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LAW ON SALES

Atty. Lilibeth Davis Gabutero, CPA, MBA


NATURE, FORMS AND REQUISITES
• Article 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its
equivalent.

• A contract of sale may be absolute or conditional.


Query: Suppose Art. 1458 did not specify that the
seller must transfer the ownership of the object,
does he still have this obligation?

• Answer: Yes, for after all, this transfer of


ownership is clearly the fundamental aim of the
contract. A buyer is not interested in a mere
physical transfer: he is after ownership.
Illustration:
• Plaintiff granted defendant the right to sell as an
“agent” Quiroga beds in the Visayas. The defendant
was obliged under the contract to pay for the beds, at
a discount of 25% as commission on the sales. The
payment had to be made whether or not the
defendant was able to sell the beds.

Is this a contract of sale, or an agency to sell?


• HELD: This is clearly a contract of sale. There was an
obligation to supply the beds, and a reciprocal
obligation to pay their price. An agent does not pay the
price, he merely delivers it. If he is not able to sell, he
returns the goods. This is not true in the present
contract, for a price was fixed and there was a duty to
pay the same regardless as to whether or not the
defendant had sold the beds. The phrase “commission
on sales” means nothing more than a mere discount on
the invoice price.
Essential Characteristics of the Contract of Sale

(a) Consensual (as distinguished from real), because


the contract is perfected by mere consent.

(b) Bilateral reciprocal, because both parties are bound


by obligations dependent upon each other.
(c) Onerous, because to acquire the rights, valuable
consideration must be given.

d) Commutative, as a rule, because the values exchanged


are almost equivalent to each other.

(NOTE: By way of exception, some contracts of sale are aleatory,


i.e., what one receives may in time be greater or smaller than
what he has given.
Example: The sale of a genuine sweepstakes ticket.)
(e) Principal (as distinguished from an accessory
contract), because for the contract of sale to validly
exist, there is no necessity for it to depend upon the
existence of another valid contract. (Examples of
accessory contracts are those of pledge and mortgage.)

(f) Nominate (as distinguished from an innominate


contract) because the Code refers to it by a special
designation or name, i.e., the contract of sale.
Elements of the Contract of Sale
(a) Essential elements:(those without which there can be no
valid sale):
1) Consent or meeting of the minds, i.e., consent to transfer ownership
in exchange for the price.
2) Determinate subject matter (generally, there is no sale of generic
thing; moreover, if the parties differ as to the object, there can be no
meeting of the minds).
3) Price certain in money or its equivalent (this is the cause or
consideration). (The price need not be in money.)
Natural elements :
(those which are inherent in the con- tract, and which in the absence of
any contrary provision, are deemed to exist in the contract).

1. warranty against eviction (deprivation of the


property bought)

2. warranty against hidden defects


Accidental elements :

• those which may be present or absent in the stipulation, such as :

the place or time of payment, or


the presence of conditions.
Stages in the Contract of Sale

• (a) generation or negotiation

• (b) perfection –– meeting of the minds

• (c) consummation –– when the object is delivered


and the price is paid
‘Contract of Sale’ Distinguished from ‘Contract to
Sell’
In a Contract of Sale, the non-payment of price is a resolutory
condition, i.e., the contract of sale may by such occurrence
put an end to a transaction that once upon a time existed;

In a Contract to Sell, the payment in full of the price is a


positive suspensive condition. Hence, if the price is not paid,
it is as if the obligation of the seller to deliver and to transfer
ownership never became effective and binding.
• In the first, title over the property generally passes to
the buyer upon delivery; in the second, ownership is
retained by the seller, regardless of delivery and is not
to pass until full payment of the price.

• In the first, after delivery has been made, the seller has
lost ownership and cannot recover it unless the
contract is resolved or rescinded; in the second, since
the seller retains ownership, despite delivery, he is
enforcing and not rescinding the contract if he seeks to
oust the buyer for failure to pay.
Requisites of a Valid Subject Matter
• It must be existing, having potential existence, a
future thing, or contingent or subject to resolutory
condition;

• It must be licit;

• It must be determinate or at least determinable


• Art. 1459. The thing must be licit and the vendor must
have a right to transfer the ownership thereof at the
time it is delivered.

• It is essential for a seller to transfer ownership (Art.


1458) and, therefore, the seller must be the owner of
the subject sold. This stems from the principle that
nobody can dispose of that which does not belong to
him –– nemo dat quad non habet.
• But although the seller must be the owner, he need not
be the owner at the time of the perfection of the
contract.

• It is sufficient that he is the owner at the time the object


is delivered; otherwise, he may be held liable for breach
of warranty against eviction.
• Be it noted that the contract of sale by itself, is not a
mode of acquiring ownership. (See Art. 712, Civil Code).
The contract transfers no real rights; it merely causes
certain obligations to arise.

• Hence, it would seem that A can sell to B property


belonging to C at the time of the meeting of the minds.
Of course, if at the time A is supposed to deliver, he
cannot do so, he has to answer for damages. Having
assumed the risk of acquiring ownership from C, it is
clear he must be liable in case of failure.
• Indeed, the seller need not be the owner at the time of
perfection because, after all, “future things or goods,’’
inter alia, may be sold.

• While there can be a sale of future property, there can


generally be no donation of future property.
• Art. 1460. A thing is determinate when it is particularly
designated or physically segregated from all others of
the same class.

• The requisite that a thing be determinate is satisfied if


at the time the contract is entered into, the thing is
capable of being made determinate without the
necessity of a new or further agreement between the
parties.
Meaning of Determinate
• The object of the sale must be determinate, i.e.,
specific, but it is not essential really that at the time of
perfection, the object be already specific. It is
sufficient that it be capable of being determinate
without need of any new agreement.

• Thus, there can be a sale of 20 kilos of sugar of a


named quality.
• Seller sold 600 piculs of sugar to buyer. Because seller
was not able to produce 600 piculs on his sugar
plantation he was not able to deliver. Is he liable?

• HELD: Yes, because no specific lot of sugar can be


pointed out as having been lost. Sugar here was still
generic.
• Art. 1461. Things having a potential existence may be
the object of the contract of sale.

• The efficacy of the sale of a mere hope or expectancy is


deemed subject to the condition that the thing will
come into existence.

• The sale of a vain hope or expectancy is void


Things With a Potential Existence
• Example: “all my rice harvest next year.”
• young animals not yet in existence or still ungrown
fruits
• the wine that a particular vineyard is expected to pro-
duce
• the wool that shall, thereafter, grow upon a sheep
the expected goodwill of a business enterprise.
• [NOTE: Future inheritance cannot be sold, however.
Emptio Rei Speratae
• The sale of a thing with potential existence, subject to
a suspensive condition that the thing will come into
existence.

• If the subject matter does not come into existence,


the contract is deemed extinguished as soon as the
time expires or if has become indubitable that the
event will not take place.
Emptio Spei
• Sale of mere hope or expectancy

• Example: Sale of a Sweeptakes Ticket for P100 that


would win P1 Million
Vain Hope or Expectancy

If the hope or expectancy itself is vain, the sale is itself


void. Be it noted that this is NOT an aleatory contract for
while in an aleatory contract there is an element of
chance, here, there is completely NO CHANCE.

Example: Sale of an expired sweepstakes ticket


• Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of
the contract of sale, in this Title called “future goods.”

• There may be a contract of sale of goods, whose


acquisition by the seller depends upon a contingency
which may or may not happen.
• Future goods are those still to be:

• (a) manufactured (like a future airplane) or printed (like


a subscription to a newspaper)

• (b) raised (like the young of animals, whether already


conceived or not at the time of perfection of the
contract) or future agricultural products like copra still
to be manufactured
• Art. 1463. The sole owner of a thing may sell an
undivided interest therein.

• If I own a house, I may sell an aliquot part thereof (say


1/2 or 1/3) to somebody, in which case he and I will
become co-owners.

• A full owner may sell the usufruct of his land leaving


the naked ownership to himself.
Art. 1465. Things subject to a resolutory condition
may be the object of the contract of sale
• (a) A property subject to reserva troncal may be sold.

• (b) A usufruct that may end when the naked owner


becomes a lawyer may be sold.
• A sold B the former’s land a retro. After delivery to B, B
becomes an absolute owner subject to the right of
redemption. This land may be sold by B to C, a stranger,
subject to the right of redemption; i.e., C must respect
the right of A to redeem the property within the
stipulated period if:

• 1) A’s right is registered;


• 2) Or even if not, if C had actual knowledge of the right
of redemption. (It has been held that actual knowledge
is equivalent to registration.)
Sale vs. Piece of Work

• Art. 1467. A contract for the delivery at a certain price of an article


which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether the same
is on hand at the time or not, is a contract of sale, but if the goods
are to be manufactured specially for the customer and upon his
special order, and not for the general market, it is a contract for a
piece of work.
• (a) If ordered in the ordinary course of business —
SALE

• (b) If manufactured specially and not for the market


piece of work contract
• If I need a particular size (Size 9 1/2) of Bally Shoes, and
the same is not available (for the present), but I place
an order for one, the transaction would be one of sale.
If upon the other hand, I place an order for Size 13,
colored violet (something not ordinarily made by the
company), the resultant transaction is a contract for a
piece of work.
Sale vs. Barter
• Art. 1468. If the consideration of the contract consists
partly in money, and partly in another thing, the
transaction shall be characterized by the manifest
intention of the parties. If such intention does not
clearly appear, it shall be considered a barter if the
value of the thing given as a part of the consideration
exceeds the amount of the money or its equivalent;
otherwise, it is a sale.
• a) First Rule — Intent.

• (b) If intent does not clearly appear —


• 1) if thing is more valuable than money — BARTER
• 2) if 50-50 — SALE
• 3) if thing is less valuable than the money — SALE
• If I give my car worth P900,000 to Jose in con- sideration
of Jose’s giving to me P300,000 cash, and a diamond ring
worth P600,000, is the transaction a sale or a barter?

• ANS.: It depends on our mutual intent. If the intent is not


clear, the transaction is a BARTER because the ring is more
valuable than the P300,000.
Price Certain
• Art. 1469. In order that the price may be considered
certain, it shall be sufficient that it be so with reference
to another thing certain, or that the determination
thereof be left to the judgment of a specified person or
persons.
• Should such person or persons be unable or unwilling
to fix it, the contract shall be inefficacious, unless the
parties subsequently agree upon the price.
• If the third person or persons acted in bad faith or by
mistake, the courts may fix the price.

• Where such third person or persons are prevented


from fixing the price or terms by fault of the seller or
the buyer, the party not in fault may have such
remedies against the party in fault as are allowed the
seller or the buyer, as the case may be.
• FACTS: Furniture and tobacco were sold, the furniture
at 90% of the price shown in a subsequent inventory,
and the tobacco at the invoice price. Is the price here
already considered certain?

• HELD: Yes, in view of the reference to certain amounts.


• Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in
the consent, or that the parties really intended a
donation or some other act or contract.

• Absolutely Simulated – VOID


• Relatively Simulated- Voidable
• Example: If an Igorot sells a mining claim for a
ridiculously low sum, admits the fact of sale, does
nothing about it for a number of years, he should not be
allowed now to claim that the contract was invalid. The
fact that the bargain was a hard one is not important,
the sale having been made freely and voluntarily. The
rule holds true even if the price seems too inadequate
as to shock the conscience of man.
• Art. 1471. If the price is simulated, the sale is void, but
the act may be shown to have been in reality a
donation, or some other act or contract.

• FACTS: Petitioner admittedly did not pay any centavo


for the property. Issue: Did this make the sale void?

• HELD: Yes. If the price is simulated, the sale is void, but


the act may be shown to have been in reality a
donation, or some other act or contract.
• Art. 1472. The price of securities, grain, liquids, and
other things shall also be considered certain, when the
price fixed is that which the thing sold would have on a
definite day, or in a particular exchange or market, or
when an amount is fixed above or below the price on
such day, or in such exchange or market, provided said
amount be certain.

• Example: I can sell to you today my Mont Blanc


fountain pen at the price equivalent to the stock
quotation two days from today of 100 shares of PLDT.
• Art. 1473. The fixing of the price can never be left to
the discretion of one of the contracting parties.
However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected.

• S sold to B his piano. It was agreed that B would fix the


price a week later. At the appointed time B named the
price — P900,000. S agreed. Is the sale perfected?

• ANS.: Yes, for here there is a true meeting of the


minds.
• 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.
Requirements for Perfection
• (a) When parties are face to face, when an offer is accepted
without conditions and without qualifications. (A conditional
acceptance is a counter-offer.)
• (NOTE: If negotiated thru a phone, it is as if the parties are face to face.)

• When contract is thru correspondence or thru telegram,


there is perfection when the offeror receives or has
knowledge of the acceptance by the offeree.

• [NOTE: If the buyer has already accepted, but the seller does not know yet of
the acceptance, the seller may still withdraw
• FACTS: On Sept. 13, 1951, Atkins, Kroll and Co. offered to the
respondent 1,000 cartons of sardines, subject to reply by Sept.
23, 1951. The respondent accepted the offer unconditionally,
and delivered his letter of acceptance on Sept. 21, 1951.

• However, in view of a shortage in the catch of sardines by the


packers in California, petitioner failed to deliver the
commodities it had offered for sale. Respondent now sues for
damages. Among the defenses alleged was that there was a
mere offer to sell, and that therefore the contract of sale had
not yet been perfected.
• HELD: The sale was perfected in view of the
acceptance of the offer. The acceptance of an offer to
sell by promising to pay creates a bilateral binding
contract, so much so that if the buyer had backed out
after accepting by either refusing to get the thing sold
or refusing to pay the price, he could be sued.
Formalities for Perfection
• Under the Statute of Frauds, the sale of:
• (a) real property (regardless of the amount)
• (b) personal property — if P500 or more must be in
writing to be enforceable. (Art. 1403, No. 2, Civil
Code).
• A sold to B orally a particular parcel of land for P5 mil-
lion. Delivery and payment were to be made four
months later. When the date arrived, A refused to
deliver. So B sued to enforce the contract. If you were
A’s attorney, what would you do?

• ANS.: I would file a motion to dismiss on the ground


that there is no cause of action in view of the
violation of the Statute of Frauds.
• A sold to B orally a particular parcel of land for P5,000.
Delivery was made of the land. The payment of the price
was to be made three months later. At the end of the
period, B refused to pay, and claimed in his defense the
Statute of Frauds. Is B correct?

• ANS.: B is wrong because the contract in this case has


already been executed. It is well-known that the Statute of
Frauds refers only to executory contracts.

• This is why Art. 1405 of the Civil Code provides that contracts infringing the
Statute of Frauds are ratified, among other ways, by the acceptance of the
benefits under them.
• A sold to B in a private instrument a parcel of land for P5,000.
B now wants A to place the contract in a public instrument so
that B could have the same registered in the Registry of
Property. Is B given the right to demand the execution of the
public instrument?

• ANS.: Yes. Under Art. 1357: “If the law requires a document
or other special form, as in the acts and con- tracts
enumerated in Art. 1358, the contracting parties may compel
each other to observe that form, once the contract has been
perfected. This right may be exercised simultaneously with
the action upon the contract.”
• Art. 1357 can be availed of provided:
• a) the contract is VALID (Solis v. Barraso, 53 Phil. 912);
and
• b) the contract is ENFORCEABLE, that is, it does not
violate the Statute of Frauds.
• Therefore, in the problem given, it is clear that B may
compel A to execute the needed public instrument.
• A sold to B a particular gold pen worth exactly P5,000.
To be enforceable, does the sale have to be in writing?

• ANS.: Yes, because under the law, if the price is P500 or


more, the Statute of Frauds applies (Art. 1403, No. 2,
Civil Code).
• A sold to B a particular pen worth only P250. The sale was oral.
It was agreed that delivery and payment were to be made after
2 years. At the stipulated period, A refused to deliver, alleging
the Statute of Frauds as a defense. Is A correct?

• ANS.: Yes, although the amount is only P250 and therefore less
than the minimum of P500, still the contract must be in writing
in view of the fact that under the first agreement referred to
under the Statute of Frauds, “an agreement that by its terms is
not to be performed within a year from the making thereof”
the same must be in writing to be enforceable.
• A bought two pens from B each worth P300. To be
enforceable does the contract have to be in writing?

• ANS.: It depends:
• 1) If the sale is indivisible (as when A would not have
bought one pen without the other), the sale must be in
writing for the total sum is P600.
• 2) If the sale is divisible, the important amount is P300
and, therefore, need not be in writing in order to be
enforceable
The Sales Tax

• Even if the object sold has not yet been delivered, once
there has been a meeting of the minds, the sale is
perfected and, therefore, the sales tax is already due. It
accrues on perfection, not on the consummation of the
sale.
Effect of Perfection
• After perfection the parties must now comply with
their mutual obligations. Thus, for example, the buyer
can now compel the seller to deliver to him the object
purchased. In the meantime, the buyer has only the
personal, not a real right. Hence, if the seller sells
again a parcel of land to a stranger who is in good
faith, the proper remedy of the buyer would be to sue
for damages.
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or
constructive delivery thereof.

Art. 1478. The parties may stipulate that ownership in


the thing shall not pass to the purchaser until he has
fully paid the price.
• 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 promisor if the promise is supported by a
consideration distinct from the price.
What is an Option?
• ANS.: It is a contract granting a person the privilege to
buy or not to buy certain objects at any time within
the agreed period at a fixed price. The contract of
option is a separate and distinct contract from the
contract which the parties may enter into upon the
consummation of the contract; therefore, an option
must have its own cause or consideration.
Illustration:
• B, interested in a particular car at a car exchange,
asked A for the price. A said “P500,000.” B, however,
could not make up his mind whether to buy or not. So
A told him, “B, I’ll give you a week to make up your
mind.” B accepted, and gave A P10,000 for the option
— the opportunity to make up his mind.
• The contract of option here is valid, because it was
supported by a consideration distinct from the selling
price. If A reneges on his word and disposes of the
property in favor of another before the end of the
week, B can sue him for damages. Upon the other
hand, B is not obliged to buy the car at the end of the
week. He may or he may not. After all, he did not
promise to buy. He merely accepted a unilateral
promise of A to sell.
• A offered to sell for P10 million his house and lot to B
who was interested in buying the same. In his let- ter to
B, A stated that he was giving B a period of one month
within which to raise the amount and that as soon as B
is ready, they will sign the deed of sale. One week
before the expiration of the one-month period, A went
to B and told him that he is no longer willing to sell the
property unless the price is increased to P15 million.
May B compel A to accept the P10 million first offered,
and execute the sale?
• ANS.: No, for B never signified his acceptance of A’s
offer, and assuming that he did accept, still this would
be merely an accepted unilateral promise to sell — not
binding on the offeror for there was no consideration
distinct from the price.
Who Bears the Risk of Loss?
• If the object has been lost before perfection, the seller bears
the loss. Reason: There was no contract, for there was no
cause or consideration. Being the owner, the seller bears the
loss. This means that he cannot demand payment of the price

• If the object was lost after delivery to the buyer, clearly the
buyer bears the loss. (Res perit domino — the owner bears
the loss.)

• If the object is lost after perfection but before delivery. Here


the buyer bears the loss, as exception to the rule of res perit
domino.
• Had the sale been perfected, the buyer would have borne the
loss, that is, he would still have had to pay for the object even
if no delivery had been made.

• Art. 1480 (pars. 1 and 2) clearly, states that injuries between


perfection and delivery shall be governed by Art. 1262, among
others. And Art. 1262 in turn says that “an obligation which
consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault
of the debtor, and before he has incurred in delay.”
• (This means that the obligation of the seller to deliver
is extinguished, but the obligation to pay is not
extinguished.)

• But is not the contract of sale reciprocal, and therefore


if one does not comply, the other need not pay?
• ANS.: True, but this happens only when the seller is
able to deliver but does not. In such a case, the buyer
is not required to pay, for lack of reciprocity. It is
different if the law excuses the seller, but not the
buyer. (Thus, in class, if a student does not take an
examination, the teacher is not compelled to give him
a grade; but if the student is exempted from the
examination by, let us say, the authorities, the
professor is not exempted from the duty of giving the
grade.)
• Why should a buyer pay if he does not receive the
object; is this not a case where there is no cause or
consideration?

• ANS.: There was really a cause or consideration


because at the time the contract was perfected, the
thing purchased still existed.
Art. 1583 says: “In case of loss, deterioration, or
improvement of the thing before its delivery, the rule in
Art. 1189 shall be observed, the vendor being
considered the debtor.”

Art. 1189, in turn, says in part:


“If the thing is lost without the fault of the debtor, the
obligation shall be extinguished.”
• Eugene sold today to Ricardo in Manila his (Eugene’s) car,
located in Zamboanga. Unknown to both parties, however, the
car had already been destroyed yesterday by a fortuitous event
in Zamboanga. Does Ricardo still have to pay for the car?
Reason.

• ANS.: No, Ricardo does not have to pay for the car. There is in
fact no valid contract of sale for at the moment of presumed
perfection (today), there was no more subject matter (the car
having been destroyed yesterday). Eugene, as owner, bears the
loss of the car.
• Art. 1482. Whenever earnest money is given in a con-
tract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract.

• ‘Earnest Money’ Defined


• Earnest money, called “arras,” is something of value to
show that the buyer was really in earnest, and given to
the seller to bind the bargain.
Significance of Earnest Money
• Under the Civil Code, earnest money is considered:
• (a) part of the purchase price (Hence, from the total
price must be deducted the arras; the balance is all that
has to be paid.)
• (b) as proof of the perfection of the contract.
B purchased S’s car for P900,000, payable after one month. To
show his earnestness, B, at the time of perfection, gave S the
sum of P50,000. At the end of one month, B has to pay only the
balance of P850,000.

(Note: The earnest money here of P50,000 must not be confused with the
money given as consideration for an option. Earnest money applies to a
perfected sale; the money is part of the purchase price; the buyer is
required to pay the balance. Upon the other hand, option money applies
to a sale not yet perfected; the money is not part of the purchase price;
the would-be buyer is not required to buy.)
If Sale Is Made Thru an Agent
• The sale of a piece of land or interest therein when
made thru an agent is void (not merely unenforceable)
unless the agent’s authority is in writing. (Art. 1874,
Civil Code). This is true even if the sale itself is in a
public instrument, or even registered.

• (NOTE: “Interest therein” refers to easement or


usufruct, for example.)
Effect if Notary Public is Not Authorized

• If the deed of sale of land is notarized by a notary


public whose authority had expired, the sale would
still be valid, since for validity of the sale, a public
instrument is not even essential.
Obligations of Vendor
• 1. Transfer Ownership- cannot be waived
• 2. Deliver the thing sold – cannot be waived
• 3. Deliver the fruits and accessories- cannot be waived
• 4. Make warranties- can be waived or modified
because warranty is not an essential element of the
contract of sale;
• 5. Take care of the thing, pending delivery, with proper
diligence
• 6. Pay for the expenses for the execution and
registration of the sale unless there is stipulation to
the contrary
• 7. Accord the buyer the right to examine the goods
• 8. Enter into a contract with the carrier on behalf of
the buyer as may be reasonable under the
circumstances; and
• 9. Notify the buyer regarding the necessity to inure
goods if it is usual to insure them
Principal Obligations of the vendee

• 1. To accept delivery; and

• 2. To pay the price of the thing sold in legal tender


unless another mode has been agreed upon
CAPACITY TO BUY OR SELL
• Art. 1489. All persons who are authorized in this Code to
obligate themselves, may enter into a contract of sale, saving
the modifications contained in the following articles.

• Where necessaries are sold and delivered to a minor or other


person without capacity to act, he must pay a reasonable
price therefor. Necessaries are those referred to in Article 290.
• Art. 1490. The husband and the wife cannot sell
property to each other, except:

• (1) When a separation of property was agreed upon in


the marriage settlements; or
• (2) When there has been a judicial separation of
property under Article 191.
• Art. 1491. The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through
the mediation of another:

• (1) The guardian, the property of the person or per- sons who
may be under his guardianship;
• (2) Agents, the property whose administration or sale may have
been entrusted to them, unless the consent of the principal has
been given;
• (3) Executors and administrators, the property of the estate
under administration;
• (4) Public officers and employees, the property of the
State or of any subdivision thereof, or of any
government- owned or controlled corporation or
institution, the administration of which has been
entrusted to them; this provision shall apply to judges
and government experts who, in any manner
whatsoever, take part in the sale;
• (5) Justices, judges, prosecuting attorneys, clerks of superior
and inferior courts, and other officers and employees
connected with the administration of justice, the property
and rights in litigation or levied upon an execution before the
court within whose jurisdiction or territory they exercise their
respective functions; this prohibition includes the act of
acquiring by assignment and shall apply to lawyers, with
respect to the property and rights which may be the object of
any litigation in which they may take part by virtue of their
profession;

• (6) Any others specially disqualified by law.


EFFECTS OF THE CONTRACT WHEN THE THING SOLD
HAS BEEN LOST
• Art. 1493. If at the time the contract of sale is perfected, the
thing which is the object of the contract has been entirely
lost, the contract shall be without any effect.

• But if the thing should have been lost in part only the vendee
may choose between withdrawing from the contract and
demanding the remaining part, paying its price in pro-
portion to the total sum agreed upon.
• I sold to Maria my house in Zamboanga which,
unknown to both of us, had been completely
destroyed last night.

• The sale is null and void.

• There is, thus, no need of annulling the contract


because there is nothing that has to be annulled.
• Art. 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.
• A sold his piano to B, who immediately paid the price. Because the
piano was at the repair shop at the time the contract was perfected, no
delivery was made. Before delivery could be made, C, a creditor of A,
who has filed a suit against him, attached the piano. Question: What
right has B over the piano? May B oppose the attachment levied by C?
Reasons.

• ANS.: The piano not having been delivered to him by A, B has only a
PERSONAL RIGHT to demand its delivery for it is generally only delivery
that transfers the real right of ownership. Not having any right of
ownership over the piano, B may not legally oppose the attachment
levied thereon by C.
DELIVERY OF THE THING SOLD
• Art. 1497. The thing sold shall be understood as delivered, when it is
placed in the control and possession of the vendee.

• Meaning of Tradition
• Tradition, or delivery, is a mode of acquiring ownership, as a
consequence of certain contracts such as sale, by virtue of which,
actually or constructively, the object is placed in the control and
possession of the vendee.
Kinds of Delivery or Tradition
• (a) Actual or real. (Art. 1497, Civil Code).
• (b) Legal or constructive
• 1) legal formalities. (Art. 1498, Civil Code).
• 2) symbolical tradition or traditio simbolica (such as
the delivery of the key of the place where the
movable sold is being kept). (Art. 1498, par. 2, Civil
Code).
3) traditio longa manu (by mere consent or agreement)
if the movable sold cannot yet be transferred to the
possession of the buyer at the time of the sale. (Art.
1499, Civil Code).

4) traditio brevi manu (if the buyer had already the


possession of the object even before the purchase, as
when the tenant of a car buys the car, that is, his
possession as an owner). (Art. 1499, Civil Code).
5) traditio constitutum possessorium (opposite of
traditio brevi manu) possession as owner
changed, for example, to possession as a lessee.

Example: I sold my car but continued to possess it


as a lessee of the purchaser. (Art. 1500, Civil
Code).
• c) Quasi-tradition — delivery of rights, credits, or
incorporeal property, made by:

• 1) placing titles of ownership in the hands of a lawyer;


• 2) or allowing the buyer to make use of the rights.
Place of Delivery (Art. 1521)
• Should the seller send the goods or should the buyer get
them?
• ANS.: This depends on the:
• 1) agreement (express or implied);
• 2) if no agreement — get the USAGE of trade;
• 3) if no usage — the buyer must get them at the seller’s
business place or residence.
• Exception — In the place where the specific goods are
found.
Rules when the Quantity Is LESS than that Agreed
Upon
• (a) Buyer may REJECT;
• (b) Or buyer may ACCEPT what have been delivered,
at the contract rate.
• Example: B buys from S 100 cans of tomato sauce. S
delivers only 80 cans. Can B reject the goods?

• ANS.: Yes. But if B accepts the goods knowing that S


cannot deliver the remaining 20, he must pay for the
80 cans at the contract rate, namely, the price fixed for
each multiplied by 80. He cannot return the 80
because he would be in estoppel.
Rules When the Quantity Is MORE than the
Agreement
• (a) Buyer may reject ALL. He must not be burdened
with the duty of segregation, if he does not so desire.
• (b) Buyer may accept the goods agreed upon and
reject the rest.
• (c) If he gets all, he must pay for them at the contract
rate.
• B bought from S 100 cans of tomato sauce, 120 of
which arrived.
• What is B’s right?

• ANS.: B may accept 100 and return the 20. If he


accepts all of the 120, he must pay for them at the
contract rate, namely, the price per can multiplied by
120.
Rule When Quality is Different
• Where the seller delivers to the buyer the goods agreed
upon MIXED with goods of a different description, the
buyer may:
• (a) accept the goods which are in accordance with the
contract, and
• (b) reject the rest.

• (NOTE: If the sale is indivisible, the buyer may reject the


whole of the goods.)
Kinds of Delivery to Carrier
• Delivery to carrier may be:

• (a) C.I.F. (cost, insurance, freight) — (Since the selling


price includes insurance and freight, it is understood
that said insurance and freight should now be paid by
the seller.)

• [NOTE: So all charges up to the place of destination


must be paid by the seller.
• [NOTE: If the goods will be transported from New York
“C.I.F. Manila,” this means that delivery should be made
at Manila. If the goods then are not delivered at Manila,
seller should be held liable.

• In a C.I.F. contract the place of delivery is presumptively


at the BUYER’S place
F.O.B. (free on board)

The sale may be:


1) f.o.b. at the place of shipment (here, the buyer must
pay the freight).

2) f.o.b. at the place of destination (here, the seller must


pay the freight, since the contract states “free on board
till destination).
• S in Manila agrees to ship goods to B at Boac, “F.O.B.
Boac.” Before the goods reach Boac, they are
destroyed by a fortuitous event. Who bears the loss?

• ANS.: S bears the loss, because ownership (title) does


not pass till the goods reach Boac. Hence, the seller
bears the loss. If the price has been given him, he must
return the same. If no payment has yet been made, he
cannot success- fully demand the price from the buyer.
When Seller is Deemed an “Unpaid Seller”
(a) If only part of the price has been paid or tendered, the
seller is still an “unpaid seller.” Notice that the law uses “the
whole of the price.” (Art. 1525, par. 1, Civil Code).

(b) Mere delivery of a negotiable instrument does not


extinguish the obligation of the buyer to pay because it may
be dishonored.

Therefore, the seller is still an unpaid seller, if say, a dishonor


indeed is made.
Rights of an Unpaid Seller
• (a) possessory lien (in the nature of a pledge);

• (b) right of stoppage in transitu (available if seller has


parted with the possession);

• (c) right of resale;

• (d) right to rescind the sale.


Possessory Lien
• The possessory lien is lost after the seller loses
possession but his lien (no longer possessory) as an
unpaid seller remains; hence, he is still a preferred
creditor with respect to the price of the specific goods
sold. His preference can only be defeated by the
government’s claim to the specific tax on the goods
themselves.

• (NOTE: This is the vendor’s lien on the PRICE.


When Possessory Lien is Lost
• The unpaid seller of goods, having a lien thereon,
does not lose his lien by reason only that he has
obtained judgment or decree for the price of the
goods.

• The lien lost is only the possessory lien and not the
vendor’s lien on the price.
• Art. 1530. Subject to the provisions of this Title, when
the buyer of goods is or becomes insolvent, the unpaid
seller who has parted with the possession of the goods
has the right of stopping them in transitu, that is to say,
he may resume possession of the goods at any time
while they are in transit, and he will then become
entitled to the same rights in regard to the goods as he
would have had if he had never parted with the
possession.
• This refers to the right of stoppage in transitu, available
to the unpaid seller —

• (a) if he has parted with the possession of the goods;


• (b) AND if the buyer is or becomes insolvent.

• The insolvency referred to need not be judicially


declared. It is enough that the obligations exceed a
man’s assets
• How the Right of Stoppage in Transitu May Be
Exercised
• (a) Obtaining actual possession.
• (b) Giving notice of the claim.

• (2) To whom Notice is Given


• Notice is given either:
• (a) to the person in actual possession of the goods;
• (b) or to his principal.
Effects of the Exercise of the Right
• After the exercise of the right of stoppage in transitu, the
consequential effects are:

• (a) the goods are no longer in transitu;

• (b) the contract of carriage ends; instead, the carrier


now becomes a mere bailee, and will be liable as such
Effects of the Exercise of the Right
• (c) the carrier should not deliver anymore to the buyer
or the latter’s agent; otherwise, he will clearly be liable
for damages

• (d) the carrier must redeliver to, or according to the


directions of, the seller.
Right of Resale
• This article deals when the right of RESALE exists:

• (a) perishable goods


• (b) express stipulation
• (c) unreasonable default
Effect if Buyer Has Already Sold the Goods
Generally, the unpaid seller’s right of LIEN or STOPPAGE
IN TRANSITU remains even if the buyer has sold or
otherwise disposed of the goods.
• (b) Exceptions:
• 1) When the seller has given his consent thereto.
• 2) When the purchaser or the buyer is a purchaser for
value in good faith of a negotiable document of title.
DOUBLE SALE

• Art. 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.
• Personal property –– possessor in good faith.

• Real property —
• 1) registrant in good faith;
• 2) possessor in good faith;
• 3) person with the oldest title in good faith.
Illustration of Rules as to Personal Property
• The Surplus Property Commission sold to a buyer “all
the movable goods” in a base area in Guiuan, Samar.
The buyer then immediately took possession of all the
movable properties located within the area.

• Subsequently, however, the Commission also sold to


another the same properties in the same area.
• The second buyer then filed suit to have himself
declared the owner of the properties entitled to the
possession of the same.

• The Supreme Court ruled in favor of the first buyer


because it was he who had first taken possession in
good faith of the properties.
Illustration of Rules as to Real Property
• A sold land to B. Subsequently, A sold the same land to
C who in good faith registered it in his name. Who
should be considered the owner?

• ANS.: C in view of the registration in good faith.


Illustration 2
• A sold his land to two different parties at different times,
selling it first to X under Original Torrens Certificate of
Title 100. X had this title cancelled and a transfer
Certificate of Title was issued in his name. Subsequently,
A sold the same land under a different Certificate of Title
to Y. Which of the two buyers is to be preferred?

• HELD: This is a case of double sale, and clearly, X the first


buyer who registered the land in his name, ought to be
preferred.
• A sold a parcel of land with a Torrens Title to B on Jan.
5. A week later, A sold the same land to C. Neither
sale was registered. As soon as B learned of the sale in
favor of C, he (B) registered an adverse claim stating
that he was making the claim because the second sale
was in fraud of his rights as first buyer. Later, C
registered the deed of sale that had been made in his
favor.

• Who is now the owner –– B or C?


• C is clearly the owner, although he was the second buyer.
This is so, not because of the registration of the sale
itself but because of the AUTOMATIC registration in his
favor caused by B’s knowledge of the first sale (actual
knowledge being equivalent to registration). The
purpose of registration is to notify.

• This notification was done because of B’s knowledge.


• It is wrong to assert that B was only trying to protect his
right for there was no more right to be protected. He
should have registered the sale BEFORE knowledge came
to him. It is now too late.

• It is clear from this that with respect to the principle


“actual knowledge is equivalent to registration of the
sale about which knowledge has been obtained” –– the
knowledge may be that of either the FIRST or the
SECOND buyer.
CONDITIONS AND WARRANTIES
• Presence of Conditions and Warranties

(a) Conditions may be waived.
(b) Conditions may be considered as warranties.
• When is There a Warranty?

• A good test:
• (a) If buyer is ignorant, there is a warranty.
• (b) If the buyer is expected to have an opinion AND
the seller has no special opinion, there is no warranty.
• Express warranty” defined —

It is any affirmation of fact, or any promise by the


seller relating to the thing if the natural tendency
of such affirmation or promise is to induce the
buyer to purchase the same, and if the buyer
purchases the thing relying thereon. (Art. 1546,
1st sentence).
• It includes all warranties derived from the
language of the contract, so long as the language
is express.

• Thus, the warranty may take the form of an


affirmation, a promise or a representation.
• If a purchaser has ample opportunity to investigate
the land before purchase, and the seller did not
prevent such an investigation, and the purchaser
really investigates, then the purchaser is not allowed
afterwards to say that the vendor made false
representations to him.
Effect of Dealer’s Talk
• Dealer’s talk like “excellent,” cannot be considered as
an express warranty. A little exaggeration is apparently
allowed by the law as a concession to human nature.

• This is in accordance with the civil law maxim “simplex


commendatio non-obligat” or

the principle “caveat emptor” (let the buyer beware).


• Art. 1547. In a contract of sale, unless a contrary
intention appears, there is:

• (1) An implied warranty on the part of the seller that


he has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from
that time have and enjoy the legal and peaceful
possession of the thing;

• (2) An implied warranty that the thing shall be free


from any hidden faults or defects, or any charge or
encumbrance not declared or known to the buyer.
This article shall not, however, be held to render liable
a sheriff, auctioneer, mortgagee, pledgee or other
person professing to sell by virtue of authority in fact
or law, for the sale of a thing in which a third person
has a legal or equitable interest.
WARRANTY IN CASE OF EVICTION
• Art. 1548. Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the
whole or of a part of the thing purchased.

• The vendor shall answer for the eviction even though


nothing has been said in the contract on the subject.

• The contracting parties, however, may increase,


diminish, or suppress this legal obligation of the vendor.
Responsibility of Seller
• The seller is responsible for:
• (a) his own acts;
• (b) those of his predecessors-in-interest.

He is not responsible for dispossession due to:


• (a) acts imputable to the buyer himself;
• (b) fortuitous events.
Essential Elements for Eviction
(a) There is a final judgment;
(b) The purchaser has been deprived in whole or in part
of the thing sold;
(c) The deprivation was by virtue of a right prior to the
sale (or one imputable to the seller) effected by the
seller;
(d) The vendor has been previously notified of the
complaint for eviction at the instance of the purchaser
WARRANTY AGAINST HIDDEN DEFECTS OF OR
ENCUMBRANCES UPON THE THING SOLD

• Requisites to Recover Because of Hidden Defects

• The defect must be hidden (not known and could not


have been known);

• The defect must exist at the time the sale was made;
• The defect must ordinarily have been excluded from
the contract;

• The defect must be important (renders thing UNFIT or


considerably decreases FITNESS);

• The action must be instituted within the statute of


limitations.
Meaning of Merchantable Quality
• Fit for the general purpose of a thing, and not
necessarily the particular purpose for which it has
been acquired.

• (a) A retailer is responsible in his sale of milk bottled


by another.

• (b) In general, it can be said that there is no implied


warranty in the sale of second-hand automobile.
Meaning of Merchantable Quality
• (c) There is no warranty against contingencies of
nature.

• (d) If a foreign substance is found in a can of beans,


there is a breach of the warranty.
OBLIGATIONS OF THE VENDEE
• Art. 1582. The vendee is bound to accept delivery and to pay the
price of the thing sold at the time and place stipulated in the
contract.
• If the time and place should not have been stipulated, the payments
must be made at the time and place of the delivery of the thing
sold.
Principal Obligations of the Buyers
• The buyers must:
• (a) accept delivery;
• (b) pay the price.
• On Jan. 5, A sold and delivered his truck, together
with the corresponding certificate of public
convenience to B for the sum of P600,000, payable
within 60 days. Two weeks after the sale, and while
the certificate of public convenience was still in the
name of A, it (the certificate) was revoked by the
Public Service Commission thru no fault of A.
• Upon the expiration of the 60-day period, A
demanded payment of the price from B. B refused to
pay, alleging that the contract of sale was VOID for the
reason that the certificate of public convenience
which was the main consideration of the sale no
longer existed. Is the contention of B tenable?
Reasons.
• Firstly, it cannot be correctly contended that the sale is
void, since the consideration actually existed at the
time of the perfection of the sale. The subsequent
revocation of the certificate thru no fault of A is
immaterial.

• Secondly, what B should have done immediately after


the sale was to take steps to have the Public Service
Commission transfer the certificate to his name.
• Thirdly, while the Public Service Law requires that the
sale or assignment of a certificate of public
convenience, together with the property used in the
operation of the same, should be approved by the
Public Service Commission –– for the protection of the
public, still as between A and B, the contract is
efficacious as all the essential requisites of the contract
were present at the time of the perfection thereof.
EXTINGUISHMENT OF SALE
• Art. 1600. Sales are extinguished by the same causes
as all other obligations, by those stated in the
preceding articles of this Title, and by conventional or
legal redemption.
CONVENTIONAL REDEMPTION

• Art. 1601. Conventional redemption shall take place


when the vendor reserves right to repurchase the
thing sold, with the obligation to comply with the
provisions of Article 1616 and other stipulations which
may have been agreed.
When Conventional Redemption Takes Place
• (a) Conventional redemption is also called the right to
redeem.

• It occurs in sales with a pacto de retro, and takes place as


stated in the Article.

• (b) There cannot be conventional redemption unless it


has been stipulated upon in the contract of sale. (2226).
• Consider, therefore, this right merely as an accidental
element in the contract of sale. It cannot be considered
either as a natural or as an essential element in the
contract of sale.

• (c) If the terms of the pacto de retro sale are clear and
the contract is not assailed as false nor its authenticity
challenged, the literal sense of its terms shall be given
effect
EQUITABLE MORTGAGE
• Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:

• (1) When the price of a sale with right to repurchase is


usually inadequate;

• (2) When the vendor remains in possession as lessee or


otherwise;
• (3) When upon or after the expiration of the right to
repurchase another instrument extending the period
of redemption or granting a new period is executed;

• (4) When the purchaser retains for himself a part of


the purchase price;
• (5) When the vendor binds himself to pay the taxes on
the thing sold;

• (6) In any other case where it may be fairly inferred


that the real intention of the parties is that the
transaction shall secure the payment of a debt or the
performance of any other obligation.
• In any of the foregoing cases, any money, fruits or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall
be subject to the usury laws.
Definition of Equitable Mortgage
• One which although lacking in some formality, form or
words, or other requisites demanded by a statute
nevertheless reveals the intention of the parties to
charge a real property as security for a debt, and
contains nothing impossible or contrary to law
• Art. 1603. In case of doubt, a contract purporting to
be a sale with right to repurchase shall be construed
as an equitable mortgage.

• Art. 1604. The provisions of Article 1602 shall also


apply to a contract purporting to be an absolute sale.

• Art. 1605. In the cases referred to in Articles 1602 and


1604, the apparent vendor may ask for the
reformation of the instrument.
• Art. 1606. The right referred to in Article 1601, in the
absence of an express agreement, shall last four years
from the date of the contract.
• Should there be an agreement, the period cannot
exceed ten years.
• However, the vendor may still exercise the right to
repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis
that the contract was a true sale with right to
repurchase.
• Time Within Which to Redeem (a) Meaning of
express agreement: This refers to the time. It cannot
refer to the right to redeem because this right must be
agreed upon. (Art. 1601).

(b) Rules:
• 1) No time agreed upon — 4 years from date of con-
tract.
• 2) Time agreed upon — period cannot exceed 10 years.
Can the period of redemption be extended after
the original period has expired?
•ANS.: In one case it was held that this is all
right as long as the total period should not
exceed 10 years from the time of the
making of the contract, because there is
nothing in the law to prohibit this.
LEGAL REDEMPTION
Art. 1619. Legal redemption is the right to be
subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in
payment, or by any other transaction whereby
ownership is transmitted by onerous title.
Examples
• Art. 1088: Should any of the heirs sell his hereditary
rights to a stranger before the partition, any or all of
the co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the sale,
provided they do so within the period of one month
from the time they were notified in writing of the sale
of the vendor.
• Art. 1620: A co-owner of a thing may exercise the right
of redemption in case the shares of all the other co-
owners or of any of them, are sold to a third person. If
the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.

• Should two or more co-owners desire to exercise the


right of redemption, they may only do so in proportion
to the share they may respectively have in the thing
owned in common.
• Art. 1621: The owners of adjoining lands shall also have
the right of redemption when a piece of rural land, the
area of which does not exceed one hectare, is
alienated, unless the grantee does not own any rural
land.
• Art. 1622: Whenever a piece of urban land which is so
small and so situated that a major portion thereof
cannot be used for any practical purpose within a
reasonable time, having been bought merely for
speculation, is about to be resold, the owner of any
adjoining land has a right of pre-emption at a
reasonable price
• Art. 1634: When a credit or other incorporeal right in
litigation is sold, the debtor shall have a right to
extinguish it by reimbursing the assignee for the price
the latter paid therefor, the judicial costs incurred by
him, and the interest on the price from the day on
which the same was paid.
Is Consignation Necessary?
• If a seller a retro wants to repurchase the property, he
should tender the proper amount. Now then, aside from
tender, is consignation essential?

• In the case of Villegas v. Capistrano, 9 Phil. 416, the Supreme


Court held that the right to repurchase is NOT A DEBT
(because the seller a retro may or may not, at his own
option, repurchase). Therefore, no consignation is necessary.
It must be borne in mind that Art. 1526 referring to
consignation applies only to DEBTS.
RECTO LAW
• Art. 1484. In a contract of sale of personal property
the price of which is payable in installments, the
vendor may exercise any of the following remedies:

• (1) Exact fulfillment of the obligation, should the


vendee fail to pay;

• (2) Cancel the sale, should the vendee’s failure to pay


cover two or more installments;
• (3) Foreclose the chattel mortgage on the thing sold,
if one has been constituted, should the vendee’s
failure to pay cover two or more installments. In this
case, he shall have no further action against the
purchaser to recover any unpaid balance of the price.
Any agreement to the contrary shall be void.
Requisites Before Art. 1484 May Be Applied
• (a) there must be a contract
• (b) the contract must be one of sale (absolute sale,
not a pacto de retro transaction, where redemption is
effected in installments)
• (c) what is sold is personal property
• (d) the sale must be on the installment plan (an
installment — is any part or portion of the buying
price, including the down payment)
• NOTE — If the sale is for cash or on straight terms
(here after an initial payment, the balance is paid in its
totality at the time specified, say, two months or three
months later — this is also considered a cash sale),
Art. 1484 does not apply.
Purpose of the Rules
• To prevent abuse in the foreclosure of chattel
mortgages by selling at a low price and then suing for
the deficiency, is the precise purpose of the article.

• Otherwise, the buyer would find himself without the


property, and still indebted
Alternative Remedies
• The remedies enumerated are not cumulative. They
are alternative, and if one is exercised, the others
cannot be made use of. Indeed, the election of one is
a waiver of the right to resort to others

• But for this doctrine to apply, the remedy must


already have been fully exercised. If after retaking
possession of the chattel, the seller desists from
foreclosure, he can still avail himself of another
remedy.
• B bought a particular automobile on the installment
plan. B defaulted in the payment of one of the
installments. Has the seller, S, the right to exact
fulfillment of the obligation to pay?
• ANS.: Yes. Remedy 1 does not require default in two or
more installments, unlike in remedies Nos. 2 and 3.
[Art. 1484(1)]. How much can be successfully
demanded? Generally, only the installments defaulted
can be recovered, unless there is an acceleration
clause or if the debtor loses the benefit of the term.
(See Art. 1198, Civil Code). should there be a
DEFICIENCY in the amount collected at the levy on
execution, said deficiency can still be collected. Here,
there is no foreclosure of any chattel mortgage.
• B bought a car on the installment plan, and as security,
executed a chattel mortgage on it. B failed to pay two
installments. The seller foreclosed the mortgage, but
the sum he obtained was less than what B still owed
him. It had been previously agreed in the deed of sale
that B would be liable for any deficiency in this matter.
May the seller still sue for the deficiency?
• ANS.: No, for the law says that after foreclosure, the
seller-mortgagee shall have no further action against
the purchaser to recover any unpaid balance of the
price. The contrary stipulation in their contract is VOID
Recto Law Not Applicable
• Art. 1484 does not apply to a real estate mortgage. The
reason is that the real estate mortgage may be
foreclosed only in conformity with special provisions.
Moreover, while in Art. 1484 the creditor is given the
option to seize the object of the transaction, this is not
so in the case of a real estate mortgage.
• Art. 1484 does not apply to the sale of personal
property on straight terms, a sale on straight terms
being one in which the balance, after the payment of
the initial sum should be paid in its totality at the time
specified. Therefore in a sale on straight terms, the
mortgagee-seller will still be entitled to recover the
unpaid balance.
• Does not Apply to Conditional Sale
• Art. 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.

• Art. 1486. In the cases referred to in the two


preceding articles, a stipulation that the installments
or rents paid shall not be returned to the vendee or
lessee shall be valid insofar as the same may not be
unconscionable under the circumstances.
REPUBLIC ACT 6552 (The Maceda Law)
• Section 1. This Act shall be known as the “Realty
Installment Buyer Protection Act.”

• Sec. 2. It is hereby declared a public policy to protect


buyers of real estate on installment payments against
onerous and oppressive conditions.
• Sec. 3. In all transactions or contracts involving the sale
or financing of real estate on installment payments,
including residential condominium apartments but
excluding industrial lots, commercial buildings and
sales to tenants, where the buyer has paid at least two
years of installments, the buyer is entitled to the
following rights in case he defaults in the payment of
succeeding installments:
• (a) To pay, without additional interest, the unpaid
installments due within the total grace period earned
by him, which is hereby fixed at the rate of one-month
grace period for every one year of installment
payments made:

• Provided, That this right shall be exercised by the


buyer only once in every five years of the life of the
contract and its extensions, if any.
• (b) If the contract is cancelled, the seller shall refund to
the buyer the cash surrender value of the payments on
the property equivalent to fifty percent of the total
payments made and, after five years of installments, an
additional five percent every year but not to exceed
ninety per cent of the total payments made:
• Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the
buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer.

• Down payments, deposits or options on the contract


shall be included in the computation of the total
number of installments made.
• Sec. 4. In case where less than two years of installments
were paid, the seller shall give the buyer a grace period
of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments
due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the
buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
• Sec. 5. Under Sections 3 and 4, the buyer shall have the
right to sell his rights or assign the same to another
person or to reinstate the contract by updating the
account during the grace period and before actual
cancellation of the contract. The deed of sale or
assignment shall be done by notarial act.
• Sec. 6. The buyer shall have the right to pay in advance
any installment or the full unpaid balance of the
purchase price any time without interest and to have
such full payment of the purchase price annotated in
the certificate of title covering the property.

• Sec. 7. Any stipulation in any contract hereafter entered


into contrary to the provisions of Sections 3, 4, 5 and 6,
shall be null and void.
2-Step Process covering cancellation
1. The Seller should extend the buyer a grace period of
at least 60 days from the dur date of the installment.

2. At the end of the grace period, the seller shall furnish


the buyer with a notice of cancellation or demand for
rescission through notarial act, effective 30 days from
the buyer’s receipt thereof.
Antipolo Realty Corp. v. NHA
GR 50444, Aug. 31, 1987
• FACTS: For failure of the Realty Company to develop
the subdivision project, the buyer paid only the
averages pertaining to the period up to and including
the month of Aug., 1972 and stopped all monthly
payments falling due thereafter. In Oct. 1976, the
Realty Company advised the buyer that the
improvements had already been completed and
requested resumption of payments.
• In another letter, the Realty Company demanded
immediate payment of the P16,000 representing
installments which it said accrued during the period
while the improvements were being completed.

• The buyer refused to pay the 1972-1976 installments,


but agreed to pay the post 1976 installments.
• ISSUE: What happens to the installment payments
which would have accrued and fallen due during the
period of suspension had no default on the part of
the realty company intervened?
• HELD: The original period of payment in the Contract
to Sell must be deemed extended by a period of time
equal to the period of suspension (i.e., by 4 yrs., two
[2] months) during which extended time (tacked on to
the original contract period) the buyer must continue
to pay the monthly installment payments until the
entire original contract price shall have been paid.