OUTLINE 3

l. Negotiation Stage

           1.  Invitations to make offers – Arts. 1325

Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite offers,
but mere invitations to make an offer. (n)

           2.  Offer – Arts. 1321, 1323

Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of which
must be complied with. (n)

Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. (n)

           3.  Counter-offer

           4.  Unaccepted unilateral promise/offer (policitacion) to sell/buy

           5.  Contract to Sell – obligation “to do”

           6.  Option Contract – Art. 1479 (par. 2) and 1324

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price. (1451a)

Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised. 

           7.  Right of First Refusal                                             

 Cases:   

 Limson v. Court of Appeals

FACTS:
Respondents offered to sell to petitioner a parcel of land consisting of 48, 260 square meters, situated in
Barrio San Dionisio, Parañaque, Metro Manila where the latter agreed to buy the property at the price of
P34.00 per square meter and gave the sum of P20,000.00 to respondent spouses as “earnest money;” and
gave her a 10-day option period to purchase the property, However, the property in question is mortgaged
to spouses Ramos.

Petitioner alleged that she agreed to meet the respondent spouses and Ramoses to pay the balance of the
purchase price and to consummate the sale but no transaction was formalized due to failure of
respondents to appear and to pay the back taxes of the property.

The property was then a subject of negotiation of sale to SUNVAR Realty Development Corporation and
was later executed of which title was given to the latter. Petitioner move for the annulment of the sale and
cancellation of title issued to SUNVAR.

Respondent spouses maintained that petitioner had no sufficient cause of action against them; that she
was not the real party in interest; that the option to buy the property had long expired; that there was no
perfected contract to sell between them; and, that petitioner had no legal capacity to sue. The RTC
rendered judgment in favor of petitioner but was completely reversed by the Court of Appeals.

Hence, this petition.

ISSUE:

Whether or not the consideration P20,000 paid by petitioner to respondent spouses is considered as
earnest money.

RULING:

NO. A careful examination of the words used indicated that the money is not earnest money but option
money. “Earnest money” and “option money” are not the same but distinguished thus;

(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 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 but may even forfeit it depending on the terms of the
option.

There is nothing in the Receipt which indicates that the P20,000.00 was part of the purchase price.
Moreover, it was not shown that there was a perfected sale between the parties where earnest money was
given. Finally, when petitioner gave the “earnest money” the Receipt did not reveal that she was bound to
pay the balance of the purchase price. In fact, she could even forfeit the money given if the terms of the
option were not met.
Thus, the P20,000.00 could only be money given as consideration for the option contract. That the
contract between the parties is one of option is buttressed by the provision therein that should the
transaction of the provision therein that should the transaction of the property not materialize without
fault of petitioner as buyer, respondent Lorenzo de Vera obligates himself to return the full amount of
P20,000.00 “earnest money” with option to buy or forfeit the same on the fault of petitioner. It is further
bolstered by the provision therein that guarantees petitioner that she or her representative would be
notified in case the subject property was sold or encumbered to a third person.                

ROSENCOR DEVELOPMENT CORPORATION and RENE JOAQUIN, petitioners, vs.

PATERNO INQUING, IRENE GUILLERMO, FEDERICO BANTUGAN, FERNANDO
MAGBANUA and LIZZA TIANGCO, respondents.

G.R. No. 140479 March 8, 2001

CASE DIGEST
FACTS:

Respondents were lessees of spouses Tiangco since 1971. The lease was made orally as well as the right
of first refusal. Spouses died but their heirs promised the same preemptive right

Subsequently, the heirs sold the property to Rosencor on Sept 1990 and demanded they vacate the
property. The respondents did not vacate and prayed for rescission of the Deed between Rosencor and the
heirs.

ISSUE: Whether or not rescission is proper.

RULING: No.

Rescission is not proper. 

Certain classes of contracts need to be in writing or in some required form to be enforceable. It does not
include the right of first refusal. The heirs recognized the respondents’ right of first refusal and according
to recent jurisprudence, a violation of it may grant the rescission of the Deed of Sale, even if the sale was
a valid one. However, Rosencor is a buyer in good faith. 

The evidence fails to prove that Rosencor knew of the respondents’ right of first refusal or had notice of
it. The letter made no mention that they knew of it, only that of the lease. Respondents did not even notify
Rosencor of the right of first refusal, only that they were lessees. 

Because there was no bad faith, under Art 1385, rescission cannot apply.

Tuazon v. Del Rosario-Suarez

G.R. No. 168325, 13 December 2010
FACTS:
Petitioner and respondent entered into a Contract of Lease, wherein petitioner, Tuazon, will occupy the
parcel of land owned by respondent, Del Rosario-Suarez, for a period of three years. During the
effectivity of the lease, respondent sent a letter to the petitioner offering to sell the parcel of land. She
pegged the price at P37,541,000.00 and gave him two years from January 2, 1995 to decide on the said
offer. On June 19, 1997, four months after the expiration of the Contract of Lease, respondent sold the
land to Catalina Suarez-De Leon, et al. The new owners notified the petitioner to vacate the premises on
the grounds of non-payment of rentals and expiration of the Contract of Lease. Petitioner claims that
respondent violated his right to buy subject property under the principle of right of first refusal by not
giving him notice and the opportunity to by the property. Respondent contended that the principle of right
of first refusal is unavailing in this case. It is a contract of option which was not perfected due to the
failure of acceptance on the part of the respondent.

ISSUE:

WON a lessee loses his right to buy the property upon failure to accept an offer or to purchase on time
within the period stipulated.

RULING:

Yes. The case indeed involves an option contract and not a contract of a right of first refusal. What is
involved here is a separate and distinct offer made by Lourdes through a letter dated January 2, 1995
wherein she is selling the leased property to Roberto for a definite price and which gave the latter a
definite period for acceptance. Roberto was not given a right of first refusal. The letter-offer of Lourdes
did not form part of the Lease Contract because it was made more than six months after the
commencement of the lease. It is an option contract, the rules applicable are found in Articles 1324 and
1479 of the Civil Code which provides:

Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration distinct from the price.

It is clear from the provision of Article 1324 that there is a great difference between the effect of an
option which is without a consideration from one which is founded upon a consideration. If the option is
without any consideration, the offeror may withdraw his offer by communicating such withdrawal to the
offeree at any time before acceptance; if it is founded upon a consideration, the offeror cannot withdraw
his offer before the lapse of the period agreed upon.

ll.   Perfection Stage  - Arts. 1475 – 1476;  Art. 1318; 

Art. 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)

Art. 1476. In the case of a sale by auction:

(1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer,
or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the
auctioneer may withdraw the goods from the sale unless the auction has been announced to be without
reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by
law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the
seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such
sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the
seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening
this rule may be treated as fraudulent by the buyer. (n)

Art. 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. (1261)

           1.  Validity of COS  - Art. 1483, Art. 1874

Article 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a
contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of
mouth, or may be inferred from the conduct of the parties.

Article 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of
the latter shall be in writing; otherwise, the sale shall be void.

           2.  Enforceability  - Arts. 1403 - 1408;  Art. 1357

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 for 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 1408. Unenforceable contracts cannot be assailed by third persons.

3.  E-Commerce Act of 2000  (R.A. 8792)  - Secs. 7 and 8

SECTION 7(7). Legal Recognition of Electronic Documents. — Electronic documents shall have the
legal effect, validity or enforceability as any other document or legal writing, and —

(a) Where the law requires a document to be in writing, that requirement is met by an electronic document
if the said electronic document maintains its integrity and reliability and can be authenticated so as to be
usable for subsequent reference, in that —

(i) The electronic document has remained complete and unaltered, apart from the addition of any
endorsement and any authorized change, or any change which arises in the normal course of
communication, storage and display; and

(ii) The electronic document is reliable in the light of the purpose for which it was generated and in the
light of all relevant circumstances.

(b) Paragraph (a) applies whether the requirement therein is in the form of an obligation or whether the
law simply provides consequences for the document not being presented or retained in its original form.
(c) Where the law requires that a document be presented or retained in its original form, that requirement
is met by an electronic document if —

i) There exist a reliable assurance as to the integrity of the document from the time when it was first
generated in its final form; and

ii) That document is capable of being displayed to the person to whom it is to be

presented: Provided, That no provision of this Act shall apply to vary any and all requirements of existing
laws on formalities required in the execution of documents for their validity.

For evidentiary purposes, an electronic document shall be the functional equivalent of a written document
under existing laws.

This Act does not modify any statutory rule relating to the admissibility of electronic data messages or
electronic documents, except the rules relating to authentication and best evidence.

SECTION 8(8). Legal Recognition of Electronic Signatures. — An electronic signature on the electronic

document shall be equivalent to the signature of a person on a written document if the signature is an
electronic signature and proved by showing that a prescribed procedure, not alterable by the parties
interested in the electronic document, existed under which —

a.) A method is used to identify the party sought to be bound and to indicate said party’s access to the
electronic document necessary for his consent or approval through the electronic signature;

b.) Said method is reliable and appropriate for the purpose for which the electronic document was
generated or communicated, in the light of all circumstances, including any relevant agreement;

c.) It is necessary for the party sought to be bound, in order to proceed further with the transaction, to
have executed or provided the electronic signature; and

d.) The other party is authorized and enabled to verify the electronic signature and to make the decision to
proceed with the transaction authenticated by the same.

 4.  Offer and Acceptance  - Art. 1319 – 1326

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)

Article 1320. An acceptance may be express or implied. (n)

Article 1321. The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with. (n)

Article 1322. An offer made through an agent is accepted from the time acceptance is communicated to
him. (n)

Article 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. (n)

Article 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised. (n)

Article 1325. Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)

Article 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, unless the contrary appears. (n)

 5.  Earnest Money    -   Art.1482

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)

                                            -   Distinguish from Option Money

‘Earnest money’ and ‘option money’ are not the same but distinguished thus:

(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 wouldbe buyer
gives option money, he is not required to buy (De Leon, Comments and Cases on Sales, 1986 Rev. Ed., p.
67.), but may even forfeit it depending on the terms of the option.
 

Cases:     Villongco v. Bormaheco                     65 SCRA 352  (1975)

Facts:
This action was instituted by plaintiff against defendants for the specific performance of a supposed
contract for the sale of land and the improvements thereon for one million four hundred thousand pesos.
Defendants are the owners of 3 lots at 245 Buendia Avenue, Makati, Rizal. There were negotiations for
the sale of the said lots and the improvements thereon between the parties. Defendants made a written
offer to plaintiff for the sale of the property with conditions; Plaintiff in its letter of March 4, 1964 made a
counter- offer for the purchase of the property with the check for P100,000 as earnest money which was
received by Cervantes. In the voucher-receipt evidencing the delivery the broker indicated in her
handwriting that the earnest money. Then, unexpectedly, in a letter dated March 30, 1964, or twenty-six
days after the signing of the contract of sale, defendant returned the earnest money, with interest. In a
letter dated April 7, 1964 plaintiff returned the two checks to Bormaheco, Inc., stating that the condition
for the cancellation of the contract had not arisen and at the same time announcing that an action for
breach of contract would be filed against Defendants, Hence this case.

Issue:
Whether the Contract of Sale was perfected between the Parties?

Held:
Yes, Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to
their nature, may be in keeping with good faith, usage and law” (Art. 1315, Civil Code). 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” (Art. 1319, Civil Code). “An acceptance may be express or implied”.
Bormaheco’s acceptance of Villonco Realty Company’s offer to purchase the Buendia Avenue property,
indubitably proves that there was a meeting of minds upon the subject matter and consideration of the
sale. Therefore, on that date the sale was perfected. Not only that Bormaheco’s acceptance of the part
payment of one hundred thousand pesos shows that the sale was conditionally consummated or partly
executed subject to the purchase by Bormaheco, Inc. of the Punta property.

Uraca v. CA                                      278 SCRA 702  (1997)

Facts:

The Velezes were the owners of the lot and commercial building in Cebu while the petitioners were
lessees of the said building. The Velezes through Ting wrote a letter offering to sell the subject property
for P1,050,000.00 and at the same time requesting the petitioners to reply in three days. Such sale was
accepted.

Uraca went to see Ting about the offer to sell but she was told by the latter that the price was
P1,400,000.00 in cash or managers check and not P1,050,000.00 as erroneously stated in their letter-offer
after some haggling. Emilia Uraca agreed to the price of P1,400,000.00 but counter- proposed that
payment be paid in installments with a down payment of P1,000,000.00 and the balance of P400,000 to
be paid in 30 days. Carmen Velez Ting did not accept the said counter offer of Emilia Uraca although this
fact is disputed by Uraca. However, no payment was made.

The Velezes sold the lot and commercial building to the Avenue Group for P1,050,000.00 net of taxes,
registration fees, and expenses of the sale. At the time the Avenue Group purchased the subject property
on July 13, 1985 from the Velezes, the certificate of title of the said property was clean and free of any
annotation of adverse claims or lis pendens.
Issues:

I.                              Whether or not the contract of sale was perfected; and

II.                           Whether or not the CA erred in not ruling that petitioners have better rights to buy and
own the Velezes property for registering their notice of lis pendens ahead of the Avenue Groups
registration of their deeds of sale.

Held:

Novation is never presumed; it must be sufficiently established that a valid new agreement or obligation
has extinguished or changed an existing one. The registration of a later sale must be done in good faith to
entitle the registrant to priority in ownership over the vendee in an earlier sale.

On the first issue: no extinctive novation.

The lynchpin of the assailed Decision is the public respondents conclusion that the sale of the real
property in controversy. The Court noted that the petitioners accepted in writing and without qualification
the Velezes written offer to sell at P1,050,000.00 within the three-day period stipulated therein. Hence,
from the moment of acceptance on July 10, 1985, a contract of sale was perfected since undisputedly the
contractual elements of consent, object certain and cause concurred.

Article 1600 of the Civil Code provides that (s)ales are extinguished by the same causes as all other
obligations, x x x. Article 1231 of the same Code states that novation is one of the ways to wipe out an
obligation. Extinctive novation requires: (1) the existence of a previous valid obligation; (2) the
agreement of all the parties to the new contract; (3) the extinguishment of the old obligation or contract;
and (4) the validity of the new one.

On the second issue: double sale of an immovable.

Under the foregoing, the prior registration of the disputed property by the second buyer does not by itself
confer ownership or a better right over the property. Article 1544 requires that such registration must be
coupled with good faith. Jurisprudence teaches us that (t)he governing principle is primus tempore, potior
jure (first in time, stronger in right). Knowledge gained by the first buyer of the second sale cannot defeat
the first buyers rights except where the second buyer registers in good faith the second sale ahead of the
first, as provided by the Civil Code. Such knowledge of the first buyer does not bar her from availing of
her rights under the law, among them, to register first her purchase as against the second buyer. But in
converso knowledge gained by the second buyer of the first sale defeats his rights even if he is first to
register the second sale, since such knowledge taints his prior registration with bad faith This is the price
exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer; that
before the second buyer can obtain priority over the first, he must show that he acted in good faith
throughout.

San Miguel Properties v. Huang       336 SCRA 732  (2000)

FACTS:

Petitioner San Miguel Properties Philippines, Inc. offered for sale a two parcels of land totalling 1, 738
square meters to respondent spouses Huang represented by their lawyer, Atty. Dauz. In a letter sent to the
petitioner, Atty. Dauz signified her clients’ interest in purchasing the properties for the amount for which
they were offered by petitioner under the following terms: the sum of ₱500,000.00 would be given as
earnest money and the balance would be paid in eight equal monthly instalments but was refused by
petitioner. Respondent spouse then wrote another letter enclosing the sum of ₱1,000,000.00 representing
earnest-deposit money provided that petitioner shall give respondent an exclusive option to buy the said
property within 30 days, stipulate the terms and conditions of both parties during the said period and a
refund of the earnest deposit money in case of failure to agree which was confirmed by Isidro A.
Sobrecarey, petitioner’s vice-president and operations manager for corporate real estate.

Negotiation commenced but parties failed to agree on the terms and conditions of the sale despite the
extension granted by petitioner is returning the amount of ₱1 million given as “earnest-deposit”.
Respondent spouses filed specific performance before the Regional Trial Court of Pasig City but was
dismissed. The decision was appealed by respondents before the CA and was overturned by the appellate
court holding that all the requisites of a perfected contract of sale had been complied with as the offer
made on March 29, 1994, in connection with which the earnest money in the amount of ₱1 million was
tendered by respondents, had already been accepted by petitioner citing Art, 1482. Hence, this petition.

ISSUE:

Whether or not the ₱1 million allegedly given by respondents and accepted by petitioner through its vice-
president and operations manager, Isidro A. Sobrecarey can be considered as “earnest money” as
contemplated under Art. 1482 of the Civil Code.

RULING:

NO. With regard to the alleged payment and acceptance of earnest money, the Court holds that
respondents did not give the ₱1 million as “earnest money” as provided by Art. 1482 of the Civil Code.
They presented the amount merely as a deposit of what would eventually become the earnest money or
downpayment should a contract of sale be made by them. The amount was thus given not as a part of the
purchase price and as proof of the perfection of the contract of sale but only as a guarantee that
respondents would not back out of the sale. Respondents in fact described the amount as an “earnest-
deposit.” In Spouses Doromal, Sr. v. Court of Appeals, it was held:

. . . While the ₱5,000 might have indeed been paid to Carlos in October, 1967, there is nothing to show
that the same was in the concept of the earnest money contemplated in Art. 1482 of the Civil Code,
invoked by petitioner, as signifying perfection of the sale. Viewed in the backdrop of the factual milieu
thereof extant in the record, We are more inclined to believe that the said ₱5,000.00 were paid in the
concept of earnest money as the term was understood under the Old Civil Code, that is, as a guarantee
that the buyer would not back out, considering that it is not clear that there was already a definite
agreement as to the price then and that petitioners were decided to buy 6/7 only of the property should
respondent Javellana refuse to agree to part with her 1/7 share.
In the present case, the ₱1 million “earnest-deposit” could not have been given as earnest money as
contemplated in Art. 1482 because, at the time when petitioner accepted the terms of respondents’ offer
of March 29, 1994, their contract had not yet been perfected. This is evident from the following
conditions attached by respondents to their letter, to wit: (1) that they be given the exclusive option to
purchase the property within 30 days from acceptance of the offer; (2) that during the option period, the
parties would negotiate the terms and conditions of the purchase; and (3) petitioner would secure the
necessary approvals while respondents would handle the documentation.

Robern Devt. V. Ppl’s Landless Ass.           3/11/2013

Facts:

Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City

On December 12, 1992, Al-Amanah Davao Branch, thru its officer-in-charge Febe O. Dalig (OIC
Dalig),... asked[5] some of the members of PELA[6] to desist from building their houses on the lot and to
vacate the same, unless they are interested to buy it.  The informa... settlers thus expressed their interest to
buy the lot at P100.00... per square meter, which Al-Amanah turned down for being far below its asking
price

Consequently, Al-Amanah reiterated its demand to the informal settlers to vacate the lot.

March 18, 1993, the informal settlers together with other members comprising PELA offered to purchase
the lot for P300,000.00, half of which shall be paid as down payment and the remaining half to be paid
within one year.

In the... lower portion of the said letter, Al-Amanah made the following annotation

Subject offer has been acknowledged/received but processing to take effect upon putting up of the partial
amt. of P150,000.00 on or before April 15, 1993.

By May 3, 1993, PELA had deposited P150,000.00 as evidenced by four bank receipts.

In the meantime, the PELA members remained in the property and introduced further improvements.

On November 29, 1993, Al-Amanah,... wrote then PELA President Bonifacio Cuizon, Sr.  informing him
of the Head Office's disapproval of PELA's offer to buy the said 2,000-square meter lot... has been turned
down by the top management, due to the reason that your offered... price is way below the selling price of
the Bank which is P500.00 per square meter, or negotiate but on Cash basis only.

Meanwhile, acting on Robern's undated written offer,[14] Al-Amanah issued a Recommendation Sheet...
indicating therein that Robern is interested to buy the lot for
P400,000.00; that it has already deposited 20% of the offered purchase price; that it is buying the lot on
"as is" basis;

Eight days later, Robern was informed of the acceptance.

Robern expressed to Al-Amanah its uncertainty on the status of the subject lot

While condition no. 6 in the sale of property to us states that the buyer shall be responsible for ejecting
the squatters of the property, the occupants of the said lot could hardly be categorized as squatters
considering the supposed transaction previously entered by your bank... with them.

To convince Robern that it has no existing contract with PELA, Al-Amanah furnished it with copies of
the Head Office's rejection letter of PELA's bid, the demand letters to vacate, and the proof of
consignment of PELA's P150,000.00 deposit to the Regional Trial Court

Three months later,... PELA filed a suit for Annulment and Cancellation of Void Deed of Sa

It insisted that as early as March 1993 it has a perfected contract of sale with

Al-Amanah.  However, in an apparent act of bad faith and in cahoots with Robern, Al-Amanah proceeded
with the sale of the lot despite the prior sale to PEL

Al-Amanah and Engr. Carpizo claimed that the bank has every right to sell its lot to any interested buyer
with the best offer and thus they chose Robern.

Robern and Bernardo asserted the corporation's standing as a purchaser in good faith and for value in the
sale of the property, having relied on the clean title of Al-Amanah.  They also alleged that the purported
sale to PELA is violative of the Statute of

Frauds[34] as there is no written agreement covering the same.

PELA, on the other hand, claims that... there... was 'an apparent perfection of contract (of sale) between
the Bank and PELA.

Issues:

whether there was a perfected contract of sale between PELA and Al-Amanah, the resolution of which
will decide whether the sale of the lot to Robern should be sustained or not

Ruling:
After scrutinizing the testimonial and documentary evidence in the records of the case, we find no proof
of a perfected contract of sale between Al-Amanah and PELA.  The parties did not agree on the price and
no consent was given, whether express or implied.

Neither can the note written by the bank that "[s]ubject offer has been acknowledged/received but
processing to take effect upon putting up of the partial amount of P150,000.00 on or before April 15,
1993" be construed as acceptance of PELA's offer to buy.  Taken at face... value, the annotation simply
means that the bank merely acknowledged receipt of PELA's letter-offer

We cannot agree with the CA's ratiocination that receipt of the amount, coupled with the phrase written
on the four receipts as "deposit on sale of TCT No. 138914," signified a tacit acceptance by Al-Amanah
of PELA's offer.

For sure, the money PELA gave was not in the... concept of an earnest money.  Besides, as testified to by
then OIC Dalig, it is the usual practice of Al-Amanah to require submission of a bid deposit which is
acknowledged by way of bank receipts before it entertains offers.

Contracts undergo three stages: "[a) n]egotiation [which] begins from the time the prospective contracting
parties indicate interest in the contract and ends at the moment of their agreement[; b) p]erfection or
birth[,] x x x which takes place when the parties agree upon all the... essential elements of the contract x x
x; [and c) c]onsummation[, which] occurs when the parties fulfill o... perform the terms agreed upon,
culminating in the extinguishment thereof

In the case at bench, the transaction between Al-Amanah and PELA remained in the negotiation stage.  
The offer never materialized into a perfected sale, for no oral or documentary evidence categorically
proves that Al-Amanah expressed amenability to the offered P300,000.00... purchase price.

Before the lapse of the 1-year period PELA had set to pay the remaining 'balance,' Al-Amanah expressly
rejected its offered purchase price, although it took the latter around seven months to inform the former
and this entitled PELA to award of... damages.

 Ali Akang v. Mun. of Isulan                          6/26/ 2013

FACTS:

Petitioner is a member of the national and cultural community belonging to the Maguindanaon tribe of
Isulan, Province of Sultan Kudarat and the registered owner of parcel of land located at Isulan, Sultan
Kudarat, with an area of 20,030 square meters.

Sometime in 1962, a two-hectare portion of the property was sold by the petitioner to the Municipality of
Isulan, Province of Sultan Kudarat through then Isulan Mayor DatuAmpatuan under a Deed of Sale to be
used purposely and exclusively as a Government Center site. The respondent immediately took
possession of the property and began construction of the municipal building.
39 years later, the petitioner, together with his wife, Patao Talipasan, filed a civil action for Recovery of
Possession of Subject Property and/or Quieting of Title thereon and Damages against the respondent,
represented by its Municipal Mayor, et al.

In his complaint, the petitioner alleged, among others, that the agreement was one to sell, which was not
consummated as the purchase price was not paid.

In its answer, the respondent denied the petitioner’s allegations, claiming, among others: that the
petitioner’s cause of action was already barred by laches; that the Deed of Sale was valid; and that it has
been in open, continuous and exclusive possession of the property for 40 years.

ISSUE:

Whether or not there was a contract of sale or a contract to sell;

RULING:

The Deed of Sale is a Valid Contract of Sale.

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.The
elements of a contract of sale are:

(a) consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
(b) determinate subject matter; and
(c) price certain in money or its equivalent.

A contract to sell, on the other hand, is a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition
agreed upon, that is, full payment of the purchase price.

In a contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold,
whereas in a contract to sell, the ownership is, by agreement, retained by the seller and is not to pass to
the vendee until full payment of the purchase price.

The Deed of Sale executed by the petitioner and the respondent is a perfected contract of sale, all its
elements being present. There was mutual agreement between them to enter into the sale, as shown by
their free and voluntary signing of the contract. There was also an absolute transfer of ownership of the
property by the petitioner to the respondent as shown in the stipulation: “x xx I petitioner hereby sell,
transfer, cede, convey and assign as by these presents do have sold, transferred, ceded, conveyed and
assigned, x xx.”There was also a determine subject matter, that is, the two-hectare parcel of land as
described in the Deed of Sale. Lastly, the price or consideration was to be paid after the execution of the
contract.
The fact that no express reservation of ownership or title to the property can be found in the Deed of Sale
bolsters the absence of such intent, and the contract, therefore, could not be one to sell. Had the intention
of the petitioner been otherwise, he could have: (1) immediately sought judicial recourse to prevent
further construction of the municipal building; or (2) taken legal action to contest the agreement. The
petitioner did not opt to undertake any of such recourses.

David v. Misamis Electric Coop                  7/11/ 2012

Facts:

Petitioner Virgilio S. David (David) was the owner or proprietor of VSD Electric Sales, a company
engaged in the business of supplying electrical hardware including transformers for rural electric
cooperatives like respondent Misamis Occidental II Electric Cooperative,... Inc. (MOELCI), with
principal office located in Ozamis City.

To solve its problem of power shortage affecting some areas within its coverage, MOELCI expressed its
intention to purchase a 10 MVA power transformer from David. For this reason, its General Manager,
Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latter's... office in Quezon City. David
agreed to supply the power transformer provided that MOELCI would secure a board resolution because
the item would still have to be imported.

On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez), who was in-charge of procurement,
returned to Manila and presented to David the requested board resolution which authorized the purchase
of one 10 MVA power transformer. In turn, David presented his proposal... for the acquisition of said
transformer. This proposal was the same proposal that he would usually give to his clients.

After the reading of the proposal and the discussion of terms, David instructed his then secretary and
bookkeeper, Ellen M. Wong, to type the names of Engr. Rada and Jimenez at the end of the proposal.
Both signed the document under the word "conforme." The board resolution was... thereafter attached to
the proposal.

As stated in the proposal, the subject transformer, together with the basic accessories, was valued at
P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be paid as
downpayment and the remaining balance to be paid upon delivery. Freight handling,... insurance, customs
duties, and incidental expenses were for the account of the buyer.

The Board Resolution, on the other hand, stated that the purchase of the said transformer was to be
financed through a loan from the National Electrification Administration (NEA).

As there was no immediate action on the loan application, Engr. Rada returned to

Manila in early December 1992 and requested David to deliver the transformer to them even without the
required downpayment. David granted the request provided that MOELCI would pay interest at 24% per
annum.
Engr. Rada acquiesced to the condition.

On December 17, 1992, the goods... were shipped to Ozamiz City via William Lines. In the Bill of
Lading, a sales invoice was included which stated the agreed interest rate of 24% per annum.

When no payment was made after several months, Medina was constrained to send a demand letter, dated
September 15, 1993, which MOELCI duly received.

Subsequently, demand letters were sent to MOELCI demanding the payment of the whole amount plus
the balance of previous purchases of other electrical hardware.

On February 17, 1994, David filed a complaint for specific performance with damages with the RTC.

Issues:

I.

WHETHER OR NOT THERE WAS A PERFECTED

CONTRACT OF SALE.

II.

WHETHER OR NOT THERE WAS A DELIVERY

THAT CONSUMMATED THE CONTRACT.

Ruling:

In other words, the CA was of the position that Exhibit A was at best a contract to sell.

A perusal of the records persuades the Court to hold otherwise.

An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form, would show
that said document, with all the stipulations therein and with the attendant circumstances surrounding it,
was actually a Contract of Sale.

First, there was meeting of minds as to the transfer of ownership of the subject matter.

First, there was meeting of minds as to the transfer of ownership of the subject matter. The letter (Exhibit
A),... though appearing to be a mere price quotation/proposal, was not what it seemed.
The letter (Exhibit A),... though appearing to be a mere price quotation/proposal, was not what it seemed.

. It contained terms and conditions, so that, by the fact that Jimenez, Chairman of the Committee on
Management, and Engr. Rada, General Manager of MOELCI, had signed their names under the word

"CONFORME," they, in effect, agreed with the terms and conditions with respect to the purchase of the
subject 10 MVA Power Transformer.

Second, the document specified a determinate subject matter which was one (1) Unit of 10 MVA Power
Transformer with corresponding KV Line Accessories. And third, the document stated categorically the
price certain in money which was P5,200,000.00 for... one (1) unit of 10 MVA Power Transformer and
P2,169,500.00 for the KV Line Accessories.

In sum, since there was a meeting of the minds, there was consent on the part of David to transfer
ownership of the power transformer to MOELCI in exchange for the price, thereby complying with the
first element.

Thus, the said document cannot just be considered a contract to... sell but rather a perfected contract of
sale.

Now, the next question is, was there a delivery?

MOELCI, in denying that the power transformer was delivered to it, argued that the Bill of Lading which
David was relying upon was not conclusive. It argued that although the bill of lading was stamped
"Released," there was nothing in it that indicated that said power... transformer was indeed released to it
or delivered to its possession. For this reason, it is its position that it is not liable to pay the purchase price
of the 10 MVA power transformer.

This Court is unable to agree with the CA that there was no delivery of the items.

On the contrary, there was delivery and release.

To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:

C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the account
of MOELCI II.[

On this score, it is clear that MOELCI agreed that the power transformer would be delivered and that the
freight, handling, insurance, custom duties, and incidental expenses shall be shouldered by it.

Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was deemed
to be a delivery to MOELCI.
David was authorized to send the power transformer to the buyer pursuant to their agreement. When
David sent the item through the carrier, it... amounted to a delivery to MOELCI.

Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco,[14] it was pointed out that a
specification in a contract relative to the payment of freight can be taken to indicate the intention of the
parties with regard to the place of... delivery.

So that, if the buyer is to pay the freight, as in this case, it is reasonable to suppose that the subject of the
sale is transferred to the buyer at the point of shipment. In other words, the title to the goods transfers to
the buyer upon shipment or delivery to the... carrier.

Of course, Article 1523 provides a mere presumption and in order to overcome said presumption,
MOELCI should have presented evidence to the contrary. The burden of proof was shifted to MOELCI,
who had to show that the rule under Article 1523 was not applicable. In this regard,... however, MOELCI
failed.

Principles:

So that, if the buyer is to pay the freight, as in this case, it is reasonable to suppose that the subject of the
sale is transferred to the buyer at the point of shipment. In other words, the title to the goods transfers to
the buyer upon shipment or delivery to the... carrier.

  Starbright Sales v. Phil. Realty Corp.                    1/18/2012

Facts:

On April 17, 1988 Ramon Licup wrote Msgr. Domingo A. Cirilos, offering to buy three contiguous
parcels of land in Parañaque that The Holy See and Philippine Realty Corporation (PRC) owned for
P1,240.00 per square meter. Licup accepted the responsibility for removing the illegal settlers on the land
and enclosed a check for P100,000.00 to "close the transaction.” He undertook to pay the balance of the
purchase price upon presentation of the title for transfer and once the property has been cleared of its
occupants. Msgr. Cirilos, representing The Holy See and PRC, signed his name on the conforme portion
of the letter and accepted the check. But the check could not be encashed due to Licup's stop-order
payment. Licup wrote Msgr. Cirilos on April 26, 1988, requesting that the titles to the land be instead
transferred to petitioner Starbright Sales Enterprises, Inc. (SSE). He enclosed a new check for the same
amount. SSE's representatives, Mr. and Mrs. Cu, did not sign the letter.

On November 29, 1988 Msgr. Cirilos wrote SSE, requesting it to remove the occupants on the property
and, should it decide not to do this, Msgr. Cirilos would return to it the P100,000.00 that he received. On
January 24, 1989 SSE replied with an "updated proposal.” It would be willing to comply with Msgr.
Cirilos' condition provided the purchase price is lowered to P1,150.00 per square meter.

On January 26, 1989 Msgr. Cirilos wrote back, rejecting the "updated proposal." He said that other buyers
were willing to acquire the property on an "as is, where is" basis at P1,400.00 per square meter. He gave
SSE seven days within which to buy the property at P1,400.00 per square meter, otherwise, Msgr. Cirilos
would take it that SSE has lost interest in the same. He enclosed a check for P100,000.00 in his letter as
refund of what he earlier received. The property was eventually sold to Tropicana Properties and then
sold Standard Realty.

Issue:

Whether or not there is a perfected contract existing between SSE and land owners, represented by Msgr.
Cirilos.

Ruling:

Three elements are needed to create a perfected contract: 1) the consent of the contracting parties; (2) an
object certain which is the subject matter of the contract; and (3) the cause of the obligation which is
established. Under the law on sales, a contract of sale is perfected when the seller, obligates himself, for a
price certain, to deliver and to transfer ownership of a thing or right to the buyer, over which the latter
agrees. From that moment, the parties may demand reciprocal performance.

The Court believes that the letter between Licup and Msgr. Cirilos, the representative of the property's
owners, constituted a perfected contract. However, when Licup ordered to stop his deposit and instead
transferred the property to SSE, a novation took place. Novation serves two functions - one is to
extinguish an existing obligation, the other to substitute a new one in its place - requiring concurrence of
four requisites: 1) a previous valid obligation; 2) an agreement of all parties concerned to a new contract;
3) the extinguishment of the old obligation; and 4) the birth of a valid new obligation. In the given case, it
was noted that the signatures present during Licup and Msgr. Cirilos agreement are not present in the
letter of agreement between SSE and Msgr. Cirilos. SSE cannot revert to the original terms stated in
Licup's letter to Msgr. Cirilos since it was not privy to such contract. The parties to it were Licup and
Msgr. Cirilos. Under the principle of relativity of contracts, contracts can only bind the parties who
entered into it.

DBP v. Medrano                                                   2/7/ 2011 

FACTS: Respondent Ben Medrano was the President and General Manager of Paragon Paper Industries,
Inc. (Paragon) wherein he owned 37,681 shares. Sometime in 1980, petitioner DBP sought to consolidate
its ownership in Paragon. In one of the meetings of the Paragon Executive Committee, the Chairman Jose
B. de Ocampo, instructed Medrano, as President and General Manager of Paragon, to contact or sound off
the minority stockholders. Medrano testified that all, including himself, agreed to sell, and all took steps
to have their shares surrendered to DBP for payment.

DBP, through Jose de Ocampo, who was also a member of its Board of Governors, also offered Medrano
a commission ofP185,010.00 if the latter could persuade all the other Paragon minority stockholders to
sell their shares. Since Medrano was able to convince only two stockholders, his commission was reduced
to P155,455.00.

Thereafter, Medrano demanded that DBP pay the value of his shares, which he had already turned over,
and his P155,455.00 commission. When DBP did not heed his demand, Medrano filed a complaint for
specific performance and damages against DBP. While under Article 1545 of the Civil Code, DBP had
the right not to proceed with the agreement upon Medrano’s failure to comply with the conditions, DBP
was deemed to have waived the performance of the conditions when it chose to retain Medrano’s shares
and later transfer them to the APT.

ISSUE: Did the CA erred in applying Article 1545 of the Civil Code?

HELD: As a rule, a contract is perfected upon the meeting of the minds of the two parties. Under Article
1475 of the Civil Code, a contract of sale is perfected the moment there is a meeting of the minds on the
thing which is the object of the contract and on the price.

The present case does not fall under this article because there is no perfected contract of sale to speak of.
Medrano’s failure to comply with the conditions set forth by DBP prevented the perfection of the contract
of sale. Hence, Medrano and DBP remained as prospective-seller and prospective-buyer and not parties to
a contract of sale.

This notwithstanding, however, the Court still did not agree with DBP’s argument that since there is no
perfected contract of sale, DBP should not be ordered to pay Medrano any amount.

It was not proper for DBP to hold on to Medrano’s shares of stock after it became obvious that he will not
be able to comply with the conditions for the contract of sale. From that point onwards, the prudent and
fair thing to do for DBP was to return Medrano’s shares because DBP had no just or legal ground to
retain them. Equitable considerations militate against DBP’s claimed right over the subject
shares. DENIED.

lll.   Consummation Stage -  Delivery and Payment – 1458

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. (1445a)

          A.  Obligations of the Vendor – Arts. 1495, 1459, 1537, 1163, 1487

Article 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing
which is the object of the sale. (1461a)

Article 1459. The thing must be licit and the vendor must have a right to transfer the ownership thereof at
the time it is delivered. (n)

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 1163. Every person obliged to give something is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law or the stipulation of the parties requires another
standard of care. (1094a)

Article 1487. The expenses for the execution and registration of the sale shall be borne by the vendor,
unless there is a stipulation to the contrary.

                                  Contract of Sale  - right to transfer/acquire ownership

                                  Delivery - mode of transferring ownership

           B.  Transfer of Ownership –   

                      1.   Upon Delivery -  Arts. 1477, 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)

                               Actual/real delivery – Art 1497

Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and
possession of the vendee. (1462a)

                               Constructive delivery: is a general term comprehending all those acts which, although
not conferring physical possession of the thing, have been held by construction of law equivalent to acts
of real delivery

                            -  traditio longa manu (Art. 1499)

-This mode of delivery takes place by the mere consent or agreement of the contracting parties as when
the vendor merely points to the thing sold which shall thereafter be at the control and disposal of the
vendee. It should be noted that delivery “by the mere consent or agreement of the contracting parties” is
qualified by the phrase “if the thing sold cannot be transferred to the possession of the vendee at the time
of the sale.”

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)
                             - traditio brevi manu  (Art. 1499)

-This mode of legal delivery happens when the vendee has already the possession of the thing sold by
virtue of another title as when the lessor sells the thing leased to the lessee. Instead of turning over the
thing to the vendor so that the latter may, in turn, deliver it, all these are considered done by action of law.

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)

                             - constitutum possessorium (Art. 1500)

- This mode of delivery is the opposite of traditio brevi manu. It takes place when the vendor continues in
possession of the property sold not as owner but in some other capacity, as for example, when the vendor
stays as a tenant of the vendee. In this case, instead of the vendor delivering the thing to the vendee so
that the latter may, in turn, deliver it back to the vendor, the law considers that all these have taken place
by mere consent or agreement of the parties.

Article 1500. There may also be tradition constitutum possessorium. (n)

                             - quasi-traditio (Art. 1501)

Article 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498
shall govern. In any other case wherein said provisions are not applicable, the placing of the titles of
ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor's
consent, shall be understood as a delivery. (1464)

-Tradition can only be made with respect to corporeal things. In the case of incorporeal things, delivery is
effected:

(1) by the execution of a public instrument; or

(2) when that mode of delivery is not applicable, by the placing of the titles of ownership in the
possession of the vendee; or

(3) by allowing the vendee to use his rights as new owner with the consent of the vendor. This mode of
delivery of incorporeal things or rights is known as quasi-traditio. Thus, the delivery to a person of a
negotiable document of title in which it is stated that the goods referred to therein will be delivered to the
bearer amounts to delivery of the goods to such person.

                             - execution of a public instrument  (Art. 1498, par. 1)

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)

                                        (mov & immov)

                             - symbolic delivery (Art. 1498, par. 2), (movables)

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)                     

                      2.   Stipulation of Parties – Arts. 1478, 1503, par.1

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)

Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the
contract, reserve the right of possession or ownership in the goods until certain conditions have been
fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the
goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.

                      3.   “Sale or Return” – Art. 1502

Article 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an option to
return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he may
revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract,
or, if no time has been fixed, within a reasonable time. (n)

When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms,
the ownership therein passes to the buyer:

(1) When he signifies his approval or acceptance to the seller or does any other act adopting the
transaction;

(2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving
notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such
time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a
question of fact. (n)  

Sale or return. — It is a contract by which property is sold but the buyer, who becomes the owner of the
property on delivery, has the option to return the same to the seller instead of paying the price. (a) Under
this contract, the option to purchase or return the goods rests entirely on the buyer without reference to the
quality of the goods. The buyer may revest the ownership in the seller by returning or tendering the goods
within the time fixed in the contract, or, if no time has been fixed, within a reasonable time (Art. 1502,
par. 1.); otherwise, the sale becomes absolute and the buyer is liable for the price. The seller cannot, in
this type of sale, prevent the revesting of title by refusing to accept the return of the property. (b) Since
title passes to the buyer on delivery, the loss or destruction of the property prior to the exercise of the
buyer’s option to return falls upon him and renders him responsible to the seller for the purchase price or
such part thereof as remains unpaid. The word “return” itself implies a previous transfer of title.

                            “Sale on Trial / on Approval / on Satisfaction” – Art. 1502

Sale on trial or approval. — It is a contract in the nature of an option to purchase if the goods prove
satisfactory, the approval of the buyer being a condition precedent. (77 C.J.S. 938.) (a) In this kind of
contract, the title shall continue in the seller until the sale has become absolute either by the buyer’s
approval of the goods, or by his failing to comply with the express or implied conditions of the contract as
to giving notice of dissatisfaction or as to returning the goods (Ibid., 655; Art. 1502, Nos. 1 and 2.), or by
his doing any other act adopting the transaction such as mortgaging the property or selling it to a third
person. (b) For the reason that the title to the goods does not pass and the relationship between the seller
and the purchaser is that of bailor and bailee, the risk of loss or injury to the article pending the exercise
by the buyer of his option to purchase or return it, is upon the seller except as the buyer may be at fault in
respect of the care and condition of the article, or may have agreed to stand the loss.

(c) The buyer cannot accept part and reject the rest of the goods since this falls outside the normal intent
of the parties. (Industrial Textile Manufacturing Co. vs. LPJ Enterprises, Inc., supra.)

                      4.   Common Carrier -  Arts.1503, par. 2 and 3;

Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the
contract, reserve the right of possession or ownership in the goods until certain conditions have been
fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the
goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer.

Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or
to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if
except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the
goods, the seller's property in the goods shall be deemed to be only for the purpose of securing
performance by the buyer of his obligations under the contract.

Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of
his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby
reserves a right to the possession of the goods as against the buyer.

Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of
lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to
return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of
lading he acquires no added right thereby. If, however, the bill of lading provides that the goods are
deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the
consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the
buyer will obtain the ownership in the goods, although the bill of exchange has not been honored,
provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named
therein, or of the goods, without notice of the facts making the transfer wrongful. (n)

                                        par. 4 on rt of 3rd party;  Art. 1523

                                         -  f.o.b./ c.i.f./ f.a.s.

Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose
of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases
provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of
the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of
the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may
decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in
damages.

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the
seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as
may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be
deemed to be at his risk during such transit. (n)

                   ( Note:  No tradition if no intention to deliver / to accept)

                     5.    Arts.1505 – 1506;   Arts. 559 and 1434

Article 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the
owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct
precluded from denying the seller's authority to sell.

Nothing in this Title, however, shall affect:

(1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent
owner of goods to dispose of them as if he were the true owner thereof;

(2) The validity of any contract of sale under statutory power of sale or under the order of a court of
competent jurisdiction;

(3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of
Commerce and special laws. (n)
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)

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)

Article 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later
the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

    Cases:      Addison v. Felix Tioco                   38 Phil. 404 (1918)

FACTS:

Petitioner Addison sold four parcels of land to Defendant spouses Felix and Tioco located in Lucena City.
Respondents paid 3K for the purchase price and promised to pay the remaining by installment. The
contract provides that the purchasers may rescind the contract within one year after the issuance of title on
their name.

The petitioner went to Lucena for the survey designaton and delivery of the land but only 2 parcels were
designated and 2/3 of it was in possession of a Juan Villafuerte.

The other parcels were not surveyed and designated by Addison.

Addison demanded from petitioner the payment of the first installment but the latter contends that there
was no delivery and as such, they are entitled to get back the 3K purchase price they gave upon the
execution of the contract.

ISSUE:

WON there was a valid delivery.

HELD:

The record shows that the plaintiff did not deliver the thing sold. With respect to two of the parcels of
land, he was not even able to show them to the purchaser; and as regards the other two, more than two-
thirds of their area was in the hostile and adverse possession of a third person.
It is true that the same article declares that the execution of a public instruments is equivalent to the
delivery of the thing which is the object of the contract, but, in order that this symbolic delivery may
produce the effect of tradition, it is necessary that the vendor shall have had such control over the thing
sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer
upon the purchaser the ownership and the right of possession. The thing sold must be placed in his
control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the
purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is
sufficient. But if there is an impediment, delivery cannot be deemed effected.

Equatorial v. Mayfair Theater       370 SCRA 56 (2001)

FACTS:

Carmelo and Bauermann, Inc. leased its parcel of land with two-storey building to Mayfair Theater, Inc.
Carmelo informed Mayfair that they intend to sell the entire property. Mayfair replied that they were
interested to buy the entire property if the price is reasonable. However, Carmelo sold the entire property
to Equatorial. Mayfair filed an action for specific performance and annulment of the sale because it
violated their exclusive option to purchase the property for 30 days as stipulated in the lease contract.
Carmelo contended that it informed Mayfair their desire to sell the property and the option to purchase by
Mayfair is null and void for lack of consideration.

ISSUE:

Whether the option to purchase in the leased contract is an option contract or a right of first refusal.

RULING:

The Court agrees with the respondent Court of Appeals that the contractual stipulation provides for a right
of first refusal in favor of Mayfair. It is not an option clause or an option contract. It is a contract of a
right of first refusal. An option is a contract granting a privilege to buy or sell within an agreed time and
at a determined price. It is a separate and distinct contract from that which the parties may enter into upon
the consummation of the option. It must be supported by consideration. In the instant case, the right of
first refusal is an integral part of the contracts of lease. The consideration is built into the reciprocal
obligations of the parties.

Since Mayfair has a right of first refusal, it can exercise the right only if the fraudulent sale is first set
aside or rescinded. The facts of the case and considerations of justice and equity require that the Court
should order rescission here and now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and damage the contract may cause or to protect
some incompatible and preferred right by the contract. The sale of the subject real property by Carmelo to
Equatorial should now be rescinded considering that Mayfair, which had substantial interest over the
subject property, was prejudiced by the sale of the subject property to Equatorial without Carmelo
conferring to Mayfair every opportunity to negotiate within the 30-day stipulated period.

Sampaguita  v. Jalwindor                (10/11/1979)

Facts: Plaintiff-appellant Sampaguita Pictures, Inc. leased the roofdeck of their Sampaguita
Pictures Building to Capitol 300 Inc. and agreed that the premises shall be used for social purposes
exclusively for the club’s members and guests; that all permanent improvements made by lessee on the
premises shall belong to the lessor without any obligation to reimburse; that these be considered as part of
the consideration of the monthly rental; and any remodeling, alteration and or addition be at the expense
of lessee. Glass and wooden jalousies were then purchased by Capitol from defendant-appellee Jalwindor
Manufacturers Inc. which were delivered and installed in the premises. Capitol failed to pay the purchases
prompting defendant-appellee to file an action for the collection of a sum of money with petition for
preliminary attachment. The parties submitted a Compromise Agreement to the trial court wherein
Capitol acknowledged its indebtedness and pending liquidation, the materials purchased will be
considered as security. Thereafter, Capitol not only failed to comply with the Compromise Agreement but
also failed to pay rentals to plaintiff-appellant, causing their ejectment with damages paid to the latter.
When the Sheriff of Quezon City levied upon the materials, plaintiff-appelant filed a third-party claim
alleging that it is the owner of the same however, defendant-appellee filed an indemnity bond in favor of
the Sheriff and the public auction pushed through with the latter as the highest bidder. Plaintiff-appellant
sought to nullify the sale in an action filed with the Court of First Instance and for the issuance of a writ
of preliminary injuction against defendant-appellee from detaching the materials. Based on the Stipulation
of Facts submitted, the lower court dismissed the complaint. The subsequent motion for reconsideration
was likewise denied hence the instant petition.

Issue: WON the lower court erred in holding that there was no legal transfer of ownership of the glass
and wooden jalousies from Capitol 300 Inc. to plaintiff-appellant?

Held: Court held in the affirmative. When the glass and wooden jalousies in question were delivered and
installed in the leased premises, Capitol became the owner thereof. Ownership is not transferred by
perfection of the contract but by delivery, either actual or constructive. This is true even if the purchase
has been made on credit, as in the case at bar. Payment of the purchase price is not essential to the transfer
of ownership as long as the property sold has been delivered. Ownership is acquired from the moment the
thing sold was delivered to vendee, as when it is placed in his control and possession.

Capitol entered into a lease contract with Sampaguita in 1964, and the latter became the owner of the
items in question by virtue of the agreement in said contract. When levy or said items was made on July
31, 1965, Capitol, the judgment debtor, was no longer the owner thereof.

The items in question were illegally levied upon since they do not belong to the judgment debtor. The
power of the Court in execution of judgment extends only to properties unquestionably belonging to the
judgment debtor. Execution sales affect the rights of judgment debtor only, and the purchaser in the
auction sale acquires only the right as the debtor has at the time of sale. Since the items already belong to
Sampaguita and not to Capitol, the judgment debtor, the levy and auction sale are, accordingly, null and
void. Decision reversed.

Bean  v. Cadwallader                      10 Phil. 606

    Review:    Edca Publishing v. Santos           184 SCRA 614 (1990)

                      6.  Double Sales – Art. 1544

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)

                                 a)  Movable / Immovable

                                 b)  Requisites

                                 c)  When not applicable

                                 d)  Effect of registration of title under Torrens title

    Cases:     Carbonell v. CA               49  SCRA  99    (1976)

FACTS:

On January 27, 1955, respondent Jose Poncio executed a private memorandum of sale of his parcel of
land with improvements situated in San Juan, Rizal in favor of petitioner Rosario Carbonell who knew
that the said property was at that time subject to a mortgage in favor of the Republic Savings Bank (RSB)
for the sum of P1,500.00. Four days later, Poncio, in another private memorandum, bound himself to sell
the same property for an improved price to one Emma Infante for the sum of P2,357.52, with the latter
still assuming the existing mortgage debt in favor of the RSB in the amount of P1,177.48. Thus, in
February 2, Poncio executed a formal registerable deed of sale in her (Infante's) favor. So, when the first
buyer Carbonell saw the seller Poncio a few days afterwards, bringing the formal deed of sale for the
latter's signature and the balance of the agreed cash payment, she was told that he could no longer proceed
with formalizing the contract with her (Carbonell) because he had already formalized a sales contract in
favor of Infante.

To protect her legal rights as the first buyer, Carbonell registered on February 8, 1955 with the Register of
Deeds her adverse claim as first buyer entitled to the property. Meanwhile, Infante, the second buyer, was
able to register the sale in her favor only on February 12, 1955, so that the transfer certificate of title
issued in her name carried the duly annotated adverse claim of Carbonell as the first buyer. The trial court
declared the claim of the second buyer Infante to be superior to that of the first buyer Carbonell, a
decision which the Court of Appeals reversed. Upon motion for reconsideration, however, Court of
Appeals annulled and set aside its first decision and affirmed the trial court’s decision.

ISSUE:

Who has the superior right over the subject property?

COURT RULING:

The Supreme Court reversed the appellate court’s decision and declared the first buyer Carbonell to have
the superior right over the subject property, relying on Article 1544 of the Civil Code. Unlike the first and
third paragraphs of said Article 1544, which accord preference to the one who first takes possession in
good faith of personal or real property, the second paragraph directs that ownership of immovable
property should be recognized in favor of one "who in good faith first recorded" his right. Under the first
and third paragraphs, good faith must characterize the prior possession, while under the second paragraph,
good faith must characterize the act of anterior registration.

When Carbonell bought the lot from Poncio on January 27, 1955, she was the only buyer thereof and the
title of Poncio was still in his name solely encumbered by bank mortgage duly annotated thereon.
Carbonell was not aware - and she could not have been aware - of any sale to Infante as there was no such
sale to Infante then. Hence, Carbonell's prior purchase of the land was made in good faith which did not
cease after Poncio told her on January 31, 1955 of his second sale of the same lot to Infante. Carbonell
wanted to meet Infante but the latter refused so to protect her legal rights, Carbonell registered her
adverse claim on February 8, 1955. Under the circumstances, this recording of Carbonell’s adverse claim
should be deemed to have been done in good faith and should emphasize Infante's bad faith when the
latter registered her deed of sale 4 days later.

Salvoro v. Tanega            87  SCRA  349  (1978)

FACTS: The Salvoro spouses, herein referred to as plaintiffs, mortgaged a parcel of land to the
Development Bank of the Philippines and having failed to pay the loan, the Bank gave notice to foreclose
the mortgage. On June 7, 1955, the plaintiffs executed a deed of absolute sale in favor of the Tañega
spouses, the first vendees and defendants herein. The Tañega spouses immediately took possession of the
said property and assumed the mortgage executed by the plaintiffs.

On August 9, 1959, another Deed of Absolute Sale was executed by plaintiffs whereby they conveyed
absolutely and unconditionally in favor of the defendants the ownership of the property. On August 25,
1959, or 16 days after plaintiffs executed the said second Deed of Absolute Sale, the said Bank foreclosed
the mortgage and it was the sole and highest bidder. On August 26, 1960, the plaintiffs redeemed the
property from the Development Bank. Thereafter, plaintiffs executed a deed of sale in favor of the Tismo
spouses, the second vendees herein, over the same property.

On August 27, 1960, the defendants tendered payment but the plaintiffs refused to accept the same. On
September 5, 1960 the plaintiffs commenced in the Court of First Instance of Leyte an action principally
to annul a deed of sale of land executed by them in favor of the Tañega spouses on the ground that the
latter failed to comply with certain resolutory conditions imposed in the contract.

On September 15, 1960, the defendants filed a notice of lis pendens with the Register of Deeds of Leyte.
Notwithstanding said notice, the defendants-in- counterclaim, the Tismo spouses, were able to register the
sale in their favor on December 19, 1960, and to secure Transfer Certificate of Title.

The trial court dismissed the complaint. Dissatisfied, the plaintiffs appealed from the said judgment to the
Court of Appeals. But the appellate Court affirmed the judgment of the trial court and ordered the
Register of Deeds of the Province of Leyte to cancel the Transfer Certificate of Title in the name of Juan
and Dolores Tismo, and, in lieu thereof, to issue a new Transfer Certificate of Title in the name of
appellees, Pablo and Josefa Tañega.

Hence, this petition for review on certiorari of the decision of the Court of Appeals.

ISSUE: When real property is sold to two different persons by the same vendor, who shall have a better
right over the property under Article 1544 of the Civil Code of the Philippines, the first vendee who
immediately took possession of the property as owner but neglected to register the sale or the second
vendee who had the document in his favor duly registered?

HELD: Article 1544 of the Civil Code of the Philippines provides that 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.

This Court has held in one case that the basic premise of the preferential rights established by Article
1544 is good faith. To enjoy the preferential right, the second vendee must not only have a prior recording
of his sale but must, above all, have acted in good faith, that is, without knowledge or notice of the
previous and existing alienation made by his vendor to another. This Court has also ruled that the rights
given under this law do not accrue with the mere inscription of the deed of conveyance unless such
inscription is done in good faith. 

The trial court as well as the appellate court has both held that when the Tismo spouses registered the
deed of sale executed in their favor of the property previously sold to the Tañega spouses on December
19, 1960, they could not have failed to know the existence of the lis pendens then annotated on the title of
the property. In short, when they were about to register the deed of sale in their favor, they acquired
knowledge that the land had been previously sold to the Tañega spouses. Indubitably there was bad faith
on the part of the Tismo spouses when they went ahead with the registration despite such knowledge.

This Court had occasions to rule that if a vendee in a double sale registers the sale after he has acquired
knowledge that there was a previous sale of the same property to a third party, or that another person
claims said property in a previous sale, the registration will constitute a registration in bad faith and will
not confer upon him any right. It is as if there had been no registration, and the vendee who first took
possession of the real property in good faith shall be preferred. 

Applying the foregoing rulings to the present case, this Court held that the defendants-appellees, Spouses
Tañega, are the owners of the land in question inasmuch as they, in good faith, were first in possession of
said land. Since the Tismo spouses were registrants in bad faith, the situation is as if there was no
registration at all. Therefore, the vendees who first took possession of the property in good faith shall be
preferred.
Hence, the petition is hereby denied and the decision of the Court of Appeals sought to be reviewed is
affirmed.

Quimson v. Rosete           87 Phil. 159       (1950) 

FACTS

The estate belonging to the deceased Dionysus Quimson was first transferred in favor of his daughter
TomasaQuimson through a deed of conveyance, but continued in his possession and enjoyment. He sold
it to Francisco Rosete, with a repurchase agreement for the term of five years granting to this effect the
writing of sale. Since then Rosete is the one in his possession and enjoyment, in a peaceful and quiet
manner, even after the death of DionisioQuimson, which occurred on June 6, 1939 until January of 1943.
TomasaQuimsonpetitioned that the property should be given to her as she is the true owner and possessor
of the property.

 ISSUES

What were the effects of the registration of plaintiff’s document?

Who was prior in possession?

 HELD

The Court held that the execution of a public instrument is equivalent to the delivery of the realty sold and
its possession by the vendee. Under these conditions the sale is considered consummate and completely
transfers to the vendee all of the vendor’s rights of ownership including his real rights over the thing. This
means that after the sale of a realty by means of a public instrument, the vendor, who resells it to another,
does not transmit anything to the second vendee and if the latter, by virtue of this second sales, take
material possession of the thing, he does it as a mere detainer, and it would be unjust to protect this
detention against the rights to the thing lawfully acquired by the first vendee. Hence, the Court ruled that
Tomasa Quimson is the rightful owner of the property.                   

          C.  Risk of Loss by Fortuitous Event

                        1.  Before Perfection – Seller (res perit domino)

(1) If the thing is lost before perfection, the seller and not the one who intends to purchase it bears the loss
(see Roman vs. Grimalt, 6 Phil. 96 [1906].) in accordance with the principle that the thing perishes with
the owner (res perit domino);

                        2.  At Time of Perfection of Contract

(2) If the thing is lost at the time of perfection, the contract is void or inexistent. (Art. 1409[3].) The legal
effect is the same as when the object is lost before the perfection of the contract of sale (see Art. 1493.);
                                          If Specific Thing ---   Art. 1493

Article 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract
has been entirely lost, the contract shall be without any effect.

But if the thing should have been lost in part only, the vendee may choose between withdrawing from the
contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon.
(1460a)

                                          If Specific Goods --- Art. 1494

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)                       

                         3.  After Perfection But Before Delivery

(3) If the thing is lost after perfection but before its delivery, that is, even before the ownership is
transferred to the buyer, the risk of loss is shifted to the buyer as an exception to the rule of res perit
domino (Arts. 1480, pars. 1 and 2, 1538, 1189, and 1269.);

                                   Under Art. 1480   ---   Buyer

Article 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the
moment of the perfection of the contract to the time of delivery, shall be governed by articles 1163 to
1165, and 1262.

This rule shall apply to the sale of fungible things, made independently and for a single price, or without
consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall
not be imputed to the vendee until they have been weighed, counted, or measured and delivered, unless
the latter has incurred in delay. (1452a)

                                   Under Art. 1504   ---   Seller, except:

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)

                             -  if Seller retains title for security only --  buyer’s risk

                             -  actual delivery delayed -  party at fault bears risk 

                              -  unless otherwise agreed

                         4.   After Delivery  -  Buyer (res perit domino)

(4) If the thing is lost after delivery, the buyer bears the risk of loss following the general rule of res perit
domino.

                  CASE:  Lawyers Coop. v. Tabora      13 SCRA 762 (1965)

Rule Synopsis

Seller’s retention of title, when merely intended to secure payment of the purchase price, does not prevent
shifting of the risk of loss to the buyer upon delivery of the thing.

Case Summary

Tabora bought from Lawyers Coop. one set of American Jurisprudence, including one set of general
index, payable on installment plan. It was provided in the contract that “title to and ownership of the
books shall remain with the seller until the purchase price shall have been fully paid. Loss or damage to
the books after delivery to the buyer shall be borne by the buyer.” The total price of the books, including
the cost of freight, amounts to P1,682.40. Tabora only made a down payment of P300.00 leaving a
balance of P1,382.40. Lawyers Coop. demanded for the payment of the same but Tabora refused.

Thus, the seller filed a complaint for the recovery of the balance.

The buyer contended the seller should bear the risk of loss given that they were destroyed immediately
after the transaction and that it was agreed upon that title to and the ownership of the books shall remain
with the seller until the purchase price shall have been fully paid. In the alternative, he sought exemption
from liability on ground of fortuitous event.

The lower court ruled in favor of Lawyers Coop, ordering Tabor to pay the balance. The Supreme Court
affirmed.

Issues resolved —

1. Who should bear the risk of loss?

HELD – TABORA.

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. (Art. 1504)

In this case, the seller’s retention of title of over the books was agreed merely to secure the performance
by the buyer of his obligation but in the very contract it was expressly agreed that the “loss or damage to
the books after delivery to the buyer shall be borne by the buyer.”

2. Was Tabora exempted from liability arising from the loss as the same was due to a fortuitous
event?

HELD – NO.

The exemption from liability from loss arising from fortuitous events applies only when the obligation
consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case
of fortuitous event.

In this case, The obligation does not refer to a determinate thing, but is pecuniary in nature, and the
obligor bound himself to assume the loss after the delivery of the goods to him. In other words, the
obligor agreed to assume any risk concerning the goods from the time of their delivery, which is an
exception to the rule provided for in Article 1262 of our Civil Code.

           D.   Arts. 1521 to 1524;       

Article 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to
the buyer is a question depending in each case on the contract, express or implied, between the parties.
Apart from any such contract, express or implied, or usage of trade to the contrary, the place of delivery is
the seller's place of business if he has one, and if not his residence; but in case of a contract of sale of
specific goods, which to the knowledge of the parties when the contract or the sale was made were in
some other place, then that place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending
them is fixed, the seller is bound to send them within a reasonable time.

Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his
obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he
holds the goods on the buyer's behalf.

Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.

Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must
be borne by the seller. (n)

Article 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the
buyer may reject them, but if the buyer accepts or retains the goods so delivered, knowing that the seller
is not going to perform the contract in full, he must pay for them at the contract rate. If, however, the
buyer has used or disposed of the goods delivered before he knows that the seller is not going to perform
his contract in full, the buyer shall not be liable for more than the fair value to him of the goods so
received.

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may
accept the goods included in the contract and reject the rest. If the buyer accepts the whole of the goods so
delivered he must pay for them at the contract rate.

Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different
description not included in the contract, the buyer may accept the goods which are in accordance with the
contract and reject the rest.

In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole of the
goods.

The provisions of this article are subject to any usage of trade, special agreement, or course of dealing
between the parties. (n)

Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the
goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose
of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases
provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of
the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of
the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may
decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in
damages.
Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the
seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as
may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be
deemed to be at his risk during such transit. (n)

Article 1524. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the
price, or if no period for the payment has been fixed in the contract. (1466

                  Arts. 1536 to 1543

Article 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to
make use of the terms as provided in article 1198. (1467a)

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 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)

Article 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee
all that is mentioned in the contract, in conformity with the following rules:

If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit
of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it,
all that may have been stated in the contract; but, should this be not possible, the vendee may choose
between a proportional reduction of the price and the rescission of the contract, provided that, in the latter
case, the lack in the area be not less than one-tenth of that stated.

The same shall be done, even when the area is the same, if any part of the immovable is not of the quality
specified in the contract.

The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the
thing sold exceeds one-tenth of the price agreed upon.

Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of
inferior quality, he may rescind the sale. (1469a)

Article 1540. If, in the case of the preceding article, there is a greater area or number in the immovable
than that stated in the contract, the vendee may accept the area included in the contract and reject the rest.
If he accepts the whole area, he must pay for the same at the contract rate. (1470a)

Article 1541. The provisions of the two preceding articles shall apply to judicial sales. (n)
Article 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit
of measure or number, there shall be no increase or decrease of the price, although there be a greater or
less area or number than that stated in the contract.

The same rule shall be applied when two or more immovables as sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall be bound to deliver all that is included within said
boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able
to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number,
unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been
stipulated. (1471)

Article 1543. The actions arising from articles 1539 and 1542 shall prescribe in six months, counted from
the day of delivery. (1472a)