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Chapter 4

PRICE AND OTHER CONSIDERATION

Edquilag,
Ryan
James
Lopez,

S.

Katherine
D.
Mataac,
Michael
Zachary
R.
Chapter

FORMATION OF SALE

Stages in the Life of a


Contract

Perfection (Birth)
Consummation (Death)

Policitacion/Negotiation

Policitacion/Negotiation Stage
Policitacion or negotiation stage actually deals with legal matters arising
prior to the perfection of sale, dealing with the concepts of invitation to
make offer, offer, acceptance, right of first refusal, option contract, supply
agreement, mutual promises to buy and sell or contracts to sell, and even
agency to sell or agency to buy.
Offer (Articles 1319-1324, Civil Code)
Advertisements and Invitations (Articles 1325-1326, Civil Code)
Article 1325. Unless it appears otherwise, business advertisements
of things for sale are not definite offers, but mere invitations to
make an offer. (n)
Article 1326. Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (n)
Option Contracts
Determining the Location of Options
Art. 1324
When the offeror has allowed the offeree a certain period to accept, the offer
may be withdrawn at any time before acceptance by communicating such
withdrawal, except when the option is founded upon a consideration, as
something paid or promised
Art. 1479, Par 2
An accepted unilateral promise to buy or to sell determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price.
Definition and Essence of Option Contract
Adelfa Properties, Inc v. Court of Appeals (G.R. No. 111238;
January 25, 1995)
an option is a continuing offer or contract by which the owner
stipulates with another that the latter shall have the right to buy the
property at fixed price within a certain time, or under a certain
terms and conditions or which gives to the owner the right to sell or
demand
not a purchase but merely secures the privilege to buy
not a sale of property but a sale of the right to purchase
Equatorial Realty Dev., Inc. v. Mayfair Theater (G.R. No. 106063,
November 21, 1996)
involve the choice granted to another for a distinct and separate
consideration as to whether or not to purchase a determinate thing
at a predetermined price
Characteristics and Obligations

Obligation of offeror in option contract:


Personal obligation not to offer to any third party the sale of the object of
the option during the option period
Personal obligation not to withdraw the offer or option during option period
Obligation to hold the subject matter for sale to the offeree in the event
that offeree exercises his option during the option period
Elements of Valid Option Contract
Consent or the meeting of the minds upon:
Subject Matter:
Determinate or determinable thing
For a price certain, including the manner of payment
Prestation: consideration separate and distinct from the purchase price for
the option given
Salame v. Court of Appeals
- in order that such promise may be binding upon the promissor, it must
contain a price certain
Kilosbayan, Inc. v. Morato
- by its statutory definition can onlyarisewhen the minds of the parties
have met as to the specific object, the price and the manner of payment
Separate Consideration
May be anything or undertaking of value
Controlling Concept: separateness from the purchase price agreed upon
Option Without Separate Consideration
Sanchez v. Rigos
- option contract would be void, as a contract, but would still constitute a
valid offer

Sanchez Doctrine
Treated an accepted promise to sell, although not binding as a contract for
lack of separate consideration, nevertheless having capacity to generate a
bilateral contract of sale upon acceptance
Acceptance to Create Option (Sanchez Doctrine)
Can only apply if the option has been accepted and such acceptance is
communicated to the offeror
Option not Deem Part of Renewal of Lease
Option to purchase attached to a contract of lease when not exercised
within the original period is extinguished and cannot be deemed to have
been included in implied renewal of lease. Principle of tacitareconduccion
Period of Exercise of Option
Villamor v. Court of Appeals
- If it does not contain a period when the option can be exercise, it cannot
be presumed that the exercise can be made indefinitely, and even render
uncertain the status of the subject matter
Art. 1144 (1) of the Civil Code : actions upon written contract must be
brought within 10 years and thereafter, the right of option would
prescribe
Effects
Limson v. Court of Appeals
- the timely, affirmatively and clearly accept[ance of] the offer, would
convert the option contract into a bilateral promise to sell and to buy where
both [parties] were then reciprocally bound to comply with their respective
undertakings.
Summary Rules:
(a) If the period itself is not founded upon or supported by a separate
consideration, the offeror is still free and has the right to withdraw the offer
before its acceptance, or, if an acceptance has been made, before the offerors
coming to know of such fact, by communicating that withdrawal to the offeree.
(In accordance with the Sanchez Doctrine)
(b) The right to withdraw, however, must not be exercised whimsically, or
arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the
Civil Code which ordains that every person must, in the exercise of his right and
in the performance of his duties, act with justice, give everyone his due, and
observe honesty and good faith.
(c) If the period has a separate consideration, a contract of option is deemed
perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period.
(d) The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement which is obviously yet to be

included. If, in fact, the optioner-offerorwithdraws the offer before its acceptance
by the optionee-offeree, the latter may not sue for specific performance on the
proposed contract since it has failed to reach its own stage of perfection. The
optioner-offeror, however, renders himself liable for damages for breach of the
option.
(e) In these cases, care should be taken of the real nature of the consideration
given, for if in fact, it has been intended to be part of the consideration for the
main contract with a right of withdrawal on the part of optionee, the main
contract could be deemed perfected; a similar instance would be an earnest
money in sale that can evidence its perfection.
Right of First Refusal
A right of first refusal is a contractual right of an entity to be given the
opportunity to enter into a business transaction with a person or company
before anyone else can. If the entity with the right of first refusal declines
to enter into a transaction, the owner of the asset is free to open the
bidding up to other interested parties.
A right given to a person to be the first person allowed to purchase a
certain object if it is ever offered for sale.
Right of First Refusal Must Be Contained in Written Contract
In one case, the Supreme Court ruled that when the right of first refusal is
not stipulated in the lease contract, it cannot be exercised, and verbal
grants of such right cannot be enforceable since the right of first refusal
must be clearly embodied in a written contract. The ruling therefore
constituted in effect an addition to the contracts covered by the Statute of
Frauds. (Sen Po Ek Marketing Corp. v. Martinez)
Guerrero v. Yigo
G.R. No. L-5572, October 26, 1954
96 Phil. 37
The registration of the three instruments created a real right in favor of
the mortgagee. But the fact that in the instrument the mortgagor
undertook, bound and promised to sell the parcel of land to the
mortgagee, such undertaking, obligation or promise to sell the parcel of
land to the mortgagee does not bind the land. Itis just a personal
obligation of the mortgagor. So that when [mortgagor] sold one-half of the
parcel of land (the western part) ... the sale was legal and valid. If there
should be any action accruing to [mortgagee] it would be a personal
action for damages against [mortgagor]. If [the buyer] contributed to the
breach of the contract by [mortgagor], the former together with the latter
may also be liable for damages. If [the buyer] was guilty of fraud which
would be a ground for rescission of the contract of sale in his favor,
[mortgagor] and not [mortgagee] would be the party entitled to bring the
action for annulment.
Under a right of first refusal situation, the Court would not allow an action
for specific performance or a rescission of the sale to a third party which
constitute the breach of the promise, even when the third-party buyer was

entering into the purchase of the subject property in bad faith. The only
remedy afforded to the promissee was an action to recover damages.
Guzman, Bocaling& Co. v. Bonnevie
G.R. No. 86150; March 2, 1992
206 SCRA 668
[T]he respondent court correctly held that the Contract of Sale was not voidable
but rescissible. Under Articles 1380 to 1381(3) of the Civil Code, a contract
otherwise valid may nonetheless be subsequently rescinded by reason of injury
to third persons, like creditors. The status of creditors could be validly accorded
the [lessees] for they had substantial interest that were prejudiced by the sale of
the subject property to the petitioner without recognizing their right of first
priority under the Contract of Lease.
It was incorrect to say that there was no consideration in an agreement of right
of first refusal, since in reciprocal contracts, such as a lease, the obligation or
promise of each party is the consideration for that of the other. It also recognized
that a buyer of a real property who is aware of the existing lease agreement over
it cannot claim good faith nor lack of awareness of the right of first priority
provided therein, for it is its duty to inquire into the terms of the lease contract,
and failing to do so, it has only itself to blame.
Ang Yu Asuncion v. Court of Appeals
G.R. No. 109125, December 2, 1994
238 SCRA 602
In the law on sales, the so-called "right of first refusal" is an innovative juridical
relation. Needless to point out, it cannot be deemed a perfected contract of sale
under Article 1458 of the Civil Code. Neither can the right of first refusal,
understood in its normal concept, per se be brought within the purview of an
option under the second paragraph of Article 1479, aforequoted, or possibly of
an offer under Article 1319 of the same Code. An option or an offer would
require, among other things, a clear certainty on both the object and the cause
or consideration of the envisioned contract.
In a right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be 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 can at best be so described as merely belonging to a class of
preparatory juridical relations governed not by contracts (since the essential
elements to establish the vinculum juris would still be indefinite and
inconclusive) but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed under a
final judgment, like here, its breach cannot justify correspondingly an issuance of
a writ of execution under a judgment that merely recognizes its existence, nor
would it sanction an action for specific performance without thereby negating the
indispensable element of consensuality in the perfection of contracts. It is not to
say, however, that the right of first refusal would be inconsequential for, such as
already intimated above, an unjustified disregard thereof, given, for instance, the

circumstances expressed in Article 19 of the Civil Code, can warrant a recovery


for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed, has merely
accorded a "right of first refusal" in favor of petitioners. The consequence of such
a declaration entails no more than what has heretofore been said. In fine, if, as it
is here so conveyed to us, petitioners are aggrieved by the failure of private
respondents to honor the right of first refusal, the remedy is not a writ of
execution on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
Equatorial Realty Development, Inc. v. Mayfair Theater
G.R. No. 106063, November 21, 1996
264 SCRA 483
The Court agrees with the respondent Court of Appeals that the aforecited
contractual stipulation provides for a right of first refusal in favor of Mayfair. It is
not an option clause or an option contract. It is a contract of a right of first
refusal.
An option is a contract granting a privilege to buy or sell within an agreed time
and at a determined price. It is a separate and distinct contract from that which
the parties may enter into upon the consummation of the option. It must be
supported by consideration. In the instant case, the right of first refusal is an
integral part of the contracts of lease. The consideration is built into the
reciprocal obligations of the parties.
The Court of Appeals is correct in stating that Paragraph 8 was incorporated into
the contracts of lease for the benefit of Mayfair which wanted to be assured that
it shall be given the first crack or the first option to buy the property at the price
which Carmelo is willing to accept. It is not also correct to say that there is no
consideration in an agreement of right of first refusal. The stipulation is part and
parcel of the entire contract of lease. The consideration for the lease includes the
consideration for the right of first refusal. Thus, Mayfair is in effect stating that it
consents to lease the premises and to pay the price agreed upon provided the
lessor also consents that, should it sell the leased property, then, Mayfair shall
be given the right to match the offered purchase price and to buy the property at
that price.
Perfection of Sale
A contract of sale is "born" from the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price and
the manner of its payment.
Consent may be vitiated by any of the following: mistake, violence,
intimidation undue influence and fraud.
But they do not make the contract void ab initio but only voidable, and the
contract is binding upon the parties unless annulled by proper court
action, which when obtained would restore the parties to the status quo
ante insofar as legally and equitably possible.
General Rule: Contracts, in general, are perfected by mere consent, which 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 the
absolute acceptance.
Definition of Consent
Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cause which are to constitute the contract. (Article
1319, Civil Code)
Offer Must Be "Certain"
For the perfection of a valid sale, there must be a "meeting of minds,"
which means that an "offer certain" is met by an "absolute acceptance"
any other offer which is not certain, no matter how absolutely it is
accepted, can never give rise to a valid sale.
Acceptance Must Be "Absolute"
In one case, it was held that in order for an acceptance to have the effect
of converting an offer to sell into a perfected contract, it must be plain and
unconditional, and it will not be so, if it involves any new proposition, for in
that case, it will not be in conformity with the offer, which is what gives
rise to the birth of the contract. (Zayco v. Serra)
In Beaumont v. Prieto, held that promises are binding when and so long as
they are accepted in the exact terms in which they are made, and that it
would not be legally proper to modify the conditions imposed by the
offeror without his consent. In order that the acceptance of a proposition
or offer may be efficacious, perfect and binding upon the parties thereto, it
is necessary that such acceptance should be unequivocal and
unconditional and the acceptance and proposition shall be without any
variation whatsoever. Any modification or deviation from the terms of the
offer annuls the latter and frees the offeror.
In Yuvienco v. Dacuycuy, the use of the term to negotiate in the
acceptance letter given by the buyer was held to indicate that there was
as yet no absolute acceptance of the offer made, since the term is
practically the opposite of the idea that an agreement has been reached.
In DBP v. Ong, the Court held that placing the word Noted and signing
such note at the bottom of the written offer cannot be considered an
acceptance that would give rise to a valid sale.
Acceptance May Be Express or Implied
Acceptance may be evidenced by some act, or conduct, communicated to
the offeror, either in a formal or an informal manner, that clearly manifest
the intention or determination to accept the offer to buy or sell.
In Oesmer v. Paraiso Dev. Corp., acceptance of the terms of the sale of coownership rights through an agent was expressed by the co-owners
signing as witnesses to the covering deed of sale.
Acceptance by Letter or Telegram
Acceptance made by letter or telegram does not bind the offeror except
from the time it came to his knowledge. Therefore, even if an acceptance

has been mailed or sent to the offeror, the offeror may still withdraw his
offer anytime before he has knowledge of the acceptance.
Acceptance Subject to Suspensive Condition
Even when there is a meeting of minds as to the subject matter and the
price, there is deemed to be no perfected sale, if the sale is subject to
suspensive condition.
Acceptance in Auction Sales
A sale by auction is perfected when the auctioneer announces its
perfection by the fall of the hammer, or in other customary manner. Until
such announcement is made, any bidder may retract his bid, and the
auctioneer may withdraw the goods from the sale, unless the auction has
been announced to be without reserve

Earnest Money
Function of Earnest Money
Under Article 1482 of the Civil Code, whenever earnest money is given in a
sale, it shall be considered as part of the price and as proof of the
perfection of the contract. The rule is no more than a disputable
presumption and prevails only in the absence of contrary or rebuttal
evidence.
Distinguishing Earnest Money and Option Money
Earnest Money
Earnest money is part of
the purchaseprice
Earnest money is given
only where there isalready
a sale
When earnest money is
given, the buyeris bound to
pay the balance

Option Money
option money is the
moneygiven as a distinct
consideration for anoption
contract.
option money applies to a sale
not yet perfected
when the would-be buyer gives
option money,he is not
required to buy, but may
evenforfeit it depending on the
terms of the option.

Effect of Rescission on Earnest Money Received


In the absence of a specific stipulation, the seller of real estate cannot
keep the earnest money received to answer for the damages sustained in
the event the sale fails due to the fault of the prospective buyer.
Place of Perfection
Generally, the sales place of perfection is where there is a meeting of the
offer and the acceptance upon the thing and the cause which are to
constitute the contract. In case of acceptance through letter or telegram,
it is presumed that the contract was entered into in the place where the
offer was made.

Expenses of Execution and Registration


In general, the expenses for the execution and registration of the sale shall
be borne by the seller, unless there is a stipulation to the contrary. In the
case of goods, unless otherwise agreed, the expenses of, and incidental
to, putting the goods into a deliverable state must be borne by the seller.
Performance Should Not Affect Perfection
Since sale is a consensual contract, then the ability of the parties to
perform the contract (after perfection) does not affect the perfection of
the contract, which occurs when the minds of the parties have met as to
the subject matter, price and terms of payment.

Sales
Questions and Answers for Chapter 5
Formation of Sale
Edquilag, Ryan James S.
Lopez, Katherine D.
Mataac, Michael Zachary R.
1. Explain the nature of option contract. (2002 Bar Question)
Answer: An option contract is one granting a privilege to buy or sell
within an agreed time and at a determined price. It must be supported by
a consideration distinct from the price. (Articles 1479 and 1482, Civil
Code)
2. Bert offers to buy Simeons property under the following terms
and conditions: P1 million purchase price, 10% option money, the
balance payable in cash upon the clearance of the property of all
illegal occupants. The option money is promptly paid and Simeon
clears the property of illegal occupants in no time at all. However,
when Bert tenders payment of the balance and ask Simeon for the
deed for absolute sale, Simeon suddenly has a change of heart,
claiming that the deal is disadvantageous to him as he has found
out that the property can fetch three times the agreed purchase
price. Bert seeks specific performance but Simeon contends that
he has merely given Bert an option to buy and nothing more, and
offers to return the option money which Bert refuses to accept.
a. Wil Berts
Explain.

action

for

specific

performance

prosper?

b. May Simeon justify his refusal to proceed with the sale by


the fact that the deal is financially disadvantageous to
him? Explain. (2002 Bar Question)

Answer: a. Berts action for specific performance will prosper because


there was a binding agreement of sale, not just an option contract. The
sale was perfected upon acceptance by Simeon of 10% of the agreed
price. This amount is in really earnest money which, under Article 1482,
shall be considered as part of the price and as a proof of the perfection of
the contract. (Topacio v. CA, 211 SCRA 291 [1992]; Villongco Realty v.
Bormaheco, 65 SCRA 352 [1975])
b. Simeon cannot justify his refusal to proceed with the sale by the fact
that the deal is financially disadvantageous to him. Having made a bad
bargain is not a legal ground for pulling out a binding contract of sale, in
the absence of some actionable wrong by the other party. (Vales v. Villa,
35 Phil. 769 [1916] Bert did not commit such wrong.
3. Ubaldo is the owner of a building which has been leased by
Remigio for the past 20 years. Ubaldo has repeatedly assured
Remigio that if he should decide to sell the building, he will give
Remigio the right of first refusal. On June 30, 1994, Ubaldo
informed Remigio that he was willing to sell the building for P5
million. The following day, Remigio sent a letter to Ubaldo offering
to buy the building at P4.5 million. Ubaldo did not reply. One week
later, Remigio received a letter from Santos informing him that
the building has been sold to him by Ubaldo for P5 million, and
that he will not renew Remigios lease when it expires. Remigio
filed an action against Ubaldo and Santos for cancellation of the
sale, and to compel Ubaldo to execute a deed of absolute sale in
his favour, based on his right of first refusal.
a. Will the action prosper? Explain.
b. If Ubaldo had given Remigio an option to purchase the
building instead of a right of first refusal, will you answer
be the same? Explain. (1996 Bar Question)
Answer: a. No, the action will not prosper. The lessees right of first
refusal does not go so far as to give him the power to dictate on the lessor
the price at which the latter should sell his property. Upon the facts given,
the lessor had sufficiently complied with his commitment to give the
lessee a right of first refusal when he offered to sell the property to the
lessee for P5 million, which was the same price he got in selling it to
Santos. He certainly had the right to treat the lessees counter-offer of a
lesser amount as a rejection of his offer to sell at P5 million. Thus, he was
free to find another buyer upon receipt of such unacceptable offer. (Article
1319, Civil Code)
b. Yes, the answer will be the same. The action will not prosper because an
option must be supported by a consideration separate and distinct from
the purchase price. In this case, there is no separate consideration.
Therefore, the option may be withdrawn by Ubaldo at any time. (Article
1324, Civil Code)
SALES: ATTY. LYDIA A. BUNDAC
Culla, James Ryan G.

EbrahimMacalawi, Asmairah M.
Vinluan, Rachelle Anne Maureen M.

Performance or Consummation of Sale


OBLIGATIONS OF SELLER
A seller is obliged to:
1. To preserve the Subject matter When a sale covers a specific or
determinate object, upon perfection even prior to delivery, AND
ALTHOUGH THE SELLER STILL OWNS THE SUBJECT MATTER, HE IS ALREADY
OBLIGED TO TAKE CARE OF THE SUBJECT MATTER WITH THE DILIGENCE OF
A GOOD FATHER OF A FAMILY.
2. To Deliver the Subject matter
Art. 1495- The seller is bound:
a. To transfer the ownership of, and
b. To deliver the thing, which is the object of the sale of the buyer.
Tradition or Delivery- A mode where the Seller can transfer the ownership
of the subject matter.
Types of Delivery:
1. Actual Delivery
-There is actual or physical delivery when the thing sold is placed
in the control and possession of the buyer. (Art. 1497)
2. Constructive Delivery
-Can take several forms and may be any manner signifying an
agreement that the possession is transferred from the vendor to
the vendee. (Art. 1496)

3. To Deliver the Fruits and Accessories

The Transferee has a right to the fruits of the thing from the time
the obligation to deliver it arises; however, he shall acquire no real
right over them until the same has been delivered to him. (Art.
1164)

The Seller is bound to deliver the thing sold and its accessions and
accessories in the condition in which they were upon the perfection
of the contract, and all the fruits shall pertain to the buyer from the
day on which the contract was perfected. (Art. 1537)

4. To Warrant the Subject Matter


The seller is obliged to warrant the thing which is the object of the
sale. (Art.1495)
TRADITION AS A CONSEQUENCE OF A VALID SALE
KINDS OF DELIVERY
1. ACTUAL DELIVERY

(a) When deemed made: when the thing sold is placed in the control and
possession of the vendee [Art. 1497]
(b) Not always essential to passing of title [Art.1475]
(c) Parties may agree when and on what conditions the ownership shall
pass to the buyer [E.g.: Art 1478 where ownership will only pass after full
payment of the price]
2. CONSTRUCTIVE DELIVERY
(a)Execution of public instrument[Art 1498, par.1]
General rule: produces the same legal effects of actual delivery.
Exceptions:
i.
The intention of the parties is otherwise.
ii.
At the time of execution, the subject matter was not subject to
the control of the seller which must subsist for a reasonable
length of time after execution.
Control over thing sold must be such that seller is capable of physically
transferring it to buyer.
(b) Symbolic Delivery
(1) Delivery of keys of the place or
depositary where the movable is
stored
or kept. [Art1498, CC]
(2) Unless otherwise agreed, when
symbolic delivery has been made,
the
seller is not obliged to remove tenants
to place the buyer in actual
possession of the property as he has already
complied with his obligation
to transfer ownership of and deliver the thing sold.
(c) ConstitutumPossessorium
Seller continues to be in possession of theproperty sold, by virtue of a
lease contract agreement with the vendee.
(d) Tradition Brevi Manu (Short Hand)
MOVABLE is delivered when the
buyer had thething already in his possession before the sale took place, not as
owner
but as lessee, borrower, or depositary.
(e) Tradition Longa Manu (Long Hand)
i. Delivery of thing by mere agreement.
ii. Example: Seller points to the property
without actually transferring
physical
possession thereof.
iii. When an employer assigned all its rights and title to all surplus
property
salvaged bythe contractor, tradition
longa manu takes place.
Delivery is upon the moment a thing is salvaged.
(f) Delivery of Incorporeal Property
Incorporeal property has no physical
effected by constructive delivery.

existence; its delivery can only be

ARTICLE 15013 types of constructive delivery specifically applicable to incorporeal


property:

a. When the sale is made through a public instrument, the execution


thereof shall be equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary does not appear or
cannot clearly be inferred;
b. By the placing of the titles of ownership in the possession of the buyer;
or
c. The use and enjoyment by the buyer of the rights pertaining to the
incorporeal property, with the sellers consent.
(g) Delivery by Negotiable Document of Title
The buyer of the goods can by the process of negotiation of the covering
document have a title better than that of his immediate seller.

The buyer to whom a document if title has been transferred by


assignment, acquires only his transferors title to the goods, and always
subject to the terms of any agreement with the transferor.

(h) Delivery Through Carrier


General Rule: Delivery to the courier or
carrieris tantamount to delivery to
buyer.
Exceptions:
i. Seller reserved title by the form of the
bill of lading, with intent to
remain the owner, notmerely for the purpose of
securing payment, OR
ii. Contrary intention appears in the
contract (i.e. seller is required to
deliver
goods to buyer at the point of destination)
iii. F.O.B. (Free on Board or Freight on Board): When seller bears the
expenses
oftransportation up to the F.O.B. point.
iv. C.I.F. (Cost, Insurance, Freight): Price
quoted includes the costs of
the goods, insurance, and freight charges on the goods up to the point of
destination.
v. F.A.S. (Free Alongside): Seller bears the expenses of transportation until
he
delivers the goods alongside a vessel at
a named port.
EFFECTS AND COMPLETENESS OF DELIVERY
Two principles must apply:
a. Delivery must be made pursuant to a valid sale; and
b. Delivery must be effected when seller has ownership over the subject
matter of sale so delivered.
Article 1522
o Where the seller delivers to the buyer a quantity of goods less than what
he contracted to sell, the buyer may reject them, but if the buyer accepts
or retain the goods so delivered, knowing that the seller is not going to
perform the contract in full, he must pay for them at the contract rate;
o If, however, the buyer has used or disposed of the goods delivered before
he knows that the seller is not going to perform his contract in full, the
buyer shall not be liable for more than the fair value to him of the goods
so received;
o Where the seller delivers to the buyer a quantity of goods larger than what
he contracted to sell, the buyer may accept the goods covered in the
contract and reject the rest; If the buyer accepts the whole of the goods so

delivered he must pay for them at the contract rate; if the subject matter
is indivisible, the buyer may reject the whole of the goods; or
Where the seller delivers to the buyer the goods he contracted to sell
mixed with goods of a different description not included in the contract,
the buyer may accept the goods which are in accordance with the contract
and reject the rest; if the subject matter is indivisible, the buyer may reject
the goods entirely.

When Goods Held by third party


The seller has not fulfilled his obligation to deliver to the buyer unless and until
such third person acknowledge to the buyer that he holds the goods on the
buyer's behalf.
Reservation of ownership
ART 1503 gives the following instances where there is an implied reservation of
ownership:
Where goods are shipped, and by the bill of landing the goods are
delivered to the seller of his agent, the seller thereby reserves the
ownership in the goods.
But, if except from the form of the bill of landing, ownership would have
passed to the buyer of shipment of the goods, the sellers property in the
goods shall be deemed to be only for purpose of securing performance of
the buyers obligations, in which case the buyer bears the risk of loss;
Where the goods are shipped, and by the bill of landing the goods are
deliverable to the order of the buyer or his agent, but the possession of
the bill of landing is retained by the seller or his agent, the seller or his
agent, the seller thereby reserves a right to the possession of the goods as
against the buyer, and ownership is still transferred to the buyer;
Where the seller of goods draws on the buyer for the price and transmits
the bill of exchange and bill of landing together to the buyer to secure
acceptance or payment of the bill of exchange, the buyer is bound to
return the bill of landing if he wrongfully retains the bill of landing he
acquires no added right thereby.
Obligation as to Accessories and Accessions
The seller must deliver to the buyer a quantity of goods that should not be
less than what he contracted to sell, otherwise the buyer may reject them.
Sale in mass of movables
subject matter of the sale is, therefore, a determinate object, the mass,
and not the actual number of units or tons contained therein, so that all
that was required of the seller Gaitewas to deliver in good faith to his
buyer all of the ore found in the mass, notwithstanding that the quantity
delivered is less than the amount estimated by them.
Sale by description and/or sample
The sale may be rescinded if the bulk of the goods delivered do not
correspond with the description or the sample, and if the contract be by
sample as well as by description, it is not sufficient that the bulk of goods
correspond with the sample if they do not also correspond with the
description.
On Sale or Return

Article 1502, when goods are delivered to the buyer on sale or return to
give the buyer the option to return the goods instead of paying the price,
the ownership passes to the buyer on delivery, but he may revest the
ownership in the returning or trending the goods within the time fixed in
the contract, or if no time has been fixed, within a reasonable time.
Sale on Approval, Trial, Satisfaction, or acceptance
ART 1502 provides that when goods are delivered to the buyer on approval
or on trial or on satisfaction, or other similar terms, the ownership therein
passes to the buyer only:
(a) When he signifies his approval or acceptance to the seller or does any
other act adopting the transaction; or
(b) If the seller does not signifies his approval or acceptance, but retains the
goods without giving notice of rejection, then if a time has been fixed for
the return of goods, on the expiration of such time, and, if no time has
been fixed, on the expiration of a reasonable time.
Form of such special sales
Sale to be considered and construed as a sale or return or a sale on
approval, there must be a clear agreement to either of such effect,
otherwise the provisions of ART 1502 of the NCC governing such sales
cannot be invoked by either party to the contract, and therefore must be
in writing.
Written proof of delivery
In cases of goods, delivered is generally evidenced by a written
acknowledgement of a person that he has actually received the thing or
the goods, as in delivery receipt.
Time and place of delivery
The place of delivery of delivery is sellers place of business, if he has one,
and if not, his residence.
The seller is bound to send the goods to the buyer within a reasonable
time.
Demand or tender of delivery may be treated as ineffectual unless made
at a reasonable hour is a question of fact.
Seller shall pay expenses of delivery
Unless otherwise agreed, the expenses in putting the goods into a
deliverable state must be done by the seller.
RULES ON EFFECT OF DELIVERY FOR IMMOVABLE
WHERE IMMOVABLES SOLD PER UNIT OR NUMBER
Sale of real estate should be made with a statement of its area, at the rate
of a certain price for a unit of measure or its area, at the rate of a certain
price for a unit of measure or number, the seller is obliged to deliver to the
buyer, if the latter should demand it, all that may have been stated in the
contract.
Where immovable sold for a lump sum
There shall be no increase or decrease of the price, although there be
greater or lesser area or number than that stated in the contract.

Where immovable sold in mass


A judicial sale in mass of separate known lots or parcels will not be set
aside, unless it is made to appear that a large sum could have been
realized from a sale in parcels or that a sale of less than the whole have
been sufficient to satisfy the debt.
Expenses of delivery and registration on real estate
The obligation of the seller is to transfer to the buyer ownership of the
thing sold. The seller is not obliged to transfer the name of the buyer a
new certificate of title, but rather to transfer ownership of the real
property.
DOUBLE SALES
Definition:
Where the same seller has sold the same subject property to two or more
buyers who do not represent the same interests.
Art. 1544
If the same thing should have been sold to different vendees, the
ownership shall be transferred to the person who may have first taken
possession thereof in good faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person
acquiring it who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall belong to the person in
good faith was first in the possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good faith.
General Rule: Prior tempore, potior jure (he who is first in time is preferred in
right) applies.
Requisites:
(1) 2 or more valid sales;
(2) Same subject matter;
(3) 2 or more buyers with conflicting interests at
odds over the rightful ownership of the thing sold;
(4) Same seller
RULES GOVERNING SALE OF MOVABLES, IMMOVABLES
ANDUNREGISTERED LANDS
(1) Sale of Movables
Ownership shall be transferred to the person whomay have first taken
possession in good faith.
(2) Immovables
(a) Ownership belongs to the person who:
i. In good faith first recorded it in the Registryof Property; OR
ii. If there is no inscription, ownership passesto the person who in good
faith was first inpossession; OR

iii. In the absence thereof, to the person


whopresents the oldest title,
PROVIDED there isgood faith.
Oldest Title any public document showingacquisition of the land in
good faith. Toconstitute title, the
transmission ofownership must appear
in a public document[Art. 1358 (1)]
Examples: Deed of Sale, Deed of
Donation,Deed of Trust
(b) Registration includes any entry made in the
Primary Entry Book of the registry, including
both registration in its ordinary and strict
sense and cancellation, annotation, and even
marginal notes.
i. Pencilled entries on the title are not
considered registration.
(3) Sale by Virtue of Execution and Attachment
Art. 1544 does NOT apply to the sale of
unregistered land at an execution sale because abuyer of unregistered land at an
execution saleonly steps into the shoes of the judgment debtor,and merely
acquires the latter's interest in theproperty sold as of the time the property
waslevied upon.
(4) Sale of Unregistered Land
(a) Instrument or deeds establishing,
transmitting, acknowledging, modifying or
extinguishing rights with respect to lands not
registered under the Land Registration Act or
the Spanish Mortgage Law, are required to be
registered in the Registry of Property to
prejudice 3rd persons, although suchregistration is understood to be w/o
prejudice to a 3rd party with a better right.
[PD 1528 Sec 113]
(b) Art. 1544 applies to unregistered land subject toa conventional sale (because
of Art. 1358) butNOT to unregistered land subject to judicialsale.
OBLIGATIONS OF A BUYER
1. Pay the price
The buyer is obliged to pay at the time and place stipulated in the
contract.
Art 1240 of the Civil Code provides Payment shall e made to the
person in whose favor the obligation has been constituted or his
successor in interest, or any person authorized to receive.
Art1589, Civil Code also states that Buyer is also obliged to pay
interest for the period between delivery of the subject matter and
the payment of the price when: (a)the same has been stipulated;
(b) should the object delivered produce fruits or income; or (c) in
case the buyer is in default, from the time of judicial or extrajudicial
demand.
2. Accept delivery of the thing brought
The buyer is bound to accept delivery of the thing bought at the time
and place stipulated in the contract.

(a) Opportunity to inspect goods


Where goods are delivered to the buyer he is not deemed to
have accepted them unless and until he has had a reasonable
opportunity of examining them for the purpose of ascertaining
whether they are in conformity with the contract.
(b) EXCEPTION:C.O.D. Sales
The buyer is not entitled to examine the goods before the
payment of the price, in the absence of agreement or usage of
trade permitting such examination.
(c) Goods sold delivered by instalments
The buyer of goods is not bound to accept delivery thereof by
stated instalments.
(d) Effect of acceptance of goods on sellers warranty
Acceptance of the goods by the buyer shall not discharge the
seller from liability in damages or other legal remedy for breach
of promise or warranty in the sale.
(e) Refusal to accept goods
The buyer is not bound to return the goods delivered to the
seller, and is sufficient that he notifies the seller of his refusal.

Chapter 8 Sale by a non-owner or by one having voidable title: The Life


of Contract of Sale
Fernandez, Hanz Kristofer K.
Ng, Jeremiah Joseph G.

2 stages of life of Sale


Perfection Stage.
Performance or Consumation stage.
Perfection Stage
Point in time
When the sale, as a contractual reality, begins to exist;
Upon a meeting of minds as to the subject matter to be delivered and the
price to be paid.
Ang Yu Asuncion v CA 238 SCRA 602(1994); Toyota Shaw Inc. v. CA 244
SCRA 320(1995); Limketkai Sons Milling, Inc. v. CA 250 SCRA523
(1995); Jovan Land, Inc. v. CA 266 SCRA 160(1997)
Perfection Stage
Birth of the sale.
the only stage in the life of a sale that determines whether the contract
exists at all and the nature of its existence.
Performance or Consummation Stage
Covers the period when the obligations that arise from the legal existence
of the sale are to be performed:
Delivery of possession and transfer of ownership of the subject mater by
the seller
Payment of the price by the buyer.

Presupposes that the perfection stage has happened.


Does not necessarily result into every aspect of the consummation stage.
The performance or the manner by which the sale as a contract, leads out
its life.
Consummation Stage
Living Out of that kind of life that has been set by the perfection
stage.
Example:
If the sale is valid at perfection, it remains valid throughout its life and
consummation has no choice but to lead the life of a valid contract and
the consequences thereof;
If voidable it is valid until it is annulled or it can be ratified.
If it is recissible, it is subject to recission within the period provided for by
law.
If it is unenforceable, although it is valid, it cannot be enforced in court,
unless it falls within the exceptions provided by law.
If it is void, no attempt at performance can change its inexistence.
Breach and Recission.
There is breach when any party does not comply with what is incumbent
upon him under the contract; i.e. delivery of possession and transfer of
ownership on the part of the seller; and payment of the price on the part
of the buyer;
Demand is not required to establish breach because of the reciprocal
nature of the obligations.
When there is breach the other party not at fault may then rescind or
resolve the sale.
The concept of breach and rescission therefore presuppose the existence
of a valid sale
When a sale is void it gives rise to no obligations that can be breached.
Neither does it allow a rescission of a contract that in the first place has
no legal existence
Both breach and rescission are legal concepts that necessarily pertain to
the consummation or performance stage, as in fact they are premised
upon a previous perfection having taken place.
When Seller is not owner of the subject matter
1. At perfection:
A valid sale exists to bind both seller and buyer even if at the time of
perfection the seller was not the owner thereof since it does not even
exist yet; or even if it existed then but did not belong in ownership to
the seller at that time of perfection.
Ownership of the thing sold is not transferred by perfection but shall be
transferred to the vendee upon the actual or constructive delivery
thereof Art. 1477 new civil code.
2. At Consummation
Art. 1505 of the Civil code provides that where goods are sold by a
person who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no
better title to the goods than the seller had.
Nemo dat quod habet = it is a well settled principle in law that no one
can give what one does not have.
One can sell only what one owns or is authorized to sell, and the buyer can
acquire no more than what the seller can transfer legally.
Gonzales v. heirs of Thomas and Paula Cruz, 314 SCRA 585, 597 (1999);

Segura v. Segura 165 SCRA 368(1998)


Cavite Development bank v. Spouses Syrus Lim 324 SCRA 346(2000)
Nool v. CA 276 SCRA 149(1997)
Principle that the absence of ownership by the seller at the time of
perfection does not render the sale void.
The court relied on the concept of Impossible service
The sellers no longer had any title to the parcels of land at the time of
sale.
The alleged contract of repurchase was dependent on the validity of the
main contract of sale, it is itself void.
A void contract cannot give rise to a valid one.
Art. 1422 of the Civil Code provides: (a). Contract which is the direct result
of a previous illegal contract, is also void and inexistent.
3. Sale by Co-Owner of the whole property or definite Portion Thereof
The rule in co-ownership is that none of the co-owners may claim any
right, title or interest to a particular portion of the thing owned in common.
A co-owner has no right to sell a divided part of the real estate.
Acabal v. Acabal 454 SCRA 555(2005); Barcenas v. Tomas 454 SCRA 593
Although he is the owner of an undivided half of a tract of land, he has a
right to sell and convey an undivided half, but he has no right to divide the
lot into two parts, and convey the whole of one part by metes and bounds.
Lopez v. Illustre 5 Phil. 567(1906)
When a co-owner sells a particular portion of the property owned in
common, the early rule was that the sale is void as it attempts to sell a
particular portion of the property, but is valid as to the spiritual share of
the co-owner-seller.
Lopez v. Cuayong 74 Phil. 601(1944)
Where a co-owner sold the particular portion of the property owned in
common when there has been no partition yet: the court held the fact
that the contract of sale made by a co-owner purports to sell a concrete
portion of the property held in common, does not render the sale void, for
it is a well-establishd principle that the binding force of a contract must be
recognized as far as it is legally possible to do so.
Bailon-Casilao v. CA 160 SCRA 738 (1988)
Effects of sale by one co-owner without the consent of all the co-owners:
If a co-owner sells the whole property as his, the sale will affect only his
own share but not those of the other co-owners who did not consent to
the sale.
Punsalan v. Boon Liat, 44 Phil 320 (1923).
The sale of other disposition affects only his undivided share and the
transferee gets only what would correspond to his grantor in the
partition or the thing owned in common.
Ramirez v. Bautista, 14 Phil. 528(1909)
A co-owner is entitled to sell his undivided share, a sale of the entire
property by one co-owner without the consent of the other co-owners
is not null and void.
Only the rights of the co-owner-seller are transferred there by making the
buyer a co-owner of the property.
Paulmitan v. CA 215 SCRA 866(1992)
Found that the sale by a co-owner of the entire property without the
consent of other co-owners cannot be considered as null and void.
Reiterated in Aguirre v. CA 421 SCRA 310(2004); Heirs of the late spouses
Aurelio and Esperanza Balite v. Kum 446 SCRA 54(2004).

Exceptions to Rule on Effect of sale of definite portion by co-owner


1st It does not apply to situation where the subject matter is indivisible in
nature or by intent.
Where one of the co-owners sold the school and its properties owned in
common with other co-owners, the court held that the sale of the entire
property owned in common by one of the co-owners was void and
could not even be binding as to the spiritual share of the seller since
the prestation involved in the sale was indivisible, and therefore
capable of partial annulment, inasmuch as the buyer would not have
entered into the transaction except to acquire all of the properties
purchased by him.
Mindanao Academy, inc. v. Yap 13 SCRA 190 (1965)
2nd When a sale of a particular portion of the thing owned in common is
with the consent of the other co-owners, the legal effect is different.
When there has been no express partition of the subject matter owned in
common, but the co-owners who sells points out to his buyers the
boundaries of the part he was selling, and the other co-owners make no
objection, there is in effect already a partial partition, and the sale of the
definite portion can no longer be assailed by the other co-owners.
Pamplona v;.Moreto 96 SCRA 775 (1980)
3rd A co-owner who sells one of the two lands owned in common with
another co-owner, and does not turn-over one-half of the proceeds of the
sale to the other co-owner, the latter by law and equity may lay exclusive
claim to the remaining parcel of land
Imperial v. CA 259 SCRA 65 (1996)
4th, would be the effect of the ipso jure transfer of ownership under 1434 of
the Civil Code
Art. 1434. When a person who is not the owner of a thing sells or alienates
and delivers it, and later the seller or grantor acquires title thereto, such
title passes by operation of law to the buyer or grantee.
When co-heirs sell and deliver the entire lot owned in common with their
father who was still alive at that time, and subsequently the father dies,
then the buyer becomes the owner of the entire property bought pursuant
to the provisions of Art 1434 which upholds the validity of a sale by one
who previously did not have, but who subsequently acquired, title to the
property sold.
Pisuena v. Heirs of Petra Unating 313 SCRA 384 (1999)
Finally, would be the binding effect of registration under the Torrens
System.
Although a co-owner may validly sell only her co-ownership interests, and
that the sale of the entire property or of a particular portion thereof is
void, nevertheless when Torrens title to the conjugal property indicates
that the wife is the only owner thereof being described as a widow
, then one who buys such property from the wife in good faith and for
value, will acquire valid title thereto against the heirs of the deceased
spouse.
Cruz v. Leis 327 SCRA 570 (2000)
The rationale for the rule:
A person dealing with registered land is not required to go behind the
register to determine the condition of the property. He is only charged
with notice of the burdens on the property which are noted on the face
of the register or the certificate of title. To require him to do more is to
defeat one of the primary objects of the Torrens system.

Exceptions to Rule on Effect of Sale of Definite Portion by a Non-owner


Applicability?

a.
b.
c.
d.

Applicable rules in consummation stage


Issues as to;
Preference of ownership between the original owner of the property
who is a third party to a sale between a seller and a buyer over the
same property
In essence there is only one sale involved original owner being a
stranger to this.
Exceptions to Article 1505
When the owner is, by his conduct, precluded from denying the seller's
authority to sell;
When the contrary is provided for in recording laws;
When the sale is made under statutory power of sale or under the order of
a court of competent jurisdiction; and
When the sale is made in a merchants store in accordance with the Code
of Commerce and special laws.
A. When real Owner Estopped
As an Example, Article 1434: When a person who is not the owner of a
thing sells or alienates title thereto, such title passes by operation of law
to the buyer or grantee.
Bucton v. Gabar55 SCRA 499 (1974)
Where the seller SOLD a parcel of land to the buyer at the time the seller
was not yet the owner of the ownership of said land was automatically
transferred to the buyer, and the seller was estopped from questioning
the title of his buyer.
B. Recording Laws
Included: Registration of chattel mortgage and its subsequent
foreclosure; sale at pubic auction; and the jurisprudential rules that
governs the hierarchy of claims on shares of stock of a corporation.
The principle embodied is invoked as registration as the operative act,
which applies to registered land under the Property Registration Decree.
C. Statutory Power; Judicial Sale
Judgments of courts divesting the registered owner of title and vesting
them in the other party are valid although the courts may not be the
owner of the land.
Sale by a sheriff of land levied upon at public auction would validly
transfer ownership to the highest bidder, although the sheriff in executing
the certificate of sale has no ownership over said property.
D. Sale at Merchant Store
Summarized in the syllabus of Sun Brothers & Co. v. Velasco. 54 O.G. 5143
(1958):
Under Paragraph(3) of Article 1505 of the Civil Code, a person who buys a
thing at a merchants store after the same has been put on display
thereat, acquires a valid title to the thing although his predecessors in
interest did not have any right of ownership over it.
Imperfect or void title ripening into a valid one, as a result of some
intervening causes.
D. Sale at Merchant Store

The policy of law has always been that where the rights and interests of a
vendor come into clash with that of an innocent buyer for value, the
latter must be protected
Protecting innocent 3rd parties who have made purchases at merchants
stores in good faith and for value appears to be a WISE and
NECESSARY rule, not only to facilitate commercial sales on
movables but to give stability to business transactions.
D. Sale at Merchant Store
Rule presented it is necessary in our country where free enterprise
prevails, for a buyer cannot be reasonably expected to look behind the
title of every article when he buys at a store.
The doctrine of caveat emptor is now rarely applied L and if it is ever
mentioned it is more of an exception rather than the general rule.
Merchant store we must first define a store as any place where
goods are kept for sale
To be classified as a merchant store, the necessary element is that such
place be goods or wares stored therein or ON DISPLAY, and provided also
that the firm or person maintaining that office is actually engaged in
business of buying and selling.
Other exceptions !
A. Under Article 1506, the sale by a seller who at the time of delivery had
voidable title to the thing delivered;
B. In case of MOVABES, under Article 559, acquisition of possession in good
faith under a claim of ownership, where the real owner has not lost or
been unlawfully deprived of the movable, makes the possessor the rightful
owner of the movable; and
C. Special rights of an unpaid seller of goods to resell under Articles 1526 and
1533 of the Civil Code. *Chapter 10 topic*
A. Sale by a Seller who has voidable title on the Subject matter sold
Under Article 1506: Where the seller of the goods has a voidable title
thereto, but his title has not be avoided at the time of sale, the
buyer acquires good title to the goods, provided he buys them in good
faith, for value, and without notice of the sellers defect of title.
Title has not been avoided at the time of sale?
In resolving, we must first know the stage of the sale that is being referred
to as the cut-off point.
CONSUMMATION as 1506 talks of title or ownership to the property
which covers this stage
A. Sale by a Seller who has voidable title on the Subject matter sold
The cut-off point then is the DELIVERY of the subject matter to the buyer
by the seller
If sellers voidable title thereto is avoided after the perfection of the sale
but BEFORE DELIVERY, the buyer does not obtain good title to the
property.
Good faith of the buyer; how to determine.
From the language of the deed of sale, as held in Limketkai Sons Milling,
inc. v. CA, 250 SCRA 523 (1995)
The language of the deed of sale may show bad faith on the part of
the buyer.
A. Sale by a Seller who has voidable title on the Subject matter sold
In the deed, instead of the buyer insisting that the seller guarantee its
title to the land and recognize the right of the buyer to proceed against

the seller if the title of the land turns out to e defective as when the land
belongs to another person, and instead the reverse is found in the deed of
sale, the title turns out to be vested in another person are to be borne by
the buyer alone, show that the buyer did not purchase the subject matter
in good faith without notice of any defect in the title of the seller.
B. Applicable Rules to immovables
1505 and 1506 does not apply to immovables, except for the application
of the Torrens system.
Illusatration:
If a seller at the time of sale and delivery, has only voidable title to the
subject parcel of land, would the buyer in good faith for value take a
better title to the land than that of his seller, following the
principle under Article 1506?
No, since the essence of the coverage of such Articles would be goods which
require not only a valid underlying sale, but necessarily the element of transfer
of possession embodied as the primary test of ownership for movables
under Article 559 of the Civil Code
B. Applicable Rules to immovables
Consequently, the seller of the parcel of land has only voidable or void title
to the property
The buyer, even though in good faith and for value, and in spite of actual
or constructive delivery, takes only the same title to the land which his
seller had.
ONLY EXCEPTION to Nemo dat quod non habet is the registration in good
faith as the operative act doctrine embodied in Sec. 113 of P.D. 1529
B. Applicable Rules to immovables
Section 113. Recording of instruments relating to unregistered lands.
No deed, conveyance, mortgage, lease, or other voluntary instrument
affecting land not registered under the Torrens system shall be valid,
except as between the parties thereto, unless such instrument shall have
been recorded in the manner herein prescribed in the office of the Register
of Deeds for the province or city where the land lies.
B. Applicable Rules to immovables
113(a) The Register of Deeds for each province or city shall keep a Primary
Entry Book and a Registration Book. The Primary Entry Book shall contain,
among other particulars, the entry number, the names of the parties, the
nature of the document, the date, hour and minute it was presented and
received. The recording of the deed and other instruments relating to
unregistered lands shall be effected by any of annotation on the space
provided therefor in the Registration Book, after the same shall have been
entered in the Primary Entry Book.
B. Applicable Rules to immovables
113(b) If, on the face of the instrument, it appears that it is sufficient in
law, the Register of Deeds shall forthwith record the instrument in the
manner provided herein. In case the Register of Deeds refuses its
administration to record, said official shall advise the party in interest in
writing of the ground or grounds for his refusal, and the latter may appeal
the matter to the Commissioner of Land Registration in accordance with
the provisions of Section 117 of this Decree. It shall be understood that
any recording made under this section shall be without prejudice to a third
party with a better right.
B. Applicable Rules to immovables

113(c) After recording on the Record Book, the Register of Deeds shall
endorse among other things, upon the original of the recorded
instruments, the file number and the date as well as the hour and minute
when the document was received for recording as shown in the Primary
Entry Book, returning to the registrant or person in interest the duplicate
of the instrument, with appropriate annotation, certifying that he has
recorded the instrument after reserving one copy thereof to be furnished
the provincial or city assessor as required by existing law.
B. Applicable Rules to immovables
113(d) Tax sale, attachment and levy, notice of lispendens, adverse claim
and other instruments in the nature of involuntary dealings with respect to
unregistered lands, if made in the form sufficient in law, shall likewise be
admissible to record under this section.
113(e) For the services to be rendered by the Register of Deeds under this
section, he shall collect the same amount of fees prescribed for similar
services for the registration of deeds or instruments concerning registered
lands.
B. Applicable Rules to immovables
Illustration; Cavite Development Bank v. Spouses Cyrus Lim, 291 SCRA
495 (1998); the Court applied the rule that the Sale is void for being
based on a fictitious transfer from a previous to a current seller, the
General rule that the direct result of a previous contract cannot be valid, is
inapplicable when it will directly contravene the Torrens system of
registration. Thus:
Being a sale, the rule that the seller must be the owner of the thing
sold also applies in a foreclosure sale. This is the reason why Article 2085
of the Civil Code, in providing for the essential requisites of the contract of
mortgage, requires among other things, that the mortgagor or pledgor be
the absolute owner of the thing mortgaged, in anticipation of a possible
foreclosure sale should the mortgagor default in the payment of the loan.
B. Applicable Rules to immovables
There is however, a situation where, despite the act that the mortgagor is
not the owner of the mortgaged property, his title being fraudulent, the
mortgage contract and any foreclosure sale arising therefrom are given
effect by reason of public policy. This is the doctrine of the mortgagee in
good faith based on the rule that all persons dealing with property
covered by a Torrens certificate of title, as buyers of mortgagees, are NOT
required to go beyond what appears on the face of the title.
The public interest in upholding the indefeasibility of a certificate of title,
as evidence of the lawful ownership of the land or any encumbrance
thereof, protects a buyer or mortgagee who, in good faith, relied upon
what appears on the face of the certificate of title.
C. Title as to movable properties
Art. 559 of the Civil Code: Possession of movable property acquired in
good faith is equivalent of title. and in addition one who has lost any
movable or has been unlawfully deprived thereof, may recover it from the
person in possession of the same.
Thus if the possessor of a movable lost or of which the owner has been
unlawfully deprived , has acquired it in good faith at a public sale, the
owner cannot obtain its return without reimbursing the price paid
therefore.
Unlawfully deprived covers situations when the original owner has been
dispossessed without his consent, which includes cases of theft, robbery,
swindling, and estafa, subject to the following exceptions:

C. Title as to movable properties


a. By cross reference t Article 1505, even if the owner of a movable has lost
it or has been unlawfully deprived thereof, and even if he offers to
reimburse the buyer, he cannot recover the movable from the buyer
who bought it at a merchant store; and
b. By cross reference t Article 1505, even if the owner of a movable has lost
it or has been unlawfully deprived thereof, if the possessor in good
faith acquired title from a seller who at the time of delivery had a
voidable title thereto, then the original owner cannot recover the
movable.

Loss and deterioration, fruits and other


benefits
Roman law principle
From the moment of perfection of sale, the risk of loss on a determinate subject
matter passes to the buyer without need of delivery, provided that the sale is
unconditional.
Any improvement or fruits of the subject matter after perfection are for the
benefit of the buyer

Common law principles


It is the owner who bears the risk of loss (res perit domino), in the absence of
any stipulation to the contrary.
However, in a sale, ownership of the subject matter is transferred to the
buyer from the moment the contract is entered into and the goods are available
to be delivered to the buyer.
When it comes to goods, it is not delivery under common law that transfers
ownership to the buyer, but the perfection of an unconditional sale with
availability of the subject matter for delivery

Code commission
Adopted the common law principle that it should be the owner of the subject
matter of the sale that should bear the risk of loss (res perit domino); but they
maintained the civil law principle that ownership can only be transferred by
delivery.

BEFORE PERFECTION

The rules on loss, deterioration, fruits and improvement of the purported subject
matter are the same: such loss, deterioration, fruits and improvements shall
pertain to the purported seller, since he owns the thing.

The purported subject matter bears no legal or even equitable relationship to the
purported buyer, and therefore no assumption of risk of loss or deterioration can
be ascribed to the latter.

Roman vs gilmat
HELD: Ownership is not considered transmitted until the property is actually
delivered and the purchaser has taken possession of the same and paid the price
agreed upon, in which case the sale is considered perfected.
Although the Court used the word perfected, such a statement of course
belied the consensual nature of the contract of sale, perfected by mere consent
without need of delivery.
Had the contract been perfected even without the schooner being delivered to
the buyer to transfer ownership, the buyer would have borne the risk of loss.

At the time of perfection


ART 1493: Sale is perfected
subject matter has been entirely lost
any effect

the contract shall be without

Thing should have been lost in part only


the buyer may choose
between withdrawing from the contract and demanding the remaining part,
paying its price in proportion to the total sum agreed upon

Sale of specific goods and without the knowledge of the seller, the goods
have perished in part or have wholly or materially deteriorated in quality

The buyer may treat the sale as either avoided, or as valid in all of the
existing goods or in so much thereof as have not deteriorated, and as binding the
buyer to pay the agreed price for the goods in which the ownership will pass, if
the sale was divisible.

The physical existence of non-existence of the subject matter is not important


for the perfection of the sale.

HOWEVER, if the subject matter is lost, there is really no point in pursuing the
contract.
Seller is not in the position to comply with his obligation to deliver the subject
matter.

After perfection but before delivery


Loss of subject matter

The civil law principle that ownership of the thing sold shall be transferred to
the buyer only upon actual or constructive delivery thereof is no clearly
expressed in Art. 1477
1504 General Rule: Vendor bears risk of loss until ownership is transferred
by delivery

Exceptions: a.) where delivery of goods has been made


but ownership is retained by the
seller
merely to secure
performance of buyers
obligation
b.) where actual delivery is delayed through
fault of the buyer

As applied to the sale, under cross-referred Art. 1165:

delivered is a determinate thing, the buyer, in addition to the right to recover


damages, may compel the seller to make the delivery.

Under cross-referred Art. 1262, as applied to a sale:


the obligation to deliver a determinate thing shall be extinguished if it should be
lost of destroyed without the fault of the seller, and before he has incurred in
delay.

1538 the rules in Art 1189 shall be observed, the vendor being considered
the debtor.
Art. 1189 the following rules shall be observed in case of the
improvement, loss or deterioration of the thing:
a.) if the thing is lost through the fault of the seller, the seller shall be
obliged to pay damages
b.) if the thing is lost without the fault of the debtor (seller), the
obligation shall be extinguished

Deterioration, fruits and improvements


Art. 1504
The goods remain at the sellers risk until the ownership therein is transferred
to the buyer; but when the ownership is transferred to the buyer, the goods are
at the buyers risk whether actual delivery of the goods has been made or not,
ART. 1538
In case of deterioration or improvement of the thing before its delivery, the
rules in Art. 1189 shall be observed, the seller being considered the debtor.

ART. 1189
a. When the thing deteriorates without the fault of the seller, the impairment
is to be borne by the buyer

b. if the thing deteriorates through the fault of the seller, the buyer may
choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case

c. if the thing is improved by its nature, or by time, the improvements shall


inure to the benefit of the buyer;

d. if the thing is improved at the expense of the seller, he shall have no other
right than that granted to the usufructuary

ART. 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 Art. 1163 to 1165, and 1262.

After Delivery
Under Article 1504
When ownership of goods has been transferred to the buyer, the goods shall
be at the buyers risk.

Exceptions under Article 1504


A. Where delivery of the goods has been made to the buyer or to a bailee
for the buyer, in pursuant of the contract and ownership in the goods has
been retained by the seller merely to secure the performance by the buyer
of his obligations under the contract, the goods are at the buyers risk from
the time of such delivery.

B. Where actual delivery has been delayed through the fault of either the
buyer or the seller the goods are at the risk of the party in fault.

Structuring Proper Doctrine on Loss, Deterioration, Fruits and


Improvements
Prior to perfection, both title and beneficial interests pertains to the seller and
therefore must bear the risk of loss, deterioration and benefits from the fruits
and improvements.

The buyer has no risk or participation in any of those aspect since neither the
title nor interests over the subject matter pertains to him.

After delivery which transfer both title and beneficial interest to the buyer, he
then must bear the risk of loss, deterioration and as well as the benefits from
the fruits and improvements of the subject matter of the sale.

It is only after perfection and before delivery that the title and beneficial
interests is not vested under one person since the title remains in the seller
while the beneficial interest is now with the buyer.

This is clearly stated in the provisions of the New Civil Code under
Obligations and Contracts.
Article 1163
Every Person obliged to give something is also obliged to take care of it wit
proper diligence of a good father of a family.

Article 1164
The oblige has a right to the fruits of the thing from the time the obligation to
deliver arises.

Article 1170
When what is to be delivered is a determinate thing, the obligor who incurs
fraud, negligence or delay or contravene the tenor of their agreement, are liable
for damages.

Article 1166
The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.

When the seller intends to have control over the goods until the buyer has
complied with certain obligations such as C.O.D. sale, where the buyer does
not intend to have dominion, use or control over the goods until certain
conditions are met, such as sale on approval or trial.

GENERAL RULE: Owner must bear the risk of loss, which in this case the
seller.

Under Article 1504


It is said that the goods remain under the risk of the owner thereof, where
delivery has been made to the buyer or bailee for the buyer, in pursuance to the
contract and the ownership in the goods has been retained by the seller merely
to secure performance by the buyer of his obligations under the contract, the
goods are at the buyers risk from the time of such delivery.
In such case, title did not determine who bears the risk, because such title
was merely nominal and the beneficial interest is with the buyer, and therefore
he must bear the risk of loss.

To simplify, the doctrine on the risk of loss, deterioration, and improvement, the
same shall always be for the account of the person or the party who has both
title and beneficial interest over the property or subject matter of the sale.
RECTO LAW

BY: J. PAULO ELAURIA


INSTALLMENT SALES LAW
Commonly known as the Recto Law. It is embodied in Art. 1484 to 1486 of the
NCC which provides for the remedies of a seller in the contracts of sale of
personal property by installments.
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 vendees failure to pay cover two or more
installments;
Article 1484
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted,
should the vendees failure to pay cover two or more installments. In this case,
the vendor have no further action against the buyer to recover any unpaid
balance of the price. Any agreement to the contrary shall be void.
Article 1485
The preceding article shall be applied to contracts purporting to be leasos of
personal property with option to buy, when the lessor has deprived the lessee of
the possession or enjoyment of the thing.
Article 1486
In the cases referred to in the two preceding articles, a stipulation that the
installments or rents paid shall not be returned to the vendee or lessee shall be
valid insofar as the same may not be unconscionable under the circumstances.
INSTALLMENT SALES LAW
Note:
Art. 1484 of the NCC incorporates the provisions of Act No. 4122 passed by
the Philippine Legislature on Dec. 9, 1939, known as the "Installment Sales
Law" or the "Recto Law," which then amended Art. 1454 of the Civil Code
of 1889.
RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS
CONTRACTS OF STRAIGHT SALE OF MOVABLES NOT COVERED (i.e. a sale where
there is a down payment and the balance is payable in the future in a single
payment only.)

REMEDY OF SPECIFIC PERFORMANCE: NO BAR TO FULL RECOVERY


- Even when it is mortgaged property that is sold on execution
- Even with replevin and recovery of the subject property, the action may still be
for specific performance.
NATURE OF REMEDY OF RESCISSION
-

Inherent Barring Effect of Rescission

Surrender of mortgaged property not equivalent to rescission.

Stipulation on non-return of payments is valid provided not


unconscionable.

APPLIES TO PURPORTED LEASES WITH OPTION TO BUY


Contracts purporting to be leases of personal property with option to buy, when
the lessor has deprived the lessee of the possession or enjoyment of the thing.
(Art. 1485)
When purported Lessor takes possession of subject movable, it is treated legally
as a foreclosure and the barring effects applicable to foreclosure remedy, not
rescission, are given application.

REFERENCES:
http://www.batasnatin.com/law-library/civil-law/sales/2359-installment-sales-lawrecto-law.html
diorysdiction.yolasite.com/.../15462086-Sales-General-Principles-Dean-CLV.ppt

MACEDA LAW
RA NO. 6552
Janielle Anne D. Relativo
REPUBLIC ACT NO. 6552
RA 6552 is know as the Realty Installment Buyer Protection Act - deals
primarily with one's rights as a real estate investor or a real estate buyer paying
in installments. It also describes the rights of a buyer defaulting in payments for
such purchases
ROLE OF MACEDA LAW
A declared policy to protect buyers of real estate on installment payments
against onerous and oppressive conditions. (Sec 2 RA 6552)
The courts have used the Maceda Law as a policy statement of the state in
protecting the interest of buyers of residential real estate of installments
The housing shortage problem in our country prompted buyers to buy on
installment basis and it is upon the government to protect buyer of real estate on
installment basis against onerous and oppressive conditions ( Active Realty &
Dev Corp Daroya 382 SCRA 152)
TRANSACTIONS COVERED
Covers primarily residential real estate bought on installment
Also covers the financing of real estate on installment
The Maceda law also covers contracts to sell.
Include subdivisions, condominiums and those under PD 957
TRANSACTIONS EXCLUDED FROM COVERAGE
Sales covering industrial lots
Sales covering commercial buildings and lots
Sales to tenants under agrarian reform laws

The Maceda law cannot be invoked by the highest bidder in Foreclosure


proceedings
Rights granted
SEC 3 OR RA 9552
When the buyer has paid at least 2 years of installment
EXERCISE OF GRACE PERIOD
Can only be used on in every 5 years of the life of the contract and its
extensions (if any)
It is only this grace period that cannot be used when the buyer defaulted prior to
the 5 years. However, the seller must still comply with all the requirement for
rescission.
The cancellation of the contract under the Maceda law must follow the ff steps.
First, the seller should extend the buyer a grace period of at least 60 days from
the due date of the installments
2nd, at the end of the grace period, the seller shall furnish the buyer with a
notarial notice of cancellation or demand for rescission, effective thirty days
from the buyers receipt thereof, a mere notice or letter, short of notarial act,
would not suffice. (Mclaughin v. CA 144 SCRA 693)
Third, for contracts covering more than two years of payments, there must be
return to the buyer of the cash surrender value
When the buyer paid less than 2 years of installments
SEC 4 RA 2556
Formula to compute the Installment mode
The proper formula to apply in determining how many installments have been
made is to include any payment made as downpayment or reservation fee as
part of the installments payments whether it is monthly, quarterly, semi annual
or annual ( Jestra Dev& Mgt corp v. Pacifico 513 scra 413)
REMEDIES OF RESCISSION AND CANCELLATION FOR SALES OF IMMOVABLES
*Contract of Sale vs. Contract to Sell*

RESCISSION
Art. 1191

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
Due to substantial breach of contract violating reciprocity
Art. 1144: actions upon written contracts prescribe in 10 yrs.
Ex. Breach of warranty, non-performance of condition
He may choose rescission even after initiating action for fulfillment first when the latter becomes
impossible
Can be by mutual restitution
Art. 1381
1-2: Those which are entered into by guardians or administrator whenever their wards or absentees
suffer lesion, by more than of the value of the things which are the object thereof;
3: Those undertaken in fraud of creditors when the latter cannot collect the claims due them;
4: Those which refer to things under litigation if they have been entered into by the defendant without
the knowledge and approval of the litigants or of competent judicial authority;
5: Contracts specially declared by law to be subject to rescission.
Based on prejudice on economic interests
Art. 1389: The action to claim rescission must be commenced within 4 years

MUTUAL RESTITUTION
-obligation to return the things which were the object of the contract, together with their fruits, and the
price with its interests; it can be carried out only when he who demands rescission can return
whatever he may be obliged to restore
Limitations:
1. When the thing is already in possession of 3rd party in good faith
2. It becomes impossible to returnobligation to return the things which were the object of the contract,
together with their fruits, and the price with its interests; it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore
Art. 1592 in sale of IMMOVABLE, vendee may pay even after expiration of stipulated period as long
as no DEMAND for RESCISSION was made (judicially or by notarial act).
After the demand, the court may not grant him a new term.
Even if there is stipulation for automatic rescission upon failure to pay within a certain period
Not applicable to contract to sell
Art. 1234: If the obligation has been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the obligee.
- court allows defaulting party opportunity to fulfill his obligation in the interest of justice and equity
When forfeiture of payments is allowed: Rescission
In Manila Racing Club v. The Manila Jockey Club, the Court held that a provision in the contract
providing for forfeiture of the amounts paid in a contract of sale is valid being in the nature of a panel
clause and within the ambit of the freedom of the parties to stipulate in a contract, since in its double
purpose of insuring compliance with the contract and of otherwise measuring beforehand the
damages which may result from non-compliance, it is not contrary to law, morals or public order
because it was voluntarily and knowingly agreed upon.

Article 1486 provides 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.
In Gomez v. Court of Appeals, such forfeiture even in the absence of a forfeiture clause, as a
reasonable compensation for the use of the subject matter of the contract.
WHO MAY DEMAND RESCISSION
Injured party
Laforteza v. Machuca, held that when rescission of a contract of sale is based on Article 1191, mutual
restitution is required to bring back the parties to their original situation prior to the inception of the
contract; and that consequently, rescission can be carried out only when the one who demands
rescission can return whatever he may obliged to restore.
Judicial rescission
Whether express or implied, the remedy of rescission is inherently judicial in nature, in accordance
with the general principle that No man may, even one with a valid and lawful cause of action, take the
law into his own hands and must resort to the aid of the courts to enforce his rights. The remedy of
rescission in reciprocal contracts is not absolute, since the third paragraph of Article 1191 which
provides that the courts shall decree the rescission claimed, unless there be just cause authorizing
the fixing of the period has been the statutory by which the court has held that the injured party
himself cannot resolve obligation, and requires confirmation of such remedy by the courts.
Extrajudicial Rescission
To the general principle that rescission must be exercised judicially, the Court has recognized the
validity and effectivity of an express stipulation by the parties to a reciprocal contract that rescission in
case of default by one party, may be resorted to by the other party extrajudicially.
Automatic Rescission
Rescission is remedy that would have no automatic application, even when thefactual basis therefore
(substantial breach) be present in the situation. Being primarily a remedy, rescission requires a
positive act on the part of the injured party, since it is legally possible that he may waive rescission
and proceed with specific performance. This principle is affirmed in the language of Article 1592 that
does not allow automatic.
CONTRACT OF SALE VS. CONTRACT TO SELL
CONTRACT OF SALE
Obligation to give; consent is an element
Transfer ownership:
a. Absolute sale usually simultaneous with delivery
b. Conditional sale subject to positive suspensive condition; when the thing is already
delivered, ownership automatically transfers upon fulfillment
NON-PAYMENT: ground for rescission or demand for performance

Judicial action

breach of contract

CONTRACT TO SELL
Obligation to do; no consent but only a promise

Title remains with the vendor until purchase price is fully paid which would trigger the obligation to
execute a contract of sale (Deed of Sale), even if theres prior delivery.
NON-PAYMENT: terminates the contract to sell.

No need for judicial action because ownership was never transferred to the
would-be buyer

not a breach of contract

Reimbursement only without interest nor damages

BRIEF MACEDA LAW APPLICATION ON RESCISSION


Although Article 1191 provides for the power of rescission in reciprocal contracts in general, it is
Article 1591 and 1592 which specifically govern the power to rescind contracts of sale covering
immovables. Article 1591 states that should the vendor have reasonable grounds to fear the loss of
immovable property sold and it price, he may immediately sue for the rescission of the sale:
otherwise, if no such grounds exist, the provisions of Article 1191 must be observed.
CONTRACT OF SALE
RESCISSION

Substantial breach only

Cant rescind unilaterally

Notarial or juridical notice of rescission is mandatory

Conditional Sale vendor can unilaterally rescind contract based on non-fulfillment of condition OR
waive the condition for specific performance (Art. 1545)
Breach by seller Damages & proprietary remedy
CONTRACT TO SELL
CANCELLATION

No rescission of an obligation that is non-existent because the suspensive condition


did not happen

notice of cancellation is enough

Breach by would-be seller Claim for damages only or recovery of possession if theres prior
delivery
Contract to sell
To protect seller against a buyer who intends to buy the property in INSTALLMENT by withholding
ownership until full payment
Requires the following stipulations:
1. Ownership shall remain with seller until full payment of purchase price or stipulation on
execution of Deed of Absolute Sale =>reservation of title clause
2. Right of seller to extrajudicially rescind or cancel contract in case of buyers default
3. Payment of price is a suspensive condition where failure is NOT A BREACH but an event that
prevents obligation of seller to convey title

CONTRACT OF SALE
Legal effect of DELIVERY

Title passes to the buyer

Conditional Sale vendor can unilaterally rescind contract based on non-fulfillment of condition OR
waive the condition for specific performance (Art. 1545)
Breach by seller Damages & proprietary remedy
CONTRACT TO SELL
Legal effect of DELIVERY

Ownership is reserved until full payment of price

Recover action in case buyer refuses to voluntarily return it


Full payment of price:
Before delivery buyer may demand specific performance
After Delivery ipso jure transfer ownership to buyer vs. need for CONTRACT OF SALE
CONTRACT OF SALE
Laws Applicable:

New Civil Code 1191 & 1592; 1545 for conditional sale

Maceda Law

CONTRACT TO SELL
Laws Applicable:

New Civil Code 1184 & 1545

Maceda Law

Rillo v. court appeals


The Court recognized that since the contract between the parties was a contract was a contract to sell
covering non-residential immovables, it ruled that in such case the applicable law is the Maceda Law
which recognizes in conditional sales of all kinds of real estate, the right of the seller to cancel the
contract upon non-paymet of an installment by the buyer, which is simply an event that prevents the
obligation of the seller to convey title form acquiring the land.
Lacanilao v. Court of Appeals
In this case, it involves a verbal contract to sell a residential lot, the Court found the transaction to be
a contract to sell where ownership is retained by the seller until payment of the price in full, such
paymet is a positive suspensive condition, failure of which is not really a breach but an event that
prevents the obligation of the vendor to convey the title in accordance with Article 1184.
Palay, inc v. Clave
It is ruled that a Contract to Sell a piece of land expressly provided that the contract shall be
automatically rescinded upon default in payment of any monthly installment after the lapse of 90 days
from the expiration of the grace period of one month, without need of notice and with forfeiture of all
installments paid.

-The endGroup 11:


GUMABOL, Erika Mae
NAMOCA, Daniella
PROFUGO, Louise Mariz
TRINIDAD, Lizette

Report on Chapter 12: Conditions and Warranties


AUSTRIA, Don and LASALA, Shantee
Reference: LAW ON SALES by VILLANUEVA

CHAPTER 12: CONDITIONS AND WARRANTIES


I. Conditions
ARTICLE 1545
Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party
may refuse to proceed with the contract or he may waive
performance of the condition. If the other party has promised
that the condition should happen or be performed, such first
mentioned party may also treat the nonperformance of the
condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer
may treat the fulfillment by the seller of his obligation to
deliver the same as described and as warranted expressly or
by implication in the contract of sale as a condition of the
obligation of the buyer to perform his promise to accept and
pay for the thing. (n)

Two alternative remedies where obligation of the other party to a contract of sale is subject to
a condition, and such is not performed:
1. Refusal to proceed with contract
2. Waive performance of the condition.
Distinction between condition imposed on perfection and imposed on performance. Romero
vs Court of Appeals (250 SCRA 223)

CONDITION IMPOSED ON
Perfection
Performance
Failure to comply results in Failure to comply results in the
failure of contract
two remedies being available to
the other party.

In a Sale with Assumption of Mortgage, the assumption of mortgage is a condition to the


sellers consent so that without approval by the mortgagee, no sale is perfected. In such case,
the seller remains the owner and mortgagor of the property and retains the right to redeem
the foreclosed property. Ramos vs Court of Appeals (279 SCRA 118).But such condition is

deemed fulfilled when the seller takes any action to prevent its happening. De Leon vs Ong
(611 SCRA 381)
Contract of sale to become effective upon happening of the condition. Heirs of Escanlarvs
Court of Appeals (281 SCRA 176)
o Non-happening did not affect validity of the contract only the effectivity.
A provision this Contract of Sale of rights, interests and participations shall become effective
only upon the approval by the Honorable Court, in the event of non-approval by the courts,
affect only the effectivity and not the validity of the contract of sale. Heirs of Pedro
Escanlarvs Court of Appeals (281 SCRA 176)
The phrase as is, where is in sale pertains solely to the physical condition of the thing sold,
not to its legal situation. The vendor is bound to transfer the ownership of and deliver, as well
as warrant the thing which is the object of the sale. Assets Privatization Trust vs T.J.
Enterprises (587 SCRA 481)
Stipulation that deed of sale would issue after the condition does not prevent perfection of the
contract. David vsTiongson (313 SCRA 63)

II. Distinctions between Conditions and Warranties

When ownership has not passed, buyer may treat the fulfillment of the seller of his obligation
under the contract as a condition for his obligation to accept and pay.
If the party promised that a condition would be performed or would happen, other party may
treat non-performance of such as a breach of warranty.
o Such stipulation elevates the condition to a warranty
o And entitle the other party to damages

CONDITION
Non -happening of condition
does not amount to a breach
Goes into root of existence of
the obligation
Must be stipulated by theparties

May attach to the seller or to the


buyer

WARRANTY
Non -fulfillment of warranty
constitutes a breach
Goes into performance May
constitute an obligation in itself
May form part of the obligation by
provision of law, even without
stipulation
Relates to subject matter itself,
or obligations of the seller as to
thesubject matter

III. Express Warranty


ARTICLE 1546
Any affirmation of fact or any promise by the seller relating to
the thing is an express warranty if the natural tendency of
such affirmation or promise is to induce the buyer to
purchase the same, and if the buyer purchases the thing
relying thereon. No affirmation of the value of the thing, nor
any statement purporting to be a statement of the seller's
opinion only, shall be construed as a warranty, unless the
seller made such affirmation or statement as an expert and it
was relied upon by the buyer. (n)

Definition

1. A warranty is a statement or representation made by the seller of goods,


contemporaneously and as part of the contract of sale, having reference to the
character, quality or title of the goods, and by which he promises or undertakes to
insure that certain facts are or shall be as he then represents them. Angvs Court of
Appeals (567 SCRA 53)
2. A warranty is an affirmation of fact or any promise made by a vendor in relation to the
thing sold. The decisive test is whether the vendor assumes to assert a fact of which
the vendee is ignorant. Goodyear Philippines, Inc. vsSy (474 SCRA 427)
Breach of an express warranty makes the seller liable for damages. Carrascoso, Jr. vs
Court of Appeals (477 SCRA 666)
Requisites for the existence of an express warranty:
1. It must be an affirmation of fact, or any promise by the seller relating to the subject
matter of the sale;
2. Natural tendency of such affirmation is to induce buyer to purchase the thing; and
3. Buyer purchases relying on such affirmation/promise thereon.
The principle of caveat emptor only requires the purchaser to exercise care and attention
ordinarily exercised by prudent men in like business affairs, and only applies to defects which
are open and patent to the service of one exercising such care. It can only be applied where it
is shown or conceded that the parties to the contract stand on equal footing and have equal
knowledge or equal means of knowledge and there is no relation of trust or confidence
between them. It does not apply to a representation that amounts to a warranty by the seller
and the situation requires the buyer to rely upon such promise or affirmation. Guinhawavs
People (468 SCRA 278)

ARTICLE 1341
A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on
the former's special knowledge. (n)

Affirmation of value or statement of seller's opinion is not a warranty (Article 1341). Unless
seller made such statement as an expert, and was relied upon by the buyer.
o "The law allows considerable latitude to seller's statements, or dealer's talk; and
experience teaches that it is exceedingly risky to accept it at its face value. Assertions
concerning the property which is the subject of a contract of sale, or in regard to its
qualities and characteristics, are the usual and ordinary means used by sellers to
obtain a high price and are always understood as affording to buyers no ground for
omitting to make inquiries. A man who relies upon such an affirmation made by a
person whose interest might so readily prompt him to exaggerate the value of his
property does so as his peril, and must take the consequences of his own
imprudence." SongcovsSellner (37 Phil. 254)
Assertions concerning the property's characteristics are the usual and ordinary means of
sellers to get a high price. A man who relies upon such affirmation...does so at his own peril.
Azarraga v. Gay (52 Phil. 599)

Prescription of Warranties
A breach in the warranties of the seller entitles the buyer to a proportionate reduction of the
purchase price. PNB v. Mega Prime Realty and Holding Corp. (567 SCRA 633)
The prescriptive period for instituting actions based on a breach of express warranty is that
specified in the contract, and in the absence of such period, the general rule on rescission of
contract, which is four years, while for actions based on breach of implied warranty, the

prescriptive period is six months from the date of the delivery of the thing sold. Angvs Court
of Appeals (567 SCRA 53)
IV. Implied Warranties
ARTICLE 1547
In a contract of sale, unless a contrary intention appears,
there is:
(1) An implied warranty on the part of the seller that he has a
right to sell the thing at the time when the ownership is to
pass, and that the buyer shall from that time have and enjoy
the legal and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any
hidden faults or defects, or any charge or encumbrance not
declared or known to the buyer.
This article shall not, however, be held to render liable a
sheriff, auctioneer, mortgagee, pledgee, or other person
professing to sell by virtue of authority in fact or law, for the
sale of a thing in which a third person has a legal or equitable
interest. (n)

Implied Warranties
o Those which by law constitute part of every contract of sale, whether or not the
parties were aware of or intended them.
Who is liable?
o General Rule: Only a seller is bound by the implied warranties.
o Exception: Express stipulation in contract may make the agent of the seller bound by
these.

A. Warranty That Seller Has Right to Sell


The implied warranty that seller has the right to sell the thing at the time the ownership is to
pass refers only to the transfer of ownership at the point of consummation, NOT any
representation as to ownership at the point of perfection.
It shall not be applicable to render liable a sheriff, auctioneer, mortgagee, pledgee or any
other person professing to sell by virtue of authority in fact or law.
o For the sale of a thing in which a third person has a legal/equitable interest
There can be no legal waiver of this warranty without changing basic nature of the
relationship
o Unless it amounts to clear assumption of risk on the part of the buyer
B. Warranty against Eviction
Warranty against eviction is an implied warranty that when ownership will pass, buyer shall
have legal and peaceful possession.
Vendor shall answer for the eviction even if there is no stipulation regarding eviction.
o The seller, in declaring that he owned and had clean title to the vehicle, gave an
implied warranty of title, and in pledging that he "will defend the same from all claims
or any claim whatsoever [and] will save the vendee from any suit by the government

of the Republic of the Philippines," he gave a warranty against eviction, and the
prescriptive period to file a breach thereof is six months after the delivery of the
vehicle. Angvs Court of Appeals (567 SCRA 53)
B.1. When There Is Breach of This Warranty
1. Purchaser has been deprived of/evicted from the whole or part of the thing sold;
o The buyer need not resist the eviction.
2. Eviction is by final judgment;
o The warranty cannot be enforced until a final judgment has been rendered whereby
the buyer loses the thing acquired or a part thereof.
o The buyer need not appeal from the decision in order that the seller may become
liable for eviction.
3. Basis thereof is a right prior to the sale made by the seller; and
4. Seller has been summoned and made co-defendant in the suit for eviction at the instance of
the buyer.
o In order to constitute notice of eviction to the seller, the seller must have been made a
party to the case.
Warranty cannot be enforced against seller when buyer merely mailed seller
a copy of the opposition of buyer to the eviction suit. Seller must be
summoned in the suit for eviction at the instance of the buyer (Article 1558),
and be made a co-defendant (Article 1559); or made a third-party defendant.
Escalervs Court of Appeals (138 SCRA 1)
o This is the only condition that is required to be complied with by the vendee. Once
this is proven, the buyer's right to the warranty is perfect, and the seller cannot set up
anything against it. JovellanovsLualhati (47 Phil. 371)
No action for breach of this warranty when buyer was well aware of the
presence of tenants, and even undertook the job of ejecting these squatters.
Power Commercial vs CA (274 SCRA 597)
B.2. Eviction in Part
ARTICLE 1556
Should the vendee lose, by reason of the eviction, a part of
the thing sold of such importance, in relation to the whole,
that he would not have bought it without said part, he may
demand the rescission of the contract; but with the obligation
to return the thing without other encumbrances that those
which it had when he acquired it.
He may exercise this right of action, instead of enforcing the
vendor's liability for eviction.
The same rule shall be observed when two or more things
have been jointly sold for a lump sum, or for a separate price
for each of them, if it should clearly appear that the vendee
would not have purchased one without the other. (1479a)
B.3. Particular Causes Given By Law
ARTICLE 1550
When adverse possession had been commenced before the

sale but the prescriptive period is completed after the


transfer, the vendor shall not be liable for eviction. (n)
ARTICLE 1551
If the property is sold for nonpayment of taxes due and not
made known to the vendee before the sale, the vendor is
liable for eviction. (n)
B.4. Applicability to Judicial Sales
ARTICLE 1552
The judgment debtor is also responsible for eviction in
judicial sales, unless it is otherwise decreed in the judgment.
(n)

BUT in the following cases:


o Santiago Land Dev. Corp. vs Court of Appeals (276 SCRA 674), the Court ruled
that a buyer at execution sales takes property subject to superior right of other
parties. Therefore, the judgment debtor-seller is not liable for eviction.
o Caveat emptor applies in execution sales, and the sheriff does not warrant the title to
the property sold by him. It is not incumbent upon him to place purchaser in
possession. Allure Manufacturing, Inc. vs Court of Appeals (199 SCRA 285)
No Warranty Against Eviction When Execution Sale
o Involuntary sales, vendor can be expected to defend his title because of his warranty
to the vendees but no such obligation is owed by the owner whose land is sold at
execution sale. Santiago Land Dev. Corp. vs Court of Appeals (276 SCRA 674)
BUT SEE: Article 1552
Atty. Santiago: In judicial sales, sometimes what is being sold is not the property of the judicial
debtor, but that of the guarantor. The owner in this case cannot be held liable for warranty of
eviction, but rather it is judgment-debtor who should be held liable for eviction.

B.5. Amounts for Which Seller Is Liable In Case Of Eviction


ARTICLE 1555
When the warranty has been agreed upon or nothing has
been stipulated on this point, in case eviction occurs, the
vendee shall have the right to demand of the vendor:
(1) The return of the value which the thing sold had at the
time of the eviction, be it greater or less than the price of the
sale;
(2) The income or fruits, if he has been ordered to deliver
them to the party who won the suit against him;
(3) The costs of the suit which caused the eviction, and, in a
proper case, those of the suit brought against the vendor
for the warranty;

(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if
the sale was made in bad faith. (1478)
B.6. Waiver of Warranty and Effects
ARTICLE 1553
Any stipulation exempting the vendor from the obligation to
answer for eviction shall be void, if he acted in bad faith.
(1476)

Effect of waiver depends on nature of such waiver. Whether:


o It is a general or specific waiver; and
o Done in good faith or bad faith on seller's part
If seller acted in bad faith, then any stipulation exempting seller from answering eviction shall
be void. Article 1553.
If buyer merely renounces the warranty in general terms, and without knowledge of a
particular risk, and eviction takes place, the seller shall only pay the value of thing at time of
eviction.
o General waiver limits liability of seller.
If buyer waived with knowledge of risks (specific waiver) seller shall not be liable.
o Even when there is no specific waiver, buyer cannot hold seller liable when he is
aware of a third party claim (BUYER MUST BE IN GOOD FAITH). JM Tuazon vs CA
(94 SCRA 413)

C. Warranty against Non-Apparent Servitudes


Under Article 1560 of the Civil Code, the warranty shall apply only when the following conditions
are present:
(a) The immovable sold is encumbered with any non-apparent burden or servitude, not mentioned in
the agreement; and
(b) The nature of such non-apparent burden or servitude is such that it must presumed that the buyer
would not have acquired it had he been aware thereof.
Warranty is not applicable :(a) If the servitude is mentioned in the agreement and (b) If the nonapparent burden or servitude is recorded in the Registry of Deeds, unless there is an express
warranty that the thing is free from all burdens and encumbrances.
The remedy for the buyer may either bring an action for rescission or sue for damages only if he
does so within one (1) year computed from the execution of the deed. If such one year period has
lapsed, the buyer may only bring an action for damages within an equal period, to be counted from
the date on which he discovered the burden or servitude.
D. Warranty against Hidden Defects
Under Article 1561 of the Civil Code, the seller shall be responsible for warranty against hidden
defect only when:
(a) The nature of the hidden defect is such that it should render the subject matter unfit for the use for
which it is intended; or

(b)Should diminish its fitness for such use to such an extent that the buyer would not have
acquired it or would have given a lower price for it.
The seller is responsible (movable and immovable subject matters) to the buyer for any hidden faults
or defects in the thing sold, even though he was not aware thereof.
The seller is not answerable for patent defects or those which are visible, or even for those
which are not visible if the buyer is an expert who, by reason of his trade or profession,
should have known them.
a. Requisites for Breach of Warranty (Nutrimix Feeds Corp. v CA)
(a) Defect must be hidden;
(b) Defect must exist at the time the sale was made;
(c) Defect must ordinarily have been excluded from the contract;
(d) Defect, must be important (render the thing unfit or considerably decreases fitness);
(e) Action must be instituted within the statute of limitations.
b. Remedies of Buyer and Obligation of Seller for Breach of Warranty
In the event of breach of the warranty against hidden defects, Nutrimix Feeds Corp. also confirmed
the principle under Article 1567 of the Civil Code that the remedy of the buyer is either to withdraw
from the contract (accionredhibitoria) or to demand a proportionate reduction of the price
(accionquantiminoris) with damages in either case.
A choice of remedies is available to the buyer only when the thing has not been lost. If the subject
matter of sale is actually lost the extent of the obligations of the seller for breach of warranty
against hidden defects depends upon the: cause of the lost, knowledge of the hidden defect by
seller, and whether there has been a waiver of the warranty, thus:
(a) If the thing sold should be lost as a consequence of the hidden faults:
(i) If the seller was aware of them, he shall bear the loss, and shall be obliged to return the price and
refund the expenses of the contract, with damages; or (ii) If seller was not aware of them, the
seller is obliged only to return the price and interest thereon, and reimburse the expenses of the
contract which the buyer might have paid, but not for damages.
(b) If thing is lost through a fortuitous event or through the fault of the buyer, then:
(i) If the seller was not aware of the hidden defects, the buyer may demand from
the seller the price which he paid, less the value which the thing had when it was lost; (ii) If the seller
acted in bad faith, in addition he shall pay damages to the buyer.
c. Waiver of Warranty
If there has been a stipulation exempting the seller from hidden defects, then:
(a) If the seller was not aware of the hidden defects, the loss of the thing by virtue of such defect will
not make the seller liable at all to the buyer; or
(b) If the seller was fully aware of such defect, such waiver is in bad faith, and the seller would still
be liable for the warranty.
In Filinvest Credit Corp. v. Court of Appeals, the Court held that a provision in a contract of lease
with option to purchase (which it treated as a sale of movable on installments) that the buyerlessee absolutely releases the lessor from any liability whatsoever as to any and all matters in
relation to warranty in accordance with the provisions hereinafter stipulated, was an express
waiver of warranty against hidden defects in favor of the seller-lessor which absolved the [sellerlessor] from any liability arising from any defect or deficiency of the machinery they bought..
d. Applicability to Judicial Sales

The warranty against hidden defects shall be applicable to judicial sales, except that the judgment
debtor shall not be liable.
e. Prescriptive Period
Actions on warranties against hidden defects shall be barred after six (6) months from the delivery of
the thing sold.
e. Prescriptive Period
Actions on warranties against hidden defects shall be barred after six (6) months from the delivery of
the thing sold.
E. Redhibitory Defects of Animals
Under Article 1576 of the Civil Code, even when professional inspection has been made, if the hidden
defect of animals should be of such a nature that expert knowledge is not sufficient to discover it, the
defect shall be considered as redhibitory. But if the veterinarian, through ignorance or bad faith,
should fail to discover or disclose it, he shall be liable for damages.
a. Sale of Team
Under Article 1572 of the Civil Code, if two or more animals are sold together, whether for a lump sum
or for a separate price for each of them, the redhibitory defect of one shall only give rise to its
redhibition, and not that of the others; unless it should appear that the buyer would not have
purchased the sound animal or animals without the defective one. The latter case shall be presumed
when a team, yoke, pair, or set is bought, even if a separate price has been fixed for each one of the
animals composing the same.
Note: applicable to the sale of other things.
b. Other Rules on Sale of Animals
There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live
stock sold as condemned. The sale of animals suffering from contagious diseases shall be void.
A contract of sale of animals shall also be void if the use or service for which they are
acquired has been stated in the contract and they are found to be unfit therefor.
c. Prescriptive Period
The redhibitory action, based on the faults or defects of animals, must be brought within forty
(40) days from the date of their delivery to the buyer. If the animal should die within three (3) days
after its purchase, the vendor shall be liable if the disease which cause the death existed at the time
of the contract. When the buyer returns the objects bought and demands the payment of the purchase
price, he is in effect withdrawing from the contract as provided in Article 1567, where the
prescriptive period is six (6) months from the delivery of the thing sold.
d. Obligation of Buyer to Return
If the sale be rescinded, the animal shall be returned in the condition in which it was sold and
delivered, the buyer being answerable for any injury due to his negligence, and not arising from the
redhibitory fault or defect.
e. Remedies of Buyer

In the sale of animals with redhibitory defects, the buyer may also elect between withdrawing
from the contract and demanding a proportionate reduction of the price, with damages in either
case; but he must make use thereof within the same period which has been fi xed for the
exercise of the redhibitory action
IMPLIED WARRANTIES IN SALES OF GOOD
1. Warranty as to Fitness or Quality (Article 1562)
(a) Where the buyer, expressly or by implication, makes known to the seller the particular
purpose for which the goods are acquired, and it appears that the buyer relies on the sellers skill or
judgment (whether he be the grower or manufacturer or not),
(b) Where the goods are bought by description from a seller who deals in goods of that
description (whether he be the grower or manufacturer or not). In the case of contract of sale of
a specified article under its patent or other trade name, there is no warranty as to its fitness for any
particular purpose, unless there is a stipulation to the contrary.
a. Requisites for Breach of Warranty to Apply (Nutrimix Feeds Corp. v. Court of Appeals)
(a) That the buyer sustained injury because of the product;
(b) That the injury occurred because the product was defective or unreasonably unsafe; and
(c) The defect existed when the product left the hands of the seller.
A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the
product in the absence of any proof that the product in question is defective; that the defect must be
present upon the delivery or manufacture of the product, or when the product left the manufacturers
or sellers, or when the product was sold to the purchaser; or the product must have reached the user
or consumer without substantial change in the condition it was sold.
b. Measure of Damage In Case of Breach of Warranty on Quality
In the absence of special circumstances showing proximate damage of a greater amount, the
difference between the value of the goods at the time of delivery to the buyer and the value they
would have had if they had answered to the warranty.
2. Sale of Goods by Sample and/or by Description
Mendoza v. David held that in a sale by sample, there is an implied warranty that the goods shall be
free from any defect which is not apparent or reasonable upon examination of the sample and which
would render the goods unmerchantable.
On the other hand, in a sale of goods by description, Mendoza held that a sellers description of the
goods which is made part of the basis of the transaction creates a warranty that the goods will
conform to that description. Where the goods are bought by description from a seller who deals in the
goods of that description, there is an implied warranty that the goods are of mechantable
quality.
3. Buyers Option in Case of Breach of Warranty (Article 1599)
(a) Accept or keep the goods and set up against the seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;
(b) Accept or keep the goods and maintain an action against the seller for damages;
(c) Refuse to accept the goods, and maintain an action against the seller for damages;

(d) Rescind the contract of sale and refuse to receive the goods or if the goods have already been
received, return them or offer to return them to the seller and recover the price or any part thereof
which has been paid.
4. Waiver of Remedies by Buyer
When goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of
warranty when he accepted the goods without protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the
seller in substantially as good condition as they were in at the time the ownership was transferred to
the buyer. But if deterioration or injury of the goods is due to the breach of warranty, such deterioration
or injury shall not prevent the buyer from returning or offering to return the goods to the seller and
rescinding the sale.
5. Obligation of Buyer on the Price
Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the
price upon returning or offering to return the goods. If the price or any part thereof has already been
paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return
of the goods, or immediately after an offer to return the goods in exchange for repayment of the
price.
6. Refusal of Seller to Accept Return of Goods
Buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to
secure payment of any portion of the price which has been paid, and with the remedies for the
enforcement of such lien allowed to an unpaid seller by Article 1526 of the Civil Code.
ADDITIONAL TERMS OF WARRANTIES FOR CUSTOMERS
The term consumer products is defined under Article 4(q) of the Consumer Act of the Philippines, to
cover goods which are primarily for personal, family, household or agricultural purposes, which shall
include but not limited to, food, drugs, cosmetics, and devices. Article 68 of the Consumer Act
provides that when the seller or manufacturer gives an express warranty, it shall be operative from the
moment of sale, and consequently such seller or manufacture shall:
(a) Set forth the terms of warranty in clear and readily understandable language and clearly
identify himself as the warrantor;
(b) Identify the party to whom the warranty is extended;
(c) State the products or parts covered;
(d) State what the warrantor will do in the event of a defect, malfunction or failure to conform to the
written warranty and at whose expense;
(e) State what the consumer must do to avail of the rights which accrue to the warranty; and
(f) 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.
1. Subsidiary Liability of Retailer
The retailer shall be subsidiary liable under the warranty in case of failure of both the manufacturer
and distributor to honor the warranty, and that in such case the retailer shall shoulder the expenses
and costs necessary to honor the warranty. The remedy of the retailer in such case would be to
proceed against the distributor or manufacturer.
2. Enforcement of Warranty

The warranty rights can be enforced by presentment to the immediate seller either the warranty card
or the official receipt along with the product to be serviced or returned to the immediate seller. No
other documentary requirement shall be demanded from the purchaser.
3. Duration of Warranty
The seller and the consumer may stipulate the period within which the express warranty shall be
enforceable. But if the implied warranty on merchantability accompanies an express warranty, both
will be of equal duration. Any other implied warranty shall endure not less than sixty (60) days nor
more than one (1) year following the sale of new consumer products.
4. Breach of Warranties
In case of breach of express warranty, the consumer may elect to have the goods repaired or its
purchase price refunded by the warrantor. In case the repair of the product in whole or in part is
elected, the warranty work must be made to conform to the express warranty within thirty (30) days by
either the warrantor or his representative. The thirty-day period, however, may be extended by
conditions which are beyond the control of the warrantor or his representatives.
In case the refund of the purchase price is elected, the amount directly attributable to the use of the
consumer prior to the discovery of the non-conformity shall be deducted. In case of breach of implied
warranty, the consumer may retain the goods and recover damages, or reject the goods, cancel the
contract and recover from the seller so much of the purchase price as has been paid, including
damages.
5. Contrary Stipulations
All covenants, stipulations or agreements contrary to the provisions of Article 68 are specifically
declared null and void, and without legal effect.

ARELLANO UNIVERSITY SCHOOL OF LAW


Arellano Law Foundation
Taft Ave., Cor. Mento St., Pasay City

EXTINGUISHMENT
SALE
Chapter 13
LAW ON SALES
Tuesday Class, 7:30 pm 9:30 pm

Submitted by
ARIZALA, VENUS KEIZYL A.
RAMOS, BRYAN ANGELO D.
SANDOVAL, ANTHONY B.

Submitted to
ATTY. LYDIA A. BUNDAC
Professor

6 December 2016

OF

EXTINGUISHMENT OF SALE
The modes or causes of extinguishing the contract of sale may be classified into:
(1) Commonor those causes which are also the means of extinguishing all
other contracts like payment, loss of the thing, condonation, etc. (see Art.
1231.);
(2) Special or those causes which are recognized by the law on sales (such as
those covered by Articles 1484, 1532, 1539, 1540,1542, 1556, 1560,
1567, and 1591.); and
(3)Extra-specialor those causes which are given special discussion by the
Civil Code and these are conventional redemption and legal redemption.
(see 10 Manresa 300, 303.)
I. In General (Articles 1231 and 1600)
ART. 1231. Obligations are extinguished by:
(1) Payment or performance;
Only extinguishes the obligations to which they pertain to in a contract of
sale, but not necessarily the contract itself, since the relationship between
the buyer and the seller remains after performance or payment, such as
the continuing enforceability of the warranties of the seller
(2) Loss of the thing due;
(3) Condonation or remission of the debt;
(4) Confusion or merger of the rights of the creditor and debtor;
(5) Compensation;
(6) Novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment
of resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)
ART. 1600. Sales are extinguished by the same causes as all other obligations, by those
stated in the preceding articles of this Title, and by conventional or legal redemption.
(1506)

II. Conventional Redemption (Articles 1601 1618)


Conventional redemption shall take place when the seller/vendor
reserves the right to repurchase the thing sold, with the obligation to:
a)
b)
c)
d)
e)

return the price of the sale


the expenses of the contract
any other legitimate payments made by reason of the sale
the necessary and useful expenses made on the thing sold
fulfills other stipulations which may have been agreed upon

* Redemption feature of sale does not prevent its full consummation


Who may exercise?
a. Seller in whom the right is recognized by contract
b. Any person to whom the right may have been transferred

PROPER RESERVATION OF RIGHT TO REPURCHASE


The right of repurchase is not a right granted to the vendor [seller] by the
vendee [buyer] 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.
(Villarica v. Court of Appeals)
The essence of a pacto de retro sale is that title and ownership of the
property sold is immediately vested in the vendee a retro, subject to the
restrictive condition of repurchase by the vendor a retro within the
redemption period. (Misterio v. Cebu State College of Science and
Technology)
RIGHT OF REPURCHASE MAY BE PROVED BY PAROLE EVIDENCE
Parole evidence is competent and admissible in support of the
allegations that an instrument in writing, purporting on its face to transfer
the absolute title to property, or to transfer the title with a right to
repurchase under specified conditions reserved to the seller, was in truth
and in fact given merely as security for the repayment of a loan; provided
that the nature of the agreement in placed in issue by the pleadings filed
with the trial court.
Since a right to repurchase is merely a feature of the contract of sale, it is
governed also by the Statute of Frauds.
When the contract of sale has been reduced in writing, parole evidence
may be adduced to prove the agreement granting the seller a right to
repurchase the property sold, since the deed of sale and the verbal
agreement allowing the right of repurchase should be considered as an
integral whole, then the deed of sale relied upon by the seller is in itself
the note or memorandum evidencing the contract, which would take the
case outside the provisions of the Statute of Frauds. (Mactan Cebu
International Airport Authority v. Court of Appeals)
Parole evidence may also be admitted to prove that a right of repurchase
was part of a deed of sale, when no objection to such parole evidence was
made during trial.
The best evidence rule would not be an obstacle to the adducement of
such parol evidence where it is shown that:
The parole agreement was the moving cause of the written
contract, or
The parole agreement forms part of the consideration of the written
contract.
RIGHT OF REDEMPTION VIS--VIS OPTION TO PURCHASE

Right of Redemption/Right to
Redeem
Not a separate contract, but merely
part of a main contract of sale
Cannot exist unless reserved at the
time of the perfection of the
contract of sale
Must be imbedded in a contract of
sale upon its perfection

1
2

Does
not
need
a
separate
consideration in order to be valid
and effective
The redemption period cannot
exceed ten (10) years
The exercise of a right of
redemption requires notice to be
accompanied by a
tender of payment, including
consignment
when
tender
of
payment
cannot
be
made
effectively on the buyer;
The exercise of a right of
redemption
extinguishes
an
existing contract of sale

5
6

Option to Purchase/Buy
Generally a principal, albeit
preparatory, contract
May be created independent of
another contract
May exist prior to or after the
perfection of the sale, or be
imbedded in another contract, like a
lease, upon that contracts perfection
Must have a consideration separate
and distinct from the purchase price
in order to be valid
The redemption period may exceed
ten (10) years
The exercise of a option to purchase
requires only a notice of such
exercise be given totheoptioner

The valid exercise of an option right


results into the perfection of a
contract of sale

PERIOD OF REDEMPTION(Article 1606)


When no period agreed upon
When there is a period agreed
upon

It shall last four (4) years from the date of


contract
The period cannot exceed ten (10) years;
if exceeds 10 years, the agreement is
valid only for the first 10 years

Non-payment of price does not affect running of redemption period


(Catangcatang v Legayada)

The four year period was held to begin from the happening of
the stipulated conditioncontained in the covering deed of sale,
rather than from the date of the contract, and even when the entire
covered period from the date of the contract would exceed ten (10)
years. (Misterio v. Cebu State College of Science and Technology, 461
SCRA 122 [2005])

Misterio v. Cebu State College of Science and Technology


Facts:Asuncion sold to Sudlon Agricultural High School (SAHS) a parcel of land,
reserving the right to repurchase the same in case (1) the school ceases to exist, or (2)
the school transfers location. She had her right annotated. She died. By virtue of BP
412, SAHS was merged with the Cebu State College, effective June 1983. In 1990, the
heirs of Asuncion sought to exercise their right to redeem, claiming that school has
ceased to exist
Issue: WON the heirs of Asuncion may still exercise their right to redeem the property
Held: NO. Their right has already prescribed. Considering that no period for

redemption was agreed upon, the law imposed a 4-year limitation. This means that
from the time the school was merged to Cebu State College, they had 4 years, or until
June 1987 to redeem the property. However, they failed to do so within the period.
Failure to redeem automatically consolidates ownership in favor of the vendee. The
fact that the right to redeem was annotated does not make it imprescriptible; it only
serves to notify third persons.

Grant off 30-day Redemption Right in Case of Litigation


The vendor may still exercise the right to repurchase within thirty days
from the time final judgment was rendered in a civil action on the basis
that the contract was a true sale with right to repurchase. (Art. 1606 par
3)
When Article 1606, par. 3, not applicable.
(1) Contract found to be an absolute sale. Article 1606, paragraph 3 is not
applicable where the contract is found to be an absolute deed of sale,
pure and simple. There could not even be a period of redemption. It
refers to cases involving a transaction where the seller contests or
denies that the true agreement is one of sale with right to repurchase
and claims that the real intention was a loan with equitable mortgage,
but the court decides otherwise.
(2) Sale known and admitted by vendor as pacto de retro. Neither is said
provision applicable where the sale is admittedly one with pacto de
retro. If the rule were otherwise, it would be within the power of every
vendor a retro to set at naught a pacto de retro or resurrect an expired
right of repurchase, by simply instituting an action to reform the contract
known to him to be in truth, a sale with pacto de retro into an
equitable mortgage.
Effect of stipulation extending period of repurchase.
(1) After expiration of period of redemption. It is legally impossible to
speak of extension because that which is extinguished cannot be extended
and because the ownership in the vendee is already consolidated, and
becomes absolute.
(2) Before the expiration of the period of redemption. The original term
may be extended provided that the extension, including the original term,
shall not extend beyond 10 years; otherwise, the extension is void as to the
excess.
POSSESSION OF SUBJECT MATTER DURING PERIOD OF REDEMPTION
In a sale a retro, the buyer has a right to the immediate possession
of the property sold, unless otherwise agreed upon.
It is basic that in a pacto de retro sale, the title and ownership of
the property sold are immediately vested in the buyer a retro,
subject only to the resolutory condition of repurchase by the seller a
retro within the stipulated period.
HOW REDEMPTION EFFECTED
Art. 1616. The vendor cannot avail himself of the right of repurchase without
returning to the vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any other legitimate payments
made by reason of the sale;
(2) The necessary and useful expenses made on the thing sold.

Art. 1608. The vendor may bring his action against every possessor whose
right is derived from the vendee [buyer], even if in the second contract no
mention should have been made of the right to repurchase without prejudice
to the provisions of the Mortgage Law and the Land Registration Law with
respect to third persons [who may have bought in good faith and for value].
a. How Redemption Exercised

In order to in order to exercise the right to redeem, only tender of


payment is sufficient. (Legaspi v. Court of Appeals)
There is actually no prescribed form for an offer to redeem to be
properly effected. It can either be through a formal tender with
consignation, or by filing a complaint in court coupled with
consignation of the redemption price within the prescribed period (Lee
Chuy Realty Corp. v. Court of Appeals)

The mere sending of letters by the seller expressing his desire to


repurchase the property without accompanying tender of the
redemption price does not comply with the requirement of law.
(Vda. de Zulueta v. Octavio and Lee v. Court of Appeals)
When tender of payment cannot be validly made because the
buyer cannot be located, it becomes imperative for the seller a
retro then to file a suit for consignation with the courts of the
redemption price, and failing to do so within the redemption period,
his right of redemption shall lapse. (Catangcatang v. Legayada)
A formal offer to redeem accompanied by a bona fi de tender of
redemption price, is not essential where the right to redeem is
exercised through a judicial action within the redemption period
and simultaneously depositing the redemption price. The filing of
the action itself within the period of redemption is equivalent to a
formal offer to redeem. (Lee Chuy Realty Corp. v. Court of Appeals)
b. In Multi-Parties Cases
Redemption in sale
of part of undivided
immovable.

Redemption in joint
sale
by
coowners/co-heirs
of
undivided
immovable.

Art. 1611. In a sale with a right to repurchase, the


vendee of a part of an undivided immovable who
acquires the whole thereof in the case of article 498,
may compel the vendor to redeem the whole property,
if the latter wishes to make use of the right of
redemption.
Art. 498. Whenever the thing is essentially indivisible
and the co-owners cannot agree that it be allotted to
one of them who shall indemnify the others, it shall be
sold and its proceeds distributed.
Art. 1612. If several persons, jointly and in the same
contract, should sell an undivided immovable with a
right of repurchase, none of them may exercise this
right for more than his respective share.
The same rule shall apply if the person who sold an
immovable alone has left several heirs, in which case
each of the latter may only redeem the part which he

may have acquired.

Redemption
in
separate sales by coowners of undivided
immovable.
Redemption against
heirs of vendee.

Art. 1613. In the case of the preceding article, the


vendee may demand of all the vendors or co-heirs that
they come to an agreement upon the repurchase of the
whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial
redemption.
Art. 1614. Each one of the co-owners of an undivided
immovable who may have sold his share separately,
may independently exercise the right of repurchase as
regards his own share, and the vendee cannot compel
him to redeem the whole property.
Art. 1615. If the vendee should leave several heirs,
the action for redemption cannot be brought against
each of them except for his own share, whether the
thing be undivided, or it has been partitioned among
them.
But if the inheritance has been divided, and the thing
sold has been awarded to one of the heirs, the action
for redemption may be instituted against him for the
whole.

WHEN REDEMPTION NOT MADE

When no redemption is made, the buyer a retro automatically acquires


full ownership. (Oviedo v. Garcia)
In case of real property, the consolidation of ownership in the vendee
by virtue of the failure of the vendor to comply with the provisions of
Article 1616 shall not be recorded in the Registry of Property without a
judicial order, after the vendor has been duly heard. (Art. 1607)

Judicial order for recording of consolidation of ownership.


(1) Necessity. If real property is involved and the vendor failed to
redeem within the period agreed upon, the vendees title becomes
irrevocable but the consolidation of ownership in the vendee shall not be
recorded in the Registry of Property without a judicial order and until after
the vendor has been duly heard. The reason is that the transaction may
not be a genuine pacto de retro but only an equitable mortgage.
(2) Purpose. The requirement provides additional safeguards to debtors.
The purpose is not only to have all doubts over the true nature of the
transaction speedily ascertained and decided, but also to prevent the
interposition of buyers in good faith while such determination is being
made.
FRUITS
Art. 1617. If at the time of the execution of the sale there should be on the
land, visible or growing fruits, there shall be no reimbursement for or
prorating of those existing at the time of redemption, if no indemnity was
paid by the purchaser when the sale was executed.

Should there have been no fruits at the time of the sale, and some exist at
the time of redemption, they shall be prorated between the redemptioner
and the vendee, giving the latter the part corresponding to the time he
possessed the land in the last year, counted from the anniversary of the
date of the sale.
RIGHT OF VENDOR A RETRO TO RECOVER THING SOLD FREE FROM CHARGES
Art. 1618. The vendor who recovers the thing sold shall receive it free from
all charges or mortgages constituted by the vendee, but he shall respect the
leases which the latter may have executed in good faith, and in accordance
with the customs of the place where the land is situated.

The vendee a retro may alienate, encumber, or perform other acts


of ownership over the thing sold. But his ownership being revocable
upon redemption, all acts done by him are also revocable.
Thus, he may borrow money and mortgage the property but when
the vendor a retro redeems, the vendee a retro is obliged to redeem
the mortgage. The vendor has the right to receive the property in
the same condition in which it was at the time of the sale.
The law, however, establishes an exception with respect to leases
which the vendee may have entered into in good faith according to
the custom of the place where the land is located. The exception is
dictated by public convenience in the interest of agriculture.

EQUITABLE MORTGAGE (Articles 1602 1604)


Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the
following cases:
(1) When the price of a sale with right to repurchase is unusually inadequate;
(2) When the vendor remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase another instrument
extending the period of redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the purchase price;
(5) When the vendor binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the
parties is that the transaction shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits or other benefits to be received by the
vendee as rent or otherwise shall be considered as interest which shall be subject to the
usury laws.

Equitable mortgage is one which although lacking in some formality, or


form or words, or other requisites demanded by a statute, nevertheless
reveals the intention of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to law. (Matanguihan v.
Court of Appeals)
Essential Requisites of an Equitable Mortgage
a. The parties entered into a contract denominated as a contract of sale;
and
b. The intention was to secure existing debt by way of a mortgage.

Rationale Behind Provision on Equitable Mortgage


a. To avoid circumvention of usury law
b. To avoid circumvention of prohibition against pactumcommissorium
creditor cannot appropriate the things given by way of pledge or
mortgage, or dispose of them; remedy here is foreclosure
When Presumed Equitable Mortgage (Circumstances that serve as basis
to treat the contract as an equitable mortgage)
a. The terms used in the deed or power of attorney indicate that the
conveyance was intended to be a loan secured by a mortgage;
b. The price paid, in relation to the value of the property, is grossly
inadequate;
c. The seller, at the time of the alleged sale was in urgent need of money;
d. The supposed seller invested the money he obtained from the alleged
buyer in making improvements on the property sold;
e. The supposed seller remained in possession of the land sold;
f. The seller paid the land tax which is a usual burden attached to
ownership;
g. The buyer accepted partial payments from the seller, and such
acceptance of partial payment is absolutely incompatible with the idea
of irrevocability of the title of ownership of the purchaser at the
expiration of the term stipulated in the original contract for the exercise
of the right of redemption;
h. The seller remained bound for the repayment of the money received
strongly tends to show that a mortgage only was intended;
i. The transaction had its origin in a borrowing of money also tends to
show that the subsequent transaction although in the form of a sale
with the right of repurchase was in fact intended as a mortgage; and
j. There was a previous debt between the parties and this was not
extinguished by the sale, but remained subsisting. But if the previous
debt was extinguished by the sale, and the seller has the privilege of
repurchasing within a given time, the transaction is a conditional sale.
Effects When Sale Adjudged To Be an Equitable Mortgage
When a contract is construed to be an equitable mortgage, then the following
may result:
a. Any money, fruit, or other benefit to be received by the buyer as rent
or otherwise shall be considered as interest which shall be subject to
the usury laws; (Art. 1602)
b. The apparent seller may ask for the reformation of the instrument.
(Art. 1605)
c. For the court to decree that vendor- debtor to pay his outstanding
loan to the vendee-creditor.
d. Where the trial court did not pass upon the mortgagors claim that the
had paid his mortgage obligation, a remand of the case to the trial
court is in order, only for the purpose of determining whether the
mortgage obligation had indeed been settled, and if not, how much
should the mortgagor pay to settle the same.

The equitable mortgage being a security contract, the expiration of the


purported period of redemption does not prevent the purported
seller (actually the equitable mortgagor) from extinguishing the main
contract of loan, and thereby extinguish also the ancillary equitable

mortgage contract, so long as the purported buyer (the equitable mortgagee)


has not gone through the process of foreclosure.
Foreclosure cannot take the form of the creditor-mortgagor appropriating for
himself the property given as security, because this would amount to
pactumcommissorium.
III. Legal Redemption (Articles 1619 1623)
Legal redemption is the right to be subrogated upon the same terms and
conditions stipulated in the contract, in the place of one who acquires a thing
by purchase or dation in payment, or by any other transaction whereby
ownership is transmitted by onerous title. (Art. 1619)
Transfer of ownership by onerous title.
Subrogation transfers to the person subrogated the rights pertaining to
another. (Art. 1303.) Note that legal redemption may take place not only in
purchase or dation in payment but in any other transfer of ownership by
onerous title. It has been held, however, that it cannot take place in barter
and in the transmission of property by hereditary title. Evidently, the right is
not available where there is only a mortgage or lease
Dation in payment defined.
Dation in payment or dacionenpagois the transmission of the ownership of a
thing by the debtor to the creditor as the accepted equivalent of the
performance of an obligation.
Rationale for Legal Redemption

Legal redemption is in the nature of a privilege created by law partly


for reasons of public policy and partly for the benefit and
convenience of the redemptioner, to afford him a way out of what
might be a disagreeable or an inconvenient association into which he
has been thrust. It is intended to minimize co-ownership. The law
grants a co-owner the exercise of the said right of redemption when
the shares of the other owners are sold to a third person. (Basa v.
Aguilar)

Since legal redemption is intended to minimize co-ownership, once


a property is subdivided and distributed among the co-owners, the
community ceases to exist and there is no more reason to sustain any
right of legal redemption. (Avila v. Barabat)

Distinctions between Conventional and Legal Rights of Redemption


CONVENTIONAL REDEMPTION
right a retro
Can only be constituted by express
reservation in a contract of sale at
time of perfection
In favor of the SELLER
Exercise extinguishes the underlying
contract of sale as though there was

LEGAL REDEMPTION
subrogation
Does not have to be expressly
reserved (it is a right granted by law),
and covers sales and other onerous
[transfers of] title
Given to a third-party to the sale
although it extinguishes the original
sale, the exercise actually constitutes

never any contract at all

a new sale in substitution of the


original sale

LEGAL REDEMPTION RIGHTS


Among Co-Heirs

Art. 1088. Should any of the heirs sell his hereditary


rights to a stranger before the partition, any or all of
the co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the sale,
provided they do so within the period of one month
from the time they were notified in writing of the sale
by the vendor. (1067a)

No right of legal redemption available to the coheirs when the sale


covers a particular property of the estate
The heirs who participated in the execution of the extrajudicial
settlement which included the sale to a third person of their pro
indiviso shares in the property are bound by the same, which the
co-heirs who did not participate would have the right to redeem
their shares pursuant to Article 1088 of the Civil Code.
Among Co-Owners

Art. 1620. A co-owner of a thing may exercise the


right of redemption in case the shares of all the other
co-owners or of any of them, are sold to a third person.
If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one. Should
two or more co-owners desire to exercise the right of
redemption, they may only do so in proportion to the
share they may respectively have in the thing owned in
common. (1522a)

The right of legal redemption among co-owners presupposed of


course, the existence of a co-ownership. The following are the
requisites for the right to exist:
(1) There must be co-ownership of a thing;
(2) There must be alienation of all or of any of the shares of the
other co-owners;
(3) The sale must be to a third person or stranger (Art. 1620.),i.e.,
a non-co-owner; and
(4) The sale must be before partition.
(5) The right of a co-owner to legal redemption is based on his
status as such independently of the size of his share.
It can no longer be invoked where there had been an actual
partition of the property so that co-ownership no longer exists.
Redemption by a co-owner within the period prescribed by law
(see Art. 1623.) inures to the benefit of all the other co-owners.
Among Adjoining
Owners of Rural
Lands

Art. 1621. The owners of adjoining lands shall also


have the right of redemption when a piece of rural
land, the area of which does not exceed one hectare, is

alienated, unless the grantee does not own any rural


land. This right is not applicable to adjacent lands
which are separated by brooks, drains, ravines, roads
and other apparent servitudes for the benefit of other
estates.
If two or more adjoining owners desire to exercise the
right of redemption at the same time, the owner of the
adjoining land of smaller area shall be preferred; and
should both lands have the same area, the one who
first requested the redemption. (1523a)

The following are the requisites for the exercise of the right under
this article:
(1) Both the land of the one exercising the right of redemption and
the land sought to be redeemed must be rural;
(2) The lands must be adjacent;
(3) There must be alienation;
(4) The piece of rural land alienated must not exceed one
(1hectare;
(5) The grantee or vendee must already own any other rural land;
and
(6) The rural land sold must not be separated by brooks, drains,
ravines, roads and other apparent servitudes from the adjoining
lands.
The lands mentioned in paragraph 2 of Article 1621 are not really
adjacent.
When the land exceeds one (1) hectare, the adjacent owners are
not given the right of legal redemption because this may lead to
the creation of big landed estates. The right cannot be exercised
against a vendee if he is also an adjacent owner. The last
paragraph of Article 1621 refers to a situation where the vendee of
a piece of rural land is not an adjoining owner.
Among
Owners
Lands

Adjoining
of Urban

Art. 1622. Whenever a piece of urban land which is so


small and so situated that a major portion thereof
cannot be used for any practical purpose within a
reasonable
time, having been bought merely for
speculation is about to be re-sold, the owner of any
adjoining
land has a right of pre-emption at a
reasonable price.
If the re-sale has been perfected, the owner of the
adjoining land shall have a right of redemption, also at
a reasonable price.
When two or more owners of adjoining lands wish to
exercise the right of pre-emption or redemption the
owner whose intended use of the land in question
appears best justified shall be preferred. (n)

Article 1622 recognizes two rights; namely:

(a) Pre-emption, which has been defined as the act or right of


purchasing before others. It is exercised before the sale or resale
against the would-be vendor; and
(b) Redemption, which is exercised after the sale has been
perfected against the vendee. The recognition of the right of
redemption will result in the rescission of the sale.
Requisites. The conditions or requisites for the exercise of the right of
pre-emption or redemption, as the case may be, are the following:
(a) The one exercising the right must be an adjacent owner;
(b) The piece of land sold must be so small and so situated that a
major portion thereof cannot be used for any practical purpose within
a reasonable time; and c) Such urban land was bought by its owner
merely for speculation.
The above requisites must be alleged by the adjoining owner in his
complaint and proved by him.
Price. The price to be paid is a reasonable price. In a case, an adjoining
owner was held not entitled to redeem a lot (612 sq. meters) which was
much bigger area-wise, than the lot (140 sq.meters) owned by him.
Preference as between two or more adjacent owners. In case two or
more adjoining owners desire to exercise the right of legal redemption,
the law prefers him whose intended use of the land appears best
justified. (last par.) The determinative factor is the intended use that
appears best justified, and not whether the land was acquired for
speculative purposes.
WHEN LEGAL REDEMPTION PERIOD BEGINS TO RUN
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except
within thirty days from the notice in writing by the prospective vendor, or by the
vendor, as the case may be. The deed of sale shall not be recorded in the Registry of
Property, unless accompanied by an affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners.

(1)Notice Must Cover Perfected Sale


Althoughwritten notice is given to the co-owner, the 30-day redemption
period does not begin to run from the receipt of such written notice,
because the transaction covered in the notice did notpertain to a
perfected contract of sale, and must be accompaniedby the actual
execution and delivery of the deed of sale. TheCourt held that Art. 1619
of the Civil Code bestows unto a co-ownerthe right to redeem and to be
subrogated under the same
terms and conditions stipulatedin the contract, and to avoid
anycontroversy as to the terms and conditions under which the rightto
redeem may be exercised, it is best that the period thereforshould not be
deemed to have commenced unless the noticeof the disposition is made

after the formal deed of disposal hasbeen duly executed. (Spouses


Doromal v. Court of Appeals)
(2)Summation on Strict Rules on Notice
Article 1623 stresses the need for notice in writing in three (3) other
species of legal redemption namely:
a) redemption in a case where the share of all the other co-owners or
any of them are sold to a third person;
b) redemption by owners of adjoining lands when a piece of rural land
not exceeding one hectare in area is alienated; and
c) redemption by owners of adjoining lands in the sale of a piece of an
urban land so small and so situated
thatthe portion thereof cannot be used for any practical purpose
within a reasonable time, having been bought merely for
speculation.(Hermoso v. Court of Appeals)
In all the above-cited provisions of law, the interpretation thereof
always tilts in favor of the redemptioner and against the vendee.
The purpose is to reduce the number of participants until the
community is terminated, being a hindrance to the development
and better administration of the property.... It is a one-way street.
It is always in favor of the redemptioner since he can compel the
vendee to sell to him but he cannot be compelled by the vendee
tobuy the alienated property.
(3)Exceptions to Written Notice Requirement

Alonzo v. Intermediate Appellate Court provides as an exception to


the written notice required under Article 1623 of the Civil Code,
the situation when the co-heirs lived with the purchaser in
the same lot and are deemed to have received actual
notice of the sale. Lachesseems to be the main principle for the
Alonzo doctrine.
Distrito v. Court of Appeals subsequently added another
exception to the Alonzo exception. It held that where it is
the co-owner himself who acted as a middleman or
intermediary to effect thesale to a third-party, thus having
actual knowledge thereof,the written noticerequired under
Article 1623 is no longer necessary, and the 30-day period for
redemption begins to run from having actual knowledge of the
sale, by being present at the time the deed of sale was executed.
When a co-owner learns of the sale of the co-ownership
interest only from the city treasurer, her exercise of the right
of redemption was timely since no written notice of the sale was
ever given by the sellers as required under Article 1623, and
therefore the 30-day period has not even begun to run: The
written notice of sale is mandatory; and notwithstanding actual
knowledge of a co-owner, the latter is still entitled to a written
notice from the selling co-owner in order to remove all
uncertainties about the sale, its terms andconditions, as well as its
efficacy and status.(Verdad v. Court of Appeals)

OTHER INSTANCES WHEN RIGHT OF LEGAL REDEMPTION IS GRANTED


Redemption
Homesteads

Redemption
Sales

of

in

Redemption
Judgment Debtor

Redemption
Extrajudicial
Foreclosure

Tax

by

in

Redemption
in
Judicial Foreclosure

Foreclosures
by
Banking Institutions

Under Section 119, of Public Land Act, every conveyance of


land acquired under the free patent homestead provisions,
when proper, shall be subject to repurchase by the
applicant, his widow, or legal heirs, within a period
of five (5) years from the date of the conveyance.
Under Section 214, National Internal Revenue Code of1997,
in case of delinquency sale of property of a taxpayer
forfailure to pay tax assessments, within one (1) year
from the date of sale, the delinquent taxpayer, or
anyone for him, shall have theright of redeeming the
property by paying to the Revenue DistrictOfficer the
amount of the public taxes, penalties, and interestthereon
from the date of delinquency to the date of sale,
togetherwith interest on the purchase price.
Under Sections 27 and 28, Rule 39 of the Rules of Court,
ajudgment debtor, or his successor-in-interests, or a
creditor havinga lien by attachment, judgment or mortgage
on the property soldat public auction shall have one (1)
year from date of registration of the certificate of
sale, and not just twelve (12) months afterthe sale as
provided previously under the old Rules of Court,to
redeem the property by paying the purchaser at the
publicauction the amount of his purchase, with interest up
to the time ofredemption, together with amount of any
assessments or taxeswhich the purchaser may have paid
thereon after purchase, with interest thereon.
Under Section 6 of Act No. 3135, as amended, in all casesin
which an extrajudicial foreclosure sale has been made
undera special power, the debtor, his successors-ininterests or anyjudicial creditor or judgment creditor of said
debtor, or any personhaving a lien on the property
subsequent to the mortgage or deedof trust under which
the property has been sold, may redeem the same
within one (1) year from and after the date of the
sale and registration thereof.
No right to redeemis granted to the debtor-mortgagor
when there has been ajudicial foreclosure of a real estate
mortgage, except when themortgagee is a bank or a
banking institution.
The doctrine of equity of redemption which covers
the right of a defendant mortgagor toextinguish the
mortgage and retain ownership of the propertyby paying
the secured debt within the 90-day period after the
judgment becomes final, in accordance with Rule 68 of
theRules of Court, or even after the foreclosure sale but
prior to the confirmation of such auction sale by the court.
Under Section 47 of the General Banking Law, in the event
of foreclosure
of any mortgage on real estate which is security for any
loan orother credit accommodation granted:
(a) The individual mortgator or debtor whose real

property has been sold for the full or partial


payment to his obligation, whether judicially or
extra-judicially; and
(b) The corporate mortgator or debtor whose real
property has been sold for the full or partial
payment to his obligation, by virtueof a judicial
foreclosure;
shall have the right within one (1) year after the
sale of the real estate, to redeem the property by
paying the amount due under the mortgage deed,
with interest thereon at the rate specified in the
mortgage, and all the costs and expenses incurred
by thebank or institution from the sale and custody of said
property lessthe income derived therefrom; whereas,
(c) Notwithstanding Act 3135, judicial personswhose
property is being sold pursuant toan extrajudicial
foreclosure, shall have the right to redeem the
property in accordance with this provision until, but
not after, theregistration of the certificate of
foreclosuresale with the applicable Register of
Deedswhich in no case shall be more than three(3)
months after foreclosure, whichever isearlier.

Period of Redemption
When
Rural
Bank
Forecloses

Legal
Right
to
Redeem
under
Agrarian
Reform
Code

The purchaser at the auction sale whether in a judicial


orextrajudicial foreclosure shall have the right to enter
upon andtake possession of such property immediately
after the date of the confirmation of the auction sale
administer the same in accordance with law.
If the land, previously received under patent, is mortgaged
toa rural bank under Rep. Act No. 720, the mortgagor may
redeemthe property within two (2) years from the date of
foreclosureor from the registration of the sheriffs
certificate of sale atsuch foreclosure if the property is not
covered or is covered,respectively, by Torrens title.
If the mortgagor fails to exercise such right, he or his heirs
may still repurchase the property within five (5) years
fromexpiration of the two (2) year redemption period
pursuant toSec. 119 of the Public Land Act, where the
subject matter wasobtained through a homestead patent.
Under Section 12 of Rep. Act No. 3844, in the event that
thelandholding is sold to a third person without the
knowledge of theagricultural lessee, the latter is granted
by law the right to redeemit within 180 days from notice in
writing and at a reasonable price and consideration.

CHAPTER 13 QUESTIONS

1. How can the seller avail of the right of repurchase in conventional


redemption?

The seller can avail of the right of repurchase by returning to the


buyer:
a. The price of the sale
b. The expenses of the contract and any other legitimate
payments made by reason of the sale
c. The necessary and useful expenses made on the thing sold.
2. What happens when no redemption is made?
General Rule: The buyer a retro automatically acquires full
ownership.
However, in case of real property, the consolidation of the
ownership in the buyer shall not be recorded in the Registry of Property
without judicial order, after the seller has been duly heard.
3. What differentiates legal redemption from conventional redemption?
1. A legal right is expressly granted by law and covers sales and
other onerous title
2. It is given to a third party
3. It constitutes a new sale in substitution to the original sale.
THE BULK SALES LAW
Chapter 15
Submitted by:
JOHN MICHAEL N. PENOLIO
KRISTINE ANNE S. ANDRES
Objectives:
to prevent a situation where merchants would defraud their
creditors by hurriedly selling their businesses and vanishing into
thin air, with the creditors left holding the bag, while the
transferee comes under the protection of the doctrine of buyer
in good faith and for value
to compel the seller in bulk to execute and deliver a verified lists
of his creditors to his buyer, and notice of intended sale to be sent
in advance to said creditors, and to use the proceeds to cover
payment of outstanding liabilities.

TRANSACTION COVERED BY THE LAW


(a) A stock of goods, wares, merchandise, provisions, or materials
not in the ordinary course of trade and the regular prosecution of

the business of the seller, mortgagor, transferor, or assignor


(Extraordinary sale of goods);
(b) All, or substantially all, of the fixtures and equipment used in
and about the business of the seller, mortgagor, transferor or
assignor (Extraordinary sale of fixtures and equipment); and
(c) All, or substantially all, of the business or trade theretofore
conducted by the seller, mortgagor, transferor, or assignor; (Sale
of business enterprise)

Bulk Sales Not Covered by the Law


(a) If the seller, transferor, mortgagor or assignor produces and
delivers a written waiver of the provisions of the Law from his
creditors as shown by verified statements;
(b) Transactions effected by executors, administrators, receivers,
assignees in insolvency, or public officers, acting under legal
process.

Business Covered by the Law


People vs Wong
Development Bank of the Philippines v. RTC of Manila
These technical terms (goods and merchandise) convey the
intention that the Bulk Sales Law applies to merchants who are in
the business of selling goods and wares and similar merchandise,
hence, the said law was held not to apply to a sale of assets by a
manufacturer since the nature of his business does not partake of
merchandising
However, Wong and DBP fail to take into consideration that there
are three (3) types of bulk sales enumerated under the Law, and
it would seem that it sought to enforce and interpret only the first
type of bulk sale. When it comes to the other two types of bulk
sales, the language of the Law does not limit in anyway coverage
to a particular type of business
OBLIGATIONS OF SELLER/ENCUMBRANCER WHEN TRANSACTION IS A
BULK SALE
(a) To Deliver a Sworn Statement of Listing of Creditors
(i) Names and addresses of all creditors to whom said seller
or mortgagor may be indebted;
(ii) Description of the amount of indebtedness due or owing,
or to become due or owing by said seller or mortgagor to
each of said creditors.

(b) Pro-Rata Application of Proceeds


(c) Written Advance Disclosure to Creditors (10 days)
(d) Bulk Transfers for Nominal Value (unlawful)

CONSEQUENCES OF VIOLATION OF THE LAW


Section 11 of the Law provides that any person violating any
provision thereof, shall, upon conviction thereof, be punished by
imprisonment for not less than six (6) months, nor more than five
(5) years, or fine in any sum not exceeding 55,000.00, or by both
such imprisonment and fine, in the discretion of the court.

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