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ATENEO DE MANILA LAW SCHOOL

Rockwell Center, Makati City

LAW on SALES REVIEW


By:

CESAR L. VILLANUEVA, B.S.C., C.P.A., LL.B., LL.M., FAICD, D.J.S.

GENERAL PRINCIPLES
DEFINITION
(Art. 1458)

PARTIES

OBLIGATIONS
(1) TO TRANSFER OWNERSHIP

SELLER

Real Obligations
(2) TO DELIVER POSSESION

SUBJECT MATTER

SALE

CONSENT
Meeting of Minds

Real Obligation

BUYER
2

(3) TO

PAY

PRICE

ESSENTIAL CHARACTERISTICS OF SALE:


NOMINATE
vs.

Innominate

PRINCIPAL
CONSENSUAL
BILATERAL/ RECIPROCAL
ONEROUS COMMUTATIVE TITLE
3

vs.

Accessory
Solemn Unilateral Gratuitious

vs.

Prefaratory
Real

vs.

vs.

vs.

vs.
vs.
vs.

Aleatory
Mode

SALES

versus

DONATION
SOLEMN
(i.e., 4th Requisite of Form for validity)

CONSENSUAL ONEROUS/
COMMUTATIVE

GRATUITOUS
(i.e., Pure Liberality as consideration)

ESSENCE:

BOTH INVOLVE THE TRANSFER OF OWNERSHIP/POSSESSION OF SUBJECT MATTER

SALES
BARTER
IS

versus SALE,

BARTER:
PRICE
BEING REPLACED

BUT WITH THE WITH AN

OBLIGATION TO TRANSFER OWNERSHIP/POSSESSION OF ANOTHER SUBJECT MATTER

THEREFORE: BARTER GOVERNED BY LAW ON SALES

BUT:
5

NOT COVERED BY STATUTE OF FRAUDS

SALES

versus

DACION EN PAGO:
OF

DACION IS PROCESS OF EXTINGUISHMENT EXISTING OBLIGATION (CONTRACTS)

PRE-

(a) There must be delivery of subject matter in lieu of an pre-existing obligation; (b) There must be difference between prestation due and what is give in substitute; (c) There must be a clear meeting of minds that the pre-existing obligation is extinguished by reason of the prestation substituted.

Lo v KJS Eco. Formwork System Phil., Inc., 413 SCRA 182 (2003)

DACION

NOVATES

THE

ORIGINAL

CONTRACTUAL

RELATIONS INTO A FULLY EXECUTED SALE

ESSENTIALLY: DACION GOVERNED BY LAW ON SALES


6

SALES

vs. CONTRACT FOR PIECE-OF-WORK:


Service is the Subject Matter

K for Piece-of-Work:

Ineluctably, whether the contract be one of sale or one for a Piece of Work, a transfer of ownership is involved and a party necessarily walks away with an object.
Commission of Internal Revenue v. Court of Appeals, 271 SCRA 605 (1997)

Although there is the primary obligation to pay fee (or price), the main motivation is the reputation, skill, mastery of contractor.
Engineering & Machinery Corp. v. Court of Appeals, 252 SCRA 156 (1996)

BUT:
7

THERE CAN BE NO CONTRACT FOR PIECE-OF-WORK FOR PAST SERVICE RESULTING IN THE CREATION OF THE OBJECT (ALWAYS A SALE)

SALES

vs.

AGENCY TO SELL/BUY
REPRESENTATIVE

AGENCY
FIDUCIARY

Essentially revocable Fruits and of principal

NOT PERSONNALY LIABLE FOR THE OBLIGATION CREATED BY THE SALE CONTRACT

AGENT

NOT OBLIGED TO PAY THE PRICE DOES NOT ASSUME THE RISKS OF OWNERSHIP TO THE OBJECT OF SALE

SALES vs. AGENCY TO SELL/BUY


THEREFORE:

Contd

AGENT is deemed to be Seller/Buyer

when contracted to assume Risks and Obligations contrary to his representative/ fiduciary role:
(a) HE ASSUMES OBLIGATION TO PAY THE PRICE

RISKS OF LOSS (b) SUBJECT MATTER INSURABLE INTEREST MAINTENANCE


9

SALE

versus

LEASE:
INVOLVES THE

LEASE

ESSENTIALLY

TEMPORARY ENJOYMENT OF POSSESSION OF THE SUBJECT MATTER

FEW INSTANCES:

TREATED AS SALE ON INSTALLMENTS WHEN LEASE STRUCTURED IN SUCH A WAY AS TO AVOID APPLICATION OF THE RECTO LAW

10

PARTIES TO A SALE
(The Essential Element of CONSENT)

GENERAL RULE: All Parties Having Capacity to Contract EXCEPTIONS:


(a)

Can Be Valid Parties To a Sale

Minors, Demented, Deaf-Mutes Sale is Voidable - Purchase of Necessaries - Emancipation Spouses (Art. 1490) - Sales to Third Parties Sale by One Spouse Void - Sales to Each Other Void Except: When marriage governed by Complete Separation of Property Regime

(b)

By Pre-nuptials By Judicial decree

11

OTHER RELATIVE DISQUALIFICATIONS


Guardian Agent Wards Principal

(Art. 1491)

Except: When granted express power


to buy principals property

Administrator/ Executor

Estate under administration


BUT NOT: Purchase of Inheritance Rights

Public Officers

Government property their jurisdiction

under

Judges/Justices/ Court Officers


Lawyers
12

Property falling in their jurisdiction


Clients property in litigation
Except: Contingency fee arrangement

SUBJECT MATTER
(OBLIGATION to Transfer Ownership and Deliver Possession)
1.

POSSIBLE THING LICIT DETERMINATE


DETERMINABLE
RATIONALE:

vs.

Impossible things

2.

vs.
vs.

Illicit
Non-Determinable GENERICS

3.

Transfer of Ownership/Possession of the Subject Matter is the ESSENCE of SALE


Obligation should therefore not be illusory
To comply with the Obligatory Force

principle in Contract Law


13

PRICE & OTHER CONSIDERATION


(The Obligation to Pay)
1.

REAL/TRUE

vs.

FALSE
(Reformation)

vs.
vs.

SIMULATED
(Void)

2.

Money or its Equivalent VALUABLE CONSIDERATION

vs.

PURE

LIBERALITY

NOMINAL CONSIDERATION

3.

CERTAIN ASCERTAINABLE

vs.

UNASCERTAINABLE UNASCERTAINABLE

. MANNER OF PAYMENT RATIONALE:


vs.

Must comply with Obligatory Force principle in Contract Law Must meet Onerous characteristics of SALE and Commutative

14

STAGES IN LIFE OF SALE


NEGOTIATION
Covers the period from the time the prospective contracting parties indicate interest in the contract up to the time immediate before the contract is perfected.

PERFECTION
Takes place upon the concurrence of the essential elements of the Sale which are: the meeting of the minds of the parties as to the object of the contract upon the price.

CONSUMMATION
It begins when the parties perform their respective undertaking under the perfected contract of sale, culminating in the extinguishments thereof.
Jovan Land, Inc. v. CA, 268 SCRA 160 (1997) San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000)
15

POLICITACION STAGE

Invitations to make Offers (Proposals)

OFFERS
ACCEPTANCES AGENCY TO SELL/TO BUY OPTION CONTRACTS RIGHTS OF FIRST REFUSAL AGREEMENTS TO ENTER INTO SERIES OF SALES MUTUAL PROMISES TO BUY AND SELL
(Contracts to Sell of the First Type)

16

RULES ON OFFERS:
1.

Offer is at the complete will of Offeror, who may destroy it at will prior to acceptance Will disappear or lapse upon the happening of the condition or period placed upon it When floated unconditionally, will be extinguished through the passage of reasonable time Cannot be accepted partially or even substantially
Counter-offer extinguishes original Offer

2.

3.

4.

5.

Legal effect of acceptance is taken only from point of view of Offeror


Offeror may still extinguish Offer at any time before he has

knowledge of Acceptance
6.

Only a certain Offer when met by an Absolute Acceptance will give rise to a valid SALE.

17

CERTAIN OFFER
(a)

CONTAINS A CLEAR PROMISE TO SELL/TO BUY COVERS A SUBJECT MATTER

(b)

THAT IS:

Possible thing Licit Determinate or Determinable

(c)

COVERS A PRICE OR CONSIDERATION


Real Valuable Certain or Ascertainable With Manner of Payment/Performance agreed upon

18

ABSOLUTE ACCEPTANCE
(a) NO CONDITION OR AMENDMENT OF THE

TERMS OF THE OFFER

(b)

MAY CLARIFY

(c)

BUT NEVER TOUCH ON THE TERMS/COVERAGE OF SUBJECT MATTER AND TERMS/COVERAGE OF PRICE

19

OPTION CONTRACT:
ACCEPTANCE of OFFER to give on Option to Buy/to Sell

SUBJECT MATTER: Option or Privilege to Sell/ Purchase:

AN OBJECT: - Possible
- Licit - Determinate/ Determinable

AT A PRICE:
Real - Valuable - Certain/ Ascertainable

CONSIDERATION:
20

Anything separate and distinct from Price

Ang Yu Asuncion v. Court of Appeals


238 SCRA 602 (1994)
1.

If no separate consideration, Option Contract void, but may constitute certain Offer which can be withdrawn by Offeror, but if accepted before withdrawal would give rise to a valid Sale (Sanchez v. Rigos doctrine) If withdrawal of option/offer whimsical or arbitrary, could give rise to damage claim under Art. 19 of Civil Code When there is separate consideration, an Option Contract deemed perfected: (a) If exercised within option period, gives rise to Sale, which can be enforced by specific performance

2.

3.

21

Ang Yu Asuncion v. Court of Appeals contd


(b)

Would be a breach of the Option Contract, for Offeror to withdraw the offer during the agreed period, but withdrawal destroys nevertheless the Option But if, however, Optioner-Offeror withdraws Offer even during option period before its acceptance (i.e., exercise):
Optionee-Offeree may not sue for specific performance on the Sale since it has failed to reach its own perfection stage Optioner-Offeror, however, renders himself liable for damages for breach of option

(c)

22

RIGHT OF FIRST REFUSAL


ESSENCE: OFFEROR BOUNDS HIMSELF TO FIRST OFFER SUBJECT MATTER TO OFFEREE FOR SALE IN THE EVENT OFFEROR EVER DECIDES TO SELL IT Possible thing Licit
Determinate/Determinable

CONDITION:

SUBJECT MATTER

PRICE:
23

THAT WILL THEN (HAPPENING OF CONDITION) BE

AGREED UPON

DOCTRINES ON RIGHTS OF FIRST REFUSAL


Ang Yu Asuncion v. Court of Appeals
Generally, RFRs would be none contracts, for

lack of cause or consideration, or failure to agree the valid Price for the expectant contract
Merely innovative juridical relation RFR Cannot be enforced by specific performance
Not

being a Contract, it lacks essence of consensuality, obligatory force or mutuality

Breach allows recovery of damage based on Art. 19

principle of Abuse of right


24

DOCTRINES ON RFR contd


Equatorial Realty Dev., Inc. v. Mayfair Theater
264 SCRA 483 (1996)

When RFR attached to a valid principal contract (e.g. Lease), its enforcement takes its vitality from the obligatory force of the principal contract
Such RFR, when breached may be enforced, at the Price at which Subject Matter sold to Third Party The Third-Party Buyers purchase may be rescinded under accion pauliana, i.e., entered into in breach and in fraud of Optionees contractual right

25

DOCTRINES ON RFR contd


Paraaque Kings Enterprises v. CA
268 SCRA 727 (1997)

RFR is complied with by first offering the Subject

Matter to the Optionee and negotiating for a Sale

There is no obligation to reach a sale, obligation is to negotiate in good faith

Only when negotiations do not ripen into a Sale,

can Subject Matter be offered to Third-Party Buyer, but at same price and terms asked of the Optionee
Otherwise, must re-offer under new terms to

Optionee
26

AGREEMENTS TO ENTER INTO FUTURE SALE OR SERIES OF SALES: ESSENCE:


(1) Obligations to do To enter into a Contract of Sale

DISTRIBUTION/ SUPPLY AGREEMENT


An Agreement to enter into a series of Contracts of Sale
- National Grains Authority v. IAC, 171 SCRA 131 (1989) - Johannes Schuback v. Court of Appeals, 227 SCRA 719 (1993)

(2)

MUTUAL PROMISES TO BUY AND TO SELL


(CONTRACTS TO SELL)

27

MUTUAL PROMISES TO BUY AND SELL


(CONTRACTS TO SELL)
1. AGREEMENTS TO ENTER INTO CONTRACT OF SALE UPON HAPPENING OF THE CONDITIONS
Essentially, contains Obligations to do: to

enter into a Sale


2.

CONDITIONAL CONTRACT OF SALE WHERE THE BILATERAL OBLIGATIONS TO BUY AND SELL HAVE BEEN AGREED UPON, BUT SUBJECT TO SUSPENSIVE CONDITION

Condition usually is the full payment of the price

28

PERFECTION STAGE
PERFECTION HAPPENS WHEN A CERTAIN OFFER HAS BEEN MET BY AN ABSOLUTE ACCEPTANCE THE ONLY POINT IN TIME TO DETERMINE THE VALIDITY OR INVALIDITY OF A CONTRACT OF SALE
Birth sets the essence of the Sale

ESTABLISHES THE CONTRACTUAL PRINCIPLES OF:

CONSENSUALITY

29

MUTUALITY OR OBLIGATORY FORCE


RELATIVITY

FORM OF SALE
GENERALLY:
None, because Sale is consensual contract

FOR ENFORCEABILITY: STATUTE OF FRAUDS


1.

Sale which by its terms is not to be performed within one (1) year. Sale of Movables, at least P500 Sale of Immovables, at any price

2. 3.

Must be in writing signed by the party sought to be bound

30

FORM OF SALE
(a)

contd Possible thing Licit Determinate/ Determinable

Memo must contain Description of:

SUBJECT MATTER

(b)

PRICE

real valuable certain/ascertainable manner of payment provided

(c)

SIGNED BY THE PARTY SOUGHT TO BE CHARGED


Exception: Electronic Document
(Estoppel)

OR PARTIALLY EXECUTED
TRIAL
31

OR WAIVER OF ADDUCEMENT OF ORAL EVIDENCE AT

FORM OF SALE

contd

What Constitutes Partial Execution? Subject Matter


(a)

Performance Must Touch Upon

Price Cannot Cover Other Consideration

(b)

Must Involve/Compromise Party Sought to be Charged

32

FORMS THAT VOID CONTRACT OF SALE:


1.

SALE OF REALTY THROUGH AGENT:

AGENTS AUTHORITY MUST BE IN WRITING

OTHERWISE:

SALE VOID: - EVEN

IF DEED OF SALE IN WRITING and/or NOTARIZED

- EVEN IF THERE HAS BEEN PARTIAL/ FULL PAYMENT - EVEN IF THERE HAS BEEN DELIVERY OF SUBJECT MATTER - EVEN IF SALE REGISTERED
33

SALES OF IMMOVABLES
1.

PRIVATE DOCUMENT NEEDED BETWEEN PARTIES

TO

BE

ENFORCEABLE

EXCEPT: PARTIAL EXECUTION/WAIVER


2.

MUST BE IN A PUBLIC INSTRUMENT


-TO BIND THE PUBLIC -TO BE REGISTRABLE WITH REGISTRY OF DEEDS

3.

FOR REAL ESTATE, MUST BE REGISTERED AND BINDING AGAINST THE WORD

TO

BE VALID

- Authority of Agent must be in writing VOID - Bound by actual possession situation, otherwise not in good faith
34

CONSUMMATION STAGE
(3)
(1)

REMEDIES
SPECIFIC PERFORMANCE RESCISSION DOUBLE SALES RULE SUBDIVISION LOTS & CONDO UNITS RULES RECTO LAW

(5)

EXTINGUISHMENT
CONVENTIONAL

PERFORMANCE
DELIVERY OF SUBJECT MATTER

REDEMPTION
(SALE A RETRO)

PAYMENT OF PRICE

EQUITABLE MORTGAGES LEGAL REDEMPTION

MACEDA LAW

(4)

CONDITIONS AND WARRANTIES

(2)

RISK OF LOSS

EFFECTS OF CONDITIONS EXPRESS WARRANTIES

IMPLIED WARRANTIES
35

OBLIGATIONS OF SELLER
1.

TO PRESERVE THE THING WITH DILIGENCE OF A GOOD FATHER OF A FAMILY TO DELIVER THE SUBJECT MATTER To DELIVER FRUITS, ACCESSORIES AND ACCESSIONS To COMPLY WITH WARRANTIES

2. 3.

4.

OBLIGATIONS OF BUYER
1. TO PAY THE PRICE
2.
36

TO ACCEPT DELIVERY OF SUBJECT MATTER

DELIVERY OF SUBJECT MATTER TRADITION AS THE MODE


TO TRANSFER OWNERSHIP

- Actual or Physical Delivery


- Constructive Delivery

MAGIC OF TRADITION

Fulfillment of the Primary Obligation of the Seller Transfer Ownership/ Possession to the Buyer

37

DOCTRINES ON CONSTRUCTIVE DELIVERY


EXECUTION OF PUBLIC INSTRUMENT
- No Contrary Stipulation/ Intention - Seller Must Have Control - Passage of Reasonable Time

EXCEPTION: WHEN BUYER TAKES

THE RISK

Produces the Same Magic of Actual Delivery

CONSTRUCTIVE DELIVERY
CONSTITUTUM POSSESORIUM TRADITIO BREVI MANU TRADITIO LONGA MANU OR SYMBOLIC DELVERY
Public Instrument

DELIVERY FOR INTANGIBLES

Transfer/Negotiation of Evidences the Intangible

the

Title

Enjoyment of Rights and Privileges with the consent of the Seller

DELIVERY THROUGH CARRIER


- FAS
- FOB - CIF

DOCUMENTS TO TITLE
39

RULES ON DOUBLE SALES UNDER ART. 1544


1.

FOR MOVABLES:

First to Possess, in good faith Oldest Title, in good faith Then: First in time, priority in rights

2.

FOR IMMOVABLES:

First to Register, in good faith First to Possess, in good faith Oldest Title, in good faith Then: First in time, priority in rights

40

REQUISITES FOR ART. 1544 TO APPLY


Cheng v. Genato, 300 SCRA 722 (1998)
(a)

The two (or more) sales transactions must constitute valid Sales;

(b)

The two (or more) sales transactions must pertain to exactly the same Subject Matter;
The two (or more) Buyers at odds over the rightful ownership of the Subject Matter must each represent conflicting interests; and The two (or more) Buyers at odds over the rightful ownership of the Subject Matter must each have bought from the very same Seller
Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 448 SCRA 347 (2005)

(c)

(d)

41

EFFECTS OF ART. 1544 REQUISITES


Not applicable where one of the

Sales is Void
Not applicable to Contracts to Sell

Not applicable if first sale is the

Subject Matter and the second sale is the redemption right to the Subject Matter

42

DOCTRINES ON ART. 1544 DOUBLE SALES RULES


(a)

Rules under Art. 1544 are addressed to the Second Buyer, who is mandated to do positive things if he hopes to win at all First Buyer wins by being first (first in time) and does not need the benefits of Art. 1544
Carbonell v. CA, 69 SCRA 99 (1976) Uraca v. CA, 278 SCRA 702 (1997) Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 448 SCRA 347 (2005)

43

DOCTRINES ON ART. 1544


(b)

contd

First Buyer wins by virtue of greater doctrine of first in time, priority in rights Second Buyer must register his purchase while in good faith if he hopes to win:

(c)

(d)

First Buyer, who is always in good faith, when he registers ahead, wins became second buyer in hopeless

(e) Even if Second Buyer was first to possess in good faith, the subsequent registration by First Buyer prevails
Taedo v. CA, 252 SCRA 80 (1996)
44

DOCTRINES ON ART. 1544


(f)

contd

Knowledge of the First Buyer of the second sale does not adversely affect First Buyer, nor does it constitute registration in favor of the Second Buyer However, knowledge of the Second Buyer of the first sale, would place him not only in bad faith, but would constitute registration in favor of the First Buyer
Cruz v. Cabana, 129 SCRA 656 (1984)

(g)

45

DOCTRINES ON ART. 1544


(h)

contd

It seems that Second Buyer must have paid in full the Price to gain the benefit under Art. 1544, as the Court defines the meaning of good faith to include having paid full value
Heirs of Aguilar-Reyes v. Spouses Mijares, 410 SCRA 97 (2003) Tanongon v. Samson, 382 SCRA 130 (2002) Balatbat v. CA, 261 SCRA 128 (1996) Agricultural and Home Extension Dev. v. CA, 213 SCRA 536 (1992)

46

GLOBAL RULES ON DOUBLE SALE FOR REAL ESTATE


I.

First to Register, in Good Faith and for Value, his Purchase of Land registered under the Torrens System wins, for registration is the Operative Act (Does not matter whether he is First or Second Buyer) For Unregistered Land, as between a conventional prior purchase, and a second purchase at public auction, the first Conventional Buyer wins, since the Buyer at public sale is bound by the provisions of the Rules of Court that says he only takes whatever is the remaining title of the judgment debtor.

II.

47

GLOBAL RULES ON DOUBLE SALE

contd

III. The Rules of Double Sale under Art. 1544 shall apply, only when the requisites under Cheng v. Genato are present, as follows:
1. First to Register in good faith But this can only apply to unregistered

land, because Rule I applies to registered land.


2. First to Possess in good faith, or 3. Oldest Title, in good faith

IV. First in time, priority in rights applies last


48

SALE AND DELIVERY BY NON-OWNER


GENERAL RULE: Nemo Dat Quod Non Habet

SPECIAL RULES:
1.

Sale and Delivery, with subsequent acquisition of title by owner (Art. 1434), ipso jure transfers title to Buyer Sale by Co-Owner

2.

- particular portion
- whole property
3.

Estoppel on the Part of the True Owner (Art. 1426)

49

SALE AND DELIVERY BY NON-OWNER


3.

contd

Chain of Title Theory under the Torrens System Sales by Court Authority Sales in Merchant Stores Sales by One Having Voidable Title Prior to Annulment Sale under Documents of Title

4.

5.

6.

7.
50

RULES FOR DETERIORATION, FRUITS AND IMPROVEMENTS

RULES HAVE NO APPLICATION IS SUBJECT


MATTER IS MERELY DETERMINABLE (Art. 1263)

ROMAN LAW DOCTRINE:

Buyer bears the consequences of Deterioration, but benefits from the Fruits and Improvements
Arts. 1480, 1163-1262 Arts. 1189, 1537 and 1538

51

RULES WHEN SUBJECT MATTER LOST:


1.

BEFORE PERFECTION:

Res Perit Domino


Roman v. Grimalt, 6 Phil. 96 (1906)

2.

AT TIME OF PERFECTION: Seller

(Arts. 1493 and 1494)

Sale is rendered inefficacious

52

SUBJECT MATTER LOST:

contd
Arts. 1164, 1189, and 1262(

3. AFTER PERFECTION BUT BEFORE DELIVERY

General Rule: For Goods, risk borne by Seller


under Res perit domino rule
Chrysler Phil. v. CA, 133 SCRA 567 (1984) Union Motor Corp v. CA, 361 SCRA 506 (2001)

Loss by Fault of a Party

(Arts. 1480, 1504, 1538)

LOSS BY FORTUITOUS EVENT: Two Schools of Thought


Arts. 1480, 1163, 1164, 1165 Arts. 1504, 1538, and 1189
53

SUBJECT MATTER LOST:


4.

contd

AFTER DELIVERY: BUYER BEARS RISK, UNDER Res Perit Domino

EXCEPT: When retention of Possession by Seller for purpose of securing payment of the Purchase Price
Art. 1504 Song Fo & Co. v. Oria, 33 Phil. 3 (1915) Lawyer's Coop v. Tabora, 13 SCRA 762 (1965) Lawyer's Coop v. Narciso, 55 O.G. 3313)

54

REMEDIES FOR CONTRACTS OF SALE


1. REMEDIES OF UNPAID SELLER OF GOODS

Possessory lien (Arts. 1526-1529, 1503, 1535)


Stoppage in transitu (Arts. 1530-1532, 1535, 1636[2]) Special Right of Resale (Art. 1533) Special Right to Rescind (Art. 1534)

55

2. RECTO
(a)

LAW:

SALES OF MOVABLES ON INSTALLMENTS


Levy v. Gervacio, 69 Phil. 52 (1939)

Meaning of Installment Sale

(b)
(c)

Contracts to Sell Movables Not Covered


Nature of Remedies of Unpaid Seller

Visayan Sawmill Co., Inc. v. CA, 219 SCRA 378 (1993)

Remedies under Art. 1484 are not cumulative, but alternative and exclusive.
Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996)

Seeking a writ of replevin consistent with all three remedies


Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 (1969)

56

RECTO LAW: contd


(d)

REMEDY OF SPECIFIC PERFORMANCE: No bar to full


recovery
Tajanglangit v. Southern Motors, 101 Phil. 606 (1957)

Even when it is mortgaged property that is sold on execution.


Southern Motors v. Moscoso, 2 SCRA 168 (1961)

Even with replevin and recovery of the subject property, the action may still be for specific performance.
Industrial Finance Corp. v. Ramirez, 77 SCRA 152 (1977)
57

RECTO LAW: contd


(e)

NATURE OF REMEDY OF RESCISSION


Inherent Barring Effect of Rescission
Surrender of mortgaged property not equivalent to rescission.
Vda. de Quiambao v. Manila Motors Co., Inc., 3 SCRA 444 (1961)

Stipulation on non-return of payments is valid provided not unconscionable.


Delta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992)

58

RECTO LAW: contd


(f)

REMEDY OF FORECLOSURE
(i)

Third Party Mortgage


Ridad v. Filipinas Investment, 120 SCRA 246 (1983)

(ii)

Assignor-Assignee; Financing Transactions


Zayas v. Luneta Motors, 117 SCRA 726 (1982)

When seller assigns his credit to another, the assignee is likewise bound by the terms of the Recto Law.
Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).

59

RECTO LAW: contd


(iii) H-V Barring Effects of Foreclosure

Foreclosure on the chattel mortgage prevents further action on the supporting real estate mortgage.
Cruz v. Filipinas Investment & Finance Corp.,23 SCRA 791 (1968) Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996)

(iv) Amounts Barred from Recovery


Macondray & Co. v. Eustaquio, 64 Phil. 446 (1937)

(v) Perverse Buyer


Filipinas Investment & Finance Corp. v. Ridad, 30 SCRA 564 (1969)
60

RECTO LAW: contd


(g)

PURPORTED LEASE WITH OPTION TO BUY:


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)

When purported Lessor takes possession of subject movable, it is treated legally as a foreclosure and the barring effects applicable to foreclosure remedy, not rescission, are given application.
Vda. de Jose v. Barrueco, 67 Phil. 191 (1939) Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989) U.S. Commercial v. Halili, 93 Phil. 271 (1953) H.E. Heacock v. Bantal Manufacturing, 66 Phil. 245 (1938) Manila Gas Corp. v. Calupita, 66 Phil. 747 (19 38) Vda. de Jose v. Barrueco, 67 Phil. 191 (1939)

61

3. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552)


(a) Role of Maceda Law
Lagandaon v. CA, 290 SCRA 463 (1998)

(b)

Transactions Covered
The formal requirements of rescission under the Maceda Law apply even to contracts entered into prior to its effectivity.
Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994)

BUT SEE:

Peoples Indl and Comm. Corp. v. CA, 281 SCRA 206 (1997)

62

MACEDA LAW

contd

The Maceda Law makes no distinctions between option and sale which under P.D. 957 also includes an exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale or an offer to sell directly.
Realty Exchange Venture Corp. v. Sendino, 233 SCRA 665 (1994)

Curiously: No application to Contract to Sell


because said law presupposes the existence of a valid and effective contract to sell a condominium.
Mortel v. KASSCO, Inc., 348 SCRA 391, 398 (2000)

63

MACEDA LAW

contd

Pursuant to Art. 1253 of Civil Code, in a contract involving installments with interest chargeable against the remaining balance of the obligation, it is the duty of the creditor-seller to inform the debtor-buyer of the interest that falls due and that is applying the installment payments to cover said interest. Otherwise, the creditor cannot apply the payments to the interest and then hold the debtor in default for non-payment of installments on the principal.
Rapanut v. CA, 246 SCRA 323 (1995)

(c) How Cancellation of Contract Can Be Effected: Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 (2002)
64

MACEDA LAW

contd

OTHER RIGHTS GRANTED TO BUYER


(a) To sell/assign his rights to another person (b) To reinstate contract by updating account

during grace period, cancellation of contract

before

actual

(c) To pay in advance installments or in full

unpaid balance of Price any time without interest and have same annotated in title Any stipulation in any contract entered into contrary to the provisions of the Law, shall be null and void. (Art. 7)
65

4. OTHER REMEDIES ON SALE OF REAL ESTATE


(a)

ANTICIPATORY BREACH (ART. 1591)

(b)

RESCISSION ON SALE ON NONRESIDENTIAL REALTY ON INSTALLMENTS (Arts. 1191 and 1592)


SEC. 23 AND 24, PRES. DECREE 957

(c)

66

CONTRACTS TO SELL
Versus CONDITIONAL CONTRACTS OF SALE Art. 1458 Defines a Sale to covered both Absolute and Conditional

Both Contracts are usually bound by same condition: Full payment of the Price
Both Contracts are consensual, onerous, commutative, and cover bilateral obligations
67

K TO SELL VS. K OF SALE

contd

Power to Rescind is inherently Judicial Rescission requires a positive act

Non-fulfillment of Condition ipso jure destroys contract


Substantial Breach Relevant to Contract of Sale, Irrelevant to Contracts to Sell

68

K TO SELL VS. K OF SALE


1.

contd

In Contract to Sell Ownership if Reserved by Seller, while in a Contract to Sell ownership transfers to Buyer upon delivery.

Ergo: K to Sell must have express reservation of ownership

To execute a formal Deed of Sale


Only receipt of payment evidences sale Seller retained original titles
69

K TO SELL VS. K OF SALE

contd

2. Rescission of Contract to Sell is a matter of right upon non-happening of the condition Ergo: K to Sell must have express right to rescind the contract upon default of the Buyer
A written notice of cancellation must be served upon Buyer even when Contract to Sell
UP v. Delos Angeles, 35 SCRA 103 (1970)

70

CONDITIONS

versus

WARRANTIES

Power Commercial and Industrial Corp. v. CA


274 SCRA 597 (1997)

(a) Condition goes into root of existence of obligation,

whereas warranty goes into performance of such obligation, and in fact may constitute an obligation itself;
(b) Condition must be expressly stipulated by parties,

while warranty may form part of the obligation or contract by provision of law, without previous agreement; and
(c) Condition may attach itself either to the Obligations

of Seller, while warranty, express or implied, relates to the Subject Matter itself or to the obligations of Seller as to Subject Matter of the sale.
71

CONDITIONS AND WARRANTIES

contd

Failure to comply with condition imposed upon perfection of the contract results in failure of a contract, while the failure to comply with a condition imposed on the performance of an obligation only gives the other party the option either to refuse to proceed with sale or waive the condition.
Laforteza v. Machuca, 333 SCRA 643 (2000)

In a Sale with Assumption of Mortgage, the assumption of mortgage is a condition to the sellers consent so that without approval by the mortgagee, no sale is perfected. In such case, the seller remains the owner and mortgagor of the property and retains the right to redeem the foreclosed property.
Ramos v. CA, 279 SCRA 118 (1997)
72

CONDITIONS AND WARRANTIES


A.

contd
(Art. 1546)

EXPRESS WARRANTIES

(a) Must be an affirmation of fact or any promise by the seller relating to Subject Matter of the sale; (b) The natural tendency of such affirmation or promise is to induce Buyer to purchase the thing; and (c) Buyer purchases the thing affirmation or promise thereon. relying on such

The law allows considerable latitude to sellers statements, or dealers talk; and experience teaches that it is exceedingly risky to accept it at its face value.
Ramos v. CA, 279 SCRA 118 (1997)
73

CONDITIONS AND WARRANTIES


B.

contd

IMPLIED WARRANTIES
1.
2.

(Art. 1547)

SELLER HAS RIGHT TO SELL


WARRANTY AGAINST EVICTION

Seller must be summoned in the suit for eviction at the instance of the buyer (Art. 1558), and be made a codefendant (Art. 1559); or made a third-party defendant.
Escaler v. CA, 138 SCRA 1 (1985) Canizares Tiana v. Torrejos, 21 Phil. 127 (1911) J.M. Tuazon v. CA, 94 SCRA 413 (1979)

74

CONDITIONS AND WARRANTIES


3.

contd

WARRANTY AGAINST NON-APPARENT SERVITUDES WARRANTY AGAINST HIDDEN DEFECTS


The stipulation in a contract of lease with option to purchase (which it treated as a sale of movable on installments) that the buyer-lessee "absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated," was held as an express waiver of warranty against hidden defect.
Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989)

4.

75

CONDITIONS AND WARRANTIES


441 SCRA 357 (2004)

contd

Nutrimix Feeds Corp. v. CA


A hidden defect is one which is unknown or could not have been known to the buyer. Under the law, the requisites to recover on account of hidden defects are as follows:
a. b.

c.
d. e.

Defect must be hidden; Must exist at the time the sale was made; Must ordinarily have been excluded from the contract; Defect, must be important (render the thing unfit or considerably decreases fitness); Action must be instituted within statute of limitations.

The remedy against violation of warranty against hidden defects is either to withdraw from the contract (accion redhibitoria) or to demand a proportionate reduction of the price (accion quanti minoris), with damages in either case.
76

Investments & Dev., Inc. v. CA, 162 SCRA 636 [1988]

CONDITIONS AND WARRANTIES

contd

5. REDHIBITORY DEFECTS OF ANIMALS


a. Sale of a Team b. Animals Sold at Fairs or Public Auction c. Sale of Animals with Contagious Diseases d. Sale of Unfit Animals
6. IMPLIED

WARRANTIES IN THE SALE OF GOODS

a. Warranty as to Fitness or Quality


b. Sale of Goods by Sample

7.

FOR CONSUMER (Arts. 68, Consumer Act of the Philippines, R.A. 7394).

ADDITIONAL WARRANTIES

PRODUCTS

77

CONDITIONS AND WARRANTIES


C. D. G.

contd

EFFECTS OF WARRANTIES EFFECTS OF WAIVERS


BUYER'S OPTIONS IN CASE OF BREACH OF WARRANTY

78

EXTINGUISHMENT OF SALE
SALE EXTINGUISHED BY SAME MODES APPLICABLE TO ALL CONTRACTS
Arts. 1231, 1600

REDEMPTION IS A MODE EXTINGUISHMENT UNIQUE TO SALES:


CONVENTIONAL REDEMPTION: SALE
WITH RIGHT TO REPURCHASE

OF

LEGAL REDEMPTION
79

CONVENTIONAL REDEMPTION
(SALE WITH A RIGHT TO REPURCHASE)

NATURE OF RIGHT TO REPURCHASE:


Reserved by Seller at the point of Perfection.
Art. 1601 Villarica v. CA, 26 SCRA 189 (1968)

Even though instrument

found

in

separate

Torres v. CA, 216 SCRA 287 (1992) Claravall v. CA, 190 SCRA 439 (1990)

80

CONVENTIONAL REDEMPTION

contd

Its Validity is Tied to the Validity of the Contract


of Sale to which appended.
Nool v. Court of Appeals, 276 SCRA 149 (1997)

When Sale Covered by Deed, Right a retro may be proved by parol evidence.
Mactan Cebu Intl Airport Authority v. Court of Appeals, 263 SCRA 736 (1996)

81

RIGHT A RETRO versus OPTION CONTRACT


(A) Not separate contract, but must be part of main Contract of Sale (B) Right to Redeem does not need separate consideration (A) Generally principal contract, but may be appended in another contract valid (B) Option requires consider-ation separate and distinct of the Price in order to be valid (C) Period of Option may be

(C) Maximum Period for


exercise of Right of redemption cannot exceed 10 years

beyond 10 years

(D) Right of repurchase requires in addition the tender of the amount mandated, including consignation when tender not possible
82

(D) Option may be exercised by mere notice to Offeror

SALIENT MATTERS ON RIGHT OF REDEMPTION


(a)

PERIOD OF REDEMPTION:
When no Period agreed upon: 4 years
When When

Period agreed exceed 10 years Period Stipulated of

upon:

cannot

Non-Redemption

Anchuel v. IAC, 147 SCRA 434 (1987) Tayao v. Dulay, 13 SCRA 758 (1965)

83

SALIENT MATTERS ON RIGHT OF REDEMPTION contd


Pendency of Action Tolls Redemption

Period
Ong Chua v. Carr, 53 Phil. 975 (1929)

Non-Payment of Price Does Not Affect

Running of Redemption Period


Catangcatang v. Legayada, 84 SCRA 51 (1978)

84

SALIENT MATTERS
(b)

contd

HOW REDEMPTION EFFECTED:


Only tender of payment is sufficient.
Legaspi v. CA, 142 SCRA 82 (1986)

Consignation is not required after tender is refused.


Mariano v. CA, 222 SCRA 736 (1993)

But when tender not possible, consignation should be made.


Catangcatang v. Legayada, 84 SCRA 51

(1978)

85

SALIENT MATTERS

contd

Simply by Filing Judicial Action


Lee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995)

Seller returning to Buyer:


Price of the sale

Expenses of contract, and any other legitimate payments made by reason of the sale Necessary and useful expenses made on the thing sold
ART. 1616

86

SALIENT MATTERS

contd

When Redemption Not Made, Buyer a retro automatically acquires full ownership.
Oviedo v. Garcia, 40 SCRA 17 (1971)

HOWEVER:

In real property, consolidation shall not be recorded in the Registry of Property without a judicial order, after the seller has been duly heard.
Article 1607

If Seller proves the transaction a sale a retro, he is given a period of 30 days from finality of judgment to repurchase.
Solid Homes v. CA, 275 SCRA 267 (1997).
87

EQUITABLE MORTGAGE
DEFINITION AND ELEMENTS
(a) The contract entered into is denominated as a Sale (absolute or a retro); and (b) Real intention was to secure an existing debt by way mortgage
Molina v. CA, 398 SCRA 97 (2003)

88

EQUITABLE MORTGAGE

contd

RATIONALE OF EQUITABLE MORTGAGE PRINCIPLE

Prevent circumvention of law on usury and rule against pactum commissorium, i.e. against a creditor appropriating the mortgage property. To end unjust or oppressive transactions or violations in connection with a sale or property.
Spouses Misea v. Rongavilla, 303 SCRA 749 (1999). Matanguihan v. CA, 275 SCRA 380 (1997) Lao v. CA, 275 SCRA 237 (1997)

89

RULINGS ON EQUITABLE MORTGAGE


Badges of Equitable Mortgage in Art. 1602 Apply both to sale a retro and to a contract purporting to be an absolute sale.
Tuazon v. CA, 341 SCRA 707 (2000) Zamora v.CA, 260 SCRA 10 (1996)

Parol evidence is competent and admissible in support of allegation of equitable mortgage arrangement.
Mariano v. CA, 220 SCRA 716 (1993)

90

Pactum Commissorium principle does not apply:


(a) When security for a debt is also money in

form of

time deposit
Consing v. CA, 177 SCRA 14 (1989)

(b) To an agreement between Lender and Borrower which provides that in the event Borrower fails to comply with the new terms of payment, the agreement shall automatically operate to be an instrument of dacion en pago without need of executing any document to such an effect.
Solid Homes, Inc. v. CA, 275 SCRA 267 (1997)

91

RULINGS ON EM
CONTRA:

contd

P/N stipulation that upon makers failure


to pay interests, ownership of property would automatically be transferred to Payee and the covering deed of sale would be registered, is in substance a pactum commissorium in violation of Art. 2088.
A. Francisco Realty v. CA, 298 SCRA 349 (1998)

A pactum commisorium sale is void, registration and obtaining of new title by apparent buyer would also be void.
A. Francisco Realty v. CA, 298 SCRA 349 (1998)
92

REMEDIES UNDER EQUITABLE MORTGAGE SITUATIONS


Apparent seller can seek reformation of instrument (Art. 1605).

An action for consolidation of ownership (in case presented as sale a retro) would be void, and proper remedy of mortgagee-buyer is to file appropriate foreclosure of the mortgage in equity.
Briones-Vasquez vs. CA, 450 SCRA 644 (2005).

93

REMEDIES IN EM

contd

Additional 30-day Period of Redemption is allowed under Art. 1606, in event courts should find the sale was not equitable mortgage, provided:
(a) Honest belief that it was equitable mortgage supported

by convincing evidence, such as badges under Art. 1602, or consignation during trial of the amount of the alleged loan
Abilla v. Gobonseng, 374 SCRA 51 (2002) Vda. de Macoy v. CA, 206 SCRA 244 (1992)

94

LEGAL REDEMPTION
DEFINITION AND RATIONALE:
Privilege created by law for reasons of public policy. For benefit and convenience of the redemptioner, to afford him a way out of what might be a disagreeable or inconvenient association into which he has been thrust. Intended to minimize co-ownership.
Fernandez v. Tarun, 391 SCRA 653 (2002) Basa v. Aguilar, 117 SCRA 128 (1982)
95

LEGAL REDEMPTION contd


PERIOD OF LEGAL REDEMPTION BEGINS:

30 DAYS FROM WRITTEN NOTICE


Written notice must cover perfected sale
Art. 1623 Spouses Doromal v. CA, 66 SCRA 575 (1975)

Notice must be given by seller; and that notice given by buyer or even by the Register of Deeds are not sufficient.
Francisco v. Boiser, 332 SCRA 305 (2000) Butte v. Manuel Uy and Sons, Inc., 4 SCRA 526 (1962) Salatandol v. Retes, 162 SCRA 568 (1988)
96

LEGAL REDEMPTION

contd

Seller furnishing of the copies of deeds of sale to co-owner would be sufficient.


Distrito v. CA, 197 SCRA 606 (1991) Conejero v. CA, 16 SCRA 775 (1966) Badillo v. Ferrer, 152 SCRA 407 (1987)

Notice to minors may validly be served upon parents even when not judicially appointed since beneficial to the children.
Badillo v. Ferrer, 152 SCRA 407 (1987).

97

LEGAL REDEMPTION contd


Deemed complied when co-owners signed Deed of Extrajudicial Partition embodying disposition of part of the property owned in common.
Fernandez v. Tarun, 391 SCRA 653 (2002)

Filing of ejectment suit or collection of rentals against a co-owner dispenses with need for written notice.
Alonzo v. IAC, 150 SCRA 259 (1987)

98

INSTANCES OF LEGAL REDEMPTION


(a) Among Co-heirs (Art. 1088) A co-heir cannot exercise the right of redemption alone.
De Guzman v. CA, 148 SCRA 75 (1987)

No legal redemption for sale of the property of the estate.


Plan v. IAC, 135 SCRA 270 (1985)

Written notice to other co-owners deemed inutile by fact that ebuyers took possession of property in full view of other co-owners.
Pilapil v. CA, 250 SCRA 560 (1995)

Notice given by city treasurer will not suffice.


Verdad v. CA, 256 SCRA 593 (1996)
99

INSTANCES OF LEGAL REDEMPTION


(b)

contd

Among Co-owners (Art. 1620)


Right of legal redemption arises only when shares of other owners are sold to a third person, and not to another co-owner
Fernandez v. Tarun, 391 SCRA 653 (2002)

Registration of the sale does not estop a co-owner


Cabrera v. Villanueva, 160 SCRA 627 (1988)

Notice required to be given to co-owners must be in writing; and redemption by co-owner redounds to the benefit of all other co-owners.
Mariano v. CA, 222 SCRA 736 (1993)
100

INSTANCES OF LEGAL REDEMPTION

contd

No written notice required to co-owner who acted as active intermediary in the consummation of the sale.
Distrito v. CA, 197 SCRA 606 (1991)

Redemption by co-owner, even when he uses his own fund, inures to the benefit of all the other co-owners.
Annie Tan v. CA, 172 SCRA 660 (1989)

101

INSTANCES OF LEGAL REDEMPTION


(c)

contd

Among Adjoining Owners (Art. 1621-1622)


Redemption covers only resale and does not cover exchanges or barter of properties
De Santos v. City of Manila, 45 SCRA 409 (1972)

Requisite of speculation dropped.


Legaspi v. CA, 69 SCRA 360 (1976)

Does not apply if one adjacent lot is not also rural land
Primary Structures Corp. v. Valencia, 409 SCRA 371 (2003)

102

INSTANCES OF LEGAL REDEMPTION


(d)

contd

Sale of Credit in Litigation (Art. 1634) - 30 days Redemption of Homesteads (Sec. 119, C.A. 141)

(e)

The right to repurchase is granted by law and need not be provided for in the deed of sale.
Berin v. CA, 194 SCRA 508 (1991).

103

INSTANCES OF LEGAL REDEMPTION

contd

Under the free patent or homestead provisions of the Public Land Act a period of five (5) years from the date of conveyance is provided, the five-year period to be reckoned from the date of the sale and not from the date of registration in the office of the Register of Deeds.
Lee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995)

For purposes of reckoning the 5-year period to exercise right of repurchase, the date of conveyance is construed to refer to date of execution of the deed transferring the ownership of the land to the buyer.
Mata v. CA, 318 SCRA 416 (1999).

104

INSTANCES OF LEGAL REDEMPTION


(f)

contd

Redemption in Tax Sales (Sec. 215, NIRC of 1997)

(g)

Redemption by judgment debtor (Sec. 27, Rule


39, Rules of Civil Procedure) Period of redemption shall be at any time within one (1) year from the date of registration of the certificate of sale, so that the period is now to be understood as composed of 365 days, unlike the 360 days under the old provisions of the Rules of Court which referred to 12-month redemption period.
Ysmael v. CA, 318 SCRA 215 (1999)

105

INSTANCES OF LEGAL REDEMPTION

contd

(h) Redemption in Extrajudicial Foreclosure


One (1) year from registration in the Registry of Deeds on Mortgage (Sec. 6, Act 3135).

(i)

Redemption in judicial foreclosure of mortgage (Sec. 47, General Banking Law of 2000, R.A. 8791).
A stipulation to render the right to redeem defeasible by an option to buy on the part of the creditor
Soriano v. Bautista, 6 SCRA 946 (1962)

106

INSTANCES OF LEGAL REDEMPTION

contd

No right to redeem from a judicial foreclosure sale, except those granted by banks or banking institutions
GSIS v. CFI, 175 SCRA 19 (1989).

The one-year redemption period in case of foreclosure of real estate mortgage is not interrupted by filing of action assailing validity of mortgage, so that at the expiration thereof, mortgagee who acquires property at the foreclosure sale can proceed to have title consolidated in his name and a writ of possession issued in his favor.
Union Bank of the Philippines v. CA, 359 SCRA 480 (2001) Vaca v. CA, 234 SCRA 146 (1994)
107

INSTANCES OF LEGAL REDEMPTION


(j)

contd

Redemption in Foreclosure by Rural Banks


Land mortgaged to rural bank under R.A. 720, may be redeemed within two (2) years from date of foreclosure or from registration of sheriff's certificate of sale. If mortgagor fails to exercise such right, heirs may still repurchase within 5 years from expiration of 2-year redemption period pursuant to Sec. 119 of Public Land Act (C.A. 141).
Rural Bank of Davao City v. CA, 217 SCRA 554 (1993) Heirs of Felicidad Canque v. CA, 275 SCRA 741 (1997)

108

INSTANCES OF LEGAL REDEMPTION


(k)

contd

Legal Right to Redeem under Agrarian Reform Code


Sec. 12 of R.A. 3844, grants agricultural lessee right to redeem within 180 days from notice in writing and at a reasonable price and consideration
Quio v. CA, 291 SCRA 249 (1998)

Redemption right of tenant does not begin to run without written notice
Springsun Management Systems Corp. v. Camerino, 449 SCRA 65 (2005)
109

END