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Friday June 24, 2016 (2 hours) - You cannot expect to receive the 10,000 without parting
with ownership and possession of the thing (Seller)
CHARACTERISTICS
NOMINATE
CONSENSUAL
Q: “Ma’am gipadad-an nako sa akong parents ug kwarta para
“We agreed that I will deliver this to you and I will transfer
Macbook Air. Pero nagasto nako sa akong gown sa
ownership of this gadget to you and that you will pay me 10,000.”
acquaintance party. Ako raba giignan akong parents nga para
Q: In order to perfect that contract, do I need to deliver this to to sa Macbook Air. Pwede akong hulman imong laptop ma’am
you? para akong ipakita sa akong parents?”

In order to perfect the contract, do you need to pay me first the “Sige hulmi lang ni ibalik next week.”
agreed price of 10,000?
“Salamat ma’am. Atong contract ma’am ha kay SALE!”
A: No, because a contract of sale is perfected by mere consent. As
“Sige atong contract kay SALE! Pero i-uli na nako ha?”
long as one of the contracting parties undertakes to deliver to
transfer ownership and the other party undertakes to pay the price. HAVE WE ENTERED INTO A CONTRACT OF SALE?

The law did not say one of the contracting parties delivers and
transfers ownership and the other pays the price certain in money.
So from the definition itself, we can see already that the contract is
consensual contract. Not formal contract, not a real contract.
BILATERAL
- A contract of sale imposes obligations on both parties
o On the part of the seller to deliver and transfer
ownership
o On the part of the buyer to pay the price certain in
money or its equivalent
ONEROUS
- You cannot expect to own the thing without paying the
price (Buyer)
A: We cannot call any other contract a CONTRACT OF SALE, unless
all the elements of sale are present.
So if we agree that I will deliver this to you and I will transfer
ownership of this to you. Then you will pay me 10,000… we cannot
call it CONTRACT OF LEASE. Or du ut des, facia ut des, or facia ut
facias.
Why? Because there is a definite name given to that agreement by
law. IT IS A CONTRACT OF SALE.
- A contract is what the law defines it to be, not what the
parties call it to be.
PRINCIPAL
- Sale is a principal contract, not an accessory contract.
- What is an accessory contract by the way?

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o It is a contract dependent upon the existence of a
principal contract for its validity.
- Ex: PLEDGE
o I delivered this laptop to you in pledge. For what?
Wala lang, basta kay PLEDGE! You accepted the
thing and we agreed that it is PLEDGE.
o Now pledge is an accessory contract whereby a
movable is delivered by the debtor (pledgor) to the
creditor (pledgee) as security for the fulfillment of a
principal obligation.
o So you cannot deliver a thing in pledge without the
existence of a principal obligation that is secured by
the pledge.
o So di pwede nga akoa lang ni ideliver ang laptop sa
imoha para i-pledge because there must be a
principal obligation such as a contract of loan or
whatever obligation it is where the debtor promises
to perform the obligation and it is secured by the
pledge.
- Therefore, you don’t need to enter into a preparatory
contract in order to enter into a contract of sale.
- The contract of sale is also not dependent on another
contract for its validity.
o Imagine if the law requires you to enter into a
CONTRACT TO SELL before you can enter into a
CONTRACT OF SALE.
COMMUTATIVE
o Contract to Sell – is a conditional contract of sale
where fulfillment of a suspensive condition gives
rise to the obligation of the seller to sell the thing.
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 Imagine if mupalit ka ug bugas nga usa ka
kilo, unya kailangan pa ka mu-enter into a
contract to sell.
 No! You immediately enter into a contract
[to buy the rice].
o CONTRACT OF PARTNERSHIP IS A PREPARATORY
CONTRACT.
 Is partnership a contract? Yes!
 Definition: Partnership is contract whereby
two or more people bind themselves to
contribute money, property or industry to a
common fund with the intention of dividing
the profits among themselves.
 So the partners do not contribute money
and let that money just sit in the vault. Tan-
awon lang nato ang kwarta, after one year
mu-grow nana to 50% profit.
 No, you pool your resources because you
will eventually enter into other contracts
for you to earn your profits.
- So you can say that PARTNERSHIP is a preparatory contract.
Once you pool your resources, the partnership is also not
extinguished.
- In a CONTRACT OF SALE, once the thing is delivered and the
price is paid… what happens to the contract?
EXTINGUISHED.
- Not aleatory contract

- Why? Because the parties receive more or less equivalent
values.
- The consideration/performance of the parties is already
predetermined upon the perfection of the contract.
- Unlike an aleatory contract, where performance is
contingent upon a contingency.
o Ex: Insurance
DELIVERY TRANSFERS THE OWNERSHIP OF THE THING
Q: Does sale transfer ownership of the subject thing?
A: No. Let us go back to our example.
We agreed that I will deliver this laptop and transfer ownership to
you and you will pay me 10,000.
Have we perfected the contract of sale? Yes.
Is ownership transferred? No.
- Sale is only a contract which paves the way for the transfer
of ownership. Because it is DELIVERY THAT TRANSFERS
OWNERSHIP. (Exam material. Very important!!!)
- Sale is just a title. The MODE OF TRANSFER OF
OWNERSHIP IS DELIVERY.
- So even if you paid the price, but I have not delivered the
thing to you, ownership is not transferred.
- In oblicon, there are several modes of transferring
ownership – ACTUAL AND CONSTRUCTIVE DELIVERY.
- Modes of constructive delivery:
o tradition symbolica
o tradition longa manu
o tradition brevi manu
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o execution of a public document
- So, delivery is not just actual delivery. There is also
constructive delivery. That’s what transfers ownership, not
the contract of sale.
DISTINGUISH SALE FROM OTHER CONTRACTS
AGENCY
- In general, an agreement whereby one person who is the
agent acts or performs an act in representation of the other
who is the principal
- The act of the agent is act of the principal
AGENCY TO SELL
- Remember in sale, when I deliver this to you I transfer
ownership to you
- What if P (principal) asked A (agent) to sell the thing for me
for 10,000 and A is entitled to commission of 10%? That is
agency to sell.
- When P delivers the thing to A, am I transferring
ownership? No.
- When A sold the thing, does he own the money paid for the
thing sold? No. A is obliged to account for the proceeds.
- When A delivers the thing to the B (buyer), was ownership
transferred from A to B? No. Ownership was transferred
from Principal to Buyer.
AGENCY TO SELL: If A failed to account for the money, can P hold
you criminally liable? Yes, that is misappropriation (estafa).
SALE: If Buyer doesn’t pay Seller the price, can S hold B criminally
liable? No, buyer cannot be liable for misappropriation. How can

you misappropriate your own money? Before the price is paid to
Seller, the Buyer owns his money.
- S cannot hold B criminally liable for failing to pay the price.
- Seller CAN ONLY HOLD Buyer CIVILLY LIABLE (SPECIFIC
PERFORMANCE AND DAMAGES)
CASE: Quiroga v Parsons
- Sale of mattresses
- What was stipulated was Parsons would order by the dozen
that would entitled Parsons to a 25% discount and that he
should pay the price within 60 days from shipment
- The contract between Quiroga and Parsons was a contract
of sale and not agency to sell
- Quiroga filed a case to Parsons for breach of contract for
CASE: CIR v Engineering Equipment
their agency to sell
- Theory of Quiroga was their agreement was an agency to
sell. Parsons violated by failing to pay the price.
- SC ruled that Parsons is a buyer because he is obliged to
pay within 60 days whether the thing is sold or not
- There is a contract of sale not an agency to sell.
CONTRACT FOR A PIECE OF WORK
Art. 1729, NCC
- This is quite tricky because how do we know if it is a
contract of sale or a piece of work?
- For example, you found a furniture you like in a magazine.
So you went to a furniture store to ask if the item is in their
inventory. They don’t have it in their inventory but THEY
CAN MAKE IT FOR YOU.
- As far as you are concerned, you just want to acquire the
furniture by paying the price. You don’t care whether or not
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they have it in their inventory or they will make it for you.
But why is it important to distinguish sale from piece of
work? One reason is for TAX.
- HOW TO DISTINGUISH CONTRACT OF SALE FROM
CONTRACT FOR A PIECE OF WORK
o Massachusetts Rule
 If the thing is especially done for the
customer, then it is a CONTRACT FOR A
PIECE OF WORK.
 If the thing is just out of stock, but it is
usually manufactured by the seller as part
of the inventory, it is a CONTRACT OF SALE.
- It was a contract for the fabrication and installation of a
centralized air conditioning system.
- The centralized AC is tailor fit to the needs of the customer.
Meaning no two aircon systems are the same
- This is important to determine whether Engineering is
liable for sales tax or income (? or inventor’s?) tax
Those who put their labor upon or furnish materials for a piece
of work undertaken by the contractor have an action against
the owner up to the amount owing from the latter to the
contractor at the time the claim was made. However, the
following shall not prejudice the laborers, employees and
furnishers of materials:

1. Payments made by the owner to the contractor before they
are due;
2. Renunciation by the contractor of any amount due him
from the owner;
This article is subject to provisions of special laws.
Take note ani next kay gitindugan jud ning Ma’am A.
SITUATIONAL:
I want to construct a building. I engaged the services of a
building contractor. I entered into a contract with the
Contractor. If you are the contractor, you don’t furnish all the
materials. You have your suppliers.
The contract is between me and the contractor. I have no privity
of contract with his suppliers.
But I require a special kind of grill for the windows. Contractor
engaged the services of X Supplier to fabricate the grills for the
windows. This is especially fabricated by X Supplier for this
project.
Contractor did not pay X Supplier. However, I still have a
payable to Contractor.
X now notifies me to hold my payment to Contractor because X
was not paid for the especially made grills.
Do I have privity of contract to X Supplier? No.
Am I obliged to pay X? Generally, NO.
CAN I BE COMPELLED TO PAY X?
It depends.
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- If what X and Contractor entered into was a CONTRACT OF
SALE, I wouldn’t be liable.
- But it was a CONTRACT FOR A PIECE OF WORK, so under
Art. 1729 I can be obliged to pay X if he was unpaid by the
Contractor.
- In fact, if I paid Contractor even before my payable was not
yet due. On the other hand, X Supplier was unpaid by
Contractor. I can still be made to pay X Supplier, if my early
payment to Contractor was made in bad faith. (kaduha
magbayad to Contractor and to X)
CASE: Del Monte v Aragones
- Supplier already notified Owner to withhold payment to
Contractor
- Despite notification, Owner paid Contractor
- Citing Art. 1729, SC asked Owner to pay Supplier because
Owner acted in bad faith (there was prior notification
before payment was made to contractor)
- The Court qualified that the contract between Supplier and
Contractor must be for a PIECE OF WORK.
BARTER
- When the consideration in a contract consists in partly
money and partly in another thing (Art. 1486)
- Ex: You and I enter into a contract where I will deliver my
Macbook in exchange for your iPad and cash. Is it barter or
sale? IT DEPENDS.
- First, consider THE MANIFEST INTENTION OF THE PARTIES.
- WHAT IF WE CANNOT DETERMINE THE INTENTION OF THE
PARTIES? It depends.
o If the value of the thing is more than cash = barter

oIf the value of thing is equal to or less than the cash
= sale
- WHY DO WE NEED TO KNOW IF IT IS BARTER OR SALE?
(IMPORTANCE)
o STATUTE OF FRAUDS
 If it is a sale, it is covered by the STATUTE
OF FRAUDS
 If the value of the chattel or property is 500
or more, it has to be in writing to be
enforceable. (take note: not to be valid)
o LEGAL REDEMPTION
 In barter, NO LEGAL REDEMPTION
 In sale, THERE IS LEGAL REDEMPTION
 What is redemption? To buy back.
 Legal redemption – there are instances
when the law itself provides the right to
redeem the property previously sold.
 Ex: legal redemption by co-owners
or adjacent owners
DATION IN PAYMENT
- Payment is the first mode of extinguishing an obligation. It
is not just payment in money but also performance in any
manner of the obligation.
- Special modes of payment – ex. dation in pago
- Dation in pago is governed by the law on sales to the extent
of the value of the property
DISTINGUISH:
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- In dation in pago, the parties agree on the total
extinguishment of the obligation once the property is
delivered to the creditor. There is a pre-existing obligation,
usually for payment of money.
- In sale, there is no pre-existing obligation.
LEASE
- DELIVERY – present in both lease and sale
o In sale, delivery transfers ownership.
o In lease, delivery transfers only the temporary use
of the thing (possession) not ownership.
- CONSIDERATION
o In sale, the consideration is price.
o In lease, the consideration is rentals.
Sidenote: We will take up later on that if the intention of the parties
is to treat the rentals as installment for the thing, it is covered by
the Recto Law (Sale of Personal Property on Installment). (Art. 1484)
DONATION
- Sale is bilateral. Donation is unilateral.
- Sale is onerous. Donation is gratuitous.
- Sale is consensual (perfected by mere consent).
- How is donation perfected?
o Is it perfected by the execution of the document of
donation
o And acceptance of the donee in a document
 If real property, the acceptance must be in
a public document.


If personal property, delivery perfects the
donation.
- IMPORTANCE? For tax purposes.
SITUATIONAL:
Remember in Oblicon when the document seems to be a simulated
contract because in fact there was no consideration paid for the
delivery of something.
- The court will not immediately void the agreement. It will
ascertain the underlying agreement of the parties.
- That agreement will be governed by the law on donations.
- TAX PURPOSE:
o Sale of capital asset – seller is subject to capital
gains tax; up to 6% for real property
o Donation to stranger (not a brother, sister,
ascendant or descendant) – seller is subject to
donor’s tax; donation to stranger up to 30%
 Remember, donation to your cousin is
already donation to a stranger
 Donation to your sister and her husband –
donation to the husband is 30%
SITUATIONAL: When you distribute your properties to your children
before you die. That’s part of estate planning. That’s not tax
evasion, that’s tax avoidance.
Unya ang mga anak kay minyo na. As a lawyer you should ask if
ihatag sa anak lang or including the spouse?
- The deed of donation should transfer to the child only. And
it should be exclusive property of the child.
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- Because once you donate also to that spouse, that will be
slapped with 30% donor’s tax.
- Remember, you do not determine the tax base. For real
property, it is based on the zonal value or market value,
whichever is higher.
PROMISE TO SELL
I promise to sell my laptop to you for 10,000 and you promise to
buy for 10,000.
- Can you compel me later on to sell this to you? Do we have
a binding agreement?
o Yes, it is a binding executory agreement.
o Executory – means once the other party complies,
the other is bound to fulfill his obligation
- An unconditional mutual promise to buy and sell as long as
the object is made determinate and the price is fixed, can
be obligatory between the parties and compliance
therewith may accordingly be exacted
I promise to sell the laptop for 10,000.
- In this case, the seller only promises to sell but the buyer
has not promise to buy.
- This is an accepted unilateral promise to sell
- But later on, can the buyer compel the seller to sell the
thing?
- NO. If there is no consideration distinct from the price.
- An accepted unilateral promise to sell is not binding on the
promisor (seller) if it is not supported by a consideration
distinct and separate from the price.
- We call that option contract.
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CASE: Eulogio v Apeles - CAN THE BUYER COMPEL THE SELLER TO SELL THE
REMAINING PORTION AT 70/SQM?
- The lessor promised to lease the property at a certain price
o The Court did not allow exercise of the option.
to the lessee.
Why?
- The lessee is given the option to purchase the property for
o Remember prescription of actions.
1.5M within the term of the lease contract.
 If based on a written contract, 10 years
- Subsequently, the lessee informed the lessor his intent to
 If based on an oral contract, 4 years
purchase the property.
 Since 17 years has passed the Court said
- Can the lessee compel the lessor to sell the property?
that the option contract has prescribed.
- SC ruled NO, it was not supported by a consideration
distinct from the price. RIGHT OF FIRST REFUSAL

CASE: Not assigned. - Option: I offer to sell this to you for a particular price. I will
give you time to decide.
- There was one whole parcel of land. The market value was
o But for option to be enforceable, there has to be
only 25/sqm (example).
separate consideration to compel the seller to sell.
- The buyers purchased ½ portion of the lot for 70/sqm.
o If supported by a consideration, I cannot refuse to
Almost 3 times the market value.
sell
- The reason why the buyers agreed to purchase at a higher
- Right of first refusal: When I decide to sell this, I will offer
price was because the seller agreed to sell the remaining ½
this to you first.
portion at the same price of 70/sqm.
o For example, it is included in the lease contract that
- Was there an option contract? Yes!
the lessor will offer the property you first should he
- Was there a valuable consideration separate from the
decide to sell.
price?
o Later on the lessee wanted to build a house on the
o Yes! It is the difference between 70 and 25/sqm.
leased land
That is the consideration for the option contract.
o Can the lessee compel the lessor to sell the thing?
o Consideration for an option contract is not
 NO. It is up to the lessor whether to sell
necessarily a monetary consideration, as long as it
the thing.
is a consideration for value.
o What if the lessor sold the property to another
person in good faith? The lease contract was not
- After 17 years, the buyer remembered their agreement.
recorded in the register of deeds. Can the lessee
The price of the land his now higher than 70/sqm.
rescind the contract?

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 NO. The third person was a buyer in good
faith.
 But the lessee can sue the lessor for
damages.
 Except, if the buyer was in bad faith (with
knowledge of right of first refusal). The
lessee can have the contract rescinded.
 In this case, the lessee has to buy
the property. DON’T RESCIND THE
CONTRACT IF YOU DON’T WANT TO
BUY THE PROPERTY.
 The lessee should pay the same
price as the third person.
CONDITIONAL SALE
- Absolute means ownership is immediately transferred to
the buyer upon execution of the contract and delivery.
- Conditional means an executed contract of sale is subject to
the condition that ownership will be transferred subject to
the negative potestative condition of the nonpayment of
purchase price.
Friday July 15, 2016 (2 hours)
- Review:
o Suspensive is a condition where fulfillment of which
gives rise to an obligation (pa suspense ba)
CONTRACT OF SALE V. CONTRACT TO SELL
o Positive potestative condition means the
fulfillment of the condition extinguishes an already
existing obligation
o Negative potestative means non fulfillment of the
condition extinguishes an already existing obligation
- In absolute sale, ownership is not reserved by the seller. It is
already transferred to the buyer.
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- In conditional sale, ownership is subject to a certain
condition. Usually it is the full payment of the purchase
price.
o Non-payment of the purchase price extinguishes
the obligation to transfer the ownership to the
buyer
o Therefore, the ownership reverts to the seller
- Ex: When the seller reserves ownership of the condominium
until after full payment of the price. This is CONTRACT TO
SELL A REAL PROPERTY.
o After full payment of the purchase price the seller
will now execute an ABSOLUTE DEED OF SALE.
- Is the ownership still reserved in a CONTRACT TO SELL, even
if the seller already delivered the property to the buyer?
o YES! Mao mani mahitabo usually inig mupalit ka ug
condo, house and lot. They are usually covered by
contract to sell.
- Contract to Sell – bilateral contract whereby the prospective
seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to
the prospective buyer upon payment of full purchase price.

Judge: The non-payment of the price or the non-fulfilment of the
suspensive condition is not considered a breach of contract but
result in the situation which prevents the obligation of the vendor
to transfer to or from acquiring an obligatory thing.
o In short kung di kabayad ang buyer, di sad mu-
transfer ug ownership ang seller.
- Contract of Sale – no reservation of ownership where the
owner can unilaterally rescind the contract if one of the
party fails to fulfil its duty.
[Ong v. CA]
[Coronel v. CA]
CONTRACT TO SELL V. CONDITIONAL SALE
Judge: How does the contract to sell differ from a conditional
sale?
- If in both contracts, title is reserved to the seller or the
owner of the thing, the fulfilment of the suspensive
condition in the contract to sell gives rise to the obligation
of the prospective seller to transfer title.
o In both, kung wa kabayad dili i-transfer ang
ownership from seller to buyer.
- But in a conditional sale, the fulfilment of the suspensive
condition automatically transfers title to the buyer. In a
contract to sell, mag execute pa ug another set of
documents to transfer the title to the buyer – so not
automatic.
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- In a contract to sell, non-fulfilment of the suspensive
condition does not give the prospective seller the right to
demand fulfilment.
- Whereas in conditional sale, the non-fulfilment gives the
seller the right to exact fulfilment. So they differ in the
remedies.
- In a contract to sell, non-fulfilment of the suspensive
condition does not necessitate the recession of the
contract.
o There’s no contract to rescind actually because
there is no obligation of the seller to transfer the
title.
- In a conditional sale, non-fulfilment of the suspensive
condition may give rise for an action for rescission of the
contract.
o So either fulfilment or rescission
- Contract to sell, no fulfilment, no specific performance, no
rescission of the contract.
o But I have to emphasise, this is a contract to sell
which is not covered by the Maceda Law, because
the Maceda Law has a totally different …but the
Maceda Law is not found in the Civil Code, it’s
found in RA 6552.
[Coronel v. CA]
[Nabus v. Pacson]
Arts. 1459 – 1465
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I. Object Cannot be sold within...dibuh naa man mo Social

Legislation? (wala. Second half pa. agra pa mi now)
A. Qualities – The object must be:
…that’s a former Secretary of Justice. Agra buh? Huh? Asa
a. Lawful (1459)
na man inyong current events?
Judge: Now what are the things that are illegal per se that
10 years!
cannot be an object?

Can you sell the clouds? Ibaligya ta lang na para di nan a mo

ari diri. b. Determinate or determinable

Now there are also things that are not illegal per se but are
not considered valid objects of a contract of sale by provision
of law.
1. Future inheritance
[Manlapat v. CA]
- This involves a homestead prior to a grant of a free patent.
The applicant, he has already sold a portion of the property.
And then the patent that was issued to him, shortly before
the 5year prohibitory period..he sold a tiny portion here,
there’s a 50 square meter portion. To allow the buyer
access to road, just a right of way. The contact was not
valid.
- The question is, if that is already declared by the court as
not valid, can the parties enter into another contract of sale
after the 5year prohibitory period? And can the sale be
valid?
- YES. Because that is a totally new contract.
2. Lands awarded to beneficiaries under CARP
- that which is physically segregated or particularly
designated from all others of the same class.
The test whether the thing is determinate or determinable is?
- If it is capable of being segregated from all others of
the same class
- and there must be no new contract entered in order to
segregate.
- This is the twin requirement. So if you have complied
with these two tests then you can say that the thing is
at least determinable.
Can the subject be considered determinate if what is sold is
an undivided portion of a real property?
- YES!
- Would that not violate the rule that the object must be
determinate?
By provision of law, you can sell an undivided share of an
immovable and you can become a co-owner to the extent of
the area that you purchased.

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Now if it pertains to goods, which is part of a mass of fungibles.
For example, this is a warehouse, containing 10 tons of corn
and I sell to you 1 ton of corn. Then you become a co-owner at
the extent of 1 ton without that quantity being physically
segregated from all others.
1. Sales by co-heir of definite portion of estate prior to
partition
[Vagilidad v. Vagilidad]
- Loreto here sold to his brother a definite portion of a
parcel of land. Now this is co-owned property not yet
partitioned that they inherited from their father. But
the father has already died.
- So first question is, are they considered owner even
before partition?
o Yes. Because succession takes place by
operation of law.
- But even before they had already identified their
respective shares, he already sold a definite portion of
this co-own property. Now since this is co-own, it does
not refer to a definite portion, right? (yes)
- Can he sell a definite portion?
o No, he could not. Because he cannot identify
which portion is his. So that sale would be
ineffectual.
- The twist here is when they partitioned the property,
this entire lot was adjudicated to him. Can you now
give effect to that initially ineffective contract?
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o Yes, the court said. The mere fact that Loreto
sold a definite portion of a co-owned lot does
not per se render the sale void.
2. Effect of agreement where the exact number of palays to
be sold was not fixed
[National Grains Authority v. IAC]
- Leon Soriano here offered to sell palay to the National
Grains Authority. His application was approved.
- So he was given a quota of 2,640 cavans. But he was
able to deliver 630 only.
- So when he collected from NGA, NGA said, “well we
are not liable to pay because there was no
determinate subject matter.” They said 2,640 but he
only delivered 630.
- The Court said the fact that the number of cavans to
be delivered was not exactly determined does not
affect the validity of the contract. Provided that it is
possible to determine without entering into another
contract. Meaning the 2,640 is the maximum but he
could deliver less than that.
c. Existing, or Future or Contingent (1462)
- there is no problem if at the time of the sale, the thing
is already existing
- Can future things be an object of sale? Yes.
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- Because at the time of the perfection, there is no d. Transferability of ownership

requirement for delivery, right?
o In fact, the obligation of the seller is to deliver
for as long as it must have a potential of
existence.
- Can you sell hope of expectancy? (yes, lotto) kung
magkalisod ug kwarta, masiaw. (lol)
1. Sale of future inheritance
- Cannot be a subject of sale
[Tanedo v. CA]
- A brother here, Lazaro, during the lifetime of his father
sold 1 hectare of whatever he will inherit from his
father, to another brother. And then the father died.
So after the death of the father, he executed a deed of
conformity. Confirming the sale he made in favor of his
brother.
- First question, was the sale before the death of the
father valid?
o Definitely not.
o So the affidavit of conformity did not validate
that void contract.
- But they entered into another contract. Is that second
contract valid?
o Yes, because it was a totally new contract
entered after the death of the father when he
was already the owner of the property.
- Again, ownership is transferred upon delivery. But
acquisition of ownership by the buyer may be subject
to a contingency.
- For example, right of redemption.
- What do you mean right of redemption?
o Ex: mortgage
o When your property is mortgaged and then
foreclose. And then within one year from the
auction, you can buy back your property
o So where is the contingency there? Let’s just
say the highest bidder is X. X’s acquisition of
title is subject to a contingency. What is that
contingency?
o My act of redeeming the property from him.
So he has to pray hard that within one year
that I do not redeem because if after 1 year I
do not redeem then his title will become
absolute.
1. Sale by mortgage of land not proper subject of mortgage
[Cavite Development Bank v. Lim]
- Now take note boys.
- Here is a son, Rodolfo, made it appear that his father
had already died. Executed an affidavit of adjudication,
he was the sole heir. If you’re a sole heir, you don’t
need to execute an extra-judicial settlement. There is
nothing to settle because you’re the only heir.

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- You need an affidavit of adjudication. That’s what he [Heirs of Arturo Reyes v. Beltran]
did. Claiming that he is the only heir of his father who
- Is not a sale of future inheritance because the sister
was very much alive.
has already died.
- And so he was able to transfer a particular land to his
- But what happened here was that the brother, Socco,
name and obtained a loan. And of course because he
entered into a contract to sell with Reyes over this
did not actually own the property, that was clearly
particular parcel. But the condition of the contract to
against the law.
sell was not the payment of the purchase price.
- Proceeded to foreclose the mortgage, awarded it to
- The condition was that he would sell the property to
the highest bidder, no redemption after one year.
Reyes if he would inherit this.
- Then the father found out of what his son did so he
- During the partition, what was adjudicated to him was
filed a case in court for the reversion of the title. Of
another lot.
course if you are the son, would you contest that?
- So the heirs of Reyes are now demanding from Beltran
o You would not, ka-baga gud nimog nawong!
the execution of Deed of Sale over this land because
- A judgement was rendered by the trial court ordering
there was a contract to sell entered into with Socco.
the reversion of the title and that judgement became
- Beltran was not the party with whom Reyes entered
final and executory so the title was reverted.
into a contract to sell.
- In the meantime Mrs Lim purchased the land from the
- So follow up question, was the heirs of Socco compel
CDB and of course title was also issued to CDB. I really
to sell the property to him?
don’t know what happened in that particular office of
o No, because this was not the subject of the
the Register of Deeds.
contract to sell.
- So Mrs. Lim even made partial payment of earnest
- Do the heirs of Reyes have any cause of action against
money, not option money. But CDB could not deliver
either Beltran or Socco?
or transfer the title of the property because of the
o No. because there was just non-fulfilment of
supervening event which was the reversion of the title
the suspensive condition.
to the father.
o Since the lot was not adjudicated to him, there
was no fulfillment of the condition.

2. Conveyance of privilege to purchase land before it is

awarded to tenant or occupant
Arts. 1469 – 1474
[Hermosilla v. Remoquillo]
I. Price

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o The sum stipulated as the equivalent of the thing sold.
Ideally it is a sum certain in money.
o And as I have said in our first meeting, it is not enough that
there be a meeting of minds with respect to the amount of
the price but also the manner of the payment of the price.
General principles in the agreement as to price
[Boston Bank of the Philippines v. Manalo]
A. Requisites:
a. The price must be real (1471)
- ayaw kog ingna if it is not false
- If there is a legal expectation of the seller to receive the
price and a legal intention of the buyer to pay. If there is no
legel expectation to pay and receive, then that is not real.
1. Effect if price is simulated
[Cruzado v. Bustos]
- Involving another son-in-law. so Agapito here was a
poor man. He was an ordinary court employee. His
income was not even sufficient to provide for his
family because his family was just living in the house of
Bostos.
- Bostos was a wealthy woman. She lives with his
husband in another house in the barrio where their
expensive land holdings were found. So they are not
living in the poblacion, was man silay business. Tua
man ilang farm sa barrio.
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- And lage because Agapito was a poor man, he applied
for the position of procurador. You know parehas
anang tambok ninyo nga professor. Duha ra ka taw
akong pwedi i-bully aning eskwelahana. Si baby boy ug
si …
- And he was appointed as procurador. But could not
discharge his function because he has to put up a
700php bond or a property worth 2,200php.
- He neither had the cash nor the property! Ana sya ka
porbre nga alindahaw. And so he went to his friend
Bustos.
- And since Bustos was generous, she allowed him to
use the same.
- One of Agapito’s son was Santiago, he married the
daughter of Estephania Bustos. Kamo buh di ga-basa
ug kaso. Dapat himoan ninyo ug story para dili boring
buh.
- And then he discovered the title in the name of his
father. Estephania already sold this land to another
person.
- So what Santiago did was to file a case against his
mother-in-law and the buyer to recover the land.
- But his father never ever, never ever ,even for one
second took possession of that land because he knows
it was not his. It was established in the trial that there
really was no consideration. The sale was absolutely
simulated.
Unya kamo sons, would you do that to your monsters-in-
law?

2. Effect if there is no consideration
This is different from a simulated sale.
[Doles v. Angeles]
- Friends of Doles borrowed money from Pua. So asa
man sa picture ani si Doles ug si Angeles? In the
middle.
- Doles was the agent of her friends and Angeles of the
agent of Pua. The friends did not pay the loans so
maybe Pua was hammering on Angeles to pay.
- So what Angeles did was also to hammer from Doles.
Huy! Imo mang na mga amiga, bayri ko ky kung di gani
ko nimo bayran i-kiha tika.
- So Doles executed a deed of sale in favour of Angeles.
But remember in the contract of sale, one of the
contracting party delivers the property and the other
pays a certain money or its equivalent.
- If Doles owned Angeles a sum of money then the
execution would have been valid as a dacion en pago.
But Doles did not owe Angeles a sum of money so
there was a total absence of consideration.
SITUATIONAL: Now I want to give you a parcel of land. Sige mag
himo lang tag deed of sale, making it appear that you paid a certain
amount of money. But really you did not pay any consideration. But
I really have an intention to transfer the property to you. Would you
immediately void the contract?
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- No. you give effect to the intention of the parties.
Remedy is reformation of instrument (NOT
REFORMATION of CONTRACT. Balik mog ObliCon)
b. In money or its equivalent (1458)
What if the parties could not agree on the exact amount of the
price?
What if the price is not stated in monetary term. Let’s go back
to the obligation of the buyer, to pay a sum certain in money
or its equivalent.
[Torres v. CA]
- The sister here own a parcel of land and here comes a
relative who wants to develop the land into a
subdivision project.
- So he said, transfer to me the title of the property. And
the sisters said, what will they get in return? Well he
said your share in the profits.
- But the subdivision project did not materialize because
other relatives of the seller also want to…
- Was there a valuable consideration of the sale?
o Yes. In this case, the cause consisted not in the
stated peso value but the expectation of
profits from the subdivision for which the land
was intended to be used.
- So expected profit can be considered as a valuable
consideration. (money or its equivalent)

c. Certain or Ascertainable (determinable)
1. How determined
i. by third person
[Barreto v. Sta. Marina]
- Commissioners were appointed here by Barreto and
Sta. Marina. They were negotiating business thru their
attorney-in-fact. What was sold here by the way?
What’s the name of the business?
- Barreto had a direct investment and he also had an
indirect investment because he was a partner in an
entity who had a direct investment in LA Insular.
- And so the commissioners were able to determine the
value of the business. But the commissioners did not
determine the value of the interest.
- Question is can we still determine the price? Because
what we agreed was that I will sell to you my 10%
interest.
- Did they need to enter into a new contract to
determine the price?
o No. simple mathematics ra, pwedi ga gani lapis
papel.
- If the third person acted in bad faith or committed a
mistake in determining the price, what is the remedy?
o Resort to the courts, courts will fix the price
- But what if the failure of the third person to come up
with the price is attributable to one of the parties?
Does the aggrieved party have any remedy? [Robles v.
Hermanos]
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ii. by the courts
iii. by reference to a definite day, etc.
- What do we mean by this, market? For example, I offer
to you my 1000 common shares in PLDT. For how
much?
o Whatever is the opening price in the Philippine
Stock Exchange on Monday. Is there a need to
enter into a new contract? No.
- I have a mango plantation in Guimaras and I plan to
harvest it on Sunday. And I offer to sell it to you and
you asked now much, and I said, whatever is the selling
price in that particular stall of the mango in Carbon
market on Sunday. Can we do that? YES.
iv. by reference to invoices
- Okay, I have this store which sells office supplies. And
I’ll be leaving the country, I will be migrating to Syria.
Turkey lang ky di kaau gubot.
- I offered to sell it to you and you said how much. I said,
for the building let’s fix the price at 5M.
- What about the stocks (inventory)? 50% of cost.
- Can you determine the cost of the stock? Kani buh
paper, notebook, pencil. Can you determine. Yes!
- By making reference to invoices. This is what
happened in the McCulough case.
McCulough versus…for wanmilyon years, I still don’t
know how to pronounce that. Mo retire nlng kog
teacher of sales, di gihapon ko kahibaw mo pronounce
ana.

[McCulough v. Aenille]
v. by application of known facts
2. Effect of indeterminability
Sale of improvements introduced in hacienda
[Robles v. Lizarraga Hermanos]
3. Effect of inadequacy of price (1470)
Does not affect the validity of the contract, unless it is
coupled with fraud, or vitiated consent.
[Askay v. Cosalan]
- Here is a poor, old illiterate Igorot in the name of
Askay. Who did not even know how old he was. He
sold a mining claim to a relative by marriage who was
the municipal president.
- Mayor atong lungsora. Then after serveral years, nay
nka sulsul ni Askay, I’m going to buy it from you at this
price. Gi-tunto raka ana imong paryente. Have it
annulled.
- So he went to the court, asking for the nullification of
the sale claiming that the price was inadequate, he
was taken advantage of because he was old, illiterate
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and the buyer was municipal president and was
educated.
- During the trial, he has established that it was not
1php, it was 27php plus 2000 carabaos. Daghan. But
maybe the total value was still inadequate.
- While gross inadequacy of the price suggests fraud
especially if taken in connection with other
circumstances like the fact that one of the parties has
taken advantage of the other, but the fact that the
bargain was a hard one coupled with mere inadequacy
of price when both parties are in a position to form an
independent judgement concerning the transaction, is
not sufficient ground for the cancellation of a contract.
- It was established that before Askay was made to sign
the contract, it was explained to him. gipa sabot syag
maau. Just because feeling niya later on na alkansi
sya, the court said don’t expect the state will bail you
out everytime you make a bad judgement. Daghan
nas korte. Ipa cancel daun on the grounds of fraud.
Vis-a-vis
[Aguilar v. Rubiato]
- Rubiato here was not illiterate. He was of average
intelligence who owns a parcel of land with a total
value of 1000php. He wanted to borrow money.
- A sure buyer in the name of Vila, who presented to
him,”o pirmahi ni ky mangutang ko para nimo.” It was
a special power of attorney.
- The intention of Rubiato was just to borrow money
not more than 1000php. Was Vila did was to enter into

a pacto de retro sale (sale with righ to repurchase).
After one year no redemption so of course she file for
a consolidation of her title. That’s where Rubiato found
out.
- The court said, the price was so grossly inadequate as
it is revolting to the mind. But of course the court did
not totally nullify the agreement. This is not a sale, this
this an equitable mortgage.
4. Effect of failure of consideration
- Failure, fail. Failed to pay the consideration. Will
that cause the nullification of sale?
o Failure of consideration is not simulated
price, is not absence of consideration.
o It is merely failure on the party of the buyer
to pay the consideration.
o If the buyer fails to pay the consideration,
will the contract be declared void by the
court?
 No. the remedy of the seller is to
compel the buyer to pay the price
(specific performance) otherwise,
rescission.
[Sps Buenaventura v. CA]
5. What if the price is inadequate?
- You have fixed the price but it is not equivalent to
the value of the thing.
- Will it affect the validity of the contract?
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o NO, unless it is coupled with fraud or
vitiated consent.
OPTION CONTRACT
- Founded upon a consideration separate from the price.
- In other words, if the option is not supported by a separate
consideration, even if the offeree has accepted the promisor
or offeror can withdraw. He is not bound.
In an option contract is the promisee obligated to purchase?
- No. because the essence of the contract is to give the optionee
the exclusive privilege whether to buy or not.
In an option contract can the offer be withdrawn anytime?
- Yes, as long as no consideration has been given.
Can the offeror unilaterally extend the period of offer?
- Yes.
If you have a valuable offer contract, and the buyer signifies his
intention to purchase the property subject to the option and the
offeror refuses to sell the property. He has changed his mind. Can he
do that? He is selling the property in a much higher price. You are the
offeree. What will you do?
- Sue for specific performance and/or damages
What if instead of selling to you during the period of the option, the
offeror sells it to another person? Could you still recover the
property?
- Yes. If there is an option contract for value.

So is option the same as right of first refusal?
- There is definite offer on the part of the owner to sell the
property. What he undertakes to do is merely to give the
recipient of the right. The right to decide or offer first to this
person cause if this other person decides not to buy that’s
the time you can offer it to third persons. There is no definite
price, it is just that if he decides to sell the property he should
offer first to this person.
- Right now, I am the owner of the property and I am telling you.
Cge if I decide to sell my property ako I offer sa imo. Then I
decide to sell the property but I did not offer it to you but to
another person. Do I have a cause of action? Can you sue me?
o In one case, the court said it is covered by the statute
of frauds, it cannot be enforced unless if it is in
writing.
- You usually see a right of first refusal in a contract of lease. That
if the lessor decides to sell the property he will first offer it to
the lessee.
- Now you have this stipulation of the lease the right of first
refusal. In fact, he stated the price. You are the lessee so you
decide to purchase the property. You right me a letter that
you are exercising your right under the lease contract. You
are purchasing the property to me. Can you compel me to
sell my property to you?
o NO. Because I have not decided to sell the property
yet. You have no cause of action against me.
o If I do decide to sell the property without offering
first to you despite this clear provision in the lease
contract to another person? Is there a cause of
action? Can you sue for the rescission?
▪ Depends. If the other party is aware of the
right to first refusal that means he acted in
bad faith. In one case the court said, because
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there is bad faith you can sue for the
rescission of the contract. Otherwise, good
faith, only damages under art. 19.
***
B. EARNEST MONEY
Is there earnest money on a contract to sell? No.
Earnest money – is that part of the purchase price paid by the buyer
signifying the perfection of the contract of sale. (earnest money =
perfected contract of sale).
- If it is evidence of a contract of sale, failure of the buyer to pay
the balance of the purchase price entitles the seller to sue
for specific performance, or for the rescission of the
contract because of the non-payment of the purchase price.
If there is earnest money and this signifies perfected contract of
sale, the seller can no longer sell the property because the contract
of sale has already been perfected. I
- If he does, then we will apply Article 1544 , double sales,
because in contract to sell, there is no question that the
seller can still sell the thing; the seller is still the absolute
owner of the property. He has not sold the thing yet. He
cannot be charged of bad faith because he is still the
absolute owner. According to Topacio v. CA, where earnest
money is considered as part of the purchase price and
proof of the perfection of the contract.
[Manila Metal v. PNB]
- There is mention of earnest money by Manila Metal. Manila
Metal borrowed money from PNB, and secured it with a
mortgage. Failure of payment of the loan, PNB closed the
mortgage and sold the property in a public sale.

- Apparently, the period of redemption has lapsed and there
was no redemption made by the mortgagor Manila Metal.
- What Manila Metal did was an offer to repurchase. (Offer to
repurchase is not the same as redemption) Manila Metal
went to the PNB and there asked for an officer. There total
obligation is just over one million pesos. That is the amount
that they presented in their offer to repurchase.
- And to show earnestness to repurchase the property, Manila
Metal deposited 700,000 which was duly received by PNB,
deposit for repurchase. But of course, Manila Metal was told
that its offer was subject to the approval by the
management of the bank.
- The offer was actually rejected. The property is not worth
more than that amount already at that time. In other words,
there is a counter offer given by PNB.
- There was exchange of communications, lasting for several
years. And eventually the property reached the value of
30million pesos.
- Of course, PNB will not sell the property worth 30million for
1.6million only.
- What about the 700,000 deposit? Manila Metal said that there
is a perfected contract because PNB accepted earnest
money.
- The question is, was it really earnest money? No. Here, they
could not agree with the price, so how can there be a
perfected contract of sale. This was not earnest money.
Art. 1475 – 1488
I. Rules in Ordinary Sales
A. Form
a. General rule (1483)
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1. Verbal agreement of sale
Sale is a consensual contract.
- No form is required for its validity. And a verbal agreement
with respect to a contract of sale involving real property is
valid.
- Because a public instrument is only for the convenience of the
parties. Public document is required not for the validity but
for convenience to transfer the registration of the real
property.
[Caoili v. CA]
- Here is this widow (Santiago) who owned a small house and
lot, which was rented by the spouses Agcaoili. They agreed
that the Agcaoili spouses will purchase the property and the
rental will be part of the purchase price.
- They agreed that Santiago will present a clean title to them
within a certain period.
- (Judge Adviento: It was not really discussed in the case what
clean title. My presumption is that the title was not yet in
her name) Y
- You give the balance of the price and I will present to you a
clean title within a certain period. If I cannot present to you
clean title, I will return double the amount that you have
paid.
- When the period arrived, she was not able to present a clean
title. The Agcaoili spouses sued her for refund. The spouses
demanded double the money that they have paid. Santiago
said that it was rentals. Spouses contended it was a sale.
Santiago countered where is the document evidencing the

sale?
- SC: The absence of a written contract of sale does not nullify
a verbal agreement. Under 1358, the public instrument is
not for validity but only for the convenience of the parties.
It does not mean that the contract has not been perfected.
A contract of sale is consensual: consent of the parties,
object which is the property, and consideration which is
the purchase price.
Perfection of the contract by mere consent of the parties even if
neither has been delivery nor payment of the price
Thus, delivery of the object and the payment of the price are not
essential for the perfection of the contract of sale.
B. Perfection
a. General rule
1. Right of examination
[Manila Mining v. Tan]
- Purchase orders — If you are in construction business,
advertising business, you need to purchase from suppliers.
So what they will do is send purchase orders to their
suppliers. And the suppliers will just fill the orders. After a
period of time, suppliers will send statement of account.
- Manila Mining sent purchase orders to Tan for certain
electrical materials. Based on the purchase orders, Tan
delivered the electrical materials to Manila Mining,
accepted by Manila Mining.
- Tan demanded payment, Manila Mining said there was no
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perfected contract. It said that mere delivery of goods did
not give rise to its obligation to pay. It said it never
consented to the sale. (But remember that the offer came
from Manila Mining)
- The offer came in the form of purchase orders. These were
accepted by Tan when he delivered the materials pursuant
to the purchase orders.
- SC: In this case, the purchase orders constituted accepted
offers to supply electrical materials to Manila Mining.
Hence, it cannot evade from paying his obligation by
saying lack of consent in perfected contract of sale. The
invoices furnished the details of the transaction.
2. Sale by description or sample
Even if we say that contract of sale is perfected by mere consent, it
does not mean that the buyer will just blindly accept delivery from
the seller. The buyer must be given reasonable opportunity to
inspect the things delivered. Sale by sample whether the bulk is
represented by the sample. Sale by description, whether the thing
corresponds to the description.
b. Place of perfection
Where is contract of sale perfected?
-where the meeting of the minds occurred.
 Page 23 of 35

C. Expenses - The seller can only bid if he has expressly reserved the right to
bid and the reservation is duly notified to the prospective
Who shoulders the expenses? bidders. SO THE SELLER CANNOT BID AS A MATTER OF
For execution — RIGHT.
- Why do you think that the seller is not allowed to bid as a
For registration — matter of right? He can rig the price. He cannot bid directly
or indirectly, unless he has expressly reserved the right.
Who pays for the documentary stamp in a sale of real property even
if there is no agreement? Can the seller reject any and all bids as a matter of right? YES,
- The law says that it is the seller who pays for the execution unless the auction is announced to be without reserve.
and registration. - When the seller advertises the auction, he reserves the right
to reject any and all bids.
[Abella case] - In most notices of public auction, you can see there that the
- Actually started from a simple case for reimbursement of the seller has the right to reject any and all bids.
expenses of the buyer. It lasted for years. Went to SC twice. ~This is already provided for by law.
Initial case filed by the buyer - for reimbursement.
- Because the parties did not initially agree who should bear the [Dizon v. Dizon]
expenses.
- Lesson: Prudent for you to stipulate in the contract who will - I owe you some of money. I did not pay you, so you sued me
bear the expenses. for specific performance. I lost. You won. I did not pay. The
sheriff cannot find any bank account under my name.
II. Rule in Special Sales - He found a piece of property under my name so the sheriff
levied on that property. Sold in an execution sale.
A. Auction sales - You are my judgment creditor, I am the judgment debtor. In
the execution sale, you were the highest bidder.
Voluntary auction sale - The judgment was for me to pay 1.5M. Your bid was 500K. You
- items grouped by lot. Each lot will be subject to separate are the highest bidder, and a certificate of sale was issued
auction sale. by the sheriff.
- How do you know there is perfected sale already? by the fall - The sheriff came to me and said that here I have an amended
of the hammer, or any customary manner contract of sale because the bidder increased the bid to
- After the fall of the hammer, no more bids. 1.5M. I said NO. I will not sign that.
- Can the seller bid as a matter of right? (seller is different from - The auction sale was already closed in the morning. Can the
the auctioneer) No. manner of the sale still be changed after the close of the

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auction? Can that amended certificate of sale be given any
effect?
o The court said NO. Because the auction sale was
already perfected in the morning for 500,000.
Judge Adviento: If the bid was increased to 1.5M, which is the
amount in the judgment, why would I refuse the certificate of sale
when that will already extinguish my obligation under the
judgment? Why do you think?
- It could be hard for me to redeem the property. Whereas if it
is 500,000, it would be relatively easier for me to redeem
because of the smaller amount. But legally, it cannot be
allowed. Because after the perfection of the sale, you
cannot change.
SC: Considering that the auction sale has been perfected, and this
amended sale at the instance of one party would not be validly
executed.
[Leoquinco v Postal Savings]
- Postal Savings announced an auction sale of parcel of land it
owned. In the notice of the auction, it expressed there that
right to reject any and all bids.
- Leoquinco was the highest bidder. But management of Postal
Savings rejects his bid. Leoquinco demanded that a contract
of sale be executed in his favor.
- SC: The owner of the property offered in auction has the right
on the manner as to how the auction to take place. He
cannot compel if his bid is rejected by the seller.
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B. Sale by Sample and/or Description
Sale by description - the thing must correspond to the description.
If the buyer cannot use the thing, he has no cause of action against
the seller.
[Pacific Commercial v. Ermita Market]
- Ermita Market ordered refrigerating machine from Pacific. But
Ermita cannot use the machine it intended for. Because it
cannot use the machine, Ermita refused to pay the balance
of the purchase price.
- SC: The fact that Ermita could not use the machine cannot be
attributed to Pacific’s fault. The machine was according to
the contract and Ermita cannot hardly say that there was
deception on the part of Pacific.
C. Sale of Personalty payable by Installments (Recto Law)
TN: (Bar Question Article 1484, also Article 1544 - double sales)
Recto Law (Civil Code)
Article 1484.
- Sale of personal property in installments.
- Enumerates the alternative rights of the unpaid seller of personal
property sold in installments.
- What are these alternative rights?
1. Exact fulfilment/ Specific performance
2. Cancellation/Rescission of the contract if the buyer has
defaulted in at least two installments.

3. Foreclosure of the chattel mortgage constituted on the
thing sold.
If the seller forecloses the mortgage constituting on the
thing sold, there is no right to recover the deficiency.
This is not the same as under the mortgage law. A mortgage
is constituted as a security for the payment of the principal
obligation. If the proceeds in the auction sale are not enough to
satisfy the principal obligation, there is the right to collect the
deficiency.
(Recto law) But here. If the mortgage is constituted on the
thing sold on installments, there is no right to collect the deficiency.
Therefore, if it happens that the security for the payment of
the balance of the purchase price is a mortgage on another chattel,
which is not the thing sold, and the mortgage is foreclosed, then
there is the right to recover the deficiency.
In auction sales, the seller cannot bid as a matter of right unless he
expressly reserves the right. Exception: foreclosure sale.
- Because here, the mortgagee can bid even if there is no
express reservation of right to bid. Again, under the
mortgage law, the mortgagee can bid. Because the
mortgagee is not the owner of the property. In an ordinary
auction sale, the seller is the owner. Here, in a foreclosure
sale, the seller is the creditor. He is not the owner of the
thing sold.
AGAIN, IF THE SELLER CHOSE THE THIRD REMEDY, THERE IS
NO RIGHT TO RECOVER THE DEFICIENCY.
The remedies are alternative. But the law recognizes that if
the seller opts for the remedy of specific performance but could not
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collect, then he may sue for the rescission of the contract.
Can the buyer waive the provisions in Article 1484? And
signs in the promissory notes that he waives the deficiency if the
chattel mortgage be foreclosed upon his default? Meaning he
agrees to pay the deficiency if the thing sold is foreclosed.
- NO. This is contrary to law, morals, good customs, public
order and public policy. The waiver by the buyer is against
the law. Buyer thus is not required to pay the deficiency of
the seller forecloses the mortgage on the thing sold.
Can the parties stipulate that if there be rescission of the
contract because of the default of the buyer, all installments made
by the buyer be forfeited in favor of the seller?
- YES for as long as these are not unreasonable, or
unconscionable.
(effect of rescission = restitution of the thing given. seller
returns the payments made, buyer returns the thing)
[MACONDRY V. DE SANTOS]
- De Santos executed a promissory note promising to pay a
certain amount of money. The note was secured by a chattel
mortgage on a particular car; on the condition that the car
should be damaged or destroyed, then Macondry is entitled
to foreclose the mortgage, which was actually what
happened.
- The car was damaged, Macondry foreclosed the mortgage.
Sold the car in a public auction and the proceeds was only
50pesos. Macondry sued for the deficiency. De Santos
invoked Article 1484. Can he? (Wala gitubag ni ma’am)

[LEVY HERMANOS V. GERVACIO]
- This is a sale of car conditioned on a downpayment, the
balance to be paid on the third month. I buy a car from you,
downpayment now and pay the balance on October 15.
- October 15 I failed to pay for the balance. You foreclosed the
mortgage but the proceeds are insufficient to satisfy the
unpaid balance of the price. Can you sue me for the
deficiency? (Read case wala gitubag ni ma’am)
[DELA CRUZ V. ASIAN CONSUMER]
- Sale of a truck on installments. Buyers defaulted in the
payment of the installment. Seller demanded the return of
the truck. The buyers refused to return the truck. Return
the truck after two weeks. What do you think the
condition of the truck after two weeks?
- The truck was already “cannibalized.” Because Asian
Consumer, the assignee of the rights of the seller, refused to
proceed with foreclosure and went for specific
performance.
- SC: If the vendor resisted on his own initiative from
consummating the auction sale, such desistance is a timely
disavowal for the remedy of foreclosure.
- Why would you pursue foreclosure if you are sure that the
proceeds from the auction cannot satisfy the payment of
the price?
Vis-a-via Magna case
[MAGNA V. COLARINA]
- Sale of motor vehicle in installment. When Colarina defaulted
in the payment of the price, Magna Financial demanded
that he returns the vehicle.
- And Colarina immediately returned the vehicle. Magna still
sued him for specific performance which was granted by the
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trial court. Magna was already in possession of the vehicle
but still sued for specific performance.
- SC: No more. In the case at bar, there is no dispute that the
subject vehicle is already in the possession of the petitioner,
Magna Financial Services Group, Inc. However, actual
foreclosure has not been pursued, commenced or
concluded by it.
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, our Supreme Court said that it is
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.
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. Although no
actual foreclosure as contemplated under the law has taken place in
this case, since the vehicle is already in the possession of Magna
Financial Services Group, Inc. and it has persistently and consistently
avowed that it elects the remedy of foreclosure, the Court of Appeals,
thus, ruled correctly in directing the foreclosure of the said vehicle
without more.
[Compare Dela Cruz case v. Magna Financial Case]
- Dela Cruz case, there is desistance. The vehicle was only
surrendered after a few weeks.
- Magna case, there was timely return.
So when you demand the return of the vehicle that means you are
electing the remedy of foreclosure. You are not electing the remedy
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of specific performance. That is why the court said no, you cannot
recover the balance of the purchase price because it has already
recovered the vehicle.
Rent-to-own schemes
Previously, it pertained to vehicles.
[Elisco v. Court of Appeals]
Employee of Elisco was given a car plan under a lease contract. The
rentals were deducted from his salary. It was also stipulated that
after a certain number of years, the car would be sold to him, and
the rentals which was deducted from his salary will be considered
payment of the price. Unfortunately, he was retrenched because the
company closed shop. But he continued using the vehicle and he
continued paying for it but not religiously. Employee already paid
more than the amount of the agreed price.
Elise realised it has a car registered in its name. Recovered the car
from Lantan (the employee) and sued him for rentals.
case of the credit (disclosure statement - that will show you the cost
of the thing). The principal, interest, charges, documentary stamp,
notarial fee and total cost. Disclosure statement was prepared by
PCI Leasing.
Why would it issue a disclosure statement when this is a lease
contract? Giraffe-X defaulted in the payment of the rentals. Demand
letter was sent to Giraffe-X: pay the rentals, you can retain the
machines; if not, return the machines to PCI. Giraffe-X returned the
machines; PCI sued for back rentals.
SC: This is not an ordinary lease contract. This is a lease-to-own
contract, which is under 1485, considered an installment sale.
Installment sale because when PCI sent a demand letter, it said
when you can pay, you can retain. Why would your lessor tell you,
you can retain it if you can pay? So this must be a lease-to-own
agreement, which was actually considered by the court as
installment sale of property. Thus if the thing is returned, the buyer
is not anymore liable to pay for the balance.

During the trial, Lantan proved that he has already paid the price.

SC: The car is already owned by Lantan. How about the rentals
claimed by Elisco? Actually, the Court reversed the situation of the
parties. It was Elisco ordered by the Court to pay Lantan the rentals.
Elisco deprived Lantan of the possession of the car (remember he is
already the owner). So Elisco has to pay rentals.

[PCI v. Giraffe-X]
PCI purchased printing machines and entered into a contract with
Giraffe-X. But PCI also issued a disclosure statement. Under the
Truth in Lending Act, creditors are required to furnish the buyers the

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Friday July 22, 2016 (37 minutes)
E. Sales of real property on installments (Maceda Law, RA 6552
[Realty Installment Buyer Protection Act]
Maceda Law is the Realty Installment Buyer Protection Act. It pertains
to the rights of the buyers if he defaults in the payment of installments
of real propery. But Maceda Law does not cover all installment sales of
real property.
Remember I’ve been emphasizing to you that under the Civil Code, it
you enter into a contract to sell, there is no need to cancel/rescind the
sale because there is nothing to rescind. Because after all, non-
fulfilment of the buyer of his obligation to pay the price does not give
rise to obligation of performance of the title.
But under the Maceda Law, there has to be an act performed by the
seller before the contract is considered as rescinded.
So what are the rules?
We’ll be discussing only one right of the buyer that is to pay in
installments within the grace period. The other rights are of course, to
assign his right, to pay in advance without interest.
a. Applicability
What are not covered by the law?
In sales of industrial lots, commercial buildings such as covered by
the governmental program.
It covers both contract to sell and contract of sale.
b. Rules when the buyer has paid at least two years of
installments
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 We will talk about a default buyer who has paid at least 2
years of installments.
 When I say “2 years”, it’s not the term or the total period
of the contract, but the total payments made.
 So the contract may be existing for 3 years but he has
only paid 2 year- worth of installments.
-
GRACE PERIOD
- If he has paid at least 2 years of installment he and he
defaults, is he entitled to a grace period of?
o GRACE PERIOD: 1 month for every year of payment,
within which to pay the unpaid installments
without interest
o And so therefore, if the buyer has paid 4 years-worth
of installments and defaults thereafter, the buyer is
entitled to 4 months grace period within which to
pay the unpaid installments.
- If the buyer fails to pay within the grace period, the seller
may cancel/rescind the contract.
REQUIREMENTS FOR CONTRACT TO BE RESCINDED
- But there are twin requirements before the contract is
considered cancelled/rescinded.
o First is, notarial notice of rescission of notarial
demand for rescission
o It must be a notarial act, not just an ordinary
lawyer’s demand letter
o Second is, payment of the cash surrender value of
all payments made
- Now if the seller has sent a notarial notice or demand for
rescission, will the contract be considered rescinded already?

o No. rescission takes effect only after 30 days from
receipt of the buyer of notarial demand and
payment of the seller of the cash surrender value of
all payments made.
CASH SURRENDER VALUE
- How much is the cash surrender value?
o UP TO 5 YEARS OF INSTALLMENT - If the buyer has
paid 5 years of installments, then he is entitled to
50%. Up to 5 years, 50%.
o MORE THAN 5 YEARS - If he has paid more than 5
years, he is entitled to 50% + 5% per year after 5
years but the total cash value cannot exceed 90%.
- So going back to the grace period.
We said that If the buyer fails to pay, the seller may send notarial
demand for rescission and pay the cash surrender value.
Q: The question is can the buyer pay after the grace period? Up
to the 30th day from the receipt of the notarial demand? Or must
the buyer wait for the lapse of 30 days and then okay, collect the
cash surrender value. We cannot do anything anymore after the
lapse of the grace period? Can the buyer pay or not?
Hala sige pangitaa kung mkakita mo.
1. Rights of buyer
i) In case of default in payment
aa) limitation
ii) In case of cancellation of sale
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aa) When cancellation takes effect
[Pagtalunan v. Manzano]
If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value of
the payments on the property equivalent to
fifty percent of the total payments made and,
after five years of installments, an additional
five percent every year but not to exceed
ninety percent of the total payments made:
Provided, That the actual cancellation of the
contract shall take place after thirty days from
receipt by the buyer of the notice of
cancellation or the demand for rescission of
the contract by a notarial act and upon full
payment of the cash surrender value to the
buyer.
c. Rules when the buyer has paid less than two years
intallments
- Entitled to a grace period of at least 60 days. And if he fails to
pay the 60-day period or the grace period granted by the
seller if it is more than 60 days then the seller may cancel the
sale.
- Again, a notarial notice or notarial demand for rescission is
required. But the buyer is not entitled to the cash surrender
value. And rescission takes effect 30 days after the receipt of
the buyer of notarial demand or notarial notice for rescission.
d. Cases:
1) Where the buyer paid less than 2 years intallments

[Ramos v. Heruala]
This is a contract to sell over a certain parcel of land to be
paid in installments. Heruela spouses paid only less than
2 years worth of installments. But they already took
possession of the property in fact they had constructed a
building on that property. After many many years, a case
was filed on them for ejectment. And they envoked the
Maceda Law.
Was Maceda Law applicable here?
Yes, because the court said there was neither a notice for
cancellation nor demand for rescission notarial act. There
be no notice for rescission of contract to sell the action is
premature. Hence, the spouses Heruala were not given
the grace period to pay. And they were ordered to pay
based on the contract price which was executed almost a
span of 20 years before the decision of the supreme
court was released. And you can just imagine the value of
the property by the time the decision was rendered. It
must have quadrupled already. And adding insult to
injury, they were ordered to pay interest only from the
time the case was filed in the court.
Why do you think interest was computed only after the
case has been filed in court? What have we learned in
ObliCon?
Debtor is liable to pay only after default and there is
default only after there is a demand whether judicially of
extra-judicially.
2) Sale of subdivision lot on installments where the
buyer defaulted
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[Active Realty & Development Corporation v.
Daroya]
The buyer here has paid more than 4 years-worth of
installment in a contract to sell covering 5 years of
monthly installments. Then the buyer offered to pay the
unpaid installments, Active Realty did not accept the
payments. What’s the reason why AR did not accept?
Because he has sold the property to another buyer for a
higher price. Almost 3x the original price.
The court said,”ordinarily the petitioner would have had
no other recourse but to accept payment.” But it cannot
accept payments for something which it cannot deliver.
So the court ordered not to return the price made by
Daroya but return Daroya the amount it received from
the second buyer.
F. PD No. 957
But if the object of the sale is a condominium unit or a subdivision lot,
then the contract is also covered by PD 957.
The law requires that before the developer can start the development
of a condominium project or subdivision, he must first register the
project... And once they has submitted the plans and obtained a
permit to build, it cannot yet sell subdivision lots…
It also prohibits the mortgaging without the authority of HLURB
(please check the book). Otherwise, the mortgage maybe considered
null and void.
And if the developer fails to develop the project within the period
stated in the project plan, the buyer has two options.
a) seek the return of the payments made; or
b) suspends the payment of installments.
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But it the buyer choose to suspend the payments, he must notify the
developer of the fact of suspension and the reason for the suspension
of the payment. Why? If he does not, then he may be considered as
the default buyer covered in the Maceda Law.
What if it fails to obtain a license to sell and sold subdivision lots
already. Are the contracts affected by the absence of the license to
sell?
No, because what are the essential requisites of the contract to be
valid? License to sell is not an essential requisite. Only the officers will
be subjected to a liability, criminally or civilly. And the corp will be
considered liable.
a. Important provisions:
1) Secs. 4, 5, 7, 18, 23, 24, 25
b. Cases:
1) [Far East Bank and Trust Co. v. Marquez]
Arts. 1489 – 1492
I. Parties and their Consent
Since sale is a contract, the parties entering must be legally capacitated to
enter.
A. Capacity in general (1489)
What if one of the parties is incapacitated to enter into a contract, will
it affect the validity of the contract? Is the contract void if one of the
parties is incapacitated?
Well, the contract is still valid but it may be voidable. And the
incapacitated party cannot be compelled to perform. If the buyer is
incapacitated and he has received the goods already, then he may not
be compelled to pay the price. Except to the extent that it had
benefited him.
B. Special Disqualifications
But there are persons especially disqualified by law from entering into
a contract to sell.

2) [Tamayo v. Huang] a. Between spouses

3) [Cantemprate v. CRS Realty Development it’s like getting money from one pocket and entering it into
Corporation] another pocket.

Also, according to Villanueva, the reason for the prohibition is to

prevent one spouse from defrauding creditors by transferring the
property to a spouse. And to prevent a situation where a
dominant spouse would unduly take advantage in effectively
Chapter 2 defrauding the other. And to avoid an indirect violation of
prohibition against donation between spouses.
Capacity to Buy or Sell
1) Effect of sale of land to one’s own spouse

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[Uy Siu Pin v. Cantollas]
The court said the sale is null and void because it came
within the prohibition of Art 1415. The prohibition of
selling property to each other extends to persons living
as husband and wife without the benefit of marriage.
2) Transfer in common law relationsip
[Ching v. Goyanko]
“the condition of those who incurred guilt would turn out
to be better than those in legal union.”
Now you tell me, do you feel guilty if you live together
with you partner without the benefit of marriage?
b. By a spouse without consent of the other spouse
c. Persons in trust relations
1) Sale to agent: Exception to prohibition against sale
by principal in favour of his agent
[Pelayo v. Perez]
2) Sale to guardians
[Philippine Trust Co. v. Roldan]
The guardian sold the property to his own brother-in-
law. Immediately, the brother in law sold the property to
Socorro. The court said, “as guardianship is a trust of the
highest order, the trustee cannot be allowed to have any
inducement to neglect his ward’s interest; and whenever
the guardian acquires the ward’s property through an
intermediary, he violates the provision of Art 1459 of the
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Civil Code and such transaction ans subsequent ones
emanating therefrom shall be annulled.”
3) Sale to public officers
[Maharlika Broadcasting Corp v. Tagle]
This is a case where a government employee asks his
wife to participate in an auction sale conducted by his
office, GSIS. The SC said, “No. Luz Tagle acts for and in
the name of her husband in any transaction with the
GSIS. If he is allowed to participate in the public bidding
of properties foreclosed or confiscated by the GSIS, there
will always be the suspicion among other bidders and the
general public that the insider official had access to
information and connection with his fellow GSIS official
as to allow him to eventually acquire the property. It is
precisely the need to forestall such suspicions and to
restore confidence in the public service that the Civil
Code now declares such transactions to be void from the
beginning and not merely voidable.
4) Sale/transfer to attorney
What about lawyer? Lawyers are prohibited from
acquiring property under litigation.
But if litigation has already terminated, case has already
been close, lawyer can acquire the property.
[Gurrea v. Suplico]
“Having been established that the subject property was
still the object of litigation at the time the subject deed
of Transfer of Rights and Interest was executed, the
 Page 33 of 35

assignment of rights and interest over the subject Brokers are not covered by the prohibition. The job of
property in favor of respondent is null and void for being the broker is to bring the buyer and the seller together.
violative of the provisions of Article 1491 of the Civil
Code which expressly prohibits lawyers from acquiring
property or rights which may be the object of any C. Incapacity to Sell
litigation in which they may take party by virtue of their
profession.” a. Homesteaders
So transfer in the pendency of the case is prohibited. 1) Sale of portions of a parcel of land (1) prior to
issuance and (2) within 5 years from issuance of free
What about mortgage in favor of a lawyer during the
pendency of the case. Is it covered? Is there conveyance patent
in the mortgage? Is that prohibited?
[Manlapat v. CA]
Yes. Even if the foreclosure is instituted after the
2) Effect of verbal sale within 5-year prohibition period
termination of the case, the basis where the foreclosure
is… [Manzano v. Ocampo]
Now, what about demand by the lawyer? To transfer the D. When an incompetent buys
property to him while the property is still under
litigation. And property was eventually transferred to E. Effect of forbidden Sales
him after the termination of the case. Is it covered under
the prohibition?

No! mere demand is not covered according to the court. Chapter 3

But mortgages are included. The court said, “to state that
mortgages are not included is to open the door to an
indirect circumvention of the statutory injunction.
Acquisition of property being merely postponed thru
eventual..”
----
Now question, are real estate brokers covered by the
prohibition?
Effects of the Contracts When the Thing Sold Has Been Lost
Under Roman Law, from the moment of the perfection of the contract
of sale, the risk of loss is shouldered by the buyer. But ownership over
the property subject of the sale is acquired only upon deliver. So even
if there is no delivery yet, upon perfection the buyer bears the risk of
loss.
Under common loss, the owner bears the risk of loss. But ownership is
not transferred to the buyer upon perfection.

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So whether it is common law or roman law, the risk of loss is bore by
the buyer upon the perfection of the contract.
What about our law?
Mistiso man gud atong civil code mao ng naay mga conflicting
provisions.
Philippine law adopted Res perit domino of the common law.
Ownership is transferred upon delivery and it’s the owner who bears
the risk of loss.
3) Deterioration (1494)
b. After perfection and before delivery (risk of
loss)
1) By the fault of one party (1480, 1538)
Then that party bears the loss.
2) By fortuitous event (1480, 1504, 1538)
there are two conflicting school of thought here.

According to Paras and Padilla, after perfection and

after the delivery. And we are talking here of a
Arts. 1493 – 1494 determinate thing, not generic. The buyer bears the
I. Distinction risk of loss. Meaning, the obligation of the seller is
extinguished but the buyer pays the price.
A. Effect of Loss of the Thing Sold
Is that fair?
Before perfection, there is no contract because of the
That is the interpretation of Paras and Padilla
absence of the subject matter.
But according to Arturo Tolentino, the former vice
a. At the time of perfection
president of the Republic of the Philippines. You
if the thing is lost, again, the sale is edificatious. There is didn’t know that he is the vice president? When
no object to deliver. Marcos conducted a mock election during the
marshall law. He’s a very brilliant lawyer.
1) Total loss (1493)
According to Tolentino, the vendor should bear the
2) Partial loss (1494) risk of loss. Why? Because we have adopted Res
perit domino. After perfection but before deliver,
a) proceed who is the owner of the thing?
b) not The seller because delivery transfers ownership. It is
but if the partial loss is material then it can be fundamental that ownership is transferred by
considered as total loss. delivery. Hence, before delivery of the vendor, he
owns the thing and he should suffer the loss.

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Meaning, his obligation to deliver is extinguished but

he cannot demand from the buyer to pay the price.

Second reason given by Tolentino is the obligation of

the vendor and the vendee is reciprocal. And
therefore one depends upon the other. If the
obligation of the vendor to deliver is extinguished
then…

If you’re the seller, well and good. I have no

obligation to deliver, but I will accept the price. But
what if you are the buyer? Would you pay a price for
nothing? Now unfortunately for us, this seemingly
conflicting provisions of the CC has not been settled
by the SC even after 60years.

B. 1504 par. 1 applied

[Gaisano Cagayan, Inc v. Insurance Company of

North America]
Now if the thing has already been delivered to the buyer
but the seller reserves ownership only to secure payment
of the purchase price, who bears the risk of loss?

You did not read the Gaisano case.

WE’RE DONE!

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