LAW ON SALES

REVIEWER

From the Lectures of Atty. Jess Zachael Espejo

Ateneo De Davao University - College of Law

Compiled by:
JUSTIN RYAN D. MORILLA
A.Y. 2015-2016

OTHER SOURCES:
Notes of Atty. Sarona, CPA, Atty. Ong-Abrates, CPA, & Atty. Rizada
2015 Class TSN
BQs with Suggested Answer
UP Reviewer

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LAST UPDATED: 01/13/16
 CONCEPT OF SALE
Article 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
A contract of sale may be absolute or conditional.
NATURE OF OBLIGATIONS CREATED IN A SALE
I. Two OBLIGATIONS of the SELLER to:
(i) Transfer the Ownership,3 and
(ii) Deliver the Possession, of
SUBJECTMATTER;
II. An OBLIGATION for the BUYER to:
(i) Pay the PRICE.
Both sets of obligations, are real obligations or obligations ―to
give,‖ as contrasted from personal obligations ―to do‖ and―not to do,‖
and can be the proper subject of actions for specific performance.
Article 1480 of the Civil Code, which cross refers to Article
1165 thereof, provides that when what is to be delivered is a
determinate thing, the buyer, in addition to the right to
recover damages, may compel the seller to make the
delivery. In other words, a defaulting party in a sale
cannot insist on just paying damages when the non-
defaulting party demands performance.
CHARACTERISTICS OF A CONTRACT OF SALE:
1. NOMINATE which means that it has been given a particular
name by law. A certain set of provisions will be applicable n
trying to construe issues related to the contract.
A contract of sale is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting
parties call it. Santos v. CA, 337 SCRA 67 (2000).
2. PRINCIPAL - As distinguished from mere accessory
contracts, it can stand on its own and does not depend
upon existence and validity of other contracts. It is in itself
valid.
As distinguished from preparatory contracts, a contract of
sale is entered into for its own sake and not for the purpose
of entering into further juridical relations.
3. CONSENSUAL - It is perfected by mere consent. Its
perfection is not subordinated by some other condition like
the execution of deeds, forms and solemnities. It is not a
real contract which requires delivery in order for the
contract to be perfected. It is not also a formal contract
because a contract of sale is valid in whatever form it may
have been entered into.
Article 1475. The contract of sale is perfected at the moment there
is a meeting of minds upon the thing which is the object of the
contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the
form of contracts. (1450a)
Perfection Distinguished from Demandability – Not all contracts of
sale become automatically and immediately effective. In sales with
assumption of mortgage, there is a condition precedent to the
seller‘s consent and without the approval of the mortgagee, the
sale is not perfected. Biñan Steel Corp. v. CA, 391 SCRA 90
(2002).
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JUSTIN RYAN MORILLA
When there is no meeting of the minds on price, the contract ―is
not perfected‖ and does not serve as a binding juridical relation
between the parties. Manila Metal Container Corp. v. PNB, 511
SCRA 444 (2006), and should be more accurately denominated as
inexistent, as it did not pass the stage of generation to the point of
perfection. NHA v. Grace Baptist Church, 424 SCRA 147 (2004).
4. BILATERAL& RECIPROCAL- A contract of sale is a
―synallagmatic‖ contract which means contracts interest in
reciprocal prestations.
BILATERAL CONTRACTS - where both parties are
principally obliged
the
A contract of sale gives rise to ―reciprocal obligations‖, which arise
from the same cause with each party being a debtor and creditor of the
other, such that the obligation of one is dependent upon the
obligation of the other; and they are to be performed
simultaneously, so that the performance of one is conditioned upon
the simultaneous fulfillment of the other. Cortes v. CA, 494 SCRA 570
(2006).
A perfected contract of sale is bilateral because it carries the
correlative duty of the seller to deliver the property and the
obligation of the buyer to pay the agreed price. Congregation of
the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008).
WHAT IS THE CONSEQUENCE OF THE CHARACTERIZATION OF
THE CONTRACT OF SALE AS CONSENSUAL AND RECIPROCAL?
MACASAET VS. R. TRANSPORT CORPORATION
October 10, 2007
G.R. No. 172446
TINGA, J.
Sale is perfected at the moment there is a meeting of minds upon
the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts. A perfected contract of sale imposes reciprocal
obligations on the parties whereby the vendor obligates himself to
transfer the ownership of and to deliver a determinate thing to the
buyer who, in turn, is obligated to pay a price certain in money or its
equivalent. Failure of either party to comply with his obligation entitles
the other to rescission as the power to rescind is implied in reciprocal
obligations.
When a contract is possessed of reciprocal prestations, the power to
rescind is implied in reciprocals. So it calls the application of Aricle
1191 of the Civil Code.
Take note that the power to rescind is only given to the INJURED
party.
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law.
The power need not be stipulated in the contract in order for the
innocent party to invoke the remedy and also under Article 1169:
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Article 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation
it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner
with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
The legal effects and consequences of sale being a bilateral
contract composed of reciprocal obligations are as follows:
1) The power to rescind is implied, and such power need not be
stipulated in the contract in order for the innocent party to
invoke the remedy;
2) Neither party incurs delay if the other party does not comply,
or is not ready to comply in a proper manner, with what is
incumbent upon him; and
3) From the moment one of the parties fulfills his obligation, the
default by the other begins, without the need of prior
demand.
5. ONEROUS - As distinguished from gratuitous contracts, the
consideration here is something of value.
In onerous contracts, the cause for each contracting party is
understood to be the prestation or promise of a thing or service by the
other and in remuneratory ones, the service or benefit which is
remunerated and in contracts of pure beneficence, the mere
liberality of the benefactor.
Article 1350. In onerous contracts the cause is understood to be,
for each contracting party, the prestation or promise of a thing or
service by the other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure beneficence, the
mere liberality of the benefactor. (1274)
Sale is onerous because it imposes valuable consideration as a
prestation which is the payment of a price certain in money or its
equivalent.
WHAT IS THE CONSEQUENCE OF THE CHARACTERIZATION OF
A CONTRACT OF SALE AS AN ONEROUS CONTRACT?
Article 1378. When it is absolutely impossible to settle doubts by
the rules established in the preceding articles, and the doubts
refer to incidental circumstances of a gratuitous contract, the
least transmission of rights and interests shall prevail.xxx
Al things being equal therefore, if there is doubt as to whether or not a
contract is one of donation or a contract of commodatum, which has a
least of transmission of rights and interest? It would be the contract
of commodatum. Therefore, you resolve the doubt accordingly.
WHAT ABOUT FOR ONEROUS CONTRACTS?
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XxxIf the contract is onerous, the doubt shall be settled in favor of
the greatest reciprocity of interests.
Look at the value of the matters that are exchanged—the objects that
are exchanged. If it is more in keeping with a sale, then you actually
construe the doubt in favor of a contract being a sale.
Between sale and lease, where the amount is considerably high, it will
be considered a sale rather than a lease because it involves the
greatest reciprocity of interest.
6. COMMUTATIVE
A thing of value is exchanged for equal value as opposed to an
aleatory contract like insurance because the premium that you pay is
not equivalent to the cash expectation that you will receive.
In a contract of sale, there is no requirement that the price be equal
to the exact value of the subject matter of sale; all that is required
is that the parties believed that they will receive good value in
exchange for what they will give. Buenaventura v. CA, 416 SCRA
263 (2003).
Equivalent values or at least relatively, the party believes that he is
getting his money‘s worth.
In aleatory contracts on the other hand, usually, the fulfillment of
the contract is dependent on chance. For example, contract of
insurance. The insurance contract says that if it is a cause covered by
the policy, you stand to get 5Million Pesos. Do you pay 5Million pesos?
No, you pay a minimal amount by way of premium.
It is similar in buying a lotto ticket where fulfillment depends on chance.
You pay ten pesos, how much do you win? You get millions, but if
you lose, you get nothing.
7. SALE IS A TITLE NOT A MODE - -In the contract of sale,
delivery is transfers ownership. It is not the contract itself
that transfers ownership.
Sale is not a mode, but merely a title. A mode is the legal means by
which dominion or ownership is created, transferred or
destroyed, but title is only the legal basis by which to affect
dominion or ownership. 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. San Lorenzo Dev. Corp. v. CA, 449
SCRA 99 (2005)
Seller‘s ownership of the thing sold is not an element of
perfection; what the law requires is that seller has the right to
transfer ownership at the time of delivery.Quijada v. CA, 299
SCRA 695 (1998).
Non nudis pactis, sed traditionis dominia rerum transferantur.
―It is delivery as a consequence of certain contracts that transfers
ownership not the contract itself‖
Ownership is only acquired by a legal mode or process. While the
title is only the justication, mode is the actual process of acquisition or
transfer of ownership of a thing in question.
Article 712. Ownership is acquired by occupation and by
intellectual creation. [ORIGINAL MODE]
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.
[DERIVATIVE MODE]
They may also be acquired by means of prescription.
―BY TRADITION‖
This is otherwise known as delivery as a result of a certain
contracts such as sale, barter, assignment or mutuum.Sale is
merely a title that creates the obligation on the part of the seller to
transfer ownership and to deliver it, but by its own, it does not transfer
ownership.
It is delivery as a consequence of certain contracts that transfers
ownership, not the contract itself. So in the contract of sale, the mere
fact that you enter into a contract does not necessarily transfer
ownership. When there is delivery however, whether it is actual or
symbolic, that is the time when you can say that there is transfer of
ownership.
ACAP VS. CA
G.R. No. 118114
December 7, 1995
PADILLA, J.
Sale by itself does not transfer or affect ownership. It only creates the
obligation—the juridical justification to transfer ownership is tradition or
delivery as consequence of sale that actually transfers ownership.
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DISTINCTION OF SALE
WITH OTHER CONTRACTS
WHY DISTINGUISH? 3 REASONS
1) A contract is what the law defines it to be, taking into
consideration its essential elements, and the title given to it
by the parties is not as much significant as its substance.
Santos v. CA, 337 SCRA 67 (2000).
2) A contract which is called otherwise by the parties is
susceptible of the remedy of reformation.
3) It can be called void ab initio when you enter into something
what you feel is a binding contract but the law tells you that it
is not. This contract cannot be ratified.
1. SALE VS. BARTER
Article 1468. If the consideration of the contract consists partly in
money, and partly in another thing, the transaction shall be
characterized by the manifest intention of the parties. If such
intention does not clearly appear, it shall be considered a barter if
the value of the thing given as a part of the consideration exceeds
the amount of the money or its equivalent; otherwise, it is a sale.
Article 1638. By the contract of barter or exchange one of the
parties binds himself to give one thing in consideration of the
other's promise to give another thing. (1538a)
Barter – contract where majority of the consideration is in the
form of another thing and a minor part of the consideration is in
money
Barter is one of the contracts where the consideration and the subject
matter of the contract are practically the same class. They are both
objects.
When you exchange foreign currency with Philippine currency, it is not
barter.
Article 1641. As to all matters not specifically provided for in this
Title, barter shall be governed by the provisions of the preceding
Title relating to sales. (1541a)
The distinctions between the two are practically academic. Aside from
Articles 1639 and 1640 of the Civil Code, barter shall be governed by
the provisions of the title of sale.
Article 1639. If one of the contracting parties, having received the
thing promised him in barter, should prove that it did not belong
to the person who gave it, he cannot be compelled to deliver that
which he offered in exchange, but he shall be entitled to
damages. (1539a)
In sales, we have the warranty against eviction.
Article 1640. One who loses by eviction the thing received in
barter may recover that which he gave in exchange with a right to
damages, or he may only demand an indemnity for damages.
However, he can only make use of the right to recover the thing
which he has delivered while the same remains in the possession
of the other party, and without prejudice to the rights acquired in
good faith in the meantime by a third person.
Under the law, somebody who is in good faith, whether a buyer in good
faith or a possessor in good faith, will always be preferred.
RULES IN DETERMINING IF A CONTRACT OF SALE IS A
BARTER:
 compelled to deliver that which he offered in exchange, but
If amount of money > thing = Intention first, if cannot be determined, it he shall be entitled to damages. [Art1639 NCC]
is sale.
2) One who losses by eviction the thing received in barter may
If amount of money = thing = Intention first, if cannot be determined, it recover that which he gave in exchange, with a right to
is sale. damages. Or he can only make use of the right to recover
the thing which he has delivered while the same remains in
NOTE: it is only if there is a doubt as to the intention that you will apply the possession of the other party, and w/o prejudice to the
the rules rights acquired in good faith in the meantime by a 3rd
person.
SALE BARTER
Article 1458. By the contract One of the parties binds himself to 2. SALE VS. DONATION
of sale one of the contracting give one thing in consideration of
parties obligates himself to the other‘s promise to give another. Donation – an act of liberality which is gratuitous in character
transfer the ownership and Main consideration: love and affection
to deliver a determinate
thing, and the other to pay A donation is a transfer of ownership of one‘s property wherein the
therefor a price certain in main consideration is not money. It is an act of liberality of the donor.
money or its equivalent.
Main consideration of a contract of sale: purchase price
There is an exchange of a There is an exchange of a thing for
thing and a price. a thing.
SALE DONATION

Statute of frauds applies on Statute of frauds does not apply. Consensual Formal or Solemn
certain sales Bilateral Purely Unilateral
Statute of frauds does not apply to Onerous Gratuitous
executed or partially executed Title Act, Contract, Mode of Acquisition
contracts.
3. SALE VS. CONTRACT OF A PIECE OF WORK

There is a right of There is no right of redemption SALE CONTRACT OF PIECE OF WORK

redemption Consensual

Object: determined thing

ARTICLE 1622. Whenever
Consideration: Price
a piece of urban land
which is so small and so
Article 1713. By the contract for a
situated that a major
piece of work the contractor binds
portion thereof cannot be
himself to execute a piece of work
used for any practical
for the employer, in consideration
purpose within a
of a certain price or
reasonable time, having
compensation. The contractor
been bought merely for
may either employ only his labor
speculation, is about to be
or skill, or also furnish the
re-sold, the owner of any
material.
adjoining land has a right
of pre-emption at a
reasonable price.
Sale consists purely of Contract for a piece of work (CPW)
obligations to deliver, to consists of real and personal
If the re-sale has been pay. obligations: to pay and execute.
perfected, the owner of the
adjoining land shall have a
right of redemption, also
at a reasonable price. Sale is susceptible of CPW is not susceptible of specific
specific performance performance otherwise there would
When two or more owners whether you are the seller be involuntary servitude.
of adjoining lands wish to or the buyer.
exercise the right of pre-
emption or redemption,
the owner whose intended
use of the land in question The buyer may have a 3rd If the contract fails or refuses to
appears best justified shall party deliver a subject comply with the obligation, the
be preferred. matter and have the same employer may have the defect
charged to the seller if the removed or another work executed,
subject matter is generic at the contractor's cost.
under art 1165.

RULES ON BARTER

1) If one of the contracting parties, having received the Finally a contract for a piece-of-work, unlike a sale, is not
promised thing via barter, should prove that it did not belong governed by the Statute of Frauds.
to the other party who gave it, the former cannot be
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JUSTIN RYAN MORILLA
CONTRACT FOR A PIECE OF WORK– contractor binds himself to
execute a piece of work for the employer, in consideration of a
certain price or compensation.
 TEST: thing is specially manufactured for the customer
and upon his special order(Dino v. CA, June 20, 2001)
SALE – if the article is manufactured or procured for the general
market in the ordinary course of business, WHETHER THE SAME
IS ON HAND AT THE TIME OR NOT
 TEST: thing is manufactured in the ordinary course of
business (1467)
ARTICLE 1467. A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the
same is on hand at the time or not, is a contract of sale, but if the
goods are to be manufactured specially for the customer and
upon his special order, and not for the general market, it s a
contract for a piece of work. (n)
Quantity will not determine if it is a piece of work.
If anyone can buy it, it is a contract of sale. If it is exclusive, it is a
contract for a piece of work. If it is displayed thereafter, it is a sale.
Example: A cake which has a face of you on it – contract for a piece
of work
Crux: ―Ineluctably, whether the contract be one of sale or one for a
piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object.‖
Take note of:
Article 1714. If the contractor agrees to produce the work from
material furnished by him, he shall deliver the thing produced to
the employer and transfer dominion over the thing. This contract
shall be governed by the following articles as well as by the
pertinent provisions on warranty of title and against hidden
defects and the payment of price in a contract of sale.
CIR vs. AdMU
G.R. No. 115349
April 18, 1997
PANGANIBAN, J.:
FACTS: ADMU Institute of Philippine Culture is engaged in social
science studies of Philippine society and culture. Occasionally, it
accepts sponsorships for its research activities from international
organizations, private foundations and government agencies.
On July 1983, CIR sent a demand letter assessing the sum of
P174,043.97 for alleged deficiency contractor‘s tax. Accdg to CIR,
ADMU falls under the purview of independent contractor pursuant to
Sec 205 of Tax Code and is also subject to 3% contractor‘s tax under
Sec 205 of the same code. (Independent Contractor means any
person whose activity consists essentially of the sale of all kinds of
services for a fee regardless of whether or not the performance of the
service calls for the exercise or use of the physical or mental faculties
of such contractors or their employees.)
ISSUES:
WON ADMU is an independent contractor hence liable for tax? NO.
WON the acceptance of research projects by the IPC of ADMU a
contract of sale or a contract for a piece of work? NEITHER.
HELD:
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JUSTIN RYAN MORILLA
1)Hence, to impose the three percent contractor‘s tax on Ateneo‘s
Institute of Philippine Culture, it should be sufficiently proven that the
private respondent is indeed selling its services for a fee in pursuit of
an independent business.
2) Records do not show that Ateneo‘s IPC in fact contracted to sell its
research services for a fee. In the first place, the petitioner has
presented no evidence to prove its bare contention that, indeed,
contracts for sale of services were ever entered into by the private
respondent. Funds received by the Ateneo de Manila University are
technically not a fee. They may however fall as gifts or donations which
are tax-exempt. Another fact that supports this contention is that for
about 30 years, IPC had continuously operated at a loss, which means
that sponsored funds are less than actual expenses for its research
projects.
In fact, private respondent is mandated by law to undertake research
activities to maintain its university status. In fact, the research activities
being carried out by the IPC is focused not on business or profit but on
social sciences studies of Philippine society and culture. Since it can
only finance a limited number of IPC‘s research projects, private
respondent occasionally accepts sponsorship for unfunded IPC
research projects from international organizations, private foundations
and governmental agencies. However, such sponsorships are subject
to private respondent‘s terms and conditions, among which are, that
the research is confined to topics consistent with the private
respondent‘s academic agenda; that no proprietary or commercial
purpose research is done; and that private respondent retains not only
the absolute right to publish but also the ownership of the results of the
research conducted by the IPC.
SALE vs. CONTRACT FOR PIECE OF WORK
By the contract of sale, one of the contracting parties obligates himself
to transfer the ownership of and to deliver a determinate thing, and the
other to pay therefore a price certain in money or its equivalent. By its
very nature, a contract of sale requires a transfer of ownership. In the
case of a contract for a piece of work, the contractor binds himself to
execute a piece of work for the employer, in consideration of a certain
price or compensation. If the contractor agrees to produce the work
from materials furnished by him, he shall deliver the thing produced to
the employer and transfer dominion over the thing. Whether the
contract be one of sale or one for a piece of work, a transfer of
ownership is involved and a party necessarily walks away with an
object. In this case, there was no sale either of objects or services
because there was no transfer of ownership over the research data
obtained or the results of research projects undertaken by the Institute
of Philippine Culture.
INCHAUSTI & CO. V. CROMWELL
TEST OF EXISTENCE
Inchausti & Co. held that the distinction between a sale and a contract
for work, labor, and materials is tested by the inquiry of whether the
thing transferred is one not in existence and which never would have
existed but for the order of the party desiring to acquire it, or a thing
which would have existed and been the subject of sale to some other
person, even if the order had not been given. In that case, the Court
held that the hemp was in existence in baled form before the
agreements of sale were made, or, at least, would have been in
existence even if none of the individual sales in question had been
consummated; and that it would have been baled, nevertheless, for
sale to someone else, since it was proven customary to sell hemp in
bales.
CELESTINO V. COLLECTOR
99 PHIL 841 (1956)
TEST OF HABITUALITY
CIR V ENGINEERING EQUIPMENT
ENGINEERING V CA (1996)
The distinction depends on the intention of parties.
Thus, if parties intended that at some future date an object has to be
delivered, without considering the work or labor of the party bound to
deliver, the contract is one of sale; but if one of the parties accepts the
undertaking on the basis of some plan, taking into account the work he
will employ personally or through another, the contract is for a piece of
work

It is not petitioner‘s line of business to sell aircondition to be sold off the

shelf. The field of expertise is the fabrication and the installation of
such systems as ordered by the customers and in accordance with that
particular plans and specifications provided by the customers
themselves.

CIR V ARNOLIUS CARPENTRY

DMPI V ARAGONES
JUNE 23, 2005
The distinction between a contract of sale and one for work, labor and
materials is tested by inquiry whether the thing transferred is one not in
existence and which never would have existed but for the order of the
party desiring to acquire it, or a thing which would have existed but has
been the subject of sale to some other persons even if the order had
not been given. If the article ordered by the purchaser is exactly such
as the seller makes and keeps on hand for sale to anyone, and no
change or modification of it is made at purchaser‘s request, it is a
contract of sale even though it may be entirely made after, and in
consequence of the purchaser‘s order for it.

In the case at bench, the modular paving blocks are not exactly what
the plaintiff-appellee makes and keeps on hand for sale to anyone, but
with a modification that the same be "S" in shape. Hence, the
agreement falls within the ambit of Article 1467 making Article 1729
likewise applicable in the instant case.

COMMISSIONER OF
INTERNAL REVENUE V. CA, 271 SCRA 605 (1997)

When a person stipulates for the future sale of articles which he is

habitually making, and which at the time are not made or finished,
it is essentially a contract of sale and not a contract for labor Inchausti
& Co. v. Cromwell, 20 Phil. 345 (1911); even when he executes
production thereof only after an order is placed by customers.
Celestino & Co. v. Collector, 99 Phil. 841 (1956).

If the thing is specially done only upon the specific order of

another, this is a contract for a piece of work; if the thing is
manufactured or procured for the general market in the ordinary
course of business, it is a contract of sale. Commissioner of
Internal Revenue v. Engineering Equipment & Supply Co., 64
SCRA 590 (1975).

To Tolentino, the distinction depends on the intention of parties: if

parties intended that at some future date an object has to be delivered,
without considering the work or labor of the party bound to deliver, the
contract is one of sale; but if one of the parties accepts the undertaking
on the basis of some plan, taking into account the work he will employ
personally or through another, the contract is for a piece of work.
Engineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).

The consistent theme in the decisions of the Supreme Court on the

matter is that the main distinguishing factor between a sale and a
contract for a piece-of-work is the essence of why the parties enter into
it: if the essence is the object, irrespective of the party giving or
executing it, the contract is sale; if the essence is the service,
knowledge or even reputation of the person who executes or
manufactures the object, the contract is for piece of work, which is
essentially the sale of service or labor.

NOTE: NO specific performance in contract for piece of work if

what you want to compel is the execution of the thing because of
involuntary servitude
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JUSTIN RYAN MORILLA
 personal liability as long as he
acts within his authority and in the
name of the principal. However, it
is legally possible for an agent or
a broker to voluntarily bind
himself to the warranties of the
seller.

Finally, because of the fiduciary

nature of the relationship, in an
agency to sell, the agent is
disqualified from receiving any
personal profit from the
transaction covered by the
agency, and any profit received
should pertain to the principal.

In VICTORIAS MILLING CO. V. COURT OF APPEALS, the Court

held that one of the factors that most clearly distinguishes agency
from other legal concepts, including sale, ―is control; one person
— the agent — agrees to act under the control of direction of another
— the principal.‖

QUIROGA V PARSONS - When one party is to pay for the products

delivered at a specified time, it would be a sale and not an agency. In
an agency, the agent is never personally liable. Any product not sold is
usually returned to the principal.

REMEDIES GONZALO PUYAT V. ARCO - If the price is clearly stipulated, despite

unforeseen events and any changes in price would be shouldered by
the party selling then it is a contract of sale. Because in a contract of
Article 1715. The contractor shall execute the work in such a agency, the agent is not liable for any change in price and he cannot
manner that it has the qualities agreed upon and has no defects receive profit because only the principal can receive profit.
which destroy or lessen its value or fitness for its ordinary or
stipulated use. Should the work be not of such quality, the
employer may require that the contractor remove the defect or LIM V CA - Unlike a sale contract which must comply with the Statute
execute another work. If the contract fails or refuses to comply of Frauds for enforceability [remember, not perfection/validity], a
with this obligation, the employer may have the defect removed or contract of agency to sell is valid and enforceable whatever its form.
another work executed, at the contractor's cost. (n) The only exception is sale of a piece of land or any interest therein
through an agent under Art1874.
4. SALE V. AGENCY TO SELL OR BUY
CONTRACT OF SALE VS. AGENCY TO SELL (1999)
By the CONTRACT OF AGENCY, a person binds himself to render
some service or to do something in representation or on behalf of the A granted B the exclusive right to sell his brand of Maong pants in
principal, with the consent or authority of the latter. Isabela, the price for his merchandise payable within 60 days from
delivery, and promising B a commission of 20% on all sales. After the
delivery of the merchandise to B but before he could sell any of them,
B‘s store in Isabela was completely burned without his fault, together
From its very nature, sale is not A contract of agency to sell,
with all of A's pants. Must B pay A for his lost pants? Why? (5%)
unilaterally revocable because it covers an underlying
fiduciary relationship, is
SUGGESTED ANSWER: The contract between A and B is a sale not
essentially revocable, even in the
an agency to sell because the price is payable by B upon 60 days from
presence of an irrevocability
delivery even if B is unable to resell it. If B were an agent, he is not
clause.
bound to pay the price if he is unable to resell it. As a buyer, ownership
passed to B upon delivery and, under Art. 1504 of the Civil Code, the
thing perishes for the owner. Hence, B must still pay the price.
In sale, the buyer himself pays for In an agency to sell, the agent is
the price of the object, which not obliged to pay the price, and 5. SALE V. DACION EN PAGO
constitutes his main obligation is merely obliged to deliver the
price which he may receive from
ARTICLE 1245. Dation in payment, whereby property is alienated
the buyer.
to the creditor in satisfaction of a debt in money, shall be
governed by the law on sales. (n)
In sale, the buyer, after delivery, In an agency to buy, the agent
becomes the owner of the subject does not become the owner of DACION EN PAGO / DATION IN PAYMENT – property is
matter. the thing subject of the agency, alienated to the creditor in satisfaction of a debt in money.
even if the object is delivered to
him. This contract is governed by the law on sales (1245)

LO V. KJS ECO-FORMWORK SYSTEM PHIL., INC holds that in

order that there be a valid dation in payment, there must be:
In sale, the seller warrants. In an agency, the agent who
effects the sale assumes no

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 1) Performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal
thing or a real right or a credit against the third person;
2) Some difference between the prestation due and that which
is given in substitution (aliud pro alio); and
3) An agreement between the creditor and debtor that the
obligation is immediately extinguished by reason of the
performance of a presentation different from that due.
FILINVEST VS. PHIL. ACETYLENE - The mere return of the
mortgaged motor vehicle by the mortgagor, the herein appellant, to the
mortgagee, the herein appellee, does not constitute dation in payment
or dacion en pago in the absence, express or implied of the true
intention of the parties.
SALE DACION EN PAGO
Contract Mode to Extinguish the contract
Creates an obligation Obligation previously
contracted is extinguished
This is different from pactum commissorium, wherein there is
automatic appropriation. You should be able to distinguish dacion
en pago from pactum commissorium.
TAN SHUY V MAULAWIN
FEB 8, 2012 GR 19375
Article 1245 of the Civil Code provides for a special mode of payment
called dation in payment (dación en pago). There is dation in
payment when property is alienated to the creditor in satisfaction
of a debt in money. Here, the debtor delivers and transmits to the
creditor the former‘s ownership over a thing as an accepted
equivalent of the payment or performance of an outstanding debt.
In such cases, Article 1245 provides that the law on sales shall apply,
since the undertaking really partakes – in one sense – of the nature of
sale; that is, the creditor is really buying the thing or property of the
debtor, the payment for which is to be charged against the debtor‘s
obligation. Dation in payment extinguishes the obligation to the extent
of the value of the thing delivered, either as agreed upon by the parties
or as may be proved, unless the parties by agreement – express or
implied, or by their silence – consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished.
SSS vs. AGP
(April 30, 2008)
FACTS: Plaintiff informed the SSS in writing of its premiums and loan
amortization delinquencies. AG&P chose to settle its obligation with
the SSS through dacion en pago. AG&P was, thereafter, directed by
the defendant to submit certain documents, such as Transfer
Certificate of Title, Tax Declaration covering the subject lot, and the
proposed subdivision plan, which requirements AG&P immediately
complied. SSS approved AG&P‘s proposal to settle its and
SEMIRARA‘s delinquencies through dacion en pago. A Deed of
Assignment has to be executed between the plaintiffs and the
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JUSTIN RYAN MORILLA
defendant. Because of SSS failure to come up with the required Deed
of Assignment to effect said transfer, AG&P prepared the draft and
submitted it to the Office of the VicePresident. Unfortunately, the
defendant failed to take any action on said Deed of Assignment
causing AG&P to re-submit it to the same office.
More than a year after the approval of AG&P‘s proposal, defendant
sent the revised copy of the Deed of Assignment to AG&P. However,
the amount of the plaintiffs‘ obligation appearing in the approved Deed
of Assignment has ballooned allegedly because of the additional
interests and penalty charges assessed on plaintiffs‘ outstanding
obligation from April 2001, the date of approval of the proposal, up to
January 2003.
AG&P demanded for the waiver and deletion of the additional interests
on the ground that delay in the approval of the deed and the
subsequent delay in conveyance of the property in defendant‘s name
was solely attributable to the defendant. Defendant, however, refused
to accept the payment through dacion en pago, unless plaintiffs also
pay the additional interests and penalties being charged.
SSS moved for the dismissal of the complaint for lack of jurisdiction
and non-exhaustion of administrative remedies.
ISSUE: Which body has jurisdiction to entertain a controversy arising
from the non-implementation of a dacion en pago agreed upon by the
parties as a means of settlement of private respondents‘ liabilities.
HELD: The action then is one for specific performance which case law
holds is an action incapable of pecuniary estimation falling under the
jurisdiction of the Regional Trial Court, and does not fall within the
jurisdiction of the Social Security Commission.
Dacion en pago is the delivery and transmission of ownership of
a thing by the debtor to the creditor as an accepted equivalent of
the performance of the obligation. It is a special mode of payment
where the debtor offers another thing to the creditor who accepts
it as equivalent of payment of an outstanding debt. The
undertaking really partakes in one sense of the nature of sale,
that is the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtor‘s
debt. As such, the essential elements of a contract of sale,
namely, consent, object certain, and cause or consideration must
be present. In its modern concept, what actually takes place in
dacion en pago is an objective novation of the obligation where
the thing offered as an accepted equivalent of the performance of
an obligation is considered as the object of the contract of sale,
while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or
novation, to have the effect of totally extinguishing the debt or
obligation.
The controversy, instead, lies in the non-implementation of the
approved and agreed dacion en pago on the part of the SSS. As such,
respondents filed a suit to obtain its enforcement which is, doubtless, a
suit for specific performance and one incapable of pecuniary
estimation beyond the competence of the Commission.
(Jazzie Sarona)
6. SALE V. LEASE
LEASE - use of thing for a price and return of the same after the
period
If use of thing without the price, it is commodatum.

RENT TO OWN - When the lease gives the lessee the option to buy
for a small consideration at the end of the term, after crediting to the
price all the so-called rents, such contract may be regarded a contract
of sale on installments. Articles 1484 and 1485 will apply (Filinvest v.
CA, 178 SCRA 188)
FILINVEST CREDIT vs. CA
178 SCRA 188
FACTS: Private respondents spouses Jose and Iluminada are
engaged in the sale of gravel and acquired the services of Gemini
Motor Sale to look for a rock crusher. Private respondents applied for
financial assitance from Filinvest Credit with the conditions that the
machinery be purchased in the name of Filinvest and that it be leased
for 2 years with option to purchase upon the termination of the lease
period to private respondent. Filinvest foreclosed the mortgaged
property executed by private respondent. Private respondent filed a
complaint for the rescission of the contract of lease.
HELD: Contracts in the form of lease, either with an option for the
buyer to purchase for a small consideration at the end of the term
provided all installments are paid or with stipulation that if the
rent throughout the term is paid, title shall vest in the lessee, are
loans in name only. Contracts of this nature are actually
contracts of sale. The intent of the parties to the subject contract
is for the so-called rentals to be the installment payments. Upon
completion of payment, the machinery would become the
property of the private respondent.
ARTICLE 1484. In a contract of sale of personal property the
price of which is payable in instalments, the vendor may exercise
any of the following remedies:
Exact fulfillment of the obligation, should the vendee fail to pay;
Cancel the sale, should the vendee‘s failure to pay cover two or
more installments;
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)
1484 – relief available to an unpaid installment seller
ARTICLE 1485. The preceding article shall be applied to contract
purporting to be leases of personal property with option to buy,
when the lessor has deprived the lessee of the possession or
enjoyment of the thing.
1485- 1484 is applicable if there is lease of personal property and
lessor deprives the lessee of possession or enjoyment of the SM
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ELEMENTS OF
A CONTRACT OF SALE
Article 1318. There is no contract unless the following requisites
concur:
Consent of the contracting parties;
Object certain which is the subject matter of the contract;
Cause of the obligation which is established. (1261)
All contracts at the very minimum would have 3 elements:
1. CONSENT by the contracting parties which is manifested by
the meeting of the offer and the acceptance upon the thing
and the cause which constitute the contract.
2. OBJECT CERTAIN which is the subject matter of the
contract
3. CAUSE OR CONSIDERATION
If we translate these into sales term, this would be the set of elements
of a Contract of Sale:
1. Consent or meeting of the minds to transfer ownership
in exchange for the price.
2. Determinate subject matter
3. Price certain in money or its equivalent(Coronel vs. CA
263 SCRA 141)
When all three elements are present, there being a meeting of the
minds, then a perfected contract of sale arises, and its validity is not
affected by the fact that previously a fictitious deed of sale was
executed by the parties,or by the fact of nonperformance of the
obligations thereafter.
WHAT IS THE EFFECT IF ONE OF THE ELEMENTS OF A
CONTRACT OF SALE IS MISSING? The contract is void. (Mapalo
vs. Mapalo 17 SCRA 114)
Article 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time ofthe
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the
defense of illegality be waived.
BUT according to Atty. Villanueva, the proper thing to do is to declare it
as ―no contract‖ situation.
Article 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
CONSENT
BASIC PREMISE: Only capacitated parties can give their consent
to buy or sell

ARTICLE 1489. All persons who are authorized in the Code to

obligate themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.

Where necessaries are sold and delivered to a minor or other

person without capacity to act, he must pay a reasonable price
therefore. Necessaries are those referred to in Article 290. (1457
a)

To be valid, consent must meet the following requisites:

a. It should be intelligent, or with an exact notion of the matter

to which it refers;
b. It should be free and
c. It should be spontaneous. (VDA. DE APE VS. CA)

INCAPACITATED PARTIES

ABSOLUTE INCAPACITY - incapacitated to bind themselves under

all circumstances as a general rule.

RELATIVE INCAPACITY - incapacitated to bind themselves with

reference to persons, circumstances and properties.

GENERAL RULE: Contracts entered into by minors, insane and

demented persons, deaf mutes who cannot read and write are
VOIDABLE (1327)

The voidable contract cannot be avoided by capacitated party

(1397)

ABSOLUTELY INCAPACITATED

ARTICLE 1327. The following cannot give consent to a contract:

Unemancipated minors;

Insane or demented persons, and deaf-mutes who do not know

how to write. (1263a)

Generally, minors, insane and demented persons, and deafmutes who

do not know how to write, have no legal capacity to contract, and
therefore are disqualified from being parties to a sale.

Nonetheless, contracts entered into by such legally incapacitated

persons are not void, but merely voidable, subject to annulment or
ratification.

Contracts entered into during lucid intervals by insane or demented

persons are generally valid; whereas, those entered into in a state of
drunkenness, or during a hypnotic spell, are merely voidable.

If both are minors, contract is UNENFORCEABLE.

ARTICLE 1397. The action for the annulment of contracts may be

instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot allege the
incapacity of those with whom they contracted; nor can those
who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these
flaws of the contract. (1302a)

PERIOD TO INSTITUTE ANNULMENT

Article 1391. The action for annulment shall be brought within

four years.
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This period shall begin:
In cases of intimidation, violence or undue influence, from the
time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the
same.
And when the action refers to contracts entered into by minors or
other incapacitated persons, from the time the guardianship
ceases. (1301a)
RESTITUTION
When the defect of the contract consists in the incapacity of one of the
parties, the incapacitated person is not obliged to make any restitution,
except insofar as he has been benefited by the thing or price
received by him.
MERCADO V ESPIRITU
2015 BQ: Jackie inherited a townhouse. She wanted to study in an
exclusive school so she sold the townhouse. When the buyer found out
that Jackie was still a minor, Jackie promised to execute another
contract of sale upon reaching the age of majority. When Jackie turned
25, she wanted to annul the contract of sale.
What is the status of the contract—valid, void, or voidable?
Can Jackie annul the contract?
SUGGESTED ANSWER OF ATTY. ESPEJO: The sale is voidable.
Under Art 1390 of the Civil Code, a sale where one of the parties is
incapable of giving consent to a contract including minors, is voidable
but subject to annulment or ratification. In this case, since Jackie was
still a minor when she sold the property the sale is voidable.
However, Jackie could no longer recover the property. Under Art.
1391, the action for annulment shall be brought within four years
counted from the time the minor attained the age of majority or when
the guardianship ceases. Since Jackie is already 25 years old which is
7 years after reaching the age of majority, the action to annul has
clearly prescribed.
WHEN BOTH PARTIES ARE INCAPACITATED: Contract is
UNENFORCEABLE not void subject to ratification when both parties
are incapable of giving consent to a contract.
BILDO CASE
DECEMBER 1917
SC did not allow the minor to allege his incapacity. This is a contract
entered into by minors when they pretended that they are of age.
EXCEPTION: If contracts of these incapacitated persons are for
NECESSARIES or those things which are indispensable for his
support, they must pay a reasonable price therefor (1489)
Where necessaries are sold and delivered to a minor or other person
without capacity to act, he must pay a reasonable price therefore,‖ and
the resulting sale is valid, and not merely voidable.
WHAT ARE NECESSARIES?
Art. 194. Support compromises everything indispensable for
sustenance, dwelling, clothing, medical attendance, education
and transportation, in keeping with the financial capacity of the
family.
The education of the person entitled to be supported referred to
in the preceding paragraph shall include his schooling or training
for some profession, trade or vocation, even beyond the age of
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JUSTIN RYAN MORILLA
majority. Transportation shall include expenses in going to and
from school, or to and from place of work. (290a)
2 REQUISITES FOR SALE OF NECESSARIES TO MINOR TO BE
VALID AND NOT MERELY VOIDABLE:
1) Perfection of the sale
2) Delivery of the necessaries
SPECIAL DISQUALIFICATION
Special disqualifications to persons under civil interdiction
Article 34. Civil interdiction. - Civil interdiction shall deprive the
offender during the time of his sentence of the rights of parental
authority, or guardianship, either as to the person or property of
any ward, of marital authority, of the right to manage his property
and of the right to dispose of such property by any act or any
conveyance inter vivos.
PERSONS WHO ARE ABSOLUTELY INCAPACITATED
1) Minors, insane, and demented persons
2) Deaf-mutes who do not know how to write
3) Persons under the state of drunkenness or under hypnotic
spell, unless of course if it is done under lucid interval
4) Persons suffering from civil interdiction
PERSONS RELATIVELY INCAPACITATED
SPOUSES AS PARTIES
CONTRACTS WITH THIRD PARTIES
Art. 73. Either spouse may exercise any legitimate profession,
occupation, business or activity without the consent of the other.
The latter may object only on valid, serious, and moral grounds.
In case of disagreement, the court shall decide whether or not:
(1) The objection is proper, and
(2) Benefit has occurred to the family prior to the objection or
thereafter. If the benefit accrued prior to the objection, the
resulting obligation shall be enforced against the separate
property of the spouse who has not obtained consent.
The foregoing provisions shall not prejudice the rights of
creditors who acted in good faith. (117a)
Art. 96. The administration and enjoyment of the community
property shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must
be availed of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or otherwise unable
to participate in the administration of the common properties, the
other spouse may assume sole powers of administration. These
powers do not include disposition or encumbrance without
authority of the court or the written consent of the other spouse.
In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be
construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either
or both offerors. (206a)
Art. 124. The administration and enjoyment of the conjugal
partnership shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject to
recourse to the court by the wife for proper remedy, which must
be availed of within five years from the date of the contract
implementing such decision.
In the event that one spouse is incapacitated or otherwise unable
to participate in the administration of the conjugal properties, the
other spouse may assume sole powers of administration. These
powers do not include disposition or encumbrance without
authority of the court or the written consent of the other spouse.
In the absence of such authority or consent, the disposition or
encumbrance shall be void. However, the transaction shall be
construed as a continuing offer on the part of the consenting
spouse and the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by either
or both offerors. (165a)
GENERAL RULE: Spouses can enter into contract as to third persons
because of Art. 73 of the Family Code.
AINZA VS PADUA
NOTE: SC applied Civil Code here not the family Code since the sale
was made in 1987
The legal ground which deserves attention is the legal effect of a sale
of lands belonging to the conjugal partnership made by the wife
without the consent of the husband.
The sale made by Gimena is certainly a defective contract but of what
category? The answer: it is a voidable contract.
According to Art. 1390 of the Civil Code, among the voidable contracts
are "[T]hose where one of the parties is incapable of giving
consent to the contract." (Par. 1.) In the instant case, Gimena had no
capacity to give consent to the contract of sale. The capacity to give
consent belonged not even to the husband alone but to both spouses.
The view that the contract made by Gimena is a voidable contract is
supported by the legal provision that contracts entered by the
husband without the consent of the wife when such consent is
required, are annullable at her instance during the marriage and
within ten years from the transaction questioned. (Art. 173, Civil
Code).
Gimena‘s contract is not rescissible for in such a contract all the
essential elements are untainted but Gimena‘s consent was tainted.
Neither can the contract be classified as unenforceable because it
does not fit any of those described in Art. 1403 of the Civil Code. And
finally, the contract cannot be void or inexistent because it is not one of
those mentioned in Art. 1409 of the Civil Code. By process of
elimination, it must perforce be a voidable contract.
Under Art. 124 of Family Code, sale by husband of a conjugal
property without the wife‘s consent is void and not merely
voidable, since the resulting contract lacks one of the essential
elements of ―full consent‖. Guiang v. CA, 291 SCRA 372 (1998).
A wife affixing her signature to a Deed of Sale as a witness is
deemed to have given her consent. Pelayo v. Perez, 459 SCRA
475 (2005).
As an EXCEPTION, husband may dispose of conjugal property
without wife‘s consent if such sale is necessary to answer for
conjugal liabilities mentioned in Articles 161 and 162. Abalos v.
Macatangay, Jr., 439 SCRA 64 (2004).
FUENTES V ROCA
APRIL 21, 2010.
Family Code applies. Although Paciano and Rosario married in 1950,
Paciano sold the conjugal property to the Fuentes spouses on Jan 8,
1989 a few month after the FC took effect.
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For as long as the provisions of the FC does not impair vested rights,
the FC should be given retroactive effect.
Art. 1410. The action or defense for the declaration of the
inexistence of a contract does not prescribe.
Art. 239. When a husband and wife are separated in fact, or one
has abandoned the other and one of them seeks judicial
authorization for a transaction where the consent of the other
spouse is required by law but such consent is withheld or cannot
be obtained, a verified petition may be filed in court alleging the
foregoing facts.
The petition shall attach the proposed deed, if any, embodying
the transaction, and, if none, shall describe in detail the said
transaction and state the reason why the required consent thereto
cannot be secured. In any case, the final deed duly executed by
the parties shall be submitted to and approved by the court.
2015 BQ: Marco and Gina were married in 1989. 10 years later, Gina
left Marco and lived with another man, leaving their 2 children with
Marco. When Marco needed money for the children‘s education, he
sold their conjugal property which Marco acquired before their
marriage without Gina‘s consent.
Is the sale valid, void or voidable?
SUGGESTED ANSWER OF ATTY. ESPEJO: At the onset, it shall be
noted that Marco and Gina were married during the effectivity of the
Family Code. Thus, in the absence of a marriage settlement, the
appropriate matrimonial regime is absolute community property. Under
Article 96 of the FC which applies to the aforesaid matrimonial regime,
a sale of property without the other spouse‘s written consent is void.
In this case, the separation in fact between Marco and Gina did not
affect their regime of absolute community property. Hence, the consent
of both spouses must still be obtained in every transaction involving
their absolute community property. In the absence of judicial
authorization, Marco could not validly sell the property without Gina‘s
consent.
Contract of Sale; Marital Community Property; Formalities (2006)
Spouses Biong and Linda wanted to sell their house. They found a
prospective buyer, Ray. Linda negotiated with Ray for the sale of the
property. They agreed on a fair price of P2 Million. Ray sent Linda a
letter confirming his intention to buy the property. Later, another
couple, Bernie and Elena, offered a similar house at a lower price of P
1.5 Million. But Ray insisted on buying the house of Biong and Linda
for sentimental reasons. Ray prepared a deed of sale to be signed
by the couple and a manager's check for P2 Million. After receiving the
P2 Million, Biong signed the deed of sale. However, Linda was not able
to sign it because she was abroad. On her return, she refused to sign
the document saying she changed her mind. Linda filed suit for
nullification of the deed of sale and for moral and exemplary damages
against Ray. Will the suit prosper? Explain. (2.5%)
ALTERNATIVE ANSWER: No, the suit will not prosper. The contract
of sale was perfected when Linda and Ray agreed on the object of the
sale and the price [Art. 1475, New Civil Code]. The consent of Linda
has already been given, as shown by her agreement to the price of the
sale. There is therefore consent on her part as the consent need not
be given in any specific form. Hence, her consent may be given by
implication, especially since she was aware of, and participated in the
sale of the property (Pelayo v. CA, G.R. No. 141323, June 8, 2005).
Her action for moral and exemplary damages will also not prosper
because the case does not fall under any of those mentioned in Art.
2219 and 2232 of the Civil Code.
ALTERNATIVE ANSWER: The suit will prosper. Sale of community
property requires written consent of both spouses. The failure or
refusal of Linda to affix her signature on the deed of sale, coupled with
her express declaration of opposing the sale negates any valid
consent on her part. The consent of Biong by himself is insufficient to
effect a valid sale of community property (Art. 96, Family Code; Abalos
v. Macatangay, G.R. No. 155043, September 30, 2004).
Does Ray have any cause of action against Biong and Linda? Can
he also recover damages from the spouses? Explain. (2.5%)
Considering that the contract has already been perfected and taken
out of the operation of the statute of frauds, Ray can compel Linda and
Biong to observe the form required by law in order for the property to
be registered in the name of Ray which can be filed together with the
action for the recovery of house [Art. 1357 New Civil Code]. In the
alternative, he can recover the amount of Two million pesos
(P2,000,000.00) that he paid. Otherwise, it would result in solutio
indebiti or unjust enrichment. Ray can recover moral damages on the
ground that the action filed by Linda is clearly an unfounded civil suit
which falls under malicious prosecution {Ponce v. Legaspi, G.R. No.
79184, May 6,1992).
BETWEEN SPOUSES
Article 133. Every donation between the spouses during the
marriage shall be void. This prohibition does not apply when the
donation takes effect after the death of the donor.
Neither does this prohibition apply to moderate gifts which the
spouses may give each other on the occasion of any family
rejoicing. (1334a)
Article 1490. The husband and the wife cannot sell property to
each other, except:
When a SEPARATION OF PROPERTY was agreed upon in the
MARRIAGE SETTLEMENTS; or
When there has been a JUDICIAL SEPARATION OF PROPERTY
under article 191. (1458a)
Article 1492. The prohibitions in the two preceding articles are
APPLICABLE TO SALES IN LEGAL REDEMPTION,
COMPROMISES AND RENUNCIATIONS. (n)
Art. 87. Every DONATION OR GRANT OF GRATUITOUS
ADVANTAGE, direct or indirect, between the spouses during the
marriage shall be VOID, EXCEPT moderate gifts which the
spouses may give each other on the occasion of any family
rejoicing. THE PROHIBITION SHALL ALSO APPLY TO PERSONS
LIVING TOGETHER AS HUSBAND AND WIFE WITHOUT A VALID
MARRIAGE. (133a)
REASON: Spouses are one in law. He cannot give or sell something to
himself.
Sales between spouses who are not governed by a complete
separation of property regime are void, not just voidable. Medina v.
Collector, 1 SCRA 302 (1960).
Medina gave the rationale for the relative incapacity of spouses to sell
properties to one another to be as follows:
1) To prevent a spouse defrauding his creditors by transferring
his properties to the other spouse;
2) To avoid a situation where the dominant spouse would
unduly take advantage of the weaker spouse, thereby
effectively defrauding the latter; and
3) To avoid an indirect violation of the prohibition against
donations between spouses under Article 133 of the Civil
Code.
Since the spouses cannot validly sell property to one another under
Art. 1490, then policy consideration and the dictates of morality require
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JUSTIN RYAN MORILLA
that the prohibition should apply also to common-law relationships. cf.
Matabuena v. Cervantes, 38 SCRA 284 (1971).
Sale by husband of conjugal land to his concubine is null and void for
being contrary to morals and public policy and ―subversive of the
stability of the family, a basic social institution which public policy
cherishes and protects.‖ Agapay vs Palang; Calimlim-Canullas v.
Fortun, 129 SCRA 675 (1984).
Nevertheless, when property resold to a third-party buyer in good
faith and for value, reconveyance is no longer available. Cruz v.
CA, 281 SCRA 491 (1997).
SALE BETWEEN SPOUSES
GENERAL RULE: NO (Article 1490),
UNLESS:
 When a separation of property was agreed upon in the
marriage settlements; OR
NOTE: BUT spouses may not DONATE to each
other even if they are under Complete Separation
of Property.
 Because sale is an ONEROUS and
COMMUTATIVE contract while
DONATION is gratuitous
 In sale, value was exchanged for equal
value and there would be no deficiency
in property of each spouse whereas in
donation, the estate of the donor would
necessarily be reduced and increase the
estate of the donee
 When there has been a judicial separation of property under
Article 191 (when spouse is sentenced to a penalty which
carries with it civil interdiction or has been declared absent
or in case of legal separation)
If the spouses are separated only in fact, apply the general rule that
they cannot sell property to each other.
IF THEY ARE NOT LEGALLY SEPARATED, CAN THEY STILL
SELL TO EACH OTHER? Yes, if they go for a voluntary separation of
property.
WHO CAN QUESTION THE SALE?
The in pari delicto doctrine would not apply to the spouses-
parties under Art. 1490, since only the heirs and the creditors can
question the sale‘s nullity. Modina v. CA, 317 SCRA 696 (1999).
However in Medina vs Collector:
The government, as correctly pointed out by the Tax Court, is always
an interested party to all matters involving taxable transactions and,
needless to say, qualified to question their validity or legitimacy
whenever necessary to block tax evasion.
WHAT OTHER SALES WHERE CONSENT IS DEFECTIVE MAKING
THEM VOIDABLE CONTRACTS?
Art. 1390. The following contracts are voidable or annullable, even
though there may have been no damage to the contracting
parties:
(1) Those where one of the parties is incapable of giving consent
to a contract;
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper
action in court. They are susceptible of ratification.
2015 BQ:
SUGGESTED ANSWER OF ATTY. ESPEJO: The deed of sale is void
for the following reasons:
Under Art 1409 of the Civil Code, a contract whose cause, subject or
purpose is contrary to law, morals, public customs, order, or public
policy is void.
Furthermore, contracts declared by law as void are likewise void. In Yu
v PAGCOR (2009) contracts expressly declared by law as void such
as gambling contracts cannot be ratified.
In this case, the contract was executed in connection to a gambling
debt making it void. Z can therefore file an action from the deed of sale
and recover his loss.
Art 2014 CC Any loser in a game of chance may recover his loss from
the winner, with legal interest from the time he paid the amount lost,
and subsidiarily from the operator or manager of the gambling house.
RELATIVE INCAPACITY
Article 1491. The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through
the mediation of another:
(1) The guardian, the property of the person or persons who may
be under his guardianship;
(2) Agents, the property whose administration or sale may have
been intrusted to them, unless the consent of the principal has
been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of
any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of which
has been intrusted to them; this provision shall apply to judges
and government experts who, in any manner whatsoever, take
part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with
the administration of justice, the property and rights in litigation
or levied upon an execution before the court withinwhose
jurisdiction or territory they exercise their respective functions;
this prohibition includes the act of acquiring by assignment and
shall apply to lawyers, with respect to the property and rights
which may be the object of any litigation in which they may take
part by virtue of their profession;
(6) Any others specially disqualified by law.
REASON FOR PROHIBITION: Public policy.
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JUSTIN RYAN MORILLA
(1) The guardian, the property of the person or persons who may
be under his guardianship;
Does this rule cover INDIRECT PURCHASE?
Example: X is the administrator of the estate. Y later on buys the
property and a bit later on, further, X becomes the owner.
RODRIGUEZ vs.MACTAL
G.R. No. L-39720
April 4, 1934
GODDARD, J.:
The prohibition cannot be made to apply unless there was a proof that
a third party buyer is a mere intermediary of the guardian or that the
latter had previously agreed with the third party buyer to buy the
property for the disqualified person.
However, in a later case:
PHILIPPINE TRUST COMPANY vs. ROLDAN
G.R. No. L-8477
May 31, 1956
BENGZON, J.:
This totally reverses Rodriguez vs. Mactal. Even arguendo the
guardian without malice besets a guardian so circumstanced,
necessitates the annulment of the transaction, even if no actual
collusion is proved between such guardian and the intermediate
purchaser. This would uphold a sound principle of equity and justice.
In Roldan case, even if there is no actual collusion that is proved, it is
void because of that incapacity.
(2) Agents, the property whose administration or sale may have
been intrusted to them, unless the consent of the principal has
been given;
“Brokers” do not come within the coverage of the prohibition as their
authority consist merely in looking for a buyer or a seller, and to bring
the former and the latter together to consummate the transaction;
therefore, they are not prohibited to buy for themselves.
(3) Executors and administrators, the property of the estate under
administration;
Hereditary Rights are Not Included in the Coverage because
hereditary rights pertain immediately to the heirs upon death of the
decedent and do not form part of the estate under administration.
(4) Public officers and employees, the property of the State or of
any subdivision thereof, or of any government-owned or
controlled corporation, or institution, the administration of which
has been intrusted to them; this provision shall apply to judges
and government experts who, in any manner whatsoever, take
part in the sale;
REASON FOR PROHIBITION: To prevent some sort of insider trading
MAHARLIKA VS. SPOUSES TAGLE
G.R. NO. L-65594
JULY 9, 1986
GUTIERREZ, JR., J.:
FACTS: Land was foreclosed by GSIS and was sold in public auction.
It was bought by the wife of the chief of the Retirement Division of
GSIS.
HELD: A Division Chief of the GSIS is not an ordinary employee
without influence or authority. The mere fact that he exercises ample
authority with respect to a particular activity, i.e., retirement, shows that
his influence cannot be lightly regarded.
The point is that he is a public officer and his wife acts for and in his
name in any transaction with the GSIS. If he is allowed to participate in
the public bidding of properties foreclosed or confiscated by the GSIS,
there will always be the suspicion among other bidders and the general
public that the insider official had access to information and
connections with his fellow GSIS officials as to allow him to eventually
acquire the property. It is precisely the need to forestall such
suspicions and to restore confidence in the public service that the Civil
Code now declares such transactions to be void from the beginning
and not merely voidable.
SC extended the prohibition. The prohibition applies not only in terms
of office being held but in terms of relations. Spouses are included.
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with
the administration of justice, the property and rights in litigation
or levied upon an execution before the court withinwhose
jurisdiction or territory they exercise their respective functions;
this prohibition includes the act of acquiring by assignment and
shall apply to lawyers, with respect to the property and rights
which may be the object of any litigation in which they may take
part by virtue of their profession;
The early case of GAN TINGCO V. PABINGUIT, clarified that for the
prohibition under Article 1491 to apply to judges, it is not required that
some contest or litigation over the property itself should have
been tried by the said judge; such property is in litigation from the
moment that it became subject to the judicial action of the judge, such
as levy on execution.
1. The property sold to the lawyer pending appeal.
The question here simply is, “Is it still pending litigation?”
If the case is no longer pending, there is no longer prohibition,
but if the property is still in litigation, then the sale is void.
 Property was purchased by counsel pending certiorari
proceeding (Valencia vs. Cabanting)
 There were 2 cases and the lawyer represented the party in
both of these cases. In one of those cases, the lawyer
acquired the property as payment of professional services
while the other case is still pending. The sale is VALID with
respect to the case that is not pending. (Municipal Council
of Iloilo vs. Evangelista).
 The lawyer acquired the property long before he
intervened in the case of the party. SC said that the
purchase is valid.
 CFI Judge can buy properties in litigation pending outside
his territorial jurisdiction.
2. Purchase of property before action in courts
No case has yet been filed so it is not yet in litigation.
3. Purchase after the finality of the litigation
Sale is valid. (Vda. de Laig, et al. vs. Court of Appeals; 86 SCRA
641)
4. Property to serve as contingent fee
CONTINGENT FEE - payment paid to a lawyer or an arrangement
where professional service would depend upon the outcome of the
case. That is s valid because transfer of assignment takes effect
only after finality of the judgment.
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IS IT ALSO ACCEPTABLE IF THE LAWYER HIMSELF
UNDERTAKES TO UNDERWRITE THE EXPENSES OF THE CASE?
FORNILDA vs. RTC
G.R.No. L-72306
January 24, 1989
MELENCIO-HERRERA, J.:
FACTS: Property was mortgaged to the lawyer while the case is
pending. It was foreclosed after the termination of the case and the
lawyer sold it in public auction.
SC said it is VOID.
GENERAL RULE: Once the case is still pending, you do not consider
the sale valid.
But if there are special considerations, such as when the facts of the
case are similar to Fornilda vs. RTC, consider it as an EXCEPTION to
general rule.
THE CONJUGAL PARTNERSHIP OF THE SPOUSES CADAVEDO
vs. LACAYA
G.R. No. 173188
January 15, 2014
BRION, J.:
FACTS: Lawyer represents the clients. And their fee stipulation, where
they were also able to present the contract for attorney‘s fees with the
lawyer — contingent fee basis and if they would become the prevailing
parties they would pay the sum of P2,000 for attorney‘s fees.
What the lawyer was trying to do here was to represent the clients not
only in one case, but several interrelated cases involving conjugal
property.
September 1981, Atty. Lacaya entered his appearance in Civil Case
No. 1721 by filing a motion for the issuance of the execution. The case
is already in the execution stage.
September 23, 1981, Spouses Ames filed Civil Case No. 3352 against
Sps. Cadavedo represented by Atty. Lacaya.
Then, in October 16, 1981, the RTC granted the motion for the
issuance of the writ of execution and the spouses took possession of
the subject lot on October 24, 1981.
Soon after the subject matter was subdivided, the lawyer took one of
the subdivided portions alleging that the contingent fees was orally
amended – that they orally agreed to novate their contract and instead
of receiving money, the lawyer will receive half of the property.
On May 13, 1982, Ames and Atty. Lacaya executed the Compromise
Agreement whereby Atty. Lacaya ultimately obtained 10 hectares of
the property.
Atty. Lacaya undertook to advance all expenses of the litigation.
HELD: SC ruled A thing is in litigation if there is a contest or
litigation over it in court or when it is subject of the judicial
action. Following this definition, we find that the subject lot was still in
litigation when Atty. Lacaya acquired the disputed one-half portion.
From these timelines, whether by virtue of the alleged oral contingent
fee agreement or an agreement subsequently entered into, Atty.
Lacaya acquired the disputed one-half portion (which was after
October 24, 1981) while Civil Case No. 3352 and the motion for the
issuance of a writ of execution in Civil Case No. 1721 were already
pending before the lower courts. Similarly, the compromise agreement,
including the subsequent judicial approval, was effected during the
pendency of Civil Case No. 3352. In all of these, the relationship of a
lawyer and a client still existed between Atty. Lacaya and the spouses
Cadavedo.

Likewise, this agreement is champertous and is contrary to public
policy. In Bautista v. Atty. Gonzales, the Court struck down the
contingent fee agreement between therein respondent Atty. Ramon A.
Gonzales and his client for being contrary to public policy. There, the
Court held that an reimbursement of litigation expenses paid by
the former is against public policy, especially if the lawyer has
agreed to carry on the action at his expense in consideration of
some bargain to have a part of the thing in dispute. It violates the
fiduciary relationship between the lawyer and his client.
The rule of the profession that forbids a lawyer from contracting with
his client for part of the thing in litigation in exchange for conducting the
case at the lawyer‘s expense is designed to prevent the lawyer from
acquiring an interest between him and his client. To permit these
arrangements is to enable the lawyer to "acquire additional stake in the
outcome of the action which might lead him to consider his own
recovery rather than that of his client or to accept a settlement which
might take care of his interest in the verdict to the sacrifice of that of his
client in violation of his duty of undivided fidelity to his client‘s cause.
purchased by the vendor Richard using his lottery winnings, as his
marriage to Rica was not yet dissolved, such lotto winnings were still
part of the absolute community of property and so was the parcel
of land bought out of the proceeds thereof. Rica‘s consent was
not obtained in either of the sales making both void.
Finally it must be noted that when the lot was purchased by Atty. Cruz,
there was a pending annulment case filed by Rita against the vendor
Richard. As previously noted, the property was bought by Richard to
his lottery winnings obtained during the subsistence of the marriage.
Hence, the lot is still technically part of the community property.
Annulment proceedings involved determination of the properties and
may be resolved to the separation of properties between the spouses.
For this reason, when the lot was sold to Atty Cruz, the sale was
technically property in litigation which under Article 1491, a
lawyer cannot buy while the case is still pending. Thus, from this
POV, the sale of a parcel of land is void.

RAMOS VS. NGASEO - Mere demand for delivery of the litigated

property does not cause the transfer of ownership, hence, not a
prohibited transaction within the contemplation of Art. 1491.

MEDINA vs. CIR

G.R. No. L-15113
January 28, 1961
REYES, J.B.L. J.:

Contracts violative of the provisions of Article 1490 of the Civil Code

are null and void.

REASON: fiduciary relationship involved and the peculiar control

exercised by these persons over their supposed transferees. It is
founded on public policy.

WHAT MAY BE RATIFIED?

 AGENT – PRINCIPAL
 GUARDIAN - WARD
 EXECUTOR / ADMINISTRATOR - ESTATE

2013 BQ: Rica petitioned the annulment of their 10-year old marriage
with Richard. Richard hired Atty. Cruz to represent him in the
proceedings. In payment of Atty. Cruz‘s acceptance and attorney‘s
fees, Richard conveyed to Atty. Cruz a parcel of land in Taguig that he
recently purchased with his lotto winnings. The transfer of documents
was duly signed and Atty. Cruz immediately took possession by
fencing of the properties in the perimeter. Despite the transfer to Atty.
Cruz, Richard offered the same parcel of land to the Spouses Garcia.
After inspection of the land and considering it as a good investment,
they purchased it from Richard. Immediately after the sale, the
spouses Garcia commenced the construction of a three-storey building
over the land but they were prevented from doing so by Atty. Cruz who
claimed that he has a better right in ling to the prior conveyance of the
property. Is Atty. Cruz‘s claim correct?

MY SUGGESTED ANSWER: Atty. Cruz‘s claim is not correct for the

following reasons:

Under the law on double sales of property, a mere prior

conveyance is not the basis of priority. It is the act of registration that
best prioritize upon any one of the buyers. Whoever first registers
the sale in good faith is preferred under the law. Atty. Cruz did not
register the same thing.

Neither Atty. Cruz nor the spouses were vendees in a perfectly valid
sale. In both instances, the property sold to them, were in turn
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JUSTIN RYAN MORILLA
 SUBJECT MATTER A valid sale may be made of a thing, which though not yet
actually in existence, is reasonably certain to come into
REQUISITESOF VALID SUBJECT MATTER existence. A man may sell property of which he is potentially and not
actually possessed.
A valid contract of sale would result from the meeting of the minds of
the parties on a subject matter that has at the time of perfection In PICHEL V. ALONZO, where the issue was whether the grantee of a
thefollowing requisites: public land under the Public Land Act had violated the statutory
prohibition from disposing, assigning or encumbering the land, the
1) It must be existing, having potential existence, a future thing, Court held no such violation of the law, since the subject matter of the
or even contingent or subject to a resolutory condition; in contract of sale were fruits of the coconut trees on the land over
other words, it must be a―POSSIBLE THING;‖ specified years, and the same could be dealt with separately from the
2) It must be LICIT; and land itself, and even from the coconut trees themselves. The Court
3) It must be DETERMINATE or at least DETERMINABLE. also held that the subject matter was determinate, although with a
potential existence.
1. Existing, but it may be future and it may even have
contingent existence. EMPTIO SPEI

Article 1461. Things having a potential existence may be the WHAT ABOUT THIS EMPTIO SPEI? This is the SALE OF A HOPE. It
object of the contract of sale. is subject to the following elements:

The efficacy of the sale of a mere hope or expectancy is deemed a. Thing itself is not certain to exist
subject to the condition that the thing will come into existence. b. Object of the contract is the hope itself
c. The hope or expectancy must not be made
The sale of a vain hope or expectancy is void.
In emptio spei, what are you selling? PRESENT THING. You are
FUTURE - goods to be manufactured, acquired by the seller after the selling HOPE.
perfection of the contract of sale
Example: Sale of lotto tickets for 10 pesos. The buyer purchases the
Example: A entered into a contract of sale with B where A agrees to hope that upon the draw the ticket would win 20M pesos. The object of
buy all crops to be harvested from the property of B. Does it make the the sale is the ticket which represents the hope or expectancy not the
contract of sale void on the simple possibility that the subject prize itself. Therefore, if the ticket will not win, the sale would still be
may not arise from? No because contract of sale can be made over valid. You are not buying the 20M. You are only buying the hope of
future goods. getting 20M.

When you determine the existence of goods as subject matter of Now, if it is a vain hope, for example, the ticket is already expired, or it
contract of sale, do not think in terms of physical existence or non has been falsified, the sale is void because it is a vain hope or
existence. You have to determine whether strict science and expectancy.
technology will allow the subject matter to come into existence.
BETWEEN EMPTIO REI SPERATAE AND EMPTIO SPEI WHICH
Example: A expects or hopes to acquire a house and lot on January AMONG THE TWO OF THEM IS VALID? BOTH OF THEM ARE
14, 2016. Can A sell the lot? YES. Under Article 1461, the efficacy of VALID. The only time it becomes void is when the expectancy or hope
the sale of a mere hope or expectancy is deemed subject to the is a vain one.
condition that the thing will come into existence.
EMPTIO REI SPERATAE EMPTIO SPEI
When you talk about buying future property, the contract is perfectly
valid because the subject matter is only required at the time of The subject matter is a Present thing—THE HOPE
delivery of the subject matter. future thing or something
that has potential or future
Remember the difference between a suspensive condition and a existence.
resolutory condition. Suspensive condition suspends the efficacy
of an obligation. It is subordinated to the happening to a future and
uncertain event. If the condition does not take place, the parties would The thing must exist for it Whether the hope or expectancy is
stand as if the obligation had never existed. to be valid. not fulfilled and therefore do not
exist, the sale is still valid provided
The efficacy of the sale of a mere hope or expectancy is deemed it is not vain.
subject to the [suspensive] condition that the thing will come into
existence.
Contract of sale is onerous and commutative.
This is also known as EMPTIO REI SPERATAE. It is a contract
covering future things subject toa suspensive condition that the subject Equivalence of values- You pay for something hoping to get the exact
matter will come into existence. same thing or the exact value. That is not in emptio spei.

Example: Sale of piglets which are yet to be born. The sale is subject
to the condition that the piglets will be born alive. If it does not come
into existence, then the contract is extinguished.

JURISPRUDENCE

In SIBAL V. VALDEZ, the Court held that pending crops which have
potential existence may be the valid subject matter of sale, and may be
dealt with separately from the land on which they grow.

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 GENERIC OBJECTS are allowed even if technically speaking they are
generic. This is the most common sale. When you buy meat or
vegetables at the market, those are not determinate. You buy
according to the quality, not necessarily designating it physically from
the class. That is still valid.

ATILANO vs. ATILANO

G.R. No. L-22487
May 21, 1969
MAKALINTAL, J.:

Wrong designation of the lot does not vitiate the sale since the
parties before entering into the contract saw the actual setting
and the meets and bounds of the subject matter.

FACTS:A sold property to B which they inspected. They haggled for

SALE OF THINGS SUBJECT TO RESOLUTORY CONDITION
WHAT ABOUT EXISTING GOODS?
Article 1465. Things subject to a resolutory condition may be the
object of the contract of sale.
Example: Sale of land subject to the right of repurchase. The
resolutory condition is the repurchase of the land. If repurchased, the
sale is extinguished; Reserva Troncal
2. IT MUST BE LICIT, LAWFUL, WITHIN THE COMMERCE
OF MAN.
Not outside the commerce of man includes all rights that are
transmissible. If the right is intransmissible, it cannot be subject of sale.
Example of an intransmissible right: Rights that are purely or strictly
personal (right to give or the right to obtain support)
ILLICIT:
1. Future inheritance cannot be a subject of sale.
2. Sale of animals suffering from contagious diseases
the price. That is Lot B, but he meant to buy Lot A. When the Deed of
Sale was eventually drafted, the technical description stated therein is
not Lot A, but Lot B.
ISSUE: Will that vitiate the sale?
HELD:NO. You merely erred in designating the lot, but it does not
mean that parties do not know the identity. Even if the technical
description is wrong, it is still possible to determine which lot is subject
to the sale without entering into a new agreement between the parties.
BQ: Ciriaco Realty sold to the spouses Dela Cruz a 500 sqm lot in
Paranaque. The land now has a fair market value of 1.2M. Garcia sold
to the spouses a 700 sqm land which is adjacent to lot A and Lot B has
a present market value of 500M. Sps Dela Cruz constructed a house in
lot B because according to them that is what they bought relying on the
representation of the sales agent that it is the property that they
purchased. Only upon the completion of their house did the spouses
Dela Cruz discover that they have built on lot B owned by spouses
Rodriguez not on lot A that they purchased. They spent 1M for the
house. As their lawyer, advise Sps. Dela Cruz on their rights and
obligations under the circumstances and recourses and options open
to them to protect their interests.
HOW TO ANSWER? Start with the Atilano case and then you go to
Property Law: what would be the rights of builder, planter, sower in
good faith and bad faith.

ILLEGAL SUBJECT MATTER: CAN PROPERTY BE CONSIDERED DETERMINABLE EVEN

WITHOUT TECHNICAL DESCRIPTIONS? According to SC in
1. Narcotics LARANJA VS. CA, the subject matter is still determinable. The deed
2. Rare wild plants of sale merely identifies the subject properties by indicating lot
3. Poisonous plants numbers, lot areas and the certificate number covering them. Resort
4. Dynamite fish can always be made to the technical description as stated in the
5. Gunpowder and explosives, firearms and ammunitions certificates of title of the two properties.
a. These cannot be sold without the requisite
WHEN QUANTITY OF SUBJECT MATTER NOT ESSENTIAL FOR
permit. You can only sell firearms and
PERFECTION
ammunitions if you are licensed.

3. DETERMINATE OR AT LEAST DETERMINABLE.
Article 1460 states that the ―requisite that the thing be determinate
is satisfied if at the time the contract is entered into, the thing is
capable of being made determinate without the necessity of a new
or further agreement between the parties,‖ which includes
―determinable‖ albeit generic objects as valid subject matters of
sale.
DETERMINATE - particularly designated or physically segregated
from all others of the same class.
This position is supported by Article 1349 of the Civil Code which
provides that ―every contract must be determinate as to its kind.
The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between
the parties.‖
NATIONAL GRAINS AUTHORITY vs. IAC
G.R. No. 74470
March 8, 1989
MEDIALDEA, J.:

FACTS:The subject matter was rice to be harvested from the seller‘s

Example: ―That red car‖, ―This blue jeep‖ farm. According to their contract, the seller has a quota of 2,640
cavans of palay. The buyer now claims that he did not consent to pay
DETERMINABLE - subject matter is capable of being determinate only 620 cavans.
without the necessity of a new or further agreement between the
parties. ISSUE: Is this valid or void?
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HELD: The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the
parties.‖ In this case, there was no need for NFA and Soriano to enter
into a new contract to determine the exact number of cavans of palay
to be sold. Soriano can deliver so much of his produce as long as it
does not exceed 2,640 cavans.
SALE OF UNDIVIDED INTEREST
Under Article 1463 of the Civil Code, the sole owner of thing may sell
an undivided interest therein, and there would result co-ownership over
the subject matter.
SALE OF MORTGAGED PROPERTY
Pineda v. Court of Appeals, affirmed the principle that a prior
mortgage of the property does not prevent the mortgagor from selling
the property, since a mortgage is merely encumbrance on the property
and does not extinguish the title of the debtor who does not lose his
principal attribute as owner to dispose of the property. It also noted that
the law even considers void a stipulation forbidding the owner of the
property from alienating the mortgaged immovable.
MUST OWNERSHIP OF THE THING SOLD BE VESTED TO THE
OWNER AT THE TIME OF THE PERFECTION OF THE CONTRACT?
NO.
Article 1459. xxx the vendor must have a right to transfer the
ownership thereof at the time it is delivered.
DELIVERY IS THE MODE OF TRANSFERING OWNERSHIP.
Ownership is actually not required at the time of perfection; only at the
time of delivery.
EXCEPTION: WHEN SELLER MUST BE OWNER
AT TIME OF SALE
The exception to the rule that ownership by the seller is not essential at
the time of perfection would be in the case of judicial sale.
This is the reason why Article 2085 of the Civil Code, in providing for
the essential requisites of the contract of mortgage, requires among
other things, that the mortgagor or pledgor be the absolute owner of
the thing mortgaged, in anticipation of a possible foreclosure sale
should the mortgagor default in the payment of the loan.
SUBSEQUENT ACQUISITION OF TITLE BY SELLER
Article 1434 of the Civil Code provides that when at the time of
perfection, the seller sells a subject matter over which he is not the
owner, the subsequent acquisition of title by a seller validates the
sale and title passes to the buyer by operation of law, provided
there has been previous delivery of the subject matter by the
seller to the buyer.
QUIJADA V. COURT OF APPEALS, recognized that the sale of a
land previously donated by the seller to a local government unit under
a resolutory condition, was a valid sale even though at the time of sale,
ownership in the property was still with the local government. However,
when the resolutory condition did occur which effectively reverted
ownership back to the seller, under Article 1434 the seller‘s ―title
passes by operation of law to the buyer.‖ The Court expresslly
recognized that the rule under Article 1434 applies not only to sale of
goods, but also to other kinds of property, including real property.
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PRICE
PRICE - it is a sum stipulated as the equivalent of the thing sold, and
also every incident taken into consideration for the fixing of the same
put to the debit of the vendee and agreed to by him.
Under Art1354 of the CC, consideration is presumed to exist.
Art. 1354. Although the cause is not stated in the contract, it is
presumed that it exists and is lawful, unless the debtor proves the
contrary. (1277)
REQUISITESFOR VALID PRICE
1) THE PRICE MUST BE REAL; IT MUST NOT BE MERELY
SIMULATED OR FICTITIOUS.
 Price is ―real‖ when at the perfection of the sale, there is
legal intention on the part of the buyer to pay the price, and
legal expectation on the part of the seller to receive such
price as the value of the subject matter he obligates himself
to deliver.
 When the price is simulated because neither party to the
Deed of Sale had any intention whatsoever that the amount
will be paid, the sale is void, although the act may be shown
to have been in reality a donation, or some other contract.
The whole issue therefore boils down to contractual intent: if
there was no intent by the parties at the time of perfection to
pay and to receive the price stipulated, then it is a wholly
simulated price, and the underlying contract of sale is void
for lack of consideration.
 Price is ―false‖ when there is a real price upon which the
minds of the parties had met, but not declared, and what is
stated in the covering deed is not the one intended to be
paid. If the price indicated in the covering instrument is false,
the contract of sale is valid, but the underyling deed is
subject to reformation to indicate the real price upon
which the minds of the parties have met.
2 TESTS TO DETERMINE IF PRICE IS REAL:
1) TEST OF INTENTION – whether or not the parties intended
to give/receive a price
2) TEST OF VALUABLE CONSIDERATION – if price is
nominal [merely titular], then there is no real price
EFFECT IF THE CONTRACT STATES THE PRICE
BUT IT WAS NEVER PAID
It is null and void as a Sales question because there was never any
real consideration. (Montecillo vs. Reynes, Mapalo vs. Mapalo)
But the contract may be shown in reality a donation or some other
contract.
In Ong vs. Ong, the consideration is 1 peso and other valuable
considerations. That is a void sale. However, because of the fact that
the consideration was so small, it may be proven to be instead a
donation.
Bagnas vs. CA. There is a gross disproportion between the
consideration stipulated and the value of the thing and therefore it
shows that the price is false and fictitious and therefore the contract
is void.
 SIMULATION OF PRICE AFFECTS
DELIVERY OF SUBJECT MATTER
When a contract of sale is fictitious and therefore void and inexistent,
as there was no consideration for the same, no title over the subject
matter of the sale can be conveyed.
2) IT MUST BE IN MONEY OR ITS EQUIVALENT.
In POLYTECHNIC UNIVERSITY OF THE PHILIPPINES V. COURT
OF APPEALS, it was held that the cancellation of liabilities of the seller
constitute valid consideration for sale.
3) IT MUST BE CERTAIN OR ASCERTAINABLE AT THE
TIME OF THE PERFECTION OF THE CONTRACT.
Price is certain when it has been expressed and agreed in terms of
specific pesos and/or centavos.
Under Article 1469 of the Civil Code, in order that the price may be
considered ascertainable, it shall be sufficient that it be so with
reference to another thing certain, or that the determination thereof be
left to the judgment of a specified person or persons.
Consent is manifested by the meeting of the offer and the acceptance
upon the thing and the cost which are constituted in contract. So, at
the time of perfection, the price must be fixed already.
WHO MAY FIX THE PRICE
 Price can be fixed by the third person.
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 It can be fixed by the courts.
 It can be fixed with reference to a definite day or
particular exchange in the market like gold or reference to
another thing certain.
Article 1473, Civil Code The fixing of the price can never be left to
the discretion of one of the contracting parties. However, if the
price fixed by one of the parties is accepted by the other, the sale
is perfected.
A seller cannot unilaterally increase the price previously agreed
upon with the buyer, even when the need to adjust the price of
sale is due to increased construction cost; otherwise, it would be a
violation of the essential characteristic of ―obligatory force‖ of
contracts of sale.
EFFECT IF THE PRICE IS UNCERTAIN
Article 1474, Civil Code Where the price cannot be determined in
accordance to the preceding articles, or in any other manner, the
contract is inefficacious. However, if the thing or any part thereof
has been delivered to and appropriated by the buyer, he must pay
a reasonable price therefor. What is a reasonable price is a
question of fact dependent on the circumstances of each
particular case.
Contract is inefficacious, but if the buyer nevertheless appropriates
the object, he must pay a reasonable price.
REQUISITES FOR ART1474 TO APPLY:
a. Meeting of the minds as to SM
b. Agreement that price would be paid which fails to
meet criteria of being certain or ascertainable
c. Delivery by the seller and appropriation by the
buyer, of the SM of sale
MANNER OF PAYMENT OF PRICE MUST BE AGREED UPON
If manner of payment has not been agreed upon, there is NO
CONTRACT unless there has already been appropriation by the
buyer.
Although the Civil Code provisions governing the contract of sale do
not explicitly require that a meeting of the minds of the parties must
include the terms or manner of payment of the price, the same is
deemed to be an essential ingredient before a valid and binding
contract of sale can be said to exist, since it is part of the prestation of
the contract, and without which there can be no valid sale, nor can an
action for specifi c performance be made against the alleged seller.
Manner of payment of the price goes into the essence of what
makes price certain or ascertainable.
VELASCO V. COURT OF APPEALS, where the parties had agreed
on the determinate subject matter (a parcel of land), and the total
purchase price, but not on the manner of payment of the agreed price,
held that although a downpayment had already been made by the
buyer and received by the seller, there was still no valid sale. The
Court held that although part of the downpayment has been paid, a
definite agreement on the manner of payment of the purchase
price was an essential element in the formation of a binding and
enforceable contract of sale.
EQUITABLE MORTGAGE – If there is a deed of sale and there is a
right to repurchase of a very small amount, it creates a presumption of
equitable mortgage because the transaction is in effect in actuality a
contract of loan with mortgage. The repurchase price is too small
because it represents the last installment of the payment.

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the

wards whom they represent suffer lesion by more than one-fourth
WHEN THERE IS SALE EVEN WHEN of the value of the things which are the object thereof; xxx
NO PRICE HAS BEEN AGREED UPON
Article 1386. Rescission referred to in Nos. 1 xxx of article 1381
Article 1474 of the Civil Code provides: ―Where the price cannot be shall not take place with respect to contracts approved by the
determined in accordance with the preceding articles, or in any other courts.
manner, the contract is inefficacious. However, if the thing or any
part thereof has been delivered to and appropriated by the buyer,
he must pay a reasonable price therefore. What is reasonable price
is a question of fact dependent on the circumstances of each particular
case.‖

In National Housing Authority v. Grace Baptist Church, involving

the sale of parcels of land by the NHA, where possession had been
turned over to the buyer which had introduced improvements thereon,
when it was still clear that the final price had yet to be agreed upon.

EFFECT OF NON-PAYMENT OF PRICE

The failure to pay the price does not cancel a sale for lack of
consideration, for there is still consideration. The failure to pay a
real price goes not into perfection of the sale but into its
consummation.

In MONTECILLO V. REYNES, the Court held that Failure to pay the

consideration is different from lack of consideration. The former results
in a right to demand the fulfillment or cancellation of the obligation
under an existing valid contract while the latter prevents the existence
of a valid contract.

EFFECT OF INADEQUACY OF PRICE IN VOLUNTARY SALES

Article 1470 on contracts of sale, provides that ―gross inadequacy of

price does not affect a contract of sale, except as it may indicate a
defect in the consent, or that the parties really intended a
donation or some other act or contract.‖

It must not affect the validity of the sale.

But if it is a judicial sale (auction sale), the general rule is the court
may avoid the judicial sale when it is shocking to the conscience
of man and in event of resale, a better price can be obtained.

RATIONALE: The difference in ruling for judicial sale is because the

contract of sale is not the result of negotiations and bargaining; in fact,
the property of the supposed seller would be sold at public auction
without his intervention. In such a case, the courts must be allowed to
come in to protect the supposed seller from a bad bargain that is really
not of his own doing.

EXCEPTION: When there is a right of redemption because the

smaller the price, the easier it would be for the judgment debtor to
recover the property.

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 acceptance, and it is not even necessary that the offeree learns of the
FORMATION OF THE withdrawal.

CONTRACT OF SALE EXCEPTION: When the option is founded upon a

consideration, then the offer may not be withdrawn at any
time during the option period; it has essentially become a
CONTRACTED OFFER.

If the offer is given for a period, the expiration of the period or its
withdrawal prior to acceptance would destroy the offer.

When an offer given with condition or period will be extinguished

1) By the happening of the resolutory condition or the

2) Certainty that the suspensive condition will not happen, or
3) After the lapse of the period; and in all cases, without need
of further action on the part of the offeror

Offer becomes ineffective upon the:

a. Death
b. Civil Interdiction
c. Insanity
d. Insolvency

Of either party before the acceptance is conveyed and received by the

offeror

BQ 1999: WHAT IS THE STATUS OF PUBLIC ADVERTISEMENTS

OR SOLICITATIONS? They are mere invitations to make offers or
only proposals.
Three stages in a contract of sale:
A promise to sell the house to B if B passes the bar exams. A sold the
1. PREPARATION/ CONCEPTION/ GENERATION
house to C before B passed the bar exams. So, there is no more
possibility for the contract to arise because the proposed subject
POLICITACION OR NEGOTIATION covers the period from the time
matter is no longer there.Is the sale valid? Is B entitled to rentals
the prospective contracting parties indicate their interests in the
since he was promised to sell? The sale is valid. A merely made an
contract to the time the contract is perfected.
unaccepted unilateral promise to B in the nature of policitation. This
contract does not give rise to any obligation. It does not preclude the
This will also cover:
owner from selling the thing to another.
a. Preparatory juridical relations
He is also not entitled to rentals. A promise to sell is unilateral,
b. Option contracts
unaccepted, hence there was no contract of sale that would transfer
c. Right of first refusal
ownership over the thing to B. B is not entitled to rentals because he is
not the owner of the thing.
It starts with negotiation and bargaining and endsat the moment of
the agreement of price and the contracts.In the first phase, there
would be offers and counteroffers. There is no meeting of the minds OPTION CONTRACTS
yet.
An OPTION, as used in the law on sales, is a continuing offer or
2. PERFECTION/ BIRTH OF THE CONTRACT contract by which the owner stipulates with another that the latter shall
3. CONSUMMATION/ DEATH OF THE CONTRACT have the right to buy the property at a fixed price within a certain time,
or under, or in compliance with, certain terms and conditions, or which
gives to the owner of the property the right to sell or demand a sale. It
POLICITATION is also sometimes called an "unaccepted offer." An option is not of
itself a purchase, but merely secures the privilege to buy.
It is important to consider that at policitation stage, there is ―freedom
ELEMENTS OF VALID OPTION CONTRACT
to contract,‖ which signifies the right to choose with whom to contract
and what to contract, thus: ―In the Law on Sales, an owner of property
1) CONSENT or the meeting of the minds upon
is free to offer the subject property for sale to any interested person,
and is not duty bound to sell the same to the occupant thereof, absent
2) SUBJECT MATTER: an option right to an unaccepted
any prior agreement vesting the occupants the right of first priority to
unilateral offer to sell/accepted promise to sell, or
buy.‖
unaccepted unilateral offer to buy/accepted promise to buy:
a. a determinate or determinable object;
A unilateral promise to buy or sell even if accepted by the other
b. for a price certain, including the manner of
party is not binding upon the promisor and may be withdrawn at
payment thereof;
anytime.
3) PRESTATION: A consideration separate and distinct from
Violation of the promise does not give rise of any relief of the other
the purchase price for the option given.
party because there is no yet any valid contract.

An offer, prior to acceptance, is subject to the complete will of the When the offeror has allowed the offeree a certain period to
offeror and may be withdrawn or destroyed by the offeror prior to its accept, the offer may be withdrawn at any time before acceptance

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by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.

An option contract must have a consideration separate and

distinct from the purchase price. Otherwise, the option contract is
void but it is valid as an offer which can still be accepted until it is
withdrawn. If the offer is accepted, then it might give rise to a
perfected contract of sale.

If there is a consideration paid for the option of buying or selling

something, it only gives rise to a case for damages, but not for
specific performance. The right not to enter into contractual
relations is absolute. You cannot compel a person to be in contract
with you. When the seller has sold the property to another person, all
you have is a cause of action for damages.

BQ 2002: If the parties enter into an option contract supported by

separate consideration and the option contract is not respected, would
the buyer ask for specific performance? Can the seller escape liability
by saying that honoring the option contract would be financially
disadvantageous to him?

It will only give rise for a case for damages and not for specific
performance. The seller cannot escape liability by claiming economic
lesion since the seller renders an option contract as the obligation to
sustain the offer until the end of the agreement. But it doesn‘t mean
that you cannot withdraw the offer. You can sell it to somebody else.
This is the basis for damages:
Article 19. Every person must, in the exercise of his rights and in
the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith.
If there is no consideration and the option contract is violated,
then there is no cause of action.
If there is consideration and it was violated, it gives rise to a
cause of action for damages only. You cannot ask for specific
performance.
If there is no consideration, but the offer is not withdrawn and the
property is not sold to anybody in the meantime, then the buyer
can still buy.
The most important distinction with sale is that the subject matter of
an option contract is actually not the subject matter of the sought
sale, but rather the option to purchase such subject matter,
essentially an intangible subject matter or a right.
ADELFA PROPERTIES held that ―[t]he distinction between an
‗option‘ and a contract of sale is that an option is an unaccepted
offer: It states the terms and conditions on which the owner is willing to
sell his land, if the holder elects to accept them within the time limited.
If the holder does so elect, he must give notice to the other party, and
the accepted offer thereupon becomes a valid and binding contract. If
an acceptance is not made within the time fixed, the owner is no longer
bound by his offer, and the option is at an end.
A contract of sale, on the other hand, fixes defi nitely the relative rights
and obligations of both parties at the time of its execution, and leaves
no choice to either party whether to withdraw or to proceed with the
contract. The offer and the acceptance are concurrent, since the minds
of the contracting parties meet in the terms of the agreement.‖
CONTRACT TO SELL V. OPTION CONTRACT/LEGAL
REDEMPTION
The rule is different in case of an option contract or in legal redemption
or in a sale with right to repurchase; wherein consignation is not
necessary because these cases involve an exercise of a right or
privilege (to buy, redeem or repurchase) rather than the discharge of
an obligation, hence tender of payment would be sufficient to preserve
the right or privilege. This is because the provisions on consignation
are not applicable when there is no obligation to pay.
A contract to sell, as in the case before us, involves the performance of
an obligation, not merely the exercise of a privilege or a right.
Consequently, performance or payment may be effected not tender of
payment alone but by both tender and consignation.
OPTION CONTRACT (2002)
Explain the nature of an option contract. (2%)
SUGGESTED ANSWER:
An OPTION CONTRACT is one granting a privilege to buy or sell
within an agreed time and at a determined price. It must be supported
by a consideration distinct from the price. (Art. 1479 and 1482, NCC)
OPTION CONTRACT; EARNEST MONEY (1993)
LT applied with BPI to purchase a house and lot in Quezon City, one of
its acquired assets. The amount offered was Pl,000,000.00 payable, as
follows: P200,000.00 down payment, the balance of P800,000.00
payable within 90 days from June 1, 1985. BPI accepted the offer,
whereupon LT drew a check for P200,000.00 in favor of BPI which the
latter thereafter deposited in its account. On September 5, 1985, LT
wrote BPI requesting extension until October 10, 1985 within which
to pay the balance, to which BPI agreed. On October 5, 1985, due to
the expected delay in the remittance of the needed amount by his
financier from the United States, LT wrote BPI requesting a last
extension until October 30, 1985, within which to pay the balance. BPI
denied LTs request because another had offered to buy the same
property for P1,500,000.00. BPI cancelled its agreement with LT and
offered to return to him the amount of P200,000.00 that LT had paid to
it. On October 20, 1985, upon receipt of the amount of P800,000.00
from his US financier, LT offered to pay the amount by tendering a
cashier's check therefor but which BPI refused to accept. LT then filed
a complaint against BPI in the RTC for specific performance and
deposited in court the amount of P800,000.00. Is BPI legally correct in
canceling its contract with LT?

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SUGGESTED ANSWER: BPI is not correct in canceling the contract
with LT. In Lina Topacio v Court of Appeals and BPI Investment (G. R
No. 102606, July 3. 1993, 211 SCRA 291) the Supreme Court held
that the earnest money is part of the purchase price and is proof of the
perfection of the contract. Secondly, notarial or judicial rescission
under Art. 1592 and 1991 of the Civil Code is necessary (Taguba v. de
Leon, 132 SCRA 722.)
ALTERNATIVE ANSWER: BPI is correct in canceling its contract with
LT but BPI must do so by way of judicial rescission under Article 1191
Civil Code. The law requires a judicial action, and mere notice of
rescission is insufficient if it is resisted. The law also provides that
slight breach is not a ground for rescission (Song Fo & Co, vs,
Hawaiian Phil Co., 47 Phils. 821), Delay in the fulfillment of the
obligation (Art. 1169, Civil Code) is a ground to rescind, only if time is
of the essence. Otherwise, the court may refuse the rescission if there
is a just cause for the fixing of a period.
OBLIGATIONS ON THE PART OF THE OFFEROR
1) Personal obligation not to offer to any third party the sale of
the object of the option during the option period;
2) Personal obligation not to withdraw the offer or option during
option period; and
3) Obligation to hold the subject matter for sale to the offeree in
the event that offeree exercises his option during the option
period.
Since an option contract, prior to its valid exercise, is not a species of
the genus sale, it is not covered by the Statute of Frauds, and
therefore can be proved by parol evidence.
OPTION NOT DEEM PART OF RENEWAL OF LEASE
An option to purchase attached to a contract of lease when not
exercised within the original period is extinguished and cannot be
deemed to have been included in the implied renewal of the lease
even under the principle of tacita reconduccion.
PERIOD OF EXERCISE OF OPTION
VILLAMOR V. COURT OF APPEALS, held that when the option
contract does not contain a period when the option can be exercised, it
cannot be presumed that the exercise thereof can be made indefi
nitely, and even render uncertain the status of the subject matter.
Under Article 1144(1) of the Civil Code, actions upon written contract
must be brought within ten (10) years, and thereafter, the right of
option would prescribe.
PROPER EXERCISE OF OPTION
NIETES V. COURT OF APPEALS - Notice of the exercise of the
option need not be coupled with actual payment of the price, so long
as this is delivered to the owner of the property upon performance of
his part of the agreement.
CARCELLER V. COURT OF APPEALS – Court recognized that
notice within the option period of clear intention to purchase the
property pursuant to such option, with request for leeway within which
to be able to raise the funds to close the deal is a valid or at least
substantial exercise of the option.
SUMMARY RULES WHEN PERIOD IS GRANTED TO PROMISEE
ANG YU ASUNCION V. COURT OF APPEALS summarized the
applicable rules where a period is given to the offeree within which to
accept the offer, i.e., the option, thus:
a) If the period itself is not founded upon or supported by a
separate consideration, the offeror is still free and has the
right to withdraw the offer before its acceptance, or, if an
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acceptance has been made, before the offeror‘s coming to
know of such fact, by communicating that withdrawal to the
offeree. (This is in accordance with the Sanchez doctrine.)
b) The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to a
damage claim under Article 19 of the Civil Code which
ordains that ―every person must, in the exercise of his right
and in the performance of his duties, act with justice, give
everyone his due, and observe honesty and good faith.‖
c) If the period has a separate consideration, a contract of
―option‖ is deemed perfected, and it would be a breach of
that contract to withdraw the offer during the agreed period.
d) The option, however, is an independent contract by itself,
and it is to be distinguished from the projected main
agreement which is obviously yet to be concluded. If, in fact,
the optioner-offeror withdraws the offer before its acceptance
by the optionee-offeree, the latter may not sue for specifi c
performance on the proposed contract since it has failed to
reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of
the option.
e) In these cases, care should be taken of the real nature of the
consideration given, for if in fact, it has been intended to be
part of the consideration for the main contract with a right of
withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an
―earnest money‖ in sale that can evidence its perfection.
EFFECT OF ACCEPTANCE
LIMSON V CA - When there is an option contract, the timely
affirmative and clear acceptance of the offer would convert the option
contract into a bilateral promise to sell and to buy where both
parties were then reciprocally bound to comply with their respective
undertakings.
RIGHT OF FIRST REFUSAL
It grants a person the right to buy a property before it is offered to
sell to another.
The right of first refusal is usually part and parcel of a contract where
the right is granted. It usually happens in a contract of lease.
ANG YU ASUNCION VS. CA
238 SCRA 602
In the law on sales, the so-called "right of first refusal" is an
innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil
Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an offer
under Article 1319 of the same Code. An option or an offer would
require, among other things, a clear certainty on both the object and
the cause or consideration of the envisioned contract. In a right of first
refusal, while the object might be made determinate, the exercise of
the right, however, would be dependent not only on the grantor's
eventual intention to enter into a binding juridical relation with another
but also on terms, including the price, that obviously are yet to be later
firmed up. Prior thereto, it can at best be so described as merely
belonging to a class of preparatory juridical relations governed
not by contracts (since the essential elements to establish the
vinculum juris would still be indefinite and inconclusive) but by,
among other laws of general application, the pertinent scattered
provisions of the Civil Code on human conduct.
 FORM
When such right is not stipulated in the lease contract, it cannot be
exercised, and verbal grants of such right cannot be enforceable since
the right of first refusal must be clearly embodied in a written contract.
WHAT IS THE STATUS OF CONTRACT OF SALE THAT WAS
MADE IN VIOLATION OF ANOTHER PARTIES‘ RIGHT OF FIRST
REFUSAL?
If there is uniformity in terms and conditions of the owner and the
lessee, but the owner sells to another, the contract of sale is
rescissible.
RIGHT OF FIRST REFUSAL; LESSEE; EFFECT (1996)
Ubaldo is the owner of a building which has been leased by Remigio
for the past 20 years. Ubaldo has repeatedly assured Remigio that if
he should decide to sell the building, he will give Remigio the right of
first refusal. On June 30, 1994, Ubaldo informed Remigio that he was
willing to sell the building for P5 Million. The following day, Remigio
sent a letter to Ubaldo offering to buy the building at P4.5 Million.
Ubaldo did not reply. One week later, Remigio received a letter from
Santos informing him that the building has been sold to him by Ubaldo
for P5 Million, and that he will not renew Remigio's lease when it
expires. Remigio filed an action against Ubaldo and Santos for
cancellation of the sale, and to compel Ubaldo to execute a deed of
absolute sale in his favor, based on his right of first refusal. a) Will the
action prosper?
Explain. b) If Ubaldo had given Remigio an option to purchase the
building instead of a right of first refusal, will your answer be the same?
Explain.
SUGGESTED ANSWER: No, the action to compel Ubaldo to execute
the deed of absolute sale will not prosper. According to Ang Yu v.
Court of Appeals (238 SCRA 602), the right of first refusal is not based
on contract but is predicated on the provisions of human relations and,
therefore, its violation is predicated on quasi-delict. Secondly, the right
of first refusal implies that the offer of the person in whose favor that
right was given must conform with the same terms and conditions as
those given to the offeree. In this case, however, Remigio was offering
only P4.5 Million instead of P5 Million.
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JUSTIN RYAN MORILLA
ALTERNATIVE ANSWER: No, the action will not prosper. The
lessee's right of first refusal does not go so far as to give him the power
to dictate on the lessor the price at which the latter should sell his
property. Upon the facts given, the lessor had sufficiently complied with
his commitment to give the lessee a right of first refusal when he
offered to sell the property to the lessee for P5 Million, which was the
same price he got in selling it to Santos. He certainly had the right to
treat the lessee's counter-offer of a lesser amount as a rejection of his
offer to sell at P5 Million. Thus, he was free to find another buyer upon
receipt of such unacceptable counter-offer (Art. 1319. NCC).
SUGGESTED ANSWER: Yes, the answer will be the same. The action
will not prosper because an option must be supported by a
consideration separate and distinct from the purchase price. In this
case there is no separate consideration. Therefore, the option may
be withdrawn by Ubaldo at any time. (Art. 1324, NCC)
RIGHT OF FIRST REFUSAL; LESSEE; EFFECT (1998)
In a 20-year lease contract over a building, the lessee is expressly
granted a right of first refusal should the lessor decide to sell both the
land and building. However, the lessor sold the property to a third
person who knew about the lease and in fact agreed to respect it.
Consequently, the lessee brings an action against both the lessor-
seller and the buyer (a) to rescind the sale and (b) to compel specific
performance of his right of first refusal in the sense that the lessor
should be ordered to execute a deed of absolute sale in favor of the
lessee at the same price. The defendants contend that the plaintiff can
neither seek rescission of the sale nor compel specific performance of
a "mere" right of first refusal. Decide the case. [5%]
SUGGESTED ANSWER: The action filed by the lessee, for both
rescission of the offending sale and specific performance of the right of
first refusal which was violated, should prosper. The ruling in
EQUATORIAL REALTY DEVELOPMENT, INC. VS. MAYFAIR
THEATER, INC. (264 SCRA 483), a case with similar facts, sustains
both rights of action because the buyer in the subsequent sale knew
the existence of right of first refusal, hence in bad faith.
LIMITED APPLICATION OF EQUATORIAL REALTY RULING
 Ruling applies only to rights of first refusal attached to a valid
principal contract, like a contract of lease

 Ruling has NO application to rights of first refusal constituted
as a separate contract
ANOTHER ANSWER: The action to rescind the sale and to compel
the right to first refusal will not prosper. (Ang Yu Asuncion vs. CA, 238
SCRA 602). The Court ruled in a unanimous en banc decision that
the right of first refusal is not founded upon contract but on a quasi-
delictual relationship covered by the principles of human relations and
unjust enrichment (Art. 19, et seq. Civil Code). Hence the only action
that will prosper according to the Supreme Court is an "action for
damages in a proper forum for the purpose."
2014 BQ: Tess leased her 1,500 sqm lot in Antipolo City to Ruth for a
period of 3 years, from January 2010 to February 2013. On March 19,
2011, Tess sent a letter to Ruth, part of which reads as follows:
―I am offering you to buy the property you are presently leasing at
P5,000.00 per sqm or for a total of P7,500,000.00 You can pay the
contrat price by installment for 2 years without interest. I will give you a
period of 1 year from receipt of this letter to decide whether you will
buy the property.‖
After the expiration of the lease contract, Tess sold the property to her
niece for a total consideration of P4M.
Ruth filed a complaint for the annulment of the sale, reconveyance and
damages against Tess and her niece. Ruth alleged that the sale of the
leased property violated her right to buy under the principle of right of VARIOUS RULINGS ON RIGHTS OF FIRST REFUSAL
first refusal. CONTAINED IN LEASE AGREEMENT

Is the allegation of Ruth tenable? 1) Rentals Deemed to Be Consideration to Support Right

OPTION CONTRACT
Right granted under a contract
distinct from the sale.
RIGHT OF FIRST REFUSAL 2) Sublessee May Not Take Advantage of Right of First Refusal
Usually something granted in the of Sublessor
same contract which is usually a
lease at the inception of the 3) Right Does Not Extend with the Extension of the Lease
contract

Supported by a consideration Does not need a separate

distinct from the price
consideration. It is presumed that
the consideration is the same as
the right of the original contract
and that is the lease. Kung unsa
tong consideration sa lease,
that‘s the consideration of the
right of first refusal.

The elements of sale are already
definite when the option contract
is created
Dependent on the exercise of the
option itself. If the person holding
the option decides to buy, he can
buy based on the terms already
established in the option contract.
Violation would give rise to a case
for damages and not for
specific performance
The elements of sale except the
subject matter are yet to be
firmed up.
It‘s not dependent only upon
grantor‘s eventual intention to
enter into a sale with the other but
also on terms that are yet to be
firmed up.
Depending on whether or not
there is good faith or bad faith,
and uniformity of the terms,
violation would give rise for an
action for rescission or
damages.
CONTRACT TO SELL
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.
NOTE: Contract to sell is different from conditional sale
CONTRACT TO SELL IS NOT A CONTRACT OF SALE
The first essential element of consent of parties is ABSENT

Rescission can be a remedy
because unless the contract of
sale is not rescinded, the party
cannot exercise his right of first
refusal.
The seller does not consent to transfer ownership to the buyer
until the happening of an event, which may be the full payment of
price which is a suspensive condition, the non-fulfillment of
which prevents the obligation from arising (Coronel v. CA, Oct.
7,1996)

Specific performance is not a CONTRACT OF SALE CONTRACT TO SELL

remedy. There is no contract
between the two of you except a
contract of lease with the right of Title passes to the buyer upon Vendor reserves ownership and
first refusal. delivery of subject matter will not pass until full payment of
price
An action for damages is a
remedy if the right is unjustifiably
disregarded under the Non-payment is a negative Full payment is a positive
circumstances described in the resolutory condition resolutory condition
law.
Vendor has lost control and can Title remains in the vendor and
recover only if contract is he can eject vendee for non-
SUGGESTED ANSWER:
rescinded compliance with suspensive
condition
The contention is untenable.

What is involved in the case is not a right of first refusal but a mere
offer. A right of first refusal is a right granted to a party offered to buy
CONTRACT TO SELL VS. CONTRACT OF SALE (1997)
the property before he offers to sell to anyone else. An option contract
on the other hand is a contract on which the owner of the property
State the basic difference (only in their legal effects) Between a
agrees to the person that he shall have the right to buy the property at
contract to sell, on the one hand, and a contract of sale, on the other.
a fixed price within a certain time. This must be supported by a
consideration same by the price.
SUGGESTED ANSWER: In a CONTRACT OF SALE, ownership is
transferred to the buyer upon delivery of the object to him while in a
In the instant case, this is just an option contract as it grants Ruth a
CONTRACT TO SELL, ownership is retained by the seller until the
fixed period of 2 years to buy the property at a price certain of
purchase price is fully paid. In a contract to sell, delivery of the object
7.5M.Furthermore, because the option of this case is without
does not confer ownership upon the buyer. In a contract of sale, there
consideration, it may be withdrawn at anytime and the property can be
is only one contract executed between the seller and the buyer, while
sold to another person.
in a contract to sell, there are two contracts, first the contract to sell
(which is a conditional or preparatory sale) and a second, the final
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JUSTIN RYAN MORILLA
deed of sale or the principal contract which is executed after full
payment of the purchase price.
BQ 1997: Compare a conditional sale from an absolute sale
ANSWER:
An absolute sale is a contract where the seller has transferred
ownership over a property to the buyer and the latter has given
the seller the full consideration for the sale
A conditional sale is likewise a contract of sale where the seller
agrees to transfer ownership to the buyer, however, subject to
the happening of suspensive condition.
CONTRACT TO SELL IS NOT A CONDITIONAL SALE
 In a conditional sale, the first element of consent is
present although it is conditioned on the happening of
an event.
 There is no consent to transfer ownership in a contract
to sell
VENTURA VS SPOUSES ENDAYA
A contract to sell is 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
latter upon his fulfillment of the conditions agreed upon, i.e., the
full payment of the purchase price and/or compliance with the
other obligations stated in the contract to sell. Given its contingent
nature, the failure of the prospective buyer to make full payment and/or
abide by his commitments stated in the contract to sell prevents the
obligation of the prospective seller to execute the corresponding deed
of sale to effect the transfer of ownership to the buyer from arising. As
discussed in Sps. Serrano and Herrera v. Caguiat:
A contract to sell is akin to a conditional sale where the efficacy
or obligatory force of the vendor's obligation to transfer title is
subordinated to the happening of a future and uncertain event, so
that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed. x x
x.
To note, while the quality of contingency inheres in a contract to sell,
the same should not be confused with a conditional contract of sale. In
a contract to sell, the fulfillment of the suspensive condition will
not automatically transfer ownership to the buyer although the
property may have been previously delivered to him. The
prospective seller still has to convey title to the prospective buyer
by entering into a contract of absolute sale. On the other hand, in
a conditional contract of sale, the fulfillment of the suspensive
condition renders the sale absolute and the previous delivery of
the property has the effect of automatically transferring the
seller‘s ownership or title to the property to the buyer
2012 BQ: a) A contract to sell is the same as a conditional contract of
sale. Do you agree? Explain your answer. (5%) Disagree
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JUSTIN RYAN MORILLA
CORONEL vs CA
263 SCRA 15 October 7, 1996
FACTS:This case has its roots in a complaint for specific performance
to compel herein petitioners to consummate the sale of a parcel of land
with its improvements located along Roosevelt Ave., QC entered in to
by the parties sometime in January 1985 for the price of
P1,240,000.00.
On January 19, 1985, Coronel, et. al executed a document entitled
―Receipt of Down Payment‖ in favor of plaintiff Ramona Patricia
Alcaraz after plaintiff-appellee Concepcion Alcaraz, mother of Ramona,
paid the down payment of P50,000.00. However, on February 18,
1985, the Coronels sold the property to intervenor-appellant Catalina
Mabanag for P1,580,000.00 after the latter has paid P300,000.00. For
this reason, Coronels cancelled and rescinded the contract with
Ramona by depositing the down payment paid in the bank in trust for
Ramona.
On February 22, 1985, Concepcion, et.al filed a complaint for specific
performance against the Coronels.
RTC-QC rendered judgment favorable to Concepcion and ordered the
cancellation of sale to Mabanag. Concepcion‘s Motion for
Reconsideration was denied; hence an appeal was made to Ca which
affirmed RTC‘s decision.
Hence, this petition where Concepcion contended that the ―Receipt of
Down Payment‖ embodied a perfected contract of sale, while Coronels
insisted that what the document signified was a mere executory
contract to sell, subject to certain suspensive conditions, and because
of the absence of Ramona, who left for the USA, said contract could
not possibly ripen into a contract of absolute sale.
ISSUE: WON the ―Receipt of Down Payment‖ was a binding contract
of sale?
RULING: The document entitled ―Receipt of Down Payment‖ which
was offered in evidence by both the parties embodied the binding
contract between Ramona and the Coronels, pertaining to a particular
house and lot.
Art. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something
or render some service.
Art. 1458. By the contract of sale one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a price certain in
money or its equivalent.
Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a contract
of sale are the following:
Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price;
Determinate subject matter; and
Price certain in money or its equivalent.
Contract to sell may not be considered as a Contract of Sale
because the first essential element is lacking. In Contract to Sell,
the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as
yet agree or consent to transfer ownership of property subject of
the contract to sell until the happening of an event, which for
present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is
to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other words,
the full payment of the purchase price partakes of a suspensive
condition, the nonfulfillment of which prevents the obligation to
sell from arising and thus, ownership is retained by the Does this receipt evidence a contract to sell? Why? (5%)
prospective seller without further remedies by the prospective SUGGESTED ANSWER: It is a contract of sale because the seller did
buyer. not reserve ownership until he was fully paid.

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 deliver thereof to the
prospective buyer, binds himself to sell the property exclusively
to the prospective buyer upon fulfillment of the condition agreed
upon, that is full payment of the purchase price.
In a contract to sell, upon the fulfillment of the suspensive
condition which is the full payment of the purchase price,
ownership will not automatically transfer to the buyer although
the property may have been previously delivered to him. The
prospective seller still has to convey the title to the prospective
buyer by entering into a contract of absolute sale.
In conditional contract of sale, however, upon the fulfillment of
the suspensive condition, the sale becomes absolute and this will
definitely affect the seller‘s title thereto. In fact, if there had been
previous delivery of the subject property, the seller‘s ownership
or title to the property is automatically transferred to the buyer
such that, the seller will no longer have any title to transfer to any
third person. Applying Art. 1544 of the CC, such second buyer of
the property who may have had actual or constructive knowledge
of such defect in the seller‘s title, or at least was charged with the
obligation to discover such defect, cannot be a registrant in good
faith. Such second buyer cannot defeat the first buyer‘s title. In
case the title is issued to the second buyer, the first buyer may
seek reconveyance of the property subject of the sale.
When the ―Receipt of Down Payment‖ is considered in its entirety, it
becomes more manifest that there was a clear intent on the part of
petitioners to transfer title to the buyer, but since the Transfer
Certificate of Title (TCT) was still in the name of petitioner‘s father, they
could not fully effect such transfer although the buyer was then willing
and able to immediately pay the purchase price.
The agreement could not have been a contract to sell because the
seller herein made no express reservation of ownership or title to
the subject parcel of land.
2014 BQ: Nante, a registered owner of a parcel of land in Quezon City
sold the property to Monica under a Deed of Sale which states as
follows:
“Wherefore, in consideration of a sum of 500K value to be paid and
delivered today in receipt of which shall be acknowledge by me of the
full satisfaction of Monica, referred to as Vendee, I hereby sell,
transfer, cede, convey and sign as by this presents I hereby sold,
transferred, ceded and conveyed and assigned a parcel of land
covered by TCT 2468 in favor of the Vendee.”
After delivery of the initial payment of 100k, Monica immediately took
possession of the subject lot. 5 months after, Monica failed to pay the
remaining balance of the purchase price. Nante filed an action for
recovery of the possession of the property. Nante alleged that the
agreement was one to sell—a contract to sell which was not
consummated as the full contract price was not paid. Is the contention
of Nante tenable?
SUGGESTED ANSWER OF ATTY. ESPEJO: Nante is not correct.
Under contract to sell, the seller takes the title of the thing to be sold
until the purchaser fully pays the agreed purchase price. The full
payment is a positive suspensive condition. The nonfullfilment of which
is not a breach of contract but merely an event that prevents the seller
from conveying title to the purchaser.
The remedy of recovery of possession therefore must be improper
remedy. What Nante should have filed could be an action for
rescission under Article 1191 of the Civil Code.
If it is a contract to sell, no need to rescind. If it is a conditional or
absolute sale, you have to file an action for rescission to recover the
ownership.

What is clearly established by the plain language of the subject

document is that when the said ―Receipt of Down Payment‖ was
prepared and signed by petitioners Romeo Coronel, et. al, the
parties had agreed to a conditional contract of sale,
consummation of which is subject only to the successful transfer
of the certificate of title from the name of petitioner‘s father,
Constancio Coronel, to their names.

Since the condition contemplated by the parties which is the issuance

of a certificate of title in petitioner‘s name was fulfilled on February
6,1985, the respective obligations of the parties under the contract of
sale became mutually demandable, that is, petitioners, as sellers, were
obliged to present the transfer certificate of title already in their names
to private respondent Ramona Alcaraz, the buyer, and to immediately
execute the Deed of Absolute Sale, while the buyer on her part, was
obliged to forthwith pay the balance of the purchase price amounting to
P1,190,000.00.

Jazzie Sarona

CONTRACT TO SELL (2001)

Arturo gave Richard a receipt which states:

Receipt Received from Richard as down payment for my

1995 Toyota Corolla with plate No. XYZ-1 23.............P50.000.00

Balance payable: 12/30/01........ P50 000.00

September 15, 2001.

(Sgd.) Arturo
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JUSTIN RYAN MORILLA
 PERFECTION
Being a consensual contract, Article 1475 of the Civil Code provides
that the sale is perfected at the moment there is a “meeting of
minds” upon the thing which is the object of the contract and
upon the price.
Article 1319. Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer. Acceptance made by letter or telegram does not
bind the offerer except from the time it came to his knowledge.
The contract, in such a case, is presumed to have been entered
into in the place where the offer was made. (1262a)
In the Law on Sales, WHAT MAKES AN OFFER ―CERTAIN‖ is when
it is fl oated by the offeror having within its terms the description of the
subject matter that has all three requisites of ―possible thing,‖ licit, and
determinate or at least determinable; and with a price that has the
requisites of being real, money or its equivalent (i.e., constitute
valuable consideration), and must be certain or at least ascertainable,
including on the terms of payment thereof.
Clarifying the extent by which ACCEPTANCE MUST BE ABSOLUTE,
Beaumont v. Prieto, held that promises are binding when and so long
as they are accepted in the exact terms in which they are made,
and that it would not be legally proper to modify the conditions imposed
by the offeror without his consent.
 In DBP v. Ong, the Court held that placing the word
―Noted‖ and signing such note at the bottom of the
written offer cannot be considered an acceptance that
would give rise to a valid sale
 LIMKETKAI SONS MILLING INC V CA - If buyer inquires if
it is possible to pay on credit terms the purchase price even
after there had already been an agreement to pay in cash,
there was already a perfected contract between the seller
and the buyer despite the inquiry.
 URUCA V CA - From the moment of acceptance of the
original offer of the sellers by the buyers, there arose a valid
and binding contract of sale since undisputedly, the
contractual elements of consent, object certain and cause
occurred. The subsequent bargaining for an increase in price
did not result into a novation since there was no final
agreement nor was there a resulting new contract
Although the acceptance may not be absolute, in that it contains
certain deviations or amendments to the offer, such acceptance is
binding and gives rise to a valid contract of sale when the deviations
are NOT MATERIAL AT ALL.
QUALIFIED ACCEPTANCE is merely a counter-offer which in turn
must be absolutely accepted to give rise to a valid and binding
contract
 If A is selling his property for P 5M and B is willing to pay P
4M for it, there is no meeting of the minds. The counter-
offer has to be accepted by the seller before we can say
that there is a meeting of the minds
ACCEPTANCE MAY BE EXPRESS OR IMPLIED
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JUSTIN RYAN MORILLA
ACCEPTANCE BY LETTER / TELEGRAM – becomes effective from
the time acceptance comes to the knowledge of offeror
 If you sell your laptop for P 60T and buyer will inform you,
through e-mail that he will buy it for P60T, there is perfection
if you get the acceptance of the buyer. If you did not open
your inbox to read the buyer‘s acceptance, there is no
perfection of the contract of sale.
ACCEPTANCE SUBJECT TO SUSPENSIVE CONDITION
Even when there is a meeting of minds as to the subject matter and
the price, there is deemed to be no perfected sale, if the sale is subject
to suspensive condition.
 People‘s Homesite & Housing Corp. v. Court of Appeals,
held that there can be no perfected sale of a subdivision lot
where the award thereof was expressly made subject to
approval by higher authorities and there eventually was
no acceptance manifested by the supposed awardee.
ACCEPTANCE IN AUCTION SALES
A sale by auction is perfected when the auctioneer announces its
perfection by the fall of the hammer, or in other customary manner.
Until such announcement is made, any bidder may retract his bid, and
the auctioneer may withdraw the goods from the sale, unless the
auction has been announced to be without reserve.
EARNEST MONEY
EARNEST MONEY – considered part of the price and proof of the
perfection of a contract
EARNEST MONEY OPTION MONEY
Part of the purchase price Distinct and separate from the
purchase price
Presupposes perfected No perfected contract of sale yet
contract of sale
Buyer is bound to pay the Optioner is not required to pay
balance after the earnest money
is paid
Prima facie evidence of the Perfection of the option
perfected contract contract only
An EARNEST PAYMENT is a specific form of security deposit to
demonstrate an earnest of good faith about wanting to complete the
transaction. In ancient times, the earnest payment was called
variously an earnest penny, Aries penny, or God's silver (in Latin
Argentum Dei). It was either money or a valuable coin or token given
to bind a bargain, notably for the purchase or hiring of a servant.
WHAT IS THE TREATMENT OF EARNEST MONEY IN THE CIVIL
CODE?
Article 1482. Whenever earnest money is given in a contract of
sale, it shall be considered as part of the price and as proof of
the perfection of the contract. (1454a)
WHEN CAN YOU SAY THAT IT IS EARNEST AND NOT OPTION
CONTRACT? It depends.

If given during the negotiation stage, it is not earnest but mere
guaranty for buyer not to back out.
If given during the perfection stage, it is earnest money and
therefore, proof of the perfection of the contract.
If it is a means to reserve the property for the prospect of a future
transaction, the rules on option will apply.
ADELFA PROPERTIES VS CA
There are clear distinctions between earnest money and option
money, viz.:
(a) Earnest money is part of the purchase price, while option money is
the money given as a distinct consideration for an option contract;
(b) Earnest money is given only where there is already a sale, while
option money applies to a sale not yet perfected; and
(c) When earnest money is given, the buyer is bound to pay the
balance, while when the would-be buyer gives option money, he is not
required to buy.
ADDITIONAL DISTINCTIONS:
Earnest money is merely creates disputable presumption of the
contract of sale. In option, payment is evidence of a contract of
privilege to buy at a certain property at a certain price and for a
certain period.
 In Philippine National Bank v. Court of Appeals, the receipt
of ―earnest money‖ could not lead to the conclusion that
there was a valid and binding sale because of documentary
evidence showing that the parties entered into a contract to
sell, which is akin to a conditional sale where the effi cacy or
obligatory force of the vendor‘s obligation to transfer title is
subordinated to the happening of a future and uncertain
event, so that if the suspensive condition does not take
place, the parties would stand as if the conditional obligation
had never existed. The Court treated the initial deposit given
by the buyer to the sell in Philippine National Bank ―not
strictly as earnest money, but as part of the consideration to
[seller‘s] promise to reserve the subject property for the
[buyer].‖
Earnest Money can be recovered if there is stipulation. Option
Money, cannot be recovered unless stipulated.
The payment of Earnest Money would mean that it is partially
executed hence, statute of frauds will not apply while Option
Money as a consideration is not governed by Statute of frauds.
PERFECTED SALE; ACCEPTANCE OF EARNEST MONEY (2002)
Bert offers to buy Simeon‘s property under the following terms and
conditions: P1 million purchase price, 10% option money, the balance
payable in cash upon the clearance of the property of all illegal
occupants. The option money is promptly paid and Simeon clears the
property of illegal occupants in no time at all. However, when Bert
tenders payment of the balance and ask Simeon for the deed for
absolute sale, Simeon suddenly has a change of heart, claiming that
the deal is disadvantageous to him as he has found out that the
property can fetch three time the agreed purchase price. Bert seeks
specific performance but Simeon contends that he has merely given
Bert an option to buy and nothing more, and offers to return the option
money which Bert refuses to accept.
B. Will Bert‘s action for specific performance prosper? Explain. (4%)
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JUSTIN RYAN MORILLA
C. May Simeon justify his refusal to proceed with the sale by
the fact that the deal is financially disadvantageous to him?
Explain. (4%)
SUGGESTED ANSWER:
B. Bert‘s action for specific performance will prosper because there
was a binding agreement of sale, not just an option contract. The sale
was perfected upon acceptance by Simeon of 10% of the agreed price.
This amount is in really earnest money which, under Art. 1482, ―shall
be considered as part of the price and as proof of the perfection of the
contract.‖ (Topacio v. CA, 211 SCRA 291 [1992]; Villongco Realty v.
Bormaheco, 65 SCRA 352 [1975]).
C. Simeon cannot justify his refusal to proceed with the sale by the fact
that the deal is financially disadvantageous to him. Having made a bad
bargain is not a legal ground for pulling out a biding contract of sale, in
the absence of some actionable wrong by the other party (Vales v.
Villa, 35 Phil 769 [1916]), and no such wrong has been committed by
Bert.
BQ 2006:
Biong and Linda are spouses who own real property.
Ray prepared a deed of sale and a manager‘s check for P2M.
After receiving the P2M, Biong signed the deed of sale but Linda was
abroad
When Linda returned, she refused to sign since she changed her mind.
Linda filed a case to nullify the sale and for damages against
Ray
Will the case prosper?
ANSWER: Linda‘s case to annul the sale will not prosper since all the
elements of a perfected contract of sale are present.
When the couple‘s offer was accepted by Ray and the acceptance was
made known to the couple, there was already a perfected contract of
sale. Absent any ground to annul, Linda‘s action will not prosper.
BQ 2013:
Sergio is the registered owner of a 500-square meter land. His friend,
Marcelo, who has long been interested in the property, succeeded in
persuading Sergio to sell it to him. On June 2, 2012, they agreed on
the purchase price of P600,000 and that Sergio would give Marcelo up
to June 30, 2012 within which to raise the amount. Marcelo, in a light
tone usual between them, said that they should seal their agreement
through a case of Jack Daniels Black and P5,000 "pulutan" money
which he immediately handed to Sergio and which the latter accepted.
The friends then sat down and drank the first bottle from the case of
bourbon.
On June 15, 2013, Sergio learned of another buyer, Roberto, who was
offering P800,000 in ready cash for the land. When Roberto confirmed
that he could pay in cash as soon as Sergio could get the
documentation ready, Sergio decided to withdraw his offer to Marcelo,
hoping to just explain matters to his friend. Marcelo, however, objected
when the withdrawal was communicated to him, taking the position that
they have a firm and binding agreement that Sergio cannot simply walk
away from because he has an option to buy that is duly supported by a
duly accepted valuable consideration.
Does Marcelo have a cause of action against Sergio? (5%)
Can Sergio claim that whatever they might have agreed upon
cannot be enforced because any agreement relating to the sale of
real property must be supported by evidence in writing and they
never reduced their agreement to writing? (3%)
SUGGESTED ANSWER:
Yes, Marcelo has a cause of action against Sergio because there
existed an option to buy through the payment of pulutan money.
Applying Ang Yu case, Marcelo has a cause of action for damages.
Yes, Sergio can claim that whatever they might have agreed upon
cannot be enforced because any agreement relating to the sale of real
property must be supported by evidence in writing and they never
reduced their agreement to writing. The SOF provides that any sale of
real property or interest must be in writing to be enforceable.
Atty. Espejo‘s Answer:
Yes, Marcelo has a cause of action. There exists a perfected contract
of sale for the following reasons:
There is already a meeting of the minds. There was acceptance of the
thing and the cause which are to constitute the contract. The fact that
Marcelo is given a period is not the duration of the option to buy but the
period within which to pay the consideration of the contract itself.
Based on the facts, the parties sealed their agreement by the payment
of P5,000 pulutan money. It is submitted that this constitute earnest
money which is proof of the contract between the parties.
No, Sergio cannot claim that whatever they might have agreed upon
cannot be enforced because any agreement relating to the sale of real
property must be supported by evidence in writing. In effect, Sergio is
claiming that any sale of real property or interest therein must be in
writing to be enforceable. However, jurisprudence dictates that SOF
only applies to executory and not to executed or partially executed
contracts.
In this case, there is already payment which takes it out of the purview
of statute of frauds.
BQ 2012
Which of the following statements is correct?
a) Offers in interrelated contracts are perfected upon consent.
b) Offers in interrelated contracts require a single acceptance.
c) Business advertisements are definite offers that require
specific acceptance.
d) Advertisements for Bidders are only invitations to make
proposals and the advertiser is not bound to accept the
highest/lowest bidder, unless it appears otherwise.
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FORM OF SALES
Subject to the provision of statute of frauds, a contract of sale may be
made in writing, by word of mouth or partly in writing and party by word
of mouth or may be inferred from the conduct of the parties.
GENERAL RULE: No form required
EXCEPTIONS:
a) Statute of frauds (Art 1403 and 1405)
b) Sale of realty through agent
REQUIREMENT FOR PUBLIC INSTRUMENT FOR IMMOVABLES
UNDER ARTICLE 1358
Article 1358 of the Civil Code provides that ―acts and contracts which
have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property‖ must
appear in a public document; however, it specifically provides that
―sales of real property or an interest therein are governed by Articles
1403, No. 2, and 1405.‖
Despite the seemingly mandatory provisions of Article 1358, Dalion v.
Court of Appeals, held that the provisions thereof on the necessity of
public document are for purposes of convenience, not for validity
or enforceability. Thus, even documents enumerated under Article
1358 which are not found in a public instrument are still valid and
enforceable, and that the article merely grants a cause of action to
the party to the contract in a suit to sue to compel the other party
to have the document covering the contract, acknowledged
before a notary public.
WHEN FORM OF SALE AFFECTS ITS VALIDITY
1) The power to sell a piece of land or interest therein must be
in writing, otherwise, the sale thereof by the agent (even
when the sale itself is in writing) would be void;
Renewal or extension of said authority should also be in
writing (Rio v Yu Tec)
2) Sale of large cattle must be in writing, otherwise the sale
would be void; and no sale of large cattle shall be valid
unless the sale is registered with the municipal treasurer
who shall issue a certifi cate of transfer; and
3) Sale of land by ―non-muslim hill tribe cultural minorities all
throughout the Philippines‖ is void if not approved by the
National Commission on Indigenous Peoples (NCIP), which
took over the previous requisite of approval by the Provincial
Governor under Section 145 of Administrative Code of
Mindanao and Sulu.
STATUTE OF FRAUDS 1403(2)
ARTICLE 1403. The following contracts are unenforceable,
unless they are ratified:
(1) Those entered into in the name of another person by
one who has been given no authority or legal representation, or
who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the
same, or some note or memorandum, thereof, be in writing, and
subscribed by the party charged, or by his agent; evidence,
therefore, of the agreement cannot be received without the
writing, or a secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed within a
year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or
the evidences, or some of them, of such things in action or
pay at the time some part of the purchase money; but when a
sale is made by auction and entry is made by the auctioneer
in his sales book, at the time of the sale, of the amount and
kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it
is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one year,
or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving
consent to a contract.
ARTICLE 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of Article 1403, are ratified by the failure to
object to the presentation of oral evidence to prove the same, or
by the acceptance of benefit under them.
The term “Statute of Frauds” is descriptive of the statutes which require
certain classes of contracts, such as agreements for the sale of real
property, to be in writing, the purpose being to prevent fraud and
perjury in the enforcement of obligations depending for their evidence
on the unassisted memory of witnesses by requiring certain
enumerated contracts and transactions to be evidenced by a writing
signed by the party to be charged. The written note or memorandum,
as contemplated by Article 1403 of the Civil Code, should embody the
essentials of the contract.
UNENFORCEABLE unless in writing:
1) Sale agreement which is not to be performed within 1 year
from making of agreement
2) Agreement for sale of goods, chattels or movables valued at
P500 or more
3) Sale of real property or any interest therein
EXCEPTIONS TO COVERAGE OF STATUTE
IN SALES CONTRACTS
1) When there is a note or memorandum thereof in writing, and
subscribed by the party charged or his agent
2) When there has been partial consummation of the sale;
3) When there has been a failure to object to the presentation
of evidence aliunde as to the existence of a contract; and
4) When sales are effected through electronic commerce.
Article 1878. SPECIAL POWERS OF ATTORNEY are necessary in
the following cases:
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To make such payments as are not usually considered as acts of
administration;
To effect novations which put an end to obligations already in
existence at the time the agency was constituted;
To compromise, to submit questions to arbitration, to renounce
the right to appeal from a judgment, to waive objections to the
venue of an action or to abandon a prescription already acquired;
To waive any obligation gratuitously;
To enter into any contract by which the ownership of an
immovable is transmitted or acquired either gratuitously or for a
valuable consideration;
To make gifts, except customary ones for charity or those made
to employees in the business managed by the agent;
To loan or borrow money, unless the latter act be urgent and
indispensable for the preservation of the things which are under
administration;
To lease any real property to another person for more than one
year;
To bind the principal to render some service without
compensation;
To bind the principal in a contract of partnership;
To obligate the principal as a guarantor or surety;
To create or convey real rights over immovable property;
To accept or repudiate an inheritance;
To ratify or recognize obligations contracted before the agency;
Any other act of strict dominion. (n)
YOSHIZAKI VS JOY TRAINING CENTER OF AURORA
As a general rule, a contract of agency may be oral. However, it
must be written when the law requires a specific form. Specifically,
Article 1874 of the Civil Code provides that the contract of agency must
be written for the validity of the sale of a piece of land or any interest
therein. Otherwise, the sale shall be void. A related provision, Article
1878 of the Civil Code, states that special powers of attorney are
necessary to convey real rights over immovable properties.
The special power of attorney mandated by law must be one that
expressly mentions a sale or that includes a sale as a necessary
ingredient of the authorized act. We unequivocably declared in Cosmic
Lumber Corporation v. Court of Appeals that a special power of
attorney must express the powers of the agent in clear and
unmistakable language for the principal to confer the right upon an
agent to sell real estate. When there is any reasonable doubt that the
language so used conveys such power, no such construction shall be
given the document. The purpose of the law in requiring a special
power of attorney in the disposition of immovable property is to protect
the interest of an unsuspecting owner from being prejudiced by the
unwarranted act of another and to caution the buyer to assure himself
of the specific authorization of the putative agent.
BQ 2012: Which of the following contracts is void?
a) An oral sale of a parcel of land.
b) A sale of land by an agent in a public instrument where
his authority from the principal is oral.
c) A donation of a wrist watch worth P 4,500.00.
d) A relatively simulated contract.
Which of the following contracts of sale is void?
CONSUMMATION and
a) Sale of EGM‘s car by KRP, EGM‘s agent, whose authority is
not reduced into writing. PERFORMANCE
b) Sale of EGM‘s piece of land by KRP, EGM‘s agent,whose
authority is not reduced into writing.  Obligations of the Seller
c) Sale of EGM‘s car by KRP, a person stranger to EGM,
 Obligations of the Buyer
without EGM‘s consent or authority.
 Double Sales
d) Sale of EGM‘s piece of land by KRP, a person stranger to
EGM, without EGM‘s consent or authority.  Sale by non-owner
 Sale by one having voidable title
Aligada orally offered to sell his two-hectare rice land to Balane for P
10Million. The offer was orally accepted. By agreement, the land was OBLIGATIONS OF THE SELLER
to be delivered (through execution of a notarized Deed of Sale) and
the price was to be paid exactly one-month from their oral agreement.  Preserve the thing (1163)
Which statement is most accurate?  Deliver the subject matter
 Warrant the subject matter
a) If Aligada refuses to deliver the land on the agreed date  Pay expenses with regard to execution of contract
despite payment by Balane, the latter may not successfully unless otherwise agreed upon
sue Aligada because the contract is oral.
b) If Aligada refused to deliver the land, Balane may ARTICLE 1163. Every person obliged to give something is also
successfully sue for fulfillment of the obligation even if he obliged to take care of it with the proper diligence of a good
has not tendered payment of the purchase price. father of a family, unless the law or the stipulation of the parties
c) The contract between the parties is rescissible. requires another standard of care. (1094a)
d) The contract between the parties is subject to
ratification by the parties.
WHY DELIVER?

 Ownership is transferred to the buyer upon actual or

constructive delivery (1477)

 Ownership of SM is acquired by the vendee from the

moment it is delivered to him in any of the ways
specified in articles 1497-1501 (1496)

ARTICLE 1477. The ownership of the thing sold shall be

transferred to the vendee upon the actual or constructive delivery
thereof. (n)

ARTICLE 1496. The ownership of the thing sold is acquired by the

vendee from the moment it is delivered to him in any of the ways
specified in Articles 1497 to 1501, or in any other manner
signifying an agreement that the possession is transferred from
the vendor to the vendee. (n)

ARTICLE 1497. The thing sold shall be understood as delivered,

when it is placed in the control and possession of the vendee.
(1462a)

ARTICLE 1498. When the sale is made through a public

instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the
deed the contrary does not appear or cannot clearly be inferred.

With regard to movable property, its delivery may also be made

by the delivery of the keys of the place or depository where it is
stored or kept. (1463a)

ARTICLE 1499. The delivery of movable property may likewise be

made by the mere consent or agreement of the contracting
parties, if the thing sold cannot be transferred to the possession
of the vendee at the time of the sale, or if the latter already had it
in his possession for any other reason. (1463a)

ARTICLE 1500. There may also be tradition constitutum

possessorium. (n)

ARTICLE 1501. With respect to incorporeal property, the

provisions of the first paragraph of article 1498 shall govern. In
any other case wherein said provisions are not applicable, the
placing of the titles of ownership in the possession of the vendee

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or the use by the vendee of his rights, with the vendor's consent,
shall be understood as a delivery. (1464)
Delivered but no transfer of ownership? 1478 – parties may
stipulate that ownership shall not pass to the buyer until he has fully
paid
Article 1478. The parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has fully paid the
price. (n)
TYPES OF DELIVERY
 PHYSICAL OR ACTUAL DELIVERY (1497) – when the SM
is placed in the possession and control of the vendee
 CONSTRUCTIVE DELIVERY - IMMOVABLES
o Sale through public instrument, execution of
instrument = delivery if the contrary does not
appear in the deed (1498)
 MUNICIPALITY OF VICTORIAS V. COURT OF APPEALS
held that the legal effects and consequences of actual or
physical delivery, also apply equally to constructive delivery
WHEN EXECUTION OF PUBLIC INSTRUMENT DOES NOT
PRODUCE EFFECTS OF DELIVERY
First, when in the execution of a public instrument, there is a stipulation
to the contrary. Phil. Suburban Dev. v. Auditor, held that such
express reservation or contrary inference would be present when:
a) A certain date is fi xed for the purchaser to take possession
of the property subject of the conveyance;
b) In case of sale by installments, it is stipulated that until the
last installment is made, the title to the property should
remain with the seller;
c) When the seller reserves the right to use and enjoy the
property until the gathering of the pending crops; or
d) Where the seller has no control over the thing sold at the
moment of the sale, and, therefore, its material delivery
could not have been made.
o Placing the title of ownership in vendee‘s
possession with vendor's consent (1501)
 CONSTRUCTIVE DELIVERY- MOVABLES
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REQUISITES
1) Seller must have control over the thing
2) Buyer is already in control and possession over the thing.
3) Intention of the parties
o Delivery of the keys or depository where it is
stored (1498)
o Tradition longa manu - delivery by consent of the
parties if SM cannot be transferred to buyer at the
time of sale or the buyer already had possession
before sale (1499)
 ADDISON V. FELIX - While it is true that symbolic
delivery will produce effect of tradition, its
necessary that vendor shall have control over the
thing at the moment of sale and that material
discovery could have been made.
 CONSTITUTUM POSSESSORIUM (Art. 1500) – A
provision in the deed of sale granting to seller a right to
lease the subject matter of the sale is valid: the
possession is deemed to be constituted in the vendee by
virtue of this mode of tradition.‖ Amigo v. Teves, 96 Phil.
252 (1954).
 TRADITIO BREVI MANU – Prior to the sale, petitioners
were in possession of the subject property as lessees.
Upon sale to them of the rights, interests and participation
as to the ½ portion pro indiviso, they remained in
possession, not in the concept of lessees anymore but
as owners now through symbolic delivery known as
traditio brevi manu. Heirs of Pedro Escanlar v. CA, 281
SCRA 176 (1997).
 Person to whom negotiable document of title has been
negotiated acquires the right of person to whom delivery
shall be made by the terms of the document (1513)
DY JR. V. CA - Even when thing is mortgaged, seller can still deliver
because naked title still belongs to him & can still do acts of ownership
including conveyance
DOCUMENTS OF TITLE
ARTICLE 1513. A person to whom a negotiable document of title
has been duly negotiated acquires thereby:
Such title to the goods as the person negotiating the document
to him had or had ability to convey to a purchaser in good faith
for value and also such title to the goods as the person to whose
order the goods were to be delivered by the terms of the
document had or had ability to convey to a purchaser in good
faith for value; and
The direct obligation of the bailee issuing the document to hold
possession of the goods for him according to the terms of the
document as fully as if such bailee had contracted directly with
him. (n)
Bill of lading, dock warrant, quedan, warehouse receipt or any
document used in the ordinary course of business in the sale or
transfer of goods as proof of possession and control or authorizing or
purporting to authorize the possessor of the document to transfer or
receive either by endorsement or delivery the goods covered by the
document (1636)
ARTICLE 1636. In the preceding articles in this Title governing the
sale of goods, unless the context or subject matter otherwise
requires:
"Document of title to goods" includes any bill of lading, dock
warrant, "quedan," or warehouse receipt or order for the delivery
of goods, or any other document used in the ordinary course of
business in the sale or transfer of goods, as proof of the
possession or control of the goods, or authorizing or purporting to
authorize the possessor of the document to transfer or receive,
either by endorsement or by delivery, goods represented by such
document.
"Goods" includes all chattels personal but not things in action or
money of legal tender in the Philippines. The term includes
growing fruits or crops.
"Order" relating to documents of title means an order by
endorsement on the documents.
"Quality of goods" includes their state or condition.
"Specific goods" means goods identified and agreed upon at the
time a contract of sale is made.
An antecedent or pre-existing claim, whether for money or not,
constitutes "value" where goods or documents of title are taken
either in satisfaction thereof or as security therefor.
A person is insolvent within the meaning of this Title who either
has ceased to pay his debts in the ordinary course of business or
cannot pay his debts as they become due, whether insolvency
proceedings have been commenced or not.
Goods are in a "deliverable state" within the meaning of this Title
when they are in such a state that the buyer would, under the
contract, be bound to take delivery of them. (n)
PURPOSES:
1) Evidence of control and possession or control of goods
described
2) Medium of transferring possession and control of goods
described without having to undertake actual delivery
TYPES OF DOCUMENTS OF TITLE
1) NEGOTIABLE – states that goods will be delivered to
bearer or to the order of one person
2) NON-NEGOTIABLE- does not state that the goods referred
to therein will be delivered to the bearer or the order of any
person
DEGAÑOS vs. PEOPLE
G.R. No. 162826
October 14, 2013
BERSAMIN, J.:
The text and tenor of the relevant Kasunduan at Katibayan follow:
KASUNDUAN AT KATIBAYAN
xxxx
Akong nakalagda sa ibaba nito ay nagpapatunay na tinanggap ko kay
Ginang LYDIA BORDADOR ng Calvario, Meycauayan, Bulacan ang
mga hiyas (jewelries) [sic] na natatala sa ibaba nito upang ipagbili ko
sa kapakanan ng nasabing Ginang. Ang pagbibilhan ko sa nasabing
mga hiyas ay aking ibibigay sa nasabing Ginang, sa loob ng
__________ araw at ang hindi mabili ay aking isasauli sa kanya sa
loob din ng nasabing taning na panahon sa mabuting kalagayan
katulad ng aking tanggapin. Ang bilang kabayaran o pabuya sa akin ay
ano mang halaga na aking mapalabis na mga halagang nakatala sa
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ibaba nito. Ako ay walang karapatang magpautang o kaya ay
magpalako sa ibang tao ng nasabing mga hiyas.
Based on the express terms and tenor of the Kasunduan at Katibayan ,
Degaños received and accepted the items under the obligation to sell
them in behalf of the complainants ("ang mga hiyas (jewelries) na
natatala sa ibaba nito upang ipagbili ko sa kapakanan ng nasabing
Ginang"), and he would be compensated with the overprice as his
commission ("Ang bilang kabayaran o pabuya sa akin ay ano mang
halaga na aking mapalabis na mga halagang nakatala sa ibaba nito.").
Plainly, the transaction was a consignment under the obligation to
account for the proceeds of sale, or to return the unsold items. As
such, he was the agent of the complainants in the sale to others of the
items listed in the Kasunduan at Katibayan.
In contrast, according the first paragraph of Article 1458 of the Civil
Code, one of the contracting parties in a contract of sale obligates
himself to transfer the ownership of and to deliver a determinate thing,
while the other party obligates himself to pay therefor a price certain in
money or its equivalent. Contrary to the contention of Degaños, there
was no sale on credit to him because the ownership of the items did
not pass to him.
Although the novation of a contract of agency to make it one of sale
may relieve an offender from an incipient criminal liability, that did not
happen here, for the partial payments and the proposal to pay the
balance the accused made during the barangay proceedings were not
at all incompatible with Degafios liability under the agency that had
already attached. Rather than converting the agency to sale, therefore,
he even thereby confirmed his liability as the sales agent of the
complainants.
DELIVERY THROUGH CARRIER
1523 - Delivery of goods to the carrier is deemed delivery of goods to
the buyer
ARTICLE 1523. Where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the buyer or
not, for the purpose of transmission to the buyer is deemed to be
a delivery of the goods to the buyer, except in the case provided
for in Article 1503, first, second and third paragraphs, or unless a
contrary intent appears.
Unless otherwise authorized by the buyer, the seller must make
such contract with the carrier on behalf of the buyer as may be
reasonable, having regard to the nature of the goods and the
other circumstances of the case. If the seller omit so to do, and
the goods are lost or damaged in course of transit, the buyer
may decline to treat the delivery to the carrier as a delivery to
himself, or may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent by the seller to
the buyer under circumstances in which the seller knows or
ought to know that it is usual to insure, the seller must give such
notice to the buyer as may enable him to insure them during their
transit, and, if the seller fails to do so, the goods shall be deemed
to be at his risk during such transit. (n)
 F.A.S. SALES - seller pays all charges and is subject to all
risks until the goods are places alongside the vessel
 F.O.B. SALES - ―free on board‖ seller shall bear all
expenses until the goods are delivered whether at the point
of shipment or the point of destination
 C.I.F. SALES - ―cost, insurance & freight‖ price covers cost
of goods and freight and insurance costs paid by the seller
 ACCESSORY OBLIGATIONS
 Delivery of the fruits
Article 1537. The vendor is bound to deliver the thing sold and its
accessions and accessories in the condition in which they were
upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the
contract was perfected. (1468a)
Article 1164. The creditor has a right to the fruits of the thing from
the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered to
him. (1095)
 Warranty of the thing sold
Express Warranty
Article 1546. Any affirmation of fact or any promise by the seller
relating to the thing is an express warranty if the natural
tendency of such affirmation or promise is to induce the buyer to
purchase the same, and if the buyer purchases the thing relying
thereon. No affirmation of the value of the thing, nor any
statement purporting to be a statement of the seller's opinion
only, shall be construed as a warranty, unless the seller made
such affirmation or statement as an expert and it was relied upon
by the buyer. (n)
Implied Warranties
1) Warranty that the seller has the right to sell.
Warranty against eviction
2) Warranty against non-apparent servitudes
3) Warrant against hidden defects
4) Warrant as to fitness and quality
Article 1547. In a contract of sale, unless a contrary intention
appears, there is:
(1) An implied warranty on the part of the seller that he has a right
to sell the thing at the time when the ownership is to pass, and
that the buyer shall from that time have and enjoy the legal and
peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any
hidden faults or defects, or any charge or encumbrance not
declared or known to the buyer.
This article shall not, however, be held to render liable a sheriff,
auctioneer, mortgagee, pledgee, or other person professing to
sell by virtue of authority in fact or law, for the sale of a thing in
which a third person has a legal or equitable interest. (n)
 Buyer is Evicted in whole or in part from the subject matter of
sale
 Final Judgment
 Basis of eviction is a right Prior to sale or act imputable to
seller
 Seller has been Summoned in the suit for eviction at the
instance of buyer; or made 3rd party defendant through 3rd
party complaint brought by buyer
 No waiver on the part of the buyer Note: For eviction –
disturbance in law is required and not just trespass in fact.
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WARRANTY AGAINST EVICTION
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.
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.(Escaler v CA 138 SCRA 1)
WARRANTY AGAINST HIDDEN DEFECTS (ARTS. 1561-1580)
Article 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)
Article 1566. 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. (1485)
REMEDY
WHAT‘S YOUR REMEDY IF THERE‘S A VIOLATION?
2 remedies: The vendee may elect between
1) Withdrawing from the contract and
2) Demanding a proportionate reduction of the price with
damages in either case
Rescission or an action quanti minoris
ACTION QUANTI MINORIS
Article 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. (1486a)
WARRANTY FOR REDHIBITORY DEFECTS
Article 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. (1495)
REDHIBITORY does not refer to the defect but it refers to the nature
of the remedy given by law.
 OBLIGATIONS OF THE BUYER
1) Pay price of thing sold (1582)
2) Accept delivery of thing sold (1582-1585)
3) Pay expenses of delivery
ARTICLE 1582. The vendee is bound to accept delivery and to
pay the price of the thing sold at the time and place stipulated in
the contract.
If the time and place should not have been stipulated, the
payment must be made at the time and place of the delivery of
the thing sold. (1500a)
ARTICLE 1583. Unless otherwise agreed, the buyer of goods is
not bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by
stated installments, which are to be separately paid for, and the
seller makes defective deliveries in respect of one or more
instalments, or the buyer neglects or refuses without just cause
to take delivery of or pay for one more instalments, it depends in
each case on the terms of the contract and the circumstances of
the case, whether the breach of contract is so material as to
justify the injured party in refusing to proceed further and suing
for damages for breach of the entire contract, or whether the
breach is severable, giving rise to a claim for compensation but
not to a right to treat the whole contract as broken. (n)
ARTICLE 1584. Where goods are delivered to the buyer, which he
has not previously examined, he is not deemed to have accepted
them unless and until he has had a reasonable opportunity of
examining them for the purpose of ascertaining whether they are
in conformity with the contract if there is no stipulation to the
contrary.
Unless otherwise agreed, when the seller tenders delivery of
goods to the buyer, he is bound, on request, to afford the buyer a
reasonable opportunity of examining the goods for the purpose
of ascertaining whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in
accordance with an order from or agreement with the buyer,
upon the terms that the goods shall not be delivered by the
carrier to the buyer until he has paid the price, whether such
terms are indicated by marking the goods with the words "collect
on delivery," or otherwise, the buyer is not entitled to examine
the goods before the payment of the price, in the absence of
agreement or usage of trade permitting such examination. (n)
ARTICLE 1585. The buyer is deemed to have accepted the goods
when he intimates to the seller that he has accepted them, or
when the goods have been delivered to him, and he does any act
in relation to them which is inconsistent with the ownership of
the seller, or when, after the lapse of a reasonable time, he
retains the goods without intimating to the seller that he has
rejected them. (n)
DOUBLE SALES
ELEMENTS:
1) 2 or more sales must be valid sales
2) 2 or more sales must pertain to exactly the same subject
3) 2 buyers must each represent conflicting interests
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4) 2 buyers must each have bought from the very same
seller
Article 1544. If the same thing should have been sold to different
vendees, the ownership shall be transferred to the person who
may have first taken possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall belong to
the person acquiring it who in good faith first recorded it in the
Registry of Property.
Should there be no inscription, the ownership shall pertain to the
person who in good faith was first in the possession; and, in the
absence thereof, to the person who presents the oldest
title, provided there is good faith. (1473)
 Primus tempore, potior jure. First in time, stronger in right.
―POSSESSOR IN GOOD FAITH‖ - one who is not aware that there
exists in his title or mode of acquisition any flaw which invalidates it; no
knowledge of facts which should have put him upon such inquiry or
investigation as might be necessary to acquaint him with the defects in
the title of his vendor
BQ DOUBLE SALES (2001)
On June 15, 1995, Jesus sold a parcel of registered land to Jaime. On
June 30, 1995, he sold the same land to Jose.
Who has a better right if:
the first sale is registered ahead of the second sale, with knowledge of
the latter. Why? (3%)
The second sale is registered ahead of the first sale, with knowledge of
the latter? Why? (5%)
SUGGESTED ANSWER:
(a) The first buyer has the better right if his sale was first to be
registered, even though the first buyer knew of the second sale. The
fact that he knew of the second sale at the time of his registration does
not make him as acting in bad faith because the sale to him was ahead
in time, hence, has a priority in right. What creates bad faith in the case
of double sale of land is knowledge of a previous sale.
b) The first buyer is still to be preferred, where the second (2) years, or
until 3 June 1973. It is further stated therein sale is registered ahead of
the first sale but with knowledge of the latter. This is because the
second buyer, who at the time he registered his sale knew that the
property had already been sold to someone else, acted in bad faith.
(Article 1544, C.C.)
DOUBLE SALES (2004)
JV, owner of a parcel of land, sold it to PP. But the deed of sale was
not registered. One year later, JV sold the parcel again to RR, who
succeeded to register the deed and to obtain a transfer certificate of
title over the property in his own name. Who has a better right over the
parcel of land, RR or PP? Why?
Explain the legal basis for your answer. (5%)
SUGGESTED ANSWER:
It depends on whether or not RR is an innocent purchaser for value.
Under the Torrens System, a deed or instrument operated only as a Under PD 1529
contract between the parties and as evidence of authority to the
Register of Deeds to make the registration. It is the registration of the Section 113. Recording of instruments relating to unregistered
deed or the instrument that is the operative act that conveys or affects lands. No deed, conveyance, mortgage, lease, or other voluntary
the land. (Sec. 51, P.D. No. 1529). instrument affecting land not registered under the Torrens system shall
be valid, except as between the parties thereto, unless such instrument
In cases of double sale of titled land, it is a well-settled rule that the shall have been recorded in the manner herein prescribed in the office
buyer who first registers the sale in good faith acquires a better right to of the Register of Deeds for the province or city where the land lies.
the land. (Art. 1544, Civil Code).
As an exception to Article 1544, in sales of unregistered land, there
Persons dealing with property covered by Torrens title are not required must be recording for you to get preference.
to go beyond what appears on its face. (Mirror Principle) (Orquiola v.
CA 386, SCRA 301, [2002]; Domingo v. Races 401 SCRA 197,
[2003]). Thus, absent any showing that RR knew about, or ought to
have known the prior sale of the land to PP or that he acted in bad
faith, and being first to register the sale, RR acquired a good and a
clean title to the property as against PP.
APPLICABILITY OF RULES ON DOUBLE SALES TO CONTRACTS
Take note in order for article 1544 to apply: TO SELL AND ADVERSE CLAIMS

 Both conveyances must be sales. It does not apply if
one is a mortgage and the other is a sale.
Example: A sold the land to B. After the sale, A mortgaged the land to
C. C with knowledge of the sale, registers the mortgage. Who is
preferred? Again, it‘s not 1544 because there is a mortgage
subsequent to the sale. A is preferred even if C registers the mortgage.
It is not a double sale under Article 1544 and it will not give C any
preference. 2nd when A mortgage the property, he was no longer the
owner. C‘s knowledge of the prior sale makes him a mortgagee in bad
faith.
Since the rules on double sales are rules pertaining to tradition at
consummation stage, they have no application when the covered
valid contracts are not yet demandable sales, such as when one
or both the contracts in dispute are contracts to sell.
MENDOZA V. KALAW - rules on double sales under the then Article
1473 of the old Civil Code were not applicable on the ground that there
was no double sales situation since the first sale was a conditional sale

 Both must purport to convey the same subject matter to

different vendees in a way that delivery to one of them is
impossible.

Example: On January 14, A sold his car a retro to B. They stipulated

that the right to repurchase can be exercised within 1 year from the
date of sale. A then sold the same to C, stipulating that the delivery
can be made within 1 month. Is there a double sale? SALE BY ONE WHO IS NOT AN OWNER

NO because there is still a chance that A can deliver the car to B. Nemo dat quod non habet, literally meaning "no one gives what he
Delivery to B is not impossible thus there is no double sale. doesn't have‖

The principle to remember is if delivery is impossible to both
transaction, delivery to one of them is impossible because of the
double sales transactions, then article 1544 applies.
 Both contract must be valid sales where it not for the
fact that there had been a double sale.
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.

X was the owner of an unregistered parcel of land in Cabanatuan City.
As she was abroad, she advised her sister Y via overseas call to sell
the land and sign a contract of sale on her behalf.
Y thus sold the land to B1 on March 31, 2001 and executed a deed of
absolute sale on behalf of X. B1 fully paid the purchase price.
Nothing in this Title, however, shall affect:
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;

B2, unaware of the sale of the land to B1, signified to Y his interest to The validity of any contract of sale under statutory power of sale
buy it but asked Y for her authority from X. Without informing X that or under the order of a court of competent jurisdiction;
she had sold the land to B1, Y sought X for a written authority to sell.
Purchases made in a merchant's store, or in fairs, or markets, in
X e-mailed Y an authority to sell the land. Y thereafter sold the land on
May 1, 2001 to B2 on monthly installment basis for two years, the first accordance with the Code of Commerce and special laws. (n)
installment to be paid at the end of May 2001.
WHAT IS THE EFFECT? The buyer acquires no title therefrom. So
Who between B1 and B2 has a better right over the land? Explain. if you are a buyer, as a general rule, you merely step in the shoes of
(5%) your immediate transferor. If your transferor has a voidable title, you
cannot acquire higher rights except in land titles where sometimes,
Answer: Neither sale is valid. Subject matter here is unregistered land. sale by non-owner can lead to a valid title.
Sale of unregistered land must appear in public instrument. Also,
the authority of an agent to sell must be in writing. Status of contract here is VOID
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SALE BY CO-OWNER OF THE WHOLE PROPERTY
OR DEFINITE PORTION THEREOF
The rule in co-ownership is that none of the co-owners may claim any
right, title or interest to a particular portion of the thing owned in
common. A co-owner has no right to sell a divided part of the real
estate; although he is the owner of an undivided half of a tract of land,
he has a right to sell and convey an undivided half, but he has no right
to divide the lot into two parts, and convey the whole of one part by
metes and bounds.
The general rule on the effect of the sale of the entire property owned
in common by one of the co-owners, to be void as a sale of the whole
property or any defi nite portion thereof (i.e., to validly effect transfer of
ownership), but valid as to the co-owner-seller‘s spiritual share, is
subject to a number of exceptions:
EDC V SAMSON
OCTOBER 2014
EXCEPTIONS TO RULE ON EFFECT OF SALE OF DEFINITE
PORTION BY CO-OWNER
1) It does not apply to a situation where the subject matter is
indivisible in nature or by intent.
 In MINDANAO ACADEMY, INC. V. YAP, where one of the
co-owners sold the school and its properties owned in
common with other co-owners, the Court held that the sale
of the entire property owned in common by one of the co-
owners was ―void,‖ and could not even be binding as to the
spiritual share of the seller since the prestation involved in
the sale was indivisible, and therefore incapable of partial
annulment, inasmuch as the buyer would not have entered
into the transaction except to acquire all of the properties
purchased by him.
2) When a sale of a particular portion of the thing owned in
common is with the consent of the other co-owners, the legal
effect is different.
 In PAMPLONA V. MORETO, the Court held that when there
has been no express partition of the subject matter owned in
common, but the co-owners who sells points out to his
buyers the boundaries of the part he was selling, and the
other co-owners make no objection, there is in effect already
a partial partition, and the sale of the defi nite portion can no
longer be assailed by the other co-owners.
3) Thirdly, in IMPERIAL V. COURT OF APPEALS,it was held
that a co-owner who sells one of the two lands owned in
common with another co-owner, and does not turn-over one-
half of the proceeds of the sale to the other co-owner, the
latter by law and equity may lay exclusive claim to the
remaining parcel of land.
4) Fourthly, would be the effect of the ipso jure transfer of
ownership under Article 1434 of the Civil Code. In PISUEÑA
V. HEIRS OF PETRA UNATING, the Court held that when
co-heirs sell and deliver the entire lot owned in common with
their father who was still alive at that time, and subsequently
the father dies, then the buyer becomes the owner of the
entire property bought pursuant to the provisons of Article
1434 of the Civil Code which upholds the validity of a sale by
one who previously did not have, but who subsequently
acquired, title to the property sold.
5) Finally, would be the binding effect of registration under the
Torrens System.
 CRUZ V. LEIS held that although a co-owner may validly sell
only her co-ownership interests, and that the sale of the
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JUSTIN RYAN MORILLA
entire property or of a particular portion thereof is void,
nevertheless, when Torrens title to the conjugal property
indicates that the wife is the only owner thereof being
described as a ―widow,‖ then one who buys such property
from the wife in good faith and for value, will acquire valid
title thereto against the heirs of the deceased spouse:
Although Article 1505 provides that where goods are sold by a person
who is not the owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer acquires no better
title to the goods than the seller had, it also provides for the following
EXCEPTIONS:
1) When the owner is precluded from denying title the sellers
authority on account of his action. There is estoppel.
2) When the contrary is provided for in recording clause (under
the Torrens system). There are cases under the Torrens
system where unlawful deprivation/forgery can be a source
of valid title for innocent purchaser for value and in good
faith.
3) When sale is made under statutory or order of the court such
as foreclosure sale.
4) When the sale is made in Merchant‘s store. But this should
not relieve the Merchant‘s from liability under fencing laws.
Other exceptions to the main principle enunciated under Article 1505
would be the following:
5) Under Article 1506, the sale by a seller who at the time of
delivery had voidable title to the thing delivered;
6) In case of movables, under Article 559, acquisition of
possession in good faith under a claim of ownership, where
the real owner has not lost or been unlawfully deprived of the
movable, makes the possessor the rightful owner of the
movable; and
7) Special rights of an unpaid seller of goods to resell under
Articles 1526 and 1533 of the Civil Code.
RULE ON IRREIVINDICABILITY
Article 559. The possession of movable property acquired in good
faith is equivalent to a title. Nevertheless, one who has lost any
movable or has been unlawfully deprived thereof, may recover it
from the person in possession of the same.
If the possessor of a movable lost or which the owner has been
unlawfully deprived, has acquired it in good faith at a public sale,
the owner cannot obtain its return without reimbursing the price
paid therefor. (464a)
In EDCA PUBLISHING & DISTRIBUTING CORP. V. SANTOS an
impostor identifying himself as a professor obtained delivery of books
from EDCA and for which he issued a check that subsequently
bounced. The impostor sold the books to Santos, who bought them in
good faith and for value. In the resulting suit over the books between
EDCA and Santos, the Court held that Santos did not have to establish
his ownership over the books since under Article 559 his possession of
books acquired in good faith is equivalent to title. In denying the
contention of EDCA that it had been ―unlawfully deprived‖ of the books,
the Court held non-payment of the purchase price by the impostor,
although amounting to fraud, did not amount to unlawful deprivation
under Article 559, but merely may be considered vitiation of consent as
to make the contract voidable; but that so long as the contract has not
been annulled, it remained valid, and the subsequent sale and delivery
by the impostor of the books to Santos effectively transferred
ownership to Santos.
 AZNAR VS YAPDIANGCO
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.
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.
Since there was theft, article 559 applies because there is unlawful
deprivation.
Example:
A, a non-owner sells the thing and delivers to buyer. Later, A becomes
the owner.
Effect: title automatically passes to the buyer although the sale
previously not valid is in effect validated.
TRANSFER OF OWNERSHIP; NON-PAYMENT OF THE PRICE
(1991)
Pablo sold his car to Alfonso who issued a postdated check in full
payment therefor. Before the maturity of the check, Alfonso sold the
car to Gregorio who later sold it to Gabriel. When presented for
payment, the check issued by Alfonso was dishonored by the drawee
bank for the reason that he, Alfonso, had already closed his account
even before he issued his check. Pablo sued to recover the car from
Gabriel alleging that he (Pablo) had been unlawfully deprived of it by
reason of Alfonso's deception. Will the suit prosper?
SUGGESTED ANSWER: No. The suit will not prosper because Pablo
was not unlawfully deprived of the car although he was unlawfully
deprived of the price. The perfection of the sale and the delivery of the
car was enough to allow Alfonso to have a right of ownership over the
car, which can be lawfully transferred to Gregorio. Art. 559 applies only
to a person who is in possession in good faith of the property, and not
to the owner thereof. Alfonso, in the problem, was the owner, and,
hence, Gabriel acquired the title to the car. Non-payment of the price in
a contract of sale does not render ineffective the obligation to deliver.
The obligation to deliver a thing is different from the obligation to pay
its price. EDCA Publishing Co. v. Santos (1990)
2005 BQ: Rod, the owner of an FX taxi, found in his vehicle an
envelope containing TCT No. 65432 over a lot registered in Cesar's
name. Posing as Cesar, Rod forged Cesar's signature on a Deed of
Sale in Rod's favor. Rod registered the said document with the
Register of Deeds, and obtained a new title in his name. After a year,
he sold the lot to Don, a buyer in good faith and for value, who also
registered the lot in his name.
a) Did Rod acquire title to the land? Explain. (2%)
SUGGESTED ANSWER: No, Rod did not acquire title to the land. The
inscription in the registry, to be effective, must be made in good
faith. The defense of indefeasibility of a Torrens Title does not
extend to a transferee who takes the certificate of title with notice
of a flaw. A holder in bad faith of a certificate of title is not entitled
to the protection of the law, for the law cannot be used as a shield
for frauds. (Samonte v. Court of Appeals, G.R. No. 104223, July 12,
2001)
In the case at bar, Rod only forged Cesar's signature on the -Deed of
Sale. It is very apparent that there was bad faith on the part of Rod
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JUSTIN RYAN MORILLA
from the very beginning. As such, he is not entitled to the protection of
the Land Registration Act.
b) Discuss the rights of Don, if any, over the property. (2%)
SUGGESTED ANSWER: It is a well-known rule in this jurisdiction that
persons dealing with registered land have the legal right to rely
on the face of the Torrens Certificate of Title and to dispense with
the need to inquire further, except when the party concerned has
actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry. (Naawan
Community Rural Bank v. Court of Appeals, G.R. No. 128573, January
13, 2003)
In the given problem, the property was already registered in the name
of Rod when he bought the same from the latter. Thus, Don could be
considered as a buyer in good faith and for value. However, since Rod
did not actually sell any property to him, Don has no right to retain
ownership over the property. He has only the right to recover the
purchase price plus damages.
2009 BQ: Before migrating to Canada in 1992, the spouses Teodoro
and Anita entrusted all their legal papers and documents to their
nephew, Atty. Tan. Taking advantage of the situation, Atty. Tan forged
a deed of sale, making it appear that he had bought the couple‘s
property in Quezon City. In 2000, he succeeded in obtaining a TCT
over the property in his name. Subsequently, Atty. Tan sold the same
property to Luis, who built an auto repair shop on the property. In 2004,
Luis registered the deed of conveyance, and title over the property was
transferred in his name.
In 2006, the spouses Teodoro and Anita came to the Philippines for a
visit and discovered what had happened to their property. They
immediately hire you as lawyer. What action or actions will you institute
in order to vindicate their rights? Explain fully. (4%)
Answer: Atty. Tan did not acquire title because he forged the
signature of the real owner. Since the vendor is a non owner, Luis did
not acquire title to the land despite his registration. He acquires no
better title than the non owner who sold the lot to him.
SELLER HAS VOIDABLE TITLE
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. (n)
ELEMENTS (1506)
1) Seller has a voidable title
2) Title has not been avoided at the time of the sale
What does ―time of the sale‖ mean? The phrase means at the time
of the delivery of the subject matter since it is the fact of DELIVERY
which transfers ownership
3) 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
―It is delivery as a consequence of contracts that transfers
ownership not the contract itself.‖
SCENARIO 1
 A and B already agreed on a sale
 A has voidable title, B does not know about it
 A‘s title is annulled after perfection but BEFORE delivery
  B does not obtain good title over the thing because during
the transfer of ownership, the title of the seller has already
been avoided; even if it was annulled only after perfection
SCENARIO 2
 A and B already agreed on a sale
 A has voidable title, B does not know about it
 Annulment takes place after perfection and AFTER delivery
 B obtains good title over the thing as long as he is an
innocent purchaser for value
INNOCENT PURCHASER FOR VALUE
 One who buys property of another,
 Without notice that some other person has a right to, or an
interest in such property
 pays a full and fair price for the same at the time of such
purchase, or before he has notice of the claim or interest of
some other person in the property
TAGACTAC VS. JIMENEZ
FACTS: Tagactac sold the car to Feist, who sold it to Sanchez, who
sold it to Jimenez. Feist failed to pay, so Tagactac wants to recover the
vehicle from Jimenez on the ground that she had been unlawfully
deprived of it by reason of Feist‘s deception.
HELD: No unlawful deprivation since there was delivery
The point of inquiry is whether plaintiff-appellant Trinidad C. Tagactac
has been unlawfully deprived of her car. At first blush, it would seem
that she was unlawfully deprived thereof, considering that she was
induced to part with it by reason of the chicanery practiced on her by
Feist. Certainly, swindling, like robber is an illegal method of
deprivation of property. In a manner of speaking, plaintiff-appellant was
"illegally deprived' of her car, for the way by which Feist induced her to
part with it is illegal and punishable by law. But does this ―unlawful
deprivation‖ come within the scope of Article 559 of the New Civil
Code?
The fraud and deceit practiced by Feist earmarks this sale as a
voidable contract (Art 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 (Art 1392) and the contract is cleansed from all
its defects (Article 1396, NCC); if the contract is annulled, the
contracting parties are restored to their respective situations before the
contract and mutual restitution follows as a consequence (Art 1398).
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 Tagactac 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 his title was
avoided and he therefore conferred 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 (Art 1506).
BQ 1998:
A sold car to B
B paid by using a falsified check
B registered the sale with LTO
B sold the car to C who knew nothing about the check
ANSWER: A can recover from C only when the court annuls the sale
between B and C.
In this case, B had a voidable title which was not yet annulled at the
time C purchased the car. C acquired the car for value, in good faith
and without notice as to defect in B's title. Hence, C has good title to
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JUSTIN RYAN MORILLA
the car and A can only recover the car by reimbursing C the purchase
price the latter paid.
BQ: Using a falsified manager‘s check, Justine, as the buyer, was able
to take delivery of a second hand car which she had just bought from
United Car Sales Inc. The sale was registered with the Land
Transportation Office. A week later, the seller learned that the check
had been dishonored, but by that time, Justine was nowhere to be
seen. It turned out that Justine had sold the car to Jerico, the present
possessor who knew nothing about the falsified check. In a suit by
United Car Sales, Inc. against Jerico for recovery of the car, plaintiff
alleges it had been unlawfully deprived of its property through fraud
and should, consequently, be allowed to recover it without having to
reimburse the defendant for the price the latter had paid. Should the
suit prosper?
SUGGESTED ANSWER: The suit should prosper as to the recovery of
the car. However, since Jerico was not guilty of any fraud and appears
to be an innocent purchaser for value, he should be reimbursed for the
price he paid. This is without prejudice to United Car Sales, Inc. right of
action against Justine. As between two innocent parties, the party
causing the injury should suffer the loss. Therefore, United Car Sales,
Inc. should suffer the loss.
ALTERNATIVE ANSWER: Yes, the suit will prosper because the
criminal act of estafa should be deemed to come within the meaning of
unlawful deprivation under Art. 559, Civil Code, as without it
plaintiff would not have parted with the possession of its car.
ANOTHER ANSWER: No, the suit will not prosper. The sale is valid
and Jerico is a buyer in good faith.
ANOTHER ANSWER: Under the law on Sales, when the thing sold is
delivered by the seller to the buyer without reservation of ownership,
the ownership is transferred to the buyer. Therefore in the suit of
United Car Sales, Inc. against Jerico for the recovery of the car, the
plaintiff should not be allowed to recover the car without reimbursing
the defendant for the price that the latter paid. (EDCA Publishing and
Distributing Corp. vs. Santos, 184 SCRA 614. April 26, 1900).
BQ 2001:
 A bought condominium from developer
 A was not given CTC
 Developer mortgaged condominium to bank and mortgage
was foreclosed, valid auction sale?
NO. Bank is not an innocent purchaser for value (IPV), a financial
institution is unlike a normal buyer since SOP requires a bank to look
beyond the title and investigate
 LOSS, DETERIORATION, FRUITS If you are the owner of the thing at that point of the transaction, you will
bear the risk of loss. The owner also bears the benefits and the
AND OTHER BENEFITS deterioration subject to certain exceptions.

Before perfection of contract, any LOSS, DETERIORATION,

It will depend when the loss, deterioration, fruits and other benefits FRUITS AND OTHER BENEFITS shall be with the owner who, in
occurred. the contract of sale, is the seller.

LOSS
That definition of LOSS should be memorized because that is the only
definition of loss.
Article 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss
or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost
when it perishes, or goes out of commerce, or disappearsin such a
way that its existence is unknown or it cannot berecovered;
When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary. (1122)
TIME LOSS DETERIORATION FRUITS
At the time of perfection but before delivery, suppose the buyer or
seller or both are not aware that the subject matter is lost, it will
depend if the subject matter is specific/determinate or
generic/indeterminate.
 If SPECIFIC AND TOTAL LOSS, the obligation is
extinguished; the seller cannot demand payment and he
bears the loss.
 If GENERIC, its loss will not extinguish the contract of sale
based on genus nunquam perit (genus never perishes).
 IF LOSS IS IN PART ONLY, the vendee can choose
between withdrawing and demanding the remaining part
paying only in proportion to the total price. There is
recoupment or reduction of the price (quanti minoris) (an
action quanti minoris)
SALE OF SEVERAL GOODS
Article 1494. Where the parties purport a sale of specific goods,
and the goods without the knowledge of the seller have perished
in part or have wholly or in a material part so deteriorated in
quality as to be substantially changed in character, the buyer may
at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as
have not deteriorated, and as binding the buyer to pay the agreed
price for the goods in which the ownership will pass, if the sale
was divisible. (n)

If loss happens after perfection but before delivery, the seller

PREPARATORY SELLER being the owner bears the risk of loss
STAGE
EXCEPT:
Any loss or deterioration as well as the fruits
and other benefits shall be for the account of
the owner who in the contract of sale is the  When loss is caused by the buyer, the buyer bears the
seller. loss

CONSUMMATION  (DELIVERY WITH RETENTION OF OWNERSHIP) Where

BUYER goods are delivered to the buyer, but under the contract
the ownership of the goods has been retained by the
seller mainly to secure the performance of the buyer of his
BEFORE obligations, the goods are at the buyer‘s risk from the
DELIVERY SELLER BUYER time of such delivery.
AFTER
PERFECTION Should the buyer be made to pay if the loss is after perfection but
before delivery without the fault of the seller or the buyer
(FORTUITIOUS EVENT)? No definite answer to this question.

AFTER Paras‘ view: The buyer still has to pay the price because pursuant
PERFECTION BUYER to Article 1189, the obligation of the seller is extinguished. So the
obligation of the seller to transfer ownership is extinguished since
AND
compliance therewith is impossible.
AFTER
DELIVERY Tolentino‘s view: The buyer‘s obligation to pay the price is
extinguished because a contract of sale involves reciprocal
obligations.

RES PERIT DOMINO : the thing perishes with the owner

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TRANSFER OF OWNERSHIP; RISK OF LOSS (1990) WHAT ABOUT AFTER DELIVERY?

D sold a second-hand car to E for P150,000.00 The agreement
between D and E was that half of the purchase price, or P75,000.00,
shall be paid upon delivery of the car to E and the balance of
P75,000.00 shall be paid in five equal monthly installments of
P15,000.00 each. The car was delivered to E, and E paid the amount
of P75.000.00 to D. Less than one month thereafter, the car was stolen
from E's garage with no fault on E's part and was never recovered. Is E
legally bound to pay the said unpaid balance of P75.000.00? Explain
your answer.
SUGGESTED ANSWER: Yes, E is legally bound to pay the balance of
P75,000.00. The ownership of the car sold was acquired by E from the
moment it was delivered to him. Having acquired ownership, E bears
the risk of the loss of the thing under the doctrine of res perit domino.
[Articles 1496. 1497, Civil Code).
HOW ABOUT DETERIORATION OR IMPROVEMENT?
WHAT ABOUT DETERIORATION AFTER PERFECTION BUT
BEFORE DELIVERY?
Article 1538. In case of loss, deterioration or improvement of the
thing before its delivery, the rules in article 1189 shall be
observed, the vendor being considered the debtor. (n)
The buyer as owner already bears the loss, fruits and benefits
pursuant to the rule of res perit domino.
WHAT IF THERE IS TRANSFER OF OWNERSHIP BUT THE THING
IS NOT DELIVERED TO THE BUYER?
Article 1504. Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is transferred to the buyer,
but when the ownership therein is transferred to the buyer the
goods are at the buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been made to the buyer or to
a bailee for the buyer, in pursuance of the contract and the
ownership in the goods has been retained by the seller merely to
secure performance by the buyer of his obligations under the
contract, the goods are at the buyer's risk from the time of such
delivery;
(2) Where actual delivery has been delayed through the fault of
either the buyer or seller the goods are at the risk of the party in
fault. (n)

Article 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement,
loss or deterioration of the thing during the pendency of the
condition:

(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost
when it perishes, or goes out of commerce, or disappears in such
a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor

may choose between the rescission of the obligation and its
fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the

improvement shall inure to the benefit of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no

other right than that granted to the usufructuary. (1122)

HOW ABOUT FRUITS?

They all pertain to the buyer after perfection regardless of

whether there is delivery or not. Why?

Article 1164. The creditor has a right to the fruits of the thing from
the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered to
him. (1095)

Article 1537. The vendor is bound to deliver the thing sold and
its accessions and accessories in the condition in which they
were upon the perfection of the contract.

All the fruits shall pertain to the vendee from the day on which
the contract was perfected. (1468a)

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 REMEDIES IN CASE OF BREACH
BREACH BY SELLER:

BREACH RELIEF

NON-DELIVERY SPECIFIC PERFORMANCE

WITH DAMAGES
REGARDLESS if it is conditional
or absolute sale (If the breach is substantial, buyer
can ask for rescission under
Article 1191)

WARRANTY
-- Seller has right to sell
-- Against eviction
-- Hidden defects
-- Nonapparent servitude
Accept goods plus recoupment Accept goods plus Don‘t accept plus Rescind, refuse to
damages damages accept or return
RECOUPMENT – means to get (warranty against
everything back, restored to the hidden defects)
place where you were before the
contract

Mutually exclusive
Not cumulative

This means that

you cannot do
everything. You
must choose your
option.

DISTURBANCE IN POSSESSION Suspend payment of price until NOTE:

end of disturbance Trespassing is not
disturbance

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 BREACH BY BUYER

BREACH RELIEF

MOVABLE IS SOLD AND

DELIVERY IS Rescission
UNACCEPTED

DELIVERY IS ACCEPTED
BUT NO PRICE IS PAID Rescission or Sue for the
price

TITLE IS PASSED BUT

PRICE IS NOT PAID Sue for price plus
damages

REPUDIATION OF SALE
BEFORE DELIVERY Rescission with damages

INABILITY TO PAY Rescission with damages

BEFORE DELIVERY

DOES NOT PAY PRICE

Possessory Stoppage in transitu Special right to resale Special right to rescind
Lien

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 REMEDIES IN CASES OF
MOVABLES
NON-PAYMENT OF PRICE BY BUYER
 OWNERSHIP TRANSFERRED TO BUYER — Where the
ownership of the goods has passed to the buyer who
wrongfully neglects or refuses to pay for them according to
the terms of the contract, the seller may maintain an action
against him for the price of the goods, i.e., an action for
specific performance.
 NO TRANSFER OF OWNERSHIP TO BUYER — When the
ownership in the goods has not passed, if they cannot
readily be resold for a reasonable price, 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.
 WHEN PRICE PAYABLE ON CERTAIN DAY — Where the
price is payable on a certain day, irrespective of delivery or
of transfer of title, and the buyer wrongfully neglects or
refuses to pay such price, the seller may maintain an action
for the price although the ownership in the goods has not
passed.
However, it shall be a defense to such an action that the
seller at any time before the judgment in such action has
manifested an inability to perform the sale on his part or an
intention not to perform it.
WHEN BUYER WRONGFULLY NEGLECTS/REFUSES
TO ACCEPT GOODS
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 non-acceptance.
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SPECIAL REMEDIESOF
―UNPAID SELLER‖ OF GOODS
UNPAID SELLER
 Whole of the price has not been paid or tendered
 negotiable document of title was received as conditional
payment and condition was broken
Article 1525. The seller of goods is deemed to be an unpaid seller
within the meaning of this Title:
(1) When the whole of the price has not been paid or tendered;
(2) When a bill of exchange or other negotiable instrument has
been received as conditional payment, and the condition on
which it was received has been broken by reason of the dishonor
of the instrument, the insolvency of the buyer, or otherwise.
In articles 1525 to 1535 the term "seller" includes an agent of the
seller to whom the bill of lading has been indorsed, or a
consignor or agent who has himself paid, or is directly
responsible for the price, or any other person who is in the
position of a seller. (n)
SPECIAL REMEDIES
1) Possessory Lien
2) Stoppage in transitu
3) Special right of resale
4) Special right to rescind
Special Rights 3&4 (resale and rescind) can only be used when
Right 1 or 2 has been exercised
As special rights, you must first choose either possessory lien or
stoppage in transitu before you can choose between resale or rescind.
POSSESSORY LIEN (1526)
ARTICLE 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods may have
passed to the buyer, the unpaid seller of goods, as such, has:
A lien on the goods or right to retain them for the price while he is
in possession of them;
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;
A right of resale as limited by this Title;
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)
The GENERAL RULE is that when it comes to movables, the seller
is not bound to deliver the thing sold, if the buyer has not paid
him the price, or if no period for the payment has been fixed in the
contract.
However, in the absence of stipulation to the contrary, delivery of the
goods to the buyer transfers ownership to the latter, and the non-
payment of the price does not prevent such transfer of ownership as a
result of tradition to take effect.
If the seller is an unpaid seller as defined by law, notwithstanding that
the ownership in the goods may have passed to the buyer, the unpaid
seller still has a lien on the goods or right to retain them for the price
while he is in possession of them.
 Ownership has been transferred to the buyer
 Seller is still unpaid
 Seller may retain goods for the price while still in possession
of the goods
 Can only be exercised when
o Goods were sold without any stipulation as to
credit OR
o Goods were sold on credit but term of credit has
expired OR
o Buyer becomes insolvent
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.
INSTANCES WHEN POSSESSORY LIEN LOST
The unpaid seller of goods loses his lien on the goods whenever:
1) 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;
2) The buyer or his agent lawfully obtains possession of the
goods;
3) By waiver thereof.
STOPPAGE IN TRANSITU (1526, 1530)
ARTICLE 1530. Subject to the provisions of this Title, when the
buyer of goods is or becomes insolvent, the unpaid seller who
has parted with the possession of the goods has the right of
stopping them in transitu, that is to say, he may resume
possession of the goods at any time while they are in transit, and
he will then become entitled to the same rights in regard to the
goods as he would have had if he had never parted with the
possession. (n)
Notwithstanding that the ownership in the goods may have passed to
the buyer, the unpaid seller of goods has, 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.
 Seller no longer has possession of thing
 Buyer becomes insolvent
 Seller can stop the goods in transitu or resume possession
at any time while goods are in transit
 Seller enjoys same rights as if he never parted possession
with thing
GOODS ARE DEEMED IN TRANSIT
1) Period between delivery to the carrier for transmission to the
buyer until buyer claims them from the carrier
2) Goods are rejected by the buyer and carrier continues to
have possession even if the seller refuses to take goods
back
WHEN GOODS ARE DEEMED NO LONGER IN TRANSIT
Goods are no longer in transit when:
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JUSTIN RYAN MORILLA
1) The buyer or his agent obtains delivery of the goods before
their arrival at the appointed destination;
2) After the arrival of the goods at the appointed destination,
the carrier or other bailee acknowledges to the buyer or his
agent that he holds the goods on his behalf and continues in
possession of them as bailee for the buyer or his agent (and
it is immaterial that further destination for the goods may
have been indicated by the buyer);
3) The carrier or other bailee wrongfully refuses to deliver the
goods to the buyer or his agent.
HOW RIGHT IS EXERCISED
The unpaid seller may exercise his right of stoppage in transitu either
by:
1) Obtaining actual possession of the goods; or
2) Giving notice of his claim to the carrier or other bailee in
whose possession the goods are.
STATUS OF SALE MADE BY BUYER WHILE IN TRANSITU
ARTICLE 1535. Subject to the provisions of this Title, the unpaid
seller's right of lien or stoppage in transitu is not affected by any
sale, or other disposition of the goods which the buyer may have
made, unless the seller has assented thereto.
If, however, a negotiable document of title has been issued for
goods, no seller's lien or right of stoppage in transitu shall defeat
the right of any purchaser for value in good faith to whom such
document has been negotiated, whether such negotiation be prior
or subsequent to the notification to the carrier, or other bailee
who issued such document, of the seller's claim to a lien or right
of stoppage in transitu. (n)
If buyer sells thing without consent of seller while in transitu, the
seller's right of stoppage in transitu IS NOT AFFECTED (1535)
Right of stoppage DOES NOT defeat title of an innocent purchaser for
value who is issued a negotiable document of title (1535)
SPECIAL RIGHT TO RESELL GOODS
The special right of resale can be made only when the unpaid seller
has previously exercised either his right of possessory lien or stoppage
in transitu, and under any of the following conditions:
1) The goods are of perishable nature;
2) Where the seller has been expressly reserved in case the
buyer should make default; or
3) Where the buyer has been in default in the payment of the
price for an unreasonable time.
EFFECT OF HAVING EXERCISED RIGHT OF RESALE
When the unpaid seller has exercised his right of resale, he shall not
thereafter be liable to the original buyer upon the sale or for any profi t
made by such resale, but may recover from the buyer damages for any
loss occasioned by the breach of the sale.
SPECIAL RIGHT TO RESCIND – 1526, 1534
An unpaid seller having the right of lien or having stopped the goodsin
transitu, may rescind the transfer of title and resume the ownership in
the goods, where:
1) The seller has expressly reserved the right to do so in case
the buyer should make default; or
 2) The buyer has been in default in the payment of the price for
an unreasonable time.
EFFECT OF EXERCISE OF SUCH RIGHT
The seller shall not thereafter be liable to the buyer upon the sale, but
may recover from the buyer damages for any loss occasioned by the
breach of the contract.
RESCISSION OF SALE OF IMMOVABLE
1592 - in the sale of immovables, even if it was 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 FOR AS LONG AS NO DEMAND FOR
RESCISSION OF THE CONTRACT HAS BEEN MADE UPON HIM
EITHER JUDICIALLY OR BY A NOTARIAL ACT
ARTICLE 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price at the
time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period,
as long as no demand for rescission of the contract has been
made upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term. (1504a)
Immovable Property; Rescission of Contract (2003)
X sold a parcel of land on 01 January 2001, payment and delivery to
be made on 01 February 2002. It was stipulated that if payment were
not to be made by Y on 01 February 2002, the sale between the
parties would automatically be rescinded. Y failed to pay on 01
February 2002, but offered to pay three days later, which payment X
refused to accept, claiming that their contract of sale had already been
rescinded. Is X‘s contention correct? Why? 5%
SUGGESTED ANSWER: No, X is not correct. In the sale of
immovable property, even though it may have been stipulated, as in
this case, 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 (Article 1592, New Civil code). Since no demand for
rescission was made on Y, either judicially or by a notarial act, X
cannot refuse to accept the payment offered by Y three (3) days after
the expiration of the period.
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REMEDIESOF BUYER
FAILURE OF SELLER TO DELIVER
Where the seller has broken a contract to deliver specific or
ascertained goods, the buyer may seek action for specific performance
to direct that the contract shall be performed specifically, without giving
the seller the option of retaining the goods on payment of damages.
BREACH OF SELLER‘S WARRANTY
Under Article 1599 of the Civil Code, where there is a breach of
warranty by the seller in the sale of goods, the buyer may, at his
election, avail of the following remedies:
1) Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;
2) Accept or keep the goods and maintain an action against the
seller for damages for the breach of warranty;
3) Refuse to accept the goods, and maintain an action against
the seller for damages for breach of warranty;
4) Rescind the sale and refuse to receive the goods or if the
goods have already been received, return them or offer to
return them
5) to the seller and recover the price or any part thereof which
has been paid.
When the buyer has claimed and been granted a remedy in any of
these ways, no other remedy can thereafter be granted, without
prejudice to the buyer‘s right to rescind, even if previously he has
chosen specific performance when fulfillment has become impossible.
SUSPENSION OF PAYMENTS IN ANTICIPATION OF BREACH
Under Article 1590 of the Civil Code, should the buyer be disturbed in
the possession or ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a vindicatory action or
a foreclosure of mortgage, he may suspend the payment of the price
until the seller has caused the disturbance or danger to cease, 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
buyer shall be bound to make the payment. A mere trespass shall not
authorize the suspension of the payment of the price.
 price and then bringing suit against the mortgagor for a defi ciency
SALE ON INSTALLMENT judgment.

WHEN IS SALE ―ON INSTALLMENTS?‖

RECTO LAW – 1484
 The Court held that the provisions of the Recto Law cannot
Article 1484. In a contract of sale of personal property the price of apply to a sale where there is an initial payment, and the
which is payable in installments, the vendor may exercise any of balance payable in the future, because the same is not a
the following remedies: sale on installment but actually a ―straight sale.‖

(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 action
against the purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void. (1454A-a)
OPTIONS WHEN SELLER DISCONTINUES INSTALMENTS
1) EXACT FULFILLMENT OF THE OBLIGATION
The seller is deemed to have chosen specific performance to foreclose
the resort to the other two remedies under Article 1484, when he files
an action in court for recovery. Generally, the mere sending of demand
letters to the buyer to pay the balance of the purchase price should not
be considered as having barred the resort to either the remedies of
rescission or foreclosure.
If the seller chooses specific performance in the replevin suit for
damages, seller is still entitled to an alias writ of execution for the
unsatisfied balance.
 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.
LOANS AND FINANCING TRANSACTIONS
The provisions of the Recto Law are applicable to financing
transactions derived or arising from sales of movables on installments,
even if the underlying contract at issue is a loan because the
promissory note had been assigned or negotiated by the original seller.
CONTRACTS TO SELL MOVABLES NOT COVERED
REMEDIES UNDER 1484 ARE ALTERNATIVE AND NOT
CUMULATIVE. This is based on the principle that no one should
enrich himself at the expense of another.
When the unpaid seller has already enforced the obligation by
collecting the amount due, he can no longer rescind or cancel the
same. He cannot also foreclose the mortgage over the subject matter.
For the exercise of one in full forecloses the right to exercise remedies
(Nonato v. CA, Nov. 22, 1985)

2) CANCEL THE SALE IF THE BUYER FAILS TO PAY TWO
OR MORE INSTALLMENTS
When a seller chooses the remedy of rescission, then generally he is
under obligation to make restitution, which would include the return of
any amount of the purchase price that the buyer may have paid.
However, under the terms of Article 1486 of the Civil Code which
provides that ―a stipulation that the installments or rents paid shall not
be returned to the vendee or lessee shall be valid insofar as the same
may not be unconscionable under the circumstances.‖
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.
TWO GROUPS OF BARRING EFFECTS OF REMEDIES
Article 1484 of the Civil Code actually has two (2) levels of barring
effects: the fi rst level on the choice of remedies (vertical); and the
second level, on the non-recovery of any unpaid balance when it
comes to the remedies of rescission and foreclosure (horizontal).
If the seller forecloses the chattel mortgage, it can no longer sue for
deficiency/balance of purchase price
If the seller chooses specific performance in a replevin suit for
damages, seller is still entitled to alias writ of execution for unsatisfied
balance (Industrial v. Ramirez)
Recall: In chattel mortgage, the general rule is that there is right
to the balance and to the excess. The exception is the Recto law.

3) FORECLOSE THE CHATTEL MORTGAGE IF THE BUYER

FAILS TO PAY TWO OR MORE INSTALLMENTS
(WITHOUT RIGHT TO SUE FOR UNPAID BALANCE)

Although generally, the fi ling of an action for foreclosure should be the

point in which the seller is deemed to have chosen such remedy, and
at which time he can no longer resort to either the remedies of specifi c
performance or rescission, yet the Court held that the point by
which the seller is deemed to have chosen the remedy of
foreclosure is only at the time of actual sale of the subject
property at public auction pursuant to the foreclosure
proceedings commenced.

RATIONALE OF RECTO LAW: The passage of the Recto Law was

meant to remedy the abuses committed in connection with the
foreclosure of chattel mortgages and to prevent mortgagees from
seizing the mortgaged property, buying it at foreclosure sale for a low

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 4 years of installments at P100,000 per year = 50% of P400,000 =
MACEDA LAW – RA 6552 P200,000

REALTY INSTALLMENT BUYER PROTECTION ACT 6 years of installments at P100,000 a year = 50% of P600,000 =
P300,000 + 5% (P600,000) = P330,000
COVERED SALES
OTHER RIGHTS GRANTED TO BUYER
1) Residential real estate
2) Sales on installments In addition, the Maceda Law provides for the following rights to the
3) Financing of real estate on installment payments buyer:
4) Residential condominium apartments
5) Contract of sale 1) To sell his rights or assign the same to another person or to
6) Contract to sell reinstate the contract by updating the account during the
7) Conditional contract of sale grace period and before actual cancellation of the contract.
8) Financing transactions The deed of sale assignment shall be done by notarial act.

TRANSACTIONS EXCLUDED FROM COVERAGE 2) To pay in advance any installment or the full unpaid balance
of the purchase price any time without interest and to have
The following transactions, although involving sales on installments, such full payment of the purchase price annotated in the
are expressly excluded from the coverage of the Law, thus: certificate of title covering the property.

1) Sales covering industrial lots; Maceda Law (2000)

2) Sales covering commercial buildings (and commercial lots
by implication); and Priscilla purchased a condominium unit in Makati City from the Citiland
3) Sales to tenants under agrarian reform laws. Corporation for a price of P10 Million, payable P3 Million down and the
balance with interest thereon at 14% per annum payable in sixty (60)
MACEDA LAW CANNOT BE INVOKED BY HIGHEST BIDDER IN equal monthly installments of P198,333.33. They executed a Deed of
FORECLOSURE PROCEEDINGS Conditional Sale in which it is stipulated that should the vendee fail to
pay three (3) successive installments, the sale shall be deemed
WHEN THE BUYER DEFAULTS automatically rescinded without the necessity of judicial action and all
payments made by the vendee shall be forfeited in favor of the vendor
Number of Option 1 Option 2 by way of rental for the use and occupancy of the unit and as
installments liquidated damages. For 46 months, Priscilla paid the monthly
installments religiously, but on the 47th and 48th months, she failed to
pay. On the 49th month, she tried to pay the installments due but the
vendor refused to receive the payments tendered by her. The following
Less than 2 month, the vendor sent her a notice that it was rescinding the Deed of
annual Grace period of 60 If no payment within Conditional Sale pursuant to the stipulation for automatic rescission,
days grace period, sale will and demanded that she vacate the premises. She replied that the
be cancelled within 30 contract cannot be rescinded without judicial demand or notarial act
days from receipt of pursuant to Article 1592 of the Civil Code.
notice of cancellation
Is Article 1592 applicable? (3%)
Can the vendor rescind the contract? (2%)

SUGGESTED ANSWER:

2 or more Pay without interest CASH SURRENDER Article 1592 of the Civil Code does not apply to a conditional sale.
annual within grace period VALUE = 50% In Valarao v. CA, 304 SCRA 155, the Supreme Court held that Article
1592 applies only to a contract of sale and not to a Deed of
Conditional Sale where the seller has reserved title to the property until
Grace period: 1 month PLUS 5% for every full payment of the purchase price. The law applicable is the Maceda
for every year of year in excess of 5 Law.
installment made years BUT
SUGGESTED ANSWER:

No, the vendor cannot rescind the contract under the circumstances.
Grace period: used NOT MORE THAN
Under the Maceda Law, which is the law applicable, the seller on
once every 5 years 90% of installments
installment may not rescind the contract till after the lapse of the
made
mandatory grace period of 30 days for every one year of
installment payments, and only after 30 days from notice of
cancellation or demand for rescission by a notarial act. In this
Installments include case, the refusal of the seller to accept payment from the buyer on the
option money, 49th month was not justified because the buyer was entitled to 60 days
downpayment grace period and the payment was tendered within that period.
Moreover, the notice of rescission served by the seller on the
buyer was not effective because the notice was not by a notarial
act. Besides, the seller may still pay within 30 days from such notarial
notice before rescission may be effected. All these requirements for a
valid rescission were not complied with by the seller. Hence, the
CASH SURRENDER VALUE
rescission is invalid.

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Maceda Law; Recto Law (1999)
What are the so-called "Maceda" and "Recto" laws in connection with
sales on installments? Give the most important features of each law.
(5%)
SUGGESTED ANSWER:
The MACEDA LAW (R.A. 655) is applicable to sales of immovable
property on installments. The most important features are (Rillo v. CA,
247 SCRA 461):
After having paid installments for at least two years, the buyer is
entitled to a mandatory grace period of one month for every year of
installment payments made, to pay the unpaid installments without
interest.
If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value equivalent to fifty percent (50%) of the total payments
made, and after five years of installments, an additional five percent
(5%) every year but not to exceed ninety percent (90%) of the total
payments made.
In case the installments paid were less than 2 years, the seller shall
give the buyer a grace period of not less than 60 days. If the buyer fails
to pay the installments due at the expiration of the grace period, the
seller may cancel the contract after 30 days from receipt by the buyer
of the notice of cancellation or demand for rescission by notarial act.
The RECTO LAW (Art. 1484} refers to sale of movables payable in
installments and limiting the right of seller, in case of default by the
buyer, to one of three remedies:
- Exact fulfillment;
- Cancel the sale if two or more installments have not been paid;
- Foreclose the chattel mortgage on the things sold, also in case of
default of two or more installments, with no further action against the
purchaser.
WHEN DEVELOPER COMMITS BREACH OF CONTRACT: PD 957
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.
In CASA FILIPINAS REALTY CORP. V. OFFI CE OF THE
PRESIDENT, the Court held that Pres. Decree 957 ―was issued in the
wake of numerous reports that many real estate subdivision owners,
developers, operators and/or sellers ‗have reneged on their
representations and obligations to provide and maintain properly
subdivision roads, drainage, sewerage, water systems, lighting
systems and other basic requirements‘ for the health and safety of
home and lot buyers. It was designed to stem the tide of ‗fraudulent
manipulations perpetrated by unscrupulous subdivision and
condominium sellers free from liens and encumbrances.‘‖
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.
BQ Non-Payment of Amortizations; Subdivision Buyer; When
justified (2005)
Bernie bought on installment a residential subdivision lot from
DEVLAND. After having faithfully paid the installments for 48 months,
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JUSTIN RYAN MORILLA
Bernie discovered that DEVLAND had failed to develop the
subdivision in accordance with the approved plans and specifications
within the time frame in the plan. He thus wrote a letter to DEVLAND
informing it that he was stopping payment. Consequently, DEVLAND
cancelled the sale and wrote Bernie, informing him that his payments
are forfeited in its favor.
Was the action of DEVLAND proper? Explain. (2%)
SUGGESTED ANSWER: No, the action of DEVLAND is not proper.
Under Section 23 of Presidential Decree No. 957, otherwise known as
the Subdivision and Condominium Buyer's Protection Decree,
nonpayment of amortizations by the buyer is justified if nonpayment is
due to the failure of the subdivision owner to develop the subdivision
project according to the approved plans and within the limit for
complying. (Eugenio v. Drilon, G.R. No. 109404, January 22, 1996)
Discuss the rights of Bernie under the circumstances. (2%)
SUGGESTED ANSWER: Under P.D. No. 957, a cancellation option is
available to Bernie. If Bernie opts to cancel the contract, DEVLAND
must reimburse Bernie the total amount paid and the amortizations
interest, excluding delinquency interest, plus interest at legal rate
(Eugenio v. Drilon, G.R. No. 109404, January 22, 1996)
Supposing DEVLAND had fully developed the subdivision but Bernie
failed to pay further installments after 4 years due to business
reverses. Discuss the rights and obligations of the parties. (2%)
SUGGESTED ANSWER: In this case, pursuant to Section 24 of P.D.
No. 957, R.A. No. 6552 otherwise known as the Realty Installment
Buyer Protection Act, shall govern. Under Section 3 thereof, Bernie is
entitled: 1) to pay without additional interest the unpaid installments
due within a grace period of four (4) months or one month for every
year of installment paid; 2) if the contract is cancelled, Bernie is entitled
to the refund of the cash surrender value equal to 50% of the total
payments made.
DEVLAND on the other hand has the right to cancel the contract after
30 days from receipt by Bernie of notice of cancellation. DEVLAND is
however obliged to refund toBernie e 50% of the total payments made
(Rillo vs CA 1997)
CANTEMPRATE V CRS REALTY
MAY 8, 2009
Petitioners here bought on installments subdivision lots from
respondent CRS Realty and had paid in full the agreed purchase price.
Respondents failed to deliver the certificates of title. The complaint
prayed that respondents be ordered to deliver the certificates and to
pay petitioner damages. HLURB dismissed the complaint. The Office
of the President affirmed the HLURB. The CA found out that CRS did
not have the required license to sell and therefore the sales are void so
neither party can compel the other to perform his obligation in the
contract.
Is license to sell a ground to invalidate the sale?
SC: It‘s not one of the grounds to make a sale void. The only requisite
for a contract of sale or a contract to sell to exist in law is meeting of
the minds. The failure to obtain the license does not render the sale
void on that ground alone specially the parties have impliedly admitted
that there was already meeting of the minds as to the subject of the
sale and price of the contract. The absence of the license here only
subjects CSR Realty civilly and criminally liable for the said violation.
The absence of the license does not affect the contract of sale
between petitioner and CRS Realty.
 EXTINGUISHMENT OF SALE REDEMPTION
Article 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss of the thing due;
By the condonation or remission of the debt;
By the confusion or merger of the rights of creditor and
debtor;
(5) By compensation;
(6) By novation.
(7) Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code. (1156a)

GROUNDS
CONVENTIONAL REDEMPTION
1) Payment/performance
2) Loss of SM
3) Condonation/remission Conventional redemption shall take place when the seller reserved for
4) Confusion/merger of rts of creditor & debtor himself the right to repurchase the thing sold, with the obligation to:
5) Compensation
6) Novation a) return the price of the sale
7) Annulment b) the expenses of the contract
8) Rescission c) any other legitimate payments made by reason of the sale
9) Conventional/legal redemption (additional) d) and the necessary and useful expenses made on the thing
sold.

PROPER RESERVATION OF RIGHT TO REPURCHASE

VILLARICA V. COURT OF APPEALS - The right of repurchase is not

a right granted [to] the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract. Once the
instrument of absolute sale is executed, the vendor can no longer
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JUSTIN RYAN MORILLA
reserve the right to repurchase, and any right thereafter granted the
vendor by the vendee in a separate instrument cannot be a right of
repurchase but some other right like the option to buy in the instant
case.
RIGHT OF REPURCHASE MAY BE PROVED
BY PAROL EVIDENCE
Since a right to repurchase is merely a feature of the contract of sale,
it is governed also by the Statute of Frauds. However, the Supreme
Court has held that when the contract of sale has been reduced in
writing, parol evidence may be adduced to prove the agreement
granting the seller a right to repurchase the property sold, since
the deed of sale and the verbal agreement allowing the right of
repurchase should be considered as an integral whole, then the deed
of sale relied upon by the seller ―is in itself the note or memorandum
evidencing the contract,‖ which would take the case outside the
provisions of the Statute of Frauds.
DISTINGUISHED FROM OPTION TO PURCHASE
The differences between a right of redemption from an option right may
be summarized as follows:
1) A right to redeem is not a separate contract, but merely part
of a main contract of sale, and in fact cannot exist unless
reserved at the time of the perfection of the contract of sale;
whereas, an option to purchase is generally a principal,
albeit preparatory, contract and may be created independent
of another contract;
2) A right to redeem must be imbedded in a contract of sale
upon the latter‘s perfection; whereas, an option right may
exist prior to or after the perfection of the sale, or be
imbedded in another contract, like a lease, upon that
contract‘s perfection;
3) The right to redeem does not need a separate consideration
in order to be valid and effective; whereas, an option to
purchase in order to be valid must have a consideration
separate and distinct from the purchase price;
4) For a right to redeem, the redemption period cannot exceed
ten (10) years; whereas, the period for an option right may
exceed ten (10) years;
5) The exercise of a right of redemption requires notice to be
accompanied by a tender of payment, including consignment
when tender of payment cannot be made effectively on the
buyer; whereas, the exercise of a option to purchase
requires only a notice of such exercise be given to the
optioner; and
6) The exercise of a right of redemption extinguishes an
existing contract of sale; whereas, the valid exercise of an
option right results into the perfection of a contract of sale.
PERIOD OF REDEMPTION
In case of stipulated right to redeem, in the absence of an express
agreement as to the period when the right can be exercised, it shall
last four (4) years from the date of the contract.
Should there be an agreement as to the period of redemption, the
period cannot exceed 10 years; if exceeds 10 years, the agreement is
valid only for the first 10 years.
PENDENCY OF ACTION TOLLS REDEMPTION PERIOD
NON-PAYMENT OF PRICE DOES NOT AFFECT
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RUNNING OF REDEMPTION PERIOD
HOW REDEMPTION EXERCISED
LEGASPI V. COURT OF APPEALS, held that in order to exercise the
right to redeem, only tender of payment is sufficient.
The mere sending of letters by the seller expressing his desire to
repurchase the property without accompanying tender of the
redemption price does not comply with the requirement of law.
However, CATANGCATANG V. LEGAYADA, held that when tender of
payment cannot be validly made, because the buyer cannot be
located, it becomes imperative for the seller a retro then to fi le a suit
for consignation with the courts of the redemption price, and failing to
do so within the redemption period, his right of redemption shall lapse.
WHEN REDEMPTION NOT MADE
Jurisprudence before the new Civil Code held that when no redemption
is made, the buyer a retro automatically acquires full ownership.
However, under the present Article 1607 of the Civil Code, in the case
of real property, the consolidation of the ownership in the buyer by
virtue of the failure of the seller to comply with his obligation to return
the price and other legally mandated expenses, shall not be recorded
in the Registry of Property without a judicial order, after the seller has
been duly heard.
GRANT OF 30-DAY REDEMPTION RIGHT IN CASE OF LITIGATION
AND ARTICLE 1606
Under the last paragraph of Article 1606 of the Civil Code, ―the vendor
may still exercise the right to repurchase within thirty-days from the
time fi nal judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase.‖
When the period of redemption has expired, then ipso jure the right to
redeem has been extinguished. However, even when the right to
redeem has expired, and there has been a previous suit on the nature
of the contract, the seller may still exercise the right to repurchase
within 30 days from the time fi nal judgment was rendered in a civil
action on the basis that the contract was a true sale with right to
repurchase.
 TAPAS V. COURT OF APPEALS, held that the 30-day
period granted under Article 1606 for the seller to redeem
the property sold a retro ―contemplates a case involving a
controversy as to the true nature of the contract, and the
court is called upon to decide whether it is a sale with pacto
de retro or an equitable mortgage ... there can be no
controversy as to the contract being one of absolute deed of
sale, pure and simple. There could not even then be a period
of redemption.‖
ESSENTIAL REQUISITES OF AN EQUITABLE
MORTGAGE TO BE AS FOLLOWS:
a. That the parties entered into a contract
denominated as a contract of sale; and
b. That the intention was to secure existing debt by
way of a mortgage.
EQUITABLE MORTGAGE (1992)
December 1970, Juliet, a widow, borrowed from Romeo P4,000.00
and, as security therefore, she executed a deed of mortgage over one
of her two (2) registered lots which has a market value of P15,000.00.
The document and the certificate of title of the property were delivered
to Romeo.
On 2 June 1971, Juliet obtained an additional sum of P3,000 from
Romeo. On this date, however, Romeo caused the preparation of a
deed of absolute sale of the above property, to which Juliet affixed her
signature without first reading the document. The consideration
indicated is P7,000.00. She thought that this document was similar to
the first she signed. When she reached home, her son X, after reading
the duplicate copy of the deed, informed her that what she signed
was not a mortgage but a deed of absolute sale. On the following day,
3 June 1971, Juliet, accompanied by X, went back to Romeo and
demanded the reformation it, Romeo prepared and signed a document
wherein, as vendee in the deed of sale above mentioned, he obligated
and bound himself to resell the land to Juliet or her heirs and
successors for the same consideration as reflected in the deed of sale
(P7,000) within a period of two (2) years, or until 3 June 1973. It is
further stated therein that should the Vendor (Juliet) fail to exercise her
right to redeem within the said period, the conveyance shall be
deemed absolute and irrevocable. Romeo did not take possession of
the property. He did not pay the taxes thereon. Juliet died in January
I973 without having repurchased the property. Her only surviving heir,
her son X, failed to repurchase the property on or before 3 June 1973.
In 1975, Romeo sold the property to Y for P50,000.00. Upon learning
of the sale, X filed an action for the nullification of the sale and for the
recovery of the property on the ground that the so-called deed of
absolute sale executed by his mother was merely an equitable
mortgage, taking into account the inadequacy of the price and the
failure of Romeo to take possession of the property and to pay the
taxes thereon. Romeo and Y maintain that there was a valid absolute
sale and that the document signed by the former on 3 June 1973
was merely a promise to sell. a) If you were the Judge, would you
uphold the theory of X? b) If you decide in favor of Romeo and Y,
would you uphold the validity of the promise to sell?
SUGGESTED ANSWER:
A. I will not uphold the theory of X for the nullification of the sale and
for the recovery of the property on the ground that the so-called sale
was only an equitable mortgage. An equitable mortgage may arise only
if, in truth, the sale was one with the right of repurchase. The facts of
the case state that the right to repurchase was granted after the
absolute deed of sale was executed. Following the rule in Cruzo vs.
Carriaga (174 SCRA 330), a deed of repurchase executed
independently of the deed of sale where the two stipulations are found
in two instruments instead of one document, the right of repurchase
would amount only to one option granted by the buyer to the seller.
Since the contract cannot be upheld as a contract of sale with the right
to repurchase, Art. 1602 of the Civil Code on equitable mortgage will
not apply. The rule could have been different if both deeds were
executed on the same occasion or date, in which case, under the
ruling in spouses Claravall v. CA (190 SCRA 439), the contract may
still be sustained as an equitable mortgage, given the circumstances
expressed in Art. 1602. The reserved right to repurchase is then
deemed an original intention.
B. If I were to decide in favor of Romeo and Y, I would not uphold the
validity of the promise to sell, so as to enforce it by an action for
specific performance. The promise to sell would only amount to a mere
offer and, therefore, it is not enforceable unless it was sought to be
exercised before a withdrawal or denial thereof. Even assuming the
facts given at the end of the case, there would have been no separate
consideration for such promise to sell. The contract would at most
amount to an option which again may not be the basis for an action for
specific performance.
EQUITABLE MORTGAGE VS. SALE (2005)
On July 14, 2004, Pedro executed in favor of Juan a Deed of Absolute
Sale over a parcel of land covered by TCT No. 6245. It appears in the
Deed of Sale that Pedro received from Juan P120,000.00 as purchase
price. However, Pedro retained the owner's duplicate of said title.
Thereafter, Juan, as lessor, and Pedro, as lessee, executed a contract
of lease over the property for a period of one (1) year with a monthly
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JUSTIN RYAN MORILLA
rental of Pl,000.00. Pedro, as lessee, was also obligated to pay the
realty taxes on the property during the period of lease. Subsequently,
Pedro filed a complaint against Juan for the reformation of the Deed of
Absolute Sale, alleging that the transaction covered by the deed was
an equitable mortgage. In his verified answer to the complaint, Juan
alleged that the property was sold to him under the Deed of Absolute
Sale, and interposed counterclaims to recover possession of the
property and to compel Pedro to turn over to him the owner's duplicate
of title. Resolve the case with reasons. (6%)
SUGGESTED ANSWER: The complaint of Pedro against Juan should
be dismissed. The instances when a contract — regardless of its
nomenclature — may be presumed to be an equitable mortgage are
enumerated in Article 1602 of the Civil Code: "Art. 1602. The contract
shall be presumed to be an equitable mortgage, in any of the following
cases:
1) When the price of a sale with right to repurchase is unusually
inadequate:
2 ) When the vendor remains in possession as lessee or
otherwise;
3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period
is executed;
4) When the purchaser retains for himself a part of the purchase price;
5) When the vendor binds himself to pay the taxes on the thing sold;
6) In any other case where it may be fairly inferred that the real
intention of the parties is that the transaction shall secure the payment
of a debt or the performance of any other obligation.
"In any of the foregoing cases, any money, fruits, or other benefit to be
received by the vendee as rent or otherwise shall be considered as
interest which shall be subject to the usury laws."
Article 1604 states that "the provisions of article 1602 shall also apply
to a contract purporting to be an absolute sale."
For Articles 1602 and 1604 to apply, two requisites must concur:
1) the parties entered into a contract denominated as a contract of
sale; and
2) their intention was to secure an existing debt by way of mortgage.
(Heirs of Balite v. Lim, G.R. No. 152168, December 10, 2004)
In the given case, although Pedro retained possession of the property
as lessee after the execution of the Deed of Sale, there is no showing
that the intention of the parties was to secure an existing debt by way
of mortgage. Hence, the complaint of Pedro should be dismissed.
 PANGILINAN V. RAMOS held that the 30-day period for
redemption granted under Article 1606 does not apply to a
contract found to be an absolute sale.
RIGHT OF REPURCHASE (1993)
On January 2, 1980, A and B entered into a contract whereby A sold to
B a parcel of land for and in consideration of P10.000.00. A reserving
to himself the right to repurchase the same. Because they were
friends, no period was agreed upon for the repurchase of the property.
1) Until when must A exercise his right of repurchase? 2) If A fails to
redeem the property within the allowable period, what would you
advise B to do for his better protection?
SUGGESTED ANSWER: 1) A can exercise his right of repurchase
within four (4) years from the date of the contract (Art. 1606, Civil
Code).

SUGGESTED ANSWER: 2} I would advise B to file an action for
consolidation of title and obtain a judicial order of consolidation which
must be recorded in the Registry of Property (Art. 1607. Civil Code).
LEGAL REDEMPTION
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.
SALIENT DISTINCTIONS BETWEEN CONVENTIONAL AND
LEGAL RIGHTS OF REDEMPTION
 Strictly speaking, a right a retro can only be constituted by
express reservation in a contract of sale at time of
perfection; whereas, a legal right of redemption does not
have to be expressly reserved (it is a right granted by law),
and covers sales and other ―onerous [transfers of] title‖;
 Right a retro is in favor of the seller; whereas, a legal right of
redemption is given to a third party to the sale; and
 The exercise of the right a retro extinguishes the underlying
contract of sale as though there was never any contract at
all; whereas, the exercise of the legal right of redemption,
although it extinguishes the original sale, actually constitutes
a new sale in substitution of the original sale.
REDEMPTION
AMONG CO-HEIRS (1088)
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ARTICLE 1088. Should any of the heirs sell his hereditary rights
to a stranger before the partition, any or all of the coheirs may be
subrogated to the rights of purchaser by reimbursing him for the
price of the sale, provided they do so within the period of one
month from the time they were notified in writing of the sale by
the vendor. (1067a)
 An heir sells his hereditary rights to a stranger before
partition
 Any or all co-heirs may be subrogated to buyer's rights by
reimbursing him for the price
 Co-heirs must redeem within 1 month from time they were
notified in writing of the sale
There is no right of legal redemption available to the coheirs when
the sale covers a particular property of the estate, since the legal
right of redemption applies only to the sale by an heir of his hereditary
right.
REDEMPTION
AMONG CO-OWNERS
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.
Should two or more co-owners desire to exercise the right of
redemption, they may only do so in proportion to the share they
may respectively have in the thing owned in common.
(1522a)
 If a co-owner sells his share to a third person
The right of redemption may be exercised by a co-owner only when
part of the community property is sold to a stranger. When the portion
is sold to another co-owner, the right does not arise because a new
participant is not added to the co-ownership.
 A co-owner may redeem from the third person
 Rule in case of redemption by two or more co-owners:
Redemption shall be in proportion to the share they may
have in the thing owned in common
BAR 2001 AND 2002: When can a co owner legally redeem the
property?
If a co owner sells his share to a 3rd person, his co owner may redeem.
In case of redemption by 2 or more owners, redemption shall be in
proportion to the share they have in the thing they own in common.
DIMAGUILA V MONTEIRO
JAN 27, 2014
Property was partitioned between two heirs. A and X. A got the
southern, X got the northern. A has heirs—B, C and D. X has heirs – Y
and Z. X & X died. The halves of the property were inherited by their
respective heirs. B sold the entire southern. Y and Z questioned the
sale.
SC: Petitioners as heirs of X who inherited the northern potion do not
possess the necessary personality to assail the sale of the southern
half. Between the buyer and the heirs of A, they are not real parties in
interest who stand to be benefited or injured by the sale of the
southern half of which they absolutely have no right. Only co owners
have the personality to assail the sale. No right of redemption.

REDEMPTION
AMONG ADJOINING OWNERS
 RURAL LAND – area should not exceed 1 hectare unless
grantee does not own 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.
In order for the right of redemption to apply, both land sought to be
redeemed and the adjacent property belonging to the person
exercising the right of redemption must be rural lands; if one or both
are urban lands, the right under Article 1621 cannot be invoked.
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.
 URBAN LAND – small urban land is situated that a major
portion cannot be used for any practical purpose within a
reasonable period , owner of any adjoining land has a right
of pre-emption at a reasonable price
When two or more owners of adjoining lands wish to exercise the right
of pre-emption or redemption, the owner whose intended use of the
land in question appears best justified shall be preferred.
SALE OF CREDIT IN LITIGATION (1634)
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 therefore,
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)
 Creditor assigns his right to credit to a third person
 Debtor may extinguish the credit by reimbursing the
assignee for the price he paid for the credit
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 Debtor may reimburse within 30 days from time assignee
demands payment from him
Example: A borrows P 1M from B. B sues A to get P 1M plus interest.
B cannot wait and sells his right to C to get the P 1M for P 700,000. A
can talk to C that instead of paying P1M, A will instead pay C P
700,000.
PERIOD OF REDEMPTION
ARTICLE 1623. The right of legal pre-emption or redemption shall
not be exercised except within thirty days from the notice in
writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of
Property, unless accompanied by an affidavit of the vendor that
he has given written notice thereof to all possible redemptioners.
 Right to redeem shall not be exercised except within 30
days from notice in writing by prospective seller or
seller
 Deed of sale shall not be recorded in Registry of Property
unless with seller's affidavit that he has sent written notices
to all possible redemptioners (1623)
The right of redemption of co-owners excludes that of adjoining
owners.
Seller is obligated to co-owner, adjoining owner, debtor, coheir to
serve a written notice if he sells to a stranger. This is not strictly
followed but it is nonetheless, it is the law. If you were not informed,
you can file an action for breach of this provision.
REDEMPTION; LEGAL; FORMALITIES (2001)
Betty and Lydia were co-owners of a parcel of land. Last January 31,
2001, when she paid her real estate tax, Betty discovered that Lydia
had sold her share to Emma on November 10, 2000. The following
day, Betty offered to redeem her share from Emma, but the latter
replied that Betty's right to redeem has already prescribed. Is Emma
correct or not? Why? (5%)
SUGGESTED ANSWER: Emma, the buyer, is not correct. Betty can
still enforce her right of legal redemption as a co-owner. Article 1623 of
the Civil Code gives a co-owner 30 days from written notice of the sale
by the vendor to exercise his right of legal redemption. In the present
problem, the 30-day period for the exercise by Betty of her right of
redemption had not even begun to run because no notice in writing of
the sale appears to have been given to her by Lydia.
REDEMPTION; LEGAL; FORMALITIES (2002)
Adela and Beth are co-owners of a parcel of land. Beth sold her
undivided share of the property to Xandro, who promptly notified Adela
of the sale and furnished the latter a copy of the deed of absolute sale.
When Xandro presented the deed for registration, the register of deeds
also notified Adela of the sale, enclosing a copy of the deed with the
notice. However, Adela ignored the notices. A year later, Xandro filed a
petition for the partition of the property. Upon receipt of summons,
Adela immediately tendered the requisite amount for the redemption.
Xandro contends that Adela lost her right of redemption after the
expiration of 30 days from her receipt of the notice of the sale given by
him.

May Adela still exercise her right of redemption? Explain. (5%)

SUGGESTED ANSWER: Yes, Adela may still exercise her right of

redemption notwithstanding the lapse of more than 30 days from notice
of the sale given to her because Article 1623 of the New Civil Code
requires that the notice in writing of the sale must come from the
prospective vendor or vendor as the case may be. In this case, the
notice of the sale was given by the vendee and the Register of Deeds.
The period of 30 days never tolled. She can still avail of that right.

ALTERNATIVE ANSWER: Adela can no longer exercise her right of

redemption. As co-owner, she had only 30 days from the time she
received written notice of the sale which in this case took the form of a
copy of the deed of sale being given to her (Conejero v. CA, 16 SCRA
775 [1966]). The law does not prescribe any particular form of written
notice, nor any distinctive method for notifying the redemptioner
(Etcuban v. CA, 148 SCRA 507 [1987]). So long as the redemptioner
was informed in writing, he has no cause to complain (Distrito v. CA,
197 SCRA 606, 609 [1991]). In fact, in Distrito, a written notice was
held unnecessary where the co-owner had actual knowledge of the
sale, having acted as middleman and being present when the vendor
signed the deed of sale.

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