Sales Crombonds Reviewer

SALES
MIDTERMS REVIEWER
ATTY. RAY PAOLO SANTIAGO
CROMBONDS 2012-2013
Law on Sales
Chapter 1: The Nature of Sale
Necessarily would require a segregation/designation at some point,

making the subject matter determinate at that point
Determinate emphasizes that the delivery and transfer can only be
made when the subject matter becomes specific/determinate.
Art. 1458.
Elements of Contract of Sale
By the contract of sale one of the contracting parties obligates himself to transfer
the ownership 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. (1445a)
Definition of Sale
Nature of Obligations Created in a Sale
Contract whereby one of the contracting parties (seller) obligates himself to

o Transfer the ownership
o Deliver the possession
o Of a determinate thing
To the other party, the Buyer, who obligates himself
o To pay a price certain
o In money or its equivalent
These are real obligations obligations to give
o This means that they can be subject for actions of specific
performance.
o Art. 1480 : When what is to be delivered is a determinate thing, the
buyer may compel the seller to make the delivery, plus damages
o Thus, one who defaults cant insist on just paying damages

1 The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good
customs, public order or public policy;
Subject Matter of Sale
Determinable is included in determinate when describing the subject

matter of a sale
Article 1460 the determinate requirement is satisfied when, at the time the
contract is entered into
o The thing is capable of being made determinate
o Without necessity of new or further agreement
CLV: Determinate is also accurate because it refers to the obligation of the
seller
Sharing is a good thing!
Coronel vs CA
o Consent : meeting of the minds
o Subject matter
o Price certain
When all three are present, a perfected contract of sale arises
o Such validity not affected by previous fictitious deed of sale
o Neither is it affected by non-performance thereafter
SC has declared sales void when these requisites not present
o CLV : The more proper term is to declare a no contract situation
o Dizon v. CA: Absence of requirements negates the existence of a
contract of sale
When there is a defect in any of the elements
o Voidable, when defect is a vitiation of consent
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o Void : Art 1409
(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
Ad Majorem Dei Gloriam
SALES MIDTERMS REVIEWER
CROMBONDS 2012-2013
Stages in the Life of Sale
Consensual
Strictly speaking, only two

But SC has considered three
o Policitation
This is a period of time from when the parties indicate
interest in entering into an agreement
To the time when the contract is perfected
o Perfection
The concurrence of the essential elements of the sale
o Consummation
From when the parties perform their respective obligations
Culminates in extinguishment of the contract
Essential Characteristics of Sale

Nominate and Principal
Nominate : it has been given a name by law

Principal
o It can stand on its own
o Independent of other contracts for validity and existence
o Parties enter into a sale to achieve a sale
Not in preparation for another contract
This characteristic leads to the SC Doctrine : Real character of contract is
indicated by the substance, not by the name given to it by the parties
Lao v. CA
o Courts must look at the intent of the parties in order to determine the
nature of a contract
o Not at the nomenclature used to describe it
o True aim and purpose can be shown by conduct, words, actions
Cavite Dev Bank vs Lim
o Contracts not defined by parties
o But by the principles of law
Thus, all other contracts which have for their objective
o Transfer of ownership and possession of a determinate subject
o For a valuable consideration
o Will be governed by the law on Sales
Sale is perfected by mere consent

o At the moment there is a meeting of the minds upon the object and
consideration, the contract is perfected
Buenaventura v. CA
o Sale over subject matter is not real, but consensual
o It becomes valid and binding upon meeting of the minds as to the
price.
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Art 1475, Civil Code
o Parties may reciprocally demand performance from the moment of
perfection.
o Actual delivery/payment are not necessary components for a valid
sale to exist
Thus, nondelivery or nonpayment does not invalidate or void
a perfected sale.
These merely become legal basis for remedies.
o Fule v. CA
Contract of Sale perfected at the moment there is a meeting
of the minds upon the thing, and upon the price
It has the force of law between the contracting parties
Noncompliance with formal requirements does not affect
validity of contract
o He who alleges existence of a sale must show it by competent proof
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o Exception : Article 1322 of the Civil Code

Modalities that Affect Characteristic of Consensuality

2 The contract of sale is perfected 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 the law governing the form of contracts.
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When one of the parties is unable to read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person enforcing the contract must show
that the terms thereof have been fully explained to the former.
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Consensual characteristic may be affected by certain modalities added by

stipulation
o Ex. Suspensive term or condition
Thus, not all contracts of sale become automatically and immediately effective
NHA vs. Grace Baptist Church
o Even delivery and taking possession of subject matter, with consent of
the seller, does not perfect sale when meeting of minds is incomplete
o In this case, there was no agreement yet on final price.
Bilateral : it imposes obligations on both parties

o
Obligation/promise of each party is the cause for the obligation of the

other.
Reciprocal Obligations
Those which arise from the same cause
Each party is simultaneously a debtor and creditor of the other
The performance of one is conditioned upon the simultaneous

fulfillment of the other
Legal Effects of Sale being bilateral/reciprocal

Power to rescind is implied it need not be stipulated in the contract
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for innocent party to invoke the remedy.
Neither party incurs in delay if the other party does not comply/is not
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ready to comply.
From the moment one of the parties fulfills, default by the other
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begins, without need of prior demand.

4 Art 1191, NCC.
5 Art 1168.
Onerous : It imposes a valuable consideration.

o Ideally, a price certain in money or its equivalent.
Gaite v. Fonacier
o Stipulation regarding balance of the purchase price was deemed a
suspensive period rather than a condition.
o Why? Greater reciprocity obtains if we consider it to be a period.
o Rules of interpretation : we interpret in favor of the greater reciprocity
of interests.
Commutative
It is a requisite for a valid and enforceable sale that it is mutually

obligatory
Onerous
Bilateral and Reciprocal
PUP vs. CA
Commutative : a thing of value is exchanged for equal value

o Ideally, the value of the subject matter is equivalent to the price paid
No strict requirement though
o What is required is the belief of the seller that he received something
of commutative value to what he gave.
Gaite : obligations in a sale can be subordinated to a suspensive condition
o Thus, commutativeness is not objective, but subjective.
Ex. Seller selling old car for P200,000
o More objective review would say that the car is worth P500,000
o The contract would still be a sale, as seller really believes that hes
receing appropriate value
However, subjective nature cannot be pushed to absurdity
o Seller, knowing full well that his car is worth P200,000
o Sells it for P100
o Such could be considered more of a donation
Subjective nature supported by principle that inadequacy of price does not
affect ordinary sale
o Not a sufficient ground for cancelling a voluntary contract of sale

Sale is Title and Not Mode
Perfection of sale gives rise to obligations and rights
6 Arts. 1168 and 1191.
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Obligation of seller to deliver possession and ownership, right of buyer

to receive such
However, delivery or tradition is the mode that transfers ownership and
possession.
Sale is merely a title that creates obligation on its own, sale does not transfer
the ownership as a mode.
Sale perfected by consent but ownership passes only upon delivery
Acap v. CA
o Real right over a thing arising from a juridical act is not sufficient to
give rise to ownership
o Such right must be completed in the case of sale, by actually
acquiring the thing
Mode legal means by which ownership is created, transferred, or destroyed
o Succession
o Donation
o Discovery
Title constitutes the legal basis by which to affect ownership.
To reiterate : Sale does not by itself transfer or affect ownership it merely
creates the obligation to transfer ownership

o
Sale Distinguinshed from Other Similar Contracts
Underlying principle : intent of parties and elements of relationship are more

important than the nomenclature used to describe a certain contract
We look at the true aim and purpose of the contracting parties.
o Also requires formalities mandated by law in order to be valid

When is it important to know the distinction? when the consideration for the
transfer is not clear
Manongsong v. Estimo
o Valid sale cannot have legal effect of depriving compulsory heirs of
their legitimes
o Valid sale dos not diminish the estate of the seller
Because there is substitution of value
Commutative aspect
When price of sale is simulated, the sale is void, but the act may be shown to
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be a donation or some other act.
o Contract may be in the form of a sale but will end up being governed
by some other provisions of law.
On the other hand, a supposed donation may actually have different
considerations rather than liberality
o Burdens placed upon the donee
o In that case, it becomes important to determine what the applicable
rule is (Law on Sales vs. Law on Donation)
Art 726 of the Civil Code
o Even if a burden is imposed on donee, it is still a donation when such
burden is less than the value of the thing given.
Legal implication when the burden is more valuable than the thing given, it is
an onerous donation
o Maybe a barter or a sale.
From Barter
From Donation
Donation : act of liberality whereby a person disposes gratuitously of a thing or

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right in favor of another person, who accepts it.
Sale is essentially onerous, while donation is gratuitous.
Sale is perfected by consent, donation is a solemn contract
o Requires consent

Barter : One of the parties binds himself to give one thing in consideration for
the others promise to give another thing
Sale : One of the parties binds himself to deliver a thing in consideration of the
others undertaking to pay the price in money or its equivalent.
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Rules to Differentiate Sale from Barter
Art. 725, NCC
Art 1471, NCC

Art. 1468, NCC
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Manifest Intention of the Parties

Even if acquisition of a thing is paid for by another object
thats worth more than the money component
It may still be a sale if such was the intention of the parties.
o When Intention Does Not Appear and Consideration Consists Partly in
Money and Partly in Another Thing
It is barter when value of the thing given as part of the
consideration exceeds the amount of money given
It is sale when the value of the thing given as part of
consideration equals or is less than the amount of money
given.
Actually, these distinctions are merely academic
o Aside from two separate rules applicable to barter, Art 1641 say that
barter is governed by the Law on Sales
o What are the two separate rules?
Article 1639
If one of the contracting parties, having received the
thing promised him in barter, should prove that it
did not belong to the person who gave it, he cannot
be compelled to deliver that which he offered in
exchange, but he shall be entitled to damages
Article 1640
One who loses by eviction the thing received in
barter may recover that which he gave in exchange
with a right to damages, or he may only demand an
indemnity for damages. However, he can only make
use of the right to recover the thing which he has
delivered while the same remains in the possession
of the other party, and without prejudice to the
rights acquired in good faith in the meantime by a
third person.
Two instances where difference is critical
o Statute of Frauds does not apply to barter.
o Right of legal redemption granted by law to an adjoining owner of an
urban land does not cover exchanges of properties.
o
From Contract for a Piece-of-Work
Contractor binds himself to execute a piece of work for the employer,

in consideration of a certain price or compensation
o Contractor may either employ only his labor or skill, or also furnish the
material
Statutory Rules to Distinguish Sale from a Piece of Work contract
o Inchausti v. Cromwell (1911)
Issue : w/n seller could be held liable for sales tax on the price
it received from bailing hemp sold to customers
They contended that the charge for bailing should not be
considered as part of the sale, but as a charge for the service
rendered (i.e., for that piece of work)
o Inchausti:
Distinction between sale and contract for piece of work is
tested by the inquiry of whether the thing transferred is one
not in existence and which never would have existed but for
the order of the party
Or, a thing which would have existed and been the object of a
sale to some other person, even if the order was not made
o Later, the Civil Code gave statutory rules in Article 1467 two tests
Manufacturing in the ordinary course of business sales
contracts
Manufacturing upon special order for customers piece of
work
Upon special order based on the ability of producer to
manufacture the goods without waiting for specific orders
o Celestino Co v. Collector of Internal Revenue
Company used to pay sales tax on its products as a
manufatcturer-seller
They began claiming that they should only be assessed a
contractors tax
Because they manufactured their products only
upon special customers special orders, in
accordance with specifications
Thus making their services a piece-of-work contract
Court held that company cant claim the contractors tax
they were sellers
They habitually made the products
o
Piece of Work Contract
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That they made products only upon order did not

alter than ture of the establishment they would
manufacture the products as they always had
Nature of the products any builder could order
such products. Thus they did not serve special
customers only.
Essence of contract of piece of work sale of service
Company must accept a job which requires use of services
not generally performed by it
The test, in this case, is not one of timing
Rather, it is done by determining the nature of the
work to be performed and the products to be made.
The products must not be ordinary products of the
manufacturer
They would require special skills or equipment
o CIR v. Engng Equipment and Supply Company
EEI was engaged in design and installation of aircon systems
SC held that it was a contractor
If the article ordered by purchaser is exactly such as [vendor]
makes and keeps on hand for sale to anyone, and no change
is made at defendants request, it is a contract of sale.
EEI undertook negotiations and execution of individual
contracts each contract job was different, no two were
identical.
Test : whether the manufacturer could produce the product
ahead of any special order
What is the test to follow? CLV mentions the main theme in SC decisions
o Main distinguishing factor essence of why parties enter into the
contract
o If essence is the object, the contract is sale
o If the essence is the
Service
Knowledge
Reputation
o Of the manufacturer, it is for a piece of work
Essentially sale of services/labor
Practical needs for being able to distinguish
o Tax Provisions
o Sale real obligation
Could be subject of action for specific performance

Piece of work subject matter is service rendered
Thus it is an obligation to do
Cannot be subject to specific performance
PoW not governed by Statute of Frauds

From Agency to Sell or Agency to Buy
Agency : a person binds himself to render some service or to do something in

representation or on behalf of the principal, with the consent or authority of
the latter.
Agency establishes a representative capacity in the agent
o Highly fiduciary
o Involves obligations to do
Distinguishing Sale from Agency
o Sale is not unilaterally revocable
Contract of agency essentially revocable by principal
o Sale : buyer himself pays for the subject, which is his main obligation
Agency agent not obliged to pay the price, merely obliged
to deliver price which he may receive from buyer
o Sale Buyer becomes owner of subject matter after delivery
Agency agent never becomes owner
o Sale Seller warrants
Agency agent assumes no personal liability as long as he
acts within authority and in name of principal.
o Agency is a fiduciary relationship
Agent disqualified from receiving personal profit
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Statutory Rule Art. 1466 -- importance of essential clauses
o Quiroga v. Parsons, Puyat v. Arco Amusement : SC determined that the
contract was one of sale and not agency

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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.
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The essential clause provided for a transfer of ownership

upon payment precisely the essential features of a sale.
o Ker & Co. v. Lingad ownership of goods was never transferred to
possession of the dealer
Thus, not a sale
o Victorias Milling Co v. CA distinguishing factor of agency ifs that of
control
One person acts under the control of another.
Value for being able to distinguish
o Contract of Agency is valid and enforceable in any form not under
the SoF.
o Exception : authority to sell land must be in writing.
General Rule on Capacity of Parties

Art. 1489.
All persons who are authorized in this Code to obligate themselves, may enter into
a contract of sale, saving the modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor or other person without
capacity to act, he must pay a reasonable price therefor. Necessaries are those
referred to in Article 290. (1457a)
From Dacion en Pago
Chapter 2: Parties of Sale
Dacion : property is alienated to creditor in full satisfaction of a debt in money

o Governed by law on sales (express provision of law)
o Objective novation takes place
Thing offered as accepted equivalent of performance
Considered as object of sale debt is the purchase price
Dacion : exists in the stage of consummation
o A special mode of payment
Requisites for Dacion
o Performance of the prestation in lieu of payment
o Difference between prestation due and that given in substitution
o Agreement that the obligation is extinguished.
Similar to sale creditor buys the thing, payment of which is charged to the
debtors debt.
Minors, Insane or Demented Persons, Deaf-Mutes

From Lease
Lease : lessor binds himself to give to another the enjoyment or use of a thing
for a price certain, for a period which may be definite or indefinite.
Lease with option to buy is a conditional sale. (lease only in name)
When rentals in a lease are meant to be installment payments it is a sale by
installments.

General Rule : any person who has capacity to act, or the power to do acts
with legal effects, or with the power to obligate himself may enter into a
contract of sale.
Natural Persons : age of majority begins at 18 years they have capacity to
act from this point
Juridical Persons a juridical personality distinct from the members or
partners
o Expressly recognized by law
o They have full juridical capacity
GR: Minors, insane or demented persons, deaf-mutes who cannot write

have no legal capacity to contract and thus cannot be parties to a sale.
However, contracts entered into by these people are not void, but
voidable
o Subject to annulment
o Subject to ratification
Person who is capacitated cannot institute the action for annulment based
on incapacity.
When entered into during a lucid interval valid
When in a state of drunkenness, under hypnotic spell voidable.
Incapacitated person is not obliged to make restitution

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Except insofar as he has been benefitted by the thing/price
Necessaries
Senility and Serious Illness
This is an exception to a general rule regarding minors

o Since they cannot give consent, there can be no valid sale
o Thus, the sale is voidable
However, where necessaries are sold and delivered to a minor or
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incapacitated person, he must pay a reasonable price therefore.
o The sale here is valid.
Necessaries are defined in Art. 194 of the Family Code
o Everything indispensable for sustenance
o Dwelling
o Clothing
o Medical Attendance
o Education and transportation
o In keeping with the financial capacity of the family
Since sales can only be obligations to deliver a thing
o Necessaries under this article may only cover sales pertaining to
sustenance, dwelling, clothing
o Perhaps medicine and educational materials.
Requisites for sale of necessaries to minors to be valid
o Perfection of sale
o Delivery of subject necessaries
Emancipation
RA 6809 has lowered age of majority to 18 years old

Thus, issue on validity of sales entered into by emancipated minors no
longer exists.
Domingo vs. CA
o Main issue : did proponents establish existence and due execution
of a deed of sale
o Only evidence signature of the seller was a thumb mark made
while sick
o SC ruled that the sale was void ab initio
Consideration was inadequate
Alleged seller was incapacitated both physically and
mentally
o When age or infirmities have impaired mental faculties,
preventing person from properly understanding the rights, she is
incapacitated
o Thus there was reason to doubt the sellers consent to the sale of
the land.
CLV : the essence of the ruling declaring the sale void was that there was
never any meeting of the minds, and no real consideration
o This was caused by the incapacity
Paragas Doctrine
o Sale executed by senile person declared void, and not voidable
o SC used Art 24 of NCC
Protection of one with mental weakness
o CLV : this seems illogical
o CLV prefers the annulment of contract by reason of vitiated
consent
In other words, CLV seems to prefer having such sales declared voidable
(Paragas) or declaring sale void because of no meeting of the minds
(Domingo)
Sales By and Between Spouses
Art. 1490.
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The husband and the wife cannot sell property to each other, except:
Art 1489, NCC Where necessaries are those sold and delivered to a minor or other
person without capacity to act, he must pay a reasonable price therefor. Necessaries are
those referred to in Article 290.
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(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191.
(1458a)
Sale with Third Parties
Before Family Code there were limitations on when husband or wife

could deal with conjugal property
Present Family Code
o Common provisions apply equally to both spouses
o Spouses have joint administration of the conjugal properties in
CPG
o In ACP, everything is co-owned
Art 73 of the FC
o Either spouse may exercise business without the consent of the
other, and latter may only object on valid, serious and moral
grounds.
o Courts shall decide whether the objection is proper
o If benefits accrued before objection, obligation enforced against
separate property
o Otherwise, chargeable against the community property
Under Law on Sales
o Spouse may enter into sales in regular or normal pursuit of his or
her profession, without consent
o However Arts. 96 and 124 of FC
Administration of conjugal property will belong to both
jointly
In case of disagreement husbands decision will prevail,
subject to wife seeking remedy within 5 years
Disposition/encumbrance of property shall be void
without authority of court or written consent of other
spouse
In such case : transaction considered as a

continuing offer on the part of the consenting
spouse and the third person
May be perfected as a binding contract (before
withdrawal by either party)
o Upon acceptance of other spouse
o Or upon authorization by court
Guiang v. CA
Sale by husband of conjugal property without consent of
wife void (there was no full consent)
Abalos v. Macatangay Jr
Sale of husband of conjugal property without consent of
capacatitated wife was void ab initio
Exception : husband may dispose of conjugal property
without consent of wife when sale is necessary to answer
for conjugal liabilities in Arts 161-162 of NCC.
Sale Between Spouses

Art 1490, NCC Spouses cannot sell property to each other, except :
o Separation of property was agreed upon in marriage settlement
o Judicial Decree for separation of property
Art 1492 Prohibition relating to spouses selling to one another applicable
to sales in
o Redemption
o Compromise
o Renunciation

Status of Prohibited Sales between Spouses
Contracts entered into in violation of the above two provisions are void
Not everyone may assail validity, though
o Spouses themselves cannot they are in pari delicto.
o Creditors who became such after transaction cannot they have
not been prejudiced
Who can assail?
o Heirs of either spouse, who have been prejudiced
a.
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b.
c.
o Prior creditors
o State payment of taxes due on transactions.
Rationale for Prohibition
Medina v. CIR
o Prevent a spouse defrauding his creditors by transferring his
properties to the other spouse
o Avoid situation where dominant spouse unduly takes advantage
of the weaker spouse, defrauding the latter
o Avoid indirect violation of prohibitions against donation between
spouses (Art 133)
Art 133 now replaced by Art 87 of the FC prohibition
also applies to persons living together as husband and
wife without a valid marriage.
Art 86 does not make the same exceptions for donations that Art 1490
does for sales
o Thus, even if there is judicial separation of property, they still
cant donate to each other.
o Explanation : donation necessarily reduces estate of donor sale
would result in both estates being of the same value

Rationale for Exceptions to Prohibition under Art. 1490
It would seem that the situations in the exceptions are also susceptible to
the evils sought to be avoided.
o Greater danger of undue influence in separation of property
o One spouse can still exercise undue influence or pressure on the
other one.
o Also, exceptions allow the circumvention of the prohibition
against donations between spouses.
CLV : key element to exceptions lies in the psychology of the situation
o Hardness of heart on the part of the spouses
o Businesslike approach to the relationship
o Thus, it would be unlikely for one spouse to influence the other.
o This still doesnt cover situations where dominant spouses could
influence the other, weaker spouses
CLVs final word absolute prohibition under Art 87 of the FC should apply
to sales between spouses.
Applicability of Incapacity to Common Law Spouses
Matabuena v. Cervantes
o Whether ban on donations applies to common-law spouses
(This is moot now, Art 87 of FC also bans donations
between people living as husband and wife without
marriage)
o SC held that the donation was void reasons of policy.
Every reason to apply same prohibitive policy to
common-law spouses
Evils sought to be avoided are still present
Calimlim-Canullas v. Fortun
o Court applied the same ruling in Matabuena to sales
o Sales between common law spouses are void
Art 1409 such are contrary to morals and public policy
Art 1352 void for having unlawful cause
Art 1490 prohibits sales between spouses
o SC : otherwise, those who incurred guilt (thus living w/o benefit
of marriage) would be in a better position that those who were
legally married.
Specific Incapacity Mandated by Law

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 whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
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(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 any litigation in
which they may take part by virtue of their profession.
(6) Any others specially disqualified by law. (1459a)
Legal Status of Contracts Entered Into in Violation of Articles 1491

and 1942
The prohibitions in the two preceding articles are applicable to sales in legal
redemption, compromises and renunciations. (n)
Art 1491 of the CC prohibits the following persons from entering into
contracts of sale: (AGEP-JL)
o Agents, with respect to property whose administration or sale
may have been entrusted to him, unless consent of principal has
been given.
o Guardians, with respect to property of person under his
guardianship
o Executor or administrator, with respect to property of estate
under his administration
o Public officers and employees, with respect to property of the
State or any subdivision thereof
Or of any GOCC or institution
Administration of which has been entrusted to them
Provision includes judges and government experts who
take part in the sale.
Apart from case of agents, all cases in the enumeration cannot be

validated by the consent of the persons sought to be protected
o Only in the agents part is consent of principals given as an
exception.
It is not expressly stated that such contracts are void.
o Wolfson v. Estate of Martinez classified them as merely voidable.
Rubias v. Batiller Court said that they must be void, not merely voidable
o Civil Code recognizes the nullity of contracts which are expressly
prohibited or declared void by law and declares such inexistent
and void from the beginning.
o Violation of such provision cannot be cured by ratification
Different form of ratification
Rubias tries to declare a difference in the voidness of guardians, agents,
administrators, as opposed to judges, judicial officers and lawyers.
o Permanent disqualification of public and judicial officers and
lawyers is grounded on public policy.
o First three may be ratified by means of and in the form of a
new contract
In which case the validity will be determined as of the
time of the execution of the new contract
Thus, the contract may be lawful when at the time of the
second contract, the legal impediments no longer exist
Art. 1492.
Justices, judges, prosecuting attorneys, clerks of courts, and

other officers and employees connected with the administration
of justice, with respect to property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or
territory they exercise their respective functions
o Lawyers, with respect to property and rights which may be the
object of any litigation in which they may take part by virtue of
their profession.
These incapacities are applied also to sales in redemption, compromise
and renunciation
o
(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever, take part in the
sale;
a.
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In the first group (agents, guardians, administrators)

o After the inhibition has ceased, only real wrong is a private one
o A wrong that such private parties may choose to condone
Second group
o There also exists a public wrong
o Damage to the public service
o Damage to esteem with which we regard our justice system
Agents
Brokers do not come within this prohibition

o Their authority is merely looking for a buyer/seller
o To bring them together for them to consummate transaction
Schmid & Oberly v. RJL Martinez Fishing Corp
o Broker : one who is engaged, for others, on a commission,
negotiating contracts relative to property with the custody of
which he has no concern.
o Strictly a middleman.
o His occupation is to bring parties together to bargain.
Judges, Justices and Those Involved in Administration of Justice
Guardians, Administrators and Executors
These are necessarily officers of the courts they are appointed to such
positions in judicial proceedings
Phil Trust Co. v. Roldan
o Guardian filed a motion for authority to sell parcels of land
belonging to the ward (to invest in a house for the ward)
o Guardian sold parcels of land in favor of her brother in law, who
immediately resold the parcels to the guardian
o SC here overturned an earlier doctrine which required proof that
the third party was a mere intermediary
Even without such proof, the sale may be rescinded.
o Guardianship is a trust of the highest order the sales were
declared void
CLV : Any matter relating to advantage or benefit is irrelevant under Article
1491.
o The article imposes absolute disqualification.
To allow exceptions based on benefit is to court abuse of such

doctrine.
Are hereditary rights included in the coverage?
o Earlier ruling : Naval v . Enriquez held that hereditary rights arent
included in the prohibition insofar as the administrator or
executor of the estate of the deceased.
o CLV : This is hard to accept hereditary rights gain their value
only from the estate
The estate is what is within fiduciary control of the
administrator
If they were not included, administrator could validly
acquire hereditary rights putting him in a conflict of
interest situation.
Thus, the prohibition must apply based on the spirit of
the law.
o
Gan Tingo v. Pabinguit

o As to judges, it is not required that some contest or litigation over
the property itself should have been tried by the judge.
o The property is in litigation from the moment it becomes subject
to the judicial action of the judge
Macariola v. Asuncion
o Doctrine of prohibition applicable only during period of
litigation also applies to judges.
o In that case, judge acquired pieces of land which had been part of
a partition case decided by him
o SC held that prohibition was only applicable to property actually
under litigation and such acquisition must take place during the
pendency of the litigation
Attorneys
Valencia v. Cabanting reason for the prohibition is the fiduciary

relationship
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Intended to curtail any undue influence of the lawyer upon his

client.
Rubias v. Batiller nullity of such contracts is definite and permanent
o Cannot be cured by ratification or compromise.
Araneta Inc v. Tuason de Paterno prohibition applies only when property
they are buying is actually the subject of litigation
o It does not apply to a sale who were not the owners attorneys in
the case.
Del Rosario v. Millado prohibition does not apply when lawyer acquired
property prior to his involvement in a case concerning such.
Municipal Council of Iloilo v. Evangelista prohibition applies only to
lawyer who actually represented a client in a suit involving that property.
Prohibition only apples when litigation is pending
o Even if case is on appeal, after final judgment.
o
Law on Sales : catch-all provision for all onerous contracts for

transfer of ownership.
Contingent Fee Agreements
Recto v. Harden prohibition does not apply to a contingent fee

agreement
o Fee based on value of property involved
o Lawyer can acquire a certain percentage of the value of the
properties, if his client wins.
Vda. De Laig v. CA such agreement not prohibited because payment is
not made during pendency of litigation
Director of Lands v. Ababa contingent fee always subject to supervision
of courts
o Court may protect the client from any undue influence or fraud.
Fabillo v. IAC lawyer still must not exert undue influence.
CLV : Ababa and Fabilio sort of miss the point
o They exclude contingent fee agreements from prohibition
because of the timing
Fees are paid after pendency of litigation
o However, the agreement is negotiated during the pendency of
litigation at a point where the lawyer may still exert undue
influence
Also contingency fee agreement is essentially a contract for service why
is it in the Law on Sales?
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Chapter 3: Subject Matter
Requisites of Valid Subject Matter
Art. 1459
The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered. (n)
Art. 1460
A thing is determinate when it is particularly designated or physically segregated
from all others of the same class.
Absence of any requisite results in either a no contract situation, or a

void contract under Art. 1409.
Effect of no contract situation buyer can recover what he has paid,
based on the principle of unjust enrichment
Effects of void contracts:
1. If void because the illegality constitutes a criminal offense pari
delicto will apply; courts leave the parties where they are, without
prejudice to criminal prosecution
2. If no crime, but both are at fault neither may recover
3. If no crime, and only one party is at fault innocent party may
recover
The requisites of the subject matter are meant to safeguard the
realizability and enforceability of the obligations of the seller to transfer
ownership and deliver possession.
The requisite that a thing be determinate is satisfied if at the time the contract is
entered into, the thing is capable of being made determinate without the necessity
of a new or further agreement between the parties. (n)
Subject Matter Must be a Possible Thing
Art. 1461
A thing is possible when it is: (PEFR)
Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the
condition that the thing will come into existence
The sale of a vain hope or expectancy is void. (n)
Implications of the definition of possible thing
Art. 1462
The goods which form the subject of a contract of sale may be either existing goods,
owned or possessed by the seller, or goods to be manufactured, raised, or acquired
by the seller after the perfection of the contract of sale, in this Title called future
goods.
There may be a contract of sale of goods, whoose acquisition by the seller depends
upon a contingency which may or may not happen. (n)

Requisites of a valid subject matter: (PLD)
It must be a possible thing

It must be licit
It must be determinate or at least determinable
Effect of absence of any requisite

Exisiting (Art. 1462)

Has a potential to exist, considering the state of science and technology at
the time of perfection of the contract (Art. 1461)
A future thing (Art. 1462)
Contingent or subject to a resolutory condition (Art. 1462 & Art. 1465)
A literal application of Art. 1409(3) which holds that contracts whose

cause or object did not exist at the time of the transaction are deemed
inexistent and void ab initio does not apply in contracts of sale involving
possible things.
But if the subject matter cannot come to existence (i.e. an impossible
thing), the contract is void because of Art. 1409(3).
The sale of goods yet to be manufactured, raised, or acquired by the seller
is valid, provided that they can come into existence.
For things whose existence depends on a condition, capacity to exist is
sufficient. Certainty to exist is not necessary.
Emptio Rei Speratae

A contract of sale covering future things, and subject to a suspensive
condition that the subject matter will come into existence.
Literally means the purchase of what we hope
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If the thing does not come into existence, contract is deemed extinguished.
Covers only determinate or specific things. Generic or determinable things
are not covered since they do not come out of existence.
Crops which are yet to be harvested and have a potential existence may be
the valid subject matter of sale. They are considered distinct from the land
on which they grow. Sibal v. Valdez (50 Phil. 512); Pichel v. Alonzo (111
SCRA 34)
Emptio Spei
Literally means the purchase of hope

Still a valid sale. What is prohibited by the Civil Code is the sale of a vain
hope or expectancy (Art. 1461)
Example: sale of sweepstakes ticket. The object of the sale is the chance to
win.
A sale emptio spei is a possible situation where the commutative nature of
sale is not complied with. The buyer can actually get more than what he
paid for.
Sale of Things Subject to a Resolutory Condition
If the thing is extinguished by the resolutory condition, the contract of sale

is itself extinguished.
o The parties should return to each other what they have received,
thus preserving the commutative nature of sale.
o The fruits and interests of the things received need not be
returned since they are deemed to have been mutually
compensated (Art. 1187).
The suspensive or resolutory condition does not affect the commutative
nature of sale. It is presumed that the parties considered these in the
determination of the price or consideration for the sale.
Subject Matter is Nexus of Sale
The essence of a contract of sale is the meeting of the minds with respect
to the subject matter.
The provisions on sale are catch-all provisions which covers transfers
whereby ownership of a thing is ceded for a consideration. Polytechnic
University v. CA (368 SCRA 691)
Polytechnic University v. CA
Issue: Was there a contract of sale between NDC and PUP?

Held: Yes, there was a contract of sale in violation of Firestones right of first
refusal. The provisions on sale are catch-all provisions which covers transfers
whereby ownership of a thing is ceded for a consideration. The cancellation of
NDCs debt was the consideration for the sale. Since the NDC, PUP, and the national
government are distinct from each other, the transfer was not a transfer within the
same entity, and was thus a conveyance of title.

Subject Matter Must Be Licit

Sales Declared Illegal by Law
Things outside the commerce of man

Animals suffering from contagious disease, rendering them unfit for use or
service they are intended for
Sale of future inheritance
Those declared void by special laws:
o Narcotics, gunpowder, explosives, firearms and ammunictions.
o Wild animals and rare, wild or poisonous plants or fruits
o Sale of friar land without consent of Secretary of Agriculture
Sale of land to a foreigner is void because it is contrary to the Constitution.
Frenzel v. Catito (406 SCRA 55)
Subject Matter Must Be Determinate or at Least Determinable

Determinate Subject Matter
A thing is determinate or specific when it is

o Particularly designated, or
o Physically segregated from others of the same class.
Defense of force majeure is applicable to release the seller from the
consequences of failure to deliver
Determinable Subject Matter
Facts: NDC owned a 10-hectare property which was leased by Firestone Ceramics
with a right of first refusal. Near the end of the lease term, NDC looked to sell the
property to Polytechnic University of the Philippines (PUP). Memorandum Order

No. 214, issued by Pres. Cory Aquino, ordered the conveyance of the property to
PUP. It also cancelled the debt of NDC to the National Government.
2 requisites/tests:
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capacity to segregate test at perfection, subject matter is

capable of being made determinate
o no further agreement test without necessity of a new or
further agreement between the parties
A determinable subject matter is a generic object because it has not been
physically segregated nor particularly designated at the point of perfection
from the rest of its kind.
If the court still has to go back to the parties to determine their intended
subject matter, the sale is void because of Art. 1409(6).
o
an action seeking possession of lot 535-A.

Issue: What was the real subject matter of the deed of sale?
Held: The SC held that the brothers intended to convey lot 535-A. The error in the
deed of sale did not invalidate the transfer. It was just a mistake which did not
vitiate consent. Thus, the contract of sale, as evidenced by the deed of sale, is valid.

Quantity is Essential in the Validity of the Contract of Sale
Melliza v. City of Iloilo

Facts: Juliana Melliza sold parts of Lot No. 1214 to Iloilo City. The lots mentioned
were 1214-C, 1214-D, and the area needed for the construction of the sity hall site,
avenues and parks according to the Arellano Plan. The rights to the property were
eventually transferred to Pio Sian Melliza. The TCT issued to him contained the
annotation that lots 1214-B-2 and 1214-B-3 also belonged to City of Iloilo.
Issue: Whether or not lot 1214-B did belong to the City of Iloilo.
Held: Yes, it did. It was part of the subject matter of the deed of sale between
Juliana Melliza and the city. The requirement that a sale must have a determinate
object is fulfilled as long as, at the time of perfection of the contract, the object is
capable of being determined without further agreement. In this case, the Arellano
Plan already specified the lands which were neede for the city hall site.

Test of Determinability Is the Meeting of Minds of Parties and Not the Covering
Deed
The true contract of sale is intangible and is a legal concept. It is perfected

by the meeting of the minds.
The Deed of Sale is merely an evidence of the contract. If it does not reflect
the true meeting of the minds, it may be subject to reformation. It does
not invalidate the contract.
Atilano v. Atilano
Facts: Eulogio Atilano executed a deed of sale in favor of his brother which
supposedly covered lot 535-E. It was later on discovered that what was actually
occupied was lot 535-A, while Eulogio was occupying lot 535-E. Eulogios heirs filed
General Rule: Quantity is essential

o It goes into the determinability of the subject matter.
o It also goes into the price or consideration in the contract. (i.e. the
total amount to be paid is determined by the quantity to be
bought)
o With a specific quantity, the obligation to deliver an object
becomes realizable, enforceable and demandable.
Exception: When a maximum quota/quantity is agreed upon. It is still
possible to determine the quantity without the need of a new contract.
National Grains Authority v. IAC (171 SCRA 131)
Generic Non-Determinable Objects
Refers to fungible things (e.g. sugar, rice, oil, etc.)

Sale of fungible things is valid if it can be made determinate at the time of
delivery.
Fungible/generic things are never lost. Therefore, the obligation to deliver
is not extinguished by loss.
Yu Tek & Co. v. Gonzales
Facts: The two parties entered into a contract where Gonzales bound himself to
deliver 600 piculs of first class sugar to YTC, without designating a particular source.
Gonzales failed to deliver. YTC brought suit.
Issue: Whether or not force majeure is a valid defense for Gonzales.
Held: No. Sugar is a fungible and generic object which is never lost. As long as the
object is not made determinate, the thing is not lost, and the seller is still bound to
deliver.
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is the whole mass itself, as a determinate object. The sale is valid. Gaite v.
Fonacier (2 SCRA 831)
If the subject matter is neither determinate or determinable, the contract is VOID
Void by virtue of Art. 1409(6) of the Civil Code which declares inexistent
those [contracts] where the intention of the parties relative to the
principal object of the contract cannot be ascertained.
Art. 1463
Sellers Obligation to Transfer Ownership Required at Time of

Delivery
Ownership is only required at time of delivery (consummation stage)
The sole owner of a thing may sell an undivided interest therein.
Art. 1464
In the case of fungible goods, there may be a sale of an undivided share of a specific
mass, though the seller purports to sell and the buyer to buy a definite number,
weight or measure of the goods in the mass, and though the number, weight or
measure of the goods in the mass is undetermined. By such a sale the buyer
becomes owner in commmon of such a share of the mass as the number, weight or
measure bought bears to the number, weight or measure of the mass. If the mass
contains less than the number, weight or measure bought, the buyer becomes the
owner of the whole mass and the seller is bound to make good the deficiency from
the goods of the same kind and quality, unless a contrary intent appears.
Instances where a sale will give rise to a co-ownership:

1.
2.
Sale of an undivided interest (Art. 1463)

Co-ownership will be proportional to the percentage of the undivided
interest with respect to the whole.
Sale of an undivided share in a mass of fungible things (Art. 1464)
The buyer will be a co-owner to the extent of the definite number,
weight, or measure actually bought.
If what was actually bought is greater than the amount available, the
buyer will become owner of the whole and the seller is bound to
supply the deficiency.
General Rule: Ownership is required only upon delivery. It is not required

at the perfection of the contract, provided, that the seller will be able to
transmit ownership at the time of consummation of the contract.
o Exception: In judicial sale, the forced seller who is actually the
mortgagor in default, is the owner because only the absolute
owner of the thing can mortgage it.
If a buyer sells something and delivers it to the buyer without owning it,
the contract of sale remains valid but the buyer has no better title to the
goods than the seller.
o However, if the seller thereafter acquires title to the thing sold
and delivered, such title passes to the buyer by operation of law.
(Art. 1434)
If the owner does not reveal that he is not the owner of the thing at the
time of perfection, the contract of sale cannot be declared null and void.
Hilltop v. Villacorta (13 CAR 113)
The sale of copra for future delivery does not make the seller liable for
estafa for failing to deliver because the contract is still valid and there is
only a civil obligation. Esguerra v. People (108 Phil. 1078)
Sale of a lot by a seller who is yet to acquire full ownership from a
government agency was still valid since it involved the sale of a future
thing. Mananzala v. CA (286 SCRA 722)
If the sale covers a specific mass as a subject matter, without any

provisions as to the measuring or weighing of the subject sold, and the
price was not based on such measurement, the subject matter of the sale
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Chapter 4: Price and Other Consideration

Meaning of Price
Price sum stipulated as the equivalent of the thing sold and also every
incident taken into consideration for the fixing of the price
The ideal consideration for a contract of sale would be price as a sum
certain in money or its equivalent.
o But a sale can have other valuable considerations, not necessarily
money. The essence of sale is the transfer of ownership for some
valuable consideration. Polytechnic University of the Philippines v.
CA (368 SCRA 691)
Once agreed upon, the seller cannot unilaterally increase the price. Neither
can the buyer unilaterally withdraw from the sale because of the price.
Intent can be determined by the overt acts of the parties.

The pari delicto rule will apply in the following instances of simulated sales:
o Both parties are in bad faith
o There is illegal consideration
o The purpose of the simulation is illegal
Mapalo v. Mapalo
Facts: Miguel Mapalo and his wife decided to donate the eastern part of their
property to Maximo Mapalo. Maximo Mapalo then made them sign a Deed of Sale
for the entire property, for the consideration of P500. He told them that it was a
Deed of Donation. Maximo then sold the entire property to Narciso.
Held: With respect to the eastern portion, the consideration was the pure liberality
of the Mapalo spouses. The western portion, on the other hand, had no
consideration pertaining to it. The P500 was a simulated price. Thus, the western
portion was reconveyed to plaintiff spouses Mapalo.

Requsites of a Valid Price
Rongavilla v. CA
Facts: Dolores Rongavilla lent P2,000 to her aunts for the repair of their house.
Rongavilla then tricked her aunts into signing a deed of sale. She told them that it
was just a document showing their indebtedness.
The price must be:

1.
2.
3.
Real
In Money or its Equivalent
It must be Certain or Ascertainable
Held: The deed of sale is void ab initio for having no consideration. The P2000 given
which was exchanged was not for the sale of the property, but for the purposes of
repairs to the house.
Price Must be Real
When Price is Real
At the time of perfection, there is legal intention to pay on the part of the
buyer, and legal expectation on the part of the seller to receive the price.
When Price is Simulated
It is simulated when neither party had any intention that the amount will
be paid.
The sale if void
However, such a contract can in reality be a donation or some other
contract. In this way, the contracts validity can be saved.
The issue thus boils down to contractual intent at the time of perfection of
the contract. If there was no intent to pay and receive the stipulated price,
then it is wholy simulated and thus void.
When Price is False
False price there is a real price agreed upon but not declared, and what
is stated in the deed of sale is not the one intended to be paid
The sale itself is valid, but the instrument embodying it is subject to
reformation.
A false price is a form of relative simulation of contract.
However, the parties may be bound by estoppel to follow the price in the
instrument when interests of third parties will be adversely affected by the
reformation of the instrument.
Effect of Non-payment of Price
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Failure to pay is not automatically equal to the lack of consideration. There

is still consideration, thus, the sale remains valid.
Failure to pay goes into the consummation of the contract, not its
perfection.
Such failure to pay gives the right to the seller to demand specific
performance or recission of the contract.
BUT if the deed of sale says that the price has been paid when in fact it
hasnt been, this is a badge of simulation which would render the
contract void. Montecillo v. Reynes (385 SCRA 233)
Price Must Be in Money or Its Equivalent
Art. 1458 : Obligation of Buyer he must pay the price certain in money
or its equivalent.
Bagnas v. CA
o Something equivalent is something representative of money
o For this case, services are not included/
Art. 1468 the sale is valid when the consideration is part money and
partly in another thing.
o The consideration for a valid sale can be the price and other
additional considerations.
Republic v. Phil Resources Development
o Apostol purchased logs, but only paid a small part of the price.
o He delivered, to fulfil the balance, goods of the PRDC to the
Bureau of Prisons. Was this a valid payment?
o SC: money or its equivalent payment need not be in money
o However this case covers the consummation stage
Not perfection they didnt agree that such goods could
be used as payment
Essentially what happened here was a dacion en pago.
(substitution of the goods for the price)
Torres v. CA
o Contract stated that the consideration for the sale was
expectation of profits
o This was valid cause or consideration to validate the sale.
Polytechnic University v. CA cancellation of liabilities of seller was a valid
consideration.
CLV : requisite of money or its equivalent has not been held steadfast by
the SC.
o This shows that the essence of a sale is the obligations for the
seller to deliver, and for the buyer to pay
o Price may be subject to variations its essentially a generic
obligation
o The significance of the requirement demonstrate the ideal
example of the onerous nature of sale that it is supported by
valuable consideration.
Adequacy of Price to Make it Real Concept of Valuable

Consideration.
Ong v. Ong a sale was held valid when consideration for real property
was one peso and other valuable considerations.
o Since there was no evidence that the consideration was not paid,
12
it is presumed to exist.
o SC: Inadequacy is unimportant usual practice is to place a
nominal amount, but there are more valuable considerations to
be given
o Essence of this ruling it is possible to agree on an adequate
consideration, even stating a false/nominal consideration.
This assumes that the valuable consideration in addition
to the nominal amount was actually agreed upon.
o There must be a valuable consideration.
Bagnas v. CA a sale where consideration in the contract was one peso
and services rendered.
o SC : disproportion between consideration stipulated and the value
of the property
o They concluded price stated was false and fictitious, thus the
sale was void ab initio.

12
Art 1354, CC : -- cause is presumed to exist in the contract, even when not stated
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SC : even though there was a consideration agreed upon, and the

parties intended to pay it, the sale is void if price was merely
nominal
o CLV : this does not mean that the sale was void because the
services were not actually performed
Non-performance has nothing to do with validity
o Sale here was void because it was found that there was no
intention to pay any valuable consideration thus, void for lack of
consideration.
Arimas v. Arimas two documents evidencing terms of sale of a hacienda
o Deed of sale
o Supplement which contained part of the consideration
Other further considerations
o Seller : supplement was executed because he didnt agree with
the terms in the first deed of sale
o SC: consideration in supplement must be part of the consideration
for sale of the hacienda they were both signed by the parties
Consideration generally agreed upon as a whole
otherwise, there is no price certain
Otherwise, there would be no meeting of the minds
o
Price Must Be Certain or Ascertainable at Perfection
Certainty when it has been expressed and agreed upon in specific terms
o Specific pesos and centavos
o Reiterate : Money is the best model of valuable consideration
Art. 1469 when is price considered ascertainable?
o When it is with reference to another thing certain
o Determination is left to judgment of specified person/persons.
Price Fixed by 3rd Party
Fixing of Subject Matter by Third Party
rd
Designation of 3 party to fix price is valid.

o This designation already makes the price ascertainable
However fixing of price cannot be left to discretion of one of the

parties the contract of sale is not yet existing when the price has
yet to be fixed
No mutuality or obligatory force
Before price is fixed by third person the sale is perfected and existing,
although conditional
o Thus, a party cannot unilaterally withdraw from the contract
o It is conditional suspensive condition of the third party fixing the
price.
Article 1469 If third party fixes the price in bad faith or by mistake
o Parties can seek court remedy to fix the price
o These are the only two instances where this is possible.
When party is unable or unwilling to fix the price
o Parties cannot seek aid from the court to fix the price
o The condition imposed has not yet happened
o Non-happening extinguished the contract
o The sale here is inefficacious.
When third party is prevented from fixing the price by one of the parties
o Innocent party has remedies against the guilty party.
Party may demand from the courts the fixing of the price.
Based on Art. 1186 when a party prevents a condition
from happening, its considered as fulfilled.
o
The subject matter may not be left up to the will of a third party.
o Situation contemplated : price agreed upon, but there are similar
subjects and the parties cant choose
Such designation would in fact authorize withdrawal of the parties
Subject matter must be determinate/determinable
o Test is one of fact physical segregation and particular
designation
o It must be so without further agreement
Why are the rules different?
o Obligation to pay the price is essentially a fungible obligation
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Any money may be used

Cannot be extinguished by fortuitous event
Obligation to deliver subject matter can only be complied when it
is already determinate/determinable
It is not a generic obligation
rd
Designation cannot be left to a 3 person who may
choose a subject that party might be unwilling to give.
Price Ascertainable in Reference to Other Things Certain
Effect of Unascertainability
Price of securities, grains, etc. Will be considered certain when price is...
o That which the thing would have on a definite day
o Or in a particular exchange or market
Price of thing is certain at the point of perfection when it refers to another
thing certain
o Certain invoices existing and identified
o Known factors, or stipulated formula.
When price cant be determined inefficacious

Law does not use the term void
o There is actually a contract, but a conditional one
o It cant be voided by what happens after perfection
Manner of Payment of Price Must be Agreed Upon
A meeting of the minds must include the terms and manner of payment of
the price
o Such is an essential ingredient before a valid sale can exist
o It is part of the prestation of the contract.
o Specific performance cant be availed of
Manner of payment : essence of what makes price certain
o Time value of money
o Seller may be willing to accept lower price if it is to be paid within
a short period of time
Navarro v. Sugar Producers Corp
When manner of payment is discussed after acceptance, such

acceptance did not produce a binding contract of sale
o There was no complete meeting of the minds
Velasco v. CA
o Even if downpayment had been made and received, no valid sale
where manner of payment was not agreed upon
o Definite agreement on manner of payment essential element in
formation of binding sale.
Leabres v. CA
o Main cause of action as a receipt issued for an alleged sale
o Receipt was only an acknowledgement for P1000
No indication of the total purchase price, or of what the
installments were
SC held that receipt cannot be basis of valid sale.
San Miguel Properties Philippines v. Huang
o No valid sale since they were unable to arrive at acceptable terms
of payment scheme
Cruz v. Dernando
o Absence of stipulation on manner of payment it was a contract
to sell, not a contract of sale
CLV : terms of payment has same requisites of price in order to
support a valid contract of sale it must be certain or ascertainable.
If terms of payment are provided in a formula/process that doesnt require
agreement of parties valid, but with a condition.
rd
o Similar to when price is left up to 3 person.
o
Proper Understanding of Manner of Payment
While it is imperative that meeting of the minds be made when it comes to

terms of payment, they do not always have to be expressly agreed upon
when the law supplies these by default.
In the earlier cases, parties were to have a mode of payment other that
immediate payment
o There could not have been a meeting of the minds because both
parties expected more negotiations as to manner of payment
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In all other cases, price is deemed to be demandable at once

o Art 1179, CC all obligations without conditions or periods are
demandable at once.
In absence of stipulation indicating a different form of payment, price is
deemed by operation of law to be immediately demandable
DBP v. CA
o Where there is no other basis of payment
o Reasonable conclusion is that subsequent payments shall be
made in same amounts as first payment.
When There is Sale Even When No Price Has Been Agreed Upon
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 a reasonable price is a question of fact
dependent on the circumstances of each particular case.
In such a case, courts have authority to fix the reasonable price for the
subject matter.
This article is the only exception where there would still be a valid sale
even when there is no meeting of the minds as to price.
What does preceding articles mean?
o CLV : 1469-1473
What does inefficacious mean?
o inability to produce the effect wanted
o Does not exclude void sales
o Rather, it includes valid sales which have become inefficacious in
the same group as void sales (when it comes to price)
Concept of Appropriation
o Basis of Art 1474 Robles v. Lizarraga Hermanos
An unjust enrichment would occur in allowing someone
to appropriate the movables without compensating the
other person.
o 2 Important Points
Doctrine is based on unjust enrichment against the buyer

-- he cant be allowed to retain the subject matter
without being liable to pay the price
Applies even in a no contract situation where there is
no meeting of the minds as to price
May also apply to void sale contract, where
defect is in the price.
Art 1474 is meant to cover all sale contract situations
Agreement as to the subject matter, along with tradition
Art 1474 is a remedy in favour of the seller
What if he does not want to take advantage of the remedy, and
instead recover the subject matter?
Seems not possible if appropriation had taken place
Art 1474 seems to contemplate a situation where there
is delivery but not appropriation
Thus we must look at what appropriation means
Appropriation covers situation of acceptance, and buyer treats
subject matter as his own,
Rulings on Receipts and Other Documents Embodying

Price
El Oro Engravers v. CA sales invoices are not evidence of payment, but

only of receipt.
o Best evidence to prove payment : official receipt issued by seller
Leabres v. CA buyer sought to enforce purchase on land based on receipt
o SC : Receipt cannot be regarded as contract of sale
o Only recognition of the sum of P1000
o Requisites for valid contract were lacking
o Sale is not valid not enforceable
CLV : Leabres seems to deal with the Statute of Frauds (sale was not
enforceable)
o However, reading of facts was that there was partial payment and
delivery of possession
o These things would remove contract from SoF.
22
Toyota Shaw v. CA written agreement was entered between a

prospective buyer and the sales representative
o Acknowledged a downpayment of P100,000
o SC: never a perfected contract between the parties
Agreement only provided for the downpayment
No purchase price or manner of payment of balance
Limson v. CA nothing in the receipt indicated that the earnest money was
part of the purchase price, much less any showing of a perfected sale
only conclusion is no sale.
Coronel v. CA seller executed a receipt of downpayment, indicating
balance of purchase price, with obligation to transfer title upon payment
o SC: there was a perfected contract of sale
o No reservation of title until payment
o Consistent with requirement that memoranda of sale must
include all essential requisites in order to remove it from the SoF.
Cheng v. Genato seller acknowledged receipt of sum as partial payment
o Did not provide further stipulations as to balance or manner of
payment
o SC: no sale, since requisites were not expressed in the receipt.
o CLV : isnt sale a consensual contract? Defect in memorandum
would affect enforceability, but should it affect validity?
Xentrex v. CA contract of sale perfected upon meeting of the minds
o Seller obliged itself when it accepted deposit and pulled out a unit
David v. Tiongson sale of real property on installments
o Even when receipts do not provide for the installments, when
there is partial payment, SoF no longer applies.
Tigno v. Aquino absence of receipts or any proof of consideration is not
conclusive as to the inexistence of a sale.
o Consideration always presumed
CLV : no constant doctrine when it comes to legal consequences of
receipts.
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Inadequacy of Price
Art. 1355 Lesion or inadequacy of cause does not invalidate a contract,

unless there is fraud, mistake or undue influence.
Art 1470 Gross inadequacy of price does not affect a contract of sale
o Except as it may indicate a defect in consent
o Or that parties really intended a donation or some other act.
Gross inadequacy a reasonable man would not agree to dispose of his
property at that amount.
In a sale, there is no requirement that the price is exactly the value of the
subject matter.
o Recall: Test for commutativeness is the belief of the parties that
they received good value.
Distinguished from Simulated Price
Bravo-Guerrero v. Bravo simulation of contract and gross inadequacy of

price are distinct legal concepts
o When parties to an alleged contract do not really intend to be
bound simulated
Void
No legal effect
No real agreement
o Gross inadequacy not a void contract
Validity of sale not affected
Unless there is a defect in consent or parties intended
donation or other contract
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When Motive Nullifies Sale
Rescissible Contracts of Sale
Inadequacy of Price ground for rescission in cases covered under Article

13
1381 of the Civil Code.
Judicial Sale
Inadequacy of price may render void judicial sale of real property

o Why the difference? sale is not a result of negotiations
o In fact, property of the Seller to be sold at public auction
o State must protect seller from a bad deal thats not his fault
Such inadequacy however must be shocking to the conscience of man
o It must be shown that a resale would fetch a better price.
However, even if these are shown, judicial sale will not be set aside when
there is a right to redemption
o Lower sale price easier time for the owner to redeem.
o Proper remedy is simply for the Seller to exercise such right.
Sales with Right to Repurchase
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In sales like this, inadequacy gives rise to a presumption of equitable

mortgage.
Remedy of the seller have the sale reformed or declared a mortgage
contract, then pay off the debt which is secured.
Remedy of the buyer foreclose on the mortgage.
o Cannot appropriate the subject matter pactum commissorium
which is not allowed.
Consideration is not equal to motive

When motive is illegal, sale is void
o Sale executed in order to frustrate another persons right to
inheritance and to avoid tax
Uy v. CA Distinguished cause from motive
o Cause
Essential reason which moves parties to enter into the
contract
immediate, direct and proximate reason to create the
obligation
o Motive
Particular reason of a contracting party
Does not affect the other party
o In this case cause of vendor to sell the land is to obtain the
price, and for the vendee, the acquisition of the land.
o Motive of the vendor is to use the lands for housing.
SC : When motive predetermines cause, it may be regarded as the cause.
o When there was a mistake in the quality of land, the
motive/cause was negated
o And thus the contract was inexistent.
Heirs of Spouses Balite v. Lim amount reflected in Deed of Sale was lower
than what they agreed on
o Motive was to pay lower taxes
o SC : Contract of sale was valid motive here (lower taxes) was not
the consideration.
o Although illegal, motives do not take the place of the
consideration.

13
(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number;

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Chapter 5: Formation of Sale
Issue: WON there was already a perfected contract of sale when MMCC gave
deposit after the department issued statement of accountNO
Stages in the Life of Sale

a) Policitacion negotiation and bargaining
b) Perfection moment when there is meeting of the minds on the subject
matter and price
c) Consummation parties perform their respective obligations
Negotiation is initiated by an offer which must be certain.

In order to give rise to a contract of sale, the offer must be accepted.
Acceptance must be absolute, clear, unequivocal, plain and unequivocal.
Manila Metal Containers Corp. v. PNB (511 SCRA 444)
Before the acceptance, there is freedom to contract. An owner of
property is free to offer the subject property for sale to any interested
person. There is still no obligation between the potential buyer and
potential seller. (Exception: option contract, infra)
A Letter of Intent to Buy and Sell is just that, a declaration of intent. It is
not a conditional contract of sale or a contract to sell. It is also not an offer.
Muslim and Christian Urban Poor Association, Inc. v. BRY-C Devt. Corp.
(594 SCRA 724)
Manila Metal Container Corp. v. PNB

Facts: PNB foreclosed the mortgage MMCC constituted in its favor. PNB won the
public auction. MMCC requested for an extension of the 1-year redemption period,
which PNB rejected. A special assets department of PNB issued to petitioner a
statement of account indicating bid price and interest (about Php 1.5 million);
MMCC then remitted Php 725,000 as deposit for repurchase. PNB offered to
MMCC to buy back the property for Php 2.66 million. MMCC insists that it had
already accepted the offer of the PNB department of Php 1.5 million, and it had
deposited the money as earnest money (down payment). The amount of Php 2.6
million is a unilateral increase by PNB of the purchase price.
Held: The exchanges were counter offers and so the contract never moved beyond
the negotiation stage. It was stipulated by the parties that PNB will accept the
deposit on the condition that the purchase price is still subject to the approval of
the PNB board. Thus, there was no definite price.

Policitation Stage
Muslim and Christian Urban Poor Association, Inc. v. BRYC-V Development Corp.

Facts: MCUPAI entered into negotiation with Seafood Corporation (SFC) for the
purchase of latters land. MCUPAI executed a Letter of Intent to Buy and SFC a
Letter of Intent to Sell to facilitate the formers loan application. The sale didnt
happen because herein buyer wasnt able to obtain a loan, even when it was given
an extension of 3 months to procure it. Eventually, SFC sold the lot to BRYC-V.
MCUPAI alleged that the sale violated its subsisting agreement with SFC which gave
it a preferred right to purchase the lot.

Issue: WON the letters of intent created a bilateral contract within the meaning of
Art. 1479NO

Held: A mere intention or plan to do something does not give rise to an obligation,
nor bind a party to do or give. It was not an offer, but merely an expression of the
intention to enter in to the contract. It does not contain a commitment to enter
into the contract. In fact, SFCs entering into a contract was conditioned upon
MCUPAIs ability to raise the funds.

Advertisements and Invitations

Art. 1325
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Unless it appears otherwise, business advertisements of things for sale are not
definite offers, but mere invitations to make an offer. (n)
General rule: they are less than offers and are merely invitations to make
an offer
o Exception: It appears otherwise. That is, there is a determinate
subject matter and a determinate price and terms of payment.
Better rule according to CLV and RP: Even if the advertisement contains
definite terms, it remains an invitation so long as it is addressed to the
general public.. The exception comes in when the invitation is addressed to
a particular offeree.
When the offeror has allowed the offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration, as something paid or
promised. (n)
Definition and Essence of Option Contract
Offers
The offeror can attach any term or condition he desires, and may fix the
time, place and manner of acceptance. He has full control of the offer
before it is accepted.
Offeror can withdraw the offer any time, even without notifying the
offeree. (Exception: option contract)
Acceptance by the offeree must be absolute. Any conditional acceptance
will be a counter-offer which rejects and terminates the original offer.
An offer becomes ineffective upon the death, civil interdiction, insanity or
insolvency of either offeror or offeree, before acceptance is conveyed and
received by the offeror. (Art 1323)
Option Contracts
An option is a preparatory contract in which one party grants to the other,

for a fixed period and under specified conditions, the power to decide
whether or not to enter into a principal contract [of sale]. Carceller v. CA
(302 SCRA 718)
An option is a continuing offer or an unaccepted offer which must be
certain. It is distinct from the contract of sale, by as soon as the offer is
accepted, the contract of sale is perfected. Adelfa Properties, Inc. v. CA
(240 SCRA 565)
Carcellar v. CA
Facts: SIHI (landowner) entered into lease contract with Carcellar with option to
purchase within a certain period, exercised by a written notice to SIHI. Nearing
termination, Carceller wrote and requested for an extension to raise funds, which
SIHI rejected. Carceller still laterexpressed intention to exercise option to purchase
after the period expired, which SIHI denied because period had lapsed. Carceller
files action for specific performance.

Issue: WON Carceller should be allowed to exercise option given the delay in giving
the required noticeYES

Art. 1479
A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a consideration
distinct from the price. (1451a)
Ratio: Carcellers letter to SIHI showed intent to exercise option to purchase despite
the request for the extension. Granting the option is consistent with the intention
of the parties. The delay was not substantial or fundamental as to amount to a
breach that would defeat the intention of the parties when they entered into the
contract. His first letter and his formal exercise were within reasonable time frame.

Art. 1324
Tayag v. CA
Facts: Lacsons are owners of a land, tenanted by farmer tillers who had
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landholdings thereon. The farmers executed a deed of assignment in favor of Tayag

stating that they would assign their landholdings for Php50/sq. meter payable when
legal impediments to the sale of the property no longer existed and if the Lacsons
decide to sell the property. When Tayag called for a meeting to discuss their
agreement, the farmers expressed they would not attend and that they were going
to sell their landholdings to the Lacsons. Tayag claims that they had no right to deal
directly with the Lacsons, while their contracts with him were valid and existing.

Issue: WON the deeds of assignment were option contractsNO

Ratio: The payment of the purchase price was conditioned on the disappearance of
any legal impediments in sale of the property and on the Lacsons actually selling
itthere was no showing that they ever agreed to sell their property. There was no
option contract here because in an option contract, the one giving is only bound to
hold the land in case the optionee decides the receive the lands at his election.
Here, the farmers did not just give Tayag and option; they gave him an exclusive
right to buy the property. They cannot legally do this because they are not the
registered owners of the land. They had no right to enter into those contracts with
Tayag without the knowledge of the Lacsons.

Characteristics and Obligations in an Option Contract; Compared with Sale
Both option contract and sale are onerous contracts because both require
a separate consideration. An option without separate consideration is void
as a contract.
o Consideration in an option contract may be anything of value, not
necessarily money or its equivalent, as in sale.
o Exception: An option may be included within another valid
contract, such as a lease or mortgage. It will be binding even if it
does not have a separate consideration. It is a stipulation within
the contract which acts like an option contract.
An option contract is a consensual contract.
It is a unilateral promise to sell a determinate thing. It only binds the
optioner with the following obligations:
o Not to offer to any third party the sale of the object
Not to withdraw the offer during the agreed period

To enter into a contract of sale when the option holder, if he uses
the option (i.e. accepts the offer) within the specified period.
The three obligations are obligations to do. Therefore, a breach of the
option contract will only be actionable for damages, not specific
performance.
o When the offer is accepted, the obligations become obligations to
give, since the contract of sale is already perfected.
The subject matter of an option contract is the option to purchase a
determinate thing. In other words, it is the subject matter is the right to
choose to buy or not.
An option contract is not covered by the Statute of Frauds. Therefore, it
can be proved by parol evidence and is enforceable even if not written.
o
o
Elements of a Valid Option Contract

a) Consent
b) Subject Matter- the right to choose whether or not to buy a
determinate/determinable object for a price certain (including manner of
payment)
c) Consideration which is anything of value and is separate and distinct from
the purchase price

Just like in a sale, the option contract will only be perfected if the parties
agree on the specific object (i.e. the right itself, and the conditions) and the
price and manner of payment of the consideration.
Meaning of Separate Consideration
An option contract is an offer and a preparatory contract to that of sale.

This presupposes that there is already a purchase price on the subject
matter of the sale which was agreed upon by the parties. As long as the
consideration for the option contract is distinct and not included in the
purchase price, it is considered separate consideration.
Some examples where the Court held that there was separate
consideration:
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In Villamor v. CA (202 SCRA 607), the buyers bought of the land

for P70 which was much higher than the prevailing market rate at
that time. The Court ruled that the separate consideration for the
option to buy the other half was the difference between the
market value and the P70 price paid.
o In reciprocal contracts like lease, the obligation or promise of each
14
party is the consideration for that of the other. Vda. De Quirino
v. Palarca (29 SCRA 1)
o The monthly interest paid by the spouses on the foreclosed
property during the one year period granted to them by the bank
was considered as the separate consideration to hold the option
contract valid. Dijamco v. CA (440 SCRA 190)
o The option to buy included in a mortgage was deemed a vald
stipulation since it is supported by the same consideration of the
mortgage, which is itself distinct from that of the sale. Soriano v.
Bautista (6 SCRA 946)
The Court had ruled in 1947 that the consideration is presumed to exist.
Once proven, it is binding. Montinola v. Cojunagco (78 Phil. 481) This is in
contrast with the 1972 case of Sanchez v. Rigos which refused to apply that
presumption.
o
Villamor v. CA
Issue: WON the Deed of Option was validYES

Ratio:
The consideration for the Option was the difference in the higher purchase price of
the land compared to its actual market value. Consideration maybe anything of
value. The option here was the consideration for the Villamors buying the first half
of the land. Since they expressed their intention to exercise the option (which is an
offer), a valid contract was perfected.

When Option Is Without Separate Consideration
Facts: Villamor purchased from Reyes one half of a piece of land for more than the
market value. They then executed a Deed of Option stating that the reason only
why Villamor bought the half in the first place is because Reyes granted him
exclusive right to buy the other half whenever the need would arise for either party.
Reyes sought to repurchase the half already bought by Villamore but the latter
refused.

14
Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor. (1274)
Without separate consideration, an option contract is void as a contract

but would still be a valid offer. If the option is exercised before it is
withdrawn, it is equivalent to an offer being accepted. Thus, a valid and
binding sale would be perfected. Sanchez v. Rigos (45 SCRA 368)
The burden of proof to show that the option contract has a separate
consideration is with the party seeking to show it. Art. 1354, which
presumes that consideration exists, cannot apply since Art. 1479, the more
specific provision, requires such separate consideration for an option to be
valid.
Lately, there have been rulings by the SC which tend to diverge from the
Sanchez doctrine. However, Sanchez is still the controlling doctrine since it
has yet to be expressly abandoned by the Court. Montilla v. CA (161 SRA
167); Natino v. IAC (197 SCRA 323); Yai Ka Sin Trading v. CA (209 SCRA
763); Diamante v. CA (206 SCRA 52)
It was held in Vazquez v. CA (199 SCRA 102) that for the Sanchez doctrine
to apply, the option must be accepted and the acceptance must be
communicated to the offeror. This emphasizes the point that an option
contract is a distinct contract.
Classroom example:
o S is selling B a condominium unit. He tells B that he can pay
P50,000 as reservation fee which will entitle him to a period of 1
month to think about the purchase. If he accepts, the P50,000 will
be deducted from the purchase price. This is not an option
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contract because the 50,000 is not a separate consideration but is

actually part of the purchase price. What we have is an
innominate contract (do ut facias). Breach of the contract will
entitle B to damages only. The innominate contract involves a
prestation to do, thus, specific performance is not available.
Sanchez v. Rigos
Facts: An Option to Purchase was executed where Rigos would sell a piece of land
to Sanchez upon the exercise of the option within 2 years. Sanchez made several
tenders of payment to Rigos, which latter rejected. Sanchez then deposited the
amount with the CFI and commenced suit for specific performance against Rigos.
Latter asserts that it was not a valid contract for absence of consideration.
for it to be binding on Vasquez, it must hav been shown that Vallejera accepted the
offer therein before it was withdrawn by Vasquez. None was made; the vendor a
retro must make actual and simultaneous tender of payment and consignation.
Mere expressions of readiness or willingness to repurchase are insufficient. 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.

Option Not Deemed Part of Renewal of Lease

Issue: WON Rigos is bound to sell by virtue of the Option to PurchaseYES

Ratio: Seller cannot revoke an offer if the option to buy had a separate
consideration. 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 thought
the option was not supported by a sufficient consideration. Sanchezs tenders were
valid exercise of the option granted him and thus a contract of sale was perfected.
Period of Exercise of Option

Vasquez v. CA
If the option contract does not specify the period in which the option can
be exercised, it cannot be presumed that it can be exercised indefinitely.
Actions upon written contracts must be brought within 10 years.
Afterwards, it prescribes.
Proper Exercise of Option
Facts: Vallejera sold land to Vasquez who then secured TCT. A separate instrument
together with the deed of sale, a Right to Repurchase was executed by them in
favor of Vallejera. Later, Vasquez resisted this action for redemption on the premise
that Right to Repurchase is just an option to buy since it is not embodied in the
same document of sale but in a separate document, and such option is not
supported by a consideration distinct from the price, the deed for right to
repurchase is not binding upon them.

Issue: WON the right of repurchase gave rise to a valid contract of saleNO
The optionee may exercise his right by merely advising the offeror of the
decision to buy and expressing his readiness to pay, provided that he is
actually able to pay. Actual payment is not necessary to exercise the
option. Nietes v. CA (46 SCRA 654)
Notice within the option period of clear intention to purchase the
property, even with a request for leeway or extension of the period in

Ratio: The right to repurchase was not supported by a separate consideration. Thus,
15
Under the principle of tacita reconduccion, a lease is impliedly renewed if

the term of the original contract of lease has expired, the lessor has not
ordered the lessee to vacate, and 15 days has passed without the
15
acquisecnce of the lessor .
Only the essential stipulations in the lease are deemed renewed.
An option to purchase which is stipulated in a lease is not essential to the
lease. Thus, they it is not renewed.
Samelo v. Manotok Services, Inc., G.R. No. 170509 (not in the book)
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order to raise money to buy the property, is a valid and substantial

exercise of the option. Carceller v. CA (302 SCRA 718)
In Sanchez v. Rigos, the Court held that repeated tenders of payment,
which were refused by the optioner for no reason, was a valid exercise of
the option.
The refusal by the offeror to comply with the demand by the offeree with
the exercise of his option may be enforced by specific performance.
Exercise of the option is acceptance of the offer which perfects the
contract of sale. Thus, the obligations to do become obligations to give.
a.
Nietes v. CA
Facts: Garcia (owner and lessor) entered into a Contract of Lease with Option to
Buy a school with Nietes (lessee). Lessee is granted an option to buy the land within
the period of the contract of lease. Later, Garcia expressed his intention to rescind
the contract due to poor maintenance of the building. In his reply, Nietes expressed
inention to exercise the option to buy. In the specific performance case filed against
Garcia, he asserts that the full purchase price must first be paid before the option
could be exercised.

Issue: WON Garcias assertion is correctNO

Ratio: In the case of an option to buy, THE CREDITOR MAY VALIDLY AND
EFFECTIVELY EXERCISE HIS RIGHT BY MERELY ADVISING THE DEBTOR OF THE
FORMERS (1) DECISION TO BUY AND (2) HIS READINESS TO PAY THE STIPULATED
PRICE, provided that the same is available and actually delivered to the debtor upon
execution and delivery by him of the corresponding deed of sale. In other words,
notice of the creditors decision to exercise his option to buy need not be coupled
with actual payment of the price, so long as this is delivered to the owner of the
property upon performance of his part of the agreement.

Summary Rules When Period is Granted to Promisee
Ang Yu Asuncion v. CA (238 SCRA 602) sumarized the applicable rules:
If the period is not supported by a separate consideration, the

offeror can still withdraw the offer before it is accepted, or before
he learns of an acceptance made by the offeree.
b. The right to withdraw must not be done whimsically or arbitrarily,
otherwise, the other party may sue for damages under Article 19.
c. If there is a separate consideration, an option contract is
perfected, and withdrawal of the option within the period is a
breach of the contract.
d. The option contract is an independent contract by itself. If it is
withdrawn, there is a breach which can be the basis of an action
for damages. Specific performance is not available.
e. The nature of the consideration must be taken into account. If the
consideration was in fact part of the purchase price, then there is
no option contract, but a perfected contract of sale.
Ang Yu Asuncion ruled that the the separate consideration merely
guarantees that within the option period, before the optioner withdraws
the offer, an acceptance by the optionee would give rise to a valid sale.
This, in effect, is similar to the doctrine in Sanchez v. Rigos which
considered an option which did not have separate consideration.
o The effect is that as far as the optionee is concerned, whether or
not he gives a separate consideration, his right can be defeated
simply by the optioners withdrawal. He is therefore not assured
that a sale will be perfected.
o According to RP, the more logical action in case of a breach of an
option contract is specific performance. But, the reasoning in Ang
Yu (I.e you cant compel specific performance for prestations to
do) is also logical.
o CLV says this does not provide for a commercially sound doctrine
because it emasculates the effectiveness of an option supported
by a separate consideration. There is no incentive or motivation
for the optionee to give, and the optioner to demand a separate
consideration.
Ang Yu Asuncion v. CA
Facts: Ang Yu and others were tenants and lessees of commercial spaces owned by
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Ongpin. On several occasions, Ongpin informed Ang Yu that he is offering to sell the
premises and is giving them priority to acquire the same. Negotiations were had
and counter offers were given by both parties. Ang Yu filed for specific performance
to compel Ongpin to sell the property when he found out that the latter was about
to sell the property. Pending resolution of the case, Ongpin sold the property to
another.

Issue: Whether or not there was a perfected sale. NO

Ratio: In a right of first refusal, while the object might be made determinate, the
exercise of the right, would depend not only on the vendors intention to sell but
also on terms, including the price, that are yet to be firmed up. Its breach cannot
justify an issuance of a writ of execution under a judgment or sanction an action for

specific performance without negating consensuality in the perfection of contracts.
The proper remedy is an action for damages.

Rights of First Refusal
A promise on the part of the owner that if he decides to sell the property
in the future, he would first negotiate its sale to the promisee.
If the promise is breached, an action for specific performance is not
allowed, but action for damages is allowed. Guerrero v. Yigo (96 Phil. 37)
In Guerrero, the Court ruled that recission is also not allowed for breach of
right of first refusal. This was reversed in 1992 in the case of Guzman,
Bocaling & Co. v. Bonnevie (206 SCRA 668). It held that when a right of first
refusal included in a contract of lease is breached by selling the property to
another, the contract of sale is rescisible because of injury to third persons
(the lessees).
The buyer of a real property who knew that such property was subject to
the right of first refusal cannot claim good faith.
A right of first refusal is not a contract. It is not a sale nor an option
contract.
o While it has a definite subject matter, there is no agreement as to
the price or the manner of payment.
Furthermore, the exercise of the right would be dependent upon

the grantors eventual intention to sell the land.
If the right of first refusal is included in a lease, there need not be a
separate consideration for the right since it is already part and parcel of
the entire contract of lease. The consideration for the lease is the
consideration for the right of first refusal. Equatorial Realty Dev., Inc. v.
Mayfair Theater, Inc. (264 SCRA 483)
o The enforceability of the right of first refusal is based on the
obligatory force of the lease contract.
o If the right is violated by the grantor who sold the property to
another, the resulting contract is rescissible by the grantee of the
right.
The Equatorial Realty ruling would only apply to rights of first refusal
attached to a valid principal contract. If they are constituted as separate
contracts, the ruling in Ang Yu Asuncion would apply.
o Verbal grants of the right of first refusal are unenforceable since
such right must be embodied in a written contract. Sen Po Ek
Marketing Corp. v. Martinez (325 SCRA 210)
How to comply with the right of first refusal when the seller decides to sell:
o The seller must first offer to sell the property to the grantee of the
option.
o The negotiations about the sale between the seller and the
grantee would be deemed compliance with the right, even if there
is no final price agreed upon. Riviera Filipina, Inc. v. CA (380 SCRA
245)
o If no price is agreed upon, the seller can then offer to sell to other
parties with the same terms as those offered to the grantee.
o If the seller and the third party negotiate and agree upon different
terms, the seller must first offer these new terms again to the
grantee.
o If the grantee again rejects the new terms, the seller can proceed
with the sale of the property to the third party.
The right of first refusal granted to the lessee may not be availed of by the
sublessee because he is a stranger to the lessor. Sadhwani v. CA (281 SCRA
75)
o
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Similar to an option contract, the right of first refusal included in a lease is

not renewed even in tacita reconduccion. Dizon v. CA (396 SCRA 152)
Equatorial Realty Dev. Inc. v. Mayfair Theater Inc.
Facts: Mayfair leased a portion of Carmelos building. Their lease contract stipulated
that if Carmelo wants to sell the premises, the Mayfair shall be given exclusive
option to purchase within 30 days. Carmelo informed Mayfair that it wanted to sell
the property, but they never agreed upon the price. Carmelo sold the property to
Equatorial. Mayfair filed an action for specific performance to have the property
sold to it and to annul the sale to Equatorial.

Issues: Whether or not there was a right of first refusal. YES
Whether or not the sale to Equatorial was valid. YES, but rescissible.

Held: Carmelo violated the right of first refusal when without affording its
negotiations with Mayfair the full process to ripen to a definite offer and a possible
acceptance within the "30-day exclusive option" time. Equatorial is a buyer in bad
faith because it had notice and full knowledge of Mayfairs rights. Hence, the sale to
Equatorial is rescissible.

Paranaque Kings v. CA
Facts: Catalina Santos, owner of the property which was leased to Paranaque Kings,
sold the property to a third party (David Raymundo) for 5M. The lease contract
between Santos and PK provides that the lessee shall have the first option or
priority to buy the properties subject of the lease. Santos rectified her error of
violating the contractual right, by having the property reconveyed to her. She sold
the property to PK for 15M. However PK contests that it should be sold to them at
5M only.

Issues: W/N there is a violation of a contractual right of first option or priority to
buy the properties subject of the lease NO
W/N the grantee of such right is entitled to be offered the same terms and
conditions as those given to a third party who eventually bought such properties
YES

Held: Only if the petitioner failed to exercise their right of first priority could Santos
thereafter lawfully sell the subject property to others, and only under the same
terms and conditions previously offered to the petitioner. The basis of the right of
the first refusal must be the current offer to sell of the seller or offer to purchase of
any prospective buyer.

Vasquez v. Ayala Corp.
Facts: Vasquez spouses own shares of stocks with Conduit Corporation. Conduit's
main asset was a 49.9 hectare land in Ayala Alabang, Muntinlupa. Spouses enter
into a MOA with Ayala where the latter committed to develop said lands including
the 4 parcels of land to be sold to petitioner spouses. Par. 5.15 of MOA states that
Ayala agrees to grant the spouses "a first option to purchase four developed lots
next to the Retained Area at the prevailing market price at the time of the
purchase.

Issue: W/N the stipulation is a right of first refusal or an option contract. It was a
right of first refusal.

Ratio: While the object may be determinate, the exercise of the right would depend
not only on the grantor's eventual intention to sell but also on terms, including
price, that are yet to be firmed up. It was not an option contract because there was
no separate consideration. This right given by Ayala can be revoked at any time by
communicating it to the spouses. When Ayala rejected the price at which spouses
wanted to by the lands, the option was lost.

Riviera Filipina v. CA
Facts: Reyes executed a contract of lease with a right of first refusal in favor of
Riviera. The parcel of land was mortgaged to Prudential Bank and will be foreclosed
upon Reyes failure to pay. Reyes offered to sell the lot to Riviera, and the parties
underwent negotiations on the price. Riviera finally confirmed to purchase the
property for P5,000. Reyes negotiated and sold the lot to Cypress (owned by a
family friend) for P5,300.
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Issue: W/N Rivieras right of first refusal was violated by Reyes sale of the property
to Cypress. NO
o

Ratio: Riviera strongly exhibited a "take-it or leave-it" attitude in its negotiations
with Reyes. It quoted its "fixed and final" price as P5,000 and not any peso more.
Riviera cannot now be heard that had it been informed of the offer of P5,300 of
Cypress, it would have matched said price. Its stubborn approach in its negotiations
with Reyes showed crystal-clear that there was never any need to disclose such
information and doing so would be just a futile effort on the part of Reyes. Reyes
was under no obligation to disclose the same.
Proposed Doctrine on Option Contracts vis--vis Right of First

Refusal
Justice Vitug, in his decision in Ang Yu Asuncion and in his dissent in

Equatorial Realty said that a right of first refusal is not a contract.
o In his view, breach would result in damages pursuant to Art. 19.
CLV posits that a right of first refusal over a determinate subject matter
and supported by a separate consideration would give rise to an
innominate contract (do ut facias).
o This would allow the remedy of recission which would then give
rise to damages if it is breached. (Note: Art. 19 would not be the
basis for damages.)
Enforceability of Option Rights Should be at Par with, if not at a Higher Level Than,
Rights of First Refusal
In light of the rulings in Equatorial Realty and Paraaque Kings, it seems

that rights of first refusal attached to principal contracts have greater legal
enforceability than option contracts which are supported by separate
consideration.
CLVs proposed better rule:
Mutual Promises to Buy and Sell
Alternative Doctrine of Enforceability of Rights of First Refusal
If the option is supported by a separate consideration, the

optionee shall have the right to exercise the option anytime
during the period, and that would give rise to a valid sale.
The optioner, on the other hand, cannot withdraw the offer
during the option period, and any attempt to withdraw will be
void.
If a third party bought the property in bad faith (i.e. he knew the
existence of the option in favor of the optionee), the optionee can
go after the optioner and the third-party buyer in an action for
specific performance.
If a third party bought the property in good faith and for value,
the optionee may sue the optioner for recovery of damages for
breach of contract of sale.
This gives rise to a mutual obligation which allows each party to demand
fulfillment of the obligation. It is an executory agreement. Borromeo v.
Franco (5 Phil. 49)
An unconditional mutual promise to buy and sell is enforceable by an
action for specific performance.
Contract of sale v. Mutual Promise to Buy and Sell:
o A contract of sale is consummated by delivery and payment
o A bilateral promise to buy and sell gives rights in personam which
grants the parties a right to demand fulfillment. Macion v. Guiani
(225 SCRA 102)
Macion v. Judge Guiani
Facts: Macion and Dela Vida Institute entered into a contract to sell a property for
the construction of an educational institution. The contract stipulated that Dela
Vida Institute had until July 31, 1991 to buy the property for P1,750. Dela Vida
Institute started construction of the building, but the sale did not materialize.
Macion filed for unlawful detainer but eventually agreed to a compromise
agreement to give Dela Vida Institute 5 months to pay, otherwise the latter would
have to vacate the property. Respondent judge opined that the proximate cause of
private respondent's failure to comply with the compromise agreement was the
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refusal of petitioners to execute a contract to sell as required under the agreement.
Acceptance Must Be Absolute
Issue: W/N respondent Judge may compel Macion to execute a contract to sell in
favor of Dela Vida Institute. - YES

Ratio: The court looked into the contemporaneous and subsequent acts of the
parties and determined their real intentions. A review of the facts reveal that even
prior to the signing of the compromise agreement and the filing of Civil Case No.
592 before the trial court, the parties had already entered into a contract to sell. In
contracts to sell, payment is a positive suspensive condition, failure of which does
not constitute a breach but an event that prevents the obligation of the vendor to
convey title from materializing, in accordance with Article 1184 of the Civil Code.
Perfection Stage: Offer and Acceptance

Art. 1475
The contract of sale is perfected 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 the law governing the form of contracts. (1450a)
Consent that Perfects a Sale
Sale, being a consensual contract is perfected by the meeting of the minds

upon the object of the contract and the price.
Meeting of the minds happens when a certain offer and an absolute
acceptance meet.
When Deviation Is Allowed
An offer is certain when it contains:

o A description of the subject matter which is a possible thing, licit
and determinate or at least determinable.
o And a price which is real, in money or its equivalent, certain or at
least ascertainable. The terms of payment must also be included.
The change in the phrases which do not essentially change the terms of the
offer does not amount to a rejection and a counter-offer. Clarificatory
changes are allowed. Villonco v. Bormaheco (65 SCRA 352)
Villonco v. Bormaheco
Offer Must Be Certain
The acceptance must be plain and unconditional, and it will not be so if it

involves any new proposition. Zayco v. Serra (44 Phil 326)
Acceptance must be in the exact terms in which they are made. Any
modification annuls the offer. Beumont v. Prieto (41 Phil. 670)
If the term to negotiate is included in the acceptance letter, there is still
no absolute acceptance. Yuvienco v. Dacuycuy (104 SCRA 668)
In the same way, if the word Noted is signed at the bottom of the
acceptance, it was deemed not to be an acceptance of the offer. DBP v.
Ong (460 SCRA 170)
If a party accepts but with a request that payment terms be modified,
there is no absolute acceptance. Limketkai Sons Milling, Inc. v. CA (255
SCRA 626)
The moment a party accepts the offer unconditionally, the contract of sale
is perfected. If the seller subsequently requests for a higher price, but no
agreement is reached, the first sale is stil valid and is not novated. Uraca v.
CA (278 SCRA 702)
A document cannot constitute a sale even when it provides for a
downpayment since the provision on the downpayment made no specific
reference to a sale of a vehicle. Definiteness as to the price is an essential
element of a binding agreement to sell personal property. Toyota Shaw,
Inc. v. CA (244 SCRA 320)
Facts: Cervantes (Bormaheco) owns a lot in Buendia. It offered to sell the lot to
Villaconco who owns a lot adjacent to the lot of the latter with the following
conditions; (a) 100k as earnest money which will become part of the payment if lot
in Sta. Ana is purchased (b) If the said property is not purchased, the money will be
returned and the sale will not be consummated, which will be known 45 days after
negotiation. Villonco sent a counter offer that the 100k will have an interest of 10%
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per annum. Cervantes returned the earnest money and reasoned that he acquired
the property beyond the 45 days period.

Issue: Whether or not there was a perfected sale?

Held: Yes. "Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract" (Art.
1482, Civil Code). The contract was already consummated at the time respondent
accepted the check. In fact, he accepted the earnest money, and furthermore
returned the 100k with 10% interest which serves as proof of the acceptance.

The court also had the occasion of distinguishing earnest money and option money;
(a) earnest money is part of the purchase price, while option money is the money
given as a distinct consideration for an option contract; (b) earnest money is given
only where there is already a sale, while option money applies to a sale not yet
perfected; and (c) when earnest money is given, the buyer is bound to pay the
balance, while when the would-be buyer gives option money, he is not required to
buy, but may even forfeit it depending on the terms of the option.

Acceptance by Letter or Telegram
Acceptance may be Express or Implied
Acceptance on the part of the buyer was manifested through acts such as
payment of the purchase price, declaration of the property for tax
purposes, and payment of real estate taxes. Gomez v. CA (340 SCRA 720)
By affixing their signatures as witnesses, the co-owners accepted the terms
of the contract. Oesmer v. PDC (514 SCRA 228)
Acceptance Subject to a Suspensive Condition
Oesmer v. Paraiso Development Co.

Facts: Petitioners are siblings and co-owners of two parcels of land in Cavite.
Ernesto, met with Respondent PDC and signed a Contract to Sell. A P100,000 check,
payable to Ernesto, was given as option money. Sometime thereafter, 4 other also
signed the Contract to Sell. Petitioners then wrote a letter to PDC to rescind the
contract.
Even if there is a meeting of the minds, there will be no perfected contract

of sale if it is subject to a suspensive condition. Gan, Sr. v. Reforma (11 CAR
57)
CLV disagrees. He proposes that the better rule should be that there is
already a perfected contract but it is not yet demandable because of the
suspensive condition.
Acceptance in Auction Sales

Issue: Whether or not the sale is valid on the petitioners who signed the contract

Held: Yes. The other five petitioners (excluding Ernesto) personally affixed their
signatures thereon. Therefore, a written authority is no longer necessary in order to
sell their shares because, by affixing their signatures on the Contract to Sell, they
were not selling their shares through an agent but, rather, they were selling directly
and in their own right. 6/8 of the property is sold.
Does not bind the offeror except from the time it came to his knowledge.
Therefore, mere mailing or sending the acceptance is not enough. The
offeror may still withdraw before he learns of the acceptance.
The owner of the property sold at auction may provide the terms under
which the auction will proceed and the same are binding upon all bidders,
whether they knew of such conditions or not. Leoquinco v. Postal Savings
Bank (47 Phil. 772)
An auction sale is perfected by the fall of the hammer and it does not
matter if another bidder matched the price of the highest bidder. Province
of Cebu v. Heirs of Rufina Morales (546 SCRA 315)
Generally, the seller and the auctioneer cannot bid either by themselves or
by an agent. Exception is when the seller reserves such right.
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Earnest Money
Art. 1482
Whenever earnest money is given in a contract of sale it shall be considered as part
of the prices and as proof of the perfection of the contract. (1454a)
Art. 1482 gives a presumption. This prevails only in the absense of contrary
or rebuttal evidence. PNB v. CA (262 SCRA 464,484)
The presumption is based on the fact that there is a valid sale. The giving of
earnest money does not establish the existence of a perfected sale. It is
still the concurrence of the esential elements of sale which perfects the
contract. Manila Metal Containers Corp. v. PNB (511 SCRA 444)
The presumption does not apply when earnest money is given in a contract
to sell. Serrano v. Caguiat (517 SCRA 57). The money given in a contract to
sell is not earnest money but as part of the consideration to the sellers
promise to reserve the subject property for the buyer. PNB v. CA (262 SCRA
464)
In a conditional contract of sale, the acceptance of earnest money would
prove that the sale is conditionally consummated or party executed.
Villonco v. Bormaheco (65 SCRA 352)
Varying Treatments of Earnest Money
Given only where there is already a sale
Applies to a sale not yet perfected
The buyer is bound to pay the balance
The buyer is not required to buy.
Effect of Recission on Earnest Money Received
The treatment of earnest money in Art. 1482 is the preferred concept

under the law.
However, there is nothing which prevents the parties from treating the
earnest money differently.
For example, in Spouses Doromal v. CA (66 SCRA 575), the parties treated
the earnest money as a guarantee that the buyer would not back out from
the sale. This was the concept of earnest money in the old Civil Code.
Place of Perfection
The sales place of perfection is where the meeting of the minds as to the
determinate subject matter and price occurs.
In case of acceptance by telegram or letter, the presumption is that the
contract was perfected in the place where the offer was made.
Expenses of Execution and Registration

1.
2.
3.
Execution and registration of the sale

Putting the goods into a deliverable state
Withholding taxes due on the sale
Performance Should Not Affect Perfection
Adelfa Properties, Inc. v. CA (240 SCRA 565, 580) provides the distinctions:
Earnest Money
Except if expressly stipulated, the seller cannot keep the earnest money to
answer for damages sustained in the event that the sale fails due to the
fault of the buyer. Goldenrod, Inc v. CA (299 SCRA 141)
If the sale is rescinded, the seller must return the earnest money. Recission
creates the obligation to return the things which were the object of the
contract, together with their fruits and interest.
The seller has to answer for the following expenses:
Distinguising Earnest Money and Option Money
Distinct consideration for an option

contract
Function of Earnest Money
Part of the purchase price
Option Money
The ability of the parties to perform the contract (after perfection) does
not affect the perfection of the contract.
Example:
o In Schuback v. CA (227 SCRA 719), the Court ruled that there was
already a perfected sale even when the required letter of credit
(which was the means of payment agreed upon) had not been
opened by the buyer.
36
Non-payment of the price does not render void nor reverse the effects of
the perfection of the contract of sale. It only creates a right to demand
fulfillment of the obligation or to rescind the contract. Balatbat v. CA (261
SCRA 128)
When the seller is not the owner both at the time of perfection and
delivery, it is similar to an impossible service under Art. 1409(5). Thus,
the contract is void. Nool v. CA (276 SCRA 149)
o BUT, CLV says that the comparison to an impossible service is
erroneous because the obligations are to give, not to do.
Form of Sales
Form Not Generally Important for Validity of Sale
Subject to the provisions of the Statute of Frauds and of any other applicable
statue, 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. (n)
Sale, being a consensual contract, no particular form is required for its

validity.
The sale of land under a private instrument is valid. Gallar v. Hussain (20
SCRA 186) The requirement in the Statute of Frauds that sale of real estate
should be embodied in a public document is only for the purpose of
binding third parties.
The fact that the sale over land was not registered does not affect the
validity of the sale. Again, registration is only for the purpose of greater
efficacy and binding third persons. Universal Sugar Milling Corp. v. Heirs of
Angel Teves (389 SCRA 216)
Remember: Unenforceable contracts are still valid.
Requirement for Public Instrument for Immovables under Art. 1358
16
Art. 1358 enumerates the contracts which require a public document.

However, it expressly provides that sales of real property or an interest
therein, are governed by Art. 1403(2) (i.e. Statute of Frauds) and Art. 1405.
Provisions of Art. 1358 are only for purposes of convenience. Non-
compliance would not render the contract void or unenforceable. It merely
provides a cause of action for the parties to compel the other to have the
document notarized. Dalion v. CA (182 SCRA 872)
Even if the deed of sale has not yet been signed and notarized, the
contract is still perfected. Limketkai Sons Milling, Inc. v. CA (250 SCRA 523)
However, if a deed of sale over a condominium unit or a piece of land is
not registered in the Registry of Deeds, it cannot bind third persons.
Talusan v. Tayag (356 SCRA 263), Santos v. Manalili (476 SCRA 679)
Dalion v. CA
Art. 1483
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Facts: Segundo Dalion is denying that he sold his parcel of land in Southern Leyte to
Ruperto Sabesaje, contending that the document is fictitious and should have been
executed in a public instrument. Sabesaje filed a suit for recovery of ownership of
the parcel of land based on the deed of absolute sale executed by Dalion.

Issue: Whether or not the sale was valid despite the failure to embody it in a public
document

Held: Yes. Art. 1358 states that acts and contracts which have for their object the

16
Art. 1358 The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein are governed by Articles 1403, No. 2, and 1405;
(2) xxx
(3) xxx
(4) xxx
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even
a private one. But sales of goods, chattels or things in action are governed by Articles 1403, No. 2 and
1405. (1280a)
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creation, transmission, modification or extinction of real rights over immovable

property must appear in a public instrument is only for convenience, not for
validity or enforceability. It is not a requirement for the validity of a contract of sale
of a parcel of land that this be embodied in a public instrument.

A contract of sale is a consensual contract, which means that the sale is perfected
by mere consent. No particular form is required for its validity. The authenticity of
the signature of Dallion was proven by the testimony of several witness including
the person who made the deed of sale.

Function of a Deed of Sale
A formal and symbolic delivery of the property sold. It can be used by the
buyer as proof of ownership.
The execution of a public document is one of the highest forms of
constructive delivery in the Law on Sales
Public document:
o Subscribed and acknowledged before a notary public
o Enjoys presumption of regularity and due execution
o High probative value
o Clear and convincing evidence is required to contradict such
However, notarization does not guarantee validity. Neither is it conclusive
of the nature of the transaction conferred by the said document. Salonga
v. Concepcion (470 SCRA 291)
Execution and notarization of a deed of sale is not conclusive presumption
of delivery of possession. Santos v. Santos (366 SCRA 395)
o The buyers immediate taking of possession and occupation of the
property corroborates the authenticity of the deed of sale
o But the sellers continued possession of the property casts doubt
on the validity of the sale. It can show that the sale was simulated.
Jurat clause at the foot of an affidavit showing when, where and before
whom the actual oath was sworn
o If this alone is present, the deed of sale is not notarized and
remains a private document.
Even if deeds of sale were notarized by someone who was not a notary
public, the sale still remained valid. But the Deed of Sale becomes a mere
private document. R.F. Navarro & Co. v. Vailoces (361 SCRA 139)
In Dalumpines v. CA (336 SCRA 538), the signatures of the sellers were
found on the acknowledgemnt of the notarized Deed of Absolute Sale, not
the Deed of Absolute Sale itself. The Court ruled that the deed cannot be
considered notarized because the notary public did not observe utmost
care in the performance of his duty.
Even if unsigned, Contracts to Sell constitute the law between the
contracting parties. They are consensual and thus, binding as long as there
is a meeting of the minds. Gomez v. CA (340 SCRA 720)
Substantial variance in the terms of the Contract to Sell and the
subseqeunt Deed of Absolute Sale did not void the transaction. The Deed
of Absolute Sale novated the Contract to Sell. Lumbres v. Tejada, Jr. (516
SCRA 575)
When Form of Sale Affects its Validity
General Rule: Form does not affect validity of sale.

Exceptions: (ACM)
a. Power to sell a piece of land by an agent must be in writing,
otherwise, the sale will be void.
b. Sale of large cattle must be in writing, otherwise the sale would
be void. It must also be registered with the municipal treasurer in
order to be valid.
c. Sale of land by non-muslim hill tribe cultural minorities all
throughout the Philippines is void if not approved by the
National Commission on Indigenous Peoples (NCIP).
The authority of an agent to sell real estate must be embodied in a written
special power of attorney. Therefore, the authority must be expressly
given and specific. Cosmic Lumber Corp. v. CA (265 SCRA 168); Raet v. CA
(295 SCRA 677)
An oral sale entered into by the son for the real property of his father is
void. Delos Reyes v. CA (313 SCRA 632)
Likewise, the agent of a corporation must have a written authority to sell a
piece of land, otherwise, it will be void. Receipt of part of the purchase
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price by the agent will not validate the sale. City-Lite Realty Corp. v. CA
(325 SCRA 385)
However, the agents written authority alone will not exempt the sale from
the Statute of Frauds. The Deed of Sale itself must be in writing and
rd
registered in order to be enforceable and binding to 3 persons. Torcuator
v. Bernabe (459 SCRA 439)
When the Contract to Sell is signed by the co-owners themselves, written
authority by the agent is no longer required. The co-owners are acting
directly. Oesmer v. Paraiso Dev. Corp. (514 SCRA 228)
3.
4.
Nature of Memorandum
Statute of Frauds: When Form Is Important for Enforceability

Nature and Purpose of Statue of Frauds
To prevent fraud and perjury in the enforcement of obligations. The

written note must emobody the essentials of the contract. Torcuator v.
Bernabe (459 SCRA 439)
The application of the Statute of Frauds presupposed the existence of a
perfected contract. Firme v. Bukal Enterprises and Dev. Corp. (414 SCRA
190)
Sales Coverage in Statute of Frauds
The following kinds of sale are unenforceable if not embodied in a written

document: (1-500-R)
o A sale which is not to be performed within one year
o Agreement for the sale of goods, chattel or things in action not
less than P500
o Sale of real property
Evidence of the agreement must be in writing.
Exceptions to Coverage of Statue of Frauds in Sales Contracts
The following are exempted from the Statute of Frauds and are thus
enforceable: (M-POE)
1. There is a note or memorandum in writing and subscribed by the
party charged or his agent
2. When there has been partial consummation/partial performance
Failure to object to the presentation of evidence aliunde

(meaning: from another place) as to the existence of a contract
Sales effected through electronic commerce
The memorandum need not be in just one document. Several

correspondences taken together would constitute sufficient
memorandum. Berg v. Magdalena Estate, Inc. (92 Phil 110); First Phil.
International Bank v. CA (252 SCRA 259)
The memorandum must contain all the essential terms of the contract of
sale. All the requisites of a valid sale must be indicated. Paredes v. Espino
(22 SCRA 1000)
o The manner of payment must also be included in the
memorandum. Yuvienco v. Dacuycuy (104 SCRA 668)
o But the Court has held that in sales of real property, the statute of
frauds will not apply if there has already been partial payment
even if the memorandum evidencing the sale did not mention
payment by installment. David v. Tiongson (313 SCRA 63)
The courts will not go beyond the four corners of the memorandum to
ascertain the presence of a sale. Doing so would be violative of the Statute
of Frauds. If the memoranda do not embody the essential elements of a
sale, the court will declare that there wasnt any perfected sale. Oral
evidence will not suffice to prove the sale. Limketkai Sons Milling, Inc. v. CA
(255 SCRA 626)
Yuviengco v. Dacuycuy
Facts: Petitioners are owners of a bakery in Tacloban, they intend to sell it at 6.5M
and the offer pending until July 31, 1978 to buy the property. Atty.Gamboa went to
Cebu bringing a contact with an altered mode of payment which says that the
balance payment should be paid withing 30 days instead of the former 90 days. Due
to the said variance in the said document, the bank draft was returned unsigned.

Issue: Whether or not there was a cause of action
Whether or not the statute of fraud will apply
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3)
Held: SC considered the correct juridical significance of the telegram of respondents

instructing Atty. Gamboa to "proceed to Tacloban tonegotiate details." It
emphasizes the word "negotiate" advisedly because to SCs mind it is the key word
that negates and makes it legally impossible to hold that respondents' acceptance
of petitioners' offer, assuming that it was a "certain" offer indeed, was the
"absolute" one that Article 1319. Payment on installments is entirely different from
cash payment. The manner of payment is an essential requisite in a contract of sale.
The alteration in the terms of payment clearly showed there was no meeting of the
minds yet to perfect a contract of sale.
WON the sale to NBS during the pendency of the trial in the RTC was effected
in good faithNO

Ratio
1.
2.
In any sale of real property on installments, the Statute of Frauds read together
with the perfection requirements of Article 1475 of the Civil Code must be
understood and applied in the sense that the idea of payment on installments must
be in the requisite of a note or memorandum therein contemplated. Under the
Statute of Frauds, the contents of the note or memorandum, whether in one
writing or in separate ones merely indicative for an adequate understanding of all
the essential elements of the entire agreement, may be said to be the contract
itself, except as to the form
3.
Contract of sale perfected-VP and Asst. VP have authority to sell since

their primary responsibilities were to manage and administer real estate
property.Asst. VP Aromin testified that there was already a perfected
contract of sale.When they met, talked and agreed that the lot would be
sold to Limketkai at Php 1000/sq. meter and on terms dictated by Albano,
the sale was perfected.
Statute of Frauds - transaction was outside the ambit of the SoF, there is
the existence of a written note or memorandum, the Authorization Letters
and letter from Limketkai confirming the sale. Respondents cross-
examined the witnesses at length regarding the contract, price, tender of
payment, etc.
NBS not a purchaser in good faith. They ignored the lis pendens annotated
on the title.

Limketkai v. CA (MR)

Limketkai v. CA
Facts: BPI as trustee of PRC , authorized Pedro Revilla to sell a lot in Barrio Bagong
Hog, Pasig. BPI VP Albano, Asst. VP Aromin and Limketkai had negotiations and
eventually settled on Php 1000/sq meter. Lim asked if they could pay on terms and
so VP Albano dictated the terms of payment. About 3 days later, Limketkai learned
that its offer to pay on terms has been frozen. Lim went to BPI to tender full
payment of Php 33, 056, 000.00 to VP Albano but the latter refused payment and
said his authority to sell the land had been withdrawn. Limketkai filed a case to
against BPI for specific performance.

WON there was a perfected contract of sale between Limketkai and BPIYES
WON the evidence admitted by the trial court in ruling for the perfection of the
sale is admissible, given that in a sale of real property, the Statute of Frauds is
applicable?YES

2.Statute of Frauds- Petitioner claims as proof of perfected contract of sale
between it and respondent BPI were not subscribed by the party charged, i.e. BPI,
thus did not constitute the memoranda or notes that the law speaks of.

Partial Performance
Issues
1)
2)
1. No contract of sale perfected- . Petitioners fail to establish any definite

agreement or meeting of the mind as regards the price or term of payment.
Petitioners acceptance of the offer was qualified, which amounts to a rejection of
the original offer.
Partial performance is not limited to the giving of money. Contracts

covered by the Statute of Frauds are ratified by acceptance of benefits
under them. (Art. 1405)
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However, delivery of the deed to the buyer without intention on the part
of the seller to part with the title until purchase price is paid does not
constitute partial performance. Baretto v. Manila Railroad Co. (46 Phil.
964)
Partial performance of a sale of real property will take it out of the Statute
of Frauds even if the formal requirements (i.e. it must be in writing) are not
complied with, as long as the essential requisites of sale are present. Vda.
De Jomoc v. CA (200 SCRA 74)
The Statute of Frauds only applies to executory contracts. Where one party
has performed his obligation, oral evidence will be admitted to prove the
agreement. Alfredo v. Borras (404 SCRA 145) (Note the difference with the
admissibility of parol evidence in the Limketkai case, supra.)
Spouses Alfredo v. Spouses Borres

Facts: Spouses Alfredo sold a land to Spouses Borres, the latter will pay the DBP
loan of the former and the balance will be paid in cash. Carmen Alfredo issued a
receipt for the payment. Alfredos then delivered the OCT 284, along with document
of cancellation of mortgage, official receipts of realty tax payments to Adelia.
However, Borreses discovered that the Alfredos had re-sold portions of the subject
land to several persons.

Issue: WON sale of land in favor of Borreses is valid even if orally entered. (YES)
WON Statute of Frauds is applicable (NO)

Ratio: Contract of Sale was a perfected contract. The contract was also
consummated because both parties have performed their respective obligations.
SOF does not apply because there is a memorandum of sale, Receipt is considered a
memorandum of sale. SoF only applies to executory contracts, not ones that have
been partially/totally performed.

Effect of Partial Execution on Third Parties
Sale of real property which are not in writing but are partially executed still
do not bind third parties.
Formal requirements are for the benefit of third parties. Non-compliance

does not affect the validity of the contract. Fule v. CA (286 SCRA 698)
If a third party disputes the ownership of the property, the person against
whom that claim is brought cannot present any proof of such sale and
hence, has no means to enforce the contract. Thus, the Statute of Frauds is
for the benefit of the parties in the sale. Claudel v. CA (199 SCRA 113)
o The Claudel ruling confirms the variance in principles involving
movables and immovables. Art. 1403 treats partial execution as
applicable only to goods and chattel.
o For movables, mere possession is enough to give a presumption
of ownership (Art. 559). For immovables, a Torrens title is needed.
o Note the difference in the ruling of Claudel and Vda. De Jomoc.
The controlling doctrine is that of Vda. De Jomoc: partial
performance in sales of real property takes it out of the Statute of
Frauds. However, it is still the registration in the Registry of Deeds
which will bind third parties.
o Claudel shows the effect of having a sale of real property which
isnt reduced to writing. Thus, it emphasizes the importance of
the Statute of Frauds. (Claudel was decided based on prescription,
not according to the Statute of Frauds.)
Reliance on testimony of witnesses as secondary evidence to prove a sale
of real property will not prosper because such a sale must be evidenced by
a written instrument when it involves third parties. Alba vda. De Rax v. CA
(314 SCRA 36)
Londres v. CA (394 SCRA 133) summarized the rulings on the matter:
o Art. 1358 is only for convenience
o Registration of the instrument is needed only to adversely affect
third parties
o Non-compliance with formal requirements does not affect validity
In the Torrens system, execution of a public document is not enough to
bind third persons. Registration with the Registry of Deeds is the operative
act. Secuya v. Vda. De Selma (326 SCRA 144)
Fule v. CA
Facts: Fule offered to sell his land to Dr. Cruz for the price of 40,000 and her
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emerald cut diamond earrings (worth 160k). They met at the safety deposit box of
Dr. Cruz and Fule examined the said jewelry. He nodded and took the earrings. Two
hours after, he complained to Atty. Belarmino and Dr. Cruz that the jewelry given to
him was a fake. He prayed for the annulment of the contract on the ground of
vitiated consent through fraud.
she owns the whole lot, including the portion bought by Secuya, presenting a TCT
and a deed of sale executed by Cesaria Caballero.
Issue: Whether or not the sale was invalid due to fraud
Held: No. The Agreement is not one of partition, because there was no property to
partition and the parties were not co-owners. Rather, it is in the nature of a trust
agreement. As a result of the Agreement, Maxima Caballero held the portion
specified therein as belonging to Paciencia Sabellona when the application was
eventually approved and a sale certificate was issued in her name.Thus, she should
have transferred the same to the latter, but she never did so during her lifetime.

Held: No. There was no fraud on the part of the private respondents. In fact, it was
the petitioner through his agents who led Dr.Cruz to believe that the properties
were worth P400,000 then supposedly discounted it to P200,000 to induce her to
exchange the property. All elements were present a) consent b) subject matter and
c) price. The land was constructively delivered via deed of absolute sale and the
earrings transferred ownership when he left the Bank that day. Thus, contract can
no longer be disputed.

Claudel v. CA
Facts: Cecilio Claudels heirs and siblings claimed title to the land. Siblings claim that
subject lot was sold to their parents by Cecilio through an oral contract. Their proof
of sale is a subdivision plan of the said land.
Issue: 1.Whether or not a contract of sale of land may be proven orally (NO)
2. Prescriptive period for filing an action for cancellation of titles and
reconveyance with damages
Ratio: Contracts of sale are valid regardless of the form it may have been entered
into except when third party, disputes the ownership of the property, the person
against whom that claim is brought cannot present any proof of such sale and
hence has no means to enforce the contract. As to the prescription ,Civil Code sates
that under Art. 1145, actions regarding oral contracts must be commenced within 6
years.

Issue: Whether or not Secuyas own the the property

Petitioners insist that Paciencia sold the disputed property to Dalmacio Secuya
embodied in a private document. However, such document, which would have
been the best evidence of the transaction, was never presented in court, allegedly
because it had been lost. While a sale of a piece of land appearing in a private deed
is binding between the parties, it cannot be considered binding on third persons, if
it is not embodied in a public instrument and recorded in the Registry of Property

Nature and Coverage of Partial Performance

Secuya v. Vda. De Selma
Facts: Maxima Caballera, through an agreement of partition, allotted Lot 5679 to
Paciencia Sabellona. The latter then sold her share to Secuya. De Selma claims that
Partial payment of the purchase price is not the only manner of partial
performance.
Other modes of partial performance: Ortega v. Leonardo (103 Phil. 870)
o Possession
o Making of improvements
o Rendition of services
o Payment of taxes
o Relinquishment of rights
Requisites of partial performance:
o Must pertain to the subject matter or the price of the sale
o Must involve an act or complicity on the party sought to be
charged
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Partial performance must amount to estoppel against the party sought to

be charged.
Cross-examination on the contract is deemed a waiver of the defense of

the Statute of Frauds.
Value of Business Forms to Prove Sale
Ortega v. Leonardo
Facts : Leonardo made a deal with Ortega to desist from pressing her claim and
promised that he would sell to her a portion of the lot provided she paid for the
surveying and subdivision of the Lot and provided further that after he acquired
title, she could continue holding the lot as tenant by paying a monthly rental.
Ortega accepted the offer. Defendant acquired title. Ortega tendered to Leonardo
the purchase price for the lot, which the latter refused to accept, without cause or
reason. Alleging partial performance, plaintiff sought to compel defendant to
comply with their oral contract of sale of a parcel of land.

Issue: WON the partial performance of a sale of contract occurs only when part of
the purchase price is paid (NO)

Ratio: American Jurisprudence enumerates other acts of partial performance (i.e.
continuance in possession, making of valuable permanent improvements on the
land, tender or offer of payment, relinquishment of rights). The complaint in this
case described several circumstances indicating partial performance. Hence, there
was partial performance and the principle excluding parol contracts for the sale of
realty, does not apply.

Business forms (e.g. receipts, order slips, etc.) issued by the seller are not
always fully accomplished to contain all the necessary information
describing the business transaction.
They serve as an acknowledgement that a business transaction did take
place.
By themselves, they are inadequate to establish the case for the vendor.
Their probative value must be evaluated in conjunction with other
evidence.
Toyota Shaw v. CA
Facts: Luna Sosa and Popong Bernardo, a sales representative executed a document
entitled Agreements between Sosa & Popong Bernardo of Toyota Shaw for the
purchase of a Toyota Lite Ace. A P 100,000.00 down payment was stipulated and
that the Lite Ace would be available at the given date, with Bernardo guaranteeing
that the vehicle would be delivered. At the given date of delivery, Lite Ace was
unavailable. Sosa sued for damages.

Issue: WON there was a perfected contract of sale - NO

Waiver of Provisions of Statute of Frauds

This is the third ground which takes a contract out of the Statute of Frauds.
When a party fails to object during trial to the presentation of oral
evidence to prove the contract, he is deemed to have waived the defects
17
of the contract. Thus, the contract will be enforceable. (Art. 1405 )

Ratio: No perfected contract of sale. There was no agreement as to the price and
the manner of payment w/c are both essential to the perfection of the sale.

Sales Effected as Electronic Commerce (R.A. 8792)
The main point of this entire section in the book is this: electronic
documents are given the same legal recognition as paper documents.
Thus, they are admissible as evidence in court.

17
Art. 1405 Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified
by failure to object to the presentation of oral evidence to prove the same, or by the acceptance of
benefits under them.
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Form in Equitable Mortgage Claims
The Statute of Frauds does not stand in the way of treating an absolute
deed of sale as a mortgage, when such was the intention of the parties.
Cuyugan v. Santos (34 Phil. 100)
A contract should be construed as a mortgage or a loan instead of a pacto
de retro sale when its terms are ambiguous or the circumstances
surrounding its execution or its performance are incompatible with a sale.
Parol evidence becomes admissible to prove that the instrument was
intended to be a security for a loan. Lapat v. Rosario (312 SCRA 539)
An equitable mortgage is not different from a real estate mortgage, and
the lien created thereby ought not to be defeated by requiring compliance
with the formalities necessary to the validity of a voluntary real estate
mortgage. Rosales v. Suba (408 SCRA 664)
Form in Sales on Return or Approval
Right of First Refusal Must Be Contained in Written Contract
Art. 1502
When 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:
(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 a reasonable time is a question of fact. (n)
The Court has held that the conditions in Art. 1502 will only apply if there
is an express stipulation that the sale is either a sale on return or a sale
on approval. Industrial Textile Manufacturing Company of the Phil., Inc. v.
LPJ Enterprises, Inc. (217 SCRA 322)
Verbal grants of such right are not enforceable. In effect, this is an addition
to the Statute of Frauds. Sen Po Ek Marketing Corp. v. Martinez (325 SCRA
210)
When Sale Completely Simulated
When goods are delivered to the buyer on sale or return to give the buyer an
option to return the goods instead of paying the price, the ownership passes to the
buyer on delivery, but he may revest the ownership in the seller by returning or
tendering the goods within the time fixed in the contract, or, if no time has been
fixed, within a reasonable time. (n)
Parol evidence will not be admitted to prove that a sale was a sale on
return or sale on approval.
The buyer cannot accept part of the goods and reject the rest.
When a sale is absolutely simulated, it is completely void and non-existent.

If the parties enter into a sale to which they did not intend to be legally
bound, the contract is void and not susceptible to ratification. Rosario v. CA
(310 SCRA 464)
Failure of the buyers to take possession of the property or to collect
rentals is contrary to the principle of ownership. It shows simulation which
renders the whole transaction void. Santiago v. CA (278 SCRA 98)
Although the agreement to sell did not absolutely transfer ownership of
the land to the buyer, the Court held that it did not show that the
agreement was simulated. Delivery of the certificate of ownership and the
execution of the deed of sale were suspensive conditions which gave rise
to the obligation to pay the last installments. Villaflor v. CA (280 SCRA 297)
Simulation declaration of a fictitious will, made by agreement of the
parties, in order to produce, for the purposes of deception, the
appearance of a juridical act which does not exist or is different from what
was really executed. Loyola v. CA (326 SCRA 285)
In simulated contracts, the parties do not intend to be bound by the
contract and the apparent contract is not really desired or intended to
produce legal effect.
Requisites of simulation: (DMD)
o Outward declaration of will different from the will of the parties;
o False appearance intended by mutual agreement
o Purpose is to deceive third persons
The allegation that a signature is forged must be proven by clear, positive
and convincin evidence. R.F. Navarro & Co. v. Vailoces (361 SCRA 139)
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When a sale is void, the right to set up its nullity or non-existence is

available to third persons who are affected.
Action for declaration of nullity is likewise available. It does not prescribe.
Accion pauliana is also available when the subject matter is a conveyance
undertaken in fraud of creditors.
Law on Sales
Delivery transfers ownership ipso jure, without prejudice to the right of the
seller to claim payment of the price. Ocejo, Perez & Co. v. International
Banking Corp. (37 Phil. 631)
To Deliver the Fruits and Accessories
Chapter 6 Performance or Consummation of Sale
Art. 1164.
To Preserve the Subject Matter
The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over
it until the same has been delivered to him. (1095)
Art. 1163.
Art. 1537.
Every person obliged to give something is also obliged to take care of it

with the proper diligence of a good father of a family, unless the law or
the stipulation of the parties requires another standard of care. (1094a)
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.
Obligations of Seller
In the sale of a determinate object, the obligation of taking care of the

subject matter arises upon perfection, even before delivery. Otherwise,
the seller is liable for breach.
All the fruits shall pertain to the vendee from the day on which the
contract was perfected. (1468a)
It is an obligation to do.
To Deliver the Subject Matter
To Warrant the Subject Matter
Art. 1495.
The vendor is bound to transfer the ownership of and deliver, as well as

warrant the thing which is object of the sale. (1461a)
Transfer of ownership is effected by delivery, actual or constructive.
If there is no express stipulation that title shall not pass until payment of
price, and the thing sold has been delivered, ownership passes from the
moment the thing sold is placed in the possession and control of the buyer.
Payment of price does not determine the effect of delivery. Kuenzle &
Streiff v. Watson & Co. (13 Phil 26)
In a sale involving a determinate subject matter, even prior to delivery of

ownership thereof to the buyer, the buyer already has certain rights
enforceable against the seller.
Please see discussions in Chap. 12.
Tradition as a Consequence of a Valid Sale

Essence of Tradition
Art. 1496.
The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in Articles 1497
to 1501, or in any other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.
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There is delivery if and when the thing sold is placed in the control and
possession of the vendee. Delivery is a composite act, in which both
parties must join and the minds of both parties concur. Equatorial Realty
Dev., Inc. v. Mayfair Theater, Inc. (370 SCRA 56)
Tradition produces its legal consequences from the fact that delivery is
effected pursuant to a valid sale. There is no transfer of ownership by the
execution of a deed of sale merely intended to accommodate the buyer to
enable him to generate funds for his business.
aware of the presence of the tenants when it entered into the contract of sale
hence it assumed the risks of ownership and possession.

Constructive Delivery
The essence of most forms of constructive delivery is the existence of an

agreement between the seller and the buyer, and that the laatter is
understood to have control of the subject matter of the sale.
Actual Delivery
Execution of Public Instrument
Art. 1497.
Art. 1498.
The thing sold shall be be understood as delivered, when it is placed in the

control and possession of the vendee. (1462a)
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 clearly
be inferred.
Although possession is the best gauge when there is control, nonetheless

control can take other forms other than actual physical possession.
o
In a case, the lot was considered to be in the buyers control when

the buyer subsequently filed an ejectment suit against someone.
Power Commercial and Industrial Corp. v. CA (274 SCRA 597)
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 stored or kept.
(1463a)
Art. 1487.
Power Commercial and Industrial Corp. v. CA

Facts: PCIC bought a property from spouses Quiambao. PCIC also assumed
mortgage on the land in favor of PNB. Spouses again mortgaged the land to PNB to
guarantee a loan. PCIC assumed this mortgage also, so parties executed a Deed of
Absolute Sale with Assumption of Mortgage, along with the application for
assumption of mortgage, to PNB. PCIC filed for rescission of the contract for
Quiambaos failure to eject the lessees and transfer physical possession to them.
During the pendency of the case, the mortgage was foreclosed and PNB was the
highest bidder at the public auction.
The expenses for the execution and registration of the sale shall be borne
by the vendor, unless there is a stipulation to the contrary. (1455a)
Jurisprudence has held that a notarized deed of sale has two functions:
1.
it operates as a formal or symbolic delivery of the property sold
2.
it authorizes the buyer to use the document as proof of

ownership
Issues: W/N the contract may be rescinded due to a substantial breach of the
contractfailure to eject tenants and violation of warranty against eviction. --- NO
Constructive delivery has the same legal effect as actual or physical

delivery. Municipality of Victorias v. CA (149 SCRA 31)
Held: Delivery can be actual or constructive. Symbolic delivery, as a species of

constructive delivery, may be prevented if the vendor does not possess control over
the thing sold, in which case this legal fiction must yield to reality. Here, the lot had
been placed in PCICs control. Thats why they were able to file the ejectment cases
subsequently. Since ejectment of lessees was not stipulated as a condition, it
cannot be invoked as a cause to allow PCIC to rescind its contract. In fact, PCIC was
Prior physical possession it not legally required since the mere execution of
the deed of conveyance in a public instrument is equivalent to the delivery
of the property. Sabio v. International Corporate Bank (364 SCRA 385)
Control is still necessary. If a public document was executed, but the buyer
is not placed in control of the property, there is only a rebuttable
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presumption of delivery which can be rebutted by clear and convincing

evidence. Santos v. Santos (366 SCRA 395)
must subsist for a reasonable length of time. Pasagui v.

Villablanca (68 SCRA 18)
Santos v. Santos
Addison v. Felix
Facts: Jesus and Rosalia Santos executed a deed of sale of a property in favor of
Salvador and Rosa. Rosalia continued to lease and receive rentals from the
apartment units. Jesus, Rosalia and Salvador died. Zenaida, Salvadors wife,
demanded rent from Antonio, Rosalias tenant. He refused. Rosalias siblings filed
for reconveyance of the property alleging that the deed of sale was simulated for
lack of consideration.
Facts: Spouses Marciana Felix and Balbino Tioco bought 4 parcels of land from A. A.
Addison. Felix paid at the time of execution P3000 and the manner of payment for
subsequent installments were stipulated by the parties. The contract also provided
for a stipulation for rescission within 1 year from the issuance of title to the
property, and shall effect restitution among the parties. Addison filed a suit in the
CFI of Manila claiming the first installment of P2000. Defendants contested that the
property was not delivered, hence they asked for a refund.
Issue: Is a sale though a public instrument tantamount to delivery of the thing sold?
--- NO
Held: There is nothing in Article 1498 that provides that execution of a deed of sale
is a conclusive presumption of delivery of possession; presumptive delivery can be
negated by the failure of the vendee to take actual possession of the land or the
continued enjoyment of possession by the vendor. For the execution of a public
instrument to effect tradition, the purchaser must be placed in control of the thing
sold. To effect delivery, there must be the actual intention of the vendor to deliver,
and its acceptance by the vendee.

Cases where execution of public instrument covering valid sales do not

produce the effects of tradition:
1.
2.
When there is a contrary stipulation. Phil. Suburban Dev. v.

Auditor (63 SCRA 397)
At the time of the execution of the public instrument, the subject
matter was not subject to the control of the seller. Addison v. Felix
(38 Phil. 404)
a.
3.
However, if there was an express agreement that the

buyer had to take necessary steps to obtain material
possession, and it was proven that the buyer knew the
subject matter to be in possession of a third party, such
agreement is valid. The seller is deemed to have
complied with his obligation to deliver by the execution
of the public instrument.
Not only must the seller have control at the execution of the
instrument, such control or ability to transfer physical possesion
Issue: W/N there was delivery and, therefore, a transfer of ownership of the thing
sold. --- NO
Held: The thing is considered to be delivered when it is placed "in the hands and
possession of the vendee." (Art. 1462). It is true that the same article declares that
the execution of a public instruments is equivalent to the delivery of the thing
which is the object of the contract, but, in order that this symbolic delivery may
produce the effect of tradition, it is necessary that the vendor shall have had such
control over the thing sold that, at the moment of the sale, its material delivery
could have been made. It is not enough to confer upon the purchaser the
ownership and the right of possession. The thing sold must be placed in his control.

Danguilan v. IAC
Facts: Apolonia filed a complaint against Danguilan for recovery of two lots. She
claimed to have purchased these lots from Domingo Melad and moved out because
Danguilan asked if he could cultivate the lands. Domingo claims Domingo signed
private instruments conveying said properties on the understanding that the latter
would take care of the grantor and arrange for his burial.
Issue: Who has a better claim to the property? --- Danguilan
Held: Apolonia failed to show that she consummated the contract of sale by actual
delivery of the properties to her, and her actual possession thereof in concept of
owner. Such control should remain within a reasonable period after the execution
of the instrument.

Pasagui v. Villablanca
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Facts: Calixto Pasagui and Fausta Mosar purchased land from Eustaquia and
Catalina Bocar for P 2,800.00. The sale was embodied in a public instrument.
However, they failed to take possession of the property because Spouses
Villablanca illegally took possession of the property and harvested coconuts therein.
As such, Pasagui filed a case for ejectment against the Villablancas.
because Wilfredo failed to pay the amortization. Perfecto offered to pay the full
amount but Libra refused since the loan was obtained not only for the tractor but
the truck as well. There was a collection case pending filed by Gelac Trading against
Wilfredo. The tractor was seized and sold at a public auction where Gelac Trading
was the lone bidder. Gelac Trading sold the tractor to Antonio Gonzales.
Issue: W/N there was constructive delivery upon the execution of the public
instrument. NO.
Issue:
Held: The seller must have actual control of the object of sale at the time of the
execution of the instrument, and such control/ability to transfer physical possession
must subsist for a reasonable amount of time after the execution of the instrument.
Pasagui had not yet acquired physical possession of the land because no delivery
was ever made by the seller, even by constructive delivery that proves actual
possession and control.

The registration of a Deed of Sale involving land with the Registry of Deeds
rd
is necessary only to bind 3 parties. As between the buyer and seller,
ownership is transferred by the execution of the public document. Chua v.
CA (401 SCRA 54)
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 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 other reason. (1463a)
When it comes to a third-party and the issue centers on the title or

ownership of the subject matter, constructive delivery by the execution of
a public instrument would produce the effect of tradition, but only 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 sale, control of possession of the subject matter was
not in the hands of the seller. Dy, Jr. v. CA (198 SCRA 826)
Dy, Jr. v. CA
Facts: Wilfredo Dy obtained a loan from Libra to buy a truck and tractor, which
were mortgaged to Libra as security. Perfecto Dy purchased the tractor from
Wilfredo and assumed the mortgage debt. The tractor was in Libras possession
1.
Whether or not there was constructive delivery at the time of the

execution of the deed of sale in favor Perfecto. YES
2.
Whether or not Wilfredo must first have control and possession of the
thing before he could transfer ownership by constructive delivery. NO
Held: Art 1496 states that the ownership of the thing sold is acquired by the vendee
from the moment it is delivered to him in any of the ways specified in Art 1497-
1501 or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee. Although actual delivery of the tractor
could not be made, there was constructive delivery already upon the execution of
the public instrument pursuant to Art 1498 and upon the consent or agreement of
the parties when the thing sold cannot be immediately transferred to the
possession of the vendee.
Symbolic Delivery
Must involve or cover the subject matter, and cannot take a form relating
to the payment of the purchase price.
o
The issuance of a receipt for partial payment cannot be taken to

mean a transfer of ownership. Lorenzo Dev. Corp. v. CA (449 SCRA
99)
Constitutum Possessorium
The seller held possession in the concept of owner, and pursuant to the
contract, the seller continues possession, but as lessee, or any other form
of possession other than in the concept of an owner.
Traditio Brevi Manu
Opposite of constitutum possessorium
The buyer is already in the possession of the property before the sale, but
not in the concept of the owner. After the sale, the buyer becomes
possesor in the concept of owner.
Traditio Longa Manu
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Delivery by mere agreement, such as when the seller points the property
subject matter of the sale by way of delivery without need of actually
delivering physical possession.
Delivery of Incorporeal Property
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. (1464)
3 types of constructive delivery specifically applicable to incorporeal

property:
1.
Execution of a public instrument, if the contrary does not appear
2.
Placing of the titles of ownership in the possession of the buyer
3.
Use and enjoyment by the buyer of the rights pertaining to the

incorporeal property, with the sellers consent

For shares of stocks, delivery of the stock certificates is essential. Failure to

deliver the stock certificates may amount to substantial breach, a ground
for rescission. Raquel-Santos v. Court of Appeals, 592 SCRA 169
Art. 1523.
Where, in pursuance of a contract of sale, the seller is authorized or
required to send the goods to the buyer, delivery of the goods to the
buyer, whether named by the buyer or not, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the
buyer, except in the cases provided for in Article 1503, first, second and
third paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such
contract with the carrier on behalf of the buyer as may be reasonable,
having regard to the nature of the goods and the other circumstances of
the case. If the seller omit so to do, and the goods are lost or damaged in
course of transit, the buyer may decline to treat the delivery to the carrier
as a delivery to himself, or may hold the seller responsible in damage.
Unless otherwise agreed, where goods are sent by the seller to the buyer
under circumstances in which the seller knows or ought to know that it is
usual to insure, the seller must give such notice to the buyer as may
enable him to insure them during their transit, and, if the seller fails to do
so, the goods shall be deemed to be at his risk during such transit. (n)
a.
Delivery by Negotiable Document of Title
A negotiable document of title represents the actual goods. If it is

transferred in good faith and for value, and if the transferror had the
ability to convey, it is equivalent to the transfer of the thing itself. (ex.
Negotiable warehouse receipt)
b.
If the document of title has merely been assigned, and not negotiated, the
transferee/assignee only acquires the transferors title.
Delivery through Carrier
This mode only applies to the sale of goods. The general rule, and in the
absence of contrary stipulation, delivery to the carrier is deemed delivery
to the buyer. The carrier acts as an agent of the buyer.
c.
F. A. S. Sales
Freight Along Side
the seller pays all charges and is subject to risk until the goods are placed
alongside the vessel. Delivery of the goods alongside the vessel completes
the effect of delivery.
F. O. B. Sales
free on board
f. o. b. shipping point delivery of the goods to the carrier is equivalent

to delivery to the buyer. Risk of loss pertains to the buyer.
f. o. b. destination delivery to the buyer takes place upon arival of the

vessel at the point of destination. Prior to arrival, risk of loss pertains to
the seller.
C. I. F. Sales
costs, insurance, and freight

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the price fixed covers not only the costs of the goods, but also the expense
of freight, and insurance
Two schools of thought on the effect of delivery under c.i.f. sales:

1.
The carrier acts as an agent of the buyer, and therefore, delivery

to the carrier is delivery to the buyer. The buyer thus obtained
ownership. (ex. General Foods v. NACOCO, 100 Phil 637)
2.
Both parties agree that the seller takes on the responsibility of

insuring the goods. Delivery to the carrier is not equivalent to
delivery to the buyer. (ex. Behn, Meyer & Co. v. Yangco, 38 Phil
602)
corresponding to the price of the deficiency. NACOCOs defense is that since the
contract was c.i.f., delivery to the carrier (SS Mindoro) was equivalent to delivery to
the buyer (GFC).
Issue: Is NACOCO liable to refund? YES.
Ratio: While in ordinary c.i.f. delivery to the carrier is delivery to the buyer, the
parties can insert stipulations. Here, the parties stipulated that the price to be paid
would be based on the exact net weight upon arrival at port of destination.
NACOCO had burden to prove that the deficiency in weight was owing to risks of
the voyage or allowable weighing errors and not the drying up of the copra. It did
not prove.

These shipping arrangements create presumptive effects which can guide

the courts in construing when constructive delivery occurs. However, such
presumptions must necessarily give way to any stipulation or intimation to
the contrary, as these show the intent of the parties. It is still the intention
of the parties which control the agreement.
Behn, Meyer & Co. v. Yangco
Facts: The contract was for delivery of caustic soda, price including cost, insurance
and freight, to be shipped and delivered to Manila and paid upon delivery. From
shipping point at New York (carrier), British authorities detained the ship at Penang
and some of the caustic soda was removed.
Pacific Vegetable Oil Corp. v. Singzon

Facts: Singzon contracted with PVOC to deliver to latter 500 tons of copra, c.i.f. The
former failed and after subsequent agreement, Singzon failed again. PVOC sued him
for damages
Issue: Singzon liable? YES.
Ratio: Under their arrangement, the vendor was not only to pay for cost, but also
freight and insurance expenses. So before arrival at the destination, the risk of loss
should be for the account of the seller.

Effects and Completeness of Delivery
Issue: Is the seller liable? YES.

Ratio: Contract provided for c.i.f. Manila The term c.i.f. presumes that property
passes (considered delivered) to the buyer upon delivery to the common carrier.
F.o.b. presumes that the seller is responsible until delivery is made to destination.
But these are just presumptions. Intent is still controlling. Although c.i.f. was
used, it is clear from the contract that the parties intended the seller to be liable
until delivery was made to destination (Manila). Not having been fulfilled, buyer has
a right to rescind for substantial breach.

2 Things Must Be Present to make delivery produce its lefal effect:

1.
2.
General Foods v. NACOCO
Facts: NACOCO sold 1000 tons of copra to GFC. It was shipped to GFC aboard the SS
Mindoro. NACOCO withdrew from GFCs letter of credit the amount corresponding
to the copra. But GFC only received 800 tons so it demanded a refund
Delivery must be made pursuant to a valid sale
Tradition pertains to the consummation stage of sale, thus, it

presupposes a valid sale.
When a sale is fictitious, no title over the subject matter of the sale
can be conveyed.
Delivery must be made when seller has ownership over the subject matter
of sale so delivered
No man can dispose of that which does not belong to him.
To Whom Delivery Must Be Made
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General Rule: Delivery must be made to the buyer or his duly

authorized representatives named in the contract. Lagoon v. Hooven
Comalco Industries, Inc. (349 SCRA 363)
However, parties can validly stipulate how delivery is to be made and

to whom.
Even if the buyer refuses to accept, the delivery by the seller will
produce its legal effects. However, the seller is still legally obliged to to
take certain steps as not to be held liable for consequent loss or
damage to the goods.
In the preceeding two paragraphs, if the subject matter is indivisiable, the

buyer may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special
agreement, or course of dealing between the parties. (n)
When goods are in the possession of a third party at the time of the sale,
the seller has not fulfilled his obligation to deliver unless and until the third
person acknowledges to the buyer that he holds the goods on the buyers
behalf. (Art. 1521, CC)
Reservation of Ownership
Art. 1588.
If there is no stipulation as specified in the first paragraph of Article 1523,
when the buyers 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)
Ownership will not transfer to the buyer in case of express reservation in

the contract, such as when the parties stipulate that ownership will not
transfer until the purchase price is full paid, or until certain conditions are
fulfilled. (Art. 1478; Art. 1503)
o
Technically speaking, this does not refer to conditional contracts

of sale or contracts to sell where the conditions refer to the
perfection of the contract.
The conditions mentioned here refer to the consummation stage

of the contract.
Rules on Effects of Delivery for Movables

Art. 1522.
Where the seller delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them, but if the buyer accepts or
retains the goods so delivered, knowing that the seller is not going to
perform the contract in full, he must pay for them at the contract rate. If,
however, the buyer has used or disposed of the goods delivered before he
knows that the seller is not going to perform his contract in full, the buyer
shall not be liable for more than the fair value to him of the goods so
received.
Article 1503 of the Civil Code gives instances where reservation of

ownership is implied:
1.
Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may acept the goods included in the contract
and reject the rest. If the buyer accepts the whole of the goods so
delivered, he must pay for them at the contract rate.
Goods are shipped, and by the bill of lading the goods are
deliverable to the seller or his agent, the seller reserves
ownership of the goods. But, if except from the form of the bill of
lading, ownership would have passed to the buyer, the sellers
property in the goods shall be deemed to be only for purpose of
securing performance of the buyers obligation, in which case
thebuyer bears the risk of loss.
2.
Where the seller delivers to the buyer the goods he contracted to sell
mixed with goods of a different description not included in the contract,
the buyer may accept the goods which are in accordance with the contract
and reject the rest.
Goods are shipped, and by the bill of lading the goods are
deliverable to the buyer, but possession of the bill of lading is
retained by the seller, the seller reserves a right to the possession
of the goods, and ownership is still transferred to the buyer
3.
Seller draws on the buyer for the price, and transmits the bill of
exchange and the bill of lading together to the buyer, the buyer is
bound to return the bill of lading if he does not honor the bill of
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exchange. If he retains the bill of lading, he does not acquire no

added right.
a.
If the bill of lading provides that the goods are

deliverable to the buyer, one who purchases in good
faith and for value the bill of lading or the goods from the
buyer, will obtain ownership, provided that the bill of
lading is indorsed to such purchaser.
Sale in Mass of Movables
Sale of movables in Article 1522 must be distinguished from the sale of

specific mass under Article 1480 which refers to sale of fungible things.
If there is no provision in the contract for the measuring or weighing of the

fungible thing, nor is the price agreed upon by the parties to be based on
such measurement, the subject matter of the sale is the mass itself, as a
determinate object. The obligation therefore, of the seller is to deliver the
whole mass, regardless of the quantity. Gaite v. Fonacier (2 SCRA 830)
Sale by Description and/or Sample
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 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 samplet if they do not also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk with
the description or the sample. (n)
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 inspect or examine the same; and the parties treated the
sample as the standard of quality and that they contracted with reference
to the sample with the understanding that the product to be delivered
would correspondent with the sample. Mendoza v. David (441 SCRA 172)
If the buyer had agreed to deviations between the sample and what has
been delivered, rescision will not be available. Engel v. Mariano Velasco &
Co., 47 Phil. 115
If a certain piece of machinery delivered is in accordance with the

description, and yet, it cannot be used for the purposes intended by the
buyer, he cannot refuse to pay if the seller was not made aware of the
intended purpose. Pacific Commercial Co. v. Ermita Market & Cold Stores,
56 Phil. 617
On Sale or Return and Sale on Approval, Trial, Satisfaction, or Acceptance
Art. 1502.
When goods are delivered to the buyer on sale or return to give the
buyer an option to return the goods instead of paying the price, the
ownership passes to the buyer on delivery, but he may revest the
ownership in the seller by returning or tendering the goods within the
time fixed in the contract, or, if no time has been fixed, within a
reasonable time. (n)
When 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:
When he signifies his approval or acceptance to the seller or does any
other act adopting the transaction;
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 a
reasonable time is a question of fact. (n)
When the sale of a movable is sale on acceptance, no ownership could

have been transferred to the buyer despite delivery and possession
because there was still no perfected contract when delivery was done. The
acceptance by the buyer is a suspensive condition which will give rise to
the perfected contract of sale. Vallarta v. CA (150 SCRA 336)
In order for Art. 1502 to apply, it must be clearly expressed in writing that
the sale is that of sale or return or sale on approval. It cannot be
proved by parol evidence. Industrial Textile Manufacturing Co. v. LPJ
Enterprises (217 SCRA 322)
Written Proof of Delivery
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Delivery of goods is generally evidenced by a written acknowlegment of

receipt. Lao v. CA (325 SCRA 694)
o
A bill of lading cannot substitute for a delivery receipt. It is a

written acknowledgment of receipt of the goods by the carrier. It
is not evidence of receipt of goods by the consignee or the person
named in the bill of lading
A factory consignment invoice is not evidence of actual delivery. It
is just a detailed statement of the nature, quantity and cost of the
thing sold. It does not prove that the goods were actually
delivered to the buyer or consignee.
Time and Place of Delivery
Art. 1521.
Whether it is for the buyer to take possession of the goods or for the seller
to send them to the buyer is a qustion depending in each case on the
contrract, express or implied, between the parties. Apart from any such
contract, express or implied or usage of trade to the contrary, the place of
delivery is the sellers place of business if he has one, and if not his
residence; but in case of a contract of sale of specific goods, which to the
knowledge of the parties when the contract or the sale was made were in
some other place, then that place is the place of delivery.
Where by contract of sale the seller is bound to send the goods to the
buyer, but no time for sending them is fixed, the seller is bound to send
them within a reasonable time.
Where the goods at the time of sale are in the possession of a third
person, the seller has not fulfilled his obligation to deliver to the buyer
unless and until such third person acknowledges to the buyer that he
holds the goods on the buyers behalf.
Demand or tender of delivery may be treated as ineffectual unless made
at a reasonable hour. What is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the
goods into a deliverable state must be borne by the seller. (n)
Rules on Effects of Delivery for Immovables

Where Imovables Sold per Unit or Number
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.
(1469a)
Art. 1540.
If, in the case of the preceeding 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. (1470a)
Art. 1541.
The provisions of the two preceeding articles shall apply to judicial sales.
(n)
The expenses for delivery are to be borne by the seller since they are
expenses pertaining to putting the goods into a deliverable state.
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In a unit price sale, the statement of the area of immovable is not

conclusive and the price may be reduced or increased depending on the
area actually delivered. Rudolf Lietz, Inc. v. Court of Appeals (478 SCRA 451)
o
If the vendor delivers less than the area agreed upon, the vendee
may oblige the vendor to deliver all that is stated in the contract
or demand for the proportionate reduction of the purchase price
if delivery is not possible.
If the vendor delivers more than the area stated in the contract,
the vendee has the option to accept only the amount agreed
upon or to accept the whole area, provided he pays for the
additional area at the contract rate.
Rudolf Leitz, Inc. v. CA
Facts: Buriol leased 1 hectare of land to Italians. He sold 5 hectares (including the
leased one) to Rudolf. The deed of sale described the property in terms of area and
boundaries, not price per unit. Rudolf later on found out that Buriol did not own
one of the hectares, and one other hectare was leased (to the Italians). So he
sought reduction of the price because all he really got was 3 hectares, in
accordance with Art. 1539 CC.
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. (1471)
Art. 1543.
The actions arising from Articles 1539 and 1542 shall prescribe in six
months, counted from the day of delivery. (1472a)
In a contract of sale of land in a mass, the specific boundaries stated in the

contract must control over any statement with respect to the area
contained within its boundaries. Salinas v. Faustino (566 SCRA 18)
Exception to Art. 1542: The sale of land under the description more or
less or similar words covers only a reasonable excess or deficiency. Lietz
v. CA (478 SCRA 431)
o
Issue: Will his case prosper? NO.

Ratio: Art. 1542 (lump sum sale of land) applies. There shall be no reduction in price
even if the area delivered is less than that stated in the contract. The area within
the boundaries as stated in the contract shall control over shall control over the
area agreed upon in the contract.
Expenses of Delivery and Registration on Real Estate
In the 2002 case of Jose Clavano v. HLURB (378 SCRA 172), the SC held that
a judgment on a sale that decrees the obligations of th seller to execute
and deliver the deed of absolute sale and the certificate of title, does not
necessarily include the obligation on the part of the seller to pay for
expenses in notarizing the deed of sale and in obtaining a new certificate
of title.
In the 2003 case of Chua v. CA (401 SCRA 54), the Court held that the
obligation of the seller is to transfer ownership which is done by the
execution of a public instrument. Thus, expenses for registration in the
Registry of Deeds, which merely binds third persons but does not transfer
ownership, is to be borne by the buyer. Capital gains tax remains liability of
the seller.
In the 2004 case of Vive Eagle Land, Inc. v. CA (444 SCRA 445), the SC held
that registration of the sale should be shouldered by the seller unless there
is a contrary stipulation.

Where Immovables sold for a Lump Sum
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
decrease of the price, although there be a greater or lesser areas or
number than that stated in the contract.
The same rule shall be applied when two or more immovables 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
Exception to the exception: The buyer assumes the risk on the

actual loss of the actual area of the land. Garcia v. Velasco (72 Phil
248)
54
CLV doesnt say which case is correct, but he seems to favor Chua v. CA
since he keeps saying that the other 2 cases are in stark contrast to Chua.
Chua v. CA
Facts: Chua bought a house and lot from Valdes Choy. Chua paid P100,000 as
earnest money. Receipt had a stipulation that failure to pay balance on or before 15
July 1989 forfeits the earnest money. Chua required that the Property be registered
first in his name before he would turn over the check to Valdes-Choy. This angered
Valdes-Choy, claiming that what Chua required was not part of their agreement.
Issue: W/N Chua can compel Valdes-Choy to cause the issuance of a new TCT in
Chua's name even before payment of the full purchase price. --- NO
Held: The obligation of the seller is to transfer to the buyer ownership of the thing
sold. There is a difference between transfer of the certificate of title in the name of
the buyer, and transfer of ownership to the buyer. Registration of title is separate
mode from execution of public instrument. The recording of the sale with the
proper Registry of Deeds and the transfer of the certificate of title in the name of
the buyer are necessary only to bind third parties to the transfer of ownership. As
between the seller and the buyer, the transfer of ownership takes effect upon the
execution of a public instrument conveying the real estate. The submission by a
seller to the buyer of the following papers would complete a sale of real estate: (1)
owners duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3) tax
declaration; and (4) latest realty tax receipt.
Double Sales
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 the possession; and, in the absence thereof,
to the person who presents the oldest title, provided there is good faith.
(1473)
Two Divergent Systems When It Comes to Land

Registered Land under the Torrens System (PD 1529)
Sec. 51 of PD 1529 embodies the registration in good faith as the

operative act doctrine.
Art. 1544 does not overcome the priority rules under PD 1529.
o

Vive Eagle Land, Inc v. CA
Facts: Tatic Corp. purchased 2 parcels of land from Spouses Flores. Tatic sold the lot
to VELI. VELI sold the lot to Genuino. Genuino demanded VELI to pay capital gains
tax, evict informal settlers and to register title in its name. VELI rejected the
demand.
Issue: W/N petitioner VELI is obliged to pay for the expenses for transfer of the
property and the issuance of the titles to and under the name of the respondent ---
YES

Held: Under Article 1495 of the New Civil Code, petitioner VELI, as the vendor, is
obliged to transfer title over the property and deliver the same to the
vendee. Unless otherwise stipulated, under Art. 1487 the expenses for the
registration of the sale should be shouldered by the vendor.

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Registration in Art. 1544 refers to the annotation of contracts,

transactions and legal processes in the Registry of Deeds
When two certificates of title are issued to different persons covering the
same land, Art. 1544 cannot apply. Instead, the principle of the Torrens
system will apply. The earlier title will prevail. Liao v. CA (323 SCRA 430)
Art. 1544 will also not apply in a case where a first buyer bought the land
not under the Torrens system, but under Act No. 3344, and a subsequent
buyer bought the same property when it was already registered under the
Torrens system of PD 1529. The Torrens title will prevail. Naawan
Community Rural Bank, Inc. v. CA (395 SCRA 43); Abrigo v. De Vera (432
SCRA 544); Dagupan Trading Co. v. Macam (14 SCRA 179)
Naawan Community Rural Bank v. CA
Facts: Lumos bought a land from Comayas and acquired TCT in his name. Upon
application for tax declaration, he found out that it had already been declared for
taxes by NCRB. What had happened was: Comayas mortgaged the land to NCRB
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before; it was foreclosed and land sold to NCRB. Sheriffs certificate was recorded
under Act 3344. Subsequently though, Comayas obtained title in his name (thats
how he was able to sell to Lumos). Basically, when bank acquired the land by
conveyance, it was untitled. When Lumos acquired it, it was already titled.
the Register of Deeds is constructive notice to the second buyer. So the latter
cannot be deemed in good faith. Juanita having been able to obtain an OCT in her
name does not cleanse her title of the defect carried under the provisions of Act
3344.
Issue: Who has better right? Lumos.
Ratio: Issuance of OCT had the effect of relieving the land of any claims except
those annotated therein. At the time of deed of final conveyance to NCRB, the title
had already been issued to Comayas (without any annotation of NCRBs claim).
Thus, Lumos was not required to go beyond the title and was entitled to rely on it.
Priority in time principle applies to Act 3344, not Torrens system.
Unregistered Land

Dagupan Trading Co. v. Macam
Maron siblings sold their co-owned unregistered property to Macam, issuing 2
deeds of sale that were similarly unregistered. Subsequently, an OCT was issued in
favor of the Maron siblings without the deeds of sale to Macam being annotated.
Later on, a judgment was rendered against Sammy Maron, leading to the
foreclosure sale of his 1/8 interest in the co-owned property. The 1/8 interest was
eventually sold to DTC.
Rules on double sales for immovables under Art. 1544 are applicable to
unregistered land, but only insofar as they do not undermine specific rules,
such as the without prejudice to better right provision in Act No. 3344,
now Sec. 113, PD 1529.
If a piece of land is sold through a private deed of sale but was never
registered. The land was then sold in public auction and the sale to the
second buyer was registered under Act No. 3344. The applicable provision
is that of Sec. 33, Rule 39 of the Rules of Court, not Art. 1544. Carumba v.
CA (31 SCRA 558)
Under Act 3344, registration of instruments affecting unregistered lands is

without prejudice to a third party with a better right, which means that
mere registration does not give the buyer any right over the land if the
seller was not anymore the owner of the land having previously sold the
same to somebody else even if the earlier sale was unrecorded. The rules
on double sale under Art. 1544 has no application to land not registered
under the Torrens system. Acabal v. Acabal, (454 SCRA 555)
Doctrine: When first sale is over unregistered land and the second sale is when it is
registered, the rules on double sale do not apply.
Decision: The OCT issued in favor of the Maron siblings not containing an
annotation of the sale to Macam cannot defeat the sale to Macam because
ownership had already been transferred. (This decision was promulgated before PD
1529, which provides that the buyer can rely on the certificate alone etc etc).

Naval v. CA
Facts: Unregistered parcel of land was sold by Idelfonso to Gregorio in 1969.
Gregorio sold it to other people, who then took possession. In comes Juanita who
was able to obtain an OCT in her name, saying the same land was sold to her by
Idelfonso in 1972. Remember that both initial conveyances were made while land
was unregistered.
Issue: Who has better right? Gregorio.
Ratio: The last was unregistered under the Torrens system at the time of the first
sale. The applicable law is Act 3344, under which registration by first buyer under
Abrigo v. De Vera
Villafania sold property to Salazar-Go with a right to repurchase within 1 year.
Villafania failed to repurchase so land became Salazar-Gos absolute property.
Despite that, Villafania obtained a free patent over the property and sold the same
to De Vera. Meanwhile, Salazar-Go sold the same to Sps. Abrigo.
Doctrine: De Vera has a better right since he bought and registered the property in
good faith.
Spouses Abrigo registered the property under Act No. 3344 because it was
unknown to them that it was covered under the Torrens System, while De Vera
registered the same under the Torrens System because Villafania procured the TCT
upon purchase. De Veras right prevails, spouses Abrigo cannot validly argue that
they were fraudulently misled into believing that the property was
unregistered. A Torrens title, once registered, serves as a notice to the whole
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world. All persons must take notice, and no one can plead ignorance of the
registration.
The rules in double sale under Article 1544, whereby the buyer who is able to first
register the purchase in good faith is in full accord with Section 51 of PD 1529
which provides that no deed, mortgage, lease, or other voluntary instrument
except a will purporting to convey or affect registered land shall take effect as a
conveyance or bind the land until its registration. Thus, if the sale is not
registered, it is binding only between the seller and the buyer but it does not
affect innocent third persons.
in the first one.

Ownership of the land will then depend on:
nd
1) If 2 buyer, in good faith, registered the land under the Torrens System, he
prevails because of the indefeasibility of a Torrens Title.
2) But if registration was made under Act No. 3344, ownership by the buyer of the
land is still dependent on other better rights of a third party. Mere registration does
not give a buyer any right over the land if the seller was not anymore the owner of
the land having previously sold the same to somebody else.

Essential Elements for Applicability of Art. 1544
Carumba v. CA
Facts: Amado sold an unregistered land to Carumba through a private document.
Amado owed a sum of money from Balbuena. Balbuena successfully obtained a
judgment on his credit against Amado. Sheriff issued a Definite Deed of Sale (on the
same property sold to Carumba) in favor of Balbuena and registered it before RoD.
CFI said levy was void and declared Carumba as owner because he already had
possession of the land. CA said there was a double sale and Balbuena should be
declared owner because his sale was registered in good faith.
a)
There must be two valid sales
If one sale is valid, and the other is void, Art. 1544 will not apply. Fudot v.
Cattleya Land, Inc. (533 SCRA 350)
Art. 1544 will not apply when one contract is that of sale, ant the other is a
contract to sell. Strictly speaking, in a contract to sell, there is still no
transfer of ownership involved. San Lorenzo Dev. Corp. v. Court of Appeals
(449 SCRA 99); Mendoza v. Kalaw, (42 Phil. 236); Adalin v. CA (280 SCRA
536); Cheng v. Genato (300 SCRA 722)
Issue: Was there a double sale? NO.

Doctrine: Art. 1544 does not apply to unregistered land. The purchaser of an
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 as of
the time that the property was levied upon. The first Deed of Sale while only
embodied in a private document but coupled with the fact that Carumba had taken
possession of the land sold, sufficed to vest ownership on the buyer. So when the
levy was made by the Sheriff, the judgment debtor no longer had dominical interest
nor any real right over the land. No double sale.
Cheng v. Genato
Genato sold lands to Da Jose spouses, subsequently executing an Affidavit to Annul
the contract to sell without informing the latter. Cheng offered to buy the land and
tendered partial payment, which was subsequently returned by Genato so that the
latter may continue with his contract with the spouses.
Doctrine: Requisites for Double Sale:
(a) The two (or more) sales transactions in issue must pertain to exactly the
same subject matter, and must be valid sales transactions.
(b) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each represent conflicting interests; and
(c) The two (or more) buyers at odds over the rightful ownership of the
subject matter must each have bought from the very same seller.

Acabal v. Acabal
If unregistered land, once it is registered under the Torrens System, registration
gives indefeasibility to the title. It cleanses the title if registration was made in good
faith.
What if land is sold BEFORE it was registered and then sold a second time by the
same person AFTER it was registered, will 1544 apply? No. 1544 will not apply
because registration was different for both transactions; albeit, no registration at all
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San Lorenzo Dev. Corp. v. CA

Spouses Lu alleged that they entered into a contract to sell lands with Babasanta,
the same later on having been rescinded by the latter because of a disagreement
with the former. Subsequently, the lands were sold to San Lorenzo Devt Corp
(SLDC) evidenced by a Deed of Absolute Sale with Mortgage.
Doctrine: SLDC has a better right. Article 1544 does NOT apply where one of the
contract is a contract to sell.

Contract of Sale
Contract to Sell
Title passes to the vendee By agreement the ownership is reserved in

upon the delivery of the the vendor and is not to pass until the full
thing sold
payment of the price
The vendor has lost and
cannot recover ownership
until and unless the contract
is resolved or rescinded
Title is retained by the vendor until the full

payment of the price, such payment being
a positive suspensive condition and failure
of which is not a breach but an event that
prevents the obligation of the vendor to
convey title from becoming effective
Doctrine: Elena, in behalf of Kado siblings, already committed to sell the property to
Yu and Lim and Loreto Adalin. She understood her obligation to eject the tenants on
the subject property. Payment of balance was subject to the condition that she
would secure eviction of tenants. Sale transaction not yet complete and both sellers
and buyers have respective obligations to be fulfilledbuyers, pay price, sellers,
ejectment. Deed of Conditional Sale may be an accurate denomination of the
transaction, and the choice of who to sell the property to had already been made
by the sellers and no longer subject to any condition. Sale made by Elena to Yu and
Lim (considered by the Court) is absolute.
Court ruled that no amount of legal rationalizing can sanction the breach of
contract. Elena committed in accepting offer after having earlier sold property to Yu
and Lim.
Subsequent sale smacks of bad faith considering the tenants knew of negotiations
between Elena and Yu Lim.
Deed of Conditional Sale (Yu, Lim and Kado) was given preference over the Deed of
Sale of Registered Land (Carlos, Co and Kado).

b) Exact same subject matter
Mendoza v. Kalaw
Mendoza filed a petition for the registration of a parcel of land he purchased from
Canet by way of an absolute sale. Kalaw opposed stating that he bought the same
subject matter from Canet (by way of a conditional sale).
Doctrine: Mendoza is favored. Two sales were executed, a conditional sale and an
absolute sale. Actual possession was obtained by Mendoza first. Mendoza also fully
paid the purchase price, while Kalaws payment depended upon the performance of
certain conditions mentioned in the contract of sale. A conditional sale, before the
performance of the condition, can hardly be said to be a sale of property. Art. 1473
(now Art. 1544) will not be applicable.

Adalin v. CA
Kado siblings sold property to Yu and Lim, the latter executing a Deed of Conditional
Sale, which stated that Elena Kado (one of the siblings had to evict the tenants of
the property as condition to the sale). Elena failed to fulfill this condition. Kado
siblings backed out of the sale and, subsequently, sold same property to Carlos, et
al. by way of a Deed of Sale.
c)
Exact same seller for both sales
Article 1544 on double sales has no application in cases where the sales
involved were initiated not by just one vendor but by several successive
vendors. Mactan-Cebu International Airport Authority v. Tirol (588 SCRA
635)
Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals
Madrid sold property to Gamiao/Dayag (did not register), who later on sold the the
same propertys northern half to Hernandez, and the southern half to Teodoro dela
Cruz (deceased). Years later, Madrid sold the same to Marquez, who registered in
the RD. Marquez mortgaged the property to CRBI. Heirs of Teodoro assailed the
mortgage and asked for reconveyance to their father.
Doctrine: Article 1544 cannot apply.
For Article 1544 to apply, it is necessary that the conveyance must have been made
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by a party who has an existing right in the thing and the power to dispose of it. It
cannot be invoked where the two different contracts of sale are made by two
different persons, one of them not being the owner of the property sold. And 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 had been acquired by
the first purchaser in full dominion, the second purchaser cannot acquire any right

Registration in Good Faith as First Priority
Annotation of adverse claim is considered as registration. Carbonnel v.

Court of Appeals (69 SCRA 99)
Registration means any entry made in the books of the registry, including
both registration in its ordinary and strict sense, and cancellation,
annotation, and even marginal notes. Cheng v. Genato (300 SCRA 722)
Declaration of purchase for taxation purposes does not comply with the
required registration, and the fact alone does not even itself constitute
evidence of ownership. Bayoca v. Nogales (340 SCRA 154)
There can be no constructive notice to the second buyer through
registration under Act 3344 if the property is registered under the Torrens
system. Amodia Vda. De Melencion v. Court of Appeals (534 SCRA 62, 82)
What matters is if the buyer registers in good faith. If he buys in good faith,
but subsequently registers in bad faith, he will not have a better title, even
if he registers first.
Good faith means no notice of defect in title of the property sold. For the
second buyer to be in good faith, he must not know of the prior sale to the
first buyer.
In spite of the three levels of tests provided under Art. 1544, the Court
seems to recognize only registration in good faith by the second buyer and
does not characterize the meaning of the last two tests of possession and
oldest title. Carillo v. Court of Appeals (503 SCRA 66)
Carillo v. CA
Facts: Both Gonazales and Dabons claim to have bought the land from Aristotle
Manio. In litgitating against Manios alleged attorneys-in-fact for the issuance of the
deed of sale, Gonzales never impleaded Manio himself, or the Dabons. Court orders
Ratio: There was extrinsic fraud as the necessary parties in interest were not given
their day in court. Dabons may seek annulment of the court orders. On the issue of
double sale, court outlined the provisions of Art. 1544 and stressed that in order for
this provision to be availed of, there must have been both acquisition in good faith
and registration in good faith. Case was remanded.
Knowledge of the first buyer of the second sale does not amount to registration in
favor of the second buyer
If the first buyer registers the sale despite knowing about the second sale,
he will still have better right, provided, that the second buyer had not
registered it in good faith before the first buyers registration.
For the second buyer to displace the first, he must prove that he acted in
good faith throughout the process, from acquisition until registration.
Uraca v. CA (278 SCRA 702)
The first buyers good faith remains all throughout despite his subsequent
knowledge of the second sale. Kings Properties Corp. v. Galido (606 SCRA
137)
Registration in Good Faith always pre-empts Possession in Good Faith
Registration must always be in good faith
Issue: Do the Dabons have a right to seek annulment of the court order? YES.
Meaning of Registration
were issued in favor of Gonzales for execution of deed of sale as well as issuance of
TCT in her name.
Between two buyers, the one who registers the land is preferred over the
one who merely possesses it. Taedo v. CA (252 SCRA 80)
Possession refers to Both Material and Symbolic Possession

Absent any registration, possession will determine which has better right, based on
these guidelines:
d) Possession mentioned in Article 1544 includes not only material but also
symbolic possession;
e) possessors in good faith are those who are not aware of any flaw in their title
or mode of acquisition;
f) Buyers of real property that is in the possession of persons other than the seller
must be wary they must investigate the rights of the possessors; and
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g)
good faith is always presumed, upon those who allege bad faith on the part of
the possessors rests the burden of proof. Ten Forty Realty and Dev. Corp. v.
Cruz (410 SCRA 484)
Who is a Purchaser in Good Faith?
3.
To determine whether a buyer is in good faith, the reckoning point must

be at the time of perfection of the contract. Estate of Lino Olaguer v.
Ongjoco (563 SCRA 373)
Requisites of good faith:
o No notice that another person as a right to or interest in the
property
o Must have paid in full price
Good faith is a question of fact which must be proven in court. The burden
of proof is on the one who asserts it. Good faith as a presumption is not
enough. Tio v. Abayata (556 SCRA 175); Tanglao v. Parungao (535 SCRA
123)
4.
Estate of Lino Olaguer v. Ongjoco

Administrators of the Lino Olaguers (deceased) estate sold parcels of lands
(including Lot 76) to Bacani. The latter sold back Lot 76 to the administrators. Later
on, a TCT for the land was issued to Eduardo and Olivia (the administrators). Jose,
husband of Olivia, sold portions of the same land to Ongjoco. There were 2 deeds of
sale for each transaction. Olaguers estate filed annulment case against Ongjoco et
al.
Doctrine: In the determination of whether or not a buyer is in good faith, the point
in time to be considered is the moment the parties actually entered into the
contract of sale.
Decision: Ongjoco cant claim good faith on the sale of Lots 1 and 2 because a
power of attorney to sell the land was never presented to him.

5.
Instances where there is no good faith

1.
2.
Being in the realty business

A person in the realty business (just like banks) is charged with
extraordinary diligence in ascertaining that there are no other persons
with rights over the land. Expresscredit Financing Corp. v. Velasco (473
SCRA 570)
Close relationship
If the buyer is a child of the seller, or a close family friend who lived in the
same area, they are deemed to have known of the circumstances of the
land and are thus, not really third parties. Pilapil v. Court of Appeals (250
SCRA 566); Aguirre v. CA (421 SCRA 310)
Gross inadequacy of price
To be a badge of bad faith, the price must be grossly inadequate or
shocking to the conscience such that the mind revolts against it and such
that a reasonable man would neither directly or indirectly be likely to
consent to it. Tio v. Abayata (556 SCRA 175)
Obligation to investigate or to follow leads
When there are certain facts which would put a reasonable man on guard
and prompt him to investigate the property, he is expected to do so. Actual
lack of knowledge of flaw in title is not enough if these facts exist. Mathay
v. CA (295 SCRA 556)
Examples of facts necessitating further investigation on the property:
o There are occupants on the land, whether or not they possess it in
the concept of owner. Martinez v. CA (358 SCRA 38)
o When the seller is a company which is closing shop and liquidating
assets. They might be dissipating their assets to defraud creditors.
Samson v. CA (238 SCRA 397)
o The property was titled and transferred with undue haste within a
short period of time and that the land was a vast tract of land in a
prime location. Eagle Realty Corp v. Republic (557 SCRA 77)
o When the buyer deals with someone who is not a registered
owner, he is expected to examine the certificate of title as well as
the authority and capacity of the seller to sell the land. R.R.
Paredes v. Caliling (517 SCRA 369); Chua v. Soriano (521 SCRA 68)
A buyer of registered land is required to at least ask the seller to show the
title to the land. If he does not ask for it, he will be in bad faith. Santiago v.
CA (247 SCRA 336)
When there are stipulations in the deed showing bad faith
In a case, the Court held that a stipulation in the deed of sale providing
that any losses which the buyer may incur in the event the title turns out
to be vested in another person are to bo borne by the buyer alone, showed
that the buyer did not purchase the subject matter in good faith without
notice of any defect in the title of the seller. Limketkai Sons Milling, Inc. v.
CA (250 SCRA 523)
Land in adverse possession
When the land is in possession of a third person, the buyer should
investigate the rights of those in possession. Without such inquiry, the
6.
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7.
8.
buyer can hardly be regarded as a buyer in good faith. Republic v. De

Guzman (326 SCRA 267)
A buyer who could not have failed to know or discover that the land sold
to him was in the adverse possession of another is a buyer in bad faith.
Heirs of Ramon Durano, Sr. v. Uy (344 SCRA 238)
Existence of Lis Pendens or Adverse Claim
An annotation of lis pendens is a notice to the world that any right that
anyone will acquire over the property is subject to the result of the suit.
Republic v. De Guzman (326 SCRA 267)
Any subsequent buyer of the registered land annotated with lis pendens or
adverse claim is thus in bad faith. Kings Properties Corp. v. Galido (606
SCRA 137)
Even if the annotation of lis pendens was subsequently cancelled but there
was a pending appeal, the buyer cannot invoke good faith. Po Lam v. CA
(316 SCRA 86)
o Exception: When knowledge of lis pendens was acquired at the
time there was order to have it cancelled.
Annotation of Lien in Settlement of Estate
Such annotation is a warning to third persons on the possible interest of
excluded heirs or unpaid creditors in these properties. The buyers of these
properties must be ready for the possibility that their title be subject to
rights of excluded parties. Tan v. Benolirao (604 SCRA 36)
When Article 1544 Does Not Apply, Priority in Time Rule Applies
Situations where Art. 1544 will not apply:

o Not all the requisites are present
o The requisites are present, but either the first to register rule or
first to possess rule were not complied with
In these cases, the general rule of Prius tempore, potior jure (Priority in
time, priority in right) will apply.
o This is actually the main rule for double sales. Carbonell v. CA (69
SCRA 99)
o The rules in Art. 1544 only provide for special rules for certain
circumstances.
The priority contemplated in this instance is that of who acquired title first.
The question to ask, therefore, is who among the buyers had the first
perfected and valid contract of sale.
who accepted and applied for assumption of mortgage. Later on, Poncio informed
Carbonell that he could no longer continue with their sale because hed already sold
the same land to one Infante. Upon learning this, Carbonell registered an adverse
claim. Subsequently, Infante registered her deed of sale. TCT was issued in Infantes
name but with annotation of the adverse claim of Carbonell.
Issue: better claim? Carbonell.
Ratio: When Carbonells sale was perfected, she was in good faith because Poncio
was the owner. Her good faith did not cease even when she registered the adverse
claim, notwithstanding knowledge of the second sale to Infante. Infante, on the
other hand, was in bad faith because she actually knew of the first sale.
Furthermore, she was aware of an adverse claim on the land when she registered it.
Carbonell was also in possession of the land when Infante bought it, so the latter
should have inquired.

Obligations of Buyer
Pay the Price
Art. 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. (1500a)
Carbonell v. CA
Facts: Poncio was owner of land mortgaged to bank. He offered to sell to Carbonell,
When seller cannot show title to the subject matter, then he cannot
compel the buyer to pay the price. Heirs of Severina San Miguel v. CA (364
SCRA 523).
Mere sending of a letter by the buyer expressing the intention to pay
without the accompanying payment is not considered a valid tender of
payment and consignation of the amount due are essential in order to
extinguish the obligation to pay and oblige the seller to convey title.
Torcuator v. Bernabe (459 SCRA 439).
Unless there is a contrary stipulation, payment to be effective must be
made to the seller in accordance with Article 1240 which provides that
Payment shall be made to the person in whose favor the obligation has
been constituted, or his successor in interest, or any person authorized to
receive it. Montecillo v. Reynes (385 SCRA 244).
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Accept Delivery of Thing Sold
Art. 1585.
Art. 1583.
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. (n)
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
more installments, it depends in each case on the terms of the contract
and the circumstances of the case, whether the breach of contract is so
material as to justify the injured party in refusing to proceed further and
suing for damages for breach of the entire contract, or whether the breach
is severable, giving rise to a claim for compensation but not to a right to
treat the whole contract as broken. (n)
Art. 1584.
Where goods are delivered to the buyer, which he has not previously
examined, he is not deemed to have accepted them unless and until he
has had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conformity with the contract if there is
no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the
buyer, he is bound, on request, to afford the buyer a reasonable
opportunity of examining the goods for the purpose of ascertaining
whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an
order from or agreement with the buyer, upon the terms that the goods
shall not be delivered by the carrier to the buyer until he has paid the
price, whether such terms are indicated by marking the goods with the
words "collect on delivery," or otherwise, the buyer is not entitled to
examine the goods before the payment of the price, in the absence of
agreement or usage of trade permitting such examination. (n)

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Chapter 7 Documents of Title
Effects of Use of Non-Negotiable Terms on Negotiable Documents

of Title
Definition and Function
Any bill of lading, dock warrant, "quedan," or warehouse receipt or order

for the delivery of goods, or any other document used in the ordinary
course of business in the sale or transfer of goods, as proof of the
possession or control of the goods, or authorizing or purporting to
authorize the possessor of the document to transfer or receive, either by
endorsement or by delivery, goods represented by such document. (Art.
1636)
o Example: Warehouse Receipts, Bonded Warehouse Receipts
2 Functions:
o As evidence of the possession or control of the goods described
therein
o As the medium of transferring title and possession over the goods
described therein, without having to effect actual delivery thereof
Delivery and possession of the document of title is tantamount to delivery
and possession of the goods which the document of title represents. It
represents that one who has possession of the receipt has been entrusted
has the title to the goods. Philippine Trust co. v. National Bank (42 Phil.
413); Siy Cong Bieng v. HSBC (56 Phil. 598)
Art. 1510.
If a document of title which contains an undertaking by a carrier,
warehouseman or other bailee to deliver the goods to bearer, to a
specified person or order of a specified person or which contains words of
like import, has placed upon it the words "not negotiable," "non-
negotiable" or the like, such document may nevertheless be negotiated by
the holder and is a negotiable document of title within the meaning of this
Title. But nothing in this Title contained shall be construed as limiting or
defining the effect upon the obligations of the carrier, warehouseman, or
other bailee issuing a document of title or placing thereon the words "not
negotiable," "non-negotiable," or the like. (n)
Negotiation of Negotiable Documents of Title

How Negotiation Properly Effected
Art. 1508.
A negotiable document of title may be negotiated by delivery:
1) Where by the terms of the document the carrier,

warehouseman or other bailee issuing the same undertakes to deliver the
goods to the bearer; or
Types of Documents of Title

Negotiable Document of Title
Art. 1507.
A document of title in which it is stated that the goods referred to therein
will be delivered to the bearer, or to the order of any person named in
such document is a negotiable document of title. (n)
Non-Negotiable Document of Title
Documents of title which are not deliverable to bearer or to order.
Effects of Errors on Documents of Title
Clerical errors do not affect the negotiability of the instrument.
2) Where by the terms of the document the carrier,

warehouseman or other bailee issuing the same undertakes to deliver the
goods to the order of a specified person, and such person or a subsequent
endorsee of the document has indorsed it in blank or to the bearer.
Where by the terms of a negotiable document of title the goods are
deliverable to bearer or where a negotiable document of title has been
indorsed in blank or to bearer, any holder may indorse the same to
himself or to any specified person, and in such case the document shall
thereafter be negotiated only by the endorsement of such endorsee. (n)

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Art. 1509.
A negotiable document of title may be negotiated by the endorsement of
the person to whose order the goods are by the terms of the document
deliverable. Such endorsement may be in blank, to bearer or to a specified
person. If indorsed to a specified person, it may be again negotiated by
the endorsement of such person in blank, to bearer or to another specified
person. Subsequent negotiations may be made in like manner. (n)
Who Can Negotiate
Effects of Merely Transferring/Delivering of Order Negotiable

Documents of Title
Art. 1511.
A document of title which is not in such form that it can be negotiated by
delivery may be transferred by the holder by delivery to a purchaser or
donee. A non-negotiable document cannot be negotiated and the
endorsement of such a document gives the transferee no additional right.
(n)
Art. 1515.
Art. 1512.
A negotiable document of title may be negotiated:
(1) By the owner therefor; or
(2) By any person to whom the possession or custody of the document has
been entrusted by the owner, if, by the terms of the document the bailee
issuing the document undertakes to deliver the goods to the order of the
person to whom the possession or custody of the document has been
entrusted, or if at the time of such entrusting the document is in such form
that it may be negotiated by delivery. (n)
Effects of Proper Negotiation

Art. 1513.
A person to whom a negotiable document of title has been duly
negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the document to him
had or had ability to convey to a purchaser in good faith for value and also
such title to the goods as the person to whose order the goods were to be
delivered by the terms of the document had or had ability to convey to a
purchaser in good faith for value; and
Where a negotiable document of title is transferred for value by delivery,

and the endorsement of the transferor is essential for negotiation, the
transferee acquires a right against the transferor to compel him to
endorse the document unless a contrary intention appears. The
negotiation shall take effect as of the time when the endorsement is
actually made. (n)
Effects and Consequences of Unauthorized Negotiation

Art. 1518.
The validity of the negotiation of a negotiable document of title is not
impaired by the fact that the negotiation was a breach of duty on the part
of the person making the negotiation, or by the fact that the owner of the
document was deprived of the possession of the same by loss, theft,
fraud, accident, mistake, duress, or conversion, if the person to whom the
document was negotiated or a person to whom the document was
subsequently negotiated paid value therefor in good faith without notice
of the breach of duty, or loss, theft, fraud, accident, mistake, duress or
conversion. (n)

(2) The direct obligation of the bailee issuing the document to hold
possession of the goods for him according to the terms of the document as
fully as if such bailee had contracted directly with him. (n)
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Assignment of Non-Negotiable Documents of Title
How Assigment Made

Art. 1514.
A person to whom a document of title has been transferred, but not
negotiated, acquires thereby, as against the transferor, the title to the
goods, subject to the terms of any agreement with the transferor.
If the document is non-negotiable, such person also acquires the right to
notify the bailee who issued the document of the transfer thereof, and
thereby to acquire the direct obligation of such bailee to hold possession
of the goods for him according to the terms of the document.
Prior to the notification to such bailee by the transferor or transferee of a
non-negotiable document of title, the title of the transferee to the goods
and the right to acquire the obligation of such bailee may be defeated by
the levy of an attachment of execution upon the goods by a creditor of the
transferor, or by a notification to such bailee by the transferor or a
subsequent purchaser from the transfer of a subsequent sale of the goods
by the transferor. (n)
Effects of Transfer by Assignement
Warranties on Negotiation and Assignment of

Documents of Title
Art. 1516.
A person who for value negotiates or transfers a document of title by
endorsement or delivery, including one who assigns for value a claim
secured by a document of title unless a contrary intention appears,
warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair the validity or
worth of the document; and
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(4) That he has a right to transfer the title to the goods and that the goods
are merchantable or fit for a particular purpose, whenever such
warranties would have been implied if the contract of the parties had
been to transfer without a document of title the goods represented
thereby. (n)
Rules on Levy/Garnishment of Goods Covered by

Documents of Title
When Non-Negotiable Document of Title
Art. 1514.
A person to whom a document of title has been transferred, but not
negotiated, acquires thereby, as against the transferor, the title to the
goods, subject to the terms of any agreement with the transferor.
If the document is non-negotiable, such person also acquires the right to
notify the bailee who issued the document of the transfer thereof, and
thereby to acquire the direct obligation of such bailee to hold possession
of the goods for him according to the terms of the document.
Prior to the notification to such bailee by the transferor or transferee of a
non-negotiable document of title, the title of the transferee to the goods
and the right to acquire the obligation of such bailee may be defeated by
the levy of an attachment of execution upon the goods by a creditor of the
transferor, or by a notification to such bailee by the transferor or a
subsequent purchaser from the transfer of a subsequent sale of the goods
by the transferor. (n)
When Negotiable Document of Title

Art. 1519.
If goods are delivered to a bailee by the owner or by a person whose act in
conveying the title to them to a purchaser in good faith for value would
bind the owner and a negotiable document of title is issued for them they
cannot thereafter, while in possession of such bailee, be attached by
garnishment or otherwise or be levied under an execution unless the
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document be first surrendered to the bailee or its negotiation enjoined.

The bailee shall in no case be compelled to deliver up the actual
possession of the goods until the document is surrendered to him or
impounded by the court. (n)
Chapter 8 Sale By a Non-Owner or By One Having

Voidable Title
Art. 1520.
At Perfection
A creditor whose debtor is the owner of a negotiable document of title

shall be entitled to such aid from courts of appropriate jurisdiction by
injunction and otherwise in attaching such document or in satisfying the
claim by means thereof as is allowed at law or in equity in regard to
property which cannot readily be attached or levied upon by ordinary
legal process. (n)

When Seller is Not Owner of Subject Matter
Seller need not be the owner at perfection, provided he acquires title later
on, but when delivery of ownership is no longer possible, the sale should
be considered void. Nool v. CA (276 SCRA 149)
Perfection merely creates the obligation to transfer ownership, but it does
not by itself transfer ownership.
At Consummation
Art. 1505.
Subject to the provisions of this Title, where goods are sold by a person
who is not the owner thereof, and who does not sell them under authority
or with the consent of the owner, the buyer acquires no better title to the
goods than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, 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 merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special laws. (n)
Note that the provision does not say that the contract is void.
It is at the consummation stage where the principle of nemo dat quod non
habet (one cannot give what one does not have) applies. Cavite Devt.
Bank v. Spouses Syrus Lim (324 SCRA 346)

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1)
Paulmitan v. CA
A co-owner could only sell that portion which may be allotted to him upon
termination of the co-ownership. A sale of the entire property by one co-owner
without the consent of the other co-owners is not null and void. However, only the
rights of the co-owner-sell are transferred, thereby making the buyer a co-owner of
the property.
2)
3)
Sales by Co-owner of Whole Property or Definite Portion Thereof
None of the co-owners may claim any right, title or interest to a particular
portion of the thing owned in common.
A co-owner can demand partition, but before such, he has no right to
divide the lot into two parts, and convey the whole of one part by metes
and bounds. Lopez v. Ilustre (5 Phil 567)
A co-owner, however, has the power to alienate his undivided share over
the property. Thus, if before partition, he sells the entire property or a
definite portion thereof without consent of other co-owners, the sale will
only be valid with regard to his undivided share in the property. The sale
cannot be considered as null and void. Bailon-Casilao v. CA (160 SCRA 738);
Paulmitan v. CA (215 SCRA 866)
o The buyer thus becomes a co-owner of the property.
The remedy of the buyer therefore is to demand partition of the entire
property. He will have this right since he became a co-owner himself.
Nullification of the sale is not proper. Tomas Claudio Memorial College, Inc.
v. Court of Appeals (316 SCRA 502)
o CLVs comment: The rulings seem to disregard the commercial
fact that sellers and buyers agree on the price based on the size of
the property (i.e. buyers will pay more if they expect to acquire
the entire property; buyers will pay less if they expect to acquire
just a part). The proper remedy, according to CLV, is to uphold the
validity of the sale, but allow the buyer to either (1) seek
rescission for breach of the sellers obligation to deliver the object
agreed upon, or (2) accept partial delivery with appropriate
reduction in price.
4)
5)
The subject matter is indivisible by nature or by intent. It renders the contract

void since the buyer would not have entered into the transaction except to
acquire all of the properties purchased by him. Mindanao Academy, Inc. v. Yap
(13 SCRA 190)
If the sale of a particular portion is with consent of other co-owners, the sale as
to that portion is valid. Lack of objection by the co-owners is in effect already a
partial partition. Pamplona v. Moreto (96 SCRA 775)
A co-owner who sells one of the two lands owned in common with another co-
owner, and does not turn-over one-half of the proceeds of the sale to the other
co-owner, the latter may by law and equity lay exclusive claim to the remaining
parcel of land. Imperial v. Court of Appeals (259 SCRA 65)
Ipso jure transfer of ownership under Art. 1434. When the co-owner-seller
subsequently acquires title to the definite portion or the entire property
subject matter of the sale, the title automatically passes to the buyer. Pisuea
v. Heirs of Petra Unating (313 SCRA 384)
Registration under the Torrens system. If the Torrens title shows that the
property is owned solely by the seller (i.e. no indication that property is co-
owned), the buyer can rely on the Torrens title. Cruz v. Leis (327 SCRA 570)
Mindanao Academy, Inc. v. Yap
Facts: Rosenda and her son sold to Yap 4 parcels of land including buildings,
equipments, books, and other fixtures of 2 schools therein which although
technically they owned, was under a co-ownership together with Rosendas other
children and such were sold by Rosenda without their consent.
Doctrine: The contract of sale was void because the problem with the sale went
into one of the essential requisites of a sale. There was no meeting of the minds
as to the subject matter. If the problem is one of the essential requisites and was
only found during the consummation stage, the contract can be voided even if
already at the consummation stage. If the problem is only with regard to the
performance of an obligation, it does not affect the perfection of the sale.

Exceptions to Rule on Effect of Sale of Definite Portion of Co-owner

Memory aid: iTaco J
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Exceptions to Rules on Legal Effects of Sale by a

Non-Owner
When Real Owner Estopped
order to facilitate commercial sales on movables and to give stability to

business transaction. Sun Brothers & Co. v. Velasco (54 O.G. 5143)
Store any place where goods are kept for sale or where goods are
deposited and sold by one engaged in buying and selling them. City of
Manila v. Bugsuk Lumber Co. (101 Phil. 859)
Art. 1434.
City of Manila v. Bugsuk
When a person who is not the owner of a thing sells or alienates and
delivers it, and later the seller or grantor acquires title thereto, such title
passes by operation of law to the buyer or grantee.
Bucton v. Gabar
Doctrine: The necessary element of store is that there are good or wares
displayed or stored therein. Also, the firm must be actually engaged in the business
of buying and selling. If a firm produces, manufactures, and delivers its own
produce from its warehouses and they have no stores open for sale, firm is not a
merchant store.
Doctrine: When a person who is not the owner of a thing sells and delivers it, and
later the seller acquires title thereto, such title passes by operation of law to the
buyer. Seller is subsequently barred by estoppel from claiming otherwise.
Doctrine: The general rule is that when a person who is not the owner of a thing
sells the same, the buyer acquires no better title than the seller has. However, a
purchase in good faith in a merchant store, or fair, or market is protected by law. It
is an exception to the general rule that no transfer of ownership may be had
through an act of a non-owner. The rights and interest of an innocent buyer for
value who bought a thing from a merchant store should be protected when it
comes into clash with the right and interests of a vendor. The buyer cannot be
reasonably expected to look behind the title of articles he buys in a store.
Recording Laws
The buyer of registered land has the right to rely on the Torrens title of the
said land, absent any factual circumstances which would lead a prudent
man to inqurie further if the vendor has the capacity to transfer interest to
the land. Sy v. Capistrano, Jr. (560 SCRA 103)
Statutory Power; Judicial Sale
Judgments of courts divesting the registered owner of title and vesting

them in the other party are valid.
Sale by a sheriff of land levied upon at public auction would validly transfer
ownership to the highest bidder.
When a defeated party refuses to execute the absolute deed of sale in
accordance with the judgment, the court may direct the act to be done at
the cost of the disobedient party by some other person appointed by the
court and the act when so done shall have the like effect as is done by the
party. Manila Remnant Co., Inc. v. CA (231 SCRA 281)
This is an example of an imperfect or void title ripening into a valid one.

The rights and interest of an innocent purchaser for value is protected in
Sale by a Seller Who has Voidable Title on the Subject Matter Sold
Art. 1506.
Where the seller of goods has a voidable title thereto, but his title has not
been avoided at the time of the sale, the buyer acquires a good title to the
goods, provided he buys them in good faith, for value, and without notice
of the seller's defect of title. (n)
Sale at a Merchant Store
Sun Brothers & Co. v. Velasco
Since the provision talks of payment by the buyer and transfer of title to
the buyer, the provision applies to the consummation stage of the
contract.
If after perfection but before consummation, the sellers voidable title
becomes void, the buyer does not obtain good title.
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Applicable Rules to Immovables
it to Jimenez who had the car exhibited in a car expo.
Articles 1505 and 1506 do not apply to immovables. When the seller of a
parcel of land has only voidable or void title to the property, the buyer,
even though in good faith and for value, takes only the same title as the
seller had.
For land, the Torrens system still prevails. Heirs of Spouses Benito Gavino.
v. Court of Appeals (291 SCRA 495)
o However, the defense of indefeasibility of Torrens title is
unavailing to properties and other improvements situated or built
on the land. Tsai v. CA (366 SCRA 324)
A person who deals with registered land through someone who is not the
registered owner is expected to look beyond the certificate of title and
examine all the factual circumstances thereof in order to determine if the
vendor has the capacity to transfer any interest in the land. Sy v.
Capistrano, Jr. (560 SCRA 103)
Title as to Movable Properties

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

Doctrine: Whenever there is a contract of sale which grants to the culprit-buyer
(Feist) a voidable title, even if accomplished through estafa or swindling, the buyer
in good faith (Jimenez) is granted a better title as against the original owner
(Tagatac) even though the latter (Tagatac) may be classified to have been
unlawfully deprived of the subject matter (Art. 1506). Jimenez is therefore not a
purchaser in bad faith having no knowledge of any flaw in the title of the person
from whom he acquired it. Tagatac is not entitled to possession. Fraud and deceit
only made the sale voidable. But he wasnt by any means unlawfully deprived
thereof.

EDCA Publishing v. Santos
Facts: EDCA sold 406 books to Jose Cruz wherein the latter issued a check as
payment. Cruz in turn sold 120 of those books to Leonor Santos. Meanwhile, EDCA
became suspicious of Cruz when he placed his second order. They investigated and
found out that Jose Cruz was an impostor and the check he issued was drawn
against a closed account. EDCA then forcibly took the 120 books from Santos.
Held: Santos was a purchaser in good faith and exercised due diligence when he
asked for the invoice from EDCA before purchasing it from Cruz. Non-payment only
creates a right to demand payment or to rescind the contract, or to criminal
prosecution in the case of bouncing checks. But absent the stipulation that
ownership shall not pass until full payment, delivery of the thing sold will effectively
transfer ownership to the buyer who can in turn transfer it to another.

Exceptions to Art. 559
Aznar v. Yapdiangco
By cross-reference to Art. 1505, the owner cannot recover the movable if it

was bought at a merchant store
By cross-reference to Art. 1506, if the possessor in good faith acquired title
from a seller who at the time of delivery had a voidable title thereto, the
original owner cannot recover the movable.
Tagatac v. Jimenez
Facts: Tagatac sold her car to Feist. Feist paid by postdated PNB check but he really
had no account thereat. In short, estafa. Feist sold it to Sanchez, then Sanchez sold
Facts: Santos was selling the car to Marella. Santos instructed his son, Irineo not to
part with De dios (Marellas nephew) until he has received the full payment of the
car. De dios and his companion ran away with the papers and the car, leaving
Ireneo at the supposed place where payment was to be made. Marella sold the care
the same day to Aznar, the PC then seized the car. The issue here is who has a
better right over the car.
Held: It should be recalled that while there was indeed a contract of sale between
Marella and Santos, the former, as vendee, took possession of the subject matter
thereof by stealing the same while it was in the custody of the latter's son. He
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neither had a voidable title under Art. 1506 nor was it delivered to him. Santos has
a better right.
Moreover Art. 559 (Irrevindicability) does not apply. The common law principle
that where 1 of 2 innocent persons must suffer by a fraud perpetrated by another,
the law imposes the loss upon the party who, by his misplaced confidence, has
enabled the fraud to be committed, cannot be applied in a case which is covered by
an express provision of law.
Chapter 9 Loss and Deterioration, Fruits and Other

Benefits
Cruz v. Pahati
Facts: Belizo sold an automobile to Cruz. Belizo offered to sell the sell the same car
to a certain buyer. Cruz agreed and since the certificate of registration was missing,
Cruz made a letter addressed to the Motor Section of the Bureau of Public Works
for the issuance of a new certificate which he gave to Belizo. The letter was
falsified, making it appear that a deed of sale was executed in favor of Belizo, who
then got a certificate of registration on his name. Belizo was able to sell the car to
respondent Bulahan who later sold it to Pahati.
No Application When Subject Matter is

Determinable
Art. 1263.
In an obligation to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the obligation. (n)
Held: Cruz, has the better right because plaintiff had been illegally deprived through
ingenious schemes by Belizo. Art 559, one who has lost any movable or has been
lawfully deprived thereof, may recover it from the person in possession of the same
and the only defense is if the other party has acquired it in good faith and at a
public sale and 1505, sellers who are not owners xxx buyer acquires no better
right than the seller are applicable in this situation.

Dizon v. Suntay
Facts: Suntay (owner of the ring) and Clarita Sison entered into a transaction
wherein the ring would be sold on commission. After her demands, she was given a
pawnshop ticket, she learned that sisons niece pledged the said item to the
pawnshop of Dizon.
Held: Owner of diamond ring may recover possession of the same form the
pawnshop where the owner's agent has pledged it without authority to do so. Art
559 applies and the defense that the pawnshop acquired possession without notice
of any defect of the pledgor-agent is unavailing.

The prevailing doctrines in our jurisdiction on risk of loss and deterioration

and the benefits of the fruits and improvement is a combination of civil law
and common law concepts.
The basic concept is res perit domino (the owner shall bear the risk of loss).
(This is derived from common law.)
Ownership can only be transferred by delivery. (This is from civil law.)
Before Perfection
The purported seller owns the thing. Loss, deterioration, fruits and
improvements pertain to him.
The purported buyer still has no legal relationship to the thing.
Roman v. Grimalt
Facts: Roman and Grimalt entered into a contract of sale for a schooner payable by
3 instalments provided the title papers to the vessel were in proper form. The
vessel sank before Roman could present his title and as a result, Grimalt refused to
pay the price in the contract.
Held: If no contract of sale was actually executed by the parties the loss of the
vessel must be borne by its owner and not by a party who only intended to
purchase it and who was unable to do so on account of failure on the part of the
owner to show proper title to the vessel and thus enable them to draw up the
contract of sale.

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in case of the improvement, loss or deterioration of the thing during the

pendency of the condition:
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 upon. (1460a)
(1) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes, or
goes out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered;
Art. 1494.
(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
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:
(4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case;
(1) As avoided; or
(5) If the thing is improved by its nature, or by time, the improvement

shall inure to the benefit of the creditor;
(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. (n)
(6) If it is improved at the expense of the debtor, he shall have no other

right than that granted to the usufructuary. (1122)
Note that Art. 1493 says that the contract is without any effect. It does
not use the term void because it highlights the fact that the perfection of
the contract is not affected by the loss of the subject matter.
o However, the effect of the loss is that as if the sale was void.
After Perfection But Before Delivery

Art. 1538.
General Rule
Art. 1504.
Unless otherwise agreed, the goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except that:
Art. 1189.
(1) Where delivery of the goods has been made to the buyer or to a bailee
for the buyer, in pursuance of the contract and the ownership in the goods
has been retained by the seller merely to secure performance by the buyer
of his obligations under the contract, the goods are at the buyer's risk
from the time of such delivery;
When the conditions have been imposed with the intention of suspending
the efficacy of an obligation to give, the following rules shall be observed
(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. (n)
In case of loss, deterioration or improvement of the thing before its

delivery, the rules in Article 1189 shall be observed, the vendor being
considered the debtor. (n)
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After perfection, but before delivery, the risk of loss is borne by the seller
under the rule of res perit domino. Union Motor Corp. v. CA (361 SCRA 506)
Loss by Fault of a Party
If the loss is thru the fault of the seller, the buyer shall have the right to
recover damages. (Art. 1189)
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. (1452a)
Art. 1262.
An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events,
the loss of the thing does not extinguish the obligation, and he shall be
responsible for damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
Paras and Padilla say that even if the subject matter is lost by fortuitous
event, the buyer is still obliged to pay. They dont cite any authority for this
position.
Tolentino says that the obligation of the buyer to pay is also extinguished
since sale creates a reciprocal obligation. The seller should thus return
whatever was paid by the buyer, if there had been payment already.
Art. 1189 shall apply.
Fruits and Improvements

Art. 1537.
Art. 1480.
CLV agrees with Tolentinos view. He says that this view better harmonizes
Art. 1480, 1538 and 1504.
Deterioration
Loss by Fortuitous Event
The vendor is bound to deliver the thing sold and its accessions and
accessories in the condition in which they were upon the perfection of the
contract.
All the fruits shall pertain to the vendee from the day on which the
contract was perfected. (1468a)
Art. 1164.
The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over
it until the same has been delivered to him. (1095)
After Delivery
After delivery to the buyer, ownership is transferred to the buyer. The

goods shall then be at the buyers risk.
o If delivery to the buyer was made, but ownership was retained by
the seller only for the purpose of securing the buyers obligation
to pay, the buyer shall still bear the risk.
If the thing is lost when the buyer bears the risk, the buyer shall still pay
the balance of the purchase price. Song Fo & Co. v. Oria (33 Phil. 3)
Lawyers Cooperative v. Tabora
Facts: Tabora bought books from LCPC and it was delivered to Taboras office in
Naga. A fire incident burned all of the books in his library and after that Tabora
failed to pay his monthly instalments. He refuses to pay and raises force majeure
asa defense.
Held: The contract specifically stated that after delivery, Buyer would bear the loss.
Moreover under Art. 1504, When title/ownership remains in seller merely to secure
performance by buyer of his obligations, the goods are at the buyers risk from time
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of delivery. The rule that the obligor should be exempt when loss occurs through
force majeure only applied when the obligation consists in the delivery of a
determinate thing.
Chapter 10 Remedies of Parties

REMEDIES IN CASES OF MOVABLES
Ordinary Remedies of Seller

Movables in General
Art. 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. (1505)
Sale of Goods
Non-payment of price by the buyer
Art. 1595.
Where, under a contract of sale, the ownership of the 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 the goods.
Where, under a contract of sale, the price is payable on a certain day,
irrespective of delivery or of transfer of title and the buyer wrongfully
neglects or refuses to pay such price, the seller may maintain an action for
the price although the ownership in the goods has not passed. But it shall
be a defense to such an action that the seller at any time before the
judgment in such action has manifested an inability to perform the
contract of sale on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if they cannot
readily be resold for a reasonable price, and if the provisions of article
1596, fourth paragraph, are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to receive them, may
notify the buyer that the goods are thereafter held by the seller as bailee
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for the buyer. Thereafter the seller may treat the goods as the buyer's and
may maintain an action for the price. (n)
When buyer wrongfully neglects or refuses to accept goods
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Special Remedies of Unpaid Seller of Goods

Definition of Unpaid Seller
Art. 1525.
Art. 1596.
Where the buyer wrongfully neglects or refuses to accept and pay for the
goods, the seller may maintain an action against him for damages for
nonacceptance.
The measure of damages is the estimated loss directly and naturally
resulting in the ordinary course of events from the buyer's breach of
contract.
Where there is an available market for the goods in question, the measure
of damages is, in the absence of special circumstances showing proximate
damage of a different amount, the difference between the contract price
and the market or current price at the time or times when the goods ought
to have been accepted, or, if no time was fixed for acceptance, then at the
time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of
the seller to enable him to fulfill his obligations under the contract of sale,
the buyer repudiates the contract or notifies the seller to proceed no
further therewith, the buyer shall be liable to the seller for labor
performed or expenses made before receiving notice of the buyer's
repudiation or countermand. The profit the seller would have made if the
contract or the sale had been fully performed shall be considered in
awarding the damages. (n)
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 so
to do to the buyer. (n)
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 to 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. (n)
Rights of Unpaid Seller

4 Special Remedies available to the unpaid seller
1.
2.
3.
4.
Possessory lien
Stoppage in transitu
Special right to resell goods
Special right to rescind

These remedies have a hierarchichal application.
The last two are called special because they are rights accorded only to
the unpaid seller, and are of a different nature from the right of rescission
in Art. 1191.
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;
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(2) In case of the insolvency of the buyer, a right of stopping the goods in
transitu after he has parted with the possession of them;
When partial delivery is made
(3) A right of resale as limited by this Title;
Where an unpaid seller has made part delivery of the goods, he may
exercise his right of lien on the remainder, unless such part delivery has
been made under such circumstances as to show an intent to waive the
lien or right of retention. (n)
(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 his other remedies a right of withholding
delivery similar to and coextensive with his rights of lien and stoppage in
transitu where the ownership has passed to the buyer. (n)
Possesory Lien
Art. 1528.
Instances when possessory lien is lost

Memory aid: DOW
Art. 1529.
If the ownership of the goods has passed to the buyer, the unpaid seller
still has a lien on the goods or right to retain them for the price while he is
in possession.
If ownership has not passed to the buyer, the unpaid seller has a right of
witholding delivery.
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;
When possessory lien may be exercised
(2) When the buyer or his agent lawfully obtains possession of the goods;
Memory aid: STI
(3) By waiver thereof.
Art. 1527.
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)
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;
The unpaid seller losses his possessory lien when he parts with physical
possession of the goods. In this case, he still has the remedy of stoppage in
transitu, but only when the buyer is insolvent.
(2) Where the goods have been sold on credit, but the term of credit has
expired;
Stoppage in Transitu
(3) Where the buyer becomes insolvent.
Art. 1530.
The seller may exercise his right of lien notwithstanding that he is in

possession of the goods as agent or bailee for the buyer. (n)
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)
When Negotiable Document of Title has been issued
No sellers lien shall defeat the rights of an innocent purchaser for value to
whom such document has been negotiated.
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When a negotiable document of title is issued
Art. 1535.
Subject to the provisions of this Title, the unpaid seller's right of lien or
stoppage in transitu is not affected by any sale, or other disposition of the
goods which the buyer may have made, unless the seller has assented
thereto.
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)
When is the buyer insolvent?
A buyer is deemed insolvent when he either has ceased to pay his debts in
the ordinary course of business or cannot pay his debts as they become
due. [Art. 1636(2)]
Insolvency proceedings need not be commenced.
Buyer must be insolvent for stoppage in transitu to apply.
(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)
Art. 1531 presupposes that the carrier through him delivery is made is NOT
an agent of the buyer. Delivery to such carrier is not delivery to the buyer.
When Goods are Deemed In Transit
How Stoppage in transitu may be exercised
Art. 1531.
Art. 1532.
Goods are in transit within the meaning of the preceding article:
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.
(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;
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
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shall not obliged to deliver or justified in delivering the goods to the seller
unless such document is first surrendered for cancellation. (n)
Special Right to Resell Goods

Art. 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.
Buyer has been in default for an unreasonable length of time
Note: The buyer need not rescind the first contract judicially before reselling the
thing. If he is obliged to sell it for less than the contract price, the non-paying buyer
is liable for the difference. Katigbak v. CA (4 SCRA 243. The seller is not obliged to
give the original owner the profits (i.e. difference of contract price and sale price), if
any. (Art. 1533)
Transfer of Ownership
Special right to resell can be excercised even if the seller had already
transferred ownership to the original buyer.
However, because of Art. 1533, the second buyer will still be able to get a
good title against the original buyer.
This is a special feature of this right to resell. The seller can still vest
ownership in the second buyer even if at the time of the second sale, he
did not have ownership anymore.
Where a resale is made, as authorized in this article, the buyer acquires a

good title as against the original buyer.
Special Right to Rescind
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.
Art. 1534.
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)
When the right is excercisable (PERU)
The unpaid seller has previously excercised possessory lien or stoppage in

transitu
The goods are of perishable nature
Seller has expressly reserved such right
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)
When the right may be exercised (RED)
Unpaid seller has exercised his possessory lien or stoppage in transitu

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Failure of Seller to Deliver
disturbance or danger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make
the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price. (1502a)
Art. 1598.
RECTO LAW: Sales of Movables on Installments
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. (n)
Art. 1484.
Breach of Sellers Warranty
(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. (1454-A-a)
Seller expressly reserved the right to rescind in case of default

Buyer has been in default for an unreasonable length of time
Remedies of Buyer
Art. 1599 provides the following remedies to the buyer in case the seller breaches
his warranty:
1.
2.
3.
4.
Accept or keep the goods and set up agains the seller the breach of
warranty by way of recoupment in diminution or extinction of the price
Accept or keep the goods and maintain an action for damages agains the
seller
Refuse to accept the goods and maintain an action for damages
Rescind the 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 paid.
These remedies are alternative. However, the buyer still has a right to
rescind if he has chosen specific performance but it has become
impossible. This is based on Art. 1191(2).
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;
Rationale of Recto Law
Coverage of the Law
Suspension of Payments in Antipication of Breach

Art. 1590.
Should the vendee be disturbed in the possession or ownership of the
thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
It was originally passed in 1939 and was eventually incorporated in the

Civil Code as Art. 1484.
The purpose is to prevent the abuses of mortgagees who foreclose on the
chattel mortgage, buy the property at a low price, and then suing the
mortgagor for deficiency.
Installment sales are covered.

o It is an installment sale if the price is payable in two or more
future payments, whether or not there is a downpayment. Levy v.
Gervacio (69 Phil. 52)
Contracts to Sell are not covered. Visayan Sawmill Co. v. CA (219 SCRA 378)
Financing transactions derived or arising from sales of movables on
installments are covered.
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In this case, the seller assigned his credit to the financing

company. The financing company is thus bound by Art. 1484.
Zayas v. Luneta Motor Company (117 SCRA 726)
Levy Hermanos v. Gervacio
Facts: Levy Hermanos, Inc., sold to Lazaro Blas Gervacio, who after downpayment,
executed a promissory note for the balance of P2,400, payable on or before June
15, 1937, and mortgage the car. Gervacio failed to pay and the mortgage was
foreclosed, Hermanos instituted a civil action for the balance.
subverting the policy underlying Art 1484 on the foreclosure of chattel mortgages
over personal property sold on installment basis.

Remedies Provided Under Article 1484

Nature of the remedies in Art. 1484
Held: The suggestion that the cash payment made in this case should be considered
as an installment in order to bring the contract sued upon under the operation of
the law, is untenable. A cash payment cannot be considered as a payment by
installment, and even if it can be so considered, still the law does not apply, for it
requires non-payment of two or more installments in order that its provisions may
be invoked. Here, only one installment was unpaid.(Applying Art. 1454)

Zayas v. Luneta Motor Company
Facts : Petitioner Eutropio Zayas, Jr. purchased on installment basis a motor vehicle
from Escao Enterprises in Cagayan de Oro City, dealer of Respondent Luneta
Motor Company. Car was delivered to Zayas who executed a promissory note on
the balance and in addition a chattel mortgage on the car in favor of Luneta. Zayas
was unable to pay further prompting Luneta to extra-judicially foreclose chattel
mortgage; car sold at public auction with Luneta as highest bidder. Luneta filed civil
case for recovery of balance of P1,551.74 plus interest. He denied applicability of
Art1484 because contract was only a mere loan and not sale on installment

Issue: WON Article 1484 would apply to a person or entity which financed purchase
on installments of a motor vehicle where the seller subsequently assigns loan
documents to the financing person or entity.

Held/Ratio:
Yes. Escao was an agent of Luneta Motor Company and that the certification from
the cashier of Escao Enterprises (submitted in evidence) on monthly installments
aid by Zayas mentioned that the note was in favor of Luneta. Escao assigned its
rights vis--vis the sale to Luneta Motor Company, the nature of the transaction
didn't change and as an assignee, Luneta had no better rights than assignor Escano
under the same transaction. Transaction would still be a sale of personal property in
installments covered by Art. 1484; to rule otherwise would pave the way for
The article provides for three remedies.

These are alternative and exclusive, and the exercise of one would bar the
exercise of the others. Delta Motor Sales Corp. v. Niu Kim Duan (213 SCRA
259)
o This is the vertical barring effect.
However, seeking a writ of replevin is consistent with any of the three
remedies. Universal Motors Corp. v. Dy Hian Tat (28 SCRA 161)
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, has been upheld in
subsequent decisions and seems now well-established. Industrial Finance
Corp. v. Ramirez (77 SCRA 152)
Delta Motor Sales Corp. v. Niu Kim Duan
Facts: Defendants purchased from the plaintiff 3 units of DAIKIN air-conditioner,

after paying the amount of P6,966.00, the defendants failed to pay at least two (2)
monthly instalments. The contract has stipulations that incase the contract is
rescinded the defendant should pay the expenses of the suit, 25% of the unpaid
obligation.
Held: The vendor in a sale of personal property payable in installments may
exercise one of three remedies
(1) exact the fulfillment of the obligation, should the vendee fail to pay; (2) cancel
the sale upon the vendee's failure to pay two or more installments; (3) foreclose
the chattel mortgage, if one has been constituted on the property sold, upon the
vendee's failure to pay two or more instalments.
The third remedy, however, is subject to the limitation that the vendor cannot
recover any unpaid balance of the price and any agreement to the contrary is void
(Art. 1484) The three remedies are alternative and NOT cumulative. If the creditor
chooses one remedy, he cannot avail himself of the other two.

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Remedy of Specific Performance
Remedy of Recission
This remedy is alternative. However, it can be argued that if the obligation

to pay becomes impossible, the seller may still seek rescission based on
Art. 1191. CLV however says that the generic obligation to pay cant
become impossible.
The seller is deemed to have chosen specific performance when he files an
action in court for recovery. Sending of demand letter to the buyer is not
enough.
When judgment is rendered in favor of the seller, the buyer becomes a
judgment debtor. His obligation can be executed on all personal and real
properties of the buyer which are not exempt from execution.
The fact that the seller obtained a writ of execution against the property
mortgaged, but pursuant to an action for specific performance with a plea
for a writ of replevin, does not amount to a foreclosure of the chattel
mortgage covered by the Recto Law. Tajanglangit v. Southern Motors (101
Phil. 606)
FACTS: Spouses Tajanlangit bought 2 tractors and 1 Thresher from Southern Motors
on installment basis by issuing a Promissory Note to that effect. They then
defaulted on the installment payments. The court entered judgment for the total
sum of the purchased machineries (P25,575) plus interest and collection costs. The
sheriff then levied on the machineries and sold them on auction for P10K to the
highest bidder, which was also Southern Motors. Since the judgment called for so
much more, Southern Motors obtained an alias writ of execution so that the sheriff
could levy attachment on the other real properties of the Tajanlangits.

ISSSUE: WON SouthMo had already foreclosed on the chattel mortgage and thus
have no more further action against them.

HELD/RATIO: There was NO foreclosure sale since SouthMo elected 1484(1) and
sued on the Note exclusively. SouthMo had the choice what remedy in Art.1484 to
use. Neither was there cancellation of the sale which was also affirmed by the
sheriff. There was an execution against on the property mortgaged not a
cancellation/foreclosure on the sale. The fact that the seller obtained a writ of
execution against the property mortgaged, but pursuant to an action for specific
performance with a plea for a writ of replevin, does not amount to a foreclosure of
the chattel mortgage covered by the Recto Law
Rescission obliges both parties to make restitution. However, under Art.

1486, a stipulation that the installments or rents paid shall not be returned
is valid, as long as they are not unconscionable. Delta Motor Sales Corp. v.
Niu Kim Duan (213 SCRA 259)
A stipulation which provides for the forfeiture of the amounts paid by the
buyer when the contract is rescinded is not contrary to law. Such forfeited
amounts are like the damages which can also be recovered in rescission.
Mutual restitution prevents recovering on the balance of the purchase
price. Nonato v. IAC (140 SCRA 255)
When Rescission Deemed Chosen
Tajanglangit v. Southern Motors
There is a clear indication by the seller that he wants to end the contract.
o Sends a notice of recission to the buyer
o Takes possession of the subject matter of the sale
o Files an action for rescission
When the sellers assignee, a financing company, is able to take back
possession of the motor vehicle with a condition that the car can be
redeemed by the buyers within 15 days, such possession is clearly with the
intent to cancel the contract. Nonato v. IAC (140 SCRA 255)
The retaking of possession of the property must be coupled with an
unequivocal desire on the part of the seller to rescind. Vda. De Quiambao
v. Manila Motor Co. (3 SCRA 445)
Barring Effect of Rescission
Even if not explicitly stated in the law, rescission still bars the seller from
recovering deficiency or unpaid balance, in the same way that foreclosure
on chattel mortgage does.
It is because of the nature of rescission which requires mutual restitution.
When the subject matter is returned, and damages are paid, or payments
are forfeited, the two parties are deemed to have been mutually
compensated. The seller cannot have its cake and eat it too. Nonato v. IAC
(140 SCRA 255)
Nonato v. IAC
Facts: Restituto and Ester Nonato purchased a Volkswagen Sakbayan from the
People's Car, Inc., on installment basis. The defendants executed a promissory note
and a chattel mortgage in favor of People's Car, inc. It then assigned its rights and
interests over the note and mortgage in favor of Investor's Finance Corporation
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(IFC). For failure of defendants to pay two or more installments, despite demands,
the car was repossessed by IFC. Despite repossession, IFC demanded that Nonatos
pay the balance of the price of the car.

ISSUE: Whether a vendor who had cancelled the sale of a motor vehicle for failure
of the buyer to pay two or more of the stipulated installments, may also demand
payment of the balance of the purchase price.

Held/RATIO: Hell no. The applicable law in the case at bar is Art. 1484.
These remedies have been recognized as alternative, not cumulative, that the
exercise of one would bar the exercise of the others. The acts performed by the
corporation are wholly consistent with the conclusion that it had opted to cancel
the contract of sale of the vehicle. It is thus barred from exacting payment of the
balance of the price of the vehicle. It cannot have its cake and eat it too.

Foreclosure of Chattel Mortgage Constituted on Subject Property

When Remedy of Foreclosure is Deemed Chosen
The seller is deemed to have chosen to foreclose only at the time of actual
sale of the subject property at public auction. Manila Trading & Supply Co.
v. Reyes (62 Phil. 461); Manila Motor Co., Inc. v. Fernandez (99 Phil. 782)
The filing for and issuance of a writ of replevin (and the subsequent
recovery of possession) does not mean that the seller will foreclose on the
mortgage. Universal Motors Corp. v. Sy Hian Tat (28 SCRA 161)
o (Filing of a writ of replevin is usually a preliminary step to
foreclose so that the seller will be able to regain possession.)
If the seller files an action denominated as replevin with damages which
seeks to recover possession and in the alternative, to recover the unpaid
balance of the price, he is still not considered as having chosen foreclosure
as a remedy. Industrial Finance Corp. v. Ramirez (77 SCRA 152)
It is the foreclosure and actual sale at public auction which bars further
recovery by the seller.
If the seller had filed an action for foreclosure and before the public
auction, he receives further payment from the buyer, the seller is not
obliged to refund the payments. Northern Motors, Inc. v. Sapinoso (33
SCRA 356)
FACTS: Sapinoso purchased from Northern Motors, Inc. an Opel Kadett car
executing a promissory note for the balance of P10,540.00 payable in installments
with interest at 12% per annum with a chattel mortgage on the car. The vendee-
mortgagor failed to pay several installments. Northern Motors, Inc. filed a
complaint against Sapinoso and sought foreclosure. Subsequent to the
commencement of the action, but before the filing of his answer, defendant
Sapinoso made two payments on the promissory note. The court allowed the
foreclosure but however ordered plaintiff to reimburse the sum of P1,250.00 which
the plaintiff had received from the latter after having filed the present case.

ISSUE: WON the court erred in ordering Northern Motors to reimburse the sum of
P1,250 received by plaintiff after having filed the present case.

HELD/RATIO: Yes. The Court erred in concluding that the legal effect of the filing of
the action was to bar plaintiff-appellant from accepting further payments on the
promissory note. There has not yet been a foreclosure sale resulting in a deficiency.
Article 1484(3) prohibits "further action against the purchaser to recover any
unpaid balance of the price
There is no reason why a mortgage creditor should be barred from

accepting, before a foreclosure sale, payments voluntarily tendered by the
debtor-mortgagor who admits a subsisting indebtedness.
Even a mortgage creditor, before the actual foreclosure sale, is not
precluded from recovering the unpaid balance of the price although he has
filed an action of replevin for the purpose of extrajudicial foreclosure
Even a mortgage creditor who has elected to foreclose but who
subsequently desists from proceeding with the auction sale, without
gaining any advantage or benefit, and without causing any disadvantage or
harm to the vendee-mortgagor, is not barred from suing on the unpaid
account.
Barring Effect of Foreclosure
Northern Motors, Inc. v. Sapinoso
Barring Effect on Other Securities Given for Payment of Price
If the seller had already foreclosed on the chattel mortgage, it cannot seek
deficiency judgment by foreclosing on the real estate mortgage constituted
by third-party mortgagors. Cruz v. Filipinas Investment & Finance Corp. (23
SCRA 791)
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The Court held that if the third-party mortgagor is forced to pay,

then he as the guarantor will be allowed to recover from the
principal debtor. This would be an indirect subversion of Art.
1484.
o The action being barred also includes extrajudicial proceedings,
not just judicial proceedings.
The seller is likewise precluded from further extrajudicially foreclosing on
any additional security which the buyer himself has constituted. Ridad v.
Filipinas Investment and Finance Corp. (120 SCRA 246)
When the real estate mortgage constituted by a third-party is foreclosed
first, the seller cannot anymore foreclose on the chattel mortgage
constituted by the buyer. BUT the barring effect as to prevent recovery of
deficiency judgment does not come into play. Borbon II v. Servicewide
Specialists, Inc. (258 SCRA 634)
The original wording of the Recto Law contained any unpaid balance
instead of any unpaid balance of the price. The Court has interpreted
any unpaid balance to include even interest on the principal, attorneys
fees, expenses of collection, and other costs. Maconday & Co., Inc. v.
Eustaqio. (64 Phil. 446)
o Even if this case is a 1937 case, it remains good law, despite the
change in wording in what is now Art. 1484 of the Civil Code. This
doctrine was reiterated in the 1969 case of Filipinas Investment &
Finance Corp. v. Ridad, infra.
o
Cruz v. Filipinas Investment & Finance Corp.

Facts: Cruz purchased from Far East Motor Corp an Isuzu Diesel Bus for P44,616.24
in installments with a chattel mortgage in favor of FEMC over the bus. An additional
security was given by Felicidad Vda. de Reyes (Reyes) in the form of a Second
mortgage on a parcel of land owned by her, along with the building. Thereafter,
FEMC, for value received, indorsed the PN and assigned all its rights in the Chattel
Mortgage and Real Estate Mortgage to herein defendant, Filipinas Investment and
Finance Corp. (FIFC). Cruz defaulted in payment. Thus, FIFC took steps to foreclose
the chattel mortgage on the bus and after for the other security for the deficiency.

Issues: WON FIFC, having already foreclosed the chattel mortgage, also can
foreclose the real estate mortgage?

Held/Ratio: Art 1484 applies. The remedies therein provided are alternative, not
cumulative exercise of one bars exercise of others. Established rule is that
foreclosure and actual sale of a Chattel Mortgage bars further recovery by the
vendor of any balance not satisfied by such sale. A contrary ruling would be open to
abuse coz mortgagees could buy the property at a foreclosure at a much lower
price, then go after the second security. It would have the effect of depriving the
mortgagor of his property, yet with almost the whole debt being due. Neither may
FIFC recover from the guarantor. If the guarantor (Reyes) was compelled to pay the
balance, thus she would be allowed to recover what she has paid from the vendee
(Cruz). Thus, ultimately, Cruz would be made to bear the balance, even if the CM
was already foreclosed. Protection of Art 1484 would be subverted which cannot be
allowed to happen.

Ridad v Filipinas Investment & Finance Corp.
Facts: Plaintiffs Ridad bought 2 brand new Ford Consul sedans. They executed a
promissory note and a chattel mortgage on the two cars AND another car AND
plaintiffs taxi operation franchise or certificate of public convenience. The vendor
assigned its rights, title and interest to the promissory note and chattel mortgage to
Filipinas Investment and Finance Corp. The buyers defaulted on their payment. FIFC
foreclosed extra-judicially on the chattel mortgage and they were the highest
bidder. Another auction sale was held at a later date for the remaining properties,
including the taxi franchise. FIFC was again the highest bidder. It subsequently sold
and conveyed the taxi franchise to Jose Sebastian who filed with the PSC for
approval of the sale.
Plaintiff then filed an action for annulment of contract and the subsequent sales
with the CFI of Rizal.

Issue: WON the chattel mortgage was valid.

Held:NO. Art. 1484 of the Civil Code applies.
These remedies are alternative, not cumulative. In this case, the mortgagee chose
to foreclose on the chattel mortgage on the 2 new Ford vehicles. Because they
chose this option, they may not anymore have any further action to recover the
unpaid balance pursuant to Art. 1484(3). They are thus precluded from having a
recourse against the additional security put up by a guarantor.

Borbon II v. Servicewide Specialists, Inc.
FACTS: (B&B) jointly and severally signed a promissory note in favor Pangasinan
Auto Mart, Inc. for P122,856.00 to be payable in installments without need of
notice or demand with a Chattel Mortgage on 1 Brand new 1984 Isuzu KCD 20 Crew
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Cab. The rights of Pangasinan Auto Mart, Inc. was later assigned to Filinvest Credit
Corporation, with notice to the defendants. Because the defendants did not pay
their monthly installments, Filinvest demanded from the defendants the payment
of their installments due on January 29, 1985 by telegram. Filinvest Credit
Corporation thereafter assigned all its rights, interest and title over the Promissory
Note and the chattel mortgage to Servicewide Specialists, inc. (SSI). The plaintiff
attempted to collect by sending a demand letter to the defendants for them to pay
their entire obligation. The defendants claim that what they intended to buy from
Pangasinan Auto Mart was a jeepney type Isuzu K. C. Cab. Defendants further claim
that they are not in default of their obligation because the Pangasinan Auto Mart
was first guilty of not fulfilling its obligation in the contract. The defendants claim
that neither party incurs delay if the other does not comply with his obligation

ISSUE: W/N awards made by the court a quo of liquidated damages and attorney's
fees to private respondent appropriate. Attorneys fees (YES) Liquidated Damages
(NO)

RATIO: When the seller assigns his credit to another person, the latter is likewise
bound by the same law. Accordingly, when the assignee forecloses on the
mortgage, there can be no further recovery of the deficiency, and the seller-
mortgagee is deemed to have renounced any right to the unpaid balance. Thus
there must be no payment of liquidated damages, however grant of attorney's fees
were allowed.

Macondray & Co., Inc. v. Eustaquio
FACTS: Macondray sold a de Soto car Sedan from Eustaquio for P595, and for which
he executed a note where he undertook to pay the car in 12 monthly installments,
12% interest per annum. He mortgaged same car to guarantee his note; he paid the
first installment but failed to pay any of the remaining. So plaintiff brought an
action to obtain possession of the car AND recover the balance owing him (interest,
attorney's fees, expenses and costs)
DOCTRINE: The Recto law prevents the mortgagee from seizing the mortgaged
property, buying it at foreclosure sale and then bringing a suit against the
mortgagor for a deficiency judgment. This is to close the door to abuses already
committed in connection with the foreclosure of the chattel mortgages when sales
were payable in installments.
"All amounts barred from recovery."

"Any unpaid balance" refers to the deficiency judgment including interest on
principal, attorney's fees, expenses of collection, and the costs.

Rules on Perverse Buyer-Mortgagor
General Rule: The Eustaquio doctrine bars all amounts from recovery in
case the seller-mortgagee forecloses on the chattel mortgage.
Exception: When the buyer-mortgagor refuses to surrender the chattel to
allow the seller to be able to proceed with foreclosure, the seller is allowed
to recover expenses and attorneys fees incurred in trying to obtain
possession of the chattel. Filipinas Investment & Finance Corp. v. Ridad (30
SCRA 564)
Filipinas Investment & Finance Corp. v. Ridad
FACTS: Ridad purchased from Filipinas a Ford Sedan on installment basis but failed
to pay 5 installments. Extrajudicial foreclosure ensued, spouses Ridad were
considered in default for failure to appear in court, and court awarded attorney's
fees and actual expenses of seizure to Filipinas.
DOCTRINE: Although the purpose of the Recto law is to protect the buyers on
installment who were victimized by sellers who succeeded in unjustly enriching
themselves at the expense of the buyers, the mortgagee (seller) is also entitled
protection against PERVERSE MORTGAGORS. Perverse mortgagors are those where
after failing to pay 2 or more installments, refuse to deliver chattel to the
mortgagee or conceals it in a place outside the reach of the mortgagor. Since the
mortgagee would enforce his rights through the means and within the limits
delineated by law, the next step is to file an action for replevin to recover
immediate possession of the chattel. In this case, the necessary expenses should be
borne by the mortgagor.

Lease with Option to Purchase

Art. 1485.
The preceding article shall be applied to contracts purporting to be leases
of personal property with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing. (1454-A-a)
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What is the Barring Effect on Such Contracts?
Art. 1486.
In the case referred to in two preceding articles, a stipulation that the
installments or rents paid shall not be returned to the vendee or lessee
shall be valid insofar as the same may not be unconscionable under the
circumstances. (n)
Some sellers opt to making contracts in the form of leases with an option
to buy for a small consideration at the end of the term. These contracts
must be regarded as installment sales, with the rent payments as the
installments paid. Vda. De Jose v. Barrueco (67 Phil. 191)
Even if an option to purchase is not expressly stipulated, the stipulations in
the contract can still show that such was the intention of the parties. PCI
Leasing & Finance, Inc. v. Giraffe-X Creative Imaging, Inc. (527 SCRA 405)
Key question: When the lessor retakes possession of the object upon non-
payment, is this considered as a foreclosure or a rescission?
o CLV cites a lot of cases which show that the Court hasnt really
made a definitive answer to this question.
However, CLV says that the Court seems to treat installment sales of
movables which are structured as lease with option to purchase as
equivalent to a chattel mortgage executed on the thing itself.
Therefore, when the purported lessor takes possession of the subject
matter, it is treated legally as a foreclosure. Thus, the barring effect of
foreclosure applies.
REMEDIES IN CASES OF IMMOVABLES

Remedies of Seller
PCI Leasing & Finance, Inc. v. Giraffe-X Creative Imaging, Inc.

FACTS: Parties entered into a Lease Agreement where PCI leased two office
equipment from Giraffe- X. The lease agreement contained the monthly rental
(expensive!) a guaranty deposit and embodied a standard acceleration clause
operative in the event Giraffe failed to pay any rental and/or accounts due. Giraffe
defaulted for 3 months and were given a formal pay OR surrender equipment type
of demand letter.
DOCTRINE: Recto law applies because the contract is actually a lease with option to
buy. It was not a straight lease because the petitioner stands to make P13M++ in a
year's time out of an investment of P8.1M. The intention of the parties must be
looked into. Also, the demand letter was fashioned in the alternative: payment of
the unpaid full balance OR the surrender of the financed asset, suggesting that
Giraffe can keep the equipment if it exercises its option to acquire the same. This
reflects a situation where a financing company conceals up to the last moment its
intention to sell the property in an attempt to circumvent the Recto law. Sellers in
this case have resorted to the device of making contracts in the form of leases
either with options to the buyer to purchase for a small consideration at the end of
term, provided the so- called rent has been duly paid, or with stipulations that if the
rent throughout the term is paid, title shall thereupon vest in the lessee. It is
obvious that such transactions are leases only in name. In choosing replevin, PCI
now waived its right to bring an action to recover unpaid rentals on the leased
items. Remedies under Article 1484 are alternative, not cumulative.
Anticipatory Breach
Art. 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. (1503)
Failure of Buyer to Pay Price

Art. 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.
(1504a)

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The Court has tended to interpret Art. 1592 liberally in favor of the buyer
to give him every opportunity to comply with his obligation and proceed to
take the subject immovable.
Art. 1592 only covers contracts of sale. Contracts to sell are not covered.
The Court has also resorted to equitable resolutions in the application of
Art. 1592. Such was the case in Legarda Hermanos v. Saldaa. (55 SCRA
324)
In Case of Subdivision or Condominium Projects
Legarda Hermanos v. Saldaa

FACTS: Saldana bought two lots from Legarda for P1, 500 each, payable in 10 years,
divided into 120 equal monthly installments with 10% interest per annum. Saldana
paid for 8 continuous years about 95 monthly installments total P3, 582 (P1.8K
interest, 1.6K applied to principal), then he stopped payment. Trial Court upheld
cancellation of contract to sell, CA reversed saying that Saldana suspended payment
because the lots were under under water/ no improvements he so it could not be
delivered to him.
DOCTRINE: The total amount paid as principal amounted to P1, 682. 23 more than
the amount of one lot. Therefore, it is just and fair in accordance with law and
equity to consider one lot as fully paid. There was already substantial performance.
Under Article 1234- If the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete fulfillment,
less damages suffered by the obligee.

Remedies of Buyer
Suspension of Payment
Art. 1590.
Section 20. Time of Completion.

Every owner or developer shall construct and provide the facilities,
improvements, infrastructures and other forms of development, including water
supply and lighting facilities, which are offered and indicated in the approved
subdivision or condominium plans, brochures, prospectus, printed matters, letters
or in any form of advertisement, within one year from the date of the issuance of
the license for the subdivision or condominium project or such other period of
time as may be fixed by the Authority.
Section 23. Non-Forfeiture of Payments.
No installment payment made by a buyer in a subdivision or condominium project
for the lot or unit he contracted to buy shall be forfeited in favor of the owner or
developer when the buyer, after due notice to the owner or developer, desists
from further payment due to the failure of the owner or developer to develop the
subdivision or condominium project according to the approved plans and within
the time limit for complying with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization interests but excluding
delinquency interests, with interest thereon at the legal rate.
Should the vendee be disturbed in the possession or ownership of the

thing acquired, or should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused the
disturbance or danger to cease, unless the latter gives security for the
return of the price in a proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make
the payment. A mere act of trespass shall not authorize the suspension of
the payment of the price. (1502a)
P.D. 957 is known as The Subdivision and Condominium Buyers Protective

Decree.
o This decree was issued in the wake of numerous reports that
subdivision and condominium developers had reneged on their
representations and obligation to provide subdivision roads,
drainage, sewerage, water systems, lighting system, etc. Casa
Filipinas Realty Corp. v. Office of the President (241 SCRA 165)
Section 20 of P.D. 957 directs every owner and developer of real property
to provide the necessary facilities, improvements, infrastructure and other
forms of development, failure to carry out which is sufficient cause for the
buyer to suspend payment, and any sums of money already paid shall not
be forfeited. Tamayo v. Huang (480 SCRA 156)
In case the seller fails to comply with his obligations in Sec. 20 of P.D. 957,
the buyer has two options: Relucio v. Brillante-Griffin (187 SCRA 405)
o Demand reimbursement of the amount paid.
o Wait for further development of the subdivision or condominium.
In this case, the buyer may suspend payment until the seller
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fulfills his obligations. He may not be ousted from the subdivision.

Tamayo v. Huang (480 SCRA 156)
Sec. 23 does not require that a notice be given first by the buyer to the
seller before a demand for refund can be made as the notice and demand
can be made in the same letter or communication. Casa Filipinas Realty
Corp v. Office of the President (241 SCRA 165)
The buyer has the right to compel the seller to complete the roads and
other facilities on the subdivisioin, even if it wasnt stipulated in the sale.
The seller cannot shift to the buyer the burden of providing for access to
and from the subdivision. Lim v. Delos Santos (8 SCRA 798); Consing v. CA
(177 SCRA 14)
o If the seller defaults, the buyer should be entitled to a
proportionate reduction in the purchase price.
Buyers of condominium units would be justified in suspending payments,
when the developer-seller fails to give them a copy of the Contract to Sell
despite repeated demands. Gold Loop Properties, Inc. v. CA (350 SCRA 371)
o However, when the Reservation Agreement provides that the
buyer shall be entitled to a Contract to Sell only upon its payment
of at least 30% of the total contract price, the non-happening yet
of that condition does not render the seller in default as to
warrant the buyer the right to rescind the sale and demand a
refund. G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc.
(614 SCRA 75)
Nothing in P.D. 957 provides for the nullification of a contract to sell in the
event the seller, at the time the contract was entered into, did not possess
a certificate of registration or a license to sell, sale being a consensual
contract. Co Chien v. Sta. Lucia Realty (513 SCRA 570)
P.D. 957 may be applied retroactively since it is the intent of the law as
shown from its preamble. It is an instrument of social justice. Eugenio v.
Drilon (252 SCRA 106)
Right to Grace Period Stipulated
MACEDA LAW: Sales of Real Estate on Installments
R.A. 6552 is known as the Realty Installment Buyer Protection Act.

It declared a public policy to protect buyers of real estate on installment
payments against onerous and oppressive conditions. (Sec. 2, RA 6552)
The courts have used the Maceda Law as a policy statement of the State in
protecting the interests of buyers of residential real estate on installments.
At times, the Court has also applied the Maceda Law retroactively. Siska
Dev. Corp. v. Office of the President (231 SCRA 674)
Transactions Covered
It covers primarily residential real estate bought on installment.

It also covers the financing of real estate on installment.
The Maceda Law also covers contracts to sell. This is evidenced by the use
of the word cancellation in the law itself.
The Maceda Law uses the same definition of sale on installment as the
Recto Law.
Transactions Excluded From Coverage

The following transactions are excluded from coverage of the Maceda Law: (ICA)
1.
2.
3.
Sales covering industrial lots

Sales covering commercial buildings and lots
Sales to tenants under agrarian reform laws
The Maceda Law Cannot be invoked by the Highest Bidder in Foreclosure

Proceedings
Such person is not the real party to the original installment sales
He does not have any rights promoted under the Maceda Law.
Rights Granted
When the buyer has paid at least 2 years of installment
When a grace period is provided for in the contract of sale, it should be

construed as a right, not an obligation of the debtor, and 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. Bricktown Dev. Corp. v. Amor Tierra Dev. Corp. (239
SCRA 126)
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Section 3.
In all transactions or contracts involving the sale or financing of real estate
on installment payments, including residential condominium apartments
but excluding industrial lots, commercial buildings and sales to tenants
under RA 3844, as amended by RA 6389, where the buyer has paid at least
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two years of installments, the buyer is entitled to the following rights in

case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid installments due within
the total grace period earned by him which is hereby fixed at the rate of
one (1) month grace period for every one (1) year of installment payments
made: Provided, That this right shall be exercised by the buyer only once
in every five (5) years of the life of the contract and its extensions, if any.
(b) If the contract is canceled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty per
cent (50%) of the total payments made, and, after five (5) years of
installments, an additional five per cent (5%) every year but not to exceed
ninety per cent (90%) of the total payments made: Provided, That the
actual cancellation of the contract shall take place after thirty (30) days
from receipt by 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.
Down payments, deposits or options on the contract shall be included in
the computation of the total number of installment payments made.
The cancellation of the contract under the Maceda Law must follow the
following steps: (GNR)
o First, the seller should extend the buyer a grace period of at least
sixty (60) days from the due date of the installments.
o Second, at the end of the grace period, the seller shall furnish the
buyer with a notarial notice of cancellation or demand for
rescission, effective thirty (30) days from the buyers receipt
thereof; a mere notice or letter, short of a notarial act, would not
suffice. McLaughlin v. CA (144 SCRA 693)
o Third, for contracts covering more than two years of payments,
there must be return to the buyer of the cash surrender value.
Villdara, Jr. v. Zabala (545 SCRA 325)

The additional formality of a demand on [the sellers] part for rescission by
notarial act would be unnecessary since the seller therein filed an action
for annulment of contract, which is a kindred concept of rescission by
notarial act. Layug v. IAC (167 SCRA 627)
A decision rendered in an ejectment case operated as the required notice

of cancellation under the Maceda Law. Leao v. Court of Appeals (369
SCRA 36)
A formal letter demand upon buyer to vacate the premises is not the same
as the notice of cancellation or demand for rescission by a notarial act
required by R.A. No. 6552. Evidently, the case of unlawful detainer filed by
petitioner does not exempt him from complying with the said
requirement. Pagtulungan v. Dela Cruz Vda. De Manzano (533 SCRA 242)
Where the buyers under a contract to sell offers to pay the last installment
a year and a half after the stipulated date, that was beyond the sixty-day
grace period under Section 4 of the Maceda Law. The buyers cannot use
the second sentence of Section 4 of the Maceda Law against the sellers
alleged failure to give an effective notice of cancellation or demand for
rescission because the sellers merely sent the notice to the address
supplied by the buyers in the Contract to Sell. Garcia v. Court of Appeals
(619 SCRA 280)
Garcia v. CA
FACTS: A contract to sell was entered into, down payment was made, and the rest
was payable in 3 installments. The last installment was not paid. In the contract it
said that failure to comply with the terms of payment would cause rescission, and
possession shall be retained until a deed of absolute sale is executed by the buyers.
DoAS shall be executed upon full payment.
DOCTRINE: Maceda law inapplicable since the said law applies to contracts of real
estate on installment payments, example: condominium. Subject lands are not
residential real estate within the contemplation of the Maceda Law. Even if it did
apply, offer of payment was made beyond the 60-day grace period.

When the buyer has paid less than 2 years of installments
Sec. 4.
In case where less than two (2) years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty (60) days from the
date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty (30) days from
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place despite the effectivity of the notice of cancellation. Leao v.

CA (369 SCRA 36)
receipt by the buyer of the notice of cancellation or the demand for

rescission of the contract by a notarial act.
McLaughlin v. CA
Formula to Compute the Installment Mode
The proper formula to apply in deterining how many installments have

been made is to include any payment made as downpayment or
reservation fee as part of the installments made, and then divide them by
the stipulated mode of payment, i.e., whether it is monthly, quarterly,
semi-annual or annual. Jestra Dev. & Mgt. Corp v. Pacifico (513 SCRA 413)
Jestra Dev. Mgt. Corp v. Pacifico
FACTS: Pacifico signed a Reservation Application for the purchase of a house and
lot. Upon full payment of DP, Pacifico will sign a contract to sell. 70% balance of
purchase price payable in 10 years + interest, at a monthly installment.
DOCTRINE: The proper formula to apply in determining how many installments
have been made is to include any payment made as down payment OR reservation
fee as part of the installments made, and then to divide the stipulated mode of
payment (i.e. monthly, quarterly, annually, semi- annually) (page 419, Sales Book)
Since after applying this formula, Pacifico failed to pay at least 2 years of
installments, he is not entitled to a refund of the cash surrender value of his
payments. Section 4 is applicable. The cancellation is a 2 step process: a. The seller
should extend the buyer a grace period of at least 60 days from the due date of the
installment; b. At the end of the grace period, the seller shall furnish the buyer with
a notice of cancellation or demand for rescission through a notarial act, effective 30
days from the buyer's receipt thereof. Despite the notice of dishonor, Pacifico took
no action and 60 days had lapsed.

FACTS: A contract of conditional sale payable in installments was entered into by

McLaughlin and Flores. Due to the latter's failure to pay the balance, a complaint
for rescission was filed in court. Parties submitted a Compromise Agreement which
had a stipulation that in case of failure to comply, McLaughlin is entitled to a writ of
execution rescinding the Deed of Conditional Sale of Real Property and Flores
waives his right to appeal. Also, in case of rescission all payments made by Flores
will be forfeited in favor of Flores.
DOCTRINE: Under Section 4 of the Maceda Law: "In case where less than 2 years of
installments were paid, the seller shall give the buyer a grace period of not less than
60 days from the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may cancel the
contract after 30 days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by notarial act." Any stipulation contrary to
this is void. Flores made a valid tender of payment within 30 days from receipt of
motion for execution.
2 Doctrines applicable to Maceda Law:
a. although the law seems to require rescission and cancellation to be both by
notarial act, this case would hold notarial act as merely applicable to rescission,
whereas "notice of cancellation" need not be by notarial act.
b. Even after the expiration of the grace period provided by law, the buyer can still
prevent rescission or cancellation of the contract within the 30 day period when
rescission or cancellation is to take effect. (p. 420, Sales book)

Interpretation of Grace Period and Mode of Cancellation
Other Rights Granted to Buyer
The ruling in McLaughlin v. CA provides for 2 grace periods:

a. The 60-day period provided by law before a notice of cancellation
is served to the buyer
b. The before rescission or cancellation actually takes place.
Actual cancellation occurs 30 days after the notice of cancellation or
demand for rescission is received by the buyer.
o However, if the seller does not refund the buyer pursuant to Sec.
3(b) of the Maceda Law, rescission or cancellation will not take
Sec. 5.
Under Sec. 3 and 4, the buyer shall have the right to sell his rights or assign
the same to another person or to reinstate the contract by updating the
account during the grace period and before actual cancellation of the
contract. The deed of sale or assignment shall be done by notarial act.

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prevented from blocking the consummation of the same in light of the

precept that mere failure to fulfill the contract does not operate ipso facto
as rescission. Platinum Plans Phil., Inc. v. Cucueco (488 SCRA 156)
Sec. 6.
The buyer shall have the right to pay in advance any installment or the full
unpaid balance of the purchase price any time without interest and to
have such full payment of the purchase price annotated in the certificate
of title covering the property.
Cancellation of Judicial Sale
Effect of Contrary Stipulation

Sec. 7.
Any stipulation in any contract hereafter entered into contrary to the
provisions of Sections 3, 4, 5 and 6, shall be null and void.
Maceda Law Cannot Be Availed of by Developer
The Maceda Law is aimed at protecting the buyers of real estate on

installment payments. One who buys the development from the developer
and then becomes his successor-in-interest is not covered by the law.
Lagandoan v. CA (290 SCRA 330)
Rescission on Sales of Non-Residential Immovables

on Installments
Pertinent provisions: Art. 1191 and Art. 1592, supra

Articles 1191 and 1592 on rescission cannot apply to a contract to sell
since there can be no rescission of an obligation that is still non-existent,
the suspensive condition not having happened. Valarao v. CA (304 SCRA
155)
Article 1592 allows the buyer of an immovable to pay as long as no
demand for rescission has been made; and the consignation of the balance
of the purchase price before the trial court operates as full payment.
Province of Cebu v. Heirs of Rufina Morales (546 SCRA 315)
Automatic rescission clauses are not valid nor can be given legal effect
under Articles 1191 and 1592. Iringan v. Court of Appeals (366 SCRA 41)
o Indeed, rescission requires under the law a positive act of choice
on the party of the non-defaulting party. Olympia Housing v.
Panasiatic Travel Corp. (395 SCRA 298)
Vendor cannot recover ownership of the thing sold until and unless the
contract itself is resolved and set aside; a party who fails to invoke
judicially or by notarial act the resolution of a contract of sale would be
Where a judicial sale is voided without fault of the purchaser, the latter is
entitled to reimbursement of the purchase money paid by him. A judicial
sale can only be set aside upon the return to the buyer of the purchase
price with simple interest, together with all sums paid out by him in
improvements introduced on the property, taxes, and other expenses by
him. Seven Brothers Shipping Corp. v. CA (246 SCRA 33)
Law on Sales
Chapter 12 Conditions and Warranties
Conditions
Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may refuse to
proceed with the contract or he may waive performance of the condition.
If the other party has promised that the condition should happen or be
performed, such first mentioned party may also treat the nonperformance
of the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the
fulfillment by the seller of his obligation to deliver the same as described
and as warranted expressly or by implication in the contract of sale as a
condition of the obligation of the buyer to perform his promise to accept
and pay for the thing. (n)
n
Two remedies where obligation of the other party to a contract of sale is

subject to a condition, and such is not performed.
o Refusal to proceed with contract
o Waive performance of the condition
Romero v. CA distinction between condition imposed on perfection and
imposed on performance.
o Failure to comply with former results in failure of the contract
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Failure to comply with the latter results in the two remedies being
avialable to the other party.
Heirs of Escanlar v. CA contract of sale to become effective upon
happening of the condition
o Non-happening did not affect validity of the contract
o Only the effectivity
David vs Tiongson stipulation that deed of sale would issue after the
condition does not prevent perfection of the contract
o

Distinctions between Conditions and Warranties
n
n
Non-happening of condition does not amount to a breach : non-fulfillment

of warranty constitutes a breach
When ownership has not passed, buyer may treat the fulfillment of the
seller of his obligation under the contract as a condition for his obligation
to accept and pay.
If the party promised that a condition would be performed/would happen,
other party may treat non-performance of such as a breach of warranty.
o Such stipulation elevates the condition to a warranty
o And entitle the other party to damages
Other Differences
Condition
Warranty
Goes into root of existence of the
Goes into performance
obligation
May constitute an obligation in itself
Must be stipulated by the parties
May form part of the obligation by
provision of law, even without
stipulation
May attach to the seller or to the buyer Relates to subject matter itself, or
obligations of the seller as to the subject
matter

Express Warranties
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 purchase the thing relying thereon. No affirmation of the value
of the thing, nor any statement purporting to be a statement of the
seller's opinion only, shall be construed as a warranty, unless the seller
made such affirmation or statement as an expert and it was relied upon by
the buyer. (n)

Two requisites for the existence of an express warranty

o It must be an affirmation of fact, or any promise by the seller
relating to the subject matter of the sale
o Natural tendency of such affirmation is to induce buyer to
purchase the thing; and
o Buyer purchases relying on such affirmation/promise thereon
Goodyear Philippines v. Sy
o Warranty : affirmation/promise made by seller in relation to the
thing sold
o Decisive test : whenther seller assumes to assert a fact of which
the buyer is ignorant of.
Affirmation of value or statement of sellers opinion is not a warranty
o Unless seller made such statement as an expert, and was relied
upon by the buyer
o Art 1341 : mere expression of opinion does not signify fraud,
unless made by expert and other party relies on such special
knowledge
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Azarraga v. Gay
o Assertions concerning the propertys characteristics are the usual
and ordinary means of sellers to get a high price
o A man who relis upon such affirmationdoes so at his own
peril.

Implied Warranties
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. (n)

n
n
Those which by law constitute part of every contract of sale, whether or

not the parties were aware of intended them.
Only a seller is bound by the implied warranties.
o Express stipulation in contract may make the agent of the seller
bound by these.
Warranty that Seller has Right to Sell
Implied warranty that seller has the right to sell the thing at the
time the ownership is to pass
o Refers only to the transfer of ownership at the point of
consummation
o Not any representation as to ownership at the point of perfection
o It shall not be applicable to render liable a sheriff, auctioneer,
mortgagee, pledgee
Or any other person professing to sell by virtue of
authorityin fact or law
For the sale of a thing in which a third person has a
legal/equitable interest
o There can be no legal waiver of this warranty without changing
basic nature of the relationship
Right to sell -- Requisite of sale
Unless it amounts to clear assumption of risk on the part
of the buyer
Warranty Against Eviction
o Implied warranty that when ownership will pass, buyer shall have
legal and peaceful possession
o Vendor shall answer for the eviction even if there is no stipulation
regarding eviction
o When there is breach of this warranty
Purchaser has been deprived of/evicted from the whole
or part of the thing sold;
Eviction is by final judgment;
Basis thereof is a right prior to the sale made by the
seller; and
Seller has been summoned and made co-defendant in
the suit for eviction at the instance of the buyer.
o Warranty cannot be enforced until the buyer loses the thing by
final judgment
He need not appeal from the decision to make seller
liable
No need for buyer to resist fully the action
o
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o
o
Power Commercial v. CA no action for breach of this warranty

when buyer was well awar of the presence of tenants, and even
undertook the job of ejecting these squatters
Jovellano v. Lualhati vendee only needs to give notice of the
complaint. This perfects the right to the warranty.
Escaler v. CA cannot be enforced against seller when buyer
merely mailed seller a copy of the opposition of buyer to the
eviction suit
He did not formally summon the seller to be part of the
suit.
The vendors should be made parties to the suit at the
instance of vendees.
Eviction in Part
If the part lost is of such importance that the buyer
would not have bought the thing without it, he may
demand rescission
With obligation to return the thing itself.
Same rule applies when two or more things have beeen
jointly sold, when it appears that the buyer would not
have purchased one without the other
Particular causes Given by Law
Adverse possesion has been commenced prior to sale,
but prescriptive period is completed after the transfer,
seller is not liable for breach of this warranty
Property is sold for nonpayment of taxes due, not made
known to buyer before sale, seller is liable for the
eviction.
Applicability to Judicial Sales
Judgment debtor is also responsible for eviction in
judicial sales, unless otherwise decreed in the judgment
However, Santiago Land Dev v. CA
Buyer at execution sales takes property subject
to superior right of other parties
Allure Mfg v. CA caveat emptor applies in execution
sale
Sheriff does not warrant the title to the

property
Not incumbent upon him to place purchaser in
possession

Amounts for which seller is liable in case of eviction
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:
(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 a
proper case, those of the suit brought against the vendor for the
warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if the
sale was made in bad faith. (1478
Waiver of warranty and Effects

Effect of waiver depends on nature of such waiver
General or specific?
Good faith or bad faith on sellers part?
If seller acted in bad faith, then any stipulation
exempting seller from answering eviction shall be void
If buyer merely renounces the warranty in general terms,
no knowledge of a particular risk
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Seller only pays value of thing at time of eviction

General waiver limits liability of seller.
If buyer waived with knowledge of risks (specific waiver)
seller shall not be liable.
JM Tuazon v. CA even when no specific waiver, buyer
cannot hold seller liable when he is aware of a third party
claim (HE MUST BE IN GOOD FAITH).
Warranty Against Non-apparent Servitudes

o Shall apply when the following conditions are present
Immovable sold is encumbered by non-apparent
burden/servitude, not mentioned in the agreement; and
Nature of such makes it so that the buyer would not have
acquired the immovable had be been aware of it.
o This warranty does not apply
When servitude is mentioned in the agreement
If it is recorded in the RoD
Unless there is an express warranty that the
thing is free from all burdens and encumbrances
o Remedies and Prescriptive Period
Buyer may bring action for rescission or sue for damages
within one year from execution of the deed
If this has elapsed, he may only bring an action for
damages within one year from when he discovered the
servitude.
Warrant against hidden defects
o Seller shall be responsible when
Nature of hidden defect is such that it would render the
subject manner unfit for the use for which it was
intended
Diminish its fitness to such an extent that buyer would
not have bought it or he would have paid a lower price
for it.
o
o
o
Seller not answerable for patent defects, or those which are

visible
Even for those which are invisible, if the buyer should
know about them by reason of his trade/profession
Seller responsible even if he was not aware of these hidden
defects
Applies to both movable and immovable
Requisites for breach
Defect must be hidden
Must exist at time of the sale
Must ordinarily have been excluded from the contract
Must be important (render thing unfit or decrease fitness
considerably)
Action must be instituted within Statute of Limitations
Remedies of Buyer/Obligation of Seller
Buyer should withdraw (accion redhibitoria)
Or demand a reduction of the price (action quanti
minoris)
Damages in either case.
Only when the thing has not been lost
If it has been lost obligations of seller depend on cause
of loss, knowledge of hidden defect by seller, and
whether there was a waiver of the warranty
Lost through hidden faults
o If seller was aware he shall bear the
loss, and return the price and expenses
of the contract, with damages.
o If seller was not aware only obliged
only to return the price and interest
thereon, and reimburse the expenses
of contract, but no damages.
If lost through FE or through fault of buyer
o If seller was not aware buyer may
demand the price he paid, less value of
the thing when it was lost
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If seller in bad faith, he shall pay

damages to the buyer
o When there is a waiver of warranty
If seller not aware loss will not make seller liable
If seller was in bad faith seller still liable on the
warranty
o Applicability to Judicial Sales
It shall apply to judicial sales, but judgment debtor shall
not be liable for damages.
o Prescriptive Period
Six months from delivery of the thing sold
Redhibitory Defects of Animals
o Even when professional inspection is made, if the defect is such
that it would not be discovered even by experts, the defect is
considered redhibitory.
o If veterinarian is ignorant or in bad faith, and thus does not
discover/disclose the flaw, he shall be liable for damages
o Sale of team
If two or more animals are sold together, redhibitory
effect of one shall only affect the one, and not the others
Unless buyer would not have purchased the
others without the defective one.
This shall be presumed when a team, yoke, pair
or set is bought, even if separate price had been
fixed for each animal
Foregoing rules with respect to animals shall be
applicable to other things.
o Other Rules see 1574-75.
o Prescriptive period see 1577-78.
o Obligation of buyer to return see 1578
o Remedies of buyer
Withdrawal from contract
Demand proportionate reduction of the price.
Implied Warranties in Sale of Goods
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Warranty as to Fitness or Quality
Art. 1562.
In a sale of goods, there is an implied warranty or condition as to the
quality or fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the
seller the particular purpose for which the goods are acquired, and it
appears that the buyer relies on the seller's 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 brought 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. (n)
n
Requisites for Breach

o Buyer sustained injury because of the product
o Injury occurred because product was defective/unreasonably
unsafe
o Defect existed when product left the hands of the seller
Nutrimix Feeds v. CA seller cannot be held liable if there is no proof that
the product was defective.
o Product must have reached user without substantial change in
condition
Measure of Damage
o Difference between value of goods at the time of delivery and the
value they would have had if the warranty was complied with
Applies in absence of special circumstances showing
damage of a greater amount
Sale of Goods by Sample/Description

94
Art. 1565.
In the case of a contract of sale by sample, if the seller is a dealer in goods
of that kind, there is an implied warranty that the goods shall be free from
any defect rendering them unmerchantable which would not be apparent
on reasonable examination of the sample. (n)
n
n
n
Mendoza v. David : there is an implied warranty in such sales that the

goods are free from any defect which is no apparent upon examination
that would render the goods unmerchantable.
Buyers Option See Art. 1599
o Accept or keep goods, enforce warranty by way of recoupment
o Accept or keep goods, sue for damages
o Refuse to accept, sue for damages
o Rescind sale.
These remedies are alternative.
Waiver of remedies he cannot rescind sale if
o When goods were received by buyer without protest, and with
knowledge of the breach,
o Or when he fails to notify the seller of his intent to rescind within
reasonable time
o He fails to return/offer to return the goods to the seller
Deterioration caused by the breach of warranty, buyer
may still rescind.
Oblgitation of Buyer on thePrice
o When buyer rescinds, he is not liable for the price when he
returns/offers to return the goods
o If price/part has been paid, seller should repay what has been
paid when the buyer returns/offers to return
Refusal of seller to accept Return of Goods
o When seller refuses to accept the offer of buyer to return the
goods, buyer is deemed to hold them as bailee for the seller, but
subject to a lien to secure payment of any part of the purchase
price already paid
o It also includes remedies for the enforcement of such lien allowed
to an unpaid seller in Art. 1526.
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Addtitional Terms of Warranties for Consumer

Goods
See RA 7394, the Consumer Act of the Philippines. (discussion in the book is
basically the codal).

Chapter 13 Extinguishment of Sale

In General
Same grounds by which obligations in general are extinguished also apply

to extinguishment of obligations arising from sale
o PA-LO-RE-CO-CO-NO
Payment
Only extinguishes obligations to which they pertain in a
contract of sale
Not necessarily the contract itself
Loss
Remission
Compensation
Confusion
Novation
o Annulment
o Rescission
o Resolutory Condition
o Prescription
o Article 1600 Conventional Or Legal Redemption
Conventional Redemption
Art. 1601 Conventional Redemption Defined
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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.

n
Definition Conventional Redemption takes place
n When the seller reserved for himself the right to repurchase the thing sold,
with obligation to
o Return price of the sale
o Return expenses of the contract
o Any other legitimate payments made by reason of the sale
o Necessary and useful expenses of the thing sold.
n Even when sale is one with right to repurchase, buyer is subrogated to the
18
sellers rights and actions even during the period where redemption can be
made right to redemption does not prevent full consummation
n Who may exercise?
o Seller in whom right is recognized by contract
o Any person to whom such right may have been transferred
o In the case of legal redemption, the person so entitled by law
Proper Reservation of Right to Repurchase
19
n Distinguishing right to redeem from option to purchase
o Art. 1601 : Right of repurchase must be reserved by the vendor through
stipulation to that effect in the contract of sale
Not a right granted to the vendor by the vendee
It is one of the stipulations in the contract
Once instrument executed, vendor may no longer reserve

18
19
Art. 1609 vendee is subrogated to the vendors rights and actions.

Villarica v. CA, Misterio v. Cebu State College, Nool v. CA
Any right thereafter granted to the vendor, by the vendee cannot be

considered a right to repurchae, but some other right,like an option to
buy.
Essence of pacto de retro title and ownership is immediately vested in the
vendee a retro, subject to a restrictive condition of repurchase by the vendor
within the redemption period.
Valid existence of a right to repurchase hinges upon fact that the underlying
contract of sale is valid, and that there has been performance.
o
Right of Repurchase Provable by Parol Evidence

n Right to repurchase : merely a feature in the contract of sale
o Thus, it is governed by the Statute of Frauds
o However, SC has held : when the contract of sale is in writing, parol
evidence may be adduced to prove the right to repurchase
This is because the Deed of Sale and the verbal agreement
allowing the right to repurchase are an integral whole
The deed of sale itself is the note or memorandum required
to remove the contract from the SoF.
o Also, if there is no objection to such parol evidence, it will be admissible
in trial.
n SC : Best Evidence Rule not an obstacle to the adducement of such parol
evidence
o When parol agreement was the moving cause of the written contract
o When written contract was executed on the faith/representation of the
parol contract
o Right to repurchase proved orally is consistent with terms of written
contract.
Distinguished from Option to Purchase
Right to Redeem
Not a separate contract merely part of
a main contract of sale cannot exist
unless reserved at time of perfection
Must be imbedded into the contract of
sale upon its perfection
Does not need a separate consideration
Option to Purchase
Generally a principal contract, created
independent of another contract

May exist before or after the perfection
of the sale, or be imbedded in another
contract upon its perfection
Must have consideration separate and
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to be valid and effective

Redemption period cannot exceed 10
years
Exercise requires that notice be
accompanied by tender of payment
consignment when tender cannot be
made
Exercise extinguishes contract of sale
distinct from the purchase price

Period for an option may exceed 10
years
Requires only a notice of exercise to be
given to the optioner
Results in perfection of a contract of

sale

Period of Redemption
Art. 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.
a. When No Period Agreed Upon
n Stipulated right to redeem : in absence of agreement as to period of exercise, it
shall last 4 years from date of the contract
n Misterio v. Cebu State College
o Four year period held to begin from happening of condition contained in
deed of sale (rather than date of contract)
o This is inexplicable! CLV
To be discussed later.
b. When Period Agreed Upon
n If there is an agreement as to period, it cannot exceed 10 years
n if it exceeds 10 years, the agreement is only valid for the first 10 years.
n Anchuel v. IAC
o Stipulation : Vendor cannot redeem within 19 years from execution
o SC : Such is void violative of Art. 1601

o SC fixed period of redemption at ten years.
Tayao v. Dulay
o Stipulation : right of redemption cannot be exercised within 10 years
Again, SC held that it was void
However : such nullity does not convert contract into a mere
indebtedness nor an equitable mortgage
Art. 1606 would apply seller may exercise right to
redemption within a period of 10 years form date of contract
o Although stipulation as to the period may be unclear or void, there is still
a stipulation!
Thus, we follow the 10 year period for redemption
We do not consider the right of redemption as being one
without a stipulated period.
Bandong v. Austria
o Contract : sellers could exercise in March of any year
o Such could be exercised for a period of 10 years from date thereafter, but
not after 10 years
Ochagabia v. CA
o Right to redeem had prescribes when exercised after 10 years.
c. Pendency of Action Tolls Redemption Period

n Ong Chua v. Carr : pendency of an action brought in good faith and relating to
the validity of a sale a retro tolls the running of the period of redepmption
n Misterio : Pendency of a litigation does not toll the period
o Such period is not suspended merely because there is a divergence of
opinion between the parties as to when the condition upon which the
right to repurchase is triggered.
o Existence of right to repurchase is not dependent upon the interpretation
by the court of said condition
n CLV : No contradiction between these two cases
o Important consideration : vesting of the exercise of the right by its
proper exercise (requiring notice and tender)
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d.
n
Thus, in essence, completion of redemption process (payment of amounts

required in Art. 1616) is tolled by the filing of a civil action relating to the
issue of such redemption
Provided that both exercise and filing would be done withing
redemption period.
Non-payment of Price Does Not Affect Running of Redemption Period

Catangcatang v. Legayada nonpayment of purchase price does not serve to
suspend the period of redemption
o Sale was consummated upon execution of document, and delivery of land
to the vendee
o Nonpayment of the balance of the price does not suspend the efficacy of
the provisions of the valid contract.
Possession of Subject Matter During Period of Redemption

n In a sale a retro, buyer has the right to immediate possession of property sold,
unless otherwise agreed upon.
n Title and ownership of property are immediately vested in the buyer a retro,
subject only to the resolutory condition of the repurchase by the seller within
the period.
n Pending repurchase, the buyer may alienate, mortgage, or encumber the
property
o But such alienation, mortgage or encumbrance is as revocable as his right.
o When right exercised, the buyer has to return the property free from all
encumbrances imposed by him.
How Redemption Effected
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.
n
n
Three things need to be returned

o Price of the sale.
o Expenses of contract, and any other legitimate payments made by reason
of the sale.
o Necessary and useful expenses made on the thing sold.
Seller may bring his action against every possessor who derives right from the
buyer
o Even if there is no mention of the right to repurchase in the contract
between buyer and subsequent buyer
o Without prejudice to provisions of Property Registration Decree and the
Mortgage Law, with respect to mortgagees/purchasers in good faith and
for value.
Failure to pay useful improvements entitles buyer a retro to retain possession
of the land until actual reimbursement is done.
Art. 1616 is not exclusive
o It should be construed with Art. 1601 which states that in order to
redeem, Art. 1616 must be complied with as well as other stipulations
agreed upon.
a. How Redemption Exercised

n In order to exercise right to redeem, tender of payment is sufficient.
n Mere sending of letters expressing desire to repurchase, without tender, does
not comply with the requirement of law.
n Where tender of payment cannot be validly made (because buyer cannot be
located) seller must file a suit for consignation of the redemption price within
the redemption period.
n Lee Chuy Realty v. CA
o Formal offer to redeem accompanied by tender of redemption price not
essential when right to redeem is exercised through a judicial action
within the redemption period, simultaneous with consignation of the
redemption price
o No prescribed form for an offer to redeem
o Thus, we have two ways of redeeming
Formal offer accompanied by bona fide tender of payment
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Only necessary to preserve right of redemption for

further enforcement. (as opposed to exercised).
Exercise through judicial action accompanied with
simultaneous deposit of the redemption price.
Filing of action is equivalent to formal offer.
When is right of redemption deemed vested
Formal offer to redeem, accompanied by bona fide tender of
payment, within redemption period.
Thus, the right is vested it may be enforced even beyond
redemption period.
b. In Multy-Party Cases
n In a sale a retro, buyer of part of an undivided immovable who acquires the
20
whole thereof under Art. 498 may compel the seller to redeem the whole
property, if the seller wants to make use of the right to redemption.
o Seller wants to repurchase only his part : Buyer may compel him to
repurchase the whole thing.
n Several persons, jointly and in the same contract, sell an undivided immovable
with right to repurchase.
o None of them may exercise this right for more than his respective share.
n Same rule applies if the seller who sold the immovable alone has several heirs.
o Heirs may only redeem part which he may have acquired.
n In these cases, the buyer may demand that the vendors/co-heirs come to an
agreement upon the repurchase of the whole thing sold.
o If they cannot, buyer cannot be compelled to consent to a partial
redemption.
n
n
When Redemption not Made
Art. 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. (n)
n
n

20
Whenever the thing is essentially indivisible and the co-owners

cannot agree that it be allotted to one of them who shall indemnify
the others, it shall be sold and its proceeds distributed. Thus, the
above discussion refers to the guy who buys this property.
Co-owner of undivided immovable who sells his share separately may

independently exercise the right of repurchase upon his own share, and buyer
cannot compel him to redeem the whole.
Creditors of the seller cannot make use of the right of redemption against the
buyer, until after they have exhausted the property of the seller.
De Guzman v. CA
o If one of the co-owners/co-heirs alone redeem the whole property, he
will be a mere trustee with respect to the shares of the co-owners/co-
heirs.
o Thus, no prescription lies against the rights of these co-owners/co-heirs
to demand from the redemptioner their share in the property.
Before the new Civil Code : when no redemption made, buyer automatically
acquired full ownership.
Now, Art. 1607 above applies.
o This proceeding for consolidation is an orindary civil action, not a motion
incident to another action.
o If such is denied because contract was actually an equitable mortgage,
then another action may be filed to collect/foreclose.
Art. 1607 abolished automatic consolidation of ownership upon expiration of
period by requiring the above action (where the vendor may be heard).
o If buyer proves that the transaction was a pacto de retro, the vendor is
then given a grace period of 30 days within which to repurchase.
Recording in the Registry of Deeds of the consolidation of ownership to the
buyer is not a condition sine qua non to transfer of ownership
o Buyer would still be the owner.
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o
o
o
Essence of pacto de retro title and ownership are immediately vested in

buyer, subject to resolutory condition of repurchase.
Failure of seller to perform the said condition vests absolute title and
ownership over the property sold.
Failure to consolidate title under 1607 does not impair buyers ownership
the method prescribed is merely for purposes of registration.
Grant of 30-day Redemption Right in Case of Litigation and Article 1606

n Last paragraph of Art. 1606 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.
n Expiration of period ipso jure extinguishes right to redeem
o However : when there was a previous suit on the nature of the contract :
seller may still exercise right to repurchase within 30 days from the time
final judgment was rendered.
n Tapas v. CA
o 30 day period contemplates a case involving a controversy as to the
nature of the contract
o Court decides whether it is a pacto de retro or an equitable mortgage.
n Pangilinan v. Ramos
o 30 day period does not apply to a contract found to be an absolute sale.
o It is a requisite to the exercise of the right to redempton policy of law is
not to leave title in uncertainty beyond such 30 day period.
n Rationale for 30 day period
o Seller may have considered the sale to be an equitable mortgage.
o Allowing the expiration of the redemption period is consistent with his
claim that the sale was an equitable mortgage.
o Thus, upon finding of the court that it was indeed a pacto de retro, then
the seller mut be granted a final 30-day period within which to decide and
if ever, exercise his right to redeem.
n However : if issue was whether the contract was an absolute sale or sale a retro
o Judgment of sale a retro does not give the seller the 30 day period.
o In such a case, seller is negligent for not exercising the right to redeem.
Feigning Equitable Mortgage Situation to Avail of Article 1606

n What if seller feigns defense of equitable mortgage in order to get the 30 day
period?
n Adorable v. Inacala
o Where evidence established no honest doubt as to parties intentions to
make it a sale pacto de retro, seller would not be entitled to art. 1606s
benefits.
n Vda. De Macoy v. CA & Felicen v. Orias
o There must be honest belief on part of vendor that the agreement was in
reality a mortgage, merely to give security for an obligation.
n Abilla v. Gobonseng
o When sale is judicially declared pacto de retro, and after vendors take the
position that it was an equitable mortgage, having no honest belief to
that effect vendors may not avail of the additional 30 day period.
If they truly believed that the sale was an equitable
mortgage, they should have consigned with the trial court the
amount representing the alleged loan.
n However, this was reversed Article 1606 only applies when the nature of the
transaction was put in issue before the court.
o It applies in a situation where one party claimes that it was a pacto de
retro, and the other claimed that it was an equitable mortgage, and the
courts decided that it was a pactto de retro sale.
o However, applicability still rests on the bona fire intent of the seller a
retro, if he truly beleieved that the transaction was an equitable
mortgage.
o It doesnt matter what the buyer intended the transaction to be.
Fruits
Art. 1617.
If at the time of the execution of the sale there should be on the land,
visible or growing fruits, there shall be no reimbursement for or prorating
of those existing at the time of redemption, if no indemnity was paid by
the purchaser when the sale was executed.
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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.
n
Almeda v. Daluro Art. 1617 applies only when parties have not provided for
their sharing arrangement with respect to the fruits.
Equitable Mortgage
Art. 1602.
The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually
inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period
is executed;
(4) When the purchaser retains for himself a part of the purchase price;
a. Definition of Equitable Mortgage

n Matanguihan v. CA one which although lacking in some formality, or form or
words, or other requisites demanded by a statute, nevertheless reveals the
intention of the parties to charge real proerty as security for a debt, and
contains nothing impossible or contrary to law.
n Also enumerated essential requisites
o Parties entered into a contract denominated as a contract of sale; and
o The intention was to secure an existing debt by way of a mortgage
n San Pedro v. Lee when the two above conditions are not proven, the
existence of any circumstance enumerated in Art. 1602 cannot be the basis to
treat the transaction as an equitable mortgage.
o In other words, we look at the two requisites first before going to Art.
1602.
n When in doubt, courts construe transactions as equitable mortgages lesser
21
transmission of rights.
o Lapat v. Rosario : contract should be considered as a mortgage or as a
loan instead of pacto de retro when its terms are ambiguous or the
circumstances are inconsistent with a sale.
n Molina v. CA intention of parties is showed by all surrounding circumstances,
not by the terminology used in the contract.
Pactum Commissorium
Art. 2088.
(5) When the vendor binds himself to pay the taxes on the thing sold;
The creditor cannot appropriate the things given by way of pledge or

mortgage, or dispose of them. Any stipulation to the contrary is null and
void. (1859a)
(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.


21
Art. 1603. In case of doubt, a contract purporting to be a sale with

right to repurchase shall be construed as an equitable mortgage. (n)

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Vda. de Zulueta v. Octaviano

o Stipulation : upon redemption by buyer from third party, that instrument
would be considered a deed of absolute sale from seller to buyer.
o Another instrument was executed entitled option to repurchase.
o This was not a sale a retro option to repurchase was in a separate
document.
o Neither was it an equitable mortgage not meant to secure a loan, no
application of Art. 1602.
o SC : It was not a pactum commissorium either
Seller was not a debtor
Nothing was offered as security.
o Public Policy on pactum commissorium applies only when the transaction
is a mortgage or other security contract no application to a true sale or
transfer transaction.
Guerrero v. Ynigo mortgage with conditional sale
o Mortgagor reserved for himself the right to redeem property by paying
backthe amount loaned.
o On failure of mortgagor to exercise such right, title would pass and be
vested in the mortgagee.
o SC: Such stipulation cannot be construed as giving mortgagee right to
own the property upon failure of the mortgagor to pay this is void for
being pactum commissorium.
Montevirgin v. CA
o Equitable mortgage guised as a sale a retro cannot be enforced as a sale
o When a purported sale a retro is found to be an equitable mortgage, the
proper remedy in case the borrower does not pay the price is to
foreclose on the mortgage.
There can be no loss of the sellers right to redeem for that
would be pactum commissorium.
Return of redemption price would be equa; to paying the
principal loan extinguishing the equitable mortgage
Solid Homes v. CA
o Parties entered into a Dacion en Pago with Right to Repurchase
If borrower failed to comply with new terms of payment,
agreement would cause the obligation for the borrower to
transfer and assign the real property to the lender in full

payment
Such was not pactum commissorium
Rationale Behind Provisions on Equitable Mortgages

n Designed to fight circumvention of usury laws and the policy against pactum
commissorium
n They envision contracts of sale w/ right to repurchase where the real intention
of the parties is that the repurchase price is money loaned, and the pacto de
retro sale is a means of securing the loan.
When Presumed Equitable Mortgage
n See Art. 1602 above.
n Existence of any one of these conditions suffices to give rise to the
nonconclusive presumption that the contract is an equitable mortgage.
n Lim v. Calaguas in order for presumption to apply, the parties must have
intended the contract to be a mortgage and not a pacto de retro .
n Lim enumerates the following circumstances to treat the contract as an
equitable mortgage.
o Terms used in power-of-attorney indicate that conveyance was intended
to be a loan secured by a mortgage
o Price paid in relation to value of property is grossly inadequate
Mere allegation of insufficency of selling price does not
create the presumption if there is no proof regarding the
market values of the area and property in question
Inadequacy of price : Consideration so far short of
the real value ast to startle the mind.
Even with the assertion that the price in a pacto de
retro is not the assessed price, does not justify the
conclusion that the contract is one of equitable
mortgage.
o Practice in pacto de retro sale is to fix a
relatively reduced price.

o Seller at time of alleged sale was in urgent need of money
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Supposed seller invested money he obtained in making improvements on

the property sold
o Seller remained in possession
Although the seller only remained in possession for a year,
such stipulation did not detract from the fact that possession
(an indicium of ownership) was retained by the vendor, and
that the vendor retained part of the purchase price.
This pointed to an equitable mortgage.
Continued possession where sellers promised to vacate, but
did not tolerated possession is not enough to prove
equitable mortgage.
o Seller paid land tax
o Buyer accepted partial payments, such acceptance being incompatible
with idea of irrevocability of the title of ownership of the purchaser at the
expiration of the term stipulated in the original contract for the exercise
of the right to redemption
o Seller remained bound for the repayment of the money
o Transaction had origin in a borrowing of money.
When true intention was not to convey ownership, but to
secure housing loan of buyer in which seller had a direct
interest since proceeds were to be applied to their
outstanding mortgage obligations. Equitable Mortgage
Alleged loan disbursed on installments no proof as to
inadequacy of price continued receipt of rentals by seller
was found to be a gesture of generosity : considered sale on
installments
o There was a previous debt between the parties that was not extinguished
by the sale but remained subsisting.
Delay in transferring title does not give rise to presumption.
o
Applicability to Deeds of Absolute Sale
Art. 1604.
The provisions of Article 1602 shall also apply to a contract purporting to
be an absolute sale. (n)
Two requisites for this provision to apply

o Parties entered into contract denominated as a contract of sale.
o Intention was to secure an existing debt by way of mortgage.
Proof by Parole Evidence; Best Evidence Rule

n Parole evidence is admissible to support claims that the documents were really
given as security for payment of a loan provided that nature of agreement is
placed in issue.
n Matanguihan v. CA
o Parol evidence is competent to prove that the instrument in question was
given merely as a security.
o Upon proof of the truth of such allegations, court will enforce the
agreement as they truly intended.
n Austria v. Gonzales non-application of best evidence rule to equitable
mortgage situations
o Decisive factor in evaluating intent in such agreements is not always the
document itself
o But all the surrounding circumstances
o Thus parole evidence is acceptable.
Effects When Sale Adjudged to Be an Equitable Mortgage
Art. 1605.
In the cases referred to in Articles 1602 and 1604, the apparent vendor
may ask for the reformation of the instrument. (n)
n
When a contract is construed to be an equitable mortgage, the following may

result
o Any money, fruit or benefit to be received by the buyer as rent shall be
considered as interest subject to usury laws;
o The apparent Seller may ask for reformation of the instrument;
o Court may decree that buyer-debtor must pay his outstanding loan to
Seller-creditor
o Where trial court did not pass upon the mortgagors claim that he paid
the mortgage obligation, a remand of the case to trial court is in order
To determine whether the mortgage had been settled
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And if not, how much mortgagor should pay to settle the

same.
Tolentino v. CA
o Although 1605 allows for reformation, nothing precludes pursuit of other
remedies to protect his interest.
Declaration of nullity for the deed of sale
Specific performance
However, nullification proposed by Tolentino would be unfair it would leave
buyer without the necessary security contract, which remains valid
o Reformation should be the proper remedy to enforce true intention
In the event property had been sold to a third party, nullification of that sale
and reconveyance should be allowed provided security arrangement over the
property is preserved
Balatero v. IAC
o If a sale a retro is construed to be an equitable mortgage, execution of an
affidavit of consolidation is of no consequence, and constructive
possession would not ripen to ownership
o It was not in concept of an owner.
Briones-Vasquez v. CA
o consolidation of ownership in person of the mortgagee would amount to
pactum commissorium
Expiration of period of redemption in an equitable mortgage does not
prevent the purported seller from extinguishing the main contract of loan, and
thus also the equitable mortgage contract
o As long as foreclosure has not been done.

Rationale for Legal Redemption

n Reasons of public policy
n Benefit and convenience of redemptioner, to afford him a way out of what
might be an inconvenient association
n Intended to minimize co-ownership
o Law grants a co-owner the exercise of said right of redemption when
shares of other owners are sold to a third person
n Avila v. Barabat
o Once property is subdivided and distributed among the co-owners, no
more reason to sustain any right of legal redemption.
Salient Distinctions between Conventional and Legal Right of Redemption
n Conventional = right a retro
Conventional
Legal
Can only be constituted by express
Does not have to be expressly
reservation in a contract of sale at
reserved, covers other onerous
time of perfection
transfers of title
In favor of the seller
Given to a third-party to the sale.
Exercise extinguishes the underlying
Constitutes a new sale in substitution
contract of sale, as though there was
of the original sale
never any contract at all

Legal Redemption Under Civil Code

Among Co-Heirs
Legal Redemption
Art. 1088.
Definition
Art. 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. (1521a)
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. (1067a)
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n
n
No right of legal redemption available to co-heirs when sale covers a particular

property of the estate
Heirs who participated in the sale to a third person of their shares are bound
co-heirs who did not participate have the right to redeem under this article.
When sale of hereditary right itself, Art. 1088.

Among Co-Owners
Art. 1620.
A co-owner of a thing may exercise the right of redemption in case the
shares of all the other co-owners or of any of them, are sold to a third
person. If the price of the alienation is grossly excessive, the redemptioner
shall pay only a reasonable one.
n
n
n
Right of redemption may be exercised by a co-owner only when part of the

community property is sold to a stranger.
o When sold to another co-owner, there is no new participant.
Should two or more co-owners desire to exercise the right of redemption, they
may do so only in proportion to the share they have in the co-owned thing.
Right of redemption of co-owners excludes adjoining owners.
Effect of de Facto Partition Among Co-Heirs and Co-Owners

n Vda de Ape v. CA when heir-co-owners partitioned property and treated
definite portions as their own, co-ownership has ceased and sale by one of the
heirs of his definite portion cannot trigger right of redemption
n Co-ownership must exist at the time of the conveyance.

Distinguishing Between the Rights of Redemption of Co-Heirs and Co-Owners
n Art. 1620 includes doctrine that a redemption by a co-owner of the property
owned in common, even when his own fund is used, within period, inures to
benefit of all other co-owners.
n Art. 1088 heir may redeem for himself the heredity rights sold by a co-heir.
n Mariano v. CA co-heir exercised elgal redemptiion over parcel of land
belonging to estate of decedent -- which redemption clause to apply?
o Distinction between 1088 and 1620
o When sake of particular property or interest in property, Art. 1620
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Among Adjoining Owners of Urban Land

Among Adjoining Owners of Rural Lands
Art. 1621.
Art. 1622.
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.
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.
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. (1523a)
n
Both the land sought to be redeemed and the property belonging to the
redemptioner must be rural lands.
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
pre-emption or redemption, the owner whose intended use of the land in
question appears best justified shall be preferred. (n)
n
n
n
n
Ortega v. Orcine purpose of this provision

o Discourage speculation in real estate and the aggravantion of the housing
problems
o Urban refers to the character of the community/vicinity in which it is
found.
Redemption of Urban land only applies when there is resale
o No right of redemption when urban land is exchanged.
Legaspi v. CA practically did away with requirement of having puchased land
previously for speculation
Sen Po Ek Marketing v. Martinez
o 1262 only deals with small urban lands bought for speculation
o Right does not apply to a lessee trying to buy the land he is leasing.

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Sale of Credit in Litigation
Art. 1634.
When a credit or other incorporeal right in litigation is sold, the debtor
shall have a right to extinguish it by reimbursing the assignee for the price
the latter paid therefor, the judicial costs incurred by him, and the interest
on the price from the day on which the same was paid.
A credit or other incorporeal right shall be considered in litigation from the
time the complaint concerning the same is answered.
n
n
The debtor may exercise his right within thirty days from the date the
assignee demands payment from him.
When Legal Redemption Period Begins to Run
Art. 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.
n
n
n
Cabrera v. Villanueva
o Court accepted affidavit saying that seller gave written notice to co-
owners as proof of compliance with 1623.
Primary Structures Corp v. Valencia
o Affirmed need for strict compliance with 1623.
o Existence of a clause in deed of sale saying that seller had complied is not
the written affirmation under ouath that the required notice has been
met thus it was not deemed to be in compliance with 1623.
CLV : Primary Structures is the better rule why?
Butte v. Manuel Uy and Sons Inc.
Notice must be given by the seller

Notice given by the buyer, even if written, does not start the 30 day
period.
Castillo v. Samonte
o Letter and spirit of law argue against a wider scope of the notice specified
in Art. 1088.
o Written notice is essential to start the running of the 30 day period.
Conejero v. CA
o Any compliance with written notice suffices no specific mode
Garcia v. Calaliman
o Applied Samonte doctrine to 1623.
o Written notice is indispensable in order to remove all uncertainty as to
the sale.
o Method of notification is exclusive must be in writing but no specific
form.
Vda de Ape v. CA
o Annotation of adverse claim on title does not comply with art 1623.
o
o
1) Notice Must Cover Perfected Sale

n Spouses Doromal v. CA
o 30 day period does not run when transaction covered in notice was not a
perfected contract of sale
o Notice must be with execution and delivery of the deed of sale.
o Period should not be deemed to have commenced unless notice is made
after execution of formal deed of disposal.
n This doctrine cannot be applied to legal pre-emption.
2) Summation on Strict Rules on Notice
n Hermoso v. CA
o Notice in writing is needed in 3 other species of legal redemption
Case where share of co-owners are sold to a third person
Redemption of adjoining rural land
Redemption of adjoining urban land
o Interpretation in these cases tilts in favor of the redemptioner
o Written notice required was enacted to remove all doubts about the
alienation.
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Francisco v. Boiser Requirements under Art 1623

o Notice must be given by seller in order for 30 day redemption period to
run.
o No particular form is prescribed.
o Filing of suit for ejectment or collection of rentals dispenses with need for
written notice filing of the suit amounts to actual knowledfge of the
sale.
Fernandez v. Tarun
o Other co-owner signs deed of partition embodying disposition of property
proper notice.
3) Exceptions to Written Notice Requirement

n Alonzo v. IAC exception to 1088
o Situation where co-heirs lived with purchaser in the same lot
Action was brought only after 13 years of knowing about the
same
o Deemed to have received actual notice of the same. (even if no written
notice)
o Laches seems to be the main principal.
n Pilapil v. CA
o Requirement of written notice was rendered inutile when no co-owners
questioned the sale, even when buyers immediately took possession.
n Distrito v. CA Exception to the Alonzo Exception
o When co-owner himself is middleman to effect sale to third party, notice
is no longer necessary
o He already has actual knowledge of the sale
o 30 day period begins from such knowledge
n Verdad v. CA Alonzo and Distrito are special exceptions
o Co-owner learned of the sale through city treasurer
o Her exercise of right of redemption was timely : no written notice of sale
was ever given to her, thus the 30 day period had not yet run.

Other Instances where Right of Legal Redemption is Granted

a. Redemption of Homesteads
Sec. 119 Public Land Act

Every conveyance of land acquired under the free patent or homestead
provisions, when proper, shall be subject to repurchase by the applicant,
his widow, or legal heirs, within a period of five years from the date of the
conveyance.
n
n
n
n
Sale within 5 years void even when in favor of homesteaders own child.
Right to repurchase under homestead patent granted by law
o Need not be provided for in deed of sale.
o Cannot be waived.
Where homestead was sold at extrajudicial foreclosure, 5 year period begins to
run after expiration of one year period of repurchase allowed in extrajudicial
foreclosure.
All other cases from date of sale, not from date of registration.
Sec 119 of Public Land act should be read with 1616 of NCC there should be a
return of the price/tender of payment.
o Mere notice of intnent to redeem is insufficient.
b. Redemption in Tax Sales
SEC. 214 NIRC -- Redemption of Property Sold.

Within one (1) year from the date of sale, the delinquent taxpayer, or any
one for him, shall have the right of paying to the Revenue District Officer
the amount of the public taxes, penalties, and interest thereon from the
date of delinquency to the date of sale, together with interest on said
purchase price The owner shall not, however, be deprived of the
possession of the said property and shall be entitled to the rents and other
income thereof until the expiration of the time allowed for its redemption.
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c. Redemption by Judgment Debtor

d. Redemption in Extrajudicial Foreclosure
e. Redemption in Judicial Foreclosure
f. Foreclosures by Banking Institutions

g. Period of Redemption when rural bank forecloses
h: legal right to redeem under Agrarian Reform Code

Chapter 14 Assignment
Nature of Assignment in the Scheme of Things
What Makes Assignment Different?
Art. 1624.
An assignment of creditors and other incorporeal rights shall be perfected

in accordance with the provisions of Article 1475. (n)
n
n
n
Assignment : the sale of credits and other incorporeal rights.

Though intangible things may be the object of sale as defined in Art. 1458, the
more proper term is assignment.
Assignment, more or less, is the same as sale why then do we have a separate
chapter in our Civil Code?
o Even though theyre not technically the same, they come from the same
genus sale
Whats the point? characteristics of the genus sale must necessarily pertain
to assignment
o All jurisprudential doctrines pertaining to sale pertain to assignment, with
some modifications.
Assignment shares characteristics of sale
o Nominate
o Consensual
Reciprocal
Onerous
However Nyco v. BA Finance Assignments may be done
gratuitously or onerously
o Commutative
Some definitions of Assignment
o Prior to New Civil Code, assignment was not limited to the genus of sale
it could be dation, or donation, etc.
o However, with the provisions of the NCC, there should be little doubt
assignment should only cover sales of credits (however : see Nyco)
o Except in case of donation, the transaction of assignment is still covered
by the law on sales.
Assignment by dation
Assignment by barter
Assignment of credit as guaranty (mortgage contract)
o
o
PNB v. CA characterized assignment

o Transfer or making over to another of the whole of any proeprty, real or
personal, in possession or in action, or of any estate or right therein.
o Includes transfers of all kindspeculiarly applicable to intangible personal
property
o Ordinarily employed to describe the trasnfer of non-negotiable choses in
action and rights connected with property distinguished from the actual
item
PNB v. CA implies that assignment may also refer to tangible property
o CLV: Properly speaking, such is a sale, not an assignment.
Validity and Binding Effect

n Subject matter of assignment : intangible property
o Main difference of assignment from sale
n Consensual contract perfected the same as sale.
o Confirmed by Art. 1624. in accordance with Art. 1475.
o Assignment does not cover donation involving intangibles
Donations = formal contracts
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Any ambiguity in the meaning of an assignment shall be resolved against the

party who prepared the deed of assignment.
Binding Effect as to Third Parties

n Binding effect as to third persons not present unless it appears in a public
document, or in the Registry of Property if real rights are assigned.
n Remember, assignment deals with Intangible property : the only evidence as to
the transfer is the public instrument
n Without the public instrument, assignment is valid
o But enforceable only between assignor and assignee, and their successors
in interest
n When assignment is still executory (not evidenced in writing) it is covered by
the Statute of Frauds.
n Exception : When assignment involves document of title
o Assignment does not bind the bailee unless specific notice of the transfer
of the covering document of title is given by transferor/transferee to the
bailee
Effect of Assignment of Credit on Debtor
n C&C Commercial v. PNB
o Meeting of the minds : between assignor and assignee
o Debtors consent not necessary
o It is sufficient that the assignment be brought to the debtors knowledge
in order to be binding
n Debtors consent not needed for assignment to produce legal effects
o Duty to pay assignee does not depend on debtors consent
o Otherwise, creditors would have a hard time assigning credit.
o Purpose of notice : only to inform debtor that he should pay someone
else, not the original creditor.
n This change is a novation however, liability is not extinguished.
n Even though knowledge/consent of debtor is not required for validity of the
assignment, lack of such has effects
When a credt is assigned, if the debtor pays his creditor because he didnt
know of the assignment, his payment shall release him from further
22
obligations (Art 1626, CC)
rd
Art. 1285 assignment of rights made by creditor to 3 person without
knowledge of debtor
Debtor may set up against the assignee the compensation
pertaining to him against the assignor
All credits prior to the assignment
All later ones until he had knowledge of the
assignment.
If debtor consented to such assignment : he cannot set up
such compensation unless debtor reserved the right
If he had knowledge, but no consent : he may set up
compensation of previous debts, but not subsequent ones
Transfer of Ownership
n Project Builders v. CA assignment of credit : transferring right to an assignee
who could proceed against principal debtor
o Transfer takes place on perfection of contract
n CLV Disagrees : Assignment is also not a mode, but only a title.
o Thus the transfer does not take place on perfection.
o It should be effected the same way as sale constructive delivery, like
executing a public instrument.
o Effects of tradition of sale in general should also apply
Except that doctrines on actual/physical delivery have no
application
n Art 1508 of Civil Code supports this placing of titles of incorporeal rights in
possession of vendee is equal to delivery

22
Art. 1626. The debtor who, before having knowledge of the

assignment, pays his creditor shall be released from the obligation.
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However, without registration/execution in a public instrument, such

delivery would not bind third parties.
Leonido v. Capitol Dev Corp notarization of the assignment of credit
converted into a public document
o

n
n
a. Accessories and Accessions

n Assignment of credit includes all accessory rights (Art. 1627)
o Guaranty
o Mortgage
o Pledge
o Preference
n
b. Warranties
Art. 1628.
The vendor in good faith shall be responsible for the existence and legality
of the credit at the time of the sale, unless it should have been sold as
doubtful; but not for the solvency of the debtor, unless it has been so
expressly stipulated or unless the insolvency was prior to the sale and of
common knowledge.
Even in these cases he shall only be liable for the price received and for
the expenses specified in No. 1 of Article 1616.
The vendor in bad faith shall always be answerable for the payment of all
expenses, and for damages. (1529)
n
n
Art. 1629.
In case the assignor in good faith should have made himself responsible
for the solvency of the debtor, and the contracting parties should not have
agreed upon the duration of the liability, it shall last for one year only,
from the time of the assignment if the period had already expired.
If the credit should be payable within a term or period which has not yet
expired, the liability shall cease one year after the maturity. (1530a)
Warranty against hidden defects does not apply to an intangible no physical

existence
Assignor responsible for existence and legality of credit, at the time of sale.
o Unless it was really sold as a doubtful account
Assignor does not warrant the solvency of the debtor, unless
o There is a stipulation to that effect; or
o Insolvency of the debtor was prior to the assignment and of common
knowledge
Even when there is a warranty as to the debtors solvency, it doesnt last
forever
o 1 year from the assignment, if credit was already due
o Otherwise, 1 year from the maturity of the credit
If assignor in good faith is liable for a warranty
o Only expenses of the contract
o Other legitimate payments made by reason of assignment
If assignor was in bad faith, and he breached warranties
o Additional liability for necessary and useful expenses
Lo v. KJS
o When dacion takes the form of an assignment of credit (which is in the
nature of a sale) it extinguishes the obligation
o However, assignor/seller still warrants the existence and legality of the
credit.
Other specific warranties
o Arts. 1631-1633.
111

Assignment of Credit in Litigation
Art. 1634.
When a credit or other incorporeal right in litigation is sold, the debtor
shall have a right to extinguish it by reimbursing the assignee for the price
the latter paid therefor, the judicial costs incurred by him, and the interest
on the price from the day on which the same was paid.
by subrogation (new one is valid)

Agreement required between original
parties and new creditor

n
The debtor may exercise his right within thirty days from the date the
assignee demands payment from him. (1535)
Reason for the rule on assignments in litis pendencia

o Such are deemed speculative
o Law would rather benefit the debtor, than the one who merely speculates
for profit
o If assignor is willing to dispose of the credit at a low price, debtor should
benefit
Right to redeem on debtors part shall not exist when the law considers the
assignment as not for speculation. E.g.,
o Assignment of credit to the co-heir or co-owner of such credit/right
o Assignment to a creditor in payment for his own credit; and
o Assignment to the possessor of a tenement/piece of land which is subject
to the right in litigation that was assigned
In the foregoing cases, assignee has a legitimate purpose for taking the
assignment not merely speculation
Differentiating from Subrogation

n Licaros v. Gatmaitan Differences between assignment and subrogation
Subrogation
Extinguishes original obligation, gives
rise to a new one
Nullity of an old obligation may be cured
Assignment
Same right passed from one person to
another
Nullity of obligation not remedied
through assignment
Consent of debtor not required to
produce legal effects
Extinguishment of old obligation is an effect of conventional subrogation, not a

requirement.
Assignment of Copyright
A credit or other incorporeal right shall be considered in litigation from the

time the complaint concerning the same is answered.
CROMBONDS 2012-2013
n
n
Owner of copyright may assign it in whole or in part

o Assignee entitled to all rights and remedies which assignor had with
respect to copyright
Not deemed assigned inter vivos unless there is written indication of such
intention
Submission of a work to a newspaper or magazine for publication shall
constitute an assignment
o But only for one publication
o Unless a greater right is granted
Two or more persons jointly own a copyright
o Consent of other owners is needed for an owner to grant licenses
Copyright is distinct from property subject to it
o Transfer of copy right is not transfer of material object
o In the same way, transfer of the work does not imply assignment of the
copyright.
Assignment as Equitable Mortgage

n
n
n
Assignment of intangibles may be used to secure loans

Principles pertaining to Equitable Mortgage will apply
DBP v. CA
o Assignment to secure payment of promissory notes
o Such is equivalent to an equitable mortgage
o Thus, nonpayment of loan cannot authorize assignee to register the
assigned rights in his name Pactum Commissorium

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CROMBONDS 2012-2013
Chapter 15 Bulk Sales Law

n
n
n
Intended as a species of bankruptcy law to protect supply

creditors/businessmen against preferential/fraudulent transfers done by
merchants
Intended to prevent a situation where merchants would sell their businesses
then vanish, leaving their creditors without recourse against the buyers in
good faith and for value.
Law covers all transactions, good faith or not, that are within the description of
a bulk sale
Primary Objective compel seller in bulk to
o execute and deliver a verified list of creditors to the buyer
o give notice of the intended sale to the creditors
o Use the proceeds to pay outstanding liabilities
Transactions covered by the law

Sec. 2. Sale and transfer in bulk. Any sale, transfer, mortgage or
assignment of a stock of goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course of trade and the regular
prosecution of the business of the vendor, mortgagor, transferor, or
assignor, or sale, transfer, mortgage or assignment of all, or substantially
all, of the business or trade theretofore conducted by the vendor,
mortgagor, transferor, or assignor, or of all, or substantially all, of the
fixtures and equipment used in and about the business of the vendor,
mortgagor, transferor, or assignor, shall be deemed to be a sale and
transfer in bulk, in contemplation of this Act: Provided, however, That if
such vendor, mortgagor, transferor or assignor, produces and delivers a
written waiver of the provisions of this Act from his creditors as shown by
verified statements, then, and in that case, the provisions of this section
shall not apply.
n
Three Types of Transaction

o Extraordinary sale of goods
o Extraordinary sale of fixtures and equipment
o Sale of Business Enterprise
Motive/intention/consequence of sale is not an element
As long as the transaction is within the description, no matter what its

being done for, it is covered by the Bulk Sales Law.
Qualification of in the normal course of business applies only to the first type
o Second two types are by nature not in the normal course of business
Bulk sales are of a nature that they do not fall within the normal course, which
thus should warn parties to such transactions
o
n
n
Bulk Sales not Covered by Law

n Some exceptions : even if transaction comes within Sec. 2, Bulk Sales Law does
not apply to these cases
o Seller produces and delivers a written waiver of the provisions of the Law
from his creditors as shown by verified statements; and
o Transactions effected by executors, administrators, receivers, assignees in
insolvency, or public officers, acting under legal process.
Business Covered by the Law
n People v. Wong
o Bulk sales law should be construed strictly against the State and in favor
of the accused
o In this case, accused was held liable for selling his foundry shop, along
with all other assets
o SC : Bulk Sales Law contemplates sale of merchandise, stock, and goods
not the sale of the whole shop with the equipment, credits, etc.
o Foundry shop which does not sell merchandise is not uncluded.
n Meaning of merchandise and Stock
o Merchandise : something sold everyday, going in and out of the store,
replaced by other goods things usually bought and sold in trade by
merchants
o Stock : those goods kept for sale.
n DBP v. RTC reiterated the Wong ruling re : applicability to bulk sales not
involving merchandise and stock.
n Thus enumeration in the first type of bulk sales : only covers those sold in the
normal course of business.
o Wong : sale of fixtures and equipment excludes materials used in the
process of production.
n However, Wong and DPB rulings seem only to interpret the first type
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CROMBONDS 2012-2013
o
o
When it comes to the other two types, law does not limit the coverage to
a particular type of business.
We do not consider the Wong and DBP rulings when it comes to the other
two types of Bulk sales
Obligations of Seller/Encumbrancer When

Transaction is a Bulk Sale
n
See Sections 3-7 of the Bulk Sales Law.
Consequences of Violation of the Law

n
n
n
Sec 11 : Imprisonment of not less that 6 months, not more than 5 years, w/ fine
not exceeding P5,000.
We evaluate the effects of breaking the law from 3 different standpoints : on
the transaction itself, on the seller, on the buyer.
On the Transaction itself
o If sworn listing of creditors is not prepared, or if the proceeds are not
applied to them, the sale shall be fraudulent and void.
o This is not merely a presumption : it is in fact treated as void
o No legal effects arise from the transaction
No right of action accrues
o Thus, the subject matter is still owned by the assignor, and still subject to
the satisfaction of his liabilities
o People v. Mapoy
Sale is void, but the relationship between seller and creditor
is unchanged.
Proper remedy of creditor is to collect on the credit against
the defendant, and if he cannot pay, to attach on the
property fraudulently sold/mortgaged
o Failure to make an advanced written disclosure to creditors does not
render the sale fraudulent and void
o Legal consequences of a sale in Bulk for Nominal Value
Law declares it unlawful, but not fraudulent and void
However, if there was no other valuable consideration, we
have to declare it void for lack of cause/consideration
On Seller/Mortgagor/Assignor
o Violation of his obligations to prepare a list of creditors and apply the
proceeds of the sale to these creditors subjects him to criminal liability.
o Sworn statement should be registered with DTI
Noncompliance with this does not affect validity nor does it
subject him to criminal penalty
o If the list does not include all names of creditors, or with wrong amounts,
it subjects him to criminal liability
o Failure to deliver advance notice does not subject him to criminal liability.
o To sell the stocks/goods/merchandise for no consideration, or for
nominal consideration only, subject seller to criminal liability.
On Buyer/Mortgagee/Transferee
o No direct obligation
o It can be said that no criminal liability attaches to the buyers
Some argue that they are principals by indispensable
cooperation, if they were aware of the intent/conspired with
the seller
o There are still effects though recall : sale may be rendered fraudulent
and void
Thus, he would find himself not entitled to the things he paid
for.
He may also be sued for recovery of what he has obtained.
He may also be liablie for damages for having helped defraud
creditors.
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CROMBONDS 2012-2013
115

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SALES

ATTY. RAY PAOLO SANTIAGO

Chapter 1: The Nature of Sale

Necessarily would require a segregation/designation at some point,

Elements of Contract of Sale

A contract of sale may be absolute or conditional. (1445a)

Nature of Obligations Created in a Sale

Contract whereby one of the contracting parties (seller) obligates himself to

Subject Matter of Sale

Determinable is included in determinate when describing the subject

Sharing is a good thing!

(2) Those which are absolutely simulated or fictitious;

Ad Majorem Dei Gloriam

SALES MIDTERMS REVIEWER

ATTY. RAY PAOLO SANTIAGO

Stages in the Life of Sale

Strictly speaking, only two

Essential Characteristics of Sale

Nominate : it has been given a name by law

Sharing is a good thing!

Sale is perfected by mere consent

Ad Majorem Dei Gloriam

SALES MIDTERMS REVIEWER

ATTY. RAY PAOLO SANTIAGO

Consensual characteristic may be affected by certain modalities added by

Bilateral : it imposes obligations on both parties

Obligation/promise of each party is the cause for the obligation of the

Each party is simultaneously a debtor and creditor of the other

The performance of one is conditioned upon the simultaneous

Legal Effects of Sale being bilateral/reciprocal

Onerous : It imposes a valuable consideration.

It is a requisite for a valid and enforceable sale that it is mutually

Bilateral and Reciprocal

Commutative : a thing of value is exchanged for equal value

Perfection of sale gives rise to obligations and rights

6 Arts. 1168 and 1191.

Sharing is a good thing!

Ad Majorem Dei Gloriam

SALES MIDTERMS REVIEWER

ATTY. RAY PAOLO SANTIAGO

Obligation of seller to deliver possession and ownership, right of buyer

Sale Distinguinshed from Other Similar Contracts

Underlying principle : intent of parties and elements of relationship are more

o Also requires formalities mandated by law in order to be valid

Donation : act of liberality whereby a person disposes gratuitously of a thing or

Art. 725, NCC

Sharing is a good thing!

Art 1471, NCC

Ad Majorem Dei Gloriam

SALES MIDTERMS REVIEWER

ATTY. RAY PAOLO SANTIAGO

Manifest Intention of the Parties

From Contract for a Piece-of-Work

Contractor binds himself to execute a piece of work for the employer,

Piece of Work Contract

Sharing is a good thing!

Ad Majorem Dei Gloriam

SALES MIDTERMS REVIEWER

ATTY. RAY PAOLO SANTIAGO

That they made products only upon order did not

Sharing is a good thing!

Could be subject of action for specific performance

Agency : a person binds himself to render some service or to do something in