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ARTICLE. 1458.

By the contract of sale one of the contracting parties obligates


himself to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefor a price certain in money or its equivalent
CONCEPT OF CONTRACT OF SALE

Agreement whereby one of the parties (called the seller or vendor) obligates
himself to deliver something to the other (called the buyer or purchaser or
vendee) who, on his part, binds himself to pay therefore a sum of money or its
equivalent

2.

BILATERAL
ONEROUS
COMMUTATIVE

NOMINATE
PRINCIPAL

Perfected the moment there is a meeting


of minds upon the thing which is the
object of the contract and upon the price
(Art. 1475)
Both the contracting parties are bound to
fulfill correlative obligations towards
each other
The thing sold is conveyed in
consideration of the price and vice versa
The thing sold is considered the
equivalent of the price paid and vice
versa
However, the contract may be aleatory
as in the case of the sale of a hope
Special name or designation in the Civil
Code namely, sale
It does not depend for its existence and
validity upon another contract

ESSENTIAL REQUISITES OF A CONTRACT OF SALE


1.

CONSENT OR MEETING OF THE MINDS

General Contract: Consent is the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract (Art.
1319)
Contract of Sale: Consent on the part of the seller or vendor to transfer
ownership of, and deliver, a determinate thing, and the consent on the part
of the buyer or vendee to pay the price certain (Art. 1475)
The contract to sell is a bilateral contract
A person is not incompetent to contract merely because of advanced years
or by reason of physical infirmities

DE LEON SALES REVIEWER

OBJECT OR SUBJECT MATTER

6 CHARACTERTISTIC OF CONTACT OF SALE


CONSENSUAL

E: When such age or infirmities have impaired the mental faculties so


as to prevent a person from intelligibly protecting his property rights,
then such person is undeniably incapacitated
There may however be a sale against the will of the owner in case of
expropriation, ordinary execution sale, judicial foreclosure sale and extrajudicial foreclosure sale
o

CHAPTER 1
NATURE AND FORM OF CONTRACT

3.

Refers to the determinate thing which is the object of the contract


May be personal or real property
Subject matter may be present or future
Subject matter must be licit and must be within the commerce of men
An impossible thing cannot be the object of a contract = void
The civil code allows:
o Sale of credit
o Sale of the whole of certain rights, rents or products
o Sale if inheritance already acquired (but not future inheritance)
o Sale of possession
It prohibits:
o Sale of easements independent of the estate to which they belong
o Sale of contagious animals

CAUSE OR CONSIDERATION

Note:

This refers to the price certain in money or its equivalent


In onerous contract = the cause is the prestation or promise of a thing or
service by the other (Art. 1350)
Contract of Sale = the cause as far as the vendor is concerned is the
acquisition of the price certain in money or its equivalent, and the cause as
far as the vendee is concerned, is the acquisition of the thing which is the
object of the contract
Price: The cost at which something is obtained, or something which one
ordinarily accepts voluntarily in exchange for something else, or the
consideration given for the purchase of a thing
Price must be certain, real and pecuniary
Tantum valet res quantum vendi potest a thing is worth only what
someone else will pay for it
Gross inadequacy of the price does not affect a contract of sale
Its equivalent payment need not be in money, so that there can be a
sale where the thing given as token of payment has been assessed and
evaluated and its price equivalent in terms of money has been determine
Conveyances by virtue of forged signature are void ab initio and inexistent
for absence of consent and cause or consideration
Presumption is that a contract has sufficient consideration
Absence of any of the 3 essential elements negates the existence of a
perfected contract of sale
1




Michelle Duguil,


Burden of proof is upon the person who alleges existence of sale
NATURAL AND ACCIDENTAL ELEMENTS
NATURAL
Deemed to exist in certain contracts, in
the absence of any contrary stipulation
Warranty against eviction (1548)
Hidden defects (1561)

ACCIDENTAL
Those which may be present or absent
depending on the stipulations of the
parties
Conditions, Interest, Penalty
Time or place of payment, etc.

Contract of sale has correlative duty:

Of the seller to deliver the property

Obligation of the buyer to pay the agreed price


1.

STAGES OF CONTRACT OF SALE


1.

NEGOTIATION

Covering the period from the time the prospective contracting parties
indicate interest in the contact to the time the contract is perfected

2.

PERFECTION

Takes place upon the concurrence of the essential elements of the sale
which are the meeting of the minds of the parties as to the object of the
contract and upon the price; and

3.

CONSUMMATION

Begins when the parties perform their respective undertakings under the
contract of sale, culminating in the extinguishment thereof

2.

2.

The transfer of title to property or agreement to transfer title for a price


actually paid, NOT mere physical transfer of the property = essence of sale
GR: Being consensual, it is perfected by mere consent
o E: Impossible service delivery of ownership is no longer possible
Payment of purchase price is NOT essential to the transfer of ownership as
long as the property sold has been delivered

WHERE TRANSFER OF OWNERSHIP NOT INTENDED BY THE PARTIES

A contract for the sale or purchase of goods/commodity to be delivered at a


future time, entered into without the intention of having any
goods/commodity pass from one party to another, but with the
understanding that at the appointed time, the purchaser is merely to
receive or pay the difference between the contract and the market prices =
illegal
Futures Parties merely gamble on the rise or fall of prices = null and
void ! the loser may recover what he paid (2018)

KINDS OF CONTRACT OF SALE


Presence or absence of
Condition

ABSENCE OF PRICE/NON-PAYMENT OF PRICE


1.

OBLIGATION TO DELIVER AND PAY

Absolute

SALE INEXISTENT AND VOID

A contract of sale is void and produces no effect where the same is without
cause or consideration in that the purchase price, which appears thereon
as paid, has, in fact, never been paid by the buyer to the seller

X mere estimates

SALE SUBJECT TO RESCISSION OR SPECIFIC PERFORMANCE

Non-payment of the purchase price = resolutory condition ! judicial


rescission or specific performance (1191)

Failure to pay within a fixed period, in the absence of any express


agreement that payment on time is essential, does not dissolve the
contract of sale ! results at most in DEFAULT which the vendor may
exercise his legal remedies

A stipulation in a contract providing for automatic rescission upon nonpayment within the stipulated period = valid

A notarized document is evidence of high character for proving payment of


purchase price by the vendee

Conditional

TRANSFER OF TITLE TO PROPERTY FOR A PRICE, ESSENCE OF SALE

DE LEON SALES REVIEWER

Not subject to any


condition
Title to the property
passes
to
the
purchaser
upon
delivery of the thing
sold
Ownership of the
property sold passes
upon
actual
or
constructive delivery
thereof
Sale contemplates a
contingency
Where the contract
us subject to certain
conditions
Usually in the case of
the vendee, the full
payment
of
the
agreed
purchase
price
In the case of the
Michelle Duguil,

vendor, the fulfillment


of certain warranties
Other kinds

Nature of the subject


matter
Manner of payment of
the price
Validity

Real or Personal
Tangible or Intangible
Cash
Installment
Valid
Rescissible
Unenforceable
Void

CONTRACT OF SALE VS. CONTRACT TO SELL WITH RESERVED TITLE


CONTRACT TO SELL

Commonly entered into so as to protect the seller against a buyer who


intends to buy a property in installments by withholding ownership over the
property until the buyer effects full payment therefor

CONTRACT TO SELL
Title is reserved

Ownership X automatic transfer

Must execute another instrument


contract of absolute sale
rd
3
person X deemed in BF and
prospective buyer cannot seek relief or
conveyance of property

X double sale

Sue for damages seller

CONDITIONAL SALE
If suspensive condition is fulfilled =
contract is perfect

Automatic transfer by operation of


law
rd
3
person who had actual or
constructive knowledge of first sale = BF
= X defeat first buyers title = seek
reconveyance

ART. 1459. The thing must be licit and the vendor must have a right to transfer
ownership thereof at the time of delivery
REQUISITES CONCERNING OBJECT

TRANSFER OF TITLE

OWNERSHIP
VENDOR

OF

TYPE OF CONDITIONS

RESCISSION OF THE
CONTRACT
SPECIFIC
PERFORMANCE
EXECUTION OF SALE
DOCUMENT

CONTRACT OF SALE
Title passes to the buyer
upon delivery of the thing
sold

CONTRACT TO SELL
Ownership is reserved in
the seller and is not to
pass until the fulfillment of
certain conditions, such
as full payment of the
purchase price

The vendor has lost and


cannot
recover
the
ownership of the thing
sold
and
delivered,
actually or constructively,
until and unless the
contract of sale itself is
resolved and set aside
Negative
resolutory
condition
-Remedy: exact fulfillment
or rescind contract

Title remains in the


vendor and if the vendee
does not comply with the
condition precedent of
making payment at the
time specified in the
contract

Rescission

Positive
suspensive
condition
-failure X breach
-Prevents obligation of
vendor to convey title
X rescission

Specific performance

X specific performance

Need
to
execute
another document

DE LEON SALES REVIEWER

THING
1. Determinate
2. Licit

If illicit = void
3. Not impossible
4. Within the commerce of men
RIGHTS

Must not be intransmissible


o Example:
1. Right of usufruct
2. Right of Conventional Redemption
NOTE:

Intransmissible right to vote, right to public office, marital and


parental rights
Personal Right to be partner in parternship, right to act as agent of
another, right of the baliee to use the thing loaned in a contract of
commodatum
Service = X object of contract of sale

KINDS OF ILLICIT THINGS


1. Illicit per se (of its nature)

Decayed food unfit for consumption


2. Illicit per accidens (because of some provision of law declaring it illegal)

Sale of animal suffering from contagious disease

Future inheritance

Michelle Duguil,

Public land act sale of homestead patent within 5 years prohibitory


period

RIGHT OF VENDOR TO TRANSFER OWNERSHIP


1. Seller must be owner or authorized by owner of thing sold

Nemo dat quod non habet one cannot transmit or dispose of that
which does not belong to him

Paraphernal property of deceased wife

Only share of co-owner can be validly acquired by the vendee even if


he acted in GF

Fictitious sale as there was no consideration


2. Right must exist at the time of delivery

X require that vendor must have right to transfer ownership at the time
of the perfection of the contract

Sufficient that seller has the right to transfer ownership at the time it is
delivered

Ex. Sale of future good


3. Where the property sold registered in the name of seller who employed
fraud in securing title

GR: Forged deed = void

E: Where the certificate of title has been transferred to the name of the
true owner to the forger and sold to innocent purchaser for value
4. Where property sold in violation of a right of first refusal

GR: Valid BUT rescissible

E: If there is no BF = X rescissble ! remedy: action for damages


against vendor
5. Where real property, subject of unrecorded sale, subsequently mortgaged
by seller which mortgage was registered

Buyers unregistered right OVER mortgagees registered right

General Contract of law: object of contract must exist at the time of the
transaction
Contract of sale: The object of contract need not be existing at the time the
contract is entered into

SALE OF THING HAVING POTENTIAL EXISTENCE

A future thing may work in 2 different ways:


1. Its coming into existence is a condition for the effectivity of the contract
2. The contract is effective and the buyer has to pay the purchase price
w/n the thing comes into existence

Sale is subject to the condition that thing will come into existence
SALE OF THING EXPECTED (EMPTIO REI SPERETAE)

Sale of a thing not yet in existence subject to the condition that the thing
will exist

If X come into existence = contract X effective = buyer X obliged to pay

Ex. Wine a vine is expected to produce, grain a field may grow in a given
time
SALE OF MERE HOPE OR EXPECTANCY (EMPTIO REI SPEI)

Sale of HOPE ITSELF that the thing will come into existence where it is
agreed that the buyer will pay the price even if the thing does not
eventually exist

Ex. Sale of the catch of fishermen, fish or no fish

Condition that thing contemplated or expected will come into existence

Sale of vain hope or expectancy = void

Sale of mere hope or expectancy = valid = even if the thing hoped or


expected does not come into existence
o E: VAIN HOPE OR EXPECTENCY= VOID

1460.
SUBJECT MATTER MUST BE DETERMINATE
WHEN THING DETERMINATE
Particularly designated or physically segregated from all others of the same
kind
A thing is determinate if its identified by its individuality

SALE OF THING EXPECTED


Subject to the condition that thing will
come into existence
Sale of future thing
IF X exist = X contract of sale because
of absence of essential requisite

SALE OF HOPE
X certain that the thing itself will exist
Sale of hope or expectancy
Exist even though the thing does not
come into existence because the object
of the contract is hope itself
E: Vain hope or expectance (ex. Sale of
falsified sweepstake ticket which can
never win)

SUFFICIENT IF SUBJECT MATTER CAPABLE OF BEING MADE DETERMINATE

X necessary that the thing sold must be in sight at the time contract is
entered into

Sufficient that thing is determinable or capable of being made determinate


without the necessity of a new or further agreement between the parties to
ascertain its identity, quantity or quality

PRESUMPTION IN CASE OF DOUBT

Presumption in favor of SALE OF THING EXPECTED

More in keeping with the COMMUTATIVE character of the contract

1461.

1462.

REQUIREMENT THAT THING MUST EXIST

DE LEON SALES REVIEWER

GOODS WHICH MAY BE THE OBJECT OF SALE

Michelle Duguil,

1.
2.

EXISTING GOODS Goods owned or possessed by the seller


FUTURE GOODS Goods to be manufactured, raised, acquired

SALE OF FUTURE GOODS


1. VALID AS AN EXECUTORY CONTRACT TO BE FULFILLED

Valid as an executor contract to be fulfilled by acquiring and


delivering the goods specified in the contract, even though the
acquisition of good by the seller depends upon a contingency that
may or may not happen
2. SALE CONTEMPLATED BY ART 1462

Contract of sale of specific goods

Requires that there be delivery of goods, actual or constructive, to


be applicable

Paragraph X apply if contract is one for a piece of work = if


goods are to be manufactured especially for the buyer and not
readily saleable to other in the manufacturers regular course of
business
ART. 1463. The sole owner of a thing may sell an undivided interest therein
SALE OF UNDIVIDED INTEREST IN A THING
1. BY SOLE OWNER

Sole owner of a thing may sell the ENTIRE thing; or only a SPECIFIC
PORTION thereof; or an UNDIVIDED INTEREST THEREIN and such
interest may be designated as an aliquot part of the whole

Legal effect of sale of undivided interest:


o The buyer is made the co-owner of the thing sold
o As co-owner, he acquires full ownership of his part and may
sell it
o Limited to the portion which may be allotted to him in the
division of the thing upon the termination of co-ownership
o Operates similarly to ownership of fungible goods
2. BY A CO-OWNER

Co-owners can dispose of their share even without the consent of the
other co-owners

Effect of alienation is limited to the portion allotted to the vendor in the


division of the property upon the termination of the co-ownership
ART. 1464
SALE OF UNDIVIDED SHARE OF A SPECIFIC MASS
1. MEANING OF FUNGIBLE GOODS

Goods of which any unit is, from its nature or by mercantile usage,
treated as the equivalent of any other unit

Those which cannot be used without being consumed

Ex. Grain, old, wine, gasoline


2. EFFECT OF SALE

Owner may sell only an undivided share thereof, provided that the
mass is specific or cable of being made determinate

DE LEON SALES REVIEWER

Buyer becomes co-owner with the seller of the whole mass in


proportion in which the definite share bought bears to the mass

Aliquot share of each owner can be determined only by the


measurement of the entire mass
o If mass of FG contains less than what was sold ! buyer
comes owner of the whole mass ! seller shall supply
whatever is lacking from the goods of same kind and quality,
subject to any stipulation to the contrary
RISK OF LOSS

Whole mass is at the risk of all the parties interested in it since buyer
becomes co-owner

In proportion to their various holdings

3.

4.

5.

SUBJECT MATTER

Subject matter is an incorporeal right

Ownership passed to the buyer by the intention of the parties


APPLICABILITY OF ART 1464 TO NON-FUNGIBLE GOODS

It may also apply to goods not strictly fungible in nature

Ex: Barrels of flour, goods in barrels, bales of cotton, cattle, sheep

ART. 1465. Things subject to a resolutory condition may be the object of the
contract of sale
SALE OF THING SUBJECT TO RESOLUTORY CONDITION

Resolutory condition an uncertain even upon the happening of which


the obligation (or right) subject to it is extinguished. Hence, right acquired
by virtue of the obligation is also extinguished

If the resolutory condition attaching to the object of the contract should


happen ! vendor X transfer the ownership of what he sold since there is
no object
ART. 1466. In construing a contract containing provisions characteristic of
both the contract of sale and of the contract of agency to sell, the essential
clauses of the whole instrument shall be considered
CONTRACT OF AGENCY

A person binds himself to render some service or to do something in


representation or on behalf of another, with the consent or authority of the
latter

A contract is what the law defined it to be and not what it is called by the
contracting parties
CONTRACT OF SALE
Buyer receives the goods a OWNER

CONTRACT OF AGENCY
Agent receives the goods of the principal
who RETAINS HIS OWNERSHIP OVER
THEM

Owner has the right to fix the price


and the terms of the sale

Michelle Duguil,

Received the proceeds less the


agents commission
Agent simply ACCOUNTS for the
proceeds of the sale he may make on
behalf of the principal
Agent can return the object in case he is
rd
unable to sell the same to 3 person
Agent makes no warranty for which he
assumes personal liability as long as he
acts within his authority and in the name
of the seller
Agent must act and is bound according
to the instruction of his principal

Buyer has to PAY the price


GR: Buyer cannot return the object sold
Seller warrants the thing sold

Buyer can deal with thing as he pleases


being the owner

CASE: QUIROGA VS. PARSONS HARDWARE


CONTRACT CREATING BOTH A SALE AND AN AGENCY RELATIONSHIP
1. ESSENCE OF SALE/AGENCY

Essence of sale Transfer of title or agreement to transfer it for a


price paid or promised. If such transfer puts the transferee in the
position of an owner and makes him liable for the agreed price, the
transaction is sale

Essence of agency Delivery to an agent, not as his property, but as


the property of his principal, who remains the owner and has the right
to control the sale, fix the price and terms, demand and receive the
proceeds less the agents commission upon sales made
2. EXISTENCE OF BOTH SALE AND AGENCY

Example:
o Automoble dealer receives title to the cars he orders from the
manufacturer = sale
o BUT he is an agent ! to the extent that he is authorized to
pass on to the ultimate purchaser the limited warranty of the
manufacturer
o The courts must look at the entire transaction to determine if
its a principal-agent relationship or a buyer-seller relationship
ART. 1467. A contract for the delivery at a certain price of an article which the
vendor in ordinary course of his business manufactures or procures for the
general market, whether the same is on hand at the time or not, is a contract
of sale, but if the goods are to be manufacture specially for the customer upon
his special order, and not for the general marker, it is a contract for a piece of
work
CONTRACT FOR PIECE OF WORK

The contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation. The contractor may either
employ his labor or skill, or also furnish the material

DE LEON SALES REVIEWER

TEST

CONTRACT FOR PIECE OF WORK- Whether the thing transferred is one


not in existence and which never would have existed but for the order of
the party desiring to acquire it
SALE - or a thing which would have existed and been the subject of sale to
some other person even if the order had not been given

CONTRACT FOR PIECE OF WORK


Thing transferred is one not in existence
and which never would have existed but
for the order of the party desiring to
acquire it

CONTRACT OF SALE
A thing which would have existed and
been the subject of sale to some other
person even if the order had not been
given

Risk of loss before delivery is borne by


the worker or contractor, not by the
employer (person who ordered)
If services dominate the contract even
though there is a sale of goods involved

Risk of loss borne by the buyer


Where the primary object of the contract
of sale is a sale of manufactured
goods, it is a sale of goods, even
though the item is manufactured by
labor furnished by the seller and upon
previous order of the customer
Within the statute of frauds
Ex. Particular size and style which is
ordinarily manufactured but not available

Not within the Statute of frauds


Ex. Order shoes for deformed feet

1468. If the consideration of the contract consists partly in money, and partly
in another thing, the transaction shall be characterized by the manifest
intention of the parties. If such intention does not clearly appear, it shall be
considered a barter if the value of thing given as part of the consideration
exceeds the amount of the money or its equivalent; otherwise, it is a sale
CONTRACT OF BARTER OR EXCHANGE

One of the parties binds himself to give one thing in consideration of the
others promise to give another thing
BARTER OR EXCHANGE
One of the parties binds himself to give
one thing in consideration of the others
promise to give another thing

CONTRACT OF SALE
The
vendor
gives
a
thing
consideration for a price in money

in

BUT ABOVE DISTINCTION IS NOT ADEQUATE, HENCE THE RULE IN 1468


FOR THOSE CASES IN WHICH THE THING GIVEN IN EXCHANGE CONSISTS
PARTLY IN MONEY AND PARTLY IN ANOTHER THING

Manifest intention of the parties is paramount

Michelle Duguil,

Such intention may be ascertained by taking into account the


contemporaneous and subsequent acts of the parties
If the intention cannot be ascertained ! last sentence of article applies !
(Value of thing given as part of consideration > money or its
equivalent = barter)
o E: But if the intention is that contract shall be one of sale, then
such intention must be followed even though the value of the thing
given as part of the consideration > amount of money given
Only difference between the two: element in sale which is price certain in
money or its equivalent
Example: Sugar (20k) and WB (20k) page 57
o 100 Whiskey bottle as payment for sugar = barter
o 25 Whiskey bottles + 15k cash = barter
"
On date of delivery, only had 25 WB
"
Amount of 15k was paid in consideration for the 75
bottles
o No whiskey bottles at the time of delivery + 20k instead = Barter
"
Payment is in consideration of the value of the whiskey
and not of the sugar
"
Manifest intention = barter
o B had 100 WB on date of delivery BUT paid 20k = sale
"
Intention of parties to convert it to sale
o If WB OR Cash ! paid in cash = sale
o Deliver 50 WB and pay 10k // OR 75WB or pay 5k // OR 25 WB or
15k ! transaction shall be considered barter or sale depending
on manifest intention of the parties
"
If such intention does not clearly appear

Barter if cash is 5k

Sale if cash is 15k or 10k

LEASE OF THINGS

One of the parties 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

Landlord transfers merely temporary possession and enjoyment of the


thing leased

In sale: seller transfers ownership of the thing sold


DATION IN PAYMENT

Dacion en pago is the alienation of property by the debtor to the creditor in


satisfaction of a debt in money

Governed by law on sales

Existence of
debt
Obligation
Cause

DACION EN PAGO
Debt to creditor
Obligations are extinguished
Cause is extinguishment of

DE LEON SALES REVIEWER

SALE
X pre-existing credit or
debt
Obligations are created
Cause is the price paid

Freedom in
fixing price
Payment

the debt viewpoint of


debtor
Object acquired in lieu of
debt viewpoint of creditor
X freedom in fixing price
since value of property may
not exactly correspond to
amount of debt
Payment
is
effectively
received by the debtor
before
the
contract
is
perfected
-If amount of thing is less
than debt, debtor must
supply deficiency UNLESS
parties have considered the
conveyance as full payment

viewpoint of seller
Thing sold viewpoint of
buyer
More freedom in fixing the
price
Buyer still has to pay the
price

ART. 1469. In order that the price may be considered certain it shall be
sufficient that it be so with reference to another thing certain, or that the
determination thereof be left to the judgment of a specified person or persons.
Should such person or persons be unable or unwilling to fix it, the contract
shall be inefficacious, unless the parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the courts may
fix the price.
Where such third persons or persons are prevented from fixing the price or
terms by fault of the seller or the buyer, the party not in fault may have such
remedies against the party in fault as are allowed the seller or the buyer, as
the case may be.
PRICE CERTAIN IN MONEY OR ITS EQUIVALENT

The buyer pays a price certain in money or its equivalent

HOWEVER, even if the buyer does not pay a price certain in money or its
equivalent, ! there may be a valid contract of sale IF there was some
other consideration for the sale
WHERE PRICE CONSIDERED CERTAIN
1. NO SALE IF PRICE IS NOT CERTAIN OR ASCERTAINABLE

There can be no sale without a price

Price must be certain or capable of being ascertained

Money = currency

Equivalent = promissory notes, checks, mercantile instruments


generally accepted as representing money

The fact that the exact amount to be paid for the thing sold is not
precisely fixed = X bar to an action to recover purchase price

Michelle Duguil,

PROVIDED that contract, by its terms furnishes a basis or


measure for ascertaining the amount agreed upon
CASES WHEN PRICE IS CONSIDERED CERTAIN
1. The parties have fixed or agreed upon a definite amount
2. It be certain with reference to another thing certain
3. The determination of the price is left to the judgment of a specified
person or persons
4. Fixed by court
** Last 3 cases applicable only when no specific amount stipulated by the
parties
PRICE CERTAIN WITH REFERENCE TO ANOTHER THING CERTAIN

Example: If the purchase price is the total amount of the debt of the
seller or buyer ! amount of debt as of the sate of the sale can be
determined

If the purchase price is the appraised value of a specific thing, when


such appraised value was previously known to the contracting parties
o

2.

3.

EFFECT WHERE PRICE FIXED BY THIRD PERSON DESIGNATED

GR: A price fixed by a third person designated by the parties is BINDING


upon them

E:
1. Third person acts in Bad Faith or by Mistake
rd

As when 3 person fixed the price having in mind not the


object which is the object of sale, but another analogous or
similar thing ! in which case, the court may fix the price

Mere error in judgement = X serve as basis for impugning the


price fixed
rd
2. When the 3
person disregard specific instruction or
procedure marked out by the parties or the date given him !
thereby fixing an arbitrary price
EFFECT WHERE PRICE NOT FIXED BY THIRD PERSON DESIGNATED
rd

If 3 person designated REFUSES or CANNOT FIX IT (without fault of


seller or buyer) ! Contract = ineffective as if no price has been agreed
upon
o E: If parties subsequently agree on the price
rd

If 3 person is PREVENTED from fixing the price by the FAULT OF


SELLER/BUYER ! party in fault may obtain redress against the party in
fault ! Choice:
o Rescission + damages
o Fulfillment + damages ! court shall fix the price
Art. 1470. Gross inadequacy of the price does not affect the contract of sale,
except as it may indicate a defect in consent, or that the parties really
intended a donation or some other act or contract.
EFFECT OF GROSS INADEQUACY OF THE PRICE

GR: Lesion or inadequacy of cause will NOT invalidate a contract (1335)

DE LEON SALES REVIEWER

o E: if there if FRAUD, MISTAKE OR UNDUE INFLUENCE


In determining whether the price is adequate or not, the price obtaining at
the date of the execution of the contract, not those obtaining a number of
years later, should be considered
Allegation of inadequacy must be proven

WHERE LOW PRICE INDICATES A DEFECT IN CONSENT

When fraud, mistake or undue influence is present = contract may be


annulled because CONSENT is defective

Ex. Contracts of sale entered into by guardians are rescissible if ward


suffers lesion more than of the value of the thing
WHERE PRICE SO LOW SO AS TO INDICATE THAT THE PARTIES INTENDED
ANOTHER CONTRACT

Where the price is so low that a man in his senses and not under a
delusion would not accept it ! the contract may be shown to be a
donation or some other contract

BUT where the price paid is much higher than the assessed value of the
property and the sale is effected by a father to his daughter in which filial
love must be taken into account, the price is not to be construed as so
inadequate as to shock the courts conscience
EFFECT OF GROSS INADEQUACY OF PRICE IN VOLUNTARY SALES

A JUDICIAL OR EXECUTION SALE - is one made by the court with


respect to the property of a debtor for the satisfaction of his indebtedness

GR: Mere inadequacy of price is X sufficient ground for the cancellation of


an execution sale if there is no showing that in the event of a resale, a
better price can be obtained
o E: Where the price is so low as to be shocking to the conscience
! judicial sale of property will be set aside
WHERE SELLER IS GIVEN RIGHT OF REPURCHASE

The validity of the sale is NOT necessarily affected where the law gives to
the owner the right to redeem, as when a sale is made at public option,
upon the theory that the lesser the price, the easier it is for the owner to
effect the redemption

He may reacquire the property or also sell his right to redeem and thus
recover the loss he claims he suffered by reason of the price obtained at
the execution sale
1471. If the price is simulated, the sale is void, but the act may be shown to
have been in reality a donation or some other act or contract
SIMULATION OF CONTRACT

May be absolute or relative

ABSOLUTE
o When the parties do not intend to be bound at all
o VOID

Michelle Duguil,

There is a colorable contract but it has no substance as the


parties have no intention to be bound by it
o Effect: Parties may recover from each other what they may have
given under the contract
RELATIVE
o When the parties conceal their true agreement
o It does not prejudice third persons
o Is not intended for any purpose contrary to law, good customs,
public order or public policy
o Effect: Binds the parties as to their real agreement
o

WHEN SIMULATION OCCURS

When an apparent contract is a declaration of a fictitious will deliberately


made by agreement of the parties to produce, for the purpose of deception,
the appearance of a juridical act which does not exist or is different from
that which is really executed
REQUISITES:
1. An outward declaration of will different from the will of the parties
2. The false appearance must have been intended by mutual agreement
3. Purpose is to deceive third persons
EFFECT WHERE PRICE IS SIMULATED
1. SALE IS VALID AS DONATION

If the price is simulated such as when the vendor really INTENDED to


transfer the thing GRATUITOUSLY
o SALE = VOID
o VALID AS DONATION
2. SALE VOID

If not showed to be a donation or any other act or contract transferring


ownership because the parties do not intend to be bound at all

Ownership of thing X transferred = void

Action or defense for declaration of inexistence of contract = X


prescribe
EFFECT WHEN PURCHASE PRICE STATES BUT NOT ACTUALLY PAID

When the deed of sales states that the purchase price has been paid
BUT in fact has NEVER been paid ! deed of sale = VOID for lack of
consideration

If no payment was actually made ! fact indicates that price purportedly


paid was simulated

Non-payment of the price by the supposed buyer (minor) + intrinsic defects


of the deed of sale = price simulated = void
EFFECT WHEN

When parties intended to be bound but deed did not reflect actual purchase
price ! contact (relative simulated contract) = valid and enforceable !
subject to REFORMATION to show the true intention of the parties

DE LEON SALES REVIEWER

X reflect actual price by reason of MISTAKE or CONCEAL TRUE


AGREEMENT (FALSE PRICE) = VALID = REFORMATION

ART. 1472. The price of securities, grain, liquids, and other things shall also
be considered certain, when the price fixed is that which the thing sold would
have on a definite day, or in a particular exchange or market, or when an
amount is fixed above or below the price on such day, or in exchange or
market, provided said amount be certain
PRICE ON A GIVEN DAY AT A PARTICULAR MARKET

1469 A price is considered certain if it could be determined with reference


to another thing certain

When amount is fixed above or below the price on a given day or in a


particular exchange or market, the said amount MUST BE CERTAIN

The sale is inefficacious if the price cannot be determine

Applicable to fungible things (securities, grains, liquids, etc) ! the price of


which are subject to fluctuations of the market
ART. 1473. The fixing of the price can never be left to the discretion of one of
the contracting parties. However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected
FIXING OF PRICE BY ONE OF THE CONTRACTING PARTIES NOT ALLOWED

Consent is an essential element of sale

To be just, price must be determined impartially by both parties or left to


the judgment of specified persons or person

E: Where the price fixed by one party is ACCEPTED by the other !


contract is deemed perfected because there is meeting of minds upon the
price
ART. 1474. Where the price cannot be determined in accordance with the
preceding articles, or in any other manner, the contract is inefficacious.
However, if the thing or any part thereof has been delivered to and
appropriated by the buyer, he must pay a reasonable price therefor. What is
reasonable price is a question of fact dependent on the circumstances of each
particular case
EFFECT OF FAILURE TO DETERMINE PRICE
1. WHERE CONTRACT EXECUTORY

The contract is without effect

Price certain = essential element of contract

No obligation on the vendor to deliver and vendee to pay


2. WHERE DELIVERY HAS BEEN MADE

The buyer must pay reasonable price therefor

Obligation of the buyer may be:


o Contractual (if the agreement omits any reference to price)
o Quasi-contractual (if the agreement provides that the parties
thereafter to agree on the price)

Michelle Duguil,

NOTE: In case parties do not intend to be bound until after the price is settled ! the
buyer must return the goods already received

If unable to do so, must pay reasonable value at the time of delivery and
the seller must return any portion of the amount received
CONCEPT OF REASONABLE PRICE

Generally the market price at the time and place fixed by the contract or by
law for the delivery of goods

SC: A reasonable price may or may not agree with the current price of the
commodity at the port of shipment is made
DETERMINATION OF FAIR MARKET VALUE

Reasonable sum which property would bring on a fair sale by a man willing,
but not obliged to sell to a man willing but not obliged to buy
ART. 1475. The contract of sale is perfect at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon the price,
From that moment, the parties may reciprocally demand performance, subject
to the provisions of law governing the form of contracts.
PERFECT OF CONTRACT OF SALE
GR: Contracts are perfect by mere consent
1. MOMENT OF CONSENT

Contract of sale = consensual

Perfected at the moment of consent without the necessity of any other


circumstances

The reciprocal obligations of the parties arise even when neither has been
delivered

Mutual consent = state of mind ! inferred from 2 acts:


1. Offer certain as to the object of the contract and its consideration
2. Acceptance by one of the offer made by the other

GR: A person not incompetent to contract merely because of advanced


years or by reason of physical infirmities
o E: When such age or infirmities have impaired the mental faculties
as to prevent a person from intelligently protecting his property
rights = undeniable incapacitated

There is no difference in law where a person gives his consent reluctantly


and even against his good sense and judgment as when he acts voluntarily
and freely
2. FORM OF THE CONTRACT

GR: Contract of sale is binding regardless of its form


o E: If it falls within the provisions of the Statute of Frauds or of any
other applicable statute which requires a certain form for its
enforceability or validity ! form must be complied with
3. CONDUCT OF THE PARTIES

DE LEON SALES REVIEWER

Appropriate conduct by the parties may be sufficient to establish an


agreement

The actions of the parties may indicate that a binding obligation has been
undertaken

There is no perfected sale where it is conditional (subject to approval of


authorities) and the condition is not fulfilled

Letter of intent to buy and sell is just that X contract to sell nor conditional
contract of sale
4. TRANSFER OF OWNERSHIP

Sale, but itself, does not transfer or affect ownership

The most sale does is to CREATE THE OBLIGATION TO TRANSFER


OWNERSHIP

Ownership is not transferred until the delivery of the thing


o E: if parties stipulate that ownership is not transferred until full
payment of the purchase price

4. APPLICANT QUALIFICATION TO BUY STILL SUBJECT FOR


INVESTIGATION

Agreement was denominated as contract of sale BUT subject to


revocation after investigation of applicants qualification and approval of the
board of liquidators showing that applicant is not qualified =X perfected
contract of sale ! mere application to buy and sell
5. BREACH OF CONTRACT BY ONE PARTY

A party commits breach of contract when he fails without legal reason or


justification to comply with the terms which form the whole or part of the
contract

Injured party may sue for:


o Fulfillment + damages
o Rescission + damages
RULES WITH RESPECT TO OFFER
1. Offer must be certain (1319)
2. Person making the offer may fix the time, place and manner of acceptance,
all of which must be complied with (1322)
3. When the offer has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communication such
withdrawal

Except when the option is founded upon a consideration, as


something paid or promised (1324)
4. An offer becomes ineffective upon the death, civil interdiction, insanity or
insolvency of either party before acceptance is conveyed (1323)
RULES WITH RESPECT TO ACCEPTANCE
1. The acceptance of an offer must be UNQUALIFIED AND ABSOLUTE

Counter-offer - Anything short of that level of mutuality produces not a


contract but a mere awaiting acceptance // where a party sets a
different purchase price than the amount of the offer such acceptance
was qualified

Must be unanimous both on the rate of the payment and on its term

Michelle Duguil,

10

An acceptance may contain a request for certain changes in the terms


of the offer and yet be binding as an acceptance as long as it is clear
that the meaning of the acceptance is positively and unequivocally to
accept the offer, whether request is granted or not
Acceptance may be EXPRESS OR IMPLIED

2.

WHEN DEFINITE AGREEMENT ON MANNER OF PAYMENT IS ESSENTIAL

GR: Valid contract upon the meeting of the minds. It is not the act of
payment of the price that determines the validity of a contract of sale

EXCEPTIONS (Instances when definite agreement is essential):


1. Purchase price payable in installments

It is not enough that the parties agree on the price as well as the
amount of downpayment
2. Where the parties still have to meet and agree on how and when the
downpayment and installment payments are to be made = contract of
sale X perfected

Toyota Shaw Inc. vs court of appeals nothing was mentioned


about the full purchase price and the manner the installments
were to be paid
3. The minds of the parties must also meet on the terms or manner of
payment of the price, the same is needed ! otherwise, there is no
sale

A disagreement on the manner of payment is tantamount to failure


to agree on the price
4. An agreement on the price but a disagreement on the manner of its
payment will not result in consent

An agreement on the terms of payment is integral to the element


of price certain
EFFECT OF FAILURE TO PAY STIPULATED PRICE
FAILURE TO PAY
Results in a right to demand:
- Fulfillment OR
- Cancellation of the obligation under an
existing valid contract

LACK OF CONSIDERATION
Prevents the existence of a valid
contract

EFFECT OF FAILURE TO PAY STIPULATED PRICE


1. VALIDITY OF CONTRACT NOT VITIATED

Failure to pay stipulated price after the execution of the contract = X


convert the contract into one without cause or consideration as to vitiate
the contract, it not being essential for the existence of the cause that
payment or full payment be made at the time of the contract
2. REMEDY OF THE VENDOR

Specific performance + damages

Rescission + damages
3. PROOF OF PAYMENT

Sales invoice = only evidence of the receipt of goods ! X evidence of


payment

DE LEON SALES REVIEWER

Best evidence: Official receipt


4. NOTARIZED DEED OF SALE STATES RECEIPT OF PRICE

Strong evidence of payment

X defeated by unsupported verbal claim ! Evidence to the contrary must


be clear, strong and convincing
5. WHERE THE PRICE STATED AS PAID NEVER BEEN PAID

Null and void

Sale is without cause or consideration


RIGHT OF OWNER TO FIX HIS OWN PRICE
1. The owner of a thing has the right to quote his own price, reasonable or
unreasonable ! it is up to the prospective buyer to accept it

He may even impose a condition hard to fulfill and name a price quite
out of proportion to the real value of the thing offered for sale
2. He is also well within his right to quote a small or nominal consideration

Such consideration is just as effectual and valuable a consideration as


alleger sum stipulated or paid
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
(2) A sale by auction is perfected when the auctioneer announces its
perfection by the fall of the hammer, or in any other customary manner.
Until such announcement is made, any bidder may retract his bid; and the
auctioneer may withdraw the goods from the sale unless the auction has
ben announced to be without reserve
(3) A right to bid may be reserved expressly by or on behalf of the seller,
unless otherwise provided by law or by stipulation
(4) Where notice has not been given that a sale by auction is subject to a right
to bid on behalf 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 auctioneer, to employ or induce any person to bid at such sale on
behalf of the seller or knowingly take any bid from the seller or any person
employed by him. Any sale contravening this rule may be treated as
fraudulent by the buyer.
RULES GOVERNING AUCTION SALES
1. SALES OF SEPARATE LOTS BY AUCTION ARE SEPARATE SALES

Where separate lots are the subject of separate biddings and are
separately knocked down, there is a separate contract in regard to
each lot
2. SALE PERFECTED BY THE FALL OF THE HAMMER

Each bid is an offer and the contract is perfected only by the fall of the
hammer or in other customary manner

The bidder may retratct his bid and the auctioneer may withdraw the
goods from sale anytime BEFORE THE HAMMER FALLS
o E: If the sale is announced without reserve, the auctioneer
cannot withdraw the goods from sale once bid has been
made and the highest bidder has right to enforce his bid

Michelle Duguil,

11

3.

4.

5.

RIGHT OF SELLER TO BID IN THE AUCTION

GR: Puffing or secret bidding is not allowed where there is no


notice that the sale is subject to sellers right to bid, it shall be unlawful
for the seller to bid directly or indirectly or for the auctioneer to employ
or induce any person to bid on behalf of the seller

This is also true although the employment of the puffer by the


auctioneer was without the owners knowledge, since the auctioneer is
the owners agent

It would operate as fraud upon the purchaser and a sufficient ground


for relieving him from his bid and avoiding the sale
o EXCEPTION REQUISITES:
1. Such right was reserved
2. Notice was given that the sale is subject to a right to bid
on behalf of the seller
3. The right to bid by the seller is not prohibited by law or by
stipulation
CONTRACT NOT TO BID

It is not permissible for intending buyers at auction or other competitive


sales to make an agreement for a consideration that only one of them
shall bid, in order that the property may be knocked down at a low
price

Bargain is fraudulent as regards the seller though the agreement is


without consideration, if it is actually carried out, for the fraud against
the seller is the same as if there were considerations
ADVERTISMENT FOR BIDDERS

Simply invitations to make proposals

Advertiser is not bound to accept the highest or lowest bidder, unless


the contrary appears

RIGHT OF OWNER TO PRESCIBE TERMS OF PUBLIC AUCTION

The owner of property has the right to prescribe the manner and conditions
and terms of sale

He may provide that all of the purchase price or any portion thereof should
be paid at the time of the sale or that time will be given for that payment, or
that any or all bids may be rejected

Conditions of a public sale announced by the auctioneer or owner of the


property at the time and place of sale ! binding upon all the bidders,
whether they knew of such conditions or not
ART. 1477 The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof
ART. 1478. The parties may stipulate that ownership in the thing shall not pass
to the purchaser until he has fully paid the price
OWNERSHIP OF THING TRANSFERRED BY DELIVERY
1. NECESSITY OF DELIVERY

It is only after delivery of the thing sold that the purchaser acquires
real right or ownership over it

DE LEON SALES REVIEWER

Deliver may be actual or constructive


The contract is consummated by delivery of the thing sold and of the
purchase money
PURCHASE ON CREDIT

In the absence of stipulation to the contrary, the ownership of the thing


sold passes to the vendee upon delivery of the vendor

This is true even if the purchase price has been made on credit
NON-PAYMENT OF PURCHASE PRICE

Payment of purchase price = X essential to the transfer of ownership


as long as the property sold has been delivered

Non-payment only creates the right to (1) demand payment or (2)


rescind the contract or (3) criminal prosecution for bouncing checks
PRESENCE OF INTENTION TO DELIVER

The act of delivery, whether actual or constructive, should be coupled


with the intention to deliver the thing sold

Act without intention = insufficient ! there is NO tradition

Sales invoice = X prove transfer of ownership

2.

3.

4.

5.

6.

CONTRARY STIPULATION

Ownership is transferred by delivery, not mere payment


o E: However, the parties may stipulate that despite delivery,
the ownership of the thing shall remain with the seller until the
purchaser has fully paid the price = CONTRACTUAL
RESERVATION OF TITLE (common in sales on installment
plan) = considered contract to sell

Parties may also stipulate that ownership is transferred even if the


purchaser has not yet fully paid the price
CONTRACT TO SELL

Ownership is retained by the seller and is not passed until full payment
of the price, such payment is a positive suspensive condition

Failure of suspensive condition = X breach ! simply an event that


prevents the obligation of the vendor to convey title from acquiring
binding force

If ownership is retained until full payment of purchase price merely to


SECURE PERFORMANCE BY BUYER OF HIS OBLI ! seller X liable
in case of loss of the goods

If there is doubt as to the wording of the contract ! Should be


resolved in favor of the greatest reciprocity in interest = Obtained if the
buyers obligation is deemed actually existing, with only its maturity
(due date) postponed or deferred

If there is stipulation that ownership is retained until full payment of


purchase price ! binding only upon the contracting parties, their
rd
assigns and agent ! X binding upon 3 persons without notice

The stipulations in the contract for the reservation of the ownership


of the thing sold until full payment of its purchase price and for the los
or destruction of the thing being for the account of the buyer = valid
and can exist with conjunction to another
o A free on board stipulation in a contract can exist with the
contract to sell

Michelle Duguil,

12

Free on board stipulation ownership of the products sold


is retained by the seller until after the postdated checks
evidenced by provisional receipts given as payment by the
buyer are cleared, with stipulation that loss or destruction of
the product during transit is for the account of the buyer
CONTRACT OF INSURANCE

A perfected contract of sale even without delivery bests in the buyer


EQUITABLE TITLE, an existing interest over the goods sufficient to be
the subject of insurance
o

7.

Busmente notes:
- Constructive Delivery:

GR: Execution of public document transfers ownership


o E: If there is legal impediment (Adisson & ten forty case)

There can only be constructive delivery if there is no legal impediment


Addisson case

Payment for subject or thing has no bearing. It is delivery that transfers


ownership Sampaguita Case
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.
KINDS OF PROMISES TREATED IN ART 1479
1. An accepted unilateral promise to sell in which the promisee
(acceptor/buyer) elects to buy
2. An accepted unilateral promise to buy in which the promisee
(acceptor/seller) elects to sell;
3. A bilateral promise to buy and sell reciprocally accepted in which either of
the parties chooses to exact fulfillment
EFFECT OF UNACCEPTED UNILATERAL PROMISE POLICITACION

Created no juridical effect or legal bond

Unaccepted imperfect promise or offer

A period may be given to the offeree within which to accept the offer
OPTION

A contractual privilege existing in one person for which he has paid a


consideration which gives him the right to buy or sell
NATURE OF OPTION CONTRACT
1. Preparatory contract separate and distinct from the main contract itself
2. Merely secures a privilege to buy/sell
3. Gives the party granted the option the right to decide w/n to enter into a
principal contract

DE LEON SALES REVIEWER

4.

Binds the party who has given the option not to enter into the principal
contract with any other person during the agreed time and within that
period
5. To enter into such contract with the one to whom the option was granted if
the latter should decide to use the option
6. Imposes no binding obligation on the person holding the option aside from
the consideration for the offer ! it is only when the option is exercised may
a sale be perfected
7. Option must be supported by a consideration distinct from the price
8. Optionee or promisee has the burden of proving such consideration
a. Lacking any proof of such consideration, the option is
unenforceable
9. Consideration need not be monetary or actual cash
a. May consists of other thins or undertakings but they must be
something of value (onerous nature of option contract)
b. When such consideration is not monetary, it must be clearly
specified as such in the option contract or clause
10. The consideration is the why of the contract, the essential reason which
moves the contract parties to enter into the contract
a. An option without consideration is void
EFFECT OF ACCEPTED UNILATERAL PROMISE
nd
1. 2 paragraph = Option the commercial world
2. GR: A unilateral promise to sell or to buy a determinate thing for a price
certain does NOT bind the promissor even if accepted and may be
withdrawn at any time
o E: It is only if the promise is SUPPORTED BY A
CONSIDERATION DISTINCT AND SEPARATE FROM THE
PRICE that its acceptance will give rise to a perfected contract
3. The optionee (holder of the option) AFTER accepting the option and
BEFORE he exercises it ! has the right, but not the obligation to buy or
sell, as the case may be
4. Once the option is exercised (offer is accepted before the breach of the
option), a BILATERAL PROMISE to sell and to buy ensues ! both parties
are then reciprocally bound to comply with their respective undertakings
5. If he withdraws the offer BEFORE THE ACCEPTANCE (exercise of the
option) by the optionee-offeree ! The optionee-offeree may NOT sue for
specific performance on the proposed contract since it has failed to reach
its own stage of perfection
o BUT offerror is liable for damages for breach of the option
FULL PAYMENT OF PRICE NOT NECESSARY FOR EXERCISE OF OPTION TO
BUY

Obligations under an option to buy are reciprocal obligations the


performance of one obligation is conditioned upon the simultaneous
fulfillment of the other obligation

The party who has an option may validly and effectively exercise his right
by:
o Merely notifying the owner of the formers decision to buy and
o Expressing his readiness to pay the stipulated price
13




Michelle Duguil,

Notice need NOT be coupled with actual payment of the purchase


price so long as this is delivered to the owner of the property upon
the execution and delivery by him of the deed of sale
The payment of the price is contingent upon the delivery of the deed of sale
o Unless and until the owner shall have delivered DOS, the buyer
who has the option does NOT and CANNOT be held in default in
the discharge of his obligation to pay
o Consignation in court of the purchase price not required
o Option to buy = X contract of purchase and sale
o

ART. 1324

GR: When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal
o E: When the option is founded upon a separate consideration, the
offerrer cannot withdraw his offer, even if the same has not yet
been accepted, before the expiration of the stipulated period

SOUTHERN SUGAR AND MOLASSES COMPANY VS. ATLANTIC GULF

It is true that under 1324 of the CC, the GR regarding offer and acceptance
is that, when the offerer gives to the offeree a certain period to accept, the
offer may be withdrawn at any time before acceptance except when the
option is founded upon a consideration

But this GR must be interpreted as modified by the provision of 1479 which


applies to a promise to buy and sell specifically ! this rule requires that
for a promise to sell to be valid, it must be supported by a consideration
distinct from the price

**ABANDANDONED DOCTRINE
SANCHEZ VS. RIGOS

Even supposing that petitioner granted an option which is not binding for
lack of consideration, the authorities hold that: if the option is given without
a consideration, it is a mere offer of a contract of sale, which is not binding
until accepted. If however, acceptance is made before a withdrawal, it
constitutes a binding contract of sale, even though the option was not
supported by a sufficient consideration
ATKINS, KROLL and CO, INC VS CU HIAN TEK

If the option is given WITHOUT CONSIDERATION ! it is a mere offer of


a contract of sale, which is NOT binding until accepted

If, however, THE ACCEPTANCE IS MADE BEFORE A WITHDRAWAL !


it constitutes a binding contract of sale, even though the option was
not supported by sufficient consideration
RIGHT OF FIRST REFUSAL

DE LEON SALES REVIEWER

ART. 1479 AND ART. 1324 COMPARED

The right of first refusal is an integral part of the contract of lease !


consideration is built into the reciprocal obligation of the parties
Assurance that lessee will be given first crack or first option to buy the
property at the price which lessor is willing to accept
rd
If 3 person buyer is in BF because he was aware of the existence of the
contract of lease ! lessee who has the right of first refusal he may have
the fraudulent sale SET ASIDE OR RESCINDED
A right of first refusal means identity of terms and conditions to be offered
to the lessee and all other prospective buyers
A contract of sale entered into in violation of a right of first refusal of
another person, while VALID, IS RESCISSIBLE
Basis of the right of first refusal must be the current offer to sell of the seller
or offer to purchase of any prospective buyer

RIGHT OF FIRST REFUSAL


X stand on its own (accessory contract)
X Require separate consideration
consideration is integral part of the
contract of lease already
Conditional
Can
be
subjected
to
specific
performance
Remedy: Set aside or rescind fraudulent
sale
OPTION MONEY VS EARNEST MONEY

OPTION CONTRACT
Can stand on it own (principal contract)
Requires a separate consideration
distinct from that of the contract of sale
in order to be valid
Not conditional
X subject to specific performance since
there is no perfected contract of sale yet

OPTION MONEY
Money given as a distinct consideration
for an option contract
Applies to contract of sale X perfected

EARNEST MONEY
Money which is part of the purchase
price
Applies to contracts of sale already
perfected
The buyer who gives the earnest money
is bound to pay the balance

The would be buyer who gives the


option money is X bound to buy

EFFECT OF BILATERAL PROMISE TO BUY AND SELL

When the promise is BILATERAL - one party accepts the others promise
to buy and the latter, the formers promise to sell a determinate thing for a
price certain ! Practically has the same effect as a perfected contract of
sale since it is reciprocally demandable
1480. An injury or benefit from the thing sold, after the contract has been
perfected, from the moment the perfection of the contract to the time of
delivery shall be governed by articles 1163-1165, and 1262
This rule shall apply to 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

Michelle Duguil,

14

weighed, counted, or measured and delivered, unless the latter has incurred
delay.
c.
4 RULES REGARDING RISK OF LOSS
d.
WHEN
Thing lost BEFORE
perfection
Lost AT THE TIME of
perfection

WHO
Seller

AFTER
BUT
delivery

Buyer

perfection
BEFORE

Seller

(subj
to
exceptions)

Lost AFTER deliver

Buyer

WHY
Thing perishes with the owner (res perit
domino)
- Seller bears the risk of loss as the buyer is
not bound to pay the purchase price if the
thing is entirely lost at the time of perfection
- If lost in part at the time of perfection, the
seller also bears ROL as the buyer may (1)
withdraw from the contract or (2) continue
with the contract but pay reduced price
- Exception to the rule of res perit domino !
Buyer bear ROL even before the ownership
is transferred to the buyer
- Applicable if thing is DETERMINATE
- Applicable to paragraph 2
- E to E: Seller bears risk of loss if:
1. Thing is lost through fault of seller or when
the seller delays
2. Thing lost = generic
3. Thing lost = fungible things sold for a price
fixed according to weight, number, or
measure
4. Thing lost falls under definition of goods
5. Lost thru FE
Res perit domino

RISK OF LOSS IN CASE OF FORTUITOUS EVENT


1. 2 THEORIES
a. German Code Principle of tradition ! risk of loss is allocated to
the seller based on the theory that the property sold is not
transferred until delivery of the thing
b. Roman law Principle of perfection ! risk of loss is
transmitted to the buyer from the moment contract is perfected
2. Roman law is followed by the Civil Code
3. Buyer is obliged to pay the price of the thing even if it was lost due to a
fortuitous event
4. Legal basis
a. 1164 Buyer has the right to fruits of the thing from the time of
perfection of contract of sale thus it is logical that the buyer bears
the loss from the moment of perfection
b. 1165 If the seller delays or has promised to deliver to 2 or more
persons who do not have same interest ! seller is still liable for

DE LEON SALES REVIEWER

FE until he has effected delivery ! If the seller was not at fault


buyer would be responsible for the FE even prior to delivery
1262 The sellers obligation is generally extinguished if the thing
sold is lost as a result of FE
rd
3 paragraph of 1480 Implies that with respect to items
covered by the first 2 paragraphs, the risk of loss is with the buyer
even prior to delivery

SCOPE OF 1480 (2 RULES)


Thing is lost after perfection but before
delivery buyer bears risk of loss (rule
no. 3)

- Rule No 3 is applicable if thing is


DETERMINATE
- Applies to fungible things sold for a
price not fixed in relation to weight,
number, or measure ! in such case the
fungible things have been particularly
segregated
-The buyer assumes the risk of loss
caused by FE
- without the fault of the seller and
- before he has incurred delay
- after the perfection of the contract
at the time of delivery
rd
- 3 paragraph
- Paragraph 3 is an exception to the rule
that the buyer bears the loss after the
perfection of the contract and before
delivery = seller assumed the risk
- E to E: buyer assumes the risk if he
has incurred delay in in receiving the
goods sold

Fungible things sold for a price fixed in


relation to weight, number or measure

CONSISTENCY WITH ARTICLE 1504


*See reconciliation later by Atty. Busmente ;)
4 RULES REGARDING RISK OF DETERIORATION
WHEN
BEFORE PERFECTION
AT
THE
TIME
PERFECTION

WHO
Seller

OF

Seller

AFTER
PERFECTION
BUT
BEFORE
ITS

Buyer

WHY
There was no contract for
there was no cause or
consideration
1494. Buyer may at his
option treat the sale as:
1. Avoid
2. Valid in all of the
existing goods or in some
much thereof as have not
been deteriorated
E: If the thing deteriorates
through fault of the seller
Michelle Duguil,

15

DELIVERY

! seller bears risk of loss


- Buyer may choose
between:
1. Rescission + damages
2. Fulfillment + damages

AFTER DELIVERY

Buyer

1504. Unless otherwise agreed, the goods remain at the sellers 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 buyers risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or 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 performance by the buyer of his
obligation under the contract, ! the goods are at the BUYERS RISK from the
time of such delivery;
(2) Where actual delivery has been delayed through the fault of either the
buyer or seller the goods ! are at the RISK OF THE PARTY IN FAULT
RISK OF LOSS GENERALLY ATTENDS TITLE

GR: If the thing is lost through FE, the risk is borne by the owner of the
thing at the time of the loss under the principle of res perit domino
o EXCEPTIONS:
1. Seller reserves the ownership of the goods MERELY TO
SECURE THE PERFORMANCE OF THE BUYER OF HIS
OBLIGATIONS ! ownership is considered transferred to the
buyer, who therefore assumes the risk from the time of
delivery
2. Where actually delivery has been DELAYED THROUGH THE
FAULT OF EITHER BUYER OR SELL ! goods are at the
risk of the party at fault with respect to any loss which might
not have occurred but for such fault
CONFLICT BETWEEN 1480 and 1504
WHO
RISK

BEARS

WHAT
IS
ESSENTIAL

1480
If the thing is lost after perfection of
the contract but before delivery
(even before ownership is passed),
the risk of loss by FE without
sellers fault ! risk is borne by the
BUYER
= Buyer is still obliged to pay the
price if he has not yet paid
= He cannot recover from the seller
when he has paid already although
the sellers obligation to deliver the
thing is extinguished by its loss

DE LEON SALES REVIEWER

1504
Until ownership of goods is
transferred to the buyer !
goods generally remain at
the SELLERS risk

SOLUTION
SUGGESTED
AUTHORS
OPINION
BUSMENTES
VIEW

Circumstantial

After perfection of contract even


before delivery (before transfer of
ownership) + lost thru FE !
Buyers risk
**follows roman law risk is
transferred
to
buyer
upon
perfection of contract
- Sale of things (ex. Sale of real
estate)
- General Rule
DE LEON
SELLER
defense

should

use

this

as

Before
Delivery
aka
transfer of ownership !
Sellers risk
After transfer of ownership
(delivery) ! Buyers risk
- Sale of goods
- Exception
PARAS
BUYER should use this as
defense

(Needs legislation
to
avoid
irreconcilable
conflict)

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 by description, it is not sufficient that the bulk of goods
correspond with the sample if they do not correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with the
description or the sample.
SALE OF GOODS BY DESCRIPTION AND/OR SAMPLE

Sale of goods by:


1. Description
2. Sample
3. Sample and description

Provides for cause for rescission distinct from those stated in 1597
Note: 1597 Where the goods have not been delivered to the buyer, and the byer
has repudiated the contract of sale, or had manifested his inability to perform his
obligations thereunder, or has committed a breach thereof, the seller may totally
rescind the contract of sale by giving notice of his election so to do to the buyer
SALE BY DESCRIPTION

Occurs where a seller sells things as being of a particular kind, the buyer
not knowing whether the sellers representations are true or false, but
relying on them as true

Michelle Duguil,

16

Where the purchaser has not seen the article sold and relies on the
description given him by the vendor, or has seen the goods but the wants o
identity is not apparent on inspection
Reason: Dealer should understand that purchaser relies upon the
description as a representation by the seller that is the thing described
Creates an implied warranty that the goods will conform to that description
and that the goods are of merchantable quality
If the bulk of the goods do not correspond with the description, ! the
contract may be rescinded
But if the thing delivered is as described, the fact that the buyer cannot use
the thing sold for the purpose for which it was intended without the sellers
fault ! X exempt buyer from paying the purchase price agreed upon

SALE BY SAMPLE

There is a sale by sample when a small quantity is exhibited by the seller


as a fair specimen of the bulk, which is not present and there is no
opportunity to examine or inspect the same

Parties treated 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 correspond with the sample

E: Mere exhibition of a sample by the seller in the absence of any showing


that it was an inducement of the sale or formed the sole basis thereof ! X
sale by sample as where the quality of the articles to be furnished is
expressly described in the contract w/o reference to the sample or the
parties agree that the goods ordered shall differ from the sample in some
particular matter

Species of sale by description

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 not merchantable
SALE BY DESCRIPTION AND SAMPLE

When a sale is made both by sample and by description, the goods must
satisfy all the warranties appropriate to either kind of sale

It is not sufficient that the bulk of goods correspond with the sample if they
do not also correspond with the description and vice versa
MEANING OF BULK OF GOODS

Used to denote the goods as distinguished from the sample with which
they correspond

X used to designate the greater portion of the goods

Goods which as a while body should correspond substantially with the


sample and description
THE BUYER IS GIVEN REASONABLE OPPORTUNITY OF COMPARING THE
BULK WITH THE DESCRIPTION OR THE EXAMPLE
DESCRIPTION

DE LEON SALES REVIEWER

SAMPLE

BOTH

WHAT

Where
the
purchaser has
not seen the
article sold
Relies on the
description
given him by
the vendor
Or has seen
the goods but
the wants of
identity is not
apparent on
inspection

WARRANTY
REMEDY

Implied warranty
Rescission

There is a
sale
by
sample when
a
small
quantity
is
exhibited by
the seller as a
fair specimen
of the bulk,
Which is not
present and
there is no
opportunity to
examine
or
inspect
the
same

Implied warranty
Rescission

When a sale is
made
both
by
sample and by
description,

Implied warranty

ART. 1482. Whenever earnest money is given in a contract of sale, it shall be


considered as party of the price and as proof of the perfection of the contract.
EARNEST MONEY

Something of value given by the buyer to the seller to show that the buyer is
really in earnest, and to bind the bargain

It is actually a partial payment of the purchase price

Considered as proof of perfection of contract

Forms part of the consideration only if the sale is perfected and the sale is
consummated upon full payment of the purchase price

It must be deducted from the total price

Delivery of part of the purchase price should not be understood as constituting


earnest money to bind the agreement in the absence of something in the
contract showing that such was the intention of the parties

If the earnest money was given in a contract to sell ! X apply 1482


DISPUTABLE PRESUMPTION

Disputable presumption that prevails in the absence of contrary or rebuttal


evidence
OPTION MONEY VS. EARNEST MONEY
OPTION MONEY
Money given as a distinct consideration
for an option contract
Applies to contract of sale X perfected

EARNEST MONEY
Money which is part of the purchase
price
Applies to contracts of sale already
perfected
The buyer who gives the earnest money
is bound to pay the balance

The would be buyer who gives the


option money is X bound to buy

Michelle Duguil,

17

Note: Novation of contract ! option


money may become earnest money ! if
the parties so agree, or it may actually
be in the nature of earnest money when
considered with the other terms or words
used in the contract

3.

Note: X apply to contract to sell (sale is


not yet perfected)
4.

ART. 1483. Subject to the provisions of the Statute of Frauds and of any other
applicable statute, a contract of sale may be made in writing, or by word of
mouth, or partly in writing and partly by word of mouth, or may be inferred
from the conduct of the parties
FROM OF CONTRACT OF SALE
1. GR: A contract of sale has no prescribed form. X need technical
description of the subject property, real or personal provided that all
essential requisites are present.
2. E: Particular form may be required for the enforceability under the Statute
of Frauds, or validity of the contract, or for convenience of the parties
1. Statute of frauds must be in writing subscribed by the party charged
or by his agent ! otherwise, contract cannot be enforced by action
2. Form required in order to be valid Where the applicable statute
requires that a contract be in a certain form ! so that contract may be
valid and enforceable
3. Form required only for the convenience of the parties a certain
form (ex. Public instrument) is required for the convenience of the
rd
parties for sale to be registered in RD ! to binding against 3 persons
3. Notarized deed of sale

The fact that the deed of sale is a notarized document does not necessarily
justify the conclusion that the said sale is a true conveyance to which the
parties thereto are irrevocably bound

The intention of the parties is still the primary consideration in determining


the nature of the contract

An invalidly notarized deed of sale ! must be considered merely as a


private document
STATUTE OF FRAUDS
1. MEANING OF THE TERM

Descriptive of statutes which require certain classes of contract to be


in writing

X deprive parties of the right to contract ! merely regulated the


formalities of the contract necessary to render it enforceable
2. PURPOSE

Prevent perjury and fraud


3. COVERAGE

The following contracts must be in writing, otherwise they shall be


unenforceable by action:
1. Sale of personal property at a price not less than P500
2. Sale of real property or an interest therein regardless of the
price involved

DE LEON SALES REVIEWER

5.

Sale of property not to be performed within 1 year from the


date thereof regardless of the nature of the property and the price
involved
OTHER TRANSACTIONS WHEN SF X APPLICABLE

SF refer to specific kinds of transaction and X apply to any other


transactions not enumerated in Art 1403 (2)
1. Right of first refusal contractual grant of the right of first
refusal, not of sale of property involved
2. Easement of right of way X sale of property or interest therein
3. Partition effected by heirs where there are no creditors
involved not a conveyance of property resulting in change of
ownership but merely a designation and segregation of that part
which belongs to the heirs
PERFECTED CONTRACTS

Where there is no perfected contract, there is no basis for the


application of SF

RATIFICATION OF CONTRACTS INFRINGING STATUTE


1. FAILURE TO OBJECT TO ORAL EVIDENCE

Ratified by failure to object to the presentation of oral evidence to


prove the same

Objection against admission of evidence ! must be made at the


proper time (at the time the question is asked) ! otherwise contract is
ratified

If counsel asks questions on cross-examination, which elicits evidence


proving the existence of a perfected contract of sale
o E: if direct testimonies of witnesses were presented in
affidavit form where prompt objection to the inadmissible
evidence is hardly possible
2. ACCEPTANCE OF BENEFITS

Acceptance of benefits under the contract


3 MODES OF SATISFACTION IOF THE STATUTE OF FRAUDS IN WHICH
CONTRACT OF SALES OF GOODS WITHIN ITS TERMS MAY BE BINDING
1. The giving of a memorandum
2. Acceptance and receipt of part of the goods sold and actual receipt of the
same
3. Payment or acceptance at the time some part of the purchase price
THE SF APPLIES NOT ONLY TO GOODS BUT TO THINGS IN ACTION AS
WELL

Example: assignment of credit at a price not less than P500


STATUTE OF FRAUD APPLICABLE ONLY TO EXECUTORY CONTRACTS

Applicable only to executor contracts and not to contracts which are totally
consummated or partially performed

Executory contract where no performance (delivery and payment) has as


yet been made by both parties

Michelle Duguil,

18

Reason for the rule:


o Partial performance like the writing, furnishes reliable evidence of the
intention of the parties or the existence of the contract
Circumstances indicating partial performance
o Relinquishment of rights
o Continued possession by a purchaser who is already in possession
o Building of improvements
o Tender of payment
o Rendition of services
o Payment of taxes
o Surveying of the land at the vendees expense
o Where there is partial performance of a parol contract of sale of realty,
the principle excluding evidence of such contract does not apply
Contracts not to be performed within 1 year
o To be taken out of the SF, all that is required if complete performance
within the year by one party ! there should be nothing left to be than
but the payment of the consideration for the performance

SALE OF REAL PROPERTY

A sale of a piece of land or interest therein when made thru an agent is !


VOID
o E: If the agents authority be in writing
rd

To be effective against 3 persons ! sale must be registered in the RD of


the province or city where the property is located + public document
o Registration = X mode of acquiring ownership
o Actual notice = registration

Sale of land in private instrument is valid between the contracting parties

Deed of sale X need to be notarized, sufficient that it is in writing


LEGAL RECOGNITION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC
DOCUMENT - RA 8792 ELECTRONIC COMMERCE ACT
1. VALIDITY AND ENFORCEABILITY

Electronic date messages or electronic documents shall have the legal


effect, validity or enforceability as any other document or legal writing
2. INCORPORATION BY REFERENCE

Information shall not be denied validity or enforceability solely on the


ground that it is not contained in the electronic data message or
electronic document but is merely incorporated by reference therein
3. WRITING

An electronic document or electronic data message shall be sufficient


if it:
1. Maintains its integrity and reliability
2. TESTS: Can be authenticated so as to be usable for subsequent
reference
- Integrity - It has remained complete and unaltered
- Reliability - Reliable in light of the purpose for which it was
generated and in light of relevant circumstances
4. ORIGINAL

DE LEON SALES REVIEWER

When the law requires that a document be presented or retained in its


original form, that requirement is met by an ED or EDM if:
1. Reliable assurance of integrity of ED or EDM from the time it was
first generated in its final form and such is shown by evidence
aliunde (evidence other than EDM itself) ! see tests above
2. ED OR EDM is capable of being displayed to the person to whom
it is to be presented
SOLEMN CONTRACTS

X apply when the law required that contract be in some form in order
that it may be valid and enforceable, or that a contract is proved in a
certain way ! requirement is absolute and indispensible

5.

LEGAL RECOGNITION OF ELECTRONIC SIGNATURES

An electronic signature relating to an ED or EDM shall be equivalent to the


signature of a person on a written document if the signature
COMMUNICATION OF ELECTRONIC DATA MESSAGES AND ELECTRONIC
DOCUMENTS
1. FORMULATION AND VALIDITY OF ELECTRONIC CONTRACTS
o Offer, acceptance of an offer and other such elements required
under existing laws for the formation and perfection of contracts
may be expressed thru EDM ! Valid (except as otherwise agreed
by the parties
2. CONSUMMATION OF ELECTRONIC TRANSACTION WITH BANKS
o Transactions made throught networking among bank is deemed
consummated upon the actual dispensing of cash or the debit of
one account and the corresponding credit to another
o Applies to ATM switching network
3. RECOGNITION BY PARTIES OF EDM
o A declaration of will or other statement shall not be denied legal
effect, validity or enforceability on the ground that it is in the form
of an EDM or ED

ART. 1484. In a contract of sale of personal property the price of which is


payable in installments, the vendor may exercise any of the following
remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay
(2) Cancel the sale, should the vendees failure to pay cover two or more
installments
(3) Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendees failure to covert two or more installments. In
this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to contrary shall be void.
REMEDIES OF VENDOR IN A SALE OF PERSONAL PROPERTY PAYABLE IN
INSTALLMENTS
19




Michelle Duguil,

1.
2.
3.

Exact fulfillment of the obligation, should the vendee fail to pay


Cancel the sale, should the vendees failure to pay cover two or more
installments
Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendees failure to covert two or more installments.
In this case, he shall have no further action against the purchaser to
recover any unpaid balance of the price. Any agreement to contrary shall
be void.

If the mortgagor unjustifiable refused to surrender the chattel or if


he concealed the chattel to place it beyond the reach of the
mortgagee ! expenses incurred for prosecution of the case such
as attys fees ! could be rightly awarded
FORECLOSURE

Foreclosure by the usual methods including sale of thing at public


auction

4.

REMEDIES ALTERNATIVE

X cumulative

Election of one is a waiver of the right to resort to other remedies

Alternative remedies as distinguished from alternative obligations


o In alternative obligations mere choice communicated by the
person entitled to exercise the option concludes the parties
"
E: if the chosen alternative proves to be ineffectual or
unavailing due to no fault on his part
o In alternative remedies choice generally becomes conclusive
only upon the EXERCISE of the remedy
APPLICABILITY OF ART 1484

The contract of sale of personal property

Payable in installment

And there has been a failure to pay 2 or more installments

X apply to sale of personal property not payable in installments

X apply to sale of personal property on straight term or partly in cash and


partly in term

X apply to sale of immovable property nor to real estate mortgage

X apply to contracts to sell


MEANING OF CERTAIN TERMS AS USED IN ART 1484
1. EXERCISE

Desistance of plaintiff on its own initiative from proceeding with the


auction sale without gaining any advantage or benefit and without
causing disadvantage or harm to the defendant-mortgagor ! X
considered exercise of remedy of foreclosure ! incomplete
implementation ! X barred from suing the unpaid account
2. ACTION

Refers to any judicial or extra-judicial proceeding by virtue of


which the vendor may be lawfully enabled to exact recovery of the
supposed unsatisfied balance of the purchase price from the
purchaser or his privy
3. ANY UNPAID BALANCE

Deficiency judgment which the mortgagee may be entitled, where


after the mortgaged chattel is sold at public auction, the proceeds
obtained therefrom are insufficient to cover the full amount of the
secured obligation

Includes principal, attys fees, expenses of collection and costs

DE LEON SALES REVIEWER

Michelle Duguil,

20

WHEN AVAILABLE
RECOVERY
OF
PURCHASE PRICE

SPECIFIC PERFORMANCE
Where there is a contract of sale of personal
property + the price thereof which is payable in
installments + and the purchaser fails to pay
Seller is entitled to RECOVERY of any unpaid
balance of the price

If the proceeds of the sale were not


enough ! the vendor may cause an alias
writ of execution to be issued on other
properties of the vendor

If vendor chose SP and X exercise


remedy of foreclosure mortgage over the
thing sold ! the attachment and
subsequent sale of the thing sold = X
foreclosure mortgage ! vendor can
recover from the purchaser the unpaid
balance of the price on real and personal
property of the purchaser not exempt by
law from attachment or execution

CANCELLATION
Vendor may cancel the sale should the
vendees failure to pay cover 2 or more
installments
Seller X recover any unpaid balance of
the price

Buyer may demand only RETURN of


payments already made

E: there is a stipulation about


forfeiture and the stipulation is not
unconscionable
under
the
circumstances
Ex. Seller repossessed the car after buyer
failed to redeem it within the agreed 15 days
period by paying the purchase price

RETURN
OF
PURCHASE PRICE

EXERCISE
REMEDY

OF

If specific performance is chosen ! vendor waives


other remedies

FORECLOSURE
The vendor may foreclose any CM constituted on the
thing sold should the vendees failure to pay cover 2 or
more installments
Seller X recover any unpaid balance remaining after
the foreclosure and actual sale of the mortgages chattel
- any agreement to the contrary = void
BUT recover amounts not part of the unpaid
balance (ex. Expenses of suit incurred by the prosecution
for the action of replevin so that he can regain possession
of the chattel because mortgagor has (1) concealed, (2)
unjustifiably refused to surrender, or (3) repossession
expenses)
Purpose of PROHIBITION AGAINST RECOVERY OF
UNPAID BALANCE

Remedy the abuses committed in connection


with the foreclosure of CM

Prevents mortgagees from seizing the


mortgaged property, buying it ay a foreclosure
sale for a low price and bringing a suit against
the mortgagor for deficiency judgment

Mortgagee is limited to the property included in


the mortgage

Seller-mortgagor has no more cause of action


against the purchaser or his guarantor
Seller is not obliged to return to the vendee the
amount of installments already paid

This means foreclosure by the usual methods including:

Sale of the thing at a public auction

Actual sale in accordance with CM law

Pactum commisorium taking of the chattel


without proceeding to the sale of the same at
public auction but instead, appropriating the
same in payment of the buyers indebtedness, is
not lawful
X considered exercising foreclosure if:

If seller merely informed of foreclosure but


desisted

Mere demand for surrender of thing sold but no


foreclosure

Action for replevin

Action chosen is specific performance and


mortgaged property is subsequently attached
and sold by virtue of an execution

Seller given possession by the buyer but did not


foreclose

Seller filed petition for extra-judicial foreclosure

DE LEON SALES REVIEWER

Michelle Duguil,

21

and obtained possession but did not foreclose


Thing not sold at public auction as it was
released by sheriff and sale was not rescinded
by the seller

Ordinary discounting transactions - where there


rd
is precise stipulation that 3 person has a right
of recourse against the seller should the buyer
fail to pay the assigned credit in full
= demand payment of unpaid balance
If the seller exercised the remedy of foreclosing the CM on
thing sold ! vendor X run after other securities given
rd
by the purchaser or any 3 person in order to recover
the unpaid balance of the price

RECOURSE AGAINST
OTHER
SECURITY
GIVEN TO SECURE
PURCHASE PRICE

Notes:

DE LEON SALES REVIEWER

If this is allowed this is considered


circumvention of the law since it is the seller
who will still be ultimately liable
If he chooses to go after the additional
securities instead of foreclosing thing sold !
deemed to waive right to foreclose thing sold
Seller X allowed to proceed against any third
party who may have guaranteed the vendees
performance of his obligation

Michelle Duguil,

22

SALE OR FINANCING OF REAL ESTATE ON INSTALLMENT PAYMENTS


MACEDA LAW

RA 6552

Governs the sale or financing of real estate on installments

Act applies to contract to sell or conditional sales and contract of sale,


provided that the terms on payment of the price require at least 2
installments
REAL ESTATE COVERED

Covers real estate including residential condominium apartments


o EXCEPTIONS Sale on installment of:
1. Industrial lots
2. Commercial buildings
3. Sales to tenants under the Code of Agrarian Reform
! In these cases, the act recognized the sellers right
unqualifiedly to cancel the sale upon default of the buyer
PURPOSE OF THE LAW

Protect buyers of real estate on installment payment against onerous and


oppressive conditions

Avoid take it or leave it basis

Protect buyers from one-sided and pernicious contract stipulations wherein


sellers get to forfeit all the installment payments of defaulting buyers and
resell the same lot to another buyer with the same exigent conditions
RIGHTS OF BUYERS
Rights of the buyer depends on w/n the buyer has paid more than 2 years of
installment
1. To pay without additional interest the unpaid installments due within the
total grace period earned by him

1 month grace period ! for every 1 year of installment paid

Right shall only be exercised by him only once in every 5 years of


the life of the contract and its extension, if an
2. If the contract is cancelled ! refund of cash surrender value

50% of the total payments made

After 5 years of installments ! additional 5% every year but not to


exceed 90% of total payments made
3. In case of defaulting buyer who has paid less than 2 years of installment !
grace period of not less than 60 days from the date the installment became
due

If he fails to pay the installment due at the expiration of the grace


period ! seller may cancel the contract after 30 days from receipt
by the buyer of the notice of cancellation or the demand for
rescission of the contract by notarial act

Here, buyer is not entitled to refund of cash surrender value


4. Buyer has right to sell his right or assign the same

Before actual cancellation of the contract

DE LEON SALES REVIEWER

5.

Pay in advance any unpaid installment anytime without interest and to have
such full payment of the purchase price annotated in the Certificate of title
covering the property

CANCELLATION OF SALE BY SELLER

Extrajudicial cancellation or one done outside of court

But cancellation must be done in conformity with the requirements therein


prescribed:
1. Where the buyer has paid at least 2 installments

Actual cancellation shall take place after 30 days from receipt by


the buyer of the notice of cancellation or the demand for
rescission of the contract by notarial act

And upon full payment of cash surrender value


2. Where the buyer has paid less than 2 years installments

Actual cancellation shall take place after 30 days from receipt by


the buyer of the notice of cancellation or the demand for
rescission of the contract by notarial act

X entitled to cash surrender value


REQUIREMENT OF NOTARIAL ACT

Both notice of cancellation and demand for rescission should be by notarial


act

Demand letter A mere notice or letter, short of a notarial act ! X suffice


(ex. Letter written by vendors counsel)

Action for rescission The vendor can go to court to demand judicial


rescission in lieu of a notarial act for rescission

X NEED TO COMPLY WITH REQUIREMENT OF NOTARIAL ACT


o File action for annulment of contract
o Motion for execution
o Ejectment case decision

X exempt him from complying with the requirement of notice of cancellation


or demand for rescission by notarial act
o An action for unlawful detainer
o An action for reconveyance
GRACE PERIOD

Section 3 & 4. Provide grace period for payment of the unpaid installments

Section 6. Additional grace period for the buyer as it allowed the buyer to
reinstate the contract by updating the account during the grace period and
before actual cancellation of the contract
CALCULATION OF INSTALLMENTS

Down payments, deposits or options on the contract ! shall be included in


the computation of the total number of installment payments made
APPLICATION OF GENERAL PRINCIPLES OF EQUITY

X applicable now because of the enactment of RA 6552

Legarda and Layug ruling no longer applicable

Michelle Duguil,

23

Where there is an adequate remedy at law available to the parties, equity


should not come into play

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
LEASE OF PERSONAL PROPERTY WITH OPTION TO BUY
1. NATURE OF TRANSACTION

Sales of personalty payable in installments

Rules provided in Art 1484 are equally applicable


2. PURPOSE OF PROVISION

Prevent vendors from resorting to this form of contract which is usually


is in reality a contract of sale of personal property payable in
installments in contravention of the provisions of Art 1484
3. REPOSSESSION BY LESSOR NEED NOT BE THROUGH COURT
ACTION

X required that deprivation of enjoyment of the property be brought


through court action

May apply even if the lessee voluntarily delivers the property to the
lessor if he does so in obedience to the demands of the lessor
ART. 1486. In the cases referred to in the 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 circumstances
STIPULATION AUTHORIZING THE FORFEITURE OF INSTALLMENTS OR
RENTS PAID

VALID

In so far as the same may not be unconscionable under the circumstances

Otherwise, the court has the power to order the return of a portion of the
total amount paid in installments or rents
ART. 1487. The expenses for the execution and registration of the sale shall be
borne by the vendor, unless there is a stipulation to the contrary
EXPENSES FOR EXECUTION AND REGISTRATION

Seller has the duty not only to pay for the execution of the sale but also for
the registration of the same
o in the absence of any agreement between the parties to the
contrary

Expenses incurred SUBSEQUENT TO THE TRANSFER OF TITLE !


borne by the BUYER
o E: Unless cause by the fault of the seller
ART. 1488. The expropriation of property for public use is governed by special
laws.

DE LEON SALES REVIEWER

EXPROPRIATION OF PROPERTY FOR PUBLIC USE

Procedure for the exercise of power of eminent domain = Rule 67 of ROC

Expropriation must be decreed by competent authority and for public use


and always upon payment of just compensation
CHAPTER 2
CAPACITY TO BUY OR SELL
1489. All persons who are authorized in this Code to obligate themselves, may
enter into a contract of sale, saving the modifications contained the in the
following articles.
Where necessaries are sold and delivered to a minor or other persons without
capacity to act, he must pay reasonable price therefor. Necessaries are those
referred to in Art. 290.
PERSONS WHO MAY ENTER INTO A CONTRACT

All persons, natural or juridical, who can bind themselves also have legal
capacity to buy and sell
o E: Those cases when the law determines that a party suffers from
either absolute or relative incapacity
KINDS OF INCAPACITY

Absolute persons who cannot bind themselves

Relative exist only with reference to certain persons or certain class of


property (Art. 1490 1491)

There are no incapacities except those provided by law ! such


incapacities cannot be extended to other cases by implication for the
reason that such construction would be in conflict with the very nature of
Art. 1489
SALE BY MINORS AND OTHER INCAPACITATED PERSONS

Art. 1327. The following cannot give consent to a contract


o Unemancipated minors
o Insane or demented persons
o Deaf-mutes who do not know how to read and write

The contracted entered into by them are VOIDABLE ! binding unless


annulled by competent authority

Contract entered into by insane person during lucid interval ! valid

When the defect of the contract consists in the incapacity of one of the
parties ! the incapacitated person is NOT obliged to make restitution
o E: insofar as he has BENEFITED by the thing or price received by
him

Necessaries those things which are needed for sustenance, dwelling,


clothing, medical attendance, education and transportation according to the
financial capacity of the family of the incapacitated person

Michelle Duguil,

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Necessaries sold and delivered to a minor (without intervention of


the parents or guardian) ! minor must pay reasonable price
therefore
o Minor has right to recover only excess above a reasonable value
paid by him
Estoppel sale of real estate effected by minors who have already passed
the ages of puberty and adolescence and are now in adult age, when they
pretend to have already reached majority, while in fact they have not !
VALID ! X permitted afterwards to excuse themselves from compliance
with the obligations assumed by them or to seek their annulment
Parents of the minor will have capacity to give consent to sale of property
owned by the minor
Sale by parents of property owned by their minor child requires court
authority and approval
A person becomes emancipated when he reaches age of majority (18) !
terminates parental authority
o

1490. The husband and wife cannot sell property to each other, except:
(1) When separation of property was agreed upon in the marriage settlements;
or
(2) When there has been judicial separation of property under article 191 (135
now)
RELATIVE INCAPACITY OF HUSBAND AND WIFE

GR: H&W are prohibited from selling property to each other


o EXCEPTIONS:
1. Separation of property in marriage settlement
2. Judicial separation of property decreed by the court

GR: Donation between husband and wife = X allowed


o E: Moderate Gifts on the occasion of family rejoicing

Prohibition to sell or donate applies to common law relationships


o Void because it is contrary to morals and public policy
PROPERTY COVERED

In a system of ACP
o Both community property
o Property belonging to each spouses

In a system of CPG
o CP property
o Exclusive properties of spouses

In regime of separation of property


o X covered by prohibition if separation whether total or partial**
o Free to sell to each other both separate property and property
owned in common
REASON FOR PROIBITION

It would destroy the system of CPG

DE LEON SALES REVIEWER

Prevent exercise of undue influence by one spouse over the other


Protect institution of marriage
rd
Protection of 3 person who, relying upon supposed property of either
spouse enters into a contract with either of them only to find out that the
property relied upon was transferred to the other spouse

Presumption is that property acquired during the marriage is conjugal


STATUS OF CONTRACT

VOID AB INITIO

PERSONS PERMITTED TO QUESTION SALE


1. Persons who bear such relation to the parties making the transfer or to the
property itself that such transfer interferes with their rights or interests
2. Heirs of either spouse
3. Creditors at the time of the transfer
4. Government in matters involving taxable transactions
ART. 1491. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation of
another:
(1) The guardian ! the property of the person or persons who may be under
his guardianship
(2) Agents ! the property of the person who may be under his guardianship

Unless the consent of the principal have been given


(3) Executors and administrators ! the property of the estate under
administration
(4) Public officers and employees ! the property of the State or any
subdivision thereof, or of any government-owned or controlled corporation, or
institution, the administration of which has been entrusted to them;

this 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 employees connected with the administration of
justice ! the property and rights in litigation or levied upon an execution
before the court within whose jurisdiction or territory they exercise their
respective functions;

this 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 litigation in which they may take part by virtue of their
possession
INCAPACITY BY REASON OF RELATION TO PROPERTY

By reason of the relation of trust with the persons under their charge or
their peculiar control over the property ! prohibited from acquiring said
property, directly or indirectly

WHO:
1. Guardians
2. Agents
3. Executors and Administrators

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25

4. Public officers and employees


5. Judicial officers, employees, and lawyers
6. Others especially disqualified by law
Persons disqualified to buy referred to in Art 1490 and 1491 ! also
disqualified to become lessees of the things mentioned theron

PROHIBITION WITH RESPECT TO PUBLIC OFFICIALS AND EMPLOYEES

Refers to properties:
1. Belonging to the state or any subdivision, GOCC or institution
2. Administration of which has been entrusted to the public official or
employee

Includes judges and government experts who in any manner take part in
the sale

REASON FOR PROHIBITIONS

Public policy

Fiduciary relationship involved or the peculiar control over the properties by


the parties

Prevents fraud and minimize temptations to exercise undue and improper


influence

Article is interpreted restrictively

PROHIBITION WITH RESPECT TO JDUGES, ETC. AND LAWYERS

SALE OR ASSIGNMENTS COVERED


o Sale or assignment of property which are the subject of litigation
to the person disqualified therein
o Sale or assignment must take place during the pendency of the
litigation involving the property

WHEN PROPERTY CONSIDERED IN LITIGATION


o It is not required that some contest or litigation ober the property
have been tried by the judge
o In litigation from the moment it became subject to judicial action of
the judge who afterwards purchased it
o X apply if decision is already final and afterward purchased by the
judge
o X allowed ! property mortgaged to lawyer by client subsequently
acquired by the lawyer in foreclosure sale after the termination of
the case

A lawyer who violated this prohibition may be reprimanded, suspended, or


disbarred
o X GF defense

Lawyer who is member of the firm involved ! X allowed also

CASES X COVERED:
1. Sale of the property of the client effected before it became
involved in the action
2. Assignment of the amount of judgment made by a person to his
attorney in payment of professional services
3. Sale of a parcel of land, acquired by a client to satisfy a judgment
in his favor, to his attorney as long as the property was not the
subject of litigation
4. Lawyer X prohibited from charging a contingent fee based on a
certain percentage of the value of the property in litigation !
payment is made only after judgement

COVERAGE OF THE PROHIBITION


1. X purchase even at a judicial or public auction
2. Covers a sale to the disqualified person as well as sale done through the
mediation of another
PROHIBITION WITH RESPECT TO GUARDIANS

Presumption of fraud - when the sale was entered into while the property
is still under the control of the guardian and until accounts have been finally
settled
PROHIBITION WITH RESPECT TO AGENTS

Agent and principal form one juridical person

Fiduciary relationship

Prohibition is not absolute

GR: Agents x allowed to acquire the property of the person who may be
under his guardianship
o EXCEPTIONS:
1. After the termination of the agency or other properties
different from those he has been empowered to sell
2. Principal gives his full consent thereto with full knowledge of
every detail known to the agent which might affect the
transaction
3. Where the sale of the property in dispute was made under a
special power inserted in or attached to the real estate
mortgage in extra-judicial foreclosure of real estate mortgage
PROHIBITION WITH RESPECT TO EXECUTORS AND ADMINISTRATORS

Refers only to properties under the administration of the executor or


administrator at the time of the acquisition

X extend to property not falling within this class

X apply to purchase by an executor of hereditary rights even in those cases


in which the executor administers the property pertaining to the estate

DE LEON SALES REVIEWER

OTHER PERSONS ESPECIALLY DISQUALIFIED


1. Aliens who are disqualified to purchase private agri lands
2. Unpaid seller having a right of lien or having estopped the goods in
transitu, who is prohibited from buying the goods either directly or indirectly
in the resale of the same at a public or private sale which he may make
3. Officer conducting the execution sale or his deputies cannot become a
purchaser, or be interested directly or indirectly in any purchase at an
execution sale

Michelle Duguil,

26

EFFECT OF VIOLATION OF PROHIBITION


1. Nos. 1 to 3 = VOIDABLE
a. Only private interests are affected
b. Can be ratified by the seller

Ratified by means of a new contract

Cause of nullity which have ceased to exist cannot impair the


validity of the new contract

Ratification or second contract could then be valid from its


execution ! BUT it does not retroact to the date of the first
contract
2. Nos. 4 to 6 = VOID
a. Public interest
b. Definite and perfected and cannot be ratified

Applies to sale of specific thing

1493
LOSS
OR
INJURY
OCCURRED
BEFORE OR AT THE TIME THE
CONTRACT IS PERFECTED

RULES:
EXTENT OF LOSS
THING
ENTIRELY
LOST

ART. 1492. The prohibitions in the two preceding articles are applicable to
sales by virtue of legal redemption, compromises, and renunciations
THING
ONLY
PARTIALLY LOST

PROHIBITION EXTENDS TO SALES IN RCR


COMPROMISE

Contract whereby the parties, by reciprocal concessions, avoid a litigation


or put an end to one already commenced

Amicable settlement of a controversy


RENUNCIATION

Creditor gratuitously abandons his right against his creditor

Condonation or remission
Note: Persons disqualified to buy referred to in art 1490 and 1491 ! also
disquaified to become lessees of the things mentioned therein
CHAPTER 3
EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST
Art. 1493. 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.
But if the thing should have been lost in part only, the vendee may choose
between withdrawing from the contract and demanding the remaining part,
paying its price in proportion to the total sum agreed.
EFFECT OF LOSS OF THING AT THE TIME OF SALE

The loss or injury referred to in this article is on, which has taken place
BEFORE OR AT THE TIME THE CONTRACT IS PERFECTED

DE LEON SALES REVIEWER

1480 & 1504


LOSS INJURY OCCURS AFTER THE
CONTRACT IS PERFECTED BUT
PRIOR TO THE TIME OF DELIVERY

EFFECT

Contract is inexistent and void because there is


no object = no contract

No necessity for bringing an action for


annulment

Owner bears the loss

Buyer may choose between:


1.
Withdrawing from the contract
2.
Demanding the remaining part, paying its
proportionate part

WHEN A THING IS CONSIDERED LOST

Perishes or goes out of commerce

Disappears in such a way that its existence is unknown or it cannot be


recovered

Perishes material deterioration or complete change in the nature of the


thing in such a manner that it loses its former utility taking into
consideration the time the contract was entered into
ART. 1494. Where the parties purport a sale of specific goods, and the goods,
without the knowledge of the seller have perished in part or have wholly or in
a material part so deteriorated in quality as to be substantially changed in
character, the buyer may at his option treat the sale as:
(1) Avoided
(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
EFFECT OF LOSS IN CASE OF SPECIFIC GOOD

Applies to sale of goods

Specific goods goods identified and agreed upon at the time a contract
of sale was made

Remedies:
1. Avoided/ withdraw from the contract
2. Demanding the remaining part, paying its proportionate part
a. Applies only if contract is divisible

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Sale divisible A sale is divisible when its consideration is made up of


several parts
Sale indivisible When the consideration is entire and single
o If the sale is indivisible, what price is the buyer to pay for the
remaining goods if he elects to continue with the sale?
"
Buyer should be made to pay only the proportionate
price of the remaining goods. The object thereof may be
considered as a specific thing
CHAPTER 4
OBLIGATIONS OF THE VENDOR
SECTION 1. GENERAL PROVISIONS

ART. 1495. The vendor is bound to transfer the ownership of and deliver, as
well as warrant the thing which is the object of the sale
PRINCIPAL OBLIGATIONS OF THE VENDOR
1. Transfer the ownership of the determinate thing sold
2. Deliver the thing, with its accessions and accessories, if any, in the
condition in which they were upon the perfection of the contract
3. Warrant against eviction and against hidden defects
4. Take care of the thing, pending delivery, with proper diligence
5. To pay for the expense of the deed of sale, unless there is a stipulation to
the contrary
BUSMENTE NOTE: Obligation 4 & 5 are may be waived
OBLIGATION TO TRANSFER OWNERSHIP AND DELIVER
1. PRIMARY OBLIGATION OF THE SELLER AFTER THE PERFECTION OF THE
CONTRACT OF SALE

Obligation is also right with the delivery, the seller will be entitled to
collect purchase price and free himself from the obligation to take care of
the thing sold

With the sellers right to deliver is the corresponding obligation of the buyer
to accept delivery

When property belonging to a person is unlawfully taken by another ! the


person unlawfully deprived has the right of action against the unlawful taker
for the recovery of the property
o Right may be transferred by the sale or assignment of property
and the transferee can maintain an action against the wrongdoer
2. OWNERSHIP BY THE VENDOR AT THE TIME OF PERFECTION OF A
CONTRACT X ESSENTIAL

It is sufficient that he has a right to transfer the ownership thereof at the


time it is delivered
3. TRANSFER X ESSENTIAL TO PERFECTION OF CONTRACT

DE LEON SALES REVIEWER

GR: transfer of ownership and deliver of the thing sold are not essential to
the perfection of the contract
o E: If the seller does not deliver at the time stipulated ! the
buyer may ask for the RESCISSION of the contract or the
FULFILLMENT with right to DAMAGES in either case
4. NO OBLIGATION TO MAKE DELIVERY DURING PERIOD OF REDEMPTION

Purchaser in execution sales is not entitled to immediate possession of the


property sold

The debtor is not obliged to make delivery during the period of redemption
since the conveyance of land is accomplished by the deed which is issued
only AFTER THE REDEMPTION PERIOD HAS EXPIRED
o Extra-judicial foreclosure sale - Mortgagor may redeem
property sold within 1 year from the date of registration of the sale
o Judicial foreclosure of real estate mortgage Mortgagor
cannot exercise his right of redemption after the sale is confirmed
by the court
4. RIGHT OF THE VENDEE TO TRANSFER CERTIFICATE OF TITLE

The buyer has a right to receive and the seller has the obligation to transfer
to the buyer:
1. Possession and employment of the land
2. Certificate of title
5. RIGHT OF BUYER TO RECOVER THE PRICE PAID

The purchaser is entitled to recover the money paid by him where the
contract is set aside by reason of the mutual mistake of the parties as to
the identity or quantity of the land sold

He is also entitled to interest on the money paid from the time of payment

OBLIGATION TO TAKE CARE OF, PRESERVE THE THING

Seller is obliged to take care of the property with diligence of a good father
of a family
o UNLESS the law or stipulation of the parties require another
standard of care

Seller 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

Seller is obligated not to transform, alter or alienate the thing sold

He can be made responsible for damage or injury to the thing as a result of


fault, fraud, or negligence on his part during the time between the
perfection of the contract and delivery to the buyer
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 specific in Art. 1497 to 1501,
or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee.
WAYS OF EFFECTING DELIVERY

Ownership of the thing sold shall be transferred to the vendee UPON THE
DELIVERY thereof which may be effected in the following ways:
1. Actual or real delivery
2. Constructive or legal delivery

Michelle Duguil,

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3.

Delivery in any other manner signifying an agreement that the


possession is transferred to the vendee
Critical factor: Actual intention of the vendor to deliver, and its acceptance
by the vendee (Actual intention to deliver + delivery = tradition)
Transfer of ownership by mere consent is not admitted
The delivery must be made to the seller or his authorized representative
o Where no name is indicated on behalf of buyer ! seller must
deliver to buyer exclusively

2.
3.

WAYS OF EFFECTING CONSTRUCTIVE DELIVERY

Constructive delivery is equivalent to actual delivery

Effected in any of the following ways:


1. Execution of a public instrument
2. Symbolical tradition or tradition symbolica
3. Traditio longa manu
4. Traditio brevi manu
5. Traditio constitutum possessorium
6. Quasi-delivery or quasi-traditio

Contrary may be stipulated


o The parties may however stipulate that ownership shall pass to
the buyer only after he has fully paid the price contract to sell or
fulfilled certain conditions

In the contract of absolute sale ownership is transferred simultaneously


with the delivery of the thing sold
SECTION 2. DELIVERY OF THE THING SOLD
ART. 1497. The thing sold shall be understood as delivered, when it is placed
in the control and possession of the vendee
CONCEPT OF TRADITION OR DELIVERY

Tradition is a derivative mode of acquiring ownership by virtue of which one


has the right to alienate a corporeal right, transmits it by virtue of a just title
to one who accepts the same

Original acquisition one which applied to things which has been


abandoned, res nullius

Derivative acquisition arose when a person entered into the right of


property which has pre-existed in another
EQUATORIAL REALTY DEVELOPMENT INC VS MAYFAIR THEATRE
IMPORTANCE OF TRADITION
1. TRANSFER OF OWNERSHIP

GR: Delivery is needed to transfer ownership

DE LEON SALES REVIEWER

E: Art. 1499 delivery of movable property made by mere or


consent or agreement is the thing sold cannot be transferred
to the possession of the vendee at the time of sale

Delivery (actual or constructive) + intention to delivery + acceptance by


the buyer = transfer of ownership

X transfer of ownership when buyer when he steals it


ENJOYMENT OF THE THING SOLD

Delivery is necessary to enable the buyer to enjoy and make use of


the property purchased
LIABILITY IN CASE OF LOSS

When the thing subject of purchase is placed in the control and


possession of the buyer or his agent ! the delivery is complete !
seller can avoid liability in case the thing is subsequently lost without
the fault of the seller
RIGHT OF VENDOR TO CLAIM PAYMENT

The seller has the right to claim payment of the price

Where the buyer has not become the owner for lack of delivery !
action is for specific performance or rescission + damages (both)
DELIVERY AND NON-PAYMENT OF PRICE

Ownership shall pass to from the seller to the buyer upon actual or
constructive delivery if the thing sold even if the purchase price has not
yet been fully paid
o UNLESS there is a stipulation that ownership will not pass
until price is fully paid
CONSUMMATION OF CONTRACT

Delivery of the thing + payment of the price = consummation of


contract of sale

Perfection of the contract when the moment there is meeting of minds


between the parties
o

4.

5.

6.

ACTUAL DELIVERY OF THE THING SOLD


1. WHEN DEEMED MADE

When the thing sold is placed in the CONTROL and POSSESSION of


the buyer and his agent

Involves physical delivery which is usually done by the passing of a


movable thing from hand to hand
2. NOT ALWAYS ESSENTIAL TO PASSING TITLE

Actual or manual delivery of an article sold is not always essential to


the passing of title thereto

Parties to a contract may agree as to when and on what conditions the


ownership of the subject of the contract shall pass to the buyer
PROOF OF DELIVERY

Generally evidenced by a written acknowledgement of a person that he or


she has actually receive the thing or the goods (e.g. delivery receipts)

X bill of lading proof of delivery


o Bill of lading - is evidence of the receipt by the carrier of the
goods from the shipper for transportation and delivery

X factory consignment invoice

Michelle Duguil,

29

An invoice - is nothing more than a detailed statement of the


nature, quantity and cost of the thing sold

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 be
clearly inferred.
With regard to movable property, its delivery may also be made by the
delivery of the keys of the place or depository where it is made.
EXECUTION OF PUBLIC INSTRUMENT OR DOCUMENT
1. DELIVERY MADE TO BUYER BY NOTARIZED DEED OF
CONVEYANCE

Public instrument an instrument or document attested to and


certified by a public officer authorized to administer oath, such as a
notary public

Execution of public instrument applies to both MOVABLE and


IMMOVABLE property

Symbolic

Buyer may use document as proof of his ownership

Possession + ownership + incorporeal rights (right to eject tenants and


squatters) ! transferred to buyer by virtue of notarized deed of sale

An agreement analogous to a deed of sale made through a public


instrument ! execution is equivalent to transfer of ownership

Prior physical possession or delivery is not required


2. NO DELIVERY

If it appears from the document or it can be inferred therefrom that it


was NOT THE INTENTION of the parties to make delivery ! no
tradition
3. DELIVERY PRESUMPTIVE ONLY

The execution of a public document ! prima facie presumption of


delivery

The presumption can be rebutted by means of clear and convincing


evidence

Presumption is negated ! by failure of the buyer to take actual or


material possession of the land sold
4. SALE OF THING NOT SUBJECT TO CONTROL OF VENDOR

There will be no delivery if the seller does not have control and
possession over the property sold

Principle: the seller cannot give more than what he has and the seller
cannot place the buyer in possession of a thing that is not in the
possession of the seller

Essential that at the moment of sale, the material delivery could have
been made

When there is no impediment whatever to prevent the thing sold


passing into the tenancy of the purchaser by the sole will of the vendor
! symbolic delivery is sufficient

DE LEON SALES REVIEWER

If in spite of execution of instrument, the buyer cannot take control or


possession of the object sold because the object is enjoyed or
opposed by another person ! X delivery (fiction yields to reality)
o Ex. No constructive delivery if the parcel of land was occupied
by a person claiming to be its owner

The continuous possession by the seller of the property sold ! makes


dubious the contract of sale between the parties

EXCEPTION:
o If the sale has been made under the express agreement of
imposing upon the vendee the obligation to take necessary
steps to obtain the material possession of the thing sold and if
proven that he knew that the thing was in possession of a
third person claiming to have property rights thereon !
agreement is valid (Addison vs. Felix)
o If the buyer was prepared to accept delivery not withstanding
rd
the presence of 3 party occupants, such as when the
buyers counsel during the sales negotiation undertook the
necessary job of ejecting the occupants and buyer actually
filed suit to eject occupants (Power commercial & industrial
corp vs. CA)
o Equatorial and realty development inc. vs Mayfair Theatre inc
SALE OF REGISTERED LAND

Modified by provisions of the Property Registration Decree

Registration in RD + Transfer of the certificate of title in the name of


the buyer = necessary only to bind third parties to the transfer of
ownership

As between the seller and the buyer ! transfer of ownership takes


effect upon the execution of a public instrument conveying the real
estate

Such registration or issuance of CT is not a mode of acquiring


ownership
POSSESSION OF A PART AS CONSTRUCTIVE POSSESSION OF
WHOLE

Purchaser who took actual possession of the considerable portion of


the land sold by the exercise of possessory acts of clearing the area of
trees and of cultivating the same through tenants ! such possession
and cultivation if logically and legallt constructive possession of the
whole

5.

6.

SYMBOLIC TRADITION

Constructive delivery is symbolic ! when to effect the delivery, the


parties make use of a token symbol to represent the thing delivered

Delivery of the key where the thing is stored or kept = delivery of thing

Delivery to buyer of delivery orders which would authorize him to


withdraw the goods from the warehouse ! upon withdrawal, there is
actual delivery ! consummated sale
Art. 1499. The delivery of movable property may likewise be made by the mere
consent or agreement of the contracting parties, if the thing sold cannot be

Michelle Duguil,

30

transferred to the possession of the vendee at the time of the sale or if the
latter already had it in his possession for any reason
TRADITIO LONGA MANU

Long hand delivery

First part of 1499

Delivery takes place by mere consent or agreement of the contracting


parties as when the vendor MERELY POINTS the THING SOLD ! which
shall thereafter be at the control and disposal of the buyer

QUALIFIED BY THE PHRASE: If the thing sold cannot be transferred to


the possession of the vendee at the time of sale

Busmente: Remember car example of sir


TRADITIO BREVI MANU

Short hand delivery

When the vendee has already the possession of the thing sold by virtue of
another title as when the lessor sells the thing leases to the lessee

Instead of turning over the thing to the vendor so that the latter may, in
turn, deliver it ! all these are considered done by action of law
APPLICABILITY TO IMMOVABLE

1499 expressly applies to movable

Traditio longa manu and tradition brevi manu MAY APPLY TO


IMMOVABLE PROPERTY (?)

Example: Delivery to a person of a negotiable document of title in which it


is stated that goods referred to therein will be delivered to the bearer
amount to delivery of the goods to such person

INTENTION TO DELIVER AND TO ACCEPT A TRANSFER OF POSSESSION

Act of delivery+ intention to deliver

Ex. of no intention to deliver:


o When keys are delivered to buyer only so that he can examine the
subject property

Any act, although not provided for in the preceding articles, but
accompanied by the evident intention of the vendor to deliver or of the
buyer to receive the thing sold ! considered as tradition
SUMMARY OF CONSTRUCTIVE DELIVERY
DEFINITION
Execution of
public
instrument

ART. 1500. There may also be tradition constitutum possessorium.

QUASI-TRADITIO

With respect to incorporeal things, delivery is effected through:


1. Execution of the public instrument
2. When that mode of delivery is not applicable, by the placing of the
titles of ownership in the possession of the vendee, or
3. By allowing the vendee to use high rights as new owner with the
consent of the owner

DE LEON SALES REVIEWER

IT

EXAMPLE

&

Delivery
of
negotiable
document of
title

E: If in spite of
execution
of
instrument, the buyer
cannot take control or
possession
of
the
object sold because the
object is enjoyed or
opposed by another
person

TRADITIO CONSTITUTO POSSESSORIUM

Opposite of tradition brevi manu

Takes place when the seller continues in possession of the property sold
not as owner but in some other capacity

Example: seller stays not as owner, but as tenant of the buyer

Instead of the seller delivering the thing to the vendee so that the latter,
may in turn, deliver it back to the vendor ! the law considers that all these
have taken place by mere consent or agreement of the parties
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 the vendee or the use by the vendee of his rights, with the
vendors consent, shall be understood as delivery

Public instrument
an
instrument
or
document attested to
and certified by a public
officer authorized to
administer oath, such
as a notary public

WHEN
APPLIES
Movable
immovable
property

Symbolic
tradition
tradition
symbolica

or

Traditio
longa
manu (long hand
delivery)

When to effect the


delivery, the parties
make use of a token
symbol to represent the
thing delivered
Delivery takes place by
mere
consent
or
agreement
of
the
contracting parties as
when
the
vendor
MERELY POINTS the
THING SOLD ! which
shall thereafter be at

Movable property

Key

Movable property

Car

Michelle Duguil,

31

the control and disposal


of the buyer

ART. 1502. When the 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 passed to the buyer on delivery, but he may revest the ownership
in the seller by returning or tendering the goods within the time fixed by the
contract, or if no time has been fixed, within reasonable time.

QUALIFIED BY: If the


thing sold cannot be
transferred
to
the
possession
of
the
vendee at the time of
sale
Traditio
brevi
manu
(short
hand delivery)

When the vendee has


already the possession
of the thing sold by
virtue of another title as
when the lessor sells
the thing leases to the
lessee

When the goods are delivered to the buyer on approval or on trial or on


satisfaction, or other similar terms, the ownership therein passes to the buyer:
Movable property
(express prov)
*immovable
property

Traditio
constitutum
possessorium

Takes place when the


seller
continues
in
possession
of
the
property sold not as
owner but in some
other capacity

Movable
immovable
property

Quasi-delivery or
quasi- traditio

With
respect
to
incorporeal
things,
delivery is effected
through:
1. Execution of the
public instrument
2. When that mode of
delivery
is not
applicable, by the
placing of the titles
of ownership in the
possession of the
vendee, or
3. By allowing the
vendee to use high
rights
as
new
owner with the
consent of the
owner

Incorporeal rights

DE LEON SALES REVIEWER

&

When the
vendee has
already the
possession of
the thing sold
by virtue of
another title
as when the
lessor sells
the thing
leases to the
lessee
Seller stays
not as owner,
but as tenant
of seller

Delivery
of
negotiable
document of
title

(1) When he signifies his approval or acceptance to the seller or does any
other act adopting the transaction;
(2) If he does not signify his approval or acceptance to the seller, but retains
the goods without giving notice of rejection, then if a time has been fixed for
the return of the goods, on the expiration of such time, and if no time has been
fixed, on the expiration of a reasonable time. What is reasonable time is a
question of fact.
CONTRACT OF SALE OR RETURN, AND OF SALE ON TRIAL OR APPRIVAL
OR SATISFACTION
1. IN GENERAL

Buyer shall temporarily take the goods into his possession to see
whether they are satisfactory to him

If they are not satisfactory to him ! he may refuse to become an


owner

Question of fact in every case whether the parties intend to make


approval a condition, without which the ownership shall not pass, or
whether their intent is that the ownership shall pass at once with the
right to return the goods

Reasonable time determined upon the particular circumstance of the


case

Duty of the buyer to return the goods in the same or substantially the
same condition in which they were when the contract was made
o If they are injured or damaged substantially through the
negligence or misuse of the buyer ! X right to return = sale
becomes absolute
2. SALE OR RETURN

A contract by which property is sold but the buyer, who becomes the
owner of the property on delivery ! has the option to return the same
to seller instead of paying the price

Option to purchase or return ! rests entirely on the buyer without


reference to the quality of goods

Buyer may revest ownership in the seller by returning the goods within
the time fixed in the contract
o If no time has been fixed ! within reasonable time
o Otherwise the sale becomes absolute and the buyer is liable
for the price

Michelle Duguil,

32

Loss or destruction of the goods prior to the exercise of right to return


! falls upon the buyer and renders him liable to the seller for the
purchase price or such part thereof as remain unpaid

Return ! implies a previous transfer of title

Prior to expiration of the permitted period ! the buyer may indicate to


the seller that the buyer is no longer returning the goods or the buyer
may waiver his right to return the goods = absolute sale

If the buyer makes the return of goods impossible, such as when the
buyer resells the goods to other person = absolute sale

If the buyer makes a proper tender of goods ! the seller cannot


prevent the revesting of ownership by refusing to accept the return of
the property ! seller becomes the owner of the property irrespective
of his acceptance
SALE ON TRIAL OR APPROVAL

It is a contract in the nature of an option to purchase if the goods prove


satisfactory, the approval of the buyer being a condition precedent

Title shall continue in the seller until the sale has become absolute
either by:
o The buyers approval of the goods or by his failing to comply
with the express or implied conditions of the contracts as to
giving notice of dissatisfaction or
o As to returning the goods or
o By his doing of any other act adopting the transaction (e.g.
mortgaging the property or selling the property to a third
person

In a sale on approval where the contract fixes a trial period but does
not fix a time for approval to be signified !
o Better view is that the buyer need NOT signify his approval or
rejection within the trial period ! he may use the full period
for trial and exercise his option of giving notice within a
reasonable time from the end of the trial period

It devolves upon the buyer to give notice that he does not accept the
goods
o BUT it is possible for the parties to agree in regard to the
matter they see first
"
Example: the contract ma provide that the seller
must ascertain whether the buyer is satisfied

Risk of loss or injury to the article pending the exercise by the buyer of
his option to purchase or return it ! seller
o E: If the buyer is at fault in respect to the care and condition
of the article or may have agreed to stand the loss

The buyer CANNOT accept part and reject the rest of the goods since
this falls outside the normal intent of the parties

pay and ownership is extinguished

3.

SALE OR RETURN DISTINGUISHED FROM SALE ON TRIAL


Condition
imposed

ON SALE OR RETURN
Subject to a resolutory condition
when the buyer returns, obligation to

DE LEON SALES REVIEWER

SALE ON TRIAL
Suspensive
condition

ownership passes to the

Dependent
on
Ownership

Risk
loss

of

Depends entirely on the will of the


buyer
The ownership of the goods passes
to the buyer on delivery and
subsequent return of goods reverts
ownership to seller
Buyer

buyer upon performance of


the
abovementioned
2
actions
Depends on the character or
quality of the goods
The ownership remains in
the seller until the buyer
signified his approval or
acceptance to the seller
Seller

Note: If the contract uses the phrase FOR sale or return ! intention may be to
enter a contract of agency
Art. 1503. Where there is a contract of sale of specific goods, the seller may,
by the terms of the contract, reserve the right of possession or ownership in
the goods until certain conditions have been fulfilled. The right of possession
or ownership may thus be 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.
Where goods are shipped, and by the bill of lading the goods are deliverable
to the seller of his agent, or to the order of the seller or of his agent, the seller
thereby reserves the ownership in the goods. But if, except for the form of the
bill of lading, the ownership would have passed to the buyer on the shipment
of the goods, the sellers property in the goods shall be deemed to be only for
the purpose of securing performance by the buyer of his obligations under the
contract.
Where goods are shipped, and by the bill of lading the goods are deliverable
to the order of the buyer or his agent, but possession of the bill of lading is
retained by the seller or his agent, the seller thereby reserves a right to the
possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the
bill of exchange and bill of lading together to the buyer to secure acceptance
or payment of the bill of exchange, the buyer is 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 he acquires no other right thereby. If, however, the bill of
lading provides that the goods are deliverable to the buyer or to the order of
the buyer by the consignee named therein, one who purchases in good faith,
for value, the bill of lading, or goods from the buyer will obtain the ownership
in the goods, although the bill of exchange has not been honored, provided
that such purchaser has received delivery of the bill of lading indorsed by the
consignee named therein, or of the goods, without notice of the facts making
the transfer wrongful.
WHEN OWNERSHIP IS NOT TRANSFERRED UPON DELIVERY

Michelle Duguil,

33

This article related to SALE OF SPECIFIC GOODS


GR: The ownership in the goods sold passes to the buyer upon their
delivery to the carrier
o EXCEPTIONS:
1. If a contrary intention appears by the terms of the
contract
nd
rd
2. In the cases provided in the 2 and 3 paragraphs of
Art. 1523
st
nd
rd
3. In the cases provided in the 1 , 2 and 3 paragraphs of
article 1503

TRANSFER OF OWNERSHIP WHERE GOODS SOLD DELIVERED TO THE


CARRIER
1. GR: Delivery, be it only constructive, passes title in the thing sold and
delivery to the carrier is deemed to be delivery to the buyer ! risk of loss
falls upon the buyer

1503 provides for rules on reservation of the right of ownership or


possession when goods are shipped

The form of the bill of lading ! considered as showing the transfer


or the retention of ownership in the goods as between the buyer and
seller

If a seller consigns goods to another specified person ! indicated


intention to deliver to the carries as bailee for the person named
therein
o If such shipment was authorized by that person as a buyer !
ownership vests in him
o Same rule if after the goods have been shipped without a
named consignee ! the carrier, at the consignors request
agrees to deliver to a specified person
2. WHERE RIGHT OF POSSESION OR OWNERSHIP OF SPECIFIC
GOODS SOLD RESERVED

If the seller directs the carrier to redeliver the goods at their destination
to the seller himself or to his order ! indicated intention that carrier
shall be bailee for the seller ! ownership remains in the seller

The seller, may by the terms of the contract ! reserve the right of
possession or ownership in the goods until certain conditions are
fulfilled
3. FORM NOT CONTROLLING

The form of the bill of lading will NOT necessarily pass ownership to
the buyer simply because the buyer is named as the consignee

Example: if the shipper does not own the goods, or the authority from
the seller to sell the goods ! ownership of the goods will X pass to the
consignee by mere fact that the consignees name was inserted in the
bill of lading

The shipper CANNOT transfer to a consignee ownership of goods


o UNLESS the consignee assents to receive the said goods
WHERE SELLER OR HIS AGENT IS CONSIGNEE
1. CARRIER BECOMES BAILEE FOR SELLER

DE LEON SALES REVIEWER

Where goods are shipped and by the bill of lading, the goods are
deliverable to the seller or his agent or to the order order of the seller
of his agent ! the seller thereby reserves the ownership in the
goods and the carrier is a BAILEE FOR THE SELLER and not the
buyer

GR: Principle is applicable even though the goods are shipped on the
buyers vessel
o Exceptions: ownership in the goods will be passed to the
buyr ! if it appears to be the intention of the parties, as for
instance (example: where the goods are shipped for the
account and for the risk of the buyer)
2. RIGHTS OF SELLERS
1. The seller may retain the goods until the buyer performs his obligation
under the contract
2. He may, even in violation of the contract, dispose of them to third
persons
o If he does this though ! he is liable for damages to the buyer
! but the second purchaser from the seller acquires a better
right
WHERE SELELRS TITLE ONLY FOR PURPOSE OF SECURITY
1. FORM OF BILL OF LADING NOT CONCLUSIVE

GR: Form of bill of lading ! strong evidence of the intent of the seller
to transfer or retention of ownership over the property
o E: Not always conclusive ! whatever the form of the bill of
lading, the parties can prove their actual intent
2. WHERE OWNERSHIP WOULD HAVE PASSED BUT FOR THE FORM
OF BILL OF LADING

Were it not for the form of the bill of lading ! the ownership would
have passed to the buyer or shipment of the goods

This is true when the object of the seller in reserving ownership is


simply to secure himself in regard to the performance by the buyer of
his obligation

The effect of naming himself as consignee in the bill of lading !


should not be greater than is necessary to effectuate the purpose of
the parties
o This purpose is to reserve the property for security only ! the
same purpose that the seller of goods under a conditional
sale has

SIGNIFICANCE WHERE TITLE HELD MERELY AS SECURITY


TITLE MERELY HELD AS SECURITY

Risk of loss

Buyer (beneficial owner) bears risk of loss from


the time the goods are delivered to the carrier

ORDINARY
CASE WHERE
THE SELLER
RETAINS
OWNERSHIP
Seller

Michelle Duguil,

34

Right of action
based
on
ownership

even though the legal title remains in the seller

Buyer has more than a mere contract right


in regards to the goods

Buyer has as against anyone bring an


action based on ownership on making
tender of the price
o E: Against innocent purchaser for
value of the bill of lading from the
consigne

WHERE BUYER OR HIS AGENT IS CONSIGNEE BUT SELLER RETAINS


ORDER OF BILL OF LADING
1. RIGHT OF POSSESSION OF GOODS AS AGAINST BUYER

Where the goods are shipped and by the bill of lading the goods are
deliverable to the order of the buyer or of his agent ! BUT the
possession of the bill of lading is retained by the seller or his agent !
the seller retains a right to the possession of the goods as against the
buyer
2. EFFECT OF RETENTION

Although the ownership in the goods will ordinarily pass to the buyer
on delivery ! the buyer is unable to obtain the goods without the bill

Analogous to the retention of lien by the seller after the property has
passed to the buyer

Last paragraph of 1503 ! applies to an order bill


3. HISTORY OF PROVISION

Bill of lading is a STRAIGHT BILL it specifies a person as


consignee without the use of the word, order

If the bill is a straight bill, the railway company is unquestionably


fulfilling its contract ! in delivering the goods to the consignee so
named
3 DEVICES BY WHICH THE SELLER OF THE RETAINS A HOLD UPON
GOODS BY MEANS OF LADING AFTER SELLER HAS SHIPPED THEM:
1. Consigning the goods to himself, either by an order bill or straight bill
2. Consigning the goods to the order of the buyer and retaining the
possession of the bill of lading
rd
3. Consigning the goods to a 3 person (usually a banker) requesting the
latter to retain the bill of lading or goods until the payment of the price
WHERE A THIRD PERSON WHO RETAINS THE BILL IS A CONSIGNEE
rd

Consigning the goods to a 3 person (usually a banker) requesting the


latter to retain the bill of lading or goods until the payment of the price

When the price is paid ! the consignee of the goods indorses the bill or
delivers the goods to the buyer
o Immaterial whether the bill is an order or straight bill
"
If it is an ORDER BILL the carrier will NOT deliver the
goods ! until the bill is surrendered ! and the buyer
CANNOT get the goods so as to make the necessary
surrender except from the holder (the consignee)

DE LEON SALES REVIEWER

Even if NOT AN ORDER BILL the carrier, thought it


may not require the surrender of the bill of lading ! will
deliver only to the consignee
"
In BOTH CASES ! GR: buyer is unable to get the
goods ! EXCEPT: by obtaining an order from the holder
of the bill of lading
Legal title vested in third persons
rd
"
By naming a 3 person as consignee of the bill of lading
rd
! the seller vests a legal title in the 3 person
rd
"
Title is merely held for the benefit of the seller ! if the 3
person is the sellers agent only and has not advanced
the money of his own to the seller
rd
"
Usually, 3 person = banker ! and by discounting a
draft drawn on the buyer by paying or accepting a draft
drawn on himself ! bank has acquired a personal
interest in the goods ! interest is simply to secure
payment of money advance or liabilities incurred
"

WHERE BILL OF LADING SENT FORWARD WITH DRAFT ATTACHED


1. DELIVERY CONDITIONAL

Where the seller draws on the buyer for the price + transmits the bill of
exchange + bill of lading ! to the buyer to secure acceptance or
payment of the bill of exchange = title is regarded as RETAINED IN
THE SELELR until the bill of exchange is paid or accepted

The fact that the bill of lading and a bill of exchange are attached
together = indicates that the sellers intends to make delivery of the
goods CONDITIONAL UPON THE PAYMENT OR ACCEPTANCE OF
THE DRAFT
2. DUTY OF BUYER IF DRAFT NOT HONORED

If buyer does not honor the bill of exchange ! Buyer is bound to


RETURN THE BILL OF LADING

If he wrongfully retains the bill of lading ! he acquired no additional


right thereby
o This is why when the bill of lading and bill of exchange are
attached and sent ! it is usually sent not directly to the buyer
(to a third person) ! so that buyer is unable to obtain the
goods without paying the price
EFFECT OF BUYER OBTAINING POSSESSION OF BILL OF LADING WITHOUT
HONORING DRAFT
1. RETENTION OF OWNERSHIP OF GOODS IN SELLER

Usually happens when both the bill of lading and bill of exchange is
sent to the buyer directly without intervention of a third person

GR: In any litigation under these circumstances ! the seller will


prevail

Michelle Duguil,

35

E: if the buyer wrongfully sells the bill of lading or obtains the


goods and sells them ! a different question arises where the
rd
seller seeks to enforce his right against innocent 3 persons
FORM OF BILL
rd

The form of bill lading is material to the issue of whether the 3 person
will obtain ownership of the goods:
1. If a seller has named the buyer as consignee ! the
property has passed to the consignee or at least it seems
to have been so to one who inspects the document
2. If the bill of lading, though naming the seller as the
consignee, is indorsed by him to the buyer or in
blank ! the possession of the document by the buyer
gives him, if not the actual title, at least an apparent
ownership
3. If the bill of lading names the seller or third person
as consignee and no indorsement of the document
has been made ! possession by the buyer would NOT
indicate the buyer has title
RIGHT OF INNOCENT THIRD PERSONS

A purchaser in GF for value of the bill of lading or goods from the


buyer ! will obtain the OBTAIN OWNERSHIP OF THE GOODS
although the bill of exchange has not been honored in the following
cases:
1. If the bill of lading provides that the goods are deliverable to the
buyer or to the order of the buyer
2. Indorsed in the blank
3. Indorsed to the buyer by the consignee named therein
RATIONALE
rd

Where the document gives the buyer APPARENT OWNERSHIP + 3


person purchases the goods relying thereon ! it seems clear on
broad principles of justice that since one of the 2 innocent parties must
suffer ! he should suffer who act has brought about the loss (seller)
rd
! seller X allowed to recover goods from the 3 persons
o

2.

3.

4.

**Consign to give over to anothers care


1504. Unless otherwise agreed, the goods remain at the sellers 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 buyers risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer or 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 performance by the buyer of his
obligation under the contract, ! the goods are at the BUYERS RISK from the
time of such delivery;
(2) Where actual delivery has been delayed through the fault of either the
buyer or seller the goods ! are at the RISK OF THE PARTY IN FAULT

DE LEON SALES REVIEWER

(SEE PAGE 15)


1505. Subject to the provisions of this title, where the goods are sold by a
person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better title to
the goods than the seller had, unless the owner of the goods by is his conduct
precluded from denying the sellers authority.
Nothing in this title, however, shall affect:
(1) The provisions of any factors acts, recording, laws or any other provision
of law enabling the apparent owner of goods to dispose of them, as if he were
the true owner thereof;
(2) The validity of any contract of sale under statutory power of sale or under
the order of a court of competent jurisdiction
(3) Purchases made in a merchants store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws
SALE BY A PERSON NOT THE OWNER

GR: Fundamental doctrine of law that no one can give what he has not or
transfer a greater right to another than himself has ! person can sell only
what he owns or is authorized to sell

A derivative right (contract of sell) cannot exist higher than its source

EXCEPTIONS:
1. Where the owner of the goods, is by his conduct, precluded from
denying the seller authority to sell
2. Where the law enables the apparent owner to dispose of the goods as
if he were the true owner thereof
3. Where the sale is sanctioned by statutory or judicial authority
4. Where the sale is made at merchants stores, fairs, or markets
5. Where the seller has a voidable title which has not be avoided at the
time of sale (1506)
6. Where the seller subsequently acquires title
WHERE THE OWNER OF THE GOODS, IS BY HIS CONDUCT, PRECLUDED
FROM DENYING THE SELLER AUTHORITY TO SELL

Where the owner of the goods, is by his conduct, precluded from denying
the seller authority to sell ! the buyer may acquire a valid title although the
seller had neither title nor authority to transfer title

Based on estoppel
o Essential that the party estopped shall have made a
representation by words or acts and that someone shall have
acted on the faith of this representation in such a way that he
cannot without damage withdraw from the transaction
WHERE THE LAW ENABLES THE APPARENT OWNER TO DISPOSE OF THE
GOODS AS IF HE WERE THE TRUE OWNER THEREOF

Philippines has no such law as the Factors Act

Law referred to here must be found in the provisions of our CC on agency

Michelle Duguil,

36

Example of recording laws:


o Property registration decree
o Land transportation and traffic code
o Revised Admin Code sale of large cattle and sale of vessels
o Any other provision of law Negotiable instruments law,
Warehouse Receipts Law

WHERE THE SALE IS SANCTIONED BY STATUTORY OR JUDICIAL


AUTHORITY

Ordinary execution sale governed by Rule 39 of ROC

Judicial foreclosure sale governed by rule 68 of ROC

Extrajudicial foreclosure sales of real estate mortgages Act. No. 4118

Sale by sheriff pursuant to court order = valid even if sheriff is not the
owner and even if owner did not consent to or objects the sale of the
property

Government X warrant the title to properties sold by the sheriff at a public


auction or judicial sales
WHERE THE SALE IS MADE AT MERCHANTS STORES, FAIRS, OR MARKETS

Adopts the English principle of market overt

Goods sold in market overt cannot be reclaimed by the buyer even though
the seller had no title, provided:
o The buyer acts in GF
o Without notice of any defect in the title
WHERE THE SELLER HAS A VOIDABLE TITLE WHICH HAS NOT BE AVOIDED
AT THE TIME OF SALE (1506)
WHERE THE SELLER SUBSEQUENTLY ACQUIRES TITLE

When a person conveys property to another at the time he is not the owner
! his subsequent acquisition of title validates his previous conveyance

Doctrine is equally applicable to:


o Conveyance of usufructs
o Transfers of full ownership
POSSESSION OF MOVABLE PROPERTY

GR: 559 Possession of movable property acquired in good faith = title


1. Exception: one who has lost any movable or has been unlawfully
deprived therefor may recover it from the person in possession of
the same without reimbursing the price paid therefor
"
E to E: If the possessor of the movable has acquired it in
GF at a public sale ! owner X obtain its return without
reimbursing the price paid therefor
SALE OF AN IMMOVABLE

1505 applies to sale of GOODS, NOT IMMOVABLE

BUT principle in 1505 (person can sell only what he owns or is authorized)
applies to the sale of immovable.
1. Estoppel

DE LEON SALES REVIEWER

The owner of land may be estopped from claiming that the


sale of land was not authorized
Sale of land registered under the Torrens System

Forged document of sale may be the root of a valid title when


the CT has already been transferred to the name indicated by
the forger

Remedy of person prejudiced: Action for damages against


those who employed fraud within 4 years after the discovery
of the deception

One who purchases unregistered land does so at his peril


Where the sale is sanction by statutory or judicial authority

If the real property was sold under a statutory power of sale


or pursuant to the order of a court of competent jurisdiction
! title can transfer to the buyer in such sale

2.

3.

ART. 1506. Where the seller of goods has a voidable title thereto, but his title
has not yet been avoided at the time of the sale, the buyer acquires a good
title to the goods, provided he buys them in good faith, for value, and without
notice of the sellers defect of title.
SALE BY ONE HAVING A VOIDABLE TITLE
REQUISITES FOR ACQUISITION OF GOOD TITLE BY BUYER
1. He buys them before the title of the seller has been avoided
2. In GF for value
3. Without notice of the sellers defect of title
BASIS OF RULE

Where the loss has happened which must fall on one of the 2 innocent
persons ! it shall be borne by him who is caused the loss

Similar to Innocent Purchaser for Value (Property Registration Decree)

Similar to a holder in due course to whom a negotiable instrument is


negotiated for value and in GF (Negotiable instruments Law)
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
(2) When a bill of exchange or other negotiable instrument has been received
as conditional payment, and the condition on which it was received has been
broken by reason of the dishonor of the instrument, the insolvency of the
buyer, or otherwise,
In articles 1525 and 1535 the term seller includes an agent of the seller to
whom the bill of lading has been indorsed, or a consignor or agent who has
himself paid, or is directly responsible for the price, or any other person who
is in the position of a seller.
MEANING OF UNPAID SELLER

One who has not been paid or tendered the whole price or

Michelle Duguil,

37

Who has received a bill of exchange or other negotiable instrument as


conditional payment and the condition on which it was received has been
broken by reason of the dishonor of the instrument
The term unpaid seller includes:
1. Agent of the seller
2. Consignor or agent who has himself paid or is directly responsible for
the price
3. Any other person in the position of the seller
A seller is unpaid within the definition whether title has or has not passed

WHERE THE WHOLE PRICE HAS NOT BEEN PAID


TENDER OF PAYMENT BY THE BUYER

Although tender of payment is not the same as performance, and the seller
to whom the price of goods has been tendered is strictly unpaid and can
bring a subsequent action for the price which he has refused !

Tender DESTROYS THE SELLERS LIEN


PAYMENT OF PART OF PRICE

Payment of a part only of the price does NOT destroy a sellers lien

The seller remains an unpaid seller even if title has passed to the buyer
PAYMENT BY NEGOTIABLE INSTRUMENT

The delivery of promissory notes payable to order, or bills of exchange or


other mercantile documents shall produce the effect of payment only when:
o They have been cashed or
o When through the fault of the creditor they have been impaired
ART. 1526. Subject to the provisions of this Title, notwithstanding that the
ownership in the goods may have passed to the buyer, the unpaid seller of
goods, as such has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;
(2) In case of insolvency of the buyer, a right of stopping the goods in transitu
after he has parted with the possession of them;
(3) A right of resale limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title
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
to and co-extensive with his rights of lien and stoppage in transitu where the
ownership has passed to the buyer.
SPECIAL REMEDIES OF AN UNPAID SELLER

1526 gives the unpaid seller of goods certain remedies but they do not
cover an action for the purchase price

Even if the ownership in the goods has already passed to the buyer, the
unpaid seller may exercise the following rights:

DE LEON SALES REVIEWER

1.
2.
3.
4.
5.

A lien on the goods or right to retain them for the price while in his
possession
A right of stopping the goods in transitu in case of insolvency of the
buyer
Right of resale
Right to rescind the sale
Right of withholding delivery

If the unpaid seller retains ownership in the goods, he cannot


be said to have a lien on his goods.

NATURE OF UNPAID SELLERS POSSESSORY LIEN ON THE GOODS

Lien a charge upon the property for the payment or discharge of a debt
or duty. A right, which the law gives to the debt, satisfied out of a particular
thing.

Presupposes that title to the goods has passed to the buyer

If title X passed to buyer yet ! right of WITHHOLDING the delivery

In truth, greater than a lien the sellers position is very nearly that of a
pledgee with power to sell at a private sale in case of default and power
survives until the payment of the price
UNPAID SELLERS LIEN ON THE PRICE
POSSESSORY LIEN
1527-1529
Entitles the seller to retain possession of
the goods as security for the purchase
price

PREFERRED CLAIM OR LIEN


2241 (3)
Goods are no longer in the possession
of the buyer, the seller has no more
possessory lien but his claim for the
unpaid price is a preferred claim or lien
Upon delivery, lien on the price remains

Upon delivery, possessory lien on the


goods is lost
ART. 1527. Subject to the provisions of this Title, the unpaid seller of goods
who is in possession of them is entitled to retain possession of them until
payment or tender of the price in the following cases, namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of the credit has
expired
(3) Where the buyer becomes insolvent
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer.
WHEN UNPAID SELLERS POSSESSORY LIEN MAY BE EXERCISED
1. Sale without stipulation as to credit
2. Expiration of the term of credit
3. Insolvency of the buyer
SALE WITHOUT STIPULATION AS TO CREDIT

In credit sale, the seller binds himself to give the goods over to the buyer
without receiving at that time payment for them

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38

Where there is a stipulation as to credit ! a period for payment of the


price has been fixed in the contract
In the absence of any stipulation as to credit ! the seller is entitled to the
payment of the price at the same time that he transfers the possession of
the goods
The seller has lien upon the goods until payment or tender of the entire
price

EXPIRATION OF THE TERM OF CREDIT

The buyer is entitled to possession of the goods without paying the price !
but if he fails to exercise high right until the term of the credit has expired
and the price becomes due ! he loses the right which he therefore had

Obligation of the buyer to pay will also be governed by 1524


INSOLVENCY OF THE BUYER

When one party to a bilateral contract is incapacitated from performing his


part of the agreement, the other party also is excused from performing

Insolvency does NOT dissolve the bargain ! it merely revives the sellers
lien

Insolvency is one of the grounds for the loss of the right to make use of the
period fixed in an obligation

Insolvent A person who either 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
UNPAID SELLER AS BAILEE FOR THE BUYER

For the ownership having passed, the seller is necessarily holding the
buyers goods and, therefore, acting baliee for him

And though he is has charged the buyer storage for the goods, the lien
may still be asserted
ART. 1528. Where an unpaid seller has made part of 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 or
right of retention.
LIEN GENERALLY NOT LOST BY PART DELIVERY

When part of the goods are delivered ! unpaid seller has lien upon the
remainder for the proportion of the price which is due on account of the
goods so retained

If the delivery of the part is intended as symbolical delivery of the whole


= waiver of any right of retention as to remainder ! lien is lost
o The intent to make such waiver = may be inferred from the
circumstances
Article 1529. The unpaid seller of goods loses his lien thereon:
(1) When he delivers the goods to a carrier or other bailee for the purpose of
transmission to the buyer without reserving the ownership in the goods or the
right to the possession thereof;

DE LEON SALES REVIEWER

(2) When the buyer or his agent lawfully obtains possession of the goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his lien by
reason only that he has obtained judgment or decree for the price of the
goods. (n)
WHEN UPAID SELLER LOSES HIS POSESSORY LIEN
1. Delivery to the agent or bailee of buyer
2. Possession of the buyer or his agent
3. Waiver of the lien
DELIVERY TO THE AGENT OR BAILEE OF BUYER

An unconditional deliver to an agent or baliee for the buyer, so far as the


sellers lien is concern ! is the same delivery to the buyer himself

It is true that he can stop them, but he no longer has a lien on them since
he is no longer in possession
POSSESSION OF THE BUYER OR HIS AGENT

If the goods are already in the possession of the buyer at the time of
bargain ! the ownership has transferred and the buyer has no possession
necessary for lien
o E: If goods are taken wrongfully and if possession of buyer is
merely for examination of the goods
WAIVER OF THE LIEN

The seller may lose his lien either by express agreement to surrender it

Or by such conduct as estops him from asserting it


REVIVAL OF LIEN AFTER DELIVERY

If the buyer refuses to receive the goods after they have been delivered
to a carrier or other bailee on his behalf ! seller may reclaim the goods
and revest himself with his lien

Buyer returns the goods in wrongful repudiation of the sale ! lien on


the purchase price is revived prov that seller makes it clear that is not
assenting to the rescission of the sale
o E: The return of the goods by the buyer to the seller, not in
repudiation of the sale, but for special purpose (ex. repairs or
alteration by the seller) ! X revive lien of the seller
Article 1530. Subject to the provisions of this Title, when the buyer of goods is
or becomes insolvent, the unpaid seller who has parted with the possession
of the goods has the right of stopping them in transitu, that is to say, he may
resume possession of the goods at any time while they are in transit, and he
will then become entitled to the same rights in regard to the goods as he
would have had if he had never parted with the possession. (n)

Michelle Duguil,

39

RIGHT OF SELLER TO STOP GOODS IN TRANSITU

Right which a seller of goods on credit has to recall them or retake them
while they are in the possession of the carrier or other middleman who
received them for delivery to the buyer, on discovery of insolvency of the
buyer

Right is exercised either by:


o Obtaining actual possession of the goods or
o By giving notice of his claim to the carrier or other bailee in
possession

Entitled to the same rights to the goods as if he has never parted with the
possession thereof

Right continues while the goods are in the hands of the carrier and
terminates when the consignee or bona fide transferee obtains lawful
possession of the goods shipped

If the seller delivers the goods to the buyers on wharf and the buyer ships
the goods by vessel in his own name ! the seller no longer has right of
stoppage in transitu, as there was an absolute delivery to the buyer
REQUISITES FOR THE EXISTENCE OF THE RIGHT OF STOPPAGE IN
TRANSITU
1. Seller must be unpaid
2. Buyer must be insolvent
3. Goods must be in transit
4. Seller must either actually take possession of the goods sold or give notice
of his claim to the carrier or other person in possession
5. Seller must surrender the negotiable document of title, if any issued by the
carrier or bailee
6. The seller must bear the expenses of delivery of the goods after the
exercise of the right

SALE OR CREDIT

No right of SIT exists in cash sales

Sale must be on credit, whether in definite terms or not


TITLE TO GOODS IN THE BUYER

Right of SIT is not defeated by the fact that title to the goods has passed to
the buyer

The right applies where the title of the goods in transit has vested in an
insolvent buyer, who has not paid the entire purchase price
INSOLVENCY OF THE BUYER

Does not require the buyer be absolutely bankrupt or have been formally
adjudged a bankrupt

Sufficient that he is unable to pay his just debts in the ordinary course of
business

The following circumstances do NOT justify the exercise of SIT:


1. A buyer was in DEFAULT in the performance of his obligations

DE LEON SALES REVIEWER

2.
3.

The DEATH of the buyer (unless his estate is insolvent)


The fact that the goods have been LEVIED ON by attaching creditors
of the buyer (if the buyer was not insolvent)
It is sufficient that the buyer became insolvent before he has taken
possession of the goods
If the seller knew that the buyer was insolvent at the time of sale ! he
cannot claim the right of SIT

EFFECT OF EXERCISE OF RIGHT BY SELLER


1. Right to same position as before sale
2. Right to recover possession
3. Right to recovery agreed price
Article 1531. Goods are in transit within the meaning of the preceding article:
(1) From the time when they are delivered to a carrier by land, water, or air, or
other bailee for the purpose of transmission to the buyer, until the buyer, or
his agent in that behalf, takes delivery of them from such carrier or other
bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to receive
them back.
Goods are no longer in transit within the meaning of the preceding article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before
their arrival at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the carrier or
other bailee acknowledges to the buyer or his agent that he holds the goods
on his behalf and continues in possession of them as bailee for the buyer or
his agent; and it is immaterial that further destination for the goods may have
been indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the
buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane chartered
by the buyer, it is a question depending on the circumstances of the particular
case, whether they are in the possession of the carrier as such or as agent of
the buyer.
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
with the buyer to give up possession of the whole of the goods. (n)

Michelle Duguil,

40

WHEN GOODS ARE IN TRANSIT

The goods are not yet in transit until they are delivered to a carrier or other
bailee for the purpose of transmission to the buyer

Mere arrival of the goods at or on the premises of the carier at the point of
destination ! X terminate the transportation and RSIT

Transit includes not only the carriage of the goods to destination, but
delivery according to the terms of the contract

Mere act of middleman or carrier giving notice to the buyer regarding the
arrival of the goods ! X terminate transit
THE GOODS ARE IN TRANSIT
1. After deliver to a carrier or other bailee and before the buyer or his agent
takes delivery of them
2. If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them
WHEN GOODS CONSIDERED NO LONGER IN TRANSIT
1. After delivery to the buyer or his agent in that behalf
2. If the buyer or his agent obtains possession of the goods at a point before
the destination originally fixed
3. If the carrier or bailee acknowledges to hold the goods on behalf of the
buyer
4. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer
ATTORNMENT BY THE BAILEE

The right to stop the goods may be terminated not simply by delivery to the
buyer, but by attornment of the bailee to the buyer

In order to terminate seller RSIT, carrier must enter into a new relation to
hold the goods for the buyer as his agent and not for the purpose of
expediting them to the place of original destination

EFFECT OF REFUSAL OF CARRIER TO ATTORN OR DELIVER GOODS

Carrier X allowed to enlarge the sellers right by wrongfully refusing to


deliver or attorn as the buyers agent

BUT a rightful refusal of the carrier (ex. refusal of the buyer or his agent to
pay the freight) ! will not terminate the RSIT
DELIVERY TO A SHIP, ETC, CHARTED OR OWN BY THE BY BUYER
1. CHARTED BY THE BUYER

Mere fact that the carrier is chartered by the buyer ! X make delivery
to the carrier a delivery to the buyer
2. OWNED BY THE BUYER

Delivery to a vessel belonging to the buyer is delivery to the buyer

E: if it shown that the seller has an agreement with the buyer to


give up possession of the whole of the goods

Article 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
reasonable diligence, may prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or
other bailee in possession of the goods, he must redeliver the goods to, or
according to the directions of, the seller. The expenses of such delivery must
be borne by the seller. If, however, a negotiable document of title representing
the goods has been issued by the carrier or other bailee, he shall not be
obliged to deliver or justified in delivering the goods to the seller unless such
document is first surrendered for cancellation. (n)
WAYS OF EXERCISING THE RIGHT TO STOP
1. By taking actual possession of the goods
2. By giving notice of his claim to the carrier or bailee
TAKING ACTUAL POSSESSION OF THE GOODS

Includes not only the power to stop delivery but to order redelivery to
himself

Seller has obligation to pay the freight and other necessary expenses of
the delivery
BY GIVING NOTICE OF HIS CLAIM TO THE CARRIER OR BAILEE

Mere notice to the buyer of the exercise of the sellers right ! X sufficient

Seller must make a demand upon the carrier or notice to the carrier to stop
the goods

No particular form of notice or demand is required


DUTIES AND LIABILITIES OF CARRIER

The carriers refusal to redeliver possession to the seller after proper notice
of the exercise of the RSIT and the tender of freight charges ! will render
the carrier liable to the seller

If the carrier delivers to the seller notwithstanding the proper notice from
the seller ! the carrier will be liable to the seller for the resulting loss
EFFECT OF OUTSTANING BILL OF LADING

RSIT applies to straight (non-negotiable) or negotiable bills

In the case of negotiable bills ! if the goods are covered by a negotiable


document of title, the carrier or bailee has no obligation to deliver the goods
to the seller UNLESS such document is first surrendered for cancellation

EFFECT OF PARTIAL DELIVERY

The mere fact that part of the goods has been delivered ! X deprive the
seller of the right to stop with respect to the remainder

DE LEON SALES REVIEWER

Michelle Duguil,

41

Article 1533. Where the goods are of perishable nature, or where the seller
expressly reserves the right of resale in case the buyer should make default,
or where the buyer has been in default in the payment of the price for an
unreasonable 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.

4.

Where a resale is made, as authorized in this article, the buyer acquires a


good title as against the original buyer.
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 original buyer. But where the right to
resell is not based on the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give such notice shall
be relevant in any issue involving the question whether the buyer had been in
default for an unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the time and place of
such resale should be given by the seller to the original buyer.
The seller is bound to exercise reasonable care and judgment in making a
resale, and subject to this requirement may make a resale either by public or
private sale. He cannot, however, directly or indirectly buy the goods. (n)
UNPAID SELLERS RIGHT OF RESALE
1. WHEN RESALE ALLOWABLE

Unpaid seller can only exercise this when:


1. He has a right of lien
2. Has exercised the RSIT
3. Goods are perishable in nature
4. Where the right to resell is expressly reserved in case the buyer
should make default
5. Where the buyer delays in the payment of the price for an
unreasonable time

The language is permissive in nature rather than mandatory

No distinction between resale before the transfer of ownership and


after the transfer of ownership
2. EFFECT OF RESALE

Seller is not liable for any profit made by such resale

But if he sells for less than the price ! he may sue for the balance

The new buyer acquires goods title to the goods as against the original
buyer provided that the resale is made in accordance with Art 1533
(par 2.)

There is no need for an action for rescission to authorize the seller,


who is still in possession, to dispose of the property where the buyer
fails to pay the price and take delivery
3. NOTICE OF RESALE NOT ESSENTIAL

DE LEON SALES REVIEWER

A notice by the seller of his intention to resell may operate to fix the
time within which it is reasonable that the buyer should perform the
obligations

GR: Where the right to resell is reserved, the failure to give notice shall
be relevant upon the question whether the buyer has been in default
for an unreasonable time
o E: In cases of perishable goods
MANNER OF RESALE

It is sufficient to have with a fair sale made in GF according to the


established business methods with no attempt to take advantage of
the vendee

Seller cannot however, directly or indirectly buy the goods


TIME OF RESALE

Must be made within a reasonable time after the breach

But if the seller acts prudently and with reasonable care and judgment,
the time of resale is, to a certain extent at least, is within his discretion
PLACE OF RESALE

The seller is ordinary required to resell the goods at the place of


deliver ! however, this is not a rigid rule

If the seller is unable to sell readily at a fair price at the place of


delivery and can get a better price by reshipment and sale at another
place ! he may do so

5.

6.

Article 1534. An unpaid seller having the right of lien or having stopped the
goods in transitu, may rescind the transfer of title and resume the ownership
in the goods, where he expressly reserved the right to do so in case the buyer
should make default, or where the buyer has been in default in the payment of
the price for an unreasonable time. The seller shall not thereafter be liable to
the buyer upon the contract of sale, but may recover from the buyer damages
for any loss occasioned by the breach of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid
seller until he has manifested by notice to the buyer or by some other overt
act an intention to rescind. It is not necessary that such overt act should be
communicated to the buyer, but the giving or failure to give notice to the
buyer of the intention to rescind shall be relevant in any issue involving the
question whether the buyer had been in default for an unreasonable time
before the right of rescission was asserted. (n)
UNPAID SELLERS RIGHT OF RESCISSION
1. WHEN SELLER MAY RESCIND
1. He has a right of lien
2. Has exercised the RSIT
3. Where the right to rescind is expressly reserved in case the buyer should
make default
4. Where the buyer delays in the payment of the price for an unreasonable
time
2. EFFECT OF RESCISSION

Michelle Duguil,

42

The seller resumes ownership in the goods


The seller shall not be liable to the buyer upon the contract of sale !
But the buyer shall be liable to the seller for damages for any loss
occasioned by the breach of contract
MANNER OF RESCISSION

An election by the seller to rescind may be manifested by:


o Notice to the buyer
o Some other overt act showing an intention to rescind

3.

Article 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.
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 such negotiation be prior or subsequent to the
notification to the carrier, or other bailee who issued such document, of the
seller's claim to a lien or right of stoppage in transitu. (n)

E to E: Vendor will not be complied to make delivery in case the


vendee shall lose the right to make use of the term provided in
1198 of the CC and such vendee has not yet paid the price.

Article 1198. The debtor [buyer] shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless
he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which
he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond.

EFFECT OF SALE OF GOODS SUBJECT TO LIEN OR STOPPAGE IN


TRANSITU
1. WHERE GOODS ARE NOT COVERED BY NEGOTIABLE DOCUMENT
OF TITLE

When goods are subject to a legal lien, as they are when an unpaid
seller in possession of them ! a purchaser from the original buyer can
acquire only such right as the buyer had

The seller can give no larger rights than he has


2. WHERE GOODS COVERED BY NEGOTIABLE DOCUMENT OF TITLE

If goods are covered by NDT ! the sellers lien CANNOT prevail


against the rights of a purchaser for value in GF to whom the
document was indorsed

The term purchaser as used in this article ! includes mortgagee and


pledgee
ART. 1536. The vendor is not bound to deliver the thing sold in case the
vendee should lose the right to make use of the term as provided in article
1198.
RIGHT OF VENDOR TO WITHHOLD DELIVERY IN SALE ON CREDIT

GR: The vendor is not bound to make delivery if the vendee has not paid
the price
o E: If, however a period has been fixed for the payment ! the
vendor must deliver the thing sold though the price be not first
paid

DE LEON SALES REVIEWER

Michelle Duguil,

43

DEFINITION

LIEN ON THE GOODS OR RIGHT


TO RETAIN THEM
Lien a charge upon the property
for the payment or discharge of a
debt or duty. A right, which the law
gives to the debt, satisfied out of a
particular thing.

SPECIAL REMEDIES OF UNPAID SELLER


RIGHT OF STOPPING THE GOODS IN
RIGHT OF RESALE
TRANSITU
Right which a seller of goods on credit has
to recall them or retake them while they
are in the possession of the carrier or
other middleman who received them for
delivery to the buyer, on discovery of
insolvency of the buyer

RIGHT TO RESCIND

If title X passed to buyer yet


(unpaid owner retains
ownership) ! right of
WITHHOLDING the delivery

Possessory lien (1527-1529) Entitles the seller to retain


possession of the goods as security
for the purchase price

WHEN
EXERCISED

4.
5.
6.

Sale without stipulation as to


credit
Expiration of the term of credit
Insolvency of the buyer

REQUISITES FOR EXISTENCE OF RSIT:


7. Seller must be unpaid
8. Buyer must be insolvent
9. Goods must be in transit
10. Seller must either actually take
possession of the goods sold or give
notice of his claim to the carrier or
other person in possession
11. Seller must surrender the negotiable
document of title, if any issued by the
carrier or bailee
12. The seller must bear the expenses of
delivery of the goods after the
exercise of the right

THE GOODS ARE IN TRANSIT


3. After deliver to a carrier or
other bailee and before the
buyer or his agent takes
delivery of them
4. If the goods are rejected by
the buyer, and the carrier or
other bailee continues in
possession of them

DE LEON SALES REVIEWER

1.
2.
3.
4.

5.

He has a right of lien


Has exercised the
RSIT
Goods are perishable
in nature
Where the right to
resell is expressly
reserved in case the
buyer should make
default
Where the buyer
delays in the payment
of the price for an
unreasonable time

RIGHT OF WITHHOLDING
DELIVERY

1. He has a right of
lien
2. Has exercised
the RSIT
3. Where the right
to
rescind
is
expressly reserved
in case the buyer
should
make
default
4. Where the buyer
delays
in
the
payment of the
price
for
an
unreasonable time

GR: The vendor is not bound to


make delivery if the vendee has
not paid the price

E: If, however a period


has been fixed for the
payment ! the vendor
must deliver the thing
sold though the price be
not first paid

E to E: Vendor will not


be complies to make
delivery in case the
vendee shall lose the
right to make use of the
term provided in 1198
of the CC and such
vendee has not yet paid
the price.
Article 1198. The debtor [buyer]
shall lose every right to make
use of the period:
(1) When after the obligation has
been contracted, he becomes
insolvent, unless he gives a
guaranty or security for the debt;
(2) When he does not furnish
to the creditor the guaranties
or securities which he has
promised;
(3) When by his own acts he has
impaired said guaranties or
securities
after
their
establishment, and when through
a
fortuitous
event
they
disappear,
unless
he
immediately gives new ones
equally satisfactory;
(4) When the debtor violates
44
Michelle Duguil,

any
undertaking,
in
consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to
abscond.
EFFECT

When part of the goods are


delivered ! unpaid seller has lien
upon the remainder for the
proportion of the price which is due
on account of the goods so retained
If the delivery of the part is intended
as symbolical delivery of the
whole = waiver of any right of
retention as to remainder ! lien is
lost

The intent to make such


waiver = may be inferred
from the circumstances

4.
5.
6.

Right to same position as before sale


Right to recover possession
Right to recovery agreed price

EFFECT OF REFUSAL OF CARRIER TO


ATTORN OR DELIVER GOODS

Carrier X allowed to enlarge the


sellers right by wrongfully refusing to
deliver or attorn as the buyers agent

BUT a rightful refusal of the carrier


(ex. refusal of the buyer or his agent
to pay the freight) ! will NOT
terminate the RSIT
EFFECT OF PARTIAL DELIVERY

The mere fact that part of the goods


has been delivered ! X deprive the
seller of the right to stop with respect
to the remainder
o
E: if it shown that the seller
has an agreement with the
buyer
to
give
up
possession of the whole of
the goods
EFFECT OF OUTSTANING BILL OF
LADING

RSIT applies to straight (nonnegotiable) or negotiable bills

In the case of negotiable bills ! if the


goods are covered by a negotiable
document of title, the carrier or bailee
has no obligation to deliver the goods
to the seller UNLESS such document
is first surrendered for cancellation

DE LEON SALES REVIEWER

Seller is not liable for


any profit made by
such resale
But if he sells for less
than the price ! he
may sue for the
balance
The
new
buyer
acquires goods title to
the goods as against
the
original
buyer
provided
that
the
resale is made in
accordance with Art
1533 (par 2.)
There is no need for
an
action
for
rescission to authorize
the seller, who is still
in
possession,
to
dispose of the property
where the buyer fails
to pay the price and
take delivery

The
seller
resumes
ownership
in
the goods
The seller shall
not be liable to
the buyer upon
the contract of
sale ! But the
buyer shall be
liable to the
seller
for
damages
for
any
loss
occasioned by
the breach of
contract

EFFECT OF SALE OF
GOODS SUBJECT TO
LIEN OR STOPPAGE IN
TRANSITU
WHERE GOODS ARE
NOT
COVERED
BY
NEGOTIABLE
DOCUMENT OF TITLE

When
goods
are
subject to a legal lien,
as they are when an
unpaid
seller
in
possession of them
! a purchaser from
the original buyer can
acquire only such right
as the buyer had

Michelle Duguil,

45

The seller can give no


larger rights than he
has
WHERE
GOODS
COVERED
BY
NEGOTIABLE
DOCUMENT OF TITLE

If goods are covered


by NDT ! the sellers
lien CANNOT prevail
against the rights of a
purchaser for value in
GF to whom the
document
was
indorsed

The term purchaser as


used in this article !
includes
mortgagee
and pledgee

It is sufficient to have
with a fair sale made
in GF according to the
established business
methods
with
no
attempt
to
take
advantage
of
the
vendee

Seller cannot however,


directly or indirectly
buy the goods

MANNER

1.
2.

WHEN LOST

4.
5.
6.

Delivery to the agent or bailee


of buyer
Possession of the buyer or his
agent
Waiver of the lien

DE LEON SALES REVIEWER

Obtaining actual possession of the


goods or
By giving notice of his claim to the
carrier or other bailee in possession

1. Notice to the
buyer
2. Some other overt
act showing an
intention to rescind

WHEN GOODS CONSIDERED NO


LONGER IN TRANSIT
5. After delivery to the buyer or
his agent in that behalf
6. If the buyer or his agent
obtains possession of the
goods at a point before the
destination originally fixed
7. If the carrier or bailee
acknowledges to hold the
goods on behalf of the buyer
8. If the carrier or bailee
wrongfully refuses to deliver
the goods to the buyer

Michelle Duguil,

46

ART. 1536. The vendor is not bound to deliver the thing sold in case the
vendee should lose the right to make use of the term as provided in article
1198.

sale of the accessions and accessories is NOT sufficient to convert title or


right to the former
NOTE:

RIGHT OF VENDOR TO WITHHOLD DELIVERY IN SALE ON CREDIT

GR: The vendor is not bound to make delivery if the vendee has not paid
the price
o E: If, however a period has been fixed for the payment ! the
vendor must deliver the thing sold though the price be not first
paid
o E to E: Vendor will not be complied to make delivery in case the
vendee shall lose the right to make use of the term provided in
1198 of the CC and such vendee has not yet paid the price.
Article 1198. The debtor [buyer] shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless
he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which
he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond.
ART. 1537. 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.
CONDITION OF THING TO BE DELIVERED

The vendor is obliged to preserve the thing pending delivery because the
thing sold and its accessions and the accessories must be in the condition
in which they were upon the perfection of the contract

Duty of seller to deliver the thing sold in a condition suitable for its
enjoyment by the buyer for the purposes contemplated

Ex. It is the sellers (subdivision lot seller) duty to construct the necessary
roads in the subdivision that could serve as outlets

Sale of a determinate thing (land) includes all its accessions (ex. house)
and accessories even though they may not have been mentioned ! the

DE LEON SALES REVIEWER

Accessions - are the fruits of a thing; or additions to, or improvements upon, a thing
such as the young of animals, house or trees on land, etc.
Accessories anything attached to a principal thing for its completion, ornament, or
better use such as a picture frame, key of house, etc
RIGHT OF VENDEE TO THE FRUITS
1. WHEN VENDEE ENTITLED

The vendee has the right to fruits of the thing sold from the time the
obligation to deliver arises

The obligation to deliver arises upon the perfection of the contract


2. WHEN VENDEE NOT ENTITLED

Rule provided in 1537 par 2 is modified by agreement of the parties


! agreement shall govern

If the buyer rescinds the contract instead of exacting the fulfillment


! entitled only to damages (interest, attys fees) and costs but not
claim of the fruits of the thing sold

Contract of promise to sell ! only right of the parties is to reciprocally


demand the fulfillment of the contract
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.
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING
BEFORE DELIVERY
Art. 1189
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:
LOST WITHOUT FAULT OF DEBTOR
LOST THRU FAULT OF DEBTOR

Obligation = extinguished
Pay damages
**When lost when it perishes, goes out
of commerce, or disappears in such a
way that its existence is unknown or it
cannot be recovered
Impairment is borne by creditor

DETERIORATES
WITHOUT
THE
FAULT OF THE DEBTOR
DETERIORATES THRU FAULT OF

Creditor may choose between:

Michelle Duguil,

47

DEBTOR
THING IS IMPROVED BY ITS NATURE
OR BY TIME
THING IMPROVED AT THE EXPENSE
OF THE DEBTOR

1. Rescission + damages
2. Fulfillment + damages
Improvement shall inure to benefit of the
creditor
Debtor shall have no other right than
that granted to the usufructuary

Note: Both under Article 1480 (par 1&2) and 1538, the loss shall be at the risk of the
vendee pending delivery.
**Debtor Seller ; Creditor Buyer
ART. 1539. The obligation to deliver the thing sold includes that of placing in
the control of the vendee all that is mentioned in the contract, in conformity
with the following rules:
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 that may have been
stated in the contract; but, should this be not possible, the vendee may
choose between a proportional reduction of the price and the rescission of the
contract, provided that, in the latter case, the lack in the area be not less than
one-tenth of that stated.
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.
The rescission, in this case, shall only take place at the will of the vendee,
when the inferior value of the thing sold exceeds one tenth of the price agreed
upon.
Nevertheless, if the vendee would not have bought the immovable had he
known of its smaller area or inferior quality, he may rescind the sale.
SALE OF REAL PROPERTY BY UNIT OF MEASURE OR NUMBER
ENTIRE AREA STATED IN CONTRACT MUST BE DELIVERED

If the sale of real estate should be made with:


1. Statement of its area
2. At the rate of a certain price per unit of measure or number

The cause of the contract with respect to the buyer ! the number of such
units, or if you wish, the thing purchased as determined by the stipulated
number of units

Seller must deliver the entire property agreed upon

Ex. Land (500 sqm, 1k/sqm) = vendor must deliver the entire area stated

Immovable must be of the quality specified in the contract


WHERE ENTIRE AREA COULD NOT BE DELIVERED

If all that is included within the stipulated boundaries is NOT delivered !


object of the contract is not delivered

DE LEON SALES REVIEWER

Buyer is entitled to:


1. Rescind it
2. Enforce the contract with corresponding decrease in price

WHEN VENDEE ENTITLED TO RESCIND SALE OF REAL PROPERTY


The right of rescission is available to the buyer in the following cases:
1. Lack in area is at least 1/10 than that stated or stipulated
- 1/10 is based on the area stipulated in the contract and not the real area
which the thing may actually have
2. Deficiency in the quality specified in the contract exceeds 1/10 of the price
agreed upon
3. Buyer would not have bough the immovable had he known of its smaller
area or inferior quality irrespective of the extent of the lack in area or quality
NOTE: The above remedies are also available under the second paragraph of 1542
(sale of real estate made in lump sum)
NOTE: In case of fulfillment ! buyer is entitled only to a proportionate reduction of
the price where there is a deficiency in area or number.

Rule is different where there is a violation of the warranty against hidden


defects

Seller is also liable for damages


ART. 1540. If, in the case of preceding article, there is a greater area or number
in the immovable than that stated in the contract, the vendee may accept the
area included in the contract and reject the rest. If he accepts the whole area,
he must pay for the same at the contract rate.
WHERE IMMOVABLE OF A GREATER AREA OR NUMBER

The seller may accept the area included in the contract and reject the rest

If he accepts the whole ! he makes himself liable for the price of the same
at the contract rate

The buyer may NOT withdraw from the contract


ART. 1541. The provisions of the two preceding articles shall apply to judicial
sales.
APPLICATION OF ARTICLES 1539 and 1540 TO JUDICIAL SALES

Applicable to both private (voluntary) and judicial sales

When the immovable is lacking in area or is of inferior quality or is greater


in area than stated in the contract

The reason is that the rules they contain are derived from the very nature
of the contract of sale

HOWEVER, rules may be varied or suppressed by agreement between the


contracting parties
ART. 1542. 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

Michelle Duguil,

48

decrease of the price, although there be a greater or less area or number than
that stated in the contract.
The same rule shall be applied when two or more immovable are sold for a
single price; but if, besides mentioning the boundaries, which is
indispensable in every conveyance of real estate, its area or number should
be designated in the contract, the vendor shall be bound to deliver all that is
included within said boundaries, even when it exceeds the area or number
specified in the contract; and should he not be able to do so, he shall suffer a
reduction in the price, in proportion to what is lacking in the area or number,
unless the contract is rescinded because the vendee does not accede to the
failure to deliver what has been stipulated.

WHEN THERE IS CONFLICT BETWEEN AREA STIPULATED AND TITLE TO


PROPERTY

The area included within the stipulated boundaries PREVAIL when the
boundaries are certain and no alteration thereof has been proved over that
which the title shows

Not of vital consequence that a contract on sale of land should disclose the
area with mathematical accuracy

Sufficient if its extent is objectively indicated with sufficient precision to


enable one to identify it

It is the boundaries indicated in a deed of absolute sale and not the area in
sq meters mentioned therein that controls in the determination of which
portion of the land a vendee acquires

SALE OF REAL ESTATE MADE FOR A LUMP SUM

In sale involving real estate, the parties may choose between 2 types of
pricing agreement:
1. A unit price contract wherein the purchase price is determined by
way of reference to a stated rate per unit (ex. 1k/sqm)
2. Lump sum contract states a full purchase price for an immovable
the area of which may be declared based on an estimate or where
both the area and boundaries are states (ex. 1m for 1k meters)

WHERE IDENTITY ERRONEOUSLY DESIGNATED PROPERTY CLEARLY


ESTABLISHED

It does NOT vitiate consent of the parties or affect the validity and binding
effect of the contract

Reason: One sells or buys property as he sees it in its actual setting and by
its physical metes and bounds, and not by the mere lot number assigned to
it in the certificate of title

REMEDY: Document reformed

MISTAKE IN AREA STATED IN CONTRACT IMMATERIAL

If sale is made in lump sump ! cause of contract is the thing sold


independent and irrespective of its number and measure

Law presumes that buyer had in mind a determinate price for the real
estate and that he ascertained its area and quality before the contract was
perfected

Presumption that buyer intended to buy a determinate thing in its entirety


and not just any unit of measure or number, and the price is determined
with relation to it

Its greater or lesser area cannot influence the increase or decrease of the
price

The boundaries of the land stated in the contract determine the effects and
scope of the sale, not the area thereof

Seller is obligated to deliver all the land included within the boundaries

Possibility of error is a hazard which the parties must be presumed to have


assumed ! hazard works both ways

The rule in 1542 however has EXCEPTIONS


WHERE AREA OF NUMBER STATED TOGETHER WITH BOUNDARIES

If the vendor cannot deliver to the vendee all that is included within the
boundaries mentioned in the contract ! the seller buyer has the option to:
1. Reduce the price in proportion to the deficiency
2. Set aside the contract

Should he not be able to do so refers to a situation when the seller,


either because a part or parcel of the real estate does not belong to him,
cannot deliver all that is included within the boundaries

DE LEON SALES REVIEWER

WHERE WORDS ABOUT, MORE OR LESS, ETC ARE USED

The words when used in connection with quantity or distance, are words of
safety and caution, intended to cover some slight or unimportant
inaccuracy, and while enabling an adjustment to the imperative demands
or fixed monuments, they do NOT weaken or destroy the statement of
distance and quantity when no other guides are furnished

The words about, approximately, and more or less in connection with


courses and distances ! may be disregarded if not controlled or explained
by monuments, boundaries and other expressions of intention
CONFLICT BETWEEN AREA STATED AND BOUNDARIES
1. WHERE BOUNDARIES GIVEN ARE SUFFICIENTLY CERTAIN

An erroneous statement relative to the area of the questioned parcel


may be disregarded

Boundaries prevail over the area because what defined a piece of


ground is not the area, calculated with more or less certainty,
mentioned in its description
2. WHERE BOUNDARIES DO NOT IDENTIFY LAND OR OVERLAPPING
BOUNDARIES EXISTS

Above rule is NOT applicable where the boundaries relied upon do not
identify the land beyond doubt

In this case, area stated in the document should be followed

Where there appeared to be an overlapping of boundaries, the actual


size of the property gains importance

Michelle Duguil,

49

3.

WHERE DISCREPANCY IN MEASUREMENT IS SO GREAT

When the land sough to be registed is almost 7x as much as that


described in the deed, the evidence as to natural boundaries must be
very clear and convincing before that rule can be applied

GF
Ownership shall belong, in the order
stated hereunder:
1. Vendee who first registers the
sale in GF in the RD
2. In the absence of registration
! the vendee who first takes
possession in GF
3. In the absence of both
registration and possession !
the vendee who presents the
oldest title (who first bought
the property) in GF

IMMOVABLE

ART. 1543. The actions arising from Articles 1639 and 1542 shall prescribe in 6
months, counted from the day of delivery.
PRESCRIPTION OF ACTIONS

The actions based on Article 1539 and 1542 for either:


1. Recission of contract or
2. Proportionate reduction of the price

Must be brought within 6 months counted from the day of delivery


ART. 1544. If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person, who
in good faith was first in possession; and, in the absence thereof, to the
person who presents the oldest title, provided there is good faith.
WHEN ART. 1544 APPLICABLE
REQUISITES:
1. The 2 (or more) sales transactions must constitute valid sales;
2. The 2 (or more) sales transactions must pertain to exactly the same
subject matter
3. The 2 (or more) buyers at odds over the rightful ownership of the subject
matter must each represent conflicting interests; and
4. The 2 (or more) buyers at odds over the rightful ownership of the subject
matter must each have bought from the very same seller
NOTE: Art. 1544 CANNOT be invoked where 2 different contracts of sale are made
by 2 different persons, one of them not being the owner of the property sold
RULES AS TO PREFERENCE OF OWNERSHIP IN CASE OF A DOUBLE SALE

It applies only to purchasers in GF

If the SAME property is VALIDLY sold by the SAME vendor (who has an
existing right in the property sold and the power to dispose it), to
DIFFERENT vendees, each representing conflicting rights of said vendees
shall be resolved in accordance with the following rules:
KINDS OF PROPERTY
MOVABLE

DE LEON SALES REVIEWER

OWNERSHIP
Vendee who first takes possession in

NOTE: The term vendee includes a mortgagee, lessee and other encumbrance for
value
PURCHASER IN GOOD FAITH

One who buys the property of another without notice that some other
person has a right to or interest in, such property and pays full and fair
price for the same
SALES BY SINGLE VENDOR

Art. 1544 contemplated a case of double or multiple sales by a single


vendor to 2 or more buyers

Conveyance must have been made by a party who has an existing right in
the thing and the power to dispose of it

It cannot be invoked where the 2 different contracts of sale are made by 2


different persons, one of them not being the owner of the property sold

Even if the sale was made by the same person, if the second sale was
made when such person was no longer the owner of the property because
it has been acquired by the first purchaser in full dominion, the second
purchaser cannot acquire any right
TWO OR MORE SALES
1. SALE TO DIFFERENT VENDEES

There must be at least 2 deeds of sale over the same property

There is no double sale where after the sale of the property in favor of
a person, the vendor did not anymore execute another sale over the
same property in favor of another
2. VOIDABLE SALE

1544 is NOT applicable where there is only one valid sale, the
previous sale having been found fraudulent or where one deed of sale
was registered ahead of the other but said deed if found to a forgery !
the right of the other vendee should prevail
3. CONTRACT OF SALE FICTITOUS OR FORGED, OR SELLER WITHOUT
RIGHT TO SELL

It does NOT apply if the contract of sale first registered is fictitious or


forged or

Michelle Duguil,

50

If the vendor is not the owner of the property sold and had no right to
sell the same

E: A forged deed of sale of registered land can legally be the root of a


valid title when an IPV intervenes and the certificate of title has
already been transferred from the name of the true owner to the forger

The remedy of the true owner if to bring an action for damages against
the one who cause or employed the fraud and if the latter is insolvent,
an action against the Treasurer of the Philippines may be filed for
recovery of damages against the Assurance Fund.
4. DONATION

Art 1544 APPLIES to donations made to different donees

A deed of donation executed with all the formalities of law is on the


same footing as a deed of sale in the form of a public instrument

NOTE: Art. 1544 applies only if the same thing has been sold to
different vendees. Therefore, it does NOT apply if one transaction is a
sale and the other is a donation.
5. CONTRACTS TO SELL AND CONDITIONAL SALES

X apply to contract to sell

Apply to conditional sales


6. SALE OF PROPERTY TO ONE PARTY AND ASSIGNMENT OF RIGHT
TO THE PROPERTY TO ANOTHER

Par. 3 1544 does NOT apply to a case where the sale in favor of one
party was the property itself, while the transaction in favor of another
was a mere promise to assign, or at most, an actual assignment of the
right to repurchase the same property.
POSSESSION OF PROPERTY SOLD

Possession means both actual physical delivery and constructive delivery


o Actual delivery when the thing is placed under the control and
possession of the vendee
o Constructive delivery when the sale is made through a public
instrument, the execution thereof shall be equivalent to delivery if
from the deed the contrary does not appear or cannot be clearly
inferred

After the sale of realty by means of a public instrument, the vendor who
resells it to another, does not transmit anything to the second vendee, and
if the latter, by virtue of the second sale, takes material possession of the
thing, he does it as mere detainer, and it would be unjust to protect this
detention against the rights of the thing lawfully acquired by the first vendee

The fact that the first sale was notarized does NOT mean that the second
sale cannot be given effect ! if the land is registered under the TS, the
rd
mere execution of a sale by means of a public instrument will not bind 3
persons (including the second buyer).

If the first sale (albeit notarized) was not registered with the Register of
Deeds, and the second buyer acquired the same property in GF and
registers the sale in GF with the RD ! the second buyer should prevail

NOTE: A vendee has a preferred right over another vendee who has not registered
his title even if the latter is in actual possession if the immovable property
NOTE: More credit is given to registration than actual possession

REGISTRATION OF IMMOVABLE SOLD

DE LEON SALES REVIEWER

REGISTRATION MEANING
Any entry made in the books of the Registry of Property which records
solemnly and permanently the right of ownership and other real rights
When a deed of sale is inscribed in the registry of property on the
original document itself, what was done with respect to said entries or
annotations and marginal notes amounted to a registration of the sale
REGISTRATION AS AN OPERATIVE ACT
PD 1529 (Property Registration Decree)
Parcels of land brought under the operation of the Torrens system are
considered registered lands
The act of registration is the operative act to convey or affect the land
in so far as third persons are concerned
As against privies of the seller, Failure to register will not violate the
vendees right of ownership conferred by an unregistered deed of sale
A sale of registered land that was not registered with the RD will NOT
prevail over a subsequent sale that was registered in GF by the
second buyer
Each RD us required to keep a primary entry book in which, upon
payment of the entry fee, he shall enter, in the order of their reception,
all instruments relating to the land. The instrument is regarded as
registered from the time so noted.
Registration in its juridical aspect must be understood as the entry
made in a book or public registry of deeds.
SALE REGISTERED IN GF
Mere registration is NOT enough; GF must concur (Registration + GF
= entitled to priority)
GOOD FAITH without knowledge of the previous alienation by the
vendor to another or must not have been aware of facts which should
put him upon inquiry to acquaint him with the defect or lack of title of
his vendor
The defense of indefeasibility of the Torrens Title does NOT extend
to a transferee who takes the certificate of title in BF
o NOTE: This defense refers to sale of lands and not sale of
properties situated therein
SALE REGISTERED IN BF
Art, 1544 does not declare void a deed of sale registered in BF ! BUT
it does not mean that such contract is not void
To give full effect to the provision, the status of the 2 contracts must be
determined and clarified ! one contract must be declared valid so that
one vendee may exercise all the rights of an owner, while the other
contract must be declared void to cut off all rights which may arise
from said contract
If registration is done in BF = no registration at all ! buyer who has
first taken possession of the property in GF shall be preferred or in the
51




Michelle Duguil,

1.

absence of possession, to the person who presents the oldest title in


GF.

UNREGISTERED LAND

Art. 1544 has NO application to land not registered under the Torrens
System

NOTICE OF ADVERSE CLAIM WAS REGISTERED PREVIOUS TO


SALE TO POSSESSOR

The first buyer has a superior right to the property since he was the
first who recorded his right in GF over the immovable property

REGISTRATION OF DEED OF EXTRAJUDICIAL PARTITION

Registration of a deed of extrajudicial partition does NOT operate as


rd
registration of the deed of sale in so far as 3 persons are concerned
because what could validly transfer or convey the vendees right to the
property to petitioners is the deed of sale and not the DEP which only
mentioned the DS

ISSUANCE OF 2 CERTIFICATES

The better approach is to trace the original certificates from which the
certificates of titles in dispute were derived

Should there be only one common original certificate of title, the


transfer certificate issued on an earlier date along the line must prevail,
absent any anomaly or irregularity tainting the process of registration

ISSUANCE OF TCT NOTED/NOT NOTED ON THE CT


The issuance of a TCT to the second buyer was noted in the OCT which
nd
was cancelled by virtue of the issuance ! 2 buyer acquired ownership
over lot since they were the first register in GF their sale in the DR as
compared to the first buyer whose TCT was never noted on the OCT

REQUIREMENTS OF GOOD FAITH

2.

3.

4.

5.

NOTE:
GF or BF is relevant only where:
o The subject of the sale is registered land and
o The purchase was made from the registered owner,
o Whose title to the land is clean, in which case
o The purchaser who relied on the clean title of the purchaser is
protected if he is a purchaser in good faith for value
If the land is unregistered and the seller had no right to sell it, the purchaser bought
the property at his own peril
Presumption: transferee of registered land is not aware of any defect in the title of
the property he purchased
Actual notice is equivalent to and more binding that presumed notice by registration
1.

GOOD FAITH OF THE FIRST BUYER

Prius tempore, patior jure first in time, stronger in right

DE LEON SALES REVIEWER

GF of the first buyer remains all throughout despite his subsequent


acquisition of knowledge of the subsequent sale
o E: When the second buyer registers in good faith the second sale
GOOD FAITH OF THE SECOND BUYER

He is deemed a possessor in GF who is not aware that there exists in his


title or mode of acquisition any flaw which invalidates it

Two fold requirement: Acquisition in GF and registration in GF

The failure of a prospective buyer to take such precautionary steps would


mean negligence on his part and would thereby preclude him from claiming
or invoking the rights of a purchaser in GF
BURDEN OF PROOF

Good faith is presumed

It is upon those who allege the BF on the part of the possessor !


rests the burden of proof

The burden of proving the status of one as a purchaser in GF and for


value ! lies upon him who asserts that status where the seller had none to
transmit to the purchaser and the other claimant is himself a purchaser in
GF from the successor-in-interest of the original title holder

BF is a question of fact which must be proven by clear and convincing


evidence

To determine GF or BF, the point in time to be considered is the moment


when the parties actually entered into the contract of sale
PRUCHASE MUST BE FOR VALUABLE CONSIDERATION

Purchaser in Good Faith one who buys property of another, without


notice that some other person has a right to, or interest in, such property
and pays a full and fair price for the same at the time of such purchase, or
before he has notice of the claim or interest of some other person in the
property
ACTUAL KNOWLEDGE

Knowledge gained by the second buyer of the first sale defeats his rights
even if he is first to register, since such knowledge taints his registration
with bad faith

The rule in this case would be that the ownership shall pertain to the
person, who in GF, first entered into possession of the property or in the
absence of possession, to the person who presents the oldest title,
provided there is GF
DUTY OF PURCHASER TO LOOK BEYOND THE CERTIFICATE

GR: A buyer may rely on the TT of the seller in the absence of anything
which excited suspicion
o E: Where there exists important facts which would create
suspicion in an otherwise reasonable man to go beyond the
present title and to investigate those that preceded it
o E2: Banking institutions have the standard and indispensable duty
to ascertain the status or condition of the property and the validity
of the vendors (or mortgagors)
o E3: Financial institutions and realty corporations! requires higher
degree of diligence because of the nature of their business
o E4: Property purchased already peaceably possessed by another
in the concept of an owner

6.

Michelle Duguil,

52

7.

8.

9.

This rule only applied to purchasers in GF for value


PURCHASER WITH NOTICE OF RIGHT OF REPURCHASE WHICH HAS
ALREADY ELAPSED

One who buys property with notice that it is subject to the right of
repurchase from his vendor (the vendee a retro in a previous sale),
although such right has already elapsed and there is no annotation of any
repurchase by the vendor a retro BUT the title has not yet been cleared of
the encumbrance, without looking into the right of redemption inscribed on
the title ! X purchaser in GF for he has notice that some other person
could have a right or interest in the property
ADVERSE CLAIM OR LIS PENDIS PREVIOUSLY ANNOTATED ON TITLE
OF PROPERTY SOLD

A subsequent sale of land cannot prevail over an annotated adverse claim


which was previously annotated in the certificate of title of the property

A prior judicial determination of the validity of the adverse claim before it


can flaw the title of the subsequent transferees X required

Annotation of an adverse claim measure designed to protect the


interest of a person over a piece of property and serves as a notice and
warning to third parties dealing with said property that someone is claiming
an interest in the same or may have better right than the registered owner
thereof
o E: When the alleged flaw (notice of lis pendis) was already being
cancelled at the time of purchase
PURCHASER EXAMINED ONLY THE LAST CERTIFICATE OF TITLE

To be a purchaser in GF, it is enough that he examines the latest certificate


of title

He is not bound by the OCT but only the certificate of title of the person
from whom he purchased the property

SALES INVOLVING UNREGISTERED LAND


1. GENERAL PRINCIPLES

Art. 1544 does NOT apply to sales involving unregistered lands

Section 113 of PD1529 No deed, conveyance, mortgage, lease or other


voluntary instrument affecting land not registered under the TS shall be
valid, except as between the parties thereto, unless such instrument shall
been recorded in the manner prescribed herein in the office of the RD for
the province or city where the land lies Any recording made under this
section shall be without prejudice to a third party with a better right

Registration is given some priority, provided that there is no other party


with a better right
2. SALE OF UNREGISTERED LAND

First buyer would have a better right in view of the fact that his claims is
based on a prior sale coupled with OCEN thereof as an owner
3. UNREGISTERED LAND SUBQUENTLY REGISTERED

Where the land was unregistered at the time of the first sale, but was
already registered at the time of the second sale ! the second buyer
prevails over the first if the second buyer recorded the sale in GF with the
RD

DE LEON SALES REVIEWER

4.

PREFERENCE OF LEVY OF EXECUTION OR ATTACHMENT OVER PRIOR


UNREGISTERED LAW

The priority enjoyed by the levy on execution extends with full force and
effect to the buyer at the auction sale conducted by virtue of such levy

The doctrine is that a levy on execution or attachment duly registered takes


preference over a prior unregistered sale, and that even if the prior
unregistered sale is subsequently registered before the sale on execution
but after the levy was duly made, the validity of the execution sale should
be maintained because it retroacted to the date of levy

EXECUTION SALES
1. REGISTERED LAND

The second buyer who purchases at an execution sale acquires a better


right over the first buyer where the sale to the first buyer was not recorded
while the levy was recorded and a new TCT was issued in favor of the
second buyer
o E: Where a party has actual knowledge of the claimants OCEN
possession of the disputed property at the time the levy or
attachment was registration !

The preference created by the levy on attachment is not diminished even


by the subsequent registration of the prior sale

The order of entry in the primary entry book determines the priority in
registration
2. UNREGISTERED LANDS

Art. 1544 does NOT apply where the second buyer acquired the
unregistered parcel of land at an execution sale (even if the second buyer
was ignorant of the prior sale made by his judgment debtor in favor of the
first buyer)

Reason: Purchaser of unregistered land at a sheriffs execution sale only


steps into the shoes of the judgment debtor, and merely acquires the
latters interest in the property sold at the time the property was levied upon
3. UNREGISTERED LAND WAS SUBSEQUENTLY REGISTERED

RULE #1 : Where the sale in favor of the first buyer was executed before
the land was registered, while the conflicting sale in favor of the second
buyer was executed after the same property had been registered ! upon
expiration of the right of redemption, the purchaser or redemptioner shall
be substituted to and acquire all the rights, title interest and claim of the
judgment obligor to the property as of the time of the levy ! subsequent
levy made on the property for the purpose of satisfying the judgment
rendered against the seller in favor of the judgment creditor = void

RULE #2: Where the first sale involved unregistered land while the second
sale (not an execution sale) was made when the land was already
registered ! the second buyer who purchased the land when it was
already registered and who registered the sale in GF will prevail over the
first buyer who purchased it when it was still unregistered
APPLICABILITY OF ART. 1544 TO CONTRACTS TO SELL
1. NOT APPLICABLE TO CONTRACT TO SELL

Michelle Duguil,

53

X apply to contract to sell for neither a transfer of ownership nor a


sales transaction has been consummated

X apply to a case where there was a sale to one party of the land itself
while the other contract was a mere promise to sell land
ART 1544 PRINCIPLES APPLY TO A CONTRACT TO SELL

SC has applied the governing principles of Art. 1544 in a situation


where the first contract was a contract to sell.

GR: Knowledge gained by the first buyers under a contract to sell of


the new agreement between the seller and the second buyer will NOT
defeat their rights as first buyers
o E: Where the second buyer registers or annotates his
transaction or agreement on the title of the subject properties
in GF ahead of the first buyers

Although the first buyers knew of the second transaction, it will not bar
them from availing of their rights granted by law, among them, to
register first their agreement as against the second buyer
APPLICABILITY TO CONDITIONAL SALE

2.

3.

CONTRACT TO SELL
There being no previous sale of the
property, the third person buying such
property despite the fulfillment of the
suspensive conditions such as the full
payment, cannot be deemed a buyer in
BF and the prospective buyer cannot
seek relief of reconveyance of the
property.
X double sale

Title to the property will transfer to the


third person after registration because
there is no defect in the owner-sellers
title per se
Owner-seller may be sued for damages
by the intending buyer

CONDITIONAL SALE
Upon the fulfillment of the condition, the
sale becomes absolute and this will
definitely affect the sellers title thereto
! automatic transfer of ownership upon
happening of suspensive condition

Second buyer of the property who may


have had actual or constructive
knowledge of such defect in the sellers
title, or at least was charged with the
obligation to deliver such defect, cannot
be a registrant in good faith
Second buyer X defeat first buyers title

In case title is used to the second buyer,


the first buyer may seek reconveyance
of the property subject of the sale

OTHER RULINGS ON APPLICATONS OF RULES


1. SUBQUENT MORTGAGE REGISTERED UNDER ACT NO. 3344

An unrecorded sale of a house of a prior date is preferred to a recorded


mortgage of the same house of a later date

Reason: if the original owner had parted with his ownership of the thing
sold, then he no longer had ownership and full disposal of that thing so to
be able to mortgage it

DE LEON SALES REVIEWER

The registration of a mortgage under ACT. NO. 3344 is without prejudice to


the better right of third parties
PACTO DE RETRO SALE

Its is not applicable to a case which involves an earlier pacto de retro sale
of an unregistered land and the subsequent donation thereof by the vendor
a retro to another who, in turn, sold it to a third party while the property was
still in the possession of the vendee a retro who has already acquired title
before donation because of the failure of the vendor a retro to repurchase

There being no title to the property which the vendor a retro could convey
to the supposed done, since he was no longer the owner thereof, no title
could be conveyed by the donee by the sale of the property
SUBSEQUENT MORTGAGE OF LAND REGISTERED UNDER THE
TORRENS SYSTEM, REGISTERED BY MORTGAGEE

The registered right of GSIS as mortgagee of the property was held inferior
to the unregistered right of M, the previous buyer, the unrecorded sale
between M as the vendee and Z, the original owner, is preferred

Reason: If Z had parted with his ownership of the land sold, then he no
longer had ownership and free disposal of the same as to be able to
mortgage it
SALE TO FINANCIAL INSTITUTION QUALIFIED AS INNOCENT PURCHASE
FOR VALUE

When financial institutions exercise extraordinary diligence in determing the


validity of the certificates of title to properties being sold or mortgaged to
them and still fail to find any defect or encumbrance upon the subject
properties after said inquiries ! such financial institution should be
protected like any other IPV if they paid full and fair price at the time of the
purchase or before having notice of some other persons claim in the
property

A financial institution is not expected to check the technical description of


each and every title in the RD in order to determine whethere there is
another title to the property

2.

3.

4.

SECTION 3. CONDITIONS AND WARRANTIES


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

Michelle Duguil,

54

An uncertain event or contingency on the happening of which the obligation


(or right) of the contract depends
The obligation of the contract does not attach until the condition is
performed
First paragraph of 1545 contemplates a perfected contract of sale. The
application of this article presupposes that there is a perfected contract of
sale and that one of them fails in the performance of an obligation under
the contract
The term is not used in the sense of a promise

EFFECT OF NON-FULFILLMENT OF CONDITION


A contract of sale may be absolute or conditional.
1. If the obligation of either party is subject to any conditions, and such condition is
not fulfilled, such party may either:
1. Refuse to proceed with the contract; or
2. Proceed with the contract, waiving the performance of the condition
2. If the condition is in the nature of a promise that it should happen, the nonperformance of such condition may be treated by the other party as a breach of
warranted (1546)
ART. 1546. Any affirmation of fact or any promise by the seller relating to the
thing is an express warranty if the natural tendency of such affirmation or
promise is to induce the buyer to purchase the same, and if the buyer
purchases the thing relying thereon. No affirmation of the value of the thing,
nor any statement purporting to be a statement of the sellers 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.
WARRANTY

A statement or representation made by the seller of goods,


contemporaneously and as party of the contract of sale, having reference
to the character, quality, or title of the goods, and by which promises or
undertakes to insure that certain facts are or shall be as he then
represented them.
NECESSITY OF CONTRACT OF SALE

A warranty is an incident to a contract of sale and assumes or necessarily


implies the existence of a contract of sale

A warranty is not an essential element of sale, there can no warranty


without a contract of sale
TERMINILOGY USED BY PARTIES NOT CONTROLLING

It is NOT necessary that the word warranty, warrant, representation, or


represent be used by the seller to constitute a warranty

The fact that stipulation in the contract of sale is specially called a


warranty does NOT itself establish that the agreement thus referred to is
a warranty

DE LEON SALES REVIEWER

Not easy to determine whether a particular language does or does not


amount to a warranty ! much will depend on the situation of the parties
and the condition of the things when the language is used and to which it
will apply

KINDS OF WARRANTY

EXPRESS OR IMPLIED

EXPRESS WARRANTY one imposed by the parties to the contract

IMPLIED WARRANTY Imposed by law

The seller is luable for his express and implied warranties of title, absence
of hidden defects, fitness or merchantable quality, description and sample
MEANING OF EXPRESS WARRANTY

An affirmation of fact or any promise by the seller relating to the thing, the
natural tendency of which is to induce the buyer to purchase the thing and
the buyer thus induced, does purchase the same

The parties may agree as to the extent of an express warranty, which may
be more limited or more extensive that the warranties imposed by law
TYPES OF EXPRESS WARRANTIES
1. A warranty relating to the CONTRACT OR TRANSACTION, such as a
representation by the seller that the execution and delivery of the contract
will not result in a breach of any agreement applicable to the seller
2. A warranty relating to the OBJECT of the contract, such as
representation by the seller that the parcel of land subject matter of the
contract is free from liens and encumbrances
3. A warranty relating to the PARTY to the contract, such as a
representation by the seller that it is a corporation duly organized and
existing under the laws of the RP
NOTE: Express warranties can be given by both the seller and the buyer; in
practice, sellers usually give more extensive representations as compared to
buyers.
EFFECT OF EXPRESS WARRANTY

A warranty is a collateral undertaking and as such, it follows the principal


wherever it goes

No intent is necessary to make the seller liable for the warranty it is


immaterial whether the seller did not know that it was true or false

It is a natural consequence of what the seller says and the reliance thereon
by the buyer that are alone important
TIME OF WARRANTY

A warranty must form part of the transaction involving the sale

Courts are not inclined to treat affirmations made by the seller after the
perfection of the sale as warranties, even if the affirmation is made before
the delivery of the good and payment of the purchase price
o E: If a warranty is given after the contract of sale has been
perfected, the warranty must generally, in order to be effective, be
accompanied by a new and separate consideration

Michelle Duguil,

55

FORM OF WARRANTY

A warranty need not be in writing; it may be made orally


o E: If the contract of sale is in writing and purports to embody the
whole agreement of the parties, the parol evidence rule will
generally preclude proof of an oral warranty
INTENTION TO MAKE A WARRANTY

It is unnecessary that the representation or affirmation be actually intended


by the seller as warranty

Apparent intent to warrant is sufficient

It is the natural tendency of the affirmation or promise to induce the buyer


to purchase that is important, and not the intention of the seller to warrant,
and the absence of an intention to warranty is of no consequence
KNOWLEDGE AND GOOD FAITH OF THE SELLER

If the seller makes an express warranty, it is immaterial w/n he acted in GF


in making the statement leading up to the sale

The seller is liable for breach of warranty even if he acted in good faith in
making the warranty or even if he was not aware of the falsity of the
warranty
DUTY OF BUYER TO INVESTIGATE

If the seller gives an express warranty, the buyer does not have the duty to
inspect the goods or to investigate the truth of the sellers statements

The maxim caveat emptor does not apply to matters included in an express
warranty

The buyers examination of the goods does not necessarily prevent a


sufficient affirmation from being a warranty, especially so where the defects
are of such a character as not to be discoverable on examination

Even if the buyer investigates, the parties can expressly stipulate that the
investigation by the buyer does not relieve the seller of express warranties

The usual exaggeration in trade, when the other party


had an opportunity to know the facts, are not in
themselves fraudulent (1340)
"
A mere expression of an opinion does not signify fraud
unless made by an expert and the other party has relied
on the formers special knowledge (1341)
"
Misrepresentation made in GF is not fraudulent but may
constitute error (1343)
The law permits the seller to exaggerate, puff, or enhance the quality of the
product under the civil law maxim simplex commendation non obligat (a
simple recommendation is not binding)
The tendency of the courts however is in the direction of greater strictness
against the sellers untruthful puffing of his wares
"

A warranty which comes into existence at the time of sale needs no further
consideration since such warranty is supported by the consideration of the
sale

ART. 1547. In a contract of sale, unless a contrary intention appears, there is:
(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 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 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
equitable interest
IMPLIED WARRANTY

That which the law derived by implication or inference from the nature of
the transaction or the relative situation or circumstances of the parties
irrespective of any intention of the seller to create it

An implied warranty is never in writing

WAIVER OF BREACH OF WARRANTY

The buyer may waive breach of warranty by:


1. Express agreement
2. Conduct inconsistent with an assertion of the breach
3. Acknowledgment of the satisfaction

IMPLIED BY LAW

The implied warranties contemplated under the civil code are warranties
implied by law (as opposed to implied in fact) as attaching to an obligation
of the seller which is not express in any words, irrespective of the intention
of the parties

EFFECT OF EXPRESSION OF OPINION

An affirmation or representation which merely expresses the sellers


opinion, judgment, belief or estimate do not generally constitute a warranty
o E: If the seller made such affirmation or statement as an expert
and it was relied upon by the buyer

KINDS
1. Implied warranty as to sellers title

That the seller guarantees he has a right to sell the thing sold and
to transfer ownership to the buyer who shall not be disturbed in
his legal and peaceful possession thereof (1548)
2. Implied warranty against hidden defects or unknown encumbrance

DE LEON SALES REVIEWER

Michelle Duguil,

56

That the seller guarantees that the thing sold is free from any
hidden faults or defects or any charge or encumbrance not
declared or known to the buyer
Implied warranty as to fitness or merchantable quality

That the seller guarantees that the thing sold is reasonably fit for
the known particular purpose for which it was acquired by the
buyer, or where it was bought by description, that it is of
merchantable quality

3.

RIGHT TO TRANSFER TITLE AT THE TIME OF DELIVERY

The right of the seller to sell the thing need not reside in him at the time the
contract is perfected

It is sufficient that the vendor has a right at the time when the ownership is
to pass (1459 & 1562)
NATURE OF IMPLIED WARRANTY

It is a natural, not an essential, element of a contract because it is


presumed to exist even though nothing has been said in the contract on the
subject

It is incorporated in the contract

It is an exception to the rule of caveat emptor

HOWEVER, it may be waived or modified by express stipulation


warranties will not be implied if they are inconsistent with the express terms
of the sales agreement or contrary to the manifest purpose of the parties
where the facts clearly negative any intention to warrant
WHEN IMPLIED WARRANTY IS NOT APPLICABLE
1. AS IS AND WHERE IS SALE

Means nothing more than the vendor makes no warranty as to the


quality or workable condition of the goods, and that the vendee takes
them in the condition in which they are found and from the place where
they are located

It does not extend to liens or encumbrances unknown to the vendee


and could not be disclosed by a physical examination of goods

The term as is in the public auction of goods refers to physical


condition of the merchandise and not to the legal situation in which it
was at the time of the sale

A provision for the sale and purchase of goods as is does not affect
the sellers obligation to furnish goods which comply with the
description

It does not prevent fraudulent representation relied on by the buyer


from constituting fraud which makes the contract voidable or a ground
for damages
2. SALE OF SECONDHAND ARTICLES

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


suitability for the purpose for which made, or the quality of an article
sold as and for a second-hand article

BUT such articles might be sold under such circumstances as to raise


an implied warranty (ex. a certification issued by the vendor that a

DE LEON SALES REVIEWER

3.

secondhand machine was in A-1 condition = express warranty binding


to the seller)
SALE BY VIRTUE OF AUTHORITY IN FACT OR LAW

No warranty of title is implied in a sale by one not professing to be the


owner

It does not apply to a sheriff, auctioneer, mortgagee, pledgee or other


person who sells by virtue of authority in fact or law ! they are not
liable to a person with legal or equitable interest therein
o E: They are still liable for actual representations, fraud or
negligence in the exercise of their duties

The risk of defective title here is on the purchaser, the circumstances


surrounding such sales being sufficient to put him on notice as to
interests of third persons in the sold

The rule of caveat emptor applies to execution sales


SUBSECTION 1. WARRANTY IN CASE OF EVICTION

SECT. 1548. Eviction shall take place whenever by a final judgment based on a
right prior to the sale or an act imputable to the vendor, and the vendee is
deprived of the whole or part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said in
the contract on the subject.
The contracting parties, however, may increase, diminish, or suppress this
legal obligation of the vendor.
MEANING OF EVICTION

The judicial process, whereby the vendee is deprived of the whole or part
of the thing purchased by virtue of a FJ based on a right prior to the sale or
an act imputable to the vendor
WARRANTY IN CASE OF EVICTION

The sellers obligation is generally NOT extinguished upon the delivery of


the thing

The vendor guarantees the buyers peaceful possession of the thing sold
rd
and must generally defend against attacks of 3 persons, based on a
defect in the rights of the vendor, on the vendees ownership and
possession of the thing sold
ESSENTIAL ELEMENTS OF WARRANTY AGAINST EVICTION
A breach of warranty requires the present of the following circumstances:
1. The buyer is deprived in whole or in part of the thing purchased
2. He is so deprived by virtue of a final judgment
3. The judgment is based on a right prior to the sale or an act imputable to
the seller

Michelle Duguil,

57

4.
5.

The seller was summoned in the suit for eviction and made a codefendant at the instance of the buyer
There is NO waiver on the part of the buyer

In the absence of these requisites, a breach of warranty against eviction under Art.
1547 cannot be declared
TYPES OF EVICTION

Total the vendee is deprived of the whole thing purchased

Partial
o Vendee is deprived of part of part of the thing purchased
o Vendee is deprived of some items that were jointly sold with other
items
o If the immovable sold should be encumbered with any nonapparent burden or servitude, not mentioned in the agreement, of
such a nature that it must be presumed that the vendee would not
have acquired it had he been aware thereof (1560)
TYPES OF PROPERTY SOLD

The warranty against eviction is generally applicable to the sale of all


classes of property
o E1: 1630 The sale of an INHERITANCE ! in which the seller
shall only be answerable for his character as an heir, but not
ownership of all things that supposedly comprise the inheritance
o E2: 1631 The sale for a LUMP SUM of the whole of certain
rights, rents or products ! in which case the seller is not obliged
to warrant each of the various parts of which it may be composed,
except in the case of eviction from the whole or the part of greater
value of the things sold
TRESPASS CONTEMPLATED BY WARRANTY AGAINST EVICTION

Mere TRESPASS IN FACT does NOT give rise to the application of the
doctrine of eviction (1590)
o Mere act of trespass when the trespasser claims no right
whatever = vendor NOT liable therefor
o Remedy: Buyer has to direct action against the trespasser in the
same way as the lessee has such right

The disturbance referred to in the case of eviction is a DISURBANCE IN


LAW which requires that a person go to the courts of justice claiming the
thing sold, or part thereof, and invoking reasons
o If FJ is rendered depriving the buyer of the thing sold or any part
thereof ! the doctrine of eviction becomes applicable
VENDORS LIABILITY IS WAIVABLE

The obligation of the vendor to warrant against eviction is NOT an essential


element of a contract of sale and therefore may be INCREASED,
DIMINISHED, OR SUPPRESSED by agreement of the parties

The total or partial waiver of the obligation is consistent with Art. 6 Rights
may be waived, unless the waiver is contrary to law, public order, public

DE LEON SALES REVIEWER

rd

policy, morals or good customs, or prejudicial to a 3 person with a right


recognized by law
o E: Any stipulation exempting the vendor from the obligation to
answer for eviction shall be VOID if he acted in BF
EVICTION AND WARRANTY AGAINST EVICTION

Eviction and warranty are 2 ideas that complete each other, but each one
has a separate meaning
EVICTION
State of fact
Cause: The act by which the buyer is
deprived, in whole or in part, of the thing
sold by virtue of a FJ

WARRANTY
Legal Concept
Effect: As a result of this state of fact
comes the warranty, which imposes
upon the seller the obligation to remedy
the damage suffered by the vendee who
was deprived of the thing acquired by
virtue of a FJ

ART. 1549. The vendee need not appeal from the decision or order that the
vendor may become liable for eviction.
VENDEE HAS NO DUTY TO APPEAL FROM JUDGMENT

The buyers right against the seller is NOT lost because the vendee did not
appeal

The requirement of law is deemed satisfied upon judgment becoming final


(whatever may be the cause of finality)

The requirement of FJ does not also mean that the parties have taken all
remedies

Final judgment may be based on a compromise agreement among the


party litigants
ART. 1550. When adverse possession had been commenced before the sale
but the prescriptive period is completed after the transfer, the vendor shall be
liable for eviction.
EFFECT OF PRESCRIPTION

Prescription by prescription, one acquired ownership and other real


rights through the lapse of time in the manner and under the conditions
prescribed by law. In the same way, rights and actions are lost by
prescription.
COMPLETED BEFORE SALE

The buyer may lose the thing purchased to third person who had acquired
title thereto by prescription

When prescription has commenced to run against the seller and was
already complete before sale ! the buyer can enforce the warranty against
eviction

In this case, the deprivation is based on a right prior to the sale and an act
imputable to the seller

Michelle Duguil,

58

COMPLETED AFTER SALE

Even if prescription has started before the sale but has reached the limit
prescribed by law after the sale ! the seller is NOT liable for eviction

The reason is that the buyer could have easily interrupted the running of
the prescriptive period by bringing the necessary action
EXCEPTION

If the property sold, however is registered under the Torrens system, Art.
1550 is NOT applicable

Under the TS, ownership of land is not subject to prescription


ART. 1551. If the property sold is for nonpayment of taxes due and not made
known to the vendee before the sale, the vendor is liable for eviction.
DEPRIVATION FOR NON-PAYMENT OF TAXES

If the buyer is deprived of the ownership of the property because it is sold


for non-payment of taxes due from the seller ! the seller is liable for
eviction for an act imputable to him

It is required, however, that at the time of the sale, the non-payment of


taxes was NOT known to the buyer
ART. 1552. The judgment debtor is also responsible for eviction in judicial
sales, unless it is otherwise decreed in the judgment
LIABILITY OF JUDGMENT DEBTOR

While the rule on implied warranty does not apply to a sheriff who sells by
virtue of authority in law ! the judgment debtor is RESPONSIBLE for
eviction and hidden defects even in judicial sales, unless otherwise
decreed in the judgement

Art. 1552 is based on the general principle that a person may not enrich
himself at the expense of another

If the purchaser of real property sold on execution be evicted therefrom


because the judgment debtor (seller) has no right to the property sold !
the purchaser is entitled to recover the price paid with interest from the
judgment debtor (seller)

If the sale was effected by the judgment creditor ! the judgment creditor
should NOT be permitted to retain the proceeds of the sale, at the expense
of the purchaser
ART. 1553. Any stipulation exempting the vendor from the obligation to
answer for eviction shall be void, if he acted in bad faith
STIPULATION WAIVING WARRANTY
EFFECT OF SELLERS BAD FAITH

Bad faith knowing beforehand at the time of the sale, the presence of the
fact giving rise to eviction and possible consequence

DE LEON SALES REVIEWER

Thus, if the vendor after selling his property to another, sold it again to
another purchaser ! he CANNOT even by stipulation, be exempt from
warranty against eviction, because he acted in BF

EFFECT OF BUYERS BAD FAITH

The buyer should also not be guilty of BF in the execution of the sale

If he knew of the defect of the title at the time of sale, or had knowledge of
the facts which should have put him upon inquiry and investigation as
might be necessary to acquaint him with the defects of the title of the
vendor ! he CANNOT claim that the vendor has warranted his legal and
possession of the property sold on the theory that he proceeded with the
sale with the assumption of the danger of eviction

He is NOT entitled to warranty against eviction, nor is he entitled to


damages
ART. 1554. If the vendee has renounced the right to warranty in case of
eviction, and eviction should take place ! the vendor shall only pay the value
of which the thing sold had at the time of the eviction. Should the vendee have
made the waiver with knowledge of the risks of eviction and assumed its
consequence ! the vendor shall not be liable.
2 KINDS OF WAIVER EVICTION
1. CONSCIENTE (SIMPLE) The waiver is voluntarily made by the buyer
without the knowledge and assumption of the risks of eviction
2. INTENCIONADA (CALCIFICADA) The waiver is made by the buyer with
knowledge of the risks of eviction and assumption of its consequence
EFFECT OF WAIVER BY THE VENDEE
1. If the waiver was only consciente ! the vendor shall pay only the value
which the sold had at the time of eviction
o This is a case of SOLUTIO INDEBITI
o The sole effect of the waiver unaccompanied by the knowledge
and assumption of the danger of eviction is: to deprive the buyer
of the benefits mentioned in Nos. 2,3,4,5 of Art. 1555
2. If the waiver was intencionada ! the seller is exempted from the
obligation to answer for eviction, provided that he did not act in BF
PRESUMPTION AS TO KIND OF WAIVER
o Every waiver is presumed to be CONSCIENTE while the contrary is not
proven
o To consider it intencionada:
o There must be an act of waiver
o Accompanied by some circumstance which reveals the vendees
knowledge of the risks of eviction and his intention to submit to the
consequences

Michelle Duguil,

59

ART. 1555. When the warranty has been agreed upon or nothing has been
stipulated on this point, in case eviction occurs, the vendee shall have the
right to demand of the vendor:

COSTS OF THE SUIT

(1) The return of the value which the thing sold had at the time of the eviction,
be it greater or less than the price of the sale

(2) The income or fruits, if he has been ordered to deliver them to the party
who won the suit against him

(3) The costs of the suit which caused the eviction, and in proper cases, those
of the suit brought against the vendor for the warranty

(4) The expense of the contract, if the vendee has paid them
(5) The damages and interests and ornamental expenses, if the sale was
made in BF
RIGHTS AND LIABILITIES IN CASE EVICTION OCCURS

The provisions of the above article specify in detail the rights and liabilities
of the seller and the buyer in the event eviction takes place when the
warranty has been agreed upon or nothing has been stipulated on this
point that is, in the absence of waiver of eviction by the buyer

EXPENSES OF THE
CONTRACT

RETURN OF VALUE
OF THING

DAMAGES AND
INTERESTS

INCOME OR FRUITS
OF THING

If at the time of the eviction the value of the property is


really more or less than its value at the time of sale,
by reason of improvement or deterioration ! the
seller should pay the excess or not suffer the damage
All kinds of improvements (useful, necessary,
recreational expenses) voluntary entered into by the
buyer or caused by nature or time in so far as they
may affect the value of property ! are taken into
account in determining the increase in value

Note: The law does not speak of payment of interest on


the purchase price. The law had intended that the interest
on the price shall be SET OFF against the fruits received
by the buyer from the thing while in possession.
The buyer is liable to the party who won the suit
against him for the income or fruits received only if so
decreed by the courts ! the seller must indemnify
him
Reason: To the buyer belongs the use, free of any
liability, of the subject matter of the sale
This benefit is not by any means gratuitous
It is offset by the use without interest of the money of
the buyer by the seller

DE LEON SALES REVIEWER

The buyer is also entitled to recover the expenses of


litigation resulting in eviction, including the costs of the
action brought against the seller to enforce his
warranty
Cost of the suit does not include travelling
expenses incurred by the vendee in defending himself
in the action
He is not entitled to recover damages unless the sale
was made by the seller in BF
GR: Does not apply to a situation where the judgment
is in favor of the seller
o E: In this case, the obligation to
reimburse the buyer for costs of suit will
arise if the vendor with fault or
negligence, but should be proved
o Reason: The seller could not expect
that a third party would have the
pretension to disturb the peaceful
possession of the thing sold
In the absence of any stipulation to the contrary, the
expenses in the EXECUTION AND REGISTRATION
of the sale are borne by the SELLER
If the buyer should have paid for such expenses ! he
shall have the right to demand the same from the
seller
The right of the buyer to demand damages and
interests and ornamental expenses - qualified by the
condition that the sale was made in BF
IF GOOD FAITH IS PRESUMED The buyer is not
entitled to recover damages
o E: Bad faith of the seller is shown in
making the sale
INTERESTS
o Does not cover interest on the purchase
price as in lieu thereof, the buyer is
entitled to the fruits of the thing
o In cases he has been ordered by a
court to deliver the fruits to the
successful party ! the seller must
indemnify him
o Refers to interest on costs other than
the purchase price, such as costs of
suit and expenses of contract

Michelle Duguil,

60

RIGHT OF SECOND PURCHASER TO WHOM WARRANTY ASSIGNED

Where a warranty against eviction was expressly agreed upon in a contract


nd
of sale and the buyer (2 seller) sold the same land to another expressly
assigning to him the right of warranty ! the second purchaser has a right
of action against the first seller to make good the warranty against eviction

The rule that a contract binds only parties, their assigns and heirs is NOT
applicable in this case

The basis of the second purchasers action if the first buyers transfer to
him of the right of warranty, a right which the first buyer had against the
seller and which the second purchaser exercises by virtue of transfer
ART. 1556. Should the vendee lose, by reason of the eviction, a part of thing
sold of such importance, in relation to the whole, that he would not have
bought it without said part, he may demand the rescission of the contract; but
with the obligation to return the thing without other encumbrances than those
which it had when he acquired it.
He may exercise his right of action, instead of enforcing the vendors liability
for eviction.
The same rule shall be observed when 2 or more things have been jointly sold
for a lump sum, or for a separate price for each of them, if it should clearly
appear that the vendee would not have purchased one without the other.
ALTERNATIVE RIGHTS OF BUYER IN CASE OF PARTIAL EVICTION

This article contemplates partial eviction

1554 Total eviction

If there is partial eviction, the vendee has the option to either:


1. Enforce the sellers liability for eviction
2. To demand rescission of the contract

The above rule is applicable:


1. The buyer is deprived of a part of the thing sold if such part is of
such importance to the whole that he would not have bought the
thing without said part
2. When two or more things are jointly sold whether for lump sum or
for a separate price for each, and the buyer would not have
purchased one without the other

The intention of the buyer would be determined as of the perfection of the


sale it must be demonstrated that the buyer would not have purchased
the thing without the portion subject to eviction

Art. 1371 the contemporaneous and subsequent acts shall be principally


considered
REMEDY OF RESCISSION NOT AVAILABLE IN CASE OF TOTAL EVICTION

The remedy of rescission contemplates that one demanding it is able to


return whatever he has received under the contract

When this cannot be done (in case of total eviction) ! rescission cannot be
carried out because the buyer can no longer restore the thing to the seller

DE LEON SALES REVIEWER

He has the obligation to return the thing without other encumbrances other
than when he acquired it

ART. 1557. The warranty cannot be enforced until a final judgment has been
rendered, whereby the vendee loses the thing acquired or part thereof
FINAL JUDGEMENT OF EVICTION ESSENTIAL

The above article merely reiterates the 2 essential elements for the
enforcement of warranty in case of eviction:
1. Deprivation of the whole or part of the thing sold
2. Existence of final judgment

Eviction may take place by virtue of final judgment of an administrative


office or board, and it is not indispensible that it be rendered by court,
provided it was rendered by competent authority and in conformity with the
procedure prescribed by law

Roman law also admits that it is sufficient that the judgment be made by an
arbital tribunal. However, that should apply only if the vendor was also
made a party to the arbitration proceeding
ART. 1558. The vendor shall not be obliged to make good the proper warranty,
unless he is summoned in the suit for eviction at the instance of the vendee.
FORMAL SUMMONS ESSENTIAL

Another essential requisite before a vendor may be legally liable for


eviction is that he should be summoned in the suit for eviction at the
instance of the vendee
VENDOR TO BE MADE PARTY IN SUIT FOR EVICTION

The vendor should be made party to the suit either by way of asking that
the seller be made:
1. A co-defendant or
2. By filing a third party complaint against said vendor

Furnishing the seller by registered mail with a copy of the opposition of the
buyer filed in the eviction suit is NOT the kind of notice prescribed by Art.
1558 and 1559

It is evident that the notification must be given in the action brought by the
third party again the vendee because it is there that the seller must defend
the buyers peaceful and legal possession for which he is responsible and
not in the action to enforce warranty itself which already supposes the
eviction

The requirement is NOT satisfied where the unlawful detainer case filed by
rd
3 persons against the buyer, which led to the ouster of the buyer from the
subject lots, was decided by compromise agreement without impleading
the seller as third-party defendants. In order for the case to prosper, it is a
precondition that the seller must have been summon in the suit for eviction
of the buyer

Michelle Duguil,

61

OBJECT OF THE LAW

The object is to give the seller an opportunity to intervene and defend the
title that he has transferred because he alone knows the circumstances or
reasons behind the claim of the plaintiff and be in a position to defend the
validity of his title

In the absence of such opportunity, the seller is NOT bound by his warranty

NOTE: A servitude (or easement) is an encumbrance imposed upon an


immovable for the benefit of another immovable belonging to a different owner

Example of apparent servitude: A right of way establishing a permanent


passage, which is continually kept in view by external sign

Example of non-apparent easement: A party wall which has no exterior


sign

ART. 1559. The defendant vendee shall ask, within the time fixed in the Rules
of Court for answering the complaint, that the vendor be made a co-defendant

WHEN RIGHT CANNOT BE EXERCISED

The alternative rights granted by 1560 cannot be exercised in the following


cases:
1. If the burden or servitude is APPARENT made known and is
continually kept in view by external signs that reveal the use and
enjoyment of the same
2. If the non-apparent burden or servitude is REGISTERED
3. If the buyer had KNOWLEDGE of the encumbrance, whether
registered or not

The registration of the non-apparent servitude in the registry of property


operates as a constructive notice to the buyer ! seller is relieved from
liability
o E: If there is an express warranty that the immovable is free from
any such burden or encumbrance
"
E to E: if the burden is known to the buyer, there is no
warranty

VENDOR TO BE MADE CO-DEFENDANT

The notification required by Art. 1159 refers to a case where the buyer is
the defendant in a suit instituted to deprive him of the thing purchased

The buyer should call in the seller to defend the action which has been
instituted against him (buyer)

Rules of Court, Rule 11, Sect. 1 - The buyer should ask the court within
the time allowed him to answer that the vendor be made a co-defendant to
answer the complaint of the plaintiff who seeks to deprive him (buyer) of
the property purchased
ART. 1560. If the immovable sold should be encumbered with any nonapparent burden or servitude, not mentioned in the agreement, of such a
nature that it must be presumed that the vendee would not have acquired it
had he been aware 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 warranty that the thing is free from all
burdens and encumbrances.
Within one year, to be computed from the execution of the deed, the vendee
may bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within an
equal period, to be counted from the date on which he discovered the burden
or servitude.
WHERE IMMOVABLE SOLD ENCUMBERED WITH NON-APPARENT BURDEN
RIGHT OF VENDEE

Although the vendee is not deprived of the thing sold, totally or partially, the
buyer may still:
o Rescind the contract or
o Ask for indemnity
If the thing sold should be encumbered with any non-apparent burden or
servitude, not mentioned in the agreement of such a nature that the buyer
would not have acquired it had he been aware thereof

The lack of knowledge on the part of the seller is NOT a defense ! the
contract can still be invalidated ON THE GROUND OF MISTAKE

DE LEON SALES REVIEWER

WHEN ACTION MUST BE BROUGHT

The action for rescission or damages must be brought WITHIN 1 YEAR


FROM THE EXECUTION OF THE DEED OF SALE

If the period has already elapsed, the buyer may only bring an action for
damages within 1 year from the date of discovery of the non-apparent
burden or servitude
INTENTION
rd
st

There is a difference between the 3 paragraph of Art. 1556 and the 1


paragraph of 1560 on how to appreciate or interpret the intention of the
buyer on whether he had wished to but 2 or more things without any
condition of acquiring all, and whether he had wished to buy the immovable
thing with an encumbrance e
rd

st

3 paragraph of 1156
When 2 or more things have been jointly
sold for a lump sum, or for a separate
price for each of them

1 paragraph of 1560
If the immovable sold should be
encumbered with any non-apparent
burden or servitude, not mentioned in
the agreement
It is enough that circumstances indicate
a presumption that the buyer would not
have purchased the immovable with
encumbrance
Less rigorous

It should clearly appear that the buyer


would not have purchased one without
the other
More rigorous

Michelle Duguil,

62

SUBSECTION 2. WARRANTY AGAINST HIDDEN DEFECTS OF, OR


ENCUMBRANCE UPON, THE THING SOLD
ART. 1561. The vendor shall be responsible for warranty against the hidden
defects which the thing sold may have, should they render it unfit for the use
for which it is intended, or should they diminish its fitness for such use to an
extent that, had the vendee been aware thereof, he would not have acquired it
or would have given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be visible, or those which
are not visible if the vendee is an expert who, by reason of his trade or
profession, should have known them
DEFINITION OF TERMS
1. REDHIBITION the avoidance of a sale on account of some vice or defect
in the thing sold, which render its use impossible, or so inconvenient and
imperfect that it must be supposed that the buyer would not have
purchased it had he known of the vice
2. REDHIBITORY ACTION An action instituted to avoid a sale on account
of some vice or defet in the thing sold, which render its use impossible, or
so inconvenient and imperfect that it must be supposed that the buyer
would not have purchased it had he known of the vice
3. ACCION MINORIS OR ESTIMATORIS If the object is to procure the
return of a part of the purchase price paid by the buyer
4. REDHIBITORY VICE OR DEFECT Is a defect in the article sold against
which defect the seller is bound to warranty
o The vice or defect must constitute an imperfection, a defect in its
nature, of certain importance; and a minor defect does NOT give
rise to redhibition
o The mere absence of a certain quality in the thing sold which the
buyer thought it to contain is NOT necessarily a redhibitory defect
o One thing is that the thing lack certain qualities and another thing
is that it positively suffers from certain defects
REQUISITES FOR WARRANTY AGAINST HIDDEN DEFECTS
1. The defect must be important or serious
2. It must be hidden
3. It must exist at the time of the sale
4. The buyer must give notice of the defect to the seller within reasonable
time
5. The action for rescission or reduction of the price must be brought within
the proper period
a. 6 months from the delivery of the thing sold OR
b. Within 40 days from the date of delivery in case of animals
6. There must be no waiver of warranty on the part of the buyer

DE LEON SALES REVIEWER

WHEN DEFECT IMPORTANT

The defect is important if:


1. It renders the thing sold unfit for the use for which it was intended
OR
2. If it diminishes its fitness for such use to an extent that the buyer
would not have acquired it had he been aware thereof or would
have given a lower price for it

The USE contemplated must be:


1. Stipulated
2. In the absence of stipulation, that which is adopted to the nature
of the thing and to the business of the purchaser

The imperfection or defect of little consequences does NOT come within


the category of being redhibitory it must be serious

Example: Where an expert witness categorically established that a printing


machine sold is in A-1 condition, required many repairs before it could be
used, plus the fact that the buyer never made appropriate use of the
machine from the time of purchase until an action was filed ! attest the
major defect in the said machine justifying rescission of the contract (Moles
vs. IAC)
WHEN DEFECT HIDDEN

The defect must be hidden

There is no implied warranty against hidden defects of which the buyer has
full knowledge or of which he has knowledge sufficient to put him on notice

The defect is hidden (or latent):


o If it was not known and could not have been known to the vendee
o It is one which is hidden to the eyes and cannot be discovered by
ordinarily careful inspection or examination

There is no warranty if the defect is patent or visible (exception to GR)

The vendors liability for warranty CANNOT be enforced although the


defect is hidden if the buyer is an expert, who by reason of his trade or
profession, should have known it (exception to GR)
o The same defect, therefore, may be hidden with respect to one
person, but not hidden with respect to another
REMEDIES (1567)
1. Rescission of the contract + damages
2. Proportionate reduction of the price + damages
WHERE DEFECT PATENT OR MADE KNOWN

A warranty does not cover defects which the buyer must have observed
o Ex. If the seller of a horse which is obviously blind and which both
parties known to be blind, says it is sound, the meaning of sound
as used in that connect must be sound except as to its eyes

The same rule is applicable to a defect which is not obvious but of which
the seller TELLS the buyer, or which the buyer KNOWS or SHOULD HAVE
KNOWN

If the seller successfully uses art to conceal the defect = the seller is liable

Michelle Duguil,

63

GR: There is no implied warranty against hidden defects in the sale of


second hand goods
o E: The seller shall be liable if he has been shown to have made
misrepresentation or acted in BF
The seller may bind himself against patent or obvious defects (manifest
upon causal inspection) if the intent to do so is clearly evident ! the seller
cannot allege as defense that inspection (which the buyer failed to make)
would have disclosed the defect or that the buyer relied on his own
judgment

DEFECT AT THE TIME OF THE SALE

The seller cannot be held liable for defects suffered by the thing sold after
the perfection of the sale

The buyer who claims breach of warranty against hidden defects must
prove that the defect existed at the time of sale
ART. 1592. 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 goods are acquired, and it appears that
the buyer relies on the sellers skill or judgment (whether he be the grower or
manufacturer or not), there is an implied warranty that the goods shall be
reasonably fit for such purpose

(2) Where the goods are bought by description from a seller who deals in
goods of that description (whether he be the grower or manufacturer or not),
there is an implied warranty that the goods shall be of merchantable quality
IMPLIED WARRANTIES OF QUALITY

QUALITY OF GOODS includes their state or condition


o The purpose of holding the seller on his implied warranties is to
promote high standard in business and to discourage sharp
dealings
o They are based on the principle that honesty is the best policy
IMPLIED WARRANTY OF FITNESS

GR: There is no implied warranty as to quality or fitness for any particular


purpose of goods under a contract of sale
o E1: Where the buyer, expressly, or by implication, makes known
to the seller the particular purpose for which the goods are
required
o E2: Whether the buyer relies upon the sellers skill or judgment
(whether he be the grower or manufacturer or not)

KNOWLEDGE OF THE SELLER


o GR: there is no general implication of warranty that the goods sold
are fit for the purpose for which they are purchased if the seller is
not informed of, or expressly or impliedly acquainted with such
purpose. The wants and needs of the buyer must be disclosed

DE LEON SALES REVIEWER

TEST OF AN EXISTENCE OF IMPLOED WARRANTY OF


FITNESS FOR A PARTICULAR PURPOSE: Whether the buyer
informed the seller of the circumstances and conditions which
necessitated his purchase of a certain character of article or
material and left it to the seller to select the particular kind and
quality of article suitable for the buyers use
RELIANCE ON JUDGMENT AND SKILL OF THE SELLER
o The buyer must have relied on the skill or judgment of the seller or
circumstances must be shown from which this may be presumed
o The buyers reliance on the seller may arise by implication, such
as where the seller is an expert and requests the buyer to rely on
the expert knowledge of such seller
o The buyers reliance on the seller need not be a total reliance
the buyer may rely on his own judgment as to some matters and
on the skill and judgment of the seller on other matters
o Doctrine of implied warranty of fitness has been said to rest
on the presumed superior knowledge of the seller and cannot
prevail where such knowledge presumably does not exist
"
Ex.: If the buyer is an experiences manufacturer and the
seller is an ordinary dealer, there NO such warranty
although the seller knows his purpose.
"
If the buyer has superior knowledge, the buyer would
NOT be relying on the skills and judgment of the seller
PARTICULAR PURPOSE OF THE GOODS
o It is not some purpose necessarily distinct from a general purpose
o Ex.: The general purpose for which all food is bought is to be
eaten, and this would also be the particular purpose in a specific
instance
o It is the purpose expressly or impliedly communicated to the seller
for which the buyer buys the goods; and it may appear from the
very description of the articles (ex. coatings or hot water bottle)
o But where an article is capable of being applied to a variety of
purpose ! the buyer must particularize the specific purpose he
has in view
TEST
o Whether the buyer justifiably relied upon the sellers judgment that
the goods furnished would fulfill the desired purpose, or whether
relying on his own judgment, the buyer ordered or bought what is
frequently called, a known, described, and definite article
o The occupation of the seller is important evidence of the
justifiableness of the buyers reliance
o Where the buyer had no opportunity for previous inspection, he is
entitled to rely, and will naturally be presumed to have relied, upon
the sellers skill and judgment
o

Michelle Duguil,

64

IMPLIED WARRANTY OF MECHANTABLE QUALITY

Where the goods are bought by description, the seller impliedly warrants
that the goods are merchantable quality

MERCHANTABLE QUALITY
o The good is of such a quality and in such condition that a
reasonable man would, after full examination, accept it under the
circumstances of the case, in performance of his offer to buy the
goods, whether he buys it for his own use to sell it again
o The goods comply with the description of the contract so that to a
buyer buying goods of that description, the goods would be good
tender -- It does not mean that there will be in fact persons ready
to buy the goods
ART. 1562
Applied to goods bought by description
Refers to an implied warranty that the
goods are of merchantable quality

SALEALIBILITY IN A PARTICULAR MARKET


o The requirement of merchantable quality caries it NO implication
that the goods shall be saleable in a particular market
CAUSES OF UNMERCHANTABILITY
o Goods may be unmerchantable not because of any defect in their
physical condition but because of some other circumstance
"
Ex: Their infringement of trademarks of others renders
them unsaleable
o Other goods than food may be unmerchantable because the use
of them is dangerous or injuries in ways not to be expected from
the goods of the kind
"
Ex. If an ingredient of a face power is such as to cause
irritation on the skin, the goods are not merchantable
"
Cases of this sort may often involve questions whether
the difficulty is due to peculiar sensitiveness of the buyer
and if so, whether there is ground for a right of action
when goods would not be injurious to most persons
APPLICABILITY TO GOODS IN THAT DESCRIPTION
o It must be made clear that the warranty that the goods are of
merchantable quality applies to all goods bought from a seller who
deals in goods in that description, whether they are sold under a
patent or trade name or otherwise
DISTINGUISHED FROM OTHER WARRANTIES

WARRANTY OF MERCHANTABILITY
Warranty that goods are reasonably fit
for the general purpose for which they
are sold

ART. 1565
Applies to goods bought by sample
Implied warranty that goods shall be free
from any defect rendering them
unmerchantable

DE LEON SALES REVIEWER

WARRANTY OF FITNESS
Warranty that the goods are suitable for
the special purpose of the buyer which
will not be satisfied by mere fitness for
general purpose

ART. 1563. In the case of contract of sale of specified article under its patent
or other trade name, there is no warranty as to its fitness for any particular
purpose, unless there is a stipulation to the contrary.
SALE UNDER A PATENT OR TRADE NAME

There is no implied warranty of fitness for any particular purpose where the
article is sold under its patent or trade name

By exactly defining what he wants, the buyer has exercised his own
judgment instead of relying upon that of the seller
o The definition may be given by means of a trade name or in any
other way
o The description must be the buyers choice, or the goods must
only be described and definite but known, in order to preclude
warranty of fitness

E: In case of a stipulation to the contrary


o The fact that the article has a trade name does not itself
necessarily preclude the existence of an implied warranty of
fitness for a particular purpose
o The warranty may exist where, although the article has a trade
name, the purchase is not made by, or in reliance on, the name,
but is made for a particular purpose and supplied for that purpose,
in reliance on the sellers judgment

The fact that there may be no implied warranty for a particular purpose,
because the articles are sold under its patent or other trade name, does not
preclude the existence of an implied warranty of merchantability
o Thus, in case of articles sold by its trade name, there is an implied
warranty that the articles are merchantable as articles of such
trade name
ART. 1564. An implied warranty or condition as to the quality or fitness for a
particular purpose may be annexed by the usage of trade
EFFECT OF USAGE OF TRADE

A warranty as to the quality or fitness for a particular purpose may be


attached by usage to a contract containing no express provision in regard
to warranty, though in the absence of usage, no warranty would be implied

The usage is relied on for the purpose of showing the intention of the
parties

If there is no usage, the parties would naturally express their intention

A usage in order to bind both parties must be known to both, or if unknown


to one ! the other must be justified in assuming knowledge on the part of
the person with whom he is dealing with

Presumption: that the parties are aware of the usage of trade


ART. 1565. In the case of a contract of sale by sample, if the seller is a deal in
goods of that kind, there is an implied warranty that the goods shall be free
from any defect rendering them unmerchantable which would not be apparent
on reasonable examination of the sample

Michelle Duguil,

65

ABSENCE OF DEFECT RENDERING GOODS UNMERCHANTABLE

There is an implied warranty that the goods shall be free from any defect
rendering them unmerchantable which would not be apparent on
reasonable examination of the sample

The warranty applies only in the case of:


o A contract of sale by sample and
o If the seller is a dealer in goods of that kind

In a contract of sale by sample, it has been held that it is not enough that
the goods are substantially like the samples as to kind, quality and value to
be merchantable ! the goods must also be free from defects
MERCHANTABILITY OF GOODS SOLD BY SAMPLE

WHERE SAMPLE NOT MERCHANTABLE


o GR: All the buyer is entitled to, in case of sale or contract to sell
by sample ! is that the goods be like the sample, so he has no
right to have the goods merchantable if the sample which he has
inspected is not
o Reason: Similar with the rule that denies an implied warranty to a
buyer who has inspected the goods which he buys
o E: WHERE THE SAMPLE SUBJECT TO LATENT DEFECT
"
Where the defect in the goods is of such a character that
the inspection will not reveal it, so in the case of a sale by
sample, if the sample is subject to a latent defect ! the
buyer reasonably relies on the sellers skill or judgment,
the buyer is entitled not simply to goods like the sample,
but to goods like those which the samples seems to
represent, that is, merchantable goods of that kind and
character
"
REMEDY: The contract may be RESCINDED where the
bulk of goods delivered do not correspond with the
sample (1481)
ART. 1566. The vendor is responsible to the vendee for any hidden faults or
defects in the thing sold, even though he was not aware thereof.
This provision shall not apply if the contrary has been stipulated and the
vendor was not aware of the hidden faults or defects in the thing sold.
RESPONSIBILITY OF VENDOR FOR HIDDEN DEFECTS
EFFECT OF IGNORANCE OF THE SELLER

GR: The ignorance of the seller does NOT relieve him from liability to the
buyer for any hidden faults or defects in the thing sold

GF cannot be availed of as defense by the vendor


EXCEPTION

The parties may provide otherwise in their contract provided that:


o The seller acted in GF and
o That he is unaware of the existence of the fault or defect

DE LEON SALES REVIEWER

E to E: The vendor is not relieved from liability for making false or


misleading claims about the thing

WHERE VENDEE AWARE OF THE DEFECT

If the buyer is aware of the defect in the thing he buys or lack of title in the
seller ! he cannot later complain thereof

He is deemed to have willfully and voluntarily assumed the risk attendant to


the sale
DOCTRINE OF CAVEAT VENDITOR AND CAVEAT EMPTOR

Caveat Emptor let the buyer beware


o ** A basic premise of this doctrine is that there be no
misrepresentation by the seller, This ancient defense of caveat
emptor belong to a bygone age, and has no place in
contemporary business ethics
o The sellers liability for defects of the goods sold was then
confined to cases of express promise to warrant the quality of
such goods and to those in which the seller had knowledge of the
hidden defects and the sale as made without the seller revealing
them, but in the latter cases, the basis of the sellers fraud
o At early common law, the implied warranty of quality was not
recognized and the rule was then caveat emptor

GR: The Old civil code (following the Roman Law) rejected the maxim
caveat emptor
o The doctrine of caveat venditor (let the seller beware)
was adopted in accordance with which, the seller is liable to the
buyer for any hidden faults or defects in the thing sold, even
though he was not aware thereof (Art. 1566)
o The doctrine is based on the principle that a sound price warrants
a sound article

E: The maxim of caveat emptor, however, is still applicable in the following


cases:
o Sherriffs sale
o Sales of animals (1574)
o Tax Sales (1547)
o Double sales of property where the issue is who between 2
vendees has a better right to the property (1544)

The rule of caveat emptor simply requires the purchaser to be aware of the
supposed title of the vendor and one who buys without checking the
vendors title takes all the risks and loses consequent to such failure

A purchaser of real estate at the tax sale obtains only such title as held by
the taxpayer ! the principle of caveat emptor applies

GR: A person dealing with registered land is merely charged with notice of
the burdens on the property which are noted on the face of the register or
the certificate of title
o E: The buyer is obliged to investigate or inspect the property sold
to him when there are circumstances that would put him on guard,
such as the presence of occupants other than the registered
owner.

Michelle Duguil,

66

ART. 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee
may elect between withdrawing from the contract OR demanding
proportionate reduction of the price, with damages in either case.
ALTERNATIVE REMEDIES OF THE BUYER TO ENFORCE WARRANTY
1. Action for rescission (accion redhibitoria) = Withdraw of the contract +
damages
2. Accion quanti minoris - Proportionate reduction of the price + damages

The remedies are alternative as they are incompatible with each other

The same right is given to the buyer in the sale of animals with redhibitory
defects

The buyer must present proof that he suffered damage as a result of the breach
of the vendors warranty to be entitled to actual damages

Seller is however required to return the price paid less the value of
the thing at the time of its loss in case where hidden defects
existed
In other words, the vendor is still made liable on his warranty
The difference between the price paid for the thing and the value at the
time of loss = represent damage suffered by the buyer and is at the time
the amount with which the vendor enriched himself at the expense of the
buyer
If the seller acted in BF, he shall also be liable for damages
o

ART. 1570. The preceding articles of this subsection shall be applicable to


judicial sales, except that the judgment debtor shall not be liable for damages
WARRANTY IN JUDICIAL SALES

ART. 1568. If the thing sold should be lost in consequence of hidden faults,
and the vendor was aware of them, he shall bear the loss, and shall be obliged
to return the price and refund the expenses of the contract, with damages. If
he was not aware of them, he shall only return the price and interest thereon,
and reimburse the expenses of the contract which the vendee might have
paid.
EFFECT OF LOSS OF THING ON THE ACCOUNT OF HIDDEN DEFECTS
1. SELLER AWARE OF HIDDEN DEFECTS

If the vendor was ware of the hidden defects in consequence of which the
thing sold was lost, he shall bear the loss because he acted in BF.

The vendee has the right to recover:


o Price paid
o Expenses of the contract, and
o Damages
2. SELLER NOT AWARE OF HIDDEN DEFECTS

If the seller was not aware of them, he shall be obliged to return:


o The price paid
o Interest thereon, and
o Expenses of the contract if paid by the vendee.
** He is NOT made liable for damages because is not guilty of BF
ART. 1569. If the thing sold had any hidden fault at the time of the sale, and
should thereafter be lost by fortuitous event or through the fault of the
vendee, the latter may demand of the vendor the price which he paid, less the
value which the thing had when it was lost.
If the vendor acted in BF, he shall pay damages to the vendee.
EFFECT OF LOSS OF DEFECTIVE THING SOLD

If the thing sold had no hidden defects its loss through FE or thru the fault
of the buyer is borne by the buyer

DE LEON SALES REVIEWER

AS TO JUDGMENT DEBTOR

In judicial sales, it is not really the sheriff who sells but the judgment debtor

Hence, the provisions regarding warranty are applicable to judicial sales

The buyer can avail either of the alternative remedies to enforce the
warranty and the provisions of 1568 and 1569

However, since the judgment debtor is forced to sell ! there can be NO


liability for damages

The publicity surrounding a judicial sale and the fact that the seller does not
take active part in the sale and in the determination of the price !
precludes the existence of BF

While in voluntary sales or transaction, the seller or transferor can be


expected to defend his title because of his warranty to the buyer ! no such
obligation is owed by the owner whose land is sold at execution sale
AS TO GOVERNMENT

In judicial sales, the principle of caveat emptor applies

The purchaser who acquires by his purchase no higher or better title or


right than that of the judgment debtor

If the judgment debtor has no right, interest or lien in and to the property
sold ! the purchaser acquires none

The rule caveat emptor which govern sheriffs sales puts the purchaser
upon inquiry as to the debtors title, there being no warranty of title, such
sales being involuntary as distinguished from voluntary transactions, and if
he buys, he must do so at his own peril
RIGHT OF PURCHASER IN JUDICIAL SALES

RIGHT AS ASSIGNEE ONLY


o The purchaser of property on sale under execution and levy takes
as assignee only
o At a sheriffs sale what is sold is not the property advertised, but
simply the interest of the debtor in the property
o If it afterwards develops that the judgment debtor has none, the
purchaser is still liable on his bid because he has offered so much

Michelle Duguil,

67

for the debtors interest in open market and it is for him to


determine before he bids what the debtors interest is worth
RIGHT TO REIMBURSEMENT WHEN JUDICIAL SALE SET ASIDE
o When a judicial sale is voided or set aside without fault of the
purchaser ! the purchaser is entitled to reimbursement of the
purchase money paid by him subject to set-off for benefits he
enjoyed while he has possession of the property (purchase money
paid benefits he enjoyed = reimbursement)
o A judicial sale can only be set aside upon the return to the buyer
of the purchase price with simple interest and other expenses
incurred by him ! Buyer is ordinarily entitled to a lien on the
property until he is repaid whatever may be due him

ART. 1571. Actions arising from the provisions of the preceding ten articles
shall be barred after 6 months, from the delivery of the thing sold
PRESCRIPTION OF ACTIONS IN CASES OF IMPLIED/EXPRESS WARRANTY

The action for rescission of the contract or reduction of the purchase price
prescribes in 6 MONTHS from the date of delivery to the buyer of the
thing sold or when it was placed in his control or possession

Outside this period the action is barred

It follows that a buyer should not be permitted to offer as a defense, hidden


defects in the thing sold 6 months after he received it

If the action is not for breach of warranty but quasi-delict or negligence


the prescriptive period is 4 YEARS

The 10 preceding articles referred to define the sellers liability for the
defects in the thing sold

1571 may be applied only in cases of implied warranty

Express warranty the prescriptive period of 4 years applies


o E: if another period is specified in the express warranty
ART. 1572. If two or more animals are sold together, whether for a lump sum
or for a separate price for each of them, the redhibitory defect of one shall
only give rise to its redhibition, and not that of the others; unless it should
appear that the vendee would not have purchased the sound animal or
animals without the defective one.
The latter case shall be presumed when a team, yoke, pair, or set is bought,
even if a separate price has been fixed for each one of the animals composing
the same.
SALE OF TWO OR MORE ANIMALS

When 2 or more animals have been sold at the same time and the
redhibitory defect is in one or some of them but not all GR: The
redhibition will not affect the other without it.

It is immaterial whether the price has been fixed for a lump sum for all the
animals or for a separate price of each

E: When it can be shown by the buyer that he would not have purchased
the sound ones without those which are defective

DE LEON SALES REVIEWER

Presumption: Such intention need not be established by the vendee but


shall be presumed when a team, yoke, pair or set is bought
o E: if the seller proves the contrary
Art. 1572 provides only redhibitory actions ! it does not bar the right of the
vendee to bring an action quanti minoris (If the object is to procure the
return of a part of the purchase price paid by the buyer)

ART. 1573. The provisions of the preceding article with respect to the sale of
animals shall in like manner be applicable to the sale of other things
SALE OF TWO OR MORE THINGS TOGETHER

The points considered in the preceding article shall also apply to sale of 2
things ! where only one or more of them but not all have hidden defect
ART. 1574. There is no warranty against hidden defects of animals sold at fair
or at public auctions, or of livestock sold as condemned
SALE OF ANIMALS AT FAIRS OR AT PUBLIC AUCTIONS OR AS CONDEMNED

This article is a limitation of the provisions of art. 1570

It is based on the assumption that the defect must have been clearly known
to the buyer

Public auction judicial or extrajudicial

Sale of condemned animals precludes all idea of warranty against hidden


defects ! such animals are bought not because of their quality of capacity
for work
ART. 1575. The sale of animals suffering from contagious disease shall be
void.
A contract of sale of animals shall also be void if the use or service for which
they are acquired has been stated in the contract, and they are found to be
unfit therefor.
WHEN SALE OF ANIMALS VOID

The article declares the class of animals which cannot be the object of
commerce
o Animals suffering from contagious disease
o Those found unfit for the use or service stated

The first paragraph requires that the disease be CONTAGIOUS


SALE OF ANUMALS SUFFERING FROM CONTAGIOUS DISEASE

VOID as against public interest

Contract produces no effect and is governed by the rules relating to nullity


of contract (1409)

The action or defense for declaration of the inexistence of contract = X


PRESCRIBE
** Spanish Supreme Court X void, voidable lang daw

Michelle Duguil,

68

SALE OF ANIMALS UNFIT FOR USE OR SERVICE

Where the use or service for which the animals are acquired has been
stated in the contract and they are found to be unfit therefor

If all essential elements of a contract are present and the buyer,


knowing the defect of the animal, agrees to use it for a purpose
different from what was originally stated in the contract ! he should
not be able to object
ART. 1576. If the hidden defect of animals, even in case of a professional
inspection has been made, should be of such a nature that expert knowledge
is not sufficient to discover it, the defect shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith, should fail to discover
or disclose it, he shall be liable for damages.
WHAT CONSTITUTES REDHIBITORY DEFECT OF ANIMALS?

The following constitute redhibitory defects in the animals:


1. If the hidden defect of the animal is of such a nature that even in case
of professional inspection has been made ! it is of such a nature that
expert knowledge is not sufficient to discover it
2. Fault and defects which are determined by law or by local customs as
redhibitory (1577)

To be considered redhiboitory, the defect in the animal must be


UNKNOWN TO OR HIDDEN from the seller

The buyer cannot pursue the redhibitory action if the buyer knew the defect
of the animal
EXEMPTION FROM LIABILITY FOR REDHIBITORY DEFECTS
The vendor may exempt from liability for redhibitory defects in the following cases:
1. The buyer has knowledge of the redhibitory defects
2. The buyer is an expert who, by reason of the buyers trade or profession,
should have known them
3. There is a stipulation that the seller will not be liable and the buyer was not
aware of the hidden defect
4. The animals were sold at fairs or at public auctions
5. The livestock was sold as condemned
ART. 1577. The redhibitory action, based on the faults or defects of animals,
must be brought within 40 days from the date of their delivery to the vendee.
The action can only be exercised with respect to faults and defects which are
determined by law or by local customs.
LIMITATION OF ACTION IN SALE OF ANIMALS

The redhibitory action based on faults of animals should be brought within


40 days from the date of their delivery to the vendee

What should be considered redhibitory defects in the sale of animals ! are


only those determined by LAW or by LOCAL CUSTOMS

DE LEON SALES REVIEWER

If the defects are patent there is NO warranty against such defects


although there exists a redhibitory vice
Local customs are those that veterinary professors have determined as
such in the locality

ART. 1578. If the animal should die within 3 days after its purchase, the vendor
shall be liable if the disease which caused the death existed at the time of the
contract.
RESPONSIBILITY OF VENDOR WHERE ANIMAL DIES

If the animal sold is suffering from a disease and dies after the sale, there
may be questions as to whether the death was due to the disease or
whether the buyer did not take good care of the animal

If the animals should die within 3 days after its purchase (not date of
delivery) ! the seller shall be liable if the disease which caused the death
existed at the time of the contract

Claim of the buyer should be based on a finding of an expert that the


disease causing the death existed at the time of the contract

E: If the death occurs after 3 days or the defect is patent or visible !


seller is NOT liable

If the loss is caused by a FE or fault of the buyer and the animal has vices
! 1569 applies
SUMMARY:
WHEN ANIMAL DIED
If the animals should die within 3 days
after its purchase (not date of delivery)

W/N SELLER LIABLE


Seller shall be liable if the disease which
caused the death existed at the time of
the contract
Seller is X liable

If the death occurs after 3 days or the


defect is patent or visible
If the loss is caused by a FE or fault of
the buyer and the animal has vices

1569 applies

ART. 1579. If the sale be rescinded, the animal shall be returned in the
condition in which it was sold and delivered, the vendee being answerable for
any injury due to his negligence, and not arising from redhibitory fault or
defect.
LIABILITY OF BUYER IN CASE SALE OF ANIMAL IS RESCINDED

If the buyer avails himself of the remedies granted by Art 1567 ! buyer
must return the animal in the condition in which it was sold and delivered

In case of injury due to his negligence ! the buyer shall be responsible but
this would be no obstacle to the rescission of the contract due to redhibitory
defect or fault of the animal

If the animal has died as a result of a redhibitory defect existing at the time
of delivery ! the buyer should be able to file the redhibitory acton even if
the vendee is not able to return the animal in the condiction in which it was
delivered

Michelle Duguil,

69

SUMMARY
Circumstance or condition
If the buyer avails himself of the
remedies granted by Art 1567
In case of injury due to his negligence

If the animal has died as a result of a


redhibitory defect existing at the time of
delivery

Liability of buyer
Buyer must return the animal in the
condition in which it was sold and
delivered
The buyer shall be responsible but this
would be no obstacle to the rescission of
the contract due to redhibitory defect or
fault of the animal
The buyer should be able to file the
redhibitory acton even if the vendee is
not able to return the animal in the
condiction in which it was delivered

ART. 1580. In the sale of animals with redhibitory defects, the vendee shall
also enjoy the right mentioned in article 1567; but he must make use thereof
within the same period which has been fixed for the exercise of the redhibitory
action.
ALTERNATIVE REMEDIES OF VENDEE IN SALE OF ANIMALS

The vendee has the same right to bring at his option either:
o Redhibitory action
o Action quanti minors

Action must be brought within 40 days from the date of delivery of the
animals to the buyer
ART. 1581. The form of sale of large cattle shall be governed by special laws.
FORM OF SALE OF LARGE CATTLE

Act No. 4177 Special law governing the sale of large cattle found in
Section 511 to 536 of the Revised Administrative Code, as amended
o Providing for the registration, branding, conveyance and slaughter
of large cattle

The admin code of 1987 superseded the Revised Admin Code

PD 533 (Anti-Cattle Rustling Law of 1974) no person, partnership,


association, corporation or entity shall engage in the business of buy and
sell of large cattle without first securing a permit for the said purpose from
the Provincial Commander of the Province where it shall conduct such
business and the city/municipal treasurer of the place of residence of such
person, partnership, association, corporation or entity. The permit shall only
be valid in such province

The sale must appear in a public document

DE LEON SALES REVIEWER

CHAPTER 5
OBLIGATIONS OF THE BUYER

Article 1582. The vendee is bound to accept delivery and to pay the price of
the thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment must be
made at the time and place of the delivery of the thing sold.
PRINCIPAL OBLIGATIONS OF THE BUYER
1. To accept delivery of the thing sold
2. To pay the price of the thing sold at the time and place stipulated in the
contract
3. To bear the expenses for the execution and registration of the sale and
putting the goods in a deliverable state, if such is the stipulation
GRACE PERIOD FOR EXTENDING TIME OF PAYMENT

An agreement to extend the time of payment in order to be valid must be


for a definite time

Although no precise date is fixed, it is sufficient that the time can readily be
determined

The fact that the seller did not act on the request for what amounts to an
indefinite extension may be construed as denial thereof

A grace period granted the buyer in case of failure to pay the amount/s due
is a RIGHT, not an obligation

When unconditionally conferred, it is effective without further need of


demand either calling for the payment of the obligation or honoring the right

The grace period must not be likened to an obligation non-payment of


which (1169) would generally still require judicial or extra-judicial demand
before default can be said to arise
PERTINENT RULES
In connection with the above obligation, the pertinent rules must be borne in mind:
1. In a contract of sale - the seller is not required to deliver the thing sold
until the price is paid nor the buyer to pay the price before thing is delivered
in the absence of an agreement to the contrary (GR)
2. If stipulated then the seller is bound to accept delivery to pay the price at
the time and place designated
3. If there is no stipulation as to them time and place of the delivery the
vendee is bound to pay at the time and place of delivery
4. In the absence of stipulation as to the place of delivery it shall be
made wherever the thing might be at the moment the contract was
perfected

Michelle Duguil,

70

5.
6.

If only the time for delivery of the thing sold has ben fixed in the
contract the buyer is required to pay even before the thing is delivered to
him
If only the time for payment of the price has been fixed the buyer is
entitled to delivery even before the price is paid by him

LIABILITY OF THE VENDEE FOR OBLIGATIONS OF COMPANY BOUGHT OUT


1. OBLIGATION NOT OF CONSIDERABLE AMOUNT OR VALUE

In some cases, when one company buys out another and continues
the business of the latter company, the buyer may be said to assume
the obligations of the company bought out when such obligations are:
o Not of considerable amount or value
o Especially when incurred in the ordinary course of trade and
o When the business of the latter company is continued
2. OBLIGATION OF CONSIDERABLE AMOUNT OR VALUE

When said obligations are:


o Extraordinary value
o Company was bought out not to continue its business but to
stop its operation in order to eliminate competition

It CANNOT be said that the buyer assumed all the obligations of the
rival company
3. MONETARY LIABILITIES TO SELLING COMPANYS EMPLOYEE

GR: Labor contract like collective bargaining agreements are NOT


enforceable against the transferee of an enterprise
o E: Unless expressly assumed or the sale or transfer was
made in BF

Labor contracts are in personae and thus, binding only between the
parties

Between the transferee and the transferors employees there is no


priority of contract that would make the former a substitute employer

Principle of absorption A bona fide buyer or transferee of all or


substantially all the properties of the seller is NOT obliged to absorb
the transferors employees
o The most that the purchasing company may do, for reasons
of public policy and social justice is to give preference of reemployment to the selling companys qualified separated
employees, who in its judgment are necessary to the
continued operation of the business establishment
Article 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 installments, or the buyer
neglects or refuses without just cause to take delivery of or pay for one or
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

DE LEON SALES REVIEWER

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.
RULES GOVERNING DELIVERY IN INSTALLMENTS
1. GENERAL RULE

In an ordinary contract of sale of goods, the buyer is not bound to


receive delivery of the goods in installment

He is entitled to delivery of all the goods at the same time and is bound
to receive delivery of all at the same time

A buyer has no right to pay the price in installments

Neither can he be required to make partial payments

E: By agreement however, the goods may be deliverable by


installments or the price payable in installments
2. WHERE SEPARATE PRICE HAS BEEN FIXED FOR EACH
INSTALLMENT

Where the contract provides for the delivery of goods by installments


and a separate price has been agreed upon for each installments ! it
depends in each case and circumstances of the case whether the
breach thereof is severable or not (severable capable of being
divided)
1.
Where breach affects the whole contract if the seller
makes defective, partial or incomplete deliveries or the
buyer wrongfully neglects or refuses to accept delivery or
fails to pay any installment ! the injured party may sue for
DAMAGES for breach of the entire contract if the breach is
so material (eg breach of one installment prevents the
further performance of the contract) as to affect the whole
contract
2.
Where breach severable Where the breach is
severable, it will merely give rise to CLAIM FOR
COMPENSATION FOR THE PARTICULAR BREACH but
not a right to treat the whole contract as broken
3. WHERE SEPARATE PRICE WAS NOT FIXED FOR EACH
INSTALLMENT

The civil code does not expressly address the scenario where the
contract provides for the delivery of goods by installment and a single
price was agreed for all installments

In the event the seller fails to deliver an installment the buyer should
be able to choose between:
o Fulfillment + damages
o Rescission + damages

The same remedy should apply in the event that the buyer fails to pay
the purchase price within the period agreed upon

However, the remedy of rescission is NOT available for slight or casual


breaches of contract

The question of whether the breach is substantial depends upon the


attendant circumstances

Michelle Duguil,

71

Fule vs CA the buyer examined the jewelry several months


before the contract of sale was executed and again examined the
jewelry prior to delivery

Article 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.
BUYERS RIGHT TO EXAMINE THE GOODS

Acceptance is assent to become owner of the specific goods when


delivery of them is offered to the buyer
RIGHT OF INSPECTION

As a rule, the buyer is entitled to fair opportunity to inspect or examine the


article tendered to determine whether it conforms to the contract

If the article or commodity does not correspond in kind, quality, condition or


amount to that which he has contracted for ! the buyer may reject it
ACTUAL DELIVERY CONTEMPLATED

The delivery referred to in said article is actual delivery

In other words, the ownership of the goods shall be transferred only upon
actual delivery subject to a reasonable opportunity of examining them to
determine if they are in conformity with the contract

The right of examination or inspection under paragraph 1 is thus a


condition precedent to the transfer of ownership
o E: If there is a stipulation the contrary

Paragraph 2 gives the buyer the right to inspect when the seller tenders
delivery of the goods to the buyer (unless otherwise agreed).
o As no distinction is made between a buyer who has previously
examined the goods prior to delivery and a buyer who has not
previously examined the goods prior to delivery ! the right is
available to both types of buyers

DE LEON SALES REVIEWER

GOODS DELIVERED C.O.D/NOT C.O.D. (COLLECT ON DELIVERY)

Where in pursuance of the contract of sale, the seller is authorized or


required to send the goods to buyer ! delivery of goods to a carrier for the
purpose of transmission to the buyer is deemed to be delivery to the buyer

Although title passes to the buyer by the mere delivery to the carrier, the
buyer (unless the goods are sent COD) has the right to examine the goods
BEFORE paying. ! In this case, the right to examine the goods is a
condition precedent to paying the price after ownership has passed

It should be noted that even in COD sale, the buyer is allowed to examine
the goods before payment of the price should it have been so agreed upon
or if it is permitted by usage
RIGHT OF EXAMINATION NOT ABSOLUTE

The buyer does NOT have absolute right of examination since the seller is
bound to afford the buyer a reasonable opportunity of examining the goods
only on request

If the seller refused to allow opportunity for the inspection, the buyer may:
o Rescind the contract and
o Recover the price or any part of it that he has paid
RIGHT TO BE EXERCISED WITHIN REASONABLE TIME

The seller and the buyer may agree on the time for the inspection of the
goods

In the absence of an agreement the buyer must inspect the goods within
reasonable time

Such opportunity to examine must be availed within a reasonable time in


order that the seller may not suffer undue delay or prejudice

No more definite rule can be laid down that such a time as is reasonable,
having regard to the nature of the goods and all the circumstances of the
case, is permitted
WAIVER OF RIGHT TO EXAMINE

The right of inspection may be given up by the buyer by stipulation

The waiver need not be in express terms

An illustration of a bargain inconsistent with the examination of goods


before payment ! is a contract by which goods are to be sent to the buyer
COD. But the buyer is still entitled to examine the goods after their delivery
and payment of the price. ! Here the right of examination is a condition
subsequent after transfer of ownership and payment of the price.

The buyer is deemed to have waived his right to inspect in the following
circumstances:
o He fails to inspect within the time permitted by the contract
o Where time and opportunity for inspection are given and the buyer
does not inspect

Michelle Duguil,

72

o
o

The buyers exercise of acts of ownership, such as the sale of


goods
If the buyer fails, after inspection, to give any indication to the
seller that the goods are rejected or that they are not of the proper
quality

PLACE OF INSPECTION

The parties may agree on the place of inspection

Example: The parties may agree that the place of inspection of goods
delivered to a carrier shall be at the place of shipment or some
intermediate point, or at the place of destination

If the place of inspection is not definitely fixed by the contract ! the


intention of the parties shall govern
o The intention may be gathered from the nature of the contract,
character of the goods (perishable or otherwise), manner of
shipment and packing, etc.

In the absence of any special agreement the place of delivery is generally


the place of inspection

Where goods are delivered to a carrier for transportation to the buyer at a


distant point ! the buyers right to inspection continues until the goods are
received and accepted at the final destination, in the absence of any
special agreement or circumstances indicating that an intention that
inspection shall be at the place of shipment, even though title passed to the
buyer by delivery to the carrier at the point of shipment
o In this respect, the carrier is not the buyers agent to pass upon
the character, quality and kind of articles ! the right of inspection
still remains in the buyer, together with the right to reject the
goods if they do not comply with the contract
o However, it has been held that the place of shipment is the place
of inspection where the sale is for cash FOB place of shipment
and the buyer had full opportunity for inspection there
EXPENSES INCIDENT TO INSPECTION

There are divergent views on who should bear the expenses incident to
inspection

Two views:
o First view: That in the absence of stipulation the contrary, the
seller must bear the expenses incident to inspection
o Second view: While the seller was under obligation to afford the
buyer an opportunity to make the examination, any expenses
incurred thereby, beyond what would be necessary in putting the
goods in a proper place for delivery, would fall upon the buyer

In one case, the buyer wished to inspect the schooner and asserted that
the seller should go to the expense of placing the vessel in a dry dock for
examination. The court ruled that the seller was under no obligation to incur
an unusual expense and could not be called upon to place the vessel in a
dry dock.

DE LEON SALES REVIEWER

MODE OF ACQUISITION

The buyer must exercise the right of inspection in the manner provided in
the contract

In the absence of stipulation, the inspection should be made in the


customary manner, that is, in the manner which is usually and customary in
the particular trade to which the transaction in question belongs.

The right if inspection carries with it the right to do things without which it
cannot reasonable and efficiently be accomplished (ex. the buyer may
unpack the goods)
REJECTION OF GOODS

Where, on inspection, the goods are proved to be unsuitable or fail to


conform to the contract ! he may refuse to accept them

He is not bound to return them to the seller and it is sufficient if he notifies


the seller that he refuses to accept them

The option to reject must be exercised and notice of rejection given to the
seller within a reasonable time unless a definite period has been fixed by
the contract

The receipt of goods under a contract of sale constitutes an acceptance of


them if the right of rejection is not exercised within a reasonable time

The question of what is reasonable time within which the buyer must
inspect the goods is a question of fact taking into account all the relevant
circumstances
Article 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.
WHAT CONSTITUTES ACCEPTANCE

ART. 1585 CONTEMPLATES ACCEPTANCE OF TITLE

Acceptance of title distinguished from:


o Acceptance of quality AT and AQ are not necessarily
contemporaneous.
"
There may be an acceptance of quality before delivery,
as where the goods are selected by the buyer, with
delivery and transfer of title postponed until a later time
o Acceptance of possession For example, if the buyer expressly
refuses to accept title of the goods tendered, his permission to
place the goods inside his premises for the mutual convenience of
the parties cannot be considered an acceptance of the title

Michelle Duguil,

73

MODES OF MANIFESTING ACCEPTANCE


Article 1585 expresses a definition of acceptance. It may be manifested either
expressly or impliedly.
1. EXPRESS ACCEPTANCE

Takes place when the buyer, after delivery of the goods, intimates to the
seller, verbally or in writing, that he has accepted them
2. IMPLIED ACCEPTANCE

When the buyer, after delivery of goods, does any act inconsistent with
the sellers ownership (ex. when he sells or attempts to sell the goods, or
he uses, or makes alterations in them in a manner proper only for an
owner)

When the buyer, after the lapse of a reasonable time, retains the goods
without intimating his rejection
o The retention of the goods is strong evidence that the buyer has
accepted the ownership of goods
o While retention may be considered as an act inconsistent with the
ownership of the seller, it is stated as a separate mode of
manifesting acceptance as it is merely a negative indication
which may be due merely to carelessness
USE OF PROPERTY

GR: The use of goods by the buyer is generally considered an act


inconsistent with the sellers ownership and prevents the buyer from
claiming that he has not accepted the goods

The following acts by the buyer have been held to constitute conduct
inconsistent with the sellers ownership
o Placing brass inventory plate upon the machine coupled with
retention for more than 6 months without rejection
o Retention of motor vehicle for more than 5 months and driving it
more than 3k miles
o Continued use of vehicles after attempted rejection
o Repairing, correcting and altering purchased incinerator
o Movement of boat from one place to another, use in the buyers
business and registration in the buyers name

E: A single act of use is not such an act of ownership as will indicate


acceptance is such use does not affect the condition or value of the
property
o Ex. The effect of the use of the article may be modified by the
circumstances surrounding such use, as where the use is for the
purpose of trial
"
E: It will be regarded as an acceptance is the buyer
prolongs the trial beyond a reasonable period or uses
more of the goods than is fairly and reasonably
necessary in making the tests

DE LEON SALES REVIEWER

OTHER ACTS OF OWNERSHIP INCONSISTENT WITH SELLERS OWNERSHIP


1. RESALE OR MORTGAGE

GR: the act of the buyer in selling or mortgaging the goods =


conclusive evidence of his acceptance and precludes a subsequent
rejection or rescission
o E: Where the buyer rejects the goods shipped to him for
failure to comply withi his order and the seller refuses to
assume responsibility or give directions as to the disposition
of the property ! the buyer may resell on account of the
seller w/o having accepted the goods (this is especially true
as regards perishable property such as fruit or produce)
2. ALTERATION

When the buyer makes an alteration to the goods ! he is ordinarily


deemed to have accepted them
3. CONDUCT AFTER REJECTION

If the buyer, after rejecting the goods, performs an act inconsistent


with the rejection or with the sellers absolute ownership over the
goods ! the buyer waives or withdraws the rejection, and the case
stands as though no rejection was made
DELIVERY AND ACCEPTANCE, AS SEPARATE ACTS
Delivery and acceptance are two distinct and separate acts of different parties
1.

2.

ACCEPTANCE AS A CONDITION TO COMPLETE DELIVERY

Acceptance is generally necessary to complete actual delivery

1497 the thing is understood as delivered when it placed in the


control and possession of the buyer

As a rule, it cannot be said that the thing is placed in the control and
possession of the buyer when the buyer has not yet accepted the
goods

Delivery has been described as a composite act, a thing which both


parties must join and the minds of both parties concur delivery
contemplates the absolute giving up of control and custody of the
property on the part of the seller, and the assumption of the same by
the buyer
ACCEPTANCE AND ACTUAL RECEIPT DO NOT IMPLY THE OTHER

Acceptance of the buyer may precede actual delivery

There may be an actual receipt without any acceptance and there may be
acceptance without any receipt

Article 1586. In the absence of express or implied agreement of the parties,


acceptance of the goods by the buyer shall not discharge the seller from
liability in damages or other legal remedy for breach of any promise or
warranty in the contract of sale. But, if, after acceptance of the goods, the
buyer fails to give notice to the seller of the breach in any promise or warranty
within a reasonable time after the buyer knows, or ought to know of such
breach, the seller shall not be liable therefor.

Michelle Duguil,

74

ACCEPTANCE, NOT A BAR TO ACTION FOR DAMAGES

Acceptance, as used in this article, has the meaning explained previously assent to receive delivery as transferring possession and ownership in the
goods ! but it does not carry with it the additional agreement that the
property in the goods shall be taken in full satisfaction of all obligations

Unless otherwise agreed, acceptance of the goods by the buyer ! does


not discharge the seller from liability in damages or other legal remedy (like
rescission) for breach of any promise or warranty in the contract of sale
NOTICE TO SELLER OF BREACH OF PROMISE OR WARRANTY
1. NECESSITY

1586 requires that the buyer must give notice to the seller of any
breach within reasonable time to hold the seller liable for breach of
promise or warranty

Time is counted not simply from the moment the buyer knows of the
defect, but from the from the time when he ought to have known it

Prompt exercise of opportunity for discovering defects is, therefore,


essential

The notice required is a notice given within such time as notice would
be given by an ordinarily careful man, acting under the same
circumstances and with respect to goods of the same character

The contract may fix the time for giving notice


2. PURPOSE

The purpose is to protect the seller against belated claims which


prevent him from making prompt investigation to determine the cause
and extent of his liability and also to enable him to take any other
immediate steps that his interest may require
3. FORM OF NOTICE

No particular form of notice is required


4. BURDEN OF PROOF

Burden is upon the one claiming the breach of warranty to plead and
prove notice within reasonable time
5. BREACH OF ANY PROMISE OR WARRANTY

1586 applies not only to defects of quality but to breach of any promise
or warranty
Article 1587. Unless otherwise agreed, where goods are delivered to the buyer,
and he refuses to accept them, having the right so to do, he is not bound to
return them to the seller, but it is sufficient if he notifies the seller that he
refuses to accept them. If he voluntarily constitutes himself a depositary
thereof, he shall be liable as such.
WHERE THE BUYERS REFUSAL TO ACCEPT IS JUSTIFIED
1. DUTY OF THE BUYER TO TAKECARE OF GOODS WITHOUT
OBLIGATION TO RETURN

If the goods have been sent to the buyer and he rightfully refused to
accept them (as in the case where the goods are of not the kind and
quality agreed upon) ! he is in the position of a BAILEE who has the
goods thrust upon his without his assent

DE LEON SALES REVIEWER

He has the obligation to take reasonable care of the goods, but


nothing more can be demanded fro him

He is under no obligation to return the goods to the seller


DUTY OF SELLER TO TAKE DELIVERY OF GOODS

After notice that the goods have not been and will not be accepted !
the seller must have the burden of taking delivery of said goods
SELLERS RISK OF LOSS OF GOODS

While the goods remain in the buyers possession under these


circumstances, they are at the SELLERS RISK

The buyer is not deemed and is not liable as a depositary,


o E: He voluntarily constitutes himself as such
RIGHT OF BUYER TO RESELL GOODS

It usually happens that the seller, when notified that the goods are not
in conformity with the contract and when requested to remove them !
fails to do so claiming that the contract has been properly fulfilled

Under these circumstances, it may be clearly the best thing to do, for
the buyer in whose possession the goods are to sell them at once and
leave the question whether the goods fulfilled the terms of the contract
or not to subsequent determination where goods are perishable or
expensive to keep or of fluctuating value, any other course is attended
with loss to one party to the other

The buyer, though refusing to take title because the goods do not
conform to the contract, after notifying the seller of his rejection and
requesting him in vain to remove the goods ! resell them on account
of the seller

Unless the sale is imperative to save the goods before notice can be
given to the seller and a reply received ! a sale by the buyer
constitutes acceptance

If the buyer acts within his rights in making a resale ! he is entitled to:
o A lien not only for the portion of the price already paid
o Any reasonable expenses incurred in keeping and caring for
the goods and in reselling them

2.
3.

4.

Article 1588. If there is no stipulation as specified in the first paragraph of


article 1523, when the buyer's refusal to accept the goods is without just
cause, the title thereto passes to him from the moment they are placed at his
disposal. (n)
WHERE BUYERS REFUSAL TO ACCEPT WRONGFUL

GR: The delivery of the goods to a carrier is deemed to be delivery of the


goods to the buyer
o This is true even if the buyer refuses to accept the goods in case
his refusal is without just case
o The title passes to the buyer and therefore he bears the risk of
loss

E: In those case where the right of the buyer to inspect the goods at the
time of delivery is a condition precedent to transfer of ownership ! the
ownership passes by operation of law after such inspection

Michelle Duguil,

75

Article 1589. The vendee shall owe interest for the period between the delivery
of the thing and the payment of the price, in the following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial demand
for the payment of the price.
LIABILITY OF VENDEE FOR INTEREST WHERE PAYMENT IS MADE AFTER
DELIVERY

This article presupposes that delivery of the thing sold and the full payment
of the price were not made simultaneously ! the thing sold was delivered
first followed by the payment of the price after lapse of a certain period of
time

The buyer is liable to pay interest from the delivery of the thing until the
payment of the price
INTEREST EXPRESSLY STIPULATED

The rate stipulated governs

The stipulation of the parties to pay interest may be oral

1956 no interest shall be due unless it has been expressly stipulated in


writing ! X applicable ! only applies to contract of loan

If the parties fail to fix the rate ! the legal rate of interest shall be due
FRUITS OR INCOME RECEIVED BY THE BUYER FROM THE THING SOLD

2 CONDITIONS:
o That the thing sold had been delivered
o That it produces fruits or income

If the buyer would not be bound to pay interest for the use of the money,
which he should have paid, the principle of bilaterality which characterizes
a contract of sale would no longer exist

Since the law makes no distinction, the buyer is still bound to pay interest
even if a term has been fixed for the payment of the price
VENDEE GUILTY OF DEFAULT

If the buyer incurs delay in the payment of the agreed price (1169) ! the
interest is due from the time of judicial or extrajudicial demand by the
vendor for the payment of the price

This demand by the seller is the starting point for the commencement of
default or delay on the part of the buyer

E: If the seller, instead of demanding the payment of the purchase price,


files an action to nullify the contract of sale ! 1589 (3) does not apply

Under nos. 1 and 2 of 1589 no demand is necessary


PARIAL PAYMENT

1589 applies to a situation where the seller delivers the thing to the buyer,
who makes partial payment of the purchase price

DE LEON SALES REVIEWER

Thus, payment to pay the balance of the purchase price will not obligate
the buyer to pay interest if none of the 3 cases mentioned in 1589 applies

Article 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.
RIGHT OF THE VENDEE TO SUSPEND PAYMENT OF PRICE
WHEN VENDEE HAS RIGHT

The vendee may suspend the payment of the price in 2 cases only:
1. If he is disturbed in the possession or ownership of the thing bought or
2. If he has a well-grounded fear that his possession or ownership would
be disturbed by a vindicatory action or foreclosure of mortgage

Under the circumstances provided for by 1590 ! the buyer is only entitled
to retain the price that has not been paid to the vendor

He is not entitled to recover what has already been paid

Under the second case it is not necessary that an action be brought


against the vendee (well-grounded fear is enough)
WHEN VENDEE HAS NO RIGHT

In the following cases, the buyer cannot suspend the payment of the price
even if there is disturbance in his possession or ownership of the thing
sold:
1. If the seller gives security for the return of the price in a proper case
2. If it has been stipulated notwithstanding any such contingency, the
buyer must make payment
3. If the seller has caused the disturbance or danger to cease
4. If the disturbance is a mere act of trespass
5. If the buyer has fully paid the price

If the thing sold is in the possession of the buyer and the price is already in
the hands of the seller ! the sale is a consummated contract and 1590 is
no longer applicable

Article 1590 presupposes that the price or any part thereof has not yet
been paid and the contract has not yet been consummated
RIGHT OF THE VENDEE TO DEMAND RESCISSION

The buyer has no cause of action for rescission before final judgment
because the seller might become the victim of machinations between the
buyer and the third person

It must be noted that the disturbance must be in the possession or


ownership of the thing acquire

The remedy of the buyer is rescission ! where the disturbance is cause by


the existence of a NON-APPARENT SERVITUDE

Michelle Duguil,

76

o
o

Rescission has the effect of abrogating the contract from its


inception
It releases the parties from further obligation to each other and
restores them to their original position as if no contract has been
made ! hence they must return what they received pursuant to
the contract

Article 1591. Should the vendor have reasonable grounds to fear the loss of
immovable property sold and its price, he may immediately sue for the
rescission of the sale.
Should such ground not exist, the provisions of article 1191 shall be
observed.
RIGHT OF THE SELLER TO RESCIND SALE OF IMMOVABLE PROPERTY

This article refers only to a sale of immovable or real property where the
seller has good reasons to fear the loss of the property and its price

It contemplates a situation where there has been a delivery of the


immovable property but the vendee has not yet paid the price

1591 is applicable to both cash sales and to sales in installment

Pursuant to 1191 of the CC the seller may sue for either:


o Fulfillment + damages
o Rescission + damages
Upon the buyers failure to comply with his obligation to pay the agreed
price

Rescission is only allowed where the breach is substantial and


fundamental to the fulfillment of the obligation
Article 1592. In the sale of immovable property, even though it may have been
stipulated that upon failure to pay the price at the time agreed upon the
rescission of the contract shall of right take place, the vendee may pay, even
after the expiration of the period, 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.
RULE WHERE AUTOMATIC RESCISSION OF SALE OF IMMOVABLE
PROPERTY STIPULATED

GR: The seller may sue for rescission of the contract should the vendee
fail to pay the agreed price

E: The sale of real property is subject to the stipulations agreed upon by


the parties and to the provisions of 1592 ! which speaks of non-payment
of purchase price as a RESOLUTORY CONDITION

Art. 1191 is subordinated to the provisions of Article 1592 when applies to


sales of immovable property
THE MERE FAILURE TO FULFILL THE CONTRACT DOES NOT OPERATE IPSO
FACTO AS ITS RESCISSION

DE LEON SALES REVIEWER

Before a demand for the rescission of the contract (for non-payment of the
price) has been made by the seller (judicially or by notarial act) ! the
buyer may still pay the price:
o Even after the expiration of the stipulated period for payment and
o Notwithstanding a stipulation that failure to pay the price on the
stipulated date ipso facto resolves the sale

A JUDICIAL OR NOTARIAL ACT IS NECESSARY BEFORE A VALID


RESCISSION CAN TAKE PLACE W/N AUTOMATIC RESCISSION HAS BEEN
STIPULATED

It has to noted that the law uses the phrase even though emphasizing
that when no stipulation is found on automatic rescission, the judicial or
notarial requirement still applies

A letter informing the buyer of the automatic rescission of a contract of sale


of real property does NOT amount to demand for rescission if it is not
notarized

The offer to pay prior to the demand for rescission is sufficient to defeat the
sellers right under 1592.

There is no existing provision in our laws authorizing the automatic


rescission of contracts of sale of real property for non-payment of the
purchase price except Art 1592
NOTE:

In 1191 and 1592 the rescission is a principal action which seeks


resolution or cancellation of the contract

In 1381 (rescissble contracts) the action is subsidiary one limited to


cases of rescission of lesion as enumerated in the article

Prescriptive period for 1191 and 1591 found in 1144 ! the action upon
written contract should be brought within 10 years from the time the right
of action accrues

The seller can go to court to demand judicial rescission in lieu of a notarial


act of rescission

An action for reconveyance is NOT an action for rescission ! the judicial


rescission of a contract gives rise to mutual restitution which is not
necessarily the situation that can arise in an action for reconveyance
RIGHT OF SELLER TO RESCIND NOT ABSOLUTE

In a contract of sale, the remedy of the unpaid seller is either:


o Specific performance + damages
o Rescission + damages

A seller, however, CANNOT unilaterally and extra-judicially rescind a


contract of sale of immovable property where there is no express
stipulation authoring him to extra-judicially rescind
o E: 1592

Judicial rescission of a contract us not necessary where the contract


provides for automatic rescission in case of breach
1. COURT MAY GRANT VENDEE A NEW TERM

GR: The right to rescind is not absolute and the court may extend the
period for payment

Michelle Duguil,

77

E: Once a demand for rescission by suit or notarial act is


made ! the court may not grant the buyer a new term
"
E to E: Nevertheless, in the interest of justice and
equity, the court may grant the buyer a new term
where he has substantially performed in good faith
2. VENDOR MAY WAIVE HIS RIGHT

The right of automatic rescission may be waived

Where the seller granted many extensions to the buyer, in all of which,
the seller never called attention to the proviso on automatic
rescission = deemed waiver

The unqualified acceptance by the seller of payments after the 6month period expires = waiver of the period and rescission
3. WRITTEN NOTICE OF CANCELLATION MUST BE GIVEN

While judicial action for the rescission of the contract is not necessary
where the contract provides that it may be cancelled by violation of its
terms and conditions ! there must still be a written notice sent to the
defaulter informing him of the rescission

The indispensability of notice of cancellation to the buyer of real estate


is underscored in RA 6552 which specifically provides that the notice
of cancellation or demand for rescission of the contract must be by
notarial act

A notarial act presupposes signing before a notary public and 2


competent witnesses

An action for judicial confirmation of rescission and damages =


complies with the requirement of law for judicial decree of rescission

A crossclaim found in the answer = constitute a judicial demand for


rescission that satisfied the requirement of the law
4. BREACH MUST BE SUBSTANTIAL

Rescission of a contract will not be permitted for slight or causal breach but
only for substantial and fundamental breach as would defeat the very
object of the parties

The question of whether a breach of contract is substantial depends upon


the attendant circumstances
o

WHEN ART 1952 NOT APPLICABLE


1. SALE ON INSTALLMENT OF REAL ESTATE

1952 contemplates an absolute sale

X apply to sales on installment of real property in which the parties


have laid down the procedure to be followed in the event the buyer
failed to fulfill his obligation
2. CONTRACT TO SELL/CONDITIONALS ALE OF REAL ESTATE

X applicable to mere promise to sell (executory contract to sell) where


the title remains with the vendor until fulfillment of a positive condition,
such as full payment of the purchase price

Such payment is a positive suspensive condition the failure of


which is not a breach, casual or serious, but simply an event that
prevents the obligation of the vendor to convey title from acquiring
binding force

In an absolute sale, non-payment is a resolutory condition

DE LEON SALES REVIEWER

3.

CASES COVERED BY RA 6552

This law governs sales of real estate on installment

The act recognized in conditional sales of all kinds of real estate the
non-applicability of 1592 to such contracts to sell on installments and
the right of the seller to cancel the contract upon non-payment which is
simply an event that prevents the obligation of the vendor to convey
title from acquiring binding force

The act in modifying the terms and application of 1592 recognizes:


o The sellers right to cancel unqualifiedly in case of industrial
lots, commercial buildings and sales to tenants and
o Requires a grace period in other cases, particularly residential
lots, with a refund of certain percentages of payments made
on account of the cancelled contract

The buyer has the right to continue occupying the property subject of
the contract to sell and may still reinstall the contract by updating the
account during the grace period and before the actual cancellation

RA 6552 was enacted to protect buyers or real estate on installment


against onerous and oppressive conditions

The buyer in Nos 1 and 2 above may no longer pay the price after
the expiration of the time agreed upon although no demand has yet
been made upon him by suit or notarial act
o E: In the case of sale on installment of residential lots while
the sellers right to cancel the contract to sell upon breach by
non-payment of the stipulated installments is recognized by
RA 6552 ! a grace period is required, with the buyer entitled
to refund of certain percentages of payments in the event that
the contract is cancelled

RA 6552 makes no distinction between option and sale which


virtually includes all transactions concerning land and housing
acquisition including reservation agreements

This law normally applies to all transaction or contracts, involving the


sale or financing of real estate on installment payments, including
residential condominium apartments, excludes industrial, commercial
and sales to tenants under RA 3844

Article 1593. With respect to movable property, the rescission of the sale shall
of right take place in the interest of the vendor, if the vendee, upon the
expiration of the period fixed for the delivery of the thing, should not have
appeared to receive it, or, having appeared, he should not have tendered the
price at the same time, unless a longer period has been stipulated for its
payment.
RULE WHERE AUTOMATIC RESCISSION OF SALE OF MOVABLE PROPERTY
STIPULATED

In the sale of real property - the vendor must make a demand for
rescission before he can have the right to rescind the contract

Michelle Duguil,

78

In the case of personal property (which has not yet been delivered to the
buyer) the seller can rescind the contract, as a matter of right if the buyer,
without any valid cause DOES NOT:
1. Accept the delivery
2. Pay the price unless a credit period for its payment has been
stipulated
The mere failure of the buyer to comply with the terms of the contract does
not rescind the same
It is necessary that the seller should take some affirmative action indicating
his intention to rescind
o E: The parties may, however, validly enter into an agreement that
violation of the terms of the contract would cause cancellation
thereof without judicial intervention or permission

REASON FOR THE RULE WITH RESPECT TO MOVABLE PROPERTY

The reason for the difference is that personal parties are not capable of
maintaining a stable price in the market

Their prices are so changeable that any delay in their disposal might cause
the seller great prejudice

This is not true in the case of real property which has more or less stable
price in the market and the delay that might result from the requirement
imposed on the vendor to demand rescission being entitled to rescind the
contract will not in any way be detrimental to the interest of the seller.

CHAPTER 6
ACTIONS FOR BEACH OF CONTRACT OF SALE OF GOODS

ART. 1594. Actions for breach of the contract of sale of goods shall be
governed particularly by the provisions of this Chapter, and as to matters not
specifically provided for herein, by other applicable provisions of this Title.
ACTIONS GOVERNING BREACH OF CONTRACT OF SALE OF GOODS

GOODS
o Include all chattels personal
o But NOT things in action or money of legal tender in the
Philippines
o Includes growing fruits or crops

Actions for breach of the contract of sale of goods are governed:


o Primarily: Provisions of Chapter 6 (Art. 1595-1599)
o Secondarily: Other provisions of the Title on sales so far as said
provisions can apply

Provisions concerning the sale of immovable have NO application to the


sale of goods

DE LEON SALES REVIEWER

ACTIONS AVAILABLE
1. Action by the seller for the payment of the price (1595)
2. Action by the seller for damages for non-acceptance of the goods (1596)
3. Action by the seller for rescission of the contract for breach thereof (1597)
4. Action by the buyer for specific performance (1598)
5. Action by the buyer for rescission or damages for breach of warranty
(1599)
ART. 1595. Where, under a contract of sale, the ownership of goods has
passed to the buyer, and he wrongfully neglects or refuses to pay for the
goods according to the terms of the contract of sale, the seller may maintain
an action against him for the price of goods.
Where, under a contract of sale, the price is payable on a certain day,
irrespective of delivery or transfer of title, and the buyer wrongfully neglects
or refuses to pay such price, the seller may maintain an action for the price,
although the ownership in the goods has not passed. But it shall be a defense
to such an action that the seller at any time before the judgment in such action
has manifested an inability to perform the contract of sale on his part or an
intention not to perform it.
Although the ownership in the goods has not passed, if they cannot readily be
resold for a reasonable price, and if the provisions of article 1596, fourth
paragraph, are not applicable, the seller may offer to deliver the goods to the
buyer, and, if the buyer refuses to receive them, may notify the buyer that the
goods are thereafter held by the seller as bailee for the buyer. Thereafter the
seller may treat the goods as the buyers and may maintain an action for the
price.
SELLERS RIGHT OF ACTION FOR THE PRICE
The above article provides the 3 cases when an action for the price of goods under
a contract of sale can be maintained by the seller:
1. When the ownership of the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the price (par. 1)
2. When the price is payable on a certain day and the buyer wrongfully
neglects or refuses to pay such price, irrespective if delivery or of
transfer of the title (par. 2)
3. When the goods cannot readily be resold for a reasonable price and the
buyer wrongfully refuses to accept them even before the ownership in
the goods has passed, if the provisions of Art. 1596 paragraph 4 are not
applicable (par. 3)
The sellers right of action for the price assumes that there is a breach of contract by
the buyer.
EXAMPLE
S sold to B a specific refrigerator for 8k. S can maintain an action for the price in any
of the following cases:
1. He has delivered the refrigerator to B and the latter wrongfully fails to pay

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2.
3.

He has not yet delivered the refrigerator but the period fixed for the
payment has already arrived while the period fixed for delivery is yet to
come
B has refused to accept delivery without just cause and S has notified B
that he is holding the goods as bailee for B

WHERE OWNERSHIP IN GOODS HAS NOT PASSED

Presumption: The presumption is that the payment of the price and the
delivery of the goods were intended to be concurrent acts and the
obligation of each party to perform will be dependent upon the
simultaneous performance by the other party
o E: Unless the contrary appears

GR: The seller cannot maintain an action for the price if the ownership in
the goods has not passed to the buyer
o E1: Unless the price is payable on a certain day
o E2: Unless the goods cannot readily be resold for a certain price
and the provisions of art. 1596, par 4 are not applicable

Under Art. 1588 the title to the goods passes to the buyer from the
moment they are placed at his disposal when his refusal to accept them is
without just cause ! the seller may therefore bring an action for the price
upon wrongful refusal of the buyer to accept
RECOVERY OF PRICE PAYABLE ON A CERTAIN DAY

If different times are fixed for the payment of the price and the delivery of
the goods:
o GR: The act which is to be performed first is absolutely due on
that day, while the performance which is to take place on a later
day is not due
o E: Unless, as a condition precedent, prior performance has been
rendered

BUYER GIVEN CREDIT FOR THE PRICE


o It is common for sellers to give credit for the price
o But it is not common for buyer to give credit for the goods
o It may however happen that the buyer promises to pay the price
before acquiring the ownership of even the possession of the
goods ! In this case, Art. 1595, par 2 is applicable

DEFENSE TO AN ACTION FOR THE PRICE


o Said paragraph 2 excuses the buyer from his obligation to pay the
price when before the time of payment, the seller has manifested
an inability to perform the contract of sale or an intention not
to perform it
o A contract of sale contemplates a double exchange
o Accordingly, there is good reason for excusing the buyer from
prior performance when he will not get subsequent performance
from the seller
o Prospective failure to receive the thing promised is a goods
defense as a failure to which has actually occurred

DE LEON SALES REVIEWER

ART. 1596. Where the buyer wrongfully neglects or refuses to accept and pay
for the goods, the seller may maintain an action against him for damages for
non-acceptance.
The measure of damages is the estimated loss directly and naturally resulting
in the ordinary course of events, from the buyers breach of contract.
Where there is an available market for the goods in question, the measure of
damage is, in the absence of special circumstances showing proximate
damage of a different amount, the difference between the contract price and
the market or current price at the time or times when the goods ought to have
been accepted or, if no time was fixed for acceptance, then at the time of the
refusal to accept.
If, while labor or expense of material amount is necessary on the part of the
seller to enable him to fulfill his obligations under the contract of sale, the
buyer repudiates the contract or notifies the seller to proceed no further
therewith, the buyer shall be liable to the seller for labor performed or
expenses made before receiving notice of the buyers repudiation or
countermand. The profit the seller would have made if the contract of the sale
has been fully performed shall be considered in awarding the damages.
SELLERS RIGHT OF ACTION FOR DAMAGES
CONDITION/S (3)
If the buyer without lawful cause
neglects or refuses to accept and pay
the goods he agreed to buyer
- In an executory contract +
- Where the ownership in the goods has
not passed +
- The seller cannot maintain an action to
recover the price
If the goods are not yet identified at the
time of the contract or subsequently

REMEDY
Action for damages for non-acceptance
Action for damages

Action for damages

MEASURE OF DAMAGES FOR NON-ACCEPTANCE


1. DIFFERENCE BETWEEN CONTRACT PRICE AND MARKET PRICE

The measure of damage is the estimated loss directly and naturally


resulting from the buyers breach of contract

Formula: Contract price - market or current price = damage

Contract price the amount of the obligation which the buyer failed to
fulfill

Market or current price the value of the goods which the seller has left
upon his hands

This covers the general rule that damages comprehend not only the actual
loss suffered but also unrealized profit

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As the market price varies with time and place ! the market price is fixed
at the time when and the place where the goods ought to have been
accepted

If no time was fixed ! at the time of refusal to accept

Burden is upon SELLER to show what damage he has suffered ! to


recover more than nominal damages, he must show that the market value
of the goods is less than the contract price
FULL AMOUNT OF DAMAGE

If there is no available market in which the goods can be sold at the time !
the seller is entitle to the full amount of damages which he has really
sustained by a breach of contract
PROXIMATE DAMAGE

Art. 1596 par. 3 allows the seller under special circumstances proximate
damages of a greater amount than the difference between the contract
price and market price when such damages may be reasonably attributed
to the non-performance of the obligation

2.

3.

EXAMPLE:

S agreed to sell and deliver to B on a certain date 100 bags of sugar of


certain quality for 50k. On the date designated, B wrongfully refused to
accept delivery

Situation 1: 50K 40k (MV) = 10k ! damages

Situation 2: 50k 50k (MV equal or greater than price) = 0 ! receive


nominal damages only

Situation 3: Buyer acted in BF (special circumstance) ! liable for


consequential damages (ex. hospitalization expenses of seller if suffered
heart attack)
MEASURE OF DAMAGES FOR REPUDIATION OR COUNTERMAND
In case the buyer repudiates the contract or notifies the seller to proceed no further
therewith, the measure of damages which the seller is entitled would include:
1. The labor performed and expenses incurred for materials before receiving
notice of buyers repudiation
2. The profit he would have realized if the sale had been fully performed
ART. 1597. Where the goods have not been delivered to the buyer, and the
buyer has repudiated the contract of sale, or has manifested his inability to
perform his obligations thereunder, or has committed a breach thereof, the
seller may totally rescind the contract of sale by giving notice of his election
to do so to the buyer.
SELLERS RIGHT OF RECISSION BEFORE DELIVERY
The above article specifies the cases when the seller may rescind the contract of
sale of goods which have not yet been delivered to the buyer:
1. When the buyer has repudiated the contract of sale
2. When the buyer has manifested his inability to perform his obligations
thereunder
3. When the buyer has committed a breach of the contract of sale

DE LEON SALES REVIEWER

Art. 1481 provides for special cause of rescission of the contract of sale
of goods
Art. 1534 par 2. speaks of the rescission of title
If the goods have been delivered ! the seller may recover the value of
what he has given (1595)

GIVING OF NOTICE REQUIRED

The right granted to the seller follows the general rule in reciprocal
obligations that a party to a contract injured by non-fulfillment ! may
rescind the contract + damages (1191)

Seller is required to give notice of his election to seek rescission

The way in which election must be manifested may vary in different case

Formal notice is not a requisite and bringing an action promptly for


restitution is sufficient
SELLERS RIGHT OF ACTION FOR BREACH OF CONTRACT

Art. 1191 establishes the principle that all reciprocal obligations are
rescindable in the event one of the parties bound should fail to perform that
which is incumbent upon him
o In the contract of sale the obligation to pay the price is
correlative to the obligation to deliver the thing sold
o Non- performance by one of the parties authorizes the other to
exercise the right conferred upon him by the law to demand:
"
Fulfillment + damages
"
Rescission + damages
o Rescission abrogates the contract from its inception and requires
mutual restitution of benefits received

The right of the seller to rescind the sale for non-performance on the part of
the buyer is NOT ABSOLUTE
rd
1. The law subordinates it to the rights of 3 persons who are legally in
the possession of the object of the contract and to whom bad faith is
not imputable (IPV)
2. Rescission of contract will not be permitted for a slight or casual
breach but only for such substantial breach as would defeat the very
object of the parties in making the agreement
3. GR: The seller cannot unilaterally and extrajudicially rescind the
contract

E1: 1597

E2: Express stipulation authorizing the seller to extrajudically


rescind the contract
ART. 1598. Where the seller has broken a contract to deliver specific or
ascertained goods, a court may, on the application of the buyer, direct that the
contract shall be performed specifically, without giving the seller the option of
retaining the goods on payment of damages. The judgment or decree may be
unconditional, or upon such terms and conditions as to damages, payment of
the price and otherwise, as the court may deem just.

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BUYERS RIGHT TO SPECIFIC PERFORMANCE

The article applies only where the goods to be delivered are specific or
ascertained

In reciprocal obligations it is the injured party who has a right to choose


between fulfillment and rescission + damages in either case

The right of the injured party to demand specific performance cannot be


defeated by the guilty partys choice to rescind the contract

This is also the rule in 1598 which grants the buyer, as a matter of right, the
remedy of specific performance in case the seller should violate his
obligation to make delivery

The seller cannot retain the goods on payment of damages because


damages are imposed by law to insure fulfillment of the contract and not to
substitute for it

In granting specific performance, the court may impose such terms and
conditions as to damages, payment of the price and otherwise, it may
deem just
1599. Where there 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 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;
(3) Refuse to accept the goods, and maintain an action against the
seller for damages for the breach of warranty;
(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.
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.
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 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
condition as they were in at the time the ownership was transferred to
the buyer. But if deterioration or injury of the goods is due to the
breach or warranty, such deterioration or injury shall not prevent the
buyer from returning or offering to return the goods to the seller and
rescinding the sale.

DE LEON SALES REVIEWER

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
paid, the seller shall be liable to repay so much thereof as has been
paid, concurrently with the return of the goods, or immediately after
an offer to return the goods in exchange for repayment of the price.
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 a lien to secure the payment of any portion of
the price which has been paid, and with the remedies for the
enforcement of such lien allowed to an unpaid seller by article 1526.
(5) 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.
REMEDIES OF BUYER FOR BREACH OF WARRANTY BY SELLER

This article applies both to IMPLIES and EXPRESS warranties, whether of


QUALITY or of TITLE

The remedies allowed to the buyer when the seller has been guilty of
breach of promise or warranty are:
1. Accept the goods + set up the sellers breach to reduce or extinguish
the price
2. Accept the goods + maintain an action for damages for breach of
warranty
3. Refuse to accept the goods + maintain an action for damages for the
breach of warranty
4. Rescind the contract of sale by returning or offering the return of goods
+ recovery the price or any part thereof which has been paid
5. In case of breach of warranty of quality ! such loss in the absence of
special cirumstances showing proximate damage of a greater amount
! Formula: Value of the goods at the time of delivery value they
would have had if they had answered to the warranty = damages

The remedies open to the buyer under the article may be grouped into 3:
1. Recoupment (No. 1)
2. Action (No. 3) or counterclaim for damages (No. 2)
3. Rescission (No. 4)

Nos. 1 and 2 should be read in connection with Article 1586 (Acceptance


not a bar to damages)

The general measure of damage in case of breach of warranty of quality is


provided in No. 5 of 1599 ! similar to the measure of damages under Art,
1596 par 2

Art. 1599 does not apply if the contract of sale was not perfected

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REMEDIES ALTERNATIVE

The above remedies are alternative

Once a remedy has been granted to the buyer, no other remedy can be
exercised or granted
o E: When after the buyer has chosen fulfillment, it should become
impossible, in which case he may also sue for rescission (1191
par. 2)
RECOUPMENT IN DIMUNITION OF THE PRICE

The theory of recoupment in diminution or extinction of price in case of


breach of warranty by the seller ! the sellers damages are cut down to an
amount which will compensate him for the value of what he has given

In view of the breach of warranty by the seller ! the seller is not bound to
perform the contract on his part, but the buyer has received something of
value for which he ought to pay

By means of recoupment, the buyer is allowed to avoid the contract and


substitute in its stead a quasi-contractual obligation for the value of what he
has received

The word is nearly though not quite synonymous with discount, reduction
or deduction

Example for breach of warranty by way of recoupment:


o Delivery of 50 boxes of apples for 20k
o 15 boxes = rotten = 6k worth
o 20,000 -6k =14k= Buyer is only liable for value of apples received

Recoupment refers to the reduction of extinction of the price of the SAME


ITEM OR UNIT SOLD and not to different transactions or contract of sale
! the claim must arise from the same transaction

1.
2.
3.

If the buyer accepted the goods knowing the breach of warranty


without protest
If he fails to notify the seller within a reasonable time of his election to
rescind
If he fails to return or offer to return the goods in substantially as good
condition as they were in at the time of transfer of ownership to him

E: Where the injury to the goods, was caused by the very


defect against which the seller warranted, the buyer may still
rescind the sale

RIGHTS AND OBLIGATIONS OF BUYER IN CASE OF RESCISSION


1. In case of rescission ! the buyer shall cease to be liable for the
price, his only obligation being to return the goods
2. If he has paid the price or any part thereof ! he may recover it
from the seller
3. Should the seller refuse the return of the goods ! the buyer has
the right to hold the goods as a bailee for the seller
4. He has the right to have a lien on the goods for any portion of the price
already paid which lien he may enforce a if he were an unpaid seller

ACTION FOR COUNTERCLAIM FOR DAMAGES

It is fundamental that the breach of an obligation gives rise to an action for


damages

Acceptance with knowledge of the breach of warranty ! does preclude


rescission ! but it does NOT necessarily preclude a right to recoupment or
damages
RECOUPMENT AND COUNTERCLAIM, DISTINGUISHED

The right of recoupment is to be distinguished from set-off or counterclaim

By means of counterclaim:
o Both sides of the contract are enforced in the same litigation
o The defendant (buyer) does NOT seek to avoid his obligation
under the contract but seeks to enforce the plaintiffs (sellers
obligation) and to deduct it from his liability for the price for breach
of warranty
WHEN RECISSION BY THE BUYER NOT ALLOWED

The remedy of rescission is allowed on the broad principles of justice the


buyer has not received what he has bargained for

It CANNOT be availed of, however, in the following cases:

DE LEON SALES REVIEWER

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CONSUMER ACT - LIABILITY FOR PRODUCT AND SERVICES


- Implementing Agency: Department of Trade and Industry
ARTICLE

WHO ARE
LIABLE

97.
LIABILITY
FOR DEFECTIVE
PRODUCTS

- Manufacturer
- Producer
- Importer

LIABILITY
OF
TRADESMAN OR
SELLER

Tradesman

LIABILITY
DEFECTIVE
SERVICES

Service Supplier

OF

LIABILITY
FOR
PRODUCT
AND
SERVICE
IMPERFECTION

Suppliers of durable
or
non-durable
consumer products
are jointly liable

WHEN LIABLE

WHEN NOT LIABLE

Damages caused to consumers by defects resulting


from:
1. Design
2. Manufacture
3. Construction
4. Assembly and erection formulas
5. Handling and making up presentation or
packing of their products
6. Insufficient or inadequate information on the
use and hazards thereof

- A product is NOT considered defective


when another better quality product has
been placed in the market

NOTE:
Defective product when it does not offer the safety
rightfully expected of it, taking relevant circumstances
into consideration including:
1. Presentation of the product
2. Use and Hazards reasonably expected of it
3. Time it was put into circulation
1. It is not possible to identify the MBPI
2. The product is supplied without clear
identification of the MBPI
3. He does not adequately preserve perishable
goods
1. Defects relating to the rendering of the
service
2. Insufficient or inadequate information of the
fruition or hazards thereof
NOTE:
Defective Service When it does not provide the
safety the consumer may rightfully expect of it, taking
relevant circumstances into consideration including:
1. Manner in which it was provided
2. Result of hazards which may be reasonably
expected of it
3. Time when it was provided
Imperfection in quality that render the products:
1. Unfit or inadequate for consumption for
which they are designed
2. Decrease their value
3. Those resulting from inconsistency with the
information provided in the container,
packaging,
labels
or
publicity
messages/advertisement

REMEDY
Liable for redress

- The MBPI shall NOT be liable when its


evidences:
1. That it did not place the product in
the market
2. That although it placed the
product in the market, the product
has no defect
3. The consumer or third party is
solely at fault

The party making payment to the damaged


party may experience the right to recover the
part of the whole of the accordance with their
part or responsibility in the cause of damage
effected
- A service is NOT considered defective
because of the use or introduction of new
techniques
- The service supplier shall NOT be liable
when it is proven:
1. There is no defect in the service
rendered
2. That the consumer or third party
is solely at fault

If the imperfection is not corrected within 30


DAYS, the consumer may ALTERNATIVELY
demand at his option:
1. Replacement of the product by
another of the same kind, in a perfect
state of use
2. Reimbursement of the amount paid,
with monetary updating, w/o prejudice
to any losses and damage
3. Proportionate price reduction
NOTE:
- Parties may agree to reduce or increase the

DE LEON SALES REVIEWER

Michelle Duguil,

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LIABILITY
FOR
PRODUCT
QUANTITY
IMPERFECTION

Suppliers are jointly


liable

LIABILITY
FOR
SERVICE
QUALITY
IMPERFECTION

Service Supplier

The net content is less than that indicated on the


container, packaging, labeling or advertisement
NOTE:
- Immediate Supplier Liable if the instrument used
for weighing or measuring is not gauged in
accordance with official standard

REPAIRS
SERVICE
OBLIGATION

Supplier

IGNORANCE OF
QUALITY
IMPERFECTION

Supplier

LEGAL
GUARANTEE OF
ADEQUACY
PROHIBITION IN
CONTRACTUAL
STIPULATION

- The supplier shall NOT be liable when it is


proven:
1. There is no defect in the service
rendered
2. That the consumer or third party
is solely at fault

Quality imperfection that render the service:


1. Improper for consumption
2. Decrease their value
3. Those resulting from inconsistency with the
information contained in the offer or
advertisement
NOTE:
Improper service Those which prove to be
inadequate for purposes reasonably expected of them
and those that fail to meet the provisions of this act
regulating service rendering
Supplier is implicitly bound to use:
1. Adequate
2. Original
3. New Replacement Part
4. Those that maintain the manufacturers technical specification

term, but it shall not be less than 7 days nor


more than 180 days
- If replacement is not possible ! replace with
different kind, mark or model + reimburse
difference in price
The consumer having powers to demand,
alternatively, at his option:
1. The proportionate price
2. Supplementing of weight or measure
differential
3. Replacement of the product by
another of the same kind, mark or
model, w/o said imperfection
4. Reimbursement of the amount paid,
with monetary updating w/o prejudice
to losses and damages if any
The consumer having powers to demand,
alternatively, at his option:
1. The performance of the service, w/o
additional cost and when applicable
2. Reimbursement
3. Proportionate price reduction
NOTE:
Reperformance of services may be entrusted to
duly qualified third parties at the suppliers risk
and cost

E: Otherwise authorized as regards to the letter by the consumer


X exempt him from liability

X require express instrument or contractual exoneration of the supplier being forbidden


- The stipulation in contract of a clause preventing, exonerating or reducing the obligation to indemnify for damages effects, as provided for in the
preceding articles = PROHIBITED
-If there is more than one person responsible for the cause of the damage = jointly liable for redress

PENALTIES

DE LEON SALES REVIEWER

-If the damage is caused by component or part incorporated in the product or service ! its MBI and person who incorporated the component or part =
jointly liable
Any person who violates with respect to any consumer product which is NOT food, cosmetics or hazardous substance shall UPON CONVICTION be
subject to:
1. Fine of not less than 5k
2. Imprisonment of not more than 1 year or BOTH

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CHAPTER 6
EXTINGUISHMENT OF SALE

ART. 1600. Sales are extinguished by the same causes as all other obligations,
by those stated in the preceding articles of this Title, and by conventional or
legal redemption.
CAUSES FOR EXTINGUISHMENT OF SALE
The mode of extinguishing the contract of sale may be classified into:
1. Common Those cause which are also the means of extinguishing other
contracts like:

Payment

Loss of Thing

Condonation

Etc. (1231)
2. Special Those causes which are recognized by law on sale such as:

1484

1532

1539

1540

1542

1556

1560

1567

1591
3. Extra special those causes which are given special discussion by the
Civil Code, and there are conventional redemption and legal
redemption

SUBJECT MATTER OF CONVENTIONAL REDEMPTION

Both real and personal property may be the subject of pacto de retro
sales or sales with the right to repurchase
o E: Although there are certain articles which are applicable only
to immovable:
"
1607
"
1611
"
1612
"
1613
"
1614
"
1617

NATURE OF CONVENTIONAL REDEMPTION


1. Purely Contractual

It is a right created, not a mandate


created by the law, but by virtue of an
express contract
Therefore, its nullity cannot affect the
sale itself since the sale may be entered
into without said stipulation
Because it binds third persons
Depends upon the will of the seller
- When exercised, the right of ownership
acquired by the buyer is extinguished
- In a pacto de retro sale, the title or
ownership of the property sold is
immediately vested in the vendee a
retro, subject only to the reso condition
of repurchase by the vendor a retro
within the stipulated period
It is not an obligation, but a power or
privilege that that vendor has reserved
for himself
For if the right to repurchase is agreed
upon afterwards, there is only a promise
to sell which produces different rights
and effects and is governed by Art. 1479
- The person entitled to exercise the
right of redemption is the owner of the
property sold and not any third party
- Unlike a debt which a third person may
satisfy even against the debtors will, the
right of repurchase may be exercised
only by the vendor in whom the right is
recognized by contract or by any person
in whom the right may have been
transferred
On the part of the seller - Returning
the price of sale and other expenses

2. Accidental Stipulation
3. Real Right when registered
4. Potestative
5. Resolutory Condition

6. Power or Privilege

SECTION 1. CONVENTIONAL REDEMPTION


ARTICLE 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 agreed upon.

7. Reserved at the moment of


perfection of the contract
8. Owner of the property

CONVENTIONAL REDEMPTION

The right which the seller reserved to himself, to reacquire the property
sold provided he return to the vendee:
1. Price of the sale
2. Expenses of the contract
3. Any other legitimate payments made therefor and
4. Necessary and useful expenses made on the thing sold and
5. Fulfills other stipulations which may have been agreed upon
9. Reciprocal Obligation

DE LEON SALES REVIEWER

Michelle Duguil,

86

On the part of the buyer - Delivering


the property and executing a deed of
sale therefor
Note: The plea that the buyer made
delivery of the property to a third person
to whom he believed was better entitled
to possess it = X serve as an excuse for
the failure to comply with said obligation

OPTION TO BUY AND RIGHT OF REPURCHASE DISTINGUISHED


An option to buy is different and distinct from the right of repurchase, which must be
reserved by the seller by stipulation to that effect.
1.

2.

It is a right reserved by the seller - The right of repurchase is not a right


granted the seller by the buyer in a subsequent instrument, but a right
RESERVED by the seller in the same instrument of sale as one of the
stipulations of the contract
It should be reserved in the same instrument and before the
instrument of absolute sale is executed - Once the instrument of
absolute sale is executed, the seller no longer reserves the right to
repurchase, and any right thereafter granted the seller by the buyer in a
separate instrument cannot be a right of repurchase, but some other right
like the option to buy
a. A deed of absolute sale and option to buy together X
considered evidencing a contract of sale with pacto de retro. Such
an option does not evidence a right to repurchase, the extension
of the period for the exercise for which (option) does not fall under
No. 3 of 1602
b. An agreement to repurchase becomes a PROMISE TO SELL
when made after an absolute sale where the sale is made
without such an agreement, the purchaser acquires the thing sold
absolutely and if he afterwards grants the seller the right to
repurchase, it is a new contract entered into by the purchaser, as
absolute owner already of the object

RIGHT TO REDEEM AND RIGHT OF REPURCHASE DISTINGUISHED


RIGHT TO REDEEM
The right to redeem becomes functus
officio on the date of its expiry and its
exercise after the period is not really one
of redemption but one of repurchase
Repurchase of foreclosed property after
the redemption period X impose such
obligation

The purchaser may or may not

DE LEON SALES REVIEWER

RIGHT TO REPURCHASE

Redemption is by force of law the


purchaser at a public auction is bound to
accept redemption

resell the property but no law


will compel him to do so
He is not bound by the bid
price - it is entirely within his
discretion to set a higher price,
for after all, the property
already belongs to him as
owner

COMPLIANCE WITH STIPULATIONS

In order to exercise the right of legal redemption, the seller must not only
comply with the provisions of Art 1616 but also with other stipulations that
may have been agreed upon by the parties relating to the exercise of the
right
ARTICLE 1602.The contract shall be presumed to be an equitable mortgage, in
any of the following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
(4 )When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of
the parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury laws.
EQUITABLE MORTGAGE DEFINED

An equitable mortgage is one which:


o Lacks the proper formalities, form or words, or other requisites
prescribed by law for a mortgage,
o But shows the intention of the parties to make the property
subject of the contract denominated as a contract of sale, as a
security for a debt,
o And contains nothing impossible or contrary to law

The decisive factor is the INTENTION OF THE PARTIES

Michelle Duguil,

87

THE PACTO DE RETRO PROBLEM

1602 is a new provision

Provides safeguards and restrictions against the evils of sale with a right of
repurchase, commonly called pacto de retro sales - often used to conceal
a contract of loan secured by a mortgaged

The policy of the law is to discourage pacto de retro sales and thereby
prevent the circumvention of the prohibition against USURY and PACTUM
COMMISSORIUM

Sales with rights to repurchase as defined in the civil code are NOT
favored

The problem sough to be addressed: In contracts of sale with right of


repurchase the real intention of the parties is that the pretended purchase
is money loaned, and in order to secure the payment of the loan, a contract
purporting to be a sale with pacto de retro is drawn up
o Solution: Art. 2087 and 2088 of the civil code prohibits the
creditor from appropriating the things given in pledge or mortgage
and ordering that said things be sold or alienated when the
principal obligations become due are circumvented

The usury law is circumvented- It is well known that the practice in these
so called contracts of sale with pacto de retro is to draw up another
contract purporting to be a lease of property to the supposed seller, who
pays in money or in crops a so-called rent. It is however, no secret to
anyone that this simulated rents in truth and in fact interest on the money
loaned. In many instances, the interest is USURIOUS.
NOTE:

Usury law
o Now legally INEXISTENT as the lender and borrower can agree
on any interested that may be charged on the loan under Central
Bank Circular No. 905 approved by the MB in December 3, 1982
o BSP Circular No.799 (July 1, 2013) the legal rate of interest for
any loan or forbearance of money, goods or credits and the rate
allowed in judgment shall be 6% PER ANNUM in the absence of
an express contract on such interest rate
PACTO DE RETRO AND MORTGAGE DISTINGUISHED
OWNERSHIP

EFFECT OF
FAILURE TO
REPURCHASE
OR PAY DEBT

PACTO DE RETRO
Ownership is immediately
transferred provided there is
delivery, but the ownership is
subject to the condition that the
seller might recover the ownership
within a certain period of time

MORTGAGE
Ownership is NOT
transferred but the property
is merely subject to a
charge or lien as security
for the compliance of a
principal obligation, usually
a loan
Mortgagor does not lose his
interest in the property if he
fails to pay the debt at its
maturity, but merely

If the seller does not repurchase


the property upon the very day
named in the contract, he loses all
interests thereon title to which

DE LEON SALES REVIEWER

(respectively)
OBLIGATION
TO
FORECLOSE
RIGHT TO
REDEEM

vests upon the buyer by operation


of law
There is no obligation resting upon
the purchaser to foreclosure.

subjects the property to


foreclosure and public sale
It is the duty of the of the
mortgagee to foreclose the
mortgage if he wishes to
secure a perfect title thereto

Neither does the seller have any


right to redeem the property after
maturity of the debt
X FAVORED

Before foreclosure, the


mortgagor has a right to
redeem

A seller who decides to redeem or repurchase a property sold with pacto


retro is in a sense, stands as the debtor and the buyer is the creditor of the
repurchase price
The right of repurchase presupposes a valid contract of sale between the
parties
In pacto de retro, the property (real or personal) is not used a security

ILLUSTRATIVE CASES:
1. It is stipulated that upon failure of owner to redeem land by returning the
loan, title thereto shall vest in the vendor = MORTGAGE
2. Under the contract, if the first party failed to redeem the land sold as by
mortgage the other party may sell it to another = PACTO DE RETRO
3. Vendor a retro failed to exercise his right of repurchase while vendee a
retro failed to pay balance of purchase price = EFFECT OF
DISCREPANCY = Failure of B to pay the balance did not suspend the
running of the redemption period as there is nothing to indicate that the
agreement of the parties is to suspend the period until full payment of the
purchase price
SUBSEQUENT SALE OF PROPERTY BY VENDOR A RETRO

A sale with pacto de retro transfers the legal title to the vendee a retro

The essence of a pacto de retro sale - is that the title or ownership is


IMMEDIATELTY vested in the vendee a retro, subject to the resolutory
condition of repurchase of the property by the vendor a retro within the
stipulated period

The sole right of the vendor a retro is that of REDEMPTION

He has no other interest left in the property which he can transfer


o E: But a sale subsequently made by the seller to an innocent
purchaser for value could defeat the vendees title and right to
possession if the buyers right is not registered or annotated
WHEN A CONTRACT WITH RIGHT OF REPURCHASE PRESUMED AN
EQUITABLE MORTGAGE
1. REQUISITES
1. That the parties entered into a contract denominated as a contract of
sale with a right of repurchase or purporting to be an absolute sale

Michelle Duguil,

88

2.

That their intention was to secure an existing debt by way of mortgage


of the property

The mortgagor retains ownership of the property but subject to foreclosure


in case of his failure to pay his obligation
2. PRESENCE OF ANY OF ENUMERATED CIRCUMSTANCES

Art. 1602 enumerated 6 distinct and separate circumstances the


presence of any (not necessarily a concurrence) of which is sufficient to
give rise to a presumption that a contract, regardless of its nomenclature, is
an equitable mortgage in consonance with the rule that the law favors the
least transmission of property rights

A purported contract of sale may be declared as an equitable mortgage


even when only on the enumerated circumstances under 1602 is proved
3. ADMISSIBILITY OF PAROL EVIDENCE

Parol evidence becomes competent and admissible to prove that the


contract was in truth and in fact given merely as a security for the payment
of a loan

The cases are inconsistent with the buyers acquisition of the right of
ownership under a true sale subject only to the vendors right to redeem
and belie the truthfulness of the sale a retro

In case of doubt, a contract purporting to be a sale with right of repurchase


shall be construed as an equitable mortgage
PRICE OF THE SALE IS UNUSUALLY INADEQUATE

The SC, in determining whether the price of a property is inadequate has


often referred to its ASSESSED VALUE

The zonal valuations of the BIR hardly approximate the FMV of real
property

The mere disproportion of the price to the value of the property, in the
absence of other circumstances incompatible with the contract of purchase
of sale ! CANNOT alone justify the conclusion that the transaction is pure
and simple loan

GR: Inadequacy is not sufficient to set aside a sale


o E: unless it is grossly inadequate or purely shocking to the
conscience or is such that the mind revolts at it and such that a
reasonable man would neither directly or indirectly be likely to
consent to it

In the absence of evidence as to the market value of the parcel of land at


the time for its sale ! one cannot conclude that the price at which it was
sold was inadequate
SELLER REMAINS IN POSSESSION

If the transaction is an absolute sale of property, particularly land, the buyer


ordinarily would assume immediate possession after execution of the deed
of sale

Where the seller remains in physical possession of the land sold as lessee
or otherwise ! the contract should be treated as an equitable mortgage

In a contract of sale, the legal title to the property is immediately transferred


to the buyer ! retention by the seller of the possession of the property is
inconsistent with the vendees acquisition of ownership under a true sale

DE LEON SALES REVIEWER

The real intention of the parties is determinative of the true nature of the
transaction
E: Mere tolerated possession by the seller of the property sold where the
buyer had goods reasons why he opted not to assert his superior right of
possession is NOT enough to prove that the transaction between the
parties was an equitable mortgage

OTHER CASES:
1. PERIOD OF REDEMPTION IS EXTENDED AFTER EXPIRATION
2. PURCHASER RETAINS PART OF THE PRICE
3. VENDOR BINDS HIMSELF TO PAY TAXES ON THE THING SOLD

The alleged buyer never declared in his name for taxation


purposes the land sold

But the sole circumstance that the land sold continued to be


registered and all tax declarations thereon were made in the name
of the seller ! CANNOT be invoked to support the finding that a
deed of sale with right of repurchase is an equitable mortgage !
at best, it mat demonstrate neglect of the buyer

In a case, although tax declaration for the property have been


transferred to the buyers name and he has been paying for the
tax ! the fact that he made no move for 30 years to oust the
seller and his heirs from possession = badge of an equitable
mortgage
4. THE PARTIES REALLY INTENDED AN EQUITABLE MORTGAGE
INSTEAD OF A SALE

That the transaction shall secure the payment of a debt or the


performance of any other obligations by way of mortgage

While there is no single conclusive test, the intention of the


parties, shown by their words and action prior to, during, and
after executing the agreement = decisive factor in evaluating
w/n the agreement is a simple loan accommodation secured by a
mortgage

This intention is shown not necessarily by the terminology but by


all the surrounding circumstances
EVIDENCE TO PROVE TRUE NATURE OF CONTRACT
1. The terms of the document itself can AID in arriving at the nature of the
contract

Where the contract contains a stipulation that upon payment by the


seller of the purchase price within a certain period, the document shall
become null and void and have no legal effect = mortgage contract

In pacto de retro sale, the payment of the repurchase price does not
merely render the document null and void but there is an obligation on
the buyer to sell back the property

BUT the denomination of the contract as a deed of sale is NOT binding


as to its nature ! what is controlling is the intention of the parties as
shown

Michelle Duguil,

89

2.

3.
4.

5.

The same equitable presumption applies when the buyer was given the
right to appropriate the fruits thereof in lieu of receiving interest on
the loan

An arrangement, where the ownership of land is supposedly


transferred to the buyer who provides for the funds to redeem the
property from the bank but nonetheless allows the seller to later on
buy back the property = equitable mortgage
The repurchase price paid by the apparent seller = principal of the loan
Any money, fruits or other benefits received thereafter by the
apparent buyer = interest on said loan and are subject to usury law
Even a conveyance accompanied by the registration of the same and the
issuance of a new CT in favor of the transferee = no more secured from the
operation of the equitable doctrine than the most informal conveyance that
could be devised

Equity looks through the form and considers the substance


Documentary and parol evidence is competent and admissible to
prove that the contract does not express the true intention of the parties
and may be introduced to show that the agreement is merely a mortgage
given as security for repayment of loan.

The nature of the agreement is placed in issue by the pleadings filed


with the trial court

4.

5.

6.
7.

CIRCUMSTANCES INDICATIVE OF INTENTION TO EXECUTE MORTGAGE


A contract should be construed as a mortgage or loan instead of a pacto de retro
sale when its terms are AMBIGOUS or when circumstances rather than any of those
specific cases defined in no. 1 -5 of 1602 may be indicative that the real intention of
the parties is to enter into a contract of loan secured by way of mortgage

8.

1.

9.

2.

3.

SELLER IN URGENT NEED OF MONEY

Where it appears that it was executed due to the urgent need of money of
the seller, notwithstanding he was aware of the contents of the contract

Necessitous men are not free men; but to answer a present emergency will
submit to any terms that the crafty may impose upon them
AUTOMATIC APPROPRIATION BY BUYER OF PROPERTY SOLD
STIPULATED

The stipulation in PDR sale that the ownership over the property sold would
automatically pass to the buyer in case of no redemption was effected
within the stipulated period ! contrary to the nature of a true pacto de retro
sale under which the buyer acquired ownership of the thing sold
immediately upon execution of the sale, subject only to the right of the
seller of redemption

Said stipulation is PACTUM COMMISORIUM - which enables the


mortgagee (buyer) to acquire ownership of the mortgaged property without
foreclosure = VOID

Its insertion in the contract is an avowal of the intention of the mortgage,


rather than to sell the property

Dapat kasi automatic transfer ng ownership upon execution of the sale sa


PDR
BUYER GIVEN POSSESSION OF CERTIFICATE OF TITLE

DE LEON SALES REVIEWER

Common practice of individual money lenders of taking physical


possession of the CT or other documents evidencing ownership of real
estate by the debtor to ensure his faithful compliance with the obligation to
pay the loan

But the delay in transferring title is not one of the instances enumerated by
law in which an equitable mortgage can be presumed
ESCALATION OF PURCHASE PRICE EVERY MONTH STIPULATED

A stipulation in a contract sharply escalating the repurchase price every


month enhances the presumption that the transaction is an equitable
mortgage

Its purpose is to secure the return of the money invested with substantial
profits or interest, a common characteristic of loans
SELLER BORROWED FROM BUYER MONEY USED IN BUYING
PROPERTY SOLD

The same presumption arises from a statement in a deed of sale with right
to repurchase that the seller borrowed from the buyer the money used in
buying the property from the original owner
BUYER OF LOW INTELLIGENCE AND ILLITERATE

Sanglaan ng isang Lupa na Patuluyang Ipaari signed by father with very


low intelligence = null and void
SELLER CONTINUED TO PAY MONTHLY INTEREST, PROPERTY NOT
TRANSFERRED TO BUYER, ETC
BUYER CONTINUED TO BE INDEBTED

A test to determine whether a conveyance is a sale or merely a security for


the payment of loan is the continued existence of a debt or liability on the
part of the alleged mortgagor

If such relationship exists, the transaction is a mortgage; otherwise, it is a


contract of sale
BUYER MORTGAGED PROPERTY SOLD TO A BANK; PAID TAXES
THEREON, ETC

PRICE IN PACTO DE RETRO SALES USUALLY LOWER

The price is usually less than in absolute sale because in PDR, the seller
expects to reacquire or redeem the property sold or else he may sell his
right to redeem and thus recover the loss he claims suffered by reason of
the inadequacy of the price

The practice is to fix a relatively reduced price to afford the vendor a retro
every facility to redeem the property

Hence, the inadequacy of the repurchase price of itself cannot be


considered a ground for annulling the contract or justify the conclusion that
the contract is one of equitable mortgage
ARTICLE 1603.In case of doubt, a contract purporting to be a sale with right to
repurchase shall be construed as an equitable mortgage.
ARTICLE 1604.The provisions of article 1602 shall also apply to a contract
purporting to be an absolute sale.

Michelle Duguil,

90

2.
PRESUMPTION IN CASE OF DOUBT
1. DOUBT RESOLVED IN FAVOR OF EQUITABLE MORTGAGE

Equitable mortgage is favored by law

Whether the sale is absolute or PDR, it shall be presumed to be an EM


even if only one of the circumstances mentioned in 1602 is present

This is so because PDR, with the stringent and onerous effects that
accompany them are not favored

A contract of reconveyance is but a necessary consequence of the


exercise of a partys right to repurchase the property subject to a contract
of sale with a right of repurchase or of an equitable mortgage

The failure of the alleged buyer to take steps to consolidate ownership of


real property after the seller failed to redeem within the period agreed upon
may be taken as a factor in construing a sale a retro = equitable mortgage

Where the contract is deemed an EM ownership of the property cannot


be consolidated until after foreclosure of the mortgage has been
undertaken
o Remedy of the mortgagee (buyer/creditor) is to:
"
Recover the amount loaned by filing an action for the
amount due or
"
By foreclosing the mortgage, selling the property and
applying the proceeds of the sale to satisfaction of the
loan obligation
2. PRESUMPTION, AN EXCEPTION TO THE GENERAL RULE

GR: Doubts affecting an onerous contract shall be settled in favor of the


greatest reprocity of interests
o E: Art. 1602

Why? An EM effects a lesser transmission of rights and interests than a


contract of sale, since the debtor does not surrender all rights to collect
what is owing from the value of the thing given as security
3. PAROL EVIDENCE ADMISSIBLE

Parol evidence is admissible to show that a transaction purporting to be an


absolute or pacto de reto sale is really one of loan with a security and
therefore, a mortgage

Where there is no debt, there can be no mortgage; for if there is nothing to


secure, there can be no security ! Thus, if there is no debtor-creditor
relationship, but by the terms of the contract one is merely given an option
to buy real property for a fixed price, there is no EM ! the optionee is not
bound to buy and pay for the property
4. WHERE CONTRACT APPEARS TO BE GENUINE SALE

If from all the indications, the contract appears to be a genuine sale with
Right of repurchase and none o the suspicious circumstances mentioned in
1602 is present ! the true agreement will be upheld
5. APPLICATION OF PRESUMPTION TO CONTRACT PURPORTING TO BE
AN ABSOLUTE SALE

For Articles 1602 and 1604 to apply, 2 REQUISITES must concur:


1. The parties entered into a contract denominated as a contract of sale

DE LEON SALES REVIEWER

Their intention was to secure an existing debt of way of an equitable


mortgage

EFFECT WHERE CONTRACT HELD AS AN EQUITABLE MORTGAGE


1. FORMAL REQUIREMENTS OF MORTGAGE DEEMED COMPLIED WITH

When a contract purporting to be sale with right of repurchase is held as


an EM, the same shall be given effect as if it has complied with the
formal requirement of mortgage

The supposed buyer (creditor) has the right to recover the amount
loaned
2. CONTRACT SUBORDINATE TO A SUBSEQUENT REGISTERED
MORTGAGE

The EM, while valid, as between the immediate parties thereto,


CANNOT however prevail over a subsequent registered mortgage
3. TITLE OF PROPERTY REMAINS IN SUPPOSED SELLER

When the original transaction is subsequently declared to be an EM !


The title to the mortgaged property which had been transferred to the
supposed buyer actually remained or is transferred back to the
supposed seller as owner-mortgagor conformably to the doctrine that
the mortgagee does not become the owner of the mortgaged property
because the ownership remains in the mortgagor
4. REMEDY OF CREDITOR (BUYER) IS TO FORECLOSE

It is not proper for a court to declare the property as already owned by


the mortgagee (buyer) upon failure of the mortgagor (seller) to pay his
obligation within the required period as it would produce the same
effect as pactum commissorium ! void for being held as contrary to
good morals and public policy

The proper remedy is not an action for consolidation of ownership but


to:
o FORECLOSE the mortgage and
o SELL the property at public auction
5. CONVEYANCE OF LAND NOT TO AFFECT MORTGAGORS (SELLER)
RIGHT OF REDEMPTION

Neither is a persons right as a mortgagor in equity affected by the fact


that the subject property was already titled in the name of the
supposed buyer based on the mistaken notion that the property was
sold a retro

No conveyance of land, even if accompanied by registration in the


name of the transferee (buyer) and the issuance of a new CT, can be
allowed which will enable the party to escape from the operation of this
equitable doctrine
PACTO DE RETRO SALES NOT FAVORED

Sales with right of repurchase are NOT favored

The contract will be construed as a mere LOAN


o E: Unless the court sees that, if enforced according to its terms, it
is not an unconscionable one

Michelle Duguil,

91

The presumption created in 1602 that a contract is an EM is NOT


CONCLUSIVE it may be overcome by competent and satisfactory proof
to the contrary

ARTICLE 1605.In the cases referred to in articles 1602 and 1604, the apparent
vendor may ask for the reformation of the instrument.
WHEN VENDOR MAY ASK FOR REFORMATION

Art. 1604 seeks to prevent a circumvention of Art. 1602 by making the


contract of loan appear as an absolute sale

REFORMATION is that remedy granted by law by means of which a


written instrument is made or construed so as to express or conform to the
real intention of the parties when such intention is not expressed in the
instrument

If the parties really intended a mortgage but the instrument states that the
property is sold absolutely or with a right of repurchase ! the same may
be reformed so that the contract should appear to be a mortgage and not
an absolute sale or pacto de retro sale

In reformation, there has been a meeting of the minds between the parties,
BUT the written instrument purporting to embody the agreement does not
express their true intention by reason of mistake or fraud

Where the has been NO meeting of the minds ! the remedy is annulment
ARTICLE 1606.The right referred to in article 1601, in the absence of an
express agreement, shall last four years from the date of the contract.
Should there be an agreement, the period cannot exceed ten years.
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.
PERIOD FOR EXERCISE OF RIGHT OF REDEMPTION

Article 1606 refers to conventional redemption

X apply where the contract is not one of sale with right of redemption

For conventional redemption to take place ! the seller should reserve, in


no uncertain terms, the right to repurchase3 the thing sold

The right to redeem must be expressly stipulated in the contract of sale in


order than it may have legal existence

Where the contract provides in case of sale by the buyer of the property
(sold) to the seller ! SC held that stipulation X grant the right of
repurchase ! only means should the buyer wishes to sell which is the
plan and simple import of the words, and not the buyer should sell
CONDITION
NO AGREEMENT GRANTING RIGHT
If there is no agreement in contract of
sale granting the seller a right to redeem

DE LEON SALES REVIEWER

PERIOD OF REDEMPTION
There is NO right of redemption since
the sale should be considered an
absolute sale

AGREEMENT MERELY GRANTS


RIGHT

4 years from the date of the contract


The parties however, may subsequent to
the contract, stipulate a period not
exceeding the maximum period of 10
years from the date of the contract

If the parties agreed only on the right to


redeem on the part of the seller BUT
there is a total absence of express
stipulation as to the time within which
the repurchase should be made
DEFINITE PERIOD OF REDEMPTION
AGREED UPON

Within the period fixed provided it does


not exceed 10 years

If the parties agreed on a definite period


of redemption

Where the right is suspended by


agreement until after a certain time,
event or condition ! the period shall be
counted from the time such right should
be exercised, but not exceeding 10
years from the execution of the
contract
The vendor a retro has 10 years from
the execution of the contract to exercise
his right of redemption

PERIOD AGREED UPON EXCEEDS 10


YEARS
Where the agreed period exceeds 10
years
PERIOD FOR REDEMPTION NOT
SPECIFIED

10 years

If the parties agreed that the seller shall


have a right to redeem and they intend
a period, which, however, is not
specified
FINAL JUDGMENT THAT CONTRACT
IS PACTO DE RETRO

30 days from the time the FJ was


rendered in a civil action, on the basis
that the contract was a true sale with
right of repurchase

After the courts have decided by a FJ


that the contract was a pacto de retro
and not a mortgage, the vendor (whose
claim as a mortgagor had definitely been
rejected) may still have the privilege of
repurchasing within 30 days

FINAL JUDGEMENT THAT CONTRACT IS PACTO DE RETRO


rd

The 3 paragraph of 1606 refers to cases involving transaction where one


of the parties contests or denies that the true agreement is one of sale with
right of repurchase

There must be an express finding that the transaction is one of pacto de


retro

It must appear that there was a bona fides belief on the part of the vendor a
retro, founded on facts attendant upon the execution of the contract,

Michelle Duguil,

92

honestly and sincerely entertained, that it was in reality a mortgage, but


merely given as a security for a loan or other obligation and because of
such belief, he had not redeemed the property within the proper period
In short, the judgment was rendered in a civil action where the issue was
whether the contract entered into by the parties was a pacto de retro sale
or an equitable mortgage
The 30 day period is peremptory (absolute) because the policy of the law is
not to leave the purchasers title in uncertainty beyond the said period ! X
prescriptive period but is more of a requisite or condition precedent to the
exercise of the right of legal redemption

WHEN ARTICLE 1606, PAR 3, NOT APPLICABLE


1. CONTRACT FOUND TO BE AN ABSOLUTE SALE

Art. 1606 par 3 is not applicable where the contract is found to be an


absolute deed of sale, pure and simple

There could not even be a period of redemption


2. SALE KNOWN AND ADMITTED BY SELLER AS PACTO DE RETRO

Neither is said provision applicable where the sale is admittedly one with
pacto de retro

If the rule were otherwise, it would be within the power of every vendor a
retro to set a naught a pacto de retro or resurrect an expired right of
repurchase, by simply instituting an action to reform the contract known
to him to be in truth, a sale with pacto de retro into an equitable mortgage
3. PARTY ABANDONED POSITION THAT TRANSACTION AN EQUITABLE
MORTGAGE AFTER JUDICIAL DECLARATION OF TRANSACTION AS
PACTO DE RETRO SALE

It must appear that there was a bona fides belief on the part of the vendor a
retro, founded on facts attendant upon the execution of the contract,
honestly and sincerely entertained, that it was in reality a mortgage, but
merely given as a security for a loan or other obligation and because of
such belief, he had not redeemed the property within the proper period
DATE FROM WHICH PERIOD RECKONED
1. DATE OF CONTRACT

Under par 1 and 2 of 1606 - the date rom which the period must be
counted is the DATE OF THE CONTRACT

The date of the contract must not be taken in a very material sense

The date of the contract referred to must be THAT FROM WHICH THE
CONTRACT PRODUCES ITS EFFECT

Example:
o If the contracting parties agreed on a suspensive condition to
determine the effectiveness of the contract ! the period within
which the right of repurchase must be exercised must not be
counted from the date of contract itself but from the time of the
fulfillment of the suspensive condition
2. DATE OF FINALITY OF JUDGEMENT

Under par 3 of 1606 the period to redeem is reckoned from the time the
judgment becomes final

DE LEON SALES REVIEWER

The judgment becomes final after the period to appeal had lapsed without
one having been perfected
The date of finality of a decision is entirely distinct from the date of its entry
and the delay in the date of its entry does not affect the effectivity of the
date of finality, as such is counted from the date of expiration of the period
of appeal

EFFECT OF STIPULATION EXTENDING PERIOD OF REPURCHASE


1. AFTER EXPIRATION OF PERIOD OF REDEMPTION

The extension is VOID AND OF NO EFFECT because there is nothing to


extend

It is legally impossible to speak of extension because that which is


extinguished cannot be extended because the ownership in the buyer has
become already consolidated and becomes absolute

The parties can enter into an entirely new contract involving the same
property, independent of the pacto de retro sale
2. BEFORE THE EXPIRATION OF THE PERIOD OF REDEMPTION

The original term may be extended provided that the extension, including
the original term, shall not exceed 10 years

Extension is VOID AS TO THE EXCESS


REASON FOR LIMITING PERIOD OF REDEMPTION

Public interest

It is not a good thing that the title to the property should be left for a long
period of time subject to indefinite conditions of this nature
VALIDITY OF PENAL CLAUSE PROVIDING AUTOMATIC TERMINATION OF
REDEMPTION PERIOD

In a contract of sale with PDR, the parties may legitimately fix any period
they please, not in excess of 10 years, for the redemption of the property
sold by the vendor

The determination of the right of redemption may be made to depend upon


the delinquency of the seller

Example: Penal clause provides that in case of failure of vendor a retro,


who will remain in possession as lessee, to pay the agreed rentals, the
lease shall automatically be terminated and ownership of the buyer shall
become absolute
ARTICLE 1607.In case of real property, the consolidation of ownership in the
vendee by virtue of the failure of the vendor to comply with the provisions of
article 1616 shall not be recorded in the Registry of Property without a judicial
order, after the vendor has been duly heard.
JUDICIAL ORDER FOR RECORDING OF CONSOLIDATION OF OWNERSHIP
1. NECESSITY

If real property is involved and the seller failed to redeem within the period
agreed upon ! the buyers title becomes irrevocable by operation of law
BUT the consolidation of ownership in the buyer shall not be recorded in

Michelle Duguil,

93

2.

3.

4.

5.

the Registry of Property without a judicial order and until after the vendor
has been duly heard

In short, there must first be a judicial order and the seller must be heard
before the consolidation of ownership in the buyer can be recorded in the
RP

The reason is that the transaction may not be a genuine pacto de retro but
only an equitable mortgage
PURPOSE

Intended to minimize the evils which pacto de retro sale has caused in
hands of usurpers

A judicial order is necessary in order to determine the true nature of the


transaction and to prevent the interposition of buyers in GF while the
determination is being made
FORMER METHOD

Under the former method of consolidation by a mere extrajudicial affidavit


of the buyer a retro ! the buyer could easily cut off any claims of the seller
by disposing of the property after such consolidation to strangers in GF
without notice

The chances of the seller a retro to recover his property would thus be
nullified, even if the transaction were really proved to be a mortgage not a
sale
ACQUISITION OF OWNERSHIP BY VENDEE A RETRO

Acquisition of ownership by the buyer a retro is automatic once there is a


failure to redeem within the stipulated period or in the absence thereof, as
provided by law ! absolute title or ownership of the property sold becomes
vested or consolidated by operation of law on the buyer

Any other interpretation would be violative of the sanctity of the contract


between parties
EFFECT OF FAILURE OF VENDEE A RETRO TO CONSOLIDATE TITLE

The failure of the buyer a retro to consolidate his title under 1607 does
NOT impair such title and ownership because the method prescribed
thereunder is merely for the purpose of registering and consolidating title to
the property

The judicial hearing contemplated in 1607 refers not to the consolidation


itself, but merely for the purpose of registering the consolidation

The only effect of such failure is that the absolute ownership of the
vendee a retro cannot be recorded in the RP

ACTION TO CONSOLIDATE OWNERSHIP


1. ORDINARY CIVIL ACTIONS

Consolidation thru ordinary civil action cognizable by the RTC wherein the
seller a retro is party defendant

Does not partake of the nature of a motion, it not being merely an incident
to an action or proceeding

Vendor a retro must be named respondent in the caption and title of the
petition and duly summoned and heard

Failure of the court to cause the service of summons ! sufficient cause for
attacking the validity of the judgment and subsequent orders on
juridisctional grounds

DE LEON SALES REVIEWER

An action to consolidate ownership may be brought under Rule 63, Section


1 of ROC (entitled to declaratory relief and similar remedies)
REGISTRATION PROCEEDINGS

Where the land has been sold under pacto de retro, the seller a retro may
file an application for the original registration of title to land. However,
should the period for redemption expire during the pendency of the
registration proceedings and ownership to the property consolidated in the
buyer a retro, the buyer a retro shall be substituted for the applicant and
may continue the proceedings

2.

ARTICLE 1608.The vendor may bring his action against every possessor
whose right is derived from the vendee, even if in the second contract no
mention should have been made of the right to repurchase, without prejudice
to the provisions of the Mortgage Law and the Land Registration Law with
respect to third persons.
NATURE OF RIGHT TO REDEEM
1. A REAL RIGHT

The right to repurchase is of a real character and should not be considered


personal

It may be exercised against every possessor whose right is derived from


the buyer a retro even if the second contract makes no mention of the right
of repurchase
o E: Mortgage Law and Land Registration Law with respect to third
persons The seller a retro cannot exercise his right of
redemption against a subsequent transferee in GF if his right is
not properly registered or annotated

Example:
1. S sold land (unregistered) with a right of repurchase to B who sold it to
C ! S may still repurchase land from C
2. If land is registered under TS and right of S is not annotated on Bs
CT and sold to C ! S cannot exercise his right to redeem against C
who registered the land free from all liens and encumbrances noted on
the CT
2. A RIGHT, NOT AN OBLIGATION

It is a right and not an obligation, therefore consignation is not required to


preserve the right to redeem

Thus the allegation that the offer to redeem was not sincere because there
was no consignation of the purchase price is devoid of merit

But to actually redeem, there must of course be payment or consignation


3. RECONVEYANCE IS AN OBLIGATION

The obligation to reconvey the land upon proper demand for redemption is
an obligation ad rem that attaches to redeemable lands in the hands of
whomsoever should be in possession thereof
o E: the action is barred by some defense or excuse recognized by
law

The nature of conventional and the legal rights of redemption is identical


o E: for the source of the right

Michelle Duguil,

94

If the actual possessor is ultimately adjudged to reconvey the property to


the plaintiff-appellants ! he may proceed against the appellees to enforce
their warranty against eviction, if and when proper; but this right of the
present possessor is not one belonging to the would be redemptioners

ARTICLE 1609.The vendee is subrogated to the vendor's rights and actions.


RIGHTS ACQUIRED BY VENDEE A RETRO
1. BUYER SUBROGATED TO SELLERS RIGHTS

Subrogation transfers to the person subrogated the credit with all the
rights thereto appertaining

The above article is logical because a pacto de retro sale transfers


ownership to the buyer although subject to the condition of repurchase

As owner, the buyer, for example may:


1. Transfer or alienate his right to a third person
2. Mortgage the property
3. Enjoy the fruits thereof
4. Recover the property against every possessor
5. Perform all other act of ownership subject only to the right of
redemption of the seller

Of course, the seller cannot transfer ownership if he is not the owner


2. RIGHT TO EJECT SELLER

Prior possession of the buyer a retro of the property is not a condition


precedent in an unlawful detainer action against the seller a retro, who after
having failed to redeem, and title in the buyer a retro had been
consolidated, refused to vacate the property
ARTICLE 1610.The creditors of the vendor cannot make use of the right of
redemption against the vendee, until after they have exhausted the property of
the vendor.
RIGHT OF SELLERS CREDITORS TO REDEEM

This article is a practical application of Art 1177 permitting credtors to


exercise the right and actions of their debtor after exhausting his properties
to satisfy their claims

The right to redeem being property, it is answerable for the debts of the
seller provided that the sellers properties are first exhausted

The exhaustion must be established to the satisfaction of the buyer

1610 refers to all kinds of creditors, whether ordinary or preferred


o E: Those in who favor exists a mortgage or antichresis upon the
very property sold recorded prior to the sale ! all these latter
creditors have to do is foreclose their rights, ignoring the rights of
the buyer
ARTICLE 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 make use of the right of redemption.

DE LEON SALES REVIEWER

REDEMPTION IN SALE OF PART OF UNDIVIDED IMMOVABLE

The purpose of the above articles is to discourage co-ownership which is


recognized as undesirable, since it does not encourage the improvement of
the property co-owned

A co-owner ma demand the partition of the thing owned in common in so


far as his share is concerned (Art. 494)
o If the thing is essentially indivisible it may be allotted to the
co-owner who shall indemnify the others
o If the co-owners cannot agree that the thing be allotted to one
of them it shall be sold and its proceeds be distributed

In either case, the buyer who acquires the whole of an undivided


immovable part which is subject to a right of repurchase ! had the right to
demand that the seller a retro, who likes to exercise his right of redemption,
REDEEM THE WHOLE PROPERTY
ARTICLE 1612.If several persons, jointly and in the same contract, should sell
an undivided immovable with a right of repurchase, none of them may
exercise this right for more than his respective share.
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.
ARTICLE 1613.In the case of the preceding article, the vendee may demand of
all the vendors or co-heirs that they come to an agreement upon the
repurchase of the whole thing sold; and should they fail to do so, the vendee
cannot be compelled to consent to a partial redemption.
REDEMPTION IN JOINT SALE BY CO-OWNERS/ CO-HEIRS OF UNDIVIDED
IMMOVABLE

The co-owners of an undivided immovable sold by them jointly or


collectively in the same contract with right to repurchase ! can exercise
such right only as regards their respective shares

Similary, the co-heirs of the seller of an undivided immovable ! can


exercise the right of redemption only for the respective portions they have
inherited

The buyer a retro CAN REFUSE PARTIAL REDEMPTION ! he may


require all sellers or all the heirs to redeem the entire property or to agree
to its redemption by any one of them
o This right is given to the buyer in line with the object of the law
which is to put an end to co-ownership whenever possible

Under 1620, the right of a co-owner who chooses not redeem accrues to
the benefit of others ! the extent of the share of the redeeming co-owner
is not taken into account except as provided in the second paragraph
thereof
EFFECT OF REDEMPTION BY CO-OWNER OF THE ENTIRE PROPERTY

Michelle Duguil,

95

While a buyer a retro, under 1613, may not be compelled to consent to


partial redemption ! the redemption by 1 co-owner of the property in its
totality does not vest in him ownership over it
Failure on the part of all the co-owners to redeem it entitles the buyer a
retro to retain the property and consolidate title thereto in his name
But this provision does not give to the redeeming co-owner the right to the
entire property ! it does not provide a mode of terminating co-ownership
Neither does the fact that the redeeming co-owner had succeeded in
securing title over the parcel of land in his name terminate the existing coownership ! while the co-owners are liable to the redeeming co-owner for
reimbursement as an for their shares in redemption expenses, the
redeeming co-owner cannot claim exclusive right to the property owned in
common
o Registration of property is not a means of acquiring ownership !
it operates a mere notice of existing title, that is, if there is one

ARTICLE 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
redeem the whole property.
REDEMPTION IN SEPARATE SALES BY CO-OWNERS OF UNDIVIDED
IMMOVABLE

Although it is the policy of the law to avoid indivision, it would be unjust if


the sale was made separately and independently, to require the co-owners
to come to an agreement with regard to the purchase of the thing sold, and
certainly, it would be worse to deprive them of their right in case they fail to
agree

The very purpose of this article is to prevent injustice


ARTICLE 1615. If the vendee should leave several heirs, the action for
redemption cannot be brought against each of them except for his own share,
whether the thing be undivided, or it has been partitioned among them.
But if the inheritance has been divided, and the thing sold has been awarded
to one of the heirs, the action for redemption may be instituted against him for
the whole.
REDEMPTION AGAINST HEIRS OF VENDEE

The seller a retro can exercise the right to redeem against the heirs of the
buyer a retro with respect only to their respective shares whether the thing
be undivided or it has been partitioned
o E: If by partition, the entire property has been adjudicated to one
of the heirs ! the seller can exercise the right to redeem against
said heir for the whole

DE LEON SALES REVIEWER

ARTICLE 1616.The vendor cannot avail himself of the right of repurchase


without returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments made by
reason of the sale;
(2) The necessary and useful expenses made on the thing sold.
OBLIGATION OF VENDOR A RETRO IN CASE OF REDEMPTION
THE SELLER A RETRO MUST RETURN TO THE BUYER A RETRO:
1. The price
2. Expenses of contract and other legitimate expenses
3. Necessary and useful expenses
4. Other items agreed upon by the parties
THE SELLER A RETRO MUST RETURN TO THE BUYER A RETRO:
1. THE PRICE

The law speaks of the PRICE OF THE SALE and not the value of the
thing

It is lawful for the parties to agree that the price be returned will be more or
less than the original sum paid by the buyer
2. EXPENSES OF CONTRACT AND OTHER LEGITIMATE EXPENSES

If the expenses for the execution and registration of the sale were paid by
the buyer ! the same shall be reimbursed by the seller

But they need not be paid at the very time of the exercise of the right since
they are unknown amounts ! they may be paid later

The same is true of necessary and useful expenses


3. NECESSARY AND USEFUL EXPENSES

Necessary expenses - are those incurred for the preservation of the thing
or those which seek to prevent the waste, deterioration or loss of the thing
o X those which are ordinary and simple expenses of preservation
because these expenses are incident to the enjoyment of the
thing and should be borne by the buyer

Useful expenses those which increase the value of the thing or create
improvement thereon, such as house
o Refunded to the buyer a retro because he is considered a
possessor in GF

The seller is NOT given an option to require the buyer to remove the useful
improvements on the land subject of the sale a retro unlike that granted the
owner of land under 546 and 576

The seller must pay for the useful improvement introduced by the buyer,
otherwise, the buyer may RETAIN possession of the land until
reimbursement
o E: Homestead law considering the purpose of the law on
homestead, 1616 should be construed in conjunction with 546 and
547 ! to allow the seller a retro of a homestead the right of
retention until payment of useful expenses is made by the
redemptioner (seller) would be to render nugatory the right of
repurchase granted by law to a homesteader because all a buyer

Michelle Duguil,

96

4.

a retro can do to prevent repurchase is to built something on the


homestead beyond the capacity to pay of the homesteader who
seeks to repurchase ! in short, no right to retain by buyer a retro
despite non-payment of useful expenses by the seller a retro
OTHER ITEMS AGREED UPON BY THE PARTIES

Art. 1616 of the CC is not restrictive or exclusive, barring additional


amounts that the parties may agree upon

Said provision should be construed together with Art 1601 requiring the
seller to comply with provisions of 1616 and other stipulations agreed upon
by the parties

OFFER TO REDEEM AND TENDER OF PAYMENT GENERALLY REQUIRED


1. OFFER TO REDEEM MUST BE BONA FIDE

There mere declaration of the seller of his intention to exercise the right of
repurchase is NOT sufficient to preserve the right of redemption

The law requires that the offer must be a bona fide one and
accompanied by actual and simultaneous tender of payment or
consignation of the full amount agreed upon for repurchase
2. WHEN TENDER OF PAYMENT NOT NECESSARY

Neither is it necessary to tender payment of the repurchase price if the


buyer has already flatly refused to reconvey

This rule is premised on the ground that under such circumstance the
buyer will also refuse the tender of payment

Where the seller had consigned or deposited in court the redemption price
when the action was filed ! prior tender could be excused

If the tender is made after the period of repurchase has expired ! its
acceptance would only amount to promise to sell on the part of the buyer
because the right of repurchase having expired, there was no more right
that could have been preserved
CONSIGNATION OF PRICE GENERALLY NOT REQUIRED

It is not a legal requisite for the seller to make consignation or judicial deposit of
the price if the offer or tender is refused

He has a right, not an obligation to repurchase

It is enough that a sincere and genuine tender of payment is made and refused,
although consignation may serve to prove additional security for the seller to
indicate the veracity of his desire to exercise the right of repurchase
1.

2.

WHERE THE RIGHT OF REPURCHASE JUDICIALLY DECLARE

Where the right of the seller a retro to repurchase has ben judicially
declared to exist ! the effect of judgement is to definitely fix the
relation of the seller (d) and buyer (c), as that of debtor and creditor,
respectively, in the amount and within the period fixed in the judgment

Should the buyer (creditor) refuse to accept the amount of redemption price
offered ! the seller (debtor) must deposit in court
IN CASE OF ABSENCE OF THE BUYER A RETRO

In such case, the right of redemption may still be exercised as a seller who
decides to redeem a property sold with pacto de retro

Seller (debtor), buyer (creditor) of the purchase price

DE LEON SALES REVIEWER

The seller can and should exercise his right of redemption against the
buyer by filing a suit against him and making a consignation with the court
the amount due for redemption ! not that deposit or consignation is legally
essential to preserve his reserved right of redemption but because he
should be regarded as having done that which should have been done to
terminate the right of the buyer over the property where the redemption
price is already due and payable
In short, if wala yung buyer (creditor), pwede na lang i-consign ni seller
(debtor) yung payment ng amount due for redemption sa court

ARTICLE 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.
Should there have been no fruits at the time of the sale, and some exist at the
time of redemption, they shall be prorated between the redemptioner and the
vendee, giving the latter the part corresponding to the time he possessed the
land in the last year, counted from the anniversary of the date of the sale.
RIGHT OF THE PARTIES AS TO FRUITS OF LAND

This article applies only when the parties have not provided for any sharing
arrangement with respect to the fruits existing at the time of redemption

It refers only to natural and industrial fruits

Civil fruits are deemed to accrue daily and belong to the buyer in that
proportion
If there were fruits at the time of the
sale and the buyer paid for them

Buyer must be REIMBURSED at the


time of redemption as the payment
forms part of the purchase price
There shall be NO reimbursement for
those existing at the time of redemption
They shall be apportioned
proportionately between the redemption
and the buyer, giving the buyer a share
in proportion to the time he possessed
the property during the last year counted
from the anniversary of the date of the
sale to compensate the buyer for his
expense
B is entitled to reimbursement OR to the
fruits for the last year because having
paid for them, the effect if the same as if
there were no crops on the land when it
was sold (same as third rule)

If no indemnity was paid by the buyer


for the fruits
If the property had no fruits at the
time of the sale and some exist at the
time of redemption

If there were fruits at the time of the


sale and the buyer paid for them

EXAMPLE:

Michelle Duguil,

97

S sold to be with right of repurchase for 500k a parcel of land on June 5, 2008 with 3
year redemption period.
1. At the time of the sale, there was existing crops on the land + B paid
additional amount of 50k for them ! If S should exercise his right of
redemption, he must return to be P550k
2. If B did not pay for the crops ! S must return only 500k
3. If there were no crops at the time of the sale and some exist at the time of
redemption on June 5, 2011 ! B is entitled to the crops during the last
year (June 5, 2010- June 5, 2011)
4. If there were crops at the time of the sale + B paid for them ! B is entitled
to reimbursement OR to the fruits for the last year because having paid for
them, the effect if the same as if there were no crops on the land when it
was sold
ARTICLE 1618.The vendor who recovers the thing sold shall receive it free
from all charges or mortgages constituted by the vendee, but he shall respect
the leases which the latter may have executed in good faith, and in
accordance with the custom of the place where the land is situated.
RIGHT OF SELLER A RETRO TO RECOVER A THING SOLD FREE FROM
CHARGES

The buyer a retro may alienate, encumber or perform other acts of


ownership over the thing sold

But the ownership being revocable upon redemption ! all acts done by
him are also revocable
o E: Leases which the buyer may have entered into in GF according
to the custom of the place where the land is located

Thus, he may borrow money mortgage the property but when the seller a
retro redeems, the buyer a retro is obliged to redeem the mortgage
SECTION 2. LEGAL REDEMPTION
ARTICLE 1619. Legal redemption is the right to be subrogated, upon the same
terms and conditions stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment, or by any other transaction
whereby ownership is transmitted by onerous title.
LEGAL REDEMPTION DEFINED

Thing both immovable and movable property

Art. 1619
TRANSFER OF OWNERSHIP BY ONEROUS TITLE

Subrogation transfers to the person subrogated the rights pertaining to


another

Legal redemption may taken place in:


o Purchase
o Dation in Payment

DE LEON SALES REVIEWER

o Any other transfer of ownership by onerous title


X take place in:
o Barter
o Transmission of property by hereditary title
o Mortgage or lease

DATION IN PAYMENT DEFINED

Is the transmission of the ownership of a thing by the debtor to the creditor


as the accepted equivalent of the performance of an obligation

In this special mode of payment, the debtor offers another thing to the
creditor who accepts it as equivalent of payment of an outstanding debt
NATURE OF DATION IN PAYMENT

SALE OF THING
o Nature of sale
o The creditor is really buying the thing or property of the debtor,
payment for which is to be charged against the debtors debt
o The essential elements of contract of sale must be present:
"
Consent
"
Object certain
"
Cause or consideration
o Governed by the law on sales

NOVATION OF AN OBLIGATION
o Objective novation of the obligation where:
"
The thing offered as an acceptance equivalent of
performance of an obligation is ! considered as the
object of the contract of sale
"
Debt ! considered as the purchase price
BASIS AND NATURE OF RIGHT OF LEGAL REDEMPTION
1. LEGAL REDEMPTION PRECEEDS FROM LAW

The nature of conventional and legal rights of redemption is identical


EXCEPT for the source of right
o Convention redemption voluntary agreement of the parties
o Legal redemption precedes from law

Legal redemption may be converted into one of conventional redemption


o Ex. Where there was voluntary agreement of the parties of the
extension of the redemption period at the request of the sellers
followed by the commitment of them to pay the redemption price
at a fixed date ! legal redemption is converted by the parties into
one of conventional redemption such that it generated binding
contract when approved by the buyer ! in such case, the period
of redemption is that agreed upon by the parties
2. PREDICATED ON BARE STATUTORY PRIVILEGE

The right of legal redemption is not predicated on proprietary right but on a


bare statutory privilege to be exercised only by the person name in the
status

Michelle Duguil,

98

The statute does not make actual ownership at the time of sale or
redemption a condition precedent, the right following the person and not
the property
The property subject sold to redemption may be redeemed by the judgment
debtor or his successor-in-interest in the whole or any part of the property
In an extra-judicial foreclosure the mortgagor, his successor-in-interest,
judgment creditor or any person having lien on the property subsequent to
the mortgage may redeem the same

3. MERE PRIVILEGE

Legal redemption is in the nature of a mere privilege created partly for


reason of public policy and partly for the benefit and convenience of the
redemptioner to afford him a way out of what may be a disagreeable or
inconvenient association which has been thrust

It is intended to minimize co-ownership

It works only one way in favor of the redemptioner

Not having parted with anything, he can compel the purchaser to sell, but
cannot be compelled by him to buy
INSTANCES OF LEGAL REDEMPTION
1. Civil Code:

1620 LR of co-owner

1621 LR of adjacent owners of Rural land

1622 Right of Pre-emption or Redemption of Rural Land

1634 Legal redemption in sale of credit or other incorporeal right in


litigation

1088 - Should any of the heirs sell his hereditary rights to a stranger before
the partition, any or all of the co-heirs may be subrogated to the rights of
the purchaser by reimbursing him for the price of the sale, provided they do
so within the period of one month from the time they were notified in writing
of the sale by the vendor
o Refers to sale of hereditary rights and not to specific properties for
the payment of debts of the decedents estate
o In the administration and liquidation of the estate of a deceased
person, sale ordered by the probate court for payment of debts
are final and not subject to legal redemption
o Unlike in ordinary execution sale, there is no legal provision
allowing redemption in sale of property for the payment of debts of
a deceased person
2. Special Laws
SPECIAL LAW
RA 7160
CA 141

DESCRIPTION
Redemption by the owner
of real property sold for
delinquent taxes
Repurchase
by
homesteader
of
homestead sold under the
Public Land Act

DE LEON SALES REVIEWER

PERIOD
within 1 year from date of
sale
within 5 years

Rules of Court, Rule 39,


Sec. 30
Act No, 3135, Sect 3

Redemption by judgment
debtor or redemptioner of
real property sold on
execution
Redemption by mortgagor
after mortgaged property
has been

within 12 months

Judicially
foreclosed
and sold - within 90 days
before confirmation of
sale by the court
Extrajudicial foreclosure
sale - within 1 year from
the date of registration of
the sale

RA 3844

Redemption
by
an
agricultural
lessee
of
landholding sold by the
landowner

Within 180 days from


notice in writing which
shall be served by buyer
on all lessees affected
and the DAR upon
registration of the sale
Note:
This right have priority
over any other right of
redemption, like the right
of redemption of a coowner under Art 1620

NOTE: (Illustrative Case decision)

A CHECK may be used for the exercise of the right of redemption, the
same being a right and not an obligation. The tender of a check is sufficient
to compel redemption but is not in itself a payment that relieves the
redemptioner from him liability to pay the redemption price. In other words,
while we hold that the private respondents properly exercised their right of
redemption, they remain liable for the payment of the purchase price
(Fortunado vs CA)
ARTICLE 1620.A co-owner of a thing may exercise the right of redemption in
case the shares of all the other co-owners or of any of them, are sold to a third
person. If the price of the alienation is grossly excessive, the redemptioner
shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they
may only do so in proportion to the share they may respectively have in the
thing owned in common.
99




Michelle Duguil,

PURPOSE OF THE GRANT OF RIGHT TO CO-OWNERS

To reduce the number of participants until the community is done away


with, as being a hindrance to the development and better administration of
the property

This reason exists while the community subsists and the participants
continue to be so whether they be the original co-owners or their
successors

As legal redemption is intended to minimize co-ownership, it can no longer


be invoked where there had been actual partition of the property so that coownership no longer exists
REQUISITES OF RIGHT OF LEGAL REDEMPTION OF CO-OWNER
1. There must be co-ownership of a thing
2. There must be alienation of the shares of all other co-owners or any one
of them
3. The sale must be to a third person or stranger (not a co-owner)
4. The sale must be for partition
5. The right must be exercised within the period provided in 1623
6. The buyer must be reimbursed for the price of the sale

The right of co-owner to legal redemption is based on his status as such


independently of the size of his share

As legal redemption is intended to minimize co-ownership, it can no longer be


invoked where there had been an actual partition of the property so that coownership no longer exists

Redemption by a co-owner within the period prescribed by law inures to the


benefit of all co-owners
EXAMPLES:
1.

ABC = co-owners of undivided property worth 500 k

A sold his interest to D for 200k

B&C may exercise right of redemption ! pay 100k each (the proportion of
their respective shares)

If the price of 200k is excessive ! it may be reduced by the court


2.

ABC inherited property from X ! X mortgaged prop during his lifetime to D


If C redeems whole property with his own personal funds ! C = sole
owner; inure to benefit of all co-owners; co-ownership X terminated

BY WHOM AND AGAINST WHOM RIGHT MAY BE EXERCISED


1. A co-owner has the legal right to sell, assign or mortgage his ideal share in
the property held in common

By the very nature of the right of LR, a co-owners right to redeem is


rd
invoked only after the shares of the other co-owners are sold to a 3
party or stranger
2. Co-owners have no right of legal redemption against each other

DE LEON SALES REVIEWER

3.

4.

Should any one of the heirs sell his hereditary right to a stranger before
partition ! any or all of the co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the purchase price
Provided it be done within 1 month from the time they were
notified in writing of the sale by the seller
Once the portion corresponding to each heir is fixed ! the coheirs become co-owners and their right of legal redemption should
be governed by 1620 and 1623
The right of legal redemption is not granted solely and exclusively to the
original co-owners but applies to those who subsequently acquire their
respective shares while the community subsists
There is nothing in 1620 which, expressly or by inference, limits
the right of redemption to the original co-owners

WHEN RIGHT CANNOT BE INVOKED

Art. 1620 applies only if the co-ownership still exists

It presupposes the existence of a co-ownership at the time the conveyance


is made by a co-owner and when it is demanded by the other co-owners of
co-owner
1. THING OWNED IN COMMON PARTITIONED

The right given to a co-owner by Art 1620 in case any other co-owners
sells his share to a third person cannot be invoked where the sale was
made after the properties owned in common had been partitioned, judicially
or extra-judicially

If a plan of partition has been agreed upon though not approved at the time
of the sale ! its approval by the court relates back to the date of the plan
and property sold after such date is not subject to legal redemption
2. SHARES OF ALL CO-OWNERS SOLD

The provision covers the cases where some or one of the co-owners sell
their shares in the property owned in common but NOT to the case where
all the co-owners have sold their shares

Legal redemption may only be exercised by the co-owner/s who did not
part with his or their pro-indiviso share in the property held in common
3. THING OWNED IN COMMON HAD BEEN OFFERED FOR SALE BY ALL COOWNERS

Neither can the right be invoked where the petitioners together with the
other co-owners had previously offered for sale the entire property and !
after the respondent agreed to purchase the same and advanced a
considerable amount of money, ! said petitioners wanted to renege on
their agreement to sell, and instead offered to redeem from the respondent
portion of the property sold by other co-owners to the respondent
PRICE OF REDEMPTION
1. IN GENERAL

The redemption price is generally the purchase price paid by the owner to
the selling co-owner(s)
2. REASONABLE PRICE

The law requires the redemptioner to pay only a reasonable price if the
price if the price of the alienation is grossly excessive

Michelle Duguil,

100

This is to prevent collusion between the buyer and the selling co-owner
The right of the redemptioner to pay a reasonable price under 1620 does
not excuse him from the duty to make proper tender of the price that can
be honestly deemed reasonable under the circumstance, without prejudice
to final arbitration by the courts, nor does it authorize said redemptioner to
demand the buyer to accept payment by installments

There is no legal redemption in case of mere lease


PRICE UNDERSTATED IN THE DEED OF SALE

The practice of understating the consideration of transactions for the


purpose of evading tax and fees due the government is violative of public
policy and injurious to public interest and must be condemned and the
parties guilty thereof must be made to suffer the consequences of their illadvised agreement to defraud the state
AMOUNT ACTUALLY PAID BY THE BUYER

On the other hand, if by false representation the buyer obtains from the
redemptioner an amount greater than the price which he actually paid !
the co-owner who made the repurchase can recover from the buyer the
difference in an appropriate action

Ex. 100k (paid my repurchaser co-owner) 80k (amt paid by buyer) = 20k
recover from buyer by repurchaser co-owner

3.

4.

ARTICLE 1621.The owners of adjoining lands shall also have the right of
redemption when a piece of rural land, the area 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 apparent servitudes for the benefit of other
estates.
If two or more adjoining owners desire to exercise the right of redemption at
the same time, the owner of the adjoining land of smaller area shall be
preferred; and should both lands have the same area, the one who first
requested the redemption.
REQUISITES RIGHT OF LEGAL REDEMPTION OF ADJACENT OWNERS OF
RURAL LAND
1. Both the land of the one exercising his right of redemption and the land
sought to be redeemed must be rural
2. The lands must be adjacent
3. There must be an alienation
4. The piece of rural land alienated must not exceed 1 hectare
5. The grantee or buyer must already own any other rural land
6. The rural land sold must not be separated by brooks, drains, ravines,
roads and other apparent servitudes from the adjoining lands
When the land exceeds 1 hectare, the adjacent owners are not given the RLR
because this may lead to the creation of big landed estates
The right cannot be exercised against a vendee if he is also an adjacent owner

DE LEON SALES REVIEWER

The last paragraph of 1621 refers to a situation where the buyer of a piece of
rural land is not an adjoining owner
Burden of proof on the existence of a barrier between the two estates is he
who wants to defeat the right of redemption on the ground that the 2 estates
are not contiguous to each other
The right of redemption of adjacent owners cannot be exercised by any of them
among themselves, but only by them against a stranger

MEANING OF RURAL LAND

Rural
o Relating to or constituting tenement in land adopted or used for
agricultural or pastoral purposes
o It is on which, regardless of site, is as opposed to urban lands,
which are principally for the purpose of residence
RURAL LAND
principally used for the purpose of
obtaining products from the soil

URBAN LAND
Principally for the purpose of residence

Purpose for being agricultural, fishing or


timber exploitation

Dwelling, industry, or commerce

USE OF PROPERTY A DETERMINING FACTOR

The above definition is correct in so far as the word is ordinarily and


commonly used or understood

However, in giving an adjoining owner, the right to redeem, a piece of


rural land ! the word rural land must be construed in consonance with the
meaning intended by the framers of the law

The reason for the law in question is to foster the development of


agricultural areas by adjacent owners who desire the increase for the
improvement of their own land

The use and destination of the land and the customs of each town will be
the data that ought to be taken into account to decide firmly the case where
the qualification appears doubtful

The small parcel of land, one hectare or less in area, must be dedicated to
agriculture before the owners of adjoining lands may claim a right of
redemption under 1621
PREFERENCE AS BETWEEN TWO OR MORE OWNERS OF RURAL LANDS

In case 2 or more adjacent owners desire to exercise the right of


redemption:
1. The law gives preference to the owners of the adjoining land of
SMALLER AREA
2. BUT if both lands have the same area ! to the one who FIRST
REQUESTED the redemption

Under 1620, the co-owners exercise their right of redemption pro-rata

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101

PURPOSE OF THE GRANTS OF RIGHT TO OWNERS OF ADJOINING RULE


LANDS
1. TO BENEFIT ADJACENT OWNERS AND PUBLIC WEAL AS WELL

The object of the lawmaker in allowing the redemption by adjacent owners


is to prevent an adjoining real estate belonging to another owner or
owners, the area of which x exceed 1h, from passing into the hands of a
person other than someone among the adjacent owners whereby the
property of the latter would be divided without benefit to the public weal
and perharps to the prejudice of the adjacent owners themselves who
are interested in preserving the integrity of their respective properties and
making use of the alienated property for the improvement and development
of their own land
2. TO AVOID DIFFICULTIES IN CULTIVATION

An estate of not more than 1 h does not generally produce enough to keep
one family

If it is purchased by one of the adjacent owners whereby public interest is


favored, the production increases, the private interests of the redemptioner
are respected, and no ostensible harm is occasioned either on the seller or
the buyer
3. TO PROTECT AGRICULTURE

Protect agriculture by the union of small agri lands and those adjoining
thereto under one single owner for better exploitation

If the land adjacent to which is sought to be redeemed is not agri, then the
redemption is in vain it does not answer the purpose behind the law

Both lands must be rural

In short, the purpose is to encourage maximum development and


utilization of agricultural lands
ARTICLE 1622. Whenever a piece of urban land which is so small and so
situated that a major portion thereof cannot be used for any practical purpose
within a reasonable time, having been bought merely for speculation, is about
to be re-sold, the owner of any adjoining land has a right of pre-emption at a
reasonable price.
If the re-sale has been perfected, the owner of the adjoining land shall have a
right of redemption, also at a reasonable price.
When two or more owners of adjoining lands wish to exercise the right of preemption or redemption, the owner whose intended use of the land in question
appears best justified shall be preferred.
RIGHTS OF PRE-EMPTION AND LEGAL REDEMPTION OF ADJACENT
OWNERS OF URBAN LANDS
PRE-EMPTION
REDEMPTION
The act or right of purchasing before Exercised AFTER the sale has been
others
perfected against the buyer
It is exercised BEFORE the sale or The recognition of the right of
resale against the would-be seller
redemption will result in the rescission of
the sale

DE LEON SALES REVIEWER

REQUISITES (4)
1. That the piece of land is urban land
2. The land is so small that a major portion thereof cannot be used for any
practical purpose within a reasonable time
3. It was bought merely for speculation
4. The land is about to resold or that its resale has been perfected

Before any party may avail of the right of pre-emption or redemption, it is


necessary that all these elements be ALLEGED IN THE COMPLAINT and
PROVED AT TRIAL
SIZE OF LAND

The adjoining owner must prove that the portion is so small and so situated
that a major portion thereof cannot be used for any practical purpose within
a reasonable time, having been bought merely for speculation

Case: 86sqm = X considered small because a house can still be


constructed on it
PRICE

Reasonable price

Case: An adjoining owner who owns 140sqm lot was held not entitled to
redeem a 612 sqm lot which was much bigger in area-wise
PREFERENCE AS BETWEEN TWO OR MORE ADJACENT LANDS

In case 2 or more adjoining owners desire to exercise the right of legal


redemption ! the law prefers him whose intended use of the land appears
to best justified

Determinative factor: The intended use that appears best justified, not
whether the land was acquired for speculative purposes
MEANING OF URBAN LAND

X necessarily refer to the nature of the land itself sought nor to the purpose
to which it is somehow devoted, but to the character of the community or
vicinity in which it is found

In this sense, even if the land is somehow dedicated to agriculture, it is still


urban in contemplation of 1622 if it is located within the center of population
or the more or less populated portion of a city or town
URBAN AND RURAL LANDS DISTINGUISHED
URBAN
City or Town

LOCATION

RURAL
- Of pertaining to the
country
Rural
property

determined
from
the
character of the locality,
streets, lots, buildings,
improvements and MV of
the property as also of the
neighboring or surrounding

Michelle Duguil,

102

properties
PURPOSE

Dwelling,
industry
commerce, residential

Agriculture, fishing, timber


exploitation

MEANING OF TO SPECULATE

To enter into a business transaction or venture from which the profits or


return are conjectural because the undertaking is outside the ordinary
course of business, to purchase or sell with the expectation of profiting by
anticipated, but conjectural fluctuations in price

Often in a somewhat depreciative sense, to engage in hazardous business


transaction for the chance of an unusually large profit, as to speculate in
coffee, in sugar or in a banks tock

Example:
o X mere speculation if: In less than 8 months from date of its
purchase, the buyer developed land into a subdivision for resale
PURPOSE OF THE GRANT OF RIGHT TO OWNERS OF ADJOINING URBAN
LANDS

Whereas, the objective of the right of redemption of adjoining rural land is


to encourage the maximum development and utilization of agricultural land

The evident purpose of 1622 is to discourage speculation in real estate and


the consequent aggravation of housing problems in centers of population

Minimize co-ownership

Once the property is subdivided and distributed among the co-owners, the
community ceases to exist and there is no more reason to sustain any right
of pre-emption or redemption
ARTICLE 1623. The right of legal pre-emption or redemption shall not be
exercised except within thirty days from the notice in writing by the
prospective vendor, or by the vendor, as the case may be. The deed of sale
shall not be 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.
The right of redemption of co-owners excludes that of adjoining owners.
EXERCISE OF RIGHT OF PRE-EMPTION OR REDEMPTION

Art 1623 stresses the need for NOTICE IN WRITING in the 2 species of
legal redemption in 1620, 1621, 1623

The redemptioner should tender payment of the redemption money within


30 days from written notice of the sale by the co-owner

One who purchases an undivided interest in a property is charged with


notice that this acquisition is subject to redemption by any other co-owner
within the statutory 30-day period
o The right of redemption of co-owners = is preferred over adjoining
owners

DE LEON SALES REVIEWER

The law attaches more importance to the necessity to put an


end to tenancy in common than to the purpose of encouraging
the development of agriculture
Co-ownership - ownership whenever the ownership of an undivided thing
or right belongs to different persons
o There is no longer co-ownership when the different portions
owned by different people are already concretely determined and
separately identifiable, even if not yet technically described
o When there is no more co-ownership ! the provision on the right
of redemption of a co-owner under 1623 is no longer applicable
o

PERIOD OF EXERCISE
1. ABSOLUTE AND NON-EXTENDIBLE

The 30 day period is peremptory, absolute and non-extendible

Reason why there is a much stronger reason against relaxing the period in
favor of legal redemption:
o The right of legal redemption is a pure creature of the law,
regulated by the law, and works only one way in favor of the
redemptioner
o While in pacto de retro, there is a contractual relation founded on
valuable consideration, a contract by which the party from whom
the repurchase is sought has been benefitted

Even if the person entitled to redeem is a minor, the running of the period is
NOT interrupted

**Under the Code of Agrarian Reform the right of pre-emption of an


agricultural lessee may be exercised within 180 days from notice in writing
which shall be served by the landowner (vendor) on all lessees affected
and the DAR
2. A CONDITION PRECEDENT

The 30 day period is NOT a prescriptive period but is more of a requisite or


condition precedent to the exercise of the right of legal redemption

It is a period set by law to restrict the right of the payor exercising the right
of legal redemption

In other words, if no offer was made within the prescribed period, no action
will be allowed to enforce the right of redemption
3. REASON FOR RULE

To discourage the keeping for a long time of property in a state of


uncertainty, beyond the 30 day period, a situation which is obviously unjust
to the purchase prejudicial to public interest

Nevertheless, the interpretation of 1620, 1621 and 1622 ! in favor of the


redemptioner and against the buyer
o The redemptioner can compel the buyer to sell to him but he
cannot be compelled by the buyer to buy the alienated property

The purpose is to reduce the number of participants until the community is


terminated being a hindrance to the development and better administration
of the property

Michelle Duguil,

103

NOTICE BY SELLER OR PROSPECTIVE SELLER (MANDATORY)


The period of 30 days is counted from the notice in writing given by the prospective
seller or by the seller, as the case may be
3. NOTICE MUST BE GIVEN BY THE SELLER
Reasons:
o The seller of an undivided interest is in the best position to know
who are his co-owners that under the law must be notified of the
sale
o Notice by the seller removes all doubts as to the fact of the sale,
its perfection and its validity, the notice being a reaffirmation
thereof, so that the party notified need not entertain the doubt that
the seller may still contest the alienation

The deed of sale shall not be recorded in the Registry of Property unless
the same is accompanied by an affidavit of the vendor that he has given
notice thereof to all possible redemptioners (Primary Structures Corp. vs
Valencia)
2. NOTICE MUST BE IN WRITING

Mandatory

To remove uncertainty as to the sale, its terms and its validity and to quiet
any doubts that alienation is not definitive

Without it, the period of 30 days within which the right of legal pre-emption
or redemption may be exercised, does not start
3. FORM OF WRITTEN NOTICE

1623 does not prescribe any particular form of notice so long as the
reasons for a written notice are present or otherwise satisfied

So long as the redemption is informed in writing of the sale and the


particulars thereof, the 30 days for redemption start running
4. CONTENTS OF WRITTEN NOTICE OF SALE

Notice of the perfected sale and the actual execution and delivery of the
deed of sale

A sale may not be presented to the RD for registration unless it be in the


form of a duly executed public instrument

The law does not however say that lack of such notice will make the sale
void ! effect only is that it shall not be recorded in the Registry of Property
5. ACTUAL KNOWLEDGE (EXCEPTION TO WRITTEN NOTICE REQUIREMENT)

Written notice is no longer required if the other co-owners have actual


knowledge of the sale

Examples:
o Furnishing of deed of sale
o A sworn statement or clause in a deed of sale to the effect that a
written notice of sale was given
o Co-owners did not question the continued possession of the buyer
o The executor of the deceased who sold property was granted
such authority by all the heirs
o Co-owner signed the deed of extra-judicial partition and exchange
of shares
o Where the co-owner was actually present and even acted as an
active intermediary in the consummation of the sale of property

DE LEON SALES REVIEWER

o Redemptioners lived on the same lot on which the buyer lived


o Receipt of summons by co-owner
Primary Structures Corp. vs Valencia GR: Written notice to co-owners
is mandatory notwithstanding actual knowledge of the other co-owners
o E: Alonzo Case exceptional case in view of the peculiar
circumstances of the case (MEDJ MALABO TO, IBA-IBA
SINASABI NG SC SHET)

HOW RIGHT EXERCISED


1. TENDER OR CONSIGNATION

A formal offer to redeem must be accompanied by a valid tender of the


redemption price

The filing of judicial action + the consignation of the redemption price within
the period of redemption = formal offer of redeem
2. TENDER OF PRICE

That the legal redemption is only required to pay a reasonable price is no


obstacle to the requirement of tender

The statutory period fixed for the exercise of the right of legal redemption
would be rendered meaningless and of ease evasion, unless the
redemption is required to make an actual tender in GF of what he believes
to be the reasonable price of the land sought to be redeemed

A prior tender by the redemptioner of the price he considers reasonable


affords an opportunity to avoid litigation, for the landowner may well decide
to accept a really reasonable owner, considering that he would thereby
save the attys fees and the expenses of protracted litigation
3. CONSIGNATION IN COURT

A formal offer to redeem accompanied by a tender of redemption price is:


o NOT essential where the right to redeem is exercised thru the
filing of judicial action and the simultaneous deposit of the
redemption price with the Sheriff within the period of redemption
o It is only essential to preserve the right of redemption for future
enforcement even beyond such period od redemption (LABO ULI)

The filing of an action itself, within the period of redemption is equivalent to


a formal offer to redeem

Should the court allow redemption, the redemptioners should then pay the
amount already adverted to

The reason for allowing judicial consignation is that the redemptioner might
not know the buyers whereabouts or the latter might even conceal himself
to prevent redemption

Michelle Duguil,

104