CHAPTER 3 CHAPTER 4

Effect of the Contract When the Thing Sold Has Been Lost Obligations of the Vendor

Art.1493-1494 Arts. 1495-1506

1. Thing entirely lost – Where the thing is entirely lost at the time of perfection, the contract I. General Obligations
is inexistent and void because there is no object.
Principal obligations of the vendor are:
2. Thing partially lost – If the subject matter is only partially lost, the vendee may elect
between (1) withdrawing from the contract and (2) demanding the remaining part, 1. To transfer ownership of the determinate thing sold;
paying its proportionate price.
2. To deliver the thing;
When a thing is considered LOST
3. To warrant against eviction and hidden defects (Arts. 1495, 1547);
-A thing is lost when it perishes or goes out of commerce or disappears in such a way that its
4. To take care of the thing, pending delivery, with proper diligence (Art. 1163); and
existence is unknown or it cannot be recovered. (Art.1189)
5. To pay for the expenses for the execution and registration of the deed of sale,
I. Distinction
unless there is a stipulation to the contrary.(Art. 1487)
A. Between 1493 and 1494
A. To preserve the thing (pending delivery with proper diligence)
-Article 1493 applies to a sale of specific thing.
Art. 1163. Every person obliged to give something is also obliged to TAKE CARE OF IT with the
-Article 1494, on the other hand, applies only to sales of goods, that is, the object of the sale PROPER DILIGENCE of a good father of a family, unless the law or stipulation of the parties
consists of a mass of “specific goods” which means “goods identified and agreed upon at the requires another standard of care.
time a contract of sale is made.”(Art. 1636)
a. Deterioration, loss or improvement (im not sure if this applies)
-Both articles have actually the same essence providing two alternative remedies to the buyer in
Art. 1189. If the obligation is subject to suspensive condition, the object is determinate, there is
case of deterioration or partial loss of the object prior to the sale.
loss, deterioration or improvement, and the obligation is real
-The second option or alternative to Art.1494 is applicable only if the objects of the sale are
1. If the thing is lost without the fault of the debtor, the obligation shall be extinguished
divisible. If they are indivisible like cars, the only available option is avoidance of the sale.
2. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages

3. When the thing deteriorates without the fault of the debtor, the impairment is to be
B. Between 1480 and 1504
borne by the creditor
-The loss or injury referred to in Articles 1493 and 1494 is one which has taken place before or
4. If it deteriorates through the fault of the debtor, the creditor may choose between the
at the time the contract of sale is perfected.
rescission of the obligation and its fulfillment, with indemnity for damages in either
-The loss or injury mentioned in Articles 1480 and 1504 occurs after the contract is perfected but case
prior to the time of delivery.
 5. If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor
6. If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary
Principle of Res Perit Domino; Risk of Loss – The general rule in case of loss of the thing is that
the risk is borne by the owner of the thing at the time of the loss. The goods remain at the
seller’s risk until the ownership is transferred to the buyer.
B. To deliver the thing sold (Art. 1537)
The vendor is bound to deliver the thing sold and its accessions and accessories in the condition
in which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract was
perfected.
I. Form (Manner) of Delivery
a. Physical or Real or Actual (Art. 1497) –
The thing sold shall be understood as delivered, when it is placed in the control and possession
of the vendee. This involves the physical delivery of the thing and is usually done by the passing
of a movable thing from hand to hand
Note: Delivery without the intention to transfer ownership on the part of the seller will not transfer
ownership. i.e. The parties may stipulate that ownership in the thing shall not pass to the
purchase until he has fully paid the price (Art. 1478)
b. Constructive or Legal Delivery –
a. By traditio symbolica (Art. 1498)
- Symbolic delivery by the execution of a public instrument is equivalent to actual delivery only
when the thing is subject to the control of the vendor. Hence, the vendor who executes said
public instrument fails in his obligation to deliver it if the vendee cannot enjoy its possession
because of the opposition or resistance of a third person (eg, squatter) who is in actual
possession (Addison vs Felix Tioco 38 Phil 404)
- the parties make use of a token symbol to represent the thing delivered, i.e. with regard to
movable property the delivery of the key where the thing sold is stored or kept is equivalent to
the delivery of the thing.
b. By traditio longa manu or traditio brevi manu (Art. 1499)
- traditio longa manu takes place by the mere consent or agreement of the contracting parties as
when the vendor merely points to the thing sold which shall thereafter be at the control and
disposal of the vendee. It should be noted that delivery “by mere consent or agreement of the
contracting parties” is qualified by the phrase “if the thing sold cannot be transferred to the
possession of the vendee at the time of the sale.”
- traditio brevi manu happens when the vendor has already the possession of the thing sold by
virtue of another title (which is not ownership) and continues to hold the possession thereof
under a title of ownership, i.e. as when the lessor sells the thing leased to the lessee. Instead of
the vendee turning over the thing to the vendor so that the latter may, in turn, deliver it back to
him, all these are considered done by fiction of law.
c. By quasi-traditio or quasi-delivery (Art. 1501) (delivery of incorporeal things
or rights)
- tradition/delivery can only be made with respect to corporeal things. In the case of incorporeal
things, delivery is effected:
1. by the execution of a public instrument
2. when that mode of delivery is not applicable, by placing of the titles of ownership in the
possession of the vendee
3. by allowing the vendee to use his rights as new owner with the consent of the vendor
d. De constituto (constitutum possessorium) (Art. 1500)
- This mode of delivery is the opposite of traditio brevi manu. It takes place when the vendor
continues in possession of the property sold not as owner but in some other capacity, as for
example, when the vendor stays as a tenant on the vendee. In this case, instead of the vendor
delivering the thing to the vendee so that the latter may, in turn, deliver it back to the vendor, the
law considers that all these have taken place through the constitutum possessorium agreement.
II.Cases
1. Kinds of Delivery –
San Lorenzo Development Corp vs CA, January 21, 2005, GR 140228
Facts: Spouses Lu had purportedly sold two parcels of land in 1986 to Babasanta totaling to
P460k. After down payment of P50k evidenced by a memorandum receipt, and several other
payments totaling P200k, Babasanta demanded an execution of a deed of sale so that he could
effect full payment of the purchase price. But Spouses Lu did not execute a deed of sale
because they would only do so, after payment of the balance of P260k. Meanwhile, the land was
purchased by SLDC on 1989 as evidenced by a deed of absolute sale with mortgage. RTC ruled
in favor of SLDC, applying Art. 1544 of Civil Code, equating the execution of public instrument in
favor of SLDC as sufficient delivery of the property. CA set aside the judgment of RTC, and
deemed the sale between spouses Lu and Babasanta valid and subsisting, because the deed of
absolute sale was null and void on the ground that SLDC was a purchaser in bad faith.
Issue: Who between SLDC and Babasanta has a better right over the two parcels of land.
Ruling:
The contract between Spouses Lu and Babasanta was deemed by the Supreme Court as a
contract to sell and not a contract of sale. The receipt signed by Pacita Lu merely states that she
accepted the sum of P50k from Babasanta as partial payment of the two parcels of land. While
there is no stipulation that the seller reserves the ownership of the property until full payment of
the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties
convince us that the Spouses Lu never intended to transfer ownership to Babasanta except
upon full payment of the purchase price. In a contract to sell, title is retained by the vendor until
the full payment of the price, such payment being a positive suspensive condition and failure of
which is not a breach but an event that prevents the obligation of the vendor to convey title from
becoming effective.
The claim of ownership by Babasanta to the land will still fail even if the contract is assumed to
be a contract of sale. A sale is not a mode of acquiring ownership, but only a title. A mode is the
legal means by which dominion or ownership is created, transferred or destroyed, but title is only
the legal basis by which to affect dominion or ownership. Under Article 712 of the Civil Code,
"ownership and other real rights over property are acquired and transmitted by law, by donation,
by testate and intestate succession, and in consequence of certain contracts, by tradition."
Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery
or tradition is the mode of accomplishing the same. Therefore, sale by itself does not transfer or
affect ownership; the most that sale does is to create the obligation to transfer ownership. It is
tradition or delivery, as a consequence of sale, that actually transfers ownership.
The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2) legal or
constructive delivery. Actual delivery consists in placing the thing sold in the control and
possession of the vendee. Legal or constructive delivery, on the other hand, may be had through
any of the following ways: the execution of a public instrument evidencing the sale; symbolical
tradition such as the delivery of the keys of the place where the movable sold is being kept;
traditio longa manu or by mere consent or agreement if the movable sold cannot yet be
transferred to the possession of the buyer at the time of the sale; traditio brevi manu if the buyer
already had possession of the object even before the sale; and traditio constitutum
possessorium, where the seller remains in possession of the property in a different capacity.
Following the above disquisition, respondent Babasanta did not acquire ownership by the mere
execution of the receipt by Pacita Lu acknowledging receipt of partial payment for the property.
For one, the agreement between Babasanta and the Spouses Lu, though valid, was not
embodied in a public instrument. Hence, no constructive delivery of the lands could have been
effected. For another, Babasanta had not taken possession of the property at any time after the
perfection of the sale in his favor or exercised acts of dominion over it despite his assertions that
he was the rightful owner of the lands. Simply stated, there was no delivery to Babasanta,
whether actual or constructive, which is essential to transfer ownership of the property. Thus,
even on the assumption that the perfected contract between the parties was a sale, ownership
could not have passed to Babasanta in the absence of delivery, since in a contract of sale
ownership is transferred to the vendee only upon the delivery of the thing sold.
We would not hesitate to rule in favor of SLDC on the basis of its prior possession of the
property in good faith. Be it noted that delivery of the property to SLDC was immediately effected
after the execution of the deed in its favor, at which time SLDC had no knowledge at all of the
prior transaction by the Spouses Lu in favor of Babasanta. The notice of lis pendens was only
entered into after the consummation of the sale between SLDC and spouses Lu, therefore it has
no effect on the same. Since SLDC acquired possession of the property in good faith in contrast
to Babasanta, who neither registered nor possessed the property at any time, SLDC’s right is
definitely superior to that of Babasanta’s.
2. Possession vs Ownership –
Medina vs Greenfield Development Corporation, November 19, 2004, GR 124242
Facts: Medina sold two parcels of land to Greenfield Development Corporation in 1962 & 1964.
Both were entered into with a notarized Deed of Sale, which was basis why the respondent was
able to register in its name the title to the two parcels of land. These properties were
consolidated with other lots and were eventually registered on 1995 in the name of respondent.
On 1998 heirs of petitioners instituted an action for annulment of titles and deeds,
reconveyance, damages with preliminary injunction and restraining order against respondent
and register of deeds of Makati. They claim that the deeds of sale were simulated and fictitious
and the signatures of the vendors were fake. Despite the transfer of title to respondents’ name,
they remained in possession thereof and in fact, their caretaker Arevalo and his family still reside
on a portion of the property. On 1998 petitioners caused an adverse claim to be annotated on
the titles. After discovery of the annotation, GDC constructed a fence on the property and posted
security personnel. Thus petitioners sought for the issuance of a temporary restraining order and
a writ of preliminary injunction enjoining respondent and its agents from preventing petitioners to
exercise their rights over the properties. In January 1999, RTC granted petitioners’ prayer for
relief because there was doubt as to the title of Greenfield and there would be irreparable injury
to the rights of the Medinas. In July 1999 CA nullified trial court’s resolution stating among others
that the trial court relied mainly on petitioners’ allegations in the complaint which were not
supported by substantial evidence, and respondent is in constructive possession of the
properties in dispute considering that it is already the registered owner thereof.
Issue: Whether or not the trial court erred in granting petitioners’ prayer for injunctive relief.
Ruling: The trial court committed grave abuse of discretion in issuing the writ or preliminary
injunction and the CA was correct in nullifying the same. Petitioners’ entitlement to the injunctive
writ hinges on their prima facie legal right to the properties subject of the present dispute. The
petitioners’ allegations are based merely on bare assertions and claims, while the respondent’s
claim of ownership is based on notarized deeds of conveyances and torrens titles in their favor,
which have a strong presumption of regularity. The petitioner has the burden to establish his
right to be entitled to a preliminary injunction. It is clear that petitioners failed to discharge the
burden of clearly showing a clear and unmistakable right to be protected.
Where the complainant's right or title is doubtful or disputed, injunction is not proper. The
possibility of irreparable damage without proof of actual existing right is not a ground for an
injunction
On the issue of possession, petitioners claim that they are in actual possession and Arevalo is
their caretaker and they still reside on the property, while respondent belies their claim, and
declares that Arevalo is employed by them as caretaker and his stay on the property was a mere
privilege granted.
Possession and ownership are two different legal concepts. Just as possession is not a definite
proof of ownership, neither is non-possession inconsistent with ownership. Even assuming that
petitioners' allegations are true, it bears no legal consequence in the case at hand because the
execution of the deeds of conveyances is already deemed equivalent to delivery of the property
to respondent, and prior physical delivery or possession is not legally required. Under Article
1498 of the Civil Code, "when the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the object of the contract, if from the deed the
contrary does not appear or cannot be inferred." Possession is also transferred, along with
ownership thereof, to respondent by virtue of the notarized deeds of conveyances.
When execution of public document not equivalent to delivery –
Vive Eagle Land Inc. vs CA & Genuine Ice Co., Inc., November 26, 2004, GR 140228
Facts: Spouses Flores owned two parcels of land and they executed a deed of absolute sale in
favor of TATIC company with an agreement to pay taxes and remove squatters from the same.
TATIC then executed a deed of absolute sale in favor of VELI with the agreement to remove
squatters or else VELI withholds payment for both parcels of land. VELI then executes a third
deed of absolute sale in favor of Genuine Ice Company for one of the parcels of land it acquired
from TATIC. VELI had an agreement with Genuine Ice Co. that the latter will withhold P300k of
the purchase price until after the former cleared the property of the squatters. There was a
demand by Genuine Ice to VELI to pay the capital gains tax, documentary stamp tax and other
registration fees, but VELI rejected the demand, hence the filing of and action by Genuine Ice
with the RTC for specific performance and damages. Genuine Ice alleged, among others, that
VELI failed to transfer title to and in the name of the respondent over the property, it failed to
cause the eviction of the squatters, and it failed to pay the capital gains tax and other
assessments due to effectuate the transfer of the titles of the property to and in its name.. The
trial court rendered a decision favoring Genuine Ice, and it was affirmed by the CA, with
modification.
Issue: Whether or not there was already delivery by the execution of the deed of sale.
Ruling: Under Article 1495 of the New Civil Code, petitioner VELI, as the vendor, is obliged to
transfer title over the property and deliver the same to the vendee. While Article 1498 of the New
Civil Code provides that the execution of a notarized deed of absolute sale shall be equivalent to
the delivery of the property subject of the contract, the same shall not apply if, from the deed,
the contrary does not appear or cannot clearly be inferred. In the present case, the respondent
and petitioner VELI agreed that the latter would cause the eviction of the tenants/occupants and
deliver possession of the property. It is clear that at the time the petitioner executed the deed of
sale in favor of the respondent, there were tenants/occupants in the property. It cannot, thus, be
concluded that, through the execution of the third deed of sale, the property was thereby
delivered to the respondent.
Petitioner VELI is obliged to cause the eviction of the tenants/occupants unless there is a
contrary agreement of the parties. Indeed, under the addendum executed by petitioner VELI and
the respondent, the latter was given the right to withhold P300k of the purchase price until after
petitioner VELI cleared the property of squatters.
Asset Privatization Trust vs TJ Enterprises, May 8, 2009, GR 167195
Facts: Asset Privatization Trust acquired from Development Bank of the Philippines certain
machinery and equipment. These machinery and equipment were stored at a compound which
was in the physical possession of Creative Lines Inc. APT then sold to TJ Enterprises these
machinery and equipments. They entered into a Deed of Absolute Sale, and there was full
payment for the items. After acquiring most of the items from the compound, they failed to haul 7
items of machinery and equipment because they were prevented to by the employees of
Creative Lines. TJE then filed a complaint for specific performance against CLI and APT. During
the pendency of the case, TJE was able to pull out the remaining items, but upon inspection, it
was discovered that these were damaged and had missing parts.
Issue: Whether or not there was constructive delivery on the part of Asset Privatization Trust.
Ruling: The ownership of a thing sold shall be transferred to the vendee upon the actual or
constructive delivery thereof. The thing sold shall be understood as delivered when it is placed in
the control and possession of the vendee.
As a general rule, when the sale is made through a public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred. And with regard to movable property, its
delivery may also be made by the delivery of the keys of the place or depository where it is
stored or kept. In order for the execution of a public instrument to effect tradition, the purchaser
must be placed in control of the thing sold.
However, the execution of a public instrument only gives rise to a prima facie presumption of
delivery. Such presumption is destroyed when the delivery is not effected because of a legal
impediment. It is necessary that the vendor shall have control over the thing sold that, at the
moment of sale, its material delivery could have been made. Thus, a person who does not have
actual possession of the thing sold cannot transfer constructive possession by the execution and
delivery of a public instrument.
In this case, there was no constructive delivery of the machinery and equipment upon the
execution of the deed of absolute sale or upon the issuance of the gate pass since it was not
petitioner but Creative Lines which had actual possession of the property. The presumption of
constructive delivery is not applicable as it has to yield to the reality that the purchaser was not
placed in possession and control of the property.
Transfer of ownership by placing titles of ownership in the possession of the vendee –
Tablante vs Aquino, September 18, 1914, GR 8675
Facts: Mendiola owned a piece of land and on it a warehouse which he subsequently sold to
Bautista. This was recorded in the property registry. Notwithstanding the sale made to Bautista,
Mendiola continued in possession of the lot and warehouse pursuant to a contract of lease
executed between them. Because of Mendiola’s failure to pay, Bautista sold the same lot and
warehouse to Tablante and the title deed was delivered to him. Meanwhile, a judgment was
rendered against Mendiola by the CFI, which was basis for the sheriff to sell the lot and
warehouse at an auction sale because it was deemed to be property of Mendiola. Vergara was
the highest bidder, but it was eventually sold to Jose Aquino, the present possessor. CFI ordered
Aquino to deliver property to Tablante and also to pay damages. Aquino appealed the decision
Issue: Whether or not there was transfer of ownership to Tablante.
Ruling: The ownership of things is not transferred from one person to another by mere consent
in the contract, but through the delivery of the thing that is the subject of the contract. In the
present case, it is admitted by the appellee that there was no material delivery of the lot and
warehouse by Ciriaco Bautista to Bartolome Tablante, as up to now no proof has been
presented of a contract of sale made between Bautista and Tablante.
Nevertheless, the law prescribes that the "the placing of the titles of ownership in the possession
of the vendee or the use which he may make of his right with the consent of the vendor shall be
considered as a delivery." (Civil Code, art. 1464.) The title deeds given to Tablante and the use
of his right by the the same who in his complaint lays claim to the lot and the warehouse, appear
to have been consented to by the vendor Bautista, by means of the aforementioned evidence. It
is the same as though Ciriaco Bautista were the intervener, and if he had been, there would
have been no cause for discussion.
Therefore, after first declaring the sale made by the sheriff, together with the subsequent ones,
to be null and void, we declare Bartolome Tablante to be the owner of the lot and warehouse
described in the complaint, and the defendant, Jose Aquino, is sentenced to restore them to the
Tablante, but no payment for damages.
Rule in sale of registered land –
Valdevieso vs Damalerio, February 17, 2005, GR 133303
Facts: On December 1995, Valdevieso bought from spouses Uy a parcel of land, but the Deed
of Sale was not registered, nor was the title of land transferred. On April 1996, Damalerio filed a
complaint for sum of money with application for the issuance of a Writ of Preliminary Attachment
against spouses Uy. On the same month, the trial court issued the writ, by virtue of which the
property was levied, even though the property was still in the name of Uy but which had been
already sold to Valdevieso. The levy was duly recorded in the Register of Deeds and annotated
upon the TCT of spouses Uy. On June 1996 the TCT in the name of Uy was cancelled and in
lieu thereof a new TCT was issued in the name of Valdevieso but it carried with it the attachment
in favor of Damalerio. Because of that Valdevieso filed a third party claim to discharge or annul
the attachment on the ground that said property belongs to him and no longer to spouses Uy,
which was subsequently granted by the RTC. The CA reversed the decision on the ground that
the writ of attachment takes precedence over the sale because it was recorded ahead of the
sale.
Issue: Whether or not a registered writ of attachment on the land is a superior lien over that of
an unregistered deed of sale.
Ruling: The Supreme Court affirms the decision of the Court of Appeals. The law applicable to
the facts of this case is Section 51 of P.D. No. 1529. Said Section provides:
Sec. 51. Conveyance and other dealings by registered owner. - An owner of registered land may
convey, mortgage, lease, charge, or otherwise deal with the same in accordance with existing
laws. He may use such forms of deeds, mortgages, leases or other voluntary instruments as are
sufficient in law. But no deed, mortgage, lease, or other voluntary instrument, except a will
purporting to convey or affect registered land, shall take effect as a conveyance or bind the land,
but shall operate only as a contract between the parties and as evidence of authority to the
Register of Deeds to make registration.
The act of registration shall be the operative act to convey or affect the land insofar as third
persons are concerned, and in all cases under this Decree, the registration shall be made in the
office of the Register of Deeds for the province or city where the land lies.
It is to be noted that though the subject land was deeded to petitioner as early as 05 December
1995, it was not until 06 June 1996 that the conveyance was registered, and, during that
interregnum, the land was subjected to a levy on attachment. It should also be observed that, at
the time of the attachment of the property on 23 April 1996, the spouses Uy were still the
registered owners of said property. Under the cited law, the execution of the deed of sale in favor
of petitioner was not enough as a succeeding step had to be taken, which was the registration of
the sale from the spouses Uy to him. Insofar as third persons are concerned, what validly
transfers or conveys a person’s interest in real property is the registration of the deed. Thus,
when petitioner bought the property on 05 December 1995, it was, at that point, no more than a
private transaction between him and the spouses Uy. It needed to be registered before it could
bind third parties, including respondents. When the registration finally took place on 06 June
1996, it was already too late because, by then, the levy in favor of respondents, pursuant to the
preliminary attachment ordered by the General Santos City RTC, had already been annotated
on the title.
The settled rule is that levy on attachment, duly registered, takes preference over a prior
unregistered sale. This result is a necessary consequence of the fact that the property involved
was duly covered by the Torrens system which works under the fundamental principle that
registration is the operative act which gives validity to the transfer or creates a lien upon the
land.
The preference created by the levy on attachment is not diminished even by the subsequent
registration of the prior sale. This is so because an attachment is a proceeding in rem. It is
against the particular property, enforceable against the whole world. The attaching creditor
acquires a specific lien on the attached property which nothing can subsequently destroy except
the very dissolution of the attachment or levy itself. Such a proceeding, in effect, means that the
property attached is an indebted thing and a virtual condemnation of it to pay the owner’s debt.
The lien continues until the debt is paid, or sale is had under execution issued on the judgment,
or until the judgment is satisfied, or the attachment discharged or vacated in some manner
provided by law.
Thus, in the registry, the attachment in favor of respondents appeared in the nature of a real lien
when petitioner had his purchase recorded. The effect of the notation of said lien was to subject
and subordinate the right of petitioner, as purchaser, to the lien. Petitioner acquired ownership of
the land only from the date of the recording of his title in the register, and the right of ownership
which he inscribed was not absolute but a limited right, subject to a prior registered lien of
respondents, a right which is preferred and superior to that of petitioner.
3. Effect of affidavit of adverse claim in lieu of registration –
Navotas Industrial vs Cruz, September 12, 2005, GR 159212
Facts: Carmen Cruz entered into a lease agreement with Navotas Industrial Corporation in
1966, wherein the latter would lease her property from October 1966 to October 1990. Carmen
then sold the property to her children on December of 1974, executing a Deed of Absolute Sale
of Realty with Assumption of Mortgage. This deed was not registered. On June 1977 Carmen’s
children paid the loan, and then the bank subsequently executed a cancellation of Real Estate
Mortgage, but this was not presented to the Register of Deeds for Registration. Carmen’s
children then executed an Affidavit of Adverse Claim, stating that they were the vendees of the
property as evidenced by a Deed of Sale with Assumption of Mortgage appended thereto, and
that to protect their rights and interests, the said affidavit of adverse claim was being executed
as a cautionary notice to third persons and the world that the property had been sold to them.
The affidavit of adverse claim was inscripted at the dorsal portion of the title on June 1977. On
July 1977 Carmen entered into an agreement with NIC for a supplementary lease agreement
with an option to buy the property. However this was not presented for registration to the
Register of Deeds. It was only on September 1977 that NIC presented the supplementary lease
agreement to the Register of Deeds for annotation at the dorsal portion of the title. In 1991
Carmen’s children demanded that NIC vacate the property because they no longer had the
intention to renew the contract, but NIC refused to do so, and it posited that it would exercise it’s
option to buy the property. In 1995 the Cruz heirs filed for nullification of the supplementary
lease agreement, but the RTC upheld the validity of the agreement in its judgment on March
2000. Cruz heirs appealed the decision of the RTC and the CA on July 2003 reversed the
decision of RTC, stating among others that NIC had constructive notice of the adverse claim,
and that the supplementary lease agreement had no effect because it was no longer owned by
Carmen Cruz, and the option to buy was not effected because there was no consideration
therefore.
Issue: Whether or not the supplementary lease agreement is valid and binding.
Ruling: The Supreme Court held that it was not because NIC had constructive notice of the
adverse claim, and that at the time the supplementary lease agreement was entered into the
land was no longer owned by Carmen Cruz, and the option to buy was not effective because
there was no separate consideration for it.
Basic is the rule that the annotation of an adverse claim is a measure designed to protect the
interest of a person over a piece of real property and serves as a notice and warning to third
parties dealing with said property that someone is claiming an interest on the same or a better
right than the registered owner thereof. A subsequent transaction involving the property cannot
prevail over the adverse claim which was previously annotated in the certificate of title of the
property.
The general rule is that a person dealing with registered land is not required to go behind the
register to determine the condition of the property. However, such person is charged with notice
of the burden on the property which is noted on the face of the register or certificate of title. A
person who deals with registered land is bound by the liens and encumbrances including
adverse claim annotated therein.
In the present action, the petitioner caused the annotation of the July 30, 1977 Supplementary
Lease Agreement and Contract of Sale only on September 14, 1977, long after the annotation of
the respondents’ adverse claim at the dorsal portion of TCT No. 81574 on June 30, 1977. Thus,
as of that date, the petitioner had constructive knowledge of the Deed of Sale with Assumption
of Mortgage Carmen Cruz executed on December 31, 1974 in favor of her children. Even
before July 30, 1977, the petitioner had knowledge that Carmen Cruz was no longer the owner
of the property, and had no more right to execute the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease. The registration of the said lease contracts was of no
moment, since it is understood to be without prejudice to the better rights of third parties.
C. Transfer of Ownership to the Buyer
a. General Rule
Generally, the ownership in the goods passes to the buyer upon their delivery to the carrier.
Delivery may be actual/real, constructive/legal, or in any manner signifying an agreement that
the possession is transferred to the buyer.
Case: Determination of place of consummation of contract for purposes of imposing sales tax
Butuan Sawmill vs CTA, February 28, 1966, GR L-20601
Facts: Butuan Sawmill sells logs to Japanese firms at prices FOB vessel. Freight is paid by
Japanese buyers, and the payments were effected by means of irrevocable letters of credit in
favor of Butuan Sawmill. Upon investigation by the BIR it was ascertained that no sales tax
return was filed by Butuan Sawmill and neither did t pay the corresponding tax on the sales.
Thereafter, BIR assessed against Butuan Sawmill sales tax and surcharges. Butuan challenged
the assessment on the ground that the disputed sales were consummated in Japan and
therefore not subject to the taxing jurisdiction of the Philippines.
Issue: The main issue is the place of consummation of sale to determine whether or not
petitioner is liable to pay the sales tax
Ruling: In a decided case with practically identical set of facts obtaining in the case at bar, this
Court declared:
. . . it is admitted that the agreed price was "F.O.B. Agusan", thus indicating, although prima
facie, that the parties intended the title to pass to the buyer upon delivery of the logs in Agusan;
on board the vessels that took the goods to Japan. Moreover, said prima facie proof was
bolstered up by the following circumstances, namely:
1. Irrevocable letters of credit were opened by the Japanese buyers in favor of the petitioners.
2. Payment of freight charges of every shipment by the Japanese buyers.
3. The Japanese buyers chartered the ships that carried the logs they purchased from the
Philippines to Japan.
4. The Japanese buyers insured the shipment of logs and collected the insurance coverage in
case of loss in transit.
5. The petitioner collected the purchase price of every shipment of logs by surrendering the
covering letter of credit, bill of lading, which was indorsed in blank, tally sheet, invoice and
export entry, to the corresponding bank in Manila of the Japanese agent bank with whom the
Japanese buyers opened letters of credit.
6. In case of natural defects in logs shipped to the buyers discovered in Japan, instead of
returning such defective logs, accepted them, but were granted a corresponding credit based on
the contract price.
7. The logs purchased by the Japanese buyers were measured by a representative of the
Director of Forestry and such measurement was final, thereby making the Government of the
Philippines a sort of agent of the Japanese buyers.
It is clear that said export sales had been consummated in the Philippines and were,
accordingly, subject to sales tax therein.
b. When delivery does not transfer title
1. In “delivery on approval, trial, or satisfaction”
Paragraph 2 of Article 1502 provides:
When goods are delivered to the buyer on approval or on trial or on satisfaction, or other
similar terms, the ownership therein passes to the buyer:
i. When he signifies his approval or acceptance to the seller or does
any other act adopting the transaction;
ii. If he does not signify his approval or acceptance to the seller, but
retains the goods without giving notice of rejection, then if a time
has been fixed for the return of the goods, on the expiration of such
time, and if no time has been fixed, on the expiration of a
reasonable time. What is a reasonable time is a question of fact.
2. In case of express reservation of title in the seller
Paragraph 1 of Article 1503 provides:
Where there is a contract of sale of specific goods, the seller may, by the terms of the
contract, reserve the right of possession or ownership in the goods until certain conditions have
been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the
delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission
to the buyer.
Case:
Reyes vs Salvador, September 11, 2008, GR 139047
Facts: Domingo owns a parcel of unregistered land. On June 1965 his son Nicomedes executed
a deed of conditional sale in favor of Emma. On June 1968 Nicomedes entered into an
Agreement of purchase and sale with Rosario. On August 1969 Nicomedes sold part of the land
to Maria and executed a Deed of Absolute Sale of Unregistered Land. On July 1980, the heirs of
Nicomedes sold the remaining land in favor of Dulos Corp and also executed a Deed of
Absolute Sale of Unregistered Land.
Issue: Which party acquired valid and registrable title to the land.
Ruling: After a conscientious review of the arguments and evidence presented by the parties,
the Court finds that the Deed of Conditional Sale between Nicomedes and Emma and the
Agreement of Purchase and Sale between Nicomedes and Rosario were both mere contracts to
sell and did not transfer ownership or title to either of the buyers in light of their failure to fully
pay for the purchase price of the subject property.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A simple reading of the terms of the June 1965 Deed of Conditional Sale readily discloses that it
contains stipulations characteristic of a contract to sell. It provides for the automatic cancellation
of the contract should Emma fail to pay the purchase price as required therein; and, in such an
event, it grants Nicomedes the exclusive right to thereafter sell the subject property to a third
person. As in Adelfa Properties, the contract between Nicomedes and Emma does not provide
for reversion or reconveyance of the subject property to Nicomedes in the event of nonpayment
by Emma of the purchase price. More importantly, the Deed in question clearly states that
Nicomedes will issue a final deed of absolute sale only upon the full payment of the purchase
price for the subject property. Taken together, the terms of the Deeds reveal the evident intention
of the parties to reserve ownership over the subject property to Nicomedes pending payment by
Emma of the full purchase price for the same.
While the Deed of Conditional Sale dated June 1965 was indeed contained in a public
instrument, it did not constitute constructive delivery of the subject property to Emma in
view of the contrary inference in the Deed itself that the ownership over the subject
property was reserved by NicomedesMoreover, other than her claim that she paid the
realty taxes on the subject property, Emma did not present any evidence that she took
actual and physical possession of the subject property at any given time.
This Court also finds that, contrary to the ruling of the Court of Appeals, the Agreement of
Purchase and Sale executed by Nicomedes in favor of Rosario on June 1968 is likewise a mere
contract to sell. The Agreement itself categorically states that Nicomedes only undertakes to sell
the subject property to Rosario upon the payment of the stipulated purchase price and that an
absolute deed of sale is yet to be executed between the parties.
Thus, the Deeds of Absolute Sale in favor of Maria and Dulos Realty were the only conveyances
of the subject property in this case that can be the source of a valid and registrable title. Both
contracts were designated as absolute sales and the provisions thereof leave no doubt that the
same were true contracts of sale. The total considerations for the respective portions of the
subject property were fully paid by the buyers and no conditions whatsoever were stipulated
upon by the parties as regards the transmission of the ownership of the said property to the said
buyers.
3. Implied reservation of title
The full text is found in Article 1503.
i. If under the bill of lading the goods are deliverable to the seller or
agent or their order. (Reason, the buyer cannot get the goods.)
ii. If bill of lading, although stating that the goods are to be delivered to
buyer or his agent, is KEPT by the seller or his agent. (the buyer
also cannot get the goods)
iii. When the buyer, although the goods are deliverable to order of
buyer, and although the bill of lading is given to him, does not honor
the bill of exchange sent along with it. But of course innocent third
parties (innocent holders and purchasers for value) should not be
adversely affected.
Example: S sold B a laptop. The laptop was shipped on board a carrier. The bill of lading stated
that the laptop is deliverable to the order of B. The bill of lading was sent to B, accompanied by a
bill of exchange which B was supposed to honor. If B does not honor the bill of exchange, but
wrongfully retains the bill of lading, ownership remains with the seller. If B sells the bill of lading
to X, X can obtain ownership of the goods if he is an innocent purchaser.
Note: Bill of lading – A document evidencing a contract for the carriage and delivery of the
listed goods.
Bill of exchange – A written instrument providing proof of an obligation to pay money.
4. Sale to two different persons by the same seller (Art. 1544)
i. Personal/movable property – possessor in good faith
ii. Real/immovable property –
1. Registrant if good faith
2. Possessor in good faith
3. Person with the oldest title in good faith
5. When the seller is not the owner (Art. 1505)
The general principle as regards personal property that a seller without title cannot transfer a
better title than what he actually has. He cannot give what he does not have, nemo dat quod
non habet. Even a buyer in good faith succeeds only to the rights of the vendor, sale ex vi
termini. He cannot acquire anything more. A stream cannot rise higher than its source.
Exception:
i. When the true owner of the goods by his conduct is precluded from
denying the authority of the seller.
ii. When the sale by the non-owner is effected by, factors’ acts,
recording laws, or any other provisions of law enabling the apparent
owner of goods to dispose of them as if he were the true owner
thereof.
iii. When the sale is sanctioned by statutory or judicial authority
iv. Purchases made in a merchant’s store, or in fair, or markets, in
accordance with the Code of Commerce and special laws.
c. Revesting of title that has passed to the buyer
1. Stoppage in transitu (Article 1534)
This article refers to the right to rescind the transfer of title and to resume the ownership in the
goods. Before an unpaid seller may be allowed to rescind the sale, it must be shown that (a) he
has the right of lien over the goods or (b) he has stopped the goods in transitu. In addition, the
parties have reserved for the seller the right to rescind in case of default on the part of the buyer,
or in the absence of such reservation, the buyer has been in default in his payment for an
unreasonable length of time.

However, rescission when it is not reserved, shall not be effective unless the seller has notified
the buyer of the former’s intention to rescind or has manifested by an overt act or acts his
intention to so rescind.

2. Delivery to the buyer “on sale or return”

Sale or return – it is a contract by which property is sold but the buyer, who becomes the owner
of the property on delivery, has the option to revest the ownership in the seller by returning or
tendering the goods within the time fixed in the contract or if no time has been fixed, within a
reasonable time. (Article 1502) Under this contract, the option to purchase or return the goods
rests entirely on the buyer without reference to the quality of the goods.

3. In case of danger of loss of thing and the price

The risk of loss or deterioration is on the buyer prior to the exercise of his option to revest the
ownership of the goods in the seller. The reason for this is that the seller is the owner of the
goods from the time of their delivery until the revestment of the ownership thereof into the seller.