receipt of partial payment (San Lorenzo Dev.
Incorporeal property. Having no physical existence, its delivery can only be effected by Corp. v. CA), an invoice, which is not a document of title (P.T. Cerna Corp. v. CA), nor of the
constructive delivery, specifically: registration certificate of vehicle Union Motor Corp. v. CA, would constitute constructive
(a) When the sale is made through a public instrument, the execution thereof shall be delivery of the subject matter of sale—none of them are public instruments of conveyance.
equivalent to the delivery of the thing which is the object of the contract, if from the deed ▪ Where it is stipulated that deliveries must be made to the buyer or his duly authorized
the contrary does not appear or cannot be clearly inferred; representative named in the contracts, seller is under obligation to deliver in accordance
(b) By placing of the titles of ownership in the possession of the buyer; or with such instructions. Lagon v. Hooven Comalco Industries
(c) The use and enjoyment by the buyer of the rights pertaining to the incorporeal property, ▪ Under Art 1498, when sale is made through a public instrument, the execution thereof shall
with the seller’s consent. be equivalent to the delivery of the thing which is the object of sale, if from the deed the
contrary does not appear or cannot clearly be inferred. In this case, the buyer and seller

32
 agreed that the former would cause the eviction of the squatters and deliver the property. ▪ Held: No. The ejectment of the squatters was not a condition stipulated in the contract of
At the time the deed of sale was executed, there were still squatters in the land. It thus sale, failure of which would warrant rescission. Buyer was well aware of the presence of
cannot be concluded that through the execution of the deed of sale that the property was tenants when it entered into the sales transaction. Symbolic delivery effects the transfer of
delivered to buyer. Vive Eagle Land, v. CA ownership but its efficacy may be prevented if the vendor does not possess control over
the thing sold. However, considering that the buyer undertook to have the squatters
Control. When at the time of the execution of the public instrument, the subject matter was ejected, which was proper but failed, it signified that the land was placed under buyer’s
not subject to the control of the seller, then the legal effects of delivery would not happen. control.

The thing is considered to be delivered when it is placed in the hands, possession, and Symbolic delivery
control of the vendee. Addison v. Felix Symbolic delivery must involve or cover the subject matter and cannot take a form relation to
▪ Facts: Seller sold some land to buyer with a stipulation granting rescission a year from the the payment of the purchase price. An example of symbolic delivery is the delivery of the keys
issuance of the certificate of title. After the execution of the deed of sale, they went to see to the place where the movable is kept or stored.
the land but only a portion of the land was designated and there were also occupants
claiming ownership of the land. When the first installment was due, buyer refused to pay Constitutum possessorium
and invoked rescission, claiming that the lands were not delivered to him. Correct? From owner to something else. When at the time of the perfection of the sale, the seller held
▪ Held: Yes. The thing is considered to be delivered when it is placed in the hands, possession of the subject matter in the concept of owner and pursuant to a contract, the seller
possession, and control. While it is true that the execution of a public document would continues to hold physical possession thereof no longer in the concept of an owner, but as a
amount to a constructive delivery; however, such delivery may only produce its effect when lessee or any other form of possession other than in the concept of owner.
the person who executes such actually has control over the thing sold at the moment of ▪ A provision in the deed of sale granting to seller a right to lease the subject matter of the
the sale when the material delivery could have been made. It is not enough to confer sale is valid: possession is deemed to be constituted in the vendee by virtue of this mode
ownership and right of possession, there must also be a conferring of control. A person of tradition.” Amigo v. Teves
who does not have actual possession or control of the thing sold cannot transfer
constructive possession by the execution and delivery of a public instrument. Traditio brevi manu
Such Control Should Remain for a Reasonable Period after Execution of the Instrument. From something else to owners. The would-be buyer was already in possession of the would-
Danguilan v. IAC be subject matter of the sale and pursuant to the sale, he now holds possession in the concept
▪ If in spite of the execution of the instrument, the purchaser cannot have the enjoyment and of an owner.
material tenancy of the thing and make use of it himself or through another in his name ▪ Prior to the sale, petitioners were in possession of the property as lessees; upon sale to
because such tenancy and enjoyment is opposed by the interposition of another will, then them, they remained in possession, not in the concept of lessees anymore but as owners
the delivery has not been effected. now through symbolic delivery known as traditio brevi manu. Heirs of Pedro Escanlar v.
Court of Appeals
Exceptions to control rule:
Third-party presence. There must be acknowledgement by the buyer that there exists third- Traditio longa manu
party in adverse possession of the goods for constructive delivery to be effective. For this Delivery by mere agreement. It is the constructive delivery of a thing effected by mere
exception to apply, the acceptance must be express or clearly implied. agreement, such as when the seller points the property subject matter of the sale and buyer
When Buyer Assumes Risks of Ownership and Possession. Power Commercial and agrees that from that time on he is the owner thereof, without need of actually delivering
Industrial Corp. v. CA physical possession thereof.
▪ Facts: Buyer assumed the mortgage of the seller. The land had squatters which the buyer
undertook to remove through an ejectment suit. Later on, when buyer failed to pay Obligation to Take-Out Insurance Coverage
mortgage the property was about to be foreclosed and failed to remove the squatters, they Art. 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is
sought the rescission of the contract. Proper?
deemed to be a delivery of the goods to the buyer, except in the case provided for in Article 1503, first, second and third
paragraphs, or unless a contrary intent appears.

33
 Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer to pay for the expenses in notarizing a deed of sale and in obtaining new certificate of title.
as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit
Jose Clavano, Inc. v. HLRB
so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier
as a delivery to himself, or may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller Provision breakdown: Reservation of ownership (Art 1503)
knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to insure Express reservation. When there is a contract of sale of specific goods, the seller may, by the terms of the contract,
them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such transit. reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession
or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee
for the purpose of transmission to the buyer.
Time and Place of Delivery, Expenses of Execution and Registration; and of Putting Goods
Implied reservation:
in Deliverable State Securing performance (payment). Where goods are shipped, and by the bill of lading the goods are deliverable to the
seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But,
Art. 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the
stipulation to the contrary. (1455a) seller's property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his
Art. 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a obligations under the contract.
question depending in each case on the contract, express or implied, between the parties. Apart from any such Seller’s possession of bill of lading. Where goods are shipped, and by the bill of lading the goods are deliverable to
contract, express or implied, or usage of trade to the contrary, the place of delivery is the seller's place of business if order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby
he has one, and if not his residence; but in case of a contract of sale of specific goods, which to the knowledge of the reserves a right to the possession of the goods as against the buyer.
parties when the contract or the sale was made were in some other place, then that place is the place of delivery. Negotiable documents of title. Where the seller of goods draws on the buyer for the price and transmits the bill of
Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is exchange and bill of lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is
fixed, the seller is bound to send them within a reasonable time. bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading
Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his he acquires no added right thereby. If, however, the bill of lading provides that the goods are deliverable to the buyer or
obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the to the order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein, one who purchases in
goods on the buyer's behalf. good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill
Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a of exchange has not been honored, provided that such purchaser has received delivery of the bill of lading indorsed by
reasonable hour is a question of fact. the consignee named therein, or of the goods, without notice of the facts making the transfer wrongful. (n)
Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be
borne by the seller.
EFFECTS AND COMPLETENESS OF DELIVERY
▪ Registration of Title Is Separate Mode from Execution of Public Instrument. Recording
of the sale with the proper Registry of Deeds and transfer of the TCT in the name of the Basic premise. For tradition to produce the twin legal consequences of transferring ownership
buyer are necessary only to bind third parties. As between the seller and the buyer, transfer to the buyer and effecting a fulfillment of the primary obligation of the seller, two principles
of ownership takes effect upon the execution of a public instrument conveying the real must apply, namely:
estate. Chua v. Court of Appeals (a) Delivery must be made pursuant to a valid sale; and
▪ Last paragraph. Unless otherwise stipulated: (a) under Art. 1487 the expenses for the (b) Delivery must be effected when the seller has ownership over the subject matter of sale so
registration of the sale should be shouldered by the seller. Vive Eagle Land, v. Court of delivered.
Appeals; and (b) duty to withhold taxes due on the sale is imposed on seller. Equitable
Realty Dev’t v. Mayfair Theater Nemo Potest Nisi Quod De Jure Potest – “No man can do anything except what he can
▪ Although buyer has more interest in having the capital gains tax paid immediately as a do lawfully.” Delivery would produce the effect of transferring ownership to the buyer only
prerequisite to the issuance of a new Torrens title in his name, nonetheless, as far as the when it is made pursuant to a valid sale.
government is concerned the capital gains tax remains seller’s liability since it is a tax on ▪ When the sale is void, even when there is delivery, no valid title over the subject matter is
the seller’s gain on sale of the real estate. Payment of the capital gains tax, however, is not conveyed to the buyer. Traders Royal Bank v. Court of Appeals
a pre-requisite to the transfer of ownership to the buyer since the delivery takes effect upon
the signing and notarization of the deed of absolute sale. Chua v. CA Nemo Dat Quod Non Habet – “No man can give that which he does not have.” Delivery
▪ A judgment that decrees seller’s obligations to execute and deliver the deed of absolute would produce the effect of transferring ownership only if at the time of delivery the seller still
sale and the certificate of title does not necessarily include within its terms the obligation had ownership over the subject matter. The general principle is that a seller without title cannot

34
transfer a better title than he has. Therefore, a person can sell only what he owns or is Delivery of fruits and accessories
authorized to sell and the buyer can, as a consequence, acquire no more than what the seller Art. 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in
can legally transfer. which they were upon the perfection of the contract.
▪ Even when the sale is valid, if the seller had no ownership over the subject matter at the All the fruits shall pertain to the vendee from the day on which the contract was perfected.

time of delivery, no valid title can pass in favor of the buyer. Tsai v. CA.
▪ A tax declaration by itself is not considered conclusive evidence of ownership; it is merely Delay and fortuitous event
an indicium of a claim of ownership. One can sell only what one owns or is authorized to
sell, and the buyer can acquire no more than what the seller can transfer legally. Daclag v. Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of
Macahilig the perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.
▪ nevertheless, when at delivery there is no proof that seller had ownership and property’s This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure.
tax declaration was in the name of another person, then there was no transfer of ownership Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be
by delivery. Heirs of Severina San Miguel v. Court of Appeals imputed to the vendee until they have been weighed, counted, or measured and delivered, unless the latter has
▪ Article 1459 on sales “specifically requires that the vendor must have ownership of the incurred in delay.
property at the time it is delivered;” ownership need not be with the seller at the time of Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation of the parties requires another standard of care. (1094a)
perfection. Heirs of Arturo Reyes v. Socco-Beltran Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However,
he shall acquire no real right over it until the same has been delivered to him. (1095)
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by
RULES ON EFFECTS OF DELIVERY FOR MOVABLES Article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same
Provision breakdown: Quantity and quality of goods delivered (Art 1522) interest, he shall be responsible for any fortuitous event until he has effected the delivery. (1096)
Goods delivered less than contracted. Where the seller delivers to the buyer a quantity of goods less than he contracted Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be
to sell, the buyer may reject them, but if the buyer accepts or retains the goods so delivered, knowing that the seller is not lost or destroyed without the fault of the debtor, and before he has incurred in delay.
going to perform the contract in full, he must pay for them at the contract rate. If, however, the buyer has used or disposed
of the goods delivered before he knows that the seller is not going to perform his contract in full, the buyer shall not be
liable for more than the fair value to him of the goods so received.
Goods delivered more than contracted. Where the seller delivers to the buyer a quantity of goods larger than he SPECIAL ARRANGEMENTS IN DELIVERY
contracted to sell, the buyer may accept the goods included in the contract and reject the rest. If the buyer accepts the
whole of the goods so delivered he must pay for them at the contract rate.
Goods are of a different description. Where the seller delivers to the buyer the goods he contracted to sell mixed with Essential. Any special arrangement herein must be written.
goods of a different description not included in the contract, the buyer may accept the goods which are in accordance
with the contract and reject the rest.
In case of indivisibility of goods. In the preceding two paragraphs, if the subject matter is indivisible, the buyer may Provision breakdown: Rules on Delivery to Carrier (Art. 1523)
reject the whole of the goods. Delivery to carrier = delivery to buyer. Where, in pursuance of a contract of sale, the seller is authorized or required
The provisions of this article are subject to any usage of trade, special agreement, or course of dealing between the to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of
parties. transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the case provided for in Article
1503, first, second and third paragraphs, or unless a contrary intent appears.
Separate contract between the seller and carrier. Unless otherwise authorized by the buyer, the seller must make such
▪ When the contract does not provide for the measuring or weighing of a sold specific mass, contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the
and the price agreed upon was not based on such measurement, then “[t]he subject matter other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the
of the sale is, therefore, a determinate object, the mass, and not the actual number of units buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages.
Insurance. Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the
or tons contained therein, so that all that is required of seller was to deliver in good faith
seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him
to his buyer all of those found in the mass, notwithstanding that the quantity delivered is to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such
less than the amount estimated in the contract.” Gaite v. Fonacier transit.

35
 TYPES OF DELIVERY TO CARRIER designation of the destination is only relevant in FOB, where the designation will dictate
Presumption. As a preliminary, the following types of delivery to carrier arrangements are only whether it is FOB at point of shipment or FOB at destination.
rules of presumption as to who bears the risk of loss. These presumptions must yield to proof
of contrary intention, such as when the contracting parties stipulate on what constitutes Provision breakdown: “Sale on Sale or Return, and on Approval, Trial or Satisfaction” (Art.
delivery between them or who bears the risk of loss. 1502)
1. FAS Sales - “Free along side ship”. Delivery of the goods alongside the vessel completes Sale on return. When goods are delivered to the buyer "on sale or return" to give the buyer an option to return the goods
instead of paying the price, the ownership passes to the buyer of delivery, but he may revest the ownership in the seller
delivery.
by returning or tendering the goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable
▪ “The seller pays all charges and is subject to risk until the goods are placed alongside the time.
vessel”. A. Soriano Y Cia. v. Collector Sale on approval, trial, satisfaction. When goods are delivered to the buyer on approval or on trial or on satisfaction,
2. FOB Sales - “Free on Board”. There are two kinds: FOB shipping point and FOB or other similar terms, the ownership therein passes to the buyer:
(1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
destination. Under FOB shipping point, delivery of the goods to the carrier is equivalent to
(2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection,
delivery to the buyer and at that point, the risk of loss pertains to the buyer. Under FOB 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,
destination, only when the vessel has arrived at the point of destination would there be on the expiration of a reasonable time. What is a reasonable time is a question of fact.
delivery to the buyer and prior to that point in time, the risk of loss will be borne by the ▪ In a “sale or return,” the ownership passes to the buyer on delivery pursuant to a perfected
seller. contract of sale; and the subsequent return of the goods reverts ownership back to the
▪ In mercantile contracts of American origin, “F.O.B.” stand for the words “Free on Board,” i.e., seller. In such case, tradition as a mode of acquiring ownership must be in consequence of
that the seller shall bear all expenses until the goods are delivered according as to whether a contract. Vallarta v. Court of Appeals
the goods are to be delivered “F.O.B.” at the point of shipment or at the point of destination ▪ In a “sale on approval” (also “sale on acceptance, “sale on trial” or “sale on satisfaction”),
determines the time when property passes. Behn Meyer & Co. v. Yangco the delivery of the object does not transfer ownership to the buyer since the delivery was
3. CIF Sales – “Costs, freight, insurance”. The price fixed covers not only the costs of goods, not for purposes of transferring ownership, since the prestation to effect a meeting of the
but the expense of freight and insurance to be paid by the seller. There are two schools of minds to give rise to a valid contract is incumbent on the buyer. Vallarta v. CA
thought on the effect of delivery under this arrangement: delivery to carrier is to delivery ▪ For a sale to be a “sale or return” or a “sale on approval,” there must be a clear agreement
to buyer and delivery to carrier is not delivery to buyer. Under the first, the costs of freight to either of such effect, otherwise, the provisions of Art. 1502 of Civil Code governing such
and insurance are borne by the buyer and the carrier acts as an agent of the buyer – hence, sales cannot be invoked by either party to the contract. Industrial Textile Manufacturing Co.
the buyer bears the risk of loss. Under the second, the sellers takes on the responsibility for v. LPJ Enterprises
the freight and insurance as part of the package price – hence, the seller bears the risk of
loss. The second is acknowledged under our jurisprudence. “Sale by Description and/or Sample”
▪ “C.I.F.” found in British contracts stand for costs, insurance, and freight; they signify that the Art. 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of
price fixed covers not only the costs of the goods, but the expense of freight and insurance the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well
to be paid by the seller. Behn Meyer & Co. v. Yangco as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond
with the description.
▪ Facts: The instrument indicated CIF NY. Who bears the loss during the freight of the The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample.
shipment from Manila to NY? Held: The seller because of the apparent agreement between
the two parties. General Foods v. NACOCO
▪ Under an arrangement “c.i.f. U.S. Pacific Coast”, “the vendor is to pay not only the cost of Sale by sample. There is a sale by sample when a small quantity is exhibited by the seller as a
the goods, but also the freight and insurance expenses, and, as it was judicially interpreted, fair specimen of the bulk, which is not present and there is no opportunity to inspect or examine
this is taken to indicate that the delivery is to be made at the port of destination.” Pacific the same; and the parties treated the sample as the standard of quality and that they
Vegetable Oil Corp. v. Singzon contracted, with reference to the sample with the understanding that the product to be
- Note: Correction. In CIF, it is unnecessary to indicate the place of destination, because delivered would correspondent with the sample. Mendoza v. David
by reason of the CIF itself under the accepted school of thought, the seller necessarily Sale of goods by description. One where a seller sells things as being of a particular kind, the
undertakes the risk, regardless of when it was incurred, until delivery to the buyer. The buyer not knowing whether the seller’s representations are true or false, but relying on them
as true. In other words, where the buyer has not seen the article sold and relies on the

36
description given to him by the seller or has seen the goods but the want of identity is not In case area is smaller. If the sale of real estate should be made with a statement of its area, at the rate of a certain price
for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all
apparent on inspection.
that may have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional
▪ Even in sales by description and/or sample, buyer will not be released from his obligation reduction of the price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less
to accept and pay for the goods by deviations on the part of the seller from the exact terms than one-tenth of that stated.
of the contract, if buyer had acquiesced to such deviations after due notice thereof. Engel In case quality is different. The same shall be done, even when the area is the same, if any part of the immovable is not
of the quality specified in the contract.
v. Mariano Velasco & Co
Rescission, in case quality is different. The rescission, in this case, shall only take place at the will of the vendee, when
▪ When the machine delivered is in accordance with the description stated in the sales the inferior value of the thing sold exceeds one-tenth of the price agreed upon.
contract, the buyer cannot refuse to pay the balance of the purchase price and the cost of Same. Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of inferior
installation if it proves that the machine cannot be used satisfactorily for the purposes for quality, he may rescind the sale. (1469a)
1540: In case area is larger. If, in the case of the preceding article, there is a greater area or number in the immovable
which he bought it when such purpose was not made known to the seller. Pacific
than that stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he accepts
Commercial Co. v. Ermita Market & Cold Stores the whole area, he must pay for the same at the contract rate. (1470a)

Written proof of delivery Judicial sales. The same rules apply to a judicial sale.
In case of goods, delivery is generally evidenced by a written acknowledgement of a person ▪ Rules for unit-price sale. In a unit price sale, the statement of the area of immovable is
that he has actually received the thing or the goods, as in delivery receipts, under the following not conclusive and the price may be reduced or increased depending on the area actually
rules: delivered. If the seller delivers less than the area agreed upon, the buyer may oblige the
(a) A bill of lading cannot substitute for a delivery receipt because the bill is a written seller to deliver all that is stated in the contract or demand for the proportionate reduction
acknowledgement of receipt of the goods by the carrier and an agreement to transport of the purchase price if delivery is not possible. If the seller delivers more than the area
and deliver them – it does not evidence receipt of goods by the consignee or the person stated in the contract, the buyer has the option to accept only the amount agreed upon or
named in the bill of lading. to accept the whole area, provided he pays for the additional area at the contract rate.
(b) A factory consignment invoice is not evidence of actual delivery of goods since in the Rudolf Lietz, Inc. v. Court of Appeals
invoice, there is nothing more than detailed statement of the nature, quantity, and cost of ▪ Where parties agreed at a rate of a certain price per unit of measure (not for a lump sum),
the thing sold, and it is not proof that the thing or goods were actually delivered to the it is Art. 1539, not Art. 1542, which is the applicable law—buyer is entitled either to a
buyer or consignee. proportional reduction of the price or the rescission of the contract. Cebu Winland Dev.
Corp. v. Ong Siao Hua

RULES ON EFFECTS OF DELIVERY FOR IMMOVABLES Provision breakdown: “Sale for a Lump Sum” (Art. 1542)
No changes in price. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or decrease of the price, although there be a greater or less area or number
Two pricing methods. There are two pricing methods of sales over immovables: a unit price than that stated in the contract.
contract, wherein the purchase price is determined by way of reference to a state rate per unit When two or more immovables are sold. The same rule shall be applied when two or more immovables as sold for a
single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area
area (e.g. P1k/sqm), or a lump sum contract, which states a full purchase price for an immovable
or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said
the area of which may be declared based on the estimate or where both the area and boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he
boundaries are stated. The particular mode of sale chosen by the parties determines the shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded
completeness of the delivery. because the vendee does not accede to the failure to deliver what has been stipulated. (1471)
How to determine what applies. If the price per unit of measure or number is not expressly ▪ In a sale of land in a mass, the specified boundaries must control over any statement with
provided for in the contract, the rules of lump sum sale shall prevail in the sale of real property. respect to the area contained within its boundaries. Salinas v. Faustino.
Santa Ana v Hernandez ▪ In a lump-sum sale, when land delivered to buyer is exactly as that described in the deed
and covered within the boundaries designated, the difference in actual area (34 versus 10
Provision breakdown: “Sale Per Unit of Measure” (Arts. 1539 and 1540) hectares) will not authorize the buyer to rescind the contract because the seller has
The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the complied with delivering the subject matter agreed upon. Teran v. Villanueva;
contract, in conformity with the following rules:

37
▪ This is the rule when evidence shows that the parties never gave importance to the area of
the land in fixing the price (97 versus 60 hectares). Azarraga v. Gay Two or more sales transactions must constitute valid sales – the contracts must be
▪ Exception: A buyer of land, when sold in gross or with the description “more or less” or contracts of sale, not contracts to sell. Ibid
similar words in designating quantity covers only a reasonable excess of deficiency. In the ▪ Facts: The Seller entered into a contract to sell with Buyer 1. He also entered into a contract
case at bar an area of “644 square meters more” is not reasonable excess or deficiency, to to sell with Buyer 2, promising to annul his contract to sell with Buyer 1. Later, Seller
be deemed included in the deed of sale. Roble v. Arbasa continued his contract with Buyer 1. Buyer 2 claims that the sale had already been
▪ Exception to exception: When buyer, who has been occupying the land for two years as perfected. Correct?
lessee, actually is deemed to take risk on the actual size of the property bought at lump ▪ Held: No. Both agreements involve a contract to sell, which makes Art 1544 inapplicable
sum. Garcia v. Velasco since neither a transfer of ownership nor a sales transaction took place. A contract to sell is
premised upon a suspensive condition – the full payment of the purchase price. That being
Sales in mass the case, the elementary principle of first in time, priority in right should apply.
A judicial sale in mass of separate known lots will not be set aside, unless it is made to appear
that a larger sum could have been realized from a sale in parcels or that a sale of less than the 1. There must be two or more valid sales
whole would have been sufficient to satisfy the debt. Article 1544 applies where:
▪ When the seller sold the same properties first to the respondent and then to Viloria on two
separate occasions, the second sale was not void for the sole reason that seller has
DOUBLE SALES
previously sold the property. This case involves a double sale as the disputed properties
were sold validly on two separate occasions by the same seller to the two different buyers
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the
in good faith. De Leon v. Ong
person who may have first taken possession thereof in good faith, if it should be movable property. ▪ Rules on double sales apply even if one of the sales is an auction sale proceeding from a
Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first foreclosure of the real estate mortgage constituted by the owner on the property. Express,
recorded it in the Registry of Property. Gopiao v. Metrobank
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)
Article 1544 does not apply where:
▪ 1 valid sale, 1 void. Fudot v. Cattleya Land
▪ 1 contract to sell, 1 contract of sale. Quickie: One contract was a contract to sell while
Preliminary consideration. The rules on double sales operate under the same premises that
the other is a contract of sale. Who has better title? Contract of sale. San Lorenzo Dev.
tradition can be made operative: (1) the sales are all valid and demandable; and (2) the seller Corp. v. Court of Appeals
had ownership. ▪ 1 conditional sale, 1 valid sale – note facts! Under Art. 1544, between the buyer under a
Note: The order of topics does not follow that of the book and the syllabus. I choose to first first unconsummated conditional sale which required the seller to eject the existing lessees
consider the requisites of a double sale then the priority rules because if the problem isn’t that on the property sold, and the subsequent buyers of the same property (who were the
of double sales in the first place, why bother with the priority rules? It will also most likely be lessees who refused to vacate the premises), the first buyer must prevail since the second
the manner of how the question on this topic will be asked in the exam.
buyers took possession of the property in bad faith knowing of the first sale. Adalin v.
REQUISITES FOR DOUBLE SALE RULE Court of Appeals
Cheng v. Genato ▪ 2 contracts to sell. Rules on double sales under Art. 1544 are not applicable to contracts
1. The two or more sales transactions must constitute valid sales; to sell, because of the circumstances that must concur in order for the provisions to Art.
2. The two or more sales transactions must pertain to exactly the same subject matter; 1544 on double sales to apply, namely that there must be a valid sales transactions, and
3. The two or more buyers at odds over the rightful ownership of the subject must each buyers must be at odds over the rightful ownership of the subject matter who must have
represent conflicting interests; and bought from the very same seller, are lacking in a contract to sell for neither a transfer of
4. The two or more buyers at odds over the rightful ownership of the subject matter ownership nor a sales transaction has been consummated, and such contract is binding
must each have bought from the very same seller. only upon the fulfillment or non-fulfillment of an event. Nevertheless, the governing

38
 principle of Art. 1544 should apply, mainly the governing principle of primus tempore, portior Priority. A sale of registered land under the TS will generally be prioritized over a sale of
jure (first in time, stronger in right). Cheng v. Genato; also Coronel v. Court of Appeals. unregistered land. The only exception is the Second Priority, which follows the Rules of Court
for buyers at auction sales. See Dagupan Trading v Macam.
2. Exact Same Subject Matter The reason why there are two paths to follow is simple: the rules for registered land will not
▪ Art. 1544 applies where the same thing is sold to different buyers by the same seller. Ong follow the rules for unregistered land, and vice versa.
v. Oalsiman; and does not apply where there was a sale to one party of the land itself while Registration of transactions will only be relevant under the Third Priority. This refers to
the other contract was a mere promise to sell the land or at most an actual assignment of annotations made to the Certificate of Title, if present, including encumbrances, transfers, etc.
the rights to repurchase the same land. Dischoso v. Roxas

ORDER OF PRIORITY
3. Exact Same Seller for Both Sales
For movables:
Art. 1544 applies where the same thing is sold to different vendees by the same vendor.
The buyer who may have first taken possession thereof in good faith.
▪ It does not apply where the same thing is sold to different vendees by different vendors,
or even to the same buyer but by different sellers. Salera v. Rodaje; or by several successive For immovables:
vendors. Mactan-Cebu Int’l Airport Authority v. Tirol. Highest priority: For registered land under the Torrens System (TS), sales registered
▪ For Article 1544 to apply, it is necessary that the conveyance must have been made by a in good faith under PD 1529 (Property Registration Decree). Does not apply to
party who has an existing right in the thing and the power to dispose of it. It cannot be unregistered land.
invoked where the two different contracts of sale are made by two different persons, one Second priority: For unregistered land sold at auction sales, registration of sale under
of them not being the owner of the property sold. And even if the sale was made by the the Rules of Court.
same person, if the second sale was made when such person was no longer the owner of Third priority: Art 1544 rules on double sales, namely:
the property, because it had been acquired by the first purchaser in full dominion, the 1. Who in good faith first recorded the sale in the Registry of Property;
second purchaser cannot acquire any right. Consolidated Rural Bank v. Court of Appeals 2. If there is no registration, to the person who in good faith was first in the possession
▪ BUT SEE: This ruling is compelled by the involvement in this case of not just one instance of the subject matter; or
of double sales but a series of such sales made by two different vendors. First, it is admitted 3. If neither buyer has possession, to the person who presents the oldest title, provided
that Pastrano sold the property to Ledesma in 1968; then, Pastrano sold it again to Bragat there is good faith.
in 1984 and 1987. But Ledesma, too, sold part of the property to the Spouses Badilla in
1970 and then the entire lot to the Spouses Bragat in 1978. In such a situation of multiple
HIGHEST PRIORITY: REGISTERED LAND UNDER THE TORRENS SYSTEM
sales, Art. 1544. relates that ownership shall belong to the person acquiring the property
Registration contemplated. Registration under Art 1544 means the annotation or inscription
who, in good faith, first recorded such acquisition; but when neither buyer registered, in
with the Register of Deeds of the contract or transaction, not the process by which
good faith, the sale of the properties with the register of deeds, the one who took prior
‘unregistered’ land is placed within the Torrens System.
possession of the properties shall be the lawful owner thereof. Such prior possessors, at
Primacy of Torrens System of Registration. The rules on double sales under Art. 1544 do not
least with respect to the 152-sq.-m. portion, are indisputably the Spouses Badilla. Badilla
overcome the rules provided under the Property Registration Decree (P.D. 1459), such as:
v. Bragat.
a. When two different titles are issued over the same registered land, the buyer who claims
under a title that was first issued shall be preferred. Liao v. CA
PRIORITY RULES b. Invoking the rules on double sales and “priority in time” under Art. 1544 would be
misplaced by a first buyer who bought the land not within the Torrens system but under
Act No. 3344, as against the second buyer who bought the same property when it was
Summary: For this section it is necessary to know what registration we’re talking about. There
already registered under the Torrens system, because:
are two kinds of registration in contemplation here: Registration of the land under the Torrens
System (TS) and registration of the transaction with the Registry of Deeds. The former will
▪ Facts: The first sale was when the land was still unregistered under the TS. The second sale
determine what path you’ll walk in determining priority: Registered lands under the TS will
was when the property was already registered under the TS. Who has better right? The
follow Highest Priority then Third Priority, while unregistered land will follow the Third

39
 second buyer. It is a well-known rule in this jurisdiction that persons dealing with ▪ Under Act 3344, registration of instruments affecting unregistered lands is “without
registered land have the legal right to rely on the fact of the Torrens Certificate of Title and prejudice to a third party with a better right,” which means that mere registration does not
to dispense with the need to inquire further, except when the party concerned has actual give buyer any right over the land if seller was not anymore owner thereof, having
knowledge of facts and circumstances that would impel a reasonably cautious man to make previously sold it to somebody else even if the earlier sale was unrecorded. The rules on
such inquiry; Naawan Community Rural Bank v. CA double sale have no application to land no registered under the Torrens system. Acabal v.
▪ The Torrens system rule that formal registration proceedings undertaken on the property Acabal
and the subsequent issuance of a title over the land had under the Torrens system had the
legal effect of cleansing title on the property of all liens and claims not annotated therein. Race analogy. At this point, CLV’s analogy of a race is instructive on how to view issues
Id involving double sales. According to him, the 1st buyer is already at the winner’s box and it is
▪ Facts: Two buyers bought the land while it was still unregistered. The sale of the first buyer only the 2nd buyer who must run the race and achieve certain goals in order to dislodge the 1 st
was registered with the Register of Deeds under Act 3144, not PD 1529. The second buyer buyer from the winner’s box. In other words, it is on the 2nd buyer to prove everything in order
subsequently had the land registered under the TS and obtained an OCT thereto. Who has to show that he has better right to the thing sold.
better rights? The first buyer. The fact that the second seller was able to secure a title to
her name did not operate to vest ownership upon her of the land. A certificate of title is
THIRD PRIORITY: RULES UNDER ART 1544
merely an evidence of ownership. It cannot be used to protect a usurper from the true
1. Registration in good faith
owner. Subsequent registration of the land under the Torrens System cannot be used to
2. Possession in good faith
prevent reconveyance when it is shown that the registration was done in bad faith. Naval
3. Oldest title in good faith
v. Court of Appeals
- Note: The important question to ask is whether, at the time of the sale, the land is
registered or not. Subsequent registration does not count. 1. Registration in good faith
▪ Act 3344 v PD 1529. The first sale was when the land was unregistered land; the second
sale of the same property was when it was registered under the Torrens system: Article “Registration in Good Faith” as First Priority
1544 rules in double sale, whereby the buyer who is able to first register the purchase in Registration. The annotation of adverse claim qualifies as the registration mandated under the
good faith, is in full accord with Sec. 51 of P.D. 1529 which provides that no deed, mortgage, rules on double sale. Registration means any entry made in the books of the registry, including
lease, or other voluntary instrument shall take effect as a conveyance or bind the land until both registration in its ordinary and strict sense, and cancellation, annotation, and even
its registration. Thus, if the sale is not registered, it is binding only between seller and buyer, marginal notes. It is the entry made in the registry which records solemnly and permanently
but it does not affect innocent third persons. Abrigo v. De Vera the right of ownership and other real rights. Carbonnel v. Court of Appeals.
▪ Registration must be done in the proper registry in order to bind the land. Since the
SECOND PRIORITY: REGISTRATION UNDER THE RULES OF COURT property in dispute in the present case was already registered under the Torrens system,
petitioners’ registration of the sale under Act 3344 was not effective for purposes of Article
When Subject of Sale Is Unregistered Land: 1544 of the Civil Code. Soriano v. Heirs of Magali
▪ Facts: The sale was executed before the land was registered while the second sale was made ▪ Registration of the Extrajudicial Partition which merely mentions the sale is not the
pursuant to a levy and was executed at a public sale after the property had been registered. registration covered under Art. 1544 and cannot prevail over the registration of the pacto
Who wins? The first sale. See Carumba v CA below for the relevant provision. Dagupan de retro sale. Vda. de Alcantara v. Court of Appeals
Trading Co. v. Macam. ▪ Declaration of purchase for taxation purposes does not comply with the required
▪ Article 1544 is inapplicable to unregistered land because “the purchaser of unregistered registration. Bayoca v. Nogales
land at a sheriff’s execution sale only steps into the shoes of the judgment debtor, and
merely acquires the latter’s interest in the property sold as of the time the property was Registration Must Always Be in Good Faith
levied upon,” as expressly provided for in then Sec. 35, Rule 39 of the Revised Rules of Court Good faith, essential. In all cases of double sales, good faith is essential. It is the basic premise
on execution sale [now Sec. 33, Rule 39, 1997 Rules of Civil Procedure)]. Carumba v. CA of the preferential rights granted to the one claiming ownership over an immovable. What is

40
material is whether the second buyer first registers the second sale in good faith, i.e., without ▪ Not being purchasers in good faith, buyers having registered the sale, will not, as against
knowledge of any defect in the title of the property sold. Occeña v. Esponilla the petitioners, carry the day for any of them under Article 1544 prescribing rules on
▪ In cases of double sales of immovables, what finds relevance and materiality is not whether preference in case of double sales of immovable properties. Orduña v. Fuentebella
or not the second buyer was a buyer in good faith or that he was first to register, but ▪ BUT SEE: In the determination of whether or not the buyer is in good faith, the point in
whether or not said second buyer registers such second sale in good faith, that is, without time to be considered is the moment when the parties actually entered into the contract of
knowledge of any defect in the title of the property sold. Martinez v. CA sale. Estate of Lino Olaquer v. Ongjoco
Burden of Proof
Knowledge of First Buyer of the Second Sale Does Not Amount to Registration in Favor ▪ The burden of proving the status of a purchaser in good faith lies upon him who asserts
of the Second Buyer – that status. It is not sufficient to invoke the ordinary presumption that everyone is
▪ Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights presumed to have acted in good faith, since the good faith that is here essential is integral
except where the second buyer registers in good faith the second sale ahead of the first. with the very status that must be established. Tanglao v. Parungao
Such knowledge of the first buyer does not bar her from availing of her rights under the ▪ BUT SEE: It is anxiomatic that good faith is always presumed in the absence of any direct
law, among them, to register first her purchase as against the second buyer. In converso, evidence of bad faith. Santiago v. Court of Appeals
knowledge gained by the second buyer of the first sale defeats his rights even if he is first
to register the second sale, since such knowledge taints his prior registration with bad faith. INSTANCES IN JURISPRUDENCE WHERE THERE IS NO GOOD FAITH
This is the priced exacted by Art.1544 for the second buyer being able to displace the first (a) Being in realty business
buyer; that before the second buyer can obtain priority over the first, he must show that he (b) Close relationship
acted in good faith throughout (i.e., in ignorance of the first sale and of the first buyer's right) (c) Gross inadequacy of price
–from the time of acquisition until the title is transferred to him by registration or failing (d) Obligation to investigate or follow leads
registration, by delivery of possession. Uraca v. Court of Appeals (e) Lands in adverse possession
▪ In a situation where a party has actual knowledge of the claimant’s actual, open and (f) Existence of lis pendes or adverse claim
notorious possession of a disputed property at the time of registration, the actual notice (g) Annotation of lien
and knowledge are equivalent to registration, because to hold otherwise would be to (h) Banks
tolerate fraud and the Torrens system cannot be used to shield fraud – while certificates of
title are indefeasible, unassailable and binding against the whole world, they merely Why there are not considered in good faith. One who buys from one who is not the
confirm or record title already existing and vested. Consolidated Rural Bank v. CA registered owner is expected to examine not only the certificate of title but all factual
circumstances necessary for one to determine if there are any flaws in the title of the transferor,
2. Purchaser in good faith or in the capacity to transfer the land. It is a well-settled rule that a purchaser cannot close his
eyes to facts which should put a reasonable man upon his guard, and then claim that he acted
Must Have Paid Price in Full in good faith under the belief that there was no defect in the title of the vendor. Heirs of Nicolas
▪ A purchaser in good faith is one who buys property without notice that some other person S. Cabigas v. Limbaco
has a right to, or interest in, such property, and pays a full and fair price for the same at
(a) Being in Realty Business
the time of such purchase, or before he has notice of claim or interest of some other
▪ A mortgagee who eventually ended buying the property at the public auction, cannot claim
person in the property. Locsin v. Hizon
to be a buyer in good faith when his business in the constructing and selling townhouses
▪ A purchaser in good faith is one who buys with the well-founded belief that the person
and extending credit to the public, including real estate loans; for he is charged with greater
from he receives the property had title to it and had the capacity to convey it. In this case,
diligence that ordinary buyers or encumbrances for value, because it would be standard in
the buyers bought. Heirs of Soliva v. Soliva; Bliss Dev. Corp./HGC v. Diaz
his business, as a matter of due diligence required of banks and financing companies, to
▪ When buyer has not yet fully paid purchase price, and as long as seller remains unpaid,
ascertain whether the property being offered as security for the debt has already been sold
buyer cannot feign good faith. Portic v. Cristobal
to another to prevent injury to prior innocent buyers. Expresscredit Financing Corp. v.
Velasco

41
▪ A bank is expected to exercise due diligence before entering into a mortgage contract, and ▪ Registration of an adverse claim places any subsequent buyer of the registered land in bad
the ascertainment of the condition of a proper offered to it as security for a loan must be faith. Kings Properties Corp. v. Galido
a standard and indispensable part of operations; and it cannot simply rely upon reviewing ▪ One who deals with property with a notice of lis pendens, even when at the time of sale the
the title to the property offered for mortgage. Tio v. Abayata annotation was cancelled but there was a pending appeal, cannot invoke the right of a
purchaser in good faith. A purchaser cannot close his eyes to facts which should put a
(b) Close Relationship
reasonable man on guard and claim that he acted in the belief that there was no defect in
▪ The sale to one’s daughter and sons will give rise to the conclusion that the buyers, not
the title of the seller, Po Lam v. CA
being really third parties, knew of the previous sales and cannot be considered in good
▪ CONTRA: When knowledge of lis pendens was acquired at the time there was order to have
faith. The buyers “are deemed to have constructive knowledge by virtue of their
it cancelled, Po Lam v. CA
relationship” to their sellers. Pilapil v. CA
▪ A buyer cannot be in bad faith when it was shown that at the time of purchase the notice
(c) Gross Inadequacy of Price of lis pendens was already being ordered cancelled and the cancellation of the notice
▪ Mere inadequacy of price is not ipso facto a badge of lack of good faith—to be so, the price terminated the effects of such notice. Pudadera v. Magallanes
must be shocking to the conscience such that the mind revolts against it and such that a (g) Annotation of Lien in Settlement of Estate
reasonable man would neither directly or indirectly be likely to consent to it. Tio v. Abayata ▪ An annotation on CTC issued pursuant to the distribution and partition of a decedent’s real
(d) Obligation to Investigate or to Follow Leads properties is a warning to third persons on the possible interest of excluded heirs or unpaid
A purchaser who is aware of facts which should put a reasonable man upon his guard cannot creditors in these properties—where a buyer purchases the real property despite the
turn a blind eye and later claim that he acted in good faith, such as — annotation, he must be ready for the possibility that the title be subject to the rights of
▪ Buyer of a registered land would be in bad faith when he purchases without asking to see excluded parties. Tan v. Benolirao
the owner’s copy of the title and/or without visiting the land where he would then have (h) Banks Are Vested with Public Interest and Obligation to Exercise Extraordinary
seen first buyer occupying the same. Santiago v. CA Diligence
▪ When there are occupants to the land being bought, since it is the common practice in the ▪ One of the protections afforded by P.D. 957 to buyers is the right to have her contract to
real estate industry, an ocular inspection of the premises involved is a safeguard a cautious sell registered with the Register of Deeds to bind on third parties. Nonetheless, despite
and prudent purchaser usually takes. Martinez v. CA such non-registration, the mortgagee bank cannot be considered, under the circumstances,
▪ Any person engaged in business would be wary of buying from a company that is closing an innocent purchaser for value of the lot when it accepted the latter (together with other
shop, because it may be dissipating its assets to defraud creditors. Such buyer is bound to assigned properties) as payment for the mortgagor developer’s obligation—the bank was
inquire whether the owners had unsettled obligations encumbrance that could burden the well aware that the assigned properties were subdivision lots and therefore within the
property. Samson v. CA purview of P.D. 957. Luzon Dev. Bank v. Enriquez
▪ Property was transferred with undue haste, “plus the fact that the subject property is a vast ▪ When financial institutions exercise extraordinary diligence in determining the validity of
tract of land in a prime location, should have, at the very least, triggered petitioner’s the certificates of title to property being sold or mortgaged to them and still fail to find any
curiosity.” Eagle Realty Corp v. Republic defect or encumbrance upon the subject properties after said inquiry, such financial
(e) Land in Adverse Possession institutions should be protected like any other innocent purchaser for value if they paid a
▪ Where land sold is in the possession of a person other than vendor, purchaser must go full and fair price at the time of the purchase or before having notice of some other person’s
beyond the TCT and make inquiries concerning the actual possessor. Without such inquiry, claim on or interest in the property. Ty v. Queen’s Row Subdivision
the buyer cannot be said to be in good faith and cannot have any right over the property. Registration in Good Faith Always Pre-empts Possession in Good Faith
Tio v. Abayata ▪ Between two purchasers, the one who registered the sale in his favor has a preferred right
▪ Buyer who could not have failed to know or discover that the land sold to him was in the over the other who has not registered his title, even if the latter is in actual possession of
adverse possession of another is a buyer in bad faith. Heirs of Ramon Durano, Sr. v. Uy the immovable property. Tañedo v. Court of Appeals
(f) Existence of Lis Pendens or Adverse Claim ▪ The registration of a sale after the annotation of lis pendens does not obliterate the effects
of delivery and possession in good faith. The rules on constructive notice upon registration
provided for under Sec. 52 of the Property Registration Decree (P.D. No. 1529) operate only

42
 from the time of the registration of the notice of lis pendens which in this case was effected possession ahead of the first buyer. Unless, second buyer satisfies these requirements, title
only after the time the sale in favor of the second buyer had long been consummated by or ownership will not transfer to him as against first buyer. Coronel v. Court of Appeals
delivery of the subject matter. San Lorenzo Dev. Corp. v. CA. ▪ In spite of the three levels of tests provided under Art. 1544, the Court seems to recognize
only registration in good faith by the second buyer and does not characterize the meaning
POSSESSION IN GOOD FAITH of the last two tests of possession and oldest title. Carillo v. CA
- Note: Weird ruling since the Court only ruled on registration on good faith and
Parameters of possession. In the absence of inscription in double sales, the law gives remanded the case when it could have ruled based on possession and oldest title.
preferential right to the buyer in good faith who is first in possession, under the following ▪ In double sales, first buyer always has priority rights over subsequent buyers of the same
jurisprudential parameters: property. First buyer’s good faith remains all throughout despite his subsequent acquisition
(a) Possession mentioned in Art 1544 includes not only material but also symbolic possession; of knowledge of the subsequent sale. Kings Properties Corp. v. Galido
(b) Possessors in good faith are those who are not aware of any flaw in their title or mode of ▪ The requirements on double sales then is two-fold: acquisition in good faith and
acquisition; registration in good faith. Good faith must concur with registration. If it would be shown
(c) Buyers of real property that is in the possession of persons other than the seller must be that a buyer was in bad faith, the alleged registration they have made amounted to no
wary – they must investigate the rights of the possessors; and registration at all. The principle of primus tempore, potior jure (first in time, stronger in right)
(d) Good faith is always presumed, upon those who allege bad faith on the part of the gains greater significance in case of a double sale of immovable property. When the thing
possessors rests the burden of proof. Ten Forty Realty v. Cruz sold twice is an immovable, the one who acquires it and first records in the Registry of
▪ After the sale of a realty by means of a public instrument, the seller who resells it to another, Property, both made in good faith, shall be deemed the owner. Verily, the act of registration
does not transmit anything to the second vendee, and if the latter, by virtue of this second must be coupled with good faith – that is, the registrant must have no knowledge of the
sale takes material possession of the thing, he does it as mere detainer, and it would be defect or lack of title of his vendor or must not have been aware of facts which would have
unjust to protect this detention against the rights of the thing lawfully acquired by the first put him upon such inquiry and investigation as might be necessary to acquaint him with
vendee. The Roman Catholic Church v. Pante. the defects in the title of his vendor. Rosaroso v. Soria

OLDEST TITLE
OBLIGATIONS OF BUYER
“Primus Tempore, Portior Jure” (First in Time, Stronger in Right)
Commentary. While the main rule, it is not the primary rule. Under Art 1544, this principle is
embodied within the ‘oldest title in good faith’ test, which is actually the last in the list of 1. Buyer Must Pay the Price
priorities to consider. Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place
▪ Facts: Seller sold the mortgaged lot first to Buyer 1 and sometime later to Buyer 2. Buyer 1 stipulated in the contract.
only came to know after the sale but before its registration. Buyer 1 immediately registered If the time and place should not have been stipulated, the payment must be made at the time and place of the
his adverse claim before Buyer 2 registered her sale. All the while, Buyer 1 sought to delivery of the thing sold. (1500a)

negotiate with Buyer 2 but buyer 2 refused. Who wins? Buyer 1. By the time Buyer 2 had
registered her sale, there was already an annotation which removed the mortgage and a Payment. The buyer is obliged to pay for the price at the time and place stipulated in the
notice of adverse claim. This coupled with evidence of her refusal to talk to Buyer 1 are contract. Mere sending of a letter by the buyer expressing his intention to pay without the
evidences (hehe) of bad faith. Carbonell v. Court of Appeals accompanying payment is not considered a valid tender of payment.
▪ “Caveat emptor” requires the buyer to be aware of the supposed title of the seller and he ▪ When seller cannot show title to the subject matter, then he cannot compel the buyer to
who buys without checking the seller’s title takes all the risks and losses consequent to pay the price. Heirs of Severina San Miguel v. Court of Appeals
such failure. Caram, Jr. v. Laureta ▪ Mere sending of a letter by the buyer expressing the intention to pay without the
▪ Double sales provisions presumes title or ownership to pass to first buyer, exception being: accompanying payment is not considered a valid tender of payment and consignation of
(a) when second buyer, in good faith, registers the sale ahead of first buyer, and (b) should the amount due are essential in order to extinguish the obligation to pay and oblige the
there be no inscription by either of the buyers, when second buyer, in good faith, acquires seller to convey title. Torcuator v. Bernabe

43
▪ Unless the parties have agreed otherwise, then its payment to be effective must be made Art. 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer's refusal to
to the seller in accordance with Article 1240 which provides that “Payment shall be made accept the goods is without just cause, the title thereto passes to him from the moment they are placed at his disposal.
to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.” Montecillo v. Reynes
▪ Since delivery of subject matter is an obligation on the part of the seller, the acceptance
thereof by the buyer is not a condition for the completeness of delivery. La Fuerza v. CA*
2. Buyer is Obliged to Accept Delivery of the Subject Matter
Art. 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for,
and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses
without just cause to take delivery of or pay for one more instalments, it depends in each case on the terms of the
contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured
party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach
is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken.
Art. 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have
accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in
conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer,
upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether
such terms are indicated by marking the goods with the words "collect on delivery," or otherwise, the buyer is not
entitled to examine the goods before the payment of the price, in the absence of agreement or usage of trade
permitting such examination.
Art. 1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted
them, or when the goods have been delivered to him, and he does any act in relation to them which is inconsistent
with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating
to the seller that he has rejected them.

a. Buyer’s Right to Inspect Before Acceptance;

Art. 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of
the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well
as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond
with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample.
Art. 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have
accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary.

EXCEPT: When Carrier Delivers under COD Terms

b. When Buyer Refuses to Accept

44
 Provision breakdown: How Negotiated (Arts. 1508-1509)
By delivery alone. A negotiable document of title may be negotiated by delivery:
DOCUMENTS OF TITLE (1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to
deliver the goods to the bearer; or
(2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to
deliver the goods to the order of a specified person, and such person or a subsequent endorsee of the document has
Note: I honestly don’t know shit about negotiable instruments so I just took the passages from indorsed it in blank or to the bearer.
the book. Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a negotiable
DOCUMENTS OF TITLE document of title has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any specified
person, and in such case the document shall thereafter be negotiated only by the endorsement of such endorsee.
By endorsement and delivery. A negotiable document of title may be negotiated only by endorsement of the person
Art. 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter to whose order the goods are deliverable, coupled with a delivery thereof. Hence:
otherwise requires: A negotiable document of title may be negotiated by the endorsement of the person to whose order the goods are by
"Document of title to goods" includes any bill of lading, dock warrant, "quedan," or warehouse receipt or order the terms of the document deliverable. Such endorsement may be in blank, to bearer or to a specified person. If indorsed
for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of to a specified person, it may be again negotiated by the endorsement of such person in blank, to bearer or to another
goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of specified person. Subsequent negotiations may be made in like manner.
the document to transfer or receive, either by endorsement or by delivery, goods represented by such document.
Who Can Negotiate
Functions: Art. 1512. A negotiable document of title may be negotiated:
(a) As evidence of the possession or control of the goods described therein; and (1) By the owner therefor; or
(b) As the medium of transferring title and possession over the goods described therein, (2) By any person to whom the possession or custody of the document 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
without having to effect actual delivery thereof.
to whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the
document is in such form that it may be negotiated by delivery.
▪ Through a document of title, seller is allowed by fiction of law to deal with the goods
described therein as though he had physically delivered them to the buyer; and buyer may
take the document as though he had actually taken possession and control over the goods Effects of Negotiation
described therein. Philippine Trust Co. v. National Bank Art. 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby:
▪ Warehouse receipt represents the goods, but the intrusting thereof is more than the mere (1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a
delivery of the goods; it is a representation that the one to whom the possession of the purchaser in good faith for value and also such title to the goods as the person to whose order the goods were to
be delivered by the terms of the document had or had ability to convey to a purchaser in good faith for value; and
receipt has been so entrusted has the title to the goods. Siy Cong Bieng v. HSBC (2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to
Constructive delivery. Dealings through documents of title represent a species of constructive the terms of the document as fully as if such bailee had contracted directly with him.
delivery, and operate under the same premise as other forms of delivery (i.e., there must be a
Legal effects. The legal effects of proper negotiation is the assurance to the buying or
valid sale and seller is owner).
negotiating public of the protective mantle that the law places upon their faith in accepting a
negotiable document of title as a medium to transact on the goods covered thereby. The result
TYPES OF DOCUMENTS OF TITLE
is that dealing with the negotiable document of title is equivalent to dealing directly with the
1. Negotiable documents of title. A document of title in which states that the goods referred
goods covered thereby.
to therein are deliverable to bearer or to order of any person named in such document.
▪ Endorsement and delivery of a negotiable quedan operates as the transfer of possession
2. Non-negotiable document of title. A document of title which does not state that the
and ownership of the property referred to therein, and had the effect of divorcing the
goods therein are deliverable either to bearer or to order of any person named therein.
property covered therein from the estate of the insolvent prior to the filing of the petition
for insolvency. Philippine Trust Co. v. PNB
NEGOTIABLE DOCUMENTS OF TITLE
Effects of improper negotiation

45
(a) Under Art 1511, a negotiable document of title which is not in such form that it can be How Transferred or Assigned and effects of transfer
negotiated by delivery may be transferred by the holder by delivery to a purchaser or Art. 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as
donee, meaning that the transferee would thereby own the document of title; against the transferor, the title to the goods, subject to the terms of any agreement with the transferor.
(b) Under Art 1514, the person to whom a document of title has been transferred, but not If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the
document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the
negotiated, acquires thereby as against the transferor, the title to the goods, subject to the goods for him according to the terms of the document.
terms of any agreement with the transferor, meaning as between the transferor and Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the
transferee, the goods are owned by the transferee, but not as to the rest of the world, title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy
including the bailee. of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by
the transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the transferor.
(c) Under Art 1515, where a negotiable document of title is transferred for value by delivery,
and the endorsement of the transferor is essential for negotiation, the transferee acquires Assignment. A non-negotiable document cannot be negotiated and its endorsement gives the
a right against the transferor to compel him to endorse the document unless a contrary transferee no additional right. Since a non-negotiable documents of title constitutes an
intention appears; meaning that the negotiation shall take effect as of the time when the incorporeal right, its sale constitutes actually an assignment under Art 1624 is perfected by
endorsement is actually made. mere consent, but which under Art 1625 would require its appearance in a public instrument;
otherwise, it shall produce no effect as against third persons.
Effects of Unauthorized Negotiation
Art. 1518. The validity of the negotiation of a negotiable document of title is not impaired by the fact that: Warranties of Seller Through a Documents of Title
(a) the negotiation was a breach of duty on the part of the person making the negotiation, Art. 1516. A person who for value negotiates or transfers a document of title by endorsement or delivery, including
(b) the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, one who assigns for value a claim secured by a document of title unless a contrary intention appears, warrants:
duress, or conversion, (1) That the document is genuine;
(c) if the person to whom the document was negotiated or a person to whom the document was subsequently (2) That he has a legal right to negotiate or transfer it;
negotiated paid value therefor in good faith without notice of the breach of duty, or loss, theft, fraud, accident, (3) That he has knowledge of no fact which would impair the validity or worth of the document; and
mistake, duress or conversion. (4) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular
Negotiable documents of title v Negotiable Instruments Law. The effects of unauthorized purpose, whenever such warranties would have been implied if the contract of the parties had been to transfer
without a document of title the goods represented thereby.
negotiation under the former are more liberal and protective of the holder who takes it in good
Art. 1517. The endorsement of a document of title shall not make the endorser liable for any failure on the part of
faith and for value than in the latter. There is practically no real defense against an assignee or the bailee who issued the document or previous endorsers thereof to fulfill their respective obligations.
holder of the negotiable document of title in good faith and for value. The only real defense
that can be validly raised against the holder in due course of a negotiable document of title
would be forgery of the endorsement of the owner, when such endorsement is necessary to Effects when owner of document of title has no legal title to the goods
effect negotiation. When goods covered by non-negotiable document
▪ As between the owner of a negotiable document of title who endorsed it in blank and In all situations where the owner had neither lost nor been unlawfully deprived of the goods,
entrusted it to a friend, and the holder of such negotiable document of title to whom it was the assignee-buyer’s title to the goods is preferred even against the owner who can no longer
negotiated and who received it in good faith and for value, the latter is preferred, under recover the goods. In such situations, it does not even matter if the assignor-seller had no
the principle that as between two innocent persons, he who made the loss possible should ownership at all to the goods he sold to the assignee-buyer since the latter’s title is not
bear the loss. Siy Long Bieng v. HSBC dependent on the assignor-sellee’s title.
But if the owner had lost the goods or been unlawfully deprived thereof, the owner may recover
against the assignee-buyer, even when the latter is in good faith and bought them for value. In
such case, the assignee-buyer’s title is derived from that of the assignor-sellee’s title, who had
NON-NEGOTIABLE DOCUMENTS OF TITLE no title to the goods sold – nemo dat quod non habet.

46
When goods covered by negotiable document
If the owner had neither lost nor been unlawfully deprived of the goods, then the holder-buyer
acquires valid ownership of such goods because his possession in good faith and for value,
clearly evidenced by his being a holder in due course of the negotiable document of title.
If the owner had lost or been unlawfully deprived of the goods, the owner may recover against
the bailee, and therefore against the holder-buyer, even when the latter is a holder in due
course.

Rules of Levy/Garnishment of Goods

Art. 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as
against the transferor, the title to the goods, subject to the terms of any agreement with the transferor.
If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the
document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the
goods for him according to the terms of the document.
Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the
title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy
of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by
the transferor or a subsequent purchaser from the transfer of a subsequent sale of the goods by the transferor.
Art. 1519. If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to
a purchaser in good faith for value would bind the owner and a negotiable document of title is issued for them they
cannot thereafter, while in possession of such bailee, be attached by garnishment or otherwise or be levied under an
execution unless the document be first surrendered to the bailee or its negotiation enjoined. The bailee shall in no
case be compelled to deliver up the actual possession of the goods until the document is surrendered to him or
impounded by the court.
Art. 1520. A creditor whose debtor is the owner of a negotiable document of title shall be entitled to such aid from
courts of appropriate jurisdiction by injunction and otherwise in attaching such document or in satisfying the claim
by means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied
upon by ordinary legal process.

47
 WHEN SALE BY NON-OWNER TRANSFERS TITLE TO BUYER
Sale by Non-Owner or One Having a Voidable Title
1. Sales by Co-Owners
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto,
and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except
when personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners,
RULES ON THE SALE EFFECT BY NON-OWNER shall be limited to the portion which may be alloted to him in the division upon the termination of the co-ownership.

Where Seller Is Not Owner at Perfection: Valid Co-ownership and sale of property. The rules in co-ownership are as follows: (1) every co-
Ownership at perfection, not necessary. A valid sale can cover an object that is not existing owner has the right to sell his pro-indiviso share in the co-owned property even without the
or having only a potential existence at the time of perfection and ownership by the seller at the consent of the other co-owners; (2) but that none of the co-owners may claim any right, title,
time of perfection is not an essential requirement for the validity of the sale. The law states that or interest to a particular portion of the thing owned in common; and therefore, (3) a co-owner
the vendor must have a right to transfer the ownership thereof at the time it is delivered and has no right to sell a divided part of the real estate.
that ownership of the thing sold is not transferred by perfection but shall be transferred to the Default rule: When prior to partition a co-owner sells the entire property owned in common,
vendee upon the actual or constructive delivery thereof. the sale of the property itself is void but valid as to his spiritual share.
Exceptions:
Provision breakdown: Where Seller Is Not Owner at Delivery (Art. 1505) (a) It does not apply in situations where the subject matter is indivisible in nature or by intent.
Default rule: Buyer acquires no better title than the seller had. Subject to the provisions of this Title, where goods
▪ Facts: Some co-owners of the land along with some improvements without the consent of
are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the
owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct the other co-owners. Said co-owners now assail the entirety of the sale. Proper? Yes.
precluded from denying the seller's authority to sell. Although the general rule is that if a co-owner alienates the entire property without the
Exceptions: Nothing in this Title, however, shall affect: consent of the other co-owners, the sale will affect only his share, such rule does not apply
(1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of
if the property cannot be partitioned or subdivided. Mindanao v. Yap
goods to dispose of them as if he were the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent - Commentary: The Court’s reasoning in this case is improper because it fails to
jurisdiction; appreciate the stages in the life of a contract of sale vis-à-vis the transfer of ownership.
(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special See commentary discussion below as to what the proper remedy should be in such
laws.
cases.
(b) When a sale of a particular portion of the thing owned in common is with the consent of
Proper remedy of buyer
the other co-owners
Rescission. In the case of Nool v CA, the Court recognized the principle that the absence of
(c) A co-owner who sells one of the two lands owned in common with another co-owner, and
ownership by the seller at the time of perfection does not render the sale void. However, the
does not turn-over one-half of sale proceeds to the other co-owner, latter may by law and
Court still held the sale void because of ‘impossible service’. The commentary states that such
equity lay exclusive claim to the remaining parcel of land, Imperial v. CA
ruling is wrong – if indeed the obligation to deliver ownership can no longer be complied with,
(d) Ipso jure transfer of ownership under Art 1434 – sale by one who previously had no title
the remedy is not to declare the sale void, but actually to rescind the sale on the basis of breach
but subsequently acquired title thereto
of contract.
(e) Binding effect of registration under the Torrens title
▪ If one buys the land of another, to which the seller is supposed to have a good title, and in
Proper remedy (prevailing ruling). Proper action is not for nullification of sale, or for the
consequence of facts unknown alike to both parties, the seller has in fact no title at all,
recovery of possession of the property owned in common, but for division or partition of the
equity will cancel the sale and cause the purchase money to be restored to the buyer,
entire property. Tomas Claudio Memorial College v. CA
putting both parties in status quo. DBP v. Court of Appeals
Commentary. The ruling is problematic in the sense that it violates the meeting of minds
between the seller and the buyer, i.e., that the buyer was willing to pay a higher price for the
entire property or a definite portion of the subject property. The proper solution, according to
the commentary, is that the original terms be held valid but with the option of the buyer to

48
either seek rescission for breach of the seller’s obligation to deliver the object agreed upon or 4. Exercise by the Courts of Statutory Power to Make Sale Effective
to accept partial delivery for an appropriate reduction in price. ▪ When a defeated party refuses to execute the absolute deed of sale in accordance with the
▪ Sale of a co-owner of entire property as his own is effective only as a sale of his spiritual judgment, the court may direct the act to be done at the cost of the disobedient party by
share, and will not affect the shares of the other co-owners who never gave their consent. some other person appointed by the court and the act when so done shall have the like
Paulmitan v. Court of Appeals effect as is done by the party. Manila Remnant Co. v. Court of Appeals
▪ An agreement that purports a specific portion of an un-partitioned co-owned property is
not void; it shall effectively transfer the seller’s ideal share in the co-ownership, Heirs of the 5. Sales in Merchants Stores, Fairs or Markets (Arts. 85 and 86, Code of Commerce)
Late Spouses Aurelio and Esperanza Balite v. Lim Why. A person who buys a thing at a merchant’s store after the same has been put on display
thereat acquires a valid title to the thing although his predecessors in interest did not have any
2. Estoppel on the True Owner right of ownership over it. The rule is necessary not only to facilitate commercial sales on
Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or movables but to give stability to business transactions.
grantor acquires title thereto, such title passes by operation of law to the buyer or grantee. Merchant store. Any place where goods are kept for sale; or where goods are deposited and
sold by one engaged in buying and selling them. It is a necessary element that there must be
▪ Where the seller sold a parcel of land to the buyer at the time when the seller was not yet
goods or wares stored therein or on display, and provided also that the firm or person
the owner of the land and the acquisition after one year by the seller of the ownership of
maintaining that office is actually engaged in the business of buying and selling.
said land, the seller was estopped from questioning the automatic transfer of title to the
▪ A merchant store requires a fixed establishment where the merchant not only stores his
buyer based on the seller’s previous actions. Bucton v. Gabar
merchandise, but where he conducts the ordinary course of business. City of Manila v.
▪ Owner who has been unlawfully deprived of his goods may recover it even from a purchaser
Bugsuk
in good faith. Thus, purchaser of property stolen from the owner has been held to acquire
▪ The owner of the goods who has been unlawfully deprived of it may recover it even from
no title to it even though he purchased for value and in good faith. Exception is when the
a purchaser in good faith. Thus, the purchaser of property which has been stolen from the
true owner is estopped. That is, that the owner, by word or conduct, have caused or allowed
owner has been held to acquire no title to it even though he purchased for value and in
it to appear that title or authority to sell is with the seller and the buyer was misled to his
good faith. Francisco v. Chemical Bulk Carriers
damage. Francisco v. Chemical Bulk Carriers

3. Recording Laws; Torrens System (P.D. 1529). SALE BY SELLER HAVING VOIDABLE TITLE
▪ Where innocent third persons, relying on the correctness of the TCT, acquire rights over (Art. 1506, as an exception to Art. 559)
the property, the courts cannot disregard such rights and order the cancellation of the TCT,
since the effect will be to impair public confidence in the certificate of title. Every person
dealing with the registered land may safely rely on the correctness of the certificate of title 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
issued therefor. Heirs of Spouses Benito Gavino. v. Court of Appeals
of the seller's defect of title.
▪ An innocent purchaser for value is one who purchases a titled land by virtue of a deed Art. 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who
executed by the registered owner himself not by a forged deed. Insurance Services and has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the
Commercial Traders v. Court of Appeals same.
▪ The defense of indefeasibility of Torrens title where the disputed buildings and equipment
are located is unavailing, since such defense is available to sale of lands and not to sale of Applicability of Art 1506. The cut-off point under Art 1506 is the delivery of the subject matter
properties situated therein. Tsai v. Court of Appeals to the buyer by the seller – if the seller’s voidable title thereto is avoided after the perfection of
▪ A person who deals with registered land through someone who is not the registered owner the sale but before delivery, the buyer does not obtain good title to the property.
is expected to look beyond the certificate of title and examine all the factual circumstances Limited to movables. It seems that the rule on voidable title is not applicable to immovables
thereof in order to determine if the vendor has the capacity to transfer any interest in the for the buyer acquires no better title than that of the seller’s. However, an exception to this
land.Sy v. Capistrano, Jr principle is registration in good faith as the operative act under the Torrens title. Because of the

49
nature and purpose of the Torrens System, every person dealing with the registered land may the same even against a subsequent purchaser in good faith. The only exception to this
safely rely on the correctness of the certificate of title issued. rule is if the purchaser acquired the same from a public sale – in which case, reimbursement
Owner of the lost and unlawfully deprived movable. Under Art 559, the owner who has lost is in order. Innocent purchaser is at fault for being unable to detect the forged document.
the movable or has been unlawfully deprived thereof may recover it from the person in In all other cases of unlawful deprivation done through estafa, the original owner recovers
possession of the same. even from the buyer in good faith. Cruz v. Pahati.
Exception. However, cross-referencing Art 559 to Art 1505 and 1506, this rule is not absolute. - Lecture: There’s a problem with the ruling in this case. The case should have been ruled
Even if the owner lost or has been unlawfully deprived of the movable, he cannot recover it in line with Aznar rather than EDCA and Tagatac. The proper charge should have been
from a buyer who bought it at a merchant store or from a buyer in good faith who acquired qualified theft, not estafa.
title to the movable – that is, that the thing was already delivered to him and the seller’s title ▪ Facts: Owner gave ring to Agent. Agent pawned the ring. Can owner recover? Yes. Owner
was not yet annulled or avoided. of diamond ring may recover it from pawnshop where owner’s agent had pledged it
Estafa. Whenever there is an underlying sale which grants to the culprit-buyer a voidable title, without authority to do so; Art. 559 applies and the defense that the pawnshop acquired
even when this is accompanied by the criminal act of estafa or swindling, Art. 1506 would grant possession without notice of any defect of the pledgor-agent is unavailing. The pawnshop
to the buyer in good faith a better title as against the original owner even though the latter owner is engaged in a business where ordinary prudence would require him to inquire
may be classified to have been “unlawfully deprived” of the subject matter under Art. 559. whether or not an individual who is offering the jewelry by pledge is entitled to do so.
▪ Facts: Seller sold a car to Buyer, who, upon pretense of being rich, gave Seller postdated Dizon v. Suntay
checks which were later dishonored. Buyer disappeared with the car. Eventually, car ended
up with Innocent Purchaser for value who labored to verify the car’s records. Seller demands
return of car. Proper? No. The owner who has lost any movable or has been unlawfully
deprived thereof may recover the same from the possessor. However, Seller was not
unlawfully deprived thereof. The sale was merely voidable. There was a valid transmission
of ownership. The fact that payment was not proper only gave rise to the right to rescind
(resolve) or demand payment. Tagatac v. Jimenez
▪ Facts: Buyer pretended he was a dean of a school. The checks he issued were later
dishonored. Can Seller recover the books? No. Ownership passed to the Buyer upon
delivery thereof. His non-payment only warrants rescission or an action for payment. Seller
cannot be considered to have been unlawfully deprived. Since the books were now in the
hands of a buyer in good faith, he is thus protected by the law. EDCA Publishing v. Santos
▪ Facts: Seller’s car was stolen by Buyer. It ended up with Innocent Purchaser. What are the
elements of carnapping (5%)? Yes, Seller can recover from Innocent Purchaser because the
Seller did not voluntarily deliver possession of the car. There was no valid delivery; hence,
the one who buys the car even in good faith from the thief will lose the car to the owner
who is deemed to have been unlawfully deprived thereof. Innocent purchaser would only
be entitled to reimbursement if he had purchased the same in good faith from a public
sale. Aznar v. Yapdiangco
- Note: The elements of carnapping are: (1) taking of a motor vehicle which belongs to
another; (2) such taking was without the consent of the owner or by means of violence
against or intimidation of persons or by using force upon things; and (3) the taking is
done with intent to gain. Goodluck sa SPL!
▪ Facts: Seller gave his car to Agent for the latter to sell. Agent forged the letter, had the car
registered in his name, and sold the same to Innocent purchaser. Can Seller recover? Yes.
Since Seller was unlawfully deprived through the acts of the agent, he is entitled to recover

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 Not void per se. The contract never comes into existence. There can be no sale without a thing
to be sold. There is no need of an action to annul the contract, because there can be no
Loss, Deterioration, Fruits, and Other Benefits
annulment of something that does not exist.

Provision breakdown: Loss after perfection but before delivery (Arts. 1164, 1189, and
Note: TVT lectured on this topic. She said read the codal provisions. The commentary for this 1262)
section is unnecessarily long so I summarized the rules as taught by TVT. Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in Article 1189 shall be
observed, the vendor being considered the debtor. (n)

EFFECT OF LOSS Art. 1189, in relation to Art 1538. When the conditions have been imposed with the intention of suspending the efficacy
1. Before perfection – seller bears the loss of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:
2. At the time of perfection but before delivery – seller
(1) If the thing is lost without the fault of the vendor, the obligation shall be extinguished;
bears the loss (2) If the thing is lost through the fault of the vendor, he shall be obliged to pay damages; it is understood that
3. After delivery – buyer bears the loss the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown
or it cannot be recovered;
xxx
Lecture: Who bears the loss? Generally, under the principle of res perit domino, it is the owner. Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the
Therefore, before perfection, it shall be the seller; after perfection but before delivery, it is the perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.
seller (CLV view); and after delivery, it is the buyer. In case the thing is lost due to the negligence Fungible things. This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure. Should fungible things be sold for a price fixed according to weight,
of the seller after perfection but before delivery, the seller will be liable for damages.
number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or measured and
Q: What happens if, despite delivery, the seller retains ownership in order to secure the payment delivered, unless the latter has incurred in delay.
of the price? The buyer bears the risk of loss.
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or
destroyed without the fault of the debtor, and before he has incurred in delay.
No Application When Subject Matter Is “Determinable” (Generic) Fortuitous events. When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does
not extinguish the obligation, and he shall be responsible for damages. Assumption of risk. The same rule applies when
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
the nature of the obligation requires the assumption of risk. (1182a)
extinguish the obligation.
Art. 1504: Default rule. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk
▪ Facts: The sale of the boat was conditioned on Seller acquiring title to said boat. Seller was whether actual delivery has been made or not, except that:
unable to perfect his title and the boat was destroyed in a storm. Seller now sues buyer for Ownership retained by seller. (1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure
the price of the boat. Proper? No. There was yet to be a perfected contract between them
performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such
because of Seller’s failure to perfect his title to the boat. Roman v. Grimalt delivery;
Delay. (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the
Provision breakdown: Loss at time of perfection (Art 1493 and 1494) risk of the party in fault
Art. 1493. Loss at time of perfection – contract has no effect. If at the time the contract of sale is perfected, the thing
which is the object of the contract has been entirely lost, the contract shall be without any effect. Default rule: Before delivery, risk of loss is borne by seller under the rule of res perit domino.
Loss in part at time of perfection – vendee has options. But if the thing should have been lost in part only, the vendee
Chrysler Phil. v. CA
may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to
the total sum agreed upon. (1460a) ▪ The risk of loss or deterioration of the goods sold does not pass to the buyer until there is
Art. 1494. Deterioration – vendee has options. Where the parties purport a sale of specific goods, and the goods actual or constructive delivery thereof. APT v. T.J. Enterprises
without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality ▪ In sale of motor vehicles, where there was neither physical nor constructive delivery, the
as to be substantially changed in character, the buyer may at his option treat the sale:
thing sold remained at the seller’s risk. Union Motor Corp v. CA
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay
the agreed price for the goods in which the ownership will pass, if the sale was divisible.

51
Loss after delivery obligation to deliver is suspended by a condition, what happens? Then the fruits will only be
▪ Buyer purchased books from Seller. The agreement was for ownership to remain with Seller delivered upon the happening of the condition.
until full payment under the stipulation: “Loss or damage to the goods after delivery to the
buyer is for the account of the latter.” Books were later destroyed in a fire. Seller sues for
collection. Who wins? Seller. Generally, loss is for the account of the owner but the same
does not apply when parties have expressly agreed that after delivery to the buyer, the
buyer bears the same. The stipulation retaining ownership is intended merely to secure
payment. The obligation of the Buyer consists of the delivery of a generic thing – money.
Therefore, he is not absolved from liability. Lawyer's Coop v. Tabora

DETERIORATION, FRUITS, AND IMPROVEMENT

Provision breakdown: Deterioration (Art 1480, 1538, 1189)

Art. 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the
perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.
Fungible things. This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure. Should fungible things be sold for a price fixed according to weight,
number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or measured and
delivered, unless the latter has incurred in delay.

Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in Article 1189 shall be
observed, the vendor being considered the debtor. (n)
Art. 1189, in relation to Art 1538. When the conditions have been imposed with the intention of suspending the efficacy
of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:
xxx
(3) When the thing deteriorates without the fault of the vendor, the impairment is to be borne by the vendee;
(4) If it deteriorates through the fault of the vendor, the vendee may choose between the rescission of the obligation
and its fulfillment, with indemnity for damages in either case;
xxx

Provision breakdown: Fruits and improvements (Art 1537, 1538, 1189)

Art. 1537: Accessories follow the principal. The vendor is bound to deliver the thing sold and its accessions and
accessories in the condition in which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract was perfected. (1468a)

Art. 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in Article 1189 shall be
observed, the vendor being considered the debtor. (n)
Art. 1189, in relation to Art 1538. When the conditions have been imposed with the intention of suspending the efficacy
of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:
xxx
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the vendee;
(6) If it is improved at the expense of the vendor, he shall have no other right than that granted to the usufructuary.

Lecture. Who owns the fruits of the thing? Whomever is the owner of the property. Therefore,
it is the seller before perfection of the sale while it is the buyer from perfection onwards. If the

52
 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.
Remedies for Breach of Contract of Sale 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 been fully performed
Caveat Emptor (“Buyer beware”). Requires the buyer to be aware of the supposed title of the shall be considered in awarding the damages.
seller to the subject matter and that a buyer who buys without checking the seller’s title takes
Art. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or
all the risks and losses consequent to such failure. The rule is antiquated and should scantly be has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may
regard in modern contracts of sale. totally rescind the contract of sale by giving notice of his election so to do to the buyer.
Notable exception: Torrens system. The buyer need only rely upon the title of a registered
land and has no obligation to look beyond such title. GR: 1593. In case the buyer, upon expiration of the period fixed for the delivery of the thing,
Basic premise. There should be no false representation by the seller. should not have appeared to receive it, or, having appeared, he should not have tendered the
price, the seller may maintain an action to rescind, unless a longer period has been stipulated
[Author’s Note]: Majority of the discussion on the remedies of movables are codal provisions. for payment.
Memorize! The discussion may be redundant because of the codal provisions but I still kept,
albeit in a smaller font, the codal provisions for easy reference. Non-payment of price by buyer
Art 1595 (1): Ownership transferred to buyer – specific performance. Where the ownership
has transferred to the buyer who wrongfully neglects or refuses to pay for them, the seller may
REMEDIES IN CASES OF MOVABLES
maintain an action against him for the price of the goods, i.e. an action for specific performance.
Art 1595 (2): When price payable on certain day – specific performance. Where the price
I. ORDINARY REMEDIES OF SELLERS is payable on a certain day, irrespective of deliver or of transfer of title, and the buyer wrongfully
neglects or refuses to pay such price, the seller may maintain an action for specific performance.
Art. 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, But – subject to seller’s ability and intention. It shall be a defense to such an action that the
if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, seller at any time before the judgment in such action has manifested an inability to perform
or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated
for its payment. (1505)
the sale on his part or an intention not to perform it.
Art 1595 (3): No transfer of ownership to buyer – specific performance. When the
Art. 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects ownership has not passed, if they cannot readily be resold for a reasonable price, the seller may
or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against offer to deliver the goods to the buyer, and, if buyer refuses to receive them, may notify the
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
buyer that the goods are thereafter held by the seller as bailee for the buyer; thereafter the
and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although seller may treat the goods as the buyer’s and may maintain an action for the price.
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 When buyer wrongfully neglects/refuses to accept goods.
perform it.
Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if
Art 1596 – non-acceptance + non-payment. The seller may maintain an action against him
the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, for damages for non-acceptance, in accordance with the following rules:
and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee (a) Damages shall cover the estimated loss directly and naturally resulting in the ordinary
for the buyer. Thereafter the seller may treat the goods as the buyer's and may maintain an action for the price. course of events from the buyer’s breach of contract;
Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an
(b) The measure of damages is, in case there is an available market for the goods in question
action against him for damages for nonacceptance. and in the absence of special circumstances showing proximate damage of a different
The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from amount, the difference between the contract price and market or current price at the times
the buyer's breach of contract. when the goods ought to have been accepted, or, if no time was fixed for acceptance, then
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
at the time of the refusal to accept;

53
(c) If the buyer repudiates the contract or notifies the seller to proceed no further, the buyer Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected
shall be liable for labor performed or expenses of material amount is necessary on the part by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto.
of seller to enable him to fulfill his obligations under the sale made before receiving notice If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu
shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether
of the buyer’s repudiation or countermand; and such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document,
(d) The profits the seller would have made if the contract or the sale had been fully performed of the seller's claim to a lien or right of stoppage in transitu.
shall be considered in awarding damages.
Possessory lien. The seller still has a lien on the goods or right to retain them for the price
II. SPECIAL REMEDIES OF THE UNPAID SELLER while he is in possession of them. Where the ownership in the goods has not passed to the
buyer, the unpaid seller has, in addition to other remedies, a right of withholding delivery similar
THE UNPAID SELLER to and co-extensive with his right of lien.

Art. 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title:
(1) When the whole of the price has not been paid or tendered; WHEN POSSESSORY LIEN EXERCISABLE
(2) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the
Art 1527
condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of
the buyer, or otherwise. The possessory lien of the unpaid seller is exercisable only in the following instances:
In Articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has been 1. Where the goods have been sold without any stipulation as to credit;
indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or any other person 2. Where the goods have been sold on credit, but the term of credit has expired; and
who is in the position of a seller.
3. Where the buyer becomes insolvent.

RIGHTS OF THE UNPAID SELLER Art 1528: Partial delivery. Where there has been part delivery of the goods, the unpaid seller
When the seller is an unpaid seller, whether or not ownership may exercise his right of lien on the remainder, unless there are circumstances that show the
over the goods have been transferred to buyer, he is entitled intent to waive the lien or right of retention.
to the following rights or remedies: Agent of buyer. The seller may exercise his right of lien notwithstanding that he is in
1. Possessory lien; possession of the goods as agent or bailee for the buyer.
2. Stoppage in transit; Art 1535: Subsequent sale by buyer. The unpaid seller’s right of lien is not affected by any
3. Special right of resale; and sale or any other disposition of the goods which the buyer may have made unless the seller
4. Special right to rescind. assented thereto.
But – negotiable documents of title. If a negotiable document of title has been issued for
goods, no seller’s lien shall defeat the right of any purchaser for value and in good faith to
Hierarchical application. The special right to resell and to rescind can only be availed of when
whom such document has been negotiated, whether such negotiation be prior or subsequent
either the two prior rights of possessory live or stoppage in transit have been exercised.
to the notification to the carrier or other bailee who issued such document, of the seller’s claim
Special. Because they can only be exercised by the unpaid seller in the circumstances dictated
to lien.
by law.
POSSESSORY LIEN WHEN POSSESSORY LIEN LOST
Art 1529
Art. 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the
remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien The unpaid seller loses his lien on the goods whenever:
or right of retention. (a) Seller delivers the goods to a carrier or other bailee for the purpose of transmission
Art. 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the to buyer without reserving the ownership in the goods or the right of possession
right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or
thereto;
ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee
for the purpose of transmission to the buyer. (b) The buyer or his agent lawfully obtains possession of the goods; or
(c) By waiver thereof.

54
Judgment. The unpaid seller does not lose his lien by reason only that he has obtained How exercised
judgment or decree for the price of the goods. Art. 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of
the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice
may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice,
to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of
STOPPAGE IN TRANSITU reasonable diligence, may prevent a delivery to the buyer.
Art. 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the unpaid seller When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the
who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must
resume possession of the goods at any time while they are in transit, and he will then become entitled to the same be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the
rights in regard to the goods as he would have had if he had never parted with the possession. carrier or other bailee, he shall not obliged to deliver or justified in delivering the goods
Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected
by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented thereto.
When goods are in transit If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage
Art. 1531. Goods are in transit within the meaning of the preceding article: in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated,
(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of whether such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such
transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or document, of the seller's claim to a lien or right of stoppage in transitu.
other bailee; Art. 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter
(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if otherwise requires:
the seller has refused to receive them back. (2) A person is insolvent within the meaning of this Title who either has ceased to pay his debts in the
ordinary course of business or cannot pay his debts as they become due, whether insolvency proceedings
have been commenced or not.
When goods are no longer in transit
Art. 1531. x x x Essential prerequisite. The buyer must be or have become insolvent. Otherwise, stoppage in
Goods are no longer in transit within the meaning of the preceding article:
transit is unavailable.
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed
destination; Stoppage in transitu. When the buyer of goods is or becomes insolvent, the unpaid seller who
(2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the has parted with the possession of the goods has the right of stopping them in transit. He may
buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the resume possession of the goods at any time while they are in transit and he will then become
buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the
entitled to the same rights in regard to the goods as if he had never parted with the possession.
buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. Subsequent sale. Similar to the possessory lien, this right is not affected by any sale or
If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending disposition by the buyer unless the seller assents thereto.
on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of But – negotiable documents of title. If a negotiable document of title has been issued for
the buyer.
goods, no seller’s right of stoppage shall defeat the right of any purchaser for value and in
If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods
may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement good faith to whom such document has been negotiated, whether such negotiation be prior
with the buyer to give up possession of the whole of the goods. or subsequent to the notification to the carrier or other bailee who issued such document, of
the seller’s claim to right of stoppage in transitu.
Insolvent. A buyer is deemed insolvent who either has ceased to pay his debts in the ordinary
course of business or cannot pay his debts as they become due, whether insolvency
proceedings have been commenced or not.

55
 SPECIAL RIGHT OF RESALE Standard of care and disqualification. The seller is bound to exercise reasonable care and
Art. 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case judgment in making a resale and, subject to this requirement, may make a resale either by
the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable public or private sale. He cannot directly or indirectly buy the goods.
time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods. He shall
not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may
recover from the buyer damages for any loss occasioned by the breach of the contract of sale.
SPECIAL RIGHT TO RESCIND
Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer. Art. 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer
It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer
original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express should make default, or where the buyer has been in default in the payment of the price for an unreasonable time.
provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer
question whether the buyer had been in default for an unreasonable time before the resale was made. damages for any loss occasioned by the breach of the contract.
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 The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice
seller to the original buyer. to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be
The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be
may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before
the right of rescission was asserted.

WHEN RIGHT TO RESELL EXERCISABLE

The special right of resale can be made only when: WHEN SPECIAL RIGHT TO RESCIND EXERCISABLE
1. The unpaid seller has been previously exercised either his right of possessory lien or An unpaid seller may rescind the transfer of title and resume ownership of the goods
stoppage in transitu; and when:
2. Any of the following conditions are present: 1. He has exercised his right of lien or stoppage in transit; and
(a) The goods are of perishable nature; 2. The existence of any of the following conditions:
(b) Where the seller has been expressly reserved in case the buyer should make a. The seller has expressly reserved the right to do so in case the buyer should make
default; or default; or
(c) Where the buyer has been in default in the payment of the price for an b. The buyer has been in default in the payment of the price for an unreasonable
unreasonable time. time.

▪ If the buyer fails to take delivery and pay the purchase price, the seller, without need of first Effect. The seller shall not thereafter be liable to the buyer upon the sale, but may recover from
rescinding the contract judicially, is entitled to resell the same, and if he is obliged to sell it the buyer damages for any loss occasioned by the breach of contract.
for less than the contract price, the buyer is liable for the difference. Katigbak v CA Transfer of title. The transfer of title shall not be held to have been rescinded by an unpaid
Effect of right to resell. When the unpaid seller has exercised this right, he shall not thereafter seller until he has manifested by notice or by some other overt act an intention to rescind. It is
be liable to the original buyer upon the sale or for any profit made by such resale, but may not necessary that such overt act should be communicated to the buyer, but the giving or
recover from the buyer damages for any loss occasioned by the breach of the sale. failure to give notice to the buyer of the intention to rescind shall be relevant in any issue
Transfer of ownership. Where a resale is made by the unpaid seller, the second buyer acquires involving the question whether the buyer has been in default for an unreasonable time.
a good title as against the original buyer. This is the special feature of the right of the unpaid ▪ Even before the formal statutory adoption of the remedies of an unpaid seller, the Supreme
seller to resell: he is able to destroy and obliterate the ownership of the goods of the original Court had already recognized the right of a seller, when the contract of sale is still executory
buyer and he is able to transfer ownership to the subsequent buyer, even if at the time of in stage, to resell the movables subject matter of the sale, when the buyer fails to pay the
tradition, he no longer had ownership over the goods. Ordinarily, this action can only be done purchase price. Hanlon v. Hausserman
through court action but in the case of the unpaid seller, he can do so without judicial action. ▪ The unpaid seller in possession of goods may sell them at buyer’s risk. Katigbak v. Court of
Notice to defaulting buyer. Notice is not essential when the goods are of perishable nature Appeals
or there is express stipulation allowing such right, but it is necessary when the buyer had been
in default for an unreasonable time.

56
 the horizontal barring effect pertains to the non-recovery of any unpaid balance when it comes
SALES OF MOVABLES ON INSTALLMENTS to rescission and foreclosure.
Recto Law ▪ Seller sold 3 air-conditioning units to Buyer, payable in 24 installments. There was a
stipulation that upon failure to pay two monthly installments, the previous payments were
to be considered as rentals. Seller filed a complaint for replevin and cancelled the contract.
Art. 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may What happens? The stipulation is valid but Seller is barred from claiming the unpaid
exercise any of the following remedies:
balance. A stipulation in the contract treating installments as rentals in case of failure to
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendee's failure to pay cover two or more installments; pay is valid so long as it is not unconscionable. An unpaid seller has three alternative
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to remedies. Upon selection of the second remedy, Seller cannot anymore claim the unpaid
pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover balance of the price. Delta Motor Sales Corp. v. Niu Kim Duan
any unpaid balance of the price. Any agreement to the contrary shall be void. (1454-A-a)
▪ Seeking a writ of replevin consistent with any of the three remedies. Universal Motors Corp.
Art. 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option
to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. (1454-A-a) v. Dy Hian Tat
Art. 1486. In the case referred to in two preceding articles, 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 Remedy of Specific Performance
circumstances. (n)
Vertical barring effect. When the seller has chosen specific performance, he can no longer
seek rescission or foreclosure of the chattel mortgage. Mere sending of demand letters should
Sale on installments. Recto law cannot apply to a sale where there is an initial payment and not be considered as having barred the other remedies.
the balance payable in the future because the same is not a sale on installment but actually a Execution sale. If the action instituted is for specific performance and the mortgaged property
‘straight sale’. The buyer needs to have defaulted in the payment of two or more installments is subsequently attached and sold, the sale does not amount to a foreclosure of the mortgage,
in the future, whether or not there is downpayment. Levy v Gervacio which bars recovery of the unpaid balance.
▪ Recto Law prevents mortgagee from seizing mortgaged property, buying it at foreclosure ▪ Seller sold to Buyer some tractors. Buyer failed to pay and Seller sued for collection of
sale for a low price and then bringing the suit against the mortgagor for a deficiency payment. Sheriff levied the tractors and sold them at a public auction. Seller now prayed
judgment. The almost invariable result was that the mortgagor found himself minus the for a writ of execution. Buyer opposed, claiming that seller is now barred from liability on
property and still owing practically the full amount of his original indebtedness. Magna the remaining balance. Correct? No. While it is true that foreclosure on the chattel
Financial Services Group v. Colarina mortgages bars further action for the recovery of the balance of the purchase price, the
Financing transactions derived or arising from a sale. The Recto law is applicable to rule does not apply since Seller did not foreclose on the mortgage but instead sued based
financing (i.e., loans) transactions derived or arising from sales of movables on installments, on the payment exclusively. That seller obtained a writ of execution against the mortgaged
even if the underlying contract at issue is a loan because the promissory note had been property pursuant to an action for specific performance, does not amount to a foreclosure
assigned or negotiated by the original seller. of the chattel mortgage covered by the Recto Law. Tajanglangit v. Southern Motors
▪ Art 1484 would apply to a person or entity which has financed the purchase on installments
of a motor vehicle, where the seller subsequently assigns the loan documents to the Remedy of Rescission
financing person or entity. Zayas, Jr. v Luneta Motor Co Vertical barring effect. When the seller has clearly indicated to end the contract, such as when
Contracts to sell movables not covered. When the contract governing the sale of movables he send a notice of rescission, or takes possession of the subject matter of the sale, or when he
is a contract to sell, then the rules on rescission and substantial breach are not applicable since files an action for rescission, he is barred from availing specific performance or foreclosure on
when the suspensive condition upon which the contract fails to materialize, it would extinguish the chattel mortgage.
the contract and, consequently, there is no contract to rescind. Visayas Sawmill v CA Horizontal barring effect. While not explicit in the law, it has been recognized that when the
Alternative and mutually exclusive. The remedies under Art 1484 are alternative, not seller takes possession of the subject property in rescission of the sale, the seller is barred from
cumulative, in that the exercise of one would bar the exercise of the others. recovering the balance of the price.
Barring effect: There are two levels of barring effects: vertical and horizontal. The vertical - Commentary: The complete barring effect for foreclosure of the CM which covers all
barring effect pertains to the choice of remedy (i.e. fulfillment, cancellation, or foreclosure) while unpaid claims is contrary to the nature of rescission, which allows the non-defaulting party
to recover damages, precisely to make him whole again.

57
Restitution. When a seller chooses the remedy of rescission, then generally he is under the “Barring” Effects of Foreclosure:
obligation to make restitution, which would include the return of any amount of the purchase ▪ Landmark case: ‘Any unpaid balance.’ Upon foreclosure of the CM, all amounts due from
price that the buyer may have paid. However, under Art 1486, a stipulation that the installments the sale, including damages and attorney’s fees, are all barred from recovery. Macondray
or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same & Co. v. Eustaquio
may not be unconscionable under the circumstances. ▪ Action of replevin in order to foreclose on the chattel mortgage does not produce the
▪ Surrender of mortgaged property is not necessarily equivalent to rescission. Vda. de barring effect under the Recto Law; for it is the fact of foreclosure and actual sale of the
Quiambao v. Manila Motors Co mortgaged chattel that bar further recovery by the seller of any balance on the buyer’s
▪ Buyer purchased a car on installment from Seller, who assigned its rights to Assignee. After outstanding obligation not satisfied by the sale. The voluntary payment of the installment
failure to pay, Assignee repossessed the car and demanded payment from Seller. Proper? by the buyer-mortgagor is valid and not recoverable in spite the restrictive provisions of
No. When Assignee opted to cancel the contract, it was barred from claiming the unpaid Art. 1484(3). Northern Motors v. Sapinoso
balance. Mutual restitution prevents recovering on the balance of the purchase price. - Lecture: The horizontal barring effect only comes into play when foreclosure sale
Nonato v. IAC happens – not for the preparatory actions and the filing of the petition for foreclosure.
- Note: The last sentence under Art 1484, “any stipulation to the contrary is void”, refers
Remedy of Foreclosure to a waiver of the barring effect.
Vertical barring effect. When the seller shall have chosen to foreclose on the mortgage ▪ A mortgage creditor who has elected to foreclose but who subsequently desist from
constituted on the subject matter of the sale, he can seek neither the remedies of specific proceeding with the auction sale, without gaining any advantage or benefit and, without
performance nor rescission. The reckoning point by which the seller is deemed to have chosen causing any disadvantage or harm, is not barred from suing on the unpaid account. There
the remedy of rescission is only at the time of the actual sale of the subject property at public is no reason why a mortgage creditor should be barred from accepting, before a
auction pursuant to the foreclosure proceedings commenced. foreclosure sale, payments made by the buyer. Id
Horizontal barring effect. It is the foreclosure sale of the chattel mortgage that shall bar ▪ To secure the purchase of the bus, Buyer first executed a CM on the bus then later executed
further recovery by the seller of any balance on the purchaser’s outstanding obligation not a REM in favor of Seller, who later assigned its rights to Assignee. Upon failure to pay,
satisfied by the sale; prior to that point in time, the seller has every right to receive payments assignee foreclosed on the CM, but since the proceeds were insufficient, it now sought to
on the unpaid balance of the price from the buyer. foreclose the REM. Proper? No. By choosing to foreclose on the CM, the Assignee is barred
▪ When the seller assigns his credit to another person, assignee is likewise bound by the from foreclosing on the REM. The word “action” under Art 1484 covers all types of legal
same law. Zayas v. Luneta Motors demand of one’s rights whether judicial or extrajudicial – thus, the barring effect applies to
▪ Barring effect would cover a third-party mortgage, when it was the chattel mortgage that extrajudicial foreclosure. Cruz v. Filipinas Investment & Finance Corp
was first foreclosed. In this case, the third-party mortgage was a separate mortgage on a ▪ The facts are similar to the previous case. The decision through obiter (because there was
different car and on franchise rights. Because the CM was foreclosed first, the Seller was not other security in this case), stated the following: “When the assignee forecloses on the
barred from foreclosing the other mortgage for the recovery of the unpaid balance. Ridad mortgage, there can be no further recovery of the deficiency and the seller-mortgagee is
v. Filipinas Investment deemed to have renounced any right thereto. A contrario, in the event that the seller-
▪ Buyer acquired financing from Bank for the purchase of a car on installments. Buyer failed mortgagee first seeks, instead, the enforcement of the additional mortgages, guarantees,
to pay and Bank filed for replevin. Buyer later updated the payment but the CM was already or security arrangements, he must then be held to have lost by waiver or non-choice his
foreclosed. Lower court then ordered the Bank to return the updated payment. Correct? lien on the CM x x x The creditor may not thereafter exercise any other option, unless the
No. A judicious perusal of the records would reveal that mortgagor-buyer never bought chosen alternative proves to be ineffectual or unavailing due to no fault on his part.”
the subject vehicle from financing company but from a third party, and merely sought Borbon II v. Servicewide Specialists
financing from mortgagee for its full purchase price. Consequently Art. 184 does not apply - Lecture. The statement made in Servicewide is not good. The law specifically states that
against financing company. The Bank can use the updated payment to reduce what is still the foreclosure that produces the barring effect is a foreclosure on the chattel
owed to it. Equitable Savings Bank v. Palces mortgage, not a foreclosure of the accompanying REM. The creditor ought to have the
choice to proceed in whatever manner he chooses, especially where several securities
are available. Fortunately, the statement made in the ruling is only obiter, at least for
now.

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 granted, and later on, for collection of the unpaid balance. Lessee contends that since
Exception: Rule on “Perverse Buyer seizure had already been effected, Lessor can no longer collect. Correct?
When a defaulting buyer-mortgagor refuses to surrender the chattel to the seller to allow the ▪ Held: Yes. The lease agreement over equipment is without an express option to purchase,
latter to be able to proceed with foreclosure, then the seller, even after actual foreclosure, but nevertheless when the final demand is given prior to suit, the demand letter indicates
should be allowed to recover expenses and attorney’s fees incurred in trying to obtain clearly it was within the option of the lessee to fully pay the balance of the unpaid rentals
possession of the chattel. and would be able to keep the equipment, then the real contract between the parties was
▪ Seller sought to foreclose the CM made by Buyer on the car. Buyer refused to give up the a sale of movable on installment disguised as a lease agreement. Being so, Art 1485 should
car willingly, which forced the Seller to file for replevin, thus incurring expenses. Seller now apply. In so choosing to deprive the lessee of the possession of the leased equipment,
prays for payment for the expenses incurred for the replevin but Buyer invokes the barring Lessor waived its right to bring an action to recover unpaid rentals on the said leased items.
effect of Art 1484. Who wins? Seller. Although court agrees [With the doctrine of
Macondray] it seems that mortgagees are not protected against perverse mortgagors.
Perverse mortgagors are those who deceitfully hide their mortgaged valuables, or upon REMEDIES IN CASE OF IMMOVABLES
default of payment, refuse to give up its possession for foreclosure. When the mortgagor
does these acts, the mortgagee has no choice but to institute a suit for replevin to recover
Anticipatory Breach
possession of the chattel and enforce his rights over such. It logically follows that the
Art. 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he
necessary expenses incurred by the mortgagee to regain possession of what he had a right
may immediately sue for the rescission of the sale.
to possess should be borne by the mortgagor. Such recoverable expenses include Should such ground not exist, the provisions of Article 1191 shall be observed.
attorney’s fees and expenses incurred in seizing the chattel. Filipinas Investment. v.
Ridad
Failure of buyer to pay price
Art 1485: Purported Lease with Option to Buy Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the
Application of Recto Law. Essentially, a lease with an option to buy functions similarly to a 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, as long as no demand for rescission of the contract has been made upon him either
sale on installments.
judicially or by a notarial act. After the demand, the court may not grant him a new term. (1504a)
Commentary: legal effect of repossession under such contract. A sale on movables on
installment, when structured as a lease with option to purchase, is equivalent to a security Remedy. The unpaid seller’s remedy in a sale of real property is either an action to collect the
arrangement whereby the subject movables are mortgaged by the buyer to the seller. balance or to rescind the contract within the time allowed by law. Mahusay v BS San Diego
Consequently, when the purported lessor takes possession of the subject movable, the same is Note: More on this in the next section.
treated legally as a foreclosure and the barring effect applicable to foreclosure remedy, not ▪ Buyer purchased two lots to be paid over 120 installments. Buyer was able to pay 95 of the
rescission is given application. Note, however, that not every deprivation of possession of the installments, but defaulted thereafter. Only after five years, when Buyer notified Seller of
lessee-buyer would produce the barring effect, such as when the main purpose of an action for his intention to build a house on the lot, did the latter send a letter stating that, as per
replevin was merely to ensure enforcement of the remedy of specific performance. stipulation, the contract was cancelled. Is Buyer allowed to complete payments? Yes. The
▪ Judicial notice has been taken of the practice of vendors of personal property of Court ruled based on equity but under Art 1592, failure of the seller to send a judicial
denominating a contract of sale on installment as one of lease to prevent the ownership of (through the filing of a case) or notarial demand will allow the buyer to exercise his right
the object of the sale from passing to the vendee until and unless the price is fully paid. to update payments to avoid default. Legarda v. Saldaña
Elisco Tool Manufacturing Corp. v. Court of Appeals

The provisions of the Recto Law will apply to a lease with the option to buy. PCI Leasing
and Finance v. Giraffe-X Creative Imaging
▪ Facts: Under the lease agreement, the Lessee had to pay the rentals of the equipment over
a period of 36 months. Upon default, the Lessor gave a formal pay-or-surrender-equipment
demand letter to Lessee. After Lessee still failed to pay, Lessor filed for replevin, which was

59
 problem in our country that has prompted thousands of middle and lower class buyers of
SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552). houses, lots and condominium units to enter into all sorts of contracts with private housing
Maceda Law developers involving installment schemes. Active Realty & Dev. Corp. Daroya
▪ Maceda Law recognizes in conditional sales of all kinds of real estate seller’s right to cancel
the contract upon non-payment of an installment by the buyer, which is simply an event
Provision breakdown: RA 6552 that prevents the obligation of the vendor to convey title from acquiring binding force.
Section 3: Two years of installment paid. In all transactions or contracts involving the sale or financing of real estate Pagtulunan v. Dela Cruz Vda. De Manzano
on installment payments, including residential condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act
▪ Having been adopted with the explicit objective of protecting buyers against what it
Numbered Sixty-three hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is recognizes to be disadvantageous and onerous conditions, the Maceda Law’s provisions
entitled to the following rights in case he defaults in the payment of succeeding installments: must be liberally construed in favor of buyers. Within the bounds of reason, fairness, and
First grace period: (a) To pay, without additional interest, the unpaid installments due within the total grace period justice, doubts in its interpretation must be resolved in a manner that will afford buyers the
earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments
made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract
fullest extent of its benefits. Orbe v. Filinvest Land, Inc
and its extensions, if any.
Cancellation of contract: (b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value Transactions Covered
of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of Residential real estate. The Maceda Law does not cover all sales of realty on installments, but
installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made:
Second grace period: Provided, That the actual cancellation of the contract shall take place after thirty days from
primarily residential real estate. It covers all transasctions or contracts involving the sale or
receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act financing of real estate on installment payments, including residential condominium
and upon full payment of the cash surrender value to the buyer. apartments. It also includes Contracts to Sell.
Downpayments. Down payments, deposits or options on the contract shall be included in the computation of the total Expressly excluded from coverage. Sales on installment involving: (1) industrial lots; (2)
number of installment payments made.
Section 4: Less than two years of installments paid. In case where less than two years of installments were paid,
commercial buildings and lots; and (3) sales to tenants under agrarian reform laws.
the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. Sale on installments. Follows the same rule as the Recto Law: at least two payments in the
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract future.
after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a ▪ Maceda Law makes no distinctions between “option” and “sale” which under P.D. 957 also
notarial act.
includes “an exchange or attempt to sell, an option of sale or purchase, a solicitation of a
Provision breakdown: Other rights granted to buyer sale or an offer to sell directly,” and the all-embracing definition virtually includes all
Section 5: Assignment. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to transactions concerning land and housing acquisition, including reservation agreements.
another person or to reinstate the contract by updating the account during the grace period and before actual cancellation Realty Exchange Venture Corp. v. Sendino
of the contract. The deed of sale or assignment shall be done by notarial act. ▪ Maceda Law has no application to protect the developer or one who succeeds the
Section 6: Advance payments. 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
developer. Lagandaon v. Court of Appeals
the certificate of title covering the property. ▪ Maceda Law finds no application to a contract to sell where the suspensive condition has
Section 7: Contrary stipulations void. Any stipulation in any contract hereafter entered into contrary to the provisions not been fulfilled, because said Law presuppose the existence of a valid and effective
of Sections 3, 4, 5 and 6, shall be null and void. contract to sell a condominium. Mortel v. KASSCO Inc
▪ “The contract for the purchase of a piece of land on installment basis is not only lawful; it ▪ It has no application to the sale of large tracts of land (69,028 square meters) which do not
is also of widespread usage or custom in our economic system. . . . If [buyer] eventually constitute residential real estate within the contemplation of the Maceda Law. Garcia v.
found the interest stipulation in the contract financially disadvantageous to him, he cannot Court of Appeals
now turn to this Court for succor without impairing the constitutional right to the obligation ▪ Maceda Law does not cover a loan extended by the employer to enable its employee to
of contracts. This Court will not relieve petitioner of the necessary consequences of his free finance the purchase of a house and lot. The law protects only a buyer acquiring the
and voluntary, and otherwise lawful, act.” Bortikey v. AFP - RSBS property by installment, not a borrower whose rights are governed by the terms of the loan
Purpose from the employer Spouses Sebastian v. BPI Family Bank
▪ Maceda Law’s declared policy is to protect buyers of real estate on installment basis against
onerous and oppressive conditions, and seeks to address the acute housing shortage

60
 ▪ Facts: Under a compromise agreement, if Buyer fails to pay, Seller is entitled to a writ of
CANCELLATION OF CONTRACT
execution to rescind the contract of conditional sale and all prior installments will be
Villdara, Jr. v. Zabala
forfeited. Buyer failed to pay. Seller filed a motion for writ of execution. 10 days after the
The cancellation of the contract under the Maceda Law must follow the following steps:
filing of the motion, the Buyer tendered full payment. Allowed? Yes.
1. First grace period. Seller should extend the buyer a grace period of at least 60 days
▪ Filing of case, a notice. When the amount of installments paid are less than two years, the
from the due date of the installments.
Buyer is given a grace period of not less than 60 days from the date the installment became
2. Notice requirement. At end of grace period, seller shall furnish buyer with a notarial
due. If the buyer fails to pay the installments due at the expiration of the grace period, the
notice of cancellation or demand for rescission, effective 30 days from buyer’s receipt.
seller may cancel the contract after thirty days from the receipt by the buyer of the notice
3. Tender of cash surrender value. For contracts covering more than two years of
of the cancellation or demand for rescission of the contract by a notarial act. Considering
payments, there must be return to the buyer of the cash surrender value.
that Seller’s motion for execution as a notice of cancellation, Seller could cancel the contract
after 30 days from the receipt by Buyer of said motion.
▪ Tender of payment and consignation. Buyer’s tender of the payment was well within the
▪ Until and unless seller complies with these mandatory requirements, contract to sell
30-day period granted by law. His tender of a certified manager’s check was a valid tender.
remains valid and subsisting. Communities Cagayan v. Nanol
However, although Buyer made a valid tender of payment which preserved his rights as
vendee, he did not follow it with a consignation or deposit of the sum with the court. When
Formula to Determine Years of Installments:
Seller refused to accept payment, it was incumbent on Buyer to deposit the same with the
Multiple issue case. Orbe v. Filininvest Land, Inc
court in order to be released from responsibility.
▪ Facts: Buyer purchased land on installments. She only paid P600k, when the amount due
Multiple issues case. Danan v. Serrano
was P2.6M. When she defaulted, Seller sent a Notice of Cancellation, accompanied by a
▪ Facts: The Agreement was in fact a contract to sell. The Seller filed an ejectment case against
jurat. The lot was later sold to a third-party. Buyer sued for refund under Section 3 of the
the Buyer. Buyer countered by praying for specific performance.
Maceda Law.
▪ Application of Maceda Law to Conditional sales. The provisions of RA 6552 must be
▪ Installments. In a sale by installment, a buyer defers full payment of the purchase price
taken into account insofar as the rights of the parties in cases of default are concerned. In
and ratably apportions payment across a period. It is typified by regular, fractional
conditional sales of kinds of real estate (industrial, commercial, and residential), RA 6552
payments known as installments.
not only recognizes the right of the seller to cancel the contract upon non-payment of an
▪ Computation. To fall under Section 3 of the Maceda law, the buyer must have paid at least
installment by buyer but also provides the rights of the buyer in case of such cancellation.
two years worth of installments. This refers to both time and value. The total number of
▪ Notice requirement. There is no showing that Seller complied with the requirements. After
installment payments made must include the downpayment, deposits, and options on the
entering into the sale under the Agreement, the Seller later filed their complaint for
contract, while the estimation of the two-year requirement meant 24 months of monthly
unlawful detainer as well as a notice to vacate – none of which constitute the required
amortizations. Since her payments fell short of the required number of payments, she
‘notice of cancellation or demand for rescission by notarial act’. In fact, nowhere in the said
cannot refund under Section 3.
documents was the sale or its rescission ever made.
- Maths: Total amount of installments paid (including downpayment, etc.) must be
- Lecture: A notarial demand for payment of price cannot demand for both payment or
equal or greater than 24-months’ worth of monthly payment.
rescission – “either you pay or I rescind” is not allowed. Notice that the filing of the
▪ Notice requirement. With respect to notices of cancellation or demands for rescission by
case in McLaughlin was allowed while in Danan, it was disallowed. It appears that for
notarial act, an acknowledgement is imperative. A simple jurat will not suffice.
the filing of a case to be considered as notice, the motion or action must be akin to a
- Lecture: The Maceda Law does not necessarily require an acknowledgement – a jurat
cancellation of a contract (e.g. replevin).
should suffice. But to be safe, use an acknowledgement for a notice of cancellation to
be valid.
▪ Additional formality of a demand on [the seller’s] part for rescission by notarial act would
appear, in the premises, to be merely circuitous and consequently superfluous” since the
Notice requirement:
seller therein filed an action for annulment of contract, which is a kindred concept of
Multiple issues case. McLaughlin v. CA
rescission by notarial act. Layug v. IAC

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▪ Decision rendered in an ejectment case operates as the required notice of cancellation ▪ Seller cannot recover ownership until and unless the contract itself is resolved and set aside;
under the Maceda Law; but as buyer was not given the cash surrender value, there was still a party who fails to invoke judicially or by notarial act the resolution of a sale would be
no actual cancellation of the contract. Leaño v. CA prevented from blockingits consummation in light of the precept that mere failure to fulfill
▪ Formal letter demand upon buyer to vacate the premises is not the same as the notice of the contract does not operate ipso facto as rescission. Platinum Plans Phil. v. Cucueco
cancellation or demand for rescission by a notarial act required by R.A. No. 6552. Evidently, ▪ For Art. 1592 to apply, the following requisites must be present: (1) a contract of sale of an
the case of unlawful detainer filed by petitioner does not exempt him from complying with immovable property and (2) a stipulation in the contract that failure to pay the price at the
the said requirement. Pagtulunan v. Dela Cruz Vda. De Manzano time agreed upon will cause the rescission of the contract. Buyer can still pay even after the
▪ Where buyers under a contract to sell offers to pay the last installment a year and a half time agreed upon, if the agreement between the parties has these requisites. This right of
after the stipulated date, that was beyond the sixty-day grace period under Section 4 of buyer to pay ceases when seller demands rescission judicially or extrajudicially (which must
the Maceda Law. The buyers cannot use the second sentence of Section 4 of the Maceda be notarized). Cabrera v. Ysaac
Law against the sellers’ alleged failure to give an effective notice of cancellation or demand
for rescission because the sellers merely sent the notice to the address supplied by the
buyers in the Contract to Sell. Garcia v. CA REMEDIES OF THE BUYER
▪ Under the Maceda Law, the right of the buyer to refund accrues only when he has paid at
least two years of installments. Manuel Uy & Sons v. Valbueco, Inc
1. Provision breakdown: In the Case of Movables (Arts. 1598-1599)
Rescission on sales of non-residential immovables on installments
Art. 1598: Failure to deliver goods – specific performance. Where the seller has broken a contract to deliver specific
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically,
comply with what is incumbent upon him. without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become deem just.
impossible. Art. 1599: Breach of warranty. Where there is a breach of warranty by the seller, the buyer may, at his election:
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance or extinction of the price;
with Articles 1385 and 1388 and the Mortgage Law. (1124) (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty;
Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty;
price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them
the expiration of the period, as long as no demand for rescission of the contract has been made upon him either or offer to return them to the seller and recover the price or any part thereof which has been paid.
judicially or by a notarial act. After the demand, the court may not grant him a new term. (1504a) Alternate remedies. When the buyer has claimed and been granted a remedy in anyone of these ways, no other
remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of Article 1191.
Acceptance and return of defective goods. Where the goods have been delivered to the buyer, he cannot rescind
the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the
▪ Articles 1191 and 1592 on rescission cannot apply to a contract to sell since “there can be
seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the
no rescission of an obligation that is still non-existent, the suspensive condition not having seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if
happened.” Valarao v. CA deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the
▪ Article 1191 providing for rescission cannot be applied to sales of real property on buyer from returning or offering to return the goods to the seller and rescinding the sale.
Restitution. Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price
installments since they are governed by the Maceda Law. Bonrostro v. Luna
upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be
▪ Automatic rescission clauses are not valid nor can they be given legal effect under Articles liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an
1191 and 1592. Iringan v. Court of Appeals. offer to return the goods in exchange for repayment of the price.
▪ Indeed, rescission requires under the law a positive act of choice on the party of the non- Bailee. Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the
buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to
defaulting party. Olympia Housing v. Panasiatic Travel Corp
a lien to secure payment of any portion of the price which has been paid, and with the remedies for the enforcement
▪ Art. 1592 allows the buyer of an immovable to pay as long as no demand for rescission has of such lien allowed to an unpaid seller by Article 1526.
been made; consignation of the balance of the purchase price before the trial court
operates as full payment. Province of Cebu v. Heirs of Rufina Morales

62
 Value of breach of warranty. (5) In the case of breach of warranty of quality, such loss, in the absence of special ▪ Notice requirement. In exercising the option, buyer required only to give due notice to
circumstances showing proximate damage of a greater amount, is the difference between the value of the goods at the
owner/developer of buyer’s intention to suspend payment. Zamora Realty v. OP
time of delivery to the buyer and the value they would have had if they had answered to the warranty.
▪ It is not required that a notice be given first by buyer to seller before a demand for refund
2. Provision breakdown: In the Case of Immovables (Arts. 1191; Secs. 23 and 24, P.D. 957) can be made as the notice and demand can be made in the same letter or communication.
Casa Filipinas Realty Corp v. OP
Art. 1191: Rescission in general. The power to rescind obligations is implied in reciprocal ones, in case one of the ▪ Even with a mortgage over the lot, seller still bound to redeem said mortgage without any
obligors should not comply with what is incumbent upon him.
cost to buyer apart from the balance of the purchase price and registration fees—
Generally alternative but – The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter subdivision developers have are obliged to deliver the corresponding clean certificates of
should become impossible. title of the subdivision lots where the purchase price of which have been paid in full by the
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. buyers. Cantemprate v. CRS Realty Dev. Corp
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
▪ Suspension of payment: re contract to sell. Buyers would be justified in suspending
Articles 1385 and 1388 and the Mortgage Law. (1124)
payments, when developer-seller fails to give a copy of the Contract to Sell despite
repeated demands, Gold Loop Properties v. CA; or when they failed to provide for the
Sales of Subdivision Lots and Condominium Units (P.D. 957)
amenities mandated under their development plan, Fedman Dev. Corp. v. Agcaoili
Purpose. P.D.957 was issued in the wake of numerous reports that many real estate subdivision
▪ When Reservation Agreement provides that buyer is entitled to a Contract to Sell only upon
owners, developers, operators and/or sellers have reneged on their representations and
payment of at least 30% of price, non-happening yet of that condition does not render
obligations to provide and maintain properly subdivision roads, drainage, sewerage, water
seller in default as to warrant buyer the right to rescind sale and demand refund. G.G.
systems, lighting systems and other basic requirements or the health and safety of home and
Sportwear Mfg. Corp. v. World Class Properties
lot buyers. Casa Filipinas Realty Corp. v. Office of the President
▪ Cause of action: failure to meet development plan. Buyer’s cause of action against the
▪ It is the intent of P.D. 957 to protect the buyer against unscrupulous developers, operators
developer for failure to develop ripens only when the developer fails to complete the
and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose,
project on the lapse of the completion period stated on the sale contract or the developer’s
equity and justice dictate that the injured party should be afforded full recompensed and
Licenses to Sell. Any premature demand prior to the indicated completion date would be
as such, be allowed to recover the prevailing market value of the undelivered lot which had
premature. G.G. Sportwear Mfg. Corp. v. World Class Properties
been fully paid for. Gotesco Properties v. Fajardo
▪ Retroactive application of P.D. No. 957 to transactions entered into prior to its enactment
Registration of contract to sell. One of the protections afforded by P.D. 957 to buyers is the
in 1976 is already settled. Eugenio v. Exec. Sec. Drilon; Rotario v. Alcantara
right to have the Contract to Sell registered with the Register of Deeds to bind third parties,
▪ “Buyer” under P.D. 957 includes one who acquires for a valuable consideration a
THUS:
condominium unit by way of assignment by project owner in payment of its indebtedness
▪ Nothing in P.D. 957 provides for the nullification of a contract to sell if seller, at the time
for contractor’s fee. AMA Computer College v. Factora
perfection, did not possess a certificate of registration or a license to sell, sale being a
▪ Section 20 of P.D. 957 directs every developer of real property to provide the necessary
consensual contract. Co Chien v. Sta. Lucia Realty
facilities, improvements, infrastructure and other forms of development, failure to carry out
▪ Buyer’s dissatisfaction under a Contract of Sale as to the completion date of the project
which is sufficient cause for the buyer to suspend payment, and any sums of money already
does not constitute substantial breach to allow rescission and ask for refund. G.G. Sportwear
paid shall not be forfeited. Tamayo v. Huang
Mfg. Corp. v. World Class Properties
▪ Despite non-registration of Contracts to Sell, foreclosing mortgagee-bank cannot be
In case the developer fails in its obligation under Section 20, the Sec. 23 provides:
considered an innocent purchaser for value of the subdivision lots which it accepted as
▪ Reimbursement. Buyer has the option to demand reimbursement of the total amount
payment for mortgagor’s obligation—bank was well aware that the assigned properties
paid, or to wait for further development of the subdivision; if buyer opts for the latter, he
Cantemplate v. CRS Realty Dev. Corp; Moldex Realty v. Saberon; were subdivision lots and
may suspend payment of the installments until such time that the owner or developer has
therefore within the purview of P.D. 957. Luzon Dev. Bank v. Enriquez
fulfilled its obligations. Tamayo v. Huang
▪ Buyer has option. Option granted by law is with buyer and not the developer/seller.
Relucio v. Brillante- Garfin

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Transfer of certificate of title. Sec. 25 of P.D. 957 imposes on the subdivision owner or
developer the obligation to cause the transfer of the corresponding certificate of title to the
buyer upon full payment. Gotesco Properties v. Fajardo
▪ Since the lots are involved in litigation and there is a notice of lis pendens at the back of
the titles involved, the subdivision developer have to be given a reasonable period of time
to work on the adverse claims and deliver clean titles to the buyer, and should the former
fail to deliver clean titles at the end of the period, it ought to reimburse the buyers not only
for the purchase price of the subdivision lots sold to them but also the incremental value
arising from the appreciation of the lots. Cantemprate v. CRS Realty Dev. Corp

Lack of license. Developer’s lack of Certificate of Registration or License to Sell merely subjects
it to administrative sanctions, but do not render the sales entered into on the project null and
void. G.G. Sportswear Mfg. Corp. v. World Class Properties

3. Suspension of Payment (Art. 1590)

Art. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend
the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such
contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the
suspension of the payment of the price. (1502a)

▪ Pendency of suit over the subject matter of sale justifies buyer in suspending payment of
the balance of the purchase price by reason of aforesaid vindicatory action filed against it.
The assurance made by the seller that the buyer did not have to worry about the case
because it was pure and simple harassment is not the kind of guaranty contemplated under
Article 1590 wherein the buyer is bound to make payment if the seller should give a security
for the return of the price. Adelfa Properties v. Court of Appeals

64
 land where the operative act of sale is registration of the deed of sale. Adelfa
Properties v CA; Babasa v CA
Remedies in Sale of Immovables
But see contra rulings in Dignos v CA and Portic v Cristobal, which held that registration
does not vest title with the seller until full payment of the purchase price.
Note: The Recap of the Rulings is taken from pages 444-451 of the book. References in this 2. Stipulation on execution of deed of sale
format are assigned cases. Following the Recap is a tabular form of the Recap but distinguishing When there is a stipulation or promise that the seller shall execute a deed of absolute
the rules on Contracts of Sale and Contracts to Sell. Lastly, lecture notes for this section from sale upon completion of payment of the purchase price by the buyer, the agreement
the class of TVT. What follows is the syllabus order of the topics. The cases are discussed in the is a contract to sell, because it would be equivalent to reservation of title clause. Roque
order followed in the syllabus. v Lapuz; Lacanilao v CA; Padilla v Sps Paredes; Rayos v CA; Cruz v Fernando
Contra: Where is a stipulation or promise that the seller shall execute a final deed of
RECAP OF THE RULINGS absolute sale in favor of the buyer upon payment of the balance of the purchase price,
the contract would still not be a contract to sell, where nowhere in the contract in
question is a proviso or stipulation to the effect that title to the property sold is
A. At Perfection reserved in the seller until full payment of the purchase price, nor is there a stipulation
giving the seller the right to unilaterally rescind the contract the moment the buyer
1. Requisite contractual stipulations – In a Contract to Sell, there must be a stipulation fails to pay within a fixed period. Dignos v CA
that:
3. Stipulation on the payment of price.
(a) Full payment of the purchase price by the buyer constitutes a suspensive condition on In a contract to sell, payment of the price is a suspensive condition, failure of which is
the obligation of the seller to sell and transfer ownership of the subject matter. Heirs not a breach, casual or serious, but an event that prevents the obligation of the seller
of San Andres v Rodriguez to convey title from acquiring obligatory force. Salazar v Ca; Lacanilao v CA; Rillo v CA;
Contra: What really defines a contract to sell is the express stipulation that the Ong v CA; Blas v Angeles-Hutalla; Cruz v Fernando
effectivity or demandability of the contract is subject to the happening of a suspensive Contra: if there has been substantial compliance with the obligation to pay the price,
condition (usually full payment of the price), as distinguished from a situation where then cancellation cannot be effected, for unilateral rescission will not be judicially
the suspensive condition modifies not the contract itself but rather only the obligation favored or allowed if the breach is not substantial and fundamental to the fulfillment
of the seller to sell and deliver the subject matter, in which case it is a conditional of the obligation. Sps Benito v Saquitan-Ruiz; Heirs of Jesus Mascuna v CA
contract of sale. Coronel v CA; Heirs of Pedro Escanlar v CA
B. During Consummation Stage
(b) Accompanied by stipulations or agreements that: 1. Legal effect of delivery made.
(i) Ownership of the subject matter shall remain with the seller until full payment In a contract of sale, the title to the property passes to the buyer upon the deliver of
of the price; AND the thing sold. In a contract to sell, the ownership is, by agreement, reserved in the
(ii) Specific right is granted to the seller to extrajudicially rescind or cancel the seller and is not to pass to the buyer until payment of the purchase price. Salazar v CA;
contract in case of default. Valdez v CA; Blas v Angeles-Hutalla Chua v CA; Vidal Sr v Tayamen; Hulst v PR Builder; Castillo v Reyes
The lack of stipulation expressly reserving the title to seller in spite of delivery of the 2. Legal effect of full payment of price.
subject matter to the buyer would not constitute the transaction into a contract of sale. In a contract to sell, full payment of the price constitutes the happening of the
The lack of stipulation allowing the seller to rescind the contract in the event the buyer condition which would convert it into an executory contract of sale. PNB v CA
fails to comply with his obligation to pay the purchase price clearly prevents the (a) If delivery of the subject matter had previously been made, then ownership is
contract from being classified as contract to sell. Coronel v CA transferred ipso jure to the buyer. Leano v CA; Carrascoso, Jr v CA
Contra: even in the absence of such stipulations, the contract would still be considered (b) If delivery of the subject matter has not been made, then it allows the buyer to
a contract to sell, because of the absence of deeds of conveyance covering registered demand for specific performance. David v Tiongson

65
 Contra: There is still no perfected or executory contract of sale; it merely gives rise to (d) In a contract of sale and conditional contract of sale, rescission may be pursued with
an action to enforce the obligation of the seller to enter into a contract of sale; there is forfeiture of the amounts paid when that has been expressly provided for.
no transfer of ownership to buyer even when delivery was previously made; and much Whereas, in a contract to sell, it becomes imperative that the amounts paid must be
less can there be demand to deliver the subject matter when no contract of sale has returned and there would be no basis upon which to retain them since there was no
been executed. Coronel v CA; Abesamis v CA; Hulst v PR Builders breach upon which a claim of damage may be interposed. Manila Racing Club v Manila
Jockey Club; Luzon Brokerage Co v Maritime Building Co
3. Legal effect of non-payment of price
(a) In a contract of sale, the non-payment of the purchase price is a breach, and when Contra:
substantial in nature, would allow the seller to rescind the sale. (i) Based on equity principles, the doctrine of substantial breach to allow
(b) In a contract to sell, where ownership is retained by the seller until payment of the price rescission and court discretion under Article 1191 have been made to apply to
in full, such payment is a positive suspensive condition, failure of which is not really a contracts to sell involving residential immovables. JM Tuazon Co v Javier;
breach but an event that prevents the obligation of the vendor to convey title in Legarda Hermanos v Saldana; Siska Dev Corp v OP
accordance with Article 1184 of the Civil Code. Lacanilao v CA; Odyssey Park v CA; Vidal
But see contrary ruling in Lacanilao v CA
Sr v Tayamen; Hulst v PR Builders
(ii) Even when the suspensive condition has not happened, which would
Contra:
extinguish thereby the contract to sell, nevertheless, such extinguishment can
(i) Even when the basis for the breach of the condition is present, a notice of
only have legal effect if notice of cancellation is given to the buyer. UP v De
rescission or cancellation must be made on buyer to effect the extinguishment
Los Angeles; Palay Inc v Clave; Siska Dev Corp v OP
of the contract to sell. UP v De Los Angeles; Palay Inc v Clave; Jison v CA;
Siska Dev Corp v OP; Ocampo v CA; Benito v Saquitan-Ruiz But see contrary ruling in Torralba v De Los Angeles
(ii) In residential real estate, where the non-payment of the purchase price 2. Laws applicable
constitute merely a casual breach, it would not extinguish the contract to sell, In a contract of sale, the applicable rules are found in Article 1191 and 1592 providing
and the courts may extend equity rights to the buyer. for the remedy of rescission, but when there is a suspensive condition, Article 1545
C. Remedies available allows the seller to choose between rescission or waiving the condition;
1. When condition on price payment not fulfilled. Whereas, in contract to sell, the remedies of rescission being incompatible thereto, the
(a) In a contract of sale, if seller had delivered the subject matter previously without applicable rules are found in Articles 1184 and 1545. The issue of whether breach was
reserving title, it would mean that ownership has been transferred to the buyer, and causal or serious under Article 1191 is completely irrelevant in a contract to sell. [Note:
seller cannot recover ownership until and unless the contract is resolved or rescinded there’s a bunch of references here but no assigned cases]
by court action.
Contra: There have been several instances when Article 1191 was made to apply to a
Whereas in a contract to sell, since ownership was retained by the seller by express
contract to sell involving residential real estate, with application of the doctrine of
reservation until full payment of the price, and the contract is extinguished, then no
substantial breach.
action is necessary other than recovery of possession in case buyer refuses to
voluntarily deliver. Caridad Estates v Santero; Manuel v Rodriguez; Salazar v CA; But the requirements of the Maceda law on grace period, cash surrender value, and
Pangilinan v CA; Vidal Sr v Tayamen; Hulst v PR Builders prescribed manner of notarial rescission or cancellation must always apply, whether it
(b) In a conditional contract of sale, the non-happening of the condition may be waived is a contract of sale or contract to sell, involving installment sales of residential real
by the obligee who may still seek specific performance. estate and residential condominium unit.
Whereas, in a contract to sell, the non-happening of the condition prevents the
contract from coming into existence (i.e. extinguishes the contract) and consequently
neither rescission or specific performance may be pursued. Romero v CA; Lim v CA
(c) In a conditional contract of sale, the basis of rescission must be substantial breach
Whereas, in a contract to sell, the issue of breach is completely irrelevant. Luzon
Brokerage v Martime Building Co

66
 RECAP OF RULINGS: CONTRACT OF SALE V CONTRACT TO SELL it becomes imperative that the amounts paid must be
returned and there would be no basis upon which to
retain them since there was no breach upon which a
Note: All the jurisprudence A. At Perfection are applicable to Contracts to Sell. claim of damage may be interposed.
CONTRACT OF SALE CONTRACT TO SELL In a contract of sale and conditional contract Contra ruling: Based on equity principles, the doctrine
DURING CONSUMMATION of sale, rescission may be pursued with of substantial breach to allow rescission and court
forfeiture of the amounts paid when that has discretion under Article 1191 have been made to apply
Legal effect of delivery made. to contracts to sell involving residential immovables.
the ownership is, by agreement, reserved in the seller been expressly provided for.
the title to the property passes to the buyer Even when the suspensive condition has not happened,
and is not to pass to the buyer until payment of the which would extinguish thereby the contract to sell,
upon the deliver of the thing sold. purchase price. nevertheless, such extinguishment can only have legal
Legal effect of non-payment of price effect if notice of cancellation is given to the buyer.
where ownership is retained by the seller until payment Laws applicable
of the price in full, such payment is a positive suspensive
condition, failure of which is not really a breach but an
the remedies of rescission being
event that prevents the obligation of the vendor to incompatible thereto, the applicable rules
convey title in accordance with Article 1184 of the Civil are found in Articles 1184 and 1545. The
Code. the applicable rules are found in Article
issue of whether breach was causal or
the non-payment of the purchase price is a Contra ruling: 1191 and 1592 providing for the remedy of
serious under Article 1191 is completely
breach, and when substantial in nature, Even when the basis for the breach of the condition is rescission, but when there is a suspensive
present, a notice of rescission or cancellation must be irrelevant in a contract to sell.
would allow the seller to rescind the sale. condition, Article 1545 allows the seller to
made on buyer to effect the extinguishment of the Contra: There have been several instances
contract to sell. choose between rescission or waiving the
when Article 1191 was made to apply to a
In residential real estate, where the non-payment of the condition;
purchase price constitute merely a casual breach, it
contract to sell involving residential real
would not extinguish the contract to sell, and the courts estate, with application of the doctrine of
may extend equity rights to the buyer. substantial breach.
REMEDIES AVAILABLE Maceda Law: But the requirements of the Maceda law on grace period, cash surrender value,
When condition on price payment not fulfilled: and prescribed manner of notarial rescission or cancellation must always apply, whether it is
a. Previous delivery a contract of sale or contract to sell, involving installment sales of residential real estate and
if seller had delivered the subject matter since ownership was retained by the seller residential condominium unit.
previously without reserving title, it would by express reservation until full payment of
mean that ownership has been transferred the price, and the contract is extinguished, LECTURE NOTES
to the buyer, and seller cannot recover then no action is necessary other than Comment: Take with a grain of salt. Was typing this section during the lecture and ambilis
ownership until and unless the contract is recovery of possession in case buyer refuses magsalita ni Mah-dam!
resolved or rescinded by court action. to voluntarily deliver.
b. Non-happening of condition Difference between rescission under 1191 and 1592.
the non-happening of the condition 1191 - more appropriately called resolution of contracts, applied to all reciprocal contracts.
In a conditional contract of sale, the non-
prevents the contract from coming into 1592 - under contracts of sale does not consider substantial breach.
happening of the condition may be waived
existence (i.e. extinguishes the contract) and
by the obligee who may still seek specific
consequently neither rescission or specific Rescission
performance.
performance may be pursued. Note: Know how to apply the different kinds of rescission
c. Substantial breach General rule: Power to rescind - judicial in nature (general rule)
the basis of rescission must be substantial the issue of breach is completely irrelevant. Recent jurisprudence. Everyone now has the right to extrajudicially rescind the contract even
breach if not indicated in the contract.
d. Resolution

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There must be: Mutual restitution. Exception is forfeiture. Only applicable if there is a Contract to sell - substantial breach not needed. Cancellation. For rescission to happen, there
stipulation to that effect under the contract. If the rescission is the fault of the buyer, then prior must be notice of the buyer.
payments can be rescinded. Equity jurisdiction applied in case of contract to sell. The proper remedy must be damages and
Court intervention. The courts have the right to temper this amount. Damages afforded to demand to return payment.
everyone
All kinds of rescission - there must notice to other party Transfer of ownership and delivery
Post lecture question: Does filing an action similar to rescission serve as a notice? Yes, Mah- in a conditional contract of sale, it is automatic without any action on the side of the seller. In
dam! thinks so. a contract to sell, there must still be some action on the part of the seller - usually to execute
the deed of sale.
Contract of sale v Contract to sell
Note: There will be a major question with regard to Contract of Sale v Contract to Sell
NATURE OF REMEDY OF RESOLUTION
Contract of sale v Contract to sell - Difference between the remedies afforded to the parties.
See Recap and table.
Contract to sell - inferior kind of contract of sale.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
Contract to sell The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
Twin requirement: (a) reservation of title until full payment of price; and (b) stipulation that damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
allows seller to unilaterally rescind.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
Presence of deed of sale. If there is no indication that there is a deed of sale, then it’s a contract This is understood to be without prejudice to the rights of third persons who have acquired the thing, in
to sell. accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
On conflicting jurisprudence. You can use all doctrines. Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor
if the promise is supported by a consideration distinct from the price. (1451a)
Critical juncture: Where is the condition imposed? Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the
Contract to sell - the condition is used on the perfection of the contract of sale. price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after
Conditional contract of sale - if the condition is imposed on the obligation on one of the parties, the expiration of the period, as long as no demand for rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court may not grant him a new term. (1504a)
then it is a contract of sale.
Post lecture question: It seems that the condition imposed on the perfection of the contract
is the best evidence of a contract to sell. May a contract to sell validly stipulate the condition Distinguishing from Other Remedy of Rescission.
not to be full payment but substantial compliance or whatever? Yes. Example given by Mah- Rescission in rescissible contracts. Rescission in rescissible contracts are not contemplated
dam!: I will sell the property to you if you pass the bar. Aasahan ko to maam. under this section. Such kind of rescission pertains to situations where economic damage or
Know how to differentiate: lesion is the main basis for allowing rescission of otherwise valid contracts. The rescission
Option to purchase or lease with option to buy - contract to sell or option contract. Review therein is subsidiary in nature and can only be instituted as a last resort.
option contract. Rescission in Art 1191. The proper term for this kind of rescission is “Resolution”. The remedy
is principal in nature and the legal premise is substantial breach of contract.
Remedies: Rescission in Art 1592. This kind of rescission has been construed to apply to all sales of
Contract of sale - specific performance applicable immovables even where there is no stipulation on automatic rescission, because of the ‘even
Contract to sell -specific performance not applicable - but the Court has sometimes decided though’.
that it can be allowed - these are stray rulings. Prescription. Prescription for Art 1191 and Art 1592 is found in Art 1144, which provides that
- Note: We can use all doctrines. an action upon a written contract should be brought within 10 years from the cause of the right
Contract of sale - rescission or specific performance. of action.

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Nature of rescission (resolution). To rescind is to declare a contract void in its inception and ▪ When a party asks for the resolution or cancellation of a contract it is implied that he
to put an end to it as though it never were. It is not merely to terminate it and release parties recognizes it existence – a non-existent contract cannot be cancelled. Pan Pacific Industrial
from further obligations to each other but to abrogate it from the beginning and restore parties Sales Co. v. Court of Appeals
to relative positions which they would have occupied had no contract ever been made. ▪ Action for Rescission Not Similar to Action for Reconveyance: In sale of real property, seller
▪ The rescission on account of breach of stipulations is not predicated on injury to economic is not precluded from going to the court to demand judicial rescission in lieu of a notarial
interests of the party plaintiff but on the breach of faith by the defendant that violates the act of rescission. But such action is different from an action for reconveyance of possession
reciprocity between the parties. Universal Food Corp. v. Court of Appeals on the thesis of a prior rescission of the contract covering the property. The effects that
▪ While Art. 1191 uses the term “rescission,” the original term which was used in the old Civil flow from an affirmative judgment in either case would be materially dissimilar in that: (a)
Code was “resolution.” Resolution is a principal action which is based on breach of a party, judicial resolution gives rise to mutual restitution which is not necessarily the situation in
while rescission under Art. 1383 is a subsidiary action limited to cases of rescission for lesion an action for reconveyance; (b) unlike in an action for reconveyance predicated on an
under Art. 1381. Ong v. Court of Appeals extrajudicial rescission (rescission by notarial act), in an action for rescission, the court may
▪ Outside of sales that have been entered into in fraud of creditors, the general rule for authorize for a just cause the fixing of a period. Olympia Housing v. Panasiatic Travel Corp
ordinary contracts of sale is that the seller’s creditors do not have such material interest as
to allow them to sue for rescission of a sale – theirs is only a personal right to receive Power to Rescind Generally Judicial in Nature
payment for the loan, not a real right over the property subject of the deed of sale. Adorable Judicial in nature. No man may, even one with a valid and lawful cause of action, take the law
v. CA into his own hands and must resort to the aid of the courts to enforce his rights.
▪ To rescind is to declare a contract void at its inception and to put an end to it as though it ▪ A seller cannot extrajudicially rescind a contract of sale where there is no express stipulation
never was. It is not merely to terminate it and release the parties from further obligations authorizing it. Unilateral rescission will not be judicially favored or allowed if the breach is
to each other, but to abrogate it from the beginning and restore the parties to their relative not substantial and fundamental to the fulfillment of the obligation. Benito v. Saquitan-Ruiz
positions as if no contract has been made. Velarde v. Court of Appeals ▪ nonetheless, the law does not prohibit the parties from entering into agreement that
violation of the terms of the contract would cause cancellation thereof, even without court
Remedy of Rescission (Resolution) Is Inherent in the Reciprocity of Sale intervention. Froilan v. Pan Oriental Shipping Co
True contract of sale. In a true contract of sale, a provision granting the non-defaulting party But – Where contracts provide for automatic revocation, judicial intervention is not for
a right to rescind would be superfluous because such remedy is inherent for all reciprocal purposes of obtaining a judicial declaration rescinding the contract but necessary in order to
contracts under Art 1191. An effective stipulation would be to allow the non-defaulting party determine whether or not rescission was proper, that is, whether the breach was substantial
to extrajudicially rescind the contract for the power to rescind generally is judicial in nature. and fundamental to the obligation. If the extrajudicial rescission is found to be improper, the
▪ Rescission under Art. 1191 is predicated on a breach of faith by the other party who violates party who invoked rescission may be held liable for damages.
the reciprocity between them—breach contemplated is obligor’s failure to comply with an Reprieve. Under Art 1191, in case there is just cause, the courts may fix the period for which
existing obligation. When obligee seeks rescission, in the absence of any just cause for the injuring party may comply with their obligation. This is not available in rescission under Art
courts to determine the period of compliance, they shall decree the rescission. Velarde v. 1592 which expressly provides that the court may not grant such party a new term.
CA Who may rescind? The power to rescind is given to the injured party.
▪ Non-payment of price is a resolutory condition for which the remedy is either rescission or Positive act. Rescission is a remedy that would not automatically operate, even when there is
specific performance under Art. 1191. This is true for reciprocal obligations where the factual basis present. It requires a positive act on the part of the injured party since it is legally
obligation is a resolutory condition of the other. On the other hand, buyer is entitled to possible that he may waive rescission and proceed with specific performance. Positive acts,
retain the purchase price if the seller fails to perform any essential obligation of the according to jurisprudence, can be notice of rescission or an action for rescission or other akin
contract. Such right is premised on the general principles of reciprocal obligation. Gil v. CA actions similar to rescission.
▪ Consignation by the buyer of the purchase price of the property, there having been no
previous receipt of a notarial demand for rescission, is sufficient to defeat the right of the Mutual Restitution and Forfeiture (Art. 1385)
seller to demand for a rescission of the deed of absolute sale. Gil v. CA

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 Art. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with of sale, merely a personal obligation “to do” which cannot be the subject of an action for
their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission specific performance. Id
can return whatever he may be obliged to restore. - Lecture: distinguishing characteristic. According to TVT, the most important
Neither shall rescission take place when the things which are the object of the contract are legally in the possession
distinguishing characteristic of a contract to sell is the imposition of the suspensive
of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (1295) condition on the perfection of the contract of sale. If the condition is imposed on the
obligations of the parties, then the contract is a conditional contract of sale.
- Lecture: suspensive condition. I asked TVT and she said the condition need not
Mutual restitution. Mutual restitution is required to bring back the parties to their original necessarily be the full payment of the purchase price. The condition may be the
situation prior to the inception of the contract. Rescission can only be carried out when the one happening of an event, say passing the bar.
who demands rescission can return whatever he may be obliged to restore. ▪ As differentiated from a conditional contract of sale. In a conditional contract of sale,
▪ When sale is rescinded, the general rule under Art. 1398 is for parties to restore to each the first element of consent (i.e. meeting of the minds) is present, although it is conditioned
other the things which have been the subject matter of the contract, their fruits, and price upon the happening of a contingent event which may or may not occur.
with interest. Ines v. CA ▪ There is no automatic transfer of ownership. Upon fulfillment of the suspensive
▪ HOWEVER: Seller’s right in a contract to sell with reserved title to extrajudicially cancel the condition (full payment), ownership will not automatically transfer to the buyer although
sale upon failure of the buyer to pay the stipulated installments and retain the sums and the property may have been previously delivered to him. The prospective seller still has to
installments already received has long been recognized by the well-established doctrine. convey title to the prospective buyer by entering into a contract of absolute sale.
Pangilinan v. Court of Appeals
▪ Pursuant to Art. 1188, in a contract to sell, even if buyers did not mistakenly make partial ▪ In a contract of sale, title to the property passes to buyer upon the delivery of the thing
payments, inasmuch as the suspensive condition was not fulfilled, it is only fair and just that sold; in a contract to sell, ownership is, by agreement, reserved in the seller and is not to
buyers be allowed to recover what they had paid in expectancy that the condition would pass to buyer until full payment of purchase price. Otherwise stated, in a contract of sale,
happen; otherwise, there would be unjust enrichment on part of seller. Buot v. CA seller loses ownership over the property and cannot recover it until and unless the contract
is resolved or rescinded, whereas in a contract to sell, title is retained by the seller until full
payment of the price. In the latter contract, payment of the price is a positive suspensive
CONTRACT OF SALE versus CONTRACT TO SELL
condition, failure of which is not a breach but an event that prevents the obligation of the
vendor to convey title from becoming effective. Adelfa Properties v. Court of Appeals
Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to ▪ Contrary ruling: If it were not full payment of the purchase price upon which depends the
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. passing of title from the vendor to the vendee, it [suspensive condition] may be some other
A contract of sale may be absolute or conditional. (1445a) condition that has been stipulated and must be fulfilled before the contract is converted
from a contract to sell or at the most an executory sale into an executed one. PNB v. Court
NOTABLE CASE: Coronel v. CA of Appeals
▪ Contract to sell. A bilateral contract whereby the prospective seller, while expressly ▪ To be sure, a contract of sale may either be absolute or conditional. One form of conditional
reserving the ownership of the subject property despite delivery thereof to the prospective sales is what is now popularly termed as a “Contract to Sell,” where ownership or title is
buyer, binds himself to sell the said property exclusively to the prospective buyer upon retained until the fulfillment of a positive suspensive condition normally the payment of
fulfillment of the condition agreed upon. That is, full payment of the purchase price. the purchase price in the manner agreed upon. For a contract, like a contract to sell, involves
▪ Fulfillment of suspensive condition. Even upon the full payment of the purchase price, a meeting of minds between two persons whereby one binds himself, with respect to the
ownership will not automatically transfer to the buyer although the property may have other, to give something or to render some service. Gomez v. CA
been previously delivered to the buyer, since the prospective seller still has to convey title ▪ A Contract to Sell is akin to a conditional sale, in which the efficacy or obligatory force of
to the prospective buyer by entering into a contract of sale. Id the seller’s obligation to transfer title is subordinated to the happening of a future and
▪ Condition on the perfection of the contract of sale. The happening of the suspensive uncertain event, so that if the suspensive condition does not take place, the parties would
condition (full payment) does not give rise to an executory contract of sale subject to an stand as if the conditional obligation never existed. Orden v. Aurea
action for specific performance, since the obligation of the “seller” is to enter into a contract

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▪ A Contract to Sell is perfected at the moment there is a meeting of minds upon the thing ▪ A contract to sell is defined as a bilateral contract whereby the prospective seller, while
which is the object of the contract and upon the price. It undergoes also the three stages expressly reserving the ownership of the subject property despite delivery thereof to the
of a contract: negotiation, perfection and consummation. Robern Dev. Corp. v. People’s prospective buyer, binds himself to sell the said property exclusively to the latter upon his
Landless Assn fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
▪ A contract of sale is defined under Article 1458 of the Civil Code. A contract to sell, on the compliance with the other obligations stated in the contract to sell. Given its contingent
other hand, is defined by Article 1479 of the Civil Code: [A] bilateral contract whereby the nature, the failure of the prospective buyer to make full payment and/or abide by his
prospective seller, while expressly reserving the ownership of the subject property despite commitments stated in the contract to sell prevents the obligation of the prospective seller
delivery thereof to the prospective seller, while expressly reserving the ownership of the to execute the corresponding deed of sale to effect the transfer of ownership to the buyer
subject property despite delivery thereof to the prospective buyer, binds himself to sell the form arising. Ventura v. Heirs of Spouses Endaya
said property exclusively to the prospective buyer upon fulfillment of the condition agreed
upon, that is, full payment of the purchase price. Akang v. Municipality of Isulan, Sultan ▪ Remedy in a contract of sale. When buyer’s obligation to pay the the purchase price was
Kudarat Province made subject to the condition that seller first delivers clean title over the parcel bough
▪ Even a contract to sell constitutes the law between the parties who executes it. within 20 months from the signing of the contract, such condition is imposed merely on
Consequently, from the time the contract is perfected, all parties privy to it are bound not the performance of the obligation, as distinguished from a condition imposed on the
only to the fulfillment of what has been expressly stipulated but likewise to all perfection of the contract. The non-happening of the condition merely granted the buyer
consequences which, according to their nature, may be in keeping with good faith, usage the right to rescind the contract or even to waive it and enforce performance on the part
and law. Concededly, it is undisputed that the abovementioned contract is in the nature of of the seller, all in consonance with Art. 1545 of Civil Code which provides that “Where the
a “Contract to Sell”. As such, the obligation of the seller to sell becomes demandable only obligation of either party to a contract of sale is subject to any condition which is not
upon the occurrence of the suspensive condition. In the present case, the suspensive performed, such party may refuse to proceed with the contract or he may waive
condition is the payment in full of the purchase price by the buyers prior to the expiration performance of the condition.” Babasa v. Court of Appeals
of the 90-day period stipulated in their CTS, which the latter failed to do so. Felix Plazo ▪ In a contract of sale, the non-payment of the price is a resolutory condition which
Urban Poor Settlers Community Assn. Inc. v. Lipat, Sr extinguishes the transaction that, for a time existed, and discharges the obligations created
thereunder. Blas v. Angeles-Hutalla
Legal effects of the Contract to Sell. ▪ Whereas, in a contract to sell, the payment of the purchase price is a positive suspensive
▪ As to transfer of ownership. While conditionality inheres in a contract to sell, the same condition, and seller’s obligation to convey the title does not become effective in case of
should not be confused with a conditional contract of sale. In a contract to sell, the failure to pay. Buot v. CA
fulfillment of the suspensive condition will not automatically transfer ownership to the ▪ Remedy of Rescission Does Not Apply to Contracts to Sell. The remedy of rescission
buyer although the property may have been previously delivered to him. The prospective under Article 1191 of the Civil Code cannot apply to mere contracts to sell—in a contract
seller still has to convey title to the prospective buyer by entering into a contract of absolute to sell, the payment of the purchase price is a positive suspensive condition, and failure to
sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive pay the price agreed upon is not a mere breach, casual or serious, but a situation that
condition renders the sale absolute and the previous delivery of the property has the effect prevents the obligation of the vendor to convey title from acquiring an obligatory force.
of automatically transferring the seller’s ownership or title to the property to the buyer. Tan v. Benolirao
Ventura v. Heirs of Spouses Endaya ▪ In a contract to sell, payment of the price is a positive suspensive condition, failure of which
▪ In contracts of sale, seller loses ownership over the property and cannot recover it until and is not a breach of contract warranting rescission under Article 1191 of the Civil Code but
unless the contract is resolved or rescinded; in a contract to sell, title is retained by seller rather just an event that prevents the supposes seller from being bound to convey title to
until full payment of the price. Montecalvo v. Heirs of Eugenia Primero the supposed buyer. Bonrostro v. Luna
▪ In a contract to sell, the prospective seller explicitly reserves the transfer of title to the ▪ In a contract to sell, the seller’s obligation to deliver the corresponding certificates of title
prospective buyer, meaning, the prospective seller does not as yet agree or consent to is simultaneous and reciprocal to the buyer’s full payment of the purchase price. Gotesco
transfer ownership of the property subject of the contract to sell until the happening of an Properties v. Fajardo
event, which for present purposes we shall take as the full payment of the purchase price.
Republic v. Marawi-Marantao General Hospital

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 ▪ Execution of deed of sale as indicia of a contract to sell. Absence of a formal deed of
REQUISITE STIPULATIONS FOR CONTRACT TO SELL
conveyance [or a stipulation to execute the deed of sale only full payment of the purchase
The existence of the agreement to transfer ownership only upon payment of the purchase
price] is a strong indication that parties did not intend immediate transfer of ownership,
price is an integral component of a contract to sell and it lies in locating the existence of
but only a transfer after full payment of purchase price, especially where seller retained
two clauses, namely:
possession of the certificate of tile and all other documents relative to the sale until there
(a) Reservation of the ownership of the subject matter with the seller, even if there should
was full payment of the price. Chua v. Court of Appeals
be delivery thereof to the buyer.
▪ Contrary ruling. Facts: Express stipulation that the sellers would execute a deed of
(b) Reservation of the right of the seller to rescind the contract extrajudicially in the event
absolute sale in favor of the buyer upon payment of the final balance of the purchase price.
the suspensive condition (usually the full payment of the purchase price) does not
Held: Not a contract to sell since nowhere in the contract was there a stipulation to the
happen.
effect that title to the property sold is reserved in the seller until full payment of the
purchase price, nor was there a stipulation giving the seller the right to unilaterally resind
Prevailing jurisprudence. Absent any stipulation in the deed or in the meeting of minds the contract the moment the buyer fails to pay within the fixed period. Dignos v. CA
reserving title over the property to the seller until full payment of the purchase price and giving ▪ It was enough to characterize the Deed of Condition Sale as a “contract to sell” alone by the
the seller the right to unilaterally rescind the contract in case of non-payment, makes the reservation of ownership. Heirs of Antonio F. Bernabe v. CA
contract a conditional contract of sale rather than a contract to sell. ▪ Reservation of title may not be found in express provision of the contract, but may also be
▪ A contract is one of sale, absent any stipulation therein (a) reserving title over the property determined from proven acts of the parties. Salazar v. CA
to the vendee until full payment of the purchase price, and (b) giving the vendor the right ▪ An agreement in which ownership is reserved in the seller and is not to pass to the buyer
to unilaterally rescind the contract in case of non-payment. Valdez v. CA; De Leon v. Ong; until full payment of the purchase price is known as a contract to sell. The absence of full
Reservation of right to rescind. A contract to sell, precisely because it is subject to a payment suspends the seller’s obligation to convey title, even if the sale has already been
suspensive condition, does not require a specific/express stipulation that the seller has the right registered. Registration does not vest, but merely serves as evidence of, title to a particular
to rescind when the condition does not happen since the effect is ipso jure and any express property. Portic v. Cristobal
stipulation is superfluous. But in a contract of sale, the stipulation, generally, must be present ▪ It is not the title of the contract, but its express terms or stipulations that determine the
before a party can extrajudicially rescind without court intervention. kind of contract entered into by the parties. Where seller promises to execute a deed of
- Note: Therefore, while the presence of the stipulations are telling signs on whether the absolute sale upon the completion by buyer of the payment of the price, which shows that
contract is a contract to sell or not, the most distinguishing sign, as discussed above, is to seller reserved title to the property until full payment of the purchase price, the contract is
determine whether the condition is imposed on the perfection of the contract of sale or only a contract to sell. Nabus v. Pacson
whether the condition is imposed on the obligations of the parties.
The law does not require an express stipulation of the suspensive condition (full
RESCISSION AND CANCELLATION
payment). Adelfa Properties v. Court of Appeals
▪ Facts: The stipulation of the exclusive option to purchase provided for automatic rescission
of the contract and partial forfeiture of the amount already paid in case of default but it Substantial Breach
does not mention that petitioner is obliged to return possession or ownership of the Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
property as a consequence of non-payment. What is the nature of the contract? comply with what is incumbent upon him.
▪ Held: Contract to sell. With the absence of such a stipulation, although there is a provision The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
on the remedies available to the parties in case of breach, it may legally be inferred that
impossible.
the parties never intended to transfer ownership to the petitioner prior to completion of The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
payment of the purchase price. In effect, there was an implied agreement that ownership This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
shall not pass to the purchaser until he had fully paid the price. Art 1478 does not require with Articles 1385 and 1388 and the Mortgage Law. (1124)
Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there
such a stipulation be expressly made.
had been a strict and complete fulfillment, less damages suffered by the obligee.

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Rescission, not available in contracts to sell. As discussed in previous sections, rescission Equity Resolutions on Contracts to Sell
under Art 1191 and 1592 does not apply to contracts to sell. Likewise, rescission under ▪ Although buyer clearly defaulted in his installment payments in a contract to sell covering
rescissible contracts is not applicable because lesion or economic damage is not the basis upon two parcels of land, he should nevertheless be awarded ownership over one of the two (2)
which remedy can be sought under contracts to sell. lots jointly purchased by the buyer, on the basis that the total amount of installments paid,
▪ Concept of substantial breach is irrelevant in contracts to sell. Luzon Brokerage Co. v. although not enough to cover the purchase price of the two lots were enough to cover
Maritime Building Co fully the purchase price of one lot, ruling there was substantial performance insofar as one
▪ In a contract to sell real property on installments, the full payment of the purchase price is of the lots concerned as to prevent rescission thereto. Legarda Hermanos v. Saldaña
a positive condition, the failure of which is not considered a breach, casual or serious, but ▪ Where buyer had religiously been paying monthly installments for 8 years, but even after
simply an event that prevented the obligation of the vendor to convey title from acquiring default he was willing and had offered to pay all the arrears, on the basis of equity he shall
any obligatory force. The transfer of ownership and title would occur after full payment of be granted additional period of 60 days from receipt of judgment to make all installments
the price. Leaño v. Court of Appeals payments in arrears plus interests, although demand for rescission had already been made.
J.M. Tuazon Co. v. Javier
Legal effects of the Maceda Law. There must be notice of cancellation by notarial act before
rescission can take place.

Minimum Requirement for Cancellation of Contracts to Sell

▪ The act of a party in treating a contract as cancelled should be made known to the other
party because this act is subject to scrutiny and review of the courts in case the alleged
defaulter bring the matter for judicial determination. University of the Philippines v. De
los Angeles; Palay Inc. v. Clave
▪ BUT SEE: In a contract to sell, upon failure of buyer to comply with its obligation, there was
no need to judicially rescind the contract to sell. Failure by one of the parties to abide by
the conditions in a contract to sell resulted in the rescission of the contract. AFP Mutual
Benefit Assn. v. CA

Notice requirement:
▪ Act of the seller in notifying the buyer of his intention to sell the properties to other
interested persons if the latter failed to pay the balance of the purchase price is sufficient
notice for the cancellation or resolution of their contract to sell. Orden v. Aurea
▪ If mere nonpayment is enough to cancel a contract to sell, the letter given to petitioner’s
lawyer is also an acceptable form of rescinding the contract. The law does not require
notarization for a letter to rescind a contract to sell immovable. Notarization is only required
if a contract of sale is being rescinded. Cabrera v. Ysaac
▪ In a contract to sell, the seller retains ownership of the property until the buyer has paid
the price in full. A buyer who covertly usurps the seller’s ownership of the property prior to
the full payment of the price is in breach of the contract and the seller is entitled to
rescission because the breach is substantial and fundamental as it defeats the very object
of the parties in entering into the contract to sell. Tumibay v. Lopez

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 his outstanding obligation to the bank and taking back the certificates of title without even
notifying the buyer. De Leon v. Ong
Conditions and Warranties
CONDITIONS WARRANTIES
Non-happening of a condition does not Non-fulfillment of a warranty is a breach of
CONDITIONS amount to a breach of contract contract
Condition goes into the root of the Warranty goes into the performance of such
existence of the obligation obligation and in fact, may constitute an
Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, obligation in itself
such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party
Condition must be stipulated by the parties Warranty may form part of the obligation or
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. in order to form part of an obligation contract by provision of law, without the
Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his parties having expressly agreed thereto
obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a May attach itself either to the obligations of Relates to the subject matter itself or to the
condition of the obligation of the buyer to perform his promise to accept and pay for the thing.
the seller or of the buyer obligations of the seller as to the subject
matter
Lecture: Conditions may be imposed on the perfection of the contract of sale and on the
obligations of the parties. The imposition of such will determine whether a contract to sell or a Warranty against eviction. Power Commercial and Industrial Corp. v. CA
conditional contract of sale, respectively, will arise. Conditions are always contractual in nature ▪ Facts: There was no stipulation which required the sellers to eject the lessees in the subject
– that is, they must be agreed upon by parties during the time of the perfection. property of the contract. Buyers assert that the failure on the part of the sellers to eject the
▪ Failure to comply with condition imposed upon perfection of the contract results in failure lessees is a substantial breach of a condition. Correct? No.
of a contract, while the failure to comply with a condition imposed on the performance of ▪ First, such failure was not stipulated as a condition – whether resolutory or suspensive – in
an obligation only gives the other party the option either to refuse to proceed with sale or the contract; and second, its effects and consequences were not specified either. If the
waive the condition. Laforteza v. Machuca parties intended to impose on the sellers the obligation to eject the tenants from the lot
▪ In a “Sale with Assumption of Mortgage,” assumption of mortgage is a condition to the sold, it should have included a provision where the ejectments of the occupants of the lot
seller’s consent so that without approval by the mortgagee, no sale is perfected. In such sold was the operative act which set into motion the period of buyer’s compliance with his
case, the seller remains the owner and mortgagor of the property and retains the right to obligation to pay.
redeem the foreclosed property, Ramos v. CA ▪ There can also be no breach of the warranty against eviction for the buyer was well aware
▪ however, such condition is deemed fulfilled when the seller takes any action to prevent its of the presence of the tenants at the time the buyer entered into the sale transaction. It
happening, De Leon v. Ong even undertook the job of ejecting the squatters when it filed suit to eject the occupants.
▪ There has arisen a confusion in the concepts of “validity” and “efficacy” of a contract. Under
Art. 1318, absence any of the essential requisites of a contract (i.e., consent of the parties,
WARRANTIES
object certain which is the subject matter, and cause of the obligation), then no contract
arises. Conversely, where all are present, the result is a valid contract. However, some parties
introduce various kinds of restrictions or modalities, the lack of which will not, however, Lecture: Warranties may be contractual in nature (Express) or imposed by law (Implied). They
affect the validity of the contract. A provision “this Contract of Sale of rights, interests and always pertain to the subject matter and is always given by the seller. On the occasion of a
participations shall become effective only upon the approval by the Honorable Court,” in breach of warranty, the general rule is the buyer can rescind the sale and demand for damages.
the event of non-approval by the courts, affect only the effectivity and not the validity of
the contract of sale. Heirs of Pedro Escanlar v. Court of Appeals
▪ The condition in the contract of sale of buyer’s assumption of the mortgage constituted on
the subject matter is deemed fulfilled when the seller prevented its fulfillment by paying

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 EXPRESS WARRANTIES It does not apply to a representation that amounts to a warranty by the seller and the
Art. 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the situation requires the buyer to rely upon such promise or affirmation. Guinhawa v. People
natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer ▪ Breach of an express warranty makes seller liable for damages. The following requisites
purchase the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a essential to establish an express warranty: (1) it must be an affirmation of fact or any
statement of the seller's opinion only, shall be construed as a warranty, unless the seller made such affirmation or
statement as an expert and it was relied upon by the buyer.
promise by the seller relating to the subject matter of the sale; (2) natural tendency of such
affirmation or promise is to induce the buyer to purchase the thing; and (3) buyer purchases
the thing relying on such affirmation or promise thereon. Carrascoso, Jr. v. Court of Appeals
REQUISITES FOR AN EXPRESS WARRANTY
1. It must be an affirmation of fact or any promise by the seller relating to the subject IMPLIED WARRANTIES
matter of the sale; Art. 1547. In a contract of sale, unless a contrary intention appears, there is:
2. The natural tendency of such affirmation or promise is to induce the buyer to (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership
purchase the thing; and is to pass, and that the 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 from any hidden faults or defects, or any charge or
3. The buyer purchases the thing relying on such affirmation or promise thereon.
encumbrance not declared or known to the buyer.
This Article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person
professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or
Lecture: An express warranty can warrant anything as long as it does not contravene public equitable interest.
policy, etc. Simple exaggerations or dealer’s talk or marketing schemes are not warranties as
long as they do not amount to false representations.
But – An affirmation of the value of the thing or any statement purporting to be a statement Implied warranties. Warranties which by law constitute part of every contract of sale, whether
of the seller’s opinion only shall not be construed as a warranty, unless the seller made such or not the parties were aware of them and whether or not the parties intended them. Only a
affirmation or statement as an expert and it was relied upon by the buyer. seller is bound by the implied warranties of law but, by express contractual stipulation, an agent
▪ A warranty is a statement or representation made by the seller of goods, of the seller may bind himself to such warranties.
contemporaneously and as 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 Warranty that Seller Has Right to Sell
facts are or shall be as he then represents them. Ang v. CA In every contract of sale, unless a contrary intention appears, there is an implied warranty by
▪ A warranty is an affirmation of fact or any promise made by a vendor in relation to the the seller that he has a right to sell the thing when the ownership is to pass.
thing sold. The decisive test is whether the vendor assumes to assert a fact of which the Not applicable to: sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell
vendee is ignorant. Goodyear Philippines v. Sy by virtue of authority in fact or law for the sale of a thing in which a third person has a legal or
▪ Seller’s Talk: “The law allows considerable latitude to seller’s statements or dealer’s talk, and equitable interest.
experience teaches that it is exceedingly risky to accept it at face value. Assertions Generally, no waiver. Because ownership must pass to the buyer at the point of
concerning the subject of a contract of sale, or in regard to its qualities and characteristics, consummation. But it is allowed when there is clear assumption of risk on the part of the buyer,
are the usual and ordinary means used by sellers to obtain a high price and are always such as when the obligation of the seller is subject to a condition.
understood as affording to buyers no ground for omitting to make inquiries. A man who
relies upon such an affirmation made by a person whose interest might so readily prompt Warranty against eviction
him to exaggerate the value of his property does so as his peril, and must take the Unless a contrary intention appears, there is an implied warranty on the part of the seller that
consequences of his own imprudence.” Songco v. Sellner when the ownership is to pass, the buyer shall from that time have and enjoy the legal and
▪ Caveat emptor only requires the purchaser to exercise care and attention ordinarily peaceful possession of the thing. The seller shall answer for the eviction even though nothing
exercised by prudent men in like business affairs, and only applies to defects which are has been said in the contract on the subject.
open and patent to the service of one exercising such care. It can only be applied where it
is shown or conceded that the parties stand on equal footing and have equal knowledge
or equal means of knowledge and there is no relation of trust or confidence between them.

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 SELLER’S LIABILITY IN CASE OF BREACH
WHEN WARRANTY AGAINST EVICTION BREACHED
Art 1555. When the warranty has been agreed upon or nothing has been stipulated on the point, in case of
The seller’s implied warranty against eviction is deemed to have been breached only when
eviction, the buyer shall have the right to demand of the seller:
these conditions are present: (a) Return of the value which the thing sold had at the time of the eviction, be it greater or lesser than the
(a) Purchaser has been deprived of or evicted from the whole or part of the thing sold; price of the sale;
(b) Eviction is by a final judgment; (b) Income or fruits, if buyer has been ordered to deliver them to the party who won the suit against him;
(c) Costs of the suit which caused the eviction and, in a proper case, those of the suit brought against the
(c) Basis thereof is by virtue of a right prior to the sale made by the seller; and
seller for the warranty;
(d) Seller has been summoned and made co-defendant in the suit for eviction at the (d) Expenses of the contract, if the buyer has paid them;
instance of the buyer. (e) Damages and interests and ornamental expenses, if the sale was made in bad faith.

Eviction in part. Should the buyer lose, by reason of the eviction, a part of the thing sold of Waiver when seller in bad faith. If the seller acted in bad faith, then any stipulation exempting
such importance, in relation to the whole, that he would not bought it without said part, he him from the obligation to answer for eviction shall be void.
may demand the rescission of the contract; but with the obligation to return the thing without Waiver when buyer had no knowledge of a particular risk. On the other hand, if the buyer
any encumbrances than those which it had when he acquired it. He may exercise this right of merely renounces the warranty in general terms, without knowledge of a particular risk, and
action, instead of enforcing the vendor’s liability for eviction. eviction takes place, the general waiver of the warranty does not create the effects of waiver
▪ Seller must be summoned in the suit for eviction at the instance of the buyer (Art. 1558), but merely limits the liability of the seller to the value of the thing sold at the time of eviction.
and be made a co-defendant (or made a thirdparty defendant (Art. 1559). Escaler v. Court Waiver when buyer had knowledge of a particular risk. Should the buyer have made the
of Appeals waiver with knowledge of the risks of eviction and assumed its consequences, the seller shall
▪ A dacion en pago is governed by the law of sales, and contracts of sale come with not be liable, but only as to the specified risk.
warranties, either express (if explicitly stipulated by the parties) or implied (under Article
1547 et seq. of the Civil Code). The implied warranty in case of eviction is waivable and Provision breakdown: Warranty Against Non-Apparent Servitudes
cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its Art. 1560. If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in
consequences. Luzon Dev. Bank v. Enriquez the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware
▪ No Warranty Against Eviction When Execution Sale: In voluntary sales, vendor can be thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can
be exercised if the non-apparent burden or servitude is recorded in the Registry of Property, unless there is an express
expected to defend his title because of his warranty to the vendees but no such obligation warranty that the thing is free from all burdens and encumbrances.
is owed by the owner whose land is sold at execution sale. Santiago Land Dev. Corp. v. CA. Prescription period for rescission. Within one year, to be computed from the execution of the deed, the vendee may
bring the action for rescission, or sue for damages.
Prescription period for damages. One year having elapsed, he may only bring an action for damages within an equal
Art. 1552. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the
period, to be counted from the date on which he discovered the burden or servitude. (1483a)
judgment.
Non-apparent servitudes. Review rin sa property pag may time.
▪ The seller, in declaring that he owned and had clean title to the vehicle, gave an implied
warranty of title, and in pledging that he “will defend the same from all claims or any claim Warranty Against Hidden Defects
whatsoever [and] will save the vendee from any suit by the government of the Republic of Art. 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have,
the Philippines,” he gave a warranty against eviction, and the prescriptive period to file a should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such
an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price
breach thereof is six months after the delivery of the vehicle. Ang v. CA for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which
▪ An express warranty against a particular type of eviction is not the same as the implied are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them.
warranty against eviction. Pilipinas Makro, Inc. v. Coco Charcoal Phils., Inc.

▪ Stipulation in a lease with option to purchase (treated as a sale of movable on installments)

that buyer-lessee “absolutely releases the lessor from any liability whatsoever as to any and
all matters in relation to warranty in accordance with the provisions hereinafter stipulated,”

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 is an express waiver of warranty against hidden defect in favor of seller-lessor who is ▪ Seller’s agent can by agreement be liable for the warranty against hidden defects. Schmid
absolved from any liability arising from any defect or deficiency of the machinery sold. and Oberly, Inc. v. RJL Martinez
Filinvest Credit Corp. v. CA ▪ Effect of “as is, where is” sale on the implied warranty against hidden defects. Poole-
Blunden v. Union Bank of the Philippines
REQUISITES FOR BREACH OF WARRANTY
Waiver. If there has been a stipulation exempting the seller from hidden defects, then:
Nutrimix Feeds Corp. v. Court of Appeals
(a) If the seller was not aware of the hidden defects, the loss of the thing by virtue of such
A hidden defect is unknown or could not have been known to the buyer. Requisites to
defect will not make the seller liable at all to the buyer.
recover on account of hidden defects are:
(b) If the seller was fully aware of such defect, such waiver is in bad faith and the seller would
1. Defect must: (a) be hidden; (b) exist at perfection of contract; (c) ordinarily have been
still be liable for the warranty.
excluded from the contract; and (d) be important to render the thing unfit or
considerably decreases fitness; and
Warranty as to Fitness or Quality of Goods
2. Action must be instituted within the statute of limitations.
Art. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as
follows:
(1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the
▪ In order to enforce the implied warranty that the goods are reasonably fit and suitable to goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower
be used for the purpose which both parties contemplated, the following must be or manufacturer or not), there is an implied warranty that the goods shall be reasonably fit for such purpose;
(2) Where the goods are brought by description from a seller who deals in goods of that description (whether he
established: (a) that the buyer sustained injury because of the product; (b) that the injury
be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable
occurred because the product was defective or unreasonably unsafe; and finally (c) the quality.
defect existed when the product left the hands of the petitioner. Id Art. 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied
▪ A manufacturer or seller of a product cannot be held liable for any damage allegedly caused warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent
on reasonable examination of the sample.
by the product in the absence of any proof that the product in question is defective, which
was present upon the delivery or manufacture of the product; or when the product left the
seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the Provision breakdown: Remedies of the buyer
product must have reached the user or consumer without substantial change in the Art. 1599: Remedies of the buyer. Where there is a breach of warranty by the seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution
condition it was sold. Id or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty;
Remedy of the buyer. The remedy of the buyer is either to withdraw from the contract or to (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty;
demand a proportionate reduction of the price, with damages in either case. But if the thing is (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them
or offer to return them to the seller and recover the price or any part thereof which has been paid.
lost, the remedies becomes – Alternative remedies. When the buyer has claimed and been granted a remedy in anyone of these ways, no other
(a) If the thing sold should be lost as a consequence of the hidden faults: remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of Article 1191.
a. If the seller was aware of them, he shall bear the loss and shall be obliged to return the Waiver of remedies. Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the
price and refund the expenses of the contract, with damages; or breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable
time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good
b. If the seller was not aware of them, he is obliged only to return the price and interest condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the
thereon and reimburse the expenses of the contract which the buyer might have paid, goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or
but not for damages. offering to return the goods to the seller and rescinding the sale.
(b) If the thing is lost through a fortuitous event or through the fault of the buyer: Obligation of buyer on the price. Where the buyer is entitled to rescind the sale and elects to do so, he shall cease
to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been
a. If the seller was not aware of the hidden defects, the buyer may demand from the seller paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or
the price which he paid, less the value which the thing had when it was lost; immediately after an offer to return the goods in exchange for repayment of the price.
b. If the seller acted in bad faith, in addition, he shall pay damages to the buyer. Refusal of seller to accept return of goods. Where the buyer is entitled to rescind the sale and elects to do so, if the
seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods

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 as bailee for the seller, but subject to a lien to secure payment of any portion of the price which has been paid, and prescriptive period is 6 months from the date of the delivery of the thing sold. Ang v. Court
with the remedies for the enforcement of such lien allowed to an unpaid seller by Article 1526.
of Appeals
Amount of liability. In the case of breach of warranty of quality, such loss, in the absence of special circumstances
showing proximate damage of a greater amount, is the difference between the value of the goods at the time of delivery
to the buyer and the value they would have had if they had answered to the warranty. Effects of Waivers
The phrase “as is, where is” basis pertains solely to the physical condition of the thing sold, not
Sale of Goods by Sample to its legal situation. THUS:
Art. 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied ▪ The US tax liabilities constitute a potential lien which applies to the subject’s matter’s legal
warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent situation, not to its physical aspect; thus, the buyer has no obligation to shoulder the same.
on reasonable examination of the sample. NDC v. Madrigal Wan Hui Lines Corp
▪ “As Is, Where Is” basis merely describes the actual state and location of the subject matter
▪ There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen sold, but does not relieve the seller of his primary obligation and implied warranty to deliver
of the bulk, which is not present and there is no opportunity to inspect or examine the the object to the buyer. APT v. T.J. Enterprises
same. To constitute a sale by sample, it must appear that the parties treated the sample as
the standard of quality and that they contracted with reference to the sample with the
understanding that the product to be delivered would correspondent with the sample. In
a contract of sale by sample, there is an implied warranty that the goods shall be free from
any defect which is not apparent on reasonable examination of the sample and which
would render the goods unmerchantable. Mendoza v. David

Additional Warranties for Consumer Products

Article 68. Additional Provisions on Warranties. – In addition to the Civil Code provisions on sale with warranties, the
following provisions shall govern the sale of consumer products with warranty:
a) Terms of express warranty. – Any seller or manufacturer who gives an express warranty shall:
1) set forth the terms of warranty in clear and readily understandable language and clearly identify himself as the
warrantor;
2) identify the party to whom the warranty is extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event of a defect, malfunction of failure to conform to the written
warranty and at whose expense;
5) state what the consumer must do to avail of the rights which accrue to the warranty; and
6) stipulate the period within which, after notice of defect, malfunction or failure to conform to the warranty, the
warrantor will perform any obligation under the warranty.

Consumer products. Goods which are primarily for personal, family, household, or agricultural
purposes, which shall include but not limited to, food, drugs, cosmetics, and devices.

Effects and Prescription of Warranties (Art. 1599)

▪ A breach in the warranties of the seller entitles the buyer to a proportionate reduction of
the purchase price. PNB v. Mega Prime Realty and Holding Corp
▪ The prescriptive period for instituting actions based on a breach of express warranty is that
specified in the contract, and in the absence of such period, the general rule on rescission
of contract, which is 4 years, while for actions based on breach of implied warranty, the

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 Things to remember for the exams:
Conventional redemption
Extinguishment of the Contract of Sale • Know what this is.
• Pacto de retro sale
• Difference between right to repurchase and option contract
Note: TLV lectured on the entirety of the topic. Herein is a transcription of the discussion. • Dichotomy of pacto de retro sale and equitable mortgage. Apply 1606 or annul the pacto de retro sale.
Lecture notes: • How to properly exercise the redemption: notice and tender of payment
On extinguishment. Best type of extinguishment is payment or performance. Legal redemption
• Those allowed under the law. Imposed by law without need of agreement of parties.
Conventional redemption or pacto de retro sale. Otherwise known as a sale with a right to repurchase. • Pacto de retro sale is always in favor of the seller.
The right to repurchase MUST BE PRESENT at the perfection of the first sale. • Exercise of right to repurchase extinguishes the right to sale.
Period. If the period is more than 10 years, it can no longer be exercised. Absent the stipulation as to period, 4 • Legal right of redemption actually consittutes a new contract fo sale between the new parties. The original
years. Wrong or void stipulations is considered as not imposed, so the period imposed is 10 years. parties are no longer the new parties.
If the buyer was agreeable to have a period of more than 10 years, then apply the 10-year period because the Four types of legal redemption
buyer agreed to a longer period. Ex: if the right was granted after the perfection of the contract, then it may be an 1. Right between co-heirs. Ex: maam has a brother and sister. Brother decides to sell the inherited party to a
option contract - the breach of which is only damages. cousin. Maam and her sister has the right to legally redeem the property from the cousin.
Note: KNOW THE DIFFERENCE BETWEEN AN OPTION CONTRACT AND RIGHT TO REPURCHASE. • Valid only until division/partition of the lots. (property law)
Also recall: When an option contract has no separate consideration, it gives rise to a contract to sell. See discussion • Right of co-heir does not redound to other co-heirs. See difference as to between co-heirs.
under Option Contracts. 2. Right between co-owners.
Case of Misterio: initial case is the sale with right to repurchase. When do we reckon the right? To the execution Difference between one and two is the redounding of the right. But the redemption period is the same.
of the contract or to the happening of the condition? The first should be the rule but the Court supported the There have been rulings that allows notice to be dispensed with but the main ruling is that notice cannot be
latter. Aberrant/stray ruling. dispensed with. The notice must be sent by the seller.
When you exercise the right to repurchase: Requirement: notice and tender of payment - which includes the Hence, maam should inform his brother that he should send notice.
purchase price and other expenses and legitimate expenses made by the buyer. All the amount must be tendered 3. Adjoining rural lands
within the period of the right to redeem. Notice and payment need be concurrent so long as it is exercised within • The person with the smaller land has the right to redeem.
the period. 4. Adjoining urban land
Rules of tender of payment. But if buyer did not accept, there must be consignment. There is ruling requiring
• So small and so situated that it cannot be used for any purpose and that it was bought for speculation.
consignment.
• For speculation, the adjoining owners can legally redeemed.
Consolidation of title. In a sale pacto de retro, the condition is placed on the title. To remove such annotation,
an action for consolidation of title must be made. Previously, under the OCC, it is automatic. Under the NCC, it is
• Better proposal wins.
Written notice requirement rule:
required. To effect consolidation, there must be an action and a court order to that effect. This action does not
Note: Please read the cases assigned for conventional and legal redemption. - note in the reviewer. Estoppel not
mean that the buyer is not the owner. It only means that he will not be the title holder until the consolidation of
in the reviewer. Laches. Estoppel - his acts should come across as approval.
title is granted.
Equitable mortgage: Art 1606. The right to repurchase can still be exercised within 30 days from the final
We will not take up redemption in homestead and banks. Other legal redemption rights will not be taken up.
judgment. The provision only applies, according to jurisprudence, when the issue is whether the contract is a pacto
de retro sale or an equitable mortgage. The seller is the party that must claim that there was a mistake as to this
particular issue. If this is the case, he will be given the 30-day period under Art 1606.
It is imperative that there must be evidence showing that the seller is confused as to the nature of the contract. General modes of extinguishment. The grounds by which obligations are extinguished also
The burden of proof is on the seller to show that he made a mistake as to the nature of the contract. The buyer apply to contracts of sale; namely: payment of the price or performance (delivery of subject
must just show that the seller is not sure. matter), loss of subject matter, condonation or remission, confusion, compensation, novation,
Equitable mortgage. There’s a contract entered into denominated as a contract of sale with right to repurchase
but is actually is a contract of loan with the property as a collateral. Note: these are the requisites.
annulment, rescission, fulfillment of a resolutory condition, and prescription.
Pactum commissorium. Technically speaking, it’s not illegal. The problem is pactum commissorium. There must
be foreclosure or public sale. The redemption period is the loan period. 1606 only operates if the contract is a Payment or performance in contracts of sale. Payment or performance only extinguishes the
pacto de retro. When it is found out that the contract is an equitable mortgage, you annul the pacto de retro sale. obligations to which they pertain to, but not necessarily the contract itself, since the relationship
You apply the effects of the equitable mortgage - make the debtor pay the loan and give the right to foreclose to
of buyer and seller remains after such because of the continuing enforceability of the warranties
the creditor.
1602 - not automatically equitable mortgage. Just indicia of equitable mortgage of the seller.
Note: Know what an equitable mortgage is - it will be asked in the finals. Remember the indications equitable Redemption. The mode of extinguishment that is unique to contracts of sale. The discussion
mortgage. under this section will mostly revolve on the right of redemption.

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 Commentary. Tayao v Dulay illustrates clearly that when a period of redemption is agreed
CONVENTIONAL REDEMPTION upon by the parties in a sale a retro, although the stipulation as to period may be unclear or
void, it is the 10-year period provided in Art 1606 that applies and not the four year period
provided therein where there is no agreement as to period.
Art. 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing
sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been
▪ The redemption shall not be made within 3 years from the date of the sale, and nothing is
agreed upon. (1507) stipulated on the period that redemption can be made, its duration shall be 7 years from
the date of the contract. Rosales v. Reyes and Ordoveza
▪ If the express agreement is void, 10 years. The repurchase could not be effected until 10
Conventional redemption. The right to conventional redemption exists when the seller years from the date of the sale, such stipulation is void under Article 1606, and the
reserved for himself the right to repurchase the thing sold, with the obligation to: (a) return the repurchase must be made within 10 years from the date of the sale; otherwise, ownership
price of the sale, (b) expenses of the contract, (c) any other legitimate payments made by reason is consolidated in the buyer a retro. Santos v. Heirs of Crisostomo and Tiongson
of the sale, and (d) the necessary and useful expenses made on the thing sold. In case there is no period stipulated and the right is hinged on the happening of a
Parol evidence. The right to repurchase is governed by the Statute of Frauds. However, when condition, the four-year period will run upon happening of the condition. In all cases, the
the sale has been reduced in writing, parol evidence may be adduced to prove the agreement period shall not exceed 10 years from the perfection of the contract. Misterio v. Cebu
granting the seller a right to repurchase the property sold. State College of Science and Technology
▪ Facts: The Seller reserved the right to repurchase the land sold to the school upon the
▪ Must be part of the instrument of sale. Right to repurchase must be constituted as part
occurrence of either of two suspensive conditions: (i) the cessation of existence of the
of a valid sale at perfection. The right is not a right granted to the vendor by the vendee in
school; or (ii) the transfer of the school to another site, there is no stipulation as to period.
a subsequent instrument but is right reserved by the vendor in the same instrument of sale
The condition only happened some 30 years after the contract and the heirs of the Seller
as one of the stipulations of the contract. Once the instrument of absolute sale is executed,
invoked the period five years from such happening. Can they still redeem?
the vendor can no longer reserve the right of repurchase. Any right granted thereafter
▪ No. Consequently, the period of redemption shall be deemed to be 4 years, but not from
[execution of the instrument of sale] granted in a separate instrument cannot be a right of
the execution of the contract of sale, but from the happening of the conditions, but in
repurchase but some other right like the option to buy in the instant case. Villarica v. CA
neither of the two conditions shall the right of redemption be exercisable more than 10
▪ Void contract of sale, void right of repurchase. With the primary sale contract being
years from the date of the execution of the sale.
inoperative and void because the vendor did not have a right to transfer the ownership
thereof at the time it is delivered, consequently, the seller’s right to repurchase reserved
Tolling the period
was also void. Nool v CA
GR: Upon expiration of the redemption period, the right to redeem is ipso jure extinguished.
- Commentary. The valid existence of a stipulated right of repurchase is premised upon
Exception: Under the last paragraph the vendor may still exercise the right to repurchase within
the fact that the underlying contract of sale is valid and there has been performance
30 days from the time final judgment was rendered in a civil action on the bases that the
(that is, deliver and transfer of ownership), upon which the right to repurchase can be
contract was a true sale with a right of repurchase.
exercised later on.
Civil judgment. The period under Art 1606 contemplates a case involving a controversy as to
REDEMPTION PERIOD the true nature of the contract, and is called upon to decide whether it is a sale with pacto de
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall last four years from retro or an equitable mortgage, … there can be no controversy as to the contract being one of
the date of the contract. absolute sale. There could not even then be a period of redemption. Tapas v CA
Should there be an agreement, the period cannot exceed ten years.
Commentary. The controversy should be a contention on whether the contract is a pactro de
However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment
was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. retro sale or an equitable mortgage. If it is one whether the contract was one of absolute sale
or a sale a retro, a judgment finding the contract to be sale a retro should not authorize the
application of the 30-day redemption period under Art 1606.
GR: Redemption can only be made within 10 years. If there is no express agreement, it can only
- Note: Why? If the seller believes that the property is an equitable mortgage, then he
be made within 4 years.
expects that the ownership of the property would not pass to the buyer without foreclosure
of the property.

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 Possession prior to redemption
▪ Facts: Seller sold the land to Buyer 1 with a stipulation granting the right to repurchase. ▪ In a sale a retro, the buyer has a right to the immediate possession of the property sold,
Buyer 1 later sold it to Buyer 2, who erased such stipulation in bad faith. Buyer 2 had the unless otherwise agreed upon, since title and ownership of the property sold are
land registered to his name. When Seller offered to repurchase the land, Buyer 1 then only immediately vested in the buyer a retro, subject only to the resolutory condition of
found out Buyer 2 erased the stipulation and the former filed an action to cause Buyer 2 to repurchase by the seller a retro within the stipulated period. Vda. de Rigonan v. Derecho
reform the deed of sale between them. Will the suit proper? Yes. When The pendency of ▪ Pending the repurchase of the property, the vendee a retro may alienate, mortgage, or
an action brought in good faith and relating to the validity of a sale with pacto de retro tolls encumber the same, but such alienation or encumbrance is as revocable as is his right. If
or suspends the term for the right of redemption: “Neither was it error on the part of the the vendor a retro repurchases the property, the right of the vendee a retro is resolved,
court to hold that the pendency of the ation tolled the term for the right to redemption; because he has to return the property free from all damages and encumbrances imposed
that is an old and well established rule.” Ong Chua v. Carr by him. The vendor a retro may also register his right of repurchase under the Land
▪ The redemption period is not suspended merely because there is a divergence of opinion Registration Act and may be enforced against any person deriving title from the vendee a
between the parties as to the precise meaning of the phrase providing for the condition retro. Misterio v Cebu State College of Science and Technology
upon which the right to repurchase is triggered. The existence of seller a retro’s right to
repurchase the proper is not dependent upon the prior final interpretation by the court of Who may exercise redemption?
the said phrase. Misterio v. Cebu State College of Science and Technology GR: The right of repurchase may be exercised only by: (1) the seller in whom the right is
- Commentary. There is actually no contradiction between the ruling in the two cases recognized by a contract, (2) any person to whom the right may have been transferred, or (3)
above is we consider that what is important is the ‘vesting’ of the right of redemption in case of legal redemption, by the person so entitled by law.
by its proper exercise, which require notice and tender of payment. In essence, the
completion of the redemption process (i.e. payment) is tolled by the filing of a civil Cases of multiple parties
action relating to the issue of such redemption, provided that the exercise of the Art. 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after
redemption right and filing of the suit are done within the redemption period. they have exhausted the property of the vendor. (1512)
▪ Non-payment of price. Non-payment of the purchase price by itself would not serve to Art. 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires the
whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to
suspend the period of redemption. Catangcatang v Legayada make use of the right of redemption. (1513)
▪ Feigning equitable mortgage to toll period. Where evidence established that there could Art. 1612. If several persons, jointly and in the same contract, should sell an undivided immovable with a right of
be no honest doubt as to the parties’ intention that the transaction was clearly and repurchase, none of them may exercise this right for more than his respective share.
definitely a sale with pacto de retro, the seller would not be entitled to the 30-day period. The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the
latter may only redeem the part which he may have acquired. (1514)
Adorable v Inacala Art. 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come
▪ Same. It must appear that there was a belief on seller’s part, founded on facts attendant to an agreement upon the purchase of the whole thing sold; and should they fail to do so, the vendee cannot be
upon the execution of the sale with pacto de retro, that the agreement was in reality a compelled to consent to a partial redemption. (1515)
mortgage, one not intended to affect the title to the property ostensibly sold, but given Art. 1614. Each one of the co-owners of an undivided immovable who may have sold his share separately, may
independently exercise the right of repurchase as regards his own share, and the vendee cannot compel him to
merely as a security for a loan or obligation. Vda De Macoy v CA redeem the whole property. (1516)
▪ Seller’s intention, not buyers. Sellers in a sale judicially declared as pacto de retro may
not exercise right to repurchase within 30-day period under Art. 1606, although they have Death of vendor a retro. When seller a retro dies, the right to redeem cannot be exercised by
taken the position that the same was an equitable mortgage, if it is shown that there was a co-heir alone, since the right belonged in common to all the co-heirs as co-owners of the
no honest belief thereof since none of the circumstances under Art. 1602 were shown to conventional right of redemption so inherited. De Guzman v. CA,
exist. If they truly believed the sale to be an equitable mortgage, as a sign of good faith, ▪ Same. When the seller a retro dies, his heirs become co-owners of the conventional right
they should have consigned with the amount representing their alleged loan, on or before of redemption, and each heir may exercise the right to repurchase only with respect to his
the expiration of the right to repurchase. Abilla v. Gobonseng share alone. Where a co-owner/co-heir redeems the entire property for his own account,
he is deemed to have done so for the benefit of all his co-owners and entitled to be
reimbursed for the expenses incurred. Adille v Court of Appeals

81
 EFFECTING REDEMPTION applicable provisions are Articles 1606 and 1616 of the Civil Code, and not Article 448.
Art. 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of Narvaez v. Alciso.
the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by reason of the sale; Fruits
(2) The necessary and useful expenses made on the thing sold. (1518)
Art. 1617. If at the time of the execution of the sale there should be on the land, visible or growing fruits, there shall
be no reimbursement for or prorating of those existing at the time of redemption, if no indemnity was paid by the
purchaser when the sale was executed.
Who may the seller go against? The seller may bring his action against every possessor whose Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall be
right is derived from the buyer, even if in the second contract no mention should have been prorated between the redemptioner and the vendee, giving the latter the part corresponding to the time he possessed
made of the right to repurchase, without prejudice to the provisions of the Mortgage Law and the land in the last year, counted from the anniversary of the date of the sale. (1519a)
the Property Registration Decree, with respect to third persons, who may have bought in good
faith and for value.
▪ Article 1617 on the disposition of fruits of property redeemed applies only when the parties
failed to provide a sharing arrangement thereof; otherwise, the parties contractual
▪ Rights of a builder in good faith is inapplicable in cases involving contracts of sale with
stipulations prevail. Almeda v. Daluro.
right of repurchase where the owner of the land is the builder, sower, or planter because
the right to repurchase may be exercised only by the vendor in whom the right is
Effect when no redemption is made
recognized. Narvaez v Alciso
Art. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor
▪ Failure of the seller a retro to pay the useful improvements entitles the buyer a retro to
to comply with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order,
retain possession of the land until actual reimbursement is done by the seller a retro. after the vendor has been duly heard.
Gargollo v Duero
▪ Tender of payment. In order to exercise the right to redeem, only tender of payment is
sufficient. Legaspi v. Court of Appeals. The mere sending of letters by the seller expressing Consolidation of title and ownership. Art 1607 requires the vendee a retro to file an action
his desire to repurchase the property without accompanying tender of the redemption for the consolidation of title upon failure of the vendor a retro to redeem. However, the
price does not comply with the requirement of law. recording in the Registry of Deeds of the consolidation is not a condition sine qua non to the
▪ When tender cannot be validly made because the buyer cannot be located, consignation transfer of ownership. The essence of a pacto de retro sale is that the title and ownership of the
should be made before the court within the period; otherwise, his right of redemption shall property sold are immediately vested in the buyer (vendee a retro), subject to the resolutory
lapse. Catangcatang v. Legayada. condition of repurchase of the seller (vendor a retro) within the stipulated period. Failure to
▪ A formal offer to redeem accompanied by a tender of redemption price is not essential perform said resolutory condition vests absolute title and ownership over the property sold.
where the right is exercised through a judicial action within the redemption period and
simultaneously depositing the redemption price. Lee Chuy Realty Corp. v. CA ▪ Action for consolidation. Article 1607 abolished automatic consolidation of ownership in
the vendee a retro upon expiration of the redemption period by requiring buyer to institute
Redemption price an action for consolidation where seller a retro may be duly heard. If buyer succeeds in
▪ A stipulation in a sale a retro requiring as part of the redemption price interest for the cost proving that the transaction was indeed a pacto de retro, the vendor is still given a period
of money, is not in contravention with Art. 1616, since the provision is not restrictive nor of 30 days from the finality of the judgment within which to repurchase the property. Solid
exclusive, and does not bar additional amounts that the parties may agree upon, since the Homes v. CA.
article itself provides “and other stipulations which may have been agreed upon.” Solid ▪ Effect of failure to redeem. Once vendor fails to redeem the property within the stipulated
Homes v. CA. period, irrevocable title shall be vested in the vendee by operation of law. Vda. de Rigonan
▪ Article 448 on the rights of a builder in good faith is inapplicable in contracts of sale with v. Derecho.
right of repurchase—where true owner himself is the builder of the works on his own land, ▪ Effect of failure to consolidate title. Under a sale a retro, failure of buyer to consolidate
the issue of good faith or bad faith is entirely irrelevant. The right to repurchase may be title under Art. 1607 does not impair such title and ownership because the method
exercised only by the vendor in whom the right is recognized by contract or by any person prescribed thereunder is merely for purpose of registering and consolidating titles to the
to whom the right may have been transferred. In a sale with right of repurchase, the property. In fact, failure of a seller a retro to exercise the redemption right within the period

82
 agreed upon or provided for by law, vests upon the buyer a retro absolute title and Art. 1603. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable
mortgage.
ownership over the property sold by operation of law. Consequently, after the effect of
Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale.
consolidation, the mortgage or re-sale by the seller a retro of the same property would not
transfer title and ownership to the mortgagee or buyer, as the case may be, under the Latin
Definition. A mortgage which although lacking in some formality, or form or words, or other
maxim NEMO DAT QUOD NON HABET. Cadungog v. Yap.
requisites demanded by a statute, nevertheless reveals the intention of the parties to charge
real property as security for a debt, and contains nothing impossible or contrary to law.
OPTION TO PURCHASE/OPTION Matanguihan v CA
RIGHT OF REDEMPTION
CONTRACT ▪ An agreement to repurchase becomes a promise to sell when made after the sale because
Not a separate contract, but merely a part of Generally a principal, albeit preparatory, when the sale is made without such agreement the purchaser acquires the things sold
a main contract of sale and cannot exist contract and may be created independent of absolutely; and, if he afterwards grants the vendor the right to repurchase, it is a new
unless reserved at the time of the perfection another contract contract entered into by the purchaser as absolute owner. Roberts v. Papio
of the contract of sale
Must be embedded in a contract of sale at its May exist prior to or after the perfection of
perfections the sale, or be embedded in another ESSENTIAL REQUISITES OF AN EQUITABLE MORTGAGE
contract, like a lease, upon that contract’s 1. That the parties entered into a contract denominated as a contract of sale; and
perfection 2. That the intention was to secure existing debt by way of a mortgage.
Does not need a separate consideration in Must have a consideration separate and
order to be valid and effective distinct from the purchase price in order to
Absence of requisites. When these conditions are not proven, the existence of any of the
be valid
circumstances in Art 1602 cannot become the basis to treat the transaction as an equitable
Redemption period cannot exceed 10 years May exceed 10 years
mortgage.
Requires notice to be accompanied by a Requires only a notice of such exercise be
- Commentary: The inclination of the courts is to construe a transaction purporting to be a
tender of payment, including consignment given to the optioner
sale as an equitable mortgage, which involves a lesser transmission of rights and interest
when tender of payment cannot be made
over property in controversy.
effectively on the buyer
Extinguishes a contract of sale Results into the perfection of a contract of
▪ It is a fact that in time of grave financial distress which render persons hard-pressed to
sale
meet even their basic needs or answer an emergency, such persons would have no choice
but to sign a deed of absolute sale of property or a sale thereof with pacto de retro if only
EQUITABLE MORTGAGE to obtain a much-needed loan from unscrupulous money lenders. Matanguihan v. CA
▪ Parol evidence is competent and admissible in support of the allegations that an instrument
purporting on its face to transfer the absolute title to property, or to transfer the title with
PRESUMPTION OF EQUITABLE MORTGAGE a right to repurchase under specified conditions reserved to the seller, was in truth and in
Art 1602 fact given merely as security for the repayment of a loan. Mariano v. CA
The contract shall be presumed to be an equitable mortgage, in any of the following cases:
▪ Equitable mortgage favors the least transmission of rights and interest over a property in
(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; controversy, since the law seeks to prevent circumvention of the law on usury and the
(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption prohibition against pactum commissorium provisions. Additionally, it is aimed to end unjust
or granting a new period is executed; or oppressive transactions or violations in connection with a sale or property. The wisdom
(4) When the purchaser retains for himself a part of the purchase price;
of these provisions cannot be doubted, considering many cases of unlettered persons or
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall even those with average intelligence invariably finding themselves in no position
secure the payment of a debt or the performance of any other obligation. whatsoever to bargain fairly with their creditors. Spouses Miseña v. Rongavilla
In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall
be considered as interest which shall be subject to the usury laws.

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▪ Sales with rights of repurchase are not favored. Courts will not construe instruments to be ‘best evidence rule’, that is, that the deed of sale is the superior evidence to be used in contests
sales with a right to repurchase, with the stringent and onerous effects which follow, unless relating to the sale, is not applicable to equitable mortgage situations.
the terms of the document and the surrounding circumstances require it. Whenever, any
other construction can fairly and reasonably be made, such construction will be adopted OTHER CIRCUMSTANCES INDICATING EQUITABLE MORTGAGES
and the contract will be construed as a mere loan unless the court can see that, if enforced Lim v Calaguas
according to its terms, it is not an unconscionable one. Bautista v. Unangst For the presumption of equitable mortgage to apply, there must be either in the language of
▪ The decisive factor in evaluating whether an agreement is an equitable mortgage is the the contract, or in the conduct of the parties which shows clearly that they intended the contract
intention of the parties, as shown not necessarily by the terminology used in the contract to be a mortgage and not a pacto de retro sale.
but by all the surrounding circumstances, such as the relative situation of the parties at that 1. The terms used in the deed or SPA indicate that the conveyance was intended to be a loan
time, the attitude, acts, conduct, declarations of the parties, the negotiations between them secured by a mortgage;
leading to the deed, and generally, all pertinent facts having a tendency to fix and 2. The price paid, in relation to the value of the property, is grossly inadequate;
determine the real nature of their design and understanding. Banga v. Bello 3. The seller, at the time of the alleged sale was in urgent need of money;
▪ Consequently, the non-payment of the debt when due gives the mortgagee the right to 4. The supposed sller invested money he obtained from the alleged buyer in making
foreclose the mortgage, sell the property and apply the proceeds of the sale for the improvements on the property sold;
satisfaction of the loan obligation. While there is no single test to determine whether the 5. The supposed seller remained in possession of the land sold;
deed of absolute sale on its face is really a simple loan accommodation secured by a 6. The seller paid the land tax which is a usual burden attached to ownership;
mortgage, Art. 1602 of the Civil Code, however, enumerates several instances when a 7. The buyer accepted partial payments from the seller, and such acceptance of partial
contract is presumed to be an equitable mortgage. Heirs of Dela Rosa v. Batongbacal payment is absolutely incompatible with the idea of irrevocability of the title of ownership
of the purchaser at the expiration of the term stipulated in the original contract for the
Badges of Equitable Mortgage exercise of the right of redemption;
Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: 8. The seller remained bound for the repayment of the money received strongly tends to show
(1) When the price of a sale with right to repurchase is unusually inadequate; that mortgage only was intended;
(2) When the vendor remains in possession as lessee or otherwise; 9. The transaction had its origin in a borrowing of money also tends to show that the
(3) When upon or after the expiration of the right to repurchase another instrument extending the subsequent transaction although in the form of a sale with the right of repurchase was in
period of redemption or granting a new period is executed; fact intended as a mortgage; and
(4) When the purchaser retains for himself a part of the purchase price; 10. There was a previous debt between the parties and this was not extinguished by the sale,
(5) When the vendor binds himself to pay the taxes on the thing sold; but remained subsisting. But if the previous debt was extinguished by the sale, and the
(6) In any other case where it may be fairly inferred that the real intention of the parties is that the
seller has the privilege of repurchasing within a given time, the transaction is a conditional
transaction shall secure the payment of a debt or the performance of any other obligation.
sale.

Presumption of equitable mortgage. The existence of any one of the conditions, not a ▪ Applicable to absolute sales. A sale a retro actually intended to secure the payment of an
concurrence nor an overwhelming number of such circumstances, suffices to give rise to the obligation is presumed an equitable mortgage. Romulo v. Layug, Jr., such presumption of
presumption that the contract is an equitable mortgage. The presumption is not conclusive – equitable mortgage applies also to a contract purporting to be an absolute sale. Tuazon v.
it may be rebutted by satisfactory proof to the contrary. CA
▪ Some other circumstances. A contract purporting to be an absolute sale is presumed to
Action on equitable mortgages. An equitable mortgage is a voidable contract. It may be be an equitable mortgage: (a) when the price of the sale is unusually inadequate;215 (b)
annulled within four (4) years from the time the cause of action accrues. Ayson, Jr. v. Paragas when the vendor remains in possession as lessee or otherwise;216 (c) when after the
expiration of the right of repurchase, it is extended by the buyer. Hilado v. Heirs of Rafael
Parol evidence. Is competent and admissible in support of allegations that an instrument in Medalla (d) when the purported seller continues to collect rentals from the lessees of the
writing, purporting to transfer the absolute title to property or to transfer title with a right to property sold. Ramos v. Dizon; (e) when the purported seller was in desperate financial
repurchase, was in truth and in fact given merely as security for the repayment of a loan. The

84
 situation when he executed the purported sale, Bautista v. Unangst; or under threat of being Remedies Allowed in an Equitable Mortgage Situation
sued criminally. Ayson, Jr. V. Paragas Art. 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the
▪ Payment of real estate tax. Payment of real estate taxes is a usual burden attached to grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the
ownership, and when such payment is coupled with continuous possession of the property, grantor when it becomes due, he may demand the reconveyance of the property to him.
Art. 1605. In the cases referred to in Articles 1602 and 1604, the apparent vendor may ask for the reformation of
it constitutes evidence of great weight that a person under whose name the realty taxes the instrument.
were declared has a valid and right claim over the land. Go v. Bacaron
▪ Value of property. The fact that the price in a pacto de retro sale is not the true value of
the property does not justify the conclusion that the contract is one of equitable mortgage; REMEDIES IN CASE OF EQUITABLE MORTGAGES
in fact a pacto de retro sale, the practice is to fix a relatively reduced price to afford the When a contract is construed to be an equitable mortgage, then the following may result:
seller a retro every facility to redeem the property. Ignacio v. CA 1. Any money, fruit, or other benefit to be received by the buyer as rent or otherwise
▪ Gross inadequacy of price. To presume a contract is an equitable mortgaged based on shall be considered as interest which shall be subject to the usury laws;
gross inadequacy of price, it must be clearly shown from the evidence presented that the 2. The purported seller may seek reformation of the instrument;
consideration was in fact grossly inadequate at the time the sale was executed. Mere 3. The court shall decree that the seller-debtor pay his outstanding loan to the buyer-
inadequacy of price is not sufficient to create the presumption. Olivares v. Sarmiento creditor;
▪ “Inadequacy of purchase price” is considered so far short of the real value of the property 4. Where the trial court did not pass upon the mortgagor’s claim that he had paid his
as to startle a correct mind. Santiago v. Dizon; or that the mind revolts at it as such that a mortgage obligation, a remand of the case to the trial court, only for the purpose of
reasonable man would neither directly or indirectly be likely to consent to it. Vda de Alvarez determining whether the mortgage obligation had indeed been settled, and if not,
v. Court of Appeals; it must be grossly inadequate or shocking to the conscience. Tio v. how much should the mortgagor pay to settle the same.
Abayata
▪ Possession by vendor. Although under the agreement the seller shall remain in possession
Extinguishment of the principal contract. Since the equitable mortgage is a security contract,
of the property for only one year, such stipulation does not detract from the fact that
the expiration of the redemption period does not prevent the seller (actually equitable
possession of the property, an indicium of ownership, was retained by the alleged vendor
mortgagor) from extinguishing the main contract of loan, and thereby extinguish also the
to qualify the arrangement as an equitable mortgage, especially when it was shown that
ancillary equitable mortgage contract, so long as the buyer (equitable mortgagee) has not gone
the vendor retained part of the purchase price. Legaspi v. Ong
through the process of foreclosure.
▪ Tolerated possession. Mere tolerated possession is not enough to prove that the
▪ Reformation, cumulative. In the case of an equitable mortgage, although Art. 1605 which
transaction was an equitable mortgage. Redondo v. Jimenez
allows for the remedy of reformation, nothing therein precludes an aggrieved party from
▪ Under Art. 1602, delay in transferring title is not one of the instances enumerated by law—
pursuing other remedies to effectively protect his interest and recover his property, such
instances in which an equitable mortgage can be presumed. Nor does the fact that the
as an action for declaration of nullity of the deed of sale and specific performance. Tolentino
original transaction on the land was to support a loan, which when it was not paid on due
v. CA
date was negotiated into a sale, without evidence that the subsequent deed of sale does
- Commentary. But nullification of sale should only be allowed in case the party passes
not express the true intentions of the parties, give rise to a presumption of equitable
to a third-party buyer. Otherwise, it would be unfair to the buyer-mortgagee, who
mortgage. Ceballos v. Intestate Estate of the Late Emigdio Mercado.
would lose the security while the security contract remains valid.
▪ Where the ownership of the land is supposedly transferred to the buyer who provides for
▪ Consolidation of title. In equitable mortgage, consolidation of ownership in the
the funds to redeem the property from the bank but nonetheless allows the seller to later
mortgagee in equity upon failure of the mortgagor in equity to pay the obligation, would
on buy back the properties, is in the nature of an equitable mortgage governed by Articles
amount to a pactum commissorium. The only proper remedy is to cause the foreclosure of
1602 and 1604 of the Civil Code. Bacungan v. Court of Appeals
the mortgage in equity - Briones-Vasquez v. CA; or to determine if the principal obligation
secured by the equitable mortgage has been paid or settled - Banga v. Bello
▪ When reformation unnecessary. Reformation of the contract of sale with right of
repurchase is unnecessary where the parties had abided by their true agreement under the
deed.

85
 resultant sale is void and the registration and obtaining of new title in the name of the
PACTUM COMMISSORIUM buyer would have be declared void also. A. Francisco Realty v. CA
Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any
▪ Dispensing foreclosure. Stipulation in the Contract of Guaranty for the “prompt
stipulation to the contrary is null and void. (1859a) assignment and conveyance to [Home Guaranty Corp.] of all the corresponding properties
in the Asset Pool” that are held as security in favor of the guarantor, and dispensing with
the need of conducting foreclosure proceedings, judicial or otherwise, cover a pactum
Definition. A stipulation empowering the creditor to appropriate the thing given as security commissorium situation. Thus, whatever conveyance was made by Planters Development
for the fulfillment of the obligation in the event the obligor fails to live up to his undertakings, Bank to Home Guaranty Corp. in view of this illicit stipulation is ineffectual; it did not vest
without further formality, such as foreclosure proceedings or a public sale. In simpler words, it ownership in Home Guaranty Corp. All that this transfer engendered is a constructive trust
is a stipulation for automatic vesting of title over the security in the creditor in case of the in which the properties comprising the Asset Pool are held in trust by Home Guaranty Corp.,
debtor’s default. as trustee, for the trustor, La Savoie Home Guaranty Corp. v. La Savoie Dev. Corp

ELEMENTS OF PACTUM COMMISSORIUM

1. There should be a property mortgaged by way of security for the payment of the LEGAL REDEMPTION
principal obligation; and
2. There should be a stipulation for automatic appropriation by the creditor of the thing
Art. 1619. Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the
mortgaged in case of non-payment of the principal obligation within the stipulated contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction
period, and which thereby enables the mortgagee to acquire ownership of the whereby ownership is transmitted by onerous title. (1521a)
mortgaged property without any foreclosure proceedings.

Legal redemption. The right to be subrogated upon the same terms and conditions stipulated
Not applicable to true sales. The policy on pactum commissorium applies only when the in the contract, in the place of one who acquires a thing by purchase, dacion en pago, or any
covering transaction is a mortgage or other security contracts and has no application to a true other transaction whereby ownership is transmitted by onerous title.
sale or transfer transaction.
▪ Consent of debtor, immaterial. In a pactum commissorium there should be: (1) a property Privilege. Legal redemption is in the nature of a privilege created by law for reasons of public
mortgaged by way of security for the payment of the principal obligation, and (2) a policy and for the benefit and convenience of the redemptioner, to afford him a way out of
stipulation for automatic appropriation by the creditor of the thing mortgaged in case of what might be a disagreeable or an inconvenient association into which he has been thrust. It
non-payment of the principal obligation within the stipulated period. That the questioned is intended to minimize co-ownership. Fernandez v. Tarun
contracts were freely and voluntarily executed by petitioners and respondent is of no
moment, pactum commissorium being void for being prohibited by law. Ong v. Roban CONVENTIONAL REDEMPTION LEGAL REDEMPTION
Lending Corp Can only be constituted by express Does not have to be expressly reserved and
▪ Applies to mortgage, pledge, antichresis. It does not apply when the security for a debt reservation at the time of perfection of a covers sales and other onerous transfers of
is also money in the form of time deposit. Consing v. Court of Appeals contract of sale. title
▪ Automatic dacion en pago. Provision in MOA/Dacion en Pago with a Right to Repurchase In favor of the seller Given to a third-party to the sale
that if borrower fails to comply with the new terms of restructuring the loan, the agreement Extinguishes the underlying contract of sale Although it extinguishes the original sale,
shall automatically operate as a dacion en pago without need of executing any new as though there was never any contract at actually constitutes a new sale in
document does not constitute pactum commissorium. Solid Homes v. Court of Appeals all substitution of the original sale.
▪ Stipulation in promissory note that upon failure of makers to pay interests, ownership of
property would automatically be transferred to payee, and the covering deed of sale would
be registered, is in substance a pactum commissorium in violation of Art. 2088, and the

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 LEGAL REDEMPTION RIGHTS heirs for her sole account redounded to the benefit of all co-owners, and thereby the
Among Co-Heirs property redeemed remains to be owned pro-indiviso, such that the sale by the redeeming
Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the co- co-heir of the entire property to her children triggered the legal right of redemption of the
heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do other co-heirs under Article 1620, Mariano v. Court of Appeals
so within the period of one month from the time they were notified in writing of the sale by the vendor. (1067a)

REQUISITES FOR LEGAL REDEMPTION OF CO-OWNERS

Doctrine. A redemption by a co-owner of the property owned in common, even when he uses Calma v. Santos
his own fund, within the period prescribed by law, inures to the benefit of all other co-owners The requisites for the exercise of legal redemption are as follows:
1. There must be co-ownership;
▪ Right to inherit. Redemption right pertains to disposition of right to inherit, and not when 2. One of the co-owners sold his right to a stranger;
there is a sale of a particular property of the estate. Plan v. IAC 3. The sale was made before the partition of the co-owned property;
▪ Effect of partition. When heirs have partitioned the estate among themselves and each 4. The right of redemption must be exercised by one or more co-owners within a period
have occupied and treated definite portions thereof as their own, co-ownership has ceased of thirty days to be counted from the time he or they were notified in writing by the
even though the property is still under one title, and sale by one of the heirs of his definite co-owner vendor; and
portion cannot trigger the right of redemption in favor of the other heirs. Vda. De Ape v. 5. The vendee must be reimbursed the price of the sale.
CA
▪ Heirs who actually participated in the execution of the extrajudicial settlement, which
included the sale to a third person of their pro indiviso shares in the property, are bound Distinguishing Between Right of Redemption of Co-Heirs and Co-Owners
by the same; while the co-heirs who did not participate are given the right to redeem their According to Tolentino, the fine distinction between Article 1088 and Article 1620 is that when
shares pursuant to Art. 1088. Cua v. Vargas the sale consists of an interest in some particular property or properties of the inheritance, the
right of redemption that arises in favor of the other co-heirs is that recognized in Article 1620.
Among Co-Owners On the other hand, if the sale is the hereditary right itself, full or in part, in the abstract sense,
without specifying any particular object, the right recognized in Article 1088 exists. xMariano v.
Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners
or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall
Court of Appeals, 222 SCRA 736 (1993).
pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to Among Adjoining Owners
the share they may respectively have in the thing owned in common. (1522a)
Art. 1621. The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the area
Must be a stranger. The right of redemption may be exercised by a co-owner only when part of which does not exceed one hectare, is alienated, unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other
of the community property is sold to a stranger, not when sold to another co-owner because a apparent servitudes for the benefit of other estates.
new participant is not added to the co-ownership. Fernandez v. Tarun If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the
▪ Partition dissolves co-ownership. For the right of redemption to be exercised, co- adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first
ownership must exist at the time of the conveyance is made by a co-owner and the requested the redemption. (1523a)
Art. 1622. Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be
redemption is demanded by the other co-owner or co-owners. However, once a property used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be
is partitioned among co-owners, the community ceases to exist and there is no more reason re-sold, the owner of any adjoining land has a right of pre-emption at a reasonable price.
to sustain any right of legal redemption. Avila v. Barabat If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a
▪ Where the parents have a conventional right of redemption over a property die without reasonable price.
When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption, the owner
exercising the right and the title is consolidated by the Bank, but grants to the heirs a right whose intended use of the land in question appears best justified shall be preferred.
to repurchase the property from the Bank, what has been constituted is an option right,
and not a conventional nor legal right of redemption. Tan v. Court of Appeals
▪ Where the parents had a legal right to redeem the property mortgaged which after their
death was foreclosed by the bank as the highest bidder, the redemption by one of the co-

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 RULES FOR 1621 Period of legal redemption
Primary Structures Corp v Valencia Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the
1. The burden of proof to apply the exemption lies with the buyer; notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be
2. The right is not applicable to adjacent lands which are separated by brooks, drains, ravines, recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.
roads, and other apparent servitudes for the benefit of other estates;
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
3. In order for the right of redemption to apply, both land sought to be redeemed and the
adjacent property belonging to the person exercising the right of redemption must be rural
lands; if one or both are urban lands, the rights under Art 1621 cannot be invoked; and Period. It can only be exercised within the 30 days from the notice in writing by the prospective
4. If two or more adjoining owners desire to exercise the right of redemption at the same vendor or by the vendor.
time, the owner of the adjoining land of smaller area shall be preferred; and should both ▪ Notice must be written. Both the letter and the spirit of the law argue against any attempt
lands have the same area, the one who first requested the redemption. to widen the scope of the notice specified in the Civil Code to include any other kind of
notice, such as verbal or by registration. Marinao v. Court of Appeals
Urban land. Does not necessarily refer to the nature of the land itself sought to be redeemed ▪ Begins from written notice. The 30-day period for the commencement of the right to
nor to the purpose to which it is devoted, but to the character of the community or vicinity in exercise the legal redemption right, even when such right has been recognized to exist in
which it is found. a final and executory court decision, does not begin from the entry of judgment, but from
▪ Right of redemption covers only “resale” and does not cover exchanges or barter of the written notice served by the seller to the party entitled to exercise such redemption
properties De Santos v. City of Manila right. Guillen v. CA
▪ Requisite to show property previously bought on “speculation” dropped. Legaspi v. Court ▪ In favor of redemptioner. Interpretation of Art. 1623 where there is a need for notice in
of Appeals writing, should always tilt in favor of redemptioner and against buyer, since the purpose is
▪ When there is no issue that adjoining lands involved are both rural lands, right to redeem to reduce the number of participants until the community is terminated, being a hindrance
can be exercised and the only exemption provided is when the buyer cannot show that he to the development and better administration of the property. “It is a one-way street,” in
did not own any other rural land. Primary Structures Corp. v. Valencia favor of redemptioner who can compel buyer to sell to him but he cannot be compelled to
buy. Hermoso v. Court of Appeals
Sale of Credit in Litigation ▪ Written notice of sale is mandatory, notwithstanding actual knowledge of a co-owner, in
Art. 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it order to remove all uncertainties about the sale, its terms and conditions, as well as its
by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest efficacy and status. Verdad v. Court of Appeals
on the price from the day on which the same was paid. ▪ Notice may validly be served upon parents even when they have not been judicially
A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the
appointed as guardians since same is beneficial to the children. Badillo v. Ferrer
same is answered.
The debtor may exercise his right within thirty days from the date the assignee demands payment from him. ▪ Neither the registration of the sale, Cabrera v. Villanueva; nor the annotation of an adverse
claim, Vda. De Ape v. CA; nor notice being given by the city treasurer, Verdad v. CA; comply
For debtor to be entitled to extinguish his credit by reimbursing the assignee under Art. 1634, with the written notice required under Art. 1623 to begin the tolling of the 30-day period
the following requisites must concur: (a) there must be a credit or other incorporeal right; (b) of redemption.
the credit or other incorporeal right must be in litigation; (c) credit or other incorporeal right ▪ Notice required under Art. 1623 is deemed to have been complied with when other co-
must be sold to an assignee pending litigation; (d) assignee must have demanded payment owner has signed Deed of Extrajudicial Partition which embodies the disposition of part of
from the debtor; (e) debtor must reimburse the assignee for the price paid, judicial costs the property owned in common. Fernandez v. Tarun
incurred and interest on the price form the day on which the same was paid; and (f)
reimbursement must be done within 30 days from the date of the assignee’s demand. Situs Francisco v. Boiser, summarized the case-law on Art. 1623 (and also the commentary), and
Dev. Corp. v. Asiatrust Bank with definitiveness declared:
▪ For 30-day redemption period to begin to run, notice must be given by seller; notice given
by the buyer or even by the Register of Deeds is not sufficient. This expressly affirms the

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 original rulings in Butte v. Manuel Uy and Sons, Salatandol v. Retes; and expressly overruled OTHER LEGAL REDEMPTION RIGHTS
the ruling in Etcuban v. CA, which allowed the giving of notice by the buyer to be effective.
▪ When notice is given by the proper party (seller), no particular form of written notice is Redemption in Patents/Homesteads
prescribed under Art. 1623, so that the furnishing of the copies of the deeds of sale to the Public Land Act. Every conveyance of land acquired under the free patent homestead
co-owner would be sufficient, as held previously in Distrito v. CA; Conejero v. CA provisions, when proper, shall be subject to repurchase by the applicant, his widow, or his legal
▪ Filing of suit can replace notice. Affirmed ruling in Alonzo v. IAC, that filing of suit for heirs, within a period of five years from the date of the conveyance.
ejectment or collection of rentals against a co-owner actually dispenses with the written Sale of homestead, when void. Sale of homestead within the five-year prohibition period is
notice, and commences running of period to exercise the right of redemption, since filing void even when the sale is in favor of the homesteader’s own child.
of the suit amounted to actual knowledge of the sale. ▪ Right to repurchase. Right to repurchase is granted by law and need not be provided for
in the deed of sale. Berin v. Court of Appeals
Exceptions to notice rule: ▪ Period. Under free/homestead patent provisions of the Public Land Act a period of 5 years
▪ Estoppel/Co-owner acted as middleman to sale. When sale to the buyer was effected from the date of conveyance is provided, to be reckoned from the date of the sale and not
through the co-owner acting as broker, and never indicated that he would exercise his right from the date of registration in the Register of Deeds. Lee Chuy Realty v. CA
to redeem. Distrito v. Court of Appeals
▪ Laches. When buyers took possession of the property immediately after the execution of Redemption in Tax Sales
the deed of sale in their favor and lived in the midst of the other co-owners who never National Internal Revenue Code. In case of delinquency sale of property of a taxpayer for
questioned the same. Pilapil v. Court of Appeals failure to pay tax assessments, within one year from the date of sale, the delinquent taxpayer,
▪ Actual knowledge. When the co-owner admits that he actually knew of the sale by the or anyone for him, shall have the right of redeeming the property by paying the amount of
other co-owners for more than 7 years; he is guilty of laches; and more so he seeks to taxes, penalties, and interests thereon from the date of delinquency to the date of sale, with
exercise the right of redemption long after the property has ceased to be co-owned pro- interest on the price. The owner shall not be deprived of the possession of the said property
indiviso. Aguilar v. Aguilar and shall be entitled to the rents and other income thereof until the expiration of the time
▪ Actual notice. Where the co-owners had actual (not constructive) notice of the sale at the allowed for its redemption.
time thereof and/or afterwards, a written notice of a fact already known to them would be
superfluous. The statute does not demand what is unnecessary. Si v. CA Redemption by Judgment Debtor
Rules of Court. A judgment debtor or his successors-in-interest or a creditor having a lien by
Record in the Registry of Property attachment, judgment, or mortgage on the property sold at public auction shall have one year
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the
from date of registration of the certificate of sale to redeem the property by paying the
notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be purchaser at the public auction the amount of his purchase, with interest, together with amount
recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written of any assessments or taxes which the purchaser may have paid thereon after purchase, with
notice thereof to all possible redemptioners. interest thereon.
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
▪ Written notice. Written notice must be given to judgment debtor before sale of the
property on execution, to give him the opportunity to prevent the sale by paying the
Proper form. Must be accompanied by an affidavit of the seller that he has given written notice judgment debt sought to be enforced and the costs which have been incurred. Where there
thereof to all possible redemptioners. is a third-party claim, sheriff should demand from the judgment creditor who becomes the
▪ The clause in the deed of sale that seller has complied with the provisions of Art. 1623, highest bidder, payment in cash of his bid instead of merely crediting the amount to the
cannot be taken to “being the written affirmation under oath, as well as the evidence, that partial satisfaction of the judgment debt. Torres v. Cabling
the required written notice to petitioner under Art. 1623 has been meet, for the person ▪ Period of redemption. Under Sec. 28, Rule 39 of the 1997 Rules of Civil Procedure, the
entitled to the right is not a party to the deed of sale. Primary Structures Corp. v. Valencia period of redemption shall be “at any time within one (1) year from the date of registration
of the certificate of sale,” so that the period is now to be understood as composed of 365
days, unlike the 360 days under the old provisions of the Rules of Court. Ysmael v. Court of
Appeals

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Redemption in Extrajudicial Foreclosure
▪ Redemption of extra-judicially foreclosed properties is exercised within 1-year from
date of auction sale as provided in Act 3135. Lee Chuy Realty Corp. v. CA
▪ Dacion en pago. Execution of a dacion en pago by sellers effectively waives the redemption
period normally given a mortgagor. First Global Realty and Dev. Corp. v. San Agustin

Redemption in Judicial Foreclosure of Mortgage

▪ CredTrans finals flashbacks. No right to redeem from a judicial foreclosure sale, except
those granted by banks or banking institutions. GSIS v. CFI
▪ One-year redemption period in foreclosure is not interrupted by filing an action assailing
the validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires
the property at the foreclosure sale can proceed to have title consolidated in his name and
a writ of possession issued in his favor. Union Bank v. CA
▪ After bank has foreclosed the property as highest bidder in the auction sale, the accepted
offer of spouses-borrowers to “repurchase” the property was actually a new option
contract, and the condition that the spouses-borrowers will pay monthly interest during
the one-year option period is considered to be the separate consideration to hold the
option contract valid. Dijamco v. Court of Appeals
▪ A stipulation to render the right to redeem defeasible by an option to buy on the part of
the creditor. Soriano v. Bautista

Redemption in Foreclosure by Rural Banks

▪ If the land is mortgaged to a rural bank, mortgagor may redeem within two (2) years from
the date of foreclosure or from the registration of the sheriff's certificate of sale at such
foreclosure if the property is not covered or is covered, respectively, by Torrens title. If the
mortgagor fails to exercise such right, he or his heirs may still repurchase within five (5)
years from expiration of the two (2) year redemption period pursuant to Sec. 119 of the
Public Land Act (C.A. 141). Rural Bank of Davao City v. Court of Appeals

Legal Right to Redeem under Agrarian Reform Code

▪ Under Section 12 of R.A. 3844, as amended, in the event that the landholding is sold to a
third person without the knowledge of the agricultural lessee, the latter is granted by law
the right to redeem it within 180 days from notice in writing and at a reasonable price and
consideration. Quiño v. Court of Appeals

90
 he could set up against the assignor. The consent of the debtor is not essential for its perfection,
his knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any
Assignment
payment he might make.
Gratuitous assignment. Where the assignment is on account of pure liberality on the part of
the assignor, the riles on donation would likewise be pertinent.
Note: Unfortunately, no summary for the cases here on out. Onerous assignment. Where valuable consideration is involved, the assignment partakes of
Definition the nature of a contract of sale or purchase.
Assignment. Basically, it is the sale of credit and other incorporeal rights wherein the assignor ▪ An assignment of credit is an agreement by virtue of which the owner of a credit, known
is the seller and the assignee is the buyer. Because the contract has the same characteristics as as the assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and
a contract of sale, the Law on Sales is generally applicable to Assignment. without the consent of the debtor, transfers his credit and accessory rights to another,
Main difference: Subject Matter. Assignment is limited to intangible property whereas sale known as the assignee, who acquires the power to enforce it to the same extent as the
covers both tangible and intangible. assignor could enforce it against the debtor. Aquintey v. Tibong
▪ “Assignment” is the process of transferring the right of assignor to assignee who would ▪ As a consequence, the third party steps into the shoes of the original creditor as subrogee
then have the right to proceed against the debtor. Assignment may be done gratuitously of the latter. Although constituting a novation, such assignment does not extinguish the
or onerously, in latter case, assignment has effect similar to that of a sale. Licaros v. obligation under the credit assigned, even when the assignment is effected without his
Gatmaitan consent. South City Homes V. BA Finance Corp
▪ In its most general and comprehensive sense, an assignment is “a transfer or making over ▪ By virtue of the Deed of Assignment, assignee is deemed subrogated to the rights and
to another of the whole of any property, real or personal, in possession or in action, or of obligations of assignor and is bound by exactly the same conditions as those which bound
any estate or right therein. It includes transfers of all kinds of property, and is peculiarly the assignor. Accordingly, assignee of a nonnegotiable chose in action acquires no greater
applicable to intangible personal property and, accordingly, it is ordinarily employed to right than what was possessed by his assignor and simply stands into the shoes of the
describe the transfer of non-negotiable choses in action and of rights in or connected with latter. Fort Bonifacio Dev. Corp. v. Fong
property as distinguished from the particular item or property.” PNB v. Court of Appeals
Issues Relating to Debtor
Consensual: Perfection by Mere Consent
Art. 1626. The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the
Art. 1624. An assignment of creditors and other incorporeal rights shall be perfected in accordance with the obligation. (1527)
provisions of Article 1475.
In an assignment of credit, the debtor’s consent is not essential for its perfection, his knowledge
thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment he
But Must Be in Public Instrument to Affect Third Parties might make. Project Builders v. Court of Appeals
Art. 1625. An assignment of a credit, right or action shall produce no effect as against third person, unless it appears ▪ Consent of debtor is not necessary in order that assignment may fully produce legal effects,
in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment involves real and the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors
property. (1526)
would be prevented from assigning their credits because of the possibility of the debtors’
refusal to given consent. What the law requires in an assignment of credit is mere notice to
EFFECTS OF ASSIGNMENT debtor, the purpose of which is only to inform the debtor that from the date of the
Assignment of Credit. An assignment of credit is an act of transferring, either onerously or assignment, payment should be made to the assignee and not to the original creditor.
gratuitously, the right of an assignor to an assignee who would then be capable of proceedings NIDC v. Delos Angeles
against the debtor for enforcement or satisfaction of credit.
Transfer of rights. The transfer of rights takes place upon perfection of the contract and Accessories and Accessions
ownership of the right, including all appurtenant accessory rights, is thereupon acquired by the Art. 1627. The assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge or
assignee. preference.
Binding upon debtor. The assignment binds the debtor only upon acquiring knowledge of
the assignment but he is entitled, even then, to raise against the assignee the same defenses

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▪ Assignment of a credit includes all the accessory rights, such as guaranty, mortgage, pledge Debtor’s right to redeem. The debtor’s right to redeem shall not exist with respect to the
or preference. United Planters Sugar Milling Co. (UPSUMCO) v. CA following assignments which the law considers not for speculation:
(a) assignment of the credit or incorporeal right to the co-heir or co-owner of the rights
Tradition in Assignment assigned
Constructive delivery. The transfer of title or ownership over the subject matter of assignment (b) Assignment to a creditor in payment for his credit; and
should also be effected not by the mere perfection of the assignment but by constructive (c) Assignment to the possessor of a tenement or piece of land which is subject to the
delivery, such as the execution of a public instrument. right in litigation assigned.
▪ Notarization converts a private document Assignment of Credit into a public document, In all of the foregoing cases, the assignee has a legitimate purpose for taking the assignment
thus complying with the mandate of Art. 1625 and making it enforceable even as against of credit and not merely for speculation.
third persons. Ledonio v. Capitol Dev. Corp
Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third
Warranties of Assignor person.
Art. 1628. The vendor in good faith shall be responsible for the existence and legality of the credit at the time of the
SUBROGATION V ASSIGNMENT OF CREDIT
sale, unless it should have been sold as doubtful; but not for the solvency of the debtor, unless it has been so expressly
stipulated or unless the insolvency was prior to the sale and of common knowledge. Licaros v. Gatmaitan
Even in these cases he shall only be liable for the price received and for the expenses specified in No. 1 of Article CONVENTIONAL SUBROGATION ASSIGNMENT OF CREDIT
1616. Extinguishes the obligation and gives rise to Refers the same right which passes from one
The vendor in bad faith shall always be answerable for the payment of all expenses, and for damages. (1529)
a new one person to another.
▪ Assignor warrants only the existence or legality of the credit but not the solvency of the Nullity of an old obligation may be cured by Nullity is not remedied by assignment
debtor. Nyco Sales Corp. v. BA Finance subrogation, such that a new obligation will
EXCEPTIONS: be perfectly valid
(a) If this is expressly warranted; Requires an agreement among the original Consent of debtor is not necessary in order
(b) If insolvency is known by the assignor prior to assignment; creditor, debtor, and the new creditor. that assignment may fully produce legal
(c) If insolvency is prior to assignment is common knowledge. effects
▪ When dacion en pago takes the form of an assignment of credit, it may extinguished the Provision breakdown: Assignment of Copyright (Section 180, Intellectual Property Code)
obligation; however, by virtue of the warranty in Art. 1628, which makes the vendor liable Rights of Assignee. 180.1. The copyright may be assigned in whole or in part. Within the scope of the assignment, the
assignee is entitled to all the rights and remedies which the assignor had with respect to the copyright.
for the existence and legality of the credit at the time of sale, when it is shown that the Must be written. 180.2. The copyright is not deemed assigned inter vivos in whole or in part unless there is a written
assigned credit no longer existed at the time of dation, then it behooves the assignor to indication of such intention.
make good its warranty and pay the obligation. Lo v. KJS Eco-Formwork System Phil License, not assignment. 180.3. The submission of a literary, photographic or artistic work to a newspaper, magazine
or periodical for publication shall constitute only a license to make a single publication unless a greater right is expressly
granted. If two (2) or more persons jointly own a copyright or any part thereof, neither of the owners shall be entitled to
Right of Repurchase on Assignment of Credit under Litigation grant licenses without the prior written consent of the other owner or owners.
Art. 1634. When a credit or other incorporeal right in litigation is sold, the debtor shall have a right to extinguish it Copyright and material object. SECTION 181. Copyright and Material Object. - The copyright is distinct from the
by reimbursing the assignee for the price the latter paid therefor, the judicial costs incurred by him, and the interest property in the material object subject to it. Consequently, the transfer or assignment of the copyright shall not itself
on the price from the day on which the same was paid. constitute a transfer of the material object. Nor shall a transfer or assignment of the sole copy or of one or several copies
A credit or other incorporeal right shall be considered in litigation from the time the complaint concerning the of the work imply transfer or assignment of the copyright.
same is answered.
The debtor may exercise his right within thirty days from the date the assignee demands payment from him. Assignment as an Equitable Mortgage
Art. 1635. From the provisions of the preceding article shall be excepted the assignments or sales made:
▪ When assignor executes a Deed of Assignment covering her leasehold rights in order to
(1) To a co-heir or co-owner of the right assigned;
(2) To a creditor in payment of his credit; secure payment of promissory notes covering the loan she obtained from the bank, such
(3) To the possessor of a tenement or piece of land which is subject to the right in litigation assigned. (1536) assignment is equivalent to an equitable mortgage, and non-payment of the loan cannot
authorize bank to register the leasehold rights in its name as it would be a violation of Art.

92
2088 against pactum commissorium. The proper remedy of the assignee is to proceed to
foreclose on the leasehold right assigned as security for the loan. DBP v. Court of Appeals

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 Effects of Non-Compliance
a. On the transaction itself. If purchase money or mortgage proceeds are not applied pro-
Miscellaneous Laws
rata to payment of the bona fide claims of the creditors, the sale is deemed fraudulent and
void. (Sec. 4)
b. On the seller. Non-giving of the list of creditors or intentional omission of the names of
BULK SALES LAW some of the creditors, and placing of wrong data required by law, would subject the seller
(ACT NO. 3952) or mortgagor to penal sanctions. (Sec. 4)
c. ‘Lack of valuable consideration’. Bulk transfer without consideration or for nominal
consideration punishable. (Sec. 7)
Scope: Chin v. Uy d. Failure to comply with other provisions of the law the non-application of the consideration
proportionately to the creditors, the preparation of the inventory, and the notification to
Coverage of “Bulk Sale” – creditors, are also made punishable. (Sec. 11)
Every sale, transfer, assignment, or mortgage of: ▪ A bulk sale done without complying with the Law, makes the transaction fraudulent and
a. A stock of goods, wares, merchandise, provisions or material other than in the ordinary void, but does not change the relationship between seller/assignor/encumbrancer and his
course of business (Extraordinary sale of goods); creditor. Hence, a judgment providing for subsidiary liability is invalid—proper remedy is
b. All, or substantially all, of the fixtures and equipment used in and about the business to collect on the credit against the defendants, and if they cannot pay, to attach on the
(Extraordinary sale of fixtures and equipment); property fraudulently mortgage since it still pertain to the debtors-defendants. People v.
c. All, or substantially all, of the business or trade conducted (sale of business enterprise). Mapoy

Exception: Even if the transaction falls within the definition of bulk sale, it does not apply when:
(a) When the seller obtains a written waiver from all creditors; RETAIL TRADE LIBERALIZATION ACT
(b) Those effected by executors, administrators, receivers, assignees in insolvency, or
public officers, acting under legal process. (Sec. 8)
Public Policy under RTLA: Reversal of Paradigm; Focus from Protecting Filipino Retailers
▪ The Bulk Sales Law (BSL) must be construed strictly. The disposal by the owner of a foundry
to Promoting the Consumers’ Interests.
shop of all his iron bars and others does not fall under the law, because the contents of a
▪ The control and regulation of trade in the interest of the public welfare is an exercise of the
foundry shop are not wares and merchandise. BSL only covers sales in bulk of fixtures and
police power of the State. To the extent that the Retail Trade Liberalization Act (R.A. 8762),
equipment used in the mercantile business, which involves the buying and selling of
lessens the restraint on the foreigners’ right to property or to engage in an ordinarily lawful
merchandise. People v. Wong
business, it cannot be said that the law amounts to a denial of the Filipinos’ right to property
▪ BSL applies to merchants who are in the business of selling goods, wares and similar
and to due process of law. Espina v. Zamora
merchandise, and cannot cover the sale of assets by a manufacturer since the nature of his
business does not partake of merchandise. DBP v. Judge of the RTC of Manila
Retail trade. Covers any act, occupation, or calling of habitually selling direct to the general
public merchandise, commodities, or goods for consumption. The elements thereof are;
Compliance Requirements Under the Law
1. The seller is engaged in habitual selling;
a. Ten (10) days before the intended sale in bulk, the seller must take an inventory of his stock
2. The selling is directed to the general public; and
and advise all his creditors of the same.
3. The object of the sale is merchandise, commodities, or goods for consumption.
b. At the time of sale, merchant must give the buyer a certified schedule of his debts: names
Exceptions:
of creditors, amounts owing to each and the nature of the debt.
(a) Sales by a manufacturer, processor, laborer, or worker to the general public of the products
c. Purchase price paid must be applied proportionately to these debts.
manufactured, processed, or produced by him if his capital does not exceed P100k;
(b) Sales by a farmer or agriculturist of the products of his farm, regardless of capital;
(c) Sales in restaurant operations by a hotel owner or inn-keeper irrespective of the amount
of capital, provided that the restaurant is incidental to the hotel business;

94
(d) Sales to the general public, through a single outlet owned by a manufacturer of products CATEGORY B: ≥ US$2.5 Million, but < US$7.5 Million; Store investment not < US$30,000.00;
manufactured, processed, or assembled in the PH, irrespective of capitalization; Net Worth of US$200 Million
(e) Sales to industrial and commercial users or consumers who use the products bought by CATEGORIES C: ≥ US$7.5 Million; Store investment not < US$830,000.00; Net Worth of US$200
them to render service to the general public and/or produce or manufacture of goods Million
which are int turn sold by them; and CATEGORY D – Luxury Items: Store investment of not < US$250,000.00; Net Worth of US$ 50
(f) Sales to the government, its agencies, and GOCCs. Million
Another exception: Natural born citizens of the PH. A natural-born citizen who has lost his
PH citizenship but resides in the PH shall be granted the same rights as Filipino citizens for 4. Foreign Investment or Engagement in Retail Trade in the Philippines
purposes of retail trade. a. Requirement of Foreign Retailers: (i) 5 retailing branches in the world; unless one store
capitalized at minimum of US$25 Million; (ii) 5-year track record at retailing; (iii) with
Meaning of “Habitual Selling” reciprocity for Filipino retailers
Engaging in sale of merchandise as an incident to the primary purpose of a corporation [e.g., b. Requirements for Foreign Investors
operation of a pharmacy by a hospital; sale of cellphones by a telecommunication company] c. Grandfather Rule on 100% Filipino Ownership of Corporate Entity: SEC Opinions, dated
does not constitute “retail trade” within the purview of RTNL, as this is taken from the provision 20 March 1972 and 22 April 1983; DTI Opinion to Tanada, Teehankee & Carreon Law Office,
thereof excluding form the term “retail business” the operation of a restaurant by a hotel-owner dated 3 August 1959.
or -keeper since the same does not constitute the act of habitually selling direct to the general d. Public Offerings of Shares of Stock
public merchandise, commodities or goods for consumption. √SEC Opinion No. 11, s. 2002,
13 Nov. 2002. 5. Foreign Retailers in the Philippines
a. Pre-qualification Requirements
Meaning of “For Consumption” (DOJ Opinion No. 325, s. 1945; IRR of Law). b. Rules on Branches/Stores
Consumption. The utilization of economic goods in the satisfaction of want resulting in c. Promotion of Locally-Manufactured Products
immediate destruction, gradual decay or deterioration, or transformation into other goods. d. Prohibited Activities of Foreign Retailers
▪ The Law limits its application to the sale of items sold for domestic or household, or e. Binding Effect of License to Engage in Retail on Private Parties – When a license to
properly called consumer goods; whereas, when the same items are sold to commercial engage in cocktail lounge and restaurant is issued to a Filipino married to a foreigner, it is
users, they would constitute non-consumer goods and not covered by the Law. Balmaceda conclusive evidence of the latter's ownership of the retail business as far as private parties are
v. Union Carbide Philippines concerned. Dando v. Fraser

Meaning of “General Public” (DOJ Opinion No. 253, s. 1954). 6. Penalty Provision
General public. Must mean that the activities of the seller must be such that the target clientele
or customers must not only be a particular person or group of persons. This is not determined
ANTI-DUMMY ACT
by the nature of the goods sold or whether they would be acceptable or usable only by a sector
(Comm. Act No. 108, as amended by P.D. 715)
of society.
▪ Even when consumer goods is limited only to the company officers, same would still be
retail trade covered by the Law. Goodyear Tire v. Reyes, Sr. a. Purpose of Law: Penalizes Filipinos who permit aliens to use them as nominees/dummies to
▪ Where company manufactures glass products only on specific orders, it does not sell enjoy privileges reserved for Filipinos. Criminal sanctions are imposed on the president,
directly to consumers but manufacturers, it cannot be said that it is a merchandiser. DBP manager, board member or persons in charge of the violating entity and causing the latter to
v. Judge of RTC of Manila forfeit its privileges, rights and franchises.
b. Particular Prohibition: Section 2-A prohibits aliens from intervening in the management,
3. Categories of Retail Trade Enterprises operation, administration or control of nationalized business (whether wholly or partially),
whether as officers, employees or laborers, with or without remuneration. Aliens may not take
CATEGORY A: < US$2.5 Million – Exclusive to Filipino citizens and 100% Filipino entities

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part in technical aspects, provided no Filipino can do such technical work, and with express
authority from the Philippine President.
c. Later, P.D. 715 amended the Law by adding of a proviso expressly allowing the election of
aliens to the Boards of Directors of corporations engaged in partially nationalized activities in
proportion to their allowable participation or share in the capital of such entities. The
amendment was meant to settle the uncertainty created in the obiter opinion in Luzon
Stevedoring Corp. v. Anti-Dummy Board, which rejected the argument that the Anti-Dummy
Law covered only employment in wholly nationalized businesses and not in those that are only
partly nationalized.
The Filipino common-law wife of a Chinese national is not barred from engaging in the retail
business provided she uses capital exclusively derived from her paraphernal properties;
allowing her common-law Chinese husband to take part in management of the retail business
would be a violation of the law. Talan v. People

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