Notes: Law On Sales

Law on Sales
Notes
2 Corinthians 9-10
But he said to me, "My grace is sufficient for
you, for my power is made perfect in
weakness." Therefore I will boast all the more
gladly about my weaknesses, so that Christ's
power may rest on me. That is why, for Christ's
sake, I delight in weaknesses, in insults, in
hardships, in persecutions, in difficulties. For
when I am weak, then I am strong.
Lamentations 3:21-24
Yet this I call to mind and therefore I have
hope: Because of the Lord's great love we are
not consumed, for his compassions never fail.
They are new every morning; great is your
faithfulness. I say to myself, "The Lord is my
portion; therefore I will wait for him."
Law on Sales
Atty. RP Santiago
Sources: CLV Outline, CLV Textbook, Rache Gutierrez Notes, Class Lectures
I. NATURE OF A SALE 4
A. ESSENTIAL CHARACTERISTICS OF A CONTRACT OF SALE 4
Sale as a Contract: Definition and Elements 4
1. Nominate and Principal 4
2. Consensual 5
3. Bilateral and Reciprocal 6
4. Onerous 6
5. Commutative 7
6. Title, not a Mode 7
B. SALE DISTINGUISHED FROM OTHER SIMILAR NOMINATE CONTRACTS 7
1. Donation 7
2. Barter 8
3. Contract for Piece-of-Work 9
4. Agency to Sell 10
5. Dacion en Pago (Dation in Payment) 11
6. Lease 11
II. PARTIES TO A CONTRACT OF SALE 12

Capacity to Act and Capacity to enter into Contracts 12
1. Minors, Insane and Demented Persons, and Deaf Mutes who do not know how to write12
2. Between Spouses 14
3. Others Relatively Incapacitated under Art. 1491 15
III. SUBJECT-MATTER OF SALE 18

Basic Principles 18
1. Possible 19
2. Licit 20
3. Determinate or at least Determinable 21
IV. PRICE AND OTHER CONSIDERATION 24

Basic Principles 24
1. Real 24
2. Valuable Consideration (Money or its equivalent) 27
3. Certain or Ascertainable 28
V. & VI. FORMATION AND CONSUMMATION: STAGES IN THE LIFE OF

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Ateneo Law 2B, Batch 2017 1 of 98 LAW ON SALES
A SALE 31
A. POLICITACION (NEGOTIATION) STAGE 31
Basic Principles 31
1. Option Contract 32
2. Right of First Refusal 34
3. Mutual Promise to Buy and Sell 35
B. PERFECTION STAGE 37
1. General Rules on Consent: Meeting of the Offer and Acceptance 37
2. Sale by Auction 38
3. Earnest Money 39
4. Formal Requirements of Sales 40

C. CONSUMMATION STAGE 43
1. Obligations of the Seller 43
2. Special Rules on Completeness of Delivery 51
3. Double Sales 54
4. Obligations of the Buyer 57
VII. DOCUMENTS OF TITLE 59

1. Definition and Purpose 59
2. Negotiable Documents of Title 59
3. Non-Negotiable Documents of Title 61
4. Warranties of Seller of Documents of Title 62
5. Effects when owner of the Document of Title has no Legal title to the Goods 62
6. Rules of Levy/Garnishment of Goods 63
VIII. SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE65

A. WHEN SELLER IS NOT OWNER OF SUBJECT-MATTER/ SALE BY NON-OWNER 65
1. At Perfection 65
2. At Consummation 65
3. Sale by Co-Owner of the Whole Property or Definite Portion Thereof 66
B. EXCEPTIONS TO THE RULES ON LEGAL EFFECTS OF SALE BY NON-OWNER: WHEN OWNERSHIP

TRANSFERS BY ACT OF NON-OWNER 67
BASIC INFORMATION 67
1. Estoppel on True Owner 68
2. Recording Laws: Torrens System 68
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3. Statutory Power Order of Courts 68
4. Sale in Merchant Stores, Fairs or Markets 69
C. SALE BY ONE HAVING VOIDABLE TITLE 69
IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS 72

1. Basic Information 72
2. Before Perfection 72
3. At the Time of Perfection 72
4. After Perfection but Before Delivery 73
5. After Delivery 75
X. REMEDIES OF THE PARTIES 76

A. REMEDIES OF THE SELLER 76
1. In case of Movables 76
2. Unpaid Seller of Goods 77
3. Recto Law 83
4. In Case of Immovables 87
5. Maceda Law: Sales of Residential Realty on Instalments (RA 6552) 88
B. REMEDIES OF THE BUYER 91
1. In case of Movables 91
2. In case of Immovables 92
XI. REMEDIES OF RESCISSION AND CANCELLATION FOR

IMMOVABLES 94
1. Nature of Remedy of Rescission 94
2. Governing Provisions and Principles for Remedies of Rescission and Cancellation 94

3. Summary of Supreme Court decisions covering the bases of determining whether a sale is one
of contract of sale or a contract to sell (CLV Chart in this chapter, see pages 482-489) 96
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I. NATURE OF A SALE
I. NATURE OF A SALE
A. ESSENTIAL CHARACTERISTICS OF A CONTRACT OF SALE
SALE AS A CONTRACT: DEFINITION AND ELEMENTS
Article 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by
article 1170, may compel the debtor to make the delivery.
Article 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other manner,
the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the
buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case.
Sale is a Contract
Seller obligates himself to:
1. Transfer the ownership
2. Deliver (the possession of) a determinate thing
Buyer obligates himself to:
1. Pay a price certain in money or its equivalent
Nature of Obligation created in a Sale

It creates obligations to give, therefore once perfected, the buyer may bring an action for specific performance in case of
non-performance under Art. 1165 because what is involved is the giving of determinate things
One who defaults cannot just insist on just paying damages
Real obligation because it involves the giving of a thing as distinguished from a Personal Obligation which involves a service
Elements of a Sale
1. Consent
2. Determinate subject-matter
3. Price certain in money or its equivalent
Absence of any essential elements negates a sale

Once all elements are proven, a sales validity is not affected by previously executed fictitious deed of sale
Neither is it affected by non-performance thereafter
The essential elements of a sale must be present in its PERFECTION, where the meetings of the minds take place. The
perfection of a sale is distinct from its consummation
EXCEPTION: In Art. 1474, even if there is no consent because the price is still uncertain, there can be a valid sale if
the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price
therefor
Contemplates a situation where the subject-matter of the sale has already been appropriated and delivered even though
the price is still uncertain, in this case, the buyer cannot escape liability and he must pay a reasonable price set by the
courts according to the circumstances of each case
There is still a valid sale in this case even though there is absence of the essential elements of a sale
1. NOMINATE AND PRINCIPAL

Nominate
Since it has been given a name by law
It is governed by the civil code
The real character of a contract of sale is not the name given to it by the parties but by its substance, in accordance with what
the law defines it to be, taking consideration its essential elements
Courts must look at the intent of the parties in order to determine the nature of a contract NOT at the nomen clatter used
to describe it
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I. NATURE OF A SALE
Rules of interpretation of contracts applied
Contracts are not defined by the parties but by the principles of law
Once a contract has all the elements of a contract of sale, then it will be governed by the law on sales
Principal
It can stand on its own and its validity and existence does not depend on another contract, as distinguished from accessory
contracts
2. CONSENSUAL
Article 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject
to the provisions of the law governing the form of contracts.
Article 1358. The following must appear in a public document:

1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real
rights over immovable property; sales of real property or of an interest therein are governed by articles 1403, No. 2,
and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
3. The power to administer property, or any
other power which has for its object an act appearing or which should appear in a public document, or should
prejudice a third person;
4. The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one.
But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1405.
Article 1403. The following contracts are unenforceable, unless they are ratified:
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in
writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be
received without the writing, or a secondary evidence of its contents:
1. An agreement that by its terms is not to be performed within a year from the making thereof;
2. A special promise to answer for the debt, default, or miscarriage of another;
3. An agreement made in consideration of marriage, other than a mutual promise to marry;
4. An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos,
unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of
such things in action or pay at the time some part of the purchase money; but when a sale is made by auction
and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it
is a sufficient memorandum;
5. An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;
Sale is perfected by mere consent

It is perfected at the moment there is a meeting of minds upon the:
1. Thing which is the object of the contract
2. Price
The actual delivery of the subject-matter or payment of the price agreed upon are not necessary components to
establish the existence of a valid sale
Non-performance or non-payment does not invalidate a valid sale
Because performance goes into the consummation of the sale, not its perfection
Consequences of the perfection of the Sale:

From the point of perfection, the parties may reciprocally demand performance, subject to the provisions of the law
governing the form of contracts.
Subject to the provisions of the law governing the form of contracts

Means that although the perfection of a sale is consensual (no form required) its enforceability and greater efficacy
may be subjected to other provisions of law
Such as statute of frauds and contracts that need to be embodied in a public instrument for greater efficacy
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I. NATURE OF A SALE
Modalities that affect the characteristic of Consensuality

Consensual characteristic may be affected by certain modalities added by stipulation by the parties
Such as a term or condition
Note that a sale may be absolute or conditional according to Art. 1458
Perfection distinguished from demandability
Not all contracts of sale become automatically and immediately effective upon perfection
A suspensive condition or period suspends the demandability of the obligation but the contract is still perfected because
all the essential elements are present
3. BILATERAL AND RECIPROCAL
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
1. When the obligation or the law expressly so declare; or
2. When from the nature and the circumstances of the obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
3. When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other
begins.
Article 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.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
Bilateral/Reciprocal
It imposes obligations on both parties
Obligation of each party is the cause for the obligation of the other
A sale is always mutually obligatory, both parties have obligations arising from the contract
Each party is SIMULTANEOUSLY a debtor and creditor of the other
Reciprocal Obligations
The obligation of one party is dependent upon the obligation of the other such that they are to be performed simultaneously,
so that the performance of one is a negative resolutory condition of the other
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation, delay by the other begins.
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.
4. ONEROUS
Article 1350. In onerous contracts the cause is understood to be, for each contracting party, the prestation or promise
of a thing or service by the other;
Article 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding articles, and
the doubts refer to incidental circumstances of a gratuitous contract, the least transmission of rights and interests
shall prevail. If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests.
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I. NATURE OF A SALE
Onerous
Pertains to the cause of the contract
Means the it imposes valuable consideration
The cause is, for each contracting party, the prestation or promise of a thing or service by the other
Consequences of a Sale as an Onerous Contract

Rules of Interpretation: Since sale is an onerous contract, When it is absolutely impossible to settle doubts by the rules
established in the interpretation of contracts, the doubt shall be settled in favor of the greatest reciprocity of interests.
5. COMMUTATIVE
Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence.
Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or some other act or contract.
Commutative
A thing of value is exchanged for equal value
Ideally the value of the subject-matter is equivalent to the price paid
No strict requirement though in the value of the subject-mattter in relation to the consideration
Subjectiveness of commutative characteristic
There is no requirement that the price be equal to the exact value of the subject-matter opt sale, all that is require is
that the parties believe that they will receive good value in exchange for what they will give
But the subjective nature should not be pushed to absurdity
Hence, even if gross inadequacy of the price cannot invalidate a sale, a GROSS DISPROPORTION between
the subject-matter the the price may invalidate a sale on the basis of absence of consideration. Such
disproportion must be shocking to the senses
6. TITLE, NOT A MODE

Sale as a title not a mode of transferring ownership
Sale is not a mode but merely a title
A mode is the legal means by which dominion or ownership is created, transferred or destroyed.
Sale by itself does not transfer or affect ownership; the most that ale does is to CREATE the obligation to transfer ownership
Delivery, as a consequence of a salke, is the mode which transfers ownership
Means that a sale only creates personal rights between the parties which is binding only between them, it is delivery which
creates real rights which is binding against the whole world
Sale is perfected by mere consent but ownership of the subject-matter passes only upon delivery
Sale only constitutes the LEGAL BASIS by which to affect ownership
The sellers ownership of the thing sold is NOT an element of perfection, what the law requires is that the seller has
the right to transfer ownership at the time of delivery
What if a person sells a thing which does not belong to him?
There is a perfected contract of sale between such person and the buyer
An unenforceable contract of sale between the owner and the buyer under Art. 1403
B. SALE DISTINGUISHED FROM OTHER SIMILAR NOMINATE CONTRACTS
1. DONATION
Article 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of
another, who accepts it.
Article 726. When a person gives to another a thing or right on account of the latter's merits or of the services rendered
by him to the donor, provided they do not constitute a demandable debt, or when the gift imposes upon the donee a
burden which is less than the value of the thing given, there is also a donation
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I. NATURE OF A SALE
Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or
some other act or contract.
Sale vs Donation
1. Cause
Sale: Essentially Onerous
Donation: Generally Gratuitous (why generally? See Art. 726)
2. Perfection
Sale: Consensual, perfected by mere consent
Donation: Solemn contract, requires formalities for perfection (Refer to Art. 745-749)
3. Succession
Sale: Does NOT cause diminution of the sellers estate, but merely substitution of values, with the property sold
replaced by the equivalent monetary consideration. Therefore, it cannot have the legal effect of depriving the
compulsory heirs of their legitime
Donation: Causes diminution of the sellers estate and may prejudice the legitimes of the heirs (inofficious). As such, it
can be subject to rescission.
When is it important to know the distinction?

When the consideration for the transfer is not clear
When the price of sale is simulated, the sale is void, but the act may be shown to be a donation or some other act other Art.
1471 (Relative Simulation)
Means that the contract may be called a sale, but it may turn out to be really a donation and will be governed as such
2. BARTER
Article 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction
shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be
considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale.
Article 1638. By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of
the other's promise to give another thing.
Article 1639. If one of the contracting parties, having received the thing promised him in barter, should prove that it did
not belong to the person who gave it, he cannot be compelled to deliver that which he offered in exchange, but he shall
be entitled to damages.
Article 1640. One who loses by eviction the thing received in barter may recover that which he gave in exchange with a
right to damages, or he may only demand an indemnity for damages. However, he can only make use of the right to
recover the thing which he has delivered while the same remains in the possession of the other party, and without
prejudice to the rights acquired in good faith in the meantime by a third person.
Article 1641. As to all matters not specifically provided for in this Title, barter shall be governed by the provisions of
the preceding Title relating to sales.
Sale vs Barter
What is Barter?
By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of the other's
promise to give another thing.
What is Sale?
By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in money or its equivalent
Rules to differentiate a Sale from a Barter
GENERAL RULE: Look at the MANIFEST INTENTION of the parties
If the intention of the parties is that there is an apparent (buyer-seller) relationship where a buyer offers to buy the
thing from the seller even in consideration of another thing, it is a sale.
Means there is a concept of buying
If the intention of the parties is more like a trade it is barter
This rule applies if the consideration of the contract consists partly in money, and partly in another thing. (Or wholly
a thing also)
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I. NATURE OF A SALE
If general rule NOT APPLICABLE (When the intention does not clearly appear and the consideration consists
partly in money and partly in another thing):
BARTER: If the value of the thing given as a part of the consideration exceeds the amount of the money or its
equivalent
SALE: If the value of the thing given as a part of the consideration is equal to or less the amount of the money or
its equivalent
Importance of the distinction

Not really important because aside from the two rules applicable to barter in Art. 1639 and 1640, Art. 1641 says that barter
is governed by the Law on Sales
Instances when distinction is important
1. Statute of Frauds does NOT apply to barter
2. Right of legal redemption granted by law to an adjoining owner of an urban land does not cover exchanges of
properties (barter)
3. CONTRACT FOR PIECE-OF-WORK
Article 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract
of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the
general market, it is a contract for a piece of work.
Article 1713. By the contract for a piece of work the contractor binds himself to execute a piece of work for the
employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill,
or also furnish the material.
Article 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the thing. This contract shall be governed by the following
articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price
in a contract of sale.
Article 1715. The contract shall execute the work in such a manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such
quality, the employer may require that the contractor remove the defect or execute another work. If the contract fails or
refuses to comply with this obligation,the employer may have the defect removed or another work executed, at the
contractor's cost.
Sale vs Contract for Piece-of-Work

What is a Contract for Piece-of-Work?
By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation.
The contractor may either employ only his labor or skill, or also furnish the material.
It is a contract to do hence it is not subject to specific performance unlike a sale
Its essence is the sale of service
Why is it similar with a Contract of Sale?
In both contracts, a transfer of ownership is involved and a party necessarily walks away with an object
In both, the provisions on warrant of title against hidden defects applies
Rules to differentiate a Sale from a Contract for Piece-of-Work

1. HABITUALITY TEST (Art. 1467)
Sale: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his
business manufactures or procures for the general market, whether the same is on hand at the time or not
1. Manufactured in the ordinary course of business
2. For the general market
Contract for piece-of-work: If the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market
1. Manufactured upon special order of customers
Means it is based on the ability of the manufacturer to manufacture the goods without waiting for specific
orders
2. Not for the general market
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I. NATURE OF A SALE
APPLIED in Celestino Co vs Collector: When a person stipulates for the future sale of articles which he is habitually
making, and which at the time are not made or finished, it is essentially a contract of sale and not a contract of labor;
even when he executes production thereof only after an order is placed by customers
2. The test of Special Orders is NOT one of timing but is determined by the Nature of the Work which must be
characterised as special
The products must NOT be ordinary products of the manufacturer, they should require special skills or equipment
APPLIED in CIR vs EEI: If the articles ordered by the purchaser is exactly such as vendor makes and keeps on hand
for sale to anyone, and no change is made at the purchasers requrest, it is a contract of sale. If each products/jobs are
different and not identical, it is a contract for piece-of-work
3. Test of the INTENTION OF THE PARTIES
Question is, is the buyer after the service or the product?
If the buyer is after the process which the product would have to undergo, then it is a contract for piece-of-work
This is supported by Tolentino:
According to him, the distinction depends on the INTENTION OF THE PARTIES. If the parties intended that at
some future date an object has to be delivered, without considering the work or labor of the party bound to
deliver, it is a SALE; but if one of the parties accepts the undertaking on the basis of some plan, taking into
account the work he will employ personally or through another, is is a CONTRACT FOR PIECE-OF-WORK
Importance of the distinction

Tax provisions
Remedy in case of non-performance
In a Sale (Real Obligation), action for specific performance is applicable since what is involved is the obligation to give
a determinate thing
In a Contract for Piece-of-Work (Personal Obligation), an action for specific performance is NOT applicable since what
is involved is the obligation to do
4. AGENCY TO SELL
Article 1466. In construing a contract containing provisions characteristic of both the contract of sale and of the
contract of agency to sell, the essential clauses of the whole instrument shall be considered.
Article 1868. By the contract of agency a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter.
Sale vs Agency to Sell

What is a Contract of Agency?
By the contract of agency a person binds himself to render some service or to do something in representation or
on behalf of another, with the consent or authority of the latter.
Agency establishes a representative capacity in the agent which is highly fiduciary
It involves a personal obligation to do
Distinctions
1. Revocation
Sale: Not unilaterally revocable
Agency: Essentially revocable by principal (Exception to mutuality of contracts under Art. 1308 where the
contracts cannot be left to the will of one of the parties)
2. Payment of the Price
Sale: Buyer himself pays for the subject-matter which is his main obligation
Agency: Agent not obliged to pay the price, he is merely obliged to deliver the price which he may received from
the buyer/principal
3. Ownership
Sale: Buyer becomes owner of subject-matter after delivery
Agency: Agent never becomes owner
4. Liability
Sale: Seller warrants
Agency: Agent assumes no personal liability as long as he acts within the authority and in the name of the
principal
5. Profit from the transfer of the thing
Sale: Seller receives personal profit from the sale
Agency: Agent does not receive profit from the sale, only commissions arising out of it
How to differentiate
The essential clauses of the whole instrument shall be considered (Art. 1466)
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I. NATURE OF A SALE
Note: the assumption by the Agent of the risk pertaining to the cost or price of the subject-matter makes the relationship
that of buyer-seller, for the agent does not assume risk with respect to the price or the property subject of the relationship
One factor which clearly distinguishes agency from other legal concepts, including sale, is control, one person, the agent
agrees to act under the control or direction of another, the principal
5. DACION EN PAGO (DATION IN PAYMENT)
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be
governed by the law of sales
Article 1934. An accepted promise to deliver something by way of commodatum or simple loan is binding upon parties,
but the commodatum or simple loan itself shall not be perfected until the delivery of the object of the contract
Sale vs Dacion en Pago

What is Dacion en Pago?
It is a special mode of payment under the chapter of Payments under the chapter on extinguishment of obligations
It is a transaction that takes place when property is alienated to the creditor in full satisfaction of a debt in money
Debt in money refers to a simple loan or mutuum under Art. 1934
It involves the delivery and trasmission of ownership of a thing as an accepted equivalent of the performance of the
obligation to pay money
There is no Dacion en Pago where there is NO transfer of ownership in the creditors favour, as when the
possession of the thing is merely given to the creditor by way of security
For Dacion en Pago to arise, there must be ACTUAL DELIVERY of the property to the creditor by way of
extinguishment of the pre-existing debt
Its concept is objective novation, where the thing offered as an accepted equivalent if the performance of an obligation
is considered as the object of the contract of sale, while the debt is considered as the purchase price or consideration
Although it is a form of novation, it is NOT governed by the law on novation but the Law on Sales (Art. 1245)
This is because it is as if the creditor bought the thing offered by the debtor who owes money
It exists in the stage of consummation
It must extinguish the monetary debt
Elements of a Dacion en Pago
1. Performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing
or a real right or a credit against the third person
2. Some difference between the prestation due and that which is give in substitution
3. Agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the
performance of a prestation different from that due
6. LEASE
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:
4. Exact fulfillment of the obligation, should the vendee fail to pay;
5. Cancel the sale, should the vendee's failure to pay cover two or more installments;
6. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
Article 1643. In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing
for a price certain, and for a period which may be definite or indefinite.
What is a Contract of Lease?

In the lease of things, one of the parties binds himself to give to another the enjoyment or use of a thing for a
price certain, and for a period which may be definite or indefinite.
Only enjoyment or use of the thing is involved not its ownership
Lease with option to buy is a conditional sale (Art. 1485)
Its a lease only in name
When the rentals in a lease are clearly meant to be instalment payments to a sale contract, despite the nomenclature given
by the parties, it is a sale by instalments
Clarence Tiu
II. PARTIES TO A CONTRACT OF SALE
CAPACITY TO ACT AND CAPACITY TO ENTER INTO CONTRACTS
Article 37. Juridical capacity, which is the fitness to be the subject of legal relations, is inherent in every natural person
and is lost only through death. Capacity to act, which is the power to do acts with legal effect, is acquired and may be
lost.
Article 38. Minority, insanity or imbecility, the state of being a deaf-mute, prodigality and civil interdiction are mere
restrictions on capacity to act, and do not exempt the incapacitated person from certain obligations, as when the latter
arise from his acts or from property relations, such as easements.
Article 39. The following circumstances, among others, modify or limit capacity to act: age, insanity, imbecility, the
state of being a deaf-mute, penalty, prodigality, family relations, alienage, absence, insolvency and trusteeship. The
consequences of these circumstances are governed in this Code, other codes, the Rules of Court, and in special laws.
Capacity to act is not limited on account of religious belief or political opinion.
Capacity to Act
The power to do acts with legal effect or the power of a person to obligate himself
As distinguished from Juridical Capacity, which is the capacity to be subject of legal relations, capacity to act may be limited,
diminished or restricted by law. Juridical capacity cannot be.
Juridical capacity is merely a passive dimension of a person as a subject of legal relations, while the Capacity to Act is
an active dimension of person to do acts with legal effect
Rule: Only persons who has the capacity to act may enter and be a party to a contract of Sale. The capacity to act may
be limited or lost by law, thus some persons who have no capacity to act CANNOT validly enter into a contract of Sale
Who has Capacity to Act?
1. Natural Persons
Commencing from the age of majority (18)
2. Juridical Persons
Who may enter a Contract of Sale?

All persons who are authorized in this Code to obligate themselves (those with capacity to act), may enter into a contract of
sale (Art. 1489)
1. MINORS, INSANE AND DEMENTED PERSONS, AND DEAF MUTES WHO DO

NOT KNOW HOW TO WRITE
Article 1327. The following cannot give consent to a contract:

1. Unemancipated minors;
2. Insane or demented persons, and deaf-mutes who do not know how to write.
Article 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or
during a hypnotic spell are voidable.
Article 24. In all contractual, property or other relations, when one of the parties is at a disadvantage on account of his
moral dependence, ignorance, indigence, mental weakness, tender age or other handicap, the courts must be vigilant
for his protection.
Article 1332. When one of the parties is unable to read, or if the contract is in a language not understood by him, and
mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully
explained to the former.
Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor
can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their
action upon these flaws of the contract.
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Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is
not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him.
Article 1489. All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale,
saving the modifications contained in the following articles.
Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a
reasonable price therefor. Necessaries are those referred to in article 290
Article 290. Support is everything that is indispensable for sustenance, dwelling, clothing and medical attendance,
according to the social position of the family.
Support also includes the education of the person entitled to be supported until he completes his education or training
for some profession, trade or vocation, even beyond the age of majority.
Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the
contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract
Article 1403. The following contracts are unenforceable, unless they are ratified:
(3) Those where both parties are incapable of giving consent to a contract.
General Rule: The following HAVE NO LEGAL CAPACITY to given consent to a contract and thus cannot be
parties a Sale.
1. Unemancipated Minors
2. Insane or Demented persons (unless made during a lucid interval)
3. Deaf-Mutes who cannot write
4. Persons in a State of Drunkenness
5. Persons who are in a Hypnotic Spell
6. Senility (Under Art 24 in relation to Art. 1332 and Paragas vs Heirs of Balacano)
Unemancipated Minors
Those below 18 years of age
Insanity
May be temporary or permanent, if contract is perfected during a lucid interval it is valid
Where one is shown to have been mentally deranged at a recent period anterior to the execution of the contract, that
condition is PRESUMED to continue and the burden is on the other party to prove that ti was perfected during a lucid
interval
Intoxication
Intoxication must be of such a character as to perpetuate an undue advantage over the drunken person. Mere fact that the
part was drunk is not enough
When drunkenness may deprive the person of the legal capacity to enter into contracts, the contracts of an intoxicated
person may be voidable under any one of the following grounds
1. When it appears that drunkenness was brought about by the opposite party
2. That a fraudulent advantage was taken of it
3. Drunkenness was so complete as to deprive the party of his reason of an agreeing mind.
Hypnotic spell
Artificially induced state, resembling sleep, but characterised by exaggerated suggestibility and continued responsiveness to
the voice of the hypnotist.
Senility
Advanced age or elderly
General Rule: A senile person may enter into contracts, he is NOT incompetent merely because of his advanced years or by
reason of his physical infirmities
Exception: When such age or infirmities have impaired the mental faculties so as to prevent the person from properly,
intelligently, and firmly protecting his rights then he is undeniably incapacitated
The sale is VOID and NOT merely VOIDABLE (Paragas vs Heirs of Balacano)
The essence is that there was never any meeting of the minds and no real consideration. (This is an analogous
application of Art. 1332)
Clarence Tiu
EXCEPTION: Where necessaries are those SOLD and DELIVERED to a minor or other person without capacity to
act, he must pay a reasonable price therefor.
Contemplates a perfected sale with the presence of all the essential elements and its delivery to the person without
capacity to act
Necessaries:
1. Everything indispensable for sustenance
2. Dwelling
3. Clothing
4. Medical Attendance
5. Education
Requisites for sale of necessaries to Incapacitated Persons to be valid:
1. Perfection of Sale
2. Delivery of necessaries
SUMMARY: Status of the Contract entered into by the person without capacity to act:
1. If only one of the parties has no capacity: VOIDABLE
2. If both parties have no capacity: UNENFORCEABLE
3. If the incapacity is Senility: VOID
Restitution of the subject-matter of the Defective Sale

General Rule: Incapacitated person is NOT obliged to make restitution
Exception: Except insofar as he has been benefited by the thing/price
2. BETWEEN SPOUSES
Article 96. The administration and enjoyment of the community property shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy,
which must be availed of within five years from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the common
properties, the other spouse may assume sole powers of administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority
or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing
offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the
acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors.
Article 124. The administration and enjoyment of the conjugal partnership shall belong to both spouses jointly. In case
of disagreement, the husband's decision shall prevail, subject to recourse to the court by the wife for proper remedy,
which must be availed of within five years from the date of the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise unable to participate in the administration of the conjugal
properties, the other spouse may assume sole powers of administration. These powers do not include disposition or
encumbrance without authority of the court or the written consent of the other spouse. In the absence of such authority
or consent, the disposition or encumbrance shall be void. However, the transaction shall be construed as a continuing
offer on the part of the consenting spouse and the third person,
and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court
before the offer is withdrawn by either or both offerors.
Article 73. Either spouse may exercise any legitimate profession, occupation, business or activity without the consent
of the other. The latter may object only on valid, serious, and moral grounds.
Article 1490. The husband and the wife cannot sell property to each other, except:
1. When a separation of property was agreed upon in the marriage settlements; or
2. When there has been a judicial separation of property under article 191.
Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises
and renunciations.
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Sale of Spouse to Third Parties
General Rule: Sale of a spouse of a conjugal property without the other spouses consent is VOID
It is not merely voidable because the resulting contract lacks full consent
Sale of one spouse of his separate property is valid
Exceptions: The following are nonetheless valid even though they involve conjugal property and are made without
the consent of the other
1. If there is a court order
2. If such sale of the conjugal property is necessary to answer for conjugal liabilities mentioned in Art. 161 and 162
3. If sale is entered into in the regular or normal pursuit of the spouses profession
Status of the Contract: VOID, but the transaction shall be construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either or both offerors.
Sale of Spouses to Each Other

General Rule: Spouses cannot sell properties to each other, such sale is VOID
Sale is void and not merely voidable
Who may assail the sale?
Not the spouses because they are in pari delicti
Heirs and creditors who are prejudiced
State (for taxes)
Nevertheless, when property is resold to a third party-buyer in good faith and for value, reconveyance is no longer
available
Rationale for prohibition
1. To prevent a spouse from defrauding his creditors by transferring his properties to the other spouse
2. To avoid a situation where dominant spouse unduly takes advantage of the weaker spouses, defrauding the
latter
3. Avoid indirect violation of prohibitions against donations between spouses
Exception: If the sale was made when the following property regimes govern the marriage:
1. CPG- When a separation of property was agreed upon in the marriage settlements; or
2. JSP- There has been a judicial separation of property
Applicability of the Incapacity to Common Law Spouses

Since under Art. 1490, the Spouses cannot validly sell property to one another, then public policy considerations and the
dictates of morality require that the prohibition should apply also to common-law relationships
This is because to render it inapplicable would put common-law relationships and concubines in a better position than
spouses/wives. Those living without the benefit of marriage would be put in a better position than those legally married
Calilim-Canullas vs Fortun (1984): Contract of sale made by husband to concubine was null and void for being contrary to
morals and public policy.That sale was subversive of the stability of the family, a basic social institution which public policy
cherishes and protects.
The rules are also applicable to sales in legal redemption, compromises and renunciations.
3. OTHERS RELATIVELY INCAPACITATED UNDER ART. 1491
Article 1491. The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or
through the mediation of another:
1. The guardian, the property of the person or persons who may be under his guardianship;
2. Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the
principal has been given;
3. Executors and administrators, the property of the estate under administration;
4. Public officers and employees, the property of the State or of any subdivision thereof, or of any government-
ownedor controlled corporation, or institution, the administration of which has been intrusted to them; this
provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale;
5. Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees
connected with the administration of justice, the property and rights in litigation or levied upon an execution before
the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the
act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the
object of any litigation in which they may take part by virtue of their profession;
6. Any others specially disqualified by law.
Article 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises
and renunciations.
Clarence Tiu
Relatively Incapacitated Persons
They are only relatives incapacitated because such persons are normally capacitated but because of the circumstances that
are attendant, an arising sale is VOID
Rule: Contracts entered into in violation of Articles 1491 are VOID. They are considered void under Art. 1409
because they are executed against mandatory or prohibitory laws
Art. 1491 prohibits in its six paragraphs certain persons, by reason of the relation of trust or their peculiar control either
directly or indirectly and "even at a public or judicial auction," as follows
1. Guardians
2. Agents
3. Administrators
4. Public officers and employees
5. Judicial officers and employees, prosecuting attorneys, and lawyers
6. Others specially disqualified by law
Rationale for Prohibition (Rubias vs Batiller 1973)
Fundamental considerations of public policy render void and inexistent such expressly prohibited purchases
Basis is also Art. 1409declaring voidprohibited contracts as "inexistent and void from the beginning.
Ratification in the Normal Sense (Where it retroacts and as if there is no defect)
General Rule: The nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification.
The public interest and public policy remain paramount and do not permit of compromise or ratification.
Exception is under Art. 1491(1), where the principal can ratify a void contract entered into by his agent
Exception: Under Art. 1491(1), where the principal can RATIFY A VOID CONTRACT entered into by his agent involving
the the property whose administration or sale may have been intrusted to such agent.
Ratification (in the sense of a new contract, but there is NO retroactivity)
Rubias vs Batiller (1973): Ratification in the sense involving a new contract.Nullity of such prohibited contracts
involving public interest (1491 (4-6)) differentiated from the nullity of contracts of purchase by the guardians, agents
and administrators (1491 (1-3)
The permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the
first three cases of guardians, agents and administrators (Article 1491, Civil Code), as to whose transactions, its
has been opined, may be "ratified" by means of and "in the form of a new contract, in which case its validity shall
be determined only by the circumstances at the time of execution of such new contract. The causes of nullity which
have ceased to exist cannot impair the validity of the new contract. Thus, the object which was illegal at the time of
the first contract, may have already become lawful at the time of ratification or second contract; or the service
which was impossible may have become possible; or the intention which could not be ascertained may have been
clarified by the parties. The ratification or second contract would then be valid from its execution; however, it does
not retroact to the date of the first contract.
The First group (Art. 1491 1-3): Agents, Guardians and Administrators, may be ratified by means of and in the
form of a new contract executed after the circumstances that made it void are no longer attendant
In this case the validity will be determined as of the time of the execution of the new contract
Thus, the new contract may be lawful when at the time of the second contract, the legal impediments no
longer exist
The wrong involving this group affects only private interest, a wrong which the parties may choose to condone
The Second group (Art. 1491 4-5): Public officers and employees, Judges, prosecutors, and lawyers
Cannot be ratified in the form of new contract because there also exists a public wrong, there is damage to public
service
The rules are also applicable to sales in legal redemption, compromises and renunciations.
Property party to raise Nullity

The nullity of contracts entered into in violation of Art. 1491 may be raised by any person whenever juridical effects found
hereon are asserted against him
Fraud of Lesion IMMATERIAL for Nullity

Means that even if benefit accrued to person benefited, the sale will still be VOID
The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or
through the mediation of another (SEE THE PERSONS AND CIRCUMSTANCES INVOLVED):
1. GUARDIANS: the property of the person or persons who may be under his guardianship
These are necessarily officers of the courts, as they are appointed to such positions in judicial proceedings
Hereditary rights are NOT included in the prohibition insofar as administrators or executors of the estate of the
deceased
Philippine Trust Co. vs Roldan (1956): As Guardianship is a trust of the highest order, the trustee cannot be allowed
to have any inducement to neglect his ward's interest; and whenever the guardian acquires the ward's property
through an intermediary, he violates the provision of Article 1459 of the Civil Code and such transaction
andsubsequentones emanating therefrom shall be annulled. Such contracts are Void
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Sale is void even if no actual collusion is proved, good faith not a defense
2. AGENTS: the property whose administration or sale may have been intrusted to them, unless the consent of the
principal has been given
Prohibition against agents does NOT apply if the principal consents to the sale of the property in the hands of the agent
Brokers do not come within this prohibition
Broker: one who is engaged, for others on a commission basis, negotiating contracts relative to property within the
custody of which he has no concern
A broker merely brings the parties together and does not represent any of them, their authority is merely looking
for a buyer/seller
He is strictly a middleman
3. EXECUTORS AND ADMINISTRATORS: the property of the estate under administration;
4. PUBLIC OFFICERS AND EMPLOYEES, JUDGES, GOVERNMENT EXPERTS: the property of the State or of any
subdivision thereof, or of any government-ownedor controlled corporation, or institution, the administration of
which has been intrusted to them;
5. JUSTICES, JUDGES, PROSECUTING ATTORNEYS, CLERKS OF SUPERIOR AND INFERIOR COURTS, OTHER
OFFICERS AND EMPLOYEES CONNECTED WITH THE ADMINISTRATION OF JUSTICE: the property and rights in
litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of acquiring by assignment
A Judge should restrain himself form participating in the sale of properties- it is incumbent upon him to advise the
parties to discontinue the transaction if it is contrary to law
APPLICATION OF THE PROHIBITION: Prohibition applies only to the sale or assignment of the propert UNDER
LITIGATION, which must take place during the PENDENCY OF THE LITIGATION involving the property (Macariola vs
Ascuncion 1982)
The property is in litigation from the moment it becomes subject to the judicial action of the judge
When the main cause of action is not collection of a sum of money, the properties levied are still subject to the
prohibition
A judge who buys property in litigation before his court after the judgement becomes final does NOT violate Art.
1491 but he can be administratively disciplined for violation of the Code of Judicial Ethics
6. LAWYERS: with respect to the property and rights which may be the object of any litigation in which they may take
part by virtue of their profession
This is because of the fiduciary relationship between a lawyer and his client, this is intended to curtail any undue
influence of the lawyer upon his client
APPLICATION OF THE PROHIBITION: Applies only while LITIGATION IS PENDING including if case is on appeal,
even when the litigation is adversarial in nature and the person is the LAWYER IN RECORD
It only applies to a sale to a lawyer in record
WHERE PROHIBITION DOES NOT APPLY:
Does NOT cover assignment of the property given in judgment made by a client to an attorney, who has NOT taken
part in the case nor to a lawyer who acquire property PRIOR to the time he intervened as counsel in the suit
involving such property
If the lawyer is interest during litigation but they sale was executed AFTER the litigation, it is VALID
TO a sale of land acquired by a lcinet ot satisfy a judgement in his favor, to his attorney as long as the property
was NOT subject of the litigation
A CONTINGENCY FEE ARRANGEMENT which grants the lawyer on record proprietary rights to the property in
litigation since the payment of said fee is NOT made during the pendency of litigation but only AFTER judgment
has been rendered
Contingency Fee Arrangement is an arrangement where the lawyer can acquire a certain percentage of the
value of the properties if his client wins
Fabilo vs Intermediate Appellate Court (1991): A contract between a lawyer and his client stipulating a
contingent fee is not covered by the prohibition under Art. 1491 (5) because the payment of said fee is not
made during the pendency of the litigation but only after judgment has been rendered in the case handled by
the lawyer. The said prohibition, however, applies only if the sale or assignment of the property takes place
during the pendency of the litigation involving the clients property.
7. OTHERS: Any others specially disqualified by law.
Clarence Tiu
III. SUBJECT-MATTER OF SALE
BASIC PRINCIPLES
Article 1318: There is no contract unless the following requisites concur:

1. Consent of the contracting parties
2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established
Article 1409. The following contracts are inexistent and void from the beginning:
1. Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exist at the time of the transaction
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the principal object of the contract cannot be ascertained
7. Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes
a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be
prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given,
and shall not be bound to comply with his promise.
Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:
1. When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other's undertaking;
2. When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract,
or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of
what he has given without any obligation to comply his promise.
Article 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is
designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or
delivered.
What is the Object of a Contract?

The object of a contract is its subject-matter.
It is the thing, right or service which is the subject-matter of the obligation arising from the contract.
It is said that the object of the contract and the object of the obligation created thereby are identical
What is the Object/Subject-Matter of a Contract of Sale?

Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale
It must be a thing (as distinguished from a service)
Where under an agreement a party renounces and transfers whatever rights, interests, or claims he has over a parcel of
land in favor of another party in consideration of the latters payment of a loan, the agreement is essentially a sale (Caiobes
Jr. vs Caiobes-Pantoja 2006)
The provisions on sale are catch-all provisions which covers transfers whereby ownership of a thing is ceded for
consideration (PUP vs CA)
Requisites of a Valid Subject-Matter of a Contract of Sale

1. POSSIBLE- It must be existing, having potential existence, a future thing, or even contingent or subject to a resolutory
condition, in other words, it must be a possible thing
2. LICIT- It must be Licit
Clarence Tiu
3. DETERMINATE/DETERMINABLE- It must be determinate or at least determinable
Lack of any requisite results in a VOID sale

Absence of any requisite results in either a no contract situation or VOID contract under Art. 1409
The requisites of the subject-matter are meant to safeguard the reliability and enforceability of the obligations of the sller to
transfer ownership and deliver possession
Rules on restitution (filing an action to recover what has been paid based on the Void Contract)
General Rule: A no contract or void contract situation entitles both parties to recover what he has paid
Based on the principle of unjust enrichment.
Modina vs CA: A transferor can recover the object of a void contract (void due to absence of the essential requisites) by
accion reividicatoria and any possessor may refuse to deliver it to the transferee, who cannot enforce the transfer. The
rule on pari delicto as between the parties DOES NOT APPLY in these cases of inexistent contracts
Exception: Application of the Pari Delicto Doctrine (Means that only innocent parties may recover) in cases where
the nullity proceeds from:
1. The illegality of the object of the contract and the act constitutes a criminal offense
2. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense
Means that the act is against mandatory or prohibitory laws
This is based on the principle that the law will not aid either party to an illegal agreement, it leaves the parties where it
finds them
Pari Delicto means that both parties are equally in fault in that they knew the illegality or defect of their agreement
Exception to Exception: When the agreement is not illegal per se but merely prohibited, and the prohibition by the law is
designed for the protection of the plaintiff, he may if public policy is thereby enhanced, recover what he has paid or delivered
(Art. 1416)
Also, other exceptions under Oblicon
1. POSSIBLE
(3) Those whose cause or object did not exist at the time of the transaction
Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a
contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law
Article 1348. Impossible things or services cannot be the object of contracts.
Article 1461. Things having a potential existence may be the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into
existence.
The sale of a vain hope or expectancy is void
Article 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed
by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale,
in this Title called "future goods.
There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or
may not happen.
Article 1463. The sole owner of a thing may sell an undivided interest therein.
Article 1458: A contract of sale may be absolute or conditional.
Article 1465. Things subject to a resolutory condition may be the object of the contract of sale.
Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the
time expires or if it has become indubitable that the event will not take place.
Clarence Tiu
What are possible things/goods within the contemplation of the law?
1. Existing goods
2. Future goods
3. Contingent goods
1. Existing Goods
The things are existing and owned or possessed by the seller at the time the Contract of Sale was perfected
According to Art. 1462, the goods which form the subject of a contract of sale which are OWNED or POSSESSED by the
seller at the perfection of the contract are Existing Goods
2. Future Goods (Emptio Rei Speratae)

Also known as Emptio Rei Speratae
Means the purchase of what we hope
These are goods to be MANUFACTURED, RAISED, or ACQUIRED by the seller after the perfection of the contract of sale
During the time of perfection, they must have POTENTIAL EXISTENCE determined by the state of science and
technology during such time
The seller should have a reasonable certainty to comply with his obligation and produce the thing
An impossible thing is VOID
A contract of sale coring future things is subject to a SUSPENSIVE CONDITION that the subject-matter will come into
existence
Such that if the condition is NOT fulfilled, because the thing did not come into existence, the contract is deemed
extinguished according to Art. 1184
Note that the existence of the subject-matter is the condition
A sale involving a future thing is NOT yet determinate but is merely determinable, this is because it is not yet particularly
designated or physically segregated from others of the same class as it has not yet existed
What is the thing exists but the seller is not yet the owner or at least the possessor?
It is still considered a future thing
Note that Art. 1462 uses the words acquired and defines Existing Goods as that already owned or possessed by the
seller
Mananzala vs CA (1998): Sale of a lot by a seller who is yet to acquire full ownership from the government agency is a
valid sale since it involves the sale of a future thing, but really the sale was subject to the condition that the seller will
acquire the property.
A valid sale may be absolute or conditional (in this case) according to Art. 1458
3.Contingent Goods (Emptio Spei)

Emptio Spei means purchase of hope
Purchase of hope is still a valid sale, what is prohibited is the purchase of vain hope or expectancy
A sale of contingent goods is a possible situation where the commutative nature of sale is NOT complied with (in an
objective sense) because the buyer can actually get far more or far less or even nothing in exchange of what he paid for.
Although the price he paid is tempered because of the contingent nature of the sale
In this case, the contract of sale is also dependent on a suspensive condition other than the existence of the thing itself.
What is being bought is the chance that the condition will be fulfilled
Ex: Sale of a lottery ticket
Things subject to a Resolutory Condition

Valid as Art 1465 provides that things subject to a resolutory condition may be the object of the contract of sale.
If the thing is extinguished by the resolutory condition, the contract of sale itself is extinguished
The parties should then return to each other what they have received under Art. 1190, in order to preserve the
commutative nature of the sale
Fruits and interests need not be returned since they are deemed mutually compensated under Art. 1187
The suspensive or resolutory condition DOES NOT AFFECT the commutative nature of sale (since this is based
subjectively) because it is presumed that the parties considered these in the determination or the price or consideration of
the sale
2. LICIT
1. Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy
4. Those whose object is outside the commerce of men
Article 1347. All things which are not outside the commerce of men, including future things, may be the object of a
contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law
Clarence Tiu
Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is
delivered.
Article 1575. 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.
When is a thing licit?

A thing is licit and may be the object of the contract when:
1. It is NOT outside the commerce of men
2. It includes rights which are transmissible
Means that the subject-matter is not illegal or prohibited
Illegal because it is against penal laws
Ex: Drugs
Prohibited because it is against mandatory and prohibitory laws expressly declaring it as not subject to sale
Ex:
Animals suffering from contagious diseases
Future inheritance
Sale of land to foreigner
3. DETERMINATE OR AT LEAST DETERMINABLE
(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained
Article 1460. A thing is determinate when it is particularly designated or physical segregated from all others of the same
class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is
capable of being made determinate without the necessity of a new or further agreement between the parties.
Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into
consideration.
Article 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is not
determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same,
without the need of a new contract between the parties
Article 1464. In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the
seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though
the number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in
the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of
the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass
contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the
seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears
Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is
delivered.
Article 1462. The goods which form the subject of a contract of sale may be either existing goods, owned or possessed
by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale,
in this Title called "future goods.
Article 1505. Subject to the provisions of this Title, 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
Article 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.
Clarence Tiu
Rule: The subject matter of a Contract of Sale must be DETERMINATE or at least DETERMINABLE
A thing is DETERMINATE or specific when it is either:

1. Particularly designated
2. Physically segregated from others of the same class
When the subject-matter of a sale is determinate, the basis upon which to enforce the sellers obligation to deliver, as well
as the basis upon which to demonstrate breach, are certain and unequivocal.
It is also when the subject-matter is determinable or specific that the defense of force majeure is applicable to legally relieve
the seller from the consequences of failure to deliver the subject-matter of the sale
A thing is DETERMINABLE only when two requisites are present:

1. Capacity to Segregate- If on the perfection of the sale the subject matter is capable of being made determinate
2. No Further Agreement- And that it is capable of being made determinate without necessity of a new or further agreement
between the parties
By its very definition, a determinate subject-matter is a generic object, because it has neither been physically segregated
nor particularly designated at the point of perfection
What makes it determinable is the fact that during the perfection of the sale, the subject-matter is still generic,
however, during consummation, it will necessarily be determinate
During the consummation, the subject-matter will ALWAYS be determinate, however, if during the perfection it was still
generic, it is determinable
In essence, the requisite of being determinable is met when at perfection, the agreement between the parties included a
FORMULA which can be used by the courts to establish the subject-matter upon which the obligation to delver can be
enforced, without needing to get back to any one or both the parties of the object of their intention
When the formula requires the court to have to go back to the parties to determine their confirmation, then it would
undermine the very enforceability and demandabiltiy of the underlying obligation to deliver; it would actually render the
sale void under Art. 1409 (6) because the original contractual intention of the parties cannot be determined, and would
run counter to the principle of mutuality or obligatory force of every valid contract
Sale of fungible (generic) things is valid if it can be made determinate at the time of delivery
Although the sale of determinable generic things are valid, the obligation to deliver the subject-matter can only be complied
with when the subject-matter has been made determinate, either by physical segregation or particular designation
Determinable subject-matters which are generic before the time of delivery, are not subject to risk of loss until they are
physically segregated or particularly designated
Melliza vs City of Iloilo (1968): The requirement of the law is that a sale must have for its object a determinate thing and
this requirement is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being
made determinate without the necessity of a new or further agreement between the parties
Other rules in relation to the subject-matters determinability

1. If the subject-matter is neither determinate or determinable, the contract is VOID
Void under Art. 1409 (6) which declares void those Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained
2. The test of determinability is the meeting of minds of parties and not the covering deed
The true contract of sale is intangible and is a legal concept. It is perfected by the meeting of the minds
The deed of sale is merely an evidence of the contract. If it does not reflect the true meeting of the minds, it may be
subjet to reformation. It does not invalidate the contract
Atilano vs Atilano (1969): When the deed of sale describes a ot adjacent to the land seen, agreed upon and delivered
to the buyer, such land is the one upon which the minds have met, and not that erroneously described in the deed
Deed of sale must give way to the real contract of the parties. The defect in the final deed would not work to
invalidate the contract where all the essential elements for its validity are present and can be proven
3. Power of the courts to set the QUALITY standard of the subject-matter of a sale when the same is DETERMINABLE
(still generic)
Art. 1246 covers only quality of a generic subject-matter, so that when it is the kind and quantity that cannot be
determined without need of a new agreement of the parties, the contract is VOID
4. QUANTITY as an essential part of determinability
Quantity is essential all the time, because it goes to the satisfaction of the determinate or determinable subject-
matter
Without quantity, the subject-matter is NOT determinate or determinable
The rule applies specifically for determinable generic subject-matters because its quantity may not be definite
during the perfection however during the consummation it should be so.
Specific quantity is NOT important when it is still possible to determine the quantity without need of a new contract
between the parties during delivery.
As a determinate thing is already so during the perfection, the its quantity is already definite
Clarence Tiu
Art. 1349: The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract,
provided it is possible to determine the same, without the need of a new contract between the parties.
National Grains Authority vs IAC (1989): When a maximum quota/quantity is agreed upon, it is still possible to
determine the quantity without need of a new contract thus the subject-matter is determinable.
5. Instances where a sale will give rise to a Co-Ownership
1. Sale of an undivided interest (Art. 1463)
Co-ownership will be proportional to the percentage of the undivided interest with respect to the whole
2. Sale of an undivided share in a mass of fungible things (Art. 1464)
The buyer will be a co-owner to the extent of the definite number, weight, or measure actually bought
If what was actually bought is greater than the amount available, the buyer will become owner of the whole and
the seller is bound to supply the deficiency
Gaite vs Fonacier (1961): If the sale covers a specific mass as a subject-matter without any provisions as to
the measuring or weghing of the subject sold, and the price was not based on such measurement, the subjet
matter of the sale is the whole mass itself as a determinate object. The sale is valid
6. Sellers obligation to transfer title to buyer
General Rule: Ownership is required only upon delivery. It is NOT required at the perception of the contract,
provided, that the seller will be able to TRANSMIT ownership at the time of consummation of the contract
A perfected contract of sale cannot be challenged on the ground of the sellers non-ownership of the thing sold at
the time of the perfection of the contract; it is at delivery that the law requires the seller to have the right to transfer
the ownership of the thing sold (Art. 1459)
That the seller are no longer owners of the goods at perfection does not appear to b one of the void contracts
enumerated in Art. 1409 and 1402. Art. 1462 itself recognises a sale where they goods are to be acquired by the
seller after the perfection of the contract of sale and calls it "future goods.
This clearly implies that a sale is possible even if the seller was not the owner at the time of sale, provided he
acquires title to the property later on
Under Art. 1505: 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
Status of a contract involving a person who sells property that is NOT his:
Between the unauthorised seller and buyer: VALID because all the essential elements of a sale are present
Between the real owner and the buyer: UNENFORCEABLE under Art. 1403(1), unenforceability is a
personal defense
Exception: In judicial sale, the forced seller who is actually the mortgagor in default, is the owner because only the
absolute owner of the thing can mortgage it.
Subsequent acquisition of title by Non-owner Seller VALIDATES the sale and title passes to the buyer by
operation of law
If a buyer sells something and delivers it to the buyer without owning it, the contract of sale remands valid but the
buyer has no better title to the goods than the seller (Art. 1505)
However if the seller thereafter acquires title to the thing sold and delivered, such title passes to the buyer
by operation of law (Art. 1434)
Clarence Tiu
IV. PRICE AND OTHER CONSIDERATION
BASIC PRINCIPLES
Article 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the
price fixed by one of the parties is accepted by the other, the sale is perfected.
What is the Cause?

The cause of the contract is the why of it
The immediate and most proximate purpose of the contract, the essential reason which impels the contracting parries to
enter into it and which explains and justifies the creation of the obligation through such contract
It may or may not be tangible.
It can take different forms, such as a prestation or promise of a thing or service by another.
It can be the giving of sum of money, an object or even an expectation of profits from a subdivision project
What you get out of the contract
Price
Signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing
of the price put to the debit of the buyer and agreed to by him
By definition under Art. 1458, the ideal consideration for a contract of sale would be price as a sum certain in money or its
equivalent. However, it is possible that a sale may still be valid when it has for its cause or consideration an item other than
price
Torres vs CA (1999): Consideration, more proper;y denominated as cause, can take different forms, such as the
prestation or promise of a thing or service by another. Therefore, it would be valid for a sale of the subject-matter to
have as its consideration the expectation of profits form the subdivision project as part of the joint venture arrangement
between the parties
Must be valuable consideration in that the value may be approximated
A sale can have other valuable consideration, not necessarily money, the essence of sale is the transfer of ownership for
some valuable consideration
Art. 1458 in effect is a catch-all provision which effectively brings within its grasp a whole gamut of transfers whereby
ownership of a thing is ceded for a consideration
Requisites of a Valid Price

1. Real
2. Valuable Consideration (In money or its equivalent)
3. Certain or Ascertainable
As in the case for subject-matter for sales, the requisites provided by law for a valid price to support a valid sale are
intended to preserve the integrity and enforceability of the underlying obligation of the buyer to pay. It is also essential that
the requisites for the price promote the onerous, commutative and bilateral-reciprocal characteristics of the contract of sale
Fixing of the price canon be left to the discretion of one of the contracting parties (Art. 1473)
This is because it violates the mutuality of contracts where the validity of a contract cannot be left to the will of one of the
parties
It can however be left to the discretion of a third person
1. REAL
Article 1345: Simulations of a contract may be absolute or relative. The former takes place when the parties do not
intend to be bound at all; the latter when the parties conceal their true agreement
Article 1346: An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to law, morals, good customs, public order, or public policy
binds the parties to their real agreement.
Clarence Tiu
Article 1353: The statement of a false cause in contracts shall render them void, if it should not be proved that they
were founded upon another cause which is true and lawful
Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the
debtor proves the contrary.
Article 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless
there has been fraud, mistake or undue influence.
Article 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or some other act or contract.
Article 1471. If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or
some other act or contract.
Article 1381. The following contracts are rescissible:

1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than
one-fourth of the value of the things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number
Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts
approved by the courts.
Article 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
(4) When the purchaser retains for himself a part of the purchase price
When Price is Real

At the time of perfection, there should be the LEGAL INTENTION to pay on the part of the buyer, and the LEGAL
EXPECTATION on the part of the seller to receive the price as the value of the subject-matter he obligates himself to
deliver
1. Legal Intention to pay on the part of the buyer
2. Legal Expectation to receive on the part of the seller
When it the Price NOT real?

1. Absolute Simulation: When there is NO consideration
2. Relative Simualation: When there is FALSE consideration
RULE: Consideration is ALWAYS presumed to exist and is lawful, the one alleging the contrary must prove that it
is simulated in order to render the contract VOID
Article 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor
proves the contrary.
How to prove whether the consideration is real or simulated? And if simulated, whether absolutely or relatively
simulated?
The issue boils down to CONTRACTUAL INTENT at the time of the perfection of the contract in order to determine whether
there was any simulation or if there is, whether it is absolutely or relatively simulated
Intent can be determined by the overt act of the parties
An indication in the instrument that the price has been agreed upon and paid, when in fact there has been no such
payment has been considered to be an indication of simulation of price
2 Kinds of Simulation
1. ABSOLUTE SIMULATION
It is absolutely simulated when neither party had any intention that the amount will be paid and the parties did NOT
intend any other kind of contract
It takes place when the parties do NOT intend to be bound at all
An absolutely simulated or fictitious contract is VOID
If there was NO intent to pay and receive the stipulated price, the agreement is wholly simulated and thus void.
Complete absence of consideration
Rongavilla vs CA (1998): When two aged ladies, not versed in english, sign a deed of sale on representation by the
buyer that it was merely to evidence their debt, the situation constitute more than just fraud and vitiation of consent to
give rise to a voidable contract, since there was in fact no intention to enter into a sale, there was NO CONSENT at all,
and more importantly, there was NO CONSIDERATION OR PRICE agreed upon, which makes the contract VOID
Clarence Tiu
Yu Buan Guan vs Ong (1998): When the deed of sale was executed to facilitate transfer of property to buyer to enable him
to construct a commercial building and to sell the property to the children, such arrangement being merely a subterfuge on
the part of the buyer, the agreement cannot also be taken as a consideration and sale is void
2. RELATIVE SIMULATION
This also involves a VOID contract but also a valid one which is hidden
False price/consideration
There is a real price agreed upon but not declared and what is stated in the deed of sale is NOT the one intended
to be paid
Or it can be that the parties really intended a donation or some other act or contract (Art. 1471)
In this case the instrument containing the sale is VOID and should be subject to REFORMATION in order to
reflect the true intent and contract of the parties
When the parties intended to be bound but the deed did not reflect the actual price agreed upon, there is only relative
simulation of the contract which remans valid and enforceable but subject to reformation
Art. 1345 provides that a relative simulation is when the parties conceal their true agreement
Art, 1346 provides that a relative simulation, when it does not prejudice a third person and is not intended for any
purpose contrary to law, morals, good customs, public order, or public policy BINDS the parties to their REAL
agreement.
Heirs of Balite vs Lim (2004): When the price indicated in the deed of absolute sale is undervalued consideration
pursuant to the parties intention to avoid payment of higher capital gains taxes, the price stated is false, but the sale is
still valid and binding on the real terms
ESTOPPEL giving rise to a valid sale even if the price is false: The parties may be bound by estoppel to follow the
price in the instrument when interests of third parties will be adversely affected by the reformation of the instrument
Art. 1346 provides that the relative simulated contract should NOT prejudice a third person and should NOT
intended for any purpose contrary to law, morals, good customs, public order, or public policy
Non-payment of Price
It is not the fact of payment that determinates the validity of the contract of sale based on the existence of the
consideration.
This is because Sale is a consensual contract, not a real contract
Sale, being consensual,, failure of a buyer to pay the price does NOT make the contract void for lack of consideration
or simulation but results in buyers default, for which the seller may exercise his legal remedies
Failure to pay foes into the consummation of the contract, not its perfection
Heirs of Escanlar vs CA (1997): Non-payment of the price is rather, a RESOLUTORY CONDITION which extinguishes
the transaction that, for a time existed, and discharges the obligations created thereunder. The remedy of an unpaid
seller in a sale is to seek either specific performance or rescission
Badge that price is simulated NOT just unpaid
When the price appears as paid, when in fact it has never been paid by the purchaser to the seller
Inadequacy of the Price

General Rule: Gross inadequacy of price does NOT affect a contract of sale
This is because there is NO requirement that the price is exactly the value of the subject-matter
Test of commutativeness is subjective to the parties
Gross inadequacy is where a reasonable man would NOT agree to dispose of his property at the agreed price
EXCEPTIONS (In these cases, it will affect the sale):
1. Defect in the consent
2. Relative Simulation
Parties really intended a donation or some other act or contract.
3. Gross disproportionality between the price and the subject-matter as to shock the senses
4. In Judicial Sales
Inadequacy of the price may render VOID a judicial sale of real property
This is encase the state must protect the seller from a bad deal thats not his fault
This is because the sale is NOT a result of negotiations but rather it is a forced sale and the property of the
seller is to be sold at public auction
Requisites for Nullity of Judicial Sale
1. Only when it is shocking to the conscience of man
2. When there is showing that, in the event of a resale, a better price can be obtained (Cu Bie vs CA 1965)
Exception to Exception (In this case, it won't affect the sale): In judicial sales, when there is a right of
redemption, in which case the proper remedy is to redeem
In fact, a lower sale price makes it easier for the owner to redeem
Exception to Exception to Exception (In this case, it will affect the sale): By way of extraordinary
circumstances, when in a judicial sale, the right of redemption has been lost, where the inadequacy of the
price is purely shocking to the conscience, such that the mind revolts at it and such that a reasonable man
would neither directly or indirectly be likely to consent to it, the sale will be VOID
Clarence Tiu
Lesion of more than 1/4 of the value of the thing sold makes sale RESCISSIBLE unless approved by court in the
circumstances provided in Art. 1381
1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-
fourth of the value of the things which are the object thereof;
2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number
Gross inadequacy of the price amy raise presumption of an equitable mortgage
Sale with Right to Repurchase/ Pacto De Retro Sale (Art. 1602 (1))
Gross inadequacy gives rise to a presumption of equitable mortgage
Equitable mortgage (as defined by Blacks Law): A mortgage secured by the lender taking possession of all
original-title documents of the property serving as security for the mortgage. In case of non-payment, the
lender now has the right of foreclosure, sale, or receivership.
Remedy of the Seller: Have the sale reformed or declared a mortgage contract, then pay off the debt which is
secured
Remedy of the buyer: Foreclose on the mortgage
He cannot appropriate the subject-matter (Pactum Commissorium is NOT allowed)
2. VALUABLE CONSIDERATION (MONEY OR ITS EQUIVALENT)
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional
Article 1468. If the consideration of the contract consists partly in money, and partly in another thing, the transaction
shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be
considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its
equivalent; otherwise, it is a sale.
Valuable Consideration: Money or its equivalent

Art. 1458 requires that equivalent be something REPRESENTATIVE of money to the effect that services are not equivalent
of money insofar as said requirement is concerned and that a contract is not a true sale where price consists of services or
prestations (Bagnas vs CA 1989)
Though this is the case under Art. 1458, Jurisprudence has interpreted the meaning of Art. 1458 to mean that a
sale can have other valuable considerations, not necessarily money. The essence of sale is the transfer of
ownership for VALUABLE CONSIDERATION. Such consideration may take different forms such as a THING OR
SERVICE
The requisite that the price must be in money or its equivalent is one that has NOT been held steadfast by the Supreme
Court as determinative of the validity of a sale. This shows the essence of sale is the existence of the obligation of the
seller to transfer ownership and deliver the possession of the subject-matter, whereas the price, although an essential
element of a valid contract, being essentially a generic obligation, may be subject to VARIATIONS
Art. 1468 recognises that if the consideration of the contract consists partly in money and partly in another thing, the
transaction can still be considered a contract of sale when this is the MANIFEST INTENTION of the parties. This shows that
the consideration for a valid contract of sale can be the PRICE AND OTHER ADDITIONAL CONSIDERATION
Valuable Consideration can be:
1. Money
2. Things/Goods
3. Services
4. Partly money, partly another thing (Art. 1468)
Other valuable consideration in jurisprudence:
Torres vs CA (1999): Where deed provides that the consideration was the expected profits from the subdivision project
PUP vs CA (2001): Cancellation of liabilities on the property in favor of the seller
Doles vs Angeles (2006): Assumption of mortgage constituted on the property sold
Ong vs Ong (1985):
Consideration in this case was 1 peso and other valuable considerations
Court held no evidence was adduced to show that the consideration stated in the deed was no paid or was simulated, it
is PRESUMED to exist under Art. 1354. It held that the statement in the deed of the consideration of P1.00 is not
unusual in deeds of conveyance adhering to the Anglo-Saxon practice of stating a nominal consideration, although the
actual consideration may have been much more
Court said it is possible for the parties of a sale to free on an adequate consideration, and though they will
state a FALSE or NOMINAL consideration in their covering deed, it would NOT affect the validity of the contract
of sale, provided that valuable consideration was in fact agreed upon.
Clarence Tiu
What prevails in Philippine Jurisprudnce is not the common law concept of any consideration, but valuable
consideration
Ong vs Ong, Complemented by Bagnas vs CA (1989):
Consideration in this case was 1 peso and services rendered
Court noted the GROSS DISPROPORTION between the consideration stipulated and the value of the property, would
show that the price stated was false and no other true and lawful cause having been shown, the Court found the deed
void
According to CLV: Bagnas should not be interpreted to mean that although the parties agreed that services agreed
upon to be part of the consideration, the fact that no service was rendered would make the contract VOID. What
happened in this case as distinguished from Ong vs Ong is that evidence was added to indicate that there was no real
intention to pang any indicated valuable consideration
Lesson to learn from the two cases: Presumption is that the Consideration is valid unless the contrary is proven,
such as when there is a gross disproprotionality of the price and the actual value of the subject-matter which would
shock the senses
3. CERTAIN OR ASCERTAINABLE
Article 1469. In order that the price may be considered certain, it shall be sufficient that it be so with reference to
another thing certain, or that the determination thereof be left to the judgment of a special person or persons.
Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties
subsequently agree upon the price.
If the third person or persons acted in bad faith or by mistake, the courts may fix the price.
Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the
party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case
may be.
Article 1472. The price of securities, grain, liquids, and other things shall also be considered certain, when the price
fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an
amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain.
Article 1473. The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the
price fixed by one of the parties is accepted by the other, the sale is perfected.
Article 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other manner,
the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the
buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the
circumstances of each particular case.
Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity
with the provisions of this Code.
Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once.
When price is CERTAIN

When it has been expressed and agreed upon in specific terms of specific pesos and centavos during the sales
perfection
This reiterates that nonet is the best model of valuable consideration
When price is ASCERTAINABLE

1. If the terms of the contract furnishes a basis or measure for determining the amount agreed upon. without having to
refer back to either or both parties
2. If there is reference to another thing certain (Art. 1469)

Such as to invoices then in existence and clearly identified by the agreement or known factors or stipulated formula
3. If its determination be left to the judgment of a special person or persons OR fixed buy the courts in particular
instances (Art. 1469)
The price is set by a third person appointed on the sales perfection
Clarence Tiu
Designation already makes the price ascertainable
NOTE that the subject-matter CANNOT be fixed by third parties, only the price
Why the different treatment? Because consideration is essentially a fungible obligation. Obligation to deliver
subject-matter can only be complied when it is already determinate or determinable, in this case it is NOT a
generic obligation and the third party might choose a subject-matter the party might be unwilling to give
Status of the Contract before the price is fixed by the third person: Sale is perfected and existing although its
demandability is conditional
Suspensive Condition: the fixing of a price of the designated third person
4 possible outcomes:
1. Third party fixes the price: Contract of Sale is then immediately demandable
2. Third party fixes the price in BAD FAITH OR BY MISTAKE: Parties can seek court remedy to fix the price
Art. 1469: If the third person or persons acted in bad faith or by mistake, the courts may fix the price.
3. Third party is UNABLE OR UNWILLING to fix the price: Sale is extinguished as the condition is deemed not
fulfilled
Parties CANNOT seek aid from the court to fix the price
Non-happening of the condition extinguished the contract
Art. 1474 calls the sale inefficacious
4. Third party is PREVENTED from fixing the price by one of the parties: Condition is deemed fulfilled and the
parties can seek court remedy to fix the price
Art. 1469: Where such third person or persons are prevented from fixing the price or terms by fault of the
seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the
seller or the buyer, as the case may be.
Condition is deemed fulfilled because it is constructive fulfilment under Art. 1186 where if a party prevents a
condition from happening, its considered fulfilled.
4. By reference to a definite day, particular exchange or market (Art. 1472)

Art. 1472: The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed
is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount
is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain.
Effects of Un-Ascertainability: Sale is INEFFICACIOUS (BUT NOT VOID)

General Rule: Where the price cannot be determined in accordance with the preceding articles (Art. 1469-1473), or
in any other manner, the contract is INEFFICACIOUS
What does inefficacious mean?
inability to produce the effects wanted
Does not exclude VOID sales but includes VALID sales which have beckme inefficaicious in the same group as
VOID sales (when it comes to price)
Law does not use the term void because there is actually a contract, but a conditional one
It cant be voided by what happens after perfection
Exception: If the thing or any part thereof has been DELIVERED to and APPROPRIATED by the buyer he must pay a
reasonable price therefor (Art. 1474)
There is a sale in this case even when no price has been agreed upon
Courts will have the authority to fix a reasonable price for the subject-matter depend ending on the circumstances of
each particular case.
Basis is unjust enrichment
Art. 1474 meant to cover all sale contract situations
It is a remedy in favor of the seller
This is the only exception where there would be a valid sale even when there is NO meeting of the minds as to
the price
Appropriation
Means consumption or use in such a way that it cannot be given back or returned anymore
Entails a transformation such that it cannot be returned in its original state as to warrant the cixing of reasonable
price to prevent unjust enrichment
Seems to apply only to movables and NOT to real property
In the latters case it would fall under builders in good faith
Manner of payment of price is ESSENTIAL

Goes into the certainty and ascertainability of the price
A meeting of the minds must include the terms and manner of the payment of price
It is an ESSENTIAL ingredient before a valid sale can exist. Otherwise the sale will be VOID for lack of consideration and
thus consent.
But it will only be essential if the parties acknowledge that they want to stipulate the manner of payment or refer to another
manner of payment besides that which is presumed by law
An absence of acknowledgement as to the manner of payment leads to the general rule that the price is deemed
to be demandable at once according to Art. 1179
Clarence Tiu
This is because it is a pure obligation
In the absence of stipulation indicating a different form of payment, price is deemed by operation of law to be
immediately demandable
Terms of payment has the same requisites of price in order to support a valid contract of sale in that it must be certain or
ascertainable
Navarro vs Sugar Producers Corp (1961): When the manner of payment of the price is discussed after acceptance of
the offer, then such acceptance did NOT produce a binding and enforceable contract of sale. This is because there was
NO complete meeting of the minds and there is NO basis to sue on a contract that is VOID. This is why specific performance
cannot be availed of
Cruz vs Fernando Sr. (2005): Absence of stipulation on manner of payment supports the position that such contract
was a contract to sell, not a contract of sale which essentially constitutes obligations to do and not subject to an action for
specific performance
Other Info:
Consideration is generally agreed upon as whole even if it consist of several parts, and even if it is contained in one of more
instruments
Determination of price by one of the contracting parties:
General Rule: The fixing of the price can never be left to the discretion of one of the contracting parties.
Void under Art. 1473 in relation to Art. 1409
Also, void because it is a potestative condition under Art. 1182
Exception: If the price fixed by one of the parties is accepted by the other, the sale is perfected.
Clarence Tiu
V. & VI. FORMATION AND CONSUMMATION: STAGES IN THE LIFE OF A SALE
V. & VI. FORMATION AND CONSUMMATION: STAGES

IN THE LIFE OF A SALE
*Formation and Consummation are numbers 5 and 6 of the syllabus, its best to fuse the topics together and look at it
as Stages in the Life of a Sale
Stages in the Life of a Sale

1. Policitacion/Negotiation: negotiation, preparation, conception or generation stage, which is the period of negotiation and
bargaining, ending at the moment of perfection
2. Perfection: birth of the contract, which is the point in time when the parties come to agree on the terms of the sale (as to
the subject-matter and price)
3. Consummation: death of the contract, which is process of fulfillment or performance of the terms agreed upon in the
contract
A. POLICITACION (NEGOTIATION) STAGE
BASIC PRINCIPLES
Politiacion 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.
Normally, negotiation is formally initiated by an offer, which, however, must be certain, an imperfect promise
(policitacion) is merely an offer by an offeror to an offeree.
Policitacion, or unaccepted unilateral promise to buy or to sell, prior to acceptance, does not give rise to any obligation
or right, and creates no privity between the purported seller (offeror) and buyer (offerees).
These relations, until a contract is perfected, are not considered binding commitments; and at any time prior to the
perfection of the contract, either negotiating party may stop the negotiation, and walk away from the situation, generally
without adverse legal consequences.
It is important to consider that at policitation stage, there is freedom to contract, which signifies the right to choose with
whom to contract and what to contract, thus: In the Law on Sales, an owner of property is free to offer the subject property
for sale to any interested person, and is not duty bound to sell the same to the occupant thereof, absent any prior agreement
vesting the occupants the right of first priority to buy
In essence, the policitacion stage is populated of legal creatures which are not contracts of sale as defined under
Article 1458 of the Civil Code, but each of them has, as the main object of their existence, the fervent hope of
becoming or effecting into realization, a valid and binding sale
Manila Metal Container Corp vs PNB (2006):
To convert an offer into a contract, the acceptance must be absolute and must not qualify the terms of the offerit must
be plain, unequivocal, unconditional and without variance of any sort from the proposalA negotiation is formally
initiated by an offer, which, however, must be certain.
At any time prior to the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the
offer may be withdrawn; the withdrawal is effective immediately after its manifestation.
To convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer; it
must be plain, unequivocal, unconditional and without variance of any sort from the proposal.
Muslim and Christian Urban Poor Association vs BRYC-Development (2009): The Letter of Intent to Buy and Sell is just
thata manifestation of Sea Foods Corporations (SFC) intention to sell the property and United Muslim and Christian
Urban Poor Association, Inc. (UMCUPAI) intention to acquire the samewhich is neither a contract to sell nor a
conditional contract of sale
SCOPE: Negotiation covers the period form the time the prospective contracting parties indicate interest in the contract
GENERAL RULE DURING THE NEGOTIATION STAGE: Before the negotiation is concluded by acceptance of the offer, there is
freedom to contract, once there is acceptance of the offer, the sale is perfected thereby ending the negotiation stage. CONSENT
IS GOVERNED BY RULES ON OBLICON (Acceptance of the offer)
Freedom to Contract: An owner of property if free to offer the subject-property for sale top any interested person. There is
still no obligation between the potential buyer and potential seller
Clarence Tiu
1. OPTION CONTRACT
Article 1479. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price
Article 1324. When the offerer 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
Option Contract
It is a privilege existing in one person, for which he had paid a consideration and which gives him the right to buy certain
merchandise or certain specified property, from another person, if he chooses, at any time within the agreed period at a
fixed price.
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 a fixed price within a certain time, or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an unaccepted offer
An option is not of itself a purchase, but merely secures the privilege to buy; it is not a sale of property, but a sale of the
right to purchase
Art. 1479, An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration distinct from the price
It is a unilateral promise to sell a determinate thing.
It only binds the optioner/grantor
Obligations created on the optioner: It binds the part who has given the option:
1. NOT TO SELL IT TO OTHER PEOPLE: Not to enter into a principal contract with any other person during the period
designated in relation to the subject-matter
2. NOT TO WITHDRAW THE OFFER: Not to withdraw the offer during the agreed period
If no period is stipulated it is deemed to be 10 years (prescription of actions of contracts, see Villamor vs CA)
3. TO ENTED INTO CONTRACT WITH GRANTEE IF ACCEPTED: To enter into a contract with the optionee/grantee of the
option if the latter accepts
If the grantee accepts the option, then a contract is perfected, in this case a SALE is PERFECTED.
The obligations created are obligations to do and not to do, therefore a breach of the option contact will only be actionable
for damages, not for specific performance
BUT, when the offer is accepted, the obligations now become obligations to give, since a contract of sale is already
perfected.
Elements of an Option Contract

1. Consent: Must be accepted by the optionee/grantee
2. Subject-Matter: The right to choose whether or not to buy a determinate/determinable object for a price certain
The option contract must contain all the essential requisites of a sale, including the manner of payment)
3. Consideration: Anything of value and is separate and distinct from the purchase price
General Rule: An option without separate consideration is VOID as a contract.
Consideration in an option contract may be anything of value, not necessarily money or its equivalent. As long as
the consideration for the option contract is distinct and not included in the purchase price
Exception: An option may be included within another binding contract, such as a lease or mortgage.
It will be binding even if it does not have a separate consideration because the consideration is the same as the
consideration to the lease/mortgage
It is a stipulation within the contract which acts like a contract
BUT, Option Not Deem Part of Renewal of Lease
An 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 the implied renewal of the lease even under the
principle of tacita reconduccion
Under such principle, a lease is impliedly renewed if the term of the orignal contract of lease has expired,
the lessor has not order the lessee to vacate, and 15 days has passed without the acquiescence of the
lessor
NO SEPARATE AND DISTINCT CONSIDERATION: An option without a separate and distinct consideration is
VOID as an option but VALID as an offer. There may still arise a perfected sale as long as there is NO
withdrawal of the offer
Sanchez vs Rigos (1972):
In order that said unilateral promise may be binding upon the promisor, Article 1479 requires the
concurrence of a condition, namely, that the promise be supported by a consideration distinct from the price.
Accordingly, the promisee can not compel the promisor to comply with the promise, unless the former
Clarence Tiu
establishes the existence of said distinct consideration. In other words, the promisee has the burden
of proving such consideration,
In accepted unilateral promise to sell, since there may be no valid contract without a cause or consideration,
the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its
withdrawal, his accepted promise partakes, however, of the nature of an offer to sell which, if
accepted, results in a perfected contract of sale.
No presumption of consideration in option contracts, the grantee/optionee must prove there was a separate and distinct
consideration apart from the purchase price
Villamor vs CA (1991): The separate consideration in an option may be anything of value, unlike in sale where
it must be the price certain in money or its equivalent.
Rules in accepting an offer or accepting an option contract (Ang Yu Ascucion vs CA 1994)

1. When the offeror has NOT fixed a period for accepting the offer and the offer is made to the person present: Acceptance
must be made immediately
Intent of the offeror is for the offer to be accepted or rejected immediately
2. FLOATING OFFER/ OPTION AGREEMENT- When the offeror has fixed a period (or indefinite period) for accepting the
offer and such period is NOT founded on a consideration:
1. The offer may accept at any time until such period expires.
2. The law gives the offeror the right to withdraw his offer even though the period of acceptance he initially gave has not
expired.
3. Offeror must withdraw before acceptance is communicated to him
4. The offer must be withdrawn by communicating such withdrawal to the offeree
5. The withdrawal is subject to Art. 19 or the Abuse of Right doctrine in that the right to withdraw must not be exercised
whimsically or arbitrarily or in bad faith
Art. 19: Every person, in the exercise of his rights and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith
Offeror who withdrew his offer arbiterrily may be liable for damages but the offer is nonetheless considered
withdrawn
These rules can also apply even if no exact period is fixed but the intention of the parties to to make a floating offer
such that it can still be accepted in the future
3. OPTION CONTRACT- When the offeror has fixed a period for accepting the offer and such period is founded on a
consideration
1. There are two agreements in this case, the object of the option contract and the option contract
Option contract is a preparatory contract in which the offeror grants the offeree, for a fixed period and under
specified conditions, the power to decide whether or not to enter into a principal contract. It is supported upon an
independent consideration known as option money
Option money is not earnest money. Option money is the consideration of an option contract, while earnest money
is considered part of the price in a contract of sale and can be a proof of the perfection of the contract of sale
2. The offeror can still withdraw the offer but is liable for damages based on the breach of the option contract
ACCEPTANCE AFTER WITHDRAWAL: Hence, even if there as an option, if the acceptance is made after the
option is withdrawn by the grantor, a sale CANNOT arise, but the grantor is liable for damages on the basis of
breach on the option contract
ACCEPTANCE BEFORE WITHDRAWAL: But if the option is withdrawn after it is accepted, there is already a
perfected sale.
Proper Exercise of an Option Contract

RULE: The optionee may exercise his right by merely advising the offeror of the decision to buy and expressing his
readiness to pay, provided that he is actually able to pay
Actual payment is NOT necessary to exercise the option
Proper exercise of an option gives rise to the reciprocal obligations of sale
Which must be enforced within 10 years
Repeated tenders of payment which were refused by the optioner for no reason, constitute evidence of a valid exercise of
the option
Vasquez vs CA (1991):
The annotation and registration of the right to repurchase at the back of the certificate of title of the petitioners cannot
be considered as acceptance of the right to repurchase. Annotation at the back of the certificate of title of registered
land is for the purpose of binding purchasers of such registered land.
In effect, the annotation of the right to repurchase found at the back of the certificate of title over the subject parcel
of land of the private respondents only served as notice of the existence of such unilateral promise of the
petitioners to resell the same to the private respondents. This, however, can not be equated with acceptance of
such right to repurchase by the private respondent.
Neither can the signature of the petitioners in the document called right to repurchase signify acceptance of the right
to repurchase. The respondents did not sign the offer. Acceptance should be made by the promisee, in this case, the
private respondents and not the promisors, the petitioners herein. It would be absurd to require the promisor of an
option to buy to accept his own offer instead of the promisee to whom the option to buy is given.
Clarence Tiu
Nietes vs CA:In an option to buy, the party in whose favor the option contract exist may validly and effectively exercise his
right by merely advising the offeror of the decision to buy and expressing his readiness to pay the stipulated price,
provided that the same is available and actually delivered to the offeror upon execution and delivery by him of the
corresponding deed of sale.
In other words, notice of the exercise of the option need not be coupled with actual payment of the price, so long
as this is delivered to the owner of the property upon performance of his part of the agreement.
Carceller vs CA (1999): Substantial compliance with the exercise of an option, notice of clear intention to purchase
the property, even witha request for leeway or extension of the period in order to raise money to buy the property is a valid
and substantial exercise of the option
It would seem that notice of intention to exercise the option even without tender of payment is VALID
Notice within the option period of clear intention to purchase the property pursuant to such option, with request for
leeway within which to be able to raise the funds to close the deal is a valid or at least substantial exercise of the
option. In other words, the acceptance or exercise of the option must still be made within the option period to give rise
to a valid and binding sale, and it is only then that the principle of substantial compliance would have relevance.
Period of Exercise of Option

RULE: If the option contract does not specify the period in which the option can be exercised, it cannot be
presumed that it can be exercised indefinitely. It must be exercised within 10 years in such case on the basis that
actions upon written contracts must be brought within 10 years (Art. 1144) from the time the action accrues
What if oral contract? 6 years (Art. 1145)
2. RIGHT OF FIRST REFUSAL
Article 1381. The following contracts are rescissible:
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them
Article 1385. Rescission creates the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission
can return whatever he may be obliged to restore.
Right of First Refusal

It is a promise on the part of the owner that if he decides to sell the property in the future, he would first negotiate its sale to
the promisee
Simply means that should the lessor decide to sell the leased property during the term of the lease, such sale should be
first offered to the lessee, and the series of negotiations that transpire between the lessor and lessee on the basis of
such preference is deemed a compliance of such clause even when no final purchase agreement is perfected between
the parties. After such negotiations, the lessor can now offer the sale to a third party.
BUT, the grantor must always offer it back to the grantee if he changes the terms/conditions of the offer when he
makes it to third persons, regardless of whether or not the consideration became more onerous or not
In a RFR, while the object might be made determinate, the exercise of the right would be dependent not only on the
grantors eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that
are yet to be firmed up
Exercise of RFR dependent on:
1. Grantors intent to sell
2. Price
It is an innominate contract (relate with autonomy of contracts)
How to comply with the Right of First Regusal when the Seller decides to Sell
1. Seller must first offer to sell the property to the grantee of the option
2. The negotiations about the sale between the seller and the grantee would be deemed compliance with the right, even if
there is NO final price agreed upon
3. If NO price is agreed upon, the seller can then offer to sell to other parties with the SAME terms as those offered to the
grantee
4. If the seller and the third party negotiate and agree to DIFFERENT terms, the seller must first offer these new terms against
to the grantee
Regardless whether or not the terms became more onerous or less onerous (such as whether the purchase price
increased or decreased)
Paranque Kings vs CA(1997):
In order to have full compliance with the contractual right granting a party the first option to purchase, the sale of
the properties for the price for which they were finally sold to a third person should have likewise been first offered
to the former.
Clarence Tiu
There should be identity of terms and conditions to be offered to the buyer holding a right of first refusal (or
the first option to buy) if such right is not to be rendered illusory.
The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any
prospective buyer
5. If the grantee again rejects the new terms, the seller can proceed with the sale of the property to the third party
Remedy of the Grantee if the Right fo First Refusal is Breached

1. RFR ATTACHED TO A PRINCIPAL CONTRACT: When the RFR is attached to a principal contract (such as embodied
in a lease) is breached, the grantee has the remedy of bringing an action to rescind the sale entered into with the
third parties, on the basis of Art. 1381(3) and 1385). SPECIFIC PERFORMANCE will then be applicable
It is considered as in fraud of creditors, the sal contract in effect is a rescissible contract which prejudices the lease
contract
Why is an action for specific performance applicable even if the RFR is an oblation to do? SC did not explain why
Once the contract is rescinded, the grantee can now acquired the property in the same terms and conditions the seller
offered to the third person
Based on Equatorial Realty vs Mayfair Theatre (1996):
Rescission is a relief allowed for the protection of one of the contracting parties and even third persons from all
injury and damage the contract may cause or to protect some incompatible and preferred right by the contract
Effect of Rescission: Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands
rescission can return whatever he may be obliged to restore
BUT, Rescission CANNOT be granted if the third person was in good faith or that he is NOT in bad faith (he
did not know that the grantee had a right of first refusal)
The buyer of real property who knew that such property was subject to the right of first refusal cannot claim good
faith
BASED ON THE CIRCUMSTANCES
Look out for when the buyer took the necessary steps to ensure that no lease or no right of first
refusal was apparent
NOTE: A buyer of leased property CANNOT be in good faith. He will always be in bad faith if he did NOT take
steps to ensure the property is being possessed by others, and check the lease with the registry of property
2. RFR EMBODIED IN A SEPARATE CONTRACT: Action for damages is the only remedy, rescission and specific
performance is NOT allowed
Based on Ang Yu Asuncion vs CA (1994): Breach of a right of first refusal decreed under a final judgment does
not entitle the aggrieved party to a writ of execution of the judgment but to an action for damages
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.
Right of First Refusal embodied in a Lease Agreement

If the RFR is included in a lease, there need not be a separate consideration for the right since it is already part and parcel
of the entire contract of lease
The consideration for the lease is the consideration for the right of first refusal
The enforceability of the RFR is based on the obligatory force of the lease contract
A RFR in a lease in favor of lessee CANNOT be availed of by the sub-lessee
As in an option contract, the RFR in a lease is also NOT renewed in case of implied renewal under tacita reconduccion
Option Contract vs Right of First Refusal

Main difference: Consideration of the Contemplated Sale
Option contract: will always contain a price as part of the offer embodied in an option contrat
RFR: there is still no price, which will still be negotiated upon the eventual intention of the seller to sell
Means that if there was already a price, even if the parties call it a RFR, it is an option nonetheless.
3. MUTUAL PROMISE TO BUY AND SELL
Article 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
Clarence Tiu
Mutual Promises to Buy and Sell (True Contract to Sell)
The promise to sell a determinate thing coupled with a correlative promise to buy at a specified price is binding as an
executory agreement.
Even in this case the certainty of the price must also exist, otherwise, there is no valid and enforceable contract to sell.
Such an arrangement would be the true contract to sell, which embodies the main obligation of the seller to enter into
a contract of sale upon full compliance with the condition of the buyer fully paying the purchase price, wherein the
main obligation is a person obligation to do.
Such contracts to sell are really within the policitacion stage for they do not represent a species of a sale defined under
Article 1458 of the Civil Code.
A condition is imposed on the consent of the parties in the contract of sale, such that only with the fulfilment of the condition
(normally the full payment of the purchase price) will a contract of sale will be perfected
Once the condition is fulfilled, can an action for specific performance to obliged the seller to enter into a contract
of sale?
2 schools to thought based on Jurisprudence (No clear rule yet)
1. Specific Performance is ALLOWED in the sense that there is NO automatic transfer of ownership regardless
and the Seller may be compelled to execute a deed of sale and transfer and deliver the subject-matter which is
an obligation to give
Ang Yu Asuncion: unconditional mutual promise to buy and sell, as long as the object is made determinate and
the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted, which
means that an action for specific performance is available. The ruling covers a form of contract to sell that are
within the perfection stage of sales defined by Article 1458 for they embody the main obligation of the seller to
transfer ownership and delivery possession of the subject matter upon fulfillment of the condition that buyer pays
the purchase price.
2. Specific Performance NOT ALLOWED, because the seller must ENTER into a contract of sale still, which
involves an obligation to do.
Gan v. Reforma (1967):
In an agreement to buy and sell, which is an executory contract, title to the property does not pass to the
promissee and the contracting parties are merely given the right to demand fulfillment of the contract in the
proper cases, or damages for breach thereof where it is not possible to carry out its terms.
This doctrine which looks at the contract to sell or mutual promises to buy and sell as constituting merely
personal obligation to enter into a sale, and breach of which does not authorize an action for specific
performance but recovery of damages
Coronel vs CA (1996):
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase
price, ownership will not automatically transfer to the buyer although the property may have been
previously delivered to him. The prospective seller still has to convey title to the prospective buyer by
entering into a contract of absolute sale.
Distinction between Sale and Contract to Sell

Main distinction: Transfer of ownership of subject-matter
1. CONTRACT OF SALE: Automatic transfer of ownership provided there is delivery
2. CONDITIONAL CONTRACT OF SALE: Automatic transfer of ownership provided there is delivery, upon
fulfilment of the condition
In this case, ownership is reserved upon the fulfilment of the condition, although the sale is already perfected
Condition is imposed on effectiviity or demandability, such that buyer cannot demand the transfer of ownership
unless the condition is fulfilled and upon fulfilment there is already automatic transfer provided there was already
prior delivery
3. CONTRACT TO SELL: NO automatic transfer of ownership, seller still has to convey the property upon the
fulfilment of the condition
Condition imposed on the perfection of the contract, such that there is NO perfected contract of sale unless the
condition is fulfilled.
The question is, whether upon fulfilment of the condition, since there is no automatic transfer of ownership, can the
seller be compelled to transfer by specific performance?
Macion vs Guiani (1993): In our jurisdiction, it has been held that an accepted bilateral promise to buy and sell is in a
sense similar to, but not exactly the same, as a perfected contract of sale because there is already a meeting of
minds upon the thing which is the object of the contract and upon the price. But a contract of sale is consummated
only upon delivery and payment. It cannot be denied that the compromise agreement, having been signed by both parties,
is tantamount to a bilateral promise to buy and sell a certain thing for a price certain. Hence, this gives the contracting
parties rights in personam, such that each has the right to demand from the other the fulfillment of their respective
undertakings
In a contract to sell, payment of the purchase price being a positive suspensive condition, failure fo such does not
constitute a breach but an event that prevents the obligations of the vendor to convey title from materializing.
Clarence Tiu
B. PERFECTION STAGE
1. GENERAL RULES ON CONSENT: MEETING OF THE OFFER AND ACCEPTANCE
Article 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing
the form of contracts.
Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The
contract, in such a case, is presumed to have been entered into in the place where the offer was made.
Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere
invitations to make an offer.
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.
Art. 1320: An acceptance may be express or implied
Article 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which must be
complied with.
Article 1322. An offer made through an agent is accepted from the time acceptance is communicated to him.
Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of either party
before acceptance is conveyed
RULE: Sale is perfected at the moment there is a meeting of minds upon the thing which is the OBJECT of the
contract and upon the PRICE
Offer
1. Must be certain, definite and intentional
Even though the offer is made with the intention that its acceptance will create mutual obligations, it will not
accomplish this purpose unless its terms are sufficiently complete
2. Must pertain to the thing/object and the cause which are to constitute the contract
Offer is a manifestation of a willingness to enter into a bargain so made as to justify another person in
understanding that his assent to that bargain is invited and will conclude it.
Making an offer means inviting an acceptance which, if given, will finally create a contract.
To produce sa perfected sale, an offer must contain:
1. A description of the subject-matter which is possible, licit and determinate or at least determinable
2. A price which is real, in money or its equivalent, certain or at least ascertainable
Means all the essential requisites of a valid sale must be present in the offer
Acceptance
Acceptance of the offer is what results in the meeting of the minds
Since mutual consent is a state of mind, its existence may only be inferred from the confluence of two acts of the
parties
1. Must be absolute or unconditional (Substance of the acceptance)
A qualified acceptance constitutes a counter-offer in that the original offeror now becomes the person who is
required to accept
Must be unconditional in that it must be identical to the terms of the offer. It must not vary from the offer by way of
omission, addition or alteration.
Conditions on the perfection of a contract VS Condition on the manner of performance of an obligation
Clarence Tiu
Conditions on the perfection of a contract: Failure to comply results in failure of creation of a contract
Ex: Contract to Sell
Condition on the demandability or Effectivity of the Obligation: Results in a perfected contract but the
demandability of the per stations or its effectivity is contingent upon a suspensive condition
Ex: Conditional Contract of Sale
2. An acceptance may be express or implied (Form of the acceptance)
As long as the party clearly manifests the intention or determination to accept
Acceptance by letter or telegram

Does not build the offeror except from the time it came to his knowledge
Actual knowledge is necessary
Means that before his knowledge of the acceptance (when he receives the letter), he, the offeror, may rescind the offer
No such thing as constructive notification of acceptance
When is a formal acceptance needed? (Art. 1321)

When so stipulated by the offeror
Art. 1321: Person making the offer may fix the time, place, and manner of acceptance all of which must be fully complied
with
Non-compliance renders the acceptance ineffective
The offeror will not be bound by an acceptance made by the acceptor in any other manner than than specified by the offeror
unless the latter alter agrees in the change
Ex: In a contract of sale, the manner of payment of the purchase price before a valid and binding contract of sale can
exist. The parties must also meet on the terms or manner of payment of the price, otherwise there is no sale
Ineffectivity of the Offer (Art. 1323)

Art. 1323: An offer becomes ineffective upon the death, civil interdiction, insanity, insolvency of either party before
acceptance is conveyed.
There can be no contract because there was no offer. When an offer becomes ineffective, it was as if there was no offer
as nothing can be accepted.
Before acceptance is conveyed means before acceptance has come to the actual knowledge of the offeror
Hence, a letter of acceptance may be sent by mail, but if, belore such mail is received and actually read by the
offeror, either the offeror or the acceptor died, there is no contract because the offer has become ineffective.
Mere Invitations to make an Offer (Art. 1325, 1326)

Mere invitations to offer are not considered offers
Generally, advertisements are mere invitations to offer but if it is very detailed, it can be an offer.
Such as ads in the newspaper selling a house. Normally, it is a mere invitation to offer, but if it is very detailed, it
can be an offer which when accepted may produce a contract based on unless it appears otherwise, meaning
there is an offer which is certain
Rules established in Art. 1325 and 1326
1. Business advertisements of things for sale are not definite offers but mere invitations to make an offer
2. Business advertisements of things for sale may be considered an offer if it appears that the advertisement is very
detailed that it constitutes a certain and definite offer
3. Advertiser is not bound to accept the highest or lower bid
Place of perfection of Sale

Where the meeting of the minds as to the determinate subject-matter and price occurs
In case of acceptance by telegram or letter, the presumption is that the contract was prefaced in the place where the offer
was made (Art. 1319)
2. SALE BY AUCTION
Article 1476. In the case of a sale by auction:

1. Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale.
2. 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.
3. A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by
stipulation.
4. Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not
be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the
auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid
Clarence Tiu
from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the
buyer.
Leoquinco vs Postal Savings (1925): The terms and conditions provided by the owner of property to be sold at auction are
binding upon all bidders, whether they knew of such conditions or not
Province of Cebu vs Heirs of Rufina Morales (2008): An auction sale is perfected by the fall of the hammer or in other
customary manner and it does not matter that another was allowed to match the bid of the highest bidder
Until such announcement is made, any bidder may RETRACT his bid and the auctioneer may withdraw the goods from
the salem unless the actions has been announced to be without reserve
RULE: The seller and the auctioneer CANNOT bid either by themselves or by an agent
Except: When the seller reserves such right and there is notice
3. EARNEST MONEY
Article 1482. Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as
proof of the perfection of the contract.
Earnest Money
Earnest money given by the buyer shall be considered as part of the price and as proof of the perfection of the contract. It
constitutes an advance payment to be deducted from the total price
Elements
1. Part of the Purchase Price
2. Proof of the Perfection of the Contract
Although the law defines what Earnest Money is, the parties may nonetheless come up with their own definition due to the
principle of autonomy. But of course, this will NOT be the earnest money contemplated by the law
Presumption of Perfected Sale in case of Earnest Money given
Art. 1482 gives a presumption. This prevails only in the absence of contrary or rebuttal evidence
Manila Metal Contained Corp vs PNB (2006): Absent proof of the concurrence of all the essential elements of a
contract of sale, the giving of earnest money cannot establish the existence of a perfected contract of sale.
Means even if there is earnest money but other requisites of a sale is evidently absent, a sale cannot arise
When there is no provision for forfeiture of earnest money in the event the sale fails to materialize, then with the
rescission it becomes incumbent upon seller to return the earnest money as legal consequence of mutual
restitution
Except if expressly stipulated, the seller cannot keep the earnest money to answer for damages sustained in the event
that the sale fails due to the fault of the buyer
Earnest Money in Contract to Sell

Article 1482 does not apply when earnest money given in a contract to sell, especially where by stipulation the buyer has
the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money
The money given in a contract to sell is NOT earnest money but as part of the consideration to the sellers promise to
sell it upon full payment of the purchase price and to reserve the subject property for the buyer.
Earnest Money in Conditional Contract of Sale

In a conditional contract of sale, the acceptance of earnest money would prove that the sale is conditionally
consummated or partly executed
Varying Treatments of Earnest Money

Although the law defines what Earnest Money is, the parties may nonetheless come up with their own definition due to the
principle of autonomy. But of course, this will NOT be the earnest money contemplated by the law
In the old civil code, earnest money is given to ensure that the buyer would NOT back out from the sale
Difference between Earnest Money and Option Money

Oesmer vs Paraiso Devt Corp (2007):
The Contract to Sell entered into by the parties is not a unilateral promise to sell merely because it used the word
option money when it referred to the amount of P100,000.00, which also form part of the purchase price. Settled is the
rule that in the interpretation of contracts, the ascertainment of the intention of the contracting parties is to be
discharged by looking to the words they used to project that intention in their contract, all the words, not just a particular
word or two, and words in context, not words standing alone.
In the instant case, the consideration of P100,000.00 paid by respondent to petitioners was referred to as option
money. However, a careful examination of the words used in the contract indicates that the money is not option money
but earnest money.
Clarence Tiu
Earnest money and option money are not the same but distinguished thus:
1. Earnest money is part of the purchase price, while option money is the money given as a distinct consideration
for an option contract;
2. Earnest money is given only where there is already a sale, while option money applies to a sale not yet
perfected;
3. When earnest money is given, the buyer is bound to pay the balance, while when the would be buyer gives
option money, he is not required to buy, but may even forfeit it depending on the terms of the option.
4. FORMAL REQUIREMENTS OF SALES
Article 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential
requisites for their validity are present. However, when the law requires that a contract be in some form in order that it
may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the parties stated in the following article cannot be exercised
Article 1357. If the law requires a document or other special form, as in the acts and contracts enumerated in the
following article, the contracting parties may compel each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with the action upon the contract.
Article 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its
registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357.
Article 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale
may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from
the conduct of the parties.
Article 1358. The following must appear in a public document:

1. Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real
rights over immovable property; sales of real property or of an interest therein are governed by articles 1403, No. 2,
and 1405;
2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains;
3. The power to administer property, or any other power which has for its object an act appearing or which should
appear in a public document, or should prejudice a third person;
4. The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one.
But sales of goods, chattels or things in action are governed by articles, 1403, No. 2 and 1405.
Article 1403. The following contracts are unenforceable, unless they are ratified
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing,
and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without
the writing, or a secondary evidence of its contents:
1. An agreement that by its terms is not to be performed within a year from the making thereof;
2. A special promise to answer for the debt, default, or miscarriage of another;
3. An agreement made in consideration of marriage, other than a mutual promise to marry;
4. An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless
the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in
action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made
by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;
5. An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest
therein;
6. A representation as to the credit of a third person.
Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to
object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.
Article 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void. (n)
Clarence Tiu
Form not important for validity of a Sale
General Rule: Sale, being a consensual contract, NO particular form is required for its validity
BUT, Form may be required for a contract's:
1. Validity
2. Enforceability
3. Greater Efficacy (to bind third persons)
Article 1483 provides that, subject to the provisions of the Statute of Frauds, a contract of sale may be made in writing, or
by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. In
other words, Article 1483 stresses that sale being a consensual contract, no form is really required for its validity.
When Form is important in a Sale
1. FOR GREATER EFFICACY: TO BIND THIRD PARTIES (Art. 1358)

Art. 1358 requires the embodiment of certain contracts in a public instrument for convenience. Registration of the
instrument only adversely affects third parties
Non-compliance does not affect the validity of the contract nor the contractual rights and obligations of the parties to
each other
Fule vs CA (1998): The Civil Code provides that contracts are perfected by mere consent. From this moment, the parties
are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according
to their nature, may be in keeping with good faith, usage and law. A contract of sale is perfected at the moment there is a
meeting of the minds upon the thing which is the object of the contract and upon the price. Being consensual, a contract of
sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective
contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a
public instrument, is only for convenience, and registration of the instrument only adversely affects third parties.
Formal requirements are, therefore, for the benefit of third parties. Noncompliance therewith does not adversely
affect the validity of the contract nor the contractual rights and obligations of the parties thereunder.
Dalion vs CA (1990): The provision of Art. 1358 on the necessity of a public document is only for convenience, not for
validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be
embodied in a public instrument.
Secuya vs Vda De Selma (2000): While a sale of a piece of land appearing in a private deed is binding between the parties,
it cannot be considered binding on third persons, if it is not embodied in a public instrument and recorded in the Registry
of Property
For land, execution of public instrument is NOT enough, there must also be registration under the Torrens Sytem with
he Register of Deeds
2. FOR ENFORCEABILITY BETWEEN THE PARTIES: STATUTE OF FRAUDS (Art. 1403, 1405)
Statute of Frauds requires certain classes of contracts, to be IN WRITING, the purpose being to prevent fraud and
perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by
requiring certain enumerated contracts and transactions to be evidenced by a writing SIGNED by the party to be
charged
The application of the SoF presupposes a valid and perfected contract.
Coverage of the Statute of Frauds in relation to Sales
a. SALE TO BE PERFORMED AFTER 1 YEAR- A sale which is NOT to be performed within 1 year
b. SALE OF GOODS CHATTELS, THINGS IN ACTION OF P500 OR MORE- Agreement for the sale of goods, chattels, or
things in action not less than P500
c. SALE OF REAL PROPERTY
These sales contracts must be in writing otherwise it is unenforceable
Sen Po Ek Marketing Corp vs Martinez (2000): Verbal grants of right of first refusal are NOT enforceable, It was must
contain ed in the deed of sale. In effect this is an addition to the SoF
EXCEPTIONS to Coverage of Statute of Frauds in Sales Contracts (Takes it out of the coverage of the SoF)
a. NOTE OR MEMORANDUM: There is a note or memorandum in writing and subscribed/signed by the party
charged or his agent
Note or memorandum must embody all the essential requisites of a sale
It must be signed by the party sough to be charged and must clearly provide a sale conveying the property
Yuviengco vs Dacuycuy (1981):
In any sale of real property on installments, the Statute of Frauds read together with the perfection
requirements of Article 1475 of the Civil Code must be applied such that payment on installments of the sale
must be in the requisite note or memorandum.
Means manner of payment must also be included in the note or memo
Under the Statute of Frauds, the contents of the note or memorandum, whether in one writing or in separate
ones merely indicative for an adequate understanding of all the essential elements of the entire agreement,
may be said to be the contract itself, except as to the form
Limketkai vs CA (1995): An exception to the unenforceability of contracts pursuant to the Statute of Frauds is the
existence of a written note or memorandum evidencing the contract, which memorandum may be found in several
writings, not necessarily in one document.
Clarence Tiu
b. PARTIALLY EXECUTED: When there has been partial consummation/partial performance
Partial performance is not limited to the giving of money. Contracts covered by the SoF are ratified by acceptance
of benefits under them (Art. 1405)
Partial performance is based on estoppel
BUT, delivery of the deed to buyer's agent, with no intention to part with the title until purchase price is paid, is
NOT considered partial performance hence is not taken out of the SoF
SoF only applies to executory contracts. Not those which have been partially or totally performed
Ortega vs Leonardo (1958): While, as a general rule, an oral agreement to sell a piece of land is not provable,
however, where there is partial performance of the sale contract, the principle excluding evidence of parol
contracts for the sale of realty will not apply.
Some circumstances indicating partial performance of an oral contract of sale of realty are: relinquishment of
rights, continued possession, building of improvements, tender of payment rendition of services, payment of
taxes, surveying of the land at the vendee's expense, etc.
Partial payment of the purchase price is NOT the only manner of partial performance
Claudel vs CA (1991): The rule of thumb is that a sale of land, once consummated, is valid regardless of the form it
may have been entered into. For nowhere does law or jurisprudence prescribe that the contract of sale be put in
writing before such contract can validly cede or transmit rights over a certain real property between the parties
themselves. However, in the event that a third party, as in this case, disputes the ownership of the property, the
person against whom that claim is brought can not present any proof of such sale and hence has no means to
enforce the contract. Thus the Statute of Frauds was precisely devised to protect the parties in a contract of sale of
real property so that no such contract is enforceable unless certain requisites, for purposes of proof, are met.
The purpose of the Statute of Frauds is to prevent fraud and perjury in the enforcement of obligations
depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced in writing.
Alfredo vs Borras (2003): The Statute of Frauds applies only to executory contracts and not to contracts either
partially or totally performed. Thus, where one party has performed ones obligation, oral evidence will be admitted
to prove the agreement. In addition, a contract that violates the Statute of Frauds is ratified by the acceptance of
benefits under the contract.
c. FAILURE TO OBJECT DURING TRIAL: Failure to object to the presentation of parol evidence or other evidence
as to the existence of a contract
When a party fails to object during trial to the presentation of oral evidence to prove the contract, he is deemed to
have waiver the defects of the contral, its unenforceability, thus the contract will become enforceable (Art. 1405)
Limketkai vs CA (1995): even assuming that parol evidence was initially inadmissible, the same became competent
and admissible because of the crossexamination, which elicited evidence proving the evidence of a perfected
contract. The crossexamination on the contract is deemed a waiver of the defense of the Statute of Frauds
Cross-Examination on the contract is deemed a waiver of the defense of the SoF
d. SALE EFFECTED THROUGH ELECTRONIC COMMERCE
Electronic documents are given the same legal recognition as paper documents, thus they are admissible as
evidence in court
NOTE: Even if the contract is taken out of the SoF, it may still be necessary to be embodied in a public instrument, or in
the case of land, registered, to bind third parties
Other stipulations/contracts NOT within the coverage of the SoF
1. Agency to Sell or to Buy
2. Equitable Mortgage
3. Right to Repurchase
But the deed od sale and the verbal agreement allowing the right of repurchase should be considered as an
integral whole, the deed ot sale itself is the note or memorandum evidencing the contract even if the right to
repurchase it not embodied therein
3. FOR VALIDITY
General Rule: Form NOT required for validity of sale
Exceptions:
a. Power to sell a piece of land or other interest therein by an agent must be in writing otherwise the sale will be void (Art.
1874)
b. Sale of Large Cattle must be in writing and registered wight he municipal treasurer otherwise sale would be void (Art.
1581, Revised Administrative Code Sec. 529)
c. Sale of land by non-muslim tribe cultural minorities all throughout the Philippines is void if not approved by the National
Commission on Indigenous People
Clarence Tiu
C. CONSUMMATION STAGE
1. OBLIGATIONS OF THE SELLER
1. Preserve Subject-Matter
Article 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation of the parties requires another standard of care
2. Delivery with Fruits and Accessories
Article 1164. The creditor 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 it until the same has been delivered to him.
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
Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the
object of the sale.
Article 1537. The vendor 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.
All the fruits shall pertain to the vendee from the day on which the contract was perfected.
3. Deliver the Subject-Matter
GENERAL DOCTRINES ON DELIVERY
Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the
object of the sale.
Article 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor
in interest, or any person authorized to receive it.
Article 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer's refusal to
accept the goods is without just cause, the title thereto passes to him from the moment they are placed at his disposal.
Article 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a
question depending in each case on the contract, express or implied, between the parties. Apart from any such
contract, express or implied, or usage of trade to the contrary, the place of delivery is the seller's place of business if
he has one, and if not his residence; but in case of a contract of sale of specific goods, which to the knowledge of the
parties when the contract or the sale was made were in some other place, then that place is the place of delivery.Where
by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller
is bound to send them within a reasonable time.
Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his obligation to
deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the goods on the
buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable
hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by
the seller.
Article 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was constituted.
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In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne
by him.
Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid
the price.
Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the
right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or
ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee
for the purpose of transmission to the buyer.
Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of
the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of
lading, the ownership would have passed to the buyer on shipment of the goods, the seller's property in the goods
shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but
possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the
possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together
to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he
does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. If,
however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is
indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good faith, for value, the bill
of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been
honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer wrongful
MODES OF DELIVERY
Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof.
Article 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of
the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee.
Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the
vendee.
Article 1498. 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.
With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository
where it is stored or kept.
Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the
contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if
the latter already had it in his possession for any other reason.
Article 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby:
3. Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in
good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by
the terms of the document had or had ability to convey to a purchaser in good faith for value; and
4. The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the
terms of the document as fully as if such bailee had contracted directly with him.
Article 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as
against the transferor, the title to the goods, subject to the terms of any agreement with the transferor.
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If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of
the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him
according to the terms of the document.
Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of
the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an
attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the
transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor
Article 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In
any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of
the vendee or the use by the vendee of his rights, with the vendor's consent, shall be understood as a delivery.
Article 1500. There may also be tradition constitutum possessorium.
Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the
buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the
buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in article 1503, first,
second and third paragraphs, or unless a contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as
may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit
so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the
carrier as a delivery to himself, or may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller
knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to
insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such
transit
4. Transfer Ownership to Vendee upon Delivery
Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof.
Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid
the price.
Article 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of
the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is
transferred from the vendor to the vendee.
Article 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer's refusal to
accept the goods is without just cause, the title thereto passes to him from the moment they are placed at his disposal.
5. Taking-Out Insurance Coverage
Article 1523. Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which
the seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable
him to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk
during such transit
7. Expenses of Execution and Registration and of Putting Goods in Deliverable Estate
Article 1487. The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a
stipulation to the contrary
Article 1521.Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must
be borne by the seller.
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1. OBLIGATION TO PRESERVE THE SUBJECT-MATTER (Art. 1163)
When a sale covers a specific or determinate object, upon perfection and 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; otherwise, he becomes liable to the buyer for breach of such obligation, as when the thing deteriorates or is lost
through sellers fault.
The ancillary obligation to preserve the subject matter of the sale involves a personal obligation to do, rather than a real
obligation to give, and arises as a necessary legal assurance to the buyer that the seller would be able to comply fully with
the main obligation to deliver the object of sale.
2. OBLIGATION TO DELIVER WITH FRUITS AND ACCESSORIES (Art. 1164, 1166, 1495, 1537)
Under Article 1164 of the Civil Code, which applies only to an obligation to deliver a determinate thing, 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.
Every obligation to deliver a determinate thing is coupled with a specific provision under Article 1537, that 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
Unlike in the principle of res perit domino where it is the owner of the thing who bears the risk of loss and benefits from the
fruits of the thing owned, in a sale involving a determinate subject matter, even prior to delivery and transfer of
ownership thereof to the buyer, the buyer already has certain rights enforceable against the seller, pertaining to the
subject matter.
This is in accordance with the principle that the accessories always follow the principal; and since the subject matter is
intended for delivery to the buyer from the point of perfection of the sale, then necessarily the accessories and fruits
must from then on be held for the account of the buyer.
3. OBLIGATION TO DELIVER THE SUBJECT-MATTER

Under Article 1495 of the Civil Code, the seller is bound:
1. To transfer the ownership of, and
2. To deliver the thing, which is the object of the sale to the buyer.
Even in the definition of sale under Article 1458, it covers the twin-obligations of the seller to transfer the
ownership of and to deliver a determinate thing.
Legal Premises for Doctrines on Tradition
1. Valid/Perfected Sale
When the sale is void or fictitious, no valid title over the subject matter can be conveyed to the buyer even with
delivery. Nemo potest nisi quod de jure potest No man can do anything except what he can do lawfully
2. Thing must be owned by seller upon delivery
Article 1459 of the Civil Code on contracts of sale specifically requires that the vendor must have ownership of the
property at the time it is delivered. 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
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
General Doctrines on Delivery
1. Delivery is the means to transfer ownership
Although the wordings of both Articles 1458 and 1495 seem to separate delivery of the subject matter from the
transfer of ownership, nonetheless, the means by which the seller can transfer the ownership of the subject
matter is by the mode of tradition or delivery, whether actual or constructive.
The Supreme Court has held that where there is no express provision that the title shall not pass until payment of
the price, and the thing sold has been delivered, title passes from the moment the thing sold is placed in the
possession and control of the buyer. In spite of the reciprocal nature of a sale, it is not the prior payment of price
that determines the effects of delivery of the subject matter.
Delivery produces its natural effects in law, the principal and most important of which being the conveyance of
ownership, without prejudice to the right of the seller to claim payment of the price. Normally therefore, as a
consequence of a valid sale, the delivery of the subject matter ipso jure transfers its ownership to the buyer.
NOTE that it may be stipulated that ownership in the thing shall not pass to buyer until he has fully paid (Art.
1478)
Reservation of ownership makes it a conditional contract of sale
It can also be a contract to sell if the parties condition the sale itself
In the absence of such stipulation to the contrary, tradition produces its natural effects in law, most important
of which being conveyance of ownership, without prejudice to right of the seller to claim payment of the price
Failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the
bilateral contract of sale is first rescinded or resolved pursuant to Art. 1191
Delivery as used in the Law on Sales refers to the concurrent transfer of two things: (1) possession and (2)
ownership.
If the vendee is placed in actual possesion of the property, but by agreement of the parties ownership of the
same is retained by the vendor until the vendee has fully paid the price, the mere transfer of the possesion of
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the property subject of the sale is not the delivery contemplated in the Law on Sales or as used in Article
1543
In this case, delivery did not produce the effect of transferring ownership since there is express
reservation
2. Delivery involves absolute giving up of control and custody by the seller and its assumption by the buyer
Delivery contemplates the absolute giving up of the control and custody of the property on the part of the vendor,
and the assumption of the same by the vendee. Non nudis pactis sed traditione dominia rerum transferantur. And
there is said to be delivery if and when the thing sold is placed in the control and possession of the vendee.
Santos v. Santos, held that the critical factor in the different modes of effecting delivery, which gives legal effect to
the act is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention,
there is no tradition. This is quite an inelegant way to put forth the principle on tradition based on two
factors:
1. Acceptance, although an obligation on the part of the buyer, is not essential for delivery by the seller to
achieve its legal effects; and
2. An express intention on the matter by the parties to a sale, at the point of delivery is not essential for
tradition to produce its legal consequences.
The legal effects of the parties intention must be gauged at the point of perfection by which the obligation to
deliver the subject matter is created: was there mutual intention and agreement to transfer the ownership of the
subject matter; if in the affirmative, there is a valid sale; if in the negative, we have a simulated sale which is void
ab initio. Besides, the rule has always been that tradition that is effected by reason of a valid sale would
produce its legal consequences, without the parties having to say so, or particularly intend it at the point
of delivery.
3. To WHOM delivery should be made (Art. 1240)
General Rule: Delivery must be made to the buyer, or his duly authorised representatives named in the contract
(or his assigns)
Exception: Parties can validly stipulate how delivery is to be made and to whom
4. When Buyer refuses to accept (Art. 1588)
Delivery by the seller will produce still its legal effects if placed at the buyers disposal even if he refuses to accept
them. However the seller, is still legally obliged to take certain steps as not to be held liable for its consequent loss
or damage to the goods
5. Time and Place of Delivery (Art. 1521, 1251)
Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a question
depending in each case on the contract, express or implied, between the parties:
1. Express or Implied from the contract
2. Implied from Usage of Trade
3. Sellers place of business
4. Sellers Residence
Order of Preference
BUT in case of a contract of sale of SPECIFIC GOODS, which to the knowledge of the parties when the
contract or the sale was made were in some other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is
fixed, the seller is bound to send them within a reasonable time.
See also, Art. 1251, for general rules on Oblicon for place of payment of Obligations
6. When Goods held by Third Party (Art. 1521)
Rule: Where the goods at the time of sale are in the possession of a third person, the seller has NOT fulfilled his
obligation to deliver to the buyer unless and until such third person ACKNOWLEDGES to the buyer that he holds the
goods on the buyer's behalf.
7. Delivery should be made at a reasonable hour (Art. 1521)
Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.
8. In case of Express or Implied Reservation (Art. 1478 and 1503)
EXPRESS RESERVATION OF OWNERSHIP
Ownership will not transfer to the buyer in case of express reservation in the contract, such as when the
parties stipulate that ownership will not transfer until the purchase price is fully paid, or until certain conditions
are fulfilled.
This is NOT necessarily a contract to sell where the conditions refer to the perfection of the contract. It
may refer to a conditional contract of sale where there is already a valid sale but a condition is imposed
on its effectivity or demandability
IMPLIED RESERVATION OF OWNERSHIP (Cases under Art. 1503)
1. GOODS SHIPPED, DELIVERABLE TO SELLER: Goods are shipped and by the bill of lading, the goods are
deliverable to the seller or his agent, the seller reserves ownership of the goods.
BUT if except from the form of the bill of lading, ownership would have passed to the buyer, the sellers
property in the goods shall be deemed to be only for purpose of securing performance of the buyers
obligation, in which case the buyer bears the risk of loss
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2. GOODS SHIPPED, DELIVERABLE TO BUYER: Where goods are shipped, and by the bill of lading the goods
are deliverable to the order of the buyer or of his agent, but possession of the bill of lading is RETAINED BY
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;
3. SELLER GIVES BUYER BILL OF EXCHANGE AND BILL OF LADING- Seller draws on the buyer for the
price, and transmits the bill of exchange and the bill of lading together to the buyer, the buyer is bound to
return the bill of lading if he does not honor the bill of exchange. If he retains the bill of lading, he does not
acquire any added right.
However, if the bill of lading provides that the goods are deliverable to the buyer or to the order of the
person named therein, one who purchases in good faith for value the bill of lading, or goods from the
buyer will obtain the ownership in the goods, provided that the bill of lading is indoresed to such
purchaser
Modes of Delivery/Tradition (Art. 1496)
The Law on Sales under the Civil Code recognizes two general types of delivery that will effectively transfer ownership
of the subject matter to the buyer and would constitute compliance by the seller of his obligations under a valid contract
of sale:
1. Actual or physical delivery
2. Constructive delivery
Under Art. 1496, Deliery is effected when: The ownership of the thing sold is acquired by the vendee from the moment it
is delivered to him:
1. In any of the ways specified in articles 1497 to 1501
2. In any other manner signifying an agreement that the possession is transferred from the vendor to the
vendee.
1. ACTUAL OR PHYSICAL DELIVERY (Art. 1497)
Under Article 1497 of the Civil Code, there is actual or physical delivery when the thing sold is placed in the
CONTROL and POSSESSION of the buyer.
Although possession is the best gauge when there is control, nonetheless control can take other forms other
than actual physical possession.
Power Commercial and Industrial Corp. v. Court of Appeals (1997): held that for both actual or constructive
delivery the key word is control, not possession, in determining the legal effect of tradition.
Power Commercial considered that the lot sold had been placed under the control of the buyer, as evidenced
by the subsequent filing by the buyer of an ejectment suit, which signified that the buyer was the new owner
which intended to obtain for itself, and to terminate said occupants actual possession thereof.
2. CONSTRUCTIVE DELIVERY
Under Article 1496 of the Civil Code, 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.
The essence of most forms of constructive delivery is the existence of an agreement between the seller
and the buyer, and that the latter is understood to have control of the subject matter of sale.
Has same effect as actual delivery
1. EXECUTION OF PUBLIC DOCUMENT
General Rule: Execution of a public instrument has the same legal effects as actual or physical delivery
Under Article 1498 of the Civil Code, in the case of both movables and immovables, when the sale is
made through a public instrument, the execution thereof shall be equivalent to the delivery of the
subject matter of sale, if from the deed the contrary does not appear or cannot clearly be inferred.
Of course, the foregoing rules apply only to a public instrument that evidences a valid sale
Court held that the notarized deed of sale has two functions:
1. It operates as a formal or symbolic delivery of the property sold; and
2. It authorizes the buyer to use the document as proof of ownership.
Exceptions:
a. STIPULATIONS TO THE CONTRARY: such express reservation or contrary inference would be
present when:
1. A certain date is fixed for the purchaser to take possession of the property subject of the
conveyance;
2. In case of sale by installments, it is stipulated that until the last installment is made, the title to the
property should remain with the seller;
3. When the seller reserves the right to use and enjoy the property until the gathering of the pending
crops; or
4. Where the seller has no control over the thing sold at the moment of the sale, and, therefore, its
material delivery could not have been made.
b. SUBJECT-MATTER WAS NOT SUBJECT TO THE CONTROL OF THE SELLER
Addison v. Felix (1918): It is not enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control. When there is no impediment whatsoever
to prevent the thing sold from passing into the tenancy of the purchaser by the sole will of the
vendor, symbolic delivery through the execution of a public instrument is sufficient. But if,
notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and
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material tenancy of the thing and make use of it himself or through another in his name, because
such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to
reality the delivery has not been effected
BUT, if the sale had been made under the express agreement of imposing upon the purchaser
the obligation to take the necessary steps to obtain the material possession of the thing sold,
and it were proven that she knew that the thing was in the possession of a third person claiming
to have property rights therein, such agreement would perfectly be valid, and there would have
been full compliance by the seller of his obligations under the sale, by the mere execution of the
public instrument.
In this case, there is delivery because the buyer knew of such impediment
The Addison doctrine was reiterated in Power Commercial and Industrial Corp. v. Court of Appeals:
where the Court emphasized that the operative word in the doctrine is not possession but control.
In Power Commercial, the buyer was fully aware of the existence of squatters on the property at the
time of the transactions and even undertook the job of evicting them. The Court held that the buyer
cannot contend later on that the execution of the deed of sale in a public document did not operate
as a symbolic delivery to transfer possession to the buyer due to the presence of occupants on the
lot sold
EXCEPTION TO ALL EXCEPTIONS: When buyer assumes the risks of ownership and
possession, delivery is nonetheless effected through the execution of the instrument
c. ABILITY TO TRANSFER PHYSICAL POSSESSION AND ENJOYMENT DID NOT SUBSIST FOR A
REASONBALE LENGHT OF TIME AFTER THE INSTRUMENTS EXECUTION
The seller must have actual control of the object of sale at the time of the execution of the
instrument, and such control/ability to transfer physical possession must subset for a reasonable
amount of time after the execution of the insturment.
Pasagui vs Villablanca (1975): It is true that the execution of the deed of absolute sale in a public
instrument is equivalent to delivery of the land subject of the sale. This presumptive delivery only
holds true when there is no impediment that may prevent the passing of the property from the hands
of the vendor into those of the vendee. It can be negated by the reality that the vendees actually
failed to obtain material possession of the land subject of the sale.
Important Points for Immovables
Registration of Title Is Separate Mode from Execution of Public Instrument The recording of the
sale with the proper Registry of Deeds and the transfer of the certificate of title in the name of the buyer
are necessary only to bind third parties to the transfer of ownership. As between the seller and the buyer,
the transfer of ownership takes effect upon the execution of a public instrument conveying the real
estate. (Chua vs CA 2003)
BUT SEE: Under Art. 1495, seller is obliged to transfer title over the property and deliver the same to
the vendee (Vive Eagle Land vs CA 2004)
Customary Steps in Selling Immovables Customarily, in the absence of a contrary agreement, the
submission by an individual seller to the buyer of the following papers would complete a sale of real
estate:
1. Owners duplicate copy of the Torrens title
2. Signed deed of absolute sale
3. Tax declaration
4. Latest realty tax receipt.
They buyer can retain the amount for the capital gains tax and pay it upon authority of the
seller, or the seller can pay the tax, depending on the agreement of the parties.
Kings Properties vs Galido (2009): The execution of the notarized deed of sale and the
delivery of the owners duplicate copy of the original certificate of title to the buyer is
tantamount to constructive delivery of the object of the sale.
2. SYMBOLIC DELIVERY
Must involve or cover the subject matter, and cannot take a form relating to the payment of the purchase price
As to movables, delivery may also be made by the delivery of the keys of the place or depositary where the
movable is stored or kept (Art. 1498)
3. CONSTITUTUM POSSESSORIUM (Art. 1500)
This mode of constructive delivery takes effect when at the time of the perfection of the sale, the seller held
possession of the subject matter in the concept of owner, and pursuant to the contract, the seller continues to
hold physical possession thereof no longer in the concept of an owner, but as a lessee or any other form of
possession other than in the concept of owner.
Seller remains in possession after he sold his property
4. TRADITIO BREVI MANU
This mode of delivery is opposite that of constitutum possessorium, where before the sale, the would-be buyer
was already in possession of the would-be subject matter of the sale, say as a lessee, and pursuant to sale,
he would now hold possession in the concept of an owner.
Buyer was originally in possession only but after sale, he now becomes owner
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In both Constitutum Possessorium and Traditio Brevi Manu, possession never changes only
ownership
5. TRADITIO LONGA MANU
This is delivery of a thing merely by agreement, such as when the seller points the property subject matter
of the sale by way of delivery without need of actually delivering physical possession thereof.
Thus, under Article 1499 of the Civil Code, the delivery of movable property may be made by the mere
consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of
the buyer at the time of the sale
6. DELIVERY OF INCORPOREAL PROPERTY
3 types of constructive delivery specifically applicable to incorporeal property
1. Execution of a public instrument
2. Placing the titles of ownership in the possession of the buyer
3. Use and enjoyment by the buyer of the rights pertaining to the incorporeal property, with the seller's
consent
7. DELIVERY BY NEGOTIABLE DOCUMENT OF TITLE
Represents the actual goods. If it is transferred in good faith and for value, and if the transferor had the ability
to convey it is equivalent to the transfer iof the thing itself
Such as a negotiable warehouse receipt
8. DELIVERY THROUGH CARRIER (Art. 1523)
Delivery through a carrier as a form of constructive delivery necessarily pertains only to a sale of goods. The
general rule, and in the absence of stipulation or circumstances to the contrary, delivery to carrier is
deemed delivery to the buyer, the premise being that the carrier acts as an agent of the buyer
1. F.A.S. (freight alongside ship): delivery of the goods alongside the vessel completes the effect of tradition
2. F.O.B. (free on board)
1. F.O.B. shipping point: delivery of the goods to the carrier is equivalent to delivery to the buyer
2. F.O.B. destination: only when the vessel has arrived at the point of destination would there be delivery to
the buyer and prior to that point in time, the risk of loss over the subject matter will be borne by the seller
3. C.I.F. (cash, insurance, freight): the price fixed covers the cost of goods and expenses of freight and
insurance to be paid by the seller
Behn Meyer vs Yangco (1918):
A specification in a contract relative to the payment of freight can be taken to indicate the intention of the
parties in regard to the place of delivery.
If the buyer is to pay the freight, it is reasonable to suppose that he does so because the goods become
his at the point of shipment. On the other hand, if the seller is to pay the freight, the inference is equally
strong that the duty of the seller is to have the goods transported to their ultimate destination and that
title to property does not pass until the goods have reached their destination.
The letters "c. i. f." found in British contracts stand for costs, insurance, and freight. They signify that the
price fixed covers not only the cost of the goods, but the expense of freight and insurance to be paid by
the seller
In mercantile contracts of American origin, the letters "F, O. B.," standing for the words "Free on Board,"
are frequently used. The meaning is that the seller shall bear all expenses until the goods are delivered
where they are to be "F. O. B." According as to whether the goods are to be delivered "F. O. B." at the
point of shipment or at the point of destination determines the time when property passes.
Both of the terms "C. I. F." and "F. 0. B." merely make rules of presumption which yield to proof of
contrary intention. "The question, at last, is one of intent, to be ascertained by a consideration of all the
circumstances.
General Foods Corp vs NACOCO (1956): Where the parties agreed that the payment of the price of the
copra sold was to be according to the net landed weight upon arrival in New York, the vendor has the burden
of proof to show that the shortage in weight upon arrival was due to risks of the voyage and not to the natural
drying up of the copra while in transit, or to reasonable allowances for errors in the weighing of the gross
cargo and empty bags in Manila. In the absence of such proof the net landed weight of the shipment in New
York should control, as stipulated in the agreement, and that therefore, the vendor should be held liable for
the amount which it had overdrawn from the vendees letter of credit covering the price.
4. OBLIGATION OF TAKING OUT- INSURANCE COVERAGE

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller
knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable
him to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk
during such transit
5. OBLIGATION TO PAY FOR EXPENSES OF EXECUTION AND REGISTRATION AND OF PUTTING GOODS IN
DELIVERABLE STATE (Art. 1487, 1521)
Rule: Unless otherwise stipulated, the following shall be borne by the SELLER
1.Expenses for execution and registration of the sale (Art. 1478)
2.Causing the issuance and expenses for a new title for the buyer in case of Real Estate
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Vive Eagle Land vs CA(2004): Under the third deed of absolute sale, petitioner VELI did not oblige itself to
spend for the registration of the said deed; to secure a torrens title over the property to and under the
name of the respondent; or to cause the eviction of the tenants/occupants on the property. Nevertheless,
petitioner VELI is liable for the said expenses because, under Article 1487 of the New Civil Code, the expenses
for the registration of the sale should be shouldered by the vendor unless there is a stipulation to the contrary. In
the absence of any stipulation of the parties relating to the expenses for the registration of the sale and the
transfer of the title to the vendee, Article 1487 shall be applied in a supplementary manner.
3.Duty to withhold taxes due on the sale/ Capital Gains Tax
Chua vs CA (2003): The buyer has more interest in having the capital gains tax paid immediately since this is a
prerequisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is
concerned, the capital gains tax remains a liability of the seller since it is a tax on the sellers gain from the
sale of the real estate. Payment of the capital gains tax, however, is not a pre requisite to the transfer of
ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of
absolute sale.
4.Expenses for Delivery for Movables (Art. 1521)
Borne by the seller since they are expenses pertain to putting the goods into a deliverable state
2. SPECIAL RULES ON COMPLETENESS OF DELIVERY
1. In case of Movables
Article 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may
reject them, but if the buyer accepts or retains 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. 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.
Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the
goods included 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.
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.
In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special agreement, or course of dealing between the
parties
Article 1481. In the contract of sale of goods by description or by sample, the contract 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
description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with
the description.
The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample.
Article 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an 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
seller by returning or tendering the goods within the time fixed in the contract, or, if no time has been fixed, within a
reasonable time.
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:
1. When he signifies his approval or acceptance to the seller or does any other act adopting the transaction;
2. If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of
rejection, then if a time has been fixed
for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a
reasonable time. What is a reasonable time is a question of fact.
Article 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the
perfection of the contract to the time of delivery, shall be governed by articles 1163 to 1165, and 1262.
Clarence Tiu
This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration
of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed
to the vendee until they have been weighed, counted, or measured and delivered, unless the latter has incurred in
delay.
Article 1584. Where goods are delivered to the buyer, which he has not previously examined, 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 if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity
with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer,
upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether
such terms are indicated by marking the goods with the words "collect on delivery," or otherwise, 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.
2. In case of Immovables
Article 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is
mentioned in the contract, in conformity with the following rules:
If the 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 number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been
stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the
price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth
of that stated.
The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in
the contract.
The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold
exceeds one- tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of inferior quality,
he may rescind the sale.
Article 1540. If, in the case of the preceding article, there is a greater area or number in the immovable than that stated
in the contract, the vendee may accept the area included in the contract and reject the rest. If he accepts the whole
area, he must pay for the same at the contract rate.
Article 1541. The provisions of the two preceding articles shall apply to judicial sales.
Article 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or
number, there shall be no increase or decrease of the price, although there be a greater or less area or number than
that stated in the contract.
The same rule shall be applied when two or more immovables as sold for a single price; but if, besides mentioning the
boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the
contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area
or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not
accede to the failure to deliver what has been stipulated
Rules on Effects of Delivery on MOVABLES

1. DEFICIENT- Seller delivers quantity of goods LESS than what was contracted
Buyer has 2 options:
1. REJECT- Buyer may reject
2. ACCEPT- If the buyer accepts or retains the goods delivered, knowing that the seller is not going to perform the
contract in full, buyer must pay at the contract rate
Clarence Tiu
BUT, If buyer used or disposed of goods delivered before knowledge of sellers intention not to perform
contract in full: buyer shall not be liable for more than the fair value to him of the goods received
2. SURPLUS- Seller delivers quantity of goods larger than what was contracted
Buyer has 3 options:
1. ACCEPT ONLY THOSE HE ORDERED- Buyer may ACCEPT goods covered in the contract and REJECT the rest
2. ACCEPT EVERYTHING- If the buyer accepts the whole of the goods so delivered he must pay for them at the
contract rate
3. REJECT EVERYTHING IF INDIVISIBLE- If the subject matter is indivisible, buyer may reject the whole of the
goods
3. MIXED- Seller delivers goods contracted but MIXED with goods of a different description
Buyer has 2 options
1. ACCEPT- Buyer may accept contracted foods and reject the rest
2. REJECT EVERYTHING IF INDIVISIBLE- If the subject matter is indivisible, buyer may reject the goods entirely
#1-3 is subject to any usage of trade, special agreement, or course of dealing between the parties
4. Sale by Description and/or Sample- If the bulk of the goods delivered do not correspond with the description of the
sample.
The bulk of goods must correspond with the sample and also correspond with the description.
If the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the
sample if they do not also correspond with the description.
Rule: The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. The sale
may be RESCINDED if the bulk of the goods delivered do not correspond with the description OR the sample.
Mendoza v. David (2004)
Sale by sample: when a small quantity is exhibited by the seller as a fair specimen of the bulk, which is not present
and there is no opportunity to inspect or examine the same and the parties treated the sample as the standard of
quality and that they contracted with reference to the sample with the understanding that tthe product to be
delivered would correspond to the sample
Sale by description: where the buyer has not seen the article sold and relies on the description given to him by the
seller, or has seen the goods, but the want of identity is not apparent in inspection
5. On Sale or Return (Art. 1481)
Ownership passes to the buyer ON DELIVERY
But he may REVEST the ownership in the seller by returning or tendering the goods within the time fixed in the
contract, or if no time has been fixed, within a reasonable time
6. Sale on Approval, Trial, Satisfaction, or Acceptance (Art. 1502)
Ownership passes to the buyer only when:
1. EXPRESS APPROVAL- He signifies his approval or acceptance to the seller or does any other act adopting the
transaction; or
2. IMPLIED APPROVAL- If the buyer does not signify his approval or acceptance, but retains the goods without
giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such
time, and if no time has been fixed, on the expiration of a reasonable time.
Vallarta vs CA (1987): On a sale on approval (also called sale on acceptance, sale on trial or sale on satisfaction),
the delivery of the object does not transfer ownership to the buyer since the delivery was not for purposes of
transferring ownership, since the prestation to effect a meeting of the minds to give rise to a valid contract is incumbent
on the buyer.
Incumbent on the buyer since it is dependent on the buyer on whether or not he will accept such. The acceptance
or rejection would be the determining factor on whether or not a valid contract will rise.
Industrial Textile Manufacturing Co. vs LPJ Enterprises (1993): For a sale to be a sale on return or sale on
approval, there must be a clear agreement to either such effect, otherwise, the provisions of Art. 1502 governing such
sales cannot be invoked by either party
Rules on Delivery of IMMOVABLES

1. Where sold per UNIT OR NUMBER (Art. 1539, 1540, 1541)- If the 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 number
Rules
1. Seller is obliged to deliver to the buyer, if the latter should demand it, ALL that may have been stated in the
contract.
2. If Seller delivers LESS than that stipulated in the contract, the buyer may choose between:
1. PROPORTIONAL REDUCTION- A proportional reduction of the price, or
2. RESCISSION IF LACK OF AREA IS 10% OR MORE- The rescission of the contract when in the latter case,
the lack of area be not less than 1/10 of that stated
3. If the Seller delivers MORE than that stipulated in the contract, the buyer may:
1. ACCEPT ONLY THOSE HE BOUGHT- buyer may accept the area included in the contract and reject the
rest
2. ACCEPT EVERYTHING- If he accepts the whole area, he must pay for the same at the contract rate.
4. These rules apply to Judicial Sales (Art. 1541)
Clarence Tiu
Rudolf Lietz vs CA (2005): In a unit price sale, the statement of the area of immovable is not conclusive and the
price may be reduced or increased depending on the area actually delivered. If the vendor delivers less than the
area agreed upon, the vendee may oblige the vendor to deliver all that is stated in the contract or demand for the
proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers more than the area
stated in the contract, the vendee has the option to accept only the amount agreed upon or to accept the whole
area, provided he pays for the additional area at the contract rate
2. Immovables Sold for a LUMP SUM (Art. 1542)- In the sale of real estate, made for a lump sum and not at the rate of a
certain sum for a unit of measure or number or when 2 or more immovables are sold for a single price.
General Rule: There shall be NO increase or decrease of the price, although there be a greater or less area or number
than that stated in the contract.
Especially with the use of qualifying words of more or less in describing the area.
Exception: Where there is GROSS or UNREASONABLE excess or deficiency
Rudolf Lietz vs CA (2005): A buyer of land, when sold in gross or with the description more or less or similar
words in designating quantity covers only a reasonable excess or deficiency. In the case at bar an area of 644
square meters more is not reasonable excess or deficiency, to be deemed included in the deed of sale
Exception to Exception: When buyer, who has been occupying the land for two years as lessee, actually is deemed to
take risk on the actual size of the property bought at lump sum (Garcia vs Velsaco 1941)
3. In case of conflict between the BOUNDARIES and the AREA OR NUMBER
Rule: BOUNDARIES CONTROL- If besides mentioning the boundaries, its area or number should be designated in the
contract, the vendor shall be bound to deliver all that is included within the boundaries, even when it exceeds the area
or number specified in the contract.
If the Area and Number is LESS the the Boundaries, and the Seller cannot deliver based on the boundaries, the
buyer can:
1. PROPORTIONAL REDUCTION- A proportional reduction of the price, or
2. RESCISSION IF LACK OF AREA IS 10% OR MORE- The rescission of the contract when in the latter case,
the lack of area be not less than 1/10 of that stated
Art. 1542 does not stipulate the 10% requirement although I think it is applicable hehe
4. If the price per unit of measure or number is NOT expressly provided for in the contract, the rules of lump sum sale
shall prevail in the sale of real property
5. Where immovables judicially 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
larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been
sufficient to satisfy the debt
2. DOUBLE SALES
Article 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 pertain to the person who 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.
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by
article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event until he has effected the delivery.
Scope of Rules on Doubles Sales

The various rules on double sales cover the effects and consequences of tradition in a particular situation where the same
seller has sold the same subject property to 2 or more buyers who do not represent the same interests
The rules on double sales usually can only operate under the same premise that tradition can be made operative:
1. The conflicting sales are all valid and demandable sales, pursuant to which tradition was or could be effected; and
2. The seller who effected multiple sales to various buyers over the same subject matter actually had ownership to convey
Global sets of rules can apply in cases of Double Sales (Order of Preference)
1. Registration under the Torrens System
2. Rule on public auction sales under the Rules of Court
Clarence Tiu
Carumba v. CA (1970): Article 1544 is inapplicable to unregistered land because the purchaser of unregistered
land at a sheriffs execution sale only steps into the shoes of the judgment debtor, and merely acquires the latters
interest in the property sold as of the time the property was levied upon, as expressly provided for in then Sec. 35,
Rule 39 of the Revised Rules of Court on execution sale
3. Art. 1544
4. Priority in Time, Stronger in Right Doctrine
Rules under Torrens System (PD 1529)
Section 51 of PD 1529 provides that the act of registration shall be the operative act to convey or affect the land insofar
as third persons are concerned.
Registration in Article 1544 covers the annotation or inscription of a contract, transaction or legal process in the
Register of Deeds covering a property, which may or may not be registered land.
The rules on double sales under Article 1544 do not overcome nor pre-empt the specific rules under the Torrens system
for registered land.
Registration in good faith under the Torrens system is considered to be the highest order, providing for absolute first
priority to the buyer who has it in his favor.
Rules under Article 1544
1. When subject matter is MOVABLE: to the buyer who may have first taken possession in good faith
2. When subject matter is IMMOVABLE: to the buyer (Order of Preference)
1. FIRST RECORD IN GF- Who in good faith first recorded the sale in the Registry of Property
Recorded means property is registered (must be under Torrens System). If unrecorded (Either unrecorded or
recorded under Act. 3344) Priority in Time First in Right applies
1544 does NOT apply to unregistered land
2. FIRST POSSESSOR IN GF- Should there be no inscription: to the person who in good faith was first in possession
Refers to both Material and Symbolic Possession, In the absence of inscription under double sales, the
law gives preferential right to the buyer who in good faith is first in possession, under the following
jurisprudential parameters: Possession mentioned in Article 1544 includes not only material but also symbolic
possession (Ten Forty Realty vs Cruz 2003)
3. OLDEST TITLE IN GF- In default: to the person who presents the oldest title, provided there is good faith
Requisites of Article 1544
1. VALID SALE- 2 or more sales transactions must constitute valid sales
When 1 of the sales is a contract to sell, Article 1544 does not apply, and the buyer under the contract of sale
albeit conditional is always preferred.
Cheng vs Genato (1998): The rules on double sales under Art. 1544 are not applicable to contract to sell,
because of the circumstances that must concur in order for the provisions to Art. 1544 on double sales to apply,
namely that there must be a valid sales transactions, and buyers must be at odds over the rightful ownership of the
subject matter who must have bought from the very same seller, are lacking in a contract to sell for neither a
transfer of ownership nor a sales transaction has been consummated, and such contract is binding only upon the
fulfillment or non-fulfillment of an event. In this case governing principle of primus tempore,portior jure (first
in time, stronger in right)
2. SAME SUBJECT- MATTER- 2 or more sales transactions must pertain to exactly the same subject matter
3. CONFLICTING INTERESTS OF BUYERS- 2 or more buyers at odds over the rightful ownership of the subject matter
must each represent conflicting interests
4. SAME SELLER- 2 or more buyers at odds over the rightful ownership of the subject matter must each have bought
from the very same seller
First in time, priority in right applies:
Where not all the requisites necessary to make Article 1544 applicable are present
Where the requisites to make Article 1544 applicable were present, but that either the first to register or first to possess
rules were not complied with
Expounding on the Registration under the Torrens System

First buyer bought it unregistered (registered under Act 3344) and Second buyer bought it registered under
Torrens System: Second Buyer wins
Invoking the rules on double sales and priority in time under Art. 1544 would be misplaced by a first buyer who
bought the land not within the Torrens system but under Act No. 3344, as against the second buyer who bought the
same property when it was already registered under the Torrens system, because:
of the well-known rule in this jurisdiction that persons dealing with registered land have the legal right to rely
on the fact of the Torrens Certificate of Title and to dispense with the need to inquire further, except when the
party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious
man to make such inquiry; and
the Torrens system rule that formal registration proceedings undertaken on the property and the subsequent
issuance of a title over the land had under the Torrens system had the legal effect of cleansing title on the
property of all liens and claims which were not annotated therein.
Meaning of Registration
The annotation of adverse claim can qualify as the registration mandated under the rules on double sale.
(Carbonnel vs CA 1976)
Clarence Tiu
Registration means any entry made in the books of the registry, including both registration in its ordinary and strict
sense, and cancellation, annotation, and even marginal notes. It is the entry made in the registry which records
solemnly and permanently the right of ownership and other real rights (Cheng vs Genato 1998)
Declaration of purchase for taxation purposes does not comply with the required registration, and the fact alone
does not even itself constitute evidence of ownership. (Bayoca vs Nogales 2000)
wRegistration of the Extra-judicial Partition which merely mentions the sale is not the registration covered under
Art. 1544 and cannot prevail over the registration of the pacto de retro sale (Vda. de Alcantara v. CA 1996)
Registration Must Always Be in Good Faith- Different Standards for First and Second Buyer
In cases of double sales of immovables, what finds relevance and materiality is not whether or not the second
buyer was a buyer in good faith or that he was first to register, but whether or not said second buyer registers
such second sale in good faith, that is, without knowledge of any defect in the title of the property sold
This is so because the defense of indefeasibility of a Torrens title does not extend to a transferee who takes
the certificate of title in bad faith
Knowledge of First Buyer of the Second Sale Does Not Amount to Registration in Favor of the Second
Buyer
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except
where the second buyer registers in good faith the second sale ahead of the first.
Such knowledge of the first buyer does not bar her from availing of her rights under the law, among them, to
register first her purchase as against the second buyer. But inconverso, knowledge gained by the second
buyer of the first sale defeats his rights even if he is first to register the second sale, since such
knowledge taints his prior registration with bad faith.
This is the priced exacted by Article 1544 for the second buyer being able to displace the first buyer; that
before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout
(i.e., in ignorance of the first sale and of the first buyer's right) from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession.
Consolidated Rural Bank vs CA (2005): In a situation where a party has actual knowledge of the claimants
actual, open and notorious possession of a disputed property at the time of registration, the actual notice and
knowledge are equivalent to registration, because to hold otherwise would be to tolerate fraud and the Torrens
system cannot be used to shield fraud while certificates of title are indefeasible, unassailable and binding against
the whole world, they merely confirm or record title already existing and vested.
This applies to the second buyer
Kings Property vs Galido (2009): In double sales, the first buyer always has priority rights over subsequent
buyers of the same property. The good faith of the first buyer remains all throughout despite his subsequent
acquisition of knowledge of the subsequent sale
Who is Purchaser in Good Faith?
In the determination of whether or not a buyer is in good faith, the point in time to be considered is the moment
when the parties actually entered into the contract of sale.
Must Have Paid Price in Full A purchaser is good faith is one who buys property of another, without notice that
some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time
of such purchase, or before he has notice of the claim or interest of some other person in the property
Burden of Proof
The burden of proving the status of a purchaser in good faith lies upon him who asserts that status. It is not
sufficient to invoke the ordinary presumption of good faith, that is, that everyone is presumed to have
acted in good faith, since the good faith that is here essential is integral with the very status that must be
established.
BUT, It is anxiomatic that good faith is always presumed in the absence of any direct evidence of bad faith.
Instances When No Good Faith:
1. Being In Business on Realty
2. Close Relationship
3. Gross Inadequacy of Price
4. Obligation to Investigate or To Follow Leads
5. Land in Adverse Possession
6. Existence of Lis Pendens or Adverse Claim
7. Annotation of Lien in Settlement of Estate
When Subject of Sale Is Unregistered Land
1. Abrigo v. De Vera (2004): The rules in double sale under Article 1544, whereby the buyer who is able to first register
the purchase in good faith is in full accord with Section 51 of PD 1529 which provides that no deed, mortgage, lease,
or other voluntary instrument except a will purporting to convey or affect registered land shall take effect as a
conveyance or bind the land until its registration. Thus, if the sale is not registered, it is binding only between the
seller and the buyer but it does not affect innocent third persons
2. Acabal v. Acabal (2005): Under Act 3344, registration of instruments affecting unregistered lands is without
prejudice to a third party with a better right, which means that mere registration does not give the buyer any right
over the land if the seller was not anymore the owner of the land having previously sold the same to somebody else
even if the earlier sale was unrecorded. The rules on double sale under Art. 1544 has no application to land no
registered under the Torrens system.
Clarence Tiu
3. OBLIGATIONS OF THE BUYER
Article 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place
stipulated in the contract.
If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery
of the thing sold.
Article 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated instalments, which are to be separately paid for,
and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses
without just cause to take delivery of or pay for one or more instalments, it depends in each case on the terms of the
contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party
in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is
severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken.
Article 1584. Where goods are delivered to the buyer, which he has not previously examined, 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 if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity
with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer,
upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether
such terms are indicated by marking the goods with the words "collect on delivery," or otherwise, 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.
Article 1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted
them, or when the goods have been delivered to him, and he does any act in relation to them which is inconsistent with
the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the
seller that he has rejected them.
1. OBLIGATION TO PAY THE PRICE (Art. 1582)

Heirs of Severina San Miguel (2001): When seller cannot show title to the subject matter, then he cannot compel the buyer
to pay the price
Torcuator vs Bernabe (2005): Mere sending of a letter by the buyer expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment and consignation of the amount due are essential in
order to extinguish the obligation to pay and oblige the seller to convey title
Montecillo vs Reynes (2002): Unless the parties to a sale have agreed to the payment of the purchase price to any other
party, then its payment to be effective must be made to the seller in accordance with Article 1240 which provides that
Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or
any person authorized to receive it.
2. OBLIGATION TO ACCEPT DELIVERY (Art. 1582-1585)

Buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the
goods have been delivered to him, and he does any act in relation to which is inconsistent with the ownership of the
seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has
rejected them.
Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted them
unless and until he has had a reasonable opportunity of examining them, if there is not stipulation to the contrary.
EXCEPT: C.O.D. Sales (collect on delivery) wherein 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
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 warrant in the sale, unless the contrary is stipulated.
EXCEPT: after the acceptance of the goods, the buyer fails to give notice to the seller of breach in any promise or
warrant within a reasonable time after the buyer knows, or ought to know of such breach
Refusal to accept goods
Clarence Tiu
RIGHT TO REFUSE- Where goods are delivered to the buyer and he refuses to accept them, having the right to do so,
he is not bound to return to the seller, and it is sufficient that he notifies the seller of his refusal, unless otherwise
stipulated.
NO RIGHT TO REFUSE- When the buyers refusal to accept the goods is without just cause, the title passes to him
from the moment they are placed at his disposal, unless otherwise stipulated.
Clarence Tiu
VII. DOCUMENT OF TITLE
VII. DOCUMENTS OF TITLE
1. DEFINITION AND PURPOSE
Article 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter
otherwise requires:
(1) Document of title to goods" includes any bill of lading, dock warrant, "quedan," or warehouse receipt or order for
the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of
goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor
of the document to transfer or receive, either by indorsement or by delivery, goods represented by such
document."Goods" includes all chattels personal but not things in action or money of legal tender in the
Philippines. The term includes growing fruits or crops.
Documents of Title includes:

1. Bill of lading
2. Dock warrant
3. Quedan" or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of
business in the sale or transfer of goods
These are proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the
document to transfer or receive, either by indorsement or by delivery, goods represented by such document
"Goods" includes all chattels personal but NOT things in action or money of legal tender in the Philippines.
The term includes growing fruits or crops.
Ex: Warehouse Receipts, Bonded Warehouse Reciepts
Types of Documents of Title

1. Negotiable
A document of title in which it is stated that the goods referred to therein are deliverable to bearer, or to order of any
person named in such document
2. Non-negotiable
Does not state that the goods referred to therein are deliverable either to bearer or to the order of any person named
therein
Purpose of Documents of Title

1. As evidence of the possession or control of the goods described therein
2. As the medium of transferring title and possession over the goods described therein, without having to effect actual delivery
thereof.
Effects of Error on Document of Title

Clerical errors in the words of negotiability, such as the use of the term by the order instead of to the order does not
destroy the negotiability of a warehouse receipt
Philippine Trust Co, vs National Bank (1921): Through a document of title, seller is allowed by fiction of law to deal with the
goods described therein as though he had physically delivered them to the buyer; and buyer may take the document as
though he had actually taken possession and control over the goods described therein
Sy Cong Bieng vs HSBC (1932): Warehouse receipt represents the goods, but the intrusting of the receipt is more than the
mere delivery of the goods; it is a representation that the one to whom the possession of the receipt has been so entrusted has
the title to the goods
Consequently, the provisions of the Warehouse Receipts Act and the Bonded Warehouse Act constitute the primary sets of
rules governing warehouse receipts, and the provisions of Articles 1507 to 1520 of the Civil Code should be treated as
having suppletory effect.
2. NEGOTIABLE DOCUMENTS OF TITLE
Article 1507. A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or
to the order of any person named in such document is a negotiable document of title.
Article 1508. A negotiable document of title may be negotiated by delivery:
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1. Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to
deliver the goods to the bearer; or
2. Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to
deliver the goods to the order of a specified person, and such person or a subsequent indorsee of the document
has indorsed it in blank or to the bearer.
Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a negotiable
document of title has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any
specified person, and in such case the document shall thereafter be negotiated only by the indorsement of such
indorsee.
Article 1509. A negotiable document of title may be negotiated by the indorsement of the person to whose order the
goods are by the terms of the document deliverable. Such indorsement may be in blank, to bearer or to a specified
person. If indorsed to a specified person, it may be again
negotiated by the indorsement of such person in blank, to bearer or to another specified person. Subsequent
negotiations may be made in like manner.
Article 1512. A negotiable document of title may be negotiated:

1. By the owner thereof; or
2. By any person to whom the possession or custody of the document has been entrusted by the owner, if, by the
terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the person
to whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the
document is in such form that it may be negotiated by delivery.
Article 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby:
1. Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in
good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by
the terms of the document had or had ability to convey to a purchaser in good faith for value; and
2. The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the
terms of the document as fully as if such bailee had contracted directly with him.
Article 1515. Where a negotiable document of title is transferred for value by delivery, and the indorsement of the
transferor is essential for negotiation, the transferee acquires a right against the transferor to compel him to indorse
the document unless a contrary intention appears. The negotiation shall take effect as of the time when the
indorsement is actually made.
Article 1518. The validity of the negotiation of a negotiable document of title is not impaired by the fact that the
negotiation was a breach of duty on the part of the person making the negotiation, or by the fact that the owner of the
document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion, if
the person to whom the document was negotiated or a person to whom the document was subsequently negotiated
paid value therefor in good faith without notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or
conversion.
When is it negotiable?
A document of title in which it is stated that the goods referred to therein will be delivered to the bearer, or to the order of
any person named in such document
Effects of Use of Non-Negotiable terms on Negotiable Documents of Title

Such document may nevertheless be negotiated by the holder and is a negotiable document of title
How Negotiated (Art. 1508, 1509)

1. By DELIVERY ALONE, which may be done in the following cases:
1. BEARER DOCUMENT- The undertaking is to deliver the goods to bearer
2. ENDORSED IN BLANK OR TO BEARER- Even when originally issued to order, where such person or a subsequent
endorsee of the document has endorsed it in blank or to the bearer.
Based on the Civil Code, in either of the above-mentioned cases, any holder may ENDORSE the same to himself
or to any specified person. In which case, the document shall thereafter be negotiated only by the endorsement of
such endorsee.
2. By ENDORSEMENT and DELIVERY
General rule: Negotiable document of title may be negotiated only by the endorsement of the person to whose
order the goods are by the terms of the document deliverable, coupled with a delivery thereof.
Such endorsement may be in blank, to bearer, or to a specified person.
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Who can Negotiate (Art. 1512)

1. By the owner thereof
2. By any person to whom the possession or custody of the document has been entrusted by the owner
If, by the terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the
person to whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the
document is in such form that it may be negotiated by delivery.
Effects of Negotiation (Art. 1513)

A person to whom a negotiable document of title has been duly negotiated ACQUIRES thereby:
1. Such title to the goods as the person negotiating the document to him had or had ability to convey
2. Such title to the goods as the person to whose order the goods were delivered had or had ability to convey
3. Direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of
the document as fully as if such bailee had contracted directly with him
The legal effects of proper negotiation is the assurance to the buying or negotiating public of the protective mantle that the
law places upon their faith in accepting a negotiable document of title as a medium to transact on the goods covered
thereby. The result is that by dealing with the negotiable document of title it is as though the parties to the sale were
dealing directly with the goods covered thereby.
Philippine Trust Co vs National Bank (1921): The endorsement and delivery of a negotiable quedan operates as the
transfer of possession and ownership of the property referred to therein, and had the effect of divorcing the property
covered therein from the estate of the insolvent prior to the filing of the petition for insolvency
Effects of Merely Transferring/Delivering of Order Negotiable Documents of Title (Art. 1515)

Consequences where a negotiable document of title is transferred for value by delivery ONLY, and the indorsement
of the transferor is essential for negotiation
1. OWNERSHIP- Transferee would thereby own the document of title
2. ONLY AGAINST THE TRANSFEROR-Transferee acquires thereby as against the transferor, the title to the goods;
meaning as between the transferor and the transferee, the goods are owned by the transferee, but not as to the rest of
the world, including the bailee
3. RIGHT TO COMPEL ENDORSEMENT- Where a negotiable document of title is transferred for value, and the
endorsement of the transferor is essential for negotiation, the transferee acquires a right against the transferor to
compel him to endorse the document unless a contrary intention appears.
In such case, negotiation shall take effect as of the time when the endorsement is actually made.
Unauthorised Negotiation (Art. 1518)

In spite of the provision in Article 1512 of the Civil Code that only the owner of the document of title or his assignee can
negotiate the same, nevertheless, under Article 1518, the validity of the negotiation of a negotiable document of title is NOT
impaired by the following facts:
1. BREACH OF DUTY- That the negotiation was a breach of the duty on the part of the person making the negotiation
2. ILLEGAL DEPRIVATION- That the owner of the document was deprived of the possession of the same by loss,
accident, fraud, mistake, theft, duress, or conversion.
But this applies only if the person to whom the document was negotiated paid value therefore in good faith and
without notice of the breach, in this case the person is a HOLDER IN DUE COURSE
Since a negotiable document of title cannot be dealt with apart from the goods that it covers, necessarily the legal
consequences as to the effects of unauthorized negotiation thereof would also pertain to the goods that it describes.
Even when the owner loses the negotiable document of title to a thief, and it is deliverable to bearer, the latter may validly
impart title thereto to a holder in due course, who is essentially a buyer in good faith and for value.
It is important to note also that although Article 559 of the Civil Code provides that an owner who has lost any movable or
has been unlawfully deprived thereof, may recover it from the person in possession of the same, the same CANNOT apply
to a holder in due course of a negotiable document of title because the enumerated instances in Article 1518
includes specifically loss, theft, fraud, accident and conversion.
The only real defese that can validly be raised against the holder in due course of a negotiable document of title would be
FORGERY of the endorsement of the owner when such endorsement is necessary to effect propert negotiation
Siy Long Bieng vs HSBC (1932): As between the owner of a negotiable document of title who endorsed it in blank and
entrusted it to a friend, and the holder of such negotiable document of title to whom it was negotiated and who received it in
good faith and for value, the latter is preferred, under the principle that as between two innocent persons, he who
made the loss possible should bear the loss
3. NON-NEGOTIABLE DOCUMENTS OF TITLE
Article 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as
against the transferor, the title to the goods, subject to the terms of any agreement with the transferor.
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If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of
the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him
according to the terms of the document.
Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of
the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an
attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the
transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor.
Non-negotiable Documents of Title are those which are NOT deliverable to bearer or to order
How Transferred or Assigned (Art. 1514)

Cannot be negotiated, only assigned
Endorsement of such gives the transferee no additional right
May be transferred by the holder BY DELIVERY to a purchaser or donee
Since a non-negotiable document of title constitutes an incorporeal right, its sale constitutes actually an assignment
which under Art. 1624 is perfected by MERE CONSENT, but which Art. 1625 requires to be in a PUBLIC INSTRUMENT
to produce effects as against third persons.
Effects of Transfer (Art. 1514)

Such person acquires thereby, as against the transferor:
1. Title to the goods (subj. to the terms of any agreement with the transferor)
2. Right to notify the bailee who issued the document of the transfer thereof.
3. Acquire the direct obligation of such bailee to hold possession of the goods for him to the terms of the document.
Unlike in the negotiation of a negotiable document of title, there is no legal relationship between the assignee and the
bailee until the latter is INFORMED by the former of the assignment of the covering document of title.
4. WARRANTIES OF SELLER OF DOCUMENTS OF TITLE
Article 1516. A person who for value negotiates or transfers a document of title by indorsement or delivery, including
one who assigns for value a claim secured by a document of title unless a contrary intention appears, warrants:
1. That the document is genuine;
2. That he has a legal right to negotiate or transfer it;
3. That he has knowledge of no fact which would impair the validity or worth of the document; and
4. That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular
purpose, whenever such warranties would have been implied if the contract of the parties had been to transfer
without a document of title the goods represented thereby.
A person who for value negotiates or transfers a document of title by endorsement or delivery, including one who
assigns for value a claim secured by a document of title, unless a contrary intention appears, WARRANTS that:
1. Document is genuine
2. He has legal right to negotiate or transfer it
3. He has no knowledge of any fact which would impair the validity or worth of the document
4. He has a right to transfer the title to the goods
5. The goods are merchantable or fit for a particular purpose
NOTE: that the warranties of one who negotiates a negotiable and a non-negotiable document of title are the SAME.
The seller/assignor does NOT warrant the solvency of the debtor (i.e. bailee), unless:
1. it has been so expressly stipulated, or
2. The insolvency was prior to the sale and of common knowledge.
6. EFFECTS WHEN OWNER OF THE DOCUMENT OF TITLE HAS NO LEGAL TITLE

TO THE GOODS
Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the
same.
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If the possessor of a movable lost or 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 therefor.
Effects when Owner of the Document of Title has NO LEGAL TITLE to the Goods
PREMISE: Situation where the legal owner of the document of title (i.e., the person who deposited the goods with the
bailee), had in fact no valid title to the goods deposited, for which the document of title has been issued by the bailee,
and the document of title is properly assigned or negotiated to a buyer in good faith and for value
QUESTION: As between the real owner of the goods and the buyer in good faith and for value, who is rightfully entitled to
the goods?
Real owner pertains to the owner of the goods NOT the document of title
Buyer/Assignor pertains to the person who bought the goods from the person who had no legal title to the goods but
who owns the document of title
When goods covered by a NEGOTIABLE Document

In a situation where the goods are covered by a negotiable document of title properly negotiated to the holder-buyer, the
premise would have to be that by issuing such negotiable document the bailee has constituted himself as an agent to
possess the goods for the benefit of the holder of the document as his principal, then it becomes apparent that the
same principles under Article 559 of the Civil Code would have to apply.
1. Where the owner had NEITHER lost NOR have been unlawfully deprived of the goods: HOLDER PREFERRED-
The holder-buyer ACQUIRES valid ownership of such goods because of his possession in good faith and for value,
which by itself would constitute as an orignal source or ownership under Art. 559, is clearly evidenced by his being a
holder in due course of the negotiable document of title
2. Where the owner had LOST the goods or been UNLAWFULLY DEPRIVED thereof: OWNER PREFFERED- The
owner MAY RECOVER against the bailee and therefore against the holder-buyer, even when the latter is a holder in
due course with respect to the negotiable document of title, and a possessor in good faith and for value with respect to
goods
As a holder in due course, under Article 1513 of the Civil Code, the buyer takes only such title to the goods as the
person negotiating the document to him had or had ability to convey, as well as such title to the goods as the
person to whose order the goods were to be delivered by the terms of the document, and since both those
predecessors-in-interest had no title, or had void titles, to the goods, the holder-buyer also has no title
thereto;
As a buyer good faith and for value, Article 559 does not give him a basis for original title to the goods
(because the owner had lost or been unlawfully deprived of the
goods), and therefore such buyer derives his source of ownership from that of his sellers; but since the seller
had no title to the goods, the buyer takes none also, under the principle Nemo dat quod non habet
Art. 1505 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.
The rules on warranties clearly provide that the owner has title to the goods as one of his warranties.
If it later turns out that he has no title: Holder-Buyer has action for breach of warranties
Remedy of buyer-holder is run after the transferor of the negotiable document of title
When goods covered by NON-NEGOTIABLE Document

Where the goods are covered by a non-negotiable document of title, and under the premise that the assignee-buyer had
obtained possession of the goods by the proper notification to the baillee of such purchase, the situation would have
to be governed by the formula provided under Article 559 of the Civil Code.
1. Where the owner had NEITHER lost NOR have been unlawfully deprived of the goods: ASSIGNEE PREFERRED-
The assignee-buyers title to the goods is preferred against the owner who can no longer recover the goods.
In such cases, the assignee-buyers ownership is not derived from the assignor-seller, but is granted by Art. 559
2. Where the owner had LOST the goods or been UNLAWFULLY DEPRIVED thereof: OWNER PREFERRED- The
owner may recover against the assignee-buyer, even when the latter is in good faith and bought for value, because Art.
559 expressly does not give to the assignee buyer any original title, and in such cases, the title of the assignee-buyer is
derived from that of the assignor-sellers
7. RULES OF LEVY/GARNISHMENT OF GOODS
Article 1519. If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to a
purchaser in good faith for value would bind the owner and a negotiable document of title is issued for them they
cannot thereafter, while in possession of such bailee, be attached by garnishment or otherwise or be levied under an
execution unless the document be first surrendered to the bailee or its negotiation enjoined. The bailee shall in no case
be compelled to deliver up the actual possession of the goods until the document is surrendered to him or impounded
by the court.
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Article 1520. A creditor whose debtor is the owner of a negotiable document of title shall be entitled to such aid from
courts of appropriate jurisdiction by injunction and otherwise in attaching such document or in satisfying the claim by
means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied upon by
ordinary legal process
Art. 1514. If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the
document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the
goods for him according to the terms of the document.
Article 1625. An assignment of a credit, right or action shall produce no effect as against third persons, unless it
appears in a public instrument, or the instrument is recorded in the Registry of Property in case the assignment
involves real property.
When NEGOTIABLE Document of Title (Art. 1519, 1520)

Such goods CANNOT thereafter be attached by garnishment or otherwise or be levied under an execution UNLESS:
1. The document be first surrendered to the bailee, or
2. Its negotiation enjoined
The goods are treated inseparable from the negotiable document of title covering them, and vice-versa.
Thus, with regard to property which cannot readily be attached or levied upon by ordinary legal process, a creditor is
entitled to such aid from the courts in satisfying his claims.
When NON-NEGOTIABLE Document of Title (Art. 1514, 1625)

Assignment if Non-Negotiable
If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the
document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession
of the goods for him according to the terms of the document.
An assignment of a credit, right, or action shall produce no effect as against third persons, unless:
1. It appear in a public instrument, or
2. The instrument is recorded in the Registry of Property (in case the assignment involves real property
RULE: The assignment or sale by the original owner of the non-negotiable document of title, even when executed in
a public instrument, does not transfer the possession or title until ACTUAL NOTIFICATION is made to the bailee.
BUT, the transferor can still exercise possessory lien over the goods covered by notification thereof to the bailee
PRIOR to the time the transferee-assignee shall have notified the bailee of the assignment made to him of the
document of title.
Therefore, it is the notification of the bailee of the assignment that is the operative act that will transfer title and/or
possession of the goods in favor of the transferee-assignee.
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VIII. SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE
VIII. SALE BY NON-OWNER OR BY ONE HAVING

VOIDABLE TITLE
A. WHEN SELLER IS NOT OWNER OF SUBJECT-MATTER/ SALE BY NON-OWNER
1. AT PERFECTION
Although a sale ordinarily covers existing things, a valid sale can cover a subject matter that is not existing or having only a
potential existence at the time of perfection, or even a thing subject to a resolutory condition; and ownership of the subject
matter by the seller at the time of perfection is NOT an essential requirement for the validity of the sale.
In other words, 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.
Perfection of a sale merely creates the obligation on the part of the seller to transfer ownership, but by itself perfection does
not transfer ownership.
The law states that the vendor must have a right to transfer the ownership thereof at the time it is delivered, and that
ownership of the thing sold is not transferred by perfection but shall be transferred to the vendee upon the actual or
constructive delivery thereof
It is not critical for valid perfection of a sale to come about, that the seller at that time is the owner of the subject matter of
the sale, or even that the subject matter should exist at the time of perfection.
NOTE: This truism is bolstered by the fact that the law on estoppel provides that when the 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.
It is obvious that Article 1434 uses the word sells to refer to the perfection stage of a sale since it includes and
delivers it as an additional part of its qualification.
2. AT CONSUMMATION
than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to
sell.
Nothing in this Title, however, shall affect:
1. The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of
goods to dispose of them as if he were the true owner thereof,
2. The validity of any contract of sale under statutory power of sale or under the order of a court of competent
jurisdiction;
3. Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and
special laws.
Article 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.
The article does not say that the sale of goods by a non-owner renders the contract void; it describes the consequences
when delivery under a sale is effected when the seller is not the owner of the thing delivered.
As the Supreme Court aptly held: It is a well-settled principle in law that no one can give what one does not have
nemo dat quod non habet. Accordingly, 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.
Remedy of Buyer in case Seller fails to comply with his undertaking to acquire ownership of the thing and transfer it
to such buyer: RESCISSION WITH DAMAGES
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3. SALE BY CO-OWNER OF THE WHOLE PROPERTY OR DEFINITE PORTION
THEREOF
Article 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits pertaining thereto,
and he may therefore alienate, assign or mortgage it, and even substitute another person in its enjoyment, except when
personal rights are involved. But the effect of the alienation or the mortgage, with respect to the co-owners, shall be
limited to the portion which may be allotted to him in the division upon the termination of the co-ownership.
GENERAL RULE: 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;
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.
Consequences ACCORDING TO JURISPRUDENCE: 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
When a co-owner prior to partition sells a definite portion of the property owned in common, the sale as to that
portion is not valid as to the other co-owners, but valid as to his spiritual share, if indeed the buyer would
have still bought such spiritual share had he known that the definite portion sold would not be acquired by him.
Bailon-Casilao v. Court of Appeals (1988): The rights of a co-owner of a certain property are clearly specified
in Article 493 of the Civil Code. ... As early as 1923, this Court has ruled that even 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]). This is because under the aforementioned
codal provision, the sale or other disposition affects only his undivided share and the transferee gets only what
would correspond to his grantor in the partition of the thing owned in common
From the foregoing, it may be deduced that since 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. However, only the rights of the co-owner-seller are transferred, thereby making the buyer a co-
owner of the property.
Paulmitan vs CA (1992): A sale of the entire property by one co-owner without the consent of the other co-
owners is not null and void. However, only the rights of the co-owner seller are transferred, thereby making
the buyer a co-owner of the property.
Tomas Claudio Memorial College, Inc. v. Court of Appeals (1999): held that when a co-owner sells the entire
property, the sale is valid as to his spiritual share since a co-owner is entitled to sell his individual
share and the proper action to take is not the nullification of the sale, or for recovery of possession of the
property owned in common from the other co-owners, but for division or partition of the entire property.
CLV COMMENT ON THE CASES:
The foregoing rulings seem to gloss over the commercial fact that often the meeting of minds between the seller and
the buyer comes about by the commutative nature of the transaction, i.e., that the buyer was willing to pay a higher
price, if he thought the seller was obliging himself to sell the entire property or a definite portion thereof.
If it turns out that the seller had no capacity to do so, because he is in fact merely a co-owner, then it may happen
more often than not that the sale is void under the provisions of Article 1409(6) where the intention of the parties
relative to the principal object of the contract cannot be ascertained. Otherwise, to compel the buyer to stick by the
terms of the contract, would lead to either or both of two things: (a) you compel the buyer to accept a subject matter
(i.e., spiritual share) to which he never agreed to buy; and (b) to pay the agreed price for a subject matter (spiritual
share) which commands a smaller value in the market.
The solutions given by the Court would often lead to unjustment enrichment on the part of the seller.
On the other hand, if the proferred solution is that the buyer shall be compelled to accept delivery of the spiritual
share in the property intended to be bought, and mandate that he will be paying a smaller amount as the price
for the spiritual portion, then it really amounts to making a new contract between them, where the subject matter
has drastically changed, as well as the price.
CLV CONCLUSION- The proper solution it seems to the author is that, the original contract terms be upheld
as VALID (which is so, as discussed above), BUT the option is granted to the buyer to either:
1. RESCIND- seek for rescission for breach of sellers obligation to deliver the object agreed upon
2. ACCEPT PARTIAL DELIVERY WITH REDUCTION OF PRICE- or to accept partial delivery, i.e., only the
spiritual portion, which appropriate reduction of price, similar to the rules in sale of real property per unit of
measure or number.
Sir Arpee: See intent of the parties, particularly the buyer, he can argue several remedies which would best
benefit him in the respective circumstance. So, find the best remedy that suits the facts of the case
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EXCEPTIONS to Rule on Effect of Sale of Definite Portion by Co-owner

The general rule on the effect of the sale of the entire property owned in common by one of the co-owners, to be VOID as a
sale of the whole property or any definite portion thereof (i.e., to validly effect transfer of ownership), BUT VALID as to the
co-owner-sellers spiritual share, is subject to a number of exceptions:
1. SUBJECT-MATTER INDIVISIBLE BY INTENT- where the subject matter is indivisible in nature or by intent.
Mindanao vs Yap (1965): 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 incapable of partial annulment, inasmuch as the buyer would not have entered into
the transaction except to acquire all of the properties purchased by him
In this case, the sale was VOID because the intent of the buyer was to buy the whole property not merely the
part of which the seller only owns. Void because no meeting of the minds as to the subject-matter
2. WITH CONSENT OF THE OTHER CO-OWNERS-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
Pamplona v. Moreto (1980): The Court held that 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.
Imperial vs CA (1996): was held that 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.
3. IPSO JURE TRANSFER WHEN SELLER LATER ACQUIRES OWNERSHIP(BASED ON ESTOPPEL)- ipso jure transfer
of ownership under Article 1434 of the Civil Code.
Pisuea v. Heirs of Petra Unating (1999): the Court held that 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 provisons of Article 1434 of the Civil Code which
upholds the validity of a sale by one who previously did not have, but who subsequently acquired, title to
the property sold
4. BINDING EFFECT OF REGISTRATION UNDER TORRENS SYSTEM
Cruz v. Leis (2000): held that 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: The rationale for this rule that 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.
B. EXCEPTIONS TO THE RULES ON LEGAL EFFECTS OF SALE BY NON-OWNER:

WHEN OWNERSHIP TRANSFERS BY ACT OF NON-OWNER
BASIC INFORMATION
than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to
sell.
Nothing in this Title, however, shall affect:
1. The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of
goods to dispose of them as if he were the true owner thereof,
2. The validity of any contract of sale under statutory power of sale or under the order of a court of competent
jurisdiction;
3. Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and
special laws.
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Although Article 1505 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, it
also provides for the following exceptions:
1. ESTOPPEL- When the owner is, by his conduct, precluded from denying the sellers authority to sell;
2. TORRENS SYSTEM- When the contrary is provided for in recording laws;
3. FORCED SALES- When the sale is made under statutory power of sale or under the order of a court of competent
jurisdiction; and
4. MERCHANT STORES- When the sale is made in a merchants store in accordance with the Code of Commerce and
special laws.
5. VOIDABLE TITLE- Under Article 1506, the sale by a seller who at the time of delivery had voidable title to the thing
delivered;
6. POSSESSOR IN GOOD FAITH- In case of movables, 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
7. REMEDY OF UNPAID SELLER TO RESELL- Special rights of an unpaid seller of goods to resell under Articles 1526
and 1533 of the Civil Code.
1. ESTOPPEL ON TRUE OWNER
See Article 1501 (1)
An example when the owner is estopped is Article 1434 of the Civil Code that provides that 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. Gabar (1974): where the seller sold a parcel of land to the buyer at the time the seller was not yet the owner
of the land sold, the acquisition after one year by the seller of the ownership of said land was automatically transferred
to the buyer, and the seller was estopped from questioning the title of his buyer.
2. RECORDING LAWS: TORRENS SYSTEM
See Article 1501 (1); PD 1529: Property Registration Decree- Torrens System
Except on the effect of registration of chattel mortgage and its subsequent foreclosure and sale at public auction, and the
jurisprudential rules that have come to govern the hierarchy of claims on shares of stock of a corporation, there are at
present no other recording laws pertaining to movables that provide the same principle as registration as the operative
act principle applicable to registered land under The Property Registration Decree.
Tsai vs CA (2001): The defense of indefeasibility of Torrens title where the disputed buildings and equipment are
located is unavailing, since such defense is available to sale of lands and not to sale of properties situated therein
Sy vs Capistrano (2008): A person who deals with registered land through someone who is not the registered owner is
expected to look beyond the certificate of title and examine all the factual circumstances thereof in order to determine if
the vendor has the capacity to transfer any interest in the land.
Heirs of Spouses Gavino vs CA (1998): Where innocent third persons, relying on the correctness of the certificate of
title thus issued, acquire rights over the property, the court cannot disregard such rights and order the cancellation of
the certificate, since the effect of such outright cancellation will be to impair public confidence in the certificate of title.
Every person dealing with the registered land may safely rely on the correctness of the certificate of title issued therefor
and the law will in no way oblige him to go behind the certificate to determine the condition of the property.
3. STATUTORY POWER ORDER OF COURTS
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.
Also, the 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.
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Manila Remnant Co vs CA (1994): When a defeated party refuses to execute the absolute deed of sale in accordance
with the judgment, the court may direct the act to be done at the cost of the disobedient party by some other person
appointed by the court and the act when so done shall have the like effect as is done by the party.
4. SALE IN MERCHANT STORES, FAIRS OR MARKETS
Sun Brothers & Co. v. Velasco (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.
This is a case of an imperfect or void title ripening into a valid one, as a result of some intervening causes. The policy
of the 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 third 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.
This rule is necessary in a country such as ours 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, and if it is ever mentioned it is more of an exception rather than the general rule.
City of Manila v. Bugsuk Lumber Co (1959): a store is any place where goods are kept for sale; or where goods
are deposited and sold by one engaged in buying and selling them. It held that placing of an order for goods and the
making of payment thereto at a principal office does not transform said office into a store, for it is a necessary element that
there must also be goods or wares stored therein or on display, and provided also that the firm or person maintaining that
office is actually engaged in the business of buying and selling.
C. SALE BY ONE HAVING VOIDABLE TITLE
Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the
same.
If the possessor of a movable lost or 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 therefor.
Article 1506. Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the
sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of
the seller's defect of title.
Rule in case of Seller with Voidable Title

Under Article 1506, Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of
sale, the buyer acquires a good title to the goods, provided he buys them in:
1. Good faith
2. For value
3. Without notice of the sellers defect of title
When the article states that title has not been avoided at the time of sale, what stage of the sale is referred to as the cut-
off point? It would seem that if the rest of the provisions of Article 1506 would require that the buyer should have paid value
therefor, it must cover the consummation stage. Article 1506 talks of title or ownership to the property which covers the
consummation stage; perfection stage of sale involves the obligation to transfer ownership, but does not cover nor convey
ownership itself.
It would logically follow then that if the cut-off point under Article 1506 is the delivery of the subject matter to the
buyer by the seller, if the 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.
How to determine Good Faith in this case
Limketkai Sons Milling v. CA (1995): The buyer is not in good faith may be determined from the language of the
deed of sale, as held by the Court in one case: The language of the deed of sale may show bad faith on the part of the
buyer. 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 to the land turns out to be defective as when the land belongs to
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another person, and instead the reverse is found in the deed of sale providing that any losses which the buyer may
incur in the event 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.
DOES NOT APPLY TO IMMOVABLES- The essence of the coverage of Articles 1505 and 1506 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.
Consequently, when the seller of a parcel of land has only voidable or void title to the property, then 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.
The only exception to this principle of Nemo dat quod non habet is the registration in good faith as the operative act
doctrine embodied in Sec. 113 of the Property Registration Degree
BUT, in Tsai v. Court Appeals, the Court held that the defense of indefeasibility of Torrens title is unavailing to
properties and other improvements situated or built therein, such that the mere fact that the lot where the factory
and disputed properties stand was in the name of the bank did not automatically mean that everything found on the
lot also belonged to the bank, especially when there was a letter received by the buyer revealing such fact.
SUMMARY OF RULES ON MOVABLES (Relating Art. 559 with Seller with Voidable Title in Art. 1506 and Sale of
Movables in Merchant Stores in Art. 1505)
GENERAL RULE- Article 559 of the Civil Code provides that possession of movable property acquired in good faith is
equivalent to title. In addition, the article provides that one who has lost any movable or has been unlawfully
deprived thereof, MAY RECOVER it from the person in possession of the same. 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 therefor.
EXCEPTIONS- Although it may be settled jurisprudence that the term unlawfully deprived, would cover situations
when the original owner has been dispossessed without his consent, which includes not only cases of theft and
robbery, but including one occasioned by swindling or estafa, nonetheless the rule under Article 559 is subject to
the following exceptions:
1. SALE IN MERCHANT STORE- 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
SELLER WITH VOIDABLE TITLE- Article 1506, 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.
Tagatac vs Jimenez (1957): Tagatac was the owner of a vehicle she sold to Feist who issued a check to cover the
purchase price, which check bounced. In the meantime, buyer sold the vehicle to another person, and eventually the
vehicle was sold to Jimenez, who bought it in good faith and for value. Subsequently, Feist was convicted for estafa. On
the issue as to who was the rightful owner of the vehicle, the Court held that Tagatac cannot be deemed to have been
unlawfully deprived of the vehicle as the term is used in Article 559 since the failure of Feist to pay the purchase
price of the vehicle or the issuance of a check for its price without funds to answer therefor did not or could
not affect the validity of the transfer of title of the subsequent buyer who acquired the car in good faith; at the
most it would give Tagatac a right to rescind the contract, but the title to the thing sold would not revert to the seller
until the sale has been set aside by a competent court. Until that is done, the rights of stranger in good faith, acquired
before resolution of the contract are entitled to protection.
Aznar v. Yapdiangco (1965): where the owner had not yet consented to the sale of the vehicle when it was taken
and driven away by the would-be buyer, the acquisition subsequently of another person who took it in good faith, would
still entitle the original owner to recover the same since it constituted unlawful deprivation under Article 559
entitling the owner to recover it from any possessor thereof. Aznar also held that the provisions of Article 1506 would
not apply to the present possessor since it was essential that his seller should have a voidable title at least. In
the case of the present possessor his seller did not even have any title to the property since it was never sold to him
nor delivered to him pursuant to a valid or at least voidable sale.
EDCA Publishing & Distributing Corp. v. Santos (1990): an impostor identifying himself as a professor obtained
delivery of books from EDCA and for which he issued a check that subsequently bounced. The impostor sold the books
to Santos,who bought them in good faith and for value. In the resulting suit over the books between EDCA and Santos,
the Court held that Santos did not have to establish his ownership over the books since under Article 559 his
possession of books acquired in good faith is equivalent to title. In denying the contention of EDCA that it had been
unlawfully deprived of the books, the Court held non-payment of the purchase price by the impostor, although
amounting to fraud, did not amount to unlawful deprivation under Article 559, but merely may be considered
vitiation of consent as to make the contract voidable; but that so long as the contract has not been annulled, it
remained valid, and the subsequent sale and delivery by the impostor of the books to Santos effectively transferred
ownership to Santos.
CLV Comments on the 3 Cases:
The implication of the Tagatac and EDCA Publishing rulings is that Article 1506 represents an operative act which
would constitute a further exception to the provisions of Article 559, which means that if the owner has been
unlawfully deprived by means of deceit pertaining to the non-payment of the purchase price, but the one who takes
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the movable is able to sell and deliver the movable to another person who takes it in good faith and for value
before the owner is able to rescind the earlier sale, the buyer obtains good title and the original owner has no
cause of action to recover
In Tagatac, the Court ruled that deceit or fraud, which do not render the contract void but merely voidable (valid
until annulled) resulted into the existence of a sale, so that when delivery was effected pursuant to such voidable
contract, tradition effectively and legally transferred ownership to the buyer, even though he was a deceitful
person. It also correctly ruled that the non- payment of the price by the bouncing of the check went into the
performance of the contract and not to its perfection and therefore non-payment could not reverse the coming into
existence of the sale by the meeting of minds of the parties.
In Aznar, the Court held the line that non-delivery of the vehicle by the seller could not have possibly given
any sort of title to the would-be buyer, and the latter could not in turn convey any title, valid or voidable, to
his own buyer to bring the case under Article 1506. The Court pointed out that perfection of the contract does not
transfer ownership; and that ownership is not transferred by contract merely (i.e., perfection of the contract) but by
tradition or delivery.
In Edca, Court highlighted that Non-payment only creates a right to demand payment or to rescind the contract, or
to criminal prosecution in the case of bouncing checks. But absent the stipulation noted, delivery of the thing sold
will effectively transfer ownership to the buyer who can in turn transfer it to another.
Sir Arpee: See if there has been proper delivery which would determine if whether there was at least a voidable
title that passes, because if no delivery, no title (even voidable) passes
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IX. LOSS, DETERIORATION, AND OTHER BENEFITS
IX. LOSS, DETERIORATION, FRUITS AND OTHER

BENEFITS
1. BASIC INFORMATION
Rules have NO application when Subject-Matter is DETERMINABLE (Generic)
The discussions hereunder cover only contracts of sale where the subject matter is determinate or specific, since a
determinable generic subject matter does not deteriorate nor is it subject to loss
In drafting the Title on Sales of the New Civil Code, the Code Commission engrafted many provisions of the Uniform Sales
Law of the United States to achieve a common set of rules on sales on both sides of the Pacific, since the United States was
then our biggest and most important trading partner. Unfortunately, the grafting together of civil and common law principles
in our Law on Sales has yielded confusing and varying interpretations.
Means conflicting provisions on this topic! :(
Rules deal with
1. Loss
2. Deterioration
3. Fruits/ Improvement
2. BEFORE PERFECTION
Before the perfection of a sale, 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.
Notwithstanding the extent of the negotiations that have taken place, prior to perfection, the purported subject matter
bears no legal or even equitable relationship to the purported buyer
3. AT THE TIME OF PERFECTION
Article 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been
entirely lost, the contract shall be without any effect.
But if the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and
demanding the remaining part, paying its price in proportion to the total sum agreed upon.
Article 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have
perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in
character, the buyer may at his option treat the sale:
1. As avoided; or
2. 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
Under Article 1493 of the New Civil Code, if at the time the sale is perfected
1. The subject matter has been ENTIRELY LOST, the contract shall be WITHOUT ANY EFFECT.
2. If the thing should have been LOST IN PART only, the buyer may choose between:
1. WITHDRAW- withdrawing from the contract
2. DEMAND PART NOT LOST- demanding the remaining part, paying its price in proportion to the total sum agreed
upon.
CLV: Article 1493 does not hold a sale at perfection to be void when the object thereof is lost; it uses the phrase
without any effect. Strictly speaking, the physical existence or non-existence of the subject matter is not important for
perfection of the sale. However, if the subject matter is lost, there is really no point is pursuing the contract since the seller is
not in a position to comply with his obligation to deliver the subject matter. Therefore, the law decrees the same effect as if
the sale is void.
Tolentino holds that the contract never comes into existence. There can be no sale without a thing to be sold. In
such case, there is no need of an action to annul the contract, because there can be no annulment of something that
does not exist.
Paras also refers to such a contract as being void when at the time of perfection, the subject matter thereof is lost
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Nevertheless, the provisions of Articles 1493 and 1494 of the New Civil Code should be instructive of how to treat loss,
deterioration and benefits after perfection: If the subject matter is lost at the point of perfection, and the SELLER
BEARS THE LOSS and the buyer is relieved of his obligations under the contract, then the implication is that after
perfection the buyer then bears the risk of loss and deterioration even without prior delivery to him.
3. AFTER PERFECTION BUT BEFORE DELIVERY
Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
1. Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of 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 buyer's risk from the time of such delivery;
2. Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the
party in fault.
Article 1164. The creditor 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 it until the same has been delivered to him.
Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
1. If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
2. IIf the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the
thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown
or it cannot be recovered;
3. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
4. If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation
and its fulfillment, with indemnity for damages in either case;
5. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
6. If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary.
Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be
lost or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the
obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires
the assumption of risk.
Article 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the
perfection of the contract to the time of delivery, shall be governed by articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration
of their weight, number, or measure.
Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed
to the vendee until they have been weighed, counted, or measured and delivered, unless the latter has incurred in
delay.
Article 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in article 1189 shall
be observed, the vendor being considered the debtor
After perfection of the sale, ideally the rules on loss, deterioration, fruits and improvements should be governed by
the same set of principles.
Unfortunately, with the adoption of the common law rule on the risk of loss in the period from perfection and before
delivery, the rule on loss DIFFER from the rules on deterioration, fruits and improvements, with respect to the
same object sold.
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1. LOSS OF SUBJECT-MATTER
Lengthy discussion in the book regarding who would bear the loss, involving a lot of authors based on
contradictory provisions (See Art. 1504, 1480, 1538, 1189) and the common law doctrine of res perit domino (owner
bears loss)
RELATING THE PROVISIONS
Common law principle of res perit domino (owner bears loss)
Art. 1504 covers the principle of res perit domino
Unless otherwise agreed, the goods remain at the sellers risk until ownership therein is transferred to the buyer
But when the ownership therein is transferred to the buyer the goods are at the buyers risk whether actual delivery
of the goods has been made or not
Applies to goods only
Article 1480 provides that any injury to or benefit from the thing sold, after the contract has been perfected, from the
moment of the perfection of the contract to the time of delivery, shall be governed by Articles 1163 to 1165, and 1262.
As applied to the sale, under cross-referred Article 1165, it is provided that when what is to be delivered is a
determinate thing, the buyer, in addition to the right to recover damages, may compel the seller to make the delivery.
This shows that the underlying obligation in a sale is a real obligation and therefore may be subject to the remedy of
specific performance. Under cross-referred Article 1262, as applied to a sale, the obligation to deliver a
determinate thing shall be extinguished if it should be lost or destroyed without the fault of the seller, and
before he has incurred in delay.
Article 1538 provides that in case of loss, deterioration or improvement of the thing before its delivery, the rules in
Article 1189 shall be observed, the vendor being considered the debtor. Article 1538 is a new article not based on any
provision of the old Civil Code. But like Article 1480, Article 1538 is a specific provision in the Title on Sales invoking
provisions of loss applicable to contracts in general in Article 1189, which embodies civil law principles which is
consistent with Article 1262 which provides that in an obligation which consists in the delivery of a determinate
thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has
incurred in delay.
ISSUE: Interpretation of extinguishment of obligation in Art. 1189 and 1262?
1. Risk of loss is to be borne by the BUYER, even when he is not yet the owner of the subject property in that if the
thing is lost through a fortuitous event, the seller is excused from complying with his obligation, but the buyer is still
OBLIGED to pay.
Support by Paras and Padilla
The obligation of the seller to deliver is extinguished, but the obligation of the buyer to pay is not extinguished
When the seller is able to deliver but does not, in such a case, the buyer is not required to pay, for lack of
reciprocity
But it is different if the law excuses the seller, but not the buyer. Buyer should pay even if he does not receive
the object lost through a fortuitous event since there was a cause or consideration at the time the contract
was perfected; the thing purchased still existed.
2. Risk of loss is to be borne by the SELLER, should the thing be lost through a fortuitous event, the seller is excused
from his obligation to deliver the thing, and not being in breach of his obligation he cannot be held liable for damages,
But buyer is NOT OBLIGED to pay
Support by Tolentino, Baviera and Jurado
In reciprocal obligations, the extinguishment of the obligation due to loss of the thing affects both debtor and
creditor
The entire obligation is extinguished
This is a logical consequence of the principle of res perit domino
The debtor is released from liability, but he cannot demand the prestation which has been stipulated for his
benefit.
This is the result of the reciprocal character of the obligations; he who gives nothing has no reason to demand
anything.
Rules are varying regarding sales subject to a condition precedentwhere the loss is borne by the vendor,
deterioration or improvement of the thing is for the account of the buyer.
Seemingly, the conclusion of CLV based on other authors: Article 1504 contradicts the rule in Articles 1480 and
1538 where the risk of loss is to be borne by the buyer from perfection of the sale but before delivery.
GENERAL RULE- The general rule on the Law on Sales is that from perfection but before delivery, the risk of loss
of the subject matter is BORNE BY BUYER
EXCEPT- when the subject matter is GOODS in which case the risk of loss is BORNE BY SELLER, from
perfection up to before delivery of the subject matter of the sale
This seems correct in that it harmonises Art. 1504 with Art. 1189 and 1262
@_@
2. DETERIORATION, FRUITS AND IMPROVEMENTS (Same rules for them)

NOTE: Art. 1504 on goods applies only to loss and has no application to issues pertaining to deterioration or fruits and
improvements
Art. 1504- owner bears loss- res perit domino
See these provisions:
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Art. 1537: the vendor 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; all the fruits shall pertain to the buyer from the day on which the
contract is perfected.
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 the delivery, shall be governed by Art. 1163-1165 and 1262.
This rule shall apply to the sale of fungible things, made independently and for a single price, without consideration
of their weight, number, or measure
Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be
imputed to the vendee until they have been weighed, counted, or measured, and delivered, unless the latter has
incurred in delay.
Art. 1163: Every person obliged to give something is also obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the parties requires another standard of care.
Art. 1164: The creditor has a right to the fruits of the thing from the thing from the time the obligation to deliver
it arises. However, he shall acquire no real right over it until the same has been delivered to him.
Art. 1189: When the conditions have been imposed with the intention of suspending the efficacy of an obligation to
give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
1. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor
2. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
Sir Arpee: deterioration, fruits and interests should accrue to the BENEFICIAL OWNER; going back to the
principles in oblicon, the seller is not holding it for himself, but for the benefit of the beneficial owner, which is,
in this case, the BUYER.
7. AFTER DELIVERY
Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
1. Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of 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 buyer's risk from the time of such delivery;
2. Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the
party in fault.
GENERAL RULE: Under Art. 1504, When the ownership therein is transferred to the buyer the goods are at the BUYERS
RISK whether actual delivery has been made or not
SUBJECT TO:
1. BUYERS RISK EVEN IF SELLER RETAINS OWNERSHIP WHEN:
a. Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract
b. Ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations
under the contract
In this case, the goods are at the buyer's risk from the time of such delivery;
2. RISK OF THE PARTY AT FAULT IN CASE OF DELAYED DELIVERY- Where actual delivery has been delayed through
the fault of either the buyer or seller the goods are at the risk of the party in fault.
Lawyers Cooperative vs Tabora (1965):
Ownership of the books purchased on installment were retained by the seller, although they have already been
delivered to the owner, under the condition that the ownership will only be transferred after payment of the full purchase
price.
Court held that despite the loss of the books in a fire, the risk of loss would be borne by the buyer although he was not
yet the owner.
Although an obligor is relieved from his obligation under the rule that an obligor should be held exempt from liability
when the loss occurs through a fortuitous event, nevertheless, as applied to the buyer in a sale, his obligation does not
pertain to the delivery of the subject matter, but to the payment of the purchase price.
The ability to pay in money or legal tender is never lost through fortuitous event.
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X. REMEDIES OF THE PARTIES
A. REMEDIES OF THE SELLER
1. IN CASE OF MOVABLES
Article 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the
vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to
receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been
stipulated for its payment.
Article 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully
neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an
action against him for the price of the goods.
Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of transfer of title and
the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the
ownership in the goods has not passed. But it shall be a defense to such an action that the seller at any time before the
judgment in such action has manifested an inability to perform the contract of sale on his part or an intention not to
perform it.
Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the
provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer,
and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee
for the buyer. Thereafter the seller may treat the goods as the buyer's and may maintain an action for the price.
Article 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain
an action against him for damages for nonacceptance.
The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the
buyer's breach of contract.
Where there is an available market for the goods in question, the measure of damages is, in the absence of special
circumstances showing proximate damage of a different amount, the difference between the contract price and the
market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for
acceptance, then at the time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations
under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the
buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer's
repudiation or countermand. The profit the seller would have made if the contract or the sale had been fully performed
shall be considered in awarding the damages.
Article 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale,
or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may
totally rescind the contract of sale by giving notice of his election so to do to the buyer.
NOTE: In the realm of performance, the main rule in Sales was that of caveat emptor (Let the buyer beware), which required
the buyer to be aware of the supposed title of the seller to the subject matter; and that a buyer who buys without checking the
sellers title takes all the risks and losses consequent to such failure. Today, the doctrine is not meant to excuse the seller from
his warranties, but is essentially used to determine whether the buyer, in taking delivery of the subject matter of sale, can be
considered a buyer in good faith, or to determine whether the buyer assumed the risks and contingencies attached to the
subject matter of sale
Remedies of Seller in Case of Movables in General

1. Ordinary Remedies
2. Special Remedies of Unpaid Seller of Goods
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1. ORDINARY REMEDIES OF SELLER
a. Movables in General-
Circumstance: In the sale of movables, in case the buyer, upon the expiration of the period fixed for the delivery
of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at
the same time, unless a longer period has been stipulated for its payment,
Remedy: seller may maintain an action to RESCIND the sale
b. Sale of Goods
Circumstance: Non-payment of Price by Buyer AND the following 3 scenarios
1. Ownership Transferred to Buyer Where the ownership of the goods has passed to the buyer who
wrongfully neglects or refuses to pay for them according to the terms of the contract
Remedy: the seller may maintain an action against him for the price of the goods, Action for Specific
Performance
2. No Transfer of Ownership to Buyer When the ownership in the goods has not passed, if they cannot
readily be resold for a reasonable price
Remedy: the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them,
may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer; thereafter,
the seller may treat the goods as the buyers and may maintain an action for the price, Action for Specific
Performance
3. When Price Payable on Certain Day Where the price is payable on a certain day, irrespective of delivery
or of transfer of title, and the buyer wrongfully neglects or refuses to pay such price,
Remedy: Seller may maintain an action for the price although the ownership in the goods has not passed
Defense of Buyer: However, it shall be a defense to such an action that the seller at any time before the judgment
in such action has manifested an inability to perform the sale on his part or an intention not to perform it
Circumstance: When Buyer Wrongfully Neglects/Refuses to Accept and Pay for the Goods
Remedy: Seller may maintain an action against him for DAMAGES for non-acceptance, in accordance with
the following rules:
1. Damages shall cover the estimated loss directly and naturally resulting in the ordinary course of events
from the buyers breach of contract;
2. Where there is an available market for the goods in question, in the absence of special circumstances
showing proximate damage of a different amount, the measure of damages is the difference between the
contract price and market or current price at the time or times when the goods ought to have been
accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept;
3. If the buyer repudiates the contract or notifies the seller to proceed no further, buyer shall be liable for
labor performed or expenses of material amount is necessary on the part of the seller to enable him to
fulfill his obligations under the sale made before receiving notice of the buyers repudiation or
countermand; and
4. The profits the seller would have made if the contract or the sale had been fully performed shall be
considered in awarding damages
2. UNPAID SELLER OF GOODS
Definition of Unpaid Seller
Article 1524. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if no
period for the payment has been fixed in the contract.
Article 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title:
1. When the whole of the price has not been paid or tendered;
2. When a bill of exchange or other negotiable instrument has been received as conditional payment, and the
condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of
the buyer, or otherwise.
In articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has been indorsed, or
a consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the
position of a seller.
RIGHTS OF UNPAID SELLER
1. Possessory Lien
Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed
to the buyer, the unpaid seller of goods, as such, has:
1. A lien on the goods or right to retain them for the price while he is in possession of them;
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2. In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the
possession of them;
3. A right of resale as limited by this Title;
4. A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies
a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the
ownership has passed to the buyer.
Article 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of them is entitled
to retain possession of them until payment or tender of the price in the following cases, namely:
1. Where the goods have been sold without any stipulation as to credit;
2. Where the goods have been sold on credit, but the term of credit has expired;
3. Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the
buyer.
Article 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the
remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien or
right of retention.
Article 1529. The unpaid seller of goods loses his lien thereon:
1. When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without
reserving the ownership in the goods or the right to the possession thereof;
2. When the buyer or his agent lawfully obtains possession of the goods;
3. By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment
or decree for the price of the goods.
Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of
the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of
lading, the ownership would have passed to the buyer on shipment of the goods, the seller's property in the goods
shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but
possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the
possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together
to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he
does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. If,
however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is
indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good faith, for value, the bill
of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been
honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer wrongful
Article 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not
affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented
thereto
If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu
shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether
such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of
the seller's claim to a lien or right of stoppage in transitu.
2. Stoppage in Transitu
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Article 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the unpaid seller
who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may
resume possession of the goods at any time while they are in transit, and he will then become entitled to the same
rights in regard to the goods as he would have had if he had never parted with the possession.
Article 1531. Goods are in transit within the meaning of the preceding article:
1. From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of
transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or
other bailee;
2. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the
seller has refused to receive them back.
Goods are no longer in transit within the meaning of the preceding article:
1. If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed
destination;
2. If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer
or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or
his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer;
3. If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on
the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the
buyer.
If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be
stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the
buyer to give up possession of the whole of the goods.
Article 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of
the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice
may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to
be
effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable
diligence, may prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he
must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne
by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier or other
bailee, he shall not be obliged to deliver or justified in delivering the goods to the seller unless such document is first
surrendered for cancellation.
Article 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not
affected by any sale, or other disposition of the goods which the buyer may have made, unless the seller has assented
thereto
If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu
shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether
such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of
the seller's claim to a lien or right of stoppage in transitu.
Article 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter
otherwise requires:
(2) A person is insolvent within the meaning of this Title who either has ceased to pay his debts in the ordinary course
of business or cannot pay his debts as they become due, whether insolvency proceedings have been commenced or
not.
3. Right of Resale
Article 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in
case the buyer should make default, or where the buyer has been in default in the payment of the price for an
unreasonable time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods.
He shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale,
but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale.
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Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the
question whether the buyer had been in default for an unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller
to the original buyer.
The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may
make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods.
4. Right to Rescind
Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer
of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should
make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller
shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any
loss occasioned by the breach of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to
the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be
communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be
relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the
right of rescission was asserted.
2. SPECIAL REMEDIES OF SELLER- FOR UNPAID GOODS

Why Special? The provisions of the Civil Code on the remedies of an unpaid seller demonstrate the intention of the Code
Commission to empower individuals with remedies to take matters into their own hands when the circumstances warrant
the same, provided it does not involve physical intrusion into the person or privacy of the buyer in default, by being able to
achieve legal effects without need of seeking the intervention of the courts.
The remedies of an unpaid seller are similar to the doctrine of self-help embodied in Article 429 of the Civil Code,
which authorizes the owner or lawful possessor of a thing to use force as may be reasonably necessary to repel or
prevent an actual or threatened unlawful physical invasion or usurpation of his property.
In the case of the remedies of the unpaid seller, the minimum requirement is that the goods are in the possession of the
seller so as to prevent an actual physical tussle with the buyer in the exercise of such remedies.
Definition of Unpaid Seller

Under Article 1525 of the Civil Code, the seller of goods is deemed to be an unpaid seller either:
1. When the whole of the price has not been paid or tendered; or
2. When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on
which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or
otherwise.
The term unpaid seller includes an agent of the seller to whom the bill of lading has been indorsed, or consignor
or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of
a seller.
Rights/Special Remedies of Unpaid Seller of Goods

When a seller is an unpaid seller as defined by law, whether or not ownership over the goods has been transferred to the
buyer, the unpaid seller is entitled to the following rights or remedies:
a. Possessory lien;
b. Stoppage in transitu;
c. Special right of resale; and
d. Special right to rescind.
The four (4) remedies of an unpaid seller have a hierarchical application, as in fact, the special rights to resell and to
rescind can be availed of by the unpaid seller only when either of the two prior rights of possessory lien or stoppage in
transitu have been exercised by the unpaid seller.
The designation special is attached to the rights to resell and to rescind, because they are rights accorded only to the
unpaid seller as technically defined by law, and are not of the same nature as the right to rescind accorded under
Article 1191 of the Civil Code to reciprocal contracts.
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a. POSSESORY LIEN
The general rule is that when it comes to movables, the seller is not bound to deliver the thing sold, if the buyer has not paid
him the price, or if no period for the payment has been fixed in the contract.
However, in the absence of stipulation to the contrary, delivery of the goods to the buyer transfers ownership to the
latter, and the non-payment of the price does not prevent such transfer of ownership as a result of tradition to take
effect.
If the seller is an unpaid seller as defined by law, notwithstanding that the ownership in the goods may have passed to the
buyer, the unpaid seller still has a lien on the goods or right to retain them for the price while he is in possession of them.
Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies,
a right of withholding delivery similar to and co-extensive with his right of lien.
The possessory lien of the unpaid seller is exercisable only in the following instances:
1. Where the goods have been sold without any stipulation as to credit
2. Where the goods have been sold on credit, but the term of credit has expired;
3. Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the
buyer
The unpaid sellers right of lien is not affected by any sale, or other disposition of the goods which the buyer may have
made, unless the seller assented thereto.
Other Circumstances affecting this Right
1. When Negotiable Document of Title Issued
If a negotiable document of title has been issued for goods, no sellers lien shall defeat the right of any
purchaser for value and in good faith to whom such document has been negotiated, whether such
negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of
the sellers claim to a lien
2. When Part delivery effected
Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder
Unless such part delivery has been made under such circumstances as to show an intent to waive the lien
or right of retention
3. The following circumstances- Instances When Possessory Lien LOST
a. Seller delivers the goods to a carrier or other bailee for the purpose of transmission to buyer without reserving the
ownership in the goods or the right to the possession thereof
b. The buyer or his agent lawfully obtains possession of the goods;
c. By waiver thereof
NOTE:
Art. 1529: However, the unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he
has obtained judgment or decree for the price of the goods.
As will be noted, the unpaid seller losses his possessory lien, when he parts with physical possession of the
goods, as when he delivers the goods to the carrier. In that case, he still has the remedy of stoppage in transitu,
but only if the buyer has in the meantime become insolvent.
b. STOPPAGE IN TRANSITU
When the buyer of goods is or becomes insolvent, the unpaid seller who has parted with the possession of the goods has
the right of stopping them in transit
He may resume possession of the goods at any time while they are in transit
He is entitled to the same rights as he would have had if he had never parted with the possession of the goods
The unpaid sellers right of stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer
may have made, unless the seller assented thereto
How to Exercise Right of Stoppage in Transitu
The unpaid seller may exercise his right of stoppage in transitu either by:
1. Obtaining actual possession of the goods; or
2. Giving notice of his claim to the carrier or other bailee in whose possession the goods are.
When notice is given, such notice may be given either to the person in actual possession of the goods or to his
principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances
that the principal, by
Circumstances:
1. When Negotiable Document of Title Issued
If a negotiable document of title has been issued for goods, no sellers right to stoppage in transitu shall defeat the
right of any purchaser for value and in good faith to whom such document has been negotiated, whether such
negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of
the sellers claim to right of stoppage in transitu.
2. When Part Delivery Already Made
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If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods
may be stopped in transitu, unless such part delivery has been under such circumstances as to show an
agreement with the buyer to give up possession of the whole of the goods
3. When Goods Covered by Negotiable Document of Title
When a negotiable document of title representing goods has been issued by the carrier or other bailee, he shall
not be obliged to deliver or justified in delivering the goods to the unpaid seller unless such document is first
surrendered for cancellation
It is only when the unpaid seller has exercised either his right of possessory lien or his right of stoppage in
transitu, that he can then proceed with his other special rights of resale or to rescind.
Definition of Terms
When Buyer Is Deemed Insolvent
Under the Law on Sales, a buyer is deemed insolvent who either has ceased to pay his debts in the ordinary
course of business or cannot pay his debts as they become due, whether insolvency proceedings have been
commenced or not
When Goods Are Deemed In Transit
Goods are in transit to authorize the unpaid seller to exercise his right of stoppage in transitu:
1. From the time they are delivered to a carrier by land, water, or air, or other bailee for the purpose of
transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier
or other bailee; or
2. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if
the seller has refused to receive them back
When Goods Are Deemed No Longer In Transit
Goods are no longer in transit when:
1. The buyer or his agent obtains delivery of the goods before their arrival at the appointed destination;
2. After the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the
buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the
buyer or his agent (and it is immaterial that further destination for the goods may have been indicated by the
buyer)
3. The carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent
If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question
depending on the circumstances of the particular case, whether they are in the possession of the carrier as such
or as agent of the buyer
c. RIGHT OF RESALE
Notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller has a special right of
resale, but only under the conditions provided by law
When Right Exercisable
The special right of resale can be made only when the unpaid seller has previously exercised either his right of
possessory lien or stoppage in transitu, and under any of the following conditions:
1. The goods are of perishable nature;
2. Where the seller has been expressly reserved in case the buyer should make default; or
3. Where the buyer has been in default in the payment of the price for an unreasonable time
4. When the sale is still executory in stage
Hanlon vs Hausserman (1920):
When a purchaser of goods upon an executory contract fails to take delivery and pay the purchase price, the
vendor in such a case is entitled to resell the goods
If the seller is obliged to sell it at a lesser price, he holds the buyer for the difference
If he sells for as much as or more than the contract price, the breach of contract by the original buyer is
damnum absque injuria
No need for an action of rescission to authorize the vendor to resell
Katigbak v. Court of Appeals (1962): held that if the buyer fails to take delivery and pay the purchase price of the
subject matter of the contract, the seller, without need of first rescinding the contract judicially, is entitled to resell
the same, and if he is obliged to sell it for less than the contract price, the buyer is liable for the difference
Effects of having exercised Right of Resale
When the unpaid seller has exercised his right of resale, he shall not thereafter be liable to the original buyer upon the
sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the
breach of the sale
Where a resale is made by the unpaid seller, the buyer acquires a good title as against the original buyer.
This is the special feature of the right of the unpaid seller to resell: not only is he able to destroy or obliterate the
ownership over the goods in the original buyer, he is also able to transfer ownership to the subsequent buyer, even
if at the time of tradition, he no longer had ownership over the goods.
Ordinarily, the destruction or taking away of ownership in one person and placing it in another person in such
manner can only be done through court action. But in the case of an unpaid seller, he can effect these, even
without judicial action.
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Rule of Notice to Defaulting Buyer

General Rule: It is not essential to the validity of a resale that notice of an intention to resell the goods be given by the
seller to the original buyer.
Exception: But where the right to resell is not based on the perishable nature of the goods or upon an express provision
of the sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the
buyer had been in default for an unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the
seller to the original buyer
Standard of Care and Disqualification in Resale
The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may
make a resale either by public or private sale.
He cannot, however, directly or indirectly buy the goods
d. RIGHT TO RESCIND
Notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller has a special right to
extrajudicially rescind the sale
When Right May Be Exercised
An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and
resume the ownership in the goods, where:
1. The seller has expressly reserved the right to do so in case the buyer should make default; or
2. The buyer has been in default in the payment of the price for an unreasonable time
Effect of Exercise of Such Right
The seller shall not thereafter be liable to the buyer upon the sale, but may recover from the buyer damages for any
loss occasioned by the breach of the contract.
When it takes Effect
The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to
the buyer or by some other overt act an intention to rescind.
It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to
the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in
default for an unreasonable time before the right of rescission was asserted.
3. RECTO LAW
Related Provisions
Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may
exercise any of the following remedies:
1. Exact fulfillment of the obligation, should the vendee fail to pay;
2. Cancel the sale, should the vendee's failure to pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay
cover two or more installments. In this case, he shall have no further action against the purchaser to recover any
unpaid balance of the price. Any agreement to the contrary shall be void.
Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing.
Article 1486. In the case 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.
Coverage of the Recto Law

Article 1484 of the Civil Code provides for the remedies of a seller in contracts of sale of personal property by installments,
and incorporates the provisions of Act No. 4122 passed by the Philippine Legislature on 9 December 1939, known as the
Installment Sales Law, but more popularly referred to as the Recto Law, which then amended Article 1454 of the Civil
Code of 1889.
Under Article 1484 of the New Civil Code, in a sale of personal property the price of which is payable in installments, the
seller may exercise any of the following remedies:
1. Exact fulfillment of the obligation, should the buyer fail to pay any installment;
2. Rescind the sale, should the buyers failure to pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the buyers failure to pay cover
two or more installments.
Clarence Tiu
The article specifically provides that if the seller should foreclose on the mortgage constituted on the thing sold, he shall
have no further action against the purchaser to recover any unpaid balance of the price and any agreement to the contrary
shall be void.
Rationale of the Law

The passage of the Recto Law was meant to remedy the abuses committed in connection with the foreclosure of chattel
mortgages and to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and
then bringing suit against the mortgagor for a deficiency judgment.
The invariable result of such a procedure was that the mortgagor found himself minus the property and still owing
practically the full amount of his original indebtedness.
The Recto Law aims to correct a social and economic evil, the inordinate love for luxury of those who, without sufficient
means, purchase personal effects, and the ruinous practice of some commercial houses of purchasing back the goods sold
for a nominal price besides keeping a part of the price already paid and collecting the balance, with stipulated interest, cost
and attorneys fees.
And although, of course, the purchaser must suffer the consequences of his imprudence and lack of foresight, the
chastisement must not be to the extent of ruining him completely and, on the other hand, enriching the vendor in a
manner which shocks the conscience. The object of the law is highly commendable.
Coverage of the Law: Sale of Movables on Installments

Rule: All sale of movables on installments are covered by the law
Jurisprudential Pronouncements:
NOT COVERED BY LAW
1. Initial payment, and payment of balance in future
Levy Hermanos, Inc. v. Gervacio (1939):
The Recto Law is not applicable to a sale where there was an initial payment and the balance payable in
the future, because such is not a sale on installment but is actuall a straight sale
Besides, the law specifically provides for two or more installments and hence, when there is only
one payment to be made in the future, the seller may still recover the unpaid balance even when there
has been a foreclosure
In addition, the Court held that the Recto Law is aimed at those sales where the price is payable in
several installments, for, generally, it is in these cases that partial payments consists in relatively small
amounts, constituting thus a great temptation for improvident purchasers to buy beyond their means.
There is no such temptation where the price is to be paid in cash, or, as in the instant case, partly in cash
and partly in one term, for, in the latter case, the partial payments are not so small as to place purchasers
off their guard and delude them to a miscalculation of their ability to pay
2. Contracts to Sell
When the contract governing the sale of movables is a contract to sell, then the rules on rescission and
substantial breach are not applicable, since when the suspensive condition upon which the contract is based
fails to materialize, it would extinguish the contract, and consequently there is no contract to rescind.
Nevertheless, the provisions of Article 1597 would apply which would grant the seller the right to rescind the
contract by giving notice of his election so to do to the buyer
COVERED BY LAW
Financing transactions derived or arising from sales of movables on installments, even if the underlying
contract at issue is a loan because the promissory note had been assigned or negotiated by the original
seller.
Industrial Finance Corp. v. Ramirez (1977): the seller who sold his car to the buyer payable in eighteen
monthly installments, secured by a chattel mortgage on the car, which mortgaged was assigned by the seller
to a finance company, which brought an action for specific performance coupled with a prayer for a writ of
replevin to recover the possession of the car and if effected would proceed with the extrajudicial foreclosure
thereof. In discussing whether the action taken by the finance company amounted to virtual foreclosure of the
chattel mortgage, the Court applied the provisions of Article 1484 of the Civil Code, even when clearly, as to
the finance company, its involvement in the affair was as assignee of the mortgage contract.
Zayas, Jr. v. Luneta Motor Company: affirmed that Article 1484 would apply to a person or entity which has
financed the purchase on installments of a motor vehicle, where the seller subsequently assigns the loan
documents to the financing person or entity. In that case, the Court held that the nature of the transaction as
a sale of personal property on installment basis remains. When, therefore, Escao Enterprises, assigned its
rights vis--vis the sale to respondent Luneta Motor Company, the nature of the transaction ... did not change
at all. As assignee, respondent Luneta Motor Company had no better rights than assignor Escao Enterprises
under the same transaction. The transaction would still be a sale of personal property in installments covered
by Article 1484 of the New Civil Code. To rule otherwise would pave the way for subverting the policy
underlying Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages over personal property
sold on installment basis.
NOTE: In all other cases, where the financing transaction is not derived from a sale, the provisions of the Recto
Law do not apply.
Clarence Tiu
PAMECA Wood Treatment Plant, Inc. v. Court of Appeals (1999): the Court held that a mortgagee-bank is
not prevented from recovering on a deficiency caused by the foreclosure and sale at public auction of the
mortgage movable which security arose from a loan given to the mortgagor. The provisions of Article 1484
cannot be applied by analogy or by equity since the provisions apply to a sale on installments.
Remedies under the Law

Art. 1484- Should the buyer of a personal property default in the payment of two or more of the agreed installments, the
vendor or seller has the option to avail of any of these three remedies:
1. ACTION FOR SPECIFIC PERFORMANCE- exact fulfillment by the purchaser of the obligation;
2. RESCISSION- Rescind or cancel the sale; or
3. FORECLOSURE OF CHATTEL MORTGAGE- Foreclose the mortgage on the purchased personal property, if one was
constituted.
The remedies under Article 1484 have been recognized as alternative, not cumulative, in that the exercise of one would bar
the exercise of the others.
The remedies cannot also be pursued simultaneously, as when a complaint is filed to exact fulfillment of the obligation, to
seize the property purchased and to foreclose the mortgage executed thereof.
Barring effects of the Remedies
Article 1484 of the Civil Code actually has two (2) levels of barring effects: the first level on the choice of remedies
(vertical); and the second level, on the non-recovery of any unpaid balance when it comes to the remedies of rescission
and foreclosure (horizontal).
There can be no mixing of the effects of the remedies provided in Article 1484.
Tajanlangit v. Southern Motors, Inc. (1957): Where the seller chose to collect on the note and did not seek
foreclosure on the mortgage, the seller has every right to recover on the unpaid balance of the purchase price from the
buyer
Southern Motors, Inc. v. Moscoso (1961): The Court refused to accept the view that the barring effects of foreclosure
should also be applied to specific performance when the effect was the same as foreclosure
There is a difference between the effect of foregoing the chattel mortgage and attaching the mortgaged
chattel: In the latter, the debtor has the ability of retain possession of the property attached by giving a
counterbond and thereby discharging the attachment, which remedy the debtor does not have in the event of
foreclosure.
1. Action for Specific Performance

The general rule is that when the seller has chosen specific performance, he can no longer seek for rescission nor
foreclosure of the chattel mortgage constituted on the thing sold.
Although it can be reasoned that even if the seller had chosen specific performance, but the same has become
impossible, he may still choose rescission pursuant to the provisions of Article 1191 of the Civil Code, which provides
that the non-defaulting party to a reciprocal obligation may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible; nonetheless, it is difficult to see how the generic obligation of the buyer to pay
can become impossible.
A judgment in an action for specific performance may be executed on all personal and real properties of the buyer which are
not exempt from execution and which are sufficient to satisfy such judgment, which would include the subject matter of the
sale upon which payment is being sought. It has been held therefore that the mere fact that the seller secured possession of
the property subject of the sale by installments did not necessarily mean that the seller would resort to a foreclosure of the
mortgage constituted thereon
When deemed chosen
The seller is deemed to have chosen specific performance to foreclose the resort to the other two remedies under
Article 1484, when he files an action in court for recovery. Generally, the mere sending of demand letters to the
buyer to pay the balance of the purchase price should not be considered as having barred the resort to either the
remedies of rescission or foreclosure.
2. Rescission
General Rule: When a seller chooses the remedy of rescission, then generally he is under obligation to make restitution,
which would include the return of any amount of the purchase price that the buyer may have paid.
Exception: However, under the terms of Article 1486 of the Civil Code which provides that 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
When deemed chosen
The general rule is that the seller is deemed to have chosen the remedy of rescission, and can no longer avail of
the other two (2) remedies under Article 1484, when he has clearly indicated to end the contract:
1. Such as when he sends a notice of rescission, or
2. Takes possession of the subject matter of the sale, or
NOTE: According to the cases, there must also be an intent to rescind the sale or to appropriatee the
object.
Clarence Tiu
Nonato v. Intermediate Appellate Court (1983): held that when the sellers assignee, a financing
company, is able to take back possession of the motor vehicle with a condition that the vehicle could be
redeemed by the buyers within fifteen (15) days, then such taking
Vda. de Quiambao v. Manila Motor Co., Inc. (1961): the Court held that only the taking back of the
property coupled with an unequivocal desire on its part to rescind its contract or for the purpose of
appropriating the same, would suffice to bar the seller from proceeding with specific performance. In that
case, it was not the seller who demanded a return of the subject motor vehicle, but rather it was the
buyer who voluntarily returned the same to postpone the satisfaction of the enforcement of the judgment
debt obtained by the seller on the unpaid balance of the purchase price.
3. When he files an action for rescission
Barring Effect
The present version of the Recto Law under Article 1484 only provides for a barring on recovery of balance only when it
comes to the remedy of foreclosure.
Delta Motor Sales Corp. v. Niu Kim Duan (1992): would assert that the third option or remedy, however, is
subject to the limitation that the vendor cannot recover any unpaid balance of the price and any agreement to the
contrary is void,implying no such barring effect to the remedy of rescission. Nevertheless, it recognized that
when the seller takes possession of the subject property in rescission of the sale, the seller is barred from
recovering the balance of the price.
Nonato v. Intermediate Appellate Court (1985): Justice Escolin, in concluding that the sellers assignee had
chosen to rescind the sale by having taken possession of the subject motor vehicle, held that since it has opted to
cancel the sale of the vehicle, it is thus barred from exacting payment from the [buyers] of the balance of the
price of the vehicle which it had already repossessed. It cannot have its cake and eat it too.
Although no barring effect is expressly provided for the remedy of rescission under the present language of
Article 1484 of the Civil Code, the same is implicit from the nature of the remedy of rescission, which requires
mutual restitution.
Under Article 1385 of the Civil Code, even a non-defaulting party cannot seek rescission unless he is in a position
to return what he has received under the contract. In other words, when the unpaid seller shall have chosen the
remedy of rescission, then generally he cannot seek further action on the purchase price against the buyer, and in
fact, where there is no stipulation to the contrary, the seller is even obliged to return any portion of the purchase
price he received from the buyer, although he can recover damages.
CLV- It is good judgment to limit the statutory barring effect to the remedy of foreclosure. Rescission and foreclosure in
fact seeks to achieve opposite results: the former, to cancel the contract and waive further claim on the purchase price,
and the latter, to pursue and realize on the purchase price. The complete barring effect on the remedy of foreclosure
under the Recto Law is contrary to the nature of the remedy of rescission that allows the non-defaulting party to recover
damages, precisely to make him whole resulting from the breach of the defaulting party.
3. Foreclosure of Chattel Mortgage Constituted on Subject Property

When deemed chosen
Although generally, the filing of an action for foreclosure should be the point in which the seller is deemed to have
chosen such remedy, and at which time he can no longer resort to either the remedies of specific performance or
rescission, yet the Court held that the point by which the seller is deemed to have chosen the remedy of foreclosure is
only at the time of actual sale of the subject property at public auction pursuant to the foreclosure proceedings
commenced
Barring Effect of Foreclosure
It is the foreclosure and actual sale at public action of the mortgaged chattel that shall bar further recovery by the seller
of any balance on the purchasers outstanding obligation not satisfied by the sale; prior to that point in time, the seller
has every right to receive payments on the unpaid balance of the price from the buyer
Receiving of payment before Actual Foreclosure Sale allowed
Northern Motors, Inc. v. Sapinoso (1970): although the seller had already filed an action for foreclosure, if prior
to the actual sale of the subject property at public auction, the seller had received further payments from the buyer,
the seller was not obliged to refund said payments after foreclosure to the buyer. The Court held that If the
mortgage creditor, before the actual foreclosure sale, is not precluded from recovering the unpaid balance of the
price although he has filed an action of replevin for the purpose of extrajudicial foreclosure, or if a mortgage
creditor who has elected to foreclose but who subsequently desist from proceeding with the auction sale, without
gaining any advantage or benefit, and without causing any disadvantage or harm to the vendee-mortgagor, is not
barred from suing on the unpaid account ... there is no reason why a mortgage creditor should be barred from
accepting, before a foreclosure sale, payments made by the buyer
Jurisprudence upholds FULL barring effect; meaning, the barring effect extends to damages, interests, and
attorneys fees
The extent of the barring effect of foreclosure was then all-encompassing and did not limit itself to the balance of
the purchase price.
Exception: A perverse buyer-mortgagor is one who refuses to surrender the chattel to the seller; in such case, the
seller may recover expenses and attorneys fees incurred in trying to obtain possession of the chattel
Barring Effect on Other Securities Given for Payment of Price
Clarence Tiu
RULE: Other securities not allowed if their is already Chattel Mortgage, Foreclosure of other securities
leads to loss of chattel mortgage
Borbon II v. Servicewide Specialists, Inc. (1996): where it held that when the assignee forecloses on the
chattel mortgage, there can be no further recovery of the deficiency, and the seller-mortgagee is deemed to
have renounced any right thereto. A contrario, the Court held that in the event the seller-mortgagee first seeks
the enforcement of the additional mortgages, guarantees or other security arrangement, he must then be held
to have lost by waiver or non-choice his lien on the chattel mortgage of the personal property sold by and
mortgaged back to him, although, similar to an action for specific performance, he may still levy on it.
The implication is that the remedy of foreclosing the chattel mortgage is no longer available, but the
barring effect as to prevent recovery of deficiency judgment does not come into play since the Court
confirmed that the seller may still levy on it.
NOTE: Recto Law can apply to contracts in the form of leases either with options to the buyer to purchase for a small
consideration at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title should thereupon vest in the lessee.
The so-called rent must necessarily be regarded as payment of the price in installment since it results into a transfer of
the title
4. IN CASE OF IMMOVABLES
Article 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he
may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article 1191 shall be observed.
PD 957
Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the installments due for
reasons other than the failure of the owner or developer to develop the project shall be governed by Republic Act No.
6552.
Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on August 26, 1972,
the defaulting buyer shall be entitled to the corresponding refund based on the installments paid after the effectivity of
the law in the absence of any provision in the contract to the contrary.
Section 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full
payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds,
shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of
the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion
thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and
delivered to the buyer in accordance herewith.
1. ANTICIPATORY BREACH
Circumstance: if the seller has reasonable grounds to fear the loss of the immovable property sold and its price,
Remedy: Rescission under Art. 1591
Seller may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article 1191 of the Civil Code on rescission shall be observed, which means
that upon substantial breach by the buyer for failure to comply with his obligation to pay the price when due, the seller may
sue for rescission of the sale.
Rescission under 1591 is different from 1191
2.FAILURE OF BUYER TO PAY PRICE

Circumstance: The failure of the buyer to pay the price in full within a fixed period
Note: this does not, by itself, bar the transfer of the ownership or possession, much less dissolve the sale.
Remedy: Rescission under Art. 1592
On failure of the buyer to pay the price, the seller has the option under Article 1592 of the Civil Code to rescind the sale
upon judicial or notarial demand
Under Article 1592 of the Civil Code, in the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the buyer
may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made
upon him either judicially or by a notarial act.
Note: Although Article 1592 also provides that after the demand [of the seller], the court may not grant [the buyer]
a new term, nevertheless in cases of residential immovables, the Court has tended to interpret Article 1592
Clarence Tiu
liberally in favor of the buyer to give him every opportunity to comply with his obligation and proceed to take the
subject immovable.
Once there has already been a notice of decision by a notarial act, no extended period can be given by the court
But this is not the case in 1191 where it allows the court to give an extended period if necessitated by demands of
justice; substantial breach must be shown; otherwise the contract will not be terminated and the injured party will
just be entitled damages, but if substantial breach is proven, on top of damages, the contract may be rescinded
Contracts to Sell Not Covered by Article 1592
Luzon Brokerage v. Maritime Bldg (1972):The Court also held that in any event Article 1592 of the Civil Code
has no application to a contract to sell; the said article applies only to ordinary sale transferring ownership
simultaneously with the delivery of the real property sold, but not to one in which the seller retained ownership of
the immovable object of the sale, merely undertaking to convey it provided the buyer strictly complied with the
terms of the contract.
Court has denied rescission when there is Substantial Compliance in sales of residential property
Legarda Hermanos v. Saldana: the contract between the parties covering the purchase of two residential lots
clearly provided that in case of default on the part of the buyer, all amounts paid in accordance with the agreement
together with the improvements on the premises shall be considered as rents and as payment for damages
suffered by reason of such breach. Nevertheless, the Court held that the buyer of the two small residential
lots on installment contracts on a ten-year basis who has faithfully paid for eight continuous years on the
principal alone already more than the value of one lot, besides the larger stipulated interests on both lots,
was entitled to the conveyance of one fully paid lot of his choice. In upholding such ruling, the Court held that
the judgment is fair and just and in accordance with law and equity.
2. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALMENTS (RA 6552)

Purpose of the Maceda Law
Republic Act 6552, entitled the Realty Installment Buyer Protection Act (also the Maceda Law), provides for certain
protection to particular buyers of real estate payable on installments. The law declares as public policy to protect buyers of
real estate on installment payments against onerous and oppressive conditions.
Luzon Brokerage v. Maritime Bldg. (1978): the Court viewed the enactment of the Maceda Law as a confirmation of its
jurisprudential rulings that recognizes the sellers right of cancellation of sale on installments of industrial and commercial
properties with full retention of previous payments.
Rillo v. Court of Appeals: which held that in the case of a contract to sell land, the applicable law is the Maceda Law which
recognizes in conditional sales of all kinds of real estate, whether industrial, commercial, or residential, the right of the seller
to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the seller to convey title from acquiring binding force
Active Realty & Dev. Corp. v. Daroya (2002):
Declared policy of the Maceda Law is to protect buyers of real estate on installment basis against onerous and
oppressive condition.
The law seeks to address the acute housing shortage problem in our country that has prompted thousands of middle
and lower class buyers of houses, lots and condominium units to enter into all sorts of contracts with private housing
developers involving installment schemes.
Lot buyers, mostly low income earners eager to acquire a lot upon which to build their homes, readily affix their
signatures on these contracts, without an opportunity to question the onerous provisions therein as the contract is
offered to them on a take it or leave it basis.
Most of these contracts of adhesion, drawn exclusively by the developers, entrap innocent buyers by requiring cash
deposits for reservation agreements which often time include, in fine print, onerous default clauses where all the
installment payment made will be forfeited to pay any installment due even if the buyers had made payments for
several years.
Real estate developers thus enjoy an unnecessary advantage over lot buyers who they often exploit with iniquitous
results. They get to forfeit all the installment payments of defaulting buyers and resell the same lot to another buyer
with the same exigent conditions.
To help especially the low income lot buyers, the legislature enacted R.A. 6552 delineating the rights and remedies of
lot buyers and protect them from one sided and pernicious contract stipulations.
Retroactive Application of Law
Court has extended the formal requirements of rescission under the Maceda Law to apply even to contracts entered
into prior to the effectivity of the Maceda Law.
Coverage of the Maceda Law

It should be noted that the Maceda Law does not cover all sales of realty on installments, but primarily RESIDENTIAL REAL
ESTATE
But unlike the Recto Law on movables, the Maceda Law covers not only sales on installments of real estate, but also
financing of such acquisitions. It expressly covers all transactions or contracts involving the sale or financing of real estate
on installment payments, including residential condominium apartments.
Clarence Tiu
Unlike Article 1592 of the Civil Code, which the Court has interpreted not to be applicable to contracts to sell, the Maceda
Law clearly includes in its provisions BOTH CONTRACT OF SALE AND CONTRACT TO SELL.
This conclusion is clear from the use by the Law of the twin terms of notice of cancellation or the demand for
rescission of the contract.
Should involve at least two (2) installments to be paid in the future at the time of the perfection of the contract.
The rationale of Levy Hermanos, Inc. as to sales of movables, equally should apply to sale of real estate in
installments, thus: the law is aimed at those sales where the price is payable in several installments, for, generally, it is
in these cases that partial payments consists in relatively small amounts, constituting thus a great temptation for
improvident purchasers to buy beyond their means.
In any event, the public policy behind the Maceda Law is so all-encompassing with respect to residential real estate and
condominium units, that it would cover even sales or financing transactions which may not fit into the installment
concept.
NOT COVERED
Sales covering industrial lots;
Sales covering commercial buildings (and commercial lots by implication); and
Sales to tenants under agrarian reform laws.
The enumeration of the transactions not covered by the Maceda Law is not exclusive, since other transactions
over immovables, although not within the enumerated exclusions are to be considered as excluded because they
are not within the clearly expressed coverage.
An example would be the sale on installment of commercial or office condominium units
In one case, the Court held that the Maceda Law normally applies to the sale or financing of real estate on
installments payments, and excludes industrial lots, commercial buildings, and sales to tenants under R.A. No.
3844. It has no application to a sale on installment of a commercial building.
NOTE: Maceda Law Cannot Be Invoked by Highest Bidder in Foreclosure Proceedings
The Court has ruled that the terms of the Maceda Law cannot be invoked by a person or entity who acquired the
subdivision lots in a foreclosure sale on the mortgaged constituted thereon by the developer. Such person or
entity, although binding itself to the terms of the contracts of sale, is not the real party to the original installment
sales, and more importantly, does not have any rights promoted under the Maceda Law which contains provisions
for the benefits of real estate buyers on installments.
Also, Maceda Law Cannot Be Availed of by Developer
Rights granted by the Maceda Law to the Buyer who defaults on paying his Installments
The rights granted to a buyer of real estate in a sale or financing covered by the Maceda Law, depend on whether or not he
has paid less than or more than two (2) years of installments.
Timeline: Default of Buyer-> Grace Period-> Notice of Cancellation/Rescission by Notarial Act-> Actual Cancellation/
Rescission (30 days after the Notice)
How Cancellation of Contract Can Be Effected

The actual cancellation of the contract shall take place after thirty (30) days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act
1. At Least Two (2) Years Installments Paid

Where the buyer has paid at least two (2) years of installments, he is entitled to the following rights in case he defaults in
the payments of succeeding installments:
a. GRACE PERIOD- To pay, without additional interest, the unpaid installments due within the total grace period earned
by him, which is fixed at the rate of one (1) month grace period for every one (1) year of installment payments;
Exercise of Grace Period
The right to make use of the grace period can be exercised by the buyer only once in every five (5) years of
the life of the contract and its extensions, if any.
Down payments, deposits or options on the contract shall be included in the computation of the total number
of installments made.
Mclaughin vs CA (1986): Even after the expiration of the grace period provided by the Law, the buyer still
can prevent rescission or cancellation of the contract within the 30-day period when rescission or cancellation
is to take effect.
In other words, McLaughlin would provide for two grace periods: the first grace period is the one provided
for expressly by the Law, which is a minimum of 60 days; and the other would be the period before
rescission or cancellation actually takes effect. Perhaps, the distinction between the two types of grace
period, is that in the statutory grace period, availment of the right to update the installment payments is
without interest and penalties, even when these are stipulated in the contract; whereas, in the period
prior to the effectivity of the rescission or cancellation of the contract, the buyer would be liable for and
would have to include in his payments the stipulated interests and penalties incurred.
b. CASH SURRENDER VALUE- If the contract is cancelled, the seller shall refund to the buyer the cash surrender value
of the payments on the property equivalent to 50% of the total payments made and, after five (5) years of installments,
an additional 5% every year but not to exceed 90% of the total payments made.
Clarence Tiu
This must be given with the notice of Cancellation or Rescission
2. Less than 2 years Installments Paid

In case where less than two (2) years of installments were paid, the buyer shall still be entitled to:
a. GRACE PERIOD- a grace period of sixty (60) days from the date the installment became due.
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the
contract after thirty (30) days from receipt by the buyer of the notice of cancellation or the demand for rescission of
the contract by a notarial act.
NOTE: NO Cash Surrender Value
Active Realty & Dev. Corp. v. Daroya: which held that the refund of the cash surrender value is one of the mandatory twin
requriements for a valid and effective cancellation under the Maceda Law, and absence of which would mean that the
contract remains valid and subsisting.
Olympia Housing v. Panasiatic Travel Corp. held that the Maceda law recognizes the right of the seller to cancel the
contract but any such cancellation must be done in conformity with the requirements therein prescribed. The Court held that
In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the
payments on the property; and that the actual cancellation of the contract can only be deemed to take place upon the
expiration of a 30- day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a
notarial act and the full payment of the cash surrender value.
Leao v. Court of Appeals: the Court held that in cases falling under the Maceda Law, the issues as to rescission or
cancellation, breach of contract, tender and consignation must all give way to the explicit provisions of the Maceda Law that
grants to the buyer a minimum 60-day grace period and the requirement that notarial notice of cancellation or rescission
shall be effective only after 30-days from service thereof
Formula to Compute Installment Mode

Jestra Dev. and Mgt. Corp. v. Pacifico (2007): the Court clarified that 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 made, and then to divide them by the stipulated mode of payment, i.e., whether it is monthly, quarterly,
semi-annual or annual.
Where the Contract to Sell provided for a total Purchase Price of P2,500,000 with 30% thereof or P750,000 was to a
downpayment payable in six montly installments, and the balance of P1,750,000 was to be paid in 10 years of equal
payment of P34,983 the Court used the stipulated divisor of P121,666.66 for the period covering the downpayment, and
refused to apply the monthly amortization of P34,983 as the divisor to all payments made by the buyer.
The result was quite substantial in that the Court found the buyer to have paid less than 2 years of installments,
and therefore not entitled to receive any cash surrender value to complete the effect of the notice of cancellation of
the Contract to Sell.
Other Rights Granted to Buyer

1. To sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace
period and before actual cancellation of the contract. The deed of sale assignment shall be done by notarial act.
2. To pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have
such full payment of the purchase price annotated in the certificate of title covering the property.
NOTE: any stipulation in any contract entered into contrary to the provisions of the Law, shall be null and void.
Sir Arpee:
How does McLaughlin interpret the grace periods?
If a buyer is entitled to a CSV?
get back 50% of what the buyer has paid by installment
+ 5% for every year beyond the 5 th yr
limit: 90% of ALL INSTALLMENTS PAID
buyer will never be able to recover the full amount
Within the period set after the grace period, that is not a waiting period; but within the 30 day period after the grace period,
the buyer can still pay but now with interest and penalties, although not explicitly provided by the Maceda Law, the SC said
this is allowed.
Cancelled after the lapse of 30 days (from receipt of the notice of the cancellation).
THE SELLER CANNOT REJECT THE PAYMENT BEC. HE IS STILL BOUND BY THE CONTRACT.
He is mandated to receive all payments from the buyer
After the lapse of the grace period, thats when the seller can procure a notice of cancellation.
30 days per year of payment if more than 2 years PLUS buyer is entitled to CSV.
If, say, 1 and 12 years, how much grace period? Still 60 days
The minimum is always 60 days. But if more than 2 years, buyer is also entitled to CSV.
This may be exercised by the buyer only once every 5 years.
If you defaulted again the next year, no longer entitled to the grace period. You cant use this every year. If you defaulted
again, automatically, the notice of cancellation will already be given.
Clarence Tiu
Its either/or. A notice of cancellation (usually for a contract to sell) or if its a sale, you rescind; but both must be through a
notarial act.
The 30-day extension is cumulative. So if you exercise your right only on the 5 th year: 150 days only (not plus 60). But in any
case, the minimum will always be 60 days, even if you dont reach the 2 years.
But if the buyer is still not able to pay after 150 days (if 5 th year niya inexercise ha), then from notice of cancellation, you
can still pay within 30 days (from notice) but this time with interests and penalties.
After 150 days but before notice of cancellation, I would argue that I should still pay without interest, because the grace
period stops the seller from cancelling the contract, so if within that time theres still no notice of cancellation, I would
insist to pay without interest. (Note: Sir Arpees interpretation only, no jurisprudence on the matter yet)
Possible counterargument: If I were the counsel of the seller, however, I will insist, no, but you still paid beyond the
grace period.
Within the grace period: no penalties, no interest.
The grace period stops the seller from cancelling the contract.
So if there are stipulations in the contract with regard to penalties and interests: it will only apply after the 60 days.
BUT you count the interest and penalties FROM THE TIME YOU DEFAULTED. Because, di ka lang pa naman
pinagbayad because of the law.
B. REMEDIES OF THE BUYER
1. IN CASE OF MOVABLES
Article 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the
application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of
retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and
conditions as to damages, payment of the price and otherwise, as the court may deem just.
Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:
1. 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;
2. Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty;
3. Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty;
4. 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.
When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can
thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191.
Where the 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 or 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.
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.
Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the
buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but
subject to a lien to secure the 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.
5. In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate
damage of a greater amount, is 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.
1. FAILURE OF SELLER TO DELIVER

Remedy: Where the seller has broken a contract to deliver specific or ascertained goods, the buyer may seek action for
specific performance to direct that the contract shall be performed specifically, without giving the seller the option of
retaining the goods on payment of damages
2. BREACH OF SELLERS WARRANTY
Clarence Tiu
Under Article 1599 of the Civil Code, where there is a breach of warranty by the seller in the sale of goods, the buyer may, at
his election, avail of the following remedies:
1. 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;
2. Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty;
3. Refuse to accept the goods, and maintain an action against the seller for damages for breach of warranty;
4. Rescind the 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.
When the buyer has claimed and been granted a remedy in any of these ways, no other remedy can thereafter be granted,
without prejudice to the buyers right to rescind, even if previously he has chosen specific performance when fulfillment has
become impossible.
The choice is CUMULATIVE; choosing one does not prevent choosing another later on.
Under Article 1590 of the Civil Code, should the buyer be disturbed in the possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the seller has caused the disturbance or danger to cease
Exception:
1. Unless latter gives security for the return of the price in a proper case, or
Exception to Exceptions:
Adelfa Properties vs CA (1995): The pendency of suit over the subject matter of the sale justifies the
buyer in suspending payment of the balance of the purchase price by reason of aforesaid vindicatory action
filed against it. The assurance made by the seller that the buyer did not have to worry about the case because
it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in
Article 1590 wherein the buyer is bound to make payment even with the existence of a vindicatory action if the
seller should give a security for the return of the price
2. It has been stipulated that, notwithstanding any such contingency, the buyer shall be bound to make the payment.
3. A mere trespass shall not authorize the suspension of the payment of the price.
2. IN CASE OF IMMOVABLES
Article 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the
payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security
for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the
vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment
of the price.
Article 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.
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
PD 957
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after
due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plans and within the time limit for
complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with interest thereon at the legal rate.
Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the installments due for
reasons other than the failure of the owner or developer to develop the project shall be governed by Republic Act No.
6552.
Clarence Tiu
Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on August 26, 1972,
the defaulting buyer shall be entitled to the corresponding refund based on the installments paid after the effectivity of
the law in the absence of any provision in the contract to the contrary.
Circumstance: Should the buyer be disturbed in the possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage
Remedy: Art. 1590, Suspension of Payments
the buyer may suspend the payment of the price until the seller has caused the disturbance or danger to cease, unless
the seller gives a security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any
such contingency, the buyer shall be bound to make the payment.
Again, a mere act of trespass shall not authorize the suspension of the payment of the price.
2. IN CASE OF CONDOMINIUM OR SUBDIVISION PROJECTS

Circumstance: In case of sale of Condomimun or Subdisvision lots
Remedy: Apply Sections 23 and 24 of Pres. Decree 957
Which provide that no installment payments made by the buyer in a subdivision or condominium project for the
lot or unit he contracts to buy shall be forfeited in favor of the owner or developer when the buyer, after due
notice to the owner or developer desists from further payment due to the failure of the owner or developer to develop
the subdivision or condominium project according to the approved plans and within the time limit for complying with the
same.
The sections also grant to the buyer the option to be reimbursed the total amount paid.
Relucio v. Brillante: If the buyer opts to wait for the proper development of the site (instead of opting to demand
reimbursement), he may not be ousted from the subdivision
Lim v. De los Santos: Seller may compel developer to complete the roads and facilities even when nothing to that effect is
stipulated in the sale.
Gold Loop v. CA: Buyer of a condo unit is justified in suspending payments where seller fails to give a copy of the Contract
to Sell
Yo Chien v. Sta. Lucia: Nothing in PD 57 provides for the nullification of a contract to seller, at the time the contract was
entered into, did not possess a certificate of registration and a license to sell
Casa Filipinas v. Office of the Pres: Notice and demand for refund may be made by the buyer in the same letter or
communication
Eugenio v. Drilon: PD 957 has retroactive application
Bricktown v. Amor: When a grace period is provided, it should be construed as a right, not an obligation of the debtor, and
when unconditionally conferred, is effective without further need of demand either calling for the payment of the obligation or
for honoring the right.
Clarence Tiu
XI. REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES
XI. REMEDIES OF RESCISSION AND CANCELLATION

FOR IMMOVABLES
1. NATURE OF REMEDY OF RESCISSION
Article 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.
in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become
impossible.
RESCISSION ALREADY DISCCUSED IN OBLICON

But, Remember:
Rescission as Resolution (mode of extinguishment) in Art. 1191 vs Rescission as a defective contract in Art. 1380
Substantial breach basis
Restitution as a consequence of Rescission
Who may demand Rescission
Extra-Judicial Rescission (If there is stipulation)
2. GOVERNING PROVISIONS AND PRINCIPLES FOR REMEDIES OF RESCISSION

AND CANCELLATION
Article 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he
may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of article 1191 shall be observed.
Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the
price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant him a new term.
Article 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.
Pre-Maceda Law Period

Prior to the Maceda Law, the governing remedies covering sales of immovables were Art. 1191, 1591, and 1592.
Although Article 1191 provides for the power of rescission in reciprocal contracts in general, it is Articles 1591 and 1592
which specifically govern the power to rescind contracts of sale covering immovables.
Art. 1591: Should the vendor have reasonable grounds to fear loss of immovable property sold and its price, he may
immediately sue for the rescission of the sale. Should such ground not exist, the provisions of Art. 1191 shall be
observed
Art. 1592: In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price
at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the
expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially
or by a notarial act. After the demand, the court may not grant him a new term.
Article 1592 provides that even when automatic rescission may have been expressly stipulated, nonetheless, the
buyer may still remove the default by payment of what is due as long as no demand for rescission of the contract
has been made upon him either judicially or by notarial act. Therefore, Article 1592 contains the principle that the
remedy of rescission requires the taking of a positive act on the part of the non-defaulting party.
Clarence Tiu
Although Article 1592 provides that after the demand, the court may not grant him a new term, the Supreme
Court has, in a few instances and on grounds of equity, given the buyer reprieve, even after the seller had given
notarial demand for rescission.
In one case, the Court held that Article 1592 allows the buyer of an immovable property to pay as long as no
demand for rescission has been made, and the consignation, of the balance of the purchase price before the
trial court operated as full payment, which resulted in the extinguishment of the buyers obligation under the
contract of sale.
Remedy of Rescission under Articles 1191 and 1592 Have No Application to Contracts to Sell
Articles 1191 and 1592, which require rescission either by judicial action, or notarial act, do not apply to contracts to
sell.
Likewise, the remedy of rescission under Articles 1380 et seq. have no application to a contract to sell, not being
included within the enumerated contracts therein, nor is lesion or damage the basis upon which remedy can be sought
under a contract to sell
In contracts to sell, ownership is retained by the seller and full payment of the price is a positive suspensive
condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation
of the vendor to convey title
The breach contemplated in Art. 1191 is the obligors failure to comply with an obligation already extant.
However, the SC applied 1191 and 1592 to contracts to sell in a few cases, under the PRINCIPLE OF EQUITY
BASED ON: 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.
But this applies more to Residential Properties, such that where the subject matter is commercial or industrial real
estate, the Court has maintained a stern adherence to the form chosen by the parties for their contract (contract to sell),
and implement the accompanying legal effects (which is the general rule that 1191/1592 cannot be applied to contracts
to sell).
J.M. Tuazon Co., Inc. v. Javier (1970): where the buyer had religiously been paying his monthly installments for eight
years, with interests, but even after default he was willing and had offered to pay all the arrears, the Court granted
additional period of 60 days from receipt of judgment for the buyer to make all installment payments in arrears plus
interests, although demand for rescission had already been made
Legarda Hermanos v. Saldana (1974): although the buyer clearly defaulted in the payment of his installments on a
contract to sell covering two parcels of land, the Court nevertheless awarded ownership over one of the two (2) lots
jointly purchased by the buyer, when it found that the total amount of installments paid, although not enough to cover
the purchase price of the two lots, were enough to cover fully the purchase price of one lot. The Court deemed that
there was substantial performance insofar as one of the lots concerned as to prevent rescission thereof.
Formal notice is required to cancel contracts to sell
Although legal provisions requiring notarial rescission, such as Article 1592, have no application to contracts to sell
involving real property, nevertheless, the Court has required as a minimum procedural rule for the
rescission (i.e., cancellation) of a contract to sell that at least notice be given by the seller to the buyer.
University of the Philippines v. De los Angeles (1970):
Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on
account of infractions by the other contracting party must be MADE KNOWN to the other and is ALWAYS
PROVISIONAL, being ever subject to scrutiny and review by the proper court. If the other party denies
the rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.
Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the
responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the
consequent indemnity awarded to the party prejudiced.
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of
the corresponding court that will conclusively and finally settle whether the action taken was or was not
correct in law.
But the law definitely does not require that the contracting party who believes itself injured must first file suit
and wait for a judgment before taking extrajudicial steps to protect its interest.
Otherwise, the party injured by the others breach will have to passively sit and watch its damages accumulate
during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires
that he should exercise due diligence to minimize its own damages.
Cheng v. Genato (1998): Nevertheless, [seller] is not relieved from the giving of a notice, verbal or written, to the
[buyers] for his decision to rescind their contract. In many cases, even though we upheld the validity of a
stipulation in a contract to sell authorizing automatic rescission for a violation of its terms and condition, at least a
written notice must be sent to the defaulter informing him of the same. The act of a party in treating a contract as
cancelled should be made known to the other. For such act is always provisional. It is always subject to the
scrutiny and review by the courts in case the alleged defaulter brings the matter to the proper courts.
Dignos v. Court of Appeals (1988): What form of notice is required for the declaration of cancellation of a
contract to sell? Such notice should be in a PUBLIC INSTRUMENT pursuant to the provision of Article 1358 of the
Civil Code which requires that acts and contracts which have for their object the extinguishment of real rights over
immovable property must appear in a public document
Clarence Tiu
Maceda Law Period
The Maceda Law has further blurred the basic distinction between a contract of sale and a contract to sell, at least in the
specific types of residential real estate and condominium units covered by said law.
By legislative injunctions, the Maceda Law has decreed that whether it be a contract of sale or a contract to sell, the
actual rescission or cancellation thereof shall take place thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act.
Maceda Law Does Not Overcome Other Applicable Rules to Contracts to Sell
Siska Devt. Corp. v. Office of the President of the Phils (1994): application of the provisions of the Maceda Law
with respect to the other rules pertaining to contracts of sale, when it held that the requirement of notice of the
rescission under the Maceda Law does not change the time or mode of performance or impose new conditions or
dispense with the stipulations regarding the binding effect of the contract. Neither does it withdraw the remedy for its
enforcement. At most, it merely provides for a procedure in aid of the remedy of rescission
Boston Bank of the Philippines v. Manalo (2006): the protective mantle of the Maceda Law to buyers of residential
real estate would not serve to validate a contract to sell which is void for failure of the parties to agree on the manner of
payment of the purchase price, thus: Republic Act No. 6552 applies only to a perfected contract to sell and not to a
contract with no binding and enforceable effect
Lim v. Court of Appeals (1990): where the issue was who between two buyers of the same property had preference
of the same subject matter, the Court ruled against the first buyer under a contract to sell, and in favor of the second
buyer under a contract of sale under the well-established doctrine that the rules on double sale have no application to
favor a buyer under a contract to sell. The decision was arrived at even when the facts showed that there was never
any notarial cancellation of the first sale as mandated under the Maceda Law, and in fact without reference to the
Maceda Law. This shows that the rules under the Maceda Law are applicable only to issues of rescission between the
seller and the buyer, and do not overcome prevailing rules when it involves a controversy, say between two buyers as
to the same property bought.
The other issue that pertains to the application of the Maceda Law when it comes to contract to sell involving residential
real estate and condominium units is whether the Supreme Court would apply the substantial breach doctrine under
Article 1191, and would grant the buyer an opportunity to cure the defect even when notarial notice of cancellation has
been effected and the 30-day requisite period has expired.
Rillo vs CA (1997): which involved a contract to sell a residential condominium unit, where the buyer had
defaulted on the payment of the amortization payments despite several chances given to him by the seller, the
Court re-affirmed its protective mode only for a buyer who in good faith has sought to fulfill his obligation to pay
the price. Particularly, on the issue on whether the seller could rescind the contract to sell when the buyer had not
committed substantial breach under Article 1191, the Court held that the applicable law in resolving the issue
would be the Maceda Law, and since the buyer has paid less than two years of installment, he could only have
availed of the 60-day grace period, and having failed in that, the seller had a right to cancel the contract, which it
did by the filing of the judicial action for rescission.
3. SUMMARY OF SUPREME COURT DECISIONS COVERING THE BASES OF

DETERMINING WHETHER A SALE IS ONE OF CONTRACT OF SALE OR A
CONTRACT TO SELL (CLV CHART IN THIS CHAPTER, SEE PAGES 482-489)
A. AT PERFECTION
1. Requisite Contractual Stipulations In a contract to sell, there must be a stipulation that:

a. Full payment of the purchase price by the buyer constitutes a suspensive condition on the obligation of the
seller to sell and transfer ownership of the subject matter
b. Accompanied by stipulations or agreements that:
1. ownership of the subject matter shall remain with the seller until full payment of the price; and
2. specific right is granted to the seller to extrajudicially rescind or cancel the contract in case of default
NOTE: The lack of stipulation expressly reserving title to the seller in spite delivery of the subject matter to the
buyer would not constitute the transaction into a contract to sell.The lack of a stipulation allowing the seller to
rescind the contract in the event the buyer fails to comply with his obligation to pay the purchase price clearly
prevents the contract from being classified as a contract to sell.
Contra to (a): What really defines a contract to sell is the express stipulation that the effectivity or demandability of
the contract is subject to the happening of a suspensive condition (usually full payment of the price), as
distinguished from a situation where the suspensive condition modifies not the contract itself but rather only the
obligation of the seller to sell and deliver the subject matter, in which case it is a conditional contract of sale
Contra to (b): The Court has also ruled that even in the absence of such stipulations, the contract would still be
considered a contract to sell, because of the absence of deeds of conveyance covering registered land where the
operative act of sale is registration of the deed of sale
Further Contra to this: Court has ruled that registration does not vest title, but when the contract to sell
expressly reserves title with the seller until full payment of the purchase price.
Clarence Tiu
2. Stipulation on Execution of Deed of Absolute Sale When there is a stipulation or promise that the seller shall execute
a deed of absolute sale upon completion of payment of the purchase price by the buyer, the agreement is a contract to sell,
because it would be equivalent to reservation of title clause
Contra: Where there is an express stipulation that the sellers would execute a final deed of absolute sale in favor of the
buyer upon payment of the balance of the purchase price, the contract would still not be a contract to sell, where
nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in
the seller until full payment of the purchase price, nor is there a stipulation giving the seller the right to unilaterally
rescind the contract the moment the buyer fails to pay within a fixed period.
3. Stipulation on the Payment of Price In contract to sell, payment of the price is a suspensive condition, failure of which
is not a breach, casual or serious, but an event that prevents the obligation of the seller to convey title from acquiring
obligatory force
Contra: If there has been substantial compliance with the obligation to pay the price, then cancellation cannot be
effected, for unilateral rescission will not be judicially favored or allowed if the breach is not substantial and
fundamental to the fulfillment of the obligation
B. DURING CONSUMMATION
1. Legal Effect of Delivery Made In contract of sale, the title to the property passes to the buyer upon the delivery of the
thing sold; whereas, in a contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to the buyer
until full payment of the purchase price.
2. Legal Effect of Full Payment of Price In a contract to sell, full payment of the price constitutes the happening of the
condition which would convert it into an executory contract of sale, thus:
a. If delivery of the subject matter had previously been made, then ownership is transferred ipso jure to the buyer
b. If delivery of the subject matter has not been made, then it allows the buyer to demand for specific
performance.
Contra: There is still no perfected or executory contract of sale; it merely gives rise to an action to enforce the
obligation of the seller to enter into a contract of sale; there is no transfer of ownership to buyer even when
delivery was previously made; and much less can there be demand to deliver the subject matter when no contract
of sale has been executed
3. Legal Effect of Non-Payment of Price
a. In contract of sale, the non-payment of the purchase price is a breach, and when substantial in nature, would allow the
seller to rescind the sale.
b. In contract to sell, where ownership is retained by the seller until payment of the price in full, such payment 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 title in accordance with Article 1184 of the Civil Code
Contra to (b):
Even when the basis for the breach of the condition is present, a notice of rescission or cancellation must be
made on buyer to effect the extinguishment of the contract to sell.
In residential real estate, when the non-payment of the purchase price constitute merely a casual breach, it
would not extinguish the contract to sell, and the courts may extend equity rights to the buyer.
C. REMEDIES AVAILABLE
1. When Condition on Price Payment Not Fulfilled:

a. In contract of sale, if seller had delivered the subject matter previously without reserving title, it would mean that
ownership has been transferred to the buyer, and seller cannot recover ownership until and unless the contract is
resolved or rescinded by court action.
Whereas in contract to sell, since ownership was retained by the seller by express reservation until full payment of
the price, and the contract is extinguished, then no action is necessary other than recovery of possession in case
buyer refuses to voluntarily deliver.
b. In conditional contract of sale, the non-happening of the condition may be waived by the obligee who may still seek
specific performance.
Whereas, in contract to sell, the non-happening of the condition prevents the contract from coming into existence
(i.e., extinguishes the contract) and consequently neither rescission or specific performance may be pursued.
c. In conditional contract of sale, the basis of rescission must be substantial breach.
Whereas, in a contract to sell, the issue of breach is completely irrelevant
d. In contract of sale and conditional contract of sale, rescission may be pursued with forfeiture of the amounts paid when
that has been expressly provided for.
Whereas, in contract to sell, it becomes imperative that the amounts paid must be returned and there would be no
basis upon which to retain them since there was no breach upon which a claim of damage may be interposed
Contra to (d): Based on equity principles, the doctrine of substantial breach to allow rescission and court
discretion under Article 1191 have been made to apply to contracts to sell involving residential immovables.
But see contrary ruling in Lacanilao v. Court of Appeals: Even when the suspensive condition has not
happened, which would extinguish thereby the contract to sell, nevertheless, such extinguishment can only
have legal effect if notice of cancellation is given to the buyer.
Clarence Tiu
2. Laws Applicable In contract of sale, the applicable rules are found in Articles 1191 and 1592 providing for the remedy of
rescission, but when there is a suspensive condition, Article 1545 allows the seller to choose between rescission or waiving
the condition; whereas, in contract to sell, the remedies of rescission being incompatible thereto, the applicable rules are
found in Articles 1184 and 1545. The issue of whether the breach was casual or serious under Article 1191 is completely
irrelevant in a contract to sell
Contra: There have been several instances when Article 1191 was made to apply to a contract to sell involving
residential real estate, with application of the doctrine of substantial breach
But: The requirements of the Maceda Law on grace period, cash surrender value and prescribed manner of notarial
rescission or cancellation must always apply, whether it is a contract of sale or contract to sell, involving installment
sales of residential real estate and residential condominium unit
Clarence Tiu

Notes: Law On Sales

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Law on Sales

Sale as a Contract: Definition and Elements 4

1. Nominate and Principal 4

3. Bilateral and Reciprocal 6

6. Title, not a Mode 7

B. SALE DISTINGUISHED FROM OTHER SIMILAR NOMINATE CONTRACTS 7

3. Contract for Piece-of-Work 9

5. Dacion en Pago (Dation in Payment) 11

II. PARTIES TO A CONTRACT OF SALE 12

3. Others Relatively Incapacitated under Art. 1491 15

III. SUBJECT-MATTER OF SALE 18

3. Determinate or at least Determinable 21

IV. PRICE AND OTHER CONSIDERATION 24

2. Valuable Consideration (Money or its equivalent) 27

V. & VI. FORMATION AND CONSUMMATION: STAGES IN THE LIFE OF

2. Right of First Refusal 34

3. Mutual Promise to Buy and Sell 35

1. General Rules on Consent: Meeting of the Offer and Acceptance 37

4. Formal Requirements of Sales 40

1. Obligations of the Seller 43

2. Special Rules on Completeness of Delivery 51

4. Obligations of the Buyer 57

VII. DOCUMENTS OF TITLE 59

2. Negotiable Documents of Title 59

3. Non-Negotiable Documents of Title 61

4. Warranties of Seller of Documents of Title 62

6. Rules of Levy/Garnishment of Goods 63

VIII. SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE65

3. Sale by Co-Owner of the Whole Property or Definite Portion Thereof 66

B. EXCEPTIONS TO THE RULES ON LEGAL EFFECTS OF SALE BY NON-OWNER: WHEN OWNERSHIP

1. Estoppel on True Owner 68

2. Recording Laws: Torrens System 68

4. Sale in Merchant Stores, Fairs or Markets 69

C. SALE BY ONE HAVING VOIDABLE TITLE 69

IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS 72

3. At the Time of Perfection 72

4. After Perfection but Before Delivery 73

X. REMEDIES OF THE PARTIES 76

2. Unpaid Seller of Goods 77

5. Maceda Law: Sales of Residential Realty on Instalments (RA 6552) 88

B. REMEDIES OF THE BUYER 91

XI. REMEDIES OF RESCISSION AND CANCELLATION FOR

2. Governing Provisions and Principles for Remedies of Rescission and Cancellation 94

A. ESSENTIAL CHARACTERISTICS OF A CONTRACT OF SALE

SALE AS A CONTRACT: DEFINITION AND ELEMENTS

Nature of Obligation created in a Sale

Absence of any essential elements negates a sale

1. NOMINATE AND PRINCIPAL

Article 1358. The following must appear in a public document:

Sale is perfected by mere consent

Consequences of the perfection of the Sale:

Subject to the provisions of the law governing the form of contracts

Modalities that affect the characteristic of Consensuality

3. BILATERAL AND RECIPROCAL

Consequences of a Sale as an Onerous Contract

6. TITLE, NOT A MODE

B. SALE DISTINGUISHED FROM OTHER SIMILAR NOMINATE CONTRACTS

When is it important to know the distinction?

Importance of the distinction

3. CONTRACT FOR PIECE-OF-WORK

Sale vs Contract for Piece-of-Work

Rules to differentiate a Sale from a Contract for Piece-of-Work

Importance of the distinction