Sales Notes 3rd Exam – Atty.
Jazzie Sarona - Lozare 1
Part V: SALE BY NON-OWNER OR BY ONE
HAVING VOIDABLE TITLE
Ownership is not required for the perfection or validity
of a contract of sale as a sale is perfected the
moment there is meeting of minds upon the thing
which is the object of the contract and upon the price.
Under article 1477, the ownership of the thing sold
shall be transferred to the vendee upon actual or
constructive delivery thereof.
What is the effect if there was a sale by the person
who was not the owner thereof? We know that the
sale is valid, but what about the right of the buyer in a
contract of sale? We have article 1505…
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
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. (n)
General rule: Seller not the owner, no authority or
consent of the owner, even if there is delivery, buyer
will acquire no better title than the seller had.
Exemption: owner of the goods is precluded by his
conduct, applying the principle of estoppel.
However, you have there “Nothing in this Title shall
affect the provisions of any factor’s act…” we do not
have factor’s act here in the Philippines but you could
say that this is more or less similar to our laws in a
contract of agency. “The validity of any contract of
sale under statutory power of sale or under the order
of a court of competent jurisdiction”; and “purchases
made in a merchant's store, or in fairs, or markets, in
accordance with the Code of Commerce and special
laws.”
Take into consideration itong mga purchases made in
a merchant’s store, fairs or market. Yung Anti-Fencing
Law. You purchase goods na ninakaw. You can still
be liable even if you purchase it in a store. You also
take that into consideration and other provisions of
our law.
If a sale was made by a non-owner at the time of the
perfection, the sale is nevertheless valid because
ownership is necessary only at the time of delivery.
Title passes by operation of law to grantee when
person who is not the owner of the goods deliver it
and later he acquires title thereto. That is article 1434.
Why would it be important to say that the contract was
valid even if it was not made by the owner? Since it is
valid, action to annul is not proper because there is
already a perfected contract. You can ask for
damages due to breach or you can ask for rescission.
What about properties that are co-owned? In a
contract if sale of a co-owned property, what the
vendee obtains by virtue of such a sale is the same
rights as the vendor as the co-owner. The vendee
merely steps into the shoes of the vendor as co-
owner except from the intention of the purchase was
really the property itself and not just a spiritual share.
In co-ownership, not the specific portion over a
property but a spiritual or ideal share. Kung dalawa
kayong owners, 50% of the whole property, but not
one of the co-owners can say that this is my part.
They are co-owners.
What happens if a co-owner sells the whole parcel of
land? The sale would be considered valid as to the
interest of the co-owner. In the absence of the
consent of the other co-owner, yung walang consent,
hindi sya maapektohan sa sale. Except, the sale
would not be considered valid if it is the intention that
it is the property itself is the object and not just the
spiritual share of the co-owner who sold the property.
An agreement that purports a specific portion of an
unpartitioned co-owned property is not void. It shall
effectively transfer the ideal share in the co-
ownership.
Instances where ownership is transferred by act of
non-owner: estoppel on the part of the true owner,
applying 1505; recording laws or Torrens System (for
example, co-owners kayo, pero ang naka record na
owner under sa RoD isa lang. If in good faith, the
buyer relies on that, the co-owner cannot assert his
right with this in our Torrens System or recording
laws.); statutory power, order of courts, sale in
merchant’s stores, fairs and market, under 1505; and
“innocent purchaser for value” under 1506. When it
comes to movable, we have already discussed article
559, in good faith. And when you go to special
remedies of an unpaid seller you also have there the
right to resell the goods.
A co-owner who sells the whole property prior to
partition, sale of property itself is not void, but valid as
to the spiritual share of the one who sold the property.
If co-owner sells a definite portion, sale is void to
other co-owners but valid as to his spiritual share if
the buyer who have still bought the spiritual share had
he known that the definite portion would not be
acquired by him.
Sale of a seller with a voidable title. Voidable – valid
until annulled. What are the instances wherein you
have a voidable contract of sale? When there is
vitiation of consent or one of the parties is
incapacitated. We have here…
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.
Properties were bought from an insane person or
even a minor, or were sold through vitiation of
consent of the vendor. It is voidable. The vendor can
have the contract annulled. What if the purchaser in a
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 2
voidable contract subsequently sells the same subject
property to a third person? What is the effect as to the
third person? The buyer who buys the goods subject
of a previously voidable contract would have a valid
title over the subject matter if he purchased the goods
in good faith, for value and without notice of the
seller’s defect of title.
Take note in 1506, you have the phrase there “at the
time of sale”. This should mean actually delivery. The
phrase means here, at the time of delivery because it
is delivery that transfers ownership. Title is not
required at the time of sale, so it must be read “at the
time of delivery”.
What is the effect? Juan sold to Pedro a property. It
appears, however, that Pedro has a voidable title
because Juan’s consent was vitiated. Pedro
subsequently sells that same property to Maria who
purchased it in good faith, for value and without notice
of Pedro’s defective title. Even if Pedro’s title is
annulled, if it was annulled after perfection, but before
delivery, then Maria will not obtain good title over the
thing because there is yet no delivery. But the
contract of sale is valid. So basis sya for an action, on
the part of Maria to go after Pedro.
What if the annulment took place after the perfection
and after the goods were delivered to Maria? This
time, Maria obtains good title over the thing as long as
the 3 requisites are present: she is an innocent
purchaser for value, being in good faith and without
notice of seller’s defect of title. An innocent purchaser
for value is one who buys property of another without
notice that some other person has a right to or
interest in such property, pays a full and fair price of
the same at the time of such purchase or before he
has notice of such claim or interest of some other
person or property.
TAGATAC VS JIMENEZ
FACTS: Trinidad Tagatac bought a car for $4,500 in
the US. After 7 months, she brought the car to the
Philippines. Warner Feist, who pretended to be a
wealthy man, offered to buy Trinidad’s car for
P15,000, and Tagatac was amenable to the idea.
Hnece, a deed of sale was exceuted.
Feist paid by means of a postdated check, and the
car was delivered to Feist. However, PNB refused to
honor the checks and told her that Feist had no
account in said bank.
Tagatac notified the law enforcement agencies of the
estafa committed by Feist, but the latter was not
apprehended and the car disappeared.
Meanwhile, Feist managed succeeded in having the
car’s registration certificate (RC) transferred in his
name. He sold the car to Sanchez, who was able to
transfer the registration certificate to his name.
Sanchez then offered to sell the car to defendant
Liberato Jimenez, who bought the car for P10,000
after investigating in the Motor Vehicles Office.
Tagatac discovered that the car was in California Car
Exchange’s (place where Jimenez displayed the car
for sale), so she demanded from the manager for the
delivery of the car, but the latter refused.
Tagatac filed a suit for the recovery of the car’s
possession, and the sheriff, pursuant to a warrant of
seizure that Tagatac obtained, seized and impounded
the car, but it was delivered back to Jimenez upon his
filing of a counter-bond.
The lower court held that Jimenez had the right of
ownership and possession over the car.
ISSUE: W/N Jimenez was a purchaser in good faith
and thus entitled to the ownership and possession of
the car. YES
HELD: It must be noted that Tagatac was not
unlawfully deprived of his car
In this case, there is a valid transmission of ownership
from true owner [Tagatac] to the swindler [Feist],
considering that they had a contract of sale (note: but
such sale is voidable for the fraud and deceit by
Feist).
The disputable presumption that a person found in
possession of a thing taken in the doing of a recent
wrongful act is the taker and the doer of the whole act
does NOT apply in this case because the car was not
stolen from Tagatac, and Jimenez came into
possession of the car two months after Feist swindled
Tagatac.
Jimenez was a purchaser in good faith for he was not
aware of any flaw invalidating the title from the seller
of the car.
In addition, when Jimenez acquired the car, he had
no knowledge of any flaw in the title of the person
from whom he acquired it. It was only later that he
became fully aware that there were some questions
regarding the car, when he filed a petition to dissolve
Tagatac’s search warrant which had as its subject the
car in question.
The contract between Feist and Tagactac was a
voidable contract, it can be annulled or ratified
. . . The fraud and deceit practiced by Warner L. Feist
earmarks this sale as a voidable contract (Article
1390). Being a voidable contract, it is susceptible of
either ratification or annulment. (If the contract is
ratified, the action to annul it is extinguished -Article
1392) and the contract is cleansed from all its defects
(Article 1396); if the contract is annulled, the
contracting parties are restored to their respective
situations before the contract and mutual restitution
follows as a consequence (Article 1398).
Being a voidable contract, it remains valid and binding
until annulled.
However, as long as no action is taken by the party
entitled, either that of annulment or of ratification, the
contract of sale remains valid and binding. When
plaintiff-appellant Trinidad C. Tagatac delivered the
car to Feist by virtue of said voidable contract of sale,
the title to the car passed to Feist. Of course, the title
that Feist acquired was defective and voidable.
Nevertheless, at the time he sold the car to Felix
Sanchez, his title thereto had not been avoided and
he therefore conferred a good title on the latter,
provided he bought the car in good faith, for value and
without notice of the defect in Feist's title (Article
1506, N.C.C.). There being no proof on record that
Felix Sanchez acted in bad faith, it is safe to assume
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 3
that he acted in good faith.
NB: ART. 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.
Were the 3 Contracts of sale here valid? Yes
Who has better right, Jiminez or Tagactac?
Can we not say here that the contract between
Tagactac and Feist voidable?
There was a valid transfer of ownership as Jimenez
here is deemed to be an innocent purchaser for value.
And even if there was valid transfer of ownership,
there was no action to have the title in favor of Feist
annulled because of the fraud allegedly employed to
him to Tagactac.
September 21, 2015
With regard to sale by non-owner, ownership is not
required for the perfection of the sale. Ownership will
be transferred to the vendee upon actual or
constructive delivery, that’s under Art 1477.
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or
constructive delivery thereof. (n)
Art. 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 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. (n)
Under Art 1505, it is clear that if goods are sold to the
person who is not the owner and who does not sell
them under the authority or consent of the owner, the
buyer acquires no better title. The exception: applying
the principle of estoppel, in which the owner is
precluded from denying the seller’s authority to sell
due to his conduct.
However take note of the exceptions mentioned
therein, ung “factor’s acts”, which is similar to our rule
on agency.
Also take note of the sale of a co-owned property. If
not all of the co-owners would execute the sale, what
the vendee obtains is the same right as the vendor
has as a co-owner. Remember in a co-ownership,
ideal share lang siya diba? So it’s not as to a specific
portion. An agreement that purports a specific portion
of an unpartitioned co-owned property is not void. It
shall effectively transfer only the seller’s ideal share in
the co-ownership. If the co-owner sells a definite
portion, the sale is void to other co-owners who did
not give their consent but it shall be valid as to the
spiritual share of the seller if the buyer would have still
bought the spiritual share had it been known that the
definite portion sold would not be acquired by him.
So again, a sale not made by the owner at the
perfection, you still have a perfected or valid COS. If
there was a subsequent delivery, take note of Art
1505, that the buyer has no better title.
Art. 1434. When a person who is not the owner of
a thing sells or alienates and delivers it, and later
the seller or grantor acquires title thereto, such
title passes by operation of law to the buyer or
grantee.
Also take note Art 1434 by operation of law, the title
passes. Wherein the seller, at the time of sale and
delivery, had no title over the subject matter but
subsequently he becomes owner thereof and the
effect by the operation of law, the title passes to the
purchaser.
We also have Art 1506.
Art. 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. (n)
When we say “voidable title”, we mean voidable in
one of the parties or one of the parties is
incapacitated or one of the parties’ consent is vitiated.
So in this provision, take note of the requisites. The
buyer buys in good faith and for value, and without
notice of the seller’s defect of title.
Now if you look at Art 1506, we have the phrase there
“at the time of SALE”. Be very careful of that phrase
because the actual meaning is “delivery”. The phrase
should mean “at the time of the delivery of the subject
matter”, since it is the fact of delivery which transfers
ownership.
So what if A and B entered into a COS? At the time of
the COS, A has a voidable title. Why? Because A
purchased it from a minor. Now if B does not know of
the voidable title of A, and A’s title annulled AFTER
THE PERFECTION BUT BEFORE THE DELIVERY,
then B does not obtain good title over subject matter.
Now it’s a different thing if the annulment took place
after the sale was perfected and AFTER DELIVERY.
Because in this instance, B would obtain good title
over the thing AS LONG AS THE 3 REQUISITES
FOR INNOCENT PURCHASER FOR VALUE ARE
PRESENT.
Requisites:
1. Purchases the good in good faith
2. For value
3. Without notice of the seller’s defect of title
Again, an innocent purchaser for value is one without
notice that some other person has a right or interest
to such property and pays a fair and full price for the
same at the time of the purchase, or before he has
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 4
notice of the claim or interest of some other person in
the property.
So we’ve already discussed the case of Tagactac.
Now we go to the case of Edca vs Santos.
EDCA PUBLISHING VS SPS. SANTOS
G.R. No. 80298, April 26, 1990
FACTS: On October 5, 1981, a person identifying
himself as Prof. Jose Cruz ordered 406 books from
EDCA Publishing. EDCA Subsequently prepared the
corresponding invoice and delivered the books as
ordered, for which Cruz issued a personal check
covering the purchase price of said books.
Subsequently on October 7, 1981, Cruz sold 120 of
the books to Leonor Santos who, after verifying the
seller’s ownership from the invoice he showed her,
paid him P1,700.
Upon verification by EDCA, it was discovered that
Cruz was not employed as professor by De La Salle
College and that he had no more account or deposit
with Phil. Amanah Bank, the bank where he allegedly
drawn the payment check. Upon arrest of Cruz by the
police, it was revealed that his real name was Tomas
dela Pena and that there was a further sale of 120
books to Sps. Santos.
EDCA, through the assistance of the police forced
their way into the store of Sps. Santos and threatened
Leonor with prosecution for buying stolen property.
The 120 books were seized and were later turned
over to EDCA.
This resulted to Sps. Santos filing a case for recovery
of the books after their demand for the return of the
books was rejected.
ISSUE: W/N EDCA may retrieve the books from
Santos. NO (W/N EDCA has been unlawfully deprived
of the books because the heck issued by Cruz in
payment thereof was dishonored. NO.)
HELD: EDCA argues that because Cruz, the impostor
acquired no title to the books, the latter could not
have validly transferred such to Sps. Santos. Its
reason is that as the payment check bounced for lack
of funds, there was a failure of consideration that
nullified the contract of sale between it and Cruz.
However, upon perusal of the provisions on the Law
on Sales, a contract of sale is consensual and is
perfected once agreement is reached between the
parties on the subject matter and the consideration.
As provided in Art. 1478- Ownership in the thing sold
shall not pass to the buyer until full payment of the
purchase only if there is a stipulation to that effect.
Otherwise, the rule is that such ownership shall pass
from the vendor to the vendee upon the actual or
constructive delivery of the thing sold even if the
purchase price has not yet been paid.
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 above noted, delivery of the thing sold will
effectively transfer ownership to the buyer who can in
turn transfer it to another.
Actual delivery of the books having been made, Cruz
acquired ownership over the books which he could
then validly transfer to the private respondents. The
fact that he had not yet paid for them to EDCA was a
matter between him and EDCA and did not impair the
title acquired by the private respondents to the books.
Leonor Santos took care to ascertain first that the
books belonged to Cruz before she agreed to
purchase them. The EDCA invoice Cruz showed her
assured her that the books had been paid for on
delivery. By contrast, EDCA was less than cautious —
in fact, too trusting in dealing with the impostor.
Although it had never transacted with him before, it
readily delivered the books he had ordered (by
telephone) and as readily accepted his personal
check in payment. It did not verify his identity although
it was easy enough to do this. It did not wait to clear
the check of this unknown drawer. Worse, it indicated
in the sales invoice issued to him, by the printed
terms thereon, that the books had been paid for on
delivery, thereby vesting ownership in the buyer.
Santos did not need to go beyond that invoice to
satisfy herself that the books being offered for sale by
Cruz actually belonged to him; yet she still did.
Although the title of Cruz was presumed under Article
559 by his mere possession of the books, these being
movable property, Leonor Santos nevertheless
demanded more proof before deciding to buy them.
NB: Law on Property
Art. 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 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.
Q: Can you say that there was a defect in the contract
between Edca and Cruz?
A: Yes. Edca is alleging here that since there was no
consideration between the COS, since the check that
was issued by Cruz in favor of Edca was dishonored
due to lack of funds.
Q: So what do we have here? An absence of
consideration?
A: No.
Q: Was there a valid delivery?
A: Yes. The fact that Edca delivered the books to
Cruz and that the received the same, there was a
valid transfer of ownership.
Q: Can we say that Cruz has a voidable title over the
goods?
A: Yes, based on the fraud.
Q: But what happened after the delivery of the books
to Cruz?
A: He sold the books to Santos, who was an innocent
purchaser for value. And since Cruz has acquired
ownership over the property, his subsequent sale and
delivery also transferred ownership to Santos.
So the issue here “W/N there a transfer of ownership”
(YES) So what was the status of the contract? The
first one was voidable and when the subsequent sale
was entered into by Cruz and Santos, the first sale
was not yet annulled, and it was duly proven that
Santos was an innocent purchaser for value. So
applying Art 1506, there was a valid transfer of
ownership. Therefore between Edca and Santos, it
was Santos who had the better right.
AZNAR vs YAPDIANGCO
13 SCRA 486
G.R. No. L-18536
March 31, 1965
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 5
Remember this case was discussed already before.
Yung may nagbenta ng kanyang car tapos inutusan
nya ang son nya na sumama dun sa gusting bumili
then pumunta sila sa isang house tapos nung
paglabas ng anak wala na yung kotse and yung
pamangkin ng bibili.
FACTS: Teodoro Santos was selling his FORD
FAIRLANE 500. One day, a certain L. De Dios,
claiming to be a nephew of Vicente Marella, said that
his uncle Vicente wants to buy the car.
Marella agreed to buy the car for P14,700.00 on the
understanding that the price would be paid only after
the car had been registered in his name.
The DOS for the car was executed in Marella's favor.
Afterwhich, the car in was registered Marella's name.
Up to this stage of the transaction, the purchased
price had not been paid.
Teodoro Santos gave the registration papers and a
copy of the DOS to his son Irineo and instructed him
not to part with them until Marella has given the full
payment for the car. Irineo Santos and L. De Dios
then proceeded to meet Marella and Ireneo
demanded the payment. Marella said that the amount
he had on hand then was short by some P2,000.00
and begged off to be allowed to secure the shortage
from a sister supposedly living somewhere on
Azcarraga Street, also in Manila. Thereafter, he
ordered L. De Dios to go to the said sister and
suggested that Irineo go with him. At the same time,
he requested the registration papers and the DOS
from Irineo on the pretext that he would like to show
them to his lawyer. Trusting the good faith of Marella,
Irineo handed over the same to the latter and
thereupon, in the company of L. De Dios and another
unidentified person, proceeded to the alleged house
of Marella's sister. It was there that the car, L. De Dios
and the unidentified companion disappeared. That
very same day, Marella was able to sell the car in
question Jose B. Aznar, for P15,000.00.
Aznar claims ownership over the vehicle. Trial court
awarded the vehicle to Santos.
ISSUE: Between Santos and Aznar, who has a better
right to the possession of the disputed automobile? -
SANTOS
HELD: Aznar accepts that the car in question
originally belonged to and was owned by Santos, and
that the latter was unlawfully deprived of the same by
Marella. However, Aznar contends that upon the facts
of this case, the applicable provision of the CC is
Article 1506 and not Article 559 as was held by the
decision under review. Article 1506 provides:
ART. 1506. Where the seller of goods has a
voidable title thereto, but his, title has not been
voided 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.
The contention is clearly unmeritorious. Under the
aforequoted provision, it is essential that the seller
should have a voidable title at least. It is very
clearly inapplicable where, as in this case, the seller
had no title at all.
Ownership is not transferred by contract merely but
by tradition or delivery. Contracts only constitute
titles or rights to the transfer or acquisition of
ownership, while delivery or tradition is the mode of
accomplishing the same. For the legal acquisition and
transfer of ownership and other property rights, the
thing transferred must be delivered, inasmuch as,
according to settled jurisprudence, the tradition of the
thing is a necessary and indispensable requisite in the
acquisition of said ownership by virtue of contract. So
long as property is not delivered, the ownership over it
is not transferred by contract merely but by delivery.
Contracts only constitute titles or rights to the transfer
or acquisition of ownership, while delivery or tradition
is the method of accomplishing the same, the title and
the method of acquiring it being different in our law.
Vicente Marella did not have any title to the property
under litigation because the same was never
delivered to him. He sought ownership or acquisition
of it by virtue of the contract. Vicente Marella could
have acquired ownership or title to the subject matter
thereof only by the delivery or tradition of the car to
him.
The lower court was correct in applying Article 559 of
the CC to the case at bar, for under it, the rule is to
the effect that if the owner has lost a thing, or if he
has been unlawfully deprived of it, he has a right
to recover it, not only from the finder, thief or
robber, but also from third persons who may have
acquired it in good faith from such finder, thief or
robber. The said article establishes two exceptions
to the general rule of IRREVINDICABILITY: when
the owner (1) has lost the thing, or (2) has been
unlawfully deprived thereof. In these cases, the
possessor cannot retain the thing as against the
owner, who may recover it without paying any
indemnity, except when the possessor acquired it in a
public sale.
Q: So what is the difference between the case of
Aznar and the case of Edca?
A: In the case of Aznar, there was no delivery at all
and therefore there was no ownership on the part of
Marella.
Q: So in the case of Aznar, was Aznar entitled to the
car subject of the case?
A: No. Applying Art 559, Santos was unlawfully
deprived of the thing De Dios and Marella stole the
car from him.
So take note of the difference between these 2 cases.
In Edca vs Santos, Cruz had a voidable title in the
sense that the sale was valid and there was delivery
of the subject matter and subsequently the books
were sold to an innocent purchaser for value.
In the case of Aznar vs Yapdiangco, you cannot apply
Art 1506 because even if Aznar had no knowledge of
the transaction between Santos and Marella, the fact
is that there was no delivery on the part of Marella.
She came into possession of the said car by stealing
it. So walang delivery. Remember as we have
emphasized before, delivery to transfer ownership
must be with the intention to transfer ownership of the
subject matter. In this case, it did not happen. What
we have here is an unlawful deprivation. There was
no valid transfer and Marella did not have any title to
the car because the same was never delivered to her.
The car in question was never delivered to the
vendee by the vendor. It should be recalled that while
there was a COS, Marella took possession of the
subject matter while stealing the same while it was in
custody of the son of Santos.
PART VI: LOSS, DETERIORATION, FRUITS and
OTHER BENEFITS
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 6
Art. 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. (1460a)
Art. 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. (n)
CHRYSLER VS. CA
133 SCRA 567
G.R. No. 55684
December 19, 1984
FACTS: Petitioner Chrysler is a domestic corporation
engaged in the assembling and sale of motor vehicles
and other automotive products. Respondent Sambok
is a general partnership and was a dealer for
automotive products.
Chrysler filed with CFI a complaint for damages
against Allied Brokerage Corp, Negros Navigation Co,
and Sambok, alleging that:
1. On Oct 2, 1970, Sambok Bacolod ordered from
petitioner various automotive products worth
P30,909.61 payable in 45 days,
2. That on Nov 25, 1970, Chrysler delivered said
products to its forwarding agent Allied Brokerage
for delivery to Sambok (Allied loaded the goods
through vessel of Negros Nav),
3. That when Chrysler tried to collect from Sambok
Bacolod the amount of P31,037.56 (price of
spare parts plus handling charges), Sambok
refused to pay, claiming that it had not received
the merchandise,
4. That Chrysler also demanded the return of the
merchandise or their value from Allied and
Negros Navigation, but both denied any liability.
Sambok Bacolod denied having received the
automotive products and professed no knowledge of
having ordered from petitioner the said articles.
Trial Court dismissed the complaint against Allied and
Negros Navigation, but found Sambok liable for
damages “in refusing to take delivery of the shipment
for no justifiable reason. The decision was reversed
by CA after finding that Chrysler had not performed its
part of the obligation under the contract by not
delivering the goods at Sambok, Iloilo, the place
designated in the Parts Order Form. In other words,
CA found that there was misdelivery.
ISSUE: W/N Sambok Bacolod should be liable for
damages. NO
HELD: To our minds, the matter of misdelivery is not
the decisive factor for relieving Sambok, Bacolod, of
liability herein. While it may be that the Parts Order
Form specifically indicated Iloilo as the destination, as
testified to by Ernesto Ordonez, Parts Sales
Representative of petitioner, Sambok, Bacolod, and
Sambok, Iloilo, are actually one. In fact, admittedly,
the order for spare parts was made by the
President of Sambok, Pepito Ng, through its
marketing consultant.
Notwithstanding, upon receipt of the Bill of Lading,
Sambok, Bacolod, initiated, but did not pursue, steps
to take delivery as they were advised by Negros
Navigation that because some parts were
missing. They would just be informed as soon as the
missing parts were located.
It was only four years later however, or in 1974, when
a warehouseman of Negros Navigation, Severino
Aguarte, found in their off-shore bodega, parts of the
shipment in question, but already deteriorated and
valueless.
Under the circumstances, Sambok, Bacolod, cannot
be faulted for not accepting or refusing to accept
the shipment from Negros Navigation four years
after shipment. The evidence is clear that Negros
Navigation could not produce the merchandise nor
ascertain its whereabouts at the time Sambok,
Bacolod, was ready to take delivery. Where the seller
delivers to the buyer a quantity of goods less than he
contracted to sell, the buyer may reject them.
From the evidentiary record, Negros Navigation was
the party negligent in failing to deliver the complete
shipment either to Sambok, Bacolod, or to Sambok,
Iloilo, but as the Trial Court found, petitioner failed to
comply with the conditions precedent to the filing of a
judicial action. Thus, in the last analysis, it is
petitioner that must shoulder the resulting loss.
The general rule that before, delivery, the risk of
loss is home by the seller who is still the owner,
under the principle of "res perit domino", is
applicable in petitioner's case.
In sum, the judgment of respondent Appellate Court,
will have to be sustained not on the basis of
misdelivery but on non-delivery since the
merchandise was never placed in the control and
possession of Sambok, Bacolod, the vendee.
Decision of CA affirmed.
Q: So there was no delivery here at all?
Q: What is the effect of that non-delivery?
Before a contract is perfected and the subject matter
was lost or there was deterioration, the owner shall
bear the loss or deterioration. Of course before
perfection, it is also entitled to the fruits. If at the time
of perfection, the goods were lost, then the seller
would bear the loss because there has been no
transfer of ownership.
But what if the contract was already perfected but the
goods were lost after the perfection but before the
delivery? In this case, since there was still no delivery,
the seller bears the loss. However with regard to
deterioration, the buyer would bear the fruits. If there
has been perfection and delivery and subsequently
the subject matter is lost, it will now be the buyer who
will suffer the loss as delivery extinguishes the
ownership of the owner and creates a new one in
favor of the buyer.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 7
So you could recall here Art 1163, Art 1165, Art 1262,
and Art 1480.
You also take into consideration if there is fault on the
part of the buyer. Because even if there has been no
delivery but the buyer is at fault, like what we have
discussed before, if the refusal to accept is not based
on valid grounds, then any subsequent loss will be
borne by the buyer.
LAWYER’S COOP VS TABORA
FACTS: Perfecto Tabora bought from the Lawyers
Cooperative Publishing Company one complete set of
American Jurisprudence consisting of 48 volumes
with 1954 pocket parts, plus one set of American
Jurisprudence, General Index, consisting of 4
volumes, for a total price of P1,675.50 which, in
addition to the cost of freight of P6.90, makes a total
of P1,682.40.
Tabora made a partial payment of P300.00, leaving a
balance of P1,382.40. The books were delivered and
receipted by Tabora in his law office.
In the midnight of the same date, however, a big fire
broke out in that locality which destroyed and burned
all the buildings standing on one whole block
including at the law office and library of Tabora As a
result, the books bought from the company as above
stated, together with Tabora's important documents
and papers, were burned during the conflagration.
This unfortunate event was immediately reported by
Tabora to the company by sending a letter. The
company replied and as a token of goodwill it sent to
Tabora free of charge volumes 75, 76, 77 and 78 of
the Philippine Reports.
As Tabora failed to pay monthly installments, the
company commenced the present action for the
recovery of the balance of the obligation.
It was provided in the contract that "title to and
ownership of the books shall remain with the seller
until the purchase price shall have been fully paid.
Loss or damage to the books after delivery to the
buyer shall be borne by the buyer." The total price of
the books, including the cost of freight, amounts to
P1,682.40. Appellant only made a down payment of
P300.00 thereby leaving a balance of P1,382.40.
Defendant, in his answer, pleaded force majeure as a
defense, saying that since the loss was due to force
majeure he cannot be held responsible for the loss.
ISSUE: WON Tabora is absolved from liability on the
ground of force majeure
RULING: No. He is liable for the loss. It is true that
in the contract entered into between the parties the
seller agreed that the ownership of the books shall
remain with it until the purchase price shall have been
fully paid, but such stipulation cannot make the seller
liable in case of loss not only because such was
agreed merely to secure the performance by the
buyer of his obligation but in the very contract it
was expressly agreed that the "loss or damage to
the books after delivery to the buyer shall be
borne by the buyer."
Article 1504 of our Civil Code, which in part provides:
(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.
The rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event
should not apply because it only holds true when the
obligation consists in the delivery of a determinate
thing and there is no stipulation holding him liable
even in case of fortuitous event. Here these
qualifications are not present. The obligation does not
refer to a determinate thing, but is pecuniary in
nature, and the obligor bound himself to assume the
loss after the delivery of the goods to him. In other
words, the obligor agreed to assume any risk
concerning the goods from the time of their delivery,
which is an exception to the rule provided for in Article
1262 of our Civil Code.
Q: Why can we not apply the rule that loss of the thing
due will extinguish the obligation?
A: Because in the contract itself, it is stipulated that
the buyer bears is still liable for the loss or damage of
the goods.
Q: But isn’t it that the loss was due to a fortuitous
event? And we know that if there’s a loss due to a FE,
the obligation is extinguished?
A: The obligation is not to deliver a definite thing, but
is pecuniary in nature.
Q: What do you mean pecuniary in nature?
Q: So loss of the thing due will extinguish the
obligation will apply to obligations to deliver a
determinate thing. What about in this case?
A: It was an obli to deliver a generic thing—money.
Again, remember the rule that loss of the object of the
contract of sale is borne by the owner, or in case of a
FE, the one under the obligation to deliver is exempt
from liability. However the same could not be applied
in the facts of the case because:
1. It is very clear that the title and ownership
shall remain with the seller until the purchase
price is fully paid. However there is a
provision: loss or damage to the goods after
delivery to the buyer shall be borne by the
buyer. So it is very expressly stipulated. It is
not contrary to law, morals, public policy, etc.
so that is binding between the parties.
2. The obligation here on the part of Tabora
was not to deliver a determinate thing and
therefore his obligation was not extinguished
due to a FE. The obligation here does not
refer to a determinate thing but is pecuniary
in nature. The obligation to pay money is an
obligation to give or deliver a generic thing
since money is a generic thing.
PART VII: REMEDIES IN CASE OF BREACH
Art. 1594. Actions for breach of the contract of
sale of goods shall be governed particularly by
the provisions of this Chapter, and as to matters
not specifically provided for herein, by other
applicable provisions of this Title. (n)
Art. 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
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 8
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. (n)
In 1595, there is a breach on the part of the buyer due
to failure to pay. What is the remedy available to the
seller? He may maintain an action against the buyer
for the price of the goods. Now if the parties have
agreed that the price is payable on a certain day,
irrespective of delivery or transfer of title, and again
the buyer refuses or neglects to pay, so there is a
breach on the part of the buyer. Then an action for the
price can be maintained even if ownership has not yet
passed because there is a stipulation that payment be
made on a certain day.
But again it shall be a defense on the part of the
buyer that the seller, at any time, has manifested his
inability to perform the contract of sale. So if the
reason of the buyer in refusing to pay the price is due
to the manifest inability of the seller to deliver the
goods, then that is a valid defense. Again, this is
based on the reciprocal nature of a COS.
Art. 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. (n)
Note: Failure to pay the price = action for the price of
goods
Failure to accept and pay = damages for non-
acceptance.
rd
So with regard to the 3 paragraph, if the seller can
rd
resell the property to 3 persons and the difference to
the price, if he was able to sell it at a lower price, with
the original price entered into by the buyer, that is the
amount of the damages.
th
In the 4 paragraph, we can see that in case there is
breach on the part of the buyer, like there is refusal to
pay or even if there was refusal to pay despite
delivery, or even if there was no delivery but the
parties have stipulated on a date.
We also discussed 1593 regarding movable property.
Art. 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. (1505)
Take note that we also discussed in Art 1593, with
regard to movable properties, if it is sold and delivery
is unaccepted, rescission is available without the
need of judicial or notarial demand. And if delivery is
accepted and the price is not paid, you can also file
rescission under Art 1593, or you can file an action for
the price + damages, wherein title is passed but the
price is not paid. If the sale was repudiated by the
buyer before delivery, the sale can be rescinded with
damages. The basis of damages is Art 1596 (4). In
inability to pay before delivery, rescission with
damages can also be availed of.
Before going over the special remedies, what if there
is breach by the seller? What are the remedies
available to the buyer? Recall Art 1590.
Art. 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. (1502a)
Take note of the exception, if there was security or if
there was a stipulation. If there was non delivery by
the seller, you can also file an action for specific
performance with damages.
We also have the Condominium Act (PD 987)
Wherein the developer cannot deliver (kasi naka-
stipulate yan sa contract ung date ng delivery of the
unit), what would happen if the developer fails to
deliver the property, the payment CANNOT BE
FORFEITED in favor of the developer because the
fault here is on the part of the developer. In other
words, the buyer can be entitled to a refund and the
buyer can even compel the developer to complete the
facilities.
Take note, to consider whether the buyer or the seller
committed breach, we have to familiarize ourselves
as to the obligations of the seller. Also take note that
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 9
when the seller fails to deliver, the buyer may seek
performance with the (???) seller, (with?) option to
retain goods on payment of damages.
Special Remedies of an Unpaid Seller
Remember the general rule: you cannot take the law
into your own hands and therefore you must seek
remedy through courts. However there are
exceptions, one of which you have discussed before:
Art 1429 The Doctrine of Self Help.
The other one are the special remedies available to
an unpaid seller. The unpaid seller can refer to these
remedies even without going to court or without filing
an action before the court. However before the seller
can avail of these special remedies, the following
requisites must be present:
1. The subject matter must refer to goods
2. The seller is unpaid. When we say that the
seller is unpaid, it does not apply to
instances where the seller was totally
unpaid. Even if there was partial payment,
the seller can still be considered an unpaid
seller
3. Physical possession of the goods is not yet
with the buyer.
So what are the SPECIAL REMEDIES that we are
talking about?
1. Possessory lien
2. Stoppage in transitu
3. Special right of resale
4. Special right to rescind
One thing you should take note of is that these
special remedies are not alternative. THE UNPAID
SELLER DOES NOT GET TO CHOOSE. It’s actually
a (???) in the sense that you take into consideration
the circumstances of the case because for each
special remedy, there are requisites that must be
present.
Also with regard to the special right of resale or the
special right to rescind, it is only when an active seller
has exercised, either possessory lien or stoppage in
transitu, can the seller proceed with the other special
right of resale or to rescind. Again, #3 and #4 can only
be used when either 1 or 2 has already been
exercised.
Art. 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;
(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. (n)
Notwithstanding that ownership of the goods may
have passed to the buyer. Why do we have this
provision when I said earlier that one of the requisites
is that physical possession must not be with the
buyer? Because of constructive delivery. Because for
example the general rule: delivery to the carrier is
equivalent to delivery to the buyer.
We have POSSESSORY LIEN. Art 1527-Art 1529
Art. 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. (n)
Again in Art 1526, ownership may have been
transferred to the buyer but the seller is still unpaid.
With possessory lien, the seller may retain the goods
for the price while the goods are still in his
possession. Obviously this special remedy is not
available anymore when the seller has lost custody of
the subject matter. We’re talking about physical
possession of the goods.
So possessory lien can only be exercised when:
1. The goods were sold without any stipulation
as to credit
2. Goods were sold on credit but term of credit
has already expired
3. The buyer becomes insolvent
If ANY of those 3 instances are present, the right to
possessory lien can already be availed of. If there has
been partial delivery of the physical possession of the
goods to the buyer, possessory lien can still be
exercised the over the remainder of the goods.
Art. 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. (n)
When is possessory LOST:
Art. 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
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 10
obtained judgment or decree for the price of the
goods. (n)
Possessory lien is lost: (check 3 instances above)
4. When the seller parts with the goods.
Take note that notice by the seller to the buyer that he
exercised his possessory lien is not essential. Now if
the seller has lost possession of the goods, there is
still another remedy that may be available to him.
STOPPAGE IN TRANSITU
Art. 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. (n)
So stoppage in transit can be exercised if the seller is
no longer in possession of the goods, and take note
of this requirement: the buyer becomes insolvent.
Required yan siya for stoppage in transitu. Sa
possessory lien, notice that it is only one of the
instances. Kasi even if the buyer is not insolvent,
there are instances where possessory lien can still be
exercised, such as when the goods were sold without
any stipulation as to credit.
So what happens in stoppage in transitu? The seller
can stop the goods in transitu or assume possession
at anytime while the goods are in transit, or in other
words wala pang physical possession ang buyer. And
then the seller will enjoy the same rights as if he had
never parted possession of the thing.
Of course you have to take into consideration when
the goods are deemed to be in transit. We have Art
1351…
Art. 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. (n)
How this right is exercised, this is under Art 1532
Art. 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 obliged to deliver or justified in delivering the
goods to the seller unless such document is first
surrendered for cancellation. (n)
Again notice by the seller to the buyer is not required
but notice to the carrier is required to exercise the
stoppage in transitu.
Art. 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. (n)
If the buyer sells the thing without the consent of the
seller while in transitu, pwede ba yan? The seller’s
right of stoppage in transitu is not affected. In other
words, the seller would still have a better right than
the subsequent purchaser. Also, the right of stoppage
does not defeat the title of an innocent purchaser for
value who issued a negotiable instrument of title.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 11
September 22, 2015
Art. 1594. xxx
Art. 1595. xxx
Art. 1596. xxx
Art. 1597. xxx
Also known as Technical recission
Art. 1526. xxx
Remedies are not alternative.
There are requisites to be considered to avail of these
remedies.
When can Special right of resale or stoppage in
transitu be availed of?
Who can exercise? Unpaid Seller
The possessory lien of the unpaid seller is
exerciseable only in the following instances:
(a) Where the goods have been sold without
any stipulation as to credit;
(b) Where the goods have been sold on credit,
but the term of credit has expired;
(c) 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 seller’s 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.
The unpaid seller of goods loses his lien on the goods
whenever:
(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.
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.
STOPPAGE IN TRANSITU
Under Article 1530 of the Civil Code, 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.
The unpaid seller’s 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.
Take note Art. 1532, when is it considered in transit.
How is this right exercised? Art. 1532.
Take note: notice to buyer is not required. What is
required is notice to carrier.
Take note Art 1535
SPECIAL RIGHT OF RESALE
Art. 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.
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. (n)
Available only if Unpaid Seller has exercised
Possessory lien or stoppage in transitu. Notice to
buyer that he will now sell is not necessary.
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. 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.
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:
(a) The goods are of perishable nature;
(b) Where the seller has been expressly
reserved in case the buyer should make
default; or
(c) Where the buyer has been in default in
the payment of the price for an unreasonable time.
Take note:
(a) and (b), notice is not essential but in (c), it is
essential.
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
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 12
manner can only be done through court action. But in
the case of an unpaid seller, he can effect these, even
without judicial action.
Liability of Buyer? Pay difference if sold at lower price.
Plus damages.
Ex: Price is @ P1000, S was able to sell it at
only P800. B will have to pay S the difference of P200
plus damages.
What if sold for a profit? Kay seller na lahat.
Ex: Sold @ P1200. S need not give the P200
to B. S will keep it, additional profit nya. Plus S can
still recover damages.
SPECIAL RIGHT TO RESCIND
Art. 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. (n)
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:
(a) The seller has expressly reserved the
right to do so in case the buyer should make
default; or
(b) The buyer has been in default in the
payment of the price for an unreasonable
time.
Can you rescind the sale by the mere fact that the
goods are perishable? (take note, you can resell
perishable goods) No. 2 instances lang. but these two
instances, pwede rin to sa resell. But MERE FACT
THAT GOODS ar perishable, hindi pwede irescind.
Dapat meron either ang dalawang instances.
Perishable PLUS (a) or (b)
Why is it a special remedy? Same, no need for court
action.
Notice appears seems like necessary here, noh. “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.”
But take note: “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.”
C. REMEDIES OF BUYER
Art. 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. (1502a)
CONDOMINUIM ACT
Art. 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. (n)
Art. 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 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. (n)
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 13
RECTO LAW
Art. 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. (1454-A-a)
This is specific. Sale of PERSONAL Property in
INSTALLMENT.
What’s the remedy?
1. Exact fulfilment or specific performance
2. Cancel if there’s failure to pay 2 installments
3. Foreclose the chattel mortgage, you can’t
recover na for deficiency
Take note these remedies are alternative
noh, based on the premise that no one shall
enrich himself at the expense of others.
The remedies cannot also be pursued simultaneously,
as when a complaint is fi led to exact fulfillment of the
obligation, to seize the property purchased and to
foreclose the mortgage executed thereof.
HOWEVER there’s an exception: If the seller chooses
specific performance, and later it becomes
impossible, he can exercise the second remedy.
What’s the purpose of Art 1484?
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 defi ciency
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 attorney’s 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.
Also in Levy v Gervacio 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.”
When Is Sale “on Installments?”
LEVY VS. GERVACIO
FACTS: Levy Hermanos, Inc., sold to defendant
Lazaro Blas Gervacio, a Packard car. Defendant,
after making the initial payment, executed a
promissory note for the balance of P2,400, payable
on or before June 15, 1937, with interest at 12 % per
annum, to secure the payment of the note, he
mortgaged the car to the plaintiff.
Defendant failed to pay the note it its maturity. Thus,
Levy foreclosed the mortgage and the car was sold at
public auction, at which plaintiff was the highest
bidder for P1,800. The present action is for the
collection of the balance of P1,600 and interest.
ISSUE: WON plaintiff still may collect the balance and
interest after it has already foreclosed the mortgage
and sold it at public auction
RULING: Yes it can still collect the balance.
Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable
in installments shall confer upon the vendor the right
to cancel the sale or foreclose the mortgage if one
has been given on the property, without
reimbursement to the purchaser of the installments
already paid, if there be an agreement to this effect.
However, if the vendor has chosen to foreclose the
mortgage he shall have no further action against the
purchaser for the recovery of any unpaid balance
owing by the same and any agreement to the contrary
shall be null and void.
In Macondray and Co. vs. De Santos, the Court held
that "in order to apply the provisions of article
1454-A of the Civil Code it must appear that there
was a contract for the sale of personal property
payable in installments and that there has been a
failure to pay two or more installments." The
contract, in the instant case, while a sale of personal
property, is not, however, one on installments, but on
straight term, in which the balance, after payment of
the initial sum, should be paid in its totality at the time
specified in the promissory note. The transaction is
not, therefore, the one contemplated in Act No. 4122
and accordingly the mortgagee is not bound by the
prohibition therein contained as to the right to the
recovery of the unpaid balance.
The suggestion that the cash payment made in this
case should be considered as an installment in order
to bring the contract sued upon under the operation of
the law, is completely untenable. A cash payment
cannot be considered as a payment by installment,
and even if it can be so considered, still the law does
not apply, for it requires non-payment of two or more
installments in order that its provisions may be
invoked. Here, only one installment was unpaid.
Sale of Personal property? Yes.
Why Recto law not applicable? Manner of payment
noh. Not instalment.
The seller sold a car whereby the buyer paid
an initial payment, and issued a promissory note for
the balance payable on or before a specified date,
with stipulated interest. When the buyer failed to pay
the note at its maturity, the seller foreclosed the
mortgage constituted on the car and sold the same at
public auction, which resulted into a deficiency
judgment. When the action was brought to collect on
the deficiency, the buyer sought the application of the
provisions of the then Article 1454-A of the old Civil
Code, and held that the seller could no longer collect
on the balance unpaid.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 14
The Court held that the provisions of the
Recto Law cannot apply to a sale where there is an
initial payment, and the balance payable in the future,
because the same is not a sale on installment but
actually a “straight sale.” Since such a sale is not
covered by the Recto Law, the barring effects of the
law cannot be made to apply, and the seller may
recover the unpaid balance of the purchase price
against the buyer even when the latter shall have lost
by foreclosure the subject matter of the sale.
The Court held that when there is only one
payment to be paid in the future, there is no basis to
apply the Recto Law, since under the language of
then Article 1454-A, the buyer needs to have
defaulted in the payment of two or more installments
to allow the seller to rescind or foreclose on the
chattel mortgage.
DELTA MOTOR SALES CORP. v NIU KIM DUAN
FACTS: Niu Kim Duan purchased from Delta Motors
3 air conditioning units. Niu paid the down payment,
the balance payable in 24 instalments. Title to the
property remained with Delta until the payment of the
full purchase price.
Under the agreement, failure to pay 2monthly
instalments makes the obligation entirely due and
demandable. The units were delivered, Niu failed to
pay. Thus, Delta filed a complaint for Replevin and
applied the installments paid by Niu as rentals.
Niu contends that the contractual stipulations are
unconscionable.
ISSUE: W/N the remedy Delta availed of was
unconscionable
HELD: NO. A stipulation in the contract treating
installments as rentals in case of failure to pay is
VALID — so long as they are not unconscionable.
The provision in this case is reasonable.
An unpaid seller has 3 alternative (not cumulative)
remedies:
(1) to exact fulfilment of the obligation;
(2) to cancel the sale for default in 2
installments; and
(3) to foreclose the chattel mortgage.
If the creditor chooses one remedy, he cannot avail
himself of the other two.
It is not disputed that the plaintiff-appellee had taken
possession of the three air-conditioners, through a
writ of replevin when defendants-appellants refused to
extra-judicially surrender the same. This was done
pursuant to paragraphs 5 and 7 of its Deed of
Conditional Sale when defendants-appellants failed to
pay at least two (2) monthly installments, so much so
that as of January 6, 1977, the total amount they
owed plaintiff-appellee, inclusive of interest, was
P12,920.08. 12 The case plaintiff-appellee filed was
to seek a judicial declaration that it had validly
rescinded the Deed of Conditional Sale.
Clearly, plaintiff-appellee chose the second remedy of
Article 1484 in seeking enforcement of its contract
with defendants-appellants. This is shown from the
fact that the computation of the outstanding account
of defendants-appellants as of October 3, 1977 took
into account "the value of the units repossessed."
Having done so, it is barred from exacting payment
from defendants-appellants of the balance of the price
of the three air-conditioning units which it had already
repossessed.
This is a contract to sell, can Art 1484 be applied?
Yes.
With regard to the amount paid, ibalik pa? No. applied
as rental, not obliged to return. Is this allowed? Yes,
kasi nagamit na rin nila ang aircon for 22 mos. Basis?
Art. 1486. How about the balance? They can’t
recover. Why? Essence of cancellation, diba ibalik -
restitution, so bakit ka pa magcollect, ibinalik na ang
aircon.
What’s the remedy availed of? Cancellation.
Supreme Court said “You can’t have your
cake and eat it too,” but if you have your cake, eat it.
‘Di ba? Bakit di pwedeng kainin?
The Court recognized that “[a] stipulation in a
contract that the instalments paid shall not be
returned to the vendee is valid insofar as the same
may not be unconscionable under the circumstances,”
The Court took pains to show that the treatment of the
forfeited installments as rental is more than justified
by the retention and use of the air-conditioning units
by the buyer for 22 months.
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. In this case “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.
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.
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,
such as when he sends a notice of rescission, or
takes possession of the subject matter of the sale, or
when he files an action for rescission.
TAJANLANGIT v SOUTHERN MOTORS
FACTS: Tajanlangit bought 2 tractors and a thresher
from Southern Motors. They executed a promissory
note in payment thereof; it contained an acceleration
clause. Tajanlang it failed to pay any of the stipulated
installments. Thus, Southern Motors sued him on the
PN. The sheriff levied upon the properties of
Tajanlangit (same machineries) and sold them at a
public auction to satisfy the debt. Southern Motors
now prayed for execution. Tajanlangit sought to annul
the writ of execution — claiming that since Southern
Motors repossessed the machineries (mortgaged), he
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 15
was therefore relieved from liability on the balance of
the purchase price.
ISSUE: W/N Tajanlangit is relieved from his obligation
to pay
HELD: NO. While it is true that the foreclosure on the
chattel mortgage on the thing sold bars further action
for the recovery of the balance of the purchase price,
this does not apply in this case since Southern did not
foreclose on the mortgage but instead sued based on
the PNs exclusively. That being the case, it is not
limited to the proceeds of the sale on execution of the
mortgaged goods and may claim the balance from
Tajanlangit.
Remedy here is exacting payment. Nalevy ang
property ng spouses including the tractors. But take
note, this is not foreclosure sale but rather an
execution sale. Do not confuse the two. Art. 1484
refers to foreclosure sale. Why is this important, kasi if
foreclosure and highest bid is not enough to cover the
price, seller can no longer sue for the balance. But
here, they can still recover because execution sale
eh.
Court held that although the subject matter of the sale
on installment was mortgaged to secure the note
issued to the seller for the balance of the purchase
price, where the seller actually chose to collect on the
note and did not seek foreclosure of the mortgage,
and although the execution of the judgment resulted
in the levy on execution and eventual sale at public
auction of the very subject matter of the sale,
nevertheless, the barring effect of foreclosure cannot
be applied, and the seller had every right to recover
on the unpaid balance of the purchase price from the
buyer. The Court held: “[The seller] had a right to
select among the three remedies established in
Article 1484. In choosing to sue on the note, it was
not thereby limited to the proceeds of the sale, on
execution, of the mortgaged good.”
ELISCO TOOL MANUFACTURING vs. COURT OF
APPEALS, ROLANDO AND RINA LANTAN
G.R. No. 109966
May 31, 1999
FACTS: Private respondent Rolando Lantan was
employed at the Elisco Tool Mfg. Corp. On Jan. 1980,
he entered into a car plan with the company, which
constitutes a lease with option to buy for a period of 5
years. The agreement provides that Lantan shall pay
a monthly rental of P 1010.65 to be deducted from his
salary or a total of P60, 639.00 at the end of 5 years.
The agreement provides that at the 60th month of
payment he may exercise his option to buy and all
monthly rentals shall be applied to the payment of the
full purchase price of the car. In 1981 Elisco Tool
ceased operations, and Rolando Lantan was laid off.
Nonetheless, as of December 4, 1984, private
respondent was able to make payments for the car in
the total amount of P61, 070.94.
On 1986 Elisco filed a complaint for replevin plus sum
of money against Rolando Lantan for the latter‘s
alleged failure to pay the monthly rentals as of May
1986. Elisco prayed for the following:
1. The payment of Lantan of the sum of the monthly
rentals due as of May 1986 plus legal interest;
2. The issuance of writ of replevin to gain possession
of the car; and
3. On the alternative, should the delivery of the car
not be possible, that Lantan be ordered to pay the
actual value of the car in the amount of 60,000 plus
the accrued monthly rentals thereof with interest until
fully paid. 
Both the trial court and the CA decided in
favor of Lantan, declaring the latter the lawful owner
of the car and sentencing Elisco to pay for actual
damages caused to the private respondents, thus this
petition.
ISSUE: WON the lease with option to buy is in reality
an installment sale so as to apply the Recto Law
under Art. 1484.
WON Elisco is entitled to any of the remedies under
Art. 1484.
HELD:
1. Yes.
The agreement between Elisco and the Lantans is in
reality an installment sale of personal property.
However, the remedies under Article 1484 are
alternative, not cumulative.
2. No.
There was already full payment. In the case at bar,
although the agreement provides for the payment of
monthly rentals, it also provides the option to
purchase upon the payment of the 60th monthly rental
and that all monthly rentals shall be applied to the
payment of the full purchase price of the car. Clearly
the transaction is a lease in name only and so Articles
1484 and 1485 apply.
It is noteworthy that the remedies provided for in Art.
1484 are alternative, not cumulative. The exercise of
one bars the exercise of the others. It was held that in
choosing to deprive the defendant of possession of
the leased vehicles, the plaintiff waived its right to
bring an action to recover unpaid rentals on the said
vehicles.
Furthermore, both the trial court and the CA correctly
ruled that Elisco is not entitled to any of the remedies
under Art. 1484 as there has already been full
payment.
The agreement does not provide for the payment of
interest on unpaid monthly "rentals" or installments.
The 2% surcharge is not provided for in the
agreement. Consequently, the total amount of P 61,
070.94 already paid is more than sufficient to cover
the full purchase price of the car which only amounts
to P 60, 639.
Is Recto Law applicable? Yes Art 1485
What was the remedy availed of? Specific
performance
This is a contract of lease. But still Art 1484 is
applicable pursuant to 1485. Replevin is only for the
purpose of ensuring specific performance.
Court held that under a purported contract of lease
with option to purchase which is covered under
Articles 1484 and 1485, the condition that the lessor
has deprived the lessee of possession or enjoyment
of the thing for the purpose of applying Article 1485
which would be fulfi lled by the fi ling by the lessor of
a complaint for replevin to recover possession of
movable property and its enforcement by the sheriff,
and barred all action to recover any amount from the
lessee. However, the Court also held that if the main
purpose for seeking recovery of the personal property
under a writ of replevin was merely to ensure
enforcement of the remedy of specifi c performance
under Article 1484(1), there would be no barring effect
by reason of the enforcement of the writ. Therefore,
not every deprivation of possession would result in
producing the barring effect under Article 1485 of the
Civil
Code.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 16
Attendance: Glemarie? Wala? She has been absent
for the last three meetings. (Glem! Sulod pud maski
once a week lang. ehehe)
September 28, 2015
Okay so we are already done with the Recto Law,
under Art 1484. And in relation thereto we also have
Art 1385 and 1386. Under the Recto Law, we have
there the 3 alternative remedies, applicable to the
contracts of sale of personal property in installments.
E. Remedies in Case of Immovables
So how about remedies in the case of immovables?
So we have already made mentioned of some
remedies.
Recall Art 1591:
Art. 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. (1503)
We have discussed that under the said article, where
there is anticipatory breach, if the seller has
reasonable grounds to fear the loss of the immovable
property sold and its price, he may immediately sue
for the rescission of the sale. (1)
And then, for non-payment of the price of the buyer,
we also have under Art 1191, the power to rescind.
(2)
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
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. (1124)
Now in case of real properties, remedies available to
the buyer, we have also discussed under the
Condominium Act, the buyer may suspend payment if
the real estate developer fails to comply with the
obligations according to the approved plan, or the
buyer may even demand for rescission. (3)
In Case of Subdivision or Condominium Projects
(*BOOK): Sections 23 and 24 of Pres. Decree 957,
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.
Notice Required under Section 23 of P.D. 957:
Section 23 of Pres. Decree 957 does not require
that a notice be given first by the buyer to the
seller before a demand for refund can be made as
the notice and demand can be made in the same
letter or communication.
And then we also have the remedy provided in Art
1592. (4)
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.
(1504a)
Remember, 1592, the requirement for rescission,
demand for a notarial act or a judicial act but it is
solely applicable to a contract of sale and not to a
contract to sell.
F. Sale of Real Estate on Installments- RA 6552
Now if we have the Recto Law, for sale of personal
properties in installment, then we also have the
Maceda Law for sale of real estate properties in
installment.
So the Maceda Law is RA 6552.
REPUBLIC ACT No. 6552
AN ACT TO PROVIDE PROTECTION TO BUYERS
OF REAL ESTATE ON INSTALLMENT PAYMENTS.
(Rep. Act No. 6552)
Section 1. This Act shall be known as the "Realty
Installment Buyer Act."
Section 2. It is hereby declared a public policy to
protect buyers of real estate on installment
payments against onerous and oppressive
conditions.
Section 3. In all transactions or contracts
involving the sale or financing of real estate on
installment payments, including residential
condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants
under Republic Act Numbered Thirty-eight
hundred forty-four, as amended by Republic Act
Numbered Sixty-three hundred eighty-nine, where
the buyer has paid at least two years of
installments, the buyer is entitled to the following
rights in case he defaults in the payment of
succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period
earned by him which is hereby fixed at the rate of
one month grace period for every one year of
installment payments made: Provided, That this
right shall be exercised by the buyer only once in
every five years of the life of the contract and its
extensions, if any.
(b) If the contract is canceled, the seller shall
refund to the buyer the cash surrender value of
the payments on the property equivalent to fifty
per cent of the total payments made, and, after
five years of installments, an additional five per
cent every year but not to exceed ninety per cent
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 17
of the total payments made: Provided, That the
actual cancellation of the contract shall take place
after thirty days from receipt by the buyer of the
notice of cancellation or the demand for
rescission of the contract by a notarial act and
upon full payment of the cash surrender value to
the buyer.
Down payments, deposits or options on the
contract shall be included in the computation of
the total number of installment payments made.
Section 4. In case where less than two years of
installments were paid, the seller shall give the
buyer a grace period of not less than sixty 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 days from receipt
by the buyer of the notice of cancellation or the
demand for rescission of the contract by a
notarial act.
Section 5. Under Section 3 and 4, the buyer shall
have the right 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 or assignment shall be done by
notarial act.
Section 6. The buyer shall have the right 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.
Section 7. Any stipulation in any contract
hereafter entered into contrary to the provisions
of Sections 3, 4, 5 and 6, shall be null and void.
Section 8. If any provision of this Act is held
invalid or unconstitutional, no other provision
shall be affected thereby.
Section 9. This Act shall take effect upon its
approval.
Approved: August 26, 1972.
Under sec 2 thereof you have the purpose: for public
policy, to protect the buyers of real estate in
installment payments against onerous and oppressive
conditions. So it is known as The Sale Of Real Estate
On Installment or also known as the Realty
Installment Buyer Act.
We have the case of Valarao.
ABELARDO VALARAO, GLORIOSA VALARAO,
CARLOS VALARAO vs. COURT OF APPEALS
AND MEDEN ARELLANO
G.R. No. 130347
March 3, 1999
FACTS: Spouses Valarao, thru their son, Carlos, sold
to Arellano a parcel of land situated in Diliman,
Quezon City for the sum of 3.225 M embodied under
a Deed of Conditional Sale.
It was further stipulated upon that should Arellano fail
to pay three (3) successive monthly installments or
any one year-end lump sum payment within the
period stipulated, the sale shall be considered
automatically rescinded without the necessity of
judicial action and all payments made by Arellano
shall be forfeited in favor of the spouses by way of
rental for the use and occupancy of the property and
as liquidated damages. All improvements introduced
by Arellano to the property shall belong to the
spouses without any right of reimbursement.
Arellano alleged that as of September 1990 he was
already able to pay the sum of 2.028 M although she
admitted that she failed to pay for the installments due
in October and November 1990. Arellano tried to pay
but was turned down by the spouses thru their maid.
Arellano avers that the same maid was the on who
received payments tendered by her. It appears that
the maid refused to receive the payment allegedly on
orders of her employees who were not at home. This
prompted Arellano to seek the help of barangay
officials. Efforts to settle before the barangay was
unavailing, as the spouses never appeared in
meetings.
Arellano sought judicial action by filing a petition for
consignation on January 4, 1991.
Spouses Valarao, thru counsel, sent Arellano a letter
dated 4 January 1991 notifying her that they were
enforcing the provision on automatic rescission as a
consequence of which the Deed of Conditional Sale
was deemed null and void, and xxx all payments
made, as well as the improvements introduced on the
property, were thereby forfeited. The letter also made
a formal demand on Arellano to vacate the property
should she not heed the demand of the spouses to
sign a contract of lease for her continued stay in the
property.
The RTC ruled against Arellano but the Court of
Appeals reversed the decision of the trial court hence
this petition.
ISSUE:
1. WON the automatic forfeiture clause is
enforceable.
2. WON RA 6552 is applicable.
HELD:
1. Yes. As a general rule, a contract is the law
between the parties. Thus, "from the moment the
contract is perfected, the parties are bound not only to
the fulfillment of what has been expressly stipulated
but also to all consequences which, according to their
nature, may be in keeping with good faith, usage and
law." Also, "the stipulations of the contract being the
law between the parties, courts have no alternative
but to enforce them as they were agreed [upon] and
written, there being no law or public policy against the
stipulated forfeiture of payments already
made." However, it must be shown that Arellano failed
to perform her obligation, thereby giving spouses the
right to demand the enforcement of the contract.
We concede the validity of the automatic forfeiture
clause, which deems any previous payments forfeited
and the contract automatically rescinded upon the
failure of the vendee to pay three successive monthly
installments or any one-yearend lump sum payment.
However, the spouses failed to prove the conditions
that would warrant the implementation of this clause.
Based on the facts of the case, the spouses were not
justified in refusing the tender of payment made by
Arellano. Had the spouses accepted the payment,
she would have paid all three monthly installments. In
other words, there was no deliberate failure on
Arellano’s part to meet her responsibility to pay.
2. Yes. Sec. 3, RA 6552 provides:
Sec. 3. In all transactions or contracts involving the
sale or financing of real estate on installment
payments, including residential condominium
apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 18
Numbered Thirty-eight hundred Forty-four as
amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at
least two years of installments, the buyer is entitled to
the following rights in case he defaults in the payment
of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned
by him, which is hereby fixed at the rate of one month
grace period for every year of installment payments
made: Provided, That this right shall be exercised by
the buyer only once in every five years of the life of
the contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund
to the buyer the cash surrender value on the
payments on the property equivalent to fifty percent of
the total payments made and, after five years of
installments, an additional five percent every year but
not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the
contract shall take place after thirty days from receipt
by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to
the buyer.
Down payments, deposits or options on the contract
shall be included in the computation of the total
number of installments made.
Therefore, Arellano is entitled to a one-month grace
period for every year of installment paid, which means
that she had a total grace period of three months from
December 31, 1990. Indeed, to rule in favor of the
spouses would result in patent injustice and unjust
enrichment.
Q: Was there an action here for consignation?
 What happens in consignation? What’s the
purpose? Effect? – Extinguish obligation as a
special form of payment, so if with the tender of
payment, which was refused and considered
valid, the remedy available was to consign so
that the obligation will be extinguished. But what
did the petitioner do here? They filed an action to
enforce the automatic rescission, so what was
the ruling of SC?
 So is the Maceda Law applicable? What is the
effect of the application? – Yes.
 Can we not apply article 1592? No. Contract here
is a contract to sell, 1592 only applies to
contracts of sale.
D: So notice here we have the Maceda Law
applicable to contracts of sale of real properties in
installment. But likewise the contract in this case is
denominated as a deed of conditional sale but the
same was regarded as a contract to sell based on
their agreement. So what can we deduce from that?
That the Maceda Law is likewise applicable to
contracts to sell of real property in installment, not just
to contracts of sale.
So you distinguish this with regard to the application
of 1592 because 1592 applies only a contract of sale.
Now since the Maceda Law is applicable, it was held
that the private respondent was entitled to a one-
month grace period for every year of installment paid,
which means that she had a total grace period of
three months, so therefore they could still pay, not
withstanding the automatic rescission provision in
their contract.
Now do also take note as to the sales that are
covered under the Maceda Law. So under sec 3
thereof, sale or financing of real estate on installment
payments, including residential condominium
apartments but excluding industrial lots, commercial
buildings and sales to tenants.
Now section 3 governs the instance wherein the
buyer has paid at least two years of installment, while
section 4 provides for instances wherein the buyer
has paid for less than 2 years of installment.
Under Section 3, where the buyer has paid at least
two years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of
succeeding installments:
(a) To pay, without additional interest, the
unpaid installments due within the total grace
period earned by him which is hereby fixed
at the rate of one month grace period for
every one year of installment payments
made: Provided, That this right shall be
exercised by the buyer only once in every
five years of the life of the contract and its
extensions, if any. – “so this was the
provision that was applied in Valarao.”
(b) If the contract is canceled, the seller shall
refund to the buyer the cash surrender value
of the payments on the property equivalent
to fifty per cent of the total payments made,
and, after five years of installments, an
additional five per cent every year but not to
exceed ninety per cent of the total payments
made: Provided, That the actual cancellation
of the contract shall take place after thirty
days from receipt by the buyer of the notice
of cancellation or the demand for rescission
of the contract by a notarial act and upon full
payment of the cash surrender value to the
buyer.
So we also have here the case of Garcia.
SPOUSES GARCIA, SPOUSES vs. COURT OF
APPEALS
G.R. No. 172036 April 23, 2010
FACTS: On May 28, 1993, plaintiffs spouses Faustino
and Josefina Garcia and spouses Meliton and Helen
Galvez (herein appellees) and defendant Emerlita
dela Cruz (herein appellant) entered into a Contract to
Sell wherein the latter agreed to sell to the former, for
P3,170,220.00, five (5) parcels of land. At the time of
the execution of the said contract, three of the subject
lots, were registered in the name of one Angel
Abelida from whom defendant allegedly acquired said
properties by virtue of a Deed of Absolute Sale dated
March 31, 1989.
As agreed upon, plaintiffs shall make a down payment
of P500,000.00 upon signing of the contract. The
balance of P2,670,220.00 shall be paid in three
installments.
On its due date, December 31, 1993, plaintiffs failed
to pay the last installment in the amount of One
P1,670,220.00. Sometime in July 1995, plaintiffs
offered to pay the unpaid balance, which had already
been delayed by one and a half year, which
defendant refused to accept. On September 23, 1995,
defendant sold the same parcels of land to intervenor
Diogenes G. Bartolome for P7,793,000.00.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 19
Plaintiffs filed before the RTC a complaint for specific
performance to compel defendant to accept plaintiffs’
payment and, thereafter, execute the necessary
document of transfer.
In their complaint, plaintiffs alleged that they
discovered the infirmity of the Deed of Absolute Sale
covering those 3 lots, between their former owner
Angel Abelida and defendant, the same being
spurious because the signature of Angel Abelida and
his wife were falsified. Due to their apprehension
regarding the authenticity of the document, they
withheld payment of the last installment. They
tendered payment of the unpaid balance sometime in
July 1995, after Angel Abelida ratified the sale made
in favor of defendant, but defendant refused to accept
their payment for no jusitifiable reason.
In her answer, defendant denied the allegation that
the Deed of Absolute Sale was spurious and argued
that plaintiffs failed to pay in full the agreed purchase
price on its due date despite repeated demands; that
the Contract to Sell contains a proviso that failure of
plaintiffs to pay the purchase price in full shall cause
the rescission of the contract and forfeiture of 1/2 of
the total amount paid to defendant; that a notarized
letter stating the indended rescission of the contract to
sell and forfeiture of payments was sent to plaintiffs at
their last known address but it was returned with a
notation "insufficient address."
ISSUE: Whether or not Maceda Law is applicable in
this case.
HELD: No. Not applicable. It is clear from the above-
quoted provisions that the parties intended their
agreement to be a Contract to Sell: Dela Cruz retains
ownership of the subject lands and does not have the
obligation to execute a Deed of Absolute Sale until
petitioners’ payment of the full purchase price.
The Maceda Law applies to contracts of sale of real
estate on installment payments, including residential
condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants. The
subject lands, comprising five (5) parcels and
aggregating 69,028 square meters, do not comprise
residential real estate within the contemplation of the
Maceda Law. Moreover, even if we apply the Maceda
Law to the present case, petitioners’ offer of payment
to Dela Cruz was made a year and a half after the
stipulated date. This is beyond the sixty-day grace
period under Section 4 of the Maceda
Law. Petitioners still cannot use the second sentence
of Section 4 of the Maceda Law against Dela Cruz for
Dela Cruz’s alleged failure to give an effective notice
of cancellation or demand for rescission because
Dela Cruz merely sent the notice to the address
supplied by petitioners in the Contract to Sell.
The applicable provision of law in instant case is
Article 1191 of the New Civil Code which provides as
follows:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
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.
Q: So what is the nature of the contract here? –
Contract to sell
 Can we apply the Maceda Law? – No.
 Why? - The subject lands do not comprise
residential real estate within the contemplation of
the Maceda Law.
 So was there breach on the part of Dela Cruz
when she sold the property to another person? –
No.
 Is 1191 applicable to contracts of sell? – No.
Rescission not available in Contracts to sell.
Here, no right to demand the execution of the
deed of absolute sale since the buyers have
failed to pay within the period provided. So
ownership was never transferred so therefore
they could validly disagree without any breach of
the obligation.
D: So here we have a contract to sell but the Maceda
Law is not applicable because again, under sec 3, it
only applies to sale or financing of real estate on
installment payments, including residential
condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants. The
subject lands do not comprise residential real estate
within the contemplation of the Maceda
Law. Moreover, even if we apply the Maceda Law to
the present case, petitioners’ offer of payment to Dela
Cruz was made a year and a half after the stipulated
date. This is beyond the sixty-day grace period under
Section 4 of the Maceda Law.
However, also take note here, there was no notice to
rescind.
How about in the case of Pagtalunan?
PAGTALUNAN vs. VDA. DE MANZANO
G.R. No. 147695 September 13, 2007
FACTS: On July 19, 1974, Patricio Pagtalunan
(Patricio), petitioner’s stepfather and predecessor-in-
interest, entered into a Contract to Sell with
respondent Rufina dela Cruz Vda. De Manzano,
whereby the former agreed to sell, and the latter to
buy, a house and lot which formed half of a parcel of
land for a consideration of P17,800. The parties
agreed that it shall be paid in the following
manner: P1,500 as downpayment upon execution of
the Contract to Sell, and the balance to be paid in
equal monthly installments of P150 on or before the
last day of each month until fully paid.
It was also stipulated in the contract that respondent
could immediately occupy the house and lot; that in
case of default in the payment of any of the
installments for 90 days after its due date, the
contract would be automatically rescinded without
need of judicial declaration, and that all payments
made and all improvements done on the premises by
respondent would be considered as rentals for the
use and occupation of the property or payment for
damages suffered, and respondent was obliged to
peacefully vacate the premises and deliver the
possession thereof to the vendor.
Petitioner claimed that respondent paid only P12,950.
She allegedly stopped paying after December 1979
without any justification or explanation. Petitioner
asserted that when respondent ceased paying her
installments, her status of buyer was automatically
transformed to that of a lessee. Therefore, she
continued to possess the property by mere tolerance
of Patricio and, subsequently, of petitioner.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 20
Respondent did not deny that she still owed
Patricio P5,650, but claimed that she did not resume
paying her monthly installment because of the
unlawful acts committed by Patricio, as well as the
filing of the ejectment case against her.
Patricio and his wife died on September 17, 1992 and
on October 17, 1994, respectively. Petitioner became
their sole successor-in-interest pursuant to a waiver
by the other heirs. On March 5, 1997, respondent
received a letter from petitioner’s counsel dated
February 24, 1997 demanding that she vacate the
premises within five days on the ground that her
possession had become unlawful. Respondent
ignored the demand. The Punong Barangayfailed to
settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for
unlawful detainer against respondent.
ISSUE: Whether or not the cancellation of the
contract complied with what is required under the
Maceda law.
HELD: No. R.A. No. 6552, otherwise known as the
"Realty Installment Buyer Protection Act," recognizes
in conditional sales of all kinds of real estate
(industrial, commercial, 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 vendor to convey title
from acquiring binding force. The Court agrees with
petitioner that the cancellation of the Contract to Sell
may be done outside the court particularly when the
buyer agrees to such cancellation.
However, the cancellation of the contract by the seller
must be in accordance with Sec. 3 (b) of R.A. No.
6552, which requires a notarial act of rescission and
the refund to the buyer of the full payment of the cash
surrender value of the payments on the property.
Actual cancellation of the contract takes place after 30
days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the
cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell
was not validly cancelled or rescinded under Sec. 3
(b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died
on September 17, 1992 without canceling the
Contract to Sell.
Second, petitioner also failed to cancel the Contract to
Sell in accordance with law.
Petitioner contends that that his demand letter dated
February 24, 1997 should be considered as the notice
of cancellation or demand for rescission by notarial
act.
The Court, however, finds that the letter dated
February 24, 1997, which was written by petitioner’s
counsel, merely made formal demand upon
respondent to vacate the premises in question.
Clearly, the demand letter is not the same as the
notice of cancellation or demand for rescission by a
notarial act required by R.A No. 6552. Petitioner
cannot rely on Layug v. Intermediate Appellate
Court to support his contention that the demand letter
was sufficient compliance since the seller therein
filed an action for annulment of contract, which is a
kindred concept of rescission by notarial
act. Evidently, the case of unlawful detainer filed by
petitioner does not exempt him from complying with
the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires
refund of the cash surrender value of the payments
on the property to the buyer before cancellation of the
contract. The provision does not provide a different
requirement for contracts to sell which allow
possession of the property by the buyer upon
execution of the contract like the instant case. Hence,
petitioner cannot insist on compliance with the
requirement by assuming that the cash surrender
value payable to the buyer had been applied to
rentals of the property after respondent failed to pay
the installments due.
There being no valid cancellation of the Contract to
Sell, the CA correctly recognized respondent’s right to
continue occupying the property subject of the
Contract to Sell and affirmed the dismissal of the
unlawful detainer case by the RTC.
SC DISPOSITION: Considering that the Contract to
Sell was not cancelled by the vendor, the Court
agrees with the CA that it is only right and just to allow
respondent to pay her arrears and settle the balance
of the purchase price.
Q: Do we have a contract to sell or contract of sale?
- Contract to sell.
 Is the Maceda Law applicable? – Yes.
 Effect? – It cancels the Contract to sell.
 Automatic? – No.
 What is the requirement under Maceda Law for
cancellation of contracts where the same is
applicable? – Twin requirements: notice of
cancellation or demand for rescission by a
notarial act; and refund of the cash surrender
value of the payments on the property to the
buyer before cancellation of the contract. So in
here, no valid cancellation.
D: Applying the Maceda Law, for the cancellation of
the contract, the requirements are: the notarial act of
rescission and refund of the cash surrender value of
the payments on the property. Actual cancellation of
the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value
to the buyer.
In this case, there was no demand in compliance with
the Maceda Law. The letter purported to be a demand
is not the one contemplated under the Maceda Law. It
is not the same as the notice of cancellation because
what was provided herein is, in-indicate lang "long
ceased to have any right to possess the premises x x
x due to [her] failure to pay without justifiable cause
the installment payments x x x."
Now assuming it could be considered as a demand
required under the Maceda Law, there was still no
refund of the cash surrender value. So again, even if
it is a Contract to Sell, the Maceda Law is applicable.
So no cancellation took place here, continue to
occupy but bound to payment of arrears.
Take note of the distinction here, as to the 2
remedies. The first thing that we should take note of
is, again, if the Maceda Law is applicable. And if it is
applicable, whether the buyer has paid at least 2
annual installments or less than 2 annual installments.
In Sec 4, less than 2 installments, option 1: grace
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 21
period of not less than sixty days is given.
Or if no payment is made within the grace period, the
sale may be cancelled within 30 days from receipt of
cancellation or notice of cancellation.
If there has been payment for 2 or more annual
installments, the buyer may pay without interest,
within the grace period. However the grace period can
only be exercised once every 5 years. And take note,
the grace period is 1 month for every one year of
installment payments made.
However, if the contracts need to be cancelled, aside
from the notice, there must be the refund of the cash
surrender value, five per cent every year but not to
exceed ninety per cent of the total payments made.
So let us say the total installment that was already
paid by the buyer is 400k for 4 years. How much is
the cash surrender value? 200k. Now what if the total
installment made is 600k and payment has already
been for 6 annual installment. How much is the cash
surrender value? So for the first 5 years, 50%. Plus
5% for every year. So kung 6 years, 55% ng 600k.
Hanggang maabot sya but only up to 90% of the
installment made. Like for example long term talaga
yung contract.
Of course no computation in our exam. And I doubt
this will be asked in the bar, but just take note, para
lang ma-envision ninyo ang applicability nito.
Now the case of Planters.
G.R. NO. 195619, SEPTEMBER 5, 2012
PLANTERS DEVELOPMENT BANK, VS JULIE
CHANDUMAL
FACTS: BF Homes and Julie Chandumal entered into
a contract to sell a parcel of land located in Las Pinas.
Later, BF Homes sold to PDB all its rights over the
contract.
Chandumal paid her monthly amortizations until she
defaulted in her payments. So, PDB sent a notice to
Chandumal with a demand to vacate the land within
30days, otherwise all of her rights will be extinguished
and the contract will be terminated and deemed
rescinded. In spite of the demand, Chandumal failed
to settle her account.
PDB filed an action for judicial confirmation of notarial
rescission and delivery of possession but still
Chandumal refused to do so. Summons were then
issued and served by deputy sheriff Galing but its was
unavailing as she was always out of her house on the
dates the summons were served.
RTC then issued an order granting the motion of
PDB. Chandumal filed an urgent motion to set aside
order of default and to admit attached answer.
Chandumal said that she did not receive the
summons and was not notified of the same and her
failure to file an answer within the reglementary period
was due to fraud. RTC denied Chandumal’s motion to
set aside the order of default.
Chandumal appealed to the CA. CA nullified the
RTC’s decision.
ISSUE:
(1) Whether there was valid substituted service of
summons?
(2) Whether Chandumal voluntarily submitted to the
jurisdiction of the RTC?
(3) Whether there was proper rescission by notarial
act of the contract to sell?
HELD:
(1) Correctly ruled that the sheriff’s return failed to
justify a resort to substituted service of summons.
According to the CA, the Return of Summons does
not specifically show or indicate in detail the actual
exertion of efforts or any positive step taken by the
officer or process server in attempting to serve the
summons personally to the defendant.
(2) The Court notes that aside from the allegation that
she did not receive any summons, Chandumal’s
motion to set aside order of default and to admit
attached answer failed to positively assert the trial
court lack of jurisdiction. In fact, what was set forth
therein was the substantial claim that PDB failed to
comply with the requirements of R.A. No. 6552 on
payment of cash surrender value, which already
delves into the merits of PDB’s cause of action. In
addition, Chandumal even appealed the RTC decision
to the CA, an act which demonstrates her recognition
of the trial court’s jurisdiction to render said judgment.
(3) R.A. No. 6552 recognizes the right of the seller to
cancel the contract but any such cancellation must be
done in conformity with the requirements therein
prescribed. 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. The
actual cancellation of the contract can only be
deemed to take place upon the expiry of a thirty (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.
Petition is denied.
Q: Was there a notarial demand? – No.
 How about the allegation of Planters here that
they tried to give the cash surrender value but
they cannot find Chandumal anymore? – Such is
not enough.
 So let us say there is a valid demand for
rescission, would it not be unfair to the seller, na
hindi na nya makita si buyer so di na nya
mabigay yung cash surrender value, so hindi na
sya maka rescind? Assuming that it was true that
Chandumal was located out of the country for a
period of time? What is the proper step that
Planters should have done para macomply nila
yung requirement under Maceda Law? –
Consignation. This is another instance when the
debtor cannot pay the creditor because
Chandumal here, with respect to the cash
surrender value, he is the creditor. If he cannot
be located anymore then consignation is a valid
course of action for the seller to take otherwise it
would be prejudicial to the seller na maghintay
sila forever for the rescission of the contract.
D: Again, twin requirements: Twin requirements:
notice of cancellation or demand for rescission by a
notarial act; and refund of the cash surrender value of
the payments on the property to the buyer before
cancellation of the contract. And the actual
cancellation of the contract to take place after thirty
days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the
cash surrender value to the buyer.
In this case there was failure to give the full payment
of the cash surrender value. The fact that Chandumal
was unavailable for such purpose is not sufficient,
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 22
because again the proper action was for the bank to
consign the amount. The allegation that Chandumal
made herself unavailable for payment is not an
excuse as the twin requirements for a valid and
effective cancellation under the law, i.e., notice of
cancellation or demand for rescission by a notarial act
and the full payment of the cash surrender value, is
MANDATORY. There was no valid rescission of the
contract to sell by notarial act undertaken by PDB and
the RTC should not have given judicial confirmation
over the same.
OPTIMUM DEVELOPMENT BANK vs. SPOUSES
BENIGNO V. JOVELLANOS and LOURDES R.
JOVELLANOS
G.R. No. 189145 December 4, 2013
FACTS: On April 26, 2005, Sps. Jovellanos entered
6
into a Contract to Sell with Palmera Homes, Inc.
(Palmera Homes) for the purchase of a residential
house and lot situated in Block 3, Lot 14, Villa Alegria
Subdivision, Caloocan City (subject property) for a
total consideration of P1,015,000.00. Pursuant to the
contract, Sps. Jovellanos took possession of the
subject property upon a down payment
of P91,500.00, undertaking to pay the remaining
balance of the contract price in equal monthly
installments of P13,107.00 for a period of 10 years
starting June 12, 2005.
On August 22, 2006, Palmera Homes assigned all its
rights, title and interest in the Contract to Sell in favor
of petitioner Optimum Development Bank (Optimum)
through a Deed of Assignment of even date.
On April 10, 2006, Optimum issued a Notice of
Delinquency and Cancellation of Contract to Sell for
Sps. Jovellanos’s failure to pay their monthly
installments despite several written and verbal
notices.
In a final Demand Letter dated May 25,
2006, Optimum required Sps. Jovellanos to vacate
and deliver possession of the subject property within
seven (7) days which, however, remained unheeded.
Hence, Optimum filed, on November 3, 2006, a
complaint for unlawful detainer before the MeTC,
docketed as Civil Case No. 06-28830. Despite having
been served with summons, together with a copy of
the complaint, Sps. Jovellanos failed to file their
answer within the prescribed reglementary period,
thus prompting Optimum to move for the rendition of
judgment.
Thereafter, Sps. Jovellanos filed their opposition with
motion to admit answer, questioning the jurisdiction of
the court, among others. Further, they filed a Motion
to Reopen and Set the Case for Preliminary
Conference, which the MeTC denied.
ISSUE: W/N there was a valid and effective
cancellation of the Contract to Sell in accordance with
Section 4 of RA 6552
RULING: YES. Verily, in a contract to sell, the
prospective seller binds himself to sell the property
subject of the agreement exclusively to the
prospective buyer upon fulfillment of the condition
agreed upon which is the full payment of the purchase
price but reserving to himself the ownership of the
subject property despite delivery thereof to the
prospective buyer.The full payment of the purchase
price in a contract to sell is a suspensive condition,
the non-fulfillment of which prevents the prospective
seller’s obligation to convey title from becoming
effective, as in this case.
Further, it is significant to note that given that the
Contract to Sell in this case is one which has for its
object real property to be sold on an installment basis,
the said contract is especially governed by — and
thus, must be examined under the provisions of — RA
6552, or the “Realty Installment Buyer Protection Act”,
which provides for the rights of the buyer in case of
his default in the payment of succeeding instalments.
Given the nature of the contract of the parties, the
respondent court correctly applied Republic Act No.
6552. Known as the Maceda Law, R.A. No. 6552
recognizes in conditional sales of all kinds of real
estate (industrial, commercial, 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 vendor to convey
title from acquiring binding force. It also provides the
right of the buyer on installments in case he defaults
in the payment of succeeding installments, viz.:
(1) Where he has paid at least two years of
installments,
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned
by him, which is hereby fixed at the rate of one month
grace period for every one year of installment
payments made:
Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the
contract and its extensions, if any. (b) If the contract is
cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property
equivalent to fifty per cent of the total payments made
and, after five years of installments, an additional five
per cent every year but not to exceed ninety per cent
of the total payments made:
Provided, That the actual cancellation of the contract
shall take place after cancellation or the demand for
rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract
shall be included in the computation of the total
number of installments made.
(2) Where he has paid less than two years in
installments, Sec. 4. x x x the seller shall give the
buyer a grace period of not less than sixty 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 days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the
contract by a notarial act. (Emphasis and
underscoring supplied)
Pertinently, since Sps. Jovellanos failed to pay their
stipulated monthly installments as found by the
MeTC, the Court examines Optimum’s compliance
with Section 4 of RA 6552, as above-quoted and
highlighted, which is the provision applicable to
buyers who have paid less than two (2) years-worth of
installments. Essentially, the said provision provides
for three (3) requisites before the seller may actually
cancel the subject contract: first, the seller shall give
the buyer a 60-day grace period to be reckoned from
the date the installment became due; second, the
seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if
the buyer fails to pay the installments due at the
expiration of the said grace period; and third, the
seller may actually cancel the contract only after thirty
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 23
(30) days from the buyer’s receipt of the said notice of
cancellation/demand for rescission by notarial act.
In the present case, the 60-day grace period
automatically operated in favor of the buyers, Sps.
Jovellanos, and took effect from the time that the
maturity dates of the installment payments lapsed.
With the said grace period having expired bereft of
any installment payment on the part of Sps.
Jovellanos, Optimum then issued a notarized Notice
of Delinquency and Cancellation of Contract on April
10, 2006. Finally, in proceeding with the actual
cancellation of the contract to sell, Optimum gave
Sps. Jovellanos an additional thirty (30) days within
which to settle their arrears and reinstate the contract,
or sell or assign their rights to another.
It was only after the expiration of the thirty day (30)
period did Optimum treat the contract to sell as
effectively cancelled – making as it did a final demand
upon Sps. Jovellanos to vacate the subject property
only on May 25, 2006. Thus, based on the foregoing,
the Court finds that there was a valid and effective
cancellation of the Contract to Sell in accordance with
Section 4 of RA 6552 and since Sps. Jovellanos had
already lost their right to retain possession of the
subject property as a consequence of such
cancellation, their refusal to vacate and turn over
possession to Optimum makes out a valid case for
unlawful detainer as properly adjudged by the MeTC.
Q: How is the Maceda Law related to the issue of
jurisdiction? Is the Maceda Law applicable here? –
Yes. The authority granted to the MeTC to
preliminarily resolve the issue of ownership to
determine the issue of possession ultimately allows it
to interpret and enforce the contract or agreement
between the plaintiff and the defendant. To deny the
MeTC jurisdiction over a complaint merely because
the issue of possession requires the interpretation of
a contract will effectively rule out unlawful detainer as
a remedy.
 How is sec 4 different from sec 3?
 In this case was there a valid rescission? – Yes.
It was only after the expiration of the thirty-day
(30) period did Optimum treat the contract to sell
as effectively cancelled – making as it did a final
demand upon Sps. Jovellanos to vacate the
subject property only on May 25, 2006.
 Effect of rescission? – Loss their right to possess,
therefore, the unlawful detainer was proper and
within the jurisdiction of the MeTC.
D: Take note when to apply section 3 and 4 and also
notice the difference.
Sec 4 is only applicable when the buyer failed to pay
less than 2 annual installments. And in sec 4, when
can there be rescission? The seller shall give the
buyer a grace period of not less than sixty 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 days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the
contract by a notarial act.
Notice, walang refund for cash surrender value.
In the present case, the 60-day grace period
automatically operated in favor of the buyers, Sps.
Jovellanos, and took effect from the time that the
maturity dates of the installment payments lapsed.
With the said grace period having expired bereft of
any installment payment on the part of Sps.
Jovellanos, Optimum then issued a notarized Notice
of Delinquency and Cancellation of Contract on April
10, 2006. Finally, in proceeding with the actual
cancellation of the contract to sell, Optimum gave
Sps. Jovellanos an additional thirty (30) days within
which to settle their arrears and reinstate the contract,
or sell or assign their rights to another. It was only
after the expiration of the thirty day (30) period did
Optimum treat the contract to sell as effectively
cancelled – making as it did a final demand upon Sps.
Jovellanos to vacate the subject property only on May
25, 2006. So there was a valid cancellation, Sps.
Jovellanos had already lost their right to retain
possession of the subject property as a consequence
of such cancellation, their refusal to vacate and turn
over possession to Optimum makes out a valid case
for unlawful detainer as properly adjudged by the
MeTC.
Now if you have read the case of DIEGO VS DIEGO,
medyo nasaag sya noh but still related to our previous
discussion because this one is not under Maceda Law
but nevertheless, you have there the discussion with
regard to contracts to sell.
So again, just take note, in Diego, notice you have
here brothers in dispute. So here you have a contract
to sell and then the SC took into consideration the
instances why it was considered a contract to sell,
and it also emphasized that rescission is not available
in contracts to sell. Further the said case also pointed
out that 1592 is not applicable to a contract to sell.
And why is it that Maceda Law is not applicable here?
It appears that there was no provision that it was
between an insolvent. (??)
Notice, anong nakalagay dyan? Fixed at 500k,
downpayment at 250k, and then the payment of
remaining balance of 250k, so it would not be
considered as a real estate sold in installments.
Merely a contract to sell, rescission is not available
strictly speaking. And it was for failure to pay the price
that the contract was terminated. No breach of
contract as there was no obligation to transfer title.
Failure to pay the price is not the breach
contemplated under 1191, rather it is just an event
that prevents petitioner from being bound to convey
title to respondent. Therefore it was erroneous for CA
to fixed the period for the payment of the balance. It
was the obligation of the buyer to remit payment and
not the obligation of seller to compel the buyer to pay.
September 29, 2015
PART VIII: CONDITIONS AND WARRANTIES
Ok, so we now go to the next topic which deals with
conditions and warranties.
Now recall when we enumerated the obligations of
the seller and we added an obligation of the seller not
provided in the article that we have discussed before.
Wherein it was provided that the seller has obviously
the obligation to pass ownership and deliver
possession thereof and in addition thereto, he also
has the obligation to warrant the thing sold.
A. CONDITIONS
Now do not confuse condition from warranty. As you
very well recall from your obligations and contracts,
when you talk about condition, it is a future and
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 24
uncertain event which may or may not happen. Now
in relation to CoS, we already know that a condition
may be absolute or conditional. And also, we must be
able to distinguish a condition which affects the
perfection of the contract or to a condition which
affects the performance of the obligations arising
therefrom. Now in relation to condition, we have
Article 1545.
Art. 1545. Where the obligation of either party to a
contract of sale is subject to any condition which
is not performed, such party may refuse to
proceed with the contract or he may waive
performance of the condition. If the other party
has promised that the condition should happen or
be performed, such first mentioned party may
also treat the nonperformance of the condition as
a breach of warranty.
Where the ownership in the thing has not passed,
the buyer may treat the fulfillment by the seller of
his obligation to deliver the same as described
and as warranted expressly or by implication in
the contract of sale as a condition of the
obligation of the buyer to perform his promise to
accept and pay for the thing. (n)
Alright, first thing that you should take note of in 1545,
the condition referred to is as to the performance of
the obligation. In other words, there is already a valid
contract. Now, if the condition is not performed, a
party may refuse to proceed or he may waive the
performance of the condition and proceed to the
performance in relation thereto.
Now, conditions and warranties, we must also
distinguish. Because when we talk about warranties,
a collateral undertaking on the part of either party. It
can be express or implied. So if the property sold do
not contain certain incidents or qualities, the
purchaser may either consider the sale void or claim
damages or breach of warranty. Condition is different
st
from warranty. In the last sentence of the 1
paragraph of 1545 however, if the other party has
promised that the condition should happen or be
performed, such first mentioned party may also treat
the nonperformance of the condition as a breach of
warranty.
Now, please take note of the distinctions between a
warranty and a condition. When you talk about
warranty it goes into the performance of the obligation
and even the obligation itself. But when you talk about
condition, it goes into the root of the existence of the
obligation. In a warranty, it may form part of the
obligation by law without the parties having agreed
thereto. Recall your discussion as to the elements of
the contract. You have the essential elements, you
also have the natural elements and accidental
elements. Warranty or implied warranties as provided
under the law are natural elements; they exist in a
contract even without the agreement by the parties. If
you distinguish it with a condition, among the three
elements, what is a condition? Accidental, because it
only exists by stipulation of the parties. Another
distinction, a warranty relates to the subject matter
itself or to the obligation of the seller. While a
condition attaches to the obligation itself or to deliver
possession and transfer ownership over the subject
matter of the sale.
Alright, what happened in the case of Catungal?
CATUNGAL VS. RODRIGUEZ
FACTS: Agapita Catungal owned a parcel of land in
Barrio Talamban, Cebu City. On April 232, 1990,
Agapita, with the consent of her husband (Atty. Jose
Catungal), entered a Contract to Sell with respondent
Angel Rodriguez. This Contract to Sell was further
upgraded into a Conditional Deed of Sale where it
was stipulated that the sum of P25 million will be
payable as follows:
a. P500, 000 down payment upon signing of
the agreement;
b. The balance of P24, 500, 000 will be
payable in five separate checks:
First check shall be for P4, 500, 000 while the
remaining balance to be paid in four checks in the
amount of P5 million each will be payable only after
Rodriguez (Vendee) has successfully negotiated,
secured, and provided a Road Right of Way. If
however the Road Right of Way could not be
negotiated, Rodriguez shall notify the Catungals for
them to reassess and solve the problem by taking
other options and should the situation ultimately prove
futile, he shall take steps to rescind or cancel the
herein Conditional Deed of Sale.
It was also stipulated that the access road or Road
Right of Way leading to the lot shall be the
responsibility of the VENDEE to secure and any or all
cost relative to the acquisition thereof shall be borne
solely by the VENDEE. He shall, however, be
accorded with enough time necessary for the success
of his endeavor, granting him a free hand in
negotiating for the passage.
Spouses Catungal requested an advance of P5
million on the purchase price for personal reasons.
However, Rodriguez refused on the ground that the
amount was not due under the terms of their
agreement. Further, he learned that the Catungals
were offering the property for sale to third parties who
are willing to pay a higher amount of money for a
Road Right of Way than what Rodriguez has initially
negotiated. In other words, instead of assisting
Rodriguez in successfully negotiating, the Catungals
allegedly maliciously defeated his efforts so to justify
the rescission. Rodriguez then received letters
signed by Atty. Jose Catungal demanding him to
make up his mind about buying the land or exercising
his option to buy because they needed money to
pay personal obligations or else the Catungals
warned that they would consider the contract
cancelled.
RTC ruled in favor of Rodriguez finding that his
obligation to pay the balance arises only after
successfully negotiating a Road Right of Way. CA
affirmed the RTC’s decision but the defendants filed a
motion for reconsideration and raised for the first time
the contention that the court erred in not finding their
stipulations null for violating the principle of mutuality
of contracts.
ISSUE: Whether or not the stipulations of their
Conditional Deed of Sale constitute a potestative
condition (one that is subject to the will of one of the
parties – either the debtor or creditor).
HELD: NO. the condition in their Conditional Deed of
Sale stating that respondent shall pay the balance of
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 25
the purchase price when he has successfully
negotiated and secured a road right of way, is not a
condition on the perfection of the contract nor on the
validity of the entire contract or its compliance as
contemplated in Article 1308. It is a condition imposed
only on respondent's obligation to pay the remainder
of the purchase price. In our view and applying
Article 1182, such a condition is not purely potestative
as petitioners contend. It is not dependent on the sole
will of the debtor but also on the will of third persons
who own the adjacent land and from whom the road
right of way shall be negotiated. Ina manner of
speaking, such a condition is likewise dependent on
chance as there is no guarantee that respondent and
the third party-landowners would come to
an agreement regarding the road right of way. This
type of mixed condition is expressly allowed under
Article 1182 of the Civil Code.
IN RELATION TO ARTICLE 1197 – The Catungals
also argued that Rodriguez has been given enough
time to negotiate for the Road Right of Way.
However, no stipulation regarding specific time can be
found in their agreement. SC said that. Even
assuming arguendo that the Catungals were correct
that the respondent's obligation to negotiate a road
right of way was one with an uncertain period, their
rescission of the Conditional Deed of Sale would still
be unwarranted. What the Catungals should have
done was to first file an action in court to fix the period
within which Rodriguez should accomplish the
successful negotiation of the road right of way
pursuant to the above quoted provision. Thus, the
Catungals' demand for Rodriguez to make an
additional payment of P5 million was premature and
Rodriguez's failure to accede to such demand did not
justify the rescission of the contract.
MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is
given a period of thirty (30) days from the finality of
this Decision to negotiate a road right of way. In the
event no road right of way is secured by respondent
at the end of said period, the parties shall reassess
and discuss other options as stipulated in paragraph
1(b) of the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty (30) days to
agree on a course of action. Should the discussions
of the parties prove futile after the said thirty (30)-day
period, immediately upon the expiration of said period
for discussion, Rodriguez may (a) exercise his option
to rescind the contract, subject to the return of his
down payment, in accordance with the provisions of
paragraphs 1(b) and 5 of the Conditional Deed of
Sale or (b) waive the road right of way and pay the
balance of the deducted purchase price as
determined in the RTC Decision dated May 30, 1992.
Q: So first, what was the condition here or what
were the conditions that make it a conditional
deed of sale?
A: First, the payment of the installments. That the
payment of the installments shall only be made upon
the negotiation of the road right of way.
Q: Did the negotiation of the road right of way
prosper?
A: There was no negotiation because it was alleged
by Rodriguez that the Spouses made
misrepresentations about the subject land. Also, since
the spouses deemed the deed of sale rescinded, they
offered the subject property to other buyers and so
the price of the intended road right of way increased.
The misrepresentation here on the part of the seller-
spouses that they already agreed with the owner of
the lot that the price would be 550 per sq.m. However,
when the seller-spouses offered it to other buyers, the
price already escalated. So Rodriguez here failed to
negotiate with the owners of the subject lot.
Q: So the condition here was the establishment of
the road right of way. What kind of condition was
that?
A: The Supreme Court ruled that it is a condition for
the performance of the obligation.
Q: So there was already a valid contract. However,
with the failure of the condition to happen, what is
the effect? Can the contract be rescinded?
A: The Supreme Court here ruled that 1545 provides
that the other party may refuse to proceed with the
contract or he may deem the condition waived.
Q: Who is the ‘other’ party referred in to this
case?
A: Rodriguez.
Q: You also mentioned a while ago with regard to
the issue, condition is as to the performance of
the obligation, however you mentioned that there
was an issue that this condition was a potestative
condition. First, what is a potestative condition?
A: A potestative condition can only be fulfilled by the
sole will of one of the parties.
Q: What is the effect if you have a potestative
condition in a contract?
A: The condition will be void.
Q: Only the condition?
A: And also the obligation.
Q: In all instances? In what instance can a
potestative condition make the condition and
obligation void?
A: Only if the obligation is dependent upon the sole
will of the debtor.
Q: So here, was there a potestative condition?
A: None.
Q: What kind of condition was involved here?
A: It was a mixed condition because it is not only
dependent on the part of Rodriguez but also depends
on the owners of the lots where the road right of way
will be imposed.
Q: With that finding that there was no potestative
condition here which would invalidate the
contract and with the finding that the condition
here is as to the performance of the obligation
therein, what is now the effect as to the parties?
A: The contract was still valid.
Q: Valid pa rin yung contract. With regard to
Rodriguez, what does he have here?
A: He can still proceed with the contract and he can
still negotiate the owners of the lot for the imposition
of the road right of way.
CATUNGAL VS RODRIGUEZ: So you have here
with reference to 1545, again it emphasizes the
condition provided therein refers to the performance
of the obligation. If the condition is imposed as to the
perfection, failure to comply with the obligation
(condition ata ito) results into the failure of the
contract. But failure to comply with the condition as to
the performance of the obligation gives the other party
the option to either to refuse or to proceed or to waive
the condition. So here, since the condition was
imposed only upon respondent’s obligation to pay the
remainder of the purchase price, then that is a
condition in relation to performance.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 26
As to the issue whether what you have here is a
potestative condition, the Supreme Court held that
first, there was no potestative condition. A potestative
condition is a condition dependent upon the sole will
of one of the parties. If the potestative condition is
upon the sole will of the debtor, then that is the time
that the contract as well as the condition will be
deemed void. But in this case, what you have here is
a mixed condition, as it is not only dependent, is not
merely potestative but also mixed condition as his
obligation to pay the balance of the purchase price
was not only dependent on him but as to other parties
(di ko siya gets but I guess what Ma’am meant was
that it was not only dependent on him but also
dependent to the other parties).
So with that, it was Rodriguez here who has the
option to rescind the contract subject to the return of
his downpayment or waive the road right of way and
pay the balance of the purchase price. In other words,
the Spouses Catungal here were not entitled to
rescind the contract. And in fact they were also
considered in bad faith for having contributed to the
collapse of the negotiation as to the road right of way.
So, that is a condition. Again, distinguish it from a
warranty. However, if the condition is in the form of a
warranty any breach of warranty can be considered
as such (?).
B. WARRANTIES
1. EXPRESS WARRANTIES
Now, I mentioned earlier that there are 2 kinds of
warranties, you have express warranties and implied
warranties. Express warranties we have Article 1546.
Art. 1546. Any affirmation of fact or any promise
by the seller relating to the thing is an express
warranty if the natural tendency of such
affirmation or promise is to induce the buyer to
purchase the same, and if the buyer purchase the
thing relying thereon. No affirmation of the value
of the thing, nor any statement purporting to be a
statement of the seller's opinion only, shall be
construed as a warranty, unless the seller made
such affirmation or statement as an expert and it
was relied upon by the buyer. (n)
Ok, you have in 1546 the definition of an express
warranty. So express, agreed upon by the parties.
There is an affirmation of fact or promise by the seller
relating to the subject matter of the sale. Second, the
natural tendency of such affirmation or promise is to
induce the buyer to purchase the same. And third, the
buyer purchases the thing relying on that affirmation
or promise.
Now, if there is breach of this express warranty, then
the seller will be liable for damages.
So we have here the case of Harrison Motors.
HARRISON MOTORS CORPORATION vs. RACHEL
A. NAVARRO
FACTS: Sometime in June of 1987 Harrison Motors
Corporation through its president, Renato Claros, sold
2 Isuzu Elf trucks to Rachel Navarro, owner of RN
Freight Lines. Prior to the sale, Renato Claros
represented to Navarro that all the BIR taxes and
customs duties for the parts used on the two 2 trucks
had been paid for.
On 10 September 1987 the Bureau of Internal
Revenue (BIR) and the Land Transportation Office
(LTO) entered into a Memorandum of Agreement
(MOA) which provided that prior to registration in the
LTO of any assembled or re-assembled motor vehicle
which used imported parts, a Certificate of Payment
should first be obtained from the BIR to prove
payment of all taxes required under existing laws.
On 16 June 1988 the BIR, BOC and LTO entered into
a tripartite MOA which provided that prior to the
registration in the LTO of any locally assembled motor
vehicle using imported component parts, a Certificate
of Payment should first be obtained from the BIR and
the BOC to prove that all existing taxes and customs
duties have been paid.
In December of 1988 government agents seized and
detained the two (2) Elf trucks of Navarro after
discovering that there were still unpaid BIR taxes and
customs duties thereon. The BIR and the BOC
ordered NAvarro to pay the proper assessments or
her trucks would be impounded. Navarro went to
Claros to ask for the receipts evidencing payment of
BIR taxes and customs duties; however, Claros
refused to comply. Navarro then demanded from
Claros but her demands were again ignored.
But wanting to secure the immediate release of the
trucks to comply with her business commitments,
Navarro paid the assessed BIR taxes and customs
duties amounting to P32,943.00. Consequently, she
returned to Harrison‘s office to ask for reimbursement,
but it again refused, prompting her to send a demand
letter through her lawyer. When Harrison still ignored
her letter, she filed a complaint for a sum of money on
24 September 1990 with the Regional Trial Court of
Makati.
On 5 March 1992 the trial court rendered a decision
ordering Harrison to reimburse private respondent in
the amount of P32,943.00 for the customs duties and
internal revenue taxes the latter had to pay to
discharge her 2 Elf trucks from government custody.
Harrison argues that it was no longer obliged to pay
for the additional taxes and customs duties imposed
on the imported component parts by the
Memorandum Orders and the two (2) Memoranda of
Agreement based on non-impairment clause of the
Constitution but also the principle of non-retroactivity
of laws provided in Art. 4 of the Civil Code.
The records however reveal that the Memorandum
Orders and Memoranda of Agreement do not impose
any additional BIR taxes or customs duties. The MOA
mandated that prior to registration in the LTO of any
assembled automobile using imported parts, a
Certificate of Payment should first be obtained from
the BIR which would then transmit the Certificate to
the LTO to prove that all the BIR taxes required under
existing laws have been paid.
The MOA provided that prior to registration with the
LTO of any assembled motor vehicle using imported
component parts, a Certificate of Payment should first
be secured from the BIR or the BOC which should
then be duly forwarded to LTO. The Certificate would
serve as proof that all taxes and customs duties
required under existing laws, rules and regulations
had already been settled.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 27
ISSUE: Who should pay the BIR taxes and customs
duties which the administrative regulations sought to
enforce?
HELD: Harrison contends that Navarro should be the
one to pay the internal revenue taxes and customs
duties. It claims that at the time the Memorandum
Orders and the two (2) Memoranda of Agreement
took effect the two (2) Elf trucks were already sold to
Navarro, thus, it no longer owned the vehicles.
Thus, although the Whereas clause in the MOA
provides that private respondent is the one required
by the administrative regulations to secure the
Certificate of Payment for the purpose of registration,
petitioner as the importer and the
assembler/manufacturer of the two (2) Elf trucks is
still the one liable for payment of revenue taxes and
customs duties.
Harrison‘s obligation to pay does not arise from the
administrative regulations but from the tax laws
existing at the time of importation. Hence, even if
Navarro already owned the two (2) trucks when the
Memorandum Orders and Memoranda of Agreement
took effect, the fact remains that Harrison was still the
one duty-bound to pay for the BIR taxes and customs
duties.
It is also quite obvious that as between Harrison, who
is the importer- assembler/manufacturer, and
Navarro, who is merely the buyer, it is petitioner which
has the obligation to pay taxes to the BIR and the
BOC. Harrison would be unjustly enriched if private
respondent should be denied reimbursement.
Besides, Harrison‘s allegation that it already paid the
BIR taxes and customs duties is highly doubtful. This
entire controversy would have been avoided had
Harrison simply furnished private respondent with the
receipts evidencing payment of BIR taxes and
customs duties. If only Navarro had the receipts to
prove payment of such assessments then she would
have easily secured the release of her two (2) Elf
trucks. But Harrison arbitrarily and unjustly denied
Navarro‘s demands. Instead, Harrison obstinately
insisted that it was no longer concerned with the
problem involving the two (2) trucks since it no longer
owned the vehicles after the consummation of the
sale.
It is true that the ownership of the trucks shifted to
private respondent after the sale. But petitioner must
remember that prior to its consummation it expressly
intimated to her that it had already paid the taxes and
customs duties. Such representation shall be
considered as a seller‘s express warranty under Art.
1546 of the Civil Code which covers any affirmation of
fact or any promise by the seller which induces the
buyer to purchase the thing and actually purchases it
relying on such affirmation or promise. It includes all
warranties which are derived from express language,
whether the language is in the form of a promise or
representation. Presumably, therefore, private
respondent would not have purchased the two (2) Elf
trucks were it not for petitioner‘s assertion and
assurance that all taxes on its imported parts were
already settled.
This express warranty was breached the moment
petitioner refused to furnish private respondent with
the corresponding receipts since such documents
were the best evidence she could present to the
government to prove that all BIR taxes and customs
duties on the imported component parts were fully
paid. Without evidence of payment, she was
powerless to prevent the trucks from being
impounded.
Under Art. 1599 of the Civil Code, once an express
warranty is breached the buyer can accept or keep
the goods and maintain an action against the seller
for damages. This was what private respondent did.
She opted to keep the two (2) trucks which she
apparently needed for her business and filed a
complaint for damages, particularly seeking the
reimbursement of the amount she paid to secure the
release of her vehicles.
Q: So what is the effect of that breach?
A: The effect of that, as used in this case is the
second remedy which is the buyer may accept or
receive the thing procured and an accompanying
action for damages.
HARRISON MOTORS VS NAVARRO: So here it was
an express warranty. What was the express warranty
here? Prior to the consummation, petitioner expressly
intimated to the seller (buyer siguro) that he had
already paid the taxes and customs duty. Such
representation is considered as a seller’s express
warranty, 1. It is an affirmation of a fact or promise by
the seller; 2. The natural tendency of that promise to
induce the buyer to purchase the same; and 3. The
buyer purchased the thing relying thereon. Private
respondent would not have purchased the trucks
were it not for petitioner’s assertion and assurance
that all taxes of its imported parts were already
settled. So considering that there was breach of
express warranty, the remedy under 1599 is available
wherein the buyer can accept or keep the goods and
maintain an action against the seller for damages.
2. IMPLIED WARRANTIES
Now how about Implied Warranties. Implied
warranties, again these are natural elements in a
contract. It constitute part of every CoS whether the
parties are aware of them or not or whether the
parties intended them to exist in the contract. Implied
warranties however may be suppressed by
agreement of the parties.
So what are these implied warranties provided under
the law? We have:
1. the warranty that the seller has the right to
sell the property;
2. warranty against eviction;
3. warranty against non-apparent servitudes;
4. warranty against hidden defects; and
5. warranty as to fitness or quality.
So, Art. 1547 provides the warranty that the seller has
the right to sell.
Art. 1547. In a contract of sale, unless a contrary
intention appears, there is:
(1) An implied warranty on the part of the seller
that he has a right to sell the thing at the time
when the ownership is to pass, and that the buyer
shall from that time have and enjoy the legal and
peaceful possession of the thing;
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 28
(2) An implied warranty that the thing shall be free
from any hidden faults or defects, or any charge
or encumbrance not declared or known to the
buyer.
This Article shall not, however, be held to render
liable a sheriff, auctioneer, mortgagee, pledgee, or
other person professing to sell by virtue of
authority in fact or law, for the sale of a thing in
which a third person has a legal or equitable
interest. (n)
Ok, so nandiyan sa Article, implied warranty that
the seller has the right to sell the thing at the time
when the ownership is to pass. It does not still detract
with our discussions that ownership is not required at
the time of perfection. What must exist at the time of
perfection is that there is an implied warranty on the
part of the seller that he has the right to sell the thing
when the ownership is to pass. In other words, he can
transfer ownership at the time of delivery. If he fails to
do so, that can be considered as an implied breach of
warranty.
Also under 1547, you have here the warranty
against eviction. Under the same paragraph 1,
implied warranty on the part of the seller that the
buyer shall from the time have and enjoy the legal
possession of the thing. So we have here Art. 1548.
Art. 1548. Eviction shall take place whenever by a
final judgment based on a right prior to the sale or
an act imputable to the vendor, the vendee is
deprived of the whole or of a part of the thing
purchased.
The vendor shall answer for the eviction even
though nothing has been said in the contract on
the subject.
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the
vendor. (1475a)
Alright, we have in Article 1548 as well as the
subsequent provisions in this chapter, we can
enumerate what are these requisites for there to be
breach of warranty against eviction.
1. There must be deprivation of the vendee of
the whole or part of the thing purchased;
2. The deprivation must be by virtue of a final
judgment;
3. The deprivation must be based on a right
prior to the sale or an act imputable to the
vendor;
4. That the vendor must be summoned in the
suit for eviction at the instance of the
vendee; and
5. There must be no waiver of warranty as
executed by the vendee.
All these requisites must be present in order for the
seller to be held liable for breach of warranty against
eviction. Under Article 1549 in relation to Article 1557,
you have therein the requisite that there must be a
final judgment.
Art. 1549. The vendee need not appeal from the
decision in order that the vendor may become
liable for eviction. (n)
In 1549, the vendee did not appeal from the decision
in order that the vendor may be liable for eviction. As
long as the decision is already deemed final, final
judgment na siya, and all other requisites are present,
then the breach of warranty takes place.
Art. 1557. The warranty cannot be enforced until a
final judgment has been rendered, whereby the
vendee loses the thing acquired or a part thereof.
(1480)
Now, Article 1550, Adverse Possession.
Art. 1550. When adverse possession had been
commenced before the sale but the prescriptive
period is completed after the transfer, the vendor
shall not be liable for eviction. (n)
Now, first thing that we should take note of here, of
course this is in relation to the third requisite we just
mentioned, based on a right prior to the sale. But
when you talk about adverse possession here, so in
your Property, 30 years in bad faith and 10 years in
good faith. But remember, that period for acquisitive
prescription is only applicable to properties not
covered by titles. So ganun din sa Art. 1550. Now, for
example the possessor is in good faith, the
prescriptive period is 10 years. What does Art. 1550
mean? If the 10 year prescriptive period, prescribed
happened before sale, in other words you have here
buyer knew beforehand of the acquisitive prescription
by the third person, and nevertheless proceeded to
buy the property, the buyer is deemed to have waived
his right for the warranty against eviction. However, if
the prescriptive period or since the prescriptive period
was completed during the sale, there is no liability.
Now what if, the prescriptive period happened after
th
the sale, so let us say it was purchases on the 7 or
th
8 year of the possession of the property. The seller
shall not be liable for eviction, as the buyer should
have interrupted the prescriptive period. Exception is
the time left for interruption is too short for the buyer
to be given full opportunity to perform acts of
interruption. Then the seller shall be liable for
warranty.
So again, if the prescriptive period occurred after the
sale, seller is not liable as the buyer should have
interrupted the prescriptive period. Exception, if time
is too short for the buyer to be given opportunity to
perform acts of interruption wherein the seller is liable
for warranty. But for example, the 10 year prescriptive
period is already completed before the perfection of
the sale, then take into consideration the knowledge
of the buyer. If the buyer is in good faith, the seller will
not be liable for breach of warranty. But, if the buyer
knew beforehand of such acquisitive prescription, but
nevertheless proceeded to buy the property, then
there is deem waiver on his part to enforce said
eviction.
Now also in Article 1551:
Art. 1551. If the property is sold for nonpayment
of taxes due and not made known to the vendee
before the sale, the vendor is liable for eviction.
(n)
Example for this is when the government forecloses
the property, sells the property for failure to pay real
property taxes. So, ang mangyari niyan, merong
foreclosure sale na nevertheless the seller-owner sold
it to the vendee, the vendor will be liable.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 29
Art. 1552. The judgment debtor is also
responsible for eviction in judicial sales, unless it
is otherwise decreed in the judgment. (n)
Now, take note of Article 1553.
Art. 1553. Any stipulation exempting the vendor
from the obligation to answer for eviction shall be
void, if he acted in bad faith. (1476)
Again, it is void if he acted in bad faith. In other words,
can there be a valid waiver of this eviction? Yes, as
long as long as the vendor is not in bad faith.
In relation thereto we have Article 1554.
Art. 1554. If the vendee has renounced the right to
warranty in case of eviction, and eviction should
take place, the vendor shall only pay the value
which the thing sold had at the time of the
eviction. Should the vendee have made the waiver
with knowledge of the risks of eviction and
assumed its consequences, the vendor shall not
be liable. (1477)
Alright, there can be a valid waiver of this warranty
against eviction. There are two kinds of waiver
mentioned here in 1554:
1. Consciente
2. Intencionada
So what is this consciente? Voluntarily made by the
buyer without knowledge or assumption of the risk of
eviction. Compare it to intencionada wherein the
buyer voluntarily made such waiver but with the
knowledge and assumptions of the risks of eviction.
For example in consciente, sige I will pay but just in
case may mag-habol _____ as to the property and
then he would have a better right over me, vendor is
not liable. So at the time, parang general waiver siya
of the warranty against eviction. Pero when you talk
about intencionada, it is a specific instance. For
example, the vendor will inform the vendee, I am
selling to you this property, however there is this
person who might be a sibling or cousin saying that
he has a better right over me. So baka mag-kaso
siya, so ok lang ba sa iyo na mag-execute ka ng
waiver na just in case manalo siya, that he has a
better right, hindi mo ako habulin. So that is
considered as a valid waiver considered as
intencionada. But again, if the waiver is made in bad
faith, the vendor was in bad faith, may alam siya with
the risk involved in a CoS na pwedeng mapa-alis si
buyer sa property but he never informed the buyer,
then any waiver may be considered as void. Again,
relate 1554 and 1553. Waiver is void if seller acted in
bad faith, therefore the seller will still be held liable.
Under Article 1554, general waiver or no particular
risk in other words consciente, seller must pay the
value of the thing sold at the time of eviction. Liability
is not extinguished but remits the liability of the seller.
However, if waiver is made with knowledge of the risk,
intencionada, the seller is not liable, his liability is
entirely extinguished.
We also have Article 1555, what can the vendee
demand in case there is liability on the part of the
vendor?
Art. 1555. When the warranty has been agreed
upon or nothing has been stipulated on this point,
in case eviction occurs, the vendee shall have the
right to demand of the vendor:
(1) The return of the value which the thing sold
had at the time of the eviction, be it greater or less
than the price of the sale;
(2) The income or fruits, if he has been ordered to
deliver them to the party who won the suit against
him;
(3) The costs of the suit which caused the
eviction, and, in a proper case, those of the suit
brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee
has paid them;
(5) The damages and interests, and ornamental
expenses, if the sale was made in bad faith. (1478)
So, Art. 1555, what can the vendee demand as to
warranty against eviction whether implied or express.
Return of the value of the thing, take note ha, value of
the thing and not the selling price. Second, income or
fruits. Third, expenses of suit, damages and interest
and ornamental expenses if the sale was made in bad
faith.
Now also take note, even if there is partial eviction,
the seller can still be liable for warranty against
eviction under Art. 1556.
Art. 1556. Should the vendee lose, by reason of
the eviction, a part of the thing sold of such
importance, in relation to the whole, that he would
not have bought it without said part, he may
demand the rescission of the contract; but with
the obligation to return the thing without other
encumbrances that those which it had when he
acquired it.
He may exercise this right of action, instead of
enforcing the vendor's liability for eviction.
The same rule shall be observed when two or
more things have been jointly sold for a lump
sum, or for a separate price for each of them, if it
should clearly appear that the vendee would not
have purchased one without the other. (1479a)
Alright, so partial eviction, again the vendor may be
held liable. But even if there is partial eviction, it is
possible that the seller can be liable for the whole
property as provided in 1556, if the buyer would not
have bought the property without the said part where
he was evicted and therefore he may demand the
rescission of the contract. However, instead of
enforcing eviction, he may exercise his right of action.
This is also applicable, let us say you purchased 2
properties for a lump sum or a separate price. But if
you would not have brought the other without the
other property wherein you have been evicted, then
there is a breach of both Contracts of Sale. Like if you
purchase property to franchise a gasoline station, now
yung Gasoline Company would require you to be a
franchisee, a specific area. So let us say 500 sq. m.
So you purchase the property thinking that it is really
500 sq. m. But in turns out na merong 20 sq. m. na
hindi pala covered sa property nay un. So what is the
effect therein? While it is true that there is only partial
eviction, the fact is that, you would not have brought
the property if it was less than 500 sq. m. So you can
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 30
seek rescission of the contract. The same thing, like
for example you purchased two properties, also for
gasoline operations. Two lots, 250 sq. m. each. So
kung na-evict ka dun sa property mon a 250 sq. m.,
again the reason here, you would not have brought
the other property, if hindi kasama yung other
property kasi nga ang purpose mo is for gasoline
operations. So the same rule will apply. What are the
remedies here? You can either enforce Art. 1555,
yung demand return, fruits, costs, expenses and
damages or rescind the contract as provided in 1556
with the obligation to return the thing without the other
encumbrances that those which it had when he
acquired it. Then if it is separable then Article 1555
can be applied to such part wherein there has been
eviction.
Alright, another requirement that we pointed out that
the vendor shall not be obliged to make good the
proper warranty, unless he is summoned in the suit
for eviction at the instance of the vendee.
So we have here the case of Escaler.
ESCALER V. CA AND SPS. REYNOSO
FACTS: On March 7, 1958, the spouses Reynoso
sold to petitioners a parcel of land situated in Antipolo,
Rizal with an area of 239,479 sqm and covered by
TCT No. 57400. However, on April 21, 1961, the
Register of Deeds of Rizal and A. Doronilla
Resources Development, Inc. filed a case (Case no.
4252) for the cancellation of OCT No. 1526 issued in
the name of Angelina C. Reynoso (the predecessors-
in-interest of the spouses Reynoso) on the ground
that the subject property is already covered by TCT
No. 42999 issued under A. Doronilla. The court
favored A. Doronilla in this case.
Thereafter, herein petitioners filed the present case
against the respondents, for the recovery of the value
of the property sold to them plus damages on the
ground that the spouses violated the vendors’
“warranty against eviction.” The lower court ruled in
favor of the petitioners, which was reversed in the CA.
Hence, the present petition.
ISSUE: W/n Articles 1558 and 1559 of the Civil Code
are to be strictly applied in this case.
HELD: YES. (See Articles 1548, 1558 and 1559). In
order that a vendor’s liability for eviction may be
enforced, the following requisites must concur:
a. There must be a final judgment;
b. The purchaser has been deprived of the whole or
part of the thing sold;
c. Said deprivation was by virtue of a right prior to the
sale made by the vendor; and
d. The vendor has been summoned and made co-
defendant in the suit for eviction at the instance of the
vendee.
In the case at bar, the fourth requisite—that of being
summoned in the suit for eviction (Case no. 4252) at
the instance of the vendee—is not present. All that
petitioners did, per their very admission, was to
furnish respondents, by registered mail, with a copy of
the opposition they (petitioners) filed in the suit.
Decidedly, this is not the kind of notice prescribed by
Articles 1558 and 1559 of the Civil Code.
The term “unless he is summoned in the suit for
eviction at the instance of the vendee” means that the
respondents as vendor/s should be made parties to
the suit at the instance of petitioners-vendees, either
by way of asking that the former be made a co-
defendant or by the filing of a third-party complaint
against said vendors. Nothing of that sort appeared to
have been done by the petitioners in the instant case.
Q: So what do you mean by summon?
A: Summon means an order by the court for the party
to appear. To make that person a party to the case.
ESCALER VS CA: So in this case, the vendor should
be made party to the suit at the instance of the
vendee which did not happen in this case. It is not
sufficient that they informed the vendor that there is
this pending case to make him a party to the said
action in court.
So again take note, all the requisites should be
present: final judgment, deprivation by virtue of a right
prior to the sale or an act imputable to the vendor,
and the vendor has been summoned and made co-
defendant in the suit for eviction at the instance of the
vendee. In this case, while it is true that the vendor
was furnished by registered mail with the copy of the
opposition filed by the petitioners, this is not the kind
of notice that is required under the law. Also take note
under Article 1559:
Art. 1559. The defendant vendee shall ask, within
the time fixed in the Rules of Court for answering
the complaint, that the vendor be made a co-
defendant. (1482a)
In this case, it did not happen. The seller was not
made a co-defendant. Again, the requirement here is
that the respondent as vendors should be made
parties to the suit at the instance of the vendees
either by asking that the former be made a co-
defendant or by the filing of a third-party complaint
against said vendors.
So that’s 1558 and 1559 in relation to the
requirements for the liability for breach of warranty
against eviction.
Now, another warranty is the warranty against non-
apparent servitudes. So by now you already know
servitudes, easements. So we have Article 1560.
Art. 1560. If the immovable sold should be
encumbered with any non-apparent burden or
servitude, not mentioned in the agreement, of
such a nature that it must be presumed that the
vendee would not have acquired it had he been
aware thereof, he may ask for the rescission of
the contract, unless he should prefer the
appropriate indemnity. Neither right can be
exercised if the non-apparent burden or servitude
is recorded in the Registry of Property, unless
there is an express warranty that the thing is free
from all burdens and encumbrances.
Within one year, to be computed from the
execution of the deed, the vendee may bring the
action for rescission, or sue for damages.
One year having elapsed, he may only bring an
action for damages within an equal period, to be
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 31
counted from the date on which he discovered the
burden or servitude. (1483a)
Alright, so when do you apply Article 1560? An
immovable property sold is encumbered with any non-
apparent burden or servitude not mentioned in the
agreement.
Since tapos naman kayo nag-easements, example ng
non-apparent servitude? Light and view, what else?
The building with a specified height that is also an
example of a non-apparent burden or servitude. Now,
the nature of the non-apparent burden or servitude is
such that it must be presumed that the buyer would
not acquire it had he been aware thereof.
Now, what are the remedies in case of breach of this
warranty? Rescission or indemnity for damages.
However, take note of the prescriptive period. One
year from the execution of the contract, either
rescission or damages. If one year has already
elapsed, rescission cannot be availed of, only
damages na lang. So please take note of that as well.
However, if the servitude is recorded in the Registry
of Deeds, then this warranty does not apply. Because
that registration constitutes constructive knowledge.
Unless of course it is not registered and there is an
express warranty that the thing is free from all
burdens and encumbrances. So that is the warranty
against non-apparent servitudes.
Now, the third implied warranty and this is the most
common, the other most common is warranty against
eviction, so this is warranty against hidden defects,
Article 1561.
Art. 1561. The vendor shall be responsible for
warranty against the hidden defects which the
thing sold may have, should they render it unfit
for the use for which it is intended, or should they
diminish its fitness for such use to such an extent
that, had the vendee been aware thereof, he would
not have acquired it or would have given a lower
price for it; but said vendor shall not be
answerable for patent defects or those which may
be visible, or for those which are not visible if the
vendee is an expert who, by reason of his trade or
profession, should have known them. (1484a)
Alright for the requisites for the breach of warranty
against hidden defects:
1. The defect must be serious or important;
2. The defect must be hidden or latent;
3. The defect must exist at the time of the sale;
4. the vendee must give notice of the defect to
the vendor within a reasonable time;
5. Remedies must be brought within 6 months
from delivery or 40 days from delivery in
case of animals;
6. There must be no waiver of warranty against
hidden defects.
Now, in relation to this warranty against hidden
defects, you also have Article 1562 with regard to the
warranty as to the fitness and merchantability of the
goods.
Art. 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness
of the goods, as follows:
(1) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose
for which the goods are acquired, and it appears
that the buyer relies on the seller's skill or
judgment (whether he be the grower or
manufacturer or not), there is an implied warranty
that the goods shall be reasonably fit for such
purpose;
(2) Where the goods are brought by description
from a seller who deals in goods of that
description (whether he be the grower or
manufacturer or not), there is an implied warranty
that the goods shall be of merchantable quality.
(n)
So two kinds of warranty here, implied warrant as to
the merchantability of the goods and implied warranty
as to fitness thereof. When we say merchantability, it
refers to the general purpose of the goods. But when
we refer to fitness, specific purpose for the said
goods. So, we have the case of Moles vs IAC.
MOLES vs IAC
FACTS: In 1977, petitioner needed a linotype printing
machine for his printing business, The LM Press at
Bacolod City, and applied for an industrial loan with
the Development Bank of the Philippines. (DBP) for
the purchase thereof. An agent of Smith, Bell and Co.
who is a friend of petitioner introduced the latter to
private respondent, owner of the Diolosa Publishing
House in Iloilo City, who had two available machines.
Thereafter, petitioner went to Iloilo City to inspect the
two machines offered for sale and was informed that
the same were secondhand but functional.
Sometime between April and May, 1977, the machine
was delivered to petitioner's publishing house where it
was installed by an employee of Diolosa. Prior to the
release of the loan, a representative from the DBP,
Bacolod, supposedly inspected the machine but he
merely looked at it to see that it was there . The
inspector's recommendation was favorable and,
thereafter, petitioner's loan of P50,000.00 was
granted and released.
But on November 29, 1977, petitioner wrote private
respondent that the machine was not functioning
properly as it needed a new distributor bar. Private
respondent made no reply to said letter, so petitioner
engaged the services of other technicians. Later, after
several telephone calls regarding the defects in the
machine, private respondent sent two technicians to
make the necessary repairs but they failed to put the
machine in running condition. In fact, since then
petitioner was never able to use the machine.
Petitioner again wrote private respondent, this time
with the warning that he would be forced to seek legal
remedies to protect his interest.
Obviously in response to the foregoing letter, private
respondent decided to purchase a new distributor bar
and private respondent delivered this spare part to
petitioner. However, when thereafter petitioner asked
private respondent to pay for the price of the
distributor bar, the latter asked petitioner to share the
cost with him. Petitioner thus finally decided to
indorse the matter to his lawyer.
An expert witness for the petitioner declared that he
inspected the linotype machine involved in this case
at the instance of petitioner. In his inspection thereof,
he found several defects.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 32
ISSUE/S:
W/N private respondent is bound by an express
warranty.
W/N private respondent’s express warranty was a
mere dealer’s talk.
W/N hidden defects in the machine is sufficient to
warrant a rescission of the contract between the
parties.
HELD: Private respondent is bound by the
express warranty which he executed in favor of
the petitioners.
When an article is sold as a secondhand item, a
question arises as to whether there is an implied
warranty of its quality or fitness. It is generally held
that in the sale of a designated and specific article
sold as secondhand, there is no implied warranty as
to its quality or fitness for the purpose intended, at
least where it is subject to inspection at the time of the
sale. On the other hand, there is also authority to the
effect that in a sale of a secondhand articles there
may be, under some circumstances, an implied
warranty of fitness for the ordinary purpose of the
article sold or for the particular purpose of the buyer.
In a line of decisions rendered by the United States
Supreme Court, it had theretofore been held that
there is no implied warranty as to the condition,
adaptation, fitness, or suitability for the purpose for
which made, or the quality, of an article sold as and
for a secondhand article. Said general rule, however,
is not without exceptions. Article 1562 of our Civil
Code, which was taken from the Uniform Sales Act,
provides:
Art. 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness of the
goods, as follows:
Where the buyer, expressly or by implication, makes
known to the seller the particular purpose for which
the goods are acquired, and it appears that the buyer
relies on the seller's skill or judgment (whether he be
the grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for
such purpose;
To repeat, in the case before Us, a certification to the
effect that the linotype machine bought by petitioner
was in A-1 condition was issued by private
respondent in favor of the former. This cannot but be
considered as an express warranty. However, it is
private respondent's submission, that the same is not
binding on him, not being a part of the contract of sale
between them.
It must be remembered that the certification was a
condition sine qua non for the release of petitioner's
loan which was to be used as payment for the
purchase price of the machine. Private respondent
failed to refute this material fact. Neither does he
explain why he made that express warranty on the
condition of the machine if he had not intended to be
bound by it. In fact, the respondent court, in declaring
that petitioner should have availed of the remedy of
requiring repairs as provided for in said certification,
thereby considered the same as part and parcel of the
verbal contract between the parties.
Private respondents express warranty as to the A-
1 condition of the machine was not merely
dealer's talk.
Private respondent was not a dealer of printing or
linotype machines to whom could be ascribed the
supposed resort to the usual exaggerations of trade in
said items. His certification as to the condition of the
machine was not made to induce petitioner to
purchase it but to confirm in writing for purposes of
the financing aspect of the transaction his
representations thereon. Ordinarily, what does not
appear on the face of the written instrument should be
regarded as dealer's or trader's talk conversely, what
is specifically represented as true in said document,
as in the instant case, cannot be considered as mere
dealer's talk.
On the question as to whether the hidden defects in
the machine is sufficient to warrant a rescission of the
contract between the parties, we have to consider the
rule on redhibitory defects contemplated in Article
1561 of the Civil Code. A redhibitory defect must be
an imperfection or defect of such nature as to
engender a certain degree of importance. An
imperfection or defect of little consequence does not
come within the category of being redhibitory.
As already narrated, an expert witness for the
petitioner categorically established that the machine
required major repairs before it could be used. This,
plus the fact that petitioner never made appropriate
use of the machine from the time of purchase until an
action was filed, attest to the major defects in said
machine, by reason of which the rescission of the
contract of sale is sought. The factual finding,
therefore, of the trial court that the machine is not
reasonably fit for the particular purpose for which it
was intended must be upheld, there being ample
evidence to sustain the same.
At a belated stage of this appeal, private respondent
came up for the first time with the contention that the
action for rescission is barred by prescription. While it
is true that Article 1571 of the Civil Code provides for
a prescriptive period of six months for a redhibitory
action a cursory reading of the ten preceding articles
to which it refers will reveal that said rule may be
applied only in case of implied warranties. The
present case involves one with and express warranty.
Consequently, the general rule on rescission of
27
contract, which is four years shall apply.
Considering that the original case for rescission was
filed only one year after the delivery of the subject
machine, the same is well within the prescriptive
period.
Q: What is the nature of the subject matter here?
A: A printing machine.
Q: And wasn’t it considered that it was
secondhand? What is the rule with regard to
secondhand items?
A: There is generally no warranty.
Q: Ok, no warranty. In other words, as is where is.
But in this case, is there a warranty?
A: In this case the Supreme Court held that there was
a warranty since before Moles bought the printer, he
asked Diolosa to issue a certification as to the
condition of the machine and he only bought the
machine because of Diolosa’s convincing that it was
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 33
in A-1 condition and that he trusted the person of
Diolosa who was known in the publishing industry.
Q: So would that mean an implied or express
warranty?
A: The Supreme Court here held that it was an
express warranty on the part of Diolosa since he
issued the certification saying that the machine was in
A-1 condition.
Q: Would it not be considered as dealer’s talk or
trader’s talk?
A: No, this cannot be considered as dealer’s talk as
the reason why Moles bought the secondhand
machine was because of the certification made by
Diolosa and because of the trust he put in the word of
Diolosa.
Q: What do you mean by dealer’s talk?
A: It means that the dealer tend to exaggerate on the
certain aspects of the machine or thing in order to sell
it. But it does not mean that there is fraud or
misrepresentation.
Q: How about the issue on prescription? What
was the prescriptive period applied here since it
was an express warranty?
A: Although Article 1570 provides for a prescriptive
period of 6 months, the Court here held the general
rule in the rescission of the contracts which is 4 years.
And in this case since it was still 1 year, so
prescription did not lie.
MOLES VS IAC: So the subject matter here was a
secondhand item, general rule: no warranty. However
in this case there was a certification issued by the
private respondent as to the A-1 condition of the
machine. And therefore, this is considered as an
express warranty. The certification was a condition
sine qua non for the release of the loan to be used as
payment for the purchase price. Now, this was not
considered to be dealer’s talk. Recall dealer’s talk,
usual exaggerations in trade for the seller to make
sale and they do not appear on the face of the
contract and do not bind either parties. Ordinarily,
what does not appear in the written instrument should
be regarded as a dealer’s talk but here, the
representation was made in the document and
therefore it could not be considered as a dealer’s talk.
As to the prescriptive period, what was applied here
was the 4 year prescriptive period, general rule in
rescission as what is involved here is an express
warranty.
October 5, 2015
So we already started our discussion as to the implied
warranties. So we have five.
The seller must have the right to sell. So that’s under
Art. 1547. Also under that is warranty against eviction;
that the buyer shall enjoy legal and peaceful
possession of the thing, and this is further explained
in Art. 1548.
Take note of the requisites for the seller to become
liable for breach of warranty against eviction.
First, there must be deprivation of the vendee of the
whole or part of the thing purchased.
Second, deprivation must be by final judgment.
Third, deprivation must be based on a right prior to
the sale, or an act imputable to the vendor.
Fourth, the vendor must be summoned in the suit for
eviction at the instance of the vendee.
And of course, there must be NO waiver of warranty
by the vendee.
POWER COMMERCIAL V. CA (June 20, 1997)
FACTS:
Petitioner asbestos manufacturer Power Commercial
and industrial corporation bought the property of
spouses Reynaldo and Angelita Quiambao located in
Makati City.
Since there are lessees occupying the subject land,
part of the deed of sale is a warranty of respondents
that will defend its title and peaceful possession in
favor of the petitioners.
The property is mortgage to PNP and as such,
petitioners filed a request to assume responsibility of
the mortgage. Because of petitioners failure to
produce the required papers, their petition was
denied.
Petitioners allege that the contract should be
rescinded because of failure of delivery.
ISSUE:
WON the contract is recissible due to breach of
contract. NO
HELD:
There is no breach of contract in this case since there
is no provision in the contract that imposes the
obligation to the respondents to eject the people
occupying the property.
There was also a constructive delivery because the
deed of sale was made in a public document. The
contention of the petitioners that there could be no
constructive delivery because the respondents are not
in possession of the property is of no merit.
What matters in a constructive delivery is control and
not possession. Control was placed in the hands of
the petitioners that is why they were able to file an
ejectment case. Prior physical delivery or possession
is not legally required and the execution of the deed
of sale is deemed equivalent to delivery.
Alright. Take note that the requisites for breach of
warranty must ALL exist, for the seller to be held
liable for such breach. In this case, the SC pointed out
the distinction that what we have here is not a
condition but only a warranty. It could not be
considered as a condition because the parties never
agreed that as to the performance of the sale, there
was this condition that the present occupants should
leave the property. Nothing was stipulated in their
contract.
Rather what we have here is a warranty against
eviction, and not a condition that was not met.
However, despite that existence of warranty, there’s
no breach of warranty against eviction due to the fact
that not all the requisites required under the law are
present. Furthermore, it was also emphasized that the
deprivation in the public auction is due to petitioner’s
fault and not to any act attributable to the vendor
spouses.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 34
We have also discussed last time, what can the buyer
demand from the seller in case of breach of warranty
against eviction? So you have Art. 1555 and 1556.
With regard to birth (?), take note of Art. 1553: waiver
is void when the same is in bad faith; and Art. 1554:
two kinds of waiver – consciente and intencionada.
Third kind is WARRANTY AGAINST NON-
APPRARENT SERVITUDES under Art. 1560.
Art. 1560.
If the immovable sold should be encumbered with any
non-apparent burden or servitude, not mentioned in
the agreement, of such a nature that it must be
presumed that the vendee would not have acquired it
had he been aware thereof, he may ask for the
rescission of the contract, unless he should prefer the
appropriate indemnity. Neither right can be exercised
if the non-apparent burden or servitude is recorded in
the Registry of Property, unless there is an express
warranty that the thing is free from all burdens and
encumbrances.
Within one year, to be computed from the execution
of the deed, the vendee may bring the action for
rescission, or sue for damages.
One year having elapsed, he may only bring an action
for damages within an equal period, to be counted
from the date on which he discovered the burden or
servitude.
Let’s proceed to another common warranty which is
the WARRANTY AGAINST HIDDEN DEFECTS. We
have Art. 1561.
Art. 1561.
The vendor shall be responsible for warranty against
the hidden defects which the thing sold may have,
should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such
use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would
have given a lower price for it; but said vendor shall
not be answerable for patent defects or those which
may be visible, or for those which are not visible if the
vendee is an expert who, by reason of his trade or
profession, should have known them.
Requisites for warranty against hidden defects:
1. It must be serious or important
2. Must be hidden
3. Must exist at the time of the sale
4. The vendee must give notice of defect to the
vendor within a reasonable time
5. The remedies must be brought within 6
months from delivery, or 40 days from
delivery in case of animals
6. There must be no waiver of warranty
executed by the vendee
Take not, it must be HIDDEN. Not patent, but rather
latent defects. Or those which are NOT visible if the
vendee is an expert wherein he should have known
such defect.
We also have Art. 1562.
Art. 1562.
In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the goods, as
follows:
(1) Where the buyer, expressly or by implication,
makes known to the seller the particular purpose
for which the goods are acquired, and it appears
that the buyer relies on the seller's skill or
judgment (whether he be the grower or
manufacturer or not), there is an implied warranty
that the goods shall be reasonably fit for such
purpose;
(2) Where the goods are brought by description from
a seller who deals in goods of that description
(whether he be the grower or manufacturer or
not), there is an implied warranty that the goods
shall be of merchantable quality.
In relation to this, we have the case of:
NUTRIMIX FEEDS CORP. V. CA
FACTS:
In 1993, private respondent spouses Evangelista
procured various animal feeds from petitioner
Nutrimix Feeds Corp. the petitioner gave the
respondents a credit period of 30-45 days to postdate
checks to be issued as payment for the feeds. The
accommodation was made apparently because the
company’s president was a close friend of
Evangelista. The various animal feeds were paid and
covered by checks with due dates from July 1993-
September 1993.
Initially, the spouses were good paying customers.
However, there were instances when they failed to
issue checks despite the delivery of goods.
Consequently, the respondents incurred an aggregate
unsettled account with Nutrimix amounting to
P766,151
When the checks were deposited by the petitioner,
the same were dishonored (closed account). Despite
several demands from the petitioner, the spouses
refused to pay the remaining balance
Thereafter, Nutrimix filed a complaint against
Evangelista for collection of money with damages.
The respondents admitted their unpaid obligation but
impugned their liability. The nine checks issued were
made to guarantee the payment of the purchases,
which was previously determined to be procured from
the expected proceeds in the sale of their broilers and
hogs. They contended that inasmuch as the sudden
and massive death of their animals was caused by
the contaminated products of the petitioner, the
nonpayment of their obligation was based on a just
and legal ground.
The respondents also lodged a complaint for
damages against the petitioner, for the untimely and
unforeseen death of their animals supposedly
effected by the adulterated animal feeds the petitioner
sold to them.
Nutrimix alleged that the death of the respondents’
animals was due to the widespread pestilence in their
farm. The petitioner, likewise, maintained that it
received information that the respondents were in an
unstable financial condition and even sold their
animals to settle their obligations from other enraged
and insistent creditors. It, moreover, theorized that it
was the respondents who mixed poison to its feeds to
make it appear that the feeds were contaminated.
The trial court held in favor of petitioner on the ground
that it cannot be held liable under Articles 1561 and
1566 of the Civil Code governing “hidden defects” of
commodities sold. The trial court is predisposed to
believe that the subject feeds were contaminated
sometime between their storage at the bodega of the
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 35
Evangelistas and their consumption by the poultry
and hogs fed therewith, and that the contamination
was perpetrated by unidentified or unidentifiable ill-
meaning mischief-maker(s) over whom Nutrimix had
no control in whichever way.
CA modified the decision of the trial court, citing that
respondents were not obligated to pay their
outstanding obligation to the petitioner in view of its
breach of warranty against hidden defects. The CA
gave much credence to the testimony of Dr. Rodrigo
Diaz, who attested that the sample feeds distributed
to the various governmental agencies for laboratory
examination were taken from a sealed sack bearing
the brand name Nutrimix
ISSUE:
WON Nutrimix is guilty of breach of warranty due to
hidden defects
HELD:
NO. The provisions on warranty against hidden
defects are found in Articles 1561 and 1566 of the
New Civil Code of the Philippines. A hidden defect is
one which is unknown or could not have been known
to the vendee. Under the law, the requisites to
recover on account of hidden defects are as follows:
a) the defect must be hidden;
b) the defect must exist at the time the sale was
made;
c) the defect must ordinarily have been excluded
from the contract;
d) the defect, must be important (renders thing
UNFIT or considerably decreases FITNESS);
e) the action must be instituted within the statute of
limitations
In the sale of animal feeds, there is an implied
warranty that it is reasonably fit and suitable to be
used for the purpose which both parties
contemplated. To be able to prove liability on the
basis of breach of implied warranty, three things must
be established by the respondents. The first is that
they sustained injury because of the product; the
second is that the injury occurred because the
product was defective or unreasonably unsafe; and
finally, the defect existed when the product left the
hands of the petitioner. A manufacturer or seller of a
product cannot be held liable for any damage
allegedly caused by the product in the absence of any
proof that the product in question was defective. The
defect must be present upon the delivery or
manufacture of the product; or when the product left
the seller’s or manufacturer’s control; or when the
product was sold to the purchaser; or the product
must have reached the user or consumer without
substantial change in the condition it was sold.
Tracing the defect to the petitioner requires some
evidence that there was no tampering with, or
changing of the animal feeds. The nature of the
animal feeds makes it necessarily difficult for the
respondents to prove that the defect was existing
when the product left the premises of the petitioner.
A review of the facts of the case would reveal that the
petitioner delivered the animal feeds, allegedly
containing rat poison, on July 26, 1993; but it is
astonishing that the respondents had the animal
feeds examined only on October 20, 1993, or barely
three months after their broilers and hogs had died. A
difference of approximately three months enfeebles
the respondents’ theory that the petitioner is guilty of
breach of warranty by virtue of hidden defects. In a
span of three months, the feeds could have already
been contaminated by outside factors and subjected
to many conditions unquestionably beyond the control
of the petitioner.
Even more surprising is the fact that during the
meeting with Nutrimix President Mr. Bartolome, the
respondents claimed that their animals were plagued
by disease, and that they needed more time to settle
their obligations with the petitioner. It was only after a
few months that the respondents changed their
justification for not paying their unsettled accounts,
claiming anew that their animals were poisoned with
the animal feeds supplied by the petitioner.
So there was no breach of warranty against hidden
defects here. Why? First, the SC again pointed out
here the requisites to recover on account of hidden
defects. It must be hidden, exists at the time of sale,
must ordinarily excluded from the contract (?),
important, and the action must be instituted within the
Statute of Limitations. Under the facts of this case, it
was not shown that the defect existed at the time of
the sale. In a span of 3 months, the feeds could have
easily been contaminated by outside factors and
subjected to many conditions unquestionably beyond
the control of the petitioner.
The SC also pointed out, in relation to Art. 1562, the
implied warranty that the product sold would be
reasonably fit and suitable to be used for the purpose
which the parties contemplated.
Because of that period of possible contamination, the
SC held that there could be no liability for breach of
warranty against hidden defects.
Take note under Art. 1562, we have 2 kinds of implied
warranties there. This is in connection with the implied
warranty against hidden defects. We have the implied
warranty as to the MERCHANTABILITY of the goods.
When we talk about merchantability: General
purpose, that the goods shall be of merchantable
quality for the general purpose. And then warranty as
to the FITNESS: that the goods that were bought are
reasonably fit for such specific purpose.
Art.1563.
In the case of contract of sale of a specified article
under its patent or other trade name, there is no
warranty as to its fitness for any particular purpose,
unless there is a stipulation to the contrary.
So sale under Patent or Tradename: no warranty as
to its fitness for any particular purpose unless there is
a stipulation to the contrary.
Under Art. 1564, implied warranty with regard to the
usage of trade.
Art. 1564.
An implied warranty or condition as to the quality or
fitness for a particular purpose may be annexed by
the usage of trade.
Then Art. 1565, with regard to a sale by sample.
Art. 1565.
In the case of a contract of sale by sample, if the
seller is a dealer in goods of that kind, there is an
implied warranty that the goods shall be free from any
defect rendering them unmerchantable which would
not be apparent on reasonable examination of the
sample.
Take note of:
Art. 1566.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 36
The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though
he was not aware thereof.
This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the
hidden faults or defects in the thing sold.
Art. 1566 tells us that the good faith on the part of the
vendor is not a defense available to him. So whether
he had knowledge or not of the said hidden defects,
he could still be held liable. However, this do not
apply if the contrary has been stipulated and the
vendor was not aware of the hidden defaults or
defects in the thing sold. In other words, there is a
waiver on the part of the vendee, but there is no bad
faith on the part of the vendor.
But then again, just because the vendor was not
aware of the said hidden defects does not necessarily
mean that he could not be held liable.
Now we have the case of Supercars:
SUPERCARS MANAGEMENT AND
DEVELOPMENT CORPORATION v. FLORES
FACTS:
Respondent Flores bought an Isuzu Carter Crew Cab
from petitioner. The RCBC financed the balance of
the purchase price. Its payment was secured by a
chattel mortgage of the same vehicle. However,
defects of the car emerged when respondent was
using it. These defects persuaded respondent Flores
to rescind the contract with petitioner and stop the
payment of the balance for the aforesaid car.
As a result, RCBC bank opted to file a petition for
Extrajudicial Foreclosure of Chattel Mortgage. The car
was then sold at a public auction and RCBC acquired
the same. It was later sold to a third person. Petitioner
contends that respondent has "no right to rescind the
contract of sale" because the motor vehicle in
question is already in the hands of a third party.
Hence, Article 1191 can no longer be availed of by
the respondent.
ISSUE:
Whether or not Article 1191 can no longer be availed
of by respondent Flores.
RULING:
Article 1191 is applicable. Rescission is proper if one
of the parties to a contract commits a substantial
breach of its provision. It creates an obligation to
return the object of the contract. It can be carried out
only when the one who demands rescission can
return whatever he may obliged to restore.
Rescission abrogates the contract from its inception
and requires a mutual restitution of the benefits
received. Respondent is not obliged to return the car;
while petitioner is obliged to return what has been
paid.
Take note that when we’re talking about hidden
defects, of course if you are the buyer, even if there is
an implied warranty against hidden defects, before
purchase you also check the quality thereof. That’s
why we have this Latin maxim: CAVEAT EMPTOR –
Buyer Beware.
We also have the corresponding principle with regard
to the vendor. With regard to warranty against hidden
defects, the good faith on the part of the vendor could
not be used as a defense so as not be held liable. So
that is CAVEAT VENDITOR. The seller must also be
aware of the nature of the property he is selling,
because otherwise if there is a hidden defect, he
could still be held liable despite good faith.
Art. 1567.
In the cases of Articles 1561, 1562, 1564, 1565 and
1566, the vendee may elect between withdrawing
from the contract and demanding a proportionate
reduction of the price, with damages in either case.
So you have here 2 remedies in relation to warranty
against hidden defects, provided in Art. 1561, 1562,
1564, 1565, and 1566.
You have Accion Redhibitoria, and Accion Quanti-
minoris. So with regard to remedy drawing from the
sale, we have Accion redhibitoria: proportionate
reduction, and accion quanti-minoris: damages in
either case.
Art. 1568.
If the thing sold should be lost in consequence of the
hidden faults, and the vendor was aware of them, he
shall bear the loss, and shall be obliged to return the
price and refund the expenses of the contract, with
damages. If he was not aware of them, he shall only
return the price and interest thereon, and reimburse
the expenses of the contract which the vendee might
have paid.
You apply Art. 1568 if the reason of the loss is the
hidden defects, and the vendor was aware of them.
So the vendor shall bear the loss, must return the
price, and refund the expenses. If he was not aware
of them, but again the loss was due to the hidden
faults, his liability is to return the price and interest,
and reimburse the expenses.
Art. 1569.
If the thing sold had any hidden fault at the time of the
sale, and should thereafter be lost by a fortuitous
event or through the fault of the vendee, the latter
may demand of the vendor the price which he paid,
less the value which the thing had when it was lost.
This time in Art. 1569, the thing was lost NOT due to
the hidden defect, but because of a fortuitous event or
thru the fault of the vendee. Nevertheless, the said
subject matter HAD a hidden defect at the time of its
loss. So here the remedy is to demand the vendor the
price which was paid, LESS the value which the thing
has when it was lost. However, if the vendor is in bad
faith, he shall also be liable for damages.
So what are the remedies here that we have
discussed? The remedies available to the BUYER:
1. Withdraw from the contract with damages
(1567)
2. Demand a proportionate reduction of the
price with damages (1567)
3. Demand from the seller the return of the
price, refund of the expenses with damages,
if the thing sold should be lost in
consequence of the hidden faults and the
seller was aware of such faults (1568)
4. Demand from the seller the return of the
price and interest, reimbursement of the
expenses of the contract which the buyer
might have paid, if the thing sold should be
lost in consequence of the hidden faults, and
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 37
the seller was NOT aware of such faults
(1568)
5. Demand the price, less the value which the
thing had when it was lost, if the thing sold
had hidden faults at the time of the sale and
thereafter lost thru fortuitous event or fault by
the buyer (1569)
6. Demand the price paid, less the value which
the thing had when it was lost plus
damages, if the thing sold had any hidden
fault at the time of the sale and thereafter
lost thru fortuitous event or fault by the
buyer, AND the seller acted in bad faith
(1569)
Art. 1570 and the next articles shall apply to judicial
sales except that the judgment debtor should not be
liable for damages.
Prescriptive period –
Art. 1571.
Actions arising from the provisions of the preceding
ten articles shall be barred after six months, from the
delivery of the thing sold.
Again, 6 months from the delivery of the thing sold.
I would also like to discuss to you very briefly RA
7394 (Consumer Act), because it also discusses the
remedies available under the said special law.
RA 7394 refers to consumer products, goods which
are primarily for personal, family, household, or
agricultural purposes which shall include but not
limited to food, drugs (not the illegal ones), cosmetics
and devices. Take note what are the things or goods
covered under the said law.
We have under the said law, Art. 68 with regard to
warranty.
Art. 68.
a) Terms of express warranty. – Any seller or
manufacturer who gives an express warranty
shall:
1) set forth the terms of warranty in clear and
readily understandable language and clearly
identify himself as the warrantor;
2) identify the party to whom the warranty is
extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event
of a defect, malfunction of failure to conform
to the written warranty and at whose
expense;
5) state what the consumer must do to avail of
the rights which accrue to the warranty; and
6) stipulate the period within which, after notice
of defect, malfunction or failure to conform to
the warranty, the warrantor will perform any
obligation under the warranty.
Xxx
d) Minimum standards for warranties. – For the
warrantor of a consumer product to meet the
minimum standards for warranty, he shall:
1) remedy such consumer product within a
reasonable time and without charge in case
of a defect, malfunction or failure to conform
to such written warranty;
2) permit the consumer to elect whether to ask
for a refund or replacement without charge of
such product or part, as the case may be,
where after reasonable number of attempts
to remedy the defect or malfunction, the
product continues to have the defect or to
malfunction.
The warrantor will not be required to perform the
above duties if he can show that the defect,
malfunction or failure to conform to a written
warranty was caused by damage due to
unreasonable use thereof.
By now you very well know that even if stores will post
“No return, no exchange” policy, that is not
necessarily true. Of course if the good sold has
hidden defects, you can return it or have it
exchanged. But just because we know that the “No
return, no exchange” is not really a policy under our
law, it does not necessarily mean that for every
contract sale, you can return it. That is with regard to
hidden defects. Just because you changed your mind,
just like when a girl changes clothes, ay di na diay ko
ganahan ani nga color, gwapo lang diay ang suga sa
fitting room kaso paglabas iba na pala, pangit pala
ang tingin mo sa sarili mo, you cannot return it to the
store just because you changed your mind.
Even with regard to sizes, you cannot necessarily say
na “ay ipa change kay namali ug size.” That’s not one
of those provided under the rule. But if the store is
willing to change that, because you miscalculated the
size, there's no problem if the store itself will allow
that. But you cannot force the store based on the
Consumer Act.
What is protected by the law is to return goods bought
from a store because of the hidden defects. They
cannot say na “wala man gud nimo gitan-aw. So
dapat before nimo gitan-aw, Makita nmo na kulang
ang butones, may tahi na loose ends, so you can
return it based on those kind of defense.
In the same law, you have there the period of
warranty.
It is also mandated that all written warranties
or guarantees issued by a manufacturer,
producer, or importer shall be operative from
the moment of sale.
Nevertheless, the seller and the consumer
may stipulate the period within which the
express warranty shall be enforceable. If the
implied warranty on merchantability
accompanies an express warranty, both will
be of equal duration.
Any other implied warranty shall endure not
less than sixty (60) days nor more than one
(1) year following the sale of new consumer
products.
It is still under art. 68, the period within which the
express warranty shall be enforceable, normally yung
7 days, diba within 7 days you can return it or have it
exchanged. Because they deem it na if you are going
to purchase such goods, this is reasonable time for
you to check if these are of good quality or without
hidden defects.
For any other kinds of implied warranty, not less
than 60 days but not more than 1 year. But again this
is with regard to goods that are covered by the
Consumer Act. So yung sabi natin na 6 months, those
are as to goods that are not covered by the Consumer
Act.
So that’s the law here in the Philippines. Because in
other countries, meron mang “no return, no exchange,
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 38
no questions asked”. Sometimes, I think, as long as
andiyan pa yung tag.
This one, cameras. As long as they take care of it and
within the period provided, then ibalik nila basta
walang defect, parang brand new pa rin siya.
Pwede yun sa States, ditto di yan pwede ha.
Now let’s go to HIDDEN DEFECTS ON ANIMALS.
Art. 1572.
If two or more animals are sold together, whether for
a lump sum or for a separate price for each of them,
the redhibitory defect of one shall only give rise to its
redhibition, and not that of the others; unless it should
appear that the vendee would not have purchased the
sound animal or animals without the defective one.
The latter case shall be presumed when a team, yoke
pair, or set is bought, even if a separate price has
been fixed for each one of the animals composing the
same.
Alright, redhibitory defects on animals. It’s not just a
hidden defect, this is very particular to animals
wherein even in case of professional inspection, it is
of such nature that expert knowledge is not sufficient
to discover it.
Under Art. 1572, yung two or more animals sold
together, regardless if lump sum or for a separate
price, the redhibitory defect of one shall not give rise
to the redhibition of the other that was sold. That’s the
general rule. Unless, it should appear that they
wouldn’t have purchased that animal without the
defect, without the other one which has a defect.
For example, lovebirds. Pair man jud yan ginabili.
Makabili k aba ng lovebirds na isa lang? Or lovebird
pa rin ba sya kung isa lang? Sabi nila diba na if
mamatay yung isang lovebird, mamatay na rind aw
yung isa. So if binili mo yung lovebirds, then at the
time of sale may sakit na yung isa, so what is the
effect? The redhibitory defect applies here. It applies
to both.
But again, that is only applicable if you wouldn’t have
bought the one without the other. Otherwise, the
redhibitory effect will not affect the other, where you
can apply breach of warranty.
So again, presumption applies that the defect of one
affects the other when you buy a team, a pair, even if
for separate prices.
Art. 1574.
There is no warranty against hidden defects of
animals sold at fairs or at public auctions, or of live
stock sold as condemned.
You already know that when you bought these
animals, they were already sold as such.
Art. 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.
So sale of animals suffering from contagious
diseases, yung Mad Cow, Bird Flu. The law is very
clear, void yung sale. What do we have here? The
subject matter is not valid, and the law specifically
provides that the sale is VOID.
Also 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. For example, you purchase
a cow, and you specifically want a breeding cow, so
yun yung purpose mo. So what would happen if it
turns out that hindi siya maka breed kay lalaki pala.
VOID din ang sale.
Art. 1576.
If the hidden defect of animals, even in case a
professional inspection has been made, should be of
such a nature that expert knowledge is not sufficient
to discover it, the defect shall be considered as
redhibitory.
But if the veterinarian, through ignorance or bad faith
should fail to discover or disclose it, he shall be liable
for damages.
So as mentioned, the 1st paragraph provides when is
nd
the defect considered redhibitory, and the 2
paragraph is the liability of the veterinarian in case of
his ignorance or bad faith, he fails to discover or
disclose the redhibitory defect.
Now prescriptive period, Art. 1577.
Art. 1577.
The redhibitory action, based on the faults or defects
of animals, must be brought within forty days from the
date of their delivery to the vendee.
This action can only be exercised with respect to
faults and defects which are determined by law or by
local customs.
Alright, so yung 6 months will not apply to animals
because when it comes to animals, 40 days from the
date of their delivery. Very easy to remember, 40
days animals = 40 days Noah’s ark.
Art. 1578.
If the animal should die within three days after its
purchase, the vendor shall be liable if the disease
which cause the death existed at the time of the
contract.
Art. 1579
If the sale be rescinded, the animal shall be returned
in the condition in which it was sold and delivered, the
vendee being answerable for any injury due to his
negligence, and not arising from the redhibitory fault
or defect.
So rescission, ibalik yung animal. But take note that
the vendee will still have to exercise diligence. Just
because may sakit, ah mamatay na bitaw na, di
napud nimo pakaunon. The vendee still has to take
care of it because any further injury NOT arising from
the redhibitory defect, the vendee shall be held liable.
Art. 1580.
In the sale of animals with redhibitory defects, the
vendee shall also enjoy the right mentioned in article
1567; but he must make use thereof within the same
period which has been fixed for the exercise of the
redhibitory action.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 39
Art. 1581.
The form of sale of large cattle shall be governed by
special laws.
October 6, 2015
PART IX: EXTINGUISHMENT OF SALE
Last stage in a contract of sale – the extinguishment
thereof.
The grounds in extinguishing a contract of sale is the
same as that with what you discussed under your
Obligations and Contracts. Take a look at article 1600
wherein it states that Sales are extinguished by the
same causes as all other obligations, by those stated
in the preceding articles of this Title, and by
conventional or legal redemption.In other words we
have payment, performance, loss of the thing due,
novation, condonation and confusion or merger of
rights, as well as the happening of a resolutory
condition, prescription, among others.
Now, this Chapter 7 in Contract of Sales deals
specifically with conventional redemption. These are
special modes of extinguishing a contract, specifically
applicable to contracts of sale only.
There are 2 kinds of redemption that are mentioned
here: conventional redemption and legal redemption.
Article 1601 – Article 1618 deals with conventional
redemption, while the rest of the article, 1619 until
1623 refer to legal redemption.
Distinction between these two types of redemption:
when you talk about conventional redemption, you
already know that when you say conventional, it is by
agreement by the parties. Voluntarily agreed upon by
the parties. What happens here that yung
conventional redemption must be reserved at the time
of the perfection of a contract of sale. In other words,
the parties must stipulate therein that the right to
redeem or the right to repurchase as to the seller is
available.
With conventional redemption, the right which the
vendor reserves to himself to reacquire the property
sold must be provided in the contract of sale,
provided he returns to the vendee the price of the
sale, expenses, other legitimate payments necessary
useful expenses and other stipulations as agreed
upon by the parties.
Take note here, that in a conventional redemption, the
right is exercised only by the seller to whom right is
recognized in the contract or by any person to whom
right was transferred, again, must be in the same
contract. The vendor here reserves the right to
himself to reacquire the property sold, of course with
reimbursement.
With the succeeding articles in this chapter, we will
also deal with the period when can the seller redeem
the said property that he has already sold.
To distinguish from legal redemption, legal
redemption, certain persons are given the right, under
the law, to redeem the property that was already sold.
You have here, with regard to co-owners, adjoining
co-owners, even co-heirs and as well as sale on
credit in obligation.
Conventional Redemption
Article 1601. Conventional redemption shall take
place when the vendor reserves the right to
repurchase the thing sold, with the obligation to
comply with the provisions of article 1616 and
other stipulations which may have been agreed
upon.
This is what I have mentioned to you earlier. Article
1616 refers to those expenses that should be
reimbursed by the vendor to the vendee.
You have this important provision, Article 1602.
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;
(2) When the vendor remains in
possession as lessee or otherwise;
(3) When upon or after the expiration of
the right to repurchase another
instrument extending the period of
redemption or granting a new period is
executed;
(4) When the purchaser retains for
himself a part of the purchase price;
(5) When the vendor binds himself to pay
the taxes on the thing sold;
(6) In any other case where it may be
fairly inferred that the real intention of the
parties is that the transaction shall
secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits,
or other benefit to be received by the vendee as
rent or otherwise shall be considered as interest
which shall be subject to the usury laws.
You have in Article 1602 several instances wherein if
any of the following are present, the contract shall be
presumed an equitable mortgage.
What is an equitable mortgage?
ALUDOS VS SUERTE
FACTS: Lomises acquired from Baguio City
Government the right to occupy two stalls in the
Hangar Market in Baguio City. Lomises entered into
an agreement with respondent johnnySuerte for the
transfer of all improvements and rights over the two
market stalls. Suerte gave down payment and there is
a receipt. Suerte gave another payment but before
the completion of payment, Lomises backed out of the
agreement and returned what was paid and there was
a receipt for this. Johnny did not want the return of his
money and wanted the continuation and enforcement
of his agreement. He filed for specific performance
with damages.
RTC: nullified the agreement between johnny and
Lomises for failure to secure the consent of the
baguio city government and held that Lomises are
merely lessees and the government was the lessor
owner of stalls. Lomises appealed to CA: the real
agreement between the parties was merely one of
loan and not for sale. The load had been extinguished
upon the return of amount to Johnny’s mother Domes.
CA: there are two agreements entered into between
Johnny and Lomises: one for assignment of leasehold
rights and the other was for the sale of the
improvements on the market stalls. The assignment
of leasehold rights was void for lack of consent of the
lessor, Baguio government. The sale of improvements
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 40
was valid because there were Lomises private
properties.
Petitioner: agreement was a loan.
ISSUE: W/N the CA was correct in characterizing the
agreement between Johnny and Lomises as a sale of
improvements and assignment of leasehold rights
HELD: What existed was an equitable mortgage, as
contemplated in Article 1602, in relation with Article
1604, of the Civil Code. “An equitable mortgage has
been defined ‘as one which although lacking in some
formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as
security for a debt, there being no impossibility nor
anything contrary to law in this intent. Article 1602 of
the Civil Code lists down the circumstances that may
indicate that a contract is an equitable mortgage:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
When the price of a sale with right to repurchase is
unusually inadequate;
When the vendor remains in possession as lessee or
otherwise;
When upon or after the expiration of the right to
repurchase another instrument extending the period
of redemption or granting a new period is executed;
When the purchaser retains for himself a part of the
purchase price;
When the vendor binds himself to pay the taxes on
the thing sold;
In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the
performance of any other obligation.
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest.
Based on Lomises’ allegations in his pleadings, we
consider three circumstances to determine whether
his claim is well supported. First, Johnny was a mere
college student dependent on his parents for support
when the agreement was executed, and it was
Johnny’s mother, Domes, who was the party actually
interested in acquiring the market stalls. Second,
Lomises received only P48,000.00 of the P68,000.00
that Johnny claimed he gave as down payment;
Lomises said that the P20,000.00 represented
interests on the loan. Third, Lomises retained
possession of the market stalls even after the
execution of the agreement. Whether separately or
taken together, these circumstances do not support a
conclusion that the parties only intended to enter into
a contract of loan.
That Johnny was a mere student when the agreement
was executed does not indicate that he had no
financial capacity to pay the purchase price. At that
time, Johnny was a 26-year old third year engineering
student who operated as a businessman as a sideline
activity and who helped his family sell goods in the
Hangar Market. During trial, Johnny was asked where
he was to get the funds to pay the P260,000.00
purchase price, and he said he would get a loan from
his grandfather. That he did not have the full amount
at the time the agreement was executed does not
necessarily negate his capacity to pay the purchase
price, since he had 16 months to complete the
payment. Apart from Lomises’ bare claim that it was
Johnny’s mother, Domes, who was interested in
acquiring his market stalls, we find no other evidence
supporting the claim that Johnny was merely acting
as a dummy for his mother.
Lomises contends that of the P68,000.00 given by
Johnny, he only received P48,000.00, with the
remaining P20,000.00 retained by Johnny as interest
on the loan. However, the testimonies of the
witnesses presented during trial, including Lomises
himself, negate this claim. Judge Rodolfo Rodrigo
(RTC of Baguio City, Branch VII) asked Lomises’
lawyer, Atty. Lockey, if they deny receipt of the
P68,000.00; Atty. Lockey said that they were not
denying receipt, and added that they had in fact
returned the same amount. Judge Rodrigo accurately
summarized their point by stating that “there is no
need to dispute whether the P68,000.00 was given,
because if [Lomises] tried to return that x xx he had
received that. Witness Atty. Albert Umaming said he
counted the money before he drafted the October 9,
1985 receipt evidencing the return; he said that
Lomises returned P68,000.00 in total. Thus, if the
transaction was indeed a loan and the P20,000.00
interest was already prepaid by Lomises, the return of
the full amount of P68,000.00 by Lomises to Johnny
(through his mother, Domes) would not make sense.
That Lomises retained possession of the market stalls
even after the execution of his agreement with Johnny
is also not an indication that the true transaction
between them was one of loan. Johnny had yet to
complete his payment and, until Lomises decided to
forego with their agreement, had four more months to
pay; until then, Lomises retained ownership and
possession of the market stalls.
Lomises cannot feign ignorance of the import of the
terms of the receipt of September 8, 1984 by claiming
that he was an illiterate old man. A witness (Ana
Comnad) testified not only of the fact of the sale, but
also that Lomises’ daughter, Dolores, translated the
terms of the agreement from English to Ilocano for
Lomises’ benefit. Lomises himself admitted this fact. If
Lomises believed that the receipt of September 8,
1984 did not express the parties’ true intent, he could
have refused to sign it or subsequently requested for
a reformation of its terms. Lomises rejected the
agreement only after Johnny sought to enforce it.
Hence, the CA was correct in characterizing the
agreement between Johnny and Lomises as a sale of
improvements and assignment of leasehold rights.
What do you mean by an equitable mortgage?
Do you have an Equitable Mortgage in this case?
What was the contract entered into by the parties in
this case?
In this case of Aludos vs. Suerte, you have there, as
well as in other cases decided by the Supreme Court,
the definition of an equitable mortgage. – “one which
although lacking in some formality” in other words,
lacks the formality of a mortage which we will discuss
later on in your credit transactions, “or form or words,
or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to
charge real property as security for a debt,” because
that is the purpose of mortgage. It is an accessory
contract wherein it secures the principal obligation
which is a debt or a loan.
But in an equitable mortgage, what the parties
executed can be a deed of sale or contracts of sale
with a right to repurchase, but the true intention was
really to have that document or to have the property
covered in that contract as a security for the debt.
Here, there being no impossibility nor anything
contrary to law in this intent.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 41
In this case it was alleged that there was a loan and
what was the intention when they executed the
contract, it was merely an equitable mortgage. What
were the allegations here? Johnny was just a student
and therefore could not afford to pay the purchase
price; and that while he received 68 000, 20 000 was
only interest and third, retention of the possession by
the petitioner as to the market stalls. Under 1602, you
have there in (2) When the vendor remains in
possession as lessee or otherwise. That was the
basis of the allegation here of the petitioner that what
they have was an equitable mortgage. But the
Supreme Court said “no”. These circumstances will
not support a conclusion that the parties only intended
to enter into a contract of loan. The mere fact that
Johnny was a mere student does not mean that he
could not afford to purchase. The fact that it was
payable in installment would also mean that he can
afford it.
Second, It would be impossible to have that 20 000
considered as interest because there was an
allegation here that it was the full amount of 68000
was returned. If it was really an interest, why would it
be returned to the parents of Johnny?
Lastly, the retention of the possession of the market
stalls, even after the execution of the contract will not
result to an equitable mortgage because here,
successive payments is yet to be made by Johnny.
So the true intention here was really a contract of
sale.
KINGS PROPERTIES CORP., VS. CANUTO A.
GALIDO
FACTS: This case involves an action for cancellation
of certificates of title, registration of deed of sale and
issuance of certificates of title filed by Canuto A.
Galido before the RTC of Antipolo City. On April 18,
1966, the heirs of Eniceo, namely Rufina and Maria
Eniceo, were awarded with Homestead Patent
consisting of four parcels of land located in San Isidro,
Antipolo, Rizal. The Antipolo property with a total area
of 14.8882 hectares was registered under OCT No.
535.
The issuance of the homestead patent was subject to
the following conditions:
“To have and to hold the said tract of land, with the
appurtenances thereunto of right belonging unto the
said Heirs of Domingo Eniceo and to his heir or heirs
and assigns forever, subject to the provisions of
sections 118, 121, 122 and 124 of Commonwealth
Act No. 141, as amended, which provide that except
in favor of the Government or any of its branches,
units or institutions, the land hereby acquired shall be
inalienable and shall not be subject to incumbrance
for a period of five (5) years next following the date of
this patent, and shall not be liable for the satisfaction
of any debt contracted prior to the expiration of that
period; that it shall not be alienated, transferred or
conveyed after five (5) years and before twenty-five
(25) years next following the issuance of title, without
the approval of the Secretary of Agriculture and
Natural Resources; that it shall not be incumbered,
alienated, or transferred to any person, corporation,
association, or partnership not qualified to acquire
public lands under the said Act and its amendments; x
xx”
On September 1973, a deed of sale covering the
Antipolo property was executed between
RufinaEniceo and Maria Eniceo as vendors and
respondent as vendee. The property was sold to
respondent for P250,000. A certain Carmen Aldana
delivered the owner's duplicate copy of OCT No. 535
to respondent.
On 1988, the Eniceo heirs registered with the Registry
of Deeds a Notice of Loss of the owner's copy of OCT
No. 535.
RTC rendered a decision finding that the certified true
copy of OCT No. 535 contained no annotation in favor
of any person, corporation or entity. The RTC ordered
the Registry of Deeds to issue a second owner's copy
of OCT No. 535 in favor of the Eniceo heirs and
declared the original owner's copy of OCT No. 535
canceled and considered no further value.
Petitioner states that as early as 1991, respondent
knew of the RTC decision because respondent filed a
criminal case against RufinaEniceo and Leonila
Bolinas for giving false testimony upon a material fact
during the trial. They alleged that sometime in 1995,
Bolinas came to the office of Alberto Tronio Jr.,
petitioner's general manager, and offered to sell the
Antipolo property. During an on-site inspection, Tronio
saw a house and ascertained that the occupants were
Bolina's relatives. Tronio also went to the Registry of
Deeds to verify the records on file and ascertained
that OCT No. 535 was clean and had no lien and
encumbrances. After the necessary verification,
petitioner decided to buy the Antipolo property.
On March 20, 1995, the Eniceo heirs executed a deed
of absolute sale in favor of petitioner covering lots 3
and 4 of the Antipolo property for P500,000.00.
On August 17, 1995, the Secretary of Department of
Environment and Natural Resources (DENR
Secretary) approved the deed of sale between the
Eniceo heirs and respondent. On January 1996,
respondent filed a civil complaint with the trial court
against the Eniceo heirs and petitioner praying for the
cancellation of the certificatesof title issued in favor of
petitioner, and the registration of the deed of sale and
issuance of a new transfer certificate of title in favor of
respondent.
The trial court rendered its decision dismissing the
case for lack of legal and factual basis. However, the
CA reversed the trial court's decision.
ISSUE: Whether the deed of sale delivered to
respondent should be presumed an equitable
mortgage pursuant to Article 1602(2) and 1604 of the
Civil Code.
HELD: Validity of the deed of sale to respondent
The contract between the Eniceo heirs and
respondent executed on 10 September 1973 was a
perfected contract of sale. A contract is perfected
once there is consent of the contracting parties on the
object certain and on the cause of the obligation. In
the present case, the object of the sale is the Antipolo
property and the price certain is P250,000.
The contract of sale has also been consummated
because the vendors and vendee have performed
their respective obligations under the contract. In a
contract of sale, the seller obligates himself to transfer
the ownership of the determinate thing sold, and to
deliver the same to the buyer, who obligates himself
to pay a price certain to the seller. The execution of
the notarized deed of sale and the delivery of the
owners duplicate copy of OCT No. 535 to respondent
is tantamount to a constructivedelivery of the object of
the sale.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 42
Petitioner invokes the belated approval by the DENR
Secretary, made within 25 years from the issuance of
the homestead, to nullify the sale of the Antipolo
property. The sale of the Antipolo property cannot be
annulled on the ground that the DENR Secretary gave
his approval after 21 years from the date the deed of
sale in favor of respondent was executed.
Equitable Mortgage
Petitioner contends that the deed of sale in favor of
respondent is an equitable mortgage because the
Eniceo heirs remained in possession of the Antipolo
property despite the execution of the deed of sale.
An equitable mortgage is one which although lacking
in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the
intention of the parties to charge real property as
security for a debt, and contains nothing impossible or
contrary to law. The essential requisites of an
equitable mortgage are:
1. The parties entered into a contract denominated as
a contract of sale; and
2. Their intention was to secure existing debt by way
of a mortgage.
Petitioner claims that an equitable mortgage can be
presumed because the Eniceo heirs remained in
possession of the Antipolo property. Apart from the
fact that the Eniceo heirs remained in possession of
the Antipolo property, petitioner has failed to
substantiate its claim that the contract of sale was
intended to secure an existing debt by way of
mortgage. In fact, mere tolerated possession is not
enough to prove that the transaction was an equitable
mortgage.
Furthermore, petitioner has not shown any proof that
the Eniceo heirs were indebted to respondent. On the
contrary, the deed of sale executed in favor of
respondent was drafted clearly to convey that the
Eniceo heirs sold and transferred the Antipolo
property to respondent. The deed of sale even
inserted a provision about defrayment of registration
expenses to effect the transfer of title to respondent.
The Court notes that the Eniceo heirs have not
appealed the CAs decision, hence, as to the Eniceo
heirs, the CAs decision that the contract was a sale
and not an equitable mortgage is now final. Since
petitioner merely assumed the rights of the Eniceo
heirs, petitioner is now estopped from questioning the
deed of sale dated 10 September 1973.
Among the circumstances in 1602, what was the
basis of their allegation of an equitable mortgage?
Do we have an equitable mortgage here?
What was the reason why this was an equitable
mortgage? Just mere tolerance? There was failure to
show that there was a principal obligation. They only
alleged that there is an equitable mortgage because
the vendor is in possession of the said property. But if
you are going to allege that there is an equitable
mortgage, make sure that you will also allege that
there is a principal contract being secured by that
alleged mortgage. In this case, wala.
Here, you have your essential requisites of an
equitable mortgage. The Supreme Court defined what
an equitable mortgage is with the following essential
requisites:
1. The parties entered into a contract
denominated as a contract of sale; and
2. Their intention was to secure existing debt by
way of a mortgage.
To apply the presumption of equitable mortgage,
there must be: (1) something in the language of the
contract; or (2) in the conduct of the parties which
shows clearly and beyond doubt that they intended
the contract to be a mortgage and not a pacto de retro
sale. – Pacto de retro sale, contract of sale with right
to repurchase.
The presumption under 1602 is not conclusive as it
can be rebutted by competent and satisfactory proof
to the contrary, which is present in this case. It
showed that the parties really had an intention for the
said sale. Further, petitioner has failed to substantiate
its claim that the sale was intended to secure an
existing debt by way of mortgage. In fact, mere
tolerated possession is not enough to prove that the
transaction was an equitable mortgage. Petitioner has
not shown any proof that the heirs were indebted to
respondent.
HEIRS OF THE LATE SPOUSES BALITE VS. LIM
FACTS: Spouses Aurelio and Esperanza Balite were
the owners of a parcel of land. When Aurelio died
intestate, his wife Esperanza and their children
inherited the subject property and became co-owners
thereof. Esperanza became ill and was in dire need of
money for her hospital expenses. She, through her
daughter, Criseta, offered to sell to Rodrigo Lim, her
undivided share for the price of P1 mil. Esperanza
and Rodrigo agreed that under the Deed of Absolute
Sale, it will be made to appear that the purchase price
of the property was P150,000 although the actual
price agreed upon by them for the property was
P1mil.
On April 16, 1996, Esperanza executed a Deed of
Absolute Sale in favor of Rodrigo. They also executed
on the same day a Joint Affidavit under which they
declared that the real price of the property was P1mil.
payable to Esperanza by installments. Only
Esperanza and two of her children Antonio and
Criseta knew about the said transaction. When the
rest of the children knew of the sale, they wrote to the
Register of Deeds saying that their mother did not
inform them of the sale of a portion of the said
property nor did they give consent thereto.
Nonetheless, Rodrigo made partial payments to
Antonio who is authorized by his mother through a
Special Power of Attorney.
Esperanza signed a letter addressed to Rodrigo
informing the latter that her children did not agree to
the sale of the property to him and that she was
withdrawing all her commitments until the validity of
the sale is finally resolved. Then Esperanza died
intestate and was survived by her children.
Meanwhile, Rodrigo caused to be published the Deed
of Absolute Sale.
Petitioners filed a complaint against Rodrigo for the
annulment of sale, quieting of title, injunction and
damages. Rodrigo secured a loan from the Rizal
commercial Banking Corporation in the amount of
P2mil and executed a Real Estate Mortgage over the
property as security thereof. On motion of the
petitioners, they were granted leave to file an
amended complaint impleading the bank as additional
party defendant. The court issued an order rejecting
the amended complaint of the petitioners. Likewise,
the court dismissed the complaint and held that
pursuant to Article 493 of the Civil Code, a co-owner
is not invalidated by the absence of the consent of the
co-owners. Hence, the sale by Esperanza of the
property was valid; the excess from her undivided
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 43
share should be taken from the undivided shares of
Criseta and Antonio, who expressly agreed to and
benefited from the sale.
The CA likewise held that the sale was valid and
binding insofar as Esperanza's undivided share of the
property was concerned. It affirmed the RTC ruling
that the lack of consent of the co-owners did not
nullify the sale.
ISSUE: Whether or not the Deed of Absolute Sale
was valid. - Deed of Absolute Sale was merely
relatively simulated, it remains valid and enforceable.
HELD:
Validity of the Sale
We have before us an example of a simulated
contract. Article 1345 of the Civil Code provides that
the simulation of a contract may either be absolute or
relative. In absolute simulation, there is a colorable
contract but without any substance, because the
parties have no intention to be bound by it. An
absolutely simulated contract is void, and the parties
may recover from each other what they may have
given under the contract. On the other hand, if the
parties state a false cause in the contract to conceal
their real agreement, such a contract is relatively
simulated. Here, the parties’ real agreement binds
them.
In the present case, the parties intended to be bound
by the Contract, even if it did not reflect the actual
purchase price of the property. That the parties
intended the agreement to produce legal effect is
revealed by the letter of Esperanza Balite to
respondent dated October 23, 1996 and petitioners
admission that there was a partial payment of
P320,000 made on the basis
of the Deed of Absolute Sale. There was an intention
to transfer the ownership of over 10,000 square
meters of the property . Clear from the letter is the
fact that the objections of her children prompted
Esperanza to unilaterally withdraw from the
transaction.
Since the Deed of Absolute Sale was merely relatively
simulated, it remains valid and enforceable. All the
essential requisites prescribed by law for the validity
and perfection of contracts are present. However, the
parties shall be bound by their real agreement for a
consideration of P1,000,000 as reflected in their Joint
Affidavit.
Deed of Sale not an Equitable Mortgage
For Articles 1602 and 1604 to apply, two requisites
must concur: one, the parties entered into a contract
denominated as a contract of sale; and, two, their
intention was to secure an existing debt by way of
mortgage.
In the present case, however, the Contract does not
merely purport to be an absolute sale. The records
and the documentary evidence introduced by the
parties indubitably show that the Contract is, indeed,
one of absolute sale. There is no clear and convincing
evidence that the parties agreed upon a mortgage of
the subject property.
Furthermore, the voluntary, written and unconditional
acceptance of contractual commitments negates the
theory of equitable mortgage. There is nothing
doubtful about the terms of, or the circumstances
surrounding, the Deed of Sale that would call for the
application of Article 1602. The Joint Affidavit
indisputably confirmed that the transaction between
the parties was a sale.
We find no basis to conclude that the purchase price
of the property was grossly inadequate. Petitioners
did not present any witness to testify as to the market
values of real estate in the subjects locale. They
made their claim on the basis alone of the P2,000,000
loan that respondent had been able to obtain from the
Rizal Commercial Banking Corporation. This move
did not sufficiently show the alleged inadequacy of the
purchase price. A mortgage is a mere security for a
loan. There was no showing that the property was the
only security relied upon by the bank; or that the
borrowers had no credit worthiness, other than the
property offered as collateral.
Co-Ownership
The appellate court was correct in affirming the
validity of the sale of the property insofar as the pro
indiviso share of Esperanza Balite was concerned.
Article 493 of the Civil Code gives the owner of an
undivided interest in the property the right to freely
sell and dispose of such interest. The co-owner,
however, has no right to sell or alienate a specific or
determinate part of the thing owned in common,
because such right over the thing is represented by
an aliquot or ideal portion without any physical
division. Nonetheless, the mere fact that the deed
purports to transfer a concrete portion does not per se
render the sale void. The sale is valid, but only with
respect to the aliquot share of the selling co-owner.
Furthermore, the sale is subject to the results of the
partition upon the termination of the co-ownership.
Hence, the transaction between Esperanza Balite and
respondent could be legally recognized only in
respect to the formers pro indiviso share in the co-
ownership. As a matter of fact, the Deed of Absolute
Sale executed between the parties expressly referred
to the 10,000-square-meter portion of the land sold to
respondent as the share of Esperanza in the conjugal
property. Her clear intention was to sell merely her
ideal or undivided share in it. No valid objection can
be made against that intent. Clearly then, the sale can
be given effect to the extent of 9,751 square meters,
her ideal share in the property as found by both the
trial and the appellate courts.
What is the basis of their allegation that it was an
equitable mortgage? Based on 1602
There are actually 2 issues here: 1)
There was relative simulation only. The issue is not
gross inadequacy. The gross inadequacy add --- to
the equitable mortgage. Looking at the facts, the
issue is not really gross inadequacy. The allegation of
the heirs herein is that it is undervalued for an
unlawful cause. “Under value to avoid payment of
higher taxes which should be mean as an unlawful
purpose.” But this is really not an unlawful purpose in
the sense that what you have here is a relatively
simulated contract. They had a real intention, the
contract with a price 1 million pesos and this was
shown by the joint affidavit which they executed.
Even if the deed of sale showed that the price was
only for 200 thousand, it did not negate the existence
of a valid contract of sale. If the parties state a false
cause to conceal their true agreement, such contract
is only relatively simulated and the parties shall be
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 44
bound by their real agreement which is the price of 1
million pesos. What was concealed was merely the
actual price. So the essential requisites are present
as in this case and the civil issue only refers to the
content of the contract. The agreement is absolutely
binding and enforceable between the parties and their
successors-in-interest.
In fact when you take a look at the case, there was a
mention that motive is different from cause because
here, the motive may be unlawful when they reduced
the price, but again, the cause is still present. It is not
an absolutely void or simulated cause or
consideration. If ever, then the government discovers
the undervalued price to avoid paying higher taxes,
then the government can collect additional taxes
based on the true price. But again it does not negate
the existence of a valid contract of sale.
In relation to equitable mortgage, the mere fact that
the price was less than the value does not necessarily
mean that you have an equitable mortgage. The two
requisites were mentioned in this case. It was also
emphasized that with regard to 1602, any of the
circumstances therein would be sufficient to give rise
to the presumption that there is an equitable
mortgage.
However, what you have here is not an equitable
mortgage. It is really a contract of sale. The record of
evidence introduced show that the contract is indeed
a contract of sale. No clear and convincing evidence
that the parties agreed upon a mortgage of the
subject property. There is nothing doubtful as to the
terms surrounding the deed of sale to apply 1602.
And this was confirmed by the joint affidavit executed
by the parties to the sale.
Petitioners did not present any witness to testify as to
market value of the said property. The basis alone of
the two million loan that the respondent had been
able to obtain.
Again, gross inadequacy of the price will not
necessarily invalidate the contract. So here, you have
a valid contract sale. No equitable mortgage.
So again, what are these instances? a) price
unusually inadequate; b) vendor remains in
possession; c) upon expiration of the right to
repurchase, there is an extension wherein no clear is
executed; d) purchaser retain for himself part of the
purchase price; e) the vendor binds himself to pay the
taxes of the thing sold; f) and in any other case
wherein it may refer that the intention are really
intended of the parties is really to secure the payment
of a debt or performance of any other obligation.
With this provision and the cases that we have
discussed what is the purpose of this provision, the
presumption of this equitable mortgage?
HEIRS OF REYES VS. REYES
FACTS: Antonio Reyes and his wife, Leoncia Mag-isa
Reyes (Leoncia), were owners of a parcel of
residential land located in Pulilan, Bulacan. On that
land they constructed their dwelling. The couple had
four children, namely: Jose, Sr., Teofilo, Jose, Jr. and
Potenciana. Antonio Reyes died intestate, and was
survived by Leoncia and their three sons. Potenciana
also died intestate, survived by her children.
On July 9, 1955, Leoncia and her three sons
executed a deed denominated Kasulatan ng Biling
Mabibiling Muli, whereby they sold the land and its
existing improvements to the Spouses Benedicto
Francia and Monica Ajoco (Spouses Francia) for
P500.00, subject to the vendors right to repurchase
for the same amount sa oras na sila'y makinabang.
Potencianas heirs did not assent to that deed.
Nonetheless, Teofilo and Jose, Jr. and their
respective families remained in possession of the
property and paid the realty taxes thereon.
Leoncia and her children did not repay the amount of
P500.00.
The Spouses Francia both died intestate. Alejandro,
the son of Jose, Sr., first partially paid to the Spouses
Francia the amount of P265.00 for the obligation of
Leoncia, his uncles and his father. Alejandro later
paid the balance of P235.00. Thus, on August 11,
1970, the heirs of Spouses Francia executed a deed
entitled Pagsasa-ayos ng Pag-aari at Pagsasalin,
whereby they transferred and conveyed to Alejandro
all their rights and interests in the property for
P500.00.
On August 21, 1970, Alejandro executed a Kasulatan
ng Pagmeme-ari, wherein he declared that he had
acquired all the rights and interests of the heirs of the
Spouses Francia, including the ownership of the
property, after the vendors had failed to repurchase
within the given period. On the basis of the Kasulatan
ng Pagmeme-ari, Tax Declaration was issued to
Alejandro. From then on, he had paid the realty taxes
for the property.
Nevertheless, on October 17, 1970, Alejandro, his
grandmother (Leoncia), and his father (Jose, Sr.)
executed a Magkakalakip na Salaysay, by which
Alejandro acknowledged the right of Leoncia, Jose,
Jr., and Jose, Sr. to repurchase the property at any
time for the same amount of P500.00.
On October 22, 1970, Leoncia died intestate. She
was survived by Jose, Sr., Teofilo, Jose, Jr. and the
heirs of Potenciana. Even after Leonicas death,
Teofilo and Jose, Jr., with their respective families,
continued to reside in the property.
On September 2, 1993, Alejandro also died intestate.
Surviving him were his wife, Amanda, and their
children. In 1994, respondent Amanda Reyes asked
the heirs of Teofilo and Jose, Jr., to vacate the
property because she and her children already
needed it. After the petitioners refused to comply, she
filed a complaint against the petitioners in the
barangay, seeking their eviction from the property.
When no amicable settlement was reached, the
Barangay Lupon issued a certification to file action to
the respondents on September 26, 1994.
In the interim, petitioner Nenita R. de la Cruz and her
brother Romeo Reyes also constructed their
respective houses on the property.
ISSUE: Whether or not the Court of Appeals erred in
finding that respondents (were) already barred from
claiming that the transaction entered into by their
predecessors-in-interest was an equitable mortgage
and not a pacto de retro sale.
RULING: The true agreement of the parties vis--vis
the Kasulatan ng Biling Mabibiling Muli was an
equitable mortgage, not a pacto de retro sale. There
was no dispute that the purported vendors had
continued in the possession of the property even after
the execution of the agreement; and that the property
had remained declared for taxation purposes under
Leoncias name, with the realty taxes due being paid
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 45
by Leoncia, despite the execution of the agreement.
Such established circumstances are among the
badges of an equitable mortgage enumerated in
Article 1602, paragraphs 2 and 5 of the Civil Code, to
wit:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
xxx
(2) When the vendor remains in possession as lessee
or otherwise;
xxx
(5) When the vendor binds himself to pay the taxes on
the thing sold;
xxx
The existence of any one of the conditions
enumerated under Article 1602 of the Civil Code, not
a concurrence of all or of a majority thereof, suffices
to give rise to the presumption that the contract is an
equitable mortgage. Consequently, the contract
between the vendors and vendees (Spouses Francia)
was an equitable mortgage.
Are the petitioners now barred from claiming that the
transaction under the Kasulatan ng Biling Mabibiling
Muli was an equitable mortgage by their failure to
redeem the property for a long period of time?
Considering that sa oras na silay makinabang, the
period of redemption stated in the Kasulatan ng Biling
Mabibiling Muli, signified that no definite period had
been stated, the period to redeem should be ten
years from the execution of the contract, pursuant to
Articles 1142 and 1144 of the Civil Code. Thus, the
full redemption price should have been paid by July 9,
1955; and upon the expiration of said 10-year period,
mortgagees Spouses Francia or their heirs should
have foreclosed the mortgage, but they did not do so.
Instead, they accepted Alejandros payments, until the
debt was fully satisfied by August 11, 1970.
The acceptance of the payments even beyond the 10-
year period of redemption estopped the mortgagees
heirs from insisting that the period to redeem the
property had already expired. Their actions impliedly
recognized the continued existence of the equitable
mortgage. The conduct of the original parties as well
as of their successors-in-interest manifested that the
parties to the Kasulatan ng Biling Mabibiling Muli
really intended their transaction to be an equitable
mortgage, not a pacto de retro sale.
Both the trial court and the CA declared that the
Magkasanib na Salaysay, which extended the
redemption period of the mortgaged property, was
inefficacious, because the period to redeem could no
longer be extended after the original redemption
period had already expired.
The provisions of the Civil Code governing equitable
mortgages disguised as sale contracts, like the one
herein, are primarily designed to curtail the evils
brought about by contracts of sale with right to
repurchase, particularly the circumvention of the
usury law and pactum commissorium.[29] Courts
have taken judicial notice of the well-known fact that
contracts of sale with right to repurchase have been
frequently resorted to in order to conceal the true
nature of a contract, that is, a loan secured by a
mortgage. It is a reality that grave financial distress
renders persons hard-pressed to meet even their
basic needs or to respond to an emergency, leaving
no choice to them but to sign deeds of absolute sale
of property or deeds of sale with pacto de retro if only
to obtain the much-needed loan from unscrupulous
money lenders.[30] This reality precisely explains why
the pertinent provision of the Civil Code includes a
peculiar rule concerning the period of redemption, to
wit:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
xxx
(3)When upon or after the expiration of the right to
repurchase another instrument extending the period
of redemption or granting a new period is executed;
xxx
Ostensibly, the law allows a new period of redemption
to be agreed upon or granted even after the expiration
of the equitable mortgagors right to repurchase, and
treats such extension as one of the indicators that the
true agreement between the parties is an equitable
mortgage, not a sale with right to repurchase. It was
indubitable, therefore, that the Magkasanib na
Salaysay effectively afforded to Leoncia, Teofilo,
Jose, Sr. and Jose, Jr. a fresh period within which to
pay to Alejandro the redemption price of P500.00.
What were the circumstances under 1602 that were
present in this case?
In this case, the SC emphasized that the provision
governing equitable mortgages disguised as sale
contracts are primarily designed to curtail the evils
brought about by contract of sale with right to
repurchase particularly the circumvention of the usury
law as well as pactum commissorium.
Pactum commissorium was discussed in your
obligations and contracts and it was also discussed in
your credit transaction. It must be distinguished from
dation en pago because what happens in Pactum
Commissorium is that there is an agreement between
the parties that in case of failure to pay on part of the
debtor, there is automatic appropriation or automatic
transfer of the property to the creditor. That is a void
situation under article 2088 of the Civil ‘Code. To
avoid that, you have this provision. Instead na ipa-
sign ang mortgage, kasi yun yung intention ng mga
parties, ang ipasign sa debtor is a deed of sale.
Courts have taken Judicial Notice of the well known
fact that contracts of sale with right to repurchase
have been frequently resorted in order to conceal the
true intention of the contract – that is a loan secured
by a mortgage. It is a reality that great natural distress
renders a person hard-pressed to meet even the
basic needs or correspond to emergency giving no
choice to them but to sign of property or lease sale
with pacto de retro, only to obtain the much needed
loan from unscrupulous money lenders. This reality
precisely explains why the pertinent provisions of the
civil code includes a peculiar rule concerning the
period of redemption. Extend or a new period is
extended.
So in this case, it is not really a pacto de retro sale but
rather an equitable mortgage and this was evidenced
by the continued possession, declaration for tax
purposes remained in the vendor’s name and the
realty taxes also paid by Leoncia.
Again existence of any of the circumstances in 1602
is sufficient to give rise to the presumption that there
is an equitable mortgage. Aside from these
circumstances, it was also shown that payments were
accepted beyond the period for redemption. Their
actions implied recognized the continued existence of
an equitable mortgage.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 46
1602 is very common. There are a lot of disputes with
regard to 1602 and its application.
Under 1603, in case of doubt, a contract purporting to
be a sale with right to repurchase shall be construed
as an equitable mortgage. Take note of the word
“doubt”. Just because any of 1602 circumstance or
condition is present, hindi automatic na may equitable
mortgage. We already discussed the requisites to
show 1602 to be applied.
1604 tells us that 1602 also applies to deed of
absolute sale.
Remedy here? Reformation because, again, the
document did not show the true intention of the
parties. There was a meeting of the minds, but the
document executed did not reflect their true
intentions. Therefore reformation is the remedy.
Period provided under the law.
Article 1606. The right referred to in article 1601,
in the absence of an express agreement, shall last
four years from the date of the contract.
Should there be an agreement, the period cannot
exceed ten years.
However, the vendor may still exercise the right to
repurchase within thirty days from the time final
judgment was rendered in a civil action on the
basis that the contract was a true sale with right
to repurchase.
Take note, the right to repurchase must already be
incorporated in the contract of sale. It must be
reduced in a public instrument and covered by the
statute of frauds. And also, take note, just because
walang nakalagay, Contract of sale. Pag walang
nakalagay na right of repurchase is given to the
vendor, the vendor is not given sa property.
However, if nagalagay doon na vendor is hereby
given the right to repurchase the property but there is
no period stipulated hanggang kalian nya pwedeng
iredeem. Ano’ng nakalagay sa 1606? “Should there
be an agreement…” meaning yung agreement yung
right to repurchase, “in the absence of express
agreement, should last 4 years for the date of the
contract.”
4 years. Pagnakalagay lang doon merong right to
repurchase granted walang period, 4 years from the
date of the contract. Should there be an agreement, it
should not exceed 10 years. So kung nakalagay 8
years to redeem, valid. 10 years, valid. 12 years, upto
10 years pa rin. It cannot exceed.
However, the vendor may exercise the right within 30
days if it was involved in a civil action. In other words,
there was a case filed, naglalis pa kung equitable
mortgage or contract of sale. If there is a final
decision saying that it was a sale with right to
repurchase and not an equitable mortgage, then the
period is 30 days from the time the final judgment was
rendered. Again, when it was decided and it was a
true sale with right to repurchase.
Under 1607, in case of real property, consolidation of
ownership. So what would happen here? Because If
you have that deed of sale with right to repurchase,
the register of deeds would annotate/record that right
to repurchase and the title will not be automatically
transferred to the vendee by virtue of the agreement.
So here, consolidation of ownership ma-transfer yung
name sa vendee by virtue of the failure of the vendor
to comply with the provision in the 1616, yung
expenses, shall not be recorded in the registry of
property without a judicial order after the vendor has
been duly heard because you cannot just say that you
are entitled to repurchase the property without
reimbursing the vendee the expenses.
Article 1608. The vendor may bring his action
against every possessor whose right is derived
from the vendee, even if in the second contract no
mention should have been made of the right to
repurchase, without prejudice to the provisions of
the Mortgage Law and the Land Registration Law
with respect to third persons.
Take, note, if it is a true pacto de retro sale and you
are the vendor thereof, make sure that you have your
right duly registered when you are the vendor of the
vendee because subsequent buyers in good faith
should not be prejudiced by the absence of that. Kasi
nga dito noh, “without prejudice to provision of the
mortgage law and land registration law with respect
to third persons”.
Article 1609. The vendee is subrogated to the
vendor's rights and actions.
Article 1610. The creditors of the vendor cannot
make use of the right of redemption against the
vendee, until after they have exhausted the
property of the vendor.
Remember, the exercise of the vendor to redeem or
repurchase the property is a resolutory condition
wherein the happening of which will extinguish the
obligation arising from the contract of sale. So upon
sale and delivery, there is a transfer of ownership to
the vendee, subject to the resolutory condition that it
will be repurchased by the vendor. Technically, the
vendee is the owner thereof and can be redeemed by
the vendor, the creditors of the vendor cannot make
use of the right of redemption as against the vendee
as long as meron pang ibang properties si vendor.
Article 1611. In a sale with a right to repurchase,
the vendee of a part of an undivided immovable
who acquires the whole thereof in the case of
article 498, may compel the vendor to redeem the
whole property, if the latter wishes to make use of
the right of redemption.
We are talking about conventional redemption here.
May nakalagay sa contract na it can be redeemed.
The vendee in that contract of sale with right of
repurchase can sell it to other persons subject to
redemption, provided there is a registration.
Article 1612. If several persons, jointly and in the
same contract, should sell an undivided
immovable with a right of repurchase, none of
them may exercise this right for more than his
respective share.
The same rule shall apply if the person who sold
an immovable alone has left several heirs, in
which case each of the latter may only redeem the
part which he may have acquired.
Article 1613. In the case of the preceding article,
the vendee may demand of all the vendors or co-
heirs that they come to an agreement upon the
repurchase of the whole thing sold; and should
they fail to do so, the vendee cannot be compelled
to consent to a partial redemption.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 47
Article 1614. Each one of the co-owners of an
undivided immovable who may have sold his
share separately, may independently exercise the
right of repurchase as regards his own share, and
the vendee cannot compel him to redeem the
whole property.
We distinguish it sa 1613,. Kasi sa 1612, we were
talking about several persons as well as heirs. Here
you have co-owners who sold their shares separately.
Article 1615. If the vendee should leave several
heirs, the action for redemption cannot be
brought against each of them except for his own
share, whether the thing be undivided, or it has
been partitioned among them.
But if the inheritance has been divided, and the
thing sold has been awarded to one of the heirs,
the action for redemption may be instituted
against him for the whole.
Article 1616. The vendor cannot avail himself of
the right of repurchase without returning to the
vendee the price of the sale, and in addition:
(1) The expenses of the contract, and any
other legitimate payments made by
reason of the sale;
(2) The necessary and useful expenses
made on the thing sold.
So there must be a bona fide offer to repurchase the
property with of the following: return of the price of the
sale, expenses of the contract, and other legitimate
payments by reason sale and necessary and useful
expenses.
Article 1617. If at the time of the execution of the
sale there should be on the land, visible or
growing fruits, there shall be no reimbursement
for or prorating of those existing at the time of
redemption, if no indemnity was paid by the
purchaser when the sale was executed.
Should there have been no fruits at the time of the
sale and some exist at the time of redemption,
they shall be prorated between the redemptioner
and the vendee, giving the latter the part
corresponding to the time he possessed the land
in the last year, counted from the anniversary of
the date of the sale.
With regard to fruits, when is there reimbursement?
When there is a none, no reimbursement; prorating
those existing at the time of redemption indemnity
was paid. There were fruits at the time of the sale and
some exist at the time of redemption you just prorate
it giving the vendee the part corresponding the time
he possessed the land in the last year up to the
anniversary of the deed of sale.
Article 1618. The vendor who recovers the thing
sold shall receive it free from all charges or
mortgages constituted by the vendee, but he shall
respect the leases which the latter may have
executed in good faith, and in accordance with
the custom of the place where the land is situated.
Here, recovery of the thing free from all charges and
mortgages, but again take note, respect the contract
of lease. The vendee, prior to redemption or
repurchase can actually lease the property to other
person. And again take note, the vendor here shall
respect the leases but again, free from all charges or
mortgages, but we have the vendee mortgage the
property prior to repurchase, the vendee has the
obligation to have the said mortgages be released
because again the vendor here has the right to
recover it, free from all charges or mortgages.
October 12, 2015
LEGAL REDEMPTION
In legal redemption, even if the parties did not
stipulate as to the existence of this right, the law
provides that there are certain individuals who are
entitlted to repurchase a property subject of a CoS.
So you take into consideration here the persons who
are given such right to redeem and what are the
properties that they can redeem. What must be
involved is a CoS and Art 1619 tells us what is “legal
redemption”.
Article 1619. Legal redemption is the right to be
subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in
payment, or by any other transaction whereby
ownership is transmitted by onerous title.
So the person is given the right to redeem as
provided by law, as long as he is not the vendor.
Legal redemption under this chapter, so we have Art
1619. We also have Art 1620 but before going to Art
1620, we also have right of redemption available to
co-heirs.
Now, in this chapter, you have here instances where
legal redemption is available when there is a contract
of sale. Now, we also have other provisions in the
Civil Code wherein there is also legal redemption.
One of which is among co-heirs under 1088:
Article 1088. Should any of the heirs sell his
hereditary rights to a stranger BEFORE the
partition, any or all of the co-heirs may be
subrogated to the rights of the purchaser by
reimbursing him for the price of the sale, provided
they do so within the period of one month from
the time they were notified in writing of the sale
by the vendor.
So we have here an heir who sells his hereditary
rights to a stranger, to a person who is not an heir,
before partition. Of course we’re not talking about
future inheritance here. Dito, meron na siyang right
because ascendant or parent has already died, so
meron na siyang inheritance. Hindi na siya future pero
di pa nahati. He can sell. The heirs can repurchase
this right from the said stranger however this must be
done within 1 month from the time such co-heirs were
notified IN WRITING of the said sale.
We also have the right of a co-owner to repurchase
the property sold by his co-owner to the same
property:
Article 1620. A co-owner of a thing may exercise
the right of redemption in case the shares of all
the other co-owners or of any of them are sold to
a third person. If the price of the alienation is
grossly excessive, the redemptioner shall pay
only a reasonable one.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 48
Ok here so you have a co-owner who sells his share
rd
to a 3 person. The other co-owner may redeem from
rd
the 3 person the said property, provided that it is
within the period provided by law. We learned in Art
1623 that it is one month from notice.
So to apply Art 1620, the following requisites
must be present:
a. There must be co-ownership;
b. There must be alienation of any or all of the
shares of one of the co-owners to a third
person;
c. Of course, it must be before partition, kaya
nga sila co-owners kasi wala pang partition.
d. And the redemption must be made under the
period provided by the law; and
e. The one who exercises the redemption must
pay the purchase price.
However if the price is grossly excessive, the
redemptioner shall only pay a reasonable one.
Also if there are 2 or more co-owners desiring to
exercise the right to redeem, they may do so in
proportion to their respective shares. Take note that
rd
this is only applicable if the sale is made to a 3
person. Art 1620 is NOT applicable if A would sell his
share to a co-owner.
EXAMPLE: A, B, and C are co-owners. If A sells his
share to X, B and C are given the right to redeem the
property from X. But of course they have to pay the
price. But if both B and C want to exercise their right,
then they can do so proportionately. However if A
sells his share to B, C is not entitled to repurchase
because again the right provided under Art 1620 is
rd
only available if the sale is made to a 3 person.
Now, what if A sold his share to X, and B and C want
to redeem the said property? Between these two (2)
co-owners, who shall be preferred? Or is there a
preference? No. They do so in proportion to the
shares they may respectively have in the thing owned
in common. So take note of that and do not confuse
that with the rule we have under 1621:
Article 1621. The owners of adjoining lands shall
also have the right of redemption when a piece of
RURAL land, the area of which does not exceed
one hectare, is alienated, unless the grantee does
not own any rural land.
This right is not applicable to adjacent lands
which are separated by brooks, drains, ravines,
roads and other apparent servitudes for the
benefit of other estates.
If two or more adjoining owners desire to exercise
the right of redemption at the same time, the
owner of the adjoining land of smaller area shall
be preferred; and should both lands have the
same area, the one who first requested the
redemption.
So when do we apply 1621:
a. If what you have is a RURAL land;
b. The right is given to adjacent lot owners;
rd
c. The alienation is made to a 3 person;
d. The area involved should not exceed one (1)
hectare unless the grantee does not own
rural land;
e. (Properties are) not separated by brooks,
drains and other apparent servitudes.
EXAMPLE: A owns this parcel of land and B is the
adjacent owner. If A sells his land to X, B is given the
right to redeem provided that all the requisites under
Art 1621 are present.
Now if twe have 2 adjoining owners who want to
exercise the right under Art 1621, take note that the
rule is different here. Because who shall then be
preferred?
 THE ONE WHO HAS A SMALLER AREA.
 If it turns out that if both lot owners have the
same land area: THE FIRST ONE WHO
REQUESTED SHALL BE PREFERRED.
So what’s the purpose here in 1621? To encourage
MAXIMUM DEVELOPMENT and UTILIZATION of
agricultural lands.
Now, how about urban lands? We have Article 1622:
Article 1622. Whenever a piece of URBAN land
which is so small and so situated that a major
portion thereof cannot be used for any practical
purpose within a reasonable time, having been
bought merely for speculation, is about to be re-
sold, the owner of any adjoining land has the right
of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the
adjoining land shall have a right of redemption,
also at a reasonable price.
When two or more owners of adjoining lands wish
to exercise the rights of pre-emption or
redemption, the owner whose intended use of the
land in question appears best justified shall be
preferred.
So notice in 1622, it’s not just redemption, but you
also have therein the right of pre-emption:
Right of Pre-emption Right of Redeption
The right arises before The right arises after the
sale sale.
Both are present with regard to right to redeem an
URBAN land as provided under Article 1622.
There could be no But if you would want to
rescission because there redeem under 1622,
is nothing to rescind. No there is rescission of the
sale has happened yet. original sale.
Pre-emption the action is Redemption is directed
the exercise against the against the buyer.
prospective seller.
But when do we apply 1622?
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 49
 If what we have is a small urban land
 Adjacent owners
 The major portion thereof cannot be used for
any practical purpose within a reasonable
period
 It is only for the purpose of speculation
So what’s the premise behind Art 1622? To
DISCOURAGE SPECULATION in real estate, to hold
property for a period of time for the purposes of
speculation and therefore resulting to the aggravation
of social housing.
Now, assuming urban land ito, we have two or more
owners of adjoining lots desiring to redeem the
property, between the two adjacent owners of urban
land, the owner whose intended use of the land is
best justified shall be preferred. So again, notice the
difference as to the preference as to the co-owners,
adjacent owners sa urban and adjacent owners sa
rural land.
Now also here, you have Article 1634 on the sale of
credit in litigation.
Article 1634. When a credit or other incorporeal
right in litigation is sold, the debtor shall have a
right to extinguish it by reimbursing the assignee
for the price the latter paid therefor, the judicial
costs incurred by him and the interest on the
price from the day on which the same was paid.
A credit or other incorporeal right shall be
considered in litigation from the time the
complaint concerning the same is answered.
The debtor may exercise his right within thirty
days from the date the assignee demands
payment from him.
EXAMPLE: A borrows from B P1,000,000. Then A
fails to pay. B files a case for collection of sum of
money against A so that he could get the payment of
P1,000,000 plus interest. Considering that it takes
time to file a case, so here the creditor may need the
money immediately. So what can he do? He can
assign his right over the said amount, or he can sell it
for a smaller amount. Si B, kelangan na nya ng pera
pero matagal pa ang kaso. So, gi-assign nya yung
rights nya as a creditor to C. So para madaling
mabenta, he would sell his right for P700,000 only.
And then C, now, would have a right in the litigation.
So here, what would happen? The debtor A can now
arrange with C that instead of paying P1,000,000, he
can now only pay just P700,000 because eto yung
binayad ni C. Probably, pwede dagdagan konti. Pero
at the very least, less than na sya sa P1,000,000. So
just take note of that as well, that is with regard to
assignment.
And then we have the period to pre-empt or redeem
the property under 1623:
Article 1623. The right of legal pre-emption or
redemption shall not be exercised except within
thirty days from notice in writing by the
prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in
the Registry of Property, unless accompanied by
an affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.
The right of redemption of co-owners excludes
that of adjoining owners.
Ok, so what do we have here? The right to redeem
can be exercised within thirty (30) days from notice in
writing by the prospective vendor. Now the Deed of
Sale shall not be reported to the RoD unless there is
a seller’s affidavit that he sent written notice to all
possible redemptioners. However I don’t think this is
strictly followed… Nonetheless, we have that
provision under the law.
So if you take a look at 1623, even if the adjacent
owners, the co-owners have knowledge of the
sale, if they were not notified of the said sale in
writing, they can still exercise their right to
redeem because the thirty (30) days would only be
counted from the notice in writing by the
prospective vendor in a pre-emption or a vendor
in a redemption.
Take note also of the last paragraph of Art 1623. So
let us say you have here the sale of urban land, Art
1621 is applicable. Let us say you have A, B, and C
as the co-owners. Adjacent co-owners of that urban
land are D and E. If B, C, D, and E would like to
redeem the property sold by A to X. Who are given
such right to redeem, or who shall be preferred? In
this case, it will be the co-owners (B and C), but since
dalawa sila, in their respective proportionate shares.
So the co-owners are preferred over the adjoining
owners.
Any questions regarding redemption?
Q: Ma’am, will it not be unfair for X if other parties will
be allowed to purchase the property?
A: Hindi sya unfair kung alam mo yung law. Just give
them thirty (30) days. Magtakbo man yung 30 days
written notice if they want to redeem. For those who
do not know the law, syempre magsabi sila na unfair.
Pero the law may be harsh, but it is the law. DURA
LEX SED LEX. It is clear that such right is given to co-
owners and adjacent owners of the same parcel of
land.
So for those who would purchase property under
these circumstances, the best thing to do is to give
them notice in writing of the said sale. Kase 30 days
lang. Maglampas yung 30 days, wala na, di na sila
maka redeem. So yun yung advantage on the part of
the buyer of the said property.
It is very easy naman to determine yung co-ownership
diba? With regard to urban lands and rural lands, you
just take note. Yung urban lands baka medyo
alanganin sya i-apply because of yung “speculation”
diba? Then yung irregularly shaped (Haaa? Ummm, i
think yung “small area” ang gina-pertain ni Ma’am ),
yung yun na requirement, that it is for a specific
purpose, and no practical purpose within a
reasonable time. Mahirap kase yan sya i-prove. Most
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 50
often than not, yung mga properties dito, meron man
talagang practical purpose. So kaya siguro di
masyado ma-apply yang 1622.
Yung 1621, baka pa noh, with regard to rural land.
But again there is a condition there wherein it does
not exceed one (1) hectare. So dyan mo i-take into
consideration na if you are the vendee, it is to your
advantage if you are aware of these laws.
Kung ikaw naman yung co-owners and adjacent co-
owners, you take into consideration kung mag apply
ba ito so that you can exercise your right to redeem.
PART X: ASSIGNMENT
So, we have assignment of credits and other
incorporeal right. So you have noticed that in some
cases that we have already discussed, the laws on
sale was applied even if what was executed by the
parties by deeds of assignment. Because essentially
what we have here is a sale of credit or the sale of
incorporeal right. We have Art 1624 until 1635. So,
assignment of credit is a contract in which one
person, creditor or assignor, transfer to another his
rights or actions against a third person, who is the
debtor in consideration of a price certain in money or
its equivalent.
So what is an assignment of credit? It is a contract by
which one person transfers to another his rights and
actions against a third person in consideration for a
price certain in money or its equivalent.
Article 1624. An assignment of creditors and other
incorporeal rights shall be perfected in
accordance with the provisions of article 1475
So with that, assignment of rights is a consesual
contract perfect by consent. Also it is a bilateral and
onerous contract. It is also a commutative or alleatory
contract. In an assignment of rights, the In other
words, it is also perfected by meeting of the minds, by
mere consent between the parties. So just like sale
and assignment of credit is a consensual contract.
Aside from that, it is also bilateral, onerous and
generally commutative in nature. Similar to a sale.
The difference however is that unlike in a sale
wherein you only have the buyer and the seller. In an
assignment of contract, you have here a definite third
person which is obliged, you have originally the
creditor and the debtor, and the creditor becomes the
assignor and assigns his right as to such credit to a
third person who will be the assignee.
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. (1526)
Alright so under Art 1624, we already know that an
assignment is perfected mere consent. Art 1625 tells
rd
us when is that assignment binding as to 3 persons.
So Art 1625 tell us that the assignment to bind third
persons, the assignment must appear in a public
instrument and if it involves real property, it must be
registered in the Registry of Deeds.
So as between the parties, it can be valid in writing or
even by mere consent. However in order to affect
third persons, it must be in a public instrument or it
must be recorded in the Registry of Deeds if it
involves real property.
Also, take note of this:
In assignment, the assignee clearly steps into the
shoes of the assignor, and therefore the assignee
acquires the right and obligations as to the credits that
were subject of the said assignment. The assignee is
deemed subrogated to the rights as well as to the
obligation of the seller and therefore by the term
“assignment”, he cannot acquire greaters rights than
that of the assignor. This is also relevent when you
have your Negotiable Instruments Law because
negotiation is different from assignment. You can
assign documents of title, you can negotiate it as long
as it is negotiable, but take note that there is a
difference as to its effects. When you negotiate, the
transferee can have better title than the transferor, but
when you assign, the assignee merely steps into the
shoes of the assignor.
Article 1626. The debtor who, before having
knowledge of the assignment, pays his creditor
shall be released from the obligation. (1527)
This is relevant in relation to your obligations and
contracts. When is the obligation extinguished? When
there is payment or performance. But when is there a
valid payment? Payment must be made to the proper
person who must be the creditor at the time the
obligation is due, heirs or assignees, or a person
authorizes to receive payment. So, you also have
there, in the term, assignees or transferees.
So what if the person authorized to receive payment
is the assignee, and if payment is made to the
assignee, does it necessarily mean that the obligation
is extinguished? You have to take into consideration
whether the debtor was notified of such assignment.
Because of the debtor was not notified of such
assignment, or had no knowledge of it, and he pays to
the original creditor, then the obligation is
nevertheless deemed extinguished. The assignee’s
remedy here is to go after the creditor. But of course if
the debtor had knowledge of the said assignment, or
if he is notified, the debtor must be paid to the
assignee. If payment is not made to the assignee,
then there is no valid payment that will extinguish the
obligation. The debtor will not be released even if has
paid to the original creditor because he has already
been notified and therefore it is just and proper that
he should pay to the assignee. Now, this should be
taken into consideration by the debtor. If he has
already paid to the creditor despite notice of the
assignment, that payment will not extinguish the
obligation.
Article 1627. The assignment of a credit includes
all the accessory rights, such as a guaranty,
mortgage, pledge or preference. (1528)
Assignment is a Principal Contract, accessory
contract are deemed included, unless otherwise
stipulated. Remember, what happens in the
assignment is that the assignee is subrogated to the
right of the creditor assignor. That is why he is also
entitled to go after the debtor in case the debtor fails
to pay, foreclose a mortgage in case there has been
execution thereof.
Also take note of Art 1628.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 51
Article 1628. The vendor in good faith shall be
responsible for the existence and legality of the
credit at the time of the sale, unless it should have
been sold as doubtful; but not for the solvency of
the debtor, unless it has been so expressly
stipulated or unless the insolvency was prior to
the sale and of common knowledge.
Even in these cases he shall only be liable for the
price received and for the expenses specified in
No. 1 of article 1616.
The vendor in bad faith shall always be
answerable for the payment of all expenses, and
for damages. (1529)
You have warranties for documents of title, negotiable
instrument and also under assignment.
So warranties of the assignor of credit, he warrants
the existence of the credit. As well as the legality of
the credit at the time the assignment was perfected.
Take note, the assignor does not warrant the
solvency of the debtor, unless expressly stipulated.
Take note insolvency, as a general rule walang
liability ang assignor.
You will be liable only when:
1. An express stipulation. Express warranty of the
solvency of the debtor.
2. The insolvency is in existence at the time of the
assignment and of publicknowledge at the time of the
said assignment.
Only on those instances wherein the assignor can be
held liable for breach of warranty as to the solvency of
the debtor.
Now, for the violation of the warranties as to the
existence and legality of the credit:
1. If the vendor is in Good Faith, its
liability shall only be to the extent of the
price received and the expenses of the
contract in the legitimate payment by
reason of the assignment. Basis is Art.
1616
2. If in Bad Faith, payment of the price,
expenses as well as damages.
And then we have Art 1629:
Article 1629. In case the assignor in good faith
should have made himself responsible for the
solvency of the debtor, and the contracting
parties should not have agreed upon the duration
of the liability, it shall last for one year only, from
the time of the assignment if the period had
already expired.
If the credit should be payable within a term or
period which has not yet expired, the liability shall
cease one year after the maturity. (1530a)
S you only apply 1629 when there is express warranty
of the solvency of the debtor.
Now, here, Take note of the period made by the
parties. That should be applied. But in the absence of
stipulation for the period, say, there is a warranty for
the solvency, but there is no period? It shall be one
yearfrom the assignment of the credit, with the period
for payment of credit has already expired.
So let us say that they entered into an assignment on
October 13. The obligation has already expired in
September 13. When do you begin to count the one
year? From today. However, if, it shall be one year
after the maturity, when such period of payment has
not yet expired, when the assignment was
perfected.So assignment entered into today, October
13, obligation will become due and demandable on
October 31. Warranty for solvency will only be from
October 31, one year from October 31. So take note
of that.
Article 1630. One who sells an inheritance without
enumerating the things of which it is composed,
shall only be answerable for his character as an
heir. (1531)
Can you sell hereditary right? Yes! Because what we
are talking of here is not future inheritance. So meron
kang right sa properties nung namatay. Pero syempre
hereditary rights na in the sense na wala pang
extrajudicial settlements. So, the inheritance here
may be sold either with specifications of the
properties to be alienated or without enumerating the
things comprising, but then again to the extent of the
hereditary rights of the assignor only.
The seller of an inheritance warrants only the facts of
his heirship but does not warrant the object which
makes up of his inheritance. If for example he sells
his inheritance for P 200,000, later on pag hatian na
ng mga shares sa heirs ano nalang ang kuha,
P100,000 nalang. Walang liabilityang assignor or
yung heir na nag benta or nag assign ng kanyang
right. Beacause again here what he only warrants is
that he is an heir what he sell is only his right without
any definite proportion or definite share with regard to
the inheritance
Article 1631. One who sells for a lump sum the
whole of certain rights, rents, or products, shall
comply by answering for the legitimacy of the
whole in general; but he shall not be obliged to
warrant each of the various parts of which it may
be composed, except in the case of eviction from
the whole or the part of greater value. (1532a)
Alright, so, totality of such right, credits or products.
If you are a partner of a partnership you can sell and
you can assign your right of the partnership to other
persons. But you cannot make such assignee a
partner without the consent of the other partners.
Now, in such instance the vendor partner assignor
warrants only the legitimacy of whole, his partnership
rights and interest and not the various parts of which it
may be composed.
For example, the partner sold his rights for P 200,000,
upon dissolution of the partnership ano na lang nag
mabigay sa partner nay un, P100,000. Paano na yung
na iwan na 100,000? Kasi una man idistribute sa
creditors nung partnership. In that instance still
walang breach of warranty on the part of the partner
assignor.
Article 1632. Should the vendor have profited by
some of the fruits or received anything from the
inheritance sold, he shall pay the vendee thereof,
if the contrary has not been stipulated. (1533)
So, fruits, soil inheritance are included in the sale.
Unless otherwise stipulated.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 52
Article 1633. The vendee shall, on his part,
reimburse the vendor for all that the latter may
have paid for the debts of and charges on the
estate and satisfy the credits he may have against
the same, unless there is an agreement to the
contrary. (1534)
ARTICLE 1634. When a credit or other incorporeal
right in litigation is sold, the debtor shall have a
right to extinguish it by reimbursing the assignee
for the price the latter paid therefor, the judicial
costs incurred by him, and the interest on the
price from the day on which the same was paid.
A credit or other incorporeal right shall be
considered in litigation from the time the
complaint concerning the same is answered.
The debtor may exercise his right within thirty
days from the date the assignee demands
payment from him. (1535)
Right to redeem, legal redemption in sale of credit or
other right in obligation. So here, the right available in
1634 is only available when the following requisites
are present:
1. There is a sale or assignment of credit.
2. There is a pending litigation at the time of
assignment.
3. The debtor must pay the assignee, the price paid,
the judicial cost as well as the interest.
Also take note of the period. Within 30 days of the
date the assignee demands payment come in.
Example: A borrowed money from B in the amount of
P100, 000,000. B filed a case against A. Pending
litigation, B assigned his right to C, who will be now
the assignee. A, can exercise his redemption as
against C, wherein he can pay for a lower amount.
Because, when B assigned his credit to C, pwede
niyang sabihin na dugay pa man ning kaso so 100
million, benta ko nalang sayo or assign ko sayo for
700. So C would be willing to do that, so sayo nalang
yan, asi kung maka ginansay man ko, at least meron
parin siyang maginansya kahit na konti.
Now, if A, the debtor would be interested to redeem it,
he has to reimburse to the assignee the price, the
judicial cost as well as the interest. So again, merong
legal redemption available.
Now, with this instance, it gives an advantage to the
debtor. Because of course he will be able to pay less
than the value of the credit assigned. Again that is if
he chooses the right to redeem under 1634.
The objective of the law is to avoid the purchase of a
third person of the credit in litigation, merely for
speculation.
And then lastly, in relation to 1634 we also have 1635.
Article 1635. From the provisions of the preceding
article shall be excepted the assignments or sales
made:
(1) To a co-heir or co-owner of the right assigned;
(2) To a creditor in payment of his credit;
(3) To the possessor of a tenement or piece of
land which is subject to the right in litigation
assigned. (1536)
Okay, so these are the exceptions to 1634. So there
is no right of legal redemption under the instances
mentioned in 1635. Take note to apply this one, the
credit must be under pending litigation.
So for number 1, To a co-heir or co-owner of the right
assigned:
Let us say B borrowed from D and C. D, demanded
payment from B and then filed a case. Pending
litigation B will assign his right to C. D is not entitled to
redeem from C.
Number 2, To a creditor in payment of his credit. Here
the basis is that the assignee cannot be consideredof
a vendee of a right to litigation and as a speculator.
What you here can be considered as dacion ne pago
under 1245:
Example: D naghiram kay B, si B nag hiram din siya
ng pera kay C. So when the obligation becomes due
and demandable B sued D. Pending litigation B
assigns his right to C. D cannot redeem from C.
And then number 3, Sale to possessor of property in
question. This it to preserve the property and not to
speculate at the expense of the debtor. This usually
happens when a vendee-assignee of a property
subject to a mortgage requires the mortgage credit of
the assignor against the vendor:
Example: Let us say here, D owes B money and D
also secured a mortgage. If D sells the land subject of
the mortgage to C and B assigns his credit to litigation
to C. The debtor D is not allowed to redeem. Take
note of those instances where the right to redeem is
not available.
LEASE
Lease may either be of Things or of Service.
Art. 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. However, no lease for
more than ninety-nine years shall be valid. (1543a)
Art. 1644. In the lease of work or service, one of the
parties binds himself to execute a piece of work or to
render to the other some service for a price certain,
but the relation of principal and agent does not exist
between them. (1544a)
 But take note:
- there’s no contract of Agency
- Different from a piece of work
Characteristics: Same with sales – Bilateral and
Commutative. Object is to use subject matter.
Art. 1645. Consumable goods cannot be the subject
matter of a contract of lease, except when they are
merely to be exhibited or when they are accessory to
an industrial establishment. (1545a)
Distinguish commodatum with lease – Consideration
In lease, the lessor need not be the owner of the thing
leased.
Art. 1648. Every lease of real estate may be recorded
in the Registry of Property. Unless a lease is
recorded, it shall not be binding upon third persons.
(1549a)
Rights and Obligations of Lessor
Art. 1654. The lessor is obliged:
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 53
(1) To deliver the thing which is the object of the
contract in such a condition as to render it fit for the
use intended;
(2) To make on the same during the lease all the
necessary repairs in order to keep it suitable for the
use to which it has been devoted, unless there is a
stipulation to the contrary;
(3) To maintain the lessee in the peaceful and
adequate enjoyment of the lease for the entire
duration of the contract. (1554a)
Art. 1655. If the thing leased is totally destroyed by a
fortuitous event, the lease is extinguished. If the
destruction is partial, the lessee may choose between
a proportional reduction of the rent and a rescission of
the lease. (n)
Art. 1659. If the lessor or the lessee should not
comply with the obligations set forth in Articles 1654
and 1657, the aggrieved party may ask for the
rescission of the contract and indemnification for
damages, or only the latter, allowing the contract to
remain in force. (1556)
Art. 1661. The lessor cannot alter the form of the thing
leased in such a way as to impair the use to which the
thing is devoted under the terms of the lease. (1557a)
Art. 1653. The provisions governing warranty,
contained in the Title on Sales, shall be applicable to
the contract of lease.
In the cases where the return of the price is
required, reduction shall be made in proportion to the
time during which the lessee enjoyed the thing. (1553)
Lessor is also liable for warranty against eviction and
hidden defects.
Art. 1673. The lessor may judicially eject the lessee
for any of the following causes:
(1) When the period agreed upon, or that
which is fixed for the duration of leases under Articles
1682 and 1687, has expired;
(2) Lack of payment of the price stipulated;
(3) Violation of any of the conditions agreed
upon in the contract;
(4) When the lessee devotes the thing
leased to any use or service not stipulated which
causes the deterioration thereof; or if he does
not observe the requirement in No. 2 of Article
1657, as regards the use thereof.
The ejectment of tenants of agricultural lands is
governed by special laws. (1569a)
Limitations, Rights and Obligations of Lessee
Art. 1646. The persons disqualified to buy referred to
in Articles 1490 and 1491, are also disqualified to
become lessees of the things mentioned therein. (n)
Art. 1647. If a lease is to be recorded in the Registry
of Property, the following persons cannot constitute
the same without proper authority: the husband with
respect to the wife's paraphernal real estate, the
father or guardian as to the property of the minor or
ward, and the manager without special power.
(1548a)
Art. 1650. When in the contract of lease of things
there is no express prohibition, the lessee may sublet
the thing leased, in whole or in part, without prejudice
to his responsibility for the performance of the
contract toward the lessor. (1550)
Art. 1651. Without prejudice to his obligation toward
the sublessor, the sublessee is bound to the lessor for
all acts which refer to the use and preservation of the
thing leased in the manner stipulated between the
lessor and the lessee. (1551)
Art. 1652. The sublessee is subsidiarily liable to the
lessor for any rent due from the lessee. However, the
sublessee shall not be responsible beyond the
amount of rent due from him, in accordance with the
terms of the sublease, at the time of the extrajudicial
demand by the lessor.
Payments of rent in advance by the
sublessee shall be deemed not to have been made,
so far as the lessor's claim is concerned, unless said
payments were effected in virtue of the custom of the
place. (1552a)
Art. 1657. The lessee is obliged:
(1) To pay the price of the lease according to the
terms stipulated;
(2) To use the thing leased as a diligent father of a
family, devoting it to the use stipulated; and in the
absence of stipulation, to that which may be inferred
from the nature of the thing leased, according to the
custom of the place;
(3) To pay expenses for the deed of lease. (1555)
Art. 1658. The lessee may suspend the payment of
the rent in case the lessor fails to make the necessary
repairs or to maintain the lessee in peaceful and
adequate enjoyment of the property leased. (n)
Art. 1662. If during the lease it should become
necessary to make some urgent repairs upon the
thing leased, which cannot be deferred until the
termination of the lease, the lessee is obliged to
tolerate the work, although it may be very annoying to
him, and although during the same, he may be
deprived of a part of the premises.
If the repairs last more than forty days the rent shall
be reduced in proportion to the time - including the
first forty days - and the part of the property of which
the lessee has been deprived.
When the work is of such a nature that the portion
which the lessee and his family need for their dwelling
becomes uninhabitable, he may rescind the contract if
the main purpose of the lease is to provide a dwelling
place for the lessee. (1558a)
Art. 1660. If a dwelling place or any other building
intended for human habitation is in such a condition
that its use brings imminent and serious danger to life
or health, the lessee may terminate the lease at once
by notifying the lessor, even if at the time the contract
was perfected the former knew of the dangerous
condition or waived the right to rescind the lease on
account of this condition. (n)
Art. 1657. The lessee is obliged:
(1) To pay the price of the lease according to the
terms stipulated;
(2) To use the thing leased as a diligent father of a
family, devoting it to the use stipulated; and in the
absence of stipulation, to that which may be inferred
from the nature of the thing leased, according to the
custom of the place;
(3) To pay expenses for the deed of lease. (1555)
Remedies of Lessor(Art 1954) and Lessee(Art 1957)
in case of breach in their obligation:
1. Judicial Rescission plus damages; or
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 54
2. Damages only.
Art. 1663. The lessee is obliged to bring to the
knowledge of the proprietor, within the shortest
possible time, every usurpation or untoward act which
any third person may have committed or may be
openly preparing to carry out upon the thing leased.
He is also obliged to advise the owner, with the same
urgency, of the need of all repairs included in No. 2 of
Article 1654.
In both cases the lessee shall be liable for the
damages which, through his negligence, may be
suffered by the proprietor.
If the lessor fails to make urgent repairs, the lessee, in
order to avoid an imminent danger, may order the
repairs at the lessor's cost. (1559a)
Art. 1664. The lessor is not obliged to answer for a
mere act of trespass which a third person may cause
on the use of the thing leased; but the lessee shall
have a direct action against the intruder.
There is a mere act of trespass when the third person
claims no right whatever. (1560a)
Art. 1665. The lessee shall return the thing leased,
upon the termination of the lease, as he received it,
save what has been lost or impaired by the lapse of
time, or by ordinary wear and tear, or from an
inevitable cause. (1561a)
Art. 1666. In the absence of a statement concerning
the condition of the thing at the time the lease was
constituted, the law presumes that the lessee
received it in good condition, unless there is proof to
the contrary. (1562)
Art. 1667. The lessee is responsible for the
deterioration or loss of the thing leased, unless he
proves that it took place without his fault. This burden
of proof on the lessee does not apply when the
destruction is due to earthquake, flood, storm or other
natural calamity. (1563a)
Art. 1668. The lessee is liable for any deterioration
caused by members of his household and by guests
and visitors. (1564a)
Art. 1669. If the lease was made for a determinate
time, it ceases upon the day fixed, without the need of
a demand. (1565)
Art. 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.
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.
These provisions are without prejudice to venue
under the Rules of Court. (1171a)
Take Note:
Art. 1649. The lessee cannot assign the lease without
the consent of the lessor, unless there is a stipulation
to the contrary. (n)
Take note of Sublease: Art 1650 -1652 (Supra)
Expiration of lease
Art. 1669. If the lease was made for a determinate
time, it ceases upon the day fixed, without the need of
a demand. (1565)
Art. 1670. If at the end of the contract the lessee
should continue enjoying the thing leased for fifteen
days with the acquiescence of the lessor, and unless
a notice to the contrary by either party has previously
been given, it is understood that there is an implied
new lease, not for the period of the original contract,
but for the time established in Articles 1682 and 1687.
The other terms of the original contract shall be
revived. (1566a)
Art. 1671. If the lessee continues enjoying the thing
after the expiration of the contract, over the lessor's
objection, the former shall be subject to the
responsibilities of a possessor in bad faith. (n)
When is this relevant? In relation to Property ;)
Now with regard to renewal of the lease,
option to renew the contract of lease is valid and
binding even if it is stipulated in the contract that only
the vendee(vendee jud giingon ni maam) can
exercise such renewal. Where the renewal of the
lease is subject to the conditions stipulated by the
parties, renewal is not automatic. Still have to follow
agreement.
Tacita recunduccion or Implied renewal
Art. 1672. In case of an implied new lease, the
obligations contracted by a third person for the
security of the principal contract shall cease with
respect to the new lease. (1567)
VIEGELY SAMELO vs MANOTOK SERVICES, INC.
G.R. NO. 170509 – June 27, 2012
FACTS: On January 31, 1997, the respondent
entered into a contract with the petitioner for the lease
of a portion of the lot for a period of 1 year. Upon the
expiration of the lease contract on December 31,
1997, the petitioner continued occupying the subject
premises without paying the rent. On August 5, 1998,
the respondent sent a letter to the petitioner
demanding that she vacate the subject premises and
pay compensation for its use and occupancy
however, petitioner refused to heed these demands.
On November 18, 1998, the respondent filed a
complaint for unlawful detainer against the petitioner
befor the MeTC praying that the petitioner be ordered
to vacate the subject premises and to pay
compensation for its use and occupancy.
In her answer, the petitioner alleged that the
respondent had no right to collect rentals because the
subject premises are located inside the property of
the Philippine national Railways (PNR). She also
added that the petitioner had no certificate of title over
the subject premises and further claimed that her
signature in the contract of lease was obtained
through respondent’s misrepresentation and likewise
maintained that she is now the owner of the subject
premises as she had been in possession since 1944.
The MeTC decided in favor of the respondent and
held that the only issue to be resolved in an unlawful
detainer case is physical possession or possession
de facto, and that the respondent had established its
right of possession over the subject premises. It
added that the petitioner’s right under the lease
contract already ceased upon the expiration of the
said contract. It further ruled that the petitioner is
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 55
already stopped from questioning the right of the
respondent over the subject premises when she
entered into a contract of lease with the respondent.
On appeal, the RTC set aside the decision of the
MeTC and dismissed the complaint for unlawful
detainer. The RTC held that the respondent had no
right to collect rentals as it failed to show that it had
authority to administer subject premises and to enter
into a contract of lease with the petitioner.
Aggrieved by the reversal, the respondent filed a
petition for review with the CA which reversed and set
aside the RTC decision and reinstated the MeTC
judgment. The CA held that the petitioner is now
estopped from questioning the right of the respondent
over the subject property. It explained that in an
action involving the possession of the subject
premises, a tenant cannot controvert the title of his
landlord or assert any right adverse to that title,
without first delivering to the landlord the premises
acquired by virtue of the agreement between
themselves. It further held that the only issue in an
ejectment suit is physical or material possession. The
issue of ownership is not required to determine the
issue of possession since the petitioner tacitly
admitted that she is a lessee of the subject premises.
Petitioner moved for reconsideration but the CA
denied her in its motion, hence this petition.
ISSUE: The ejectment suit is physical or material
possession. (The issue of ownership is not required to
determine the issue of possession since the petitioner
tacitly admitted that she is a lessee of the subject
premises.)
RULING: The SC held that an action for unlawful
detainer exists when a person unlawfully withholds
possession of any land or building against or from a
lessor, vendor, vendee or other persons, after the
expiration or termination of the right to hold
possession, by virtue of any contract, express or
implied. The only issue to be resolved in an unlawful
detainer case is physical or material possession of the
property involved, independent of any claim of
ownership by any of the parties involved. Thus, any
attempt of the parties to inject the question of
ownership into the case is futile, except insofar as it
might throw light on the right of possession.
In the instant case, the lease contract was for the
period of one year with a monthly rental of P3,960
commencing on January 31, 1997 and expiring on
December 31, 1997. It bears emphasis that it was
only on August 5, 1998 that a notice to vacate was
sent and the petitioner continued enjoying the subject
premises for more than 15 days, without objection
from the respondent. By the inaction of the
respondent as lessor, there can be no inference that it
intended to discontinue the lease contract, therefore,
an implied new lease was therefore created pursuant
to Article 1670 of the Civil Code which provides:
Article 1670. If at the end of the contract of lease the
lessee should continue enjoying the thing leased for
15 days with the acquiescence of the lessor, and
unless a contrary by either party has previously been
given, it is understood that there is implied new lease,
not for the period of the original contract, but for the
time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived.
An implied new lease or tacita reconduccion will set in
when the following requisites are found to exist:
(a) The term of the original contract of lease has
expired;
(b) The lessor has not given the lessee a demand to
vacate; and
(c) The lessee continued enjoying the thing leased for
15 days with the acquiescence of the lessor.
Article 1687 of the CC on implied new lease provides:
Article 1687. If the period for the lease has not been
fixed, it is understood to be from year to year, if the
rent is to be paid annual; from month to month if it is
monthly; from week to week, if the rent is weekly; and
from day to day, if the rent id to be paid daily.
However, even though a monthly rent is paid, and no
period for the lease has been set, the court may fix a
longer term for the lease after the lessee has
occupied the premises for over one year. If the rent id
weekly, the court may likewise determine a longer
period after the lessee has been in possession for
over 6 months. In case of daily rent, the courts may fix
a longer period after the lessee has stayed in the
place for over one month.
Since the rent was paid on a monthly basis, the
period of lease is considered to be from month to
month. A lease from month to month is considered to
be one with a definite period, which expires at the end
of each month upon a demand to vacate by the
lessor. When the respondent sent a letter to vacate to
the petitioner on August 5, 1998, the tacita
reconduccion was aborted, and the contract of lease
is deemed to have expired at the end of that month. A
notice to vacate constitutes an express act on the part
of the lessor that it no longer consents to the
continued occupation by the lessee of its property.
After such notice, lessee’s right to continue in
possession ceases and her possession becomes one
of detainer.
Wherefore, petition was denied and the decisions of
CA were affirmed with modification on the unpaid
rentals due.
An implied new lease or tacita reconduccion will set in
when the following requisites are found to exist:
(a) The term of the original contract of lease has
expired;
(b) The lessor has not given the lessee a
demand to vacate; and
(c) The lessee continued enjoying the thing
leased for 15 days with the acquiescence of the
lessor.
Principle of Estoppel is applied against Samelo
Ma’am: Tingnan naten sino matawag. O, Kim
Lorenzo! (The lucky winner – Congratulations, besh!
hihi)
REGINA DIZON ET AL V. CA AND OVERLAND
EXPRESS LINES, INC.
G.R. No. 122544 January 28, 1999
FACTS: Overland Express Lines, Inc. entered into a
Contract of Lease with Option to Buy with petitioners
involving a 1,755.80 square meter parcel of land
situated at Diliman, Quezon City. The term of the
lease was for 1 year commencing from May 16,1974
up to May 15, 1975. During this period, Overland
Express Lines was granted an option to purchase for
the amount of P3,000.00 per square meter.
Thereafter, the lease shall be on a per month basis
with a monthly rental of P3,000.00.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 56
For failure of Overland Express Lines to pay the
increased rental of P8,000.00 per month effective
June 1976, petitioners filed an action for ejectment
against it. Overland Express Lines were ordered to
vacate the leased premises and to pay the sum of
P624,000.00 representing rentals in arrears and/or as
damages in the form of reasonable compensation for
the use and occupation of the premises during the
period of illegal detainer from June 1976 to November
1982.
Overland Express Lines Inc. then endorsed
P300,000.00 as partial payment for the leased
property and as an attempt to resurrect the lapsed
option of purchasing the property, which petitioners
accepted (through Alice A. Dizon,) with the issuance
of an official receipt.
ISSUES:
1. Whether Alice Dizon was authorized to receive the
sum of P300,000.00 on behalf of petitioners and
validly consider it as the partial payment of the
property to be purchased by the respondent(Overland
Express Lines, Inc.).
2. Whether there was a perfected contract of sale
between the parties.
HELD:
1. Alice Dizon is not authorized to receive the sum of
P300,000.00 on behalf of petitioners, therefore will not
validly bind the petitioners with the private
respondents to a contract of sale.
Article 1874 of the Civil Code is explicit that: "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." There was
no written proof and valid consent by the petitioners
(as co-owners of the leased premises) on the
supposed sale entered into by Alice A. Dizon, as
petitioners’ alleged agent, and Overland Express
Lines.
The sum of P300,000.00 received by Alice Dizon
cannot be considered as partial payment for the
purchase of the property for the reason that the option
given to the private respondent in purchasing the
property as an added condition in the contract of
lease already expired on May 1975.
As provided in Art 1670 of the Civil Code, the
provision entitling the lessee the option to purchase
the leased premises is not deemed incorporated in
the impliedly renewed contract because it is alien to
the possession of the lessee. Private respondent's
right to exercise the option to purchase expired with
the termination of the original contract of lease for one
year.
2. There was no perfected contract of sale in the first
place because Alice Dizon was not an authorized
agent of petitioner, therefore she cannot do any legal
transactions with the respondent.
As enshrined in Art 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.
In this case, there was a contract of lease for one (1)
year with option to purchase. The contract of lease
expired without the private respondent, as lessee,
purchasing the property but remained in possession
thereof. Hence, there was an implicit renewal of the
contract of lease on a monthly basis. The other terms
of the original contract of lease which are revived in
the implied new lease under Article 1670 of the New
Civil Code are only those terms which are germane to
the lessees right of continued enjoyment of the
property leased. Therefore, an implied new lease
does not ipso facto carry with it any implied revival of
private respondent's option to purchase (as lessee
thereof) the leased premises. The provision entitling
the lessee the option to purchase the leased premises
is not deemed incorporated in the impliedly renewed
contract because it is alien to the possession of the
lessee. Private respondents’ right to exercise the
option to purchase expired with the termination of the
original contract of lease for one year.
Is this an option contract? No. Right of first refusal
Effect of continued possession: Possessor in Bad
Faith – they can be ejected.
As to payment of rentals: in the lease contract, they
are to pay monthly.
Also, in addition to the requisites mentioned in the
case of Manotok, the following must also be
considered:
1. Notice to the contrary by either party should
not have been previously given; and
2. No express contract has been entered into
after the first contract has ended.
Period of time fixed by law
Rural Land
Art. 1682. The lease of a piece of rural land, when its
duration has not been fixed, is understood to have
been for all the time necessary for the gathering of the
fruits which the whole estate leased may yield in one
year, or which it may yield once, although two or more
years have to elapse for the purpose. (1577a)
Urban Land
Art. 1687. If the period for the lease has not been
fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it
is monthly; from week to week, if the rent is weekly;
and from day to day, if the rent is to be paid daily.
However, even though a monthly rent is paid, and no
period for the lease has been set, the courts may fix a
longer term for the lease after the lessee has
occupied the premises for over one year. If the rent is
weekly, the courts may likewise determine a longer
period after the lessee has been in possession for
over six months. In case of daily rent, the courts may
also fix a longer period after the lessee has stayed in
the place for over one month. (1581a)
Take note of the PAYMENT METHOD or term , that’s
the basis for implied new lease.
Ex. Year to Year - Contract of Lease from
January 1 to December 31, 2015 for
Php1,000,000.00.
Lease which cannot be terminated under specific
provisions of law (Long term lease)
Art. 1676. The purchaser of a piece of land which is
under a lease that is not recorded in the Registry of
Property may terminate the lease, save when there is
a stipulation to the contrary in the contract of sale, or
when the purchaser knows of the existence of the
lease.
If the buyer makes use of this right, the
lessee may demand that he be allowed to gather the
fruits of the harvest which corresponds to the current
agricultural year and that the vendor indemnify him for
damages suffered.
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 57
If the sale is fictitious, for the purpose of
extinguishing the lease, the supposed vendee cannot
make use of the right granted in the first paragraph of
this article. The sale is presumed to be fictitious
if at the time the supposed vendee demands the
termination of the lease, the sale is not recorded in
the Registry of Property. (1571a)
Art. 1677. The purchaser in a sale with the right of
redemption cannot make use of the power to eject the
lessee until the end of the period for the redemption.
(1572)
SPS. MAMARIL VS. BOY SCOUT OF THE
PHILIPPINES
G.R. NO. 179382 | JANUARY 14, 2013
FACTS: PUJ operators Sps. Mamaril would park their
6 passenger jeepneys every night at BSP’s
compound in Malate, Manila for a fee of P300.00 per
month for each unit. One day, one of the vehicles was
missing and was never recovered. According to the
security guards Peña and Gaddi of AIB Security
Agency with whom BSP had contracted for its security
and protection, a male person who looked familiar to
them took the subject vehicle out of the compound.
Sps. Mamaril prayed that Peña and Gaddi, together
with AIB and BSP, be held liable for: (a) the value of
the subject vehicle; (b) amount representing daily loss
of income/boundary reckoned from the day the
vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit.
BSP denied any liability contending that not only did
Sps. Mamaril directly deal with AIB with respect to the
manner by which the parked vehicles would be
handled, but the parking ticket itself expressly stated
that the "Management shall not be responsible for
loss of vehicle or any of its accessories or article left
therein." It also claimed that Sps. Mamaril erroneously
relied on the Guard Service Contract. Apart from not
being parties thereto, its provisions cover only the
protection of BSP's properties, its officers, and
employees.
ISSUE: Whether or not BSP may be held liable for the
loss of the vehicle caused by the negligence of its
security guards. NO
HELD: The proximate cause of the loss of Sps.
Mamaril's vehicle was the negligent act of security
guards Peña and Gaddi in allowing an unidentified
person to drive out the subject vehicle.
The records are bereft of any finding of negligence on
the part of BSP. Neither will the vicarious liability of an
employer under Article 2180 of the Civil Code apply in
this case. Peña and Gaddi were assigned as security
guards by AIB to BSP pursuant to the Guard Service
Contract. No employer-employee relationship existed
between BSP and the security guards assigned in its
premises. Sps. Mamaril are not parties to the Guard
Service Contract. Guard Service Contract between
defendant-appellant BSP and defendant AIB Security
Agency is purely between the parties therein.
Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights
and obligations arising from the contract are not
transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain some stipulation in favor
of a third person, he may demand its fulfillment
provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately
conferred a favor upon a third person.
Thus, in order that a third person benefited by the
second paragraph of Article 1311, referred to as a
stipulation pour autrui, may demand its fulfillment, the
following requisites must concur: (1) There is a
stipulation in favor of a third person; (2) The
stipulation is a part, not the whole, of the contract; (3)
The contracting parties clearly and deliberately
conferred a favor to the third person - the favor is not
merely incidental; (4) The favor is unconditional and
uncompensated; (5) The third person communicated
his or her acceptance of the favor before its
revocation; and (6) The contracting parties do not
represent, or are not authorized, by the third
party. However, none of the foregoing elements
obtains in this case. There is absolutely nothing in the
said contract that would indicate any obligation and/or
liability on the part of the parties therein in favor of
third persons such as herein plaintiffs-appellees.
Moreover, the Court concurs with the finding of
the CA that the contract between the parties
herein was one of lease as defined under Article
1643 of the Civil Code. It has been held that the
act of parking a vehicle in a garage, upon
payment of a fixed amount, is a lease.
A lessor-lessee relationship existed between
Spouses Mamaril and BSP. Article 1664 of the
same Code states that the lessor is not obliged to
answer for a mere act of trespass which a third
person may cause on the use of the thing leased;
but the lessee shall have a direct action against
the intruder. Here, BSP was not remiss in its
obligation to provide Spouses Mamaril a suitable
parking space for their jeepneys as it even hired
security guards to secure the premises; hence, it
should not be held liable for the loss suffered by
Spouses Mamaril.
The agreement with respect to the ingress and
egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security guards,
without the knowledge and consent of BSP.
Accordingly, the mishandling of the parked
vehicles that resulted in herein complained loss
should be recovered only from the tort feasors
(Peña and Gaddi) and their employer, AIB; and not
against the lessor, BSP.
Is it possible that the lessor will be liable? Yes, if he is
negligent.
Take note of Rent Control Law (RA 9341), effectivity
of which has been extended by the Housing and
Urban Development Coordinating Council (HUDCC)
until 31 December 2015. It covers residential units.
Under Section 5 of the Rent Control Act of
2009, the law covers only certain residential units:
(a) when the total monthly rent does not
exceed P10,000 in the National Capital Region
and other highly urbanized cities; and
(b) when the total monthly rent does not
exceed P5,000 in all other areas. Monthly rent
in this case does not include utilities and other
charges.
Residential units which fall under R.A. No. 9653’s
coverage have limits on annual rent increases. Under
Section 4 of the law, the monthly rent shall not be
 Sales Notes 3rd Exam – Atty. Jazzie Sarona - Lozare 58

increased by more than seven (7%) percent annually

for the same lessee.

Example: If a condominium unit located in Paranaque

City, which is within the National Capital Region,
charges a rent which does not exceed P10,000, the
lessor may not increase the rent by more than 7%
annually. However, if the monthly rent exceeds
P10,000, the lessor may increase the rent by ten
(10%) percent annually.

Also, the law provides that the lessor cannot demand

more than one month advance and two months
deposit.

Also, as in the civil code, the rent control law provides

that assignment without the written consent of the
lessor is prohibited. Here, subleasing without the
written consent is prohibited, unlike in the civil code
wherein it is allowed as long as there is no stipulation
to the contrary.

Also, assignment is considered as void.

FINIS

“The race is not always

to the swift, but to those
who keep on running.”
~ Anonymous