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CHAPTER 1: INTRODUCTION
CONTRACT OF SALE 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. A contract of sale may be absolute or conditional.
(Article 1458)
CHARACTERISTICS:
1. nominate
2. principal
does not depend on another contract for its validity or existence
3. bilateral
imposes obligations on both parties to the contract
power to rescind is implied and need not be stipulated in order for the innocent party
to invoke such remedy (Art. 1191)
4. onerous
all doubts in construing the contract shall be settled in favor of the greatest reciprocity
of interests
5. commutative
equal value is exchanged for equal value (based on the point of view of the parties in
the contract)
Test: subjective as long as parties in all honesty that he is receiving equal value then
it complies with test & would not be deemed a donation; but must not be absurd.
Inadequacy of price or aleatory character not sufficient ground to cancel contract of
sale; inadequacy can show vitiation of consent & sale may be annulled based on vice
but not on inadequacy
6. consensual
perfected by mere consent
for there to be a meeting of the minds, the offer must be certain and the acceptance
absolute
7.
Title & not a mode gives rise to an obligation to transfer; it is delivery w/c actually
transfer ownership; mode which actually transfer ownership.
Fule v. CA
A contract of sale is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price. Art. 1358 CC which requires the
embodiment of certain contracts in a public instrument, is only for convenience and
registration thereof only adversely affects 3rd parties. Non-compliance therewith does
not adversely affect the validity of the contract not the contractual rights and obligations
of the parties thereunder.
ESSENTIAL REQUISITES:
1. consent
there is a meeting of the minds as to the price and the object (Article 1475)
acceptance must be absolute
if the agreement is covered by the Statute of Frauds, only the enforceability of the
agreement is affected
2. determinate (or determinable) subject matter
particularly designated or physically segregated from all others of the same class
(Article 1460)
3. cause or consideration (price certain in money or its equivalent)
equivalent = check or promissory note; does not include goods or merchandise
Torres v. CA
Where the contract of sale of a parcel of land clearly provides that the consideration for the
sale was the expectation of profits from a subdivision project, it constituted valid cause
or consideration to validate the sale and delivery of the land. Consideration can take
different forms, such as the prestation or promise of a thing or service by another.
Co v. CA
A definite agreement on the manner of payment of the price is an essential element in the
formation of a binding and enforceable contract of sale.
1.
remedies available:
a. specific performance
b. rescission
c. damages
2.
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absolute sale: ownership passes to the buyer upon delivery of the thing sold
conditional sale: ownership does not transfer upon delivery of the thing until fulfillment of
the condition [such as full payment of purchase price (Articles 1478 and 1503)]
if the obligation of one party is subject to any condition and it is not fulfilled, such party
may (Article 1545):
waive the performance of the condition and proceed with the contract
if the condition is in the nature or a promise that it should happen, the nonperformance of such condition may be treated as a breach of warranty (Article 1545)
where the ownership has not passed, the buyer may treat fulfillment by the seller of
his obligation to deliver, as described and as warranted, as a condition of the
obligation of the buyer to perform his promise to accept and pay for the thing ( Article
1545)
STAGES IN LIFE OF CONTRACT OF SALE:
1. negotiation
2. perfection by mere consent; performance may be demanded ( specific performance )
3. consummation
DISTINGUISHED FROM OTHER CONTRACTS:
1. Donation
jurisprudence:
a. Timing test under art 1467; Inchausti; whether the thing transferred would have
never existed but for the order contract for piece of work (abandoned)
b. Habituality test enunciated in Celestino v CIR; contract of sale if manufacturer
engages in activity without need to employ extraordinary skills and equipment;
contract for piece of work is sale of service; contract of sale is sale of things.
c. Nature of the object test enunciated in EEI v CIR; each products nature of
execution differs from the others; products are not ordinary products of
manufacturer.
main factor in decision of the SC: essence of why parties enter into it:
a. essence is object contract of sale
b. essence is service contract for piece of work
contracts for a piece of work, unlike contracts of sale, are not within the Statute of
Frauds
Celestino Co & Co. v. Collector
The company claimed it was only subject to 3% contractors tax instead of 7% tax imposed for
sales. The SC ruled against the company. Although the windows and doors are manufactured
only when the customers place their orders, the company ordinarily manufactured or was in a
position habitually to manufacture these in the usual course of their business. When this
Factory accepts a job that requires the use of extraordinary or additional equipment, or
involves services not generally performed by it, it thereby contracts for a piece of work, filling
special orders within the meaning of Article 1467. The orders herein exhibited were not shown
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to be special. They were merely orders for work nothing is shown to call them special
requiring extraordinary service of the factory.
Commissioner of Internal Revenue v. Engineering Equipment and Supply Co.
The distinction between a contract of sale and one for work, labor and materials is tested by
the inquiry 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, or a thing which would have existed
but has been the subject of sale to some other persons even if the order had not been given. If
the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for
sale to anyone, and no change or modification of it is made at purchaser's request, it is a
contract of sale even though it may be entirely made after, and in consequence of the
purchaser's order for it.
4. Agency to sell
in sale, buyer pays for price of object; in agency to sell, agent not obliged to pay for
price, merely obliged to deliver price received from buyer.
in sale, buyer becomes owner of thing; in agency; principal remains owner even if
object delivered to him
TEST: essential clauses of whole instrument ( art 1466 motherhood statement, not
good law )
Agency is a personal contract; sale is real contract ( to give ) rescission not available
in agency
Ker and Co. v. Lingad
Ker and Co. entered into a contract with the United States Rubber International (the company)
as distributor for the latter. It was agreed that the distributor will hold the products in such
quantities as the company wishes and that all goods were to be the property of the company
until sold by the distributor. However, it was expressly stated that the distributor is not to be
the agent or legal representative of the company. The Court held that there existed an agency
to sell, notwithstanding the categorical statement in the contract that no agency is to exist.
The decisive test is the retention of the ownership of goods delivered to the possession of the
dealer for resale with the price and terms remaining subject to the control of the firm
consigning the goods.
5. Dacion en pago
in sale: seller needs to be owner of thing to transfer ownership; in lease: lessor need
not be owner
lease with option to by: really a contract of sale but designated as lease in name only;
it is a safe by installments
7. Chattel Mortgage
in chattel mortgage, the thing is a security for an obligation; if the debtor is unable to
pay, the ownership cannot be transferred automatically to the creditor, but is still
subject to foreclosure proceedings
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where necessaries are sold and delivered to a minor or other person without capacity to
act, he must pay a reasonable price therefore (Article 1489)
necessaries are things which are needed for sustenance, dwelling, clothing and
medical attendance, in keeping with the financial capacity of the family
remedy is action for annulment (with partial restitution in so far as the minor is benefited)
2.
Status not provided for by law but VOID according to case law
Reason:
i. prevent defraudation of creditors
ii. avoid situation where dominant spouse take advantage of others
iii. avoid circumvention on prohibition of donation between spouses
Exception
i. separation of property agreed (marriage settlement)
ii. judicial separation of property
c. Common Law Spouses (Paramours)
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BE A
Refers to subject matter that are existing & not existing but capable of existence (pursuant
to present, technology)
1. if this is present, status of contract: VALID
2. if absent : NO CONTRACT SITUATION, THEREFORE NO CAUSE OF ACTION
3. if mere pipe dream : VOID
a. SALE OF THINGS HAVING POTENTIAL EXISTENCE (Emptio Rei Speratae)
Every sale of future thing is subject to condition that they will come into existence
Absence: VOID; there is subject matter but Intention regarding subject matter can not be
ascertained VOID
At the time the contract is entered in to the thing is capable of being made
determinate without the necessity of a new or further agreement between parties
There can only be contract of sale when subject is finally chosen for delivery
already segregated or designated; but before designation, valid K of sale already
exists
3. Undivided interest (BUYER becomes co-owner)
4. Undivided share in mass of fungible goods (BUYER becomes co-owner)
Atilano v. Atilano
Eulogio I owned a lot subdivided into 5 parts. He sold one portion to Eulogio II, who had
possession of, and whose house was built on, the said portion even before the sale was
executed. Years later, the heirs of Eulogio II had the lot resurveyed and they discovered, based
on the deed of sale, that the land they possessed was actually the lot in the name of Eulogio I,
and vise versa. The Court held that although there was a mistake in the designation of the
lots, it was clear that the parties intended the object of the sale to be the lot occupied by
Eulogio II and no other.
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Nominal consideration w/c is common law concept does not apply (P1.00)
Gross inadequacy of price in ordinary sale does not render contract void unless it is
shocking to conscience of man.
Except:
a. Judicial sale
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If the price is false (there is actually another price), the contract is valid, but subject to
reformation.
Balatbat v. CA
Delivery of the thing bought or payment of the price is not necessary for the perfection of the
contract. The failure of the buyer to pay the price after the execution of the contract does not
make the sale null and void for lack of consideration, but puts him in default.
Bagnas v. CA
Two deeds of sale were purportedly executed by Mateum in favor of the private respondents,
the consideration being P1.00, including services rendered, being rendered to and to be
rendered for Mateums benefit. However, Mateum remained in possession of the lands and he
also made tax payments for them until he passed away. Upon assessment, it turns out that
the actual value of the lands is P10,500. The Court held such sale as null and void. The gross
disproportion in price demonstrates false and fictitious consideration. Moreover, the private
respondents did not show any other true and lawful cause for the sale.
Vda. de Gordon v. CA
The inadequacy of price is not material "when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the easier it is
far the owner to effect the redemption.''
CHAPTER 5: FORMATION OF CONTRACT OF SALE
3 STAGES IN LIFE OF A CONTRACT OF SALE
1. Policitacion/negotiation Stage offer is floated, acceptance is floated but they do not meet;
time parties indicate their interest but no concurrence of offer & acceptance
2. Perfection concurrence of all requisites; meeting of the minds
3. Consummation parties perform their respective undertakings
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POLITIACION
1. offer is floated but not absolute
2. acceptance is likewise floated but conditional
RULES:
1. offer is floated prior to acceptance, may be withdrawn at will by offeror
2. offer floated with a period without acceptance, extinguished when period has ended &
maybe withdrawn at will by offeror; right to withdrawn must not be arbitrary otherwise,
liable to damage under Art 19, 20, 21 of civil code
3. offer floated with a condition extinguished by happening/non-happening of condition
4. offer floated without period/without condition continues to be valid depending upon
circumstances of time, place & person
5. offer is floated & there is counter-offer original offer is destroyed, there is a new offer;
can not go back to original offer
6. offer is floated no authority of offeror to modify offer
7. offer is accepted absolutely proceed to perfected stage
OPTION CONTRACT- a privilege existing in one person, for which he had paid a consideration
and which gives him the right to buy certain specified property, from another person, at any
time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz)
option money: price given in consideration for the option contract
earnest money (Article 1482): partial payment of the purchase price and is considered
proof of the perfection of the contract
cannot be forfeited when buyer backs out, unless stipulated
OPTION MONEY
applies to a sale not
yet perfected
party who gives
option money is not
required to buy
EARNEST MONEY
given only where
there is already a sale
party who gives
earnest money is
required to pay the
balance
The option may be withdrawn at any time. However, if there is consideration for the
option, the seller will be liable for damages for breach of the option.
If another buyer in good faith purchases the thing that is the object of the option contract,
such sale is valid but the seller will be liable for damages.
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CDB sold land to Lim, which land it previously foreclosed from Guansing. Lim paid P30,000 as
option money. Subsequently, the title to the land was reverted to Guansings father, on the
ground that it was fraudulently secured by Guansing. Lim then filed an action for specific
performance against CDB. As a defense, CDB alleged that there was no perfected contract of
sale with Lim. The SC held that there was a perfected contract of sale, the option money
paid being in the nature of earnest money or down payment. In this case, the contract (Offer
to Purchase) provides for the payment only of the balance of the purchase price, implying that
the option money forms part of the purchase price.
Legal consequence:
a. option contract is valid
b. offeror can not withdrawn offer until after expiry period
c. subject to rescission, damages but not to specific performance because this is not
an obligation to give
2. without separate consideration
Legal consequence:
OLD RULE:
a. offer is still valid, but
b. option contract is void
c. not subject to rescission, damages
NEW RULE: Right if first refusal recognized
RIGHT OF FIRST REFUSAL:
creates a promise to enter into a contract of sale and it has no separate consideration, not
subject to specific performance because there is no contractual relationship here & it is not
an obligation to give (not a real contract)
Effect of new doctrine: turned the world of policitacion upside down because while valid
option contract is not subject to specific performance, right of first refusal which does not
even have a separate consideration may be subject to specific performance
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lessor of the property be virtue of his purchase and assumes all the obligations of the previous
owner under the lease contract.
Asuncion v. CA
In a right of first refusal, while the object might be made determinate, the exercise of the right
is dependent not only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it belongs to a class of preparatory juridical relations governed not by
contracts but by, among other laws of general application, the provisions of the Civil Code on
human conduct. Even if such right of first refusal has been decreed under a final judgment, its
breach cannot justify the issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance. It is not to
say, however, that the right of first refusal would be inconsequential, for an unjustified
disregard thereof, can warrant a recovery for damages.
San Po Ek v. Martinez (2000)
Martinez, and her mother before her, leased property to San Po Ek for a total of 28 years. After
this period, Martinez wrote the lessee to inform the latter of her intention to sell the leased
property. However, the property was thereafter sold to a 3 rd party. San Po Ek filed a case
praying for the nullity of this sale. The SC held that San Po Ek does not have a right of first
refusal to assert against Martinez. Although the right of first refusal may be provided for in a
lease contract, such right was never stipulated in any of the several lease contracts. The grant
of the right of first refusal must be clearly embodied in a written contract.
Sale is a consensual contract, perfected by meeting of minds regarding subject matter &
price
Meeting of Minds:
1. Offer certain
2. Acceptance absolute
Business ads are mere invitations to make an offer except when it appears to be
otherwise
when sale is subject to suspensive condition, no perfected contract of sale yet; becomes
perfected only upon happening of condition
In sales at auction, perfected when auctioneer announces its perfection by the fall of the
hammer or in other customary manner may impose terms under bidder may retract his
bid; owner of property sold at auction may impose terms under w/c the auction will
proceed & it shall be binding w/n the bidders are aware
Place of perfection: where the meeting of minds happen; when acceptance sent by mail,
perfection is deemed where the offer is made
new concept: can not be forfeited part of purchase price; must be restored
Sale being consensual, may be oral or written, perfected by mere consent as to price &
subject matter
Reason: purposes of convenience only & not for validity & enforceability; cause of
action is granted to sue & compel other party to execute the document
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2.
Exception:
i. When there is a note or memorandum in writing & subscribe by party or his agent
(contains essential terms of the contract)
ii. When there has been partial performance/execution (seller delivers with intent to
transfer title/receives price)
iii. when there has been failure to object to presentation of evidence (oral)
(constitute waiver)
4. Expenses for execution and registration of the sale shall be borne by the vendor, unless
there is a stipulation to the contrary (Article 1487).
Dalion v. CA
Dalion executed a private document of absolute sale in favor of Sabesaje. Dalion claims that
the document is fictitious, and that since the alleged sale was embodied in a private
instrument (and not in a public instrument), it didnt convey title or rights. The SC upheld the
validity of the sale. A contract of sale is perfected by mere consent and no particular form is
required for its validity. The process provided for under Art. 1358 CC is only for convenience,
not for validity or enforceability.
Ortega v. Leonardo
Ortega and Leonardo disputed over the occupancy of a parcel of land. Leonardo asked Ortega
to desist from pressing her claim, and promised to sell her a portion of the lot, provided the
latter paid for the surveying and subdivision of the lot. Ortega then caused the survey and
subdivision of the portion Leonardo promised to sell. She even made some improvements on
the said portion. However, Leonardo refused to accept tender of payment. The SC ruled that
while, as a general rule, an oral agreement to sell a piece of land is not provable, where there
is partial performance of the sale contract, the principle excluding evidence of parol contracts
for the sale of realty will not apply. In this case the following indicates partial performance:
relinquishment of rights, continued possession, building of improvements, tender of payment
rendition of services, payment of taxes, surveying of the land at the vendee's expense, etc.
Baretto v. Manila Railroad Co.
Delivery of the deed to the agent of the buyer, with no intention to part with the title until
payment of the purchase price, does not constitute partial performance and does not take the
case out of the Statute of Frauds.
RULES GOVERNING AUCTIONS (Article 1476)
sale by description OR sample: contract may be rescinded if bulk of goods delivered do not
correspond with the description or sample
sale by description AND sample: bulk of the goods must correspond to both the description
and the sample
bulk of the goods: does not designate the greater portion of the goods, but the goods
themselves as distinguished from the sample or description
SALE BY INSTALLMENT
Article 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 vendee's failure to pay cover two or more installments;
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3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover 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 the contrary shall be void.
This provision incorporates the Recto Law or the Installment Sales Law.
rationale: to prevent abuses of mortgagees who seize the mortgaged property, buy the
same for a low price at the foreclosure sale and then bring suit against the mortgagor
for a deficiency judgment
Article 1484 applies to leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing (Article 1485).
Article 1486. In cases falling under Arts. 1484 and 1485, 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.
Levy Hermanos v. Gervacio
In order to apply the provisions of article 1454-A CC (old) it must appear that there was a
contract for the sale of personal property payable in installments and that there has been a
failure to pay two or more installments. In this case, the contract is not one on installments,
but on straight term, in which the balance, after payment of the initial sum, should be paid in
its totality at the time specified in the promissory note. Accordingly, the mortgagee is not
bound by the prohibition therein contained as to its right to the recovery of the unpaid balance.
Where the price is payable in several installments, generally payable in relatively small
amounts, there is great temptation for improvident purchasers to buy beyond their means.
There is no such temptation where the price is to be paid in cash, or, as in the instant case,
partly in cash and partly in one term, for, in the latter case, the partial payments are not so
small as to place purchasers off their guard and delude them to a miscalculation of their ability
to pay.
Zayas, Jr. v. Luneta Motor Company
Zayas purchased a car from Escao Enterprises, a dealer of LMC. A chattel mortgage was
constituted on the car and Escao assigned its rights to LMC. When Zayas defaulted, LMC
extrajudicially foreclosed the mortgage and subsequently filed a civil suit to recover the
deficiency in price. The SC held that Escao Enterprises was the agent of LMC and that LMC,
as assignee, had no better rights than assignor Escao Enterprises under the same
transaction. Article 1484 applies and LMC cannot recover deficiency in price.
Industrial Finance Corp. v. Ramirez
The rule is that in installment sales, if the action instituted is for specific performance and the
mortgaged property is subsequently attached and sold, the sale does not amount to a
foreclosure of the mortgage. Therefore, the seller has the right to recover on the unpaid
balance of the purchase price from the buyer.
Delta Motor v. Niu Kim Duan
Where the seller retakes possession of the thing sold from the buyer, through a writ of replevin,
it can no longer exact payment from the buyer for the balance of the purchase price.
EliscoTool Manufacturing Corp. v. CA
If the main purpose for seeking recovery of personal property under a writ of replevin was
merely to ensure enforcement of the remedy of specific performance under Art. 1484(1), then
there would be no bar to recover any amount from the lessee by reason of the enforcement of
the writ.
Northern Motors v. Sapinoso
Although the seller had already filed an action for foreclosure, if prior to the actual sale of the
subject property at public auction the seller had received further payments from the buyer, the
seller is not obliged to refund said payments after foreclosure. It is the fact of foreclosure and
actual sale of the mortgaged chattel that bar further recovery by the vendor of any balance on
the purchaser's outstanding obligation not satisfied by the sale.
Cruz v, Filipinas Investment & Finance Corp.
The seller may not recover deficiency judgment by foreclosing on a mortgage constituted by
3rd-party mortgagors, after foreclosing on the chattel mortgage constituted on the subject
matter of the sale. This is because the guarantor would be entitled to reimbursement from the
debtor-vendee for what he paid the seller. Ultimately, it will be the debtor-vendee who will be
made to pay for the deficiency in price after foreclosure.
The action barred under Art. 1484 includes not only judicial proceedings, but should include
extrajudicial proceedings by virtue of which the seller maybe enabled to exact recovery of the
deficiency in price.
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Nature of diligence required: diligence of good father of family unless other requirement is
stipulated
Consequence: Seller will guilty of breach if thing is lost through his fault
OBLIGATIONS OF THE VENDOR
1. PRESERVE THE THING PENDING DELIVERY (Art. 1163)
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING:
before perfection of the contract: the seller bears the risk of loss/deterioration
rescission
specific
performance
with damages in
either case
IMPROVEMENT
by nature or time
improvements shall
inure to the benefit of
the buyer
OF THE THING
at sellers expense
seller shall have no
other right than that
granted to the
usufructuary
VILLANUEVA: The rules are different for loss and deterioration/improvement because in
the former, the obligation to transfer ownership arises upon delivery while in the latter, the
buyer becomes owner of the fruits, accessions and accessories upon mere perfection of
the contract.
Article 1480. Any injury to or benefit from the thing sold, after the contract has been
perfected, from the moment of the perfection of the contract to the time of delivery, shall be
governed by articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single
price, or without consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure,
the risk shall not be imputed to the vendee until they have been weighed, counted, or
measured and delivered, unless the latter has incurred in delay.
Under this provision, the risk of loss is borne by the buyer after perfection of the contract
and even before delivery, as an exception to the rule of res perit domino.
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The vendor must have ownership of the thing sold at the time when the ownership is to
pass, and not necessarily at the time of the perfection of the contract (Article 1459).
generally, the ownership of the thing sold is transferred upon actual or constructive
delivery (Article 1477)
Quijada v. CA
Ownership by the seller of the thing sold at the time of the perfection of the contract of sale is
not an element for its perfection. What the law requires is that the seller has the right to
transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer
ownership and a perfected contract of sale cannot be challenged on the ground of nonownership on the part of the seller at the time of its perfection.
The thing sold and its accessions and accessories must be delivered in the condition in
which they were upon the perfection of the contract (Article 1537).
The vendee has a right to the fruits from the time of perfection of the contract (Article
1537).
when thing sold is placed in the control & possession of the buyer
2. Constructive
DIFFERENT FORMS OF CONSTRUCTIVE DELIVERY:
1. Traditio Longa Manu
Delivery of thing by mere agreement; when SELLER points to the property without
need of actually delivering
1. Traditio Brevi Manu
1.
Before contract of sale, the would be buyer was already in possession of the would
be subject matter of sale (ex: as lessee)
2. Symbolic delivery
Exception:
a. when there is stipulation to contrary, execution does not produce effect of delivery
b. when at the time of execution of instrument, subject matter was not subject to
control of the seller
such capacity should subsist for reasonable time after execution of instrument
(reason time depends on circumstances of persons, places & things)
execution is equivalent to delivery if from the deed, contrary does not appear
Pasagui v. Villablanca
While the execution of the deed of absolute sale in a public instrument is equivalent to delivery
of the land, this presumptive delivery only holds true when there is no impediment that may
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prevent the passing of the property from the vendor to the vendee. It can be negated by the
fact that the vendees actually failed to obtain material possession of the land subject of the
sale.
Dy, Jr. v. CA
Constructive delivery be the execution of a public instrument would produce the effect of
tradition, insofar as title is concerned, provided that at the time of the execution there was no
legal impediment on the part of the seller to transfer title to the buyer, even if at the time of
the sale, control or possession of the subject matter was not in the hands of the seller.
DELIVERY OF FRUITS & ACCESSIONS/ ACCESSORIES
When goods delivered alongside the ship, there is already delivery to the buyer (twin
effects deemed fulfilled)
2. FOB-FREE ON BOARD
a. Shipment when goods are delivered at ship at point of shipment; delivery to carrier
by placing goods on vessel is delivery to buyer
b. Destination when goods reach the port even if not disembarked yet from the vessel,
there is delivery to the buyer
3. CIF COST, INSURANCE, FREIGHT
a. when buyers pays for services of carrier delivery to carrier is delivery to buyer;
carrier is agent of the buyer
b. when buyer pays seller the price from moment the vessel is at port of destination,
there is already delivery to buyer.
c.
Behn, Meyer & Co. v. Yangco
Behn, Meyer & Co. (vendor) entered into a contract of sale and delivery with Yangco (vendee).
The shipping terms were c.i.f. Manila on the goods coming from New York. Yangco only
received 9 of the 80 drums of caustic soda ordered, and such were in bad condition. The Court
held that the loss is to be borne by the vendor. The phrase c.i.f. Manila signifies that the
price fixed covers not only the cost of the goods, but also the expense of freight and insurance
to be paid by the seller. The terms "C. I. F." and "F. O. B." merely make rules of presumption
which yield to proof of contrary intention, which was not present in this case.
General Foods v. NACOCO
Under an ordinary C.I.F. agreement, delivery to the buyer is complete upon delivery of the
goods to the carrier and tender of the shipping and other documents required by the contract
and the insurance policy taken in the buyer's behalf. However, the parties may, by express
stipulation or impliedly, modify a CIF contract and throw the risk upon the seller until arrival in
the port of destination. In this case, the parties agreed that the payment of the price was to
be according to the "net landed weight" upon arrival in the port of destination. Therefore,
notwithstanding the CIF contract, delivery to the carrier in Manila was not delivery to the buyer
and the vendor bore the risk of loss.
Contracts of Sale or Return, and of Sale on Trial or Approval or Satisfaction (Article
1502)
a. sale or return: where the buyer has the option to purchase or return the goods,
ownership of the goods passes to the buyer upon delivery but is re-vested in the seller
upon its return
b. sale on trial or approval: where the satisfaction of the buyer is a condition precedent to
the perfection of the contract, the ownership passes to the buyer upon:
i.
the buyers approval of the goods
ii.
retention of the goods by the buyer without giving notice of rejection
Industrial Textile Manufacturing Co. v. LPJ Enterprises, Inc.
For a sale to be considered and construed as a sale or return or sale on approval, there must
be a clear agreement to either of such effect. Parol or extrinsic testimony could not be
admitted for the purpose of showing that an invoice purporting to embody a sale without
condition or restriction constituted a contract of sale or return. If the purchaser desired to
incorporate a stipulation securing to him the right of return, he should have done so at the
time the contract was made. On the other hand, the buyer cannot accept part and reject the
rest of the goods since this falls outside the normal intent of the parties in the "on approval"
situation.
Where Specific Goods are Shipped (Article 1503)
GEN. RULE: The ownership in the goods sold passes to the buyer upon their delivery to the
carrier (Article 1523).
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Is area delivered is either greater or lesser price will not be adjusted accordingly
Sta. Ana v. Hernandez
Where two parcels of land sold were identified by the conspicuous boundaries that separated
the lands in question from the rest of the property, the sale made was of definite and identified
tract that obligated the vendors to deliver to the buyer all the land within the boundaries,
irrespective of whether the real area should be greater or smaller than what is recited in the
deed. This is particularly true where the area given is qualified to be approximate only, i.e.,
more or less. To hold the buyer to no more than the area recited on the deed, it must be made
clear therein that the sale was made by unit of measure at a definite price for each unit. As
between the absence of a recital of a given price per unit of measurement, and the
specification of the total area sold, the former must prevail and determines the applicability of
the norms concerning sales for a lump sum.
TIME & PLACE OF DELIVERY
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2.
3.
4.
5.
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In case of specific goods, the place of delivery is that where such goods were at the time
the contract was made.
The seller shall not be released until the 3 rd person with possession of goods acknowledges
being the bailee for the buyer.
The seller bears the expenses to place the thing in a deliverable state, unless otherwise
agreed.
OBLIGATION OF BUYER
1. Pay the price
Buyer is obligated to pay price according to terms agreed upon regarding time, place
& amount
Where to accept: at time & place stipulated in the contract; if none specified at the
time & place of delivery
When buyer has a right to refuse goods, no need to return; shall be considered as
depositary; unless there is stipulation to contrary
DOUBLE SALE- where the same property is sold to different vendees.
General Rule: FIRST IN TIME, PRIORITY IN RIGHT
When does it apply: when not all requisites embodied in 1544 concur
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Requisites;
1. exactly same subject matter
2. exactly same immediate seller
3. they buyers represent conflicting interest
4. both sales are valid
RULES ACCORDING TO 1544:
1. MOVABLE
No inscription & no possession in good faith Person who presents oldest title in good
faith
Sales of immovable property are subject to the Mortgage Law and Land Registration
Law (Article 1637).
GOOD FAITH
1. one who buys property without notice that another person has a right or interest in such
property
2. one who has paid price before notice that another has claim or interest
1544 applies
2. not registered under the Torrens system
decided case which excluded unregistered land dealt with judicial sale whereby buyer
acquires right of transferor; outside of such situation must apply to conflicting sale
over same unregistered parcel of land
3. when situation is sale 1 deals with land when not yet registered & sale 2 is done when
land already registered apply FIRST IN TIME, PRIORITY IN RIGHT
Agricultural & Home Extension v. CA
A purchaser in good faith is one who buys the property of another without notice that some
other person has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim or interest of some
other person in the property. The annotation of lis pendens on the title to the property by 3 rd
parties does not place the buyer in bad faith since such does not establish a lien or
encumbrance on the property affected.
Cheng v. Genato
The rules on double sales under Art. 1544 are not applicable to a contract to sell. For Art. 1544
to apply, there must be valid sales transactions and the buyers must be at odds over the
rightful ownership of the subject matter who must have bought from the very same seller.
Such circumstances are lacking in a contract to sell since there is no transfer of ownership and
no sale has yet been consummated. Nevertheless, the governing principle of Art. 1544 should
apply, mainly the principle of primus tempore, portior jure (first in time, stronger in right).
Gatmaitan v. CA
If immovable property is sold 2 different parties, the ownership shall pertain to the person
acquiring it who, in good faith, first registered it in the Registry of Property. This rule however,
admits of an exception, and that is where the 2nd purchaser had knowledge of the other sale,
prior to or at the time of the sale. In such case, his knowledge is equivalent to registration and
taints his purchase with bad faith. The applicable rule in this case would be that the ownership
shall pertain to the person who, in good faith, first entered into possession of the property or,
in the absence of possession, to the person who presents the oldest title, provided there is
good faith.
Navera v. CA
Where both sales were not recorded in the Registry of Property, the law clearly vests the
ownership upon the person who in good faith was first in possession of the disputed lot. The
possession mentioned in Article 1544 for determining who has better right when the same
piece of land has been sold several times by the same vendor includes not only the material
but also the symbolic possession, which is acquired by the execution of a public instrument. In
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the case at bar, both sales were executed through public instruments. Ownership should
therefore be recognized in favor of the first vendee.
Cruz v. Cabana
Prior registration by the 2nd buyer does not by itself confer ownership or a better right over the
property. Such registration must be coupled with good faith. The governing rule is primus
tempore, potior jure (first in time, stronger in righs). Knowledge gained by the 2 nd buyer of the
first defeats his rights even if he is first to register the sale, since such knowledge taints his
prior registration in bad faith.
Baricuatro v. CA (2000)
Galeos sold 2 lots of a subdivision, on installment basis, to Baricuatro and subsequently sold
the entire village to Amores. Galeos told Baricuatro that he should make full payment to
Amores. After Baricuatro failed to make payment to Amores, the latter sold the same 2 lots to
the Nemenio spouses. The 2nd vendee obtained title to the lots and asked Baricuatro to
vacate. When the latter refused to do so, the Nemenios filed an action to quiet title. The SC
declared the sales to Amores and Nemenio as null and void. It ruled that even if Amores and
the Nemenios were purchasers in good faith, they did not act in good faith when they
registered their titles to the disputed lots as they already had knowledge of the sale to
Baricuatro before such registration. For a 2 nd buyer to successfully invoke Art. 1544, he must
possess good faith from the time of acquisition of the property until the registration of the
deed of conveyance covering the same.
Carumba v. CA
While under Article 1544, registration in good faith prevails over possession in the event of a
doubt sale by the vendor of the same piece of land to different vendees, said article is of no
application to unregistered land at an execution sale. The reason is that the purchaser of
unregistered land at a sheriff's execution sale only steps into the shoes of the judgment debtor.
He merely acquires the latter's interest in the property sold as of the time the property was
levied upon. In this case, the first vendee bought the property before the land was levied
upon. Therefore, he has a better right to the land even if the 2 nd vendee was first to register
the land in good faith.
not creations of law but by merchants to allow them to deal with merchandise without
having to physically carry them around
Before notification can be garnished but not when there is notification already
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Negotiable
Can not be levied or garnished when docs already with purchaser in good faith, unless:
a. Document is first surrendered
b. Document is pounded by court
c. Negotiation is enjoined
law on estoppel further bolster it: title passes by operation of law to grantee when
person who is not owner of goods sold delivers it and later on acquires title thereto
Exception:
a. owner by his conduct is precluded from denying sellers authority (ESTOPPEL)
b. contrary is provided for in recording laws (pd 1529)
c. sale is made under statutory power of sale or under a court of competent
jurisdiction
d. sale is made under merchants store in accordance with code of commerce &
special laws
City of Manila v. Bugsuk
A principal office is not a store. A store is defined as any place where goods are kept for sale,
whether by wholesale or retail, or any place where goods are deposited and sold by one
engaged in buying and selling them.
Aznar v. Yapdiangco
Under Article 1506, it is essential that the seller should have a voidable title at least. It is
clearly inapplicable where the seller had no title at all. Where the would-be buyer took
possession of the subject matter by stealing the same while it was in the custody of the
vendor's agent, there is unlawful deprivation and the owner has the right to recover the thing
not only from the finder, thief or robber, but also from third persons who may have acquired it
in good faith from such finder, thief or robber, pursuant to Art. 559, CC.
EDCA Publishing v. Santos
An impostor, identifying himself as a professor, obtained delivery of books from EDCA for which
he issued a check that subsequently bounced. The impostor sold the books to Santos for
value. According to the SC, the non-payment of the purchase price by the impostor, although
amounting to fraud, did not amount to unlawful deprivation under Art. 559. Such fraud may be
considered a vitiation of consent, making the contract voidable, but valid until annulled.
Hence, the sale to Santos was valid.
2.
Valid sale if title has not yet been avoided buyer buys goods under following
condition:
a. in good faith
b. for value
c. without notice of sellers defect of title
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Requisites:
a. Possession of a movable
b. In good faith
Exception:
a. Owner lost movable owner can recover w/o reimbursing price
b. Owner is unlawfully deprived owner can recover w/o reimbursing price
Exception to Exception:
a. movable is bought at public sale owner can only recover after reimbursing price
b. in good faith & for value
III.
A. ACCEPTANCE OF DELIVERY
The vendee is bound to accept delivery of the thing sold at the time and place stipulated in
the contract (Article 1582).
if no time and place is stipulated = see rules under Place and Time of Delivery
express acceptance (Article 1585): when the buyer intimates to the seller acceptance of
delivered goods
implied acceptance (Article 1585):
when the buyer does an act, in relation to the delivered goods, which is inconsistent with
the sellers ownership
when the buyer retains the goods after the lapse of reasonable time, without intimating to
the seller that he has rejected the goods
GEN. RULE: Acceptance of goods by the buyer shall not discharge the seller from liability for
breach of any promise or warranty.
EXCEPTIONS:
1. where there is an agreement to the contrary
2. where the buyer fails to give notice to the seller of any breach of promise or warranty
within a reasonable time after he comes to know or ought to have known of it
1. Delivery in Installments (Article 1583)
GEN. RULE: The buyer is not bound to accept goods delivered in installments.
EXCEPTION: where there is a stipulation to the contrary
WHERE GOODS ARE TO BE DELIVERED IN INSTALLMENTS AND PAID FOR SEPARATELY:
if seller makes defective delivery or if the buyer fails to take delivery or make payment, it
depends upon each case whether the breach affects the entire contract or just a part
thereof
where breach affects entire contract, the injured party may refuse to proceed further and
sue for damages for breach of the entire contract
where breach is severable, it will give rise to a claim for compensation for the particular
breach only
2. Right of Examination (Article 1584)
unless otherwise stipulated, the buyer is not deemed to have accepted the goods delivered
to him until he has had reasonable opportunity to examine them
when the seller tenders the goods, the buyer must request for the opportunity to
examine the goods
where goods are delivered to a carrier and delivery to the buyer is withheld until
payment of the price, the buyer is not entitled to examine the goods before payment
of the price, in the absence of agreement or usage of trade permitting the examination
3.
Refusal to Accept
a. justified refusal (Article 1587):
buyer is not bound to return the goods to the seller, it being sufficient that he
notifies the seller of his refusal to accept
goods are at the risk of the seller even if such are in the possession of the buyer,
unless the latter should voluntarily constitute himself a depositary thereof
b. wrongful refusal (Article 1588): title passes to the buyer, and he bears the risk of loss
La Fuerza v. CA
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The thing sold is understood as delivered when it is placed in the control and possession of the
vendee. From the time of installation and trial run of the conveyors, the vendees were in a
position to decide whether or not it was satisfied with the goods, and, hence, to state whether
the same were accepted or rejected. The vendee's failure to express categorically whether
they accepted or rejected the conveyors does not detract from the fact that the same were
actually in its possession and control, and that the period prescribed in Art. 1571, CC had
begun to run.
B. PAYMENT OF PRICE
1.
if stipulated
stipulated rate governs; otherwise, the rate is 12%
stipulation may be oral
if the thing delivered produce fruits or income
if the buyer is in default, from the time of judicial or extrajudicial demand for payment
2.
vendee may suspend payment until the vendor has caused the disturbance or danger to
cease
3.
ACTION BROUGHT BY VENDOR (Article 1591): should he have reasonable grounds to fear the
loss of the immovable and its price
contemplates a situation where the immovable has been delivered but the price has not
yet been paid
should such ground not exist, Article 1191 shall be observed
WHERE AUTOMATIC RESCISSION FOR NON-PAYMENT IS STIPULATED (Article 1592):
vendee may still pay, even after expiration of the period, as long as no demand for
rescission has been made either judicially or by a notarial act
after demand, the court may not grant the vendee a new term
vendee may no longer pay the price after the expiration of the period:
in sales on installments wherein the parties have laid down the procedure to be
followed in case of default by vendee
in a mere promise to sell where the title remains with the vendor until full payment of
the price
no installment payments made by the buyer shall be forfeited in favor of the owner or
developer when the buyer desists from further payment due to the failure of the owner or
developer to develop according to the approved plan and within the time limit for
complying with the same
the buyer is granted the option to be reimbursed the total amount paid
Legarda Hermanos v. Saldaa
Legarda Hermanos sold 2 lots to Saldaa on installment basis. After 8 years of continuous
payments, Saldaa defaulted and because of this, Legarda Hermanos cancelled the contract.
According to the SC, the vendor could not rescind the sale of both lots since the payments
made by Saldaa were enough to cover the purchase price of one lot. In this case, there was
substantial performance on the part of Saldaa as to prevent rescission.
Siska Development v. Office of the President
The sending of a notice of cancellation to the buyer is mandated by R.A. 6552 (the Maceda
Law) which took effect on September 14, 1972. Section 3(b) provides that "the actual
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cancellation of the contract shall take place 30 days from receipt of the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer." While the contract was entered into before
the effectivity of the Maceda Law, the rescission took place when the said law was in full force
and effect. But even before the effectivity of said law, jurisprudence made necessary a notice
of rescission. As stressed in University of the Philippines v. Walfrido De los Angeles, the act of
the party in treating a contract as cancelled should be made known to the other.
Moreover, unilateral cancellation of a contract to sell is not warranted if the breach is slight or
casual.
Odyssey Park, Inc. v. CA
In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not the breach contemplated under Art. 1191 CC (where breach is the
obligors failure to comply with an obligation already extant, not a failure of a condition to
render binding that obligation).
Bricktown Devt. Corp. v. Amor Tierra Devt.
A grace period is a right, not an obligation, of the debtor. When unconditionally conferred, the
grace period is effective without further need of demand either calling for the payment of the
obligation or for honoring the right. The grace period must not be likened to an obligation, the
non-payment of which, under Article 1169 of the Civil Code, would generally still require
judicial or extrajudicial demand before "default" can be said to arise.
4. Rescission of Sale of Movable Property (Article 1593)
Vendor can rescind the sale as a matter of right if the vendee does not:
a. accept delivery
b. pay the price
exception: where a longer period has been stipulated for payment
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Contract is merely inefficacious because loss of the subject matter does not affect the
validity of the sale
Seller cannot anymore comply with obligation so buyer cannot anymore be compelled
3. After Perfection but before delivery
a. Loss confused state
2 views:
Paras: BUYER
Tolentino: SELLER
b. Deterioration & fruits - Buyer bears loss
4. After delivery
Delivery extinguish ownership vis-a-vis the seller & creates a new one in favor of the
buyer
CHAPTER 10: REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE
SUBJECT MATTER: MOVABLES (IN GENERAL)
REMEDIES OF UNPAID SELLER
Any man may not take law in his own hands, must seek remedy through courts
Exception:
1. DOCTRINE OF SELF HELP
2. SPECIAL REMEDIES
Requisites:
1. Subject matter goods
2. Seller is unpaid not completely paid or received negotiable instrument under a
condition & condition has been breached by reason of dishonor
3. Physical possession is with seller
1.
2.
3.
4.
possessory lien
stoppage in transitu
special right of re-sale
special right to rescind
POSSESSORY LIEN
Seller not bound to deliver if buyer has no paid him the price
Right to retain; cannot be availed when seller does not have custody
When part of goods delivered, may still exercise right on goods undelivered
loses lien when he parts with goods (still has stoppage in transitu)
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STOPPAGE IN TRANSITU
Requisites:
1. Goods are in transit
Requisites:
1. goods are perishable
2. stipulated the right of resale in case buyer defaults in payment
3. buyer in default for unreasonable time
why special there are things which seller cannot do in ordinary sale:
1. ownership is with buyer but seller can sell goods
2. title accorded to buyer is destroyed even without court intervention
SPECIAL RIGHT TO RESCIND
why special ownership of goods already with buyer but seller may still rescind; ownership
is destroyed even without court intervention but in ordinary sale, need to go to court to
destroy transfer of ownership
Requisites:
1. Expressly stipulated
2. Buyer is in default for unreasonable time
When Seller fails to deliver, buyer may seek SPECIFIC PERFORMANCE WITHOUT GIVING
SELLER OPTION TO RETAIN GOODS ON PAYMENT OF DAMAGES
SALE OF MOVABLES ON INSTALLMENT
REMEDIES OF UNPAID SELLER (1484)
1. Exact fulfillment should the buyer fail to pay
2. Cancel the sale if buyer fails to pay 2 or more installments
3. Foreclose on chattel mortgage if buyer fails to pay 2 or more installments
If buyer chooses foreclosure, no further action against buyer to recover any unpaid
balance of the price
Rationale of the law: Buyer is lulled into thinking that he could afford because of small
amounts per installment & at the same time remedy abuse of commercial houses
Coverage: sale & financing transaction & contracts of lease with option to purchase
But stipulation that installments paid are forfeited are valid if not unconscionable
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Seller has reasonable grounds to fear loss of immovable sold & its price sue for
RESCISSION
2. Non payment of price
RESCISSION
REMEDIES OF BUYER
1. Disturbed in possession or with reasonable grounds to fear disturbance
SUSPEND PAYMENT
2. In case of subdivision or condo projects
If real estate developer fails to comply with obligation according to approved plan:
a) RESCIND
b) SUSPEND PAYMENT UNTIL SELLER COMPLIES
IMMOVABLES (BY INSTALLMENT)
Coverage: REAL ESTATE defines space v CONDO not defined space (w/ common areas)
1. contract of sale
2. contract to sell
3. financing transactions
Excluded:
1. industrial
2. commercial
3. sale to tenants under agrarian laws
with interest
Other rights:
a. Sell rights to another
b. Reinstate contract by updating within 30 days before cancellation
c. Deed of Sale to be done by notarial act
d. To pay full installment in advance the balance of price anytime without interest
e. Have full payment annotated in certificate of title
CHAPTER 11: REMEDY OF RESCISSION IN CONTRACTS COVERING IMMOVABLES
RESCISSION (RESOLUTION) 1191
RESCISSION 1385
legal basis is substantial breach
legal basis is lesion (rescissible contract)
principal remedy, retaliatory vs. unjust party
subsidiary remedy cannot be instituted except
when other remedies exhausted
mutual restitution
mutual restitution
Nature: Judicial
allowed if stipulated; burden to sue shifts to party who do not like rescission
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CONTRACT OF SALE
Governed by genus SALE
Ownership passes because of tradition
Non-payment is resolutory condition which may
be basis of breach
Perfection gives rise to reciprocal demandable
obligation
29
CONTRACT TO SELL
Governed by genus SALE
Ownership passes upon full payment
Non payment is suspensive non-payment
extinguishes contract to sell
Perfection gives rise to reciprocal conditional
obligation
Non payment of purchase price would automatically cancel even without further action
for rescission
Except: If subject matter is residential lots, law on rescission applies when there is
substantial breach
CHAPTER 12: CONDITION & WARRANTIES
A. CONDITION
When a contract contains a condition, the non-happening of which would not constitute a
breach but extinguishes the obligation
However, if party to the sales contract has promised that the condition should happen or
be performed, the non-performance of which may be treated by parties as breach
CONDITION
WARRANTY
Purports to existence of obligation
Purports to performance of obligation
Obligation must be stipulated to form part of Need not be stipulated; may form part of
the obligation
obligation by provision of law
May attach itself to obligation of seller to Relates to the subject matter itself or to
deliver possession & transfer
obligation of the seller as to the subject
matter of the sale
B. EXPRESS WARRANTIES ( REQUISITES )
1. it must be an affirmation of fact or any promise by seller relating to the subject matter
of sale
2. natural tendency of affirmation or promise is to induce buyer to purchase subject
matter
3. buyer purchases the subject matter relying thereon
not applicable to sheriff, auctioneer, mortgagee, pledge, person professing to sell by virtue
of authority in fact or law
vendor must be summoned in the suit for eviction at the instance of the vendee to
be made liable for the breach of warranty (Article 1558)
vendee shall ask that vendor be made his/her co-defendant (Article 1559)
to give the vendee a chance to defend the title he transferred
vendor is liable even if vendee does not appeal from the judgment (Article 1549)
an act imputable to the vendor
vendor is liable where property is sold at public auction for non-payment of taxes
due him and unknown to vendee (Article 1551)
GEN. RULE: The vendors liability for breach of warranty against eviction may be increased,
diminished or suppressed by stipulation (Article 1548).
EXCEPTION: Where the vendor acts in bad faith, stipulation waiving liability is void (Article
1553).
bad faith by vendee = selling the thing even with knowledge that there is cause for or
risk of eviction
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exception to the exception: where the vendee is also in bad faith, vendor cannot be
held liable for the eviction
Escaler v. CA
The Reynoso spouses sold a parcel of land to the petitioners, which sale was warranted against
eviction. When the TCT in favor of the petitioners was declared null and void (on the ground
that the property covered by said title is already previously registered in favor of a 3 rd party),
the petitioners sued for the violation of the warranty against eviction. The SC held that the
vendors were not liable because they were not summoned and made co-defendants in the suit
at the instance of the vendees. The vendees merely furnished the vendors a copy of the
opposition filed in the eviction suit by registered mail.
2. Kinds and Effects of Waiver of Eviction (Article 1554)
a. consciente: waiver is voluntarily made by the vendee without knowledge and
assumption of risks of eviction
effect: vendor shall only pay the value which the thing sold had at the time of
eviction
b. intencionada: waiver made by vendee with knowledge of the risk of eviction and
assumption of its consequences
effect: the vendor shall not be liable provided he did not act in bad faith
The rule on warranty against eviction applies to a judgment debtor in judicial sales, unless
otherwise decreed in the judgment (Article 1552)
unless there is an express warranty that the thing is free from all burdens and
encumbrances
must not be known to the vendee
action for rescission or damages must be brought within 1 year from the execution of the
deed
if one year period has elapsed, only the action for damages may be brought within a
year from discovery of the burden or servitude
3. WARRANTY AGAINST ENCUMBRANCES (non- apparent) requisites:
a. immovable sold is encumbered with non apparent burden or servitude not
mentioned in the agreement
b. nature of non apparent servitude or burden is such that it must be presumed that
the buyer would not have acquired it had he been aware thereof
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when breach of warranty exist: buyer may ask for rescission or indemnity
warranty not applicable when non apparent burden or servitude is recorded in
the Registry of Property unless there is expressed warranty that the thing is free
from all burdens & encumbrances
when defect is visible or even if visible if the buyer is an expert by reason of his
trade or profession, seller is not liable
applicable to judicial sale except judgement debtor not liable for damages
The rules on warranty against hidden defects are applicable to judicial sales, except that
the judgment debtor shall not be liable for damages (Article 1570).
no liability for damages since a judgment debtor is forced to sell
5. DEFECTS ON ANIMALS
even in the case of professional inspection but hidden defect is of such nature that
expert knowledge is not sufficient - defect shall be considered as REDHIBITORY
if vet fails to discover through ignorance or bad faith he is liable for damages
a. sale of animals on teams ( 2 or more )
when only one is defective, only one is redhibited & not the others
exception:
when it appears that purchase of team will not be done without
the defective one
void if use / service for which they are acquired has been stated in the contract
and they are found to be unfit thereof
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no warranty unless there is stipulation in case of sale of specified article under its
patent or trade name
If seller is a dealer in goods of that kind, there is an implied warranty that the
goods shall be free from defect rendering them unmerchantable which would not
be apparent on reasonable examination of the sample
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E. EFFECTS OF WAIVER
Parties may increase or diminish implied warranty against eviction; but effect depends
on good faith or bad faith on the part of the seller.
1. seller in bad faith & there is waiver against eviction null & void
2. buyer without knowledge of a particular risk made general renunciation of
warranty not waiver but merely limits liability of seller in case of eviction (pay
value of subject matter at time of eviction)
3. buyer with knowledge of risk of eviction assumed its consequences & made a
waiver vendor not liable (applicable only to waiver of warranty against eviction)
when goods deteriorated, buyer can still return them in that condition if such is due to
breach or warranty
F.
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coupled with obligation to return price of the sale, expensed of contract & other legitimate
payments and the necessary & useful expenses made on the thing sold
right must be recognized in the deed of sale; must be the same contract
OPTION TO PURCHASE
right to repurchase the thing sold granted to the vendor in a separate instrument from the
deed of sale
Villarica v. CA
The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can
no longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case.
Vda. de Zulueta v. Octaviano
Villarica ruling may only apply if there is adequate showing that the parties acted in good faith
in executing the two separate documents, and not to hide the fact that their transaction is one
of sale with right of repurchase, or one of equitable mortgage.
Catangcatang v. Legayada
In the exercise of the right of repurchase, it is not sufficient that the vendor a retro manifests
his desire to repurchase. This statement of intention must be accompanied with an actual and
simultaneous tender of payment which constitutes the legal exercise of the right to
repurchase. While consignation of the redemption price is not necessary in order to allow the
repurchase within the time provided by law or by contract, a mere tender being enough, said
tender does not relieve the vendor from the obligation of paying the price. However, when
tender of payment cannot be validly made, the vendor a retro should file a suit for
consignation with the courts of the redemption price within the redemption period.
Ong Chua v. Carr
The pendency of an action brought in good faith and relating to the validity of a sale with pacto
de retro, tolls the term for the right of redemption.
EQUITABLE MORTGAGE
a contract with right to repurchase is equitable mortgage if the following requisites concur:
1. price of sale with right to repurchase is unusually inadequate
2. seller remains in possession as a lessee or otherwise
3. upon / after expiration of right to repurchase, another instrument extending the period
of redemption is executed
4. buyer retains for himself a part of the purchase price
5. seller binds himself to pay taxes on thing sold
6. real intention of parties is to secure the payment of a debt or performance of other
obligation
IN CASE OF DOUBT IN DETERMINING WHETHER IT IS EQUITABLE MORTGAGE OR
SALE A RETRO (WITH RIGHT OF REPURCHASE IT SHALL BE CONSTRUED AS
EQUITABLE MORTGAGE)
WHAT TO LOOK FOR IN DETERMINING NATURE OF CONTRACT
1. language of the contract
2. conduct of parties to reveal real intent
REMEDY AVAILABLE TO VENDOR: ask for reformation of contract
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real intention of parties is that the pretended purchase price is money loaned & to secure
payment of the loan, sale with pacto de retro is drawn up
equitable mortgage: a mortgage which lacks the formalities of a mortgage but shows the
intention of the parties to use the property as security for the fulfillment of an obligation
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.
In case of doubt, Article 1602 applies to pacto de retro sales and absolute sales (Articles
1603 and 1604).
this is an exception to the rule that doubts affecting an onerous contract shall be
settled in favor of the greatest reciprocity of interests
Article 1605. In the cases referred to in Articles 1602 and 1604, the apparent vendor may ask
for the reformation of the instrument.
In reformation, there has been a meeting of the minds between the parties, but the written
instrument does not express their true intention (Article 1359). If there has been no
meeting of the minds, the remedy is annulment (Article 1390).
Uy v. CA
The presence of only one circumstance defined in Article 1602 is sufficient for a contract of
sale with right to repurchase to be presumed an equitable mortgage. The said article expressly
provides therefor 'in any of the following cases', hence, the existence of any of the
circumstances enumerated therein, not a concurrence nor an overwhelming number of such
circumstances suffices to give rise to the presumption that the contract with right to purchase
is an equitable mortgage.
Balatero v. IAC
Article 1602 is designed primarily to curtail the evils brought about by contracts of sale with
right of repurchase, such as the circumvention of the usury law and pactum commissorium.
Being remedial in nature, Article 1602 may be applied retroactively to cases arising prior to the
effectivity of the New Civil Code.
Moreover, the execution of an affidavit of consolidation by the purported buyer to consolidate
ownership over the subject parcel of land is of no consequence and the constructive
possession over the parcel of land would not ripen into ownership, since only possession
acquired and enjoyed in the concept of owner can serve as title for acquiring dominion (Art.
540).
Ignacio v. CA
The mere fact that the price in a pacto de retro sale is not the true value of the property does
not justify the conclusion that the contract is one of equitable mortgage. In a pacto de retro
sale, the practice is to fix a relatively reduced price to afford the vendor a retro every facility to
redeem the property. Moreover, private respondents in this case have not been in actual
possession of the subject property. They had been leasing it out at the time the deed was
executed.
Matanguihan v. CA
A document which appears on its face to be a sale absolute or with pacto de retro may be
proven by the vendor to be one of a loan with mortgage. In this case, parol evidence becomes
competent and admissible to prove that the instrument was given merely as security for
payment of a loan.
Solid Homes, Inc. v. CA
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In a contract of sale with pacto de retro, the buyer has a right to the immediate possession of
the property sold, unless otherwise agreed upon. This is because title and ownership of the
property sold are immediately vested in the vendee a retro , subject only to the resolutory
condition of repurchase by the vendor a retro within the stipulated period.
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PERIOD OF REDEMPTION
1. No period agreed upon 4 years from date of contract
2. When there is agreement should no exceed 10 years; if it exceeded, valid only for the
first 10 years.
3. When period to redeem has expired & there has been a previous suit on the nature of the
contract seller shill has 30 days from final judgement on the basis that contract was a
sale with pacto de retro: rationale: no redemption due to erroneous belief that it is
equitable mortgage which can be extinguished by paying the loan.
4. When period has expired & seller allowed the period of redemption to expire seller is at
fault for not having exercised his rights so should not be granted a new period
EFFECT WHEN THERE IS NO REDEMPTION MADE:
1. jurisprudence before the NCC: buyer a retro automatically acquires full ownership
2. under present art 1607: there must be3 judicial order before ownership of real property is
consolidate in the buyer a retro
HOW IS REDEMPTION EFFECTED:
1. Seller a retro must return first pay the following:
a.
the price of the thing sold
b.
expensed of the contract and other legitimate payments made by reason of
the sale
c.
necessary and useful expensed made on the thing sold
2. Valid tender of payment is sufficient
3. Mere sending of notice without valid tender is insufficient
4. Failure to pay useful & unnecessary expenses entitled vendee to retain land unless actual
reimbursement is made
IN CASE OF MULTI-PARTIES
1. When an undivided thing is old because co-owners cannot agree that it be allotted to on of
them vendee a retro my compel the vendor to redeem the whole thing
2. When an undivided thing is sold by co-owners / co-heirs, vendors a retro may only exercise
his right over his respective share; vendee a retro may demand that they must come to an
agreement first and may not be compelled to consent to a partial redemption
3. When rights for co-owners over an undivided thins is sold as regards to their own share
vendee retro cannot compel one to redeem the whole property
4. Should one of the co-heirs/co-owners succeed in redeeming the property such vendor a
retro shall be considered as trustee with respect to the share of the other co-owners/coheirs.
FRUITS
1. what controls is the stipulation between parties as regards the fruits; if none
2. at time of execution of the sale a retro there should be visible or growing fruits there shall
be no pro-rating at time of redemption of no indemnity was paid by the vendee a retro
3. at time of execution sale a retro there should be no fruits but there are fruits at time of
redemption pro-rated between vendor a retro & vendee a retro giving the vendee a retro
a part corresponding to the time he possessed the land.
LEGAL REDEMPTION
right to be subrogated upon the same terms and conditions stipulated in the contract, in
the place of one who acquires the thing by purchase or by dation in payment or by other
transaction whereby ownership is transmitted by onerous title.
1. among co-heirs
any of the co-heirs may be subrogated to the rights of the purchaser by redeeming
said hereditary right: reimburse buyer of the price of the sale
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among co-owners
any co-owner may exercise right of redemption by paying reasonable price of property
to the buyer
where piece of rural land has an area not exceeding 1 hectare, adjoining owner has
right to redeem unless grantee does not own a rural land
if 2 or more adjacent lit owners desire to exercise right to redeem & both have
same lot area, one who first requested shall be granted
b. urban land
when piece of land is small & cannot be used for any practical purpose & brought
merely for speculation, owner of adjoining land can redeem
2 or more owners of adjoining lot desire to exercise right to redeem, owner whose
intention towards use of land shall be preferred.
when a credit or other incorporeal right in litigation is sold, debtor shall have a
right to extinguish it by reimbursing the assignee for the price the latter paid
therefor plus judicial costs, interest
debtor may exercise right within 30 days from assignee demands payment from
him
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Subject to repurchase by wife, legal heirs within 5 years from date of conveyance
delinquent payer has 1 year to redeem by paying to the revenue District Officer the
amount of tax delinquencies, & interest or purchase price.
3.
Torres v. Cabling
Written notice of the sale is required to be given to the judgment debtor before the sale of
property on execution to give him the opportunity to prevent the sale by paying the judgment
debt sought to be enforced. Moreover, when there is a 3 rd party claim, the sheriff should
demand payment in cash from the judgment creditor, if he becomes the highest bidder,
instead of just crediting the amount to the partial satisfaction of the debt.
4.
Soriano v. Bautista
The stipulation in a deed of mortgage which renders the mortgagor's right to redeem
defeasible at the election of the mortgagee is not illegal or immoral, being merely an option to
buy sanctioned by Article 1479 of the Civil Code, when supported by a consideration distinct
from the purchase price.
5.
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De Guzman v. CA
Should one of the co-owners or co-heirs succeed alone in redeeming the whole property, such
co-owner or co-heir shall be considered as a mere trustee with respect to the shares of his coowners or co-heirs. Therefore, no prescription will lie against the right of any co-owner or coheir to demand from the redemptioner to a lien in favor of the redemptioner for the amount
paid by him corresponding to the value of the share.
Mariano v. CA
The giving of a copy of a deed is equivalent to the notice as required by law in legal
redemption. Written notice is indispensable, notwithstanding the actual knowledge of the sale
acquired in some other manners by the redemptioner. He or she is still entitled to written
notice to remove all uncertainty as to the sale, its terms and its validity, and to quiet any doubt
that the alienation is not definitive. The law not having provided for any alternative, the
method of notifications remains exclusive, though the Code neither prescribes any particular
form of written notice nor any distinctive method for written notification of redemption.
Alonzo v. CA
In this case, the redemption period began to run and expire although no notice in writing was
given to the co-heirs (vendors a retro). The SC made an exception to the written notice
requirement, since the co-heirs lived with the purchaser in the same lot and are deemed to
have received actual notice of the sale. Moreover, the co-heirs sought to exercise their right of
redemption thirteen years after the pacto de retro sale.
Distrito v. CA
The only purpose of the written notice is to insure that all the co-owners shall be actually
notified of the sale and to remove all doubt as to the perfection of the sale. When as in this
case the co-owner was actually present and was even an active intermediary in the
consummation of the sale of the property he is and must be considered to have had actual
notice of the sale. A written notice is no longer necessary.
SALE
Tangibles
Consensual
No recording needed to such
effect
EFFECT OF ASSIGNMENT
1. lack of knowledge or consent of debtor not essential for validity but has legal effect
2. assignment of rights made w/o knowledge of debtor debtor may set up against assignee
the compensation w/c would pertain to him against assignor of all credits prior to
assignment and later ones until he had knowledge of the assignment
3. debtor has consented to assignment cannot set up compensation unless assignor was
notified that he reserved his right to the compensation
4. debtor has knowledge but no consent - compensation may still be set up
TRANSFER OF OWNERSHIP
if the debtor pays the creditor before knowledge of the assignment, he shall be released
from his obligation (Article 1626)
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consent of the debtor is not needed to make an assignment; however, notice to the
debtor is needed for the protection of the assignee
DBP v. CA
An assignment to guarantee an obligation is virtually a mortgage and not an absolute
conveyance of title which confers ownership on the assignee. The assignment cannot be
considered as dacion en pago since non-payment on the loan cannot authorize the assignee to
register the assigned property in its name as it would constitute pactum commissorium.
WARRANTIES
1. against hidden defect - N/A because intangibles has no physical existence
2. existence & legality of credit - there is warranty except when what is sold is doubtful
account
3. solvency of debtor - no warranty, unless
a. there is stipulation
b. insolvency was prior to assignment & of common knowledge
speculative
law would rather benefit the debtor of such credits rather than the one who merely
speculates for profit
when credit or incorporeal right in litigation is assigned or sold, debtor has a right to
extinguish it by reimbursing the assignee for the price the buyer paid plus interest
right to redeem to be exercised within 30 days from demand by assignee for payment
RIGHT TO REDEEM BY DEBTOR NOT AVAILABLE IN THE FOLLOWING INSTANCES (NOT CONSIDERED SPECULATIVE)
1. assignment of credit / incorporeal right to co-heir or co-worker
2. assignment to creditor in payment for his credit
3. assignment to possessor of tenement or piece of land which is subject to the right in
litigation assigned
CHAPTER 15: BULK SALES LAW
EFFECTS OF NON-COMPLIANCE
ON TRANSACTION
FAILURE TO:
Prepare & deliver sworn listing of creditors
Apply proceeds pro-rata to listed creditors
Make
advance
written
disclosure
of
transactions to creditors
Register sworn statement with DTI
Include or omit names of creditors & correct
amount due in the statement
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ON SELLER
Criminal Liability
Criminal Liability
No Criminal Liability
Not void
Void
No Criminal Liability
Criminal Liability
Reviewer in Sales
Sale for no consideration
Void
42
Criminal Liability
ANTI-DUMMY LAW
Penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy
privileges reserved only for Filipinos
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