Sales

SALES
NATURE OF CONTRACT
Definition: By the contract of sale, one of the contracting parties obligates himself to transfer
the ownership of and to deliver a determinate thing, and the other to pay therefor for a price
certain money or its equivalent (Art. 1458, NCC).
Note: The contract of sale is not a mode for acquisition or transmission of ownership; it only
creates title (San Lorenzo Development Corp. v. CA, G.R. No. 124242, Jan. 21, 2005; Equatorial
Realty Development, Inc. v. Mayfair Theater, Inc., 370 SCRA 56; Norkis Distributors, Inc. v. CA,
193 SCRA 694;Aznar v. Yapdiangco, 13 SCRA 486).
Elements of Contract of Sale:
1. Essential elements - The essential elements of a contract of sale are consent, object, and
price in money or its equivalent. The absence of any of these essential elements negates the
existence of a perfected contract of sale (Dizon v. CA, 302 SCRA 288, 302).
Note: It is not enough for the parties to agree on the price of the property, but they must
also agree on the manner of payment of the price of the property to give rise to a binding
and enforceable contract of sale or contract to sell. This is because the agreement as to the
manner of payment goes into the price, such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price. (Boston Bank of the Phil. v. CA,
482 SCRA 108)
2. Natural Elements - These are the elements that exist naturally or inherently in a contract
of sale, unless the parties provide to the contrary. These are the implied warranties against
eviction and hidden defects (Art. 1547, NCC).
1.
Characteristics of Contract of Sale:

Nominate
2. Principal
3. Bilateral - and it creates reciprocal obligations --- the seller obligates itself to transfer the
ownership of and deliver a determinate thing, and the buyer obligates itself to pay therefor a
price certain in money or its equivalent. Reciprocal obligations are those which arise from
the same cause and in which each party is a debtor and a creditor of each other, such that
the obligation of one is dependent upon the obligation of the other. (Carrascoso, Jr. v. CA,
477 SCRA 666)
4. Consensual - It is perfected by mere consent of the parties. The essence of consent is the
agreement of the parties on the terms of the contract, the acceptance by one of the offer
made by the other (Vda. De Ape v. CA, 456 SCRA 193; Torcuator v. Bernabe, 459 SCRA 439).
5. Onerous and Commutative - A contract of sale is normally commutative and onerous: not
only does each one of the parties assume a correlative obligation (the seller to deliver and
transfer ownership of the thing sold and the buyer to pay the price), but each party
anticipates performance by the other from the very start (Gaite v. Fonacier, 2 SCRA 830,
837).
BUT: In a sale the obligation of one party can be lawfully subordinated to an uncertain
event, so that the other understands that he assumes the risk of receiving nothing for what
he gives [as in the case of a sale of hopes or expectations, emptio spei] (see Gaite v. Fonacier,
supra.), which makes the contract ALEATORY and not commutative (see Art. 2010, NCC).
---------------------------------------------------------------------------Handouts on the Law on Sales
Prepared by Atty. Prime Ramos
Section 2B College of Accountancy and Economics
Pamantasan ng Lungsod ng Maynila
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But this exception is not the usual course of business; hence, the contingent character of
the obligation must clearly appear (Gaite v. Fonacier, supra.).
Distinguished From Other Contracts:
1. Distinguished From Barter -Barter is a contract where there is an exchange of a thing for
another thing (Art. 1638, NCC). If the consideration is partly in money and partly in another
thing, the contract is either barter or sale:
a. Depending on the manifest intention of the parties.
b. If such intention is not clear, the contract is barter if the value of the thing given as part of
consideration exceeds the amount of the money. If the amount of money exceeds the value of
the thing, the contract is sale (Art. 1468, NCC).
2. Distinguished From Contract For Piece of Work:
a.
If the contract is for the delivery at a certain price of an article which the vendor in the
ordinary course of his business manufactures or procures for the general market,
whether on hand at that time or not, the contract is one of sale.
b.
If the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, the contract is one for a piece of work (1467,
NCC). In short, if the thing will not come into existence except upon the order of a
customer, the contract is one for a piece of work.
3. Distinguished Agency To Sell:
a. In sale, the buyer, after delivery, normally becomes the owner of the subject matter. In agency
to sell, the principal retains ownership of the goods, even as it delivered possession unto the
dealer for resale to customers, the price and terms of which were subject to the principal's
control (Ker & Co., Ltd. v. Lingad, 38 SCRA 524).
b. In sale, the buyer has the obligation to pay the purchase price. In agency to sell, the agent has
no such obligation and his obligation is to deliver to the principal the price he obtains from the
sale of the thing, and if he does not succeed in selling it, he returns it (Quiroga v. Parsons, 38
Phil. 501).
c. Lastly, one factor which most clearly distinguishes agency from other legal concepts is control;
one person - the agent - agrees to act under the control or direction of another - the principal
(Victorias Milling Co. v. CA, 333 SCRA 663).
Two Kinds of Sale:
Absolute - The agreement is devoid of any condition imposed on the passing of title of the thing
to be conveyed or on the obligation of a party thereto (Romero v. CA, 250 SCRA 223).
Conditional - the agreement is subject to any condition imposed on the passing of title of the
thing to be conveyed or on the obligation of a party thereto (Romero v. CA, supra.).
Note: A contract to sell may not even be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of the sale until the fulfillment of a
suspensive condition, because in a conditional contract of sale, the first element of consent is
present, although it is conditioned upon the happening of a contingent event which may or may
not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is
completely abated. However, if the suspensive condition is fulfilled, the contract of sale is
thereby perfected, such that if there had already been previous delivery of the property subject
of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of
law without any further act having to be performed by the seller. (United Muslim and Christian
Urban Poor Association, Inc. v. Bryc-V Development Corp., G.R. No. 179653, July 31, 2009; see
also Coronel v. CA, 263 SCRA 15; Sps. Reyes v. G.R. No. 139047, September 11, 2008; Tan v.
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Benolirao, G.R. No. 153820, Oct. 16, 2009) CONTRA: One form of conditional sales is what is
now popularly termed as a Contract to Sell, where ownership or title is retained until the
fulfillment of a positive suspensive condition normally the payment of the purchase price in the
manner agreed upon (Orden v. Aurea, 562 SCRA 660).
Contract to Sell: A contract to sell is defined as a bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the property despite delivery thereof to the
prospective buyer, binds himself to sell the property exclusively to the prospective buyer upon
fulfillment of the condition agreed, that is, full payment of the purchase price (Tan v. Benolirao,
G.R. No. 153820, Oct. 16, 2009). As defined in this manner, a contract to sell as defined
hereinabove, may not even be considered as a conditional contract of sale (United Muslim and
Christian Urban Poor Association, Inc. v. Bryc-V Development Corp., G.R. No. 179653, July 31,
2009).
Importance of Distinctions Between Contract to Sell and Conditional Contract of Sale:
1. In a contract to sell, there being no previous sale of the property, a third person buying
such property despite the fulfillment of the suspensive condition such as the full payment
of the purchase price, for instance, cannot be deemed a buyer in bad faith and the
prospective buyer cannot seek the relief of reconveyance of the property. There is no double
sale in such case. Title to the property will transfer to the buyer after registration because
there is no defect in the owner-sellers title per se, but the latter, of course, may be sued for
damages by the intending buyer. (United Muslim and Christian Urban Poor Association, Inc.
v. Bryc-V Development Corp., supra.).
2. In a conditional contract of sale, however, upon the fulfillment of the suspensive condition,
the sale becomes absolute and this will definitely affect the sellers title thereto. In fact, if
there had been previous delivery of the subject property, the sellers ownership or title to
the property is automatically transferred to the buyer such that, the seller will no longer
have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such
second buyer of the property who may have had actual or constructive knowledge of such
defect in the sellers title, or at least was charged with the obligation to discover such defect,
cannot be a registrant in good faith. Such second buyer cannot defeat the first buyers title.
In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale. (Ibid.)
Contract of Sale and Contract to Sell, Distinguished:
1. In contract of sale, title passes to the buyer upon delivery of the thing sold; in a contract to
sell, the ownership is reserved in the seller and is not to pass until the full payment of the
purchase price is made.
2. In the first case, non-payment of the price is a negative resolutory condition; in the second
case, full payment is a positive suspensive condition.
3. Being contraries, their effect in law cannot be identical. In the first case, the vendor has
lost and cannot recover the ownership of the land sold until and unless the contract of sale
is itself resolved and set aside. In the second case, however, the title remains in the vendor
if the vendee does not comply with the condition precedent of making payment at the time
specified in the contract. (PNB v. CA, G.R. No. 119580, Sep. 26, 1996)
Note: In a contract to sell, the full payment of the purchase price is a positive suspensive
condition, the failure of which is not considered a breach, casual or serious, but simply an
event which prevented the obligation of the vendor to convey title from acquiring any obligatory
force (Rillo v. CA, 274 SCRA 461). In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price, ownership will not automatically
transfer to the buyer although the property may have been previously delivered to him. The
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prospective seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale. (United Muslim and Christian Urban Poor Association, Inc. v. Bryc-V Development
Corp., G.R. No. 179653, July 31, 2009)
Note: Articles 1191 of the Civil Code does not thus 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
occurred. In other words, the breach contemplated in Article 1191 is the obligor's failure to
comply with an obligation already extant, like a contract of sale, not a failure of a condition to
render binding that obligation. (Cheng v. Genato, 300 SCRA 722, Gomez v. CA, 340 SCRA 720;
Padilla v. Sps. Paredes, 328 SCRA 434, Valarao v. CA, 304 SCRA 155, Pangilinan v. CA, 279
SCRA 590).
REQUIREMENT OF FORM
Preparatory Contracts:
1. In agency to sell a parcel of land, the authority of the agent is required to be in writing;
otherwise, the sale is not valid (Art. 1874, NCC).
2. Right of first refusal involving a parcel of land - An oral RFR is valid and enforceable since
there is no sale yet (Rosencor Development Corp. v. Inquing, G.R. No. 140479, March 8, 2001).
3. Contract of option involving a parcel of land - an oral option contract involving a parcel of
land is both valid and enforceable, since there is no sale yet.
Contract of Sale Itself:

1. Form for Validity: The sale of large cattle must be in a public document, recorded with
the municipal treasurer and a certificate of registration be issued; otherwise, sale is void
(Act No. 4117; Sec. 529, Revised Administrative Code).
2. Form for Enforceability:
a. Sale of real property or any interest therein must be in writing to be enforceable under
the Statute of Frauds (Art. 1403[2][e], NCC).
b. Sale of goods or chattels at a price not less than P500 must be in writing, otherwise, not
enforceable under the Statute of Frauds (Art. 1403[2][d], NCC).
ESSENTIAL
ELEMENTS
SUBJECT MATTER (OBJECT OF CONTRACT)
Requisites:
1.
2.
3.
4.
delivery.
Subject matter must have possibility of existence;

Subject matter must be determinate or, at least, determinable;
Subject matter must be licit; and
Vendor must have the right to transmit ownership at the time of
As to Existence:
1. What may be sold? Either existing or future goods (Art. 1462, NCC).
a. Existing goods are those owned or possessed by the seller at the time of the perfection of the
contract of sale.
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b. There can be a sale of future goods or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale (Art. 1462, NCC).
c. However, a contract for the sale or purchase of goods/commodity to be delivered at future time,
if entered into without the intention of having any goods/commodity pass from one party to
another, but with an understanding that at the appointed time, the purchaser is merely to
receive or pay the difference between the contract and the market prices, is a transaction which
the law will not sanction, for being illegal. And the loser may recover what he has paid. (Art.
2018, NCC; Onapal Phil. Commodities, Inc. v. CA, Feb. 1, 1993)
2. Emptio rei speratae: Things having potential existence may be the object of a contract of
sale (Art. 1461, NCC). Such a sale is subject to the condition that the thing will come into
existence. If the thing does not come into existence, the contract is deemed extinguished.
3. Emptio Spei:
a. The sale of hope itself is valid. Example: sale of a sweepstakes ticket. Here, sale is effective even
if the thing does not come into existence.
b. However, the sale of a vain hope or expectancy is void (Art. 1461, NCC). Example: sale of a lotto
ticket which had already been drawn and did not win.
4. Things subject to resolutory condition May be the object of a contract of sale (Art. 1465,
NCC). Upon the happening of the condition, the contract is extinguished, requiring the
return of the price received by the seller.
Thing Must Be Determinate:
1. Meaning: A thing is determinate when it is particularly designated or physically segregated
from all others of the same class (Art. 1460, 1st par., NCC).
2. Test: 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. (Art. 1460, 2nd par., NCC; 1349, NCC)
Note: Sale involving a generic thing is allowed if at the time the contract is entered into, the
thing is capable of being made determinate and without the necessity of a new or further
agreement between the parties.
3. Sale of undivided share in mass: In 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 mass, and though the number, weight
or measure if the goods in mass is undetermined (Art. 1464, NCC). Consequences:
a.
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 goods of the same kind and quality, unless a contrary
intent appears (Art. 1464, NCC);
b.
If otherwise, there shall be co-ownership over the mass (Art.
1464, NCC).
4. Sale of undivided interest: The sole owner of a thing may sell an undivided interest
therein (Art. 1463, NCC).
Thing Must Be Licit:
1. A contract whose object is contrary to law, morals, good customs, public order or public
policy is void (Art. 1409[1], NCC).
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2. All things which are outside the commerce of men cannot be the object of a contract (Art.
1347, 1st par., NCC).
3. Impossible things cannot be the object of contracts (Art. 1348, NCC).
4. No contract may be entered into upon future inheritance except in cases expressly
authorized by law [1347, 2nd par., NCC]. Requisites of Future inheritance: (1) the
succession has not yet been opened; (2) the object of the contract forms part of the
inheritance; and (3) the promissor has, with respect to the object, an expectancy of a right
which is purely hereditary in nature (JLT Agro, Inc. v. Balansag, 453 SCRA 211).
Right to Transmit Ownership:
1. When required: Not required at the time of the perfection of the contract, but required only
at the time of delivery (Art. 1459, NCC). Hence, a perfected contract of sale cannot be
challenged on the ground of the sellers non-ownership of the thing sold at the time of the
perfection of the contract (Quijada v. CA, 299 SCRA 695).
2. Reason for rule: Sale only creates title; it is delivery which serves as the mode of
transferring ownership (San Lorenzo Development Corp. v. CA, G.R. No. 124242, Jan. 21,
2005).
3. Effect if seller is not the owner at the time of delivery: The seller is liable for damages
for breach of his obligation to transmit ownership to the buyer.
PRICE
Requisites:
1. It must be real.
2. It must be certain.
3. In certain cases, the price must not be grossly inferior to the value of the thing (V Tolentino,
1992 ed., 13).
Price Must Be Real:
1. If the price is simulated, the sale is void, but the act may be shown to have been in reality a
donation, or some other act or contract (Art. 1471, NCC). Hence, a deed of sale, in which the
stated consideration had not in fact been paid, is null and void (Rongavilla v. CA, 294 SCRA
289).
2. Failure to pay the consideration is different from lack of consideration. The former results
in a right to demand the fulfillment or cancellation of the obligation under an existing valid
contract while the latter prevents the existence of a valid contract. (Buenaventura v. CA,
416 SCRA 263)
Price Must Be Certain:
1. Test: In order that the price may be considered certain, it shall be sufficient:
a. That it be so with reference to another thing certain; or
b. That the determination thereof be left to the judgment of a specified person or persons
(Art. 1469, 1st par., ncc).
c. In connection with the price of securities, grain, liquids, and other things shall also be
considered certain, when the price fixed is that which the thing sold would have on a
definite day, or a particular exchange or market, or when an amount is fixed above or
below the price on such day, or in such exchange or market, provided said amount be
certain (Art. 1472, NCC).
2. May Not Be Left to One of Parties: The fixing of the price can never be left to the
discretion of one of the contracting parties (Art. 1473, NCC). Such agreement is not valid for
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it violates the principle of mutuality of contracts. However, if the price fixed by one of the
parties is accepted by the other, the sale is perfected (Art. 1473, NCC).
3. May Be Fixed By Third Person/s: Such agreement is valid.
a. But if such person or persons be unable or unwilling to fix the price, the contract shall
be inefficacious, unless the parties subsequently agree upon the price (Art. 1469, 2nd
par., NCC).
b. If the third person or persons acted in bad faith or by mistake, the courts may fix the
price (Art. 1469, 3rd par., NCC).
c. Where such third person or persons are prevented from fixing the price or terms by
fault of the seller or the buyer, the party not in fault may have such remedies against
the party in fault as are allowed the seller or the buyer, as the case may be (Art. 1469,
4th par., NCC).
4. Effect When Price Not Certain or Cannot Be Fixed:
a. Where the price cannot be determined in accordance with the foregoing rules or in any
other manner, the contract is inefficacious (Art. 1474, NCC).
b. However, if the thing or any part thereof has been delivered to and appropriated by the
buyer, he must pay a reasonable price therefore. What is a reasonable price is a
question of fact dependent on the circumstances of each particular case (Art. 1474,
NCC).
Effect of Gross Inadequacy of Price:
General rule: It does not affect the validity of a contract of sale (Art. 1470, NCC).
Exception: If such inadequacy may indicate a defect in the consent, or that the parties really
intended a donation or some other act or contract (Art. 1470, NCC). Thus, lesion or inadequacy
of cause shall not invalidate a contract, unless there has been fraud, mistake or undue
influence (Art. 1355, NCC).
Application of rule: In judicial sales, the Court has held that a sale may be set aside when but
only when, the price is so inadequate as to shock the conscience of the court (Warner Barnes &
Co. v. Santos, 14 Phil. 446; National Bank v. Gonzales, 45 Phil. 693; Director of Lands v. Abarca,
61 Phil. 70).
Manner of Payment of Price: It is not enough for the parties to agree on the price of the
property, but they must also agree on the manner of payment of the price of the property to
give rise to a binding and enforceable contract of sale or contract to sell. This is so because the
agreement as to the manner of payment goes into the price, such that a disagreement on the
manner of payment is tantamount to a failure to agree on the price. (Boston Bank of the Phil. v.
CA, 482 SCRA 108).
CAPACITY OF PARTIES
Kinds of Incapacity:
Absolute - that which concurs in those persons who cannot obligate themselves, such as
minors, insane or demented persons, deaf-mutes who do not know how to write, persons
suffering the penalty of civil interdiction and incompetents under guardianship.
Relative - that which is with respect to certain persons or with respect to certain properties.
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Sale between Husband and Wife:

General rule: Sale between husband and wife is void (Art. 1490, NCC). The prohibition applies a. To sales in legal redemption, compromise and renunciations (Art. 1492, NCC); and
b. To common-law spouses (Calimlim-Canullas v. Fortun, 129 SCRA 675).
Exception: The sale between them is not prohibited if they are governed by a regime of
complete separation of property, either pursuant to a marriage settlement or a decree of the
court obtained in legal separation or in petition for judicial separation of property (Art. 1490,
NCC).
Who may question validity of sale:
1. The heirs of the spouses who have been prejudiced, prior creditors and the State when it
comes to the payment of the proper taxes due on the transactions (Medina v. CIR, 317
SCRA 696).
2. However, the spouses, since they are parties to an illegal act, cannot avail themselves of the
illegality of the sale on the ground of in pari delicto and creditors who became such only
after the prohibited sale (Medina v. CIR, supra.).
Sale to Guardian of Wards Property:
Rule: Sale of property belonging to the ward in favor of the guardian is void (Art. 1491[1], NCC;
Philippine Trust Co. v. Roldan, 99 Phil. 392). But after the inhibition has ceased, a new contract
may be executed which will be valid from the time of the execution of the new contract (see
Rubias v. Batiller, 51 SCRA 120). The prohibition applies --1. Even if the sale is at a public or judicial auction, either in person or through the mediation
of another (Art. 1491, NCC);
2. To sales in legal redemption, compromises and renunciations (Art. 1492, NCC).
Sale to Agent of Principals Property:
General Rule: The agent cannot acquire property of principal entrusted to him for sale or
under his administration (Art. 1491[2], NCC). Such sale is void if made without the consent of
the principal (Gregorio Araneta, Inc. v. Tuazon de Paterno, 91 Phil. 786). But after the inhibition
has ceased (or after the termination of the agency), a new contract may be executed which will
be valid from the time of the execution of the new contract (see Rubias v. Batiller, 51 SCRA
120).
Exception: But if the principal consent to the sale, the same is valid (Art. 1491[2], NCC; Cui v.
Cui, 100 Phil. 913).
When prohibition applies: The prohibition applies 1. Only during the existence of the agency. Hence, an agent can buy for himself the property
after the termination of the agency (Valera v. Valeroso, 51 Phil. 695).
2. Even if the sale is at a public or judicial auction, either in person or through the mediation
of another (Art. 1491, NCC).
3. To sales in legal redemption, compromises and renunciations (Art. 1492, NCC).
Sale to Agent of Principals Property:
General Rule: The agent cannot acquire property of principal entrusted to him for sale or
under his administration (Art. 1491[2], NCC). Such sale is void if made without the consent of
the principal (Gregorio Araneta, Inc. v. Tuazon de Paterno, 91 Phil. 786). But after the inhibition
has ceased (or after the termination of the agency), a new contract may be executed which will
be valid from the time of the execution of the new contract (Rubias v. Batiller, 51 SCRA 120).
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Exception: But if the principal consent to the sale, the same is valid (Art. 1491[2], NCC; Cui v.
Cui, 100 Phil. 913).
Sale to Excecutors/Administrators of Property under His Administration:
1. Rule: The sale in favor of executor or administrator of property under his administration is
void (Art. 1491[3], NCC).
2. Qualifications:
a. Prohibition applies to sale of specific property under administration. But after the
inhibition has ceased (or after the termination of the administration), a new contract
may be executed which will be valid from the time of the execution of the new contract
(see Rubias v. Batiller, 51 SCRA 120).
b. Prohibition does not apply to acquisition of hereditary rights because these hereditary
rights are not part of the property under his administration (Naval v. Enriquez, 3 Phil.
669; Garcia v. Rivera, 95 Phil. 83).
Sale to Public Officers of Property under His Administration:
Rule: Public officers and employees cannot acquire the property of the State or of any political
subdivision, or any GOCC, or institution, the administration of which has been entrusted to
them; including judges and government experts who, in any manner whatsoever takes part in
the sale. (Art. 1491[4], NCC). Such contract is void (Maharlika Broadcasting Corp. v. Tagle, 142
SCRA 663).
Sale of Property under Litigation:
1. Rule: Justices, judges, prosecuting attorneys, clerks of courts, and other officers and
employees connected with the administration of justice, they cannot acquire the property
and rights in litigation or levied upon an execution before the court within whose
jurisdiction or territory they exercise their respective functions; lawyers cannot likewise
acquire property and rights which may be the object of any litigation of which they may
take part by virtue of their profession (Art. 1491[5], NCC).
2. Applicability of prohibition: Prohibition applies --a. Even if the sale is at a public or judicial auction, either in person or through the
mediation of another (Art. 1491, NCC).
b. To sales in legal redemption, compromises and renunciations (Art. 1492, NCC).
c. Only during the period of litigation. Hence, in a case where the judge acquired the
property after the decision had long become final, there is said to be no violation
(Macariola v. Asuncion, 114 SCRA 77).
3. When prohibition does not apply:
a. It does not apply to the sale of a parcel of land acquired by a client to satisfy a judgment
in his favor, to his attorney, as long as the property was not the subject of the litigation
(Daroy v. Abecia, 298 SCRA 172).
b. It does not to a contingent fee based on the value of the property involved in litigation
because the transfer or assignment of the property in litigation takes effect only after
the finality of a favorable judgment (Recto v. Harden, 100 Phil. 427).
PERFECTION AND RISK OF LOSS

Perfection of Contract of Sale:
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1. When perfected: Contract of sale is consensual (Buenaventura v. CA, 416 SCRA 263).
Hence, it is perfected at the moment when there is a meeting of the minds upon the thing
which is the object of the contract and upon the price (Art. 1474, 1st par., NCC).
Note: In Boston Bank of the Philippines v. Court of Appeals (482 SCRA 108), the Court
clarified that it is not enough for the parties to agree on the price of the property, but they
must also agree on the manner of payment of the price of the property to give rise to a
binding and enforceable contract of sale or contract to sell. This is so because the
agreement as to the manner of payment goes into the price, such that a disagreement on
the manner of payment is tantamount to a failure to agree on the price.
2. Effect of earnest money:
a. When earnest money is given, it shall be considered part of the price and proof of the
perfeciton of the contract (Art. 1482, NCC).
b. And it in effect exempts the sale from the requirement of the Statute of Frauds. Recall
that the Statute of Frauds does not apply when the contract has already been
performed, either partial or complete.
3. Effect of perfection:
a. Rule: From that moment on, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts (Art. 1475, 2nd par., NCC).
b. Exception: In conditional sales, the obligations of the parties are subject to the general
law of obligations with respect to conditional ones. Accordingly, the acquisition of the
rights of the vendor and the vendee, as well as the extinguishment of those already
acquired, depends upon the event which constitutes the condition.
Effect of Loss of Thing Sold:
1. If occurs prior to perfection - would-be seller bears the loss, being the owner of the thing
(res perit domino).
2. If loss occurs at perfection:
a. If subject matter has been entirely lost, contract shall be without any effect (Art. 1493,
NCC).
b. If the subject matter has been lost in part only, the buyer may choose between:
1)
Withdrawing from the contract; or
2)
Demanding the remaining part, paying its price in proportion to the total sum
agreed upon (Id.).
c. In the case of sale of specific goods, and without the knowledge of the seller, the goods
have perished in part or wholly or in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his option:
1)
Treat sale as avoided; or
2)
Treat sale 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 (Art. 1494, NCC).
3. If loss occurs after perfection bur before delivery:
a. Rule: 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 (Art.
1538, NCC). Hence --1)
If lost without fault of vendor, obligation is extinguished.
2)
If lost thru fault of vendor, he is obliged to pay damages.
3)
If thing deteriorates without fault of vendor, impairment is borne by vendee.
10
4)
If it deteriorates thru fault of vendor, vendee may choose between rescission of

obligation and its fulfillment, with indemnity for damages in either case.
b. If loss without sellers fault: Two views --1)
First view: Seller is released from his obligation to deliver but buyers obligation to
pay subsists (Paras, Vol. V (1990 ed.), 58; Padilla, Civil Code, 840-841). Hence,
buyer bears the risk of loss.
2)
Second view: Counter-prestation is also extinguished (IV Tolentino, Civil Code,
1991 ed., 337). Hence, risk of loss is borne by seller and buyer need not pay the
price.
Note: View of Tolentino is more just and equitable and in conformity with the
principle of res perit domino. At any rate, the Supreme Court had the occasion to
hold that after perfection but before delivery, the risk of loss is borne by the seller
under the rule of res perit domino (Union Motors v. CA, 361 SCRA 506; Chrysler
Philippines v. CA, 133 SCRA 567).
4. If loss and deterioration occurs after delivery:
a. Rule: When ownership over goods has been transferred to buyer, goods are buyers risk
(Art. 1504, NCC).
b. Exception:
1)
When delivery is made to buyer in pursuance of contract and ownership is retained
by seller merely to secure performance of buyers obligations, goods are still at
buyers risk from time of such delivery (Art. 1504, NCC).
2)
Where actual delivery is delayed thru fault of either buyer or seller, goods are at risk
of party in fault (Art. 1504, NCC).
TRANSFER OF OWNERSHIP AND

OBLIGATIONS OF SELLER
Obligations of Seller:
1.
To transfer ownership and to deliver the thing which is the object of the sale;
2.
To warrant the thing which is the object of the sale (Art. 1495, NCC);
3.
To deliver fruits and accessories (Art. 1164, NCC);
4.
If contract of sale covers determinate object, seller, upon perfection of contract,
is obliged to preserve the thing to be delivered (Art. 1163, NCC).
Mode of Transferring Ownership in Sales:
1. Sale is not a mode, but merely a title. Sale by itself does not transfer or affect ownership;
the most that sales does is to create the obligation to transfer ownership. It is tradition or
delivery, as a consequence of sale, that actually transfers ownership (San Lorenzo Dev.
Corp. v. CA, Jan. 21, 005).
Note: The critical factor in the different modes of effecting delivery which gives legal effect
to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee.
Without that intention, there is no tradition (Union Motor Corp. v. CA, July 20, 2001).
2. Kinds of Delivery: Actual or Constructive
Actual - When the thing sold is placed in the control and possession of the vendee.
a. If movable, this can be done when thing is transferred from hand to hand.
11
b. If immovable, this can be done by certain material and possessory acts by the vendee in
the presence and with the consent of the vendor, such as entering upon the property
which is considered as taking possession.
Constructive - Change of possession is not actual or material but represented by some
other signs or acts indicative thereof. Forms of constructive delivery -a. Symbolic - Effected thru delivery of symbols or things which represent the thing to be
delivered. Hence, with regard to movable property, its delivery may be made by the
delivery of the keys of the place or depository where it is stored (Art. 1498, 2nd par.,
NCC).
1)
Delivery by negotiable document of title: Delivery or negotiation of document of
title, such as a bill of lading or warehouse receipt, constitute a symbolic delivery of
the property it represents, provided there is an intent to thereby change possession
(Pacific Commercial v. Yatco, 70 Phil. 285).
2)
Under the law, one to whom the negotiable receipt has been duly negotiated acquires
such title to the goods as the person negotiating the receipt to him, or the depositor
or person to whose order the goods were deliverable by the terms of the receipt,
either had or had ability to convey to a purchaser in good faith for value (Art. 1513,
NCC).
b. Execution of Public Instrument --- when sale is made thru a public instrument, its
execution shall be equivalent to the delivery of the thing which is the object of the
contract (Art. 1498, 1st par., NCC).
Exceptions: (a) when the instrument itself expresses or implies that delivery was not
intended (Art. 1498, NCC); or (b) when there is an impediment that may prevent the
passing of the property from the hands of the vendor to the vendee, as when a third
person was actually in possession of the thing and objecting thereto (Equatorial Realty
Dev., Inc. v. Mayfair Theater, Inc., 370 SCRA 56).
c. Traditio longa manu - Delivery is effected by vendor simply by pointing out to the
vendee the thing to be transferred and which at that time must be within sight.
d. Traditio brevi manu - Vendee already had the thing in his possession for some reason
(as a lessee, for example) and a mere declaration by the vendor that the vendee shall
now hold the thing as owner operates as a form of delivery.
e. Traditio constitutum possessorium - The reverse of brevi manu. Delivery is effected
by a mere declaration on the part of the vendor that he will hold the thing for the
vendee, as when the owner alienates it and becomes a mere lessee.
Note: In all forms of constructive delivery, it is necessary that the vendor has and is able to
transfer control over the thing to the vendee. If not, fiction yields to reality. There is no delivery.
(Addison v. Felix, supra.)
Delivery of Incorporeal Property: Three ways to effect delivery 1. When sale is made thru a public instrument, the execution thereof is equivalent to delivery
(Art. 1501, in rel. to Art. 1498, NCC).
2. By placing of the titles of ownership in the possession of the vendee; or
3. Use by the vendee of his rights, with the consent of vendor (Art. 1501, NCC).
Delivery of goods to carrier:

12
1. General rule: If pursuant to contract seller is authorized or required to send the goods to
buyer, the delivery of the goods to carrier for transmission to buyer, whether named by the
buyer or not, is deemed to be a delivery of the goods to the buyer (Art. 1523, NCC). Hence,
ownership is transferred to buyer.
2. Exceptions: Not considered delivery to buyer a. If the contrary intention appears (Art. 1523, NCC) or if seller, by terms of contract,
reserves the right of possession or ownership notwithstanding delivery of the goods to
the carrier (Art. 1503, 1st par., NCC).
b. When by bill of lading, goods are deliverable to the seller or his agent or to the order of
the seller or his agent, seller thereby reserves ownership in the goods (Art. 1503, 2nd
par., NCC).
c. When goods are shipped, and by the bill of lading the goods are deliverable to order of
the buyer or of his agent, but possession of the bill of lading is retained by the seller or
his agent, seller thereby reserves a right to the possession of the goods as against the
buyer (Art. 1503, 3rd par., NCC).
When Delivery Does Not Transfer Ownership:
1. In sale on trial, approval or satisfaction (Art. 1502, 2nd par., NCC).
2. When contrary intention appears;
3. When ownership is reserved despite delivery, as in the following a. When by bill of lading, the goods are deliverable to the seller or his agent or to the order
of the seller or his agent (Art. 1503, 2nd par., NCC).
b. When goods are shipped and by bill of lading, the goods are deliverable to order of the
buyer or of his agent but possession of the bill of lading is retained by the seller or his
agent (Art. 1503, 3rd par., NCC).
c. When seller of goods draws on the buyer for the price and transmits the bill of exchange
and bill of lading together to the buyer to secure acceptance or payment of the bill of
exchange, buyer is bound to return the bill of lading if he does not honor the bill of
exchange, and if he wrongfully retains the bill of lading he acquires no added right
thereby (Art. 1503, 4th par., NCC).
4. When sale is not valid (Traders Royal Bank v. CA, 269 SCRA 15).
5. When seller is not the owner at the time of delivery (Noel v. CA, 240 SCRA 789; Nool v. CA,
276 SCRA 149).
SALES UNDER CERTAIN FORMS
Contract of Sale or Return:
1.
Nature: It is in the nature of a sale with an option to return, or a sale subject
to a condition subsequent (or resolutory condition).
2.
When ownership is transferred: Ownership passes to buyer upon delivery
but he may revest ownership in the seller by returning or tendering the goods within time
agreed upon, or within reasonable time, if not time has been fixed (Art. 1502, 1st par., NCC).
Sale on Approval, Trial or Satisfaction:
1.
Nature: It is in the nature of an option to purchase goods if proved to be
satisfactory, or a sale subject to a condition precedent (or suspensive condition).
2.
When ownership is transferred: Ownership remains with seller despite
delivery. Ownership passes to buyer only if:
a. He signifies his approval or does an act adopting the transaction; or
b. If he retains goods without giving notice of rejection and time agreed upon for return of
goods has lapsed, or upon expiration of reasonable time if time has not been fixed (Art.
1502, 2nd par., NCC).
13
Note: The stipulation making the sale as one of sale or return or sale on approval must be
in writing and cannot be proved by parol evidence (Industrial Textile Manufacturing Co. v. LPJ
Enterprises, Inc., 217 SCRA 322).
Sale of Immovable by Unit:
1. Nature: Sale at a stated rate per unit area.
2. Effect: In a unit price contract, the statement of area of immovable is not conclusive and
the price may be reduced or increased depending on the area actually delivered (Rudolf
Lietz, Inc. v. CA, 478 SCRA 451).
3. If seller delivers less than the area agreed upon:
a.
Buyer may oblige the seller to deliver all that may be stated in
the contract;
b.
If foregoing is not possible, buyer may either 1)
Demand for proportionate reduction of purchase price; or
2)
Rescind the contract if:
a) The lack in area is at least 1/10 of that stated;
b) The inferior value of the thing sold exceeds 1/10 of price agreed upon;
c) The buyer would not have bought the immovable had he known of its smaller
area or inferior quality (Art. 1539, NCC).
4.
If seller delivers more than the area stated in the contract, buyer has the
option:
a.
To accept only the amount agreed upon; or
b.
To accept the whole area, provided he pays for the additional
area at the contract rate (Art. 1540, NCC).
Sale of Immovable for Lump Sum:
1. Nature: The sale of an immovable is made for a lump sum and not at a rate per unit. The
parties agree on a stated purchase price for an immovable the area of which may be
declared based on an estimate or where both the area and boundaries are stated (Rudolf
Lietz, Inc. v. CA, supra.).
2. Effect: If the actual area delivered does not measure up exactly with the area stated in the
contract, the rule is that there shall be no increase or decrease of the price although there
be a greater or lesser area or number than that stated in the contract (Art. 1542, NCC).
Note: However, the discrepancy must not be substantial. A vendee of land, when sold in gross
or with the description more or less with reference to its area, does not thereby ipso facto take
all risk of quantity in the land. The use of more or less or similar words in designating
quantity covers only a reasonable excess or deficiency (Roble v. Arbasa, 362 SCRA 69).
Note: Where both the area and the boundaries of the immovable are declared, the area covered
within the boundaries of the immovable prevails over the stated area. In cases of conflict
between areas and boundaries, it is the latter which should prevail. What really defines a piece
of ground is not the area, calculated with more or less certainty, mentioned in its description,
but the boundaries therein laid down, as enclosing the land and indicating its limits. In a
contract of sale of land in a mass, it is well established that the specific boundaries stated in
the contract must control over any statement with respect to the area contained within its
boundaries. It is not of vital consequence that a deed or contract of sale of land should disclose
the area with mathematical accuracy. It is sufficient if its extent is objectively indicated with
sufficient precision to enable one to identify it. An error as to the superficial area is immaterial.
Thus, the obligation of the vendor is to deliver everything within the boundaries, inasmuch as
it is the entirety thereof that distinguishes the determinate object (Rudolf Lietz, Inc. v. CA,
supra.).
14
RULE ON DOUBLE SALE

Rule of Preference:
1. If involving movable property - ownership is transferred to one who first takes possession
thereof in good faith (Art. 1544, NCC).
2. If involving immovable property: The rules of preference are --a. The first registrant in good faith;
b. Should there be no entry, the first in possession in good faith;
c. In the absence thereof, the buyer who presents the oldest title in good faith (art. 1544,
NCC; Consolidated Rural Bank [Cagayan Valley], Inc. v. CA, 448 SCRA 347).
Requites for Application of Article 1544:
1. The two (or more) sales transactions must constitute valid sales;
2. The two (or more) sales transactions must pertain to exactly the same subject matter;
3. The two (or more) buyers at odds over the rightful ownership of the subject matter must
each represent conflicting interests; and
4. The two (or more) buyers at odds over the rightful ownership of the subject matter must
each have bought from the very same seller (Mactan-Cebu International Airport Authority v.
Tirol, 588 SCRA 635).
Note: Article 1544 contemplates a case of double or multiple sales by a single vendor. More
specifically, it covers a situation where a single vendor sold one and the same immovable
property to two or more buyers. According to a noted civil law author, it is necessary that the
conveyance must have been made by a party who has an existing right in the thing and the
power to dispose of it. It cannot be invoked where the 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. (Salera v. Rodaje, 530 SCRA 432).
Note: Well-settled is the rule that registration of instruments must be done in the proper
registry in order to effect and bind the land. Prior to the Property Registration Decree of 1978,
Act No. 496 (or the Land Registration Act) governed the recording of transactions involving
registered land, i.e., land with a Torrens title. On the other hand, Act No. 3344, as amended,
provided for the system of recording of transactions over unregistered real estate without
prejudice to a third party with a better right. Accordingly, if a parcel of land covered by a
Torrens title is sold, but the sale is registered under Act No. 3344 and not under the Land
Registration Act, the sale is not considered registered, as the term is used under Article 1544
and the registration of the deed does not operate as constructive notice to the whole world.
(Mactan-Cebu International Airport Authority v. Tirol, 588 SCRA 635) Hence, a second buyer may
not be characterized as a buyer in bad faith for having bought the property notwithstanding
the registration of the first Deed of Absolute Sale under Act No. 3344. An improper registration
is no registration at all. Likewise, a sale that is not correctly registered is binding only between
the seller and the buyer, but it does not affect innocent third persons.
Nature of Two Sales:
1. If one is a contract to sell, there is no double sale (United Muslim and Christian Urban Poor
Association, Inc. v. BRYC-V Development Corp., G.R. No. 179653, July 31, 2009). In a
contract to sell, there being no previous sale of the property, a third person buying such
property despite the fulfillment of the suspensive condition such as the full payment of the
purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no double sale in such
15
case. Title to the property will transfer to the buyer after registration because there is no
defect in the owner-sellers title per se, but the latter, of course, may be sued for damages by
the intending buyer (United Muslim and Christian Urban Poor Association, Inc. v. BRYC-V
Development Corp., supra., citing Coronel v. CA, supra.).
2. If the other contract is a conditional sale, a case of double sale may exist (Adalin v. CA, 280
SCRA 536). In a conditional contract of sale, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the sellers title thereto.
In fact, if there had been previous delivery of the subject property, the sellers ownership or
title to the property is automatically transferred to the buyer such that, the seller will no
longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code,
such second buyer of the property who may have had actual or constructive knowledge of
such defect in the sellers title, or at least was charged with the obligation to discover such
defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first
buyers title. In case a title is issued to the second buyer, the first buyer may seek
reconveyance of the property subject of the sale (United Muslim and Christian Urban Poor
Association, Inc. v. BRYC-V Development Corp., supra., citing Coronel v. CA, supra.).
How Article 1544 Operates:
1.
The above-cited provision on double sale presumes title or ownership to pass
to the buyer, the exceptions being: (a) when the second buyer, in good faith, registers the
sale ahead of the first buyer, and (b) should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires possession of the property ahead of
the first buyer. Unless, the second buyer satisfies these requirements, title or ownership
will not transfer to him to the prejudice of the first buyer. (Coronel v. CA, supra.)
2.
Knowledge gained by the first buyer of the second sale cannot defeat the
buyers rights except only as provided by the Civil Code and that is where the second buyer
first registers in good faith the second sale ahead of the first. Such knowledge of the first
buyer does not bar him from availing of his rights under the law, among them, to register
first his purchase as against the second buyer (Olivares v. Gonzales, 159 SCRA 33).
3.
On the other hand, knowledge gained by the second buyer of the first sale
defeats his rights even if he is the first to register the second sale because such knowledge
taints his prior registration with bad faith. For the second buyer to displace the first, he
must show that he acted in good faith throughout (i.e. in ignorance of the first sale and of
the first buyer's rights) from the time of acquisition until the title is transferred to him by
registration (Lumbres v. Tablada, Jr., 516 SCRA 575). Hence, if a vendee in a double sale
registers the sale after he has acquired knowledge of a previous sale, the registration
constitutes registration in bad faith and does not confer upon him any right (San Lorenzo
Development Corp. v. CA, 449 SCRA 65).
Applicable Rule If Article 1544 Does Not Apply: In a situation where not all the requisites
are present which would warrant the application of Article 1544, the principle of prior tempore,
potior jure or simply he who is first in time is preferred in right, should apply. The only
essential requisite of this rule is priority in time; in other words, the only one who can invoke
this is the first vendee. Undisputedly, he is a purchaser in good faith because at the time he
bought the real property, there was still no sale to a second vendee (Consolidated Rural Bank
[Cagayan Valley], Inc. v. CA, 448 SCRA 347).
OBLIGATIONS OF VENDEE
Obligations of Vendee:
1. Payment of price; and
2. Accepting the delivery of thing sold.
16
Obligation to Pay Price:

1. As to time and place: Must pay at the time and place stipulated in the contract. If no
stipulation, at the time and place of the delivery of the thing sold (Art. 1582, NCC).
2. Liability for interest: For the period between delivery and payment of price, In the
following cases a. If stipulated;
b. If thing sold and delivered produced fruits and income; or
c. If buyer is in default, from time of judicial or extrajudicial demand for payment of price
(Art. 1589, NCC).
Obligation to Accept Delivery:
1. Time and place: The vendee is bound to accept delivery at the time and place stipulated in
the contract. If not stipulated, at time and place of the delivery of thing sold (Art. 1582,
NCC).
2. Rule in delivery of goods by installment: Buyer cannot be compelled to accept delivery of
goods by installment, unless otherwise agreed upon (Art. 1583, NCC).
3. Rule on right of buyer to examine:
a.
If not previously examined by buyer - if no stipulation to contrary, delivery is not
deemed accepted unless buyer has reasonable opportunity to examine the delivered
goods (Art. 1584, 1st par., NCC).
b.
Buyer has, upon request and unless there is contrary agreement, the right to
examine the goods when seller tenders delivery of the same (Art. 1584, 2nd par., NCC).
c.
If goods are delivered to carrier by seller upon terms that goods are not to be
delivered by carrier to buyer until the latter has paid the price, buyer is not entitled to
examine prior to payment of price, unless there is an agreement or usage of trade
permitting such examination (Art. 1584, 3rd par., NCC).
4. Circumstances indicating acceptance of goods:
a. When buyer intimates to the seller that he has accepted them;
b. When goods have been delivered to buyer and he does any act in relation to them which
is inconsistent with the ownership of the seller; or
c. When, after the lapse of a reasonable time, buyer retains the goods without intimating
to seller that he has rejected them (Art. 1585, NCC).
5. Effect of acceptance on sellers breach:
a.
Rule - seller remains liable for damages or other legal remedy for breach of any
promise or warranty in the contract of sale, in the absence of agreement to the contrary.
b. But buyer must give notice to seller of such breach within a reasonable time after the
buyer knows, or ought to know, of such breach; otherwise, seller is not liable (Art. 1586,
NCC).
6. Effect of refusal to accept delivery:
a.
If refusal is justified
1)
Buyer is not bound to return goods to seller but he must notify seller of his refusal;
2)
If buyer voluntarily constitutes himself a depositary of goods, he shall be liable as
such (Art. 1587, NCC).
b. If refusal is not justified, titled thereto passes to him from the moment goods are placed
at his disposal (Art. 1588, NCC).
CONDITIONS AND WARRANTIES

Condition:
17
1. Defined: The term "condition" in the context of a perfected contract of sale pertains, in
reality, to the compliance by one party of an undertaking the fulfillment of which would
beckon, in turn, the demandability of the reciprocal prestation of the other party. The
reciprocal obligations referred to would normally be, in the case of vendee, the payment of
the agreed purchase price and, in the case of the vendor, the fulfillment of certain express
warranties (Romero v. CA, 250 SCRA 223).
2. Effect of failure to comply: If the condition is imposed upon the perfection of the contract
itself, the failure of such condition would prevent the juridical relation itself from coming
into existence. But if the condition is imposed on an obligation of a party which is not
complied with, the other party may either refuse to proceed or waive said condition (Art.
1545, NCC).
Warranty:
1. Defined: A warranty is a statement or representation made by the seller of goods,
contemporaneously and as part of the contract of sale, having reference to the character,
quality or title of the goods, and by which he promises or undertakes to insure that certain
facts are or shall be as he then represents them (Ang v. CA, 567 SCRA 53).
2. A warranty may either be express or implied:
Express - Any affirmation of fact or any promise by the seller relating to the thing is an
express warranty if the natural tendency of such affirmation or promise is to induce the
buyer to purchase the same, and if the buyer purchases the thing relying thereon. No
affirmation of the value of the thing, nor any statement purporting to be a statement of the
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 (Art. 1545, NCC).
Implied - That which the law derives by application or inference from the nature of the
transaction or the relative situation or circumstances of the parties, irrespective of any
intention of the seller to create it (Ang v. CA, supra.). Among the implied warranty
provisions of the Civil Code are:
a. That seller has right to sell the thing at the time when ownership is to pass (Art.
1547[1], NCC);
b. Warranty against eviction (Art. 1548, NCC);
c. Warranty against hidden defects and encumbrances (Art. 1561, NCC); and
d. Warranty as to fitness and merchantability (Art. 1562, NCC).
Warranty Against Eviction:

1. Concept: Seller warrants that the buyer shall have and enjoy the legal and peaceful
possession of the thing (Art. 1547[1], NCC).
2. Requisites in order for breach to exist:
a. Vendee is deprived, in whole or in part, of thing purchased;
b. Eviction is by virtue of final judgment;
c. Eviction is based on a right prior to the sale or an act imputable to the vendor;
d. The seller has been summoned and made co-defendant in the suit for eviction at the
instance of the buyer (Arts. 1548 and 1549, NCC; Power Commercial and Industrial Corp.
v. CA, 247 SCRA 597).
e. Vendee did not waive the warranty.
3. Liability of Vendor:
a.
In case of total eviction ---------------------------------------------------------------------------Handouts on the Law on Sales
18
1)
2)
3)
4)
5)
b.
1)
2)
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;
Income or fruits, if the vendor has been ordered to deliver them to
the party who won the suit against him;
Cost of the suit which caused the eviction, and, in a proper case,
those of the suit brought against the vendor for the warranty;
Expenses of the contract, if the vendee has paid them; and
Damages and interests, and ornamental expenses, if the sale was
made in bad faith (Art. 1555, NCC).
In case of partial eviction --Enforce vendors liability for eviction; or
Demand the rescission of the contract, but with the obligation to return the thing
without other encumbrances than those which it had when he acquired it (Art.
1556, NCC).
4. Waiver of warranty:
a. Parties may increase, diminish or suppress this warranty (Art. 1548, NCC).
b. But any stipulation exempting the vendor from this warranty is void, if vendor acted in
bad faith (Art. 1553, NCC).
c. Kinds of waiver:
1)
Consciente - when vendee made the waiver without knowledge of risks of
eviction and assumption of its consequences. Here, if the eviction takes place, the
vendor shall only pay the value which the thing had at the time of eviction (Art.
1554, NCC).
2)
Intencionada - when vendee made the waiver with knowledge of the
risks of eviction and assumed its consequences. Here, if the eviction takes place, the
vendor is not liable (Art. 1544, NCC).
Warranty Against Hidden Defects:
1.
Concept: Seller warrants that the thing is free from any hidden
faults or defects, or any charge or encumbrance not declared or known to the buyer (Art.
1547[2], NCC).
2. Requisites for breach of warranty:
a. Defect is serious or important - renders the thing unfit for the use for which it is
intended, or diminishes its fitness for such use to such an extent that, had vendee been
aware thereof, he would not have acquired it or would have given a lower price for it;
b. Defect is hidden - those that are not patent or visible, or even if not visible, if vendee is
not an expert and should not have known them by reason of his trade or profession.
c. Defect exists at the time of sale;
d. Remedies must brought within prescriptive period; and
e. Vendee did not waive the warranty.
Note: Vendor is liable for any hidden faults or defects even though he was not aware thereof.
But if the parties have agreed that vendor shall not be liable for defects that he was not aware
of, vendor is not liable (Art. 1566, NCC).
Remedies of Buyer In Case of Breach of Warranty: Buyer may elect between --1. Accion redhibitoria - he may withdraw from the contract, with damages; or
2. Accion quanti minoris - he may demand a proportionate reduction of the price, with
damages (Art. 1567, NCC).
Effect of Loss In Consequence of Hidden Defects:
1. If vendor was aware of hidden defects
19
a. Vendor bears the loss; and

b. Vendee is entitled to recover the price, expenses of the contract and damages.
2. If vendor was not aware of hidden defects, he is obliged to return only the price and interest
thereon, and expenses of the contract which vendee might have paid (Art. 1568, NCC).
If Thing Is Lost By Fortuitous Event or Thru Fault of Buyer:
1. Requirements:
a. Thing sold has hidden defects at time of sale;
b. But it is lost thru fortuitous event or thru fault of the buyer.
2. Liability of vendor:
a. If vendor acted in good faith, he is obliged to return only the price which the vendee
paid, less the value which the thing had when it was lost.
b. If he acted in bad faith, he is also liable for damages (Art. 1569, NCCC).
Warranty Against Non-Apparent Servitude:
1.
Requisites for breach of warranty:
a.
Immovable sold is encumbered with non-apparent servitude, not mentioned in
the agreement;
b.
It is of such nature that it must be presumed that the buyer would not have
acquired the property had he been aware thereof (Art. 1560, NCC).
2.
Remedies of buyer: he may choose between: (1) enforcement of vendors
appropriate liability for such warranty; or (2) rescission of the contract (Art 1560, NCC).
3.
Vendor is not liable if:
a.
Non-apparent servitude is mentioned in the agreement; or
b.
Non-apparent servitude is recorded in the Registry of Property, unless there
is an express warranty that thing is free from all burdens and encumbrances (Art.
1560, NCC).
Redhibitory Defects in Animals:
1.
When considered redhibitory - If even in case of a professional
inspection has been made and expert knowledge is not sufficient to discover it, the defect is
considered as redhibitory. But if the veterinarian, thru ignorance or bad faith, fails to
discover or disclose such hidden defects, he shall be liable for damages (Art. 1576, NCC).
2.
In sale of team of animals, or where two or more animals are sold
together, whether for a lump sum or for a separate price for each of them:
a.
General rule: the redhibitory defect of one shall only give rise to
its redhibition, but not of the others.
b.
Exception: Unless it appears that vendee would not have
purchased the sound animal/s without the defective one/s (Art. 1572, NCC).
3.
No warranty against hidden defects: in case of animals sold at
fairs or at public auctions, or of livestock sold as condemned.
4.
Sale is void if:
a. Animals suffers from contagious diseases;
b. The use or service for which the animals are acquired has been stated in the contract
and they are found to be unfit therefore (Art. 1575, NCC).
5.
If animal dies within three days: If the animal should die within
three days AFTER ITS PURCHASE (not delivery), the vendor shall be liable if the disease
which cause the death existed at the time of the contract (Art. 1578, NCC).
6.
Remedies of buyer: The vendee may elect between redhibitory
action and quanti minoris, whichever suits his interest (Art. 1580, in relation to Art. 1567). If
the sale be rescinded, the animals shall be returned in the condition in which it was sold
20
and delivered, the vendee being answerable for any injury due to his negligence, and not
arising from the redhibitory fault or defect (Art. 1580, 2nd par., NCC).
Prescriptive Period In Enforcement of Warranties:
1.
Express Warranty - The prescriptive period for instituting actions based on
a breach of express warranty is that specified in the contract, and in the absence of such
period, the general rule on rescission of contract, which is four years (Engineering &
Machinery Corp. v. CA, 252 SCRA 156).
2.
As for actions based on breach of implied warranty, the prescriptive period is,
under Article 1571 (warranty against hidden defects of or encumbrances upon the thing
sold) and Article 1548 (warranty against eviction), six months from the date of delivery of
the thing sold (Ang v. CA, supra.).
3.
Warranty against non-apparent servitude One year computed from the execution of the sale,
the vendee may sue either for rescission or for damages;
After the lapse of the said period, he may only sue
for damages (no longer for rescission), within one year counted from the date on which
the buyer discovered the existence of the non-apparent servitude (Art. 1560, NCC).
4.
Redhibitory defects on animals --- The action must be brought within

FORTY (40) DAYS from the date of delivery of the animals to the vendee (Art. 1577, NCC),
otherwise, the action is already barred.
a.
b.
REMEDIES OF PARTIES IN
CASE OF BREACH
ACTION TO RECOVER PRICE
1. Effect of Failure to Pay: Failure of the vendee to pay the price after the execution of the
contract does not make the sale null and void for lack of consideration but results at most
in default on the part of the vendee, for which the vendor may exercise his legal remedies
(Balatbat v. CA, 261 SCRA 128). Failure to pay the consideration results in a right to
demand the fulfillment or cancellation of the obligation under an existing valid contract
(Buenaventura v. CA, 416 SCRA 263).
2. When Vendee Liable to Pay Interest:

a.
If it has been so stipulated;
b.
If the thing sold and delivered produce fruits or income; or
c.
If the buyer be in default, from the time of judicial or extrajudicial demand for the
payment of price (Art. 1589, NCC).
SALE OF PERSONAL PROPERTY

21
THRU INSTALLMENT
Remedies of Vendor: 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 at least one
installment;
2.
Cancel the sale, should the vendees failure to pay cover two or more
installments;
3.
Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendees failure to pay cover two or more installments (Art. 1484, NCC).
Note: Foregoing remedies are alternative and not cumulative. If the creditor chooses one
remedy, he cannot avail himself of the other two (Delta Motors Sales Corp. v. Niu Kim Duan, 213
SCRA259; Elisco Tool Manufacturing Corp. v. CA, 307 SCRA 731).
What constitute sale on installment:
1. The price must be payable in several installments (Levy Hermanos, Inc. v. Gervacio, 69 Phil.
52).
2. The Recto law does not apply to a sale where there is an initial payment and the balance is
payable in the future. This is not a sale on installment (Id.).
Specific Performance:
1. General rule: The general rule is that when the seller has chosen specific performance, he
can no longer seek for rescission nor foreclosure of the chattel mortgage constituted on the
thing sold. The seller is deemed to have chosen specific performance, thereby foreclosing
resort to the other two remedies, when he files an action in court for recovery.
2. Exception: Even if seller had chosen specific performance, but if the same becomes
impossible, the seller may still choose rescission (Art. 1191, NCC).
Note: In Chieng v. Sps. Santos [G.R. No. 169647, Aug. 31, 2007], involving a real estate
mortgage obligation, the Supreme Court held that the filing of the criminal cases for violation
of B.P. Blg. 22 where the civil action for recovery of the amount of the checks is impliedly
instituted (under Sec. 1[b] of Rule 111 of the 2000 Rules on Criminal Procedure), the remedy of
collection suit is deemed to have been availed, thus barring the complainant from subsequently
resorting to an action for foreclosure.
Rescission/Cancellation of Sale:
1. When rescission is deemed chosen: The rule is that the seller is deemed to have chosen the
remedy of rescission, and can no longer avail of the other two remedies, when he has clearly
indicated to end the contract, such as: (1) when he sends a notice of rescission; or (2) takes
possession of the subject matter of the sale; or (3) when he files an action for rescission.
2. Forfeiture of installment or rentals paid:
a.
General rule: As a rule, rescission obliges the parties to make mutual restitution (Art.
1385, NCC). Hence, the payments must be returned.
b.
Exception: 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 (Art. 1486, NCC).
3. Effects of rescission:

22
a) In general: It abrogates the contract from the very beginning, subject to the provisions
of Article 1486 allowing the vendor to retain installments payments if there is such
stipulation and the same is not unconscionable under the circumstances.
b) As a consequence, the seller is barred from exacting payment from the buyer the
balance of the price (Nonato v. IAC, 140 SCRA 255; Delta Motor Sales Corp. v. Niu Kim
Duan, supra.). The same is not consistent with the remedy of rescission.
Foreclosure of Chattel Mortgage:
1. When remedy is deemed chosen:
a. Rule: Where the mortgagee elects a remedy of foreclosure, the law requires the actual
foreclosure of the mortgaged chattel. Thus, in Manila Motor Co. v. Fernandez (99 Phil.
782), the Court held that it is the actual sale of the mortgaged chattel in accordance
with Sec. 14 of Act No. 1508 that would bar the creditor (who chooses to foreclose) from
recovering any unpaid balance (Pacific Commercial Co. v. De la Rama, 72 Phil. 380). And
it is deemed that there has been foreclosure of the mortgage when all the proceedings of
the foreclosure, including the sale of the property at public auction, have been
accomplished (Macondray & Co., Inc. v. Tan, 38 O.G. 2606).
b. Exception: Although no actual foreclosure as contemplated under the law has taken
place but since the vehicle is already in the possession of the creditor and it has
persistently and consistently avowed that it elects the remedy of foreclosure, the creditor
can be directed to foreclosure the said vehicle without more (Magna Financial Services
Group, Inc. v. Colarina, 477 SCRA 245).
2. Effect of foreclosure of mortgage:
a. General rule: In case of foreclosure, the creditor-mortgagee shall have no further action against
the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void. This is known as the Recto Law. (Art. 1484[3], NCC).
Notwithstanding the language of the law, current jurisprudence upholds the full barring
effect in recovery to include damages, interests and attorneys fees (and not only the
balance of the purchase price).
b. Exception: However, where the mortgagor plainly refuses to deliver the chattel subject of the
mortgage upon his failure to pay two or more installments, or if he conceals the chattel
to place it beyond the reach of the mortgagee, the creditor-mortgagee is allowed to
recover the expenses properly incurred in effecting seizure of the chattel and reasonable
attorneys fees in prosecuting the action for replevin (Filipinas Investment & Finance
Corp, v. Ridad, 30 SCRA 564).
c. Other Securities Included: The seller already foreclosed on the chattel mortgage constituted
on the subject property of the sale, it then sought to recover the deficiency judgment
foreclosing on the real estate mortgage constituted by third-party mortgagors. Can it be
allowed? Answer: The Court held that the seller can no longer proceed to foreclose on
the real estate mortgage because if the guarantor should be compelled to pay the
balance of the purchase price, the guarantor will in turn be entitled to recover what he
has paid from the debtor vendee; so ultimately, it will be the buyer who will be made to
bear the payment of the balance of the price, despite the earlier foreclosure of the
chattel mortgage given by him (Cruz v. Filipinas Investment & Finance Corp., 23 SCRA
791).
3. Applicability of Recto Law: The Recto law applies also 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 (Art. 1485, NCC).
Note: If the contract is made to appear as a lease but there is a stipulation granting the lessee
the option to purchase the leased property for a small consideration at the end of the term,
23
provided the so-called rents have been duly paid, or with stipulation that if the rent throughout
the term is paid, title shall thereupon vest in the lessee, the contract is actually a sale of
property in installments and the so-called rent must necessarily be regarded as payment of the
price in installments. This is a way of circumventing the Recto Law. (PCI Leasing and Finance,
Inc. v. Giraffe-X Creative Imaging, Inc., G.R. No. 142618, July 12, 2007)
Note: In choosing, through replevin, to deprive the lessee-buyer of possession of the leased
equipment, the lessor-seller waived its right to bring an action to recover unpaid rentals on the
said leased items. The condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Article 1485 was fulfilled by the filing by the
lessor-seller of the complaint for a sum of money with prayer for replevin to recover possession
of the office equipment. By virtue of the writ of seizure issued by the court, the lessor-seller
has effectively deprived lessee-buyer of their use, a situation which, by force of the Recto Law,
in turn precludes the former from maintaining an action for recovery of accrued rentals or
the recovery of the balance of the purchase price plus interest. (PCI Leasing and Finance, Inc. v.
Giraffe-X Creative Imaging, Inc., supra).
SALE OF IMMOVABLE PROPERTY
THRU INSTALLMENT
(MACEDA LAW: R.A. 6552)
Applicability: Applies to sale or financing of real estate on installment payments, including
residential condominium apartments. The MACEDA law applies to sale of real estate on
installments, whether the contract be one of sale or one of contract to sell (Villanueva, Sales,
432; Rillo v. CA, 274 SCRA 461).
Not Applicable:
1.
Sale of
2.
Sale of
3.
Sale of
agrarian reform law
4.
Sale of
industrial lots
commercial buildings
urban land covered by urban land reform and agricultural land under
lands payable in straight terms
If Buyer Has Paid At Least 2 Years of Installments:

1. Buyer is entitled to a.
Grace period within which to pay unpaid installments, without additional interest:
Grace period is at the rate of 1 month per one year of installment payment;
This right can only be exercised by buyer only once in every 5 years of life of
contract and its extensions.
Buyer may also assign his right during the grace period.
b.
Refund of cash surrender value, in case seller cancels/rescind the contract:

Cash surrender value is equivalent to 50% of total payments.
After 5 years of installments, there is an additional cash surrender value
equivalent to 5% every year but not to exceed 90% of total payments.
2. Seller has right to cancel the contract after the grace period:
a.
Requisites for validity of cancellation:
Receipt by the buyer of the notice of cancellation or demand for rescission of

contract by notarial act.
Full payment of the cash surrender value.

24
Note: Failure to comply with the mandatory twin requirements for a valid and effective
cancellation under the law renders the contract between the parties valid and
subsisting (Active Realty & Development Corp. v. Daroya, 382 SCRA 152). In Layug v. CA,
369 SCRA 36, the Court held that there was no actual cancellation of the contract
when the buyer was not given the cash surrender value.
b.
Actual cancellation takes effect only after 30 days from receipt by buyer of
notice of cancellation or demand for rescission by a notarial act.
If Buyer Has Paid Less Than Two Years of Installments:

1. Buyer is entitled to pay unpaid installments within a grace period of NOT less than 60 days
from the date the installments became due. Within the grace period, buyer also has the
right to assign his rights.
2. After the grace period, seller may cancel the contract AFTER 30 days from receipt by buyer
of notice of cancellation or demand for rescission by a notarial act.
3. Here, there is no cash surrender value.
Maceda Law, mandatory: Any stipulation of the parties contrary to the foregoing rules shall be
null and void (Sec. 7, RA 6552).
SALE OF IMMOVABLE PROPERTY
IN GENERAL
Anticipatory Breach (No Actual Breach): Seller may sue for rescission of sale of immovable
property even in the absence of actual breach by buyer, if the following conditions are present:
1. Seller has already delivered the immovable property but the buyer has not yet paid the
price; and
2. Seller has reasonable grounds to fear the loss of the immovable property and its price (Art.
1591, NCC).
Where There Was Actual Breach (Buyer Failed To Pay Agreed Price Within Agreed Period):
1.
Buyer may still pay 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 the buyer a new term (Art. 1592,
NCC).
2.
The foregoing rule applies even if the contract provides for its
automatic rescission upon failure of the buyer to pay the price at the time agreed upon (Art.
1592, NCC).
3.
An offer to pay prior to the demand for rescission is sufficient to
defeat the sellers right under Article 1592 of the Civil Code (Laforteza vs. Machuca, 333
SCRA 643; Ocampo v. CA, 233 SCRA 551).
4.
Under the provisions of Article 1592, the demand for rescission
must either be judicial or by notarial act. A letter informing the buyer of the automatic
rescission of an agreement does not amount to a demand for rescission if it is not notarized
(Laforteza v. Machuca, 333 SCRA 643).
5.
The foregoing rules (or Article 1592) does not apply in the
following:
a.
Cases covered by RA No. 6552 (or Maceda Law)
b.
Contracts to sell - Article 1592 of the NCC, requiring demand by suit or by
notarial act in case the vendor of realty wants to rescind does not apply to a contract to
sell but only to contract of sale (Pangilinan v. CA, 279 SCRA 590).
25
c.
Sale on installment of real estate where parties have laid down the procedure
to be followed in the event vendee failed to fulfill his obligation (Torralba v. Delos
Angeles, 96 SCRA 69).
REMEDIES OF UNPAID SELLER OF GOODS
Who Is Unpaid Seller:

1. When the whole of price has not been paid or tendered; and
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 (Art. 1525, NCC).
Remedies of Unpaid Seller:
1. If ownership has already passed to buyer:
a.
He has lien on goods or right to retain them for the price while he is in possession of
them;
b.
In case of insolvency of buyer, a right of stopping the goods in transitu after he has
parted with the possession of them;
c.
Right of resale;
d.
Right to rescind.
2. If ownership has not passed to buyer, right to withhold delivery, in addition to his other
remedies (Art. 1526, NCC).
Right to Retain (Possessory Lien):
1. Requisites:
a.
Seller is unpaid;
b.
Goods are in his possession; and
c.
Presence of any of following circumstances:
1)
Goods have been sold without any stipulation as to credit;
2)
Goods have been sold on credit, but the term of credit has expired; and
3)
Buyer becomes insolvent (art. 1527, ncc).
2. When unpaid seller loses right to retain:
a. 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;
b. When buyer or his agent lawfully obtains possession of the goods;
c. By waiver thereof (Art. 1529, NCC).
Right of Stoppage in Transitu:
1. Concept - It is the right of unpaid seller to resume possession of the goods at any time
while they are in transit by virtue of which he will then be entitled to the same rights in
regard to the goods as he would have had if he had never parted with the possession (Art.
1530, NCC).
2.
When available, requisites:

a. Seller is unpaid;
b. He has already parted with possession of goods; and
c. Buyer is or becomes insolvent (art. 1530, ncc).
How right is exercised: Either by -a. Obtaining actual possession of goods; or

b. Giving notice of his claim to carrier or other bailee in whose possession the goods are
(Art. 1532, NCC).
3.
26
Effect of Sale by Buyer: If buyer sold the goods to another before the unpaid seller could
exercise his right of lien or his right of stoppage in transitu --1. General rule: Unpaid sellers right is not affected.
2. Exceptions:
a. Unless the unpaid seller assented to the sale; or
b. If a negotiable document of title had been issued for the goods, and subsequently, such
document was negotiated to a purchaser in good faith and for value either before or
after notification to the carrier or bailee who issued the document of the sellers claim to
a lien or right of stoppage in transitu, the right of the purchaser would then be superior
to that of the unpaid seller (Art. 1535, 1518, NCC).
Right of Resale:
1. Requisites:
a. Seller is unpaid;
b. He has a right of lien or should have stopped the goods in transitu; and
c. Any of the following circumstances be present:
1)
Goods are perishable;
2)
Seller has expressly reserved right of resale in case buyer should make default; or
3)
Buyer has been in default in the payment of price for unreasonable time (art. 1533,
NCC).
2. Effect of resale by seller: buyer acquires a good title against the original buyers. The
unpaid seller is not liable to original buyer upon the contract of sale or for any profit made
by reason of resale. Instead, seller may recover from buyer damages for any loss occasioned
by the breach of contract of sale (Art. 1533, NCC; Katigbak v. CA, 4 SCRA 243).
3. Reminder: The unpaid seller cannot directly or indirectly buy the goods (Art. 1533, NCC).
Right of Rescission:
1. Requisites:
a. seller is unpaid;
b. he has a right of lien or should have stopped the goods in transitu; and
c. any of the following circumstances is present:
1)
Seller has expressly reserved right to do so in case buyer should make default; or
2)
Buyer has been in default in the payment of the price for unreasonable time (art.
1534, NCC).
2. Effect of resale: Once the unpaid seller has rescinded the transfer of title and resumed
ownership in the goods, he shall not thereafter be liable to buyer upon the contract of sale.
Instead, he may recover from buyer damages for any loss occasioned by breach of contract
(Art. 1534, NCC).
REMEDIES OF BUYER
Action for Specific Performance (Art. 1598, NCC):
1. When seller has broken a contract to deliver specific or ascertained goods, buyer may ask
for specific performance, without giving seller the option to retain the goods on payment of
damages.
2. Judgment may be unconditional, or upon such terms and conditions as to damages,
payment of the price and otherwise, as the court may deem just.
In Case of Breach of Warranty by Seller: Buyer may, at his election --1. Accept or keep goods and set up against the seller, the breach of warranty by way of
recoupment in diminution or extinction of price;
27
2. Accept or keep goods and maintain an action against seller for damages for breach of
warranty;
3. Refuse to accept goods, and maintain an action against seller for damages for breach of
warranty; or
4. Rescind contract of sale and refuse to receive goods or if goods have already been received,
return them or offer to return them to seller and recover the price or any part thereof which
has been paid (Art. 1599, NCC).
Remedy of Rescission by Buyer:
1. Not entitled to rescind:
a. If he knew of breach of warranty when he accepted the goods without protest;
b. If he fails to notify the seller within a reasonable time of the election to rescind;
c. If he fails to return or offer to return the goods to the seller in substantially as good
condition as they were in at the time the ownership was transmitted to the buyer (Art.
1599, NCC).
2. If entitled to rescind and elected to do so:
a. He shall cease to be liable for the price upon returning or offering to return the goods.
b. If price or any part thereof has already been paid, seller shall be liable to repay so much
thereof as has been paid, concurrently with the return of the goods, or immediately
after an offer to return the goods in exchange for repayment of the price.
c. If the seller refuses to accept an offer of buyer to return the goods, the buyer is deemed
to hold the goods as bailee for seller, but subject to a lien to secure payment of any
portion of the price which he has been paid, and with remedies for the enforcement of
such lien (Art. 1599, NCC).
Right to Suspend Payment:
1. In sales not involving subdivision or condominium projects:
a. Grounds for suspension of payment:
1)
The vendee is disturbed in the possession or ownership of the thing
acquired; or
2)
Vendee has reasonable grounds to fear such disturbance, by a vindicatory
action or for a foreclosure of mortgage (Art. 1590 NCC).
Note: But a mere act of trespass does not authorize the suspension of the payment
of the price (Art. 1590, NCC).
b. Remedies of buyer: He may suspend payment of the price until the vendor has caused
the disturbance or danger to cease. But this remedy of suspension may not be availed of
if the seller gives security for the return of the price or it has been stipulated that,
notwithstanding any such contingency, the vendee shall be bound to make the payment
(Art. 1590, NCC).
2. In sales involving subdivision or condominium projects:
a. Ground for suspension of payment: 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 the same (Sec. 23, PD 957).
b. Alternative remedies of the buyer: (1) The buyer may suspend payment and wait for
further development; or (2) he may demand reimbursement of the total amount paid
(Sec. 23, PD 957).
1)
In case of the first option, the owner/developer may not forfeit the
installment payments made by the buyer (Sec. 23, PD 957). He may not also be
ousted from the subdivision (Relucio v. Brillante-Garfin, 187 SCRA 405).
28
2)
In case of the second option, the notice of informing the developer of the
intention not to remit further payments on account of non-development of the
subdivision, and the demand for refund, can be made at the same time (Casa
Filipina Realty Corp. v. Office of the Pres., 241 SCRA 165).
EXTINGUISHMENT OF SALE
Modes of Extinguishment:
1. Same causes as all other obligations;
2. Conventional redemption; or
3. Legal redemption.
CONVENTIONAL REDEMPTION
Concept: That which takes place when vendor reserves the right to repurchase the thing sold
with the obligation to reimburse to the vendee the price of the sale, the expenses of the
contract, other legitimate payments made by reason of the sale, as well as necessary and useful
expenses made on the thing sold (Arts. 1601, 1616, NCC).
When Conventional Redemption Presumed To Be Equitable Mortgage: In any of the
following cases 1. Price of a sale with right to repurchase is unusually inadequate;
2. Vendor remains in possession as lessee or otherwise;
3. Upon or after expiration of the right to repurchase another instrument extending the period
of redemption or granting a new period is executed;
4. Purchaser retains for himself a part of purchase price;
5. Vendor binds himself to pay taxes on thing sold;
6. In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any other
obligation; and
7. When there is doubt as to whether the contract is a contract of sale with right of
repurchase or an equitable mortgage (Arts. 1602 & 1603, NCC).
Equitable Mortgage:
1. Concept: 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 property as security for a debt, and contains nothing impossible or contrary to law
(Dorado Vda. de Delfin v. Dellota, 542 SCRA 397).
2. Presumption under Article 1602: Case law consistently shows that the presence of even
one of the circumstances enumerated in Article 1602 suffices to convert a purported
contract of sale into an equitable mortgage (Dorado Vda. de Delfin v. Dellota, supra.). For a
presumption of an equitable mortgage to arise, two requisites must be satisfied:
a. That the parties entered into a contract denominated as a contract of sale; and
b. That their intention was to secure an existing debt by way of mortgage (bacungan v. Ca,
574 SCRA 642).
Note: The presumption of equitable mortgage created in Article 1602 of the NCC is not
conclusive - it may be rebutted by competent and satisfactory proof of the contrary
(Santiago v. Dizon, 543 SCRA 402).

29
3. Remedy: The apparent vendor may ask for the reformation of the instrument (Art. 1605,
NCC).
Period of Conventional Redemption:
1. That provided in the agreement, but the period cannot exceed 10 years;
2. In the absence of express agreement, the period is 4 years from date of contract (Art. 1606,
NCC).
However, vendor may still exercise the right to purchase within 30 days from the time final
judgment was rendered in a civil action on the basis that the contract was a true sale with
right to repurchase (Art. 1606, NCC). This refers to cases involving a transaction where one
of the parties contests or denies that the true agreement is one of sale with right to
repurchase; not to cases where the transaction is conclusively a pacto de retro sale (Felicen
v. Orias, G.R. No. L-33182, Dec. 18, 1987).
Obligations of Vendor A Retro When He Exercises Right to Repurchase:

1. Return to vendee price of sale;
2. Pay expenses of the contract and other legitimate payments made by reason of sale; and
3. Pay all necessary and useful expenses made on thing sold (Art. 1616, NCC).
LEGAL REDEMPTION
Concept: 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 (Art. 1619, NCC).
Instances of Legal Redemption under Civil Code:
1. Redemption by other co-owners or any one or some of them: If a co-owner sells his
undivided share to a third person. If two or more co-owners desire to exercise the right,
they may only do so in proportion to the share they may respectively have in the thing
owned in common (Art. 1620, NCC).
2. Redemption by other co-heirs, or by any one of them: If a co-heir sells his hereditary
right to a stranger (Art. 1088, NCC).
3. Redemption by owner of adjoining land:
a. In case of rural - If owner alienate it to a third person, the area of which does not
exceed one hectare. If two or more adjoining owners desire to exercise the right at the
same time, the owner of the smaller area shall be preferred; and should both lands have
the same area, the one who first requested the redemption (Art. 1621, NC).
b. In case of urban land --- If owner 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 and which said owner had bought merely for speculation, resell it to a third
person. If resale has not yet been perfected, an owner of adjoining land shall have a
right of pre-emption; in other words, his right to buy the property is preferred to that of
third persons. If two or more adjoining owners desire to exercise the right of preemption or redemption as the case may be, the owner whose intended use of the land
appears best justified shall be preferred (Art. 1622, NCC).
4. Redemption by a debtor: If a credit or other incorporeal right in litigation be sold by the
creditor to a third person (Art. 1634, NCC).
Period of Redemption/Pre-emption: 30 days from notice in writing by the prospective vendor,
or by the vendor, as the case may be (Art. 1623, NCC).
30
Redemption vs. Pre-emption:

1. Redemption, effected after the sale; pre-emption, effected prior to sale.
2. Redemption, directed against third persons who bought the property; pre-emption, directed
against the prospective vendor who is about to resell the property.
3. Pre-emption may be exercised only where there is prospective resale of a small piece of
urban land originally bought by the prospective vendor merely for speculation.

31

Sales

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Sales

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SALES

Characteristics of Contract of Sale:

Contract of Sale Itself:

Subject matter must have possibility of existence;

Sale between Husband and Wife:

PERFECTION AND RISK OF LOSS

If it deteriorates thru fault of vendor, vendee may choose between rescission of

TRANSFER OF OWNERSHIP AND

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RULE ON DOUBLE SALE

Obligation to Pay Price:

CONDITIONS AND WARRANTIES

Warranty Against Eviction:

a. Vendor bears the loss; and

Redhibitory defects on animals --- The action must be brought within

2. When Vendee Liable to Pay Interest:

If it has been so stipulated;

If the thing sold and delivered produce fruits or income; or

SALE OF PERSONAL PROPERTY

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If Buyer Has Paid At Least 2 Years of Installments:

Refund of cash surrender value, in case seller cancels/rescind the contract:

Receipt by the buyer of the notice of cancellation or demand for rescission of

Full payment of the cash surrender value.

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If Buyer Has Paid Less Than Two Years of Installments:

Who Is Unpaid Seller:

When available, requisites:

How right is exercised: Either by -a. Obtaining actual possession of goods; or

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Obligations of Vendor A Retro When He Exercises Right to Repurchase:

Redemption vs. Pre-emption:

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