Reviewer in Sales

CHAPTER 1: INTRODUCTION
CONTRACT OF SALE By the contract of sale one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent. A contract of sale may be absolute or conditional.
(Article 1458)
CHARACTERISTICS:
1. nominate
2. principal
does not depend on another contract for its validity or existence
3. bilateral
imposes obligations on both parties to the contract
power to rescind is implied and need not be stipulated in order for the innocent party
to invoke such remedy (Art. 1191)
4. onerous
all doubts in construing the contract shall be settled in favor of the greatest reciprocity
of interests
5. commutative
equal value is exchanged for equal value (based on the point of view of the parties in
the contract)
Test: subjective as long as parties in all honesty that he is receiving equal value then
it complies with test & would not be deemed a donation; but must not be absurd.
Inadequacy of price or aleatory character not sufficient ground to cancel contract of
sale; inadequacy can show vitiation of consent & sale may be annulled based on vice
but not on inadequacy
6. consensual
perfected by mere consent
for there to be a meeting of the minds, the offer must be certain and the acceptance
absolute
7.
Title & not a mode gives rise to an obligation to transfer; it is delivery w/c actually
transfer ownership; mode which actually transfer ownership.
Fule v. CA
A contract of sale is perfected at the moment there is a meeting of the minds upon the thing
which is the object of the contract and upon the price. Art. 1358 CC which requires the
embodiment of certain contracts in a public instrument, is only for convenience and
registration thereof only adversely affects 3rd parties. Non-compliance therewith does
not adversely affect the validity of the contract not the contractual rights and obligations
of the parties thereunder.
ESSENTIAL REQUISITES:
1. consent
there is a meeting of the minds as to the price and the object (Article 1475)
acceptance must be absolute
if the agreement is covered by the Statute of Frauds, only the enforceability of the
agreement is affected
2. determinate (or determinable) subject matter
particularly designated or physically segregated from all others of the same class
(Article 1460)
3. cause or consideration (price certain in money or its equivalent)
equivalent = check or promissory note; does not include goods or merchandise
Torres v. CA
Where the contract of sale of a parcel of land clearly provides that the consideration for the
sale was the expectation of profits from a subdivision project, it constituted valid cause
or consideration to validate the sale and delivery of the land. Consideration can take
different forms, such as the prestation or promise of a thing or service by another.
Co v. CA
A definite agreement on the manner of payment of the price is an essential element in the
formation of a binding and enforceable contract of sale.
1.

Contract of sale (absolute)

real obligation obligation to give

remedies available:
a. specific performance
b. rescission
c. damages

2.

Contract to sell (conditional)

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personal obligation obligation to do

remedies available:
a. resolution
b. damages

absolute sale: ownership passes to the buyer upon delivery of the thing sold
conditional sale: ownership does not transfer upon delivery of the thing until fulfillment of
the condition [such as full payment of purchase price (Articles 1478 and 1503)]
if the obligation of one party is subject to any condition and it is not fulfilled, such party
may (Article 1545):

refuse to proceed with the contract

waive the performance of the condition and proceed with the contract
if the condition is in the nature or a promise that it should happen, the nonperformance of such condition may be treated as a breach of warranty (Article 1545)
where the ownership has not passed, the buyer may treat fulfillment by the seller of
his obligation to deliver, as described and as warranted, as a condition of the
obligation of the buyer to perform his promise to accept and pay for the thing ( Article
1545)
STAGES IN LIFE OF CONTRACT OF SALE:
1. negotiation
2. perfection by mere consent; performance may be demanded ( specific performance )
3. consummation
DISTINGUISHED FROM OTHER CONTRACTS:
1. Donation

donation is gratuitous; sale is onerous

donation is formal contract; sale is consensual

donation is governed by law on donation; sale is governed by law on sale

2. Barter

in barter, the consideration is the giving of a thing; in sale, it is giving of money as

payment
both are governed by law on sales; both are species of the genus sales
if consideration consists party in money & partly by thing look at manifest intention;
if intention is not clear (1468 ):
a. value of thing is equal or less than amount of money sale
b. value of thing is more than amount of money barter

3. Contract for piece of work

test in article 1467:

a. contract for delivery of an article which the vendor in the ordinary course of
business manufactures or procures for general market ( whether on hand or not )
sale
b. goods are to be manufactured specially for a customer and upon special order and
not for the general market contract for piece of work.

jurisprudence:
a. Timing test under art 1467; Inchausti; whether the thing transferred would have
never existed but for the order contract for piece of work (abandoned)
b. Habituality test enunciated in Celestino v CIR; contract of sale if manufacturer
engages in activity without need to employ extraordinary skills and equipment;
contract for piece of work is sale of service; contract of sale is sale of things.
c. Nature of the object test enunciated in EEI v CIR; each products nature of
execution differs from the others; products are not ordinary products of
manufacturer.

main factor in decision of the SC: essence of why parties enter into it:
a. essence is object contract of sale
b. essence is service contract for piece of work

contracts for a piece of work, unlike contracts of sale, are not within the Statute of
Frauds
Celestino Co & Co. v. Collector
The company claimed it was only subject to 3% contractors tax instead of 7% tax imposed for
sales. The SC ruled against the company. Although the windows and doors are manufactured
only when the customers place their orders, the company ordinarily manufactured or was in a
position habitually to manufacture these in the usual course of their business. When this
Factory accepts a job that requires the use of extraordinary or additional equipment, or
involves services not generally performed by it, it thereby contracts for a piece of work, filling
special orders within the meaning of Article 1467. The orders herein exhibited were not shown
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to be special. They were merely orders for work nothing is shown to call them special
requiring extraordinary service of the factory.
Commissioner of Internal Revenue v. Engineering Equipment and Supply Co.
The distinction between a contract of sale and one for work, labor and materials is tested by
the inquiry whether the thing transferred is one not in existence and which never would have
existed but for the order of the party desiring to acquire it, or a thing which would have existed
but has been the subject of sale to some other persons even if the order had not been given. If
the article ordered by the purchaser is exactly such as the seller makes and keeps on hand for
sale to anyone, and no change or modification of it is made at purchaser's request, it is a
contract of sale even though it may be entirely made after, and in consequence of the
purchaser's order for it.
4. Agency to sell

in sale, buyer pays for price of object; in agency to sell, agent not obliged to pay for
price, merely obliged to deliver price received from buyer.

in sale, buyer becomes owner of thing; in agency; principal remains owner even if
object delivered to him

in sale, seller warrants; in agency, agent assumes no risk/liability as long as within

authority given

in sale, not unilaterally revocable; in agency, may be revoked unilaterally because

fiduciary & even w/o ground

in sale, seller receives profit; in agency, agent not allowed to profit

TEST: essential clauses of whole instrument ( art 1466 motherhood statement, not
good law )

Agency is a personal contract; sale is real contract ( to give ) rescission not available
in agency
Ker and Co. v. Lingad
Ker and Co. entered into a contract with the United States Rubber International (the company)
as distributor for the latter. It was agreed that the distributor will hold the products in such
quantities as the company wishes and that all goods were to be the property of the company
until sold by the distributor. However, it was expressly stated that the distributor is not to be
the agent or legal representative of the company. The Court held that there existed an agency
to sell, notwithstanding the categorical statement in the contract that no agency is to exist.
The decisive test is the retention of the ownership of goods delivered to the possession of the
dealer for resale with the price and terms remaining subject to the control of the firm
consigning the goods.
5. Dacion en pago

dacion: contract where property is alienated to satisfy/extinguish obligation to pay

debt

in dacion: novates creditor-debtor relationship into seller-buyer

in dacion: delivery is required ( real contract )

6. Lease

in sale: obligation to absolutely transfer ownership of thing; in lease: use of thing is

for specified period only with obligation to return

in sale: consideration is price; in lease: consideration is rent

in sale: seller needs to be owner of thing to transfer ownership; in lease: lessor need
not be owner

lease with option to by: really a contract of sale but designated as lease in name only;
it is a safe by installments
7. Chattel Mortgage
in chattel mortgage, the thing is a security for an obligation; if the debtor is unable to
pay, the ownership cannot be transferred automatically to the creditor, but is still
subject to foreclosure proceedings

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CHAPTER 2: PARTIES TO A CONTRACT OF SALE

GENERAL RULE: All parties with capacity to contract can enter into a valid contract of sale
1. Natural
2. Judicial - corporation/partnership/associations/Cooperatives

Status of contract valid

Remedies available therefore are:

a. specific performance
b. rescission
c. damages
EXCEPTION TO GENERAL RULE:
1. Minors

where necessaries are sold and delivered to a minor or other person without capacity to
act, he must pay a reasonable price therefore (Article 1489)

necessaries are things which are needed for sustenance, dwelling, clothing and
medical attendance, in keeping with the financial capacity of the family

status of contract: voidable only, therefor ratifiable

remedy is action for annulment (with partial restitution in so far as the minor is benefited)
2.

SALE BY & BETWEEN SPOUSES

a. Contract with 3rd parties

status of contract is valid

b. Sale between parties

Status not provided for by law but VOID according to case law

Reason:
i. prevent defraudation of creditors
ii. avoid situation where dominant spouse take advantage of others
iii. avoid circumvention on prohibition of donation between spouses

Exception
i. separation of property agreed (marriage settlement)
ii. judicial separation of property
c. Common Law Spouses (Paramours)

Status of contract: VOID (per case law)

Rationale: evil sought to be avoided is present

Medina v. Collector of Internal Revenue

Contracts violative of the provisions of Article 1490 of the Civil Code are null and void. The
government is always an interested party to all matters involving taxable transactions and,
needless to say, is qualified to question their validity or legitimacy whenever necessary to
block tax evasion.
3.

OTHERS PER SPECIFIC PROVISIONS OF LAW

a. Guardian with regards to property of ward during period of guardianship
b. Agent with regards to property of principal
c. Executor/administrator with regards to the estate of the deceased
d. Public officers with regards to the property of the estate
e. Officer of court & employee with regards to property in litigation

LEGAL STATUS OF CONTRACT:

1. VOID (PER CASE LAW) guardian/ executor/public officers / officers of the court
2. VOIDABLE (PER CIVIL CODE) agent; and if with consent, VALID
TWO GROUPS OF PROHIBITED PARTIES FROM ENGAGING IN CONTRACT OF SALE:
1. Guardian / Agent / Executors ratifiable in the sense that only private wrong is involved
2. Public Officials / Officers of Court not ratifiable in the sense that public wrong is
concerned
GUARDIAN/AGENT/ADMINISTRATOR
1. Legal status of contract: VOID (case law)
2. Direct or indirect
3. If mediator no need to prove collusion; inutile
4. Even if court approved sale
5. Reason: fiduciary relationship is based on trust
ATTORNEYS
REQUISITES:
1. Lawyer-client relationship exists
2. Subject matter property in litigation (all types)
3. Duration while in litigation (from filing of complaint to final judgment); may be future
litigation

Reason: due to public policy; ground for mal practice

a. Client is at the mercy of the lawyer
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b. Law is a noble profession

c. 2 Masters 2 interest; one cannot serve 2 masters at the same time
Exception: CONTINGENT FEE ARRANGEMENT
a. Amount of legal fees is based on a value of property
b. Property itself is involved

Not a sale but service contract

I give that you may do (innominate contract) so has to be governed by law on

sales but because of public policy, considered VALID

Reason why contingent fee is followed:

i. constitutional prohibition v impairment of contract
ii. subject to control of courts (may be reduced if unconscionable or nullified)
iii. canons of legal ethics
iv. higher public policy litigants

Philippine Trust v. Roldan

Bernardo, a minor, inherited land from his father. His stepmother, Roldan, was appointed his
guardian. Thereafter, the court authorized the execution of a deed of sale in favor of Ramos,
the brother-in-law of Roldan. Subsequently, a deed of conveyance was executed in favor of
Roldan. Philtrust replaced Roldan as guardian and sought to rescind the contract. The Court
held that Ramos acted as an intermediary for Roldan. Whenever the guardian acquires the
ward's property through an intermediary, he violates the Civil Code and such transaction and
subsequent ones emanating therefrom shall be annulled.
Municipal Council of Iloilo v. Evangelista
Vda. de Tan Toco sought to recover just compensation for expropriation of her property by the
Municipal Council. There were several claimants over the amount of the judgment, one of
which is Atty. Soriano, who claimed payment for professional services he rendered for Vda. de
Tan Toco in other cases. The Court held that the prohibition in the Civil Code did not apply
since there was no attorney-client relation between Soriano and Vda. de Tan Toco in the
expropriation case in question.
Rubias v. Batiller
Rubias was the counsel of Militante in an application for the registration of land title, which
land is in possession of Batiller. The case was dismissed. Pending appeal, Militante sold the
subject land to Rubias. The decision of the trial court was upheld. Rubias sought to recover
the land from Batiller. The Court held that even if Militante had title to the land (which he
didnt), the sale between him and Rubias is void. Pursuant to Article 1491 of the Civil Code,
Rubias is barred from purchasing from his client the same property which was the subject of
the case he handled for Militante.
Valencia v. Cabanting
Cabanting served as counsel for Serapia in a land dispute with Valencia. The trial court
rendered a decision in favor of Serapia. Valencia filed a petition for certiorari with the CA.
While this was pending, the trial court issued an order of execution of its decision. Thereafter,
Serapia sold part of the subject land to Cabanting. The SC declared Cabanting guilty of
malpractice for violation of Art. 1491 and the Canons of Professional Ethics. While it is true
that the sale occurred after finality of judgment, there was still a pending certiorari proceeding.
Hence, it is not safe to conclude, for purposes of Art. 1491, that the litigation has terminated.
Fabillo v. IAC
Article 1491 prohibits lawyers from acquiring properties and rights which are the objects of
litigation in which they may take part by virtue of their profession. The said prohibition,
however, applies only if the sale or assignment of the property takes place during the
pendency of the litigation involving the client's property. A contract between a lawyer and his
client stipulating a contingent fee is not covered by said prohibition because the payment of
said fee is not made during the pendency of the litigation but only after judgment has been
rendered in the case handled by the lawyer. In fact, under the 1988 Code of Professional
Responsibility, a lawyer may have a lien over funds and property of his client and may apply so
much thereof as may be necessary to satisfy his lawful fees and disbursements. As long as
there is no undue influence or fraud on the part of the lawyer or that the compensation is
clearly not excessive as to amount to extortion, a contract for contingent fee is valid and
enforceable.
Gan Tingco v. Pabinguit
A judge cannot take part in the sale of property that had been the subject of litigation in his
court. He also cannot intervene in the auction of property which, though not directly litigated
in his court, is nevertheless levied upon and sold as the result of a writ of execution issued by
him. What the law intends to avoid is the improper interference with and interest of a judge in
property levied upon and sold by his order.
Article 1492. The prohibitions in Articles 1490 and 1491 are applicable to sales in legal
redemption, compromises and renunciations.

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CHAPTER 3: SUBJECT MATTER OF SALE

TO
1.
2.
3.

VALID & BINDING SUBJECT MATTER, THE FOLLOWING MUST CONCUR:

Existing, Future & Contingent
Licit
Determinate or determinable

BE A

EXISTING, FUTURE, CONTINGENT

Refers to subject matter that are existing & not existing but capable of existence (pursuant
to present, technology)
1. if this is present, status of contract: VALID
2. if absent : NO CONTRACT SITUATION, THEREFORE NO CAUSE OF ACTION
3. if mere pipe dream : VOID
a. SALE OF THINGS HAVING POTENTIAL EXISTENCE (Emptio Rei Speratae)

Sale of future things; no physical existence yet

A resolutory condition that thing will come into existence

Non happening of condition: RESULUTORY: EXTINGUISH THE CONTRACT

Remedy: can recover what has been paid

b. SALE OF HOPE (Emptio Spei)

Every sale of future thing is subject to condition that they will come into existence

If hope does not come true NO RECOVERY OF PAYMENT/NO RESCISSION

Aleatory character but valid

LICIT & VENDOR MUST HAVE A RIGHT TO TRANSFER SUBJECT MATTER
1. LICIT must be within the commerce of men

VOID SUBJECT MATTER:

a. Contrary to law
b. Simulated/fictitious
c. Did not exist at a time of transaction
d. Outside commerce of men
e. Impossible service
f. Intention can not be ascertained
g. By provision of law
2. SELLER MUST BE OWNER only at a time of consummation since tradition transfers
ownership but to have a perfected contract of sale, Vendor need not be owner of thing; can
be validated/ratified by subsequent acquisition of title by seller
DETERMINATE & DETERMINABLE

Absence: VOID; there is subject matter but Intention regarding subject matter can not be
ascertained VOID

Kinds of subject matter:

1. Specific - Determinate

Particularly designated or segregated from all others of the same class

2. Generic - Determinable

Test: reach a point of description where both minds concur

At the time the contract is entered in to the thing is capable of being made
determinate without the necessity of a new or further agreement between parties

Exact quantity not essential

Sale of generic things VALID; still executory

There can only be contract of sale when subject is finally chosen for delivery
already segregated or designated; but before designation, valid K of sale already
exists
3. Undivided interest (BUYER becomes co-owner)
4. Undivided share in mass of fungible goods (BUYER becomes co-owner)
Atilano v. Atilano
Eulogio I owned a lot subdivided into 5 parts. He sold one portion to Eulogio II, who had
possession of, and whose house was built on, the said portion even before the sale was
executed. Years later, the heirs of Eulogio II had the lot resurveyed and they discovered, based
on the deed of sale, that the land they possessed was actually the lot in the name of Eulogio I,
and vise versa. The Court held that although there was a mistake in the designation of the
lots, it was clear that the parties intended the object of the sale to be the lot occupied by
Eulogio II and no other.

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Yu Tek and Co. v. Gonzales

Gonzales received P3000 from Yu Tek and Co. for which he obligated himself to deliver to the
latter 600 piculs of sugar. No sugar was delivered. In the suit against him, Gonzales
interposed the defense of force majeure as he was not able to produce any sugar from his
crop. However, the Court still held him liable since there was no mention in the contract that
the sugar is to come exclusively from his crop. The object being generic, there is no risk of it
being lost.
Gaite v. Fonacier
Gaite sold 24,000 tons of iron ore, more or less, to Fonacier for the sum of P75,000. Fonacier
contends that only 7,573 tons were delivered to him. The sale in this case is that of a specific
mass of fungible goods for a lump sum. The price agreed upon by the parties was not based
on the measurement of the ore. The subject matter of the sale is a determinate object, the
mass, and not the actual number of tons contained therein. All Gaite had to deliver was the
mass of ore, notwithstanding that the quantity is less than the amount estimated by them.
Johannes Schuback and Sons v. CA
A contract of sale is perfected at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price. In this case, the item number, part number
and description of the parts to be purchased were already agreed upon. Although the quantity
was yet to be determined, there was already a perfected contract of sale. Quantity is
immaterial in the perfection of a sales contract. What is of importance is the meeting of the
minds as to the object and cause.
CHARTER 4: PRICE signifies the sum stipulated as equivalent of the thing sold
CHARACTERISTICS OF VALID PRICE
1.
Must be real
2.
Must be in money or its equivalent
3.
Must be certain or ascertainable at the time of the perfection of the contract
4.
Manner of payment provided for
REAL
1. When price stated is one intended by parties

If fictitious: no intention with respect to price - VOID

If False/simulated: what appears in contract is not the true price

a. VALID if there is true consideration
b. VOID but if none (because it is fictitious)
2. Valuable

When not valuable VOID

When contract is onerous, presumed to have valuable consideration

Nominal consideration w/c is common law concept does not apply (P1.00)

Gross inadequacy of price in ordinary sale does not render contract void unless it is
shocking to conscience of man.
Except:
a. Judicial sale

Shocking to conscience of man

Higher price can be obtained at re-sale

b. Rescissible contracts due to lesion
c. Sales with right to repurchase (raises presumption of equitable mortgage)
Remedy is reformation
CERTAIN OR ASCERTAINABLE
CERTAIN
a. if the parties have fixed or agreed upon a definite amount
b. if it be certain with reference to another thing certain
c. if it be certain with reference to a definite day, particular exchange or market (Article
1472)
applies especially to securities, grain and liquids which are subject to fluctuations
in the market
d. if the determination of the price is left to the judgment of specified person/s
when the 3rd person acts in bad faith or by mistake, the court may fix the price
effect if price is not fixed by the 3rd person designated:
i.
by refusal of 3rd person: the contract shall become ineffective, unless the
parties agree on a price
ii.
by prevention of seller or buyer: the party not in fault may seek rescission
or fulfillment (court will fix the price), with damages in either case
GEN. RULE: The fixing of the price can never be left to the discretion of one of the parties.
EXCEPTION: The sale is perfected if the price fixed by one of the parties is accepted by the
other (Article 1473).
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EFFECT OF FAILURE TO DETERMINE PRICE (Article 1474):

1. where contract is executory the contract is inefficacious (without effect)
2. where delivery has been made the buyer must pay a reasonable price for the things
already delivered
GSIS v. CA
A seller cannot unilaterally increase the purchase price previously agreed upon with the buyer,
even when such adjustment is due to increased construction cost. Art. 1473 provides that the
fixing of the price can never be left to the discretion of one of the contracting parties.
MANNER OF PAYMENT MUST BE AGREED UPON

Deemed to be an essential requisite because it is part of the presentation of the contract

Integral part of concept of price

If there is failure to meet minds as regards term of payment: CASH BASIS

Must be certain or at least ascertainable

Effect is absent: NO CONTRACT SITUATION

Other Points to Consider:
Gross Inadequacy and Simulation
Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may
indicate a defect in the consent, or that the parties really intended a donation or some other
act or contract.
Article 1471. If the price is simulated, the sale is void, but the act may be shown to have
been in reality a donation, or some other act or contract.
GEN. RULE: Gross inadequacy of price does not invalidate a contract of sale.
EXCEPTIONS:
1. Gross inadequacy of price may be a ground for setting aside a judicial sale, only when it is
shocking to the conscience of man and there is showing that, in the event of a resale, a
better price can be obtained.
unless there is right of redemption
2. In instances covered by Art. 1381, lesion of more than the value of the thing makes the
sale rescissible unless approved by the court.
3. In sales a retro, gross inadequacy of price raises a presumption of equitable mortgage
(Article 1602)

If the price is false (there is actually another price), the contract is valid, but subject to
reformation.

Balatbat v. CA
Delivery of the thing bought or payment of the price is not necessary for the perfection of the
contract. The failure of the buyer to pay the price after the execution of the contract does not
make the sale null and void for lack of consideration, but puts him in default.
Bagnas v. CA
Two deeds of sale were purportedly executed by Mateum in favor of the private respondents,
the consideration being P1.00, including services rendered, being rendered to and to be
rendered for Mateums benefit. However, Mateum remained in possession of the lands and he
also made tax payments for them until he passed away. Upon assessment, it turns out that
the actual value of the lands is P10,500. The Court held such sale as null and void. The gross
disproportion in price demonstrates false and fictitious consideration. Moreover, the private
respondents did not show any other true and lawful cause for the sale.
Vda. de Gordon v. CA
The inadequacy of price is not material "when the law gives the owner the right to redeem as
when a sale is made at public auction, upon the theory that the lesser the price, the easier it is
far the owner to effect the redemption.''
CHAPTER 5: FORMATION OF CONTRACT OF SALE
3 STAGES IN LIFE OF A CONTRACT OF SALE
1. Policitacion/negotiation Stage offer is floated, acceptance is floated but they do not meet;
time parties indicate their interest but no concurrence of offer & acceptance
2. Perfection concurrence of all requisites; meeting of the minds
3. Consummation parties perform their respective undertakings

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POLITIACION
1. offer is floated but not absolute
2. acceptance is likewise floated but conditional
RULES:
1. offer is floated prior to acceptance, may be withdrawn at will by offeror
2. offer floated with a period without acceptance, extinguished when period has ended &
maybe withdrawn at will by offeror; right to withdrawn must not be arbitrary otherwise,
liable to damage under Art 19, 20, 21 of civil code
3. offer floated with a condition extinguished by happening/non-happening of condition
4. offer floated without period/without condition continues to be valid depending upon
circumstances of time, place & person
5. offer is floated & there is counter-offer original offer is destroyed, there is a new offer;
can not go back to original offer
6. offer is floated no authority of offeror to modify offer
7. offer is accepted absolutely proceed to perfected stage
OPTION CONTRACT- a privilege existing in one person, for which he had paid a consideration
and which gives him the right to buy certain specified property, from another person, at any
time within the agreed period at a fixed price (Enriquez de la Cavada v. Diaz)
option money: price given in consideration for the option contract
earnest money (Article 1482): partial payment of the purchase price and is considered
proof of the perfection of the contract
cannot be forfeited when buyer backs out, unless stipulated
OPTION MONEY
applies to a sale not
yet perfected
party who gives
option money is not
required to buy

EARNEST MONEY
given only where
there is already a sale
party who gives
earnest money is
required to pay the
balance

The option may be withdrawn at any time. However, if there is consideration for the
option, the seller will be liable for damages for breach of the option.

If another buyer in good faith purchases the thing that is the object of the option contract,
such sale is valid but the seller will be liable for damages.

Acceptance by letter/telegram binds only at time it came to knowledge of seller; prior

thereto the offer may still be withdrawn.

Villonco Realty Co. v. Bormaheco, Inc.

Consent is manifested by the meeting of the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer must be certain and acceptance absolute.
A qualified acceptance constitutes a counter-offer.
However, where the changes or
qualifications made by the seller on the buyer's offer are not material or are mere clarifications
of what the parties had previously agreed upon, such changes would not prevent a perfection
of the contract.
Villamor v. CA
The consideration of the Deed of Option is the essential reason which moves the parties to
enter into the contract. In this case, the consideration was the difference in price between the
offer of the buyers and the reasonable prevailing price. The former was greatly higher than
the latter. However, the Deed of Option did not provide for the period within which the parties
may demand performance. The parties could not have contemplated that the delivery of the
property and the payment thereof could be made indefinitely and render uncertain the status
of the land. The failure of either parties to demand performance of the obligation of the other
for an unreasonable length of time renders the contract ineffective.
Carceller v. CA
A lease agreement with option to purchase was executed. Fifteen days prior to the expiration
of the option period, the lessee sent a written notice requesting for a 6-month extension of the
period. This request was denied after the expiration of the option period. Thereafter, the
lessee sent notice to exercise his option to purchase and the lessor refused to grant the
exercise of the option. The SC held that the delay of 18 days by the lessee cannot be
considered substantial not fundamental since the lessee exercised the option within a
reasonable time after the end of the period, immediately after the lessee was informed of the
denial of his request.
Cavite Devt. Bank v. Lim (2000)
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CDB sold land to Lim, which land it previously foreclosed from Guansing. Lim paid P30,000 as
option money. Subsequently, the title to the land was reverted to Guansings father, on the
ground that it was fraudulently secured by Guansing. Lim then filed an action for specific
performance against CDB. As a defense, CDB alleged that there was no perfected contract of
sale with Lim. The SC held that there was a perfected contract of sale, the option money
paid being in the nature of earnest money or down payment. In this case, the contract (Offer
to Purchase) provides for the payment only of the balance of the purchase price, implying that
the option money forms part of the purchase price.

floats in the policitacion stage

offer with a period but founded upon a separate consideration distinct from the price
no presumption of consideration, needs to be proven
Characteristics:
a. not the contract of sale by itself, distinct
b. nominate
c. principal; but can be attached to other principal contracts
d. onerous
e. commutative
f. unilateral vs contract of sale which is bilateral
to be perfected & give rise to action, the following must concur
a. subject matter of sale must be agreed upon
b. price of sale & manner of payment must be agreed upon
c. consideration separate & distinct from price
d. period as per contract; if period not provided prescribes in 10 years (written
contract)
e. how exercised: notice of acceptance should be communicative to offeror without actual
payment as long as there is delivery of payment in consummation stage

2 SITUATIONS IN AN OPTION CONTRACT:

1. with separate consideration

Legal consequence:
a. option contract is valid
b. offeror can not withdrawn offer until after expiry period
c. subject to rescission, damages but not to specific performance because this is not
an obligation to give
2. without separate consideration

Legal consequence:
OLD RULE:
a. offer is still valid, but
b. option contract is void
c. not subject to rescission, damages
NEW RULE: Right if first refusal recognized
RIGHT OF FIRST REFUSAL:

creates a promise to enter into a contract of sale and it has no separate consideration, not
subject to specific performance because there is no contractual relationship here & it is not
an obligation to give (not a real contract)

New doctrine: may be subject to specific performance

Effect of new doctrine: turned the world of policitacion upside down because while valid
option contract is not subject to specific performance, right of first refusal which does not
even have a separate consideration may be subject to specific performance

Recognizes recovery of damage based on abuse of rights doctrine

OPTION CONTRACT & RIGHT OF FIRST REFUSAL DISTINGUISHED
OPTION CONTRACT
RIGHT OF FIRST REFUSAL
Principal contract; stands on its own
Accessory; can not stand on its own
Needs separate consideration
Does not need separate consideration
Subject matter & price must be valid
There must be subject matter but price not
important
Not conditional
Conditional
Not subject to specific performance
Subject to specific performance
Paraaque Kings Enterprises v. CA
In order to have full compliance with the right of first refusal, there should be identity of terms
and conditions to be offered to the buyer holding such right and all other prospective buyers.
If the terms of the offers are different, it becomes necessary for the seller to go back to the
party with the right of first option.
The 3rd person who bought the property from the seller who violated the right of first refusal
cannot claim to be a stranger to the arrangement since he steps into the shoes of the ownerExcellence.
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lessor of the property be virtue of his purchase and assumes all the obligations of the previous
owner under the lease contract.
Asuncion v. CA
In a right of first refusal, while the object might be made determinate, the exercise of the right
is dependent not only on the grantor's eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it belongs to a class of preparatory juridical relations governed not by
contracts but by, among other laws of general application, the provisions of the Civil Code on
human conduct. Even if such right of first refusal has been decreed under a final judgment, its
breach cannot justify the issuance of a writ of execution under a judgment that merely
recognizes its existence, nor would it sanction an action for specific performance. It is not to
say, however, that the right of first refusal would be inconsequential, for an unjustified
disregard thereof, can warrant a recovery for damages.
San Po Ek v. Martinez (2000)
Martinez, and her mother before her, leased property to San Po Ek for a total of 28 years. After
this period, Martinez wrote the lessee to inform the latter of her intention to sell the leased
property. However, the property was thereafter sold to a 3 rd party. San Po Ek filed a case
praying for the nullity of this sale. The SC held that San Po Ek does not have a right of first
refusal to assert against Martinez. Although the right of first refusal may be provided for in a
lease contract, such right was never stipulated in any of the several lease contracts. The grant
of the right of first refusal must be clearly embodied in a written contract.

PERFECTION: OFFER & ACCEPTANCE

PERFECTION

Sale is a consensual contract, perfected by meeting of minds regarding subject matter &
price

Meeting of Minds:
1. Offer certain
2. Acceptance absolute

Qualified acceptance merely a counter-offer which needs to be absolutely

accepted to give rise to perfected contract of sale

Business ads are mere invitations to make an offer except when it appears to be
otherwise

Acceptance by letter/telegram binds only at time it came to knowledge of

SELLER; prior thereto offer may still be withdrawn

Must be exact terms to be considered absolute

When deviations allowed:

a. anything that refers to price is material
b. small items are insignificant, does not make acceptable unconditional

when sale is subject to suspensive condition, no perfected contract of sale yet; becomes
perfected only upon happening of condition

In sales at auction, perfected when auctioneer announces its perfection by the fall of the
hammer or in other customary manner may impose terms under bidder may retract his
bid; owner of property sold at auction may impose terms under w/c the auction will
proceed & it shall be binding w/n the bidders are aware

Place of perfection: where the meeting of minds happen; when acceptance sent by mail,
perfection is deemed where the offer is made

Performance has nothing to do with perfection stage

EARNEST MONEY
1. money given as part of purchase price
2. its acceptance is proof that contract of sale exists

nothing in law prevents parties from treating earnest money differently

old concept: subject to forfeiture when BUYER backs out

new concept: can not be forfeited part of purchase price; must be restored

qualification: if old concept is stipulated VALID

presumption of perfection of contract of sale and such earnest money as art of

purchase price is disputable
FORM OF SALES
1. Form not important in validity of sale

Sale being consensual, may be oral or written, perfected by mere consent as to price &
subject matter

If particular form is required under the statute of frauds:

a. valid & binding between parties
b. not binding to 3rd persons only

Reason: purposes of convenience only & not for validity & enforceability; cause of
action is granted to sue & compel other party to execute the document
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2.

When form is important for validity; exception by specific provision of law;

a. power to sell a piece of land granted to an agent otherwise VOID
b. sale of large cattle; must also be registered with Municipal treasurer otherwise VOID
c. sale of land by non-Christian if not approved by Governor VOID
3. When form is important for enforceability (STATUTE OF FRAUDS)
a. sale to be performed 1 year after
b. Agreement to sell things with value of 500 and up
c. Sale of real property or interest therein

Exception:
i. When there is a note or memorandum in writing & subscribe by party or his agent
(contains essential terms of the contract)
ii. When there has been partial performance/execution (seller delivers with intent to
transfer title/receives price)
iii. when there has been failure to object to presentation of evidence (oral)
(constitute waiver)
4. Expenses for execution and registration of the sale shall be borne by the vendor, unless
there is a stipulation to the contrary (Article 1487).
Dalion v. CA
Dalion executed a private document of absolute sale in favor of Sabesaje. Dalion claims that
the document is fictitious, and that since the alleged sale was embodied in a private
instrument (and not in a public instrument), it didnt convey title or rights. The SC upheld the
validity of the sale. A contract of sale is perfected by mere consent and no particular form is
required for its validity. The process provided for under Art. 1358 CC is only for convenience,
not for validity or enforceability.
Ortega v. Leonardo
Ortega and Leonardo disputed over the occupancy of a parcel of land. Leonardo asked Ortega
to desist from pressing her claim, and promised to sell her a portion of the lot, provided the
latter paid for the surveying and subdivision of the lot. Ortega then caused the survey and
subdivision of the portion Leonardo promised to sell. She even made some improvements on
the said portion. However, Leonardo refused to accept tender of payment. The SC ruled that
while, as a general rule, an oral agreement to sell a piece of land is not provable, where there
is partial performance of the sale contract, the principle excluding evidence of parol contracts
for the sale of realty will not apply. In this case the following indicates partial performance:
relinquishment of rights, continued possession, building of improvements, tender of payment
rendition of services, payment of taxes, surveying of the land at the vendee's expense, etc.
Baretto v. Manila Railroad Co.
Delivery of the deed to the agent of the buyer, with no intention to part with the title until
payment of the purchase price, does not constitute partial performance and does not take the
case out of the Statute of Frauds.
RULES GOVERNING AUCTIONS (Article 1476)

Sales of separate lots are separate contracts of sale.

Sale is perfected by the fall of the hammer.
before perfection of the sale, the bidder may retract his bid and the auctioneer may
withdraw the goods from the sale (unless the auction is without reserve)
The seller or his agent has the right to bid in the auction sale provided:
such right was reserved
notice was given
right to bid by seller is not prohibited by stipulation or law

SALE OF GOODS BY DESCRIPTION AND/OR SAMPLE (Article 1481)

sale by description OR sample: contract may be rescinded if bulk of goods delivered do not
correspond with the description or sample

sale by description AND sample: bulk of the goods must correspond to both the description
and the sample

bulk of the goods: does not designate the greater portion of the goods, but the goods
themselves as distinguished from the sample or description
SALE BY INSTALLMENT
Article 1484. In a contract of sale of personal property, the price of which is payable in
installments, the vendor may exercise any of the following remedies:
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

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3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendee's failure to pay cover two or more installments. In this case, he shall have no
further action against the purchaser to recover any unpaid balance of the price. Any
agreement to the contrary shall be void.

The remedies are alternative and not cumulative.

This provision incorporates the Recto Law or the Installment Sales Law.
rationale: to prevent abuses of mortgagees who seize the mortgaged property, buy the
same for a low price at the foreclosure sale and then bring suit against the mortgagor
for a deficiency judgment

Article 1484 applies to leases of personal property with option to buy, when the lessor has
deprived the lessee of the possession or enjoyment of the thing (Article 1485).

Article 1486. In cases falling under Arts. 1484 and 1485, a stipulation that the installments
or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same
may not be unconscionable under the circumstances.
Levy Hermanos v. Gervacio
In order to apply the provisions of article 1454-A CC (old) it must appear that there was a
contract for the sale of personal property payable in installments and that there has been a
failure to pay two or more installments. In this case, the contract is not one on installments,
but on straight term, in which the balance, after payment of the initial sum, should be paid in
its totality at the time specified in the promissory note. Accordingly, the mortgagee is not
bound by the prohibition therein contained as to its right to the recovery of the unpaid balance.
Where the price is payable in several installments, generally payable in relatively small
amounts, there is great temptation for improvident purchasers to buy beyond their means.
There is no such temptation where the price is to be paid in cash, or, as in the instant case,
partly in cash and partly in one term, for, in the latter case, the partial payments are not so
small as to place purchasers off their guard and delude them to a miscalculation of their ability
to pay.
Zayas, Jr. v. Luneta Motor Company
Zayas purchased a car from Escao Enterprises, a dealer of LMC. A chattel mortgage was
constituted on the car and Escao assigned its rights to LMC. When Zayas defaulted, LMC
extrajudicially foreclosed the mortgage and subsequently filed a civil suit to recover the
deficiency in price. The SC held that Escao Enterprises was the agent of LMC and that LMC,
as assignee, had no better rights than assignor Escao Enterprises under the same
transaction. Article 1484 applies and LMC cannot recover deficiency in price.
Industrial Finance Corp. v. Ramirez
The rule is that in installment sales, if the action instituted is for specific performance and the
mortgaged property is subsequently attached and sold, the sale does not amount to a
foreclosure of the mortgage. Therefore, the seller has the right to recover on the unpaid
balance of the purchase price from the buyer.
Delta Motor v. Niu Kim Duan
Where the seller retakes possession of the thing sold from the buyer, through a writ of replevin,
it can no longer exact payment from the buyer for the balance of the purchase price.
EliscoTool Manufacturing Corp. v. CA
If the main purpose for seeking recovery of personal property under a writ of replevin was
merely to ensure enforcement of the remedy of specific performance under Art. 1484(1), then
there would be no bar to recover any amount from the lessee by reason of the enforcement of
the writ.
Northern Motors v. Sapinoso
Although the seller had already filed an action for foreclosure, if prior to the actual sale of the
subject property at public auction the seller had received further payments from the buyer, the
seller is not obliged to refund said payments after foreclosure. It is the fact of foreclosure and
actual sale of the mortgaged chattel that bar further recovery by the vendor of any balance on
the purchaser's outstanding obligation not satisfied by the sale.
Cruz v, Filipinas Investment & Finance Corp.
The seller may not recover deficiency judgment by foreclosing on a mortgage constituted by
3rd-party mortgagors, after foreclosing on the chattel mortgage constituted on the subject
matter of the sale. This is because the guarantor would be entitled to reimbursement from the
debtor-vendee for what he paid the seller. Ultimately, it will be the debtor-vendee who will be
made to pay for the deficiency in price after foreclosure.
The action barred under Art. 1484 includes not only judicial proceedings, but should include
extrajudicial proceedings by virtue of which the seller maybe enabled to exact recovery of the
deficiency in price.

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CHAPTER 6: CONSUMMATION STAGE/PERFORMANCE STAGE

Stage where parties both comply with their obligation

Nature of diligence required: diligence of good father of family unless other requirement is
stipulated

Consequence: Seller will guilty of breach if thing is lost through his fault
OBLIGATIONS OF THE VENDOR
1. PRESERVE THE THING PENDING DELIVERY (Art. 1163)
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING:

before perfection of the contract: the seller bears the risk of loss/deterioration

at the time of perfection (Article 1493):

if the thing is entirely lost, the contract shall be without any effect
if the thing is lost in part only, the vendee may withdraw from the contract or demand
the remaining part, paying its proportionate price

after perfection but before delivery (Articles 1504 and 1538):

GEN. RULE: the risk of loss is borne by owner of the thing under the rule res perit
domino

remember that generally, delivery transfers ownership

EXCEPTIONS:
i.
buyer assumes risk at the time of delivery where the seller reserves ownership,
despite delivery, to secure performance of buyers obligations
ii.
party who causes delay in actual delivery bears the loss which might have
occurred but for such fault
LOSS OF THING
without sellers
thru sellers fault
fault
the obligation shall be seller shall be obliged
extinguished
to pay damages
DETERIORATION OF THE THING
without sellers
thru sellers fault
fault
the impairment is to
the buyer may choose
be borne by the buyer between:

rescission

specific
performance
with damages in
either case
IMPROVEMENT
by nature or time
improvements shall
inure to the benefit of
the buyer

OF THE THING
at sellers expense
seller shall have no
other right than that
granted to the
usufructuary

VILLANUEVA: The rules are different for loss and deterioration/improvement because in
the former, the obligation to transfer ownership arises upon delivery while in the latter, the
buyer becomes owner of the fruits, accessions and accessories upon mere perfection of
the contract.

Article 1480. Any injury to or benefit from the thing sold, after the contract has been
perfected, from the moment of the perfection of the contract to the time of delivery, shall be
governed by articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single
price, or without consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure,
the risk shall not be imputed to the vendee until they have been weighed, counted, or
measured and delivered, unless the latter has incurred in delay.

Under this provision, the risk of loss is borne by the buyer after perfection of the contract
and even before delivery, as an exception to the rule of res perit domino.

after delivery: goods are at the buyers risk

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Chrysler Philippines Corp. v. CA

The general rule is that before delivery, the risk of loss is borne by the seller who is still the
owner, under the principle of res perit domino.
2. TRANSFER OWNERSHIP OF AND DELIVER THING WITH FRUITS AND ACCESSORIES

The vendor must have ownership of the thing sold at the time when the ownership is to
pass, and not necessarily at the time of the perfection of the contract (Article 1459).
generally, the ownership of the thing sold is transferred upon actual or constructive
delivery (Article 1477)

Quijada v. CA
Ownership by the seller of the thing sold at the time of the perfection of the contract of sale is
not an element for its perfection. What the law requires is that the seller has the right to
transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer
ownership and a perfected contract of sale cannot be challenged on the ground of nonownership on the part of the seller at the time of its perfection.

The thing sold and its accessions and accessories must be delivered in the condition in
which they were upon the perfection of the contract (Article 1537).

The vendee has a right to the fruits from the time of perfection of the contract (Article
1537).

DELIVERY OF THE THING

Transfer ownership (tradicion) twin obligation:

1. transfer title(ownership) SELLER must be owner of thing at the time of consummation
to validly transfer title
2. delivery of the thing

Different kinds of delivery:

1. Actual

when thing sold is placed in the control & possession of the buyer
2. Constructive
DIFFERENT FORMS OF CONSTRUCTIVE DELIVERY:
1. Traditio Longa Manu

Delivery of thing by mere agreement; when SELLER points to the property without
need of actually delivering
1. Traditio Brevi Manu
1.
Before contract of sale, the would be buyer was already in possession of the would
be subject matter of sale (ex: as lessee)
2. Symbolic delivery

As to movables ex: delivery of the keys to a car

3. Constitutum possessarium

at the time of perfection of contract, seller continues to hold possession merely as a

holder
4. Execution:

Exception:
a. when there is stipulation to contrary, execution does not produce effect of delivery
b. when at the time of execution of instrument, subject matter was not subject to
control of the seller

subject matter should be within control of seller; he should have capacity to

deliver at the time of execution of public instrument when he wants to effect
actual delivery

such capacity should subsist for reasonable time after execution of instrument
(reason time depends on circumstances of persons, places & things)

Effect when 2 requisites do not concur: no constructive delivery; no compliance on part

of SELLER to deliver
Even when thing is mortgaged, seller can still deliver because naked title still belongs
to him & can still do acts of ownership including conveyance
5. Negotiable documents of title & non negotiable instruments (1501)

transferee acquires title of transferor

when delivered without negotiation, it is a mere assignment

6. Intangibles/ incorporeal property

through public instrument

execution is equivalent to delivery if from the deed, contrary does not appear
Pasagui v. Villablanca
While the execution of the deed of absolute sale in a public instrument is equivalent to delivery
of the land, this presumptive delivery only holds true when there is no impediment that may
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prevent the passing of the property from the vendor to the vendee. It can be negated by the
fact that the vendees actually failed to obtain material possession of the land subject of the
sale.
Dy, Jr. v. CA
Constructive delivery be the execution of a public instrument would produce the effect of
tradition, insofar as title is concerned, provided that at the time of the execution there was no
legal impediment on the part of the seller to transfer title to the buyer, even if at the time of
the sale, control or possession of the subject matter was not in the hands of the seller.
DELIVERY OF FRUITS & ACCESSIONS/ ACCESSORIES

Right to fruits & accessions/accessories accrue from time sale is perfected

but no real right over it until it is delivered

DELIVERY THROUGH CARRIER
1. FAS FREE ALONG SIDE

When goods delivered alongside the ship, there is already delivery to the buyer (twin
effects deemed fulfilled)
2. FOB-FREE ON BOARD
a. Shipment when goods are delivered at ship at point of shipment; delivery to carrier
by placing goods on vessel is delivery to buyer
b. Destination when goods reach the port even if not disembarked yet from the vessel,
there is delivery to the buyer
3. CIF COST, INSURANCE, FREIGHT
a. when buyers pays for services of carrier delivery to carrier is delivery to buyer;
carrier is agent of the buyer
b. when buyer pays seller the price from moment the vessel is at port of destination,
there is already delivery to buyer.
c.
Behn, Meyer & Co. v. Yangco
Behn, Meyer & Co. (vendor) entered into a contract of sale and delivery with Yangco (vendee).
The shipping terms were c.i.f. Manila on the goods coming from New York. Yangco only
received 9 of the 80 drums of caustic soda ordered, and such were in bad condition. The Court
held that the loss is to be borne by the vendor. The phrase c.i.f. Manila signifies that the
price fixed covers not only the cost of the goods, but also the expense of freight and insurance
to be paid by the seller. The terms "C. I. F." and "F. O. B." merely make rules of presumption
which yield to proof of contrary intention, which was not present in this case.
General Foods v. NACOCO
Under an ordinary C.I.F. agreement, delivery to the buyer is complete upon delivery of the
goods to the carrier and tender of the shipping and other documents required by the contract
and the insurance policy taken in the buyer's behalf. However, the parties may, by express
stipulation or impliedly, modify a CIF contract and throw the risk upon the seller until arrival in
the port of destination. In this case, the parties agreed that the payment of the price was to
be according to the "net landed weight" upon arrival in the port of destination. Therefore,
notwithstanding the CIF contract, delivery to the carrier in Manila was not delivery to the buyer
and the vendor bore the risk of loss.
Contracts of Sale or Return, and of Sale on Trial or Approval or Satisfaction (Article
1502)
a. sale or return: where the buyer has the option to purchase or return the goods,
ownership of the goods passes to the buyer upon delivery but is re-vested in the seller
upon its return
b. sale on trial or approval: where the satisfaction of the buyer is a condition precedent to
the perfection of the contract, the ownership passes to the buyer upon:
i.
the buyers approval of the goods
ii.
retention of the goods by the buyer without giving notice of rejection
Industrial Textile Manufacturing Co. v. LPJ Enterprises, Inc.
For a sale to be considered and construed as a sale or return or sale on approval, there must
be a clear agreement to either of such effect. Parol or extrinsic testimony could not be
admitted for the purpose of showing that an invoice purporting to embody a sale without
condition or restriction constituted a contract of sale or return. If the purchaser desired to
incorporate a stipulation securing to him the right of return, he should have done so at the
time the contract was made. On the other hand, the buyer cannot accept part and reject the
rest of the goods since this falls outside the normal intent of the parties in the "on approval"
situation.
Where Specific Goods are Shipped (Article 1503)
GEN. RULE: The ownership in the goods sold passes to the buyer upon their delivery to the
carrier (Article 1523).
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EXCEPTIONS: The seller reserves ownership in the goods where:

a. a contrary intention appears by the terms of the contract
b. by the bill of lading the goods are deliverable to the seller, his agent or to the order of the
seller or his agent
c. possession of the bill of lading is retained by the seller or his agent
d. the seller transmits the bill of exchange and the bill of lading together to the buyer to
secure acceptance or payment of the bill of exchange
EFFECTS WHERE BILL OF EXCHANGE IS NOT HONORED BY THE BUYER:
a. buyer is bound to return the bill of lading
b. if buyer wrongfully retains the bill of lading, he acquires no additional right thereby
c. a purchaser in good faith for value from the buyer will obtain ownership in the goods
SELLERS DUTY AFTER DELIVERY TO CARRIER (Article 1523):
a. to make such contract with the carrier on behalf of the buyer as may be reasonable under
the circumstances
if the seller omits to do so, the buyer may:

decline to treat the delivery to the carrier as delivery to himself

hold the seller responsible in damages

b. to give notice to the buyer regarding necessity to insure the goods, unless the buyer had
all the information necessary to insure
if the seller fails to do so, the goods shall be deemed to be at his risk during such
transit
COMPLETENESS OF DELIVERY
1. MOVABLES delivery of thing plus accessories & accessions in the condition in which they
were upon the perfection of the contract including the fruits
a. LESS buyer has 2 options:
i. reject
ii. accept
(1) when accepts with knowledge that seller is not going to perform contract in
full, he must pay at price stipulated
(2) when accepts & consumes before knowledge that buyer will both perform
contract in full, liable only for fair value of goods delivered
b. LARGER buyer has 2 options;
i. accepts per contract & reject the rest
ii. accept the whole pay price stipulated
iii. reject whole if subject matter is indivisible
c. MIXED WITH GOODS OF DIFFERENT DESCRIPTION buyer has 2 options:
i. accepts good w/c are in accordance with contract & reject the rest
ii. reject goods entirely if indivisible
2. IMMOVABLES
a. sold per unit or number

with statement of its area, rate at certain price

deliver all that may heave been stated in the contract

if impossible, remedies of buyer:

LESS IN AREA
i. rescission
ii. proportional reduction of price LACK IN AREA SHLD NOT BE LESS THAN
1/10 OF AREA AGREED UPON
GREATER IN AREA
i. accept per stipulation & reject the rest
ii. accept whole area pay at contract rate

Not applicable to judicial sales

b. sold for lump sum

When price per unit not indicated

Is area delivered is either greater or lesser price will not be adjusted accordingly
Sta. Ana v. Hernandez
Where two parcels of land sold were identified by the conspicuous boundaries that separated
the lands in question from the rest of the property, the sale made was of definite and identified
tract that obligated the vendors to deliver to the buyer all the land within the boundaries,
irrespective of whether the real area should be greater or smaller than what is recited in the
deed. This is particularly true where the area given is qualified to be approximate only, i.e.,
more or less. To hold the buyer to no more than the area recited on the deed, it must be made
clear therein that the sale was made by unit of measure at a definite price for each unit. As
between the absence of a recital of a given price per unit of measurement, and the
specification of the total area sold, the former must prevail and determines the applicability of
the norms concerning sales for a lump sum.
TIME & PLACE OF DELIVERY
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1.
2.
3.
4.
5.

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follow stipulation in contact, or

follow usage of trade, or
sellers place of business or his residence
specific goods place where the thing is
at reasonable hour

In case of specific goods, the place of delivery is that where such goods were at the time
the contract was made.

The seller shall not be released until the 3 rd person with possession of goods acknowledges
being the bailee for the buyer.

The seller bears the expenses to place the thing in a deliverable state, unless otherwise
agreed.

RULES GOVERNING TIME OF DELIVERY, in the following order:

a. time agreed upon
b. time determined by usage of trade
c. if no time is fixed, the seller is bound to send the goods to the buyer within a reasonable
time
GEN. RULE: The vendor shall not be bound to deliver the thing sold unless the price be paid
(Article 1524).
EXCEPTION: The thing must be delivered though the price be not first paid, if a time for such
payment has been fixed in the contract.
EFFECTS OF DELIVERY: Title to thing is transferred/ownership is transferred
Except: contrary is stipulated as in the case of:
1. contract to sell
2. sale on acceptance/approval
3. sale or return
4. there is implied reservation of ownership
WHO BEARS EXPENSES OF DELIVERY Seller
Sale by description/sample
1. Sample goods must correspond with sample shown
2. Description goods must correspond with description or sample

Effect if there is no compliance: RESCISSION may be availed of by the buyer

OBLIGATION OF BUYER
1. Pay the price

Buyer is obligated to pay price according to terms agreed upon regarding time, place
& amount

If payment of interest is stipulated must pay; if amount of interest not mentioned

apply legal rate

When buyer defaults constitutes breach: subject to specific performance/rescission &

damages ; interest to be paid also from of default
2. Accept delivery of thing sold

Where to accept: at time & place stipulated in the contract; if none specified at the
time & place of delivery

Goods; there is acceptance when:

a. He intimates to seller that he has accepted
b. When delivered & does any act inconsistent with ownership of seller
c. Retains without intimating to seller that he has rejected

Sale of Goods on installment:

a. Goods must be delivered in full, except when stipulated
b. When not examined by buyer not accepted until examined or at least had
reasonable time to examine

Acceptance of goods in general, absent contrary express stipulation, does not

discharges seller from liability in case of breach of warranties (unless no notice or
failure to give it within reasonable time)

When buyer has a right to refuse goods, no need to return; shall be considered as
depositary; unless there is stipulation to contrary
DOUBLE SALE- where the same property is sold to different vendees.
General Rule: FIRST IN TIME, PRIORITY IN RIGHT
When does it apply: when not all requisites embodied in 1544 concur

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SPECIAL RULE: 1544

Requisites;
1. exactly same subject matter
2. exactly same immediate seller
3. they buyers represent conflicting interest
4. both sales are valid
RULES ACCORDING TO 1544:
1. MOVABLE

owner is first to posses in good faith

2. IMMOVABLE

First to register in good faith

No inscription, first to possess in good faith

No inscription & no possession in good faith Person who presents oldest title in good
faith

Sales of immovable property are subject to the Mortgage Law and Land Registration
Law (Article 1637).
GOOD FAITH
1. one who buys property without notice that another person has a right or interest in such
property
2. one who has paid price before notice that another has claim or interest

lis pendens notice that subject matter is in litigation

adverse claim notice that somebody is claiming better right

POSSESSION

Both actual or constructive

REGISTRATION
1. registered under Torrens system

1544 applies
2. not registered under the Torrens system

1544 still applies

decided case which excluded unregistered land dealt with judicial sale whereby buyer
acquires right of transferor; outside of such situation must apply to conflicting sale
over same unregistered parcel of land
3. when situation is sale 1 deals with land when not yet registered & sale 2 is done when
land already registered apply FIRST IN TIME, PRIORITY IN RIGHT
Agricultural & Home Extension v. CA
A purchaser in good faith is one who buys the property of another without notice that some
other person has a right to or interest in such property and pays a full and fair price for the
same at the time of such purchase or before he has notice of the claim or interest of some
other person in the property. The annotation of lis pendens on the title to the property by 3 rd
parties does not place the buyer in bad faith since such does not establish a lien or
encumbrance on the property affected.
Cheng v. Genato
The rules on double sales under Art. 1544 are not applicable to a contract to sell. For Art. 1544
to apply, there must be valid sales transactions and the buyers must be at odds over the
rightful ownership of the subject matter who must have bought from the very same seller.
Such circumstances are lacking in a contract to sell since there is no transfer of ownership and
no sale has yet been consummated. Nevertheless, the governing principle of Art. 1544 should
apply, mainly the principle of primus tempore, portior jure (first in time, stronger in right).
Gatmaitan v. CA
If immovable property is sold 2 different parties, the ownership shall pertain to the person
acquiring it who, in good faith, first registered it in the Registry of Property. This rule however,
admits of an exception, and that is where the 2nd purchaser had knowledge of the other sale,
prior to or at the time of the sale. In such case, his knowledge is equivalent to registration and
taints his purchase with bad faith. The applicable rule in this case would be that the ownership
shall pertain to the person who, in good faith, first entered into possession of the property or,
in the absence of possession, to the person who presents the oldest title, provided there is
good faith.
Navera v. CA
Where both sales were not recorded in the Registry of Property, the law clearly vests the
ownership upon the person who in good faith was first in possession of the disputed lot. The
possession mentioned in Article 1544 for determining who has better right when the same
piece of land has been sold several times by the same vendor includes not only the material
but also the symbolic possession, which is acquired by the execution of a public instrument. In

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the case at bar, both sales were executed through public instruments. Ownership should
therefore be recognized in favor of the first vendee.
Cruz v. Cabana
Prior registration by the 2nd buyer does not by itself confer ownership or a better right over the
property. Such registration must be coupled with good faith. The governing rule is primus
tempore, potior jure (first in time, stronger in righs). Knowledge gained by the 2 nd buyer of the
first defeats his rights even if he is first to register the sale, since such knowledge taints his
prior registration in bad faith.
Baricuatro v. CA (2000)
Galeos sold 2 lots of a subdivision, on installment basis, to Baricuatro and subsequently sold
the entire village to Amores. Galeos told Baricuatro that he should make full payment to
Amores. After Baricuatro failed to make payment to Amores, the latter sold the same 2 lots to
the Nemenio spouses. The 2nd vendee obtained title to the lots and asked Baricuatro to
vacate. When the latter refused to do so, the Nemenios filed an action to quiet title. The SC
declared the sales to Amores and Nemenio as null and void. It ruled that even if Amores and
the Nemenios were purchasers in good faith, they did not act in good faith when they
registered their titles to the disputed lots as they already had knowledge of the sale to
Baricuatro before such registration. For a 2 nd buyer to successfully invoke Art. 1544, he must
possess good faith from the time of acquisition of the property until the registration of the
deed of conveyance covering the same.
Carumba v. CA
While under Article 1544, registration in good faith prevails over possession in the event of a
doubt sale by the vendor of the same piece of land to different vendees, said article is of no
application to unregistered land at an execution sale. The reason is that the purchaser of
unregistered land at a sheriff's execution sale only steps into the shoes of the judgment debtor.
He merely acquires the latter's interest in the property sold as of the time the property was
levied upon. In this case, the first vendee bought the property before the land was levied
upon. Therefore, he has a better right to the land even if the 2 nd vendee was first to register
the land in good faith.

CHAPTER 7: DOCUMENTS OF TITLE

DOCUMENTS OF TITLE

not creations of law but by merchants to allow them to deal with merchandise without
having to physically carry them around

pertains to specific type of movables only : GOODS

2 FUNCTIONS
1. evidence of existence & possession of goods described therein
2. medium by which seller is able to transfer possession of goods
2 FORMS
1. negotiable
a. deliver to bearer (negotiation by mere delivery)
b. deliver to specific person or his order (negotiation by endorsement + delivery)

even if face of instrument says NON-NEGOTIABLE it is still NEGOTIABLE; limiting

words not to destroy negotiability

if order instrument & no endorsement was made equivalent to assignment

IMPORTANT CONSIDERATIONS
1. Negotiation gives better right than assignment
NEGOTIATION
ASSIGNMENT
transferor/holder acquires title to goods
acquires title to goods against transferor
bailee has direct obligation to holder as if acquires right to notify bailee so that he
directly dealt with him
acquires obligation of bailee to hold goods for
him
2. Assignee takes document with defects of the assignor
3. Obligation of bailee bailee is immediately bound to the document
WARRANTIES ON NEGOTIATION/ASSIGNMENT THE SAME
1. the document is genuine
2. he has legal right to negotiate or transfer it
3. he has knowledge of no fact which would impair the validity or worth of the document
4. he has right to transfer title to goods and goods are merchantable/fit
RULES OF LEVY/GARNISHMENT OF GOODS COVERED BY DOCUMENTS OF TITLE
1. Non negotiable

Notification is operative act to transfer title/possession of goods in favor assignee

Before notification can be garnished but not when there is notification already
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Negotiable

Can not be levied or garnished when docs already with purchaser in good faith, unless:
a. Document is first surrendered
b. Document is pounded by court
c. Negotiation is enjoined

Siy Cong Bieng v. Hongkong and Shanghai Banking Corp.

Between the owner of a negotiable document of title who indorsed it in blank and entrusted it
to a friend, and the holder of such negotiable document of title to whom it was negotiated and
who received it in good faith and for value, the latter is preferred. This is because of the
principle that as between two persons, he who made the loss possible should bear the loss.
CHAPTER 8: SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE
1. SALE BY NON-OWNER
Perfection Stage
a. sale by owner valid
b. sale by non-owner valid;

because ownership is necessary only transfer title to goods; at perfection stage, no

obligation on part of seller to transfer ownership

law on estoppel further bolster it: title passes by operation of law to grantee when
person who is not owner of goods sold delivers it and later on acquires title thereto

since valid, action to annul is improper; there is perfected contract

Consummation Stage

Contract of sale is valid because it has passed perfected stage, despite:

a. seller is not owner
b. seller has no authority to sell

What is void is the transfer of title/ ownership did not pass

Effect: buyer acquired no better right than transferor

Legal effect: CAVEAT EMPTOR BUYER BEWARE

a. co-owner sells whole property prior to partition sale is void as to his spiritual
share
b. co-owner sells definite portion to partition sale is void as to other co-owner but
valid as to his spiritual share

Exception:
a. owner by his conduct is precluded from denying sellers authority (ESTOPPEL)
b. contrary is provided for in recording laws (pd 1529)
c. sale is made under statutory power of sale or under a court of competent
jurisdiction
d. sale is made under merchants store in accordance with code of commerce &
special laws
City of Manila v. Bugsuk
A principal office is not a store. A store is defined as any place where goods are kept for sale,
whether by wholesale or retail, or any place where goods are deposited and sold by one
engaged in buying and selling them.
Aznar v. Yapdiangco
Under Article 1506, it is essential that the seller should have a voidable title at least. It is
clearly inapplicable where the seller had no title at all. Where the would-be buyer took
possession of the subject matter by stealing the same while it was in the custody of the
vendor's agent, there is unlawful deprivation and the owner has the right to recover the thing
not only from the finder, thief or robber, but also from third persons who may have acquired it
in good faith from such finder, thief or robber, pursuant to Art. 559, CC.
EDCA Publishing v. Santos
An impostor, identifying himself as a professor, obtained delivery of books from EDCA for which
he issued a check that subsequently bounced. The impostor sold the books to Santos for
value. According to the SC, the non-payment of the purchase price by the impostor, although
amounting to fraud, did not amount to unlawful deprivation under Art. 559. Such fraud may be
considered a vitiation of consent, making the contract voidable, but valid until annulled.
Hence, the sale to Santos was valid.
2.

SALE BY SELLER WITH VOIDABLE TITLE

Perfection Stage
Valid sale buyer acquires title of goods
Consummation Stage

Valid sale if title has not yet been avoided buyer buys goods under following
condition:
a. in good faith
b. for value
c. without notice of sellers defect of title

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TITLE AS TO MOVABLE PROPERTIES

Rule: POSSESSION IS EQUIVALENT TO TITLE

Requisites:
a. Possession of a movable
b. In good faith

Exception:
a. Owner lost movable owner can recover w/o reimbursing price
b. Owner is unlawfully deprived owner can recover w/o reimbursing price

Exception to Exception:
a. movable is bought at public sale owner can only recover after reimbursing price
b. in good faith & for value
III.

OBLIGATIONS OF THE VENDEE

A. ACCEPTANCE OF DELIVERY

The vendee is bound to accept delivery of the thing sold at the time and place stipulated in
the contract (Article 1582).
if no time and place is stipulated = see rules under Place and Time of Delivery

express acceptance (Article 1585): when the buyer intimates to the seller acceptance of
delivered goods
implied acceptance (Article 1585):

when the buyer does an act, in relation to the delivered goods, which is inconsistent with
the sellers ownership

when the buyer retains the goods after the lapse of reasonable time, without intimating to
the seller that he has rejected the goods
GEN. RULE: Acceptance of goods by the buyer shall not discharge the seller from liability for
breach of any promise or warranty.
EXCEPTIONS:
1. where there is an agreement to the contrary
2. where the buyer fails to give notice to the seller of any breach of promise or warranty
within a reasonable time after he comes to know or ought to have known of it
1. Delivery in Installments (Article 1583)
GEN. RULE: The buyer is not bound to accept goods delivered in installments.
EXCEPTION: where there is a stipulation to the contrary
WHERE GOODS ARE TO BE DELIVERED IN INSTALLMENTS AND PAID FOR SEPARATELY:

if seller makes defective delivery or if the buyer fails to take delivery or make payment, it
depends upon each case whether the breach affects the entire contract or just a part
thereof

where breach affects entire contract, the injured party may refuse to proceed further and
sue for damages for breach of the entire contract

where breach is severable, it will give rise to a claim for compensation for the particular
breach only
2. Right of Examination (Article 1584)

unless otherwise stipulated, the buyer is not deemed to have accepted the goods delivered
to him until he has had reasonable opportunity to examine them
when the seller tenders the goods, the buyer must request for the opportunity to
examine the goods
where goods are delivered to a carrier and delivery to the buyer is withheld until
payment of the price, the buyer is not entitled to examine the goods before payment
of the price, in the absence of agreement or usage of trade permitting the examination

3.

Refusal to Accept
a. justified refusal (Article 1587):
buyer is not bound to return the goods to the seller, it being sufficient that he
notifies the seller of his refusal to accept
goods are at the risk of the seller even if such are in the possession of the buyer,
unless the latter should voluntarily constitute himself a depositary thereof
b. wrongful refusal (Article 1588): title passes to the buyer, and he bears the risk of loss
La Fuerza v. CA

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The thing sold is understood as delivered when it is placed in the control and possession of the
vendee. From the time of installation and trial run of the conveyors, the vendees were in a
position to decide whether or not it was satisfied with the goods, and, hence, to state whether
the same were accepted or rejected. The vendee's failure to express categorically whether
they accepted or rejected the conveyors does not detract from the fact that the same were
actually in its possession and control, and that the period prescribed in Art. 1571, CC had
begun to run.
B. PAYMENT OF PRICE
1.

Liability of Vendee for Interest (Article 1589)

for the period between delivery and payment
a.
b.
c.

if stipulated
stipulated rate governs; otherwise, the rate is 12%
stipulation may be oral
if the thing delivered produce fruits or income
if the buyer is in default, from the time of judicial or extrajudicial demand for payment

2.

Suspension of Payment (Article 1590)

a. should the vendee be disturbed in possession or ownership of the thing by vindicatory
action or foreclosure of mortgage
b. should the vendee have reasonable grounds to fear disturbance of possession or
ownership by vindicatory action or foreclosure of mortgage

vendee may suspend payment until the vendor has caused the disturbance or danger to
cease

where vendee cannot suspend payment:

if the vendor gives security for the return of the price
if it has been stipulated that the vendee should pay notwithstanding the disturbance or
danger
if the vendor causes the disturbance or danger to cease
if the disturbance is a mere act of trespass

3.

Rescission of Sale of Immovable Property

ACTION BROUGHT BY VENDOR (Article 1591): should he have reasonable grounds to fear the
loss of the immovable and its price
contemplates a situation where the immovable has been delivered but the price has not
yet been paid
should such ground not exist, Article 1191 shall be observed
WHERE AUTOMATIC RESCISSION FOR NON-PAYMENT IS STIPULATED (Article 1592):
vendee may still pay, even after expiration of the period, as long as no demand for
rescission has been made either judicially or by a notarial act
after demand, the court may not grant the vendee a new term

vendee may no longer pay the price after the expiration of the period:
in sales on installments wherein the parties have laid down the procedure to be
followed in case of default by vendee
in a mere promise to sell where the title remains with the vendor until full payment of
the price

IN CASE OF SUBDIVISION OR CONDOMINIUM PROJECTS (P.D. 957):

no installment payments made by the buyer shall be forfeited in favor of the owner or
developer when the buyer desists from further payment due to the failure of the owner or
developer to develop according to the approved plan and within the time limit for
complying with the same

buyer must give due notice to the owner or developer

the buyer is granted the option to be reimbursed the total amount paid
Legarda Hermanos v. Saldaa
Legarda Hermanos sold 2 lots to Saldaa on installment basis. After 8 years of continuous
payments, Saldaa defaulted and because of this, Legarda Hermanos cancelled the contract.
According to the SC, the vendor could not rescind the sale of both lots since the payments
made by Saldaa were enough to cover the purchase price of one lot. In this case, there was
substantial performance on the part of Saldaa as to prevent rescission.
Siska Development v. Office of the President
The sending of a notice of cancellation to the buyer is mandated by R.A. 6552 (the Maceda
Law) which took effect on September 14, 1972. Section 3(b) provides that "the actual
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cancellation of the contract shall take place 30 days from receipt of the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer." While the contract was entered into before
the effectivity of the Maceda Law, the rescission took place when the said law was in full force
and effect. But even before the effectivity of said law, jurisprudence made necessary a notice
of rescission. As stressed in University of the Philippines v. Walfrido De los Angeles, the act of
the party in treating a contract as cancelled should be made known to the other.
Moreover, unilateral cancellation of a contract to sell is not warranted if the breach is slight or
casual.
Odyssey Park, Inc. v. CA
In a contract to sell, the payment of the purchase price is a positive suspensive condition, the
failure of which is not the breach contemplated under Art. 1191 CC (where breach is the
obligors failure to comply with an obligation already extant, not a failure of a condition to
render binding that obligation).
Bricktown Devt. Corp. v. Amor Tierra Devt.
A grace period is a right, not an obligation, of the debtor. When unconditionally conferred, the
grace period is effective without further need of demand either calling for the payment of the
obligation or for honoring the right. The grace period must not be likened to an obligation, the
non-payment of which, under Article 1169 of the Civil Code, would generally still require
judicial or extrajudicial demand before "default" can be said to arise.
4. Rescission of Sale of Movable Property (Article 1593)

Vendor can rescind the sale as a matter of right if the vendee does not:
a. accept delivery
b. pay the price
exception: where a longer period has been stipulated for payment

reason why immovable property treated differently from movable property:

personal properties are not capable of maintaining a stable price such that any delay in
their disposal may prejudice the vendor

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CHAPTER 9: LOSS, DETERIORATION, FRUITS & OTHER BENEFITS

CIVIL LAW
COMMON LAW
No valid contract involving generic subject Perfection of K of sale which is not conditional
matter;
covers good that are determinable
To have a valid contract of sale, subject Perfection is the mode which transfers
matter must be determinate (law on loss, ownership to buyer;
deterioration, fruits, applies only to determine
subject matter)
Not a title but a mode
Tradition is merely a means to perform
obligation
Perfection of contract of sale which is not
Res perit domino; owner bears risk of loss
Conditional include goods which are not
deliverable; transfers risk to buyer
WHO BEARS RISK OF LOSS/DETERIORATION/FRUITS
1. Before perfection

Res perit domino

Owner is seller so seller bears risk of loss

2. At Perfection

Res perit domino

Contract is merely inefficacious because loss of the subject matter does not affect the
validity of the sale

Seller cannot anymore comply with obligation so buyer cannot anymore be compelled
3. After Perfection but before delivery
a. Loss confused state
2 views:
Paras: BUYER
Tolentino: SELLER
b. Deterioration & fruits - Buyer bears loss
4. After delivery

Res perit domino

Owner is buyer so buyer bears risk of loss

Delivery extinguish ownership vis-a-vis the seller & creates a new one in favor of the
buyer
CHAPTER 10: REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE
SUBJECT MATTER: MOVABLES (IN GENERAL)
REMEDIES OF UNPAID SELLER

Any man may not take law in his own hands, must seek remedy through courts

Exception:
1. DOCTRINE OF SELF HELP
2. SPECIAL REMEDIES

Requisites:
1. Subject matter goods
2. Seller is unpaid not completely paid or received negotiable instrument under a
condition & condition has been breached by reason of dishonor
3. Physical possession is with seller
1.
2.
3.
4.

possessory lien
stoppage in transitu
special right of re-sale
special right to rescind

Can only be exercised when 2 prior rights

have been exercised

POSSESSORY LIEN

Seller not bound to deliver if buyer has no paid him the price

Right to retain; cannot be availed when seller does not have custody

Exercisable only in following circumstances:

a. goods sold without stipulation as to credit
b. goods sold on credit but term of credit has expired
c. buyer becomes insolvent

When part of goods delivered, may still exercise right on goods undelivered

Instances when possessory lien lost:

a. seller delivers goods to carrier for transmission to buyer without reserving ownership in
goods or right to possess them
b. buyer or agent lawfully obtains possession of goods
c. waiver

loses lien when he parts with goods (still has stoppage in transitu)

notice by seller to buyer not essential

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STOPPAGE IN TRANSITU

Requisites:
1. Goods are in transit

When goods are in transit

From the time goods are delivered to carrier for purpose of transmission to
buyer
Goods rejected by buyer & carrier continues to possess them

When goods no longer in transit

Reached point of destination
Before reaching destination, buyer met seller along the way
Goods are supposed to have been delivered to buyer but carrier refused
2. Shown by seller that buyer is insolvent ( failure to pay when debts come due )

How is right exercised:

a. Obtain actual possession of goods
b. Give notice of claim to carrier / bailee in possession thereof

Notice by seller to buyer is not required; notice to carrier is essential

SPECIAL RIGHT TO RESELL THE GOODS

Requisites:
1. goods are perishable
2. stipulated the right of resale in case buyer defaults in payment
3. buyer in default for unreasonable time

notice by seller to buyer not essential

why special there are things which seller cannot do in ordinary sale:
1. ownership is with buyer but seller can sell goods
2. title accorded to buyer is destroyed even without court intervention
SPECIAL RIGHT TO RESCIND

why special ownership of goods already with buyer but seller may still rescind; ownership
is destroyed even without court intervention but in ordinary sale, need to go to court to
destroy transfer of ownership

Requisites:
1. Expressly stipulated
2. Buyer is in default for unreasonable time

Notice needed to be given by seller to buyer

REMEDIES OF BUYER

When Seller fails to deliver, buyer may seek SPECIFIC PERFORMANCE WITHOUT GIVING
SELLER OPTION TO RETAIN GOODS ON PAYMENT OF DAMAGES
SALE OF MOVABLES ON INSTALLMENT
REMEDIES OF UNPAID SELLER (1484)
1. Exact fulfillment should the buyer fail to pay
2. Cancel the sale if buyer fails to pay 2 or more installments
3. Foreclose on chattel mortgage if buyer fails to pay 2 or more installments

If buyer chooses foreclosure, no further action against buyer to recover any unpaid
balance of the price

When is law is applicable: Sale on movables by installment

Sale on installment: payment by several partial payments in small amount

Rationale of the law: Buyer is lulled into thinking that he could afford because of small
amounts per installment & at the same time remedy abuse of commercial houses

Nature of remedies: alternative & not cumulative

Coverage: sale & financing transaction & contracts of lease with option to purchase

Action : Judicial & Extrajudicial

SPECIFIC PERFORMANCE

If already chose specific performance, cannot anymore choose other remedies

Except: after choosing, it has become impossible, rescission may be pursued

RESCISSION

When chosen, there is correlative obligation to restitute

But stipulation that installments paid are forfeited are valid if not unconscionable

Deemed chosen when:

a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission

Barring effect on recovery of balance

FORECLOSURE
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Barring effect on recover of balance

Extent of barring effect:
purchase price
Exception: mortgagor refuses to deliver property to effect foreclosure; expenses incurred in
attorneys fees, etc.

IMMOVABLES (IN GENERAL)

REMEDIES OF SELLER
1. Anticipatory breach

Seller has reasonable grounds to fear loss of immovable sold & its price sue for
RESCISSION
2. Non payment of price

RESCISSION
REMEDIES OF BUYER
1. Disturbed in possession or with reasonable grounds to fear disturbance

SUSPEND PAYMENT
2. In case of subdivision or condo projects

If real estate developer fails to comply with obligation according to approved plan:
a) RESCIND
b) SUSPEND PAYMENT UNTIL SELLER COMPLIES
IMMOVABLES (BY INSTALLMENT)

1592 Applies only to contract of sale

Maceda Law applies to COS & CTS & Financing

MACEDA LAW

Coverage: REAL ESTATE defines space v CONDO not defined space (w/ common areas)
1. contract of sale
2. contract to sell
3. financing transactions

Excluded:
1. industrial
2. commercial
3. sale to tenants under agrarian laws

RIGHTS GRANTED TO BUYERS:

1. Buyer paid at least 2 years installment
a. Pay without interest the balance within grace period of 1 month for every year of
installment payment

Grace to be exercised once every 5 years

b. When no payment - cancelled; buyer entitled to 50% of what he has paid + 5% for
every year exceeding 90% of payments made

Cancellation to be effected 30 days from notice & upon payment of cash

surrender value
2. Buyer paid lees than 2 years installment
a. Grace period is 60 days
b. Cancellation if failure to pay within 60 days grace
c. 30 days notice before final cancellation

buyer can still pay within the 30 days period

with interest

Purpose of law : Protect buyers in installment against oppressive conditions

Notice needed waiver thereof id oppressive

Apply to contracts even before law was enacted

Stipulation to contrary is void

Other rights:
a. Sell rights to another
b. Reinstate contract by updating within 30 days before cancellation
c. Deed of Sale to be done by notarial act
d. To pay full installment in advance the balance of price anytime without interest
e. Have full payment annotated in certificate of title
CHAPTER 11: REMEDY OF RESCISSION IN CONTRACTS COVERING IMMOVABLES
RESCISSION (RESOLUTION) 1191
RESCISSION 1385
legal basis is substantial breach
legal basis is lesion (rescissible contract)
principal remedy, retaliatory vs. unjust party
subsidiary remedy cannot be instituted except
when other remedies exhausted
mutual restitution
mutual restitution

Nature: Judicial

Extra judicial Rescission

allowed if stipulated; burden to sue shifts to party who do not like rescission

court still has final say as to propriety of rescission

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Forfeiture of amounts valid being in nature of penal clause

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Reviewer in Sales

CONTRACT OF SALE
Governed by genus SALE
Ownership passes because of tradition
Non-payment is resolutory condition which may
be basis of breach
Perfection gives rise to reciprocal demandable
obligation

29

CONTRACT TO SELL
Governed by genus SALE
Ownership passes upon full payment
Non payment is suspensive non-payment
extinguishes contract to sell
Perfection gives rise to reciprocal conditional
obligation

CONTRACT OF SALE RESCISSION IS APPLICABLE

CONTRACT TO SELL RESCISSION NOT APPLICABLE

Non payment of purchase price would automatically cancel even without further action
for rescission

Except: If subject matter is residential lots, law on rescission applies when there is
substantial breach
CHAPTER 12: CONDITION & WARRANTIES
A. CONDITION

When a contract contains a condition, the non-happening of which would not constitute a
breach but extinguishes the obligation

However, if party to the sales contract has promised that the condition should happen or
be performed, the non-performance of which may be treated by parties as breach
CONDITION
WARRANTY
Purports to existence of obligation
Purports to performance of obligation
Obligation must be stipulated to form part of Need not be stipulated; may form part of
the obligation
obligation by provision of law
May attach itself to obligation of seller to Relates to the subject matter itself or to
deliver possession & transfer
obligation of the seller as to the subject
matter of the sale
B. EXPRESS WARRANTIES ( REQUISITES )
1. it must be an affirmation of fact or any promise by seller relating to the subject matter
of sale
2. natural tendency of affirmation or promise is to induce buyer to purchase subject
matter
3. buyer purchases the subject matter relying thereon

when breached, seller is liable for damages

C. IMPLIED WARRANTIES deemed included in all contracts of sale whether parties are
actually aware or not aware or whether they were intended or not; by operation of law
1. warranty that seller has a right to sell

refers to consummation stage since in consummation stage, it is where ownership

is transferred by tradition

not applicable to sheriff, auctioneer, mortgagee, pledge, person professing to sell by virtue
of authority in fact or law

2. warranty against eviction

Definition and Requisites
eviction (Article 1548): a judicial process whereby the vendee is deprived of the whole
or part of the thing purchased by virtue of:
a final judgment based on a right prior to the sale

such final judgment is essential (Article 1557)

vendor must be summoned in the suit for eviction at the instance of the vendee to
be made liable for the breach of warranty (Article 1558)
vendee shall ask that vendor be made his/her co-defendant (Article 1559)
to give the vendee a chance to defend the title he transferred

vendor is liable even if vendee does not appeal from the judgment (Article 1549)
an act imputable to the vendor

vendor is liable where property is sold at public auction for non-payment of taxes
due him and unknown to vendee (Article 1551)
GEN. RULE: The vendors liability for breach of warranty against eviction may be increased,
diminished or suppressed by stipulation (Article 1548).
EXCEPTION: Where the vendor acts in bad faith, stipulation waiving liability is void (Article
1553).
bad faith by vendee = selling the thing even with knowledge that there is cause for or
risk of eviction
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exception to the exception: where the vendee is also in bad faith, vendor cannot be
held liable for the eviction

Escaler v. CA
The Reynoso spouses sold a parcel of land to the petitioners, which sale was warranted against
eviction. When the TCT in favor of the petitioners was declared null and void (on the ground
that the property covered by said title is already previously registered in favor of a 3 rd party),
the petitioners sued for the violation of the warranty against eviction. The SC held that the
vendors were not liable because they were not summoned and made co-defendants in the suit
at the instance of the vendees. The vendees merely furnished the vendors a copy of the
opposition filed in the eviction suit by registered mail.
2. Kinds and Effects of Waiver of Eviction (Article 1554)
a. consciente: waiver is voluntarily made by the vendee without knowledge and
assumption of risks of eviction
effect: vendor shall only pay the value which the thing sold had at the time of
eviction
b. intencionada: waiver made by vendee with knowledge of the risk of eviction and
assumption of its consequences
effect: the vendor shall not be liable provided he did not act in bad faith

The rule on warranty against eviction applies to a judgment debtor in judicial sales, unless
otherwise decreed in the judgment (Article 1552)

3. Effect of Acquisitive Prescription (Article 1550)

a. completed before the sale the vendor shall be liable for breach of warranty
b. completed after the sale the vendor shall not be liable for eviction since the vendee
could easily interrupt the prescriptive period by bringing the necessary action
4. Rights of the Vendee In Case of Total Eviction (Article 1555)
a. return of the value which the thing sold had at the time of eviction, be it greater or less
than the price of the sale
b. give income or fruits, if the vendee has been ordered to deliver the same to the party
who won the suit
c. costs of the suit of eviction and the suit brought against the vendor for breach of
warranty
d. expenses (registration and execution) of the contract, if paid for by the vendee
e. damages and interests and ornamental expenses if the sale was made in bad faith
5. Rights of the Vendee In Case of Partial Eviction (Article 1556)
a. enforce vendors liability for eviction
b. rescind the contract
when exercised:
i.
if he would not have bought the thing without the part lost through eviction
ii.
when 2 or more things have been jointly sold and the vendee would not
have purchased one without the other
vendee has obligation to return the thing without other encumbrances than those
which it had when he acquired it
6. Rights of the Vendee Where Immovable is Encumbered with Non-apparent
Burden (Article 1560)
a. rescind the contract
b. ask for indemnity

to exercise these rights, the burden or servitude:

must be of such nature that the vendee would not have acquired the thing had he
been aware thereof
must not be recorded in the Registry of Property (constructive notice)

unless there is an express warranty that the thing is free from all burdens and
encumbrances
must not be known to the vendee

action for rescission or damages must be brought within 1 year from the execution of the
deed
if one year period has elapsed, only the action for damages may be brought within a
year from discovery of the burden or servitude
3. WARRANTY AGAINST ENCUMBRANCES (non- apparent) requisites:
a. immovable sold is encumbered with non apparent burden or servitude not
mentioned in the agreement
b. nature of non apparent servitude or burden is such that it must be presumed that
the buyer would not have acquired it had he been aware thereof

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when breach of warranty exist: buyer may ask for rescission or indemnity
warranty not applicable when non apparent burden or servitude is recorded in
the Registry of Property unless there is expressed warranty that the thing is free
from all burdens & encumbrances

4. WARRANTY AGAINST HIDDEN DEFECTS

SELLER does not warrant patent defect; caveat emptor

Except when hidden

a. subject matter may be movable or immovable
b. nature of hidden defect is such that it should render the subject matter unfit
for the use of which it was intended or should diminish its fitness
c. had the buyer been aware, he would not have acquired it or would have given
a lower price

when defect is visible or even if visible if the buyer is an expert by reason of his
trade or profession, seller is not liable

obligation of seller for breach depends on whether he has knowledge of such

defect or not
a. seller is aware seller should return price & refund expenses of contract with
damages
b. seller is not aware - seller should return price and interest & refund expenses (
no damages )

buyer may elect between withdrawing from contract or demanding proportionate

reduction of price with damages in either case

applicable to judicial sale except judgement debtor not liable for damages

action to prescribe 6 months from delivery of subject matter

Filinvest Credit Corp. v. CA
In this case, the vendor was not held liable for breach of warranty against hidden defects.
Aside from the fact that the vendee signed a waiver which released the vendor from any
liability in relation to warranty, he was also engaged in business which deals with the particular
type of machinery subject of the sale.
Accordingly, the vendee should shoulder the
responsibility of protecting himself against product defects. Common sense dictates that a
buyer inspects a product before purchasing it (under the principle of caveat emptor or "buyer
beware").

DOCTRINE OF CAVEAT VENDITOR:

The ignorance of the vendor as to the hidden defects or faults does not relieve him from
liability to the vendee for the same (Article 1566).
exception: where the contrary is stipulated and the vendor acted in good faith

The rules on warranty against hidden defects are applicable to judicial sales, except that
the judgment debtor shall not be liable for damages (Article 1570).
no liability for damages since a judgment debtor is forced to sell
5. DEFECTS ON ANIMALS

even in the case of professional inspection but hidden defect is of such nature that
expert knowledge is not sufficient - defect shall be considered as REDHIBITORY

if vet fails to discover through ignorance or bad faith he is liable for damages
a. sale of animals on teams ( 2 or more )

when only one is defective, only one is redhibited & not the others

exception:
when it appears that purchase of team will not be done without
the defective one

apply to sale of other things

b. sale of animals at fair or public auction

no warranty against hidden defects

c. sale of animals with contagious disease is void
d. sale of unit of animal

void if use / service for which they are acquired has been stated in the contract
and they are found to be unfit thereof

prescription of action: 40 days from date of delivery to buyer

if sale is rescinded, animals to be returned in same condition when they are

acquired; buyer shall answer for injury / loss due to his fault

buyer may elect between withdrawing from sale or demanding proportionate

reduction of price with damages in either case

E. ADDITIONAL PROVISIONS GOVERNING WARRANTIES FOR CONSUMER PRODUCTS

(Art. 68, RA 7394, Consumer Act of the Philippines)
1. Express Warranties
a. Express warranty is operative from the moment of sale

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b. Seller or manufacturer shall:

state the products or parts covered
state what the warrantor will do in the event of a defect, malfunction of failure to
conform to the written warranty and at whose expense
stipulate the period within which, after notice of defect, malfunction or failure to
conform to the warranty, the warrantor will perform any obligation under the
warranty
c.

Sales made by distributors must be reported to the manufacturer, producer,

or importer of the product sold within thirty (30) days from date of purchase,
unless otherwise agreed upon
report shall contain the date of purchase, model of the product bought, its serial
number, name and address of the buyer
such report shall be equivalent to warranty registration with the manufacturer,
producer or importer, sufficient to hold them liable
failure to make the report or send them the form required by the manufacturer,
producer, or importer shall relieve the latter of its liability under the warranty,
provided, the distributor shall be personally liable under the warranty
the manufacturer shall be obligated to make good the warranty at the expense
of the distributor

d. Retailer is subsidiarily liable under the warranty

in case of failure of both the manufacturer and distributor to honor the warranty
nothing therein shall prevent the retailer from proceeding against the distributor or
manufacturer
e. Enforcement of warranty
purchaser needs only to present to the immediate seller either the warranty card
of the official receipt along with the product to be serviced or returned to the
immediate seller
f.

Designation of written warranties:

i.
full warranty meets the minimum requirements
ii.
limited warranty does not meet the minimum requirements
minimum requirements:
remedy the product within a reasonable time and without charge in case of a
defect, malfunction or failure to conform to such written warranty
permit the consumer to elect whether to ask for a refund or replacement
without charge of such product or part

g. Remedies in case of breach

have the goods repaired
warranty work must be made to conform to the express warranty within 30
days by either the warrantor or his representative
period may be extended by conditions beyond the control of the warrantor/his
representative
refund of purchase price
the amount directly attributable to the use of the consumer prior to the
discovery of the non-conformity shall be deducted
2. Breach in Case of Implied Warranties
the consumer may:
i.
retain in the goods and recover damages
ii.
reject the goods, cancel and contract and recover from the seller so much of
the purchase price as has been paid, including damages
D. SPECIFIC IMPLIED WARRANTIES IN THE SALE OF GOODS
1. Warranty as to fitness & quality; requisites:
a. buyer makes known to seller the particular purpose for which goods are acquired
and it appears that the buyer relied on the sellers skill or judgement
b. goods are bought by description from seller who deals in goods of that description

no warranty unless there is stipulation in case of sale of specified article under its
patent or trade name

measure of damage: difference between value of goods at time of delivery and

value they would have had if they had answered to the warranty
2.

Sale of Goods by sample

If seller is a dealer in goods of that kind, there is an implied warranty that the
goods shall be free from defect rendering them unmerchantable which would not
be apparent on reasonable examination of the sample

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E. EFFECTS OF WAIVER

Parties may increase or diminish implied warranty against eviction; but effect depends
on good faith or bad faith on the part of the seller.
1. seller in bad faith & there is waiver against eviction null & void
2. buyer without knowledge of a particular risk made general renunciation of
warranty not waiver but merely limits liability of seller in case of eviction (pay
value of subject matter at time of eviction)
3. buyer with knowledge of risk of eviction assumed its consequences & made a
waiver vendor not liable (applicable only to waiver of warranty against eviction)

when goods delivered to buyer he cannot rescind sale

if he knew of the breach of warranty when he accepted goods without protest

if he fails to return or offer to return goods to seller in substantially as good condition

as they were at time ownership was transferred

when goods deteriorated, buyer can still return them in that condition if such is due to
breach or warranty
F.

BUYERS OPTION IN CASE OF BREACH OF WARRANTY

1.
Accept goods & set up breach of warranty by way of recoupment in diminution
or extinction or the price.
2.
Accept goods & maintain action against seller for damages
3.
Refuse to Accept goods & maintain action against seller for damages
4.
Rescind contract of sale & refuse to receive goods/return them when already
received.

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CHAPTER 13: EXTINGUISHMENT

GROUNDS:
1. same grounds whereby obligations in general are extinguished:
a. payment or performance
b. loss of the subject matter
c. condonation or remission
d. confusion or merger of rights or creditor and debtor
e. compensation
f. novation
g. annulment
h. rescission
i. fulfillment of a resolutory condition
j. prescription
2. conventional redemption only applies to contract of sale
3. legal redemption only applies to contract of sale
CONVENTIONAL REDEMPTION

seller reserved the right to repurchase thing sold

coupled with obligation to return price of the sale, expensed of contract & other legitimate
payments and the necessary & useful expenses made on the thing sold

right must be recognized in the deed of sale; must be the same contract
OPTION TO PURCHASE

right to repurchase the thing sold granted to the vendor in a separate instrument from the
deed of sale
Villarica v. CA
The right of repurchase is not a right granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same instrument of sale as one of the
stipulations of the contract. Once the instrument of absolute sale is executed, the vendor can
no longer reserve the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase but some other right like the
option to buy in the instant case.
Vda. de Zulueta v. Octaviano
Villarica ruling may only apply if there is adequate showing that the parties acted in good faith
in executing the two separate documents, and not to hide the fact that their transaction is one
of sale with right of repurchase, or one of equitable mortgage.
Catangcatang v. Legayada
In the exercise of the right of repurchase, it is not sufficient that the vendor a retro manifests
his desire to repurchase. This statement of intention must be accompanied with an actual and
simultaneous tender of payment which constitutes the legal exercise of the right to
repurchase. While consignation of the redemption price is not necessary in order to allow the
repurchase within the time provided by law or by contract, a mere tender being enough, said
tender does not relieve the vendor from the obligation of paying the price. However, when
tender of payment cannot be validly made, the vendor a retro should file a suit for
consignation with the courts of the redemption price within the redemption period.
Ong Chua v. Carr
The pendency of an action brought in good faith and relating to the validity of a sale with pacto
de retro, tolls the term for the right of redemption.
EQUITABLE MORTGAGE

a contract with right to repurchase is equitable mortgage if the following requisites concur:
1. price of sale with right to repurchase is unusually inadequate
2. seller remains in possession as a lessee or otherwise
3. upon / after expiration of right to repurchase, another instrument extending the period
of redemption is executed
4. buyer retains for himself a part of the purchase price
5. seller binds himself to pay taxes on thing sold
6. real intention of parties is to secure the payment of a debt or performance of other
obligation
IN CASE OF DOUBT IN DETERMINING WHETHER IT IS EQUITABLE MORTGAGE OR
SALE A RETRO (WITH RIGHT OF REPURCHASE IT SHALL BE CONSTRUED AS
EQUITABLE MORTGAGE)
WHAT TO LOOK FOR IN DETERMINING NATURE OF CONTRACT
1. language of the contract
2. conduct of parties to reveal real intent
REMEDY AVAILABLE TO VENDOR: ask for reformation of contract
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RATIONALE BEHIND PROVISION ON EQUITABLE MORTGAGE:

1. Circumvention of usury law
2. Circumvention of prohibition against pactum commissorium creditor cannot appropriate
the things given by way of pledge or mortgage; remedy here is foreclosure

real intention of parties is that the pretended purchase price is money loaned & to secure
payment of the loan, sale with pacto de retro is drawn up
equitable mortgage: a mortgage which lacks the formalities of a mortgage but shows the
intention of the parties to use the property as security for the fulfillment of an obligation

provisions on equitable mortgage were drafted to provide safeguards and restrictions

against the evils of sales with a right of repurchase (pacto de retro sales)
a.
b.
c.
d.
e.
f.

When the price of a sale with right to repurchase is unusually inadequate;

When the vendor remains in possession as lessee or otherwise;
When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
When the purchaser retains for himself a part of the purchase price;
When the vendor binds himself to pay the taxes on the thing sold;
In any other case where it may be fairly inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt or the performance of any
other obligation.

Any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall
be considered as interest which shall be subject to the usury laws.

In case of doubt, Article 1602 applies to pacto de retro sales and absolute sales (Articles
1603 and 1604).
this is an exception to the rule that doubts affecting an onerous contract shall be
settled in favor of the greatest reciprocity of interests

Article 1605. In the cases referred to in Articles 1602 and 1604, the apparent vendor may ask
for the reformation of the instrument.

In reformation, there has been a meeting of the minds between the parties, but the written
instrument does not express their true intention (Article 1359). If there has been no
meeting of the minds, the remedy is annulment (Article 1390).

Uy v. CA
The presence of only one circumstance defined in Article 1602 is sufficient for a contract of
sale with right to repurchase to be presumed an equitable mortgage. The said article expressly
provides therefor 'in any of the following cases', hence, the existence of any of the
circumstances enumerated therein, not a concurrence nor an overwhelming number of such
circumstances suffices to give rise to the presumption that the contract with right to purchase
is an equitable mortgage.
Balatero v. IAC
Article 1602 is designed primarily to curtail the evils brought about by contracts of sale with
right of repurchase, such as the circumvention of the usury law and pactum commissorium.
Being remedial in nature, Article 1602 may be applied retroactively to cases arising prior to the
effectivity of the New Civil Code.
Moreover, the execution of an affidavit of consolidation by the purported buyer to consolidate
ownership over the subject parcel of land is of no consequence and the constructive
possession over the parcel of land would not ripen into ownership, since only possession
acquired and enjoyed in the concept of owner can serve as title for acquiring dominion (Art.
540).
Ignacio v. CA
The mere fact that the price in a pacto de retro sale is not the true value of the property does
not justify the conclusion that the contract is one of equitable mortgage. In a pacto de retro
sale, the practice is to fix a relatively reduced price to afford the vendor a retro every facility to
redeem the property. Moreover, private respondents in this case have not been in actual
possession of the subject property. They had been leasing it out at the time the deed was
executed.
Matanguihan v. CA
A document which appears on its face to be a sale absolute or with pacto de retro may be
proven by the vendor to be one of a loan with mortgage. In this case, parol evidence becomes
competent and admissible to prove that the instrument was given merely as security for
payment of a loan.
Solid Homes, Inc. v. CA

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In a contract of sale with pacto de retro, the buyer has a right to the immediate possession of
the property sold, unless otherwise agreed upon. This is because title and ownership of the
property sold are immediately vested in the vendee a retro , subject only to the resolutory
condition of repurchase by the vendor a retro within the stipulated period.

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PERIOD OF REDEMPTION
1. No period agreed upon 4 years from date of contract
2. When there is agreement should no exceed 10 years; if it exceeded, valid only for the
first 10 years.
3. When period to redeem has expired & there has been a previous suit on the nature of the
contract seller shill has 30 days from final judgement on the basis that contract was a
sale with pacto de retro: rationale: no redemption due to erroneous belief that it is
equitable mortgage which can be extinguished by paying the loan.
4. When period has expired & seller allowed the period of redemption to expire seller is at
fault for not having exercised his rights so should not be granted a new period
EFFECT WHEN THERE IS NO REDEMPTION MADE:
1. jurisprudence before the NCC: buyer a retro automatically acquires full ownership
2. under present art 1607: there must be3 judicial order before ownership of real property is
consolidate in the buyer a retro
HOW IS REDEMPTION EFFECTED:
1. Seller a retro must return first pay the following:
a.
the price of the thing sold
b.
expensed of the contract and other legitimate payments made by reason of
the sale
c.
necessary and useful expensed made on the thing sold
2. Valid tender of payment is sufficient
3. Mere sending of notice without valid tender is insufficient
4. Failure to pay useful & unnecessary expenses entitled vendee to retain land unless actual
reimbursement is made
IN CASE OF MULTI-PARTIES
1. When an undivided thing is old because co-owners cannot agree that it be allotted to on of
them vendee a retro my compel the vendor to redeem the whole thing
2. When an undivided thing is sold by co-owners / co-heirs, vendors a retro may only exercise
his right over his respective share; vendee a retro may demand that they must come to an
agreement first and may not be compelled to consent to a partial redemption
3. When rights for co-owners over an undivided thins is sold as regards to their own share
vendee retro cannot compel one to redeem the whole property
4. Should one of the co-heirs/co-owners succeed in redeeming the property such vendor a
retro shall be considered as trustee with respect to the share of the other co-owners/coheirs.
FRUITS
1. what controls is the stipulation between parties as regards the fruits; if none
2. at time of execution of the sale a retro there should be visible or growing fruits there shall
be no pro-rating at time of redemption of no indemnity was paid by the vendee a retro
3. at time of execution sale a retro there should be no fruits but there are fruits at time of
redemption pro-rated between vendor a retro & vendee a retro giving the vendee a retro
a part corresponding to the time he possessed the land.
LEGAL REDEMPTION

right to be subrogated upon the same terms and conditions stipulated in the contract, in
the place of one who acquires the thing by purchase or by dation in payment or by other
transaction whereby ownership is transmitted by onerous title.
1. among co-heirs

any of heirs sells hereditary right to stranger before partition

any of the co-heirs may be subrogated to the rights of the purchaser by redeeming
said hereditary right: reimburse buyer of the price of the sale

co-heirs has 1 month from receipt of notice in writing

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among co-owners

any or all of co-owners sells their shared to 3 rd person

any co-owner may exercise right of redemption by paying reasonable price of property
to the buyer

if 2 or more co-owners desire to exercise right of redemption, they may only do so in

proportion to the share they may respectively have in the thing owned in common

DISTINCTION BETWEEN RIGHT OF REDEMPTION OF CO-HEIRS FROM CO-OWNERS

CO-HEIRS
CO-OWNERS
Heir may redeem for himself alone the Co-owner may redeem property but even if
hereditary right sold by a co-heir
uses his own funds, redemption inures to the
benefit of other co-owners
Sale of hereditary right (1088) over no Sale of interest in particular property
particular object
Mariano v. CA
The fine distinction between Article 1088 and Article 1620 is that when the sale consists of an
interest in some particular property or properties of the inheritance, the right of redemption
that arises in favor of the other co-heirs is that recognized in Article 1620. On the other hand, if
the sale is the hereditary right itself, fully or in part, in the abstract sense, without specifying
any particular object, the right recognized in Article 1088 exists.
3.

among adjoining owners

a. rural land

where piece of rural land has an area not exceeding 1 hectare, adjoining owner has
right to redeem unless grantee does not own a rural land

if 2 or more adjacent lot owners desire to exercise right to redeem, owner of

adjoining lot with smaller area shall be preferred

if 2 or more adjacent lit owners desire to exercise right to redeem & both have
same lot area, one who first requested shall be granted
b. urban land

when piece of land is small & cannot be used for any practical purpose & brought
merely for speculation, owner of adjoining land can redeem

2 or more owners of adjoining lot desire to exercise right to redeem, owner whose
intention towards use of land shall be preferred.

San Po Ek v. Martinez (2000)

Martinez, and her mother before her, leased property to San Po Ek for a total of 28 years. After
this period, Martinez wrote the lessee to inform the latter of her intention to sell the leased
property. However, the property was thereafter sold to a 3 rd party. San Po Ek filed a case
praying for the nullity of this sale. The SC held that San Po Ek does not have a right of preemption/redemption or first refusal to assert against Martinez. Art. 1622 only deals with small
urban lands that are bought for speculation where only adjoining lot owners can exercise the
right of pre-emption or redemption. In this case, San Po Ek is not an adjoining lot owner but a
lessee trying to buy the land that it was leasing. And although the right of first refusal may be
provided for in a lease contract, such right was never stipulated in any of the several lease
contracts. The grant of the right of first refusal must be clearly embodied in a written contract.
Francisco v. Boiser (2000)
Francisco co-owned 4 parcels of land with her 3 sisters and their mother, Blas. Blas then sold
her 1/5 share to Boiser (another sister of Francisco). Francisco received summons for a case
filed by Boiser against her to demand the latters share in the rentals being collected from the
lease of a building erected on the parcels of land. Instead of giving such share, Francisco
counterclaimed that she wanted to exercise her right of redemption as a co-owner. However,
both claim and counterclaim were dismissed. Francisco filed another case against Boiser to
enforce her right of redemption, claiming that the 30-day redemption period had not yet begun
to run since Blas never informed her of the sale to Boiser. According to the SC, the notice
required under Art. 1623 must be given by the vendor and not by any other person. This is
because the vendor of an undivided interest is in the best position to know who are his coowners who under the law must be notified of the sale. Moreover, it is notification from the
vendor which can remove all doubts as to the fact of the sale, its perfection and validity.
Therefore, even if Boiser informed Francisco of the sale, the redemption period had not yet
begun to run. The period should be counted from the time Francisco received summons in the
previous case since such amounted to actual knowledge of the sale.
c.

sale of credit litigation

when a credit or other incorporeal right in litigation is sold, debtor shall have a
right to extinguish it by reimbursing the assignee for the price the latter paid
therefor plus judicial costs, interest

debtor may exercise right within 30 days from assignee demands payment from
him

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WHEN PERIOD OF REDEMPTION BEGINS TO RUN

1. right of legal pre-emption of redemption shall be exercised within 30 days from notice by
the buyer
2. deed of sale not to be recorded in RD unless accompanied by affidavit that buyer has given
notice to redemptioners
3. when there is actual knowledge, no need to give written notice; period of redemption
begins to run from actual knowledge
OTHER INSTANCES WHEN RIGHT OF LEGAL REDEMPTION IS GRANTED
1. Redemption of homesteads

Public Land Act

Land acquired under free patent homestead

Subject to repurchase by wife, legal heirs within 5 years from date of conveyance

Granted by law, need not be stipulated

Lee v. CA
The Simeons sold to Lee a parcel of land acquired under a free patent. Subsequently, the
Simeons advised Lee, in writing, of their "desire to repurchase" the land. Three other letters
were sent by the Simeons, but in no instance did they offer or tender the repurchase price. Lee
ignored the letters, except the last to which she replied that she cannot agree to the
repurchase because the redemption period of five (5) years had already expired. The SC held
that the mere sending of letters by the vendor expressing his desire to repurchase the property
without an accompanying tender of redemption price fell short of the requirements of the law.
Sec. 119 of CA 141 should be construed with Art. 1616 CC.
Sta. Ignacia Rural Bank, Inc. v. CA
In this case, the land acquired through homestead patent was foreclosed and sold. According
to the SC, the right to repurchase under Sec. 119 cannot be waived by the party entitled
thereto, and applies with equal force to both voluntary and involuntary conveyances.
Moreover, the 5-year redemption period under Sec. 119 begins to run from the day after the
expiration of the 1-year period of repurchase allowed in an extrajudicial foreclosure.
2.

Redemption in tax sales

in case of tax delinquency/failure to pay tax assessments, property is foreclosed

delinquent payer has 1 year to redeem by paying to the revenue District Officer the
amount of tax delinquencies, & interest or purchase price.

3.

Redemption by judgement debtor

1 year to redeem by paying purchaser at public auction with interest

Torres v. Cabling
Written notice of the sale is required to be given to the judgment debtor before the sale of
property on execution to give him the opportunity to prevent the sale by paying the judgment
debt sought to be enforced. Moreover, when there is a 3 rd party claim, the sheriff should
demand payment in cash from the judgment creditor, if he becomes the highest bidder,
instead of just crediting the amount to the partial satisfaction of the debt.
4.

Redemption in extrajudicial foreclosure

1 year from date of sale and registration

Soriano v. Bautista
The stipulation in a deed of mortgage which renders the mortgagor's right to redeem
defeasible at the election of the mortgagee is not illegal or immoral, being merely an option to
buy sanctioned by Article 1479 of the Civil Code, when supported by a consideration distinct
from the purchase price.

5.

Redemption in judicial foreclosure of mortgage

no right to redeem is granted to debtor mortgagor

except when mortgagee is bank of a banking institution

90 days after finality of judgement

Cases Under Redemption:

Ongoco v. CFI of Bataan
The petition to consolidate ownership under Article 1607 does not partake of the nature of a
motion, it not being merely an ordinary civil action or a special proceeding, but is an ordinary
civil action cognizable by the CFI. As such ordinary action, a complaint or petition must be
filed.
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De Guzman v. CA
Should one of the co-owners or co-heirs succeed alone in redeeming the whole property, such
co-owner or co-heir shall be considered as a mere trustee with respect to the shares of his coowners or co-heirs. Therefore, no prescription will lie against the right of any co-owner or coheir to demand from the redemptioner to a lien in favor of the redemptioner for the amount
paid by him corresponding to the value of the share.
Mariano v. CA
The giving of a copy of a deed is equivalent to the notice as required by law in legal
redemption. Written notice is indispensable, notwithstanding the actual knowledge of the sale
acquired in some other manners by the redemptioner. He or she is still entitled to written
notice to remove all uncertainty as to the sale, its terms and its validity, and to quiet any doubt
that the alienation is not definitive. The law not having provided for any alternative, the
method of notifications remains exclusive, though the Code neither prescribes any particular
form of written notice nor any distinctive method for written notification of redemption.
Alonzo v. CA
In this case, the redemption period began to run and expire although no notice in writing was
given to the co-heirs (vendors a retro). The SC made an exception to the written notice
requirement, since the co-heirs lived with the purchaser in the same lot and are deemed to
have received actual notice of the sale. Moreover, the co-heirs sought to exercise their right of
redemption thirteen years after the pacto de retro sale.
Distrito v. CA
The only purpose of the written notice is to insure that all the co-owners shall be actually
notified of the sale and to remove all doubt as to the perfection of the sale. When as in this
case the co-owner was actually present and was even an active intermediary in the
consummation of the sale of the property he is and must be considered to have had actual
notice of the sale. A written notice is no longer necessary.

CHAPTER 14: ASSIGNMENT

Sale of credits & other incorporeal things

Technical term but basically a sale

WHAT MAKES ASSIGNMENT DIFFERENT FROM SPECIES SALE:
ASSIGNMENT
Subject matter
Intangibles
Form
Consensual
Binding effect to 3rd Recorded in registry of property
persons

SALE
Tangibles
Consensual
No recording needed to such
effect

EFFECT OF ASSIGNMENT
1. lack of knowledge or consent of debtor not essential for validity but has legal effect
2. assignment of rights made w/o knowledge of debtor debtor may set up against assignee
the compensation w/c would pertain to him against assignor of all credits prior to
assignment and later ones until he had knowledge of the assignment
3. debtor has consented to assignment cannot set up compensation unless assignor was
notified that he reserved his right to the compensation
4. debtor has knowledge but no consent - compensation may still be set up
TRANSFER OF OWNERSHIP

by tradition & not by perfection

execution of public instrument because intangibles cannot be physically transferred

ACCESSORIES & ACCESSIONS

includes all accessory rights such as guaranty, mortgage, pledge or preference

PNB v. CA
In assignments, a consideration is not always a requisite, unlike in sales. Thus, an assignee
may maintain an action based on his title and it is immaterial whether or not he paid any
consideration therefor.

to bind 3rd persons, the assignment of credit must (Article 1625):

appear in a public instrument
be contained in an instrument recorded in the Registry of Property (if the assignment
involves real property)

if the debtor pays the creditor before knowledge of the assignment, he shall be released
from his obligation (Article 1626)

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consent of the debtor is not needed to make an assignment; however, notice to the
debtor is needed for the protection of the assignee

DBP v. CA
An assignment to guarantee an obligation is virtually a mortgage and not an absolute
conveyance of title which confers ownership on the assignee. The assignment cannot be
considered as dacion en pago since non-payment on the loan cannot authorize the assignee to
register the assigned property in its name as it would constitute pactum commissorium.
WARRANTIES
1. against hidden defect - N/A because intangibles has no physical existence
2. existence & legality of credit - there is warranty except when what is sold is doubtful
account
3. solvency of debtor - no warranty, unless
a. there is stipulation
b. insolvency was prior to assignment & of common knowledge

shall only last for 1 year

4. one who assigns inheritance right w/o enumerating rights shall be answerable for his
character as an heir
5. one who sells certain rights for a lump sum, shall be answerable for legitimacy of the
whole in general but not for each of the various parts
BREACH OF WARRANTY
1. if in good faith - expenses of the contract & other legitimate payments made by reason of
the assessment
2. if in bad faith - expenses of contract & other legitimate payments plus useful & necessary
expenses
ASSIGNMENT OF CREDIT OR INCORPOREAL RIGHT IN LITIGATION

speculative

law would rather benefit the debtor of such credits rather than the one who merely
speculates for profit

when credit or incorporeal right in litigation is assigned or sold, debtor has a right to
extinguish it by reimbursing the assignee for the price the buyer paid plus interest

right to redeem to be exercised within 30 days from demand by assignee for payment
RIGHT TO REDEEM BY DEBTOR NOT AVAILABLE IN THE FOLLOWING INSTANCES (NOT CONSIDERED SPECULATIVE)
1. assignment of credit / incorporeal right to co-heir or co-worker
2. assignment to creditor in payment for his credit
3. assignment to possessor of tenement or piece of land which is subject to the right in
litigation assigned
CHAPTER 15: BULK SALES LAW

Protect creditor of merchant stored

3 types of transactions:
1. Sale of goods other than in ordinary course of business
2. Sale of business
3. Sale of fixtures & equipments
Should cover only merchants because creditors cannot get adequate security because
goods are sold ordinarily in course of business
Not covered:
1. with waiver of creditor of seller
2. receiver, assignee in insolvency proceeding
Duty of seller to perform the following when transaction is within the coverage of the law
1. make sworn statement of listing of creditors
2. delivery of sworn statement to buyer
3. apply the proceeds pro-data to claims of creditors shown in verified statement
4. written advance disclosure to creditors

EFFECTS OF NON-COMPLIANCE
ON TRANSACTION
FAILURE TO:
Prepare & deliver sworn listing of creditors
Apply proceeds pro-rata to listed creditors
Make
advance
written
disclosure
of
transactions to creditors
Register sworn statement with DTI
Include or omit names of creditors & correct
amount due in the statement
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ON SELLER

Fraudulent & void

Fraudulent & void
Not void

Criminal Liability
Criminal Liability
No Criminal Liability

Not void
Void

No Criminal Liability
Criminal Liability

Reviewer in Sales
Sale for no consideration

Void

42

Criminal Liability

ANTI-DUMMY LAW

Penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy
privileges reserved only for Filipinos

Management, operation as officers, employees or laborers

Control or non-control position

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